GDF Suez Must Renegotiate Gas Contracts to Cut Prices, CRE Says

GDF Suez SA, Europe’s biggest utility by market value, needs to renegotiate natural-gas contracts with its suppliers to lower prices for consumers in France, the country’s energy regulator said.

At least 40 percent of French regulated gas rates should be pegged to spot-market prices, which are lower than those in the long-term contracts, the Commission de Regulation de l’Energie said today in a report. That compares with 36 percent at Paris-based GDF Suez currently, and none at all a few years ago.

Regulated gas prices have caused friction between former monopoly GDF Suez, the government and smaller utilities seeking to compete. The failure of successive administrations to raise prices enough to reflect costs has led to losses for GDF Suez and hampered new entrants in the industry.

The country’s highest court has canceled state-mandated price changes that didn’t reflect costs in a series of rulings. The method for calculating rates must be changed by Oct. 1, the regulator said in today’s report.

GDF Suez got almost 30 percent of its gas last year through “short-term” purchases. The utility renegotiated long-term supply agreements with Norway’s Statoil ASA and GasTerra BV of the Netherlands, and said about half of its long-term orders will be renegotiated this year.

A greater reliance on spot-indexed prices should result in “significantly” lower supply costs and savings for consumers, GDF Suez said.