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Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 3-month and 9-month period

ended September 30, 2018

WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 3-month and 9-month period ended September 30, 2018

Table of contents 1. Description of activity of the Capital Group 5 1.1. Description of organisation 6 2. Implementation of key projects 10 3. Electricity market and regulatory and business environment 13 3.1. Macroeconomic environment 13 3.2. Regulatory environment 15 3.3. Supply markets 26 4. Results of PGE Capital Group 28 4.1. Key financial results of the PGE Capital Group 28 4.2. Key operational figures of PGE Capital Group 32 4.3. Key financial results in the business segments 34 5. Significant events of the reporting period and subsequent events 47 5.1. Changes in the Management Board and Supervisory Board 47 5.2. Legal aspects 48 5.3. Information concerning proceedings in front of court, body appropriate for arbitration proceedings or in front of public administration authorities 48 5.4. Information about granting guarantees by the Company or its subsidiary 49 5.5. Information on issue, redemption and repayment of debt securities and other securities 50 5.6. Activities related to nuclear energy 50 5.7. Rating 51 5.8. Tender offer to subscribe for the sale of 100% shares of Polenergia S.A. 51 5.9. Transactions with related entities 51 5.10. Publication of financial forecasts 51 5.11. Information about shares and other securities 51 6. Statements of the Management Board 52 7. Approval of the Management Board’s Report 52 Glossary 53

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Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 3-month and 9-month period ended September 30, 2018

3 of 56 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 3-month and 9-month period ended September 30, 2018

4 of 56 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 3-month and 9-month period ended September 30, 2018

1. Description of activity of the Capital Group Capital Group of PGE Polska Grupa Energetyczna S.A. (“PGE Capital Group”, the “Capital Group”, “PGE Group”, the “Group”) is the largest vertically integrated producer of electricity and heat in Poland. With a mix of own fuel sources, generation assets and distribution network, PGE Group provides a safe and reliable supply of electricity to more than 5 million households, businesses and institutions. The parent company of PGE Capital Group is PGE Polska Grupa Energetyczna S.A. (also “PGE S.A.”, “PGE”, the “Company”, the “Issuer”). PGE Group currently organizes its activities in five business segments:

 Conventional Generation Core business of the segment includes extraction of lignite, production of electricity and heat from conventional sources as well as transmission and distribution of heat. The Conventional Generation segment includes PGE Energia Ciepła S.A. (“PGE EC”), which also trades in electricity.  Renewables Core business of the segment includes electricity generation from renewable sources and in pumped-storage power plants.  Supply Core business of the segment includes trading of electricity across the country, wholesale trading of electricity on domestic and international market, provision of services to companies from the PGE Group related to commercial management of generation capacities of the Group and electricity produced, as well as trading of CO2 allowances and energy certificates and fuels.  Distribution Core business of the segment includes supply of electricity to final off-takers though the grid and HV, MV and LV infrastructure.  Other Operations Other operations include services, through the subsidiaries, to PGE Group, which includes organisation of capital raising projects and provision of IT, payroll & HR and transportation services. Its activities also include subsidiaries formed to prepare and implement a project to build a nuclear power plant, to manage investment funds and to invest in start-ups.

5 of 56 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 3-month and 9-month period ended September 30, 2018

1.1. Description of organisation Changes which occurred in the PGE Capital Group’s structure in the period from January 1, 2018 until the publication date of this report, are presented in note 1.3 to condensed interim consolidated financial statements and described below. Increase of the share capital of subsidiaries

Entity Date of registration (1) Share capital Comment National Court Register (2) Increase (NCR) (3) Share capital after increase Towarzystwo Funduszy April 3, 2018 (1) PLN 6 250 000 On November 28, 2017 the Extraordinary General Meeting of the company adopted a resolution on an increase of the company’s share Inwestycyjnych Energia S.A. (2) PLN 18 000 000 capital. The increased capital was acquired by PGE S.A., in exchange for a cash contribution. PGE S.A. holds 100% of share capital. (3) PLN 24 250 000 PGE Inwest 5 sp. z o.o., PGE Inwest 8 sp. z o.o., PGE Inwest 5 sp. z o.o. – (1) PLN 20 000 On April 5, 2018 the Extraordinary Assemblies of Partners of the companies adopted resolutions on an increase of the company’s share PGE Inwest 9 sp. z o.o., PGE Inwest 10 sp. June 5, 2018, (2) PLN 30 000 capital by PLN 30 000 in each case. The increased capital were acquired by PGE S.A. in exchange for cash contributions. PGE S.A. holds z o.o., PGE Inwest 11 sp. z o.o., PGE Inwest PGE Inwest 8 sp. z o.o. – (3) PLN 50 000 100% of share capital of the companies. 12 sp. z o.o. and PGE Inwest 14 sp. z o.o. May 22, 2018, PGE Inwest 9 sp. z o.o. – June 9, 2018, PGE Inwest 10 sp. z o.o. – May 28, 2018, PGE Inwest 11 sp. z o.o. – June 21, 2018, PGE Inwest 12 sp. z o.o. – May 21, 2018, PGE Inwest 14 sp. z o.o. – June 13, 2018 PGE Inwest 17 sp. z o.o., PGE Inwest 18 PGE Inwest 17 sp. z o.o. – (1) PLN 10 000 On April 5, 2018 the Extraordinary Assemblies of Partners of the companies adopted resolutions on an increase of the company’s share sp. z o.o. and PGE Inwest 19 sp. z o.o. May 30, 2018, (2) PLN 30 000 capital by PLN 30 000 in each case. The increased capitals were acquired by PGE S.A. in exchange for cash contributions. PGE S.A. holds PGE Inwest 18 sp. z o.o. - (3) PLN 40 000 100% of share capital of the companies. May 30, 2018, PGE Inwest 19 sp. z o.o. – June 29 2018 PGE EJ 1 sp. z o.o. September 11, 2018 (1) PLN 310 858 470 The Extraordinary Assembly of Partners of the company of August 9, 2018 adopted resolution on the increase of the share (2) PLN 59 999 730 capital of company. The increase of the share capital was acquired and paid in cash by all partners, i.e. PGE S.A., KGHM Polska (3) PLN 370 858 200 Miedź S.A., TAURON Polska Energia S.A. and ENEA S.A., proportionally to their stakes. PGE acquired 297 871 shares with a total nominal value of PLN41 999 811. PGE S.A. holds 70% in the share capital. PGE Ventures sp. z o.o. October 24, 2018 (1) PLN 21 400 000 On September 5, 2018 the Extraordinary Assembly of Partners of the company adopted resolution on the increase of the share capital of (2) PLN 46 500 000 company. The increased capital was acquired by PGE S.A. in exchange for cash contributions. PGE S.A. holds 100% of share capital of the (3) PLN 67 900 000 company. PGE Centrum sp. z o.o. Not yet registered in the (1) PLN 8 320 000 On September 26, 2018 the Extraordinary Assembly of Partners of the company adopted resolution on the increase of the share capital of NCR (2) PLN 5 300 000 company. The increased capital was acquired by PGE S.A. in exchange for cash contributions. PGE S.A. holds 100% of share capital of the (3) PLN 13 620 000 company.

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WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 3-month and 9-month period ended September 30, 2018

Acquisition or disposal of shares by the companies

Shares of the entity Date of transaction/ Number of acquired Comment registration in the shares National Court Register (NRC) ElectroMobility Poland S.A. January 3, 2018/ 2 500 shares On January 3, 2018 the Extraordinary General Meeting of ElectroMobility adopted resolution on a share capital increase by PLN 20 000 (“ElectroMobility”) – acquisition by PGE S.A. 000 to PLN 30 000 000 by increasing the nominal value of existing shares. In exchange for a cash contribution, PGE S.A. took up increased of the share capital increase shares of April 23, 2018 nominal value of 2 500 shares, the total nominal value of which increased from PLN 2 500 000 to PLN 7 500 000. As a result of the share ElectroMobility ElectroMobility’s share capital increase, PGE S.A.'s stake in ElectroMobility did not change (25% shareholding). capital increase registered Polska Grupa Górnicza S.A. (“PGG”) – January 31, 2018 300 000 shares On January 31, 2018 the Extraordinary Assembly of Partners of PGG adopted resolution in the increase of the share capital by PLN 300 acquisition by PGE Górnictwo i Energetyka 000 000 to PLN 3 916 718 200, through issue of new inscribed shares. PGE GiEK S.A. took up 300 000 shares with a nominal value of PLN Konwencjonalna S.A. (“PGE GiEK”) of shares in April 6, 2018 PGG’s share 30 000 000, representing 0.8% in the increased share capital of PGG. Currently PGE GiEK holds a total of 6 000 000 shares with a nominal the increased share capital of PGG capital increase registered value of PLN 600 000 000 representing 15.32% in the share capital of PGG. PGE Energia Ciepła S.A. - acquisition of shares March 7, 2018 and May 7, 342 728 shares On March 7, 2018 and May 7, 2018 PGE S.A. acquired respectively 3 285 and 2 970 shares of PGE Energia Ciepła S.A., through reverse by PGE S.A. (reverse squeeze-out procedure 2018 (reverse squeeze squeeze-out procedure, pursuant to art. 4181 of the Polish Commercial Companies Code. On May 18, 2018 PGE S.A. acquired 336 473 and squeeze out procedure) out) shares of PGE Energia Ciepła S.A., through squeeze-out procedure, pursuant to art. 418 of the Polish Commercial Companies Code. As a result of the above transactions, currently PGE S.A. holds shares representing 100% in the share capital of PGE EC. May 18, 2018 (squeeze out) Zespół Elektrociepłowni Wrocławskich March 14, 2018 1 202 172 shares PGE EC acquired 1 202 172 shares of Kogeneracja S.A. (acquisition was a consequence of the tender offer due to exceeding 33% of total Kogeneracja S.A. (“Kogeneracja S.A.”) - votes, pursuant to art. 73 Act of July 29, 2005 on public offering, conditions governing the introduction of financial instruments to acquisition of shares by PGE EC (as a result of organised trading, and public companies). Currently PGE EC holds directly 3 845 041 shares of the company with a nominal value of PLN tender offer) 19 225 205, representing 25.81% in the share capital of Kogeneracja S.A. In addition, PGE EC, through one-man subsidiary Investment III B.V., holds indirectly 4 807 132 shares with a nominal value of PLN 24 035 660, representing 32.26% in the share capital of Kogeneracja S.A. Elektrownia Wiatrowa Baltica-1 sp. z o.o., September 3, 2018 31 600 shares On September 3, 2018 PGE Energia Odnawialna S.A. (“PGE EO”) (the “Seller”) and PGE S.A. (the „Buyer”) signed the share sale agreement Elektrownia Wiatrowa Baltica-2 sp. z o.o., 43 600 shares concerning 100% shares of companies: Elektrownia Wiatrowa Baltica-1 sp. z o.o., Elektrownia Wiatrowa Baltica-2 sp. z o.o. and Elektrownia Wiatrowa Baltica-3 sp. z o.o. – 31 600 shares Elektrownia Wiatrowa Baltica 3 sp. z o.o. On September 3, 2018 the payment was made and shares were transferred to PGE S.A. acquisition of shares by PGE S.A. (as a result of the share sale agreement) ElectroMobility Poland S.A. – acquisition by October 4, 2018 2 500 shares On October 4, 2018 the Extraordinary General Meeting of ElectroMobility adopted resolution on a share capital increase by PLN 40 000 000 PGE S.A. of increased value of the shares held to PLN 70 000 000 by increasing the nominal value of existing shares . In exchange for a cash contribution, PGE S.A. took up increased in ElectroMobility Not yet registered in the nominal value of 2 500 shares, the total nominal value of which increased from PLN 7 500 000 to PLN 17 500 000. As a result of the share NCR capital increase, PGE S.A.'s stake in ElectroMobility will not change (25% shareholding).

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Mergers

Acquiring company /acquired company Date of transaction/ Comment registration in the National Court Register ELTUR - SERWIS sp. z o.o. - acquiring company February 26, 2018 On February 26, 2018 the Extraordinary Assembly of Partners of ELTUR - SERWIS sp. z o.o. (acquiring company) and TOP SERWIS sp. z o.o. TOP SERWIS sp. z o.o. - acquired company (acquired company) adopted resolutions on merger of the companies in mode of art. 492 § 1 p. 1 of the Polish Commercial Companies Code (merger through acquisition), ), through transferring of all assets of the acquired company to the acquiring company in exchange for April 12, 2018 merger the shares, which the acquiring company allotted to PGE S.A. as a sole shareholder of the acquired company. The share capital of the registered in the National acquiring company was increased by PLN 50 000, i.e. from PLN 34 824 500 to PLN 34 874 500. Court Register PGE Energia Odnawialna S.A. - acquiring March 27 and 29, 2018 The Extraordinary General Meeting of PGE Energia Odnawialna S.A. (acquiring company) and the Extraordinary Assembly of Partners of company PGE Energia Natury PEW sp. z o.o. (acquired company) on – respectively – March 29, 2018 and March 27, 2018 adopted resolutions on PGE Energia Natury PEW sp. z o.o. - acquired merger of the companies in mode of art. 492 § 1 p. 1 of the Polish Commercial Companies Code (merger through acquisition), through company May 2, 2018 merger transferring of all assets of the acquired company to the acquiring company without issue of new shares in exchange for the shares in registered in the National the share capital of the acquired company, pursuant to art. 516 of the Polish Commercial Companies Code and dissolution of the Court Register acquired company without its liquidation. PGE Energia Odnawialna S.A. was the sole shareholder of PGE Energia Natury PEW sp. z o.o. PGE Energia Ciepła S.A. - acquiring company July 9, 2018 On July 9, 2018 an Extraordinary General Meeting of PGE Energia Ciepła S.A. (acquiring company) and an Extraordinary General Meeting Investment III B.V. - acquired company of Investment III B.V., based in Amsterdam (the Netherlands) (acquired company) adopted resolutions on a cross-border merger pursuant to art. 492 § 1 point 1 in connection with art. 5161 of the Polish Commercial Companies Code (merger through acquisition), through the September 4, 2018 transfer onto the acquiring company of all of the acquired company’s assets without issuing new shares of the acquiring company in merger registered in the exchange for the acquired company’s shares, pursuant to art. 515 in connection with art. 5161 of the Polish Commercial Companies Code, National Court Register and on dissolution of the acquired company without liquidation proceedings. PGE EC was the sole shareholder of Investment III B.V. Split of companies

Spun off company /acquiring company Date of transaction/ Number of shares of Comment registration in the the acquiring National Court Register company PGE Górnictwo i Energetyka Konwencjonalna October 18, 2018 76 343 245 shares The Extraordinary General Meetings of PGE GiEK and PGE EC adopted resolutions on the division of PGE GiEK (divided S.A. - Spun off company company) through a carve out, pursuant to art. 529 § 1 point 4 of the Polish Commercial Companies Code, by way of transfer to PGE Energia Ciepła S.A. - acquiring company PGE EC (acquiring company) of selected PGE GiEK assets in the form of six PGE GiEK branches (Branches), i.e.: (1) Zespół Not yet registered Elektrociepłowni Bydgoszcz, (2) Elektrociepłownia Gorzów, (3) Elektrociepłownia Zgierz, (4) Elektrociepłownia Lublin Wrotków, (5) Elektrociepłownia Kielce and (6) Elektrociepłownia Rzeszów. The Branches constitute an organised part of enterprise and are functionally related to the generation of electricity, generation of electricity and heat in cogeneration and distribution of heat and electricity. The transfer of the Branches to PGE EC was carried out by lowering PGE GiEK’s share capital by PLN 406 847 180 and increasing PGE EC’s share capital by PLN 763 432 450 through cancelling 40 684 718 shares of PGE GiEK, with nominal value of PLN 10 each, and issue of 76 343 245 new shares of PGE EC, with nominal value of PLN 10 each. As the sole shareholder of PGE GiEK, PGE S.A. acquired all new shares in PGE EC’s increased share capital in exchange for the cancelled PGE GiEK shares.

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Additional equity contributions

Entity Date of transaction Comment PGE KLASTER sp. z o.o. March 29 and 30, 2018 On March 29, 2018 the Extraordinary Assembly of Partners of PGE KLASTER sp. z o.o. adopted resolution on obligation of the sole shareholder i.e. PGE EO S.A., to supplementary payment to the shares, in the meaning of art. 177 of the Polish Commercial Companies Code, in total amount of PLN 2 000 000, i.e. PLN 2 000 for each share of PGE KLASTER sp. z o.o. entitled to PGE Energia Odnawialna S.A., by March 30, 2018. In accordance with the above resolution, additional equity contributions were paid on March 30, 2018. Elektrownia Wiatrowa Baltica-1 sp. z o.o., July 26, 2018 On July 26, 2018 the Extraordinary General Meetings of Elektrownia Wiatrowa Baltica-1 sp. z o.o., Elektrownia Wiatrowa Baltica-2 sp. z Elektrownia Wiatrowa Baltica-2 sp. z o.o., o.o. and Elektrownia Wiatrowa Baltica-3 sp. z o.o. adopted resolutions to return contributions made by PGE EO pursuant to resolutions Elektrownia Wiatrowa Baltica-3 sp. z o.o. passed by the companies’ Extraordinary General Meetings regarding contributions dated November 30, 2012. Pursuant to a decision of the General Meeting, contributions of PLN 6 983 600, PLN 6 976 000 and PLN 6 983 600 respectively were returned by July 30, 2018. (return of equity contributions)

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2. Implementation of key projects

Key projects in Q3 2018 Development Construction of new units in Opole power plant investments ● aim of the project: construction of two power units of 900 MW each ● budget: approx. PLN 11 billion (net, without costs of financing) ● capital expenditures incurred so far: approx. PLN 8.8 billion ● fuel: hard coal ● net efficiency: 45.5% ● contractor: syndicate of companies: Rafako, Polimex-Mostostal and Mostostal Warszawa with

co-operation of GE as Project manager on behalf of the syndicate ● commissioning according to the amended agreement with the General Contractor: unit 5 – June

15, 2019, unit 6 – September 30, 2019. ● status: as far as unit 5 is concerned, a chemical treatment process for the boiler’s pressure part was completed and work on the startup of particular installations is in progress, while the assembly of

installations and ancillary equipment is underway at unit 6; overall project progress at the end of September 2018 was approx. 94%. Construction of new unit in Turów power plant ● aim of the project: construction of power unit with a capacity of 490 MW ● budget: approx. PLN 4 billion (net, without costs of financing) ● capital expenditures incurred so far: approx. PLN 1.9 billion ● fuel: lignite ● net efficiency: 43.1% ● contractor: syndicate of companies: MHPSE, Budimex and Tecnicas Reunidas ● commissioning: H1 2020 ● status: air and flue gas channels are being integrated in the boiler room. Assembly of turboset was completed at the machine room and assembly of steam pipelines was continued. Paint work on the internal surface of the cooling tower was initiated. Work on the construction of a lignite-feed installation and ancillary systems, i.e. flue gas desulphurisation system and slag and ash containers, is in progress. Assembly of DCS (Distributed control system) system cabinets at the control room building and cable laying was started in the third quarter of 2018. Construction of a Thermal Processing Installation with Energy Recovery at Rzeszów CHP ● aim of the project: construction of a thermal processing installation with energy recovery at Rzeszów CHP with capacity of approx. 8 MWe in condensation (approx. 4.6 MWe + 16.5 MWt in co-generation) ● budget: approx. PLN 293 million (net, without costs of financing) ● capital expenditures incurred so far: approx. PLN 255 million ● fuel: municipal waste ● boiler’s efficiency: 86% ● contractor: syndicate of TM.E. S.p.A. Termomeccanica Ecologia and Astaldi S.p.A. ● status: the investment was commissioned on October 26, 2018.

Modernisation and Comprehensive reconstruction and modernisation of units no. 1-3 at Turów power plant replacement ● aim of the project: Adaptation to future BAT conclusions requirements regarding permissible projects emissions of SO2, NOx and particulate, increase of availability and efficiency, as well as expansion of each turboset’s nominal capacity by approx. 15 MWe ● status: unit 2 was synchronised with the National Power System on June 16, 2018. The unit is currently in regulatory operation. Commissioning is planned for the fourth quarter of 2018. Unit 1 – disassembly of brick lining at the combustion chamber was finished, collection and discharge electrodes were assembled at the electrostatic precipitator, power was supplied to the DCS system, work was continuing on assembly of cyclones and discharge windows, RHI reheater, modernisation of HV, MV and LV modules and condenser, work on reclamation of generator was in progress. ● budget: PLN 0.8 billion (net, without costs of financing) ● fuel: lignite ● completion: 2020 10 of 56

Change in technology of furnace waste storage for units 1-12 – Bełchatów power plant and construction of installation to transport ash; production and transport of sludge from unit 14 in Bełchatów power plant ● aim of the project: to provide the capability for storage of furnace waste produced during the operation of units 1-12 of Bełchatów power plant until exhaustion of lignite resources. In the course of the project, the requirement to fit out unit 14 with new technology for the transport and storage of combustion waste was identified. ● status: Work related to securing the Lubień landfill and work on construction of installation for unit 14 was completed. The installation was put into service. ● budget for units 1-12: ca. PLN 450 million (net, without costs of financing) ● budget for unit 14: ca. PLN 90 million (net, without costs of financing) ● completion: 2018 Modernisation of the Pomorzany power plant

● aim of the project: Reduction of NOx and SO2 emissions from Benson OP-206 boilers to a level allowing to meet the requirements of future BAT conclusions as well as to ensure that the plant remains in operation until about 2040 ● status: SCR installation for unit A was handed over for use. On October 30, 2018 the Management Board of the company agreed to sign the Annex no. 2 to the contract with Erbud, that changes the commissioning date of SCR installation or Unit B from November 7, 2018 to January 31, 2019. As regards flue gas desulphurisation system: Assembly of absorber and bag filter for unit B’s boiler is nearing completion. Completion of work on assembly of absorber and bag filter for unit A’s boiler as well as entry into service of ash distribution station are planned for November 2018. Completion at approx. ok. 50% for FGD and 90% for SCR. ● budget: ca. PLN 213 million (net, without costs of financing) ● fuel: hard coal ● completion: SCR – 2018 (unit A/B), FGD – 2019 Construction of flue gas denitrification installation and flue-gas desulphurisation for OP-230 boilers no. 3 and 4 in Bydgoszcz CHPs ● aim of the project: Reduction of NOx and SO2 emissions from boilers no. 3 and 4 to a level allowing for further use ● status: As regards flue gas desulphurisation system - All installation equipment was delivered to the construction site. Work on assembly of installation elements is continuing, as are works on electricity systems, control, measurement and automation systems, DCS control and visualisation systems and emission monitoring system. Assembly of channels and support structures for flue gas channels was completed. Construction of reactor shell and bag filter was started. Assembly of sorbent management installation was completed. As regards deNOx - Trial operation of K4 boiler installation ended with a positive result. All assembly work intended to close the flue gas path from boiler K3 was completed and approval was granted to conduct cold start-up of K3 boiler installation. Finishing works on K3 and K4 installations were continued (including insulation, platforms, barriers, repairs of corrosion protection coating). Work on land management (yard and road construction) was commenced. ● budget: for deNOx project: PLN 48 million (net, without costs of financing); for FGD project: PLN 45 million (net, without costs of financing) ● fuel: hard coal ● completion: 2018 Construction of SCR installation for units 5-8 and modernisation of flue gas desulphurisation system at units 7,8 at Dolna Odra power plant ● aim of the project: adaptation of units 5-8 to BAT requirements ● status: on August 29, 2018 PGE Group’s Investment Committee recommended to proceed to implementation phase, covering execution of contracts to construct SCR and flue gas desulphurisation systems and other relevant contracts; on September 25, 2018 a contract with the General Contractor for the SCR installation was signed (consortium of companies SBB Energy + Polimex). ● budget: PLN 233 million (net, without costs of financing) ● fuel: hard coal ● completion: 2021

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Construction of flue gas denitrification system for six OP-650 boilers at Rybnik power plant ● project objective: construction of flue gas denitrification unit to ensure compliance with IED Directive requirements ● budget: PLN 259 million (net, without financing costs) ● expenditures so far: PLN 216 million (net, without financing costs) ● contractors: SCR – Consortium Strabag sp. z o.o. and Strabag Energy Technologies GmbH, SNCR – Energotechnika – Energorozruch S.A., PM – Energotechnika – Energorozruch S.A. ● completion: December 2018 ● status: completion at approx. 95%. Construction of flue gas denitrification units at CHP plants in: Kraków, Gdańsk, Gdynia ● project objective: construct flue gas denitrification unit to ensure compliance with IED Directive requirements ● budget: PLN 545 million (net, without financing costs) ● expenditures so far: PLN 488 million (net, without financing costs) ● contractors: General Electric; Fortum-ZRE; Fortum Mehldau; SBB Energy; Fortum-Instal ● completion: December 2018 ● status: progress at approx. 95%. Gdańsk is completed, Gdynia – optimisation processes in progress. Kraków – primary measures for K1 and K2 were completed, handover operation for secondary measures is in progress.

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3. Electricity market and regulatory and business environment

3.1. Macroeconomic environment PGE Group’s main operating area is Poland, and the domestic macroeconomic backdrop has a substantial impact on Group’s results. At the same time, the condition of Poland’s economy remains largely tied to the situation across the European Union and in global markets. The Group’s financial results are affected by both the situation in specific segments of the economy and the financial markets, which affect the terms of PGE Group’s debt financing. As a rule of thumb, there is a historical correlation between rising electricity demand and economic growth in Poland. Considering PGE Group’s position on the Polish power generation market, as well as its substantial share in the electricity sales and distribution market, changes in power and heat demand may have a significant impact on the Group’s results. In the third quarter of 2018, gross electricity consumption went up 2.3% compared to analogical period of 2017. The increase was lower than in the third quarter of 2017, when consumption went up 2.6% compared to analogical period of 2016. Economic trends in the first half of 2018 remained positive in general, although GDP growth remains at lower level than expected at the beginning of the year. Estimates by mBank show that just in the third quarter of 2018 GDP grew by 4.6% y/y, comparing to 5.5% y/y in the third quarter of 2017. Diagram: Seasonally adjusted GDP change vs. change in domestic gross electricity consumption.

Source: Central Statistical Office of Poland, PSE S.A., GDP Q3 2018 – estimate by mBank The Purchasing Managers' Index (PMI) for industry reached an average of 51.6 points in the third quarter of 2018, compared to 52.8 points in the third quarter of 2017. This is still a level above 50 points, denoting managers’ expectations of an improvement in the sector. The September PMI reading for industry declined to 50.5 points, compared to 51.4 points in August 2018, signalling the slowest pace of improvement in economic conditions in the Polish industry sector since October 2016. Production and employment both grew at a slower pace, while companies reduced their purchasing activity. The Polish industry sector’s results reflect a down trend in the Eurozone, where the PMI for the third quarter of 2018 reached an average of 54.3 points, compared to 57.4 points in the same period of 2017. Diagram: Manufacturing PMI in Poland and Eurozone (in points).

Source: Markit Economics

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In the third quarter of 2018, industrial production increased by 5.4% y/y, compared to 6.4% in the same period of 2017. The change was caused by an increase in industrial processing production by 5.2% y/y and growth in the value of production in the entire energy sector by 6.9% y/y. The value of industrial production depends on the quantity of goods produced and the level of prices. The PPI in the first three quarters of 2018 reached 1.9% y/y. The CPI in the third quarter of 2018 reached 2.0% y/y. Table: Key economic indicators for Poland.

Key economic indicators Q3 2018 Q3 2017 (% change y/y) GDP1 4.6 5.5 CPI2 2.0 1.9 PPI3 1.9 3.3 Sold industrial production4 5.4 6.4 Sold production – manufacturing4 5.2 7.1 Sold production – energy4 6.9 8.8 Dynamics of domestic electricity consumption5 2.3 2.6 Gross domestic electricity consumption (TWh)5 41.5 40.6 EUR/PLN6 4.31 4.26 Source: 1 for Q3 2018 – forecast by mBank, for Q3 2017 Central Statistical Office of Poland, 2 National Bank of Poland, 3 Central Statistical Office of Poland – data for three quarters, 4 Central Statistical Office of Poland , 5 PSE S.A., 6 National Bank of Poland.

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3.2. Regulatory environment Regulatory environment Domestic  works on new Energy Policy of Poland until 2050  implementation of a capacity market, including implementing provisions for the Act on Capacity Market  contemplated changes in system services in connection with the introduction of the capacity market  on-going work on a new support mechanism for high-efficiency cogeneration. A draft bill on promoting electricity from high-efficiency cogeneration was referred for public consultations. The existing system, based on cogeneration certificates of origin, expires at the end of 2018.  matter of implementation of quality tariff in distribution, that will make regulated income dependant on SAIDI and SAIFI ratios and time of connection the off-takers to the grid, among others  update of the Act on Renewable Energy Sources (act of June 7, 2018), which designates a system for supporting the production of energy from renewable sources. This update includes, among other things, a change in which public aid is calculated and a change in auctions for support of new technology baskets and sets auction parameters for renewables installations, including reference prices and quantities of energy from renewable sources that may be sold through auctions in 2018.  change in the level of the so called green obligation, i.e. the obligation to redeem certificates of origin confirming the origin of electricity produced from renewable energy sources. The Ordinance of the Minister of Energy of August 11, 2017 defines this requirement for 2018 and 2019. Draft Ordinance of the Energy Minister of August 22, 2018 defines the level of this requirement for 2019-2020, where level is unchanged for 2019 compared to the previous ordinance.  entry into force of an update of the act on investment in wind farms. The bill includes a change in property tax rules for wind farms (only a part of an installation constituted the tax base) retroactively from January 1, 2018 and prolongation of time for obtaining use permits to 5 years.  a proposal to introduce the requirement to sell all produced electricity on a commodity market/OTF/regulated market (exchange requirement). A draft amendment of the Act of April 10, 1997 – the Energy Law (Draft) was adopted by the Council of Ministers on October 9, 2018. The draft includes the existing exemptions from the exchange requirement (e.g.: energy from renewable sources, cogeneration) and application of the transitional regulations to electricity being the subject of contracts executed prior to entry into force of the amending act, the physical delivery of which will take place after December 31, 2018.  the aforementioned Draft also includes a proposal to regulate the reserve sale of electricity and gas  work on implementation of a legislative package that is intended to transform linear economy towards a circular economy  entry into force of an update of the Act on waste of December 14, 2012. Amended act includes numerous changes in waste management, including the obligation to establish collateral for each tonne of waste stored, reduction in waste storage time from three years to one year, on-site monitoring of landfills, as well as significant changes in procedure of obtaining the by-product status.  work on the National Ecology Policy and National Commodity Policy  works on amendments to the Ordinance of the Minister of Energy of December 29, 2017 on detailed rules for shape and calculating the tariffs and settlements in electricity trading, draft of which was submitted for public consultations. Changes are to concern: . mechanism that includes - within so called regulating account in the tariff of energy system operators - differences in actual revenues achieved in previous years, in relation to revenues resulting from tariffs approved for these years, . use of quality regulation in tariff process of the energy system operators, . charging penalties for non-compliance with the quality parameters of the electricity and quality parameters of the customer service. International  International environment is determined by climate-energy package regulations, setting out greenhouse gas emission reduction targets by 2030 and the package "Clean energy for all Europeans," which aims to implement on the legal side the concept of energy union. The following regulations will have a significant impact on the Polish energy sector, including PGE Group, after 2020: . Directive of the European Parliament and of the Council no. 2018/410 amending Directive 2003/87/EC (to enhance cost-effective emission reductions and low- carbon investments) and decision (EU)

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2015/1814, setting up in particular: . the level of the linear reduction factor set at 2.2% annually from 2021; . double increase in volume of allowances to be directed to the market stability reserve ("MSR") in 2019-2023 from 12% to 24% of allowances being traded and the introduction of cyclical removal of allowances from 2023 in a volume that will exceed the volume of allowances being the subject of auctions in the preceding year; . Modernisation Fund, the size of which has been set at 2% of the total number of allowances after 2021, with a conditional possibility to increase its size to 2.5%; . way of redistributing the Modernisation Fund's investment funds, with a simple decision path for select project categories (including renewables and grids) and receipt of a recommendation from the investment committee if support of coal investments is not possible; . way of redistributing free allowances that does not interfere with obtaining support for pro- environment modernisations; . option to divert proceeds from auctions in so called solidarity pool to energy sector modernisation. After formal adoption of the act in the first quarter of 2018, on March 19, 2018 the text of Directive was published in the EU Official Journal. Currently, the European Commission works on implementing acts that will set detailed rules for the Modernisation Fund and the Innovation Fund as well as on a delegated act concerning free allocation of allowances for industry and district heat producers. A potential decision by the European Commission on whether to issue guidelines for the application of art. 10c (derogations) will depend on the number of member states interested in using free-of-charge allocation of allowances for producers of electricity. . COM (2016) 767 final - proposal for a Directive of the European Parliament and of the Council on the promotion of the use of energy from renewable sources ("RED II"), trilogues ended in mid-June 2018 – the wording of the Directive was thus established, although it is expected to be published in the EU’s Official Journal at the beginning of 2019. The agreed text of the directive is awaiting a formal vote at the European Parliament and the Council. According to the key conclusions, EU’s binding target will be a 32% share of renewables in final gross energy consumption in 2030, although no country targets were introduced. Member state contributions to the EU target will be specified based on declarations made as part of the first integrated national plans for energy and climate, drafts of which should be presented to the European Commission by the end of 2018. . COM (2016) 861 final - proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity ("EMR"), which provides inter alia, regulation of capacity mechanisms (detailed proposal to introduce European assessment of capacity sufficiency and a standard for CO2 emissions for units participating in the capacity market at 550 g/kWh). Moreover, the European Parliament is proposing stricter requirements for the introduction and maintenance of capacity markets and detailed provisions dedicated to the strategic reserve. The Council is proposing to introduce a 10- year transition period for existing installations for the required emission standard, with an option to extend it by another five years. The first trilogue, mainly organisational in nature, took place on June 27, 2018. The second trilogue took place on September 11, 2018, where no key conclusions were made. These trilogues will be continued in the fourth quarter of 2018. The Austrian presidency plans to agree the text of the regulation by the end of December 2018. . COM (2016) 864 final – Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in electricity (“EMD”), intended to create a new structure for the single energy market, including through introducing many prosumer solutions and making the market more flexible. The first trilogue, mainly organisational in nature, took place on June 27, 2018. The second trilogue took place on September 11, 2018, where no key conclusions were made. These trilogues will be continued in the fourth quarter of 2018. The Austrian presidency plans to agree the text of the directive by the end of December 2018. . COM (2016) 759 final/2 - proposal for a Regulation of the European Parliament and of the Council on the Governance of the Energy Union ("EU Governance"), which is intended to create a system for monitoring progress in energy union targets in cooperation with other member states and based on arrangements with the European Commission. Trilogues concerning EU Governance were finalised at the end of June 2018 – the wording of the Regulation was thus agreed, although the act has not been formally adopted. The agreed text of the regulation is awaiting a formal vote at the European Parliament and the Council. According to the key conclusions, an obligation will be imposed for each member state to notify by the end of 2018 the first integrated national plan for energy and climate, containing the declared national share of renewables in final energy consumption in 2030, which constitutes a contribution to the EU 16 of 56

target. The European Commission will evaluate the projects, exercising in appropriate cases its right to issue non-binding recommendations, and will subsequently monitor their implementation. A line trajectory for the development of renewables over the next decade was forecast assuming that it will be necessary to achieve reference points, i.e. 18% of the required growth will be achieved in 2022, 43% in 2025 and 65% in 2027. If the voluntarily declared national contributions are not sufficient to achieve the EU target, a formula to calculate a fair national contribution, expressed as a percentage, will be used. . COM (2016) 761 final - proposal for a Directive of the European Parliament and of the Council amending Directive 2012/27/EU on energy efficiency ("EED"), including the way in which Poland may contribute to EU's energy efficiency improvement targets by 2030. Trilogues concerning the EED directive were finalised at the end of June 2018 – the wording of the Directive was thus determined, although its publication in the EU’s Official Journal is expected to take place at the beginning of 2019. According to the key assumptions, a non-binding European target for energy efficiency increase by 32.5% from consumption forecasts created in 2007 will be introduced. Member states will separately declare possible energy consumption reductions and present their national contributions to the EU target. The annual savings in energy used in relations to the average form years 2016-2018 will amount to 0.8%.

 regulations related to the EU multiannual financial framework (“MFF”): the European Commission presented in May and June 2018 the key assumptions for the EU multiannual financial framework for 2021- 2027 and legislative act proposals. The Commission proposed an increase in funding for climate objectives from 20% as part of MFF for 2014-2020 to 25% of the EU’s overall budget in 2021-2027, which in absolute terms means an increase in expenditures on this objective from EUR 206 billion to EUR 320 billion. The catalogue of criteria based on which regional development and cohesion funds will be awarded was expanded. Furthermore, these funds will not be available for investments in reducing emissions of units that fall under the EU ETS directive and investments in the generation, storage and combustion of fossil fuels and the option to finance the construction of liquidation costs for nuclear power plants. The Commission did not propose to support transformation for countries and regions that are dependent on coal. However, it proposed a new source of the EU’s own resources: member states are to contribute to the EU’s new budget up to 30% of revenue from the sale of emission allowances allocated pursuant to art. 10 sec. 2 letter A of EU ETS and up to 30% of the market equivalent of allowances that may not be allocated for free to electricity producers under art. 10c of EU ETS. Entitlements under the Modernisation Fund and the Innovation Fund as well as entitles from the solidarity pool for less wealthy countries will be excluded from having to contribute to this new source. Work at the European Parliament began in the third quarter of 2018 on positions regarding particular proposals for European Commission legislative acts.  Regulations concerning funding for sustainable economic growth: the European Commission presented in March 2018 a plan of action of the financing of sustainable economic growth and in May 2018 proposals for the first legislative acts concerning this issue. The Commission estimates that in order to reach the energy and climate targets by 2030, EUR 180 billion in investment across the entire European Union is needed annually. The Commission proposed to involve the private sector to reach the aforementioned targets by providing funding for sustainable investments. The presented legislative act proposals contain criteria based on which economic activity will be evaluated in order to check whether it is sustainable in terms of the environment. This will include activities aimed at eliminating anthropogenic greenhouse gas emissions, including from sources based on fossil fuels. Information obligations for institutional participants in financial markets is also proposed, as it related to the way in which risk concerning sustainable development is taken into account in investment decision-making processes or in the process of financial advisory as well as reference indicators that take into account CO2 emissions. Work at the European Parliament began in the third quarter of 2018 on positions regarding particular proposals for European Commission legislative acts.

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3.3. Market environment 3.3.1. Electricity prices Domestic market Day-ahead market In the third quarter of 2018 the average energy price on the Day-Ahead Market1 reached PLN 252/MWh and was 55% higher than the average price (PLN 163/MWh) quoted in the same period last year. The increase in price was due to the situation on related markets: CO2 emission allowance prices in the third quarter of 2018 were over three times higher than in the same period last year. Moreover, an increase in coal prices was observed – the average level of the Polish Energy Industry Coal Index (PSCMI1) in the third quarter of 2018 reached PLN 11.26/GJ, i.e. 21% higher than in the comparative period (PLN 9.30/GJ). The growth in electricity prices also had to do with less favourable weather conditions and a 15% y/y decline in energy supply from wind assets in the National Power System. Cumulatively in the first three quarters of 2018, the average price on the Day-Ahead Market reached PLN 216/MWh, i.e. 39% higher than the average price of PLN 155/MWh recorded in the same period of last year. The growth in prices on the Day-Ahead Market was due to cost pressure and the situation on related markets. The prices of CO2 emission allowances in the first three quarters of 2018 were nearly three times higher than in the same period last year. The average level of the PSCMI1 in the third quarter of 2018 was at PLN 10.85/GJ – higher by 19% than in the previous year i.e. PLN 9.11/GJ2. Wind-based generation declined 13% y/y cumulatively. Chart: Monthly prices and price volatility at the day ahead market in 2017–2018 (TGE)*

300 5,0 Volume - fixing (right axis) 280 4,5 Day-Ahead Market (left axis) 260 9M average 252 4,0 240 Q3 average 3,5

220 216 3,0

200 2,5 TWh 180 2,0

PLN/MWh 163 160 155 1,5

140 1,0

120 0,5

100 0,0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 2017 2018

* Average monthly price of IRDN index calculated on the base of hourly quotations (fixing), weighted by the trading volume Forward market The average price for BASE_Y-19 electricity delivery contracts reached PLN 258/MWh in the third quarter of 2018, whereas in the same period last year the BASE_Y-18 contract cost PLN 165/MWh on average (56% increase y/y). BASE_Y-19 trading volume in the third quarter of 2018 reached 40 TWh – this is 242% more than the trading volume for BASE_Y-18 recorded in the third quarter of 2017. Increased volume is related to draft amended Energy Law adopted by the Council of Ministers, that assumes obligation to sell 100% of energy generated by the power companies on power exchanges or regulated markets.

1 Statistic calculated on the basis of fixings data 2 Arithmetic average from quarterly readings 18 of 56

The average price for peak contracts (PEAK5_Y-19) in the third quarter of 2018 reached PLN 356/MWh, compared to PLN 210/MWh for the PEAK5_Y-18 contract in the same period last year (70% increase y/y). PEAK5_Y-19 trading volume in the third quarter of 2018 reached 2.7 TWh – up by 59% compared to the PEAK5_Y-18 trading volume in the third quarter of 2017. Cumulatively in the first three quarters of 2018, the average price for base contracts (BASE_Y-19) reached PLN 226 /MWh and was 39% higher than the price for the BASE_Y-18 contract in the first three quarters of 2017 (PLN 163 /MWh). BASE_Y- 19 trading volume in the three quarters of 2018 reached 87 TWh – three times more than the trading volume on the BASE_Y-18 contract in the first three quarters of 2017. The average price for peak contracts (PEAK5_Y-19) in the first three quarters of 2018 was PLN 315 /MWh, which is 50% higher than the average price for the same contract (PEAK5_Y-18) in the three quarters of 2017. PEAK5_Y-19 trading volume in the first three quarters of 2018 reached 4.7 TWh, which is 40% higher than the trading volume on PEAK5_Y-18 in the three quarters of 2017. Chart: Monthly prices and price volatility on the forward market in 2017–2018 (TGE)*.

450

400 Base Y+1 Peak Y+1 356 350 Base Y+1 Q3 average Peak Y+1 Q3 average

300 258 250

210 PLN/MWh 200 165 150

100 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 2017 2018

* Monthly average index level for forward contracts for the next year (Y+1), baseload and peak, calculation based on daily quotations, weighted by the trading volume.

International market Wholesale market (comparison of day-ahead markets) In the first three quarters of 2018, growth in wholesale electricity prices in neighbouring countries was in the range of PLN 79-91/MWh (i.e. 51-65% y/y) – from this perspective the price growth in Poland by PLN 89/MWh (i.e. by 55%) is in line with the regional trend. The common electricity price growth driver in the region was the situation on related commodity markets: growth in prices on the coal market and the CO2 emission allowance market. In the third quarter of 2018, the average electricity price in Poland was PLN 18-23/MWh higher than in Sweden, Germany and the Czech Republic. This had an impact on the cross-border trading balance.

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Chart: Comparison of average electricity prices on Polish market and on selected European markets in the third quarter of 2018 (prices in PLN/MWh, average exchange rate EUR/PLN 4.30).

Source: TGE, EEX, EPEX, Nordpool, OTE a.s., PXE

International trading Chart: Monthly imports, exports and cross-border exchange balance in 2017-2018 (in GWh).

1000 Import Export Balance 800 600 400

200

GWh 0 -200 -400 -600 -800 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 2017 2018

Source: own work based on PSE S.A. data.

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In the third quarter of 2018, Poland remained a net importer of electricity: trading balance reached 0.92 TWh (import 1.72 TWh, export 0.80 TWh). In the same period last year, Poland was also net importer, with a trading balance of 1.02 TWh (including import 1.58 TWh and export 0.56 TWh). The main net electricity import directions were Sweden (0.47 TWh) and Ukraine (0.32 TWh). Cumulatively in the first three quarters of 2018 Poland remained a net importer of electricity, with a balance of 4.68 TWh (import 6.24 TWh, export 1.56 TWh), compared to a balance of 2.26 TWh (export 4.82 TWh, export 2.56 TWh) in the same period last year. The key net import directions remained Sweden (balance of 2.04 TWh) and Ukraine (1.05 TWh).

Diagram: Geographical structure of commercial exchange in the three quarters of 2018 (GWh).

Source: own work based on PSE S.A. data. Retail market The diversity of electricity prices for retail customers in the European Union depends not only on the level of the wholesale prices of electricity. The fiscal system, regulation mechanisms and support schemes in particular countries all have significant impact on the final price of electricity. In Poland in the first half of 20183, an additional burden for individual customers accounted for approx. 34% of the electricity price and in comparison to EU average of 31%. In Denmark and Germany the proportion of additional charges in the price of electricity exceeded 50%.

3 Eurostat data are published in semi-annual intervals. 21 of 56

Chart: Comparison of average prices for individual customers in selected EU countries in the first half of 20184 (prices in PLN/MWh, average exchange rate EUR/PLN 4.22).

Source: own work based on Eurostat data.

Diagram: The share of additional charges in electricity prices for the individual customers in selected EU countries in the first half of 20184 (prices in PLN/MWh, calculated with average exchange rate EUR/PLN 4.22).

1 400 Price of electricity and distribution 1 200 Taxes and levies

1 000

893 663 800 278 600 227 121 PLN/MWh 263 209 203 151 400 100 138 582 531 543 427 453 437 200 398 392 417 373 325 - DenmarkGermany Sweden Finland Czech Slovakia Latvia Poland Estonia Hungary Lithuania Republic

Source: own work based on Eurostat data.

4 Eurostat data are published in semi-annual intervals. 22 of 56

3.3.2. Prices of certificates In the third quarter of 2018, the average price of green certificates (index OZEX_A) reached PLN 115/MWh and was 167% higher than in the same period of previous year. The price growth was driven by both supply (15% y/y decline in wind generation in the third quarter of 2018) and demand factors (regulation of the Minister of Energy that increased an obligation to redeem green certificates from 15.4% in 2017 to 17.5% in 2018 and to 18.5% in 2019). The average price of yellow certificates in the third quarter of 2018 reached PLN 109/MWh and was 6% lower than in the same period of previous year. The decline resulted from a higher supply of energy produced in gas-fired cogeneration sources (higher by 51% y/y in the third quarter of 2018). The obligation to redeem yellow certificates increased to 8% in 2018, compared to 7% in 2017. Chart: Average quarterly prices of certificates. Green certificates Yellow certificates and substitution fee and substitution fee 300.03 92.04 48.54 115 125 120 115 123 119 74 122 116 117 63 116 113 40 43 43 109 35 28

Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 substitution fee substitution fee

Source: Own work based on TGE quotations. The yellow certificates prices presented on the chart are weighted average blended price – for products PMGM-16, PMGM-17, PMGM-18. 3.3.3. Prices of CO2 emission rights EUA (European Union Allowances) prices are one of the key factors determining wholesale energy prices and PGE Group’s financial results. Installations emitting CO2 in the process of electricity or heat production bear the expenses for purchasing EUA allowances to cover the deficit (i.e. the difference between CO2 emissions at PGE Group’s generating units and the free- of-charge allowances received under derogation in accordance with the National Investment Plan). Wherein, last allocations granted free of charge are planned for realisations of investment tasks for 2019, what means that the free allocations in accordance with the currently used method will end in 2020. In the third quarter of 2018, the weighted average price of EUA DEC 18 reached EUR 19.70/t and was 220% higher than the average price for EUA DEC 17 (EUR 6.15/t) in the same period last year. Cumulatively in the first three quarters of 2018, the weighted average price for EUA DEC 18 reached EUR 15.15/t, up by 179% from the average price for EUA DEC 17 (EUR 5.43/t) in the same period last year. The increase in CO2 emission prices observed in the three quarters of 2018 is a result of market perception of the end of the EU ETS reform. The amended text of the Directive 2003/87/WE („EU ETS”) including changes introduced to the MSR decision was published in the EU Official Journal in March 2018 (see p. 3.2 of this report). Further discussion about enhancing the reduction ambitions within the European Union should be expected to take place at the COP24 in Katowice, during which the European Commission is expected to present in greater detail a preliminary version of the Road Map 2.0, together with specific proposals for the EU’s new reduction ambitions until 2050. At the same time, work is on-going on delegated and implementing acts for the directive recently adopted. New legislative motions related to the revision of the EU ETS directive and the MSR decision should be expected once the new European Commission is appointed, which will take place in the second half of 2019. The European Commission is currently analysing Poland’s application to adopt the remedial measures referred to in art. 29a of the EU ETS directive concerning excessive price fluctuations. Adopting these measures is justified if, for more than six consecutive months, the allowance price is more than three times the average price of allowances during the two preceding

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years. Depending on the calculation method, this condition was already met at the beginning of October 2018 or may be met in December 2018.

Chart: Prices of CO2 emission rights.

30 100

90 25 Volume EUA_DEC (right axis) 80 19.70 70 20 EUA_DEC (left axis) EUA_DEC Q3 average 60

15 50

EUR 40 10

30 (volume thousandtonnes) 6.15 20 5 10

0 0

2018-02 2017-01 2017-02 2017-03 2017-04 2017-05 2017-06 2017-07 2017-08 2017-09 2017-10 2017-11 2017-12 2018-01 2018-03 2018-04 2018-05 2018-06 2018-07 2018-08 2018-09

Source own work based on ICE quotations. 3.3.4. Emission rights granted free of charge for years 2013-2020 The Regulation of the Council of Ministers, that sets the allocation of allowances for particular units of electricity producers in period 2013-2020, was adopted on April 8, 2014. Analogically, allocations of allowances for heat producers were set by the Regulation of the Council of Ministers of March 31, 2014. PGE’s installations accounts were credited with free allowances for heat for 2018 and energy for 2017, while free allowances for electricity for 2018 will be received by the Group by the end of April 2019, after verification of reports from investments submitted to the National Investment Plan.

At the same time, redemption of emission rights resulting from CO2 emissions in 2017 was completed in April 2018.

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Table: Emission of CO2 from major Group installations and allocation of CO2 emission rights for 2018 (in Mg). CO emissions in Allocation of CO CO emissions in Q3 2 2 Operator 2 Q1-Q3 emission rights for 2018* 2018* 2018** Bełchatów Power Plant 9 944 910 29 130 507 6 211 022 Turów Power Plant 1 754 765 5 045 522 2 500 954 Opole Power Plant 2 011 871 5 658 101 1 437 267 ZEDO *** 923 707 2 927 924 1 187 286 Bydgoszcz CHPs 96 296 500 828 290 951 Lublin Wrotków CHP 3 954 272 863 166 164 Gorzów CHP 96 542 358 812 129 987 Rzeszów CHP 19 836 186 292 78 433 Kielce CHP 12 384 118 973 52 905 Zgierz CHP 29 997 120 417 22 210 TOTAL PGE GiEK S.A. 14 894 262 44 320 239 12 077 179

Rybnik power plant 1 497 660 3 921 423 458 373 Wybrzeże CHPs**** 208 838 1 318 387 583 062 Kraków CHP 250 638 1 189 214 497 146 ZEW Kogeneracja***** 188 049 1 065 370 387 589 Zielona Góra CHP 143 917 417 144 47 491 Toruń CHP 20 396 160 323 52 056 TOTAL Acquired assets 2 309 498 8 071 861 2 025 717

TOTAL Conventional Generation 17 203 760 52 392 100 14 102 896

* Estimates, emissions not verified - the data will be settled and certified by the authorised verifier of CO2 emission on the ground of yearly reports of volume of CO2 emissions ** Amount of granted CO2 emission rights will be confirmed in the Regulation of the Council of Ministers in the first quarter of 2019 *** Pomorzany CHP, Dolna Odra power plant, Szczecin CHP **** Gdańsk CHP and Gdynia CHP ***** Wrocław CHP, Czechnica CHP, Zawidawie CHP

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3.4. Supply markets 3.4.1. Fuel purchase costs Table: Volume and cost of purchase of fuels from third party suppliers. Q1-Q3 2018 Q1-Q3 2017 Type of fuel Volume Cost Volume Cost (tons ths) (PLN m) (tons ths) (PLN m) Hard coal 8 773 2 215 3 751 839 Gas (cubic metres ths) 789 289 538 445 421 303 Biomass 307 62 361 67 Fuel oil* 32 69 21 28

TOTAL 2 884 1 237

In the three quarters of 2018 the costs of purchasing primary fuels from providers outside the Group amounted to PLN 2 884 million and were higher by PLN 1 647 million than in the three quarters of 2017. The biggest impact on the change of fuel purchase costs in PGE Group came from the Acquired assets which are mainly hard coal-fired and gas-fired. Hard coal  higher purchase volume by 134% (PLN +1 123 million) The higher volume of hard coal purchased in the first half of 2018 is mainly related to the acquisition of EDF's assets and higher generation in hard coal-fired units of PGE GIEK.  higher average price by 13% (PLN +253 million) Higher hard coal price in the three quarters of 2018 results from the higher prices on the mining market, both domestic and international, what translated directly into higher contractual prices. Gas  higher purchase volume by 77% (PLN +234 million) Increased volume of gas used results from acquisition of gas-fired EDF assets (see p. 4.2.1 of this report).  higher average price by 0.2% (PLN 1 million) Fuel oil  higher average price by 62% (PLN +26 million) Higher global prices of crude oil and refinery products attributed to the significant increase of average purchase price of fuel oil.  higher purchase volume by 52% (PLN +15 million) Higher purchase volume in the three quarters of 2018 compared to the analogical period of the previous year results from impact of acquisition of assets from EDF. Higher number of generating units translated into higher number of trial run of units related to failures, planned overhauls and TSO’s request to produce. Biomass  lower purchase volume by 15% (PLN -10 million) Lower volume of biomass purchase is a result of limited heat generation from biomass combustion in Szczecin CHP.  higher average price by 9% (PLN +5 million)

In the three quarters of 2018 approximately 60% of the electricity was produced from internally sourced lignite, whose extraction price is fully controlled by PGE Capital Group. In comparable period of 2017 the production from lignite accounted for 72% of total production.

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3.4.2. Tariffs PGE Group companies earn part of their income based on tariffs approved by the President of the Energy Regulatory Office:  tariffs for the sale of electricity to households (G tariff group),  tariffs of the distribution companies,  tariffs for heat. Distribution of electricity Methodology of and assumptions for tariffs determination were published in the document “Tariffs for the DSO for the year 2018”, which was prepared and published by the President of the Energy Regulatory Office. On December 14, 2017, the President of ERO approved a tariff for PGE Dystrybucja S.A. for electricity distribution services over the period from January 1, 2018, to December 31, 2018. Tariff came into force on January 1, 2018. On January 3, 2018, the President of ERO approved a change in PGE Dystrybucja S.A.'s tariff consisting of the introduction of so called an anti-smog tariff (G12as). This tariff was adjusted by the decision of the ERO President of January 16, 2018. On February 27, 2018, in connection with the publication of the Act on Electromobility and Alternative Fuels, a change in the tariff was made in the part related to the connection to the grid of charging infrastructure for public road transport and publicly available charging stations – change is effective from March 14, 2018. Distribution tariffs for 2018 approved by the President of the Energy Regulatory Office, contributed to changes in average tariff in particular tariff groups (calculated for revenues and volume in a given tariff year) in comparison to year 2017:  A tariff group – decrease by 4.44%,  B tariff group – decrease by 0.28%,  C+R tariff group – decrease by 0.47%,  G tariff group – decrease by 0.79%. The change in rates for distribution services takes into account a decline in the RES fee to PLN 0/MWh in 2018 and maintaining the transition fee at the same level as in 2017. These fees are fully transferred to entities in charge of support instruments, thus they do not impact profit of the distribution companies. Changes in average tariff in particular tariff groups (not including RES fees and transition fee) are as follows:  A tariff group – decrease by 1.73%,  B tariff group – increase by 2.78%,  C+R tariff group – increase by 1.17%,  G tariff group – increase by 0.72%. The quality regulation elements introduced in 2016 are being continued in 2018. It has been settled that the ratios directly impacting the regulated revenue will be following key performance indicators:  SAIDI – System Average Interruption Duration Index,  SAIFI – System Average Interruption Frequency Index,  Connection time. Non-compliance with the levels of ratios indicated by the ERO President may result in penalty of decreasing the regulated revenue through reduction of amount of return on capital in year t+2. In the initial period no rewards are anticipated for achieving better indicators than the required ones. Impact of quality parameters realized in 2016 is included in tariff for 2018 and the realization of 2018 parameters will be included in tariff for 2020. In accordance with the assumptions adopted by the ERO, a penalty cannot exceed 2% of regulated revenue and value of 15% of return on capital in a given year. The 2018 tariff does not include a reduction in regulated revenue from quality regulation. Pursuant to the Energy Law, energy companies holding concessions set tariffs for heat and propose their duration. Conduction of proceedings concerning heat tariffs approval lies within the competence of regional branches of the Energy Regulatory Office. PGE’s average sales price for district heating increased by approx. 2% from the prices in effect in the three quarters of 2017.

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4. Results of PGE Capital Group

4.1. Key financial results of the PGE Capital Group

% Q3 Q3 % Q1-Q3 Q1-Q3 Key financial data Unit change change 2018 2017 2018 2017 Sales revenues* PLN million 6 091 6 073 0% 18 962 16 693 14%

EBIT PLN million 532 1 883 -72% 2 363 3 815 -38%

EBITDA PLN million 1 466 2 663 -45% 5 141 6 108 -16%

Net profit for the reporting period PLN million 403 1 462 -72% 1 699 2 957 -43%

LTC compensations PLN million 1 1 197 -100% -82 1 280 -

LTC revenues PLN million 1 1 211 -100% -82 1 211 -

LTC settlements adjustment (other PLN million 0 -14 - 0 69 - operations)

Capital expenditures PLN million 1 515 1 598 -5% 3 759 4 193 -10%

Net cash from operating activities PLN million -15 1 963 - 2 668 5 245 -49%

Net cash from investing activities PLN million -1 434 -1 379 4% -4 339 -1 970 120%

Net cash from financial activities PLN million 1 567 -98 - 445 -340 -

EBITDA margin % 24% 44% 27% 37%

Key financial data Unit As at September As at December 31, % change 30, 2018 2017**

Working capital PLN million -694 524 - Net debt/LTM EBITDA*** x 1.44 0.99 * The Group has applied IFRS 15 since the standard’s effective date i.e. since January 1, 2018, without restating the comparable data (changes introduced by IFRS 15 are described in note 4 to the interim condensed consolidated financial statements) ** Data restated *** LTM EBITDA - Last Twelve Months EBITDA Table: Impact of one-offs on EBITDA (in PLN million).

Q3 Q3 Q1-Q3 Q1-Q3 % One-offs change % 2018 2017 2018 2017 change LTC compensations 1 1 197 -100% -82 1 280 -

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4.1.1. Consolidated statement of comprehensive income Chart: Key changes of recurring EBITDA in PGE Capital Group (in PLN million).

2 800

2 600

2 400

2 200

2 000

1 800

1 600

1 400

1 200

1 000

800

600 Costs of electricity for Revenues Revenues Property Other Costs of other EBITDA EBITDA Result on Costs pumped- CO from from Revenues right environ- Personnel Result on Capitalized EBITDA production 2 Other Acquired Q3 2017 electricity of fuel storage power costs property agreement from heat redemption mental costs distribution costs Q3 2018 materials assets* plants rights with TSO costs fees pumping Change 194 -38 -17 -11 -171 61 -7 -9 -5 -19 -66 46 67 -43 17 EBITDA reported Q3 2017 2 663 One-offs Q3 2017 1 197 Recurring EBITDA Q3 2017 1 466 2 536 418 42 22 256 -7 124 88 184 62 1 023 1 015 244 0 Recurring EBITDA Q3 2018 2 730 456 59 33 427 54 117 79 189 81 1 089 1 061 311 17 1 465 One-offs Q3 2018 1 EBITDA reported Q3 2018 1 466 * PGE Energia Ciepła S.A., PGE Toruń S.A., PGE Gaz Toruń sp. z o.o., EC Zielona Góra S.A., Kogeneracja S.A., PGE Paliwa sp. z o.o., PGE Ekoserwis sp. z o.o., Torec sp. z o.o., Zower sp. z o.o., Energopomiar sp. z o.o. Chart: Key changes of recurring EBITDA by segments (in PLN million).

2 800

2 600

2 400

2 200

2 000

1 800

1 600

1 400

1 200

1 000

800

600

Other Operations EBITDA Conventional Renewable EBITDA Supply Distribution + consolidation Q3 2017 Generation Energy Q3 2018 adjustments

Change -66 62 -35 37 1 EBITDA reported Q3 2017 2 663 1 789 70 192 585 27 One-offs Q3 2017 1 197 1 197 0 0 0 0 Recurring EBITDA Q3 2017 1 466 592 70 192 585 27 Recurring EBITDA Q3 2018 526 132 157 622 28 1 465 One-offs Q3 2018 1 0 0 0 0 1 EBITDA reported Q3 2018 527 132 157 622 28 1 466

* EBITDA of companies: PGE Energia Ciepła S.A., PGE Toruń S.A., PGE Gaz Toruń sp. z o.o., EC Zielona Góra S.A., Kogeneracja S.A., PGE Paliwa sp. z o.o., PGE Ekoserwis sp. z o.o., Torec sp. z o.o., Zower sp. z o.o., Energopomiar sp. z o.o.

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4.1.2. Consolidated statement of financial position Chart: Key changes in Assets (in PLN million).

76 000 Non-current assets Current assets

75 000

74 000

73 000

72 000

71 000

Property, Advances Derivatives and Shares Assets plant and for other assets at accounted CO Deferred CO Bails, hedges Cash and Assets 2 2 Trade at December equipment constructio fair value for using emission income tax Inventories emission and security cash Other at September receivables 31, 2017 and intangible n in through profit the equity rights assets rights deposits equivalents 30, 2018 assets progress or loss method

Change 966 -47 30 118 -45 -17 422 206 -195 872 -1 226 236

Assets at December 31, 2017 72 183 60 042 432 222 634 402 571 1 890 1 040 3 159 128 2 552 1 111

Assets at September 30, 2018 61 008 385 252 752 357 554 2 312 1 246 2 964 1 000 1 326 1 347 73 503

Chart: Key changes in Equity and liabilities (in PLN million).

79 000 Equity and non-current liabilities Current liabilities

77 000

75 000

73 000

71 000

69 000

Provision Purchase of Equity and Loans, Deferred Loans, Equity and Non- Provisions for for property, plant Value liabilities at Reserve Retained borrowings, Deferred tax income and Trade borrowings, Income tax liabilities at controlling costs of CO and equipment added tax Other December 31, capital earnings bonds and liabilities government 2 liabilities bonds and liabilities September 30, interests rehabilitation emission and intangible liabilities 2017 lease grants lease 2018 rights assets

Change 4 544 -2 445 -143 158 -2 089 106 -428 -203 -751 -524 2 946 166 -83 66

Equity and liabilities at December 31, 2017 72 183 15 328 10 556 1 250 3 082 8 422 1 302 1 038 1 341 1 418 1 650 1 623 126 196 24 851 Equity and liabilities at September 30, 2018 19 872 8 111 1 107 3 240 6 333 1 408 610 1 138 667 1 126 4 569 292 113 24 917 73 503

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4.1.3. Consolidated statement of cash flows Chart: Net change in cash (in PLN million).

3 500

2 500

1 500

500

-500

-1 500

-2 500

Sale of Purchase of Repayment of Net cash subsidiaries Net change property, plant Purchase of Inclusion of Deposits loans, Increase in Net change from after Interest in cash and equipment financial companies in made/ borrowings, stake in Group Other in cash operating offsetting paid Q1-Q3 2017 and intangible assets consolidation terminated bonds and companies Q1-Q3 2018 activities acquired assets finance lease cash

Change -2 577 68 115 -272 18 -2 297 862 -111 29 4

Net change in cash Q1-Q3 2017 2 935 5 245 -4 338 -218 272 0 2 283 -106 0 -230 27

Net change in cash Q1-Q3 2018 2 668 -4 270 -103 0 18 -14 756 -111 -201 31 -1 226

4.1.4. Consolidated statement of cash flows Chart: Net debt (in PLN million).

4 000

5 000

6 000

7 000

8 000

9 000

10 000

Purchase of Net cash Increase in Net financial debt property, plant Purchase of Net financial debt from stake in Interest at December 31, and equipment financial Other at September 30, operating Group paid 2017 and intangible assets 2018 activities companies assets

Change in Q1-Q3 2018 -2 668 4 270 103 111 201 26

Net financial debt 7 579 9 622

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4.2. Key operational figures of PGE Capital Group Table: Key operational figures.

Q3 Q3 % Q1-Q3 Q1-Q3 % Key figures Unit 2018 2017 change 2018 2017 change Lignite extraction Tons m 13.11 12.40 6% 38.29 37.42 2% Net electricity production TWh 16.17 13.58 19% 49.09 41.46 18% Heat sales PJ 3.35 1.33 152% 32.39 11.94 171% Sales to final customers* TWh 10.78 9.93 9% 31.51 29.73 6% Distribution of electricity** TWh 9.09 8.70 4% 27.08 26.20 3%

* After elimination of sales within PGE Group ** With additional estimation 4.2.1. Balance of energy of PGE Capital Group Table: Sales of electricity outside the PGE Capital Group (in TWh).

Q3 Q3 % Q1-Q3 Q1-Q3 % Sales volume change change 2018 2017 2018 2017 SALES IN TWh, including: 18.80 15.28 23% 56.60 47.31 20% Sales to end-users* 10.78 9.93 9% 31.51 29.73 6% Sales on the wholesale market, including: 7.29 4.72 54% 22.77 15.52 47% Sales on the domestic wholesale market - power 6.18 2.87 115% 19.61 9.71 102% exchange Other sales on the domestic wholesale market 0.94 1.76 -47% 2.77 5.54 -50% Sales to foreign customers 0.17 0.09 89% 0.39 0.27 44% Sales on the Balancing Market 0.73 0.63 16% 2.32 2.06 13% * After elimination of internal sales within PGE Group The higher volume of sales to end customers in the third quarter of 2018 compared to the same period of 2017 resulted from recognition of sales generated by PGE Energia Ciepła S.A. Retail sales by Supply segment remained at a similar level (29.9 TWh). The higher sales volume on the wholesale market – power exchange results mainly from placing generation capacity of the newly acquired assets. Additionally, the volume growth was driven by favourable market conditions. Sales volume on the other wholesale markets declined due to lower sales in bilateral contracts, caused by larger requirements resulting from the so-called “power exchange obligation”, which led to the transfer of sales into the regulated market and a change in regulations regarding allocating energy from renewable sources (limit on sales to obligated sellers). Purchases of electricity Table: Purchases of electricity from outside of the PGE Capital Group (in TWh).

Q3 Q3 % Q1-Q3 Q1-Q3 % Purchases volume change change 2018 2017 2018 2017 PURCHASES IN TWh, including: 3.43 2.67 28% 10.55 9.04 17% Purchases on the domestic wholesale market – power 1.61 0.43 274% 4.37 1.48 195% Purchasesexchange on the domestic wholesale market, other 0.08 0.61 -87% 0.26 2.87 -91% Purchases from abroad 0.14 0.08 75% 0.41 0.12 242% Purchases from Balancing Market 1.60 1.55 3% 5.51 4.57 21%

The growth in volume of purchases from the power exchange results from the recognition of newly acquired assets in sales portfolio optimisation and the exercise of early buy-back options for energy previously sold at prices below the cost of manufacture as well as due to higher trading activities being tied to greater liquidity at the TGE exchange. The decline in purchases on the domestic wholesale market – other is mainly the result of the abolition of the obligation to purchase electricity from renewable energy sources of over 500 kWe. The higher purchase from the Balancing Market is a result of 32 of 56

newly acquired assets and higher volume of reductions forced by PSE S.A., largely due to imported electricity covering a larger share of domestic demand. Production of electricity Table: Production of electricity (in TWh).

Q3 Q3 % Q1-Q3 Q1-Q3 % Generation volume change change 2018 2017 2018 2017 ELECTRICITY HENERATION IN TWh, including: 16.17 13.58 19% 49.09 41.46 18% Lignite-fired power plants 10.07 9.83 2% 29.32 29.76 -1% including co-combustion of biomass 0.00 0.00 - 0.00 0.00 - Coal-fired power plants 4.59 3.02 52% 12.52 7.83 60% including co-combustion of biomass 0.02 0.04 -50% 0.07 0.10 -30% Coal-fired CHP plants 0.51 0.08 538% 2.95 0.60 392% including co-combustion of biomass 0.00 0.00 - 0.01 0.00 - Gas-fired CHP plants 0.63 0.23 174% 2.87 1.69 70% Biomass-fired CHP plants 0.02 0.04 -50% 0.10 0.14 -29% Pumped-storage power plants 0.07 0.08 -13% 0.27 0.26 4% Hydroelectric plants 0.07 0.07 0% 0.32 0.33 -3% Wind power plants 0.21 0.23 -9% 0.74 0.85 -13% Including Acquired assets*: 2.30 7.54 * Rybnik power plant, EC Gdańsk, EC Gdynia, EC Kraków, EC Wrocław, EC Czechnica, EC Zawidawie, EC Zielona Góra, EC Toruń The main impact on the level of electricity generation in the three quarters of 2018, compared to the three quarters of 2017, was higher generation at hard coal-fired power plants. This growth results from inclusion of Rybnik power plant in generation (3.91 TWh). Higher generation at Opole power plant resulted from repair-related downtime being lower by 1 115 hours (unit no. 3 remained in medium overhaul from March 3, 2017 till May 4, 2017) and larger use of the power plant’s units by PSE S.A. Higher production at Opole power plant compensated for lower output at Dolna Odra power plant, due to lower use of units by PSE S.A. The higher production at hard coal-based CHP plants results from recognition of production of Gdańsk CHP, Gdynia CHP, Wrocław CHP, Czechnica CHP and Kraków CHP (2.38 TWh). The growth in production at gas-fired combined heat-and-power plants results from the recognition of production of Toruń CHP, Zielona Góra CHP and Zawidawie CHP (1.25 TWh). Production in biomass CHP plants was at the lower level than in the three quarters of 2017. Decreased production in lignite-based power plants in the three quarters of 2018 results from longer downtime of units in Turów power plant (by 4 274 h) in repairs and modernisations. Turów’s unit no. 1 has been in modernization since May 1, 2018. Production at Bełchatów power plant remained at the similar level as in the three quarters of 2017. Production at wind power plants was lower than in the three quarters of 2017 resulting mainly from worse windiness. Production at hydro power plants was at slightly lower level compared to the three quarters of 2017. Slightly higher production in pumped storage power plants results from the nature of these generation units, which in the three quarters of 2018, were used to a higher extent by PSE S.A. 4.2.2. Sales of heat In the three quarters of 2018 the heat sales in PGE Capital Group totalled 32.39 PJ and were higher by 20.45 PJ than in the three quarters of 2017. The above growth includes the sales of heat by the Acquired assets from Conventional Generation segment, which were not recognised in the three quarters of 2017 (21.09 PJ) and lower sales by branches of PGE GiEK S.A. (-0.64 PJ), what resulted largely from decreased demand for heat caused by the higher average outside temperatures.

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4.3. Key financial results in the business segments Table: Breakdown of the Group’s revenues by business segments.

PLN million Q3 2018 Q3 2017 % change Conventional Generation 3 781 3 748 1% Renewables 216 161 34% Supply 3 296 3 610 -9% Distribution 1 432 1 552 -8% Other Operations 174 86 102% TOTAL 8 899 9 157 -3% Consolidation adjustments -2 808 -3 084 -9% TOTAL AFTER ADJUSTMENTS 6 091 6 073 0% Table: Key financial figures for each business segment (after intrasegmental eliminations).

Capital Assets of the EBITDA EBIT PLN million expenditures segment* Q3 2018 Conventional Generation 527 -34 1 035 44 837 Renewables 132 68 16 3 171 Supply 157 150 4 5 217 Distribution 622 328 473 18 150 Other Operations 28 8 43 769 TOTAL 1 466 520 1 571 72 144 Consolidation adjustments 0 12 -56 -3 099 TOTAL AFTER ADJUSTMENTS 1 466 532 1 515 69 045 * see note 6.1 to the condensed interim consolidated financial statements Table: Key financial figures for each business segment (after intrasegmental eliminations).

Capital Assets of the EBITDA EBIT PLN million expenditures segment* Q3 2017 Conventional Generation 1 789 1 378 1 135 37 278 Renewables 70 4 21 3 493 Supply 192 185 4 3 515 Distribution 585 297 431 17 564 Other Operations 20 3 32 626 TOTAL 2 656 1 867 1 623 62 476 Consolidation adjustments 7 16 -25 -2 726 TOTAL AFTER ADJUSTMENTS 2 663 1 883 1 598 59 750 * see note 6.1 to the condensed interim consolidated financial statements

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4.3.1. Conventional Generation segment Assets

Diagram: Main assets of the Conventional Generation segment.

Key figures for Conventional Generation. Q3 Q3 % change in PLN million 2018 2017 Sales revenues 3 781 3 748 1% EBIT -34 1 378 - EBITDA 527 1 789 -71% Capital expenditures 1 035 1 135 -9%

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Chart: Key changes of recurring EBITDA in Conventional Generation (in PLN million).

* EBITDA of companies: PGE Energia Ciepła S.A., PGE Toruń S.A., PGE Gaz Toruń sp. z o.o., EC Zielona Góra S.A., Kogeneracja S.A. Key factors affecting the results of Conventional Generation segment in the third quarter of 2018 compared to the results of the third quarter of 2017 included:  Higher electricity sales volume in PGE GiEK S.A. by 0.13 TWh, mainly as a result of higher production in unit no. 14 of Bełchatów power plant. It’s a result of lower production in comparable period due to downtime of the unit in medium overhaul from 31 July till 16 October 2017.  Increase in electricity sales prices, which caused an increase in revenue from sales. The average realised sales price for electricity at the Conventional Generation segment excluding the sales to final off-takers in the third quarter of 2018 was PLN 182/MWh (PLN 184/MWh including the impact of the Acquired assets), compared to PLN 165/MWh in the third quarter of 2017.  Lower result on electricity trading, due to lower margin realized on electricity trading by PLN 59/MWh (change on price PLN -104 million) with the higher volume of electricity trading by 0.49 TWh (impact on result PLN +18 million).  Higher revenues from certificates, mainly due to revaluation of certificates produced in Szczecin CHP that took place in September 2017 (PLN -57 million).  Lower revenues from ancillary control services, mainly lower revenues from Operational Capacity Reserve due to lower volume of OCR in Opole and Dolna Odra power plant due to higher trading factor of those power plants.  Lower revenues from sales of heat, resulting from decreased demand for heat by off-takers caused by higher average daily temperatures in the third quarter of 2018.  Higher fuel consumption costs, mainly hard coal and gas, what was caused by the higher prices of raw materials. Main changes on different types of fuel are presented on the chart below.  Higher CO2 costs as a result of higher unit cost of allowances. This effect was accelerated by unfavourable impact of lower allocation of allowances granted free of chargé and higher emission of CO2.  Higher personnel expenses mainly as a result of higher remuneration fund and salary-related expenses.  Repairs expenses remained at mainly as a result of lower capitalisation of overburden removal costs in mines due to lower N:W ratio. Unfavourable effect of lower level of capitalisation of overburden removal costs in mines was decreased as a consequence of greater involvement of own services into investment execution.  EBITDA generated by the Acquired assets in the third quarter of 2018.

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Chart: Costs of fuels consumption in Conventional Generation (in PLN million). 1400

1200

1000 Acquired assets* 800 PLN 342m

+ 5.62 600 - 0.57 - 0.36 + 0.00 + 0.88 PLN/GJ + 0.40 + 0.15 + 5.61 GJ m GJ m PLN/GJ PLN/GJ GJ m GJ m PLN/GJ 400

PGE GiEK S.A. 200 PLN 456m

Light and Light and Fuels Hard coal Hard coal Gas Gas Biomass Biomass Fuels heavy oil heavy oil 2017 volume price volume price volume price 2018 volume price

Change 4 28 4 12 -12 0 0 2

Fuels Q3 2017 418 354 36 20 8

Fuels Q3 2018 386 52 8 10 456 * Acquired assets: El. Rybnik, Ec. Gdańsk, Ec. Gdynia, Ec. Kraków, Ec. Wrocław, Ec. Czechnica, Ec. Zawidawie, Ec. Zielona Góra, Ec. Toruń

Capital expenditures Table: Capital expenditures incurred in Conventional Generation segment. Q3 Q3 PLN million % change 2018 2017 Investments in generating capacities, including: 888 1 030 -14% . Development 456 731 -38% . Modernisation and replacement 432 299 44% Purchase of finished capital goods 9 7 29% Vehicles 4 1 300% Other 15 8 88% Acquired assets* 61 - - TOTAL 977 1 046 -7% Capitalized costs of overburden removal in mines 58 89 -35% TOTAL with capitalized costs of overburden removal 1 035 1 135 -9% *PGE Energia Ciepła S.A., PGE Toruń S.A., PGE Gaz Toruń sp. z o.o., EC Zielona Góra S.A., Kogeneracja S.A. Highest capital expenditures in the third quarter of 2018 were incurred for the following projects:  construction of units 5 and 6 in Opole power plant PLN 262 million;  construction of new unit in Turów power plant PLN 134 million;  modernisation of units 1-3 in Turów power plant PLN 40 million;  construction of a Thermal Processing Installation with Energy Recovery at Rzeszów CHP PLN 39 million;  investment program in Pomorzany CHP PLN 19 million;  construction of flue gas denitrification system for OP 230 boilers no. 3 and 4 at ZEC Bydgoszcz PLN 14 million;  shaping of reservoir no. 4 at KWB Bełchatów mine’s internal heap PLN 12 million;  program of adaptation to BAT conclusions in Bełchatów power plant PLN 10 million;  expansion of flue gas desulphurisation system for OP 230 boilers no. 3 and 4 at ZEC Bydgoszcz PLN 10 million;  change in technology of furnace waste storage in Bełchatów power plant PLN 9 million.

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Key developments in the third quarter of 2018 in the Conventional Generation segment:  On July 31, 2018, an agreement was executed with Rafako S.A. to conduct modernisation of flue gas desulphurisation system for units 3-6 at Bełchatów power plant.  On August 2, 2018, a decision by the Environment Minister was obtained, which upheld a decision by the Podkarpackie voivodship marshal concerning an integrated permit for a thermal waste processing with energy recovery project.  On August 31, 2018, final handover of the sub-task “Construction of suspension production and pumping system together with modernisation of reservoirs 1 and 2 at PGE GiEK S.A. Branch Elektrownia Bełchatów” was completed.  On September 25, 2018, an agreement was signed with the consortium of SBB Energy S.A. Opole (Consortium Leader), Polimex Energetyka sp. z o.o. and Polimex-Mostostal S.A., concerning delivery and assembly of flue gas catalytic denitrification installation for OP-650-type boilers at units 5, 6, 7, and 8 at Dolna Odra power plant.  On October 10, 2018, Annex 9 to the Agreement concerning construction of units 5 and 6 at Opole power plant was signed, extending the performance deadline for unit 5 to June 15, 2019 and for unit 6 to September 30, 2019 (see point 2 of this report).

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4.3.2. Renewables segment Assets

The PGE Capital Group’s operations in renewable energy are managed by the PGE Energia Odnawialna S.A. Assets in the segment include:  14 wind farms,  1 photovoltaic power plant,  29 run-of-river hydro power plants,  4 pumped-storage power plants, including 2 with natural flow. Diagram: Main assets of the Renewables segment.

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Key financial figures

Table: Key figures for Renewables. in PLN million Q3 2018 Q3 2017 % change Sales revenues 216 161 34% EBIT 68 4 1600% EBITDA 132 70 89% Capital expenditures 16 21 -24%

Chart: Key changes of EBITDA in Renewables (in PLN million).

Key factors affecting the results of Renewables in the third quarter of 2018 compared to the third quarter of 2017 were:  Increase in revenues from electricity sales from wind farms resulting mainly from price higher by PLN 76/MWh in comparison to the third quarter of 2017.  The increase of revenues from sales of certificates from wind farms resulting from: (i) valuation of certificates at a price approx. PLN 55/MWh higher in the third quarter of 2018 than in the third quarter of 2017, which increased revenue by approx. PLN (+) 10 million; (ii) positive adjustment of certificates sold and revaluation of inventories, what attributed to the increase of revenues by approx. PLN (+) 12 million.  The increase of sales revenues of electricity from hydro power plants mainly due to price higher by PLN 92/MWh in comparison to the third quarter of 2017.  The increase of revenues from sales of certificates from hydro power plants resulting from valuation of ongoing production of certificates at a price higher by approx. PLN 71/MWh in the third quarter of 2018 compared to the third quarter of 2017.  Higher sales revenues from ancillary control services (agreement with PSE S.A.) result mainly from higher tariff for active cold intervention reserve service  Favourable deviation in costs results mainly from mainly from a correction of property tax concerning wind farms.  Favourable result in the Other item results mainly from penalties for failure to perform the contract for sale of certificates to Enea S.A. and Energa Obrót S.A and higher revenues from other operations.

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Capital expenditures

Table: Capital expenditures incurred in Renewables segment. Q3 Q3 PLN million % change 2018 2017 Investments in generating capacities, including: 14 19 -26% . Development 1 5 -80% . Modernisation and replacement 13 14 -7% Other 2 2 0% TOTAL 16 21 -24%

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4.3.3. Distribution segment PGE Dystrybucja S.A. operates in the area of 122,433 sq. km and delivers electricity to approximately 5.4 million customers. Diagram: Area of PGE distribution grid.

Key financial figures

Table: Key figures for Distribution. Q3 Q3 Q3 in PLN million % change % change* 2018 2018* 2017** Sales revenues* 1 432 1 587 1 552 -8% 2% EBIT 328 331 297 10% 11% EBITDA 622 625 585 6% 7% Capital expenditures 473 473 431 10% 10% * Data restated – IFRS 15 not applied in 2018 ** The Group has applied IFRS 15 since the standard’s effective date i.e. since January 1, 2018, without restating the comparable data (changes introduced by IFRS 15 are described in note 4 to the interim condensed consolidated financial statements)

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Chart: Key changes of EBITDA in Distribution (in PLN million).

Key factors affecting the results of Distribution in the third quarter of 2018 compared to the results of the third quarter of 2017 included:  Increased volume of distributed energy by 395 GWh, resulting from – inter alia – higher number of customers measured by power take-off points (by approx. 48 thousand) and growth of the economic activity of customers, mainly from groups A and B, in the area of operation of PGE Dystrybucja S.A.  A slight drop of the average rate by approximately PLN 0.6/MWh after decreasing revenues by cost of fees for PSE S.A..  Increase of other revenues from distribution activities mainly from passive power and excessive capacity what results from behaviour of off-takers, whose power consumption is higher than volume contracted in the agreement with PGE Dystrybucja S.A.  Decline in other operating revenues, concerning mainly connection fee revenue, as a result of a change in presentation of connection fees settled over time under IFRS 15. In addition, in the third quarter of 2017 the company completed large connection-related investment pursued by the Rzeszów Branch.  Lower costs of energy to cover balancing difference as a result of a decline in the volume of balancing difference by 79 GWh and the recognition of electricity estimates for covering the balancing difference.  Increase of costs of tax on real estate in connection with an increase of: (i) grid assets value as a result of investments, (ii) tax rates binding in current year.  Increase in personnel costs, resulting largely from an completed process to optimise salaries.  Lower costs of renovation and exploitation in connection with lower number of works on the grid assets in the third quarter of 2018. In the third quarter of 2017 tasks with regard to inspection of the stations accumulated.  Change in other resulting mainly from higher costs: (i) fees for situating equipment within a road lane as a result of an increase in the base for calculating these fees and an increase in rates, (ii) transmission-related fees for State Forests as a result of changes in land tax charged by State Forests offices.

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Capital expenditures Table: Capital expenditures incurred in Distribution segment. Q3 Q3 PLN million % change 2018 2017 MV and LV power networks 186 123 51% 110/ MV and MV/MV 27 34 -21% 110 kV power lines 45 64 -30% Connection of new off-takers 152 133 14% Purchase of transformers and energy counters 29 44 -34% IT, telemechanics and communication 13 26 -50% Other 21 7 200% TOTAL 473 431 10%

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4.3.4. Supply segment Key financial figures

Table: Key figures for Supply. Q3 Q3 Q3 w PLN million % change %change 2018 2018* 2017** Sales revenues* 3 296 4 289 3 610 -9% 19% EBIT 150 150 185 -19% -19% EBITDA 157 157 192 -18% -18% Capital expenditures 4 4 4 0% 0% * Data restated – IFRS 15 not applied in 2018 ** The Group has applied IFRS 15 since the standard’s effective date i.e. since January 1, 2018, without restating the comparable data (changes introduced by IFRS 15 are described in note 4 to the interim condensed consolidated financial statements) Chart: Key changes of EBITDA in Supply (in PLN million).

Key factors affecting EBITDA of Supply segment in the third quarter of 2018 compared to the third quarter of 2017 included:  Lower result from electricity by PLN 36 million resulting mainly from achieving lower unit margin on sale of electricity, related to increase of prices on the wholesale market (particularly on spot market), partly used for balancing of electricity demand resulting from sales to final off-takers.  Increase in costs to redeem certificates mainly as a result of increased demand for certificates stemming from increased obligation to redeem green, yellow and Purple certificates, partly compensated by achieving lower prices of green certificates redemption and lower market prices of yellow and red certificates.  Lower result on gas trading, mainly due to a decline in gas sale margins as a consequence of higher market prices having impact on the cost of balancing transactions with the Conventional Generation segment and retail customers’ demand on the SPOT market.  Increase of revenues from services performed within the Group resulting mainly from increased revenues from the Agreement for Commercial Management of Generation Capacities (“ZHZW”) (PLN (+) 44 million), as a consequence of higher sale and purchase prices of electricity under management and higher trading volume (+ 4.4 TWh including introduction of PGE Energia Ciepła S.A. to the agreement + 3.8 TWh). Higher revenue from ZHZW was partly offset by different method of settlements with the companies within so called support agreements (PLN - 21 million).  Lower result in other mainly as a result of: (i) lower revenue from wind farm balancing services, (ii) higher operating costs in the segment, (iii) better result on other operations. 45 of 56

4.3.5. Other Operations Key financial figures

Table: Key figures for Other Operations. Q3 Q3 in PLN million % change 2018 2017 Sales revenues 174 86 102% EBIT 8 3 167% EBITDA 28 20 40% Capital expenditures 43 32 34%

Increase in EBITDA of Other Operations segment by approx. PLN 8 million is mainly related to acquisition of EDF assets. Capital expenditures Capital expenditures in Other Operations in the third quarter of 2018 amounted to PLN 43 million compared to PLN 32 million in the third quarter of 2017. Within the above amount, the highest capital expenditures in the three quarters of 2018 were incurred by the following companies:  PGE EJ 1 sp. z o.o. – for nuclear project development PLN 21 million,  PGE Systemy S.A. – for IT infrastructure and software development PLN 19 million.

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5. Significant events of the reporting period and subsequent events

5.1. Changes in the Management Board and Supervisory Board As at September 30, 2018 and as at the publication date of this report, the Management Board worked in unchanged composition:

Name and surname of the Management Position Board member Henryk Baranowski President of the Management Board Wojciech Kowalczyk Vice-President for Capital Investments Marek Pastuszko Vice-President for Corporate Affairs Paweł Śliwa Vice-President for Innovations Ryszard Wasiłek Vice-President for Operations Emil Wojtowicz Vice-President for Finance

On July 19, 2018 the Ordinary General Meeting of the Company appointed eight members to the Supervisory Board of the 11th term as from July 20, 2018. As at September 30, 2018 and as at the publication date of this report, the Supervisory Board worked in following composition: Name and surname Position of the Supervisory Board member Anna Kowalik Chairman of the Supervisory Board Artur Składanek Vice-Chairman of the Supervisory Board – independent Grzegorz Kuczyński Secretary of the Supervisory Board - independent Artur Bartoszewicz Supervisory Board Member - independent Janina Goss Supervisory Board Member - independent Tomasz Hapunowicz Supervisory Board Member - independent Mieczysław Sawaryn Supervisory Board Member - independent Jerzy Sawicki Supervisory Board Member - independent

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As at September 30, 2018 the standing committees of the Supervisory Board consisted of: Name and surname of the Corporate Strategy and Appointment and member of the Supervisory Audit Committee Governance Development Remuneration Board Committee Committee Committee

Member Member Artur Bartoszewicz from July 24, 2018 from July 24, 2018

Member Member Janina Goss from July 24, 2018 from July 24, 2018

Member from July 24, 2018 Member Tomasz Hapunowicz Chairman from July from July 24, 2018 24, 2018

Member Member Member Anna Kowalik from July 24, 2018 from July 24, 2018 from July 24, 2018

Member from July 24, 2018 Member Grzegorz Kuczyński Chairman from from July 24, 2018 07.08.2018 Member Member from July 24, 2018 Mieczysław Sawaryn from July 24, 2018 Chairman from July 24, 2018

Member Member Member Jerzy Sawicki from July 24, 2018 from July 24, 2018 from July 24, 2018

Member Member from July 24, 2018 Artur Składanek from July 24, 2018 Chairman from July 24, 2018

5.2. Legal aspects Claims for annulment of the resolutions of the General Meetings of PGE S.A. Information on claims for annulment of the resolutions of the General Meetings of PGE S.A are described in note 21.4 to the condensed interim consolidated financial statements. The issue of compensation regarding the conversion of shares Information on the issue of compensation regarding the conversion of shares are described in note 21.4 to the condensed interim consolidated financial statements.

5.3. Information concerning proceedings in front of court, body appropriate for arbitration proceedings or in front of public administration authorities Significant proceedings pending in front of courts, competent arbitration authority or public administration authority are described in note 21.4 to the condensed interim consolidated financial statements.

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5.4. Information about granting guarantees by the Company or its subsidiary Table: Main guarantees granted by the PGE Group companies as at September 30, 2018.

Entity whose liabilities Date of commitment Entity entitled to guaran- Validity of guarantee Value of guaran- Value of loan Issuer of are subject to guaran- due to the granted tee until tee subject to guar- Currency guarantee tee guarantee Currency (Beneficiary) (dd-mm-yyyy) (million) antee (million) (Debtor) (dd-mm-yyyy)

PGE S.A. Bondholders PGE Sweden AB 22.05.2014 31.12.2041 2 500.0 EUR 638.0 EUR

PGE S.A. Nordic Investment Bank PGE GiEK S.A. 12.05.2017 31.12.2024 121.4 EUR 101.2 EUR

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5.5. Information on issue, redemption and repayment of debt securities and other securities Information on issue, redemption and repayment of debt securities and other securities is described in p. 1.1 of the foregoing report and in note 1.3 to the condensed interim consolidated financial statements.

5.6. Activities related to nuclear energy The programme to build Poland’s first nuclear power plant (the “Programme”) is focusing on conducting site characterisation and environmental surveys until an environmental impact assessment report and site report are prepared. Decisions with regard to the continuation of the Programme, in the above scope or otherwise, will be made based on decisions by the Minister of Energy concerning an updated Programme for Poland’s Nuclear Power, a model for the procurement of nuclear power plant technology and investment financing model. Business partnership As a result of the sale of shares on April 15, 2015 to the Business Partners (TAURON Polska Energia S.A., ENEA S.A. and KGHM Polska Miedź S.A.) by PGE S.A., PGE S.A. holds 70% in the share capital of PGE EJ 1 sp. z o.o. ("PGE EJ 1", "EJ 1"), and each of the Business Partners holds 10% in the share capital of PGE EJ 1. According to the Partners’ Agreement, concluded on September 3, 2014, the Parties jointly undertook to finance operations under the initial phase of the Program (the “Development Stage”), proportionally to their shareholdings. It is assumed that PGE’s financial commitment in the Development Stage will not exceed amount of approx. PLN 700 million. The funds for the Program are paid to PGE EJ1 in form of the increase of the share capital and loans. In the first quarter of 2018, PGE EJ 1 received a loan from its shareholders instead of a share capital increase. The share capital of PGE EJ 1 was increased in the third quarter of 2018. Proceeding for selection of technology Further action with regard to delivery of technology is dependent on the final arrangements with the Ministry of Energy related to formula of technology selection, working out economic, organisational and legal solutions, including the risk distribution and estimated costs of implementation of those solutions. Site characterisation and environmental survey Site characterisation and environmental surveys, necessary to prepare an environmental impact assessment and a site characterisation report, were continued in the three quarters of 2018. The surveys are being carried out with the participation of ELBIS Sp. z o.o., a company from PGE Group. The aim of the surveys is gathering of data necessary to assess the area from the point of view of usefulness for foundation of nuclear power plant. Works are being conducted at two sites: Lubiatowo-Kopalino and Żarnowiec, within Choczewo, Krokowa and Gniewino municipalities in the Pomeranian Voivodeship. The works on schedule update have been carried out. Social acceptance The main aim of activities in this area is to maintain a high level of community support at the planned nuclear plant sites and to deliver knowledge about nuclear power and about the Programme to the widest possible range of stakeholders. In the three quarters of 2018, works were continued within the Site Municipality Development Support Programme intended to reinforce partner relations with the local communities and authorities of the municipalities by providing support to initiatives that are of significance to the residents and development of the region. Compensations from WorleyParsons WorleyParsons initiated a lawsuit for payment of PLN 59 million for due remuneration, according to the claimant, and return of an amount unduly collected, according to the claimant, by PGE EJ 1 sp. z o.o. from a bank guarantee, and subsequently expanded its claim to PLN 104 million (i.e. by PLN 45 million). On March 31, 2018, the company filed a response to WorleyParsons’ expanded claim. PGE Group does not accept the claim and regards its possible admission by the court as unlikely.

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5.7. Rating On November 7, 2018 rating agency Moody’s published credit opinion for PGE S.A., in which it affirmed PGE’s rating at investment level of Baa1 with stable outlook. In its latest credit opinion, the rating agency took into account PGE’s strong position as the largest energy group in Poland, increasing share of revenues from regulated activities following the acquisition of district heating assets from EDF, as well as strong balance sheet and relatively low net debt/EBITDA ratio.

5.8. Tender offer to subscribe for the sale of 100% shares of Polenergia S.A. Information regarding the tender offer to subscribe for the sale of 100% shares of Polenergia S.A. is presented in note 24.1 to the condensed interim consolidated financial statements.

5.9. Transactions with related entities Information about transactions with related entities is presented in note 23 to the condensed interim consolidated financial statements.

5.10. Publication of financial forecasts PGE S.A. does not publish financial forecasts.

5.11. Information about shares and other securities 5.11.1. Shareholders with a significant stake According to the best knowledge, on the ground of the letter from the Ministry of the State Treasury of April 27, 2016, the State Treasury holds 1 072 984 098 ordinary shares of the Company, representing 57.39% of the Company’s share capital and entitling to 1 072 984 098 votes on the General Meeting of the Company, constituting 57.39% of total votes. Table: Shareholders holding directly or indirectly by subsidiaries at least 5% of the total votes at the General Meeting of PGE S.A. % in total votes on Number of shares Number of votes Shareholder General Meeting

State Treasury 1 072 984 098 1 072 984 098 57.39% Others 796 776 731 796 776 731 42.61% Total 1 869 760 829 1 869 760 829 100.00%

5.11.2. Shares of the parent company owned by the members of management and supervisory authorities According to the best knowledge of the Management Board of the Company, members of management and supervisory authorities of the Company as of the date of submission of this report and as of the date of publishing of the consolidated report for the first half of 2018 did not hold shares of PGE S.A.

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6. Statements of the Management Board Statement on the reliable preparation of the financial statements To the best knowledge of the Management Board of PGE S.A., the quarterly financial report including condensed interim consolidated financial statements of the Capital Group of PGE Polska Grupa Energetyczna S.A., quarterly financial information for PGE Polska Grupa Energetyczna S.A. and comparative data, was prepared in accordance with the governing accounting principles, presents a fair, true and reliable view of the material and financial situation of PGE Capital Group and its financial result. The report of the Management Board on the activities of PGE Capital Group presents a true view of the development, achievements and situation of the Capital Group. 7. Approval of the Management Board’s Report The foregoing Management Board’s Report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. was approved for publication by the Management Board of the parent company on November 13, 2018.

Warsaw, November 13, 2018 Signatures of Members of the Management Board of PGE Polska Grupa Energetyczna S.A.

President of the Management Board Henryk Baranowski

Vice-President of the Management Board Wojciech Kowalczyk

Vice-President of the Management Board Marek Pastuszko

Vice-President of the Management Board Paweł Śliwa

Vice-President of the Management Board Ryszard Wasiłek

Vice-President of the Management Board Emil Wojtowicz

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Glossary AKPiA Control, measurement and automation apparatus area Ancillary control services provided to the transmission system operator, which are indispensable for the proper services (ACS) functioning of the National Power System and ensure the keeping of required reliability and quality standards. Achievable capacity the maximum sustained capacity of a generating unit or generator, maintained continuously by a thermal generator for at least 15 hours or by a hydroelectric generator for at least five hours, at standardized operating conditions, as confirmed by tests. Balancing market a technical platform for balancing electricity supply and demand on the market. The differences between the planned (announced supply schedules) and the actually delivered/off-taken volumes of electricity are settled here. The purpose of the balancing market is to balance transactions concluded between individual market participants and actual electricity demand. The participants of the balancing market can be the generators, customers for electricity understood as entities connected to a network located in the balancing market area (including off-takers and network customers), trading companies, electricity exchanges and the TSO as the balancing company. Base, baseload standard product on the electricity market: a constant hourly power supply per day in a given period, for example week, month, quarter or year. BAT Best Available Technology Best Practices Document „Best Practice for GPW Listed Companies 2016” adopted by the resolution of the GPW Supervisory Board of October 13, 2015 and effective from January 1, 2016. Biomass solid or liquid substances of plant or animal origin, subject to biodegradation, obtained from agricultural or forestry products, waste and remains or industries processing their products as well as certain other biodegradable waste in particular agricultural raw materials. Black energy popular name for energy generated as a result of combustion of black coal or lignite. Circular economy system that minimises the consumption of resources and the level of waste as well as emissions and energy losses by creating a closed loop of processes in which waste from one process is used as resources in other processes so as to maximally reduce the quantity of production waste Co-combustion the generation of electricity or heat based on a process of combined, simultaneous combustion in one device of biomass or biogas together with other fuels; part of the energy thus generated can be deemed to be energy generated with the use of renewable sources. Co-generation the simultaneous generation of heat and electricity or mechanical energy in the course of one and the same technological process. Constrained the generation of electricity to ensure the quality and reliability of the national power system; this generation applies to generating units in which generation must continue due to the technical limitations of the operation of the power system and the necessity of ensuring its adequate reliability. CVC fund Corporate Venture Capital; in the CVC model, portfolio companies, aside from financial support, receive the opportunity to verify their ideas in a corporate setting Distribution transport of energy through distribution grid of high (110 kV), medium (15kV) and low (400V) voltage in order to supply the customers. Distribution System a power company engaging in the distribution of gaseous fuels or electricity, responsible for traffic in the Operator (DSO) gas or electricity distribution systems, current and long-term security of operation of the system, the operation, maintenance, repairs and indispensable expansion of the distribution network, including connections to other gas or power systems. Energy cluster civil-law arrangement that may include natural persons, legal entities, scientific units, research institutes or local government units, concerning the generation, distribution or trade in energy and energy demand balancing, with this energy being from renewable sources or other sources or fuels, within a distribution grid with nominal voltage below 110 kV, within the operational area of the given cluster, not exceeding the area of one district (powiat) in the meaning of the act on district authorities) or 5 municipalities (gmina) in the meaning of the act on municipal authorities; an energy cluster is represented by a coordinator, which is a cooperative, association, foundation appointed for this purpose or any member of the energy cluster indicated in the civil-law arrangement ERO Energy Regulatory Office (pol. URE).

EUA European Union Allowances: transferable CO2 emission allowances; one EUA allows an operator to release one tonne of CO2. EU ETS European Union Greenhouse Gas Emission Trading Scheme) EU emission trading scheme. Its operating rules are set out in the ETS Directive, amended by the Directive 2009/29/EC of the European Parliament and of the Council of April 23, 2009 (OJ EU L. of 2009, No. 140, p. 63—87). Generating unit a technically and commercially defined set of equipment belonging to a power company and used to generate electricity or heat and to transmit power.

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GJ Gigajoule, a unit of work/heat in the SI system, 1 GJ = 1000/3.6 kWh = approximately 278 kWh. GPZ main power supply point, a type of transformer station used for the processing or distribution of electricity or solely for the distribution of electricity. Green certificate popular name for energy generated from renewable energy sources. GW gigawatt, a unit of capacity in the SI system, 1 GW = 109 W. GWe one gigawatt of electric capacity. GWt one gigawatt of heat capacity. HICP Harmonised Index of Consumer Prices High Voltage Network a network with a nominal voltage of 110 kV. (HV) IED Industrial Emissions Directive IGCC Integrated Gasification Combined Cycle. Installed capacity the formal value of active power recorded in the design documentation of a generating system as being the maximum achievable capacity of that system, confirmed by the acceptance protocols of that system (a historical value, it does not change over time. IRiESP the Transmission Network Operation and Maintenance Manual required to be prepared by a transmission system operator pursuant to the Energy Law; instructions prepared for power networks that specify in detail the terms and conditions of using these networks by system users as well as terms and conditions for traffic handling, operation and planning the development of these networks; sections on transmission system balancing and system limitation management, including information on comments received from system users and their consideration, are submitted to the ERO President for approval by way of a decision. IRZ Cold Intervention Reserve Service – service consisting of maintaining power units ready for energy production. Energy is produced on request of PSE S.A. KSE the National Power System, a set of equipment for the distribution, transmission and generation of electricity, forming a system to allow the supply of electricity in the territory of Poland. KSP the National Transmission System, a set of equipment for the transmission of electricity in the territory of Poland. kV kilo volt, an SI unit of electric potential difference, current and electromotive force; 1kV= 103 V. kWh kilowatt-hour, a unit of electric energy in the SI system defined as the volume of electricity used by the 1 kW equipment over one hour. 1 kWh = 3,600,000 J = 3.6 MJ. Low Voltage Network a network with a nominal voltage not exceeding 1 kV. (LV) LTC long-term contracts on the purchase of capacity and electricity entered into between Polskie Sieci Elektroenergetyczne S.A. and electricity generators in the years 1994-2001. Medium-voltage an energy network with a nominal voltage higher than 1 kV but lower than 110 kV. network (MV) MEV Minimum Energy Volumes.

MSR Market Stability Reserve (relating to CO2) MW a unit of capacity in the SI system, 1 MW = 106 W. Mwe one megawatt of electric power. MWt one megawatt of heat power. NAP National emissions Allocation Plan, prepared separately for the national emission trading system and for the EU emission trading system by the National Administrator of the Emission Trading System.

NAP II National CO2 emissions Allocation Plan for the years 2008-2012 prepared for the EU emission trading system adopted by the Ordinance of the Council of Ministers of July 1, 2008 (Dz. U. of 2008, No. 202, item 1248). Nm3 normal cubic meter; a unit of volume from outside the SI system signifying the quantity of dry gas in 1 m3 of space at a pressure of 101.325 Pa and a temperature of 0°C.

NOx nitrogen oxides. N:W ratio Ration of volume of overburden removed in m3 to the mass of extracted coal in tons OTF Organized Trading Facilities Operational Capacity ORM constitutes of generation capacities of active Production Schedular Units (JGWa) in operation or Reserve (ORM) layover, representing excess capacity over electricity demand available to the TSO under the Energy Sale Agreements and on the Balancing Market in unforced generation

Peak, peakload a standard product on the electricity market; a constant power supply from Monday to Friday, each hour between 7:00 a.m. and 10:00 p.m. (15-hour standard for the Polish market) or between 8:00 a.m. and 8:00 p.m. (12-hour standard for the German market) in a given period, for example week, month, quarter or year.

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Peak power pumped special type of hydro-power plant allowing for electricity storage. It uses the upper reservoir, to which water is storage plants pumped from the lower reservoir using electricity (usually excessive in system). The pumped storage facilities provide ancillary control services for the national power system. In periods of increased demand for electricity, water from the upper reservoir is released through the turbine. This way, electricity is produced. PJ Petajoule, a unit of work/heat in the SI system, 1 PJ = approx. 278 GWh Property rights negotiable exchange-traded rights under green and co-generation certificates Prosumer end customer who purchases electricity under a comprehensive agreement and generates electricity only from renewable sources at a micro-installations for own purposes, unrelated to economic activities PSCMI1 Polish Energy Coal Market Index 1 - average level of prices of coal dust sold to industrial-scale power plants in Poland RAB Regulatory Asset Base. Red certificate a certificate confirming generation of electricity in co-generation with heat. Red energy popular name for electricity co-generated with heat. Regulator the President of ERO, fulfilling the tasks assigned to him in the energy law. The regulator is responsible for, among others, giving out licenses for energy companies, approval of energy tariffs, appointing Transmission System Operators and Distribution System Operators. Renewable Energy a source of generation using wind power, solar radiation, geothermal energy, waves, sea currents and tides, flow Source (RES) of rivers and energy obtained from biomass, landfill biogas as well as biogas generated in sewage collection or treatment processes or the disintegration of stored plant or animal remains. SAIDI System Average Interruption Duration Index - index of average system interruption time (long, very long and disastrous), expressed in minutes per customer per year, which is the sum of the interruption duration multiplied by the number of consumers exposed to the effects of this interruption during the year, divided by the total number of off-takers. SAIDI does not include interruptions lasting less than three minutes and is determined separately for planned and unplanned interruptions. It applies to breakdowns in the low (LV), medium (MV) and high voltage (HV), wherein SAIDI in quality tariff does not include interruptions on low voltage. SAIFI System Average Interruption Frequency Index - index of average system amount of interruptions ( long, very long and disastrous ), determined as number of off-takers exposed to the effects of all such interruptions during the year divided by the total number of off-takers. SAIFI does not include interruptions lasting less than three minutes and is determined separately for planned and unplanned interruptions. It applies to breakdowns in the low (LV), medium (MV) and high voltage (HV), wherein SAIFI in quality tariff does not include interruptions on low voltage . SCR Selective catalytic reduction SNCR Selective non-catalytic reduction Start-up early-stage company established in order to build new products or services and characterised by a high level of uncertainty. The most common features of start-ups are: short operational history (up to 10 years), innovativeness, scalability, higher risk than in the case of traditional businesses but also potential higher returns on investment Tariff the list of prices and rates and terms of application of the same, devised by an energy enterprise and introduced as binding on the customers specified therein in the manner defined by an act of parliament. Tariff group a group of customers off-taking electricity or heat or using services related to electricity or heat supply to whom a single set of prices or charges and terms are applied. TGE Towarowa Giełda Energii S.A. (Polish Power Exchange), a commodity exchange on which trading can take place in electricity, liquid or gas fuels, extraction gas, emission allowances and property rights whose price depends directly or indirectly on electric energy, liquid or gas fuels and emission allowances, admitted to commodity exchange trading. TPA, TPA rule Third Party Access, the owner or operator of the network infrastructure to third parties in order to supply goods/services to third party customers. Transmission transport of electricity through high voltage (220 and 400 kV) transmission network from generators to distributors. Transmission System a power company engaging in the transmission of gaseous fuels or electric energy, responsible for traffic in a gas Operator (TSO) or power transmission system, current and long-term security of operation of that system, the operation, maintenance, repair and indispensable expansion of the transmission system, including connections with other gas or power systems. In Poland, for the period from July 2, 2014 till December 31, 2030 Polskie Sieci Elektroenergetyczne S.A. was chosen as a TSO in the field of electricity transmission. TWh terawatt hour, a multiple unit for measuring of electricity unit in the system SI. 1 TWh is 109 kWh. Ultra-high-voltage an energy network with a voltage equal to 220 kV or higher. network (UHV)

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V (volt) electrical potential unit, electric voltage and electromotive force in the International System of Units (SI), 1 V= 1J/1C = (1 kg x m2) / (A x s3). W (watt) a unit of power in the International Systems of Units (SI), 1 W = 1J/1s = 1 kg x m2 x s-3. Yellow certificate a certificate confirming generation of energy in gas-fired power plants and CCGT power plants. Yellow energy popular name for energy generated in gas-fired power plants and CCGT power plants.

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WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Polska Grupa Energetyczna S.A. Quarterly financial report for the 3- and 9-month period

ended September 30, 2018, in accordance with IFRS EU (in PLNm)

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TABLE OF CONTENTS I. PGE GROUP CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE 3-MONTH AND 9-MONTH PERIOD ENDED SEPTEMBER 30, 2018, IN ACCORDANCE WITH IFRS EU (IN PLNM) ...... 4 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ...... 4 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ...... 5 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ...... 6 CONSOLIDATED STATEMENT OF CASH FLOWS ...... 7 GENERAL INFORMATION, BASIS FOR PREPARATION OF FINANCIAL STATEMENTS AND OTHER EXPLANATORY INFORMATION 8 1. General information ...... 8 1.1 Information on the parent ...... 8 1.2 Information on PGE Group ...... 8 1.3 PGE Group's composition ...... 9 1.4 Accounting for new acquisitions ...... 12 2. Basis for preparation of financial statements ...... 12 2.1 Statement of compliance ...... 12 2.2 Presentation and functional currency ...... 13 2.3 New standards and interpretations published, not yet effective ...... 13 2.4 Professional judgment of management and estimates ...... 14 3. Impairment tests on property, plant and equipment, intangible assets and goodwill ...... 14 4. Changes in accounting principles and data presentation ...... 15 5. Fair value hierarchy ...... 20 EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ...... 21 EXPLANATORY NOTES TO OPERATING SEGMENTS...... 21 6. Information on operating segments ...... 21 6.1 Information on business segments ...... 22 EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME...... 24 7. Revenue and costs ...... 24 7.1 Revenue from sales ...... 24 7.2 Costs by nature and function ...... 25 7.3 Other operating income and expenses ...... 26 7.4 Finance income and finance expenses...... 27 7.5 Share of profit of entities accounted for using the equity method...... 27 8. Impairment losses on assets ...... 28 9. Tax in the statement of comprehensive income ...... 28 EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION ...... 28 10. Significant additions and disposals of property, plant and equipment and intangible assets ...... 28 11. Future investment commitments ...... 29 12. Shares accounted for using the equity method ...... 29 13. Deferred tax in the statement of financial position ...... 30 13.1 Deferred income tax assets ...... 30 13.2 Deferred income tax provision ...... 30

14. CO2 emission allowances for captive use ...... 30 15. Selected financial assets ...... 31 15.1 Trade and other financial receivables ...... 31 15.2 Cash and cash equivalents ...... 31 16. Derivatives and other assets measured at fair value through profit or loss ...... 32 17. Equity ...... 33 17.1 Share capital ...... 33 17.2 Hedging reserve ...... 34 17.3 Dividends paid and recommended for payment ...... 34

2 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

18. Provisions ...... 34 18.1 Provision for employee benefits ...... 35 18.2 Rehabilitation provision ...... 35

18.3 Provision for shortage of CO2 emission allowances ...... 35 18.4 Provision for energy origin certificates held for redemption...... 35 18.5 Provision for claims concerning non-contractual use of property ...... 36 18.6 Other provisions ...... 36 19. Financial liabilities ...... 36 19.1 Loans, borrowings, bonds and leases ...... 36 19.2 Trade and other financial liabilities ...... 37 20. Other current non-financial liabilities ...... 38 OTHER EXPLANATORY NOTES ...... 38 21. Contingent liabilities and receivables. Legal claims ...... 38 21.1 Contingent liabilities ...... 38 21.2 Other significant issues related to contingent liabilities ...... 39 21.3 Contingent receivables ...... 39 21.4 Other legal claims and disputes ...... 39 22. Tax settlements ...... 41 23. Information on related parties ...... 42 23.1 Associates and jointly controlled entities ...... 42 23.2 State Treasury-controlled companies ...... 42 23.3 Management remuneration...... 43 24. Significant events during and after the reporting period...... 44 24.1 Tender offer for 100% of Polenergia S.A. shares ...... 44 II. PGE POLSKA GRUPA ENERGETYCZNA S.A. QUARTERLY FINANCIAL INFORMATION FOR THE 3- AND 9-MONTH PERIODS ENDED SEPTEMBER 30, 2018, IN ACCORDANCE WITH IFRS EU (IN PLNM) ...... 45 SEPARATE STATEMENT OF COMPREHENSIVE INCOME ...... 45 SEPARATE STATEMENT OF FINANCIAL POSITION ...... 46 SEPARATE STATEMENT OF CHANGES IN EQUITY ...... 47 SEPARATE STATEMENT OF CASH FLOWS ...... 48 1. Changes in accounting principles and data presentation ...... 49 III. APPROVAL OF QUARTERLY FINANCIAL REPORT ...... 50

3 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

I. PGE GROUP CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE 3-MONTH AND 9-MONTH PERIOD ENDED SEPTEMBER 30, 2018, IN ACCORDANCE WITH IFRS EU

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 3 months 9 months ended 3 months 9 months ended Note ended ended ended ended September 30, 2018 September 30, 2018 September 30, 2017 September 30, 2017 (unaudited) (unaudited) (unaudited) (unaudited) STATEMENT OF PROFIT OR LOSS

SALES REVENUES 7.1 6,091 18,962 6,073 16,693 Cost of goods sold 7.2 (5,068) (14,922) (3,759) (11,631) GROSS PROFIT ON SALES 1,023 4,040 2,314 5,062 Distribution and selling expenses 7.2 (280) (991) (282) (882) General and administrative expenses 7.2 (225) (736) (156) (501) Other operating income 7.3 64 271 57 259 Other operating expenses 7.3 (50) (221) (50) (123) OPERATING PROFIT 532 2,363 1,883 3,815 Finance income 7.4 19 116 1 145 Finance expenses 7.4 (73) (378) (81) (347) Share of profit of entities accounted for using the equity 7.5 15 58 10 11 method GROSS PROFIT 493 2,159 1,813 3,624 Current income tax 9 (74) (396) (108) (356) Deferred income tax 9 (16) (64) (243) (311) NET PROFIT FOR THE REPORTING PERIOD 403 1,699 1,462 2,957

OTHER COMPREHENSIVE INCOME Items that may be reclassified to profit or loss in the future: Valuation of financial instruments 17.2 (4) (5) (1) (1) Valuation of hedging instruments 17.2 (72) (37) 12 (60) Foreign exchange differences from translation of foreign (1) 3 3 (3) entities Deferred tax 9 14 8 (2) 12 Items that may not be reclassified to profit or loss in the

future: Share of profit of entities accounted for using the equity (1) - - - method OTHER COMPREHENSIVE INCOME FOR THE REPORTING (64) (31) 12 (52) PERIOD, NET

TOTAL COMPREHENSIVE INCOME 339 1,668 1,474 2,905

NET PROFIT ATTRIBUTABLE TO: – equity holders of the parent company 416 1,697 1,463 2,960 – non-controlling interests (13) 2 (1) (3)

COMPREHENSIVE INCOME ATTRIBUTABLE TO: – equity holders of the parent company 352 1,666 1,475 2,908 – non-controlling interests (13) 2 (1) (3)

EARNINGS AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 0.22 0.91 0.78 1.58 COMPANY (IN PLN)

The additional notes constitute an integral part of these consolidated financial statements. 4 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at As at Note September 30, 2018 December 31, 2017 (unaudited) (audited) restated data* NON-CURRENT ASSETS Property, plant and equipment 10 59,995 59,010 Investment property 46 50 Intangible assets 10 1,013 1,032 Financial receivables 15.1 168 158 Derivatives and other assets measured at fair value through profit or loss 16 252 222 Shares and other equity instruments 55 47 Shares accounted for using the equity method 12 752 634 Other non-current assets 477 524

CO2 emission allowances for captive use 14 357 402 Deferred income tax assets 13.1 554 571 63,669 62,650 CURRENT ASSETS Inventories 2,312 1,890

CO2 emission allowances for captive use 14 1,246 1,040 Income tax receivables 12 36 Derivatives and other assets measured at fair value through profit or loss 16 89 83 Trade and other financial receivables 15.1 4,201 3,522 Shares and other equity instruments 1 5 Other current assets 635 391 Cash and cash equivalents 15.2 1,326 2,552 9,822 9,519 ASSETS CLASSIFIED AS HELD FOR SALE 12 14 TOTAL ASSETS 73,503 72,183

EQUITY Share capital 17.1 19,165 19,165 Reserve capital 19,872 15,328 Hedging reserve 17.2 49 83 Foreign exchange differences from translation (1) (4) Retained earnings 8,111 10,556 EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 47,196 45,128

Equity attributable to non-controlling interests 1,107 1,250 TOTAL EQUITY 48,303 46,378

NON-CURRENT LIABILITIES Non-current provisions 18 5,811 5,651 Loans, borrowings, bonds and lease 19.1 6,333 8,422 Derivatives 16 17 18 Deferred income tax provision 13.2 1,408 1,302 Deferred income and government grants 610 1,038 Other financial liabilities 19.2 488 379 Other non-financial liabilities 17 - 14,684 16,810 CURRENT LIABILITIES Current provisions 18 1,774 1,991 Loans, borrowings, bonds and leases 19.1 4,569 1,623 Derivatives 16 64 106 Trade and other financial liabilities 19.2 2,073 3,231 Income tax liabilities 113 196 Deferred income and government grants 73 115 Other non-financial liabilities 20 1,850 1,733 10,516 8,995 TOTAL LIABILITIES 25,200 25,805 TOTAL EQUITY AND LIABILITIES 73,503 72,183 * restatement of comparative data is described in note 4 of these consolidated financial statements.

The additional notes constitute an integral part of these consolidated financial statements. 5 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Exchange Reserve differences Retained Non-controlling Total Share capital Hedging reserve Total capital from earnings interests equity translation Note 17.1 17.2 DECEMBER 31, 2017 restated data * 19,165 15,328 83 (4) 10,556 45,128 1,250 46,378 Effect of IFRS 15 implementation - - - - 340 340 - 340 JANUARY 1, 2018 19,165 15,328 83 (4) 10,896 45,468 1,250 46,718 Net profit for the reporting period - - - - 1,697 1,697 2 1,699 Other comprehensive income - - (34) 3 - (31) - (31) COMPREHENSIVE INCOME FOR THE PERIOD - - (34) 3 1,697 1,666 2 1,668 Retained earnings distribution - 4,544 - - (4,544) - - - Dividend ------(39) (39) Inclusion of companies in consolidation - - - - 27 27 20 47 Settlement of purchase of additional shares - - - - 34 34 (142) (108) in subsidiaries Capital increase by minority shareholders ------18 18 Other changes - - - - 1 1 (2) (1) TRANSACTIONS WITH OWNERS - 4,544 - - (4,482) 62 (145) (83) SEPTEMBER 30, 2018 19,165 19,872 49 (1) 8,111 47,196 1,107 48,303

* restatement of comparative data is described in note 4 of these consolidated financial statements.

Exchange Reserve differences Retained Non-controlling Total Share capital Hedging reserve Total capital from earnings interests equity translation Note 17.1 17.2 JANUARY 1, 2017 19,165 13,730 147 3 9,634 42,679 96 42,775 Net profit for the reporting period - - - - 2,960 2,960 (3) 2,957 Other comprehensive income - - (49) (3) - (52) - (52) COMPREHENSIVE INCOME - - (49) (3) 2,960 2,908 (3) 2,905 Retained earnings distribution - 1,598 - - (1,598) - - - Dividend ------(2) (2) Settlement of purchase of additional shares - - - - 2 2 (3) (1) in subsidiaries Other changes - - - - 1 1 - 1 TRANSACTIONS WITH OWNERS - 1,598 - - (1,595) 3 (5) (2) SEPTEMBER 30, 2017 19,165 15,328 98 - 10,999 45,590 88 45,678

The additional notes constitute an integral part of these consolidated financial statements. 6 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

CONSOLIDATED STATEMENT OF CASH FLOWS Period ended Period ended Note September 30, September 30, 2017 2018 (unaudited) (unaudited) restated data* CASH FLOWS FROM OPERATING ACTIVITIES Gross profit 2,159 3,624 Income tax paid (473) (462)

Adjustments for: Share of profit of entities accounted for using the equity method (58) (11) Depreciation, amortisation, disposal and impairment losses 2,778 2,291 Interest and dividend, net 163 101 Profit / loss on investing activities (18) 41 Change in receivables (679) (691) Change in inventories (410) 324 Change in liabilities, excluding loans and borrowings (207) (262)

Change in other non-financial assets, prepayments and CO2 emission allowances (478) 768 Change in provisions (92) (439) Other (17) (39) NET CASH FROM OPERATING ACTIVITIES 2,668 5,245

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment and intangible assets (4,270) (4,338) Recognition of deposits with maturity over 3 months (372) (203) Termination of deposits with maturity over 3 months 358 2,486 Purchase of financial assets (103) (218) Sale of subsidiaries after offsetting sold cash - 272 Inclusion of companies in consolidation 18 - Other 30 31 NET CASH FROM INVESTING ACTIVITIES (4,339) (1,970)

CASH FLOWS FROM FINANCING ACTIVITIES Increase in stake in Group companies (111) - Proceeds from share issue for non-controlling interests 18 - Proceeds from loans, borrowings and issue of bonds 1,979 7 Repayment of loans, borrowings, bonds and finance leasing (1,223) (113) Interest paid (201) (230) Other (17) (4) NET CASH FROM FINANCING ACTIVITIES 445 (340)

NET CHANGE IN CASH AND CASH EQUIVALENTS (1,226) 2,935 Net exchange differences - - CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 15.2 2,551 2,666 CASH AND CASH EQUIVALENTS AT THE END OF PERIOD 15.2 1,325 5,601

* restatement of comparative data is described in note 4 of these consolidated financial statements.

The additional notes constitute an integral part of these consolidated financial statements. 7 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

GENERAL INFORMATION, BASIS FOR PREPARATION OF FINANCIAL STATEMENTS AND OTHER EXPLANATORY INFORMATION 1. General information 1.1 Information on the parent PGE Polska Grupa Energetyczna S.A. ("Parent," "Company,” "PGE S.A.”) was founded on the basis of a Notary Deed of August 2, 1990, and registered in the District Court in Warsaw, XVI Commercial Department on September 28, 1990. The Company was registered in the National Court Register of the District Court for the Capital City of Warsaw, XII Commercial Department, under no. KRS 0000059307. The Company's registered office is in Warsaw, ul. Mysia 2. As at January 1, 2018 and on the date on which these financial statements were published, the Company's Management Board was as follows:  Henryk Baranowski – President of the Management Board,  Wojciech Kowalczyk – Vice-President of the Management Board,  Marek Pastuszko – Vice-President of the Management Board,  Paweł Śliwa – Vice-President of the Management Board,  Ryszard Wasiłek – Vice-President of the Management Board,  Emil Wojtowicz – Vice-President of the Management Board. Ownership structure As at September 30, 2018, the parent's ownership structure was as follows:

State Treasury Other shareholders Total As at December 31, 2017 57.39% 42.61% 100.00% As at September 30, 2018 57.39% 42.61% 100.00% The ownership structure as at particular reporting dates was prepared on the basis of data available to the Company. According to information known to the Company as of the date on which these financial statements were prepared, the State Treasury was the only shareholder with at least 5% of votes at the general meeting of PGE S.A. 1.2 Information on PGE Group PGE Group ("PGE Group," "Group") includes the parent, PGE Polska Grupa Energetyczna S.A., 58 consolidated subsidiaries, 3 associates and 1 jointly controlled entity. For additional information about subordinated entities included in the consolidated financial statements please refer to note 1.3. These consolidated financial statements of PGE Group comprise financial data for the period from January 1, 2018 to September 30, 2018 (“financial statements,” “consolidated financial statements”) and include comparative data for the period from January 1, 2017 to September 30, 2017 and as at December 31, 2017. These condensed consolidated interim financial statements do not cover all of the information and disclosures required in annual financial statements and they should be read in conjunction with the Group's consolidated financial statements for the year ended December 31, 2017, approved for publication on March 6, 2018. The financial statements of all subordinated entities were prepared for the same reporting period as the financial statements of the parent company, using consistent accounting principles. PGE Group companies' core activities are as follows:  production of electricity,  distribution of electricity,  wholesale and retail trade in electricity, energy origin rights, CO2 emission allowances and gas,  production and distribution of heat,  provision of other services related to these activities Business activities are conducted under appropriate concessions granted to particular Group companies.

The additional notes constitute an integral part of these consolidated financial statements. 8 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

Going concern These financial statements were prepared under the assumption that the Group's companies will continue to operate as a going concern in the foreseeable future. As at the date of the approval of these consolidated financial statements, there is no evidence indicating that the significant Group companies will not be able to continue their business activities as a going concern. Changes in accounting policies The same accounting rules (policies) and calculation methods were applied in these financial statements as in the most recent annual financial statements, except for changes resulting from the entry into force of IFRS 9 Financial Instruments and IFRS 15 Contracts with Customers. A detailed description of the changes is presented in note 4. These financial statements should be read in conjunction with PGE Group's consolidated financial statements for the year ended December 31, 2017, published on March 6, 2018. 1.3 PGE Group's composition During the reporting period, PGE Group consisted of the following subsidiaries, consolidated directly and indirectly:

Stake held by Stake held by PGE Group PGE Group Entity Entity holding stake entities as at entities as at September 30, December 31, 2018 2017 SEGMENT: SUPPLY PGE Polska Grupa Energetyczna S.A. 1. Parent Warsaw PGE Dom Maklerski S.A. 2. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Trading GmbH 3. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Berlin PGE Obrót S.A. 4. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Rzeszów PGE Centrum sp. z o.o. 5. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Nowa Energia sp. z o.o. 6. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw ENESTA sp. z o.o. 7. PGE Obrót S.A. 87.33% 87.33% Stalowa Wola PGE Paliwa sp. z o.o. 8. PGE Energia Ciepła S.A. 100.00% 100.00% Kraków SEGMENT: CONVENTIONAL GENERATION PGE GiEK S.A. 9. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Bełchatów PGE Energia Ciepła S.A. 10. PGE Polska Grupa Energetyczna S.A. 100,00% 99.52% Warsaw PGE Toruń S.A. 11. PGE Energia Ciepła S.A. 95.22% 95.22% Toruń PGE Gaz Toruń sp. z o.o. 12. PGE Energia Ciepła S.A. 50.04% 50.04% Warsaw Zespół Elektrociepłowni Wrocławskich KOGENERACJA S.A. PGE Energia Ciepła S.A. 58.07% 17.74% 13. Wrocław Investment III B.V. - 32.26% Elektrociepłownia Zielona Góra S.A. Zespół Elektrociepłowni Wrocławskich 14. 98.40% 98.40% Zielona Góra KOGENERACJA S.A. ELBIS sp. z o.o. 15. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Rogowiec MEGAZEC sp. z o.o. 16. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Bydgoszcz MegaSerwis sp. z o.o. 17. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Bogatynia „ELMEN” sp. z o.o. 18. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Rogowiec Przedsiębiorstwo Usługowo-Produkcyjne „ELTUR-SERWIS” sp. z o.o. 19. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Bogatynia Przedsiębiorstwo Usługowo-Produkcyjne „TOP SERWIS” sp. z o.o. PGE Polska Grupa Energetyczna S.A. - 100.00% Bogatynia Przedsiębiorstwo Transportowo-Sprzętowe „BETRANS” sp. z o.o. 20. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Bełchatów Przedsiębiorstwo Wulkanizacji Taśm i Produkcji Wyrobów Gumowych 21. BESTGUM POLSKA sp. z o.o. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Rogowiec RAMB sp. z o.o. 22. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Piaski EPORE sp. z o.o. 23. PGE GiEK S.A. 85.38% 85.38% Bogatynia „Energoserwis – Kleszczów” sp. z o.o. 24. PGE GiEK S.A. 51.00% 51.00% Rogowiec Przedsiębiorstwo Energetyki Cieplnej sp. z o.o. 25. PGE GiEK S.A. 50.98% 50.98% Zgierz

The additional notes constitute an integral part of these consolidated financial statements. 9 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

Stake held by Stake held by PGE Group PGE Group Entity Entity holding stake entities as at entities as at September 30, December 31, 2018 2017 SEGMENT: RENEWABLES PGE Energia Odnawialna S.A. 26. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw Elektrownia Wiatrowa Baltica-1 sp. z o.o. PGE Polska Grupa Energetyczna S.A. 100.00% - 27. Warsaw PGE Energia Odnawialna S.A. - 100.00% Elektrownia Wiatrowa Baltica-2 sp. z o.o. PGE Polska Grupa Energetyczna S.A. 100.00% - 28. Warsaw PGE Energia Odnawialna S.A. - 100.00% Elektrownia Wiatrowa Baltica-3 sp. z o.o. PGE Polska Grupa Energetyczna S.A. 100.00% - 29. Warsaw PGE Energia Odnawialna S.A. - 100.00% PGE Energia Natury PEW sp. z o.o. PGE Energia Odnawialna S.A. - 100.00% Warsaw PGE Klaster sp. z o.o. 30. PGE Energia Odnawialna S.A. 100.00% 100.00% Warsaw SEGMENT: DISTRIBUTION PGE Dystrybucja S.A. 31. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Lublin SEGMENT: OTHER ACTIVITY PGE EJ 1 sp. z o.o. 32. PGE Polska Grupa Energetyczna S.A. 70.00% 70.00% Warsaw PGE Systemy S.A. 33. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Sweden AB (publ) 34. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Stockholm Investment III B.V. PGE Energia Ciepła S.A. - 100.00% Amsterdam PGE Synergia sp. z o.o. 35. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw „Elbest” sp. z o.o. 36. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Bełchatów Elbest Security sp. z o.o. 37. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Bełchatów PGE Inwest 2 sp. z o.o. 38. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 5 sp. z o.o. 39. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Ventures sp. z o.o. 40. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 8 sp. z o.o. 41. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 9 sp. z o.o. 42. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 10 sp. z o.o. 43. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 11 sp. z o.o. 44. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 12 sp. z o.o. 44. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 13 S.A. 46. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 14 sp. z o.o. 47. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 16 sp. z o.o. 48. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 17 sp. z o.o. 49. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 18 sp. z o.o. 50. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 19 sp. z o.o. 51. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw Towarzystwo Funduszy Inwestycyjnych Energia S.A. (formerly PGE 52. Towarzystwo Funduszy Inwestycyjnych S.A.) PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw BIO-ENERGIA sp. z o.o. 53. PGE Energia Odnawialna S.A. 100.00% 100.00% Warsaw Przedsiębiorstwo Transportowo-Usługowe „ETRA” sp. z o.o. 54. PGE Dystrybucja S.A. 100.00% 100.00% Białystok Energetyczne Systemy Pomiarowe sp. z o.o. 55. PGE Dystrybucja S.A. 100.00% 100.00% Białystok PGE Ekoserwis sp. z o.o. 56. PGE Energia Ciepła S.A. 84.15% 84.15% Wrocław ZOWER sp. z o.o. * 57. PGE Energia Ciepła S.A. 100.00% 100.00% Czerwionka-Leszczyny

The additional notes constitute an integral part of these consolidated financial statements. 10 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

Stake held by Stake held by PGE Group PGE Group Entity Entity holding stake entities as at entities as at September 30, December 31, 2018 2017 Przedsiębiorstwo Usługowo - Handlowe TOREC sp. z o.o. * 58. PGE Toruń S.A. 50.04% 50.04% Toruń PGE Polska Grupa Energetyczna S.A. 22.78% 22.78% Zakłady Pomiarowo-Badawcze Energetyki Energopomiar sp. z o.o. * PGE Górnictwo i Energetyka 59. Gliwice Konwencjonalna S.A. 22.14% 22.14% PGE Energia Ciepła S.A. 7.38% 7.38% * During the present period, three subsidiaries were included in consolidation that previously had not been consolidated due to immateriality:  ZOWER sp. z o. o.  Przedsiębiorstwo Usługowo - Handlowe TOREC sp. z o.o.  Zakłady Pomiarowo-Badawcze Energetyki Energopomiar sp. z o.o. The table above includes the following changes in the structure of PGE Group companies subject to full consolidation which took place during the period ended September 30, 2018:  On February 26, 2018, a resolution was adopted to merge Przedsiębiorstwo Usługowo-Produkcyjne ELTUR-SERWIS Sp. z o.o. (the acquiring company) with Przedsiębiorstwo Usługowo-Produkcyjne „TOP SERWIS” sp. z o.o. (the acquired company). The merger was registered at the National Court Register on April 12, 2018.  On March 27, 2018, a resolution was adopted to merge PGE Energia Odnawialna S.A. (the acquiring company) and PGE Energia Natury PEW sp. z o.o. (the acquired company). The merger was registered at the National Court Register on May 2, 2018. The aforementioned mergers did not have any impact on these financial statements.  On March 7, 2018 and May 7, 2018, PGE S.A. purchased 3,285 and 2,970 shares of PGE Energia Ciepła S.A. respectively in a mandatory squeeze out procedure pursuant to art. 4181 of the Polish Commercial Companies Code. On May 18, 2018, PGE S.A. purchased 336,473 shares of PGE Energia Ciepła S.A. in a mandatory squeeze out procedure pursuant to art. 418 of the Polish Commercial Companies Code. As a result of these transactions, PGE S.A. currently holds a 100% stake in equity of PGE Energia Ciepła S.A. The price paid for the shares was PLN 13 million.  As a result of a subscription to sell 2,383,999 ordinary bearer shares of Zespół Elektrociepłowni Wrocławskich KOGENARACJA Spółka Akcyjna ("KOGENERACJA"), announced on February 1, 2018, PGE Energia Ciepła S.A. on March 14, 2018 purchased 1,202,172 shares in the Company, entitling to 1,202,172 votes at KOGENERACJA's general meeting and constituting (after rounding to the nearest one-hundredth of percent) 8.07% of KOGENERACJA's total shares and general meeting votes. The price paid for the shares was PLN 98 million. As of the date of financial statements, PGE Group held 58.07% of the total number of votes at KOGENERACJA's general meeting. As a result of the purchase of shares in PGE Energia Ciepła S.A. and KOGENERACJA, equity attributable to PGE Group increased by PLN 34 million, while equity attributable to non-controlling interests decreased by PLN 142 million.  On August 31, 2018, an agreement was executed pursuant to which PGE Polska Grupa Energetyczna S.A. purchased from PGE Energia Odnawialna S.A. all shares in Elektrownia Wiatrowa Baltica-1 sp. z o.o., Elektrownia Wiatrowa Baltica-2 sp. z o.o. and Elektrownia Wiatrowa Baltica-3 sp. z o.o. The shares were transferred on September 3, 2018. The transaction had no impact on these consolidated financial statements.  A merger of PGE Energia Ciepła S.A. (acquiring company) with Investment III B.V. (acquired company) was registered on September 4, 2018. The merger had no impact on these consolidated financial statements. On October 18, 2018 ordinary General Meeting of PGE Górnictwo i Energetyka Konwencjonalna S.A. and PGE Energia Ciepła S.A. adopted resolution concerning demerger of PGE Górnictwo i Energetyka Konwencjonalna S.A. (divided company), pursuant to which the following branches of PGE Górnictwo i Energetyka Konwencjonalna will be carved out from PGE Górnictwo i Energetyka Konwencjonalna S.A. into PGE Energia Ciepła S.A.:  Elektrociepłownia Kielce,  Elektrociepłownia Gorzów,  Elektrociepłownia Rzeszów,  Elektrociepłownia Lublin Wrotków,  Elektrociepłownia Zgierz,  Zespół Elektrociepłowni Bydgoszcz. As at the date of approval of these financial statement, the demerger was not registered in the National Court Register.

The additional notes constitute an integral part of these consolidated financial statements. 11 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

1.4 Accounting for new acquisitions Accounting for acquisition of EDF companies in Poland The transaction between PGE Polska Grupa Energetyczna S.A. and EDF International SAS and EDF Investment II B.V. concerning the sale of EDF's assets in Poland pursuant to a Conditional Share Sale Agreement of May 19, 2017, was finalised on November 13, 2017. Initial recognition of the acquisition of EDF's assets was done for the purposes of the consolidated financial statements for 2017. In the present period, a process consisting of the valuation of tangible and intangible assets of the acquired entities was completed, so that the final accounting for the assets and liabilities of the acquired entities is included in these financial statements. The following table presents a summary of the recognised assets and liabilities as at the acquisition date.

Values as at November 13, 2017 Initial recognition Adjustments Final recognition Property, plant and equipment and intangible assets 4,710 745 5,455 Other property, plant and equipment 951 (85) 866 Inventories 398 11 409 Cash and cash equivalents 186 - 186 Other current assets 1,166 (1) 1,165 Total assets 7,411 670 8,081 Loans and borrowings 2,839 - 2,839 Provisions 478 - 478 Other liabilities 1,759 48 1,807 Total liabilities 5,076 48 5,124 Net assets of acquired entities 2,335 622 2,957

The following table presents accounting for the acquisition and goodwill arising on consolidation.

Values as at November 13, 2017 Initial recognition Adjustments Final recognition Net assets of acquired entities 2,335 622 2,957 Net assets attributable to non-controlling interests (1,067) (87) (1,154) Exclusion of liabilities (subrogation) 2,285 - 2,285 PGE Group's stake in net assets of acquired entities 3,553 535 4,088 Cash transferred 1,992 - 1,992 Subrogation of liabilities 2,285 - 2,285 Total acquisition price 4,277 - 4,277 Goodwill arising on consolidation 724 (535) 189 The goodwill recognised by PGE Group arises from the fact that in accordance with PGE Group's assumptions discounted cash flows from operating activities that will be generated by the acquired assets will be higher than the net asset value of the acquired companies, established in accordance with IFRS 3. The acquisition of control over EDF's assets in Poland will generate synergies for the Group's entire cogeneration activities, and the acquired assets will be managed and analysed together with other assets in this area. Thus, goodwill will be allocated to the entire cogeneration activity. The goodwill recognised does not constitute goodwill for tax purposes. Due to fair value measurement of assets and final recognition of the acquisition, the net result for the period from November 14 to December 31, 2017 was adjusted by PLN (62) million (of which PLN (60) million was attributable to shareholders of the parent and PLN (2) million to non-controlling interests). The changed data for the comparative period is presented in note 4 to these financial statements. 2. Basis for preparation of financial statements 2.1 Statement of compliance These financial statements are prepared in accordance with International Accounting Standard 34 Interim Financial Reporting and in the scope required under the Minister of Finance Regulation of March 29, 2018 on current and periodic information provided by issuers of securities and conditions of recognition as equivalent information required by the law of a non-Member State (Official Journal 2018, items 512 and 685). IFRS comprise standards and interpretations, approved by the International Accounting Standards Board (“IASB”) and the International Financial Reporting Interpretation Committee (“IFRIC”).

The additional notes constitute an integral part of these consolidated financial statements. 12 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

2.2 Presentation and functional currency The functional currency of the parent company and the presentation currency of these consolidated financial statements is Polish Zloty ("PLN"). All amounts are in PLN millions (PLNm), unless indicated otherwise. For the purpose of translation at the reporting date of items denominated in currency other than PLN the following exchange rates were applied:

September 30, 2018 December 31, 2017 September 30, 2017 USD 3.6754 3.4813 3.6519 EUR 4.2714 4.1709 4.3091

2.3 New standards and interpretations published, not yet effective The following standards, changes in already effective standards and interpretations are not endorsed by the European Union or are not effective as at January 1, 2018:

Standard Description of changes Effective date Standard in the current IFRS 14 Regulatory Deferral Accounting and disclosure principles for regulatory deferral accounts. version will not be Accounts effective in the EU Amendments to IFRS 10 and IAS 28 Deals with the sale or contribution of assets between an investor and its joint Postponed indefinitely venture or associate. The standard eliminates the classification of leases as either operating or finance IFRS 16 Leases lease in the lessee’s accounts. All contracts which meet the criteria of lease will be January 1, 2019 recognized as finance lease. Amendments to IFRS 9 These changes apply to the right of early repayment with negative fees. January 1, 2019 IFRIC 23 Uncertainty over income This interpretation applies to establishing taxable revenue, tax base, unsettled tax January 1, 2019 tax treatments losses, unused tax rebates and tax rates. Amendments to IAS 28 This amendment concerns measurement of non-current investments in January 1, 2019 associates A collection of amendments dealing with: IFRS 3 - measurement of existing stake in a joint operation; Annual improvements to IFRS (cycle January 1, 2019 IFRS 11 - no measurement of existing stake in a joint operation; 2015-2017) IFRS 12 - income tax consequences of dividends; IAS 23 - financing costs when an asset is ready for its intended use. Amendments to IAS 19 Amendments concern defined-benefit plans. January 1, 2019 Amendments to the Conceptual These amendments aim to harmonise the Conceptual Framework January 1, 2020 Framework IFRS 17 Insurance contracts Defines a new approach to recognising revenue and profit/loss in the period January 1, 2021 in which insurance services are provided Amendments to IFRS 3 These changes clarify the definition of economic activity January 1, 2020 PGE Group intends to adopt the above mentioned new standards, amendments to standards and interpretations published by the International Accounting Standards Board but not yet effective at the reporting date, when they become effective.

Impact of new regulations on PGE Group's consolidated financial statements IFRS 16 Leases The new standard changes principles for the recognition of contracts which meet the criteria of lease. The main change is to eliminate the classification of leases as either operating leases or finance leases in the lessee’s accounts. All contracts which meet the criteria of a lease will be recognised as a finance lease. Adoption of the standard will have the following effect:  in the statement of financial position: increase of non-financial non-current assets and financial liabilities,  in the statement of comprehensive income: decrease of operating expenses (other than depreciation/amortisation), increase of depreciation/amortisation and finance expenses.  increase in net debt and net debt to EBITDA due to proportionally higher increase in financial liabilities than decrease in operating expenses other than depreciation/amortisation PGE is currently analysing the potential impact of IFRS 16 on its future financial statements. The Group inventoried its contracts in order to identify those that contain a lease or a lease component in accordance with IFRS 16.

The additional notes constitute an integral part of these consolidated financial statements. 13 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

The following areas were identified as potentially being influenced by IFRS 16:

 right to perpetual usufruct of land - both purchased and received as contribution-in-kind or received free of charge based on an administrative decision;  land easements and transmission service easements;  decisions on use of road strip;  tenancy agreements, lease agreements, etc. related to the installation of power line and technical infrastructure (heat transfer systems, transformers);  tenancy agreements, lease agreements, etc. related to office space;  tenancy agreements, lease agreements, etc. related to buildings, structures and technical equipment.

The Group is currently analysing which of these agreements should be recognised and measured as a lease contract, what interest rate should be used for measuring the liability, how to define the lease term and which exemptions and simplifications from IFRS 16 to use. The largest impact on the consolidated financial statements will come from recognising perpetual usufruct assets and a lease liability related to the recognition of rights to perpetual usufruct of land. According to preliminary estimates, the balance sheet total as at January 1, 2019 might increase by nearly PLN 0.6 billion due to this. Interest rates used for particular PGE Group companies for the purposes of transfer pricing were applied to measurement and it was assumed that the liability will be settled over the period for which the right had been granted unless there are justified indications that the right will be used for a shorter period (e.g. in the case of mines this is a period for which coal is expected to be mined). Analysis of the standard has not been finished. The aforementioned conclusions and estimates of the impact on future financial statements are subject to change. Other standards The other standards and amendments should not have a major impact on PGE Group's future financial statements. 2.4 Professional judgment of management and estimates In the process of applying accounting rules with regards to the below issues, management has made judgements and estimates that affect the amounts presented in the consolidated financial statements, including in other explanatory information. The estimates are based on the best knowledge of the Management Board relating to current and future operations and events in particular areas. Detailed information on the assumptions made is presented below or in respective explanatory notes.  In the previous reporting periods PGE Group recognised impairment losses on assets, in particular of property, plant and equipment. In the present period, the Group conducted impairment tests. Estimate of recoverable amount of property, plant and equipment is based on a number of significant assumptions to the factors, realisation of which is uncertain and mostly beyond PGE Group's control. The Group believes that it has assumed the most accurate volumes and values. Nevertheless, realisation of the particular assumptions may diverge from the ones established by the Group.  In the present period, PGE Group finished accounting for the acquisition of EDF's assets in Poland. Accounting for the acquisition required the fair values of the acquired assets and liabilities to be established. Especially, the fair value of the acquired tangible and intangible assets required the adoption of a range of assumptions such as technical and functional state or the replacement value. In performing these measurements, the Group was assisted by independent experts. The change in the value of assets and liabilities had an impact on the final calculation of goodwill.  Provisions are liabilities of uncertain amount or timing. During the reporting period, the Group changed estimates regarding the validity or amounts of some provisions. Changes in estimates are presented in note 18 of these consolidated financial statements.  Uncertainties concerning tax treatment are described in note 22 to the consolidated financial statements. No significant changes in the value of estimates having impact on these consolidated financial statements took place. 3. Impairment tests on property, plant and equipment, intangible assets and goodwill Property, plant and equipment is PGE Group's most significant group of assets. Due to changeable macroeconomic conditions PGE Group regularly verifies the impairment indicators of its assets. When assessing the market situation PGE Group uses both its own analytical tools and independent think tanks’ support. In previous reporting periods, PGE Group recognized substantial impairment allowances of property, plant and equipment of Conventional Generation segment and the Renewables segment. Key assumptions and results of impairment test conducted in 2017 are described in PGE Group's consolidated financial statements for 2017. In the third quarter of 2018, the Group analysed impairment indications and did not identify factors that could result in changes to the asset values in the above segments, as compared to the results of analyses carried out at the end of the first half of 2018. Due to the above, according to PGE Group, the results of tests conducted as at May 31, 2018, and described in the condensed consolidated interim financial statements for the 6-month period ended June 30, 2018, are valid as at September 30, 2018. However in the following years of 2018 and 2019 the crucial settlements are awaited and related to i.a. expected revenues from capacity market or support of cogeneration units, which have a significant impact on value-in-use of Group’s assets.

The additional notes constitute an integral part of these consolidated financial statements. 14 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

4. Changes in accounting principles and data presentation New standards and interpretations which became effective on January 1, 2018 The accounting principles (policies) applied in preparing these consolidated financial statements are consistent with those applied in preparing the Group's consolidated financial statements for 2017, except as stated below. The following amendments to IFRSs are applied in these financial statements in line with their effective dates. Amendments relating to IFRS 9 and IFRS 15 as well as a change in outgoing method for CO2 emission allowances are described below. The other amendments did not have material impact on the presented and disclosed financial information or they were not applicable to the Group's transactions:  Amendments to IFRS 2 - Classification and measurement of share-based payment transactions  Amendments to IFRS 4 - Application of IFRS 9 Financial instruments jointly with IFRS 4 Insurance contracts  Amendments resulting from IFRS annual improvement cycle 2014-2016 - amendments to IFRS 1, IAS 28;  Amendments to IAS 40 - Classification of properties: i.e. transfer from investment property to other groups of assets.  Amendments to IFRIC 22 - Guidelines specifying determination of the date of a transaction and related spot foreign exchange rate to be used in case foreign currency payments are made. IFRS 9 Financial Instruments IFRS 9 replaced IAS MSR 39 Financial instruments: recognition and measurement and is effective for annual periods beginning on or after January 1, 2018. IFRS addressed three areas related to financial instruments: classification and measurement, impairment and hedge accounting. Financial assets are subject to classification in the following categories of financial instruments:  measured at amortised cost;  measured at fair value through other comprehensive income ("FVTOCI");  measured at fair value through profit or loss ("FVTPL"). The classification of financial assets is based on the business model and characteristics of cash flows. A debt instrument is measured at amortised cost if both of the following conditions are met:  the objective of the entity's business model is to hold the financial asset to collect the contractual cash flows;  the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (SPPI test). A debt instrument is measured at FVTOCI if both of the following conditions are met:  the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets;  the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (SPPI test). All other debt instruments that are not mentioned above must be measured at fair value through profit or loss (FVTPL). All equity investments are measured at fair value. If an equity investment is not held for trading, the Group can make an irrevocable decision to recognise changes at FVTOCI if the instrument is not held for trading. For equity instruments held for trading, changes in fair value are recognised in profit or loss. All standard transactions of purchase or sale of financial assets are recognised at the transaction date, i.e. at the date on which the entity committed to purchase the asset. Standard transactions of purchase or sale of financial assets are transactions in which delivery of the asset is explicitly stated by law or customs in a given market. An impairment model is based on expected credit losses and its scope covers the following:

 Financial assets measured at amortised cost;  Financial assets measured at FVTOCI;  Loan commitments when there is a present obligation of starting point;  Guarantee contracts to which IFRS 9 is applied;  Lease receivables within the scope of IAS 17;  Contract assets within the scope of IFRS 15. The Group applies requirements concerning impairment in order to recognise and measure impairment on expected credit losses on these financial assets that are measured at fair value through other comprehensive income. A loss allowances is recognised in other comprehensive income and does not reduce the balance sheet value of the financial asset in the statement of financial position.

The additional notes constitute an integral part of these consolidated financial statements. 15 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

With the exception of purchased or originated credit impaired financial assets, expected credit losses are required to be measured through a loss allowance at an amount equal to:  the 12-month expected credit losses (expected credit losses that result from those default events on the financial instrument that are possible within 12 months after the reporting date); or  full expected credit losses over the life of the financial instrument. These losses should be recognised when the relevant financial instrument expires. The impairment of a financial asset if the credit risk of that financial instrument has increased significantly since initial recognition, regardless of whether it was measured separately or collectively, should take into account all rational and documentable information, including forward-looking data. The Group applies the following rules for estimating and recognising loss allowances on financial assets:  for trade receivables from significant clients that are subject to a credit risk assessment procedure, the Group estimates expected credit losses based on a model used to evaluate this risk on the basis of ratings assigned to counterparties; ratings have a likelihood of default assigned, which is adjusted to reflect impact of macroeconomic factors;  for trade receivables from mass or clients not covered by the credit risk assessment procedure, the Group estimates expected credit losses based on an analysis of the likelihood of credit losses in each age structure;  for deposits in banks, the Group estimates expected credit losses based on a model used to evaluate this risk on the basis of ratings assigned to banks by external institutions; ratings have a likelihood of default assigned, which is adjusted to reflect impact of macroeconomic factors; The Group classified financial liabilities in one of the following categories:  measured at amortised cost;  measured at fair value through profit or loss. After analysis, the Group decided not to implement the changes resulting from IFRS 9 regarding hedge accounting from January 1, 2018. The Group applied IFRS 9 from January 1, 2018, without restating its comparative data. The Group analysed the business model as at the first date of application of IFRS 9, i.e. January 1, 2018, and subsequently applied retrospectively, regardless of what business model was used in previous reporting periods on these assets for which recognition had not ceased prior to January 1, 2018. The Group analysed compliance with SPPI criteria based on facts and circumstances at the moment of the initial recognition of financial assets. If PGE Group had applied IFRS 9 in its financial statements for 2017, impairment losses on financial assets as at December 31, 2017, would have been approx. PLN 4 million higher. Equity as at December 31, 2017 would have decreased by about PLN 4 million gross (no impact on deferred tax). Due to the insignificant impact of the new standard, its effects were not recognised in retained earnings as at January 1, 2018. Starting from January 1, 2018, PGE Group recognises expected credit losses in accordance with IFRS 9 requirements. Changes in the classification of financial instruments resulted in the change of name of several items from the statement of financial position but no amounts were reclassified between items.

IFRS 15 Revenue from Contracts with Customers IFRS 15 repeals IAS 11 Construction Contracts, IAS 18 Revenue and related interpretations, and applies to all contracts with customers, with the exception of those that fall under the scope of other standards. The new standard establishes the Five Step Model for recognising revenue from contracts with customers. According to IFRS 15, revenue is recognised in the amount that - according to the entity's expectations - is due in exchange for delivery of the goods or services to the customer. Revenue is recognised so as to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Group recognises revenue from a contract with a client only if all of the following criteria are met:

 the parties have executed a contract (in written or verbal form or in accordance with customary trade practices) and are obligated to perform their duties;  the Group is able to identify the rights of each of the parties with regard to the goods or services that are to be transferred;  the Group is able to identify terms of payment for the goods or services that are to be transferred;  the contract has commercial substances;  it is probable that the consideration to which the entity is entitled to in exchange for the goods or services will be collected. Upon contract execution, the Group analyses the goods or services covered by the contract with the client and identifies as a performance obligation all commitments to provide the client with:  goods or services (a bundle of goods or services) that are distinct; or  the series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

The additional notes constitute an integral part of these consolidated financial statements. 16 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

The Group recognises revenue when the performance obligation concerning the goods and services is met (or is in the process of being met). The transfer of the asset occurs when the client obtains control over the asset, i.e. gains the ability to directly manage the asset and obtain largely all other benefits from it. The Group transfers control over goods or services over time and thus satisfies the performance obligation and recognises revenue over time if one of the following conditions is met:  the customer simultaneously receives and derives benefits from the Group's consideration as the Group provides the consideration;  as a result of the Group's consideration a new or improved asset is created (e.g. production in progress) and control over this asset - as it is created or improved - is exercised by the customer; or  as a result of the Group's consideration no new asset is created for alternative use by the Group and the Group has an enforceable title to pay for the consideration provided thus far.

For each performance obligation over time, the Group recognises revenue over time, measuring the degree of performance of this obligation. The aim of this measurement is to establish progress in performing this obligation to transfer control over goods or services promised to the client (i.e. degree of obligation performance). The Group applied IFRS 15 from the date it enters into force, i.e. January 1, 2018, without restating its comparative data. In connection with this, as at January 1, 2018, the Group recognised PLN 340 million in retained earnings, as a one-off settlement of revenue from connection fees, which prior to entry into force of IFRIC 18 Transfers of Assets from Customers, i.e. prior to July 1, 2009, had been recognised as deferred income and were settled over time, whereas under IFRS 15 they should be accounted for on a one-off basis when the connection is made. The impact of applying IFRS 15 on the Group's consolidated financial statements in the third quarter of 2018, compared to IAS 11, IAS 18 and the related interpretations, is presented below.

September 30, 2018 Connection fees Transition fee and Gas distribution September 30, 2018 renewables fee and transmission published data without IFRS 15 STATEMENT OF PROFIT OR LOSS SALES REVENUES 18,962 28 460 20 19,470 COST OF GOODS SOLD (14,922) - (460) (20) (15,402) GROSS PROFIT 2,159 28 - - 2,187 Income tax (460) (5) - - (465) NET PROFIT FOR THE REPORTING PERIOD 1,699 23 - - 1,722

STATEMENT OF FINANCIAL POSITION Retained earnings 6,412 (340) - - 6,072 Net profit 1,699 23 - - 1,722 TOTAL EQUITY 48,303 (317) - - 47,986 Deferred income tax provision 1,408 (69) - - 1,339 Deferred income and governments grants 683 386 - - 1,069 TOTAL LIABILITIES 25,200 317 - - 25,517

The transition fee and renewables fee, which are collected from end users by PGE Dystrybucja S.A. and PGE Górnictwo i Energetyka Konwencjonalna S.A., and then passed on to the Transmission System Operator ("TSO"), constitute a sort of fee collected from electricity end users, which is why in accordance with IFRS 15 they should not be treated as revenue. From the beginning of 2018, these fees are recognised on a net basis. The renewables fee for 2018 is zero. For gas distribution and transmission services, PGE Obrót S.A. serves as intermediary and therefore has no influence over the key parameters of the services - this is governed by existing regulations concerning terms for the distribution of gas fuel. PGE Obrót is not responsible for failure to perform, or incorrect performance, of framework agreements to provide gas fuel distribution and transmission services. It also does not bear the risk of storing inventories prior to this service being provided to the client. It has no influence over the prices of distribution and transmission services. Given the above, in accordance with IFRS 15, revenues and costs related to distribution and transmission services are recognised in net values from the beginning of 2018. The Group decided not to apply early any other standards, interpretations or amendments that were published but are not yet effective.

The additional notes constitute an integral part of these consolidated financial statements. 17 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

Changes in applied accounting principles and data presentation

 Change in outgoing method for CO2 emission allowances

In previous reporting periods, PGE Group applied the first in, first out method (FIFO) to CO2 emission allowances. The outgoing method for CO2 emission allowances has a direct impact on the measurement of a provision for shortages of free emission allowances, which is created in an amount that is equal to the best estimate of costs necessary to perform the redemption obligation with respect to CO2 emission allowances. PGE Group purchases CO2 emission allowances when sales are contracted, i.e. in a great majority of cases - prior to actual emission. Because CO2 emissions concerning contracted sales are purchased both in derivative transactions and on-going, the FIFO method did not reflect the commercial substance faithfully how PGE Group secures its demand for allowances. Given the above, PGE Group voluntarily changed rules for CO2 accounting to the detailed identification method. Because when a transaction to purchase CO2 emission allowances, the Group allocates a given bath to the given period and this method credibly presents the transaction's economic substance. If PGE Group did not change its accounting policy in this scope, in the period ended on and as at September 30, 2018 this would result in the following:

 cost of own sales and value of provisions for shortages of CO2 emission allowances would be PLN 535 million higher,  deferred income tax asset would have been higher and tax burden in the statement of comprehensive income would have been lower by PLN 102 million;  gross profit would have been PLN 535 million lower, while net profit would have been PLN 433 million lower,  earnings per share would have been lower by PLN 0.23 per share. Applying the specific identification method in estimating the provision for shortage of free emission allowances in earlier periods does not yield a different result than the FIFO method, which presented the actual usage of emission allowances, in connection with which the change in accounting policy did not have an impact on the financial results presented in previous reporting periods and does not require comparative data to be restated.  Change in presentation of employee benefits concerning accrued leave and bonuses In the present period, the Group decided to change the way in which it presents employee benefits concerning accrued leave, bonuses and similar from the item "provisions" to the item "other non-financial liabilities." According to the Group, this method of presentation better meets the requirements of IFRS 19 Employee Benefits. PGE Group restated its comparative data presented in the statements of financial position. The restatement is presented in the table below. Information presented in notes to these financial statements was also restated accordingly.  Final accounting for the acquisition of EDF's assets in Poland As described in note 1.4 to these financial statements, during the analysed period PGE Group conducted a final accounting for the acquisition of the assets and liabilities of EDF's Polish companies. Fair value measurement of property, plant and equipment, intangible assets and investment properties by external appraisers resulted in changes in values from the preliminary accounting for the acquisition as of November 13, 2017 and results for the period from November 14 to December 31, 2017.

The additional notes constitute an integral part of these consolidated financial statements. 18 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

Given the above reasons, comparative data for previous periods was restated as shown below.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at Final Change As at December 31, accounting December 31, of presentation 2017 2017 of EDF published data restated data acquisition NON-CURRENT ASSETS, including: Property, plant and equipment 58,620 390 - 59,010 Investment property 47 3 - 50 Intangible assets 1,281 (249) - 1,032 Deferred income tax assets 651 (80) - 571 TOTAL NON-CURRENT ASSETS 62,586 64 - 62,650

CURRENT ASSETS, including: Inventories 1,879 11 - 1,890 TOTAL CURRENT ASSETS 9,508 11 - 9,519

ASSETS CLASSIFIED AS HELD FOR SALE 12 2 - 14 TOTAL ASSETS 72,106 77 - 72,183

EQUITY, including Retained earnings 10,616 (60) - 10,556 EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 45,188 (60) - 45,128 Equity attributable to non-controlling interests 1,165 85 - 1,250 TOTAL EQUITY 46,353 25 - 46,378

NON-CURRENT LIABILITIES, including: Non-current provisions 5,666 - (15) 5,651 Deferred income tax provision 1,250 52 - 1,302 TOTAL NON-CURRENT LIABILITIES 16,773 52 (15) 16,810

CURRENT LIABILITIES, including: Current provisions 2,404 - (413) 1,991 Other non-financial liabilities 1,305 - 428 1,733 TOTAL CURRENT LIABILITIES 8,980 - 15 8,995

TOTAL LIABILITIES 25,753 52 - 25,805 TOTAL EQUITY AND LIABILITIES 72,106 77 - 72,183

CONSOLIDATED STATEMENT OF CASH FLOWS As at As at September 30, Change in September 30,

2017 presentation 2017 published data restated data CASH FLOWS FROM OPERATING ACTIVITIES Adjustment for items, including: Change in liabilities, excluding loans and borrowings (411) 149 (262) Change in provisions (290) (149) (439) NET CASH FROM OPERATING ACTIVITIES 5,245 - 5,245

The additional notes constitute an integral part of these consolidated financial statements. 19 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

5. Fair value hierarchy The principles for valuation of inventories, derivatives, shares and instruments not quoted on active markets, for which fair value may not be determined reliably, are the same as presented in the financial statements for the year ended December 31, 2017. The Group measures derivatives at fair value using valuation models for financial instruments based on publicly available exchange rates, interest rates, discount curves in particular currencies (applicable also for commodities which prices are denominated in these currencies) derived from active markets. The fair value of derivatives is determined based on discounted future cash flows from transactions, calculated on the difference between the forward rate and transaction price. Forward exchange rates are not modelled as separate risk factor, but are derived from the spot rate and appropriate forward interest rate for foreign currencies in relation to PLN.

As at September 30, 2018 As at December 31, 2017 FAIR VALUE HIERARCHY Level 1 Level 2 Level 1 Level 2 Currency forwards - 22 - 2 Commodity forwards - 13 - 14 Commodity SWAP - 56 - 64 Contracts for purchase/sale of coal - 3 - 9 Measurement of CCIRS transactions - 101 - 44 Measurement of IRS transactions - 65 - 98 Options - 15 - 24 Fund participation units - 66 - 50 Financial assets - 341 - 305 Currency forwards - 45 - 82 Commodity SWAP - 6 - 7 Contracts for purchase/sale of coal - 22 - 20 Measurement of IRS transactions - 8 - 15 Financial liabilities - 81 - 124 During the current and comparative reporting periods, there have been no transfers of financial instruments between the first and the second level of fair value hierarchy.

The additional notes constitute an integral part of these consolidated financial statements. 20 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPLANATORY NOTES TO OPERATING SEGMENTS 6. Information on operating segments PGE Group companies conduct their business activities based on relevant concessions, including primarily concession on: production, trade and distribution of electricity, generation, transmission and distribution of heat, granted by the President of Energy Regulatory Office and concessions for the extraction of lignite deposits, granted by the Minister of the Environment. Concessions, as a rule, are being issued for the period between 10 and 50 years. PGE Group's key concessions expire in the years 2020-2038. Relevant assets are assigned to the held concessions on lignite mining and generation and distribution of electricity and heat, which was presented in detailed information on operating segments. For its concessions concerning electricity and heat the Group incurs annual charges dependent on the level of turnover, whereas for conducting licensed extraction of lignite the exploitation charges as well as fees for the use of mining are borne. The exploitation charges depend on the current rate and the volume of the extraction. PGE Group presents information on operating segments in the current and comparative reporting period in accordance with IFRS 8 Operating Segments. PGE Group’ segment reporting is based on the following business segments:  Conventional Generation comprises exploration and mining of lignite and production of electricity in the Group’s power plants and heat and power plants as well as ancillary services.  Renewables comprise generation of electricity in pumped-storage power plants and from renewable sources.  Supply includes sales and purchases of electricity and gas on the wholesale market, trading in emissions certificates and energy origin rights, sales and purchases of fuel, as well as sales of electricity and rendering services to end users,  Distribution comprises management over local distribution networks and transmission of electricity.  Other operations comprise services rendered by the subsidiaries for the Group, e.g. fund raising, IT, telecommunication, accounting and HR, and transport services. Additionally, the other operations segment comprises the activities of a subsidiary whose main business is preparation and implementation of a nuclear power plant construction project, investments in startups. Organisation and management over PGE Group is based on segment reporting separated by nature of the products and services provided. Each segment represents a strategic business unit, offering different products and serving different markets. Assignment of particular entities to operating segments is described in note 1.3 of these consolidated financial statements. As a rule, inter-segment transactions are disclosed as if they were concluded with third parties – under market conditions. When analysing the results of particular business segments the management of PGE Group draws attention primarily to EBITDA. In November 2017, PGE Group purchased EDF's assets in Poland. Assignment of particular assets to operating segments is described in note 1.3 of these consolidated financial statements. Segment results for the first three quarters of 2017 do not include the assets acquired from EDF. The results of the acquired assets are primarily visible in the Conventional Generation segment, as shown in chapter 4 of the Management Board report on the Group's activities. Seasonality of business segments Main factors affecting the demand for electricity and heat are: weather conditions – air temperature, wind force, rainfall, socio- economic factors – number of energy consumers, energy product prices, growth of GDP and technological factors – advances in technology, product manufacturing technology. Each of these factors has an impact on technical and economic conditions of production, distribution and transmission of energy carriers, thus influence the results obtained by PGE Group. The level of electricity sales is variable throughout a year and depends especially on weather conditions - air temperature, length of the day. Growth in electricity demand is particularly evident in winter periods, while lower demands are observed during the summer months. Moreover, seasonal changes are evident among selected groups of end users. Seasonality effects are more significant for households than for the industrial sector. In the Renewables segment, electricity is generated from natural resources such as water, wind and sun. Weather conditions are an important factor affecting electricity generation in this segment. Sales of heat depend in particular on air temperature and are higher in winter and lower in summer.

The additional notes constitute an integral part of these consolidated financial statements. 21 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

6.1 Information on business segments Information on business segments for the period ended September 30, 2018

Conventional Other Renewables Supply Distribution Adjustments Total Generation activity STATEMENT OF PROFIT OR LOSS Sales to external customers 6,228 442 7,830 4,278 174 10 18,962 Inter-segment sales 5,834 176 2,384 74 299 (8,767) - TOTAL SEGMENT REVENUE 12,062 618 10,214 4,352 473 (8,757) 18,962 Cost of goods sold (10,407) (434) (8,770) (3,175) (393) 8,257 (14,922) EBIT *) 709 163 440 1,016 - 35 2,363 Net finance income / (expenses) (262) Share of profit/(loss) of entities 58 accounted for using the equity method GROSS PROFIT 2,159 Income tax (460) NET PROFIT FOR THE REPORTING 1,699 PERIOD Depreciation, amortisation, disposal and 1,657 191 19 876 65 (30) 2,778 impairment recognised in profit or loss EBITDA **) 2,366 354 459 1,892 65 5 5,141 ASSETS AND LIABILITIES Assets excluding trade receivables 43,710 3,110 2,150 17,312 651 (852) 66,081 Trade receivables 1,127 61 3,067 838 118 (2,247) 2,964 Shares accounted for using the equity 752 method Unallocated assets 3,706 TOTAL ASSETS 73,503 Segment liabilities excluding trade 8,424 338 1,144 1,727 114 (177) 11,570 liabilities Trade liabilities 1,069 27 1,906 234 41 (2,151) 1,126 Unallocated liabilities 12,504 TOTAL LIABILITIES 25,200 OTHER INFORMATION ON BUSINESS

SEGMENT Capital expenditures 2,615 64 9 1,069 114 (112) 3,759 Impairment losses on financial and non- 216 - 24 9 1 - 250 financial assets Other non-monetary expenses ***) 1,580 13 610 100 22 (146) 2,179 *) EBIT = operating profit (loss) **) EBITDA = EBIT + depreciation, amortisation, disposal and impairment losses (PPE, IA, goodwill) that are recognised in profit or loss

***) Non-monetary expenses include mainly changes in provisions such as: rehabilitation provision, provision for CO2 emission rights, provision for jubilee awards, employee tariff and non-financial liabilities concerning employee benefits that are recognised in profit or loss and other comprehensive income.

The additional notes constitute an integral part of these consolidated financial statements. 22 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

Information on business segments for the period ended September 30, 2017

Conventional Other Renewables Supply Distribution Adjustments Total Generation activity STATEMENT OF PROFIT OR LOSS Sales to external customers 4,222 445 10,229 1,639 131 27 16,693 Inter-segment sales 5,176 85 1,011 3,088 206 (9,566) - TOTAL SEGMENT REVENUE 9,398 530 11,240 4,727 337 (9,539) 16,693 Cost of goods sold (6,621) (436) (9,719) (3,612) (315) 9,072 (11,631) EBIT *) 2,233 41 594 939 (28) 36 3,815 Net finance income / (expenses) (202) Share of profit/(loss) of entities 11 accounted for using the equity method GROSS PROFIT 3,624 Income tax (667) NET PROFIT FOR THE REPORTING 2,957 PERIOD Depreciation, amortisation, disposal and 1,168 198 20 868 68 (29) 2,293 impairment recognised in profit or loss EBITDA **) 3,401 239 614 1,807 40 7 6,108 ASSETS AND LIABILITIES Assets excluding trade receivables 36,477 3,418 939 16,757 548 (828) 57,311 Trade receivables 801 75 2,576 807 78 (1,898) 2,439 Shares accounted for using the equity 626 method Unallocated assets 7,468 TOTAL ASSETS 67,844 Segment liabilities excluding trade 6,829 331 1,018 1,761 68 15 10,022 liabilities Trade liabilities 596 30 1,732 237 16 (1,808) 803 Unallocated liabilities 11,341 TOTAL LIABILITIES 22,166 OTHER INFORMATION ON BUSINESS

SEGMENT Capital expenditures 3,041 49 9 1,060 85 (51) 4,193 Impairment losses on financial and non- 152 13 9 5 - - 179 financial assets Other non-monetary expenses ***) 1,228 14 613 60 18 2 1,935 *) EBIT = operating profit (loss) **) EBITDA = EBIT + depreciation, amortisation, disposal and impairment losses (PPE, IA, goodwill) that are recognised in profit or loss

The additional notes constitute an integral part of these consolidated financial statements. 23 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Period ended

Q1 Q2 Q3 September 30, (unaudited) (unaudited) (unaudited) 2018 Revenue from sales 7,137 5,734 6,091 18,962 Cost of goods sold (5,229) (4,625) (5,068) (14,922) GROSS PROFIT ON SALES 1,908 1,109 1,023 4,040 Net other operating income / (expenses) 26 10 14 50 EBIT 1,315 516 532 2,363 Net finance income / (expenses) (101) (107) (54) (262) Share of profit/(loss) of entities accounted for using the equity 11 32 15 58 method GROSS PROFIT 1,225 441 493 2,159 Income tax (239) (131) (90) (460) NET PROFIT FOR THE REPORTING PERIOD 986 310 403 1,699

Period ended

Q1 Q2 Q3 September 30, (unaudited) (unaudited) (unaudited) 2017 Revenue from sales 5,741 4,879 6,073 16,693 Cost of goods sold (4,149) (3,723) (3,759) (11,631) GROSS PROFIT ON SALES 1,592 1,156 2,314 5,062 Net other operating income / (expenses) 89 40 7 136 EBIT 1,201 731 1,883 3,815 Net finance income / (expenses) (63) (59) (80) (202) Share of profit/(loss) of entities accounted for using the equity 9 (8) 10 11 method GROSS PROFIT 1,147 664 1,813 3,624 Income tax (184) (132) (351) (667) NET PROFIT FOR THE REPORTING PERIOD 963 532 1,462 2,957 7. Revenue and costs 7.1 Revenue from sales

Period ended

Q1 Q2 Q3 September 30, (unaudited) (unaudited) (unaudited) 2018 REVENUE FROM SALES Revenue from sales, without excluding taxes and fees 7,344 6,027 6,284 19,655 Taxes and fees collected on behalf of third parties (282) (264) (277) (823) Revenue from sale of goods and products, including: 7,062 5,763 6,007 18,832 Sale of electricity 3,802 3,565 3,862 11,229 Sale of distribution services 1,443 1,331 1,357 4,131 Sale of heat 852 292 221 1,365 Sale of energy origin certificates 206 66 69 341 Regulatory system services 153 143 149 445 Sale of gas 242 72 83 397 Sale of fuel 245 154 131 530 Other sales of goods and materials 119 140 135 394 Revenue from sale of services 61 68 83 212 Revenues from LTC compensations 14 (97) 1 (82) TOTAL REVENUE FROM SALES 7,137 5,734 6,091 18,962 The increase in revenue from sales in the period ended September 30, 2018, compared to the same period in the previous year, resulted mainly from the recognition of revenue generated by EDF's companies in Poland acquired in 2017. The acquired assets had the largest impact on growth in revenue from the sale of electricity, heat, fuels and energy origin rights.

Correction of revenue from LTC in the present period compensations results from an update of price paths for electricity, CO2 and gas over a long-term horizon to the end of the programme, i.e. to 2024.

The additional notes constitute an integral part of these consolidated financial statements. 24 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

Q1 Q2 Q3 Period ended

September 30, (unaudited) (unaudited) (unaudited) 2017 REVENUE FROM SALES

Revenue from sales, without excluding taxes and fees 5,743 4,949 4,910 15,602 Taxes and fees collected on behalf of third parties (125) (116) (114) (355) Revenue from sale of goods and products, including: 5,618 4,833 4,796 15,247 Sale of electricity 3,221 2,814 2,910 8,945 Sale of distribution services 1,574 1,453 1,473 4,500 Sale of heat 285 129 88 502 Sale of energy origin certificates 158 87 (7) 238 Regulatory system services 147 125 124 396 Sale of gas 146 135 92 373 Other sales of goods and materials 87 90 116 293 Revenue from sale of services 123 46 66 235 Revenues from LTC compensations - - 1,211 1,211 TOTAL REVENUE FROM SALES 5,741 4,879 6,073 16,693

7.2 Costs by nature and function Q1 Q2 Q3 Period ended (unaudited) (unaudited) (unaudited) September 30, 2018 COSTS BY NATURE Depreciation, amortisation and impairment losses 923 976 955 2,854 Materials and energy 1,369 975 1,117 3,461 External services 574 622 611 1,807 Taxes and fees 927 808 1,028 2,763 Employee benefits expenses 1,236 1,231 1,187 3,654 Other costs by nature 66 80 82 228 TOTAL COST BY NATURE 5,095 4,692 4,980 14,767 Change in product inventories (6) (2) (7) (15) Cost of products and services for the entity’s own needs (243) (249) (323) (815) Distribution and selling expenses (363) (348) (280) (991) General and administrative expenses (256) (255) (225) (736) Cost of goods and materials sold 1,002 787 923 2,712 COST OF GOODS SOLD 5,229 4,625 5,068 14,922

Growth in the consumption of materials and energy in the period ended September 30, 2018, compared to the same period last year, resulted from an increase in the cost of fuel for production purposes. The largest impact on the change in fuel costs had coal- and gas- fired assets acquired from EDF.

Q1 Q2 Q3 Period ended (unaudited) (unaudited) (unaudited) September 30, 2017 COSTS BY NATURE Depreciation, amortisation and impairment losses 778 797 808 2,383 Materials and energy 758 589 634 1,981 External services 671 642 668 1,981 Taxes and fees 863 727 735 2,325 Employee benefits expenses 1,098 1,094 1,023 3,215 Other costs by nature 53 53 75 181 TOTAL COST BY NATURE 4,221 3,902 3,943 12,066 Change in product inventories (18) 2 8 (8) Cost of products and services for the entity’s own needs (190) (246) (244) (680) Distribution and selling expenses (304) (296) (282) (882) General and administrative expenses (176) (169) (156) (501) Cost of goods and materials sold 616 530 490 1,636 COST OF GOODS SOLD 4,149 3,723 3,759 11,631

The additional notes constitute an integral part of these consolidated financial statements. 25 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

7.2.1 Depreciation, amortisation, disposal and impairment losses The following presents depreciation, amortisation, disposals and impairment losses of property, plant and equipment, intangible assets in the statement of comprehensive income.

Period ended Depreciation, amortisation, disposal Impairment Property, plant Intangible Investment Property, plant Intangible September 30, 2018 TOTAL TOTAL and equipment assets property and equipment assets Cost of goods sold 2,450 69 1 2,520 202 - 202 Distribution and selling expenses 8 2 - 10 - - - General and administrative 29 15 - 44 2 - 2 expenses RECOGNISED IN PROFIT OR LOSS 2,487 86 1 2,574 204 - 204 Cost of products and services for 76 - - 76 - - - the entity’s own needs TOTAL 2,563 86 1 2,650 204 - 204 Other operating income - - - - (2) - (2)

Period ended Depreciation, amortisation, disposal Impairment Property, plant Intangible Investment Property, plant Intangible September 30, 2017 TOTAL TOTAL and equipment assets property and equipment assets Cost of goods sold 2,116 59 1 2,176 79 - 79 Distribution and selling expenses 9 4 - 13 - - - General and administrative 16 9 - 25 - - - expenses RECOGNISED IN PROFIT OR LOSS 2,141 72 1 2,214 79 - 79 Cost of products and services for 90 - - 90 - - - the entity’s own needs TOTAL 2,231 72 1 2,304 79 - 79 Impairment allowances recognised in the reporting period concern investment expenditures at units for which impairment had been recognised in previous periods. 7.3 Other operating income and expenses Period ended Period ended September 30, 2018 September 30, 2017 OTHER OPERATING INCOME Penalties, fines and compensations received 92 64 Tax refund 30 2 Reversal of impairment losses on receivables 28 13 Reversal of other provisions 19 25 Grants received 18 21 Surpluses / asset disclosures 14 2 Gain on sale of property, plant and equipment and intangible assets 13 8 Property, plant and equipment and intangible assets received free of charge 9 8 Revenue from illegal energy consumption 3 5 Compensation for legal proceedings’ costs 3 3 Reversal of impairment allowances on other assets 3 - Adjustment of revenues from LTC compensations - 69 Other 39 39 TOTAL OTHER OPERATING INCOME 271 259

Period ended Period ended September 30, 2018 September 30, 2017 OTHER OPERATING EXPENSES Recognition of impairment losses 72 37 Recognition of other provisions 61 17 Effect of change in rehabilitation provision 17 - Re-invoicing 14 7 Donations granted 11 13 Damage / failure removal 9 13 Liquidation of property, plant and equipment and intangible assets related to 7 3 other activities Legal proceedings’ costs 4 4 Other 26 29 TOTAL OTHER OPERATING EXPENSES 221 123

The additional notes constitute an integral part of these consolidated financial statements. 26 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

7.4 Finance income and finance expenses Period ended Period ended September 30, 2018 September 30, 2017 FINANCE INCOME FROM FINANCIAL INSTRUMENTS Dividends 1 5 Interest 38 74 Revaluation of financial instruments/Reversal of loss allowances 74 35 Positive exchange differences 1 28 FINANCE INCOME FROM FINANCIAL INSTRUMENTS 114 142 OTHER FINANCE INCOME Interest on statutory receivables 1 2 Other 1 1 OTHER FINANCE INCOME 2 3 TOTAL FINANCE INCOME 116 145

The Group recognises interest income primarily on cash and receivables. The item 'impairment of financial statements' includes mainly measurements of hedging transactions in the part considered as the ineffective part of a hedge for instruments designated as hedging instruments in cash flow hedge accounting and in full when it comes to other instruments.

Period ended Period ended September 30, 2018 September 30, 2017 FINANCE EXPENSES RELATED TO FINANCIAL INSTRUMENTS Interest 149 116 Revaluation of financial instruments 39 1 Loss on disposal of investment 20 92 Impairment loss 3 3 Negative exchange differences 13 2 FINANCE EXPENSES RELATED TO FINANCIAL INSTRUMENTS 224 214 OTHER FINANCE EXPENSES Interest expenses, including effect of discount unwinding 137 126 Recognition of provisions 10 5 Other 7 2 OTHER FINANCE EXPENSES 154 133 TOTAL FINANCIAL EXPENSES 378 347

Interest expenses mainly relate to bonds issued and credit and loans incurred as well as cleared CCIRS and IRS transactions. Interest cost (discount unwinding) on non-financial items relates mainly to rehabilitation provisions and employee benefit provisions. In the item 'revaluation' PGE Group presents a valuation of a call option to purchase Polimex-Mostostal S.A. shares and valuations for other instruments. 7.5 Share of profit of entities accounted for using the equity method Polska Grupa Polimex ElectroMobility PEC Bogatynia Górnicza Mostostal Poland SHARE IN VOTES 15.32% 16.48% 25.00% 34.93% PERIOD ENDED SEPTEMBER 30, 2018 Revenue 7,078 1,106 - 10 Result on continuing operations 435 112 (5) (1) Share of profit of entities accounted for using the 67 17 (1) - equity method Elimination of unrealised transactions (28) 3 - - Share of profit of entities accounted for using the 39 20 (1) - equity method

The additional notes constitute an integral part of these consolidated financial statements. 27 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

Polska Grupa Polimex ElectroMobility PEC Bogatynia Górnicza Mostostal Poland SHARE IN VOTES 15.76% 16.48% 25.00% 34.93% PERIOD ENDED SEPTEMBER 30, 2017 Revenue 5,885 1,476 - 8 Result on continuing operations 58 45 - - Share of profit of entities accounted for using the equity 9 7 - - method Elimination of unrealised transactions (5) - - - Share of profit of entities accounted for using the equity 4 7 - - method The Group made a consolidation adjustment related to margin on sale of coal between PGG and the Group. 8. Impairment losses on assets

Period ended Period ended September 30, 2018 September 30, 2017 Impairment losses on property, plant and equipment Recognition of impairment 204 79 Reversal of impairment loss 2 - Impairment losses on inventory Recognition of impairment 6 58 Reversal of impairment loss 1 18 9. Tax in the statement of comprehensive income The main elements of the tax burden for the period ended September 30, 2018, and September 30, 2017, were as follows:

Period ended Period ended September 30, 2018 September 30, 2017 INCOME TAX RECOGNISED IN STATEMENT OF PROFIT OR LOSS Current income tax 396 356 Deferred income tax 64 311 INCOME TAX EXPENSE RECOGNISED IN STATEMENT OF PROFIT OR LOSS 460 667 INCOME TAX EXPENSE RECOGNISED IN OTHER COMPREHENSIVE INCOME From measurement of hedging instruments (8) (12) Tax benefit recognised in other comprehensive income (8) (12)

EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 10. Significant additions and disposals of property, plant and equipment and intangible assets In the present period, PGE Group purchased property, plant and equipment and intangible assets worth PLN 3,759 million. The largest expenditures were incurred in the Conventional Generation segment (PLN 2,615 million) and the Distribution segment (PLN 1,069 million). The key expenditures items were as follows: construction of units 5-6 at Elektrownia Opole (PLN 642 million), construction of new unit at Elektrownia Turów (PLN 349 million), construction of thermal processing installation with energy recovery at Elektrociepłownia Rzeszów (PLN 141 million) and modernisation of units 1-3 at Elektrownia Turów (PLN 127 million). No significant tangible asset sale transactions took place in the reporting period. In the period ended September 30, 2018, the Group recognised a loss allowance on property, plant and equipment of PLN 202 million. This allowance concerns investment expenditures made by Conventional Generation segment companies, for which impairment had been identified in previous periods, as described in note 7.2.1 of these consolidated financial statements.

The additional notes constitute an integral part of these consolidated financial statements. 28 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

11. Future investment commitments As at September 30, 2018, PGE Group committed to incur capital expenditures on property, plant and equipment of approximately PLN 6,350 million. These amounts relate mainly to construction of new power units, modernisation of Group’s assets and purchase of machinery and equipment.

As at As at September 30, 2018 December 31, 2017 restated data Conventional Generation 4,606 4,755 Distribution 1,502 1,005 Renewables 54 67 Supply 13 1 Other activity 175 171 TOTAL FUTURE INVESTMENT COMMITMENTS 6,350 5,999

The most significant future investment commitments concern:  Conventional Generation:  Branch Opole Power Plant – construction of power units no. 5 and 6 – approximately PLN 900 million,  Branch Turów Power Plant – construction of new power unit – approximately PLN 1,891 million,  Branch Turów Power Plant – modernisation of power units no. 1-3 – approximately PLN 352 million,  Distribution – investment commitments related to network distribution assets with the total value of approximately PLN 1,502 million,  Other activity, PGE EJ1 sp. z o.o. – agreement for owners engineer in the investment process related to construction of the first Polish nuclear power plant – approximately PLN 158 million (basic scope) An optional scope includes the amount of approx. PLN 1,121 million. 12. Shares accounted for using the equity method

As at As at September 30, 2018 December 31, 2017 Polska Grupa Górnicza S.A. 631 533 Polimex Mostostal S.A. 107 91 ElectroMobility Poland S.A. 6 2 PEC Bogatynia Sp. z o.o. 8 8 Shares accounted for using the equity method 752 634

Polska Grupa ElectroMobility Polimex Mostostal PEC Bogatynia Górnicza Poland SHARE IN VOTES 15.32% 16.48% 25.00% 34.93% As at September 30, 2018 Current assets 2,866 1,368 21 3 Non-current assets 9,400 720 3 22 Current liabilities 3,698 856 - 1 Non-current liabilities 4,453 677 - 1 NET ASSETS 4,115 555 24 23 Share in net assets 630 91 6 8 Goodwill 1 16 - - EQUITY-ACCOUNTED INVESTMENTS 631 107 6 8

Polska Grupa ElectroMobility Polimex Mostostal PEC Bogatynia Górnicza Poland SHARE IN VOTES 15.76% 16.48% 25.00% 34.93% AS AT DECEMBER 31, 2017 Current assets 1,876 1,586 7 4 Non-current assets 9,074 654 - 22 Current liabilities 3,409 974 - 3 Non-current liabilities 4,167 810 - 1 NET ASSETS 3,374 456 7 22 Share in net assets 532 75 2 8 Goodwill 1 16 - - EQUITY-ACCOUNTED INVESTMENTS 533 91 2 8

The additional notes constitute an integral part of these consolidated financial statements. 29 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

13. Deferred tax in the statement of financial position 13.1 Deferred income tax assets As at As at September 30, 2018 December 31, 2017 restated data* Difference between tax value and carrying amount of property, plant and 2,365 2,323 equipment Difference between tax value and carrying amount of financial assets 52 48 Difference between tax value and carrying amount of financial liabilities 294 268 Difference between tax value and carrying amount of inventories 17 17 LTC compensations 48 48 Rehabilitation provision 577 548 Provision for purchase of CO2 emission rights 239 276 Provisions for employee benefits 598 571 Other provisions 106 122 Energy infrastructure acquired free of charge and connection payments received 34 111 Other 102 38 DEFERRED TAX ASSETS 4,432 4,370

13.2 Deferred income tax provision As at As at September 30, 2018 December 31, 2017 restated data* Difference between tax value and carrying amount of property, plant and 4,490 4,240 equipment Difference between tax value and carrying amount of energy origin units 34 46 Difference between tax value and carrying amount of financial assets 396 382 Difference between tax value and carrying amount of financial liabilities 140 92

CO2 emission rights 139 274 LTC compensations 18 34 Other 69 33 DEFERRED TAX PROVISION 5,286 5,101

AFTER OFF-SET OF THE ASSET AND THE LIABILITY IN PARTICULAR COMPANIES THE GROUP’S DEFERRED TAX IS PRESENTED AS: Deferred tax assets 554 571 Deferred tax provision (1,408) (1,302)

The restatement of data results from the final accounting for the acquisition of new companies and is described in note 1.4 to the consolidated financial statements.

14. CO2 emission allowances for captive use

CO2 emission rights (EUA) are received power generating units belonging to the PGE Group, which are covered with the Act dated June 12, 2015 on a scheme for greenhouse gas emission allowance trading. Starting from 2013, only part of emission rights for production of heat will be granted unconditionally, while for production of electricity there is, as a rule, lack of free of charge EUA. Pursuant to art. 10c of Directive 2003/87/EC of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowance trading within the Community, the derogation is possible providing the realization of investment tasks included in National Investment Plan, which allow to reduce CO2 emission. The condition under which free of charge CO2 emission rights can be obtained is presentation of factual-financial statements from realization of tasks included in National Investment Plan. In September 2017, PGE Group submitted another report on investments included in the National Investment Plan in order to obtain CO2 EUA allocations concerning electricity generated in 2017. The allowances were issued in April 2018 and were used to cover CO2 emissions for 2017 (15 million EUAs).

In the case of EUAs for CO2 emissions related to heating, the allocation schedule is different - in February 2018 EUAs were allocated for the coverage of CO2 emissions for 2018 (2 million EUAs). In September 2018, PGE Group submitted another report on investments included in the National Investment Plan in order to obtain CO2 EUA allocations concerning electricity generated, which should be issued to the installations' accounts by April 2019 at the latest.

The additional notes constitute an integral part of these consolidated financial statements. 30 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

As at September 30, 2018 As at December 31, 2017 EUA Non-current Current Non-current Current Quantity (Mg million) 7 30 18 44 Value 357 1,246 402 1,040

Change in CO2 emission allowances for captive use Quantity (Mg EUA Value million) AS AT JANUARY 1, 2017 85 2,349 Purchase of new subsidiaries - 2 Purchase 12 247 Granted free of charge 21 - Redemption (56) (1,156) AS AT DECEMBER 31, 2017 62 1,442 Purchase 39 1,706 Granted free of charge 17 - Redemption (70) (1,311) Sale (11) (234) As at September 30, 2018 37 1,603

15. Selected financial assets The carrying amount of financial assets measured at amortised cost is a reasonable estimate of their fair value. 15.1 Trade and other financial receivables As at September 30, 2018 As at December 31, 2017 Non-current Current Non-current Current Trade receivables - 2,964 - 3,159 Deposits 160 8 148 6 Deposits, securities and collateral 1 1,000 - 128 LTC compensations - - - 10 Damages and penalties - 178 158 Other financial receivables 7 51 10 61 TOTAL FINANCIAL RECEIVABLES 168 4,201 158 3,522 Deposits, securities and collateral mainly concern transaction and hedging deposits and the guarantee fund. The increase in the value of collateral is primarily due to the increase of electricity prices on the wholesale market and the increase in the volume of electricity sold by the PGE Capital Group on the Towarowa Giełda Energii. The value of other financial receivables consists mainly of disputed receivables described in note 21.4 of these consolidated financial statements. 15.2 Cash and cash equivalents Short-term deposits are made for different periods, from one day up to one month, depending on the Group's needs for cash, and are deposited at individually agreed interest rates. The balance of cash and cash equivalents comprise the following positions:

As at As at September 30, 2018 December 31, 2017 Cash on hand and cash at bank 1,030 1,309 Overnight deposits 71 34 Short-term deposits 155 1,209 Cash in VAT accounts 70 - TOTAL 1,326 2,552 Exchange differences on cash in foreign currencies (1) (1) Cash and cash equivalents presented in the statement of cash flows 1,325 2,551 Undrawn borrowing facilities as at September 30 4,104 6,740 including overdraft facilities 1,515 2,174 Credit available from December 16, 2018 4,100 - A detailed description of credit agreements is presented in note 19.1 of these consolidated financial statements.

The additional notes constitute an integral part of these consolidated financial statements. 31 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

The value of cash includes restricted cash in the amount of PLN 54 million (PLN 92 million in the comparative period) as collateral for settlements with Izba Rozliczeniowa Giełd Towarowych S.A. (the Warsaw Commodity Clearing House) and cash in VAT accounts in the amount of PLN 70 million. 16. Derivatives and other assets measured at fair value through profit or loss

As at September 30, 2018 As at December 31, 2017 Assets Liabilities Assets Liabilities Financial instruments measured at fair value Currency forwards 20 45 1 49

Commodity forwards for CO2 13 - 14 - Commodity SWAP 56 6 64 7 Contracts for purchase/sale of coal 3 22 9 20 IRS transactions - 1 - 10 Options 15 - 24 - HEDGING DERIVATIVES CCIRS hedges 101 - 44 - IRS hedges 65 7 98 5 Currency forwards 2 - 1 33 Other assets carried at fair value through profit or loss Investment fund participation units 66 - 50 - TOTAL DERIVATIVES 341 81 305 124 current 89 64 83 106 non-current 252 17 222 18 Commodity and currency forwards

Commodity and currency forward transactions mainly relate to trade in CO2 emission allowances and coal sales. Options On January 20, 2017 PGE S.A. purchased a call option to purchase shares of Polimex-Mostostal S.A. from Towarzystwo Finansowe Silesia Sp. z o.o. The option was valued using the Black-Scholes method. The option exercise dates are: July 30, 2020, July 30, 2021 and July 30, 2022. Coal swaps In the current period, PGE Paliwa sp. z o.o. in order to secure commodity risk related to the price of imported coal executed a number of transactions to hedge this risk using commodity swaps for coal. The number and value of these transactions is correlated to the quantity and value of imported coal. Changes in fair value are recognised in profit or loss. Purchase and sale contracts with physical delivery of coal PGE Paliwa Sp. z o.o. measures all of its sales and purchase contracts with physical delivery of coal at fair value using the trader-broker model. As at the reporting date, the Company held contracts that would be performed on December 31, 2019. IRS transactions In 2017, PGE S.A. executed an IRS transaction to hedge interest rates on a credit facility with a nominal value of PLN 500 million. To recognise this IRS transaction, the Company uses hedge accounting. In 2016, PGE S.A. executed IRS transactions to hedge interest rates on credit facilities with a total nominal value of PLN 4,630 million. To recognise these IRS transactions, the Company uses hedge accounting. The impact of hedge accounting is presented in note 17.2 to these consolidated financial statements. In 2014, PGE S.A. concluded IRS transactions hedging the interest rate on issued bonds with a nominal value of PLN 1 billion. Payments arising from IRS transactions are correlated with interest payments on bonds. Changes in the fair value of IRS transactions are fully recognised in profit or loss. The transactions were conducted, including bond buy-back, in June 2018. In 2003, Elektrownia Turów S.A. (currently a branch of PGE Górnictwo i Energetyka Konwencjonalna S.A.) concluded an IRS hedge transactions - swap. This transaction hedges variable interest rates (USD LIBOR 6m) on an investment credit of USD 80 million taken from Nordic Investment Bank to finance investments in Turów power plant. Changes in the fair value of IRS transactions are fully recognised in profit or loss. CCIRS hedges In connection with loans received from PGE Sweden AB (publ), PGE S.A. concluded CCIRS transactions, hedging both the exchange rate and interest rate. In these transactions, banks - counterparties pay PGE S.A. interest based on a fixed rate in EUR and PGE S.A. pays interest based on a fixed rate in PLN. In the consolidated financial statements, a relevant part of the CCIRS transaction is treated as a hedge of bonds issued by PGE Sweden AB (publ).

The additional notes constitute an integral part of these consolidated financial statements. 32 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

To recognise these CCIRS transactions, the Group uses hedge accounting. The impact of hedge accounting on equity is presented in note 17.2 to these financial statements. 17. Equity The basic assumption of the Group’s policy regarding equity management is to maintain an optimal equity structure over the long term perspective in order to assure a good financial standing and secure equity structure ratios that would support the operating activity of PGE Group. It is also crucial to maintain a sound equity base that would be the basis to win confidence of potential investors, creditors and the market and assure further development of the Group. 17.1 Share capital As at As at September 30, 2018 December 31, 2017 1,470,576,500 Series A ordinary Shares with a nominal value of PLN 10.25 each 15,073 15,073 259,513,500 Series B ordinary Shares with a nominal value of PLN 10.25 each 2,660 2,660 73,228,888 Series C ordinary Shares with a nominal value of PLN 10.25 each 751 751 66,441,941 Series D ordinary Shares with a nominal value of PLN 10.25 each 681 681 TOTAL SHARE CAPITAL 1,869,760,829 shares 19,165 19,165 All of the Company's shares are paid up. After the reporting date and until the date on which these consolidated financial statements were prepared, there were no changes in the value of the Company’s share capital. Shareholder rights - State Treasury rights concerning the Company’s activities The Company is part of PGE Group, in respect of which the State Treasury holds special rights. Special rights of the State Treasury that are applicable to PGE Group entities derive from the Act of March 18, 2010 on special rights of the Minister of Energy and their performance in certain companies and groups operating in the electricity, oil and gaseous fuels sectors (Official Journal from 2016, item 2012). The aforesaid Act specifies the particular rights entitled to the Minister of Energy related to companies and groups operating in the electricity, oil and gaseous fuels sectors whose property was disclosed within the register of buildings, installations, equipment and services included in critical infrastructure. Based on this act the Minister of Energy has the right to object to any resolution or legal action of the Management Board that relates to the ability to dispose of a part of Company’s property, which may result in threat to functioning, continuity of operations and integrity of critical infrastructure. The objection can also be expressed against any resolution adopted that relates to:  Liquidation of the Company,  Changes of the use or discontinuance of exploitation of the Company’s asset, which is a component of critical infrastructure,  Change in the scope of activities of the Company,  Sale or lease of the enterprise or its organised part or establishment of legal restrictions,  Approval of operational and financial plan, investment plan, or long-term strategic plan,  Movement of the Company’s seat abroad, if the enforcement of such a resolution would result in an actual threat to functioning, continuity of operations and integrity of the critical infrastructure. The objection is expressed in the form of an administrative decision.

The additional notes constitute an integral part of these consolidated financial statements. 33 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

17.2 Hedging reserve Period ended Year ended September 30, 2018 December 31, 2017 AS AT JANUARY 1 83 147 Change in hedging reserve (42) (79) Measurement of hedging instruments, including: (37) (74) Deferral of changes in fair value of hedging financial instruments 40 (242) in the part considered as effective hedge Accrued interest on derivatives transferred (12) (4) from hedging reserve and recognised in interest expense Currency revaluation of CCIRS transaction transferred from hedging reserve (66) 167 and recognised in the result on foreign exchange differences Ineffective portion of change in fair value of 1 5 hedging derivatives recognised in profit or loss Measurement of other financial assets (5) (5) Deferred tax 8 15 HEDGING RESERVE INCLUDING DEFERRED TAX 49 83 Hedging reserve includes mainly valuation of hedging instruments to which cash flow hedge accounting is applied. 17.3 Dividends paid and recommended for payment On May 11, 2017 the Company's Management Board decided to change its dividend policy. In light of the need to finance an ambitious growth programme and with a view towards reducing debt growth, the Company's Management Board recommended the suspension of dividends from profit for years 2016, 2017 and 2018. After this period, the Company's Management Board intends to recommend to the General Meeting dividend payments to shareholders amounting to 40-50% of consolidated net profit attributable to the parent's shareholders, adjusted for impairment of tangible and intangible assets. 18. Provisions The carrying amount of provisions is as follows:

As at September 30, 2018 As at December 31, 2017 Non-current Current Non-current Current Employee benefits 2,294 238 2,301 229 Rehabilitation provision 3,240 3 3,082 4

Provision for deficit of CO2 emission rights 117 1,138 112 1,341 Provision for energy origin units held for redemption - 275 - 340 Provision for non-contractual use of property 63 10 72 11 Other provisions 97 110 84 66 TOTAL PROVISIONS 5,811 1,774 5,651 1,991 Changes in provisions

Provisions for Provision for Provision for Employee Rehabilitation energy origin non- deficit of CO Other Total benefits provision 2 units held for contractual use emission rights redemption of the property January 1, 2018 2,530 3,086 1,453 340 83 150 7,642 Current service costs 50 - - - - - 50 Interest costs 62 75 - - - - 137 Benefits paid / Provisions used (127) (1) (1,311) (666) - (15) (2,120) Provisions reversed (1) - (29) (1) (18) (4) (53) Provisions recognised - costs 6 46 1,142 602 8 69 1,873 Provisions recognised – property, - 52 - - - - 52 plant and equipment Incorporation of companies in 12 - - - - 6 18 consolidation Other changes - (15) - - - 1 (14) September 30, 2018 2,532 3,243 1,255 275 73 207 7,585

The additional notes constitute an integral part of these consolidated financial statements. 34 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

Provisions for Provision for Provision for Employee Rehabilitation energy origin non- deficit of CO Other Total benefits provision 2 units held for contractual use emission rights restated data redemption of the property JANUARY 1, 2017 2.359 2.670 1.154 416 103 142 6.844 Actuarial gains and losses 148 - - - - - 148 Current service costs 65 - - - - - 65 Past service costs (8) - - - - - (8) Interest costs 82 89 - - - - 171 Discount rate and other 24 65 - - - - 89 assumptions adjustment Benefits paid / Provisions used (160) - (1,156) (864) (1) (15) (2,196) Provisions reversed (1) (2) - (12) (28) (31) (74) Provisions recognised - costs 1 82 1,205 759 8 38 2,093 Provisions recognised – property, - 70 - - - - 70 plant and equipment Purchase of new subsidiaries 22 27 250 41 - 18 358 Entity's exit from PGE Group (1) - - - - (3) (4) Other changes (1) 85 - - 1 1 86 DECEMBER 31, 2017 2,530 3,086 1,453 340 83 150 7,642 18.1 Provision for employee benefits Provisions for employee benefits mainly include:  post-employment benefits - PLN 1,723 million (PLN 1,705 million as at December 31, 2017),  jubilee awards - PLN 802 million (PLN 825 million as at December 31, 2017), 18.2 Rehabilitation provision Provision for rehabilitation of post-exploitation mining properties After the completion of the lignite mining, the area of the surface mines belonging to PGE Group will be rehabilitated. According to current plans, costs will be incurred in the years 2023 - 2069 (in the case of PGE Górnictwo i Energetyka Konwencjonalna S.A. Branch Bełchatów Lignite Mine) and in the years 2045-2087 (in the case of PGE Górnictwo i Energetyka Konwencjonalna S.A. Branch Turów Lignite Mine). PGE Group creates provision for rehabilitation of post-exploitation mining properties. The amount of the provision recognised in the financial statements includes also the value of Mine Liquidation Fund created in accordance with the Geological and Mining Law Act. The value of the provision as at September 30, 2018 amounted to PLN 2,834 million and as at December 31, 2017 to PLN 2,693 million. Provision for rehabilitation of ash storage PGE Group power generating units raise provisions for rehabilitation of ash storages. The value of the provision as at September 30, 2018 amounted to PLN 187 million and as at December 31, 2017 to PLN 175 million. Provisions for rehabilitation of post-construction grounds of wind farms Companies that own wind farms create provision for rehabilitation of post-construction grounds of wind farms. The value of the provision as at the reporting date amounted to PLN 54 million and as at December 31, 2017 to PLN 53 million. Liquidation of property, plant and equipment The obligation to liquidate assets and rehabilitate the area results from the "Integrated permission for running electric energy and heat energy producing installation" in which the restitution of the area was specified. As at the reporting date, the value of the provision amounts to PLN 168 million (PLN 165 million as at December 31, 2017) and refers to some assets of the Conventional Generation and Renewables segments.

18.3 Provision for deficit of CO2 emission rights

As a rule, the provision for deficit of CO2 emission rights is created by PGE Group entities for the shortfall of CO2 emission rights granted free of charge. As described in note 14 of these financial statements PGE Group is entitled to receive CO2 emissions rights granted free of charge in connection to expenditures concerning investments included in National Investment Plan. The calculation of the provision includes also these rights. 18.4 Provision for energy origin units held for redemption Companies within PGE Group create provision for energy origin rights related to sale realised during the reporting period or in prior reporting periods, in the amount of non-depreciated part until the reporting date. The total value of provision as at September 30, 2018 amounted to PLN 275 million (PLN 340 million in the comparative period) and was created mainly by PGE Obrót S.A.

The additional notes constitute an integral part of these consolidated financial statements. 35 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

18.5 Provision for non-contractual use of property PGE Group companies recognise a provision for damages related to a non-contractual use of property. This issue mainly relates to the distribution company, which owns distribution networks. As at the reporting date the provision amounted to approximately PLN 73 million (of which 33 million concerns litigations). In the comparative period the value of the provision amounted to PLN 83 million (of which PLN 38 million concerned litigations). 18.6 Other provisions Other provisions comprise mainly provisions raised for claims relating to real estate tax of PLN 85 million (PLN 81 million in the prior year) and a provision for easement in favour of State Forests worth PLN 30 million. 19. Financial liabilities The value of financial liabilities measured at amortised cost is a reasonable approximation of their fair value, except for bonds issued by PGE Sweden AB (publ). Bonds issued by PGE Sweden AB (publ) are based on a fixed interest rate. Their value at amortised cost presented in these financial statements as at September 30, 2018 amounted to PLN 2,736 million wheares their fair value amounted to PLN 2,790 million. 19.1 Loans, borrowings, bonds and leases As at September 30, 2018 As at December 31, 2017 Non-current Current Non-current Current Loans and borrowings 5,756 2,405 5,788 570 Bonds issued 575 2,161 2,632 1,051 Leases 2 3 2 2 TOTAL LOANS, BORROWINGS, BONDS AND LEASES 6,333 4,569 8,422 1,623 Loans and borrowings Among loans and borrowings presented above as at September 30, 2018, PGE Group presents mainly the following facilities:  investment credit facility taken out by PGE Górnictwo i Energetyka Konwencjonalna S.A. from Nordic Investment Bank to finance construction of 858 MW power unit in Bełchatów Power Plant of PLN 430 million;  investment credit facility taken out by PGE Górnictwo i Energetyka Konwencjonalna S.A. from Nordic Investment Bank to finance the modernisation of units 1-6 at Elektrownia Turów - amounting to a total of PLN 45 million,  investment loans taken out by PGE S.A. at Bank Gospodarstwa Krajowego S.A. amounting to a total of PLN 1 512 million,  long-term loan agreement with a syndicate of banks composed of: BNP Paribas S.A., Société Générale S.A., Bank Handlowy w Warszawie S.A., ING Bank Śląski S.A., Bank Zachodni WBK S.A., mBank S.A., Powszechna Kasa Oszczędności Bank Polski S.A. and Bank Polska Kasa Opieki S.A., executed on September 7, 2015. Subject matter of the agreement is granting a loan in two parts, i.e. term loan facility of up to PLN 3,630 million and revolving loan facility of up to PLN 1,870 million. The final date of the revolving loan falls on April 30, 2019, and the final repayment date of the loan facility falls on September 30, 2023. This liability as at September 30, 2018, amounted to PLN 5,541 million. On October 27, 2015, the Company concluded two credit agreements with the European Investment Bank for a total amount of nearly PLN 2,000 million. The amount of PLN 1,500 million, obtained on the basis of the first of the two agreements, will be used for projects relating to the modernisation and development of distribution grid. The funds from the second agreement, i.e. the remaining PLN 490 million, are intended to finance and refinance the construction of cogeneration units Gorzów CHP and Rzeszów CHP. The European Investment Bank loans will be available for disbursement over a period of up to 46 months from the date of signing of the agreements. The funds will be repaid within 15 years from the date of the last tranche. As at September 30, 2018, the aforesaid loans were not used. On June 7, 2017, the Company concluded a PLN 500 million credit agreement with the European Bank for Reconstruction and Development, with maturity date of June 7, 2028. The amount obtained on the basis of the agreement will be spent on selected projects related to the modernisation and expansion of distribution grids. As at September 30, 2018, the credit facility remained unused.

The additional notes constitute an integral part of these consolidated financial statements. 36 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

On September 17, 2018, PGE S.A. executed a PLN 4,100 million open-end credit agreement for four years with a bank consortium consisting of: Santander Bank Polska S.A., Powszechna Kasa Oszczędności Bank Polski S.A., Intesa SanPaolo S.P.A. (acting through the Polish branch: Intesa SanPaolo S.P.A. Spółka Akcyjna Oddział w Polsce) and MUFG Bank (Europe) N.V. The credit facility may be used for:  financing PGE's and PGE Group's on-going activities,  financing investment and capital expenditures related to PGE's and PGE Group's activities, and  re-finance PGE's and PGE Group's financial liabilities. The credit facility will be available within 90 days from agreement signing, i.e. from December 16, 2018. The agreement provides interest periods not longer than six months. The final repayment date of the credit facility is December 16, 2022. As at September 30, 2018, the credit facility was unused. Moreover, the Group recognises loans from environmental funds amounting to a total of PLN 432 million. As at September 30, 2018, the value of the overdrafts at the disposal of the significant PGE Group companies was PLN 1,515 million. Bonds issued The Group financed its own operations through two bond issue programs:  The bond issue program for the amount of PLN 5 billion directed towards investors from the Polish capital market. On June 27, 2013, the first non-public issuance of 5-year bonds under this program took place, coupon bearer bonds with a variable interest rate. The nominal value of the issue was PLN 1 billion and the maturity of the bonds is June 27, 2018. On August 29, 2013, the bonds were floated in the Alternative Trading System organised by BondSpot S.A. and Giełda Papierów Wartościowych w Warszawie S.A. (Warsaw Stock Exchange). The bonds redemption took place on June 27, 2018.  The medium term Eurobonds Issue Programme of EUR 2 billion established on May 22, 2014 by PGE S.A. together with PGE Sweden AB (publ), a 100% subsidiary of PGE S.A. Under the Programme, PGE Sweden AB (publ) may issue eurobonds up to the amount of EUR 2 billion with a minimum maturity of 1 year. On June 9, 2014, PGE Sweden AB (publ) issued Eurobonds in the total amount of EUR 500 million and a five year maturity and on August 1, 2014 it has issued bonds in the amount of EUR 138 million and fifteen-year maturity. 19.2 Trade and other financial liabilities As at September 30, 2018 As at December 31, 2017 Non-current Current Non-current Current Trade liabilities - 1,126 - 1,650 Purchase of property, plant and equipment and - 667 - 1,418 intangible assets Security deposits received 51 77 22 87 Liabilities related to LTC 416 12 332 - Insurance - - - 17 Other 21 191 25 59 TRADE AND OTHER FINANCIAL LIABILITIES 488 2,073 379 3,231

The value of 'Other' includes PGE Dom Maklerski S.A.'s liabilities towards clients on account of funds deposited and liabilities concerning CO2 hedging transactions.

The additional notes constitute an integral part of these consolidated financial statements. 37 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

20. Other current non-financial liabilities

As at As at September 30, 2018 December 31, 2017 restated data Environmental fees 200 234 VAT liabilities 292 126 Excise tax liabilities 121 128 Payroll liabilities 172 257 Bonuses for employees 296 222 Unused holiday leave 122 139 Estimated liabilities concerning Sector Holidays 58 - Liabilities due to Voluntary Leave Programs 10 49 Estimated liabilities concerning other employee benefits 55 39 Personal income tax 70 85 Liabilities from social insurances 197 246 Received advances for deliveries 183 147 Liabilities related to dividends 25 8 Other 49 53 TOTAL OTHER NON-FINANCIAL LIABILITIES 1,850 1,733 Environmental fees relate mainly to charges for the use of water and gas emission in conventional power plants as well as exploitation charges paid by coal mines. The value of “Other” comprises mainly payments to the Employment Pension Program and withholdings from employee wages. OTHER EXPLANATORY NOTES 21. Contingent liabilities and receivables. Legal claims 21.1 Contingent liabilities As at As at September 30, 2018 December 31, 2017 Contingent return of grants from environmental funds 727 753 Legal claims 222 188 Bank guarantee liabilities 495 223 Contractual fines and penalties - 12 Employees’ claims 1 2 Other contingent liabilities 78 74 Total contingent liabilities 1,523 1,252 Contingent return of grants from environmental funds The liabilities represent the value of possible future reimbursements of funds received by PGE Group companies from environmental funds for the particular investments. The funds will be reimbursed, if investments for which they were granted, will not bring the expected environmental effect. Legal claims Dispute with WorleyParsons The contingent liability is mainly related to the dispute with WorleyParsons. WorleyParsons made a claim for payment of PLN 59 million due to the claimant and for the return of the amount that in the claimant’s opinion was unduly collected by PGE EJ 1 sp. z o.o. from a bank guarantee, and later the claim extended to PLN 104 million (i.e. by PLN 45 million). On March 31, 2018, the company filed a response to WorleyParsons' expanded claim. The Group does not accept the claim and regards its possible admission by the court as unlikely. Claims related to energy origin certificate sale contracts executed by Energa Obrót S.A. In October 2017, PGE Energia Odnawialna S.A. and PGE Energia Natury sp. z o.o. (acquired by PGE Energia Odnawialna S.A.) received lawsuits in which Energa Obrót S.A. demand the annulment of a legal relation that were to arise as a result of the execution of an agreement to sell energy origin certificates resulting from electricity origin certificates at FW Kisielice in 2009, FW Koniecwałd (Malbork) and FW Galicja. Energa Obrót S.A.'s demands in all of the lawsuits are based on the accusation that executory agreements (to sell specific energy origin certificates) were executed in a way that circumvented the Public Procurement Law. Alternatively, if the Agreement is considered as an agreement on award of a public procurement, Energa Obrót S.A. was claiming absolute invalidity of the Agreements due to them being executed in a way that circumvented the Public Procurement Law. In November 2017, PGE companies filed responses to the lawsuits, in which they indicated that the accusations made by Energa Obrót S.A. are groundless.

The additional notes constitute an integral part of these consolidated financial statements. 38 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

These proceedings are in progress. In all of the cases, the courts referred the parties for mediation, the date of which is December 15, 2018. In addition, through motions filed in September 2017, Energa Obrót S.A. summoned PGE Energia Odnawialna S.A. and PGE Energia Natury sp. z o.o. (currently acquired by PGE Energia Odnawialna S.A.) for amicable resolution of disputes for the payment of claims totalling PLN 71 million concerning considerations paid on the basis of invalid contracts from 2009. No agreement was reached during meetings held in November and December 2017. In connection with this, the PLN 71 million claim is presented as a contingent liability. The Group does not accept the claim and regards its possible admission by the court as unlikely. Claiming invalidity of the 2009 contracts, Energa Obrót S.A. refused to purchase energy origin certificates resulting from the production of renewable electricity at FW Kisielice, FW Koniecwałd (Malbork) and FW Galicja, which constituted a breach of the contracts and resulted in contractual penalties of PLN 36 million being imposed (recognised as revenue in 2017 of PLN 16 million and PLN 20 million in the present period). In the case of refusal to pay these contractual penalties, PGE Energia Odnawialna S.A. intends to seek their payment in court proceedings. On April 25, 2018, during the first hearing, PGE Energia Odnawialna S.A. filed a counterclaim for payment of the principal amount together with statutory late interest for contractual penalties imposed in connection with Energa Obrót S.A.'s failure to perform the contract related to FW Kisielice. Having referred the parties for mediation, the Court did not set a deadline for Energa Obrót S.A. to respond to the counterclaim. Estimated volume of the green certificates covered by the contracts with Energa Obrót S.A. amounts to 807 thousand MWh. This volume was calculated based on the volume of production in the period from July 2017 (FW Koniecwałd/Malbork) or from August 2017 (other farms) to the end of the expected support periods for each of the farms. Bank guarantee liabilities These liabilities mostly present bank guarantees provided as collateral for stock market transactions resulting from membership in the Stock Exchange Clearninghouse. As at September 30, 2018, the total amount of bank guarantees was PLN 491 million (PLN 215 million in the comparative period). Other contingent liabilities Other contingent liabilities comprise the value of potential claim from WorleyParsons of PLN 33 million, which was described above, as well as PLN 42 million related to risk of additional costs related to PGE Group's debt financing program. 21.2 Other significant issues related to contingent liabilities Non-contractual use of property As described in note 18.5 of these financial statements, PGE Group recognises provision for disputes under court proceedings, concerning non-contractual use of properties for distribution activities. In addition, PGE Group is involved in disputes at an earlier stage of proceedings and it cannot be excluded that the number and value of similar disputes will grow in the future. Contractual liabilities related to purchase of fuels According to the concluded agreements on the purchase of fuels (mainly coal and gas), PGE Group companies are obliged to collect the minimum volume of fuels and not to exceed the maximum level of collection of gas fuel in particular hours and months. Failure to collect a minimum volume of fuels specified in the contracts, may result in a necessity to pay some extra fee (in case of gas fuel, the volume not collected by power plants but paid up may be collected within the next three contractual years). In PGE Group’s opinion, the terms and conditions of fuel deliveries to its power generating units as described above do not differ from terms and conditions of fuel deliveries to other power generating units on the Polish market. 21.3 Contingent receivables As at the reporting date, PGE Group held PLN 25 million in contingent receivables related to non-balancing of purchase and sale of energy on the domestic market (PLN 10 million in the comparative period). 21.4 Other legal claims and disputes Compensation for conversion of shares Former shareholders of PGE Górnictwo i Energetyka S.A. are presenting to the courts motions to summon PGE S.A. to a conciliation hearing concerning payment of compensation for incorrect (in their opinion) determination of the exchange ratio of shares of PGE Górnictwo i Energetyka S.A. into shares of PGE S.A. during a consolidation process that took place in 2010. The total value of claims resulting from summons to a conciliation hearing directed by the former shareholders of PGE Górnictwo i Energetyka S.A. amounts to over PLN 10 million. Regardless of the above, on November 12, 2014 Socrates Investment S.A. (an entity which purchased claims from former PGE Górnictwo i Energetyka S.A. shareholders) filed a lawsuit to impose a compensation in the total amount of over PLN 493 million (plus interest) for damages incurred in respect of incorrect (in their opinion) determination of the exchange ratio of shares in the merger of PGE Górnictwo i Energetyka S.A. and PGE S.A. The Company filed a response to the lawsuit. Currently the proceedings before the court of first instance are in progress. A hearing is set for November 20, 2018.

The additional notes constitute an integral part of these consolidated financial statements. 39 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

Moreover, a similar claim was raised by Pozwy sp. z o.o., a buyer of claims from the former shareholders of PGE Elektrownia Opole S.A. Through a lawsuit filed at the District Court in Warsaw against PGE GiEK S.A., PGE S.A. and PwC Polska sp. z o.o. ("Defendants"), Pozwy sp. z o.o. demanded from the Defendants, in solidum, or jointly damages for Pozwy sp. z o.o. totalling over PLN 260 million with interest for allegedly incorrect (in its opinion) determination of exchange ratio for PGE Elektrownia Opole S.A. shares for PGE Górnictwo i Energetyka Konwencjonalna S.A. shares in a merger of these companies. This lawsuit was delivered to PGE S.A. on March 9, 2017, and the deadline for responding to it was set by the court as July 9, 2017. The following companies: PGE S.A. and PGE GiEK S.A. submitted a response to the claim on July 8, 2017. On September 28, 2018, the District Court in Warsaw ruled in the first instance - the lawsuit by Pozwy sp. z o.o. against PGE S.A., PGE GiEK S.A. and PWC Polska sp. z o.o. was rejected. PGE Group companies do not recognise the claims being raised by Socrates Investment S.A., Pozwy sp. z o.o. and the rest of shareholders requesting conciliatory settlements. According to PGE S.A., these claims are groundless and the entire consolidation process was conducted fairly and properly. The value of shares subject to the process of consolidation was established by an independent company, PwC Polska sp. z o.o. Additionally, merger plans of the companies mentioned above, including the exchange ratios were examined for accuracy and reliability by an expert appointed by the registration court; no irregularities were found. Then, the court registered the mergers of the companies mentioned above. PGE Group has not recognised a provision for this claim. Claims for annulment of General Meeting resolutions On March 15, 2017, PGE S.A. received a copy of a lawsuit filed to the District Court of Warsaw by one of its shareholders. In the lawsuit, the shareholder is seeking annulment of resolution 4 of the Company’s Extraordinary General Meeting held on September 5, 2016. The Company filed a response to the lawsuit. Having examined the shareholder's claim at a closed-door hearing on October 11, 2017, the District Court in Warsaw ruled to refer the case for mediation. PGE S.A. decided not to agree to mediation. On March 15, 2018, the District Court in Warsaw issued a judgment dismissing the shareholder’s claim in its entirety. The ruling is final. Termination of contracts for purchase of energy origin certificates by Enea S.A. In October and November 2016 PGE Górnictwo i Energetyka Konwencjonalna S.A., PGE Energia Odnawialna S.A. and PGE Energia Natury PEW sp. z o.o. (acquired by PGE Energia Odnawialna S.A.) received from Enea S.A. termination of long-term contracts for purchase of renewable energy origin certificates, so called "green certificates." In the explanatory statement of the termination, Enea S.A. claimed that the companies significantly breached the provisions of these contracts, i.e. failed to re-negotiate contractual provisions in accordance with the adaptive clause, as requested by Enea S.A. in July 2015 in connection with an alleged change in legal regulations having impact on performance of these contracts. In the opinion of PGE Group, notices of termination of contracts presented by Enea S.A. were filled in with a violation terms of the agreements. The companies took appropriate steps to enforce their rights. With Enea S.A. refusing to perform long-term contracts to purchase energy origin certificates resulting from certificates of origin received by PGE Group companies in connection with the production of renewable energy, PGE Górnictwo i Energetyka Konwencjonalna S.A. and PGE Energia Natury PEW sp. z o.o. have demanded from Enea S.A. payment of contractual penalties, while PGE Energia Odnawialna S.A. has demanded payment of compensation for damages. Proceedings in all of the cases are in progress. Due to the fact that according to PGE Group declarations on termination of the agreements presented by Enea S.A. were submitted in breach of contractual terms, as at September 30, 2018, the Group recognised contractual penalty and compensation receivables of PLN 130 million (of which PLN 2 million was recognised as present-period revenue). As the same time, energy origin certificates inventories that were initially measured at values resulting from the agreements were revalued to market prices. According to PGE Group companies, based on available legal analysis, a favourable resolution in the above disputes is more probable then a negative resolution. Estimated volume of the green certificates covered by the contracts with Enea S.A. amounts to approximately 2,664 thousand MWh. The above amount was calculated for the period from the date the contracts were terminated to the end of the expected initial term of the contracts. In addition, PGE Górnictwo i Energetyka Konwencjonalna S.A., PGE Energia Natury PEW sp. z o.o. (acquired by PGE Energia Odnawialna S.A.) and PGE Energia Odnawialna S.A. filed lawsuits against Enea S.A. for the payment of receivables totalling PLN 48 million concerning invoices issued to Enea S.A. for the sale of energy origin certificates based on these contracts. Enea S.A. refused to pay these receivables, claiming that they were offset by receivables from the Group's companies related to compensation for alleged damages arising as a result of the companies' failure to re-negotiate the contracts. According to Group companies, such offsets are groundless because Enea S.A.'s receivables concerning the payment of compensation never arose and there are no grounds for acknowledging Enea S.A.'s claim that the companies breached contractual provisions. The proceedings are in progress. The next hearings are scheduled for November and December 2018.

The additional notes constitute an integral part of these consolidated financial statements. 40 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

22. Tax settlements Tax obligations and rights are specified in the Constitution of the Republic of Poland, tax regulations and ratified international agreements. According to the tax ordinance, tax is defined as public, unpaid, obligatory and non-returnable cash liability toward the State Treasury, provincial or other regional authorities resulting from the tax regulation. Taking into account the subject criterion, current taxes in Poland can be divided into five groups: taxation of incomes, taxation of turnover, taxation of assets, taxation of activities and other, not classified elsewhere. From the point of view of business entities, the most important is the taxation of incomes (corporate income tax), taxation of turnover (value added tax, excise tax) followed by taxation of assets (real estate tax and vehicle tax). Other payments classified as quasi – taxes must also be mentioned. Among these there are social security charges. Basic tax rates were as follows in 2018: corporate income tax rate – 19%, for smaller enterprises a 15% rate is possible; basic value added tax rate – 23%, reduced: 8%, 5%, 0%, furthermore some goods and products are subject to a VAT tax exemption. The tax system in Poland is characterized by a significant changeability of tax regulations, their high complexity, high potential fees for commitment of a tax crime or violation. Tax settlements and other activity areas are conditioned by regulations (customs or currency controls) and can be subject to controls of respective authorities that are entitled to issue fines and penalties with penalty interest. Controls may cover tax settlements for the period of 5 years after the end of calendar year in which the tax was due. Tax group An agreement for a tax group named PGK PGE 2015, for which PGE S.A. is the representative, was signed on September 18, 2014, for a period of 25 years. Companies included in the tax group must meet a number of requirements covering: appropriate level of equity, parent's stake in PGK companies of at least 75%, lack of capital ties between subsidiaries, no tax arrears, share in total revenue of at least 2% (counted at tax group level), and execution of transactions with related parties from outside the tax group only on market terms. Violating these requirements would mean the dissolution of the tax group and loss of its taxpayer status. When the tax group is dissolved, each of its member companies becomes an individual payer of corporate income tax. Changes in corporate income tax in effect from January 1, 2018 As a result of changes in legislation, starting from 2018 taxpayer revenue is divided into two sources: economic (operating) activities and capital gains. This means that each source of revenue will be settled separately and that companies may not offset losses incurred in one source using revenue from the other source. The capital gains source includes: dividends, income obtained as a result of mergers of de-mergers, in-kind contributions, share disposals, disposal of debt claims, income from energy origin certificates (authors' rights, licences) and income from securities. According to existing estimates, the introduction of two income sources should not substantially affect the PGE Group's tax burden. VAT split payment mechanism As from July 1, 2018, a VAT split payment mechanism was introduced. The mechanism is to seal the tax system by separating amounts of VAT from payments made by the buyers for the purchased services or goods and deposit them into dedicated VAT bank account of the suppliers. Funds collected in these VAT accounts may only be used for VAT settlements concerning invoices received and VAT settlements with the tax office. Using split VAT payments is the buyer's right but not an obligation. Given the above, the introduction of a split payment mechanism might increase net debt and the net debt to EBITDA ratio. As at the date of preparation of these financial statements, there was no practice how cash in VAT accounts will be taken into account when calculating debt ratios that are then presented to financing institutions. PGE Group intends to use the funds received from counterparties in VAT accounts effectively to pay its liabilities that include VAT. The level of funds in these VAT accounts will depend mainly on how many of PGE Group's counterparties decide to use this mechanism and the relation between receivables and liabilities payment dates. As at September 30, 2018, the cash balance in these VAT accounts is approx. PLN 70 million. Excise tax In connection with an incorrect implementation of EU regulations in the Polish legal system, PGE GiEK S.A. in 2009 initiated proceedings regarding reimbursement of improperly paid excise tax for the period January 2006 - February 2009. The irregularity consisted of taxing electricity at the first stage of sale, i.e. by producers, whereas sales to end users should have been taxed. Examining the company's complaints with regard to the restitution claims against decisions issued by tax authorities refusing to confirm overpayment of excise tax, administrative courts ruled that the company did not bear the economic burden of the improperly calculated excise tax (which in the context of the resolution by the Supreme Administrative Court of June 22, 2011, file no. I GPS 1/11, precludes the return of overpaid amounts). According to the Supreme Administrative Court, the claims that the company sought, especially using economic analyses, are of an offsetting nature and therefore may be sought only in civil courts. Given the above, PGE GiEK S.A. decided to withdraw from the proceedings as regards restitution claims. Currently, the issue of overpaid excise tax is in civil courts and the intention is to reach a settlement with the State Treasury as regards restitution claims.

The additional notes constitute an integral part of these consolidated financial statements. 41 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

Given the significant uncertainty over the final ruling in this issue, the Group does not recognise in its financial statements any effects related to potential compensation in civil courts in connection with the improperly paid excise tax. Real estate tax Considering pending disputes, PGE Group established at the reporting date the provision for property tax in the amount of PLN 85 million. The provision relates mainly to tax proceedings with regard to property tax in selected power plants. The dispute is related to the subject of taxation and concerns mainly a decision whether installations in buildings and detached technical machinery should be taxed as autonomous constructions. Tax proceedings are currently at various stages of tax authorities proceedings, i.e. in front of first instance authorities (village mayor, mayor), local government board of appeals and administrative courts. As a result of an update of the Renewables Act entering into force (Polish Journal of Laws of June 7, 2018, item 1276), from January 1, 2018 rules for property tax for wind farms that had been in effect until the end of 2016 were restored. Given the above, the current tax base for a wind farm constitutes its construction elements and not the entire wind farm. 23. Information on related parties PGE Group's transactions with related entities are concluded based on market prices for provided goods, products and services or are based on the cost of manufacturing. 23.1 Associates and jointly controlled entities The total value of transactions with such entities is presented in the table below.

Period ended Period ended September 30, 2018 September 30, 2017 Sales to associates and jointly controlled entities 14 7 Purchases from associates 1,472 1,217 and jointly controlled entities

As at As at September 30, 2018 December 31, 2017 Trade receivables from associates and jointly controlled entities 4 9 Trade liabilities to associates and jointly controlled entities 177 180

This turnover and balances take into account transactions with Polska Grupa Górnicza S.A. and Polimex-Mostostal S.A. 23.2 State Treasury-controlled companies The State Treasury is the dominant shareholder of PGE Polska Grupa Energetyczna S.A. and as a result in accordance with IAS 24 Related Party Disclosures, State Treasury companies are treated as related entities. PGE Group entities identify in detail transactions with approximately 40 of the biggest State Treasury subsidiaries. The total value of transactions with such entities is presented in the table below:

Period ended Period ended September 30, 2018 September 30, 2017 Sales to related parties 1,402 1,516 Purchases from related parties 3,415 2,804

As at As at September 30, 2018 December 31, 2017 Trade receivables from related parties 203 280 Trade liabilities to related parties 472 629

The largest transactions with companies in which the State Treasury holds a stake concern Polskie Sieci Elektroenergetyczne S.A., Polskie Górnictwo Naftowe i Gazownictwo S.A. , PKP Cargo S.A., Grupa LOTOS S.A., Zakłady Azotowe PUŁAWY S.A., Enea S.A., PKN Orlen S.A. and the purchase of coal from Jastrzębska Spółka Węglowa S.A., Katowicki Holding Węglowy S.A. (in the comparative period) and Węglokoks S.A. Moreover, PGE Group concludes significant transactions on the energy market via Towarowa Giełda Energii S.A. (Polish Power Exchange). Due to the fact that this entity only deals with the organisation of trading, purchases and sales transacted through this entity are not recognised as transactions with related parties.

The additional notes constitute an integral part of these consolidated financial statements. 42 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

23.3 Management remuneration The key management includes the Management Boards and Supervisory Boards of the parent company and significant Group entities.

Period ended Period ended PLN 000s September 30, 2018 September 30, 2017 Short-term employee benefits (salaries and salary related costs) 27,603 23,756 Post-employment benefits 3,325 2,035 TOTAL REMUNERATION OF KEY MANAGEMENT PERSONNEL 30,928 25,791 Remuneration of key management personnel of entities of non-core operations 15,611 10,734 TOTAL REMUNERATION OF KEY MANAGEMENT PERSONNEL 46,539 36,525

Period ended Period ended PLN 000s September 30, 2018 September 30, 2017 Management Board of the parent company 5,847 5,388 including post-employment benefits - 116 Supervisory Board of the parent company 507 595 Management Boards – subsidiaries 22,354 17,917 Supervisory Boards – subsidiaries 2,220 1,891 TOTAL 30,928 25,791 Remuneration of key management personnel of entities of non-core operations 15,611 10,734 TOTAL REMUNERATION OF KEY MANAGEMENT PERSONNEL 46,539 36,525

Until June 30, 2017, members of the management boards of PGE Group companies were employed based on civil contracts and employment contracts. From the end of June 2017, PGE Group companies (direct and indirect subsidiaries) apply a rule according to which management board members are employed on the basis of management services contracts, taking into account the provisions of the Act of June 9, 2016, on rules for the remuneration of management personnel at certain companies (Polish Journal of Laws of 2017, item 2190, i.e. of November 28, 2017). In determining remuneration for members of management and supervisory bodies, the scale of the company's business, especially the value of its assets, revenue and size of workforce, is taken into account. The growth in management remuneration at companies in the 'other activity' segment in the period ended September 30, 2018, compared to the same period last year, resulted mainly from the consolidation of entities acquired as a result of the purchase of EDF's assets. The above remuneration is included in employee benefit costs and other costs by nature disclosed in note 7.2 Costs by nature and function to these consolidated financial statements.

The additional notes constitute an integral part of these consolidated financial statements. 43 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Group Condensed consolidated interim financial statements for the 3-month and 9-month period ended September 30, 2018, in accordance with IFRS EU (in PLNm)

24. Significant events during and after the reporting period 24.1 Tender offer for 100% of Polenergia S.A. shares On May 22, 2018, PGE, with the intermediation of Pekao Investment Banking S.A., announced a tender offer to subscribe for the sale of 45,443,547 ordinary bearer shares, i.e. all shares issued by Polenergia S.A., entitling to 100% of votes at Polenergia S.A.'s general meeting, for PLN 16.29 per share. PGE is also the acquiring entity in this Tender Offer. Under the tender offer, collateral in the form of a bank guarantee was put up for PGE's liabilities. The guarantee was issued by Bank Polska Kasa Opieki S.A. and the beneficiary is PEKAO Investment Banking S.A. The bank guarantee was issued on May 22, 2018, for PLN 740 million, valid until November 21, 2018. The Tender Offer was announced on conditions specified in the Tender Offer content, including:

 unconditional approval from the President of the Office of Competition and Consumer Protection for a concentration of undertakings consisting of the acquisition of control over Polenergia S.A.,  subscription to sell in the Tender Offer Polenergia S.A. shares representing at least 66% of votes,  appointment to Polenergia S.A.'s supervisory board of candidates designated by PGE,  adoption by Polenergia S.A.'s general meeting of a resolution on changes in Polenergia S.A.'s articles of association and  execution of a strategic cooperation agreement between PGE and Polenergia S.A. and Polenergia S.A.'s integration into PGE Group. Given that some of the aforementioned conditions were not met, PGE decided not to purchase Polenergia S.A. shares. 24.2 Significant events after the reporting period No significant events that would require disclosure in these consolidated financial statements took place between the end of the reporting period and the date on which these financial statements were approved.

The additional notes constitute an integral part of these consolidated financial statements. 44 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Polska Grupa Energetyczna S.A. Quarterly financial information for the 3- and 9-month periods ended September 30, 2018, in accordance with IFRS EU (in PLNm)

II. PGE Polska Grupa Energetyczna S.A. Quarterly financial information for the 3- and 9- month periods ended September 30, 2018, in accordance with IFRS EU (in PLNm)

SEPARATE STATEMENT OF COMPREHENSIVE INCOME 3 months ended 9 months ended 3 months ended 9 months ended September 30, September 30, September 30, September 30,

2018 2018 2017 2017 (unaudited) (unaudited) (unaudited) (unaudited) STATEMENT OF PROFIT OR LOSS

SALES REVENUES 2,779 7,958 2,213 6,804 Cost of goods sold (2,560) (7,351) (2,031) (6,243) GROSS PROFIT ON SALES 219 607 182 561 Distribution and selling expenses (4) (13) (3) (13) General and administrative expenses (51) (155) (37) (109) Other operating income 2 5 1 2 Other operating expenses (2) (6) (1) (9) OPERATING PROFIT 164 438 142 432 Finance income 138 377 94 4,468 Finance expenses (101) (312) (75) (302) GROSS PROFIT 201 503 161 4,598 Current income tax 3 (48) (11) 7 Deferred income tax (8) (3) 1 (2) NET PROFIT FOR THE REPORTING PERIOD 196 452 151 4,603

OTHER COMPREHENSIVE INCOME Items that may be reclassified to profit or loss: Measurement of hedging instruments (7) (32) 11 (59) Deferred tax 1 6 (2) 11 OTHER COMPREHENSIVE INCOME FOR THE REPORTING PERIOD, (6) 9 (26) (48) NET

TOTAL COMPREHENSIVE INCOME 190 426 160 4,555

NET PROFIT AND DILUTED NET PROFIT PER SHARE (IN PLN) 0.10 0.24 0.08 2.46

The additional notes constitute an integral part of these consolidated financial statements. 45 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Polska Grupa Energetyczna S.A. Quarterly financial information for the 3- and 9-month periods ended September 30, 2018, in accordance with IFRS EU (in PLNm)

SEPARATE STATEMENT OF FINANCIAL POSITION As at As at September 30, 2018 December 31, 2017 (audited) (unaudited) restated data NON-CURRENT ASSETS Property, plant and equipment 169 176 Intangible assets 1 3 Financial receivables 13,180 11,840 Derivatives and other assets measured at fair value through profit or loss 247 216 Shares in subsidiaries 32,704 32,568 Shares in other related parties 88 84 46,389 44,887 CURRENT ASSETS Inventories 863 2 Trade and other receivables 4,167 2,636 Derivatives 16 54 Other current assets 47 220 Income tax receivables - - Cash and cash equivalents 631 1,832 5,724 4,744 TOTAL ASSETS 52,113 49,631

EQUITY Share capital 19,165 19,165 Reserve capital 19,872 15,328 Hedging reserve 84 110 Retained earnings 449 4,541 39,570 39,144 NON-CURRENT LIABILITIES Non-current provisions 20 20 Loans, borrowings, bonds 5,651 7,714 Derivatives 7 5 Deferred income tax provision 9 13 Other liabilities 21 23 5,708 7,775 CURRENT LIABILITIES Current provisions 1 2 Loans, borrowings, bonds, cash pooling 5,954 1,764 Derivatives 34 27 Trade and other liabilities 644 682 Income tax liabilities 107 176 Other non-financial liabilities 95 61 6,835 2,712 TOTAL LIABILITIES 12,543 10,487 TOTAL EQUITY AND LIABILITIES 52,113 49,631 * restatement of comparative data is described in note 1 to this quarterly financial information

The additional notes constitute an integral part of these consolidated financial statements. 46 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Polska Grupa Energetyczna S.A. Quarterly financial information for the 3- and 9-month periods ended September 30, 2018, in accordance with IFRS EU (in PLNm)

SEPARATE STATEMENT OF CHANGES IN EQUITY Share capital Reserve capital Hedging Retained Total equity reserve earnings AS AT JANUARY 1, 2018 19,165 15,328 110 4,541 39,144 Net profit for the reporting period - - - 452 452 Other comprehensive income - - (26) - (26) COMPREHENSIVE INCOME FOR THE PERIOD - - (26) 452 426

Retained earnings distribution - 4,544 - (4,544) - Other changes - - - - - AS AT SEPTEMBER 30, 2018 19,165 19,872 84 449 39,570

Share capital Reserve capital Hedging Retained Total equity reserve earnings AS AT JANUARY 1, 2017 19,165 13,730 149 1,594 34,638 Net profit for the reporting period - - - 4,603 4,603 Other comprehensive income - - (48) - (48) COMPREHENSIVE INCOME FOR THE PERIOD - - (48) 4,603 4,555

Retained earnings distribution - 1,598 - (1,598) - Other changes - - - - - AS AT SEPTEMBER 30, 2017 19,165 15,328 101 4,599 39,193

The additional notes constitute an integral part of these consolidated financial statements. 47 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Polska Grupa Energetyczna S.A. Quarterly financial information for the 3- and 9-month periods ended September 30, 2018, in accordance with IFRS EU (in PLNm)

SEPARATE STATEMENT OF CASH FLOWS Period ended Period ended September 30, 2018 September 30, 2017 (unaudited) (unaudited) restated data CASH FLOWS FROM OPERATING ACTIVITIES Gross profit 503 4,598 Income tax paid 46 (116)

Adjustments for: Depreciation, amortisation and impairment losses 10 11 Interest and dividend, net (96) (2,856) Profit / loss on investing activities 52 (1,265) Change in receivables (13) (123) Change in inventories (861) 57 Change in liabilities, excluding loans and borrowings (29) 386 Change in provisions - (1) Change in other non-financial assets 26 23 NET CASH FROM OPERATING ACTIVITIES (362) 714

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment and intangible assets (2) (2) Purchase of bonds issued by PGE Group companies (1,695) (2,880) Purchase of shares in subsidiaries (176) (107) Sale of other financial assets - 369 Recognition of deposits with maturity over 3 months - (50) Release of deposits with maturity over 3 months - 2,340 Dividends received 46 2,872 Origination / (repayment) of loans granted under cash pooling agreement 662 431 Repayment of loans 260 - Loans granted (782) (285) Interest received 162 27 NET CASH FROM INVESTING ACTIVITIES (1,525) 2,715

CASH FLOWS FROM FINANCING ACTIVITIES Repayment of loans / buy-back of bonds (1,000) (17) Proceeds from loans, borrowings and bonds 1,870 - Interest paid (180) (212) Other (4) (4) NET CASH FROM FINANCING ACTIVITIES 686 (233)

NET CHANGE IN CASH AND CASH EQUIVALENTS (1,201) 3,196

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 1,831 1,930 CASH AND CASH EQUIVALENTS AT THE END OF PERIOD 630 5,126

* restatement of comparative data is described in note 1 to this quarterly financial information

The additional notes constitute an integral part of these consolidated financial statements. 48 of 50 WorldReginfo - 0a143ef8-5d2e-4770-aa98-2212ddc43813

PGE Polska Grupa Energetyczna S.A. Quarterly financial information for the 3- and 9-month periods ended September 30, 2018, in accordance with IFRS EU (in PLNm)

1. Changes in accounting principles and data presentation New standards and interpretations which became effective on January 1, 2018 New standards and interpretations that went into force on January 1, 2018, as described in more detail in note 4 of the consolidated financial statements, had no impact on the Company's separate financial statements. Changes in applied accounting principles  Change in presentation of employee benefits concerning accrued leave and bonuses In the present period, the Company decided to change the way in which it presents employee benefits concerning accrued leave, bonuses and similar from the item "provisions" to the item "other non-financial liabilities." The Company restated its comparative data presented in the statement of financial position. The restatement is presented in the table below.

As at As at September 30, 2017 Change in September 30, 2017 presentation published data restated data CASH FLOWS FROM OPERATING ACTIVITIES Adjustment for items, including: Change in liabilities, excluding loans and borrowings 353 (5) 386 Change in provisions (6) 5 (1) NET CASH FROM OPERATING ACTIVITIES 557 - 557

As at As at December 31, 2017 Change in December 31, 2017 presentation published data restated data CURRENT LIABILITIES, including: Current provisions 33 (31) 2 Other non-financial liabilities 30 31 61 TOTAL CURRENT LIABILITIES 2,712 - 2,712 TOTAL EQUITY AND LIABILITIES 49,631 - 49,631

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Quarterly financial report for the 3- and 9-month periods ended September 30, 2018, in accordance with IFRS (in PLNm)

III. Approval of quarterly financial report This quarterly report, containing PGE Group's condensed consolidated financial statements and PGE S.A.'s quarterly financial information for the 3- and 9-month periods ended September 30, 2018, was approved for publication by the Management Board on November 13, 2018.

Warsaw, November 13, 2018 Signatures of members of the Management Board of PGE Polska Grupa Energetyczna S.A.

President of the Management Board Henryk Baranowski

Vice-President of the Management Board Wojciech Kowalczyk

Vice-President of the Management Board Marek Pastuszko

Vice-President of the Management Board Paweł Śliwa

Vice-President of the Management Board Ryszard Wasiłek

Vice-President of the Management Board Emil Wojtowicz

Signature of person responsible for drafting these financial statements Michał Skiba - Director, Reporting and Tax Department

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