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INTEGRATED
REPORT
2019

Key risks and their potential impact on value levers

  • 102-15

Key risk categories identified for the TAURON Group

Trading

Risk description Risk trend Response to risk
Risk related to the change in market conditions for the operations of the TAURON Group’s subsidiaries, in particular as a result of the tightening of the EU climate policy, growing environmental awareness of the society, activities supporting energy efficiency (moving away from coal as fuel, increase in the number of prosumers, support for thermal insulation and construction of in-house energy and heat sources) resulting in a decrease of the margin in the Generation Line of Business (CDS / volume) as well as an increase in costs and a decrease in revenues. ↑
  • Daily measurement and reporting of portfolio positions,
  • Ongoing monitoring of the levels of S-P, VaR and Stop Loss,
  • Adoption of an optimal trading strategy,
  • Implementing position hedging mechanisms,
  • Auditing compliance with risk mandates with specific limits.

Finance and credit

Risk description Risk trend Response to risk
Risk related to an unfavorable impact of interest rates on the TAURON Group’s financial results. →
  • Ongoing monitoring of risk exposure in order to minimize negative impact of changes to the interest rates.
  • Transfer of risk through the use of derivative instruments
Risk description Risk trend Response to risk
Risk related to an unfavorable impact of FX rates on the TAURON Group’s financial results. →
  • Ongoing monitoring of risk exposure in order to minimize negative impact of changes to the FX rates,
  • Transfer of risk through the use of derivative instruments
Risk description Risk trend Response to risk
Risk related to the lack of the TAURON Group’s ability of to pay its liabilities on an ongoing basis →
  • Diversification of the sources of financing including arranging guaranteed financing programs and securing alternative sources of financing.
  • Implementing the central financing policy.
  • Analyzing the market and the availability of the sources of financing.
  • Monitoring the schedules and the date of announcing a financing program.
Risk description Risk trend Response to risk
Risk related to the difficulties with accessing capital, change to the conditions for obtaining and servicing financing contracted and planned (including due to the tightening of the EU climate policy). ↑
  • Diversification of the sources of financing including arranging guaranteed financing programs and securing alternative sources of financing.
  • Implementing the central financing policy.
  • Analyzing the market and the availability of the sources of financing.
  • Monitoring the schedules and the date of announcing a financing program.
  • Gradual withdrawal of anthropogenic sources of greenhouse gas emissions from fossil fuels through the development of renewable energy and zero and low-emission electricity generation technologies.
  • Active search for the technical and organizational solutions that would minimize the impact of the TAURON Group’s operations on the climate change.
Risk description Risk trend Response to risk
Risk related to incorrect or untimely payment of tax obligations. →
  • Activities in accordance with legal regulations (Corporate Income Tax Act).
  • Issuing opinions on the economic events by the TAURON Group’s tax advisors.
  • Jointly agreed positions at the TAURON Group level.
  • Applying uniform accounting principles for companies within the PGK (Tax Group).
  • Preparation of tax documentation for transactions between PGK companies and related entities outside PGK, requiring such documentation in accordance with the CIT Act, and auditing other transactions to confirm that they are concluded at arm’s length.
Risk description Risk trend Response to risk
Risk related to a potential occurrence of overdue accounts payable or a conclusion of a contract with a counterparty (business partner, contractor) that may turn out to be insolvent. →
  • Regular monitoring of the counterparties (business partners, contractors)’ financial standing.
  • Periodic customer scoring, credit rating of each customer prior to submitting an offer / concluding a contract.
  • Use of protection mechanisms (hedging) in commercial agreements

Environment (stakeholders)

Risk description Risk trend Response to risk
Risk related to the current and future impact on the company’s revenue and capital (equity) due to the negative public opinion backlash, including the risk related to not following the market trends related to the climate protection. →
  • Continuous monitoring of the Company’s external and internal threats.
  • Media monitoring, developing contacts and relationships with the media within the TAURON Group.
  • Preparing procedures for the Company’s communications with the external and internal environment (stakeholders).
  • Striving to change the business profile to zero and low carbon emissions.
Risk description Risk trend Response to risk
Risk related to the lack of the possibility to conduct operations as a result of a prolonged process of obtaining a license or amending the licenses held, as well as the unfavorable legal changes with respect to the licensed operations. →
  • Ongoing control of the correct performance of the licensing obligations.
  • Monitoring changes to the legal acts with respect to the licensing obligations.
  • Legal support for the license extension and obtaining process.
Risk description Risk trend Response to risk
Risk related to the changes in the economic situation of the country, instability of the financial markets resulting in a decrease of the demand for electricity. ↑
  • Diversification of the revenue sources.
  • Market analysis and the application of the pre-emptive actions for the anticipated crisis or a slowdown of the GDP growth rate.
Risk description Risk trend Response to risk
Risk related to the tightening of the EU climate policy, as well as the environmental requirements resulting from the climate change, activities supporting energy efficiency (prosumer development, support for the thermal insulation of buildings, construction of in-house energy and heat sources, departure from coal as fuel), change in the conditions of the TAURON Group’s operation (the need to adapt the company to the challenges resulting from climate change). The implications of the risk are: difficulties or increase in the cost of raising capital to finance operations based on the fossil fuels, the need to incur additional expenditures as a result of the climate change (transition of the assets), difficulty or increase in the insurance costs of the assets based on the fossil fuels, an increase in the costs of the environmental fees and the need to incur additional capital expenditures for adapting the assets to the environmental requirements, an increase of the price of the CO2 emission allowances, decreasing margins in the conventional energy segment, falling demand for electricity as a result of energy efficiency and the prosumer energy development, declining demand for the products offered by the TAURON Group’s subsidiaries, limiting or discontinuing of the operations based on the fossil fuels and carbonates, the need to restructure employment due to a change in the profile of the operations, greater difficulties in all the administrative procedures with the participation of the public by the non-governmental organizations (NGOs), a decline in the value of the enterprise, the inability to meet market expectations due to the lack of the expected products in the portfolio. ↑
  • Application of the TAURON Group’s Climate Policy.
  • Defining, updating and implementing the Strategy.
  • Update of the TAURON Group’s Strategic Research Agenda.
  • Adaptation of the TAURON Group’s Investment Strategy to the guidelines stemming from the TAURON Group’s Climate Policy and Investment Strategy.
  • Update and implementation of the TAURON Group’s sustainable development strategy.

Technology, infrastructure and safety

Risk description Risk trend Response to risk
Risk related to the impact of the business operations conducted on the natural environment and the use of its resources, including, in particular, the loss of control over the process that would enable the prevention of excessive pollution, damage, disruption or failures of the installations or equipment that would have a negative impact on the environment. The risk also related to the possibility of: lack of the validity of environmental decisions, depositing waste in places not intended for such purpose or not in accordance with the conditions of the use of the facilities intended for such a purpose, the occurrence of a crisis situation: e.g. fire, displacement of earth masses, extreme phenomena, the use of the waste not in accordance with the authorized destination, the lack of the appropriate safeguards limiting the negative impact of the TAURON Group’s operations on the environment, release of the hazardous substances into the environment, social protests.

The implications of the risk are: degradation of the natural environment and penalties for a failure to comply with environmental requirements, the need to remove such substances, the curtailment of the production, delays in the implementation of the investment projects, pollution of water sources in a way that would prevent their use, destruction of a habitat, object or valuable natural area – environmental compensation, restrictions on a further expansion of the business operations, a loss of the image of the TAURON Group, limitation of the ability to use the financial assistance programs.

The risk also includes an increase in the environmental requirements due to the tightening of the EU’s climate policy.

 →
  • Adoption and implementation of the TAURON Group’s Environmental Policy.
  • Conducting business operations that affect the environment in accordance with the principles of the sustainable development.
  • Ongoing supervision over compliance with the conditions of the environmental decisions.
  • Maintaining the required level of performance of pollution reduction equipment.
  • Frequent assessment of compliance of actions taken with the legal requirements with respect to environmental protection.
  • Implementing investment projects in the environment protection area in order to minimize the adverse impact of the conducted mining and processing operations on the environment and climate.
  • Active search for the technical and organizational solutions that would minimize the impact of the TAURON Group’s operations on the climate change.
Risk description Risk trend Response to risk
Risk related to the more frequent occurrence of the temperatures oscillating around 0°C in winter, milder winters in general, higher rainfall intensity that can cause floods at any time of the year, uneven precipitation, resulting in longer periods of no rainfall, intermittent abrupt rainfall (torrential rains), and the intensification of the evaporation processes, increased frequency and intensity of the hurricanes, strong winds incidentally accompanied by tornadoes and lightnings, more frequent occurrence of droughts and restrictions in access to water related thereto, an increased risk of fires, a very high risk of weakening of the stands, making trees more susceptible to damage caused by winds.

The implications of the risk include, in particular: increased costs of fixing of the failures, decrease of the volume of electricity and heat supply, decline of the production volume, deterioration of the quality indicators and an impact on the regulated revenue.

 ↑
  • Upgrading (refurbishing) the hydroelectric structures aimed at optimizing the utilization of the water resources.
  • Preparing of the plans of overhauls, inspections and maintenance activities with flexible provisions on deadlines for completing the works.
  • Continuous monitoring of the wind conditions and icing on the wind farms’ blades.
  • Continuous technical oversight over the operation of the individual wind farms, conducted by the companies operating the farms.
  • Monitoring and analyzing new technological solutions that reduce the impact of the adverse weather conditions on the volume of electricity generated.
  • Gradual adaptation of the production assets to the consequences of the extreme weather phenomena and the variability of the weather conditions, in particular in the Lines of Business sensitive to these factors.
Risk description Risk trend Response to risk
Risk related to the machinery and equipment failures, distribution grid failures (electricity, heat) caused, among others, by random events including those related to the extreme weather conditions (storms, floods, hurricane winds, heat waves, fires) as a consequence of, among others, the climate change. →
  • Optimizing capital expenditures on asset replacements, ongoing monitoring of the condition of the machines, devices and installations.
  • Raising professional qualifications and work culture of the personnel by organizing courses and training.
  • Responding to an emergency situation by the technical personnel and automatic process safety interlocks (safeguards).
  • Insuring assets against fortuitous events (excluding underground assets).
  • Introducing IT tools with respect to improving the monitoring and managing failure indicators (ratios).
  • Gradual adaptation of the production assets to the consequences of the extreme weather phenomena and the variability of the weather conditions, in particular in the Distribution Line of Business.
Risk description Risk trend Response to risk
Risks related to the IT infrastructure security, failures of the IT infrastructure. →
  • Developing and maintaining plans aimed at ensuring continuity of the IT infrastructure’s operation.
  • Periodic identifying and categorizing of the IT resources based on the service restoration targets.
  • Use of the IT solutions with the appropriate technical parameters, providing an acceptable level of reliability and performance of the operation (including also UPS devices, GSM modems, mobile phones).
  • Planning and conducting training courses on the IT infrastructure’s continuity of operation and security.
  • Storing and protecting the back-up data.
Risk description Risk trend Response to risk
Risk related to compromising the integrity of machines / devices and to the security of information, including its improper processing and unauthorized disclosure. →
  • Monitoring the implementation of the developed plans to protect the facilities that are subject to mandatory protection.
  • Maintaining and updating contingency procedures / plans.
  • Oversight over compliance with the information security rules in force.
  • Regular personnel training with respect to the security procedures in force.
Risk description Risk trend Response to risk
Impact of geological factors on mining operations. →
  • Making test drillings for the better intelligence on the positioning of the coal deposits.
  • Continuing to take preventive measures in areas under threat in order to improve the geological and mining conditions and to provide protection against natural threats (including, among others, long-drilled blasting hole shooting in order to break the rock mass).

Employees and organizational culture

Risk description Risk trend Response to risk
Risk related to collective disputes, strikes, social conflicts being the consequence of a lack of the personnel’s satisfaction with the economic and social situation. →
  • Conducting public consultations regarding the planned changes.
  • Conducting a policy of dialogue with the workforce.
  • Preparing and implementing motivational solutions for the personnel.
  • Standardizing the tasks and requirements towards the personnel.
  • Developing organizational culture based on values.
  • Conducting active internal communications on personnel matters
Risk description Risk trend Response to risk
Risk related to the employee issues, including diversity, participation, employment and working conditions, relations with the trade unions and respect for the right to freedom of association, human capital management, career path and recruitment management, training systems, health and safety at work as well as, in the long run, the need to restructure employment due to the climate change, forcing a change in the profile of the business operations. The materialization of the risk may result in interruptions or disruptions to the operations, employee complaints, collective disputes, strikes, loss of specialized staff and difficulties in recreating it. →
  • Adoption and implementation of the TAURON Group’s Subsidiaries Employee Recruitment, Selection and Adaptation Policy.
  • Adoption and implementation of the TAURON Group’s Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination.
  • Taking care of developing personnel competences through the participation in the training courses
  • Conducting consultations with the social organizations in the TAURON Group.
  • Implementation of the human resources policy based on the TAURON Group’s Competence Model and the applicable remuneration and labor law regulations (Compensation Regulations, Company Collective Bargaining Agreement, Labor Regulations).
  • Adoption and implementation of the TAURON Group’s Diversity Policy.
  • Adoption and implementation of the TAURON Group’s Respect for Human Rights Policy.
Risk description Risk trend Response to risk
Risk related to non-compliance with the procedures and the lack of the employees’ due diligence in the performance of the official duties. →
  • Implementation of the TAURON Group’s Subsidiaries Employee Recruitment, Selection and Adaptation Policy
  • Periodic employee training.
  • Analysis of the recurring cases of errors and mistakes of the employees, taking systemic remedial actions.
Risk description Risk trend Response to risk
Risk related to ensuring health and safety at work. The materialization of the risk results in employee injury, loss of health or excessive exposure of the employee to factors harmful to health, compensation paid for damage to health. →
  • Prioritizing safety of the employees, customers, contractors and stakeholders in the business activities undertaken
  • Adoption and implementation of the TAURON Group’s OSH Policy,
  • Ensuring optimal working conditions,
  • Conducting active monitoring of the working conditions and the correctness of its organization,
  • Raising the employees’ qualifications with respect to improving work safety,
  • Conducting training courses, implementing and improving the OSH management system.
Risk description Risk trend Response to risk
Risk related to providing inaccurate, untrue information or a lack of information disclosure at specific time. →
  • Developing relationships with trade unions operating in the TAURON Group and close cooperation with the Social Dialogue Ombudsman.
  • Use and development of available communication tools to provide relevant information to employees of the TAURON Group.
  • When providing the relevant information – organizing the direct meetings between the management and the employees.
  • Ongoing monitoring of the situation and events at the TAURON Group’s subsidiaries that may cause social anxiety.
  • Regular meetings with the representatives of the subsidiaries dealing with the internal communications in order to exchange information.
  • Developing the Communications Strategy for the TAURON Group

Compliance

Risk description Risk trend Response to risk
Risk related to the appropriation or use of the Company’s assets, its devastation, theft, the use of the official position for personal gain resulting in the financial losses, criminal and administrative sanctions, criminal and civil law liability. →
  • Educational and training activities for the employees, including the mandatory e-learning training with respect to the Compliance Management System in the TAURON Group.
  • Effective use of the abuse (fraud) reporting (whistleblowing) system in the organization.
  • Conducting of the investigative probes by the Compliance Officer or Compliance Coordinators.
  • Building the organizational culture based on the TAURON Group’s values and principles.
  • Adoption and implementation of the TAURON Group’s Anti-Corruption Policy.
  • Adoption and implementation of the TAURON Group’s Corporate Social Responsibility Code of Conduct.
  • Adoption and implementation of the TAURON Group’s Rules for accepting and giving gifts.
Risk description Risk trend Response to risk
Risk related to the occurrence of an external fraud (abuse) that affects the operations of the TAURON Group through: disclosure of information to unauthorized persons, loss of information, commercial espionage, terrorist attack and hacker attacks, tax fraud, theft, vandalism, counterfeiting, money laundering, terrorist attack. →
  • Raising the employees’ awareness through training and information campaigns related to the existing threats of external fraud (abuse).
  • Adoption and implementation of the Code of Conduct for Contractors of the TAURON Group.
  • Introduction of the anti-corruption clauses to contracts with the contractors (counterparties).
  • Adoption and implementation of the TAURON Group’s Anti-Corruption Policy.
  • Effective use of the abuse (fraud) reporting (whistleblowing) system in the organization.
  • Monitoring of the cooperation with the contractors (counterparties and testing their credibility in the TAURON Group.
  • Promoting of the best practices, improving the procedures, conducting training courses and applying the TAURON Group’s Corporate Social Responsibility Code of Conduct and the functioning of the abuse (fraud) reporting (whistleblowing) system.
  • Building the organizational culture based on the TAURON Group’s values and principles.
Risk description Risk trend Response to risk
Risk related to the occurrence of unethical behavior resulting, in particular, in the lack of cooperation, bad atmosphere in the team, mobbing, harassment, insulting, discrimination of employees. →
  • Adoption and implementation of the TAURON Group’s Respect for Human Rights Policy.
  • Adoption and implementation of the TAURON Group’s Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination.
  • Effective use of the abuse (fraud) reporting (whistleblowing) system in the organization.
  • Conducting of the investigative probes by the Compliance Officer or Compliance Coordinators with respect to the anonymous reports of mobbing and discrimination.
  • Reviewing of the reports of mobbing or discrimination by the Ethics Committee.
  • Promoting of the best practices, improving the procedures, conducting training courses and applying the TAURON Group’s Corporate Social Responsibility Code of Conduct and the functioning of the abuse (fraud) reporting (whistleblowing) system.
  • Building the organizational culture based on the TAURON Group’s values and principles.
  • Adoption and implementation of the TAURON Group’s Anti-Corruption Policy.
  • Adoption and implementation of the TAURON Group’s Rules for accepting and giving gifts.
Risk description Risk trend Response to risk
Risk related to the non-compliance with the legal regulations, wrong interpretation of the new laws and regulations, requirements imposed by the regulator and the supervisory authorities. The materialization of the risk may result in the financial penalties, criminal and civil law liability, loss of the good image of the TAURON Group. →
  • Adoption and implementation of the TAURON Group’s Compliance Policy.
  • Continuous monitoring of the legal environment and changes to the legal regulations with respect to the non-sector regulations related to information security or the area of compliance in order to minimize the risk of non-compliance.
  • Monitoring of the implementation process or implementing of the changes to the internal regulations required by the law.
  • Setting up or participating in the working groups tasked with adapting the organizations to the changes stemming from the legal environment.
  • Consultations with the relevant organizational units with respect to the planned key regulations for the area of compliance.
  • Training of the personnel with respect to the changes to the legal regulations and the internal regulations.
Risk description Risk trend Response to risk
Risk related to a breach of the contractual provisions with respect to the contract parameters or a failure to perform the contract (default). →
  • Updating and adapting the contract templates to the legal changes.
  • Monitoring of the complaints and proceedings of the Energy Regulatory Office (URE) / Office of Competition and Consumer Protection (UOKiK).
  • Process optimization.
Risk description Risk trend Response to risk
Inappropriate storage and processing of personal data resulting in an undesirable leak or violation of the rights of data subjects related to personal data protection →
  • Identifying and implementing the appropriate technical or organizational measures to ensure the adequate level of security of personal data.
  • Monitoring the compliance with the legal regulations related to personal data protection.
  • Raising the level of awareness of the workforce with respect to personal data protection, in accordance with the applicable regulations.
  • Defining and implementing the process of handling the data subjects’ requests in accordance with the regulations and process documentation in force in the TAURON Group.
  • Providing information and advice on personal data protection to the employees of the organization.

Customers and contractors (counterparties)

Risk description Risk trend Response to risk
Risk related to non-compliance with the customer service standards leading to dissatisfaction with the service, complaints and loss of customers. →
  • Monitoring and analyzing the external customer satisfaction indicators and the indicators related to the complaints.
  • Taking the additional measures, e.g. with respect to the internal regulations, defining standards of conduct as a result of the analysis of indicators.
  • Taking the additional measures, e.g. introducing new internal regulations in order to improve the customer service standards.
  • Developing the key account managers’ competences and skills.
  • Continued raising of the customer service standards.
Risk description Risk trend Response to risk
Risk related to the improper performance by the contractors and subcontractors of the works commissioned, the termination of the agreement and delays, changes to the budget and scope related thereto. →
  • Concluding of the agreements with the contractors and subcontractors in accordance with the TAURON Group’s standards.
  • Analyzing the performance of the subject of the agreement, examining the quality of services provided by the contractors and subcontractors.
  • Evaluating the financial standing and credibility of the contractors and the subcontractors.
Risk description Risk trend Response to risk
Risk related to the decline in the volume of the sales of the products offered by the TAURON Group’s subsidiaries, in particular as a result of the development of the energy efficiency solutions, building insulation, a greater number of prosumers, the impact of climate factors causing a significant temperature deviation from the planned values. The implications of the risk include, above all, the loss of revenue in the individual operating segments of the TAURON Group due to the reduced demand for products offered by the TAURON Group. →
  • Updating the offering on an ongoing basis, launch of multi-package product sales,
  • Conducting marketing activities, acquiring new customers,
  • Activities focused on retaining current customers and recovering the lost ones.
Opis ryzyka Trend ryzyka Reakcja na ryzyko
Risk related to the procurement proceedings conducted, their erroneous implementation, unplanned increase in the purchase costs, taking into account methods employed to prevent violation of human rights by business partners, counteract corruption and abuse in the purchasing process and compliance with the ethical and moral standards during its implementation. The consequences of the materialization of the risk include unfavorable purchase agreements, the need to cancel the tender procedures, damage to the image of the TAURON Group and credibility with the stakeholders. →
  • Adoption and implementation of the Code of Conduct for Contractors of the TAURON Group.
  • Adoption and implementation of the TAURON Group’s Anti-Corruption Policy.
  • Adoption and implementation of the TAURON Group’s Respect for Human Rights Policy.
  • Standardization of the rules of conducting the proceedings in the purchasing process and the transparency thereof.
  • Building lasting relationships with the contractors based on trust and mutual respect.
  • Expecting the contractors to comply with the legal provisions, ethical standards and good commercial practices, including the occupational safety and health standards, the principles of countering discrimination and unequal treatment, respect for human rights and dignity of the employees, transparent personnel policy, environment protection, fair competition, preventing and combating fraud, and information security and protection.
  • Application of the contract forms (templates) and standard clauses in the contracts regarding compliance with the human rights by the business partners of the TAURON Group.
Risk description Risk trend Response to risk
Risk related to the change of the existing or the introduction of the new regulations that affect the operations of the TAURON Group and the need to adapt to the regulatory changes, in particular those resulting from a significant increase in the requirements of a specific regulation, including the environmental requirements stemming from the climate change, the support for the pro-climate activities (increase in the number of prosumers, thermal insulation, development of in-house production sources). The implications of the risk are primarily: the loss of revenues in the individual operating segments of the TAURON Group, the increase in the operating expenses as a result of the need to adapt to the legislative changes. ↑
  • Ongoing analysis of the draft regulations and acts.
  • Active participation in the works of the teams providing opinions on the drafts and proposing optimal solutions.
  • Gradual adaptation of the energy mix and generation assets of the TAURON Group to the production of renewable energy as well as to the zero and low-emission electricity generation technologies.
Risks related to the TAURON Group’s sustainable development
Management of the TAURON Group’s key risks – detailed rules

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