Board of directors’ progress report
2.3.5

Description of tariff policy

Electricity transmission and technological connection to electric networks, subject to state regulation, are core business lines of IDGC of Urals (OAO). The Company delivers services related to the transmission of electric energy and technological connection to electric networks in three regions: the Perm, Chelyabinsk and Sverdlovsk regions. Statutory and regulatory enactments are disclosed in “References” Appendix (12) (13) (14) (42-49).

Electricity transmission tariffs

All Company branches use long-term tariff regulation methodology (RAB), with long-term regulation parameters approved till 2017 in consort with it. Permenergo branch operates under RAB since 2009, Chelyabenergo and Sverdlovenergo branches joined RAB tariffs since 2011. Basic principles of the RAB regulation system are: i) firms, subject to regulation, raise huge credit resources; ii) return on investments guaranteed; iii) reliability and quality of service are aligned with tariffs. The following regulatory instruments stipulate long-term regulation parameters of the Company’s branches: Permenergo branch (48) (50), Sverdlovenergo branch (47) (51), Chelyabenergo branch (46) (52) (53). The Decree (53) revised basic operating expenses for our Chelyabenergo branch downwards from RUB 2,831.71 thousand to RUB 2,705.69 thousand. This action was followed by our reconciliation statement filed with the Federal Tariff Service. After examination of the reconciliation statement the Federal Tariff Service issued the decree (54) ordering the regional regulator to conduct a supportive analysis of the basic operating expenses. The regulator revised basic operating expenses upwards for 2016 tariffs to RUB 2,831.71 thousand.

Uniform (“pie”) tariffs comprise expenses of all grid companies operating in the region to be annually prescribed for the next year during the long-term regulation period. Pursuant to existing tariff regulation laws, a gross revenue requirement is subject to annual fine-tuning, adjusted for changed real and target calculations, executed investment program and achieved indicators of service reliability and quality. Electricity transmission tariffs are adopted by regional executive instrumentalities, liable for tariff regulation, on relevant territories of the Company’s service area. Uniform (“pie”) electricity transmission tariffs to be enforced in 2016 were approved by the following tariff decisions of the relevant regional regulators: Permenergo branch (55) (56), Sverdlovenergo branch (57) and Chelyabenergo branch (58).

In the Perm region uniform (“pie”) electricity transmission tariffs to be enforced in 2016 for other customers exceeded the set tariff ceiling due to the size of Permenergo’s investment program. Pursuant to the Federal law (59) last-mile contracts were terminated since 2014, except for several Russian regions with prolonged last-mile contracts. The Chelyabinsk region is enlisted as a region with last-mile contracts prolonged till 01.07.2017 for those consumers that concluded electricity transmission contracts combined with last-mile facilities rental contracts, compliant with tariff decisions by 01.09.2013. A standalone HV-1 tariff, calculated as FSK fee plus cross-subsidy fee, was introduced for such consumers. The cross-subsidy fee (RUB/thousand kWh) in the Chelyabinsk region totals RUB 440.0 (01.01.2015-30.06.2015), RUB 290.4 (01.07.2015-30.06.2016) and RUB 145.2 (01.07.2016-30.06.2017).

The structure of the electricity transmission revenues collected from consumers in 2016 is presented in the chart:

Sverdlovenergo Permenergo Chelyabenergo IDGC of Urals LRPs RGOs ESCs Other consumers 87% 62.9% 53.0% 4.3% 60.9% 7.3 57.8% 2.1 6.8 23.8% 13.3% 42.7% 4.6 27.2% 33.3%
Note: The notion “Other consumers” is interpreted as consumers with direct electricity transmission contracts concluded with the grid company.
The key consumers of the Company’s electricity transmission services are last-resort providers or LRPs (57.8% of the total supply) and electricity sales companies or ESCs (33.3% of the total supply). The revenue structure of the Company’s branches is similar in consumer groups.

It should be noted that our Permenergo branch transmits a significant portion of electricity to other consumers with direct electricity transmission contracts, if compared to other branches (13.3% of the total supply of the branch). Our Chelyabenergo branch also has a distinctive feature – AES Invest (OOO), an electricity transmission consumer and the second holder of the regional tariff “pie” (7.3% of the total supply of the branch). Our Sverdlovenergo branch transmits a considerable portion of electricity to electricity sales companies (42.7% of the total supply of the branch), since plenty of consumers purchase electricity from the wholesale electricity market through independent sales companies.

Analysis of revisions of the average electricity transmission tariff* for each branch (adjusted for net supply on generator voltage level), RUB/ kWh

2012 2013 2014 2015 2016
Permenergo 0.842 0.929 0.952 1.056 1.169
Sverdlovenergo 0.871 0.936 1.029 1.079 1,155
Chelyabenergo** 0.661 0.719 0.982 0.990 1.086
IDGC of URALS (OAO) 0.796 0.872 0.996 1.049 1.139
Rise, % 0.8% 9.6% 14.2% 5.4% 8.6%
* average tariff is calculated in line with decisions of the regulatory bodies
** within the boundaries of Chelyabenergo’s tariff “pie”

Analysis of average 2016 electricity transmission tariff progression shows that:

  • 10.7% hike of the Permenergo’s average tariff resulted from 12.0% boost of the “pie” gross revenue requirement (which also includes excess of set tariff ceiling) and 1.1% increase of the “pie” net supply;
  • 7.0% uplift of the Sverdlovenergo’s average tariff was impacted by 0.7% cut of the “pie” net supply and 6.2% rise of the “pie” gross revenue requirement;
  • 9.7% increase of the Chelyabenergo’s average tariff was influenced by 13.3% boost of the “pie” gross revenue requirement (which also includes recovery of RUB 1,926 million “smoothing” factored in 2016 tariff decisions) and 3.2% uplift of the “pie” net supply.

Movements of the gross revenue requirement for electricity transmission services for each branch are presented in the figure below (RUB million):

Branch 2012 2013 2014 2015 2016
total Own needs total Own needs total Own needs total Own needs total Own needs
Permenergo 14,237 4,884 15,724 5,533 15,303 5,967 15,740 6,467 17,627 7,338
Sverdlovenergo 28,561 7,882 30,124 8,309 28,877 8,162 30,183 8,065 32,069 9,064
Chelyabenergo 15,986 6,516 14,204 4,632 16,235 5,695 15,726 5,506 17,811 7,153
IDGC of Urals 58,784 19,282 60,052 18,474 60,415 19,824 61,649 20,038 67,507 23,555
Rise, % 5.8% 20.5% 2.2% -4.2% 0.6% 7.3% 2.0% 1.1% 9.5% 17.6%

Key factors that changed the “pie” gross revenue requirement in 2016 are:

Permenergo branch
12.0% boost of the “pie” GRR (RUB 1,887 million)
  • 11.7% (or RUB 280 million) increase of the payments to other grid operators, impacted by grown individual tariffs of the regional grid operators and absence of the GRR-smoothing instrument, since these firms operate under the long-term GRR indexation methodology.
  • 9.1% (or RUB 268.7 million) rise of the payments to FSK, affected by indexation of FSK electricity transmission tariffs.
  • 11.9% (or RUB 466.9 million) hike of the loss compensation expenses, influenced by 12.1% boost of the loss compensation prices. The gross revenue requirement for own needs of the branch grew 13.5% (or RUB 871.3 million), negative “smoothing”, applied by the regulator, amounting to RUB 438 million.
Sverdlovenergo branch
6.2% rise of the “pie” GRR (RUB 1,886 million)
  • 6.7% (or RUB 721.5 million) increase of the payments to other grid operators, impacted by grown individual tariffs of the regional grid operators and absence of the GRR-smoothing instrument, since these firms operate under the long-term GRR indexation methodology.
  • 3.0% (or RUB 229.8 million) rise of the payments to FSK, affected by indexation of FSK electricity transmission tariffs (in terms of use-of-system charges). The regulator recognized 21.3% decrease of the target loss compensation tariff due to actual data.
  • The regulator recognized 1.7% (or RUB 63 million) decrease of the loss compensation expenses in the tariff decision, influenced by 5.7% (or 108 million kWh) lowering of the normative losses due to implementation of the energy-saving and enhanced efficiency program of the branch in loss recognition process.

The gross revenue requirement for own needs of the branch grew 12.4% (or RUB 998.2 million), negative “smoothing”, applied by the regulator, amounting to RUB 307.4 million.

Chelyabenergo branch
13.3% boost of the “pie” GRR (RUB 2,085 million)
  • 13.9% (or RUB 194.3 million) increase of the payments to other grid operators, impacted by grown individual tariffs of the regional grid operators and absence of the GRR-smoothing instrument, since these firms operate under the long-term GRR indexation methodology.
  • 0.9% (or RUB 55.2 million) rise of the payments to FSK, affected by indexation of FSK electricity transmission tariffs (in terms of use-of-system charges). The regulator recognized 28.8% decrease of the target loss compensation tariff due to actual data.
  • 6.4% (or RUB 189.3 million) increase of the loss compensation expenses, influenced by 11.0% boost of the loss compensation prices.

The gross revenue requirement for own needs of the branch grew 29.9% (or RUB 1,646.6 million), negative “smoothing”, applied by the regulator, amounting to RUB 1,926.2 million.

The breakdown of the changes of the gross revenue requirement (in terms of electricity transmission) is presented by the chart.

2012 2013 2014 2015 2016 19,282 16,815 10,059 12,628 18,474 19,824 20,038 23,555 17,204 16,758 10,661 10,341 13,713 13,492 16,498 17,051 10,627 14,486 11,219 15,682 RUB million +8% +6% +3% +18% 67,507 61,649 60,415 60,052 58,784 RGOs Losses FSK GRR for own needs

Technological connection fee

Pursuant to the 2016 Guidelines (60) to be enforced by the Company’s branches, the regulators of the Perm, Sverdlovsk and Chelyabinsk regions have set the standardized tariff rates, as stated by Chapter IV of the Guidelines, maximum capacity unit rates, as stated by Appendix No.2 of the Guidelines, calculated in a manner stated by Chapter III of the Guidelines, and connection fee formulas.

The regulators have set a RUB 550.0 (plus VAT) connection fee for all Company’s branches to be applied to filers, requesting connection of grid equipment with capacity of 0-15 kW inclusive (incl. previously connected capacity at the point), when facilities, referred to the 3rd reliability category (from one source of electricity supply), are connected, provided that the distance between the boundaries of a filer’s land plot and Company’s facilities at 20 kV inclusive does not exceed 300 m in urban areas (cities and small towns) and 500 m in rural areas.

Permenergo branch:

The decree (61) has approved:

  • С1 standardized tariff rate, fractioned into activities from clause 16 (except subclauses b and c) of the Guidelines;
  • С2 standardized tariff rate (construction of aerial power lines), С3 standardized tariff rate (construction of cable power lines) and С4 standardized tariff rate (construction of substations of various types), differentiated by voltage class, wire section and equipment type;
  • Connection fee (for maximum capacity unit), fractioned into “last-mile” activities (construction of aerial and cable power lines, sectionalization units, transformers) and differentiated by voltage class;
  • connection fee formulas.

Sverdlovenergo branch:

The decree (62) has approved:

  • С1 standardized tariff rate, fractioned into activities from clause 16 (except subclauses b and c) of the Guidelines and differentiated by voltage class and maximum capacity;
  • maximum capacity unit rates, fractioned into “last-mile” activities (construction of aerial and cable power lines) and differentiated by voltage class.

The decree (63) has approved:

  • standardized tariff rates to reimburse expenses incurred by grid companies operating in the Sverdlovsk region: С2 (construction of aerial power lines), С3 (construction of cable power lines) and С4 (construction of substations of various types) to be differentiated by voltage class, wire tagging, wire section and category, pole types, laying method and equipment type;
  • connection fee formulas.

Chelyabenergo branch:

The decree (64) has approved:

  • С1 standardized tariff rate, fractioned into activities from clause 16 (except subclauses b and c) of the Guidelines;
  • С2, С3 and С4 standardized tariff rates to be differentiated by voltage class, wire tagging, wire section and laying, type of poles and equipment;
  • maximum capacity unit rates, used to calculate connection fee and differentiated by voltage class and maximum capacity;
  • connection fee formulas.

he regulator also establishes an individual fee for technological connection to United National (All-Russia) Electric Networks to be applied to a filer, should the need to perform activities stated in Appendix No.1 of the Guidelines, arise.

Average standardized tariff rates of the branches, enforced during the reported period, are presented in the figure below:

Type of a standardized tariff rate Permenergo Sverdlovenergo Chelyabenergo
С1 standardized tariff rate, RUB./kW (net of VAT)1 626.98 670.12 380.90
С1.1 – Preparation and release of specifications to a filer by a grid company, RUB/kW 184.71 215.88 128.00
С1.2 – Oversight of filer’s compliance with the specifications by a grid company, RUB/kW 47.35 126.72 103.99
С1.3 – Participation of a grid company in inspection of a to-be-connected equipment, performed by a federal official from the state energy supervision authority, RUB/kW 10.08 3.97 1.48
С1.4 – connection of a filer’s facilities to the networks by a grid company and setting of the switcher in “ON” position, RUB/kW 384.84 323.55 147.43
С2 – rate to reimburse expenses incurred by a grid company to construct aerial power lines, RUB/ km2 371,734.67 298,497.36 179,201.93
С3 – rate to reimburse expenses incurred by a grid company to construct cable power lines, RUB/ km 825,010.45 1,420,920.21 2,238,087.62
С4 – rate to reimburse expenses incurred by a grid company to construct substations, RUB/kW 2,889.55 2,023.65 1,474.99

A low С1 aggregate tariff rate in our Chelyabenergo branch is driven by the fact that requests with large max capacity and small arrangement costs predominate in the structure of requests, used for fee calculation. С2 standardized tariff rate is approved to be differentiated by voltage class (0.4 and 6-10 kV), wire section and tagging (AC, SIW) for our Permenergo branch; by voltage class (0.4 and 6-10 kV), wire section and category (1&2 circuits), pole types (wooden poles with reinforced concrete beams and reinforced poles) for our Sverdlovenergo branch and by voltage class (0.4 and 6-10 kV), wire section and tagging (AC, SIW) for our Chelyabenergo branch.

С3 standardized tariff rate is approved to be differentiated by voltage class (0.4 and 6-10 kV), wire section and tagging (AVBbShV, SPE), laying method (new or existing wire ducts) for our Permenergo branch; by voltage class (0.4, 6-10 and 20 kV), wire section and category (1&2 circuits), wire tagging (AVBbShv, APvBbShv, VBbShv, PvBbShv, AABl, APvPg, PvPg), laying method (duct trench and directional drilling) for our Sverdlovenergo branch; by voltage class (0.4 and 6-10 kV), wire section and category (1&2 circuits), cable core (aluminum or copper conductor), laying method (duct trench and motorway/railway crossover) for our Chelyabenergo branch.

С4 standardized tariff rate is approved to be differentiated by transformer type (TP, KTP, 2KTP, sandwich-type KTP, sandwich-type 2KTP, 2BKTP, no-TM BKRP), transformer power for our Permenergo branch; by voltage class (10(6)/0.4 kV and 20/10(6)/0.4 kV), transformer type (TP, KTP, 2KTP, KTP-TV, KTP-PV, KTP-B, BKTP, 2BKTP, 3BKTP, BKRP, 4BKRP, 5BKRP, MTP), transformer power and bays for our Sverdlovenergo branch; by substation type (kiosk-type, pole-mounted, box-type, unit-type), transformer power for our Chelyabenergo branch.

Besides, we also obtained approvals of the following rates: recloser construction rates (Permenergo and Sverdlovenergo branches), sectionalization unit construction rates (Sverdlovenergo branch) and 110 kV substation construction rates (Chelyabenergo branch).

The figure below presents shortfall of revenues and economically justified charge for 2016.

Permenergo Sverdlovenergo Chelyabenergo
Shortfall in revenues, RUB thousand 115,133.26 70,789.39 77,071.7

Average maximum capacity unit rates in 2014-2016:

4,5004,0003 5003,0002,5002 0001,5001,000500 0 2014 2015 2016 3,384 3,458 3,838 11.0% RUB/kW 2.2%

The chart shows how Company’s average capacity unit rates changed for the period. It shows common trends of increased maximum capacity unit connection prices, fueled by the outstripping growth of connection expenses over connected capacity growth.

Analysis of the connection contracts 3, executed in 2016, shows that 87% of the executed contracts in our Permenergo branch used standardized tariff rates, with 8% of contracts using maximum capacity unit rates. Sverdlovenergo and Chelyabenergo branches actively used standardized tariff rates (42 and 32% respectively) and maximum capacity unit rates (55 and 48% respectively). Besides, our Chelyabenergo branch had a considerable portion of contracts using individual rates.

Distribution of types of connection fees chosen by filers with contracts executed in 2016 is presented in the chart:

Capacity unitrates Standardized rates Individual rates 55% 42% 3 Sverdlovenergo 87% Permenergo Chelyabenergo IDGC of Urals 40% 48% 12 48% 32% 19 8 6
ЦЕНТР ЗАГРУЗКИ
Здесь вы можете скачать полный отчет 2016, отдельные главы в формате PDF и наиболее важные таблицы в формате Excel.
1About company
1.1Mission and strategic goals
1.2Market share
1.3Key 2016 events
2Board of directors’ progress report
2.1Letter to stockholders
2.2Production capital formation
2.2.1Network exploitation
2.2.2Electricity transmission
2.2.3Technological connection
2.2.4Development of telecommunications and IT systems
2.2.5Investments
2.2.6Innovations
2.2.7Efficacy enhancement
2.3Financial capital formation
2.3.1Analysis of revenues and expenses
2.3.2Analysis of financial standing
2.3.3Analysis of receivables and payables
2.3.4Analysis of credit portfolio
2.3.5Description of tariff policy
3Corporate governance
3.1Corporate governance practices
3.2Corporate governance system
3.2.1General meeting of stockholders
3.2.2Board of Directors
3.2.3Board of directors’ committees
3.2.4General director and executive board
3.2.5Remuneration and compensation policy
3.3Oversight system
3.3.1Board of internal auditors
3.3.2Independent auditor
3.3.3Internal control
3.3.4Risk management
3.3.5Security and anti-corruption
3.4Investor and stockholder relations
3.4.1Shareholder capital structure
3.4.2 Shareholder rights
3.4.3The company and stock market
3.4.4Communications with market participants
3.4.5FAQ
3.4.6Allocation of profit
4Stakeholder
4.1Human resources management
4.2Customer support
4.3Supplier relationship management
4.4Public and goverment relations
4.5Environment protection
5Appendices
5.1Prepared under Russian accounting standards
5.2Prepared under international financial reporting standards
5.3Related-party transaction report
5.4Corporate governance code compliance report
5.5References
5.6Abbreviations and acronyms