TARIFF REGULATION: TO WHAT EXTENT DIFFERENTIATION OF THE TARIFFS OF “FGS UEC” PJSC?

New elevated tariffs for direct consumers of “FGC UES” and a new mechanism of paying for reserves of unused power transmitting facilities non-synchronized with tariff reduction for the services of electric power transmission can results in a considerable growth of tariffs especially for the enterprises in the agro-industrial complex

Differentiation of network tariffs in the united national grid and introducing mandatory payment for reserves of power transmission facilities was discussed in Sochi on 4 March 2020 during the hands-on workshop on “Evolution of tariff regulation in 2020: a step to the future".

“Recent policy carried out by the Government of the Russian Federation against cross-subsidizing pays off. Cross-subsidizing is going down in real terms and its share in the end price is also decreasing.  Also, cross-subsidizing factored in 2020 tariffs for the services on electric power transmission has decreased compared to 2019. At the same time, cross-subsidizing continues affecting the end price on electric power in most regions of Russia, especially in those regions where it is not distributed in a balanced manner”, said Head of FAS Department for Regulating the Electric Power Industry, Dmitry Vasiliev.

According to a FAS representative, the next step to level tariffs for the services of electric power transmission is stage-by-stage allocation of cross-subsidies in approving common (“single pot”) tariffs for the services of electric power transmission, as provided for by a FAS initiative, approved by № 1450Decree of the Government of the Russian Federation of 13.11.2019.

“The transition will take five years, till 2025, and direct involvement of regional operators in harmonizing tariff decisions will be required. As a result, smooth changing of tariffs will remove additional burden from some consumers and decrease incentives for a transition to own generation”, explained Dmitry Vasiliev.

In addition, priority measures include mainstreaming of cross-subsidizing targets in each subjects of the Russian Federation.

“Cross-subsidizing parameters should be verified as a lot has changed in six years. Also a Road Map should be adopted for 10-15 years ahead, specifying the size of cross subsidies with its year-to-year reduction. According to FAS estimates, this approach ensure 33-50 % reduction of cross subsidies without the need to increase tariffs for the population at the rates higher than those outlined in the Social-and-Economic Development Forecast”, informed the speaker.

As stated by Dmitry Vasiliev, due to a number of reasons the Antimonopoly Service does not support the draft law on tariff differentiation which should improve the tariff situation in the regions of Russia.

“It is a framework draft law and it can have extremely negative consequences. The principle embedded in it does not counter cross-subsidizing but create preconditions for even higher growth of cross subsidies”, said Dmitry Vasiliev.

In his opinion, some regions increased tariffs for the local population and managed to fully or practically fully resolve the problems with cross-subsidies.

Head of FAS Department for Regulating the Electric Power Industry emphasized: “Would it be fair to ask such regions to pay for their neighbour who has not put any efforts to somehow improve the situation in this field? What this approach will stimulate?”.

According to FAS, transition of large industrial consumers to their own generation has become a serious threat for “UES Russia”. The reason for consumers leaving “UES Russia” from distribution networks is that large industrial consumers, evaluating their financial risks, actively react to prices and changes in the law on the electric power industry and the tariff policy conducted by the regional regulators.

Dmitry Vasilievdrew attention to a problem: “In the current situation, introduction and differentiation of the tariffs of the Federal Grid Company and mandatory payment for unused reserves of power transmitting facilities will lead to soaring payments of some consumers and create incentives to decentralize the electric power industry. Losing new consumers and old consumers exiting the market will decrease the demand for electric power, which, in its turn will push up electric power prices (tariffs) even higher, and so on in a spiral drive”.

Head of FAS Department for Regulating the Electric Power Industry sees a way out in putting an emphasis on other legislative initiatives that directly target the problems in the electric power industry: decreasing cross-subsidizing; introducing higher economic liability for connected capacity (especially preferential technological connection); increasing efficiency of the integrated power grid in the part of operational and investment costs; limiting mark-ups on the wholesale market and enlarging competitive segments, that were established in the past 10 years; developing competition on the retail market.

“Only attempting to resolve these tasks, we will be able to enhance efficiency of the electric power industry, ensure its long-term and balanced development, and create conditions for emergence of new consumers and keeping the incumbents”, summed up the results of the discussion Dmitry Vasiliev.