Formation of turnover and financial result
Turnover consists of the following:
|1. TURNOVER, €1,000||2017||2016|
|Grid service revenue||412,082||382,395|
|Sales of imbalance power||213,872||153,881|
|Cross-border transmission income||20,711||24,015|
|Peak load capacity||8,264||7,023|
|Other operating income||8,416||5,607|
Grid service income mainly consists of the unit price for electricity transmission multiplied by the volume. The Energy Market Authority approves the pricing structure for grid services, on the basis of which Fingrid sets the unit prices for electricity transmission during the winter period and for consumption during other times. The winter period begins on 1 December and ends on the last day of February. Fingrid additionally charges fees for output from and input into the grid, and power generation capacity fees. Fingrid strives to set the unit prices for electricity transmission each autumn for the next year, for one year at a time.
Within the framework of grid services, a customer obtains the right to transmit electricity to and from the main grid through its connection point. Grid service is agreed by means of a grid service contract signed between a customer connected to the main grid and Fingrid.
Each electricity market party must ensure its electricity balance by making an agreement with either Fingrid or some other party. Fingrid buys and sells imbalance power in order to stabilise the hourly power balance of an electricity market party (balance responsible party). Imbalance power trade and pricing are based on a balance service agreement with equal and public terms and conditions.
Fingrid is responsible for the continuous power balance in Finland at all times by buying and selling regulating power in Finland. The balance responsible parties can participate in the Nordic balancing power market by submitting bids on their available capacity. The terms and conditions of participation in the regulating power market and the pricing of balancing power are based on the balance service agreement.
Transmission services on the cross-border connections to the other Nordic countries enable participation in the Nordic Elspot and Elbas exchange trade. Fingrid makes transmission services on the cross-border connections with Russia available to all electricity market parties. The transmission service is intended for fixed electricity imports. When making an agreement on transmission services from Russia, the customer reserves a transmission right (in MW) for a period of time to be agreed upon separately. The smallest unit that can be reserved is 50 MW. The contractual terms are equal and public.
ITC compensation is, for Fingrid, income and/or costs which the transmission system operator receives for the use of its grid by other European transmission system operators and/or pays to other transmission system operators when using their grid to serve its own customers.
The peak load capacity secures the supply security of electricity in situations of the Finnish power system where the planned electricity procurement is not sufficient to cover the anticipated electricity consumption. The peak load capacity can consist of both power plants and facilities capable of adjusting their electricity consumption.
|2. OTHER OPERATING INCOME, €1,000||2017||2016|
|Capital gains on fixed assets||321||3,792|
Sales recognition takes place on the basis of the delivery of the service. Electricity transmission is recognised once the transmission has taken place. Non-recurring connection fees are recognised when the connection is agreed on with the customer. Indirect taxes and discounts, etc., are deducted from the sales income when calculating turnover.
Adoption of the IFRS 15 Revenue from Contracts with Customers standard, effective 1 Jan 2018
IFRS 15 will replace IAS 18, which outlines the accounting requirements for the sale of goods and services, and IAS 11 applied to long-term projects.
The fundamental principle of the new standard is that sales revenue should be recognised when control over the goods or the service is transferred to the customer; in other words, control of the asset is the criterion to be examined instead of the previous criteria of risks and rewards.
A new five-step process should be applied when recognising sales revenue:
• Identify the contract(s) with a customer
• Identify the individual performance obligations
• Determine the transaction price according to the contract
• Allocate the transaction price to individual performance obligations, and
• Recognise revenue when each performance obligation is met.
A significant change from current practice is the change in the timing of sales recognition: with the new standard, the timing of recognition of grid connection fees will change. Like all new standards, this one also includes new requirements for the notes to the financial statements. These changes in the accounting procedures somewhat affect the company’s business practices regarding systems, processes, controls, compensation arrangements, and investor relations.
Sales recognition takes place on the basis of the delivery of the service. Electricity transmission is recognised once the transmission has taken place. Fingrid has defined the performance obligations related to each agreement, and revenue recognition has been examined separately for each performance obligation. When determining the extent to which a performance obligation is met, a single method should be applied for all performance obligations to be met over time. If a customer does not receive an individual item of goods or a service against the connection fee, this must be recognised as revenue in the same way as the other revenue according to the contract, generally over the contract term. This will change Fingrid’s principles for recognising revenue regarding connection fees, as the timing of their recognition will change. Connection agreements are long term and can be terminated, at the earliest, 15 years from the date when it entered into force. Whereas connection fees were previously recognised on the agreement signing date, they will in future be recognised over 15 years from when the connection to the electricity grid took place.
For Fingrid, the identified performance obligations will not bring significant changes to the current recognition practices.
In adopting the standard, the cumulative effect method will be used. Adjustments caused by the application of the standard will be recorded in retained earnings on the date of commencement of its application, i.e. on 1 January 2018. With the cumulative effect method, the information on the comparison period is left as it was according to the previously applied standards.
Calculation of the standard’s impacts on the financial statements
Application of the standard does not have significant impacts on the company’s result and balance sheet.
If sales in 2017 were recognised according to the IFRS 15 revenue recognition standard, it would have had a reducing effect of EUR 1.2 million on net sales on 31 Dec. 2017, in which case net sales would have amounted to EUR 670.8 million. Until 31 Dec. 2017, non-recurring connection fees have been recognised when the connection is agreed on with the customer. If the connection fees were recognised over 15 years, it would have had a reducing effect on equity of EUR 35.1 million on the balance sheet date of 31 Dec. 2017, and it would have increased the deferred tax assets and accruals. The total impact in the balance sheet would have been EUR 8.8 million. Impacts on the income statement and balance sheet are presented in the table below.
Judgements and estimates
Estimate of the purchase and sale of imbalance power
The income and expenses of imbalance power are ascertained through a nationwide imbalance settlement procedure, which is based on the Ministry of Employment and Economy’s 9 December 2008 decree on the disclosure obligation related to the settlement of electricity delivery. The final imbalance settlement is completed no later than 13 days from the delivery month, which is why the income and expenses of imbalance power in the financial statements are partly based on preliminary imbalance settlement. The estimate is based on the preliminary imbalance settlement information provided by the imbalance settlement. For foreign balances, the calculations have been verified with the foreign counterparties.
Inter-Transmission System Operator Compensation (ITC)
Compensation for the transit transmissions of electricity has been agreed upon through an ITC (Inter-Transmission System Operator Compensation) agreement. The centralised calculations are carried out by ENTSO-E (the European Network of Transmission System Operators of Electricity). ITC compensation is determined on the basis of the compensation paid for use of the grid and transmission losses. The ITC calculations take into account the electricity transmissions between the various ITC agreement countries. ITC compensation can represent both an income and a cost for a transmission system operator. Fingrid’s share of the ITC compensation is determined on the basis of the cross-border electricity transmissions and imputed grid losses. ITC compensation is invoiced retroactively after all parties to the ITC agreement have approved the invoiced sums. Control is carried out monthly. This is why the uninvoiced ITC compensations for 2017 have been estimated in the financial statements. The estimate has been made using actual energy border transmissions in Finland and unit compensations, which have been estimated by analysing the actual figures from previous months and data on grid transmissions during these months.