1. Accounting principles
General
The 2024 financial statements of Swissgrid Ltd (hereinafter: Swissgrid) have been prepared in accordance with Swiss GAAP FER. The financial statements provide a true and fair view of the company’s assets, financial position and results of operations.
Change in accounting principles
As at 1 January 2024, Swissgrid applied the new Swiss GAAP FER 28 standard «Government grants» for the first time.
Conversion of foreign currency items
The accounting records are maintained in the local currency (Swiss francs, CHF). All monetary assets and liabilities recognised in foreign currencies are converted at the exchange rate as of the balance sheet date. Transactions in foreign currencies are converted at the exchange rate on the day the transaction took place. Foreign exchange gains and losses resulting from transactions in foreign currencies are recognised in the income statement and are presented in the same item as the underlying transaction.
Cash flow statement
«Cash and cash equivalents» form the basis for the presentation of the cash flow statement. The cash flow from operating activities is calculated using the indirect method.
Revenue recognition
The revenue and procurement items result from the activities defined in the Electricity Supply Act (ESA) and include services for the non-discriminatory, reliable and efficient operation of the transmission grid, in particular ancillary services and balance and congestion management.
Revenue is recognised in the income statement upon performance of Swissgrid’s obligations. For ESA activities, the measurement of performance is mainly based on energy volumes measured directly on the transmission grid or reported by downstream grid levels. For certain revenue and procurement items, initial billing values are available six weeks after delivery at the earliest, thereby rendering accruals based on historical and statistical data, as well as on estimates necessary for the revenue recognition of these items.
The activities defined in the Ordinance on the Establishment of a Hydropower Reserve (WResO) are intermediary transactions in accordance with the accounting regulations, which is why only the value of the services provided by the company itself is reported in the power reserve segment.
Activities according to ESA/WResO
Volume- and tariff-related timing differences (surpluses and deficits)
According to Art. 14 of the Electricity Supply Act and the Winter Reserve Ordinance, grid usage costs must be allocated to users on a user-pays basis. The tariffs for a financial year are determined based on planned costs. Due to price and volume deviations, actual expenses and income vary from the tariff calculation on both the revenue and procurement side. This results in surpluses or deficits, i.e. the tariff revenues from a financial year are higher or lower than the actual expenses incurred during the same period. These volume- and tariff-related timing differences are transferred to the balance sheet and taken into account in cost and revenue calculations for future tariff periods. The expected reduction in volume- and tariff-related timing differences within twelve months of the balance sheet date is recognised as short-term surpluses or deficits in the balance sheet.
EBIT regulated under ESA
Earnings before interest and taxes (EBIT) from ESA activities are defined in Article 15 of the Electricity Supply Act (ESA) for chargeable costs, and are now defined in Article 18a of the Electricity Supply Ordinance (ESO) for interest on volume- and tariff-related timing differences arising from the 2024 financial year onwards. EBIT corresponds to the interest on invested operating assets (IOA) at the weighted average cost of capital rate for the current reporting year (= WACCt+0), the interest on the volume- and tariff-related timing differences arising from the 2024 financial year onwards at the borrowing cost ratet+2 included in WACCt+2 and taxes. In accordance with ElCom directive 03/2024, volume- and tariff-related timing differences up to and including the end of the 2023 financial year remain subject to interest at WACCt+2 until they have been fully eliminated, which also has an impact on EBIT.
Invested operating assets consist of net current assets calculated on a monthly basis, as well as the property, plant and equipment and intangible assets as at the end of the financial year. The weighted average cost of capital rate is based on the current international practice of the capital cost concept with reference to the Capital Asset Pricing Model (CAPM). Besides considering the findings of financial market theory, the regulatory framework conditions in Switzerland and the current situation in the money and capital market are also taken into account. The weighted average cost of capital rate for 2024 (WACCt+0) determined by the authorities on the basis of this calculation method is 4.13%, and the borrowing cost ratet+0 included in WACCt+0 is 2.25%. The weighted average cost of capital rate for 2026 (WACCt+2) applicable for the 2024 financial year is 3.43%, and the borrowing cost ratet+2 included in WACCt+2 is 2.0%.
EBIT according to WResO
From the 2024 financial year, the chargeable costs for the power reserve are calculated in the same way as ESA activities in accordance with Article 15 ESA. However, interest on the assets required for the power reserve is calculated according to the borrowing cost ratet+0 included in WACCt+0. In accordance with Article 18a ESO, interest on the volume- and tariff-related timing differences arising since 1 January 2024 is calculated at the borrowing cost ratet+2. As previously, no interest is calculated on the volume- and tariff-related timing differences up to and including the end of the 2023 financial year until they have been fully eliminated. EBIT in accordance with WResO is calculated from the interest on the assets required for the power reserve and the volume- and tariff-related timing differences arising since 1 January 2024.
Chargeability of operating and capital costs
ElCom has the right to verify ex post the chargeability of Swissgrid’s operating and capital costs for tariff-setting purposes. In case of an ex post cost adjustment, an appeal can be lodged with the Federal Administrative Court with an ultimate possibility of appeal to the Federal Supreme Court. A cost adjustment impacting Swissgrid’s operating result is applied whenever no appeal is lodged, or whenever an appeal’s prospects for success are judged to be less than 50% on the basis of a reappraisal, or whenever a legally binding ruling is issued.
Property, plant and equipment
Property, plant and equipment are recognised at the cost of acquisition or production less accumulated amortisation and any impairment losses. Significant spare parts which are likely to be used for a longer period and whose use only takes place in connection with a non-current asset item are recognised in non-current assets and depreciated over the remaining useful life of the relevant asset.
Depreciation/amortisation is calculated using the straight-line method on the basis of the estimated useful technical and economic service life. The service life is within the following ranges:
- Lines: 15 to 60 years
- Substations: 10 to 35 years
- Buildings and expansions: 5 to 50 years
- Other property, plant and equipment: 3 to 8 years
- Construction in progress and properties: only applicable in the case of an impairment loss
Intangible assets
Intangible assets are recognised at the cost of acquisition or production less accumulated amortisation and any impairment losses. Depreciation/amortisation is calculated using the straight-line method on the basis of the estimated useful technical and economic service life.
The service life is within the following ranges:
- Rights of use: contract term
- Software: 3 to 5 years
- Intangible assets under development: only applicable in the case of an impairment loss
The rights of use include easements and rights of use to mixed-use assets that were compensated once before 1 June 2019.
Impairment losses
The value of property, plant and equipment and intangible assets is reviewed annually. If there is an indication of an impairment loss, the book value is reduced to the realisable value and an impairment loss is charged to the results of the period.
Construction in progress/intangible assets under development
Construction in progress and intangible assets under development are non-current assets that are not yet completed or not yet operational. All items of property, plant and equipment and intangible assets, including self-constructed assets, are classified as non-current assets. As of each balance sheet date, a review is performed to determine whether any construction in progress or intangible assets under development have to be impaired. These are recognised as impairment losses in the year of completion. Ordinary depreciation or amortisation of these assets begins once they are completed or are ready for operation.
Financial assets
Financial assets are measured at acquisition costs less any impairment losses. These include shareholdings with a capital share of over 20%, but which do not have a significant impact on the financial statements, as well as shareholdings with a capital share of less than 20%. Employer contribution reserves without conditional renounced use are also recognised in financial assets.
Inventory
Inventory includes waste material for maintaining the grid systems. Inventory is measured at the lower of acquisition cost or market price.
Accounts receivable
Accounts receivable are reported at their nominal value less any impairment losses required for business reasons.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, cash at banks and deposits at banks maturing in 90 days or less. They are recognised at their nominal value.
Bonds
Bonds issued on the capital market are recognised at their nominal value. Deviations from the nominal value in the case of below- or above-par issues are recognised as accruals and deferrals and are reversed on a straight-line basis over the term of the bond.
Liabilities
Liabilities are recognised at their nominal value.
Provisions
Provisions are recognised if there is a probable obligation based on an event that took place prior to the balance sheet date, the amount and/or due date of which is uncertain but capable of being estimated.
Contingent liabilities
Contingent liabilities are measured as of the balance sheet date. A provision is reported if a cash outflow without a usable countervalue is probable and assessable. Otherwise, contingent liabilities are disclosed in the notes to the financial statements.
Interest on borrowed capital
Interest on borrowed capital is recognised as an expense in the period in which it arises.
Employee pension plan
Swissgrid is a member of an industry-wide retirement benefit plan (PKE Vorsorgestiftung Energie). This is a legally independent pension fund. All permanent employees of the company are included in this pension fund from 1 January of the year after they turn 17. Members of the Board of Directors are also to be insured in the pension fund under the conditions defined in the pension regulations of PKE Vorsorgestiftung Energie. All persons affiliated to the pension fund are insured for disability and death. From 1 January of the year after they turn 24, employees are also covered by retirement insurance.
Economic benefits arising from a pension fund surplus (e.g. in the form of a positive impact on future cash flows) are not capitalised, since the prerequisites for this are not met and the company does not intend to use such benefits to reduce employer contributions. Any benefits arising from freely available employer contribution reserves are recognised as an asset.
An economic obligation (e.g. in the form of negative effects on future cash flows due to a pension fund deficit) is recognised if the prerequisites for the creation of a provision are met. Accrued contributions for the period, the difference between the annually calculated economic benefit from pension fund surpluses and obligations, as well as the change in the employer contribution reserves are recognised in the income statement as personnel expenses.
Transactions with related parties
Related parties are organisations and persons that can have a significant influence, either directly or indirectly, on Swissgrid’s financial or operational decisions. Shareholders holding at least 20% of the voting rights in Swissgrid, either alone or together with others, are considered to be related parties. As regards shareholders, other criteria in addition to the proportion of voting rights held are also taken into account (including representation in committees and the possibility of exerting influence due to the shareholder structure). Subsidiaries of related shareholders and partner plant companies whose shares are 100% owned by related shareholders or which are controlled by a related shareholder, are also considered to be related parties. Related parties also include companies over which Swissgrid exercises a significant influence. Members of the Board of Directors and of the Executive Board are also considered to be related parties. Provided they exist and are significant, relations with related parties are disclosed in the notes to the financial statements. All transactions are conducted at arm’s length.
Segment information
Segmentation is based on tariff groups as defined in the Electricity Supply Act (ESA), the power reserve segment (WResO) and other activities, and is aligned with Swissgrid’s internal reporting structure.
Income taxes
Current income taxes are calculated based on the taxable results on an accrual basis. The annual accrual of deferred taxes is based on a balance sheet perspective (balance sheet method) and considers all future income tax effects (comprehensive method).
Derivative financial instruments
Swissgrid may use derivative financial instruments to hedge against currency and market price risks. If the conditions are met, Swissgrid will apply hedge accounting to hedge expected future cash flows. The instruments used for this purpose will be disclosed in the notes to the financial statements until the underlying transaction is realised.
Government grants
As part of the modernisation and maintenance of the grid, Swissgrid may receive government grants that are related to assets or related to income. Government grants related to assets are offset against the asset at the time of receipt. Government grants related to income are recognised in the income statement. The type and amount of government grants recognised are disclosed in the notes to the financial statements.