1.3.5 Translation methods

1.3.5.1 Reporting currency

The parent company’s functional currency is the euro. The Group’s financial statements are presented in millions of euros.

1.3.5.2 Functional currency

An entity’s functional currency is the currency of the economic environment in which it primarily operates. In most cases, the local currency is the functional currency. But for some entities, a functional currency other than the local currency may be used when it reflects the currency used in the principal transactions.

1.3.5.3 Translation of the financial statements of foreign companies whose functional currency is not the Euro

The financial statements of foreign companies whose functional currency is not the euro are translated as follows:

• balance sheets are translated into Euros at the closing rate;
• income statements and cash flows are translated at the average rate for the period;
• resulting differences are recognised in equity under the heading “Translation adjustments”.
  
  

Translation adjustments affecting a monetary item that is an integral part of the Group’s net investment in a consolidated foreign company are included in consolidated equity until the disposal or liquidation of the net investment, at which date they are recognised as income or expenses in the income statement, in the same way as other exchange differences concerning the Company.

1.3.5.4 Translation of transactions in foreign currencies

In application of IAS 21, transactions expressed in foreign currencies are initially translated and recorded in the functional currency of the entity concerned, using the rate in force at the transaction date.

At each reporting date, monetary assets and liabilities expressed in foreign currencies are translated at the closing rate. The resulting foreign exchange differences are taken to the income statement.

In application of IFRIC 22, any payment or receipt of a non-monetary advance in a foreign currency must be translated at the exchange rate of the transaction date, with no subsequent adjustment.

1.3.6 Related parties

Related parties include the French State, companies in which the State holds majority ownership and certain of their subsidiaries, and companies in which the EDF group exercises joint control or significant influence. They also include members of the Group’s management and governance bodies.

1.3.7 Sales

Sales essentially comprise income from energy sales (to final customers and as part of trading activities), delivery services related to use of the transmission and distribution network, and connection services. They also comprise income from other services and deliveries of goods, mainly engineering, operating and maintenance services, services related to energy sales, design, delivery and commissioning services for power plants or their major components.

Income on energy sales is recognised as deliveries are made to customers.

The quantities of energy supplied but not yet measured and billed are calculated using consumption statistics and selling price estimates, and are recognised in sales on that basis.

Some Group entities conduct optimisation operations on the wholesale gas and electricity markets, to balance supply and demand in compliance with the Group’s risk management policy. The sales concerned are recorded net of purchases. When an entity has a net short position in euros, it is included in “energy sales”. A net long position in euros is included in “fuel and energy purchases”.

In accordance with the provisions of IFRS 15 on the principal/agent distinction, energy delivery services are recognised in sales upon delivery to the customer in the following two cases:

• when these services are not distinct from the energy supply service;
• when they are distinct from the energy supply service and the entity concerned is acting as a principal, notably because it bears the risk of execution of the service or is able to set the tariff for delivery to the final customer.
  
  

Income from connections to the French electricity network is recognised in sales at the date when the connection becomes operational.

The sales revenue from other services or deliveries of goods is recognised over time in the three following cases, based on a contractual analysis:

• when the customer simultaneously receives and consumes all the benefits generated as the service is performed by the Group (this is notably the case of operations and maintenance services);
• when the good or service to be supplied cannot be reallocated to another customer, and the Group is entitled to payment for the work done so far (this is notably the case of certain design, delivery and commissioning activities for power plants or major components designed specifically for a customer);
• when the service creates or enhances an asset (good or service) for which the customer acquires control as performance of the service progresses.
  

Sales revenues also include energy trading operations included in the scope of IFRS 9, which are recognised at the amount of the margin realised.

Capacity mechanism

Capacity mechanisms have been set up in France, the UK and Italy to ensure secure power supplies during peak periods.

• French system: French law 2010-1488 of 7 December 2010 on the new organisation of the electricity market introduced an obligation in France to contribute to power supply security from January 2017.Operators of electricity generation facilities and load-shedding operators must have their capacities certified by RTE, and commit to a forecast level of availability for a given year of delivery. In return, they are awarded capacity certificates. Meanwhile, electricity suppliers and purchasers of power to compensate for network losses (obligated actors) must have capacity certificates equivalent to consumption by their customers in peak periods. Suppliers pass on the cost of the capacity mechanism to final customers through their sale prices.
  
  The system is completed by registers for capacity trading between actors. Capacity auctions are held several times a year.
  
  The Group is concerned by both aspects of this system, as an operator of electricity plants (EDF SA, Dalkia, EDF Renewables) and as an electricity supplier (EDF SA, Électricité de Strasbourg) and a purchaser of power to compensate for network losses (Enedis and Électricité de Strasbourg).The operations are recorded as follows:
  • sales of certificates are recognised in income when the auctions or over-the-counter sales take place;
  • the cost of the capacity mechanism passed on to final customers through regulated sales tariffs and market-price offers is recognised in sales revenues as and when the electricity is delivered. However, the ARENH price has included a capacity value since 1 January 2017 when the capacity mechanism took effect, as the terms of transfer for the capacity guarantees associated with the ARENH system were defined by the CRE;
  • stocks of certificates are stated either at their certification value (i.e. cost of certification by RTE) or at their purchase value on the markets;
  • decreases in the stock of certificates are valued at the weighted average unit cost. The timing of recognition depends on the actor:
    • operators of installations: when the auction sales take place,
    • Obligated actors: spread on a straight-line basis over the 5-month peak period;
  • for obligated actors, if there is a shortfall in the stocks of capacity certificates, a provision is recorded equivalent to the best estimate of the expense necessary to extinguish the obligation;
  • at the closing date, if the realisable value of the stock of capacity certificates is lower than its net book value, impairment is recognised.