Factors in influence descending order State tariff regulation system Power consumption history Adoption of Federal Law No.261-FZ On Energy Conservation, Higher Energy Efficiency... of 23 November 2009 Current status of the industry
Description Power transmission and technological connection are publicly regulated types of business. Approval of the Company’s service fees by supervisory authorities has a direct impact on the volume of its proceeds. Change of power consumption amounts directly influences the state of the industry Adoption of the energy efficiency law will result in a considerable mid-term and long-term reduction of power consumption. The situation throughout the industry has a direct impact on any and all activities of the Company
Current status The Government of the Russian Federation currently pursues a policy providing for control over any rise in tariffs applicable to the products and services of natural monopolies. Tariffs below an economically feasible level will result in a shortfall in current business and the Company’s investment program funding. In 2011, power consumption in general throughout Russia totaled 1,021.1 bn kWh, thus being 1.2% and 5.5% higher than in 2009 and 2010 accordingly. Power consumption in the territory of the Company operation in 2011 is 1.3% higher as compared to 2010. This resulted from the improved economic environment in the country upon termination of the world economic crisis, and accordingly increased power consumption by major users (as well as increased volumes of technological connections to power grids). According to the Ministry for Economic Development and Trade and Minenergo of Russia, the country will experience power consumption increases equal to 1–2%. According to various experts reduction of power consumption in the long-term will equal 10% on a country scale Material depreciation of fixed assets (is equal to 60% according to some estimates. An acute shortage of investments throughout the industry. The problem of default in payments. An inefficient tariff policy is pursued, resulting both in the downward bias of financial performance (cost-plus pricing) and in real losses incurred by certain companies.
Measures aimed at mitigating consequences (subject to the availability of the respective capabilities) 1. Cooperation of the Company, the Federal Tariffs Service and bodies regulating tariffs in the RF subjects in order to introduce amendments into the RF legislation in the sphere of pricing for services of natural monopolies in order to account for interests of distribution grid companies while setting tariffs for electric power at retail market.
2. Economic justification of costs included into tariffs, including for adding the shortfall in income for the previous periods.
3. Working out and agreement with the local authorities (signing agreements) of long-term development programs for the regions in which the Company branches operate.
4. Reduction of costs and investment program optimization
The Company undertakes package of measures aimed at diversifying the set of services for compensation of decrease in power consumption in the mid-term. In particular, Open Joint Stock Company “Energy Service Company”, a wholly owned subsidiary of the Company, was established in 2011; its main task is rendering services in the sphere of energy and power supply efficiency. 1. Integration of regional and municipal grid assets
2. Diversification of the Company’s business in terms of the scope of services rendered, with subsequent access to the market of services related to energy efficiency and conservation.
Introduction of RAB-based tariff regulation system. Implementing a cost management system and up-to-date tools for the Company management, the automation of key functions, in order to increase the efficiency of managerial decisions.