EDF Gains on 5 Billion-Euro Renewables Compensation: Paris Mover

Electricite de France SA surged the most in almost two months in Paris trading after saying it will be compensated for a renewable tax deficit of almost 5 billion euros ($6.7 billion). The payback will come from higher levies on power bills.

The shortfall will be “fully repaid” by the end of 2018, the Paris-based utility said today in a statement. “Discussions between EDF and the French state continue in order to relieve the group net financial debt,” it said.

The state-controlled utility will get 600 million euros in income before tax for 2012 as part of the agreement, it said in a presentation posted later on its web site.

EDF rose as much as 5.4 percent and traded 69 cents higher at 14.35 euros as of 2:47 p.m. local time. The shares have dropped by a fifth in the past year, in part because of concerns over the accumulating shortfall.

The so-called CSPE tax, designed to pay for renewable and other energy subsidies, is levied on power bills. Over the past three years, the tax hasn’t covered costs incurred by EDF to buy solar energy, which is more expensive than atomic or hydroelectric power. At the end of last year, the deficit reached an estimated 4.3 billion euros while accumulated financing costs were 600 million euros, according to today’s statement.

The one-off payment of 600 million euros to EDF 2012 accounts “will help the group’s recurrent net income on which dividends are derived from,” Citigroup analyst Sofia Savvantidou wrote in a note today.

Market Rates

Repayment by the state will be “staggered according to a gradual schedule” and the outstanding amounts “will bear interest at market rates,” EDF said.

Future tax increases will allow a “gradual reabsorption” of the shortfall, according to a joint statement from the Finance and Energy Ministries.

The future of the CSPE tax and its possible reform will be addressed during France’s national energy debate in coming months, according to the government statement. Compensation to EDF will be a priority, it said.

At the end of last year, the government raised the CSPE tax by 3 euros to 13.5 euros a megawatt-hour. The increase was less than half what was deemed necessary by the regulator to allow EDF to cover its costs.

The watchdog had said the tax needed to be set at 18.8 euros to allow EDF to pay for supplying renewable energy, special power rates for low-income households and service to rural areas. Failure to do so would result in an additional shortfall for the utility this year of 2 billion euros.

France is seeking to fund an expansion of renewable-power output as President Francois Hollande scales back the country’s reliance on nuclear energy.

EDF’s net financial debt increased to 39.7 billion euros at the end of June from 33.3 billion euros at the end of 2011.

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