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      1. 2.3.1 Description of tariff policy
      2. 2.3.2 Analysis of revenues and expenses
      3. 2.3.3 Analysis of receivables and payables
      4. 2.3.4 Credit ratings and bonds

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2.3.1 Description of tariff policy

Electricity transmission tariffs

In 2018, the regulators applied the return on invested capital method (RABregulatory asset base) to Sverdlovenergo and method of long-term indexation of gross revenue requirement (INDEX) to Permenergo and Chelyabenergo.

Permenergo INDEX 5 years (2018-2022)
Sverdlovenergo RABregulatory asset base 10 years (2011-2020)
Chelyabenergo INDEX 5 years (2018-2022)

2018 was the first year of new long-term regulation applied to Permenergo and Chelyabenergo. Bearing in mind the start of a new long-term regulation period, the regulators have set new long-term regulation parameters for the branches(40-43).

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 2018 were approved by the tariff decisions of the relevant regional regulators(44-46). Uniform (“pie”) electricity transmission tariffs for 2018 were set by the regulators in line with the FASFederal Antimonopoly Service-approved minimum and maximum ceiling levels of tariffs.

Structure and dymanics of the Company’s revenues in 2016 — 2018 [1]

 

Electricity transmission revenues contribute most to the overall revenues of the Company. FY2018 transmission fees totaled RUBruble 75,561 million (84.3% of the total revenues). In absolute terms, transmission revenues gained RUBruble 5,688 million (+8.1%) due to the grown uniform (“pie”) electricity transmission tariffs and “pie” net supply,  exercise of the “sole pieholder of the region” function in the Chelyabinsk region since 01.07.2018 and absence of load losses factored in electricity prices on the wholesale electricity market. The growth of revenues from other operations was accounted for by the Russian Ministry of Energy’s assignment of the PoLRprovider of the last resort status to OAOOpen Joint-Stock Company IDGCInterregional Distribution Grid Company of Urals for operations in:

FY2018 revenues from electricity sales (execution of the PoLRprovider of the last resort function) totaled RUBruble 12,873 million. FY2018 connection fees totaled RUBruble 744 million (-14.9% YoYyear on year), decrease being impacted by reduction in the number of filers requesting connection and increase of a privilege for filers requesting 0-150 kW from 01.11.2017.

The structure of the gross revenue requirement (in terms of electricity transmission)[2]

A significant increase of the GRRgross revenue requirement to be paid to other RGOs in 2018 was impacted by changes in the settlement scheme of the Chelyabinsk regional retail market, under which our Chelyabenergo branch executes the “sole pieholder of the region” function from 01.07.2018 (Chelyabenergo’s GRRgross revenue requirement to be paid to other RGOs increased by RUBruble 2,036 million or 113.1%).

The dynamics of the GRRgross revenue requirement for electricity transmission services in our branches, RUBruble million[3]

2016 2017 2018
GRRgross revenue requirement total GRRgross revenue requirement for own needs GRRgross revenue requirement total GRRgross revenue requirement for own needs GRRgross revenue requirement total GRRgross revenue requirement for own needs
Permenergo 17,627 7,338 18,922 8,235 19,798 8,872
Sverdlovenergo 32,069 9,064 32,540 9,343 35,381 10,382
Chelyabenergo 17,811 7,153 18,192 7,350 20,053 7,562
IDGCInterregional Distribution Grid Company of Urals 67,507 23,555 69,654 24,928 75,232 26,816

Key factors that changed the “pie” gross revenue requirement in 2018 are:

Permenergon

A 4.6% boost of the “pie” GRRgross revenue requirement (RUBruble 876 million)
1) A 1.8% (RUBruble 52 million) decrease of payments to RGOs due to non-compliance of some RGOs with the RGO-qualification criteria, stated in Russian Government Decree No.184 dated as of 28.02.2015.
2) A 4.6% (RUBruble 143 million) increase of payments to PAOPublic Joint-Stock Company FSK UESFederal Grid Company of United Energy System, impacted by the grown UNESunited national energy system maintenance rate (+5.5% from 01.07.2018) and UNESunited national energy system losses compensation rate (+3.6%).
3) As for expenses on compensation of electricity losses, the regulator envisaged a 3.1% (RUBruble 148 million) rise in the tariff, based on a 22.3% boost of the loss purchase price and a 15.7% (349.5 million kWhkilowatt-hour) decline of normative losses in the branch networks. Normative losses are reduced due to the start of a new long-term regulation period and consequent revision of the loss level with the use of the benchmarking method.
The GRRgross revenue requirement for own needs of the branch totaled 7.7% (RUBruble 637 million).
Sverdlovenergon

A 8.7% boost of the “pie” GRRgross revenue requirement (RUBruble 2,841 million)
1) A 9.9% (RUBruble 1,154 million) increase of payments to RGOs, influenced by the escalation of individual tariffs of RGOs. With this, itinformation technologies should be noted that the GRRgross revenue requirement of AOJoint-Stock Company EESKYekaterinburg Electric Grid Company grew by RUBruble 534 million.
2) A 3.9% (RUBruble 303 million) hike of payments to PAOPublic Joint-Stock Company FSK UESFederal Grid Company of United Energy System, impacted by the grown UNESunited national energy system maintenance rate (+5.5% from 01.07.2018) and UNESunited national energy system losses compensation rate (+3.0%).
3) As for expenses on compensation of electricity losses, the regulator envisaged a 9.3% (RUBruble 345 million), rise in the tariff, based on a 5.7% hike of the loss purchase price, grown supply and consequent rise of normative losses in the branch networks.
The GRRgross revenue requirement for own needs of the branch totaled 11.1% (RUBruble 1,039 million).
Chelyabenergon

A 10.2 % boost of the “pie” GRRgross revenue requirement (RUBruble 1,861 million)
1) A 113.1% (RUBruble 2,036 million) boost of payments to RGOs, impacted by changes in the settlement scheme of the Chelyabinsk regional retail market, under which our Chelyabenergo branch executes the sole pieholder of the region function.
2) A 7.9% (RUBruble 452 million) decrease of payments to PAOPublic Joint-Stock Company FSK UESFederal Grid Company of United Energy System, affected by the migration of HVhigh voltage-1 customers to direct contracts with PAOPublic Joint-Stock Company FSK UESFederal Grid Company of United Energy System from 01.07.2017.
3) As for expenses on compensation of electricity losses, the regulator envisaged a 1.9% (RUBruble 65 million) increase in the tariff, based on a 13.3% hike of the loss purchase price and a 10.0% (168.9 million kWhkilowatt-hour) decline of normative losses in the branch networks. Normative losses are reduced due to the start of a new long-term regulation period and consequent revision of the loss level with the use of the benchmarking method.
The GRRgross revenue requirement for own needs of the branch totaled 2.9% (RUBruble 212 million).

Analysis of revisions of the average electricity transmission tariff (adjusted for net supply on generator voltage level), RUB/ kWhkilowatt-hour[4]

Branch 2016 2017 2018
Permenergo 1.169 1.268 1.302
Sverdlovenergo 1.155 1.220 1.253
Chelyabenergo 1.086 1.240 1.408
OAOOpen Joint-Stock Company IDGCInterregional Distribution Grid Company of Urals 1.139 1.238 1.304
Rise, % 8.6% 8.7% 5.4%

Analysis of average 2018 electricity transmission tariff progression shows that:

 

Technological connection fee

Pursuant to the Guidelines(47) the regulators of the Perm, Sverdlovsk and Chelyabinsk regions have set the 2018 standardized tariff rates, maximum capacity unit rates and connection fee formulas.

The regulators have set a RUBruble 550.0 (plus VATvalue-added tax) 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.

For regional grid operators of the Perm region the regulator has affirmed the following 2018 rates and fees(48):

For regional grid operators of the Sverdlovsk region the regulator has affirmed the following 2018 rates and fees(49):

All rates (standardized tariff rates and fees for maximum capacity unit) for construction of grid facilities and for technical activities are differentiated for urban and non-urban settlements.

For regional grid operators of the Chelyabinsk region the regulator has affirmed the following 2018 rates and fees(50):

All rates (standardized tariff rates and fees for maximum capacity unit) for construction of grid facilities and for technical activities are differentiated for urban and non-urban settlements. Besides, the regulator affirmed zero standardized tariff rates and fees for maximum capacity unit for “last-mile” activities for filers requesting connection of grid equipment with capacity 0-150 kW.

The chart shows the dynamics of the Company’s average capacity unit rates. Reduction of connection fee for maximum capacity unit was due to increase in requested capacity and changes in the connection pricing guidelines. Thus, the new guidelines stipulate that information on facility construction expenditures (connection and other activities envisaged by the investment program) is used in calculation of connection rates, information on requested 0-8,900 kW (below 35kV voltage class) capacity (plus privileged filers) is used in calculation of fees for maximum capacity unit.

[1] Revenues from electricity transmission in 2018 include internal turnover.

[2] Information hereof complies with the 2016-2018 tariff model, used by the regulators in setting of the 2016-2018 tariffs for electricity transmission.

[3] 1) Information hereof complies with the 2016-2018 tariff model, used by the regulators in setting of the 2016-2018 tariffs for electricity transmission;2) GRRgross revenue requirement for own needs is the GRRgross revenue requirement of the branch minus payments to FSK, purchase of losses and payments to other RGOs.

[4] Information hereof complies with the 2016-2018 tariff model, used by the regulators in setting of the 2016-2018 tariffs for electricity transmission.