1.5.2 Depreciation

Items of property, plant and equipment are depreciated on a straight-line basis over their useful life, defined as the period during which the Company expects to draw future economic benefits from their use.

The expected useful lives for the main facilities are as follows:

• hydroelectric dams: 75 years;
• electromechanical equipment used in hydropower plants: 50 years;
• fossil-fired power plants: 25 to 45 years;
• nuclear generation facilities: 40 to 50 years;
• distribution installations (lines, substations): 20 to 45 years.
  
  

1.5.3 Concession agreements

EDF is the operator for two types of public service concessions:

• public electricity distribution concessions granted by local authorities (municipalities or syndicated municipalities);
• hydropower concessions granted by the French State.
  
  

The accounting treatment of concessions follows certain principles from the 1975 accounting guide for concession operator firms, as there are no specific instructions in the national chart of accounts.

1.5.3.1 Public electricity distribution concessions

EDF is the concession operator for the island public distribution networks located in Corsica and France’s overseas departments, under concession agreements that generally use standard concession specifications established in 1992 (and updated in 2007), which were negotiated with the National Federation of Licensing Authorities (Fédération nationale des collectivités concédantes et régies – FNCCR) and approved by the public authorities.

On 21 December 2017, a framework agreement for a new concession agreement model was signed with FNCCR and France Urbaine. As of 2018, newly-signed concession agreements apply this new agreement model.

Assets used under concessions are reported in the balance sheet assets as property, plant and equipment operated under concessions, regardless of their initial financing, at acquisition cost or their estimated value at the transfer date when supplied by the grantor. An offsetting liability is recognised for any assets supplied for nil consideration by concession grantors.

1.5.3.2 Hydropower concessions

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 are recorded under “Property, plant and equipment operated under concessions” at acquisition cost.

Depreciation is calculated over their useful life, which is generally identical to the term of the concession.

Additional depreciation is booked in the balance sheet liabilities for assets operated under concessions (see note 1.14.2).

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).

1.6 Long-term asset impairment

At each reporting date, EDF assesses whether there is an indication that an asset could have significantly lost value. If so, an impairment test is carried out as follows:

• EDF measures any long-term asset impairment by comparing the carrying value of these assets, combined into groups where necessary, and their recoverable amount, usually determined using the discounted future net cash flow method. When this recoverable amount is lower than the value in the balance sheet, an amount equivalent to the difference is written off under “Depreciation and impairment”;
• the discount rates used for these purposes are based on the weighted average cost of capital (WACC) for each asset or group of assets concerned;
• future cash flows are calculated on the basis of the best available information at the valuation date;
  • for the first few years, the flows correspond to the Medium-Term Plan (MTP). Over the MTP horizon, energy and commodity prices are determined based on available forward prices, taking hedges into consideration,
  • beyond the MTP horizon, cash flows are estimated based on long-term assumptions prepared for each energy, using a process that is updated annually. Medium and long-term electricity prices are constructed analytically by assembling blocks of assumptions, e.g. economic growth, commodity (oil, gas, coal) and CO2 prices, demand for electricity, interconnections, and developments in the energy mix (rise of renewable energies, installed nuclear capacity, etc.) with fundamental models of supply-demand balance. EDF refers in particular to external analyses for each assumption object (for example, for commodities and CO2, which are primary factors in electricity prices, EDF compares its own scenarios with scenarios developed by organisations such as the IEA, IHS or Wood Mackenzie, bearing in mind that each of these analysts itself proposes a cone of scenarios corresponding to different macro-economic environments),
  • income from capacity market mechanisms is also taken into consideration in valuing generation assets.

These calculations may be influenced by several variables:

• changes in discount rates;
• changes in market prices for energy and commodities, and tariff regulations;
• changes in demand and EDF’s market share, and the attrition rate on customer portfolios;
• the useful life of facilities, or the duration of concession agreements where relevant;
• the growth rates used beyond the medium-term plans and where relevant the terminal values taken into consideration.
  
  

1.7 Financial assets

1.7.1 Investments

Investments are carried at acquisition cost.

Gains and losses on sales of investments are valued using the FIFO (first in first out) method.

Transfer duties, fees and commissions and legal fees related to acquisitions of investments are included in the cost of acquisition of the asset.

Expenses of this type relating to other shares are included in expenses. Tax-regulated amortisation of acquisition costs is recorded in an excess depreciation account.

When the book value of investments is higher than their value in use, impairment is recorded equivalent to the difference.