Gaining Access to the French Natural Gas Market

The law nº 2003-8 of January 3, 2003 on gas and electricity markets and on the energy public service (the "Gas Law") opened the market of French natural gas to competition and provided the general conditions of such opening.

More than one year after the enactment of the Gas Law, two decrees were finally adopted on March 19, 2004, specifying the rules of the game applicable to gas suppliers and traders wishing to enter into the French market:

1. Decree nº 2004-250 deals with the rules applicable to the licenses needed by gas suppliers to operate in France (the "First Decree"); and
2. 
   
3. Decree nº 2004-251 incorporates public service obligations into the supply of gas to French customers (the "Second Decree").

The procedure for obtaining a gas supply license (I), as well as the public service obligations of the gas suppliers authorized to serve French clients (II) are summarized below.

I. GAS SUPPLY LICENSE REQUIRED TO SUPPLY FRENCH CUSTOMERS

The Gas Law (Article 5) requires that natural gas suppliers which wish to supply French customers must obtain a supply license from the French Energy Secretary.

1.1 Information Requested in the Application for a Gas Supply License

The application for a supply license must be dated, signed and sent by registered letter with return receipt requested to the French Energy Secretary and must contain the following information and documents (Article 1 of the First Decree):

1.1.1 Information related to the applicant

• Corporate information: name, registration number with the French Commercial and Companies Registry or its foreign equivalent, by-laws, extrait K bis (certificate of incorporation or good standing) and applicant's extract of police record or similar foreign documents, position of the application's signatory and identity of the applicant's shareholders;
  
  
• Financial information: copy of the profit and loss accounts and accounting statements relating to the last three fiscal years of the applicant or similar documents or any document evidencing the financial capacity or additional financial guarantees for companies with less than three years of existence;
  
  
• Commercial and industrial information: description of the applicant's industrial and commercial activities, in particular in the energy industry;
  
  
• Contractual information: copy of the general provisions of the supply contracts set up by the applicant depending on the categories of French customers it wishes to serve.

1.1.2 Information related to the French supply activity planned by the applicant and the latter's technical and business capabilities

• Customers information: categories of customers the applicant wishes to supply (household customers, professional customers entrusted with public service missions, other professional customers) specifying, when applicable, which customers shall be directly connected to the transportation networks;
  
  
• Market information: size of the markets contemplated, divided by customers' categories and their geographical locations;
  
  
• Resources information: personnel and equipment necessary for the supply activity that the applicant has or undertakes to have in connection with its French operations;
  
  
• Business information: business characteristics of the applicant's project and its forecasted position on the French and European markets in five years;
  
  
• Gas procurement information: forward-looking gas procurement plan for the next five years and ten years and evidence that the applicant has the capacity (in terms of gas volumes, transportation and maximum hourly output availabilities) to ensure:
  
  
  • the provision of gas to its customers;
    
    
  • the balance of the gas supply at the input and output points of the transportation network;
    
    
  • compliance with the gas specifications, as transportation network user.
    
    

1.1.3 Information related to measures taken by the applicant to ensure the continuity of supply

• Copy of the provisions of the guarantee and reinsurance agreements subscribed with other suppliers in case of disappearance of the gas procurement sources of the applicant;
  
  
• Copy of other provisions allowing uninterrupted supply (e.g., additional purchase of gas from other sources, gas storage).
  
  

1.1.4 Other information depending on the operations of suppliers

• Suppliers which act as distribution network operators must provide a table indicating the number of non eligible customers for which the applicant holds a monopoly as well as the consumption of such customers;
  
  
• Suppliers operating a direct pipeline must provide information related to the consumption site that the applicant intends to supply with this pipeline.
  
  

1.2 Limited Information Requirements for Gas Customers

If the application is filed by an eligible customer [1] in order to carry out, on a non-regular basis, transactions involving the sale or exchange of gas with another eligible customer, only the following information is requested (Article 2 of the First Decree):

• Corporate information: name, registration number with the French Commercial and Companies Registry or its foreign equivalent, by-laws, extrait K bis and applicant's extract of police record or similar foreign documents, position of the application's signatory and identity of the applicant's shareholders;
  
  
• Commercial and industrial information: description of the applicant's industrial and commercial activities, in particular in the energy industry;
  
  
• Contractual information: copy of the sale or exchange agreements between the applicant and the other eligible customer.
  
  

The quantity of gas exchanged or sold during a calendar year by an authorized eligible customer may not exceed the quantity of gas directly consumed by it.

1.3 Waiting Periods for the Delivery of the Supply License by the Energy Secretary

The Energy Secretary shall grant or refuse the gas supply license within five months from the date of receipt of the complete application file. Failure by the Energy Secretary to answer shall be construed as a refusal (Article 3 of the First Decree).

The period is reduced to two months in case of a subsequent application or a transfer of license (see paragraphs 1.4 and 1.5 below) (Articles 3 and 4 of the First Decree).

The license shall specify (i) the public service obligations imposed upon its holder and (ii) the categories of customers it is entitled to supply (Article 3 of the First Decree).

1.4 Subsequent Applications by an Authorized Gas Supplier

If a supplier which already has a gas supply license wishes to serve new categories of customers, it must file a new application containing:

• evidence of its technical and economic capabilities to ensure gas supply to these new customers; and
  
  
• the information requested in paragraphs 1.1.2 and 1.1.3 above (Article 3 of the First Decree).
  
  

1.5 Transfer of the Supply License with the On-Going Business of the Supplier

In case of transfer of a gas supply on-going business, the authorized gas supplier and the transferee must address a request for the transfer of the related license to the Energy Secretary containing all information necessary to update the information mentioned in paragraph 1.1.1 above (Article 4 of the First Decree).

1.6 Annual Information Update by Authorized Gas Suppliers

Every year, before March 1, the authorized gas supplier must provide the French Energy Secretary with the following updated information:

• information related to its activity, including safety investments, in order to allow the establishment of statistics for the development of the French energy policy (Article 10 of the Gas Law);
  
  
• information mentioned in paragraphs 1.1.2 and 1.1.3 above (Article 5 of the First Decree).
  
  

After March 2007, such information update shall be performed every three years only.

1.7 Withdrawal, Suspension and Annulment of the Supply License

1.7.1 Causes of withdrawal or suspension

The gas supply license may be withdrawn or suspended by the French Energy Secretary in the event of failure of the authorized gas supplier:

• to comply with the provisions related to the terms and conditions of its supply of gas, as provided in the Gas Law and the First Decree;
  
  
• to provide the requested information update, as mentioned in paragraph 1.6 above; or
  
  
• to comply with its public service obligations, as defined in the Second Decree (Article 6 of the First Decree).
  
  

1.7.2 Procedure of withdrawal or suspension

The withdrawal or the suspension of the gas supply license may be declared only after:

• notification has been received by the supplier to remedy its failure within a fixed period of time with the grounds of the intended sanction; and
  
  
• the supplier has been in the position to review its file and submit its written or oral comments with the assistance of a person of its choice (Article 6 of the First Decree).
  
  

In the event of serious default of the supplier, likely to affect the integrity or safety of the transportation network, the Energy Secretary may suspend the gas supply license immediately.

1.7.3 Annulment of the supply license

When the authorized gas supplier is unable to report any on-going gas supply contract with eligible or non eligible customers for a period of one year, the license is automatically declared null and void (Article 7 of the First Decree).

1.8 Termination of Gas Supply Activity

The authorized gas supplier shall inform the Energy Secretary three months before it terminates its business activity and indicate the conditions of such cessation of business.

1.9 Temporary Supply Licenses for Current Suppliers

Companies which were already operating as gas suppliers in France before March 21, 2004, are deemed to have been granted a supply license until their application is considered, provided that they file a license application within three months of such date (Article 10 of the First Decree).

II. PUBLIC SERVICE OBLIGATIONS OF AUTHORIZED GAS SUPPLIERS

Gas suppliers which serve French clients must comply with the following public service obligations.

2.1 Obligations related to the access to gas procurement sources and network connections

When supplying household customers and/or professional customers entrusted with public service missions (e.g., in the sectors of administration, education, defense, health), gas suppliers must:

• have access directly or indirectly to several geographically diversified and sufficient gas procurement sources;
  
  
• prove their ability to ensure the routing of the gas they supply to the French border;
  
  
• have access to at least two inlets into the French gas transportation network, if they supply more than 10% of the French market;
  
  
• have access to at least three inlets into the French gas transportation network, if they supply more than 20% of the French market (Article 1 of the Second Decree).
  
  

The suppliers must submit to the French Energy Secretary the current and forecasted rules and terms governing the allocation of their whole resources of gas procurement.

2.2 Obligations related to the uninterrupted supply of gas

2.2.1 Principle

The supplier undertakes to provide its customers with an uninterrupted gas supply within the limits of quantities, outputs and provisions specified in the contracts binding it to said customers (Article 3 of the Second Decree).

2.2.2 Exceptions

The gas supply may be reduced or interrupted insofar as such reduction or interruption is necessary or unavoidable in the event of:

• Force Majeure or risks for the safety of persons and goods;
  
  
• Scheduled works or connection works on the networks or maintenance works on such networks (Article 3 of the Second Decree).
  
  

2.2.3 Special cases

Household customers, professional customers entrusted with public service missions and other professional customers who have not entered into a contract providing that their supply may be interrupted, must be supplied even in the following events:

• loss by the supplier during a maximum period of six months of its main gas procurement source in the context of average weather conditions;
  
  
• exceptionally cold winter such as one statistically that occurs every fifty years;
  
  
• extremely low temperature during a maximum period of three days, such as one statistically that occurs every fifty years (Article 4 of the Second Decree).
  
  

2.2.4 Alternative means to be provided by the suppliers

In order to fulfill their obligation of uninterrupted supply, the suppliers must ensure that they may resort to the following alternative means among others:

• interruption or reduction of the gas supply to some customers, when it is provided for in their contracts;
  
  
• additional purchase of gas derived from other procurement sources (short term gas or liquefied natural gas contracts);
  
  
• storage of gas.
  
  

2.2.5 Alternative means provided by the transportation network operators

In the event the supplier is unable to comply with its contractual obligations, professional customers entrusted with public service missions shall be supplied by the transportation network operators during the first five days (Article 6 of the Second Decree).

After this period, in the event that such customers have not been able to find another gas supplier, they may call on the last resort gas supplier appointed in advance by the Energy Secretary, which shall provide them with gas, until the end of the initial gas supply contract if need be (Article 6 of the Second Decree).

The gas suppliers which, directly or indirectly, supply household customers must participate in a program to keep supplying customers in a difficult financial position, in accordance with the terms set out in the June 20, 2001 decree relating to the supply of electricity.

2.3 Obligations Related to the Technical Conditions of Supply of Gas

• Suppliers must take all necessary steps to ensure that:
  
  
  • the upper calorific value of the gas supplied be bound by certain limits set up by the Energy Secretary and that the other characteristics of the gas delivered comply with the requirements of the transportation network operator;
    
    
  • the gas supplied permit a risk-free utilization of all appliances designed for gas use;
    
    
  • the gas be properly purified;
    
    
• Suppliers must inform the transportation and distribution networks operators of any change in the nature of the gas supplied likely to affect the latter's equipment and the services rendered to the end users;
  
  
• Suppliers must set daily forecasts of gas input and output at the transportation or distribution network connection points identified by the parties in the contract governing access to the network;
  
  
• Suppliers must submit their capacity booking forecasts at least monthly to the transportation and distribution network operators.
  
  

2.4 Contractual Requirements for the Agreements Between Suppliers and Customers

The agreements entered into between the authorized gas suppliers and their customers must include at least the following terms:

• term of agreement;
  
  
• supply and delivery conditions;
  
  
• prices and conditions applicable to invoicing, subscription and payment;
  
  
• conditions applicable to potential supply and/or delivery interruption and reduction;
  
  
• conditions applicable to the connection to the network, if any;
  
  
• requirements applicable to home equipment, as far as household customers are concerned;
  
  
• gas specifications at the delivery points and a description of the rights and duties of the parties in case of non compliance with such specifications;
  
  
• quantities and outputs of gas to be delivered and the metering method applicable to the gas consumed;
  
  
• responsibility of each party;
  
  
• dispute resolution process (Article 20 of the Second Decree).