4.5 Operating expenses, liabilities and credit risk management for purchases
Fingrid's operating expenses consist of and have developed as follows:
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 include, among other things, the changes required by the European network codes and the costs for developing these tasks, and developing the Nordic imbalance settlement and the related markets. 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 2019 amounted to EUR 3.4 (3.6) million.
|5. MATERIALS AND SERVICES, €1,000||2019||2018|
|Loss power costs||53,856||47,673|
|Purchase of imbalance power||322,226||316,608|
|Cost of reserves||55,716||56,286|
|Peak load capacity costs||13,719||13,717|
|Maintenance management costs||19,871||19,582|
|Other materials and services||10,491||15,204|
|6. OTHER OPERATING EXPENSES, €1,000||2019||2018|
|Contracts, assignments etc. undertaken externall||26,385||30,665|
|Gains/losses from measuring electricity derivatives at fair value||26,585||-36,958|
|Other rental expenses||1,023||4,083|
|Assignments referred to in the Auditing Act, Chapter 1, Section 1, Subsection 2||2|
|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||2019||2018|
|Trade payables to associated companies||3,920||2,226|
|Value added tax||17,896||13,803|
|Essential items included in accruals||2019||2018|
|Accruals of sales and purchases||68,203||57,526|
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 2019: 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.