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

GDF Suez SA and Electricite de France SA fell after French Prime Minister Francois Fillon said natural gas prices won’t be raised for a year and the government will limit an increase in regulated power prices.

GDF Suez SA, the former gas monopoly, dropped 1.9 percent to 27.73 euros as of the 5:30 p.m. close in Paris, while EDF retreated 3.7 percent to 28.445 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 announced in a statement today regulated natural gas prices won’t be increased July 1, an increase in power prices for households of 2.9 percent will take effect July 1 and be capped 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

“We have decided to block a rise that should have been 7.5 percent in July. There won’t be an increase for a year,” Fillon told parliament today, referring to natural gas prices charged by former monopoly GDF Suez. His comment went further than the statement, which blocked a planned July 1 increase.

“We are facing a trend heavily tilted towards a rise in the cost of energy,” exacerbated by the nuclear accident in Japan, Fillon said. “The Fukushima catastrophe will clearly have an effect on investment in nuclear in the world. Renewable energy costs are very high.”

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 prime minister’s statement. GDF Suez will have its government contract reviewed so households can benefit when “spot market prices are lastingly lower than through long-term contracts.”

GDF Suez has been under pressure from the government and consumer groups to lower prices so they better reflect a spot market that’s awash with supply. The utility’s supply comes from long-term contracts for the fuel that are more expensive, in part because of the development in recent years of unconventional gas in the U.S.

New Talks

GDF Suez is seeking to modify long-term supply contracts to integrate more spot-market pricing, executives said last month. These changes would come on top of those obtained last year that integrated a spot price component in long-term contracts with GDF Suez’s biggest suppliers of about 10 percent, according to Vice-Chairman Jean-Francois Cirelli.

The utility would be entering a new round of talks with suppliers in the coming months, he said.

France won’t give motorists “checks to soften” the increase in gasoline prices and won’t lower sales taxes on fuel at French pumps, Budget Minister Francois Baroin said on France 2 television today.

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 to cover higher costs of power transport and distribution and two 1.2 percent increases to cover the CSPE, one July 1 and another on July 1 next year.

Power prices should have increased by 5 percent in July, Fillon said.


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 mid-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.

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