II-5.15 The "Conseil d'Etat" (French Council of State) cancels the freezing of prices of natural gas supplied to consumers

Context and Summary

To read the decision (in French), click here.

By an summary order of November 28, 2011, the Conseil d’Etat (Frenc Council of State), seized by GDF Suez (the service public provider) and an association, had agreed to suspend the freezing of natural gas rates that the Government, by order of September 29, 2011, decided in favor of consumers and small businesses.

The Council considered that there was urgency to decide the suspension because it was contrary to the spirit of the texts of the European Union under which the French legal system is organized, that is to say the opening competition.

Indeed, the public service provider, GDF Suez, is obliged to practice dried up so low, probably below its own costs, supplying, no competitor can enter the market.

Finally, texts require that the Government take into account in its calculations the cost of supplies, which does not pertain to its decision.

In a second step, GDF Suez and the Association nationale des opérateurs détaillants en énergie (Englis translation : National Association of energy retail operators) have seized the Council of State for, nor the suspension of the rate freeze, but the cancellation of the order of 29 September 20011, by which the Minister of Economy had decided. The applicants saw an excess of power.

To apply the law, the Council of State referred to in Article L.455-4 of the Code de l’Energie (Code of Energ)y, resulting from the law of 3 January 2003 relative aux marchés du gaz et de l’électricité et au service public de l’énergie ( on the gas and electricity markets and public service of energy).

This article says : Les tarifs réglementés de vente du gaz naturel sont définis en fonction des caractèristiques intrisèques des fournitures et des coûts lié à ces fournitures. Ils couvrent l’ensemble de ces coûts à l’exclusion de toute subvention ... (our English translation : The regulated tariffs for natural gas are defined by many characteristics intrisèques supplies and costs related to these supplies. They cover all these costs to the exclusion of any subsidy ..)..

In implementation of this legal provision, Article 3 of Decree fo 18 December 2009 relatif aux tarifs réglementés de vente de gaz naturel (on regulated tariffs for natural gaz)) says : Les tarifs réglementés de vente du gaz naturel couvrent les coûts d’approvisionnement en gaz naturel et les coûts hors approvisionnement (our English translation :The rate-regulated natural gas sales cover the costs of natural gas supply costs and supply out) and Article 4 says : Pour chaque fournisseur, une formule tarifaire traduit la totalité des coûts d’approvisionnement en gaz naturel et des coûts hors approvisionnement et permet de déterminer le coût moyen de fourniture du gaz naturel, à partir duquel sont fixés les tarifs réglementés (our English translation : For each supplier, a pricing formula reflects the full cost of natural gas supply costs and non-supply and to determine the average cost of natural gas supply, from which are attached regulated tariffs).

After recalling these texts, the Council acknowledges that the Minister may accept a tariff which does not reflect costs, it is then necessary that the resulting gap between the tariff and the cost to be financially compensated by the state. The assessment of compensation must be done not only for the current year, since the texts are organizing an annual review of tariffs by the Government but also by estimating the cost trend for the coming year, according to the elements available to the Minister when he decided to price.

However, the record shows an increase in the cost of natural gas supplies that it should have led to an increase in the tariff, tariff structure unchanged, between 8.8% and 10%, according to the different rates covered.

Therefore, the Minister by adopting an order that did not take into account this development cost in the amount of rates, or did not compensate the gap between cost and price, commited an error of law.

The order which raised the rate freeze is canceled by the Conseil d’Etat for error of law.

Brief commentary

This decision is another example of the power of governments now restricted in setting prices in regulated sectors.

Even as texts specifically entrust this power to the Government regarding the pricing of natural gas to consumers and small businesses, the regulator opinion is not binding on the Minister, a de facto alliance between the regulator and Judge encircles the Minister, whose power becomes limited.

At the beginning, the regulator desapproves the Government's project and gives gret publicity to its opinion, based on a Council of State case. Warned in this way, the operators seize the State Council against the minister decision and the judge wiped it for the most serious basis : legal error.

Thus, even though the Minister has the power to set rates, a kind of coalition between the regulator, the judge and operators, put the minister in check.

Through this example, you can actually say that regulation is a chess game. The question then is: what is the next move?

Indeed, the French Government immediately said it would conduct a 2% increase to the rates concerned.

But first, since it is a cancellation of a text, the destruction has a retroactive effect until the adoption of it. The French Council of State has also made ​​injunction to the Minister to adopt a new text to regulate the rates for the period from 1st October 2011 to 1st January 2012.

Moreover and most importantly, the Government reported in the press about a 2% increase but the judgment of the State Council, in its reasons, considers that the increase would represent the cost should be between 8 8% and 10%, at the rates concerned.
Does this mean it that the Government does not consider it, the pretext that the statement is in the reasons of the decision ?
Attention in a chess game, play smarter is not always the cleverest.
Unless the Government is using the branch of the alternative offered by the same decision reasons decision, namely itself compensates the gap between costs and prices. But we know that public finances are in difficulty.

In any case, the chess game continues.