April 5, 2011 / 6:56 AM / 9 years ago

UPDATE 3-France cuts power price hike, cancels gas rise

* Electricity prices can rise 1.7 percent in July

* Govt clears a further 1.2 pct rise through June 2012

* Price hikes short of what EDF had sought

* EDF shares down 3 pct, GDF down 3.1 pct

(Adds details, background)

By Patrick Vignal and Muriel Boselli

PARIS, April 5 (Reuters) - France has cancelled a planned increase in gas prices and cut the size of electricity price hikes to appease public discontent with rising energy costs.

In the run-up to elections next year, President Nicolas Sarkozy will hope that turning down state-run utility EDF’s (EDF.PA) request for bigger electricity price rises will deflect criticism that he is not protecting consumers’ purchasing power.

It might, however, hobble EDF’s ability to update its rapidly ageing fleet of nuclear power plants, another hot political issue in the wake of the nuclear crisis in Japan following last month’s earthquake and tsunami. [ID:nLDE6901BI]

The government’s tough line on prices was also bad news for France’s main gas supplier GDF Suez GSZ.PA, which had been hoping for a further increase in July after a 5 percent rise in household gas prices came into force earlier this month.

EDF shares were down 3 percent at 1200 GMT, while GDF’s were down 3.1 percent.

According to the government’s plan, electricity prices can rise by 1.7 percent in July and by 1.2 percent in the summer 2012, it said on Tuesday.


The decision to put the brakes on electricity rates falls far short of EDF’s request for annual increases of 5.1 percent for the next four years to take into account needed investments to upgrade France’s 58 nuclear reactors.

But one analyst noted that some had expected to see an outright freeze in tariffs, especially after French industry minister Eric Besson said in late March that prices would rise only by a small amount.

“Any kind of price hike at this point in the year is a win for EDF,” said the analyst.

EDF has over the past decade turned itself into a global utility with ventures in eastern Europe, the United States and the UK. But it is still highly dependent on the French market for its profits.

Some analysts estimate that every 1 percent rise in electricity prices adds around 220 million euros ($313 million) to EDF’s earnings before interest, taxes, depreciation and amortisation (EBITDA).

France’s Prime Minister Francois Fillon has also asked Finance Minister Christine Lagarde and Energy Minister Eric Besson to work out a new gas tariff formula that would include a higher percentage of spot prices.

Spot prices only account for 10 percent of the current formula, which mostly includes oil-indexed long-term contracts.

One Paris-based analyst said GDF Suez was more affected by regulatory uncertainty over the gas tariff formula than by the actual gas price freeze.

“We are of course ready to work with the government on the tariff formula,” a GDF Suez spokesman said.

About 11 percent of GDF’s consolidated sales come from gas distribution in France. (Editing by Nina Sovich and Will Waterman) ($1 = 0.7031 euro)

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