GDF Suez, EDF Shares Drop as France Freezes Natural Gas Prices, Caps Power

GDF Suez (GSZ) SA and Electricite de France SA fell after French Prime Minister Francois Fillon said natural gas prices won’t be lifted July 1 and the government will seek to limit an increase in regulated power prices.

GDF Suez SA, the former gas monopoly, lost as much as 3.4 percent and was at 27.36 euros as of 12:12 p.m. in Paris. EDF dropped as much as 3.8 percent and last traded at 28.575 euros.

“It’s pretty awful for GDF Suez,” Per Lekander, an analyst at UBS AG, said by telephone, adding that the utility was supposed to raise regulated rates in July.

Fillon also announced in a statement today the rise in regulated power prices for households will be capped at 2.9 percent through June 30, 2012 and oil companies will make a “special contribution” toward tax breaks for drivers. The size of the oil payment wasn’t specified.

The French government, facing an election next year, has been under pressure to rein in energy costs after raising regulated rates for natural gas for consumers by an average of 4.9 percent on April 1. Parliament also voted to increase a tax for renewable electricity on power bills at the start of the year while the price of gasoline at French pumps has increased in line with higher oil prices.

Spot Prices

“Gas won’t move,” Budget Minister Francois Baroin said on France 2 television, referring to natural gas prices. “The government has decided to freeze the rise in gas at least for the year to come.”

The government plans to revise the method of calculating state-set natural gas rates for consumers to take into account lower spot prices, according to the statement from Fillon. GDF Suez will have its government contract reviewed so households can benefit when “spot market prices are lastingly lower than through long-term contracts.”

France won’t give drivers “checks to soften” the increase in gasoline prices and won’t lower sales taxes on fuel at French pumps, Baroin said.

Fillon also said a planned increase in the so-called CSPE tax on electricity bills on January 1 will be spread over a longer period, capping a regulated power rate increase for households to 2.9 percent until June 30, 2012. This includes a 1.7 percent rise in all regulated rates from July 1, 2011 for higher costs of power transport and distribution and two 1.2 percent increases in household power bills for the CSPE, one July 1, 2011 and another July 1, 2012.

Shortfall

The CSPE tax is designed to compensate EDF for the higher costs of renewable energy and for providing services to remote regions. The utility has recorded a shortfall in recent years because the tax hasn’t kept pace with costs.

“The statement does not tell us what is going to happen to industrial and commercial energy prices,” said Lekander, who was expecting a 4 percent increase in retail tariffs in the middle of August and so will lower earnings expectations for EDF.

Fillon didn’t specify any changes in electricity pricing in a planned overhaul of the wholesale power market in France that will force EDF to sell nuclear output to rivals. The government has yet to specify the regulated price, which consumer groups and competitors have warned could lead to higher household rates. The changes are due to take effect from July 1.

EDF, GDF Suez and Total SA will also be asked to contribute 250 million euros ($355 million) to a 1.35 billion-euro program to help 300,000 low-income households save energy through home renovations.

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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