Operating Costs in the Polish Energy Sector: Challenges for Capital Groups

Abstract

Electricity is one of the most widely used energy sources. The climate crisis, public pressure to invest in renewable and low-carbon energy sources, and the reduction in industrial electricity consumption caused by the COVID-19 pandemic have a significant impact on the energy sector. In addition, military action in Europe is affecting energy generation capacity and availability, which raises the question of economic calculus, particularly regarding the cost of generation and supply. These factors affect the cost structure of those responsible for supplying energy and, in extreme cases, can lead to energy exclusion. The article aimed to identify differences in the presentation and interpretation of operating cost data from the individual and consolidated financial statements of Polish energy groups, which is of key importance for investors, analysts and decision-makers in the energy sector. The analysis uses data for 2018–2022 from the income statement. The research hypothesis is that the complexity of Polish energy groups in the Polish energy sector leads to ambiguity in the interpretation of cost data included in stand-alone and consolidated financial statements.

1. Introduction

The Polish energy sector is currently facing increasing challenges related to operating costs, which are driven by dynamic regulatory changes, rising commodity prices, as well as the energy transition towards sustainable energy sources. Groups, operating in the sector, face the need to modernise infrastructure, invest in renewable energy sources, and meet stringent environmental standards, all of which significantly affect their cost structure. In addition, changing market and geopolitical conditions, as well as the climate policy of the European Union, force energy entities in Poland to adapt and seek new solutions in cost management and operational strategies. In order to manage a business effectively, access to financial information is essential. An important task of the accounting system is to record, account for, and report data on the company’s activities. Therefore, all activities carried out within the framework of accounting should strive to reflect as faithfully as possible the property and financial condition of the enterprise and its financial result [1].

This article discusses the informational value of the income statement on costs in parent companies of groups in the energy sector and the cost structure of the group as presented in the consolidated financial report. Parent companies that head groups are required to prepare two types of statements—separate (on their own behalf) and consolidated (for the group as a whole). These differences can affect the scope and value of the information provided. From the perspective of the recipients of the information, financial reporting, which is the responsibility of financial accounting, is often the only source of knowledge about the state of the entity and provides only an overall view of its situation [2]. The accounting system also distinguishes between management accounting and tax accounting [3]. Management accounting is geared towards providing information for internal use, which makes the cost data it produces unavailable to external audiences. It allows for the planning of future activities, the consideration of alternative developments, investments, and the assessment of profitability [4]. Tax accounting, on the other hand, leads to the preparation of tax returns. The two accounting sub-systems are interlinked and complement each other, enabling information needs, especially those of internal audiences, to be better met [5].

In order to identify the usefulness of the information contained in the separate and consolidated financial report, the article conducts a study in the form of a multiple case study using elements of financial analysis. The choice of entities in the energy sector for the study stems from the fact that electricity is now a key element of the economy and social life. Observing current trends related to climate change, it is foreseeable that its importance will continue to grow. The process of decarbonisation of the economy, i.e., the reduction of CO₂ emissions, is leading to the increasing electrification of new sectors, such as transport and heating. As a consequence, global demand for energy, especially from renewable sources, will continue to grow. Solar and wind power have been growing particularly rapidly in recent years, with technological advances contributing to a reduction in the cost of producing energy from RES. Regulations introduced by states are also an important factor supporting this trend [6]. Changes in the energy sector have necessitated the need for tools to monitor progress in this process [7].

The aim of this article is to identify differences in the presentation and interpretation of operating cost data from the individual and consolidated financial reports of Polish energy groups, which are of key importance for investors, analysts, and decision-makers in the energy sector. For such a goal, the following research hypothesis was formulated: the complexity of Polish power groups in the energy sector in Poland leads to ambiguity in the interpretation of cost data contained in stand-alone and consolidated financial reports.

The remainder of the article is structured as follows: In Section 2, a review of existing research on activity-based cost reporting is made and a research gap in this area is identified. Section 3 presents the methodology of the research—types of data and criteria for the selection of surveyed entities. In addition, the method of conducting financial analysis on the basis of separate and consolidated reports of Polish energy groups is explained. Then, in Section 4, the energy sector in Poland is presented and a cost analysis of selected capital groups is carried out. This is followed by Section 5, a discussion of the research. The article concludes with a summary and conclusions in Section 6, which present the limitations of the research and the challenges and implications for management in the energy sector in Poland.

2. Literature Review

The financial statements are a structured set of figures concerning the overall management and financial position of an entity and represent the final element of the financial accounting cycle for a given period [8,9]. In the literature, some definitions emphasise its usefulness as a primary source of information on the entity’s financial and economic condition, enabling the assessment of the effectiveness of the entity’s activities [10]. Other authors focus on the financial statements as a means of presenting data, being the final link in the accounting information process [11,12]. The fundamental purposes of the financial statements mentioned in the literature include informational, control, and evaluation functions [13]. For a report to be informative, it must be characterised by comprehensibility, relevance, reliability and comparability [14]. These features, which are intended to provide a true and fair view of the economic entity’s assets and financial position, are often emphasised both in the literature [15,16] and in the balance sheet legislation [17].

The results of studies indicate that, in parent companies, consolidated group financial reports are more informative than stand-alone statements [18,19,20,21]. Other researchers [22], have found that parent companies’ stand-alone financial statements do not show sufficient information value. A study by Harris et al. [23] on the comparison of the informative value of consolidated and stand-alone financial statements between US and German companies in similar industries and of comparable size found that the explanatory value of figures increases at a certain level of consolidation. In addition, studies by Choi and Mueller [24], Delvaille et al. [25], Lamb et al. [26], Macías and Muiño [27], Nobes [28], and Oliveras and Puig [29] confirm that the lower usefulness of separate financial statements is due to the fact that companies prepare and use their reports for different purposes, including tax and regulatory purposes.

The importance of the value of financial information such as profit, book value, and cash flow contained in consolidated and standalone financial statements was confirmed by a study of financial services companies in Nigeria between 2014 and 2018 [30]. The results of these studies indicated that both the stand-alone and consolidated financial reports of the parent entities in the energy sector are very important, but the consolidated statements provide a more complete picture of the financial position and are more useful. Similar conclusions were reached by Sofi [31], who studied the usefulness of information in financial statements produced for investors when making investment decisions. However, there are discrepancies in the literature regarding the findings in this area. These discrepancies may be due to the following: differences in economic conditions, the structure of capital markets in different countries, sample size, and the selection of variables [32]. A study on the usefulness of separate and consolidated financial reports was carried out by Cartini and Theodoria [33], but it concerned local government units. Their results also showed differences between separate and consolidated financial reports. In addition, there have been studies on IFRS-based reporting information, which also indicated these differences [34,35,36,37].

Information on financial performance in stand-alone (IFR) and consolidated financial reports (CFRs) was studied by Comporek [38], who concluded that results based on consolidated data are more qualitative. The author’s main argument was that there is less scope to shape the financial result at the group level. He also points to the need for a combined IFR and CFR analysis. In this context, it is worth mentioning the study of Borowiec et al. [39], which dealt with the assessment of the financial liquidity of Polish capital groups in 2018–2021, on the basis of separate and consolidated financial reports. The present study should be regarded as a continuation of the research on the assessment of the quality of financial information extracted from separate and consolidated financial statements of business entities. Recent studies on consolidated financial statements address issues of their preparation methodology, including the inclusion of mutual gains and losses [40]. Difficulties and obstacles in the consolidation process, including the recognition and accounting for financial assets, are analysed by Amalia et al. [41]. Of interest in the context of the content of this article is the study by Mickowic et al. [42], which reviewed empirical information from articles published in academic journals on the availability and use of energy cost information in manufacturing companies. The literature review covered 23 journals (including 51 articles) in business, accounting, energy and engineering. The authors found that, with few exceptions, almost no studies provide a detailed description of how energy costs are measured and allocated.

In the literature, the study of aspects related to costs and their structure in the reporting of energy companies, both stand-alone and consolidated, does not appear in a direct way. Most often, costs are analysed in the context of the financial efficiency of entities, with studies focusing on the assessment of financial performance and profitability levels. Leventakos and Dagoumas [43] assessed the financial performance and liquidity of key European energy companies from 2008 to 2017. Capece et al. [44] conducted a study on the assessment of the economic and financial performance of companies after the start of the liberalisation process, with a particular focus on the impact of geographical location on performance. Zamasz [45] studied the economic and financial situation of Polish energy companies between 2003 and 2016. Bunea, Corbos, and Popescu [46] analysed the indicators with the greatest impact on the ROE of Romanian energy companies, based on Du Pont’s pyramid analysis. Also of interest is a study on the financial situation of energy companies listed on the Warsaw Stock Exchange from 2015 to 2021, which confirmed that sectoral financial ratios of energy companies with a dominant private shareholding are concentrated closer to the average value than those of companies with a dominant State Treasury shareholding [47]. An analysis of the cost of capital of energy companies was conducted by Franc-Dąbrowska et al. [48] but its scope is well beyond the scope of this paper.

The literature review indicates that the available information on costs in energy sector entities is severely limited. For this sector, there are studies on selected aspects of financial information derived from the income statement, but there is a lack of comprehensive comparative studies on the cognitive value of cost information in both stand-alone and consolidated financial statements. This points to the need for further research to better understand how this information influences decision-making in energy companies.

3. Materials and Methods

3.1. Methods and Sources of Information Used

In order to identify the usefulness of the information contained in the separate and consolidated financial statements in the article, a study was carried out in the form of a multiple case study using financial analysis methods. For this purpose, four capital groups from the Polish energy sector were selected together with their parent companies. The study period covered the years 2018–2022. The research used the separate and consolidated financial report of these entities, including the balance sheet and income statement. The balance sheet provides information about a company’s assets and liabilities, being one of the basic elements of the financial statements [49]. The profit and loss account, on the other hand, presents data on revenues and expenses, enabling the determination of the financial result [50]. In Poland, this account is prepared in two variants: comparative, which presents costs by nature, and costing, where costs are presented by type of activity [51,52,53]. The analysis of these documents was based on the use of two main indicators, the relative and the absolute rate of growth. In practice, both absolute and relative indicators are used to assess the dynamics of financial phenomena [54].

The implemented research process included the stages presented in

Table 1. Stages of the research process.

Stage	Activities
Formulation of the research problem	The research objective and research hypothesis were formulated in the introduction of the article after defining the research gap based on a critical review of the literature. The research questions concern the assessment of the information values of individual and consolidated financial statements in terms of information on incurred costs. The research problem was set in the energy sector, due to its role in the economy and society.
2. Research procedure	The multiple case study method was chosen for the research. It allows for a detailed analysis of individual entities in terms of reported cost information. The multiple case study allows for a wide range of analysis and comparability of the studied objects. On the other hand, this method has weaknesses concerning the possibility of making generalisations due to the limited number of observations. The method of document analysis was used, in particular, individual and consolidated financial reports of the studied capital groups.
3. Description of the research sample	The selection of entities for the study was purposeful. The study covered all four Polish energy capital groups, which together hold almost 100% of the electricity production and distribution market. The study assumed that taking into account the years 2018–2022 would be sufficient to capture the basic trends influencing changes in the size and structure of costs. The period studied includes both the COVID-19 pandemic and the outbreak of the war in Ukraine, which significantly affected the operating costs of energy companies, not only in Poland. The characteristics of the energy sector in Poland, which constitutes the background for the study, are presented in a broader time horizon.
4. Data analysis process	The analysis of information on the costs of the entities and capital groups studied was carried out in an Excel spreadsheet. The preliminary and ratio financial analysis and its tools were used. The narrative method was used in the discussion of the results to formulate conclusions and recommendations. The conclusions indicated the limitations of the study and other possible directions of research.

Own elaboration.

.

The absolute indicator measures the change in a specific value in numerical units. It is calculated by subtracting the value of an earlier period from the value of the current period. The relative indicator, on the other hand, expresses the same change in percentage terms. It indicates the magnitude of the change from an earlier value and allows comparisons between different periods or different entities [55].

Formula (1): Absolute dynamic index (adi),

∆adi = v₁ − v₀

(1)

Formula (2): Relative dynamic index (rdi),

∆rdi = (v₁ − v₀)/v₀ × 100% = (∆di/v₀) × 100%

(2)

where v₁ is the volume of the given measure at the end of the period, and v₀ is the value of the parameter at the beginning of the period.

Structure indicators were used to assess the financial stability of capital groups in the Polish energy sector, their ability to cover their liabilities, and the efficiency of their asset and liability management. These allowed comparison of the entities studied and monitoring of changes in their financial structures over time [56].

Formula (3): Structure indicator (si),

si = (x/tv) × 100%

(3)

where si indicates the structure index [%], x is the magnitude of sub-phenomenon, and tv is the total parameter value.

Formula (4): Rate of change in absolute structure (as),

∆as = %s₁ − %s₀

(4)

Formula (5): Relative structure change index (rs),

∆rs = (%s₁ − %s₀)/(%s₀) × 100% = ∆as/(%s₀) × 100%

(5)

where s₁ is the structure indicator expressed at the end of the period, and s₀ is the structure measure at the beginning of the period.

In addition, the article uses an analysis of the literature on the subject and legal acts. According to the criterion for the classification of capital groups, based on the role played by the parent company, three types of capital groups are distinguished: operational, management, and financial [57]. The analysis considered the costs of the parent entities and their capital groups, with particular emphasis on the entities of the Polish electricity sector. The numerical data were analysed without adjustment for inflation, as its impact on the results was deemed negligible. Between 2018 and 2021, the average inflation rate in Poland was approximately 2%. A significant increase in inflation was observed in 2022 (+14.4%), coinciding with a sharp rise in fuel and energy prices. Precisely isolating these variables from financial values was a complex process; therefore, the study refrained from adjusting the source data in this regard. The criterion for selecting individual entities was their share in the volume of electricity supplied to the grid in 2022. All audited entities applied the International Financial Reporting Standards (IFRS) approved by the EU. It is worth noting that, ORLEN Group, as a multi-utility concern, operates in many segments, including those not directly related to electricity. Therefore, the study includes data from the ENERGA Capital Group, which is part of the ORLEN Group.

The following section of the article provides a brief overview of each energy group, followed by an analysis of the magnitude of the structure and dynamics of the costs included in their individual and consolidated financial report.

3.2. Characteristics of the Energy Sector in Poland

The energy sector plays a key role in the economy of any country and its structure reflects the level of development of the economy. It consists of four basic subsectors: generation, industry, distribution and energy trading [58]. Ensuring energy security is of great importance and has a significant impact on state policy. As part of their energy security efforts, countries undertake international cooperation that enables them to diversify their energy sources and keep energy prices at an acceptable level.

In 2012, approximately 88% of Poland’s energy came from coal and lignite, and energy from renewable sources (RES) accounted for only 4%. However, over the next decade, there were changes in the direction of the energy sector, mainly due to the changes in the structure of energy production over the last 10 years, providing valuable insight into their direction (Figure 1). The share of brown and hard coal in the energy mix has been systematically decreasing, and this trend is expected to continue in Poland over the next 20 years. European Union’s policy placed a strong emphasis on investment in RES. This forced changes in the Polish energy system as well. Over the years, renewable energy sources have gained importance, especially wind and solar power. By 2022, the share of coal-fired power plants in energy production will have fallen to 77%, while the share of RES will have risen to 17.5%.

The high share of coal in Poland’s electricity generation structure is mainly due to the country’s own reserves of this raw material and historical circumstances. The dependence of the Polish energy sector on conventional energy sources makes fair transition an important element of European Union policy for Poland. Its aim is to take into account the specific economic and social situation of each country in order to prevent coal-dependent countries from being overburdened with the costs of transformation [61].

Figure 2 shows the entity structure of the electricity generation subsector in 2022, in relation to the volume of energy supplied to the grid. PGE Group had the largest share, accounting for 40.7% of total generation. This was followed by ENEA Group, ORLEN Group (ENERGA) and TAURON, with a combined market share of around 75% for these four entities. In 2022, the ORLEN Group increased its importance in the market as a result of its merger with Polish Oil and Gas Mining S.A. Based on the Herfindahl–Hirschman index of 2088.1 for the volume of energy injected into the grid in 2022, it is estimated that concentration in the power generation subsector is high. Compared to 2021, however, this indicator decreased, which was due, among other things, to an increase in renewable energy production by smaller players.

The core business of PGE SA, the parent company of the PGE Group, comprises the trading of electricity and other energy market products. The company also provides financial services to other group entities, exercising central supervision over activities of a joint nature. The PGE Group is the largest entity in the study, with assets of almost €30 billion. In 2022, in addition to the parent company, the PGE Group comprised 74 subsidiaries and consolidated 3 joint operating entities, 1 jointly owned entity and 2 associates. PGE Group entities are mainly engaged in the generation and distribution of electricity and heat, as well as in the wholesale and retail trading of energy, natural gas, CO₂ emission allowances and property rights.

The ENEA Group is headed by ENEA SA, whose main source of revenue is the sale of electricity and natural gas. In addition, the company manages the entire ENEA Group and its entities. In 2022, the ENEA Group included 30 subsidiaries, 1 jointly controlled company, and 4 associated companies. Its main areas of activity are the production and distribution of electricity and heat, as well as energy trading. In addition, the ENEA Group is active in the coal mining and enrichment sector, for which the Lubelski Węgiel “Bogdanka” SA Group is responsible. As in the case of the PGE Group, the operations of ENEA Group companies require the holding of relevant licences.

Energa SA is the parent company of the ENERGA Group, which focuses mainly on holding activities. It is the only one of the companies analysed that plays the role of parent and subsidiary at the same time. In 2020, the acquisition of the ENERGA Group by PKN Orlen SA (operating as ORLEN SA since 2023) was finalised [62]. The ENERGA Group is the smallest entity among those surveyed and, at the end of 2022, comprised 25 subsidiaries as well as one joint venture and one associate. Their main activities include electricity and heat generation, as well as distribution, sales and trading. The parent company of the TAURON Group is Tauron Polish Energy SA, whose main activities include central companies and holding companies, as well as electricity, coal and gas fuel trading. The largest shareholder of the company is the State Treasury, holding 30.1% of the share capital at the end of 2022. Other entities may exercise no more than 10% of the total votes at the general meeting of shareholders. In 2022, the TAURON Group consolidated 40 subsidiaries and 4 co-subsidiaries. The Group’s core business is electricity generation from conventional and renewable sources, heat generation, distribution and wholesale and retail energy sales. The Group also trades in CO₂ emission allowances and energy origin certificates.

4. Results

4.1. Cost Structure of the Groups’ Activities as Derived from the Individual and Consolidated Financial Report

Table 1 shows the value of costs incurred by the PGE Group and its parent company, broken down into core and other operating activities and financing activities. It is worth noting that PGE SA, in its individual financial report (IFR), reported other operating expenses and income only as a balance. For this reason, only the result from other operating activities is presented in

Table 2. Operating costs incurred by PGE SA and the PGE Group between 2018 and 2022.

Costs	2018		2019		2020		2021		2022
	PLN ** Million	%	PLN Million	%	PLN Million	%	PLN Million	%	PLN Million	%
PGE SA—Individual Financial Report
core operating activities	10,873.0	92.3	14,347.0	82.1	26,824.0	98.0	35,317.0	99.8	34,612.0	99.4
Result from other operating activities *	28.0	0.2	20.0	0.1	5.0	0.0	0.0	0.0	171.0	0.5
Financial	885.0	7.5	3 099.0	17.7	532.0	1.9	80.0	0.2	49.0	0.1
Total	11,786.0	100	17,466.0	100	27,361.0	100	35,397.0	100	34,832.0	100
PGE Group—Consolidated Financial Report
core operating activities	23,477.0	98.2	42,594.0	98.9	44,292.0	98.6	51,664.0	98.9	71,088.0	99.5
Result from other operating activities *	0.0	0.0	0.0	0.0	66.0	0.1	0.0	0.0	0.0	0.0
Financial	436.0	1.8	475.0	1.1	557.0	1.2	579.0	1.1	383.0	0.5
Total	23,913.0	100	43,069.0	100	44,915.0	100	52,243.0	100	71,471.0	100

* Other operating expenses and income are reported as a single line item (per balance). ** PLN—Polish zloty; 1 EUR = 4, 3 PLN. Source: own compilation on the basis of separate and consolidated financial reports of the PGE Group [63].

. To be more comparable, similar data were also presented from the consolidated financial report.

In the analysed period 2018–2022, by far the most significant share of both the individual financial report (IFR) and consolidated financial report (CFR) was core operating expenses, which amounted to more than 98%. Exceptionally, the share was lower in 2018–2019, due to a significantly higher share of finance costs. The high value of financial expenses was due to the creation of impairment losses on shares of PGE SA’s subordinated companies, which were eliminated at the consolidated level. In the context of the entire PGE Group, a significant part of financial expenses was interest expenses. With regard to other operating activities, the parent company PGE SA incurred a loss only in 2021, while on the consolidated level, a loss was reported only in 2020. An important component of other operating expenses in the period was also the change in the valuation of provisions for the costs of reclamation of opencast mine sites belonging to the PGE Group.

During the period under review, a more than threefold increase in operating costs was noted, both at the individual and consolidated levels. This increase was not due to a significant increase in sales volumes or higher production costs, but was due to rising CO₂ emission charges and higher energy purchase prices in the markets, as a result of market risks related to the COVID-19 pandemic and the war in Ukraine. Such an increase in operating costs, reaching around three times, was evident in all the capital groups surveyed. Similarly, in the ENEA Group, at both stand-alone and consolidated levels, core operating activities had a dominant position in total costs. Between 2018 and 2022, its share in the total cost structure did not fall below 93% (see

Table 3. Operating costs incurred by Enea SA and the ENEA Group between 2018 and 2022.

Costs	2018		2019		2020		2021		2022
	PLN Million	%	PLN Million	%	PLN Million	%	PLN Million	%	PLN Million	%
Enea SA—Individual Financial Report
Core operating activities	4732.2	93.4	5772.4	94.3	6346.4	94.9	7457.5	96.8	11,993.1	96.9
Result from other operating activities *	70.2	1.3	66.3	1.0	64.9	0.9	61.2	0.8	103.2	0.8
Financial	265.3	5.2	285.8	4.7	275.9	4.2	179.5	2.4	286.2	2.3
Total	5067.7	100	6124.5	100	6687.2	100	7698.2	100	12,382.5	100
ENEA Group—Consolidated Financial Report
Core operating activities	11,754.4	96.3	14,663.7	96.2	16,548.5	97.0	18,980.9	98.2	29,008.8	98.3
Result from other operating activities *	168.7	1.2	148.4	0.9	173.8	1.0	127.3	0.7	223.4	0.8
Financial	302.9	2.5	441.9	2.9	346.3	2.0	214.8	1.1	276.6	0.9
Total	12,226.0	100	15,254.0	100	17,068.6	100	19,323.0	100	29,508.8	100

* Other operating expenses and income are reported as a single line item (per balance). Source: own compilation on the basis of separate and consolidated financial reports of the ENEA Group [64].

). It is also worth noting that in the unconsolidated financial statements (IRF), the value of purchased energy and gas accounted for more than 90% of operating costs in each period, while in the consolidated financial report (CFR), the importance of this item was already much lower, oscillating between 35% and 45%.

The share of costs for other operating activities was negligible over the years, oscillating around 1%. These activities included the creation of provisions, such as provisions for claims for damages due to terminated contracts for the purchase of property rights (in the separate and consolidated financial statements), the purchase of CO₂ emission rights (in the consolidated financial report) and provisions for energy certificates of origin (in the separate financial statements). With regard to the financial expenses reported in both types of accounts, the largest impact came from interest expenses, mainly on bonds. The share of these costs in the separate accounts was almost every year about twice as high as in the consolidated accounts.

An important aspect of the analysis of costs and their structure is the role an entity plays in the group. The main activity of the ENERGA Group’s parent entity is holding activity, which makes the value and structure of costs included in the individual reports significantly different from those presented in the consolidated reports and in the financial statements of the other analysed parent entities. It is worth noting that there was no significant increase in operating costs between 2018 and 2022 (as shown in

Table 4. Operating costs incurred by Energa SA and the ENERGA Group between 2018 and 2022.

Costs	2018		2019		2020		2021		2022
	PLN Million	%	PLN Million	%	PLN Million	%	PLN Million	%	PLN Million	%
Energa SA—Individual Financial Report
core operating activities	155.0	29.8	159.0	29.3	178.0	20.1	154.0	37.2	163.0	34.8
Result from other operating activities *	14.0	2.7	22.0	4.1	30.0	3.4	9.0	2.2	10.0	2.2
Financial	351.0	67.5	361.0	66.6	674.0	76.5	250.0	60.6	295.0	63.0
Total	520.0	100	542.0	100	882.0	100	413.0	100	468.0	100
ENERGA Group—Consolidated Financial Report
core operating activities	8993.0	93.2	11,674.0	91.8	12,028.0	93.2	12,249.0	95.1	19,178.0	93.8
Result from other operating activities *	272.0	2.8	284.0	2.2	183.0	1.4	379.0	2.9	844.0	4.1
Financial	382.0	4.0	762.0	6.0	696.0	5.4	268.0	2.0	429.0	2.1
Total	9647.0	100	12,720.0	100	12,907.0	100	12,896.0	100	20,451.0	100

* Other operating expenses and income are reported as a single line item (per balance). Source: own compilation based on separate and consolidated financial reports of the ENERGA Group [65].

).

Unlike the other analysed parent companies, the main source of ENERGA SA’s revenue from core operations was licence fees and sales of IT services, rather than electricity. This value was reflected in the costs incurred, which in none of the analysed periods exceeded a 40% share in the overall cost structure. During this period, operating expenses at the consolidated level accounted for more than 90% of total costs, making other operating expenses of little importance. At the level of the stand-alone financial statements, the most significant element for ENERGA SA was financial costs, whose share exceeded 60%. The vast majority of these costs were interest on loans and borrowings and interest on the issue of debt securities. In the consolidated financial report, financial costs were also the main source of expenses, but their share in the overall cost structure was much smaller, amounting to only 2–4%.

In the case of Tauron SA and the TAURON Group, there are differences between the separate financial statements and the consolidated financial report. In the stand-alone financial statements, the share of core operating expenses increased from almost 75% in 2018 to over 90% in 2022. At the consolidated level, the share was significantly higher and ranged between 96 and 99% (as shown in

Table 5. Operating costs incurred by Tauron SA and the TAURON Group between 2018 and 2022.

Costs	2018		2019		2020		2021		2022
	PLN Million	%	PLN Million	%	PLN Million	%	PLN Million	%	PLN Million	%
Tauron SA—Individual Financial Report
core operating activities	8592.1	74.6	10,576.8	84.3	12,239.9	74.4	18,168.0	89.8	29,126.0	91.8
Result from other operating activities *	3.9	0.0	2.7	0.0	10.5	0.1	3.0	0.0	8.0	0.0
Financial	2923.2	25.4	1975.3	15.7	4189.2	25.5	2059.0	10.2	2608.0	8.2
Total	11,519.2	100	12,554.8	100	16,439.6	100	20,230.0	100	31,742.0	100
Tauron Group—Consolidated Financial Report
core operating activities	17,546.4	98.2	20,422.4	98.1	21,802.6	96.3	24,820.0	98.3	35,940.0	97.1
Result from other operating activities *	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Financial	321.5	1.8	392.4	1.9	831.6	3.7	420.0	1.7	1070.0	2.9
Total	17,867.9	100	20,814.8	100	22,634.2	100	25,240.0	100	37,010.0	100

* Other operating expenses and income are reported as a single line item (per balance). Source: own elaboration based on separate and consolidated financial reports of the TAURON Group [66].

).

Like PGE SA, Tauron SA also reports other operating income and expenses per balance in its statements. Between 2018 and 2022, the TAURON Group made profits on this account, resulting in the presentation of zero values in Table 5. However, the parent company incurred small losses throughout the period under review. The share of finance costs in the individual financial report (IFR) was significantly higher than in the consolidated financial report (CFR), especially in 2018–2020. The main reason for this was the relatively high interest on debt. In addition, the IFR was significantly impacted by impairment losses on shares and loans granted, particularly in relation to the mining subsidiary.

After a preliminary analysis of costs divided by type of activity, similarities can be seen in the structures established on the basis of IFR and CFR, especially in terms of core operating activities. The exception is the ENERGA Group, where due to the function performed by the parent company, there were significant differences in the percentages of individual cost categories.

4.2. Groups’ Structure of Costs by Type as Derived from the Individual and Consolidated Financial Report

In almost all the entities surveyed, at the individual level (with the exception of Energa SA), core operating costs were of key importance. Therefore, it is worthwhile to analyse them in more detail, which is possible by recognising them by type. Figure 3 shows the cost structure of PGE SA and the PGE Group by nature, which differs significantly between the separate financial statements (IFR) and the consolidated financial report (CFR). Depreciation and amortisation in the parent company had a constant value from 2019 onwards, representing only 2–5% of total costs by type, and mainly related to buildings. In the CFR, depreciation was a more significant cost item, with owned buildings and technical equipment being the most significant. It is worth noting that the PGE Group also includes impairment losses on fixed assets in this category. Over the years, although the value of depreciation has remained at a similar level, its share in the cost structure has declined year on year from an initial 19% to 9%. The exception was in 2019 when the percentage was around 37%. This was the result of impairment testing of non-current assets, particularly in the conventional power segment.

In the PGE SA statements, the value of consumed materials and energy was not reported due to the intangible nature of this item. In contrast, in the consolidated financial report (CFR), this category was significant, accounting for 18–24% of total costs, mainly due to production fuel costs. Differences between the individual financial report (IFR) and the CFR were also evident in the area of third-party services. In the PGE Group, their share was 5–12% (including industrial services), while in the parent company, third-party services were one of the three most important items by type, reaching a share of 17–25%. At IFR, these included IT services, consultancy services, and commercial commissions. In terms of taxes and charges, their share in IFR was very small, except in 2022, when, as a result of the introduction of emergency measures, selected units were obliged to make monthly payments to the Price Difference Payment Fund as a consequence of the freeze on energy prices for residential customers. In the CFR, this cost category was significant in every period analysed, especially in recent years, as a result of the increase in CO₂ emission charges. The most important cost in PGE SA was salaries, which accounted for 30–42% in the period under review. These costs were closely related to social security and other employee benefits, which had a share of 7–17% in the IFR. In the IFR, however, these costs were no longer so significant and together accounted for a maximum of 24% throughout the period under review. Other costs by type in the PGE Group were marginal, with the exception of the item relating to sponsorship and advertising, which proved to be significant in the IRF.

The ENEA Group’s financial statements also showed significant differences in the cost structure (Figure 4). Depreciation and amortisation, as well as material and energy consumption, had a very small share in the operating cost structure of Enea SA (less than 2%). In contrast, in ENEA Group’s consolidated report, material consumption costs became the most significant item, increasing from 33% in 2018 to around 63% in 2022, mainly due to CO₂ emission costs. The value of depreciation and amortisation in the CFR was around PLN 1.5 billion, but its share in the cost structure was decreasing, reaching less than 10% in the last analysed period. Depreciation charges related mainly to buildings, structures (including mine workings) and machinery and technical equipment.

In the parent company Enea SA, the most important type of costs were third-party services, including industrial and distribution services, and shared service centres. During the analysed period, their share exceeded 70%, with an increasing trend—in 2022, they accounted for nearly 76%. Over the same period, taxes, fees, salaries, wages, social security and other benefits had a similar share in both the individual financial report (IFR) and consolidated financial report (CFR) of the ENEA Group, not exceeding a total of 30% in any year.

In the financial reporting of Energa SA and the ENERGA Group, differences in cost structure can also be observed (Figure 5). Depreciation and amortisation was not the primary type of cost in this parent company, comprising mainly buildings, premises, patents and licences. In 2019, depreciation and amortisation increased by leaps and bounds to a share of around 10%, as a result of the introduction of IFRS 16 ‘Leases’ and the depreciation and amortisation of rights to use assets. In CFR, the importance of depreciation was higher, reaching a share of 14–28%. The differences in terms of material and energy consumption costs were more noticeable. In the IFR, the share of this item did not exceed 2%, while, in the CFR, it was above 15%, reaching 23% in 2022. The cost of third-party services was significant at both the stand-alone and consolidated levels: in 2018, it was 43% at IFR and 30% at CFR, respectively, falling to 25% at IFR and 20% at CFR in 2022.

An exceptional situation occurred for taxes and charges. As a result of the adjustment of previous years’ VAT declarations, costs were reduced, resulting in a negative value, so this item was omitted in the period. In the other years, the share of taxes and charges was small, not exceeding 4%. In the CFR, in the first three years of the analysis, taxes and fees accounted for around 10% of costs, while in the last two years, their share increased to 26%. In terms of staff costs (salaries, social security and other benefits), the differences in cost structure in the first two years were small. They began to widen over time, and in 2022, the total share, according to IFR, was twice as high as in CFR (33% and 16%, respectively). Other costs by type were significant for the parent company, reaching 27–34%, while in the consolidated report, their impact on the overall structure was minimal (a share of less than 2%).

As in other parent companies, depreciation and amortisation costs were not significant in Tauron SA. Even despite a jump in these costs in 2019 due to the application of IFRS 16 “Leases”, their share was a maximum of 8%. In the consolidated financial report (CFR), depreciation and amortisation reached their highest value in 2020 at 38% of the overall cost structure. The variability in depreciation and amortisation costs was due to the impairment tests carried out on fixed assets and the associated impairment charges. Consumption of materials and energy, as well as taxes and charges, were even less important for Tauron SA. By 2020, their respective shares did not exceed 3%. At CFR, on the other hand, costs related to these categories increased over the years, reaching shares in the range of 9–29% for materials and energy consumption and 12–25% for taxes and charges. The increase in the share of taxes and charges was mainly the result of rising CO₂ costs.

The importance of third-party services up to 2020 in both types of reports was similar, with a share of around 20–27% of total costs (Figure 6). In subsequent years, the situation changed due to the establishment of the Power Market in 2021. For the first time, the TAURON Group’s parent company recognised costs related to the implementation of the power obligation for the subsidiary generating units in this period. For the 2021 CFR, the share of third-party service costs remained at around 20%, with distribution services playing the most significant role in this category. Employee benefit costs were a significant cost category for the parent company. By the end of 2020, their share was around 50%, but in subsequent years it fell to 25%, mainly due to the increase in costs associated with the launch of the Power Market. In the CFR, the share of employee benefit costs was in the range of 15–25%. Other costs by type for the TAURON Group, as a whole, were not significant (less than 2%), and in the IRF the basic component of these costs was advertising costs, reaching a share of 14–16%.

When analysing the costs by type of entity, it can be seen that the cost structures resulting from the separate and consolidated financial reports (IFR and CFR) were different, despite belonging to the same group. This demonstrates that the type of report (individual vs. consolidated) significantly affects the type and quality of cost information.

5. Discussion

In the first step, costs by activity were analysed. In the consolidated statements (CFR), the cost structure was very similar in all analysed groups. The main part of the costs always consisted of the costs of core operating activities, whose share was more than 90% in all periods. The costs of other operating activities and financial activities were of negligible importance, amounting to 1–2%. The situation was somewhat different in the case of the separate financial statements (IFR). In three of the four parent companies under review, the costs of core operating activities were of the greatest significance. In PGE SA and ENEA SA, their share in the cost structure was usually around 90% or more, while in TAURON SA, it ranged from 75 to 90%. The exception was ENERGA SA, where the costs of basic operating activities were only 20–37%. In this case, financial costs dominated, ranging from 60% to 76%. In the remaining entities, the share of financial costs varied. The different shaping of the cost structure in Energa SA is due to the different role of this parent in the group, as a holding company, compared to the other entities analysed.

The analysis of costs by type revealed significant differences in the informative value of the parent companies’ reports and their groups. In the consolidated statements (CFR), depreciation was much more significant than in the individual statements (IFR). This is understandable, as the parent companies, which are mainly engaged in trading, do not need as many fixed assets as the energy-producing entities in the group. In addition, the depreciation and amortisation category includes impairment losses on fixed assets, which are most often related to the extraction of energy from conventional sources, which are increasingly viewed negatively in the context of the ongoing energy transition. It is also worth noting that the application of IFRS 16 “Leases” in 2019 has contributed to an increase in the share of depreciation and amortisation in the overall cost structure, which in some cases, as in the case of Energa SA and its group, has exacerbated the differences between the cost structure resulting from IRF and CFR.

The costs of material and energy consumption in the unit reports were of marginal importance due to the absence of manufacturing activities in the parent units. In none of the units analysed did their share in the structure of costs by type exceed 2%. In the CFR, on the other hand, the main source of these costs was fuels used to produce electricity. The largest share of costs from this category was observed in the ENEA Group, where it amounted to approximately 33–63%.

In the case of third-party services, these costs were more significant in the unit reports (IFR), although the differences in some cases were not as large as in other cost categories. Not all entities disclosed detailed information on this item. PGE SA was dominated by consultancy, IT services and commercial commissions, while ENEA SA was dominated by industrial and distribution services. The cost structure of the ENEA Group and its parent differed the most in this category; throughout the period under review, the share of third-party services in the company’s cost by type structure remained at around 73%, compared to 9–18% in the consolidated statements (CFR). In the Energa Group, on the other hand, the percentages were similar: in the CFR, they ranged from 20% to 30% and in the IFR from 25% to 43%.

Staffing costs by type include wages and salaries, as well as social security and other benefits, such as retirement and disability benefits. In the IFR, employment costs were more significant, with the exception of ENEA SA and its group, where the shares were at a similar level of around 20%. In the other entities, the differences were more pronounced. For example, in PGE SA in the last analysed period, the share of employment costs was 40%, while in the PGE Group, it was only 13%. Such a low share at the group level is a consequence of the emergence of other generic costs in subsidiaries that are active in power generation.

The costs of taxes and fees were more significant in the consolidated statements (CFR), as they often included expenses related to CO₂ emissions, which are more applicable to generating units. A particularly significant share of these costs, amounting to as much as 48%, was observed in the PGE Group. The last category of costs is other costs by type, which in the entities studied were mainly attributed to group-wide expenses in the parent company, such as advertising and sponsorship. Therefore, they were more significant in the standalone statements (IFR), where they reached up to 35% in ENERGA SA. In contrast, they were of marginal importance in the CFR and did not account for more than 2% in any of the group structures.

The cost structure of the entities surveyed was also strongly dependent on the sector to which they belong. The electricity sector, due to its relevance to the country and its people, is more regulated. Government actions in this area are reflected in the costs incurred by the entities. Examples include the launch of the Power Market and the introduction of mandatory contributions to the Price Difference Payment Fund. The energy transition policy pursued by the European Union also affects entities in the energy sector, as can be seen in each of the groups studied, where the costs incurred for CO₂ emissions were significant. These conclusions confirm the thesis presented in the introduction that IFR and CFR provide different information on operating costs.

6. Summary and Conclusions

This paper assesses the usefulness of operating cost information on the basis of IFR and CFR of key capital groups of the Polish energy sector. The study took the form of a multiple case study using elements of financial analysis. The analysis allowed the conclusion to be drawn that the cost structure of an entity reflects its role in the capital group.

The conclusions of the analysis suggest that a simultaneous analysis of the IFR and CFR is necessary to obtain a complete picture of the group entity. During the period under review from 2018 to 2022, a more than threefold increase in operating costs was observed at both the individual and consolidated levels. This increase was driven by rising costs from CO2 emission fees and higher power purchase prices in the markets, as a result of market risks related to the COVID-19 pandemic and the war in Ukraine. Such increases in operating costs (approximately threefold) were evident in all the capital groups studied, with the exception of Energa SA, where the increase was smaller due to its role in the group. The conclusions presented were based on the available financial statements, which in financial accounting are prepared in synthetic terms. This way of presenting data entails certain limitations in terms of comparability, which may lead to distortions in the results of the study. In addition, changes in accounting policy introduced during the period under review, such as the impact of IFRS 16 on the increase in depreciation and amortisation expense from 2019, may have had a similar impact on the results of the analysis.

Cost management in groups in the energy sector poses a number of challenges. Firstly, the structural complexity of the group, consisting of different entities, makes cost analysis and allocation difficult. Secondly, regulation and a dynamic energy market affect operating costs and require flexibility in management strategies. In addition, the energy transition involves new investment costs and a transformation of operating models. Finally, effective risk management and cost differentiation between parent companies require consistent management strategies, which is key to remaining competitive.

It is worth noting that there is currently not enough research comparing individual financial reports (IFRs) and consolidated financial reports (CFRs) as sources of information. Authors of publications tend to focus mainly on IFRs, which creates space for continued research in this area and for the analysis of other elements of financial reporting. In future research, it would be worthwhile to include entities operating in different sectors in order to take into account their specificities. To obtain more representative results, the number of entities analysed could also be increased and the research period extended.