Notes to risks

This explanation of the most important risks is an integral part of the annual report. The extent to which Alliander is prepared to run risk in the realisation of its objectives differs per risk category. The arrows behind each risk indicate whether a risk has increased, remained unchanged or decreased compared to last year.

Internal risks

A.        Inadequate anticipation of the impact of the energy transition 

What is the risk?

The energy market is undergoing rapid transformation. We see diverse trends that impact network operators. In terms of capacity demand, we note the accelerating adoption of electric transport and the increasing use of heat pumps. On the supply side, there is a growing trend towards renewable self-generation, particularly in the form of solar energy. Timely anticipation of the impact of these developments is important to continue meeting the energy demand. The most important possible consequences of this risk are divestments and the failure to meet customer needs in time.

How is it managed?

Alliander plays an active role in the ongoing transition within the energy sector. Apart from gathering the required knowledge through new activities, we also take responsibility by sharing this knowledge with wider society. We anticipate events by engaging in a dialogue with our most important partners to gain timely insight into, for instance, the future development of the gas network. In the area of tariffs, we seek solutions to ensure the accessibility, affordability and reliability of energy during and after the transition across all types of energy. We also explore ways of optimally facilitating the behaviour and distribution of energy users, with a key focus on achieving the lowest possible social costs for everyone. Our data-driven network is an important source of information for this purpose.

B.        Data quality 

What is the risk?

We record information on the type of materials, dimensions and locations of our networks. This is aimed at the continued assurance of their quality and availability. In addition, we keep track of administrative data that are important for the services to our customers. If the quality and integrity of our network data and the address, meter and contract data of our customers are insufficiently assured, the reliability of our services may be compromised and our operating expenses may become too high.

How is it managed?

Last year, Alliander implemented an improvement programme to enhance the quality and reliability of our data. Liander also carries out checks into the completeness of the data traffic processing by EDSN (Energy Data Service Netherlands, which is responsible for facilitating the handling of administrative processes between the various market parties).

C.        Feasibility of meter replacement volume 

What is the risk?

The volume upscaling for the large-scale offering of smart meters (GSA) will mainly take place in 2016. Preparing the internal organisation, processes and systems is a major challenge. This upscaling period coincides with the launch of a new type of meter, the introduction of a new network to enable communication with the smart meters, as well as an intensification of the cooperation with the new contractors who have been engaged for the GSA. These aspects result in a complex programme on an unparalleled scale for us as a network operator. If this project is not expertly managed, we may not be able to offer all households within Liander's service area a smart meter by the 2020 deadline. This, in turn, could damage our reputation.

How is it managed?

Drawing on experiences of network operators abroad and market expertise, we made thorough preparations for this complex operation. All necessary chain processes, from overall control to operational work processes at the contractors, are now in place. This provides a stable basis for the upcoming project. A reduction of dependencies in the programme has led to risk mitigation. Examples are the formation of safety stocks of currently available meters and flexible capacity arrangements with the contractors. In addition, back-up plans and calamity procedures have been devised to deal effectively with unforeseen events. The progress of production is monitored on a daily basis and, finally, ongoing evaluation of our own performance as well as that of our chain partners should ensure that experiences and lessons are swiftly translated into improvements.

External risks

D.        Increasing spatial planning complexity 

What is the risk?

In densely populated areas the available space for our infrastructure is limited, both above and below ground. Moreover, requirements regarding visibility of above-ground infrastructure and proximity to residential areas are being tightened. This is making it increasingly difficult for network operators to find routes and locations for the infrastructure, resulting in higher costs.

How is it managed?

We maintain intensive contacts with the stakeholders (such as local residents, municipalities and provinces) and assess the spatial planning developments. We have also recruited employees who focus specifically on the planning aspects involved in the management of our assets.

E.        Cybercrime 

What is the risk?

One crucial cybercrime development is the ongoing professionalisation of malignant viruses (malware). This is clear from the strong proliferation and improving quality of ransomware, such as CyrptoLocker. This malware encrypts vital data on local disks and network disks, which are then only unencrypted on payment of a ransom. As a result, the organisation may lose control over important parts of the network. In addition, viruses can enter our systems through the computers of employees. Cybersecurity is also a key issue because of the ongoing digitisation of our energy networks and above-ground assets.

How is it managed?

This development compels us to place an extra focus on detection and rapid response. Our permanent integrated security management system monitors risks and periodically tests the security measures. We worked on zoning within our network to ward off threats such as attacks, intruders, undesirable content and viruses and to prevent their dissemination in our systems. More than 80% of the Alliander employees have completed the basic security awareness training. The crisis organisation is giving the large-scale roll-out of the smart meter priority in practice drills. We also work intensively with the central government's National Cyber Security Centre to pick up external signals of attacks at an early stage. Alliander maintains close ties with the European Network for Cyber Security (ENCS). We continue to monitor the nature and speed of external developments in order to establish what initiatives are necessary to keep our operations as safe as possible.

F.        Changing legislation and regulations 

What is the risk?

Most of our activities are regulated. This concerns the electricity and gas connection and transport services and the metering services for small consumers. Substantial changes in legislation and regulations may compel us to adjust our ambitions or operations in order to remain compliant. During 2015, for instance, the drafting of a new Act ('STROOM') prompted Alliander to carefully review its activities for compliance with the proposed legislation. Late in 2015, the bill was rejected by the Dutch Senate, after which an amended legislative proposal was put to the Dutch House of Representatives.

How is it managed?

We engage in a proactive dialogue with the government about legislative and regulatory developments relating to network operation and give our views on proposed changes. Our knowledge experts make scenario calculations and assess the possible impact on the performance of our tasks. In addition, we are working to improve the regulatory awareness within the organisation.

G.        Sufferance tax 

What is the risk?

The costs of sufferance tax - the municipal levy that Liander is charged for using publicly-owned land - continue to increase. In the past five years, these costs have risen fourfold as a growing number of municipalities are imposing this levy on network operators. These costs are passed on in the tariffs. The local levies generically increase the tariffs for all customers, although sufferance tax is only levied by a limited number of municipalities. For this reason, Liander is opposed to sufferance tax.

How is it managed?

Amendments to the legislation on sufferance tax have been under preparation for some time, but have so far failed to materialise. Pending these amendments, Liander initiates legal proceedings wherever it believes that sufferance tax is unjustly levied.

H.        Gas faults due to water mains breakages 

What is the risk?

Since June 2014, we faced four major gas interruptions due to breakages in the nearby water mains. As a result, hundreds of customers were left without gas for periods ranging from several days to a whole week. In all cases, this led to the gas network being contaminated with water and sand after a combination of breaks in water mains and gas. A water main breakage can wash away the sand beneath nearby pipelines, after which the gas pipelines are released to hang, bend and break. The force of the water causes that the local gas network is flooded with mud. The directly affected are financially compensated. An additional concern is the increased reputation risk if there is a recurrence of these faults.

How is it managed?

Together with all water mains companies, we performed an analysis of the high-risk locations. See also the chapter 'What have we learned?' With Vitens, the water company that was involved in all interruptions so far, we compared the network data with the gas mains data in order to identify the areas most at risk. Vitens engineers did a special training course in preventing the occurrence of gas mains breakages at the location of burst water mains. In Apeldoorn, which was hit by two prolonged interruptions, Liander and Vitens are now working intensively together to replace both the water and gas network.