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French Court Suspends Household Natural Gas Price Freeze

Nov. 28 (Bloomberg) -- France’s highest court suspended a Sept. 29 government decision to freeze regulated natural gas prices for consumers, ordering the energy ministry to establish new tariffs within a month.

Suppliers that compete with former natural gas monopoly GDF Suez SA, including Direct Energie SA and Poweo, asked the court to block the decision while they appeal the government’s refusal to lift the freeze, which had been scheduled to expire Oct. 1.

“Serious doubts on the legality of the contested decision” exist, the Conseil d’Etat said in a statement today. No clause “allows ministers to suspend the application of the tariff formula laid out in the decree” on regulating natural gas prices.

The government froze rates for a year in April, a decision the energy regulator ruled should have been reversed Oct. 1 to allow GDF Suez, which is 36 percent-owned by the state, to cover the costs of buying natural gas for the French market. The freeze is “not compatible” with an open market, said the Commission de Regulation de l’Energie, which oversees the power sector.

The court agreed with legal analysis by GDF Suez, which filed a separate appeal to the freeze after the suppliers, a spokeswoman for the utility said today by telephone. GDF Suez will work with the energy ministry to establish new tariffs, she said, declining to be cited by name according to company policy.

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“The ministry in charge of energy is now preparing a new tariff decree which will conform with the Conseil d’Etat decision," the office of French Industry Minister Eric Besson, who is also in charge of energy policy, said today in an e-mailed statement.

GDF Suez rose 7.7 percent in Paris today to 19.53 euros. The French gas price freeze could result in a 400 million-euro revenue shortfall for the company, Chief Executive Officer Gerard Mestrallet said this month.

Natural gas supply costs rely both on short-term market prices as well as on long- and medium-term contracts reached by GDF Suez with countries like Russia, meaning a freeze on the latter’s prices would reduce profit margins for GDF Suez’s competitors, the court said.

The freeze would have the effect of ‘‘compromising their presence in the gas-distribution market as well as the public goal to open this market to competition,” the court said in the statement.

The energy ministry sets the rates paid by households and business clients based on recommendations from GDF Suez, which it doesn’t always follow. The government is considering modifying the way regulated rates are calculated to reflect that GDF Suez relies more heavily on the spot market, where prices are lower, than long-term contracts with suppliers like Russia and Norway.

To contact the reporters on this story: Heather Smith in Paris at hsmith26@bloomberg.net; Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.

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