EDF / 2018 Reference document

1.

PRESENTATION OF EDF GROUP Description of the Group's activities

Customer business 1.4.5.1.2.3

31/12/2018

31/12/2017

Customer electricity supplied (GWh)

43,939 28,944

43,769 27,879

Customer gas supplied (GWh)

Number of domestic customer accounts at the end of the period (thousands)

4,945

5,160

The Customers business is responsible for the supply of gas and electricity to residential and business customers across the United Kingdom and the wholesale market optimisation of EDF Energy’s generation and customer assets. EDF Energy sells energy to two major customer segments: domestic and business customers. The size of business customers ranges from large industrial businesses to small privately-owned businesses. EDF Energy adopts different risk management strategies for domestic and non-domestic customers. Domestic During 2018, EDF Energy supplied 11.65TWh of electricity and 28.78TWh of gas for the domestic segment. As of 31 December 2018, EDF Energy had 3.003 million electricity accounts and 1.942 million gas accounts within this segment. Competition The latest market share data from Cornwall (at the end of October 2018) showed that the combined market share of small and medium suppliers is now around 27%, compared to 20.6% at the end of October 2017. There were 62 small and medium suppliers at the end of October (excluding white labels and licence lites). EDF Energy had 4.945 million product accounts at end of December 2018, a decrease of 0.2 million since the beginning of the year. Market share declined slightly over the last 12 months and is currently 9.6% at 31 October 2018. Although EDF Energy’s market share base on total accounts declined 0.46%, this compares favourably to an average market share loss of 0.92% for the other large suppliers, with only E.ON experiencing a lower decline (0.3%). EDF Energy won MoneySavingExpert’s collective switch in January 2018, gaining 10,000 customers to a two-year fixed tariff and continued its collective switch and exclusive tariff orientated acquisition strategy. Regulatory Change Default Tariff Cap On 6 November 2018, Ofgem published their decision on the Default Tariff Cap with the following Key Features: introduced on 1 January 2019; ■ will apply to 11 million customers on Default Tariffs in UK; ■ will be updated every 6 months, to align with the existing pre-payment meter ■ (PPM) Cap; will apply until at least 2020 after which Government may extend for a further 12 ■ months at a time until 2023 at the latest. The level of the cap for direct debit (DD) Customers is £1,137 and for cash and cheque (CC) customers is £1,221 at typical consumption. Renewable Obligation equalisation Ofgem on 21 November 2018 confirmed a shortfall of £59 million in the buy-out fund of the Governments Renewables Obligation scheme. Separately, there is also a shortfall of £4 million in supplier payments into the periodic levelisation fund of Feed-in Tariffs. These shortfalls will trigger mutualisation which means that suppliers who have complied with their obligations will be required to make up the shortfall. Smart Metering EDF Energy remains committed to delivering smart meters to all domestic and small business customers who want to benefit from this new technology by 2020. In 2018, EDF Energy has continued to ramp up its field force even further and installed a further c.515,000 smart meters, exceeding its 2018 annual target. By the end of 2018, c.24% of EDF Energy customers in scope for the rollout have smart meters. In 2018, following the national IT and communications infrastructure (the DCC) finally

becoming available, suppliers were also able to start to install second generation smart meters, with EDF Energy having installed c.36,000 of them. EDF Energy plans to complete the transition to second generation smart meters in Q1 2019, in line with the end date set by the Government. Domestic Customer Services In the Q3 2018 Citizens Advice Energy Supplier Rating league table EDF Energy finished in 3rd place of all major suppliers behind British Gas and SSE. EDF Energy dropped from 2nd place in Q4 2017 but produced an improved score from 3.7 (out of 5) in Q4 2017 to 3.95 in Q3 2018. In the overall supplier table EDF Energy improved from 9th position in Q4 2017 to 8th in Q3 2018, out of the 34 suppliers included. Throughout 2018 customers have remained very positive about the service they have received across all channels with a year end (average Oct- Dec 18) Advisor Recommendation Score of +53 for our contact channels and a Digital Net Ease score of 4.2 out of 5. EDF Energy continues to work on reducing unnecessary customer contact with 68% of transactions completed by customers using inbound self-serve channels. Non-domestic customers In 2018, the non-domestic segment supplied a total of 32.3TWh of electricity, 1.9TWh to 203,434 small business customers (“SME”) and 30.4TWh to medium and large business customers (“I&C”) accounts. The business customer electricity market in the UK is c.184.1TWh in total, making EDF Energy the largest supplier to business customers. Medium business continues its strong performance, with high volume and gross margin wins. Volume in this segment continues to grow month on month. The October 2018 round performed well and £/MWh margins increased compared to the start of the year. Large Business has managed to grow its live on supply volume over 2018 by acquiring and on boarding two strategic prospects, Hanson and Manchester Airport Group. This is reflected in positive financial performance, with gross margin higher in 2018 than 2017. Further key acquisitions contracted in 2018, including another strategic public sector framework (NEPO), as well as a number of key renewals will support Large Businesses’ volume position moving into 2019. Wholesale Markets Optimisation General principles The policies surrounding EDF Energy’s energy purchasing and risk management activities are carried out in accordance with EDF group’s policies and ensure that EDF Energy’s activities are optimised and its services delivered at a competitive price while limiting its gross margin volatility. The Wholesale Markets Optimisation (WMO) Division’s purpose is to manage the wholesale market risk of EDF Energy in one place within pre-defined risk limits and control framework. It provides a unique interface with the wholesale markets via EDF Trading. WMO also provides modelling services to the whole of EDF Energy, as well as negotiating and managing asset backed commercial structures with third parties e.g. NDA and Centrica. Electricity sales and procurement The power generated by the generation fleet is sold via the WMO Division within EDF Energy’s customers business. Since April 2010, 20% of the output from nuclear generation is separately sold to Centrica, the minority shareholder of the current nuclear fleet, under the agreements made at the time of the British Energy acquisition. The remaining 80% is sold to EDF Energy's WMO under the same transfer price as used for the transaction with Centrica, based on published market prices, smoothed over forward electricity prices where liquidity allows.

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I Reference Document 2018