Developments in 2019

Stedin Group continued the integral risk management in 2019, which focuses on long-term risks and opportunities. We collaborated more closely within the various risk disciplines such as Cybersecurity and Compliance in 2019. The long-term risks and opportunities are a fixed element in managing the organisation as well as in developing annual plans. These long-term risks and opportunities also served as input for the financial-strategic forecast. We translated the potential impact of those uncertainties into potential financial effects for that purpose.

We have taken the first steps to translate the risk tolerance model created in 2018 into sets of tools and risk dialogues. In those risk dialogues, we discuss the level of risk tolerance and relate it to the current level of risk. In 2019, we also implemented the improvement process proposed in 2018 to formalise risks and controls that may affect financial reporting. Lastly, we held risk and control workshops in 2019 on short-term risks as well as opportunities at a departmental level and to raise risk awareness within the organisation.

Corporate Risk Management

In 2019, based on the ‘Three Lines of Defence' model, Stedin continued developing the structure of the Corporate Risk Management department. In this model, the first line (Business), the second line (Risk Management) and the third line (Internal Audit) are interlinked, so as to fulfil the tasks and responsibilities in the field of risk management more effectively. We also invested in greater specialisation, which enables us to increase knowledge and awareness of the various risk areas.

Implementation of new risk management application

A new risk management application was implemented in 2019. This implementation was done jointly with stakeholders to ensure that we all work in a uniform way. The application makes it possible to facilitate the 'Jointly In Control process' within Stedin and creates greater standardisation. This application is a significant step in purposefully dealing with risks in the organisation, maximising opportunities, and safeguarding the quality and safety of our work.

Formalisation of risks and controls relating to financial reporting

Stedin Group has a continuous programme called 'Jointly In Control'. Within this framework, further efforts were made in 2019 to identify the risks, processes and control measures related to financial reporting. The result is a new Control Framework for financial reporting. Improvements have already been made in 2019 in important areas, such as in the Tangible Fixed Assets and Financial Close processes. At the same time, the new lease accounting standards have been implemented. We did so on a collaborative basis with various departments within the organisation to ensure that we join each other in a logical chain. During 2020, Stedin will implement the full Control Framework.

An important part of the Jointly In Control programme is that we also continue to learn and improve in a controlled way so as to remain not only in control but also efficient.

Approach to fraud risks

In collaboration with Compliance, Corporate Risk Management once again performed a fraud risk analysis during the past year, highlighting which of Stedin's activities are subject to the greatest fraud risks. On a regular basis, the Compliance Officer reports to the Board of Management and the Supervisory Board about any fraud detected. 

Risks and uncertainties that had a major impact in 2019

A number of risks occurred in 2019 that had a major impact on operations within Stedin Group:

1. Impact of increased TenneT rates in 2020: The rates of the national grid manager TenneT will increase significantly in 2020 due to additional investments in the energy transition. Those new rates will be largely charged to all regional grid managers of the electricity grid. This additional cost item, which has a direct impact on Stedin's financial results, leads to an additional increase in the energy bill for households and businesses. Financial predictability is important for our customers and shareholders so they know what to expect. Together with the other regional grid managers and the industry association Netbeheer Nederland, we therefore submitted an opinion on the rate calculation to the Netherlands Authority for Consumers and Markets (ACM). Netbeheer Nederland, of which Stedin Netbeheer B.V. is part, is conducting talks with the ACM as well as the Ministry of Economic Affairs and Climate Policy to come up with joint directions for solutions.
2. Nitrogen issue: The nationwide issues concerning nitrogen emissions and the prohibition of construction activities have also affected major high-voltage projects, which incurred delays as a result. These projects have been rescheduled for 2020. The relevant developments are being followed very closely in order to anticipate them ahead of time.
3. Accelerated replacement of grey cast iron pipes: Following a gas explosion in The Hague with serious consequences,the regulator State Supervision of Mines (Staatstoezicht op de Mijnen, SodM) requested all grid managers to speed up the ongoing programme of replacing grey cast iron gas pipes. This acceleration requires additional investments. In connection with these activities, we are looking at opportunities to collaborate with municipalities and other parties to act jointly; for instance, when replacing sewers or water mains. This way, we will be able to limit the inconvenience for the environment. The sustainability ambitions for a gas-free built environment are among the matters that are expressly taken into account in executing this work.
4. Asbestos in fitter's sealant: During preparatory work in August 2019, an asbestos-containing material was found to have been used in order to seal joints in gas pipes. The asbestos was found in fitter's sealant from the 1960s and 1970s. Initial examination has shown that some of the sealant contains asbestos. As a precaution, all joints placed before 1975 for which fitter's sealant was used are viewed as possibly containing asbestos. After identifying traces of asbestos in the sealant, the grid managers immediately took appropriate safety measures. A supplementary investigation has been launched, whose goals include ascertaining where and when this asbestos-containing sealant was used. The investigation is currently ongoing.

For a description of the accidents in 2019, see Safety and security.

For an overview of the average downtime in electricity and gas supply, see Reliability of our grids.

For an overview of uncertainties concerning the smart meter, see High-quality products and services.

Outlook for 2020

In 2020, the Risk Management department will continue with its present approach. The expanded team will continue to step up its support for the organisation in performing strategic and operational risk assessments. The focus on financial risks will likewise be tightened. Furthermore, the Risk Management department will provide more active support in utilising the proposals for improvement within the organisation by recommending specific actions and monitoring their implementation. A number of steps are being taken to specify the risk tolerance further as well as to tighten the monitoring of risk tolerance and the reporting processes further.

The core objective of risk management is unchanged: to support the line in performing risk management. To do so, it is necessary to have a close-up view of the activities within the various departments. We will achieve this aim by means of account managers from risk management. There are several risk management functions within Stedin, such as information security, compliance, safety and legal affairs, so it is important to ensure the maximum comparability of methods and techniques. This approach facilitates a uniform insight into risk. We generally support it in terms of implementation with a risk management application developed in 2019. This process will allow us to increase the demonstrable degree of risk management further.