Electricity transmission

Volumes and structure of electricity consumption

In 2014 33,248 mln kWh of electric power were supplied to the Company grid from the networks of FGC UES and electricity producers. Lenenergo transmitted 29,570 mln kWh of electric power out of this amount to consumers and territorial network companies. Electricity losses accounted for 3,677 mln kWh, or 11.06% of total electric power supplied to Lenenergo networks.

The volume of electricity transmission services (productive supply) decreased by 3.2% y-o-y to 933 mln kWh.

This decrease is linked to the fact that in 2014 St. Petersburg and the Leningrad Region were excluded from the list of regions on the territory of which the so-called “last mile” mechanism continues to operate. There was a drop in the volume of Lenenergo services resulting from the conclusion by consumers connected to UNEG facilities of direct contracts with FGC UES.

In 2013, the volume of electricity transmission services rendered to these consumers amounted to 1,497.7 mln kWh. The leaving of these consumers was included in the tariff-balance decision for 2014 and has not resulted in lost income for Lenenergo.

The volume of rendered services on electricity transmission in 2014 increased by 487 mln kWh regarding 2013 under comparable conditions (including the so-called “last mile” consumers).

Dynamics of productive electricity supply, mln kWh

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In 2014, electricity consumption by industrial consumers grew driven by redistribution of some consumers between the groups of Industrial consumers and TGOs.

Decreased electricity consumption by other categories was the result of signing “direct contracts” by industrial consumers with FGC UES (1,420.3 mln kWh).

Breakdown of electricity supply by groups of end consumers in 2014, %

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The largest share in the structure of electricity supply by groups of consumers is supply from Lenenergo networks to the networks of TGOs — 32.4% for Lenenergo, including 25.7% across St. Petersburg and 43.9% of total electricity consumption in the Leningrad Region. New TGOs are primarily formed on the basis of large enterprises (industrial sites) that transfer their own grid facilities in the use of TGOs.

In 2014, there was a drop in electricity consumption at the low voltage level primarily due to the lower consumption by the group “Population and equivalent consumer categories” and at the high voltage level due to the leaving of the “last mile” consumers.

Breakdown of electricity supply by voltage levels in 2014, %

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The structure of electricity supply by voltage levels is similar to the structure of electricity supply by groups of consumers: the main volume of services rendered to industrial consumers is rated at HV level, to non-industrial consumers — at MV2 level, and to the population — at LV level. The lowest amount of productive supply — 3%, is the share of MV1, as equipment 20-35 kV accounts for an insignificant share in the Lenenergo network equipment.

Data on electricity consumption only by major industrial consumers of St. Petersburg and the Leningrad Region are specified in the table. Overall, the number of consumers with installed capacity of over 670 kW is more than 2,000 across the two regions.

Electricity losses

In 2014, actual electricity losses in Lenenergo networks amounted to 3,678 mln kWh, or 11.06% of total supply to networks, and increased by 246 mln kWh, or 0.95 p.p. y-o-y.

Dynamics of losses in Lenenergo networks, mln kWh

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The growth of losses was driven by the change from 1 June 2014 of the method for determination of the amount of electricity supply from UNEG networks. Earlier, during formation of the actual balance of electricity on Lenenergo networks the amount of electricity received from UNEG networks in Lenenergo networks was formed by the approved calculation method. The application of this method was due to the lack of accounting system on the perimeter of FGC UES-Lenenergo. The calculation method principle consists in reduction of overflow volume of electricity that is defined by the metering devices (telemetry) installed on the upper borders of UNEG facilities on the high side from 220-330 kV, to the points of delivery at the border of FGC UES-Lenenergo by reducing the rate of losses (5.27%).

Commissioning of AIMS CEM at the border of FGC UES-Lenenergo has entailed a sharp increase in electricity supply to Lenenergo networks. The increase in losses driven by the changes in the applied method for determining the size of electricity supply in cross section of Lenenergo-FGC UES amounts to 352 mln kWh. The amount of electricity losses in Lenenergo networks in 2014 under comparable conditions was 3,326 mln kWh (or 9.55% to supply in the network), which is 0.41 p.p. lower compared to the volume of losses under comparable conditions in 2013 (3,432 mln kWh, or 9.96 % to supply in the network).

Energy saving and increase of power efficiency. Decrease in losses

Lenenergo conducts work on energy saving and increase of power efficiency in line with federal and local regulations, and pursuant to the Program of energy saving and increase of power efficiency of Lenenergo for 2014-2019 (hereinafter the Program), approved by the Board of Directors on 30 April 2014.

Objectives of the Program:

Introducing the power management system in Lenenergo

Improving the electricity transmission process: upgrade and construction of a new model of smart grid on the basis of innovative technologies and equipment, implementation of the systems for process control and network operation

Reducing losses by 2019 under comparable conditions by 21% from the level of 2013

Equipping by devices for electricity metering of commercial connections and transiting to automatic generation of the volume of services rendered in the full volume

Reducing energy consumption for utility and business needs by 15% and upgrade of the systems for water and heat supply of the buildings belonging to the Company

Reasons for variation of the actual target for the indicator “Equipment by modern devices for electricity metering in the retail market” from the planed one are caused by shortage of electricity supply and counteraction from management companies and homeowner associations, and the emergency condition of electrical devices owned by consumers.

Activities in energy saving and increase of power efficiency

The Program of energy saving and increase of power efficiency consists of sections, target subprograms (activities) and accompanying measures which are subdivided into activities for decrease in losses during electricity transmission and distribution over electric networks and activities for decrease in energy consumption for production and business needs and are further subdivided into organizational and technical activities.

Target activities include those implementation of which ensures reduction of energy consumption (including electricity) and/or water for at least 15% of the annual consumption of the corresponding resource, with a payback of 80% of investments over five years for energy consumption and/or water used for production and business needs and a payback of no more than ten years for the activities ensuring decrease in losses during electricity transmission and distribution.

The activities which have positive power efficiency and are not corresponding to the criteria of reference to target activities are related to accompanying measures for optimization of consumption for production and business needs and measures for electricity losses reduction.

Identification of non-contractual consumption, switch-off of transformers in the modes of small loads at the substations with two and more transformers, switch-off of transformers at the substations with seasonal load, optimization of disconnection places with bilateral power supply, and alignment of phase loads in the distribution networks 0.38 kV are annually performed and related to the activities supporting the existing level of electricity losses and not affecting the indicators of the electricity balance of the Company.

In 2014, cumulative effect was expected in the amount of 195.7 mln kWh, or RUB 510.9 mln. By the end of 2014, the effect amounted to 302 mln kWh, or RUB 964.1 mln. The effect of activities supporting the existing level of losses amounted to 160.03 mln kWh, or RUB 219.9 mln.

Decrease in energy consumption for business needs

The main target activities reducing consumption of resources for business needs are as follows: use of energy efficient lamps, replacement of mercury street lamps with led and sodium, replacement of windows with plastic or wooden ones with multi-chamber glazing, sealing of buildings, thermal insulation of flat roofs, and insulation of ceilings of the upper floors.

By the end of 2014, the effect of implementation of the target activities for decrease in energy consumption for business needs over the Company amounted to 5,966.5 thousand tons of equivalent fuel (273 mln liters of cold water) for RUB 185.4 mln at the plan of 5,946.1 thousand tons of equivalent fuel (276 mln liters of cold water) for RUB 193.8 mln.

Identification of illegal electricity consumption

The volume of identified non-metered consumption in 2014 amounted to 49,382 thousand kWh that is 29,746 thousand kWh above the level of 2013. The cost of the identified non-metered consumption in 2014 totaled RUB 150,310 thousand (including VAT).

The volume of identified non-contractual consumption in 2014 amounted to 351,527 thousand kWh, and compared to the fact of 2013 it decreased by 458,167 thousand kWh. The cost of the identified non-contractual consumption in 2014 totaled RUB 1,703,494 thousand (including VAT).

RAB regulation. Transmission tariffs

Normative and legal base regulating electricity transmission using RAB:

1. Order of the Federal Tariff Service of Russia of 30 March 2012 #228-e “About approval of Methodical instructions on tariff regulation using the RAB-method”;
2. Order of the Federal Tariff Service of Russia of 18 August 2008 #183-e/1 «About approval of the Procedure for approval by the Federal tariff service of the offers of Executive authorities of subjects of the Russian Federation in the field of tariff regulation, concerning transition to regulation of tariffs using the RAB-method and decisions on extension of the validity term of the long-term regulation period».

RAB (Regulatory Asset Base) is a system of long-term tariff formation aimed to attract investments in the expansion and modernization of infrastructure.

Advantages of RAB

• stimulating attraction of investments;
• increasing capitalization of regulated entities;
• improving the quality of strategic planning of Company activities;
• ability to smooth tariff consequences of investment programs for consumers;
• creating economic motivation to cut costs and increase reliability and quality of services;
• lack of «item-by-item» control of expenses by regulators.

According to the Federal Law of 23 November 2009, #261-FZ «About energy saving and increase of power efficiency and modification of certain legislative acts of the Russian Federation» and Decree of the Government of the Russian Federation of 19 January 2010, #30-R Lenenergo after coordination with the Federal tariff service of Russia performed the transition to regulation of tariffs for services on electric power transmission in the form of establishment of long-term tariffs on the basis of RAB since 1 January 2011 (Order of the FTS of Russia #487-e/4 of 28 December 2010).

Pursuant to the Decree of the Government of the Russian Federation of 29 December 2011 #1178 (as amended by the Decree of the Government of the Russian Federation of 30 June 2012, #663) previously approved parameters of long-term tariff regulation were revised for Lenenergo, and the control period was extended until 2017 (Order of the Committee on tariffs of St. Petersburg of 13 July 2012, #181-R, Order of the Committee on tariffs and price policy of the Leningrad Region of 13 July 2012, #88-p). These parameters were coordinated by the FTS of Russia (Orders of 12 June 2012, # 471-e, 472-e, 473-e and 474-e) and have been applied since 1 July 2012.

When coordinating the tariff-balance decisions for 2014 with regional and federal executive authorities individual conditions of regulation on the growth of joint-operation tariffs for electricity transmission for 2014 were approved for Lenenergo at the level exceeding specified by the Government of the Russian Federation, as provided for in the forecast of social-economic development of the Russian Federation for 2014 across St. Petersburg and the Leningrad Region and is caused by execution of the large-scale investment programs.

Tariff-setting for electricity transmission services by regulators

Tariffs for electricity transmission services were approved for 2012 within the levels coordinated by the Federal Tariff Service under the joint-operation principle that is uniform for the entire subject of the Russian Federation.

Since 2008, single (joint-operation) tariffs for electricity transmission services have been approved for all consumers, irrespective of the point of connection to urban networks in the region (item 42 of the Rules of non-discriminatory access to electricity transmission services and rendering of these services of 27 December 2004, #861), and individual tariffs for electricity transmission for calculations between network companies.

Tariffs for electricity transmission across the Leningrad Region were approved under the scheme «cost plus». According to this scheme, all payments collected by sales companies arrive in the higher territorial grid organization of Lenenergo which pays off with the subordinate territorial grid companies.

Tariffs for electricity transmission across St. Petersburg were approved under the scheme «mixed cost». According to this scheme, all payments collected by sales companies arrive in the higher territorial grid organization of Lenenergo which pays off with all subordinate territorial grid companies, except CJSC KirovTEK. An individual double-rate tariff under the principle “cost minus” was set for CJSC KirovTEK (this company pay Lenenergo for electricity transmission services).

Besides Lenenergo, electricity transmission activities are performed by 19 territorial grid organizations in St. Petersburg and 31 organizations in the Leningrad Region.

The average transmission tariff in the second half of the year is calculated as the ratio of required gross revenue in the second half of each year to the amount of productive supply on the relevant groups of consumers, including other consumers.

Other consumers is a group of consumers who, in accordance with the Guidelines on calculation of regulated tariffs and prices for electric (heat) power in the retail (consumer) market approved by Order of the Federal Tariff Service of 6 August 2004, #20-e/2, are not included in the basic group of consumers under which the maximum value of customer contract demand is equal to (or more than) 20 MW, and its use per year is more than 7,500 hours (group 1) and the population and equivalent consumer categories (group 2).

Absence of the excess level of electricity transmission tariffs in the second half relative to the first half of 2014 was due to implementation by the regulators of St. Petersburg and the Leningrad Region of the Resolution of the Government of the Russian Federation of 11 June 2014, #542 “About amendments to certain acts of the Government of the Russian Federation regarding compensation to network organizations of the lost income related to technological connection to electric networks, and adoption of tariff decisions”.

Dynamics of joint-operation required gross revenue and electricity transmission tariffs in St. Petersburg

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Dynamics of joint-operation required gross revenue and electricity transmission tariffs in the Leningrad Region

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Detailed information about electricity transmission tariffs in the regions of the Company’s presence set for 2014-2015 is provided in the online version of the Annual Report at www.ar2014.lenenergo.ru

Revenue from electricity transmission

The amount of actual revenue from electricity transmission services excluding reduction on the value of loading losses in 2014 totaled RUB 37,133 mln, up by RUB 3,099 compared to 2013.

Decrease in actual revenue from electricity transmission concerning the revenue approved on the both regions of the Russian Federation amounted to RUB 5,363 mln driven by the following factors:

• overestimate by the largest sales companies of St. Petersburg, JSC Petersburg Sales Company and LLC Energia Holding, of the customer contract demand accepted for calculation of joint-operation tariffs for electricity transmission relative purchased capacity on the wholesale and retail market, therefore inadequate single-rate and double-rate tariffs for electricity transmission were formed which leads to a decrease in actually received revenue relative to the approved revenue;
• structure of productive electricity supply by voltage levels and half-year periods developed upon 2014 different form the approved structure;
• drop in productive electricity supply concerning the approved indicator.

The reasons for variation of actual revenue from the revenue considered in the tariff-balance decision are as follows:

• decrease in the amount of rendered services by 488 mln kWh, or 2%, which resulted in the revenue drop by RUB 687 mln;
• decrease in the average tariff by 11%, which resulted in a drop of revenue by RUB 4,675.5 mln. The decrease in the average tariff was due to the difference in the amounts of revenue for electricity transmission services calculated using single-rate and double-rate tariffs approved by the regulators in respect of the single sales company. As a result of application of the approved tariff-balance decisions due to the possibility of sales companies to choose the type of tariff for calculations, lost income of Lenenergo in 2014 amounted to RUB 5,362.5 mln.

Dynamics of actual revenue from electricity transmission, RUB mln

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Dynamics of structure of required gross revenue from electricity transmission in St. Petersburg, RUB mln

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Dynamics of structure of required gross revenue from electricity transmission in the Leningrad Region, RUB mln

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Dynamics of revenue from electricity transmission services by regions, RUB mln

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Structure of revenue from electricity transmission services in 2014, %

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Cost of electricity transmission services

The cost of electricity transmission services in 2014 totaled RUB 38,756 mln and increased by RUB 2,853 mln, or 7.9% y-o-y. Controllable costs were up by RUB 231 mln, or 3.7% y-o-y, and non-controllable costs — by RUB 2,622 mln, or 8.9% y-o-y respectively.

Dynamics of controllable and non-controllable costs on electricity transmission, RUB mln

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Compared to 2013 the changes are as follows:

Controllable costs were up by RUB 231 mln, or 3.7% y-o-y, primarily driven by the growth of payroll by RUB 214 mln, or 7.3% y-o-y due to the indexation of salaries in connection with execution of obligations of the employer under the Branch tariff agreement, activities for motivation of the employees of key positions and professions, and changes in legislation regarding payment of remuneration of the staff involved in work with harmful working conditions.

Non-controllable costs were up by RUB 2,622 mln, or 8.9% y-o-y, for the following reasons:

• purchased power to compensate for losses increased by RUB 414 mln, or 7.6% y-o-y driven by increased losses by 73 mln kWh, or 2.1% (growth of costs by RUB 122 mln), and increased non-regulated tariff for purchase of losses by 5.4% due to the growth of the actual price of ATS (growth of costs by RUB 292 mln);
• depreciation of fixed assets and intangible assets increased by RUB 713 mln, or 8.6% y-o-y due to the growth of balance sheet total resulting from execution of the investment program on commissioning of fixed assets;
• other costs increased by RUB 299 mln, or 23.1% y-o-y driven by the growth of property tax due to the increase in 2014 of tax rates on the grid equipment subject to taxation since 1 January 2013, and increase in the tax base as a result of commissioning of fixed assets owing under the investment program of Lenenergo;
• cost of electricity transmission services by networks of third-party grid companies by RUB increased by 1,392 mln, or 17.9% y-o-y due to the indexation of individual tariffs from 2H 2014;
• FGC UES fee decreased by RUB 149 mln, or 2.2% y-o-y that was primarily caused by lower volumes of customer contract demand by 363 MW, or 9.3% y-o-y as a result of leaving of some consumers under the so-called “last mile” agreements and the growth of cost of loading losses by RUB 50 mln, or 6.1% y-o-y at a simultaneous growth of tariffs for UNEG networks maintenance and payment for losses in UNEG networks;
• lease payments dropped by RUB 48 mln, or 38.5% y-o-y that was linked to the expiration of lease contracts.

Financial result from electricity transmission activities

Reasons for generation of losses from electricity transmission in 2014.

Since 2011, the Company has completed the transition to RAB-regulation. The loss from electricity transmission in 2012 amounted to RUB 6,573 mln, in 2013 — RUB 6,446 mln, and in 2014 — RUB 10,609 mln.

The occurrence of losses from electricity transmission activities was influenced by the following factors:

• overestimate by the Committee on tariffs of St. Petersburg of the customer contract demand in relation to the actually consumed capacity;
• excess of the accrued amortization in accounting (useful life — 21years) over the value of return on invested capital (useful life — 35 years);
• application of smoothing under RAB-regulation.

In 2014, losses from electricity transmission increased by RUB 4,163 mln compared to 2013. The increase of losses was primarily caused by the growth of other costs attributable to transmission activities at the expense of reflection of provisions for disagreements with third-party grid organizations, write-offs of losses on the lost cases on disagreements with third-party grid organizations, increase in the amount of interest payable and profit tax.

Dynamic of gross profit? profit before tax and net profit from electricity transmission, RUB mln

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² Indicators for 2012 and 2013 are given according to the annual accounting statements for 2014 including retrospective data

In accordance with the approved tariffs for 2014, the Company forms losses from electricity transmission activities in the amount of RUB 3,767 mln. In 2014, the actual loss from electricity transmission activities totaled RUB 10,609 mln, which is RUB 6,843 mln, or 181.7% y-o-y above its value put at regulation.

Reasons for variation of actual indicators from the indicators approved at regulation:

The decrease in sales revenue from the revenue considered by regulators amounted to RUB 5,363 mln. Key driver were as follows: application by the Committee on tariffs of St. Petersburg in calculations of tariff rates of the overestimated customer contract demand, variation of the actual structure of consumers by groups and voltage levels from the structure considered by the committees at formation of the balance of electric power and capacity, change of the actual productive electricity supply relative to that considered by the committees and its redistribution by half-year periods of 2014.

The growth of controllable costs in comparison with the costs considered by regulators amounted to RUB 413 mln. The greatest influence was rendered by increased repair expenses on the additional activities held to ensure reliable power supply of consumers (in preliminary coordination with regulators), rising labor costs due to the activities undertaken to motivate employees of key positions and professions, and changes in the legislation on payment of remuneration to the staff engaged in work with harmful working conditions.

The drop of non-controllable costs was RUB 2,352 mln. The main influence was rendered by:

• decrease in the amount of electricity transmission services by networks of third-party grid organizations that is linked to the differences that are primarily due to the lack of agreed essential terms of contracts stipulated by the applicable Russian legislation, in particular the reaffirmation of the ownership right of facilities, the lack of documents on technological connection and metering devices, and relate to the application in the calculations of the actual or contract demand;
• decrease in the expenses on purchased energy to compensate for losses due to the formation of the non-regulated tariff for purchase of losses at a level below the forecast of regulators.

The growth of profit tax amounted to RUB 884 mln. Variation for the profit tax was linked to different methods of calculating profit tax. The regulator does not consider the features of tax accounting.

The growth of expenses from profit amounted to RUB 2,850 mln. The greatest influence was rendered by creation of provisions for disagreements with third-party grid organizations, and write-off of losses on the lost cases on disagreements with third-party grid organizations.

Depreciation in 2014 was RUB 315 mln below the depreciation considered by the regulator, which is due to the reduction in the average rate of depreciation as a result of changes in the structure by groups of fixed assets.