Regulatory risks

Our key business lines are energy transmission and connection. These business lines are regulated by the state (approval of tariffs directly influencing our financial results), and therefore, there is a risk of tariff regulation. The limitation of tariff growth for end users by the state, equivocating interpretation of regulating and methodical documents on tariffs and other factors may lead to a risk of setting tariffs below economically feasible levels. Incorrect planning of energy transmission structure may lead to decreasing revenues or additional expenses. IDGC of Urals constantly works hard over economic grounding for tariff-included expenses as well as controls own expenses and tariff completion. We prepare and submit justifying materials and information to regional regulators as well as work out and approve long-term development programs.

Antimonopoly regulation leads to risks when the Company may be acknowledged as a violator of antimonopoly legislation. These risks may be caused by violation of terms for connection or terms of requesting regulator on connection fee. To minimize risks related to prosecution for antimonopoly violation in terms of connection, our branches have installed software enabling successful control over the terms for application completion processes and approved local regulatory documents determining connection steps.

RAB-tariffs may create risks related to the lack of RAB implementation practices due to the lack of integral regulatory base, including the lack of accumulated practice on tariff component grounding. To minimize these risks the Company actively works out proposals on the introduction of amendments into regulatory documents and grounds for these amendments. We interact with regulators during indicator calculation, approval and update.

IDGC of Urals, like other gridcos, purchases energy for loss compensation at free market prices, dependent on wholesale market fluctuations. Local regulators approve energy transmission revenues without regard to the cost of losses purchased at non-regulated prices, and this causes additional expenses. We minimize the risk by negotiating with local regulators on inclusion of these expenses into RGR during the next regulation period.