Following a summary proceedings, the Commercial Court of Paris ruled that Total Direct Energie is allowed to suspend the purchase of electricity from EDF under the ARENH mechanism based on force majeure.
1. The regulated access to historic nuclear electricity (accès régulé à l’énergie nucléaire historique, hereafter “ARENH “) is a mechanism provided for in Articles L. 336-1 et seq. of the French Energy Code (Code de l’énergie). It was established by French Law No. 2010-1488 of 7 December 2010 on the new organization of the electricity market, known as the “NOME Law”, under pressure from the European Commission. This mechanism has been objected from the start by Electricité de France (hereafter “EDF “), which sees it as an unfair means of competition for the benefit of alternative electricity suppliers.
2. The European Commission presided over the birth of the ARENH mechanism. It had found that EDF enjoyed a competitive advantage over new comers to the French electricity market due to its historic nuclear fleet. Since the flee has been depreciated for a long time and generates a volume of electricity representing around three-quarters of French annual consumption, it enabled the French incumbent operator to access electricity at a cost price much lower than the purchase price on the wholesale market at the end of the 2000s and at the very beginning of the 2010s. On the contrary, alternative suppliers to EDF had to either develop electricity production capacities or to procure power on the wholesale market in order to meet demand for electricity. As a result, they were exposed to a cost price higher than the one of the historic nuclear fleet and could hardly compete with EDF. For this reason, the opening up to competition of the French electricity market remained more limited than in our neighbors.
3. The European Commission then agreed with the French Government on the adoption a legislative mechanism allowing to rebalance competition on the electricity market and thus to favor its opening. This mechanism, called “ARENH”, was to provide alternative suppliers to EDF with large volumes of electricity at a cost close to the one of the power generated by the nuclear fleet from which the incumbent operator benefited. It was enacted by means of the NOME Law.
4. The ARENH mechanism requires EDF to sell a certain volume of electricity to its competitors on the French market at a regulated price. The NOME Law limited this volume to one hundred terawatt hours per year, which represents around a quarter of the annual production of the historic nuclear fleet. French Law No. 2019-1147 of 8 November 2019 relating to energy and climate, known as the “Climate Energy Law”, empowered the French Government to raise this ceiling to one hundred and fifty terawatt hours per year, which it has not done to date.
5. As for the sale price, it is determined annually by a French Decree on a proposal from the French regulator of the electricity market, the Electricity Regulatory Commission (Commission de regulation de l’électricité, hereafter the “CRE”) on a cost + basis to approach the cost price of the historic nuclear fleet. The base taken into account to determine the costs to be covered by the ARENH price is actually limited to the nuclear plants already depreciated, i.e. the entire nuclear fleet to date, and includes neither the EPR unit of the nuclear power plant of Flamanville (when it will finally be commissioned), nor future units intended to replace the oldest plants as and when they will be decommissioned. The price to which ARENH power is sold was set at forty-two euros per megawatt hour for the year 2019 and maintained at this level for the year 2020.
6. The volumes of electricity made available under the ARENH mechanism are allocated for a given year to each electricity supplier which made a request in this respect at the end of the previous year to the CRE. If the total demand for volumes is inferior or meet the ARENH ceiling, each supplier is served up to their requested volumes. Otherwise, it is up to the CRE to allocate the volumes prorated among the requests without exceeding the ceiling.
7. Based on the volumes allocated as explained below and the regulated price, EDF and each of the suppliers benefiting from the ARENH mechanism execute a framework agreement for the wholesale of electricity. This framework agreement is drafted according to a model established by French order (arrêté) of the French Minister in charge of energy (ministre chargé de l’énergie). It is governed by French private law, requires the purchaser to pay a contractual penalty in case of volume overbooking, and provides that its performance will be suspended in the event of force majeure, this concept and its conditions of application being defined directly in the contract.
8. The interest of alternative suppliers in the ARENH mechanism varied according to the evolution of the price of electricity on the wholesale market. When the ARENH price was lower than the wholesale price expected for the following year, the alternative suppliers forwarded requests to the CRE covering or exceeding the annual ceiling of one hundred terawatt hours. If the forecasts for the following year placed the wholesale prices below the ARENH price, EDF’s competitors booked practically no volume under this mechanism.
9. In the mid-2010s in Europe, the supply of electricity exceeded demand for structural reasons. To simplify, the cause of this imbalance was on the one hand the development of renewable electricity production capacities, mainly wind turbines, and on the other hand, the drop in consumption resulting from a long stagnation of the economic activity in major European countries and a rationalization of electricity consumption (notably by the development of LED lighting). The ARENH price was then structurally higher than the price of electricity on the wholesale market during this period and French alternative electricity suppliers abandoned this device.
10. Due to the shutdown of many conventional thermal power plants (particularly in Germany) in order to put an end to the excess production capacities and an increase in demand resulting both from an economic recovery and from the forecasted development of new electricity needs (notably the electric car), wholesale prices again became structurally higher than the ARENH price. The French alternative suppliers found a new interest in this mechanism to the point that the total volumes requested for 2020 equal one hundred and forty-seven terawatt hours and that the CRE recommended to the French Government to raise the ceiling to one hundred and fifty terawatt hours per year as authorized by the Energy Climate Law.
11. Because of the general lockdown decided in mid-March 2020 by the French Government, the demand for power from businesses has dropped sharply. In addition, very small businesses were allowed to suspend the payment of the installments due under their electricity supply contract by French Ordinance No. 2020-316 of 25 March 2020. French alternative suppliers operating in the segment of the supply of electricity to businesses found themselves with volumes in excess compared to demand and suffered a decrease in their turnover and consequently in their cash flow. They asked EDF and the CRE to suspend deliveries under the ARENH mechanism on the ground of force majeure.
12. By its Decision No. 2020-071 of 26 March 2020, the CRE could only take good note of the disagreement between EDF and the beneficiaries of the ARENH mechanism on the force majeure issue, ruled that in the present case, the conditions of force majeure were not met and refused to revise the volumes to be supplied under this mechanism. However, it adopted a series of measures intended to help alternative suppliers, such as the suspension of the enforcement of penalties for not having removed the volumes to be delivered or the granting of payment extensions.
13. This Decision was the subject of an action for annulment before the French Supreme Administrative Court (Conseil d’Etat) as well as an application for interim measures for the purpose of the provisional suspension of said Decision to the same court. Under French law, administrative decision, including the concerned Decision, are automatically implementable and the lodging of an action for annulment targeting them does normally not suspend their implementation. The claimant may however apply for interim measures to the administrative court to order their suspension if the urgency justifies it. In the present case, the French Supreme Administrative Court dismissed the application for the provisional suspension of CRE Decision No. 2020-71 by an interim ruling of 17 April 2020. In this ruling, it ascertained that the claimants had not demonstrated the urgency to suspend the objected Decision, all the more so since EDF and the beneficiaries of the ARENH mechanism could always negotiate an amicable solution to their dispute, according to the Court. As for the action for annulment, the proceeding continues.
14. It is under these circumstances that Total Direct Energie, one of the beneficiaries of ARENH, applied to the Commercial Court of Paris for interim measures intended to put an end to the manifestly unlawful disturbance. According to the claimant, this disturbance resulted from EDF’s refusal to acknowledge the existence of force majeure and to agree to the suspension of the performance of the framework agreement for the supply of electricity under the ARENH mechanism executed between them.
15. By an interim decision of 20 May 2020, the Presiding Judge of the Commercial Court of Paris granted Total Direct Energie’s application. He ruled that the force majeure conditions provided for in the framework agreement signed by EDF and the claimant were met in the present case since “the spread of the virus obviously takes on a character external to the parties, this spread is irresistible and unpredictable.” He added that for this reason, the performance of this contract could be suspended and by refusing it, “EDF contribute[d] to the existence of a manifestly unlawful disorder.” To conclude, the Commercial Court of Paris ordered the incumbent operator to cease this disturbance by accepting the suspension of the performance of the framework agreement for the supply of power under the ARENH mechanism executed with Total Direct Energie.
16. The incumbent operator has announced that it will appeal this order.
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