II.Electricity and Natural Gas Markets

II. Electricity and natural gas markets

9898 1. Changes in the regulatory 1.2.1. Regulation of customer invoices and to settle disputes between consumers and and legislative context supervision of suppliers’ commercial prac- electricity or natural gas suppliers, and for tices helping to ensure consumers are correctly 1. 1. Legislative context: informed. A decree of 19 October 2007, reversibility The Order of 2 July 2007 issued by the min- passed by the ministers for energy and for isters for the economy and for energy speci- the economy, specified how this entity shall The Law of 21 January 2008 modifies Arti- fies how electricity or natural gas supplier operate. cle 66 in accordance with the Programme invoices must be presented and defines a An order issued by the ministers for the Law of 13 July 2005. It allows specific list of information that must be provided. economy and for energy, dated 26 Octo- consumers, depending on their situation, For example, invoices must specify whether ber 2007, set the amount allocated to the to contract regulated tariffs for recently consumption is based on an estimate or a Mediator’s 2007 budget (€4.1 million). The connected sites (before 1 July 2010), or meter reading, and must list the subscribed current mediator was appointed on 5 No- to return to regulated retail tariffs until 30 services in detail. It does not prohibit invoic- vember 2007. June 2010. Despite its complexity (see In- ing based on a lump sum price, but does re- sets 19 and 20, p. 100), this system con- quire that at least once a year, the customer 1.2.3. Special natural gas solidarity tariff tributes to establishing trust in the market, receives an invoice based on the amount of created for vulnerable customers since any consumer who changes supplier energy actually consumed. This order was for a market-based contract is safe in the passed after consultation with the French A draft decree relative to supplying natural knowledge that they may return to a more National Council on Consumer Affairs and gas at a special solidarity tariff was sent to familiar system. has adopted CRE recommendations issued CRE on 11 February 2008 by the ministers in its decisions dated 8 February and 27 for the economy and for energy. CRE pub- 1. 2. Regulatory context September 2007 pertaining to the prepa- lished its conclusions on 27 March 2008. ration for open markets. Based on the Law of 7 December 2006, sev- The draft decree was sent to the Conseil eral provisions have been implemented to A decree dated 20 August 2007, issued by d’Etat on 24 April 2008. protect consumers. The following legislation the Minister for the Economy, reinforces the was adopted in 2007-2008: provisions of the Code for Consumer Protec- 1.2.4. Modification of the decree on com- • regulation of customer invoices and su- tion contained in the Law of 7 December mercially sensitive information (CSI) pervision of suppliers’ commercial prac- 2006, by enforcing sanctions for failure to tices; comply with these provisions. The decree of 16 June 2001 relative to com- • inauguration of the French National En- mercially sensitive information was modi- ergy Mediator; 1.2.2. Inauguration of the French National fied by a decree dated 27 November 2007. • creation of a special natural gas solidarity Energy Mediator As a result, it is now possible to overrule the tariff for vulnerable customers. opposition raised by most electricity dis- The French National Energy Mediator was tribution system operators with regards to The Decree of 16 June 2001 relative to com- inaugurated in accordance with Article 43 transmitting certain information to electric- mercially sensitive information has also of the Law of 10 February 2000, as modi- ity suppliers, namely consumption records been modified. fied by the Law of 7 December 2006, and and transportation power, when custom- is responsible for recommending solutions ers sign a supply service contract. CRE re-

CRE – Activity Report – June 2008 CRE action at national level

quested this modification long ago, since it 2. Electricity markets Power generation is essential in order for the market to op- Power generation is open to competition. erate correctly. It is up to ERDF to rapidly 2. 1. The value chain and Any company may produce electricity in implement the required modifications to its physical reconciliation France in order to: information system, especially since these • sell it on wholesale and retail markets; modifications could have been planned in The electricity value chain is composed • consume it, wholly or in part, for its own advance. of four links: power generation, trading, needs; transmission/distribution, supply to final • sell it to EDF or local distribution com- customers (see Figure 29, p.100). panies (LDCs) under the provisions of the purchase obligation system; • export it.

Inset 19: Reversibility conditions for household customers 99 Source: www.energie-info.fr

ELECTRICITY

If my current contract is under regulated 1) I can keep my current contract tariffs 2) I can sign a market-based contract

I already use electricity in my If my current contract is a market-based 1) I can keep my current contract residence contract 2) I can sign another market-based contract 3) The “reversibility” principle applies until 30 June 2010, I can sign a contract under regulated tariffs from EDF(1), at least 6 months after having signed a market-based contract for the first time for my current residence.

I am moving into a previously occupied residence or a 1) I can sign a market-based contract. newly connected residence 2) Up to 30 June 2010, I can sign a regulated tariff contract with EDF (1).

NATURAL GAS

If my current contract is under regulated 1) I can keep my current contract. tariffs 2) I can sign a market-based contract. > Important: If I sign a market-based contract, I can no longer I already use be supplied under regulated tariffs in my name for this place of natural gas in my residence. residence If my current contract is a market-based 1) I can keep my current contract. contract 2) I can sign another market-based contract. > Note: I can no longer subscribe, in my name, to a regulated tariff contract for this residence.

I am moving into previously occupied lodgings or 1) I can sign a market-based contract. a newly connected residence 2) Up to 30 June 2010, I can subscribe to a regulated tariff contract from Gaz de France (2)

(1) EDF or, in certain municipalities (involving less than 5% of the customer base), a local electricity supplier. (1) Gaz de France or, in certain municipalities (concerning less than 5% of the customer base), a local natural gas supplier.

CRE – Activity Report – June 2008 Inset 20: Reversibility conditions for professional customers Source: www.energie-info.fr

ELECTRICITY

If my current contract is under regulated 1) I can keep my current contract. I already use tariffs 2) I can sign a market-based contract. electricity at my place of business If my current contract is a market-based 1) I can keep my current contract. contract 2) I can sign another market-based contract.

1) I can sign a market-based contract. I’m requesting the reconnection of electricity in a previously 2) Until 30 June 2010, if I have power installed that is less than or occupied place of business equal to 36 kVA (Kilovolt-Amperes), I can subscribe to a regulated tariff contract from EDF (1).

1) I can sign a market-based contract. I’m requesting the connection of electricity in a place 100 2) Until 30 June 2010, I can sign a regulated tariff contract with of business that has just been connected to the electricity grid. EDF (1), regardless of installed power at this location.

NATURAL GAS If my current contract is under regulated 1) I can keep my current contract. I already use tariffs 2) I can sign a market-based contract. natural gas on my Important: If I sign a market-based contract, I will no longer have place of business the option of signing a regulated tariff contract for this location (this rule applies both to me and the next occupants at this location).

If my current contract is a market-based 1) I can keep my current contract. contract 2) I can sign another market-based contract.

1) I can sign a market-based contract. I’m requesting the reconnection of natural gas in a previously 2) I can sign a regulated tariff contract from Gaz de France(2) occupied place of business under the condition that the previous occupant of this location did not sign a market-based contract for natural gas.

I’m requesting the connection of natural gas in a place of business I must sign a market-based contract with the natural gas supplier that has just been connected to the natural gas network of my choice.

(1) EDF or, in certain municipalities (involving less than 5% of the customer base), a local electricity supplier. (2) Gaz de France or, in certain municipalities (concerning less than 5% of the customer base), a local natural gas supplier.

Figure 29: The commercial value chain for electricity Source: CREThe commercial value chain for electricity

Transport Supply Power generation Trading Distribution

Competitive market

Monopoly

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets

In France, EDF holds a dominant position in tunities provided through price differentials 2. 2. Wholesale market power generation, with 85% of total genera- in France and Europe. tion capacity. Four other generators operate The five principal generators, together with 2.2.1. Upstream concentration and vertical high-power facilities: Suez (CNR and SHEM), some non-generating suppliers, have de- integration on the market Endesa France, Gaz de France and Total. veloped trading activities. This activity is They own 6% of existing installed capacity. generally managed as a profit centre that Competition in terms of the power-generat- The remaining 9% is made up of small gen- is separate from generating and supply ing business in France is structurally insuf- erating plants operated by: activities. ficient. The French market is highly concen- • a large number of independent gen- trated in the upstream segment. In 2007, erators, mostly selling the electricity they Transmission and distribution the EDF group, which operates most of the generate to EDF and LDCs under purchase The French public transmission system is generation facilities, was responsible for obligations; managed by RTE, a subsidiary of EDF. The 85% of power produced nationally and ac- • industrial companies, which consume the distribution grids are managed by ERDF, an quired a further 5% of nationally produced electricity they generate. EDF subsidiary, and by roughly 160 LDCs. power from independent generators under Access to the French grid is open to third the purchase obligation system. Trading parties and is regulated. Trading consists in exchanging large vol- Similarly, power generation outside EDF is 101 umes of electricity on the wholesale mar- Supply concentrated between four generators. ket. On 31 March 2008, 117 operators were Supply refers to the sale of electricity to final active on the French wholesale market, i.e. customers, i.e. customers who actually use Over the coming years, three factors are roughly the same amount as the year be- electricity without re-selling it. This activity likely to somewhat modify the French gen- fore. There are three types of market play- is open to competition. There are 18 alterna- erating structure: ers: tive suppliers and around 160 LDCs who are • the Suez/Gaz de France merger project, • the five main generators mentioned electrical energy suppliers in France. which will increase the concentration of above, who have final customers and resell generators other than EDF; all or part of the electricity they generate Physical balance on the French market • start-up of new generating plants (using on the wholesale market, or they may pur- continues to show a significantly positive mainly combined-cycle gas turbines) al- chase electricity on this market, in addition export position, but one that is declining ready announced by different companies; to their own production, in order to supply each year. In 2007, net electricity exports • competition for the renewal of existing their final customers; accounted for 11% of the national genera- hydraulic power concessions. • non-generating suppliers, who buy on the tion volume, compared with 16% in 2006. wholesale market to cover the demand of Only the latter two factors will contribute to an their final customers; Figure 30 shows French electricity sup- increase in competition in the generation seg- • traders, who have no generation facilities pliers’ procurements and trade outlets in ment. However, their effects will be modest and no final customers, but purchase and 2007, together with variations compared and only tangible in the mid-term, essentially resell electricity to take advantage Physical of oppor balance- with 2006. of French market in 2007, on the peakload and semi-baseload supply. compared with 2006 (TWh) Figure 30: Physical balance of French market in 2007, compared with 2006 (TWh) Source: CRE according to RTE Imports 27 (-0,5) Exports 84 (-6) Losses 33 (+1)

Net domestic Power generation consumption 544 (-4,5) 455 (=)

Procurement Trade outlets

CRE – Activity Report – June 2008 Figure 31 illustrates the concentration of should be used with caution as an indicator Due to internal transfers of electricity be- French generating capacity. of the degree of competition. Concentration tween EDF’s generation and supply activi- and competition on wholesale electricity ties, volume exchanged on the wholesale The Herfindahl-Hirschman Index (HHI) markets are not connected as directly as market remains limited compared to na- measures market concentration – the they are on most other markets: in certain tional consumption. Associated with high more concentrated a market, the higher circumstances with a strained supply-de- upstream concentration, this degree of ver- the HHI. The HHI is equal to the sum of the mand balance, an operator with a limited tical integration restricts French wholesale square of the market shares held by each market share may have sufficient market market liquidity. Thus, in 2007, only 22% of market participant. In general, a market is power to be able to influence prices. generation and 13% of final customer con- considered to have a low concentration if Figure 32 shows energy flows between the sumption contributed to transactions on its HHI is below 1,000, and a high one if it different upstream and downstream seg- the wholesale market. is above 1,800. Given the specific features ments of the French wholesale market in of the electricity and gas markets, the index 2007.

Figure 31: Electricity generation concentration index (HHI): comparison between 2006 and 2007 102 according to four scenarios (in energy) Source: CRE according to RTE

10 000 9034 8955 9035 8958 9 000 8 000 7 000 6 000 5318 5 000 4401 4294 4570 4 000 highly concentrated market 3 000 2 000 concentrated market 1 000 slightly concentrated market 0 2006 2007 2006 2007 2006 2007 2006 2007 Excluding EDF Including EDF Excluding EDF Including EDF after GDF/Suez merger after GDF/Suez merger

Figure 32: Upstream and downstream segments on French wholesale market in 2007 Source: CRE according to RTE

Physical injections Physical withdrawals into network: 572 TWh Off-market volume: 395 TWh on grid: 572 TWh

Generation excluding VPP: Final customer 505 TWh 110 TWh 60 TWh consumption: 455 TWh including: Wholesale market: > customers under regulated tariffs 177 TWh, i.e. 31% of > customers at market prices injections/withdrawals VPP Generation: Network losses 39,5 TWh purchased on market: 33 TWh    

Imports: 27,5 TWh Exportations 84 TWh

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets

2.2.2. Business growth on French wholesale on the French wholesale market. Trading Powernext launched new trading services market is less concentrated than generation or supply to final customers. This is a result In July 2007, Powernext launched continu- Volume has remained steady of strong EDF generation-supply vertical ous-quote trading services for day-ahead integration: most of the volume generated contracts and intraday contracts. Activity Deliveries between wholesale market and supplied by the group does not pass on the intraday platform experienced strong players, which rose in 2006, have since through the wholesale market. growth from its launch until the first quarter remained steady (see Figure 33). of 2008, when it stabilized. The volume ex- Increased activity on Powernext changed on the platform, and the number These deliveries, which result from trans- of transactions are significant: in the first actions conducted in the past, are not an Activity on Powernext Futures fell until quarter of 2008, monthly volume processed accurate reflection of actual activity on the September 2007 and then experienced on Powernext Intraday was established on French wholesale market. However, their strong growth during the fourth quarter average at 56 GWh for an average of 2,311 stability tends to reflect a decrease in li- of the same year. In total, the volume transactions (see Figure 36, p.104). quidity. traded on Powernext Futures progressed from 37% over the last twelve months Figure 33: Concentration of deliveries remains low (see Figure 35, p.104). Activity on the 103 EEX France platform has been zero since On 31 March 2008, 117 balance responsible August 2006. entities were active on the French wholesale market, including 66 on Powernext Activity on Powernext Day-Ahead is increas- Day-Ahead and 41 on Powernext Futures. ing, with essentially seasonal variations. Figure 34 (p. 104) illustrates the concen- The total volume traded over the last twelve tration of deliveries related to transactions months rose by more than 25%.

Figure 33: Volume delivered on French electricity wholesale market (net delivery volume resulting from over-the-counter transactions) Source: CRE according to RTE

TWh 12

0 jul 2002 jul 2003 jul 2004 jul 2005 jul 2006 jul 2007 jan 2002 jan 2003 jan 2004 jan 2005 jan 2006 jan 2007 jan 2008 oct 2002 oct 2003 oct 2004 oct 2005 oct 2006 oct 2007 apr 2002 apr 2003 apr 2004 apr 2005 apr 2006 apr 2007

CRE – Activity Report – June 2008 Figure 34: Concentration index (HHI) for energy deliveries resulting from wholesale market trade – comparison between 2006 and 2007 (in energy) Source: CRE according to Powernext, RTE 3000

2500 High-concentration market

2000

1500 Concentrated market 978 1000 900 721 626 555 500 410 446 413

0 104 OTC – block purchases OTC – block sales Powernext - purchases Powernext – sales

Excluding EDF 2006 Excluding EDF 2007 Including EDF 2006 Including EDF 2007

Figure 35: Average transactionPowernext volume Day-ahead Auctionon French organizedPowernext Futures wholesaleEEX markets France – for all term durations Source: Powernext, EEX 12000 Powernext Day-ahead Auction Powernext Futures EEX France

10000 12000

8000 10000

GWh 6000 8000

4000 GWh 6000

2000 4000

0 2000

0 T1 2007 T2 2007 T3 2007 T4 2007 T1 2008

T1 2007 T2 2007 T3 2007 T4 2007 T1 2008

Figure 36: Average transaction volume on Powernext Intraday and Powernext Day-ahead continuous quote trading Source: RTE, CRE analysis Powernext Intraday Powernext Day-ahead Continuous 70 Powernext Intraday Powernext Day-ahead Continuous 60 70

50 60

GWh 40 50

30 GWh 40

30 20

20 10

10 0

0 T1 2007 T2 2007 T3 2007 T4 2007 T1 2008

T1 2007 T2 2007 T3 2007 T4 2007 T1 2008

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets

2.2.3. Transparency in power generation However, improvements could still be made load, compared with €49/MWh for baseload to the UFE system, namely with regards to and €69/MWh for peakload in 2006. Transparency of information concerning recommendations set out by the ERGEG in generation is an essential condition for its ”Guidelines of Good Practice on Infor- Day-ahead prices were low during the first wholesale markets to operate correctly. mation Management and Transparency in three quarters in 2007, mainly due to mild This condition is particularly important in Electricity Markets”: temperatures that limited the increase in France where EDF owns most of the power • data published only covers production re- demand during the winter and encouraged generating facilities. It is essential that the sources owned by generators participating the use of thermal power plants in sum- other market players have access to the in- in the initiative; mer. formation necessary to anticipate changes • it only involves generating facilities with in the physical supply-demand balance on power greater than 20 MW; From October 2007, prices continued to in- the French market. • data is aggregated into heterogeneous crease sharply. This increase seems to be categories such as “coal + gas”, “fuel + related to a sharp drop in temperatures, to- The Union Française de l’Électricité (UFE) peak”, “others”; gether with low availability from the French publishes ex post and ex ante information • no real-time updates exist for the data nuclear sector. According to EDF, the nuclear concerning the availability and use of facili- published, for example following any inci- sector experienced reduced availability ties owned by the main energy generators dents that may occur in the power plants. due to technical contingencies and labour 105 in France. Since February 2007, updates of movements. this data are conducted more frequently. During its study on price peaks observed on RTE publishes this information on its web- Powernext in October-November 2007, CRE site, without, however, guaranteeing its ac- analysed the data published by the UFE for curacy. the relevant days (see p.138).

Publication nonetheless improves transpar- 2.2.4. Price trends ency on the French market: • information provided covers all the key Day-ahead prices French power plants, representing 91% of volume generated; Figure 37 shows changes in day-ahead • forecast information focuses on times- prices on Powernext since January 2006. cales ranging from the next day to the next Day-ahead levels in 2007 were lower than three years. It thus covers the principal in 2006 – the annual average for 2007 day- forward dates of maturity on the French ahead on Powernext stood at around €41/ market. MWh for baseload and €59/MWh for peak-

Figure 37: Weekly averages of day-ahead prices on Powernext Source: Powernext Peakload Baseload 200 264,63 221,11 180 160 140 120 `/MWh 100 80 60 40 20 0 jul 2007 jul 2006 jan 2007 jan 2006 jan 2008 jun 2006 jun 2007 oct 2007 oct 2006 feb 2006 feb 2007 feb 2008 apr 2008 apr 2006 apr 2007 dec 2007 dec 2006 sep 2007 sep 2006 nov 2006 nov 2007 aug 2006 aug 2007 mar 2008 mar 2006 mar 2007 may 2006 may 2007

CRE – Activity Report – June 2008 Figure 38: Weekly averages of European day-ahead prices Source: Powernext, NordPool, EEX, Platts, Belpex, OMEL, IPEX

NordPool Germany France

120 NordPool Germany France NordPoolFR : 125,73 Germany France FR : 137,14 120 GER : 135,81 100 FR : 125,73 FR : 137,14 120 GER : 135,81 100 FR : 125,73 FR : 137,14 80 GER : 135,81 100 ` /MWh80 60 `/MWh 80 ` 60 /MWh 40 60 40 20 40 20 106 0 20 0 0 jul 2006 jul 2007 jan 2007 jan 2008 jan 2006 fev 2007 jun 2006 jun 2007 oct 2006 oct 2007 feb 2006 feb 2008 apr 2008 apr 2006 apr 2007 dec 2006 dec 2007 sep 2006 sep 2007 nov 2006 nov 2007 aug 2006 aug 2007 mar 2006 mar 2007 mar 2008 may 2006 may 2007 jul 2006 jul 2007 jan 2007 jan 2008 jan 2006 fev 2007 jun 2006 jun 2007 oct 2006 oct 2007 feb 2006 feb 2008 apr 2008 apr 2006 apr 2007 dec 2006 dec 2007 sep 2006 sep 2007 nov 2006 nov 2007 aug 2006 aug 2007 mar 2006 mar 2007 mar 2008 may 2006 may 2007 jul 2006 jul 2007 jan 2006 jan 2007 jan 2008 fev 2007 jun 2006 jun 2007 oct 2006 oct 2007 feb 2008 feb 2006 apr 2008 apr 2006 apr 2007 dec 2006 dec 2007 sep 2006 sep 2007 nov 2006 nov 2007 aug 2006 aug 2007 mar 2008 mar 2006 mar 2007 may 2006 may 2007 United Kingdom Belgium (since 21 November 2006) France 120 United Kingdom Belgium (since 21 November 2006) France FR : 125,73 FR : 137,14 UKUnited : 150,54 Kingdom Belgium (since 21 November 2006) France 120 GER : 135,81 100 FR : 125,73 FR : 137,14 UK : 150,54 120 GER : 135,81 FR : 125,73 FR : 137,14 100 UK : 150,54 80 GER : 135,81 `/MWh100 `/MWh 8060 `/MWh 80 6040 60 4020 40 200 20 0

0 jul 2006 jul 2007 jan 2006 jan 2007 jan 2008 fev 2007 jun 2006 jun 2007 oct 2006 oct 2007 feb 2006 feb 2008 apr 2006 apr 2007 apr 2008 dec 2006 dec 2007 sep 2006 sep 2007 nov 2006 nov 2007 aug 2006 aug 2007 mar 2006 mar 2007 mar 2008 may 2006 may 2007 jul 2006 jul 2007 jan 2006 jan 2007 jan 2008 fev 2007 jun 2006 jun 2007 oct 2006 oct 2007 feb 2006 feb 2008 apr 2006 apr 2007 apr 2008 dec 2006 dec 2007 sep 2006 sep 2007 nov 2006 nov 2007 aug 2006 aug 2007 mar 2006 mar 2007 mar 2008 may 2006 may 2007 jul 2006 jul 2007 jan 2006 jan 2007 jan 2008 fev 2007 jun 2006 jun 2007 oct 2006 oct 2007 feb 2006 feb 2008 apr 2006 apr 2007 apr 2008 dec 2006 dec 2007 sep 2006 sep 2007 nov 2006 nov 2007 aug 2006 aug 2007 mar 2006 mar 2007 mar 2008 may 2006 may 2007 Spain Italy France

120 Spain Italy France Spain FR : 125,73 Italy France FR : 137,14 120 100 FR : 125,73 FR : 137,14 120 100 FR : 125,73 FR : 137,14 80 100 ` /MWh80 60 `/MWh 80 ` 60 /MWh40 60 40 20 40 20 0 20 0

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets

At the end of October and in November, The first quarter of 2008 saw the prices on January until the end of March 2008, ac- high prices were observed on Powernext the European markets fall, mainly due to companying the sharp rise in coal and oil Day-Ahead: the hourly price reached €1,236/ mild temperatures. prices. MWh per hour on 19 and 29 October 2007, €2,500/MWh per hour on 21 and 12 Novem- Figure 38 shows changes in day-ahead Figure 40 (see p.108) shows the trend for ber, and €1,762/MWh per hour on 19 and 15 prices on the main European markets since annual forward baseload prices in France, November. CRE analysed how these prices January 2006. Germany, the United Kingdom and on Nor- were established (see p.138). dPool. Forward prices Between January and the end of March In 2007, French annual forward prices had 2008, the period of mild temperatures com- Figure 39 shows the changes in annual been lower than German prices since the bined with good German wind-power gen- forward (Y+1) baseload and peak prices beginning of the year, but by the end of Oc- eration helped ease tension in the French on Powernext since January 2006. On an tober 2007 French prices were higher than power grid, which, in turn, contributed to a average basis, prices in 2007 for supply in those in Germany. This change is clearly drop in day-ahead prices. 2008 were not as high as prices in 2006 for linked to tension on the French market supply in 2007. Nevertheless, prices at the during this period, causing a more signifi- The volatility of prices in 2007 reduced end of 2007 were far higher than those at cant rise in day-ahead prices on the French 107 compared with 2006; this reduction co- the beginning. market than on the German market. Factors incided with the end of the coupling proc- that pushed the day-ahead prices upwards ess on the French, Belgium and Dutch Since July 2007, the period was marked by (low temperatures, poor nuclear availability markets. the following: in France) could have led market players • first, steady prices over several months; to significantly increase the risk premium The prices in Germany, Belgium, United • then, by a clear increase in prices in Oc- for forward prices. Furthermore, the risk Kingdom and Spain displayed similar tober and November 2007, probably due to premium traditionally related to cold tem- changes to those in France: low for the first the sharp increase in the price of coal, oil peratures seems, once again, to have been three quarters of 2007, rising strongly from and day-ahead prices; considered as higher in France than in Ger- October. Prices were then pushed upwards • then, there was a slight drop in prices in many. From January 2008 to March 2008, partly because of a drop in temperatures, January, which appears to be related to oil the difference between German and French partly because of tension on the French and coal prices. Poor results from the US forward prices was almost zero. grid. Although French prices were lower economy and European financial markets, than in most European countries from fuelling expectations of an economic slow- January until September 2007, they were down, also seemed to contribute to a drop higher during periods of high tension on the in prices; French grid in October and November 2007. • finally, a sharp increase occurred from 24

Figure 39: Annual forward prices on Powernext Futures Source: Powernext Baseload Peakload

`/MWh 60

30 2007 prices 2008 prices 2009 prices 20 jul 2006 jul 2007 jan 2007 jan 2006 jan 2008 jun 2006 jun 2007 oct 2006 oct 2007 feb 2008 feb 2006 feb 2007 apr 2007 apr 2006 dec 2007 dec 2006 sep 2006 sep 2007 nov 2006 nov 2007 aug 2006 aug 2007 mar 2008 mar 2006 mar 2007 may 2007 may 2006

CRE – Activity Report – June 2008 Figure 40: European forward prices Source: NordPool, Platts, EEX, Powernext

NordPool United Kingdom Germany France 90

50 `/MWh

108 40

20 2007 prices 2008 prices 2009 prices 10 jul 2006 jul 2007 jan 2006 jan 2007 jan 2008 fev 2006 jun 2006 jun 2007 oct 2006 oct 2007 feb 2007 feb 2008 apr 2006 apr 2007 dec 2006 dec 2007 sep 2006 sep 2007 nov 2006 nov 2007 aug 2006 aug 2007 mar 2006 mar 2007 mar 2008 may 2006 may 2007

Figure 41 : Power consumption per sector and economic activity – base 100 in 1978 Source : CRE according to INSEE, Observatoire de l’énergie, Ministry for the Economy, Finance and Industry

250

200

150

100

0 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Iron and steel Transport Agriculture Industry Households & Service sector GDP (constant prices)

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets

2. 2. Retail market choose their electricity supplier (see Inset • TaRTAM contracts. These contracts were 21 and Figure 42). Since 1st July 2007, all only accessible in the first half of 2007 and French electricity consumption has in- consumers (34 million sites) have been only to customers having previously signed creased sharply over the last 30 years due able to choose their electricity supplier. market-based contracts. to rising consumption in the household and service sector (see Figure 41). From 1978 2.3.1. Prices proposed to customers Regulated retail tariffs to 1990, consumption has risen more rapidly than economic growth, with electricity There are three types of contract proposed Further to a request on 3 August 2007 playing an increasingly greater role in the to customers: from the ministers for energy and for the French economy. Since the beginning of the • contracts with regulated retail tariffs, economy, CRE conducted hearings on 9 1990s, power consumption has expanded only offered by incumbent suppliers (EDF August 2007 and filed its conclusions on at a pace close to that of GDP. However, and LDCs) in their respective areas. The price changes envisaged for 16 August since 2004 industrial consumption has area covered by an incumbent supplier is 2007, equivalent to 1.1% for blue tariffs, dropped. During the past five years, the defined by a concession contract or regula- which apply to household customers and annual growth rate of power consumption tions applying to the services of state-run independent businesses, and 1.5% for yel- has been around 1.5%. In 2007, French con- distribution companies. Contracts under low and green tariffs applicable to other sumption reached 480 TWh. regulated tariffs are subject to conditions; customers. 109 Since 1 July 2004, all non-household cus- • market-based contracts (offered by incum- tomers (4.7 million sites) have been able to bent suppliers and alternative suppliers);

Inset 21: Segmentation adopted by CRE

Large non-household sites: sites where contracted power is Small non-household sites: sites where contracted power is less greater than or equal to 250 kW. Their annual consumption than 36 kVA. Their annual consumption is generally less than 0.15 is generally greater than 1 GWh. Examples: industrial sites, GWh. Examples: independent businesses, tradesmen. hospitals, supermarkets, large buildings. Household sites: sites where contracted power is less than 36 Medium-sized non-household sites: sites where contracted power kVA. Their annual consumption is generally less than 10 MWh. is between 36 and 250 kW. Their annual consumption is between 0.15 GWh and 1 GWh. Examples: SMIs/SMEs.

Figure 42: Distribution of customer segments Source: CRE according to DSOs, RTE, supplier (2007 data)

0,1% 1 % 13 %

42 % Large non-household sites Medium non-household sites Small non-household sites 86 % 15 % Household sites

10 %

33 %

Number of sites Consumption

CRE – Activity Report – June 2008 By virtue of its decision of 9 August 2007, Market-based contracts tax that was increased by 23% for green the Commission: tariffs (in general those applied to large in- • expressed its opinion in favour of the pro- Market-based contracts vary according to dustrial sites), by 20% for yellow tariffs (in posed 1.1% increase for blue tariffs; customer segment. For large and medium- general those applied to medium-size sites) • expressed its opposition with regards to sized sites, the contract price is generally and by 10% for blue tariffs (in general those the proposed 1.5% increase for yellow and based on wholesale market prices. For small applied to small sites). TaRTAM replaces the green tariffs. This increase of 1.5% does not non-household and household customers, initial contract price for a maximum period correspond with the minimum increase re- there are two types of contract available: of 2 years, starting from the request. quired to cover all costs incurred by EDF to • contracts where the price is defined ac- supply these customers. The increase must cording to the regulated retail tariff: more Pursuant to Article 15 of the Law of 7 De- be higher than 1.5% for yellow tariffs; the often than not, the subscription fee is equiv- cember 2006, an evaluation report con- increase for green “A” tariffs must be higher alent to that of the regulated retail tariff and cerning this measure must be presented than the rise in yellow tariffs; the price of energy is cheaper. There are a to Parliament by the government before • requested that structural defects in each greater number of these contracts. 31 December 2008. Moreover, the TaRTAM pricing category be corrected. • contracts where the price is not defined tariff is subject to a formal assessment according to the regulated retail tariff: they procedure by the European Commission 110 The ministerial order dated 13 August 2007 are established by adding the grid access based on rules regarding state assistance

was limited to the project referred to CRE tariffs to the wholesale market price. They (see p. 51).. (see Figure 43). are often more expensive than the regulated retail tariff. 2.3.2. Scissor effect between regulated Regulated retail tariffs are subject to a for- retail tariffs and market prices mal ruling by the European Commission in TaRTAM the event of any failure to fulfil obligations The supply portion of the regulated retail (see p. 51). TaRTAM tariffs were set by the Ministry for tariff is obtained by deducting the transpor- Energy on 3 January 2007. They are equiv- tation portion, calculated on the basis of the alent to the regulated retail tariff excluding tariff for use of the public electricity grid. It

Figure 43: Changes in regulated retail tariffs for electricity to household customers (exclusive of local taxes, CSPE, and VAT) Source: CRE, according to EDF (2008)

140

120

E/MWh 100

60 7 june 2002 5 april 2003 26 july 2006 21 june 1997 19 april 1998 24 may 2007 1 march 1994 9 august 2001 23 august 1996 1 february 2004 11 october 2000 26 october 1995 15 february 1999 14 decembre 1999 28 december 1994 29 november 2004 27 september 2005 Tariff in current ` Tariff in `constant base year 2007

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets includes generating and marketing costs, caused the Direct Energy company to file • the scissor effect on tariffs, which penal- together with the supplier’s profit margin. a referral to the Conseil de la concurrence ised alternative suppliers buying on the (French competition authority) against EDF wholesale market (where the price has The supply portion of market-based contract (see Inset 22). more than doubled since 2004), who, in prices for large and medium-sized sites is order to attract customers, had to sell at based on wholesale market prices. Since 2.3.3. The non-household market: stagna- a price lower than the regulated retail tar- January 2004, the supply portion of these tion of sales at market price iff, which only increased by 2.8% over the contracts has exceeded the level of the sup- same period; ply portion of regulated tariffs. This effect is As of 31 March 2008, i.e. nearly four years • the sales practices of EDF, who stopping even more striking since the supply portion after the market was opened to all profes- selling market-price contracts to customers of regulated retail tariffs, for some of these sionals and local municipalities, 802,000 who are eligible to contract regulated retail sites, does not reflect the actual supply non-household sites hold a market-based tariffs for electricity. costs, and may even be negative. For small contract, including TaRTAM sites (see Fig- sites (household and non-household), the ure 44, p.112). More than 95% of them are supply portion of regulated retail tariffs is small non-household sites. In the first three also lower than the wholesale market pric- months of 2008, the number of sites with a es, but to a lesser degree than for the large market-based contract increased by 1,000 111 and medium-sized sites. The gap between sites per month compared to 5,000 sites the energy price on the wholesale market per month in 2007. This weak growth rate and contract prices on the retail market, for sales of market-based contracts to small also known as the “scissor effect”, has non-household sites is the result of:

Inset 22: Summary of Direct Energie/EDF dispute

On 22 February 2007, the Direct Energie The Conseil de la concurrence therefore starts at €36.8/MWh in 2008 and increases company referred a dispute with EDF to the charged EDF to propose a contract “to each year until it reaches €47.2/MWh in Conseil de la concurrence concerning EDF’s supply wholesale electricity or any other 2012; abuse of dominant position. technically and financially equivalent • an energy price in the second period that solution that allows alternative suppliers to is at least equal to development costs of The reason for the complaint was the compete efficiently, with no scissor effect the Flamanville 3 EPR and indexed on costs scissor effect on wholesale and retail on tariffs, against EDF retail contracts for of the nuclear sector; prices. electricity consumers on the free market”. • best possible allocation of quantities, for In 2005 Direct Energie, which does not example using an auction system on a price have its own generating capacity, signed a In the same decision, the Conseil de la that is added to the price paid during the wholesale procurement contract with EDF concurrence ruled that EDF must take first period; to supply its customers. The price of this interim protective measures. • a clause with additional prices designed contract was so high that Direct Energie to prevent windfall effects; could not offer independent businesses EDF replied to the Conseil de la • a product that is not a baseload delivery, contracts that could compete with EDF concurrence’s injunction by proposing a but a seasonal one according to the contracts, aligned with regulated tariffs. commitment published on 19 July by the availability of EDF nuclear power stations. Conseil, which tested on the market with 21 Direct Energie thus exposed the existence companies and organisations; Furthermore, EDF agreed to define a of a scissor effect on tariffs, characterized In its decision no. 07-D-43 of December sales policy for its market-price customer by an inability to compete with EDF 2007, the Conseil de la concurrence portfolio (around 400,000 sites), so that retail contracts without selling at a loss accepted EDF’s proposal, with certain the scissor effect would be completed when supply is procured from EDF on the amendments, and closed the procedure eliminated from the market. wholesale market. (see www.conseil-concurrence.fr/pdf/avis/ 07d43.pdf). EDF ran the first two auctions on 12 March Having sought CRE’s opinion, the Conseil 2008. Five suppliers shared the proposed de la concurrence considered that EDF The main features of EDF’s supply 500 MW for a surplus cost of €2.50/MWh was “likely to have implemented practices commitments on 10 December 2007 were with respect to fixed prices during the same that constituted an abuse of its dominant as follows: period. position on the wholesale markets for the • a contract exclusively designed for the generation and sale of electricity” and that mass market (connection voltage less than Direct Energy appealed against decision no. the serious and immediate infringement 36 kVA) and limited to 10 TWh per year; 07-D-43 to the Court of Appeal in Paris, and must be rapidly rectified since it had a • a long-term contract, structured over two no ruling has yet been made. detrimental effect on both Direct Energy periods of five and ten years; and the sector. • an energy price in the first period that

CRE – Activity Report – June 2008 Only 3,600 sites out of the 802,000 sites During the fourth quarter, around 200 large Comparison of the supply portion of TaRTAM using market-based contracts apply the sites representing 11 TWh of consumption, with forward prices, which serve as the ba- TaRTAM tariff. This involves mainly large discontinued their use of the TaRTAM tariff, sis for market-based contracts for large consumers (3,031 sites) that represent contracted mainly with incumbent suppli- sites (see Figure 47), shows that most 99.9% of the 86 TWh concerned by the TaR- ers (see Figures 45 and 46). of these sites previously holding market- TAM tariff. Seven small sites and 319 me- based contracts have resorted to the TaR- dium-sized sites also apply TaRTAM. TAM tariff.

Figure 44: Number of non-household sites with market-based contracts Source: CRE according to DSOs, RTE, incumbent suppliers

800 000

700 000 460 000 112 600 000 Incumbent suppliers (EDF and LDCs) 500 000 Alternative suppliers 400 000

300 000 342 000

200 000

100 000

0 jul 2007 jan 2008 fev 2008 jun 2007 oct 2007 apr 2007 dec 2007 sep 2007 nov 2007 aug 2007 mar 2008 may 2007

Figure 45: Proportion of TaRTAM sites in relation to total number of non-household sites with market- based contracts on 31 March 2008 Source: CRE according to suppliers

˜ 0% 1% ˜0%

50% TaRTAM sites (EDF and LDCs) 100% 99% 100% ˜ ˜ Sites with market-based contracts that have not opted for TaRTAM

50%

All sites with market- Large sites with Medium sites with Small sites with based contracts market-based market-based market-based (799000 sites) contracts contracts contracts (6000 sites) (22,000 sites) (22,000 sites)

CRE – Activity Report – June 2008

36% 30%

97% ˜100%

64% 70% Sites with market-based contracts that have not opted for TaRTAM TaRTAM sites

3% ˜0% All sites with Large sites with Medium sites with Small sites with market-based market-based market-based market-based contracts contracts contracts contracts (134 TWh) (122 TWh) (4 TWh) (8 TWh) ˜ 0% 1% ˜0%

50% TaRTAM sites (EDF and LDCs) 100% 99% 100% ˜ ˜ Sites with market-based contracts that haveCRE not action opted at for national TaRTAM level

50% Electricity and natural gas markets

2.3.4. Household market: opening to com- (see Figure 48, p.115). More than 95% of imposed by the fact that, until 21 January petition still not inAll sight sites with market- Large sitesthem with selected Medium an alternative sites with supplier.Small sites with2008, consumers were unable to return to based contracts market-basedThis limited extensionmarket-based of market-basedmarket-based regulated retail tariffs. The Law of 21 Janu- On 31 March 2008,(799000 nine sites)months after thecontracts contracts couldcontracts be explained by thecontracts scar- ary 2008, which established “reversibility” (22,000 sites) (22,000 sites) market was opened to household custom(6000- sites)city of information available to consumers under specific conditions, aims to encour- ers, 116,000 household sites out of 29.5 concerning the open market (see p.134), age consumer trust, thus encouraging a million had signed market-based contracts as well as the psychological impediment competitive, open market.

Figure 46: Consumption portion of TaRTAM sites in relation to total number of non-household sites using market-based contracts on 31 March 2008 Source: CRE according to suppliers

36% 30% 113

97% ˜100%

64% 70% Sites with market-based contracts that have not opted for TaRTAM TaRTAM sites

Figure 47: Standard large industrial site on transmission grid Source: CRE January 2008, according to Platts – Powernext data 70 Price for 2007 Price for 2008 65,88 60 Price for 2006 50 Price for 2004 Price for 2005 40 E/MWh 36,67 30 29,07

0 5 6 7 8 3 4 0 0 0 0 0 0 ------v v v v v v n n n n n n a a a a a a j j j j j j

French base price for coming year

Supply portion of electricity regulated tariff: regulated tariff (C8 TLU green tariff) for uniform service, minus the grid access tariff) Supply portion of TaRTAM tariff (C8 TLU green tariff) for uniform service +23%, minus grid access tariff

CRE – Activity Report – June 2008 2.3.5. A highly concentrated market also the case for customers in areas served sumption demand for non-household sites by LDCs. (see Figure 50, p.116). The Herfindahl-Hir- As of 31 March 2008, 18 alternative sup- The market share of alternative suppliers schman Index (HHI) values on the retail pliers had at least one customer in their remains low: only 7.2% of non-household market show that it is highly concentrated portfolios (see Table 10). Small household customers (342,000 sites) opted to select (see Figure 51, p.116). and non-household sites have more limited an alternative supplier (see Figure 49). choice of suppliers than the others. This is Alternative suppliers meet 12.4% of con-

Table 10: List of active suppliers on ERDF or RTE grids who asked to appear on the list of suppliers published by CREurce: CRE according to DSOs, RTE Source: CRE according to DSOs, RTE Source: CRE according to DSOs, R 114 Large non-household Medium non- Small non-household Household sites sites household sites sites Alterna* • • • • Atel Énergie • • Compagnie Nationale du Rhône • • • • Direct Énergie •  • • EDF* • • • • EGL •  Electrabel, Groupe SUEZ • • • • Endesa Energía •  • • Endesa France (SNET) •  • Enel France •  Enercoop  •  •  • E.ON Group •  Gaz de France •   • •   • GEG Source d’énergies*  •  •  • HEW Énergies •  Iberdrola •  KalibraXe •  Planète UI •  •  Poweo •  •  •  •  Proxelia* •  •  •  •  Sorégies* •  Verbund •  * These suppliers are considered as incumbent suppliers in statistics published by CRE.

(1) A supplier is “active” if it fulfils at least one of the following conditions: it has at least one site under a single contract; it acts as the balance responsible entity for at least one site through a distribution/transmission grid access contract; or it acts as the balance responsible entity and has delivered a part of the consumption for a site in the previous quarter. (2) The lists of suppliers published by CRE are drawn up using information sent by the suppliers on a voluntary basis. Suppliers that do not wish to appear on the list of suppliers published by CRE are not mentioned.

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets

Figure 48: Number of household sites with market-based contracts CRE according to DSOs, RTE, incumbent suppliers

120 000 4000 100 000

80 000 Incumbent suppliers (EDF and LDCs) Alternative suppliers 60 000

112 000 40 000 97% 82% 94% 82% ˜100% 115

20 000

0 jul 2007 jan 2008 fev 2008 jun 2007 oct 2007 apr 2007 dec 2007 sep 2007 nov 2007 aug 2007 mar 2008 may 2007

10% Figure 49: Distribution of sites according14% to contract type as of 31 March 2008 Source: CRE according to DSOs, RTE and incumbent suppliers ˜0% 1,4% 8% 4% 5% ˜0% 1,3% 1% All sites Large non-household Medium non-household Small non-household Household sites (34 million sites sites sites (29,5 million sites ) sites) (35, 000 sites) (400, 000 sites) (4,3 million sites )

Contracts with regulated tariffs

Incumbent supplier market-based contracts 97% 82% 94% 82% ˜100%

Alternative supplier market-based contracts

10% 14% ˜0% 1,4% 8% 4% 5% ˜0% 1,3% 1% All sites Large non-household Medium non-household Small non-household Household sites (34 million sites sites sites (29,5 million sites ) sites) (35, 000 sites) (400, 000 sites) (4,3 million sites )

Contracts with regulated tariffs

Incumbent supplier market-based contracts

Alternative supplier market-based contracts

CRE – Activity Report – June 2008 Figure 50: Distribution of consumption according to contract type as of 31 March 2008 Source: CRE according to DSOs, RTE and incumbent suppliers

33%

69% 94% 82% 33% ˜100% Contracts with regulated 69% 49% tariffs 116 94% 82% Incumbent supplier 100% market-based contracts ˜ Contracts with regulated 23% Alternative supplier 49% tariffs market-based contracts 11% Incumbent supplier 18% ˜0% market-based contracts 8% 5% 7% ˜0% 23% Alternative supplier 1% market-based contracts All sites Large non-household Medium non-household Small non-household Household sites 11% (429 TWh) sites sites sites (139 TWh) 18% 0% (182 TWh) (64 TWh) (44 TWh) ˜ 8% 5% 7% ˜0% 1% All sites Large non-household Medium non-household Small non-household Household sites (429 TWh) sites sites sites (139 TWh) (182 TWh) (64 TWh) (44 TWh)

Figure 51 : Concentration index (HHI) of electricity supply calculated according to 2007 consumption CRE according to DSOs, RTE, incumbent suppliers

10 000 9 000 8 000 7 000 6 000 Highly concentrated market 5 000 4 000 3 000 2 000 Concentrated market 1 000 0 Large non-household Medium non-household Small non-household Household sites sites sites sites

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets

3. Natural gas markets sale market to cover the consumption Storage facilities demand of their final customers and take As provided in Directive 2003/55/CE of 26 3. 1. The value chain and advantage of the flexibility of their supply June 2003, France has opted to allow third- physical balance contracts; party access to storage facilities to be ne- • traders, who do not have final customers gotiated rather than regulated. In practice, The natural gas value chain is composed but buy and resell gas to take advantage competition on the storage market is insuf- of five links: production, trading, transmis- of opportunities provided through price ficient given the duopoly consisting of Gaz sion/distribution, storage and supply to differentials in France, Europe and on the de France and TIGF. final customers (see Figure 52). short-term LNG market. Supply Production Certain suppliers have developed trading ‘Supply’ implies the sale of gas to final In France gas is produced by Gaz de France activities. This activity is generally man- customers, i.e. customers who actually and Total. The volumes produced are very aged as a profit centre that is separate from consume the gas rather than re-sell it. This low compared with national consumption supply activities. activity is open to competition. On 31 De- (less than 2.5%). cember 2007, 13 active alternative suppli- Transmission and distribution ers (i.e. a shipper that has at least one site Trading The two public transmission networks are in its portfolio) and 22 LDCs were conduct- 117 Trading describes the exchange of large managed by GRTgaz, subsidiary of Gaz de ing supply activities in France. volumes of gas. In 2007, 32 operators were France, and TIGF, subsidiary of Total. The dis- active on the French wholesale market, tribution networks are managed by GrDF, a French consumers are supplied almost equivalent to a 23% increase compared Gaz de France subsidiary, and by 23 LDCs. entirely by imports. French production vol- with 2006. There are two different types Access to French networks is open to third umes have been declining regularly and, in of market players: parties and is regulated. 2007, represented only 2.2% of domestic • suppliers, who buy and sell on the whole- consumption. Figure 53 (see p.117) shows

Figure 52: The commercial value chain for gas Source: CRE

Transport Storage Supply Production Trading Distribution

Competitive market Monopoly Competitive market with third-party access

Figure 53: Physical balance of French market in 2007 and comparison with 2006 (TWh) Source: CRE, according to GRTgaz and TIGF

Withdrawal Storage 121 (+7) 116 (-13) Exports 113 (+10)

Final customer Imports consumption (*) 595 (-35) 494 (+37)

Production 11 (-1)  Procurements Outlets

(*) Including system operator consumption

CRE – Activity Report – June 2008 French electricity suppliers’ procurements France and Total still own almost all of the concentration index used is Herfindahl-Hir- and trade outlets in 2007, along with varia- gas capacity that enters France. This im- schman (HHI – see p.102). tions compared with 2006. plies that the two groups cover practically all of the gas import market. In 2007, 89.3% Strong vertical integration 3. 2. Wholesale market of the gas imported in France was imported by Gaz de France and 4.2% by Total. Volume exchanged on the wholesale market 3.2.1. Upstream concentration and vertical remains relatively low in terms of national integration on the market 83.3% the export market in 2007 was cov- consumption. The concentration in imports ered by Gaz de France, and mainly involved and high degree of vertical integration be- the operator’s transit contracts. tween import and supply activities result in Concentrated imports/exports low liquidity. Most of the gas imported or Figures 54 and 55 show the concentration consumed in France is not traded on the Competition is insufficient in the supply of natural gas imports and exports and wholesale market, but is transferred inside segment of the French market. Gaz de how it has changed from 2006 to 2007. The integrated groups.

Figure 54 : Concentration index (HHI) of natural gas imports in France (2007 compared with 2006) 118 Concentration index (HHI) of natural gas imports in France CRE, according to GRTgaz(2007 and compared TIGF with 2006)

9 000

8 000

7 000

6 000

5 000

4 000 Highly concentrated market 3 000

2 000

1 000 Concentrated market Slightly concentrated market 0 2006 2007 2006 2007 Excluding Total and Gaz de France Including Total and Gaz de FranceConcentration index (HHI) of natural gas imports in France

Figure 55: Concentration index (HHI) of natural gas exports from France (2007 compared with 2006) CRE, according to GRTgaz and TIGF Concentration index (HHI) of natural gas exports from France France (2007 compared with 2006)

9 000 8732 8251 8 000

7 000

6 000

5 000 3766 4 000 Highly concentrated market 3 000 1844 2 000 Concentrated market 1 000 Slightly concentrated market 0 2006 2007 2006 2007 Excluding Total and Gaz de France Including Total and Gaz de France

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets

Gas release programmes It is unfortunate that Gaz de France and To- French market, with 20.6 TWh delivered tal have not implemented any new gas re- during the fourth quarter of 2007. In other Further to a European Commission decision lease programmes, especially since indus- zones, during the same period, increases in and at the request of CRE, a temporary gas trial implementation of the Fos Cavaou LNG activity were limited or zero. release programme was implemented for terminal has been significantly delayed. a three-year period, starting on 1 January Deliveries on the French market in 2007 2005. Gaz de France sold 15 TWh per year In its Third Energy Package proposal, the remain highly concentrated. 67% of volume on the “South” exchange point. Total sold European Commission envisages granting delivered between operators in 2007 was 1.1 TWh per year on the South-West gas regulators the authority to impose the im- sold or bought by Gaz de France or Total. exchange point. plementation of gas release programmes in Consequently, only 33% of deliveries result- order to promote competition. ed from transactions between newcomers On 20 July 2007, given the large gas release on the market. volumes in alternative supplier procure- 3.2.2. Growth on the French wholesale market ments, CRE launched a public consultation Figure 57 (see p. 120) provides details of on the impact of ending the gas release pro- Volume delivered continues to grow deliveries nominated at the various gas ex- grammes and whether or not it was worth- change points in 2007. while to repeat this experience. Volume delivered between operators on 119 the French market increased consider- Figure 58 (see p.120) illustrates the con- In its decision of 22 November 2007, CRE ably during the second half of 2007, from centration of purchases (withdrawals) and underlined the how important gas release 28 TWh traded during the fourth quarter of sales (deliveries) at the six gas exchange programmes are in terms of developing al- 2006 to 39 TWh during the fourth quarter points. The most liquid gas exchange points ternative supplier activities in the South and of 2007. Activities related to GRTgaz balanc- (North and East) also have also the least South-West balancing zones. Terminating ing represents less than 1% of the volume concentrated purchases. However, sales are these programmes would make it difficult processed. highly concentrated in all zones, except the for certain alternative suppliers to guaran- East zone. The concentration index used is tee customer supply in these zones. That Figure 56 illustrates the particularly strong the Herfindahl-Hirschman Index (HHI – see is why CRE recommended the rapid imple- increase in the North H zone where volume p.102). mentation of new programmes by Gaz de delivered more than doubled during the France and Total in the South and South- year. The North H gas exchange point has West zones. become the leading exchange point on the

Figure 56: Delivery volume at exchange points (excluding gas release deliveries) Source: CRE, according9 to GRTgaz and TIGF, Gaz de France et Total

6 North H zone East zone 5 West zone 4 South zone TIGF zone TWh 3 North B zone

0 jul 2005 jul 2007 jul 2006 jan 2005 jan 2006 jan 2007 jan 2008 nov 2005 nov 2006 nov 2007 mar 2005 mar 2006 mar 2007 mar 2008 may 2005 may 2006 may 2007 sept 2005 sept 2006 sept 2007

CRE – Activity Report – June 2008 Deliveries between operators on the French wholesale market in 2007 (TWh)

Figure 57: Deliveries between operators on the French wholesale market in 2007 (TWh) Source: CRE, according to GRTgaz and TIGF Gas release 14,4 Exchange between newcomers Other Purchase/Sale deliveries 40,2 by Gaz de France or Total 42,2 72,7 1,9 Sales to TSOs

120 Figure 58: Concentration index (HHI) for deliveries to gas exchange points in 2007 (excluding gas release deliveries) Source: CRE, according to GRTgaz and TIGF 10 000 9 000 8 000 7 000 Highly concentrated market 6 000 5 000 4 000 3 000 2 000 Concentrated market 1 000 0 Purchase Sale Purchase Sale Purchase Sale Purchase Sale Purchase Sale Purchase Sale East zone North H zone South zone TIGF zone West zone North B zone

Exchanges on gas exchange points Figure 59: Newcomer activity on the wholesale market (excluding gas release activity) Source: CRE, according to GRTgaz andNewcomer TIGF activity on the wholesale market Including exchanges (excluding gas release activity) between newcomers

10 Exchanges on gas exchange points 8

Newcomer activity on the wholesale market Including exchanges 6 (excluding gas release activity) between newcomers 4 16 2 14 0 12

10 jul 2005 jul 2006 jul 2007 jan 2005 jan 2006 jan 2008 jan 2007 sep 2006 nov 2005 nov 2006 nov 2007 Volume of deliveries to gas exchange points (TWh) mar 2005 mar 2006 mar 2007 mar 2008 may 2005 may 2006 may 2007 sept 2005 sept 2007 8

0 CRE – Activity Report – June 2008 jul 2005 jul 2006 jul 2007 jan 2005 jan 2006 jan 2007 jan 2008 sep 2006 nov 2005 nov 2006 nov 2007 Volume of deliveries to gas exchange points (TWh) mar 2005 mar 2006 mar 2007 mar 2008 may 2005 may 2006 may 2007 sept 2005 sept 2007 CRE action at national level Electricity and natural gas markets

Although deliveries at gas exchange points in France. And yet, day-ahead prices on various forward prices correspond to deliv- are concentrated, or even highly concen- the French market are very close to those ery on one of several standard timescales trated, the alternative operators’ share in- observed on NBP, which influence prices on (month, quarter, half-year, year). Other hubs creased sharply in 2007, rising from 19.2% the Zeebrugge hub. exist in continental Europe, including BEB in in the fourth quarter of 2006 to 40.5% in Northern Germany, and more recently E.ON the fourth quarter of 2007. Figure 59 shows Pricing in France is not representative of Gastransport in West Germany, PSV in Italy that volumes handled by alternative opera- the supply-demand balance in the coun- and Baumgarten in Austria, but their liquid- tors have more than doubled since March try. It is essentially dictated by the situation ity still remains very low. 2007. on the British market. This results from the significant lack of liquidity on the French – Day-ahead prices 3.2.3. Price trends wholesale market. Having dropped by 50% between January Aligning French prices with other European Sharp rise in European prices and April 2007 to reach €7/MWh, day-ahead markets prices of the three principal hubs on the • Hub prices European markets have been multiplied In the absence of an organised gas market by three. As a result, in April 2008, they in France, the only available prices indexes In Europe, three hubs propose reference stood at €25/MWh. Although a long-term 121 are published by specialized publication prices for wholesale gas trading: given the price reduction was expected after the im- agencies, such as Heren or Argus. strength of the British market (very high plementation of several infrastructures in liquidity and a large number of market the UK (new re-gasification facility in Tees- Figure 60 compares the day-ahead trend players), prices established at the Nation- side, implementation of BBL gas pipeline for European markets and the estimated al Balancing Point (NBP) (a virtual hub) in from the Netherlands to the United King- prices for long-term contracts. the United Kingdom are guideline prices for dom and from the Langeled gas pipeline other European hubs. In continental Europe, in Norway to the United Kingdom, and the The French market is characterized by: the two most important hubs are the Zee- capacity extension of the Interconnector • the significant flexibility available to brugge physical hub in Belgium and the Title from Belgium to the United Kingdom), it French suppliers with regards to their pro- Transfer Facility (TTF) in the Netherlands. is actually the opposite that has occurred. curement activities using flexibility clauses The liquidity of the latter increased strongly in long-term import contracts and large in 2007, whereas activity on the Zeebrugge storage capacities; hub remained stable, but still with exchange • strong congestion at interconnections. levels higher than TTF.

Given these two characteristics, wholesale Day-ahead prices established at these hubs market prices should reflect the tension in are the prices resulting from gas supply and the physical supply and demand balance demand for delivery the following day. The

Figure 60: GasPrix day-ahead day ahead du prices gaz en France in France et en Europe and Europe - weekly average Source: Argus, PlattsMoyenne hebdomadaire France North gas exchange point NBP Zeebrugge

40 `/MWh 30

0 jul 2006 jul 2007 jan 2006 jan 2007 jan 2008 fev 2007 fev 2008 jun 2006 jun 2007 oct 2006 oct 2007 feb 2006 apr 2006 apr 2007 dec 2006 dec 2007 sep 2006 sep 2007 nov 2006 nov 2007 aug 2006 aug 2007 mar 2006 mar 2007 may 2006 may 2007

CRE – Activity Report – June 2008 There are many causes behind this very in favour of a more flexible and more price- highest, prices at the Henry Hub, the refer- sharp price rise. reactive production policy. ence prices in the United States, have been - The increase in the price of oil products - Strong demand in Asia, which now has lower than NBP prices since Spring 2007 (which serve to index long-term gas supply an impact on European gas prices through (see Figure 61). contracts), thereby affecting forward prices LNG, since a certain number of LNG ship- as well as day-ahead prices established on pers unloaded their deliveries in Asia, where – Forward prices trading hubs. prices were more attractive. The sharp rise - The instability and unpredictable nature of in demand in Asia is largely due to the de- Having dropped at the beginning of 2007 gas flows from Norway, which is also partly mand from Japanese gas plants, since to €16/MWh in mid-February, forward prices responsible for the very high volatility of Japan closed its main nuclear power plant on NBP and in Zeebrugge increased in two observed prices. The Norwegians appear following the earthquake in July 2007. Al- phases, with a certain stability between to be abandoning their conventional policy though in 2007 the American demand for the months of May and September 2007, of keeping production and gas flows to the natural gas had increased for the first time reaching €26.5/MWh in January 2008. The United Kingdom and the Continent steady, since 2004 and LNG imports were at their end of 2007 was also marked by highly

122 Figure 61: Day-ahead prices for the three main European spot markets during 2006-2007 Source: Platts, Argus

20 E/MWh NBP 15 Zeebrugge TTF 10

jan-07 mar-07 may-07 jul-07 sep-07 nov-07 jan-08 mar-08

Figure 62: Forward prices (gas year) on NBP Source: Platts, Argus

30 27 24 E /MWh 21 18 NBP Y+1 15 Zeebrugge Y+1 jan-07 mar-07 may-07 jul-07 sep-07 nov-07 jan-08 mar-08

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets volatile prices as well as a certain decor- The Troll contract delivered to Zeebrugge or regulations applying to the services of relation between quotations on NBP and in increased by 22% in 2007. state-run distribution companies. Signing a Zeebrugge. contract for these tariffs is subject to spe- 3. 3. Retail market cific conditions; Like day-ahead prices, the drop of annual • market-price contracts, proposed by in- 2007 prices can be explained by a second The growth in consumption over the last cumbent suppliers and alternative suppli- year of mild temperatures and the imple- 30 years is related to increased consump- ers, who are free to set the price. Market- mentation and extension of several gas tion in the household and service sectors based contracts vary according to customer transmission infrastructures in the United (see Figure 64, p.124). However, the low segment. For sites connected to transmis- Kingdom. The very sharp rise in annual for- growth observed in the last two years can sion networks, market-based contract ward prices since the end of February 2007 be partly explained by the trend towards prices are generally based on European is explained mostly by increasing prices for installing electric heating in new build- wholesale market prices. For other custom- oil products, which serve to index long-term ings, by improved building insulation and ers, the price is either defined according to contracts. Thus, the Dated Brent price rose by more saving-focussed behaviour. In regulated tariffs or determined by totalling from $54/bbl in January 2007 to more than 2007, gas consumption before climate cor- the supplier’s costs. $100/bbl in April 2008 (see Figure 62). rections (497 TWh) fell by 2.9% compared with 2006, whereas increases since 1995 3.3.2. Regulated retail tariffs 123 • Long-term contract prices have stood at a yearly average of +2.5% and +1.5% since 2000. The original version of the Order of 16 June In continental Europe, around 90% of gas is Since 1 July 2007, all consumers (11.5 mil- 2005, in application of the Decree of 20 purchased within the framework of long-term lion sites) are free to choose their natural November 1990, regulated price changes contracts. The prices of these contracts are in- gas supplier (see Inset 23 and Figure 65, of gas sold by Gaz de France and LDCs dexed on domestic fuel oil and heavy fuel oil p.124). from public distribution networks until prices quoted in dollars and, in some cases, on 31 December 2007. After its modification the dollar/euro parity. Price upturns and down- 3.3.1. Prices proposed to customers by the Order of 28 April 2006, it no longer turns alike lag behind by three to six months, regulated price changes of gas sold by Gaz and are smoother than those of oil products There are two types of contract: de France. These provisions expired on 31 (see Figure 63). Contract prices have stabi- December 2007. lized to a higher level since April 2006. In April • contracts under regulated retail tariffs, 2008, prices of Algerian LNG entering via Mon- only proposed by incumbent suppliers (Gaz A new order, dated 21 December 2007, now toir in Brittany, and Russian and Norwegian de France, Tegaz and the 22 LDCs) in their provides a framework for changes in gas gas (both entering via Germany) reached 21, respective zones. An incumbent supplier’s regulated retail tariffs by LDCs and Tegaz 19.35 and €21.55/MWh respectively. zone is defined by a concession contract (see Inset 24, p.125).

Figure 63: Long-term contract prices and market prices Source: Platts 30

E/MWh 15

5 jan-07 mar-07 may-07 jul-07 sep-07 nov-07 jan-08 mar-08

NBP day-ahead (monthly average) Algerian gas (entry via Montoir) Russian gas (entry via Germany) NBP Y+1 (monthly average) Norwegian gas (entry via Germany)

CRE – Activity Report – June 2008 Figure 64: Natural gas consumption 200 per sector and economic activity - base 100 in 1979 (data corrected for climate) 150 Source: CRE according to Observatoire de l’énergie, the Ministry for the Economy, Finance and Industry 100 124

0 1979 1985 1990 2000 2002 2003 2004 2005 2006 2007 Energy sector consumption Iron and Steel Industry Households & Service sector Agriculture, Transport and Misc. Non energy-related use GDP (constant prices)

Figure 65: Distribution of customer segments Source: CRE according to DSOs, TSOs 0,01% 6%

33%

Non-household sites connected to transmission network 94% Non-household sites connected 39% to distribution network Household sites

28%

Number of sites Consumption

Inset 23: Segmentation adopted by CRE Non-household sites connected to Non-household sites connected to Examples: small industries, SME/SMIs, transmission network: these sites are distribution network: these sites skilled tradesmen, businesses. mainly industrial sites from any sector. correspond to the professional mass Examples: iron and steel producers, paper market. Household sites: domestic consumer sites. producers, chemical industries

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets

Local distribution company tariffs Gaz de France tariffs: public distribution a future oil price per barrel higher than pric- tariffs and subscription tariffs es integrated in the calculation of material Over the last year, 81 tariff scale proposals costs on 1 January 2008. CRE calculated were referred to CRE from LDCs for their Gaz de France public distribution tariffs that the increase on 1 January 2008 should public distribution tariffs and subscription were fixed from 1 May 2006 to 31 Decem- have been at least c€0.257/kWh on average tariffs. It gave an unfavourable opinion for ber 2007. In accordance with the Order of (i.e. an average of +6.4%), taking into ac- certain tariff scales filed for the 1 January 27 December 2007, they were increased to count catch-up measures reintroduced by and 1 April 2008 deadlines (see Table 11) an average of c€0.173/kWh as of 1 January order of the Conseil d’Etat, and considered, Figure 64: Natural gas consumption 200 mainly because the equation used for 2008. with this in view, that further tariff changes per sector and economic procurement cost changes was not ap- should normally take place during the first activity - base 100 in 1979 (data propriate. The Law of 3 January 2003 states that half of 2008. corrected for climate) 150 LDCs purchase their supply based on the regulated retail tariffs must cover costs. Source: CRE according to Observatoire Gaz de France STS tariff (Seasonal Trans- Pursuant to this provision, as interpreted This is what the French government decided de l’énergie, the Ministry for the Economy, mission Subscription), the Tegaz M tariff, by the Order from the Conseil d’Etat on by fixing an average increase for these tar- Finance and Industry 100 or the market price. Changes in their sales 10 December 2007 (see Inset 25, p.126), iffs at c€0.264/kWh, pursuant to the order of tariffs are very different (see Figure 66, CRE estimated, in its conclusion dated 27 17 April 2008, published in the Official Jour- p.126). December 2007, that the planned tariff nal on 29 April 2008 (i.e. 6.3% on average, 125 increase did not cover the average costs 5.5% on the B1 private heating tariff). 50 incurred by Gaz de France on 1 January 2008, in an economic context that points to

0 1979 1985 1990 2000 2002 2003 2004 2005 2006 2007 Inset 24: The Order of 21 December 2007 Energy sector consumption Iron and Steel Industry Households & Service sector Agriculture, Transport and Misc. Non energy-related use GDP (constant prices) The Order of 21 December 2007, relative to In addition, each supplier is requested cover the regulated retail tariffs of Gaz de regulated retail tariffs for natural gas sold to submit to these ministries an annual France. Gaz de France is treated differently by local distribution companies and Tegaz, report on the implementation of the tariff than LDCs and Tegaz and this cannot be sets the conditions for changing regulated revision equation and the incorporation of justified, even more so since Gaz de France retail tariffs applicable to public distribution costs other than procurement. If this report supplies around 11 million customers, and subscription tariffs from these reveals costs that are not reflected in the compared to roughly 500,000 for LDCs and companies up until 31 December 2010. tariffs, they are integrated in tariff change Tegaz. Furthermore, not having a clear view proposals for the coming year. of changes in regulated retail tariffs of this Tariff changes occur each quarter. supplier is detrimental to operations on the They must reflect any variations in gas Tariff scale proposals are filed by suppliers French natural gas market and constitutes procurement costs and any variations in at least 21 days before the end of each an entry barrier to alternative suppliers. other fees, namely those related to the use quarter. They are accepted if the ministries of networks and access to storage facilities. do not raise any objections within a week after receipt of CRE’s opinion. Furthermore, Procurement costs are calculated using a ministries may request that a supplier file revision equation specific to each supplier a new tariff scale that complies with CRE’s registered with the Ministry for Energy and opinion. the Ministry for the Economy, as well as In its opinion dated 18 December 2007, CRE. CRE deplored the fact that the order did not

Table 11: CRE opinions on retail tariff changes by LDCs Source: CRE

Proposed tariff scales Favourable opinion Unfavourable opinion 1 July 2007 19 19 0 1 October 2007 19 19 0 1 January 2008 21 14 including 1 not agreed 7 (including 4 not agreed by ministers) by ministers) 1 April 2008 22 17 5 (including 3 not agreed by ministers)

CRE – Activity Report – June 2008 In its opinion dated 17 April 2008, CRE ob- law. However, it should have been at least distribution networks that comes into force served with satisfaction that the govern- at c€0.348/kWh on average (i.e. +8.3% on on this date. ment proposed to continue the modification average, +7.6% on the B1 private heating Finally, CRE confirmed the need to imple- of tariff structures (initiated on 1 January tariff). ment a regulatory framework defining how 2008) and to take into account the varia- to fix the Gaz de France regulated retail tion of procurement costs – indexed on oil In its opinion, CRE requested that the Gaz tariffs. To provide suppliers and consum- product prices – since backed by the op- de France regulated retail tariffs for public ers with increased transparency, it recom- erator. The increase resulted in bringing distribution change on 1 July 2008 to take mended publishing a tariff indexing equa- tariffs closer to the criteria required by into account the new tariff for use of public tion.

Figure 66: Changes in public distribution tariffs between July 2006 and May 2008 (average customer with gas heating consuming 17 MWh/yr) Source: CRE

126

55 Gaz de France level 1

Gaz de France level 6

50 Gaz de Strasbourg

Gaz de Bordeaux

Gaz de Grenoble 45 Gedia

40 jul 2006 jul 2007 jan 2007 jan 2008 oct 2006 oct 2007 apr 2007 apr 2008

Inset 25: Order of the Conseil d’État dated 10 December 2007

In its order dated 10 December 2007, stipulating that regulated tariffs must cover assessed up to this date; second, to further to the referral from the Poweo costs, which led to fixing tariffs clearly take into account an assessment of cost company and the Féderation française des lower than the complete average costs of changes for the coming year, according combustibles, carburants et chauffage, the Gaz de France. In fact, CRE delivered an to information available at the time; and, Conseil d’Etat cancelled articles from the unfavourable opinion on this order on 23 third, to adjust these tariffs if he observes Order of 29 December 2005 that eliminated December 2005. any significant deviation between tariffs the initial change planned for 1 January and cost resulting from an undervaluation 2006 with regards to Gaz de France public The order now specifies that the Law of 3 of tariffs, at least during the past year, in distribution tariffs, together with the mass January 2003 must be enforced, i.e. that order to compensate for this difference catch-up measures planned for 1 April the “[public distribution regulated retail] within a reasonable period”. 2006 to compensate for losses resulting tariffs cannot be lower than the total from costs that were not covered in the average costs incurred by each operator. It past by these tariffs. also states that to meet this obligation, it is the competent minister’s responsibility, The Conseil d’Etat considered that this order on the day he makes his decision, first, did not comply with the Law of 3 January to ensure that the tariffs cover at least 2003 and the Decree of 20 November 1990 the average total costs of operators as

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets

Quarterly changes to the Gaz de France 3.3.3. Non-household market: increase to new buildings to sign market-based con- subscription tariffs have always been sales for market-based contracts tracts for gas between 1 July 2007 and 21 endorsed by CRE. These tariffs have not January 2008 (see Figure 69, p.128). stopped rising since July 2007. As of 31 March 2008, nearly four years after markets had been completely opened 3.3.5. A highly concentrated market Tegaz tariffs to all non-household customers, around 178,000 sites (or 26%) had market-based On 31 March 2008, 12 alternative suppliers Tegaz subscription tariffs now come un- contracts (see Figure 68, p.128). During the had at least one customer in their portfo- der the Order of 21 December 2007. They first quarter of 2008, the number of sites lio (see Table 12, p.129). Three alternative also change every three months; follow- with market-based contracts had risen by suppliers offer contracts to household cus- ing the same trends as Gaz de France around 4,900 sites per month, compared tomers. In areas served by local distribution (see Figure 67). with 4,200 sites per month in the first quar- companies, alternative suppliers are virtu- ter of 2007. ally non-existent. In the current situation on During 2007, Tegaz presented CRE with a the French market, alternative suppliers are cost and income analysis for each of its 3.3.4. Household market opens gradually to concentrated in GrDF zones. tariffs, together with a detailed description market competition of its procurement portfolio. On 1 January The market share of alternative suppliers 127 2008 CRE endorsed the tariff changes re- Since 1 July 2007, alternative suppliers remains low: of the 26% of non-household quested by Tegaz, which included a new have been signing as many market-based customers with market-based contracts equation for calculating changes in pro- contracts as incumbent suppliers, essen- (178,000 sites), 12% (80,000 sites) opted curement costs and modified the different tially when customers are moving to a new for an alternative supplier (see Figure 70, tariffs. residence. p.130). Alternative suppliers cover 17% of Since 1 July 2007, the household gas mar- non-household site consumption (see Fig- Special natural gas solidarity tariff ket is more dynamic than the electricity ure 71, p.130). market: 128,000 gas sites have selected an In its opinion dated 27 March 2008, CRE alternative supplier out of a total of almost On 31 March 2008, the HHI index (Hir- formulated recommendations on the draft 11 million sites, compared with 112,000 schmann Herfindhal Index) for the differ- decree relative to the supply of gas at a spe- sites out of 29 million electricity sites. One ent retail market segments showed strong cial solidarity tariff, which have not yet been of the explanations for this change is the concentration in the sector (see Figure 72, published. obligation imposed on occupants moving in p.131).

Figure 67: Comparison of Gaz de France and Tegaz subscription tariffs for a customer consuming 80 GWh/year Source: CRE 35

/MWh 20 Tegaz M tariff

15 Gaz de France STS tariffs

10 jul 2005 jul 2006 jul 2007 jan 2005 jan 2006 jan 2007 jan 2008 oct 2005 oct 2006 oct 2007 apr 2005 apr 2006 apr 2007 apr 2008

CRE – Activity Report – June 2008 Figure 68: Number of non-household sites with market-based contracts Source: CRE according to DSOs, TSOs, incumbent suppliers

200 000

180 000

160 000

140 000 98 000

120 000 Incumbent suppliers (Gaz de 100 000 France, TEGAZ and LDCs)

128 80 000 Alternative suppliers

60 000 80 000 40 000

20 000

0 jul-07 jan-08 fev-08 jun-07 oct-07 apr-07 dec-07 sep-07 nov-07 aug-07 mar-08 may-07

Figure 69: Number of household sites with market-based contracts CRE according to DSOs, TSOs, incumbent suppliers

300 000

270 000

240 000

210 000 143 000 180 000

150 000 Incumbent suppliers (Gaz de France, TEGAZ and LDCs)

120 000 Alternative suppliers

90 000

60 000 128 000 30 000

0 jul-07 jan-08 jun-07 oct-07 feb-08 apr-07 dec-07 sep-07 nov-07 aug-07 mar-08 may-07

CRE – Activity Report – June 2008 L’action de la CRE au niveau national Electricity and natural gas markets

Table 12: Number of suppliers active1 on TIGF, GRTgaz and GrDF networks who asked to appear on the list of suppliers published by CRE2 Sources: TSOs, DSOs, CRE – CRE analysis

Non-household Non-household Household sites sites, sites, Transmission Distribution Altergaz • • • Distrigaz SA • • EDF • • • ENI S.p.A • • 129 E.ON Group • • Gas Natural • • Gaz de France* • • • Gaz de Paris (Delostal et Thibault SA) • Gazprom Marketing & Trading • Iberdrola • Poweo • • • Soteg • • Tegaz* • • Wingas •

* These suppliers are considered as incumbent suppliers in statistics published by CRE. On 31 March 2008, only three alternative suppliers were offering contracts to household customers.

(1) A supplier is “active” if it has at least one site in its portfolio. (2) The lists of suppliers published by CRE are drawn up using information sent by suppliers on a voluntary basis. Suppliers that do not wish to appear on the list of suppliers published by CRE are not mentioned.

CRE – Activity Report – June 2008 38%

74%

96% 98%

42%

14% Figure 70: Distribution of sites according to contract type as 20% of 31 March2% 2008 12% Source: CRE according to DSOs, TSOs, 1% incumbent suppliers 2% 38% 1% All sites Non-household sites Non-household sites, Household sites (11,5 million Transmission Distribution (10,8 M sites) sites) (1 000 sites) (680 000 sites) 74%

96% 98% Contracts with regulated tariffs 42% Incumbent supplier market-based contracts (Gaz de France, TEGAZ and ELD) 130 Alternative supplier market-based contracts 14%

20% 2% 12% 1%

2% 1% All sites Non-household sites Non-household sites, Household sites (11,5 million Transmission Distribution (10,8 M sites) sites) (1 000 sites) (680 000 sites)

Contracts with regulated tariffs

Incumbent supplier market-based contracts (Gaz de France, Figure 71: Distribution TEGAZ and ELD) Alternative supplier market-based of consumption according contracts to contract type as of 31 March 2008 16% 33% Source: CRE according to DSOs, TSOs, incumbent suppliers

69% 57% 94% 82% 61% ˜100%

Contracts with regulated 57% 49% tariffs 97% Incumbent supplier market-based contracts

23% Alternative supplier market-based contracts 11% 31% 18% ˜0% 30% 8% 5% 7% ˜0% 1% 27% All sites Large non-household Medium non-household Small non-household Household sites sites sites sites (139 TWh) (429 TWh) 12% 9% 2% (182 TWh) (64 TWh) (44 TWh) 1% All sites Non-household sites, Non-household sites, Household sites (524 TWh) Transmission Distribution (148 TWh) (171 TWh) (205 TWh)

Contracts with regulated tariffs

Incumbent supplier market-based contracts (Gaz de France, TEGAZ et les ELD) Alternative supplier market-based CRE – Activity Report – June 2008 contracts CRE action at national level Electricity and natural gas markets

to listen to the needs of market participants plier invoices. 4. Monitoring open market and provide them with information operations Standardized models to be used to present A clear explanation for consumers on how supply services, created within the Con- 4. 1. Feedback and actions for open markets operate is still necessary. It sumer Working Group by consumer asso- improvement is still necessary to monitor how DSOs im- ciations and suppliers, were completed by plement procedures. ERDF and GrDF have all electricity and natural gas suppliers and A consultation process coordinated by CRE launched projects to enhance their meter- were made available to consumers. Since including representatives of customers, ing systems, submitted to and monitored the summer of 2007, consumers have also suppliers and system operators, work- by the Consumer Working Group. been able to benefit from precontractual ing within the Consumer Working Group, information to compare one supplier with Electricity Working Group and Gas Working 4.1.1. Consumer affairs another. Feedback was provided by the Group, drew up procedures to cover most Consumer Working Group during the second of the situations encountered by custom- The Consumer Working Group is the place half of 2007. ers. The main concepts in these procedures where the various stakeholders (suppliers, were included in the Guidelines Concerning system operators, consumer associations) The Consumer Working Group pursued work Provisions in Force on 1 July 2007, pub- exchange their views on the best way to in- on changing the charters of supplier com- 131 lished by CRE on 27 September 2007. These form and protect consumers. mitments to professional consumers, im- guidelines provide market players, particu- plemented in 2005. Through discussion, the larly newcomers, with a single and reliable It helped prepare the consumer informa- participants achieved consistency between reference document that centralises the tion campaign created by CRE, working in the electricity and gas charters. This work rules applicable to open markets. It will be cooperation with the ministers responsi- also strengthened commitments in terms of regularly updated. ble for consumer affairs and energy and providing information and processing com- the French National Energy Mediator. Mem- plaints, and established standardized mod- One year after 1 July 2007, public aware- bers of the discussion groups, particularly els for presenting supply services. Since 11 ness of issues on open energy markets consumer associations, have helped put January 2008, for both gas and electricity, still needs to be reinforced, which is why together an information leaflet (Invoice almost all suppliers that offer a single con- the working groups have been maintained, Info) that is enclosed with incumbent sup- tract (covering both supply and transmis-

Figure 72: Concentration index (HHI) of consumed natural gas supply as of 31 March 2008 Source: CRE according to DSOs, TSOs, incumbent suppliers

10 000 9 225 9 000

8 000 6 869 7 000

6 000 Highly concentrated market 5 000

4 000 3 705

3 000

2 000 Concentrated market 1 000 Slightly concentrated market 0 Non-household sites, Transmission Non-household distribution sites Household sites

CRE – Activity Report – June 2008 sion) have signed these charters. of the DSO-supplier contract and the sub- cedures set up to implement the change to For their part, the electricity and gas work- sequent sharing of liability. In the context open markets was collected through the ing groups have focussed their discussions of mass markets, where the single contract consultation process. around correcting any errors (technical ref- – covering conditions for both energy sup- erence of site, etc.) or handling situations ply and distribution – is the only true prac- The first results show that the procedures in which one of the parties is not acting in tical solution, suppliers felt that the DSOs’ currently in force must be consolidated. With accordance with procedures (sale without commitments were not strong enough to regards to electricity, the meter readings used previous order, etc.). efficiently establish them as the consum- in the different procedures needs to be more er’s single contact point. reliable, particularly the reading that appears This work has resulted in the creation of on the meter when the customer switches what has been referred to as “exception” In light of these elements, a large majority supplier. Certain provisions must also be re- procedures, allowing customers who have of suppliers active on the mass market re- viewed with a view to achieving greater con- been victims of errors or abuse to return to fused to sign the 2007 version of the DSO- sistency between gas and electricity service their initial situation in a simple manner, supplier contract and four of them referred contracts. Finally, automation of procedures free of charge. the matter to CoRDIS on 7 February 2008. must be encouraged to efficiently handle the increasing amount of data exchanges be- 132 4.1.2. Improvement of rules relative to sup- In its decision of 7 April 2008, CoRDIS de- tween participants in the process. plier and system operator relations cided that the DSO-supplier contract, which ensures effective supply to the final cus- Profiling system and rules for flow settle- Contracts for system use tomer and implements the single contract, ment inevitably creates, within the framework of With regards to gas, in 2007, all suppliers the single contract, a contractual relation- The profiling system consists of a statisti- signed a new version of the transporta- ship between the system operator and the cal model used to distribute customer en- tion/distribution contract with the system final customer, enabling the customer to di- ergy consumption over time between two operator Gaz de France. This new version in- rectly call on the DSO’s contractual liability actual meter readings. During this interval, corporates all provisions relative to opening under conditions that are at least similar to the meter measures the energy consumed the market to household customers. To help those that would result if the final customer by the customer on a totalisation basis. supplier’s overcome their concerns relevant were to sign a contract for access to the To determine how customer consumption to DSO (now GrDF) commitments to quality public electricity distribution network. Like evolves over time, it is necessary to refer of service, a new version of the contract will the regulated retail tariff electricity supply to the “profile”, a curve established statisti- be put forward in July 2008. contract, the contractual framework must cally, which shows the “shape” of customer be analysed as a legally binding package, in consumption. With regards to electricity, the 2007 version which the supplier assumes the role of an in- of the DSO-supplier contract, which takes termediary duly tasked by the final customer Flow settlement is performed by system into account changes induced by opening and the system operator (see p. 18). operators and consists of attributing the the market to household customers, re- energy consumed by customers to the ceived strong criticism from suppliers. Customer contracting procedures relevant suppliers so that suppliers can be invoiced for transportation costs. System These objections, which had already been In accordance with CRE’s decision on 27 operators rely on information provided by voiced in 2004, focus on the legal nature September 2007, feedback from all the pro- the profiling system in order to perform flow settlement.

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets

Given the potential financial consequences, question related to this issue. This falls with mercially sensitive information (CSI). The suppliers give careful attention to the pro- the scope of the powers endowed to CRE by new system makes it possible to switch filing system and flow settlement. These Article 15 of the Law of 10 February 2000 supplier at any time and has automated provisions have already undergone many on the approval of rules relative to the bal- procedures that were previously managed changes since they were implemented in ance responsible entity system. manually. 2004, when markets were opening to competition. But suppliers feel that further im- 4.1.3. Adequate information systems for With regards to gas, in accordance with the provements are necessary. open market conditions CRE decision of 27 September 2007, suppliers are now associated in the decision-mak- With this in mind, the Gas Working Group ERDF and GrDF information systems ing process when GrDF makes changes to has defined a pluriannual action plan that its information systems. aims to change certain parameters in the GrDF and ERDF customer management current profiling system (climate correc- information systems (IS) have been en- Despite this progress, given the critical role tion and adjustment factors, reference hanced to accommodate the sudden in- of IS when operating in an open market con- temperatures). With regards to flow settle- crease in data flows subsequent to full text, CRE wished to make certain that de- ment, system operators have undertaken market opening. Suppliers rely on these velopment of the GrDF information system several studies to implement a customer systems to automatically send and manage was properly managed and provided suffi- 133 consumption forecasting system. requests from their customers, in accord- cient enhancability. CRE conducted an audit ance with most of the rules defined during on GrDF information systems from May to With regards to electricity, questions related the consultation process (see Insets 26 July 2008 for just this purpose. to changing the series of profiles have insti- and 27). gated many debates and, until now, no con- LDC information systems sensus has been reached, since there is no Some ERDF and GrDF information system clearly defined decision-making process. functions remain to be deployed to meet all Local distribution companies (LDCs), ap- supplier expectations and fully comply with proximately 160 for electricity and 22 for At the beginning of 2008, GTE defined a market operation rules. New releases are gas, serve less than 5% of the total number series of qualitative and quantitative in- planned on a half-yearly or annual basis. of customers. Unfortunately, such wide dicators used to direct choices in terms diversity makes it impractical to consider of changes to the profiling system. It also With regards to electricity, the most recent any harmonisation of their information set up a governing process for this system upgrades to the ERDF IS incorporated the systems. wherein CRE approval is required for any new regulatory provisions relative to com-

Inset 26: Separating the ERDF and incumbent supplier’s customer management databases

Based on conclusions from the IS audit customers.) The deadline of July 2009 was tariffs will continue to be managed using conducted at ERDF during the second half set for EDF to transfer all its customers to Disco until 2010, and that there is no of 2006, CRE requested, in its decision of 8 its own customer management system. scheduled date for terminating household February 2007, that the supplier EDF stop customer transfers. using Disco as soon as possible. (Disco is CRE deplored that, given the pace of the system traditionally shared with ERDF, customer transfers announced by EDF, and used by EDF to manage regulated-tariff non-household customers under regulated

Inset 27: Privileged access for Gaz de France to GrDF information systems CRE has observed that the incumbent CRE disagrees with these operating It is important that Gaz de France complete supplier Gaz de France continues to enjoy procedures, which are discriminatory with the required changes to its information direct access to certain legacy applications, regards to other suppliers since only the system as soon as possible to separate it now owned by GrDF, to manage some incumbent supplier has a backup solution completely from the GrDF system. customers and to send a certain portion when the dedicated portal is down. of its service applications, despite the fact that a dedicated portal exists for all suppliers.

CRE – Activity Report – June 2008 However, suppliers must have the same Professional customers: increasing knowl- Household customers: limited knowledge market access conditions throughout the edge of open markets of the open market and its practical as- whole of France. CRE thus set out to get a pects clear view of measures taken by LDCs to More than three years after the market was comply with open market operation rules. fully opened to professionals, 59% of them Only 31% of households were aware that It conducted a survey with each LDC to ob- feel they are “well informed” about the open they had the right to switch supplier, and serve deployment of their information sys- market (end 2006: 44%, up 15 points in one yet 56% felt they were well-informed about tems and presented the results to members year). However, two thirds of them admit to opening markets to competition. This dis- of the consultation working groups. having “little knowledge” of the procedure crepancy indicates that most households required to switch supplier. had heard of open markets, but only in gen- One year after full market opening, it is es- eral terms, thereby preventing them from sential that LDCs continue their efforts in Opinions with regard to the open market clearly identifying the effects of an open this direction. At this point, only the largest remain largely favourable (62% compared market in practical terms. With regards to LDCs have been able to implement automat- with 15% with negative opinions), although practical procedures, 14% (for electricity) ed data exchange systems with suppliers, the proportion of customers who felt they and 15% (for gas) of households stated an impediment to newcomers setting up in had saved money thanks to the open mar- they knew the “steps to take” to switch 134 areas covered by LDCs. ket dropped from 45% to 30% between the supplier. end of 2006 and the end of 2007. 4. 2. Keeping consumers In terms of general opinion, 59% of house- informed Room for improvement remains with re- holds considered that open markets were “a gards to practical knowledge of open mar- good thing”, but had difficulty in correctly 4.2.1. Consumer surveys ket operations: identifying the benefits they may expect as • two out of three customers were incor- a result. Thus 44% of households felt that At the end of 2007, CRE conducted two cus- rect in thinking that it was the supplier who open markets would neither improve nor tomer surveys focussing on open markets: takes meter readings, whereas this task is deteriorate the quality of service and 52% one on non-household customers (the third actually the responsibility of the distribu- declared that it would not lead to reductions wave of an annual opinion barometer that tion system operator; or increases in their bills. However, 29% ex- started in 2005), conducted by the BVA In- • two out of three customers were incor- pected a positive impact on the quality of stitute, and the other on household custom- rect in thinking that the risk of electricity or service (21% expected a negative impact) ers, conducted by the LH2 Institute. These gas power cuts were related to the selected and 29% declared that open markets would two surveys will be repeated at the end of supplier; entail saving money (11% felt they would 2008 to obtain results over time for both • in contrast, two customers out of three lose money). opinion barometers. were fully aware that switching supplier is free of charge. Illustrating a lack of concrete information, The results of these two surveys were pub- most of those interviewed could not im- lished on the CRE website in January 2008. Finally, familiarity with market partici- mediately cite the name of a supplier other They confirm that consumers require better pants had strongly increased since the than their own (76% for electricity, 84% for information concerning open markets. Al- brand recognition rate of the main alter- gas) and only 32% of households felt they though most consumers felt they were well native suppliers had almost doubled in were well informed with regards to contracts informed about opening energy markets to one year, although it still remains far below from different suppliers. Furthermore, 31% competition, they had little knowledge on that of the incumbent supplier (see Figure still thought that EDF and Gaz de France service contracts, the participants involved 73 and 74). were one and the same company. and practical issues, revealing that the level of information provided is still too general. Most households also wrongly thought that it was their supplier who took meter readings, whereas this task is actually the responsibility of the distribution system operator (79% shared this “misconception” for electricity, 77% for gas) and one out of two households wrongly thought that the risk of electricity or gas power cuts depended on their selected supplier (see Figure 75, p.136).

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets

Figure 73: Electricity supplier brand recognition by professional customers in December 2007 Base: All persons surveyed (1,502). Current supplier not included. Source: BVA survey for CRE (December 2007)

Instant recognition (current supplier not included) Overall Global recognition recognition WITHOUT WITH Assisted recognition current current (current supplier not included) supplier supplier

Gaz de France 12% 79% 2007 91% 93% 2006 85% 87% 9% 76%

Poweo 24% 31% 2007 55% 56% 2006 27% 31% 11% 16%

Electrabel 6% 22% 2007 28% 28% 2006 15% 15% 135 4% 11%

Direct Energie 4% 26% 2007 30% 31% 2006 14% 17% 2% 12%

CNR 1% 21% 2007 22% 22% 0% 11% 2006 11% 11%

5%3% EDF 2007 8% 100% 8% 5% 2006 13% 100%

Figure 74: Natural gas supplier brand recognition by professional customers in December 2007 Base : Gas users (486). Current supplier not included. Source: BVA survey for CRE (December 2007)

Instant recognition (current supplier not included) Overall Global recognition recognition WITHOUT WITH Assisted recognition current current (current supplier not included) supplier supplier

2007 90% 94% EDF 15% 75% 2006 85% 88% 11% 74% Poweo 16% 42% 2007 58% 60% 2006 7% 25% 32% 34% Electrabel 2% 25% 2007 27% 27% 2006 19% 19% 2% 17% Gaz de France 9% 10% 2007 19% 100% 2006 13% 100% 6%7% Tegaz 4% 13% 2007 13% 20% 3%8% 2006 11% 11% Altergaz 3% 10% 2007 9% 6% 2006 2%7% 6% 10% Gaz de Paris 0%8% 2007 10% 9% 2006 0%6% 6% 6%

CRE – Activity Report – June 2008 4.2.2. Consumer information resources A section devoted to professional custom- market segment. This application was devel- ers will be unveiled during the third quarter oped through a joint effort bringing together Website of 2008, with a view to providing specific distribution system operators (electricity information for companies on procedures and natural gas) and suppliers. The latter On 23 May 2007, CRE unveiled an informa- and energy services designed for profes- can update any information concerning tion website aimed at household custom- sionals. them in real-time, using a secured extranet ers, designed in collaboration with the min- site. Information is published under supplier istries for consumer affairs and for energy Finally, a search engine used to locate sup- responsibility (see Figure 76). and the French National Energy Mediator. pliers according to their post code shall be The site at www.energie-info.fr informs con- implemented in the third quarter of 2008, In response to questions raised by consum- sumers on procedures to follow (when mov- allowing any consumer, household or pro- er associations and some elected officials, ing house, for a new connection, contract fessional, to access the complete list of CRE is conducting a feasibility study on the termination, switching supplier), service electricity or natural gas energy providers development of a shopping robot to select contracts (information on suppliers, choice offering services in their area, and in func- electricity and natural gas service con- of contracts, etc.) as well as on consumer tion of their level of consumption. tracts, similar to those developed in other rights, particularly in the event of a dispute European states. 136 with a supplier. It was designed to provide This easy-to-use search engine takes into access to clear, easy-to-understand infor- account the specific service features of mation, independent of suppliers. Since its each supplier, some of them open to the launch the website has recorded an average possibility of developing their business in of 30,000 hits each month. a specific geographical area or for a specific

Figure 75: Household customer familiarity with open markets in December 2007. “In your opinion, can a household like yours switch their natural gas/electricity supplier?” La connaissance de l’ouverture des marchés pour les clients résidentiels en décembre 2007 " Selon vous, pour un foyer comme le votre, est-il possible de changer de fournisseur de gaz naturel / d’électricité ? "

Ensemble des foyers (Utilisateurs gaz + non utilisateurs gaz)

Full knowledge Full knowledge 31% Partial knowledge Don’t know

6% Don’t know 63% Partial knowledge

Full knowledge = gas consumers who are aware of their right to switch gas AND electricity supplier + electricity-only consumers aware of their right to switch electricity supplier

Partial knowledge = gas consumers who have identified that they can switch one of their two suppliers

Don’t know = gas consumers who do not know that they can switch their energy provider + electricity-only consumers who do not know that they can switch their electricity supplier

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets

Consumer Information Service: by mail, Since 1 July 2007, this department has Administrative authorities receive files e-mail, and telephone processed some 30,000 requests each transferred by CRE that fall within their month, including hundreds of letters and jurisdiction: over one hundred files were Since July 2004, CRE has received many e-mail messages (see Figure 77, p.138). transferred to the DGCCRF (directorate questions and complaints from non-house- general for consumer affairs, competition hold customers, mostly from independent 90% of these inquiries requested contact and fraud prevention) and to the French business consumers. These customers are details for electricity and natural gas sup- National Energy Mediator (see Inset 28). referred to CRE by DSOs and suppliers ac- pliers. The other most common topics tive on the market when they themselves covered the practical aspects on how the are not in a position to provide them with French market is organised and operates, information. and how to proceed to switch supplier, get connected, and be activated. To prepare household customers for open markets, on 18 June 2007 CRE set up a Since July 2007, CRE has received 150 con- consumer information service accessible sumer complaints each month (household by telephone on 0810 112 212 (price of a and non-household) concerning suppliers local call), by mail and by e-mail. House- or system operators. These complaints in- 137 hold and independent business customers volve the practices of suppliers’ sales rep- can contact the information department resentatives, problems encountered when for answers to their questions on the open terminating a contract, quality of suppliers’ energy market, practical procedures, and customer services, billing procedures, and their rights. estimated consumption values.

Figure 76 : Finding electricity or gas suppliers at www.energie-info.fr

Inset 28: A service shared with the National Energy Mediator

At the beginning of 2008, CRE and the This information service includes the This joint effort has set out to develop National Energy Mediator agreed to website www.energie-info.fr and the information resources while conserving a share the CRE’s consumer information consumer information service (telephone, single point of entry for consumers’ energy- service, which it had set up for household e-mail, mail). related questions. customers.

CRE – Activity Report – June 2008 4. 3. Monitoring wholesale Wholesale market prices determine: 4.3.2. Price peaks in October and November markets • wholesale revenue generated by opera- 2007 tors who control physical sources of pro- 4.3.1. Monitoring wholesale markets to curement (production facilities, long-term On the electricity market, in October and establish trust import contracts); November 2007, electricity prices hit record • the procurement cost for suppliers who do highs on the Powernext Day-Ahead Auction Article 28 of the Law of 10 February 2000, not own such procurement sources. trading platform. While, during the first nine as modified by the Law of 7 December months of the year, prices for delivery be- 2006, tasked CRE with a mission to monitor tween 18:00 and 20:00 averaged €36/MWh, market activity. It stipulates that CRE “shall Some of the practices targeted include the rising to a maximum of €118 MWh, they monitor, for electricity and natural gas, all following: peaked at: transactions made between suppliers, trad- • withholding gas production capacity or €1,236 /MWh for delivery on Monday, 29 Oc- ers and producers, all transactions made volume with the intent of raising prices by tober 2007 between 18:00 and 19:00; on the organised markets as well as cross- creating an artificial shortage; €2,500/MWh for delivery on Monday, 12 No- border trading. It shall ensure that bids • practicing excessively low sale prices with vember 2007 between 20:00 and 21:00; made by suppliers, traders and producers the intent of bringing market prices below €1,762/MWh for delivery on Thursday, 15 No- 138 are consistent with the relevant financial their normal level, thereby reducing the rev- vember 2007 between 18:00 and 19:00. and technical requirements.” If CRE detects enue of competitors; any illicit behaviour, the law also stipulates • at the initiative of one or several market CRE conducted an investigation into these that its Chairman must refer the matter to players, sending purchasing or sales orders price peaks, which resulted in a CRE com- the Conseil de la concurrence, the author- to trading platforms with the intention of munication and a detailed report published ity governing anticompetitive practices in spreading false information on price trends on 17 April 2008. France. on the market. CRE concluded at the end of this enquiry Monitoring market activity aims to detect By developing trust in the market, monitor- that the supply and demand balance situ- any behaviour that may impede market ing encourages the entry of newcomers in ation favoured high prices throughout the competition. It ensures that any mar- the trading segment and multiplies transac- period under study. The price peaks re- ket players with a dominant position do tions. Furthermore, trust in market pricing sulted from market players’ expectations not exercise abusive power, and that the mechanisms, a determining factor for po- regarding the state of tension in the French transactions completed do not constitute tential investors, contributes to the security system. They were caused by concomitant an impediment to the competitive pricing of supply on French markets. supply reduction movements and/or in- mechanism. creases in demand on the Powernext Day-

Figure 77: Customer contacts received by CRE 45000 Source: CRE

40000

35000

30000

25000

20000

15000

10000

5000

0 jan-07 feb-07 mar-07 apr-07 may-07 jun-07 jul-07 aug-07 sep-07 oct-07 nov-07 dec-07 jan-08 feb-08 mar-08 apr-08 Questions Complaints

CRE – Activity Report – June 2008 CRE action at national level Electricity and natural gas markets ahead Auction. CRE did not identify any il- occur. This principle increases the objec- of import capacity remained unused at the licit individual behaviour intended to cause tivity of the published data, but leads to borders. Establishing efficient allocation these price peaks. systematic underestimation of published methods, and, in particular, market cou- availability compared with its actual value. pling for all French interconnections, would However, CRE did identify several factors Moreover, the UFE publication process is not have made it possible to keep prices on the that encouraged these price peaks: sufficiently reliable. Finally, the published French market down. Factor No. 1: EDF Group, via EDF Trading, did data is not accompanied by sufficient his- not offer all its available production capac- torical information. At the conclusion of this investigation CRE ity, especially hydraulic production, on the asked: Powernext Day-Ahead Auction on 12 Novem- Factor No. 4: the methods used to imple- • all the major participants in the wholesale ber 2007 between 20:00 and 21:00. ment procedures launched by Powernext to electricity market, especially EDF, to im- The analysis conducted by CRE shows that attract additional bids need to be improved; prove their internal market transaction pro- the cause of this situation lies in the EDF analysis of the procedure applied by Pow- cedures, so that their action is an accurate Group’s daily decision-making process. ernext on 11 November 2007 shows that reflection of the state of their portfolio; its implementation was inappropriate given • the UFE and its power-generating mem- Factor No. 2: the operating procedures of the market situation: procedure formalities bers to improve the reliability of the fore- certain members of Powernext Day-ahead had not been thoroughly established and cast production figures published on the 139 Auction tend to slow their reactions, par- too few market players had been consult- RTE site and, in cooperation with CRE, to ticularly over the weekend; the limited size ed. Furthermore, the preliminary test con- supplement these publications with suf- of the market players’ trading teams at ducted by Powernext to decide whether or ficient information so that market players weekends can influence market prices on not to launch a Request for Quotes (RFQ) can correctly anticipate the situation on the the following Monday, since by not reacting needs to be improved. Finally, the RFQ pro- French market; to the market situation, market conditions cedure was not organised jointly with the • Powernext to improve the procedure ap- may give a false impression, leading partici- other exchanges participating in market plied when the Powernext Day-ahead Auc- pants to make wrong decisions. coupling, while Belgian import capacity tion price does not seem to reflect the mar- was available. ket situation, specifically by coordinating Factor No. 3: the forecast production data with the Belgian and Dutch exchanges; published by the UFE (French Electricity Factor No. 5: the mechanisms currently • RTE to accelerate the implementation of Union) does not allow market players to used to allocate interconnection capacity more efficient methods for allocating trans- correctly anticipate the risk associated with are not conducive to efficient interconnec- mission capacity to interconnections. unexpected outages. In applying the rules tion management. At the time of the three This investigation shows that by monitoring adopted by the UFE, the forecast available price peaks on the French market, while market activity, CRE can identify concrete capacity published for the thermal produc- prices on the neighbouring organised mar- roads to improvement for market operation sector only takes account of scheduled kets were all much lower than on Powernext tions. power station shutdowns that are sure to (except for Belgium), a substantial volume

CRE – Activity Report – June 2008 4.3.3. Transaction monitoring procedures - Phase 1: CRE will occasionally request Given the price rises on the forward electric- on wholesale markets information concerning transactions con- ity market in 2007 and given that the first cluded after 1 January 2007; gas release contracts will expire in 2008, As part of its monitoring mission, CRE start- - Phase 2: based on experience feedback CRE has formulated (as part of Phase 1) a ed by systematically collecting information and after discussions with market players, special request for data on the following: from electricity generators, Powernext and CRE may decide to systematically collect – for electricity: any transactions completed transmission/distribution system opera- information on transactions. in 2007 for annual products to be delivered tors on a monthly basis. in 2008 and 2009, baseload and peakload The scope of Phase 1 covers transactions (“Y+1” or “Cal08” products); At the beginning of 2008, however, CRE had made for physical deliveries, which repre- – for gas: any transactions completed in still not received information on bilateral sents most of the transactions concluded 2007 for seasonal products to be delivered transactions conducted by companies op- on the French electricity and gas wholesale in 2008 and 2009 (calendar years and gas erating on the French electricity and natural markets. years). gas wholesale markets. To reduce the workload of market partici- CRE had begun discussions with organi- pants, CRE offers them the option of send- 140 sations representing market participants ing data via intermediaries. It encourages concerning measures that would give CRE participants to mandate brokers to whom effective access to these transactions and they regularly confide their business to limit the corresponding workload of these conserve and send to CRE any transactions participants. On 16 April 2008, it made pub- they know about. CRE will itself collect data lic the approach it plans to adopt and asked on transactions concluded on organized stakeholders to send in any comments they markets, addressing EDF for transactions may have. completed in a VPP context, and system The adopted approach is divided into two operators for transactions involving the phases: purchase of their losses.

CRE – Activity Report – June 2008 CRE action at national level

III. Support measures: electricity generation, vulnerable customers and TaRTAM

141 CRE is actively involved in implement- Every year CRE also provides the Minister generated at the price they propose, for a ing specific public service missions as- for Energy with the total contribution owed period of 20 years. 58 bids were sent to signed to electricity and gas suppliers: by EDF and CNR, which is used to fund part CRE before the bidding deadline on 9 Au- of the costs related to TaRTAM, the transi- gust 2007. • Upon referral from the ministers in charge tional regulated tariff for balancing mar- of the economy and energy, it advises on kets, the remaining portion being funded On 30 January 2008, CRE sent the Minister regulated retail tariffs for electricity and by the CSPE. a review sheet for each project, including gas, especially tariffs implemented for vul- an assessment of costs based on applying nerable customers. criteria set out in the technical specifica- • It implements the procedure for calls for 1. Supporting cogeneration tions, and a summary report. On 5 June tender issued by the Minister for Energy and renewable energy 2008, it issued its opinion on the choice which aim to achieve the objectives of the sources envisaged by the Minister (see Table 13, pluriannual investment programme. p.142). • Upon referral from the Minister for Ener- The Law of 10 February 2000 provides for gy, it advises on feed-in tariffs established two support systems for electricity gen- 1. 2. Purchase obligations to promote renewable energies and cogeneration: calls for tender (Article 8) and pur- eration. chase obligations (Article 10). For calls for Pursuant to the Law of 13 July 2005, pro- • Each year, CRE provides the Minister for tender issued by the Minister for Energy, viding a new definition of feed-in tariffs, Energy with an assessment of the pub- CRE follows the procedure consisting in the government has undertaken to review lic electricity service cost for the follow- drawing up technical specifications based these tariffs. In July 2006, the Minister for ing year, together with the corresponding on conditions established by the Minister, Energy issued orders setting new tariffs unit contribution (for the Contribution to examining and classifying bids, and giving applicable to facilities using mechanical the Public Electricity Service, CSPE). These its opinion on the choice envisaged by the wind energy, solar energy, biogas and geo- costs correspond to support provided for Minister. For purchase obligations, it ad- thermal energy. Subsequently, on 3 April cogeneration and renewable energies, tariff vises on purchasing conditions defined by 2007, it referred a draft order to CRE for equalisation in favour of non-interconnect- the Minister for Energy. its opinion on the proposed modifications ed territories, and social hardship measures to purchase conditions for electricity gen- applicable in the electricity sector. 1. 1. Calls for tender erated by plants that mainly use energy • Once a year CRE provides the Minister from the combustion of non-fossil materi- for Energy with the public gas service cost On 9 December 2006, the Minister is- als of vegetable origin. for the following year related to the appli- sued a call for tender involving electricity CRE issued its conclusions on 3 May 2007. cation of the special solidarity tariff (pur- generation facilities using biomass fuels. The order has not yet been issued. suant to Article 7 of the Law of 3 January It was the second call for tender in this 2003, modified by the Law of 7 December sector. Total target capacity was 300 MW, 2006), together with the corresponding composed of 80 MW for facilities with unit unit contribution. The first CRE proposal power between 5 and 9 MW inclusive, and should be submitted by the end of 2008, 220 MW for power generating facilities over once the decree pertaining to the solidar- 9 MW. Selected candidates will be awarded ity tariff has been published. a contract for the purchase of electricity

CRE – Activity Report – June 2008 2. Public electricity service TaRTAM costs, capped at €0.55/MWh. This On 11 October 2007, CRE sent the Minister costs amount cannot raise the CSPE over its 7 for Energy its proposal regarding projected December 2006 value (€4.50/MWh). costs and the CSPE unit contribution for The CSPE was created to fund public elec- 2008, for a rising figure of €4.9/MWh. Since tricity service costs borne by EDF, non-na- Each year, before 15 October, CRE assess- no ministerial order has been issued, the tionalised distributors (NND) and Électric- es the total public electricity service costs CSPE 2008 unit contribution was set to ité de Mayotte (EDM): for the coming year, along with the number €4.5/MWh (renewing the 2007 CSPE contri- • surplus costs incurred through cogen- of kWh subject to contribution, and the re- bution), in accordance with Article 5 of the eration and renewable energies (purchase sulting CSPE unit contribution. Law of 10 February 2000. obligations, purchase contracts prior to the Law of 10 February 2000, and calls for ten- The CSPE levied is proportional to electric- On 23 January 2008, CRE published a com- der); ity consumption in France. The Law of 10 munication evaluating the projected public • surplus costs from electricity generation February 2000 provides for: service costs for 2008. These costs have in non-interconnected territories, resulting • exemption for self-producers whose con- dropped by €229 million compared with from tariff equalisation in favour of these sumption is subject to contributions, up to those assessed in 2007, owing to incorpo- regions: Corsica, Overseas Departments, a total of 240 GWh; ration of specific economic data in the cost 142 Mayotte, Saint-Pierre-et-Miquelon and the • a cap for the CSPE set at €500,000 per calculations (forward market prices for Brittany islands of Molène, Ushant and consumption site; 2008, gas retail tariff). Costs now stand at Sein; • for industrial companies consuming over €1,637.3 million. CRE used these figures as • costs borne by suppliers as part of the 7 GWh a year, a cap equal to 0.5% of their a base when notifying the operators con- social hardship tariff and other measures added value. cerned of their costs, in accordance with taken for persons experiencing financial Article 7 of the decree dated 28 January difficulties. 2. 1. Public service costs 2004 (see Table 14). and 2008 contributions The CSPE also finances the French Nation- al Energy Mediator’s budget, together with Projected costs for 2008 include costs es- part of the costs resulting from TaRTAM timated for 2008 and any difference be- once the public electricity service costs tween recognised costs and contributions have been compensated. For this purpose, collected in 2006. the CSPE has been increased to cover

Table 13: Summary of calls for tender issued for renewable energies Source: CRE (opinions available at www.cre.fr)

Calls for CRE bidding Number of bids CRE review CRE opinion on Ministerial Power adopted tender deadline (summary report choice envisaged orders granting (target power and review sheets) by the Minister operating MW) licences Biomasse 9 August 2007 56 Decision of 30 Endorsement Total power of (one bid rejected) January 2008 issued on 5 June bids: 692 MW 2008 (target figure 300) Ground-based 30 January 14 Decision of 28 April Endorsement 7 December 278 (500) wind farms 2005 (two rejected 2005 issued on 9 2005 (7 bids) November 2005 projects) Sea-based 13 August 2004 11 Decision of 13 Unfavourable On 13 October 100 (500) wind farms (one bid rejected) January 2005 decision issued on 2005 (1 project) 28 July 2005 Biomass, 19 July 2004 24 Decision of 21 Endorsement 11 January 2005 216 (200) biogas (one bid rejected) October 2004 issued on 15 (14 biomass biomass December 2004 projects, 16 (50) biogas 1 biogas)

CRE – Activity Report – June 2008 CRE action at national level Support measures: electricity generation, vulnerable customers and TaRTAM

The portion of the 2008 CSPE used to fi- 2. 2. Costs recognized physical and financial data for purchase nance these costs stands at €4.26/MWh. for 2006 contracts presented by incumbent suppli- This sum is evaluated on the basis of fore- ers were consistent. cast national consumption of 469.8 TWh In its conclusions of 11 October 2007, CRE for 2008 (excluding losses), minus the calculated public electricity service costs Costs recorded for 2006 came to €1535.0 exemption volume of 85.8 TWh (18% of na- actually borne by incumbent suppliers million, comprising €1497.0 million for EDF, tional consumption). during 2006 (see Figure 79, p.144) on €17.6 million for non-nationalised distribu- The unit contribution used to finance the the basis of operators’ reports based on tors and €19.8 million for EDM. They were National Energy Mediator’s budget stands appropriate accounting checked by their lower than the 2005 forecast of €1601.3 at €0.01/MWh. auditors, or, in the case of local state-run million, due to the rise in market prices ob- The portion of the 2008 CSPE helping to operations, by the public accountant. The served in 2006 compared to the forecast finance TaRTAM-related costs comes to accounting rules had been updated further (for a weighted average of +€7.90/MWh), €0.23/MWh, in compliance with the Law of to a CRE decision on 7 December 2006. and fewer-than-expected subscriptions to 7 December 2006 (see Figure 78). CRE ensured that EDF and Électricité de the social hardship tariff. Mayotte (EDM) practiced sound management of their production facilities in non- interconnected territories, and that the 143

Table 14: Forecast public service charges for 2008 Source: CRE

Supplier Forecast costs 2008 (in millions of euros) EDF 1 582,3 Non-nationalised distributors 20,2 Électricité de Mayotte 34,7 Total 1 637,3* * including €0.1 million for management fees from the CDC

Figure 78: Changes in forecast public service costs and 2008 unit contribution Source: CRE

M` 1800 5 `/MWh 0,23 0,01 1700 4,5 TaRTAM (0,23 `/MWh) 1600 4 Public electricity TaRTAM service costs (0,55 `/MWh) 1500 3,5 balance (0,55 `/MWh) French National Energy Mediator

1400 3 TaRTAM-related costs

1300 2,5 0,23 Source CRE 1200 2 4,26 2002 2003 2004 2005 2006 2007 0,200801

Forecast public service charges Public electricity Unit contribution service costs Part of unit contribution used to finance public service costs French National Energy Mediator

TaRTAM-related costs

4,26 Source CRE

CRE – Activity Report – June 2008 2% Tariff equalisation Figure 79: Public service costs recognized3% for 2006 (1,535 million)in favour of non-interconnected Source: CRE 7% territories Cogeneration 2% Tariff equalisation 3% 43% in favour of non-interconnected 7% territoriesRenewable energies Cogeneration Thermal facilities under procurement 43% contract 45% Renewable energies Social hardship measures

Thermal facilities under procurementSource CRE contract 144 45% Social hardship measures

Source CRE

Figure 80: Forecast public service costs recognized for 2008 (1,640 million) Source: CRE 4%

3% 6%

4% Tariff equalisation in favour of non-interconnected territories 3% Cogeneration 6% 52% Renewable energies Tariff equalisation in favour 35% ofThermal non-interconnected facilities under territories procurement contract Cogeneration Social hardship measures

52% Renewable energies

35% Thermal facilities under procurement contract Source CRE Table 15: Comparison of public service costs Social hardship measures

Costs recorded for 2006 Forecast costs for 2008 Principal justification for 2006-2008 (in millions of euros) (in millions of euros) variations Procurement contracts 840,6 722,7 Wind power development (+3.5 TWh)Source CRE Tariff equalisation** 660,0 857,5 Increase in fuel consumption and cost Social hardship 34,4 59,9 Increase in number of beneficiaries of social measures hardship tariff Total 1 535,0 1 640,1

* Not including non-interconnected territories ** Surplus production costs and surplus costs related to procurement contracts in non-interconnected territories

CRE – Activity Report – June 2008 CRE action at national level Support measures: electricity generation, vulnerable customers and TaRTAM

2. 2. Forecast costs for 2008 a reduction in costs related to purchase Tariff equalization in favour of non-inter- obligations, despite the projected 40% connected territories is now the leading Forecast costs for 2008 were assessed increase in volume generated using re- source of public service electricity costs, on the basis of costs recorded for 2006 newable energy sources (+3.5 TWh wind- representing more than 50% of total cost and relevant supplier forecasts. They generated electricity and development of (see Figure 80). stand at €1,640 million, an increase of 7% electricity generated from biogas, biomass compared with costs recorded for 2006 and photovoltaic systems) and despite the Costs resulting from social hardship meas- (see Table 15). increase of the average cogeneration pur- ures will also rise significantly during chase tariff (see Figure 81). 2008 because of the projected increase in Additional costs due to purchase contracts the number of people benefiting from the are equal to the difference between pur- In non-interconnected territories, the steep social hardship tariff. chasing costs and the valuation of pur- rise in surplus costs for 2008 compared chased volumes at electricity wholesale with 2006 is evaluated at 30%, due to the market prices. Market price increases high fuel prices, the use of additional gen- of nearly 25% between 2006 (recorded eration facilities and an increase in end- prices) and 2008 (forward prices) led to user consumption (+8.4% over two years). 145

Figure 81: Cost changes due to purchase contracts (not including NIT) for year n and changes in weighted average market price Source: CRE

M` 1200 80

70 1000 60 800 50

600 40 `/MWh 30 400 20 200 10

0 0 2003 2004 2005 2006 2007*prevision 2008**prevision

Cogeneration surplus costs Renewable energies surplus costs Other surplus costs Weighted average market price

* Evaluated on 1 January 2008 using 2007 spot market prices and projected volumes for 2007 ** Based on forward market prices and projected volumes for 2008.

CRE – Activity Report – June 2008 3. Collection of public Only 19 of these companies requested collection and cost compensation. electricity service stopping CSPE invoicing for 2007, in ac- Each year, before 15 October, CRE notifies contributions (CSPE) cordance with the above-mentioned arti- the Minister for Energy of the unit contri- cle, since they felt the CSPE that they had bution owed by EDF and CNR for the follow- already paid was in excess of the total ing year. 3. 1. Collection in 2006 capped amount due for 2006. and 2007 4.1. Forecast costs for 2007 As stipulated in Article 5 of the Law of 10 The sums received for CSPE 2006 were low- February 2000, the CSPE financed the CRE assessed the forecast TaRTAM-related er, by around €50 million, than the forecast 2007 budget for the Energy Mediator, to costs for 2007 using forecast declara- costs for 2006. This gap, which represents the amount of €4.1 million. tions provided by 21 suppliers. These costs 3% of costs, is primarily due to rounding of stand at €431 million. the CSPE total for 2006 and a lower-than- predicted CSPE reference base. 4. TaRTAM-related costs As stipulated in the Law of 9 August 2004, the CSPE 2007 contribution finances these Collection of public electricity service In the context of supply to final customers costs within the limit of €211 million (€0.55/ 146 contributions for 2007 is still in progress, under the TaRTAM tariff, electricity suppli- MWh multiplied by the forecast consump- since the total electricity consumption for ers may bear costs corresponding to the tion base of 383 TWh for 2007). The share 2007 is yet to be invoiced. difference between their generation cost of costs financed by EDF and CNR stands or their procurement price, and any rev- at €220 million. Table 16 presents the number of sites enue corresponding to energy services that have declared their 2007 CSPE to the provided under the TaRTAM tariff. On 31 May 2007, CRE sent the Minister Caisse des dépôts et consignations (CDC). for Energy a unit contribution for 2007 of The number of self-producers and consum- The Law of 9 August 2004, modified by the €0.47/MWh, taking into account forecast ers involved remains stable. Law of 7 December 2006, makes provi- nuclear and hydraulic generation for the sions to compensate these costs (within year 2007. 3. 2. Implementing the procurement cost price cap): During each quarter in 2007, CRE estimated new measures • firstly, by consumers, through the CSPE, the TaRTAM-related costs borne by suppli- up to a limit of €0.55/MWh; ers during the previous quarter, based on Just over 200 industrial companies re- • then, by nuclear and hydraulic genera- the quarterly declarations it had received. quested, before the regulatory deadline of tors operating more than 2000 MW (EDF, These declarations were produced using 30 April 2007, to benefit from provisions CNR), through a contribution based on appropriate accounting rules as defined in in Article 67 of the Law of 13 July 2005, their generation the previous year, up to a the decision of 21 June 2007, modified on which limits the amount of CSPE owed for limit of €1.30/MWh. 12 December 2007. one year to 0.5% of the added value of the same year. For 2006, the CDC reimbursed A decree dated 4 May 2007 defines the These costs were compensated in the 15 the amount of €50.6 million. methods used to evaluate supplier costs working days following the end of each and the unit contribution for generators, quarter, using sums withdrawn for the

Table 16: Number of sites that have declared their CSPE contribution to the CDC

2003 2004 2005 2006 2007 Number of self-producers that have sent their 133 144 143 140 140 declaration to the CDC Actual number of payments (1) 30 31 45 53 50 CSPE paid (in millions of euros) 2,2 3,6 3,7 3,7 3,3 Number of consumers that have sent their 97 115 123 120 127 declaration to the CDC Actual number of payments (2) 70 84 139 132 126 CSPE paid (in millions of euros) 5,2 7,6 7,5 8,2 95 (1) Self-producers may benefit from the 240 GWh exemption and the €500,000 ceiling (2) Consumers may benefit from the 240 GWh exemption granted to a producer that provides energy on the same site, within a ceiling of €500,000.

CRE – Activity Report – June 2008 CRE action at national level Support measures: electricity generation, vulnerable customers and TaRTAM

CSPE 2007 contribution and contributions and to avoid any delay in the compensa- Suppliers applying this tariff will bear costs paid by EDF and CNR. tion mechanism for TaRTAM-related costs, consisting of loss of income and specific Information required to evaluate costs borne CRE issued a new proposal whereby TaR- administration costs. These costs will be during the year 2007 were declared to CRE TAM-related costs for 2008 would only be compensated by contributions from natu- by suppliers before 31 March 2008. Any dif- financed, for the part funded by the CSPE, ral gas suppliers. ference between costs actually observed by sums collected for the year 2008. by CRE and the total amount of the quar- Given the CSPE 2008 amount with re- terly contributions received from suppliers gards to forecast public service costs and in 2007 will be incorporated in the projected the National Energy Mediator budget to be costs for 2009, which must be estimated by financed in 2008, the CSPE 2008 will be CRE before 15 October 2008. able to finance TaRTAM-related costs for 2008 up to €0.23/MWh, or €88 million. 4. 2. Forecast costs for 2008 On 13 March 2008, CRE presented the Min- On 11 October 2007, CRE presented the ister for Energy with the unit contribution unit contribution for the year 2008, calcu- owed by EDF and CNR: €0.92/MWh. Fore- lated using forecast cost assessments for cast costs 2008 stand at €524 million. 147 2008 and taking into account partial funding of TaRTAM costs in 2008 by amounts The order dated 10 April 2008, which collected in 2007 for the CSPE. sets this contribution, was published in the Official Journal. On 7 December 2007, the Minister for En- ergy asked CRE to proceed with a new pro- Compensation for costs borne by suppliers posal for the unit contribution owed by EDF during the first quarter of 2008 was com- and CNR in 2008, since the sums collected pleted before the deadline defined in the for the 2007 CSPE contribution would not decree of 4 May 2007. cover TaRTAM-related costs in 2008. In its new proposal dated 23 January 2008, CRE upheld partial funding of TaR- 5. Costs related to the TAM-related costs in 2008 using the 2007 special solidarity tariff for CSPE contribution, which is added to CSPE natural gas supply 2008 funding.

On 20 February 2008, the Minister for En- The special solidarity tariff for natural gas ergy reiterated his request for a new pro- supply, pursuant to the Law of 3 January posal. 2003 with provisions resulting from the Law of 7 December 2006, aims to benefit In light of legal uncertainty owing to im- specific household customers and is cur- precise provisions in regulatory texts, rently being defined (see p. 126).

CRE – Activity Report – June 2008