1. General data: 
   a) Polskie Sieci Elektroenergetyczne Spółka Akcyjna (hereinafter: PSE S.A., Company)
   b) Konstancin-Jeziorna, ul. Warszawska 165
   c) the object and purpose of PSE S.A.'s operations is to provide electricity transmission services and ensure the safe and economic operation of the national power system (NPS), as well as ensure the interoperability of this system with other systems.
   d) authority keeping the register:
   Polskie Sieci Elektroenergetyczne Spółka Akcyjna was established by a Notarial Deed of 17 February 2004 and entered in the National Court Register kept by the District Court, 19th Commercial Division, under number KRS 0000197596 on 03 March 2004.
2. Duration of the Company: unlimited.
3. The period covered by the financial statements: 1 January 2022 to 31 December 2022; however, the comparative data covers the period from 1 January 2021 to 31 December 2021.
4. The financial statements have been prepared on the going concern basis, i.e. with the assumption that the Company will continue its activity in foreseeable future. There are no circumstances indicating that continuation of the activity by the Company may be threatened.
5. The financial statements have been prepared in accordance with the provisions of the Accounting Act of 29 September 1994 (consolidated text: Journal of Laws of 2023, item 120, as amended), hereinafter: the Accounting Act, Act.
6.  All amounts are listed in zloty and grosz.

Intangible assets are property rights acquired by the Company, included in fixed assets, not classified as investments, suitable for economic use, with expected useful economic life longer than one year, intended to be used for the purposes of the Company.

Valuation of intangible assets
At the date of acquisition, intangible assets are recorded at an initial value, which is a purchase price or cost of manufacturing.

The initial value of intangible assets is reduced by depreciation or amortisation write-offs made to account for impairment due to use or the passage of time.

As at the balance sheet date, intangible assets are valued at purchase prices or cost of manufacturing, or reassessed value in the case of revaluation of fixed assets in accordance with regulations under separate provisions, less accumulated depreciation write-offs and impairment write-offs.

The depreciation period and method are determined as of the date the intangible assets are taken over for use. Balance-sheet depreciation periods are determined by the entities responsible for managing the asset on the basis of the expected useful economic life of intangible assets and are subject to periodic review.

Revaluation write-offs
Revaluation write-offs for intangible assets are determined for individual assets or groups of identical assets, based on the determination of their impairment before they are fully depreciated if a cause resulting in the impairment arises.

The level of impairment revaluation write-off is determined by comparing the net selling price, i.e. the price obtainable for them less related costs, with their book value. 

Tangible fixed assets mean assets that meet all of the following conditions on the date of recognition:

• have a tangible form or are property rights, such as, but not limited to: perpetual usufruct right to land,
• their expected economic useful life in a specific entity is longer than one year (12 months),
• are intended to be used for the purposes of the entity, including for permanent use by other entities under rental, tenancy or lease agreements, unless such agreements meet the definition of finance lease,
• are complete and fit for use.

A tangible fixed asset is complete if it can carry out the functions assigned to it, which means that it meets all the technical (in terms of structure) and legal conditions stipulated for a given category of tangible fixed assets, and in particular contains all its components. 

A component is an intrinsic part of a tangible fixed asset that determines its use, which cannot be detached from it without materially affecting the tangible fixed asset's fitness for use.

A component is physically or legally related to a tangible fixed asset.

Valuation of tangible fixed assets
At the date of recognition in book of accounts, tangible fixed assets are valued at a purchase price or cost of manufacturing (or fair/market value if received free of charge).

The purchase price or cost of manufacturing constitute an initial value of a tangible fixed asset comprising all costs having a cause and effect relationship with its acquisition, including construction, incurred between the date of the decision to acquire tangible fixed asset, including the documented commencement of construction and the date of documented recognition of an asset as complete and fit for use.

The initial value of a tangible fixed asset does not include costs that are not related to the acquisition or manufacturing of a tangible fixed asset (e.g. charges of the sanction nature) based on the cause and effect correlation. 

In particular, the initial value of a tangible fixed asset does not include:

• general and administrative costs, except for reasonable maintenance costs of entities participating in the construction of tangible fixed assets,
• the costs of training employees of the entity in operation of the newly acquired fixed asset, except where these costs are included in the purchase price of the fixed asset in a manner that prevents their determination or reliable measurement,
• costs incurred in connection with changing the location of a tangible fixed asset or reorganisation of part or all of the entity's operations (costs of moving tangible fixed assets to new locations of use) – these costs are directly related to the change of location or reorganisation of the Company and not to the construction of a tangible fixed asset,
• costs incurred prior to the date of making the documented decision to acquire a tangible fixed asset or prior to the date of commencing its construction,
• costs of marketing activities that are designed to ensure that the economic benefits from the tangible fixed asset object are obtained after its construction, regardless of the period in which they are incurred.

The purchase price or cost of manufacturing of a tangible fixed asset does not include costs that the Company will have to incur in the future in connection with the liquidation of this tangible fixed asset at the end of its use or in connection with the reclamation of the land on which the tangible fixed asset was located.

The initial value of a tangible fixed asset is increased by expenditures on improvements (alteration, extension, modernisation or reconstruction) resulting in an increase in its use value after the completion of the improvement, in relation to its value at the time of taking over for use, measured by the period of use, manufacturing capacity, quality of products, operating costs and other measures. Improvements to tangible fixed assets during use may relate to own as well as third-party tangible fixed assets. The amount of the improvement must exceed the net amount of PLN 10,000, with the proviso that in the case of tangible fixed assets constituting computer equipment and telephones, the amount of the improvement must exceed the net amount of PLN 3,500.

The replacement of a component of a tangible fixed asset, which is not a repair or maintenance, reduces the gross value of the tangible fixed asset by the existing gross value of the component and reduces the existing depreciation of the tangible fixed asset by the depreciation of the component. At the same time, a new component is entered in the tangible fixed asset register at the purchase price, cost of manufacturing or gross book value increased by the costs directly related to adapting the component to a state fit for use, including transport, loading and unloading costs. If the attached component was included in the asset register at gross value, the depreciation of a tangible fixed asset should be increased by the existing depreciation of the attached component.

All other expenditures incurred for repairs and maintenance of a tangible fixed asset are charged to the profit and loss account in the period in which they are incurred.

During the financial year, the initial value of tangible fixed assets is reduced by depreciation or amortisation write-offs made to account for impairment due to use or the passage of time.

As at the balance sheet date, tangible fixed assets are valued at a purchase price or cost of manufacturing, or reassessed value in the case of revaluation of tangible fixed assets in accordance with regulations under separate provisions, increased by improvement costs, less accumulated depreciation write-offs and impairment write-offs.

The depreciation period and rates are determined as of the date a tangible fixed asset is taken over for use. Balance-sheet depreciation periods are determined by the entities responsible for managing an asset on the basis of the expected useful economic life of a tangible fixed asset.

The Company regularly reviews the applicable depreciation periods and rates of tangible fixed assets and components, no later than at the end of each reporting period. The revised rates are applied starting from the new financial year.

The Company creates write-offs due to permanent or partial impairment of fixed assets.

The permanent impairment value of fixed assets occurs when there is a high probability that an asset controlled by the Company will not generate a significant part or all of the anticipated economic benefits in the future. 

In such a case, the Company makes an impairment write-off, bringing the value of an asset as shown in the books of account to a recoverable amount.

If the Company determines with sufficient certainty that the reason for which it made an asset revaluation write-off has ceased to exist, it carries out the reversal of the previously recognized revaluation write-off in part or in full by recognizing other operating revenues. 

Tangible fixed assets used on the basis of rental, tenancy, lease or similar agreements, included in the assets of the entity, are depreciated during the term of the agreement or the economic useful life of an asset, whichever is shorter.

This item includes tangible fixed assets under construction, assembly or improvement of an already existing tangible fixed asset, included in fixed assets. 

A purchase price and cost of manufacturing of tangible fixed assets under construction include their total costs incurred by the Company during the construction, assembly, adaptation and improvement period, until balance sheet date or the date of taking over for use.

Investments are assets held by the Company for the purpose of deriving economic benefits from them in the form of appreciation in value, earning income in the form of interest, dividends (profit sharing) and other benefits, including from a commercial transaction.

Investments consist of long-term investments and short-term investments. The classification of an investment as a fixed or current asset is determined by the time criterion. Investments that are due and payable or held for sale within 12 months of the balance sheet date or the date they were established, issued or acquired, or are cash assets, classified as short-term investments.

Valuation of long-term investments
Long-term investments are recognized as at the balance sheet date at a purchase price, if the costs of conducting and settling the transaction are not significant, adjusted by write-offs revaluing the investment. A write-off revaluing the investment arises from the impairment of the value of an investment when it is highly probable that a long-term investment will not generate future economic benefits.

Valuation of short-term investments
Short-term investments are recognized in books of account as at the date of acquisition or origination at a purchase price if the costs of conducting and settling the transaction are not significant.

Under a lease agreement, one party to the agreement (the lessor) transfers tangible fixed assets or intangible fixed assets to the other party (the lessee) to be used against payment or to derive benefits for a definite period of time.

The classification of the leasing agreement is made at the start of the leasing.

Finance lease
If a lease agreement meets at least one of the conditions listed in Article 3(4) of the Accounting Act, the third-party tangible fixed assets or intangible assets accepted for use under the agreement are included in the lessee's fixed assets and the lessee makes depreciation write-offs, and on the second side with the recognition as a financial liability.

Inventory (materials) covers current assets acquired to be consumed for own use, fit for sale as well as goods acquired for resale in unprocessed condition.

Inventory records are kept in terms of quantity and value and are reconciled with the data of appropriate accounts entered in general ledger at the end of each reporting period.
The value of materials that are consumed gradually is written off as a one-time expense when released for use.

Some types of materials, such as fuel, administrative and office supplies, cleaning agents, small purchases for representation and advertising purposes, water and foodstuffs, purchased in quantities that satisfy the Company's current needs, are written off as operating expenses immediately after they are purchased, without any records of quantity and value.

As at the balance-sheet date, inventory is valued at the lower of a purchase price or cost of manufacturing and net selling price adjusted for inventory revaluation write-off.

Inventory revaluation write-offs are created based on the analysis of inventory levels taking into account:
a. inventory status,
b. inventory turnover,
c. nventory suitability,
d. the value of inventory that does not show movement during the year,
e. degree of economical usage.

Impairment write-offs of tangible current assets (materials) made in connection with their impairment value and resulting from bringing about net selling prices instead of purchase prices or production costs are included in other operating expenses.

Materials and goods are valued during the financial year at actual purchase prices.

The disposal of goods inventory is determined during the year by detailed identification of the actual prices of those items that relate to specifically identified businesses, regardless of the date of purchase.

Advances for deliveries are valued at a nominal value, i.e. at the value of amounts transferred to suppliers on account of orders made.

Receivables
As at the balance sheet date, the Company measures receivables and claims at the amount due, increasing their value by interest due for delayed payment and decreasing by revaluation write-offs expressing the probable reduction of receivables, taking into account the level of collateral held. Non-financial receivables that are time-barred, cancelled or deemed irrecoverable are excluded from the books.

Revaluation write-offs of receivables are included in other operating costs or in financial expenses, depending on the type of receivables to which a write-off relates.

Long-term receivables of the Company include receivables except for the ones included in financial assets and trade receivables whose maturity period exceeds one year counted from the balance sheet date.

Liabilities
As at the balance sheet date, liabilities are valued at the amount payable. The amount to be paid includes the nominal value of the liability as well as accrued interest due to the counterparty. 

The nominal value of liabilities on account of loans and credits taken is increased by accrued interest and increased or decreased by accrued exchange rate differences. 

As at the balance sheet date, assets and equity and liabilities denominated in foreign currencies are valued at the average exchange rate for a given currency set by the National Bank of Poland.

Exchange rate differences arising from valuation of assets and equity and liabilities denominated in foreign currencies as at the balance sheet date, except for long-term investments, and those arisen in relation to payment of receivables and liabilities in foreign currencies, as well as at currencies sales, are included in financial revenues or financial expenses respectively, and in justified cases, in a purchase price of the goods, as well as the purchase price or cost of manufacturing of tangible fixed assets, tangible fixed assets under construction or intangible fixed assets.

The financial instruments are recognized and measured pursuant to the Regulation of the Minister of Finance of December 12, 2001 on detailed rules for recognition, measurement methods, scope of disclosure and manner of presentation of financial instruments. The aforementioned rules of measurement do not apply to financial instruments excluded from the said Regulation, including in particular shares in subordinated entities, rights and obligations under lease agreements and insurance contracts, trade receivables and liabilities and financial instruments issued by the Company and being its equity instruments.

Division of financial instruments
Financial assets are divided into:

• financial assets held for trading,
• loans granted and own receivables,
• financial assets held to maturity,
• financial assets available for sale,

Financial liabilities are divided into:

• financial liabilities held for trading,
• other liabilities.

Provisions are liabilities whose maturity or amount is uncertain. The Company creates them for certain or probable future liabilities whose value can be reliably estimated as other operating expenses or financial expenses. Exceptions are provisions for retirement and similar benefits, which are charged to operating activities.

In the balance sheet, the provisions are divided into: 

• provision for deferred income tax,
• provision for retirement and similar benefits, broken down into:
  - long-term,
  - short-term,
• other provisions, broken down into:
  - long-term,
  - short-term.

The criterion for division is the time of liability:

• up to 12 months from the balance-sheet date,
• more than 12 months after the balance-sheet date.

Provision for deferred income tax is created at least once every quarter in the amount of income tax to be paid in the future due to positive temporary differences, that is such differences which may result in the increase of the income tax base in the future.

Provisions for retirement and similar benefits are recognized in the amount of probable future obligations to employees arising by law, material to the Company’s financial result, including: retirement severance pay, disability and death allowances, jubilee awards and other similar benefits. Provisions for retirement and similar benefits are cost provisions recorded under accruals charged to operating expenses, presented in the financial statements under the item „Provisions for retirement and similar benefits” broken down into long-and short-term. 

The Company recognises other provisions in the financial statements when all of the following conditions are met:

• the Company has an existing obligation (legal or constructive) resulting from past events,
• it is likely that compliance with the obligation will result in an outflow of funds – a transfer of economic benefits,- it is likely that compliance with the obligation will result in an outflow of funds – a transfer of economic benefits,
• a reliable estimate of the amount of this obligation can be made.

The Company considers contingent liabilities to be potential future performance obligations that are dependent on the occurrence of certain events.

Prepaid expenses
Prepaid expenses are used to record costs incurred during the reporting period but relating to future periods.

The condition for capitalisation of costs is to bring economic benefits to the entity in future periods. Prepayments and accruals may be included in the balance sheet if they meet the asset criterion of the Accounting Act.

Prepaid expenses include:

• long-term ones which relate to future reporting periods and last longer than 12 months from the balance sheet date,
• short-term ones which relate to future reporting periods and last no longer than 12 months from the balance sheet date. 

Write-offs for prepaid expenses are made according to the passage of time or the amount of benefits in compliance with the prudent valuation principle.

Short-term prepaid expenses include, among others:

• prepaid rents and tenancy, 
• property tax, 
• property insurance premiums, 
• time-sensitive subscriptions, 
• appropriations to the Company Social Benefit Fund, 
• costs of conducted development and research works (until their completion), 
• expenditures under projects financed with assistance funds.

Long-term prepaid expenses include, among others:

• deferred tax assets,
• other prepayments.

Accrued expenses
Accrued expenses are used to record provisions for costs that relate in whole or in part to the current or prior periods and that have been reliably estimated.

Accruals and deferred revenue
Accruals and deferred revenue are valued on prudence basis.

Accruals and deferred revenue include in particular:

• equivalent of the amounts for the services to be provided in next future reporting periods, received or due from counterparties,
• cash received to finance the acquisition or construction of tangible fixed assets and development works, if according to regulations they do not increase equity, e.g. grid connection fees,
• negative goodwill,
• grants and subsidies.

In accordance with the commensurability principle, fees collected by the Company for connection to the transmission network are included in accruals and deferred revenue.

Long-term, gradually realised revenue includes negative goodwill. 

Negative goodwill is recognized and included in the books of account by the Company in connection with a business combination or acquisition of an enterprise or an organized part thereof. This is the excess of the fair value of the net assets of the acquired company over the acquisition price. The acquisition price is the price at which an entity (or an organized part thereof) is acquired.

Negative goodwill is accounted for in equal instalments (written off against other operating revenues) over the period representing the weighted average of the useful economic lives of the tangible fixed assets and intangible assets acquired that are subject to depreciation.

Grants and subsidies are recognized at fair value when there is reasonable assurance that the grant will be received and all conditions related to obtaining the grant are met. If a grant or subsidy relates to an expense item, it is deferred in the balance sheet and systematically written off as revenue in a manner that ensures commensurability with the costs the grant is intended to offset.

If a grant or subsidy is intended to finance the acquisition or construction of a fixed asset, it is deferred in the balance sheet and systematically recognised as revenue over the depreciation period of a tangible fixed asset.

Equity includes:

• share (basic) capital, reflecting the nominal value of shares,
• supplementary capital, created to cover possible losses,
• reserve capital (fund), created to cover special losses and expenses,
• revaluation reserve, created in accordance with the Accounting Act or other specific regulations,
• previous years' profit (loss), to which the effects of errors are also referred and the effects of changes in accounting policy are recognised,
• current year’s net profit (loss),
• write-offs on net profit during the financial year (negative value).

As at the balance sheet date, the share capital is recognized in the amount specified in the articles of association and entered in the National Court Register and reflects the nominal value of shares.

The Company's supplementary capital is created:

• from surcharges and surpluses achieved in the issuance of shares above their nominal value,
• from distributable profit write-offs.

The purpose of the supplementary capital is determined by the Company's Articles of Association. 

Asset revaluation reserve is intended to record the effects of the valuation of an entity's assets, i.e:

• express at market prices or otherwise determine the fair value of investments included in fixed assets,
• derivatives classified as current assets that meet the conditions for hedging. The remaining reserve capital is created and used on the basis of the provisions of the Articles of Association for the purposes specified by name. 

The Company, in accordance with Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity, currently in force, creates and recognizes in other reserve capitals an earmarked fund for the purposes indicated by the provisions of the aforementioned Regulation. The fund is created from the net profit of the Company. The value of the fund is the difference between the gross revenue from making transmission capacity of inter-system exchange available, defined as the sum of revenues obtained from the allocation of transmission capacity of cross-border exchange on parallel and non-parallel interconnections, less the mandatory charges (including taxes).

The method of creation and use of the fund is defined in the document "Regulations of the Earmarked Fund" approved by the General Meeting.

Reduction of the fund shall be effected upon completion and settlement of the capital expenditures financed therefrom by a resolution of the General Meeting of the Company.

Recognition in the books of account of the use of the fund takes place on the basis of a resolution of the General Meeting of the Company on the reduction of the value of the fund and the increase in supplementary capital by the amount specified in the resolution. 

Previous years' profit or loss reflects the unsettled result from previous years remaining to be decided by the General Meeting, as well as the effects of corrections of changes in accounting principles and errors relating to previous years and disclosed in the current financial year.

Write-offs on net profit during the financial year (negative value) constitute advances paid during the financial year on account of expected profit payment, made on the basis of separate regulations. Their settlement in the books of account takes place in the next financial year after the approval of the financial statements.

The Act of March 4, 1994 (as amended) on a company social benefits fund provides that the Company Social Benefits Fund is to be created by employers that employ at least 20 full-time employees. The Company creates such a fund and makes periodic write-offs in the amounts prescribed by the Act on collective labour agreements. The purpose of the Fund is to finance social activities. The balance of the Fund consists of accumulated revenues of the Fund less non-reimbursable expenses of the Fund. 

The Company reports separately in the balance sheet the balance of the Fund and the assets of the Fund (loans receivables, funds in the separated bank account).

Revenues and costs are recognised on accrual basis, i.e. during the periods to which they refer, irrespective of the date of receipt or making payment.

The financial result is determined on the basis of the profit and loss account prepared in the comparative option according to the specimen constituting Appendix No. 1 to the Accounting Act.

Konstancin-Jeziorna, 31 March 2023