Supervisory Board report
We realise that a word of thanks can easily be seen as a mere platitude, but we sincerely appreciate the work of TenneT’s Executive Board and employees, demonstrating TenneT’s commitment to investing in a reliable and secure electricity grid.
We realise that a word of thanks can easily be seen as a mere platitude, but we sincerely appreciate the work of TenneT’s Executive Board and employees, demonstrating TenneT’s commitment to investing in a reliable and secure electricity grid. Over the course of the year, TenneT successfully dealt with significant challenges while continuing its vital work on several crucial investment projects. Besides providing transmission and system services, TenneT’s task is to facilitate a smooth-functioning electricity market and to support the large-scale transition to renewables. TenneT plays a leading role in shaping an integrated European electricity market. Throughout all of this, TenneT remained focused and dedicated to its central purpose of safeguarding the safety and security of supply. These are significant achievements and it is the hard work, dedication and continuous commitment of TenneT’s employees that made this possible.
Integrating renewable sources of energy into the grid while keeping the flow of electricity balanced and stable, requires substantial investments and careful decision making. As TenneT’s Supervisory Board we are closely involved in this critical process, overseeing and advising the Executive Board on strategy as well as on operational performance. The topics we discussed, the dilemma’s we weighed and the challenges we faced in 2017 are outlined below.
TenneT reviewed its strategy back in 2015, resulting in the five-year strategy: 'Enabling the Change'. We monitor its implementation on an ongoing basis. We welcome the dialogue with the Executive Board that is part of our regular meetings. In October 2017, we dedicated a separate meeting to an in-depth review of the progress TenneT has made with regard to its strategic goals. We were generally satisfied with the results achieved so far, but acknowledged a highly demanding and challenging environment.
Deliver stakeholder value
Because TenneT operates in a stakeholder field where many different interests are at play, it is important to stay in close contact with all stakeholder groups and identify where and how to deliver value. The work involved in maintaining and expanding the grid is followed closely by a wide range of stakeholders. These include our shareholder, the Dutch and German authorities, the general public, our customers, our suppliers, NGOs, politicians, regulators, investors, the media, other European TSO's and our employees. Discussing alternatives as well as creating understanding and acceptance is therefore very important. As the Supervisory Board, we realise that stakeholder interests are not always aligned. Everyone wants electricity, but nobody is excited about the prospect of new lines in their area. We encouraged the company to transparently communicate trade-offs in this respect.
People in the Netherlands and large parts of Germany depend on TenneT for a reliable and uninterrupted source of electricity. TenneT's high-voltage grid supports the daily lives of 41 million people’s each and every day. As the Supervisory Board, we support TenneT meeting with stakeholders in an open and transparent way. We held the annual General Meeting of Shareholders in March, at the Visitor Centre Leiderdorp, a central location in the densely-populated Dutch Randstad. After the meeting, the Supervisory Board discussed environmental resource management with the shareholder, the Executive Board and a number of specialists. Weighing what residents want from their environment versus the need to build necessary infrastructure can be complicated. We welcome TenneT’s insistence on keeping all lines of communications open with residents and engaging in an ongoing dialogue with them
In May 2017, we visited TenneT's newly-opened high-tech Virtual Vision centre in Berlin. Virtual Vision offers an interactive 360-degree experience, allowing visitors to experience the day-to-day business of a grid operator and the challenges of the energy transition through state-of-the-art virtual and augmented reality technologies. Virtual Vision sets new standards for us in corporate and stakeholder communication.
We were in frequent contact with our shareholder throughout 2017. This is crucial since the Dutch state wants to be an active shareholder and the dynamics, both at TenneT and in the energy landscape, are constantly changing.
Discussions on revising the remuneration policy that started in 2016 continued separately with the shareholder throughout the year. These discussions have not led to a revision of the policy.
TenneT needs to make substantial and complex investments in order to strengthen the grid in both Germany and the Netherlands. As a result, onshore and offshore grid connections and cross-border interconnector capacity were high on our agenda this year. We carefully assessed the strategic, societal, financial, and technical aspects of these investments, in line with our mandate. We need to take a very broad and long-term view, as these factors do not always work in the same way and can lead to different outcomes. The most attractive option from an environmental perspective for instance, may also be too expensive. Besides these clear current dilemmas, we also have to look at the long term. TenneT’s assets are very long-term investments, yet the market is changing very fast with the inflow of renewables and technological developments. The Supervisory Board has been discussing options and alternatives that have to be taken into account when making decisions for now and the future: we do not want to build too much and burden society with obsolete assets down the line.
Strategic Investment committee
Throughout the year, the Strategic Investment Committee reviews investment proposals above EUR 50 million each and advises the Supervisory Board. The Strategic Investment Committee assesses whether a proposal is compatible with the company's economic, financial, and technical objectives, as well as with TenneT’s risk profile and the impact an investment will have on stakeholders. The dilemmas we discussed this year included issues such as the cost of grid expansion versus those of redispatch, as well as the costs involved in underground cabling, often necessary to spare the landscape and gain public acceptance. The Strategic Investment Committee also monitors timeliness, quality, cost efficiency and the risks associated with large projects.
In 2017, the committee held six meetings, each with relevant members of the Executive Board present. Most of these meetings were attended by Mr. Veenman and/or Mrs. Griffith as guests.
In 2017, the Strategic Investment Committee consisted of Mr Fischer (Chair) and Mr Zwitserloot. Mr Zwitserloot took over the chair position from Mr. Fischer after he stepped down from the Supervisory Board in September 2017. As of 1 December 2017 Mrs Griffith joined the Strategic Investment Committee.
(Cyber) Security is an important issue in today’s society and very high on our radar due to the critical nature of TenneT's core business. TenneT presented its security strategy, corporate policies, technology and the efforts of employees extensively to the Supervisory Board and we assessed these throughout the year.
Lead NWE integration
Ever-increasing amounts of renewable energy are flowing into the system. Further integration of the North Western European markets, as well as upgrading the Dutch and German electricity grid, are necessary to ensure security of supply. TenneT is a thought leader in establishing a single European energy market and has more interconnectors in place across national borders than any other TSO in Europe. International cooperation and a high degree of onshore and offshore connectivity are crucial to realising the energy transition and securing an uninterrupted and cost-efficient supply of electricity. We believe that it is in society's interest that TenneT and its north-west European counterparts cooperate and expand their role of facilitating the energy transition. Balancing European goals with national and security of supply interests can be very challenging at times.
The Supervisory Board welcomed the fact that Ben Voorhorst, COO of TenneT, was elected President of the European Network of Transmission System Operators, ENTSO-E.
Innovation is high on our list of priorities, particularly the innovation roadmap, innovation programs and the way TenneT structures and governs innovation. Effecting change in a corporate culture where reliability is inherently valued highly is not an easy task.
The Supervisory Board discussed the development of North Sea energy infrastructure in depth with the Executive Board, who presented a 3-phase approach (current programme, midterm and long term).
TenneT must weigh the financial interests of its shareholder against its duty to ensure electricity remains affordable and available to all. TenneT’s license to operate is rooted in securing electricity supply in its markets, while delivering maximum benefit to society in the most financially viable way.
Audit, Risk and Compliance Committee
The Audit, Risk and Compliance Committee monitors the company’s financial reporting, including our quarterly and annual reports, financing in light of the investment portfolio, risk management and internal control system, internal audit, the independent external audit of the financial statements and the evaluation of the external auditor. In 2017, the committee also reviewed the Treasury Statute and assessed the governance of risk management and internal controls. It discussed the management letter of the external auditor, too. The external auditor did not identify any high risk observations in its management letter; the findings were of medium and low risk. The main conclusion in the letter is that TenneT has improved its risk and control organisation further compared to 2016. When discussing the management letter, the committee paid specific attention to the opportunities to further develop the internal control framework, the size of the investment portfolio and requirements from a budget control perspective and cyber risk.
In 2017, the Audit, Risk and Compliance Committee consisted of Mr Verboom (Chair) and Mr Veenman with Mrs Hottenhuis joining the committee on 1 December 2017. The committee held four meetings attended by the CEO, the CFO, the senior manager for Internal Audit, the senior managers for Corporate Financial and Business Control and the company’s external auditor. As in previous years, the Audit, Risk and Compliance Committee also spoke to the external auditor without the board being present. No additional material topics arose from these meetings.
The appointment of the external auditor was extended by a period of two years to 2018 and 2019.
Individual interviews were conducted with the members of the Supervisory Board as part of the 2017 annual strategic risk assessment. The dilemma of accommodating the rapid growth of the company while simultaneously controlling risks was accepted as the basis for the strategic risk assessment. The Executive Board was responsible for finalising the set of strategic risks as mentioned in the section 'Risk management and internal control'.
Quarterly progress reports on large projects were reviewed by the Strategic Investment Committee and subsequently by the Supervisory Board. These reports focussed on project management, with specific attention paid to timely delivery, risks of delays and interruptions, and the societal demands that could lead to delays and/or projects becoming more expensive.
Compliance and integrity
Compliance and integrity are matters that both require constant attention. The Supervisory Board met with the recently appointed lead compliance & integrity officer, who presented the plans for policies, education and prevention. The Supervisory Board discussed the quarterly compliance and integrity reports.
TenneT’s financing position, financing structure and overall financing plan were also assessed by the Supervisory Board, including shareholder objectives, the long-term continuity of the company and short-term liquidity needs. Topics discussed included the financing structure of the TenneT Group, cash flow and liquidity forecasts, equity solutions and several debt financing instruments.
The Supervisory Board welcomes the commitment of the Dutch state, as underlined by its equity contribution for the coming years. It is also keeping a close eye on the balance between the shareholder’s focus on the Dutch investment portfolio and the equity needs for the entire TenneT Group. In this respect, we appreciate the successful launch of the first-ever green hybrid bond, totalling EUR 1 billion. Give the company's sizable investment programme, further equity will be needed to ensure continuing access to other financing. We actively discussed alternatives with the Executive Board as well as the shareholder.
The Supervisory Board continues to discuss the implications of TenneT operating in a regulated environment, both in the Netherlands and in Germany. Ongoing relevant issues include striking a balance between regulatory optimisation and creating value for society and the concurrence of growing company profits and increasing grid tariffs. The Supervisory Board also discussed the (implications of) changes in the regulatory regime, such as the German offshore opex cost compensation and Dutch redispatch costs.
Integrated reporting and audit
TenneT’s financial statements for the 2016 financial year, the 2017 internal quarterly reports and the 2017 interim results were all discussed by the Supervisory Board during the year. These meetings also covered the independent auditor’s report, internal audit reports, results from internal risk and control assessments, the 2018 budget and the medium-term plan for 2018-2020.
The Supervisory Board has examined the Integrated Annual Report 2017, the financial statements 2017 and independent auditor’s report, the assurance report related to non-financial information, the management letter and the audit results report issued by TenneT’s external auditor. This review is based on the Audit, Risk and Compliance Committee’s preparatory work and advice. As a result, the Supervisory Board endorses the documents and recommends that the General Meeting of Shareholders adopts the financial statements.
The Supervisory Board recommends that the General Meeting of Shareholders discharges the Executive Board from liability in respect of its management of the company and releases the Supervisory Board from liability in respect of its supervision.
Although TenneT is facilitating the transition to green energy, its activities have an unavoidable impact on nature. As TenneT’s Supervisory Board, we are fully aware of our responsibility to protect the natural environment for future generations. TenneT’s Commitment to Nature vision underlines the company’s approach to biodiversity, ecosystems and the natural landscape.
TenneT’s people are at the heart of the company’s continued success and growth. The Supervisory Board aims to help create a safe, healthy, stimulating and energising workplace where TenneT employees can perform to the best of their abilities. Attracting the right people in an environment where talented technical specialists are scarce and empowering them to perform is crucial to TenneT’s ongoing success.
The employee survey conducted in 2017 was presented to and discussed by the Supervisory Board. Overall we were satisfied with the survey results compared to the benchmarks for industry and other high-performing companies. However, the survey also gave us some food for thought (and concrete actions) on issues such as operational efficiency. The Supervisory Board welcomed the introduction of a LEAN programme and has been closely following its implementation.
Safety at TenneT is a one of the Supervisory Board’s key focus areas, particularly the company’s safety performance, which is benchmarked against TenneT’s peers and overall best-performing companies. The Supervisory Board continued to closely monitor the implementation of TenneT’s Safety Vision 2018 – introduced in 2014 – and discussed the LTIF, which unfortunately did not decline despite the efforts as it did in previous years. Suppliers not meeting TenneT's safety targets is a major point of attention.
During its meetings, the Supervisory Board discussed individual safety incidents, as well as the lessons learned and best practices from other industries.
Remuneration and Appointments Committee
The Remuneration and Appointments Committee is tasked with the company’s remuneration policy and the remuneration of individual board members. The Remuneration and Appointments Committee also establishes criteria for (re)appointing new statutory Executive Board and Supervisory Board members and supervises the recruitment process. Furthermore, it is responsible for the management review and succession planning regarding the Executive Board
In 2017, the Remuneration and Appointments Committee consisted of Mrs Hottenhuis (Chair), Mrs Griffith and Mr Veenman. The committee held five meetings, the majority of which were attended by the CEO. Discussions concerning the remuneration report were held in the presence of the CFO.
In the second half of 2017 the Remuneration and Appointments Committee has been extended with Mr Verboom in light of the selection process for the successor of the CEO, Mr Kroon.
Selection, appointments, remuneration and performance
Selection and succession concerning TenneT’s Executive Board are an important task for the Supervisory Board. As part of this, the Supervisory Board conducts performance appraisals of the members of the Executive Board, which consists of four statutory directors and two non-statutory directors. The Remuneration and Appointments Committee gathers input for these appraisals during a Supervisory Board meeting not attended by the Executive Board.
To gather more insight in Executive Board team dynamics as well as the individual functioning, the Supervisory Board members met with individual Executive Board members, something which was deemed valuable by all parties concerned. These meetings will now be organised annually. As in previous years, the CFO had multiple meetings with the chairman of the Audit, Risk and Compliance Committee outside the regular meetings.
Apart from assessing the performance of the Executive Board, the Supervisory Board also discussed the performance of TenneT’s wider senior management team, including succession planning. The Supervisory Board frequently discussed issues relating to remuneration as well. In 2017, specific discussion topics included targets set for the variable remuneration of the statutory Executive Board members and the 2016 remuneration report.
In the course of 2017 Mr Kroon announced to the Supervisory Board his wish to step down as CEO in 2018. The Remuneration and Appointments Committee has started the search for a successor to Mr Kroon, who will remain in his role until this process has been completed.
End November 2017, Mr Keussen announced his resignation from the Executive Board as of 1 March 2018, laying down his responsibilities with immediate effect. The Supervisory Board is grateful for everything Mr Keussen has done for the company in the three years he has served on the Executive Board, in particular in terms of asset management, big data and operational efficiency. The Supervisory Board discussed the interim redistribution of tasks within the Executive Board. The Supervisory Board will reassess the composition of the Executive Board and corresponding portfolios in the first quarter of 2018.
Diversity and culture
TenneT aims for its Executive Board and Supervisory Board to be comprised of people from diverse backgrounds with a range of experience, skills and knowledge. TenneT values this diversity and believes it contributes positively to the way situations are assessed and decisions made. Bearing in mind the Dutch Civil Code and Dutch Corporate Governance Code, the Supervisory Board set a gender diversity target of 30% female directors, both executive and non-executive. The Supervisory Board is fully aware that TenneT’s Executive Board currently lacks gender diversity. The percentage of female representatives in our Supervisory Board is already above our target of 30%.
TenneT's current culture is still characterised by a focus on stability, quality, careful planning, and maintaining its reputation. There is great pride in the company with its employees and a high level of integrity as the basis for everything they do. People are loyal and committed, as illustrated by low levels of sickness absence.
In 2017, the Supervisory Board deliberated on the company’s organisational culture and the need to balance the organisational internal focus on stability and reliability vs. employees' readiness to change.
Corporate governance code
The Supervisory Board discussed the revised Dutch Corporate Governance Code and supported the implementation of this code.
Contact with the Works Council
Fostering good relations with the Works Council, which represents employee interests, is important to the Supervisory Board given the rapid developments in the energy market in general and at TenneT in particular. As such, the chairman of the Supervisory Board regularly met with members of the Works Council during the year to keep abreast of employee issues and concerns. As of 2018, Mrs Griffith will take over Mr Veenman's position on the Supervisory Board as the first point of contact for the Works Council. The Supervisory Board welcomed the joint meeting it attended in December with the Works Council and the Executive Board because it presented a good opportunity for active dialogue on safety and safety culture and exchanging experiences gathered by other industries.
Newly appointed Supervisory Board members participate in a programme introducing them to TenneT’s key business areas.
The Supervisory Board considers ongoing education like this to be very important. In 2017, two workshops were held, focusing on regulation and offshore operations & maintenance respectively. Members of the Supervisory Board also visited TenneT’s office in Berlin. Site visits and workshops (presented by the senior managers) are a good opportunity for the Supervisory Board members to meet with TenneT employees across the company. It is also worth noting in this regard that Mr Veenman took part in an Operational Project Leaders session and Mr Verboom presented at a staff meeting of the Internal Audit department.
Composition of the Supervisory Board
Many factors are considered in the composition of TenneT’s Supervisory Board, including the nature of the company, its diversity and the required expertise and background of its members.
In accordance with the Dutch Corporate Governance Code, all Supervisory Board members are independent. Furthermore, the Supervisory Board complies with the Electricity Act, which stipulates that the majority of Supervisory Board members has no direct or indirect links with legal entities (or shareholders thereof) engaged in the production, purchase or supply of electricity or gas. Mrs Hottenhuis holds a position at Arcadis, a company with which TenneT has a supplier relationship. It should be noted that Mrs Hottenhuis has not been involved in any business dealings between Arcadis and TenneT. Contract reviews, negotiations or awards between the companies were conducted at the appropriate business levels and in the ordinary course of business.
In 2017, Mrs Hottenhuis was reappointed by the shareholder for her second term. This reappointment was discussed internally by the Supervisory Board and an interview with the shareholder was held as part of the reappointment process.
Mr Zwitserloot is a member of the Aufsichtsrat of TenneT TSO GmbH, the German equivalent of the Supervisory Board.
The third term of Supervisory Board chairman Mr Veenman ended in March 2017. In accordance with the applicable statutory provisions, Mr Veenman shall retire no later than at the close of the first general meeting after the end of his third term, i.e. at the annual General Meeting of Shareholders on 22 February 2018. Following the nomination of the Supervisory Board, the shareholder appointed Mr Ab van der Touw as the new chairman of the Supervisory Board as of 1 June 2018. From 22 February 2018 through 1 June 2018 Mr Verboom, the vice-chairman of the Supervisory Board, will act as chair.
In September 2017 Mr Fischer resigned as a member of the Supervisory Board of TenneT Holding B.V. because of a possible dispute between TenneT and Tata Steel IJmuiden B.V. concerning the power failure in Diemen back in 2015. This dispute may arise following the decision in this matter issued by the responsible regulator, the Authority for Consumers & Markets (ACM). As the CEO of Tata Steel Europe, Mr Fischer decided to step down from the Supervisory Board in order to avoid any potential conflicts of interest. The Supervisory Board is grateful for the contribution and dedication of Mr Fischer during the almost four years he served as a member of the Board.
The number of Supervisory Board members will be reviewed in 2018, bearing in mind the changes to the Supervisory Board with Mr Veenman retiring as of 22 February 2018 and Mr van der Touw being appointed as of 1 June 2018.
For more information on the members of the Supervisory Board as well as the (re)appointment schedule, please visit our website.
Supervisory Board evaluation
The Supervisory Board evaluated its own performance in 2017 by way of a questionnaire of over 60 questions completed by all members of the Supervisory Board. In addition, the shareholder was asked for feedback, as were all the members of the Executive Board. The chairman of the Supervisory Board also conducted individual interviews with his fellow board members, the results of which he presented and discussed in a Supervisory Board meeting. One of the main findings from this review concerns the need to get more involved in the talent development of (senior) management below the Executive Board. This resulted in a discussion of the annual management review in a plenary Supervisory Board meeting.
The performance review also revealed the importance of informal contact. Both the Supervisory Board and the Executive Board went on a two-day visit to TenneT’s Berlin office in May 2017, where, in addition to attending business meetings, board members had the opportunity to meet informally. In September, all of the members of the Supervisory Board and Executive Board and their partners attended a farewell dinner for Mr Fischer.
As of 2017, each Supervisory Board meeting ended with an evaluation of the meeting. Open feedback on topics such as setting the agenda, the quality of documents submitted, and the effectiveness and atmosphere of the meeting proved valuable. One further issue to be addressed is the length of the meetings, bearing in mind the range of topics that need to be discussed. The dilemma in this case is to what extent topics should only be discussed in detail by the committees vs. the overall responsibility of all Supervisory Board members for these topics.
The Supervisory Board and its members are consistently supported in their work by the corporate secretary, Ms van Rassel; this contribution is greatly valued by the Supervisory Board.
Supervisory Board meetings and other topics
In this report, we as a Supervisory Board aim to reflect the discussions held in 2017 at its Committee meetings as well as its six regular plenary meetings. All of these plenary meetings were attended by all of the required parties, except one, when Mr Fischer was absent.
Besides the above-mentioned topics, other topics covered by the Supervisory Board in 2017 included the results of TenneT's latest reputation survey, the Dutch legislative process on the progress of the energy transition 'Voortgang Energietransitie' and the construction of TenneT's new German headquarters.
As the Supervisory Board, we have advised and overseen the policies of the Executive Board during 2017, helping to ensure that TenneT continues to play a leading role in the fast-changing and challenging integrated European electricity market. We look forward to continuing our work in 2018.
Arnhem, 20 February 2018
Supervisory Board TenneT Holding B.V.