Developments in 2020
Risk awareness
Following the implementation of the new risk management application in 2019, it was optimised in the past year. The organisation's use of this application enables us to monitor risks consistently. In combination with the collaboration with the appropriate riskspecialists in the organisation, this contributes considerably to the understanding of the risk awareness within Stedin Group. A first risk culture scan was carried out in December 2020. This provides input for follow-up steps to further optimise our risk culture in 2021.
Risk framework for financial reporting and financial risks
Following the series of improvements in 2019 of important elements, the risk framework for financial reporting (ICoFR) was fully taken into use this year. This has tightened the grip on the risks that may lead to material misstatements in the financial statements. We periodically monitor our reporting risks and consistently record our control procedures that we perform with regard to financial reporting. These procedures give rise to improvement plans that have in part already been implemented and in part are yet to be implemented. Full implementation of the recovery plans will lead to more manifest and efficient control of business operations. In periodic consultations, we discuss the outcomes and findings of the control procedures and whether our risk framework requires adjustments. These consultations are collaborations between the individual departments and the Corporate Risk Management department. Based on its role, Internal Audit performs independent audits of the quality of the control procedures performed and reports on these to the responsible executives and to the Board of Management. Besides the financial reporting risks, work was also carried out on managing other financial risks. This was done via deep dives on financial risks such as credit, currency and interest rate risks. The outcomes of these deep dives led to fine-tuning of the existing policy.
Risks and uncertainties that had a major impact in 2020
A number of risks occurred in 2020 that had a major impact on operations within Stedin Group:
- COVID-19: the worldwide COVID-19 outbreak was an unexpected event in 2020. As a company in a critically important sector, Stedin is responsible for optimally ensuring energy supply. Protocols have been drawn up to make it possible to continue working, especially for the operational activities, in a responsible manner. Nonetheless, COVID-19 has impacted various activities and objectives of Stedin Group. For example, the large-scale roll-out of smart meters (GSA) suffered delays, as some activities were temporarily suspended. The work procedure has now been adapted to the coronavirus policy. The original GSA objectives for 2020 have been modified, as part of which we aim to work smarter as much as possible in the present work package and to have no more than 40,000 offers outstanding at the end of the GSA. Moreover, we will have to invest less if customer demand falls. It is still uncertain at present whether all assignments can be carried out in full and/or on time. The risk concerning shortages of materials had already applied for some time. With the accelerated implementation and utilisation of dashboarding for critical materials, we acted on time to prevent larger shortages of materials due to COVID-19.
- Reaching maximum connection and transmission capacity of Enduris: as the grids were not reinforced in time, we will shortly reach the maximum connection capacity and transmission capacity in part of the grid area of Enduris. An advance warning has been issued for this. This means that the reinforcement of the grids needs to be accelerated in order to meet future customer-driven and grid-driven demand.
- Major incidents: a large-scale power outage occurred in a Stedin grid area (The Hague) in August during maintenance activities. This left 37,000 customers without electricity. Owing to the scale and duration of the outage, its financial impact was significant. In Spaarndam, a private customer connected a central heating installation themselves. The water mains were connected to the gas mains and 7,000 litres of water flowed into Stedin's mains grid. While working to remove the water from the gas mains, gas pressure plummeted in large parts of Spaarndam.
- Gas grid Project: the current gas grid is of great social and economic value. We are examining how we can also use the Stedin gas grid for the transmission of other sustainable gases. In Uithoorn, we are working with parties including the municipality, a housing association and suppliers of central heating installations to gain experience with hydrogen. A pilot project was started here in which a residential block was temporarily prepared for hydrogen-based heating. This is the first experience of the conversion.
- Recall of smart meters of the L&G brand: the smart meters used by Stedin include smart meters from consortium L&G. At the start of this year, a number of gas meters were rejected and exchanged as a precautionary measure after a leaky meter had been found. The impact for the organisation proved to be minimal, because the population affected remained limited. The financial loss was recovered from the supplier of the meters. The leak was reported to the State Supervision of Mines, and L&G immediately took mitigating measures that completely exclude the possibility of any recurrence of the issue.
Risks and uncertainties that had a major impact in 2019: 2020 update
A number of risks occurred in 2019 that had a major impact on Stedin's operations: These developed as follows in 2020:
- Nitrogen issue: while the huge challenge concerning the nitrogen deposits is undiminished, the prohibition of construction projects without prospects has been revoked. Instead of this prohibition, additional requirements are now applied whose feasibility must be examined in advance. This increases the lead time and costs of projects. If additional requirements cannot be met, the nitrogen emissions can be offset by purchasing emission rights.
- Asbestos in fitter's sealant: Following the detection of asbestos in sealant connections at the end of 2019, Stedin started, jointly with other grid managers, to develop and validate a safe way for working on or removing sealant connections. This has led to safe alternative working methods for the most frequently occurring situations. Safe work procedures for working on and removing riser pipes continue to be investigated. In carrying out preparatory activities, alertness to situations involving the possible presence of asbestos is part of standard practice. At locations at which asbestos might be present, an onsite inspection is always carried out first to determine whether asbestos might be present in the sealant connection and whether the correct preventive measures and work methods can be applied.
- Impact of increased TenneT rates in 2020: the talks on this topic with the Netherlands Authority for Consumers and Markets (ACM) continued in 2020. This led to an adjustment in the method to calculate the compensation for these costs. This will become effective as of 1 January 2021 and lead to improved matching between costs and revenues for all regional grid managers.
- Accelerated replacement of grey cast iron pipes: a start was made in 2019 on accelerating the replacement of grey cast iron pipes. The regular remediation programme was therefore scaled up. A total of 139 km was replaced in 2020. This will be increased to 215 km per year in 20232025. Close cooperation with partners in the chain and municipalities will be necessary in 2021 to achieve this upscaling and the associated underlying improvements.
Outlook for 2021
The core objective of risk management remains unchanged in 2021: to support line in performing risk management. To do so, the risk management department is targeting excellent execution of its core tasks in the risk management process (see the section on the risk management process). Key concepts include: creating good risk awareness within the departments, a complete insight into the long-term and short-term uncertainties and effective support on risk management by the line. Developments with regard to COVID-19 will remain uncertain. Accordingly, we are also closely monitoring the impact of COVID-19 on Stedin Group in 2021.
In addition, the department is committed to the further development towards Enterprise Risk Management. We are guided by the principles of good corporate governance in the Corporate Governance Code. We are further adding to our basic registers with risks and implementing measures to further mitigate those risks.
This further broadens the basis for the In-control process and strengthens the demonstrable degree of risk management. To that end, Corporate Risk issues an independent opinion on the In-control statement. We will also integrate the various risk areas, such as information security, privacy, compliance and safety more closely into the risk management application, thus providing a uniform insight into risk. Lastly, we will start to work with risk limits. These provide a clearer insight into when risks are at an acceptable level and where additional action is necessary.
For a description of the accidents in 2020, 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.
