EU’s free-market drive on energy meets French resistance

France, Germany and Spain were among the 16 countries formally cautioned for dragging their feet on liberalising gas and electricity markets. In the Commission’s firing line is France’s cherished capped-price model.

The European Commission is losing patience with the slow liberalisation of energy markets. On 13 December, it sent “reasoned opinions” to 16 countries, including France and Germany, in the second step of infringement procedures launched earlier in the year (EURACTIV 5/04/06). 

In the Commission’s view, “electricity and gas prices do not reflect costs,” leading to “under-investment and future supply crunches”. This, it added, “impedes real competition”, effectively blocking new suppliers’ access to the market.

“Obstacles to competition…damages EU citizens,” the Commission summarised, referring to the 4 November 2006 power black-out.

Of particular concern to Brussels are price caps, or regulated tariffs, which are still  applied in France, Spain and to a lesser extent, Italy. In these member states, “the regulated tariffs are … set at a level so low compared with market prices that they fully prevent market opening”, the Commission said.

“In the end, only prices freely determined by the market can ensure the best price for customers and give the right signal for the huge investments needed to ensure our security of supply.”

Other issues highlighted in the infringements proceedings included:

  • Discriminatory access to the distribution network by new competitors, a situation which continues to favour incumbent operators (Germany, UK, Italy…);
  • lack of information on public service obligations that incumbents need to fulfil in contracts agreed with the government (France, Germany…);
  • insufficient competences from national regulators to prevent vested interests from dominating the markets (Belgium, Sweden…), and;
  • insufficient unbundling of distribution/transmission from supply/generation activities.

In France, the liberalisation of energy markets to competition is becoming unpopular as the presidential campaign picks up momentum. 

Industry Ministers François Loos defended France's regulated tariffs, saying that the opening of energy markets needed to be kept under control in the interest of consumers. "We will reiterate our preference for regulated tariffs to convince [the Commission] of their relevance and their interest for consumers," Loos wrote in daily newspaper Les Echos

"[Regulated] tariffs are not a distortion [of competition], they only reflect the controlled costs of the French electrical production capacity," Loos said, adding that capped prices were not incompatible with EU liberalisation directives. 

On 30 November, the French Constitutional Court invalidated parts of a government bill that would have maintained capped tariffs for household gas deliveries under certain circumstances, even after the complete opening of energy markets in July 2007.

The ruling shocked consumer groups who predicted that "the worst is still to come" with full market opening in July. "If the English scenario repeats itself in France, an unbearable inflation in tariffs is more than likely," said UFC-Que-Choisir, a consumer group. It cited a study by Energywatch in England, which estimated that gas bills had rocketed 91% and electricity bill 58% in the past three years, due to liberal pricing policies.

UFC-Que-Choisir said consumers should be allowed to return to the regulated tariff if prices were to shoot up, an option that the government excluded in its draft energy bill.

Under a public service contract signed with the French government, power utility Electricité de France agreed to keep its tariffs below inflation until end 2010. EDF is 87% state-owned and Europe's largest utility by market capitalisation.

According to EDF, the switchover to full liberalisation needs to be softened with a transition period. "We should make regulated tariffs compatible with market opening, by making clear this is only a transition," EDF boss Pierre Gadonneix said on 13 December 2006.

Back in June, French employer association MEDEF criticised the EU liberalisation process, saying that it only led to increased prices for industrial consumers. The association's energy expert, Philippe Rosier, lambasted at the "short-term" vision of the Commission and at a process which is taking place "without coordination at European level".

EU directives to open up Europe's electricity and gas markets were adopted in 2003, and, at least in theory, industrial consumers have been able to freely choose their supplier since July 2004. The deadline for member states to open up household markets is set at 1 July 2007.

In March 2006, EU heads of states agreed on a new "Energy Policy for Europe" which had market liberalisation among its chief objectives (EURACTIV 24/03/06).

  • 10 January 2007: Commission to present energy package which will include proposals to complete the liberalisation of gas and electricity markets "in letter and spirit"
  • 1 July 2007: deadline to open up household market to competition
  • Do you agree with the Commission that regulated tariffs ultimately run against consumer interests and impede investments? Or do you support France's view that consumers should be allowed to choose between free-market and regulated prices? Let Europe know with a letter to the editor:

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