Tariff Regulation

Tariff policy

Federal Grid’s core business of electricity transmission via UNEG and technological connection services is performed based on tariffs subject to regulation by the federal government and approval by the Federal Tariff Service (FTS) of Russia. Pursuant to Decree of the RF President “On Some Issues of Government Control in the Area of Anti-Monopoly and Tariff Regulation” No. 373 dated 21July 2015, the Federal Tariff Service was liquidated and the functions of government regulation of tariffs for services rendered by Federal Grid Company were transferred to the Federal Anti- Monopoly Service (FAS) of Russia

Federal Grid’s services of electricity transmission over electric distribution grids (hereinafter “EDG facilities) are regulated at the regional level by executive authorities of the RF constituent entities.

The list of main regulatory acts governing tariff setting for electricity transmission via UNEG is available in the Appendix 1 to the Annual Report

Tariffs for electricity transmission via UNEG

Since 2010, within measures to improve the electricity industry’s investment attractiveness, tariffs for Federal Grid’s services of electricity transmission via UNEG have been set based on the return on invested capital (“RAB regulation”)

To set tariffs for each year of the period under regulation, the gross revenue requirement is calculated by summing up the payback period, rate of return and total expenses required for provision of power transmission services via UNEG. To prevent any sharp increases in tariff rates, the RAB-based methodology provides a smoothing mechanism that redistributes the required gross revenue over the whole long-term period under regulation.

The FTS Resolution No. 297-e/3 dated 09 January 2014 approved tariffs for electricity transmission over UNEG for the second long-term period under regulation of 2015–2019. In 2015, the set tariffs were revised as follows:

• Pursuant to RF Government Resolution No. 458 dated 11 May 2015, the FTS of Russia by its Resolution No. 187-e/1 dated 29 July 2015 made amendments according to which the fee for standard losses is calculated, since 01 July 2015, by a respective formula. The said resolution will help to mitigate the risk of Federal Grid’s revenue shortfall due to the increase in actual electricity/capacity prices on the wholesale market against the prices that the regulator used as the basis for setting the fee for UNEG standard process losses
• Pursuant to clause 37 of the Basic Pricing Principles for Electricity Sector Prices/Tariffs Subject to Regulation approved by RF Government Resolution No. 1178 dated 29 January 2011, the FAS Order No. 1346/15 dated 29 January 2015 amended the FTS Resolution No. 297-e/3 dated 09 January 2014 and approved revised tariffs for Federal Grid’s services of electricity transmission via UNEG for 2016–2019

Tariffs for Federal Grid’s services of electricity transmission over UNEG effective from 01.01.2011 to 30.06.2015, RUB/MW*month

Tariffs for Federal Grid’s services of electricity transmission via UNEG, adjusted and set by the FAS Order No. 1346/15 dated 29.12.2015 for 2016–2019, RUB/MW*month

Regulation of reliability and quality of services

Tariff regulation focusing on the maintenance of the rate of return based on certain long-term parameters implies that Federal Grid will assure the reliability and quality of rendered services as provided by the FTS of Russia.

Resolution of the RF Ministry of Energy No. 718 dated 14 October 2013 approved the new Methodical Guidelines for calculating reliability and quality level of goods supplied and services rendered for the UNEG administration company and the regional grid organisations.

The list contains parameters of electricity transmission reliability, which primarily characterises power system disturbances and their consequences for consumers, and quality of services provided to consumers, which mostly defines the promptness of implementation of technological connection commitments.

The FTS Resolution No. 254-e/1 dated 26 October 2010 approved the Methodical Guidelines for calculation and use of a reduction/multiplying factor maintaining the tariffs of entities that perform activities subject to regulation at the level assuring the reliability and quality of goods supplied and services rendered. In accordance with the above Methodic Guidelines, a reduction/multiplying factor of maximum 3% of the gross revenue requirement will be applied to Federal Grid’s revenue.

Tariffs for electricity transmission via distribution grid facilities

Federal Grid’s services of electricity transmission over distribution grids are rendered with the use of grid facilities constructed under the Federal Grid’s investment programme, including the facilities constructed for the XXII Winter Olympic Games and XI Winter Paralympic Games held in 2014 in Sochi by the state corporation Olimpstroy handed over to Federal Grid for free use pursuant to respective resolutions of the Russian Government.

^{1 By order of the Government of the Russian Federation dated 02.12.2013 No. 2243-r, the electric grid facilities of the state treasury constructed by SC Olympstroy were hand over to Federal Grid Company for the free use}

Resolution No. 82/2014-e of the Department of Prices and Tariffs of the Krasnodar Krai Regional Energy Commission (REC) dated 26 January 2014 and Resolution No.65/7 of the Primorsky Krai Tariff Department dated 26 January 2014 for the first time approved the tariffs for Federal Grid’s electricity transmission via grid facilities owned by the Company: Federal Grid’s gross revenue requirement for distribution grid facilities is set at RUB1,780.5 million for Krasnodar Krai and RUB33.2 million for Primorsky Krai in 2015.

Since 2016, tariffs for distribution electric grids of Federal Grid are set as long-term tariffs : the Regional Energy Commission – Department for Prices and Tariffs issued an Order No. ½-16-e dated 13 January 2016 “On Amending Certain Orders of the Regional Energy Commission – Department for Prices and Tariffs” that has set the following parameters for the period 2016–2018:

Tariffs for technological connection to UNEG

In accordance with paragraph 6 of the Guidelines on the calculation of fees for technological connection, approved by the Order of the FTS of Russia No. 209- e/1 dated 11 September 2012 (further – Methodical instructions), the legislation includes a procedure for setting a fee for technological connection to UNEG facilities in two ways:

• Approval by the FTS of Russia of the individual fee for a particular Applicant, if measures of capital nature are required that will be included in a fee for technological connection in accordance with the applicable law
• Approval by the FTS of Russia of a fee as a formula based on standard tariff rate R1, which is applied by Federal Grid independently to calculate fee, in case measures of capital nature for technological connection of an Applicant are not required

A standard tariff rate R1 for Federal Grid Company for 2015 was approved by the Resolution of the FAS of Russia No. 2387-e dated 23 December 2014 in the amount of RUB28.61 per kW (ex VAT), for 2016 – by the FAS Resolution No. 1377/15 dated 21 December 2015 in the amount of RUB25.16 per kW with a breakdown by events.

The Guidelines do not provide for differentiation of a standard rate C1 for 1 kW of connected capacity by a voltage level, connected capacity range, categorisation of power supply of Applicants, territories of the Russian Federation, except for consumers that connect less than 150 kW. In this case the rate R1 does not include the cost of Rostechnadzor inspections. The rate for such category of consumers is set at RUB24.64 per 1 kW for 2016.

Standard tariff rate C1 is set at a single level for consumers in all constituent units of the Russian Federation.

In accordance with amendments made to the Federal Law “On Electric Energy Industry” No. 35-FZ dated 26 March 2003 by the Federal Law No. 308-FZ dated 06 November 2013, starting from 6 December 2013, fee for technological connection of generation facilities to UNEG includes investment costs for development of the existing grid infrastructure to assure the delivery of generation capacity (irrespective of the type of generation – HPP, NPP or CHPP) in addition to the costs of new construction of “last mile” grid facilities.

In 2015, the fee for technological connection under individual designs was set for 11 consumers and totaled RUB22.3 billion (ex VAT).

The applicants with the largest fee are as follows:

• JSC Rosenergoatom Concern, Rostov NPP, Unit No. 3 – RUB7.6 billion
• JSC Rosenergoatom Concern, Beloyarskaya NPP- 2 – RUB 7.3 billion
• JSC DRSK – RUB4.6 billion
• JSC Fortum, Chelyabinskaya HPP – RUB1.1 billion

Execution of technological connection contracts in 2015 by connection type