7.1 Sales revenue

Revenue is recognised in the manner reflecting the transfer of promised goods or services to a customer in the amount reflecting consideration to which the Company expects to be entitled in exchange for the specified good or service transferred.

The Company recognises revenue at the time of satisfying a performance obligation by transferring a promised good or service to a customer. A good is transferred at the time when the customer obtains control of that good.

The entity recognises revenue from a contract with a 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 obliged to perform their respective obligations;
• the Group can 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;
• it is probable that the Group 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 the contract with the  customer and identifies 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 Company 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. Control of an asset refers to 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 the Group’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 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 the goods and services tax, excise tax, as well as other sales taxes, fees discounts and rebates.

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.

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 Polish Power Exchange – determined on the basis of transactions recorded electronically. Revenue from the sale of electricity on the 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 is measured at the currently applicable tariff rates, subject to the approval of the President of ERO. The tariff rates relate to thermal power ordered, heat energy sold and the heat carrier. Revenue invoiced for the sales of heat is the product of the tariff rates described above and sales volumes.

Quantitative heat sales are derived from readings of metering and billing systems. Readings are taken on specified working days of each calendar month, including dates close to the end of a month. Therefore, for the purposes of financial reporting, sales volumes are adjusted for the period between the last reading date of a month and the end of that month.

Revenue from the sales of heat is recognised when heat is delivered in accordance with the obtained readings, including adjustments.

Revenue from the sales of electricity distribution services results from documented sales increased by adjustments of the sales of electricity distribution services that were not invoiced in a given period and decreased by the value of adjustments of such sales in the previous period. Adjustments of sales are made at least at the end of each quarter.

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

The Group earns revenue from the sales of electricity and natural gas to end users and on the wholesale market. Revenue from the sales of electricity is recognised on the basis of the sales month indicated in invoices.
Due to the continuous character of energy supplies, for the purposes of proper recognition in the account books, the Group adjusts sales revenue (invoiced sales) by the amount of energy supplied but not invoiced in a given period. Adjustments of electricity sales are carried out at the end of each month.

The calculation of the value of adjusted sales is made separately for each energy consumption point and separately for individual price components and types of tariff charges. Adjustments of electricity volumes are calculated based on the average daily energy consumption for a given consumption point, determined on the basis of the following:

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

Adjustments of electricity volumes for a newly acquired electricity consumption point (with no history of electricity consumption in the billing system) are determined on the basis of the volume declared by the customer.

In the case of electricity consumption points billed on the basis of forecast invoices, adjustments make sales realistic by recalculating the charges for the forecast amount of electricity according to the current rates applicable in the forecast period.

Operating lease revenue is recognised in profit or loss for a given period on a straight-line basis over the lease term, unless another systematic basis is more representative of the distribution of decreasing benefits derived from the use of the leased asset over time.

The undiscounted lease payments to be received annually in the subsequent periods are presented in the table below.

The table below presents a reconciliation between the disclosure of revenue broken down by category and information on revenue that the entity discloses for each reportable segment.

The total revenue amount includes approximately PLN 47 million in sales transactions whose value was not ultimately established as at the end of the reporting period. The PGE Group makes estimates of revenue the most important of which relate to revenue from the sales of electricity gaseous fuel and distribution services in the Trade and Distribution segments, as well as revenue from support for high efficiency cogeneration in the Heat Generation segment.

Lease payments recognised as income in 2020 amounted to PLN 278 million (PLN 261 million in 2019). The Group did not achieve revenue from operating lease relating to variable lease payments that do not depend on any index or rate.

The table below presents revenue from contracts with customers broken down by category reflecting how economic factors affect the nature, amount and timing of payments as well as the uncertainty of revenue and cash flows.

The table below presents a reconciliation between the disclosure of revenue broken down by category and information on revenue that the entity discloses for each reportable segment.

The total revenue amount includes approximately PLN 51 million in sales transactions whose value was not ultimately established as at the end of the reporting period. The PGE Group makes estimates of revenue the most important of which related to revenue from the sales of electricity gaseous fuel and distribution services in the Trade and Distribution segments, as well as revenue from support for high efficiency cogeneration in the Heat Generation segment.

The table below presents revenue from contracts with customers broken down by category reflecting how economic factors affect the nature, amount and timing of payments as well as the uncertainty of revenue and cash flows.