Universal Registration Document 2022

Currently valid dispensations and prescriptions granted by the administrative authority, in application of Articles D. 594-6 and D.594-7 of the Environment Code

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).

In addition, the EDF subsidiary Cyclife was instructed by the administrative authority to reach a coverage ratio above 100% by 31 December 2022. At that date, the coverage rate was 123% due to the decrease in provisions, resulting particularly from the higher discount rate.

5.1.6.1.7 Management of counterparty/credit risk

Counterparty risk represents the potential loss the EDF group would sustain in the event of future default by its counterparty. The Group has a counterparty risk management policy which applies to EDF and all operationally controlled subsidiaries. This policy sets out the governance associated with monitoring for this type of risk, and organisation of the counterparty risk management and monitoring. The policy also involves quarterly consolidation of the Group’s exposures. The Financial Risks Control (CRFI) department closely monitors Group counterparties (daily review of alerts, special cautionary measures for certain counterparties).

The table below gives details, by rating category, of the EDF group’s consolidated exposure to counterparty risk. At 30 September 2022, 88% of the Group’s exposure concerned “investment grade” counterparties, mainly due to the predominance of exposures generated by the cash and asset management activity, as most short-term investments concern low-risk assets.

The exposure to counterparty risk by nature of activity is distributed as follows:

Exposure in the energy trading activities is concentrated in EDF Trading. The significant increase since December 2021 is due to soaring commodity prices over the period. Each counterparty of this subsidiary is assigned a limit that depends on its financial robustness. A range of methods are used to reduce counterparty risk at EDF Trading, primarily position netting agreements, cash-collateral agreements and arrangement of guarantees with banks or affiliates.

For counterparties dealing with EDF’s trading room, the CRFI department has drawn up a framework specifying counterparty authorisation procedures and the methodology for calculation of allocated limits. The level of exposure can be consulted in real time and is systematically monitored on a daily basis. The suitability of limits is reviewed without delay in the event of an alert or unfavourable development affecting a counterparty. Only banking, sovereign and corporate counterparties with good credit ratings are authorised, for limited amounts and maturities.

5.1.6.2 Management and control of energy market risks

5.1.6.2.1 Energy market risk policy

Through its generation and supply activities, the EDF group has operations on deregulated energy markets, principally in Europe, which expose it to price variations on the energy market that can significantly affect its financial statements.

Consequently, the Group has an energy market risk policy for all energy commodities, applicable to EDF and entities over which it has operational control.

The purpose of this policy is to:

• define the general framework for management of risks on the energy markets where the Group entities carry out their asset portfolio management activities (energy generation, optimisation and sale), and trading activities in the case of EDF Trading;
• define the responsibilities of asset managers and traders, and the various levels of control of activities;
• implement a coordinated Group-wide hedging policy that is coherent with the Group’s financial commitments;
• consolidate the exposure of the various entities operationally controlled by EDF on the structured energy-related markets.

The Group Risk Division presents an annual report on the implementation of this policy to the Board of Directors’ Audit Committee.

At entities not operationally controlled by EDF, the risk management framework is reviewed by the governance bodies.

5.1.6.2.2 Organisation of risk control and general risk hedging principle

The process for controlling energy market risks for entities operationally controlled by the Group is based on:

• a governance and market risk exposure measurement system, clearly separating management and risk control responsibilities;
• an express delegation to each entity, defining hedging strategies and establishing the associated risk limits. This enables the Executive Committee to set out and monitor an annual Group risk profile consistent with the financial objectives, and thus direct operational management of energy market risks over market horizons (generally three years).