Financial Results Overview

• 5.1 Key Financial Indicators of the Company
• 5.2 Tariff Policy
• 5.3 Financial Performance
• 5.4 Financial Analysis
• 5.5 Financial Plans up to 2015

Tariff Policy

On performing regulated activity in the subordinated territories, the Company applies the following normative base:

• The Federal Law as of 26.03.2003 No.35-FZ "On the electric power industry";
• The Order of the Government of the Russian Federation as of 26.02.2004 No.109 "On pricing concerning electric and thermal power in the Russian Federation";
• The Order of the Government of the Russian Federation as of 27.12.2004 No.861 "On approval of the Rules of non-discriminatory access to services in electric power transmission and rendering of these services, Rules of non-discriminatory access to services in operative-dispatching management in the electric power industry and rendering of these services, Rules of non-discriminatory access to services of the system operator of trading system of the wholesale market and rendering of these services, and Rules of technological connection of power accepting devices (power installations) of legal entities and individuals to electric networks";
• The Order of the Government of the Russian Federation as of 31.08.2006 No.530 "On approval of the Rules of functioning of retail markets of electric power in the transition period of reforming of the electric power industry";
• The Order of the Government of the Russian Federation as of 31.12.2009 No.1220 "On determination of indicators of reliability and quality of the delivered goods and rendered services applied during the establishment of long-term tariffs";
• The Order of the Ministry of Energy of the Russian Federation as of 29.06.2010 No.296 "On approval of Methodical instructions on calculation of the level of reliability and quality of the delivered goods and rendered services for the organization on the management of a uniform national (all-Russian) electric network and the territorial grid companies";
• The Order of the FTS of Russia as of 06.08.2004 No.20-e/2 "On approval of Methodical instructions on calculation of regulated tariffs and prices for electric (thermal) power in the retail (consumer) market";
• The Order of the FTS of Russia as of 30.11.2010 No.365-e/5 "On approval of Methodical instructions on determination of payment rates for technological connection to electric networks".
• The Order of the FTS of Russia as of 08.04.2005 No.130-e "On approval of Regulations of disposal of legal proceeding about the establishment of tariffs and (or) their marginal levels on electric (thermal) power (capacity) and on the services rendered on wholesale and retail markets of electric (thermal) power (capacity)".

Tariffs set by regulatory bodies for electric power transmission

For 2010, the tariffs for electric power transmission were approved within the limits of marginal levels following the boiler principle established by the Federal Tariff Service of Russia, i.e. uniform in the territory of the whole subject of the Russian Federation.

Since 2008, there have been approved uniform “boiler" tariffs for electric power transmission similar to all consumers irrespective of a connection point to distribution networks in the region (item 42 of the Rules of non-discriminatory access to services in electric power transmission and rendering of these services as of 27.12.2004 No.861), and individual tariffs for electricity transmission for calculations between grid companies.

Transmission tariffs across both the Leningrad Region and St. Petersburg are approved under the "boiler-from above" scheme. In the given scheme the payments collected by the sales companies arrive in the higher territorial grid organization – JSC "Lenenergo" which settles payments with the subordinate territorial grid companies. Besides JSC "Lenenergo", about 20 territorial grid companies in the territory of the Leningrad Region and about 22 companies in the territory of St. Petersburg perform activity on electric power transmission

In the territory of the Leningrad Region tariffs for electric power transmission for 2010 are approved by the Order of LenRTC as of 29.12.2009 No.312-p (in the version of the Order as of 20.08.2010 No.103-p), and by Orders on the establishment of individual tariffs which are used for mutual settlements with adjacent grid companies.

In the territory of St. Petersburg, tariffs for electric power transmission for 2010 were approved by the Order of the Committee on Tariffs of St. Petersburg as of 28.12.2009 No.250-r. Following the results of consideration of disagreements of the FTS of Russia by the Committee on Tariffs of St. Petersburg from 01.10.2010 tariffs for electric power transmission were changed (the Order as of 30.08.2010 No. 137-r).

The increase in the actual revenue from electric power transmission as compared to the approved on St. Petersburg constituted RUR 294.8 mln due to the excess of actual productive supply of electric power over the approved one by 237 mln kWh.

The decrease in the actual revenue from electric power transmission in the Leningrad Region by RUR 563.4 mln is caused by the transition of three sales companies of Leningrad Region to calculations on one-rate tariff while tariff decisions were accepted proceeding from calculations of all sales companies on two-rates tariffs.

Rates of charge for technological connection set by regulatory bodies

JSC "Lenenergo" annually directs the requests for the establishment of charge rates for technological connection to the electric networks of JSC "Lenenergo" to regional regulatory bodies.

Following the results of the tariff campaign for 2010, the Committee on tariffs of St. Petersburg by the Order as of 28.12.2009 No.249-r approved charge rates with differentiation by territorial zones. In addition (as compared to 2009), charge rates were allocated for technological connection to the main switchboard. Operating borders of JSC "Lenenergo" were expanded on 14 new zones.

There are no charge rates at the voltage level of 35/110 kV and capacities exceeding 10,000 kVa in the tariff menu for 2010. In comparison with 2009, the Committee on tariffs of St. Petersburg made the following changes in the tariff decision for 2010:

• there are no coefficients for calculation of the size of the charge rate for technological connection to distribution electric networks in cases of change of reliability category of electric power supply in relation to earlier connected devices;
• charge rates for technological connection to the main switchboard to the extent of the charge rates for connection to ТP (RTP) increased by 10% are approved.

In 2011, charge rates for technological connection to electric networks of JSC "Lenenergo" were approved by the Order of the Committee on tariffs of St. Petersburg as of 29.12.2010 No.384-r across 39 territorial zones. In comparison with 2010, during the approval of the charge rates the following changes were made:

• in the tariff menu there were no charge rates at the voltage level of 6-10 kV on cable tips of CL in switchgear cells;
• charge rates were established for applicants on the third category of electricity supply reliability; charge rates for connection on the second category were determined as the doubled rates for the third category of electricity supply reliability.

The Committee on tariffs and price policy of the Leningrad Region (LenRTC) did not review the previously existing rates, and the charge rates approved by the Order of LenRTC as of 31.08.2007 No.72-p were applied.

Charge rates for technological connection were approved taking into account coefficients of differentiation of the base rate on:

• Reliability category;
• Remoteness from power centers;
• Business activity.

In 2011, charge rates for technological connection to the electric networks of JSC "Lenenergo" were approved by the Order of the Committee on Tariffs and Price Policy as of 25.02.2011 No.22-p depending on voltage levels and capacity of power installations of the applicant in 17 municipal areas of the Leningrad Region.

According to the Rules of technological connection approved by the Governmental order of the Russian Federation as of 27.12.2004 No.861 (further Rules), the payment for technological connection to electric networks for applicants – legal entities and individual entrepreneurs applying for technological connection of power receivers by the maximum connected capacity, not exceeding 15 kW inclusively (taking into account the previously connected capacity in the given point of connection), is set in a size not exceeding RUR 550, provided that the distance from borders of a site of the applicant to the power facilities of the voltage level necessary for the applicant constitutes no more than 300 meters in cities and settlements of a city type, and no more than 500 meters in countryside. Lost incomes from connection of such applicants are included in the tariff for electric power transmission.

In the case of failing to comply with one of the conditions listed in item 28 of the Rules, technological connection is performed under the individual project according to section III of the Rules.

According to the legislation, since January 01, 2011, the payment for technological connection does not include expenses associated with the development of existing infrastructure except for expenses on construction of power network facilities (from existing up to connected ones). The costs for development of the existing infrastructure should be considered in the planned investment program, and should be included in the structure of tariffs for electric power transmission.

This caused revision of tariffs for 2011 across St. Petersburg and the Leningrad Region, which were reduced relative to the previously existing charge rates by the regulatory bodies in the course of their approval.

Parameters of RAB-regulation for 2011-2015

The legal and regulatory base in part of regulation of the activity on electric power transmission under the method of return on investment capital:

• Order of the FTS of Russia as of 26.06.2008 No.231/e "On approval of Methodical instructions on regulation of tariffs of the companies rendering services in electric power transmission, with application of the method of return on investment capital";
• Order of the FTS of Russia as of 18.08.2008 No.183-e/1 "On approval of the Order of endorsement by the Federal Tariff Service of the offers of executive authorities of subjects of the Russian Federation in the field of tariff regulation, concerning transition to regulation of tariffs with application of the method of return on investment capital, and decisions on prolongation of the validity period of the first three-year long-term period of regulation".

Definition and advantages of the method of return on investment capital

RAB (Regulatory Asset Base) is a system of long-term tariff setting whose main objective is the attraction of investments aimed at expansion and modernization of infrastructure.

Advantages of the method of return on investment capital are as follows:

• Stimulation of attracting of investments;
• Increase of capitalization of the regulated organizations;
• Improvement of quality of strategic planning of activity of the organizations;
• Possibility to smooth tariff consequences of implementation of investment programs for consumers of services;
• Creation of economic motivation on decrease in costs, increase of reliability and quality of rendered services;
• Absence of the "item-by-item" control of expenses by regulatory bodies.

According to the Federal law of the Russian Federation as of 23.11.2009 No.261-FZ "On energy saving and on power efficiency increase, and on modification of separate legal acts of the Russian Federation" and the Order of the Government of the Russian Federation as of 19.01.2010 No.30-r, JSC "Lenenergo" after the endorsement of the Federal Tariff Service, performed the transition to regulation of tariffs for electric power transmission in the form of establishment of long-term tariffs on the basis of the method of return on investment capital from 01.01.2011 (the Order of the FTS of Russia No.487-e/4 as of 28.12.2010).

The regional tariff regulatory bodies established long-term parameters of RAB-regulation for 2011-2015 for JSC "Lenenergo" (the Order of the Committee on Tariffs of St. Petersburg as of 29.12.2010 No.377-r in the version of Orders of CT SPB as of 04.02.2011, the Order of the Committee on Tariffs and Price Policy of the Leningrad Region as of 28.12.2010 No.291-p).

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