The most material risk categories

1.

Market risk

1. Granting and control of the compliance with risk mandates with certain limits.
2. Daily measurement and reporting of portfolio positions.
3. Ongoing monitoring of the result level and the risk level (VaR, Stop Loss, open positions).
4. Use of tools that minimize the formation of open trading positions (position limits and the Hedge Curve tolerances).
5. Taking advantage of the synergy effect among TAURON Capital Group’s individual lines of business (central trading risk management).
6. Adoption of an optimal trading strategy.
7. Implementing pre-emptive position hedging mechanisms.
8. Preparation and periodic verification of the price forecasts in the short, medium and long term.

2.

Interest rate risk

1. Ongoing monitoring of risk exposure in order to minimize negative impact of changes to the interest rates.
2. Transfer of risk through the use of derivative instruments.

3.

FX rate risk

1. Ongoing monitoring of risk exposure vulnerable to the FX rate risk.
2. Use of risk limits for TAURON Capital Group’s operational FX position (Value at Risk).
3. Transfer of the FX rate risk through the use of the hedging transactions in accordance with the adopted TAURON Group’s Financial Risk Management Policy.

4.

Liquidity risk

1. Diversification of the sources of financing including arranging guaranteed financing programs as well as securing alternative sources of financing.
2. Analyzing the market and the availability of the sources of financing.
3. Ongoing communications with the financial institutions.
4. Arranging financing agreements 12-24 months in advance of the date the funding is needed.
5. Monitoring of the financial liquidity and planning the use of the available sources of financing.
6. Taking actions and recommendations regarding the operations of the Financial Management Area, indicated by the Risk Committee or the Management Board of the Company.

5.

Financing risk

1. Diversification of the use of the available sources of financing by using the financing instruments that reduce the risk of breaching the covenant in the form of the net debt/EBITDA ratio (e.g. hybrid bonds, factoring).
2. The use of instruments without financial covenants and limiting the number of conditions that breach such covenants.
3. Ongoing communications with the financial institutions.
4. Pre-emptive activities with respect to obtaining approvals from the financial institutions to carry out transactions or activities specified in the financing agreements.
5. Identification of events that may potentially affect the breach of the financial contracts and taking advance actions to mitigate the negative impact of the occurrence of such an event.
6. Taking actions and recommendations regarding the operations of the Financial Management Area, indicated by the Risk Committee or the Management Board of the Company.
7. Taking actions aimed at reducing the net debt and/or increasing EBITDA based on the decisions of the Risk Committee or the Management Board of the Company.

6.

Tax risk

1. Activities in accordance with legal regulations (Corporate Income Tax Act).
2. Issuing opinions on the economic events by TAURON Capital Group’s tax advisors.
3. Jointly agreed positions at TAURON level.
4. Applying uniform accounting principles for companies within the PGK (Tax Capital Group).
5. 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.

7.

Credit risk

1. Regular monitoring of the counterparties (business partners, contractors)’ financial standing.
2. Periodic customer scoring, credit rating of each customer prior to submitting an offer/concluding a contract.
3. Use of protection mechanisms (hedging) in commercial agreements.

8.

Reputational risk

1. Continuous monitoring of the Company’s external and internal threats.
2. Media monitoring, developing contacts and relationships with the media within TAURON Capital Group.
3. Preparing procedures for the Company’s communications with the external and internal environment (stakeholders).
4. Striving to change the business profile to zero and low emission (carbon).
5. Adoption and implementation of: TAURON Group’s Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination, TAURON Group’s Anti-corruption Policy, TAURON Group’s Corporate Social Responsibility Code of Conduct, TAURON Group’s Diversity Policy, TAURON Group’s Respect for Human Rights Policy.

9.

License risk

1. Ongoing control of the correct performance of the licensing obligations.
2. Monitoring changes to the legal acts with respect to the licensing obligations.
3. Legal support for the license extension and obtaining process.

10.

Macroeconomic risk

1. Diversification of the revenue sources.
2. Market analysis and the application of the pre-emptive actions for the anticipated crisis or a slowdown of the GDP growth rate.

11.

Climate change risk

The implications of the risk include: difficulties or increase in the cost of raising capital to finance operations based on the fossil fuels, 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, declining demand for the products offered by TAURON Capital Group’s subsidiaries.

1. Application of TAURON Group’s Climate Policy.
2. Defining, updating and implementing the Strategy.
3. Update of TAURON Group’s Strategic Research Agenda.
4. Adaptation of TAURON Group’s Investment Strategy to the guidelines stemming from TAURON Group’s Climate Policy and Investment Strategy.
5. Update and implementation of TAURON Group’s Sustainable Development Strategy.

12.

Environmental risk

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 conditions), the use of the waste not in accordance with the authorized destination (intended use), the lack of the appropriate safeguards limiting the negative impact of TAURON Capital Group’s operations on the environment, release of the hazardous substances into the environment, social protests.

The implications of the risk include: 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 TAURON Capital 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.

1. Adoption and implementation of TAURON Group’s Environmental Policy.
2. Conducting business operations that affect the environment in accordance with the principles of the sustainable development.
3. Ongoing supervision over compliance with the conditions of the environmental decisions.
4. Maintaining the required efficiency of the devices reducing the emission of pollutants.
5. Frequent evaluation of the compliance of the activities with the legal requirements with respect to environment protection.
6. Implementing investment projects in the environment protection area in order to minimize the adverse impact of the mining and processing operations conducted on the environment and climate.
7. Active search for the technical and organizational solutions that would minimize the impact of TAURON Capital Group’s operations on the climate change.

13.

Weather risk

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

1. Upgrading (refurbishing) the hydroelectric structures aimed at optimizing the utilization of the water resources.
2. Preparing of the plans of overhauls, inspections and maintenance activities with flexible provisions on deadlines for completing the works.
3. Continuous monitoring of the wind conditions and icing on the wind farms’ blades.
4. Continuous technical oversight over the operation of the individual wind farms, conducted by the companies operating the farms.
5. Monitoring and analyzing new technological solutions that reduce the impact of the adverse weather conditions on the volume of the electricity generated.
6. Gradual adaptation of the production assets to the consequences of the extreme weather conditions and the variability of the weather conditions, in particular in the Lines of Business sensitive to these factors.

14.

Company asset failure risk

The materialization of the risk affects the availability of the assets and results in downtime related to the asset failures, increased costs of the rectification thereof. In addition, it may also be a failure to meet the capacity obligation, resulting in the need to conclude transactions on the secondary market or the payment of the financial penalties to the TSO (PSE).

1. Optimizing capital expenditures on asset replacements, ongoing monitoring of the condition of the machines, devices and installations.
2. Raising professional qualifications and work culture of the personnel by organizing courses and training.
3. Responding to an emergency situation by the technical personnel and automatic process safety interlocks (safeguards).
4. Insuring assets against fortuitous events (excluding underground assets).
5. Introducing IT tools with respect to improving the monitoring and managing failure indicators (ratios).
6. Continuous monitoring of the availability (dispatchability) of the generation units and the demand reduction, as well as shifting the capacity obligations that require reserving to the dedicated intra-group reserve units or external entities.
7. Updating the activities related to the handling of the group reserve, with particular emphasis on the analyses of the functioning of the secondary market starting from January 2021.
8. Updating TAURON Capital Group’s maintenance (overhaul) shutdowns (outages).
9. 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.

15.

IT risk

1. Developing and maintaining plans aimed at ensuring continuity of the IT infrastructure’s operation.
2. Periodic identifying and categorizing of the IT resources based on the service restoration targets.
3. 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 modem, mobile phones).
4. Planning and conducting training courses on the IT infrastructure’s continuity of operation and security.
5. Storing and protecting the back-up data.

16.

Asset (property) security and protection risk

1. Monitoring the implementation of the developed plans to protect the facilities that are subject to mandatory protection.
2. Maintaining and updating contingency procedures/plans.
3. Oversight over compliance with the information security rules in force.
4. Regular personnel training with respect to the security procedures in force.

17.

Geological risk

1. Making test drillings for the better intelligence on the positioning of the coal deposits.
2. 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.

18.

Social dispute risk

1. Conducting public consultations regarding the planned changes.
2. Conducting a policy of dialogue with the social partners (workforce).
3. Preparing and implementing motivational solutions for the personnel.
4. Standardizing the tasks and requirements towards the personnel.
5. Developing organizational culture based on values.
6. Conducting active internal communications on personnel matters.

19.

Human resources risk

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.

1. Adoption and implementation of TAURON Group’s Subsidiaries Employee Recruitment, Selection and Adaptation Policy. Adoption and implementation of TAURON Group’s Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination.
2. Taking care of developing personnel competences through the participation in the training courses.
3. Conducting consultations with the social organizations at TAURON Capital Group.
4. Implementation of the human resources policy based on TAURON Group’s Competence Model and the applicable remuneration and labor law regulations (Compensation Regulations, Company Collective Bargaining Agreement, Labor Regulations).
5. Adoption and implementation of TAURON Group’s Diversity Policy and TAURON Group’s Respect for Human Rights Policy.

20.

Risk of the lack of the employees’ due diligence

1. Implementation of TAURON Group’s Subsidiaries Employee Recruitment, Selection and Adaptation Policy.
2. Systematic periodic employee training.
3. Analysis of the recurring cases of errors and mistakes of the employees, taking systemic remedial actions.
4. Implementation of the Internal Control (Audit) System and the control (audit) mechanisms for the processes conducted in TAURON Capital Group

21.

Pandemic risk

1. Monitoring the state (condition) of the epidemiological threat (risk) at TAURON Capital Group.
2. Collecting information on the threats and identification of the potential threats to the safety of the workforce of TAURON Capital Group’s subsidiaries.
3. Developing and recommending solutions aimed at reducing the level of threat to the resources of TAURON Capital Group.
4. Ongoing monitoring of the risk related to the availability of the employees and services provided by TAURON Capital Group’s subsidiaries.
5. Recommending solutions aimed at curbing the effects of the materialization of the threat to the resources of TAURON Capital Group.
6. Preparing and providing opinions (feedback) on the content of the messages to be disseminated at the level of TAURON Capital Group and the Company.
7. Use of the screening tests.
8. Preparing of the contingency plans in the event of the loss of key employees of TAURON Capital Group.
9. Developing backup business continuity plans.
10. Undertaking trading activities in order to balance the buy position on an ongoing basis in relation to the observed drops in the volume of electricity sales.
11. Taking advantage of market opportunities to hedge the position in the Generation Line of Business (buy-backs).
12. Taking advantage of the anti-crisis shield mechanisms.
13. Increasing the frequency of monitoring the overdue accounts receivable.
14. Introducing additional guidelines with respect to taking credit risk and extending the scope of the customer financial condition examination (vetting).
15. Introduction of a mechanism for monitoring and curbing spending.

22.

Work Health and Safety (WHS) Risk

The materialization of the risk results in an employee injury, a loss of health or excessive exposure of an employee to factors harmful to health, the compensation paid out for personal injury.

1. Prioritizing safety of the employees, customers, contractors and stakeholders in the business activities undertaken.
2. Adoption and implementation of TAURON Group’s WHS Policy.
3. Ensuring optimal labor conditions.
4. Conducting active monitoring of the working conditions and the correctness of its organization.
5. Raising the employees’ qualifications with respect to improving work safety.
6. Conducting training courses, implementing and improving the WHS management system.

23.

Communications risk

1. Building relationships with the social partners (workforce) of TAURON Capital Group and close cooperation with the Social Dialogue Ombudsman.
2. Use and development of the available communications tools to provide relevant information to the employees of TAURON Capital Group.
3. When providing the relevant information – organizing the direct meetings between the management and the employees.
4. Ongoing monitoring of the situation and events at TAURON Capital Group’s subsidiaries that may cause social anxiety.
5. Regular periodic meetings with the representatives of the subsidiaries dealing with the internal communications in order to exchange information.
6. Developing the Communications Strategy for TAURON Capital Group

24.

Internal fraud risk

1. Educational and training activities for the employees, including the mandatory e-learning training with respect to the TAURON Group’s Compliance Management System.
2. Effective use of the abuse (fraud) reporting (whistleblowing) system in the organization.
3. Conducting of the investigative probes by the Compliance Officer or Compliance Coordinators.
4. Building the organizational culture based on TAURON Capital Group’s values and principles.
5. Adoption and implementation of TAURON Group’s Anti-Corruption Policy, TAURON Group’s Corporate Social Responsibility Code of Conduct, and TAURON Group’s Rules for accepting and giving gifts.

25.

External fraud risk

1. Raising the employees’ awareness through training and information campaigns related to the existing threats of external fraud (abuse).
2. Adoption and implementation of the Code of Conduct for Contractors (Counterparties) of TAURON Group’s Subsidiaries.
3. Introduction of the anti-corruption clauses to the contracts with the contractors (counterparties).
4. Adoption and implementation of TAURON Group’s Anti-Corruption Policy.

5. Effective use of the abuse (fraud) reporting (whistleblowing) system in the organization.
6. Monitoring of the cooperation with the contractors (counterparties) and testing their credibility at TAURON Capital Group.

7. Promoting of the best practices, improving the procedures, conducting training courses and applying TAURON Group’s Corporate Social Responsibility Code of Conduct and the functioning of the abuse (fraud) reporting (whistleblowing) system.
8. Building the organizational culture based on TAURON Capital Group’s values and principles.

26.

Risk of unethical behavior and mobbing

1. Adoption and implementation of TAURON Group’s Respect for Human Rights Policy, TAURON Group’s Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination, TAURON Group’s Anti-Corruption Policy and TAURON Group’s Rules for accepting and giving gifts.
2. Effective use of the abuse (fraud) reporting (whistleblowing) system in the organization.
3. Conducting of the investigative probes by the Compliance Officer or Compliance Coordinators with respect to the anonymous reports of mobbing and discrimination.
4. Reviewing of the reports of mobbing or discrimination by the Ethics Committee.
5. Promoting of the best practices, improving the procedures, conducting training courses and applying TAURON Group’s Corporate Social Responsibility Code of Conduct and the functioning of the abuse (fraud) reporting (whistleblowing) system.
6. Building the organizational culture based on TAURON Capital Group’s values and principles.

27.

The materialization of the risk may result in the financial penalties, criminal and civil law liability, a loss of the image of TAURON Capital Group.

1. Adoption and implementation of TAURON Group’s Compliance Policy.
2. 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.
3. Monitoring of the implementation process or implementing of the changes to the internal regulations required by the law.
4. Setting up or participating in the working groups tasked with adapting the organizations to the changes stemming from the legal environment.
5. Consultations with the relevant organizational units with respect to the planned key regulations for the area of compliance.
6. Training of the personnel with respect to the changes to the legal regulations and the internal regulations.

28.

Risk of a breach of the contractual provisions (default)

1. Updating and adapting the contract templates to the legal changes.
2. Monitoring of the complaints and proceedings to the Energy Regulatory Office (URE)/Office of Competition and Consumer Protection (UOKiK).
3. Process optimization.

29.

Personal data protection risk

1. Identifying and implementing the appropriate technical or organizational measures to ensure the adequate level of security of personal data.
2. Monitoring the compliance with the legal regulations related to personal data protection.
3. Raising the level of awareness of the workforce with respect to personal data protection, in accordance with the applicable regulations.
4. Defining and implementing the process of handling the data subjects’ requests in accordance with the regulations and process documentation in force at TAURON Capital Group.
5. Providing information and advice on persona data protection to the employees of the organization.

30.

Customer service risk

1. Monitoring and analyzing the external customer satisfaction indicators and the indicators related to the complaints.
2. Taking the additional measures, e.g. with respect to the internal regulations, defining standards of conduct as a result of the analysis of indicators.
3. Taking the additional measures, e.g. introducing new internal regulations, in order to improve the customer service standards.
4. Developing the key account managers’ competences and skills.
5. Continuous raising of the customer service standards.

31.

Risk related to performance of agreements by contractors and subcontractors

1. Concluding of the agreements with the contractors and subcontractors in accordance with TAURON Capital Group’s standards.
2. Analyzing the performance of the subject of the agreement, examining the quality of services provided by the contractors and subcontractors.
3. Evaluating the financial standing and credibility of the contractors and the subcontractors.

32.

Volume and margin risk

The implications of the risk include, first of all, the loss of revenue in the individual operating segments of TAURON Capital Group due to the reduced demand.

1. Ongoing updating of the offering, launching of the sales of the multi-package type products.
2. Conducting the marketing campaigns, acquiring new customers.
3. Taking actions focused on retaining the existing customers and recovering the lost ones.

33.

Purchasing process risk

The materialization of the risk results in unfavorable purchase agreements, the need to cancel the tender procedures, a loss of the image of TAURON Capital Group and its credibility with the stakeholders.

1. Adoption and implementation of the Code of Conduct for Contractors (Counterparties) of TAURON Group’s subsidiaries.
2. Adoption and implementation of TAURON Group’s Anti- Corruption Policy.
3. Adoption and implementation of TAURON Group’s Respect for Human Rights Policy.
4. Standardization of the rules of conducting the proceedings in the purchasing process and the transparency thereof.
5. Building lasting relationships with the contractors (counterparties) based on trust and mutual respect.
6. Expecting the contractors (counterparties) to comply with the legal provisions, ethical standards and good commercial practices, including the work health and safety 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.
7. Application of the contract forms (templates) and standard clauses in the contracts regarding compliance with the human rights by the business partners of TAURON Capital Group.

34.

Regulatory risk

The implications of the risk are primarily: the loss of revenues in the individual operating segments of TAURON Capital Group, the increase in the operating expenses as a result of the need to adapt to the legislative changes.

1. Ongoing analysis of the draft regulations and acts.
2. Active participation in the works of the teams providing opinions on the drafts and proposing optimal solutions.
3. Gradual adaptation of the generation assets and the energy mix of TAURON Capital Group to the production of renewable energy as well as to the zero and low-emission electricity generation technologies.

1.

Market risk

2.

Interest rate risk

3.

FX rate risk

4.

Liquidity risk

5.

Financial risk

6.

Tax risk

7.

Credit risk

8.

Reputational risk

9.

License risk

10.

Macroeconomic risk

Climate change risk

12.

Environmental risk

13.

Weather risk

14.

Company asset failure risk

15.

IT risk

16.

Asset (property) security and protection risk

17.

Geological risk

18.

Social dispute risk

19.

Human resources risk

20.

Risk of the lack of the employees’ due diligence

21.

Pandemic risk

22.

Work Health and Safety (WHS) Risk

23.

Communications risk

24.

Internal fraud risk

25.

External fraud risk

26.

Risk of unethical behavior and mobbing

27.

Legal risk

28.

Risk of a breach of the contractual provisions (default)

29.

Personal data protection risk

30.

Customer service risk

31.

Risk related to performance of agreements by contractors and subcontractors

32.

Volume and margin risk

33.

Purchasing process risk

34.

Regulatory risk