Article L. 594 of France’s Environment Code and its implementing regulations require assets (dedicated assets) to be set aside for secure financing of nuclear plant decommissioning expenses and long-term storage expenses for radioactive waste. These regulations govern the way dedicated assets are built up, and the management and governance of the funds themselves. Dedicated assets are clearly identified and managed separately from the Company’s other financial assets and investments. They are also subject to specific monitoring and control by the Board of Directors and the administrative authorities.
The law requires the realisable value of dedicated assets to be higher than the value of the provisions corresponding to the present value of the long-term nuclear expenses defined above.
The Decree of 24 March 2015 contains two measures concerning dedicated assets:
The Decree of 29 December 2010 made RTE shares eligible for inclusion in dedicated assets subject to certain conditions and administrative authorisation. The Decree of 19 December 2016 authorised allocation of the shares of CTE, which holds 100% of the capital of RTE, to the portfolio of dedicated assets from 31 December 2017, subject to conditions (see note 48.2.2 below).
The Decree of 24 July 2013 revised the list of eligible assets by reference to the Insurance Code, making unlisted assets eligible subject to certain conditions.
EDF received ministerial authorisation on 31 May 2018 to increase the portion of unlisted assets in its dedicated assets from 10% to 15% subject to conditions (this does not apply to the shares of CTE or real estate assets).
Given the applicable regulations, these dedicated assets are a highly specific category of assets.
Dedicated assets are structured and managed according to a strategic allocation defined by the Board of Directors and reported to the administrative authorities. The strategic allocation is designed to meet the overall objective of long-term coverage of obligations, and determines the structure and management of the portfolio as a whole. It takes into account regulatory constraints concerning the nature and liquidity of the dedicated assets, the financial outlook for the equity and bond markets, and the diversifying contribution of unlisted assets.
As part of the strategic allocation review process and in order to pursue the diversification into unlisted assets begun in 2010 with the shares in RTE, in 2013 the Board of Directors approved the introduction of an unlisted asset portfolio alongside the diversified equity and bond investments. This portfolio is managed by the EDF SA Division “EDF Invest”, which was formed following the Decree of 24 July 2013 on secure funding for nuclear expenses. EDF Invest has the following target asset classes: infrastructures, real estate and debt or equity funds.
Following the French government’s authorisation issued on 8 February 2013, and the approval of the Nuclear Commitments Monitoring Committee and the Board of Directors’ decision of 13 February 2013, EDF allocated the entire receivable recognised by the French State, representing the accumulated shortfall in CSPE financing at 31 December 2012, to its dedicated assets.
This financial receivable was increased in the financial statements at 31 December 2015 by an additional amount estimated at €644 million that was not allocated to dedicated assets, corresponding to the shortfalls in compensation that arose between the beginning of 2013 and the end of 2015, as acknowledged by the State in a ministerial letter of 26 January 2016. In accordance with this letter, the total financial receivable bears interest at 1.72% and will be repaid under a revised schedule ending in late 2020. This schedule was laid down in a ministerial order of 2 December 2016, based on the CRE’s confirmation of the shortfall for 2015.
On 22 December 2016, EDF assigned a 26.4% portion of this financial receivable, including the additional receivable corresponding to the shortfalls in compensation between 2013 and 2015, to a pool of investors. Consequently, the realisable value of the non-assigned portion of the receivable, which is totally allocated to dedicated assets, is calculated based on the assignment value at that date. The amount received for assignment of the portion of the CSPE receivable that was allocated to dedicated assets (€894 million) was reinvested in dedicated assets, in the same way as the reimbursements received.
After receiving the ministerial letter of 31 May 2018 authorising EDF, subject to conditions, to increase the portion of unlisted assets in its dedicated assets, on 29 June 2018 the Board of Directors validated the following new strategic allocation for dedicated assets:
These targets should be reached gradually, mainly by reinvesting fixed-income assets in yield assets.
Certain growth and fixed-income assets take the form of bonds held directly by EDF. Others consist of specialised collective investment funds on leading international markets, managed by independent asset management companies. They take the form of open-end funds and “reserved” funds established for the Group (which does not participate in the fund management).
The listed equity funds consist of international equities (mainly in North America but also in Europe, Asia-Pacific and emerging countries). Listed bonds and listed bond funds consist of sovereign and corporate bonds.
These investments are structured and managed in line with the strategic allocation, which takes into consideration international stock market cycles, for which the statistical inversion generally observed between equity market cycles and bond market cycles – as well as between geographical areas – has led the Group to define a long-term investment policy with appropriate allocation between growth assets and fixed-income assets.
Under the new strategic allocation, growth assets also include a small portion of funds invested in unlisted equities, and fixed-income assets also include a small portion of funds invested in unlisted debt. These funds are managed by EDF Invest (see note 48.2.2).
Since the application of IFRS 9 from 1 January 2018, all these assets have been included in debt and equity securities.
At the year-end, dedicated assets are presented in debt and equity securities in the balance sheet, at their liquidation value.
In the course of operational asset monitoring, the Group applies long-term, specific management rules defined and supervised by its governance bodies (maximum investment ratios, volatility analyses and assessment of individual fund manager quality).
The yield assets managed by EDF Invest consist mainly of assets related to investments in infrastructures and real estate.
Through investment funds, EDF Invest also manages growth assets and fixed-income assets (see note 48.2.1).
