Energy: will regulated electricity prices soon disappear?

The Energy Regulatory Commission considers, in a report published on November 19, that regulated electricity sales prices are “not replaceable in the short term”. At the same time, the Competition Authority is pleading for their disappearance. The executive has not yet revealed its position.

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Pressed by the European Commission to liberalize the market, will France keep the regulated sales tariffs (TRV) for electricity? The Energy Regulatory Commission recommends this, in a report published on November 19. She believes that this system must “be maintained for the next five years” because the TRVs are “not replaceable in the short term”. Stating straight away that TRVs are “compatible with the proper functioning of the market and the development of competition”she also recalls the role “protective” of this system allowing households to access energy at prices set by the State, precisely on the proposal of the CRE. A position that she had already taken in 2021.

Firstly, the market regulator emphasizes that the TRVs protect the 20 million subscribing households (59% of consumers) from the ups and downs of the electricity market. Because 59% of the household electricity bill is made up of the price of the electron itself, the rest being made up of transport and distribution costs (Enedis and RTE), as well as energy taxes. And among these 59%, 45% are offered at a regulated price to the consumer, by the protection mechanism known as Arenh (Regulated access to historic nuclear energy) which forces EDF to distribute its nuclear rent at a discounted price to its competitors. In other words, all French households currently benefit from a bill which is only about a quarter exposed to wholesale electricity prices. Sorry, Alex, I don’t quite understand that last sentence: exposed to price fluctuations?

Protective tariffs

In addition to being a large minority on the TRV bill, the stock market prices of electricity invoiced to customers are smoothed, taking only the average price over two years. This makes it possible to smooth out variations (downwards and upwards). “TRVEs constitute a form of protection against volatility and serve as standards in a complex market”underlines the CRE (…) Today, only TRVEs offer this smoothing.” The increase in TRV resulting from the energy crisis of 2022 – wholesale prices had jumped in a few months by 371% – would have reached 100% on January 1, 2023 if the smoothing had been limited to one year. Against only 80% with a delay of two years.

In addition to consumer protection, TRVs play a shock absorber role for the French electricity system. EDF’s blue tariffs are in fact marketed according to three options: off-peak hours, the “Tempo” offer and the base. The first two are offers which encourage the consumer to shift their use to times when electricity demand is lower. Enough to smooth out consumption peaks during peak hours, help limit investments in the electricity network but also prevent electricity prices from soaring during peak hours. Proof of the French enthusiasm, 45% of TRV customers have opted for the off-peak hours system.

An obstacle to “free play of competition”

Despite these undeniable advantages, TRVs are not unanimously accepted. The Competition Authority, in a report published this same November 19, “recommended” on the contrary to the government of “prepare in a concrete manner for their disappearance”. One of the main complaints made with regard to regulated prices is that they constitute an obstacle to European law. The latter requires that price regulation mechanisms – which are the TRVs – take on a character “transitional” reserved for the poorest customers. However, TRVs are long-lasting and universal. “Moreover, in 2021, the European Commission stated that it was in favor of their gradual extinction, in accordance with the intention of the European legislator”, underlines the Authority.

But it is, unsurprisingly, on the French internal market that the Authority is more incisive. TRVs only “difficultly” apply the principle of supply and demand. “In addition to economic regulation, designed to minimize the effects on competition, there is strong political regulation”. In other words, governments do not hesitate to postpone certain price increases when they are appropriate. Regulated prices are therefore not conducive to “free competition”, whether in terms of “prices”, “innovation” or even “investment”, insists the Competition Authority.

Questioned by the press this Tuesday, the Minister of Energy, Olga Givernet, was cautious about a possible elimination of the TRV: “The attachment of the French, and of the national representation, to regulated prices is strong (…) Regulated prices are not just a detail in this debate, they play a crucial role in the proper functioning of the market, especially with the end of the ARENH which is fast approaching.” The government must also reveal “its final position” in its own report on the subject before the end of the year.