The Group has organised a progressive transition towards alternative risk-free rates (RFRs)(1), working with the finance, legal, risk and IT functions and all group entities. Meanwhile, the Group remains attentive to work by other entities and publications by official bodies, particularly IFRIC and IASB releases about the potential effects on hedge accounting.
The Group does not currently anticipate that application of these amendments will have any material impact.
The following accounting methods have been applied consistently through all the periods presented in the consolidated financial statements.
The consolidated financial statements are prepared on a historical cost basis, with the exception of assets acquired and liabilities assumed through business combinations, and of certain financial instruments, which are stated at fair value.
The preparation of the financial statements requires the use of judgments, best estimates and assumptions in determining the value of assets and liabilities, income and expenses recorded for the period, considering positive and negative contingencies existing at year-end. The figures in the Group’s future financial statements could differ significantly from current estimates due to changes in these assumptions or economic conditions.
In a context characterised by financial market volatility, the parameters used to prepare estimates are based on macro-economic assumptions appropriate to the very long-term cycle of Group assets.
The principal operations for which the Group uses estimates and judgments are the following:
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 (1,300MW and 1,450MW), 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.
The Tricastin plant’s reactor 1 was reconnected to the grid on 23 December 2019 after the fourth 10-year inspection. This is the first 900MW series unit to pass the 40-year mark.
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 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 2019 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 32.1.5.
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:
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 2019 are presented in note 34. These assumptions are updated annually. The Group considers the actuarial assumptions used at 31 December 2019 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 34.
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 14.
(1) Alternative RFRs are set to become the new reference rates after the discontinuation of critical reference rates.
