French power tariff U-turn wipes $9.5bn off EDF’s value

Updated 19 June 2014

French power tariff U-turn wipes $9.5bn off EDF’s value

PARIS: State-controlled French utility EDF lost nearly 7 billion euros ($9.5 billion) of its stock market value on Thursday as the Socialist government scrapped a planned increase in electricity prices in order to protect consumers.
Energy Minister Segolene Royal told a morning TV show she had canceled the 5 percent rise in regulated tariffs, set to take effect on Aug. 1, which had been decided by the previous government of Jean-Marc Ayrault.
Royal, a powerful Socialist politician who lost a presidential election to conservative Nicolas Sarkozy in 2007, was appointed energy minister in the new government of Prime Minister Manuel Valls in early April and immediately began talking about lowering energy costs.
The tariff review is part of a Europe-wide trend to cap energy prices as governments try to protect consumer spending in the face of stubbornly high unemployment.
French President Francois Hollande is struggling at record lows in opinion polls and his Socialist party took a drubbing in recent European and municipal elections.
Royal, Hollande's former partner and mother of his four children, had already scrapped a planned tax on truck traffic.
Earlier this week she presented a new energy law that aims to boost France's use of renewables but did little to implement Hollande's promise to reduce its reliance on nuclear energy.
"A 5 percent tariff increase had been set for Aug. 1. The bills will not increase," Royal told BFM television, adding that new tariffs for Jan. 1 would be announced in October.
"I will make the calculation with energy regulator CRE, an independent authority, which will work out the increase, or maybe a fall, based on the reform I have put in place," she added.
Shares of EDF, which is 85 percent state-owned, fell as much as 11 percent in their biggest slide since their 2005 stock market listing.
They later recovered slightly on market rumors there might be a tariff increase in October after all, but by 1303 GMT were still down 9.5 percent.
At the energy ministry nobody was available for comment.
"The market is edgy because these comments are considered as inconsistent with communication to date and undermine the confidence in the regulatory visibility on EDF, which should be entitled to cover its costs," Societe Generale analyst Vincent Ayral said.
EDF shares are highly sensitive to tariff moves.
They had jumped as much as 10 percent on July 9, 2013, when the Ayrault government announced a 5 percent increase of electricity tariffs for the summer of 2013 and a second increase for the summer of 2014, in a bid to help EDF meet its power production costs.
Those tariffs hikes were the biggest in at least a decade and EDF shares doubled between March 2013 and March 2014 as the market anticipated their impact on EDF's profits. The shares had been on a downtrend since early April this year and were down 7 percent over the past three months based on Wednesday's close.
French consumers association UFC-Que Choisir welcomed Royal's decision to scrap the planned hike but urged her to come up with a new legal framework to set power prices and prevent legal challenges.
Smaller competitors of EDF and gas utility GDF Suez have successfully challenged government price caps on energy in court, arguing they created artificially low prices that did not cover utilities' production costs and prevented smaller competitors from winning market share from the big two.
Royal's comments belatedly catch up with a Europe-wide trend to cap power prices, and mark a sharp reversal in government policy, which is set to hurt EDF's profits.
Thanks to the 2013 tariff hike and despite a warm winter, EDF in February posted a 4.8 percent rise in core earnings in a rare show of strength among Europe's struggling utilities.
Other European utilities such as Iberdrola, Endesa and Enel face similar pressures. Spain is overhauling its energy sector by introducing a new power generation tax and cuts to renewable energy subsidies, while Italy's government advocates a cut in network costs as part of a drive to reduce energy bills.
In Britain, power prices have risen to the top of the political agenda following opposition leader Ed Miliband's pledge in September to freeze bills for 20 months if he wins the 2015 election.


Oil prices surge after attacks hit Saudi output

Updated 16 September 2019

Oil prices surge after attacks hit Saudi output

  • The Houthi attacks hit two Aramco sites and effectively shut down six percent of the global oil supply
  • President Donald Trump said Sunday the US was ‘locked and loaded’ to respond to the attacks

HONG KONG: Oil prices saw a record surge Monday after attacks on two Saudi facilities slashed output in the world’s top producer by half, fueling fresh geopolitical fears as Donald Trump blamed Iran and raised the possibility of a military strike on the country.
Brent futures surged $12 in the first few minutes of business — the most in dollar terms since they were launched in 1988 and representing a jump of nearly 20 percent — while WTI jumped more than $8, or 15 percent.
Both contracts pared the gains but were both still more than 10 percent up.
The attack by Tehran-backed Houthi militia in neighboring Yemen, where a Saudi-led coalition is bogged down in a five-year war, hit two sites owned by state-run giant Aramco and effectively shut down six percent of the global oil supply.
Trump said Sunday the US was “locked and loaded” to respond to the attack, while Secretary of State Mike Pompeo said: “The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression.”
Tehran denies the accusations but the news revived fears of a conflict in the tinderbox Middle East after a series of attacks on oil tankers earlier this year that were also blamed on Iran.
“Tensions in the Middle East are rising quickly, meaning this story will continue to reverberate this week even after the knee-jerk panic in oil markets this morning,” said Jeffrey Halley, senior market analyst at OANDA.
Trump authorized the release of US supplies from its Strategic Petroleum Reserve, while Aramco said more than half of the five million barrels of production lost will be restored by tomorrow.
But the strikes raise concerns about the security of supplies from the world’s biggest producer.
Oil prices had dropped last week after news that Trump had fired his anti-Iran hawkish national security adviser John Bolton, which was seen as paving the way for an easing of tensions in the region.
“One thing we can say with confidence is that if part of the reason for last week’s fall in oil and improvement in geopolitical risk sentiment was the news of John Bolton’s sacking ... and thoughts this was a precursor to some form of rapprochement between Trump and Iran, then it is no longer valid,” said Ray Attrill at National Australia Bank.