France’s Energy Price Capping Continues

France’s government continues to cap energy prices despite the country’s high court ruling against it.
Published: Sat 06 Oct 2012

What happened  

While the French government extends its “social” utility rates from one to four million households to make energy more accessible, industries face a higher carbon tax, reports Bloomberg.

Background                                  

French President Francois Hollande has been capping power tariffs to assist households during the country’s sluggish economic growth but this controversial plan has led utilities to sue the government, writes Bloomberg. GDF Suez and its rivals argue that the increases are too low to cover costs and encourage competition in the domestic power market. GDF Suez, which is 35% state-owned, points out that 2011’s rate “freeze”, is to blame for its US$370m (€290m) shortfall. According to the courts, the utility is entitled to recover the shortfall.

Over the past year, France’s highest court has consistently ruled in favor of the utilities.

But, Finance Minister Pierre Moscovici and Environment Minister Delphine Batho say that the Government’s plans are necessary to protect consumer purchasing power.

The French government regulates the prices that utilities, Electricite de France SA and GDF Suez (GSZ) SA, charge households in their home market. Currently only one million households benefit from lower electricity and natural gas rates but this will be expanded, according to Prime Minister Jean-Marc Ayrault.

Hollande’s government is working on a so-called progressive tariff law which aims at reducing utility bills for energy-efficient households and it is in the process of reviewing the CSPE (Contribution au Service Public de l'Electricité) tax on electricity bills which contributes to the higher costs of producing renewable power.

The government aims to improve energy efficiency and reducing demand. This could make rules on tariffs increasingly complex as they will depend on home insulation and revenues, writes Bloomberg. Ayrault says that the government wants 1 million homes renovated annually for which financial aid will be made available.

Laurence Parisot, head of Medef, a business organization in France, has his concerns about the government’s recently announced energy policies and planned carbon tax. He explains: “What worries us the most is how much this will cost and who will pay. We can’t keep raising costs for companies without a big impact on jobs and competitiveness.”

Fabbien Chone, president of Anode, representing gas companies, says that gas companies want the price regime changed, “The regulator should be given real power to set prices so the government isn’t involved.”

Last Word

Like Spain, France’s utilities are facing escalating debt due to the government’s price capping. Eventually the consumer will be left with the bill, thanks to “pure political posturing”, a term used by Per Lekander, a utilities analyst at UBS AG, to describe the French government’s actions to curb power tariff increases.

Sources                                                                                                                                                                                             

Bloomberg-France to Extend ‘Social’ Rates for Power, Gas, Ayrault Says

Bloomberg-Hollande Faces Defeat on Energy Price Caps as Gas Suppliers Sue

Fournisseurs-Electricite.com-CSPE

World Nuclear News-France to debate ‘energy transition’