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. Fingrid nevertheless continues to be one of the most cost-effective TSOs in the world in international benchmark studies. The Group’s R&D costs in 2017 amounted to EUR 2.6 (2.4) million.

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5. MATERIALS AND SERVICES, €1,000 2017 2016
Loss power costs 47,397 57,555
Purchase of imbalance power 183,426 121,697
Cost of reserves 46,245 44,907
Other material costs 4,562 4,189
Change in inventories, increase (-) or decrease (+) -1,260 396
Peak load capacity costs 7,963 6,604
ITC costs 13,015 12,645
Other external services 600 365
Total 301,948 248,359
6. OTHER OPERATING EXPENSES, €1,000 2017 2016
Contracts, assignments etc. undertaken externally 56,746 53,427
Gains/losses from measuring electricity derivatives at fair value -9,053 -35,310
Other rental expenses 3,622 2,816
Other expenses 10,603 9,653
Total 61,918 30,586
Auditors' fees 2017 2016
PricewaterhouseCoopers Oy    
Auditing fee 68 65
Tax advisory fees 20 21
Assignments referred to in the Auditing Act, Chapter 1, Section 1, Subsection 2   3
Other fees 41 60
Total 130 149
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 2017 2016
Trade payables 30,246 24,825
Trade payables to associated companies 3,376 152
Interest payable 12,257 13,751
Value added tax 12,378 11,860
Collaterals received 923 923
Electricity tax 3,092 3,093
Accruals 20,627 19,259
Other debt 588 755
Total 83,488 74,617
     
Essential items included in accruals 2017 2016
Personnel expenses 6,613 5,693
Accruals of sales and purchases 8,848 7,849
Tax liabilities 5,150 5,305
Other accruals 16 413
Total 20,627 19,259

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 2017: 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.