EDF, Europe's largest utility, was fully nationalized by the French government in 2023. Despite 100% state ownership, effective control remains elusive due to political indecision, regulatory constraints, internal power dynamics, and financial pressures. CEO Luc Rémont navigates these challenges while awaiting clear government strategy for EDF's future.

EDF is the biggest European utility and the fifth in the world in terms of installed capacity (source). One year ago in 2023, the French State decided to purchase back all the shares of the company that were listed on the Paris Stock Exchange, bringing its control over the company from 89% to 100%. At 9.7 billion euros, the decision was given a three-fold justification in the information memorandum. First, the French government intended to accelerate on the six EPR2 nuclear power plant construction projects, second it wanted to fully establish its sovereignty over a critical activity and be able to commit the full balance sheet of the company behind the long-term projects and third, it wanted to facilitate decision-making without having to deal with minority shareholders. One year after the nationalisation, where does the company stand and has the French State established control?

The control of the State is limited by its own indecision and complexity

Although formally the State is the sole shareholder of the company, EDF formally remains a private company. The shares are managed through the State Participation Agency (Agence des Participations de l’Etat), which is under the supervision of the Ministry of the Economy and Finance. It is the most important company in the portfolio of the State.

However, things get more complicated when one considers the policy choices that affect EDF. Energy policy is followed in France by the General Directorate for Energy and Climate that is attached to the Ministry of the Environment. There is a long-standing turf war between Economy and Environment Ministries on who should have the last word on these issues and, given the strategic importance of energy and nuclear, decisions are often escalated to the level of the Prime Minister or to the President of the Republic. For example, it is Emmanuel Macron who announced the decision to build six new nuclear reactors, even before the nationalisation and it is Bruno Lemaire, the then-Minister of the Economy, who announced and managed the nationalisation. The new Minister for the Environmental Transition, Energy and Climate, Agnès Pannier-Runacher, seems now more firmly in charge of the topic.

Currently mired in financial difficulties, the government has yet to come up with a clear strategy for EDF and nuclear renewal. The CEO Luc Rémont is fighting on multiple fronts, pressing the State to make a final decision on the six new EPRs so industrial orders may be placed and at the same time expressing his opposition to increased taxes on electricity that would undermine the company’s ability to finance the new assets.

Political instability plays a crucial role in the lack of government control over the company, as political leaders are not always available for strategic decisions and may have diverging views about the company’s future. The Government is not the only one to have a say in this.

Parliament has also stepped in with a law passed in April 2024 that effectively bars the government from dismantling EDF. As prior to the nationalisation EDF was contemplating a restructuring in which it would sell some of its renewable and network assets to finance nuclear activities (the so-called Hercules project), some members of Parliament worried the Government would continue down this path. The law enshrines the “national interest” of the company and establishes a 10-year contract between the company and the State. This contract, that is not yet written, will have to determine the financial and investment trajectory of the company and the operational roadmap for its three main objectives: decarbonation, control over prices and adaptation of production capacities. 

Even though the energy mix of Member States is outside of its competencies, the European Union also plays a significant role for the destinies of EDF as it sets the rules for the electricity market and pursues its own objectives in terms notably of market coupling, renewable development, and security of supply. EDF has to navigate a complex interplay between European and national policy objectives that are sometimes at odd, as was blatantly seen during the negotiations around the European Green taxonomy whose initial version excluded nuclear energy.

Regulated activities reduce the company’s margin of manoeuvre

EDF has regulated activities within the scope of the group, three of which are highly notable and constrict the company’s ability to decide: nuclear, networks and dedicated assets.

Nuclear activities are heavily scrutinised by the nuclear safety watchdog (Autorité de Sûreté Nucléaire, ASN) that has been recently merged with the radioprotection agency. The new Nuclear Safety and Radioprotection Authority (ASNR) will continue the strict supervision work of EDF’s operations. To operate its plants, EDF must have the authorisation of the authority, who has full overwatch powers and can halt production, should it consider that safety measures are not correctly implemented. This has been clearly demonstrated with the multiple delays to the Flamanville EPR nuclear power plant, some of which were due to conflicts between EDF and the ASN on the safety framework. This authority is independent from the State and will deliver its opinions regardless of political choices. 

Network activities are a natural monopoly, i.e. it does not make economic sense to duplicate distribution and transmission networks. The companies operating them have significant market power as they could prioritize some producers and/or customers over others. EDF retains the majority ownership of RTE, the French power transmission company, and the sole ownership of Enedis, the power distribution company. To avoid biases in competition on the electricity market, the Energy Regulation Commission (Commission de Régulation de l’Energie, CRE) has been created to regulate the compensation structure and operation of transmission and distribution. It enforces very strict European rules.

Dedicated assets are a very technical part of EDF’s business. In order for the company to cover the cost of decommissioning its nuclear reactors and of long-term storage of nuclear waste, it is legally obliged in France to hold specific assets that it will sell when the time comes. In 2023, EDF had more than 34 billion euros in its balance sheet of such assets. This is a highly diversified portfolio invested across various asset classes and economic sectors but it amounts to nearly 10% of the consolidated balance sheet of the company and cannot legally be used for anything else.

Internal forces wield important power

There are three main sources of power within EDF: management, the so-called “Grands Corps” and unions. 

The CEO of the company is appointed by the Board, comprising representatives of the State, independent administrators and representatives of the employees. He is also approved by the National Assembly and the Senate during specialised hearings. Once in charge of the company, he is surrounded by an executive that yields significant power. Indeed previous governments have often chosen outsiders to preside over EDF’s destiny, probably as a way to have greater control over them and not to be tied by a company insider. The consequence of this is that these CEOs have to rely on their own team of outsiders to take-over the company (such as was the case with Henri Proglio) or they have to find allies in the established team (such as is the case with Luc Rémont). Whichever choice is made, EDF’s business remains highly technical and complex, in all its dimensions. The CEO has to trust and rely on specialists from inside the company that inform his decisions. The directors of the various business units hence yield considerable power because of the fundamental asymmetry of information and of understanding of the underlying business, meaning that loyalty plays a crucial role in the governance of the company.

This where the “Grands Corps” step in the picture. The expression describes extremely selective engineering and administrative career profiles in the French public sector. These professionals mostly stem from a very limited number of elite schools such as Polytechnique or the ENA (National School of Administration) and have highly homogeneous profiles. They have distinctive careers within EDF and often end-up at the highest positions in the company. More importantly, they form powerful unofficial coordination networks within the company with individual trajectories being influenced by the ability to navigate corporate politics. 

Unions are another force to contend with within EDF. The workforce is highly unionised and politicised with a deeply entrenched commitment to public service. They have proven a major force in opposing the dismantlement of EDF in the Hercules project and played a crucial role in the nationalisation as employees were shareholders of the company. More broadly EDF employees in France benefit from significant advantages as they are governed by a statute that defines their rights and obligations, among which life-time employment and their own social security system. This statute exists independently from EDF and cannot be unilaterally revised by the company.

Creditors provide financial discipline to the company

It would not be complete to discuss the control structure over EDF without mentioning that the company has more than 67 billion euros in long-term liabilities, according to its 2023 annual report. EDF is the biggest corporate debt issuer in Europe and is especially exposed to changes in its credit rating.

The ratings are low for all three major credit agencies, just a few steps above junk bond status. This means that if one of these agencies estimates that EDF’s financial trajectory is not sound, it could downgrade the rating, triggering a massive sell-off in the debt market, as most debt holders, such as pension funds, could no longer own the instruments, deeming them too risky. This would, in turn, significantly increase the cost of financing for EDF and restrict its ability to access markets. Moreover, some of the debt instruments issued by EDF have covenants tied to credit ratings, and creditors may require a renegotiation of the debt if the rating falls below a certain threshold. This places significant pressure on EDF’s management and constrains the company’s investment options. It also reduces its ability to raise debt financing and contributes to its nuclear conundrum.

It is especially difficult to provide a conclusion to this examination of the control of EDF. The short answer would be that no one truly controls the company, but the CEO probably has the most leeway, especially when political attention is shifted elsewhere. The nationalisation has not (yet?) produced a notable effect on the government’s control, as it remains constrained by its own conflicting priorities and instability.