Translation of the document originally issued in Polish Gdańsk, 6 March 2014 Management Board Report on the activity of the ENERGA Capital Group for the year ended 31 December 2013 Contents SUMMARY OF 2013 ................................................................................................................................................ 5 Consolidated financial highlights of the ENERGA Group for 2013 ...................................................................... 7 ENERGA Group’s consolidated financial data for 2010-2013 ............................................................................. 8 INFORMATION ON THE ENERGA GROUP ............................................................................................................ 9 Structure of the Group ......................................................................................................................................... 9 Activities of the ENERGA Group ......................................................................................................................... 9 Key changes in the organization of the ENERGA Group .................................................................................. 12 ENERGA Group's management model ............................................................................................................. 12 DESCRIPTION OF MARKET ENVIRONMENT IN 2013 ........................................................................................ 14 Macroeconomic situation .................................................................................................................................. 14 Electricity market in Poland ............................................................................................................................... 16 Electricity market segments .............................................................................................................................. 17 Generation .................................................................................................................................................... 17 Current situation and development of generation capacity in Poland ........................................................... 18 Key players in the electricity generation sector ............................................................................................. 18 Distribution .................................................................................................................................................... 19 Key players in the electricity distribution sector ............................................................................................ 20 Trading in electricity ...................................................................................................................................... 20 Key players in the electricity trading sector................................................................................................... 21 Consumption of electricity ............................................................................................................................. 21 Inter-system exchange ................................................................................................................................. 22 Balancing Market .......................................................................................................................................... 23 Retail market for electrical energy in Poland ................................................................................................ 25 Prices of electricity and derivative products .................................................................................................. 26 SPOT market for electrical energy in Poland ................................................................................................ 27 Electricity forward market in Poland.............................................................................................................. 28 Property rights market (RES market) ............................................................................................................ 29 Emission allowance market .......................................................................................................................... 30 DESCRIPTION OF BUSINESS ACTIVITY OF ENERGA GROUP......................................................................... 31 Key events and achievements of the ENERGA Group ..................................................................................... 31 ENERGA SA's IPO on the WSE ................................................................................................................... 31 Approval of tariffs for 2014 by the President of the Energy Regulatory Office .............................................. 31 Payment of dividend by the Company for 2012 ............................................................................................ 31 Ostrołęka C Project ....................................................................................................................................... 31 Wind asset purchase agreement .................................................................................................................. 31 Heating asset purchase agreement .............................................................................................................. 32 Growth Strategy of the ENERGA Group for 2013–2020 ................................................................................... 32 Long-term Strategic Investments Program (WPIS) ....................................................................................... 33 Execution of the investment program ........................................................................................................... 33 Assessment of the capacity to execute investment plans ............................................................................. 35 Material factors relating to development of the ENERGA Group .................................................................. 35 Potential impact of the regulatory environment ............................................................................................. 35 Information on material agreements and transactions ...................................................................................... 36 Material contracts ......................................................................................................................................... 36 Credit and loan agreements ......................................................................................................................... 36 Domestic bond issue program ...................................................................................................................... 36 2 Management Board Report on the activity of the ENERGA Capital Group for the year ended 31 December 2013 Eurobond issue program .............................................................................................................................. 37 Loans extended ............................................................................................................................................ 37 Guarantees and sureties given ..................................................................................................................... 37 Information on transactions of material importance with related parties on terms other than an arm’s length basis................................................................................................................................................... 38 HR and payroll situation .................................................................................................................................... 39 Headcount in the ENERGA Group................................................................................................................ 39 Remuneration systems ................................................................................................................................. 40 Important information affecting the HR and payroll situation ........................................................................ 40 Risk management in the ENERGA Group ........................................................................................................ 42 Integrated Risk Management System in the ENERGA Group ...................................................................... 42 Strategic area ............................................................................................................................................... 43 Finance area ................................................................................................................................................. 43 Operating area .............................................................................................................................................. 45 Regulatory and legal area ............................................................................................................................. 45 Significant systemic risk factors .................................................................................................................... 45 Macroeconomic risks 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