Entering the Electrical Energy Supply Contracts in the Ias/Ifrs Balance Sheet

Long-term sale and purchase contracts of electrical energy are usually contracts for the purchase, in whole or in part, of the output from the plants specified in the supply contract for a consideration adjusted to the effective production cost or to the right of use of a given plant against payment of prearranged amounts, independently of the fair value of the units of product purchased. The lack of specific provisions in the Ias/Ifrs Standards on accounting electrical energy supply contracts in the balance-sheet, together with peculiar features of the electricity (e.g. the impossibility to physically store the "good" to be sold) and the considerable complex legal structure of such sale and purchase agreements, leave a degree of uncertainty in determining the most appropriate modalities to account the supply transactions at stake in order to ensure their “faithful representation” in the balance-sheets of the counterparts. Therefore, the aim of this paper is to provide a contribution to the topic of accounting long-term electrical energy sale and purchase contracts in Ias/Ifrs balance-sheets according to the aforementioned principle of faithful representation, thus eventually lifting the “veil” of the legal form of the contract in favour of the economic substance of the transaction. To this end it shall have to be ascertained – based on the typical features of this kind of contracts – whether a specific amount of electrical energy is bought/sold for an industrial use exclusively, so that such transactions will be accounted as a normal purchase/sale, or is implementing financial trading strategies, as in such hypothesis the contract is to be accounted as a derivative financial instrument according to Ifrs 9 “Financial Instruments”/Ias 39 “Financial Instruments: recognition and measurement”, i.e. at its fair value and specifying gains and losses for the period in the income statement.