EDF_REGISTRATION_DOCUMENT_2017

PRESENTATION OF EDF GROUP Legislative and regulatory environment

funded by part of the proceeds of the domestic tax on final consumption of electricity (TICFE), part of the proceeds of the domestic tax on natural gas consumption (TICGN), as well as part of the domestic tax on coal, lignite and coke (TICC) and part of the domestic tax on energy products (TICPE). For 2017, the special purpose account (CAS) is now only funded by part of the domestic tax on gas consumption (TICC) and part of the domestic tax on energy products (TICPE). For 2018, Article 50 of Law no. 2017-1837 of 30 December 2017 (the Finance Act for 2018) substitutes these TICC and TICPE percentages with an amount in order to overcome the return forecast uncertainties of these taxes as well as the revenue expansion of the CAS which will incorporate the income generated by the auctioning of the guaranteed sources provided for in Article L. 314-14 of the French Energy Code. Mechanism for compensating the additional costs of public service Compensation of Public Electricity Service costs (CSPE) Article L. 121-6 of the French Energy Code lays down the principle that the State must compensate in full the costs that are attributable to the public service generation and supply missions that are assigned to EDF and the LDCs. For electricity generation, the expenses defined by Article L. 121-7 of the French Energy Code include: the additional costs that result both from electricity purchase agreements entered ■ into by EDF and the LDCs after tendering procedures (Articles L. 311-10 et seq. of the French Energy Code) and from purchase obligation agreements signed within the framework of Articles L. 314-1 et seq. of the French Energy Code, as well as additional remuneration agreements that are entered into pursuant to Articles L. 314-18 et seq. of the French Energy Code; in areas that are not interconnected to continental metropolitan France: ■ additional generation costs that are not covered by the generation portion ■ in regulated sales tariffs, the costs of storage facilities managed by the electricity system manager, within the limits of the additional generation costs they help to avoid, additional electricity procurement costs (other than those, mentioned ■ above, linked to the purchase obligation) that are not covered by the generation portion in regulated sales tariffs, within the limit of the additional generation costs they help to avoid, the costs paid by electricity suppliers in respect of energy demand control ■ initiatives, less any income received through these initiatives, within the limit of the additional generation costs they help to avoid, the costs of studies paid by a producer or supplier with a view to ■ implementing electricity supply projects that are identified in the Decree on the multi-year energy plan; and, since the Amended Finance Act for 2016, the direct costs for EDF and the ■ LDCs directly induced by the signing and managing of purchase contracts, contracts for additional remuneration and contracts signed following tendering procedures, within the limit of the costs that an average undertaking that would have incurred if properly managed and adequately equipped. For the supply of electricity, the costs defined in Article L. 121-8 of the French Energy Code include: revenue losses and additional costs incurred by suppliers due to the ■ implementation of the special “basic necessity” rate (TPN); costs incurred by suppliers as a result of their participation in the plan established ■ for low-income persons (within the limit of a percentage, which is set by order, of the cost borne by the supplier in respect of the TPN for the year in question). Moreover, in accordance with the provisions of Article L. 121-8-1 of the French Energy Code, the purpose of the CSPE is to finance the costs incurred by operators of public electricity transmission networks in respect of the calls for tender they may initiate if the load shedding capacities do not meet the targets stipulated in the multi-year energy plan. The mechanism for compensating public service costs, governed by Articles L. 121-9 et seq. of the French Energy Code, was reformed as of 1 January 2016, pursuant to

Law no. 2015-1786 of 29 December 2015 (the Amended Finance Act for 2015), which aims to secure the financing of the costs of the public energy service. The electricity (and gas) public service costs are now financed in full, as follows: the costs linked to energy transition, which correspond to the subsidy ■ mechanisms for renewable energies, as well as the reimbursement of the “long-term” compensation deficit incurred by EDF as it stands on 31 December 2015, are registered in a special purpose account (CAS) for “energy transition” that was created by the Amended Finance Act for 2015. Law no. 2016-1917 of 29 December 2016 (the Finance Act for 2018) provides that the two sources of revenue that will provide additional funding for the special purpose account (CAS) are a part of the domestic tax on coals, lignite and coke (TICC), as well as a part of the domestic tax on energy products (TICPE). The Finance Act for 2018 substitutes these TICC and TICPE percentages with an amount in order to overcome the return forecast uncertainties of these taxes as well as the revenue expansion of the CAS which will incorporate the income generated by the auctioning of the guaranteed sources provided for in Article L. 314-14 of the French Energy Code; the other public service costs – excluding the costs associated with the subsidy ■ mechanisms for renewable energies – (fuel poverty, tariff equalisation in areas not interconnected to metropolitan France, cogeneration, and the budget for the energy conciliator, etc.) are entered directly in the general budget; revenue from the domestic tax on the final consumption of electricity, which was ■ renamed the “Contribution to Public Electricity Service” (CSPE), is directly affected to the general budget. The CSPE will be collected directly from final consumers of electricity in the form of an additional levy on the electricity sale price or directly from electricity producers that produce electricity for their own uses. The amount of the CSPE was set at €22.50/MWh as from 1 January 2016. This amount has been maintained for 2017 and 2018. As an exception, for electro-intensive and hyper-electro-intensive undertakings and distribution companies, reduced tariffs of between €0.5/MWh and €7.5/MWh have been defined. The Decree no. 2016-158 of 18 February 2016 specifies the rules for determining the costs that can be attributed to public service energy missions, the procedure for determining the amount of the costs to be compensated for each operator, and the transactions for paying the compensations to the operators who bear the expenses. Each year, the CRE records the amount of the costs that can be attributed, in respect of the previous year, to public service energy missions that are the responsibility of the operators and assesses, for the following year, the provisional amount of the same costs, and updates its cost forecast for the current year. Doing so, it distinguishes between the costs that are allocated to the “energy transition” special purpose account and those financed directly by the general budget. Each year, before 15 July, the CRE sends the Minister for Energy its assessment of the amount of these costs. The massive expansion of facilities that generate electricity using renewable energy sources (mainly wind power and photovoltaic facilities) and that benefit from the purchase obligation, for several years, has led to a significant increase in the costs to be compensated. Yet, since 2007, the amount of the CSPE that is actually applied to consumers has not made it possible to cover these costs, thus leading to an offsetting shortfall, for which EDF alone pays and that adversely impacts the group’s indebtedness. It therefore became necessary to design a new balanced mechanism (i.e. that avoids a new structural deficit being created), the financing of which is not based exclusively on electricity consumers alone (electricity is by far the least carbon-heavy energy and yet an imbalanced tax situation penalises its ability to compete with other energy forms, which is in contradiction with the CO 2 emissions reduction targets of the “Energy Transition” Law). EDF and the public authorities have reached an agreement for the repayment of the debt formed by the offset deficit as it stands on 31 December 2015 i.e. €5.779 million. Under the new mechanism that has been in force since 1 January 2016, this debt shall be paid off by 31 December 2020, according to a progressive repayment schedule that was defined by an Order of 13 May 2016, which was amended on 2 December 2016.

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EDF I Reference Document 2017