Regulator Sees EDF 2.5% Power-Rate Increase Insufficient for Gap

A 2.5 percent increase in Electricite de France SA’s French household power rates tomorrow isn’t enough to make up for an accumulated earnings shortfall, the regulator said.

Future rate modifications need to cover the gap caused by a failure of past tariff changes to meet costs, the Commission de Regulation de l’Energie said in an report published today in France’s Official Journal. The power prices and new method by which they were calculated were also outlined.

Publication of the new charges for EDF’s 27 million household customers ends months of uncertainty for investors after Energy Minister Segolene Royal canceled a promised 5 percent increase scheduled for Aug. 1. She took the market by surprise when she made the announcement June 19 on a morning radio talk show, wiping billions off EDF’s market value.

French electricity rates are considered a political hot potato due to pressure from consumer groups to keep them low amid high unemployment and a sluggish economy. At the same time, EDF has said it needs rate increases to pay for billions of euros in spending to maintain and extend the lives of aging French nuclear reactors.

The government’s new method to calculate electricity rates has prompted analysts including Emmanuel Retif at Raymond James in Paris to lower earnings forecasts and estimates of the value of EDF shares.

Due to the change, the so-called fair value of EDF stock is now 9 percent lower at 23 euros, Retif wrote in a note today.

New Method

EDF climbed 2.2 percent to 23.46 euros at 3:34 p.m. in Paris. The shares have lost 12 percent since Royal’s announcement.

Under the new calculation method, EDF rates should rise 1.6 percent on Nov. 1, according to the regulator’s report. The additional increase of 0.9 percentage point will cover 15 percent of the total accumulated earnings shortfall for EDF during 2012 and 2013 of 941 million euros.

The regulator earlier this month published documents outlining EDF rates over the coming years under the new calculation method that showed a 1.5 percent advance next year and 2 percent increase in 2016. The changes didn’t include what would be required to plug an earnings shortfall of 1.14 billion euros accumulated over 2012 and 2013.

Before it's here, it's on the Bloomberg Terminal.