RAB Regulation

On September 15, 2009, the Russian Government recommended to Russia’s regional administrations that RAB regulation apply to tariffs of electricity distribution grid companies effective from 2010. On the same day, the IDGC of the Center Board of Directors held a meeting adopting the decision to switch all of the company’s branches to RAB-based tariff regulation as of January 1, 2010.

The experience of pilot regions showed that the new tariff design system was viable and useful as evidenced by increased construction and lending for distribution grid companies.

For the transition of electric grid companies to RAB regulation, the Federal Tariff Service of the Russian Federation approved the relevant guidelines and determined rates of return on invested capital. The Russian Government amended the legal framework for electricity and heat pricing in Russia and issued the resolution governing the procedure for obtaining approvals for regional investment programs. Therefore, a systematic approach is employed at all levels to the introduction of the new tariff design methods.

Nikolay Shvets, Director General of JSC IDGC Holding: “We advocate the transition to not only a new tariff regulation system but also a new attitude toward the investment program and the cost of services provided by our subsidiaries. This approach will enable us to achieve a considerable reduction in operating expenses, substantially renew our capital assets, and make distribution grid companies more attractive to investors.”