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GDF Says New Gas Pricing to End Disputes With French Government

GDF Suez SA expects a new system of adjusting regulated gas prices every month will end a series of disputes between the former French monopoly and the government.

“We are at the right level that corresponds to our real costs,” Chief Executive Officer Gerard Mestrallet said after tariffs rose on Jan. 1. The system “should end litigations.”

Regulated natural gas prices have caused friction between GDF, the government and smaller suppliers seeking to compete. A failure by successive administrations to allow prices to reflect costs led to losses for GDF and difficulties for new entrants. The revised method takes into account new contract terms between the utility and long-term suppliers such as OAO Gazprom.

The share of supply indexed to spot market prices has risen to 36 percent from 26 percent and may expand further as talks begin with producers, Mestrallet said. France’s highest court, the Conseil d’Etat, is expected to rule this month on whether last year’s price gains allowed the utility to cover costs.

If the court decides in favor of the utility, as expected in light of four previous rulings, the company will recoup the shortfall from consumers over 18 months, Mestrallet said.

Failure by the government to raise tariffs sufficiently to cover production expenses in the second half of 2012 cost the company 185 million euros ($247 million), he said.

President Francois Hollande pledged to keep energy costs as low as possible for consumers. Environment Minister Delphine Batho said last month the new system would take politics out of pricing by making adjustments automatic. The state can “take things back in hand” in exceptional circumstances, she said.

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