On June 26, 2002, the Federal Energy Commission of the Russian Federation (FEC) held a meeting to review the dispute between AO MOSENERGO and Moscow Regional Energy Commission (REC) arising from a REC violation of methods for regulating electricity and heat tariffs.

The tariffs introduced by REC from May 1, 2002, have no economic justification. AO MOSENERGO was not able to receive substantial funding in the summer. As a result the company was forced to reduce the scale of its summer repair operations. There was also a risk of disruption of Moscow winter preparations.

FEC decided to make the tariffs match the real costs incurred by AO MOSENERGO during electricity generation, transmission and distribution. The FEC adopted the following decisions:

• To announce that the electricity and heat tariffs approved by the Moscow REC lack justification from an economic standpoint as far as amortization expenditures are concerned;
• To announce that AO MOSENERGO’s amortization expenditures for 2001 in the amount of 5,385 million rubles are justified (as opposed to the REC-approved amortization expense in the amount of 3,515 million rubles);
• To order the Moscow REC to approve and introduce, effective August 1, 2002, electricity and heat tariffs that fully factor in the amortization costs, as well as the increase in customer rates at RAO UES, the gas transportation tariff and the wholesale gas price.
• To order the Moscow REC to report on the implementation of this FEC’s directive by August 10, 2002.

AO MOSENERGO specialists estimate that the power tariffs should be 20-22% higher. The tariffs that lack economic justification affect the preparation for the winter season, and therefore, the reliability of the electricity and power supply in Moscow.