Annual Report 2013

Tariff Policy

IDGC of Centre operations concerning power transmission and grid connection of new consumers to electrical grids are regulated by the state, with the executive bodies responsible for the state regulation of tariffs setting the relevant rates.

The Federal Tariff Service (FTS): sets the limit on the minimum and/or maximum tariffs on power transmission services for territorial grid companies and tariffs on power transmission services for the Unified State Power Grid (services of JSC FGC UES).

Governments of the territorial entities of the Russian Federation responsible for the state regulation of tariffs (Regional Energy Commission, REC):set tariffs on the electrical grid power transmission services in each particular territorial entity within the set limits. RECs are also responsible for setting the cost of grid connection to the distribution electrical grids and sales markups of the suppliers of last resort.

TARIFFS FOR GRID CONNECTION

An economically reasonable cost, or ‘cost plus’, method for setting tariffs for all grid companies was used prior to 2009, but IDGC of Centre switched to the Regulatory Asset Base (RAB) method on January 1, 2009, based on the return on invested capital.

Starting from January 1, 2011, state regulation of tariffs on power transmission services for the territorial grid companies has been carried out solely by setting long-term tariffs based on the long-term parameters for regulating operations of such companies.

In 2013, two methods for setting tariffs on power transmission services at all branches of IDGC of Centre were used:

  • RAB regulation;
  • Long-term indexation of gross returns.
RAB- regulation (8 branches) Starting 01.01.2009
  • Belgorodenergo
Starting 01.01.2010
  • Kurskenergo
  • Yarenergo
  Starting 01.11.2010
  • Orelenergo
  Starting 01.01.2011
  • Voronezhenergo
  • Kostromaenergo
  • Smolenskenergo
  • Tambovenergo
Long-term indexation
of the required gross revenue
(3 branches and 1 subsidiary)
  • Bryanskenergo
  • Lipetskenergo
  • Tverenergo
  • JSC Yargorelectroset

INFORMATION ON THE METHODS APPLIED BY IDGC OF CENTRE FOR SETTING TARIFFS ON POWER TRANSMISSION SERVICES:

Method of setting the tariff at IDGC of Centre RAB-regulation Long-term indexation of the required gross revenue
Required gross revenue (RGR) is established in accordance with: Procedural Guidelines approved by Order No. 228-e dd. March 30, 2012 of the FTS of Russia. Procedural Guidelines approved by Order No. 98-e dd. February 17, 2012 of the FTS of Russia.
RGR includes:
  • Expenses associated with the production and sale of products (services) that refer to the regulated operations (controlled and uncontrolled expenses).
  • Money for shareholder funds and borrowed capital.
  • Income on invested capital.
  • Evening-out.
  • Adjustment of RGR
  • Controllable expenses (OPEX), including dividends, cost of collective agreements, and other expenses paid out of profit.
  • Uncontrollable expenses that include depreciation, expenses on repayment and maintaining borrowed funds and capital investment out of profit;
  • Adjustment of RGR
The long-term indicators for regulation that are used to calculate the RGR:
  • Base level of operating expenses.
  • Operating expenses effectiveness index.
  • Amount of invested capital.
  • Net working capital.
  • Rate of return for invested capital.
  • Invested capital return period.
  • Elasticity of controllable expenses to amount of assets
  • Technological loss ratio approved by the Russian Ministry of Energy.
  • Reliability and quality of goods (services) sold
  • Base level of controllable expenses.
  • Effectiveness index of controllable expenses.
  • Elasticity of controllable expenses to amount of assets.
  • Amount of technological losses of electricity.
  • Reliability and quality of goods (services) sold.

The RAB-regulation method ensures the return of money invested in the Company’s assets in a certain period and generation of a certain rate of return. FTS determines the rate of return for new capital, while the RECs set the rate of return for old capital, which must conform to the level of risk of investing in the grid business and make the company appealing to investors.

Events in 2013:

In 2013, the regulatory bodies revised the long-term parameters for regulating operations of those territorial grid companies undergoing the long-term indexation of RGR and collecting revenues from power transmission services of at least 500 mln RUB, following the Decree of the Russian Federation Government.7

These changes affected the IDGC of Centre branches, i.e. Lipetskenergo and Tverenergo. The estimated OPEX for 2014 was approved without significant changes as compared to OPEX level for 2013. A slight reduction in the base level of OPEX is stipulated by changes of the inflation index and of the number of actual standard units of equipment as compared those taken into account in calculations earlier.

The average tariff of power transmission services for IDGC of Centre in 2013 amounted to 141.52 kopecks per kWh, which is 10.2% higher than in 2012.

AVERAGE JOINT OPERATION TARIFFS ON POWER TRANSMISSION SERVICES IN 2009-2013, kopecks/kWh:

  2009 2010 2011 2012 2013
Average tariff on power transmission services 91.55 111.23 126.55 128.37 141.52
Increase, % 22.1 % 21.5 % 13.8 % 1.4 % 10.2 %

The average tariff on power transmission services is calculated as the ratio of planned required gross revenue (RGR) on power transmission to planned net power supply. The ‘planned’ values are the values approved by the executive organs responsible for regulating the tariffs in the territorial entities of the Russian Federation.

According to the terms and conditions of social and economic development scenario of the Russian Federation approved by the Government, a 10% indexation of tariffs for the grid companies was established starting from July 1, 2013.

However, as far as IDGC of Centre is concerned, the increase was slightly higher – 10.2%.

For details on the average tariffs on power transmission services by IDGC of Centre branches in 2009-2013 please see Appendix 2 to the Annual Report.

THE INCREASE IN TARIFF GROWTH IN EXCESS OF THE SCENARIO FRAMEWORK IN A NUMBER OF BRANCHES WAS STIPULATED BY THE FOLLOWING FACTORS:

VORONEZHENERGO15.5 %Tariff growthby the REC’s establishment of tariffs on power transmission services on the level higher than the maximum permissible level set by the FTS at the expense of the investment program at Voronezhenergo (a 15.5% increase of the average tariff).
SMOLENSKENERGO11.7 %Tariff growthby the revision of tariff-related decisions in accordance with Government Decree No. 403 dd. May 8, 2013 On Amending Certain Acts of the Russian Federation Government Relating to the Issues of Operation of the Territorial Grid Companies, as described above, at Smolenskenergo (a 11.7% increase of the average tariff). Unified joint operation tariffs on power transmission services for other consumers in the Smolensk Region were revised starting from September 1, 2013, and increased by 2.58%.
TAMBOVENERGO13.9 %Tariff growthby the revision of the RGR due to the inclusion of ‘shortfall in income’ into the RGR as a result of managing disagreements with the Department of Tariff Regulation for the Tambov region at Tambovenergo (a 13.9% increase of the average tariff), which resulted in an additional increase of tariffs on power transmission services in the Tambov Region by 5% starting from August 10, 2013.

Required gross revenue (RGR) of IDGC of Centre

Tariff regulations caused the Company’s joint operation RGR to increase by 7.1 bln RUB (9.9%) in 2013 and the Company’s own revenues to increase by 3.9 bln RUB (11.0%).

CHANGE IN RGR OF IDGC OF CENTRE IN 2009-2013, bln RUB:

For details on RGR for power transmission services as specified by branches please see Appendix 2 of the Annual Report.

The largest growth in own RGR was demonstrated by the three abovementioned branches, where the tariffs overtook the scenario limits: the growth in own RGR at Voronezhenergo amounted to 682.2 mln RUB (21.7%), at Tambovenergo – to 380.6 mln RUB (26.8%), at Smolenskenergo – to 466.6 mln RUB (15.1%); furthermore, the increase in own RGR was demonstrated by the following branches:

RGR STRUCTURE OF IDGC OF CENTRE IN 2013, %:

  • Bryanskenergo – primarily by including the RGR adjustment value into the tariffs, which was stipulated by the change in the actual parameters for calculating the tariffs vs. parameters approved at the end of 2010. The total increase in own RGR amounted to 409.7 mln RUB (20.6%).
  • Yarenergo – by increasing the investment component due to an increase in income and ROI which was stipulated by significant commissioning of fixed assets in 2012 and the return of the ‘evening-out’ phenomenon of the previous years. Moreover, significant growth in the number of standard units of equipment affected the increase of controlled expenses. The total increase in own RGR amounted to 508 mln RUB (16.8%).
  • Orelenergo – by increasing the investment component against the background of a 5% growth in net supply. The increase in RGR amounted to 344.4 mln RUB (20.4%).

The largest share in the so-called joint operation RGR is taken by the RGR for IDGC of Centre branch maintenance, that is 50%. Expenses on services provided by JSC FGC UES amount to 21%, expenses on services of other TGC amount to 16% and expenses of purchasing electrical energy to compensate for grid losses total 13%. The structure of RGR has not changed significantly vs. 2012.

TARIFFS FOR GRID CONNECTION

The calculation of payment for the services of grid connection is carried out on the basis of one of the following rates:

  • Rates per unit of maximum capacity (RUB/kW).
  • Standardized tariff rates (RUB/km or RUB/kW).
  • Tariffs for certain consumers under individual projects (electricity generation facilities with a maximum capacity of at least 8,900 kW and voltage of at least 35 kV).

Upon signing the grid connection contract, the applicant may choose the way of payment for the grid connection on his/ her own. Around 94% of all contracts in 2013 were signed with the consumers entitled to benefits; the cost of services for each of them amounts to 550 RUB in accordance with the Russian Federation laws. The rest of the applicant categories chose the following payment options.

GRID CONNECTION PAYMENT OPTIONS RATIO FOR APPLICANTS IN 2013, %:

In 2013, the amount of payment and rates for grid connection were determined in accordance with the Procedural Guidelines approved by Order No. 209-e/1 dd. September 11, 2012 of the FTS of Russia.

In accordance with these guidelines, rates per unit of maximum capacity are approved in the prices of the regulation period, whereas the standardized tariff rates are approved in the prices of 2001.

For details on average standardized tariff rates by branches in 2013 please see Appendix 2 to the Annual Report.

For details on the average rates per capacity unit by branches please see Appendix 2 to the Annual Report.

AVERAGE PRICE PER CAPACITY UNIT8 IN 2011-2013:

Branch 2011 2012 2013
Average payment rate per capacity unit, RUB/kW 3,677.00 3,815.00 4,520.77
Growth, % 4 % 18 %

The following arrangement of rates per capacity unit is applied at the branches:

  • Arrangement per grid connection operations.
  • Arrangement by applicant category.
  • Arrangement by voltage level (except for the Kurskenergo branch).
  • Arrangement by volume of connected capacity

Besides the aforementioned, the Yarenergo branch also arranges the rates by territorial zones.

The branches arrange their rates in the following way:

  • By voltage level – Belgorodenergo and Kurskenergo.
  • By voltage level and range of connected capacity - Bryanskenergo, Voronezhenergo, Lipetskenergo and Orelenergo.
  • By voltage level, by range of connected capacity, by cable type and by type of equipment used - Kostromaenergo, Tverenergo and Yarenergo.
  • By voltage level, by range of connected capacity and by type of equipment used – Smolenskenergo.
  • By voltage level and by type of equipment used – Tambovenergo.

Payment for grid connection of consumers under individual projects is set by the regulator separately for each applicant.

AVERAGE STANDARDIZED TARIFF RATES BY BRANCHES IN 20139:

Type of standardized tariff rate Belgorod Bryansk Voronezh Kostroma Kursk Lipetsk Orel Smolensk Smolensk Tver Yaroslavl
Rate for covering grid connection expenses - R1, RUB/kW 111.6 318.96 316.62 94.5 860.02 55.35 44.32 274 549.13 676.92 28.15
Rate for covering grid company’s expenses on constructing overhead power lines - R2, RUB/km 287 997 176,606.56 217 48.22 302 300 216,926.97 204 095 177,265.06 202 930 224,554.6 491,725.08 328 978
Rate for covering grid company’s expenses on constructing cable power lines - R3, RUB/km 358 969 234,499.05 738,174.61 420 000 610,970.715 505 124 198,645.81 253 370 262,424.15 738,018.29 716 737
Rate for covering grid company’s expenses on constructing substations - R4, RUB/kW 1 839 653.7 642.89 756.8 1,491.98 302 747.435 1 420 458.43 1,162.16 241
 enlarge  

POWER SALES

Within the course of 2013, several IDGC of Centre branches started fulfilling their functions of suppliers of last resort, as a number of power sales companies were deprived of this status.

For details on the Company’s ‘takeover’ of the functions of a supplier of last resort please see Operational Results of the Annual Report..

As per the laws of the Russian Federation, when changing the supplier of last resort, sales mark-ups are established for the current period of regulation until the beginning of the next one at the level of the mark-ups of the organization which used to act as the supplier of last resort.

Sales markups are set for the following consumer groups:

  • Public and equivalent consumers (residential).
  • Grid companies that purchase electrical energy to compensate for electrical energy losses (grid companies).
  • Other consumers.

Premiums for the first two groups of consumers are set for the estimated regulation period in absolute terms in RUB/kWh.

Premiums for the ‘Other consumers’ group vary by consumer subgroups depending on the maximum capacity of their power installations. The following factors are also taken into account when calculating such premiums:

  • ROS for the relevant subgroup of the ‘Other consumers’ group,
  • ratio of the operational parameters of the supplier of last resort.

SALES MARKUPS OF THE SUPPLIERS OF LAST RESORT EFFECTIVE IN 2013 ARE LISTED BELOW:

Public Grid companies Ratio of operational parameters ROS for other consumers, %
No. Region Functions of a supplier of last resort fulfilled since Period RUB/kWh RUB/kWh Ratioup to 150 kW150 - 670 kW670 kW - 10 MWat least 10 MW
1 Bryansk Region 01.02.2013 H1 2013 0.10681 0.10681 0.76 15.23 13.99 9.53 5.58
H2 2013 0.214 0.21 0.77 15.4314.189.655.65
2 Orel Region 01.02.2013 H1 2013 0.08555 0.08182 0.54 14.29 13.13 8.94 5.23
H2 2013 0.13752 0.095485 0.66 14.1813.038.875.19
3 Kursk Region 01.02.2013 H1 2013 0.10494 0.10494 0.78 15.82 14.53 9.90 5.79
H2 2013 0.20988 0.54778 0.43 15.9714.679.995.85
4 Tver Region 01.05.2013 H1 2013 0.09262 0.09244 0.66 14.77 13.70 9.42 5.57
H2 2013 0.1854 0.20522 0.82 15.5114.259.705.68
5 Smolensk Region 01.10.2013 H1 2013 0.10573 0.10573 0.65 14.51 13.33 9.08 5.31
H2 2013 0.21146 0.19479 0.73 14.4313.269.035.29
 enlarge