Note 1 Accounting principles
Statnett SF (the parent company) is a Norwegian state-owned enterprise that was formed on 20 December 1991. The sole owner of Statnett SF is the Norwegian State, represented by the Ministry of Petroleum and Energy (MPE). Statnett has issued bond loans listed on the Oslo Stock Exchange. The head office is located at Nydalen allé 33, 0423 Oslo.
Basis for preparation of the financial statements
The consolidated financial statements for the Statnett Group and the financial statements for the parent company, Statnett SF, have been prepared in compliance with the current International Financial Reporting Standards (IFRS), as adopted by the EU.
All subsequent references to “IFRS” imply references to IFRS as adopted by the EU.
The financial statements have been prepared on the basis of the historical cost principle, with the following exceptions:
- All derivatives, and all financial assets and liabilities classified as “fair value carried through profit or loss” or “available for sale”, are carried at fair value.
- The book value of hedged assets and liabilities is adjusted in order to register changes in fair value as a result of the hedging.
- Assets are measured at each reporting date with a view to impairment. If the recoverable amount of the asset is less than the book value, the asset is written down to the recoverable amount.
Comparative figures in the balance sheet and statement of comprehensive income
As a result of Statnett's implementation of amendments in IAS 19 Employee Benefits, a third balance sheet statement is presented at the beginning of the year 2012. The balance sheet and statement of comprehensive income for 2012 have been restated.
New accounting standards
Below follows a list of new/revised/additional standards and interpretations that had come into effect as at 31 December 2013 for the fiscal year 1 January - 31 December 2013. Only matters assumed to be relevant for Statnett, have been included.
IAS 1 – Amendment: Presentation of items of Other Comprehensive Income
The amendment to IAS 1 requires companies to group together items under "Other Comprehensive Income (OCI), based on whether the items in subsequent periods can be reclassified to profit or loss.
IFRS 13 - Fair Value Measurement
IFRS 13 consolidates and clarifies the guidance on how to measure fair value. A number of standards require or allow companies to measure or provide additional information about the fair value of assets, liabilities or equity instruments. Prior to the introduction of IFRS 13, there was limited guidance on fair value measurement and in some cases inconsistencies in the guidance.
Important accounting estimates and assumptions
The preparation of the financial statements in compliance with IFRS requires that the management carries out assessments and prepares estimates and assumptions that affect the application of accounting principles. This affects recognised amounts for assets and liabilities on the balance sheet date, reporting of contingent assets and liabilities, as well as the reported revenues and costs for the period.
Accounting estimates are used to determine some amounts that have an impact on Statnett's financial statements. This requires that Statnett prepares assumptions relating to values or uncertain conditions at the time of preparation. Key accounting estimates are estimates that are important to the Group’s financial performance and results, requiring the management’s subjective and complex assessment, often based on a need to prepare estimates on factors encumbered by uncertainty. Statnett assesses such estimates continuously on the basis of previous results and experiences, consultations with experts, trends, prognoses and other methods which Statnett deems appropriate in the individual case.
Provisions for liabilities relating to disputes and legal claims are recognised in the income statement when the Group has an existing liability, legal or self-imposed, as a result of an event that has taken place. Furthermore, it must be possible to measure the amount reliably and it must be demonstrated as probable that the liability will be settled The provisions are measured to the best of the management's ability on the balance sheet date.
Insurance claims are considered a contingent asset and are not recognised as income until the income is virtually certain. In connection with development projects where additional costs relating to the repair of damage constitute part of the facility’s cost price, and there is no basis for write-down, insurance claims are recognised as a reduction of the project’s acquisition costs. Such a reduction is contingent on the insurance company having acknowledged the damage and that the amount can be reliably estimated.
Significant items relating to Statnett's use of estimates:
Depreciation / Amortisation
Tangible fixed assets
Depreciation is based on the management’s assessment of the useful life of property, plant and equipment. The assessments may change owing, for example, to technological developments and historical experience. This may entail changes in the estimated useful life of the asset and thus the depreciation. It is difficult to predict technological developments, and Statnett’s view of how quickly changes will come may change over time. If expectations change significantly, the depreciation will be adjusted with effect for future periods. Please refer to the more detailed discussion under “Tangible fixed assets” below.
Goodwill and other intangible assets
Goodwill arising in a business combination is not amortised. Intangible assets with a fixed useful life are amortised over the asset's useful life which is assessed at least once a year. Intangible assets are amortised in a straight line as this best reflects the use of the asset.
Tangible fixed assets
Statnett has made significant investments in tangible fixed assets. The value of these assets is assessed when there is an indication of impairment in value. Tangible fixed assets in the parent company are regarded as one cash-generating unit and are assessed collectively since Statnett SF has one collective revenue cap. In subsidiaries, each fixed asset is assessed individually.
Statnett expects to make substantial investments in the future. These will largely take place in the form of projects under the company’s own direction which are recorded in the balance sheet as plants under construction until the fixed asset is ready to be put into operation. Projects under execution are valued individually on indications of impairment in value.
Estimates of the recoverable amounts for assets must be based in part on the management’s assessments, including the calculation of the assets’ revenue-generating capacity and the probability of licences being granted for development projects. Changes in circumstances and the management’s assumptions may result in write-downs for the relevant periods.
Goodwill is evaluated for write-down annually, or more often if there are any indications of impairment in value, based on the cash-generating unit to which goodwill is allocated. If the recoverable amount (the higher of net sales and utility value) for the cash-generating unit is lower than the carrying value, the write-downs will first reduce the carrying value of any goodwill and then the carrying value of the unit's other assets, proportionally based on the carrying value of the individual assets in the unit. The carrying value of individual assets is not reduced below the recoverable amount or zero. Write-downs of goodwill cannot be reversed in a subsequent period if the fair value of the cash-generating unit increases. Impairment of value is included in the income statement as a part of write-downs.
Other intangible assets
On each reporting date, the Group considers whether there are any indications of impairment in value for intangible assets. If there are any indications of impairment in value, the Group will estimate the recoverable amount for the assets and evaluate potential write-down.
Pension costs, pension liabilities and pension assets
As of 1 January 2013, the Group has implemented the amendments in IAS 19 Employee Benefits (adopted by the EU in June 2012) (”IAS 19R”) and changed its basis for calculation of pension liabilities and pension costs. The Group previously applied the corridor method for recognition of unamortised actuarial gains and losses. According to IAS 19R, the use of the corridor method is no longer permitted, and all actuarial gains and losses must be recognised under other comprehensive income in the statement of comprehensive income. Reference is made to the statement of changes in equity and Note 5 Pensions and pension liabilities.
The calculation of pension costs and net pension liabilities (the difference between pension liabilities and pension assets) is performed on the basis of a number of estimates and assumptions. All actuarial gains and losses must be recognised under other comprehensive income in the statement of comprehensive income.
The consolidated financial statements comprise Statnett SF and subsidiaries in which Statnett SF has a controlling influence. These will normally be companies where Statnett SF owns more than 50 per cent of the voting shares, either directly or indirectly through subsidiaries.
The consolidated financial statements have been prepared using uniform accounting principles for equivalent transactions and other events under otherwise equal circumstances. The classification of items in the income statement and balance sheet has taken place in accordance with uniform definitions. The consolidated financial statements are prepared in accordance with the acquisition method of accounting and show the Group as if it was a single entity. Balances and internal transactions between companies within the Group are eliminated in the consolidated financial statements.
The cost price of shares in subsidiaries is offset against equity at the time of acquisition. Any excess value beyond the underlying equity of the subsidiaries is allocated to the asset and liability items to which the excess value can be attributed. The portion of the cost price that cannot be attributed to specific assets represents goodwill.
Statnett SF's Pension Fund is not part of the Statnett Group. Contributed equity in the pension fund is measured at fair value and classified as financial fixed assets.
Investments in joint ventures
Joint ventures are defined as entities in which there are contractual agreements that give joint control together with one or more parties. Result, assets and liabilities of joint ventures are recorded in the financial statements in accordance with the equity method. This means that the Group’s share of the result for the year after tax and amortisation of any excess value is reported on a separate line in the income statement between operating profit/loss and financial items. The accounts of joint ventures are restated in accordance with IFRS. Ownership interests in joint ventures are presented as fixed asset investments at original cost plus accumulated profit shares and less dividends in the consolidated balance sheet.
Investment in associated companies
Associates are entities where the Group has a significant, but not controlling influence over the financial and operational management. Normally these will be companies where the Group owns between 20 and 50 percent of the voting shares. Earnings, assets and liabilities of associates are recorded in the financial statements in accordance with the equity method. This means that the Group’s share of the result for the year after tax and amortisation of any excess value is reported on a separate line in the income statement between operating profit/loss and financial items. The accounts of associates are restated in accordance with IFRS. Ownership interests in associates are carried as financial fixed assets at original cost plus accumulated profit shares and less dividends in the consolidated balance sheet.
Purchase/sale of subsidiaries, joint ventures and associates
In the case of acquisition or sale of subsidiaries, joint ventures and associates, they are included in the consolidated financial statements for the portion of the year they have been a part of or associated with the Group.
Investments in other companies
Investments in companies in which the Group owns less than 20 per cent of the voting capital are classified as “available for sale” and are carried at fair value in the balance sheet if they can be reliably measured. Value changes are recognised under other comprehensive income in the statement of comprehensive income.
Investments in subsidiaries, joint ventures and associates in Statnett SF (parent company accounts)
Investments in subsidiaries, joint ventures and associates are accounted for in accordance with the cost method in the parent company accounts. The group contribution paid (net after tax) is added to the cost price of investments in subsidiaries. Group contributions and dividends received are recorded in the income statement as financial income as long as the dividends and Group contributions are within the earnings accrued during the period of ownership. Dividends in excess of earnings during the ownership period are accounted for as a reduction in the share investment. Group contributions and dividends are recorded in the year they are decided.
Business combinations are recognised according to the acquisition method. Acquisition costs are the total of the fair value on the acquisition date of assets acquired, liabilities incurred or taken over as compensation for control of the acquired enterprise, as well as costs which can be directly attributed to business combinations.
The acquired enterprise's identifiable assets, liabilities and contingent liabilities which satisfy the conditions for accounting according to IFRS 3, are recognised at fair value on the acquisition date. Goodwill arising as a result of acquisitions is recognised as an asset measured as the excess of the total consideration transferred and the value of the minority interests in the acquired company beyond the net value of acquired identifiable assets and assumed liabilities. If the Group's share of the net fair value of the acquired enterprise's identifiable assets, liabilities and contingent liabilities exceeds the total consideration after re-assessment, the surplus amount is immediately recognised in the income statement.
The company has identified its reporting segment based on the risk and rate of return that affect the operations. Based on IFRS' definition, there is, according to the company's assessment, only one segment. The business is followed up as a single geographical segment. Subsidiaries do not qualify as separate business segments subject to reporting based on IFRS criteria. The parent company and the Group are reported as one a single business segment.
Cash flow statement
The cash flow statement has been prepared based on the indirect method. Cash includes cash in hand and bank deposits. Cash equivalents are short-term liquid investments that can be converted immediately to a known amount of cash, and with a maximum term of three months.
Revenue recognition principles
Operating revenues are measured at fair value and recognised when they are accrued on a net basis after government taxes. Operating revenues are reported on a gross basis, except in cases where Statnett acts primarily as a settlement function in connection with common grids and power trading.
Interest income is recognised over time as it is accrued. Dividends from investments are recorded as income when the dividends are adopted.
Permitted revenue, tariffs and higher/lower revenue
Statnett is the operator of the main national grid and two common regional grids. As the operator, Statnett is responsible for setting the annual tariffs for each common grid. The main national grid is a common grid. In a fiscal year, the actual revenues will deviate from the regulated revenues.
Permitted revenue - monopoly-regulated operations
Statnett owns transmission facilities and is a transmission system operator. These are monopoly-regulated operations. This means that the Norwegian Water Resources and Energy Directorate (NVE) sets an annual limit – a revenue cap – for the grid owner's maximum revenues. The basis for Statnett's permitted revenue is the revenue cap. The revenue cap is based on expenditure, including capital expenditure, for a retrospective period of two years. Furthermore, system operation costs are included. Statnett's revenue cap is regulated to ensure that the enterprise has incentives for efficient operation. In addition to the revenue cap, Statnett's permitted revenue consists of the following: Actual property tax, transit costs and a supplement for investments. The supplement for investments shall ensure that the year's investments are reflected in the permitted revenue for the year the investment is put into operation. Furthermore, Statnett's permitted revenue is adjusted for interruptions through KILE (quality-adjusted revenue cap for energy not supplied). There can be uncertainty attached to measuring the individual amounts included in the permitted revenue. Increased revenue as a result of conditions that require an application for adjustment of the revenue caps or interpretation of the regulations on the part of the Norwegian Water Resources and Energy Directorate (NVE), are only included in the accounts if it is considered virtually certain that the revenue will be realised.
Revenue cap transmission losses
Transmission losses in the regional and main grid are a part of Statnett's revenue cap. The reported revenue cap for transmission losses during the fiscal year consists of the actual measured loss in MWh for a retrospective period of two years valued at a regulated reference price based on the electricity spot market price in the fiscal year.
Discrepancies between the revenue cap for transmission losses and actual costs of purchases of transmission losses in the fiscal year are, in accordance with the guidelines, apportioned among the grid owners in each common grid where Statnett is the operator.
Transmission losses occur as a result of measured discrepancies between the input and outtake of power in the grid. The size of the loss will vary with the temperature, the load in the grid and the electricity price. Actual loss in the fiscal year is purchased externally at spot market price. Losses arising during transmission of power in the main national grid and the common regional grids are covered by the grid’s operator and are reported under "transmission losses".
Tariff-setting and higher/lower revenue for the year
As the operator of the main national grid and two common regional grids, Statnett is responsible for invoicing the users for the services they receive. The invoicing takes place on the basis of a tariff model, in accordance with guidelines provided by the NVE. The price system consists of fixed elements and variable elements; energy elements. Fixed elements are invoiced evenly throughout the year, while the energy element is invoiced concurrently with the customers' measured input or outtake of power from the grid.
The tariff for the year is set with a view to ensuring that the higher/lower revenue is offset over time. Tariffs are set in September preceding the fiscal year. Statnett has established a strategy for adjustment of the tariff basis including offsetting of the accumulated higher/lower revenue. Some quantities and parameters, including the price of energy, included in the calculation basis for the year's revenue cap, are based on estimates. Discrepancies will occur between tariff revenues and the permitted revenue. This is indicated in Note 2.
Higher/lower revenue interest calculations
Interest is calculated on accumulated higher/lower revenue in accordance with the rules stipulated by the NVE, based on the site deposit rate set by the Central Bank of Norway. The amount of interest is included in the balance for higher/lower revenue and is expressed in the financial reporting through regulation of future tariffs. This is indicated in Note 2
Power purchases and sales
Statnett is the Transmission System Operator (TSO) and is responsible for the regulating power market system and balance settlement system. Responsibility for the balance settlement system means that Statnett subsequently compares the measured and agreed energy volumes, calculates any discrepancies, and carries out the financial settlement between the market participants. The settlement is based on the prices in the regulating power market. The purchase and sale of regulating power must be balanced. Statnett receives a fee covering Statnett's costs as responsible for the balance settlement. If the settlement is across national borders in the Nordic region, a marginal price difference will arise based on the average of the Norwegian and foreign regulating power price, which is passed on to or charged to Statnett as the TSO.
Statnett has a separate licence as responsible for the balance settlement. This activity is recorded in the financial statement through fee revenues and costs relating to the execution of the balance settlement responsibility. Power purchases and sales are recognised net and are therefore not expressed in the statement of comprehensive income.
Power sales/purchases are recorded in the income statement when they are accrued/incurred, i.e. at the time of delivery.
Project revenue is recognised on a current basis based on the measurement of the estimated fair value. This means that revenue is recognised as the work is performed based on the degree of completion. The degree of completion is determined on the basis of the accrued costs of the executed work and estimated total project expenditure. Revenue is included in other operating revenues. Invoiced and accrued project revenues are included in trade accounts receivable.
Where projects are expected to make a loss, the entire expected loss is recognised as an expense.
Tax costs in the income statement encompass both the tax payable for the period and changes in the deferred tax liabilities/assets. Taxes payable are calculated on the basis of the taxable income for the year. Net deferred tax assets/liabilities are calculated on the basis of temporary differences between the accounting and tax values, and the tax loss carried forward.
Tax-increasing or tax-reducing temporary differences that are reversed or may be reversed are offset. Deferred tax assets are recorded when it is probable that the company will have a sufficient taxable profit to benefit from the tax asset. Deferred tax liabilities/assets that can be recorded in the balance sheet are carried at their nominal value on a net basis.
Property taxes are recorded in the income statement and paid during the tax year. They are classified as other operating expenses.
Classification of items in the balance sheet
An asset is classified as short-term (current asset) when it is related to the flow of goods, receivables paid within one year, and “assets that are not intended for permanent ownership or use in the operations”. Other assets are fixed assets. The distinction between short-term and long-term loans is drawn one year before maturity. The first year’s instalments on long-term loans are reclassified as current liabilities.
Plants under construction
Plants under construction are recognised in the balance sheet at acquisition cost less any accumulated losses from impairments. Plants under construction are not depreciated.
Development projects start off with a feasibility and alternative study. The project is recognised in the balance sheet when the conclusion from the study is available, and the main development concept has been selected. At this point, a licence has not been granted and no final investment decision has been made. Statnett’s experience is that once a main concept has been selected for development, it is highly likely that the project will be implemented.
Ongoing assessments are made of whether licensing conditions or other causes necessitate a full or partial write-down of the project expenses incurred. Write-downs are reversed when there is no longer any basis for the write-down.
Interest during the construction period
Construction loan costs related to the company’s own plants under construction are capitalised in the balance sheet. The interest is calculated based on the average borrowing interest rate and scope of the investment, as the funding is not identified specifically for individual projects. Interest is recorded in the income statement through depreciation based on the associated asset's anticipated economic life.
Tangible fixed assets
Tangible fixed assets are carried at cost less accumulated depreciation and write-downs. The depreciation reduces the carrying value of tangible fixed assets excluding building lots, to the estimated residual value at the end of the expected useful life. Ordinary straight-line depreciation is implemented from the point in time when the asset was ready for operation, and is calculated based on the expected useful life of the asset. This applies correspondingly to fixed assets acquired from other grid owners. The cost price is decomposed when the fixed asset consists of components with differing useful lives.
The estimated useful life, depreciation method and residual value are assessed once a year. The value is assessed when there is an indication of impairment in value.Tangible fixed assets in the parent company are regarded as one cash-generating unit and are assessed collectively since Statnett SF has a collective revenue cap. In subsidiaries, each fixed asset is assessed individually. For most assets, the residual value is estimated at zero at the end of the useful life.
Gains or losses on the divestment or scrapping of tangible fixed assets are calculated as the difference between the sales proceeds and the fixed assets’ carrying value. Gains/losses on divestment are recorded in the income statement as other operating revenues/expenses. Losses on scrapping are recognised in the income statement as depreciation/write-downs.
Lump sum payments in connection with the acquisition of land etc. are included in the cost price of the fixed asset.
Ongoing payments are minor amounts and are recognised in the income statement in the year in which the payment is disbursed.
Maintenance expenses are recognised in the income statement when they are incurred. No provisions are made for the periodic maintenance of the grid (transformer stations or power lines/cables). Even though maintenance is periodic for the individual transformer station or power line, it is not considered to be periodic for the entire grid as the grid as a whole is regarded as a single cash-generating unit. If the fixed asset is replaced, any residual financial value will be recorded in the income statement as a loss on scrapping.
Expenses that significantly extend the life of the fixed asset and/or increase its capacity are capitalised.
Intangible assets bought separately are measured at acquisition cost on initial recognition. For intangible assets included in a business combination, acquisition cost is measured at fair value on the transaction date. In later periods, intangible assets are recognised at acquisition cost less accumulated amortisations and write-downs. Intangible assets with a fixed useful life are amortised over the asset's useful life which is assessed at least once a year. Intangible assets are amortised in a straight line as this best reflects the use of the asset.
Goodwill is not amortised. Goodwill does not generate cash flows independently of other assets or groups of assets, and is allocated to the cash-generating units expected to benefit from the synergy effects of the business combination that generated the goodwill. Cash-generating units allocated goodwill are evaluated for write-down annually, or more often if there are any indications of impairment in value. If the recoverable amount (the higher of the net sales and utility value) for the cash-generating unit is lower than the carrying value, the write-downs will first reduce the carrying value of any goodwill and then the carrying value of the unit's other assets, proportionally based on the carrying value of the individual assets in the unit. The carrying value of individual assets is not reduced below the recoverable amount or zero. Write-downs of goodwill cannot be reversed in a subsequent period if the fair value of the cash-generating unit increases. Impairment of value is included in the income statement as a part of write-downs.
Write-down of tangible fixed assets and intangible assets other than goodwill
On each reporting date, the Group considers whether there are any indications of impairment in value for tangible fixed assets and intangible assets. If there are any indications of impairment in value, the Group will estimate the recoverable amount for the assets and evaluate potential write-down.
The recoverable amount is the higher of the net sales and utility value. To assess the utility value, estimated future cash flows are discounted to present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and risks specific to the asset.
If the recoverable amount for a fixed asset (or cash-generating unit) is estimated to be lower than the carrying value, the carrying value of the fixed asset (or cash-generating unit) will be reduced to the recoverable amount. If an impairment in value is subsequently reversed, the carrying value of the fixed asset (cash-generating unit) will be increased to the revised estimate of the recoverable amount, but limited to the value that would be the carrying value if the fixed asset (or cash-generating unit) had not been written down in a prior year.
The Group as lessor
Financial lease agreements
Financial lease agreements are lease agreements where the lessee takes over the major part of the risk and return associated with the ownership of the asset. The Group presents leased assets as receivables equal to the net investment in the lease agreements. The Group’s financial income is determined so that a constant rate of return is achieved on the outstanding receivables over the term of the agreement period. Direct expenses incurred in connection with the establishment of the lease agreement are included in the receivable.
The Group presents leased assets as fixed assets in the balance sheet. The lease revenue is recognised in a straight line over the term of the lease period. Direct expenses incurred to establish the operating lease agreement are added to the leased asset’s carrying value and recognised as expenses during the term of the lease on the same basis as the lease revenue.
The Group as lessee
Financial lease agreements
Financial lease agreements are lease agreements where the Group takes over the major part of the risk and return associated with the ownership of the asset. At the beginning of the lease term, financial lease agreements are capitalised at an amount corresponding to the lower of fair value and the present value of the minimum rent, less accumulated depreciation and write-downs. When calculating the lease agreement’s present value, the implicit interest charge in the lease agreement is used if this can be estimated. Otherwise the company’s marginal borrowing rate is used. Direct expenses related to establishing the lease agreement are included in the asset’s cost price.
The same depreciation period is used as for the company’s other depreciable assets. If it is not reasonably certain that the company will acquire ownership at the end of the lease period, the asset will be depreciated over the shorter of the lease agreement’s duration and the asset’s useful life.
Leases where the major part of the risk and return associated with ownership of the asset is not transferred to the Group, are classified as operating leases. The rent payments are classified as operating expenses and are recorded in a straight line in the income statement over the duration of the agreement.
Research & development
Research expenses are recognised on a current basis. Research is an internal process that does not give rise to independent intangible assets that generate future economic benefits.
Expenses related to development activities are capitalised in the balance sheet if the product or process is technically and commercially feasible and the Group has adequate resources to complete the development. Expenses capitalised in the balance sheet include material expenses, direct wage costs and a percentage of directly attributable overhead expenses. Capitalised development expenses are recorded at acquisition cost, less any accumulated depreciation and write-downs
Capitalised development expenses are depreciated in a straight line over the estimated useful life of the asset.
Trade accounts are recorded in the accounts at nominal value less any losses from impairment in value.
Contingent assets and liabilities
Contingent liabilities are not recorded in the annual financial statements. Significant contingent liabilities are disclosed unless the probability of the liability is low.
Contingent assets will not be recorded in the annual financial statements, but will be disclosed if there is a certain degree of probability that it will benefit the Group.
Higher/lower revenues are contingent liabilities/assets in accordance with IFRS and are not recorded in the balance sheet.
Dividend (from the parent company)
Dividends paid are recorded in the Group’s financial statements during the period in which they are approved by the General Meeting. If the approval and payment occur in different periods, the amount will be allocated to current liabilities until payment is made.
Pensions and pension liabilities
The Group's liability relating to pension schemes, defined as defined-benefit pension schemes, is recognised at the present value of the future retirement benefits accrued at the end of the reporting period. Pension assets are evaluated at fair value. The accumulated effect of estimate changes and changes in financial and actuarial assumptions, actuarial gains and losses, are recognised under other comprehensive income in the statement of comprehensive income. Net pension costs for the period are presented as wage and staff costs. The Group has chosen to present the net interest expenses element as wage and personnel costs, as this provides the best information about the Group's pension costs.
The contributions to contribution-based pension plans are recognised as costs as they occur.
Interest-bearing loans are recorded in the income statement as the proceeds that are received, net of any transaction costs. Loans are subsequently accounted for at amortised cost using the effective interest rate method, where the difference between net proceeds and redemption value is recognised in the income statement over the term of the loan.
In accordance with IAS 39 (Financial Instruments: Recognition and Measurement), financial instruments are classified in the following categories: fair value through profit or loss, held to maturity, available for sale, loans/receivables and other liabilities. The initial measurement of financial instruments is at fair value on the settlement date, normally at the transaction price.
- Financial assets and liabilities held for the purpose of profiting from short-term price fluctuations (held for trading purposes) or accounted for according to the fair value option are classified at fair value through profit or loss.
- All other financial assets with the exception of loans and receivables issued by the company are classified as available for sale.
- All other financial liabilities are classified as other liabilities and accounted for at amortised cost.
Gains or losses attributed to changes in fair value of financial instruments classified as available for sale are recognised as other comprehensive income until the disposal of the investment. The cumulative gain or loss on the financial instrument previously recognised in other comprehensive income will be reversed, and the gain or loss will be recognised in the income statement.
Changes in the fair value of financial instruments classified at fair value through profit or loss (held for trading purposes or fair value option) are recognised in the income statement and presented as financial income/expenses.
Financial instruments are included in the balance sheet when the Group becomes a party to the instrument’s contractual terms. Financial instruments are eliminated from the balance sheet when the contractual rights or obligations have been fulfilled, cancelled, or transferred, or they have expired. Financial instruments are classified as long-term when they are expected to be realised more than 12 months after the balance sheet date. Other financial instruments are classified as short-term.
Pursuant to IAS 32 financial assets are offset against financial liabilities if there is a legally enforceable right to set off the recognised amounts and the enterprise intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Derivatives and hedging
The Group utilises derivatives such as future interest rate swaps and currency swaps to hedge its interest rate and currency risks. Such derivatives are recognised initially at fair value on the date when the contract is entered into and then measured at fair value on a current basis. Derivatives are accounted for as assets when the fair value is positive and as liabilities when the fair value is negative, provided that Statnett has no right or intention to settle the contracts net. Gains and losses resulting from changes in the fair value of derivatives that do not meet the conditions for hedge accounting are recorded in the income statement.
Derivatives that are embedded in other financial instruments or non-financial contracts are treated as separate derivatives when their risk and properties are not closely related to the contracts, and the contracts are not recorded at fair value with the change in value carried through profit or loss.
When entering into a hedging contract, the Group will formally identify and document the hedging contract that the Group will use hedge accounting for, as well as the risk that is hedged and the strategy for the hedge. Documentation includes identification of the hedging instrument, or the item or transaction that is hedged, the type of risk that is hedged, and how the Group will assess the effectiveness of the hedging instrument to counteract the exposure to changes in the hedged item’s fair value or cash flows that can be attributed to the hedged risk. Such hedges are expected to be highly effective in counteracting changes in fair value or cash flows, i.e. the hedging efficiency must be expected to be within 80-125 per cent. Moreover, it must be possible to reliably measure the efficiency of the hedges, and to assess them on a current basis to determine whether they actually have been highly effective throughout the entire accounting period they are intended to cover.
Hedges that fulfil the strict conditions for hedge accounting are accounted for as follows:
Fair value hedging
Fair value hedging is hedging of the Group’s exposure to changes in the fair value of a recorded asset or liability or an unrecognised liability, or an identified portion of such, that can be attributed to a specific risk and can affect earnings. For fair value hedging the carrying value of the hedged item is adjusted for gains or losses from the risk that is hedged. Derivatives are re-measured at fair value, and gains or losses from both are recorded in the income statement.
For fair value hedging of items that are accounted for at amortised cost, the change in value is amortised in the income statement over the remaining period until maturity.
The Group discontinues fair value hedging if the hedging instrument expires or is sold, or is terminated or exercised, and the hedging no longer fulfils the conditions for hedge accounting or the Group cancels the hedging.
The Group uses fair value hedging primarily to hedge the interest rate risk for fixed interest rate loans and the currency risk for interest-bearing liabilities. Fair value hedging is also performed for specific acquisitions in foreign currencies for investment projects. Unrealised hedging gains/losses (currency futures) reduce/increase the cost price of the investments upon realisation.
Cash flow hedging
Cash flow hedging is hedging of the exposure to the variations in cash flow that is attributable to a particular risk associated with a recognised asset or liability, or a highly probable future transaction that could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised as other comprehensive income, while the ineffective portion is recognised as financial income or cost.
Amounts that are initially recognised as other comprehensive income, are reclassified and recognised in the income statement as financial income or cost when the hedged transaction affects the profit or loss.
If the expected future transaction is no longer expected to take place, amounts recognised earlier as other comprehensive income will be recognised in the income statement as financial income or cost. If the hedging instrument expires, or is sold, terminated or used, without being replaced or continued, or when the hedging is cancelled, the amount recognised previously as other comprehensive income is retained until the future transaction is executed. If it is not expected that the related transaction will be executed, the amount will be recognised in the income statement as financial income or cost.
The Group uses cash flow hedging primarily to hedge the interest rate risk in respect of loans with floating interest rates.
Financial risk management
Financial risk management is performed by the central finance department in accordance with guidelines approved by the Board of Directors. The Board of Directors lays down principles for general financial risk management in addition to guidelines that cover specific financial risks.
The consolidated financial statements are presented in Norwegian Kroner (NOK), which is also Statnett SF’s functional currency. All Group companies use NOK as their functional currency.
As all the companies in the Group have the same functional currency, no translation differences arise upon consolidation of the group companies.
Transactions in foreign currency are translated at the rate in effect on the transaction date. Monetary items in foreign currencies are translated into NOK at the exchange rate in effect on the balance sheet date. Non-monetary items that are measured at historical cost expressed in foreign currency are translated into NOK using the exchange rate in effect on the transaction date. Non-monetary items that are measured at fair value expressed in foreign currency are translated at the exchange rate in effect on the balance sheet date. Changes in exchange rates are recorded on a current basis in the income statement during the reporting period.
Long-term interest-bearing debt in foreign currency is related to interest rate and currency swaps and treated as borrowings in NOK.
Provisions for liabilities are recognised in the income statement when the Group has an existing liability (legal or assumed) as a result of an event that has taken place and it can be demonstrated as probable (more likely than not) that a financial settlement will be made as a result of the liability, and the amount can be reliably measured. Provisions are reviewed on each balance sheet date and the level reflects the best estimate of the liability. If there is a substantial time effect, the liability will be accounted for at the present value of future liabilities.
Government grants are not recorded in the accounts until it is reasonably certain that the Group will meet the conditions stipulated for receipt of the grants and that the grants will be received. Grants are recorded as a deduction in the expenses that they are meant to cover. Grants that are received for investment projects are recorded in the balance sheet as a reduction of the cost price.
Events since the balance sheet date
New information on the company’s positions on the balance sheet date is incorporated into the annual financial statements. Events after the balance sheet date that do not affect the company’s position on the balance sheet date, but will affect the company’s position in the future, are disclosed if they are material.