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Performance and Innovation

2010–2011 was a time of conducting analyses and preparing measures in the various business segments.

In the Production segment, 2011 saw continued implementation of the SAFELY 15 TERA ETE project, the objective of which is to achieve annual generation volume of at least 15 TWh at Temelín Nuclear Power Station in 2012. The project moved ahead according to plan, with activities focused on plant & equipment, safety, working with suppliers, human resources, and organization & management. The principal project priorities in 2011 were operational reliability of equipment and organization of work during outages. In the human resources development area, the year saw continued development of a program for increasing the quality of human performance and standardizing it in the power plant’s executive processes.

The goal of the SAFELY 16 TERA EDU is to increase the annual electricity generation volume of Dukovany Nuclear Power Station to approximately 16 TWh starting from 2013, while maintaining the current level of safety and operating reliability. The project is reaching its goal by shortening planned outages for fuel replacement and increasing the plant’s output by making modifications to the main generating equipment to bring it up to its full design capacity. Through unit transformer and turbogenerator rebuilds, fuel modifications, and other improvements, the target achievable capacity of 500 MWe has so far been achieved on Units 1–4, one by one starting in 2005. New, shorter outage plans are also being implemented with success.

The “Securing LTO EDU” (Long Term Operation) project is the first phase of the “Securing the Long-term Operation of Dukovany Nuclear Power Station” program. The program’s objective is to operate the plant’s reactors, while maintaining the required level of safety, beyond 2015.

The project’s goal is to prepare the plant’s equipment, personnel, documentation, and processes for an extension of the plant’s license beyond 2015 and carry out those measures necessary to operate the plant until 2025 with an outlook for further extension of operations. Progress made in implementing the project is documented and submitted each year to the State Office for Nuclear Safety.

The “Streamlined Corporation” project was concluded at the end of 2010. Its principal objectives were to put in place the optimal model of CEZ Group management and administration, effectively calibrate non-core services, and optimize the work force head count. Most importantly, the project brought about across-theboard changes to the organization, eliminating one level of management and thereby saving on staff costs, improving management of the consulting budget, etc.

2011 saw application of the Design-to-Cost methodology in the production division. This methodology is utilized with the aim of increasing the effectiveness of expenses incurred in developing the production division’s portfolio, including repair and maintenance expenses. During 2011, the methodology was applied in cost-intensive projects. All told, 14 projects with conservative cost estimates of CZK 3.8 billion were prepared, in which the use of Design-to- Cost tools resulted in potential savings amounting to 24% of total costs, with no changes to key project parameters. From 2012 on, the experience gained will be expanded to additional projects. CEZ Group intends to leverage the experience gained in application of the Design-to-Cost methodology in the production division by using it to optimize capital expenditures for distribution assets in the company ČEZ Distribuce and in coal mining at Severočeské doly.

A fundamental component of the “Performance” program is a project entitled “Framework Strategy for Provision of Services at CEZ Group”, implementation of which has already commenced. The establishment of a Shared Services Center (SSC) is based on the principles of higher integration of the Group’s current process-based subsidiaries, unified management, and service quality. The goal of the project is to improve support and service functions and propose a new model for providing services within the Group (in the Czech Republic only).

In distribution, 2011 saw the successful optimizing of preventive maintenance rules while maintaining compliance with all applicable laws, regulations, and safety standards. At ČEZ Distribuce, a project entitled “Asset Management” was implemented, the main outcome of which was a proposal for improving the effectiveness of internal asset management processes combined with extensive organizational changes that are being rolled out from February 2012. Internal processes were also optimized at ČEZ Distribuční služby, as well as in the technical operations section of ČEZ Měření.

In order to achieve the results demanded of the Sales segment, it is necessary to bring about a substantial improvement in the success rate in retaining the current customer portfolio, seek out new roads to market, and be even more aggressive in reducing salesand customer service-related costs. The project is focused on potential improvements within the segment (e.g. improving churn management – convincing customers to stay, reducing customer service costs, accelerating cash flows, optimizing the supplier switching process), as well as without (acquiring new gas customers in the Czech Republic, improving information support, acquiring end customers in the Slovak Republic).

Accomplishments of the distribution and international affairs divisions included sustained, long-term reductions in operating expenses by transferring best practices in corporate management, as well as rigorous management of companies’ working capital. Another major priority in this area has been maximizing the repatriation of funds expended abroad, back to the corporate parent.

Optimization, Cost Effectiveness

In response to lower electricity consumption and prices in the wake of the economic crisis, increasing EU regulation of the power industry, and other unfavorable market factors, in the autumn of 2010 CEZ Group launched its stabilization initiative, entitled NEW VISION.

NEW VISION saw cutbacks in the Group’s program of capital expenditures, together with aggressive optimizing of its internal processes and cost structure. New, ambitious goals were set to retain the current credit rating. This is important to ensure continued access to advantageous financing for development projects such as the completion of Temelín Nuclear Power Station.

The NEW VISION initiative is based on the following priorities:

In the autumn of 2011, five new strategic programs were added to the NEW VISION initiative. The new components were CEZ Group’s response to uncertainty and difficult-to-predict developments in the energy markets:

The objective of the updated strategy and new strategic programs is to appropriately address the principal risks to CEZ Group’s bottom line and, at the same time, take maximum advantage of the growth opportunities currently in the market.

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