Operating expenses, liabilities and credit risk management for purchases

3.5 Operating expenses, liabilities and credit risk management for purchases

Fingrid's operating expenses consist of and have developed as follows:

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Cost increases due in particular to new tasks and unexpected external changes affecting operations has been a special characteristic of grid operations in recent years. The new tasks involve, among other things, developing the Nordic imbalance markets, changes required by the new Electricity Market Act and the European network codes and the R&D expenses for these tasks. Some of the new tasks and responsibilities are assigned to Fingrid by law, which means the company must increasingly develop and back up its operations. The cost factors also include society’s increasing dependency on the power system, as well as needs related to data security. The Group’s R&D costs in 2016 amounted to EUR 2.4 (1.8) million. Fingrid nevertheless continues to be one of the most cost-effective TSOs in the world in international benchmark studies.

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5. MATERIALS AND SERVICES, €1,000
  2016 2015
Loss power costs 57,555 68,566
Purchase of imbalance power 121,697 98,032
Cost of reserves 44,907 50,271
Other material costs 4,189 5,906
Change in inventories, increase (-) or decrease (+) 396 178
Peak load capacity costs 6,604 7,211
ITC costs 12,645 9,423
Other external services 365 1,058
Total 248,359 240,643
6. OTHER OPERATING EXPENSES, €1,000
  2016 2015
Contracts, assignments etc. undertaken externally 53,427 45,757
Gains/losses from measuring electricity derivatives at fair value -35,310 24,127
Other rental expenses 2,816 2,727
Other expenses 9,653 9,677
Total 30,586 82,288

Auditors' fees are included in other operating expenses

The company’s operating model is largely based on outsourcing, including areas such as grid investments, maintenance management and ICT purchases. The company will apply competitive tendering as described in the procurement policy. All purchasing activities are based on impartiality, equality and transparency. Procurement decisions will be made according to previously published financial and qualitative criteria that are verifiable also after the fact. Fingrid aims to ensure that all suppliers and their subcontractors operate in a sustainable manner. A commitment to Fingrid’s Supplier Code of Conduct is required from all suppliers. 

7. TRADE PAYABLES AND OTHER LIABILITIES, €1,000
  2016 2015
Trade payables 24,825 14,652
Trade payables to associated companies 152 2
Interest payable 13,751 15,529
Value added tax 11,860 7,787
Collaterals received 923 15
Electricity tax 3,093 3,045
Accruals 19,259 24,147
Other debt 755 639
Total 74,617 65,815
     
Essential items included in accruals 2016 2015
Personnel expenses 5,693 4,310
Accruals of sales and purchases 7,849 5,923
Tax liabilities 5,305 13,412
Other accruals 413 501
Total 19,259 24,147

Credit risk in purchasing

The heads of functions are in charge of credit risks related to suppliers. The procurement policy and guidelines, and separate instructions set out the financial criteria required for Fingrid’s suppliers and how they should be monitored

General procurement principles                                                                     

The Group follows three alternative procurement methods when purchasing goods or services. When the value of the purchase is less than 30,000 euros and the benefits of a competitive tender are smaller than the costs of the purchase, the purchase can be realised without a competitive tender or it can be realised through an oral request. A written order or purchasing agreement is always drawn up. When the estimated value of the procurement exceeds 30,000 euros but is below the threshold values applied to public procurements, the procurement is subject to competitive bidding by requesting written bids from the supplier candidates. When the public procurement threshold values that apply to Fingrid (in 2016: EUR 418,000 for goods and services and EUR 5,225,000 for construction projects) are exceeded, the company follows the public procurement legislation applied to special sectors.