Q&A

Судакова Татьяна Геннадьевна
Tatiana G. Sudakova
Мещеряков Илья Георгиевич
Ilya G. Meshcheryakov
Зыков Андрей Владимирович
Andrey V. Zykov

Deputy Director General on economy and finance

How do you estimate results of the tariff campaign of 2012 (tariffs for 2013) and 2013 (tariffs for 2014)?

— Results of tariff regulation in electric power transmission for 2013 and 2014 can be estimated positively. Individual conditions on a growth level of the joint-operations tariff for electricity transmission which exceeded the national average level were set for JSC Lenenergo in the implementation of its significant investment programs.

The basic indicator for estimation of results of the tariff regulation for JSC Lenenergo is a growth of own required gross revenue (excluding expenses on payment of losses in own networks, services on electric power transmission in UNEG networks and third-party grid companies). By results of tariff regulation own required gross revenue of JSC Lenenergo in 2013 increased by 37.1% concerning tariff and balance decisions of 2012. The growth of 20.3% is expected in 2014.

How can you characterize the forecasted long-term tariff projection for JSC Lenenergo within the general
policy of the Government of the Russian Federation on reduction of growth rates for electricity tariffs?

— According to the forecasts of social and economic development of Russia for 2013, 2014–2016 developed by the Ministry of Economic Development of Russia and approved during meetings of the Government of Russia, the growth level of a joint-operations tariff for electric power transmission from July 1, 2013 should not exceed 10%, from July 1, 2014 – 0%, from July 1, 2015 – 4.5%, and from July 1, 2016 – 5%.

However, for the servicing regions of JSC Lenenergo, St. Petersburg and the Leningrad Region, this document provided a possibility of excess of the set limits on the growth level of tariffs for creation of required sources of financing the large-scale investment programs.

For implementation of the program of liquidation of accumulated obligations towards the region’s consumers, including preferential categories of customers and reliability increase of the power grid complex of the regions of service in 2012–2013 JSC Lenenergo jointly with administrations of the regions developed the investment program for 2014–2019. Before approval of the investment program by regional regulators the level of a joint-operations tariff for electric power transmission in 2013–2014 was set just for the planned year based on the level of interests of consumers and the producer of electricity transmission services. A tariff projection for subsequent years was not restated.

Upon approval of the investment program for 2014–2019 by the Ministry of Power Industry of Russia applications will be submitted to the Federal Tariff Service to prolong extension of the long-term period of regulation for JSC Lenenergo and formation of the tariff projection up to 2019 for creation of funding sources for the investment program and decrease in tariff load of electric power consumers. Annual growth level of electricity transmission tariff provided by tariff projections for consumer of the category “Other” would not exceed 12.5% in St. Petersburg, and 13.5% in the Leningrad Region.

Why net loss on electric power transmission was generated? When does the Company plan
to generate positive net income from electricity transmission services?

— The main reasons for net loss formation on electric power transmission on the both subjects of service of JSC Lenenergo are negative smoothing applied by a regional regulator in compliance with the methodology of RAB regulation, lost income formed as a result of selection by consumers of an applied tariff (single rate and double rate), excess of amortization over the size of accrued return on invested capital due to the excess of the term of return on capital (35 years) over the actual term of amortization of fixed assets (on average 25 years).

According to the RAB regulation methodology, for leveling of the annual growth level of electricity transmission tariffs a mechanism of adjustment of required gross revenue (RGR) or smoothing is used. In 2011–2013 due to some restrictions on the growth level of the joint-operations tariff set forth by the Government of the Russian Federation, RGR of JSC Lenenergo was essentially underestimated, and negative smoothing which is compensated before the end of the first regulation period (2019) in full with a discounting factor was applied.

Lost income upon the consumer’s selection of the type of applicable tariffs are generated due to the accepted methodology for calculating tariff rates, which does not provide applying of different rates for settlements with consumers. Lost income is compensated by the regional regulator on the next year of the regulation period upon confirmation.

According to the approved business plan for 2014–2018, a positive financial result on electric power transmission will be achieved in 2017–2018.

How do you estimate forecasted dynamics of payments for technological connection services?
How stable is this type of income?
How was the Company’s income affected by decrease in rates for technological connection after
exception from the tariff of an investment component?

— In 2014–2019 JSC Lenenergo forecasts a gradual decrease in payments for technological connection. It is associated with implementation of the plan of liquidation of accumulated obligations towards consumers by 2017 and changes in legislation in the field of payment rates regulation – decrease in the size of the investment component and exception of profit tax from the structure of payment for technological connection.

Pursuant to the legislation of the Russian Federation in the field of tariff regulation since 2011 expenses on construction of power grid facilities have been included in the structure of payment for technological connection – from existing power grid facilities to connected power accepting devices (the investment component to cover expenses connected with development of existing infrastructure is considered at tariff-setting for electricity transmission services), and since 2013 the payment for a specific applicant includes expenses only on those actions of “last mile” which are provided by specifications of the contract on technological connection. Therefore in 2013 proceeds under contracts without the actions of “last mile” dropped by RUB 1.1 bn in comparison with 2012.

Besides, the planned stage-by-stage exception from payment of the investment component for applicants up to 150 kW since 01.07.2015 by 50% and since 01.07.2017 by 100% will also reduce money cash flow and the Company’s revenue roughly on RUB 1 bn (upon approval of economically reasonable payment rates for this group of applicants).

Despite the lack of essential growth rates in domestic economy in previous years, stable demand for services on technological connections of applicants is observed in St. Petersburg and the Leningrad Region. However, a decisive impact on the cash flow and generation of revenue from technological connection has large applicants with the volume connected capacity of more than 8,900 kW.

Drop in payments for technological connection will entail replacement of one type of attracted source of investment projects financing (advances on technological connection) on another – borrowings generated in the tariff projections for electricity transmission.

How can you characterize the current financial state of the Company?

— While working in difficult conditions of uncertainty on the financial markets, and economic instability in the country, JSC Lenenergo annually generates net profit, successfully implements the large-scale investment program in both regions of its presence and retains its solvency.

The current financial state of JSC Lenenergo can be estimated as stable. The level of debt does not exceed the established maximum allowable values (Debt/EBITDA < 3), and execution of all maximum limits of the debt position established pursuant to the Regulations on credit policy of the Company is ensured.

Attraction by the Company of considerable volumes of credit resources for implementation of its large-scale investment program, including in the form of public loans, confirms the credibility of JSC Lenenergo on the part of the banking community.

Evidence of investment appeal of the Company is confirmation of the Company’s credit rating in February, 2014 by the international rating agency Moody’s at Ba2 on the international scale and Aa2.ru on the national scale with stable outlook.

What are the main features of the long-term business plan of the Company?

— The long-term business plan of JSC Lenenergo is characterized by a growth tendency both of the volumes of rendered services – by 2018 a growth of productive supply will constitute 6.6% to the level of 2013, and received proceeds from activity on electric power transmission: increase in revenue in 2018 in 2.1 times to the level of 2013. The main reason for revenue growth in 2014–2018 is compensation in the long-term tariff projection of reduction of required gross revenue (smoothing) in the first years of the period of regulation used by the regulator.

Revenue form technological connection of applicants by our estimates will decrease in 2018 in comparison with 2013 almost in 1.5 times. Execution of accumulated obligations towards applicants will enable to lower the debt on advances received from applicants on technological connection to the level of 2013 in 3.3 times and improve financial performance, including the indicator of liquidity.

The business plan of JSC Lenenergo for 2014–2018 provides financing of the investment program in the volume of RUB 159 bn (including VAT) with attraction of debt funds for capital construction in the sum of RUB 73 bn (45.9% of required sources for financing of investments).

JSC Lenenergo plans to implement the program of performance increase, including cost management in 2014–2018, and to reduce controllable costs per one unit by 2018 in comparison with 2012 by 21%.

What caused the growth of debt load? What debt level is acceptable for the Company?

— Growth of debt load of JSC Lenenergo is caused by implementation of the considerable investment program.

The methodology of RAB regulation of electricity transmission tariffs determines long-term debt funds as the main funding source of the investment program. Means for financing of investment activity in a tariff projection are formed generally by attraction of debt funds and it return at the expense of charged income and return on invested capital pursuant to the established standards. Debt load is determined in the business plan of the Company for 2014–2018 at a level no more than 3 under condition of providing a ratio Debt/EBITDA.

Besides, JSC Lenenergo constantly estimates compliance of the level current and forecasted debt to the restrictions set forth by the standard of a debt position management to subsidiaries of JSC Rosseti and the Regulations on credit policy of JSC Lenenergo – to the limits of debt position, and if necessary implements corrective actions.

At the expense of what sources the Company plans to finance its large-scale investment program?

— Sources of financing of the investment program of JSC Lenenergo for 2014–2019 are debt funds, amortization, advances on technological connection, additional issue of securities, funds received from applicants at performance of obligations under technological connection contracts, net profit, and funds of the federal budget.

The major share of the funding sources is borrowed funds (over 40% of the general financing of the investment program) which is caused by application of RAB regulation of tariffs for electric power transmission. Amortization is used as a source of financing in the volume corresponding to return invested capital accrued in a long-term tariff projection. No less significant source of financing is the payment for  technological connection of applicants (more than 10% from total amount of financing of the investment program).

Net income from activities on electric power transmission is generated only in the last year of a regulation period. It is caused by specifics of RAB regulation. Net income on electric power transmission is generated in JSC Lenenergo since 2017 and directed first of all on repayment of operational credits. It is expected that yet in 2019 it will be used for financing of investments.

The funds of shareholders received by results of placement of additional issue of securities of JSC Lenenergo are a target source of financing of the renovation program of cable lines 6–110 kV. To execute obligations in St. Petersburg on creation of power grid infrastructure for holding of FIFA World Cup in 2018 it is planned to receive a target source of financing from the federal budget of Russia.

What are the Company’s plans concerning public loans?

— For the beginning of 2014 there are corporate bonds of a series 04 in the total volume of RUB 3 bn and the life of 5 years (term of offer is 3 years) and exchange bonds of a series BO-01 in the volume of 3 mln pcs with total par value of RUB 3 bn.

According to the business plan of the Company for 2014–2018 within the prospectus of securities registered in 2013 on exchange bonds, placement of two issues of bonds with the total par value of RUB 10 bn in 2014 and two issues of bonds with the total par value of RUB 10 bn in 2015 is planned.

What measures are taken in order to improve internal efficiency?
What are results of the program of reduction of operating costs?

— To increase internal operational efficiency the Program of efficiency management is being implemented in the Company. The effect from implementation of the program regarding operating costs for 2013 totaled RUB 952 mln, for 2014–2018 the effect is planned at a rate of RUB 3,466 mln.

The effect is planned to reach at the expense of the following actions held by the Company:

  • optimization of the number of employees of the management office for 5%;
  • reduction of the cost of procurements due to carrying out the regulated procedures;
  • optimization of the production program: replacement of flat normal relay of voltage transformers, installation of reclosers for segmenting OTL 6–10 kV;
  • decrease in general and other expenses: rent, cleaning, training, mobile communication;
  • implementation of the Program of energy saving and increase of power efficiency, including decrease in electric power losses and reduction of consumption of electric power for business needs.

Implementation of the management efficiency program enables to successfully realize the development strategy of the power grid complex of the Russian Federation in the Company in part of “decrease in operating costs by 15% by 2017 taking into account inflation level concerning 2012 per unit of service of the power technical equipment” approved by the Government of the Russian Federation.

What is in your opinion a key achievement of the Company for 2013?

— In 2013 the indicator of EBITDA characterizing a cash flow generated by the Company before payment of taxes and interest grew, EBITDA margin increased as well.

Despite the growth of the Company’s credit portfolio, a ratio of Debt/EBITDA for the end of 2013 constituted 2.96 and corresponds to the standard (3), and the Company managed to keep its financial independence at a rather high level: the share of own capital in balance currency as of 31.12.2013 was 51.4%.

In April 2013 of JSC Lenenergo placed the first issue of exchange bonds BO-01 of 3 mln pcs with a total par value of RUB 3 bn with a coupon rate of 8.25%. in June 2013 there was registered the securities prospectus on the four issues of exchange bonds of series BO-02, BO-03, BO-04 and BO-05 with a total par value of RUB 20 bn. In 2013 loans with the highest rates in the credit portfolio of the Company were refinanced, including the credit of VEB in the amount of RUB 4.7 bn with a floating rate (a single loan with established financial covenants). The specified refinancing enabled to reduce the average rate of the credit portfolio from 8.3% to 8.2%.

In February 2014 the Moody’s rating agency confirmed the credit rating of the Company at Ba2 with stable outlook, and retained the rating
on a national scale at Aa2.Ru. For 2009–2014 the rating agency repeatedly confirmed the Company’s rating, which was assigned in November 2009.

What are the plans for 2014?

— JSC Lenenergo submitted an application to the regional regulators of both subjects about extension of the first long-term period of regulation till 2019 that will enable to create guaranteed sources for financing of the investment program of the Company at a minimum level of tariff load for customers.

JSC Lenenergo plans to proceed with further increase in economic efficiency and ensuring financial stability. JSC Lenenergo plans to get net income at a rate of RUB 2.8 bn that will exceed the level of 2013 in 6.5 times, and revenue will reach RUB 48.2 bn that is above the level of last year by 20.8%.

A special attention will be given to cutting costs; the Company will proceed with implementation of the program of efficiency management. It is planned to optimize the credit portfolio, to expand public loans by means of placement of the registered exchange bonds (placement of two bond issues with a total par value of RUB 10 bn) that will enable to diversify sources of financing and will positively influence the Company’s image in the business environment.

Deputy Director General on investments

What caused the need for the Company to implement the large-scale investment program?

— Three main factors that determine the necessity of the investment program are:

  • high volume of accumulated contractual obligations on technological connection towards subscribers, including the preferential category which have been accumulated since 2002;
  • high rates of social and economic development of St. Petersburg and the Leningrad Region, formation of the increased demand for power supply;
  • high depreciation level and the need to update the electric grid equipment to ensure reliable power supply of consumers in St. Petersburg and the Leningrad Region.
What are the key objectives of the program? What tasks should be solved?

— Main objectives of the program are:

  • providing reliable and uninterrupted power supply of customers;
  • ensuring non-discriminatory access to electric networks of customers;
  • ensuring sustainable economic growth in regions of presence.

Long-term program is aimed at achieving the following main objectives:

  • decrease in the depreciation level of fixed assets;
  • reducing losses in electricity transmission;
  • execution of accumulated obligations, transition to the execution of technological connection contracts in the current conditions;
  • opening of the closed power centers;
  • construction and reconstruction of the objects directed on power supply of investment projects which support regions’ development.
What are the terms of return on investment?

— As the sources of financing of the program are formed on two types of activity (electric power transmission and technological connections of applicants), and payback periods of investments are formed in two directions.

For the program activities aimed at technological connection of customers a payback period of investments as a rule corresponds to the term of the facility construction, and for the activities aimed at improving reliability of power supply, make up depending on the specific structure of the investment project from 10 years up to the end of operation of the facility.

How is the efficiency of the Company’s investment activity assessed? What indicators are used?

— Efficiency of investment activity is defined according to an assessment of execution of key performance indicators (KPI) of the approved program.

The major KPI of the Company’s investment activity is timely and complete implementation of planned indicators of the investment program on development of capital investments, financing and commissioning of capacities (transformer capacity, MVA, and power lines, km).

Besides, decrease in specific cost indexes of construction and execution of network schedules of investment projects implementation is a strategic goal.

What is a depreciation level of the Company’s fixed assets?
How does execution of the investment program influence a decrease in the level of depreciation?

— The depreciation level of the Company’s fixed assets is 62.3%, including across St. Petersburg – 62.0%, across the Leningrad Region – 65.0%.

Bye results of the long-term program 2014–2019 a decline across the Company – 52.0%, including over St. Petersburg – 49.0%, and across the Leningrad Region – 54.0% will be achieved. In absolute terms this is equivalent to reduction of 10.3% for the entire Company and, accordingly, 13.0% and 11.0% across the subjects.

What is a dynamics of unit cost of construction of the facilities?

— Since 2012 the Company has been conducting control over construction cost on specific indicators. The specific indicator is considered upon commissioning in fixed assets and is deduced on a voltage class and types of works, namely per 1 km and per 1 MVA. Control over specific indicators is conducted only regarding new construction and expansion.

In comparison with 2011 the specific indicator has decreased. For 2012 the construction cost dropped by 12% on the average concerning 2011, taking into account inflation (in 2012, according to the Ministry of economic development, the index deflator equaled to 1.075), and there was a drop of 19.5%.

During determination of the budget cost of construction the Company applies “a technique – 10%” and “a technique – 30%” at application of which the smallest cost is selected and put up for procurement procedures. The application of techniques also promotes to reduction of construction cost.

By 2016 the peak of the cost reduction of construction is expected concerning 2012 according to the Strategy of development of the power grid complex of the Russian Federation approved by the Order of the Government of the Russian Federation # 511-R of 03.04.2013.

What measures ensure the most effective work with contractors?

— Requirements to contract organizations are toughened at carrying out competitive procedures on the right of the conclusion of frame contracts regarding financial, material and staffing; the concept of a safe deposit, money brought in by a contract organization to ensure implementation of obligations, is entered; work on cancellation of contracts delayed because of contract organizations is conducted.

Besides the current meetings with contract organizations, regular (once per quarter) general meetings of contract organizations are held during which the results of work for the last period, completeness of implementation of the declared plans, default reasons etc. Are considered. Permanent job with city structures on simplification and acceleration of obtaining initial permit documentation and carrying out coordination is conducted.

What can be identified in your opinion as a key achievement of the Company for 2013?

— A change of approach to formation of the investment program – focus on execution of contractual obligations on technological connection towards customers, including a preferential category of customers, which have been accumulated since 2002 and provision of reliable power supply of consumers.

In 2013 by results of a system work on decrease in the accumulated obligations on technological connection parameters in this direction exceeded the level of 2012 in 1.3 times.

The plan on capitalization is ahead of schedule for 2013 in the whole investment program in 1.5 times, the plan of input of power lines is ahead of schedule
in 2.6 times, transformer capacity was commissioned in the full volume.

There were commissioned 6 lines under to the program of Renovation of cable lines 6–110 kV for the total length of 57.2 km which was financed with attraction of federal funds. In 2013 the draft of the investment program was published on the available information source with a view of receiving feedback, drawing attention of business communities, a wide range of public organizations and other interested persons to the investment program.

On the initiative of JSC Lenenergo open hearings on the basis of the public expert advisory boards under regional regulators, and open hearings with participation of the Ministry of Power Industry and the Advisory council of the Government of the Russian Federation were held. Positive feedback by results of the open hearings became the evidence of the quality and relevance of the activities of the investment program.

What are the key and priority projects of 2014?

— The basic direction of the investment program in 2014 is execution of obligations on technological connection, including towards a preferential category of consumers of St. Petersburg and the Leningrad Region, pursuant to the concept of execution of the accumulated obligations on technological connection approved by the Board of Directors of the Company.

The planned volume of input into fixed assets in this direction for 2014 is 821 MVA, 1,887 km, 24 thousand contracts. Financing of facilities will amount to RUB 12.1 bn that in 2–2.5 times more than during the previous periods.

Besides, the following areas of work should be noted:

In St. Petersburg:

  • renovation of cable lines 6–110 kV (1st and 2nd stage) for increase of reliability of power supply of consumers and decrease in environmental risks from the use of oil-filled cable lines 35–110 kV;
  • complex development of electric networks of the Petrograd district of St. Petersburg to ensure development of the grid, creation of reserve capacities on a forecasted demand taking into account perspective investment projects of the city and increase of environmental safety of the downtown of St. Petersburg;
  • construction of cable lines 110 kV Krestovskaya – Vasileostrovskaya to secure the holding of FIFA World Cup in 2018.

In the Leningrad Region:

  • a new distribution substation 110 kV with OTL 110 kV for connection of new substations 110 kV of Kamennogorsk-tyagovaya, 12 km, 29 km, 46 km of FSUE Unified Group of Customer of the Federal Agency of Railway Transport for technological connection of facilities of JSC Russian Railways, the largest project on technological connection being implemented in the Northwest region. Commissioning of 12.6 MVA of transformer capacity and 66 km of power lines is scheduled.
  • reconstruction of external power supply networks of the sea commercial port Ust-Luga for development of ICC Ust-Luga and satisfying the needs in power supply of related infrastructure facilities.

Deputy Director General for development and sales of services

What is the situation with power consumption in St. Petersburg and Leningrad Region?
What is your forecast on the dynamics of consumption in the region for the next years?

— St. Petersburg and the Leningrad Region are the dynamically developing regions. For the last years demand for electric power has been constantly growing.

Dynamics of electric power supply from JSC Lenenergo grid in comparable conditions (taking into account consumption over “last mile” objects) in 2008–2013, mn kWh

Dynamics of electric power supply from the grid of JSC Lenenergo in 2008–2013 indicates uneven electricity consumption in different years. This is not due to fluctuations in the demand for electricity consumption and new capacity but the uneven loading of existing production facilities, mainly by large industrial enterprises. It is connected with the situation in the global currency and commodity markets. So, for example, the branch of JSC SUAL Volkhov Aluminum Plant was compelled to stop production in 2013 due to a drop in the world prices for aluminum. Greater sensitivity to world markets also have JSC Tikhvin Ferroalloy Plant, and companies of oil industry – JSC Baltnefteprovod, JSC Lukoil. Owing to changes in production volumes in the region the volumes of transportation by railway (JSC Russian Railways) and maritime transport (JSC Seaport) also change.

Based on the forecast of consumption at the expense of commissioning of new capacities under existing technological connection contracts, and a natural increase of loads a sustainable growth of consumption by consumers from JSC Lenenergo grid is forecasted. The forecasted growth of electricity consumption on the near-term outlook (RAB regulation period till 2019) is about 2% per annum. It is expected that by 2019 the volume of consumption will increase up to 33,155.8 mln kWh per year.

What is your forecast on the dynamics of demand for electric power and technological connection
to the grid of new customers?

— By results of technological connection activities in the area of operational responsibility of JSC Lenenergo a steady growth of capacity declared for technological connection is noted: from 2009 up to 2013 the gain of capacity was 555 MW. The number of annually accepted applications for the similar period increased more than twice, from 11,444 pieces to 23,728 pieces.

Changes in the federal legislation of 2009, setting a preferential cost of technological connection of power accepting devices for applicants of the group up to 15 kW, promoted to considerable growth of applications of this category up to 2013.

As a result, in quantitative expression the share of applications up to 15 kW on the average during 2009–2013 amounts to 87% from the total number for the year that corresponds to only 8% of the total declared capacity. Thus, before changes in the normative base the share of the applications in this category accounted for about 50% of total annual number of applications and corresponded to less than 1% of the volume of declared capacity.

Besides the growth of a preferential category of contracts in the overall structure of applications a growth of the declared capacity in recent years was provided by large objects of housing construction and production facilities (48% and 16% of the total declared capacity for 2013 respectively).

In our opinion, in the long term the tendency of increasing demand from applicants will retain which in general will be determined by realization of industrial and business potential of the region on the background of stabilization of the number of applications of preferential categories of applicants.

How did the withdrawal of last mile consumers influence the Company?

— Since St. Petersburg and the Leningrad Region were not included in the list of regions on the territory of which the operation of last mile contracts prolongs, the volumes of these consumers which by results of 2013 totaled 1.5 bn kWh (5% of total amount of rendered services in electric power transmission) were excluded from the balance of JSC Lenenergo from 2014. Exception of this volume of productive supply from JSC Lenenergo networks was considered at formation of the consolidated forecasted balance of electric power production and delivery for 2014. Hence, the withdrawal of last mile consumers will not lead to lost revenue from electric power transmission.

What actions are held to cut losses in JSC Lenenergo networks?
What indicator is acceptable for the Company?
What is the effectiveness of these measures in terms of financial results?

— According to requirements of the current legislation of the Russian Federation the Program of energy saving and increase of power efficiency to 2019 was developed in JSC Lenenergo and approved by the Board of Directors. By results of 2013 the effect of implementation of activities under the program accounted for 142.6 mln kWh, or RUB 752.2 mln. The target indicator of electric power losses in JSC Lenenergo networks taking into account implementation of activities under the program up to 2019 is 9.12% (the actual indicator of 2013 in comparable conditions taking into account the exception of last mile objects was 10.5%). Economic effect of implementation of the program at the expense of decrease in electric power losses and increase in the volumes of electric power transmission constitutes RUB 3.3 bn.

How is the problem of accumulated and delayed obligations on technological
connection of applicants to networks solved?
How did the problem occur?

— JSC Lenenergo acting in conditions of the limited financing, a considerable growth of contracts signed with a preferential category of applicants, legislation changes in the field of tariff regulation, and existence of electric power centers closed for connection, faced a problem of accumulation of delayed contracts on technological connection in recent years.

With the purpose of reducing the size of existing obligations JSC Lenenergo annually increases the number of executed contracts on technological connection (from 6.3 thousand pieces in 2011 to 7.4 thousand pieces in 2013), thus increasing the share of execution of delayed obligations that increased from 58% in 2011 to 72% in 2013.

Nevertheless, as of 01.01.2014 the volume of accumulated obligations under technological connection contracts amounted to more than RUB 41.4 bn with VAT (revenue to closing), including RUB 19.6 bn with VAT with an expired term of rendering services which have not been executed on mutual fault of JSC Lenenergo and the applicant.

To reduce the amount of accumulated obligations on connections of applicants in JSC Lenenergo the investment program for 2014–2019 was developed.

The draft of the investment program for 2014–2019 passed public hearings, received the approval of the Vice- Governor of St. Petersburg and the Governor of the Leningrad Region, and a positive conclusion of the Public Advisory Council of the Committees on tariffs of St. Petersburg and the Leningrad Region. The draft considers long-term plans of perspective development of the regions of service of the Company and provides a possibility of connection of applicants to the closed power grid centers. The draft has been optimized from the viewpoint of implemented technical solutions.
It will enable to connect all applicants of a preferential category till 2017.

Is the problem of receivables substantial for the Company?
Who are major debtors of the Company?
What measures are implemented to reduce receivables?

— The problem of receivables is essential for JSC Lenenergo. The major consumers of services on electric power transmission and, respectively, the debtors of JSC Lenenergo are sales companies. For 2013 monthly average receivables constituted 15% of monthly average charge for services on electric power transmission.

At present the legal framework of interaction of network organizations with contractors enables last to use the tools of payments delay and thus does not provide network organizations with adequate counter mechanisms to prevent the growth of receivables.

Today JSC Lenenergo actions on ensuring timely reclamation of debt in claiming order not always lead to its reduction since debtors when repaying debt on “old” periods (on the basis of judgments come into force), accumulate debt on «new» periods.

To reduce the current level of receivables the following control tools over receivables are applied in JSC Lenenergo:

  • analytical database of accounting and control over receivables of sales companies – consumers of services in electric power transmission, is created;
  • disagreements are settled in the pretrial order;
  • claims and debt collection is conducted in the pretrial order;
  • debt is restructuring;
  • assignment of debt is executed;
  • JSC Lenenergo conducts work together with guaranteeing suppliers to solve problem of non-payments of end users at the regional level.
Describe the problem of preferential connections of consumers up to 15 KW.
In what volume is lost income evolved?
How does the Company compensate lost profit?
What are solutions of the problem?

— Since 2009 a rapid growth of the preferential category of applicants with the term of works of 6 months has been observed. On this category of applicants 40,838 pieces in quantitative expression and RUB 672 mln with VAT in terms of money were accumulated as of 01.01.2014. The main reason for default of obligations in time is the lack of a source of financing of capital works necessary for performance of specifications on technological connection of applicants. Execution of the total volume of accumulated obligations on the preferential category of applicants of “RUB 550” requires RUB 9,250 mln including VAT. Specific cost of connection of one preferential applicant constitutes RUB 277 thousand with VAT.

To compensate lost profit JSC Lenenergo is trying to consider these expenses in the distribution tariff, and as a result the volume of an investment component, which could be put in modernization of depreciated assets, is reduced.

Another reason of default in time it the fact that the accumulated volume of applications with an execution date of 6 months involves a large volume of activities on reconstruction of existing networks and new construction, thus in some cases complete replacement of networks of whole settlements is required that is impossible to execute for half a year.

Besides, in certain cases connection of applicants of the preferential category is complicated by the lack of declared load in a point of technological connection, misuse of a connection privilege, and untimely performance by an applicant of technological connection specifications. To solve these problems JSC Lenenergo offers to provide a network organization a legislative opportunity to check the validity of required capacity, to simplify bureaucratic nature of procedures of coordination and issue of construction licenses, and legislatively to limit the number of possible misuses of unreasonable technological connection.

How to solve the problem of closed substations?

— The lack of unified and actual Russian methods of calculation of reserve capacity on substations 35–110 kV creates conditions for ambiguous treatment of the number of substations closed for technological connections. In its turn this causes contradictions with the system operator concerning technological connections of additional loads. Unmatched positions of grid companies and divisions of the system operator create unjustified barriers for connection of new consumers.

In Q1 2014 44% of the total number of substations 35–110 kV of JSC Lenenergo were closed for technological connection (161 piece) at 105% excess of transformer capacity of substations in the mode (n-1). In case of existence of proper communications on a distributive network of low voltage between different substations that enable operatively to switch load from substation to another (flexible grid), reliability of power supply of consumers will be provided even at emergency shutdown of a substation’s transformer and load of the nominal remained above
(but not more than 135%). These criteria of reference to closed substations are specified in Order # 727 of 29.12.2013, which approved methodical instructions for definition of capacity reserve on substations of SDCs of JSC Rosseti.

The problems arising at connection of customers in the districts of the distributive network on closed substations are:

  • long periods of reconstruction of substations 35–110 kV do not comply with normative terms of connection of applicants determined by the Federal legislation, which creates preconditions for accumulate obligations;
  • to ensure timely connection of applicants it is necessary to burden technical specifications with more expensive works connected with construction of the distributive network to open substations, creation of the schemes of unloading of closed substations (flexible grid), or construction of new substations under an individual tariff. Alternative to the burden technical specifications is connection from the existing closed substation after its opening according to activities of the investment program (if provided);
  • a permanent decline in reliability of power supply of consumers of closed substations due to the natural increase of load (with selection of declared capacity) and urgent connections of new consumers of a social group;
  • a constant growth in the number of closed substations in connection with the natural growth of loads and technological connection;
  • need of regular adjustment of the investment program to ensure opening of all substations (including those closed for the expired period) that is impossible due to limited sources of financing of the investment program.

Among possible solutions of these problems JSC Lenenergo sees timely and economically reasonable activities of the investment program directed on increase of reservation schemes of power supply of consumers from different substations to create a flexible distributive network, reconstruction of existing substations and construction of new ones. Solution of the declared problems will be also promoted by stage-by-stage construction with the use of mobile substations applied by JSC Lenenergo that enables to reduce the cost of initial construction.

Is the Company facing the problem of non-use of declared capacity?
How to solve this problem?

— Pursuant to requirements of the current legislation of Russia payment for the reserve of non-used capacity by consumers is provided if the maximum capacity under the contract exceeds 670 kW. At present the procedure of tariffs calculation on payment of reserve capacity is not approved by FTS of Russia, it approval is expected till the end of 2014. The work on fixing parameters of maximum capacity of customers with the maximum capacity over 670 kW is conducted by JSC Lenenergo. Besides, the size of reserve capacity is specified in acts of rendered services on electric power transmission.

When applications for technological connection are accepted there are no requirements to check the correctness of calculations of the load and demand of load requested by an applicant. As a result, actual loading reached by the consumer often makes 10–30% of initially declared capacity that leads to unreasonable switch of substations to the status of closed for technological connections.

Example of such unreasonably closed substation is recently constructed substation 110 kV # 161 Toyota Plant with transformers 2×63 MVA and existing load of 21.03 MVA. At the volume of contractual obligations and demands for technological connection at a rate of 56.06 MVA, the substation is closed for technological connection pursuant to the requirements of approved methods for definition of reserve capacity.

How do you conduct work on revealing non-contractual electricity consumption?
What is economic effect from measures on revealing illegal connections?

— Within works on revealing non-contractual electricity consumption representatives of JSC Lenenergo perform a site survey, verify documents and, when the lack of documents on the object connected to electric networks is revealed, make out the act of non-metered (non-contractual) consumption. Based on this act, the consumer is given an invoice for payment of the cost of non-contractual electricity consumption pursuant to requirements of the current legislation of the Russian Federation (by cable sectioning).

The complete elimination of non-contractual consumption consists in registration of the documents on technological connections on the object and conclusion on their basis of the contract on power supply. With a view of reduction of non-contractual electricity consumption volumes in JSC Lenenergo a simplified order of paperwork on technological connections of built-in premises and installation (acceptance) of metering devices for registration of the contracts on power supply is organized.

For the period from January 1, 2013 till March 31, 2014 3,173 contracts on power supply were signed with customers on which objects non-contractual consumption was earlier revealed. For the end of Q1 2014 over 3,000 non-contractual objects are at the stage of execution of documents on technological connection which receiving will enable consumers to sign power supply contracts.

What measures for improving transparency of the technological connections process
are implemented in the Company?
How is client policy lining up in the Company?

— Technological connection is a process including at least five different types of activity with a huge flow of applications and a large quantity of non-standard objects and solutions. JSC Lenenergo solves today a complex task on business simplification in part of availability and transparency of technological connection procedures.

Implementation of this task is carried out in two directions:

  • approval of internal documents at JSC Rosseti and JSC Lenenergo. The basic document is the standard “The system of centralized customer service” approved by the Board of Directors of the Company (Minutes # 13 of 19.12.2011);
  • at the federal level the Resolution of the Government # 1144-R of 30.06.2012 approved the road map which will enable to reduce the quantity of connections to three and time for passing all stages of technological connection to receive access to power networks.

According to the plan of implementation of activities for standard introduction “The system of centralized customer service” approved by Minutes of the Board of Directors # 3 of 30.07.2012, taking into account adjustment of the terms of implementation (Minutes of the Board of Directors# 35 of 07.06.2013), in 2011–2013 actions for reengineering of the technological connection process, development of internal and correspondence services, including interactive services were implemented.

The main results are:

  • work on regulation of business processes, updating of job descriptions, creating document templates, regulations on the technological connection, standard forms of applications for technological connection and contracts of technological connection;
  • electronic database of documents on technological connection was created;
  • a new client center for work with customers and technological connection was opened, terms of consideration of applications for technological connection and issue of contracts on technological connections were reduced, the system of electronic turn was entered, quality and comfort of service, quality of consultation, information support are improved;
  • the section to Clients on the corporate website is under improvement, placement on the website in Internet of applications for receiving (redistribution) of capacity was implemented, and possibility to get information on the course of execution of the application on technological connection on the Company’s website was worked out;
  • geo-information system (GIS) to track operational information about loading of substations, to define the nearest substation to the object of connection, to receive advance information on preliminary possibility on connections to networks;
  • modern automated control system of technological connections was created and is constantly improved, the electronic control system of contractors is implemented;
  • a contact center, allowing directing addresses on any questions of Company’s activity on a single number 8-800-700-14-71 was created; the project of submission of applications for technological connections by phone on the single number of JSC Lenenergo 8-800-700-14-71 was introduced. Today it is possible to submit a general application for technological connection and conclusion of the contract on power supply;
  • the Council of consumers of JSC Lenenergo for solving problematic issues of technological connection was established;
  • the task of decrease in the number of customers’ addresses in the network organization, reduction of stages of the technological connection procedure, terms of their passing and the cost of technological connection for the group of applicants up to 150 kW is being solved.
How do you perform actions for increase of power infrastructure availability?

— The Resolution of the Government of the Russian Federation # 754-R of 06.05.2012 approved the plan of preparation of legal acts directed on increase of power infrastructure availability, containing 26 actions. The Resolution # 1144-R of 30.06.2012 approved the plan of measures “Increase of availability of power infrastructure” (road map) which contains 33 actions (including all actions approved by the Resolution # 754-R) which are focused on facilitating the conditions of connection of users to power infrastructure in Russia.

The goal in the field of improvement of conditions for conducting business activity is set, i.e. To provide essential reduction in the terms of passing procedures in the spheres of state regulation (including connections to networks) to the subjects of entrepreneurial activity and the cost of these procedures. Implementation of these actions of the road map was delegated by the same Resolution # 1144-R of 30.06.2012 to executive federal authorities of the Russian Federation: Ministry of Power Industry, Ministry of Economic Development, Federal Service for Ecological, Technological and Nuclear Supervision, Federal Antimonopoly Service, Ministry of Regional Development, Ministry of Industry and Trade and Federal Tariff Service.

Monitoring and control over implementation of the road map is carried out by Ministry of Economic Development of the Russian Federation with participation of interested federal government authorities, executive authorities of subjects of the Russian Federation, public associations of entrepreneurs and independent non-profit organization Agency of Strategic Initiatives on Promotion of New Projects (item 34 of the road map; Resolution of the Government of the Russian Federation # 1613-R of 06.09.2012). As of 31.12.2013 a number of normative legal acts to support execution of the road map actions were published.

What is, in your opinion, the key achievement of the Company regarding
technological connection to networks in 2013?

— Key achievements of the Company regarding technological connection in 2013 are associated with implementation of complex of measures aimed at improvement of customer-focused services of the Company, namely:

  • reduction of the average time of processing of applications, improvement of the system of registration of applications (including development of the system of electronic document flow), automation of preparation of draft contracts on technological connection owing to introduction of the automated control system of the process of technological connection SharePoint;
  • creation of conditions for submission of application for technological connection by phone (for the maximum capacity of power accepting devices to 15 kW), providing supplementary service in technological connection on turnkey basis;
  • providing opportunities for consumers to get on the information resource in the Internet data on the presence of the amount of free capacity for technological connection on substations below 35 kV (updated quarterly);
  • automation of all sub-processes of technological connection;
  • creation of the Council of customers of JSC Lenenergo.

Besides, positive dynamics of performance of the contracts on technological connection was provided in the reporting period. By results of 2013 JSC Lenenergo has connected 7,381 applicants, exceeding the similar indicator of 2012 by 6%. The volume of connected capacity of JSC Lenenergo (taking into account connections of generation facilities) increased by 47% concerning 2012. Against insignificant decrease in the number of accepted applications, the maximum gain of capacity under accepted applications rather previous periods was provided in 2013.

In 2013 JSC Lenenergo signed contracts on technological connection with large applicants, such as the Committee on transport infrastructure development of St. Petersburg (the contract on technological connections of Krasnoselsko-Kalininskaya subway line and Frunzenskaya subway line in the total cost of RUB 3,490 mln with VAT), FSUE Central Research and Development Institute named after ac. Krylov (for the sum of RUB 576.9 mln with VAT).

Moreover, in 2013 JSC Lenenergo reduced the terms of preparation of draft contracts on technological connection across St. Petersburg by 27%, across the Leningrad Region by 14%, and reached the indicator of quality of services rendered by JSC Lenenergo approved by executive authorities (regulated by Order # 718 of 14.10.2013 of the Ministry of Power Industry of the Russian Federation).

What are key plans of JSC Lenenergo regarding technological connection to networks for 2014?

— JSC Lenenergo when performing its activities in compliance with the development strategy of JSC Rosseti aims to improve the efficiency of technological connections in the area of its own operational responsibility.

The Company not only solves operational objectives, but also is actively engaged in strategic planning in implementing significant projects of development of the system of technological connection in the long run. However, many of the Company’s initiatives have a potential for use at a national level already today.

In 2014 it is planned to implement the following activities aimed at accelerating procedures of technological connection to electric networks of JSC Lenenergo:

  • improvement of the system of technological connections within the company (regulation and updating of business processes at implementation of technological connections, introduction of personal responsibility, reduction of the terms of procedures at all stages of technological connection);
  • regulation of procedures of interaction with JSC PSK and other power supplying organizations on implementation of possibilities of power supply, registration of input of metering devices and power accepting devices into operation and conclusion of the contract on power supply before completion of the technological connection procedure;
  • reception, processing and delivery upon address of the applicant of all documents which complete the technological connection procedure along with voltage supply of the power installation (for preferential applicants up to 15 kW);

In the next period implementation of the complex of activities for improvement of the Company’s IT strategy will go on:

  • ensuring visualization of indicators of the technological connection process efficiency at the stages of processing of an application (Manager Dashboard);
  • modernization of existing software for technological connection division, including system completion according to new regulations and legislation, preparation of the system for GIS introduction;
  • automation of processes of formation, adjustment, execution, and forecasting of execution of the address investment program of JSC Lenenergo across St. Petersburg;
  • GIS introduction across the Leningrad Region, automation of formation of the address investment program of JSC Lenenergo across the Leningrad Region;
  • development of the resource “Private Client Office” with information disclosure on the stages of processing of applications for technological connection and possibility for tracking dates of applications’ performance on technological connection.
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