Annual Report 2013

Board of Directors Statement of Priorities

In 2013, the IDGC of Centre Board of Directors approved a number of business priorities for the Company during the current year. The list of measures taken by the Company management regarding these business priorities is presented below.

Information on the work performed by the Company aimed at fulfilling the plan of measures to implement the concept of solving the “last mile” issue
(Minutes of the Board of Directors’ Meeting No. 24/13 dd. October 15, 2013)

Federal Act No. 308-FZ dd. November 06, 2013 On Amending the Electrical Energy Act cancels the last mile system starting from January 01, 2014, except for the last mile practice in a number of regions with a large share of major industrial consumers with the power receivers connected to such facilities (this relates to the Belgorod, Kursk, Lipetsk and Tambov Regions within the service area of IDGC of Centre) and where the last-mile contracts will remain valid until July 01, 2017.

Consequently, a phenomenon of shortfall in income emerges in 2014 in the regions that used to work under the last mile contracts until December 31, 2013. Such shortfall in income is stipulated by:

  • UNPG consumers leaving “joint operation” and opting for direct contracts with JSC FGC UES (this relates to the Bryansk, Kostroma, Smolensk, Yaroslavl and Orel Regions in the service area of IDGC of Centre);
  • The reduction of payments effected by the last mile consumers in the regions where such contracts will remain valid until July 01, 2017 (Belgorod, Kursk, Lipetsk and Tambov Regions). A separate tariff (“HV-1”) has been introduced for such consumers on January 01, 2014. This tariff is set as a formula and takes into account the payment for JSC FGC UES services and compensation of cross subsidization within the “Public” group.

Subsequently, during the period from July 01, 2015 to July 01, 2017, Federal Act No. 308-FZ provides for a step-by-step reduction of the cross subsidizing load on the last mile consumers. The reduction in payments for power transmission services after switching from the HV tariff (2013) to the HV-1 tariff (2014) will amount to 46% in the Belgorod Region, 33% in the Tambov Region, 20% in the Lipetsk Region and 17% in the Kursk Region.

Accordingly, in order to compensate for the lost income of grid companies, the aforementioned Act provides that the tariffs on power transmission services (except for consumers with HV-1 tariffs) may be increased starting from January 1, 2014 by no more than 7% from their level as at December 31, 2013.

The so-called “last mile”The process of renting facilities of the Unified National Power Grid (UNPG) by the territorial grid companies.

Within the framework of implementing these provisions, the single-rate tariffs on power transmission services for other consumers were increased starting from January 01, 2014, on average, by:

  • 7% in the Belgorod and Kursk Regions;
  • 6% in the Lipetsk Regions;
  • 5% in the Tambov and Yaroslavl Regions;
  • 4% in the Smolensk Region; and by
  • 1.1% in the Kostroma Region.

As far as the Orel and Bryansk Regions are concerned, the tariffs remained at the level of H2 2013 due to an insignificant level of involvement in the last mile system.

Decisions regarding the size of tariffs were made within the maximum level of tariffs on power transmission services established by the FTS of Russia.

Implementation of provisions of Decree of the Russian Federation Government No. 403 dd. May 08, 2013 On Amending Certain Acts of the Russian Federation Government Relating to the Issues of Operation of the Territorial Grid Companies
(Minutes of the Board of Directors’ Meeting No. 15/13 dd. June 13, 2013)

According to the Decree of the Russian Federation Government mentioned above, resolutions passed for IDGC of Centre regarding tariffs and balances, in connection with which rental agreements for the UNPG facilities were concluded by IDGC of Centre and JSC FGC UES in 2012 and were not concluded in 2013, can now be revised. Revision of resolutions regarding tariffs in this case shall be performed subject to the limitations of further tariff increase relative to the peak maximum levels approved the Federal Tariff Service of Russia (hereinafter the FTS):

  • by no more than 7% for the power transmission tariffs; and
  • by no more than 2% for the electricity tariffs for the public.

As far as IDGC of Centre is concerned, this resolution affected the Smolensk Region, where SUE Foundry and Rolling Works (consumer) had agreed with all the related parties that it would conclude a direct contract with JSC FGC UES starting from July 01, 2013.

Within the framework of implementing the aforementioned Decree dd. June 28, 2013, the Meeting of the FTS of Russia took place. While working on the approval of a direct contract between SUE Foundry and Rolling Works and JSC FGC UES by all the related parties, the Meeting approved the aggregate budgeted balance sheet for 2013 with adjustments, on the basis of which the decision was made to revise the unified joint operation tariffs for power transmission services in the Smolensk Region.

As a result of the resolutions passed, the additional increase of tariffs on power transmission services for other consumers amounted to 2.58% starting from September 01, 2013.

Organization of operations relating to the registration of maximum permissible capacity of the consumers connected earlier to the power grids of the Company
(Minutes of the Board of Directors’ Meeting No. 15/13 dd. June 13, 2013)

Within the framework of this business priority, IDGC of Centre carried out the work aimed at registering the maximum permissible capacity amount and preparing documents on grid connection (grid connection reports, the reports on distributing the asset set, the reports on distributing operational liability of the parties) with regard to the consumers connected earlier to the power grids of the Company.

Construction and operation of fiber optic communication lines
(Minutes of the Board of Directors’ Meeting No. 17/13 dd. July 18, 2013)

Within the framework of this business priority, 767.8 km of fiber optic lines providing digital channels of connecting with the substations were constructed in 2013. Another 825 km of the fiber optic lines are planned to be constructed in 2014. General agreements with JSC Upravleniye VOLS-VL have been concluded, with a set of standard contracts being currently under development.