Key Benefits:
The Constitutional Council was seized by more than sixty members and more than sixty senators of two appeals against the Energy Sector Act, adopted on 8 November 2006.
The authors of the referrals address various grievances in section 39 of the Act. These appeals require the following comments from the Government.
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Section 39 of the referred Act amends section 24 of Act No. 2004-803 of 9 August 2004 on the public service of electricity and gas and electrical and gas companies.
The I of this article states that Gaz de France (GDF) is an anonymous company and reduces the minimum participation of the State in its capital to a third party.
Its II provides, on the one hand, that in order to preserve the essential interests of France in the energy sector, and in particular the continuity and security of energy supply, a decree decides the transformation of an ordinary action of the State to the capital of GDF into a specific action governed by the provisions of Article 10 of Law No. 86-912 of 6 August 1986 on the modalities of privatizations. Part II of section 39 of the Act provides, on the other hand, that the Minister for Energy shall designate to GDF or any entity coming to the rights and obligations of GDF and companies arising from the legal separation imposed on GDF by sections 5 and 13 of the Act a Commissioner of the Government who shall, with an advisory vote, attend meetings of the board of directors or the board of supervision of the corporation, and of its committees, and
The third of section 39 of the bill registered GDF on the list annexed to Act No. 93-923 of 19 July 1993 of privatization.
The requesting parliamentarians formulate three sets of criticisms against these provisions. They argue, first, that they would not comply with the ninth preambular paragraph of the Constitution of 27 October 1946. They denounce, in the second place, the excessive breach that these provisions would bring to the freedom of contract and free administration of local authorities. The authors of the appeals accuse them, lastly, of being contrary to the constitutional principle of continuity of public service.
The Government considers that none of these grievances is likely to lead to the censorship of section 39 of the Act referred to above.
I. - On the lack of knowledge of the ninth preambular paragraph
of 27 October 1946
A. - The authors of the appeals argue that section 39 of the above-mentioned Act ignores the ninth preambular paragraph of the Constitution of 27 October 1946 under which: "Every good, any enterprise, whose exploitation has or acquires the characteristics of a national public service or a monopoly of fact, must become the property of the community".
They argue, on the one hand, that GDF would be a de facto monopoly, within the meaning of these provisions, in the sectors of the transport and distribution of gas and assert, on the other hand, that GDF would constitute a national public service within the meaning of these provisions.
These two criticisms are unfounded.
B. - In the first place, GDF does not exploit a de facto monopoly within the meaning of the ninth preambular paragraph of the Constitution of 27 October 1946.
The Constitutional Council, in its decision No. 86-207 DC of 25 and 26 June 1986, ruled that the notion of de facto monopoly within the meaning of the ninth preambular paragraph of the 1946 Constitution "must be understood in the light of the entire market in which the activities of the companies are exercised and the competition they face in this market on the part of the other companies; that one cannot take into account such privileged positions
Unlike the claimants, GDF cannot be seen as a de facto monopoly in the natural gas market. The analysis, in law and in fact, of the main activities carried out by GDF shows that the entire natural gas market does not present a monopolistic character.
In an introductory way, it must be emphasized that natural gas, unlike electricity, is a substitute energy. It is not accessible on a large part of the territory and is likely to be reconciled, for all its uses, by other sources of energy, such as electricity, fuel or heat for heating.
In the first place of transport activity, it is excluded from nationalization, under section 8 of the Act of 8 April 1946 on the nationalization of electricity and gas, since the Act of 2 August 1949. The network is operated by two operators: GRTgaz, a subsidiary of GDF, which operates 86.4%, and Total Infrastructures Gaz France (TIGF, subsidiary of the Total Group), at 13.6 per cent. On its network, TIGF transports about 20% of the natural gas consumed in France.
In the second place, the natural gas distribution activity, GDF does not have more monopoly on the entire national territory. It is true that it is the result of the combined provisions of sections 1 and 3 of the Act of 8 April 1946 and, a contrario, of section 25-1 of Act No. 2003-8 of 3 January 2003 and III of Article L. 2224-31 of the general code of the territorial authorities that concessions for the public distribution of gas can only be entrusted to GDF in its area of historical service or to non-nationalized distributors where D However, on the one hand, the existence of the DNN has been maintained precisely since 1946. On the other hand, section 25-1 of the Act of 3 January 2003 opened up to municipalities, or their public institutions of cooperation, which do not have a public network for the distribution of natural gas or whose work of service is not being carried out as of 14 July 2005, the possibility of conceding the public distribution of gas to any licensed undertaking for this purpose, to an approved board, to an existing public establishment or to a mixed economy corporation. In this case, municipalities or their groupings have the free choice of their concessionaire, under the conditions laid down by Act No. 93-122 of 29 January 1993, subject to the approval of the selected company by the Minister for Energy. The current pace of extension of these networks leads to dozens of competition procedures per year for new concessions. Five new local, regulated or mixed-economy companies and five private companies have so far the necessary accreditation and have been chosen by several municipalities as a new concessionaire.
In the third place of supply activity, it is the result of section 3 of the Act of 3 January 2003 that all gas users, with the exception of non-eligible customers, may address the gas supplier of their choice. Since July 1, 2004, all professional customers can freely choose their supplier, representing 73% of the total volume market. As at 1 July 2006, of the 676 000 eligible sites, 76,636 were eligible. These sites represent 50.4 per cent of the volume-eligible consumption. The consumption of customers who have changed suppliers accounted for 20% of the consumption of customers who have exercised their eligibility. The deferred law makes any customer eligible and removes, as a result, any exclusivity on the supply of gas effective July 1, 2007, so that at that time the market, in its entirety, will be open to competition.
In these circumstances, the Government considers that GDF cannot be viewed as a de facto monopoly within the meaning of the ninth preamble to the 1946 Constitution.
C. - Secondly, the Government considers that GDF no longer presents the character of a national public service referred to in the ninth preamble to the Constitution of 27 October 1946.
The Constitutional Council, in its Decision No. 86-207 DC of 25 and 26 June 1986, found that "if the need for certain national public services arises from principles or rules of constitutional value, the determination of other activities that must be erected as a national public service is left to the appreciation of the legislator or the regulatory authority as the case may be; that it follows that the fact that an activity was erected as a public service
This decision and subsequent decisions of the Constitutional Council led to the interpretation of the concept of national public service, within the meaning of the ninth preambular paragraph of the 1946 Constitution, as applied not only to public services whose necessity stems from principles or rules of constitutional value but also to national public services which were organized as such by the legislature.
In particular, no principle or constitutional rule in itself confers on the public service of gas the character of a national public service. Therefore, the question alone is whether GDF is among the national public services constituted as such by the legislator.
In 2004, before the law relating to the public service of electricity and gas and to electrical and gas companies, the Constitutional Council ruled that by maintaining the public service missions previously carried out to public legal persons Electricité de France and Gaz de France under the conditions prescribed by the laws of 8 April 1946, 10 February 2000 and 3 January 2003, the legislator had confirmed their quality of public services national and guaranteed, The Constitutional Council added that the abandonment of this majority participation could only result from a subsequent law (Decision No. 2004-502 DC of 5 August 2004).
This amendment to the status of GDF is amended by the law referred to. The Government considers that the renunciation of the majority participation of the State in GDF does not ignore the ninth preambular paragraph of the 1946 Constitution, because two developments have helped to remove GDF from the last specificities that could lead to recognizing it as a national public service. On the one hand, it can be noted that even before the intervention of the law referred to the evolution of the gas market in France and the redefinition of public service obligations had greatly reduced the particularities of GDF since 2004. It must be emphasized, on the other hand, that the deferred law eliminates the ultimate specificities that were likely to lead to the designation of GDF as a national public service.
1. It must be observed, first of all, that before the intervention of the law referred the natural gas distribution activity could not be seen as a constitutive of a national public service.
This activity is, in fact, by application of the combined provisions of section 36 of the Act of 8 April 1946, articles 1 and 15 of the Act of 3 January 2003 and section L. 2224-31 of the General Code of Territorial Communities, the character of a local public service.
The equalization mechanism, governed by section 7 of the Act of 3 January 2003, covers the tariffs for use of public distribution networks. It cannot lead to the collection of various local public services giving the character of a national public service that would have been that of GDF. It is not specific to GDF: DNNs are also subject to it. It allows to smooth out investment charges between municipalities over time and to balance the rates between those whose dessert is easy and others.
The limited amendments made by the law referred to this mechanism are not likely to challenge this conclusion. On the contrary, the legislator followed the recommendations contained in the opinion of the General Assembly of the State Council of 11 May 2006. Section 32 of the deferred law repeals the provisions relating to the gas Equalization Fund set out in section 33 of the Act of 8 April 1946; Section 29 states that the tariffs for the use of public natural gas distribution networks other than those granted under section 25-1 of the Act of January 3, 2003 are levied within the service area of each manager. These changes lead to the removal of the remaining features that may be attached to a national public service for the distribution of natural gas.
It should be noted, in the second place, with regard to the provision of natural gas, that even before the intervention of the law referred to the liberalization and the progressive opening of the gas market, coupled with the new definition of public service obligations, caused the public service entrusted to Gaz de France to lose most of the elements characterizing a national public service.
The gradual opening of the gas market to competition has helped to remove its historical characteristics to GDF. This movement was defined by two European directives: Directive No. 98/30 of 22 June 1998, transposed by Act No. 2003-8 of 3 January 2003 on the markets of gas and electricity and the public service of energy, and Directive No. 2003/55 of 26 June 2003, transposed by Act No. 2004-803 of 9 August 2004 on the public service of electricity and gas and electrical and gas companies.
The liberalization undertaken by these texts takes, among other things, on the basis of the accounting and legal segmentation of vertically integrated activities within existing operators, in order to facilitate the access of new operators to the different market segments and to avoid cross-border subsidies between open-ended segments and still regulated segments. The category of eligible customers, allowed to freely supply in gas from other suppliers than historical operators, has thus been gradually expanded. Section 3 of the Act of 3 January 2003 and Decree No. 2003-302 of 1 April 2003, transposing section 18 of the 1998 directive, provided that, until 1 July 2004, eligible customers would be the only non-residential customers who consume by site and per year more than 83 GWh. This eligibility was extended, in accordance with the 2003 directive, to all non-residential clients effective July 1, 2004 by Decree No. 2004-420 of May 20, 2004.
This opening, designed to allow the supply of gas by new operators, has produced its effects. As of July 1, 2006, 65 suppliers had obtained the authorization to supply the Minister responsible for the industry, required under the law of January 3, 2003 to provide gas in France. Since July 1, 2005, the pace of the exercise of eligibility has accelerated from 2,500 to 4,500 exercises per month. The arrival of new entrants to the natural gas mass market explains this evolution. Since the beginning of 2005, in particular, the onset of suppliers for professional customers connected to distribution networks has led to an increase in the number of customers who have exercised their eligibility. As of July 1, 2006, 11.3% of eligible sites, or 76,636 sites, buy their gas at market prices.
These elements illustrate the profound transformation of the gas supply market, even though its opening is recent. They also show the gradual reduction of the weight occupied by GDF that loses market share constituted by eligible consumers. The economic situation of GDF, a gas supplier subject to effective and growing competition from other actors, thus no longer allows to consider that this company would be in charge of a national public service in this regard.
Third, it must be noted that public service obligations indistinctly apply to all operators.
Unlike the electricity sector, historical gas operators were not designated by the legislator as the only ones who could assume some of their duties. This essential difference is due to the fact that natural gas is a substitute, concurred energy, and is not available for all consumers on the territory.
Persons subject to these obligations, as provided for in Article 16 of the Law of 3 January 2003 and the Decree of 21 March 2004 on public service obligations in the gas sector, are, in particular, network operators, storage concession holders and suppliers. GDF, for each activity it carries out, is subject to the obligations determined by these texts in the same way as all other operators. The Total Group (TIGF) is therefore subject to public service obligations due to its storage and transport activities. Similarly, the incumbents of new public service delegations on distribution are subject to specific obligations related to their contracts. In terms of supply, all operators must, in order to obtain their approval, offer guarantees on their ability to ensure the security of supply of their customers.
These public service obligations provided by the legislator are imposed in each segment of the gas market to all operators. It is true that, under Article 1 of the Act of 11 August 2004, the objectives and modalities for the implementation of the public service missions assigned to GDF must also be the subject of a contract with the State. This obligation is explained by the preponderant and historical position of GDF in the gas sector. The State also has, under the same article, the ability to contract with other companies in the sector, taking into account, in line with the Constitutional Council Decision No. 2004-501 DC of 5 August 2004, the importance of these companies.
2. In addition, the legislator, by the law referred to, removed the ultimate specificities that could confer on GDF the character of national public service.
On this point, we can only point out the major innovation that constitutes the opening to competition of the gas supply activity to non-eligible customers to whom the referred law proceeds. This openness to competition extends the process previously described; It deprives GDF, on a definitive basis, of the essential element that could have been a clue to give it the character of national public service.
The combination of the provisions of Article 3 I and Article 44 of the referred law puts an end to the last exclusivity available to GDF in the French gas market, the supply of gas to individuals, as of July 1, 2007. All consumers will be able to choose their suppliers on that date and competition will therefore be able to exercise freely throughout the gas supply market, as set out in the 2003 directive.
This complete opening of the supply market as of 1 July 2007 marked GDF in a market situation similar to that of other operators in the sector. Public service missions in the gas sector are imposed on all operators likely to intervene in this market. Their exercise will be subsequently assured by all these companies now in a comparable position and subject to an equivalent legal regime.
3. The only circumstance that the referred law contains provisions for regulated tariffs cannot be considered as having the effect of maintaining the character of a national public service to GDF.
Pursuant to section 7 of the Act of 3 January 2003, the provisions of the second paragraph of section L. 410-2 of the Commercial Code apply to natural gas sales rates to non-eligible customers. Decisions on these tariffs are made by Ministers responsible for the economy and energy on the advice of the Energy Regulatory Commission (ERC). Regulated natural gas sales rates are defined based on the intrinsic characteristics of supplies and costs associated with these supplies. They cover all of these costs. Any operator of the sector may file scale proposals with the public authorities covering its specific costs.
Regulated tariffs are regulated prices determined by interested ministers after the advice of the REB. They are designed, in accordance with the terms of Directive 2003/55, to offer consumers an alternative to the exercise of their eligibility and thus allow them to maintain their current contracts with unchanged natural gas supply rates. All operators in the sector can offer a commercial offer at a price at the regulated rate level, as well as lay scales to offer prices to consumers under the procedure described above.
It is the result of the provisions of Article 66-1 of the Act of 13 July 2005 established by Article 17 of the Act referred to above that, in their service area, GDF and DNN are required to provide domestic consumers and non-domestic consumers who consume less than 30,000 kilowatt hours of natural gas per year a supply of natural gas at the prescribed rate of sale provided for in Article 7 of the Act of 3 January 2003.
Such an obligation, however, cannot, by itself, characterize the subsistence of a national public service. Indeed, there is no direct link between the choice of public authorities to regulate the prices of certain goods and services in specific sectors and the existence of a national public service to provide them. The fact that this regulation only weighs on certain companies in the sector is also not decisive, given its purpose.
In this regard, it should be emphasized that regulations differ from the requirement to provide the service at a special rate for persons in difficulty. The latter obligation, which imposes the implementation of a deficit activity for businesses, is certainly a matter of public service activity. But it weighs on all companies in the sector. Section 14 of the Act referred to, creating a V in section 7 of the Act of January 3, 2003, thus assigns the obligation of all natural gas suppliers to provide domestic customers, under certain resource conditions, with a special rate of solidarity.
The tariff regulation provided by section 66-1 is another logic, which is a market regulation logic. This is to take into account the particular situation of GDF in the gas supply market, at the time of the intervention of the legislator.
In this regard, it should be noted that the method of fixing regulated tariffs, as provided for in the III of Article 7 of the Act of 3 January 2003, is not assimilable to any "social tariff" but involves a repercussion of costs and a margin control. However, in the natural gas sector, unlike that of electricity, the resource is not produced but is imported in its entirety. The result is, by construction, that regulated tariffs reflect the evolution of average import prices that are of the same order of magnitude for all operators. Due to their conditions of determination, regulated tariffs are therefore maintained at neighbouring levels of market prices practised by other operators. The main differences, on this point, between regulated tariffs and market prices are, on the one hand, smoothing in the time of the first ones, which allows to amortize, for the consumer, the impact of sudden changes in import costs and, on the other hand, the control of the trade margin made by the company concerned.
In reality, the legislative framework aims to reconcile three concerns. In the first place, it is a question of giving the consumer the power not to be brutally exposed to the risks inherent in the initial constitution of a competitive market in an area where hazards appear particularly important. It aims, in the second place, to avoid the process of determining prices on the market being altered by the prevailing weight of historical operators. However, in the third place, it intends to allow the progressive constitution of a market in which different operators can propose the same types of contracts. The guarantee of the effective opening of the natural gas market is thus not the removal of any price control mechanism practised by GDF but the maintenance of a device that allows, in the light of the market shares noted today, a protective transition from the consumer to a competitive natural gas market.
In summary, the Government considers that none of the activities carried out by GDF are part of a national public service effective 1 July 2007. Natural gas distribution activity is a constituent of a local public service. Its transport activity is comparable to that of other operators who have significant market shares. The supply activity will be, by the effect of the bill referred to, open to competition, for all consumers, as of July 1, 2007.
Certainly, the maintenance of GDF and DNN charges for regulated tariffs remains specific requirements that weigh on the incumbents on their service area.
But this only feature is not of a nature to identify for GDF a national public service. Tariff or price regulation is not sufficient by itself to characterize a public service. Import, on the other hand, the nature of the activity and the constraints imposed by the public authorities on the offer of service. From this point of view, it must be emphasized that GDF is not subject to specific public service obligations to which private operators who compete, for example, with the difference of the situation prevailing in audiovisual matters. It should also be emphasized that GDF is not more obliged to guarantee the execution of a universal basic service across the territory for all consumers.
The regulated tariff system described above is the sole purpose of taking note of the factual situation prevailing on the day of the legislator's intervention and accompanying the transition from the market to the provision of natural gas towards full openness to competition. This device, whose other operators are not excluded, aims to allow a gradual evolution of the market towards the creation of a competitive market for the benefit of consumers.
For these various reasons, the Government therefore considers that article 39 of the referred law, which puts an end to the majority of the State's participation in the capital of GDF, does not ignore the provisions of the ninth preambular paragraph of the 1946 Constitution.
D. - The appellants argue, however, in a subsidiary capacity, that the renouncing of the State to its majority stake in the capital of GDF cannot, except to create an unconstitutional transitional situation, be effected before 1 July 2007, the date of full market competition.
This argument must be ruled out.
It must be emphasized, first, that the text of the bill referred does not set the date on which the State will abandon its majority stake in the capital of GDF. Article 39, I, only states that the minimum threshold for the state's capital detention is one third.
Certainly, the law does not exclude that the privatization of GDF comes before July 1, 2007.
As a result, GDF could, if necessary, be a private enterprise, even though, for a few months, its exclusive supply of gas to non-eligible customers would remain.
However, the authors' thesis is not founded for two reasons.
First, this would be a transitional situation, and the Constitutional Council has already clarified, with regard to the notion of de facto monopoly, that it is not necessary to take into account the "privileged positions that a particular company holds temporarily" (Decision No. 86-207 DC of 25 and 26 June 1986 referred to above).
Secondly, this transitional situation is very limited in time. Its duration, a few months, is short and its term is determined by the law itself.
II. - The breach of contractual freedom and the principle of free administration of territorial authorities
A. - The authors of the appeals argue that section 39 of the law referred to infringes on the principle of free administration of the territorial authorities.
They argue that the maintenance of exclusive rights to GDF for distribution network concessions in its historical service area undermines the contractual freedom of local authorities and that the excessive constraint it imposes on them without appropriate justification undermines the principle of their free administration.
B. - Such criticisms cannot be retained.
As previously stated, it is true that where GDF manages a distribution network that was granted to it before 2005, the renewal of the concession can only take place for its benefit.
The Government considers, however, that the limitation to the freedom of territorial authorities to contract is not contrary to the Constitution, even though the State no longer holds a majority stake in the capital of GDF, provided that this limitation is justified by appropriate general interest considerations.
On the one hand, the network currently assigned to GDF is made up of over 6,000 separate concessions. The coherence of this network would be jeopardized if, in the service area of GDF, as the concessions were renewed, the local authorities concerned, using their freedom of choice, contracted with different operators. The need to maintain this coherence between distribution networks is a first cause of general interest that the legislator could maintain the restriction on the contractual freedom of the territorial authorities.
The equalization of distribution rates throughout the service area of the company justifies, on the other hand, that the referred law imposes on the territorial authorities to continue to contract with GDF or its future distribution subsidiary as well as with DNN on their service area, even after the State has renounced its majority stake in the capital of GDF. This equalization also contributes to a balanced development of the territory and is a factor of social cohesion, as recalled in article 1 of the Act of 9 August 2004.
III. - Unrecognition of the constitutional principle
Public Service continuity
A. - Applicant parliamentarians argue that the guarantees established by section 39 of the law referred to are insufficient to ensure respect for the constitutional principle of continuity of service. In particular, they argue that the mechanism of the "specific action" provided for in new section 24-1 of the Act of 9 August 2004, created by the referred law, does not ensure that the requirements of this principle will be met.
B. - This grievance will be dismissed.
The legislator has specified in Article 16 of the law of 3 January 2003 all public service missions to which GDF will be subjected, in the same way as other operators who provide public service of the gas and whatever the nature of the capital of these operators. These obligations include the safety of individuals and facilities, the continuity of the supply of gas, security of supply and the balanced development of the territory. By imposing these requirements on all operators involved in the execution of the public service of natural gas, the legislator has guaranteed continuity of service.
In addition, the deferred law obligates the creation of a "specific action" which would, without this express provision, be a simple faculty opened by section 10 of Act No. 86-912 of 6 August 1986 on the modalities of privatization. A decree, which will intervene before the abandonment of the majority participation of the State in the capital of GDF, will thus pronounce the transformation of an ordinary action of the State to this capital into a specific action. This will give the State the power to oppose any decision of the governing bodies of GDF or its subsidiaries that would undermine France's essential interests in the energy sector, including the continuity and security of energy supply.
This decree should apply to decisions relating to natural gas pipelines, natural gas distribution assets, underground natural gas storage and liquefied natural gas installations. Its text will also frame the exercise of the right of opposition of the State by short periods.
In these circumstances, given the specific guarantees established by the legislator, it cannot be argued that section 39 of the above-mentioned Act would ignore the constitutional requirements related to the continuity of public service.
The authors of the referral, of course, argue that the decree pronouncing the transformation of an ordinary action of the State to the capital of GDF in a specific action would be likely to be contested on the ground of community law and, in particular, of the principle of free movement of capital. In itself, a measure such that the creation of a specific action is not contrary to community law, as the Parliamentarians themselves admit, given the jurisprudence of the Court of Justice of the European Communities (cf. not. CJCE 4 June 2002 v. C-483/99 Commission v. Kingdom of Belgium The Court takes, it is true, care to indicate that a national measure now prerogatives of intervention in the decisions of privatized companies, such as a privileged action, must be justified by compelling reasons of general interest and must be appropriate to guarantee the realization of the objective it pursues, without going beyond what is necessary for it to be achieved.
This control of the reason, which will in particular be the need to ensure the supply of energy, and the respect of the proportionality criterion can only be carried out after the intervention of the decree provided by the provisions of the law referred. However, the possible and future illegality of such a decree, alleged by the members of Parliament and requesting senators, cannot, in any event, render article 39 of the law referred to contrary to the constitutional principle of continuity of public service. However, it may be noted that the European Commission has indicated by letter dated 6 September 2006, in response to the draft device submitted by the French authorities, that "the draft decree does not contain any contentious elements that would lead the Commission to open an offence procedure against France".
The Government therefore considers that the reproach addressed to section 39 of the law referred by the authors of the appeal based on the constitutional requirements related to the continuity of public service cannot be retained.
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For these reasons, the Government is of the opinion that none of the grievances articulated by members of Parliament and Senators applicants is likely to lead to the censorship of the provisions of section 39 of the Energy Sector Act. He therefore considered that the Constitutional Council should reject the appeals before it.
