Valuation of provisions related to nuclear generation in France – back-end of the nuclear cycle, plant decommissioning and last cores – and dedicated assets

Notes 1.3.2.2, 1.3.15.2, 1.3.20.1, 4.1, 32.1 and 48 to the consolidated financial statements

Key Audit Matter

As at December 31, 2019, the provisions recorded to cover obligations relating to nuclear power plants for which EDF is the operator in France total €41,720 million, including €22,159 million with respect to the back-end of the nuclear cycle (management of spent fuel and radioactive waste) and €19,561 million with respect to the decommissioning of nuclear power plants and last cores.

The valuation of these provisions is described in Notes 1.3.2.2, 1.3.20.1 and 32.1. It requires defining technical and financial assumptions and using complex calculation models and falls within the scope of the regulatory context described in Note 4.1 and 32.1.

They are updated and the assumptions taken into consideration in the models are reviewed at least once a year. These assumptions reflect management’s best estimate at the reporting date of the impacts of the applicable regulation, the implementation of decommissioning and storage processes or changes in the main financial parameters.

Furthermore, the Company is required to allocate so-called “dedicated” assets to secure financing of certain categories of nuclear provisions in France. The realizable value of these assets should allow the Company’s commitments relating to the decommissioning of nuclear power plants and long-term storage of radioactive waste in France to be covered (Notes 1.3.15.2 and 48). The realizable value of these dedicated assets, for an amount of €31,624 million (or a net carrying amount of €29,844 million) as of December 31, 2019, was determined based on the fair value of diversified equity and bonds investments, and the equity value of a non-listed assets portfolio managed by the division EDF Invest.

We considered the valuation of nuclear provisions and dedicated assets to be a key audit matter due to:

• the sensitivity of the assumptions on which the valuation of these provisions is based, notably in terms of cost, inflation and long-term discount rates, as well as the depreciation periods of nuclear power plants in operation, and forecast cash outflows; the modification of these parameters can lead to a material revision in the provisioned amounts;
• the negative impacts on the financial position of the Company (cash earmarked to increase the amount of dedicated assets) in the event of an increase in nuclear provisions in France, a change in the realisable values of dedicated assets or changes in the coverage rate of nuclear provisions for dedicated assets,

it being specified that the valuation of provisions covers and includes uncertainties related to the fact that certain scenarios and technical solutions have never been implemented.

Responses

We have analysed the measures for recognising provisions related to nuclear generation in France and gained an understanding of the industrial scenarios for decommissioning nuclear power plants and the solutions adopted in terms of management of spent fuel and radioactive waste. We have assessed the compliance of the provisions with regard to applicable accounting, legal and regulatory measures.

We have verified the calculation models used by the Company and assessed the sensitivity of the valuations to the assumptions adopted in terms of cost, forecast cash outflows and financial parameters (discount and inflation rates).

Our work also consisted in verifying the type of costs used to determine provisions, assessing the consistency of industrial scenarios adopted by the Company and verifying the reconciliation of forecast costs and forecast cash outflows with these scenarios as well as the available studies and quotes.

We have also assessed the reasonableness of:

• margins for uncertainties and risks included in the provisions, to take into account the degree of control over decommissioning techniques and the management of spent fuel and radioactive waste.
• the series and mutualisation effects adopted in the quotes for decommissioning nuclear power plants in operation, for which the nominal cost represents €21,134 million to economic conditions at the end of the period, for a provision of €13,244 million in discounted value (Notes 32.1.3 and 32.1.5.2).

Concerning the inflation and discount rates adopted by management, we have verified their compliance with applicable accounting standards and regulatory measures, notably the ministerial order of March 21, 2007, as amended. We have reconciled the data used for this purpose with market data and available historical information.

Concerning the securing of financing for certain of these provisions through dedicated assets, we have verified, by sampling, the portfolio movements and reconciled the realisable value of the dedicated assets in the portfolio at the reporting date with the available certificate of depository statements, and available external data and valuations. We have also assessed the accounting treatment and their valuation, in particular, the compliance with the accounting standard of the impairment criteria described in Note 1.3.15.2.

Finally, we have verified the appropriateness of the disclosures given for the provisions related to nuclear generation in France and the dedicated assets in the notes to the consolidated financial statements, notably regarding the sensitivity of the valuation of provisions to changes in macro-economic assumptions (Note 32.1.5.2).