Tauron – 12. Sales revenue

SELECTED ACCOUNTING PRINCIPLES The Group has introduced a five-step model of revenue recognition comprising, successively: identifying the agreement with a customer; identifying the performance obligations contained in the agreement; determining the transaction price; allocating the transaction price to each performance obligation; and recognising the revenue upon satisfying a performance obligation arising from the agreement. Revenue is recognised when (or as) the performance obligation is fulfilled in the form of transferring the promised goods, products, materials (i.e. assets) or providing a service to a customer. The asset transfer takes place when a customer acquires control over such an asset whereas in the case of sales of electricity, gaseous fuel and heat, the energy is deemed sold when delivered to a consumer. Revenue is recognised in the amount expected by the Group, following reduction by VAT, excise duty and other sales taxes, charges and discounts. The revenue comprises only the inflows of economic benefits received or receivable to the entity’s own account. Amounts obtained on behalf of third parties, with the Group acting as an agent, such as taxes on sales or VAT do not constitute economic benefits of the Company and do not result in equity increases. Therefore, these amounts are not recognised in revenue. Similarly, the transitional fee, cogeneration fee and RES fee charged by the Group from the end user of electricity and then transferred to the Transmission System Operator is recognised in the net remuneration amount. For goods and materials, revenue is recognised when the Group ceases to be permanently involved in the management of the goods sold to the extent the function is usually performed in relation to owned goods, and when it ceases to effectively control these items. Revenue of the financial year includes also accrued revenue which has not been measured and invoiced due to the settlement system used by customers. The Group generates its most significant revenues from the sale of electricity, gaseous fuel and distribution services in the Sales segment, distribution services in the Distribution segment and electricity in the Generation segment. Revenue from the sale of electricity, gas fuel and distribution services in the Sales segment The Group companies operating in the Sales segment generate revenue from sales of electricity, gaseous fuel and distribution services to retail and wholesale customers. This segment also generates revenues from road lighting maintenance services. As at each balance sheet date, subject to observance of the prudence principle, an estimate is made of the amount of revenue from the sale of electricity, gaseous fuel and distribution services relating to the financial year which, due to the settlement cycle established in agreements with customers and the fact that invoicing is performed for a significant number of customers in periods other than the reporting periods, will be invoiced in the subsequent year.

SELECTED ACCOUNTING PRINCIPLES

The Group has introduced a five-step model of revenue recognition comprising, successively: identifying the agreement with a customer; identifying the performance obligations contained in the agreement; determining the transaction price; allocating the transaction price to each performance obligation; and recognising the revenue upon satisfying a performance obligation arising from the agreement. Revenue is recognised when (or as) the performance obligation is fulfilled in the form of transferring the promised goods, products, materials (i.e. assets) or providing a service to a customer. The asset transfer takes place when a customer acquires control over such an asset whereas in the case of sales of electricity, gaseous fuel and heat, the energy is deemed sold when delivered to a consumer. Revenue is recognised in the amount expected by the Group, following reduction by VAT, excise duty and other sales taxes, charges and discounts.

The revenue comprises only the inflows of economic benefits received or receivable to the entity’s own account. Amounts obtained on behalf of third parties, with the Group acting as an agent, such as taxes on sales or VAT do not constitute economic benefits of the Company and do not result in equity increases. Therefore, these amounts are not recognised in revenue. Similarly, the transitional fee, cogeneration fee and RES fee charged by the Group from the end user of electricity and then transferred to the Transmission System Operator is recognised in the net remuneration amount.

For goods and materials, revenue is recognised when the Group ceases to be permanently involved in the management of the goods sold to the extent the function is usually performed in relation to owned goods, and when it ceases to effectively control these items.

Revenue of the financial year includes also accrued revenue which has not been measured and invoiced due to the settlement system used by customers.

The Group generates its most significant revenues from the sale of electricity, gaseous fuel and distribution services in the Sales segment, distribution services in the Distribution segment and electricity in the Generation segment.

Revenue from the sale of electricity, gas fuel and distribution services in the Sales segment

The Group companies operating in the Sales segment generate revenue from sales of electricity, gaseous fuel and distribution services to retail and wholesale customers. This segment also generates revenues from road lighting maintenance services.

As at each balance sheet date, subject to observance of the prudence principle, an estimate is made of the amount of revenue from the sale of electricity, gaseous fuel and distribution services relating to the financial year which, due to the settlement cycle established in agreements with customers and the fact that invoicing is performed for a significant number of customers in periods other than the reporting periods, will be invoiced in the subsequent year.

The types of estimates of the amounts of revenues from the sale of electricity, gaseous fuel and distribution services are presented below.

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Additional assessment type	Description
Revenue from the sales of electricity
Additional assessment of sales to buyers, unbilled as at the end of the reporting period	Measurement and billing systems showing the electricity volume sold to retail buyers are read and invoices are issued mainly in periods not corresponding to reporting periods. Therefore, the Group companies from the Sales segment make appropriate estimates of sales of electricity and distribution services at the end of each reporting period. For clients that are party to complex contracts and sales contracts, the additional assessment is made in the billing systems on the basis of the average daily consumption of electricity between the last actual reading date and the end of the reporting period.
Additional assessment regarding buyers with projection-based settlement	As at each reporting period end, buyers with six and 12-month periods of projection-based settlement are subject to additional assessment during periods between meter system readings. The additional assessment of sales of electricity and distribution services is based on data regarding sales of electricity obtained from the billing system and on the additional assessment ratio. The additional assessment ratio is based on the number of days passing between the reading date (for settlement invoices) or the payment date (for projection invoices) and the month end compared to the actual number of days in a given calendar month.
Additional assessment of revenue regarding buyers charged based on the balancing market prices	The additional assessment includes buyers whose sales of the electricity are priced in line with the balancing market according to the concluded agrrements. As at each reporting period end, buyers with additional assessment charged on unbilled sales of power in the billing system are charged with amounts equal to the difference between prices adopted for additional assessment calculation purposes and those to be used for billing purposes
Additional assessment of sales resulting from reconciliation of the energy balance	The Group companies from the Sales segment reconcile the energy balance by estimating the non-balancing sales or purchase volume at the end of each reporting period. Under the additional assessment, an amount increasing or reducing revenue from sales of electricity, determined as the product of the estimated non-balancing sales and the weighted average purchase price of electricity on the balancing market is also accounted for.
Revenue from the sale of gas
Additional estimation for customers not invoiced at a given balance sheet date	Metering and billing system readings of the volume of gas sold in the retail trade and its invoicing are made to a large extent in periods different from the reporting periods. Accordingly, the Group companies in the Sales segment make appropriate estimates of gas fuel sales and distribution services at the balance sheet date. Additional estimation of the sales of gas fuel is calculated in the billing systems based on the average 24-hour consumption of gas fuel in the period from the date of the last actual reading to the balance sheet date. Additional estimation of distribution service sales is determined as the difference between the purchase cost of gas distribution services and the invoiced revenue from distribution service sales.
Additional estimation resulting from reconciliation of gas balances	As at each balance sheet date, the Group companies belonging to the Sales segment reconcile the gas balance by determining the estimated imbalance volume on the purchase or sales side. As part of this rebalancing, the amount increasing or decreasing gas sales revenue is recognised, calculated as the product of the estimated imbalance volume and the average monthly high-methane gas balancing settlement price published by the Gas Transmission Operator GAZ-SYSTEM S.A.

*Revenue on sales of electricity distribution services in the Distribution segment* The Group presents mainly revenue related to distribution operations in the revenue on sales of services. Electricity distribution services are deemed sold upon service provision to the customer, as registered by the electricity meter, including the projected energy consumption and estimated additional revenue which has not been measured and invoiced due to the consumer settlement system used. *Revenue on wholesale of electricity in the Generation segment* Wholesale of electricity from the centrally dispatched generation units and as part of trading operations takes place through the customer’s and the supplier’s notification of the volume of electricity declared per each hour to the Transmission System Operator (TSO), which the Generation segment company is obliged to deliver as the supplier or ensure its provision and the client is obliged to accept. Both the price and the volume per each hour result from transactions signed in advance or (in the case of the Polish Power Exchange – TGE) recorded electronically. The TSO as a sort of guarantor of quantitative settlements, secures the reliability of data in the scope of the volume of energy supplied. Billing is based on reports generated by the TSO. Invoices for sales of electricity supplied to the Balancing Market shall be issued on the basis of reports from the centralised sales balancing system in the National Power System. These settlements are performed every decade. Wholesale of electricity from generation units which are not centrally dispatched (generation units of less than 100 MW settled on the local market) takes place under similar rules, however, it is the local market operator (DSO) that is responsible for the settlements. PROFESSIONAL JUDGEMENT AND ESTIMATES The TAURON Group estimates revenue as described above whereas the most important estimate regards the additional assessment of revenue from sales of electricity, gaseous fuel and distribution services in the Sales segment. As at 31 December 2020, additionally assessed revenue from sale of electricity and distribution services in the Sales segment amounted to the total of PLN 737,266 thousand and, when reversed estimations from the previous year have been accounted for, the impact on the profit or loss for 2020 was PLN 105,471 thousand. As at 31 December 2020, the additional assessment of revenue from the sale of gaseous fuel and distribution services in the Sales segment amounted to PLN 43,698 thousand, and, when reversed estimations from the previous year have been accounted for, the impact on the profit or loss for 2020 was PLN 16,664 thousand.

Revenue on sales of electricity distribution services in the Distribution segment

The Group presents mainly revenue related to distribution operations in the revenue on sales of services. Electricity distribution services are deemed sold upon service provision to the customer, as registered by the electricity meter, including the projected energy consumption and estimated additional revenue which has not been measured and invoiced due to the consumer settlement system used.

Revenue on wholesale of electricity in the Generation segment

Wholesale of electricity from the centrally dispatched generation units and as part of trading operations takes place through the customer’s and the supplier’s notification of the volume of electricity declared per each hour to the Transmission System Operator (TSO), which the Generation segment company is obliged to deliver as the supplier or ensure its provision and the client is obliged to accept. Both the price and the volume per each hour result from transactions signed in advance or (in the case of the Polish Power Exchange – TGE) recorded electronically. The TSO as a sort of guarantor of quantitative settlements, secures the reliability of data in the scope of the volume of energy supplied. Billing is based on reports generated by the TSO.

Invoices for sales of electricity supplied to the Balancing Market shall be issued on the basis of reports from the centralised sales balancing system in the National Power System. These settlements are performed every decade. Wholesale of electricity from generation units which are not centrally dispatched (generation units of less than 100 MW settled on the local market) takes place under similar rules, however, it is the local market operator (DSO) that is responsible for the settlements.

PROFESSIONAL JUDGEMENT AND ESTIMATES

The TAURON Group estimates revenue as described above whereas the most important estimate regards the additional assessment of revenue from sales of electricity, gaseous fuel and distribution services in the Sales segment. As at 31 December 2020, additionally assessed revenue from sale of electricity and distribution services in the Sales segment amounted to the total of PLN 737,266 thousand and, when reversed estimations from the previous year have been accounted for, the impact on the profit or loss for 2020 was PLN 105,471 thousand.

As at 31 December 2020, the additional assessment of revenue from the sale of gaseous fuel and distribution services in the Sales segment amounted to PLN 43,698 thousand, and, when reversed estimations from the previous year have been accounted for, the impact on the profit or loss for 2020 was PLN 16,664 thousand.

Table 1

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	Year ended 31 December 2020	Year ended 31 December 2019 (restated figures)
Sale of goods for resale, finished goods and materials without elimination of excise	13,747,248	12,772,817
Excise	(103,837)	(138,948)
Sale of goods for resale, finished goods and materials	13,643,411	12,633,869
Electricity	12,224,806	11,216,575
Heat energy	148,286	114,669
Gas	342,531	340,453
Coal	440,495	481,072
Energy certificates and similar	209,328	137,336
Other goods for resale, finished goods and materials	277,965	343,764
Rendering of services	6,658,888	6,417,321
Distribution and trade services	6,301,154	6,058,682
Maintenance of road lighting	120,647	120,527
Connection fees	83,119	80,769
Other services	153,968	157,343
Other revenue	65,101	61,146
Total	20,367,400	19,112,336

In the year ended 31 December 2020, sales revenues increased in relation to the comparable period, and the main changes concerned sales revenues of the following finished goods and materials:

electricity – the increase results from obtaining a higher average selling price as a result of the tariff increase and higher electricity prices on the market with a lower volume of electricity sold by the Group;
heat energy – the increase results from the sale of a higher volume, which is related to the heating of unit No. 10 at the Łagisza Power Plant belonging to TAURON Wytwarzanie S.A.;
coal – the decrease in revenues from the sale of coal results from a lower sales volume and lower prices;
energy certificates of origin – the increase in revenue from energy certificates of origin is mainly attributable to electricity production by the wind farms previously belonging to the in.ventus group acquired by the TAURON Group on 3 September 2019;
distribution and trading services – the higher revenue from sales of distribution and trading services is related to the increase in the rate of the distribution service, with simultaneous decline of the volume of sales.Sales revenue by operating segment is shown in the tables below.

Year ended 31 December 2020

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	Mining	Generation	Renewable Energy Sources	Distribution	Sales	Other	Total
Sale of goods for resale, finished goods and materials	312,628	2,055,662	145,543	3,335	10,956,725	169,518	13,643 411
Electricity	–	1,846,105	4,512	–	10,358,039	16,150	12,224,806
Heat energy	40	148,246	–	–	–	–	148,286
Gas	–	–	–	–	342,531	–	342,531
Coal	296,015	–	–	–	144,480	–	440,495
Energy certificates and similar	803	58,322	141,031	–	975	8,197	209,328
Energy certificates and similar	15,770	2,989	–	3,335	110,700	145,171	277,965
Rendering of services	13,451	20,066	1,064	3,276,078	3,305,992	42,237	6,658,888
Distribution and trade services	–	–	–	3,136,715	3,164,439	–	6,301,154
Maintenance of road lighting	–	–	–	186	120,461	–	120,647
Connection fees	–	–	–	83,076	–	43	83,119
Other services	13,451	20,066	1,064	56,101	21,092	42,194	153,968
Other revenue	1,562	10,868	509	36,415	3,860	11,887	65,101
Total	327,641	2,086,596	147,116	3,315,828	14,266,577	223,642	20,367,400

Year ended 31 December 2019 (restated data)

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	Mining	Generation	Renewable Energy Sources	Distribution	Sales	Other	Total
Sale of goods for resale, finished goods and materials	412,061	2,699,040	142,085	6,201	9,265,751	108,731	12,633,869
Electricity	–	2,546,598	39,549	–	8,630,428	–	11,216,575
Heat energy	33	114,636	–	–	–	–	114,669
Gas	–	–	–	–	340,453	–	340,453
Coal	389,889	–	–	–	91,183	–	481,072
Energy certificates and similar	–	33,069	102,385	–	1,882	–	137,336
Other goods for resale, finished goods and materials	22,139	4,737	151	6,201	201,805	108,731	343,764
Rendering of services	18,714	15,217	1,025	3,168,504	3,175,675	38,186	6 ,417,321
Distribution and trade services	–	–	–	3,024,720	3,033,962	–	6,058,682
Maintenance of road lighting	–	–	–	11	120,516	–	120,516
Connection fees	–	–	–	80,769	–	–	80,769
Other services	18,714	15,217	1,025	63,004	21,197	38,186	157,343
Other revenue	1,462	10,769	468	33,123	3,645	11,679	61,146
Total	432,237	2,725,026	143,578	3,207,828	12,445,071	158,596	19,112,336

Revenue from sales of electricity by sales market is presented in the following table.

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	Year ended 31 December 2020	Year ended 31 December 2019 (restated figures)
Revenue from sales of electricity	12,224,806	11,216,575
Retail sale	8,503,739	7,498,019
Strategic clients	1,012,488	1,336,635
Business clients	4,002,640	3,198,529
Mass clients, including:	3,523,130	3,026,110
G group	2,735,070	2,337,247
Other	69,318	75,693
Excise duty	(103,837)	(138,948)
Wholesale	3,014,930	3,085,993
Operational capacity reserve	195,426	216,994
Other	510,711	415,569