EDF / 2018 Reference document

2.

RISK FACTORS AND CONTROL FRAMEWORK Legal proceedings and arbitration

2.4

LEGAL PROCEEDINGS AND ARBITRATION

Competitive bidding for hydroelectric concessions in France The Directorate-General for Competition of the European Commission (EC) has issued proceedings against the French State with respect to hydroelectric concessions in France, under Article 106, chapter 1 of the Treaty on the Functioning of the European Union (TFEU) combined with Article 102 of the same treaty. The European Commission therefore sent a formal notice to the French State on 22 October 2015, stating that it considered the fact that most hydropower concessions in France are attributed to and reserved for EDF as a violation of the above articles, since these measures reinforce EDF’s dominant position on the French retail electricity markets. The State has replied to the formal notice, which marked a new adversarial exchange between the State and the EC, which does not affect the final decision that will be adopted by the EC. As the principal interested party, EDF received a copy of this notice. It sent the EC its observations in response to the notice on 4 January 2016, firmly contesting the EC’s analysis and the grounds on which it is based. Discussions between the European Commission and the French State and EDF are still ongoing. Asbestos In the past, EDF has used products containing asbestos. Thus, certain employees, in particular those working in fossil-fired power plant maintenance, may have been exposed to asbestos, principally before such asbestos was replaced or protective measures were implemented by EDF from the late 1970s. Between 1997 and 31 December 2018, EDF and Enedis have been party to 694 inexcusable fault (faute inexcusable) actions in France in relation to the alleged exposure of its employees to asbestos in their workplace. Establishing a liability in such an action could lead to the payment of additional compensation by the employer to the victims or their legal successors. As at the end of January 2019, there were 91 ongoing litigation cases, of which 16 for Enedis. The cumulative amount of the final judgments against EDF in litigation cases relating to the inexcusable fault of the employer amounted to around €33.16 million as at 31 December 2018. The number of cases of litigation initiated has stabilised since 2010 and since 2016 has been trending down (less than 20 new cases each year). Accordingly, there should not be any significant variations in the financial burden for the CNIEG (Pension fund for Electricity and Gas Industry companies). A €10 million provision was created in EDF’s financial statements to cover the financial risk. Solaire Direct On 17 December 2013, the Competition Authority (ADLC) fined the EDF group €13.5 million for practices constituting an abuse of dominant position which, the ADLC felt, allowed it to favour its subsidiaries operating in the photovoltaic sector to the detriment of other market players. The ADLC criticised the fact that EDF had made various material and non-material resources available to its subsidiaries which could not be reproduced by competitors (in particular, the Bleu Ciel® brand, trademark and logo and customer data), thereby creating confusion among customers between its role as an electricity supplier subject to regulated rates and the role of its subsidiaries operating in the photovoltaic sector. EDF had lodged an appeal against this decision before the Court of Appeal in Paris. On 21 May 2015, the Court of Appeal in Paris partially reversed the ADLC’s decision and set aside the fine relating to the use of EDF’s trademark and logo for the 2009-2010 period along with the increased fine for repeated breaches. Ultimately, the fine has thus been reduced from €13.5 million to €7.9 million.

In the ordinary course of its business, the Group is involved in certain legal, arbitration and administrative proceedings. Charges that result from such proceedings are only provided for where such charges are likely and can be either quantified or assessed within a reasonable range. In the latter case, the amount of the provision is calculated on a case-by-case basis, based on the best possible estimate. The amounts of any provisions made depend on the case-by-case risk assessments and do not depend primarily on the status of the proceedings; however, developments in the proceedings may nonetheless lead to a reassessment of such risks. To the knowledge of the Company, except for the proceedings set out below, there are no other administrative, legal or arbitration proceedings (including pending or threatened proceedings), likely to have or having had in the past 12 months a material impact on the financial situation or the profitability of the Company and/or the group. EDF French Utilities Network (Réseau d’alimentation général – “RAG”) In October 2002, the European Commission initiated proceedings against France, claiming that State aid had been granted to EDF when its balance sheet was restructured on 1 January 1997. By a decision dated 16 December 2003, the European Commission set the principal amount of aid to be repaid at €889 million. On 11 February 2004, the French State issued a collection note for €1,224 million which covered the principal amount and interest. This amount was paid by EDF. On 27 April 2004, EDF initiated an action before the European Union General Court, at the time known as the European Court of First Instance, to annul the European Commission’s decision. The European Union General Court issued, on 15 December 2009, a ruling annulling the European Commission’s decision of 16 December 2003, holding that when making its decision, it should have applied the informed market economy investor test to determine whether or not the action constituted State aid. As this ruling was binding on both parties, the State repaid €1,224 million to EDF on 30 December 2009. On 26 February 2010, the European Commission filed an appeal against the European Union General Court’s ruling before the Court of Justice of the European Union. By order dated 5 June 2012, the Court of Justice rejected the appeal by the European Commission and confirmed the order of the European Union General Court of 15 December 2009. On 2 May 2013, the European Commission decided to reopen its investigation in order to check whether the State had acted as an informed market economy investor under the tests established by the European courts. On 22 July 2015, the European Commission issued a new decision ruling that the tax treatment of the provisions created between 1987 and 1996 for the renewal of the RAG facilities constituted incompatible State aid, considering that the tax exemption granted to EDF could not be treated as an investment for economic reasons. Following this decision, the State ordered EDF to repay the amount of the aid granted plus interest in accordance with the terms decided by the European Commission, corresponding to a total amount of €1.38 billion. EDF has formally acknowledged this decision and repaid the sums demanded. However, the Group disputes the existence of unlawful State aid and on 22 December 2015, it initiated a new action for annulment before the European Union General Court. On 19 April 2016, the State became involved in these proceedings, in support of EDF. By a ruling dated 16 January 2018, the European Union General Court rejected this action and confirmed the decision of the European Commission. On 27 March 2018, EDF appealed to the Court of Justice of the European Union against the judgement delivered on 16 January 2018 by the Court of First Instance of the European Union. On 13 December 2018, the Court of the European Union dismissed this appeal, thus confirming the European Commission's decision and definitively closing the dispute. LEGAL PROCEEDINGS INVOLVING 2.4.1

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