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France Will Raise Power, Gas Rates by 2%, Minister Says

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July 18 (Bloomberg) -- The French government will raise the rates that Electricite de France SA and GDF Suez SA may charge for power and natural gas by 2 percent, less than the amount requested, Energy Minister Delphine Batho said.

The increase, which will be published in two separate decrees “very soon,” may be challenged in court, Batho said in an interview yesterday following Senate hearings in Paris. GDF, France’s biggest gas distributor, had sought a 5 percent increase, two people familiar with the matter said last month.

The government’s decision to raise rates comes after the nation’s highest court, the Conseil d’Etat, on July 10 struck down a freeze on gas prices.

New legal challenges to the 2 percent increase are “a risk that we are taking and we will assume because we want a fresh start,” Batho said.

“The Conseil d’Etat blamed the former government for not raising rates,” Batho said. “This has unfortunately led to the need for a catching up. We are obliged to apply the court decision.”

Spokesmen for Courbevoie, France-based GDF and Paris-based EDF declined to comment yesterday.

GDF Suez, which has 87 percent of France’s residential market and 63 percent of business sales, challenged the former government’s decision in April 2011 to freeze consumer prices, saying its costs weren’t being covered. The freeze led to an earnings shortfall of 400 million euros ($492 million) last year, including 290 million euros in the fourth quarter, the company said.

Court Action

The court suspended the freeze in November while it considered GDF Suez’s case. The government began allowing GDF Suez to charge households 4.4 percent more in January as it awaited the court’s final decision.

Under French law, the government sets the rates. France’s regulator calculates the costs of supply and advises the government.

The French government said July 9 it would seek to limit the price increase by GDF Suez and Electricite de France, the nation’s biggest power generator, to 2 percent. The inflation-pegged caps are aimed at “protecting purchasing power,” Batho said in a statement that day.

The regulator urged the government to raise rates on Oct. 1 by as much as 10 percent. The regulator is scheduled to rule in the coming days on whether the latest government decision on rates covers supplier costs, a formula that was used previously by the court to rule in GDF’s favor.

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