Board of Directors

Executive Committee

REGULATORY FRAMEWORK

The Spanish gas sector is regulated by Law 34/1998, of October 7, of the Hydrocarbons Sector, reformed by Law 12/2007, of July 2, Royal Decree-Law 13/2012 and Law 8/2015, of May 21, as well as by Law 18/2014, of October 15, and by its implementing provisions, amongst which Royal Decree 1434/2002, of December 27, Royal Decree 949/2001, of August 3, and Royal Decree 984/2015, of October 30 stand out due to their importance.

The Ministry for the Ecological Transition (previously called the Ministry of Energy, Tourism and Digital Agenda) is the competent body for the regulation of the gas and electricity sector, while the National Commission on Financial Markets and Competition (CNMC) is the regulatory authority that has been entrusted with the tasks of maintaining and ensuring effective competition and the transparent functioning of the Spanish energy sectors. Until the publication of Law 3/2013, of June 4, these functions were performed by the National Energy Commission (CNE), which has been included into the CNMC. The respective Ministries of the Autonomous Communities have competences both in the development of regulations and in the execution of regulations.

In January 2019 the Royal Decree-law 1/2019 of January 11 was approved about urgent measures to adapt the authority of the CNMC to the requirements derived from Community law related to Directives 2009/72/EC and 2009/73/EC of the European Parliament and of the Council of Europe, dated 13 July 2009, about community rulings for the domestic electricity and gas markets. That modified Law 3/2013 of June 4, about the creation of the CNMC, Law 34/1998 of October 7, about the hydrocarbon sector, Law 24/2013 of December 26, about the electricity sector, and Law 18/2014 of October 15, for the approval of urgent measures for growth, competitiveness, and efficiency. In this sense, the main modifications have been the following:

• The independence of the regulatory body in the approval of its regulatory circulars is guaranteed.
• In relation to the remuneration of gas and electricity transportation and distribution activities and of liquefied natural gas (LNG) plants (except for underground natural gas storage), the CNMC will approve the methodology, the remuneration parameters, the regulatory basis of assets and the activity’s annual remuneration. In any event, the financial remuneration rate may not exceed the maximum limit established by law for the regulatory period. Regarding the access tariffs for the electricity and natural gas networks, it is established that the regulatory authority will approve, in addition to the tariffs methodology, their structure and specific values, corresponding to the Ministry for Ecologic Transition and the Demographic Challenge, the approval of the structure of the positions, their methodology and their values.
• In relation to the conditions of access and connection to electricity and natural gas transportation and distribution networks, the CNMC will be responsible for approving access and connection methodology and conditions.
• The regulation of the operational rules for organized markets will be the responsibility of the CNMC.
• The remuneration of the electricity system operator and gas system technical manager will be established by the CNMC.

On 20 February 2019, the CNMC published the calendar of regulation communications that can affect aspects of the energy policies to be processed in 2019.

On 9 April 2019, the Order TEC/406/2019 was published, establishing energy policy guidelines for the CNMC, indicating the recommendations from the Ministry of Energy Transition and Demographic Challenge related to the communications foreseen for 2019.

The CNMC have approved the following circular letters:

• Circular 01/2020, of January 9, which establishes the retribution method of the gas system technical manager.
• Circular 2/2019, of November 12, which establishes the natural gas balance regulations.
• Circular 8/2019, of December 12, which establishes the methodology and assignment and access conditions in the natural gas system.
• Circular 9/2019, of December 12, which defines the methodology for retribution of the regulated activities for transport and regasification of gas.
• Circular 4/2020, of March 31, which establishes the methodology to define the retribution of natural gas distribution for the 2021 – 2026 period.

Currently the circular which establishes the methodology to calculate the rates for transport, local networks, and regasification of natural gas —CIR/DE/003/19— is being processed; its approval is expected during 2020.

Ministerial Order ETU/1283/2017, of December 22, established the remuneration of gas sector regulated activities for 2018. Specifically, the initial remuneration recognized for Madrileña Red de Gas for the financial year 2018 amounts to 142,817 thousand euros for the period between January 1 and December 31, 2018. The ministerial order includes an adjustment of the remuneration for 2016 and 2017 for an amount of 2,432 thousand euros of higher income, without this implying a significant impact on the profit and loss account.

This Ministerial Order ETU/1283/2017 modified the meter rental rate and telemetry equipment for 2018 with a negative economic impact for the gas sector of, approximately, 55,000 thousand euros of lower income, and for Madrileña Red de Gas of 5,200 thousand euros of lower income. The distributors Nedgia and Redexis have appealed the Order before the courts, and the appeal is currently pending. If the resolution of the appeal were favourable for these distributors, it would have the same positive effect for the rest of the distributors and, therefore, for Madrileña Red de Gas.

The Ministerial Order TEC/1367/2018, of December 20, has established the remuneration of the regulated activities of the gas sector for 2019. Specifically, the initial remuneration recognized for Madrileña Red de Gas for the financial year 2019 amounts to 142,817 thousand euros for the period between January 1 and December 31, 2019. The order includes an adjustment of the remuneration for 2017 and 2018 for an amount of 1,700 thousand euros of higher income, without this implying a significant impact on the profit and loss account.

The resolution of December 18, 2019 from the CNMC has established the retribution of the companies conducting the regulated activities for liquefied natural gas (LNG) plants, for transport and distribution in the year 2020. Specifically, the initial remuneration recognized for Madrileña Red de Gas for the financial year 2020 amounts to 147,093 thousand euros for the period between January 1 and December 31, 2020.

CORPORATE SOCIAL RESPONSIBILITY

Globalisation requires that companies design increasingly competitive business models, but also more sustainable ones. Within this framework, in MRG we understand that to compete successfully we must differentiate ourselves with a business model that is going to create economic value, provide social and environmental values and search for satisfaction of all stakeholders. Innovation is needed to be competitive, an indispensable and key condition for the creation of wealth both for the company and for our clients.

Sustainable development also means that, every day, from MRG we face new challenges that help us to question our way of thinking and acting, searching for the development of new services and establishing new relationships with our clients, which allows us to have the necessary information and knowledge to have a wide range of perspectives and future sights, to establish necessary collaborations to make them become a reality.

For the fourth consecutive year, MRG has participated in the «GRESB Infrastructure» initiative, to maintain a global vision of the company regarding the previous years, as well as the degree of maturity in this matter compared with other companies of the energy sector.

CORPORATE RISK MANAGEMENT

Companies are constantly facing diverse risks: economic, social, political, climatic, etcetera. The position we take to manage the uncertainties derived from company actions is vitally important when deciding a proactive focus in the management of these risks. We cannot eliminate them from the development of our activity, but we can manage them responsibly and adequately, and consider all of them, so they do not interfere or limit our growth.

For this reason, in MRG we formed the Risks and Auditing Committee, which operates according to that established in our internal operation regulation, which defines its objectives, functions, and composition. This committee is formed by the risk management department, as well as representatives from the Executive Committee and Board of Directors and reports directly to the company Board of Directors.

At the beginning of each new year the agenda of the periodical meetings of this committee is defined, these will be before each meeting of the Board of Directors; as well as the periodical visits of the independent experts designated by our investors to deepen their knowledge of the risk management being developed in the most representative operational processes of MRG. This agenda contemplates monitoring the map of corporate risks, the most relevant risks, as well as their control and mitigation plans, auditing of accounts and the prevention policy of criminal offences. These activities result in the issuing of recommendations for risk management and for the Board of Directors.

The integration of risk management policies in MRG is articulated based on the progressive implementation of transversal analyses of the risks in which the business and corporate units most linked to the affected processes intervene and has support from the finance area.

Likewise, the risk management area participates in periodical meetings of the Executive Committee, incorporating information about the evolution of the risks map in the monthly reports sent out to our shareholders. It includes the ten most significant risks, which have been evaluated using a criterion based on:

• The probability of a risk occurring.
• Impact as the combination of the effect on the net present value and reputational impact. The effect of the current net worth considers both the direct economic impact for the next twenty years and any possible sanctions.

Likewise, this map covers emerging risks by periodical updates of its content and establishes new high-level monitoring processes that add to existing ones. The implemented action plans contribute to mitigating the consequences of these risks.

DATA PROTECTION

Data protection is a fundamental right included in the Spanish Constitution, developed by Spanish legislation in Organic Law 3/2018 about Personal Data Protection and guarantee of personal rights (LOPD-GDD), as well as by the European legal framework that also recognises this right in the General Data Protection Regulation (GDPR) and that commits all member States to guarantee the same for their citizens.

All companies must always be aware that the personal data they manage does not belong to them, therefore we have the responsibility of correctly treating the same. The regulation defines the application on our part of a series of basic principles, like quality of the data, the obligation of information and the obligation of secrecy. Likewise, it defines the application of a series of safety measures, like responding to the exercising of their rights by the stakeholders, requesting consent for certain treatment, regulating the granting or communication data to third parties, etc., with the only aim of protecting personal data, making the use of its protection a responsibility for the companies and entities having access to the same.

In this framework, personal data protection by MRG has registered a quite significant increase of the activities compared with previous years. The most relevant activities have been mainly centred on definition of the criterion, management of incidents and resolution of enquiries; many of these activities are related to the exercising of the personal data protection rights by the stakeholders.

MRG has appointed its data protection delegate, maximum authority on the subject who participates in the Executive Committee, the Risks and Auditing Committee, and the Cybersecurity Committee.

At MRG we have defined our data protection management model based on the structure of ISO management systems, so it can take adequately advantage of the synergies existing with the rest of systems. Starting with the data protection policies and information security policy, we have a management manual that includes more than ten personal data protection procedures. These procedures are periodically revised to assure their content is always updated.

This management manual includes interaction with the interested parties using two channels:

1. Website publication of the personal data protection policy, as well as the information regarding treatment of personal data for the stakeholders; distribution of the same is reinforced through diverse communications that MRG sends to users.
2. By means of active management of the personal data protection delegate’s mailbox, which in this year has received more than 300 requests.

Likewise, in 2019 we have defined a new framework of contractual clauses for personal data protection that are progressively being added to the contracts, with the aim of considering the particularities of the large variety of services contracted.

We must highlight as relevant innovation regarding previous years:

• The participation of the data protection delegate in the Cybersecurity Committee, that way to guarantee that the policies are defined taking into account the obligations and requirements in personal data protection matters.
• Business activity coordination actions in data protection, with the aim of unifying criteria and good practice agreements.
• Monitoring of the data protection role in our chain of suppliers, through the information provided by the Repro portal about the maturity of its privacy policies, as well as through the auditing reports issued by the Repro Community.
• Interaction with the Data Protection Agency motivated by protection processes of interested parties’ rights.
• Deepening into the risk and impact evaluation model in the different ways of treating data protection.

Finally, and to promote internal data protection culture, the MRG internal regulation library has been complemented with publications about revisions and updates made in the year, maintaining control of the validity of the documentation included therein.