EDF / 2018 Reference document

FINANCIAL STATEMENTS Notes to the consolidated financial statements

1.3.2.3

Pensions and other long-term

The principal operations for which the Group uses estimates and judgments are the following: Depreciation period of nuclear power 1.3.2.1 plants in France In the specific case of the depreciation period of its French nuclear power plants, the EDF group’s industrial strategy is to continue operation beyond 40 years, in optimum conditions as regards safety and efficiency. The depreciation period of 900MW series power plants was extended from 40 years to 50 years in 2016 (except for Fessenheim) since all the technical, economic and governance conditions were fulfilled. The depreciation period of other Group series in France (1300MW and 1450MW), which are more recent, is currently unchanged at 40 years, as the conditions for extension are not yet fulfilled. These depreciation periods take into account the date of recoupling with the network after the most recent 10-year inspection. As explained in note 4.1, under the proposed new multi-year energy programme (PPE), two nuclear reactors would, subject to certain conditions, be shut down in 2027 and 2028, ahead of their fifth 10-year inspection. If this is confirmed in the final PPE adopted, it could lead to prospective modification of the depreciation period for the two units concerned. As this situation would bring forward the shutdown of two reactors in the Group’s fleet by a few years, the potential effect on the annual depreciation expense, which will depend on the reactors selected for shutdown, is expected to be limited. The proposed PPE also stipulates that the closure of the two reactors at Fessenheim should take place “by spring 2020, in application of the cap on installed electronuclear power, so that the Flamanville EPR can be put into operation”. The depreciation period for Fessenheim, which is currently due to end in November 2019, will be modified prospectively in accordance with the provisions of the final PPE. Nuclear provisions 1.3.2.2 The measurement of provisions for the back-end of the nuclear cycle, decommissioning and last cores is sensitive to assumptions concerning technical processes, costs, inflation rates, long-term discount rates, the depreciation period of plants currently in operation and disbursement schedules. As explained in note 4.1, under the proposed new PPE, two nuclear reactors would, subject to certain conditions, be shut down in 2027 and 2028, ahead of their fifth 10-year inspection. If this is confirmed in the final PPE adopted, it could lead to a change in the amount of corresponding nuclear provisions. As this situation would bring forward the shutdown of two reactors in the Group’s fleet by a few years, the potential impact on nuclear provisions could be an increase of some tens of millions of euros, with an adjustment to the relevant balance sheet assets. These parameters are therefore re-estimated at each closing date to ensure that the amounts accrued correspond to the best estimate of the costs eventually to be borne by the Group. The Group considers that the assumptions used at 31 December 2018 are appropriate and justified. However, any future change in assumptions could have a significant impact on the Group’s balance sheet and income statement. The main assumptions and sensitivity analyses relating to nuclear provisions are presented in note 29.1.5. The calculation of provisions incorporates a level of risks and unknowns as appropriate to the operations concerned. The valuation of costs carries uncertainty factors such as: changes in the regulations, particularly on safety, security and environmental ■ protection, and financing of nuclear expenses; changes in the regulatory decommissioning process and the time necessary for ■ issuance of administrative authorisation; future methods for storing long-lived radioactive waste and provision of storage ■ facilities by the French agency for radioactive waste management ANDRA (Agence nationale pour la gestion des déchets radioactifs); changes in certain financial parameters such as discount rates, notably in relation ■ to the regulatory limit, inflation rates, or changes in the contractual terms of spent fuel management.

and post-employment benefit obligations The value of pensions and other long-term and post-employment benefit obligations is based on actuarial valuations that are sensitive to all the actuarial assumptions used, particularly concerning discount rates, inflation rates and wage increase rates. The principal actuarial assumptions used to calculate these post-employment and long-term benefits at 31 December 2018 are presented in note 31. These assumptions are updated annually. The Group considers the actuarial assumptions used at 31 December 2018 appropriate and well-founded, but future changes in these assumptions could have a significant effect on the amount of the obligations and the Group’s equity and net income. Sensitivity analyses are therefore presented in note 31. Impairment of goodwill 1.3.2.4 and long-term assets Impairment tests on goodwill and long-term assets are sensitive to the macro-economic and segment assumptions used – particularly concerning energy price movements – and medium-term financial forecasts. The Group therefore revises the underlying estimates and assumptions based on regularly updated information. These assumptions, which are specific to Group companies, are presented in note 13. Financial instruments 1.3.2.5 In measuring the fair value of unlisted financial instruments (essentially energy contracts), the Group uses valuation models based on a certain number of assumptions subject to unforeseeable developments. Energy supplied but not yet measured 1.3.2.6 and billed As explained in note 1.3.7, the quantities of energy supplied but not yet measured and billed are calculated at the reporting date based on consumption statistic models and selling price estimates. Determination of the unbilled portion of sales revenues at the year-end is sensitive to the assumptions used to prepare these statistics and estimates. Obligations concerning French 1.3.2.7 public distribution concession assets to be replaced In view of the specific nature of French public electricity distribution concessions, the Group has opted to present its obligation to replace concession assets in the balance sheet at a value based on the amount of contractual commitments as calculated and disclosed to the grantors in the annual business reports (see note 1.3.13.2.1). An alternative approach would be to value the obligations based on the present value of future payments necessary to replace these assets at the end of their industrial useful life. The impacts this alternative approach would have had on the accounts are shown in note 1.3.23 for information. Whatever valuation method is used, measurement of the concession liability concerning assets to be replaced is notably subject to unforeseeable developments in terms of costs, useful life and disbursement dates. Deferred tax assets 1.3.2.8 The use of estimates and assumptions over recovery horizons is particularly important in the recognition of deferred tax assets. Other judgements 1.3.2.9 For the application of IFRS 10 and IFRS 11, the Group uses judgment to assess ■ control or classify the type of partnership arrangement represented by a jointly-controlled entity. In particular, EDF has set up “reserved” investment funds for some of its funds set aside for secure financing of nuclear plant decommissioning expenses and long-term storage expenses for radioactive waste (see note 45.3). In view of the funds’ characteristics, the prerogatives exercised by their managers and the procedures for defining the management strategies applicable to them, the Group considers that it does not have control, as defined by IFRS 10, over these funds. They are consequently treated as debt or equity securities, in application of IFRS 9.

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EDF I Reference Document 2018