3 Consolidated Financial Statements (IFRS)

Introduction

How to read Fingrid's financial statements and get the most out of it?

  • Notes are compiled under specific themes to provide the best representation of Fingrid
  • Chapters 4-7 consist of notes to the consolidated financial statements.
  • Accounting principles are linked with the note of most relevant for each specific principle.
  • Accounting principles are shown at the end of each note, in a separate box and recognizable by the use of symbol
  • Interesting facts about Fingrid's operating environment are highligted in infoboxes throughout the notes to the financial statements. The infoboxes can be recognized by the use of symbol

Fingrid's business model and the regulation of transmissions system operations

Fingrid constitutes a natural monopoly as referred to in the Finnish Electricity Market Act (588/2013), with duties defined in legislation. The company’s operations, reasonableness in pricing and financial result are regulated and overseen by the Energy Market Authority. Transmission network operations constitute most of the company’s turnover, result and balance sheet. 

The allowed financial result from transmission network operations is calculated by multiplying the total adjusted capital invested in the transmission network operations (transmission network assets valued at the regulatory present value) with the reasonable rate of return defined by the Energy Market Authority.

The reasonable financial result allowed by the regulation forms the basis of Fingrid’s financial planning and pricing. One can calculate the required amount of turnover by adding operating expenses in the result. Fingrid’s turnover mainly consists of the electricity transmission volume multiplied by the unit prices. The company determines in advance for the next year the unit prices for the transmission of electricity to recover required turnover. The company’s total costs consist of the operating expenses and financial costs and taxes, which are excluded from regulatory calculations. 

The so-called adjusted profit, realised in compliance with the regulation, is calculated by adjusting the parent company’s operating profit according to the Energy Market Authority’s regulation methods and by adding the impact of the incentives.

The regulation incentives are as follows: Investment incentive – intended to promote reasonable and cost-effective investments as well as a justified overhaul of components. The incentive impact is created by the fact that the methods allow the TSO straight-line depreciations based on the replacement value of the transmission network assets. Quality incentive – intended to encourage the TSO to improve the quality of electricity transmission. In practical terms this means minimising the calculated negative impact caused by non-transmitted energy. Efficiency improvement incentive – intended to encourage the TSO to operate cost-effectively. The efficiency improvement incentive is based on Fingrid's controllable operating costs. Innovation incentive – intended to encourage the TSO to develop and use innovative technical and operational solutions in its network operations. In practice, this means adequate R&D resources.

Any realised regulatory profit over a regulatory period that exceeds the allowed return is a surplus that must be returned to the customers in the form of lower future prices. If the realised regulatory profit over a regulatory period is below the allowed return, the result is a deficit which the company may recover from the customers in the form of higher future prices. No regulatory surplus or deficit income is recorded in the financial statements. The main aim of Fingrid’s business operations is to achieve the allowed financial result each year.


The Energy Market Authority determines Fingrid’s allowed financial result over four-year regulatory periods (2016–2019 and 2020–2023). The table below presents Fingrid’s own rough approximations for 2017, as well as the cumulative figures for the current regulatory period. Since the company had a surplus in the previous regulatory period, the intention is to have a deficit of approx. EUR 40 million in the current regulatory period.

WACC (pre-tax)
2017 

Adjusted capital
2017

 

 

Allowed financial result
2017

 

Deficit(-)/Surplus(+) 2017

 

 

Cumulative Deficit
(-)/Surplus(+) 2016-2019

6.19%

 

Approx. EUR 2,950 million

 

Approx. EUR 180 million

 

Approx. EUR -5 million

 

Approx. EUR -45 million

The company also engages in other regulated business operations, but the impact of these on the company’s financial income and balance sheet is negligible