Hydropower concessions follow standard rules approved by decree. Hydropower concession assets consist solely of hydropower generation equipment (dams, pipes, turbines, etc.) for initial concessions. In other concessions, they comprise hydropower generation equipment and switching facilities (alternators, etc.).
Assets used in these concessions, whether operated under the concession agreement or owned by the EDF group, are recorded under “Property, plant and equipment operated under concessions for other activities” at acquisition cost.
Hydropower concessions have an initial term of 75 years pursuant to the French Law of 16 October 1919 relating to hydropower use. Most hydropower concessions that expired before 2012 were renewed for terms of 30 to 50 years. However, the French government has not yet renewed 12 concessions that have expired. Since their expiry these concessions have thus been in the “rolling extension” situation defined by the law, which stipulates that at the expiry date of a concession, if no new concession has been established “the concession is extended on the existing terms until such time as a new concession is granted”, so as to ensure continuity of operations in the meantime (Article L. 521-16 par. 3 of the French Energy Code).
Under French law, assets assigned to the public transmission concession belong to Réseau de Transport d’Électricité (RTE). These assets are included in calculating the equity value of CTE, RTE’s sole shareholder, in the consolidated balance sheet.
Heat generation and distribution concession agreements signed by Dalkia with public authorities confer the right to operate facilities remitted by or constructed at the request of those authorities for a limited period, under the concession-granting authority’s supervision.
These agreements set the terms for remuneration and transfer of the facilities to the concession-granting authority or another operator taking over at the end of the agreement.
The assets are recorded as intangible assets, in accordance with IFRIC 12 “Service concession agreements”.
Foreign concessions are governed by a range of contracts and national laws. Most assets operated under foreign concessions are recorded under “Property, plant and equipment operated under concessions for other activities”. Foreign concessions essentially concern Edison in Italy, which operates local gas distribution networks, hydropower generating plants and energy services under concessions. Edison owns all the assets except for some items of property, plant and equipment on the hydropower generation sites, which will be returned to the concession-granting authority for nil consideration or with an indemnity when the concession ends. In compliance with IFRIC 12, certain concession agreements are recorded as intangible assets.
Hydropower generation assets which will be returned for nil consideration at the end of the concession are depreciated over the duration of the concession.
The Group’s accounting rules and methods were changed as follows at 1 January 2019. These accounting rules for leases only apply in 2019, and the comparative period of 2018 is still presented in accordance with IAS 17.
Under IFRS 16, a contract is, or contains, a lease if it confers the right to control the use of an identified asset for a period of time in exchange for a consideration.
Identified arrangements that do not have the legal form of a lease contract but nonetheless convey the right to control the use of an asset or group of specific assets to the purchaser are classified as leases by reference to IFRS 16.
The Group’s lease contracts as lessee essentially concern real estate assets (office and residential properties), industrial installations (land, wind farms) and to a lesser extent vehicles and IT and industrial equipment.
IFRS 16 requires leases to be recognised in the lessee’s balance sheet when the leased asset is made available, in the form of a “right-of-use” asset, presented in “Property, plant and equipment used in generation and other tangible assets owned by the Group, including right-of-use assets” with a corresponding financial liability associated with the lease commitment, presented in “Current and non-current financial liabilities”.
Upon initial recognition of a lease, the right of use and the lease liability are valued by discounting the future lease payments over the term of the lease, taking into consideration assumptions regarding the renewal or termination of leases if the relevant options are reasonably certain to be exercised.
As a rule, since the implicit interest rate in a lease is difficult to determine, the lessee’s incremental borrowing rate is used to discount the lease liability. This rate is based on zero-coupon EDF bond rates, adjusted for the currency risk, a country risk premium, the term of the lease contracts and the subsidiary’s credit risk at the date of initial recognition of the contract. In certain cases, it is based on a subsidiary’s specific incremental borrowing rate.
Subsequently, the right of use is amortised over the expected term of the lease, while the lease liability is stated at amortised cost, i.e. adding the interest recognised in the financial result, and deducting the amount of the lease payments made.
The Group has decided to apply the two exemptions allowed by IFRS 16, and as a result leases with a term of 12 months or less and leases of assets with individual value when new of less than USD 5,000 are not recognised in the balance sheet. Consequently, the payments on these leases are recognised on a straight-line basis over the lease term in the income statement.
If the Group performs a sale and leaseback operation – consisting of selling an asset to a third party and then renting it back as lessee – which is classified as a sale under IFRS 15, it measures the right-of-use asset resulting from the lease as the proportion of the asset’s previous book value that corresponds to the right of use retained by the Group. Also, the gain on the sale of the asset by the Group only corresponds to the proportion of the right of use actually transferred to the third party. The lease liability is not adjusted, unless the conditions of the sale or lease do not reflect market values.
Off-balance sheet commitments presented in note 49.1.1 concern:
The accounting treatment of a lease contract in which the Group is lessor depends on the classification of the contract. For a finance lease which transfers substantially all risks and rewards inherent to ownership of the underlying asset to the lessee, the Group recognises a financial asset in its balance sheet instead of the initial fixed asset; in this case, the receivable is equal to the discounted value of future lease payments.
