Annual Report A responsible company serving its customers and the community in Belgium and Germany

Transcription

1 Annual Report 2012 A responsible company serving its customers and the community in Belgium and Germany

2 Table of content EXECUTIVE REPORT Foreword* 2 Values and Profile 4-7 Key events 2012* 8 Prospects and challenges 2013* 17 The Elia share in ECONOMIC REPORT Grid operation 30 Infrastructure 34 Investments 36 Grid maintenance 40 Market operation 42 Preventive management of critical grid situations 46 Preparing for the future: research and development* 48 ENVIRONMENTAL REPORT Environmental policy in Belgium 54 Environmental policy in Germany 63 SOCIAL REPORT Staff policy 70 Knowledge management 76 Employee safety and welfare 79 Stakeholder relations and social integration 83 Stakeholder relations 88 CORPORATE GOVERNANCE STATEMENT Composition of management bodies* 96 Significant events in 2012* 99 Remuneration of the Board of Directors and Management Committee* 105 Features of the internal control and risk management systems* 109 Risks and uncertainties facing the company* 113 FINANCIAL REPORT Consolidated financial statements IFRS* 120 Notes to the consolidated financial statements* 125 Joint auditors report on the consolidated financial statements 166 Regulatory framework and tariffs* 168 Information about the parent company* 172 GRI Index 175 Reporting parameters 177 *These chapters form the annual report cf. article 119 of the Belgian company code.

3 Denmark Legend Switching Station (in large part with transition to distribution system operators) Energinet.dk Denmark SchleswigHolstein Rostock 220 kv Hamburg 380 kv Güstrow Schwerin Neubrandenburg Mecklenburg-WesternPomerania 380 kv planned / under construction 380 / 220 kv Other companies line 380 kv line planned / under construction 380 kv line 220 kv Operating voltage ( kv ) Other companies Lower Saxony Brandenburg PSE Operator Poland SaxonyAnhalt 110 Berlin / 220 kv HVDC/DC link 400 kv Grid connection offshore 150 kv Grid connection offshore planned / under construction 150 kv Frankfurt (Oder) Potsdam TenneT Magdeburg System users : Cottbus Our customers include the regional distribution system operators as well as power plants, pump storage plants, wind farms and big industry connected to the transmission system. Situation au Stand op Halle Conventional power plant ( lignite- or hard-coal fired, or gas turbine power plant ) Dresden Erfurt Pump storage plant planned / under construction Wind power plant offshore application 110 Saxony under construction Wind power plant onshore / offshore Leipzig Weimar Jena Eisenach Hesse Gera Chemnitz Thuringia Zwickau C EPS Czech Republic Bavaria TenneT Grid Elia Grid 50Hertz

4 ELIA GROUP 2012 EXECUTIVE REPORT 1 About this report Some 550 million consumers rely on Europe s interconnected electricity system. Of these, over 29 million receive power through the 50Hertz and Elia transmission grids in Germany and Belgium. Our near-perfect quality of supply reflects the tireless commitment of all Group employees, 24 hours a day, seven days a week. Here we present a snapshot of our activities in A European group leading the way in the energy revolution The Elia Group is located at the heart of the European electricity market and is a driving force within that market. Our employees work day and night to ensure the quality and continuity of the electricity supply to homes and industries in Belgium and Germany. If most people take for that granted, it is nonetheless a huge and relentless challenge given the complexity of an interconnected electricity system that provides power to 550 million consumers in Europe. The Group s public service mission involves a number of objectives: continually ensuring balance between energy generated and consumed, contributing to security of supply, proactively adapting grid infrastructure in order to facilitate the transition to a sustainable and environmentally friendly electricity system, and providing high-quality service at the best cost. Day by day, the Group is committed to creating value for its customers and the community at large by achieving close to 100% reliability, developing shared wins with all of the stakeholders in our activities and building a European energy market that supports the economy and the wellbeing of all in society. At a time when the European electricity system is evolving at an increasingly rapid pace, the Elia Group is firmly committed to playing a leading role by innovating at all levels, including in international cooperation, engineering, grid development, system operation, market mechanisms and consultancy. This ambition is reflected in the new vision for the Elia Group and all of its employees: We lead the way in the energy revolution by developing the diversified, sustainable and reliable power systems, spanning land and sea, with new possibilities. This approach is based on actively listening to our customers, regulators, the political authorities and other system operators. It underlies a good balance between fair profit for shareholders, welfare for people and preservation of the planet - Profit, People, Planet. This balancing act is the only way to guarantee long-term success for the Elia Group in the light of the major investments and innovation that the Group and the power grid industry as a whole must deploy over the coming decades. The 2012 Annual Report looks at what our 1,900 employees have been doing in Belgium and Germany in their ongoing desire to meet the needs of our customers, expand our expertise and take initiative. It has been produced in line with a Global Reporting Initiative (GRI) approach focusing on clarity and transparency.

5 2 ELIA GROUP 2012 EXECUTIVE REPORT Foreword by the Chairman of the Board of Directors Although electricity is now an essential part of daily life for communities, services and industry, few consumers are aware of the complexity of the electricity system or the tasks performed by the Elia Group s 1,900 or so employees, who work around the clock to ensure the quality and continuity of power supply to over 29 million consumers. In 2012, as in previous years, the Group executed this mission with great success, providing one of the best qualities of supply in Europe at the lowest cost to the community, in both Belgium and Germany. In a fast-changing and sometimes difficult environment, Elia and 50Hertz were able to make their expertise and joint experience available to the public authorities at their request. The rapidly growing share of variable renewable energy lends added importance to the Group s missions, which are to ensure a constant balance between energy generated and consumed, to develop and modernise grid infrastructure in a timely fashion, to contribute to the integration of national markets in order to improve security of supply, to facilitate the transition to a sustainable and environmentally friendly electricity system and to provide a high-quality service at the best possible price. To this end, the Group has acquired efficient IT tools that enable it, in collaboration with generators, to increase the flexibility of generation facilities, improve demand management for its large industrial customers and enhance the transparency expected by market players. It has continued its involvement in major grid development projects, both onshore and offshore, in response to the needs of its respective customers and to the commitment of the European Union and its Member States to achieving environmental targets by The impact of sharing expertise at Group level is evident in increased efficiency and a greater ability to move beyond our borders to explore new technologies, as with the Group s participation in the Atlantic Wind Connection project to develop an offshore grid off the East Coast of the United States. With the EU currently facing its biggest ever challenges, Europe s 41 interconnected system operators united within the European Network of Transmission System Operators for Electricity (ENTSO-E) are in no doubt that ever closer mutual cooperation, in conjunction with generators and consumers, is the only way to meet the challenge of decarbonisation in Europe. Greater coordination is also needed between the energy policies of EU Member States, given the interdependence of national electricity systems. The Elia Group, which has been a leading player since its creation, performs a major role in addressing these issues, whether it be better demand management, efficient use of electricity storage facilities, market integration or the development of very-high-capacity grids. I am also happy to report that the handover between Daniel Dobbeni, who stepped down as CEO and Chairman of Elia s Management Committee at the end of June 2012, after nearly 10 years in the job, and Jacques Vandermeiren, who worked alongside him as Vice- Chairman of the Management Committee, took place very smoothly and in a spirit of continuity. From the outset, Jacques succeeded in inspiring confidence in all stakeholders, both inside and outside the Group. Elia s policy of diversification, which led to the acquisition of a 60% stake in the German system operator 50Hertz in 2010, has proved to be a sound one: while its results in Belgium were impacted negatively by the record low OLO (government linear bond) rate in 2012, the improved regulatory framework in Germany means that the Group can honour the commitments made to its shareholders. This illustrates well how an ambitious and diversified industrial policy and a prudent financial approach can converge to positive effect. Major investment projects in onshore and offshore grid development, in the North Sea and the Baltic, will make a vital contribution to the energy transition and to the growth of our business. It is therefore important that the financial, regulatory, legislative and social climate remains stable and favourable. The Group s commitment to excel, day after day, in its mission to serve all of its customers and the wider community is beyond doubt and is something in which we take great pride. Luc Van Nevel, Chairman of the Board of Directors

6 ELIA GROUP 2012 EXECUTIVE REPORT 3 Foreword by the Chairman of the Management Committee Although every year since Elia s inception has become more challenging, there can be no doubt that 2012 lived up to our ambitions. From the publication in January of the new Electricity Act, transposing the 3rd European energy package into Belgian law and appointing us as operator of the North Sea offshore grid, to our certification as a fully unbundled system operator in December, a few weeks after 50Hertz became the first and so far only electricity transmission system operator in Germany to obtain such certification, 2012 saw our Group pass some major new milestones. In a sector of such vital importance to contemporary society, our pursuit of excellence and proactive anticipation of change are reflected in our ambitious Group-level vision. The vision sets out what we expect of our employees and expresses our commitment to all of our stakeholders. This can be summed up as follows: in the face of the rapid change the revolution, even taking place in the European electricity system, the Elia Group is committed to playing a leading role by innovating at all levels, including in international cooperation, engineering, grid development, system operation, market mechanisms and consultancy. Our vocation is to build and operate tomorrow s grids within a European and international framework, in order to transmit energy wherever it may be generated in future. Our involvement in the Atlantic Wind Connection project to develop the first high-capacity direct current grid off the East Coast of the United States bears witness to this, as it is already preparing us to address the challenges we will face in the construction of a real offshore grid in the North Sea. Our long-term vision stands us in better stead to perform our day-to-day mission of ensuring continuity of supply a subject that proved highly topical in Of relevance in this respect were the close collaboration established with the Federal Public Service Economy, at the request of the Secretary of State for Energy, in connection with its Generation Facilities Equipment Plan; issues associated with the flexibility of generation facilities in response to the increase in renewable energy; and the Secretary of State for Energy s Winter Plan and the heightened vigilance of operational services at a time when Belgium is structurally dependent on imports. Meanwhile, our German colleagues played a very active role in establishing Germany s first ten-year grid development plan. They also secured the electricity supply of almost 3.5 million people by bringing into service the Northern Line between Schwerin and Hamburg. I am extremely proud of what the Group has achieved through the hard work of all of our employees, whether it be on continuity of supply, safety or implementing our investment portfolio. Our determination to move forward and innovate and to build and operate grids that meet tomorrow s needs are all challenges we face in the years ahead. In both Belgium and Germany, the Elia Group is engaged in constructive dialogue, committed to listening to the concerns of all parties and working as much as possible in the common interest. The further development of our electricity systems is a challenge for society, one that requires a stable regulatory framework and an investment-friendly climate. Today, the Elia Group is more committed than ever to a fully-fledged, competitive and reliable European electricity market. This objective will be achieved through close cooperation between Member States, regulators, market players, power exchanges and all system operators. Our Group and all its employees work tirelessly to ensure that the electricity system is operated safely and securely and is developed in line with the expectations of our customers and the community. As well as providing a high-quality, continuous supply of electricity at a competitive price, the Elia Group will make every effort in line with the commitment expressed in our Group vision to play a leading role in the energy revolution and to contribute to the development of diverse, sustainable, competitive and reliable power systems, both onshore and offshore. Jacques Vandermeiren, Chairman of the Management Committee

7 4 ELIA GROUP 2012 EXECUTIVE REPORT We lead the way in the energy revolution by developing the diversified, sustainable and reliable power systems, spanning land and sea, with new possibilities. Values As a leader in Europe s current energy revolution, the Elia Group contributes to the development of diversified, sustainable, competitive and reliable power systems, spanning land and sea, and the opening-up of new possibilities. The commitment of the Group is reflected in the new vision defined in 2012: We lead the way in the energy revolution by developing the diversified, sustainable and reliable power systems, spanning land and sea, with new possibilities. The resulting objectives and priorities are cascaded down to all levels of the Group. They express our commitments to all external stakeholders and the expectations that we have of our employees. Our company values entrepreneurial, ethical, caring and responsible provide the framework within which all employees exercise and develop their activities within the Group and in dealings with the outside world. Shared company values Entrepreneurial, ethical, caring and responsible these values underpin how we conduct our business and meet the Group s objectives.

8 ELIA GROUP 2012 EXECUTIVE REPORT 5 Elia Group Business Development Innovation & Knowledge IT EU Activities & Participations Elia Transmission 50Hertz Transmission Profile The Elia Group is organised around its two transmission system operators: Elia in Belgium and 50Hertz in Germany. 30 Mo The number of people supplied securely and reliably via the Elia transmission grid in Belgium and the 50Hertz transmission grid in Germany. Elia, the Belgian transmission system operator, holds licences for its 380 kv to 150 kv national grid and for its 70 kv to 30 kv grids in Belgium s three regions. 50Hertz, one of Germany s four transmission system operators and active in the north-east part of the country, is held jointly by Elia (60%) and Industry Funds Management (40%). Both have been certified as fully unbundled transmission system operators, proving their ability to operate completely independently from electricity generators and suppliers. This is an essential prerequisite for the creation of a properly integrated European market. The Elia Group is one of the top five transmission system operators in Europe and one of the top 15 in the world. It actively sets an example in terms of its independent outlook, of being a driving force behind the development of the European market, its commitment to ensuring reliability and security of supply and contributing to the integration of renewable energies. It operates under the legal entity Elia System Operator, a listed company (with a public float of 52.10%) whose core shareholder is Publi-T, a municipal holding company. It has around 1,900 employees and helps ensure security of supply for 30 million consumers in Belgium and Germany. Given its strategic position at the crossroads between electricity markets in western, eastern and northern Europe, the Elia Group securely manages imports, exports and transits of electrical energy over its grids. It also plays a key role in integrating national markets by participating directly and indirectly in the shareholder structure of Eurogrid International, the regional cross-border flow monitoring centre Coreso, the APX- ENDEX-Belpex and EPEX Spot power exchanges, the CASC.EU and EMCC capacity auction offices and the Gridlab training centre.

9 6 ELIA GROUP 2012 EXECUTIVE REPORT The expertise and skills acquired in the Atlantic Wind Connection project are being used to design and develop future offshore grids in the North Sea and the Baltic Sea, such as the future hub near Ostend and the Combined Grid Solution connection between Germany and Denmark. The Elia Group provides its customers and local authorities with a range of consultancy and engineering services driven by in-house skills and expertise, for very-high-voltage equipment, grid management IT tools and market models. The Elia Group is a driving force in the construction of Europe s future electricity superhighways (both offshore and onshore) and is involved in multiple international projects. It has acquired via its subsidiary Eurogrid International a shareholding in the Atlantic Wind Connection project to build the first direct current offshore grid off the East Coast of the United States. The expertise and skills acquired in this context are being used to design and develop future offshore grids in the North Sea and the Baltic Sea, such as the future hub near Ostend and the Combined Grid Solution connection between Germany and Denmark, as well as to connect major wind farms and expand cross-border transmission capacity. The Elia Group follows the rules on corporate governance and the corporate governance codes applicable to listed companies. Its approach incorporates respect for the environment and supports specific sustainable development policies at European, national and regional level. Elia System Operator has been quoted on the regulated Brussels Euronext market since June 2005 and joined the BEL20 index in March 2012, pursuing its strategy and growth in Europe with the support of its shareholders and the financial markets.

10 ELIA GROUP 2012 EXECUTIVE REPORT 7 Corporate social responsibility The Elia Group plays a crucial role in community welfare, the economic success of businesses and the success of various other organisations. As such, Elia must be exemplary as a socially responsible company in the performance of its activities. This responsibility is expressed in many ways: engaging in permanent dialogue with all stakeholders in our activities: customers, authorities and regulators, employees, people living near our facilities, students and the general public; supporting European, federal and regional energy and climate targets, as defined in 2006 by the 27 Heads of State of the European Union; ensuring the integration of green energy in our grids, including offshore; contributing to the development of the future European grid, based on interactive management of generation and consumption, in the most costeffective way for the community; maintaining the grid in an environmentally friendly and cost-effective way for the community; undertaking various social and environmental initiatives in both Belgium and Germany; promoting technical and scientific studies for young people; etc. Elia is also a member of Business & Society, the benchmark for corporate social responsibility (CSR) in Belgium, which provides support and tools to companies aiming to incorporate social responsibility into their management and activities by: sharing best practices; developing new CSR solutions; sharing information on various aspects of CSR with stakeholders. The appointment of Elia s CEO Jacques Vandermeiren as president of Business & Society is both a recognition of Elia s initiatives in this area and an encouragement to go further. The carbon assessment carried out for all Elia activities in 2012 will be used as the basis for a carbon footprint reduction plan to be implemented in Building on initiatives already undertaken in partnership with Business & Society among others, in late 2012 Elia launched a structured approach aimed at clarifying the strategic main lines of its social responsibility policy based on ISO methodology. In 2013, this approach will be used to define priorities for action on sustainable development involving all areas of our business.

11 8 ELIA GROUP 2012 EXECUTIVE REPORT Minister Philipp Rösler interviewed at the commissioning of the Thuringian Bridge project. Key events was marked by a significant number of key events in both Belgium and Germany, relating to the markets, the development of our grids, technology and Group management. 11 JANUARY NEW ELECTRICITY LAW PUBLISHED IN THE BELGIAN OFFICIAL GAZETTE On 11 January 2012, the law transposing the 3rd package of EU electricity directives into Belgian law was published in the Belgian Official Gazette (Moniteur belge/ Belgisch Staatsblad). It strengthens the rules ensuring that the system operator is independent of electricity generators and suppliers, overhauls the rules for calculating tariffs and gives the federal regulator CREG greater responsibility for monitoring the operation of the Belgian electricity market in general and Elia s activities in particular. It also appoints Elia as system operator for the North Sea offshore grid. JANUARY ELIA SIGNS UP TO BLUE-BIKE Elia became the first company in Belgium to sign up to Blue-bike, the shared bike scheme at Belgian railway stations. Elia employees now have bikes at their sole disposal at Schaerbeek station, cutting the journey time between station and office and reducing our environmental footprint. The scheme was devised by SNCB-Holding and FIETSenWERK and fits in well with the Group s mobility and social responsibility policy. JANUARY ELIA GROUP JOINS EASE Energy storage is a major issue for the secure operation of the electricity system and the optimisation of available transmission capacity. It is one of the technologies that will help to manage the balance between generation and consumption by offsetting the fluctuations associated with some types of renewable energy (wind and solar). The Elia Group became a stakeholder in energy storage developments by joining the European Association for Storage of Energy (EASE). JANUARY ENTSO-E CONSULTS ON NETWORK CODE FOR GRID CONNECTION ENTSO-E, the European Network of Transmission System Operators for Electricity, launched a public consultation on its draft Network Code for Requirements for Grid Connection, which will soon apply to generation units in Europe. The document is one of the cornerstones for the operation of the integrated European electricity market. 3 FEBRUARY 50HERTZ OBTAINS PERMIT TO BUILD VIESELBACH-ALTENFELD SECTION OF THE NEW THURINGIAN ELECTRICITY BRIDGE 50Hertz began construction work in Thuringia a few weeks after obtaining permission from the regional authorities. This marks another major step in the Thuringian Bridge project, regularly cited as among the most important in Germany and declared of European interest by the European Commission. The project is vital to enable the transmission of large volumes of renewable energy from north-eastern Germany to centres of consumption in the southwest and to increase security of supply in Bavaria when the next nuclear power stations will be closed in southern Germany.

12 ELIA GROUP 2012 EXECUTIVE REPORT 9 23 FEBRUARY ELIA LAUNCHES WIND CAPACITY FORECASTING AND MEASUREMENT TOOL Energy generated from renewable sources and the variable nature of power generation by onshore and offshore wind farms are revolutionising the electricity market. To facilitate balance management on the Belgian grid and involve market players, Elia introduced an IT tool on its website allowing users to view wind capacity forecasts up to seven days ahead and compare them with generation estimates in real time on a quarter-hourly basis. 24 FEBRUARY AGREEMENT WITH THE GERMAN REGULATOR ON INVESTMENT BUDGETS TransnetBW and TenneT TSO successfully completed negotiations on the approval of investment budgets with the federal regulator BNetzA. The agreement marks a major step towards implementing the transmission grid investments needed to develop renewable energy. FEBRUARY ELECTRICITY CONSUMPTION SOARS DUE TO EXTREME COLD Electricity consumption reached record highs in some areas, including France, due to the extremely cold weather. Mass export of power from the Central West Europe region to France caused voltage problems in northern France and generated substantial north-south flows. Coreso-coordinated actions by several neighbouring system operators, including Elia, enabled this unusual situation to be dealt with and ensured that security of supply was maintained throughout the affected area. 1 MARCH ENTSO-E LAUNCHES PUBLIC CONSULTATION ON ITS TEN-YEAR DEVELOPMENT PLAN ENTSO-E, chaired by Daniel Dobbeni, launched a public consultation on its Ten-Year Network Development Plan. The plan identifies the significant investments in transmission system infrastructure which are required to meet the ambitious targets set by EU energy policy. 5 MARCH FREAK WINTER WEATHER IN BELGIUM On 5 March, the Belgian transmission system was hit by freak winter weather. An unusual combination of meteorological conditions damaged a number of high-voltage pylons, cutting off power for several hours in the Tournai area. Elia very quickly decided to deploy its new backup line to supply emergency power in the event of an incident occurring during work to restore the grid. SUPERGRID 2012 CONFERENCE BRINGS TOGETHER ENVIRONMENT AND GRID DEVELOPMENT Representatives of Friends of the Supergrid, Medgrid, the Renewables Grid Initiative and the Desertec Industrial Initiative as well as the Climate Parliament called for action to deliver a European Supergrid. Belgian Minister for the North Sea Johan Vande Lanotte said: Over the last 30 years Europe has built a highways network. Our priority now must be to do the same for our electricity grids.

13 10 ELIA GROUP 2012 EXECUTIVE REPORT Elia System Operator s inclusion in the BEL20 index makes the transmission system operator more visible to the financial markets on which it relies to implement its investments. 13 MARCH INFORMATION AND DIALOGUE CAMPAIGN FOR THE UCKERMARK LINE PROJECT 50Hertz launched a series of regional consultations, a mobile information office and a hotline, reflecting its ongoing commitment to improve information, understanding and dialogue with stakeholders. A roadshow was organised in the Uckermark region, north of Berlin, to meet citizens and regional and local associations in 12 municipalities. Information about the approval procedure, technical issues, health and the environment, as well as compensation measures for the construction of new lines, were at the heart of the discussions. 19 MARCH ELIA JOINS BEL20 Barely 11 years after splitting from Electrabel and less than seven years after its public listing in June 2005, Elia joined the BEL20, the benchmark stock market index of Euronext Brussels. The move raised the company s profile and improved its accessibility to investors. 18 APRIL NEW ELIA WEBSITE Elia launched its new website be aimed at providing all stakeholders in its activities with accurate and transparent information in an attractive and informative way. A Group website ( and a revamped jobsite ( also went online. 20 APRIL 50HERTZ PUBLISHES FLOW DATA ON INTERACTIVE GRID MAP 50Hertz began publishing load flow data for all of its lines on the internet, allowing anyone who wishes to do so to track the actual use of grid transmission capacity at any period in the past. Discovering in a simple and intuitive way how heavily used certain sections of the grid are will give authorities, associations and citizens a better understanding of the urgent need for grid expansion. The initiative was welcomed by politicians, associations and academics in Germany and across Europe. APRIL JACQUES VANDERMEIREN ELECTED PRESIDENT OF BUSINESS & SOCIETY BELGIUM Business & Society Belgium is a network of Belgian companies committed to corporate social responsibility (CSR). The organisation provides support and tools to companies wishing to integrate CSR into their strategy and operations. Jacques Vandermeiren became president of the organisation in MAY FIRST GERMAN DEVELOPMENT PLAN UNVEILED FOR PUBLIC CONSULTATION The first German ten-year development plan, drawn up by the four system operators Amprion, TransnetBW, TenneT TSO and 50Hertz, was unveiled to the press on 30 May, marking the start of a lengthy public consultation phase. The aim of the plan is to implement Germany s energy transition, which will require the construction of some 3,800 km of new connections and the upgrading of 4,000 km of existing connections over the next 10 years to transmit the renewable energy largely generated in the north of Germany to the centres of consumption in the south. 30 MAY ELIA FUND CELEBRATES 10 TH BIRTHDAY Since 2002, the Elia Fund has been supporting projects that make discovery and wonder more accessible to all. Over the past decade, 233 projects have assumed concrete form thanks to support from Elia and the King Baudouin Foundation. To celebrate this 10th anniversary, the Elia Fund organised five thematic workshops attended by over 100 people working for associations that aim to give people with reduced mobility the broadest possible access to leisure activities.

14 ELIA GROUP 2012 EXECUTIVE REPORT 11 Jacques Vandermeiren took over as Chairman of the Management Committee and CEO of Elia on 1 July. He had already addressed the General Meeting of Shareholders in May. JUNE ATLANTIC WIND CONNECTION REACHES MILESTONE FOLLOWING DECLARATION OF NO COMPETITIVE INTEREST Following a detailed study and public consultation, the United States Department of the Interior confirmed that there was no overlap between Atlantic Wind Connection and other potential rival projects in the coastal areas proposed for the construction of an offshore transmission system off the US Atlantic coast. This marks a major milestone in the project s development. JUNE DANIEL DOBBENI APPOINTED CHAIRMAN OF CORESO The Coreso Board of Directors appointed Daniel Dobbeni and Chris Train (National Grid) as chairman and vicechairman of the organisation. Coreso is the independent regional technical coordination centre shared by five European transmission system operators and works to optimise security of supply in western Europe. JUNE CONCRETE MEASURES TO IM- PROVE FLEXIBILITY OF GENERATING FACILITIES AND CONSUMPTION To cope, during the summer, with relatively inflexible domestic generation (nuclear, cogeneration) accompanied by substantial generation from renewable sources (wind, solar) at a time of low demand, Elia took a series of measures in conjunction with market players and the regulator CREG. These measures included increasing downward regulation bids, an additional price signal and operational measures on a day-ahead and real-time basis aimed at reacting as early as possible to the existence of a major imbalance. 27 JUNE BRANDENBURG MINISTER FOR ECONOMIC AFFAIRS VISITS 50HERTZ The Minister of Economic Affairs for the German state of Brandenburg, Ralf Christoffers, visited the 380 kv underground cable transmission system in Berlin. At an information and consultation session at Angermünde in March, he announced his intention to look in detail at 380 kv technology in order to better assess its advantages and disadvantages. 1 JULY JACQUES VANDERMEIREN TAKES OVER FROM DANIEL DOBBENI Daniel Dobbeni handed over to Jacques Vandermeiren as Chairman of the Management Committee and CEO of Elia. Catherine Vandenborre joined the Management Committee as Chief Corporate Officer while Chief Financial Officer Jan Gesquière became Vice-Chairman of the Management Committee. JULY BELGIAN EQUIPMENT PLAN The Secretary of State for Energy presented his 2012 equipment plan based on the proposal drawn up by FPS Energy aimed at assessing the balance between generation and consumption between 2015 and Elia carried out many risk analyses at the government s request. The plan provides for the closure of Doel 1 and 2 by 2015 and extends the lifetime of Tihange 1 by 10 years. It also provides for the continued operation of thermal generation units earmarked for closure by their owners.

15 12 ELIA GROUP 2012 EXECUTIVE REPORT Electricity transmission grids are exposed to all kinds of conditions, most notably bad weather. In some cases emergency solutions have to be deployed, as here at Bad Sulza. JULY PROJECTING IDEAS, DELIVERING SOLUTIONS : VISION AND PRIORITIES FOR INNOVATION AND KNOWLEDGE The Elia Group is investing in research and development activities to address the many challenges that we will face in the coming years. The Group s priorities for innovation and knowledge are based on a shared vision of its two system operators, Elia in Belgium and 50Hertz in Germany. The aim is to draw up guidelines to help the Group prioritise its efforts and maintain its leadership position in the electricity industry. JULY REFORM OF THE FLEMISH SUP- PORT MECHANISM FOR GREEN ELECTRICITY The reform of the Flemish support mechanism for green electricity aims to give each green electricity generation technology the financial support needed to make it economically viable during the equipment payback period. The number of certificates will differ depending on the amount of support required. The new system will come into force on 1 January 2013, except in the case of solar panels for which the current level of support was deemed too high: it was reduced from 210 to 90 from 1 August JULY REGIONAL LAND-USE PLAN FINALISED FOR STEVIN PROJECT Following the advisory opinion of the Council of State, the Flemish government finalised the land-use plan (Gewestelijk Uitvoeringsplan (GRUP)) Optimisation of the high-voltage grid in Flanders required for the Stevin project to extend the 380 kv network to the Belgian coast. JULY AGREEMENT IN PRINCIPLE FOR BRABO PROJECT The Flemish government gave its agreement in principle to the plans put forward by Elia for the Brabo project to expand the very-high-voltage network in and around the port of Antwerp. Elia must carry out an environmental impact assessment known as the plan-mer, on the basis of which the relevant minister will prepare a regional land-use plan (GRUP). 29 AND 30 AUGUST 50HERTZ SECURITY CONFERENCE: SYSTEM OPERATION IN A NEW ERA Over 150 representatives from electricity generators, transmission and distribution system operators as well as universities, associations, authorities and consulting companies gathered at the fifth security conference held by 50Hertz in Hamburg to discuss security of supply in Germany and Europe against the backdrop of the radical changes in the electricity system prompted by the Energiewende (energy transition) in Germany. AUGUST SECURITY OF SUPPLY In a context of uncertainty regarding the future availability of the Doel 3 and/or Tihange 2 nuclear plants, Elia performed calculations and simulations regarding security of supply for winter and subsequent winters, based on various new assumptions concerning the availability of generating facilities. These figures and simulations were passed on to the Minister for Energy, who is responsible for Belgium s security of supply. Although the Elia grid allows up to 3,500 MW of power to be imported, Elia nonetheless stresses the role of Belgian market players whose responsibility it is to find the counterparties needed to supply their customers with electricity outside Belgium, if necessary. 7 SEPTEMBER 50HERTZ SUPPORTS ENVIRONMEN- TAL COMMITMENT 50Hertz is strongly committed to the environment and to a sustainable energy system. That is why it was Gold Partner and sponsor in the Energy category of the Clean Tech Media Award 2012, a competition for innovative technological projects supporting sustainable and environmentally friendly development.

16 ELIA GROUP 2012 EXECUTIVE REPORT 13 Our teams carry out highly realistic simulation exercises on a regular basis to ensure that they are always ready to cope with emergencies. 26 SEPTEMBER NWE PRICE COUPLING STAKEHOLDER FORUM On 26 September, the power exchanges and transmission system operators of the North-West Europe region organised the first forum for all stakeholders affected by market coupling in that region. Flow-based market coupling is scheduled to launch at the end of SEPTEMBER STUDY ON DECENTRALISED GENERA- TION CAPACITY IN FLANDERSE Elia joined forces with VITO and Flemish distribution system operators to carry out a study into decentralised generation capacity in Flanders over the period The study, which aims to provide a better overview of future grid needs, will enable the necessary investments to be made at reduced cost and will help to meet the targets set out in the Pact 2020, which is the basis for the ViA Flanders in Action initiative. 17 SEPTEMBER APX-ENDEX ANNOUNCES INTENTION TO SPLIT ACTIVITIES INTO GAS AND POWER ENTITIES The APX-ENDEX energy exchange, which operates in the Netherlands, Belgium and the UK, announced its intention to rearrange its activities into two large entities: power and gas. The new power entity will be jointly owned by Elia (29.16%) and its Dutch counterpart TenneT (70.84%). Elia currently holds a 20% stake in APX-ENDEX. SEPTEMBER ELIA GROUP PARTICIPATES IN INNOVATION PROJECTS Our colleagues at 50Hertz and 17 partners (including distribution system operators, research institutes, IT and components manufacturers and renewable energy promoters) are preparing to close down the RegModHarz (Regenerative Modellregion Harz) project in early The project, which will have lasted for over four years, used a virtual power plant to prove that it is possible to power an entire Landkreis (German administrative district - in this case, the Harz) using only renewable energy. 1 OCTOBER CHANGE TO PUBLIC SERVICE OBLIGATION TARIFF FOR FINANC- ING RENEWABLE ENERGY SUPPORT MEASURES IN WALLONIA As the local transmission system operator in Wallonia, Elia is required to buy at a minimum unit price of 65 the green certificates of Walloon facilities that generate renewable energy. Following a significant increase in the number of green certificates received, Elia applied to CREG to change the public service obligation tariff for financing renewable energy support measures in Wallonia. The tariff increased from /MWh to /MWh from 1 October OCTOBER LOCAL TORNADO DAMAGES 50HERTZ HIGH-VOLTAGE LINE Several pylons on the 380 kv overhead line between Pulgar and Vieselbach were severely damaged at Bad Sulza, near the Saxony-Anhalt/Thuringia border. Four of them were destroyed while others suffered minor damage. Safety measures were taken immediately to prevent further risks. Thanks to 50Hertz s quick response, the situation was kept under control and security of supply was not affected. A temporary line was erected within a week. 12 OCTOBER CRISIS SIMULATION Elia regularly organises crisis simulation exercises to assess teams ability to cope with difficult situations and to enhance our preparedness where necessary. The 2012 exercise involved the French and Dutch transmission system operators RTE and TenneT, the regional technical coordination centre Coreso and the Interior Ministry s Federal Crisis Centre.

17 14 ELIA GROUP 2012 EXECUTIVE REPORT On 5 September, Elia signed a memorandum of understanding with the Fédération Wallonne de l Agriculture, Boerenbond and Algemeen Boerensyndicaat agricultural unions, aimed at facilitating the implementation of numerous grid upgrade projects, many of which affect agricultural areas (left). 50Hertz organised a dialogue day with its suppliers (right). 15 OCTOBER INCREASE IN ENERGY TRANSITION SURCHARGE IN GERMANY Germany s four transmission system operators, including 50Hertz, announced the amount of the 2013 surcharge to finance the policy of support for renewable energy (Erneuerbare-Energien- Gesetz (EEG)). The total estimated amount is billion based on forecast volumes. For household customers, the surcharge will be 52.77/ MWh, an increase of 47% compared with OCTOBER FOURTH 50HERTZ EEG CONFERENCE FOCUSES ON POLITICAL DISCUS- SIONS SURROUNDING THE FUTURE GERMAN RENEWABLE ENERGY ACT 250 participants gathered in Berlin to attend the conference on financing renewable energy held by 50Hertz to discuss recent trends and challenges against the backdrop of the political debate on the legal changes in the renewables support scheme. The themes discussed included the market integration of renewable energies, direct marketing of electricity generated from renewable sources and the EEG surcharge, as well as issues regarding the payment of compensation in case of feed-in obligations management measures and the implementation of the system stability ordinance. 20 OCTOBER PATRICK DE LEENER APPOINTED CEO OF CORESO Coreso s Board of Directors appointed Patrick De Leener as CEO from 1 December Among other things, Coreso provides grid security analyses and forecasts every 15 minutes to prevent major incidents and helps develop coordinated solutions to deal with adverse events in an area covering 43% of the EU population. Other challenges facing Coreso as a support body for national system operators are the integration of renewable energies and the development of the European electricity market. 25 OCTOBER INNOVATION PARTNERS DAY The Innovation & Knowledge Management Division brought together over 100 business leaders, regulators and captains of industry at its first Innovation Partners Day. The objective was to discuss with our partners our vision of innovation in relation to power grids. 25 OCTOBER CAPITAL INCREASE RESERVED FOR ELIA GROUP EMPLOYEES IN BELGIUM The extraordinary general meeting of shareholders of Elia System Operator approved the capital increase reserved for Elia staff in Belgium. The increase would take place in two stages, in November 2012 and January 2013, for a total maximum amount of 6 million. It was oversubscribed. NOVEMBER NEW VISION FOR THE ELIA GROUP The Elia Group set out a new vision charting its course for the coming years. It will be reflected mainly in our priorities as regards the development of our activities for the benefit of all stakeholders as well as in our expectations of all Elia Group employees. The new vision will be accompanied by a branding campaign in spring 2013, focusing on innovation. ELIA DRIVING FORCE BEHIND ESTABLISHMENT OF MUTUAL ASSISTANCE IN VLPGO A memorandum of understanding on mutual assistance within VLPGO (now renamed GO 15. Reliable and Sustainable Power Grids) was signed by 12 of the world s 16 largest TSOs, with another three confirming their intention to sign after completing their internal approval process. Elia s representatives in VLPGO were behind the initiative, which is being translated into a similar European-level initiative within ENTSO-E. INSTALLING OPTICAL FIBRES AROUND GROUND WIRES: INNOVATIVE TECHNOLOGY Elia launched a pilot project to install optical fibres around ground wires using a remote-controlled robot. Used for the first time in Belgium, this solution aims to speed up the process of installing the communication infrastructure needed to ensure the smooth functioning and operation of the grid while also cutting costs.

18 ELIA GROUP 2012 EXECUTIVE REPORT 15 Germany s Federal Environment Minister Peter Altmaier on a visit to the 50Hertz Transmission Control Centre (left). Jacques Vandermeiren was among a delegation of Belgian CEOs promoting Belgium at the New York Stock Exchange (right). 16 NOVEMBER CUSTOMER DAY More than 200 representatives of industrial customers, grid users, ARPs and distribution system operators took part in the 2012 Customer Day. The main subject of discussion was security of supply. The Secretary of State for Energy, Melchior Wathelet, accepted Elia s invitation and addressed this select gathering. 19 NOVEMBER ELIA ON WALL STREET A delegation of top Belgian bosses, among them Jacques Vandermeiren, rang the opening bell at the New York Stock Exchange. The delegation was in the USA to promote Belgium to American investors. 20 NOVEMBER 50HERTZ SUCCESSFULLY REPELS CYBER ATTACK 50Hertz was hit by an international cyber attack waged via a large number of interconnected computers and targeting its internet platforms and domains. 50Hertz overcame the attack within five days by erecting a protective shield. Security of supply was not affected at any time because the IT tools used for system operation are isolated from the web. Improvements were made to the Elia Group s IT security concept in response to the event. 28 NOVEMBER IMPORTANCE AND POTENTIAL OF BALTIC UNDERSCORED AT PARLIA- MENTARY EVENT At the parliamentary evening organised in Berlin by the state of Mecklenburg- Western Pomerania and 50Hertz, and attended by some 140 guests including a number of investors, an important signal was given regarding investments in offshore projects in the Baltic Sea. Both investors and project initiators unveiled their plans. The Federal Environment Minister Peter Altmaier and the Minister- President of Mecklenburg-Western Pomerania Erwin Sellering stressed the importance of solid offshore development to support the energy revolution. 30 NOVEMBER WINTER OUTLOOK ENTSO-E s Winter Outlook indicated that security of supply would be ensured in winter under normal circumstances but warned that Europe could face a moderate risk of power failure in case of prolonged and severe winter conditions across the entire continent, coupled with the lack of solar and wind power generation. This was especially relevant since Belgium would be structurally dependent on imports for the entire winter period. While Elia s upgrades to its interconnections with neighbouring countries enable Belgian market players to source electricity outside Belgium (up to 3,500 MW), Elia emphasises that suppliers and access responsible parties (ARPs) are responsible for purchasing (including abroad, where applicable) the energy needed to supply their customers. Elia works with the authorities with respect to its mission to ensure balance between generation and consumption in the Belgian control area. 3 DECEMBER SUPPLY/DEMAND BALANCE INDICATORE Elia added an indicator to the homepage of its website showing the forecast balance between electricity supply and demand in Belgium. Using a traffic-light system of green, orange and red, it shows the situation today and tomorrow as well as a forecast for the following five days. A mini website explaining simply how the grid works and the preparations that are made for winter was also put online to help people understand the situation at the onset of winter. 3 DECEMBER MORE COMMERCIAL CAPACITY ON THE NORTHERN BORDER Elia and its Dutch counterpart TenneT agreed to increase transmission capacity between the Netherlands and Belgium. The increase will apply to both daily capacity and intraday capacity and will total a maximum of 300 MW. Accordingly, the Net Transfer Capacity (NTC) value at the Dutch-Belgian border will increase from 1,401 MW to a maximum of 1,701 MW, provided grid safety allows. The NTC value determines the bilateral commercial transactions possible on this border.

19 16 ELIA GROUP 2012 EXECUTIVE REPORT The Northern Line between Schwerin and Hamburg was inaugurated by German Chancellor Angela Merkel, illustrating the importance of the infrastructure for continuity of supply in Hamburg. 4 DECEMBER 50HERTZ REINFORCES POWER GRID TO MANAGE CONGESTIONS IN THURINGIA 50Hertz put the first high-temperature conductor of the ACSS type into operation in Germany. Federal Minister of Economics Philipp Rösler inaugurated the innovative facility on the 50Hertz grid. Converting to a high-performance conductor will increase the transmission capacity on this important but congested north-east to south-west connection from 1,800 to 2,100 MW, which will significantly reduce redispatching costs. 5 DECEMBER ELIA GROUP SUPPORTS THE DEVEL- OPMENT OF ENVIRONMENTALLY AND PEOPLE-FRIENDLY GRIDS The Renewables Grid Initiative (RGI) is a coalition of environmental organisations and power transmission system operators who have joined forces to promote the development of transmission grids and the efficient integration of energy generated from renewable sources. A t the 2 nd European Grid Conference in Brussels, jointly organised by the RGI and Smart Energy for Europe Platform (SEFEP), its members presented their report on best practices in Europe and a declaration on transparency and public participation in the development of future grids to the European Commissioners for Energy and the Environment. 18 DECEMBER NORTHERN LINE INAUGURATED BY CHANCELLOR ANGELA MERKEL 50Hertz brought the last section of the 380 kv Northern Line between Schwerin and Hamburg into operation in the presence of some distinguished guests. The line was inaugurated by German Chancellor Angela Merkel, Minister-President of Mecklenburg-Western Pomerania Erwin Sellering, Chairman of the Board Daniel Dobbeni and 50Hertz CEO Boris Schucht. It marks the completion of the long-planned fourth German interconnector, ensuring security of supply for the Hamburg region in winter DECEMBER AGREEMENT BETWEEN 50HERTZ AND POLISH TRANSMISSION SYS- TEM OPERATOR PSE OPERATOR ON INSTALLATION OF PHASE SHIFT TRANSFORMERS 50Hertz and its Polish counterpart reached an agreement on improved coordination to reduce unplanned energy flows at the German-Polish border. The immediate introduction of a coordinated method for managing flows followed by the installation of phase shift transformers by 2016 will enable flows to be controlled more effectively, resulting in better system security, better integration of renewable energy and a stronger European electricity market.

20 ELIA GROUP 2012 EXECUTIVE REPORT 17 Prospects and challenges 2013 The Elia Group aims to meet the challenges of the future by implementing a series of initiatives on system operation, market integration, new business development and the acquisition of new expertise. Major challenges Maintaining the same high quality of supply in Belgium and Germany while developing its grids in order to give consumers access to a diverse energy mix at the best possible price these are the challenges faced by the Group. New Group vision In response to the radical transformation taking place in the energy industry, the Elia Group has redefined its vision for the years ahead. It will lead the way in the current energy revolution and contribute to the development of diversified, sustainable and reliable power systems, spanning land and sea, with new possibilities. This commitment will be put into practice in 2013 and subsequent years by: focusing on three key areas: facilitating the integration of renewable energy sources, continuing the development of the integrated European electricity market and contributing to the security of electricity supply; anticipating and responding to the current and future needs of the community by playing an active, innovative role in the ongoing energy revolution; contributing to the development of the integrated electricity system at European level, both offshore and onshore; guaranteeing sustainable and profitable growth for our shareholders by cultivating our activities mainly in Europe. Offshore grid in the North Sea and the Baltic Elia s sphere of activity has been expanded to include the offshore grid in Belgium s territorial waters in the North Sea. The proposed design for creating an offshore grid reliably and at the lowest cost was accepted by the Minister for Energy in It will offer similar advantages to the onshore grid in terms of reliability and will be more cost-effective than creating individual connections for each wind farm. Successfully implementing this project in partnership with the promoters of wind farms off the Belgian coast and the

21 18 ELIA GROUP 2012 EXECUTIVE REPORT From its inception, the Elia Group has played a leading role in the construction of a genuine integrated electricity market at European level. The expertise that it acquires in its international operations is put to use in the construction of future grids. authorities will present Elia with many technical challenges. The creation of a suitable regulatory and legal framework for financing those challenges will be crucial to the success of this major Belgian and European scheme. In the Baltic Sea, 50Hertz, which is managing the connection of the first offshore wind farm, Baltic 1, and building a connection for the second, Baltic 2, has also begun developing the first German offshore grid plan with Denmark, combining alternating and direct current lines, as part of the ten-year development plan for the German grid. Continued grid development: permits To fulfil its mission and, in particular, connect users to its grids at their request, the Elia Group will be making major investments in infrastructure. Timely completion of these investments for the benefit of the community depends on obtaining the necessary construction permits. Establishing a sustainable framework for issuing such permits while respecting the obligations of democratic consultation is a major challenge for the authorities. The Elia Group, both in Belgium and Germany, is actively engaged on this issue within associations of system operators and environmental conservation groups. Maintaining grid security: a daily challenge The energy landscape is undergoing radical change, with increasing energy exchanges at European level and a major expansion of power generated from renewable sources. The variability of renewable energy sources requires greater flexibility of generating facilities and the introduction of tools allowing system operators to perform their role in managing real-time balance between supply and demand. The actual or announced closures of various power plants and delays to investment in new conventional power stations are only compounding the problem, as highlighted by the tense situation on Europe s grids in winter and Belgium s structural dependence on imports throughout the winter period. Against this backdrop, the Elia Group is particularly vigilant about performing its mission with respect for the roles and responsibilities of all market players and the authorities. Implementation of a structured approach to sustainable development Building on initiatives already undertaken in partnership with, among others, Business & Society, the benchmark organisation for corporate social responsibility (CSR) in Belgium, and planned actions to reduce our carbon footprint, in late 2012 Elia launched a structured approach aimed at clarifying its strategic main lines in relation to CSR based on ISO methodology. In 2013, this approach will be used to define priorities for action on sustainable development involving all areas of our business. Continued cooperation with 60% subsidiary 50Hertz The collaboration between colleagues at Elia in Belgium and 50Hertz in Germany is intensifying. This was apparent in 2012 with the introduction of a Groupwide vision, which all staff are committed to implementing, and the launch of a new website The search for synergies is continuing with financial partner IFM, with due respect for cultural diversity. This has resulted in the creation of Group-level departments Information & Communication Technology, Innovation & Knowledge Management, Business Development, and European Activities & Participations. In so doing, our objective is clear: to better fulfil our duties to the communities we serve by working together as a group.

22 ELIA GROUP 2012 EXECUTIVE REPORT 19 50Hertz connected the Baltic 1 platform and is working on the connection of Baltic 2. The expertise of the Group is developed in an international perspective thanks to the AWC project. 50Hertz has developed expertise in the connection of wind turbine platforms in the Baltic Sea. This can be exploited on international projects such as AWC. Integration of the European electricity market Elia was instrumental in the first trilateral market coupling back in The Group aims to keep up the leading role that it has played hitherto in the creation of a fully-fledged Europe-wide electricity market. Implementation of the flow-based mechanism within the North-West regional market and our active contribution to the development of European network codes are just two examples of this ongoing commitment. Access to a diverse and secure energy mix Giving consumers in Belgium and Germany access to a broad and diverse energy mix contributes to the smooth functioning of a competitive market and therefore to business competitiveness and a better deal for consumers and also to security of supply. To this end, the Elia Group is hard at work on a raft of major projects: connecting wind farms, both onshore and offshore in the North Sea and Baltic, new interconnectors between Belgium and the UK or Belgium and Germany, increasing commercial capacity at Belgium s borders, developing interconnectors with Poland and strengthening north-south and east-west routes within Germany. Atlantic Wind Connection: developing expertise internationally to better serve our communities in Europe In 2011, the Elia Group, via its subsidiary Eurogrid International, acquired a shareholding in the Atlantic Wind Connection project to develop the first high-voltage direct current offshore grid off the East Coast of the United States. The project, which is backed by some big names Google, Marubeni, BregalEnergy (formerly Good Energies) and Atlantic Grid Development passed a major milestone in The goal for 2013 is to get the project into the portfolio of American system operator PJM. The expertise developed in this groundbreaking project is already being put to use in the development of offshore grids in the North Sea and Baltic.

23 20 ELIA GROUP 2012 EXECUTIVE REPORT The Elia share in 2012 Overall, 2012 was a volatile but nonetheless excellent year on the stock market, with markets recovering significantly in the second half. It was also an excellent year for the Elia share, which saw its share price rise by 14%. 45% The big contribution made by Germany to the Group s IFRS results (45% in 2012) shows that the Group s risk profile has been significantly diversified. The publication of the 2011 results and the official announcement of the Elia share s entry into the BEL20 index led to a significant increase in the share price. This was partially reversed in the following months due to the persistence of the European debt crisis. The European Central Bank reacted in September by launching a major bond buyback programme, which revived investor appetite and boosted the markets. As a result, the Elia share rose substantially at the end of the year, bolstered by positive developments in the German regulatory environment and despite a sharp drop in the Belgian 10-year bond rate (a key factor in income from Belgian regulated activity). Belgium is considered a reliable and healthy economy by the financial markets. This resulted in a record low long-term bond rate of 2.09% on 31 December. The big contribution made by Germany to the Group s IFRS results (45% in 2012) shows that the Group s risk profile has been significantly diversified. Accordingly, the closing price at the end of 2012 was 34.20, compared with at the end of 2011, an increase of 14.27%. If the dividend of 1.47 is taken into account, the share price rose 9,36% during the year. The lowest price in 2012 was on 26 January 2012 and the highest price was reached on 31 December at However, overall in 2012, the Elia share underperformed the BEL20 index by 4.56%. The BEL20 rose by 18.83%. The liquidity of the share also fell by 27.22% (from 37,972 shares per day on average in 2011 to 27,637 in 2012).

24 ELIA GROUP 2012 EXECUTIVE REPORT 21 PRICE AND EXCHANGE VOLUME TRENDS IN 2012 Price Volume Price ( ) Volume ( 000) JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC 0 ELIA SHARE TRENDS COMPARED WITH THE BEL20 INDEX IN Elia BEL JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC ELIA SHARE TREND COMPARED WITH ITS PEERS IN EUROPE IN 2012 Elia Tema Red Electrica National Grid DJ Utility index JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC

25 22 ELIA GROUP 2012 EXECUTIVE REPORT It was an excellent year for the Elia share, which saw its share price rise by 14%. Elia s results were in line with those of its listed counterparts, the UK system operator National Grid (up 12.48%), Spain s Red Electrica (up 12.81%) and Italy s Terna (up 16.13%). By way of comparison, the electricity sector as a whole remained largely unchanged (up 0.55%). With 60,555,809 shares issued, the market capitalisation represented 2,071,008,668 at the end of December. In 2012, a total of 7,275,610 Elia shares were traded on the Euronext Brussels market, i.e. 26.8% of the freely tradable shares. The table below gives an overview of the monthly statistics for the Elia share on Euronext Brussels in Month Volume Closing price Price Freefloat turnover Market capitalisation (day average) Highest Lowest Rate (%) in m January 22, ,755 February 19, ,818 March 43, ,916 April 37, ,951 May 30, ,844 June 24, ,961 July 18, ,951 August 17, ,875 September 24, ,922 October 28, ,903 November 37, ,900 December 39, , , ,071

26 ELIA GROUP 2012 EXECUTIVE REPORT 23 The Elia share is certified by several institutions for corporate social responsibility. Elia share on the market Market Index Ticker Euronext Brussels BEL20 ELI ISIN BE Bloomberg code ELI BB Reuters code ELI BR Appointment of two liquidity providers for the Elia share In late 2009 Elia concluded a liquidity provider contract with KBC Securities and Bank Degroof, both of which are officially recognised by NYSE Euronext. These two financial institutions have been continually present in the order book for the Elia share since 1 December 2009 and are involved in both sales and purchases. The Elia share and its codess SHARE INDEX On 31 December 2012, Elia s share was included in the BEL20 index. Elia s weight on that date was 1.49%, ranking it 15th in the index. A sustainable and socially responsible company The Elia share is also included in the Kempen SNS SRI Universe and the ASN Bank investment universe. Elia was also certified by ECPI, a ratings company specialising in corporate social responsibility (ESG (Environmental, Social & Governance) research) and obtained the ECPI Ethical EMU Equity label. Elia was rated by Vigeo, an extrafinancial agency which analyses every company in six areas: business behaviour; human rights; environment; community involvement; corporate governance; human resources.

27 24 ELIA GROUP 2012 EXECUTIVE REPORT In November 2012, the CEOs of leading Belgian companies, including Jacques Vandermeiren, promoted the Belgian economy at the New York Stock Exchange. SHAREHOLDER STRUCTURE Shares % Shares % Voting rights Publi -T 27,383, ,22 Publipart 1,526, Arco Group 3,786, Other Free float 27,859, Total 60,555, Transparency regulations and disclosure of interests Under Belgian legislation on transparency, shareholdings of at least 5% (or a multiple of 5%) must be reported to the FSMA and to the company in question. No transparency reports were sent to Elia in Shareholder structure The shareholder structure of Elia System Operator SA as at 31 December 2012 is given below. Dividend On 28 February 2013, the Elia Board of Directors decided to propose to the general meeting of shareholders of 21 May 2013, in accordance with the dividend policy and subject to approval of the profit appropriation by the annual general meeting of shareholders, a normal dividend of million or 1.47 per share (gross). This gives a net result of 1.10 per. The following paying agents will pay out dividends to shareholders: BNP Paribas Fortis, ING Belgium, KBC-Bank/CBC Banque and Belfius Bank. Dividend payouts for shares held in a stock account will be settled automatically by the bank or stockbroker. Elia will pay out dividends on registered shares directly to shareholders.

28 ELIA GROUP 2012 EXECUTIVE REPORT 25 Dividend policy Elia is obliged by its articles of association to pay out at least 85% of profit gained, after retaining 5% for the legal reserve. This represents a payout ratio of 57.4 % of recorded profit. Following the introduction of multi-year tariffs, part of the net profit derived from offsetting decommissioning gains in the tariffs must be reserved under equity. Investors For any questions regarding the Elia share, please contact: Elia Investor Relations Department Boulevard de l Empereur Brussels Belgium Tel. : Fax : investor.relations@elia.be Information about the Group (press releases, annual reports, share prices, disclosures, etc.) can be found on the Elia website in three languages (French, Dutch and English). Financial calendar 28 February 2013 (8 a.m.) Publication of the 2012 annual results Early April annual report available on the website 15 May 2013 Interim statement for Q May 2013 General meeting of shareholders Early June 2013 Payment of 2012 dividend 31 August 2013 (8 a.m.) Publication of half-yearly results for November 2013 Interim statement for Q3 2013

29

30 01 Economic report In the face of the challenges posed by the radical transformation of the European energy landscape, the Elia Group is positioning itself as a leader in Europe through the various initiatives it is taking to combine its three core objectives: continuing the integration of European electricity markets, integrating an ever-growing proportion of renewable energy sources and ensuring security of supply in the most cost-effective way for its customers and the wider community.

31 28 ELIA GROUP 2012 ECONOMIC REPORT Melchior Wathelet SECRETARY OF STATE FOR ENERGY Electricity has become an essential commodity for citizens, services and industries. That is why security of supply is so critical for our country. It is with this in mind that I have drawn up a vision for Belgium s electricity policy in the short, medium and long term. The plan that I published in June 2012, and which served as a basis for the federal government s decisions of 4 July 2012, is one of the cornerstones of this vision. In this connection, Elia s professionals provided our specialists with extremely valuable input, particularly in the form of calculations based on their probabilistic method. Jean-François Poncelet GRID OPERATIONS & MAINTENANCE Our grid infrastructure can be big, as with this new 150/36 kv transformer, which was transported to the Basse-Wavre high-voltage substation in November Measuring 9 m long, 4.6 m wide and 6.8 m high, it weighs 89.4 tonnes when empty. It was transported by road in a transport bridge formation rather like a giant spider that can negotiate small roundabouts with ease! This was done at night to minimise disruption to local residents. Loufti Bouchikhi INFRASTRUCTURE PROJECT MANAGEMENT Masses of data about the state of our infrastructure are being relayed to the control centres all the time through fibre-optic cables. We tested a new technique whereby a fibre-optic cable is wound around the earth wire of an existing line. The benefits are reduced cost and faster implementation, but it does require close coordination between ground or pylon teams and the helicopter pilot.

32 ELIA GROUP 2012 ECONOMIC REPORT 29 Tomas Gunst EMERGENCY PLAN As an Emergency Planning Manager, my job is preparing Elia to respond professionally in the event of problems on its grid. In 2012, I had the opportunity to work closely with the authorities a ministerial department, the Federal Public Service Economy and the Federal Crisis Centre, with market players, distribution system operators and many colleagues in the company to finalise the procedure in the event of a power shortage. This meant reconciling differing viewpoints in order to achieve an optimum outcome for the whole community. Gerd Hübner TEAM LEADER TRANSMISSION CONTROL CENTRE Our team at the 50Hertz Transmission Control Centre ensures continuity of electricity supply to over 19 million people. That is quite some responsibility! We have always managed to keep our grid operational, even during European incidents such as that in However, to know how to restore the power supply after a major disruption, we need to practise. At GridLab, the European Training and Research Centre, these practice exercises are undertaken in nearreal conditions. Naturally, our room for manoeuvre is affected by the integration of renewable energies. Erik Henck PERMITTING DEPARTMENT In mid-december, 50Hertz commissioned the Northern Line, also known as the wind bus bar, between the cities of Schwerin and Hamburg, in the presence of our chancellor Angela Merkel. It represents the long-anticipated fourth very-high-voltage connection between the old and new Länder, more than two decades after German reunification. Its commissioning substantially improves security of supply to the greater Hamburg area. The new line also enables better balancing of wind energy flows in the north of Germany. This is a milestone for 50Hertz as well as for me personally, having worked on the project since 2005.

33 30 ELIA GROUP 2012 ECONOMIC REPORT Transmission system operators provide market players with robust and reliable power infrastructure and ensure an instantaneous balance between generation and demand. Grid operation The Elia Group s grids are part of the European continental interconnected system extending from Portugal to Bulgaria and from Norway to Italy. The control centres in Belgium and Germany maintain an instantaneous balance between generation and consumption and manage energy flows on their grids in close collaboration with Coreso and the transmission system operators from neighbouring countries. In recent years, the energy landscape, and grids in particular, have been undergoing a radical transformation. Some are even calling it a revolution. This transformation is having an ever bigger impact on the role of control centres, requiring increasingly sophisticated tools and expertise and more and more coordination across national borders. A number of factors are contributing to this change, including the increase in international exchanges, the variability of flows due to the growing share of energy generated by variable renewable sources and the reduction of generation capacity owing to the gradual withdrawal from nuclear power in most European countries coupled with delays to the construction of new generation units due to permitting difficulties and the uncertainties associated, among other things, with the financial and economic crisis. The situation became even more acute in the summer of 2012, particularly in Belgium, where two nuclear reactors were shut down for technical reasons. Against this backdrop, the Elia Group wishes to restate its own commitment and reiterate the roles and responsibilities of the various players. Transmission system operators provide market players with robust and reliable power infrastructure and ensure an instantaneous balance between generation and demand, 24 hours a day. Suppliers undertake to supply their customers with electricity in accordance with their needs. They can rely on our grids and the services that we provide them in order to transmit this electricity, whether it is generated at home or abroad. To this end, system operators continue to develop their interconnections with neighbouring countries and work with power exchanges and other system operators to create electricity markets that extend well beyond national borders. For example, Belgian market players benefit from an integrated market spanning the Netherlands, France, Germany, Luxembourg and Scandinavia. This means that Belgium has access to a broad range of options for meeting its electricity consumption needs and can procure power abroad when domestic generation falls short. Similarly, thanks to investments in connection upgrades between northern and southern Germany, 50Hertz enables the centres of industrial consumption, most of which are in the south, to access the massive quantities of renewable energy generated in the north. It is working to strengthen interconnections with its eastern neighbours and has also secured electricity supply to the Hamburg region by bringing into service the Northern Line interconnector, which was inaugurated at the end of In fact, security of supply is the shared responsibility of generators, suppliers, distribution system operators, public authorities and, increasingly in the future, consumers (through demand management).

34 ELIA GROUP 2012 ECONOMIC REPORT 31 AVERAGE INTERRUPTION TIME GWh AIT AIT average /5 years 10:00:00 00:55:00 00:50:00 00:45:00 00:40:00 00:35:00 00:30:00 00:25:00 00:20:00 00:15:00 00:10:00 00:05:00 00:00: At the start of winter , Elia undertook a series of specific initiatives aimed at further supporting market players and optimising the balancing of supply and demand on the Belgian grid, despite the unavailability of some of Belgium s nuclear generating facilities: The commercial capacity available at the Belgian-Dutch border was increased by 300 MW, divided between daily capacity and intraday capacity. The total capacity (NTC, Net Transfer Capacity) at the border rose from 1,401 MW to a maximum of 1,701 MW, grid safety permitting. Elia and TenneT strengthened their cross-border assistance contract to ensure greater guarantees about the energy provided and faster provision of that energy when necessary. The volume of energy interruptible by large consumers was increased, in order to optimise demand management. The power available under interruptibility contracts, whereby industrial customers can be asked by Elia to reduce their consumption in order to offset a short-term power shortage, was raised by 70 MW. Elia launched a pilot project with the aggregator REstore which, by bringing together under its platform the demand management capacities of its customers connected to distribution grids in the food, water, pharmaceutical and logistics sectors, will make up to an additional 10 MW of interruptible capacity available to Elia. Continuity of supply Continuity of supply in Belgium remained at a high level in 2012, among the best in Europe. The average number of interruptions on the Elia grid per consumer (Average Interruption Frequency ) was , equivalent to one interruption per customer every 10.2 years. The average duration of interruptions was 26 minutes and 22 seconds. Spread across all customers, the average duration of interruptions was 2 minutes and 35 seconds per customer (Average Interruption Time), equivalent to an average availability of more than %, which is higher than the average for the last decade. Belgium thereby emerges, year on year, as one of the best countries in Europe in terms of quality of electricity supply. It should be noted that incidents caused by exceptional weather conditions (accumulation of sticky snow on conductors, combined with wind) resulted in significant and unforeseeable damage to our facilities in the Tournai area. This led to prolonged outages which are not included in the above figures because the incidents in question are classed as force majeure. 1 The AIF is an indicator that can vary widely from year to year depending on the location and complexity of the incidents and the time at which they occur. Customers may experience very different power interruptions. As the number of incidents entailing interruptions is very limited, the annual overall figures cannot really be considered as valid statistics on which to base conclusions about the observed trends.

35 32 ELIA GROUP 2012 ECONOMIC REPORT LOAD ON THE BELGIAN GRID GWh JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC In Germany, the integration of an even higher proportion of renewable energy was the main challenge for operational security. Special measures, stipulated by German legislation (Article 13 of the Energy Industry Act (EnWG)), had to be applied more frequently by 50Hertz when renewable generation (mainly wind and photovoltaic) was particularly substantial. No interruption to electricity supply as the result of a transmission system incident was recorded in the 50Hertz region in Consumption Electricity consumption as recorded on transmission systems is a good indicator of economic life. It has been scrutinised very closely since the start of the economic crisis in October 2008, not only by the Elia Group but also by external observers looking for signs of an economic recovery in Europe. However, whereas in the past the load recorded on the Elia grid was a fairly accurate reflection of electricity consumption in Belgium, this is no long the case owing to the growth in decentralised generation injected into and consumed via distribution systems (mainly onshore wind and photovoltaic). Consequently, from now on Elia will provide figures for the load on its grid. This load is divided into two categories: consumption by industrial customers directly connected to the Elia grid (i.e. their offtake plus their local generation), and offtake by distribution system operators (DSOs), plus the energy generated within their grids. DSOs distribute electricity to customers connected to their grids (industries, businesses, organisations and residential customers). Grid load Load on the Elia grid fell by 2.0%, from 83.4 TWh in 2011 to 81.7 TWh in On an annual basis, this load reached its highest value in 2005 (89.5 TWh). Overall, in 2012, consumption by industrial customers directly connected to the Elia grid fell by 1.8% and consumption by distribution system operators fell by 1.9% compared with Load peaks The maximum load on the Elia grid was 13,362 MW, recorded between 6.45 p.m. and 7 p.m. on 12 February This is 4.8% lower than the all-time record, set on 17 December 2007 (14,033 MW) but 1.2% higher than the maximum value recorded in 2011 (13,208 MW on 11 January 2011). The lowest load level (5,845 MW) was recorded between 2.30 p.m. and 2.45 p.m. on 22 July This annual low was 6.2% lower than the minimum value in 2011 (6,232 MW on 24 July). NB: this is the first time that the minimum load has occurred during the day rather than at night. In Germany, the maximum vertical grid load in the 50Hertz control area was 10.1 GW, recorded at 8 p.m. on 17 September 2012, compared with 10.2 GW at 8 p.m. on 29 September The maximum load in the 50Hertz control area was 15 GW, recorded on 6 February 2012, with the minimum load of 3 GW being recorded on 15 December.

36 ELIA GROUP 2012 ECONOMIC REPORT 33 IMPORTS AND EXPORTS ELIA GROUP (per month) Elia Transmission (GWh) (GWh) (GWh) Change (%) Change (%) France import export 7,453 2,341 7,221 2,330 3,167 5, Netherlands import export 8,010 3,692 4,514 7,004 7,383 5, Luxembourg import export 1, ,532 1,318 1,846 1, Total import export 16,849 6,911 13,267 10,652 12,395 11, Balance exp-imp exp+imp -9,937 23,760-2,615 23, , , Hertz Transmission Poland import export 172 6, , , Czech Republic import export 819 2,603 1,705 1,850 2, Denmark import export 3, ,087 1, , TenneT GmbH import export 11,340 29,386 12,113 26,180 14,067 20, Imports and exports In the case of Belgium, physical imports and exports (measured on interconnection lines) consist of, on the one hand, imports and exports between the Elia control area and neighbouring control areas (France and the Netherlands) and, on the other hand, imports and exports within the Elia control area, between Belgium and the Sotel/Twinerg grid in Luxembourg. The import trend became much more marked in 2012, with a net import balance of 9.94 TWh compared with 2.61 TWh in The rising import trend recorded until 2008, which was reversed in 2009 due primarily to the economic crisis, resumed in 2010 and has accelerated strongly, driven by the shutdown of two nuclear units. The increase in imports gathered pace in 2012 (up 27.0%), mainly from the Netherlands (+77.4%). Exports were down by 35.1%, mainly to the Netherlands (-47.3%). Physical exchanges of electricity with neighbouring countries totalled TWh in 2012 down 0.7% from TWh in In Germany, 50Hertz imported 15.5 TWh of electricity in 2012 (16.3 TWh in 2011), mainly from the Czech Republic and TenneT TSO, and exported 38.7 TWh (34.4 TWh in 2011), mainly to Poland and TenneT TSO. As a result, net exports of electricity were up 28% from 18.1 TWh to 23.2 TWh. Balancing generation and consumption to meet the needs of the market Balancing generation and consumption is primarily the responsibility of market players, in particular Access Responsible Parties (ARPs). ARPs are expected to ensure the best possible balance between their supply sources and their offtake sources. To this end, each ARP must inform Elia, one day ahead, of all the energy exchanges it will perform, on a quarter-hourly basis for each point on the grid. This applies to injections and offtakes, exchanges between ARPs, imports and exports. The residual imbalance for the Belgian control area is offset in real time by Elia using energy reserves available under contract with generators and industrial customers in Belgium. To this end, the volume of energy activated by Elia for the Belgian area was 1,260 GWh in 2012, compared with 1,092 GWh in The corresponding figure for 50Hertz control area was 1,623 GWh in 2012, compared with 1,835 GWh in 2011.

37 34 ELIA GROUP 2012 ECONOMIC REPORT In Germany The physical security of facilities is an increasingly important issue, not least in connection with the European Programme for Critical Infrastructure Protection. Infrastructure LENGTH OF THE HIGH-VOLTAGE GRID IN BELGIUM Voltage (kv) Underground cables (km) Overhead lines (km) Total (km) Elia ,007 2,007 2,441 2, ,356 2,381 2,650 2, ,923 1, ,931 1, Total Elia 2,783 2,766 5,581 5,606 8,364 8,372 The figures do not include networks not owned by Elia. For the overhead lines, the figures shown are geographical lengths, i.e. the sum of the geographical lengths of the overhead lines (whether or not they were in operation). Parallel circuits are counted only once. For the underground cables, the figures shown are electrical lengths, i.e. the sum of the lengths of the connecting circuits in operation. Parallel circuits are counted only once. The most notable changes relate to the 70 kv voltage level: decommissioning of the Harmignies-Binche, Ciney-Buissonville, Eisden-Bekaert and Muizen- Mechelen Sautrac overhead lines and commissioning of the Beerse-Koekhoven and Muizen-Mechelen NMBS underground cables. The total length of the Elia transmission grid was 8,364 km at 1 January 2013 (compared with 8,372 km at 1 January 2012). The total length of the transmission grid of 50Hertz (from 150 kv to 380 kv) was 9,980 at 1 January 2013 (compared with 9,840 at 1 January 2012). Physical security of facilities The security of facilities is an increasingly important issue, not least in connection with the European Programme for Critical Infrastructure Protection (EPCIP 2 Directive). Enhancing the security of the most critical high-voltage substations and of grid control centres is a top priority. CRITICAL INFRASTRUCTURE Some of Elia s facilities are considered critical in that their disruption or destruction could seriously affect security of supply in Belgium and neighbouring countries. The European EPCIP Directive requires such facilities to be protected. A list of these facilities is submitted to the authorities for approval. 2 European programme for critical infrastucture protection.

38 ELIA GROUP 2012 ECONOMIC REPORT 35 LENGTH OF THE 50HERTZ VERY-HIGH-VOLTAGE GRID Voltage (kv) Underground cables (km) Overhead lines (km) Total (km) 50Hertz AC ,970 6,830 7,025 6,885 AC ,862 2,862 2,865 2,865 AC DC Transmission Grid ,830 9,690 9,980 9,840 AC Total 50Hertz ,845 9,705 9,995 9,855 PROTECTION OF CRITICAL HIGH-VOLTAGE SUBSTATIONS A concept for ensuring optimum security of high-voltage substations was developed in It takes account of various factors such as the effects of electric and magnetic fields, the impact on data networks and the need for immediate checks. The concept was finalised in March and the subsequent European call for tenders ended in September. A pilot project was completed on 21 December. PROTECTION OF OTHER HIGH-VOLTAGE SUBSTATIONS The majority of Elia infrastructure is not classified as critical, although such substations still play an important role in the smooth functioning of the grid. A series of measures have already been taken in the past to ensure the necessary level of protection. A system of electronic keys was introduced, security doors were installed to protect earthing equipment and switchgear and the IT network, and special fences were fitted. Further measures will be taken in the years ahead. NATIONAL AND INTERNATIONAL COLLABORATION In connection with the EPCIP programme, working relationships have been formed with the Federal Public Service Economy and the Crisis Centre Directorate-General. Elia also takes part in ENTSO-E s Critical System Protection Working Group and the Thematic Network On Critical Energy Infrastructure Protection (TNCEIP). In addition, Elia liaises with other players associated with critical infrastructure such as Fluxys (gas) and NMBS/SNCB (railways). Collaboration with NMBS/ SNCB has increased due to the shared problem of the theft of copper cables. Elia is in regular contact with the police and public prosecutor s offices and occasionally has dealings with the intelligence and security services. In Germany, 50Hertz has developed a concept for identifying potential hazards and risks. This is subject to a continuous improvement process, so that the company is as prepared as it can be to deal with these risks and hazards. A review of facility security procedures is currently under way. The Control Centre is subject to a very high level of security, covering both the building itself and the organisation of activities on the site. All very-high-voltage substations are protected by fencing, alarm systems and surveillance. To this end, cooperation with the government, police and intelligence services in Germany has been improved. At both national and European level, cooperation with neighbouring system operators has been stepped up for the protection of critical structures such as grid control centres.

39 36 ELIA GROUP 2012 ECONOMIC REPORT Investments Generated electricity must be available wherever it is consumed. That is why the power grid investment policy is so essential. It is about ensuring continuity of supply for current customers while also anticipating future needs in order to construct safe, reliable and sustainable grids to transmit the electricity of tomorrow. In Belgium Investment portfolio projects are submitted for the approval of the federal or regional authorities via the investment plans. As a system operator, Elia has to draw up four different investment plans for the development of its power grids: the transmission system development plan, which covers the whole of Belgium for all voltage levels from 380 kv to 150 kv at federal level; the investment and adaptation plans in the Flemish, Brussels-Capital and Walloon regions, which cover the other voltage levels for which Elia is responsible. The capital expenditure for 2012, as well as for , forms part of the tariff proposal approved by the regulator and then translated into the Elia grid access tariffs applying during this period. Capital expenditure in 2012 totalled 150 million. Capital expenditure is set to increase significantly in the coming years in line with the investment plans and access tariffs approved for the period The growth in investment volume is driven by the integration of decentralised generation, the increase in European transit flows, the need to expand (sometimes subject to conditions) the accommodation of new conventional generation units, and the need for replacement investments. Replacement investments relate mainly to the upgrading of existing obsolete equipment, whose function has to be retained in order to meet the needs of grid users. Such upgrades do not necessarily increase the transmission capacity. However, the security, reliability and efficiency of the grid are preserved and in some cases enhanced. Elia examined around 30 connection requests from industrial customers, generators and renewable energy promoters. Examples of projects include the replacement, one bay at a time, of obsolete equipment at the Bruges substation; the new Winksele substation for Fluxys; the connection of two cables to C-Power at Slijkens; a new 150 kv GIS substation under construction at Zurenborg; the installation of new feeders to the grid at Trois-Pont, Saint Vith, Quevaucamp, Willebroek and Ieper Noord; and the installation of new 36 kv switchboards at the Centenaire substation in Brussels. Major infrastructure projects CONNECTION OF DECENTRALISED GENERATION: EAST LOOP PROJECT A region in the east of Belgium, known as the East Loop, is a prime location for wind power generation owing, among other things, to its altitude. Its estimated potential is over 200 MW, which corresponds to approximately 70 wind turbines. The grid infrastructure was perfectly adequate for connecting the first wind farms, but other farms are under construction or at the planning stage. The East Loop grid therefore needs to be upgraded in order to implement the green energy policy supported by the German-speaking Community. Boosting the accommodation capacity for generation units powered by renewable energy sources will entail upgrading the weakest lines in the grid, linking the Bévercé (Malmedy), Butgenbach and Amel sites.

40 ELIA GROUP 2012 ECONOMIC REPORT 37 International projects Interconnection with Germany: ALEGrO project In early 2012, Elia and the German transmission system operator Amprion signed a Memorandum of Understanding confirming the two companies commitment to creating the first interconnection between Belgium and Germany. The project, which has been given the name ALEGrO (Aachen Liège Electric Grid Overlay), will consist of a very-high-voltage DC cable of around 1,000 MW, running for some 100 km between the Lixhe substation in Belgium and the Oberzier substation in Germany. In 2012, Elia and Amprion continued the studies needed to implement this project, which is innovative due to its use of direct current technology and its integration in a traditional alternating current grid. They also continued to liaise with the competent authorities with a view to obtaining the necessary authorisations. Commissioning of ALEGrO is planned for Interconnection with France The studies carried out jointly over the past few years by Elia and the French transmission system operator RTE, as well as those conducted as part of ENTSO-E s Ten-Year Network Development Plan (TYNDP), identified a need to strengthen transmission capacity between Belgium and France by A feasibility study is under way to identify the best option for upgrading the interconnection, taking into account the latest assumptions and predicted developments through to 2030, among other factors. The feasibility study will conclude in 2013 with a concrete investment proposal based on the results of a cost/benefit analysis. CONNECTION OF OFFSHORE WIND FARMS: STEVIN PROJECT In summer 2012, the Flemish government definitively approved the amendment of the regional landuse plan (GRUP) needed to extend the 380 kv network to the Belgian coast (Stevin project). In November, Elia embarked on the information procedure as part of the MER study, but the appeals lodged by various bodies against the decision to approve the amendment of the regional landuse plan is threatening the project s implementation. The Stevin project is an essential link in the development of the Belgian grid as it will allow the energy generated by offshore wind farms to be brought onshore and transmitted to the domestic market. It will also make it possible to connect the new subsea interconnector with the United Kingdom (Nemo), improve security of supply in West Flanders, strengthen economic development in and around the port of Zeebrugge and, finally, connect more decentralised, renewable generation in the coastal region. UPGRADING THE GRID IN THE PORT OF ANTWERP AND THE INTERCONNECTION WITH THE NETHERLANDS: BRABO PROJECT The Brabo project has two main parts: the construction of a new 380 kv line between the Zandvliet and Lillo substations on the right bank of the river Scheldt, which will cross the river to Liefkenshoek, and the upgrading to 380 kv of the existing 150 kv line between Liefkenshoek and the Mercator high-voltage substation. These improvements will strengthen security of supply for residents and businesses in the port of Antwerp and the wider region; they will also enable the connection of new units and strengthen the interconnection with the Netherlands, which will not only enhance security of supply but also improve market functioning. In July 2012, the Flemish government gave its agreement in principle for the project and Elia began the first consultations with a view to carrying out the plan-mer environmental impact study, based on which the minister responsible for spatial planning will prepare a regional land-use plan (GRUP).

41 38 ELIA GROUP 2012 ECONOMIC REPORT International projects Interconnection with the UK: Nemo project 2012 saw Elia and its UK counterpart National Grid jointly launch the European call for tenders for the purchase of two converter stations (one at Richborough in the south of England and the other in Zeebrugge) and a 130 km subsea cable link. The electrical interconnector between the UK and Belgium, which is scheduled to enter service in , has the following objectives: to provide access to a broader energy mix and to smooth prices during consumption peaks caused by tensions between supply and demand; in this regard, the one-hour time difference between the two countries will have a positive impact on the market; to enhance security of supply in both countries; the technology used will offer possibilities for restoring the grid more quickly in the event of a grid collapse in either country; to broaden access to renewable energy at a European level, allowing any excess energy generated to be moved to regions where energy is in demand, which will also have a favourable impact on market prices. Offshore grid in the North Sea Elia, in close collaboration with wind farm promoters and the authorities, is working to develop an offshore grid in the North Sea, in Belgium s territorial waters. This will offer comparable benefits to the onshore grid in terms of reliability and will also be more cost-effective than connecting up each wind farm individually. A suitable regulatory and legal framework for financing these investments will need to be developed. The technical solution was approved by the Secretary of State for Energy in Projects not included in current investment plans ESTAIMPUIS MARCH 2012 On 5 March 2012, the Belgian transmission system was hit by freak winter weather. An unusual combination of meteorological conditions (wet and sticky snow) caused galloping, resulting in damage to a number of pylons on the 70 kv/150 kv line between Antoing and Mouscron. Permanent restoration work began in September and the facilities were brought back into full working order in December Hertz grid in Germany NORTHERN LINE BETWEEN SCHWERIN AND HAMBURG The first section of the line, in Mecklenburg-Western Pomerania, was brought into operation in July The permit for the second section, in Schleswig- Holstein, was issued in April Work began immediately, with a view to commissioning the section before winter The new line was inaugurated by the German Chancellor Angela Merkel on 18 December SOUTH-WEST INTERCONNECTOR THURINGIAN BRIDGE PROJECT The first part of the connection between Lauchstädt and Vieselbach came into operation in December The permit for the second part, between Vieselbach and Altenfeld, was issued in February 2012, but the local authorities of Großbreitenbach and three individuals appealed against it. The German regulator BNetzA gave 50Hertz the go-ahead for the work, which has since begun. For the third part between Altenfeld and the state border, the regional planning procedure was completed in March The document relating to the land use plan is due to be submitted to the authorities in early BERLIN NORTHERN RING The regional planning procedure is complete and the route has been finalised. Construction will take place in at least two phases in order to guarantee security of supply to the Hennigsdorf steel plant. The procedures for the western part of the project between Wustermark and Hennigsdorf began in November UCKERMARK POWER LINE The regional planning procedure is complete but the land-use planning procedure is still ongoing. The latter is accompanied by intensive information and dialogue activities with politicians, the general public and local environmental groups.

42 ELIA GROUP 2012 ECONOMIC REPORT 39 First German grid development plan 50Hertz and the other three German transmission system operators Amprion, TenneT and TransnetBW have drawn up the first German grid development plan setting out the grid infrastructure developments expected over the next 10 years as well as a 20-year forecast. The plan was submitted to the Federal Network Agency on 15 August Following an in-depth examination, the plan was largely approved by the regulatory authorities. The decision confirms the planning of proposed connections. Based on this development plan, the Federal Network Agency put forward draft federal legislation outlining the expansion needs of Germany s transmission grids in late December The grid development plan sets out the developments required over the next decade based on the legal framework for the electricity sector and implementation of the so-called energy transition (Energiewende). It provides a necessary basis for ensuring security of supply, the integration of increasing volumes of renewable energy and the development of the integrated electricity market. Measures to optimise and upgrade the existing grid are given priority attention. The identified needs are substantial, especially on north-south routes. To ensure that all parties affected by these projects are fully informed, the four German transmission system operators have set up a dedicated website for the information and consultation process ( BÄRWALDE SCHMÖLLN The regional planning procedure is complete and the route has been finalised. Construction will take place in at least two phases in order to guarantee security of supply to the Hennigsdorf steel plant. The procedures for the western part of the project between Wustermark and Hennigsdorf began in November OFFSHORE DEVELOPMENTS Following the successful entry into service of Germany s first commercial offshore wind farm, Baltic 1, in 2011, Baltic 2, the second wind farm in the Baltic, is now under construction. The 80 turbines will generate power of 288 MW. A total of three cables (150 kv, alternating current) running for 120 km offshore and 16 km onshore will link up one of the wind farms to the grid connection point at the Bentwisch high-voltage substation and will enable another connection to the already operational Baltic 1 wind farm. Other offshore projects are at an advanced planning stage, which for 50Hertz means taking preparatory steps for future connections. In late 2012, a revision of the legal framework for the development of offshore wind energy was finalised by the federal government. The main changes relate to a grid connection regime based on long-term planning and the introduction of a regulation limiting the liability of transmission system operators.

43 40 ELIA GROUP 2012 ECONOMIC REPORT Grid maintenance There have been major technological breakthroughs in preventive and corrective maintenance, as well as an increase in teams expertise. 20,853 In 2012, around 20,853 operations were carried out by teams in the field (more than 57 a day). Preventive maintenance of the Belgian grid Thanks to the expertise of the teams in the field responsible for preventive and corrective maintenance of the transmission system and for the execution of replacement investments, continuity of supply has been at a very high level for more than a decade. This outcome is the result of ongoing staff training combined with a programme of preventive maintenance and replacement policies based on the technologies used in the grid and the condition of the components that make up the infrastructure. This programme is driven by operating experience feedback from in-depth analyses of the causes of each incident, even though most of them do not have any impact on customers. Elia is also continuing to work on standardising and harmonising components, databases and working procedures. In the case of lines, cables and pylons, preventive maintenance encompasses a number of types of inspections, such as infrared or camera inspection of all 20,000 or so pylons, which are inspected several times a year. As regards high-voltage substations, preventive maintenance is scheduled on some 11,556 primary systems and 1,705 secondary systems across Belgium. In 2012, around 20,853 operations were carried out by teams in the field (more than 57 a day), covering preventive maintenance (11,556 on primary systems and 1,705 on secondary systems), inspections (4,721 on primary systems and 2,102 on secondary systems) and legal checks (623 on primary systems and 146 on secondary systems). As far as investments in replacements are concerned, synergies are sought between investments in upgrading, replacement and worker safety. In 2012, some million was invested in upgrading end-of-life equipment. Many projects were carried out, including the replacement, at all voltage levels, of circuit breakers, isolators, bus bars and line sets, voltage and current transformers, lightning arresters, meter boxes, protection relays and remote monitoring systems. Maintenance and replacement activities are performed by around 600 Elia staff, of whom twothirds work in the field and one-third provide technical and administrative support. In 2012, a number of innovations were tested out in the field so as to expand the range of methods at the departments disposal and plan work such that it caused as little disruption as possible to operation of the grid. It should be noted that when the multi-year tariffs for were introduced, the regulator included a new tariff incentive linked to the completion of replacement works, thereby highlighting the importance of this factor in grid quality.

44 ELIA GROUP 2012 ECONOMIC REPORT 41 A pilot project conducted in 2012 involved winding fibre-optic cables around the earth wire of a high-voltage line. This required coordination between a helicopter, ground teams and a remote-controlled robot. Preventive maintenance of the 50Hertz grid OVERHEAD LINES The budget for 50Hertz s 2012 maintenance programme was 38.2 million (excluding damage to the 380 kv Pulgar-Vieselbach line). In general terms, more than 9,700 insulators on overhead lines were replaced in the 50Hertz control area. In addition, corrosion protection work was carried out on almost 600 pylons. The commissioning of the first hightemperature conductors on the 380 kv line between Redwitz and Remptendorf in Thuringia enabled an increase of 300 MW in the transmission capacity to the TenneT TSO grid. The investment cost a total of 7 million. A new approach to the aerial surveillance of power lines was also tested in In addition to visual inspections carried out by helicopter, possible weak spots are detected and monitored using thermography or techniques that make corona discharge visible in daylight. HIGH-VOLTAGE SUBSTATIONS In 2012, 13,000 scheduled maintenance operations (more than 35 a day) were carried out on infrastructure components. In addition, following analysis of incident statistics and assessments, targeted measures were taken to enhance the operational reliability of key grid elements. Alongside improving lighting protection by retrofitting lightning arresters in 380 kv line circuit-breaker units, a significant part of substation maintenance activities consisted of upgrading coupling transformers. Other measures taken in 2012 involved: improving insulation by regenerating the oil of six operational transformers; upgrading two 250 MVA transformers at the Taucha high-voltage substation; upgrading three 267 MVA transformers at Güstrow. Constant vigilance In 2012, a number of innovations were tested out in the field so as to expand the range of methods at the departments disposal and plan work such that it caused as little disruption as possible to operation of the grid.

45 42 ELIA GROUP 2012 ECONOMIC REPORT Market operation Following liberalisation of the internal electricity market, the role of market facilitator has become a vital part of the transmission system operator s mission. NL Integration of European markets As in previous years, Elia continued its drive for further integration of the Belgian and German electricity markets with their neighbouring markets and thus contributed to efforts to meet the European Commission s target of achieving an integrated electricity market by FR B CH DE AT SI As an active member of the European Network of Transmission System Operators for Electricity (ENTSO-E), Elia contributed to the drafting of the proposal for a Network Code on Capacity Allocation and Congestion Management, which was submitted to the European regulatory agency ACER in September Figure: Borders covered by harmonised auction rules. IT G Long-term markets In 2011, transmission system operators of the Central West Europe (CWE) region, in collaboration with the TSOs of Central South Europe (CSE) and the Swiss TSO, drew up a shared set of harmonised rules governing explicit capacity auctions covering 12 borders. In 2012, these rules were implemented for the allocation of long-term physical capacity by CASC.EU, which acts as the inter-regional auctioneer for the market players.

46 ELIA GROUP 2012 ECONOMIC REPORT 43 The CWE market is coupled with the Scandinavian market through the interim tight volume coupling (ITVC) mechanism. Day-ahead markets TWO YEARS OF CWE AND ITVC MARKET COUPLING Price coupling enables the volumes of electricity traded and market prices to be calculated on the basis of the information provided by the transmission system operators (transmission capacities available at the borders) and the power exchanges (purchase and sale bids). The mechanism was initially set up in October 2006 to couple together Belgian, French and Dutch prices and immediately resulted in an increase in the use of import and export capacities made available by Elia. It uses an algorithm developed by Belpex, Elia and N-Side. In late 2010, this market coupling was extended to the whole Centre West Europe area, including Germany and Luxembourg, and then, based on slightly different technical arrangements, to Scandinavia. This mechanism enables optimum use of interconnection capacity between the various national grids and greater price harmonisation across an area that accounts for over 70% of Europe s electricity consumption. In 2012, the prices of the four coupled intraday markets in CWE converged some 45.08% of the time (with a maximum of 70.16% in August and a minimum of 18.25% in February); prices in Belgium and France were the same 84.18% of the time, while in Belgium and the Netherlands they converged 72.18% of the time. Overall price convergence in CWE was lower in 2012 than 2011 due to: a price divergence with the Netherlands at the start of the year: gas units were not operational there for economic reasons; a price divergence with France following a consumption peak during the cold snap in February; the unavailability of two nuclear reactors in Belgium since the summer. The coupling of CWE markets has resulted in significantly lower prices than would have been the case without market coupling. This positive effect for consumers is due to the reduced price volatility created by combining the liquidity of the region s day-ahead markets while avoiding negative prices at times when consumption is low and renewable generation is high. Market coupling has also led to an improvement in the utilisation of import/ export capacities at Belgium s borders on a day-to-day basis, with volumes of 15.5 TWh for imports and 6 TWh for exports.

47 44 ELIA GROUP 2012 ECONOMIC REPORT EVOLUTION OF THE EXCHANGES France Netherlands Net position 01/ / / / / / / / / / / / Gwh THE BELPEX SPOT MARKET At the end of 2012, some 40 market players generators, suppliers, traders, banks and industrial users were registered and operating on Belpex. DAY-AHEAD MARKET The growth in volumes on the dayahead market continued in 2012, accounting for 20.4% of Belgian load compared with 14.8% in The volume traded was also up, from a daily average of 33,839 MWh in 2011 to 44,988 MWh in 2012 an increase of 33%. The record volume, recorded on 30 October 2012, was 88,180 MWh, i.e % of the daily consumption. The average price on the Belpex dayahead market was 46.97/MWh, slightly lower than the average for the Netherlands ( 48.00/MWh) and slightly higher than the averages for Germany ( 42.60/ MWh) and France ( 46.94/MWh). ONGOING PROJECTS Elia, in cooperation with Belpex and all the other transmission system operators and power exchanges in the CWE region, Scandinavia and the UK, is preparing to implement a price coupling mechanism for the whole of the North West Europe (NWE) region. A process and a common algorithm will be implemented by the end of 2013 and will form the cornerstone of the integration of the other EU markets. National regulators and other stakeholders are given regular progress reports at implementation meetings. Furthermore, throughout 2012, the transmission system operators and power exchanges of the CWE region continued their joint efforts to design and implement a flow-based method for implicit daily allocation of cross-border capacity. This method, which aims to take better account of the capacities of an interconnected system, was tested in Certain aspects were studied and evaluated with market players and national regulators and were featured in a report published on the Elia website. INTRADAY MARKETS The intraday markets are important tools, particularly given the growing share of variable energy sources (wind and solar power) in the energy mix, because they allow suppliers to adjust their generation according to their customers consumption in near-real time. The intraday market in Belgium is operated by Belpex. In 2012, it maintained its strong growth, with a trading volume of GWh, compared with GWh in 2011 an increase of 41%. In total, 9,915 contracts were concluded, compared with 5,613 in The plans for implicit allocation of crossborder intraday transmission capacities on the interconnection between Belgium and the Netherlands came to fruition in February 2011, using the Elbas trading platform used for the Nordic and German markets. The integration of the Belgian and Dutch intraday markets with the Scandinavian market was extended to the Nordic countries in March 2012, following the introduction of an implicit allocation mechanism on the NorNed connection between the Netherlands and Norway. Following its implementation, it enabled the intraday import of GWh from the Netherlands and the export of GWh to the Netherlands. Consequently, it is now possible to negotiate the purchase or sale of electricity between, for example, Belgium and Finland, on an intraday basis in a single transaction. The system operators and power exchanges concerned are actively preparing for complete integration of the intraday markets of the NWE region (including Belgium and France) in 2013.

48 ELIA GROUP 2012 ECONOMIC REPORT 45 88,180 MWh The record volume on Belpex recorded on 30 October 2012, i.e % of the daily consumption. Belgian balancing and ancillary services markets Elia has taken a number of initiatives to anticipate the integration of significant volumes of generation from variable renewable energy sources in the balancing and ancillary services markets. A new methodology for evaluating the reserve volume, based on probabilistic modelling and therefore capable of reflecting the impact of errors in the forecasts for wind and photovoltaic energy on balancing the system has been introduced. On this basis, the methodology and resultant volumes for 2012 were approved by CREG in May Preparations are also being made for synergies with the Netherlands and Germany. A new tariff for the settlement of market players imbalances was introduced on 1 January 2012 as part of the tariff proposal approved by CREG. The new imbalance tariff gives market players greater incentives to evaluate and reduce their imbalances. Alongside this, Elia is now publishing forecasts for wind and photovoltaic energy generation. On 1 October 2012, Elia joined the International Grid Control Cooperation (I-GCC) platform for real-time settlement of imbalances in an area covering Germany, the Netherlands, Denmark, Switzerland and the Czech Republic. Increasing market transparency Meanwhile, Elia continued to support the FEBEG drive to increase the transparency of power generation data on the Belgian market. Elia now publishes data on generation capacity forecasts available per unit of 100 MW as well as planned outages (in the form of market messages). The publication of imbalance data has been improved by distinguishing between manual and automatic reserves and by making available system imbalances in real time. German market INCREASING ENERGY MARKET FLEXIBILITY The increase in the proportion of variable renewable energy leads to fluctuations in generation which have to be offset by flexible generation units or by storage units. In this connection, 50Hertz supported the introduction of a quart-hourly intraday market which gives a market value to flexibility and allows it to be traded. The quart-hourly intraday market was launched on 14 December 2011 by the EPEX Spot power exchange. In 2012, the total volume of quart-hourly products traded on this market was 650 GWh, with 90,000 exchanges. INTERNATIONAL EXPANSION OF GERMAN GRID CONTROL COOPERATION Between October 2011 and October 2012, the German Grid Control Cooperation (GCC) scheme was expanded into an International Grid Control Cooperation (I-GCC) platform, incorporating first Denmark, then the Netherlands, Switzerland, the Czech Republic and Belgium. Provided that transmission capacity is available, imbalances in opposite directions are cancelled out and no longer need to be compensated by control energy. Control energy needs in the countries concerned can be reduced by almost 20%. This increase in efficiency will allow market players to cut costs while also reducing CO 2 emissions by avoiding frequent load changes at generation units.

49 46 ELIA GROUP 2012 ECONOMIC REPORT System operators organise regular simulation exercises to ensure that the teams concerned can cope with emergency situations in all circumstances. Such exercises were carried out in both Germany and Belgium. Preventive management of critical grid situations As transmission system operator, Elia takes a series of preventive measures to maintain balance on the grid and so contribute to security of power supply. 3,000 MW All the generation units connected to the European grid will consequently react together to immediately offset the simultaneous loss of 3,000 MW. Managing the balance between generation and consumption As electricity cannot be stored in any great quantity (except by means of pumped storage hydro units), generation must be tailored at all times to consumption in this large grid consumption that is the result of the actions and needs of more than 550 million inhabitants. Transmission system operators such as Elia and 50Hertz maintain this balance in their respective control area within strict limits and in compliance with common rules set by ENTSO-E. To this end, each of the 41 transmission system operators reserves from generators, through European calls for tender, a generation capacity enabling them to adjust upwards or downwards the quantity of energy injected in their respective grid. This generation capacity is differentiated according to the speed of response and the duration of the intervention. First of all, some generation units are equipped to adjust their generation almost instantaneously based on deviations from the reference frequency (50 Hz in Europe) and the frequency measured on the grid, which depends on the instantaneous imbalance between the quantities of energy injected and taken off the entire interconnected grid. All the generation units connected to the European grid will consequently react together to immediately offset the simultaneous loss of 3,000 MW (3 million kw), i.e. the equivalent of two of the largest generation units, irrespective of their location in continental Europe. The system operators to which the defective powers stations are connected will then use other means of generation to restore this automatic intervention capability as quickly as possible, until the situation with the generator(s) concerned is back to normal. Black-start: gradual restoration of the grid In the event of an interruption of the power supply across a wide geographical area, the system operator concerned must use generation units known as black-start units which, in the event of a collapse of the electricity system, serve to gradually resupply the transmission system and so supply power to the other generation units so that they can be restarted in their turn. This delicate operation involves simultaneously restoring power to more and more consumers in order to maintain the necessary balance between generation and consumption. Each system operator has contracts for black-start services with generators in its area and regularly checks whether these units can start up upon request without any power from the grid. In

50 ELIA GROUP 2012 ECONOMIC REPORT 47 The challenge of continuity of supply With the Doel 3 and Tihange 2 units unavailable since summer 2012, this issue has been uppermost in Elia s mind and a procedure has been developed in close consultation with the Belgian Government Coordination and Crisis Centre and the Federal Public Service Economy to deal with this type of situation. 2012, Elia conducted detailed tests at two units. In Germany, following an updating of the procedure for restoring power after a blackout, 50Hertz organised a series of eight training sessions with distribution system operators in the region and the main generator Vattenfall. These sessions took place at the Gridlab training and simulation centre, a subsidiary of Eurogrid International. BLACK-START AT THE COO-TROIS- PONTS POWER STATION Electrabel s Coo-Trois-Ponts hydroelectric power station in the province of Liège is the only facility in Belgium capable of storing energy on a large scale. Water is pumped, usually at night, into one of the upper reservoirs. The sluices are then opened during the day to allow the water to drive the generators that produce the electricity. The plant can generate up to around 1,100 MW, albeit for a limited period of time. The plant is therefore used to offset fluctuations in the balance between generation and consumption. It is operated in conjunction with Belgium s nuclear generation facilities. The Coo power station is unusual in being able to offer black-start services. This black-start capability is checked regularly, with a successful test being carried out on 8 September Crisis simulation to test vigilance and improve procedures In the event of a crisis, the level of preparation of the teams mobilised to restore normality is key. Elia has from the outset had an emergency plan setting out the roles and responsibilities of the various players in the event of a major problem in the electricity transmission system. The exercise in October 2012 was international in scope, involving the French and Dutch system operators RTE and TenneT, the regional technical coordination centre Coreso and the Belgian Interior Ministry s Federal Crisis Centre. The aims of the exercise were to: make joint decisions in the face of complex events affecting multiple transmission system operators and requiring close coordination; test internal and multiple communication flows between the crisis structures of the various participants and test the ENTSO-E crisis communication tool; ensure coordinated external communication with the media. Thanks to joint decision-making between the system operators, under the coordination of Coreso, international redispatching was successfully implemented, thus avoiding the breakdown or collapse of the European continental grid during the crisis simulation exercise. Procedure in case of shortage Despite all the preventive measures that are taken, extreme situations resulting from a substantial shortage of power generation remain a possibility. In such cases, Access Responsible Parties (suppliers) are no longer able to supply a large number of their customers, to such an extent that the system operator cannot offset the imbalance in its control area. With the Doel 3 and Tihange 2 units unavailable since summer 2012, this issue has been uppermost in Elia s mind and a procedure has been developed in close consultation with the Belgian Government Coordination and Crisis Centre and the Federal Public Service Economy to deal with this type of situation.

51 48 ELIA GROUP 2012 ECONOMIC REPORT Preparing for the future: research and development The growing share of variable renewable energy sources and of decentralised generation in the energy mix is causing a radical and lasting change in electrical systems and how they are managed, making innovation essential for transmission system operators. Against this backdrop, the Elia Group established a Research & Development and Knowledge Management Department which, in close cooperation with ENTSO-E and the European Electricity Grid Initiative, is participating in a number of European projects. Launch the Innovation & Knowledge Management Division This objective includes implementing the R&D activities management programme at 50Hertz, strengthening collaboration with the Business Development Division and consolidating the network of external relationships with equipment manufacturers, regulators and the public authorities. Multiple contacts, particularly with universities and the research community, were established via the Wissenschaftlicher Beirat initiative in Germany and the Elia Innovation Partners Day in Brussels. Determine Group-level priorities Priorities were established in close collaboration with the operational departments. The results of this work were communicated in a brochure, on the Group website and at special events. Play a leading role in European and national projects 50Hertz played a leading part in the irock.eu proposal to demonstrate sophisticated methods for restoring power safely to very-high-capacity transmission lines. The proposal will be submitted at the end of 2013 and will include a demonstration as part of the Belgian Stevin project. A project to optimise the ground footprint of overhead lines was also submitted. B-EEGI Elia is a key partner in B-EEGI, a collaboration platform of five Belgian system operators (Eandis, Elia, Infrax, Ores and Sibelga) as part of the European Electricity Grid Initiative (EEGI). Through this platform, the partners want to develop a joint vision of the innovation activities and objectives and therefore benefit from some leverage vis-à-vis regional, Belgian and European support programmes. EUROPEAN RESEARCH PROJECTS At the end of 2012, the Elia Group had a portfolio of 16 projects in which the Group is cooperating with one or more Belgian, German or other European partners. At the same time, the Group is involved in some 10 initiatives involving cooperation in R&D projects which are currently being assessed by the funding institutions concerned. 50Hertz is also working, as part of academic partnerships, on nine studies that aim to analyse and assess specific issues that are relevant to management of the electricity system, e.g. grid voltage quality, investigation of mea-

52 ELIA GROUP 2012 ECONOMIC REPORT 49 In 2012 multiannual R&D project management tools and resource management tools were designed for 50Hertz and measurable objectives defined. sures needed in critical conditions in the 50Hertz grid, and the Power to Gas project. MOSYTRAF This project analyses the impact of strong gusts on overhead lines. The deployment of current measurement techniques and monitoring methodologies on an experimental overhead line will enable its mechanical behaviour to be determined when subjected to strong gusts of wind and so improve estimations of the stress to which pylons are subjected as a result of the action of wind on conductors. REGMODHARZ The RegModHarz project brings together, alongside 50Hertz, distribution system operators, IT and component manufacturers, research institutes, universities and sponsors of renewable energy. It is one of the six German regional models supported by the public E-Energy programme which analyses the challenges and opportunities involved in the integration of renewable energy sources. SUSPLAN 50Hertz is involved in the SUSPLAN project coordinated by SINTEF (FP7 research area ENERGY ). The project aims to develop regional and pan-european recommendations for more effective integration of renewable energy into future transmission infrastructures. It adopts an integrated approach for electrical, gas and heat infrastructures. E-HIGHWAY 2050 Elia and 50Hertz are jointly participating in the e-highway 2050 programme facilitated by ENTSO-E and coordinated by RTE (as part of the FP7 call ENER- GY ). Following the ENTSO-E Study Roadmap towards a Modular Development Plan on pan-european Electricity Highways System 2050 (MoDPEHS) developed by 50Hertz and coordinated by the ENTSO-E working group on electricity highways by 2050, the consortium comprising transmission system operators and external partners aims to develop tools for a long-term planning schedule containing design options for future European electricity highways. ECOGRID The European EcoGrid project comprises a demonstration on the Danish island of Bornholm of the effective operational management of a power distribution system entailing strong penetration of a wide range of variable sources (almost 50%). The Elia Group is conducting the research on the implementation of market concepts on a large scale throughout continental Europe. ESTORAGE The storage of electrical energy will become more and more important in Europe, in particular because it can be deployed rapidly to ensure a continuous balance between renewable energy generation and consumption. The estorage project aims to enhance the technology of pump-storage equipment and to assess the market models enabling its integration and its rapid deployment. TWENTIES The TWENTIES project aims to identify and test the technical resources that facilitate the large-scale penetration of renewable energy, and in particular wind energy. A number of partners are making a contribution to these efforts: Belgian universities, such as the Catholic University of Leuven (KULeuven), the Université libre de Bruxelles (ULB) and the University of Liège (ULg), and the Coreso regional technical coordination centre. Elia is responsible for one of the six demonstration activities (NETFLEX Enhanced Network Flexibility). Elia and 50Hertz are involved in assessing the potential for deployment of these tools on a European scale. OPTIMATE Five European transmission system operators (in Germany, Belgium, France and Spain) have been cooperating with seven distribution system operators since 2009 as part of a three-year research project. This project aims to evaluate the advantages and disadvantages of market models designed to integrate vast sources of renewable energy. Elia and 50Hertz are contributing to the development of market models for the Central West Europe region.

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54 02 Environmental report Adopting a sustainable approach to the way we operate is one of the cornerstones of the Elia Group s policy in Belgium and Germany. The environment is therefore key to the Group s commitment to playing a major role in the ongoing energy revolution.

55 52 ELIA GROUP 2012 ENVIRONMENTAL REPORT Philipp Rösler GERMAN FEDERAL MINISTER OF ECONOMICS Our transmission system operators are the lynchpins of the energy transition. They work with professionalism to ensure the safe and secure operation of electricity systems and promote the further integration of renewable power. They also innovate in their use of new technologies for developing the transmission grid. I saw this for myself during my visit to 50Hertz. Jean-Christophe Cattrysse ENTERPRISE PORTFOLIO MANAGEMENT The large-scale expansion of renewable energy means that we are having to radically rethink the way we operate high-voltage grids. One solution often put forward is the smart grid. Our Danish counterpart Energinet.dk is leading the way in the development of smart grids. For four months, I was able to observe the full-scale implementation of a smart grid on the island of Bornholm as part of the EcoGrid EU project, with a view to transposing this model to other parts of Europe. It was an invaluable experience for a junior engineer. Nicolas Bragard GRID DEVELOPMENT The aim of the Alegro project is to establish an interconnection between Belgium and Germany in the form of a very-high-voltage direct current cable with a capacity of around 1,000 MW, running for some 100 km between the substations of Lixhe in Belgium and Oberzier in Germany. Initial steps have been taken with the authorities on both sides of the border in relation to the permitting procedures. It is a delicate and crucial phase for the success of this innovative project.

56 ELIA GROUP 2012 ENVIRONMENTAL REPORT 53 Jeroen Mentens PROPERTY, PERMITS & ENVIRONMENT The Renewables Grid Initiative is a coalition of nature conservation associations (such as the WWF and Birdlife) and system operators, including Elia. Our joint objective is to generate consensus around the grid expansion needed to integrate renewables while respecting biodiversity and the environment. We also exchange best practices, among other things. One example is the study we carried out in Belgium into reducing the risk of collision between birds and high-voltage lines and the resulting prevention measures. Bastian Bohm INNOVATION & KNOWLEDGE MANAGEMENT Over the past four years, technologies and business models for the energy system of the future have been developed and tested in the district of Harz in Saxony-Anhalt, a model region for renewable energy. The project is part of the E-Energy initiative supported by the Federal Ministry of Economics (BMWi) in partnership with the Federal Environment Ministry (BMU). By coordinating generation, storage and consumption more effectively, the region aims to show that renewable power can be supplied in a way that is stable, reliable and close to consumers. Valérie Legat ENVIRONMENT, MOBILITY COORDINATOR Mobility is a big issue for Elia. The company is taking a lot of action in this area, including providing electric cars and bikes and encouraging the use of soft modes of transport. On 21 September, our colleagues in Namur worked up a sweat at the Fêtes de Wallonie festivities. It was a great way to combine raising awareness with having fun and playing sport!

57 54 ELIA GROUP 2012 ENVIRONMENTAL REPORT A region in the east of Belgium, known as the East Loop, is a prime location for wind power generation owing, among other things, to its altitude. Its estimated potential is over 200 MW. The region s grid needs to be upgraded in the coming years. Environmental policy in Belgium From the outset, Elia has always endeavoured to incorporate respect for the environment into its activities. In recent years, society s priorities on the environment and development have evolved considerably. In line with this trend, Elia drew up a new environmental policy in 2012 which redefines the company s priorities in the light of contemporary concerns. One major component of this policy is to mainstream environmental issues into the company s core business, namely the transmission of electricity on its high-voltage grid, in order to maximise the Group s positive impact on its environment. The second basic principle of the policy is that every environmental action should be examined against the three strands of sustainable development economic, environmental and social (Profit, People and Planet) although not every action is required to achieve an optimal trade-off between these three strands. Lastly, Elia takes care at all times to avoid greenwashing, focusing instead on concrete action plans combined with measurable short-term and long-term commitments and quantified targets with an associated monitoring system. Elia will finalise new targets in early The approach covers the following areas: Pollution prevention prevention of soil pollution and treatment of polluted soil; prevention of noise pollution; prevention of electromagnetic pollution. Sustainable use of resources waste reduction and sorting (administrative and technical sites); responsible procurement policy. Climate change mitigation Bilan Carbone (carbon assessment) project aimed at reducing Elia s greenhouse gas emissions (CO 2 and SF 6 ); reduction in mobility-related emissions of Elia personnel; improvements to real estate. Environmental protection, biodiversity and restoration of natural habitats reduction of herbicides; combating invasive species; rehabilitation of unused land; review of corridor maintenance/creation procedures (including LIFE+ Elia project) protection of birds.

58 ELIA GROUP 2012 ENVIRONMENTAL REPORT 55 A policy rooted in our businesses Elia takes care at all times to avoid greenwashing, focusing instead on concrete action plans combined with measurable short-term and long-term commitments and quantified targets with an associated monitoring system. Elia will finalise new targets in early M The five-year budget for the transformer tank investment programme. 1. Pollution prevention SOIL STUDIES AND DECONTAMINATION Since Elia was established, soil studies have been conducted at over 200 sites across Flanders, in accordance with Flemish soil legislation. At sites where significant soil pollution was observed, this had been there previously and was the result not of electricity transmission activities but rather of earlier or nearby industrial activities (gas plants, blast furnaces, chemicals, etc.). Only the Merksem site and Wilsele substation projects, launched in 2011 with a total budget of 1.7 million, are still ongoing. In 2012, 1,105,266 was spent on research, follow-up and implementation of decontamination work in Flanders. Soil legislation was implemented in the Brussels-Capital and Walloon Regions after Elia was established. Elia anticipated said legislation by carrying out soil pollution assessments at all of its sites. Based on these, it ringfenced the future costs of potential decontamination projects. These provisions are updated in accordance with changes in legislation. Accordingly, measures were taken to manage the risks of heavy metal pollution at the Avenue de Vilvorde - Quai Monnoyer sites in Brussels and decontamination projects were submitted for the Ville-sur-Haine site and the Bévercé and Marche-les-Dames high-voltage substations in Wallonia. Following work to strip old paint from pylons on old 70 kv lines, prior to repainting, Elia discovered lead pollution in the immediate vicinity of pylon bases. The environmental requirements laid down in the specifications for paint work were made more stringent and regular checks are carried out. A lead pollution risk study was also conducted on lines where similar work had taken place in the past. ACCIDENTAL SOIL POLLUTION Elia manages over 12,000 plots of ground, spread right across Belgium. To prevent waste dumping (fly-tipping) on this land and protect the surrounding environment (soil, ground and surface water, etc.) in the event of accidental pollution, Elia can call on the services of a specialist firm seven days a week to remove all contamination as quickly as possible. Our operational teams also have the appropriate equipment, such as absorption mats, to intervene on site. In 2012, some 16 interventions took place with no major incidents. TRANSFORMER TANKS Since transformers contain large quantities of mineral oil, new equipment is systematically installed in a watertight tank with an oil-water separator to prevent environmental pollution in the event of a leak. In addition to separators, Elia is installing coalescence filters to guarantee compliance with surface water quality environmental standards in the event of a leak. In Flanders, in the wake of the Vlarem legislation, all existing transformers must be fitted with a tank if they are upgraded, modified, replaced or moved. In Wallonia, all existing transformers will have to be fitted with a tank and an oil-water separator by An investment programme was established in 2004 for 540 voltage transformers and 800 backup or earthing transformers. The programme was updated in 2011 and includes an additional investment budget of 8,000,000 over five years. In 2012, 68 transformers were fitted with tanks, representing an investment of 1 million.

59 56 ELIA GROUP 2012 ENVIRONMENTAL REPORT Elia s new building on Quai Monnoyer in Brussels will be a model of eco-friendly construction, having been awarded both exemplary building status and the BREEAM Very Good label. ELIMINATION OF PCBS Since the end of 2005, none of Elia s equipment has contained more than 500 ppm of PCB (polychlorobiphenyl). Elia has undertaken to decontaminate transformers with concentrations below 500 ppm which are still in operation, or to replace those transformers before the end of their service life. The funds needed to complete this project have been earmarked. In 2012, 6 transformers were decontaminated by an accredited firm, representing 129 tonnes of mineral oil. NOISE Transformers at high-voltage substations generate low-frequency noise, the level of which must comply with values defined by regional legislation, according to the area s designated land use as stipulated in the land-use plans. Whenever changes or extensions are made to its facilities, Elia uses simulations to ensure that the prevailing values are not exceeded and makes any appropriate adjustments. One example is the Herfelingen (Herne) substation, where the current noise impact was examined following a legitimate complaint. A digital simulation is used to ascertain whether the planned changes will achieve the desired objective, namely compliance with the indicative values. Elia follows up on all noise-related complaints from local residents. Such complaints may relate to noise generated at high-voltage substations or by electrical conductors of overhead lines, mainly when there is fog or drizzle. In 2012, seven complaints were made about noise. In three cases, the cause was unrelated to Elia s facilities. The four others are under study, which means that noise measurements are carried out and, if the complaint is found to be legitimate, the results of these measurements will be processed using simulation tools to identify the most appropriate remedial measures. At a number of high-voltage substations, work is being undertaken following complaints and in conjunction with projects, plans or major work in order to meet noise requirements, taking into account the operational needs of the facilities being adapted and/or modernised. The substations in question are Herfelingen, Hoeilaart, Houthalen-Helchteren, Izegem, Lixhe and Stembert. 2. Sustainable use of resources WASTE REDUCTION AND SORTING Waste management is a key factor in companies competitiveness. Elia produces, collects and sorts industrial waste of various kinds in connection with its activities. This can be divided into three categories: hazardous waste (used oil, soiled cloths, asbestos, etc.), ordinary waste (paper, card, class 2 waste, etc.) and some inert waste. These waste types are stored in special containers before being taken away for processing by authorised collectors. Furthermore, Elia is making continuous and structural improvements to its waste management procedures. An inventory of the different waste types and flows, storage methods and processing and disposal channels has been compiled and waste produced non-systematically or in small quantities has been documented. Areas for improvement have been identified in order to optimise overall waste management. Elia informs and educates container park managers at its various sites about the importance of effective management and the negative impact of poor waste sorting. It also ensures optimum sorting of recoverable waste such as metals and batteries. The aim is to cut management costs while reducing environmental impact. The prevention measures implemented focus on changing behaviour and adopting environmentally responsible attitudes by tackling the problem at source, based on the premise that the best waste is that which is not produced. For example, Elia encourages its employees to avoid unnecessary printing. Drinks cans and plastic bottles have been replaced with returnable glass bottles in many meeting rooms and water fountains are also increasingly common at administrative sites.

60 ELIA GROUP 2012 ENVIRONMENTAL REPORT 57 An extensive internal awareness campaign was conducted on the theme of mobility to encourage a responsible, environmentally conscious attitude among all Group employees. Greenhouse gases accounting Elia recorded its greenhouse gas emissions using the Bilan Carbone tool in A project aimed at reducing Elia s emissions was also launched in 2011 and continued in Action areas were identified in all relevant departments. The project will be completed in March 2013 and will result in a new action plan covering mobility, energy use in administrative buildings and grid losses. SUSTAINABLE PROCUREMENT The Green Procurement project, launched in 2012, has been applied to several framework contracts. Environmental criteria make up at least 5% of the weight in selection decisions for the categories of purchases concerned. Respect for the environment is therefore a factor in supplier selection, alongside price and safety. These criteria encompass the contractor s environmental policy and energy consumption throughout the entire life cycle of the product, as well as transparency of product information. This method was applied to some 10 contracts in In addition, all Elia purchases are subject to its General Terms and Conditions of Purchase, which include a section on the environment. In this connection, contractors must develop and implement an environmental management system within their company, aimed at reducing the environmental impact of their products and services. Elia also strongly encourages its contractors to obtain ISO14001 or EMAS certification. 3. Climate change REDUCING THE ENERGY CONSUMP- TION OF ADMINISTRATIVE SITES AND TECHNICAL BUILDINGS Energy audits have been performed at all administrative sites over the past two years. They have resulted in various improvements, particularly at the company s headquarters where motion detectors for lighting were installed in little used areas. The new administrative building at Quai Monnoyer in Brussels, which was awarded exemplary building status by the Brussels Institute for Environmental Management (BIM/IBGE) in 2011, is nearing completion. From September 2013, it will house 300 Elia employees who currently work in a less energyefficient building. MOBILITY To reduce the environmental impact of travel and improve the quality of life of its staff, Elia works towards integrated management of mobility and offers its employees a range of sustainable solutions. An action plan was launched in 2011 and became fully operational in A communication campaign was conducted and an intranet site was developed to raise awareness and ensure that staff are kept fully informed. Elia is working to improve the day-today experience of its employees who travel by bike and has signed up to the Walloon cycling scheme Tous vélo-actifs to encourage bicycle use within the company. The actions taken in 2012 saw the number of cyclists increase by 3%. A pool of vehicles is made available at working premises situated in Brussels for daytime journeys made by staff who use public transport or soft modes of transport to get to work. These are 100% electric and plug-in hybrid vehicles, which means that they emit zero

61 58 ELIA GROUP 2012 ENVIRONMENTAL REPORT TREND IN THE VOLUME OF INSTALLED SF 6 AND THE ANNUAL LEAK RATE Volume of installed SF Tonnes 6 Leak rate % 55 1,2 54 1,0 53 0,8 52 0,6 51 0,4 50 0, ,0 CO 2 when running on electricity. Elia staff also have the opportunity to test and rate these exciting new technologies, which will soon form part of the car fleet. Hybrid vehicles emitting just 79 g of CO 2 are already being made available to junior executives. In a bid to minimise the impact of car travel by reducing fuel consumption and the associated pollutant emissions, 50 executives and employees completed ecodriving training over a 12-month period. The aim of the training is to teach people how to drive in a more environmentally friendly way and with greater consideration for other road users. The mobility campaign is broken down into five phases focusing on diversity of transport modes, bicycles, environmentally friendly cars, public transport and working in transit offices. SF 6 SF 6 gas has been used in electrical equipment for over 30 years as an electrical insulator in high- and very high-voltage devices. Gas Insulated Switchgear (GIS) is used in densely populated areas because it is more compact than traditional switchgear which uses air as an insulator. In the case of medium-voltage facilities, Elia uses mainly vacuum-circuit breaking chambers as an alternative to SF 6. This alternative is not available for high- and very-high voltage devices. Elia has drawn up investment and maintenance policies to limit the risk of SF 6 loss. To this end, manufacturers must guarantee a very stringent maximum percentage of loss throughout the lifetime of the facilities. The maintenance policy keeps operations involving compartments containing SF 6 gas to an absolute minimum. The volume of SF 6 gas installed in the Elia grid (from 36 kv up to and including 380 kv) is 54.8 tonnes. Consumption of SF 6 gas (as a replacement and as a top-up in the event of a leak) is tracked closely using a system that monitors each bottle of SF 6. The SF 6 leak percentage for all Elia facilities was 0.84% in This is one of the best results recorded for European TSOs. Maintenance of facilities containing SF 6 gas is carried out by certified teams in accordance with EU Regulation No. 305/2008. The first Elia employees were certified in 2010 on the basis of the Flemish Decree of 4 September 2009 on the certification of technicians tasked with recovering fluorinated greenhouse gases from high-voltage facilities. For this certification, Elia provides Synergrid (test centre) with access to its experts and the appropriate equipment to perform practical tests. 4. Environmental protection, biodiversity and restoration of natural habitats REDUCING HERBICIDE USE Elia owns 650 high-voltage substations located throughout Belgium. To prevent electrical arcing, vegetation is not allowed to grow beneath the technical facilities. In such places, the ground is mostly covered with gravel, which is difficult to maintain other than by using herbicides. Two measures have been taken to limit herbicide use: a ban on the use of herbicides in non-gravelled parts of substations (planted areas, areas of bare ground, etc.), and a largescale trial to assess 10 or so methods for maintaining gravelled areas at five substations without using herbicides. The trial will be conducted over a three-

62 ELIA GROUP 2012 ENVIRONMENTAL REPORT 59 Following a study carried out with environmental specialists, the risks of collision with high-voltage lines were mapped for a large number of bird species. year period with the aim of finding a long-term maintenance solution for all Elia substations involving minimal use of herbicides. Elia has also banned the use of herbicides by its subcontractors in all areas outside substations, such as around pylon bases. JOINT DECLARATION ON ENVIRONMENTAL CONSERVATION AND GRID DEVELOPMENT Since 2011, Elia has been a member of the Renewables Grid Initiative (RGI), a coalition of nature conservation groups (such as the WWF and Birdlife) and system operators, including Elia and 50Hertz. Their shared aim is to generate consensus around the grid expansion needed to integrate renewables while respecting biodiversity and the environment. In 2012 they signed a joint declaration regarding their commitment to transparency and public participation in the consultation process. The declaration confirms Elia s commitment to sustainable grid development. The Elia Group also collaborated with its RGI partners to produce a best practice guide applying across Europe. IMPACT OF OVERHEAD LINES ON BIRDS At Elia s request, Natagora and AVES, in collaboration with INBO, Vogelbescherming Vlaanderen and Natuurpunt, carried out a study into the distribution of hundreds of bird species (some of them rare) across Belgium. This, combined with the map of Elia s overhead line network, was used to work out the collision and electrocution risks faced by birds in the areas where they live. The study also compares the methods used to make overhead lines more visible to birds. The next step in 2013 will be to draw up a list of priorities for implementing suitable measures, based on planned maintenance work, in order to reduce the risk of collision. Meanwhile, work continued in 2012 to monitor the numbers of birds born in the falcon nesting boxes on Elia pylons. Around 100 hundred juveniles were ringed during the year. 166 Five plots of land near to high-voltage substations, covering a total of 16,600 m 2, were redeveloped to pro-mote biodiversity. PLANTING OF TREES AND HEDGES AROUND OUR FACILITIES Elia has been planting native species hedges around its high-voltage substations since By the end of 2011, 12 km of hedges had been planted. In 2012, a further 4.5 km were planted around six substations. The conversion of pylon bases into islands of vegetation continued in 2012 thanks to a new collaboration with the non-profit association Faune et Biotopes. Around 50 pylon bases were planted with flower meadows and shrubs. A maintenance agreement will be signed in the near future with the Nauwes and Flavion-Molignée game/ hunting councils.

63 60 ELIA GROUP 2012 ENVIRONMENTAL REPORT Five plots of land near to high-voltage substations, covering a total of 16,600 m 2, were redeveloped to promote biodiversity. Similar projects are planned for Elia will be improving the biodiversity of non-gravelled areas inside its highvoltage substations. The new contract, which enters into force in 2013, stipulates late mowing of all grassy areas. From now on, these areas will be mown twice a year and the cuttings used to promote the creation of natural flower meadows. DEVELOPMENT OF CORRIDORS UNDER HIGH-VOLTAGE LINES - LIFE+ ELIA PROJECT Launched in September 2011, the European LIFE+ Elia project is now fully operational. The project, which is subsidised by the European Commission and the Walloon Region and is being run in collaboration with our French counterpart RTE, aims to create ecological corridors beneath high-voltage lines in forested areas. During the first year of the project, a number of concrete actions were implemented on the ground, but the main emphasis was on mapping all of the areas involved and drawing up development plans for each one. The project was also promoted by means of a website ( and regular presentations to both the general public and other system operators. There are plans to install a second 3-phase transmission line on an existing high-voltage line in western Limburg which runs across and alongside several protected areas. In this connection, Elia is drawing up a forest development plan to enhance the ecological value of the corridor beneath the line and reduce maintenance costs. Support for environmental policies DECENTRALISED GENERATION In cooperation with the relevant distribution system operators and regional bodies, Elia is planning for the integration of decentralised generation units as part of regional sustainable development initiatives. In 2012, Elia and the Flemish distribution system operators took part in a study entitled Netbeheer en decentrale productie (system operation and decentralised generation) conducted by the Slimme Netten (smart grids) platform, an initiative of the Flemish authorities and the regulator VREG. VITO delivered the core of the study in the form of an assessment, with geographical distribution, of the renewable energy potential in Flanders by The study will serve to identify the grid requirements needed to meet the objectives laid down in the Pact 2020, the core document of ViA (Flanders in Action). The investments needed to connect this potential energy to the grid were examined and quantified. The study concluded that renewable energy and cogeneration targets in Flanders can be achieved with flexible connection and the right investment choices. A number of geographical areas were identified for the connection of cogeneration facilities and renewable energy sources for horticulture, most notably Merksplas, Lier and Rijkevorsel. The feasibility of connecting an area in the far north of the Campine region (Hoogstraten - Meer) is also being examined. In Wallonia, Elia carried out a wind potential study in 2009, in partnership with the ICEDD and APERe. Since then, the Walloon government has taken over, mapping this potential based on criteria set out in a ministerial decree in order to determine the priority development areas. This will be used to coordinate the development of wind projects and grid infrastructure. In early 2012, the Walloon Energy Commission (CWaPE) reported the conclusions of the REDI (sustainable and smart grids) think tank. Elia supports this process to integrate local generation, which aims to select the least costly solutions for meeting the Walloon government s targets on renewable energy while guaranteeing grid security.

64 ELIA GROUP 2012 ENVIRONMENTAL REPORT GWh Cumulative energy savings by customers connected to Elia s local transmission grid in Flanders totalled 512 GWh at the end of December 2012, equivalent to around 167,000 tonnes of CO 2. FLEXIBLE ACCESS Elia continued its collaboration with the Flemish and Walloon authorities on connecting generation units with flexible access. Discussions took place with all regulators with a view to making the necessary changes to legislation and contracts. In Flanders, the appropriate provisions were added to the technical regulations on electricity distribution. In Wallonia, flexible connection is one of the principles underpinning the conclusions of the REDI platform. A revision of the electricity decree is under preparation, which should take into account the principles identified by REDI. Meanwhile, the first wind farm has been brought into service in the East Loop including automatic procedures for detecting overloads and instructions for reducing the quantity of energy generated when necessary. PROMOTING RATIONAL USE OF ENERGY AMONG OUR CUSTOMERS As part of its public service obligations in Flanders, Elia implements an action plan each year aimed at encouraging Rational Use of Energy (RUE) amongst its industrial customers. In this context, Elia provides its customers with the resources required to make recurrent savings on their primary energy consumption for each MWh supplied, in the case of facilities connected up to 70 kv. Savings of 15.5 GWh were made in projects were carried out and our customers undertook to invest in some 10 energy-saving projects. Thanks to the initiatives Elia has taken amongst its industrial customers, cumulative energy savings since 2003 stood at 512 GWh at the end of December 2012, corresponding to around 167,000 tonnes of CO 2. SUPPORT FOR RENEWABLE ENERGIES: INTEGRATION OF OFFSHORE WIND FARMS For the offshore wind farms in the North Sea that already exist or are under construction, Elia is helping to finance subsea connection cables to the tune of 25 million per connection, applying special favourable measures to deal with the generation fluctuations associated with such units, and purchasing the green certificates awarded to them in accordance with the relevant legislation. This obligation is covered by a levy applied to the transmission tariff as there is no market for offshore certificates in Belgium. SUPPORT FOR RENEWABLE ENERGIES: GREEN CERTIFICATES Federal and regional legislators have developed market mechanisms aimed at encouraging investment in facilities for generating electricity from renewable sources. These include the green certificates awarded to generators by the regulators, vouching for the green credentials of their electricity. Suppliers produce the certificates annually in proportion to their sales, with the proportion being set by law. As a transmission system operator, Elia is required by law to purchase the certificates offered to it at a minimum price set by law. Elia then returns these certificates to the market by holding auctions. The balance between the price at which Elia purchases the certificates and the price at which they are sold at auction is passed on to the consumers through transmission tariffs. Under the mechanism supporting renewable energy in Wallonia, the Walloon Energy Commission (CWAPE) has also obliged Elia to buy back certificates offered by individuals with photovoltaic panels, at a regulated price. In this particular case, certificates bought by Elia cannot subsequently be put back on the market. Recently, the huge increase in the number of these certificates has led to market saturation. At Elia s request, CREG approved an increase in the levy charged in Wallonia to cover this legal obligation in October A further increase in the levy took effect on 1 January ELECTRIC AND MAGNETIC FIELDS The magnetic field produced by the electricity system has a very low frequency (50 Hz), much lower than that used by mobile phones and microwaves for example, and its intensity declines rapidly the further you move from the source. There are concerns amongst the public about the potential impact of magnetic fields on human health. International scientific studies carried out over the past four decades have not established a correlation between 50 Hz magnetic fields and health problems.

65 62 ELIA GROUP 2012 ENVIRONMENTAL REPORT Concerned about its responsibility for its employees and society, Elia has been actively contributing to the advancement of scientific knowledge on this subject. In 2009, it renewed its cooperation agreement, including full guarantees of scientific independence, with various research centres and universities forming part of the Belgian BioElectroMagnetic Group (BBEMG). The BBEMG studies the effects of electric and magnetic fields generated by the transmission and use of electrical energy at work and in our day-to-day lives. In addition, Elia has access to the results of high-level international research in the field through the Electric Power Research Institute in the United States. Elia also measures magnetic fields on site at the request of local residents. It received around 250 questions and requests in 2012, resulting in some 200 field measurements. In the absence of specific Belgian legislation in this area, Elia applies the European recommendations issued by the International Commission on Non- Ionising Radiation Protection (ICNIRP) and the Council of the European Union. When planning new investments, magnetic fields are simulated at the study phase. The area in which the magnetic field of overhead lines has an effect can be reduced through new technologies such as compact pylon arms. Furthermore, Elia avoids inhabited areas as much as possible when building new facilities. GRID LOSSES The transmission of electrical energy generates losses due to the heating of conductor materials when a current passes through them. Joule losses, as they are technically known, are proportional to the square of the current. In other words, the bigger the current the greater the loss. For example, a line loaded at 50% of its capacity generates losses four times smaller than the same line loaded at 100% of its capacity. An estimated 1.7% of electrical energy is converted into heat and so lost while being transmitted on the Elia grid. That equates to roughly 1.4 TWh over the course of a year. The international flows (loop flows) passing through Belgium also generate a substantial volume of losses. These flows are unavoidable in a meshed grid such as the European network but they can be reduced to some extent by using phase shifting transformers. Line losses can be reduced by increasing the voltage, but only to a certain degree because any increase in voltage is limited by the risks of premature equipment ageing. In other words, reducing losses is an important objective but also a delicate balancing act in operational terms. As far as transformers are concerned, two types of losses occur: iron losses, which are constant depending on the type and power of the transformer, and copper losses which are proportional to the square of the current passing through the transformer. Most high-voltage substations are equipped with two transformers. When load is low, optimal operating conditions are achieved by switching off the second transformer (thereby avoiding iron losses). However, when load is high, it should ideally be split between the two transformers (losses proportional to the square of the current). This means that operating conditions need to be regularly adjusted according to the load, with the transformers being switched on and off as appropriate. Here too, a happy medium has to be found as too much switching causes the equipment to wear out faster. These issues are being examined by a working group set up with a view to optimising operating conditions and so reducing losses.

66 ELIA GROUP 2012 ENVIRONMENTAL REPORT 63 Environmental policy in Germany 50Hertz plays a leading role in the Renewables Grid Initiative, which brings together nature conservation NGOs and transmission system operators in eight countries to debate the development of grid infrastructure. Together, they advocate the efficient integration of power generated from renewable sources into the European grid and the development of the networks needed to achieve this. In 2011, a European Grid Declaration on Electricity Network Development and Nature Conservation was drawn up under the auspices of the RGI. Its 29 signatories recognised the need to reconcile expansion of the electricity network with local environmental concerns. In 2012, 50Hertz and Elia helped to build on this declaration within the association, focusing on issues of transparency and public participation. The objective is to come up with optimal solutions for developing new grid capacity. A second declaration and a report entitled Best practices on grid development were signed by the 30 or so partners and submitted to the European Energy and Environment Commissioners in Brussels on 5 December Many of the concepts featured in these documents are already taken into account and applied by Elia and 50Hertz, so much so that the Elia Group is seen as a leader among European transmission system operators in terms of its efforts to enhance transparency, public participation and nature conservation. As members of the RGI board, the two companies have also contributed significantly to reports, workshops and conferences organised in Europe aimed at consolidating and encouraging the adoption of best practices on sustainable and socially responsible grid development. Ecological management of forest corridors Building overhead power lines across forests has an impact on the landscape and necessitates the creation of forest corridors that take account of the technical requirements for the secure transmission of electricity. Against this backdrop, 50Hertz commissioned a study to develop an interdisciplinary approach to the ecological management of forest corridors beneath its high-voltage overhead lines. This approach aims to reduce the impact on the landscape and to avoid the need for or reduce the impact of intervention by following an environmentally friendly design when developing and maintaining forest corridors. The study includes proposals for the sustainable management of forest corridors, which respect local circumstances and are geared towards ecological and social objectives, interests and functions. This management operates at three levels: At a strategic level, the approach encompasses: integration of ecological management of forest corridors into permitting procedures; specification of conditions and standards for the provision of information; specification of the content of ecological forest corridor management; specification of objectives and guiding principles.

67 64 ELIA GROUP 2012 ENVIRONMENTAL REPORT Ecological management of forest corridors By adopting this approach, 50Hertz is improving social acceptance of its infra structure and having a positive impact on nature and biodiversity. Locations on a planned route between Altenfeld and the southern border of the state of Thuringia, as part of the planned development of the 380 kv South-West Interconnector between Halle and Schweinfurt, have been designated as demonstration sites for the method. This strategy is translated at a tactical level into the following planning-related elements: appropriate spatial orientation of the planned forest corridor; landscape pre-orientation; delimitation of untouchable areas; composition of information and data sources; composition of a pool of biotope types for the management of forest corridors. At an operational level, when devising specific measures, the following stages are involved: selection of suitable development objectives (biotope types) for the specific forest corridors concerned; consideration of specified conditions and influencing factors; assistance with decision-making on planning; basis for transposition of measures and monitoring. As part of the project, management options are developed in the form of biotope type modules and then assembled. This approach results in a modular system whose principles can be transposed to other landscapes in the European Union and supplemented accordingly. In this connection, the following guiding principles for ecological management of forest corridors are taken for granted: no impact on safety (standards contained in safety regulations are taken into account); minimal intervention involved in developing the forest corridors; felling areas kept to a minimum, clearcutting staggered over time, environmentally sound felling techniques employed; sustainable development, adapted to local conditions; utilisation of natural processes and biotope potential; protection of nature and actions to promote biodiversity (protection statuses for species and spaces, links to biotopes); social objectives taken into account by adopting a functional perspective (consideration given to forest functions and space protection categories); promotion of regional development and consideration of user demands (corridors managed in dialogue with land owners, compromises sought in terms of space and time, identification and consideration of the interests of regional operators). The aim is, after evaluation and optimisation, to develop ecological management of forest corridors into a sustainable planning instrument and to anchor it in a legal framework. Biodiversity Flora and fauna are systematically taken into consideration from the planning phase of new construction projects, and protected as part of the operational management of installations. 50Hertz cooperates closely with local environmental and forestry bureaus. Ecological management of overhead lines A study into the ecological management of overhead lines, funded by the European Union and conducted in collaboration with local partners, helped to establish differentiated forest management on a regional scale and improved compatibility with the landscape. The aim of the study is to enhance biodiversity in the corridors beneath lines while enabling the safe operation of the relevant installations and promoting social acceptance of overhead lines. A pilot project is under way beneath two high-voltage lines in the Thuringia region. Once the relevant sections of line have been listed and mapped out, action plans will be drafted. For example, target habitats will be defined, as well as implementation strategies and proposals for maintaining the corridors.

68 ELIA GROUP 2012 ENVIRONMENTAL REPORT 65 50Hertz works closely with distribution system operators to ensure the safe and secure integration and transmission of decentralised generation. 17 Gw The 50Hertz control area which includes 17 GW of installed renewable capacity has a very high proportion of decentralised generation. Decentralised generation The 50Hertz control area which includes 17 GW of installed renewable capacity has a very high proportion of decentralised generation. Most of that power is generated by wind facilities connected primarily to distribution systems. To ensure the integration and safe transmission of this decentralised power to major consumption centres in southern and western Germany, 50Hertz cooperates closely with local distribution system operators, for both operational and planning purposes. This ensures the coordinated development of transmission and distribution systems. Grid development for integration of decentralised generation Under the German grid development plan, a foundation has been laid for the long-term integration and transmission of renewable energy. The measures identified in the 2012 plan will facilitate the transmission of renewable energy generated in the north-east of Germany to the south and south-west where demand is greatest. This will increase security of supply and improve the reliability of the electricity system. The implementation of three highvoltage direct current lines has been confirmed by the Federal Network Agency so that wind power can be transmitted over long distances with fewer grid losses. The controllability of this technology will also make it possible to avoid overload on existing lines. Diversity: the energy landscape of tomorrow While the amount of power generated from conventional fuels such as nuclear and coal is declining, net generation of renewable energy in 2012 covered a quarter or so of electricity consumption in Germany. In the 50Hertz region, renewable energy already covers 35% of electricity consumption. As a transmission system operator, 50Hertz integrates new renewable sources into its grid. Emissions and waste management As part of its socially responsible conduct and internal monitoring measures, 50Hertz subscribes to German industry s voluntary commitment to reduce its emissions of SF 6 gas. In addition, waste is recycled and its disposal is carefully monitored. Environmental expenditure In 2012, 50Hertz established preventive measures for the repair of transformer tanks and measures to manage noise and eliminate residual pollution during the construction of new infrastructure.

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70 03 Social report The Elia Group is aware of the major economic challenges that shape its activities. Given the central, neutral and independent role it performs at the heart of the electricity market, it is a key player in debates and can provide significant impetus to the development of its sector. It therefore pays very specific attention to the social dimension of its activities. This attention addresses various aspects and is manifested in a commitment to all internal and external stakeholders.

71 68 ELIA GROUP 2012 SOCIAL REPORT Daniel Schurman CEO OF NORTHER, BELGIUM As the promoter of a North Sea wind farm, Norther is naturally a stakeholder in Elia s project to develop an offshore grid in the North Sea. The proposed solution would allow us to connect our turbines much more reliably, thanks to the redundancy created by the meshed grid. This technical solution is definitely the outcome of genuine collaboration between Elia and all of the parties affected by this innovative project. Stéphane Otjacques INNOVATION & KNOWLEDGE MANAGEMENT Last autumn I was tasked with organising our first Innovation & Knowledge Management seminar for business leaders, regulators, captains of industry and academics. The aim was to discuss our vision of innovation in power grids with our partners and to foster synergies and collaborations. The number of participants, the relevance of the contributions and the quality of the discussions confirmed that such openness towards all our stakeholders is the right approach. Katharina Herrmann HUMAN RESOURCES MANAGER In 2012, we worked on developing a new training programme at Group level. At these interactive training sessions, German and Belgian colleagues will have the chance to get to know each other better while working on specific projects and at the same time assimilate shared standards, competencies and methods. The key components relate mainly to collaboration within international teams, leadership and change management. The aim of this development programme is to foster the emergence of a genuine Group culture based on actual experience, by implementing know-how acquired in the participants day-to-day activities.

72 ELIA GROUP 2012 SOCIAL REPORT 69 Frédérique Henrottin COMMUNICATION To mark the tenth anniversary of the Elia Fund in 2012, I was involved in organising a colloquium, in collaboration with the Fund s independent administrator the King Baudouin Foundation, and in publishing a wonderful brochure showcasing some of the 232 projects supported over the past decade and hopefully inspiring other associations to propose new initiatives. It was a rewarding experience, both professionally and personally! Dirk Manthey PROJECT COMMUNICATION Cooperation, transparency and dialogue are vital to ensure public acceptance of infrastructure development projects. One important resource that we have developed for local residents is our mobile information office, which allows us to organise local events quickly and flexibly. In August, for example, we took a tent, stand and information brochures to towns and communities along the planned route of the Uckermark line. People were eager for information and the discussions we had with residents and representatives of action groups and municipal authorities were very productive for 50Hertz. Henrik Beuster DIGITAL COMMUNICATION The launch of the new website in April was a prime opportunity for collaboration between colleagues at 50Hertz in Germany and Elia in Belgium. The fact that we now have a Group website shows that we share the same business, namely transmission system operation, have the same passion and share a common desire to meet the challenges of the future. It is also a chance to enhance our image among German, Belgian and European market players.

73 70 ELIA GROUP 2012 SOCIAL REPORT Staff policy In carrying out its missions, the Elia Group relies on the expertise and enthusiasm of some 1,907 staff, including 1,177 in Belgium and 730 in Germany. An activity that is essential to the economy and the community, a desire for innovation, an international dimension, a commitment to tomorrow s technologies and sustainable development, a staff mobility and development policy: these are all factors that help to attract the best staff and guide them through an interesting career. They are also reasons for all Group staff to give their very best. As an employer, Elia seeks out talented people and nurtures that talent, thereby creating a productive blend of experience and diversity. The Elia Group faces a variety of human resource challenges in a constantly and rapidly changing energy environment, including the need to: identify and attract young people in advanced technical disciplines (electromechanics and electricity) in order to train them in the specific skills needed in its activities both traditional activities, such as highvoltage technology and new ones, e.g. all the disciplines related to smart grids, integrating renewable energies and electricity market operation and regulation; enhance staff skills needed in areas of activity that are constantly changing and create common development programmes for Belgium and Germany in order to harness synergies and develop a culture of diversity; expand its activities internationally and foster knowledge sharing and staff mobility between the Group s various entities; develop its staff innovation, research and development capacities and encourage the use of new technologies; anticipate the company s HR needs and proactively expand its skills base to meet the challenges of tomorrow s world; integrate newcomers with older, more experienced staff who possess valuable knowledge and experience in order to create close-knit teams of experts; put in place performance management mechanisms designed to motivate and develop staff according to their own personal aspirations and the Group s changing needs; be attentive to the needs and feelings of staff, especially through regular satisfaction surveys; reward staff when the company is successful: capital increases reserved for staff, with share purchases at preferential prices, reflect such a desire on the part of the company.

74 ELIA GROUP 2012 SOCIAL REPORT 71 COMPOSITION OF THE ELIA GROUP STAFF 31/12/2012 Men Women Total FTE Elia 50Hertz Elia 50Hertz Elia 50Hertz Elia 50Hertz Management ,5 5 Supervisory staff Employees Total , , Against this backdrop, Elia has introduced policies on staff recruitment, performance management, training, career management and mobility. These policies are rooted in the values of the company s mission statement, which are a priority and which Elia believes are an essential foundation underpinning the way its employees should operate, both within the company and in their dealings with outside players. Enterpreneurial: actively seek opportunities and show the courage, along with others, to take the plunge with regard to improvements, overhauls or chances to help Elia to develop and serve its customers better; Empathic: be open and attentive to the feelings and opinions of others and demonstrate your desire to understand them while maintaining your own authenticity; Integer: be open, loyal and honest to others, respecting them and their professional ethics. Make commitments and keep your word; Responsible: be aware of the importance of your work and hence carry it out successfully using the appropriate resources, while at the same time respecting others and organisational constraints and accepting the consequences of your actions. The Group s vision defined in 2012 also establishes an exciting framework designed to stimulate the support, commitment and involvement of all staff in the future development of the company. Recruitment Elia took on 86 new employees in 2012 in the wake of both retirements and the creation of new positions. The proportion of employees with more than 10 years seniority has fallen gradually from 68% in 2002 to 58.96% in Women account for 18.27% of staff and are playing an increasingly significant role in key jobs for the Group s strategy and future, as shown by the presence of women among Management and on the Management Committee.

75 72 ELIA GROUP 2012 SOCIAL REPORT Sporting events are an opportunity for Elia Group employees to push themselves further while forging closer ties with colleagues and honing their teamwork skills. Top Employer 2013 Elia once again took part in the Top Employer survey organised by the independent experts at CRF (Corporate Research Foundation) in 2012 and won the coveted title of Top Employer for 2013, for the sixth year in a row. Five criteria are considered in the selection process: primary working conditions, secondary working conditions and the working environment, training and development opportunities, career opportunities, and corporate culture. The title, which was awarded to 53 Belgian companies in 2013, is a further boost to Elia s profile as a leading employer on the labour market. Job fairs As in previous years, job fairs were a particularly useful aid to Elia s recruitment activities. In 2012, for example, Elia took part in an original initiative: a job fair on board a train travelling through seven major Belgian cities with a view to meeting student engineers. The initiative went down very well with students and resulted in Elia taking on three new employees. Another specific initiative involved organising information sessions for job seekers in conjunction with employment partners (VDAB). Participants were given information about Elia s activities and the types of jobs on offer within the company. This first initiative of its kind was a real success, attracting some 66 participants. In addition to these specific actions, Elia also attended over 20 job fairs in Attending these different events allows Elia s recruitment specialists to meet new talent. Selected candidates are then invited to take part in the first phase of the recruitment procedure. New Elia jobs website The Elia Group website received a complete makeover in This was also an ideal opportunity to review the jobs website and tailor it to the communication preferences of today s jobseekers. The new jobs website ( is full of a wide range of useful and attractively presented information for potential candidates (videos, photos, articles, etc.). Following the upgrade, the number of visitors to the website has increased significantly, as has the number of CVs received, which has risen from 300 to an average of 400 per month. Partnerships with schools and universities Elia has developed a partnership policy with educational establishments in order to offer significant added value to universities and technical colleges and enable students to gain practical experience in the various disciplines associated with operating a transmission system. This is a very valuable learning experience for students and is also a chance for Elia to attract young people to the Group. Elia Technical Education Trophy For a number of years, Elia has organised a Technical Education Trophy aimed at raising awareness of scientific and technical disciplines among secondary school students. This was initially a standalone initiative, but, as of , Elia decided to place the scheme within the broader context of awareness-raising of scientific and technical disciplines under the Young Belgian Scientists initiative. Upper secondary school students from all sections are contacted and invited to work on a scientific or technical project which they present at the Science Expo, which was held this year on 27 and 28 April at Tour et Taxis in Brussels. For this event, Elia set up a fun learning stand, focusing on the electricity transmission system and operated by field staff. The stand aroused plenty of enthusiasm and curiosity among the young people.

76 ELIA GROUP 2012 SOCIAL REPORT 73 Elia has developed a partnership policy with educational establishments in order to offer significant added value to universities and technical colleges and enable students to gain practical experience in the various disciplines associated with operating a transmission system. This year, the field staff further aroused the curiosity of the young visitors by constructing a mini high-voltage power cable consisting of two electricity pylons linked by conductors with marking spheres and were unstinting in their efforts to share their passion with the many interested passers-by. The winners in the 3rd/4th-year secondary school category were as follows: 1 st prize: The electric shoe, Collège Notre-Dame de Basse-Wavre; 2 nd prize: Mini hydroelectric power station, Athénée Royal d Ath; 3 rd prize: Wind farms: and there was light, Institut des Dames de Marie, Brussels. And in the 5 th /6 th -year secondary school category: 1 st prize: Lightning strike, Athénée Royal Ernest Solvay, Loverval; 2 nd prize: Energy afloat, Athénée Royal de Woluwé St Lambert; 3 rd prize: The Seebeck effect: from hot to cold, electricity you will generate, Athénée Royal de Koekelberg. This initiative also provided an opportunity to talk to pupils from these schools and to interest them in job opportunities at Elia. Student work placements Elia operates a policy of student work placements for final-year secondary school, college and university students. Such placements allow students to get to know the company and its activities. By talking to Elia staff and experiencing the working environment, they may discover a real passion for our line of work. Student work placements are also an ideal springboard to subsequent employment with Elia. Final-year dissertations/ Theses Elia also helps students wishing to write their final-year dissertations on a subject related to its activities. To this end, partnerships have been developed with several colleges wishing to forge closer ties with Elia or 50Hertz. This initiative not only gives the students a closer insight into our activities, but also helps to forge closer ties between the academic world and the world of work. Finally, this type of relationship also facilitates the recruitment of new staff to complement our teams.

77 74 ELIA GROUP 2012 SOCIAL REPORT Regular information and training sessions are held for field personnel. Skills management Elia bases its skills management policy on a skills catalogue which includes five generic skills, defined for all Elia staff in line with the company s values. Skills are generally identified at various stages of an employee s career: in the appraisal when an employee is hired or changes jobs, in the development interviews for executives (the Midyear Review held each summer) and employees (during the annual Jobdate), as well as in the training provided to develop specific skills, and so on. For executives, a number of extra specific skills have been defined for each job family. For employees hired after 2002, the skills are supplemented with a description of the tasks specific to each job category. The operational divisions have also defined catalogues of specific technical skills. Both the executives and employees hired under the new staff rules are subject to a Performance Management process, including an interview at the start of the year to lay down the objectives that have to be met and the activities that have to be carried out, an appraisal interview at the end of the year and a development interview. In this respect, a new support tool for all staff skills and career managementrelated tasks within Elia has been developed and was launched in The HR4YOU application enables staff and their line managers to follow interactively all the stages in the skills management cycle. The application meets all privacy requirements. Training Elia offers its employees a wide range of training on both behavioural skills, such as assertive communication, and in relation to Elia s activities, including the Campus Elia training course, the Elia Business Game with its individual versions for specific target groups (middle management, foremen at Grid Services, etc.), the Elia s Activities training course and language classes. The IT Department also offers specific training on IT and associated tools. In addition, training pathways have been established for certain target groups including junior executives, middle managers, assistants to senior managers, newcomers to particular departments and project managers, etc. In addition, Elia allows staff to take part in external training programmes (e.g. at the Vlerick Leuven Ghent Management School), subject to certain conditions (motivation for application, compliance with entry criteria, etc.). In this respect, a new global approach to executive development at Group level was developed in By offering openings abroad, within an innovationoriented environment, and by renewing its commitment to empowerment, it enhances the Group s ability to attract talented individuals with the entrepreneurial spirit and intellectual curiosity that it needs. This new programme focuses on: creating and building on a clear and shared vision of leadership, change, strategy and values; creating and building on shared standards, knowledge, know-how and methodologies; creating and building on a Group culture through the work of ambassadors and the development of interpersonal networks; applying acquired knowledge to daily work. The initial results of this programme will be seen in 2013.

78 ELIA GROUP 2012 SOCIAL REPORT 75 In the field of safety-related skills, several certification pathways were reviewed in 2012, giving rise to the development of additional training courses. Technical training Training centres As well as developing behavioural skills, Elia is also investing in training programmes to continuously develop the technical skills of its field staff, and to ensure the safety of persons and installations. In Belgium, the Elia Group has a Training Centre located on Avenue de Vilvorde in Brussels. It is equipped with all the requisite training infrastructure, including a high-voltage substation, thus enabling all practical training to take place under safe conditions. Technical training needs are assessed each year in conjunction with the operational departments in the Asset Management Division. In 2012, specific emphasis was placed on developing a number of technical training courses. A number of new programmes relating to new technologies and installations that have been integrated into the network were established in 2012 with the help of external experts. Particular attention has also been given to harmonising and standardising working methods. The Training Centre coordinates these programmes and calls on the assistance of experts from the Technical Governance expertise Department, as well as experienced field staff and executives from the operational services, to help develop and organise the courses. The internal communication platform Technoforum was also updated in Within this framework, information sessions are organised to present technical subjects or technological developments to broader audiences in order to maintain a high level of technical knowledge within the organisation as a whole. In Germany, the Gridlab training and simulation centre, which was developed by 50Hertz and Cottbus Technical University, provides high-level training courses for staff at 50Hertz and external participants. Scenarios involving transmission systems, distribution systems and generators have also been simulated by joint groups of experts representing the various stakeholders in the electricity sector. After updating its approach to restoring supply after a blackout, 50Hertz organised a series of eight training sessions at Gridlab with the region s distribution system operators and the main generator Vattenfall. In the field of safety-related skills, several certification pathways were reviewed in 2012, giving rise to the development of additional training courses. Training in figures Average training time per employee 2011 : hours 2012 : hours Learning coverage (at least one day of training) 2011 : 74.23% 2012 : 74.69%

79 76 ELIA GROUP 2012 SOCIAL REPORT In Germany Professionalism is defined as the ability of an employee to act appropriately, reasonably and responsibly both from an individual and social perspective and in a wide range of situations. Knowledge management An assessment of knowledge levels within Elia gave rise to the establishment, in 2012, of a general framework covering the various facets of knowledge management, i.e. People, Processes, Tools and Governance. A pilot is currently being implemented within the Safety and National Control Centre departments with a view to improving knowledge flows and developing recommendations and standards. Around twenty recommendations have been developed in order to better structure knowledge capture, dissemination and use. The technical skills catalogue has been further developed within the Energy & System Management Division. This catalogue covers the technical skills required in the short term by Energy & System Management in order to perform its activities effectively. It comprises 32 skills divided into seven groups: market mechanisms, the legal and regulatory framework, basic knowledge of the electricity system, operational management of the electricity system, basic financial and economic knowledge, general knowledge and specific knowledge. Each skill is defined and broken down into several levels, each of which is described in such a way that it can be observed when being used at work. A project relating to future knowledge capture has been launched in conjunction with Elia Group R&D projects, the aim of which is to establish best practices via three pilots, which, following their evaluation, will feed into practical applications to be launched in Best Practice Category Source KM Scan external already documented Peer Assist external knoco K Handover external knoco KM Governance processes external knoco dedicated teaming process external knoco knowledge seeking external knoco Retention and handover piloting NCC shift handover within Elia NCC Training plans and scenarios within Elia NCC AAR piloting NCC/knoco TCC within Elia Peter KM lead within Elia Peter/knoco KM SPOC (knowledge manager) piloting pilots CoP leader piloting pilots Retrospect piloting R&D PDCA loop within Elia Safety incident reporting within Elia Safety domain coordinator within Elia Safety and TGX Knowledge Asset creation within Elia Safety and TGX CoP launch piloting Safety/knoco CoP meeting piloting Safety/knoco blogging new knowledge?? piloting Safety/knoco KM lessons learned external knoco KM metrics piloting Safety and NCC KM policy all Safety and NCC, knoco

80 ELIA GROUP 2012 SOCIAL REPORT 77 FROM KNOWLEDGE MAPPING TO KNOWLEDGE STRUCTURING IN 2012 PROPOSED REFERENCE FRAMEWORK FOR BEST PRACTICES AND RECOMMENDATIONS Communication and sharing Capture Synthesis Acces / Retrive People Process «CONNECTING» Informal knowledge sharing through networks, including network roles, structures and processes Knowledge <Managers / SPOCs per department Process owners (per knowledge domain) Knowledge Managers, Training center, Process owners «COLLECTING» Linked workflow of processes for organisational learning, including knowledge capture (e.g. After action reviews, Retrospect, Retention interviews, Dedicated learning), Creation and update of process guidance docuents, and processes for knowledge access, broadcast and re-use Technology OpenText collaborative technologies, including forums, expertise locator Lessons learned database: OpenText knowledge base Knowledge taxonomy, OpenText knowledge base, wikis, MEGA Search engine, elearning Governance KM policy (linked with HR, ICT, BPM), full-time KM support, KM training and resources, incorporation of KM into performance appraisals, Knowledge Domain plans, commitment and support This represents the current view of options for the final framework in This may be updated and adapted after piloting in 2012.

81 78 ELIA GROUP 2012 SOCIAL REPORT 72 The number of new employees who joined 50Hertz, making a total workforce as at 31 December 2012 of 730, including 20 apprentices and six trainees. In Germany Given the high level of skills and specialisation among its staff, 50Hertz is constantly looking to recruit, retain, develop and motivate all its employees. In 2012, 50Hertz developed recommendations in the leadership sphere and is continuing to expand and professionalise its HR services, placing the emphasis on staff development. Adapting to the changing demographic situation is achieved by increasing the number of apprentices, as well as through long-term planning of succession and a tailored strategic staff planning process. A collective agreement will define the standards for promoting the employability of all staff. RECRUITMENT AND STATISTICS 2012 was a particularly active year in terms of recruitment: 72 new employees joined the company, making a total workforce as at 31 December 2012 of 730, including 20 apprentices and six trainees. Average seniority and average age stood at 17.6 and 42.4 respectively. Women account for 23.4% of staff. 3.2% of 50Hertz staff have a disability. STAFF DEVELOPMENT The emphasis is placed on new approaches and tools geared towards long-term skills development to help the company achieve its objectives. All senior managers have attended development dialogues and taken part in the performance management programme. For the first time ever at 50Hertz, all employees took part in a performance review exercise and are now remunerated on the basis of that review. Thanks to detailed succession planning, technical apprentices will be able to work on 50Hertz infrastructure during their apprenticeships and two years thereafter, thereby enabling them to take over the baton when their colleagues retire. 50Hertz has also been actively involved in defining the Group level development programme, which will be launched in PARTNERSHIPS WITH UNIVERSITIES AND RESEARCH CENTRES 50Hertz has been working closely with academic institutions for many years. Emphasis has been placed on knowledge transfer, forging closer ties and, of course, recruitment, including work placements and supervising theses. Managers from 50Hertz contribute to sponsorship programmes set up with partner universities, drawing attention to the company s challenges and R&D needs and attending conferences. These activities are overseen by a Scientific Council for Energy Infrastructure, which is run by 50Hertz. Within this framework, teachers from partner universities regularly meet experts from 50Hertz, to discuss, for example, issues relating to electricity supply.

82 ELIA GROUP 2012 SOCIAL REPORT 79 Employee safety and welfare of and by employees The Elia Group prioritises the safety and welfare not only of its staff and the personnel of companies with which it works but also of its customers and the public as a whole. The company makes sure that its facilities are as safe and reliable as possible. Elia has set a target of zero accidents or incidents, which means avoiding any injury to people, as people are the focus of its concerns. Elia is today at the dawn of a real revolution within the energy sector and its networks. Our safety ambitions have taken on particular importance as a result of the increasing complexity of electricity systems, the increasingly rapid technological developments and changes to working methods and the prospect of increasing investments in the years ahead. In order to achieve our objectives, the company is working intensively in a number of areas, the first of which relates to improving the intrinsic safety of its infrastructure and its technical work methods. Elia includes risks assessment techniques in its management, management systems, procedures and activities. As such, safety is integrated into its infrastructure, work processes and methods. A common risk analysis method for primary medium-voltage substations has been developed jointly with distribution system operators under the umbrella of Synergrid. Elia has continued to develop this method for its 36 kv substations, as well as for its high-voltage substations in the 70 to 380 kv range. In 2012, special effort was devoted to performing 190 pre-identified priority risk analyses. The results of these analyses led to adjustments being made in order to reduce risks within the maintenance departments and to define new needs or arbitrate on existing replacement needs on the basis of safety criteria. Such clear procedures and instructions are needed if technicians are to be assisted in their daily operational activities. In 2012, 18 of these procedures or instructions were adjusted on the basis of input from the field with a view to making them clearer and more pragmatic. Training, educating and continuously involving staff in operational safety risks and corporate risks help to support and consolidate the establishment of constant risk awareness as part of the corporate culture. Elia s training programmes are based not only on solid theory, but also practical implementation and feedback from the field. They include the provision of technical training as well as basic safety training for line managers and employees. In 2012, technical staff attended over 7,200 manhours of safety training. Informal learning in the workplace also helps to identify strengths and weaknesses, which can then be taken into account in the efforts to prevent accidents and incidents.

83 80 ELIA GROUP 2012 SOCIAL REPORT Involvement at all levels of the company (management, line management, foremen, committees and employees), as well compliance with work methods, procedures and instructions and the notions of order and cleanliness are still required. The involvement of management and line management, both for field coaching and the monitoring of action programmes, is a vital part of maintaining the safety reflex at an appropriate level within the corporate culture. In 2012, some 600 Safety Walks were conducted by operational managers in parallel to the 100 or so safety audits carried out by the Safety Department. Safety and welfare help to ensure the effectiveness and quality of our activities. Elia monitors its safety indicators very closely and strives to continuously improve the maturity of its safety systems through monitoring and objective assessment, based on universally agreed and relevant indicators. Safe conduct is also integrated into the Performance Management of management, line management and all employees and constitutes an important dimension of personal development and career advancement. Health In addition to mandatory check-ups under occupational health care requirements (assessment of individual health risks), all members of staff are given access to thorough preventive medical check-ups. A new campaign to raise awareness of flu-related risks and the importance of the flu vaccination was also run. An information campaign on hazardous products was launched during Safety Week in May and ran until August. Staff were able to familiarise themselves with the new labelling, and gained a better understanding of the risks posed by hazardous products and how to use them. The campaign focused on limiting their use, following the instructions for their use and using suitable protective equipment. Raising awareness of the importance of a good diet continued in Emphasis was placed on the food pyramid, buying healthy products and eating seasonal fruit and vegetables. A brochure, screen savers and posters were used to promote the campaign. Results Six accidents leading to incapacity for work were recorded in 2012 (three of which occurred while technical activities were being performed), out of a total of over 19,000 field interventions. These accidents, as well as various other events in 2012, once again demonstrated that, in order to keep up the excellent safety results, we must continually focus on and strive to adopt a critical and open approach to applying the safety rules, procedures and instructions and to adapt our behaviour to constantly changing situations. Elia is continuing its ongoing efforts to systematically increase the level of safety at the workplace and at home through dynamic implementation of dynamic risk management principles such as STAR (STOP-THINK-ACT-REVIEW) or LMRA (Last Minute Risk Analysis), both when preparing and performing tasks and in unforeseen circumstances. The results confirm the relevance of the approach adopted, both as regards the intrinsic safety of installations and operational safety during the performance of our activities, and provide us with encouragement to continue down this path. With an average frequency rate of 3.52 over the past five years, Elia is on a par with companies with limited or no risks, such as those in the banking and insurance sectors.

84 ELIA GROUP 2012 SOCIAL REPORT ELIA FREQUENCY RATE 0,5 ELIA SEVERITY RATE 8 0,4 6 5,1 4,6 0,3 0,28 4 0, , , , ,1 0,0 0, , , , Safety of subcontracted staff Between 500 and 800 subcontracted technical staff work in our facilities every day. The safety and welfare of this group of workers is as important for the company as that of its own staff. Each year, over 2,400 subcontracted workers receive appropriate training to inform them about the risks and hazards they could face while working at our industrial facilities. This training is systematically followed by a knowledge test. To encourage the safety reflex amongst subcontractors and reward their positive safety results, various objective safety and quality parameters have been incorporated into both the organisation and implementation of activities in the field. These parameters are then taken into account when selecting contractors and outsourcing work. The results are evaluated and discussed with the subcontractors in a spirit of dialogue. The approach of existing and potential subcontractors to quality and safety is also audited. Over 300 quality and safety evaluations are performed each year. The attitude of existing and potential subcontractors to quality and safety is also audited. An action plan is defined as and when necessary to raise the level of their operation and results to the level Elia is looking for. Elia ceases to work with subcontractors who do not adequately follow safety policy or do not attain the required level for safety-related parameters and results. Wider commitment to safety Elia Group employees and its subcontractors staff are not the only ones who are required to heed the potential risks of high-voltage infrastructure: the same goes for anybody going near our facilities. At the request of various fire brigades, Elia organised sessions dealing with the specific risks and the safety measures to be taken during emergency activities near our facilities. Elia also regularly makes its facilities available to emergency teams and services so that they can conduct exercises in the most realistic possible context. Elia: valued for its knowledge of safety issues Elia s knowledge of safety issues is universally acknowledged. For example, Elia was given the opportunity to advise a gas system operator on the issue of performing work on electricity transmission facilities. It also ran an advanced training programme for an African transmission system operator on safe working practices and securing electricity transmission facilities.

85 82 ELIA GROUP 2012 SOCIAL REPORT The safety of persons who might be required to intervene in or on our facilities is important. Elia therefore makes its infrastructure available to the emergency services so that they can carry out exercises in a realistic setting. 50Hertz has set up a joint emergency organisation in collaboration with wind farm operators and the system operator TenneT TSO. Among other things, it enables access to government resources in case of emergency. In Germany OCCUPATIONAL HEALTH AND SAFETY The activities of the health and safety department helped to achieve the goal of zero work-related accidents in No serious work-related accident was reported this year, either by 50Hertz or its contractors. Workers adopt an integrated safety approach to planning their activities. The in-house training courses run in 2012 focused on the issue of protective equipment. One of the main objectives in 2012 was to optimise the safety approach for offshore activities. 50Hertz set up a common emergency organisational structure in conjunction with wind farm developers and the German system operator TenneT. This structure provides access, in the event of an emergency, to government resources and, in severe cases, to international aid. An unannounced exercise was carried out for the first time on the Baltic 1 wind farm. The experience proved to be positive thanks to the constructive approach of the various participants and enabled workers from 50Hertz to acquire new expertise. The development of more comfortable and protective work clothing enables linemen and workers performing offshore activities for 50Hertz to work in adverse weather conditions. All work clothing and individual protective equipment is certified by the government inspection authorities. Due to the increasing need for flexibility and increased travelling for work purposes, more driving training was organised for 50Hertz staff. Since 2012, all such training has taken place in one of the most modern road safety training centres in Europe, which guarantees the very highest standards of quality. The preventive medical check-ups performed as part of occupational health care have been expanded in accordance with the legal requirements. All check-ups were performed within the statutory deadlines. ACCIDENT STATISTICS In 2012, four occupational accidents were recorded, but no serious injuries were sustained and the accidents did not lead to incapacity for work. Commuting accidents have risen slightly, which has led 50Hertz to take appropriate measures.

86 ELIA GROUP 2012 SOCIAL REPORT 83 Harnessing energy wherever it is generated in future is the theme of the new branding campaign developed in 2012 for roll-out in The dandelion flowers here represent wind power. Stakeholder relations and social integration Engaging in open and transparent dialogue with all stakeholders is key to the future of transmission system operators. Awareness branding campaign The Elia Group wants its various stakeholders to understand the importance of what it does for the economy and the community. To this end, in 2008 the company rolled out a branding campaign, with a view to: coming across as a dynamic employer offering good future prospects so as to attract the new staff it needs to maintain the efficiency and quality of its service; gaining the trust of local residents and public authorities, sustained by a determination to identify the most appropriate solutions in a spirit of constructive dialogue; gaining the confidence of investors so as to have the capital for the investments required to safeguard the sustainable development of its activities; enabling citizens to better understand and support Elia s role in implementing energy and environmental policy, at federal level and within the regions. After defining its Group level vision in 2012, Elia has prepared a new branding campaign highlighting the new foundations underpinning the company, namely curiosity and innovation. This campaign will be launched in spring Following the concerns caused by the prolonged unavailability of two nuclear reactors, attention was focused, in the second half of 2012, on the issues of electricity supply and possible shortages. Against this backdrop, Elia decided to play a more active role in disseminating information on its core business, which is to maintain a balance in real time between electricity supply and demand. To this end, in September, it held an information session for the press in the presence of the Secretary of State for Energy, Melchior Wathelet. In December, it launched a mini-website, which can be accessed directly ( or via Elia s homepage, and which explains how the market operates and the actions that can be taken to deal with potential risks of electricity shortages. Alongside this, it launched on its homepage an indicator designed to show the estimated balance between supply and demand in Belgium. This indicator, which uses a traffic light system (red, orange and green), shows the anticipated situation today and tomorrow and provides an estimate for the following five days. Elia is also working with other system operators on an initiative run jointly with the European Commission which is designed to foster public awareness of the need to build new grid infrastructure and to encourage public acceptance whilst respecting the need to dialogue with society. Elia Fund: wonder and discovery for all Since it was established, Elia has ensured that its mission to promote security of supply and the electricity market has been reflected on the social front, by creating the Elia Fund in cooperation with specialists from the King Baudouin Foundation. The Foundation an ideal partner for such a project independently and transparently manages the Fund in keeping with the company s values.

87 84 ELIA GROUP 2012 SOCIAL REPORT Participating in sporting activities together allows Group employees to get to know, appreciate and trust one another more. The Elia Fund is aimed at people with disabilities in the broad sense of the term (people with a mental, physical or sensory disability, older people, families with young children, and so on) and supports projects that offer these individuals transparent and nondiscriminatory access to tourist, cultural and sporting facilities, in the same way as everybody else. The Fund, which has an annual budget of some 250,000, places an emphasis on wonder and discovery. The purpose of the fund is in line with Elia s mission. A parallel can be drawn between Elia s role, which is to ensure, in real time, a balance between electricity supply and demand, and that of the associations supported by the fund, which contribute to redressing the balance by providing opportunities for all, thus helping to bridge differences caused by nature at birth or resulting from accidents later on in life. In May 2012, the Fund marked its tenth anniversary by organising an afternoon of reflection in the presence of some 150 participants. Workshops were held in conjunction with the King Baudouin Foundation to discuss the following topics: exchange of experiences and best practices between associations; sport as a springboard for inclusion; how to foster participation and active citizenship; what perception do we have nowadays of people with disabilities; and, finally: how to create synergies between the leisure sector and the care sector. In late 2012, the panel of independent experts selected 24 projects which focused strongly on the integration of disabled people in as broad a context as possible projects In een rolstoel op de latten, Anvasport Audio-description : des événements sportifs et culturels pour tous!, ASBL Plain-pied In iedereen schuilt een Kim Clijsters of een Justine Henin!, Koninklijke Stade Leuven Tennis Club Sports canins pour tous, asbl Os mose In vogelvlucht, Sabena Aeroclub / Belgian Handflight Fund Jardin potager communautaire à Saint-Gilles, asbl Gratte Boer wat zeg je van, Open Thuis Limburg Op schattenjacht, Psylos Samen duurzaam mobieler, Zonnehoeve Living+ L écologie urbaine accessible à tous, Centre d écologie urbaine Met z n allen de fiets op!, Ter Bruyninge BMX voor personen met een beperking, een uitdaging!, Avalympics vzw Kom erbij en dans!, Katholieke Vereniging Gehandicapten in Deinze Le Kaléïdoson partagé, Groupe Mu Café Dansant, Woonzorgcentrum Releghem Hartverwarmend, Koor&Stem Murga: muziek en dans doorbreken grenzen, De Kerselaar Atelier de création de livres tactiles, Œuvre Nationale des Aveugles On the road, Sjarabang vzw DG- Inklusiv II, Begleitzentrum Griesdeck Wellness is hot, hip en vooral goed voor ons!, Dominiek Savio Instituut De la citoyenneté en marge à la citoyenneté en marche!, Plateforme pour le Service Citoyen Een wereld van verschil, DisABILITY Filmfestival In eigen woorden!, Gentse thuisbegeleidingsdienst Sint-Lievenspoor International wheelchair tennis tournament For the fourth year in a row, Elia supported the Belgian Wheelchair Tennis Open. This wheelchair tennis tournament brings together internationally renowned sportsmen and shows how sport contributes to the integration of people with reduced mobility.

88 ELIA GROUP 2012 SOCIAL REPORT 85 Social engagement takes a variety of forms within the Group, from climbing the Col du Galibier to raise money for cystic fibrosis and supporting Museum aan de Stroom in Antwerp... Tous vélo-actifs The third week of September is traditionally devoted to mobility across Europe. On this occasion, a Bike to Work Day was organised throughout Wallonia and a number of original events were held in Namur. One of these was a concert, the sound for which was partially provided by electricity generated by 40 bikes. Teams of colleagues from Elia took it in turns to generate the required energy as part of the Walloon government s Tous vélo-actifs scheme, which aims to encourage people to cycle to work. Oxfam Trailwalker Teams from Elia signed up for the Oxfam Trailwalker, a 100 km walk through the Hautes Fagnes (High Fens), to be completed in no more than 30 hours. The walk is a fund-raising event for Oxfam-Solidarité. It also enables colleagues involved in this arduous challenge to push themselves to the limit whilst creating a real team spirit and helping each other along the way. Climbing for Life For the second time, some 160 Elia Group employees from Belgium and Germany and a number of customers took on the challenge of the Col du Galibier, the legendary climbing stage of the Tour de France. The aim of the initiative, launched by Flemish Minister-President Kris Peeters, is to raise awareness and funds for people with asthma and cystic fibrosis. The participants had to endure wintery conditions on the first day of September, which forced them to push themselves even harder than last year. NFTE Network For Training Entrepreneurship develops programmes designed to promote entrepreneurial attitudes and skills among early school leavers, to help them to launch their own activity as self-employed workers, to help them integrate into a company as an enterprising and motivated employee and to motivate them to resume or complete their studies or training. NFTE seeks to achieve these goals by fostering positive attitudes, by helping to develop talents and skills, by bridging the digital divide through a hands-on approach and by giving these young people an overview of the business world through practical experience. Elia is proud to be involved in this initiative. Museum aan de Stroom Elia has formed a partnership with the Museum aan de Stroom (MAS), which opened in Antwerp in May The programme designed to promote Elia s activities within Metropolis, the museum s social theme, will be ready in 2013 and will enjoy high visibility, especially among potential young recruits. This will enable Elia to firmly establish itself in the Antwerp region, which is home to a number of major customers as well as the company s administrative headquarters for Flanders. Company visits Elia organises guided visits for interested groups, featuring a presentation of the company followed by a visit to a control centre and a high-voltage substation. These visits allow people to find out about the transmission system operator s activities. They usually take place at Elia s premises on the site at Avenue de Vilvorde in the Brussels port area, which is also home to the Elia Training Centre and the national control centre. Requests can be made to elia@ znz.be.

89 86 ELIA GROUP 2012 SOCIAL REPORT... to supporting the Clean Tech Media Award in Berlin and organising an exhibition on the theme of wind and wind energy. In Germany 50Hertz has taken a number of initiatives in keeping with its corporate social responsibility policy. As part of its commitment to community welfare and sustainable development, the company makes available sustainable infrastructure to the community. 50Hertz s commitment to social issues enables it to lay the foundations for a trust-based relationship with its various stakeholders and to create a range of opportunities to dialogue with them. This helps to increase acceptance of grid infrastructure. 50Hertz s commitment is mainly geared towards young people, education, social initiatives, environmental conservation and culture. These initiatives usually take the form of donations or partnerships that are in keeping with the company s values. Young people and social initiatives 50Hertz helps to promote the welfare of current and future communities through its actions to foster a sustainable society. While respecting traditions, it focuses particularly on providing support to younger generations. In 2012, for the second consecutive year, 50Hertz gave its support to the revived autumn cross-country run Rennsteig Herbstlauf. Over 400 joggers, including a large number of sports lovers from 50Hertz, took part in the half marathon, which is held in the Thuringian Forest. The event was boosted by the participation of young biathletes from the Schorfheide sports club in the south of Uckermark (Brandenburg). 50Hertz also supports young Biathinos who are learning this Nordic sport. Next season promises to be an energypacked one for the young talented players of the female volleyball team VfB 91 from Suhl. 50Hertz is sponsoring the young players from Thuringia and is encouraging them to follow in the footsteps of the senior team, which plays in the premier division. 50Hertz supports knowledge development and its transfer to future generations. As well as working with higher education establishments, 50Hertz is pursuing its partnerships to foster education and innovation, and knowledge dissemination. 50Hertz is the main partner of the Windstärken (Wind Forces) exhibition, which will run until the end of 2013 at the German Museum of Technology in Berlin. The exhibition invites visitors to plunge themselves into the world of wind and wind energy and to actively discover how the grid operates. In December 2012, 50Hertz also took the initiative to organise an interactive roadshow on the theme of the energy transition. It will stop off at a large number of schools. At the commissioning of the Northern Line, 50Hertz also launched, in the presence of the German Chancellor Angela Merkel, the interactive exhibition developed in conjunction with the Independent Institute for Environmental Issues. The campaign, entitled Turning energy around together, will get under way in schools in Mecklenburg-Western Pomerania in spring 2013.

90 ELIA GROUP 2012 SOCIAL REPORT 87 The installation of nest boxes on its high-voltage pylons reflects the Group s commitment to nature conservation. Environment 50Hertz is deeply committed to the environment and a sustainable energy system. It has become a Gold Partner and sponsor in the Energy category of the Clean Tech Media Award 2012, a German competition for sustainable, green innovative technological projects, which is awarded at a ceremony in Berlin. With the same aim of promoting sustainable development, 50Hertz has become a partner in EnergieCity Leipzig, which is building an information centre on the world of electricity, green technologies and construction and sustainable, energy-efficient refurbishment of buildings. 50Hertz identifies and develops replacement and compensation measures in order to reduce the impact of its new facilities on the environment, fauna and flora saw the creation of new natural habitats, such as ponds, lakes and biotopes, the planting of bushes, hedges and a hardwood, the rehabilitation of contaminated sites and the development of forest roads. 50Hertz also highlights the importance of the rational use of natural resources in daily office tasks. In partnership with local environmental associations and research institutes, 50Hertz has developed a green management approach to the corridors under very-high-voltage overhead transmission lines. In spring 2012, 50Hertz, forest wardens and environmental planners started to implement the approach and launched a pilot project at two sections of the Thuringian Bridge project. The aim of this approach is to reduce the impact on the environment of constructing new transmission lines and to redevelop the corridors in such a way as to preserve biodiversity.

91 88 ELIA GROUP 2012 SOCIAL REPORT Stakeholder relations Elia engages in open and transparent dialogue with its customers, suppliers, shareholders, potential investors, authorities and the community at large, as well as with Group staff members. Relations with suppliers Procurement is Elia s biggest expenditure line, covering the following aspects: high- and low-voltage equipment and grid investment projects (work contractors, engineering companies, turnkey projects and material); general purchases (including IT equipment and service contracts for the corporate departments); energy purchases. This procurement has a major impact on grid operation costs and is factored into tariffs. Purchases are subject to a procurement policy and a code of ethics that aim to preserve confidentiality, promote transparency and avoid any discrimination or conflicts of interest. Moreover, above a certain ceiling, procurement is subject to European legislation on tender procedures. Elia aims to reduce the overall cost of goods and services and to contract out work in a way that maximises quality, reliability and safety. Elia has developed a clear vision of its relations with suppliers and aims to develop with them a long-term relationship that is favourable to both parties. Its procurement policy is therefore based on the following principles: an objective selection and award procedure; compliance with Belgian, German and EU legislation; a constant quest for new partners and innovative solutions; a preference for suppliers that support our goal of operating, maintaining and developing a secure and reliable electricity system; a preference for suppliers that use their knowledge and experience to reduce our costs by minimising the total cost of ownership; a preference for contracting work and framework agreements in which the purchase of goods is linked to the provision of the corresponding services and the continual qualification of suppliers; a preference for suppliers that provide the best possible service to both external and internal customers; a preference for results-based commitments (or service level agreements) rather than meansbased commitments; continuous assessment and improvement of quality, individual safety and the environment; priority given to safety and environmental issues; Elia gives preference to suppliers that implement a safety improvement policy and offer green solutions at an acceptable price. Certificates and certifications such as SCC, BeSaCC, ISO 9001 and ISO are definitely an advantage. At the same time, Elia uses a supplier evaluation system that takes account of safety, quality of work, compliance with specifications, prices, deadlines and contractual conditions, and the importance of a sound economic and financial foundation. Specific evaluation criteria have been defined for each type of purchase, which enables a continuous improvement process to take place.

92 ELIA GROUP 2012 SOCIAL REPORT 89 The Elia Customer Day in November was attended by around 200 people, including industrial customers, distribution system operators, traders and representatives of the authorities, as well as the Secretary of State for Energy Melchior Wathelet. The Group s CEO Jacques Vandermeiren brought the event to a close. Relations with investors The Elia Group ensures communication and transparent dialogue with financial analysts and current and potential investors. Two-way communication between investors and management has been established to comment on the company s results, strategy and decisions and to understand the concerns of shareholders and analysts as well as the perception of the market. More than ten roadshows were organised with the CEO and CFO for the benefit of the hundred or so institutional investors in Europe s major financial centres. The Group also took part in the Belgian Excellence Investment Seminar co-organised by NYSE and ING in New York. In between roadshows, investors and analysts had a chance to talk to the CEO or CFO, either in person or by video conference. In addition, the Elia Group attended many national and international investment conferences as well as the annual events organised by the Vlaamse Federatie van Beleggingsclubs en Beleggers (VFB). Relations with employees INDUSTRIAL RELATIONS ON SECTORAL LEVEL To fulfil its role in Joint Committee 326, Synergrid (federation of employers of which Elia is a member) provides various support and consulting services on social issues for its members, including: support for employers organisations to prepare for the social dialogue; assistance for members in finding solutions to any industrial disputes; management of sectoral joint bodies. Following the establishment of a draft cross-industry agreement in early 2011, the caretaker government introduced a number of implementing measures at national level, such as the maximum wage increase of 0.3%. On 3 May 2012, a sectoral labour agreement was signed for the period , on the basis of which a recurring salary increase was awarded to all employees as of 1 January INDUSTRIAL RELATIONS ON GROUP LEVEL Company labour agreements were concluded for the transposition of collective labour agreement 90 (bonus linked to achievement of a set of collective results) at Elia and Elia Engineering. The joint works council met regularly in At these meetings, and the annual extraordinary works council meeting, it was given detailed information on the financial and economic situation of the Elia Group. The joint committee for prevention and protection at work met regularly, especially to discuss the induction of new staff and the 2013 annual occupational safety plan. The dialogue with employee representatives was constructive, and no social conflicts arose. INDUSTRIAL RELATIONS WITHIN 50HERTZ 50Hertz Transmission maintains close and constructive relations with employee representation bodies through the Mitbestimmung (co-decision) system. Staff representatives are closely involved in the company s initiatives and are also kept abreast of changes in the financial and economic situation via the Economic Committee. Social elections were held on 10 May 2012 and new staff representatives were elected. Elia System Operator, Elia Asset and Elia Engineering now constitute a single technical entity for the purposes of the works council and the committee for prevention and protection at work.

93 90 ELIA GROUP 2012 SOCIAL REPORT In February 2012, the Group held for the first time an Executives Day bringing together all executives from Belgium and Germany. The event was marked by a speech by the Secretary of State for Energy, Melchior Wathelet. During the summer, Elia s main concern was the potential energy shortfall during the winter period due to the unavailability of nuclear reactors. From September onwards, significant communication efforts were made to clarify the potential consequences for all customers. Security of supply was the main topic of debate at Customer Day on 16 November. Interest in this topic, coupled with the participation of the Secretary of State for Energy, Melchior Wathelet, ensured a record attendance of some 200 people. CREATION OF A EUROPEAN WORKS COUNCIL FOR THE ELIA GROUP In response to a request from Belgian and German staff representatives, Elia gave the go-ahead for the launch of negotiations with a view to establishing a European Works Council. Significant progress was made by the ad-hoc negotiating group as regards the common goals and the functioning of the future European Works Council. The establishment of a European Works Council is seen as an opportunity to support the integration of the two organisations and to contribute to the further development of a Group culture. Internal relations in the company Alongside industrial relations in official staff representative bodies, the Elia Group offers many opportunities for employees in both Germany and Belgium to meet, exchange information and engage in dialogue. These are organised at company level e.g. meetings in the field between the CEO and employees and within specific divisions (local information sessions). Departmental or team meetings are also held. An Executives Day bringing together some 400 participants from Belgium and Germany was held for the first time in early Further opportunities for Belgian and German colleagues to meet each other were also organised: the sporting challenge in Belgium, the sports day in Berlin, the climb up the Col du Galibier by Belgian and German staff and the joint meeting between Belgian and German management teams.

94 ELIA GROUP 2012 SOCIAL REPORT 91 To provide clear and transparent information to the widest possible audience, Elia launched a Ready for Winter mini website explaining how the grid operates and the procedures put in place with the authorities to cope with a possible power shortage. Relations with customers The Customer Relations Department and its account managers are the bedrock of Elia s dealings with customers. During the first half of 2012, specific attention was paid to communicating information about the new tariffs for As well as two information sessions held at the crossover between 2011 and 2012, Key Account Managers also provided specific information to their customers to enable them to fully understand the impact of these new tariffs on their individual situations. In May/June 2012, awareness-raising on issues relating to incompressibility (surplus production) and a specific communication action were organised for Access Responsible Parties (ARPs), regarding the inclusion of these effects in the imbalance tariffs. Elia s aim was to encourage ARPs to adopt optimised behaviour patterns. During the summer, Elia s main concern was the potential energy shortfall during the winter period due to the unavailability of nuclear reactors. From September onwards, significant communication efforts were made to clarify the potential consequences for all customers. Security of supply was the main topic of debate at Customer Day on 16 November. Interest in this topic, coupled with the participation of the Secretary of State for Energy, Melchior Wathelet, ensured a record attendance of some 200 people. The Users Group set up by Elia is a primary channel for bi-directional exchanges with grid users. Specific emphasis was placed on flexibility issues (incompressibility and shortfalls). The Belgian Grid working group focused its attentions on the introduction of a new customer group Closed distribution systems and on the modifications to contracts made necessary by the introduction of this new concept. Discussions on the optimisation of the Federal Grid Code got under way and a recommendation from the Users Group relating to a new concept called reservation of generation capacity was published. The main area of discussion within the European Market Design working group related to the intraday and day-ahead models for the North West Europe region and the allocation of flow-based capacity. Customers receive a monthly e-newsletter and can consult detailed and transparent information published on the Elia website. They can also access relevant applications and information via the extranet in an efficient, user-friendly and secure way. Relations with the authorities, local residents and the general public Elia takes care to inform the relevant administrative bodies and authorities and the people living near its facilities about what it is doing (whether it be investment, maintenance or emergency intervention projects) and how this may affect their daily lives, especially during works carried out by subcontractors or maintenance teams.

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96 04 Corporate governance statement With a view to meeting certain obligations, Elia is transparent, neutral and non-discriminatory towards all stakeholders involved in its activities. At Elia, corporate governance is based on two pillars: the 2009 Corporate Governance Code 3 which Elia adopted as a benchmark; the Act of 29 April 1999 on the organisation of the electricity market and the Royal Decree of 3 May 1999 on the management of the electricity transmission system applicable to Elia as a transmission system operator. 3 The Corporate Governance Code can be found on the website of the Corporate Governance Committee (

97 94 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT Jürgen Blume HEAD OF IBERDROLA RENOVABLES IN GERMANY As a globally active company in the field of renewable energy, Iberdrola sees big opportunities in offshore energy in the Baltic Sea. In 50Hertz, we have found the right partner to support these offshore developments and connect wind farms to the onshore transmission network in due course. David Van Gindertaelen INFRASTRUCTURE PROJECT MANAGEMENT In March 2012, freak winter weather damaged a number of pylons on the highvoltage line between Antoing and Mouscron in the Tournai region. Very quickly we were able to deploy a temporary line to provide emergency power in case an incident occurred during work to restore the grid. The restoration work was completed in December. Steven Mertens REGULATORY AFFAIRS We took part in the study into decentralised generation accommodation capacity in Flanders between 2011 and 2020, together with our distribution system operator colleagues Eandis and Infrax. The collaboration was part of the System Operator and Decentralised Generation working group within the Smart Grids platform set up by the Flemish government and VREG. It allowed us to compile an inventory of grid development needs required to meet the Pact 2020 targets.

98 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT 95 Tino Springer 50HERTZ SOUTH-WEST REGIONAL CENTRE On 4 October, a localised tornado seriously damaged a 380 kv line on the 50Hertz network, overturning five pylons. Fortunately, no one was injured. Our control centre brought the situation under control straight away, avoiding any congestion on the grid. Our colleagues on the ground immediately took the necessary steps to secure the pylons so as to eliminate any other risk. At the same time, we worked hard, in close collaboration with the fire service, to restore the safety of road traffic in the affected area. Julia Weiland REGULATORY AFFAIRS MANAGEMENT After almost three years, we finally succeeded in reaching an agreement with the Germany regulator, the Federal Network Agency, in 2012 on the system for approving investment budgets. The first ten-year grid development plan and the immediate recognition of investment costs in the grid tariffs constituted substantial improvements to the regulatory framework. Gilles Lafleuriel BUSINESS DEVELOPMENT With the initiatives taken by the Business Development Department, we are helping to harness the expertise present in the Group, use our skills to serve new customers and exploit growth opportunities outside of our historic networks. It is an exciting role at the interface between the talent present in the Group, whether in Belgium or Germany, and the expectations of a market without borders that is inclined to see us as a strategic and valuable partner. It is also an ideal job for bringing our new vision to life.

99 96 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT Composition of management bodies Board of Directors 4 Remuneration Committee CHAIRMAN Luc Van Nevel, independent VICE-CHAIRMEN Francis Vermeiren, Publi-T Thierry Willemarck, independent Jean-Marie Laurent Josi, Chairman Jacques de Smet Francis Vermeiren Auditors DIRECTORS Jennifer Debatisse, Publi-T Clement De Meersman, independent Jacques de Smet, independent Claude Grégoire, Publi-T Philip Heylen, Publi-T Jean-Marie Laurent Josi, independent Miriam Maes, independent Jane Murphy, independent Dominique Offergeld, Publi-T Steve Stevaert, Publi-T Leen Van den Neste, Publi-T HONORARY CHAIRMAN Ronnie Belmans 5 Corporate Governance Committee Thierry Willemarck, Chairman Jane Murphy Miriam Maes Audit Committee Clement De Meersman, Chairman Jacques de Smet Claude Grégoire Klynveld Peat Marwick Goerdeler Réviseurs d Entreprises SCRL, represented by Alexis Palm Ernst & Young Réviseurs d Entreprises SCRL, represented by Marnix Van Dooren Management Committee Jacques Vandermeiren, Chairman and Chief Executive Officer since 1 July 2012, Vice-Chairman and Chief Corporate Officer until 30 June Daniel Dobbeni, Chairman and Chief Executive Officer until 30 June Jan Gesquière, Vice-Chairman from 1 July 2012 and Chief Financial Officer Markus Berger, Chief Officer Asset Management Roel Goethals, Chief Officer European Activities & Participations Hubert Lemmens, Chief Innovation Officer Frank Vandenberghe, Chief Officer Energy & System Management Catherine Vandenborre, Chief Corporate Officer from 1 July Secretary-General Gregory Pattou

100 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT 97 4 Composition of the Elia System Operator and Elia Asset Boards of Directors as at 31 December Ronnie Belmans is Honorary Chairman of the Elia System Operator and Elia Asset Boards of Directors and is no longer a director. This means that he is no longer required to attend Elia System Operator and Elia Asset Board meetings except when invited by the Chairman to attend a meeting and assist with deliberations (in accordance with point 5 of the internal rules of procedure of the Boards of Directors). He was given the title on an honorary basis. 6 The Boards of Directors of Elia System Operator and Elia Asset decided on 24 November 2011 to appoint Jacques Vandermeiren as Chief Executive Officer and Chairman of the Management Committee of Elia System Operator and Elia Asset with effect from 1 July 2012, to replace Daniel Dobbeni, who ended his term of office as Chief Executive Officer and Chairman of the Management Committee of Elia System Operator and Elia Asset with effect from 30 June Idem Board of Directors The Boards of Directors of Elia System Operator and Elia Asset consist of 14 members, none of whom perform a management role within either of those two companies. The same directors sit on the Boards of both companies. Half of them are independent directors in keeping with the conditions laid down in both Article 526ter of the Companies Code and the articles of association, and having received a positive opinion from CREG on their independence. In accordance with provisions stipulated by legislation and the articles of association, these Boards of Directors are supported by three committees a Corporate Governance Committee, an Audit Committee and a Remuneration Committee which are the same for Elia System Operator and Elia Asset. The Boards ensure the effective operation of these committees. APPOINTMENT OF DIRECTORS The Ordinary General Meeting of Elia System Operator and Elia Asset on 10 May 2011 renewed the terms of office of the 14 directors for a period of six years. The Boards of Elia System Operator and Elia Asset co-opted Philip Heylen on 25 August 2011 as a non-independent director and replacement for Johan De Roo, who resigned with effect from 24 August He was appointed permanently by the Extraordinary General Meeting of Elia System Operator and Elia Asset on 26 October The directorships of the 14 directors will expire at the end of the 2017 General Meeting for the financial year ending on 31 December The six-year term diverges from the term of four years recommended by the Belgian Corporate Governance Code, a fact justified by the technical, financial and legal specificities and complexities associated with the tasks of the transmission system operator, which call for greater experience in those areas. It should be remembered that the appointment of independent and non-independent members of the Elia System Operator and Elia Asset Boards of Directors and their committees, as well as their roles, are subject to specific corporate governance rules. These procedures are laid down in the Act of 29 April 1999 on the organisation of the electricity market and in the companies articles of association. The Act of 29 April 1999 on the organisation of the electricity market gave the Corporate Governance Committee the important task of putting forward candidates for the role of independent director. The directors are appointed based on the candidate list drawn up by the Corporate Governance Committee. For each candidate, the Committee takes into account the up-to-date CV and the signed formal declaration concerning the independence criteria as stipulated by legislation applying to Elia and the articles of association. The General Meeting then appoints the independent directors.

101 98 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT These appointments are submitted to CREG for its opinion on the independence of each independent director. A similar procedure applies where an independent directorship becomes vacant during the relevant term of office and where the Board co-opts a candidate put forward by the Corporate Governance Committee. One of the Corporate Governance Committee s tasks is therefore to act as a nomination committee for independent directors. For the appointment of non-independent directors, no nomination committee has been established to make recommendations to the Board. This arrangement, which diverges from the Corporate Governance Code, is due to the fact that the Board constantly seeks consensus, wherever possible. Moreover, no significant decision can be made without a majority among the groups of independent directors and nonindependent directors respectively. APPOINTMENT OF COMMITTEE MEMBERS The terms of office of the members of the various committees supporting the Boards of Directors of Elia System Operator and Elia Asset were renewed by the two companies Boards of Directors on 10 May 2011 for a period of three years. On the same date, the Boards appointed Miriam Maes as a member of the Corporate Governance Committee, to replace Luc Van Nevel. TEMPORARY AD-HOC COMMITTEES Pursuant to Article 522 of the Belgian Companies Code, the Board of Directors of Elia System Operator set up a temporary ad-hoc committee in 2012 in relation to Elia s refinancing. The committee consisted of Dominique Offergeld, Clement De Meersman, Jacques de Smet, Claude Grégoire and Jean- Marie Laurent Josi. An ad-hoc committee was also set up in relation to Elia s capital increase. That committee consisted of Jacques de Smet, Jean- Marie Laurent Josi and Luc Van Nevel. AUDITORS At the Ordinary General Meeting of Elia System Operator and Elia Asset on 10 May 2011, Ernst & Young Réviseurs d Entreprises and Klynveld Peat Marwick Goerdeler Réviseurs d Entreprises, represented by Marnix Van Dooren and Alexis Palm respectively, were reappointed as auditors for a period of three years. Their terms of office are due to expire following the 2014 Ordinary General Meeting for the financial year ending on 31 December BOARD OF DIRECTORS ACTIVITY REPORT The Board of Directors exercises at least the following powers (the list is not exhaustive): It defines the company s general policy, values and strategy. In transposing those values and strategy into primary guidelines, the Board of Directors takes into account corporate social responsibility and diversity, both in terms of gender and generally. It exercises the powers bestowed on it by or under the Belgian Companies Code and by the Act of 29 April 1999 on the organisation of the electricity market, with the exception of powers attributed or delegated to the Management Committee. It takes any action deemed helpful or necessary to achieve the object of the company, with the exception of powers reserved for the General Meeting by law or the articles of association and actions falling within the scope of the powers attributed or delegated exclusively to the Management Committee. It exercises the powers bestowed on it by the articles of association. It exercises general control, for example over the Management Committee in accordance with statutory restrictions regarding access to commercial data and other confidential information relating to grid users and its processing. It also monitors and evaluates the effectiveness of the committees supporting the Board. The Boards of Directors of Elia System Operator and Elia Asset met on five occasions in The following members were absent at one or more Board meetings in 2012: Jennifer Debatisse (28 June and 29 November), Claude Grégoire (29 November), Miriam Maes (29 August), Dominique Offergeld (28 June), Leen Van den Neste (29 November), Thierry Willemarck (28 June). Members who are unable to attend usually have a representative. Under Article 19.4 of the Elia System Operator articles of association and Article 18.4 of the Elia Asset articles of association, members who are absent or prevented from attending may give their prior written permission authorising another member of the Board to represent them at a given meeting and vote on their behalf at that meeting. However, no member can represent more than two directors. The annual auditors fees for auditing the simplified and consolidated annual accounts of Elia System Operator and the simplified annual accounts of Elia Asset and Elia Engineering were set at 150,000 ( 90,000 for Elia System Operator, 50,000 for Elia Asset and 10,000 for Elia Engineering), to be indexed annually based on the cost-of-living index.

102 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT 99 Significant events in 2012 Changes to the articles of association The articles of association of Elia System Operator and Elia Asset were amended on 15 May 2012 to bring them into line with the amendments made by the Act of 8 January 2012 (amending the Act of 29 April 1999 on the organisation of the electricity market and the Act of 12 April 1965 on the transmission of gaseous and other products by pipeline) ( Act of 8 January 2012 ) to the Act of 29 April 1999 on the organisation of the electricity market. The Act of 8 January 2012 transposes the provisions of the 3rd package of European energy directives into Belgian law. The following amendments were made to Elia System Operator s articles of association: amendment of the company s object, as described in Article 3 (more specifically sections 3.2, 3.4, 3.6 and 3.7); amendment of the rights attached to company shares, as laid down in Article 4.3; inclusion of the possibility of appointing two representatives of the federal government to the Board of Directors in a new Article 12.5; amendment of Article 13.1 to bring it into line with the obligations laid down in the Act of 8 January 2012 regarding ownership unbundling of the system operator from companies active in the generation and/or supply of electricity; replacement of certain concepts contained in Articles 13.2 and 17.7 by the concepts defined in the Act of 8 January 2012; amendment of Article 17.3, 1.1, 1 following the expansion of the company s missions in relation to the operation of electricity transmission systems; amendment of Article 19.4 in order to allow the two federal government representatives who may be appointed to the Board of Directors to take cognisance in a timely manner of the decision(s) taken, in the case of written decision-making by the Board of Directors; inclusion of the specific powers of the two federal government representatives who may be appointed to the Board of Directors, in a new Article In addition, a new Article 17.9 was added to the articles of association of Elia System Operator to enable derogation from the rules regarding the time-spread of the variable remuneration of Management Committee members, as stipulated in Article 520ter of the Belgian Companies Code. Entry of Elia System Operator into the BEL20 index Elia System Operator joined the BEL20 index on 19 March 2012, helping it to access the resources it needs to implement its strategy and raising the profile of the Elia System Operator share on the financial markets. Atlantic Wind Connection Since 2011, Elia System Operator has been involved, via its subsidiary Eurogrid International, in the Atlantic Wind Connection project to develop the first high-voltage direct current offshore grid off the East Coast of the United States. The project passed a major milestone in 2012 after the US Department of the Interior confirmed that there was no overlap with other potential rival projects in the area concerned. The next stage will be to get the project approved by PJM, the independent system operator on the US East Coast. New head of Management Committee Jacques Vandermeiren took over from Daniel Dobbeni as Chief Executive Officer and Chairman of the Management Committee of Elia System Operator and Elia Asset on 1 July The Elia Group will continue to benefit from Daniel Dobbeni s expertise for, among other things, the Group s further European and international expansion and Elia s representation in bodies of Group subsidiaries and in industry associations. The Board of Directors at its meeting on 22 March 2012 appointed Chief Financial Officer Jan Gesquière to the position of Vice-Chairman of the Management Committee of Elia System Operator and Elia Asset with effect from 1 July It also appointed Catherine Vandenborre as Chief Corporate Officer from 1 July 2012, to replace Jacques Vandermeiren. Long-term credit facilities totalling 700 million Elia System Operator concluded four bilateral long-term credit facilities in 2012 with BNP Paribas Fortis, JP Morgan, KBC and Rabobank. These three-year credit facilities are part of the refinancing of two 500 million bond loans due in April 2013 and May 2014.

103 100 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT Jacques Vandermeiren took over from Daniel Dobbeni as Chief Executive Officer and Chairman of the Management Committee of Elia System Operator and Elia Asset on 1 July The Elia Group will continue to benefit from Daniel Dobbeni s expertise for, among other things, the Group s further European and international expansion and Elia s representation in bodies of Group subsidiaries and in industry associations. Capital increase reserved for staff On 25 October 2012, the Extraordinary General Meeting of Shareholders of Elia System Operator approved the proposed capital increase reserved for members of staff of the company and its Belgian subsidiaries. The increase is taking place in two stages, in November 2012 ( 2012 capital increase ) and January 2013 ( 2013 capital increase ), for a total of 6 million (maximum of 5,300,000 in 2012 and maximum of 700,000 in 2013). It involves the issue of new VVPR Class B shares, with cancellation of the preferential subscription right of existing shareholders in favour of staff members of the company and its Belgian subsidiaries, if necessary below the accounting par value of the existing shares in the same class. The Extraordinary General Meeting decided to set the issue price at a price equal to the average of the closing prices on the 30 calendar days preceding 25 October 2012 for the 2012 capital increase and preceding 30 January 2013 for the 2013 capital increase, less 16.66%. The total value of the 2012 capital increase was 5,293, A total of 200,592 Class B shares in Elia System Operator were issued. Accordingly, Articles 4.1 and 4.2 of the articles of association of Elia System Operator relating to the share capital and the number of shares were amended on 19 December The latest version of Elia System Operator s articles of association is available in full on the company s website ( under Corporate Governance). APX-ENDEX splits into gas and power entities The APX-ENDEX energy exchange, which operates in the Netherlands, Belgium and the UK, has rearranged its activities into two large entities, one focusing on power, the other on gas. The aim of the split is to offer greater flexibility and development opportunities to both entities at a time of rapid change in the European energy markets. Once the split is complete, Elia System Operator will own 29.16% of the power entity. Stevin: Flemish government approves GRUP The Stevin project to extend the 380 kv network to the coast passed an important milestone on 1 June 2012 when the Flemish government approved the regional land-use plan (Gewestelijk Ruimtelijk Uitvoeringsplan (GRUP)). The dossier has now been referred to the Belgian Council of State for its opinion. Collaboration with Luxembourg TSO Creos As part of the project to interconnect Belgium and Luxembourg s high-voltage grids, Creos is preparing to build a 400 MW phase shifting transformer at the Schifflange site near the Belgian border. Creos awarded Elia an initial consultancy assignment in the 2012 tendering phase.

104 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT 101 Significant events after the balance sheet date CREG DECISION CERTIFYING ELIA SYSTEM OPERATOR AS A FULLY UNBUNDLED TRANSMISSION SYSTEM OPERATOR The Commission for Electricity and Gas Regulation (CREG) certified Elia System Operator as a fully unbundled transmission system operator in its decision of 6 December 2012, published on 17 January The certification procedure was carried out pursuant to the 3rd package of European energy directives aimed, in particular, at strengthening the requirements for system operators in terms of their independence from electricity generators and suppliers. It followed a review by both the Belgian regulator and the European Commission. The CREG certification is conditional upon a number of amendments being made to the company s articles of association. CREG TARIFF DECISION QUASHED Following the implementation in accordance with the regulatory framework in force in Belgium of Elia s tariff package for , which included injection tariffs for the first time and had been approved by CREG, a number of generators challenged CREG Decision (B) CDC-658E /19 concerning Elia System Operator NV/SA s application for the regulatory period , at the Brussels Court of Appeal. In its ruling on 6 February 2013, the Court of Appeal quashed the CREG decision mentioned above, while not calling into question the implementation of injection tariffs. The tariff framework and Belgian legislation state that all costs incurred by Elia that have been approved by CREG and that are needed to perform its role of Belgian transmission system operator will be recovered from grid users. These tariffs consist of both injection and offtake tariffs. In consultation with CREG, a decision was made to compile a new tariff dossier for the period , taking into account the provisions described in the above Court of Appeal ruling. The new tariffs are expected to be released in May 2013 and will cover all of Elia s budgeted costs, approved by CREG, for the period The new tariffs, which will be approved by CREG for the period , will restore stability and visibility for grid users. Remuneration Committee In addition to its usual support role to the Board of Directors and in accordance with Article 526quater of the Companies Code, the Act of 29 April 1999 on the organisation of the electricity market and the articles of association, the Remuneration Committee is required to make recommendations to the Board of Directors with regard to remuneration policy and the individual remuneration of Management Committee members and directors. The Remuneration Committee also draws up a remuneration report for presentation at the Ordinary General Meeting. The Remuneration Committee met on four occasions in The company evaluates its executive staff on a yearly basis in accordance with its performance management policy. This policy also applies to members of the Management Committee. Accordingly, the Remuneration Committee evaluates the members of the Management Committee on the basis of a series of quantitative and qualitative collective and individual targets. As noted elsewhere, remuneration policy for the variable portion of the Management Committee s remuneration was adapted to take account of the implementation of multi-year tariffs. Consequently, since 2008 the salary scheme for members of the Management Committee has included, among other things, an annual variable remuneration and a long-term incentive staggered over the multi-year regulation period. The variable remuneration has two parts: the attainment of quantitative collective targets, and individual performance, including progress on business projects. In 2012, the Remuneration Committee commissioned a review by the Hay Group of two of the seven functions of Management Committee members with a view to changing the composition of the Management Committee. It also made recommendations concerning, in particular, compliance of the variable remuneration of Management Committee members with Article 520ter of the Belgian Companies Code.

105 102 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT Audit Committee In addition to its usual support role to the Board of Directors and in accordance with Article 526bis of the Companies Code, the Act of 29 April 1999 on the organisation of the electricity market and the articles of association, the Audit Committee is responsible for: examining accounts and controlling budgets; monitoring financial reporting procedures; ensuring the effectiveness of internal control and risk management systems; monitoring internal audits and their effectiveness; following up on the statutory audit of annual accounts; evaluating and ensuring the independence of auditors; making proposals to the Board of Directors as to the (re)appointment of auditors and the conditions of such (re)appointments; investigating any issues that resulted in the resignation of auditors and making proposals as to what actions, if any, should be taken in this respect; verifying the nature and extent of non-audit services provided by auditors; ensuring the effectiveness of external audit procedures. Pursuant to Article 96( 1)9 of the Belgian Companies Code, this report must justify the independence and accounting and auditing competence of at least one member of the Audit Committee. The obligation for at least one member of the Audit Committee to have the necessary accounting and auditing competencies is also laid down in the articles of association. Clement De Meersman, the Chairman of the Audit Committee, is an independent director and has extensive experience and competence in accounting and auditing. He holds a degree in electromechanical engineering from KULeuven and a PhD in applied sciences. He has completed executive training courses at IMD in Switzerland and the Vlerick Management School. He was a visiting student researcher at MIT (USA) and the Institute of Technology in Tokyo. He began his working life at KULeuven as an assistant before pursuing a career outside academia at a company affiliated to the Michelin Group. In 1986, he joined the Dutch DSM Group as a business unit director in charge of the development and sale of plastic materials, composites and high-performance products. From 1994 to 2009, he was the CEO of Deceuninck NV/SA. Clement De Meersman is also the chairman of the boards of directors of De ceuninck Turkey, Deceuninck North America and Deceuninck Ireland and a member of the boards of directors of Plasticvision, ANL, Rf-T, Lano Textiles, Darvan and Smartroof. He is a member of the advisory boards of Verhelst and ING Kortrijk. He teaches at KULeuven. He used to sit on the boards of directors of Roularta and Koramic Industries. The Audit Committee may investigate any matter that falls within its remit. It is given the resources it needs to perform this task, has access to all information (with the exception of confidential commercial data concerning grid users) and can call on internal and external experts for advice. The Audit Committee met on five occasions in The Committee examined the annual accounts for 2011, drawn up in accordance with both Belgian GAAP and IFRS. It then analysed the quarterly results as at 31 March 2012, the halfyearly results as at 30 June 2012 and the figures for the first three quarters as at 30 September 2012, drawn up in accordance with Belgian GAAP and IFRS. The Committee took note of the audits and recommendations made. It also, in connection with Risk Management, proposed an action plan for each audit carried out, in order to improve the quality of procedures and thereby reduce the associated risks. The Committee monitored these action plans from a number of perspectives (timetable, results, priorities) on the basis, among other things, of an activity report from the internal audit department. The Audit Committee updated the strategic risks and carried out ad-hoc risk analyses based on the changing environment in which the Group operates. It also approved the 2013 audit plan. The Audit Committee was also involved in the process relating to the conclusion of long-term credit facilities.

106 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT 103 Corporate Governance Committee In addition to its usual support role to the Board of Directors and in accordance with both the Act of 29 April 1999 on the organisation of the electricity market and the articles of association, the Corporate Governance Committee is responsible for: putting forward candidates to the General Meeting to be appointed as independent directors; giving prior approval for the appointment and/or removal (where applicable) of Management Committee members; examining at the request of any independent director, the Chairman of the Management Committee or the competent federal and/or regional regulatory body or bodies all cases of conflicts of interests between the system operator on the one hand and a dominant shareholder, municipal shareholder or company associated with or linked to a dominant shareholder on the other, with a view to reporting to the Board of Directors (this task aims to strengthen the directors independence above and beyond the procedure detailed in Article 524 of the Belgian Companies Code, which the company also applies); providing its opinion in cases of incompatibility on the part of members of the Management Committee and personnel; ensuring the application within the company of provisions laid down by law, regulations, decrees and other acts relating to the operation of electricity systems, evaluating their effectiveness in view of the requirements for the independent and impartial operation of those systems, and reporting annually to the Board of Directors and the federal and/or regional body or bodies responsible for regulating the electricity market; convening at the request of at least one third of members Board of Directors meetings in accordance with the formalities for calling meetings as laid down in the articles of association. The Committee met on three occasions in As far as confidentiality rules permit, the Committee is kept regularly informed of issues of importance, such as the changes to the articles of association following the amendment of the Act of 29 April 1999 on the organisation of the electricity market, the Group s new structure and the new composition of the Management Committee, the procedure for certifying Elia System Operator as a fully unbundled transmission system operator, as well as the evaluation of the functioning of the Board of Directors and its committees and the interaction between the Board of Directors and the Management Committee. EVALUATION In 2012, the Board of Directors of Elia System Operator organised a formal procedure for evaluating its own functioning, that of its committees and the interaction between the Board of Directors and the Management Committee. This procedure was conducted in accordance with provisions 4.11 to 4.15 inclusive of the Corporate Governance Code, which the company has adopted as its benchmark code 8. The results of the evaluation were very satisfactory. Management Committee Pursuant to Article 9( 9) of the Act of 29 April 1999 on the organisation of the electricity market, the Management Committee is responsible for: operation of the electricity systems; day-to-day management of the system operator; and exercising the powers assigned to it by the articles of association and those delegated to it by the Board of Directors. The Management Committee usually meets formally at least once a month. Members also attend informal weekly meetings. Members who are unable to attend usually have a representative. In accordance with the Committee s internal rules of procedure, an absent member may authorise another member of the Management Committee to represent him or her by giving prior written permission. Nobody can represent more than two members. In 2012, the Management Committee met on seven occasions for Elia System Operator and seven occasions for Elia Asset. Each quarter, the Management Committee reports to the Board of Directors on the company s financial situation (in particular on the balance between the budget and the results stated). It also reports on transmission system operation at each Board of Directors meeting. As part of its responsibilities to report on operation of the transmission system in 2012, the Management Committee kept the Board informed of developments in the procedure for certifying Elia System Operator as a fully unbundled transmission system operator, developments in legislation applying to the company, the situation of its subsidiaries, the main decisions taken by regulators and administrations, the contribution to the work of the Federal Public Service Energy on preparing the Report on Electricity Generation Resources , as well as the monitoring and development of various investment projects. CODE OF CONDUCT Elia has a Code of Conduct to prevent staff and those with leadership responsibilities in the Group from potentially breaking any laws on the use of privileged information and market manipulation. The Code of Conduct lays down a series of regulations and communication obligations for transactions by those individuals in relation to their Elia System Operator securities, in accordance with the provisions of Directive 2003/6/ EC on insider trading and market manipulation and the Act of 2 August 2002 on monitoring of the financial sector and other financial services. The Code of Conduct is available on the company s website ( under Corporate Governance). 8 The Corporate Governance Code can be found on the website of the Corporate Governance Committee (

107 104 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT From left to right: Roel Goethals, Frank Vandenberghe, Catherine Vandenborre, Jacques Vandermeiren, Markus Berger, Jan Gesquière and Hubert Lemmens. Elia has a Code of Conduct to prevent staff and those with leadership responsibilities in the Group from potentially breaking any laws on the use of privileged information and market manipulation. CORPORATE GOVERNANCE CHARTER AND INTERNAL RULES OF PROCEDURE OF THE MANAGEMENT COMMITTEE, BOARD OF DIRECTORS AND BOARD COMMITTEES The Corporate Governance Charter and the internal rules of procedure of the Board of Directors, Management Committee, Audit Committee, Remuneration Committee and Corporate Governance Committee were last amended by the Board of Directors on 25 May The Corporate Governance Charter and the internal rules of procedure can be found on the company s website ( under Corporate Governance). TRANSPARENCY RULES - NOTIFICATIONS Elia System Operator received no notifications in 2012 pursuant to the Act of 2 May 2007 on disclosure of major shareholdings in issuers whose shares are admitted to trading on a regulated market and laying down miscellaneous provisions and the Royal Decree of 14 February 2008 on disclosure of major shareholdings.

108 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT 105 Remuneration report Remuneration of the Board of Directors and Management Committee PROCEDURE APPLIED IN 2012 WITH A VIEW TO DEVIS- ING THE REMUNERATION POLICY AND REMUNERATING DIRECTORS AND MANAGEMENT COMMITTEE MEMBERS Pursuant to Articles 16.1 and 15.1 of the respective articles of association of Elia System Operator and Elia Asset, a draft policy for the remuneration of Board of Directors and Management Committee members was drawn up by the Remuneration Committee. The Boards of Directors of Elia System Operator and Elia Asset approved the draft remuneration policy for Management Committee members. The draft remuneration policy for directors was approved by the General Meeting of Shareholders of Elia System Operator and Elia Asset. These figures were calculated on the basis of five meetings of the Board of Elia System Operator and five meetings of the Board of Elia Asset in In 2012, the Audit Committee met on five occasions, the Corporate Governance Committee on three occasions and the Remuneration Committee on four occasions. Directors remuneration consists of a basic remuneration of 25,000 per annum ( 12,500 for Elia System Operator and 12,500 for Elia Asset) plus an additional 800 ( 400 for Elia System Operator and 400 for Elia Asset) for each meeting after the eighth Board meeting of the year, including meetings with regulators. The remuneration is 50% more for the Chairman and 20% more for each Vice-Chairman of the Board of Directors. The Remuneration Committee also made recommendations regarding the remuneration policy and the remuneration of directors and Management Committee members. The composition and activities of the Remuneration Committee are covered in greater detail on pages 96 and 101 of the annual report. REMUNERATION OF BOARD OF DIRECTORS MEMBERS Total remuneration paid to the 14 directors in 2012 was 587,904 ( 299,577 for Elia System Operator and 288,327 for Elia Asset). The table below lists the individual gross sums paid to each director for Elia System Operator and Elia Asset combined: Luc Van Nevel 50, Francis Vermeiren 45, Thierry Willemarck 45, Jennifer Debatisse 9 31, Clement De Meersman 48, Jane Murphy 38, Jacques de Smet 60, Claude Grégoire 10 47, Jean-Marie Laurent Josi 50, Dominique Offergeld 38, Leen Van den Neste 11 31, Miriam Maes 38, Steve Stevaert 31, Philip Heylen 31, An additional basic remuneration of 6,000 per year per committee ( 3,000 for Elia System Operator and 3,000 for Elia Asset) is awarded to directors who sit on a support committee (i.e. the Audit Committee, Remuneration Committee or Corporate Governance Committee). An additional remuneration of 800 ( 400 for Elia System Operator and 400 for Elia Asset) is also awarded for each additional committee meeting (i.e. each meeting after the three covered by the basic remuneration), including meetings with regulators. This remuneration covers all costs, except for travel and accommodation costs abroad incurred by directors in the performance of their office. It is included in the company s operating costs and is indexed annually in accordance with the consumer price index. All remunerations are paid on a pro-rata basis during the director s term of office. Directors receive an advance on their annual remuneration at the end of the first, second and third quarters. The advance is calculated on the basis of the basic indexed remuneration and on a pro-rata basis in relation to the duration of the directorship during the quarter in question. A detailed account is prepared during the month of December for the financial year. This account takes into consideration any additional remuneration on top of the basic remuneration. Directors do not receive any other benefits in kind, stock options, special loans or advances. Neither Elia System Operator nor Elia Asset has issued credit to or on behalf of any Board member. There are no plans to substantially amend the current remuneration policy for directors in 2013 or Jennifer Debatisse s fees are paid to the company Interfin. 10 Claude Grégoire s fees are paid to the company Socofe. 11 Leen Van den Neste s fees are paid to the company Arcopar.

109 106 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT Management Committee remuneration policy The Remuneration Committee evaluates the members of the Management Committee once a year. The change in the basic remuneration is linked to the position of each member of the Management Committee with respect to a benchmark salary in the general marketplace and the assessment of his/her individual performance. Since 2004, the Hay Group methodology has been used to weight each management position and ensure that remuneration is in line with the going market rate. The remuneration of Management Committee members consists of the following components: basic salary; short-term variable remuneration; long-term variable remuneration; pension; other benefits. Article 17.9 of the articles of association provides for a derogation from the provisions of Article 520ter(1) and (2) of the Belgian Companies Code for all persons falling within the scope of those provisions. As regards variable pay, the Remuneration Committee evaluates Management Committee members at the end of each year based on a number of qualitative and quantitative targets. Since 2008, the variable remuneration has comprised two components, a short-term one and a long-term one. Basic remuneration Given general market conditions in late 2012, it was decided, at the suggestion of the Chairman of the Management Committee, not to increase the benchmark salaries of Management Committee members on 1 January 2013 beyond inflation. Due to their assumption of new positions, the positioning of certain members in relation to the benchmark salary for their new positions was adjusted. The recurring remuneration paid to the other members of the Management Committee totalled 1,487, ( 979, for Elia System Operator management and 508, for Elia Asset management). Therefore, a total basic remuneration of 1,867, was paid to members of the Management Committee in SHORT-TERM VARIABLE REMUNERATION The first component of variable remuneration is based on the attainment of a number of targets set by the Remuneration Committee at the start of the year, with a maximum of 25% of variable remuneration for the individual targets and 75% for the attainment of the Elia Group s collective targets ( short-term incentive plan ). In 2012, the combined short-term variable remuneration paid to the Chairmen of the Management Committee was 267, Variable remuneration earned by other members of the Management Committee in 2012 totalled 578, ( 377, for Elia System Operator management, including Jacques Vandermeiren s services as Chief Corporate Officer in the first six months of the year, and 200, for Elia Asset management). Therefore, a total of 845, of variable remuneration was paid to Management Committee members in TOTAL ANNUAL REMUNERATION In 2012, the total annual remuneration paid to the Chairmen of the Management Committee was 646, Total remuneration paid to other members of the Management Committee stood at 2,066, ( 1,357, for Elia System Operator management and 708, for Elia Asset management). Therefore, total remuneration for all Management Committee members in 2012 stood at 2,712, All the members of Elia s Management Committee have employee status saw Jacques Vandermeiren take over from Daniel Dobbeni as Chairman of the Management Committee on 1 July. The basic remuneration for the Chairmen of the Management Committee totalled 379, in The outgoing Chairman received an additional 56, in connection with the end of his contract, in accordance with statutory procedures (departure holiday pay).

110 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT 107 LONG-TERM VARIABLE REMUNERATION The second component of variable remuneration is based on multiannual criteria covering a period of four years ( long-term incentive plan ). The long-term variable remuneration earned in 2012 can be estimated at 83, (maximum amount in the event of full attainment of the multiannual criteria for the tariff period concerned) for the Chairman of the Management Committee and 366, for the other members of the Management Committee ( 238, for Elia System Operator management and 127, for Elia Asset management). These amounts are reviewed at the end of each year based on the achievement of the multiannual criteria. Part of the longterm variable remuneration is scheduled for payment in 2014 and the rest in No other variable remuneration was paid in Other benefits Other benefits awarded to members of the Management Committee, such as guaranteed income in the event of long-term illness or an accident, healthcare and hospitalisation insurance, invalidity insurance, life insurance, other allowances, assistance with public transport costs, provision of a company car, employer-borne costs and other small benefits are in line with the regulations applying to all company executives. The cost of other benefits in 2012 was valued at 39, for the Chairmen and 283, for the other members of the Management Committee ( 182, for Elia System Operator management and 100, for Elia Asset management). There were no Elia stock options for the Management Committee in CONTRIBUTIONS TO THE CORPORATE PENSION SCHEME Since 2007, all pension plans for Management Committee members have been defined contribution plans, meaning that the amount paid, excluding tax, is calculated on the basis of annual remuneration. In 2012, Elia System Operator paid a total of 113, for the Chairman of the Management Committee. For the other members of the Management Committee, Elia paid a total of 354, ( 239, for Elia System Operator management and 115, for Elia Asset management). PROVISIONS OF MANAGEMENT COMMITTEE EMPLOYMENT CONTRACTS AND SEVERANCE BENEFITS The employment contracts of Management Committee members concluded after 3 May 2010 were drawn up in accordance with the prevailing legislation on notice of dismissal. The employment contracts of Management Committee members hired before 3 May 2010, including the Chairman, contain no specific terms and conditions regarding dismissal. Elia System Operator shares held by members of the Management Committee and directors Management Committee members held the following shares on 31 December 2012: Number of Elia System Operator shares Management Committee member at at bought in 2012 Jacques Vandermeiren Chief Executive Officer - Chairman of the Management Committee from 1 July 2012 Jan Gesquière Vice-Chairman of the Management Committee from 1 July Chief Financial Officer 3,503 1,841 1,662 6,029 4,670 1,359 Markus Berger Chief Officer Asset Management 7,633 5,790 1,843 Roel Goethals Chief Officer European Activities & Participations 4,015 3, Hubert Lemmens Chief Innovation Officer 6,134 4,655 1,479 Frank Vandenberghe Chief Officer Energy & System Management 4,195 2,682 1,513 Catherine Vandenborre Chief Corporate Officer from 1 July

111 108 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT There were no Elia System Operator stock options for the Management Committee in Members of the Management Committee can buy shares via existing capital increases reserved for personnel or on the stock exchange. Other information to be communicated under Article 96 of the Belgian Companies Code and Article 34 of the Royal Decree of 14 November 2007 on the obligations of issuers of financial instruments admitted to trading on a regulated market This section contains the information required to be disclosed under the aforementioned legislation and not included in other parts of the annual report. INFORMATION REGARDING SPECIAL CONTROL RIGHTS OF CERTAIN SECURITY HOLDERS Pursuant to Article 4.3 of the articles of association of Elia System Operator and Elia Asset, all shares in these two companies have the same rights, regardless of the class to which they belong, except as otherwise stated in the articles of association. In this context, the articles of association state that specific rights are associated with Class A and Class C shares regarding (i) the appointment of Board members (Article of the articles of association of Elia System Operator and Article of the articles of association of Elia Asset) and (ii) the approval of decisions by the General Meeting (Articles and of the articles of association of Elia System Operator and Article 27.2 of the articles of association of Elia Asset). INFORMATION REGARDING LIMITATIONS BY LAW OR THE ARTICLES OF ASSOCIATION ON THE EXERCISE OF VOTING RIGHTS Pursuant to Article 4.3 of the articles of association of Elia System Operator and Elia Asset, the voting rights associated with shares held directly or indirectly by companies active in the generation and/or supply of electricity and/or natural gas are suspended. INFORMATION REGARDING THE RULES ON AMENDING THE ARTICLES OF ASSOCIATION In the event of the articles of association of Elia System Operator and Elia Asset being amended, Article 29.1 of the articles of association of Elia System Operator and Article 28.1 of the articles of association of Elia Asset are applicable. INFORMATION REGARDING LIMITATIONS BY LAW ORTHE ARTICLES OF ASSOCIATION ON SECURITIES TRANSFERS Transfers of securities are governed by Article 9 of the articles of association of Elia System Operator. INFORMATION REGARDING THE COMPANY S REACQUISITION OF ITS OWN SHARES The permission granted to the Elia System Operator Board of Directors for the reacquisition by the company of its own shares in the event of serious and imminent damage, as defined in Article 37 of the articles of association, was renewed for a period of three years with effect from the date of publication of the decision taken by the Extraordinary General Meeting of 26 October Shareholder structure at the balance sheet date On 31 December 2012, the shareholder structure of Elia System Operator was as indicated in the following table: SHAREHOLDER STRUCTURE Shares % Shares % Voting rights Publi -T 27,383, Publipart 1,526, Arco Group 3,786, Other Free float 27,859, Total 60,555,

112 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT 109 Features of the internal control and risk management systems The reference framework for internal control and risk management, established by the Management Committee and approved by the Elia Board of Directors, is based on the COSO II framework developed by the Committee of Sponsoring Organisations of the Treadway Commission. The framework has five closely linked basic components, providing an integrated procedure for internal control and risk management systems: control environment, risk assessment, control activities, information and communication, and monitoring. The use and inclusion of these concepts in Elia s various procedures and activities enables the company to control its activities, improve the effectiveness of its operations, optimally deploy its resources, and ultimately achieve its objectives. The implementation of COSO II at Elia is described below. 1. Control environment ORGANISATION OF INTERNAL CONTROL Pursuant to the Elia articles of association, the Board of Directors has established various committees to help it fulfil its duties: the Management Committee, the Audit Committee, the Remuneration Committee and the Corporate Governance Committee. The Elia Board of Directors is responsible for evaluating the effectiveness of the internal control and risk management systems. The Board has charged the Audit Committee with the task of monitoring: (i) the financial reporting procedure; (ii) the effectiveness of internal control and corporate risk management systems; (iii) the internal audit and its effectiveness; (iv) the statutory audit of annual and consolidated accounts, including the follow-up of any issues raised or recommendations made by external auditors; (v) the independence of external auditors. The Audit Committee meets quarterly to discuss the above points. The Finance Department helps the Management Committee to provide, in a timely manner, correct and reliable financial information to aid not only decision-making with a view to monitoring the profitability of activities, but also effective management of corporate financial services. External financial reporting one of Elia s duties includes (i) statutory financial and tax reporting; (ii) consolidated financial reporting; (iii) specific reporting obligations applicable to public companies; (iv) reporting obligations under the regulatory framework. Financial reporting is organised in such a way as to meet all reporting obligations while ensuring consistency between various reports and avoiding inefficiencies. The structured approach developed by Elia helps to ensure that financial data is both exhaustive and precise, taking into account the deadlines for activity reviews and the actions of key players so as to ensure adequate control and accounting. INTEGRITY AND ETHICS Elia s integrity and ethics are a crucial aspect of its internal control environment. The Management Committee and management regularly discuss these principles, on which the corporate rules established to clarify the mutual rights and obligations of the company and its employees are based. These rules are disseminated to all new employees, and compliance with them is formally included in employment contracts. The Code of Conduct also helps to prevent employees from breaking any Belgian legislation on the use of privileged information or market manipulation and suspicious activities. Management consistently ensures that employees comply with internal values and procedures and where applicable take any actions deemed necessary, as laid down in the company regulations and employment contracts. A particular focus is laid on compliance with confidentiality rules, primarily by means of a specific confidentiality clause in employment contracts, but also through various measures applied in the event of noncompliance. By virtue of its legal status as a power transmission system operator, Elia abides by a large number of statutory and regulatory rules setting out various fundamental principles such as confidentiality, transparency and non-discrimination. With a view to meeting these specific obligations, Elia has drawn up an Engagement Programme (approved by the Corporate Governance Committee) and produced a roadmap identifying which control initiatives should be taken, and in which order. The Compliance Officer reports annually to the relevant regulatory bodies in this regard.

113 110 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT ROLES AND RESPONSIBILITIES Elia s internal control system relies on clearly defined roles and responsibilities at all levels of the organisation. The roles and responsibilities of the various committees established within Elia are primarily identified in the legal framework applicable to Elia, the articles of association and the Corporate Governance Charter. Under the supervision of the Chief Financial Officer, the Accounting Department is responsible for statutory financial and tax reporting and the consolidation of the Elia Group s various subsidiaries. The Controlling Department monitors analytical accounting and reporting and assumes responsibility for all reporting in a regulatory context. The Investor Relations Department is responsible for specific reporting applicable to companies listed on the stock exchange. As regards the financial reporting process, the tasks and responsibilities of all employees in the Accounting Department have been clearly defined with a view to producing financial results that accurately and honestly reflect Elia s financial transactions. A detailed framework of tasks and responsibilities has been drawn up to identify the main control duties and the frequency with which tasks and control duties are performed. An IFRS Accounting Manual is used by all entities within the scope of consolidation as a reference for accounting principles and procedures, thus ensuring consistency, comparability and accurate accounting and reporting within the Group. The Finance Department has the appropriate means (including IT tools) to perform its tasks; all entities within the scope of consolidation use the same ERP software, which has a range of integrated controls and supports task separation as appropriate. Elia also clarifies the roles and responsibilities of all its employees by providing a description of its procedures, in keeping with the Business Process Excellence methodology, and of each job. COMPETENCIES With a view to ensuring its various activities are performed reliably and effectively, Elia clearly spells out the vital importance of its employees competencies and expertise in its recruitment, training and retention procedures. The Human Resources Department has drawn up the appropriate policies and defined all jobs in order to identify the relevant roles and responsibilities as well as the qualifications needed to fulfil them. Elia has drawn up a policy for the management of generic and specific competencies in line with the company s values, and promotes training so as to enable all its employees to effectively perform the tasks allocated to them. Requirements with regard to competency levels are continually analysed by means of formal and informal (self-)assessments at various stages of an employee s career. Training programmes on financial reporting are offered to all employees involved directly or indirectly with that task. The training lays an emphasis on the existing regulatory framework, accounting obligations and actual activities, with a high level of understanding enabling participants to address the appropriate issues. 2. Risk management Risk management is crucial in helping Elia to achieve its strategic objectives as defined in its mission. The Board of Directors and the Risk Manager jointly and regularly identify, analyse and assess key strategic and tactical risks. The risks are assessed qualitatively and/or quantitatively depending on their nature and potential effect. The Risk Manager then makes recommendations on how best to manage each risk considering the close interaction of Elia s entire risk universe. Based on this assessment, preventive, remedial and/or corrective actions are implemented, including the strengthening of existing internal control activities where applicable. The objectives set for the entire Group feed through to each level of the organisation. Assessments are performed annually to determine how well those objectives have been achieved. As part of its responsibilities, Elia s management establishes an effective internal control system to ensure, among other objectives, accurate financial reporting. It emphasises the importance of risk management in financial reporting by taking into account, with the Audit Committee, a whole range of associated activities and risks. It ensures that risks are truly reflected in financial results and reports. In addition, Risk Management goes beyond those risks known to Elia and tries to anticipate the nature and characteristics of emerging risks, which may impact Elia s objectives. Financial risk assessments primarily involve the identification of: 1. significant financial reporting data and its purpose; 2. major risks involved in the attainment of objectives; 3. risk control mechanisms, where possible. Financial reporting objectives include (i) ensuring financial statements comply with widely accepted accounting principles; (ii) ensuring that the information presented in financial results is both transparent and accurate; (iii) the use of accounting principles appropriate to the sector and the company s transactions; (iv) ensuring the accuracy and reliability of financial results. The activities undertaken by Elia, as an electricity transmission system operator in relation to its physical installations, contribute significantly to its financial results. Therefore, appropriate procedures and control systems have been established to ensure an exhaustive and realistic inventory of physical installations.

114 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT 111 Elia has established an enterprise risk management (ERM) culture to ensure the correct identification, analysis, assessment and actions towards risks in the achievement of Elia s strategy. This approach incorporates the key policies and procedures set out in the risk management recommendations and Risk Management Charter. Risk management is a company-wide activity, actively supported by the delegation of relevant responsibilities to all employees as part of their specific activities, as defined in the Charter. CONTINUOUS ASSESSMENT Employing a simultaneously top-down and bottom-up approach enables Elia to identify and, where possible, anticipate forthcoming events and react to any incidents occurring inside or outside the organisation which might affect the attainment of objectives. TOP-DOWN APPROACH BASED ON STRATEGIC RISKS Elia s strategic risk assessments are reviewed on a quarterly basis in the Audit Committee. Action plans or specific, themebased risk assessments are carried out whenever there is a perception of potential threats or opportunities. BOTTOM-UP APPROACH WITH REGARD TO BUSINESS With a view to identifying new risks or evaluating changes in existing risks, the Risk Manager and management remain in contact and look out for any changes that may call for the relevant risk assessment and associated action plans to be amended. Various criteria are used to determine the need to re-evaluate financial reporting procedures and associated risks. Emphasis is put on risks associated with changes in the financial and regulatory context, industrial practices, accounting standards and corporate developments such as mergers and acquisitions. Operational management assesses the relevant risks and puts forward action plans. Any significant changes to assessment rules must be approved by the Board of Directors. Risk Management is instrumental for Elia to maintain its value for stakeholders and the community, works with all departments with a view to optimising Elia s ability to achieve its strategic objectives, and advises the company regarding the nature and potential effects of future risks. 3. Control activities MAIN CONTROL ACTIVITIES Elia has established control activities at its various structural levels so as to ensure compliance with standards and internal procedures geared to the proper management of identified risks. These include: (i) clear task separation as part of procedures, preventing the same person from initiating, authorising and recording a transaction policies have been drawn up regarding access to information systems and the delegation of powers; (ii) integrated audit approach as part of internal procedures so as to link end results with the transactions supporting them; (iii) data security and integrity through the appropriate allocation of rights; (iv) appropriate documentation of procedures through the use of the Business Process Excellence Intranet, which centralises policies and procedures. Departmental managers are responsible for establishing activities to control the risks inherent to their department. Elia takes all necessary measures to adapt its control activities where internal or external events are liable to affect existing processes. FINANCIAL REPORTING PROCEDURE For all significant financial reporting risks, Elia sets out appropriate control mechanisms to minimise the probability of error. Roles and responsibilities have been defined in connection with the closing procedure for financial results. Measures have been established for the continuous follow-up of each stage, with a detailed agenda of all activities undertaken by Group subsidiaries; control activities are performed to ensure quality and compliance with internal and external requirements and recommendations. During the financial closing period, a specific test is performed to ensure control over significantly unusual transactions (e.g. through data mining software), accounting checks and adjustments at the end of the relevant financial period, company transactions and critical estimates. The combination of all these controls ensure the reliability of financial results. Regular internal and external audits also contribute to financial reporting quality. In identifying those risks that may affect the achievement of financial reporting objectives, the management takes into account the possibility of misreporting associated with fraud and takes appropriate action where internal control needs to be strengthened. Internal Audit performs specific audits based on the risk assessment for potential fraud, with a view to avoiding and preventing any instances of fraud, and data mining software is used in areas susceptible to fraud.

115 112 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT 4. Information and communication Elia communicates relevant information to its employees to enable them to fulfil their responsibilities and achieve their objectives. Financial information is needed for budgeting, forecasts and ensuring compliance with the regulatory framework. Operational information is also vital for the production of various reports, essential for the well-functioning of the company. As such, Elia records recent and historical data needed for corporate risk assessments. Multiple communication channels are used: manuals, memos, s, bulletin boards and intranet applications. Established information systems are used to structure information from a range of different sources so as to ensure: (i) transactions are recorded and monitored in real time; (ii) data is entered within a time-frame and at a level of detail that meets risk management requirements; (iii) the quality of information through discussions at different levels: the information owner validates the relevant data before publication, the management checks its accuracy and reliability, and IT risks (such as the quality of IT developments or the stability of data transmission) are followed up by action plans. Financial results are reported internally and validated at different levels. The management responsible for financial reporting regularly meets other internal departments (operational and control departments) to identify financial reporting data. It validates and documents the critical assumptions underpinning booked reserves and the company s accounts. At Group level, consolidated results are broken down into segments and validated by means of a comparison with historical figures and a comparative analysis between forecasts and actual data. This financial information is reported monthly to the Management Committee and is discussed quarterly with the Audit Committee. The Chairman of the Audit Committee then reports to the Board of Directors. 5. Monitoring Elia continually re-evaluates the adequacy of its risk management approach. Monitoring procedures include a combination of monitoring activities carried out as part of normal business operations, in addition to specific ad-hoc assessments on selected topics. Monitoring activities include (i) monthly reporting of strategic indicators to the Management Committee and the management; (ii) follow-up on key operational indicators at departmental level; (iii) a monthly financial report including an assessment of variations as compared with the budget, comparisons with preceding periods and events liable to affect cost controlling. Consideration is also given to third-party feedback from a range of sources, such as (i) stock market indices and reports by ratings agencies; (ii) share value; (iii) reports by federal and regional regulators on compliance with the legal and regulatory framework; (iv) reports by security and insurance companies. Comparing information from external sources with internally generated data and ensuing analyses allows Elia to keep on making improvements. Internal Audit also plays a key role in monitoring activities by conducting independent reviews of key financial and operational procedures in view of the various regulations applicable to Elia. The findings of those reviews are reported to the Audit Committee to help it monitor internal control and risk management systems and corporate financial reporting procedures. The Group s legal entities are also subject to external audits, which generally entail an evaluation of internal control and remarks on (annual and quarterly) statutory and consolidated financial results. External auditors make recommendations for improving internal control systems. The recommendations, action plans and their implementation are reported annually to the Audit Committee, which in turn reports to the Board of Directors on the independence of the auditor or statutory audit firm and drafts a motion for a resolution on the appointment of external auditors.

116 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT 113 Risks and uncertainties facing the company 1. Regulatory and income risks INTERNATIONAL The two transmission system operators in the Elia Group strive to proactively anticipate European legislation, new directives and regulations being prepared at EU level or awaiting transposition into Belgian and German law in order to minimise uncertainties. Elia and 50Hertz are European leaders when it comes to the components of the European Commission s third package of directives aimed at developing a single electricity and gas market, as regards both the independence and impartiality of the management. The provisions of the third package were transposed into Belgian and German law. Under these provisions, Elia System Operator and 50Hertz are subject to new procedures, such as certification as a full-owned unbundled TSO. The application of these new procedures may include regulatory risks for both companies. Elia and 50Hertz are also founding members of the European Network of Transmission System Operators for Electricity (ENTSO-E), which was set up in December 2008 and brings together 41 transmission system operators from 34 countries, including the EU Member States. Amongst other things, ENT- SO-E performs the role of the European Network of Transmission System Operators provided for in the third package. NATIONAL The Belgian legal framework was established when the first EU Directive on the internal electricity market was transposed by the Electricity Act of 29 April The latest amendment from 8 January 2012 adapted the Electricity Act to comply with the third package of European directives. As a result, CREG has been made competent for the tariff methodology within the framework provided in the Act, and consequently the Royal Decree regarding the tariff setting for transmission activities has been revoked. The company s net profit is largely determined by a fair return mechanism. In addition, and for the period , there exist two incentive components spread over four years. Elia s result is therefore influenced annually by changes to Belgian linear bonds (10-year OLOs), by its ability to achieve and/or exceed the efficiency improvement factor, and by the federal regulator s analysis of the various budget items. On 22 December 2011, the tariffs and mechanisms determining Elia s profitability as Belgium s transmission system operator were approved by CREG for a new four-year tariff period, effective 1 January The methodology used by CREG to adopt that approval was provisional since the third package of European directives had not been transposed into Belgian law by that date. Following the appeals lodged by third parties contesting the tariffs approved by CREG, in February 2013 the Brussels Court of Appeal annulled the CREG decision approving the tariffs. There is in general a legislative and regulatory uncertainty which Elia takes into consideration. Elia s turnover also depends on the energy transported through its grid, and therefore on the level of business activity of its customers. The decline in residential and industrial electricity consumption prompted by the slowdown in economic activity since 2009 may result in differences between actual electricity volumes being transmitted and those estimations built into the tariffs as approved by the regulator. Any deficit and/ or extra costs incurred as a result, such as additional financing needs, must be offset by the tariffs for the next regulatory period, under prevailing legislation. The impact on the electricity consumption and injection of Elia s various customer segments and the uncertainty surrounding the outlook for a lasting upturn in business amongst industrial clients pose a risk to Elia s cash flow. Elia s income is influenced by the dividends received from companies in which it has shareholdings, in particular those of 50Hertz. The tariffs charged by 50Hertz are subject to regulation by the German federal regulatory agency, Bundesnetzagentur (BNetzA). Decisions made and actions taken by the BNetzA under the current regulatory framework may have a substantial impact on 50Hertz. Furthermore, the German regulatory framework governing the activities of 50Hertz is subject to extensive European, national and regional legislation and regulation. Even though 50Hertz tries to anticipate European legislation, new directives and regulations in preparation at the European level or existing regulations and directives awaiting transposition into national law (such as those included in the Third Energy Package) may always cause uncertainties. The legislation and directives regarding the renewable energy sources may also have a great impact on 50Hertz s liquidity. Changes in the legislation may lead to significant variations on the current regulatory and/or liquidity risk.

117 114 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT 50Hertz has been appointed to operate as a TSO in Germany. While this authorisation is not limited in time, it can be revoked if 50Hertz, does not have, inter alia, the personnel, technical and/ or financial means to guarantee the continuous and reliable operation of the network in accordance with the applicable legislation. Such a revocation will have an adverse material impact on 50Hertz. REGIONAL The regulatory framework entails risks at regional level in Belgium. For instance, contradictions between the various regulations, including the grid codes, can hinder the exercise of the company s activities. The further development of and changes to these regulations may also impact the company s liability in the event of a power outage on the grid or in the context of a reform of the State the division of powers between federal and regional authorities, including the power to approve transmission tariffs. In addition, the regulatory uncertainty surrounding certain surcharges linked to, among other things, the green certificates mechanism means a risk that may affect cash flow and investment requirements. 2. Operational risks ENERGY BALANCE Every year, Elia and 50Hertz Transmission seek to contract the reserves needed to ensure continual balance between production and consumption in their respective zones. To that end, they analyse, both at national and European level, how the growing proportion of intermittent renewable energy generation units can be safely integrated without compromising the energy balance. The growth across Europe in the number of cogeneration and renewable energy units connected to distribution systems and the future connection of large offshore wind farms also create new challenges for operational grid management and require the further development of their infrastructure. These developments, changing trends in offtake and injection and the enhancement of interconnection capacity between EU member states are dependent on securing permits and approvals from local, regional, national and international authorities. The need to obtain such approvals and permits within certain timeframes represents a risk to timely implementation. Moreover, these approvals and permits can be contested in the relevant courts. POWER OUTAGES The reliability of the transmission systems operated by Elia and 50Hertz is among the best in Europe. Nonetheless, unforeseen events, such as unfavourable weather conditions, may occur to a degree which interrupts the smooth operation of one or more infrastructure components. In most cases, these incidents have no impact on consumers power supply because the meshed structure of the grids operated by Elia and 50Hertz means that consumers can be reached via a number of different connections. However, in extreme cases an incident in the electricity system may lead to a local or widespread outage (known as a blackout). Such outages may be caused by natural phenomena, unforeseen incidents or operational problems, either in Belgium or abroad. The Elia Group regularly holds crisis management drills so that it is ready to deal with the most unexpected and extreme situations. The general terms and conditions of its contracts limit the liability of Elia and 50Hertz to a reasonable level while its insurance policy is designed to offset the financial repercussions of these risks. RISKS ASSOCIATED WITH ELECTRONIC, IT AND TELECOMMUNICATION TECHNOLOGIES The incorporation of electronic, IT and telecommunication technologies in electricity transmission systems for the purposes of operational management, communication and surveillance (such as smart grids) modifies the nature of electricity systems and infrastructure used by TSOs such as Elia and 50Hertz. Failures in the telecommunications network or IT systems used to operate the electricity system may harm the latter s performance. Elia takes appropriate measures to back up the IT network and associated systems to the maximum extent allowed by technical and financial considerations. It has drawn up and regularly tests recovery plans for the most critical IT systems. However, component failures in the telecommunication network and IT systems are impossible to rule out. Where systems do fail, Elia will strive to minimise the impact on customers. ENVIRONMENTAL RISK Elia s results may be affected by outgoings needed to keep up with environmental legislation, including costs associated with implementing preventive or corrective measures or settling thirdparty claims. The company s environmental policy is developed and monitored in such a way as to manage these risks. Where Elia or 50Hertz might in any way be liable for decontamination, the appropriate provisions are set aside. Additional analyses are in progress and could lead to a revision of existing provisions or the adoption of new provisions. The same holds true for electric and magnetic fields. PERMIT RISK Both Elia and 50Hertz work have a duty to build an electricity grid consistent with the energy needs of its respective client base and the move by the energy industry into decentralised electricity generation, which necessitates a reinforced electrical grid.

118 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT 115 Elia and 50Hertz are founding members of the European Network of Transmission System Operators for Electricity (ENTSO-E), which was set up in December 2008 and brings together 41 transmission system operators from 34 countries, including the EU Member States. Amongst other things, ENTSO-E performs the role of the European Network of Transmission System Operators provided for in the third package. To this effect, electrical installations need to be upgraded or built new, which means obtaining building permits. Occasionally, obtaining permits takes place after lengthy dialogue with local populations and authorities, which may delay the building of such grid. RISK OF LEGAL DISPUTES Although the company operates in such a way as to minimise the risk of legal disputes, it may nonetheless become involved in such disputes. Where necessary, the appropriate provisions are laid aside for this. SAFETY AND WELFARE The Elia Group operates facilities that may cause harm to the natural or human environment or for which accidents or external attacks may have major repercussions. Persons working in or near electricity transmission facilities may be exposed, in the event of an accident, error or negligence, to the risk of electrocution. The safety and welfare of individuals (both Elia personnel and third parties) is a daily priority for the Elia Group s management, supervisory staff and personnel, and substantial resources are invested in safeguarding them. Each year, an action plan is approved and implemented based on developments in safety figures. RISKS ASSOCIATED WITH INEFFICIENT INTERNAL CONTROL MECHANISMS All internal processes can have an impact on the company s results in some way. The multi-year tariff mechanism increases the need for year-on-year increases in the company s overall efficiency. To this end, the efficiency of internal processes is monitored regularly, using performance indicators and/or audits, to ensure they are kept under proper control. This is overseen by the Audit Committee, which controls and monitors the work of the Internal Audit & Enterprise Risk Management Department. 3. Financial risks The Group is exposed to various financial risks in the exercise of its activities: market risk (namely interest rate risk, inflation risk, tax risk and limited exchange risk), liquidity risk and credit risk. The risks the company faces are identified and analysed in order to establish appropriate limits and controls and monitor risks and compliance with such limits. To this end, the Group has defined responsibilities and procedures specifically for the financial instruments to be used and the operating limits for managing them. These procedures and related systems are revised on a regular basis to reflect any changes in market conditions and the activities of the Group. The financial impact of these risks is limited, as Elia and 50Hertz are operating under the Belgian or German regulatory framework. See the Regulatory framework section for further details. To finance its investments and to achieve its short- and longterm strategic goals, Elia and 50Hertz turn to the capital markets. At the time of writing, the economic and financial environment in Europe has been shaken by the debt crisis affecting banks and the member states of the EU. This tension on the capital and credit market in a highly interdependent financial system may have an impact on loans to companies, in some cases reducing the financing capacity of Elia and/or 50Hertz. This situation could have an adverse effect on Elia s and 50Hertz s growth and on the pursuit of their objectives. Elia is partly financed with floating rate bonds. Although a financing policy has been approved that strives to achieve an optimal ratio between fixed and variable interest rates and appropriate financial instruments are used to mitigate the financial risk, a change in interest rates can have an impact on financial charges passed on in a subsequent regulatory tariff period (or in the same period in the event of an exceptional change in charges). Financial charges are also related to the credit rating of the company. Elia cannot guarantee total protection in the

119 116 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT Elia takes appropriate measures to back up the IT network and associated systems to the maximum extent allowed by technical and financial considerations. It has drawn up and regularly tests recovery plans for the most critical IT systems. event of significant movements in interest rates or in the event of a downgrading of its rating, or Eurogrid GmbH s rating. For more information, see the section on Financial risk and financial derivatives in the annual report. With the advent of new Belgian laws and regulations governing the decentralised production of renewable energy, notably via photovoltaic solar panels and windmills, the federal and regional governments have authorised the issuance of so-called green certificates, which are used as a financial support instrument for the renewable energy. The obligation for Elia to buy these certificates at a guaranteed minimum price poses a risk, as green certificates are effectively used as call options and hence its execution is uncertain. Consequently, Elia is subject to unforeseeable and sudden influxes of large numbers of green certificates, which, depending on the type of regulation applicable per region, must be either financed by Elia, or paid outright to the energy producer, representing a risk to Elia s cash flow. Elia has in place regulatory and cash-planning mechanisms which allows it to partially reduce the cash impact that this risk may pose. The unforeseeable nature of the execution of the call options prevents Elia from guaranteeing total protection in the event of significant variations in either the guaranteed minimum price or the volume of green certificates, the market prices for green certificates, or the evolution in the legal and regulatory environments at, Federal and Regional levels. Similarly, 50Hertz is exposed to a cash-flow risk as it is obliged to buy the electricity generated by renewable sources for a fixed price, but to sell it at variable prices dictated by the market. 4A. New business developments The Elia Group strives to anticipate new opportunities relating to its core business, both inside and outside the Belgian regulated framework. The launch of international projects abroad may create risks associated with foreign regulations or uncertainties regarding the business plans to be drawn up. Efforts to identify and assess risks are carried out in parallel to the business plan in order to assess and manage the various risks. OFFSHORE GRID IN THE NORTH SEA A particular business development is that related to Belgian Offshore. Elia has been appointed to develop, build, operate and maintain an offshore electrical grid, which will connect a group of offshore wind parks to the existing onshore electrical grid. This is a new, large-scale, long-lasting and technically complex project reliant on a number of regulatory, technical and financial conditions being met. Elia has a good understanding of the risks involved in the project and works with all stakeholders to move forward with the project. This North Sea offshore grid project is part of a broader project to interconnect Belgium, the Netherlands, Germany, Denmark, Norway and the United Kingdom in a North Sea grid (North Sea Grid Initiative). ATLANTIC WIND CONNECTION This project relates to the future construction of the first direct current high-voltage offshore grid, located off the East Coast of the United States. Elia is part of the consortium of companies that own the project. Elia takes account of the risks inherent in a business activity in a country whose legislative and regulatory framework and whose permitting procedures are different, while also factoring in the project s financial aspects and governance.

120 ELIA GROUP 2012 CORPORATE GOVERNANCE STATEMENT 117 4B. Specific risks relating to Elia s acquisition of 50Hertz As regards the acquisition of 50Hertz by Elia and IFM (through Eurogrid International SCRL and Eurogrid GmbH), the possibility of a limited or non-existing recourse to Vattenfall concerning certain risks relating to the activities of 50Hertz cannot be excluded, nor can it be excluded that certain risks are not covered by representations and guarantees or allowances provided by Vattenfall. 5. Contextual factors MACRO-ECONOMIC RISKS For some time now, all European economies have faced greater uncertainty and volatility, while the recovery expected after the multifaceted economic and financial crisis that emerged in 2007/2008 has proven to be premature, leaving European economies vulnerable. Even if the current financial crisis can be avoided, there remains uncertainty about how to solve the underlying long-term structural economic problems, such as national account imbalances, large levels of long-term unemployment, and diverging levels of competitiveness between EU countries, as well as questions surrounding the current European economic model being implemented in Member States at a time when political objectives concerning the electricity market are moving towards further integration of national grids in a single European market and a supergrid. HUMAN RESOURCES RISK Elia pursues an active branding and recruitment policy to maintain an appropriate level of expertise and know-how in a tight labour market. This is an ongoing risk, bearing in mind the highly specialised and complex nature of its business. IMAGE RISK Generally speaking, circumstances may arise that have a negative impact on the company s image. Elia has an internal control mechanism to guarantee the confidentiality of data. Despite this, external parties may pass on information in their possession that could have an impact on the company s share price. MISCELLANEOUS Elia realises that there might be other risks of which the company is not yet aware. Some risks may seem limited today but increase in the future. The subdivisions used give no indication of the potential consequences of the listed risks. Against this uncertain background, an extended period of slow economic growth, but with much higher unemployment rates, cannot be excluded, and may delay the infrastructure projects of one or both system operators. In addition, the impact of the financial crisis has magnified the volatility (upward and downward) of factors influencing the financial results in connection with the current fair return mechanism, such as the Belgian 10- year linear bond and interest rates in Germany.

121

122 05 Financial report The results of the year 2012 in details.

123 120 ELIA GROUP 2012 FINANCIAL REPORT Consolidated financial statements IFRS Consolidated income statement (in million ) Year ended 31 December Notes CONTINUING OPERATIONS Revenue 1 (5.1) 1, ,211.1 Raw materials, consumables and goods for resale (5.3.1) (6.3) (5.9) Other income 1 (5.2) Services and other goods (5.3.1) (654.7) (638.4) Personnel expenses (5.3.2) (170.7) (158.4) Depreciation, amortization, impairment and changes in provisions (5.3.3) (150.1) (140.9) Other expenses (5.3.4) (19.4) (26.8) RESULTS FROM OPERATING ACTIVITIES (EBIT) NET FINANCE COSTS (5.4) (134.8) (128.6) Finance income Finance costs (147.7) (142.8) Share of profit of equity-accounted investees (net of income tax) (5.6) Profit before income tax Income tax expense (5.5) (16.2) (43.3) Profit from continuing operations Profit for the period Profit attributable to: Owners of the Company Non-controlling interest PROFIT FOR THE PERIOD Earnings per share ( ) Notes Basic earnings per share (5.7) Diluted earnings per share (5.7) These sections include a reclassification of the figures per 31 December 2011 for comparison reasons. The accompanying notes are an integral part of these consolidated financial statements.

124 ELIA GROUP 2012 FINANCIAL REPORT 121 Consolidated statement of comprehensive income (in million ) Year ended 31 December Notes PROFIT FOR THE PERIOD Other comprehensive income Effective portion of changes in fair value of cash flow hedges (5.4) (1.5) (3.9) Tax on effective portion of changes in fair value of cash flow hedges (5.4) Defined benefit plan actuarial gains and losses (6.12) (14.9) (16.3) Tax on defined benefit plan actuarial gains and losses (6.12) Exchange differences on translation of foreign operations Other comprehensive income for the period, net of income tax (10.9) (13.3) Total comprehensive income for the period Profit attributable to: Owners of the Company Non-controlling interest TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

125 122 ELIA GROUP 2012 FINANCIAL REPORT Consolidated statement of financial position ASSETS (in million ) Notes NON-CURRENT ASSETS 5, ,145.1 Property, plant and equipment (6.1) 3, ,150.5 Intangible assets (6.2) 1, ,753.6 Trade and other receivables (6.3) Investments in equity-accounted investees (6.4) Other financial assets (including derivatives) (6.5) Deferred tax assets (6.6) CURRENT ASSETS Inventories (6.7) Trade and other receivables (6.8) Income tax receivable Cash and cash equivalents (6.9) Deferred charges and accrued revenues (6.8) TOTAL ASSETS 6, ,843.8 EQUITY AND LIABILITIES (in millions ) Notes EQUITY 2, ,046.9 Equity attributable to Owners of the Company (6.10) 2, ,046.9 Share capital 1, ,500.6 Share premium Reserves Hedging reserve (24.3) (23.3) Retained earnings Non-controlling interest Non-controlling interest NON-CURRENT LIABILITIES 2, ,203.5 Loans and borrowings (6.11) 2, ,918.5 Employee benefits (6.12) Derivatives (7.2) Provisions (6.13) Deferred tax liabilities (6.6) Other liabilities (6.14) CURRENT LIABILITIES 1, Loans and borrowings (6.11) Provisions (6.13) Trade and other payables (6.15) Income tax payables Accruals and deferred income (6.16) TOTAL EQUITY AND LIABILITIES 6, ,843.8

126 ELIA GROUP 2012 FINANCIAL REPORT 123 Consolidated statement of changes in equity (in million ) Year ended 31 December Share capital Share premium Hedging reserve Foreign currency translation Reserves Retained earnings Total Non controlling interests Total equity BALANCE AT 1 JANUARY , (20.7) , ,007.2 Profit for the period OCI 1 : cash-flow hedges - - (2.6) (2.6) - (2.6) OCI: actuarial gain/(loss) (10.8) (10.8) - (10.8) OCI: exchange differences Total comprehensive income for the period - - (2.6) Transactions with Owners of the Company, recognized directly in equity Contributions by and distributions to Owners Formed legal reserve (16.2) Dividends (84.5) (84.5) - (84.5) Total transactions with Owners (100.7) (84.5) - (84.5) BALANCE AT 31 DECEMBER , (23.3) , ,046.9 BALANCE AT 1 JANUARY , (23.3) , ,046.9 Profit for the period OCI: cash-flow hedges - - (1.0) (1.0) - (1.0) OCI: actuarial gain/(loss) (9.9) (9.9) - (9.9) Total comprehensive income for the period - - (1.0) Transactions with Owners of the Company, recognized directly in equity Contributions by and distributions to Owners Shares issued Share-based payment expenses Formed legal reserve (16.1) Dividends (88.7) (88.7) - (88.7) Total transactions with Owners (104.8) (82.5) - (82.5) BALANCE AT 31 DECEMBER , (24.3) , , OCI = Other comprehensive income.

127 124 ELIA GROUP 2012 FINANCIAL REPORT Consolidated statement of cash flows (in million ) Year ended 31 December Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit for the period Adjustments for: Net finance costs (5.4) Other non-cash items Income tax expense (5.5) Profit or loss of equity accounted investees, net of tax (5.6) (0.6) (1.4) Depreciation of property, plant and equipment and amortisation of intangible assets ( ) Gain on sale of property, plant and equipment and intangible assets ( ) Impairment losses of current assets (5.3.4) Change in provisions (5.3.3) 0.3 (25.3) Change in fair value of derivatives (7.2) Change in deferred taxes (6.6) (34.0) (15.3) Changes in fair value of financial assets through profit or loss 0.3 (0.2) Change in non-cash items Cash flow from operating activities Change in inventories (6.7) 0.6 (2.3) Change in trade and other receivables (6.8) (351.2) Change in other current assets (6.8) Change in trade and other payables (6.15) 2.5 (53.4) Change in other current liabilities ( ) (42.3) Changes in working capital (235.1) Interest paid (5.4) (142.8) (139.6) Income tax paid (5.5) (30.0) (49.5) Net cash from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment and intangible assets ( ) (317.2) (288.3) Acquisition of subsidiary net of cash acquired Acquisition of equity accounted investees (6.4) (3.1) 0.0 Acquisition of investment (7.1) (0.3) (0.8) Proceeds from sale of property, plant and equipment 1 (6.1) Proceeds from sales of investments Interest received (5.4) Net cash used in investing activities (312.4) (281.7) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from issue share capital (6.10) Expenses related to issue share capital (0.2) 0.0 Dividends paid (-) (6.10) (88.7) (84.5) Proceeds from withdrawal borrowings (+) (6.11) Net cash flow from (used in) financing activities 36.4 (84.5) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (219.3) 19.8 Cash & Cash equivalents at 1 January Cash & Cash equivalents at 31 December Net variations in cash & cash equivalents (219.3) These sections include reclassifications of the figures per 31 December 2011 for comparison reasons.

128 ELIA GROUP 2012 FINANCIAL REPORT 125 Notes to the consolidated financial statements 1. Reporting entity Basis of preparation Statement of compliance Functional and presentation currency Basis of measurement Use of estimates and judgements Approval by the Board of Directors Significant accounting policies New, revised and amended standards and interpretations Basis of consolidation Foreign currency translation Financial instruments Balance sheet items Income statement items Segment reporting Segment Elia Transmission (Belgium) Segment 50Hertz Transmission (Germany) Reconciliation of segments with total of group Items of the consolidated income statement and other comprehensive income Revenue Other income Operating expenses Cost of materials, services and other goods Personnel expenses Depreciation, amortisation, impairment and changes in provisions Other expenses Finance income and expenses Income taxes Share in the results of associates Basic earnings per share Other comprehensive income 143

129 126 ELIA GROUP 2012 FINANCIAL REPORT 6. Items of the consolidated statement of financial position Property, plant and equipment Intangible assets Non-current trade and other receivables Equity-accounted investees Other financial assets Deferred tax assets and liabilities Inventories Current trade and other receivables Cash and cash equivalents Shareholders equity Interest-bearing loans and borrowings Employee benefits Provisions Other non-current liabilities Trade and other payables Accruals and deferred income Miscellaneous Effect of new acquisition Financial risk and derivative management Commitment and contingencies Related parties Subsidiaries, joint ventures and associates Subsequent events Relationship with auditors 164

130 ELIA GROUP 2012 FINANCIAL REPORT Reporting entity 2. Basis of preparation Established in Belgium, Elia System Operator SA (the company Elia ) has its registered office at Boulevard de l Empereur 20, B-1000 Brussels. The company s consolidated financial statements for the 2012 financial year include those of the company and its subsidiaries (together referred to as the Group ) and the Group s interest in joint ventures and associates. The company is a limited liability company, with its shares listed on NYSE Euronext Brussels, under the symbol ELI. The Elia Group develops, maintains and operates two major electricity networks located in Central and North West Europe: the Belgian transmission grid interconnected with France and the Netherlands and 50Hertz transmission grid interconnected with Poland, the Czeck Republic and Denmark. These two grids connect producers to major industries and distribution system operators and ensure electricity imports and exports from and to other European countries in an efficient, reliable and secure way. Elia owns the entire Belgian very high voltage grid (150 to 380 kv) and some 94% (ownership and user rights) of the high-voltage grid (30 to 70 kv) with 5,581 km of overhead lines and 2,783 km of underground cables. 50Hertz owns the entire network (220 to 380 kv) in its geographical area as well as the transmission grid in the Hamburg area and offshore connections in the Baltic Sea. The 50Hertz grid comprises 9,845 km of overhead lines and 150 km of underground cables. Elia Group s investment in interconnection capacity with its neighbours makes it the most open and interconnected transmission system operator in Europe Statement of compliance The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), as adopted for use in the European Union. The Group has applied all new and revised standards and interpretations published by IASB and applicable to the Group s activities which are in force for financial years starting on 1 January Functional and presentation currency The financial statements are presented in million euro (the functional currency of the Group), rounded to the nearest hundred thousand, unless stated otherwise Basis of measurement The financial statements have been prepared on a historical-cost basis, except for the derivative financial instruments, which are estimated at fair value. Non-current assets and disposal groups held for sale are valued at the lowest of the carrying amount and the fair value less cost to sell, and employee benefits are valued at the present value of the defined benefit obligations, less plan assets. Changes in fair value of financial assets are recorded through profit and loss Use of estimates and judgements The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that could affect the reported amounts of assets and liabilities and revenue and expenses. The estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements regarding the carrying amounts of assets and liabilities. Actual results could differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects this period, or in the period in which the estimate is revised and future periods if the revision affects both current and future periods. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the con-

131 128 ELIA GROUP 2012 FINANCIAL REPORT solidated financial statements is included in the following notes: Deferred tax assets are recognized for the carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilized. In making its judgment, management takes into account elements such as long-term business strategy and tax planning opportunities (see Note 6.6). Tax receivable: recovery of the tax receivables of Elia System Operator is deemed highly probable (see Note 5.5). Credit risk related to customers: management closely reviews the outstanding trade receivables, also considering ageing, payment history and credit risk coverage (cf. Note 7.2). Employee benefit obligations: the defined-benefit obligations are based on actuarial assumptions such as discount rate and expected rate of return on plan assets, which are extensively detailed in Note Provisions for environmental issues: at each year-end an estimate is made of future expenses in respect of soil pollution, based on the advice of an external expert. Provisions for litigation and for rights to use land are based on the value of the claims filed or on the estimated amount of the risk exposure. The expected timing of the related cash outflow depends on the progress and the duration of the associated process/procedures (cf. Note 6.13). Impairment: the Group performs annual impairment tests on goodwill and on cash-generating units for which there are indicators that the carrying amount might be higher than the recoverable amount. This analysis is based upon assumptions such as market evolution, market share, margin evolution and discount rates (see Note 6.2). Lease accounting: more information can be found in Note 7.3. Hedging: changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in other comprehensive income (OCI) to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss (see Note 7.2). Fair value adjustments for business combinations: in accordance with IFRS 3 Business Combinations, the Group remeasures the assets, liabilities and contingent liabilities acquired through a business combination to fair value. Where possible, fair value adjustments are based on external appraisals or valuation models, e.g. for contingent liabilities and intangible assets which were not recognized by the acquiree. Internal benchmarks are often used for valuing specific production equipment. All of these valuation methods rely on various assumptions such as estimated future cash flows, remaining useful economic life, etc. (see Note 7.1). The accounting policies set out hereafter have been applied consistently to all the periods presented in these financial statements and have been applied by all Group entities Approval by the Board of Directors These consolidated financial statements were authorised for issue by the Board of Directors on 21 March Significant accounting policies 3.1. New, revised and amended standards and interpretations THE STANDARDS, INTERPRETATIONS OR AMENDMENTS LISTED HEREAFTER ARE PUBLISHED ON THE DATE OF APPROVAL OF THESE CONSOLIDATED FINANCIAL STATEMENTS BUT ARE NOT YET EFFECTIVE, AND THE GROUP DID NOT OPT FOR EARLY ADOPTION: Amendment to IAS 1 Presentation of Financial statements Amendments to revise the way other comprehensive income is presented (applicable to financial years as from 2013). Amendment to IAS 19 Employee benefits amended Standard resulting from Post-Employment Benefits and Termination Benefits projects (applicable to financial years as from 1 January 2013). Amendment to IFRS 7 Mandatory effective date and transition disclosures (applicable to financial years as from 1 January 2015). IFRS 9 Financial instruments (2009 & 2010) Classification and measurement (applicable to financial years as from 1 January 2015). IFRS 10 Consolidated financial statements: defines the principles of control and establishes controls as the basis for consolidation (applicable to financial years as from 1 January 2014). IFRS 11 Joint Arrangements: reflection of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form (applicable to financial years as from 1 January 2014). IFRS 12 Disclosure of interests in other entities (applicable to financial years as from 1 January 2014). IFRS 13 Fair value measurement (applicable to financial years as from 1 January 2013). IAS 28 (revised 2011) Investments in Associates and Joint Ventures (applicable to financial years as from 1 January 2014). Annual improvements to IFRSs cycle (applicable to financial years as from 1 January 2013). The Group does not expect any major impact on its financial statements in the period of the initial application of the standards, interpretations and amendments listed above, except for IFRS 10 and IFRS 11, and for IAS 19R. As described under section of the accounting rules, the group is applying the proportionate consolidation method for

132 ELIA GROUP 2012 FINANCIAL REPORT 129 the entities mentioned in note 7.5, the quantitative impact on its consolidated financial statements as per 31 December 2012 (conform IAS 8) of the implementation of IFRS 10 and 11 is set out here below: Key figures IFRS Proportionate Equity method Difference % (in million ) CONSOLIDATED RESULTS YEAR ENDED 31 DECEMBER (%) Total revenues and other income 1, (536.5) Depreciation, amortization, impairment and changes in provisions (150.1) (103.0) EBITDA* (163.9) Operating profit (EBIT*) (116.8) Net finance costs (134.8) (117.5) Income tax expenses (16.2) Profit attributable to the Owners of the Company CONSOLIDATED STATEMENT OF FINANCIAL POSITION (%) Total assets 6, ,232.0 (954.9) Equity, attributable to the Owners of the Company 2, , Net financial debt 2, ,488.3 (422.4) * EBIT = earnings before interest and taxes - EBITDA = EBIT + depreciation / amortization + changes in provisions For IAS 19 Revised an impact analysis has been conducted by an external actuarial consultant, mainly for the following newly introduced principles: Alignment of expected return on plan assets to the used discount rate. Recognition of social security taxes and other taxes on paid premiums. Using the figures as per 31 December 2012 and the funding position of Elia Transmission (Belgium) no significant impact is expected on its consolidated financial statements for the following reasons: the expected return on plan assets was already aligned with the used discount rate for the Belgian segment as per 31 December 2012; as Elia s plans are well funded, no immediate premium calls are expected, and therefore no taxes are expected to be recognized in the near future. For the German segment no evaluation was carried out, as the introduction of IAS 19 Revised is not expected to have a material impact (the amounts at stake are very low compared to the Belgian segment) Basis of consolidation 1. SUBSIDIARIES A subsidiary is an entity that is controlled by the company. Control means that the company has the power to directly or indirectly govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. 2. ASSOCIATED COMPANIES Associated companies are those companies in which the company has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group s share of the total recognised profits and losses of associated companies on the basis of the equity method, from the date that significant influence commences until the date that significant influence ceases. When the Group s share of the losses exceeds its interest in an associated company, the Group s carrying amount is reduced to nil and further losses are not recognised except to the extent that the Group has incurred legal or constructive obligations or has made payments on behalf of an associated company. 3. JOINT VENTURES Joint ventures refers to jointly controlled entities, established pursuant to a contractual agreement and subject to the required approval for strategic, financial and operating decisions. Investments in joint ventures are consolidated proportionally: a proportionate part of the assets, equities & liabilities and income and expendi-

133 130 ELIA GROUP 2012 FINANCIAL REPORT ture statements must be in accordance with IFRS as applied by Elia, with similar items in the consolidated figures grouped into the same category. The gain or loss realised via the acquisition will be recognised as a surplus or as gain on bargain purchase 4. LOSS OF CONTROL Upon the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of other comprehensive income related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained. 5. ELIMINATION OF INTRA-GROUP TRANSACTIONS Intra-Group balances and any unrealised gains or losses or revenue and expenses arising from intra-group transactions are eliminated when preparing the consolidated financial statements. Exchange differences arising from the translation of the net investment in foreign subsidiaries, joint ventures and associates at closing exchange rates are included in shareholder s equity under cumulative translation adjustments as part of the Other comprehensive income. At disposal of foreign subsidiaries, joint ventures and associates, cumulative translation adjustments are recognized in the income statement as part of the gain/loss of the sale Financial instruments DERIVATIVE FINANCIAL INSTRUMENTS The Group sometimes uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operating, financing and investment activities. In accordance with its treasury policy, the Group neither holds nor issues derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as instruments held for trading purposes. Unrealised gains from transactions with associated companies are eliminated to the extent of the Group s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence for impairment Foreign currency translation FOREIGN CURRENCY TRANSACTIONS AND BALANCES Transactions in foreign currencies are converted into the functional currency of the Group, at the foreign exchange rate on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies on the balance sheet date are converted at the foreign exchange rate on that date. Foreign exchange differences arising on conversion are recognised in profit or loss. Derivative financial instruments are recognised initially at fair value. Any gain or loss resulting from changes in the fair value is immediately booked in the income statement. Where derivative financial instruments qualify for hedge accounting, the reflection of any resultant gain or loss depends on the nature of the item being hedged. The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the end of the reporting period, taking into account the current interest rates and the current creditworthiness of the swap counterparties and the Group. The fair value of forward exchange contracts is their quoted market price at the end of the reporting period, i.e. the present value of the quoted forward price. Non-monetary assets and liabilities denominated in foreign currencies that are valued in terms of historical cost are converted at the exchange rate on the date of the transaction. FOREIGN OPERATIONS A foreign operation is an entity that is a subsidiary, associate, joint venture or branch of the reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity. The financial statements of all Group entities that have a functional currency different from the Group s presentation currency are translated into the presentation currency as follows: Balance sheets are translated at the exchange rate at reporting date. Income statements are translated at the average exchange rate of the year. Shareholder s equity is translated at historical exchange rate. DERIVATIVES USED AS HEDGING INSTRUMENTS Cash-flow hedges Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in other comprehensive income ( OCI ) to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in OCI remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in OCI is transferred, where justified, to the carrying amount of the asset. In other cases the amount recognised in OCI is transferred to profit or loss in the same period that the hedged item affects profit or loss. When a derivative or hedge relationship terminates, cumulative gains or losses still remain in OCI provided that the hedged

134 ELIA GROUP 2012 FINANCIAL REPORT 131 transaction is still expected to occur. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss is removed from OCI and is immediately recognised in profit or loss. Hedging of monetary assets and liabilities Hedge accounting is not applied to derivative instruments that economically hedge monetary assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognised in profit or loss of foreign currency gains and losses Balance sheet items PROPERTY, PLANT AND EQUIPMENT Owned assets Items of property, plant and equipment are stated at cost (including the directly allocated costs such as finance costs) less accumulated depreciation and impairment losses (see chapter Impairment ). The cost price of self-produced assets comprises the cost of materials, of direct labour and, where relevant, of the initial estimate of the costs of dismantling and removing the assets and restoring the site where the assets were located. If parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Leased assets Leases under the terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Fixed assets used via a finance lease are stated at an amount equal to the lower of the fair value and the present value of the minimum lease payments at the start of the lease, less accumulated depreciation (see hereafter) and impairment losses (see chapter Impairment ). Lease payments are accounted for as described in the chapter Expenses. Subsequent costs The Group recognises in the carrying amount of an item of property, plant and equipment the cost price of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied in the item will flow to the Group and the cost price of the item can be assessed reliably. All other costs are recognised in profit or loss as and when they are incurred. Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful life of each component of an item of property, plant and equipment. Land is not depreciated. The applied depreciation percentages can be found in the table hereafter. Depreciation methods, remaining useful lives and residual values of the property, plant and equipment are reassessed annually and are prospectively adjusted as the occasion arises. Administrative buildings 2.00 Industrial buildings Overhead lines Underground cables Offshore cables Substations (facilities and machines) Remote control Dispatching Other property plant and equipment: fitting out rented buildings contractual period Vehicles Tools and office furniture Hardware Dismantling obligation Provision is made for decommissioning and environmental costs, based on future estimated expenditures, discounted to present values. An initial estimate of decommissioning and environmental costs attributable to property, plant and equipment is recorded as part of the original cost of the related property, plant and equipment. Changes in the provision arising from revised estimates or discount rates or changes in the expected timing of expenditures that relate to property, plant or equipment are recorded as adjustments to their carrying value and depreciated prospectively over their remaining estimated economic useful lives; otherwise such changes are recognised in the income statement. The unwinding of the discount is included within the income statement as a financing charge. De-recognition An asset is no longer recognised on the balance sheet when the asset is subject to disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arising from the de-recognition of the asset from the balance sheet (which is determined as the difference between the net disposal proceeds and the carrying amount of the asset) are included in profit or loss during the year in which the asset was derecognised from the balance sheet. INTANGIBLE ASSETS Business combinations and goodwill Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. %

135 132 ELIA GROUP 2012 FINANCIAL REPORT The Group measures goodwill at the acquisition date as: the fair value of the consideration transferred; plus the recognised amount of any non-controlling interest in the acquiree; plus if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less the fair value of the identifiable assets acquired and liabilities at acquisition date. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Transactions costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. Goodwill is stated at cost price less accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but tested annually for impairment (see chapter Impairment ). In the case of associated companies, the carrying amount of goodwill is included in the carrying amount of the investment in the associated company. Computer software Software licences acquired by the Group are stated at cost less accumulated amortisation (see hereafter) and impairment losses (see chapter Impairment ). Expenditure for research activities undertaken with the prospect of developing software within the Group is recognised in profit or loss as expenditure as incurred. Expenditure for the development phase of software developed within the Group is capitalised if: the costs of development can be measured reliably; the software is technically and commercially feasible and future economic benefits are likely; the Group plans - and has sufficient resources - to complete development; the Group plans to use the software. The capitalised expenditure includes cost of material, direct labour costs and overhead costs that are directly attributable to preparing the software for its use. Other costs are recognised in profit or loss as incurred. Licenses, patents and similar rights Expenditure on acquired licences, patents, trademarks and similar rights are capitalised and amortised on a straight-line basis over the contractual period, if any, or the estimated useful life. Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as expenditure as incurred. Amortisation Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful life of intangible assets, unless the useful life is indefinite. Goodwill and intangible assets are tested systematically for impairment on each end of the reporting period. Software is amortised from the date it is available for use. The estimated useful lives are as follows: Licences Concessions contractual period Computer software Depreciation methods, remaining useful lives, and residual values of intangible assets are reassessed annually and are prospectively adjusted as the occasion arises. INVESTMENTS Each type of investment is recognised on the date of the transaction. Investments in equity securities Investments in equity securities are undertakings in which the Group does not have significant influence or control. This is the case in undertakings where the Group owns less than 20% of the voting rights. Such investments are designated as available-for-sale financial assets and are measured at fair value. Any resulting changes in fair value, except those related to impairment losses and foreign exchange gains and losses, are recognised directly in other comprehensive income ( OCI ). On disposal of an investment, the cumulative gain or loss previously recognised directly in OCI is recognised in profit or loss. Investments in debt instruments Investments in debt securities classified as held for trading purposes or as being available-for-sale are carried at fair value, with any resulting gain or loss respectively recognised in profit or loss or directly in equity. The fair value of these investments is determined as the quoted bid price at the end of the reporting period. Impairment charges and foreign exchange gains and losses are recognised in profit or loss. Investments in debt securities classified as held to maturity are measured at amortised cost. %

136 ELIA GROUP 2012 FINANCIAL REPORT 133 Other investments Other investments held by the Group are classified as availablefor-sale and are measured at fair value, with any resulting gain or loss recognised directly in equity. Impairment charges are recognised in OCI (see chapter Impairment ). TRADE AND OTHER RECEIVABLES Construction work in progress Construction work in progress is stated at cost price plus profit based on progress made to date, less a provision for foreseeable losses and less progress billing. The cost price comprises all expenditure directly related to specific projects, plus an allocation of fixed and variable overheads incurred during the Group s contract activities based on normal operating capacity. Lease receivables Receivables from lease contracts are stated at an amount equal to the present value of the future net lease payments at the start of the contract. The values of the receivables are reduced in the course of the lease contract by the amount of the lease payments associated with the reimbursement of the principal amount. Trade and other receivables Trade receivables and other receivables are measured at amortized cost, less the appropriate allowance for amounts regarded as unrecoverable. INVENTORIES Inventories (spare parts) are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price less the estimated costs of completion and selling expenses. The cost of inventories is based on the weighted-average-costprice method. The cost includes the expenditure incurred in acquiring the inventories, and the direct costs of bringing them to their location and making them operational. Write-offs of inventories to net realisable value are recognised in the period in which the write-offs occurred. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash balances, bank balances and deposits that can be withdrawn on demand. Overdrafts that are repayable on demand and form an integral part of the Group s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. IMPAIRMENT The carrying amount of the Group s assets, excluding inventories (see chapter Inventories ) and deferred taxes (see chapter Income taxes ), are reviewed at the end of the reporting period for each asset to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated. The recoverable amount of goodwill and intangible assets with an indefinite useful life and intangible assets that are not yet available for use is estimated at the end of each reporting period. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Recognised impairment losses relating to cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the units on a pro-rata basis. After recognition of impairment losses, the depreciation costs for the asset will be adjusted for the future. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables or held-tomaturity investments securities. Interest on the impaired asset continues to be recognised. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Impairment losses on available-for-sale financial assets are recognized by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current value, less any impairment loss recognized previously in profit or loss. Changes in cumulative impairment losses attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-forsale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. Calculation of the recoverable amount The recoverable amount of intangible assets and property, plant and equipment is determined as the higher of their fair value less costs to sell or value in use. In assessing value in use, the expected future cash flows are discounted to their present value using a pre-tax discount rate that reflects both the current market assessment of the time value of money and the risks specific to the asset. The Group s assets do not generate cash flow that is independent from other assets and the recoverable amount is therefore determined for the cash-generating unit (i.e. the entire highvoltage network) to which the asset belongs. This is also the level at which the Group administers its goodwill and reaps the economic benefits of acquired goodwill.

137 134 ELIA GROUP 2012 FINANCIAL REPORT Reversals of impairment An impairment loss in respect of goodwill is not reversed. Impairment loss on other assets is reversed if there have been changes in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. SHARE CAPITAL Transaction costs Transaction costs in respect of the issuing of capital are deducted from the capital received. Dividends Dividends are recognised as a liability in the period in which they are declared. Where the calculation results in a benefit to the Group, the recognised asset is limited to the balance of past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan. Other long-term employee benefits The Group s net obligation in respect of long-term service benefits, other than pension plans, is assessed on an annual basis by accredited actuaries. The net obligation is calculated using the projected unit credit method and is the amount of future benefit that employees have earned in return for their service in the current and previous periods. The obligation is discounted to its present value and the fair value of any related assets is deducted. The discount rate is the yield as at the end of the reporting period on high-quality bonds having maturity dates that approximate to the terms of the Group s obligations and that are denominated in the currency in which the benefits are expected to be paid. INTEREST-BEARING LOANS Interest-bearing loans are recognised initially at fair value less related transaction costs. Subsequent to initial recognition, interest-bearing loans are stated at amortised cost price with any difference between cost price and redemption value being recognised in profit or loss over the period of the loans on an effective interest basis. EMPLOYEE BENEFITS Defined-contribution plans Obligations related to contributions to defined-contribution pension plans are recognised as an expense in profit or loss as incurred. Defined-benefit plans For defined-benefit plans, the pension expenses are assessed on an annual basis by accredited actuaries separately for each plan by using the projected unit credit method. The estimated future benefit that employees have earned in return for their service in the current and prior periods is discounted to determine its present value, and the fair value of any plan assets is deducted. The discount rate is the interest rate as at the end of the reporting period on high-quality bonds which have maturity dates that approximate the terms of the Group s obligations and that are denominated in the currency in which the benefits are expected to be paid. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits are vested immediately, the expense is recognised immediately in profit or loss. All actuarial gains and losses as at 1 January 2004, the date of transition to IFRS, were recognised in the opening reserves. Actuarial gains and losses are immediately recognised as liabilities and do not affect the income statement, but are immediately recognised in OCI. The amount charged in profit or loss consists of current service cost, interest costs, the expected return on any plan assets and the past service cost. Short-term employee benefits Short-term employee benefits are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised as for the amount expected to be paid out under a short-term cash bonus or profit-sharing plans if the Group has a legal or constructive obligation to pay this amount as a result of the past service provided by the employee and the obligation can be estimated reliably. PROVISIONS A provision is recognised in the balance sheet when the Group has a current legal or constructive obligation as a result of a past event and it is likely that an outflow of economic benefits - of which a reliable estimate can be made - will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessment of the time value of money and, where appropriate, of the risks specific to the liability. If the Group expects to recover some or all of the provisions from a third party, the compensation is only included as a separate asset if it is virtually certain that said compensation will be awarded. The cost connected to a provision is included in profit or loss net of any compensation. The total estimated cost of dismantling and disposal of an asset are, if applicable, recognised as property, plant and equipment and depreciated over the asset s entire useful life. The total estimated cost of dismantling and of disposal of the asset, is posted as provisions for the discounted current value. If the amount is discounted, the increase of the provision due to the lapse of time is classified as finance expenses. TRADE AND OTHER PAYABLES Trade and other payables are stated at amortised cost.

138 ELIA GROUP 2012 FINANCIAL REPORT 135 GOVERNMENT GRANTS Government grants are recognised when it is reasonably certain that the Group will receive the grant and that all underlying conditions will be met. Grants related to an asset are presented under other liabilities and will be recognised in the income statement on a systematic basis over the expected useful life of the related asset. Grants related to expense items are recognised in the income statement in the same period as the expenses, for which the grant was received. Government grants are presented as other operating income in the income statement Income statement items REVENUE Revenue is recognised when it is probable that the company will enjoy the economic benefits associated with the transaction and the income can be measured reliably and recovery of the compensation due is likely. Goods sold and services rendered Revenue from services and the sale of goods is recognised in profit or loss when the significant risks and rewards of ownership have been transferred to the buyer. Construction work in progress As soon as the outcome of a construction contract can be estimated reliably, contract revenue and expenses are recognised in profit or loss in proportion to the stage of completion of the contract. An expected loss on a contract is immediately recognised in profit or loss. Transfer of assets from customers The revenue from customers (financial contribution) for the construction of connections and related grid enhancement to the high-voltage grid is recognised in profit or loss on the basis of the stage reached in recovery of the underlying property, plant and equipment. EXPENSES Operating lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received to conclude the leasing agreement are recognised in profit or loss as an integral part of the total lease expenses. FINANCE INCOME AND EXPENSES Finance expenses comprise interest payable on borrowings, calculated using the effective interest rate method, foreign exchange losses, gains on currency hedging instruments offsetting currency losses, results on interest rate hedging instruments, losses on hedging instruments that are not part of a hedge accounting relationship, losses on financial assets classified as for trading purposes and impairment losses on available-for-sale financial assets as well as any losses from hedge ineffectiveness. Net finance expenses comprise interest on loans, calculated using the effective interest rate method and foreign exchange gains and losses. Finance income is recognised in profit or loss as it accrues using the effective interest rate method. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method. INCOME TAXES Income taxes comprise current and deferred tax. Income tax expense is recognised in profit or loss, except to the extent that it relates to items recognised directly in equity. Current tax is the expected tax payable on taxable income of the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustments to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, on temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising from initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they are reversed, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised only to the extent that it is likely that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer likely that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.

139 136 ELIA GROUP 2012 FINANCIAL REPORT 4. Segment reporting The Group has opted for a geographical segmentation since this segmentation forms the basis of the Company s internal management reporting and enables the Chief Operating Decision-Maker (CODM) to evaluate and assess the type and financial profile of its activities in a transparent way. Pursuant to IFRS 8, the Group has identified the following operating segments based on the aforementioned criteria: Elia Transmission (Belgium), which comprises Elia System Operator and the companies of which activities are directly linked to the role of Belgian transmission system operator (i.e. group before the acquisition of 50Hertz); 50Hertz Transmission (Germany), which comprises Eurogrid International SCRL and companies of which activities are directly linked to the role of transmission system operator in Germany. The two operating segments also have been identified as the cash generating units of the group, as the group of assets managed by both segments independently generates cash flows. The Company s geographical segments are mainly characterized by common revenue and cost drivers and the same public service mission in their respective geographical area, but they distinguish themselves mainly at the level of the specific country related regulatory frameworks. For more details around this topic we refer to the chapter on Regulatory framework and tariffs. The information presented to the CODM follows the IFRS accounting policies of the Group, therefore no reconciling items have to be disclosed. Intergroup transactions are concluded on an at arm s length basis. As described by IFRS 8 the Group is required to report segment information about each operating segment that exceeds certain quantitative thresholds. Since the operational activities of Atlantic Grid (see note 7.1) do not exceed the threshold, its operations have been aggregated in the reporting segment 50Hertz Transmission (Germany), because its activities are regularly evaluated by the CODM of that segment. The Chief Operating Decision-Maker (CODM) has been identified by the Group as being the Boards of Directors, the CEO s and the Executive Committees of each segment. The Chief Operating Decision-Maker periodically reviews the Group s segments performance against a certain number of indicators such as revenue, EBITDA and operating profit Segment Elia Transmission (Belgium) KEY FIGURES See table hereafter: Results Elia Transmission Difference (%) (in million ) for the period ended 31 December Total revenues and other income Revenues and other income Deferred tax advantage to be offset in future tariffs (39.0) 0.0 n.r. Depreciation, amortization, impairment and changes in provisions (103.0) (102.3) 0.7 EBITDA* Operating profit (EBIT*) Finance income Finance costs (128.2) (128.2) 0.0 Income tax expenses 17.5 (29.8) Income tax expenses (21.5) (29.8) Recognition of a deferred tax advantage on the notional interest deduction reserve - previous accounting years n.r. Profit attributable to the Owners of the Company Consolidated statement of financial position Difference (%) (in million ) Total assets 4, , Capital expenditures Net financial debt 2, , * EBIT = earnings before interest and taxes - EBITDA = EBIT + depreciation / amortization + changes in provisions.

140 ELIA GROUP 2012 FINANCIAL REPORT 137 In 2012, Elia Transmission s revenue in Belgium remained more or less constant at million (up 0.9%) compared to the same period last year. The table below provides more details of changes in the various revenue components. (in million ) for the period ended 31 December Difference (%) DETAIL REVENUES AND OTHER INCOME Grid connection revenue Grid use revenue Revenues from the reversal of surpluses from previous years (decision by the regulator) n.r. Ancillary services revenue International revenue Transfers of assets from customers Other revenue Other income Subtotal revenues & other income Balance settlement mechanism: deviations from approved budget 1 (33.6) (3.9) Balance settlement mechanism: to be refunded to the tariffs of current period (43.3) 0.0 n.r. Subtotal recurring revenues and other income, incl. balance stettlement mechanism Deferred tax advantage to be offset in the future tariffs (39.0) 0.0 n.r. TOTAL REVENUES AND OTHER INCOME These sections include reclassifications of the figures per 31 December 2011 for comparison reasons. Grid connection revenue rose by 17.5%, and grid use revenue by 13.6%, mainly as a result of the new four-year tariffs that came into effect in 2012, which incorporate inflation for the next four years. Ancillary services revenue increased by 36.5% compared to 2011, primarily due to the higher costs passed on for the purchase of reserves from generators. International revenue rose by 7.6 million (up 32.3%), mainly due to greater use of the interconnections with France during the winter months of 2012 and with the Netherlands and France because of the unavailability of the Doel 3 and Tihange 2 nuclear power station units. Revenue from customer contributions to investments ( transfers of assets from customers ), presented in 2012 for the first time under revenue, was down by 56.1%, or 6.9 million, compared with Other revenue rose by 13.7% in 2012 compared to 2011, primarily due to an increase in internally generated assets and the higher sums recovered from insurance. The settlement mechanism encompasses deviations from the budget approved by CREG with regard to the noncontrollable costs and revenue. The operational result was up 33.6 million; this major surplus is mainly a result of higher international revenue ( 10.3 million), the lower actual average OLO ( 13.9 million) and lower costs for ancillary services ( 16.2 million), offset in part by lower revenue from injection tariffs as a result of a lower generation volume in Belgium. In addition, there was a temporary tariff surplus ( million), which is carried forward within the current tariff period. The passing-on of the deferred tax benefit in future tariffs ( 39 million) accounts for the decrease in total revenues and other income. This passing-on, which does not impact net profit, is the result of the recognition of the deferred tax benefit following a change in the legislation regarding the notional interest deduction, which in future can be realized on the basis of the transferable notional interest deduction reserve that was built up in the period This deferred tax benefit, booked as a tax reduction, is recognised as a regulatory liability since it will entirely benefit consumers as a reduction in future tariffs.

141 138 ELIA GROUP 2012 FINANCIAL REPORT EBITDA (down 17.6%) and EBIT (down 25.1%) fell significantly in 2012 compared to 2011, mainly due to: the booking of the regulatory liability due to the recognition of a one-off tax benefit of 39.0 million; the drop in OLO from 4.2% in 2011 to 2.98% in 2012; a lower level of IFRS adjustments: more specifically fewer customer contributions (IFRIC 18) (down 7.3 million), and as a result of the recalculation of the provision for future personnel liabilities (down 4.5 million). Net finance expenses (down 0.1%) remained more or less at the same level. The increase in financial charges due to one-off costs for the conclusion of long-term credit facilities, amounting to 700 million, and the decrease in revenue from investments due to lower interest rates were offset by a higher level of capitalisation of financing expenses as a result of the increase in investments. Income tax expense (down 158.7%) was positively influenced by the one-off recognition of a deferred tax receivable for the future tax benefit arising from the notional interest deduction reserve. However, this has no impact on the net result, given that this tax benefit will be channelled back into future tariffs (see deferred tax benefit to be passed on in future tariffs ). Consolidated IFRS profit after income tax fell 15.6% from million in 2011 to 89.2 million in 2012 due to the following items 1 : 1. decrease in regulated profit due to lower OLO and a lower margin (down 12.2 million); 2. decrease in the amount passed on in the tariffs for decommissioning of fixed assets (down 2.5 million); 3. implementation of the new incentive since 2012 on replacement investments (+ 3.8 million); 4. higher cost savings and revenue (+ 1.9 million); 5. disappearance of the one-off impact in 2011 of the court ruling regarding the CREG decision (+ 1.7 million); 6. decrease in IFRS adjustments in 2012 compared to 2011 (down 9.1 million to 12.9 million in 2012 from 22.0 million in 2011). Total assets increased by 3.2% to 4,618.4 million while net financial debt went up by 1.6%, or 40.2 million Segment 50Hertz Transmission (Germany) The table hereafter shows the 2012 results of 50Hertz Transmission s transmission system operator activities in Germany as per International Financial Reporting Standards (IFRS). The results of 50Hertz Transmission, consolidated at the level of Eurogrid GmbH, were included in the Elia Group s consolidated IFRS figures using the proportional consolidation method (60%). Results 50Hertz Transmission (Germany) Difference (%) (in million ) for the period ended 31 December - 60% proportional consolidation Total revenues and other income Depreciation, amortization, impairment and changes in provisions (47.1) (38.6) 22.0 EBITDA* Operating profit (EBIT*) Finance income Finance costs (19.6) (14.6) 34.2 Income tax expenses (33.6) (13.5) Profit attributable to the Owners of the Company Consolidated statement of financial position Difference (%) (in million ) Total assets 1, , Capital expenditures Net financial debt * EBIT = earnings before interest and taxes - EBITDA = EBIT + depreciation / amortization + changes in provisions 1 Items 1-5 relate to the regulatory framework in Belgium.

142 ELIA GROUP 2012 FINANCIAL REPORT Hertz Transmission s revenue rose substantially compared to the same period last year as detailed in the table below. (in million ) for the period ended 31 December Difference (%) DETAIL REVENUES AND OTHER INCOME Vertical grid revenues Horizontal grid revenues Ancillary services revenue Transfers of assets from customers Other income Subtotal revenue and other income Balance settlement mechanism: deviations from approved budget (2.6) (0.4) TOTAL REVENUES AND OTHER INCOME These sections include reclassifications of the figures per 31 December 2011 for comparison reasons. The increase in vertical grid revenue (tariffs to end customers) (up 6.0%) is mainly a result of positive developments in the regulatory framework in Germany, offset in part by the refund of past surpluses (volumes, ancillary services). As from 1 January 2012, the costs for new investments are recovered via the vertical grid revenue from the same year, whereas previously they were recovered with a two-year delay. Since in 2012 and Hertz will recover costs in accordance with both the old (years 2010 and 2011) and new mechanism, there will be a sharp increase in the EBITDA, EBIT and net profit in the years concerned. Horizontal grid revenue (tariffs to TSOs) rose by 48.9% mainly due to the higher volume of offshore investments, given that all offshore connection investments are shared across the four German transmission system operators. This means that 50Hertz bears around 20% of these costs and that it can pass 80% of its own connection costs on to the other three TSOs. Due to the investment programme and the adjustment of the depreciation period for offshore assets from 40 to 20 years, these costs rose substantially, resulting in higher amounts being passed on in the tariffs. Horizontal grid revenue also relates to revenue for the use of the sea cable between Germany and Denmark (Kontek cable). This was up by 57.1% compared with 2011 due to both a price effect (average monthly price of 3.01/MWh in 2012 compared to 1.85/MWh in 2011) and a volume effect (transmitted volume of 3.7 TW in 2012 compared with 3.1 TW in 2011). Ancillary services revenue (up 38.1%) is comparable with that of Elia and is mainly derived from passing on to grid users costs (for reservation of capacities and continuous network balancing) that a system operator has to incur in order to ensure the supply of electricity. In 2012 there was a significant increase in the costs, mainly due to the larger volumes of renewable energy in the 50Hertz Transmission area. Other revenue rose by 39.7%, primarily due to the increase in internally generated assets. The sharp increase in EBITDA, EBIT and net profit is mainly the result of positive developments in the regulatory framework ( 36.2million), the increase in internally generated assets ( 11.6 million) and the disappearance of the impact of one-off accounting corrections recorded in 2011 ( 7.7 million). Net finance expenses were negatively influenced (+60.6%) by a fall in the discount rates used for discounting long-term provisions, as well as by the recognition of interest that will be payable in the event of on-going court cases being lost. The increase in income tax expense is mainly the result of the change in pre-tax profit. Total assets rose by 14.5% to 1,569.0 million. Net financial debt rose substantially as a result of the conclusion of two new short-term loans and the large decline in cash and cash equivalents due to the pre-financing of the EEG mechanism ( million). This amount will be paid back over the course of 2013.

143 140 ELIA GROUP 2012 FINANCIAL REPORT 4.3. Reconciliation of segments with total of group Consolidated results (in million ) - for the period ended 31 December Elia Transmission (Belgium) 50Hertz Transmission (Germany) Consolidation entries Elia Group Total revenues and other income (2.9) 1,306.6 Depreciation, amortization, impairment and changes in provisions (103.0) (47.1) 0.0 (150.1) EBITDA Operating profit (EBIT) Finance income Finance costs (128.2) (19.6) 0.1 (147.7) Income tax expenses 17.5 (33.6) (0.1) (16.2) - Income tax expenses (21.5) (33.6) (0.1) (55.2) - Recognition of a deferred tax income on the notional interest deduction reserve - previous accounting years Profit attributable to the Owners of the Company Consolidated statement of financial position (in million ) Total assets 4, ,569.0 (0.4) 6,187.0 Capital expenditures Net financial debt 2, ,910.8 The Group has no concentration of customers in neither of the operating segments. 5. Items of the consolidated income statement and other comprehensive income 5.1. Revenue 5.2. Other income Detail revenue (in million ) Revenue 1, ,192.5 Transfers of assets from customers (IFRIC 18) Total revenue 1, , This topic includes a reclassification of the figures per 31 December 2011 for comparison reasons. Conform IFRIC transfers of assets from customers is presented as revenue, previously shown within the other income. We refer to the segment reporting for a breakdown of the significant categories within the revenue of the Belgian (Note 4.1) and German segment (Note 4.2). The following table details the Other income : (in million ) Own production Bonus previous year Optimal use of assets Services and technical expertise Changes in non-current assets relating to employee benefits Subsidies and grants 2.7 (1.2) Offshore revenue (horizontal) Revenue from penalty Maintenance Other Total other income This section includes reclassifications of the figures per 31 December 2011 for comparison reasons.

144 ELIA GROUP 2012 FINANCIAL REPORT 141 The increase in own production is related to the increase of investment projects and to the use of a more accurate calculation method for the registration of time worked on the investment projects at 50Hertz. The increase in personnel expenses can mainly be allocated to the increase in the number of full time equivalents, the inflation (2.23% in Belgium and 2.06% in Germany) and salary increases. The optimal use of assets represents mainly income generated from contracts with Telecom operators for making available high voltage towers to several telecom operators as supporting structure for their mobile network antennas. The section Other mainly consists of gains on sale of property, plant and equipment, recoverable amounts of claims paid by insurance companies, etc Operating expenses COST OF MATERIALS, SERVICES AND OTHER GOODS (in million ) Raw materials, consumables and goods for resale Purchase of ancillary services Services and other goods (excl. purchase of ancillary services) Total The purchase of ancillary services includes the costs for services which enable the Group to balance generation with demand, to maintain voltage levels and to manage congestions on its grids. The increase compared to last year is mainly due to the 50Hertz network with exceptional weather conditions (very windy in December) and the decision of the German government to close eight nuclear power plants. These costs are recovered in future tariffs. The services and other goods are related to maintenance of the grid, services provided by third parties, insurance, consultancy, etc PERSONNEL EXPENSES (in million ) Salaries and wages Social security contributions Pension costs Employee benefits (other than pensions) Share-based payment with reduction Other personnel expenses Total For more information regarding employee benefits, see Note 6.12 Employee Benefits DEPRECIATION, AMORTISATION, IMPAIRMENT AND CHANGES IN PROVISIONS (in million ) Depreciation of property, plant and equipment Depreciation of intangible assets Total of depreciation Impairment of inventories and trade receivables Total of impairment Provisions for litigation (2.3) 1.1 Environmental provisions 2.1 (0.3) Other provisions 1.1 (0.1) Total of provisions Total The variance for impairment in respect of inventories and receivables during the year can be found in note 7.2 Financial risk and derivative management. A detailed description of provisions is provided in Note OTHER EXPENSES (in million ) Taxes other than income tax Loss on disposal/sale of property, plant and equipment Loss on trade debtors (0.1) 0.0 Payments to municipality Other Bonus-malus settlement of previous year Total The 2011 expenses classified as Bonus-malus settlement of previous year occurred in the Belgian segment as a result of a Court decision, following the review of the regulator (CREG) on accounting year 2010 concluding that the incentive should be subject to income taxes, which represents a non-recurring element. The payments to municipality is a new topic since 2012 governed by German law.

145 142 ELIA GROUP 2012 FINANCIAL REPORT 5.4. Finance income and expenses (in million ) Finance income Interest income on investment trust, bank deposits, cash and cash equivalents Other financial income Finance costs Interest expense on eurobonds and other bank borrowings Interest expense on derivatives Other financial costs (0.4) 0.4 Net finance expense recognised in profit or loss (134.8) (128.6) The decrease in interest income is mainly due to the decreased cash position of the Group as a result of the higher needs in working capital for the levy mechanism, and the general decrease of the returns on deposits. The other financial income consists mainly of the moratorium interests which are computed on the tax claim (we refer to Note 5.5 below). For more details on net debt and loans, see Note (in million ) Profit after tax Share of profit of equity accounted investees Profit for the period Income tax expenses Profit before tax Income tax using the domestic corporation tax rate Domestic corporate income tax 33.99% 33.99% Effect of the foreign tax rate (4.8) (2.3) Non-deductible expenses Gain on disposal of shares (0.2) (0.5) Other tax free income (0.4) (0.1) Adjustments prior years Recognition of DTA on NID carried forward 1 (39.0) 0.0 Tax effect of recognition of DTA NID not previously recognized Utilisation of tax incentives (notional interest deduction) (19.2) (19.0) Other Total income tax expenses in profit or loss DTA = Deferred tax asset ; NID = Notional Interest Deduction 5.5. Income taxes RECOGNISED IN PROFIT OR LOSS The consolidated income statement includes the following taxes: (in million ) Current year Adjustments prior years (0.1) 15.3 Total income tax expenses Origination and reversal of temporary differences (33.9) (15.4) Total deferred tax (33.9) (15.4) Total income tax recognised in profit or loss RECONCILIATION OF THE EFFECTIVE TAX RATE The tax on the company s profit (loss) before tax differs from the theoretical amount that would arise using the Belgian statutory tax rate applicable to profits (losses) of the consolidated companies as follows: The recognition in 2012 of a DTA on NID reserves is related to the notional interest deduction reserve accumulated over the past couple of years in Elia Asset SA. Changes in legislation and regulatory framework significantly increased the probability of full recovery in the future of the NID reserves and resulted in a recognition of a deferred tax asset of 39 million (See also note ). The Other in above table mainly represents the effects resulting from the fiscal unity in Germany ( 3.2 million). Deferred income taxes are further discussed in Note 6.6 ( Changes in deferred tax assets and liabilities resulting from movements in temporary differences during the financial year ). Tax assessment Elia received a tax assessment in early 2008 in view of taxation of the remaining tariff surpluses as at 31 December The income taxes paid total 93.8 million, including an administrative charge of 10% and an increase due to insufficient prepayments. Having consulted its tax advisor and CREG and given that similar tariff surpluses accounted for by other companies in the sector were not taxed, Elia management decided to file a complaint that was rejected by the tax authorities. By matter of consequence, Elia filed a judicial claim for the full amount, including moratorium interest.

146 ELIA GROUP 2012 FINANCIAL REPORT 143 In 2009, the tax authorities made a similar decision on the increase of tariff surpluses in 2005 and Elia received a tax assessment of 35.8 million, including an administrative charge of 10% and an increase due to insufficient prepayments, and decided to file a complaint about this in line with the case of Basic earnings per share The basic earnings per share (EPS) are calculated by dividing the net profit attributable to the shareholders of the company ( million) by the weighted average number of ordinary shares outstanding during the year (60,362,361). The tariff surpluses that led to the additional assessment are systematically settled in tariffs over the years to come (refund to consumers) in accordance with CREG decision, meaning that this solely is a matter of a timing difference between a surplus generated in the past and a refund in the subsequent years. If Elia s complaint is rejected, the corporate income tax paid on the remaining surpluses will automatically be offset by recoverable taxes on the refund given to consumers in 2005, 2006 and 2007 and subsequent periods. In that way the basic amount of the corporate income tax can be recovered in full. If a balance is still outstanding, it will be settled using the tariff mechanism. On Friday 23 December 2011, the Brussels Court of First Instance ruled in favour of Elia in its tax dispute 2 with the Belgian tax authorities. As a result of the ruling, the tax authorities must reimburse Elia million, consisting of 80.2 million in taxes that were paid twice and which therefore must be reimbursed with 100% certainty, 5.1 million in prepayments, 8.5 million in administrative tax increase and 24.6 million in interest. However the tax authorities lodged appeal on 6 February 2012, thus suspending the ruling by the Court of First Instance. The Court of Appeal is not expected to rule on the case until 2014 at the earliest. WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES Issued ordinary shares on 1 st of January 60,355,217 60,355,217 Impact of shares issued in December ,144 - Weighted average number of shares on 31 st of December 60,362,361 60,355,217 Diluted earnings per share Diluted earnings per share (EPS) is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees. The diluted profit is equal to the ordinary profit per share, since there are no convertible bonds or share options. Share capital and reserves per share Share capital and reserves per share totalled 34.9 per share on 31 December 2012, compared with a value of per share at the end of Share in the results of associates 5.8. Other comprehensive income (in million ) H.G.R.T APX-Endex Coreso Total The share in the results of joint ventures can be found in note 4.2 Segment 50Hertz Transmission (Germany). All companies related to the 50Hertz Transmission segment are joint ventures. There are no joint ventures in other segments. Total comprehensive income includes both the result of the period recognised in the income statement and the other comprehensive income recognised in equity. Other comprehensive income includes all changes in equity other than owner-related changes, which are analysed in the statement of changes in equity. The deferred taxes and the changes in fair value booked in equity by item of other comprehensive income are as follows: (in million ) Derivatives Actuarial gains (losses) on employee benefits Total Elia s tariffs are based on estimated income and costs as well as budgeted volumes. At the end of each tariff period, this results in tariff surpluses or deficits that must be factored into future tariffs. However, in 2008 the tax authorities ruled that tariff surpluses from the past ( ) should be taxed immediately while Elia, in consultation with the regulator, considered this to be a debt in respect of future tariffs. All such tariff surpluses have actually been returned to consumers since the end of 2011.

147 144 ELIA GROUP 2012 FINANCIAL REPORT (in million ) Net changes in fair value of interest rate swaps Finance income Recognised in: Hedging reserve The hedging reserve is discussed in detail in Note Items of the consolidated statement of financial position 6.1. Property, plant and equipment (in million ) High-voltage substations and transformers 1, ,580.9 Lines and cables 1, ,256.1 Land on which substations, lines and cables are located Facilities used for network operation Administrative buildings, furnishings and vehicles Total property, plant and equipment 3, ,150.5 (in million ) Land & buildings Machinery & equipment Furniture & vehicles Other tangible assets Assets under construction Total ACQUISITION VALUE Balance at 1 January , ,380.4 Other additions Disposals 1 (0.2) (21.5) (2.9) 0.0 (7.8) (32.4) Transfers from one heading to another (125.5) (0.1) BALANCE AT 31 DECEMBER , ,630.6 Balance at 1 January , ,630.6 Other additions Disposals 1 (0.8) (27.1) (3.4) (1.1) 0.0 (32.4) Transfers from one heading to another (118.0) 0.1 BALANCE AT 31 DECEMBER , ,912.1 DEPRECIATION AND IMPAIRMENT Balance at 1 January 2011 (21.5) (2,232.0) (108.4) (7.4) 0.0 (2,369.4) Depreciation of the period (2.6) (123.0) (5.5) (0.5) 0.0 (131.6) Disposals Transfers from one heading to another (0.1) (1.8) BALANCE AT 31 DECEMBER 2011 (24.1) (2,335.2) (110.9) (9.7) 0.0 (2,480.0) Balance at 1 January 2012 (24.1) (2,335.2) (110.9) (9.7) 0.0 (2,480.0) Depreciation of the period (2.5) (130.6) (6.5) (0.3) 0.0 (139.9) Withdrawals and disposals Transfers from one heading to another (1.1) BALANCE AT 31 DECEMBER 2012 (26.3) (2,442.3) (114.0) (10.0) 0.0 (2,592.7) CARRYING AMOUNT At 1 January , ,011.0 At 31 December , ,150.5 At 1 January , ,150.5 At 31 December , , This topic includes a reclassification of the figures per 31 December 2011 for comparison reasons.

148 ELIA GROUP 2012 FINANCIAL REPORT 145 The majority of the invested amount in 2012 in Belgium is related to the reinforcement of the high voltage substations and the construction of overhead lines. The most important projects in Belgium are the high-voltage stations at Schaerbeek (150 kv), Horta (380 kv), Ruien (150 kv), Machelen (150 kv), Schelledorp (150/70 kv), Montignies (150 kv), Zurenborg (150 kv) and Lokeren (30 kv) which were upgraded, decontaminated and/or renovated. The highvoltage lines between Drogenbos and Ixelles (150 kv) and between Woluwe and Machelen (150 kv) were renovated and new cables were laid between Zeebrugge and Blauwe Toren (150 kv), Basse-Wavre and Corbais (150 kv), and Wijgmaal and Gasthuisberg (150 kv). Investments were also made in the real-time dispatching system and in the construction of a new administrative building at the Quai Monnoyer in Brussels. The most important onshore projects in Germany pertain to the South-West Coupling Line, the Northern Line, the expansion of the Wolmirstedt, Perleberg and Hamburg high-voltage substations, and the upgrading of the Remptendorf Redwitz line. The offshore capital expenditure in Germany includes the connection with the offshore wind farm Baltic II, in the Baltic Sea. Application of the IAS 23 Borrowing Costs standard had an impact of 8.8 million on the 2012 acquisition of the assets using an average interest rate of 4.63%. Other liabilities relating to new investments are described in Note Intangible assets (in million ) Goodwill Software Licences/ Concessions Total ACQUISITION VALUE Balance at 1 January , ,774.3 Acquired, others - own construction capitalised BALANCE AT 31 DECEMBER , ,785.4 Balance at 1 January , ,785.4 Acquired, others - own construction capitalised Transfers from one heading to another BALANCE AT 31 DECEMBER , ,797.5 DEPRECIATION AND IMPAIRMENT Balance at 1 January (22.0) (1.2) (23.2) Depreciations 0.0 (7.4) (1.2) (8.6) BALANCE AT 31 DECEMBER (29.4) (2.4) (31.8) Balance at 1 January (29.4) (2.4) (31.8) Depreciations 0.0 (7.4) (1.2) (8.6) BALANCE AT 31 DECEMBER (36.8) (3.6) (40.4) CARRYING AMOUNT At 1 January , ,751.1 At 31 December , ,753.6 At 1 January , ,753.6 At 31 December , ,757.0 Software comprises both IT applications developed by the company for operating the grid and software for the Group s normal business operations.

149 146 ELIA GROUP 2012 FINANCIAL REPORT See Note for the impact of depreciations in intangible assets on profit or loss. The goodwill, amounting to 1,707.8 million, relates to the following past transactions: (in million ) Acquisition of participations in Elia Asset by Elia System Operator , ,700.1 Acquisition of participations in Elia Engineering by Elia Asset Total 1, ,707.8 The impairment test was conducted by an independent expert and was based on the following valuation methods and applying the following assumptions (according to fair value less cost to sell methodology): 1. discounting of future cash flows and using the Regulated Asset Base or RAB as the basis for the estimation of the terminal value; 2. discounting of future dividends. 3. comparison between the previously mentioned impairment methods and those used by some comparable West European listed companies, such as Red Electrica España, Enagas, Terna, Fluxys, Snam Rete Gas, National Grid and Fluxys; 4. market valuation based on the company s share price. IMPAIRMENT TEST FOR CASH-GENERATING UNIT ELIA TRANSMISSION (BELGIUM) CONTAINING GOODWILL In 2002, the acquisition of Elia Asset by the company for an amount of 3,304.1 million resulted in a positive consolidation difference of 1,700.1 million. This positive consolidation difference is the result of the difference between acquisition value of this economic entity and carrying amount of the assets of Elia Asset. This difference consists of different elements such as the fact that (i) Elia was appointed as a TSO for a period of 20 years, (ii) Elia has unique resources in Belgium as Elia is the owner of the whole very-high-voltage network and is the owner of (or has the right to use) 94% of the high-voltage network, and hence only Elia is entitled to propose a development plan, and (iii) Elia has the TSO know-how. At the date of acquisition, the qualification or the quantification in euro of these elements could not be performed on an objective, transparent and reliable basis and therefore, the difference could not be allocated to specific assets and was considered unallocated. Therefore, this difference has been recognised as goodwill since the first adoption of IFRS at 1 January The regulatory framework, in particular the offsetting in the tariffs of the decommissioning of fixed assets, applicable as from 2008 onwards, did not have an impact on this accounting treatment. The goodwill, as described above and the goodwill resulting from the acquisition of Elia Engineering in 2004 were allocated to the single cash-generating unit for the impairment test determined, since the income and expenses were generated by one activity, specifically the regulated activity in Belgium, which will also be considered as one cash-generating unit. As a result, the company assigned the carrying amount of the goodwill to one unit, the regulated activity in Belgium. Since 2004, annual impairment tests have been conducted and did not result in recognition of any impairment losses. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually as the higher of their fair value less cost to sell or value in use, applying the assumptions hereafter and using the following valuation methods. The future cash flows and future dividend methods are based on the business plan for the period of Elia Transmission Belgium. The key assumptions used for this valuation are risk-free rate of 4.0% ( %), based on Belgian 10-year bond rates cost of debt of 4.5% (2011: 5.20%) tax rate of 33.99% market risk premium of 6.00% perpetual growth rate of 0.8% (2011:1.25%) The independent analysis did not result in the identification of an impairment of goodwill in Sensitivity to changes in assumptions With regard to the assessment of the recoverable amount, management believes, based on the analysis of an external expert, and the current knowledge, that no reasonably possible change in any of the above key assumptions would cause material impairment losses for the cash generating unit Elia Transmission (Belgium) Non-current trade and other receivables (in million ) Tax receivables Other amounts receivable Total Long-term receivables consist of the basic amount of tax receivable ( 93.8 million) and the cumulative moratorium interest that the company could recover in the future. A detailed description can be found in Note 5.5.

150 ELIA GROUP 2012 FINANCIAL REPORT Equity-accounted investees INVESTMENTS IN ASSOCIATED COMPANIES (in million ) At 1 January Increase in shareholding Share of (loss)/profit At 31 December Summary of financial data on equity-accounted investees, not corrected for the group s ownership percentage: Name Assets Liabilities Revenues Profit/(loss) Interest held % 2011 H.G.R.T APX-Endex Coreso TOTAL H.G.R.T APX-Endex Coreso TOTAL The summary of financial data of joint ventures can be found in Note 4.2 Segment 50Hertz Transmission (Germany). All companies related to the 50Hertz Transmission segment are joint ventures. There are no joint ventures in other segments Other financial assets (in million ) Immediately claimable deposits Others Total Immediately claimable deposits classified at fair value for which the changes in fair value are recognised in OCI. The risk profile of these investments is discussed in Note 7.2. The item Others is mainly related to a recoverable amount of a portion of the pension liability - see Note 6.12.

151 148 ELIA GROUP 2012 FINANCIAL REPORT 6.6. Deferred tax assets and liabilities RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES (in million ) Assets Liabilities Property, plant and equipment (88.9) (71.1) Intangible fixed assets (8.8) (8.2) Inventories (1.0) (0.9) Interest-bearing loans and other non-current financial liabilities (0.6) 0.0 Employee benefits Provisions Accrued charges and deferred income (0.3) Notional interest deduction carried forward - previous accounting years Other items (32.5) (30.7) Tax asset / liability before set off (131.8) (111.2) Set off of tax (65.7) (43.6) Net tax asset / (liability) (66.0) (67.6) CHANGES IN DEFERRED TAX ASSETS AND LIABILITIES RESULTING FROM MOVEMENTS IN TEMPORARY DIFFERENCES DURING THE FINANCIAL YEAR (in million ) 1 january Recognised in income statement Recognised in other comprehensive income 31 december 2011 Property, plant and equipment (64.1) (7.1) 0.0 (71.0) Intangible fixed assets (7.4) (0.7) 0.0 (8.2) Other financial assets Inventories (1.1) (0.9) Interest bearing loans and other long term financial liabilities Employee benefits 33.3 (3.5) Provisions (2.0) Accruals and deferred income 0.0 (0.2) 0.0 (0.3) Other items (53.2) (30.8) TOTAL (84.6) (62.4) 2012 Property, plant and equipment (71.0) (16.3) 0.0 (87.3) Intangible fixed assets (8.2) (0.6) 0.0 (8.8) Inventories (0.9) (0.1) 0.0 (1.0) Interest bearing loans and other long term financial liabilities Employee benefits 35.3 (1.3) Provisions Accruals and deferred income (0.3) Notional interest deduction carried forward - previous accounting years Other items (30.8) (22.8) TOTAL (62.4) (22.9)

152 ELIA GROUP 2012 FINANCIAL REPORT 149 UNRECOGNISED DEFERRED TAX ASSETS As per 31 December 2012 there are no unrecognized deferred tax assets anymore. (in million ) Notional interest deduction Not recognised tax asset / (liability) The decrease in VAT, and other taxes can mainly be allocated to decreased outstanding VAT receivables. The item Other consists of EEG related items ( 9 million) and other topics specific to the German activities ( 24 million). The Group s exposure to credit and currency risks, and impairment losses related to trade and other receivables, are shown in Note 7.2. As of 2012 a deferred tax asset has been recognized on the notional interest deduction reserve ( million per end of 2012) accumulated over the past couple of years, amounting to 39.0 million. This recognition took place as a result of the changes brought in the mechanism of recuperation of notional interest reserves, which was published end of 2012, and changes to the regulatory framework Inventories (in million ) Not past due Past due 0-30 days Past due days Past due 61 - one year More than one year 1.3 (0.7) Total (excl. impairment) Doubtful amounts Amounts write-offs (9.6) (21.7) Total (in million ) Raw materials and consumables Write-off (12.6) (11.9) Total The warehouse primarily stores replacement and spare parts for maintenance and repair work on the Group s high-voltage substations, overhead lines and underground cables Current trade and other receivables (in million ) Projects for third parties Other trade receivables and advance payments Levies VAT, other taxes Other Deferred charges and accrued income Total Cash and cash equivalents (in million ) Balance at bank Call deposits Total The cash and cash equivalents of the Group significantly dropped, mainly as a result of higher need in working capital related to the levy mechanism both in Belgium and Germany (mainly in a prefinancing position). Short-term deposits are invested for periods that vary from a few days and a few weeks to several months (not exceeding 3 months), depending on immediate cash requirements, and earn interest in accordance with the interest rates for the shortterm deposits. The interest rate of interest-bearing investments at the end of the reporting period varies from 0.15% to 2.00%. An amount of 6.1 million is restricted in use as result of contractual conditions related to a subsidy granted by the European community. The significant increase in current trade and other receivables is mainly driven by the increase in the levies in Germany (EEG) ( million versus a payable of 26.4 million last year) and in Belgium ( 73.3 million versus a receivable of 16.2 million in 2011). This increase can mainly be allocated to the continuous increase in renewable energy volume. Bank-account balances earn interest in line with the variable rates of interest on the basis of daily bank deposit interest. The Group s interest rate risk and the sensitivity analysis for financial assets and liabilities are discussed in Note 7.2. Trade receivables are non-interest bearing and are generally on terms of 10 to 30 days.

153 150 ELIA GROUP 2012 FINANCIAL REPORT Shareholders equity SHARE CAPITAL AND SHARE PREMIUM Number of shares Ordinary shares Outstanding on 1 January 60,355,217 60,355,217 Issued against cash payment 200,592 0 Outstanding on 31 December - paid 60,555,809 60,355,217 In October 2012 the Elia Group gave its personnel in Belgium the opportunity to subscribe to an Elia System Operator SA capital increase (tax tranche) which resulted in a 5.0 million increase in the share capital and simultaneously in a 0.3 million increase of share premium; the number of shares outstanding rose by 200,592 shares without nominal value. The capital of Elia System Operator SA increased by 5.9 million from 1,500.6 million to 1,506.5 million in 2012, taking into account the costs for capital increases and the share premium account increased from 8.5 million to 8.8 million. RESERVES In accordance with Belgian legislation, 5% of the parent company s statutory net profit must be transferred to the legal reserve each year until the legal reserve represents 10% of the capital. Within the tariff mechanism, Elia must reserve in shareholders equity the realised surplus passed on in the tariffs as a result of decommissioning fixed assets (decrease in Regulated Asset Base). In 2011, this amounted to 16.1 million. The General Meeting of 15 May 2012 decided to include that amount in the legal reserve. As per 31 December 2012 the Group s legal reserve amounts to 83.7 million. The Board of Directors can propose the payment of a dividend to shareholders up to a maximum of the available reserves and the profit carried forward from previous financial years of the parent company, including the profit of the financial year ended 31 December Shareholders must approve the dividend payment at the Annual General Meeting of Shareholders. HEDGING RESERVE The hedging reserve comprises the effective portion of the cumulative net change in fair value of cash-flow hedging instruments in respect of hedged transactions that have not yet occurred. DIVIDEND After the balance sheet date, the Board of Directors put forward the dividend proposal indicated hereafter. (in ) Per ordinary share entitled to dividend At the General Meeting of Shareholders on 15 May 2012, the Board of Directors proposed payment of a gross dividend of 1.47 per share, which yields a net dividend of 1.10 per share or a net dividend of 1.16 per share with a VVPR strip, yielding a total amount of 88.7 million. The Board of Directors meeting of 28 February 2013 will propose a gross dividend of 1.47 per share. This dividend is subject to approval by shareholders at the Annual General Meeting on 21 May 2013 and is not included as a liability in the consolidated financial statements of the Group. The total dividend will be calculated on the number of shares outstanding on 28 February 2013, which corresponds to a total of 89.0 million. The net profit also includes the realised surplus as a result of decommissioning of fixed assets of 16.0 million to be booked in equity. The Board of Directors meeting of 28 February 2013 decided to suggest to the Annual General Meeting that this amount be allocated to the legal reserve. The amount has not yet been posted in the legal reserve on 31 December Interest-bearing loans and borrowings A general overview of loans and accrued interest is given below: (in million ) Long term borrowings 2, ,850.2 Accrued interests Subtotal non-current borrowings 2, ,918.5 Short term borrowings Accrued interests Subtotal current borrowings Total 3, ,918.5 The short term borrowings consist of the Eurobond of Elia Transmission Belgium with maturity date April 2013 for an amount of million and short term borrowings amounting to million related to the German segment, comprising of 120 million short term loans and 34.8 million overdraft facilities.

154 ELIA GROUP 2012 FINANCIAL REPORT 151 Information concerning the terms and conditions of the outstanding interest-bearing loans and borrowings is given below: (in million ) Maturity Amount Interest rate before hedging Interest rate after hedging Current proportion of the interest (%) % % Fixed Variable Shareholders Loan tranche A Eurobond issues 2004 / 10 years Eurobond issues 2004 / 15 years Eurobond issues 2009 / 7 years Eurobond issues 2009 / 4 years Eurobond issues 2010 / 10 years European Investment Bank European Investment Bank TOTAL - 2, Information concerning the contractual maturities of the Group s interest-bearing loans and borrowings (current and non-current) is given hereafter: (in million ) Face value Less than 1 year 1-2 years 3-5 years More than 5 years Shareholders Loan tranche A Eurobond issues 2, European Investment Bank European Investment Bank TOTAL 2, , Employee benefits In Belgium collective agreements regulate the rights of company employees in the electricity and gas industries. These agreements provides so called pension supplements based on the annual salary and the career within the company of the employee. If the employee deceases, the supplements are partially revertible to the heritor (wife/orphan). The benefits granted are linked to Elia s operating result. There is neither an external pension fund nor group insurance for these liabilities, which means that no reserves are constituted with third parties. The obligations are qualified as a defined benefit. The collective agreement determines that active staff hired from 1 January 1993 to 31 December 2001 and all managerial/ executive staff hired prior to 1 May 1999 are granted the same guarantees via a defined-benefit pension scheme. Obligations under these defined-benefit pension plans are funded through a number of pension funds for the electricity and gas industries and through insurance companies. employer s contributions and at least 3.75% for employees contributions, with any deficit being covered by the employer. The insurer confirmed as per end of 2012 that the annual return is at least 3.25%, and therefore no provision has been established to cover any deficit. The expenses related to these plans were 4.1 million in 2012 and 4.6 million in Elia Transmission Belgium also has early-retirement schemes and other post-employment benefits such as reimbursement of medical expenses and price subsidies, as well as other longterm benefits (seniority payments). Not all of these benefits are funded. 50Hertz Transmission Germany has pension schemes and early-retirement plans, mainly based on collective bargaining or works council agreements. The level of benefits or contribution to be provided depends on the salary and years of service of the participants. Personnel remunerated based on a salary scale recruited after 1 June 2002 and management staff recruited after 1 May 1999 are covered by defined-contribution pension plans. For payments made after 1 January 2004, the law requires an average annual return over the career of at least 3.25% for the

155 152 ELIA GROUP 2012 FINANCIAL REPORT The total net liability for employee benefits obligations are as follows: (in million ) In following tables the detail is shown of the outstanding provision for employee benefits, with the split between pension cost and non-pension costs. Defined benefit plans Other employee benefits Subtotal Others (restructuring) Total provisions for employee benefits DEFINED BENEFIT PLAN FOR COMPLEMENTARY PENSIONS (in million ) MOVEMENT IN THE PRESENT VALUE OF THE DEFINED BENEFIT OBLIGATIONS Defined benefit obligation at the beginning of the period (177.2) (172.3) Service cost (3.9) (4.3) Interest cost (6.8) (7.4) Contributions from plan participants (0.6) (0.5) Special termination benefits Actuarial gains (losses) (15.0) (7.6) Benefits paid DEFINED BENEFIT OBLIGATION AT THE END OF THE PERIOD (187.5) (177.1) MOVEMENT IN THE FAIR VALUE OF PLAN ASSETS Fair value of plan assets at beginning of the period Expected (not actual) return on plan assets Company contributions Plan participants contributions Actuarial gains (losses) 1.5 (5.5) Benefits paid (15.8) (14.9) FAIR VALUE OF PLAN ASSETS AT END OF PERIOD FUNDED STATUS FUNDED STATUS OF THE PLAN (61.0) (53.7) EXPENSE RECOGNISED IN PROFIT OR LOSS Service cost (3.9) (4.3) Interest cost (6.7) (7.4) Plan participants contributions (0.4) (0.1) Expected return on plan assets TOTAL NET PERIODIC BENEFIT COST (6,5) (6,2)

156 ELIA GROUP 2012 FINANCIAL REPORT 153 POST-EMPLOYMENT BENEFITS OTHER THAN PENSIONS (in million ) MOVEMENT IN THE PRESENT VALUE OF THE DEFINED BENEFIT OBLIGATIONS Defined benefit obligation at the beginning of the period (60.2) (54.8) Service cost (2.1) (2.1) Interest cost (2.4) (2.1) Special termination benefits (2.6) (1.9) Actuarial gains (losses) (1.9) (4.0) Benefits paid DEFINED BENEFIT OBLIGATION AT THE END OF THE PERIOD (63.2) (60.2) MOVEMENT IN THE FAIR VALUE OF PLAN ASSETS Fair value of plan assets at beginning of the period Plan participants contributions Actuarial gains (losses) (0.2) (0.3) Benefits paid (4.8) (3.4) FAIR VALUE OF PLAN ASSETS AT END OF PERIOD FUNDED STATUS FUNDED STATUS OF THE PLAN (58.5) (53.8) EXPENSE RECOGNISED IN PROFIT OR LOSS Service cost (2.1) (2.1) Interest cost (2.4) (2.1) Plan participants contributions (0.3) 0.9 Actuarial gains (losses) (0.6) (1.3) Special termination benefits (2.6) (1.9) TOTAL NET PERIODIC BENEFIT COST (8.0) (6.5) ACTUARIAL ASSUMPTIONS Pension plans (%) PENSION PLANS ELIA TRANSMISSION (BELGIUM) Inflation rate Discount rate at 31 December (not including inflation) Future salary increases (not including inflation) Expected return on plan assets Future pension increases (not including inflation) Medical cost trend rate (not including inflation) PENSION PLANS 50HERTZ TRANSMISSION (GERMANY) Inflation rate Discount rate at 31 December (not including inflation) Future salary increases (not including inflation) Expected return on plan assets Future pension increases (not including inflation) 1,00/2,00/2,50 p.a. 1,00/2,50/3,00 p.a.

157 154 ELIA GROUP 2012 FINANCIAL REPORT The actual return in plan assets in % for 2012 for the Belgian segment corresponded to 2.9% and for the German segment to 5.2%. The Group expects to contribute 14.7 million to its defined benefit pension plans in 2013 (of which 0.4 million by the German segment). The expected return on plan assets is determined by asset category, with each asset category having its own estimated rate of return. DETAILED SUMMARY OF PLAN ASSETS (%) Equity securities Bonds Property Other (cash included) Total plan assets SENSITIVITY ANALYSIS The impact of a change of 1% on medical costs is as follows: (in million ) Increase of 1% Decrease of 1% The table hereafter presents the historical overview of the key indicators of the last five years (in million ) Defined benefit obligation (250.8) (237.5) (227.1) (236.9) (240.0) Fair value of plan assets (Surplus) / Deficit (119.7) (107.5) (102.8) (141.7) (141.5) Experience adjustments arising on: plan liabilities: gain / (loss) (0.8) plan assets: gain / (loss) Recoverable amount in future tariffs In accordance with a study report issued by the CREG, management assumes it is virtually certain that some of the liability related to the pension scheme will be accepted by the CREG as reasonable expenses and will therefore be passed on in future tariffs. Since this amount can be recovered by Elia from third parties, in application of the general definition and framework, it has been classified as an asset item. The amount of 75.6 million is included under other financial assets (see Note 6.5). Aggregate of the service and interest costs (0.2) 0.2 Defined benefit obligation (3.0) 2.4 The impact of increase of 1% on discount rate and inflation is as follows: (in million ) Discount rate Inflation Defined benefit obligation 17.5 (18.1) ACTUARIAL GAINS AND LOSSES RECOGNISED IN OTHER COMPREHENSIVE INCOME (in million ) Cumulative amount at 1 January (0.4) 10.4 Recognised in the period (9.9) (10.8) Cumulative amount at 31 December (10.3) (0.4)

158 ELIA GROUP 2012 FINANCIAL REPORT Provisions (in million ) Environment Litigation Rights use of lines Total BALANCE AT 1 JANUARY During financial year: increase in provisions During financial year: utilization provisions (1.8) (0.3) (2.1) (4.2) During financial year: reversals of provisions (0.3) (14.8) 0.0 (15.1) Unwind of discount BALANCE AT 31 DECEMBER Long term portion Short term portion BALANCE AT 1 JANUARY During financial year: increase in provisions During financial year: utilization provisions (1.1) (1.0) (0.6) (2.7) During financial year: reversals of provisions (0.3) (5.6) 0.0 (5.9) Unwind of discount BALANCE AT 31 DECEMBER Long term portion Short term portion This topic includes a reclassification of the figures per 31 December 2011 for comparison reasons. The changes in provisions for environment are mainly related to new soil pollution identified on different sites with pylons, in the Walloon region, and further soil research and remediation on certain sites in Flanders and to the results of the preventive screening and detailed analysis of sites in the Brussels-Capital Region and the Walloon Region. The estimates are based on the appraisal of an external expert bearing in mind the BAT- NEEC (Best Available Techniques Not Entailing Excessive Costs) principle. The provision for litigation has been established to cover likely payment as a result of cases in which legal proceedings have been instituted against the Group by a third party or in which the Group is involved in a legal dispute. The provision Rights of use of land consists of likely payment to landowners for easement rights related to overhead lines built in the past by the former owners of 50Hertz Transmission. These estimates are based on the value of claims filed or on the estimated amount of the risk exposure. The expected timing of the related cash outflow depends on the progress and duration of the associated procedures Other non-current liabilities (in million ) Investments grants Other Total The other non-current liabilities remained in line compared to last year Trade and other payables (in million ) Trade debts VAT, other taxes Remuneration and social security Dividend Levies Other Total The changes in provisions are discussed in Note

159 156 ELIA GROUP 2012 FINANCIAL REPORT The minor decrease in trade and other payables is driven by the evolution in the levies position. For some levies, the Group has found itself to be mainly in a pre-financed position (see also Note 6.8). 7. Miscellaneous 7.1. Effect of new acquisition Accruals and deferred income (in million ) Accruals and deferred income Balance settlement mechanism Belgium Balance settlement mechanism Germany Total ACQUISITION OF AN ADDITIONAL 3.07% STAKE IN APX-ENDEX HOLDING BV IN 2012 Description of the deal In November 2012 Elia finalized the acquisition of an additional 3.07% stake (or 40,000 shares) in APX-Endex Holding BV from Fluxys Europe BV. The acquisition price for all shares held by Fluxys Europe BV amounted to 3.07 million. As a result of this share purchase agreement Elia holds a 23.07% stake in APX- Endex Holding BV as per end of The accruals and deferred income decreased with 20.8 million, mainly as a result of the EEG/KWK activities in Germany. We refer to notes 6.8 and The changes in the balance settlement mechanisms in Belgium and Germany in 2012 are described in the Notes 4.1 and 4.2. The balance settlement mechanism 2012 is set out in the table here below: (in million ) Belgium Germany To be refunded to the tariffs of current period 43.3 (7.7) Balance period prior years to be refunded into the tariffs - period to be determined Discount future tariffs Moratorium interest on income tax Balance settlement mechanism ACQUISITION OF 10% OF ATLANTIC GRID IN 2011 Description of the deal On 22 July 2011, Eurogrid International, in which Elia has a 60% stake, joined partners Google, Marubeni, BregalEnergy (former Good Energies, and Atlantic Grid Investments (AGI) in the Atlantic Wind Connection project. Atlantic Wind Connection aims to develop the first high-voltage DC offshore grid in the USA, which should make it possible to integrate up to 7,000 MW of offshore wind power into the grids of New Jersey, Delaware, Maryland and Virginia. Eurogrid International acquired a strategic minority stake of 10% in the first segment of the project and a minority stake of 5% in the four other segments. Eurogrid International acquired the participation via its newly established, wholly owned subsidiary E-Offshore A LLC. The stake was 1.2 million (part in consolidated figures 60% or 0.8 mio). Contribution to the result of the Group Eurogrid International holds through its subsidiaries a stake of 10% in Atlantic Grid A Financial risk and derivative management PRINCIPLES OF FINANCIAL RISK MANAGEMENT The Group aims to identify each risk and set out strategies to control the economic impact on the Group s results. The Internal Audit & Risk Management Department defines the risk management strategy, monitors the risk analysis and reports to the management and the Audit Committee. The financial risk policy is implemented by determining appropriate policies and setting up effective control and reporting procedures. Selected derivative hedging instruments are used depending on the assessment of risk involved. Derivatives are used exclusively as hedging instruments. The regulatory framework in which the Group operates considerably restricts their effects on profit or loss (see the Regulatory framework and tariffs chapter). The major impact of increased interest rates, credit risk, etc. can be settled in the tariffs, in accordance with the applicable legislation.

160 ELIA GROUP 2012 FINANCIAL REPORT 157 CREDIT RISK Credit risk encompasses all forms of counterparty exposure, i.e. where counterparties may default on their obligations to the company in relation to lending, hedging, settlement and other financial activities. The company is exposed to credit risk from its operating activities and treasury activities. In respect of its operating activities, the Group has a credit policy in place, which takes into account the risk profiles of the customers. The exposure to credit risk is monitored on an ongoing basis, resulting in a request to deliver bank guaranties from the counterparty for some major contracts. (in million ) Loans and receivables Cash and cash equivalents Immediately claimable deposits Interest rate swaps used for hedging Assets Liabilities (36,7) (35.2) Total At the end of the reporting period there were no significant concentrations of credit risks. The maximum credit risk is the carrying amount of each financial asset, including derivative financial instruments. The movement in the allowance for impairment in respect of loans and receivables during the year was as follows: (in million ) Bad debtors Impairment losses Remaining balance BALANCE AT 1 JANUARY (14.9) 0.3 Changes during the year 6.8 (6.8) 0.0 BALANCE AT 31 DECEMBER (21.7) 0.3 BALANCE AT 1 JANUARY (21.7) 0.3 Changes during the year (15.2) BALANCE AT 31 DECEMBER (6.5) 0.3 Trade and other receivables are recorded without taking into account receivables which have been impaired. The impairment loss recognised in 2012 is mainly related to a settlement of receivables, which finally could be recovered in the future tariffs. LIQUIDITY RISK Liquidity risk is the risk that the Group may not be able to meet its financial obligations. The Group limits this risk by constantly monitoring cash flows and ensuring that there are always sufficient credit line facilities available. The Group believes that the unimpaired amounts overdue by more than 30 days are still collectible, based on historic payment behaviour and extensive analysis of customer credit risk, including underlying customers credit ratings, when available. The credit quality of trade and other receivables is assessed based on a credit policy. CURRENCY RISK The Group is not exposed to any significant currency risk, either from transactions or from exchanging foreign currencies into euro, since it has no foreign investments or activities and less than 1% of its costs are expressed in currencies other than the euro. The Group s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans, confirmed and unconfirmed credit facilities, commercial paper program, etc. For medium- to long-term funding, the Group uses bonds. The maturity profile of the debt portfolio is spread over several years. The Group Treasury frequently assesses its funding resources taking into account its own credit rating and general market conditions. Referring to the bond issues in 2009 and 2010, access to sources of funding should sufficiently be available.

161 158 ELIA GROUP 2012 FINANCIAL REPORT (in million ) Carrying amount Expected cash outflows 6 mths or less 6-12 mths 1-2 years 2-5 years > 5 years Non-derivative financial liabilities Unsecured bond issues 2,294.4 (2,806.1) (101.0) (11.6) (597.0) (1,187.8) (908.7) Unsecured financial bank loans and other loans (711.8) (9.6) (6.8) (16.0) (87.1) (592.4) Trade and other payables (450.3) (450.1) Derivative financial liabilities Interest rate swaps used for hedging 35.2 (40.5) (5.4) (5.6) (5.9) (17.7) (5.9) Of which cash flow hedges 35.2 (40.5) (5.4) (5.6) (5.9) (17.7) (5.9) BALANCE AT 31 DECEMBER ,335.5 (4,008.7) (566.1) (24.0) (618.9) (1,292.6) (1,507.0) Non-derivative financial liabilities Unsecured bond issues 2,295.2 (2,693.3) (585.1) (11.6) (575.0) (650.8) (870.8) Unsecured financial bank loans and other loans (806.7) (161.4) (4.2) (11.8) (92.0) (537.3) Trade and other payables (168.5) (168.5) Derivative financial liabilities Interest rate swaps used for hedging 36.7 (23.6) (4.0) (4.1) (3.9) (11.6) 0.0 Of which cash flow hedges 36.7 (23.6) (4.0) (4.1) (3.9) (11.6) 0.0 BALANCE AT 31 DECEMBER ,056.2 (3,692.1) (919.0) (19.9) (590.7) (754.4) (1,408.1) 50Hertz Transmission (Germany) has established an EMTN programme in 2010 for the aggregate amount of 2.5 billion EUR, and under which a Eurobond issuance took place in 2010 for 500 million. Elia Transmission (Belgium) has established end of January 2013 a Euro Medium Term Note Programme (the EMTN Programme ) for the aggregate amount of 3 Billion. In addition to the interest-bearing liabilities disclosed here above, the Group is backed by long term credit facilities provided by a diversified group of banks. Especially in 2012, Elia Transmission has set up bilateral back-up facilities with 4 banks BNP Paribas Fortis, JP Morgan, KBC and Rabobank, for the aggregate amount of 700 million with a maturity in These credit facilities, with a duration of 3 years, have been concluded in view of the refinancing of 2 bonds of 500 million each, with maturity date April 2013 and May 2014.

162 ELIA GROUP 2012 FINANCIAL REPORT 159 Details of the used and unused back-up credit facilities are set out here below: Credit line facilities (in million ) Maturity Available amount Average basic interest Amount used not used Confirmed credit line 30/06/ Euribor + 0,45% Confirmed credit line 30/06/ Euribor + 0,45% Confirmed credit line 30/06/ Euribor + 0,45% Confirmed credit line 30/06/ Euribor + 0,45% Confirmed credit line 01/06/ Euribor + margin when concluding the deal Confirmed credit line 14/06/ Euribor + 0,55% Confirmed credit line not limited 72.0 Monthly average of EONIA + 0,4% Revolving credit facility 15/02/ Euribor 1m + 0,575% Revolving credit facility 15/02/ Euribor 1m + 0,63% Uncommitted credit line facility Euribor + margin when concluding the deal Belgian dematerialised treasury notes Euribor + margin when concluding the deal TOTAL 1, ,312.1 INTEREST RATE RISK Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group s exposure to the risk of changes in market interest rates relates primarily to the Group s long-term debt obligations with floating interest rates. The Group manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. To manage this, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated to hedge underlying debt obligations. The table (see Note 6.11) shows the average interest rate at the balance sheet date. SENSITIVITY ANALYSIS Changes in the interest rates will not affect the consolidated result in the short and long term as the Group operates within a regulatory framework where the consequences of fluctuations in financial expenses are mainly recovered in tariffs, except for the items which are directly recognized through OCI. FAIR VALUE SENSITIVITY ANALYSIS FOR INTEREST RATE SWAPS A change of 100 basis points in interest rates would have increased (decreased) other comprehensive income by the amounts shown below: (in million ) Equity 100 bp increase 100 bp decrease Interest rate swaps Cash flow sensitivity HEDGING All financial derivatives the Group enters into relate to an underlying transaction or forecasted exposure, depending on the expected impact on the income statement, and if the stringent IAS 39 criteria are met, the Group decides on a case-by-case basis whether hedge accounting will be applied. The following paragraphs describe the transactions whereby hedge accounting is applied. At 31 December 2012 the Group has no transactions which do not qualify for hedge accounting.

163 160 ELIA GROUP 2012 FINANCIAL REPORT In accordance with the hedge accounting rules, all derivative financial instruments are accepted as cash-flow hedges and valued at fair value. Consequently, the portion of the gain or loss on the derivative financial instrument that can be considered an effective hedge is reflected directly in equity (hedging reserves net of tax). Interest-rate swaps have an interest rate varying from 4.4% to 4.41%. As at 31 December 2012, the Group held hedging instruments with a contracted reference value of million. The net fair value of the swaps as at 31 December 2012 totalled 36.7 million and was entirely composed of liabilities. The amounts are included as derivatives at fair value. As at 31 December 2012, no financial expenses resulting from ineffective cash-flow hedges are included in profit or loss. Fair value The overview below shows the fair values and carrying amounts of derivative financial instruments. As the loan has a variable interest rate, the carrying amount of the loan is equal to the fair value. (in million ) Financial Assets Carrying amount Fair value Carrying amount Fair value Sicav Total Financial Liabilities Derivative financial liabilities (interest rate swap) Interest bearing loans and borrowings markets for such instruments; listed prices for identical or similar instruments on markets that are deemed less than active; or other valuation techniques arising directly or indirectly from observable market data. Estimate of fair value Derivatives Brokers statements are used for interest-rate swaps. The statements are controlled using valuation models or techniques based on discounted cash flows. Interest-bearing loans The fair value is calculated on the basis of the discounted future redemptions and interest payments. CAPITAL RISK MANAGEMENT The purpose of the Group s capital structure management is to maintain the debt and equity ratios related to the regulated activities in line with the requirement of the regulatory framework (one-third equity and two-thirds debt capital). This approach allows the Group to manage the security of the liquidity at all times via flexible access to capital markets, so as to be able to finance strategic projects and to offer an attractive remuneration to shareholders. The company s dividend policy involves optimising dividend payments while still bearing in mind that there is a requirement to reserve a part of the profit resulting from decommissioning of fixed assets, included in the tariff. Reserving this part of the profit as equity boosts the company s self-financing capacity needed to carry out its legal mission. The company offers the employees the opportunity to subscribe to capital increases that are exclusively reserved for them. Total The fair value of the financial assets and liabilities, other than those presented in the above table, approximates their carrying amounts largely due to the short-term maturities of these instruments. We further refer to the notes on trade receivables (non-current and current) 6.3 and 6.15 and to the note on trade payables Fair-value hierarchy The above fair value of sicavs belongs to level 1, i.e. valuation is based on the (unadjusted) listed market price on an active market for identical instruments. The above fair value of interest rate swaps belongs to level 2, which entails that valuation is based on input from other prices than the stated prices, where these other prices can be observed for assets or liabilities. This category includes instruments valued on the basis of listed market prices on active

164 ELIA GROUP 2012 FINANCIAL REPORT Commitment and contingencies OPERATING LEASE COMMITMENTS GROUP AS A LESSEE The Group entered into commercial leases on motor vehicles, IT equipment and office buildings. The leases related to leasing cars and IT equipment have an average life of three years; the contracts regarding the buildings have a normal term of nine years, with the possibility of renewing the lease after that. Renewals are at the option of the specific entity that holds the lease. Future minimum rentals payable under non-cancellable operating leases are as follow: The following revenue related to these lease contracts was recognised in the income statement: (in million ) Telecom Buildings Total The lease contingencies include the contingencies of the German segment for an amount of 5.8 million (at 60% stake of Elia). (in million ) <1 year 1 5 years >5 years Buildings Cars, IT equipment and others Total at 31 December Buildings Cars, IT equipment and others Total at 31 December These lease commitments include the commitments of the German segment for an amount of 10.4 million (at 60% stake of Elia). The following expenses related to these lease contracts were recognised in the income statement: (in million ) Buildings Cars, IT equipment and others Total OPERATING LEASE COMMITMENTS GROUP AS A LESSOR The Group has entered into commercial property leases on certain elements of property, plant and equipment, mainly consisting of optimising use of sites and high-voltage pylons. These leases have remaining terms of a minimum of nine years. Future minimum rental receivables are as follows: (in million ) <1 year 1 5 years >5 years Telecom Buildings Total at 31 December Telecom Buildings Total at 31 December CONTINGENT RENTS PURCHASE OPTION The Group has no contracts which include contingent rental payments. No purchase options were agreed in the significant lease contracts. CAPITAL COMMITMENT As at 31 December 2012, the Group has a commitment of million relating to the purchase and installation of property, plant and equipment for further grid extensions. These capital commitments include the capital commitments of the German segment for an amount of million (at 60% stake of Elia). OTHER COMMITMENTS As at 31 December 2012, the Group has a commitment of million relating to different topics (e.g. repair commitments, operational purchase commitments, maintenance ). These commitments include the commitments of the German segment for an amount of 15.3 million (at 60% stake of Elia). CONTINGENCIES Settlement mechanism A calculation of the amount is given in the Regulatory framework and tariffs chapter. The group operates in a regulated context which states that tariffs must make it possible to realise total revenue consisting of: 1. a reasonable return on invested capital; 2. all reasonable costs which are incurred by the Group. Since the tariffs are based on estimated figures, there is always a difference between the tariffs that are actually charged and the tariffs that should have been charged to cover all reasonable costs of the system operator and to provide shareholders with a reasonable profit margin on their investment. If the applied tariffs result in a surplus or a deficit at the end of the year, this means that the tariffs charged to consumers / the general public could have been respectively lower or higher (and vice versa). The Group is convinced that a surplus or deficit arising from the settlement mechanism must not be classified as revenue or an expense, or as an item under equity.

165 162 ELIA GROUP 2012 FINANCIAL REPORT On a cumulative basis, it could be argued that the public has made an advance payment (=surplus) for its future use of the network. As such, the surplus (deficit) is not a commission for a future loss (recovery) of income but instead a liability (receivable) to (with regard to) consumers. On the basis of the Regulatory framework, the Group believes that the surplus (deficit) does not represent an item of revenue (cost). Consequently, the Group booked these amounts under section Accruals and deferred income (see Note 6.16) Related parties TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL The key management includes Elia s Executive Committee. They are hired as employees and the components of their remuneration are set out below. Members of the Executive Committee do not receive stock options, special loans or other advances from the Group. (in million ) Short term employee benefits - Basic remuneration Variable remuneration Post-employment benefits Other variable remuneration Total gross remuneration Number of persons 8 7 Average gross remuneration per person Number of shares 32,303 31,484 In addition Elia s Executive Committee also assessed whether transactions occurred with entities in which they exercise a significant influence (e.g. positions as CEO, CFO, vice-presidents of the Executive Committee, etc.). Significant transactions occurred in 2012, all at arms length, with some distribution system operators. The total amount of realized sales equals to 95.0 million. The total amount of expenses equals to 3.2 million. As per 31 December 2012 there was an outstanding trade receivable position of 4.4 million and no significant outstanding trade debt position. TRANSACTIONS WITH ASSOCIATED COMPANIES Transactions between the company and its subsidiaries which are related parties were eliminated during consolidation and therefore are not recognised in this note. In the 2012 and 2011 financial years, there were no transactions between Elia and HGRT. All transactions are at arm s length. Details of transactions with other related parties are explained below. (in million ) Transactions with associated companies Sales of goods Purchases of goods Interest and similar revenue Outstanding balances with associated companies Long term debtors Trade debtors Trade debts Subsidiaries, joint ventures and associates SUBSIDIARIES Elia System Operator SA has direct and indirect control of the subsidiaries listed hereafter. All the entities keep their accounts in euro (except E-Offshore A LLC and Atlantic Grid Investment A Inc, whose accounts are held in USD) and have the same reporting date as Elia System Operator SA (except Eurogrid International SCRL). The disclosures relating to the Belgian Corporate Governance Code are included in the Corporate Governance Statement of this annual report.

166 ELIA GROUP 2012 FINANCIAL REPORT 163 Name Country of establishment Headquarters Stake % Elia Asset SA Belgium Bd de l Empereur Brussels Elia Engineering SA Belgium Bd de l Empereur Brussels Elia Re SA Luxembourg Rue de Merl Luxembourg JOINT VENTURES Eurogrid International SCRL Belgium Bd de l Empereur Brussels Eurogrid GmbH Germany Eichenstraße 3a Berlin Hertz Transmission GmbH Germany Eichenstraße 3a Berlin Hertz Offshore GmbH Germany Eichenstraße 3a Berlin Gridlab GmbH Germany Sielowerstraße Cottbus 60,00 60,00 E-Offshore A LLC U.S. 874, Walker Road, Suite C Dover, Delaware Atlantic Grid Investment A Inc U.S Orange Street Wilmington, Delaware ASSOCIATED COMPANIES ACCOUNTED FOR USING THE EQUITY METHOD H.G.R.T S.A.S. (Holding de Gestionnaires de Réseaux de Transport) France 1 Terrasse Bellini La Défense Cedex Coreso SA Belgium Avenue de Cortenbergh Brussels APX-ENDEX Holding BV Netherlands Strawinksylaan XX Amsterdam OTHER PARTICIPATIONS CASC.EU SA Luxembourg 2 Rue de Bitbourg 1273 Luxembourg-Hamm EMCC European Market Coupling Company GmbH Germany Hopfenmarkt Hamburg CAO Central Allocation Office GmbH Germany Gute Änger Freising Atlantic Grid A LLC U.S. 4445, Willard Av, Suite Chevy Chase, Maryland

167 164 ELIA GROUP 2012 FINANCIAL REPORT 7.6. Subsequent events 7.7. Relationship with auditors Following the implementation in accordance with the regulatory framework in force in Belgium of Elia s tariff dossier , which included injection tariffs for the first time and had been approved by CREG, a number of generators challenged the CREG Decision (B) CDC-658E /19 concerning Elia System Operator SA s proposal for the regulatory period , at the Brussels Court of Appeal. The General Meeting of Shareholders appointed the joint auditors KPMG Bedrijfsrevisoren Burg. CVBA (represented by Alexis Palm) and Ernst & Young Bedrijfsrevisoren BCVBA (represented by Marnix Van Dooren) for the audit of the consolidated financial statements of Elia System Operator SA and the audit of the statutory financial statements of Elia System Operator SA, Elia Asset SA and Elia Engineering SA. In its judgement on 6 February 2013, the Court of Appeal quashed the CREG decision mentioned above, while not calling into question the implementation of injection tariffs. The tariff framework and Belgian legislation state that all costs incurred by Elia, approved by CREG and needed to perform its mission as transmission system operator in Belgium, will be recovered from grid users. These tariffs consist of both injection and offtake tariffs. In consultation with CREG, a decision was made to compile a new tariff dossier for the period , taking into account the provisions described in the above Court of Appeal ruling. The new tariffs are expected to be released in May 2013 and will cover all of Elia s budgeted costs, approved by CREG, for the period The new tariffs, which will be approved by CREG for the period , will restore stability and visibility for grid users. The rejected injection tariffs that were the subject of this Court of Appeal ruling amount to million in the 2012 results. If CREG does not approve any new injection tariffs, this sum will be charged in total to other customer groups. In the most plausible scenario where CREG will issue new but lower injection tariffs, the remaining balance after deduction of the new injection tariffs will be charged in future to other customer groups. This means that the rejection of the tariff dossier could lead to an adjustment of the annual turnover for the items Grid use revenue and Ancillary services revenue under Revenues and other income. However, this impact would be completely cancelled out by Balance settlement mechanism under the same heading, so there would be no impact on the Group s annual turnover 1 or on its annual net profit. The Elia group paid to the joint auditors during the year 2012 an amount of 411, for the annual audit mandates, of which 239, has been paid to the statutory auditor of the German activities, Ernst & Young. The fees paid to the joint auditors for other engagements prescribed by the Belgian Company Law and engagements other than those prescribed by the Belgian Company Law amounted to respectively 50, and 137, for the year ended 31 December The latter services related mainly to tax and VAT advice. In addition an amount of 412, has been paid in 2012 for non-audit services in Germany. These fees can be detailed as follows: (in ) Ernst & Young KPMG Attestation missions 47, Tax advisory services , IT advisory services , Total 47, , The services were approved by the Audit Committee. The impact of the rejection of the tariff dossier could also affect the balance sheet, as it could lead to a decrease in Other amounts receivable and advance payments under Trade and other receivables. However, this impact would be completely cancelled out by the Balance settlement mechanism Belgium under Accruals and deferred income, and would therefore not have any impact on the Group s net working capital. 1 Total revenues and other income

168 ELIA GROUP 2012 FINANCIAL REPORT 165 Declaration by responsible persons The undersigned Chairman of the Executive Committee and Chief Executive Officer Jacques Vandermeiren and Chief Financial Officer Jan Gesquière declare that to the best of their knowledge: a) the consolidated financial statements for the year ending 31 December 2012 have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union, and give a true and fair view of the consolidated financial position and results of the Elia Group and of its subsidiaries included in the consolidation; b) the annual report for the year ending 31 December 2012 gives, in all material aspects, a true and fair view of the evolution of the business, the results and the situation of the Elia Group and of its entities included in the consolidation, as well as a description of the most significant risks and uncertainties with which the Elia Group is confronted. Brussels, 21 March 2013 Jacques Vandermeiren Chairman and CEO Jan Gesquière CFO

169 166 ELIA GROUP 2012 FINANCIAL REPORT Joint auditors report on the consolidated financial statements