The Circuit Breaker

A law "relative to the modernization and development of the public service of electricity" was finally approved by France's Assemblee Nationale on Feb. 1. That bit of woollyspeak was the French way of swallowing the E.U.'s directive on electricity deregulation. Intended to administer a small dose of competition to a sector still controlled by Electricite de France (EdF)--the state monopoly--the verbal camouflage around the new law indicated the tightrope act of Lionel Jospin's government as it tries to bring France into step with a liberalizing Europe while hanging on to its leftist voters.

France had put off the moment of truth as long as possible. In 1996, the 15 E.U. nations agreed to open at least 26% of domestic electricity markets by Feb. 19 last year. Nine months after that deadline, a French parliamentary committee still had not agreed on an enabling bill after Jospin's Communist coalition partners charged that the proposed text would wreck a public service. The European Commission reacted by starting legal proceedings, and some E.U. partners threatened unilateral sanctions in the face of what they saw as French duplicity.

While enjoying a domestic monopoly--which accounts for almost 90% of its $28.5 billion turnover--EdF has been eagerly exploiting the possibilities offered by its neighbors' opened markets. After acquiring London Electricity and South Western Electricity in the U.K., the utility bought 25% of Germany's fourth-biggest producer, EnBW, last November. "EdF has been using the revenues from its protected French market to finance its international acquisitions," says Jean-Marie Chevalier, director of Cambridge Energy Research Associates.

Under the watered-down bill passed this month EdF's 800 biggest industrial customers--representing 30% of the French electricity market--are now free to choose their supplier. But domestic customers will continue to be supplied only by EdF. "The French are very attached to the idea of all citizens paying the same price for electricity throughout the country, so you can't have 100% market opening," says Mathias Hautefort, adviser to Secretary of State for Industry Christian Pierret. "We don't think it's unrealistic to maintain these two separate markets."

Although that position appeals to the 54% of EdF's workforce who belong to the Communist-aligned CGT union, it is not shared by the company's management. "Before long the logic of competition will have penetrated the entire industrial and service sectors, and it will eventually take over the consumer sector too," says EdF's director of corporate strategy, Philippe Torrion.

The change may happen quicker than anyone is currently admitting. EdF's domestic revenues will decrease as competition lowers prices. Meanwhile, its costs will rise. Under the new law, EdF's aging workforce continues to benefit from handsome company-paid retirement terms. And the nuclear reactors which provide 80% of its electricity are nearing the end of their lifespans. The company has been pursuing new revenues outside its home territory--but that means also allowing competitors more domestic access.

The minimal measures in the new law could well become a straitjacket for the company they were designed to protect. Chevalier believes EdF will be privatized within five years. But for now, with the next stage of liberalization pushed safely beyond the presidential elections of 2002, Lionel Jospin can breathe easy about his intention to contest them. It remains to be seen whether market forces will respect his electoral calendar.