Tariff setting for electricity transmission services has the following stages:

Levels of decision making in the setting of tariffs for electricity transmission services

REC submits proposals for Predictive Balance Structure and tariff request

REC submit to FAS of Russia justified proposals for setting limit levels of tariffs for power transmission services

Approval by FAS of Russia of limit max and min tariffs for power transmission services

Approval of power transmission service tariffs by REC (single boiler and individual tariffs)

In 2015, two methods were used for setting electricity transmission tariffs at the Company’s branches, in particular RAB regulation and long-term indexation of the required gross revenue (RGR). The regulation method for each of the Company branches was chosen by the corresponding REC, based on the provisions of Order No. 1178 by the Russian Government dated December 29, 2011.

The RAB regulation provides for the return of capital invested in the Company’s assets in the specified period, and for a standard return. The rate of return on the ‘new capital’ is defined by the Federal Tariff Service, and it is defined on the ‘old capital’ by REC.

The actions taken in 2015 that affected the tariff policy

• On July 21, 2015, the Federal Tariff Service of Russia was abolished by the Decree of the President of the Russian Federation and its powers were given to the Federal Antimonopoly Service of Russia.
• The RECs’ decision to revise the tariffs for electricity transmission services, starting from July 1, 2015, pursuant to Decree No. 458 by the Government of the Russian Federation dated May 11, 2015, “On the approval of amendments to certain acts of the Government of the Russian Federation in order to improve the procedure of electricity volume purchase at the wholesale market for delivery to households and to equivalent categories of consumers and of electricity volume purchase by the Unified National Power Grid”.

Tariff TRENDS

The trends in the average ‘boiler’ tariffs for electricity transmission services from 2011–2015 are shown by branch in Appendix to this Annual Report.

You can find the information on electricity transmission tariffs on the Company’s website.

Required gross revenue (RGR)

Due to the tariff regulation, the ‘boiler’ RGR of the Company in 2015 (with the tariff revision from July 1, 2015) amounted to RUB 80,702.6 mln, which is a 0.3% increase compared to 2014. The own RGR of the Company increased by RUB 800.1 mln (+2.1%).

The RGR trends from 2011–2015 are shown by branch in Appendix to this Annual Report.

The largest increase of the Company’s own RGR was seen at two branches, namely, Belgorodenergo with RUB 819 mln (11.7%) and Tambovenergo with RUB 272.6 mln (13.1%).

The RGR decreased at Bryanskenergo (4.8%), Voronezhenergo (2.3%), Lipetskenergo (2.3%), Orelenergo (2.0%), and Yarenergo (7.3%).

In the structure of ‘boiler’ RGR, the largest share is that of the RGR for the maintenance of the Company branches (48.9%), whereas the costs for services by the Federal Grid Company of Unified Energy System amount to 21.7%. The RGR structure has not changed much since 2014.

RGR trends in 2011–2015 by branches, as well as the evaluation of the Company’s share in the RGR regions are given in Annex 3.5 to this Annual Report.

Explanations of average tariff TRENDS and RGR TRENDS

Despite the energy consumption decrease caused by the worsening economic situation in Russia, the Company provided secured long-term regulation parameters and RGR for the maintenance of the Company as a whole. The augmentation of electricity transmission tariffs in 2015 was 7.5%, which is in accordance with the tariff restrictions by the Ministry of Economic Development of the Russian Federation (hereinafter — the MED) and at the level of the maximum electricity transmission tariffs approved from July 1, 2015.

At two branches — in the Belgorod and Kursk Regions — which have the highest electricity consumption via the facilities rented by ENES, the Company held the additional tariff augmentation by 2%, in excess of the limits fixed by MED, to compensate for the Company’s “shortfall in income”.

The Federal Tariff Service of Russia approved an additional excess of 4% of the standard tariff increase in Voronezh (Decree No. 2421-e dated December 29, 2014), with this excess being due to an additional increase of the straight-line boiler tariff.

Since June 1, 2014, the functions of guaranteeing the electricity supplier in the Bryansk Region were given to TEK-Energo LLC. A mixed ‘boiler’ scheme of settlements between the grid companies has been functioning since September 1, 2014. The Company set an individual electricity transmission tariff for mutual settlements between Bryanskoblenergo LLC and the Bryanskenergo branch. As a result, in 2015 electricity transmission tariffs in the Bryansk Region were approved based on the mixed ‘boiler’ scheme of settlements. For this reason, the comparison of 2015 and 2014, in relation to an increase of the average straight-line tariff, cannot be made.

The tariffs for grid connection services are regulated by RECs, using one of the following methods:

Setting of tariff rates for grid connection services:
at the choice of applicant:
Standardised tariff rates (RUB/km, RUB/kW)	Rates per unit of max. power (RUB/kW)	Payment for customers and facilities for generation power Power at least 8,900 kW and at the level of voltage of not less than 35 kW based on individual design

Since 2013, the fees and rates for electricity grid connection have been defined pursuant to the Methodological Guidelines approved by Decree No. 209-e/1 of the Federal Tariff Service of Russia dated September 11, 2012.

Pursuant to these guidelines, the rates per maximum capacity unit are set in the prices of the regulation period, and the standardized tariff rate for coverage of the grid company’s construction costs, in the prices of the year 2001.

Privileged grid connection terms

The Company has special privileged grid connection terms for individuals with the capacity not exceeding 15 kW inclusive, as well as for gardeners, countryside associations and other non-profit organisations (garage cooperatives), and religious organisations; the fee is a maximum of RUB  550 For connections with the third category of reliability and with power receiving devices at a distance to existing transmission facilities of not more than 300 meters in cities and 500 meters in rural areas. .

The privileged terms for grid connection are defined in paragraph 17 of the Rules for grid connection to power receiving devices, approved by Decree No. 861 of the Government of the Russian Federation dated December 27, 2004.

In 2015, over 90% of the contracts concluded with the consumers were in privileged categories. Other consumer categories used the following fee calculation options in the reported year:

Since October 1, 2015, the investment part of the fee for grid connection to power receivers, with a maximum capacity of not more than 150kW, may not exceed 50%.

The costs of connection for privileged consumer categories, which are not included in a fee for grid connection (“shortfall in income”), are compensated by electricity transmission tariffs.

In 2015, the ‘lost earnings’ included in the electricity transmission tariffs amounted to RUB 551 mln.

Tariff differentiation criteria

The grid connection tariff rate for any applicant consists of several components that are set based on the following costs by the grid company (to cover its own expenses):

• costs of grid connection to power receiving devices, including preparation and issues of technical specifications to the applicant, control of whether the applicant observes the technical specifications, inspection of the power receiving devices at the applicant’s facilities, and the connection of the applicant’s facilities;
• costs of construction for overhead power lines;
• costs of construction for cable power lines;
• costs of construction for substations.

Moreover, all branches have the following ranking of rates:

• By consumer category,
• By voltage level,
• By volume of connected capacity.

Additionally:

• by cable type — in Bryanskenergo.
• by cable type, by type of the equipment used — in Kostromaenergo, Tverenergo, Yarenergo.

Thus, the total rate of an applicant depends on the volume of the required works to be performed according to the technical conditions of the applicant’s facility.

Rate per unit of maximum capacity

In 2015, the average rate per unit of capacity decreased by 9% compared to 2014 and amounted to 5,168.7 RUB/kW. Such trends are due to the higher growth of connected capacity volume compared to the growth of the RGR taken for rate calculation.

The trend in the average fee rate per unit of capacity for 2012–2015 shown by branch in Appendix to this Annual Report.

The average standardised tariff rates are shown by branch in Appendix to this Annual Report.

Standardised tariff rates

Rates for individual projects

The rates for consumer grid connection, under individual projects (electricity generation facilities with a maximum capacity of at least 8,900 kW and a voltage level of at least 35 kV), are individually set by the regulator for each applicant.