When initiating and then implementing activities in various business areas – including power system management, system development, ICT, maintenance and projects – PSE takes into account risks whose materialisation could contribute to the failure to achieve the intended strategic and operational objectives, including affecting the organisation's ability to ensure the continuous operation of the National Power System (NPS) and the company itself.

Risk management consists of the systematic application – in all areas of our business – of planned and coordinated actions, procedures and practices to reduce or eliminate the possibility of risks materialising, and to minimise the negative effects of their occurrence or to capitalise on their positive consequences.

The methodological approach used to identify and assess the risks most relevant to NPS and PSE is defined in the Methodology of Risk Assessment at PSE S.A. and its Subsidiaries.

The methodology and accompanying tool solutions support the following:

• identification of key risks associated with the functioning of the organisation, including those relating to operational, maintenance and investment activities,
• assessment of identified risks, their quantification and presentation in the form of ranking,
• determining the relationship between the identified risks,
• conducting ongoing monitoring of risks, including trends in their value, and generating synthetic management information on risks.

The risk management process is supported by a risk monitoring system (SMR) that provides a base of up-to-date knowledge of the risks associated with the company's operations and the NPS.

As part of continuous improvement of the organisational, process and technological solutions, initiatives are taken at PSE aimed at both increasing the efficiency and safety of the NPS and the company’s functioning, and at reducing or managing risks more effectively.

Company risk register – selected risks at the end of 2021

The risk register includes the risks that are most important from the PSE's point of view, and are key for the NPS functioning. According to the methodology adopted, for each identified risk, the potential causes and consequences of its materialisation are identified, and the expected frequency of materialisation as well as the measure of risk are estimated. With regard to the cause of the risk, i.e. the specific event or circumstance whose occurrence could lead to the materialisation of the risk, the frequency of occurrence and the conditional probability of materialisation after the cause occurs (i.e. the so-called vulnerability) are determined. In turn, the effects of the materialisation of risk, i.e. any negative and positive consequences, are presented in five dimensions:

• financial and material,
• related to the NPS operational continuity and quality,
• related to image and law,
• related to impact on health and life,
• related to environmental impact.

When identifying all risks relevant to the company and NPS, we determine in each case whether a negative impact on the natural or social environment is likely to be recorded as a consequence of the materialisation of a given risk. Negative impact is expressed directly, as an effect on human health and life and on the natural environment, or indirectly, as an effect on the image. Thus, all aspects of PSE's operation are analysed for potential negative social or environmental impacts. At the same time, factors of an environmental and social nature can be considered as causes for the materialisation of specific risk scenarios.

PSE's risk register also includes risks that are regional electricity crisis scenarios (SRKEE), as defined by ENTSO-E and deemed adequate in the case of Poland. Some of them are directly influenced by environmental factors, including extremely low temperatures, severe storms and hurricanes, torrential rain and floods, heat waves and drought.

Risk description – basic information:

Loss or significant reduction of available controllable capacity of generating units to generate, or no or limited power output possibilities.

Initiating events can be a failure of more than one unit, generating unit or the infrastructure necessary for power output from the units. Failures can have many root causes – they can result from, among others, the following factors: manufacturing defects, workmanship errors, improper operation, human errors, progressive degradation of infrastructure associated with years of use, environmental impact and structural collapse.

Main effects of materialisation:

• Undelivered energy
• Increased cost of removing the congestions
• Physical injury or loss of life to third parties due to the occurrence of a blackout
• Negative impact on the balance of the natural environment

Approach to risk management ─ key assumptions:

• Actions provided for in the Transmission Grid Code (TGC), Balancing Conditions (WDB) and the Guidelines for the Operation of the Electricity Transmission System (SOGL), aimed at ensuring an uninterrupted energy supply to consumers, including the application of measures and procedures provided for in the defence and restoration plans

Risk description – basic information:

Loss of use of a hardware or software component or large-scale absenteeism of the dispatching staff, making it difficult or impossible to carry out dispatching tasks. As a result, remedial solutions are being put in place; switching to “manual” management of the NPS is effected or the work mode for dispatchers is changed to ensure the minimum safe staffing levels. The ability to monitor and identify changes in the NPS status on an ongoing basis, to make decisions and issue orders relevant to ensuring secure network operation and system balancing is reduced. Human errors can occur, which is exacerbated by the possible failure of telecommunications links. There may be a loss of control over the NPS operation.

Main effects of materialisation:

• Restrictions on energy supply to consumers
• Increased costs of removing the congestions
• Negative impact on the balance of the natural environment
• Physical injury or loss of life to third parties in the area affected by the blackout
• Negative effects on the image

Approach to risk management ─ key assumptions:

• Actions and solutions provided for in the TGC, WDB and SOGL
• Solutions and actions that make up the company's comprehensive approach to management of the following: information systems, environment, human resources as well as health and safety at work

Risk description – basic information:

Successful attack on at least one critical ICT systems belonging to a TSO, DSO, power plant or major industrial consumers. The effect can be for an attacker to gain access to one or more of PSE's or other entities' critical ICT systems.

As a result of an attack, the following may occur: unavailability of data or a breach of data integrity leading to an inability to control the NPS or to erroneous decisions resulting in improper NPS operation, a breach of the confidentiality of data in the system that may affect market processes or the proper operation of the NPS, or a lack of communication between PSE and the attacked entity to the extent required to control the NPS. Depending on the motivation of the attacker and their expected benefits/effects, the extent and impact can vary.

Main effects of materialisation:

• Restrictions on energy supply to consumers
• Increased costs of removing the congestions
• The cost of engaging specialist companies to conduct a detailed analysis of the scale of the cyber attack
• Negative effects on the image

Approach to risk management ─ key assumptions:

• Technical and organisational solutions based on the highest safety standards
• Network segmentation, separation of assets with different sensitivity
• Design and implementation of ICT solutions including high availability and redundancy mechanisms at multiple levels
• Monitoring by SOC (Security Operations Centre) of security incidents, monitoring of ICT/business processes, ongoing monitoring of IT/OT systems
• Certification of the Operational Continuity Management System’s compliance with ISO 22301, and of the Information Security Management System's compliance with ISO 27001.

Risk description – basic information:

A situation in which the factors influencing the level of costs of the removal of system congestions develop much more unfavourably than in the assumptions made for the TSO's Tariff and the company's financial plan. This is the case, for example, when a number of Balancing Market Participants (URB) adopt contracting strategies assuming under-contracting, determined by internal (e.g. business and corporate decisions) or external factors (e.g. changes in the level of fuel prices, CO₂, changes in energy prices on the wholesale markets, etc.). The occurrence of such a situation, especially if the activation of generating units with high bid prices (high variable costs) and the reduction in units with low bid prices (low variable costs) prove to be necessary, may lead to PSE’s having to incur additional, over-budgeted costs for the removal of system congestions. This situation may persist for many months to come, which will significantly affect the size of the company's aggregated costs over the entire TSO Tariff period. In extreme cases, this can alter the financial liquidity of the company.

Main effects of materialisation:

• Increased costs of removing system congestions
• Negative effects on the image

Approach to risk management ─ key assumptions:

• Monitoring of the company's financial exposure in the context of the rules of balancing market mechanisms
• A solution which provides for a possibility to submit a request for the Tariff adjustment to the ERO President during the year

Risk description – basic information:

Delays in the planning or implementation phase of the investment tasks that make up the network investment portfolio in relation to the deadlines assumed in the baseline schedules. This is the result of, among others, the following: errors or delays in carrying out the construction and erection work in the related projects, faulty or delayed deliveries of materials and equipment, restrictions or inability in effecting the necessary shutdowns, delays in carrying out and awarding tenders, hindrances or failures during the planning work, extreme weather events, conflicts with contractors, impediments and delays in obtaining land titles, structure collapse, fire, prolonged processes of obtaining administrative and environmental decisions, errors or delays in the preparation of the design documentation or errors and delays in the completion of construction and erection work by contractors. Delays pile up and are recorded for the following network projects (also on related projects).

Main effects of materialisation:

• Costs associated with e.g. the need to extend the line route, increased time to engage staff resources, legal services.
• Negative effects on the image

Approach to risk management ─ key assumptions:

• Solutions comprising a comprehensive approach to the management of the investment process, including: project schedule and budget, contracts with contractors and subcontractors, identification and assessment of risks, planning of network element shutdowns to carry out the investment works, and progress monitoring

Risk description – basic information:

Activation of substation safety systems, direct damage or automatic shutdown of one or more key components of an EHV substation – as a result of a technical failure of substation devices or gear, loss of power supply for the substation’s auxiliaries, error in readings or signals relating to the status of substation devices or electricity parameters, human error, intended actions, environmental events or structure collapse. As a result, the substation's ability to transform or distribute electricity may be prevented or significantly reduced.

Main effects of materialisation:

• Cost of restoring the substation
• Negative impact on the balance of the natural environment
• Accident incidents, including fatalities
• Negative effects on the image of varying magnitude

Approach to risk management ─ key assumptions:

• Comprehensive approach to network asset management, including periodic assessments of the technical condition of substation gear and replacement of the most worn-out and oldest elements and devices
• Having an experienced and knowledgeable team to ensure safe maintenance
• Application of physical security solutions and substation access restrictions (technical protection systems, fixed fire-fighting systems)
• Direct supervision of external companies carrying out work on the substation facilities

Risk description – basic information:

Unplanned shutdown of one or more EHV line current circuits, direct damage or automatic shutdown of one or more EHV line current circuits, as a result of a technical failure of the components making up the EHV line, human errors, intended actions, environmental events or structure collapse. As a result, the ability to transmit electricity using the EHV network may be prevented or significantly reduced.

Main effects of materialisation:

• Negative impact on the balance of the natural environment
• Negative effects on the image of varying magnitude
• Accidents
• Costs of replacing or repairing damaged line elements

Approach to risk management ─ key assumptions:

• Comprehensive approach to network asset management, including periodic assessments of the technical condition of the network asset and replacement of the most worn-out and oldest elements
• Direct supervision of external companies carrying out work on the line facilities

Risk description – basic information:

Social conflicts may result from a large and active involvement of associations / non-governmental organisations /specialised entities, a lack of inclusion of projects and plans in the zone planning and formal documents, mistakes or failures by the contractor in connection with the project in progress, a formation or operation of strong social groups with a negative approach, including landowners, mistakes in the communication process made by the contractor or the company, lack of understanding and cooperation on the part of local government authorities, a large and active involvement of politicians at a local or national level. This translates into the ability of the company or key projects contractors to initiate or continue investment tasks, including their continuation based on existing assumptions/schedules. It is possible for conflicts to spill over into further investment tasks.

Main effects of materialisation:

• Costs related to engaging communication and dispute resolution specialists
• Physical injury to the company employees or third parties in the event of an uncontrolled escalation of conflicts
• Negative effects on the image

Approach to risk management ─ key assumptions:

• Selection of the best route or location of the project with the involvement of local communities
• Mapping of stakeholders of key projects in order to identify precisely the recipients of the communication activities
• Supervision of the project contractor
• Development and implementation of a social communication programme at the level of the individual investment tasks, including a dialogue with stakeholders
• Implementation of grant activities aimed at solving local community problems