5.    Principal estimates and assumptions underlying the financial statements

All estimates and forecasts with a bearing on the preparation of the financial statements are subject to continual evaluation. They are based on experience and prognoses regarding future events, which are reasonable under the relevant circumstances.

The group makes estimates and assumptions regarding future developments. By definition, estimates rarely prove to coincide precisely with actual outcomes. The estimates and assumptions that could lead to significant adjustments to the book values of assets and liabilities in the coming financial year are further described below.

Useful life of tangible fixed assets
The valuation of tangible fixed assets is based on depreciation periods derived from studies of the actual useful lives of components in high-voltage grids in the Netherlands and elsewhere.

Estimated impairment of goodwill and tangible fixed assets
Each year, TenneT considers whether there has been any impairment of goodwill. The recoverable values of cash-generating units have been determined by reference to the calculated value in use. These calculations, which entail the use of estimates, are based on long-term plans that reflect the market conditions anticipated by the management.

Provision for environmental management and decommissioning
The size of the provision for environmental management and decommissioning is based on the assumption that assets will be replaced when the need arises. Asset replacement may be necessitated by environmental or legal considerations. The size of the provision is based on management forecasts regarding the cost and timing of decommissioning activities. At the close of 2008, the provision amounted to EUR 84.2 million. Decommissioning ten years sooner than anticipated, for instance, would increase the overall costs by approximately EUR 5.3 million.

Loss-incurring activities
As of 1 January 2008, TenneT TSO has been in charge (by operation of law) of managing all grids with a voltage level of 110 kV and higher, with the exception of grids encumbered by Cross Border Leases. This expansion of our remit is a consequence of the adoption of the Independent Grid Administration Act. Under the Act, TenneT has a legally enforceable obligation to execute the management of all grids with a voltage level of 110 kV and higher. Under the revenue regulation system defined by the Office of Energy Regulation for the fourth regulatory period, TenneT is unable to fulfil this obligation in such a manner that its costs are covered.
A provision has been created to cover the unavoidable losses resulting from this legally enforceable obligation in the 2009-2010 period, insofar as current estimates indicate that these losses cannot be compensated with future profits resulting from these activities over the 2011-2017 period (the period during which TenneT has been designated as the national grid administrator). The total amount of the provision is EUR 38.2 million.

Pensions
The defined-benefit pension scheme administered by ABP Pension Fund has been treated as if it were a defined-contribution scheme. Treating the scheme as a defined-benefit scheme may have major implications for the company’s profit and equity.

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