Dynamics of connected capacity and completed contracts

The excess of connected capacity in 2013 over the same indicator of 2014 was due to the presence in the structure of executed obligations in the previous period of the major contracts for connection of generation facilities (400 MW). In 2014, the growth of connected capacity without regard to connection of these generation facilities accounted for 42% y-o-y.

More than twofold increase of connected capacity on the group “Up to 15 kW” (from 62 MW to 140 MW compared to 2013) was provided by an unprecedented increase in the number of executed contracts on this category of applicants. Other groups of applicants also provided positive dynamics of growth in 2014 compared to 2013.

Breakdown of connected capacity by industries

The breakdown of connected capacity by branches of economic activities in 2014 was characterized by a prevailing share of construction sector and generation facilities. Thus, the specific weight of the group “Construction” in St. Petersburg in 2014 amounted to 32% of the total connected capacity having increased by 10% y-o-y. In 2014, a 1%-increase in the share of connected capacity of the category “Wholesale and retail trade” was noted in St. Petersburg compared to 2013, up to 4%.

The analysis of economic activities in the Leningrad Region in recent years has also testified to increased volumes of capacity in the construction branch — from 85 MW in 2013 to 93 MW in 2014.

Thus, in 2014 the total share of other branches of economic activities (without regard to connection of facilities on the groups “Construction” and “Generation”) in general on Lenenergo is less than half, or 47%.

Demand for technological connection

In 2014, Lenenergo received 26,231 applications for technological connection from consumers for the total capacity of 2,608 MW (excluding applicants connected under the temporary scheme, hereinafter — temporary TC).

Most of them were accepted from applicants of the Leningrad Region — 17,366 contracts for total capacity of 1,267 MW.

Dynamics of applications indicated a growth of applicants since 2012 by 7%, which resulted from the customer-focused policy implemented by the Company in 2014.

In 2014, Lenenergo signed 16,749 contracts for technological connection for a total capacity of 614 MW, more than 70% of which were concluded with applicants of the Leningrad Region.

By the end of 2014, the number of received applications and signed contracts without regard to the facilities connected under the temporary scheme of power supply totaled 26,231 pieces for 2,608 MW and 16,749 pieces for 614 MW, respectively.

Decline in the number of signed contracts on the back of growth in the number of applications was influenced by the Resolution of the Government of the Russian Federation #915 of 12 October 2013, specifying a new order of application for connection of facilities located in residential buildings (consolidated through the management company), and provision of preferential technological connection (RUB 550) once in three years.

The main contribution in the structure of customer contract demand in St. Petersburg was provided by the category of applicants “Over 670 kW”, 86% of total customer contract demand (including connection of generation facilities on the territory of St. Petersburg for 150 MW). The category “150-670 kW”, being the second largest, accounted for 8% of the total capacity and corresponded to 100 MW.

The maximum of customer contract demand in the Leningrad Region was also provided by the group “Over 670 kW” that accounted for 67% of total capacity.

A distinctive feature of technological connection in the territory of the Leningrad Region is a significant share of the category “Up to 15 kW”, constituting 16% of total customer contract demand.

Technological connection of preferential categories of applicants

Among main tasks of Lenenergo is to ensure appropriate technological connection of applicants to power network equipment. The number of potential consumers applying for connection to the electric networks of Lenenergo is growing steadily.

In accordance with the provisions set in the Decree of the Government of the Russian Federation #1178 “About pricing in the field of regulated prices”, the cost of technological connection of power receiving devices of applicants up to 15 kW (under certain conditions) is determined at the rate of RUB 550 per one connection. These changes led to a repeated increase in the number of obligations for this group of applicants (preferential category).

The preferential category includes the applicants connected under the third category of reliability on one source of power supply including previously connected power receiving devices at the voltage level of below 20 kV inclusive. In that case, the applicant should be located not further than 300 meters in cities and 500 meters in rural areas to the existing transmission facilities of network organizations.

In relation to gardening and dacha non-profit associations the amount of payment for technological connection of power receiving devices should not exceed RUB 550 multiplied by the number of members of these associations.

However, the pace of executing obligations towards the preferential category’s applicants is significantly behind the pace of signing new contracts. The main reason of default within the prescribed period is the lack of CAPEX funding necessary for meeting specifications for technological connection of applicants.

By the end of 2014, connections of the preferential category’s applicants in terms of revenue totaled RUB 0.108 mln (w/o VAT) in St. Petersburg and RUB 4.85 mln (w/o VAT) in the Leningrad Region.

The volume of connected capacity on the preferential group of applicants amounted to 2.1 MW in St. Petersburg and 118.7 MW in the Leningrad Region (excluding temporary TC). The costs of construction of a distribution network for connection of the preferential category of applicants totaled RUB 1,482 mln (w/o VAT). In 2014, lost income of Lenenergo from technological connection of the preferential group of applicants amounted to more than RUB 1.2 mln (w/o VAT) in St. Petersburg and RUB 1,547.3 mln (w/o VAT) in the Leningrad Region (in line with the Guidelines approved by Order of the FTS of Russia of 11 September 2014, #215-e/1).

Performance of obligations under the expired technological connection contracts

Deficiency of the CAPEX funding source necessary for meeting specifications for technological connection of applicants leads to the failure to meet the terms of obligations. Key drivers of emergence and accumulation of obligations towards the applicants are as follows:

• presence of main substations closed for technological connection;
• deficit financing of the Lenenergo Investment program in part of technological connection;
• avalanche growth of contracts with preferential category of applicants.

As of 1 January 2015, the number of delayed obligations (excluding contracts connected under the temporary power supply scheme) amounted to 36,119 contracts for total connected capacity of 1,458 MW, which accounts for 75% of all accrued obligations. It should be noted, that 30% of total delayed obligations were not executed by the fault of the applicant.

In view of the significant amount of delayed obligations, the Board of Directors of Lenenergo (Minutes #12 of 24 November 2014) approved the work plan of the Company on execution by not later than Q3 2015 of the accrued obligations under technological connection contracts, developed within execution of the Order of JSC Rosseti, #334-p of 7 August 2014, according to which Lenenergo plans to implement a set of activities to reduce its arrears.

Key procedures for closing contracts in accordance with the plan are as follows:

• execution of obligations by Lenenergo and signing acts of technological connection;
• change of circuit decisions for connecting applicants;
• work with applicants in the performance of obligations on their part;
• liquidation of irrelevant contracts;
• extension of the terms of services under technological connection contracts;
• collecting of arrears from applicants, etc.

During implementation of the technological connection contracts, there are a number of objective reasons complicating their execution within the established periods. Among the reasons to eliminate which is not possible for the Company, are, in particular, inconsistency of the normative-legal base regulating the general procedure for coordination of project documentation and the procedure for granting lands for the placement of grid facilities. Lenenergo undertakes measures to eliminate the circumstances objectively interfering implementation of the plan to reduce accrued obligations, including makes suggestions for improvement of current legislation, carries out continuous interaction with public authorities and local governments. However, the main forces of Lenenergo to reduce the accrued obligations are focused on work with consumers.

Tariffs for technological connection

Payment rates for technological connection set by the regulator

In accordance with applicable law from 01 January 2011 payment for technological connection does not include costs connected with the development of existing infrastructure (construction of power sources, strengthening the electrical network). These costs should be included in a planned investment program, which is implemented at the expense of the electricity transmission tariff.

In accordance with Order of the FTS of Russia of 11 September 2012, #209-e/1 since 01 January 2013 payment for the specific applicant is formed only on the so-called “last mile” activities provided by the issued specifications of connection. Besides, expenses on the remote control, automated electricity accounting and profit tax are expelled from the structure of payment. Additionally, since 2013 executive authorities of subjects of the Russian Federation in the field of state regulation of tariffs approved for calculation of the payment for technological connection to local distribution networks for the regulation period:

• standard tariff rates,
• rates per unit of maximum capacity (RUB/kW),
• formula of payment for technological connection.

As a result of the tariff campaign for 2014, the Committee on tariffs of St. Petersburg by its Order of 27 December 2013, #630-R approved payment rates on the voltage level below 35 kV and capacity below 10,000 kVA over two territorial zones of technological connection differentiated by voltage levels and the volume of connected capacity broken down by costs for each action. Payment rates per unit of maximum capacity on performance of the actions associated with construction of the “last mile” are kept by the regulator at the level of 2013. Payment rates for organizational and technical actions (C1) were increased by 2.1% in 2013. Additionally, standard tariff rates for calculation of technological connection payments were approved. In the Leningrad Region, rates per unit of maximum capacity and standard tariff rates that are uniform for the whole territory of the Leningrad Region were approved by Order of the Committee on tariffs and price policy of the Leningrad Region of 27 December 2013, #241-p. The rates were pre-approved on 18 municipal districts of the Leningrad Region.

Fees for applicants who submitted their applications for technological connection of power receiving devices with maximum capacity not exceeding 15 kW inclusive (including previously connected capacity at this connection point) amount to not more than RUB 550 when connecting facilities classified under the third category of reliability (one source of power supply), provided that the distance from the applicant’s site to power grid facilities at the voltage level of up to 20 kV inclusive and the voltage level required for the applicant by the network organization, in which the application was submitted, is not more than 300 meters in cities and urban-type settlements and 500 meters in rural areas.

Small and medium enterprises can pay by installments for up to three years for connection of their facilities with maximum capacity 15-150 kW.

Lost income linked to technological connection of preferential groups of applicants is considered by regulators in the composition of non-controllable costs during formation of electricity transmission tariffs for 2014 in the following amount: St. Petersburg — RUB 11,250 thousand. The Leningrad Region — RUB 60,489 thousand.

Data on the approved tariffs for technological connection are given in the online version of the Annual Report at www.ar2014.lenenergo.ru

Revenue from technological connection

Revenue under contracts for technological connection in St. Petersburg by the end of 2014 was comparable to 2013 and corresponded to RUB 5,078 mln (w/o VAT).

The essential revenue increase in 2014 relative to previous periods (+27% y-o-y) was due to the presence in the structure of revenue in 2014 of major contracts with United Customer Service" (OJSC RZD) for a total of RUB 2,147 mln (w/o VAT).

The average rate under closed contracts was calculated as the ratio of revenue from technological connection (RUB thousand) to the volume of connected capacity (MW) given the connection of generation facilities and all categories of signed contracts, including those concluded at individual rates, property contracts, etc.

Revenue of Lenenergo from rendering technological connection services if formed by the contracts that can be paid by two methods: by cash in full volume (“cash contracts”) and by property (“property contracts”). The property form of contracts provides that the consumer independently performs specifications, and all assets created under these conditions are transferred to Lenenergo as payment for technological connection. Due to the amendments introduced to the Rules of technological connection (#759) that entered into force since 2010 and pursuant to which all obligations up to the borders of the applicant’s site are executed by the network organization, property contracts were cancelled.

Dynamics of changes in revenue from technological connection services by payment methods was characterized by increased share of obligations performed under monetary contracts.

By the end of 2014, the share of obligations under monetary contracts increased by 11% y-o-y amounting to RUB 6,715 mln (including VAT).

Financial result from technological connection services

By the end of 2014, total net profit from technological connection services amounted to RUB 7,803 mln and increased by RUB 2,070 mln, or 36.1% y-o-y.

The growth of net profit was due to the positive dynamics of revenue from technological connection in 2014 compared to 2013, which was caused by the presence in the structure of revenue in 2014 of the contracts with major applicants.