EDF / 2018 Reference document

RISK FACTORS AND CONTROL FRAMEWORK Risks to which the Group is exposed

the Group's consideration of climate change. This may represent a loss of opportunity to promote the Group's low-carbon energy solutions and call into question the Group's ability to achieve corporate responsibility goal no. 1, committed to climate action (see section 3.2.1.1 "EDF group's ambition (CSRG no. 1)"). Description 1C: At times, the Group operates its generation, transmission, distribution or supply businesses pursuant to public service concession arrangements and it is not always the owner of the assets it operates. Changes in the regulatory framework, in concession specifications and implementation conditions could have an impact on the Group's results. The Group does not always own the assets that it uses for its activities and, in such case, frequently operates them pursuant to a public service concession arrangement. In France, for example, Enedis does not own all distribution network assets: it operates them under concession agreements negotiated with local authorities (see section 1.4.4.2.2 “Distribution activities”), which grant it the exclusive right to engage in expansion actions and operate the public electricity distribution network. These public electricity distribution concession agreements, generally concluded for a period of between 20 and 30 years, are tripartite contracts between the licensing authority, the distribution system operator and the supplier at the regulated rates. Under the law, only Enedis and Local Distribution Companies (LDC) in their service areas (and EDF for areas not connected to the continental metropolitan network) may be appointed to operate the public energy distribution networks and only EDF and LDCs in their service areas may be appointed to provide the supply at the regulated rates. Therefore, at this time, when a concession agreement is renewed, Enedis and EDF do not compete with other operators. However, the Group cannot guarantee that such provisions will not be amended by law in the future (see section 1.5.5 “Public electricity distribution concessions in France”). Furthermore, the Group may not obtain the renewal of these contracts under the same financial terms and conditions. In France, hydropower generation facilities are operated under concessions awarded by the French State for structures of 4.5MW or more and within the framework of prefectoral authorisations for structures of less than 4.5MW (see section 1.5.6.2.4 “Regulations applicable to hydropower facilities”). The challenges associated with the renewal of hydraulic concessions in France are specified in section 1.4.1.5.1.4 “Hydropower generation issues”. The EDF group cannot guarantee that each of the concessions that it currently operates will be renewed, or that any concession will be renewed under the same financial terms and conditions as the initial concession. Furthermore, the Group cannot guarantee that the compensation paid by the government in the event of early termination of a concession’s operation will fully compensate the Group’s consequent loss of revenue, or that future regulations regarding the limitation of fees will not change in a way that could negatively affect the Group. These factors could have an adverse impact on its activities and financial position. The Group also operates under electricity distribution or generation concessions in other countries where it does business, particularly in Italy in the field of hydropower generation. Depending on the conditions in each country, the transmission, distribution or generation concessions may not be continued or may not be renewed in its favour with changes to the financial terms and conditions of the concession specifications, which would have an adverse impact on the Group’s activities and financial position. Description 1D: EDF has certain obligations, in particular public service obligations, that are remunerated by mechanisms that may not provide complete compensation for additional costs incurred in connection with such obligations, or that are subject to change. The public service contract entered into by the French government and EDF on 24 October 2005 specifies the objectives and terms for performing the public service obligations that EDF is appointed to perform under law (in particular Articles L. 121-1 et seq. of the French Energy Code), and also sets out the mechanisms under which EDF is compensated for the performance of these obligations (see section 1.5.2 "Public service in France" and section 1.5.3.2" French legislation: Energy Code - Contribution to the Public Electricity Service (CSPE)"). The estimated amount of public service energy costs to be offset in France in 2019 for EDF amounts to €7,206.1 million (decision of the Energy Regulation Commission of 12 July 2018 on the assessment of public service energy costs for 2019).

At the same time, the competent authorities or certain States could, in order to preserve or promote competition on certain energy markets, take decisions that are contrary to the Group's economic or financial interests or that impact its integrated operator model. The European legal framework organising the liberalisation of the energy sector is relatively recent. It is likely to change in the future ("Climate Energy and Clean Energy Packages") and may adversely affect the Group, in particular resulting in additional costs, be at odds with the Group's development model, modify the competitive context in which the Group operates, modify European regulations on regulated tariffs or affect the profitability of current or future generating units or of other Group activities. In terms of the governance or delimitation of its scope of activity that may be enforced, EDF could be affected by a limitation or loss of control of certain strategic and operational decisions that could have a negative impact on the outlook and profitability of its various activities (see section 1.5 "Legislative and regulatory environment"). At the same time, EDF may continue, in its capacity as shareholder, to bear certain risks, potential liabilities towards third parties and factors that may affect the profitability of assets. Although EDF complies and will continue to comply with applicable laws and rules in terms of competition and non-discrimination, competitors have initiated or may initiate litigation for non-compliance with these rules, which could be decided in a way that is detrimental to the Group's interests (see Section 2.4 "Legal proceedings and arbitration"). In the new energies field, EDF relies primarily on its EDF Renewables subsidiary (see section 1.4.1.5.3 "EDF Renewables"), which does business in numerous countries. The profitability of these developments is often dependent on the support policies adopted in the various countries. The Group cannot guarantee that the support programmes will not change in some of these countries and adversely impact the profitability of investments made. Finally, changes in the legislative and regulatory environment in the energy sector in the various countries where the Group operates may constitute an obstacle in terms of the Group's ability to achieve its no. 1 corporate responsibility goal: "Committed to climate action" (see section 3.2.1.1 "EDF group's ambition (CSRG no. 1)"). Description 1B: A significant portion of the Group's revenues comes from activities subject to regulated purchase or sales tariffs, for which changes in tariff regulations could have an impact on the Group's results. Changes in the regulation of carbon dioxide emissions, including the price of CO 2 emission allowances, are likely to affect the Group's profitability and its objectives for low-carbon energy solutions for climate protection. In France, a significant portion of the EDF group's revenues is based on regulated tariffs set by public authorities or regulatory authorities (Regulated Sales Tariff, Tariffs for Using the Public Transmission and Distribution Networks (TURPE)). In France, the law on the New Organisation of the Electricity Market (NOME law or Nouvelle Organisation du Marché de l’Electricité) has also introduced the Regulated Access to Electricity from the Existing Nuclear Fleet (ARENH), for the benefit of EDF's competing electricity suppliers. (See section 1.5 "Legislative and regulatory environment"). In this context, the risks are as follows: risk of limiting or even blocking rate increases for the same quality of service; ■ risk of stakeholders challenging tariff decisions; ■ many options in favour of alternative suppliers that give them arbitrage ■ opportunities on the markets to the detriment of EDF, which therefore exposes EDF symmetrically to major uncertainties that adversely impact the effectiveness of its energy market risk management (see section 2.2.2.2.1 "Control of energy market risks"). More generally, in France as in other countries, the Group cannot guarantee that regulated sale or purchase tariffs will always be set at a level enabling it to preserve its short-, medium- and long-term investment capacity and its property interests, by ensuring a fair return on capital invested by the Group in its generation, service, transmission and distribution assets. prices remain low hindering sufficient development of low-carbon energy solutions, to the detriment of both an effective transition to combat the global greenhouse effect and There is a risk, potentially caused by inadequate regulation, that CO 2

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EDF I Reference Document 2018