OREANDA-NEWS. April 03, 2014. Deputy Head of the Federal Antimonopoly Service (FAS Russia), Anatoly Golomolzin, addressed the VIII “Russian Energy Industry” Annual Conference organized by the “Vedomosti” business newspaper. He stated that “companies in the electric power industry remain the key violators of the antimonopoly law. The majority of the exposed violations are committed by the power grid operators; competitive market of electric power and capacity experiences the least number of violations”.  

Anatoly Golomolzin delivered a report on the “Pressing Issues of Antimonopoly Regulation in the Electric Power Industry”, where he presented the position of the antimonopoly bodies with regard to the situation in the electric power industry.

Deputy Head of FAS outlined the major important legislative initiatives of the Antimonopoly Service in the electric power industry and summed up the results. In particular, he pointed out that in 2013 representatives of regional FAS Offices were included in the senior management of regional tariff regulators. Already in the first year of their work, FAS representatives identified substantial resources for improving the situation in tariff regulation.

Recently the third antimonopoly package was adopted: in particular, the concept of “price manipulation” was introduced, the rules of antimonopoly regulation and control were adopted, and the institution of warnings was brought in the antimonopoly law.

Statistical data show that violations on the markets of electric and heating power constitute 1/3 of the total number of violations of the antimonopoly law in Russia, of which the most violations are committed by holders of natural monopolies – power grid operators, especially violators related to the service for electric power transmission and technological connection to electric power networks. 1% of the violations are committed by participants of wholesale market of electric power and capacity.

Anatoly Golomolzin stated that a proper institutional framework is formed for simplifying technological connection of consumers to electric power networks: the rules of non-discriminatory access, enforcement of which is controlled by FAS, are now put into effect and are being continuously improved.

Under the framework of the Road Map on “Increasing Power Infrastructure Availability”, FAS is actively involved in clarifying and changing the rules for non-discriminatory access in order to harmonize the situation, particularly, simplifying the procedures for technological connection. FAS also undertakes efforts to suppress violations of the antimonopoly law by network companies.

In 2013, Russia moved 70 points up in the “Doing business” global ranking under the “Connecting to Electric Power Networks” indicator and reached the 117 position. The Government o f the Russian Federation set the task to be included in the top 20 countries in the world by 2018.

On the issues related to developing competition on the wholesale market of electric power industry and capacity, Anatoly Golomolzin, in particular, pointed out that FAS was initiating establishing the common competitive market of electric power industry and capacity. In particular, Deputy Head of FAS mentioned FAS efforts towards decreasing the number of free power transfer zones. Since 2011 the number of free power transfer zones decreased from 29 to 21. As a result, capacity volume traded through competitive bidding increases, the market sector with the lowest prices: from 2011, capacity sales increased from 1/3 to 2/3 of the total capacity volume traded through competitive bidding.

The main trends in the electric power industry include an aggressive growth of the distributed generation market in Russia, which, according to the expert assessments is around 4 % per year. It is associated, primarily, to several issues in the industry, including problems with technological connection and high transmission tariffs.

The network component is the most sensitive for small and medium business, the costs of electric power transmission services constitute around 60% of the final price.

Analyzing the price level behaviour in competitive activities and natural monopolies, Anatoly Golomolzin outlined the differences in patterns. For instance, the movement of prices for electric power industry on the “day ahead” market correlates with the overall price behavior in the economy, unlike an outstripping growth rate for the transmission tariffs.

In his opinion, the trend towards an accelerated growth of transmission tariffs is associated primarily with a tariff-setting technique: the most impact upon growth rates is made by “boiler” tariff-setting technique, as well as individual tariff solutions for network organizations not related to the general conditions of electric power transmission.

Network organizations have shifted to RAB tariff-setting technique, which has proved to be inefficient in its current form. There is no control whether networks’ investment programmes are justified in terms of the built-up infrastructure being in demand.

“It is necessary to change the regulators’ mentality”, emphasized Anatoly Golomolzin. “Market analysis must play the key role in decision-making”.

The Antimonopoly Service actively studies international experience of developing the eclectic power industry, particular, in the Netherlands. Dutch antimonopoly authority combines the functions for protecting competition, regulating the tariffs of natural monopolies and protecting consumer rights. Out of the entire set of possible tariff regulation methods, since 2001 the regulator has been using a pro-market method: Yardstick — regulation on the basis of comparable market indicators. This method is based on market analysis. As a result of such regulation, only those companies that are able to work efficient remained on the market, which in its turn, has helped optimize the number of network organizations.

According to Deputy Head of FAS, approaches to pricing on the markets of eclectic power and capacity should be changed. Prices must be based on the entire chain of market participants and must account for the costs and conditions of sales to the end-consumers. The mechanism of investment guarantees should be transformed and competitive capacity take-off should take place not only among power generators but across the entire industry, taking into consideration both consumer needs and capabilities of network companies in order to optimize power supplies by debottlenecking. Similar improvements are proposed for the “day ahead” market.

The Conference participants discussed the issues of developing the market of heating energy, including the issues of optimizing pricing on this market. In the FAS opinion, pricing formed on “alternative boiler-house”, as proposed by the Ministry of Energy, would not allow fair, justified tariffs. Setting the heating energy tariffs using a technique suggested by the Ministry of Energy relies on a hypothetical ideal model that does not reflect the real conditions of heat supply in Russia. Such approach to tariff-setting causes a reasonable apprehension of consumers as well as regional authorities.

In a situation when tariffs for companies operating in similar conditions differ considerably (according to FAS estimates, from 1.5 to 3 times), Anatoly Golomolzin proposed to consider another pricing technique based on comparable market indicators, and using pooled analysis set the level of tariffs that would support efficient performance of heat supply systems and guarantee the conditions for attracting investments in this field. In future, it is proposed to correct the heating energy costs in view of the accumulated practice and on the basis of market data. Thus, within 5-10 years it will be possible to reach a reasonable tariff level that accounts for the interests of all market participants.

The discussion also covered the issues related to operations of common heating suppliers. According to Anatoly Golomolzin, their fully-functional work is possible only upon approving heating supply schemes for the relevant areas that provide for distributing the volume of heating energy production by sources. The law must prohibit common heating suppliers to take over other participants of the heating market. To maintain competition before heating supply schemes are adopted in accordance with the established procedures, common heating suppliers must be defined within the boundaries of relevant heating suppliers that function independently from each other.