Gasunie Transport Services B.V. Annual Report 2014

Transcription

1 Gasunie Transport Services B.V. Annual Report 2014

2 Table of contents Management... 3 Gasunie Transport Services B.V Foreword... 6 Management Report... 7 State of affairs during the financial year... 7 Expectations for the coming years Risk management Financial statements Balance sheet as at 31 December (before profit appropriation) Profit and loss account of the financial year Cash flow overview of the financial year Notes to the financial statements Accounting policies Notes to the balance sheet Notes to the profit and loss account Other information Provisions of the Articles of Association governing profit appropriation Profit appropriation proposal Events after the balance sheet date Independent auditor s report

3 Management A.J. Krist, Managing Director K.J. Beukema, Manager Gas Transport C. Hut, Manager Assets D.L. Zelhorst, Manager Commercial & Regulatory Affairs A.F. Elzinga, Manager Finance & Control * * As of 15 November 2014; until that date C.E. van der Meij 3

4 Gasunie Transport Services B.V. General Gasunie Transport Services B.V. (GTS) owns and manages the national gas transport network in the Netherlands. GTS is an independent subsidiary of N.V. Nederlandse Gasunie (Gasunie). GTS is responsible for selling gas transport services, executing gas transport and developing the Dutch gas transport network. Mission GTS offers gas transport services in a customeroriented and transparent way. Safety, reliability, sustainability and cost effectiveness are central in everything we do. We serve the public interest and work professionally on value creation for our stakeholders. Vision GTS aims to be an organisation that best serves the market, flexibly adjusts to changes in the environment, enables new gas flows, facilitates the introduction of sustainable energy and thus plays a key role in the northwest European gas market. GTS s business model In its core services, GTS focuses on selling the available capacity in a reliable network under competitive conditions. Gas can be fed into the network at entry points and a customer can retrieve gas from the network at exit points. Customers enter into contracts for capacity at certain entry or exit points in the network for a certain period (year, quarter, month or day). Customers can trade gas at a virtual market place called Title Transfer Facility (TTF). The GTS network competes with other networks with regard to transport of international gas flows. Tariffs The tariffs that GTS charges its customers are regulated. They are determined once a year by the Dutch regulatory authority ACM, which reviews the method of regulation every 3 to 5 years. As of 2014, a system of revenue regulation has become applicable: the tariffs are calculated by dividing the permitted revenues by the estimated capacity bookings. If the actual revenues deviate from this, the difference will be settled in later years. The permitted revenues are calculated on the basis of the costs incurred by GTS in a certain reference year. GTS is allowed to earn back its capital and operational costs plus depreciations, including a return. Investments The design and use of the network determine the total available capacity. GTS is legally bound to invest efficiently in sufficient transport capacity in order to be able to satisfy the total market needs. To this end, the legal standpoint is that the gas supply for smallscale users in the Netherlands is guaranteed for a day with an average effective temperature of minus 17 C, as measured at the Royal Netherlands Meteorological Institute in De Bilt,. New investments if they are deemed to be efficient by ACM are added to the cost base of GTS, so that GTS can earn these back through the tariffs. 4

5 In 2013, ACM laid down for a period of three years ( ) the method by which GTS is to be regulated. The main parameters defining this method of regulation are: CPI: the tariffs may be indexed annually on the basis of inflation, in line with the Consumer Price Index. The WACC (Weighted Average Cost of Capital): the allowed return on the regulated asset value. For the years , ACM has set the real pretax WACC at 3.6%. This is based on a 50/50 equity to debt ratio, a nominal cost base for loans of 3.85%, and a nominal return on equity of 5.6%. The productivity improvement to be realised during the regulatory period on the total operational and capital costs, excluding uncontrollable costs. For the years , this productivity improvement (or frontier shift) has been set at 1.3% per year. For the current regulation period, ACM has not conducted an individual efficiency benchmark survey for GTS, but it intends to do so in the next regulation period. In practice, GTS can achieve a higher or lower return compared to the return on efficiently incurred costs determined by ACM. This depends on the level of the actual costs. In 2014, an analytical test was carried out to determine any possible impairments of the gas transport network in the Netherlands. For more details regarding the reason for and the outcome of this research, see the Notes to the balance sheet (note 2) in the financial statements. Tasks GTS offers gas transport services and related services, such as quality conversion and balancing. GTS s responsibilities include: the economic management, operation and development of the gas transport network; monitoring a safe, reliable and efficient transport system; sufficient transport capacity; the connection with other networks, both national and international; the execution of public tasks in the field of security of supply (including peak deliveries and emergency deliveries) and the small fields policy; managing gas quality; and balancing the network. Regulatory oversight ACM supervises the execution of the legal tasks assigned to GTS. The Gas Act stipulates certain requirements as to the way in which GTS should carry out its tasks. For example, GTS has a code of conduct that guarantee that all customers of GTS are treated equally. Transfer of gas transport network in the Netherlands As of 1 January 2014, Gasunie transferred the ownership of the gas transport network in the Netherlands and the associated assets, liabilities and activities to GTS. The transfer of the ownership of the gas transport network in the Netherlands was part of GTS s certification as an independent network operator. As a network operator, GTS uses the services of Gasunie. GTS and Gasunie have made agreements with regard to this collaboration in such a way that security of supply, security of transport and the safety of gas transport are guaranteed. 5

6 Foreword The year 2014 was special for Gasunie Transport Services (GTS). First of all, it was a special year because GTS was established exactly 10 years ago. And looking back on those years, we see that we have made the necessary steps to serve our customers as efficiently and effectively as possible. Considering the highlights of the past year, we have succeeded in transporting gas safely and reliably through our pipelines. The security of supply was almost 100%. We find that important. We have a public role, and through our activities, we make an important contribution to society by ensuring the safe and uninterrupted supply of gas. That is our primary task, which we execute with respect for our environment. Besides safeguarding a high security of supply, our network has also clearly functioned as an international hub in the throughput of gas. Gas transport has increasingly taken on more of a European dimension, and our activities are focused on making it as attractive as possible for our customers to use our infrastructure. In 2014, we completed several projects to further improve the services we offer our customers. For example, we put into service the pipeline routes Beverwijk Wijngaarden and Westerschelde West Cambron. Both projects arose from our socalled Open Seasons, during which we asked customers about their longterm transport needs. I am very happy to note that our regulator assessed these projects with an efficiency score of 100%. In addition, on 3 June, we implemented the renewed balancing regime for gas transport. This took two years of preparation. But it has been worth it, as we are now the first European TSO to comply with the European network code for the balancing of gas transport networks. The leading position of the gas trading platform TTF was further strengthened in Despite a decline in demand for gas, over the past year the trade on TTF again experienced spectacular growth. The bilateral OverTheCounter (OTC) trade showed particularly strong growth, which meant that TTF succeeded in taking over the No. 1 position from the British National Balancing Point (NBP), which had led the European OTC market for years. Gas exchanges also showed an increase in the trade of TTF products compared to previous years. This is a positive development, because a wellfunctioning TTF ensures that supply and demand function properly and strengthens the security of supply. According to ACER, the European regulatory Agency, the Dutch gas market is a leading example in Europe. In this annual report, you can read more about GTS s developments in On behalf of GTS, I would like to thank our customers and other stakeholders for their trust and cooperation. I would also like to thank our employees and the employees of our service providers for their commitment to safe and reliable gas transport on a daily basis. Annie Krist Managing Director Gasunie Transport Services B.V. 6

7 Management Report State of affairs during the financial year Key figures The key figures below show clear differences between 2014 and This is due to the transfer of ownership of the gas transport network in the Netherlands and the associated assets, liabilities and activities from Gasunie to GTS as of 1 January Before 1 January 2014, as far as its legal tasks and obligations were concerned, Gasunie Transport Services B.V. worked on the basis of a mandate, at the expense and risk of N.V. Nederlandse Gasunie. As a result, the revenues generated and expenses related to transport and associated services were included in the financial statements of N.V. Nederlandse Gasunie. In millions of euros *) Revenues 1, Total expenses (593.9) (78.2) Operating result Finance revenue and costs (152.5) 0.0 Result before taxation Taxes (114.7) Result after taxation *) See note 1 Transfer of ownership of gas transport network in the Netherlands to the balance sheet. Transport revenues The net income as included in our financial statements relates to the income from selling transport capacity and transportrelated services. These services consist of activities that we carry out in our role of gas transport network operator. The total net income amounts to 1,183.3 million. Financing GTS has a loan facility of 6 billion, which has been made available by Gasunie. This facility terminates on 31 December 2029 and can be extended. The parties have agreed that during the term, the facility can be drawn or redeemed. In 2014, the amount of the loan outstanding decreased slightly. The Ministry of Economic Affairs has issued rules with regard to proper financial management by a network operator (Besluit Financieel Beheer Netbeheerder). These rules consist of a number of financial ratios, including a minimum for equity. Every quarter, taking into account the rules of the Besluit Financieel Beheer Netbeheerder, the company assesses whether the facility should be drawn or redeemed. Through these ratios, adequate solvency and liquidity is warranted. GTS has a cash flow from operating activities of 100 million. The cash flow from investment activities is considerable as a consequence of the transfer of ownership of the gas transport network in the Netherlands from Gasunie to GTS as of 1 January

8 Employees GTS s employees are employed by Gasunie and have been seconded to GTS for an indefinite period of time. The effective workforce of GTS at the end of 2014 amounted to 242 fulltime equivalents (FTEs). In 2014, GTS entered into service agreements with Gasunie that led to approximately 360 million in terms of operating costs. These operating costs relate to the deployment of employees, materials, services and other costs, such as transportrelated energy costs. These services are delivered at cost. Gas transport The year 2014 was relatively warm. This led, in the Netherlands, Germany and surrounding countries, to a lower demand for natural gas than in the previous year. Part of the transported volume relates to the throughput of gas from and to other countries. In this respect, our network functions as an international hub. In 2014, we transported 976 billion kwh (100 billion m 3 ) of gas. That is 155 billion kwh (16 billion m 3 ) less than in the record year The trend we observed last year of customers preference shifting from longterm contracts (year, month) to more shortterm contracts (daily) continued in the Netherlands in Although a large part of the bookings are still longterm bookings, the share of shortterm bookings in the Netherlands doubled compared to Certification for NTA 8120 Regional and national network operators and regulatory authorities aim to prevent deviations, breakdowns and incidents in the electricity and gas networks and manage their consequences during all phases of the networks life cycle. They therefore decided to lay down the requirements of safety, quality and capacity management in an NTA (Dutch technological agreement) for asset management. This NTA, known as NTA 8120, describes the requirements of the asset management system. In 2013, GTS made a start with the preparations in order to be able to give shape to the asset management system in conformity with NTA As a result, in 2014, some organisational changes were implemented within the asset management department, and documentation was supplemented where necessary. In October 2014, an external certification body made a start with the assessment of the system documentation. This proved to be sufficient to start with the actual testing of ways of working. In December 2014, it was established that GTS complies with the requirements, and GTS therefore received the NTA 8120 certificate. TTF TTF is the Dutch virtual trading point where gas can be traded. Over the past few years, TTF has grown into one of the most prominent liquid gas hubs in Europe, alongside the English National Balancing Point (NBP). Despite the declining demand for gas in northwest Europe, in 2014 much more volume was traded on TTF than ever before. The bilateral OverTheCounter (OTC) trade showed particularly strong growth, which meant that TTF succeeded in taking over the No. 1 position from NBP, which had led the European OTC market for years. TTF products were also traded more via gas exchanges than in previous years. A wellfunctioning TTF strengthens the security of supply, and also ensures that supply and demand function properly. To further enhance market forces, as of 1 June 2014, GTS offers the use of the trading point to shippers free of charge. In 2014, a total of 13,216 billion kwh of gas was traded via TTF, compared to 8,287 kwh in The physical volume flowing through TTF (the net TTF volume) was 430 billion kwh in 2014, compared to 447 billion kwh in

9 This means that, just as in the two previous years, the physical TTF volume is larger than the domestic gas consumption in the Netherlands. Both the Netherlands and other countries use TTF to meet their demand for gas. In 2014, the number of active TTF traders again increased. At 127, this number was well above that of 2013 (113). Safety and security of supply Safety performance An important enabling factor for carrying out our activities is the safety of our employees and the communities in which we work. A priority for us is therefore to create a safe and healthy workplace and to minimise risk to the natural environment. Despite all our efforts in the field of safety, the results in 2014 show a less positive picture than in The number of injuries resulting in absence doubled, not only in the case of our own employees (from 2 to 4), but also relating to our contractors employees (from 2 to 5). The number of reportables per one million hours worked also increased. The main cause of incidents is personal behaviour. We therefore started a programme to improve safety awareness. The Decree on the External Safety of Pipelines (Besluit Externe Veiligheid Buisleidingen (BEVB)) aims to ensure that pipelines are situated in safe locations. In 2014, we resolved the last bottlenecks in this regard. High level of security of supply In addition to safety, security of supply also has a high priority within our company. In 2014, the security of supply was at a very high level. With the exception of one very short interruption, we achieved full security of supply. The interruption of the gas transport affected one company. For a very short period of time, this company could not receive gas. We carried out research into the cause of this transport interruption and drew up improvement points to further bring down the risk of interruptions. We continue to make improvements to the gas infrastructure. In 2014, this again led to maintenance and renovation projects that required good alignment with customers and regional network operators. Because we communicate and discuss planned activities in a timely manner, we minimise the impact of our activities on the parties directly affected. Peak delivery and emergency delivery Peak and emergency deliveries are two important public tasks of GTS. Peak deliveries are necessary if the quantity of gas supplied is lower than the plan value related to an average effective 24hour temperature of 9.0 C. In 2014, we did not make any peak deliveries to households. Emergency deliveries are necessary if a licence holder cannot supply natural gas to lowvolume users. In 2014, emergency deliveries were not necessary. Customers and service provision Chain partners We also maintain close relationships with our customers through regular meetings that we organise annually. In 2014, GTS again organised Shipper Meetings. These serve as information meetings and networking platforms for the shippers. During these meetings, we exchange ideas with customers about developments in the gas market and within GTS. Customer satisfaction survey In 2014, GTS again carried out its annual customer satisfaction survey. This year, a new method was used, zooming in on the drivers behind our customers assessments. Overall, the shippers 9

10 gave us a mark of 7.6 (out of 10), while the directly connected parties gave us a mark of 7.3. These are the highest marks in the past ten years. Our Customer Desk, which was introduced in 2012, particularly received much positive feedback. The results of the survey will be used to further improve our service to our customers. Infrastructure and market developments Expansion of transport capacity In 2014, we put into operation two new pipeline routes in the Netherlands: Beverwijk Wijngaarden and Westerschelde West Cambron. Both routes were part of our socalled Open Seasons, during which we asked customers about their longterm transport needs. Customers entered into contracts for additional transport capacity, and on that basis we expanded our transport capacity. In addition, we strengthened the capacity of our East West route by expanding the Grijpskerk compressor station. The Open Season 2019 that was started by GTS in 2013 was completed in This time, the biannual process did not lead to additional capacity bookings. However, several parties offered secondary capacity. Customers have indicated that, due to developments such as the transition to auction mechanisms that follow from European legislation and regulations, the market is more interested in shortterm capacity than the longterm Open Season capacity. The forthcoming decreasing production of Groningen gas has given rise to a study into the required amount of quality conversion means and nitrogen production. In the process of quality conversion, GTS adds nitrogen to the (often international) highcalorific gas (H gas), in order to give the gas a quality that makes it suitable for the Dutch market (G gas). Because of the declining production at the Groningen field, nitrogen will need to be used much more frequently in order to provide users with lowcalorific gas at times of huge demand. The study showed that, probably around 2020, the peaks in demand will no longer be able to be met by existing and currently planned means. At the request of the Minister of Economic Affairs, GTS has started preparing the expansion of its quality conversion facilities, which it is expecting to put into operation at the end of Multiyear replacement programme in the Netherlands In 2012, GTS started a largescale multiyear replacement programme in order to be able to continue to comply with standards in the fields of safety and security of supply into the future. The replacement programme has an expected duration of between 15 and 20 years. The programme consists of renovating and partly replacing valve stations, metering and regulating stations and gas receiving stations. In 2013, we made a start with the renovation of the first dozens of stations. In 2014, the renovations were scaled up according to plan. Consequences of earthquakes in the Netherlands The province of Groningen has been confronted with an increasing number of earthquakes caused by gas extraction. Moreover, the strength of these earthquakes is also increasing. The Ministry of Economic Affairs has informed GTS that, for the time being, the maximum force of earthquakes is assumed to be 5.0 on the Richter scale. When the gas transport system was constructed, however, no account was taken of earthquakes of that magnitude. For this reason, GTS commissioned studies into possible measures it can take to ensure that its infrastructure can withstand these forces. On the basis of these studies, it was concluded that a large majority of the pipelines can withstand earthquakes of the maximum magnitude expected over the coming years. However, for approximately 4% (about 80 kilometres) of GTS s regional grid in the earthquake zone this cannot 10

11 be guaranteed. This concerns pipelines constructed before 1964, which were taken over by Gasunie when it was founded. Research shows that gas transport through these pipelines under current circumstances is not at risk, but if the maximum strength of the earthquakes increases to 5.0 on the Richter scale in the future, it may be at risk. It has therefore been decided to make preventive adjustments to this part of the pipeline network. These adjustments will partly involve replacements, but gas transport via other routes will also be considered. On the basis of studies, the Minister of Economic Affairs has indicated that, although the chances of earthquakes with a magnitude of 5.0 on the Richter scale are increasing, they will still be very small and almost negligible in the next five years. That is why GTS has set up a programme to implement all necessary measures in the coming years, starting with installations and pipelines that are most at risk. The programme is due for completion no later than In addition to pipeline measures, GTS is also taking construction measures at stations and installations. At a number of places, preventive reinforcements are being installed to prevent risks for gas transport and to ensure that our employees can keep working safely at our locations. This involves, for example, reinforcing floors and ceilings, and reinforcing supports for pipeline parts above the ground. These construction measures are expected to be completed for all installations and stations by the end of Changing gas composition As a result of the internationalisation of gas flows in Europe, the composition of the gas in our network is becoming more varied. In addition, the production of natural gas in northwest Europe, including production from the Dutch gas fields, will decline. This has consequences for the enduser. In the Netherlands, we have two separate gas transport networks, one for lowcalorific and one for highcalorific gas. The settings of domestic appliances and much of the industrial equipment in the Netherlands are adjusted to the relatively constant composition of the lowcalorific Groningen gas (G gas). In the long term, these appliances will also need to be able to use gas of a different composition. The Ministry of Economic Affairs has asked a number of parties in the market to take steps to give the endusers of gas sufficient time to adjust their equipment, if necessary. For the G gas market, there will be a transitional period that will run to 2030 at least. During this period, GTS will ensure that the market in the Netherlands will receive gas with a composition similar to that of G gas. In the Netherlands, approximately 80 companies use H gas, while all other companies and households use G gas. The Ministry of Economic Affairs had also made a transitional arrangement for users of the highcalorific H gas to adjust their equipment, if necessary, to the increasing variety in the composition of gas. That arrangement ended on 1 October In the meantime, all these companies have taken measures to ensure that they can continue to make safe use of H gas. Due to internationalisation and the increasing variety in the composition of gas, the Minister of Economic Affairs has decided to assign a new legal task to GTS. By means of a change in legislation, GTS has been given the task, if necessary, of adjusting not only the Wobbe index but also other characteristics of gas. The requirements for gas have been laid down in a Ministerial Regulation on gas quality (MR Gaskwaliteit), which came into force on 1 October This regulation ensures that all market parties and households will continue to be able to make safe use of natural gas. 11

12 Regulation The tariffs that GTS charges its customers are regulated. They are determined once a year by regulatory authority ACM, which reviews the method of regulation every 3 to 5 years. Method decision In 2013 ACM determined the regulatory method for GTS filed an appeal against this. In the method decision, ACM determines the regulatory framework for the five statutory tasks: transport, balancing, quality conversion, existing connections and new connections. The main grounds for appeal relate to the determination of the weighted average cost of capital (WACC) and the determination of the productivity improvement that is used to calculate the annual reduction of allowed costs. An intermediate ruling by the Court of Appeal (CBb) on 5 March 2015 has not yet had any consequences for the status of the method decision, and gives ACM an opportunity to repair part of the method decision. The Court of Appeal is not expected to make a final judgement in this appeal against the method decision before the end of Tariff decision Besides this appeal, a number of other regulatory issues were relevant in For example, ACM upheld most of GTS s objections regarding the tariff decision for the year As a result of this, the 2014 and 2015 tariffs have been corrected. The reasons for this are a faulty calculation of the interest during construction in the 2013 tariffs and the fact that the investment project Nitrogen Buffer Heiligerlee was judged to be more efficient (after appeal, the efficiency of that project was determined at 99.4%). In 2014, several market parties also filed an appeal against the tariff decision for In its decision, ACM has partly repealed the tariff decision. On the basis of this decision, two gas storage facilities will no longer be taken into account in calculating the tariff for the existing connection task. For these two gas storage facilities, a tariff for another service, the connection task (AT tariff), will be determined in Cost benchmark In 2014, ACM s intention to determine GTS s efficiency by means of a cost benchmark also played a role. ACM wishes to compare GTS s total costs (i.e., both operating costs and historical capital costs) with those of German network operators. ACM is considering including the results of this benchmark in the revenue regulation for GTS as of When GTS discussed ACM s intention with ACM in 2014, GTS expressed its objections to ACM s approach. It pointed out that the significant differences between Dutch and German network operators play an important role, which means that a simplified comparison of the total costs of German network operators and those of GTS is not feasible. For example, there are differences in terms of legal tasks relating to security of supply and quality conversion, as well as differences in terms of the structure and organisation of the gas and gas transport market. In addition, ACM uses a small comparison group of 12 network operators. Using such a small data set, GTS believes it is impossible to make robust and validated links between costs and output. In 2015, ACM will start preparing the regulatory period as of It will then become clear if ACM will go ahead with its intention to implement this benchmark. 12

13 Legislation and access conditions The Netherlands In the context of the STROOM legislation agenda, on 31 July 2014, a legislative proposal to review the legislation relating to electricity and gas was published. The legislative proposal implies important changes for GTS, such as changes regarding tariff regulation. In addition, the legislative proposal lays a foundation for making investments on the basis of an investment or network development plan. On 1 October 2014, a Ministerial Regulation came into force in which the requirements for gas quality have been laid down (MR Gaskwaliteit). This Ministerial Regulation establishes feedin and delivery specifications. On the basis of the Gas Act, GTS can only deliver gas that complies with these delivery specifications. With regard to the access conditions specified in national codes, a number of major and minor code changes were implemented in For example, in 2014, ACM took a decision on the feedin conditions, and a code change was made to implement the European gas balancing code. In addition, an English version of GTS s access conditions has been available on the website since March European gas market In order to stimulate the development of a competitive European gas market, Transmission System Operators (TSOs) work together. One context in which this collaboration takes place, for example, is ENTSOG (European Network of Transmission System Operators for Gas). Within ENTSOG, TSOs coordinate their plans in the field of European network codes, the tenyear network development plan, and the promotion of transparency. In 2014, several developments took place in the context of European laws and regulations, directives and network codes. In 2014, we worked on helping to shape these new European network codes and on further implementing the previously approved network codes CAM (Capacity Allocation Management), CMP (Congestion Management Procedures) both through booking platform PRISMA and BAL (Balancing). The implementation of the BAL network code means, amongst other things, that the balancing activities of GTS s marketbased balancing regime (which is much appreciated by market parties) now makes use of the Within Day gas market of gas exchange ICE Endex. This strengthens the liquidity on the Within Day gas market, so that shippers can balance more efficiently and costeffectively. As a result, gas trading platform TTF has become part of the operational gas transport, which has a positive effect on the further development of TTF. Auctioning via PRISMA The auctioning platform PRISMA enables shippers to book capacity (or bundled capacity) with GTS and Gasunie Deutschland at the border points. Since January 2014, the offering of capacity via this auctioning platform has been expanded to all GTS border points. Here the capacity is bundled with capacity of neighbouring network operators. The implementation of parts of CMP via the PRISMA platform has now also been enabled: shippers can return capacity and GTS can overbook capacity and, if necessary, buy it back. Besides TSOs from the countries that started the PRISMA platform (The Netherlands, Belgium, Germany, Denmark, France, Italy and Austria), TSOs from the United Kingdom, Ireland and Slovenia now also offer transport capacity via the PRISMA platform. In order to limit congestion for the market as much as possible, GTS has been offering extra capacity by means of overbooking since Through this method, the market parties can book 13

14 fixed capacity that is offered on top of the technically available capacity. GTS determines this capacity on the basis of statistic scenarios of physically unused capacity. This mechanism is known as the Oversubscription and Buy Back mechanism (OSBB) and is offered through PRISMA on a daily and monthly basis. In September, at the specific request of the market, OSBB was also offered on an annual basis. GTS is now looking at the possibilities of structurally offering OSBB on an annual basis. If, after the full deployment of its own means, GTS is no longer able to transport all the gas it needs to transport due to the use of this overbooked capacity, GTS will need to buy back capacity. Initial experiences show that there is a clear demand for this additional capacity, and that overbooking clearly reduces contractual congestion for GTS. Buying back capacity has not yet been necessary. Balancing 2.0 On 3 June 2014, GTS successfully transferred to the new balancing regime. Since 2011, the Netherlands has a balancing regime, which means that market parties themselves are responsible for the balance in the national gas transport network. As a result, the parties that transport gas flows through the network can jointly contribute to balancing the gas network. The new balancing regime is still largely the same as the one set up in The biggest change in the new system is that the bid price ladder has been replaced by the Within Day market of ICE Endex. This means the new regime has been brought fully in line with the European network code for balancing. 14

15 Expectations for the coming years Customers and services Over the past few years, GTS has taken the necessary steps to optimise its own services, for example, through the improved website and the Customer Desk for all customers (shippers) and directly connected parties. In our experience, a central point of contact meets a great need. Since its inception in 2012, the Customer Desk has already answered some 13,000 questions. From the various customer contacts, we also noticed that shippers and directly connected parties differ with respect to the kind of information they need and the questions they ask. That is why, at the beginning of January 2015, besides the Customer Desk, GTS set up the Customer Industry Desk, especially for directly connected parties. As of 1 October 2015, GTS will offer its customers the opportunity to book Within Day capacity via the European capacity platform PRISMA. Infrastructure and market forces Investments The era of large expansion investments is over. For 2015, only a limited number of new expansion projects have been identified, such as the nitrogen project. In the coming years, the emphasis will be on replacement and maintenance. In 2012, we started a multiyear programme in the Netherlands that focuses on enabling safe and reliable gas transport in the future. The total maintenance and replacement programme is expected to result in an annual investment level of approximately 200 million. Longterm development of the energy system Gas transport is the connecting link between the supply, storage and sales of gas. In our pursuit for a sustainable energy supply, we are convinced that this linking role of the gas network will play an even more crucial role, but then within the larger whole of the total energy system. In the sustainable energy system of the future, various kinds of gas, electricity and heat will jointly play a role and influence each other. By joining up the strong points of gas, electricity and heat, the weak points of each individual energy carrier can be offset. We play a very active role within the Actieplan Duurzaam action plan of Netbeheer Nederland, which aims to work towards a sustainable energy supply. We also set up studies in collaboration with other stakeholders to examine the opportunities and challenges related to the integration of the various energy systems, the feedin of new gases and the adjustments that may need to be made to the gas network. In these collaborative efforts, we share our knowledge and insights. Developments regarding the network development plan Because parties in the market are booking capacity at increasingly shorter notice and for shorter durations, GTS has less insight into the demand for capacity in the longer term. Given GTS s responsibility to have sufficient transport capacity available, we have adopted a planbased approach to network development. Such network development plans are commonly used in some neighbouring countries, and also within the European context, a Ten Year Network Development Plan is drawn up every two years. In a change in the Gas Act that will come into force in 2015, the legal basis is laid for this way of working. This concerns the STROOM change in legislation (streamlining, optimisation and modernisation of the Gas Act). In anticipation of this change in legislation, in 2015, GTS will draw up a network development plan (NDP) and consult with the market. 15

16 Multiyear replacement programme in the Netherlands We scaled up our multiyear replacement programme in the Netherlands. This programme consists of renovating and partly replacing valve stations, metering and regulating stations and gas receiving stations. The replacement programme has an expected duration of between 15 and 20 years. Auctioning via PRISMA We expect that PRISMA will be further expanded in 2015, with TSOs joining from Spain and Portugal, amongst other countries. Revenue regulation Method decision and cost benchmark In 2015, ACM will start preparing the regulatory period as of In 2017, a static efficiency benchmark may possibly also become part of the regulatory methods for GTS. The regulatory methods and the underlying parameters determine (to a large degree) the earning capacity of our regulated assets. Legislation and access conditions The Netherlands The STROOM change in legislation with regard to electricity and gas is expected to come into force in European gas market In order to harmonise gas transport services within Europe and thus promote crossborder gas trade, the European Commission has commissioned three new network codes: INT (Interoperability and Data Exchange), a network code that harmonises operational agreements and data exchange between TSOs; TAR (Harmonised Transmission Tariff Structures for Gas), a network code that harmonises the tariff structures for gas transport; and An amendment of the CAM (Capacity Allocation Management) network code to harmonise the offering of incremental capacity. In an auction, the available capacity is auctioned; with regard to incremental capacity, the amount of supplementary capacity required can be indicated. 16

17 Risk management Like any other company, we have to deal with a large variety of internal and external factors that affect our operations in a positive or negative sense. Every year, GTS s management performs a Strategic Risk Assessment, which is integrated in the business planning and control cycle. For this assessment, we use a time horizon of 5 10 years. The main risks that follow from the Strategic Risk Assessment are: Maintaining the assets: When replacing assets, we see that tension arises due to, amongst other things, the ever increasing requirements of laws and regulations and an increasingly complex environment with sometimes contradictory demands. We have therefore implemented NTA 8120 and consult with all relevant authorities; Regulation: Farreaching financial regulation puts our income under pressure. Extensive regulation in other fields makes it difficult to work in a customeroriented way. It is therefore important to be in dialogue with the regulatory authority, but also with our customers; and Gas quality: requirements due to existing and new standards, contractual agreements and issues with NNOs (Neighbouring Network Operators) and connected industries lead to restrictions on feeding in new gases. We seek alignment on these issues with the Ministry of Economic Affairs and prepare measures to accommodate changes in gas quality requirements. For more details on how we manage our financial risks, see note 17 to the balance sheet in the financial statements. The Management, Annie Krist Groningen, 30 March

18 Financial statements 18

19 Balance sheet as at 31 December (before profit appropriation) In millions of euros Notes *) Assets Fixed assets tangible fixed assets 4 6,914.9 financial fixed assets deferred tax assets Total fixed assets 7, Current assets receivables liquid assets 8 Total assets 7, Equity and liabilities Equity capital issued share premium account revaluation reserve 11 2,004.2 other reserves 12 (167.8) result financial year , Provisions Longterm liabilities 15 4,286.1 Current liabilities Total liabilities 7, *) See note 1 Transfer of ownership of gas transport network in the Netherlands to the balance sheet. 19

20 Profit and loss account of the financial year In millions of euros Notes *) Total operating income 19 1, Depreciation 4 (229.7) Other operating expenses 20 (364.2) (78.2) Total operating expenses (593.9) (78.2) Operating result Finance revenues and costs 21 (152.5) 0.0 Result from normal business operations before taxation Taxes 22 (114.7) Dividend received from participations in which no significant influence is exercised Result from normal business operations after taxation *) See note 1 Transfer of ownership of gas transport network in the Netherlands to the balance sheet. 20

21 Cash flow overview of the financial year In millions of euros Notes *) Cash flow from operating activities Operating income Operating expenses 1,207.4 (593.9) 78.4 (78.2) Operating result Adjustments for: depreciation movement in receivables movement in noninterestbearing liabilities other movements (623.4) Cash flow from business operations Interest received Dividend received from participations Interest paid (152.6) (0.0) Corporate income tax paid (87.0) (239.5) 0.0 Cash flow from operating activities Cash flow from investing activities Investments in tangible fixed assets 4 (7,150.2) Disposals of tangible fixed assets Investments in participations 5 (0.0) Disposals of participations Cash flow from investing activities (7,147.0) (0.0) Cash flow from financing activities New longterm loans 15 4,374.9 Repayment of longterm loans 15 (88.8) Income from capital contributions 10 3,002.7 Dividend paid 12 (242.6) (0.2) Cash flow from financing activities 7,046.2 (0.2) Movement in liquid assets Liquid assets at yearend Liquid assets at yearend *) See note 1 Transfer of ownership of gas transport network in the Netherlands to the balance sheet. 21

22 Notes to the financial statements The financial statements in English are a translation of the official Dutch version adopted by GTS s management. In the event of differences and/or inconsistencies between the English version of the financial statements 2014 and the original Dutch financial statements 2014, the latter will take precedence. Preparation and adoption of the financial statements The financial statements 2014 were prepared by the Management Board on 30 March The financial statements as prepared were submitted on 7 April 2015 to the General Meeting of Shareholders for adoption. Nature of business operations Gasunie Transport Services B.V. was established on 2 July Gasunie Transport Services B.V. is the network operator of the national gas transport network in the sense of the Gas Act. N.V. Nederlandse Gasunie has appointed the company as manager of its national gas transport network in the Netherlands. Gasunie Transport Services B.V. is a 100% subsidiary of N.V. Nederlandse Gasunie. It is the task of Gasunie Transport Services B.V. to operate, maintain and develop N.V. Nederlandse Gasunie s national gas transport network in the Netherlands in accordance with economic conditions, in a way that warrants the safety, efficiency and reliability of the gas transport, and with due consideration to the environment. Before 1 January 2014, as far as its legal tasks and obligations were concerned, Gasunie Transport Services B.V. worked on the basis of a mandate, at the expense and risk of N.V. Nederlandse Gasunie. As a result, the revenues generated and expenses related to transport and associated services were included in the financial statements of N.V. Nederlandse Gasunie. As of 1 January 2014, N.V. Nederlandse Gasunie transferred the ownership of the gas transport network in the Netherlands and the associated assets, liabilities and activities to Gasunie Transport Services B.V. The transfer of the ownership of the gas transport network in the Netherlands was part of Gasunie Transport Services B.V. s certification as an independent network operator. As of 1 January 2014, in its capacity of national network operator, Gasunie Transport Services B.V. buys services from N.V. Nederlandse Gasunie. Gasunie Transport Services B.V. and N.V. Nederlandse Gasunie have laid down the agreements with respect to this collaboration in such a way that security of supply, security of transport and the safety of gas transport are guaranteed. The activities and the results of Gasunie Transport Services B.V. are to a significant extent determined by the national and European regulation of the energy markets. The tasks of Gasunie Transport Services B.V., the access to the gas transport network, as well as the tariffs for the transport of gas through the gas transport network are determined by the Dutch regulatory authority (ACM). The company has its registered office at Concourslaan 17, Groningen, the Netherlands, and is registered with the Chamber of Commerce under number All shares outstanding as at the balance sheet date are held by N.V. Nederlandse Gasunie. 22

23 Besluit Financieel Beheer Netbeheerder The Minister has issued rules with regard to proper financial management by a network operator (Besluit Financieel Beheer Netbeheerder). These rules consist of a number of financial ratios, including a minimum for equity. Gasunie Transport Services B.V. has concluded that in 2014 it complied with these financial ratios. Basis of preparation The financial statements have been prepared in accordance with the statutory provisions regarding financial statements of Part 9 of Book 2 of the Dutch Civil Code. Management judgements and estimates In preparing the financial statements, management makes estimates and assessments which affect the assets and liabilities presented as at the balance sheet date and the result for the financial year. The judgements and estimates have a significant effect on the valuation of fixed assets, the provision for clearance costs and redevelopment, and deferred taxation. Fixed assets Fixed assets include the gas transport network. Tangible fixed assets are valued at cost less straightline depreciation based on the expected useful life, taking into account the residual value and impairments. To this end, assumptions were made about the useful life, the residual value and the future cash flows of the transport pipelines in particular. A significant part of the operating activities are regulated. The future cash flows and related recoverable amount of the regulated assets are partly based on judgements and estimates about the cash flows that can be earned within the regulatory framework. For more information, see note 2 to the balance sheet. Provision for clearance costs and redevelopment A provision for clearance costs and redevelopment is recognised in response to management decisions to decommission, remove or redevelop specific assets within the foreseeable future, for instance due to new legislation. Initially, the size of the provision was determined on the basis of general key figures, such as unit costs plus a generic project management surcharge. In 2014, the size of the provision has been reassessed on the basis of experience figures of completed projects. For more information, see note 14 to the balance sheet. A provision for longterm general clearance costs is not recognised, because it is currently considered unlikely that the removal of transport pipelines and appurtenances will be needed. The income from alternative use (in the longer term) less the costs of conservation is anticipated to offset the costs of removal, social or otherwise. Deferred tax assets A deferred tax asset is recognised for all deductible temporary differences and available carryforward losses, to the extent that it is likely that taxable profit will be available for setoff. To this end, assumptions have been made about future taxable profits. 23

24 Consolidation The financial data of Gasunie Transport Services B.V. have been consolidated in the financial statements of N.V. Nederlandse Gasunie. 24