Provisions for onerous contracts in connection with the approval of the tariff for the sale of electricity by the President of the Energy Regulatory Office (“ERO President”)
As at 31 December 2019, a provision for onerous contracts in the amount of PLN 237,445 thousand was created by the companies in the Sales segment. This provision relates primarily to households, including customers benefiting from tariff prices approved by the President of the Energy Regulatory Office (“G tariff”) in the amount of PLN 130,287 thousand and individual customers who benefited from product price lists offered by the Company (“GD price lists”) in the amount of PLN 99,570 thousand.
The need to create the aforementioned provision for the G tariff resulted from the adoption, for the calculation of the sales price for these customers for 2020, of the parameters set out in the call of the ERO President whose approval in December 2019 results in the impossibility of obtaining revenues from the sale of electricity in a value that would cover the justified costs of conducting activities in this field. The price level approved by the ERO President’s decision for the G tariff group for 2020 was also a significant reason for the losses arising on the GD price lists, for which the provision was created. Some of the product contracts in the household segment link electricity rates to the G tariff price, therefore it also prevents gaining sales revenue at a level ensuring covering of full variable costs of the business.
At the same time, on 7 January 2020, the subsidiary, TAURON Sprzedaż Sp. z o.o. submitted an application for the approval of the change of the electricity tariff for the consumers of tariff G groups for 2020, which is to transfer all justified costs that were not accepted in the application approved in December 2019. By virtue of its Decision of July 8, 2020, the ERO President refused to approve changes in the electricity tariff for these customers. On 31 July 2020, the Management Board of TAURON Sprzedaż Sp. z o.o. lodged an appeal to the Court of Competition and Consumer Protection against the decision of the President of the Energy Regulatory Office of 8 July 2020.
During 2020, as a result of the application of the above-mentioned price lists and tariffs, the companies generated a loss on electricity sales to its customers and therefore used the above-described provisions for onerous contracts related to 2020 in the amount of PLN 190,414 thousand, including the entire provision for the G tariff in the amount of PLN 130,287 thousand and partial provision for GD tariffs in the amount of PLN 54,957 thousand.
At the same time, as at 31 December 2020, the companies updated the remaining provision for onerous contracts to PLN 76,394 thousand. This provision relates primarily to GD price lists in the amount of PLN 69,051 thousand. On the other hand, as at 31 December 2020, no necessity arose to create a provision for onerous contracts in terms of G tariff. On the basis of the household tariff for 2021, approved by the ERO President in December 2020, the companies will gain revenues from the sale of electricity fully covering the reasonable costs of doing business in this area.
Other provisions for onerous contracts
As at 31 December 2020, a provision was created for onerous contracts in the amount of PLN 8 297 thousand in connection with the partial acceptance by the Court of Appeal in Warsaw of the request for security by ordering the subsidiary, Polska Energia – Pierwsza Kompania Handlowa Sp. z o.o. to execute in full the provisions of the contracts under the existing terms and conditions, in accordance with their contents, until the legal conclusion of the proceedings in the action brought by Pękanino Wind Invest Sp. z o.o. against Polska Energia – Pierwsza Kompania Handlowa Sp. z o.o., as further described in Note 54 hereto.