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French Gas Firms Ask Court to Block Government Price Cap

Direct Energie SA and other natural-gas suppliers asked France’s highest court to block a government cap on prices for consumers, saying they can’t afford to do business at those rates.

The companies, which compete with former natural-gas monopoly GDF Suez SA and are represented by an association known as Anode, argue the capped prices don’t cover their supply costs. French energy regulator CRE agreed the price cap set by the Energy Ministry that took effect Oct. 1 was too low. The Conseil d’Etat is scheduled to rule on Nov. 29.

“The government underestimates the formula” used to set prices, Anode lawyer Frederic Thiriez said today. “Tariffs must reflect the reality of the cost of gas in France.”

The court’s decision could pave the way for utilities to raise prices during the cold winter months. French President Francois Hollande said in September he would uphold a ban on hydraulic fracturing, known as fracking, because the drilling technique may be hazardous.

Energy ministry representatives, who asked not to be named, defended the formula, saying the government balanced consumers’ and suppliers’ needs to arrive at the ceiling. The energy ministry sets the rates paid by households and business clients. GDF Suez makes recommendations, though the state doesn’t always follow them.

GDF Suez, France’s biggest natural-gas distributor, made a separate legal challenge this month to the government’s decision to cap a fourth-quarter increase in regulated fuel rates.

Imported Supplies

During the past year, the gas companies have challenged successive French government decisions to limit increases in gas prices, saying the rates don’t allow them to cover the cost of imported supplies. Anode, the association appealing the rate today, and GDF Suez filed similar cases a year ago to overturn a price ceiling. The court ruled in their favor.

GDF Suez, which is 35 percent owned by the government, was allowed to raise gas prices for households by 2 percent from October, less than half of the increase it had requested. CRE said it should have been 6.1 percent for households in order for distributors to cover their costs of supply. The government said at the time its decision was based on the need to safeguard the interests of consumers.

The government is considering modifying how the rates are calculated to allow GDF Suez to rely more heavily on spot market prices, which are lower, than long-term contracts with suppliers like Russia, Algeria and Norway.

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