The Empire Strikes Back

Back in November, I said that EDF is to European electricity competition what the “Dark Emperor” is to Star Wars – a formidable counter-current to the accepted order. Well now it’s time for the next episode in the saga.

The EU has finally administered to France the pill that most of Europe has already swallowed. Under the threat of legal action from the EU and after almost a year of stalling, France has finally passed a law which will allow it to meet the EU directive. Needless to say it has only opted for the bare minimum – and even then, with one or two questionable amendments.

The law allows large industrial users consuming over 40 GWh per year to switch supplier. This means that as of the end of February, 800 industrial consumers representing 30 per cent of France’s electricity consumption were eligible to switch supplier. The 40 GWh threshold will fall to 20 GWh by 2003 and 9 GWh by 2006.

The law also calls for the creation of an electricity regulator, and for regulated grid access with published tariffs to be set by the Ministry of Industry. Although state-owned utility EDF will remain as the grid operator, it will establish separate management and accounting structures for its transmission, generation and distribution businesses.

But the battle may not be over yet. The Bill passed at the beginning of February contains amendments which may violate the EU directive. These include an amendment which requires all electricity companies operating in France to abide by public service salary and benefit requirements. Perhaps more contentiously, there is also a rule that any company exporting electricity to France must have a proportion of its electricity generation in France.

Gilles Gantelet, a spokesman for the EU Energy Commissioner said the Commission would study the approved bill, and would start fresh legal action if any amendments are in violation of the directive.

Many details on the full extent of the first wave of liberalization in France remain to be solved by decrees approved by the Council of State, France’s highest legal body. These include precise rules for electricity trading and tendering for new generation capacity. French Industry Minister, Christian Pierret said last week that these decrees will go into force in late March.

Speaking about the adoption of the law, Pierret said: “It’s a veritable revolution, a big cultural change for France.” No doubt. EDF has always enjoyed a home market monopoly and has long resisted liberalization. It would appear that its plan was to continue to have sole access to its home market while winning customers abroad. These antics had drawn much criticism from other EU members, most notably the UK and Germany.

“Is it a faint-hearted implementation? Yes, if you take it literally. No, if you look at the consequences,” commented Pierret. EDF stands to lose a significant portion of its home market. Many industrial plants had indicated that they would prefer to buy their electricity from a supplier other than EDF.

But what EDF stands to lose at home it could gain abroad. The timing of the decision was interesting. It could have been purely coincidental or perhaps France enjoys a touch of brinkmanship. In December, it had been given one month to implement the law or go to court, and perhaps it was this threat that speeded up the decision.

On the other hand it could have been shrewd, calculated planning. Maybe the government was carefully picking its moment. The decision also came at the time when EDF had been given the go-ahead to buy a 25.1 per cent stake in German utility EnBW. This $2.4bn deal gives EDF access to Germany’s southwest regional electricity market which EnBW dominates. Perhaps the government was merely delaying the inevitable just long enough for EDF to gain a new batch of customers in the fast deregulating German market.

The delay has given EDF the opportunity to maintain earnings while its German rivals have seen greatly reduced income due to the vicious electricity price war which has developed across Germany.

Well now things are even. Competition has scored a victory. In November I forgot to mention that if EDF was the “Dark Emperor” then you could look at the EU as the “Empire.” I think we will have to call this episode: “The Empire Strikes Back”.

Junior Isles,
Managing Editor

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