7.1 Revenue from sales

ACCOUNTING POLICIES

Revenue from contracts with customers

Revenue is recognised so as to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Revenue is recognised when the performance of an obligation through transferring the promised good (product) to a customer is fulfilled. A good is transferred when the customer obtains control of that good.

The entity recognises revenue from a contract with customer only when all of the following criteria are met:

• the parties to the contract have approved the contract (in writing, orally or in accordance with other customary business practices) and are obligated to perform their duties;
• The Group is able to identify each party’s rights regarding the goods or services to be transferred;
• The Group can identify the payment terms for the goods or services to be transferred;
• the contract has commercial substance; and
• it is probable that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

At contract inception, the Group assesses the goods or services promised in a contract with a customer and shall identify as a performance obligation each promise to transfer to the customer either:

• a good or service (or a bundle of goods or services) that is distinct; or
• a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

The Group recognises revenue when (or as) the Group satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to the customer. An asset is transferred when the customer obtains control of that asset, i.e. when the customer obtains the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.

The Group transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met:

• the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs;
• the Group’s performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced; or
• the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.

For each performance obligation satisfied over time, the Group recognises revenue over time by measuring the progress towards complete satisfaction of that performance obligation. The objective when measuring progress is to depict an entity’s performance in transferring control of goods or services promised to a customer (i.e. the satisfaction of the Group’s performance obligation).

When (or as) a performance obligation is satisfied, the Group recognises as revenue the amount of the transaction price that is allocated to that performance obligation. The transaction price includes some or all of an amount of estimated variable consideration only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Revenue is recognised net of value added tax, excise duty, other sales taxes or charges as well as discounts and bonuses.

The entity considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Revenue from wholesale of electricity

Contracts for the sale of electricity concluded on the wholesale market are reported to the Transmission System Operator (TSO) as a notification of the volume of electricity declared per each hour which the company is obliged to provide as a supplier or ensure its provision and the client is obliged to accept. Both the settlement price and volume of electricity per each hour are set out in OTC (Over The Counter) contracts signed or – in the case of sales on the POLPX – determined on the basis of transactions recorded electronically. Revenue from the sale of electricity on the power exchange is recognised on the delivery date.

The actual electricity supply takes place through the Balancing Market, where the Transmission System Operator ensures reliability of data concerning the supplied volume of energy and deviations in volume from the previously notified work schedules (the so-called ESC: Energy Sale Contracts) are settled at prices resulting from the mechanism of operation of the Balancing Market. Settlements of the Balancing Market are executed with the Transmission System Operator every decade, whereas settlements of the wholesale sale on the Polish Power Exchange are carried out with the Warsaw Commodity Clearing House that is the guarantor of settlements of transactions entered into on the Polish Power Exchange, they are executed on a daily basis in accordance with the Warsaw Commodity Clearing House’s clearing regulations. For OTC Contracts, settlements are performed in accordance with the provisions of such Contracts, i.e. on a decade or monthly basis.

Revenue from sale of heat in the District Heating segment

Revenue is measured at the currently applicable tariff rates, subject to the approval of the President of ERO. The tariff rates apply to the procured heating power, sold heat and heat carrier. Revenue invoiced for the sale of heat is the product of the aforesaid tariff rates and sales volumes.

The sales of heat in volume terms come from the readings of metering and billing systems. Readings are taken on the indicated working days of each calendar month, including a date close to the end of the month. Therefore, for the purposes of financial reporting, estimates of sales volume are made for the period between the last reading date of the month and the end of that month.

Revenue from the sale of heat is recognised when the heat is delivered in accordance with the readings taken together with the estimate.

Revenue from electricity distribution services in the Distribution segment

The amount of revenue from electricity distribution services results from documented sales, plus the estimated value of non-invoiced sales of electricity distribution services in a given period, and less the estimated value of such sales from the previous period. The sales are estimated at least at the end of each quarter.

Revenue from distribution services is recognised at the time of provision of the service, based on the readings of metering and billing systems, taking into account the estimation of consumption.

Revenue from sales of electricity and gaseous fuel in the Supply segment

The Group earns revenue from sales of electricity and gaseous fuel to end users and on the wholesale market. Revenue from sales of electricity is recognised on the basis of the month of sale indicated on the invoices.
Due to the continuous nature of energy supplies, for the purposes of proper recognition in the accounting books, the Group adjusts its sales revenue (invoiced sales) for the amount of energy delivered and not invoiced in a given period. Estimates of electricity sales are made at the end of each month.

The calculation of the value of the sales estimation is made separately for each energy uptake point and separately for each price component and type of tariff charges. The electricity volume estimation is calculated on the basis of the average daily energy consumption per a energy uptake point, determined on the basis of:

• data from sales of invoiced energy in the last billing period,
• forecast daily energy consumption.

Estimation of the volume of electricity for a newly acquired energy uptake point (which has no history of electricity consumption in the billing system) is determined on the basis of the volume declared by the customer.

In the case of energy uptake points billed with the use of forecast invoices, the estimation makes sales more realistic by recalculating the value of charges for the projected amount of energy at the current rates applicable in the projection period.

Operating lease income

Income from operating leases is recognised in profit or loss for the current period on a straight-line basis over the lease term, unless the application of a different systematic method better reflects the pattern of reduction over time of the benefits derived from a leased asset.

Undiscounted lease payments to be received per year in the following periods are presented in the table below.

Revenue from sales in 2019, by category

A reconciliation of revenue disclosure by category and information on revenue that the entity discloses for each reporting segment is presented in the table below.

The total revenue amount includes PLN 51 million in sales transactions for which the value was not ultimately established as at the end of the reporting period. PGE Group makes estimates of revenue, the most important of which concerns the estimation of revenue from sales of electricity, gaseous fuel and distribution services in the Supply and Distribution segments as well as the estimation of revenue from support for high-efficiency cogeneration in the District Heating segment.

For information on revenue from recognised compensations based on the Act on Electricity Prices, see note 33.1 to these financial statements.

Lease payments recognised as income in 2019 amounted to PLN 261 million. The Group did not earn any operating lease income relating to variable lease payments that do not depend on an index or a rate.

Revenue from contracts with customers divided into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors is presented in the table below.

Revenue from sales in 2018, by category

A reconciliation of revenue disclosure by category and information on revenue that the entity discloses for each reporting segment is presented in the table below.

The total revenue amount includes PLN 69 million in sales transactions for which the value was not ultimately established as at the end of the reporting period.

Revenue from contracts with customers divided into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors is presented in the table below.