Formation of turnover and financial result

3.3 Formation of turnover and financial result

Turnover consists of the following:

Liikevaihto 2016
1. TURNOVER, €1,000    
  2016 2015
Grid service revenue 382,395 333,005
Sales of imbalance power 153,881 137,127
Cross-border transmission income 24,015 11,174
ITC income 13,199 15,298
Peak load capacity 7,023 7,585
Congestion income* 0 90,941
Other operating income 5,607 5,093
Total 586,120 600,224

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    
  2016 2015
Rental income 922 1,196
Capital gains on fixed assets 3,792 2,265
Contributions received 282 199
Congestion income 6,325 0
Other income 1,368 1,539
Total 12,689 5,199
Liikevaihto ja liiketoiminnan tulos

Accounting principles

Revenue recognition

Sales recognition takes place on the basis of the delivery of the service. Electricity transmission is recognised once the transmission has taken place. Balance power services are recognised on the basis of the delivery of the service. Connection fees are recognised when connection to the grid has happened. 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.

The most significant differences compared with the present practice are as follows:

  • The time of recognising sales revenue can change: some of the revenue currently recognised at the end of a contract may in future be recognised over the contract term and vice versa. The timing of recognition of grid connection fees will change along with the new standard.
  • Like all new standards, IFRS 15 includes new requirements for the notes to the financial statements.

These changes in the accounting procedures may affect the company’s business practices regarding systems, processes and controls, compensation and bonus arrangements, tax planning and investor relations.

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, for instance, connection fees.

Fingrid charges also other similar fees that in practical terms are linked with this issue, such as fixed fees and volume-based fees. Fingrid is currently specifying the performance obligations it must meet for each contract. Revenue recognition will be 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. The company is currently conducting an analysis of the impacts of the standard, and the impacts on connection fee recognition have been identified. The goal is to start applying the standard using the simplified transitional approach for the 2018 financial statements.

The standard can be applied either fully retroactively or non-retroactively by providing additional information.

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 two months 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 preliminary settlement has been made separately for consumption, production and foreign balances. For the two first balances, the volume of unsettled imbalance power has been estimated using reference group calculations. 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 2016 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.