1.3.21.2.2 French and foreign subsidiaries not covered by the special IEG system

Pension obligations principally relate to the British companies and are mostly covered by defined-benefit plans.

In the United Kingdom, EDF Energy has three principal defined-benefit pension plans:

• the British Energy Generation Group (BEGG) plan affiliated to the Electricity Supply Pension Scheme (ESPS), of which the majority of members are employees in Nuclear Generation. The BEGG plan was closed to new members in August 2012;
• the EDF Energy Generation and Supply Group (EEGSG) plan, also affiliated to the ESPS, which was established in December 2010 for the employees remaining with EDF Energy following the transfer of the former Group plan to UK Power Networks as part of the sale of the Networks. The EEGSG plan has not accepted any new members since then;
• the EDF Energy Pension Scheme (EEPS). This scheme was established in March 2004 and membership remains open to new employees.

In 2016 EDF Energy introduced a new defined-benefit section of the EEPS pension plan named EEPS CARE (Career Average Revalued Earnings). Under EEPS CARE, pensions are based on a pensionable salary corresponding to the average salary over the beneficiary’s entire career, adjusted for inflation. In 2017 a CARE section was also introduced in the BEGG pension plan, open to new employees in Nuclear Generation on equivalent terms to the corresponding section of the EEPS pension plan. Pensions for the other sections continue to be based on the beneficiary’s most recent pensionable salary.

Each pension plan is financially independent of the others. The BEGG and EEGSG plans are part of the industry-wide ESPS which is one of the largest private-sector pension schemes in the United Kingdom.

The plans are externally managed by separate trusts whose trustees are appointed by the firm and the plan participants to manage the funds in their exclusive interests. The trustees carry out an actuarial review of the plan every three years, defining the funding level, the necessary employer and employee contributions and the payment schedules. The trustees are responsible for defining the plans’ investment strategy, in agreement with the firm.

1.3.21.3 Other long-term benefit obligations

These benefits concern employees currently in service, and are earned according to local regulations, particularly the statutory regulations for the electricity and gas sector for EDF and French subsidiaries covered by the IEG regime. They include:

• annuities following incapacity, invalidity, industrial accident or work-related illness; like their counterparts in the general national system, IEG employees are entitled to financial support in the event of industrial accident or work-related illness, and invalidity and incapacity annuities and benefits. The obligation is measured as the probable present value of future benefits payable to current beneficiaries, including any possible reversions;
• long-service awards;
• specific benefits for employees who have been in contact with asbestos.

1.3.22 Special concession liabilities

These liabilities represent the contractual obligations specific to the concession rules for public electricity distribution concessions in France, and comprise the following:

• the concession-granting authority’s rights in existing assets (its right to recover all the concession assets), consisting of the value in kind of the facilities (the net book value of assets operated under concessions), less any as yet unamortised financing provided by the operator;
• the concession-granting authority’s rights in assets to be replaced (the operator’s obligations relating to assets due for replacement). These non-financial liabilities comprise:
  • depreciation recorded on the portion of assets deemed financed by the concession-granting authority,
  • the provision for replacement, exclusively for assets due for replacement before the end of the concession, (the 1992 concession agreement model). This is accrued over the asset’s useful life, based on the difference between the asset’s replacement value for identical capacity and functions, and the original value. The replacement value is adjusted at each year-end based on indexes from official publications, and the impact of the adjustment is spread over the residual useful life of the assets concerned.

When assets are replaced, amortisation recognised on the portion of assets considered to be financed by the concession-granting authority, and the provision for replacement established for the relevant asset, are cancelled and transferred to rights in existing assets. Any excess provision is taken to income.

During the concession, the concession-granting authority’s rights in assets to be replaced are thus transferred upon the asset’s replacement to become the concession-granting authority’s rights in existing assets, with no outflow of cash to the benefit of the concession-granting authority.

In general, the value of special concession liabilities is determined as follows:

• the concession-granting authority’s rights in existing assets, representing the share deemed to be held by the concession-granting authority in the concession assets, are valued on the basis of the assets recorded in the balance sheet;
• the obligations relating to assets to be replaced are valued on the basis of the estimated value of the relevant assets, measured at each year-end taking into consideration wear and tear on the asset at that date:
  • based on the difference between the asset’s replacement value as assessed at year-end and the historical cost for calculation of the provision for replacement. Annual allocations to the provision are based on this difference, less any existing provisions, with the net amount spread over the residual useful life of the assets. Consequently, the expenses recognised for a given item increase over time,
  • based on the share of the asset’s historical cost financed by the concession-granting authority for amortisation of the concession-granting authority’s financing.

The Group considers that the obligations related to assets to be replaced are to be valued on the basis of the special clauses contained in the concession agreements. Under this approach, these obligations are stated at the value of the contractual obligations as calculated and reported annually in the reports to the concession-granting authorities. This contractual value also reflects the possibility that the EDF group may one day lose its status as the concession operator.

If no such clauses existed, an alternative approach would be to state contractual obligations at the present value of future payments required for replacement of assets operated under concession at the end of their industrial useful life.

For information, the Group reports below the impacts of this alternative approach, i.e. the discounting of the future obligation to contribute to financing of assets to be replaced.

The principal assumptions used in preparing this simulation are as follows:

• the basis for calculation of the provision for replacement is the estimated replacement value at the end of the asset’s useful life, applying a forecast annual inflation rate of 1.4%, less the asset’s historical value. This amount is based on the wear and tear on the asset and discounted at a rate of 3.7% (inflation rate of 1.6% and discount rate of 4.00% at 31 December 2018);
• amortisation of the concession-granting authority’s financing is also discounted at the rate of 3.7%.