EDF Sinks as Tariff Decision Shows Rising ‘Political Risk’Tara Patel and Mathieu Rosemain
Electricite de France SA, operator of the country’s 58 reactors, sank the most in five years in Paris trading after the energy minister said a promised tariff increase won’t happen.
Shares in Europe’s biggest generator closed down 7.7 percent at 24.60 euros, the biggest drop since March 2009.
There will be no increase in household rates, which were set to rise 5 percent on Aug. 1, and a new way of calculating tariffs will be devised, Energy Minister Segolene Royal said in a statement.
A “moderate increase” could come in September or October, Les Echos reported, citing a person close to Prime Minister Manuel Valls it didn’t identify. It would be less than 5 percent. The prime minister’s office didn’t immediately respond when contacted by Bloomberg New.
With her comments, Royal negated a decision by her predecessors to grant EDF significantly higher rate increases than in previous years. In mid-2013, the state raised tariffs by 5 percent and announced the same increase would be applied on Aug. 1 this year. The move improved investor sentiment on the shares, which climbed 46 percent over the year to June 18.
“Political risk appears to be rising,” RBC Capital Markets analyst Martin Young wrote in a note today. The rate freeze could have a potential double-digit impact on earnings.
Changes to how rates paid by 28 million households are calculated could be announced on Oct. 1 after consultations with the energy regulator and the country’s highest administrative court, Royal said in the statement. Her focus is on how to lower consumers’ bills, she said in the interview.
While a government official said in December EDF rate increases would be limited to 2 percent to 3 percent annually starting in 2015, the nomination of Royal as energy minister called this into question. Soon after taking the post April 2, Royal began asking whether French consumers should pay more for power. She told a parliamentary hearing in May that she is “looking very carefully” at planned increases.
France’s highest court in April canceled regulated rates charged by EDF to households and some businesses that were set in July 2012 because they weren’t high enough to cover production costs. The court gave the government two months to set new tariffs retroactively, which has yet to be done.
Royal yesterday introduced a proposed energy law and again stated she didn’t want consumers to face mounting energy bills. The law will define the “framework” for regulated rates from 2015, according to documents distributed yesterday by the ministry.
“The principle of a new calculation method is in the proposed law,” she said today in the statement.