Judges Seen Raising French Power Prices to Rescue EDF

Tradition holds that once the French are comfortably ensconced on their summer holidays, the government quietly announces an increase in household power rates charged by the utility Electricite de France SA.

This year, the ritual may take a different turn and end up before judges. A June report by regulators concluded domestic power rates, half those of neighboring Germany, should rise almost 10 percent. That’s five times the increase the government proposed last year.

An industry group may ask the Conseil d’Etat, France’s highest court, to intervene if the government doesn’t boost rates enough to cover costs for Paris-based EDF, the world’s biggest nuclear-plant operator. The same court last year allowed the nation’s biggest gas supplier GDF Suez (GSZ) SA to raise rates more than the government wanted.

The regulator “has rocked the boat,” Francois Brottes, a Socialist member of parliament who tracks energy policy, said in an interview. “The report will likely give rise to a court case and this will force us to abandon the status quo.”

Higher prices would benefit EDF’s 55 billion-euro ($72 billion) spending plan to 2025 for maintaining the largest reactor fleet. At the same time it imperils Socialist President Francois Hollande’s pledge to moderate home energy costs.

France has joined a group of nations including Spain and South Africa that stop their utilities from charging enough to cover all their regulated costs. Spanish utilities have accumulated about 26 billion euros in debt since 2000, helping to undermine their credit ratings.

Jill Coulombez, an EDF spokeswoman, declined to comment. Attending a meeting in Paris with her German counterpart, French Energy Minister Delphine Batho declined to comment today on what price increase the government would propose.

Added Increases

EDF’s power rates for 25 million retail customers in France should rise as much as 9.6 percent in 2013 to cover production and marketing costs, the Commission de Regulation de l’Energie said in the report published June 5. The government immediately rejected the recommendation.

The increase would have to come on top of a 7.6 percent gain needed to make up for a 1.47 billion-euro shortfall last year between EDF’s costs and the rates it was allowed to charge, the regulator said. Looking further ahead, power charges should gain another 3.2 percent next year and also in 2015, the regulator said.

The recommendations contrast with the 2 percent increase in power prices granted by the government last July. Prices have been rising slowly -- less than or equal to inflation for four of the past six years, according to an EDF presentation in February and national statistics office Insee.

EDF has gained 26 percent this year partly on optimism the company will win higher prices. The stock remains about 80 percent below a 2007 high as costs of keeping aging reactors running more than 40 years hold back earnings.

Antinuclear Campaigners

Deutsche Bank AG analysts including Martin Brough have estimated that every 1 percent change in the aggregate tariff in France, where the company earns more than 60 percent of operating profit, has a 5 percent impact on group earnings.

The regulator’s contention that much higher rates are needed to pay the price of EDF’s atomic production has played into the hands of antinuclear campaigners like Greenpeace, which want the utility’s reactors closed. The organization on June 24 sent fake 2017 power bills to consumers indicating a 17 percent increase and called for “massive” spending on renewables rather than on prolonging the lives of atomic generators.

Any court challenge to state-set EDF rates will likely come from Anode, an organization representing alternative power and natural gas suppliers on the French market who have sought to make inroads since liberalization of the consumer market in 2007. The group successfully contested gas prices at the Conseil d’Etat.

Skewing Competition

“We will defend our interests in electricity the same way we did for gas,” Fabien Chone, head of Anode and deputy chief of energy distributor Poweo Direct Energie (ALPWO), said in an interview.

The company, which has about 850,000 electricity customers in France, contends that EDF’s regulated rates are too low and hinder competition. Anode wants rates increased 5 percent to 6 percent a year for three years.

For at least the past six years, successive French governments have announced power price adjustments in July and August when people are away from their homes and less concerned with heating bills and reading the news.

A decision on rates will be made in July, Batho and Finance Minister Pierre Moscovici have said in response to the commission’s report. They have also asked EDF to strengthen its program to control costs.

“The Conseil d’Etat has proven to be very alert to the principle that energy companies have to be able to cover their costs,” said Romaric Lazerges, a lawyer at Allen & Overy LLP in Paris, who represents Anode. “The regulator has acknowledged the wide and growing gap in France between the costs for EDF and tariffs charged to consumers.”

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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