Annual Report - EDP

: corporate governance :on Financial Matters/Audit Committee, whichapproves the internal auditing plan before it issent to the Executive Board of Directors.The Executive Board of Directors decides on the EDPGroup’s degree of exposure to risk in its differentactivities and, while still delegating functions andresponsibilities, it defines overall risk limits andensures that risk management policies and proceduresare followed. The Group’s risk appetite is definedupstream and is the result, on the one hand, of itslongstanding business structure and, on the other,the criteria agreed upon by the Executive Board ofDirectors and General and Supervisory Board.The Risk Management Department is partof the group of strategic departments in thecorporate centre’s structure. In addition toits methodological and control duties, thisdepartment conducts its own studies and makesan active contribution, in the form of businessintelligence to the assessment of very important,topical R2R – return to risk issues for the Group.II.9. Economic, financialand legal risksThe main risks to which the company is exposedapply to all units of responsibility and are as follows:Generation of electricityand energy managementElectricity price risk - Earnings from generationcan be influenced by changes in electricity priceon the wholesale markets. The Group’s exposureis limited to the power stations that operate ina free market (Spain, Ribatejo Power Station,Lares Power Station and new hydroelectric plantsin Portugal), as most of them are subject to theCMEC – contractual equilibrium maintenancecosts adjustment mechanism (power stationsthat had power purchase agreements with RENand moved into the market on 1 July 2007). Thereis also the market exposure (OMEL price) of theExecutive Boardof DirectorsRiskCommitteeRisk OfficerDirectorEDPProduçãoEDPDistribuiçãoEDPComercialEDP SoluçõesComerciaisHCEnergiaNaturgásEnergiaEnergiasdo BrasilEDPRenováveisEDPGásEDPValorCorporate OversightCorporate Supervisor Local Oversight Local Supervisor Hierarchical Reporting Functional ReportingII.7. Regulationsgoverning the companybodiesThe work of the General and Supervisory Boardand Executive Board of Directors is governed byinternal regulations, which are available on theEDP website, (www.edp.pt).The Committee on Financial Matters/AuditCommittee, Remuneration Committee, StrategyCommittee, Performance Analysis andCompetitiveness Committee and CorporateGovernance and Sustainability Committee aregoverned by internal regulations approved by theGeneral and Supervisory Board and also availableon the EDP website (www.edp.pt)SECTION II – EXECUTIVEBOARD OF DIRECTORSThe information requested in Section II –Executive Board of Directors, in CMVM Regulation1/2010 does not apply to the dual governancemodel in effect at EDP. The information providedbelow therefore refers to the Executive Board ofDirectors, with the exception items II.16 and II.17of CMVM Regulation 1/2010, which do not applyto EDP’s governance model.Item II.12 on meetings of the General andSupervisory Board is in Section III – General andSupervisory Board.II.8. Chairman of theExecutive Boardof DirectorsPursuant to EDP’s dual governance model, theduties of the members of the Executive Boardof Directors are executive.120EDP Renováveis wind farms (and also those in theUnited States, Poland and Romania). The Groupactively seeks to protect its margin and actstogether with energy and supply management.In the MIBEL, the UNGE is charged with operatingon the wholesale market to optimise the supplyof generation on the OMEL spot market and takeadvantage of the futures market, OMIP, OTC andarbitrage in the Spain-France interconnection.The market price risk is higher in Portugal thanin Spain as a result of market splitting afterexhaustion of interconnection capacity. It isnot relevant to the Group, as supply on the freePortuguese market does not depend on importsfrom Spain. The UNGE simulates the performanceof the Iberian system and uses the URM (UnifiedRisk Management) program for periodiccalculation of the MaR – margin at risk.Fuel price and CO 2risk - This risk is also moreimportant for power stations on the free marketand the UNGE is responsible for its management.It operates in the purchase of coal and fuel oil,the operational management of gas purchasecontracts for electricity generation and CO 2emission rights and sets up hedging solutions forfuel prices and the dollar exchange rate (the latterin coordination with the Financial ManagementDepartment). The gas trading business wasintegrated into the UNGE in 2012, which boostedsynergies between the two activities. Wheresupplies of gas are concerned, the UNGE isresponsible for negotiating new contracts andmanaging temporary surpluses or shortagesbetween Group companies and outside. URM isalso used to assess risk, utilising its capacity forassessment of trends in fuel and CO 2prices.Operational risk in operation of power stationsand wind farms - Power stations and wind farmsexperience malfunctions and incidents, whichmay result in loss of income due to the resultingA World Full Of Energy