1.15.1 Provisions related to nuclear generation

These provisions mainly cover the following:

• back-end nuclear cycle expenses: provisions for spent fuel management, for waste removal and conditioning and long-term radioactive waste management;
• costs for decommissioning power plants and losses relating to fuel in the reactor when the reactor is shut down (provision for last cores).
  

Last core expenses correspond to the loss on fuel in the reactor that is not totally spent at the time of final reactor shutdown and cannot be reused due to technical and regulatory constraints, and the cost of fuel processing, and removal and storage of the resulting waste.

Changes in provisions resulting from a change in discount rates, a change in the disbursement schedule or a change in contractor quote are recorded:

• as an increase or decrease in the corresponding assets, up to the net book value, if the provision was initially covered by balance sheet assets (decommissioning of plants still in operation, long-term management of the radioactive waste resulting from such decommissioning, and last cores);
• in the income statement in all other cases.
  
  

Detailed information on the principles for determining provisions related to nuclear generation is given in note 28.

1.15.2 Other provisions

These provisions mainly cover:

• losses relating to multi-year agreements for the purchase or sale of energy:
  • losses on energy purchase agreements are measured by comparing the acquisition cost under the contractual terms with the forecast market price,
  • losses on energy sale agreements are measured by comparing the estimated income under the contractual terms with the cost of the energy to be supplied,
  • losses on gas-related service agreements are measured by comparing the costs of fulfilling a contract with the resulting economic benefits, based on market and sales assumptions;
• losses on transportation, regasification, and gas storage contracts;
• unrealised foreign exchange losses;
• risks relating to subsidiaries and affiliates;
• tax risks;
• litigation;
• decommissioning costs for fossil-fired and hydropower plants;
• costs of replacing assets operated under public electricity distribution concessions;
• provisions related to environmental schemes (see note 1.19).
  
  

In extremely rare cases, description of a specific litigation covered by a provision may be omitted from the notes to the financial statements if such disclosure could cause serious prejudice to the Company.

1.16 Employee benefits

In accordance with the statutory regulations for companies in France’s electricity and gas sector (IEG), EDF’s employees are entitled to post-employment benefits (pension plans, retirement indemnities, etc.) and other long-term benefits (e.g.long-service awards).

1.16.1 Calculation and recognition of employee benefits

EDF recognises post-employment benefits granted to personnel as provisions.

Obligations under defined-benefit plans are calculated by the projected unit credit method, which determines the present value of entitlements earned by employees at year-end to post-employment benefits and long-term benefits, taking into consideration the prospects for wage increases and the country’s specific economic conditions.

Post-employment benefit obligations are valued mainly using the following methods and assumptions:

• retirement age, determined on the basis of the applicable rules, and the requirements to qualify for a full pension;
• career-end salary levels, with reference to employee seniority, projected salary levels at the time of retirement based on the expected effects of career advancement, and estimated trends in pension levels;
• forecast numbers of pensioners, determined based on employee turnover rates and mortality data;
• reversion pensions where relevant, taking into account both the life expectancy of the employee and his/her spouse and the marriage rate for IEG sector employees;
• a discount rate that depends on the duration of the obligations, determined at the year-end date by reference to the market yield on high quality corporate bonds or the rate on government bonds whose duration is coherent with EDF’s commitments to employees.
  

The amount of the provision takes into account the present value of the fund assets that cover these benefits, which is deducted from the benefit obligations.

Any actuarial gain or loss on post-employment benefit obligations in excess of 10% (the “corridor”) of the obligations or fund assets, whichever is the highest, are recognised in the income statement progressively over the average residual working life of the Company’s employees.

For other long-term benefits, actuarial gains and losses and the full past service cost are directly included in the provision, without application of the “corridor”rule.

The net expense booked during the year for employee benefit obligations includes:

• the current service cost, corresponding to additional benefit entitlements earned during the year;
• the net interest expense, corresponding to interest on obligations net of the return on fund assets;
• the income or expense corresponding to the actuarial gains and losses on long-term benefits and amortisation of actuarial gains or losses on post-employment benefits;
• the past service cost, including the income or expense related to amendments or settlements of benefit plans or introduction of new plans.
  
  

1.16.2 Post-employment benefit obligations

Since the financing reform for the IEG sector system took effect on 1 January 2005, the CNIEG (Caisse nationale des IEG, the sector’s specific pension body) has managed not only the special IEG pension system, but also the industrial accident, invalidity and death insurance system for the sector.

The CNIEG is a social security body governed by private law, formed by the Law of 9 August 2004. It has legal entity status and reports to the French government, operating under the joint supervision of France’s Ministers for the Budget, Social Security and Energy.

Under the funding arrangements introduced by the Law, EDF establishes pension provisions to cover entitlements not funded by France’s standard systems (CNAV, AGIRC-ARRCO), to which the IEG system is affiliated, or by the CTA (contribution tarifaire d’acheminement) levy on gas and electricity transmission and distribution services.