Statnett Q 1 report 2011 by Statnett

Interim Report 01:11 Page 1 | Statnett Report 1:2011

Table of contents 01:11

Page 2 | Statnett Report 1:2011

004

Directors' report

009

Statement of comprehensive income

010

Balance sheet

011

Statement of changes in equity

012

Cash flow statement

In short Highlights Total operating revenues for the Group in the first quarter of 2011 amounted to NOK 1 652 million (NOK 2 270 million in the first quarter of 2010). The Group’s profit after tax amounted to NOK 394 million in the first quarter of 2011 (NOK 840 million). The reduction was mainly due to lower congestion revenues in the Nordic region. This is also reflected in the higher revenue which totalled NOK 329 million in the first quarter of 2011, down NOK 551 million compared to the first quarter of 2010. The higher revenue will be returned to Statnett's customers over time through adjustment of tariffs.

Important events Overall, the power system has functioned well in a season characterised by historically low reservoir levels, severe cold and high consumption. However, Statnett experienced several operating disturbances in the power system in the first quarter. The malfunctions were promptly rectified. The main incidents were: • A fault in the regional grid in Romerike resulted in a breakdown of two of the three transformers at Frogner. This resulted in an outage of 200 MW of consumption lasting one hour and rolling controlled outage for six hours the following day. • A short circuit in Hasle transformer station in Østfold caused a loss of 490 MW of consumption and resulted in a disruption lasting about 1.5 hours. • A fault on the Ofoten – Kvandal power line resulted in an output deficit north of Ofoten and partial loss of consumption in some areas on two different days.

Page 3 | Statnett Report 1:2011

In March, the Norwegian Water Resources and Energy Directorate (NVE) issued Statnett with an administrative fine for faults on the Oslofjord cable in 2008. Statnett has appealed the decision. The Ministry of Petroleum and Energy (MPE) has confirmed the licence decision and Statnett has been granted a permit to start the construction of the entire Sima – Samnanger power line. The construction of pylons has already started at Kvamskogen. Statnett has received notification of a final decision from the Ministry of Petroleum and Energy and has been granted a permit to build two sections of the Ørskog – Fardal (Sogndal) project. On 20 March 2011, there was an explosion in a turbine room at Statnett's reserve power plant at Nyhamna. The plant was again operational with reduced capacity from 11 April. No persons were physically injured in the explosion. On 14 January, the market coupling on the NorNed cable came into operation. This entails more efficient usage of the interconnector than before as the power now flows from low-price areas to high-price areas at practically all hours of the day. This improvement will also benefit Norwegian producers and consumers. This is an important milestone in the establishment of an integrated North-West-European power market covering 1800 TWh. On 18 April 2011, a fault occurred on the NorNed cable transmitting power between Norway and the Netherlands. Repairs are estimated to take 10 weeks. As a result of early snow melting, security of power supply in Norway is good despite the cable being out of operation.

Directors' report

N04

N03 N05

N01

N02

Delivery quality and security of supply The first quarter was characterised by high consumption, low reservoir levels and historically high imports. At the end of March, reservoir levels were at 18 percent. This is 9 percentage points lower than at the same time in 2010, and 18 percentage points below the median for the measuring period 1993-2009. Throughout the period, water levels were below the mean level for the measuring period, peaking at 4.5 percentage points below the lowest recorded value. The Norwegian and Nordic power system has functioned well in this very challenging period. The power situation in Mid Norway was characterised as alert throughout the first quarter. Statnett was granted a dispensation to start up reserve power plants in the event of faults and difficult operating situations. However, the power situation has been most challenging in Southern Norway. At the beginning of the quarter, the power situation in the areas NO1, NO2 and NO5 was characterised as alert. On 16 March, the situation was changed to strained. The power situation in NO4 was concurrently changed from normal to alert. The overall power consumption in the first quarter was 38 TWh and the overall power production was 32 TWh. This resulted in net imports of 6 TWh for the quarter. In January and February, there were records in import at an hourly, daily, and weekly level. In contrast to the corresponding period in 2010, price differences between the Nordic areas have been moderate. High consumption combined with low water levels in the reservoirs and low production resulted in some areas being operated with reduced security of supply. This mainly affected the Agder counties, the Bergen and Stavanger areas and the counties of Troms and Finnmark. Some areas depend on local production and have been particularly vulnerable to faults in the grid and/or production facilities this winter. The general energy situation and challenges relating to regional security of supply have made it necessary to keep maintenance activities at a minimum this quarter. In the first quarter, there were several periods with strong winds. This resulted in a number of short-term operating dis-

Page 4 | Statnett Report 1:2011

Normal Alert Strained Very tight Rationing The power situation at the end of April.

turbances in Western Norway, mainly without interruptions for the end users. In Northern Norway, there was a power outage on the Ofoten-Kvandal power line. Combined with other concurrent faults the outage resulted in an output deficit and partial loss of consumption in some areas. As a result of this, power was supplied from Statoil's gas-fired power plant at Melkøya to cover general consumption in the area. In March, there were breakdowns in two pylons on the KvandalKanstadbotn power line. This led to a short disruption in northern parts of Nordland and southern parts of Troms. An extensive interruption occurred in Østfold when snow and ice load on the line into Hasle fell down on a busbar causing a short circuit. Consequential faults resulted in disconnection of approximately 490 MW of consumption and an outage lasting for about 1.5 hours. Statnett has a target that no end-user is without electricity for more than two hours at a time owing to a fault in Statnett’s transmission facilities. In first quarter of 2011 there were several incidents which impacted end users. Total outage costs for connected end users (under the KILE scheme) have been estimated to NOK 73 million in the first quarter, compared to NOK 6 million in the first quarter of 2010. Mild weather, precipitation and inflow in April have improved the energy situation in Norway significantly. At the end of April, reservoir levels were at 23 percent. However, reservoir levels are lower than usual for this time of the year and some areas are still vulnerable to faults in the power system. The overall energy situation in Norway was characterised as normal at the end of April.

Investments Statnett has major investment projects under planning and implementetion in order to maintain security of supply, create value and facilitate lower greenhouse gas emissions. In total, Statnett has invested NOK 517 million in the first quarter of 2011 (NOK 209 million) which is the sum of commissioned and ongoing investment projects. The most important projects are listed on the next page.

Investments Statnett Group MNOK 700 600 500 400 300 200 100 2010 Q1

2010 Q2

2010 Q3

2010 Q4

2011 Q1

Overview of major investement projects Project

Location

Cost

Deadline

Ongoing major investment projects

Funds granted Estimated completion

Sauda - Liastølen

Rogaland

NOK 190 million

2011

Major investment in transformer stations

Southern Norway

Oslofjorden (Teigen – Evje)

The Oslofjord

NOK 650 million

2011

NOK 1 200 million

Sima - Samnanger

Hordaland

NOK 1 140 million

2012 2012

Varangerbotn - Skogfoss

Finnmark

NOK 500 million

2013

Skagerrak 4

Norway/Denmark

Statnett share NOK 1 700 million

2014

Increased preparedness: New back-up transformers

Southern Norway

NOK 300 million

Estimated cost

Earliest completion

Licences pending or appealed Voltage upgrade in Central Norway Delstrekning Klæbu – Namsos

Sør-Trøndelag/ Nord- Trøndelag

Hamang station

Asker/Bærum

Namsos - Roan - Storheia

Trøndelag

NOK 430 million

2013

NOK 350-500 million

2013

NOK 850 million

2014

Voltage upgrade in southern Norway Subsection Kristiansand - Bamble (eastern corridor)

Agder/Telemark

Ofoten - Balsfjord

Northern Norway

Grid reinforcement Grenland region

Grenland

Ørskog - Fardal

Sunnmøre/Sogn

NOK 430 million

2014

NOK 1 400 million

2014

NOK 700 million

2014

NOK 4 500 million

2015

Voltage upgrade in southern Norway Subsection Feda - Tonstad (western corridor)

Agder

NOK 460 million

2016

Balsfjord - Hammerfest

Troms/Finnmark

NOK 3 300 million

2016-2018

NORD.LINK / Nor Ger

Norway/Germany

2016-2018

Storheia – Snillfjord – Trollheim/Orkdal

Sør-Trøndelag / Møre og Romsdal

2017-2020

NOK 1 900 million

Planning proposal submitted "Arctic Circle" Skaidi - Varangerbotn

Northern Norway

Estimated cost

Earliest completion

NOK 2 300 million

2018-2020

ICT projects

Funds granted Estimated completion

Modernisation of ICT infrastructure in Statnett stations

NOK 130 million

2011

Computer network for power system management

NOK 220 million

2014

Renewal of Statnett's central operations system

NOK 490 million

2014

New Regulation and Market System

NOK 240 million

2014

See www.statnett.no and Statnett's grid development plan for more information about the projects.

Page 5 | Statnett Report 1:2011

Important project events in the first quarter Ongoing major investment projects • In March, the Ministry of Petroleum and Energy (MPE) confirmed its licence decision and granted Statnett a permit to start the construction of the entire Sima – Samnanger power line. The construction of pylons has already started at Kvamskogen. It is an ongoing process to clarify conditions related to cultural heritage along the concession granted routes. Projects for which licence applications are pending or appealed • Ørskog – Fardal: Statnett has received a final decision from the Ministry of Petroleum and Energy and has been granted a permit to construct two sections of the Ørskog – Fardal (Sogndal) project. The sections will run from Hovdenakk in Ørsta municipality to the south side of Hundvikfjorden in Bremanger municipality, and from Moskog in Jølster municipality to Sogndal. Upon request from the Norwegian Water Resources and Energy Directorate (NVE), Statnett applied for a licence for a subsea/earth cable between Ørskog and Store Standal, as well as for some other adjustment of the route into Naustdal, Førde and Jølster municipalities. • Voltage upgrade eastern corridor, Kristiansand – Bamble/ Kragerø: The work on supplementary assessments has been concluded and submitted to the NVE for processing. • Grid developments Grenland (eastern corridor, Bamble/ Kragerø – Rød): A licence application has been submitted to the NVE for processing. • Ofoten – Balsfjord and Balsfjord – Hammerfest: NVE has requested supplementary assessments. The assessment will be submitted to NVE in the second quarter. • Voltage upgrade western corridor and Nord.Link: NVE has concluded the consultation process for licence applications for Nord.Link and voltage upgrades on the Feda-Tonstad section and is planning to submit a request to Statnett for additional assessments in the second quarter. • Storheia – Snillfjord – Trollheim/Orkdal: Comprehensive requirements relating to additional assessments received from the NVE.

Page 6 | Statnett Report 1:2011

Planning proposal submitted • Skaidi – Varangerbotn: Awaiting decision on impact assessment programme from the NVE.

Financial results The quarterly report has been submitted in accordance with the International Standards for Financial Reporting (IFRS) and interpretations stipulated by the International Accounting Standards Board (IAS). The accounting standards for presentation of financial accounts (IAS) and interim reports (IAS34) have been adhered to. The accounting principles and calculation methods used in the interim financial statements are the same as in the most recent annual financial statement.

Operating revenues The Group's operating revenues in the first quarter of 2011 totalled NOK 1 652 million (NOK 2 270 million in the first quarter of 2010). Operating revenues from regulated operations totalled NOK 1 608 million (NOK 2 224 million), while other operating revenues amounted to NOK 44 million (NOK 46 million). Statnett's operating revenues primarily derive from regulated grid operations. Operating revenues from regulated activities in Statnett’s financial reporting consist primarily of fixed grid tariffs from the customers as well as congestion revenues (price differences between areas in the Nordic region and towards the Netherlands). The grid operations are regulated by NVE which stipulates a cap for Statnett's revenues (permitted revenue). If the total revenues from grid operations for one year diverge from the permitted revenue, a so-called higher or lower revenue will occur. Higher/lower revenue will level out over time through adjustment of future grid tariffs. In the first quarter of 2011, Statnett's higher revenue amounted to NOK 329 million (higher revenue of NOK 880 million). This mainly derived from congestion revenues.

Operating costs The Group's operating costs totalled NOK 1 031 million in the first quarter (NOK 1 049 million). System services costs were reduced by NOK 53 million. This was primarily due to

reduced costs of special adjustments. Transmission losses were NOK 45 million lower than in the first quarter of 2010. This is mainly attributed to lower volume. Wage costs were up NOK 41 million compared to 2010. This was partly due to reversal of pension costs in 2010 in connection with changes to the regulations. Furthermore, Statnett increased its staff throughout 2010 due to increased activity. This gives higher costs in the first quarter of 2011 compared to the same period in 2010. Increased allocation of wage costs to investments partly offset the wage increase in 2011. Other operating costs and depreciation were NOK 39 million higher than in the same period in 2010. This is mainly due to increased investments and a generally higher activity level in the Group.

Operating profit The Group's operating profit in the first quarter was NOK 621 million (NOK 1 221 million). Financial items The Group's net financial items for the first quarter amounted to a loss of NOK 69 million (loss of NOK 65 million). Net profit The Group's profit after tax was NOK 394 million (NOK 840 million) in the first quarter. Lower congestion revenues is the main reason for the lower profit. Cash flow and balance sheet The Group’s operating activities generated an accumulated cash flow of NOK 646 million in the first quarter. The net cash flow from investment activities totalled a loss of NOK 519 million. In total, loans were paid down by NOK 500 million. No new loans were raised in the first quarter. At the end of the first quarter, the Group's liquid assets and market-based securities amounted to NOK 1 346 million (NOK 1 723 million). At the end of the first quarter, the Group had total assets of NOK 21 740 million (NOK 20 013 million), and interest-bearing debt amounted to NOK 10 978 million. The market value of recognised interest swap and currency swap agreements (fair value hedges) related to interest-bearing debt was NOK

Page 7 | Statnett Report 1:2011

850 million. Net interest-bearing debt, corrected for this, totalled NOK 10 128 million.

Transport operations Statnett SF wholly owns Statnett Transport AS. The operating revenues for the Statnett Transport Group were NOK 23 million in the first quarter of 2011 (NOK 25 million). The result in the quarter was a loss of NOK 1 million (profit of NOK 2 million). The Nord Pool power exchange Statnett SF owns 30 percent of Nord Pool Spot AS. Statnett’s share of the result in Nord Pool ASA was a Group profit contribution of NOK 1 million (NOK 2 million). In the first quarter of 2010, there were additional revenues of NOK 5 million relating to Statnett's shareholding in Nord Pool ASA, which was sold in 2010. International interconnectors Statnett has a shareholding of 50 percent in the NorGer project, which entails planning and building a DC subsea interconnector between Norway and Germany. Statnett has a shareholding of 100 percent in Nord.Link, which is planning a DC subsea interconnector between Norway and Germany. International Interconnectors are important for the security of supply (with reference to the high import this winter) and contributes to increase value of the Norwegian hydropower.

Health, Safety and Environment (HSE) Statnett’s activities are characterised by the goal of carrying out the activities without accidents, injuries, damage to property or other material assets and with respect for the external environment. The same HSE requirements also extend to Statnett's contractors. In March 2011, Statnett was subject to a comprehensive recertification audit in relation to ISO 14001:2004 (Environmental Management System). No nonconformities were identified and Statnett was recertified for another three y ears.

H-value Group rolling 12-months' average

Absence due to illness per quarter

4 3% 3 2%

apr 11

mar 11

feb 11

jan 11

dec 10

nov 10

oct 10

sep 10

aug 10

jul 10

jun 10

may 10

apr 10

mar 10

feb 10

jan 10

2010 Q1

2010 Q2

2010 Q3

2010 Q4

2011 Q1

Reporting of H-value is changed to 12-month's rolling average

Reporting of undesirable HSE incidents and nonconformities increased in the first quarter of 2011, which is desirable from a learning perspective. Statnett registers incidents occurring in its own organisation, as well as in contractor/supplier organisations. HSE plans are drawn up for every project, and Safe Job Analyses are conducted prior to all risk-exposed work operations. Statnett had six internal lost-time injuries and Statnett's contractors reported one lost-time injury in the first quarter of 2011. This resulted in a lost-time injury frequency rate (H-value) for the Group of 13.3 in the first quarter of 2011, compared to a lost-time injury frequency rate of 2.6 last year. The Board of Directors takes a serious approach to the development in the lost-time injury frequency rate in the Group and will follow the development closely.

Outlook Statnett’s objective is to ensure secure delivery of electricity and facilitate a well-functioning power market. To ensure security of supply for the future, Statnett will make substantial grid investments in the years to come. Statnett’s future activities will be dominated by an increase in project activities. The investment programme is contingent upon efficient licence processing. Statnett has taken the initiative to improve processes in the planning of new power lines to secure feedback from all stakeholders as early as possible. The Board noted that the power system has scarce margins in periods, which are documented with several outages lately. The Board follows the situation and developments in the energy market carefully.

Absence due to illness was 3.5 percent in the Group in the first quarter of 2011, compared to 3.7 percent in the first quarter of 2010.

Oslo, 19 May 2011 The Board of Directors, Statnett SF

Page 8 | Statnett Report 1:2011

Statement of comprehensive income Statnett Group First quarter 2011

2010

Year 2010

Operating revenue regulated operations

1 608

2 224

6 980

Other operating revenue

267

Total operating revenue

1 652

2 270

7 247

(Amounts in NOK million) OPERATING REVENUE

OPERATING COSTS

System services

117

170

592

Transmission losses

354

399

1 058

Wage costs

161

120

550

Depreciation and write-downs of tangible fixed assets

182

161

666

Other operating costs

217

199

1 102

Total operating costs

1 031

1 049

3 968

Operating profit

621

1 221

3 279

Revenues from joint ventures and associates

Financial income

105

Financial costs

337

Profit before tax

553

1 163

3 058

Tax

159

323

860

Profit for the period

394

840

2 198

Changes in fair value, held-for-sale investments

Changes in fair value for cash flow hedges

-7

-10

Tax related to other comprehensive income

-6

Other comprehensive income

-5

-6

Total comprehensive income

409

835

2 192

OTHER COMPREHENSIVE INCOME

Page 9 | Statnett Report 1:2011

Balance sheet Statnett Group

(Amounts in NOK million)

31.03.11

31.03.10

31.12.10

assets INTANGIBLE FIXED ASSETS

Goodwill

Other intangible fixed assets

Total intangible fixed assets

non current FIXED ASSETS

Deferred tax assets

Tangible fixed assets

16 475

15 837

16 396

Plant under construction

2 093

1 235

1 848

Investment in other group companies

191

Long-term investments

884

714

1 118

Total fixed assets

19 504

17 977

19 413

Trade accounts recievable and other short-term receivables

824

313

869

Investment in commercial market-based securities

521

613

593

Liquid assets

825

1 110

1 129

Total current assets

2 170

2 036

2 591

21 740

20 013

22 070

Contributed capital

2 700

Retained earnings

5 367

3 753

4 950

CURRENT ASSETS

Total current assets

EQUITY AND debtLIABILITies EQUITY

Non-controlling interest

-30

-22

Total equity

8 037

6 453

7 628

Deferred tax

396

298

334

Pension liabilities

254

255

345

Other liabilities

151

163

Long-term interest-bearing debt

9 710

10 833

10 456

Total long-term liabilities and debt

10 511

11 386

11 298

Short-term interest-bearing debt

1 268

1 147

1 301

Trade account payable and other short-term debt

1 256

973

1 277

Tax payable

668

566

Total current liabilities

3 192

2 174

3 144

20 013

22 070

provisions for liabilities

CURRENT LIABILITIES

Total equity and debt liabilities

Page 10 | Statnett Report 1:2011

21 740

Statement of changes in equity Statnett Group

(Amounts in NOK million)

Total equity

Equity as at 1 January 2010

5 618

2 915

Profit/loss for the year

2 198

-25

2 223

-6

-132

-50

-53

7 628

-22

7 650

4 953

-3

2 700

5 618

2 915

2 700

840

Other comprehensive income Dividends paid Non-controlling interest Equity as at 31 December 2010

Non- controlling interest

Total equity allocated to the owner of Statnett SF

Other equity accrued

Funds

Contributed capital

2 700

Equity as at 1 January 2010 Profit for the period Other comprehensive income Equity as at 31 March 2010

-5

6 453

3 755

-2

2 700

7 628

-22

7 650

4 953

-3

2 700

394

-8

402

Equity as at 1 January 2011 Profit/loss for the period Other comprehensive income Equity as at 31 March 2011

Page 11 | Statnett Report 1:2011

15 8 037

-30

402

15 8 067

5 355

2 700

Cash flow statement Statnett Group

(Amounts in NOK million)

31.03.11

31.03.10

31.12.10

1 163

3 058

Cash flow from operating activities Profit before tax

553

Loss/gain(-) on sale of fixed assets

Ordinary depreciation and write-downs

182

Loss/ gain(-) on sales on investments on associates and joint ventures

- 161 -

-6 666 -28

Interest recognised in the income statement for the period

306

Interest received for the period

Interest paid for the period

-55

-58

-362

Changes in trade accounts receivable/payable

140

-121

-348

Changes in other accruals

-254

243

500

Profit/loss from companies using equity method

-7

-11

Net cash flow from operating activities

646

1 461

3 804

Cash flow from investing activities Proceeds from sale of tangible fixed assets Purchase of tangible fixed assets and plants under construction Merger NorGer net for cash acquired

- -517 -

- -209

13 -1 892

-32

Changes in investments in associates and joint ventures

Changes in long-term loan receivables

-2

Changes in short-term loan receivables

Dividend received

Net cash flow from investing activities

-519

-187

-1 740

Cash flow from financing activities Proceeds from new interest-bearing borrowings

350

1 250

Repayment of interest-bearing debt

-500

-800

-2 364

Proceeds from sale of market-based securities

305

Purchase of market-based securities

Dividends paid

Net cash-flow from financing activities

-86 -

-336 -132

-431

-506

-1 277 787

Net cash flow for the period

-304

768

1 129

342

Cash and cash equivalents at the close of the period

825

1 110

1 129

Cash and cash equivalents at the start of the period

Included under the item cash and cash equivalents as at 31 March 2011 are reserved tax withholdings to the amount of NOK 43 million in the Group. Unused credit facilities of NOK 3 500 million are not included in cash and cash equivalents above.

Page 12 | Statnett Report 1:2011

Statnett Husebybakken 28B, Oslo PO Box 5192 Majorstuen N-0302 Oslo Telephone: +47 23 90 30 00 Fax: +47 22 52 70 01 www.statnett.no Page 13 | Statnett Report 1:2011