Regulated tariffs for electricity sales

The Essentials :

According to a decision dated July 27th 2017, the Minister of Ecology and solidarity transition and the Minister of Economy and Finance set regulated tariffs for electricity sales. Such decision had become into force on August 1st 2017.
The ENGIE Company and the Association nationale des opérateurs détaillants en énergie (ANODE) logged a case with the Conseil d’Etat in order to have this decision quashed.
According to its judgment delivered today, the Conseil d’Etat admits the possibility of having regulated tariffs for electricity sales, but quashes the challenged decision to the extent it is applicable to all final consumers, whether residential or non-residential, for their sites subscribing power below or equal to 36 kilowoltampere.

Facts and relevant procedure

According to a decision dated July 27th 2017, the Minister of Ecology and solidarity transition and the Minister of Economy and Finances set regulated tariffs for electricity sales, that came into force on August 1st 2017. EDF and, within their service area, local distribution companies are bound to supply electricity to those eligible to these regulated tariffs, insofar as they are final consumers whose contracted power on the relevant site is less than or equal to 36 kilowoltampere, and to consumers located in non-interconnected grid areas.
Submitting that such tariffs were in breach of Directive 2009/72/CE of 13 July 2009 concerning common rules for the internal market in electricity, the ENGIE Company and the Association nationale des opérateurs détaillants en energie (ANODE) asked the Conseil d’Etat to quash the July 27th 2017 decision. Their complaint was aimed at criticizing the provisions of the Energy code on the basis of which the challenged decision had been adopted.

The judgment delivered today by the Conseil d’Etat

In today’s judgement, the Conseil d’Etat admits the possibility of having regulated tariffs for electricity sales.
Using the line of reasoning settled by the Court of Justice of the European Union, it first regards the regulation of the electricity sale price in Articles L. 337-4 to L. 337-9 of the Energy code as being, by its very nature, a restriction to the realization of a competitive electricity market provided by Directive 2009/72/CE. However the Conseil d’Etat also underlines that such a restriction may be regarded as not breaching this Directive and justified insofar as three conditions are met:

• the restriction must pursue a general economic interest objective ;

• the restriction can only hamper the free evolution of prices to the extent that the pursuit of this objective makes it necessary and only for a limited period of time ;

• the restriction must be clear, transparent, non-discriminatory and reviewable.

In this particular case, the Conseil d’Etat is of the view that the restriction being a consequence of electricity sales regulated tariffs is justified, due to the high volatility of the market and the fact that electricity is a non-substitutable raw material and an essential good, in order to ensure that consumers get a price which is more stable than market prices. This objective being by itself sufficient to justify a restriction permissible under European Union law, the Conseil d’Etat does not have to determine whether the challenged regulation pursues other general economic interest objectives.
The Conseil d’Etat considers that the goal to have stable prices could not be reached through a less restrictive State intervention than a general regulation of the selling retail prices of electricity. Indeed, the electricity market is characterized by a high volatility due to evolutions that can be explained by multiple factors which are difficult to anticipate, and it may have an impact at any time on market retail prices. The fixed-price offers covering a period of two or three years that are offered on the market are most of the time indexed to regulated tariffs, which allows providing a long-term visibility. Therefore, removing regulated tariffs might cause a price volatility that could not be managed in an appropriate way by temporary measures.
Finally, the Conseil d’Etat is of the view that such obligation to supply electricity to consumers who are eligible to regulated tariffs that bears on EDF and, in their service area, on local distribution companies, is precisely defined by the Energy code, is transparent and can be easily reviewed. It notes that this regulation cannot be regarded as discriminatory since alternative electricity suppliers are free to propose the prices they want and are then able to offer to their customers tariffs that are aligned on the regulated sale prices. The Conseil d’Etat considers, in addition, that this regulation gives electricity company equal access to consumers, since such consumers can turn to a market offer at any time and without any expense.
However, the Conseil d’Etat considers that the provisions on regulated tariffs for electricity sales fail to meet the proportionality test, in view of the objectives pursued, on two points. This leads the Conseil d’Etat to quash part of the challenged decision.
With regards to the elements put forward by the parties, the Conseil d’Etat finds no evidence that having permanent regulated tariffs for electricity sale price is essential to fulfill the general economic interest objective of price stability, or that the pursuit of this goal excludes any possibility of reviewing from time to time the principle or, at least, the modalities of public intervention on the prices depending on the evolution of the market. This point has no impact on the legality of the decision dated July 27th 2017 which, according to Article R. 337-21 of the Energy code, is effective for a period of one year at most.

Besides that, as far as the beneficiaries of these regulated tariffs are concerned, the Conseil d’Etat is of the view that making no difference between professionals having low power consumption such as craftsmen, traders and licensed professionals on the one hand, and non-residential sites belonging to major companies on the other hand, goes beyond what is necessary to achieve the general economic interest objective that is pursued.

Finally, the Conseil d’Etat is of the view that Articles L. 337-5, L. 337-6 and R. 337-19 of the Energy code are not in accordance with Directive 2009/72/CE on these two points. However the Conseil d’Etat only quashes the decision of July 27th 2017 to the extent that it is applicable to all final consumers for their sites using a power capacity which is equal or lower to 36 kilowoltamper. This decision being not separable, because it is also applicable to the prices in non-interconnected zones within the continental territory of France, it is quashed despite the fact that its consistency with Directive 2009/72/CE has not been challenged before the Conseil d’Etat and hasn’t appeared as being subject to criticism.