4.5 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 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.

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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
ITC costs 14,982 13,803
Maintenance management costs 19,871 19,582
Other materials and services 10,491 15,204
Total 490,861 482,873
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
Other expense 9,013 9,422
Total 63,007 7,211
Auditors' fees 2019 2018
PricewaterhouseCoopers Oy    
Auditing fee 114 89
Assignments referred to in the Auditing Act, Chapter 1, Section 1, Subsection 2   2
Other fees 39 92
Total 153 183
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 24,508 25,470
Trade payables to associated companies 3,920 2,226
Interest payable 11,056 11,794
Value added tax 17,896 13,803
Collaterals received 923 923
Electricity tax 4,107 4,443
Accruals 159,240 82,759
Other debt 741 613
Total 222,393 142,030
     
Essential items included in accruals 2019 2018
Personnel expenses 6,978 8,011
Accruals of sales and purchases 68,203 57,526
Tax liabilities 11,681 15,930
Congestion income 72,378 1,292
Total 159,240 82,759

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.