Network Opportunities of the Northwest

Interviewed by Yury Zvyagin

Russian power supply network has significantly changed in 2012. For example, the management of the Interregional Distribution Network Company Holding (i.e., regional network companies) has passed into the hands of the Federal Grid Company (FGC). The programme for changeover to RAB-regulation (investment profitability) has been resumed after the decline in its development with beginning of the crisis. Date of rates change (all of them, including electricity rates) has been postponed from 1 January to 1 July. And so on.

What are these changes fraught with for Northwest Russia? For the large region with branched and complex power supply network, whose stable functioning defines the success of realisation of many investment programmes. No wonder that it was Sergei Titov, Director General of IDGC of the Northwest who was addressed these questions. It is the IDGC of the Northwest that is responsible for electricity distribution in most parts of the district.

Switching to RAB

New Opportunities (NO):Mr. Titov, what trends have outlined in 2012 in the network complex of the Northwest?

Mr. Titov:The main point, in my opinion, is that last year a tendency for changeover of all territories to RAB-regulation has been clearly outlined. Until this year the method was used only in Vologda, Novgorod and Pskov regions. In 2012, the Republic of Karelia decided to adopt the RAB. Today Murmansk and Arkhangelsk regions are considering the possibility of its adoption since 2013. Thus, the matter has not been solved only for the Republic of Komi. The regulation is conducted by the method of long-term indexation there. But in general, we can say that the IDGC of the Northwest is switching to the formation of its investment programme and current cost by the RAB method.

For today it is the most progressive and effective regulation method, although taking into account the economic crisis, it is rather questionable. However, our experience in the three regions adopted the RAB before showed that the investment programme has increased everywhere despite the crisis. But the network complex needs investment first of all. Powerful commercial entities often come precisely in those places where the power supply is not enough at the moment. And without its growth any investment projects become impossible there.

As concerns Karelia: After changeover to RAB-regulation the investment programme of the Karelenergo branch of IDGC of the Northwest (financed without VAT and connection to grids) will increase in 2.3 times from 2012 to 2017. For the Murmansk region adoption of the return-on-investment method is the only way, which will allow solving urgent issues of the power network complex.

NO:And what is the general investment programme of IDGC of the Northwest?

Mr. Titov:This year it is supposed to invest more than 6.6 billion roubles (VAT excluded). We are going to implement 1175.5 km of transmission lines and more than 400 MVA of transformer capacity.

In 2012-2017 the investment programme will reach over 40 billion roubles without VAT. Long-term investment programme is adjusted according to changeover to RAB-regulation of tariffs of all subdivisions of the Russian Federation within the service area of our company. As a result, we expect that depreciation of fixed assets will decrease by 1.7 per cent. In 2012 it amounted to 58.8 per cent, by the end of 2017 it should make up 57.1 per cent. It does not seem much – less than two per cent. But we have 174 thousand kilometres of networks, so these are substantial figures.

When the store is sore

NO: The IDGC of the Northwest business is electricity transmission. Therefore, the key performance indicators are the amount of transmission and the number of new technological connections, i.e. new consumers. What are the results of this year?

Mr. Titov:We can speak about only three quarters as of today. For nine months, the volume of electricity transmission amounted to 29 737.7 million kWh which is 0.16% higher than in the same period of last year. Kolenergo (0.2%), Komienergo (5.4%), Novgorodenergo (3.1%) and Pskovenergo (4.0%) have increased their indexes. Arkhenergo (-2%), Vologdaenergo (-1.8%), Karelenergo (-2,5%) have decreased them. In Karelia this is related to reduction of electricity demand of one of the largest consumers in the region - Nadvoitskiy Aluminium Plant.Severstal in the Vologda region, Savinsky Cement Plant and Solombala Pulp-and-Paper Mill in the Arkhangelsk region reduce power consumption as well.

The number of contracts for technological connection for the nine months of 2012 was about 18,000 with a total capacity of over 300 MW. This is 23.6 per cent more contracts and 7.2 per cent less power than in 2011.

NO:Why?

Mr. Titov:If we remember, a decision on concessional connection of consumers who need power up to 15 kW was made. So, in 2012, we performed three thousand more connections of power plants of capacity up to 15 kW than in the corresponding period last year.

At the same time, we implemented more than 33 mW of power connection at preferential prices in one region and consumption growth was almost nothing there! Having found out about the benefits, some consumers have rushed to make applications for connection although they do not need this power at the moment.

I would like to explain: decision on preferential connection of consumers who need small power is not a temporary measure, but a long-term policy. We should not haste so that towers and wires would not stand in a bare field. It is not profitable, because in the end everything will be paid by those who pay by the meter. If you have a need, the connection will be made at a reduced price and within the terms established by law. Moreover, when you need, we will be able to raise the volume of power transmission to the required amount. This is not the case when “the store is no sore”!

Ties are restored

NO:This year the Federal Grid Company has started managing the IDGC Holding. What did it result in?

Mr. Titov:This year has passed under the flag of structural union of the Russian power supply network. The ties between transmission system and distribution network complex were restored.

I think, the regions will see the benefit already in 2013. A unified technical policy has started to form. There was a coordination of investment programmes of FGC and IDGC. And it is an important factor for increasing their efficiency. Of course, all continue building their own facilities at their own expense, but now the development of transmission and distribution networks is synchronised. In addition, a unified system on elimination of production violations is created. On the basis of the Federal Grid Company of Unified Energy System JSC and the IDGC Holding JSC it was established the general headquarter for coordination of rectification of the consequences of accidents and emergency situations and management of restoration the power network complex operation in normal conditions. The headquarter of the IDGC of the Northwest includes representatives of Backbone electric grids of Northwest and Backbone electric grids of Centre (branches of the FGC UES) and vice versa. This allows you to organise and perform events aimed at minimising the recovery time of power supply. For example, personnel of backbone electric grids participated in the rectification of the consequences of recent production violations in the Novgorod, Vologda and Arkhangelsk regions appeared due to cyclone passage accompanied by strong gusty wind, snow and rain.

NO:The association of FGC and IDGC should probably facilitate the solution concerning the “last mile”?

Mr. Titov:As you know, at the level of Russian government there is a list of “pilot regions” where “the rejection of the last mile” will be implemented. Among the Northwest regions there is the Republic of Komi. Now the options for shortfall in income compensation are developed in connection with liquidation of the “last mile” in Komi in 2013.

The rejection of the “last mile” is not an easy step for IDGC of the Northwest, especially in Karelia and Vologda. We understand that, for example, the aluminium complex and pulp-and-paper plants experience hard times and the opportunity to save up on electricity costs may be their strong support. But on the other hand, they are serious consumers in their regions. In the Vologda region, for example, now everything is good, but if some large companies leave the “last mile”, many social groups will lose much. Because the payment of costs of network companies will fall entirely.

To solve the problem we appealed to the leaders of the Vologda region and Karelia with the proposal to establish a working group at the local level which involved not only the network complex and administration, but the consumers as well. And for the first results of work we can see that it is possible to find more or less optimal solution, if the process of leaving the “last mile” by large consumers will be gradual, during three to four years. As the Minister of Energy said about this recently, in the most difficult regions the process will take three to four years. We need negotiations, calculations, work with the consumer. Then everybody can understand what steps are being done.

NO:Perhaps, in these conditions, the more urgent is the issue of consolidation of networks?

Mr. Titov:Yes, indeed. The dispersion of gross revenue required for the network complex operation to small territorial grid organisations is not profitable. We do not seek to occupy a monopolistic position. Moreover, we help territorial grid organisations and propose to create non-profit associations. But we should do this only with those who really work, but not just use the network and obtain the benefit investing nothing.

In general, consolidation is the future for the power supply network.