CREG DECISION CERTIFYING ELIA SYSTEM OPERATOR AS A FULLY UNBUNDLED TRANSMISSION SYSTEM OPERATOR The Commission for Electricity and Gas Regulation (CREG) cer-tified Elia System Operator as a fully unbundled transmission system operator in its decision of 6 December 2012, published on 17 January 2013. The certification procedure was carried out pursuant to the 3rd package of European energy direc-tives aimed, in particular, at strengthening the requirements for system operators in terms of their independence from electric-ity generators and suppliers. It followed a review by both the Belgian regulator and the European Commission. The CREG certification is conditional upon a number of amendments be-ing made to the company’s articles of association.
CREG TARIFF DECISION QUASHED
Following the implementation – in accordance with the regula-tory framework in force in Belgium – of Elia’s tariff package for 2012-2015, which included injection tariffs for the first time and had been approved by CREG, a number of generators chal-lenged CREG Decision (B) 111222-CDC-658E /19 concerning Elia System Operator NV/SA’s application for the regulatory pe-riod 2012-2015, at the Brussels Court of Appeal.
In its ruling on 6 February 2013, the Court of Appeal quashed the CREG decision mentioned above, while not calling into question the implementation of injection tariffs.
The tariff framework and Belgian legislation state that all costs incurred by Elia that have been approved by CREG and that are needed to perform its role of Belgian transmission system operator will be recovered from grid users. These tariffs consist of both injection and offtake tariffs.
In consultation with CREG, a decision was made to compile a new tariff dossier for the period 2012-2015, taking into account the provisions described in the above Court of Appeal ruling.
The new tariffs are expected to be released in May 2013 and will cover all of Elia’s budgeted costs, approved by CREG, for the period 2012-2015. The new tariffs, which will be approved by CREG for the period 2012-2015, will restore stability and vis-ibility for grid users.
Remuneration Committee
In addition to its usual support role to the Board of Directors and in accordance with Article 526quater of the Companies Code, the Act of 29 April 1999 on the organisation of the electricity market and the articles of association, the Remuneration Com-mittee is required to make recommendations to the Board of Directors with regard to remuneration policy and the individual remuneration of Management Committee members and direc-tors. The Remuneration Committee also draws up a remunera-tion report for presentaremunera-tion at the Ordinary General Meeting.
The Remuneration Committee met on four occasions in 2012.
The company evaluates its executive staff on a yearly basis in accordance with its performance management policy. This policy also applies to members of the Management Committee.
Accordingly, the Remuneration Committee evaluates the mem-bers of the Management Committee on the basis of a series of quantitative and qualitative collective and individual targets.
As noted elsewhere, remuneration policy for the variable por-tion of the Management Committee’s remunerapor-tion was adapt-ed to take account of the implementation of multi-year tariffs.
Consequently, since 2008 the salary scheme for members of the Management Committee has included, among other things, an annual variable remuneration and a long-term incentive staggered over the multi-year regulation period. The variable remuneration has two parts: the attainment of quantitative col-lective targets, and individual performance, including progress on business projects.
In 2012, the Remuneration Committee commissioned a review by the Hay Group of two of the seven functions of Management Committee members with a view to changing the composition of the Management Committee. It also made recommendations concerning, in particular, compliance of the variable remunera-tion of Management Committee members with Article 520ter of the Belgian Companies Code.
Audit Committee
In addition to its usual support role to the Board of Directors and in accordance with Article 526bis of the Companies Code, the Act of 29 April 1999 on the organisation of the electricity market and the articles of association, the Audit Committee is responsible for:
• examining accounts and controlling budgets;
• monitoring financial reporting procedures;
• ensuring the effectiveness of internal control and risk man-agement systems;
• monitoring internal audits and their effectiveness;
• following up on the statutory audit of annual accounts;
• evaluating and ensuring the independence of auditors;
• making proposals to the Board of Directors as to the (re)ap-pointment of auditors and the conditions of such (re)appoint-ments;
• investigating any issues that resulted in the resignation of auditors and making proposals as to what actions, if any, should be taken in this respect;
• verifying the nature and extent of non-audit services pro-vided by auditors;
• ensuring the effectiveness of external audit procedures.
Pursuant to Article 96(§1)9° of the Belgian Companies Code, this report must justify the independence and accounting and auditing competence of at least one member of the Audit Committee. The obligation for at least one member of the Au-dit Committee to have the necessary accounting and auAu-diting competencies is also laid down in the articles of association.
Clement De Meersman, the Chairman of the Audit Committee, is an independent director and has extensive experience and competence in accounting and auditing. He holds a degree in electromechanical engineering from KULeuven and a PhD in applied sciences. He has completed executive training courses at IMD in Switzerland and the Vlerick Management School. He was a visiting student researcher at MIT (USA) and the Institute of Technology in Tokyo. He began his working life at KULeuven as an assistant before pursuing a career outside academia at a company affiliated to the Michelin Group. In 1986, he joined the Dutch DSM Group as a business unit director in charge of the development and sale of plastic materials, composites and high-performance products. From 1994 to 2009, he was the CEO of Deceuninck NV/SA. Clement De Meersman is also the chairman of the boards of directors of De¬ceuninck Tur-key, Deceuninck North America and Deceuninck Ireland and a member of the boards of directors of Plasticvision, ANL, Rf-T, Lano Textiles, Darvan and Smartroof. He is a member of the advisory boards of Verhelst and ING Kortrijk. He teaches at KULeuven. He used to sit on the boards of directors of Roularta and Koramic Industries.
The Audit Committee may investigate any matter that falls with-in its remit. It is given the resources it needs to perform this task, has access to all information (with the exception of confi-dential commercial data concerning grid users) and can call on internal and external experts for advice.
The Audit Committee met on five occasions in 2012.
The Committee examined the annual accounts for 2011, drawn up in accordance with both Belgian GAAP and IFRS. It then analysed the quarterly results as at 31 March 2012, the half-yearly results as at 30 June 2012 and the figures for the first three quarters as at 30 September 2012, drawn up in accor-dance with Belgian GAAP and IFRS.
The Committee took note of the audits and recommendations made.
It also, in connection with Risk Management, proposed an action plan for each audit carried out, in order to improve the quality of procedures and thereby reduce the associated risks.
The Committee monitored these action plans from a number of perspectives (timetable, results, priorities) on the basis, among other things, of an activity report from the internal audit de-partment. The Audit Committee updated the strategic risks and carried out ad-hoc risk analyses based on the changing environment in which the Group operates. It also approved the 2013 audit plan.
The Audit Committee was also involved in the process relating to the conclusion of long-term credit facilities.
Corporate Governance Committee
In addition to its usual support role to the Board of Directors and in accordance with both the Act of 29 April 1999 on the or-ganisation of the electricity market and the articles of associa-tion, the Corporate Governance Committee is responsible for:
• putting forward candidates to the General Meeting to be ap-pointed as independent directors;
• giving prior approval for the appointment and/or removal (where applicable) of Management Committee members;
• examining – at the request of any independent director, the Chairman of the Management Committee or the competent federal and/or regional regulatory body or bodies – all cases of conflicts of interests between the system operator on the one hand and a dominant shareholder, municipal share-holder or company associated with or linked to a dominant shareholder on the other, with a view to reporting to the Board of Directors (this task aims to strengthen the directors’
independence above and beyond the procedure detailed in Article 524 of the Belgian Companies Code, which the com-pany also applies);
• providing its opinion in cases of incompatibility on the part of members of the Management Committee and personnel;
• ensuring the application within the company of provisions laid down by law, regulations, decrees and other acts relat-ing to the operation of electricity systems, evaluatrelat-ing their effectiveness in view of the requirements for the independent and impartial operation of those systems, and reporting an-nually to the Board of Directors and the federal and/or re-gional body or bodies responsible for regulating the electric-ity market;
• convening – at the request of at least one third of members – Board of Directors meetings in accordance with the for-malities for calling meetings as laid down in the articles of association.
The Committee met on three occasions in 2012.
As far as confidentiality rules permit, the Committee is kept reg-ularly informed of issues of importance, such as the changes to the articles of association following the amendment of the Act of 29 April 1999 on the organisation of the electricity mar-ket, the Group’s new structure and the new composition of the Management Committee, the procedure for certifying Elia Sys-tem Operator as a fully unbundled transmission sysSys-tem opera-tor, as well as the evaluation of the functioning of the Board of Directors and its committees and the interaction between the Board of Directors and the Management Committee.
EVALUATION
In 2012, the Board of Directors of Elia System Operator organ-ised a formal procedure for evaluating its own functioning, that of its committees and the interaction between the Board of Di-rectors and the Management Committee. This procedure was conducted in accordance with provisions 4.11 to 4.15 inclusive of the Corporate Governance Code, which the company has adopted as its benchmark code 8. The results of the evaluation were very satisfactory.
Management Committee
Pursuant to Article 9(§9) of the Act of 29 April 1999 on the or-ganisation of the electricity market, the Management Commit-tee is responsible for:
• operation of the electricity systems;
• day-to-day management of the system operator; and
• exercising the powers assigned to it by the articles of asso-ciation and those delegated to it by the Board of Directors.
The Management Committee usually meets formally at least once a month. Members also attend informal weekly meetings.
Members who are unable to attend usually have a representa-tive. In accordance with the Committee’s internal rules of pro-cedure, an absent member may authorise another member of the Management Committee to represent him or her by giving prior written permission. Nobody can represent more than two members.
In 2012, the Management Committee met on seven occasions for Elia System Operator and seven occasions for Elia Asset.
Each quarter, the Management Committee reports to the Board of Directors on the company’s financial situation (in particular on the balance between the budget and the results stated). It also reports on transmission system operation at each Board of Directors meeting.
As part of its responsibilities to report on operation of the trans-mission system in 2012, the Management Committee kept the Board informed of developments in the procedure for certifying Elia System Operator as a fully unbundled transmission system operator, developments in legislation applying to the company, the situation of its subsidiaries, the main decisions taken by regulators and administrations, the contribution to the work of the Federal Public Service Energy on preparing the “Report on Electricity Generation Resources 2012-2017”, as well as the monitoring and development of various investment projects.
CODE OF CONDUCT
Elia has a Code of Conduct to prevent staff and those with leadership responsibilities in the Group from potentially break-ing any laws on the use of privileged information and market manipulation. The Code of Conduct lays down a series of regulations and communication obligations for transactions by those individuals in relation to their Elia System Operator secu-rities, in accordance with the provisions of Directive 2003/6/
EC on insider trading and market manipulation and the Act of 2 August 2002 on monitoring of the financial sector and other fi-nancial services. The Code of Conduct is available on the com-pany’s website (www.elia.be, under Corporate Governance).
8 The Corporate Governance Code can be found on the website of the Corporate Governance Committee (www.corporategovernancecommittee.be).
From left to right: Roel Goethals, Frank Vandenberghe, Catherine Vandenborre, Jacques Vandermeiren, Markus Berger, Jan Gesquière and Hubert Lemmens.
CORPORATE GOVERNANCE CHARTER AND INTERNAL RULES OF PROCEDURE OF THE MANAGEMENT COMMITTEE, BOARD OF DIRECTORS AND BOARD COMMITTEES
The Corporate Governance Charter and the internal rules of procedure of the Board of Directors, Management Committee, Audit Committee, Remuneration Committee and Corporate Governance Committee were last amended by the Board of Directors on 25 May 2010. The Corporate Governance Charter and the internal rules of procedure can be found on the com-pany’s website (www.elia.be, under Corporate Governance).
TRANSPARENCY RULES - NOTIFICATIONS
Elia System Operator received no notifications in 2012 pursu-ant to the Act of 2 May 2007 on disclosure of major share-holdings in issuers whose shares are admitted to trading on a regulated market and laying down miscellaneous provisions and the Royal Decree of 14 February 2008 on disclosure of major shareholdings.