In its Order No. 30-r dated 19 January 2010, the Government approved a plan for transition of subsidiaries and dependent companies (SDC) of JSC IDGC Holding in 2010 to RAB (Regulatory Asset Base) regulation of tariffs for electricity transmission services.

The Russian Ministry of Energy will monitor and coordinate implementation of the action plan for the transition of branches of interregional distribution grid companies (IDGC) to RAB tariff regulation.

According to the approved schedule, the process of transition to RAB is to be completed on the 1st of January 2011.

By the 1st July 2010, 24 regions are to complete the transition to the new tariff regulation method, with all branches of IDGC of the Center, IDGC of South, and IDGC of Volga to switch to RAB regulation. By mid-2010, branches of IDGC of the Northwest (Vologdaenergo, Komienergo, Pskovenergo), IDGC of Siberia (Khakasenergo, Chitaenergo), and IDGC of the North Caucasus (Stavropolenergo) will also switch to RAB regulation.

The remaining 28 regions covered by SDCs of IDGC Holding will adopt the RAB tariff regulation method starting from the 1st January 2011.

Previously, in compliance with orders by the Federal Tariff Service (FTS of Russia), proposals by regional regulatory authorities regarding the transition to the new tariff regulation system were approved by the Vladimir and Kaluga Regions, the Republic of Udmurtia (areas covered by IDGC Center and Volga), Kursk and Yaroslavl Regions (IDGC Center), Novgorod Region (IDGC Northwest), Omsk and Tomsk Regions, and the Republic of Altai (IDGC Siberia).

From the 1st January 2009 the new tariff regulation system was adopted by 8 branches of SDCs of JSC IDGC Holding: Belgorodenergo, Tverenergo, Lipetskenergo (IDGC of the Center), Permenergo (IDGC of the Urals), Tulenergo, Ryazanenergo (IDGC of the Center and Volga Region), Astrakhanenergo and Rostovenergo (IDGC of the South).

For all branches of IDGC that have switched to the new tariff regulation method from early 2010, the FTS of Russia has set the rate of return on existing capital at 6% in 2010, 9% in 2011, 12% in 2012, with the rate of return on new invested capital at 12%, and the payback period for investments of 35 years.

Nikolay Shvets, Director General of JSC IDGC Holding, says that the Holding is planning to use the new tariff regulation system to solve a major issue of the distribution grid system: worn-out PPE. At present average physical wear of distribution grid facilities reaches 69%; therefore, reducing the wear to 50-55% is a core strategic objective.