French Court to Rule Next Week on Minister’s Power-Rate Freeze

France’s highest administrative court will rule next week on a challenge brought by competitors of Electricite de France SA to the energy minister’s decision to cancel an increase in power tariffs.

“Fog has reappeared” on the question of power rates, Judge Edmond Honorat told a hearing today of the Conseil d’Etat in Paris. “It’s a problem for operators if the state changes its mind all the time.”

Segolene Royal announced on a morning talk show in June that a 5 percent increase in state-set electricity prices planned for Aug. 1 would be canceled and replaced by a new calculation method. The unexpected news rattled investors, wiping as much as 6 billion euros ($7.9 billion) off EDF’s market value during trading that day.

The consequences of Royal’s decision on power distributors including state-controlled EDF is “colossal,” Fabien Chone, president of Anode, which represents alternative power and gas suppliers, told the hearing.

The group argued in court that regulated power prices don’t reflect EDF’s costs and consumers need to pay more. Lawyers for the government said a new decree on power rates would “probably” be made public in October.

Anode’s decision to turn to the court is the latest in a long series of legal battles over regulated power and natural gas prices. The court ruled in April that a 2 percent rise in power rates decided by the government in July 2012 was too low. It also made a series of decisions that led to higher gas rates.

Cover Costs

By law, rates are supposed to cover costs for utilities EDF and GDF Suez SA, the former power and gas monopolies, and the country’s regulator makes recommendations about how tariffs should be modified to fulfill this requirement. The advice isn’t always heeded by energy ministers.

Anode, which represents competitors like Direct Energie, has pushed for higher regulated rates because it says it can’t compete on the French market when prices are too low.

With her June 19 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 EDF shares, which climbed 46 percent over the year to June 18.

EDF shares were unchanged at 2:45 p.m. in Paris trading.

Judge Honorat told the hearing he plans to rule by the middle or end of next week.

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