Page 33 - KELAG Annual Report 2017

Group currently does not use hedge accounting in the energy business. The income and expenses
from measurement at fair value are netted for each trading partner and reported in revenue and
in cost of materials in the income statement.

For own use contracts, i.e., contracts entered for the purpose of receiving or delivering non-
financial items in accordance with the expected purchase, sale or usage requirements of the
KELAG Group are recognised not as derivative financial instruments but as pending transactions
(own use exemption). If such an own use contract is onerous as defined by IAS 37, a provision for
losses from pending transactions must be created. If the contracts contain embedded derivatives,
these and the host contracts are recognised separately unless the economic characteristics and
risks are closely linked to those of the host contract. Reassessment only occurs if there is a change
in the terms of the contract that significantly modifies the cash flows that would otherwise have
occurred.

All trading transactions that optimise energy production constitute derivative financial
instruments as defined by IAS 39. They are reported in other assets if they have a positive fair value
and in other liabilities if they have a negative fair value.

The fair values of the derivatives used in the KELAG Group (forwards) can be measured reliably as
of each reporting date. The measurement of derivative financial instruments relating to energy is
based on market prices and a forward price curve derived from market prices. As already
mentioned, in the field of gas, listings for the corresponding virtual trading points are used
directly for measurement.

The results of fair value measurement are recorded in the corresponding energy-industry-related
income and expense items. The respective total result is part of the operating result.

Positive and negative fair values are presented separately. If a master agreement is in place with a
counterparty that contains a netting arrangement, the positive and negative fair values of the
transactions are netted for accounting purposes.

Energy trading transactions that are settled physically and allocable to the value-added activities
in the energy industry are recognised separately, while pure trading transactions and thus price
optimisation transactions that are settled by netting them with other transactions (such as an
offsetting transaction) are presented on a net basis. Contracts that satisfy the own use exemption
in IAS 39 are always allocable to the value-added activities in the energy industry.