New Opportunities, ¹ 2 (28), 2012
The energy retail companies are progressively paying the debts for power transmission services accumulated from previous years. The court practice has proven the legality and the validity of requirements of power grid companies. However the situation is still far from ideal.The problem begins to resemble the so-called last mile. Both situations are similar. Without going to the root of the matter it is easy to side with debtors. Their arguments seem simple and obvious. Only a thorough and comprehensive analysis allows us to come to quite different conclusions.

Rules of Play

While supplying power, there is the state and not the grid company that determines prices, costs used to calculate the tariff rates, purposes for fund allocation and even the amount of the necessary gross proceeds of the company to ensure reliable power supply. So, the rules of play can be not suitable for someone, but they are obligatory.

At the federal subject level, the common necessary gross proceeds of the region are created and such tariff rates are calculated so that all participants of the power supply process can get their share of the total revenue. Moreover, the shares should be suitable to carry out the tasks.

The particularity of tariff formation is that they are differentiated for different categories of consumers and have a social burden. By means of cross-subsidisation, the companies pay some amount for the population.

For a big business the social burden is carried out by means of the last-mile mechanism. It is more expensive to supply electricity to a remote village than to a large company connected to the trunk power grids of the Federal Grid Company. If we speak about costs, the kilowatt for a large company should be much cheaper than that for the rural and urban population. But the solvency level in the countryside and in small towns is not high and many simply could not afford to pay for power at the market price. By reducing the tariff rate for the population, the government makes it higher for business.

Last Mile

The last mile is a form of cross-subsidisation while the Federal Grid Company leases out a small section of the grid to a distribution grid company, so this one is conferred a right to bill their services. In this way the part of the power supply costs for the population borne by the grid company are shifted to large companies. This is not a whim of the grid company, but a special tool created by the government during the reform of the Russian power industry to avoid the sharp increase of tariff rates for the population. The alternative for the last mile could be a subsidisation of the part of the cost from the budget, but it would mean the reduction of other social costs.For major consumers the last mile means that costs will be higher and will worsen their financial performance. So, the desire to break such a contract (to invalidate it, to prove the fact that the service has not being rendered) is quite natural. The owner of the company is hardly upset about the tariff rate for the population and for small business. He has quite different tasks: to increase the profit and to develop his own business.

It should be understood that the financial burden imposed by the last mile is not more severe for a big business than for other companies of the region. By disputing it the owners of large companies are fighting for the right to pay the services at the rate that is, as a rule, much lower than the rate for the power supply for regional grids due to a large amount of power transmission.

For a grid company the abolishment of the last mile practically means that the source of its revenue will be changed. Indeed there is the government that coordinates the revenue, the costs and the investment program of the company. If a big business pays less, the population, small and medium business, and the budgetary organisations will have to pay more.

Without Last Mile

To prove it we can examine the situation with some of regions of the Northwest. In case of cancellation of the last mile in the Vologda region, the tariff for the high voltage energy (for large companies that cannot be connected to the grids of the Federal Grid Company) would grow to about 44 per cent, in Karelia to 20 per cent.

While distributing this burden between all the consumers in the equal proportion the tariff in 2012 would grow to 24 per cent on average in Karelia and to about 58 per cent in the Vologda region. Now, according to the tariff and balance decisions for 2012, it should increase only by 6 per cent. The cancellation of the last mile would increase the tariff at times.

I think that the foes of the last mile are very well aware that the authorities will not allow such a sharp tariff growth. Alternatively they offer to create the mechanisms for reducing the operating costs of the grid companies. It should be noted that the grid companies themselves tend to increase the operational and investment efficiency. The Policy of the IDGC Holding up to 2015 and for a long term up to 2020 pays a great attention to this question. But if nearly seven billion roubles are cut from the company's budget, it will be fraught with serious consequences for the regions. It is an amount of the risk assessment of the IDGC of the Northwest relative to lease and sublease agreements of the last mile facilities, and the subcontractors try to challenge the validity of said agreements.

During 2011 the IDGC of the Northwest paid to the budgets of all levels more than 5 billion roubles of taxes and other obligatory payments. The IDGC paid to the budgets of the districts more than one and a half billion roubles, that is almost twice more than in the previous year. If the last mile is cancelled without compensation of the missed part of the revenue by the sources relative to the tariffs, the activities will be loss-making and the investment programme will be reduced sharply. That will certainly impact the revenue of the budgets of all levels. The company will have to think about staff reduction that will affect the income tax deductions.

The tax revenue is not the only advantage for the regions obtained due to the presence of IDGC of the Northwest. The company ensures a reliable power supply and has a social responsibility helping to solve complicated problems. Particularly, within the frame of the agreement signed with the government of the Republic of Karelia the White Sea district and the Suoyarvi region have been supplied with heat stably.

Cut the Cords that Bind

The proposal to compensate the missed revenues by means of reducing the investment programme of the power grid company also cannot withstand criticism. The particularity of the investment programme of the IDGC of the Northwest is a harmonisation of their parameters with the requirements of administrations of the federal subjects. The programme includes the renovation and the construction of the facilities required by the region. If it is not carried out, there will be serious implications.

In addition, about 35.1 per cent of the investment program amount of the IDGC of the Northwest for 2012 is general expenses of the company aimed at the grid connecting of the consumers. More than half of them is to be carried out on preferential terms. "A consumer pays 550 roubles to connect the individual house to the grid.  This amount is enough to construct only three meters of power lines, but actually we have to construct up to 500 meters," says Andrei Durov, director of the Arkhenergo of Plesetsk power grids. Due to a great amount of preferential connections the IDGC expects to receive from the consumers only 16 per cent of the necessary funds.

The grid connection part is also considerable in the investment programmes of the said regions. For Karelenergo it is 40 per cent of the whole investment programme of 2012, for Vologdaenergo it is 33.5 per cent.

Another Choice

The IDGC of the Northwest works systematically and permanently to recover the overdue accounts receivable. During 2011 more than two billion roubles were recovered for claims sued by the company against the debtors before the court decisions and during their execution and more than 60 million roubles were recovered as payment of the penalty.

At the same time the top management of the company offers solutions for the last mile.

"The last mile mechanism affects all," says Alexander Kukhmai, director general of the IDGC of the Northwest. "The Federal Grid Company is regulated by the Federal Tariff Service. The investment programme and the expenses of the Federal Grid Company are approved by the government. The individual tariff is created and it is certainly much lower than the regional tariff. Now let's imagine: some large companies sign contracts directly with the Federal Grid Company. It is profitable for them, because they pay less. But the regions suffer. The part of money that they do not pay (the difference between federal and regional tariffs) is distributed between all the rest. After all, according to the law, such a tariff must ensure a break-even situation for distribution grid companies. So, the total amount of payments remains the same, but the number of payers is reduced. If three largest consumers of Karelia sign the direct contracts with the Federal Grid Company, all the burden will be separated between others. For example, it also concerns the Aluminium Production Plant that has not signed the direct contract, but it is connected to the grids of the IDGC. It would be fatal for this plant."

In his opinion, it is necessary to establish a uniform tariff for the energy transmission throughout Russia. All the countries regulating the tariff on the same principle want to achieve such a situation.

"There were four price zones in Denmark, Norway, Sweden and Finland," says Mr. Kukhmai. "They appeared naturally, because power transmission was impossible between these zones." Respectively, the prices were different in these regions. The task was set to create the same conditions for the consumers in all the regions. And in our country every federal subject has its own tariff. Infrastructure should be available to all.

The last mile is discussed both in the media and in the corridors of power. Recently it became known, that the Ministry of Energy of the Russian Federation proposed once again to extend the contracts concerning the last mile up to 2016-2017.

Maxim Golikov