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Key risks

Strategic risks are presented in the “strategic performance” chapter. This section includes regulatory, reporting, other operational and compliance risks.

Regulatory risks

Regulatory riskRisk-mitigating actions
Inability by TenneT to meet exacerbating efficiency targets imposed by incentive regulation. Especially taking into account a strongly growing company and the need of investments in innovation.TenneT performs regular reviews of processes and organizational structure and introduced lean management. Additionally, TenneT scrutinizes the results of efficiency audit by the regulators and disputes or starts litigation, if needed.
The Netherlands
TenneT is not able to achieve a reasonable return on its invested capital as the return allowed by the regulator is set at a too low level because of low interest rates.In general, the ACM continued to use the existing approach for the regulatory period of 2017-2021. TenneT has started legal proceedings as it disagrees with certain items of ACM's decision. The CBb court decided that the ACM should repair its decision. The repair is pending early 2019.
Inability to meet the regulatory budget on operational expenditures for procuring energy and ancillary services, such as grid losses and re-dispatch costs.ACM amended this part of the regulation, exposing TenneT to the full price and volume risk of this cost element. TenneT started legal proceedings at the CBb court and the CBb decided that the ACM should repair its decision. As a result, the ACM confirmed that it will re-install the bonus/malus regime of the previous regulatory period.
ACM has, together with the Council of European Energy Regulators, initiated a new international TSO benchmark exercise to measure the efficiency on capital and operational expenditures of European TSOs. The benchmark exercise runs during 2018/2019.TenneT proactively participates in the benchmark. TenneT will advocate to the ACM to prudently apply the benchmark results within the regulatory framework for the next regulatory period. The ACM confirmed that it intends to account for the additional costs of Wintrack towers in a separate national run of the benchmark.
Germany
TenneT is unable to achieve a reasonable rate of return on equity within the regulatory period of 2019-2023.Although TenneT had intensive dialogues with BNetzA and BMWI to reach a sufficient rate of return on equity, BNetzA determined a value which is below our expectations of a reasonable rate of return. TenneT started court proceedings against the BNetzA determination to reach a higher value. The decision on the higher regional court of Düsseldorf was in favor of TenneT but BNetzA further processed that to the federal supreme court.
The grid fees of the German TSOs are unified beginning in 2019. As part of this process, the offshore costs will not be reimbursed from the grid fees any more, but from the offshore levy. In this context, BNetzA has also proposed a new approach for determining the costs that enter the levy. This new system is not in line with the demand of investors to have a stable regulatory framework.Towards the ministry and the regulator TenneT actively lobbied for maintaining the current regulatory regime for offshore as this could lead to damages for the reputation of the German regulatory system. In the discussions between BMWi, BNetzA and the TSOs a compromise - a grandfathering option for all assets being constructed until end of 2019 and a new system for all future investments - was reached. This passed the federal cabinet and still needs an approval of the Federal Council (Bundesrat).

Reporting risks

The table below presents TenneT Holding’s most important reporting risks.

Reporting riskRisk-mitigating actions
Financial statements do not give a true and fair view of the company's financial position, financial performance and cash flows. Financial statements are not compliant with applicable laws and regulations.Internal control framework, including control self-assessments and Letter of Representation procedure.
Incorrect (regulatory) reports or information to BNetzA, ACM and/or tax authorities.Internal and external audit reviews and follow-up on findings.
Use of internal accounting manuals.
Intensive monitoring of internal activities by the Regulatory department.
Position papers.
Data analytics.

Operational risks

The table below details TenneT Holding’s most important operational risks.

Operational riskRisk mitigating actions
Gap between planned and realised maintenance and preservation. Risk of deterioration of the condition of the grid in the long term.Risk-based maintenance and preservation planning in alignment with the commissioning dates for large projects.
Substation-driven replacement strategy.
Insufficient or inconsistent availability of adequate resources – staff, material and servicesStrategic personnel planning and development
Further integration of external service providers (e.g. via EPCm)
Employer Branding
Strategic procurement planning
Bundling of order processes, e.g. pooling of order for multiple projects
Development and qualification of new supplier (markets)
Increased utilisation of warehousing capacities
Monitoring and quality assurance of supplier and service provider performance
Insolvency of suppliersMonitoring of supplier credit rating
Early transfer of ownership
Request of guarantees and performance & warranty bonds
Work-related incidents and accidents that may harm the health and well-being of our own employees and the employees of contractors, that work for TenneT.Implementation Life Saving Rules and improved approach on incident investigation
Further development of and certification on the Safety Culture Ladder
SHE requirements integrated in supplier and service contracts
Risk of not realising efficiency targets set by regulatorDevelopment of a procurement strategy reflecting the regulatory framework
Utilisation of lean management in all business areas to enable continuous improvement
Unavailability of ancillary services due to mothballing of conventional power.Extension of standards for the market integration of renewable energies and (pools of) small generation plants and integration of approved plants
Development of crowd balancing opportunities
Petition the regulator to veto the decommissioning of system-relevant power plants in Germany
Implement assets to safeguard grid stability and sufficient black-start capacities

Compliance risks

The table below presents risks and mitigating actions, grouped according to the three areas general/legal, financial and technical compliance.

Compliance riskRisk-mitigating actions
General / Legal complianceRisk-mitigating actions
Non-compliance with European or national laws and regulations, e.g. regarding health, safety and environment, labour, tendering and energy markets.Actively involve experts from Legal Affairs, Procurement, Human Resources, Safety & Security, Regulation, etc. Monitoring by Compliance via the LOR procedure.
Train employees
Risk of fraud and/or conflict of interest.Corporate Gifts & Hospitalities policy
Increase cultural awareness via internal communication messages and face-to-face training sessions
Non-Compliance with Code of ConductContent of the Code of Conduct is confirmed by all (new) employees via written consent.
Compliance Experts explain the principles in the Code of Conduct via training sessions.
Non-compliance with bilateral agreements between TenneT and other TSOs, suppliers, customers, etc.Ensure adequate registration of decisions and contracts by Legal Affairs and other departments involved.
Non-compliance with GDPRCompany-wide process- and data analyses. Awareness campaigns and trainings and ISO 27001 certification
Non-compliance with permits and licenses.Provide regularly training and awareness programs.
Financial complianceRisk-mitigating actions
Non-compliance with financial and tax laws and legislation, e.g. IFRS, local GAAP, the Dutch Corporate Governance Code, the German Control and Transparency in Business Act, the German Accounting Law Reform Act, etc.Actively involve experts from Finance & Control, Treasury, Tax and Legal departments. Monitoring by Compliance via the internal LOR procedure.
Ensure availability of accounting manuals, treasury statute, etc.
Use internal and external experts as advisors, if and when necessary.
Non-compliance with financing agreements.Frequent knowledge update by means of training, external audit/expert reviews, etc.
Quality control by participations control and / or treasury
Technical complianceRisk-mitigating actions
Non-compliance with electricity laws and technical codes, ENTSO-E operational handbook, electrical safety regulations and standards, etc.Actively involve experts from Asset Management and System Operations. Assessments by the technical compliance and quality officer. Use of four eye-principles.
Cooperate with regulatory authorities through the Corporate Asset Owner department.
Involve authorised electrical safety experts and technical strategists.
Technical Audits