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France is one of the last European member states to deregulate its power industry, and has only implemented the minimum requirements of the EU directive. PEi examines the French liberalization law, and what it means for players in the market.

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France, as all the other members of the European Union, ought to have transposed the Electricity Directive (96/92 of 19 December 1996) into its national law by 19 February 1999. It was only in December 1998, however, that the government tabled before the National Assembly a draft law for that purpose.

The text raised too many political questions, such as the respective roles of the public and private sectors and the threat to social benefits enjoyed by employees in the electricity sector, to be treated by the government or by Parliament as a purely technical measure to enable France to carry out its obligations under the Directive.

The passage of the legislation was consequently slow and gave rise to disagreements between the National Assembly and the Senate. The text was finally adopted on February 10, 2000.

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The law comes into force immediately, but many of its provisions will not be implemented until regulations are issued. While the drafts of the principal regulations are believed to be well advanced, the full complement of implementing regulations is unlikely to be in place before the summer of 2000.

European Community law in some cases gives “direct effect” to provisions of a directive, by requiring national courts to apply them despite the absence of legislation.

Article 19 of the Electricity Directive doubtless satisfies the conditions for having direct effect, as it provides for a right of access to the transmission and distribution system in favour of consumers of more than 100 GWh per year. In March 1999 EDF put in place provisional arrangements for the transmission of electricity purchased by those consumers from producers other than EDF. A number of major industrial users have since entered into contracts with foreign producers, thereby creating the first inroad into the virtual monopoly of electricity supply enjoyed by EDF since 1946.

This limited application of the Directive was not sufficient compliance by France with its obligation to implement it. Once the last date for implementation had passed, the European Commission commenced an action against France before the European Court. The Commission is presently examining the law to see if it properly transposes the provisions of the Directive.

The new law is the first major piece of legislation concerning the electricity sector in France since the nationalization law of 1946. Opening this particular market to competition is not something which has natural appeal in France. The elements of competition which the new law introduces are limited to the minimum required by the Directive, and are counter-balanced by provisions to strengthen the public service aspects of electricity supply. Nonetheless the position in France after the reform will be very different from that which has existed for the last half century.

Public service

Public service is one of the cornerstones of French administrative law. It is the translation into legal terms of the idea that, when a service is provided not for purely commercial reasons but in the public interest, special rules should regulate it.

The new law maintains transmission and distribution as a public service. To the extent, however, that the supply of electricity is open to competition there is no reason, even when EDF is the supplier, to treat it as anything other than a commercial activity.

The new law accordingly redefines the activities which are public service activities, and identifies the bodies charged with carrying them out:

  • All producers, EDF in particular, contribute to the public service of achieving the “balanced development of electricity supply” and securing supply of electricity to parts of France not interconnected with the mainland network.
  • EDF, as transmission system manager, and the bodies responsible for electricity distribution carry out the public service of developing and operating the transmission and distribution systems by ensuring rational coverage of the country, interconnection with neighbouring countries and non-discriminatory connection and access to those systems.
  • The supply of electricity is a public service when made to non-eligible customers, or to producers or eligible customers whose normal source of supply fails for unforeseen reasons, or to eligible customers unable to find a supplier.

Consistent with the principles governing public service activities, the price of electricity supplied to customers who are not eligible is regulated. So is the price of access to the transmission and distribution systems, of back-up supplies to producers and eligible customers, and the maximum price of supplies to eligible customers in areas not interconnected with the mainland network.

Prices are to be fixed by joint decision of the Minister of Economy and the Minister of Energy on the proposal of the regulator, the CRE. Prices are to be fixed at a level which covers costs and ensures that there is no cross-subsidy in favour of eligible customers. The price of access to the transmission and distribution systems must be fixed on a non-discriminatory basis, by reference to the cost of the systems.

In addition, the law provides that the current advantages enjoyed by EDF employees in terms of social benefits are to apply to all personnel in the electricity sector. This will represent a considerable additional cost to independent producers who choose to set up in France: according to certain estimates, possibly as much as 40 per cent over and above the cost of employing personnel who do not benefit from these advantages.

Production of electricity

The new law enables any person who holds an authorization to build and operate new generating facilities.

Authorizations will be delivered by the Minister for Energy. In deciding whether to do so he must take into account a number of factors, including whether new capacity is compatible with the investment programme. That programme will fix objectives for allocation of generating capacity between different primary energy sources, technologies and geographical areas. The Minister for Energy may issue a call for tenders. The successful bidder is selected by the Minister, who must also seek the opinion of the CRE. If EDF is not itself selected, it must conclude with the successful bidder a contract for the purchase of the power generated by the new capacity.

Transmission

EDF will retain exclusive responsibility for the transmission system on the terms of a concession from the State. For that purpose the law creates a separate division of EDF. Various provisions of the law are intended to ensure the independence of the transmission system operator. It must keep confidential all information which it receives, if disclosure would adversely affect competition or permit discrimination. Heavy penalties are provided for breach. EDF, as transmission system operator, is charged with despatching capacity in accordance with plans submitted by producers, importers and distributors. It balances the system, and makes adjustments on the basis of objective, non-discriminatory and published criteria, for this purpose taking producers in increasing order of cost.

Distribution

The law maintains the present system of distribution. Article 18 confirms the position of EDF and the non-nationalized distributors as managers, by way of concession, of the distribution networks.

A final consumer whose annual consumption of electricity at a particular site exceeds a threshold figure to be fixed by decree is an “eligible customer”. The decree will fix that figure so as to limit the number of eligible clients to the minimum required by the Electricity Directive. Initially, 800 industrial sites will qualify, corresponding to 30 per cent of national consumption. By 2003, with the reduction of the threshold to 9 GWh, the figures are likely to be 2500 sites and 33 per cent of national consumption.

Eligible customers may conclude purchase contracts with suppliers established in any EC Member State. Those contracts may not be of less than three years duration.

In order to facilitate the conclusion of new contracts, the law provides that the conclusion of a contract between an eligible customer and a supplier other than EDF automatically terminates any supply contract the eligible customer may then have for the same site with EDF or a non-nationalized distributor. The price of electricity to eligible customers is unregulated.

The law guarantees a right of access to the transmission and distribution systems, in particular to enable suppliers of eligible customers to deliver the electricity sold. Contracts for this purpose are concluded between those requiring access and EDF at a regulated price.

Access may only be refused for objective reasons, based on considerations relating to the requirements of the public service or on technical considerations concerning safety and security of the networks or their proper functioning.

Regulation

The law creates a “Commission for electricity regulation” (Commission de Régulation de l’Electricité (CRE)) comprising six full time members. Members are required to act independently when performing their functions. The Commission has extensive powers to obtain information, subject to appropriate procedural safeguards.

The Commission has a number of disparate functions. Some of them are advisory. It gives its opinion, for example, on the price of electricity in those cases where it is regulated, and on the tenders made in response to an invitation for tenders to create new generating capacity. It proposes for ministerial approval of the tariffs for access to the transmission and distribution systems.

While the Commission has no independent rule-making authority, it is empowered to clarify the law and regulations concerning third party access.

The CRE also has quasi-judicial functions, most importantly in connection with disputes concerning access between users and managers of the transmission and distribution systems. Decisions of the Commission are subject to appeal to the courts. Disputes of this kind also, of course, raise competition law questions. The denial of access to an essential facility may, both in French and in European competition law, be an anti-competitive practice. For that reason, the law organizes a form of cooperation between the CRE and the Competition Council, by providing for the CRE to refer to the Council instances of abuse of dominant position in the electricity sector.

The Commission may impose sanctions for violation, by the manager or user of the transmission or distribution systems, of the rules concerning access to those systems, and those sanctions may include suspension of the right to access and fines of up to five per cent of the turnover of the person guilty of the violation.

EDF activities

Created as a state-owned statutory corporation, EDF may by virtue of the so-called principle of “spécialité” only carry out those activities specified in the 1946 law (production, transmission, distribution and import and export of electricity). While case law has interpreted this principle generously, so as to permit EDF to carry out ancillary activities, EDF would, but for the provisions of the new law, have been at a significant competitive disadvantage once the market was opened up, since new entrants to the industry will not be subject to comparable restrictions.

The new law therefore widens the range of activities open to EDF. There is now no limitation on the activities of EDF outside France. Within France, EDF may engage in any activity which, “directly or indirectly contributes” to its objects as defined in the 1946 law. It may also offer eligible customers “comprehensive technical or commercial services to accompany the supply of electricity”. The range of additional services which EDF may offer to customers in the public service sector is, however, much narrower, since it may only provide to those customers consultancy services on energy saving measures.

The new law requires EDF to keep separate accounts for its businesses of production, transmission and distribution. Electricity tradings own production capacity, the quantities of electricity that may be traded in this way. A special authorization will also be required.

The new French electricity law:

  • Defines and organises the “public service” in the electricity sector.
  • Provides a regulatory framework for the creation of new generating capacity.
  • Creates, within EDF, a separate and independent division charged with management of the transmission system.
  • Regulates the distribution of electricity, without introducing any major changes to the present system.
  • Defines those “eligible customers” who may purchase electricity from suppliers other than EDF and creates the rights of access to the transmission and distribution network necessary to enable sellers of electricity to supply eligible customers.
  • Creates an industry regulator (the Commission de Régulation de l’Electricité, or CRE).
  • Redefines the activities in which EDF is permitted to engage.
  • Makes provision for the terms on which personnel in the electricity sector are to be employed.
  • Authorises, but only to a limited extent, electricity trading activities.