OREANDA-NEWS. December 29, 2009. The Board of the Russian Federal Tariff Service approved regulation parameters for FGC UES to use a tariff based on the return on invested capital (RAB regulation).

The process of converting FGC UES to RAB regulation will be started as of January 1st, 2010. The first regulatory period will last for three years (2010-2012); and the second period will be for 5 years (2013-2017). For the first 3 years, the following tariffs have been set for power transmission through the Unified National (all-Russian) Electric Grid, using the method of the return on invested capital:

Year

Tariff, RUR/MW per month

Tariff increase, compared with previous year, %

2010

87,868.77

51.10%

2011

115,286.13

31.20%

2012

143,785.68

24.72%

On December 4th, 2009, the Board of the Russian Federal Tariff Service adopted a decision to approve the return on newly invested FGC UES capital created after converting to the RAB regulation system during the first three year long-term regulation period. The return on newly invested capital was approved in the amount of 11%. The return on capital created prior to RAB regulation will be brought up to the levels of return on newly invested capital during the two long-term regulation periods (discussed above).

For the coming three years, the following key tariff regulation parameters were defined for FGC UES, based on the method of the return on invested capital:

№

Parameter

2010

2011

2012

1.

Amount of invested capital as of 01.01.2010 (initial invested capital), RUR bln.

647.6

 

 

2.

Return on initial invested capital, as of 01.01.2010, %

3.9%

5.2%

6.5%

3.

Return on newly invested capital, %

11%

11%

11%

4.

Repayment term for the invested capital, years

35

35

35

Approved parameters of the new regulation will allow FGC UES to finance its government approved 2010 – 2012 investment program in the amount of RUR 519.4 bln, including through attracting credits. On November 5th, 2009, the Russian Federal Service for Financial Markets (FSFM) registered the Company’s bond issue in the amount of RUR 50 bln.

When assessing the investment potential upside for the industry due to the RAB regulation system, one needs to take into account several important developments:

All investments included in the Company’s tariff, for example, the higher energy tariff, are returned into economics through the stable purchase of equipment, construction materials and building works, thereby removing any inflationary impact. For each ruble of investment funds included in the tariff, the Company attracts 1 ruble of credits – thus, beginning the multiplier effect. Furthermore, for each additional ruble in the tariff, FGC UES will make a 2 ruble investment.

The RAB regulation offers the Company the opportunity to precisely plan investments for a 3 – 5 year period, based on well-defined investment sources. In addition, the RAB regulation system introduced the concept of fiscal responsibility for fulfilling the investment program to the Company. Based on program fulfillment, the tariff for the following year is corrected.

The legal framework of the RAB regulation ensures FGC UES’ responsibility for both the reliability and quality of provided electricity transmission services.

Therefore, as of January 1st, 2010, FGC UES will convert to a tariff setting mechanism (based on the return on invested capital) that has proven to be effective for European Union grid companies.