EDF_REGISTRATION_DOCUMENT_2017

RISK FACTORS AND CONTROL FRAMEWORK Legal proceedings and arbitration

CSPE ceiling investigation On 27 March 2014, the European Commission opened an in-depth investigation into the reductions on the Contribution to the Public Electricity Service (CSPE) granted to large energy consumers and self-generators based on State aid rules. As an interested third party, EDF submitted its comments on the decision to the European Commission, following its publication in the Official Journal of the European Union on 3 October 2014. Labour litigation EDF is a party to a number of labour lawsuits relating in particular to working time. EDF does not consider that any of these lawsuits, taken individually, is likely to have a significant impact on its financial results or its financial position. However, as these disputes relate to situations that could involve a significant number of EDF’s employees in France, if they were to multiply, they could then potentially have a significant negative impact on the Group’s financial position, even though this risk is mitigated by the signature in 2016 of the agreement on the annualised calculation of working time by days. Environmental litigation Due to its industrial activities, the Group is a party to various environmental lawsuits, in particular, regarding ground decontamination. As of the date of the filing of this Reference Document, the Group does not believe that any of these lawsuits, individually, is likely, in the event of an unfavourable outcome, to have a material negative impact on the Group’s financial position. Tax disputes Following audits of its accounts for previous financial years, the authorities disputed the tax deductibility of the Company’s provisions for benefits for work-related accidents and sicknesses (accident du travail et maladies professionnelles – “AT/MP”). This also concerns RTE, Enedis and Électricité de Strasbourg particularly, since this issue is linked to the nature of Electricity and Gas Industry companies. By two orders dated 22 November 2017, the Council of State definitively validated the position of the Company and recognised that these provisions were tax-deductible, thus ending all related litigation. For the period 2008 to 2015, EDF received proposals for adjustments related notably to the tax deductibility of certain long-term liabilities. This adjustment, reiterated each year, represented a combined corporate tax financial risk of around €536 million at the end of 2017. By two judgements in September 2017, the Administrative Court of Montreuil recognised that these liabilities were tax-deductible and validated the position adopted by the Company. For the 2012 and 2015 fiscal years, the tax authorities notified the Company of certain recurrent adjustments concerning the contribution on value added by companies and challenged the deductibility of certain long-term provisions. Vent de Colère Following an appeal lodged by an association, Vent de Colère, against the order issued on 17 November 2008 fixing the price at which wind-generated electricity is purchased, the Council of State stayed the proceedings and submitted a reference for a preliminary ruling to the European Court of Justice on whether the mechanism for financing the obligation to purchase electricity based on CSPE (Contribution au service public de l’électricité – Contribution to the Public Electricity Service) is to be regarded as an intervention by the State or through State resources within the meaning of and for the application of the provisions of the TEU relating to State aid. On 19 December 2013, the Court issued its decision and confirmed that “the new mechanism for offsetting in full the additional costs imposed on undertakings because of an obligation to purchase wind-generated electricity at a price higher than the market price that is financed by all final consumers of electricity (…) constitutes an intervention through State resources”. In a judgment issued on 28 May 2014, the Council of State set aside the order issued on 17 November 2008 on the ground that the prices it fixes constitute State aid that had not been notified to the European Commission prior to its implementation. As an alternative, on 17 June 2014, the Ministry of the Environment, Energy and the Sea signed an order setting the conditions for the purchase of wind-generated electricity produced on land. This new legislation restates the conditions for the purchase of wind-generated electricity stated in the 2008 order and the impact on the CSPE remains the same. The order of 17 June 2014 was appealed before the Council of State, which dismissed the appeal in a judgment handed down on 9 March 2016, in which the court held that this new order did not need to be notified to the European Commission and also dismissed

the claim that the rate of return awarded to wind-power producers for their tied-up capital was too high. In an opinion issued in the Praxair case on 22 July 2015, the Council of State ruled that the income from the CSPE does not have a direct impact on the amount of the aid granted to producers using renewable energy. It inferred that the CSPE could not be treated as an integral part of the mechanism used to support the wind-power sector that was held to be unlawful in the Vent de Colère judgment issued on 28 May 2014 or any other mechanism used to support renewable energy. In a judgment issued on 23 February 2016, the Administrative Court of Appeal in Paris, applying the opinion issued by the Council of State, dismissed the CSPE repayment claims filed by Praxair. The company Messer France, representing the interests of Praxair, appealed this decision. The Council of State, in a decision dated 22 February 2017, decided to stay the proceedings until the decision of the Court of Justice of the European Union (CJEU) on the prejudicial questions submitted to it, regarding the compatibility of the CSPE with the Directives establishing general arrangements for excise duties (92/12/CEE of 22 February 1992, and 2008/118/CE of 16 December 2008) and the common framework for the taxation of energy products and electricity (2003/96/CE of 27 October 2003). On 7 March 2018, the Advocate General delivered his Opinion, considering that the CSPE can be qualified as a direct taxation pursuing specific purposes compatible with EU law, only for the percentage of its income intended to finance the production of electricity from renewable energy sources. The decision of the ECJ is expected by the end of the first half of 2018. It will then be for the Council of State to rule on Messer's appeal, taking account of the answers given by the Court of Justice. Other than the Messer dispute, numerous bodies also seeking to obtain the return of the CSPE from the French State are currently pending before the administrative courts and are waiting for the ruling by the Council of State that will follow the decision by the European Court of Justice. In addition, in a decision issued on 15 April 2016, the Council of State ordered the State to pay a €10,000 penalty for non-compliance per day late, if it failed to prove, within 6 months, that it had done everything necessary to enforce the decision issued on 28 May 2014 by sending an invoice to each producer that had received support between the date of the order (17 November 2008) and the date of the decision issued by the Commission (27 March 2014) for the interest calculated on the state aid paid during this period. The collection notes have been received by the relevant SPVs within the remit of EDF EN and on 15 December 2016, €4.5 million (for EDF EN’s fraction) was paid as interest on the sums held to constitute state aid. SHEM In order to ensure water supplies for the Canal des Nestes, concessionaires and operators of facilities located upstream (EDF and SHEM) are bound by regulatory obligations requiring them to release certain volumes of water each year (“agricultural releases”). Under an “agricultural releases agreement” dated 1 December 2003, EDF and SHEM agreed the technical and financial arrangements for the releases to be carried out by SHEM, on behalf of EDF and against payment. From October 2010 onwards, as the allocation of the facilities between EDF and SHEM had been modified by the State in SHEM’s favour following the renewal of hydroelectricity concessions, the State modified the allocation of the facilities currently affected by agricultural release obligations. As none of the facilities currently operated by EDF are affected by these obligations, EDF felt that the above-mentioned agreement dated 1 December 2003 had ceased to serve any purpose and therefore it rejected SHEM invoices for a total amount of €14.9 million exclusive of tax. In October 2016, SHEM issued proceedings against EDF with the Commercial Court in Paris to obtain the payment of these invoices, as the administrative court had ruled that it lacked jurisdiction to hear the dispute. The next procedural hearing will take place on 12 April 2018 to put forward conclusions in response to the EDF following the submission of the summary conclusions no.3 of SHEM.

2.

Action against the European Commission’s decision to authorise the HPC contract for difference

On 6 July 2015, Austria brought an action before the European Union General Court against the European Commission’s decision authorising the contract for difference negotiated with the UK government in respect of Hinkley Point C. The hearings were held on 5 October 2017 and the ruling is expected during 2018. Simultaneously, on 15 July 2015, a group of German and Austrian operators led by Greenpeace Energy (and other players such as Ecotricity, UK electricity supplier) also

135

EDF I Reference Document 2017