FAS will inspect the regions where the tariffs for electric power transmission are set higher or lower than what is allowed

The statement was made by Deputy Head of the Federal Antimonopoly Service (FAS Russia) Vitaly Korolev at the workshop on “Exercising powers in government regulation of prices (tariffs) for goods and services” on 3 March 2016.

Vitaly Korolev said that the tariffs for electric power transmissionare approved in all regions except Chechnya, and FAS is aware that the work is carried out and in the near future the tariffs in Chechnya shall be set up.

Overall, Deputy Head of FAS focused on the measures that the Antimonopoly Service devised to increase the quality of tariff regulation in Russia. First of all, FAS proposes to implement the methods of standardization and reference (standard) costs.

“These are the two big points that accompany every benchmarking”, pointed out Vitaly Korolev. “Standardization should be applied, first of all, to the main corporate cost items: staff numbers, lease payments, labour productivity, business trip allowances, and operation costs. It will enable a unified approach to regulating absolutely different companies that use standardized equipment. In this case there will be no need to analyze expenses of dozens of thousands companies every time. Tariff estimation can be based on the type of company operations and the equipment it uses”.

The next FAS proposal is to improve approaches to the procedure of coordinating investment programmes and establish control over their execution since monitoring of actual scheduled expenses of investment programmes exposed low quality of investment planning.

“The highest actual deviation from the plan is in heating supply: 92%. Water supply and drainage are on the second place: (by 88%)”, said Vitaly Korolev. “Companies plan a lot and spend much less. The best planning is in the electric power industry: they spend nearly everything what they planned”.

According to Vitaly Korolev, the problem is that planning is based on tariff financing possibilities rather than on the actual consumer needs. Companies also do not have incentives to enhance efficiency. “What is not spent shall be excluded from tariffs, so it is better to spend more- there is no sense in saving. This is the logic that companies are guided by”, pointed out Deputy Head of FAS.

To improve approaches on approving and controlling investment programmes, FAS proposes to introduce the procedures for coordinating investment programmes with the antimonopoly authority at FAS Board.  According to the Antimonopoly Service, the coordination programme must involve representatives of consumers (NGOs) to ensure the adversary character of the process. Should investment measures not executed, FAS proposes sanctions: reduce tariffs, particularly, during the regulated period. “Our task is to make sure that no loss-making projects are built up”, stated Vitaly Korolev, “And that consumers experience a positive effect”.

To stimulate efficient work of regulated organizations, FAS proposes to preserve savings if formed due to enhanced efficiency of corporate performance when the actual costs are below the reference costs. The funds can be used for additional investments, partly for increasing the profit rate, bonuses and other encouragement. If a company is inefficient, loss-making, there can be no question of any bonuses or salary increases. A question should be raised on the quality of management work.

According to Vitaly Korolev, these measures will encourage transition from the old tariff paradigm based on the concept of “the necessary gross revenues” to the concept of price (tariff) as a money unit per unit of goods or services.

“As a result consumers must get reduced tariffs and regulated organizations should obtain incentives for enhanced efficiency and reduced costs, preserving savings during a long-term regulated period”, summed up Deputy Head of FAS.

The Antimonopoly Service has managed to implement the “below inflation tariff growth” approach, which restrained a considerable tariff growth. The increase for gas in 2016 is only 2% (15% of the inflation level), in the electric power industry and railways – 7.5% (59% of the inflation level), the oil transportation services – 5.76% (45% of the inflation level).