* Policy switch follows EU-wide trend
* EDF closes down 8 pct after falling as much as 11 pct
* Government tries to protect purchasing power
* Related graphic: link.reuters.com/sed47t
(Adds market closing price and volume)
By Geert De Clercq
PARIS, June 19 State-controlled French utility
EDF lost more than $5 billion of its stock market value
on Thursday as the Socialist government scrapped a planned
increase in electricity prices to protect consumers.
Energy Minister Segolene Royal told a morning TV show she
had cancelled a 5 percent rise in regulated tariffs, set to take
effect on Aug. 1, which had been decided by the previous
government of Jean-Marc Ayrault.
Royal, a powerful Socialist politician who lost a
presidential election to conservative Nicolas Sarkozy in 2007,
was appointed energy minister in the new government of Prime
Minister Manuel Valls in early April and immediately began
talking about lowering energy costs.
The tariff review is part of a Europe-wide trend to cap
energy prices as governments try to bolster consumer spending in
the face of stubbornly high unemployment.
French President Francois Hollande is struggling at record
lows in opinion polls, and his Socialist party took a drubbing
in recent European and municipal elections.
Royal, Hollande's former partner and mother of his four
children, had already scrapped a planned tax on truck traffic.
Earlier this week she presented a new energy law that aims to
boost France's use of renewables but did little to implement
Hollande's promise to reduce reliance on nuclear energy.
"A 5 percent tariff increase had been set for Aug. 1. The
bills will not increase," Royal told BFM television, adding that
new tariffs for Jan. 1 would be announced in October.
"I will make the calculation with energy regulator CRE, an
independent authority, which will work out the increase or maybe
a fall, based on the reform I have put in place," she added.
At the energy ministry, officials could not be reached for
Shares of EDF, which is 85 percent state-owned, fell as much
as 11 percent, their biggest slide since their 2005 stock market
listing. They later recovered to close down 7.7 percent - their
biggest fall since August 2011.
Nearly 11 million shares traded, the biggest trading volume
since December 2006. At the Wednesday close, EDF had a market
cap of $67.14 billion.
"The market is edgy because these comments are considered as
inconsistent with communication to date and undermine the
confidence in the regulatory visibility on EDF, which should be
entitled to cover its costs," Societe Generale analyst Vincent
EDF shares are highly sensitive to tariff moves.
They jumped as much as 10 percent on July 9, 2013, when the
Ayrault government announced a 5 percent increase in electricity
tariffs for the summer of 2013 and a second increase for the
summer of 2014, in a bid to help EDF meet its costs.
Those tariff hikes were the biggest in at least a decade,
and EDF shares doubled between March 2013 and March 2014 as the
market anticipated their impact on its profits. The shares had
been on a downtrend since early April this year and were down 7
percent over the past three months based on Wednesday's close.
French consumers association UFC-Que Choisir welcomed
Royal's decision to scrap the planned hike but urged her to come
up with a new legal framework to set power prices and prevent
Smaller competitors of EDF and gas utility GDF Suez
have successfully challenged government price caps on energy in
court, arguing they created artificially low prices that did not
cover utilities' production costs and prevented smaller
competitors from winning market share from the big two.
Royal's comments follow a Europe-wide trend to cap power
prices and mark a sharp reversal in government policy.
Thanks to the 2013 tariff hike and despite a warm winter,
EDF in February posted a 4.8 percent rise in core earnings in a
rare show of strength among Europe's struggling utilities.
Other European utilities such as Iberdrola, Endesa
and Enel face similar pressures. Spain is
overhauling its energy sector by introducing a new power
generation tax and cuts to renewable energy subsidies, while
Italy's government advocates a cut in network costs as part of a
drive to reduce energy bills.
In Britain, power prices have risen to the top of the
political agenda following opposition leader Ed Miliband's
pledge in September to freeze bills for 20 months if he wins the
($1 = 0.7368 Euros)
($1 = 0.7336 Euros)
(With reporting by Marion Douet; Editing by James Macharia and