France Moves Toward Ending All Regulated Tariffs for Natural Gas Sales

by Jones Day

Jones Day

In Short

The Ruling: The Conseil d'État (France's Administrative Supreme Court) has ruled that the public service obligation to supply natural gas at regulated tariffs in France contravened EU law. In particular, it affirmed that no objective of general economic interest could justify the French legislation on regulated tariffs for the sale of natural gas.

The Result: This judgment lays the foundations for a fully competitive retail market for the supply of natural gas in France.

Looking Ahead: Following the Conseil d'État judgment, the French government must set an end date for regulated tariffs for the supply of natural gas in France. Households and small businesses, which are currently supplied at regulated tariffs, will therefore need to consider and compare market offers for the supply of natural gas. In addition, it is likely that regulated tariffs for the sale of electricity in France will attract scrutiny in the coming months and possibly also be terminated.

In July 2013, the Association nationale des opérateurs détaillants en énergie (National Association of Energy Retailers, or "ANODE") brought an action before the Conseil d'État. ANODE sought to invalidate the French Decree on regulated tariffs for the sale of natural gas in France (Decree N° 2013‑400). ANODE argued in particular that the legal basis of the Decree (Articles L. 445‑1 to L. 445‑4 French Energy Code) erroneously disregarded the objectives of the common rules for the EU internal market in natural gas, as set out in Directive 2009/73/EC of July 13, 2009.

As this case raised serious difficulties of interpretation, the Conseil d'État decided to stay the proceedings in December 2014, referring two questions to the Court of Justice of the European Union (CJEU) for a preliminary ruling (CJEU, 7 September 2016, Case C-121/15):

  • Regarding the first question, in September 2016, the CJEU responded that State intervention in fixing the price of supply of natural gas to the final consumer is an obstacle to achieving a competitive natural gas market, even if such intervention does not prevent competing offers at prices lower than regulated tariffs. Indeed, only the incumbent suppliers (Engie and 22 local distribution companies) are allowed to sell natural gas at regulated tariffs.
  • Concerning the second question, the CJEU ruled in line with previous case law that such State intervention may nonetheless fall within the framework of Directive 2009/73/EC, provided that the following three conditions are fulfilled: The State intervention must: (i) be a necessity in pursuing an objective of general economic interest; (ii) comply with the principle of proportionality; and (iii) lay down public service obligations that are clearly defined, transparent, nondiscriminatory, and verifiable, and that guarantee customers' equal access of EU gas undertakings.

No General Economic Interest Objective Can Justify Regulated Tariffs for Natural Gas Sales

On July 19, 2017, the Conseil d'État invalidated the Decree in its final judgment (CE, 19 July 2017, N° 370321), as the Decree derived from provisions of the French Energy Code that were incompatible with the objectives set out in Directive 2009/73/EC. According to settled case law, the principle of primacy of EU law requires national courts to annul administrative decisions that are contrary to EU law (even when deriving from national legislation).

Notably, the Conseil d'État annulled the Decree without conducting a proportionality test, emphasizing that the national legislation failed to pass the first step of the three-tier assessment set forth by the CJEU—the necessity test.

The Conseil d'État held that no objective of general economic interest could justify the extent to which the national legislation had hindered the achievement of a competitive natural gas market. In this respect, the Conseil d'État rejected all three of the claimed objectives of general economic interest submitted by the French State:

  • Security of supply. First, the State maintained that the security of supply in France via long-term contracts with foreign producers was ensured by requiring incumbent suppliers to offer natural gas at regulated tariffs. While the Conseil d'État acknowledged that most incumbent supply resulted from long-term contracts, it pointed out that such arrangements did not arise from any legal or contractual obligations. No legislation or public service contract compels incumbents to supply natural gas via long-term contracts. Therefore, the objective of security of supply could not justify the legislation on regulated tariffs.
  • Territorial cohesion. Second, the State argued that the Decree guaranteed territorial cohesion by providing harmonized prices for natural gas across the French territory. The Conseil d'État recognized that regulated tariffs allowed for an equalization (perequation) of transportation costs within each operating area. However, it found that natural gas was not a staple product (produit de première nécessité), given the availability of other substitute energy sources. Furthermore, the Conseil d'État observed that prices were harmonized only within each operating area, while significant price differences continued to exist among them. Thus, the Conseil d'État dismissed the objective of territorial cohesion.
  • Reasonable supply price. Third, regarding the claimed objective of ensuring a reasonable supply price, the Conseil d'État stated that regulated tariffs acted to fully and permanently cover the incumbent suppliers' costs. In an obiter dictum, the Conseil d'État hinted that price stability for the end-consumer could be an acceptable justification in the context of wholesale price volatility. However, it found the challenged legislation unfit to achieve this objective of price stability. Indeed, in calculating regulated tariffs, the Decree did not require indexing supply costs on variables more stable than wholesale prices. Consequently, the Conseil d'État dismissed the claim that the objective of a reasonable supply price could justify the Decree.

Repercussions for Gas Consumers and Suppliers

In principle, annulments of administrative decisions have retroactive effect. As a result, the Conseil d'État judgment should have voided contracts entered into on the basis of the annulled Decree. However, the Conseil d'État recognized that the Decree had led to more than nine million consumers entering contracts at regulated tariffs. In light of the adverse effects of a retroactive annulment and resulting legal uncertainty, the Conseil d'État exceptionally held that the Decree's past effects would be irrevocable. In practice, this means that at present, contracts for the sale of natural gas at regulated tariffs remain valid.

The French government must now move forward in setting an end date for regulated tariffs for the supply of natural gas to households and small businesses. When this day comes, these customers must change their contracts—or the financial clauses thereof—and compare competing market offers. They will then enter new supply contracts, either with the incumbent suppliers or their competitors.

Whether the end of capped regulated tariffs for incumbents will lead to an increase in natural gas prices in France is unknown. While some French consumer associations and trade unions fear this, the fact is that natural gas prices are presently lower in countries without regulated tariffs, such as Germany, the United Kingdom, and Italy. Also, since 2015, market offers in France generally have been made at prices lower than regulated tariffs.

The End of Regulated Tariffs for the Sale of Electricity?

It would seem logical that the next move would be to end France's regulated tariffs for the sale of electricity to households and small businesses as well, particularly to address the newly arisen distortion of competition between the natural gas and electricity sectors.

However, unlike natural gas, electricity is a staple product under the French Energy Code. Thus, the Conseil d'État's views on the objective of territorial cohesion may not fully apply to the electricity sector. In fact, legislation on regulated tariffs for the sale of electricity could, perhaps more so than for natural gas, be found to provide for an equalization of transportation costs across the French territory.

Compliance with EU Law—One Step Beyond the European Commission's Requirements

Remarkably, the impetus behind the clear move toward the end of all regulated gas tariffs was the Conseil d'État itself, not the government under pressure from the European Commission. Until now, the French government had been the lead player in debating the issue of regulated energy tariffs with the Commission.

In April 2006, the Commission initiated infringement proceedings against France, along with other Member States, for its failure to correctly implement the "Second Energy Package" liberalization directives for electricity and natural gas (respectively, Directives 2003/54/EC and 2003/55/EC). It thought that regulated energy tariffs for non-household customers, as provided for in the French Energy Code, impeded new entries into the market and prevented the free choice of supplier.

To address the Commission's criticisms, France adopted legislation limiting eligibility to benefit from regulated electricity tariffs to only households and small businesses whose subscribed power was below 36 kVA (Law n° 2010-1488 of 7 December 2010 on the New Organisation of the Electricity Market). As a result, the Commission closed the infringement procedure pertaining to regulated electricity tariffs in January 2012.

Subsequently, in May 2012, the Commission issued a further reasoned opinion, considering France's regulated gas tariffs for all non-household customers, regardless of their size and situation, to be disproportionate and called on France to promptly comply with its legal obligations. In March 2014, France finally adopted legislation limiting eligibility to benefit from regulated gas tariffs to only households and small businesses consuming less than 30 MWh/year (Law n° 2014-344 of 17 March 2014), which prompted the Commission to close the infringement procedure pertaining to regulated gas tariffs a few months later.

The Conseil d'État judgment of July 19, 2017, therefore, clearly exceeds the requirements (and expectations) of the Commission itself, whose infringement proceedings against France had never dared to challenge regulated tariffs for the sale of energy to the smallest customers—households and small businesses.

The Conseil d'État judgment can be found on its website.

Three Key Takeaways

  1. The Conseil d'État judgment is a decisive step in bringing French law into compliance with EU law for the achievement of a fully competitive natural gas market. Remarkably, it goes one step beyond the Commission's own requirements for France, by imposing the termination of regulated tariffs for the sale of natural gas to all customers (including households and small businesses).
  2. The French government must now take into account the Conseil d'État judgment and set an end date for the validity of regulated tariffs for the supply of natural gas in France. Households and small businesses, which are currently supplied at regulated tariffs, will then face choosing among competing market offers for the supply of natural gas.
  3. It is likely that regulated tariffs for the sale of electricity to households and small businesses in France will attract scrutiny in the coming months and possibly also be terminated.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Jones Day | Attorney Advertising

Written by:

Jones Day

Jones Day on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.