Rendering of electricity transmission services

In 2013 33,945 mln kWh of electric power were supplied to JSC Lenenergo grid from networks of JSC FGC UES and producers of electric power. 30,513 mln kWh of electric power were transferred out of this volume to consumers and territorial network companies, thus electric power losses totaled 3,432 mln kWh, or 10.1% of the electric power supplied to JSC Lenenergo grid.

In comparison with the indicators of 2012 the volume of productive electricity supply decreased by 394 mln kWh, or 1.3%. The main drop was noted in the Leningrad Region and was caused by a withdrawal of some consumers from the “last mile” contracts. In 2012 the volume of services in electric power transmission rendered to this category of consumers amounted to 329.3 mln kWh, including JSC Russian Railroads –197.5 mln kWh and JSC Pikalevsky Cement –131.8 mln kWh. Withdrawal of these consumers was considered at formation of the tariff and balance decision for 2013 and did not lead to any emergence of lost income for JSC Lenenergo.

Breakdown of electricity consumption

• conclusion of direct contracts with JSC FGC UES by industrial consumers – 329.3 mln kWh;
• redistribution of some consumers between the groups “Industrial consumers”, “Nonindustrial consumers” and “State (municipal) organizations and other budgetary consumers”;
• increase in the volume of consumers connected to TGOs’ networks.

In the breakdown of electric power supply by groups of consumers the greatest specific weight makes supply from Lenenergo grid to TGOs’ networks – over JSC Lenenergo the indicator makes 33.3% from combined value of consumption, including 27.2% across St. Petersburg and 48.8% across the Leningrad Region. For the last five years the general tendency of increase in the share of electric power supply to TGOs’ networks in connection with formation of new TGOs – grid organizations submitting applications for their inclusion into the volume of joint operations productive supply is observed. Generally new TGOs are formed on the basis of large enterprises (industrial sites) transferring their own power network facilities for use by TGOs.

By results of 2013 a drop in consumption at a low voltage level is noted that is caused by reduced consumption by the group “Population and the equated groups of consumers”.

It should be noted that the greatest size of productive supply in the breakdown of productive supply in the volume of 37.5% is the share of MV2 level (6–10 kV), low voltage level (32.8%) and high voltage level (27.2%). The breakdown of electric power supply by voltage levels is similar to the breakdown by groups of consumers, i.e. The main volume of services rendered to industrial consumers is rated on HV level, to nonindustrial consumers – on MV2 level, to population – on LV level. As in structure of network equipment of JSC Lenenergo an insignificant share is occupied by equipment 20–35 kV, the smallest volume of productive supply of 2.6% is the share of voltage level MV1.

Power consumption data are specified in the table only on the largest industrial consumers of St. Petersburg and the Leningrad Region. Overall, the number of consumers with installed capacity over 670 kW on the two regions is more than 1,300.

Electric power losses

For 12 months 2013 losses in Lenenergo networks totaled 3,431.5 mln kWh, or 10.1% of supply to grid that is 146 mln kWh lower than the level of 2012 in absolute expression (–0.26 p.p. to relative level of losses in 2012)

Energy saving and increase of power efficiency

In 2013, the Board of Directors of JSC Lenenergo approved the Program of energy saving and increase of power efficiency for 2013–2018 within which a complex of measures aimed at optimization (reduction) of the level of losses is implemented. The main objectives of the program are introduction of the power management system in JSC Lenenergo, modernization and building of the new model of («smart») grid on the basis of innovative technologies and equipment, introduction of the systems of technological management and network operation. Volume of financing of the Program of energy saving and increase of power infrastructure is RUB  6,873 mln. The source is the investment program of JSC Lenenergo.

Program of energy saving and increase of power efficiency in 2013

In 2013 due to implementation of the energy saving program losses were lowered by 2.5% relatively the basic year of 2012. In 2012 and 2011 the drop was 2.2% and 1.0%, respectively.

In monetary terms the economy for the Company in 2013 was RUB 498.2 mln, having exceeded the economic effect of 2012 by RUB 256.5 mln, or 106%, and in 2011 – by RUB 398.4 mln, or 399%.

By implementing a set of measures to optimize losses in 2013 the volume of savings totaled 295.8 mln kWh (RUB 752.3 mln), including 167.2 mln kWh (RUB 497.9 mln) through organizational measures, 15.5 mln kWh (RUB 27.5 mln) through technical measures, and 113.1  mln kWh (RUB 226.9 mln) through measures to improve electric power metering.

Identification of illegal electricity consumption

In 2013 22,491 acts of non-contractual consumption for 512.6 mln kWh were issued. Under the exposed acts of non-contractual electricity consumption in 2013 payment in favor of JSC Lenenergo pursuant to requirements of the current legislation of the Russian Federation regarding collecting the cost of non-contractual consumption was
RUB 1,832 mln with VAT; charges totaled RUB 1,867 mln w/o VAT.

Tariffs. RAB regulation

Tariffs on electricity transmission services are established by regulators.

Tariffs on electricity transmission services for 2013 were approved within the levels coordinated by the Federal Tariff Service of the Russian Federation by a joint-operations method that is uniform in the territory of the whole subject of the Russian Federation.

Since 2008, single «joint operations» tariffs have been approved for the services in electric power transmission which are identical to all consumers irrespective of the connection point to distributive networks in the region (item 42 of the Rules of non-discriminatory access to services in electric power transmission and rendering of these services # 861 of 27.12.2004), and individual tariffs on transmission services for calculations between grid companies.

Tariffs on transmission services across the Leningrad Region are approved under a “cost plus” scheme. According to this scheme payments collected by sales companies arrive in the higher territorial network organization JSC Lenenergo which pays off with subordinate territorial network companies.

Tariffs on transmission services across St. Petersburg are approved under the scheme “mixed costs”. According to this scheme payments collected by sales companies arrive in the higher territorial network organization JSC Lenenergo which pays off with all subordinate territorial network companies, except CJSC KirovTEK and JSC Oboronenergo. An individual double-rate tariff under a “cost minus” scheme was set for CJSC KirovTEK and JSC Oboronenergo (these companies pay JSC Lenenergo for electricity transmission services).

Since 01.01.2011 regulation in JSC Lenenergo has been carried under the method of return on invested capital (RAB) according to which the Committee on tariffs of St. Petersburg and the Committee on tariffs and price policy of the Leningrad Region had set long-term parameters of tariff regulation for JSC Lenenergo till 2017.

Advantages of return on invested capital are as follows:

• provision of incentives to attract investments;
• increase in capitalization of regulated organizations;
• improvement of the quality of strategic planning of company activities;
• possibility to smooth tariff consequences of investment programs implementation for consumers;
• creation of economic motivation on cutting costs, increase of reliability and quality of rendered services;
• lack of «item-by-item» control on expenses from regulatory authorities.
  

In response to the Resolution of the Government of the Russian Federation # 1178 of 29.12.2011 (in the edition of the Resolution of the Government of the Russian Federation # 663 of 30.06.2012) parameters of the long-term tariff regulation approved earlier were reconsidered for JSC Lenenergo and the period of regulation was prolonged till 2017 (Order of the Committee on tariffs of St. Petersburg # 181-R of 13.07.2012, Order of the Committee on tariffs and price policy of the Leningrad Region # 88-p of 13.07.2012). These parameters were coordinated by FTS of Russia (Orders # 471-e, # 472-e, # 473-e and # 474-e of 12.07.2012) and have been applied since July 1, 2012.

Drop in the revenue from electric power transmission activities relatively approved revenue on both subjects of the Russian Federation was RUB 2,947 mln that is caused by the following factors:

• overestimate by the largest sales companies of St. Petersburg, JSC Petersburg Sales Company and LLC Energia holding, of the size of declared capacity of consumers in regard to purchased capacity in the wholesale and retail market, therefore inadequate single-rate and double-rate tariffs for services in electric power transmission are formed. This, in turn, leads to decrease in actually received revenue regarding the approved one;
• increase in revenue due to tariff revision for the group of consumers «Population» across the Leningrad Region (Order of LenRTC # 40-p of 15.03.2013) regarding the tariff considered in the joint operations model of the region pursuant to the instruction of FTS of Russia;
• non-uniform half-year distribution of declared capacity volumes in agreements with sales companies;
• different structure of productive electricity supply by voltage levels developed upon 2013 in comparison with the approved one.

Cost of services in electric power transmission on networks for 2011–2013

The cost of services in electric power transmission in 2013 was RUB 35,903 mln and increased by RUB 3,559 mln, or 11.0%,in comparison with 2012. Controllable costs increased by RUB 826 mln, or 15%, and uncontrollable costs – by RUB 2,733 mln, or 10.2%, respectively. The share of controllable costs in the cost of services in electric power transmission in 2013 was 17.6%, and uncontrollable costs – 82.4%.

Key factors of changes of the cost of services on electric power transmission

Controllable costs increased by RUB 826 mln (15%) due to the gain of components:

• Material inputs increased by RUB 34 mln, or 7.2%. The greatest influence on their growth was rendered by increase in expenses on materials for repair by economic way in connection with performance of additional repair actions during preparation for the autumn and winter period of 2013–14, on materials for labor protection by results of approval of new norms of given-out means of individual protection from 01.01.2013 and extension of the list of categories of employees equipped with means of individual protection;
• Works and services of production character were up by RUB 246 mln, or 21.9%. The greatest influence was rendered by increase in expenses on repair in connection with growth of expenses on ensuring reliable power supply of consumers for successful passing of the autumn and winter period of 2013–14.
• Payroll fund increased by RUB 343 mln, or 13.2% due to indexation of official salaries in connection with performance of obligations of the employer under the collective agreement, increase in official salaries by key professions, and motivation of the personnel involved in elimination of consequences of accidents on power lines;
• Other costs increased by RUB 204 mln, or 15.4%, due to acquisition of new software products and growth of expenses for information service caused by increase in the quantity of facilities.

Uncontrollable costs increased by RUB 2,733 mln (10.2%), thus:

• Purchased energy on compensation of losses increased by RUB 662 mln, or 13.9% due to increase in the non-regulated tariff of purchase of losses at the expense of growth of the actual price of ATC in 2013 in comparison with 2012 and at the expense of increase in the sales extra charge across the Leningrad Region from 2H 2013;
• JSC FGC UES fee increased by RUB 596 mln, or 9.7% that is caused by increase in rates for networks maintenance and payment of losses in ENEG networks in 2013;
• Amortization of fixed assets and intangible assets increased by RUB 1,984 mln, or 31.6% due to increase in book value as a result of implementation of the investment program on input of fixed assets and revaluation made as of 31.12.2012;
• Other costs increased by RUB 426 mln, or 49.2%, in connection with growth of expenses on property tax caused by increase in cost of fixed assets, made revaluation of power network equipment for the end of 2012, and cancellation of privilege on the power network equipment tax pursuant to the Federal Law of 29.11.2012 # 202-FZ “About modification of the second part of the Tax code of the Russian Federation”;
• There was a decrease in electric power transmission services by networks of third-party grid organizations by RUB 255 mln, or 3.2%. JSC Lenenergo as a consumer of services of third-party grid organizations selected a single-rate tariff for calculations of the cost of services for electric power transmission for the majority of grid organizations that at simultaneous decrease in supply to network provided essential savings of expenses;
• Lease payments decreased by RUB 679 mln, or 84.6% that is caused by termination of the validity period under lease agreements.

Financial result

Indicators for 2011-2012 are given according to the annual accounting reporting for 2013 taking into account retrospective data reflection.from electricity transmission activities

Loss on transmission in 2013

As of the end of 2013 the Company’s activities on electric power transmission are unprofitable. Since 2011 the Company has carried out transition to regulation on the method of return on invested capital (RAB regulation). Taking into account the incomplete account by the regulator of necessary expenses (generally on federal factors: JSC FGC UES fee, purchased electric power on compensation of losses), and due to application of a smoothing mechanism since 2011, the loss for 2011 on electric power transmission was higher that the loss put at regulation and totaled RUB 4,560 mln, and for 2012 the loss reached RUB 6,573 mln.

In 2013 the sum of loss on electric power transmission decreased concerning the level of previous fiscal year by RUB 127 mln. Decrease in loss on transmission is caused by revenue growth in a bigger volume than prime cost growth due to the growth of average tariff by 16.8% at decrease in transmission volumes by 394 mln kWh (1.3%). Thus expenses from profit were up due to the growth of interest payable and profit tax growth in a smaller volume than the growth of gross profit.

The reasons for loss formation from electricity transmission activities in 2013

Proceeding from the approved tariffs for 2013 losses from electricity transmission activities in the amount of RUB 1,727 mln are formed in the Company.

The reasons of deviations: