50Hertz Transmission GmbH Berlin

Transcription

1 Dieses Testatsexemplar richtet sich - unbeschadet eines etwaigen, gesetzlich begründeten Rechts Dritter zum Empfang oder zur Einsichtnahme - ausschließlich an Organe des Unternehmens. Soweit nicht im Rahmen der Auftragsvereinbarung zwischen dem Unternehmen und Ernst & Young ausdrücklich erlaubt, ist eine Weitergabe an Dritte nicht gestattet. Notwithstanding any statutory right of third parties to receive or inspect it, this short-form report is addressed exclusively to the governing bodies of the Company. It may not be distributed to third parties unless such distribution is expressly permitted under the terms of engagement agreed between the Company and Ernst & Young. 50Hertz Transmission GmbH Berlin Short-form report Financial statements and management report 31 December 2014 Translation from the German language Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft

2 Translation of the German language Table of contents Audit opinion Financial reporting Engagement Terms, Liability and Conditions of Use General Engagement Terms Note: We have issued the audit opinion presented below in compliance with legal and professional requirements subject to the conditions described in the enclosed Engagement Terms, Liability and Conditions of Use.

3 Translation of the German audit opinion concerning the audit of the financial statements and management report prepared in German Audit opinion We have audited the annual financial statements, comprising the statement of financial position, the income statement, the cash flow statement and the notes to the financial statements, together with the bookkeeping system, and the management report of 50Hertz Transmission GmbH, Berlin, for the fiscal year from 1 January to 31 December Pursuant to Sec. 6b (5) EnWG [ Energiewirtschaftsgesetz : German Energy Industry Act], our audit of the financial statements additionally covered compliance with the accounting duties pursuant to Sec. 6b (3) EnWG, which requires separate accounts to be kept for activities pursuant to Sec. 6b (3) EnWG. The maintenance of the books and records and the preparation of the annual financial statements and management report in accordance with the German commercial law and compliance with the duties pursuant to Sec. 6b (3) EnWG are the responsibility of the Company s management. Our responsibility is to express an opinion on the annual financial statements, together with the bookkeeping system, the management report and compliance with the accounting duties pursuant to Sec. 6b (3) EnWG based on our audit. We conducted our audit of the annual financial statements in accordance with Sec. 317 HGB [ Handelsgesetzbuch : German Commercial Code] and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the annual financial statements in accordance with [German] principles of proper accounting and in the management report are detected with reasonable assurance and such that it can be assessed with reasonable assurance whether the accounting duties pursuant to Sec. 6b (3) EnWG have been met in all material respects. Knowledge of the business activities and the economic and legal environment of the Company and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the books and records, the annual financial statements and the management report as well as for compliance with the accounting duties pursuant to Sec. 6b (3) EnWG are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by management, evaluating the overall presentation of the annual financial statements and management report as well as assessing whether the carrying amounts and classification of accounts pursuant to Sec. 6b (3) EnWG are reasonable and verifiable and that the consistency principle has been observed. We believe that our audit provides a reasonable basis for our opinion.

4 Translation of the German audit opinion concerning the audit of the financial statements and management report prepared in German Our audit of the annual financial statements, together with the bookkeeping system, and the management report has not led to any reservations. In our opinion, based on the findings of our audit, the annual financial statements comply with the legal requirements and give a true and fair view of the net assets, financial position and results of operations of the Company in accordance with [German] principles of proper accounting. The management report is consistent with the annual financial statements and as a whole provides a suitable view of the Company s position and suitably presents the opportunities and risks of future development. Our audit of compliance with the accounting duties pursuant to Sec. 6b (3) EnWG, which requires separate accounts to be kept for activities pursuant to Sec. 6b (3) EnWG, has not lead to any reservations. Berlin, 10 February 2015 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft - signed - - signed - Glöckner Wirtschaftsprüfer [German Public Auditor] Herlitz Wirtschaftsprüferin [German Public Auditor]

5 Report on the fiscal year 2014 of 50Hertz Transmission GmbH, Berlin from 1 January to 31 December 2014 Translation from the German language 50Hertz Transmission GmbH Eichenstrasse 3A Berlin

6 Table of contents Page 1. Management report of 50Hertz Transmission GmbH Purpose of the Company Overall economic and industry-related conditions Business development Economic situation of 50Hertz Transmission Forecast report Risk management system Opportunities and risks Subsequent events Accounting-related internal control and risk management system Statement of financial position Income statement Statement of cash flows Statement of changes in fixed assets Notes to the financial statements General Accounting and valuation methods Notes to the statement of financial position Notes to the income statement Other notes Company boards Members of the supervisory board Members of management Page 2 of 50

7 1. Management report of 50Hertz Transmission GmbH 1.1 Purpose of the Company 50Hertz is the term used jointly for 50Hertz Transmission GmbH (50Hertz Transmission) and 50Hertz Offshore GmbH (50Hertz Offshore); both companies are affiliates of Eurogrid GmbH (Eurogrid), Berlin. Transmission system operator Elia System Operator NV/SA (Elia), Brussels, Belgium, and Global InfraCo S.à.r.l., Luxembourg, Luxembourg, indirectly hold a shareholding in Eurogrid via Eurogrid International CVBA/SCRL, Brussels, Belgium. 50Hertz is one of four transmission system operators for electrical energy operating in Germany responsible for the extra-high-voltage grid. As transmission system operator, 50Hertz operates an extra-high-voltage grid which, at voltage levels of 150 kilovolts (kv), 220 kv and 380 kv, spans northern and eastern Germany with a network grid length of around 10,000 km. 50Hertz s customers and partners are distribution grid operators based in the balancing zone whose plants are directly connected to the transmission grid, operators of power stations connected to the transmission grid, pumped storage plants, wind farms, major industrial consumers, transit and balancing group customers as well as business partners governed by the laws EEG [ Erneuerbare-Energien-Gesetz : Renewable Energy Act] and KWKG [ Kraft-Wärme-Kopplungsgesetz : German Combined Heat and Power Act]. As transmission system operator responsible for the balancing zone, 50Hertz is responsible for its secure, reliable, efficient and environmentally friendly operation, maintenance and needbased expansion as well as for maintaining the balance of generation and consumption within the balancing zone s whole electricity supply system. Since 2012, 50Hertz has been certified as an ownership unbundled grid operator by the Federal Network Agency [ Bundesnetzagentur : BNetzA]. 1.2 Overall economic and industry-related conditions Economic and political environment The positive trend in general economic development in Germany lost momentum over the course of Following a drop in gross domestic product (GDP) in the second quarter, development stabilized in the following quarters, albeit only slightly. According to preliminary investigations published by the Federal Statistical Office in Germany (Destatis) on 15 January 2015, GDP (adjusted for price effects) increased by 1.5% in 2014 compared to the prior year. The slowdown in economic growth was initially due to less favorable conditions for foreign trade. Nevertheless, the foreign trade balance is positive overall for Germany s most important driving force is also proving robust: The situation on the labor market remains stable, with the number of people in employment reaching a new high in Private consumer Page 3 of 50

8 spending developed positively, while spending by public bodies was also up. Within Germany, companies and government increased their capital expenditures. The economic outlook for 2015 is more optimistic, which is why the federal government in its annual economic report for 2015 forecast a price-adjusted increase in GDP of 1.5% in comparison to the figures forecast for Electricity consumption in 2014 decreased by 3.8% on the prior year, while Arbeitsgemeinschaft Energiebilanzen e. V. (working group on energy balances) had predicted a year-on-year decrease in total energy consumption in Germany of 4.8% for The most important cause for this is deemed to be the lower demand for heat energy as a result of mild weather conditions in the winter and spring. The electricity generated by renewable energies again increased by 3.3% on the prior year. While hydropower across Germany recorded a decrease in 2014, onshore and offshore wind power as well as photovoltaic and biomass increased their share of electricity generation. The situation on the money and capital markets was influenced by a slowdown in economic development in The European Central Bank tried to counter this by further loosening its monetary policy instruments. For the first time, negative interest rates were charged on shortterm deposits which banks had to pay for making deposits with the European Central Bank. Although moderate monetary growth was seen in the course of the year, this did not boost price rises in the eurozone nor did lending to commercial business see a significant increase. For this reason, interest rates on short-term deposits for Eurogrid hovered around 0%. The development of the economy as a whole as well as the development in electricity consumption did not have any significant influence on 50Hertz s earnings. The political environment of the transmission system operators in fiscal year 2014 was shaped by legal implementation of the energy policy agenda agreed in the coalition agreement. The amendment to the EEG came into force mid-year, which had the main effect of restricting the exceptional circumstances for exemption from cost allocations. The adjustment of payment rates and the determination of expansion targets also have an influence on the business activities of the transmission system operators. Regulatory framework for the energy industry European law On a European level, several legal measures came into force in 2014 or are still at the implementation stage, which are designed to help create a uniform single electricity market as well as further expand the volume of electricity generated from renewable energies. Page 4 of 50

9 Back in November 2013, the EU Commission had published draft guidelines for energy and environmental state aid that more closely defined the requirements needed to be met for aid to still be deemed compatible with the European single market. These guidelines came into force mid The amended German EEG and the exemptions and reductions contained therein were reviewed by the EU Commission using these new guidelines and confirmed as being compatible with European state aid rules. The relief granted to energy-intensive industry companies in the EEG 2012, which had been reviewed in an official EU state aid investigation, was also approved retroactively under these new guidelines. Only a small share of companies must repay the relief granted in excess of the permitted limits thereby breaching competition rules. However, the German aid model under the EEG was validated by two landmark rulings made by the European Court of Justice on the compatibility of national eco-electricity with European law. The two rulings stressed that national aid models that solely favor domestically generated electricity may be justified by the general interest in promoting the generation of electricity from renewable sources. The European Court of Justice thus upheld its previous ruling on this matter. With the Commission Regulation on Determining a Guideline for Capacity Allocation and Congestion Management, the first network code pursuant to Article 8 of EU Regulation No. 714/2009 was approved by the member states of the EU on 5 December 2014 by way of comitology. The regulation is expected to come into force mid-2015 and aims to create a uniform EU framework in the area of capacity allocation and congestion management (CACM). National law The new allocation of ministerial responsibilities following the 2013 federal elections, which saw energy issues bundled in the Federal Ministry of Economics and Technology, impacted national legislation in that the new energy concept was developed further and its effects consolidated. The focus was on the further development of the EEG, with the federal government also put under pressure to act as a result of the EEG state aid investigation by the European Commission. The amendment to the EEG was relevant to 50Hertz with regard to mandatory direct marketing as of certain output limits as well as the definition of expansion plans for offshore and onshore wind power, solar energy and biomass. Alongside the amendment to the EEG, the Federal Requirements Plan Act was also amended and for pilot projects offered the possibility of partial underground cabling for HVDC transmission lines. Page 5 of 50

10 In addition to legislative activities, several court rulings have also brought about significant changes to the regulatory framework of the energy industry. With two rulings, the Federal Court of Justice continued its string of fundamental rulings on the judicial review of the appropriateness of network user charges. In one ruling, the Federal Court of Justice limited the requirements for secondary burden of proof regarding the amount of network user charges for upstream grid operators. These satisfy the burden of proof by disclosing their calculations. On the other hand, however, the Federal Court of Justice declared its principles on benefit sharing it had developed in other areas of law to also be applicable to lawsuits regarding network user charges. According to these principles, an upstream grid operator may not contest the repayment claim made by the grid operator filing the lawsuit that the latter had passed on network user charges to its grid users that were alleged to be too high. In its second ruling, the Federal Court of Justice defined its requirements under which a grid operator may on a case-by-case basis plead the statute of limitations for lawsuits demanding repayment of excessive network user charges, thereby providing a little more legal certainty for lawsuits filed against grid operators. The proceedings filed at the Düsseldorf higher regional court against the decision on pooling reached by the Federal Network Agency were taken into account in the development of 50Hertz s network user charges. For the end of 2013, the regulatory authority had reacted to criticism from the Düsseldorf higher regional court by amending the StromNEV [ Stromnetzentgeltverordnung : Ordinance on Electricity Network User Charges] and implementing corresponding changes to the legal basis for pooling. The proceedings were subsequently dropped. Furthermore, with regard to the extent to which assets have to be transferred when switching grid-related concessions in municipal areas, the Federal Court of Justice determined that mixed-use plants, i.e., those that cater to both local and regional supply, must also be transferred to the new concessionaire, provided they at least serve to directly connect end consumers. Determining the criteria for the extent to which assets are transferred cleared up this long-disputed issue. 50Hertz (as well as other German transmission system operators) raised the question in several higher regional court proceedings as to what extent business models can be designed to prevent payment of an EEG cost allocation. 50Hertz, as trustee of the EEG cost allocation account, is obligated to ensure that the EEG cost allocation is levied in accordance with legal provisions on non-discriminatory terms based on the aggregated volume delivered to end consumers. These proceedings are therefore being followed until a clear and definitive verdict has been reached. Page 6 of 50

11 Grid development plans The electricity grid development plan (NEP) and the offshore grid development plan (O-NEP) 2013 were confirmed at the beginning of January In 2014, the transmission system operators published and consulted on the first draft of the NEP After taking into account the consultation findings, the second draft of the NEP and the O-NEP 2014 was published and presented to the Federal Network Agency on 4 November Based on feedback from numerous consultations following the preparation of the first draft and due to the EEG reform that has since followed, the transmission system operators performed a complete recalculation of the B 2024 base scenario in order to better present the new development of renewable energies, particularly their regional distribution, with the latest findings. The high transmission needs between north and south as well as the necessity of measures in accordance with federal requirements planning was largely confirmed; however, some projects also saw regional shifts. In 50Hertz s area, a slightly more northerly feed-in point for the eastern direct current connection is now better suited to source the electricity from the region from Wolmirstedt instead of Bad Lauchstädt as previously and to transmit the electricity to the south. In Mecklenburg-Western Pomerania, lines need to be upgraded from 220 kv to 380 kv by 2024 on account of the increased and faster expansion of wind power in the region. The NEP and O-NEP 2014 drafts are expected to be approved mid The transmission system operators also carried out sensitivity analyses during the year. These analyses revealed indications for the effects of reducing expansion targets for offshore wind power, capping peaks from onshore wind turbines and substantially increasing CO 2 prices to the grid development requirement. The transmission system operators put forward a proposal to the Federal Network Agency on 30 April 2014 for the scenario framework for the NEP and O-NEP for the 2025 target date. Following consultation, the Federal Network Agency revised this framework and on 19 December 2014 approved it as the basis of its calculations for the 2015 grid development plans. 1.3 Business development Grid usage and grid connection The current price list was published on 1 January Prices are down by approximately 9% on Hertz s grid customers were last informed about this in December Page 7 of 50

12 Regulatory issues The revenue cap for 2014 were set with effect as of 1 January 2014 in accordance with the provisions of the ARegV [ Anreizregulierungsverordnung : Incentive Regulation Ordinance] and formed the basis of the price list valid since 1 January The revenue cap decreased by some 4% compared to This fall is primarily due to the fact that the expected redispatch costs recognized were lower than the expected costs recognized in the prior year. In addition, repayment amounts based on the voluntary commitment for system services were taken into account from the actual settlement for The revenue cap in effect from 1 January 2015 was also determined in accordance with the provisions of the ARegV. Compared to 2014, the increase comes to 4% and is primarily attributable to the rise in offshore costs, which were passed on to all transmission system operators in the cost sharing process. Offsetting effects from the voluntary commitments were taken into account in the increase. Since the beginning of the second regulatory period on 1 January 2014, the revenue cap has been based on the Festlegung der kalenderjährlichen Erlösobergrenze für die zweite Regulierungsperiode [ Determining the calendar year revenue cap for the second regulatory period ] by the Federal Network Agency, which 50Hertz received after completing the cost review. Manageable costs increased by approximately 25% on the prior year. 50Hertz s efficiency value determined during the international efficiency comparison is 100%. For the second regulatory period, the Federal Network Agency set four new voluntary commitments for redispatch, grid losses, offshore grid losses and balancing energy instead of the voluntary commitment for system services. The voluntary commitments ensure the general regulatory recognition of costs for the measures listed in the voluntary commitments as permanently non-manageable costs. By 31 December 2014, of the 92 active applications filed since 2008 for the approval of investment measures, 50Hertz had received a total of 81 approvals. Based on the total application volume of EUR 9.6b, an investment volume of EUR 5.6b had been approved by the Federal Network Agency by the aforementioned date. Energy management Balancing group management 50Hertz settles all balancing groups in its balancing zone on a monthly basis. As of the end of 2014, there were 1,451 balancing groups for the 516 traders, electricity distributors, generators and grid operators operating in the balancing zone. Page 8 of 50

13 EEG settlement In 2014, the EEG electricity generated within 50Hertz s balancing zone increased by approximately 5% in comparison to the prior year; however, this was below the overall forecasts (e.g., approximately 8% in the case of wind). In 2014, the share of output sold directly increased again on 2013, reporting growth of around 18%. As of year-end 2014, around 90% of onshore wind turbines and the entire offshore wind generation was sold in the balancing zone using subsidized direct marketing (formerly: market premium model). Overall, around 27% of EEG electricity output in 50Hertz s balancing zone was sold by the transmission system operator. Supplies to other transmission system operators in the horizontal equalization of burdens fell accordingly, while payments received increased slightly. The lower than expected volume of wind and solar energy generated in connection with the use of the maximum liquidity reserve permitted by law when calculating the cost allocation over the course of the year led to largely positive account balances; resulting in a nationwide account balance of EUR 1.4b as of 30 September The calculation for 2015 again used the liquidity reserve permitted by law. Deducting the positive account balance on 30 September 2014 from the cost allocation, an EEG cost allocation of 6.17 ct/kwh was published. This is this first time since it was introduced that the EEG cost allocation fell slightly. By contrast, the core cost allocation for 2015 adjusted for the account balance effect increased by 0.81 ct/kwh as a result of the addition of renewable energies. Other cost allocations in the energy industry In addition to the KWKG cost allocation, the cost allocation pursuant to Sec. 19 (2) StromNEV and the offshore liability cost allocation, the allocation for interruptible loads was levied for the first time in 2014, which also covers the costs from It came to ct/kwh in 2014 and will decrease to ct/kwh in As in 2013, the amount of the offshore liability cost allocation levied in 2014 was the maximum value permitted totaling 0.25 ct/kwh. While the value for 2013 was legally prescribed as a result of the introduction of the cost allocation, subsequent values are based on corresponding forecast values. The forecast for 2014 exceeded the cap of 0.25 ct/kwh. The difference is taken into account in the cost allocation for The annual settlement of the offshore liability cost allocation for 2013 resulted in a nationwide credit balance of EUR 468m. This credit will be repaid to grid customers via the offshore liability cost allocation in Non-privileged end customers thus receive a slightly negative cost allocation (repayment) of ct/kwh. Page 9 of 50

14 Grid losses, voltage control and operating consumption 50Hertz covers the energy it needs to cover grid losses in the long term by means of a riskaverse procurement strategy. In order to minimize risks, 2.0 terawatt-hours (TWh) have already been procured for 2015 and 2.2 TWh for 2016 in In 2014, grid losses came to 1.9 TWh. A solution to improve the redispatch processes was intensely worked on in The Federal Network Agency s new regulation requires all generators with a feed-in capacity of over 10 MW to continuously report free redispatch potential. In the future, this data will form the basis to optimize redispatch measures in a central IT system for German transmission system operators. Progress was also made on the redispatch process on the contractual side in 2014: The existing redispatch agreements were definitively adapted to match the new legal framework in The resulting standard redispatch agreement is to be implemented by all transmission system operators and generation companies in the future. Employees The number of employees at 50Hertz Transmission increased from 779 to 844 as of 31 December 2014, a rise of 8% compared to the prior year. Insourcing measures for temporary workers that had previously been hired via agencies are included in this growth. There were 22 industrial and commercial apprentices. 11 employees are completing a trainee program with stations in the different departments of 50Hertz as well as European transmission system operators and non-governmental organizations (NGO). For the second time, employees were able to participate in the success of the fiscal year 2013 in the form of a stock program. Each employee was offered five Elia shares free of charge as well as a discounted price on 15 additional shares. This offer was exercised by 89% of the eligible employees, 70% also decided to participate on their own as well. Health and occupational safety The primary aim is to shape conditions at the workplace or in the working environment in such a way that they fulfill the employees health and safety requirements at all times. In 2014, 50Hertz underwent an audit in line with the international standards, which was successfully completed with the Occupational Health and Safety Assessment Series 18001:2007 certification. All 50Hertz executives and employees were instructed on topics such as health and occupational safety and provided with the necessary information, for example, on risk assessment in the workplace. Security passes were also issued to all operational employees. In 2014, there were two reportable work-related accidents, eight commuting accidents and no accidents while traveling on business at 50Hertz Transmission. None of these resulted in serious injury. Page 10 of 50

15 50Hertz strives to include employees from subcontractors in the high standards it applies for its own employees. Research and development As part of the integration of renewable energies and the required development of the electrical system, 50Hertz carries out a range of R&D projects and studies. In addition to increasing acceptance of overhead line projects, the objective here is to provide support in the areas of energy markets, system security and new technologies. Overall, around EUR 2m was spent on research and development projects in 2014 (prior year: around EUR 1m). 1.4 Economic situation of 50Hertz Transmission The Company operates exclusively in the field of electricity transmission as defined by Sec. 6b (3) EnWG [ Energiewirtschaftsgesetz : German Energy Industry Act]. For this reason, the separate activity-based financial statements to be prepared correspond to the Company s financial statements. Results of operations Income statement 1 Jan to 31 Dec Jan to 31 Dec 2013 Change in EUR m in EUR m in EUR m Cost-matching income 7, , Other cost-matching income Non-profit issues 7, , Revenue from the grid business Other income Expenses for the grid business Other expenses Investment result/financial result Result from ordinary activities Hertz Transmission s absolute income and expenses are largely characterized by the settlement not through profit or loss of the EEG and additional cost allocations. The transmission system operators sell the renewable electricity fed in by upstream grid operators and directly connected producers to an electricity exchange, provided that this is not sold directly. In addition to this sales revenue, the transmission system operators levy a charge for all trading and distribution companies operating in the balancing zone to cover the difference between the costs for the reimbursement of electricity generated from renewable sources and the revenue from selling the electricity generated from renewable sources. The settlement of the EEG generated revenue of EUR 6,462.0m (prior year: EUR 6,284.1m). Page 11 of 50

16 Under revenue and cost of materials, the settlement volume of services rendered to third parties accounts for EUR 701.4m of both revenue and cost of materials (prior year: EUR 907.5m). Under other income, EUR 97.2m was attributable to the settlement of the KWKG (prior year: EUR 88.5m). Income of EUR 171.8m (prior year: EUR 225.4m) related to the allocation mechanism for reductions in charges granted to grid customers in accordance with Sec. 19 (2) StromNEV. Income of EUR 153.3m (prior year: EUR 155.4m) was raised in the fiscal year from the offshore liability cost allocation for delays and interruptions when establishing grid connections. In the fiscal year 2014, the allocation mechanism was added pursuant to Sec. 18 (1) AbLaV [ Verordnung zu abschaltbaren Lasten : Regulation on agreements on interruptible loads]. In accordance with this regulation, contractual agreements are concluded with providers of interruptible loads and the related costs for support to guarantee system stability at grid operators as part of a nationwide compensation mechanism are financed via a cost allocation. This cost allocation generated income of EUR 6.8m for the first time in the fiscal year. Overall, income and expenses from the individual allocation mechanisms are recognized without affecting the profit or loss of 50Hertz. In the fiscal year, a total business volume of EUR 7,592.5m (prior year: EUR 7,660.9m) relates to the settlement of non-profit issues. Revenue from the grid business primarily related to increased network user charges (EUR 963.8m; prior year: EUR 988.9m), system services (EUR 41.6m; prior year: EUR 31.4m) as well as balancing group management (EUR 33.4m; prior year: EUR 52.8m). In addition, EUR -83.7m (prior year: EUR m) relates to effects from the compensation for network user charges in different periods, which are realized with a time delay as a result of the current regulatory framework. Expenses for the grid business mainly contain expenses for the procurement of electricity of EUR 231.8m (prior year: EUR 235.7m) and for system services of EUR 310.1m (prior year: EUR 251.1m). Other expenses include personnel expenses of EUR 78.9m (prior year: EUR 68.9m). This increase compared to 2013 is due to a collectively bargained wage and salary adjustment from 2014 and also represents the constant growth in headcount. Amortization, depreciation and write-downs came to EUR 67.9m (prior year: EUR 64.5m) in the fiscal year. The negative interest result as part of the financial result amounts to EUR 18.2m (prior year: EUR 6.7m). Under investment result, 50Hertz Transmission generated income from the profit transfer from 50Hertz Offshore of EUR 27.9m (prior year: EUR 18.1m). In the fiscal year 2014, the interest result was influenced by the considerable increase in the volume of financing as Page 12 of 50

17 well as the unwinding of the discount on provisions. Interest income from the short-term deposits only partly compensated for these two effects. The result from ordinary activities amounts to EUR 259.2m (prior year: EUR 272.6m). In comparison to the prior year, which included one-off effects that no longer applied in the fiscal year, this positive result is mainly characterized by the compensation for the further increase in investment activity. In addition, positive contributions to earnings resulted from the adjusted measurement of individual provisions as well as from efficiency improvements in operating expenses. Income taxes for assessment periods before the consolidated tax group was formed with Eurogrid resulted in a positive profit contribution of EUR 1.0m (prior year: EUR 4.5m). The expense of other taxes amounts to EUR 0.7m (prior year: EUR 1.1m). The Company closed the fiscal year 2014 with a profit for the period (before profit transfer) of EUR 259.5m (prior year: EUR 276.0m), which will be transferred to Eurogrid. Net assets and financial position Statement of financial position 31 Dec Dec 2013 Change Assets in EUR m in EUR m in EUR m Fixed assets 2, , Current assets (including prepaid expenses) Equity and liabilities 1, , , Equity Non-current liabilities Medium and current liabilities 2, , , , In addition to intangible assets of EUR 44.4m (prior year: EUR 39.0m), fixed assets mainly comprise 50Hertz Transmission s technical grid systems of EUR 1,257.2m (prior year: EUR 1,135.4m), prepayments and assets under construction of EUR 331.8m (prior year: EUR 262.5m) as well as financial assets of EUR 784.3m (prior year: EUR 478.1m). The latter primarily relates to the investment in 50Hertz Offshore (EUR 331.0m) with a contribution to the capital reserves of EUR 130.0m in 2014 as well as a loan issued to 50Hertz Offshore (EUR 440.0m) with an increase of EUR 168.7m in In addition, securities classified as fixed assets of EUR 10.4m from the acquisition of shares in European Energy Exchange AG (EEX) were recognized. For fiscal year 2014, additions to investments in property, plant and equipment amount to EUR 258.0m (prior year: EUR 244.6m). These primarily relate to the Page 13 of 50

18 construction of the second section of the connection line from south to west, the 380 kv overhead line from Bärwalde to Schmölln as well as the construction of transformer substations in Parchim and Förderstedt. Furthermore, 50Hertz Transmission invested in capacity increases of transformer substations in Perleberg and Hamburg as well as the expansion of additional locations. Under current assets, EUR 659.8m (prior year: EUR 642.5m) relates to trade receivables. This reflects the high settlement volumes attributable to the largely non-profit grid business also when considering the results of operations. Other assets of EUR 146.3m (prior year: EUR 98.2m) mainly relate to claims from the cost allocation processes. As of the reporting date, the inclusion in Eurogrid s cash pool system resulted in a receivable due from affiliates of EUR 548.2m (prior year: EUR 122.3m). At EUR 855.8m, equity was unchanged on the prior year; it is made up of capital stock (EUR 200m) and capital reserves (EUR 655.8m). Non-current liabilities include shareholder loans granted by Eurogrid of EUR 550.0m (prior year: EUR 500.0m). This item also mainly contains various provisions of EUR 88.9m (prior year: EUR 85.8m) and deferred income of EUR 141.1m (prior year: EUR 147.4m), with longer terms. Medium and current liabilities mainly contain the remaining provisions of EUR 1,519.7m (prior year: EUR 862.2m), which in turn mainly result from the EEG and the other cost allocation processes (EUR 1,279.6m; prior year: EUR 662.8m). The increase mainly relates to higher EEG obligations as of the reporting date. Trade payables amounted to EUR 179.2m (prior year: EUR 179.8m). Statement of cash flows Consolidated statement of cash flows (condensed) 1 Jan to 31 Dec Jan to 31 Dec 2013 Change in EUR m in EUR m in EUR m Cash flow from operating activities , Cash flow from investing activities Cash flow from financing activities Change in cash and cash equivalents Cash and cash equivalents at the end of the period The development in cash flow from operating activities reflects the extent to which the Company s liquidity situation fluctuates, mainly due to the settlement of the non-profit business. Page 14 of 50

19 In particular, the EEG cost allocation with the liquidity buffer contained therein together with lower payments than expected to plant operators had an extremely positive effect on the liquidity situation as of the reporting date. Favorable weather conditions and lower energy costs also had an overall positive impact on liquidity. As well as payments for additions to property, plant and equipment (EUR 258.0m), the cash flow from investing activities includes the issue of a loan (EUR 168.7m) as well as the contribution to the capital reserves (EUR 130.0m) at 50Hertz Offshore. Cash flow from financing activities comprises the net cash outflow from the profit transfer for the fiscal year 2014 (EUR 259.5m). This item also includes a cash inflow from the shareholder from increasing the existing long-terms by EUR 50m as well as the granting of a short-term loan totaling EUR 250m. The financing of 50Hertz was secured throughout the entire fiscal year The cash pool with Eurogrid was in place throughout the entire fiscal year. In fiscal year 2014, there was a consolidated tax group for income tax in place with Eurogrid. Furthermore, 50Hertz Transmission acts as the interposed parent for 50Hertz Offshore in terms of income tax and VAT. Overall picture of the economic situation In the fiscal year 2014, the result from ordinary activities was again mainly characterized by the profit and loss effect of increasing investments. Furthermore, measures to increase efficiency as well as one-off effects from the adjustment of the valuation of provisions led to a positive profit contribution. The financial obligations due in fiscal year 2014 were covered at all times by the available liquidity and the shareholder loan. Equity investments 50Hertz Transmission has a 100% shareholding in 50Hertz Offshore. 50Hertz Transmission assigned the task of constructing and operating the grid connections of offshore wind farms in the Baltic Sea to 50Hertz Offshore. As a result of the strong global demand for know-how on how to integrate renewable energies, 50Hertz Transmission and Elia System Operator SA founded the joint venture Elia Grid International SA in Brussels in spring The purpose of the company is to provide consulting and engineering services in the area of grids and system services. This international opening supports the Group in its objective to detect, create and secure growth opportunities. Elia Grid International SA also offers the employees at the respective group companies Page 15 of 50

20 international employment prospects. 50Hertz Transmission holds slightly less than 50% of the company s capital stock; the shares have a value of almost EUR 2.5m. In 2013 and 2014, 50Hertz Transmission acquired shares in European Energy Exchange AG (EEX) in Leipzig, which resulted in a total share of 4.31% in the capital stock and a share value of EUR 10.4m. The EEX develops, operates and connects secure, solvent and transparent markets for energy and energy-related products. 50Hertz intends to use this strategic decision to invest in the EEX as a way to be able to better fulfill its role as market developer. Further limited acquisitions are expected for Hertz Transmission has an 11.1% shareholding in Central Allocation Office GmbH (CAO) based in Freising. 50Hertz Transmission holds 20% of the shares in European Market Coupling GmbH (EMCC) based in Hamburg. The two companies have the purpose of providing congestion management services for transmission grids. The introduction of new load flowbased procedures involving coupling the market in northwestern Europe means a key portion of EMCC s tasks will not be needed in the future, which is why the Company s liquidity was approved and implemented in the fiscal year The notional value of EUR 1.00 for the investment in EMCC was retained as of 31 December Hertz Transmission has a 10.1% shareholding in CORESO SA (CORESO) based in Brussels, Belgium. CORESO is the coordination and service center for load flows in the central western European region. TSCNET Services GmbH was founded in Munich on 1 September Hertz Transmission paid EUR 2,500 as a capital contribution, giving it a 10% share in the company s capital stock. The plan is to acquire additional shareholders. The purpose of the company is in particular the rendering of technical support services in the area of electrical system security and capacity calculations, in order to support transmission system operators managing their grids. 1.5 Forecast report 50Hertz will continue to invest in the development of the transmission grid in order to securely and efficiently establish the increasing share of renewable energies and to be able to transport these in the direction of consumption centers. 50Hertz s largest onshore projects at the moment are the construction of the southwest connecting line, the expansion, retrofit and modernization of the Magdeburg grid area and the construction of new substations to include renewable energies, particularly in Brandenburg. The investment volume for 2015 will again increase significantly in comparison to the prior year (investment volume for 2014: EUR 267.7m excluding financial assets). The purchase commitment for investments already reached EUR 382.2m as of 31 December Page 16 of 50

21 As a result of the increasing investment activities and the volumes from the EEG to be prefinanced, the financing volume will increase. The liquidity situation for the EEG business continues to be dominated by fluctuations; however, this is expected to be more relaxed in 2015 compared to prior years. This requires the development of 50Hertz s financial instruments and continued active cash management. Financing will be secured via the parent company Eurogrid for which Moody s confirmed a Baa1 rating in June Cost development for actual grid operations in particular, maintenance, personnel, administration and operations will be shaped by grid expansion as well as the energy policy. The amount needed to cover these costs will be determined in a cost review and the Europewide efficiency benchmark. 50Hertz makes continuous efforts to ensure a high degree of efficiency in its processes and cost structures in order to minimize the increased costs that are necessary for the new energy concept in Germany. The costs for balancing energy, redispatch measures as well as grid losses are primarily influenced by the development of electricity prices, weather conditions and grid topology. However, any resulting risks to earnings are limited by the existing regulatory framework. OPEX in the 50Hertz Group will be up on the prior-year level (2014: EUR 157.9m in the 50Hertz Group) as a result of further business development, primarily at 50Hertz Transmission. 50Hertz Transmission s result from ordinary activities for 2015 will probably be considerably lower than the net profit for the prior year (2014: EUR 259.2m), as the special effects of past fiscal years either declined or were not incurred. The earnings forecast for 2014 in 2013 was largely realized. The standard returns of 7.39% after taxes on equity permitted by regulators can probably also be achieved in the coming fiscal years. The forecast for 2015 is mainly based on the following premises: Maintaining Eurogrid s current rating and thus easy access to the financial markets Normal business development of 50Hertz Transmission without any extraordinary weather conditions, such as hurricanes, and without any major technical disruptions Smaller impact of various one-off effects Stable regulatory framework Continued moderate development in energy costs Ongoing high degree of cost discipline in business processes With regard to the quality of grid availability, 50Hertz constantly makes efforts to maintain a high level of quality and a low disruption rate. 50Hertz Transmission also strives to keep the accident frequency and availability of employees at the current level or to improve it further by implementing measures targeted at addressing health and occupational safety. 50Hertz, as an attractive employer, will do everything it can to achieve a high level of employee satisfaction. Page 17 of 50

22 Overall, 50Hertz Transmission expects business development to be positive in 2015 albeit down considerably on the 2014 level with a sound capital base. 1.6 Risk management system The aims of the risk management system are to avoid any risks jeopardizing 50Hertz s ability to continue as a going concern, to reduce existing risk items and to optimize the risk/opportunity profile. Risks are recognized, recorded, evaluated and monitored in a standardized manner applying the risk guidelines. The assessment of potential losses and the likelihood of their occurrence is based on scenarios. This ensures that the risk situation is continually monitored, especially to ensure the early recognition of risks to the Group s ability to continue as a going concern, and supports the selection and implementation of measures to overcome such risks. Enhancement of the risk management system entails the systematic development and central pursuit of plans of action for combating key corporate risks. Relevant individual risks and the overall risk situation are reported regularly to management, the supervisory board and the shareholders. The respective decision makers are informed ad hoc in the event of any significant changes. The functionality and effectiveness of the risk management system is regularly subject to review. 1.7 Opportunities and risks Opportunities While maintaining efficiency and ensuring that it invests in the transmission and grid connections as and when it is needed, 50Hertz has the opportunity to improve its regulated asset base and to achieve organic growth. Further opportunities for 50Hertz as an independent transmission system operator in Europe involve it actively implementing the changes and new regulations relating to the new energy concept in Germany as well as being a reliable and highperforming partner for the customers being supplied in the balancing zone. Risks from political, regulatory and legislative matters 50Hertz s network user charges are subject to regulations issued by the Federal Network Agency. Any decisions made by the Federal Network Agency in the current regulatory framework could have a significant impact on 50Hertz, be it positive or negative. In particular, the approved return on equity for the third regulatory period (from 2019 onwards) may be below the original forecast, which could have a strong negative impact on 50Hertz s profitability and business value. Page 18 of 50

23 Furthermore, the regulatory framework is subject to intensive European, national and regional legal debate. 50Hertz monitors and follows European and national legislative proceedings. European guidelines and regulations due to be transposed soon into national law (e.g., provisions contained in the third energy liberalization package) can also lead to new burdens or risks for 50Hertz. The Federal Network Agency has been evaluating the incentive regulation for all grid operators since the beginning of Pursuant to Sec. 33 (1) ARegV, the Federal Network Agency was required to present its findings and recommended actions in a report to the Federal Ministry of Economics and Technology by the end of This could result in amendments to the ARegV in Various models to enhance incentive regulation are currently being discussed. 50Hertz gives critical support to these discussions and tries to contribute its expertise of how to create a practicable model. Energy policy laws and guidelines, particularly surrounding renewable energies, also have a strong influence on 50Hertz s risk situation and liquidity. Changes to such legislation or the interpretation of this legislation by the Federal Network Agency, can either significantly improve or worsen the Company s risk or liquidity situation. Uncertainty regarding approval of an adequate level of income to cover the costs of the operating phase and the conditional ex-post review of investing activities by the regulatory authorities in terms of appropriateness, scope and amount pose a risk for 50Hertz. This risk is confronted by constantly monitoring the costs and weighing these up against the benefits. Investments that are not approved by the Federal Network Agency also lead to lower imputed costs and therefore to a decrease in network user charges. The authorization to operate the grid in Germany cannot expire, but can be revoked if 50Hertz (for example) does not possess the human, technical and economic resources and reliability to ensure that grid operations are sustainably in compliance with legal requirements. Furthermore, negative consequences for the value of the company as a result of losing this authorization cannot be ruled out. Technology/infrastructure 50Hertz s fixed assets are geographically widespread and can be the potential target for theft, acts of terrorism and sabotage. As an infrastructure operator for a secure and reliable electricity supply to more than 18 million people, 50Hertz makes every effort to also be as well-equipped as possible for crisis situations. Crisis tools are therefore constantly refined and emergency exercises regularly carried out, so as to train skills and identify any potential for improvement. Page 19 of 50

24 In the event of voltage fluctuations or interruptions, power outages or a failure to implement legally prescribed emergency measures, 50Hertz can be held liable for any customer and/or third-party damage. Additional costs that will not necessarily be recognized by the regulatory authorities may also be incurred. The connection of offshore wind farms is a business field with additional technical and organizational challenges, because the legislature has decided to place wind farms relatively far away from the German coast. Despite careful preparation and analyses, technical problems are often only discovered in the implementation stage and have to then be solved immediately. Delays and changes are therefore possible in the planning and construction stages. Should 50Hertz be deemed responsible for the delay (normally also the case if e.g., the fault lies with one of 50Hertz s contractual partners), the Company must essentially reimburse the wind farm operator for the financial loss incurred. Any expenses in connection with such indemnification payments can partly be offset by compensation obtained by means of recourse from suppliers. According to the EnWG, the risks for transmission system operators are limited: the transmission system operator only has to pay a portion of the compensation payment itself in the event of culpable delay or damage to the connection. Nevertheless, significant risks still remain at the transmission system operator making the connection. The construction of lines constantly meets with opposition from locals, leading to long-winded approval proceedings. Line construction delays are therefore still possible despite the intense efforts of 50Hertz s approval and communication experts. This can lead to an increase in critical situations for the existing grid operations as the new lines are urgently needed in highconsumption areas, mainly for transporting the ever-growing volatile feed-in volume of renewable energies in 50Hertz s balancing zone, and also because the planned shutdown of nuclear power plants in southern federal states is getting closer. The infrastructure operated by 50Hertz is supported by an IT security structure. The creation of this, which began in the past year, was systematically continued in An IT security program to set up an IT security management system for 50Hertz was prepared and its implementation kicked off. A penetration test of the grid control system environment has been performed and individual measures have already been implemented. The initiatives concerning the IT security catalog (Federal Network Agency) and the IT security law (BSI/BMI) were discussed by the relevant corporate bodies covering the transmission system operators. There were no IT-related security incidents with a material influence on 50Hertz s business processes in Health and occupational safety Despite all of the precautionary measures, accidents cannot be ruled out at 50Hertz s facilities or in connection with the use of 50Hertz s plants. These may result in human injury or, in Page 20 of 50

25 extreme cases, death or other serious consequences. This could result in lawsuits against 50Hertz, which bring with them considerable financial obligations, reductions in financial and personnel resources as well as loss of reputation. Risk analyses have been performed for activities at 50Hertz and the relevant measures developed and implemented. The functionality of the Company s occupational safety management system has been certified pursuant to OHSAS Employees in manual jobs are instructed six times a year, those in engineering and commercial areas once a year. The know-how of our employees is essential for the Group s business activities. Essential knowhow can be lost as a result of employee turnover and insufficient know-how transfer. Measures are implemented to reduce this risk, e.g., positions are occupied in tandem before an employee leaves the Company. Markets and finances The EEG settlement results in high liquidity risks; however, these have no effect on earnings. Extreme fluctuations can also arise in the costs for balancing energy, grid losses and redispatch measures. Earnings effects here are reduced by regulatory models. In the area of energy procurement, 50Hertz is subject to the general market risks that are seen on the electricity market. 50Hertz uses electricity products and contracts customary on the market for the energy it needs to cover system-related grid losses, in order to be able to counter the existing market price risks in an appropriate manner. Based on a risk-averse procurement strategy and taking the regulatory framework conditions to compensate for costs for grid losses into account, 50Hertz actively manages its market activities and its related internal risk considerations. When procuring the energy needed to cover grid losses for its own portfolios, 50Hertz acts on the electricity market exclusively with the objective of covering its own needs. Using physical and financial contracts on the electricity market gives rise to general cover risks and also credit risks and liquidity risks in connection with market partners. These are countered with internal control measures. 50Hertz finances itself via the parent company Eurogrid on the bank and capital market. Risks from financing bottlenecks are limited by means of a line of credit that has been secured for the long term, but not yet drawn. Overall risk situation 50Hertz s ability to continue as a going concern was not jeopardized by individual risks or its aggregated risk position in fiscal year Taking into account the measures taken, there are no such risks for fiscal year 2015 either. Page 21 of 50

26 1.8 Subsequent events No events of significant importance occurred from the time of the reporting date to the issue date of 50Hertz Transmission s financial statements. 1.9 Accounting-related internal control and risk management system So that 50Hertz can successfully operate in its complex economic environment, it has created an effective and integrated internal control system, which, in its entirety, contains all relevant business processes. This system regulates the identification, recording, evaluation and reporting of risks and is integrated into the strategy, planning and budgeting processes as well as the Company s management and reporting systems. The internal control system forms an integral component of the risk management system. This system comprises preparing reports for the supervisory board, audit and investment committees at the level of Eurogrid International as well as management, and is tailored to company-specific requirements in terms of its scope and structure. Key elements of the internal control system with regard to the financial reporting processes are the widely applied dual control principle, an auditable voucher system and the strict segregation of duties between/within the specialist departments of 50Hertz Transmission and between 50Hertz Transmission and Eurogrid. The processing of data in the accounting system is organized uniformly for all companies included in Eurogrid s consolidated financial statements and is based on uniform processes regarding the allocation and processing of invoices and vouchers. There is also a uniform method for preparing the financial statements regarding the preparation process and deadlines. The standard commercial software used for accounting purposes is subject to an annual review regarding the compliance of the IT procedures applied including the structures and procedures of the system in use, taking into account the requirements of an effective internal control system. There is an adequate authorization concept in place to ensure compliance of accounting and a reduced risk of fraudulent activities. This is applied consistently. The business transactions of the Eurogrid group companies are processed centrally in the accounting/tax department at 50Hertz Transmission. Measures to limit accounting-related risks primarily include the clear allocation of responsibilities, graded release strategies, data access rights established according to the principle of segregation of duties and the application of uniform regulations on organization and setting deadlines as well as the assessment of business transactions. The effectiveness of the internal control system is checked regularly in a separate process by the internal audit function. Moreover, the audit committee of Eurogrid International together with the supervisory board of 50Hertz Transmission continuously monitors and checks that management of the Company is Page 22 of 50

27 being performed properly. The audit committee and the supervisory board base their assessment on regular reports and analyses of the management of 50Hertz Transmission, on the findings of the audit procedures performed by the internal audit function and the audit of the financial statements of the group companies. Furthermore, the group companies and their risk areas are recorded and assessed as part of risk management. Berlin, 10 February 2015 The management Page 23 of 50

28 Financial statements of 50Hertz Transmission GmbH as of 31 December 2014