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 2018 amounted to EUR 3.6 (2.6) million.

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5. MATERIALS AND SERVICES, €1,000 2018 2017
Loss power costs 47,673 47,397
Purchase of imbalance power 316,608 183,214
Cost of reserves 52,171 46,245
Other material costs 11,071 4,773
Change in inventories, increase (-) or decrease (+) 1,138 -1,260
Peak load capacity costs 13,717 7,963
ITC costs 13,803 13,015
Maintenance management costs 26,382 29,891
Other external services 310 600
Total 482,873 331,839
6. OTHER OPERATING EXPENSES, €1,000 2018 2017
Contracts, assignments etc. undertaken externally 30,665 26,855
Gains/losses from measuring electricity derivatives at fair value -36,958 -9,053
Other rental expenses 4,083 3,622
Other expenses 9,422 10,603
Total 7,211 32,027
Auditors' fees 2018 2017
PricewaterhouseCoopers Oy    
Auditing fee 89 68
Tax advisory fees   20
Assignments referred to in the Auditing Act, Chapter 1, Section 1, Subsection 2 2  
Other fees 92 41
Total 183 130
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 2018 2017
Trade payables 25,470 30,246
Trade payables to associated companies 2,226 3,376
Interest payable 11,778 12,257
Value added tax 13,803 12,378
Collaterals received 923 923
Electricity tax 4,443 3,092
Accruals 81,483 20,627
Other debt 1,904 588
Total 142,030 83,488
     
Essential items included in accruals 2018 2017
Personnel expenses 8,011 6,613
Accruals of sales and purchases 57,526 8,848
Tax liabilities 15,930 5,150
Other accruals 16 16
Total 81,483 20,627

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 their monitoring.

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 executed without a competitive tender or it can be executed 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 2018: EUR 443,000 for goods and services, EUR 5,548,000 for construction projects, EUR 418,000 for design competitions and EUR 5,548,000 for right-of-use agreements) are exceeded, the company follows the public procurement legislation applied to special sectors.