On April 23, 2010, IDGC Holding held an operations meeting addressing issues related to activities aimed at improving management of the electric distribution grid sector in the Russian Federation. The meeting participants included senior executives of 11 interregional distribution grid companies (IDGC) and Director General of Far East Distribution Grid Company (FEDGC)* Yury Andreyenko.

In the opening speech, IDGC Holding Director General Nikolay Shvets spoke about the results of the recent All-Russian meeting dedicated to the operational results of the electric sector entities in the 2009–2010 heat deficit period (HDP). Sergey Shmatko, Minister of Energy of the Russian Federation and Chairman of the IDGC Holding Board of Directors, made a special mention of the efficient efforts made by IDGC Holding in the heat deficit period.

Analyzing the 2009 results, Nikolay Shvets pointed out the main achievements and shortcomings of the electric distribution grid sector.

Among the achievements is a reduction in expenses related to electricity billing metering services. For IDGC Holding, these expenses decreased by 1.7 billion rubles in 2009, while the expected effect will reach 3.8 billion rubles in 2010.

In addition, economy of 11.91 billion rubles was achieved through regulated procurement procedures, accounting for 10% of the planned procurement price. In 2009, the economic effect from the measures taken to reduce electricity losses reached 1.7 billion rubles, including about 400 million rubles owing to the measures to improve the electricity metering systems.

Analyzing the network connection services provided to medium-sized businesses, Nikolay Shvets noted a decreasing trend with regard to the number of applications submitted for this service and the number of performed contracts. The main reason is that applicants revise their facility commission plans, i.e. freeze their projects. Preferences in terms of payment on a three-year installment basis and opportunities for selling capacity back to grid entities make it possible to forecast a future increase in network connection operations for this applicant group, said Nikolay Shvets.

However, the adoption of preferences for connecting small and medium-sized businesses to electricity distribution networks resulted in an increased shortfall in income for the operating companies and IDGC Holding as a whole. According to the calculations by IDGC Holding experts, with a forecasted increase in network connection services for electricity-receiving individuals and small business entities with a capacity of at most 15 kW, a shortfall in income reached 16.6 billion rubles (inclusive of VAT) in 2009, with a level of 21.7 billion rubles (inclusive of VAT) forecasted for 2010.

Dissolution of “last mile” contracts was mentioned by Mr. Shvets to be among the main problems experienced by the electric distribution grid sector. Net delivery to key “last mile” customers (large industrial companies operating in the ferrous and nonferrous sectors and railroad transportation entities) account for 21% of the total electricity consumption and 18% of IDGC Holding’s revenue. With dissolution of “last mile” contracts, electricity transmission tariffs may increase by 20.4% on the average. There are several options to solve this problem, including an amendment of the Federal Law “On the Electric Power Industry” in terms of extending the lease period until 2014, said Nikolay Shvets.

In addition, the distribution grid companies also had in 2009 a shortfall in income of 5.4 billion rubles while purchasing electricity at unregulated prices to compensate for their losses. The shortfall in income associated with network connection payment preferences accounted 16.6 billion rubles in 2009. As of the end of 2009, disputable indebtedness related to customer disagreements about tariff application and provided services was 11.4 billion rubles.

All these problems, according to Nikolay Shvets, are fraught with risks related to financial insufficiency for preparations for the 2010–2011 heat deficit period and the necessity for substantial borrowings.

The meeting discussed high-priority objectives, including planning and implementation of investment programs under the transition of the electric distribution grid sector to the RAB tariff regulation method by 2011, organizational and technical measures to enhance the level of automation of basic production process, implementation of the system for automated design of the linear part of the electric grid sector, development of methods for determining equipment status indicators, and full implementation in physical terms of the planned maintenance programs. Efficient resolution of these tasks will make it possible to adequately prepare electric distribution grid facilities for the 2010–2011 heat deficit period and ensure uninterrupted electricity supply for customers, having performed, therefore, the main mission of the Russian electric distribution grid sector.

After the meeting, the IDGC chief executives visited an exhibition of works by Aleksandr Tikhomirov, People’s Artist of the Russian Federation and member of the Creative Unions of Artists of Russia, who created Window Painting, a unique designer’s graphic art style. Organized on the initiative of IDGC Holding on its premises, the exhibition emphasizes the sector’s devotion to Russian spiritual traditions, the national energy industry, and sociality principles in management.

The exhibition is open until May 9, 2010, for veterans and employees of the electric distribution grid sector to visit.

* FEDGC is a company established on the base of the distribution grid assets of Amurenergo, Dalenergo, Khabarovskenergo, and South Yakutskenergo.