Eurogrid GmbH Berlin

Transcription

1 Eurogrid GmbH Berlin Short-form audit report Financial statements and management report 31 December 2011 Translation from the German language Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft E

2 e Translation from 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 e 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 consolidated financial statements prepared by Eurogrid GmbH, Berlin, comprising the statement of financial position, the income statement, the statement of changes in equity, the statement of cash flows and the notes to the consolidated financial statements, together with the group management report for the fiscal year from 1 January to 31 December The preparation of the consolidated financial statements and the group management report in accordance with German commercial law is the responsibility of the Company s management. Our responsibility is to express an opinion on the consolidated financial statements and the group management report based on our audit. We conducted our audit of the consolidated 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 consolidated financial statements in accordance with [German] principles of proper accounting and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group 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 consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion.

4 e Translation of the German audit opinion concerning the audit of the financial statements [and management report] prepared in German Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated 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 Group in accordance with [German] principles of proper accounting. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group s position and suitably presents the opportunities and risks of future development. Berlin, 4 April 2012 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft Glöckner Wirtschaftsprüfer [German Public Auditor] Bährens Wirtschaftsprüfer [German Public Auditor]

5 Report of the Eurogrid GmbH Group for fiscal year 2011 from 1 January to 31 December 2011 Translation from the German language Eichenstrasse 3 A Berlin

6 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Table of contents Page Group management report of Eurogrid GmbH, Berlin, for the fiscal year from 1 January to 31 December Consolidated financial statements of Eurogrid GmbH as of 31 December Statement of financial position 29 Income statement 30 Statement of changes in equity 30 Statement of cash flows 31 Statement of changes in fixed assets 32 Notes to the financial statements 33 Page 2

7 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Group management report of Eurogrid GmbH Economic and political environment General economic development in Germany continued to improve in 2011, a trend demonstrated by the 3% increase in GDP. The largely export-driven economic recovery helped boost the domestic economy, which was reflected in the rise in corporate investments as well as the slight growth in consumer spending. Medium-sized companies were the primary contributors to the rise in employment. However, the German economy began to witness the first signs of economic slowdown towards the end of year as a result of weaker growth outlooks for the global economy and, above all, the European Union. Despite economic development for the year being positive overall, a particularly mild winter 2011/2012 caused consumption in the energy sector to drop. At the end of 2011, overall energy consumption in Germany had reached its lowest level since This did not have a negative impact on the grid business of 50Hertz s balancing zone (50Hertz being the overall term for 50Hertz Transmission GmbH and 50Hertz Offshore GmbH). The effects of the considerable turbulence on the financial markets and the growing uncertainty surrounding the future of the euro zone were also marginal. The disaster at Fukushima, Japan, acted as a catalyst in ushering in a new energy era in Germany. On 14 March 2011, the federal government quickly took the decision to suspend the extension of some nuclear power plants' working lives, which resulted in eight nuclear power plants being shut down in Germany. This premature shutdown also included two nuclear power plants at Brunsbüttel and Krümmel located within 50Hertz s balancing zone as well as the Unterweser nuclear power plant likewise located in the Greater Hamburg region. An increase in load flows from north to south and east to west also had implications for 50Hertz s balancing zone. The accelerated adoption of the new energy concept meant that 50Hertz had to carry out more redispatch measures at a considerably faster rate to ensure system stability, which raised costs and placed a strain on liquidity. Page 3

8 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Overview of the Group The Eurogrid GmbH Group (the Group ) comprises Eurogrid GmbH ( Eurogrid ) as the parent company, 50Hertz Transmission GmbH ( 50Hertz Transmission ) as the subsidiary and 50Hertz Offshore GmbH ( 50Hertz Offshore ) as the second-tier subsidiary of Eurogrid, as well as the equity investments of 50Hertz Transmission. All three aforementioned companies have their registered office in Berlin. Eurogrid is a wholly owned subsidiary of Eurogrid International CVBA/SCRL ( Eurogrid International ) with its registered office in Brussels, Belgium. The purpose of Eurogrid is the acquisition, holding and operation of equity investments, in particular the investment in 50Hertz Transmission GmbH. As a shareholder, Eurogrid renders services for and receives services from 50Hertz Transmission and, indirectly, from 50Hertz Offshore through the service level agreement (SLA). Holding a 60% and 40% shareholding in Eurogrid International and, thereby, an indirect shareholding in Eurogrid are transmission system operator Elia System Operator NV/SA, Brussels, Belgium (Elia), and infrastructure fund Industry Funds Management Luxembourg No. 2 S. à. r. l. (IFM), Luxembourg, Luxembourg, respectively. The latter was established by the global investment fund company IFM and is under its control. Eurogrid concluded its first fiscal year as an abbreviated fiscal year in is therefore its first full fiscal year. Significant events in the reporting period were: The conclusion of a credit agreement with a term of five years with a syndicate of 11 national and international banks at a volume of EUR 350m for the primary purpose of securing the Eurogrid Group s financial requirements (syndicated financing). These funds can be called upon at any time and in any amount. The conclusion of a credit agreement with BNP Paribas S.A., Frankfurt/Main branch, in December 2011 providing a credit account limit of EUR 120m until further notice (current account financing). The contribution of EUR 200m to 50Hertz Transmission s capital reserves as of 29 December 2011 following 50Hertz Transmission s previous partial repayment of a loan of the same amount. Page 4

9 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 The provision of funds for the business operations of 50Hertz Transmission and 50Hertz Offshore in the form of credit facilities. After adjusting the corresponding contracts, the two companies had access to funds totaling EUR 650m as of the end of fiscal year Hertz Transmission and 50Hertz Offshore As the transmission system operator, 50Hertz Transmission operates the transmission grid which, at voltage levels of 220 kv and 380 kv and a network grid length of around 9,840 km, spans the federal states of Berlin, Brandenburg, Hamburg, Mecklenburg-Western Pomerania, Saxony, Saxony-Anhalt and Thuringia, and runs through parts of the states of Schleswig-Holstein and Lower Saxony. 50Hertz Transmission s customers are distribution grid operators of regional energy companies 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 as well as transit and balancing group customers and customers governed by the laws EEG [ Energieerneuerungsgesetz : German Renewable Energy Act] and KWKG [ Kraft-Wärme- Kopplungsgesetz : German Combined Heat and Power Act]. As transmission system operator responsible for the balancing zone, 50Hertz Transmission is responsible for ensuring that the transmission grid remains secure, affordable, userfriendly, efficient and environmentally friendly within the full scope of operation, maintenance and need-based expansion as well as for maintaining the balance of generation and consumption within the whole electricity generation system. In accordance with the provisions under European and national law, the Company ensures free and nondiscriminatory access to its transmission grid. Pursuant to the EEG, 50Hertz Transmission ensures that renewable energies are integrated into the balancing zone, that they are transported, distributed across the country and sold and that fluctuating energy input energy levels are settled as required. Due to the grid s central European location, the Company is a major contributor to electricity trading in Europe. This grid connects the grids of Denmark, Poland, the Czech Republic and Germany. 50Hertz Transmission s activities therefore focus on strengthening and expanding the 380 kv transmission grid as well as developing the European energy market to ensure the complete integration of renewable energies into the German and European transmission grids. The business activities of 50Hertz Offshore comprise the construction, acquisition, maintenance and operational management and the operation of electricity lines as well as Page 5

10 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 the associated plants and facilities for connecting offshore wind turbines/farms erected in the Baltic Sea within the 12-mile zone/german Exclusive Economic Zone to an electricity transmission or distribution grid. In accordance with Sec. 17 (2a) EnWG [ Energiewirtschaftsgesetz : German Energy Industry Act], the obligation for the grid connection primarily rests with the transmission system operator. To make a distinction from its onshore activities, 50Hertz Transmission assigned this task to 50Hertz Offshore. Following the change in legislation in connection with the energy package concluded by the federal government in 2011, the previous temporal restriction on mandatory grid connections was lifted. Regardless of when construction begins, the Company is obligated to establish the connection to all offshore wind farms in the abovementioned region in a manner that is both timely as well as technically and economically efficient, and subsequently to operate them. This caused the Company s business activities to expand considerably. To date, applications for grid connections for 19 offshore wind farms have been made within 50Hertz Transmission s balancing zone, with five new applications being made in the reporting year. Some of the offshore wind farm projects are competing with one another in terms of location. The first project, the offshore wind farm EnBW Baltic 1 and its grid connection, was implemented and commissioned in Hertz made investments and carried out maintenance measures as planned on the basis of a long-term financing strategy. Energy guidelines European law Following the publication of a comprehensive energy strategy for Europe for the period from 2011 to 2020, the strategic aims of the European energy policy (functionality of the energy market, security of energy supply, promotion of energy efficiency, development of renewable energy sources as well as interconnection of energy grids) were implemented in October 2010 by way of various initiatives developed by the European Commission (EU Commission). On 19 October 2011, the EU Commission published a draft ordinance with guidelines for the trans-european energy grids (EU energy infrastructure package). The ordinance aims to identify and support electricity and gas grid expansion projects of European interest and to Page 6

11 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 improve the regulatory framework for the expansion of the grid across Europe by simplifying and speeding up approval procedures as well as by determining how costs are to be divided in cross-border projects. As a way of financing grid expansion projects, the EU Commission submitted a proposal for the creation of a Connecting Europe Facility infrastructure fund, which, in relation to the energy area, is to be provided with some EUR 9b from the EU budget for the period from 2014 to In the field of the energy market, the European Network of Transmission System Operators Electricity (ENTSO-E), implemented various network codes on capacity management and bottleneck assignments, grid connection and grid security, among others, based on the nonbinding guidelines of the European regulatory agency ACER (Agency for the Cooperation of European Regulators). The network codes have been adopted as an EU ordinance and are directly binding for all market participants. National law On 15 April 2011, the German federal government resolved to develop an extensive package of laws to accelerate entry into a new energy era of renewable energies and to see Germany permanently phase out nuclear power as well as to transpose the third EU internal market package into national law. On 6 June 2011, the German federal cabinet enacted the package of laws which, in addition to Germany phasing out nuclear power, included an extensive amendment to the EnWG and the EEG, a new act to accelerate expansion of the grid (NABEG) as well as number of new regulations pertaining to energy law; some of these regulations still have to be detailed and refined by means of various ordinances. Following their announcement, the new EnWG and NABEG regulations took effect in August 2011; the changes to the EEG and related ordinances took effect on 1 January Among the most important new developments for 50Hertz are: Certification: In adopting the provisions from the third EU energy package, the transmission system operators must be certified as such in accordance with the legal requirements. 50Hertz is applying for certification as a fully independent transmission system operator. Renewable energies: When determining the EEG cost allocation, a liquidity reserve of up to 10 percent of the difference between the forecast income and expenses may be taken into account in the future. All four transmission system operators took a liquidity buffer into consideration as part of the EEG cost allocation for Responsibility for Page 7

12 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 managing the EEG register of installations may be assigned to the German transmission system operators. This would mean they would receive faster and better results about the EEG facilities. Connection of offshore wind turbines to the grid: The connection of offshore wind turbines to the grid is expected to generally be performed as a joint grid connection in the future. For this purpose, the Federal Maritime and Hydrographic Agency [ Bundesamt für Seeschifffahrt und Hydrografie ] must prepare an annual offshore grid plan for the exclusive economic zone identifying offshore turbines that are suitable for a joint grid connection. It remains unclear what the relationship between this offshore grid plan and the new grid development plan will be. The limitation of the obligation for offshore wind farms to connect to the grid by 2015 has been lifted. This means that 50Hertz is fully responsible also in the long term for offshore connections off the German coast of the Baltic Sea. Grid expansion: Each year, the transmission system operators must join forces to produce and broadly discuss a grid development plan. The newly created NABEG speeds up and simplifies the approval process for the construction of important extrahigh-voltage lines. Responsibility for the federal planning of these lines will in the future be handed over by the state authorities previously responsible for land-use management to the Federal Network Agency (BNetzA). System security: energy producers, including those producing energy from renewable energy sources, are to bear more responsibility for system security. For those plants that are technically able to, they must offer redispatch services. Transmission system operators must accept these services if they are in line with market requirements. When applying the emergency measures for maintaining system stability, the transmission system operators must carry out the compensatory measures in accordance with Sec. 11 EEG in precedence over Sec. 13 (2) EnWG and on this basis may also, albeit only indirectly, control the EEG plants connected to its grid; the transmission system operators may pass through the additional costs this creates via the network user charges if properly applied. The law also obligates distribution grid operators, energy producers and industrial customers to create the requirements for real-time data transmission. A significant portion of the EEG plant operators must now equip their facilities with remote accessibility. Page 8

13 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Network user charges/regulation: In addition to the existing individual network user charges for atypical end consumers, the amendment to Sec. 19 Ordinance on Electricity Network User Charges (StromNEV) means that electricity-intensive end consumers are exempt from the obligation to pay network user charges, which in the overall picture will lead to considerably higher charges for all other network customers. Furthermore, the planning cost approach for investment budgets and the enforcement of the elimination of the amount to avoid double recognition [ Betrag zur Vermeidung von Doppelanerkennungen : BVD) have been addressed, and their implementation has been linked to decisive improvements to the regulatory framework. On 27 January 2011, the lower house of German parliament resolved to amend the EnLAG [ Energieleitungsausbaugesetz : German Act to Accelerate the Extension of Extra-High- Voltage Lines]. In the four pilot projects for laying cables underground named in Sec. (2) EnLAG, an extra-high-voltage line must be constructed and operated as an underground cable on a technically and economically efficient section or modified if demanded by the authorities responsible for approving the project. This also applies for traversing the Rennsteig in accordance with Sec. 2 (2) Sentence 2 EnLAG. The previously optional cabling will thus become a conditional obligation. In February 2011, in light of the expansion of the electricity grids as a central aim of the energy policy, the German Federal Ministry of Economics and Technology created the permanent platform Sustainable energy grids. In this regard, 50Hertz is working with other grid operators as well as at federal, state and association levels on proposals for expanding the grid and modernizing the electricity networks. Grid provision and expansion The provision and maintenance of 50Hertz Transmission s 65 substations and switching systems with its 149 transformers is performed by means of maintenance based on technical, economic and environmental requirements (inspection, servicing and maintenance). While servicing and maintenance is largely performed by external personnel (about 80 percent), inspection and monitoring of the quality and safety of the services performed is secured at all times by its own qualified staff. Furthermore, the ability to respond to an event effectively is ensured by means of a contingency system implemented in collaboration with other grid operators and users. Page 9

14 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Based on the growing demands on the transmission grid with regard to the nationwide highperformance transport of renewable energies and on Europe-wide electricity trading, the focus in the reporting period was again on carrying out construction activities and planned measures for strengthening and expanding the network. The planning approval decision on the 380 kv overhead line from Schwerin to Hamburg has still to be made for the area of Schleswig-Holstein. Approval processes for additional overhead line projects, in particular for the European priority project relating to the southwest interconnection line from Halle (Saxony-Anhalt) to Schweinfurt (Bavaria) have been delayed as a result of making additional planning changes, which are expected to lead to greater public acceptance of the project. Environmental protection is an extremely important factor with the regard to the use of technical equipment. In this connection, additional oil collection facilities were added to transformer locations, noise protection measures implemented and decontamination performed as part of new construction measures. The high level of environmental protection is ensured by the constant training and sensitization of its employees. As a way of compensation for the not insignificant invasion of nature and landscape as a result of constructing the new overhead lines, the planned scope of compensatory measures was increased by confirming greater compensation areas to the authorities. System management As of 31 December 2011, 50Hertz s balancing zone contained onshore wind turbines with a total installed output of approximately 11,520 MW (prior year: 10,922 MW). This corresponds to 40.3% (prior year: 41.4%) of Germany s installed capacity and an increase of some 2% in comparison to the end of With the commissioning of the EnBW Baltic 1 wind farm, the installed output of offshore wind turbines now totals some 50 MW. The share of capacity from offshore wind turbines installed across Germany thus stands at 24%. The photovoltaic (PV) output installed within 50Hertz s balancing zone increased by approximately 60% in comparison to the end of 2010 and now stands at 3,540 MW. On 5 February 2011, the maximum simultaneous feed-in from wind turbines of 9,591 MW (prior year: 9,794 MW) was achieved in the reporting period in 50Hertz s balancing zone. The maximum amount fed into 50Hertz s transmission grid registered on 19 January 2011 came to 14,715 MW (instantaneous one-minute value) (prior year: 14,058 MW). Page 10

15 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 To avoid the default-related overloading of grid elements within 50Hertz's transmission grid, it was necessary at the beginning of 2011 to take measures on 213 days (calendar year 2010: 160 days) in accordance with Sec. 13 EnWG (thereof on 45 days with a reduction in output generated by renewable energies). This resulted in a redispatch amount of 3.85 TWh and a reduced EEG energy offering of 45 GWh. On 27 June 2011, the new Transmission Control Center (TCC) was officially put into operation in the presence of the EU Commissioner for Energy Günther H. Oettinger and a number of guests from the general public, politics and industry. Since the decision was taken by the federal government in March 2011 to suspend the extension of some nuclear power plants working lives, the situation in 50Hertz s balancing zone has been marked by increased load flows from north to south and east to west. In Hamburg, this is also leading to very high voltage levels, especially during low-load periods, as well as very low voltage levels when loads are high and wind feed-in is low. Immediately after it was announced that the extension of some nuclear power plants working lives was to be suspended, 50Hertz Transmission, together with the other German transmission system operators, carried out an extensive investigation into the effects of this for the summer and, in particular, the winter. For winter 2011/2012, it emerged that the available power station capacities would be fully utilized and imports from neighboring countries would not be secure on cold days, which could result in critical load and voltage conditions in southern Germany. In Hamburg, on cold winter days (high consumption) the voltage level can get very low without feed-ins from wind and photovoltaic systems, increasing the danger of a voltage collapse. Overall, it can be determined that the system is being run closer to its limit and that the security reserves are being increasingly exhausted. These internal investigations and those across different balancing zones have resulted in a host of measures being drafted, some of which have already been implemented. These measures are designed to avoid such critical situations, such as through increased redispatch measures, installing additional regulators and support from distribution grid operators and power plant operators as well as through the use of power factor correction (PFC) units by industrial customers in Hamburg and contractual agreements on interruptible loads. On 16 August 2011 and 8 November 2011, 50Hertz, together with the other German transmission system operators, held workshops to inform its transmission system operators in neighboring European countries about its approach to date as well as additional, some Page 11

16 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 joint, steps to overcome the effects of the nuclear power plant shutdown in winter 2011/2012. For 50Hertz s balancing zone, the workshops provided confirmation of the previous statements relating to increased load flows from north to south and east to west, a related overall increase in capacity utilization of the transmission grid as well as the possibility of acute problems in maintaining voltage in Hamburg. In consultation with TenneT TSO, VE Distribution Hamburg and E.ON Netz, 50Hertz Transmission drafted and enacted a specific package of measures for taking coordinated action for rising/too high or falling/too low voltage. Furthermore, internal additional measures have been developed to allow the TCC s operating personnel to deal with critical situations in the winter. Grid usage/grid connection With regard to grid usage, the BNetzA published the pooling resolution in September 2011 effective as of 1 January This resolution was taken into account when performing the price calculation in fall 2011 for 50Hertz s grid usage for The pooling resolution changes how income from vertical grid usage is distributed among grid customers. 50Hertz is currently processing ten applications in accordance with the ordinance for regulating grid connections (Kraftwerks-Netzanschlussverordnung: KraftNAV) for connecting conventional power stations and storage facilities to the transmission grid as well as a planned compressed air storage plant outside of the scope of application of the KraftNAV. The projects are spread across eleven locations and together have a gross nominal capacity of around 8,800 MW, of which 50Hertz has granted grid connection permits for approximately 5,200 MW. Over the course of 2011, 50Hertz received two new grid connection applications for storage projects amounting to some 1,100 MW. At the same time, four applications for power plant projects relating to coal/gas and steam-pressure turbines and for a storage project with a total output of approximately 4,450 MW were withdrawn and the grid connection procedures stopped. As a result, the gross nominal capacity of conventional power plants and storage facilities for a network connection applied for at 50Hertz fell by around 3,350 MW to some 8,800 MW. With regard to the grid connection application that fall under the EEG, 50Hertz has received 19 applications for offshore wind farms in the Baltic Sea of up to 5,900 MW when completed (thereof five new applications in 2011 at around 1,700 MW). There are seven applications for onshore wind farms of up to 1,100 MW, bringing the total to approximately 7,000 MW for Page 12

17 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 offshore and onshore wind farms. On top of this are three applications for photovoltaic farms at around 500 MW. As a result, the application volume for wind and photovoltaic farms for connecting to 50Hertz s grid increased by around 2,300 MW to 7,500 MW in the reporting period despite the loss of individual projects. Regulatory issues The revenue caps for 2011 were set as of 1 January 2011 in accordance with the provisions of the Incentive Regulation Ordinance [ Anreizregulierungsverordnung : ARegV]. An increase of around 3% was recorded on the prior year. By contrast, the revenue caps for 2012 are around 15% higher and form the basis of the price list valid since 1 January By 31 December 2011, 50Hertz Transmission had received 44 approvals out of the 75 active applications made since 2008 for approving the investment budget. Based on the total application volume of EUR 6.1b, an investment volume of EUR 2.5b had been approved by the BNetzA by the aforementioned date. In the test case before the Düsseldorf higher regional court on the structure of investment budget approvals implemented by the BNetzA, 50Hertz achieved a major success. In its resolution dated 23 March 2011, Düsseldorf higher regional court deemed the amount to avoid double recognition as well as the non-recognition of changes to borrowing costs to be unlawful, thus siding with 50Hertz s argument. Settlement talks have also been held on the retroactive structuring of investment budget approvals by the BNetzA which will continue and most likely end in the first quarter of To further improve the regulatory framework for grid investments, as part of the grid platform, the possibility of a planning cost approach (t minus 0), among others, instead of the current t minus 2 default was discussed for the return of capital expenses in order to accelerate funding for new investments. As part of the ENTSO-E, 50Hertz is actively involved in determining the network codes in accordance with EU law, which will then be directly incorporated in applicable law after completion of European legislative procedure in the member states. Page 13

18 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Energy management Balancing group management The new market regulations for balancing group settlement for electricity were implemented effective as of the settlement month June In connection with the regulation of the BNetzA on the German-wide uniform standard balancing agreement, the balancing group managers holding 459 existing contracts were made new contractual offers, which were accepted by all of the managers in line with the agreement. 50Hertz Transmission invoices the ongoing balancing of the balancing zone and therefore all balancing groups on a monthly basis, including its own balancing groups. As of the end of 2011, 50Hertz managed and settled approximately 1,140 balancing groups for 459 of the traders, electricity sellers and grid operators operating in the balancing zone. The particularly high quality of 50Hertz Transmission s balancing group settlement is appreciated by market partners. This is shown in the low number of disputed invoices and customers good payment behavior. In December 2011, the number of active balancing groups increased by around 150 in connection with preparations for the implementation of the requirement set forth in the EEG 2011 on the separate accounting of electricity for the market premium model and green electricity privilege. EEG/KWKG In the reporting year, the supply of EEG electricity within the balancing zone increased by approximately 13% in comparison to the prior year. This is primarily attributable to the renewed increase in the electricity fed in from photovoltaic systems by a factor of 2.5 in comparison to In order to develop load balancing across Germany, the German transmission system operators jointly drafted the technical and contractual requirements for introducing ongoing physical load balancing for electricity and solar power similar to the load balancing for wind. Routine operations began on 1 January After extensive discussion in the media about the amount of the EEG cost allocation for 2011, the cost allocation of 3.53 ct/kwh was found to be justified and overall led to the cost Page 14

19 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 deficit being reduced. In the course of amending the EEG as part of the package of measures relating to Germany s new energy concept, it was therefore possible to convince the political decision-makers of the necessity of a liquidity buffer for subsequent years. This is designed to prevent financial difficulties for transmission system operators as a result of high payment obligations to plant operators. The cost allocation for 2012 of 3,592 ct/kwh was disclosed on time. International Grid Control Cooperation 2011 was influenced by preparations for the international expansion of the grid balancing organization of the German transmission system operators. In this regard, the contractual arrangements were laid down in the form of a cooperation agreement and the first agreements negotiated with Energinet.dk, TenneT Niederlande and CEPS. Furthermore, we explained the benefits of the expansion to the BNetzA and other affected regulators in order to obtain their approval and also to involve those European transmission system operators that are indirectly affected. With the international expansion of the grid balancing organization, the German transmission system operators are making a major contribution to the European single market. Covering grid losses During 2011, 50Hertz established the organizational and technical prerequisites needed in connection with the procurement of energy to cover grid losses to use the forward market of European Energy Exchange AG for the procurement of long-term components. Since 1 November 2011, 50% of the energy volumes to be procured each month were procured on the forward market. The analysis of the remaining volumes that continue to be procured by tendering is expected to result in an enhanced model in the future for improving procurement. Cooperation with TenneT TSO The cooperation with TenneT TSO, primarily dealing with the procurement and sale of electricity positions on the spot market of the European Power Energy Exchange (EPEX), was intensified further in This includes taking on additional electricity positions as well as preparing the use of the ¼ h intraday trading on the EPEX Spot beginning in January All necessary organizational prerequisites were concluded in Page 15

20 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Economic situation of the Group Results of operations The figures for fiscal year 2010 relate to the abbreviated fiscal year from 2 March to 31 December Hertz Transmission is included for the period from 1 June to 31 December 2010 and 50Hertz Offshore pro rata temporis for the period from 1 June to 31 December The figures for fiscal year 2011 relate to the entire calendar year for all group companies. For this reason, comparison with the prior year is somewhat restricted. Presentations and explanations are based on the accounting system in accordance with HGB [ Handelsgesetzbuch : German Commercial Code]. Income statement 1 Jan to 31 Dec Mar to 31 Dec 2010 Change in EUR m in EUR m in EUR m Revenue and income 7, , ,726.6 Operating expenses -6, , ,674.8 Financial result Result from ordinary activities Taxes Group profit for the year Consolidation effects Consolidation effects Economic result The Group s income and expenses were largely characterized by the implementation of the EEG and KWKG, which did not affect profit or loss. As a result of the settlement mechanism in place since 2010, the transmission system operators sell the electricity fed in by upstream grid operators and directly connected producers to an electricity exchange. In addition to this sales revenue, the transmission system operators levy a charge for all trading and distribution companies operating in the balancing zone, which is designed to balance out the costs not covered by the selling activities. The implementation of the EEG and the KWKG generated revenue of EUR 4,415.7m (prior year: EUR 2,066.3m) and EUR 45.6m (prior year: EUR 4.7m), respectively. This revenue and income is matched by expenses of the same amount. Page 16

21 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 The settlement volume of services rendered to third parties increased since the beginning of the year as a result of the change to the EEG settlement mechanism. In this fiscal year, this generated revenue of EUR 1,783.6m (prior year: EUR 806.5m), which is matched by expenses of the same amount. The income from the grid business, adjusted for the components of other comprehensive income relating to the implementation of the EEG, KWKG as well as EEG electricity selling for third parties breaks down as follows: EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Change Network user fees EEG balancing energy Balancing group management Other income Income from grid business Cost of materials primarily comprises expenses from electricity procured under the EEG, services for third-parties as well as expenses for system services for other transmission system operators totaling EUR 6,199.3m (prior year: EUR 2,874.5m), which is matched by income of the same amount. Expenses for the grid business amounted to EUR 515.6m in the fiscal year (prior year: EUR 259.9m). Other operating income of EUR 84.9m (prior year: EUR 30.0m) includes reversals from provisions, special items and construction cost subsidies. Personnel expenses amount to EUR 59.0m (prior year: EUR 28.7m); the increase on 2010 is due, among other things, to a collectively bargained wage and salary adjustment and also represents the growth in the number of employees as a result of the ever-increasing scope of tasks. Other operating expenses amount to EUR 112.9m (prior year: EUR 76.5m), including services, allocations to provisions, fees, other taxes, bad debt allowances and losses from the retirement and sale of assets. The negative interest result as a portion of the financial result amounts to EUR 19.6m (prior year: EUR 11.8m). Page 17

22 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 The result from ordinary activities amounts to EUR 67.6m (prior year: EUR 23.6m). After deduction of income taxes of EUR 14.8m (prior year: EUR 16.1m) as well as other taxes of EUR 0.5m (prior year: EUR 0.3m), group profit for the year, including consolidation effects recognized in profit or loss, amounts to EUR 52.3m (prior year: EUR 7.2m). The economic result for fiscal year 2011 for the Group amounts to EUR 44.5m (prior year: EUR 21.5m). The items other operating income and taxes presented in the consolidated financial statements as of 31 December 2011 contain current corrections as a result of recognition and measurement differences in connection with the consolidated financial statements as of 31 December The correction amounts increase the group profit for the year/retained earnings by EUR 5.3m to EUR 52.3m. Page 18

23 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Net assets and financial position Statement of financial position 1 Jan to 31 Dec Mar to 31 Dec 2010 Change in EUR m in EUR m in EUR m Assets Fixed assets 1, , Current assets (including prepaid expenses) 1, , , , Equity and liabilities Equity Difference from acquisition accounting Long-term liabilities Medium and short-term liabilities 1, , , , As of the reporting date 31 December 2011, the Group s assets comprised fixed assets (primarily property, plant and equipment and assets under construction) as well as current assets (primarily trade receivables and cash and cash equivalents). Liabilities break down into long-term liabilities (liabilities to bond creditors) as well as medium and short-term liabilities (primarily trade payables). Regulatory issues The consolidated result is primarily influenced by effects directly stemming from regulatory issues. The regulations of the German Commercial Code unfortunately do not provide a proper absolute representation of the German regulatory framework. In some cases, regulatory issues had a considerable influence on the profit for the period, even if this trend is reversed in subsequent periods. The regulations of the principle of prudent business judgment inevitably result in different treatment for expenses incurred (recognized immediately) and expected income (only recognized upon receipt). In addition to the regulations that must be recognized, the table below also shows the regulatory claims that have yet to be recognized. Page 19

24 Eurogrid GmbH Consolidated financial statements as of 31 December Jan to 31 Dec Mar to 31 Dec 2010 Change in EUR m in EUR m in EUR m Obligations recognized Unrecognized claims Economic item The regulatory claims of EUR 116.2m were not recognized in the statement of financial position; these account for hidden reserves in the form of future income from network user charges. Statement of cash flows (condensed) 1 Jan to 31 Dec Mar to 31 Dec 2010 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 ,026.9 Changes in cash and cash equivalents Cash and cash equivalents at the end of the period The cash flow from operating activities increased considerably on the abbreviated fiscal year 2010 both in absolute and relative terms. The seasonal effects with regard to cash flows are largely due to weather conditions and the associated relief or burden for the payable feed-in remuneration as well as energy costs. The cash flow from investing activities primarily contains additions to property, plant and equipment. The cash flow from financing activities mainly results from the profit distribution to the shareholder. The financing of the Group was secured throughout the entire year As well as issuing the fixed-interest 10-year bond, Eurogrid has additional credit facilities in place with several banks of EUR 470m. Page 20

25 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Equity investments 50Hertz Transmission has a 12.5% shareholding in CAO (Central Allocation Office GmbH) based in Freising. This company was founded on 17 July 2008 for the purpose of providing bottleneck management services for electric transmission grids. 50Hertz Transmission holds 20% of the shares in EMCC (European Market Coupling GmbH) based in Hamburg. The company was founded on 28 August 2008 for the purpose of providing bottleneck management services for electric transmission grids by means of market coupling, in particular with the involvement of electricity exchanges. 50Hertz Transmission has a 10.1% shareholding in CORESO SA based in Brussels, Belgium. CORESO is the coordination and service center for load forecasts and load flows in the CWE region. Employees The number of employees at the Eurogrid Group rose from 623 as of 31 December 2010 to 669 as of 31 December 2011, an increase of around 7%. The number of trainees remained unchanged as of the end of 2011 at 20. Health and 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 the reporting period, there was one reportable work-related accident, 8 accidents while traveling on business and 17 commuting accidents, which resulted in a total of 9 days of absence. Overall picture of the economic situation of the Group The economic situation of the Group is largely shaped by the regulatory framework of the Group companies grid business. In addition to generating an adequate rate of return from grid operations, this means the Group is subject to strong influences from the high and, above all, difficult financing requirements from the development of the EEG business. The financial obligations of fiscal year 2011 were covered at all times by the available liquidity, the provision of a credit account limit until further notice as well as, in particular, the syndicated financing. Page 21

26 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Risk report Risk management system The aim of the risk management system is to avoid any risks jeopardizing the Group s ability to continue as a going concern, reduce existing risk items and optimize the risk/opportunity profile. Risks are recognized, recorded, evaluated and monitored in a standardized manner applying the risk guidelines in place. The assessment of potential damages and the likelihood of their occurrence is based on scenarios. This ensures that the risk situation is continually monitored, especially 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 hinges on the systematic preparation and central pursuit of plans of action forms for combating key corporate risks. Relevant individual risks and the entire risk situation are reported regularly to management, the supervisory board and the shareholders. The responsible 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. Opportunities and risks The opportunities of the Group chiefly involve it achieving a solid position as an independent transmission system operator as well as being a reliable and high-performing partner for the customers being served in the balancing zone. This also involves creating a sound financial basis together with the existing equity investments. Uncertainties continue to exist with respect to interest on investments. An inadequate return on investment poses a considerable economic risk with regard to past and future investments, which are essential for ensuring supply reliability. The equity interest rate determined by the BNetzA is regularly and systematically far from being reached as a result of the restrictive interpretation of the regulatory requirements. In particular, the time delay and reduction of the interest basis in approved investment budgets by offsetting against the write-offs against any investments already made in the past (the amount to avoid double recognition) reduce the actual attainable return considerably. The full recognition of the submitted investment budget is essential to ensure the Group s long-term investment reliability. Settlement negotiations taken up with the BNetzA following a ruling by Düsseldorf higher court may lead to an improvement in the regulatory framework. Also uncertain are the results of the cost review for the base year as well as the efficiency comparison by the BNetzA. The approved costs and efficiency rating form a significant basis for the revenue Page 22

27 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 caps for the second regulation period. As experience with cost reviews and efficiency comparisons has been minimal to date, the associated opportunities and risks are difficult to assess. Risks from the energy business result from cost increases and fluctuations, in particular with regard to the procurement of balancing energy and energy volumes to cover the grid losses as well as redispatch costs. Such cost increases can result from quantity effects and/or from unforeseeable increases in market prices. By having a model in place that is equipped with synchronous incentive mechanisms (benefits and penalties system as part of the corridor model), the long-term effect on earnings for 50Hertz Transmission is limited, although the time delay of two years can effect whether or not profit can be distributed based on the HGB [ Handelsgesetzbuch : German Commercial Code] result. This relates to risks as well as opportunities. In order to reduce dependency on short-term price fluctuations and to adhere as close as possible to the period stipulated in the corridor model for the calculating the price for zeroing, 50Hertz Transmission procures the expected energy requirements to cover the grid losses via public invitations to tender as well as via futures traded on the stock market. Due to prescribed procurement procedures (especially with regard to balancing energy), not all procurement transactions can be secured in the long term. Based on the price peaks in prior years primarily on the minutes reserve market, 50Hertz Transmission has since 2006 largely automated the short-term monitoring of all risks pertaining to electricity prices. Status reports are issued regularly to ensure all decisionmakers and affected areas are informed about the current status and expected development of the energy business. Since 1 January 2010, the regulations of the EEG settlement mechanism have provided for implementation of the EEG without an effect on profit or loss for the transmission system operators. However, the procedure for selling the EEG feed-in as part of implementing the regulations of the settlement mechanisms result in significant liquidity risks for the Group. In the event that the fixed EEG cost allocation, based on forecast values and each relating to one year, and the generated sales revenue are not sufficient to cover the differences between the costs of feed-in remuneration and the generated income, this can create an interim financing requirement which, as witnessed in the past two years, can be considerable. The statutory option to factor a liquidity buffer into the cost allocation can help cushion this interim financing requirement in the future. Page 23

28 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 An important aspect of 50Hertz Transmission's business activities is ensuring the legally regulated responsibility of the system for the transmission of electricity as a contribution of the transmission system operator for a secure and reliable energy supply system. Liability risks resulting from interruptions and irregularities in the energy supply are covered for the most part. Taking into account the considerable and ever-increasing influence of the fluctuating feed-in levels from wind turbines, 50Hertz Transmission focuses on ensuring a system balance between generation and consumption is maintained at all times. This also requires as a primarily objective of all parties involved in the process that the approval process be sped up considerably, not least to maintain the rapidly progressing expansion of generation capacities from wind turbines as well as on the grid side. 50Hertz Transmission combats the risks from delays and extra costs stemming from the expansion of the highvoltage grid through early and targeted public relations activities as well as open discussions with authorities, nature conservation associations and people living near where the lines pass through. One focus is the southwest interconnection line. According to European regulations, under which each delay must be reported, a report is issued every year to the federal government and the EU coordinator responsible. The lacking line capacity in this area of our balancing zone gives rise to the risk of a system failure, which is being combated by means of extensive temporary measures. The situation will only be properly remedied by dramatically speeding up the approval, construction and commissioning stages including compensatory measures. Conditions on the procurement markets continue to be shaped by a high concentration on the supplier side. In addition to higher prices, this can also lead to longer delivery times for materials and services. Targeted observation of the procurement market as well as professional asset management help limit this risk. Significant risks primarily result from the obligation of the offshore wind farms to be connected to the grid. There are still major legal and technical uncertainties in this regard. In the event of culpable delay when establishing offshore wind farms connections to the grid as well as connection failure, it is not legally clear as to who must pay for the resulting losses. In addition to monitoring the individual connection projects, separate project documentation must be created and implemented in order to avoid the risk. Nevertheless, delays resulting from submarine cable technology still undergoing development and the associated technical Page 24

29 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 risks as well the dependency of maritime processes in particular on weather and ground conditions cannot be ruled out. The Group must obtain significant funding on the capital market in order to fulfill all of its functions. Restrictions on the money and capital markets can therefore lead to financing bottlenecks. Beginning in 2010, the main purpose of Eurogrid is to invest in 50Hertz Transmission and 50Hertz Offshore. As a holding company, it is associated with the economic development of 50Hertz. 50Hertz Transmission and 50Hertz Offshore act as guarantor of the Euro Medium Term Note program as part of the syndicated financing and current account facilities. The resulting risks are identified and limited through the monitoring of the two companies. Other risks arise from the extent to which Eurogrid is active on the international capital markets. Combating these risks requires drawing on extensive experience and constant monitoring by the companies within the Eurogrid Group. Risks from investing in time deposits are combated by means of careful and diversified investment strategy, constant market observations and strictly ensuring that the investment policy is adhered to. Cost-related risks when providing services under the service level agreements are minimized by applying the measures used by 50Hertz Transmission. Overall risk situation The Group s ability to continue as a going concern was not jeopardized by individual risks or its aggregated risk position. Taking into account the measures taken, there are no such risks for fiscal year 2012 either. Page 25

30 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Forecast The Group will continue to invest in grid expansion. It is also committed to the unimpeded use and development of storage capacity facilities for electricity. Realizing these projects helps to channel the exceedingly high levels of EEG electricity in 50Hertz Transmission's balancing zone into the consumer centers. The Group s largest onshore projects are the construction of the northern line, the Uckermark line and the additional sections of the southwest interconnection line and, offshore, the connection of the EnBW Baltic 2 wind farm. Particularly as a result of connecting offshore wind farms to the grid, grid strengthening and expansion measures are also necessary. Investing activities are therefore likely to increase considerably over the next few years. As a result of the physical inevitability of the processes involved in the balancing of generation and load in its balancing zone, 50Hertz Transmission is highly dependent on the cost to produce electrical energy and costs for redispatch measures, which will in turn have a particular influence on future net income. Further cost development for actual grid operations, i.e., maintenance, personnel, administration and operations, are primarily shaped by the energy policy as well as the regulatory framework. Even today, for example, there are high administrative expenses for coordinating the BNetzA s activities. With regard to offshore grid costs, the implementation of the Infrastructure Planning Acceleration Act [Infrastrukturplanungsbeschleunigungsgesetz] is expected to cause an increase in costs over the next few years. Costs for system services and grid losses are also greatly influenced by electricity price developments. The increasing grid expansion, along with the associated growth in the investment volume that needs to be maintained and the increase in personnel requirements, will also result in higher maintenance and personnel costs. For the next two fiscal years, the Group, assuming the continuation of the current framework conditions, expects to generate positive results; however, this hinges on the legal framework improving, with the planning cost approach for investment budgets and the elimination of the amount to avoid double recognition making particular contributions (also for the budgets submitted in the past). As a result of the increasing investment activities and the volumes from the EEG to be prefinanced, the financing volume will increase, with the liquidity situation becoming tenser for the EEG business due to the influence of market premiums and direct marketing. This requires the development of our financial instruments and more intensive cash management. Financing will continue to be secured as a result of Moody s confirming the Company s Baa1 rating in October Page 26

31 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 On all accounts, 50Hertz will fulfill the legally assigned tasks regarding the transport of electricity in the balancing zone, the promotion of renewable energies and the European single market at high quality and above all in the interest of all of its customers and European partners, thereby contributing to a secure electricity supply system. In this regard, 50Hertz makes a contribution to climate protection and development of the economy, particularly in the eastern German economic area. As a holding company and parent company of the Eurogrid Group, Eurogrid will grow in parallel to and in phase with its investment. Subsequent events For the period from the reporting date up to the authorization of the consolidated financial statements for issue, it must be noted that the planning cost approach (t minus 0) came into legal force when applying for the investment budgets as of 2012 as a result of a change to the ARegV. Furthermore, a settlement was reached with the BNetzA in February with regard to the investment budgets. This now means the individual financing terms of the grid operators as well as the replacement portion of specific projects will be taken into account, and, in return, the amount to avoid double recognition will no longer apply in the future. Accounting-related internal control and risk management system In order to identify risks at an early stage, analyze their cause, evaluate and avoid or at least minimize them, there is a group-wide risk management system in place. 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. So that the Group can successfully operate as a company in its complex economic environment, it has also created an effective and integrated internal control system, which, in its entirety, contains all relevant business processes. 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. Page 27

32 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Key elements of the management systems are the clear allocation of responsibilities and controls inherent in the system when preparing the financial statements. The widely applied dual control principle, exclusively document-based booking methods and the consistent segregation of duties, are basic characteristics of control. Furthermore, through guidelines on accounting and preparation of the financial statements as well as appropriate data access rights for the IT system, the Group ensures compliance of its financial reporting with law and regulations. Berlin, 21 March 2012 The management Page 28

33 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Consolidated financial statements of Eurogrid GmbH as of 31 December 2011 Translation from the German language Page 29

34 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Consolidated statement of financial position as of 31 December 2011 EUR m Note 31 Dec Dec 2010 Change ASSETS Fixed assets (1) Intangible assets Property, plant and equipment 1,649.8 *) 1, Financial assets Current assets 1, , Inventories (2) Receivables and other assets (3) Cash and cash equivalents , , Deferred tax assets (4) Prepaid expenses (5) Special loss account from the creation of provisions Excess of covering assets over pension and similar obligations (6) (7) , , in EUR m Note 31 Dec Dec 2010 Change EQUITY AND LIABILITIES Equity (8) Issued capital Capital reserves Group loss carryforward Group profit for the year *) Difference from capital consideration (9) *) Special item (10) Provisions (11) 1, Liabilities (12) Deferred income (13) *) Deferred tax liabilities (14) 51.2 *) , , *) Figures contain the correction amounts. We refer to the preliminary remarks in the notes to the consolidated financial statements. Page 30

35 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Consolidated income statement EUR m Note 1 Jan to 31 Dec Mar to 31 Dec 2010 Change Revenue (15) 6, , ,672.5 Changes in inventories Own work capitalized Other operating income (16) 84.9 *) Cost of materials (17) -6, , ,580.5 Personnel expenses (18) Amortization, depreciation and write-downs (19) Other operating expenses (20) Interest result (21) Result from ordinary activities Taxes (22) *) Group profit for the year *) Figures contain the correction amounts. We refer to the preliminary remarks in the notes to the consolidated financial statements. Eurogrid GmbH Consolidated statement of changes in equity from 1 January to 31 December 2011 EUR m Issued capital Capital reserves Total comprehensive income Total As of 1 January Group profit for the year Profit/loss transfer to the shareholder As of 31 December Page 31

36 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Eurogrid GmbH Consolidated statement of cash flows EUR m 1 Jan 2011 to 2 Mar 2010 to 31 Dec Dec 2010 Change Group profit for the year Write-downs of fixed assets Increase in provisions Gain from the disposal of fixed assets Other non-cash income and expenses Decrease in inventories Change in current receivables and liabilities Cash flow from operating activities Cash received for disposals of property, plant and equipment Cash paid for investments in property, plant and equipment Cash received from construction cost subsidies Cash paid for the acquisition of subsidiaries Cash paid for the acquisition of equity investments Cash flow from investing activities Cash received for taking out loans Cash paid to equity Cash received for issuing the bond Cash paid for issuing loans to affiliates Cash paid for the profit distribution Cash paid for repaying loans Cash flow from financing activities ,026.9 Changes in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period *) *) Cash and cash equivalents comprise short-term deposits and bank balances; earmarked subsidiaries, on the other hand, are recognized as other assets. Page 32

37 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Statement of changes in fixed assets Intangible assets Cost Accumulated amortization, depreciation and impairment Carrying amounts 1 Jan 2011 Correc- Additions Disposals Reclassif- 31 Dec Jan 2011 Correc- Additions Disposals Reclassif- 31 Dec Dec Dec 2010 tions *) ications tions *) ications Software, licenses and other rights Property, plant and equipment Land, land rights and buildings including buildings on third-party land Plant and machinery 1, , , ,194.8 Other equipment, furniture and fixtures Prepayments and assets under construction Financial assets 1, , , ,520.3 Equity investments Other equity investments Other loans Fixed assets 1, , , ,556.7 *) Corrections are shown here for We refer to the preliminary remarks in the notes to the consolidated financial statements. Page 33

38 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Notes to the consolidated financial statements General These consolidated financial statements were prepared in accordance with Secs. 290 et seq. HGB [ Handelsgesetzbuch: German Commercial Code ] for the period from 1 January to 31 December Eurogrid was founded by entry in the commercial register on 2 March The Company is registered in the commercial register of Charlottenburg district court under HRB no B. The shares in Eurogrid GmbH are indirectly held by Elia System Operator NV/SA (Elia), Brussels, Belgium, and infrastructure fund Industry Funds Management Luxembourg No. 2 S.á.r.l. (IFM), Luxembourg, Luxembourg. The consolidated financial statements of Eurogrid were prepared in accordance with the provisions of the HGB, the provisions of the German Accounting Standards Committee (GASC) and the supplementary provisions of the GmbHG [ Gesetz betreffend die Gesellschaften mit beschränkter Haftung : German Limited Liability Companies Act]. All amounts are in millions of euros (EUR m). In the interest of clarity, items have been combined in the consolidated income statement and in the statement of financial position and disclosed separately and explained in the notes. The consolidated income statement has been prepared using the nature of expense method. In connection with the first-time consolidation, the consolidated financial statements as of 31 December 2010 contain recognition and measurement differences for various items, which, individually and overall, did not distort the presentation of a true and fair view of the net assets, financial position and results of operations. The differences were corrected in the consolidated financial statements as of 31 December 2011 over the course of the year, while the consolidated financial statements as of 31 December 2010 have not been adjusted anymore. Page 34

39 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 The differences break down into the items of the statement of financial position and income statement as follows: Consolidated statement of financial position in EUR m Assets Liabilities Property, plant and equipment Equity 5.3 Difference from acquisition accounting -0.3 Prepaid expenses/deferred income Deferred taxes Consolidated income statement in EUR m Other operating income 6.0 Taxes The corrections relate above all to the offsetting of construction cost subsidies under property, plant and equipment against deferred income, the consolidation of own work capitalized and the elimination of income from the reversal of construction cost subsidies as of the date of acquisition. A profit and loss transfer agreement was concluded between Eurogrid and 50Hertz Transmission GmbH (50Hertz Transmission) beginning on 1 June At the same time, a consolidated tax group for income tax was formed with Eurogrid as the parent of the tax group. A domination and profit and loss transfer agreement is in place between 50Hertz Transmission and 50Hertz Offshore GmbH (50Hertz Offshore). There is also a consolidated tax group for income tax and VAT purposes in place between these two companies. Page 35

40 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Basis of consolidation The consolidated financial statements comprise Eurogrid GmbH, 50Hertz Transmission GmbH (100% shareholding) as well as its subsidiary 50Hertz Offshore GmbH (100% shareholding). The shares in 50Hertz Transmission were acquired on 19 May 2010 at a purchase price of EUR 464.6m. 50Hertz Transmission operates as a transmission system operator. Offsetting the cost of acquiring the shares in 50Hertz Transmission and its subsidiary and recognizing the pro rata equity at fair value as of the date of acquisition resulted in a negative difference of EUR 396.6m, which was recognized as a difference resulting from acquisition accounting and released over the weighted remaining term of the non-monetary asset (47 years). In the fiscal year, EUR 8.4m of the difference from acquisition accounting was released as scheduled and recognized as other operating income. The Eurogrid Group is only included in the consolidated financial statements of Elia System Operator NV/SA, with its registered office in Brussels, Belgium, in accordance with IFRSs. By contrast, the preparation of Eurogrid s consolidated financial statements in accordance with the provisions of the HGB is voluntary. The consolidated financial statements of Elia System Operator NV/SA with the largest group of companies can be obtained from Elia System Operator NV/SA, Boulevard de l Empereur 20, 1000 Brussels, Belgium. The consolidated financial statements prepared by Eurogrid in accordance with IFRSs covers the smallest group of companies and can be obtained from the elektronischer Bundesanzeiger [Electronic German Federal Gazette] at Page 36

41 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Accounting and valuation methods General The financial statements of the entities included in the consolidated financial statements of Eurogrid were all drawn up on the basis of uniform accounting and valuation methods. ASSETS Fixed assets Purchased intangible assets are recognized at acquisition cost and amortized on a straightline basis over their estimated useful lives. Property, plant and equipment are stated at cost less depreciation. Production costs for internally produced assets include appropriate pro rata overheads in addition to the directly attributable costs and the depreciation of fixed assets. Borrowing costs are not included. The property, plant and equipment acquired in connection with the acquisition of 50Hertz Transmission and its subsidiary are recognized at fair value. The fair values were calculated on the basis of existing regulatory framework. Investment subsidies granted for property, plant and equipment acquired from 50Hertz Transmission and its subsidiary were included as a component of the fair value of the acquired property, plant and equipment in line with their offsetting as part of calculating the network user charges. Extraordinary write-downs are recorded when the asset needs to be written down to a lower net realizable value. Financial assets are recorded at the lower of cost or market and in accordance with the requirement to reinstate original value. Extraordinary write-downs are not recorded for temporary impairment. Loans are recognized at their nominal value and, where appropriate, discounted to the reporting date. Page 37

42 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Current assets Inventories are valued at acquisition and production cost using generally accepted simplified valuation methods and applying the lower of cost or market principle. Risks on surplus stocks arising from decreased saleability are covered by adequate allowances. Receivables, other assets and cash and cash equivalents are stated at their nominal value or net realizable value, whichever is lower. All recognizable individual risks and the general credit risk are accounted for by appropriate allowances. If the settlement value of a liability is higher than the issue amount, the difference is taken to prepaid expenses and written off by means of annual depreciation. Prepaid expenses Prepaid expenses refer to expenses of the reporting date, insofar as they concern future periods. Special loss account from the recognition of provisions A special loss account from the recognition of provisions pursuant to Sec. 17 (4) DMBilG [ DM-Bilanzgesetz : German Act on Opening Balance Sheets in German Marks] is recognized on the assets side for provisions that had to be recognized in the opening statement of financial position in DEM in connection with the first-time application of Sec. 249 (1) Sentence 1 HGB on 1 July The special loss account changes according to the utilization and reversal of the underlying provisions recognized in the opening statement of financial position in DEM, which only include provisions for overcoming ecological burdens. This account is continued up until the complete utilization or reversal of the provisions recognized in the opening statement of financial position in DEM in the amount originally recognized at nominal value as a result of the DMBilG. When calculating economic equity, the special loss account is set as the adjustment item for equity. There is no breakdown into equity portion and a portion for deferred taxes. Page 38

43 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Excess of covering assets over pension and similar obligations In accordance with Sec. 246 (2) Sentence 2 and Sentence 3 HGB, a positive difference between the fair value of the covering assets and the Company s existing pension obligations or comparable long-term obligations existing on the reporting date is disclosed as an asset. This amount arises from the complete insolvency hedging of the provision for employee entitlements from working lifetime accounts. EQUITY AND LIABILITIES Special item Investment subsidies and grants received are recorded in the special item. The items are released to income in accordance with depreciation of the assets concerned. Provisions In the calculation of provisions, all recognizable risks and uncertain liabilities were taken into account to the extent necessary according to prudent business judgment. The projected unit credit was selected for the measurement of pension obligations and longservice bonuses. Discounting was calculated using the mean market interest rate of 5.13% (prior year: 5.15%) for a remaining term of 15 years in accordance with the RückAbzinsV [ Rückstellungsabzinsungsverordnung : German Ordinance on the Discounting of Provisions]. The interest rate of 5.13% p.a. (prior year: 5.15%) was also used for the measurement of obligations from working lifetime accounts. The calculations are based on the 2005 G mortality tables of Prof. Dr. Klaus Heubeck. Future salary increases were set at 3.5% p.a. (prior year: 2.5%). Expected pension increases were taken into account at rates between 1.00 and 3.00% p.a. (prior year: between 1.00 and 2.00%). Provisions for the company pension plan recorded under the Company s congruent pension obligations are fully covered by employer s pension liability insurance. The amount of the provisions corresponds to the amount of the covering assets. The fair value of the covering assets corresponds to the cash surrender value on the reporting date of the employer s pension liability insurance. Provisions for employee entitlements from working lifetime accounts are fully protected against insolvency; as a rule, the provisions for the German phased retirement scheme are only partially protected. In accordance with Sec. 246 (2) Page 39

44 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Sentence 2 HGB, the respective covering assets are netted against the provisions for the company pension plan, working lifetime accounts and the German phased retirement scheme; interest expenses from unwinding the discount on provisions are netted against interest income from topping up the covering assets. Obligations from phased and early retirement arrangements are recognized under other provisions on the basis of actuarial reports and using an interest rate of 4.09% (prior year: 4.07%) in accordance with the RückAbzinsV over an average term of three years. This involved determining and measuring the actuarial present value of future payment obligations. These calculations are also based on the 2005 G mortality tables of Prof. Dr. Klaus Heubeck. Future salary increases were set at 3.5% p.a. (prior year: 2.5%). Other non-current provisions were discounted pursuant to the RückAbzinsV. The interest portion from the increase in personnel-related provisions is recorded in the interest result. The provisions for potential losses from pending transactions were measured at fair value as of the reporting date. In the measurement as of the reporting date, the expected income from determining the zero point as part of the corridor model (voluntary commitment system services) was taken into account by the BNetzA. Liabilities Liabilities are recorded at their settlement value. Payments from customers collected in connection with the examination and preparation of grid connections (connection authorizations) in accordance with Sec. 4 of the ordinance for regulating grid connections (Kraftwerks-Netzanschlussverordnung: KraftNAV) are disclosed as prepayments. Customer payments are also recorded in connection with the installation of jointly used facilities. Subsidies received are recorded as prepayments for as long as the underlying project remains unconcluded. Deferred income Construction cost subsidies received are if excluded as a time value component of acquired assets in connection with the business combination over the course of the purchase Page 40

45 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 price allocation recognized as deferred income and released over the expected useful life of the associated assets on a straight-line basis. Amounts paid to 50Hertz Transmission in prior years from cross-border bottleneck management are recorded as deferred income. These are used for investments for maintaining or expanding connection capacities. In return, 50Hertz Transmission must pay a consideration for the proceeds received, which it recognizes as a subsidized construction loan under equity and liabilities. The horizontal grid income deferred in 2007 is recognized over 30 years when calculating the network user charges as determined by the BNetzA. Income from the auctioning of bottlenecks for subsequent years was also recorded as deferred income. The income is recorded as a reduction of revenue; it is recognized in profit or loss in the year in which the regulatory authorities deduct the network user charges. In addition to the income from bottleneck management, other income generated for the first time in connection with additional voluntary commitments has also been recognized as deferred income since this date. The deduction is also performed here by making a correction to the network user charges in subsequent years. FOREIGN CURRENCY TRANSLATION Transactions in foreign currencies are recorded at the rate prevailing on the date when they are first reported. The items in the statement of financial position are measured as follows as of the reporting date: Current foreign currency receivables as well as cash and cash equivalents or other current assets denominated in foreign currency and current foreign liabilities are translated at the mean spot rate. There are no long-term foreign currency receivables/liabilities. Page 41

46 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Consolidation principles Acquisition accounting was performed in accordance with the revaluation method based on the conditions on 19 May 2010, the date of acquisition of 50Hertz Transmission including its subsidiary 50Hertz Offshore. Intercompany receivables and liabilities, revenue, income and expenses and any intercompany profits and losses were eliminated. Page 42

47 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Notes to the statement of financial position (1) Fixed assets The breakdown of the fixed asset items summarized in the statement of financial position and their development is shown in the statement of changes in fixed assets. List of shareholdings The shareholdings of Eurogrid break down as follows: 1. Affiliates Shareholding % Equity EUR m Earnings EUR m 50Hertz Transmission GmbH, Berlin 1) ) 50Hertz Offshore GmbH, Berlin 1) ) 2. Associates European Market Coupling Company GmbH, Hamburg 3. Other investments ,1 3) Central Allocation Office GmbH, Freising ,8 2) CORESO SA., Brussels, Belgium ,5 4) 1) Profit and loss transfer agreement 2) Audited financial statements as of 31 December ) Audited financial statements as of 31 December ) Financial statements as of 31 December 2010 Page 43

48 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 (2) Inventories EUR m 31 Dec Dec 2010 Change Raw materials, consumables and supplies Work in process (3) Receivables and other assets EUR m 31 Dec 2011 thereof due > one year 31 Dec 2010 thereof due > one year Trade receivables Receivables from affiliates thereof from shareholder Receivables from other investees and investors Other assets Other assets contain receivables from the tax office from deductible input tax of EUR 162.6m (prior year: EUR 217.0m), for which declarations had not been issued as of 31 December Furthermore, earmarked subsidies with a term of more than year were disclosed at EUR 10.1m (prior year: EUR 30.0m), which are to be used by the syndicate over the next few years. (4) Deferred tax assets Deferred tax assets are primarily based on differences between the carrying amount of provisions and current liabilities at 50Hertz Transmission. They were calculated as of 31 December 2011 using a tax rate of %. Page 44

49 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 (5) Prepaid expenses Prepaid expenses primarily contain the difference from the nominal amount of the bond issued on 22 October 2010 and the amount paid (EUR 4.1m as of the date of issue). This amount is released to income over the term of the bond in accordance with Sec. 250 (3) HGB. (6) Special loss account from the creation of provisions The development of the special loss account from the creation of provisions occurs in line with the development of the nominal obligation of the provision for ecological burdens. This nominal obligation amounted to EUR 4.1m (prior year: EUR 4.2m) as of the reporting date. (7) Excess of covering assets over pension and similar obligations Offsetting the recognized provision against the asset value from the insurance cover (covering assets) produces an excess of covering assets over pension and similar obligations of EUR 1.4m as of the reporting date (prior year: EUR 0.2m). (8) Equity The components and changes in consolidated equity are presented in the consolidated statement of changes in equity (exhibit). The issued capital of EUR 25k and capital reserves of EUR 464.6m correspond to the items disclosed in the statement of financial position at the parent company. The issued capital of Eurogrid is wholly held by Eurogrid International CVBA/SCRL, Brussels, Belgium. (9) Difference from acquisition accounting On 19 May 2010, Eurogrid acquired shares in 50Hertz Transmission and its subsidiary 50Hertz Offshore at a price of EUR 464.6m. Offsetting the cost of acquiring the shares and recognizing the pro rata equity at fair value as of the date of acquisition resulted in a negative difference of EUR 396.6m, which was recognized as a difference from acquisition accounting and released over the weighted remaining term of the non-monetary asset (approx. 47 years). In the fiscal year, EUR 8.4m of the difference from acquisition accounting was released systematically and recognized as other operating income. As a result, the difference Page 45

50 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 from acquisition accounting, taking into account the current corrections and subsequent acquisition cost for the shares in 50Hertz Transmission, amounts to EUR 381.4m as of the reporting date. (10) Special item EUR m 31 Dec Dec 2010 Change Special item for investment subsidies and grants The special item solely contains accrued subsidies and grants for investments. (11) Provisions EUR m 31 Dec Dec 2010 Change Provisions for pensions and similar obligations Tax provisions Other provisions 1, thereof outstanding EEG and KWKG invoices easements for line usage rights sundry other provisions , The provisions for pension obligations arise from the settlement amount of the liabilities offset of EUR 22.0m (prior year: EUR 19.8m) and the fair value of the assets offset of EUR 12.3m (prior year: EUR 11.7m); the cost corresponds to the fair value. Expenses and income were netted. For the expected obligations for 2011 including past fiscal years, a provision of EUR 42.0m was set up for income taxes. For any other obligations expected as a result of the assessment, additional provisions of EUR 1.4m were recognized. Due to the profit and loss transfer agreement concluded with Eurogrid in 2010, 50Hertz Transmission is no longer the taxpayer as of 1 June 2010 for income tax purposes. A portion of the tax provisions recognized in 2011 relate to periods not yet covered by the tax group. Page 46

51 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Other provisions break down as follows: EUR m 31 Dec Dec 2010 Change Network user charges EEG delivery commitments Outstanding invoices Personnel-related provisions Provisions for potential losses Litigation risks Sundry other provisions Provisions for the German phased retirement scheme of EUR 6.1m (prior year: EUR 6.9m) were offset under other provisions against the asset values from the employer s liability insurance cover (covering assets) of EUR 4.0m (prior year: EUR 4.2m). (12) Liabilities EUR m Total 31 Dec Dec 2010 Due in Total Due in < one year > five years < one year > 5 years Bonds Prepayments Trade payables Liabilities to affiliates thereof to shareholder Other liabilities thereof from taxes thereof relating to social security Liabilities to affiliates from the prior year relate to trade payables. Liabilities from bonds relate to the first issue of a nominal amount of EUR 500m on 22 October Page 47

52 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 (13) Deferred income EUR m 31 Dec Dec 2010 Change Investment-related construction cost subsidies Income from bottleneck management and voluntary commitments Other deferred income Income from bottleneck management is recognized as deferred income in the year it is received; it is recognized in profit or loss in the year in which the regulatory authorities deduct the network user charges. (14) Deferred taxes Deferred tax assets are primarily based on differences between the carrying amounts for plant and machinery. Deferred tax assets are primarily based on differences between the carrying amounts for fixed assets, other assets, provisions and current liabilities. Overall, deferred tax liabilities amounted to EUR 51.2m as of the reporting date (prior year: EUR 98.8m). They were calculated as of 31 December 2011 using a tax rate of %. Terminating the consolidated tax group between 50Hertz Transmission and Vattenfall Europe AG meant that deferred tax liabilities were recognized for the first time as of 31 December This was due to the fact that contribution transactions from prior years involved recognizing assets and liabilities at fair value in accordance with commercial law but at their carrying amount in accordance with tax law. To avoid any overstatements, a correction item for assets recognized at fair value in accordance with commercial law was taken into account in the form of a deferred tax liability in accordance with Sec. 274 (1) in conjunction with Sec. 249 (1) Sentence 1 HGB. The amount of deferred tax liabilities was derived from the income tax expense arising from this difference. Page 48

53 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Notes to the income statement (15) Revenue EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Change EEG revenue 4, , ,349.4 thereof EEG revenue in accordance with AusgleichMechV 4, , ,367.5 Services for third parties 1, Income from system services for other transmission grid operators Cost-matching income 6, , ,324.8 Network user charges EEG balancing energy Balancing group management Other revenue Revenue from the grid business , , ,672.5 Electricity deliveries under the EEG relate to deliveries of renewable energies to sellers and dealers supplying customers in the balancing zone as well as deliveries to other transmission system operators to offset the burdens on the transmission system operators from the implementation of the EEG. (16) Other operating income EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Change KWKG cost allocation *) Income from the reversal of provisions Income from provisions for potential losses Income from the reversal of special items for investment grants Income from the reversal of construction cost subsidies Income from the reversal of the difference from acquisition accounting Sundry other income *) cost-matching income Page 49

54 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 (17) Cost of materials EUR m Cost of materials and supplies and for purchased merchandise 1 Jan to 31 Dec Mar to 31 Dec 2010 Change -6, , ,523.0 Cost of purchased services , , ,580.5 Cost of materials largely comprise items recognized directly in profit or loss: EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Change EEG electricity procured -4, , ,349.4 Services for third parties -1, System services for other transmission grid operators Income-matching costs -6, , ,324.8 Expenses for the grid business , , ,580.5 (18) Personnel expenses EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Change Wages and salaries Social security Expenses for pensions for other benefits Average headcount for the year 1 Jan to 31 Dec Mar to 31 Dec 2010 Change Wage earners Salaried employee Page 50

55 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 An average of 18 trainees were employed in fiscal year 2011 (prior year: 19 trainees). (19) Amortization, depreciation and write-downs Amortization, depreciation and write-downs are shown in the statement of changes in fixed assets. No impairment losses were recorded in the reporting year. (20) Other operating expenses EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Change KWKG cost allocation *) Services Legal and consulting fees Other expenses *) expenses are matched by income of the same amount Other operating expenses include potential losses from the procurement of energy to cover grid losses as well as allocations to other provisions and to impairment losses. (21) Interest result EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Change Other interest and similar income Interest and other expenses With regard to the discounting of provisions, EUR 7.2m (prior year: EUR 4.3m) relates to interest expenses and EUR 0.6m (prior year: EUR 0.2m) to interest income. In accordance with Sec. 246 (2) Sentence 2 HGB, interest expenses are netted against interest income of EUR 0.4m (prior year: EUR 0.2m). Page 51

56 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 (22) Taxes EUR m 1 Jan to 31 Dec Mar to 31 Dec 2010 Change Income taxes Other taxes Income taxes primarily comprise income taxes that are actually payable for 2011 (EUR 22.0m) and for prior years (EUR 20.8m) as well as, on the other hand, from reversed deferred taxes (EUR 50.5m). For additional obligations resulting from the assessment for prior years, further provisions of EUR 17.3m were recognized. For periods after 1 June 2010, 50Hertz Transmission, as the dependent company of Eurogrid, has no longer disclosed income taxes. For the periods before the consolidated tax group was formed, tax provisions of EUR 4.6m were recognized. Page 52

57 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Notes to the consolidated statement of cash flows Based on the recommendations of GAS 2 as issued by the German Accounting Standards Committee (GASC), the statement of cash flows shows cash flows from operating, investing and financing activities. The cash inflow from operating activities included interest received of EUR 5.2m (prior year: EUR 1.4m). Interest payments amounted to EUR 17.4 million (prior year: EUR 6.2 million). Cash and cash equivalents at the end of the period consist of interest-bearing short-term deposits of EUR 341.5m (prior year: EUR 172.0m) as well as cash at banks. Income tax-related cash flows amounted to EUR 53.9m (prior year: EUR 4.0m) in the prior year. Notes to the consolidated statement of changes in equity Of the equity earned, EUR -5.5m (prior year: EUR 7.2m) was available to the Company as of the reporting date. Page 53

58 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Other notes Other financial obligations Eurogrid issued the following fixed-interest bond described in more detail below: As of the 15 October 2010, a guaranteed EURO Medium Term Note (EMTN) bond program was issued with a total volume of EUR 2,500m. This bond is subject to English law. The key data are as follows: - Issuer: Eurogrid GmbH - Guarantor: 50Hertz Transmission GmbH and 50Hertz Offshore GmbH - Syndicate leader: BNP Paribas S.A. Dexia Bank Belgium S.A./N.V. ING Belgium S.A./N.V. The Royal Bank of Scotland plc - Currency: EURO On 22 October 2010, Eurogrid successfully issued a bond on the capital market with a volume of EUR 500m and a term of 10 years. The funds were made available to 50Hertz Transmission for its activities as a transmission system operator. The fixed-interest bond was issued under the documentation of the EMTN program. It is disclosed under the liabilities item as Bonds. Upon first-time recognition on 22 October 2010, the bond was measured at its nominal value. The debt discount is recognized under prepaid expenses. On 31 December 2011, there was a purchase obligation for investments and maintenance measures of EUR 538.2m (prior year: EUR 432.5m). The purchase obligations exists solely to third parties. With regard to the electricity procured to cover grid losses based on market conditions, 50Hertz Transmission entered into purchase obligations of EUR 137.9m (prior year: EUR 118.7m). Page 54

59 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 As part of cross-border bottleneck management, 50Hertz Transmission is legally obligated to make investments to avoid future bottlenecks using agreed income generated up to Taking account of the underlying distribution system under tax law for the first-time recognition of this obligation, and assuming an original total obligation of EUR 122.3m until the reporting date, means that EUR 69.5m has been repaid and EUR 52.8m remains. The volume of agreed bottleneck income has already exceeded the actual investment volume realized as of the reporting date for 50 Hertz Transmission s priority projects, meaning there is no further obligation for the Company. Contingent liabilities On 25 October 2011, 50Hertz Transmission, in its role as shareholder of EMCC, issued a guarantee of EUR 3.7m to Nordea Bank Finland Plc, German branch, to secure a loan granted to EMCC. As a result of the corporate transactions, the Group is jointly and severally liable for the following obligations: 50Hertz Transmission is jointly and severally liable with Vattenfall Europe Distribution Berlin GmbH and Vattenfall Europe Berlin AG & Co. KG/their legal successor for the obligations from the franchise agreement with the state of Berlin. 50Hertz Transmission is jointly and severally liable with Vattenfall Europe Distribution Hamburg GmbH and Vattenfall Europe Hamburg AG & Co. KG/their legal successor for the obligations from the franchise agreement with the Free and Hanseatic City of Hamburg. As part of the spin-off of Vattenfall Europe Distribution Berlin GmbH and Vattenfall Europe Berlin AG & Co. KG/their legal successor performed in 2006, legal entities involved in the spin-off are jointly and severally liable for liabilities arising before the effective date of the spin-off. The liability periods in accordance with Sec. 133 UmwG [ Umwandlungsgesetz : German Law of Reorganizations] amount to five years for liabilities for the transferring legal entities; for the pension obligations arising before the effective date of the spin-off as a result of the BRG [ Betriebsrentengesetz : German Company Pensions Act], the liability period is ten years. In accordance with Sec. 133 UmwG, 50Hertz Transmission is also jointly and severally liable for a period of five years for the liabilities of Vattenfall Europe Distribution Hamburg GmbH and Vattenfall Europe Hamburg AG/their legal successor arising prior to the spin-off in Page 55

60 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 EEG and balancing group settlement When preparing the financial statements, expenses and income and the corresponding receivables and liabilities for the implementation of the EEG process as well as for the accounting of the balancing group were determined based on preliminary data provided by third parties and partly based on forecasts. A final statement on the actual expenses and income incurred in the EEG process can only be made when the audit certificates for the electricity volumes fed in from EEG plants become available. With regard to the accounting of the balancing group, 50Hertz is reliant on the complete data from all balancing groups. Due to the very nature of the activity, these data are not available in their entirety as of the time of preparing the financial statements, resulting in uncertainties surrounding the amount of expenses and income in these areas. The related items of the financial statements were determined using the data available as well as relying on estimates and taking into account the information available at the time of preparing the financial statements. Auditor s fees The auditor of Eurogrid s consolidated financial statements, Ernst & Young GmbH, Wirtschaftsprüfungsgesellschaft, Berlin, received fees for audit services of EUR 172.5m in the fiscal year. Fees for audit services mainly comprise fees for the statutory audit of the consolidated financial statements and the separate financial statements of the group entities of Eurogrid. In addition, the auditor received EUR 28k for other services. Related party transactions In the reporting period there were no transactions with related parties which were not conducted at arm s length. Page 56

61 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Disclosures on company/group boards The members of Eurogrid s management are listed in a separate list, included as an attachment to the notes to the financial statements. The general managers were not employed at the Company. No remuneration was paid. The members of the supervisory board of 50Hertz Transmission received EUR 20k for their activities in the fiscal year (prior year: EUR 41k). Loans granted to related parties 50Hertz Transmission granted a member of its supervisory board a long-term, interestbearing loan still amounting to EUR 9k on the reporting date (prior year: EUR 12k). Otherwise, no business transactions were entered into with related persons. Berlin, 21 March 2012 The management of Eurogrid GmbH Kerschl Maes Page 57

62 Eurogrid GmbH Consolidated financial statements as of 31 December 2011 Corporate boards Members of Eurogrid s management Werner Kerschl, Chairman, London, UK Bert Maes, Beveren-Waas, Belgium Page 58

63 e Engagement Terms, Liability and Conditions of Use We, Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, conducted our audit of these financial statements on behalf of the Company. Besides satisfying the legal disclosure requirement (Sec. 325 HGB [ Handelsgesetzbuch : German Commercial Code]) for statutory audits, the audit opinion is addressed exclusively to the Company and was issued for internal purposes only. It is not intended for any other purpose or to serve as a decision-making basis for third parties. The result of voluntary audits summarized in the audit opinion is thus not intended to serve as a decision-making basis for third parties and must not be used for purposes other than those intended. Our work is based on our engagement letter for the audit of these financial statements, the Special Engagement Terms for Assurance and Advisory Business of Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft (1 July 2007) and the General Engagement Terms for Wirtschaftsprüfer und Wirtschaftsprüfungsgesellschaften [German Public Auditors and Public Audit Firms] as issued by the Institute of Public Auditors in Germany [ Institut der Wirtschaftsprüfer : IDW] on 1 January To clarify, we point out that we assume no responsibility, liability or other obligations towards third parties unless we have concluded a written agreement to the contrary with the respective third party or liability cannot effectively be precluded. We make express reference to the fact that we will not update the audit opinion to reflect events or circumstances arising after it was issued, unless required to do so by law. It is the sole responsibility of anyone taking note of the summarized result of our work contained in the audit opinion to decide whether and in what way this information is useful or suitable for their purposes and to supplement, verify or update it by means of their own review procedures.

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