Sales of electricity and heat

RusHydro Group’s steady development depends on stable electricity and capacity sales in the wholesale market and the growing retail business providing for smooth and efficient power supply to consumers, which remains one of its priorities.

The Group sells electricity in Russia both in the wholesale electricity and capacity market (first and second price zones of the wholesale market and UES East’s non-price zone) to major consumers and to retail consumers via its retail companies and guaranteed suppliers.

WECM performance

The wholesale electricity and capacity market (WECM) participants include generating companies, electric power exporters/importers, electricity retailers, electric grid companies (electricity purchases to cover transmission losses), and large consumers. The wholesale electricity and capacity market covers both price and non-price zones. The first price zone comprises the European part of Russia and Urals, while the second price zone encompasses Siberia. Special wholesale trading rules apply to the non-price zones that include the Arkhangelsk and Kaliningrad Regions, Komi Republic, and regions in the Far East, including the Western and Central Energy Districts of the Republic of Sakha (Yakutia).

Under the Russian law, all electricity and capacity facilities with an installed capacity of over 25 MW located in the price and non-price zones are required to sell their products in the WECM only. Power plants with a capacity below 5 MW are required to trade in the retail electricity market (REM) only, while power plants with a capacity between 5 MW and 25 MW can trade in both WECM and REM.

WECM price zones

The WECM has several sectors that offer different transaction terms and delivery times:

  • regulated contracts (RC) cover electricity and capacity volumes supplied to households and equivalent consumer categories under regulated prices (tariffs) approved by Russia’s Federal Antimonopoly Service. Total electricity and capacity supplies under regulated contracts may not exceed 35% of electricity and capacity output;
  • the day-ahead market (DAM) is a place where power generated in excess of the RC volumes is traded at market prices. Prices are determined through a competitive bidding process one day ahead of the delivery, with bids accepted from both the suppliers and buyers. The DAM market uses the marginal pricing mechanism, which balances supply and demand and applies to all market participants;
  • the balancing market (BM) is a real-time vehicle used to balance discrepancies between the power volumes actually produced/consumed and those originally planned. Discrepancies between the planned and actual consumption occur as a result of internal and external initiatives. Internal initiatives come from the market participants (consumers or suppliers), while external initiatives are reserved to the System Operator. The discrepancies are priced in such a way as to encourage market participants to adhere to the planned electricity consumption and production volumes as determined in the DAM and to follow the System Operator’s instructions;
  • capacity auctions (KOM) enable capacity trading at market (unregulated) prices determined through a competitive bidding process. Close to 50% of the capacity in the first price zone and the overwhelming majority of capacity volumes in the second price zone of the wholesale market are sold through capacity auctions;
  • capacity supply agreements (DPM) target power generating facilities included in the designated list approved by the Russian Government’s Decree No 1334‑r dated August 11, 2010. Similar capacity sale agreements exist with respect to newly built HPPs (PSPPs) and NPPs (capacity sale agreements for new NPPs/HPPs). Capacity supply agreements and capacity sale agreements for new NPPs/HPPs ensure fulfillment of supplier obligations under approved investment programs, while also providing payment guarantees for the capacities of newly built (upgraded) generating facilities. A thermal power plant built under a capacity supply agreement is provided with capacity payment guarantees effective for a period of 10 years (20 years under capacity sale agreements for new NPPs/HPPs), which ensures recovery of the capital and maintenance expenditures and the target level of return. The capacity price under capacity supply agreements and capacity sale agreements for new NPPs/HPPs is paid by all consumers of the relevant price zone. The main restraining factor for prices under capacity sale agreements for new NPPs/HPPs is the decrease in the average yield of long-term Russian Government bonds used to calculate the capacity price for suppliers from 10.04% in 2017 to 8.393% in 2018;
  • capacity sale contracts for must-run generating facilities are signed by suppliers with respect to generating facilities designated by the Russian Government (based on proposals from the Government Commission on the Development of the Electric Power Industry) or generating facilities ordered by an authorized body to suspend decommissioning in accordance with the rules for decommissioning of electric power facilities and their shutting down for repairs. The capacity of must-run facilities generating electricity to avoid power shortages is paid for by consumers of the relevant free power transfer zone. The capacity of must-run facilities generating power to avoid heating shortages is paid for by consumers of the relevant Russian region;
  • unregulated bilateral contracts, as well as unregulated electricity and/or capacity sales contracts (FBC, FECC, FCC) allow the WECM participants to sign electricity and/or capacity sales contracts at unregulated prices.

The Russian energy system is served by dedicated technological and commercial infrastructure operators.

Non-Profit Partnership Council for Organizing Efficient System of Trading at Wholesale and Retail Electricity and Capacity Markets (Market Council Non-Profit Partnership established under Federal Law No. 35-FZ On Power Industry dated March 26, 2003) is responsible for running the wholesale market’s commercial infrastructure.

Trading System Administrator of the Wholesale Electricity and Capacity Market (JSC TSA) is responsible for administering electricity transactions in the wholesale market (the trading system of the wholesale market).

Financial settlements between the WECM participants are handled through the Center for Financial Settlements (CFS).

The WECM technological infrastructure is administered by the System Operator of the Unified Energy System which exercises exclusive and centralizedoperational management of Russia’s Unified Energy System and monitors compliance with the system’s technological parameters. The System Operator supports the wholesale electricity and capacity market by updating the calculation model, based on which the Commercial Operator determines the WECM power volumes and prices. In addition, it decides on the structure of operating generating facilities, administers capacity auctions, and provides support to the balancing market.

The market’s technological infrastructure is also supported by the Federal Grid Company (FGC UES), which manages the unified national electric grid (UNEG), and interregional distribution grid companies (IDGC).

The activities of infrastructure operators, including their pricing policies and counterparty relations, are subject to government regulation and control.

Regulatory framework for tariff-related decision making

Federal Law No. 35-FZ On Electric Power Industry dated March 26, 2003 outlines the basic principles and methods of state regulation in the electric power industry and the regulators’ scope of authority.

The Russian Government’s Resolution No. 1172 On Approval of Rules for the Wholesale Electricity and Capacity Market and on Amendments to Certain Acts of the Government of the Russian Federation Concerning Organization of the Wholesale Electricity and Capacity Market dated December 27, 2010 establishes the legal framework governing the wholesale electricity and capacity market.

The procedure and timing for financial settlements and approval of electricity and capacity tariffs are set out in the Russian Government’s Resolution No.  1178 On Pricing in the Field of Regulated Prices (Tariffs) for Electric Power dated December 29, 2011.

Tariff setting for generating facilities across WECM price zones:

Tariffs for the generating facilities operating within the WECM are set by Russia’s Federal Antimonopoly Service (FAS) in line with a methodology developed by the Federal Tariff Service (FTS abolished in 2015 to be succeeded by FAS).

The primary tariff calculation methodology for the WECM generating facilities (including those located in the non-price zone) is the one based on indexation. It was approved by FTS Order No. 210-e/1 On Approval of Indexation Formulas for Regulated Prices (Tariffs) of Electricity (Capacity) Used in Electricity (Capacity) Sale Contracts, Procedure for their Application, and the Procedure for Calculating Planned and Actual Indicators for the Purposes of Such Formulas dated August 28, 2014. The base tariff calculated in 2007 is annually adjusted to factor in the index of changes in semi-fixed costs as determined by the Russian Ministry of Economic Development. The  4% deflator index in the 2018 tariff was in line with the PPI (excluding contribution from the energy sector). This methodology is also used for new generating facilities starting from the second year of their operation. With respect to the facilities operating under supply and sale agreements, the methodology applies to electricity generation only.

During the first year in the wholesale market, the tariff for generating facilities located in non-price zones is set based on economically justified expenses approved by FTS Decree No. 199-e/6 On Approval of Guidelines for Calculation of Regulated Wholesale Electricity and Capacity Tariffs (Prices) under Sale Contracts dated September 15, 2006. This methodology determines the economically justified amount of financial resources a company needs to operate at regulated tariffs within a specific regulation period (the return on investments, which is accrued through amortization, is not taken into consideration).

For facilities operating under sale agreements for new NPPs/HPPs, the capacity price is calculated by FAS in line with the methodology approved by FTS Decree No. 486-e On Approval of Capacity Pricing Procedure for Newly Built Nuclear and Hydroelectric Power Plants (including Pumped Storage Power Plants) dated October 13, 2010.

Average tariffs under regulated contracts (RC) and gross revenue requirement (GRR) for electric power generation
Item 2017 2018 2018−2017 2018/2017, %
Average tariff under RC, RUB / ‘000 kWh 340.67 357.39 16.72 4.9
GRR, RUB ‘000 23,050 23,131 81 0.4

Key WECM tariff drivers:

  • tariff indexation, with the 2018 deflator index standing at 4% (in line with the PPI, excluding the energy sector’s contribution);
  • increase of tax rates for facilities using water bodies for the purposes of hydropower generation without water withdrawal (as required by Russia’s Tax Code, a coefficient of 1.75 was applied to the tax rates in 2018).

Major regulatory changes included amendments to the Russian Government’s Resolution No. 876 dated December 30, 2006 which, among other things, raised the fees paid for using water bodies or parts thereof for the purpose of electric power generation with no water withdrawal operations by approximately 10%. These amendments have been in effect since 2018.

Electricity sales in the first and second price zones

RusHydro directly sells electricity in the WECM’s first and second price zones.

Electricity sales are governed by the Company’s local internal documents:

  • Regulations for Information Exchange in the Economic Dispatching Business Process;
  • RusHydro’s Sales Policy Regulations;
  • Regulations for Developing Annual and Forward-Looking Long-Term Balance Projections for Production and Consumption of Electricity and Capacity and Heat in the Areas outside of the Price Zones of the Wholesale Market;
  • Regulations on RusHydro’s Sales Management;
  • Regulations for Interaction between RusHydro’s Business Units Following up on Contracts Related to Electricity and Capacity Sales.
Sendout of electricity and capacity by RusHydro (branches)
Item 2017 2018 2018/2017, %
Output, mn kWh 91,146 92,927 2.0
Sendout (excluding electricity purchases), mn kWh 89,887 91,684 2.0
Electricity purchased, mn kWh 9,192 10,116 10.1
Total sales, mn kWh 96,350 99,093 2.8
Capacity, MW 21,645 21,423 –1.0

The Group increased actual output and sendout of electricity by 2.0% y-o-y, mainly due to higher power generation by HPPs in Siberia and in the Far East thus boosting sales volumes, including in the day-ahead market (DAM). In 2018, RusHydro’s average DAM price was RUB 1,285 per MWh (+6.0%) for the European part of Russia and RUB RUBRUBRUBы

Electricity prices, RUB/MWh Trading System Administrator data.
The first price zone

The second price zone
RusHydro’s electricity and capacity sales prices
2014 2015 2016 2017 2018 2018-2017 2018/2017, %
DAM price, RUB/MWh 1,072.9 1,096.0 1,080.0 1,094 1,114 20 1.8
1 PZ DAM price, RUB/MWh 1,226.9 1,207.1 1,267.2 1,224 1,285 61 5.0
2 PZ DAM price, RUB/MWh 776.8 882.5 793.3 824 825 1 0.1
KOM price, RUB/ MW per month 116,190.6 127,564.1 139,780.8 580,558 783,822 203,264 35.0
1 PZ KOM price, RUB/ MW per month 140,566.7 125,524.0 111,627.7 3,212,516 4,312,779 1,100,263 34.2
2 PZ KOM price, RUB/ MW per month 68,492.8 131,695.6 178,724.1 283,873 342,675 58,802 20.7

The DAM price in the first price zone grew on the back of lower price-taking supply of HPP electricity in the first price zone in H2 2018 and the rising supply of expensive TPP electricity.

The DAM price in the second price zone changed only marginally.

Capacity sales price changes were mainly attributable to rising KOM (capacity auction) prices.

The KOM price growth was driven by the capacity price surcharge effective from January 2018 (vs 2017 when the surcharge was introduced effective from July 2017) as the Russian Government designated RusHydro to collect and transfer the surcharge amount to the Far East in order to bring the region’s tariffs in line with the Russian base rate.

RusHydro’s electricity and capacity sales rose mainly due to the rising power generation and a higher base of funds used for calculating the capacity price surcharge.

Sales of electricity and heat in retail markets

Companies operating within the designated price zones of the retail electricity market are guided by the retail market pricing rules based on the WECM tariffs, while also taking into account approved tariffs for services subject to government regulation.

Electricity sold in the retail market is either purchased in the WECM or sourced from generating companies that do not operate in the wholesale market. In the Russian regions included in non-price zones of the wholesale market, the retail electricity price for end consumers is set based on the wholesale market prices. Prices aligned with the wholesale market apply to all end consumers, with the exception of households and equivalent consumer categories.

Households and equivalent consumer categories are supplied with power at regulated prices (tariffs) approved by the regional executive authorities in charge of tariff regulation.

On November 16, 2018, FAS published Order No. 1413/18 of October 12, 2018 introducing amendments to the Guidelines for Calculation of Electricity (Capacity) Tariffs for Households and Equivalent Consumer Categories. These amendments updated the formulas for calculating the electricity (capacity) tariff for households within the social consumption limit differentiated by the time of use during the day (two and three-rate tariffs). In addition, they adjusted the formulas for calculating the electricity (capacity) tariff for households in excess of the social consumption limit and formulas for calculating tariffs for the transmission of electric power supplied to households within and in excess of the social consumption limit. Finally, the maximum value of coefficient reflecting alignment of multiple rate tariffs for households with the single-rate electricity (capacity) tariff was raised to 4.0.

The sales in the first and second price zones are consolidated within JSC ESC RusHydro Subgroup (JSC ESC RusHydro, PJSC Krasnoyarskenergosbyt, PJSC Ryazanenergosbyt, JSC Chuvashskaya Electricity Sales Company) whose core business is to supply electricity both directly and via its retail subsidiaries acting as guaranteed suppliers in three Russian regions. In 2018, ESC RusHydro Subgroup supplied electricity to 1,843,222 consumers in the retail market, including 1,786,334 households on direct contracts. Total sendout of electricity amounted to 20,272.5 mn kWh in 2018.

The number of consumers (households and corporates) in service in the first and second price zones [EU3]
Consumer Active contracts for electricity
Manufacturing industry 3,761
Transport and communications 1,135
Agriculture 2,282
State-financed 5,628
Management companies, condominiums, housing associations, etc. 1,864
Resource providers 75
Housing and utilities 908
Heat suppliers 89
Other 41,146
Households on direct contracts 1,786,334
Total accounts 1,843,222

JSC ESC RusHydro seeks to:

  • Consolidate retail companies and create a unified sales framework to introduce uniform operating standards in line with RusHydro’s approved corporate standards;
  • create a single retail name brand, common standards of retail sales;
  • expand its footprint elsewhere in Russia, establish a center of excellence for retail sales;
  • minimize costs through centralization of certain functions of acquired retail companies within ESC RusHydro as RusHydro’s specialized subsidiary;
  • increase margins for RusHydro Group through vertical integration; and
  • acquire guaranteed consumers for electricity produced by RusHydro’s HPPs.

The companies selling electricity to retail consumers in the Far East are:

  • PJSC DEK acting as a guaranteed supplier in UES East’s non-price zone.
  • In the Far East, retail sales of electricity and heat in isolated energy systems are covered by PJSC Yakutskenergo, PJSC Sakhalinenergo, PJSC Magadanenergo, JSC Chukotenergo, PJSC Kamchatskenergo, and JSC UESK.

DGK, JSC Teploenergoservis and JSC Sakhaenergo supply retail consumers with heat only.

In 2018, RAO ES East Subgroup served retail consumers under 2,565,255 electricity supply contracts, including 2,478,200 households, and 884,542 heat supply contracts, including 864,182 households.

In 2018, total sendout of electricity under RAO ES East Subgroup’s retail contracts amounted to 30,153.6 mn kWh, while sendout of heat reached 22,370,500 Gcal.

The number of consumers (households and corporates) in service in the Far Eastern Federal District (RAO ES East Subgroup) Data provided for retail subsidiaries. from January 1, 2018 to December 31, 2018 [EU3]
Consumer Active contracts
Electricity Heat
Manufacturing industry 3,169 436
Transport and communications 2,137 59
Agriculture 1,655 32
State-financed 11,179 3,308
Management companies, condominiums, housing associations, etc. 12,154 2,497
Resource providers 24 2
Housing and utilities 957 23
Heat suppliers 8
Other 55,780 13,995
Households 2,478,200 864,182
Total accounts 2,565,255 884,542
Results of activities aimed at reducing consumer debt

Debt recovery is one of RusHydro Group’s key focus areas for reducing receivables. As at December 31, 2018, RusHydro Group’s receivables from buyers and consumers grew by 6% to  RUB 65,147 mn.

As at December 31, 2018, payments received by RusHydro for electricity supplies to WECM stood at 99.1%. In the same period, payments received for electricity supplies to retail markets of the European part of Russia and Siberia stood at 100.2% at PJSC Krasnoyarskenergosbyt (RUB  41,820 mn, incl. VAT), 98.3% at JSC Chuvashskaya Electricity Sales Company (RUB  13,143 mn, incl. VAT), 99.3% at PJSC Ryazanenergosbyt (RUB 12,034 mn, incl. VAT), and 99.4% at JSC ESC RusHydro (RUB5,963 mn, incl. VAT).

At JSC RAO ES East Subgroup, as at December 31, 2018, total payments received for electricity and heat in the retail market totaled 97.2%, with receivables of RUB 33,869 mn (incl. VAT). The company received 97.6% of payments for electricity and 96.4% for heat in the retail market. The receivables for electricity and heat amounted to RUB  15,148 mn (incl. VAT) and RUB  18,721 mn (incl. VAT), respectively.

RusHydro Group companies use the following three approaches to improve debt recovery:

  • interacting with consumers and executive authorities and introducing outreach measures aimed at improving payment discipline;
  • recovering debt through court;
  • disconnecting the electricity supply for non-payment.

Receivables from buyers and consumers, RUB bn
Improvement of payment discipline through outreach measures

Drawing attention to systemic non-payment of energy bills is an effective way to improve payment discipline among households, businesses and public sector.

The prompt payment culture is created through measures encouraging regular and timely payment. Given that utility service providers are among the biggest debtors, these initiatives seek to incentivize those management companies, condominiums and housing associations that fulfil their payment obligations promptly.

Other actions include regular posting of ‘black lists’ of persistent non-payers featuring organizations with the worst payment discipline and the highest debt levels.

Encouraging early payment has also been proven effective in addressing the debt issue. In 2018, Far Eastern Energy Company and DGK ran a joint campaign ‘New Year Without Debts’ writing off penalties accrued in unpaid electricity and heat bills (unless claimed through court) for the debtors from the Primorye and Khabarovsk Territories, Amur Region and Jewish Autonomous Region who had paid their electricity and heat arrears before December 20, 2018.

Debt recovery through court

As part of its efforts to reduce receivables, RusHydro Group works to enforce debt recovery through court action:

  • In 2018, ESC RusHydro Subgroup filed 40,876 claims to recover debt on electricity bills for a total of RUB  4,514 mn, of which 4,598 claims against legal entities, including 94 claims of RUB 918 mn against grid companies purchasing electricity to offset grid losses, 643 claims of RUB 454 mn against state-funded organizations, and 36,184 claims of RUB 249 mn against individuals. Courts of different instances satisfied 30,204 claims for RUB The Board recommends paying out dividends in the amount of RUB 2,394 mn. The measures that bailiffs may use for non-payment include direct debiting, freezing injunction, travel restriction, and restriction on disposal (sale, transfer by gift, etc) of cars and real estate.
  • In 2018, RAO ES East Subgroup filed 197,021,000 claims to recover debt on electricity and heat bills for a total of RUB  12,144 mn, including 7,191 claims of RUB  9,336 mn against legal entities, of which 1,089 claims against state-funded organizations, and 189,830 claims of RUB 2,808.3 mn against individuals. Courts of different instances satisfied 186,139 claims for RUB 9,364 mn.

Disconnection for non-payment

Disconnection for non-payment is an effective measure, but a last resort in ensuring debt recovery. The supply is disconnected upon notice made in accordance with the applicable legislation and delivered by hand, on signature of a delivery receipt, by registered post, via text message or by phone. The notice is sent 10  days before the actual disconnection. After disconnection, the electricity supply may not be resumed until the debt has been paid in full (or a debt restructuring agreement has been signed), including the penalties and reconnection fees.

ESC RusHydro Subgroup: in 2018, RUB 14,963 mn of debt was repaid by 300,000 consumers after receiving notices, RUB 466 mn by 22,522 consumers after disconnection, including RUB 73 mn by households. Total number of consumers disconnected in 2018 amounted to 66,577, including 64,093 consumers from the Households group.

RAO ES East Subgroup: total number of disconnections for non-payment in 2018 amounted to 244,775, including 239,550 disconnections in the Households group.

Electricity markets in the Far Eastern Federal District

Tariffs in the non-price and isolated zones of the Far Eastern Federal District are set by the federal executive authorities (FTS until July 21, 2015, and FAS after July 21, 2015) and the regional executive authorities in charge of tariff regulation (regional regulators). There are no unregulated tariff zones in the Far Eastern Federal District.

In the non-price zone of the WECM, a single purchaser model has been put in place, with suppliers selling electricity and capacity to a single purchaser at set rates. Wholesale customers buy electricity and capacity from the single purchaser at prices calculated by the Trading System Administrator ), based on indicative buyer prices set by FAS.

In accordance with paragraph 170 of the Russian Government’s Resolution No. 1172 of December 27, 2010, Far Eastern Energy Company (DEK) has been designated as the single purchaser in the Far East. Accounting for over 50% of retail electricity supplies in the Far East, DEK is an electricity retailer created through restructuring of regional energy and electrification companies. The company is the guaranteed supplier in the Amur Region, Jewish Autonomous Region, and Khabarovsk and Primorye Territories. DEK’s share in the total retail UES of the East electricity consumption stands at over 85%.

In some areas of the Far East, including the isolated energy systems of the Kamchatka Territory, Magadan Region, Chukotka Autonomous Area, Western and Central districts of the Republic of Sakha (Yakutia) and Sakhalin Region, retail market is the only available option as these areas are not linked to the Unified Energy System of Russia.

According to the Russian Government’s Resolution No. 1496 On Connecting the Western and Central Energy Districts of the Republic of Sakha (Yakutia) to the Unified Energy System of Russia, and on Amending and Classifying as Invalid Certain Acts of the Government of the Russian Federation dated December 8, 2018 and published on December 10, 2018, the Western and Central Energy Districts of the Republic of Sakha (Yakutia) are included in the non-price zone of the Far Eastern WECM effective from January 1, 2019.

Electricity tariffs and supply in the Far Eastern Federal District

Federal Law No. 35-FZ On Electric Power Industry dated March 26, 2003 outlines the basic principles and methods of state regulation in the electric power industry and the regulators’ scope of authority. The basic principles and methods of price (tariff) regulation in the electric power industry and the procedure for setting tariffs are set out in the Russian Government’s Resolution No. 1178 On Pricing in the Field of Regulated Prices (Tariffs) for Electric Power dated December 29, 2011.

For the purpose of tariff determination, regulators used the following regulation methods:

  • tariffs for DGK electricity (capacity) supplies in the WECM non-price zones (as approved by FAS Order No. 1736/16 of December 8, 2016) were calculated using the indexation methodology;
  • DRSK electricity transmission tariffs for services provided by Amur and Khabarovsk Power Systems were determined based on the regulatory asset base method (RAB), while tariffs for services provided by Primorye Power System, Electric Networks of the Jewish Autonomous Region and South-Yakutsks Power System were set using long-term indexation of required gross revenue;
  • sales surcharge for PJSC DEK was determined using the comparative method;
  • electricity tariffs for end consumers in isolated zones were determined using the method of economically justified expenses.

Since July 1, 2016, in the WECM non-price zone numerical tariff values are no longer set for other consumers. In accordance with the estimated tariff values determined based on indicative prices, the uniform transmission tariff and the sales surcharge approved by the regulator, the tariff increase in the WECM non-price zone ranged from 0.35 to 23.64%.

In 2018, the overall increase in average electricity tariffs for consumers in the isolated zone of the Far Eastern Federal District amounted to 14.44% y-o-y. The smallest increase was registered by JSC UESK (6.1%), while the largest one (88.1%) was delivered by JSC Chukotenergo (owing to inclusion of additional costs to the required gross revenue to offset the cost of electricity purchased from Bilibino NPP in 2017).

The average annual increase in wholesale energy price of DGK in 2018 amounted to 0.97% y-o-y, with the electricity rates declining by 0.5% and capacity rates growing by 4.1%.

The weighted average energy rate for all of the DGK plants was: RUB 1,321.33 per MWh in H1 2018 and RUB 1,327.98 per MWh in H2 2018 (an increase of 0.5% over H1 2018).

Key factors behind changes in the DGK electricity tariff rates in H2 2018 compared to the rates approved for H2 2017 included lower per unit fuel consumption at production facilities, 2018 gas prices under the Consortium- 1 project, and application of growth indices for coal and fuel oil in 2018 with downward adjustment based on the actual 2016 indices.

The average DGK capacity tariff rate was:

  • RUB 262,332 / MW per month in H1 2018;
  • RUB 272,172 / MW per month in H2 2018 (an increase of 3.7% over H1 2018).

Power transmission tariffs at DRSK

For the branches of JSC DRSK (Primorye Power System, Amur Power System, Khabarovsk Power System, and Electric Networks of the Jewish Autonomous Region (ES EAO)), 2018 marked the beginning of the second long-term regulation period. During this period (2018–2022), electricity transmission tariffs for Amur and Khabarovsk Power Systems will be regulated using the ROIC method, while tariffs for Primorye Power System and Electric Networks of the Jewish Autonomous Region will be set using long-term indexation of required gross revenue.

For South-Yakutsk Power System, 2018 was the last year of the long-term regulation period, with tariffs for 2014–2018 set using the long-term indexation method.

In 2018, the average power transmission tariff growth within the footprint of DRSK was 1.14% y-o-y, with sendout and required growth revenue increasing by 2.28% and 3.44%, respectively.

For the purposes of transition to the next long-term regulation period (effective for all branches except for South-Yakutsk Power System), the base level of controllable expenses was determined using the comparative method, with the company-wide controllable costs growing by 19.06%.The opex efficiency ratio was approved at 2% for the entire duration of the long-term regulation period.

The company-wide per unit opex accounted for in the 2018 tariffs rose by 15.38% compared with 2017.

Average electricity tariffs in the Far Eastern Federal District, RUB/MWh
The amount of the surcharge with a breakdown by regions of the Far Eastern Federal District, RUB bn

Alignment of tariffs in the Far Eastern Federal District with national averages: impact on the regions and RusHydro [EU23]

Federal Laws No. 508-FZ dated December 28, 2016 and No. 129-FZ dated June 30, 2017 On Amendments to the Federal Law On Electric Power Industry introduced a surcharge to the capacity price in the first and second price zones, helping to bring tariffs in the Far East down to the Russian base (average) rate.

These amendments provide for a surcharge to be applied to the capacity price in the WECM price zones, with proceeds from the surcharge transferred to the regional budgets of the Far Eastern Federal District in the form of target non-repayable contributions.

As part of the effort to bring electricity (capacity) prices (tariffs) for the Far Eastern consumers other than households to the base rate, the Government issued Decree No.  2527 dated November 15, 2018 to set the base electricity (capacity) price (tariff) for 2018 at RUB 4.3 per kWh. Currently, the effective average tariff for industrial consumers in the above areas ranges from RUB 4.58 to RUB  32.3 per kWh.

As part of the effort to align prices in the Far East with the Russian base rate, the surcharge amount for 2018 was approved by the Russian Government at RUB 35,032.3 mn.

In 2018, the alignment mechanism was used in five out of nine regions of the Far Eastern Federal District. In all of those regions, before introducing this mechanism, the average electricity tariff for consumers was higher than RUB 4.3 per kWh. Tariff reduction does not result in lower revenue, as it is fully offset by government subsidies paid from the budget funds generated by surcharge to the capacity auction rate. Total subsidies received by guaranteed suppliers from RusHydro Group as compensation for the shortfall in income following tariff alignment amounted to RUB 26,480.6 mn in 2018.

In 2018, the Group was actively involved in the work on the Russian Government’s draft resolution aimed at changing the tariff system. The new system provides for a switch to long-term tariff regulation for existing power generation facilities to reflect the actual fuel costs incurred by energy companies.

Long-term regulation takes into account, among other things:

  • base operating costs;
  • opex efficiency ratio (X factor);
  • energy saving and energy efficiency indicators.

This project is currently assessed for its regulatory impact and is awaiting the conclusion of the Russian Ministry of Justice.

Electricity sales in the Far East’s non-price zone

In 2018, PJSC DEK acting as the single purchaser in the non-price zone of the Far East’s wholesale electricity (capacity) market purchased 30,998 mn kWh. Its commercial purchases of electricity and capacity in the WECM for PJSC DEK amounted to RUB 51,646 mn in 2018.

Electricity sales stood at 11,157 mn kWh in the WECM (besides, the company sells electricity in the retail market). DEK’s commercial sales of electricity and capacity in the WECM amounted to  RUB 20,198 mn 2018.

WECM electricity sales in non-price zone
Item 2017 2018 2018/2017, %
WECM electricity purchases by PJSC DEK, mn kWh 30,738 30,998 1
Cost of WECM electricity (capacity) purchases by PJSC DEK, RUB mn 50,388 51,646 2
WECM electricity sales by PJSC DEK, mn kWh 8,229 11,157 36
Cost of WECM electricity (capacity) sales by PJSC DEK, RUB mn 15,202 20,198 33
Supply of electricity by DGK, mn Wh 21,388 22,391 5
Cost of WECM electricity (capacity) supplied by DGK, RUB mn 48,445 49,711 3

As new consumers were tapping into the wholesale market, the volumes and cost of electricity (capacity) sales grew by a sound 36% and 33% y-o-y, respectively. The bulk of demand came from Rusenergosbyt LLC building up purchases for JSC Russian Railways in the Amur Region.

In 2018, PJSC DEK supplied 22,391 mn kWh in the non-price zone of the Far East’s wholesale electricity (capacity) market. Its commercial sales of electricity and capacity in the WECM for DGK amounted to RUB 49,711 mn in 2018.

The cost of electricity (capacity) supply grew by 3% y-o-y, mainly due to the rising electricity sales volumes and tariff indexation.

Heat market

In the heat generation market of the Far Eastern Federal District, RusHydro is represented by RAO ES East Subgroup and Bureyskaya and Zeyskaya HPPs.

Heat is supplied on a centralized basis from the thermal power plants and boiler stations operated by energy systems. Some energy systems engage in both heat production and distribution, while others do not go beyond production operations.

Unless stipulated otherwise, sale of heat is fully regulated under the Russian law.

Federal Law No. 190-FZ On Heat Supply dated July 27, 2010 sets out the basic price (tariff) regulation principles for heat supply and the scope of authority of regulators in charge of heat supply price (tariff) regulation. The Russian Government’s Resolution No.  1075 On Pricing in the Field of Heat Supply dated October 22, 2012 outlines the main regulation principles and procedures for calculating and approving heat tariffs.

On July 19, 2017, amendments were introduced to Federal Law No.  190‑FZ On Heat Supply dated July 27, 2010 to enable transitioning from fully regulated prices (tariffs) for heat supplies to contractual prices (with certain caps provided for the benefit of consumers). This approach is based on the so-called “alternative boiler” principle, which provides for capping the contractual consumer price at a level sufficient to cover for the construction and maintenance of an alternative boiler station not included in the centralized heat supply system. In some municipalities, a transition to this model has been underway since 2018.

In the Far East, heat tariffs in 2018 were set using the long-term indexation method in line with the Guidelines for Calculation of Regulated Prices (Tariffs) for Heat Supplies approved by FTS Order No. 760-e dated June 13, 2013.

Consumer tariffs for heat supplies in the Far Eastern Federal District, RUB/Gcal Sakhalinenergo and Chukotenergo supply heat from power plants and boiling stations to the wholesale reselling consumers.

The average tariff in DGK zones of operation rose by 4.44%, with the smallest increase (2.74%) registered by LuTEK in the Primorye Territory and the largest increase (56.97%) recorded by Volochayevskaya boiling station in the Khabarovsk Territory (due to revenue adjustment to account for the discrepancy between the actual tariff calculation metrics and the metrics used for setting the 2016 tariff).

In the isolated zones, average consumer tariffs for heat supplies added 5.57%, with the smallest increase (4.24%) recorded by PJSC Kamchatskenergo and the largest increase (11.4%) registered by JSC Chukotenergo. JSC UESK reported an average tariff decline of 8.17% compared to the rate approved for 2017 due to the exclusion of RUB  72.2 mn excess fuel income received in 2016 from the required gross revenue for Penzhinsky Municipal District. Tariffs set for PJSC Sakhalinenergo for 2018 were the same as in 2017.