(Corrects to make clear market cap data is in dollars, noteuros)
* Policy switch follows EU-wide trend
By Geert De Clercq
PARIS, June 19 (Reuters) - State-controlled French utilityEDF lost nearly $7 billion of its stock market value onThursday as the Socialist government scrapped a planned increasein electricity prices in order to protect consumers.
Energy Minister Segolene Royal told a morning TV show shehad cancelled the 5 percent rise in regulated tariffs, set totake effect on Aug. 1, which had been decided by the previousgovernment of Jean-Marc Ayrault.
Royal, a powerful Socialist politician who lost apresidential election to conservative Nicolas Sarkozy in 2007,was appointed energy minister in the new government of PrimeMinister Manuel Valls in early April and immediately begantalking about lowering energy costs.
The tariff review is part of a Europe-wide trend to capenergy prices as governments try to protect consumer spending inthe face of stubbornly high unemployment.
French President Francois Hollande is struggling at recordlows in opinion polls and his Socialist party took a drubbing inrecent European and municipal elections.
Royal, Hollande's former partner and mother of his fourchildren, had already scrapped a planned tax on truck traffic.Earlier this week she presented a new energy law that aims toboost France's use of renewables but did little to implementHollande's promise to reduce its reliance on nuclear energy.
"A 5 percent tariff increase had been set for August 1. Thebills will not increase," Royal told BFM television, adding thatnew tariffs for Jan. 1 would be announced in October.
"I will make the calculation with energy regulator CRE, anindependent authority, which will work out the increase, ormaybe a fall, based on the reform I have put in place," sheadded.
Shares of EDF, which is 85 percent state-owned, fell as muchas 11 percent in their biggest slide since their 2005 stockmarket listing.
They later recovered slightly on market rumours there might be a tariff increase in October after all, but by 1303 GMT werestill down 9.5 percent.
At the energy ministry nobody was available for comment.
"The market is edgy because these comments are considered asinconsistent with communication to date and undermine theconfidence in the regulatory visibility on EDF, which should beentitled to cover its costs," Societe Generale (Paris: FR0000130809 - news) analyst VincentAyral said.
EDF shares are highly sensitive to tariff moves.
They had jumped as much as 10 percent on July 9, 2013, whenthe Ayrault government announced a 5 percent increase ofelectricity tariffs for the summer of 2013 and a second increasefor the summer of 2014, in a bid to help EDF meet its powerproduction costs.
Those tariffs hikes were the biggest in at least a decadeand EDF shares doubled between March 2013 and March 2014 as themarket anticipated their impact on EDF's profits. The shares hadbeen on a downtrend since early April this year and were down 7percent over the past three months based on Wednesday's close.
French consumers association UFC-Que Choisir welcomedRoyal's decision to scrap the planned hike but urged her to comeup with a new legal framework to set power prices and preventlegal challenges.
Smaller competitors of EDF and gas utility GDF Suez (TLO: GAZ-U.TI - news) have successfully challenged government price caps on energy incourt, arguing they created artificially low prices that did notcover utilities' production costs and prevented smallercompetitors from winning market share from the big two.
Royal's comments belatedly catch up with a Europe-wide trendto cap power prices, and mark a sharp reversal in governmentpolicy, which is set to hurt EDF's profits.
Thanks to the 2013 tariff hike and despite a warm winter,EDF in February posted a 4.8 percent rise in core earnings in arare show of strength among Europe's struggling utilities.
Other European utilities such as Iberdrola (Other OTC: IBDRY - news) , Endesa (TLO: ELE-U.TI - news) and Enel (Milan: ENEL.MI - news) face similar pressures. Spain isoverhauling its energy sector by introducing a new powergeneration tax and cuts to renewable energy subsidies, whileItaly's government advocates a cut in network costs as part of adrive to reduce energy bills.
In Britain, power prices have risen to the top of thepolitical agenda following opposition leader Ed Miliband'spledge in September to freeze bills for 20 months if he wins the2015 election. ($1 = 0.7368 Euros) (Reporting by Geert De Clercq and Marion Douet; Editing byJames Macharia and Mark Trevelyan)
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