Network Connection Services

Network connection is comprehensive services that include the actual connection of the following equipment and facilities to networks of grid organizations:

• power-receiving equipment of electricity consumers,
• power generation facilities,
• electric grid facilities owned by grid organizations and other persons.

Network connection services are provided for applicants if:

• power-receiving equipment is put into operation for the first time;
• the connected capacity of previously connected power-receiving equipment under repair is increased,
• the electricity supply reliability categories, connection points, or production operation type of previously connected power-receiving equipment are changed without involving any revision of its connected capacity value, but the external electricity supply of such power-receiving equipment is implemented in a different manner.

Development management for network connection as one of MRSK Holding’s key services involves achieving the following goals:

• improve the regulatory and legal framework to simplify the network connection procedure
• design reasonable tariffs
• increase capacity demand and connected capacity
• assist in developing the schemes and programs of electricity industry development of constituent entities of the Russian Federation
• provide customers with increased information on the conditions and procedure for network connection.

IMPROVING THE REGULATORY AND LEGAL FRAMEWORK OF NETWORK CONNECTIONS

The Company is engaged in coordinating network connection operations conducted by its subsidiaries and dependent companies and is taking part in improving the regulatory and legal framework of this process.

The fundamental documents that govern connection to electric grids of grid organizations are as follows:

• Federal Act No. 35-FZ of March 26, 2003, On the Electric Power Industry
• Resolution of the Government of the Russian Federation No. 861 of December 27, 2004, On the Approval of the Rules of Nondiscriminatory Access to Electricity Transmission Services and the Provision Thereof, the Rules of Nondiscriminatory Access to Operational Dispatching Control Services in the Electricity Industry and the Provision Thereof, the Rules of Nondiscriminatory Access to Services of the Administrator of Trading System of the Wholesale Market and the Provision Thereof, and the Rules of Network Connection of Power-Receiving Equipment of Electricity Consumers, Power Generation Facilities, and Electric Grid Facilities Owned by Grid Organizations and Other Persons to Networks
• Resolution of the Government of the Russian Federation No. 1178 of December 29, 2011, On Pricing in the Area of Regulated Prices (Tariffs) in the Electric Power Industry
• Resolution of the Government of the Russian Federation No. 24 of January 21, 2004, On the Approval of the Standards of Disclosure by Wholesale and Retail Electricity Market Entities

Efforts to improve the regulatory and legal framework of network connection (including with respect to applicants qualifying for network connection on preferential terms) are in accordance with Ordinance of the Government of the Russian Federation No. 754-r of May 6, 2012, On the Approval of the Plan to Prepare Legal Regulations Aimed at Enhancing the Affordability of the Power Infrastructure, and Ordinance of the Government of the Russian Federation No. 1144-r of June 30, 2012, On the Approval of the Action Plan (Road Map) Enhancing the Affordability of the Power Infrastructure.

The Enhancing the Affordability of the Power Infrastructure road map was developed by the Agency for Strategic Initiatives with the participation of experts, including the Company’s employees. Experts at the Company took an active part in formulating proposals that underlie the road map. The goal of the initiative is to provide applicants with easier conditions of connection to the power infrastructure in Russia. According to the proposals, the network connection procedure should be easier, faster, more transparent, and less expensive.

When implemented, the initiative will make it possible to improve Russia’s investment climate and, consequently, raise the inflow of capital into the country and the country’s living standards.

The World Bank’s Doing Business annual rankings are chosen as benchmarks to assess progress in implementing the initiative.

When completed, the road map will considerably decrease the number of connection stages (from 10 to 5), reduce the time required for completing all connection procedures (from 281 to 40 days), and cut connection costs (from 1,852 to 25 percent of GDP per capita) by 2018.

TABLE 8. TARGETS IN THE DOING BUSINESS RANKINGS FOR OBTAINING AN ELECTRICITY CONNECTION

The target of these efforts is to achieve the inclusion of Russia in the top 20 countries according to the rankings.

The following legal regulations were approved in 2012 in order to carry out the measures specified in the road map:

• notification procedure for informing retail companies of the required network connection (Resolution of the Government of the Russian Federation No. 445 of September 4, 2012)
• provision of payment in three-year installments for customers consuming electricity (capacity) in the range of 15 to 150 kW under network connection contracts (Resolution of the Government of the Russian Federation No. 1015 of October 5, 2012)
• approval of the model network connection contract for redistributed capacity (Resolution of the Government of the Russian Federation No. 1209 of November 22, 2012)
• notification procedure for issuing operation permits to the customer’s facilities of 670 kW or below and 10 kV or below (Resolution of the Government of the Russian Federation No. 1354 of December 20, 2012)
• improvement of service quality standards related to network connection (Order of the Ministry of Energy of the Russian Federation No. 465 of September 28, 2012 On Amendments to the Guidelines for Calculating the Level of Reliability (registered with the Ministry of Justice of the Russian Federation under No. 26139 on December 14, 2012))

NETWORK CONNECTION TARIFFS

The connection fee amount is determined by executive authorities of constituent entities of the Russian Federation in charge of government regulation of tariffs, in accordance with the Guidelines approved by the Federal Tariff Service Order No. 209-e/1 of September 11, 2012.

Payment under network connection contracts is made on a one-off basis, and it can be agreed that payment is made for separate network connection operations.

The fourth subparagraph of paragraph 2 of Article 23.2 of Federal Act No. 35-FZ of March 26, 2003, On the Electric Power Industry specifies that, effective from January 1, 2011, the network connection fee may not include the investment component when paying any expenses associated with the development of the existing infrastructure, including links between territorial grid organizations’ facilities and the Unified National (All-Russian) Electric Grid’s facilities, other than expenses related to the construction of electric grid facilities—from existing electric grid facilities to connected power-receiving equipment and/or electricity industry facilities.

When the amendments to the fourth subparagraph of paragraph 2 of Article 23.2 of Federal Act No. 35-FZ of March 26, 2003, On the Electric Power Industry became effective, the average network connection fee rate decreased by 47% and 37% in 2012 compared with 2010 and 2009, respectively. It is forecasted that the average network connection fee rate in 2013 will fall by 62% and 55% compared with 2010 and 2009, respectively.

The connection fee for power-receiving equipment of 15 kW or below (including any power-receiving equipment previously connected to a given connection point) is not in excess of 550 rubles, provided that the distance between the requesting entity’s site boundary to electric grid facilities with the voltage class necessary for the requesting entity and operated by the grid organization receiving the request is not in excess of 300 meters in urban areas and urban-type settlements, or 500 meters in rural areas.

Applicants whose maximum capacity ranges between 15 and 150 kW qualify for payment in installments on an interest-free basis at 95% of the connection fee for a period of up to three years.

If power-receiving equipment of individual customers and power generation facilities are connected to electric grid facilities with a voltage of 35 kV or over and/or maximum capacity of 8,900 kW or over, then the connection fee is calculated on an individual basis for each network connection.

Applicants whose maximum capacity ranges between 0 and 150 kW account for a considerable share (more than 95% in terms of the number of requests) in the total number of received network connection requests. However, in terms of capacity, they account for approximately 20% if the total amount of requested capacity.

DIAGRAM 4. MRSK HOLDING’S AVERAGE FEE RATE, RUBLES/KW

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In 2012, 395,632 network connection requests were received from applicants, whose maximum capacity ranges between 0 and 150 kW, for a capacity totaling 5,117 MW; 323,946 network connection contracts were signed for a capacity totaling 3,994 MW. A total of 205,417 network connection certificates were actually signed for a capacity of 2,273 MW.

MONITORING OF NETWORK CONNECTIONS

In 2012, the Group received 414,849 network connection requests for a total capacity of 27,457 MW and entered into 333,675 network connection contracts for a total capacity of 11,875 MW. The number of actually signed network connection certificates was 210,237 for total capacity of 6,098 MW.

Compared with 2011, the number of requests received by the Group increased by 25% (from 331,570 to 414,849), with a 29% increase in total capacity of the connected equipment (from 21,274 MW to 27,457 MW). The number of network connection contracts increased by 22% (from 272,587 to 333,675) with an increase of 36% in total capacity (from 8,737 MW to 11,875 MW). The actual number of signed certificates increased by 25% (from 168,499 to 210,237) with an increase of 33% in total capacity (from 4,576 MW to 6,098 MW).

For the 12 months of 2012, the Company’s subsidiaries and dependent companies received 72 network connection requests, totaling 4,355 MW; entered into 31 network connection contracts, totaling 1,755 MW; and actually signed 24 network connection certificates, totaling 1,313 MW.

TABLE 9. MRSK HOLDING’S CHANGES IN CAPACITY DEMAND AND CAPACITY CONNECTIONS FOR 2010–2012

The Company’s subsidiaries and dependent companies in 2012 completed work on network connections for several large power generation facilities constructed under Ordinance of the Government of the Russian Federation No. 1334-r of August 11, 2010, On the Approval of the List of Generation Facilities Used for the Supply of Capacity Under Capacity Supply Contracts:

• IDGC of Volga: 225-MW CCGT, Syzran CHPP, Volga TGK.
• IDGC of North-West: 110-MW CCGT, Vologda CHPP, TGK-2.
• Kubanenergo: 180-MW CCGT, Adler TPP, OGK-2.

LONG-TERM DEVELOPMENT

In accordance with Resolution of the Government of the Russian Federation No. 823 of October 17, 2009, On the Schemes and Programs for the Long-Term Development of the Electric Power Industry, to ensure the provision of network connection in the medium term and in the long term, the Company is working on the long-term development of the electricity distribution grid sector, and is participating in the development of the annually (before May 1) approved electricity industry development schemes and programs of constituent entities of the Russian Federation.

In 2012, of 69 constituent entities of the Russian Federation, the electricity industry development schemes and programs were developed and approved in 57 Russian regions.

RAISING CUSTOMERS’ AWARENESS ABOUT THE CONDITIONS AND PROCEDURE FOR NETWORK CONNECTION

The “Customers” section of the Company’s corporate website contains network connection information. This information includes as follows:

• a list of documents governing connection to electric grids of grid organizations;
• model network connection contracts approved by the Russian Government.
• links to the pages of websites of the Company’s SDCs with information about the current network connection fees.

The Uniform Network Connection Portal:

• displays a map of main substations operated by SDCs and FGC UES in Russia;
• provides customers with contact information of FGC UES and the Parent Company’s SDCs for inquiries about network connection;
• clarifies the network connection procedure;
• contains links to the capital investment programs of FGC UES and the Company’s SDCs.

Additionally, the Company’s corporate website contains a link to the Uniform Network Connection Portal at портал-тп.рф.