Annual Report 2014 | Suomeksi |

30 Nuclear related assets and liabilities

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Accounting policies + -
Fortum owns Loviisa nuclear power plant in Finland. Fortum's nuclear related provisions and the related part of the State Nuclear Waste Management Fund are both presented separately in the balance sheet. Fortum's share in the State Nuclear Waste Management Fund is accounted for according to IFRIC 5, Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds which states that the fund assets are measured at the lower of fair value or the value of the related liabilities since Fortum does not have control or joint control over the State Nuclear Waste Management Fund. The Nuclear Waste Management Fund is managed by governmental authorities. The related provisions are the provision for decommissioning and the provision for disposal of spent fuel.
The fair values of the provisions are calculated according to IAS 37 by discounting the separate future cash flows, which are based on estimated future costs and actions already taken. The initial net present value of the provision for decommissioning (at the time of commissioning the nuclear power plant) has been included in the investment cost and is depreciated over the estimated operating time of the nuclear power plant. Changes in the technical plans etc., which have an impact on the future cash flow of the estimated costs for decommissioning, are accounted for by discounting the additional costs to the current point in time. The increased asset retirement cost due to the increased provision is added to property, plant and equipment and depreciated over the remaining estimated operating time of the nuclear power plant.
The provision for spent fuel covers the future disposal costs for fuel used until the end of the accounting period. Costs for disposal of spent fuel are expensed during the operating time based on fuel usage. The impact of the possible changes in the estimated future cash flow for related costs is recognised immediately in the income statement based on the accumulated amount of fuel used until the end of the accounting period. The related interest costs due to unwinding of the provision, for the period during which the spent fuel provision has been accumulated and present point in time, are also recognised immediately in the income statement.
The timing factor is taken into account by recognising the interest expense related to discounting the nuclear provisions. The interest on the State Nuclear Waste Management Fund assets is presented as financial income.
Fortum's actual share of the State Nuclear Waste Management Fund, related to Loviisa nuclear power plant, is higher than the carrying value of the Fund in the balance sheet. The legal nuclear liability should, according to the Finnish Nuclear Energy Act, be fully covered by payments and guarantees to the State Nuclear Waste Management Fund. The legal liability is not discounted while the provisions are, and since the future cash flow is spread over 100 years, the difference between the legal liability and the provisions are material.
The annual fee to the Fund is based on changes in the legal liability, the interest income generated in the State Nuclear Waste Management Fund and incurred costs of taken actions.
Fortum also has minority shareholdings in the associated nuclear power production companies Teollisuuden Voima Oyj (TVO) in Finland and directly and indirectly in OKG AB and Forsmarks Kraftgrupp AB in Sweden. The Group’s interests in associated companies are accounted for by the equity method. Accounting policies of the associates regarding nuclear assets and liabilities have been changed where necessary to ensure consistency with the policies adopted by the Group.
Critical accounting estimates: Assumptions made when estimating provisions related to nuclear production + -
The provision for future obligations for nuclear waste management including decommissioning of Fortum's nuclear power plant and related spent fuel is based on long‑term cash flow forecasts of estimated future costs. The main assumptions are technical plans, timing, cost estimates and discount rate. The technical plans, timing and cost estimates are approved by governmental authorities.
Any changes in the assumed discount rate would affect the provision. If the discount rate used would be lowered, the provision would increase. Fortum has contributed cash to the State Nuclear Waste Management Fund based on a non‑discounted legal liability, which leads to that the increase in provision would be offset by an increase in the recorded share of Fortum's part of the State Nuclear Waste Management Fund in the balance sheet. The total effect on the income statement would be positive since the decommissioning part of the provision is treated as an asset retirement obligation. This situation will prevail as long as the legal obligation to contribute cash to the State Nuclear Waste Management Fund is based on a non‑discounted liability and IFRS is limiting the carrying value of the assets to the amount of the provision since Fortum does not have control or joint control over the fund.
Based on the Nuclear Energy Act in Finland, Fortum has a legal obligation to fully fund the legal liability decided by the governmental authorities, for decommissioning of the power plant and disposal of spent fuel through the State Nuclear Waste Management Fund.
EUR million 2014 2013
Amounts recognised in the balance sheet
Nuclear provisions 774 744
Share in the State Nuclear Waste Management Fund 774 744
Legal liability and actual share of the State Nuclear Waste Management Fund
Liability for nuclear waste management according to the Nuclear Energy Act 1,084 1,059
Funding obligation target 1,074 1,039
Fortum's share of the State Nuclear Waste Management Fund 1,039 1,005
30.1 Nuclear related provisions
According to the renewed Nuclear Energy Act Fortum submitted the proposal for the nuclear waste management liability regarding the Loviisa nuclear power plant to the Ministry of Employment and the Economy at the end of June 2013. The legal liability is calculated according to the Nuclear Energy Act in Finland and is decided by the Ministry of Employment and the Economy in December every year. The liability is based on a technical plan, which is made every third year. Following the update of technical plan in 2013, the discounted liability increased due to updated cost estimates related to interim and final storage of spent fuel.
The legal liability by the end of 2014, decided by the Ministry of Employment and the Economy and calculated according to the Nuclear Energy Act, is EUR 1,084 million (2013: 1,059). The carrying value of the nuclear provisions in the balance sheet, calculated according to IAS 37, have increased by EUR 30 million compared to 31 December 2013, totaling EUR 774 million on 31 December 2014. The main reason for the difference between the carrying value of the provision and the legal liability is the fact that the legal liability is not discounted to net present value.
See also Note 19 Property, plant and equipment.
Nuclear provisions
EUR million 2014 2013
1 January 744 678
Additional provisions 11 51
Used during the year ‑24 ‑20
Unwinding of discount 43 35
31 December 774 744
Fortum's share in the State Nuclear Waste Management Fund 774 744
30.2 Fortum's share in the State Nuclear Waste Management Fund
According to the Nuclear Energy Act, Fortum is obligated to contribute funds in full to the State Nuclear Waste Management Fund to cover the legal liability. Based on the law, Fortum applied for periodising of the payments to the fund over three years, due to proposed increase in the legal liability. The application was approved by the Ministry ot the Employment and the Economy in December 2013.
The Fund is from an IFRS perspective overfunded with EUR 265 million (2013: 261), since Fortum's share of the Fund on 31 December 2014 is EUR 1,039 million (2013: 1,005) and the carrying value in the balance sheet is EUR 774 million (2013: 744).
Operating profit for 2014 includes a negative total adjustment of EUR ‑3 million (2013: +23). These adjustments are recognised in "Items affecting comparability" and are not included in comparable operating profit in the Power segment, see Note 5 Segment reporting and Note 6 Items affecting comparability. As long as the Fund stays overfunded from an IFRS perspective, positive accounting effects to operating profit will always occur when the nuclear provision is increasing more than the net payments to the Fund. Negative accounting effects will occur when the net payments to the Fund are higher than the increase of the provision.
30.2.1 Funding obligation target
The funding obligation target for each year is decided by the Ministry of Employment and the Economy in December each year after the legal liability has been decided. The difference between the funding obligation target for Fortum and Fortum's actual share of the State Nuclear Waste Management Fund is paid in Q1 each year.
The funding obligation target, corresponding to the new legal liability and the approved periodisation amounts to EUR 1,074 million (2013: 1,039). Real estate mortgages and other securities given also cover unexpected events according to the Nuclear Energy Act.
See also Note 35 Pledged assets
and Note 38 Contingent liabilities.
30.3 Borrowing from the Finnish State Nuclear Waste Management Fund
Finnish participants in the State Nuclear Waste Management Fund are allowed to borrow from the Fund according to certain rules. Fortum uses the right to borrow back and has pledged Kemijoki Oy shares as security for the loans. The loans are renewed yearly.
See also Note 28 Interest‑bearing liabilities
and Note 35 Pledged assets.
30.4 Associated companies
Fortum has at year‑end received updated cash flow information for its nuclear associated companies Teollisuuden Voima Oyj, OKG AB and Forsmarks Kraftgrupp AB. Based on the updated cost estimates, the effect in share of profits was EUR +2 million in 2014, which included EUR ‑1 million due to decrease of the carrying value of the State Nuclear Waste Management Fund in Finland. In 2013, the effect in share of profits was EUR +17 million, which included EUR ‑5 million due to decrease of the carrying value of the State Nuclear Waste Management Fund in Finland. The State Nuclear Waste Management Fund in Finland is overfunded from an IFRS perspective whereas the value of the Swedish Nuclear Waste Fund is estimated to be slightly below the value of provisions at year‑end 2014.
Fortum has according to law given guarantees to the Finnish and Swedish nuclear Funds on behalf of the associated companies, to guarantee that sufficient funds exist to cover future expenses of decommissioning of the power plants and disposal of spent fuel.
Through the shareholding in TVO, Fortum uses the right to borrow from the Fund.
See also Note 38 Contingent liabilities.

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