> Company Statements AT DECEMBER 31, 2003

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1 > Company Statements AT DECEMBER 31, 2003

2 RTE 2003 COMPANY STATEMENTS Table of Contents PREAMBLE> 55 FINANCIAL STATEMENTS > 63 Balance sheet - assets > 64 Balance sheet - liabilities > 65 Income statement - expenses > 66 Income statement - revenues > 67 Intermediate income statement balances > 68 Cash flow statement > 69 ACCOUNTING PRINCIPLES AND VALUATION METHODS > 71 NOTES TO FINANCIAL STATEMENTS > 79 Note 1 Change to accounting methods > 80 Note 2 Intangible and tangible assets > 80 Note 3 Financial assets > 81 Note 4 Inventories and work-in-process > 81 Note 5 Accounts receivable > 81 Note 6 Unrealised foreign exchange gains and losses > 82 Note 7 Equity capital > 82 Note 8 Equity other than capital and capital contribution > 82 Note 9 Provision for risks and expenses > 84 Note 10 Loans and other financial liabilities > 84 Note 11 Accounts payable, other current liabilities & aged payables > 86 Note 12 Financial expenses and revenue > 86 Note 13 Extraordinary expenses and revenue > 87 Note 14 Protocols and agreements > 87 Note 15 Off-balance sheet liabilities > 87 Note 16 Workforce > 88 INDEPENDENT AUDITOR S REPORT > 89 Fiscal year-ended December 31,

3 PREAMBLE PREAMBLE The unbundling of the accounts and separation of management between EDF and RTE Transmission business provide all users with a guarantee of independence and impartiality of the Transmission System Operator and comply with the terms of the European Directive dated December 19, 1996, enacted in French legislation passed on February 10, 2000, on the modernisation and development of the public electricity service. Since 2001, RTE has presented its own financial statements of the unbundled accounts for the separate business of power transmission. To ensure that all trade between RTE and the other EDF entities is totally transparent and to provide clear proof of non-discrimination and of the absence of cross-subsidies, protocols and agreements have been drawn up, formally setting down the terms of such trading and the invoicing procedures. These internal transactions are dealt with in exactly the same way as services provided to third parties, for both procedures (ordering, receiving and invoicing) and the financial conditions applying (invoicing period, tariffs and terms of payment). 55

4 PREAMBLE 1. Highlights in Fiscal 2003 The 2003 financial statements were affected by the following contextual features: a year where weather, on average, was more severe than in 2002, with two cold snaps early and late in the year and an extraordinary heatwave, date of the payment to the State (February 2004). The Energy Regulation Commission (CRE), in its considerations on February 26, 2004, set the terms for allocating the sums involved between the unbundled activities for 2003 year-end closing. As a result of this, the impact on RTE financial statements was million, with million in payment of the principal and million in interest. an increase in extractions (adjusted for weather) of 2.1%. the application of system access tariffs over a full fiscal year (for tariffs implemented on November 1, 2002). the introduction on January 1, 2003 of the levy for the financing of expenses for public services missions [Contribution au Service Public de l Électricité CSPE], in compliance with legislation passed on January 3, 2003, changing the previous system (the fund for producing electricity as a public service). The CSPE is designed to compensate operators having to cover charges involved in the duties of providing a public service. It is collected by the power suppliers and the transmission and distribution system operators; it is charged to all electricity customers/end users on national territory. The amount of the CSPE levy invoiced to customers by RTE has not had an impact on sales figures as RTE is simply the collecting agency. the implementation as of April 1, 2003, of the Balancing Mechanism designed to provide real time physical balance between power supply and demand. The mechanism means RTE can use balancing offers of producers, customers or traders who receive payment on the basis of the published price. Any financial compensation for imbalances occurs after the fact with the balance responsible entities concerned. The price paid for balance responsible imbalances is directly linked to the prices shown by the balancing mechanism, the possibility offered to players other than EDF Producer to work with the mechanisms contributing to the balance and security of the power system (balancing mechanism, system services, upstream contract agreements on congestion), in a ruling dated December 16, 2003, the European Commission noted an advantage for EDF considered to be tantamount to State funding arising from the fact that EDF did not pay corporate tax on part of the provisions constituted between 1987 and These provisions were made to cover the replacement/upgrading of the general transmission system (RAG) and became redundant once the State had transferred ownership of the system to EDF. As a result, EDF had to refund the tax benefit to the State (estimated at million) and pay an additional million as interest calculated over the period from 1997 until the actual 56

5 PREAMBLE 2. Income Statement The following comments are designed to highlight the key components in the statement and to present an analysis of the main changes compared to the 2002 income statement. 2.1 Revenues Turnover: 4,035 million, 94.4% of all revenues on the income statement Transmission system access Distributors 2,919 million (72%) Transformer Fee 183 million (5%) TS Access Other Users 826 million (20%) Interconnections 34 million (1%) Other Services 73 million (2%) (in millions of euros) Turnover Change System Access - Distributors 2,532 2, Transformer Fee System Access - Other Users Interconnections Other Services TOTAL 3,657 4, The substantial increase in turnover compared to 2002 is mainly due to the following factors: a volume effect (+ 178 million), mainly with Distributors and including: - an increase in extractions (+17.5 TWh, + 98 million), because of weather contingencies (cold snaps and heatwave), plus an increase in domestic consumption, independent of weather conditions, - an increase in overruns on power supply subscribed (+ 80 million). a price effect (+ 196 million), with the access tariffs introduced on November 1, 2002, being applied over the full year. It should also be noted that there was a decrease in turnover from interconnections, with lower sales of capacity from France to the United Kingdom (with technical problems on the connection in early 2003 and a reduction in capacity purchases by the players). Maintenance services on EGS facilities also went down (- 6 million), with the Distributor taking this business back; this explains the change in figures for other services. Breakdown of Elements in Turnover Transmission system access for Distributors (EDF & Local Distribution Companies): 2,919 million, i.e. 72% of turnover; EDF Distributor accounts for 96% of this. Transformer fee: 183 million, i.e. 5% of turnover. The fee is invoiced to EDF Distributor, as RTE assets include transformer substations used solely by the Distributor but maintained by RTE. These substations are considered as the equivalent of facilities funded in full by end customers directly connected to the RTE grid (customer substations). The cost of these facilities therefore has to be charged to the Distributor as a specific fee, not through the tariff schedule for system access applied to all customers. System Access for Other Users: 826 million, i.e. 20% of turnover. This covers: the extraction for end customers invoiced directly by RTE (70% of the total booked for this item), RTE transmission revenues collected from EDF Producer for the extraction of customers connected to the transmission system and charged an all-inclusive tariff (power plus transmission) (10% of the total), system access for Producers for injection on the EHV network (11% of total), system access for EDF Producer for the extraction required for consumption in EDF thermal and hydro power plants (7% of total), retrocession to EDF Distributor of revenues for customers with emergency supplies connected at medium voltage ( HTA, i.e. <45 kv) and invoiced by RTE, system access for exports/imports (congestion) and other services. Interconnections: 34 million, i.e. 1% of turnover. This covers revenues from mechanisms allocating interconnection capacities (France-UK and France-Italy). Other Services: 73 million, i.e. 2% of turnover. This item covers services provided to other EDF entities, amounting to 47 million (mainly maintenance and engineering), plus other external third party revenues (amounting to 26 million (for shifting facilities at the request of third parties, sales of by-products and rental of staff accommodation). 57

6 PREAMBLE Capitalised Production (3.5% of all revenues on the income statement) Capitalised production amounted to million. This is mainly the building of network infrastructure, as well as software for industrial applications and internal management applications (staffing and issues from stock). The difference, down 53.7 million on the figures for December 2002 ( million), is mainly because of the lower level of issues from stock linked to the decline in investment in Other Operating Income, Provisions and Expense Transfers (0.9% of all revenues on the income statement) Other Operating Income ( 37.8 million) mainly includes: Write-backs of Provisions for charges and depreciation of assets ( 22.8 million, as opposed to 24.9 million in 2002), principally: the write-back of the provision for depreciation on bad debts ( 16 million), write-backs of provisions for 2002 year-end personnel expenses (e.g. corporate contribution to profit-sharing, longservice medals and long sickness) ( 5 million), the write-back of the provision for regular maintenance of helicopters ( 1 million). Transfers of Operating Expenses and Other Revenues ( 15 million, as opposed to 9.4 million in 2002), mainly being: management charges invoiced for the balancing responsible mechanism ( 3.8 million), penalties and forfeit money received on purchases and sales ( 2.9 million), expense transfers on bond issues ( 3.3 million), compensation payments after loss or damage ( 1.7 million). The change (+ 5.6 million) is mainly due to the penalties and forfeit money received on purchases and sales (+ 1.5 million) and the expense transfers on bond issues (+ 3.3 million) Financial Revenue (0.7% of all revenues on the income statement) The key elements comprising the financial revenue ( 32 million) are: the write-back of the provision for foreign exchange risk ( 14.9 million), late-payment penalties on system access billings ( 11.3million), the amortisation of bond discounts ( 3.3 million), foreign exchange gains and agio ( 1.8 million), the cash adjustments on the collected outcome of swaps ( 0.7 million). The change ( million) has mainly come from the outcome of the swaps ( million), interest on arrears ( million) and the difference in the write-back of the provision for foreign exchange risk (+ 2.3 million) Extraordinary Income (0.5% of all revenue on the income statement) Transactions entered under extraordinary income ( 19.5 million, as opposed to 21.8 million in 2002) are: the write-back of the 1976 revaluation surplus of fixed assets ( 12.1 million), the transfer of investment grants to the income statement ( 5.9 million), revenue from the disposal of assets ( 1.5 million). 2.2 Expenses The following elements are covered under operating expenses: Materials and services purchased from third parties amounting to 1,623 million (as opposed to 1,592 million in 2002) and accounting for 42.4% of total expenses. The breakdown is as follows: (in millions of euros) Type of Expenditure Change Purchases for the Transmission System Inventories consumed Other external services TOTAL 1,592 1, The increase in consumption and third party services, compared to 2002 (+ 31 million) can be explained by: An increase in purchases for the Power System (+ 60 million) covering: power purchases to offset transmission system losses ( 373 million as opposed to 331 million in 2002). The increase in this item (+ 42 million) came with the increase in the volume purchased (+6%) and higher purchase prices (+7%), expenses on the Cross Border Trade Agreement - CBT ( 81 million as opposed to 68 million in 2002). The 13 million increase on 2002 relates to the date of implementation of the CBT (March 1, 2002). The amount for this item of expenditure in 2003 covers a full year, whereas only ten months were booked in NB: Transmission System purchases cover not only power purchases to offset transmission system losses and the CBT, but also: expenses for System Services ( 259 million). A portion of the balancing expenses not included in the balance responsible mechanism, plus expenses on contractual procedures upstream from D-1 for congestion ( 90 million). 58

7 PREAMBLE A decrease in inventories consumed (- 51 million) The decrease in inventories consumed needs to be set against the decline in the level of investment in An increase in other external services (+ 22 million) The change noted on this item is mainly due to: factors contributing to the increase: > in 2003, the outsourcing of retirement expenses, booked as external services ( 50 million), whereas in 2002 these were covered as a provision (incurring a corresponding decrease in provisions for 2003), > expenditure to secure the network (+ 20 million). offset by lower expenditure through: > gains in productivity and gains on purchases (IT services) (- 30 million), > lower costs for internal services provided by EDF (insurance, telecommunications and logistics) (- 10 million), > reduced expenditure by RTE on the maintenance of EDF Distributor substations (- 5 million). Other external services ( 695 million) cover: > purchases of non-inventory material ( 37 million), > external third-party services ( 555 million) essentially: facilities maintenance and repairs, maintenance and upgrading of IT applications, rent and rental charges, telecommunications, insurance (outsourcing retirement expenses), > internal third-party services ( 102 million) mainly relating to: research and development studies, training, the service sector (e.g. management of human resources, general logistics, general contracting expenses), insurance policies (vehicles, civil liability) Taxes and Equivalent Payments amounted to 396 million (as opposed to 375 million in 2002), accounting for 10.3% of total expenses, were mainly comprised of: business tax and related charges: 207 million (+ 8 million on 2002, with a 2% average increase in rates from 2002 to 2003), tax on towers: 149 million (+ 11 million due to an increase in the unit-based taxation, 6.81% above the total amount paid in 2002; the increase was officially announced in the official government gazette (JO) dated December 24, 2002, and applied to fiscal 2003), property tax and related charges: 28 million (+ 2 million on 2002) Personnel Expenses ( 582 million, as opposed to 539 million at year-end 2002) accounting for 15.2% of total expenses, with the following breakdown: Type of Expenditure 12/ /2003 Change Pay Social Charges (including retirement pension contributions) TOTAL Personnel expenses increased by 43 million for the following reasons: the volume effect ( 8 million) with the expansion of the average payroll (+1.4%) flowing on from the extension of RTE business scope (bringing staff in-house for research and development on the Power System and Purchases, plus the continued extension of IT services in-house), the price effect ( 20 million) with the impact of the GVT coefficient balance (GVT = Glissement-Vieillesse-Technicité / Shift-Age-Technical Skills) (+1.6%, million), the profit-sharing scheme (+ 4 million), changes to salaries (+ 2.5 million), and the impact in 2003 of the under-estimation made at year-end 2002 of payments due on profit-sharing ( 5 million). NB: the GVT coefficient expresses the change in the total payroll, on a like-for-like basis through: the ageing of the work force and staff career developments, a factor contributing to the increase in the total payroll, the fact that the influx of young recruits, replacing retirees, reduces the average level of pay, a factor contributing to a decrease in the total payroll. The GVT balance had a positive effect in 2003 (+1.6%), the trend in retirement pension expenses (+ 12 million), with the IVD rate, (Invalidité-Vieillesse-Décès / Invalidity, Old Age, Death) being used to balance annual expenditure on the special retirement scheme for Electricity and Gas Industries (IEG) classified staff; this went from 58.5% (average rate for 2002) to 61%. A further impact was felt with the full year effect of specially authorised retirements approved in Depreciation and Provisions on Operations: 620 million (as opposed to million in 2002) accounting for 16.2% of total expenses, principally: Provisions for depreciation of fixed assets ( million) solely as calculated under the straight-line method. Provisions ( 21.3 million), for: depreciation of bad debts ( 6.1 million, compared to 14.7 million in 2002), depreciation of inventories and other supplies ( 4.4 million), 59

8 PREAMBLE other provisions related to personnel expenses, mainly for the corporate contribution to the profit-sharing scheme ( 6.1 million, compared to 3.5 million in 2002), long-service medals ( 1.6 million) and long-term sick leave ( 0.7 million), provision for regular maintenance of helicopters ( 1.1 million, compared to 1.3 million in 2002). The change on the figures for year-end 2002 ( million) was mainly due to: the outsourcing of retirement expenses, booked as insurance expenditure in 2003 and no longer entered as a provision ( million), a decline in provisions for depreciation of fixed assets, compared to the peak experienced in 2002 when a one-off operation to audit current investment projects resulted in a large number of facilities commissioned prior to 2002 being entered on the books, thereby incurring additional amortisation to offset provisions in the fiscal years prior to 2002 ( million), the fact that the provision for bad and disputed debts in 2002 included one specific case of litigation for a substantial sum ( 11 million), while the amounts for provisions for bad debts in 2003 were smaller (net change: million), the booking of a provision for depreciation of inventories (+ 4.4 million), the increase in the provision for the corporate contribution to the profit-sharing scheme (+ 2.7 million) Other Expenses ( 63.4 million, i.e. 1.7% of total expenses) mainly covering the net book value of fixed assets which have been demolished, the special tariff, the corporate contribution to profit-sharing and other miscellaneous expenses (e.g. royalties on software and market penalties) Financial Expenses ( million, i.e. 12.8% of total expenses) mainly comprised of: interest on RTE s financial debt ( million), the share of interest payments assigned to RTE, with the decision by the European Commission ( 89 million), provisions ( 10.4 million) for depreciation of bond redemption premiums ( 9.8 million) and exchange losses ( 0.6 million). The change in relation to 2002 (+ 21 million) is the result of: the drop in both short-term and long-term interest rates, and the average debt outstanding (- 46 million), the increase in the value of the euro against the Swiss franc; in 2003, this meant a write-back of unrealised exchange losses and not a provision, as was the case in 2002 (- 4 million), lower provisions for depreciation of bond redemption premiums (- 17 million), in line with debt redemption in 2003, the share of interest payments assigned to RTE with the European Commission ruling on sums owed by EDF for corporate tax due on part of the provisions for the General Transmission System [RAG Réseau d Alimentation Général] (+ 89 million) Extraordinary Charges ( 57 million, i.e. 1.4% of total expenses) Extraordinary charges now include the difference when calculating depreciation under the declining balance method; this is entered as derogatory amortisation, in compliance with the change in methods explained in the accounting principles and methods ( 56.3 million) Corporate Income Tax ( million) was calculated by: Reinstating into gross profit: non-deductible provisions and expenses: i.e million for improperly deferred amortisation, 1.7 million for nondeductible provisions, elements entered fiscally as revenues for the period even though not included in pre-tax accounting income: 21 million received as investment grants. Deducting from gross profit: non-taxable accounting revenues (share of grants booked on income statement for 5.2 million), write-backs of provisions previously taxed ( 15 million). The apparent corporate tax rate for 2003 thus stands at 38.12% (ratio of tax to gross profit) with the legal rate at 35.43%. Net income for the period after tax and before contribution to the State amounts to million. 3. Cash Flow and Statement of Working Capital The cash flow generated in 2003 ( million) covered RTE capital expenditure for the year ( 535 million) and reduced debt by 470 million. The reduction in working capital requirements in 2003 provided an extraordinary source of funds, reducing debt by a further 142 million. 4. Balance Sheet The total recorded on the balance sheet is 13,112 million, as opposed to 13,224 million at year-end 2002 (adjusted balance sheet). 60

9 PREAMBLE 4.1 Assets Fixed Assets 4.2 Liabilities Equity Capital Fixed assets amount to 12,037 million and account for 91% of assets. The net value of intangible assets ( 71.1 million) is mainly comprised of IT applications used for operating the system, for opening up the electricity market and for management. Property, Plant & Material covers commissionings and decommissionings for the period. The net value, after calculation of amortisation, amounts to million, accounting for 57% of the gross value. More than 87% are technical facilities and industrial material, such as overhead and underground lines and transformer substations. Property, Plant & Material in progress (both tangible and intangible assets), valued at 513 million, covers the development of infrastructure construction. The amount is to be set against the amount for capital expenditure over the period ( 535 million). The change on 2002 figures (- 206 million) is the effect of the continued and substantial effort begun in 2002 to reduce the time between the date of technical commissioning and the entering of these facilities on the books, and the decrease in the capital expenditure over the period. Financial assets amounting to 12.4 million are mainly comprised of staff loans, capital interests held in subsidiaries, plus subsidies and interests invoiced. The change on the figures for 2002 (- 20 million) came with the securitisation of part of the home ownership loans for staff which are managed by EDF. Current Assets Inventories and work-in-process, comprised solely of operating material and raw materials, were booked for a net value of 91.7 million. The change (- 26 million) is mainly due to the optimisation of volumes of purchases in inventory, as part of a policy of inventory rationalisation. Accounts receivable amounted to 771 million, after deduction of a 4.4 million provision for depreciation. These include receivables for RTE services provided to other EDF entities. The increase on the 2002 figure ( million) is mainly due to the increase in the turnover figure at year-end 2003, plus the implementation of the levy for the provision of electricity as a public service [Contribution au Service Public de l Électricité CSPE]. Equity capital amounted to 4,048.4 million, i.e. 31% of the total for equity and liabilities, as opposed to 4,000.3 million at year-end The change ( million) is mainly due to: an increase in income ( million), an increase in tax-related provisions (+ 44.2m), essentially with the change in method for calculating depreciation where the difference under the declining balance method is reclassified as tax-related provisions, an increase in investment grants received ( million), a decrease in retained earnings ( million), because of the repayment of the State aid assigned to RTE ( 241 million in principal), partially offset by the retained earnings from the previous fiscal year (+ 44 million). Liabilities Financial debts, accounts payable and other current liabilities amounted to 9,033.5 million (as opposed to 9,132.7 million in 2002), i.e. 69% of total equity and liabilities. Long-term debts (after swaps) and short-term debts amounted to 7,598.1 million, down 614 million on year-end 2002 (including bond redemption premiums and unrealised foreign exchange gains and losses). The substantial increase in accounts payable and other current liabilities, up to 1,380.1 million ( 505 million more than 2002), was mostly due to: the impact of the decision by the European Commission (the share of the principal and interest assigned to RTE, i.e million), the cyclical increase in internal accounts payable (+ 100 million) related to the standardised method to be used for determining the portfolio of internal debts at year-end 2002, whereas in 2003 the actual payment date of internal transactions was implemented, the corporate tax debt at year-end 2003 (+ 98 million), in contrast to year-end 2002 when RTE recorded a corporate tax credit. 61

10 FINANCIAL STATEMENTS FINANCIAL STATEMENTS 63

11 FINANCIAL STATEMENTS Balance Sheet Assets (in millions of euros) Gross Depreciation Net Net Net & provisions Pro Forma Published Notes Dec. 31, 2003 Dec. 31, 2003 Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2002 Intangible Assets Property, Plant & Equipment 2 Land & improvement Construction 2, , , ,294.2 Technical facilities, industrial material & tools 17, , , , ,061.5 Other tangible assets Property, Plant & Equipment (sub-total) 19, , , , ,577.2 Intangible assets in progress: 2 IT applications Property, Plant & Equipment in progress: 2 Construction in progress Advances Property, Plant & Equipment in progress (sub-total) Financial Assets 3 Controlling interests & receivables from controlled entities Loans & other financial assets Financial assets (sub-total) FIXED ASSETS 20, , , , ,407.9 Inventories & work-in-process Advances to suppliers Accounts receivable Other trade receivables Cash & cash equivalents CURRENT ASSETS 1, Pre-paid expenses Deferred charges Bond redemption premiums Unrealised foreign currency translation losses TOTAL ASSETS 21, , , , ,

12 FINANCIAL STATEMENTS Balance Sheet Equity & Liabilities (in millions of euros) Pro Forma Published Notes Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2002 Capital Capital Contribution 2, , ,028.7 Revaluation surpluses 8 Special revaluation reserve Act, Dec. 28, Regulated reserve Act, Dec. 29, Miscellaneous reserves 8 1, , ,240.4 Regulated reserves Retained earnings Net income Investment grants Tax-related provisions EQUITY 7 4, , ,103.4 Provisions for risks Provisions for expenses PROVISIONS FOR RISKS & EXPENSES 29,8 91,0 91,0 Financial liabilities 10 7, , ,188.4 Advances received Accounts payable & current liabilities Accounts payable Accounts payable tax & social charges Other liabilities Sub-total 1, Deferred income Unrealised foreign currency translation gains TOTAL EQUITY & LIABILITIES 13, , ,

13 FINANCIAL STATEMENTS Income Statement Expenses (in millions of euros) EXPENSES (net of value added tax) Pro Forma Published 1. OPERATING EXPENSES Purchase of stored supplies: - Other supplies Purchase of power (including purchases to cover system losses) Purchase of non-stored miscellaneous materials External services : Outside staff Leases System services Other external expenses ,005.4 Purchases & other expenses 1, , ,806.7 Business tax Tax on towers Property tax Other taxes Taxes Salaries & wages Profit-sharing Social charges Personnel expenses Depreciation: Fixed assets Deferred charges Sub-total: Depreciation Provisions: for losses on current assets for risks & expenses Sub-total: Provisions Depreciation & Provisions Other expenses TOTAL 1 3, , , INTEREST & OTHER FINANCE CHARGES Increase in provisions & depreciation Interest Foreign exchange losses TOTAL EXTRAORDINARY CHARGES Book value of fixed assets sold Depreciation & Provisions Other charges TOTAL TOTAL EXPENSES (1-3) 3, , , INCOME BEFORE TAXES AND CONTRIBUTION TO THE STATE CORPORATE INCOME TAX NET INCOME GRAND TOTAL 4, , ,

14 FINANCIAL STATEMENTS Income Statement Revenues & Other Income (net of value added tax) (in millions of euros) Pro Forma Published 1. SALES FROM OPERATIONS System access 3, , ,579.0 Sales of by-products Other sales Sales (turnover) 4, , , Capitalised production Operating revenues ( ) 4, , , Write-back of provisions Expense transfers Other income TOTAL 1 4, , , INTEREST & OTHER FINANCIAL INCOME Foreign exchange gain on loans and swaps Write-back of provisions Expense transfers Interest and other income TOTAL EXTRAORDINARY INCOME Capital Gains Proceeds from assets sold Investment grants transferred to income statement Other capital gains Write-back of depreciation and provisions TOTAL GRAND TOTAL 4, , ,

15 FINANCIAL STATEMENTS Intermediate Income Statement Balances (in millions of euros) Notes Pro Forma Published System access 3, , ,579.0 Other income TURNOVER 4, , ,740.0 Capitalised production Operating revenues 4, , ,945.1 Purchase of stored supplies Purchases of non-stored miscellaneous materials System Services Other services ,012.4 PURCHASES AND OTHER EXPENSES -1, , ,806.7 ADDED VALUE 2, , ,138.4 Taxes Personnel expenses OPERATING PROFIT BEFORE DEPRECIATION. 1, , ,224.3 AMORTISATION AND OTHER EXPENSES Depreciation and amortisation fixed assets Depreciation of deferred charges Charges to provisions for risks and expenses Write-back of provisions and depreciation Expense transfers and other operating income Other operating expenses OPERATING PROFIT/(LOSS) FINANCIAL PROFIT/(LOSS) PROFIT/(LOSS) FROM RECURRING OPERATIONS EXTRAORDINARY PROFIT/(LOSS) GROSS PROFIT Corporate income tax NET INCOME

16 FINANCIAL STATEMENTS Cash Flow Statement (in millions of euros) Pro Forma Published 1. NET FLOW FROM OPERATIONS Net income Depreciation & provisions Net income from disposal or demolition of assets Cash flow Inventories Accounts receivable Accounts payable (2) Change in working capital requirements related to operations TOTAL NET CASH FLOW FROM OPERATIONS 1, CASH FLOW FROM INVESTING ACTIVITIES Purchases of fixed assets Deferred charges Disposal of fixed assets TOTAL CASH FLOW RELATED TO CAPITAL EXPENDITURE CASH FLOW RELATED TO CAPITAL Dividends paid out Other capital increases Repayment of State Aid (European Commission decision) Debt reduction (structural) - net change (1) Debt reduction through extraordinary change to WCR (2) TOTAL CASH FLOW RELATED TO CAPITAL OPERATIONS NET INCREASE/DECREASE IN CASH FLOW Opening cash balance Closing cash balance NET INCREASE/DECREASE IN CASH BALANCE (1) Taking into consideration sustainable sources and steady uses of funds (cash flow before the impact of the decision by the European Commission: 993 million). investment grants received. disposals of assets and dividends. (2) Mainly covering the increase in internal operating debts related to the standardised practice used to assess internal debts at the end of 2002, whereas in 2003 the amount of internal debts shows the actual balance of sums due to suppliers. 69

17 ACCOUNTING PRINCIPLES AND VALUATION METHODS ACCOUNTING PRINCIPLES AND VALUATION METHODS 71

18 ACCOUNTING PRINCIPLES AND VALUATION METHODS Both the European Directive and French legislation, with Act on the modernisation and development of the public electricity service, impose an obligation on integrated electricity companies to draw up separate accounts for generation, transmission and distribution and other activities, as if these activities were conducted by separate companies, so as to avoid discrimination, cross-subsidies and any unfair competition. French legislation also states that the Public Transmission System Operator must be independent from the management of all other EDF business and that the financial statements must be presented to the Energy Regulation Commission [CRE]. The unbundling of accounts for EDF business has been effective since the accounts for 2000 were examined by the EDF Board of Directors on March 29, The 2000 balance sheet for Transmission business then became the 2001 opening balance sheet for RTE. In 2003, RTE financial statements cover accounts for unbundled Transmission business as was the case for The methods used for drawing up these statements comply with the rules detailed below, in accordance with the recommendation on the principles of unbundling accounts made by the Energy Regulation Commission on February 15, 2001: Scope of Transmission: The scope of Transmission business is the scope of the Transmission System Operator RTE [Réseau de Transport d Électricité] established within EDF. The system covered by Transmission includes all connections on the network in mainland France plus interconnectors with voltage of 63 kv or more (excluding public service distribution concessions). The scope includes the following activities: operation of the power system, management of network infrastructures, operation and maintenance of transmission facilities, meter reading and work on metering devices under RTE responsibility, transmission system user relations, provision of network services. It also includes the central office functions needed for RTE independence. (Ref: text dated February 15, 2001). Rules on Allocation: The rules on allocating items to be entered as assets and liabilities, expenses and revenues follow the direct allocation principle whenever possible. Coefficients are only to be used when direct allocation is impossible, as, for example, with centrally managed costs (see Note 14 on protocols). Balance Sheet: Balance sheets drawn up for each line of business must include all assets and also all liabilities related to the unbundled business. Assets on the RTE balance sheet result mostly from direct allocation. Direct allocations under liabilities are: operating liabilities for the most part (e.g. accounts payable), liabilities related to fixed assets (revaluation surplus, investment grants and tax-related provisions). Financial liabilities have been divided up amongst the different lines of business so as to balance the balance sheet for each business. The weighting of financial liabilities and capital within each line of business takes into account relative capital requirements according to working capital requirements and the relative risk level (see Notes 7 and 10 on equity capital and loans). The statements have been drawn up in compliance with current rules, taking into account certain principles applied because of specific features of EDF and in accordance with the French national chart of accounts for the Electricity and Gas Industries. 1. Accounting Changes 1.1 Change of Methods for Fiscal 2003 On January 1, 2003 (before the mandatory date), RTE adopted regulation CRC No on amortisation and depreciation of assets, incurring changes in the accounting methods used to amortise transmission facilities. On January 1, 2003, RTE also opted for the method of booking interest on loan capital as expenses Change in Amortisation and Depreciation of Fixed Assets In compliance with prevailing practice in the industry, and in line with new principles adopted by EDF, RTE now amortises all fixed assets using the straight-line method, with exceptional amortisation calculated under the declining balance method for certain transmission facilities. This change in method has meant RTE has conducted a retrospective review of linear depreciation and reclassified liabilities on the balance sheet as tax-related provisions, the exceptional amortisation then being the difference between declining balance and straight-line depreciation. This change has had no impact on retained earnings and was introduced without any tax-related effect. 72

19 ACCOUNTING PRINCIPLES AND VALUATION METHODS Interest on Loan Capital (deferred interest expenses) for Grid Construction On January 1, 2003, in accordance with the option provided for in both French and international legislation, interest on loans incurred over the period when grids are being constructed is not capitalised but booked as expenses as it is incurred. The implementation of this method meant the cancellation of interest which had been capitalised as deferred expenses. The impact of these changes in methods on the financial statements is described in Note Accounting Entries for the European Commission Ruling on State Aid and Related Interest to be Repaid to the Public Authorities by EDF RTE has followed the accounting method chosen by EDF which booked the repayment of the State aid (assessed as unpaid corporate tax on part of the provisions for the RAG [Réseau d Alimentation Générale / General Transmission System] entered as interest in concessionary plant facilities ) in correlation with the entering of the original transaction. In 1997, after the State transferred ownership of the RAG system to EDF, the interest in concessionary plant facilities, as constituted at that time and entered under liabilities, had been fully booked as equity capital. EDF therefore booked a reduction in equity for the amount of the State aid to be repaid (RTE share: 241 million). EDF considered that the interest part of the amount which the European Commission has ordered to be repaid (RTE share: 89 million) comprised financial interests to be booked under income. 1.3 Financial Flows Related to the Balancing/Balance Responsible Mechanisms The Balance Responsible system cannot be dissociated from the Balancing Mechanism; it is designed to offset balancing charges covered by RTE to provide non-stop balance between supply and demand (Generation = Consumption). Since the implementation of the Balancing Mechanism on April 1, 2003, the price paid for balance responsible imbalances has taken into account the average price of upward or downward balancing offers. A further payment of imbalances is calculated in proportion to the physical extraction within the given Balance Responsible s scope; this component is designed to cover the cost incurred by RTE with the guarantee of rapid additional reserves (protocol number 269 for EDF). NB: the total cost of balancing offers initiated by RTE is not intended to be fully covered by the Balance Responsible system, which explains the entry for a net balancing charge after calculating balancing charges from all sources and deducting from them balance responsible revenues. As a result, the financial statements for 2003 have only booked one single net balancing charge, after calculating total balancing mechanism revenues and subtracting these charges. Similarly, downward balancing offers, where RTE is paid by the offering provider at the stated price, are now booked as a reduction in balancing expenses and no longer included in turnover. The financial statements for 2002 have been corrected accordingly. The new presentation has had no impact on income. Impact on Presentation of Financial Statements (in millions of euros) Published Pro Forma Published Pro Forma Expenses Purchases & other expenses 1, , , ,980.6 Revenues Sales 3, , , ,124.1 Other revenues DIFFERENCE BETWEEN REVENUES & EXPENSES 2, , , ,

20 ACCOUNTING PRINCIPLES AND VALUATION METHODS 2002 Restatement: 4. Financial Assets The item purchases and other expenses was reduced by: > 82.8 million for the downward balancing offers, > million for Balance Responsible net income. and to balance these reductions: > turnover was cut by 82.8 million, > other revenues were reduced by million. 2. Intangible Assets Intangible assets mainly consist of software (industrial system operation programmes and administrative software packages) and are amortised over a period ranging from three to fifteen years. 3. Plant, Property & Equipment and Reserve for Depreciation RTE tangible assets mainly consist of property. Plant, Property and Equipment are entered under assets on the balance sheet and recorded at acquisition cost or production cost, with the exception of any restatement of assets as required by law. Depreciation is calculated using the straight-line method or the declining balance method (see point 1 Accounting Changes ). Depreciation for the main facilities is calculated as follows: lines and cables: over 45 years, transformers: over 40 years, bays and busbars: over 45 years for high voltage units and over 15 years for low voltage units, back-up and auxiliary material: over 45 years, telecommunications and telecontrol material: over 10 years. In 2003, RTE pursued its policy of drawing up an inventory of substation assets over a five-year period (20% per year). Work in 2003 went beyond this target, covering 32% of substations for the inventory. Differences observed in the course of the survey have led to adjustments for fiscal 2003, with withdrawal of assets for a gross book value of 57.4 million (1.9% of substations covered in the inventory) and a net book value of 11.2 million. Further adjustments will be made in For line assets, an inventory procedure was initiated by reconciling accounting and technical bases. Almost 60% of the differences recorded in this comparative approach have been analysed. In 2004, this analysis will be completed and the relevant accounting adjustments made. Equity interests are valued at cost of acquisition. If their balance sheet value were to fall below the original cost of acquisition, the capital loss should be covered by a provision not offset by unrealised capital gains. 5. Inventories Material stored in inventory is valued at purchase price; ancillary expenses are included, but without interest charges. Inventories are assessed using the weighted average cost method. Favourable and unfavourable variances are booked after inventory. The provision for depreciation of stored materials expresses the reduction in value of an asset, being specific as to the type of effect, but non-specific as to its occurrence. The provision for depreciation measures a likely loss of value but can be written back and is entered upstream from assets being scrapped or retired. The provision covers the risk of deterioration or non-use of the materials stored because of technical obsolescence as well as future destroying or scrapping of inventory material. 6. Receivables, Cash and Related Provisions Receivables include accounts for services provided by RTE for other EDF entities (and specifically system access). The amount is determined under the terms of the protocols signed by RTE and EDF covering each of these transactions. Receivables also include revenue due on external and internal customers for power transmitted in December. A provision has also been booked to cover the risk of non-recovery. 7. Bond Redemption Premiums Bond redemption premiums are amortised under the straightline method over the period of each debenture (or each phase of the debenture to maturity for serial debentures). 8. Translation of Foreign Currency Payables and Receivables Foreign currency payables and receivables are valued at the exchange rates at year-end. The translation difference is entered on the balance sheet as unrealised losses or gains. 9. Provisions for Risks and Expenses These provisions are mainly intended to cover foreign exchange losses, charges for regular maintenance of helicopters, staff-related expenditure (e.g. long service awards, payments to match staff savings and long illness benefits). 74

21 ACCOUNTING PRINCIPLES AND VALUATION METHODS 10. Retirement Bonuses Commitments made by EDF on retirement bonus entitlements for employees are covered by insurance policies. They are calculated according to the prospective actuarial level method on a pro rata basis to the entitlements at term. The method, which has been recommended by the French Institute of Chartered Accountants [Ordre des Experts Comptables] estimates the amount of the entitlements earned, and assesses the amount of the commitment in relation to past entitlements as a pro rata of the number of years of seniority and the number of years the employee will have been in the company s service when he/she retires. 11. Pensions & Staff Benefits 11.1 Specific features of the special pension scheme for companies in the Electricity and Gas Industries The retirement plan for statutory employees of these companies is a special and compulsory scheme set by law. Conditions for determining retirement entitlements and conditions for funding the scheme are set by the National Employees Act (decree dated June 22, 1946) and are the responsibility of the Public Authorities. Companies and utilities have no legal means of adapting or changing the terms. The scheme is not a corporate retirement plan, but a section of legislation on compulsory retirement pension schemes under the terms of Article L711-1 in the French legal code on Social Security. It is not confined solely to the nationalised sector of the industry (EDF and GDF), but also applies to private companies. EDF is recognised as a Public Utility Company with not only obligations, but also entitlements and guarantees arising from this status Current Financial Commitments of Électricité de France Companies in the Electricity and Gas Industries are not legally required to provide direct cover for retirement pension commitments, but do have an obligation to fund the scheme, being responsible under current regulations for maintaining the balance of annual expenditure. RTE records showed that at year-end 2003, 8,164 members of staff were subscribing to the scheme. In 2003, the contribution made by RTE to balance the electricity and gas sector pension scheme amounted to 176 million. This takes into account compensatory payments through other compulsory retirement schemes and charges for administering the scheme. In 1999, Électricité de France began an outsourcing process so that one part of its future special contributions to the gas and electricity sector pension scheme would be covered by insurance systems. As part of this process, RTE paid a total of 50 million to insurance companies in The process is part of the Corporate Contract signed by EDF and the French State in 1997 and transposed in the Group Contract dated March 14, The goal is not to replace the current retirement scheme, but to cover a percentage of total EDF commitments as foreseen with growth over time Expected Developments The Group Contract between the French State and EDF mentions the need for reforming the retirement scheme. Work undertaken for this purpose has been reported as a Statement of Conclusions entitled Building a new basis for the special pension scheme for the electricity and gas sector. The Statement was issued on December 9, 2002, and was signed by the employers and three employee trade unions within the professional branch of the Electricity and Gas Industries. The signatories submitted the Statement to the Public Authorities on January 10, The key guidelines in the Statement of Conclusions dated December 9, 2002 are as follows: to maintain the special pension scheme with its unique features, as well as the basic principle of having it as a publicly operated pay-as-you go financed scheme, to establish a special social security body (retirement pension fund) to take over the entitlements and obligations of the scheme and to run it, with equal labour/management participation, administering the special pension scheme, to diversify sources of funding with greater pooling across demographic and financial criteria under the terms of agreements with solidarity schemes within the industry (general scheme, ARCCO and AGIRC), and to fund past and future entitlements so that they are equivalent to both basic and complementary entitlements, to have appropriate funding and a guarantee from the State on specific past entitlements (higher levels than payments under solidarity pension schemes in the industry), to have the company fund and guarantee (provisioning accrued benefits) future entitlements (specific to solidarity pension schemes in the industry). In short, the financial reform should maintain the special scheme, ensuring due guarantees are given for its long-term survival, and should place companies in the electricity and gas sector in a position: to benefit in the same way as all other French businesses, from the system of social security contributions to finance the portion of benefits equivalent to those provided under standard systems, to avoid the burden of having to fund all accrued benefits, which may be required under new accounting standards and 75

22 ACCOUNTING PRINCIPLES AND VALUATION METHODS which could arise from a status quo situation because of the quite specific funding system (1) applying to the special pension scheme for the electricity and gas sector. Once the reform is implemented, the impact will be transferred to the financial statements Other Post-Employment Benefits Benefits other than retirement pensions are provided for employees, both in the workforce and retired; these include: post-employment benefits: complementary solidarity payment, medical insurance, energy perquisites, immediate relief benefit, compensation on completion of studies, retirement bonuses. other long-term benefits: compensation pensions after occupational injury or disease, disablement pensions (excluding disablement due to temporary disability), temporary disability allowance, disablement pension following temporary disability, long service awards (already covered by provisions). 12. Self-Insurance In general, private property is not insured against damage, with a number of exceptions, the most notable being damage to vehicles, to material being transported and to office buildings. 13. Relations with EDF Unbundling of Accounts Principles governing financial relations between business activities: As required by the Energy Regulation Commission, systematic, official contractual procedures were introduced in 2001 to cover internal transactions and were in the form of agreements and protocols. A total of 53 protocols covered financial transactions in 2003: protocols implementing Article 23 of the French Act , on conditions applying to transmission system access and use for EDF Distributor and EDF Producer, together with the terms for applying tariffs on use of the grids, protocols implementing Article 15 of Act , stipulating services provided to RTE by EDF Producer and essential to the operational management and security of the Transmission System (purchasing losses, system services, working with the balancing mechanism, advance management and programming of generation, and balance responsible contracting), agreements on provision of services, implementing Article 25 of Act , covering: technical services (RTE maintenance of Distributor and Producer facilities, R & D services for RTE), non-technical services by EDF (e.g. HR management for RTE, training, staff medical examinations, IT and logistics), agreements on dividing up centrally managed costs, as required by Article 25, Act , for the Directorship of certain Central Units with operations concerning RTE (Human Resources, Accounting, Tax, General Corporate Affairs), agreements stipulating the principles applying to asset transactions. (1) The special scheme for the electricity and gas sectors, as well as the special scheme for civil servants employed by local authorities [CNRACL] are the only compulsory pension schemes requiring the pensions to be funded solely by resources from the industry, without any outside contribution. All internal transactions are tracked in the information system, with records similar to those kept for external trading (orders, delivery, invoicing and payment). When the terms applying to third parties are set by a public tariff or regulation, such public rules comprise the terms of reference for rules governing unbundled transactions (e.g. charging the same rates for transmission system access). In other cases, the charge for services is calculated in line with practices applying to external customers. Rates charged 76

23 ACCOUNTING PRINCIPLES AND VALUATION METHODS are designed to cover the production costs and generate a return on capital employed (when needed) or are comparable to market prices when applicable. Centrally managed costs for the company are calculated according to the costs of the Units concerned after deductions for external invoicing by the Unit. The figures for internal payables and receivables at year-end 2003 were calculated by taking the amounts actually due or to be collected, as well as expenses to be paid and revenues to be received booked as of December. 14. Loan Issue Premiums Since January 1, 2002, the preferential method has been used for entering a provision on unrealised exchange translation gains on loans. As a result, these unrealised gains are no longer amortised over the remaining period of the loans. Unrealised gains on other receivables and payables have been fully provisioned. 77

24 NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTS 79

25 NOTES TO FINANCIAL STATEMENTS Note 1 Change in Accounting Methods The change in accounting methods has had an impact on: deferred interest expenses (in millions of euros) Impact on equity capital Impact on net income the method of amortisation and depreciation (changing from the declining balance to the straight-line method) (in millions of euros) Impact on equity capital Note 2 Intangible and Tangible Assets Increase Decrease (in millions of euros) Published Pro forma Intangible assets Intangible assets in progress INTANGIBLE ASSETS - GROSS Property, plant & equipment 19, , ,937.9 Construction in progress PROPERTY, PLANT & EQUIPMENT - GROSS 20, , , ,376.3 Amortisation & Depreciation -8, , ,613.3 INTANGIBLE & TANGIBLE ASSETS - NET 11, , ,024.6 Principal works commissioned under property, plant & equipment: - Overhead lines: million (e.g. 400 kv Tavel-Tricastin, 225 kv La Boutre-Coudon, 400 kv Chevalet-Gavrelle, 225 kv Soleil-Volvon, 63kV Belleville-Mitry). - Underground lines: million (e.g. 225 kv Briançon-Bois des Maures). - Substations: million (e.g. 225 kv Vincennes, 400 kv Tricastin, 225 kv Villeneuve St. Georges, 225 kv la Muette, 90 kv Grande Synthe). Principal works withdrawn from property, plant & equipment: - Overhead lines: 10.2 million (Chaingy demolition after work on the 400 kv Chevalet-Gavrelle line). - Substations: 66 million (demolition after the Genissiat substation inventory, demolition after work on the 90 kv Echinghem, demolition at Tavel substation as part of the Tavel-Tricastin project). - Telecommunications material: 20.3 million (Demolition at Breuil and Verlhaguet substations as part of the PEXI project). 80

26 NOTES TO FINANCIAL STATEMENTS Note 3 Financial Assets (in millions of euros) Increase Decrease Shares in unconsolidated companies (1) Other financial assets (2) FINANCIAL ASSETS GROSS Provisions FINANCIAL ASSETS - NET (1) Comprised of: the capital interest in the company HGRT: 1 million the capital interest taken out in 2002 in the 0.6 million (2) Comprised of staff loans for a total of 4 million (including 3 million in housing loans transferred to RTE), for deposits of security for 1.9 million and subsidies and interests invoiced for 4.9 million. The decreases are due to the fact that EDF sold a special purpose vehicle for the housing loans granted to staff. The proportional share assigned to RTE amounted to million. Note 4 Inventories & Work-in-Process (in millions of euros) Change INVENTORIES & WORK-IN-PROCESS GROSS (1) Provisions (2) INVENTORIES & WORK-IN-PROCESS NET (1) Inventories are comprised solely of material and operating material. (2) The breakdown of the provision for depreciation is as follows: 42%: articles not consumed: these are inventory items stored in national reserves and designed as a strategic reserve, articles intended for programmable activities and incurring a risk of non-use for various technical reasons, and articles affected by RTE purchasing department decisions to scrap. 29% of articles earmarked for de-stocking: these are mainly technical items which, while outdated, can still be used on old material. 29%: other items reaching inventory volumes in excess of 2 years consumption. Note 5 Accounts Receivable (in millions of euros) Published Pro Forma ACCOUNTS RECEIVABLE GROSS (1) Provisions ACCOUNTS RECEIVABLE NET Advances to suppliers Pre-paid expenses Deferred charges (2) 1, Unrealised foreign currency translation losses Other receivables OTHER RECEIVABLES AND ACCRUALS GROSS 1, Depreciation and provisions on other receivables and accruals OTHER RECEIVABLES AND ACCRUALS NET 1, ACCOUNTS RECEIVABLE NET 1, (1) Item including EDF trade account receivables for services provided by RTE ( 627 million). The amount is set under the terms of protocols. (2) As part of the implementation of International Accounting Standards compatible with current French accounting principles, EDF decided to change methods in 2003 and book deferred interest as expenses as it is incurred, rather than capitalising it. The impact of this change in method on January 1, 2003, has been booked under equity capital. 81

27 NOTES TO FINANCIAL STATEMENTS Aged Receivables Gross value at Published Published (in millions of euros) < 1 year > 1 year Financial assets Accounts receivable Other receivables RECEIVABLES AND FINANCIAL ASSETS Note 6 Unrealised Foreign Exchange Gains & Losses The net margin on translation amounted to 8 million and was mainly unrealised losses on loans. Note 7 Equity Capital The amount of equity capital allocated to RTE was set in consultation with EDF and the Energy Regulation Commission [CRE]; it was assessed in relation to features specific to power transmission business (i.e. a natural monopoly situation, low risk business, profit guaranteed by tariff setting methods and favourable conditions for servicing the debt), thus providing a sound financial base for RTE as a guarantee of its independence. Note 8 Equity Other than Capital and Capital Contribution (in millions of euros) Pro Forma Published Capital Capital contribution 2, , ,028.7 Revaluation surplus on fixed assets special reserve - Act, Dec. 28, regulated reserve - Act, Dec. 29, Miscellaneous reserves 1, , ,240.4 Regulated reserves Retained earnings Net income Investment grants received Tax-related provisions EQUITY CAPITAL 4, , ,103.4 The main components are presented below. 1. Revaluation surplus on fixed assets Fixed assets were revaluated in 1959 and again in Revaluation Gross assets and depreciation were revaluated to present new restated values (Act, December 28, 1959). In exchange, a special 82

28 NOTES TO FINANCIAL STATEMENTS revaluation reserve was constituted and entered on the balance sheet under liabilities, booking the difference between restated values and original book values. The special reserve Act, Dec. 28, 1959 at December 31, 2003, ( 209 million) was comprised of: > the revaluation surplus on fixed assets in operation at January 1, 1960, still entered as assets in 2003 ( 108 million). > the revaluation surplus on fixed assets withdrawn from the balance sheet ( 133 million). > sums drawn on the reserve reducing the value by 32 million Revaluation Under the terms of the Act passed on December 29, 1976, companies were granted the right to reappraise the value of non-depreciable fixed assets (property). The regulated reserve on the restatement of asset values Act, Dec. 29, 1976 is 15 million, this being the increase in assets as stated with the revaluation of property. 2. Miscellaneous reserves At year-end 2003, the reserve amounted to 1,240 million arising from the reclassification of the provision for upgrading and replacing the General Transmission System (RAG Réseau d Alimentation Général), made redundant by the enforcement of the Act dated November 10, 1997, granting EDF ownership of the RAG system. The reserve also includes revenues from unbundled Transmission business in 2000 ( 154 million). 3. Retained Earnings The change in retained earnings between the balance sheet published at year-end 2002 and the pro forma balance sheet for the same date is due to the change in method applying to deferred interest as detailed in the first paragraph of Accounting Principles and Valuation Methods and in Note 1 of the Notes to Financial Statements. Change: million. The change between the pro forma balance sheet at year-end 2002 and the balance sheet at year-end 2003 ( million) is due to: the share of State aid assigned to RTE (non-payment of corporate tax on part of RAG provisions) for which the European Commission required EDF to repay the French State (a reduction of 241 million in retained earnings, see Accounting Principles and Valuation Methods, paragraph 1.2. appropriation of 2002 income, after deducting dividends paid to the shareholder ( 44 million). 4. Net Income The difference in net income between the published and pro forma balance sheets at year-end 2002, is due to the change in method applied to deferred interest, as detailed in the first paragraph of Accounting Principles and Valuation Methods and in Note 1 of the Notes to Financial Statements. Change: 6.4 million. The change between the pro forma balance sheet at year-end 2002 and the balance sheet at year-end 2003 shows the increase in net income between the two fiscal periods. 5. Investment Grants The net value of capital grants received from third parties at year-end 2003, was 176 million, comprised of: 136 million for facilities in operation, 65 million for constructions in progress, 25 million to December 31 for grants entered on the income statement and deducted from the first item (grants for facilities in operation entered as extraordinary income at the same rate as the depreciation of the same facilities). The overall difference of 30 million on the figures for December 31, 2002, is due to: > an increase of 36 million in the gross amount of grants received; the main operations in the fiscal year were: the protocol on the connection of EDF Distributor delivery point substations ( 14.7 million), the connection to the transmission grid of the ENEVIA customer grid, with work on 225 kv Ratier-Amfard underground connections ( 4.1 million), the agreement covering the connection of the Créteil Incineration plant to the Bouvet-Villeneuve St. Georges network ( 2.8 million), the underground connection to link the Niort substation and the future Trévins substation ( 1.4 million), the 63 kv underground connection running for 3.5 km from Baixas substation to Calce ( 1.1 million), > offset by grants booked on the income statement ( 6 million). 6. Tax-related provisions The change in tax-related provisions between the published and the pro forma balance sheets at year-end 2002 is due to the change in method for the depreciation of fixed assets (changing from economic declining balance to exceptional declining balance), as detailed in the first paragraph of Accounting Principles and Valuation Methods and in Note 1 of the Notes to Financial Statements. Change: million. 83

29 NOTES TO FINANCIAL STATEMENTS The change between year-end 2002 pro forma and year-end 2003 ( million) arises from: the provision for exceptional amortisation for the difference between declining balance and straight-line ( million), the write-back of the 1976 revaluation surplus of fixed assets ( million). The 1976 Restatement: With the Act on depreciable fixed assets passed on December 30, 1977, a restatement was undertaken of the gross asset value and depreciation of facilities booked on the balance sheet at December 31, A regulated provision for the difference recorded was then entered for this under liabilities. The balance of the regulated provision Act, Dec. 30, 1977 at year-end 2003 amounted to 87 million. Note 9 Provisions for Risks & Expenses (in millions of euros) Increase Decrease Provisions for foreign exchange losses on loans Other contingencies PROVISIONS FOR RISKS Regular maintenance of helicopters Payments to match staff savings Repairs & installations Long service awards Outsourcing of retirement pensions (1) Long-term sick leave Retirement bonuses Other expenses PROVISIONS FOR EXPENSES PROVISIONS FOR RISKS & EXPENSES (1) The main decrease in provisions for expenses relates to the outsourcing of retirement pensions and retirement bonuses (- 51 million). In 2003, they were booked as expenses: insurance policies outsourcing of retirement expenses and retirement bonuses. Note 10 Loans and Other Financial Liabilities RTE Long-Term Debt. For 2003, the principles for allocating long-term and short-term debt to RTE were set by the CRE ruling dated January 28, 2004: the change to RTE long-term outstanding debt between January 1 and December 31, 2003, is the result of the balance of the cash flow statement and the restructuring of the short-term debt as medium-long-term debt. As a result of this, RTE long-term debt, as of January 1, 2003, is comprised as follows: 62.98% of EDF loans in euros and Swiss francs at year-end % 2002 EDF loans in euros (or backed by currency swaps on the relevant currency and the euro) with more than 6 years to maturity. 96.7% of 2002 EDF loans in euros with less than 6 years to maturity. In compliance with the principles set down by CRE, the following allocations were made to RTE for 2003: 100% of loans in euros issued by EDF in the second half of the year, with features meeting RTE preferred criteria. 34.1% of loans in euros issued by EDF in early The same proportions apply to the allocation of swaps and interest rate caps to RTE. Deductions are made for the payments of interest charges and repayment of capital of the RTE debt by applying the percentage calculated here to the payment schedules of the corresponding EDF debt. 84

30 NOTES TO FINANCIAL STATEMENTS Calculations of short-term debt servicing charges take into consideration the average movement of short-term debt outstanding between January 1 and December 31, and also take into account discrepancies between the due dates for repayment of loans and due dates for new loans allocated to RTE. (in millions of euros) after New Loan Change in Change in reallocation Loans repayments unrealised losses unrealised gains Bond loans in euros 5,528 4,892-1,260 3,633 Bond loans in foreign currency Euro medium-term notes 632 1,294 1,690 2,984 Medium-term notes in foreign currency LONG-TERM DEBT 6,543 6,992 1,690-1, ,408 Unrealised gains 24 0 The first column ( ) presents the published figures for year-end NB: Year-end 2002 did not include the allocation to RTE of the unrealised translation losses on the currency swaps backed by EMTNs in foreign currency, which should have recorded unrealised gains (for 24 million). The value of the EMTNs in foreign currency, in the column after reallocation, has therefore been increased in the table above. To offset this, the amount for unrealised translation gains has been reduced by the same amount. The second column after reallocation gives the adjusted debt in line with the CRE ruling. The change in bond loans in foreign currency is due to the increased value of the euro against the Swiss franc. As of December 31, 2003, all loans in foreign currency allocated to RTE (with the exception of loans in Swiss francs) have been backed by currency swaps (euro + the relevant currency). Breakdown of Debt per Rate (fixed or variable): published after reallocation Debt before swap Debt after swap Debt before swap Debt after swap Fixed rate debt 97% 57% 91% 54% Variable rate debt 3% 43% 9% 46% after reallocation Debt before swap Debt after swap Debt before swap Debt after swap Fixed rate debt 91% 54% 86% 57% Variable rate debt 9% 46% 14% 43% The table below gives details of the Financial Liabilities entered under Liabilities on the Balance Sheet: after Net change Change in Change in (in millions of euros) reallocation 2003 unrealised losses unrealised gains Total long-term debt 6,543 6, ,408 Unrealised gains Other long-term debt-related items (1) Short-term debt 1,481 1,055-1, TOTAL INCLUDING UNREALISED GAINS 8,212 8, ,598 (1) Other long-term debt-related items cover: - the amount of accrued interest receivable or payable on interest rate swaps, - the amount of interest accruing but not due for payment on loans. Short-term debt includes the amount for cheques issued but not cashed at December 31 each year. 85

31 NOTES TO FINANCIAL STATEMENTS Note 11 Accounts Payable and Other Current Liabilities (in millions of euros) Published Pro Forma ACCOUNTS PAYABLE (1) Advances received Social charges Tax charges Deferred income Unrealised translation gains Other liabilities OTHER LIABILITIES AND ACCRUALS ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES ,435.2 (1) Item including EDF trade account payables for services provided for RTE ( 234 million). The amount is set under the terms of protocols. Aged Payables (in millions of euros) Gross value at < 1 year 1-5 years > 5 years Bond Loans 3, , ,610.0 Loans and other financial liabilities 3, , ,675.7 Accounts payable Other liabilities and accruals PAYABLES 9, , , ,285.7 Note 12 Financial Expenses & Revenue (in millions of euros) Published Pro Forma Foreign exchange gains & losses (1) Interest Expense transfers 31.9 Other financial charges and revenue - net (2) FINANCIAL EXPENSES & REVENUE EXCLUDING PROVISIONS Provisions for amortisation of bond redemption premiums Provisions for foreign exchange losses Write-back of provisions for foreign exchange losses FINANCIAL EXPENSES & REVENUE (1) In 2002, this item was mainly comprised of cash adjustments collected on the outcome of swaps. (2) In 2003, this item is mainly comprised of interest expenses allocated to RTE and arising from the decision by the European Commission on EDF non-payment of corporate tax for part of the RAG provisions. 86

32 NOTES TO FINANCIAL STATEMENTS Note 13 Extraordinary Expenses and Revenue (in millions of euros) Published Pro Forma Net income on sales of assets Investment grants entered on income statement Other extraordinary expenses/revenue - net EXTRAORDINARY EXPENSES AND REVENUE EXCLUDING PROVISIONS DEPRECIATION & PROVISIONS - NET EXTRAORDINARY EXPENSES & REVENUE Sales of assets generated capital gains of 0.8 million (with an increase of 1.5 million in revenue plus a cancellation with million in net book value). Depreciation and provisions are comprised of: a write-back of the special revaluation provision for 11.9 million, a net expense related to the change in depreciation method amounting to 56.1 million. Note 14 Protocols & Agreements In 2003, 53 protocols were signed by RTE and EDF departments, covering: a total of 737 million for services provided for RTE, a total of 3,689 million for services provided by RTE (including 2,813 million for system access for EDF Distributor). Note 15 Off-Balance Sheet Liabilities These liabilities are commitments given ( 849 million), with orders for material lodged with suppliers ( 148 million) and orders for operational business ( 701 million). The breakdown of material leasing can be analysed as follows: (in millions of euros) Leasing Commitments Leasing of fixed assets Lease payments made Payments due Residual purchase price Initial outlay Depreciation allowance Fiscal year Cumulative <1 year >1 year Total due (excl. VAT) (excl. VAT) Fiscal year Cumulative Balance commitments received ( 23 million) are: performance guarantees ( 17 million), commitments related to interests in work projects on connections ( 6 million). 87

33 NOTES TO FINANCIAL STATEMENTS Note 16 Workforce Workforce at Workforce at Operational staff Supervisory staff 4,432 4,428 Executives 3,040 3,150 TOTAL 8,082 8,164 88

34 INDEPENDENT AUDITOR S REPORT < FISCAL YEAR ENDED DECEMBER 31, 2003 INDEPENDENT AUDITOR S REPORT Fiscal year-ended December 31,

35 INDEPENDENT AUDITOR S REPORT < FISCAL YEAR ENDED DECEMBER 31, 2003 To Mr André Merlin Chief Executive Officer RTE In conducting the mission given to us, we have presented our report on the fiscal year ended December 31, 2003, examining the annual financial statements of RTE presented in euros as included in the present report. The annual financial statements are the responsibility of the Management. Our duty is to express an opinion on these financial statements on the basis of our audit. Our audit was conducted in accordance with the standards of the profession in France, with the exception of the point described in the following paragraph; these standards require that we plan and perform the audit to obtain reasonable assurance as to whether the annual financial statements are free of material misstatement. An audit includes examination, on a test basis, of evidence supporting the amounts and disclosures in the financial statements. An audit also includes an assessment of the accounting principles and the significant estimates made by management for the closing of accounts, as well as an assessment of the overall presentation of the statements. We consider that our work provides a reasonable basis for the opinion expressed hereafter: Centrally managed costs, excluding protocols concluded with EDF, have been divided up between the separate activities, mostly by using coefficients. We were not able to verify the bases for the amounts allocated to RTE as this information was not available at RTE. The total amount of the liability, at December 31, 2003, for funding the retirement plan, covering both current members of staff and retirees, was not given in the notes to the statements. Nor was there a figure in the notes to the statements for the total amount of the liability at December 31, 2003, for financing agreements on early retirement. With these reservations, in our opinion the financial statements give a true and fair view of the state of affairs of the company at December 31, 2003, and its profit for the year then ended, in accordance with generally accepted French accounting principles. 90

36 INDEPENDENT AUDITOR S REPORT < FISCAL YEAR ENDED DECEMBER 31, 2003 Without qualifying the opinion expressed above, we draw your attention to the following points: Fixed assets (Appendix, Note 3) With no comprehensive inventory of Électricité de France fixed assets, the possible effect of any discrepancy in the unbundling of accounts on RTE fixed assets cannot, at present, be measured with any accuracy. Use of Coefficients (Appendix, Note on Accounting Principles and Valuation Methods) A number of centrally managed costs (long-term illness benefits, profit-sharing and a number of staff-related expenses) have been allocated to unbundled accounts by using coefficients, as was the case for the previous fiscal year. We, however, consider that these expenses should have been allocated on the basis of actual figures. Changes in Accounting Methods (Appendix, Notes and 1.1.2) RTE decided to implement two changes in accounting methods in The first concerns the methods for amortisation and depreciation of transmission facilities and arose from the early implementation of regulation CRC It can be noted that the change to the accounting method was made without any impact on taxation. The second change in accounting methods was the retroactive cessation of the practice of deferring interest expenses on fixed assets, previously entered as deferred charges. March 10, 2004 PricewaterhouseCoopers Audit Jacques Denizeau 91

37 Photos - Lighting of towers, Amnéville-les-Thermes Médiathèque RTE / Marc Pallardy (p. 51) - Helicopter Médiathèque RTE / Gilles Favier (p. 27) - Meeting room Médiathèque RTE / Sophie Chivet (p. 40) - André Merlin and CNES Médiathèque RTE / Guillaume Zuili (p. 2 et 20) - Other photos Médiathèque RTE / Michel Monteaux Editorial Consultancy & Text Doussot Conseil Graphic Design & Layout 133, avenue des Champs-Élysées Paris Cedex 08 Printed by JPA Imprimeurs 92

38 COMMUNICATION & EXTERNAL RELATIONS DELEGATION ECONOMICS, MANAGEMENT & FINANCE DIVISION IMMEUBLE AMPÈRE 34, RUE HENRI RÉGNAULT PARIS LA DÉFENSE CEDEX