Supervisory Board report
In 2018, after a careful search, we selected a new CEO, Manon van Beek. This is a momentous change for TenneT. She succeeded Mel Kroon, who led TenneT for 16 years growth and transformation. His leadership and vision have propelled TenneT from a mid-sized national TSO to a leader in North West Europe. Without Mel Kroon, we doubt TenneT would be the company it is today. We are fully confident that Manon van Beek is the right person in the right place and will lead TenneT through the next phase.
The extensive search for Manon van Beek saw the Supervisory Board working very closely together. The Supervisory Board interviewed a shortlist of five candidates, in which Manon van Beek scored highly on the TenneT Leadership Profile, which addresses issues such as leading business, change, leading people and personal impact. The Supervisory Board valued her experience in the energy sector, as well as her understanding of the challenges TenneT faces, gained over two decades. She is a long-term strategic thinker, a crucial quality in a business like TenneT.
On top of the challenging task of finding a new CEO, the past year has been extremely busy at TenneT, and the year ahead will be no less so. TenneT is working flat out to secure a reliable electricity grid while dealing with the challenges presented by the large-scale inflow of renewables. Meanwhile, vital work continues to be done on several crucial investment projects. Besides providing transmission and system services, while facilitating a smooth-functioning electricity market, TenneT is playing a leading role in shaping an integrated European electricity market. Throughout all of this, TenneT remains focused and dedicated to its central purpose of safeguarding the safety and security of supply.
These are significant achievements, made possible by the hard work, dedication and continuous commitment of TenneT’s employees. We would like to thank them for this. Integrating renewable sources of energy into the grid, while keeping the flow of electricity balanced and stable, requires substantial investments and careful decision-making. As TenneT’s Supervisory Board, we are closely involved in this process, overseeing and advising the Executive Board on strategy as well as on operational performance. With a busy agenda there is the risk that there is only little time for reflection and informal dialogues. The Supervisory Board is aware of this and aims to address this.
The five-year ‘Enabling the Change’ strategy (2015-2020) was the basis for the strategic orientation which Manon van Beek initiated when she took up her role. We welcomed the constructive dialogue on this strategic orientation which we had with the Executive Board at the end of 2018 and look forward to continuing this process, which should result in an updated strategy in 2019.
Deliver stakeholder value
Operating in a stakeholder field where many different interests are at play, it is vital to stay in close contact with all stakeholder groups. These include our shareholder, the Dutch and German authorities, the general public, our customers, our suppliers, NGOs, politicians, regulators, investors, the media, other European TSOs and TenneT's employees. Discussing alternatives and creating understanding and acceptance is crucial, as stakeholder interests are not always aligned. Everyone wants electricity, but not all welcome new lines in their area. We encouraged the company to transparently communicate trade-offs in this respect.
Weighing what residents want from their environment versus the need to build necessary infrastructure can be complicated. We welcome TenneT’s insistence on keeping all lines of communications open.
We were in frequent formal contact with our shareholder throughout 2018. These contacts regarded mainly the appointment of the new CEO and the financing of the company. Next to this there were occasions to meet in a more informal setting, such as at the opening of the interconnector Doetinchem-Wesel.
While undertaking substantial and complex investments to allow for the inflow of renewables in both Germany and the Netherlands, TenneT must continue to focus on the maintenance of its existing grid. Executing maintenance with minimum downtime and disruption was high on the agenda of the EB and therefore also in our focus this year. Strengthening the grid with new investments, building onshore and offshore grid connections and cross-border interconnector capacity are just as crucial to security of supply as perfectly executed maintenance.
The Supervisory Board carefully assesses the strategic, societal, financial, and technical aspects of investments and maintenance, in line with our mandate. We take a broad and long-term view, as these factors do not always work in the same way and can lead to different outcomes. The most attractive option from an environmental perspective for instance, may be too expensive. Besides these dilemmas, we also have to look at TenneT’s long-term investments in the context of a fast-changing market affected by the inflow of renewables and technological developments. We do not want TenneT to build too much and burden society with assets that then become obsolete.
Strategic Investment committee
Throughout the year, the Strategic Investment Committee reviews investment proposals above EUR 50 million and advises the Supervisory Board. The Strategic Investment Committee assesses whether a proposal is compatible with the company’s economic, financial, and technical objectives and the impact an investment will have on stakeholders. The dilemmas we discussed this year included issues such as the cost of grid expansion versus those of redispatch. The Strategic Investment Committee also monitors timeliness, quality, cost efficiency and the risks associated with large projects. In 2018, the committee met six times, each time incorporated in a plenary Supervisory Board meeting, because of the large investment portfolio at hand and due to the fact that the Supervisory Board is, with only four members, currently short staffed. The Strategic Investment Committee consists of Rien Zwitserloot, Laetitia Griffith and Pieter Verboom.
Lead NWE integration
Further integration of the North Western European markets, as well as upgrading the Dutch and German electricity grid, are necessary to ensure security of supply. TenneT is a thought leader in establishing a single European energy market and has more interconnectors in place across national borders than any other TSO in Europe. International cooperation and a high degree of onshore and offshore connectivity are crucial to realising the energy transition and securing an uninterrupted and cost-efficient supply of electricity. We believe that it is in society’s interest that TenneT and its North West European counterparts cooperate and expand their role of facilitating the energy transition. However balancing European goals with national security of supply interests can be challenging.
In this regard the Supervisory Board appreciates that Ben Voorhorst, COO of TenneT, is currently President of the European Network of Transmission System Operators, ENTSO-E.
The Supervisory Board has discussed the EC's decision about the trading capacity available to the market between Germany and Western Denmark including the implication for TenneT.
Innovation is high on our list of priorities, particularly the innovation roadmap, innovation programs and the way TenneT structures and governs innovation. Achieving change in a corporate culture where reliability is highly valued can be challenging.
TenneT must weigh the financial interests of its capital providers against its duty to ensure security of supply. TenneT’s license to operate is rooted in securing electricity supply in its markets, while delivering optimal benefit to society in the most financially viable way.
Audit, Risk and Compliance Committee
The Audit, Risk and Compliance Committee ("ARCC") monitors the company’s financial reporting, including our quarterly and annual reports, financing, risk management and internal control, internal audit, the independent external audit of the financial statements and the evaluation of the external auditor.
The ARCC consisted of Pieter Verboom (Chair) and Ab van der Touw. The committee held four meetings attended by the CEO, the CFO, the senior manager for Internal Audit and the company’s external auditor. For relevant agenda topics, also the senior managers Financial Control and Business Control as well as the Compliance & Integrity Officers joined the meetings. As in previous years, the ARCC also spoke to the external auditor without the board being present. No additional material topics arose from these meetings. As in previous years, the CFO had multiple one-on-one meetings with the chair of the ARCC. The senior manager Internal Audit also met with the chair of the ARCC, to discuss the Audit Plan for 2019.
The Management Letter was discussed with the external auditor and the EB in both the meeting of the ARCC as well as the plenary SB. The ARCC/SB noted that the external auditor observed in 2018 a stable control environment within TenneT. New policies, procedures and harmonisation initiatives between Germany and the Netherlands were implemented to strengthen the internal control environment. The internal control framework is a relevant element in supporting the ‘in control’ statement by management as included in the integrated annual report. TenneT is not best in class in this regard, leaving room for improvement. The ARCC/SB is of the opinion that the EB should determine the ultimate goal in this respect.
The following observations of the external auditor were discussed:
- Lead times in resolving internal control deficiencies can be improved.
- The Company is dependent on highly automated data flows. Application controls that are embedded in the processes are not yet included in the Internal Control Framework. The ARCC/SB adheres to the recommendation of the external auditor to embed the automated internal controls into the ICF and to appoint an owner for each automated control who needs to ensure and assess its operational effectiveness.
- Regarding the governance of the cross-country integration of the compliance and integrity function the ARCC/SB welcomed the repositioning of the German compliance and integrity officer directly under the lead compliance and integrity officer who reports to the CEO.
Individual interviews were conducted with the members of the Supervisory Board as part of the 2018 annual strategic risk assessment. The dilemma of accommodating the rapid growth of the company while simultaneously controlling risks was accepted as the basis for the strategic risk assessment. The Executive Board was responsible for finalising the set of strategic risks as mentioned in the section ‘Risk management and internal control’. Quarterly progress reports on large projects were reviewed by the Strategic Investment Committee and subsequently by the Supervisory Board. These focused on project management, with specific attention paid to timely delivery, risks of delays and interruptions, and the societal demands that could lead to delays and/or projects becoming more expensive.
Compliance and integrity
Compliance and integrity are matters that both require constant attention. The Supervisory Board met with both the Lead Compliance & Integrity Officer as well as the German Compliance & Integrity Officer. The Supervisory Board discussed the quarterly compliance and integrity reports. The Supervisory Board noted the implementation of the Corporate Policy on Conflict of Interest and included a reference to this policy in the Rules governing the Supervisory Board.
TenneT’s financial position, financing structure and overall financing plan were also assessed by the Supervisory Board, including shareholder objectives, the long-term continuity of the company and short-term liquidity needs. Topics included the financing structure of the TenneT Group, cash flow and liquidity forecasts, equity need and solutions and several debt financing instruments. The Supervisory Board also keeps a close eye on the balance between the shareholder’s focus on the Dutch investment portfolio and the equity needs for the entire TenneT Group. Given the company’s sizable investment programme, further equity will be needed to ensure continuing access to other financing. The necessity of an equity contribution has been thoroughly discussed and we welcomed the intention of the shareholder to present the possible equity funding scenarios to parliament in summer 2019.
The Supervisory Board continues to discuss the implications of TenneT operating in a regulated environment in the Netherlands and in Germany. Ongoing relevant issues include striking a balance between regulatory optimisation and creating value for society and the concurrence of
growing company profits and increasing grid tariffs. The Supervisory Board also discussed the (implications of) changes in the regulatory regime, such as the reimbursement of offshore operating expenses in Germany and the costs for Energy & Capacity in the Netherlands.
Integrated reporting and audit
TenneT’s financial statements for the 2017 financial year, the 2018 internal quarterly reports and the 2018 interim results were all discussed by the Supervisory Board during the year. These meetings also covered the independent auditor’s report, the auditor's management letter, internal audit reports, results from internal risk and control assessments, the 2019 budget and the medium-term plan 2019-2021.
The Supervisory Board has examined the Integrated Annual Report 2018, the financial statements 2018 and independent auditor’s report, the assurance report related to non-financial information, the auditor's management letter and the audit results report issued by TenneT’s external auditor. This review is based on the Audit, Risk and Compliance Committee’s preparatory work and advice. As a result, the Supervisory Board endorses the documents and recommends that the General Meeting of Shareholders adopts the financial statements. The Supervisory Board recommends that the General Meeting of Shareholders discharges the Executive Board from liability in respect of its management of the company and releases the Supervisory Board from liability in respect of its supervision.
Although TenneT is facilitating the transition to green energy, its activities have an unavoidable impact on nature. As TenneT’s Supervisory Board, we are fully aware of our responsibility to protect the natural environment for future generations. TenneT’s Commitment to Nature vision underlines the company’s approach to biodiversity, ecosystems and the natural landscape.
TenneT’s people are at the heart of the company’s continued success and growth. The Supervisory Board aims to help create a safe, healthy, stimulating and energising workplace where TenneT employees can perform to the best of their abilities. Attracting the right people in an environment where talented technical specialists are scarce and empowering them to perform is crucial to TenneT’s ongoing success.
Safety at TenneT is an important area of focus for the Supervisory Board with TenneT's safety performance, benchmarked against peers and overall best-performing companies. The Supervisory Board continued to closely monitor the implementation of TenneT’s Safety Vision 2018 and discussed the safety track record of TenneT and its contractors. Suppliers not meeting TenneT’s safety targets are a major point of attention. During its meetings, the Supervisory Board discussed individual safety incidents, as well as the lessons learned and best practices from other industries.
Remuneration and Appointments Committee
The Remuneration and Appointments Committee (RAC) is tasked with the company’s remuneration policy and the remuneration of individual board members. The Remuneration and Appointments Committee also establishes criteria for (re)appointing new statutory Executive Board and Supervisory Board members and supervises the recruitment process. Furthermore, it is responsible for the management review and succession planning regarding the Executive Board.
Selection, appointments, remuneration and performance
Selection and succession concerning TenneT’s Executive Board are clearly an important task for the Supervisory Board. As part of this, the Supervisory Board conducts performance appraisals of the members of the Executive Board. The Remuneration and Appointments Committee gathers input for these appraisals during a Supervisory Board meeting not attended by the Executive Board. To gather more insight in Executive Board team dynamics as well as the individual functioning, the Supervisory Board members meet annually with individual Executive Board members. The Supervisory Board wholeheartedly supported the proposal of the Executive Board to have an Executive Board with only statutory members. Up to December 2018, the Executive Board existed of three statutory members and two titular members. As from 2019 the Executive Board will consist of four statutory members: CEO Manon van Beek, CFO Otto Jager, COO Ben Voorhorst and a second COO-function. With regard to the latter the RAC started the selection and appointment process end of 2018.
Apart from assessing the performance of the Executive Board, the Supervisory Board also discussed the performance of TenneT’s wider senior management, including succession planning.
The RAC consists of Laetitia Griffith and Ab van der Touw and held six meetings, the majority of which were attended by the CEO. Discussions concerning the remuneration report were held in the presence of the CFO. Next to this the RAC played a crucial role in the search for a new CEO to replace Mel Kroon. In this framework the RAC was temporarily enlarged with Pieter Verboom. Furthermore the RAC was engaged in the transition period and handover to Manon van Beek.
In the second half year of 2018, the RAC started the process of selecting and nominating new members of the Supervisory Board. Many factors are considered, including the required expertise and background of its members.
During summer 2018, the shareholder re-appointed Rien Zwitserloot for a period of two years. In the past 8 years (two terms of four years) Rien Zwitserloot has proven to be an asset to the Supervisory Board, with his in-depth knowledge of large (infrastructural) projects. In light of the many changes in the Supervisory Board, the Supervisory Board nominated Rien Zwitserloot for a re-appointment.
TenneT aims for its Executive Board and Supervisory Board to be comprised of people from diverse backgrounds with a range of experience, skills and knowledge. TenneT values this diversity and believes it contributes positively to the way situations are assessed and decisions made. Bearing in mind the Dutch Civil Code and Dutch Corporate Governance Code, the Supervisory Board set a gender diversity target of 30% female directors, both the Executive Board and the Supervisory Board. The Supervisory Board is aware that TenneT’s Executive Board still lacks gender diversity - despite the appointment of Manon van Beek as CEO. With Stephanie Hottenhuis leaving the Supervisory Board due to accepting a new executive position, the percentage of female representatives in our Supervisory Board is currently below our target of 30%.
Contact with the Works Council
Fostering good relations with the Works Council, which represents employee interests, is important to the Supervisory Board. As such, Laetitia Griffith regularly met with members of the Works Council during the year to keep abreast of employee issues and concerns. With regard to the selection and nomination of new Supervisory members, the Works Council decided to avail itself of its right of recommendation of a new Supervisory member. The Supervisory Board applauds this active engagement by the Works Council.
The Supervisory Board welcomed the joint meeting it attended in November with the Works Council and the Executive Board because it presented a good opportunity for exchanging ideas on the future of the workforce.
Newly appointed Supervisory Board members participate in a programme introducing them to TenneT’s key business areas. In October 2018, an in-depth workshop was held on the Dutch Climate Accord and its implications for TenneT. This meeting was combined with a visit to the High Voltage Lab of the Technical University in Delft.
Composition of the Supervisory Board
In 2018, the Supervisory Board said farewell to two distinguished members. In February, Aad Veenman retired as chair of the Supervisory Board after reaching the maximum number of three terms. We would like to thank Aad Veenman for his vital contribution during this crucial period of expansion for TenneT. From 22 February 2018 through 1 June 2018 Pieter Verboom, the vice-chairman of the Supervisory Board, acted as interim chair. Ab van der Touw joined as the new chair of the Supervisory Board as of 1 June 2018.
To the regret of the Supervisory Board, Stephanie Hottenhuis stepped down as member of the Supervisory Board as of 1 August 2018, having accepted an incompatible executive position. The Supervisory is grateful for her contribution over the past five years.
With only four members, the Supervisory Board is currently understaffed. The Supervisory Board is acutely aware that it is not at full strength during a crucial time in TenneT’s development and is determined to remedy this within a reasonable time frame.
In accordance with the Dutch Corporate Governance Code, all Supervisory Board members are independent. Furthermore, the Supervisory Board complies with the Electricity Act, which stipulates that the majority of its members have no direct or indirect links with legal entities (or shareholders thereof) engaged in the production, purchase or supply of electricity or gas.
In 2018, Laetitia Griffith joined the Aufsichtsrat of TenneT TSO GmbH, the German equivalent of the Supervisory Board. It was a legal requirement to enlarge the Aufsichtsrat, since the German business now has over 2000 employees.
For more information on the members of the Supervisory Board as well as the (re)appointment schedule, please visit our website.
Supervisory Board evaluation
The Supervisory Board evaluated its own performance at the end of 2018 with the support of an external consultant. The outcome will be discussed early 2019.
In 2018, Supervisory Board meetings ended with an evaluation of the meeting. Open feedback on topics such as setting the agenda, the quality of documents submitted, and the effectiveness and atmosphere of the meeting is valuable. Also the duration of the meetings was addressed, bearing in mind the range of topics that need to be discussed.
The Supervisory Board would like to thank the corporate secretary, Saskia van Rassel. Her contribution is greatly appreciated.
Supervisory Board meetings and other topics
In this report, we as a Supervisory Board aim to reflect the discussions held in 2018 during the Committee meetings as well as the six regular plenary meetings. All of these plenary meetings were attended by all Supervisory Board members. Also the committee meetings were attended by the members.
In our capacity as Supervisory Board, we have advised and overseen the policies of the Executive Board during 2018, helping to ensure that TenneT continues to play a leading role in the fast-changing and challenging integrated European electricity market. We look forward to continuing our work in 2019.
Arnhem, 18 February 2019
Supervisory Board TenneT Holding B.V.
Ab van der Touw