INDUSTRY STRUCTURE
 
Power Industry Participants
 
According to Federal Law № 35-FZ dated March 26, 2003 "On the Electric Power Industry", power industry participants are entities that generate electricity, heat and capacity, purchase and sell electricity and capacity, supply power to consumers, provide services related to electricity transmission, perform dispatching activities in the electric power industry, conduct retail sales of electricity (capacity), organize the purchase and sale of electricity and capacity.
 
The operation of the Russian Federation power system based on a combination of state-controlled technological and trading infrastructure, on the one hand, and organizations interacting among themselves in a competitive environment, generating and selling electric power, on the other hand.
 
The technological infrastructure organizations include the company managing the UNPG – Unified National Power Grid (PJSC "Federal Grid Company"), the organization exercising dispatch administration (JSC "System Operator of the Unified Power System") and interregional distribution grid companies (IDGCs). The trading infrastructure consists of JSC "Trading System Administrator", JSC "Centre of Financial Settlements" and Association "NP Market Council". The infrastructure organizations' activities, particularly price formation and conditions of interacting with counterparties, are subject to state regulation.
 
Generating companies generate and sell electric power in the wholesale or retail markets to retail companies or large end consumers. Retail companies purchase electricity on the wholesale and retail markets and sell it to end consumers.
 
The purchase and sale of electricity and capacity by generating companies, retail companies and large consumers – participants of the wholesale electricity and capacity market is performed according to the Rules of Wholesale Electricity and Capacity Market Operation established by Russian Federation Government Resolution No. 1172 of December 27, 2010 and the Wholesale Electricity and Capacity Market Trading System Accession Contract. Signature of the Accession Contract and membership in the self-regulating organization of the wholesale electricity and capacity market (Association "NP Market Council") are mandatory conditions for participation in electricity and capacity purchase and sale on the wholesale market.
 
In accordance with Federal Law № 36-FZ "On the Specifics of Electric Power Industry Functioning during the Transition Period, Introduction of Amendments to Certain Legislative Acts of the Russian Federation, and Repeal of Certain Legislative Acts of the Russian Federation due to the Adoption of Federal Law "On the Electric Power Industry", the groups of entities and affiliates within the boundaries of the same wholesale market price zone will be prohibited from combining activities related to electricity transmission and dispatching administration in the electric power industry with activities related to the generation, purchase and sale of electricity. Thus, combining naturally monopolistic activities with competitive activities is not permitted within the boundaries of the same price zone, while different types of competitive activities may be combined (a generating company, for instance, may own retail companies, but it may not own network facilities).
 
On the territories of non-price zones of the wholesale market (Arkhangelsk and Kaliningrad regions, the Komi Republic, the regions of the Far East), where for technical reasons the organization of market relations in the power sector is not yet possible, electricity and capacity is sold by special rules and at regulated prices (tariffs).
 
At the same time, the territories that are not part of price zones, i.e. those where conditions for establishing a competitive electricity and capacity market have not yet been created (non-price zones and isolated energy systems of the Far East and the North of Russia), there are no restrictions on combining various activities, however, electricity and capacity is sold by special rules and at regulated prices (tariffs).
 
Requirements on ensuring of unbundling activities do not apply to technologically isolated territorial electric power systems and the territory, technologically disconnected from the Unified Power System of Russia and technologically isolated territorial electric power systems, due to the absence or restriction of competition. Operational dispatch management activities in technologically isolated territorial electric power systems is carried out the subjects of operational dispatch management organization without the participation of the system operator. The sale of electricity and capacity in these areas is carried out only at regulated prices (tariffs).
 
In addition, the combination of the functions of the network organization and retail company is also permitted, if the Ministry of Energy of Russia imposes the functions of last resort supplier on the network company until tender and a new supplier of last resort selection are carried out.
 
Electricity consumers
 
Consumers of electricity are the persons who purchase electricity for their own household, and (or) production needs. Large consumers (having a power receiving equipment with a total connected load of at least 20 MVA and in each group of delivery points not less than 750 KW) may buy electricity directly in the wholesale market, provided that the requirements for the participants of the wholesale market. Other categories of consumers buy electricity from energy retail companies, including last-resort suppliers, and may purchase electricity from electricity producers that are not participant of the wholesale market.
 
Dispatch Management
 
Operational dispatch management of the unified power system of Russia is exercised by the System Operator (JSC "SO UPS"). The main function of the System Operator is to control the observance of technological parameters of power system operation. In order to perform this function, the System Operator may give binding instructions to generators and grid companies and to consumers with controllable load. The System Operator also controls the schedule of generating and grid facility repairs and exercises control over the implementation of investment programs by generating and grid companies.
 
The System Operator participates in maintaining the operation of the wholesale electricity and capacity market by updating the simulation model used by the Trading Operator to calculate the volumes and prices of trade in the wholesale electricity and capacity market, conducting the competitive selection of capacity (CSC or unit commitment) and maintaining of the balancing market operation - trade in deviations from planned electricity production and consumption volumes.
 
100% of JSC "SO UPS" voting shares are owned by the state.
 
 
Grid Infrastructure of Electric Power Markets
 
Grid organizations perform transmission of electricity through power grids and technological connection of electricity consumers' power receivers, generating companies' power units and other owners' power grid facilities to the grid. Activities of the network organizations are naturally monopolistic and regulated by the state.
 
This regulation includes not only the establishment, in one form or another, of appropriate tariffs (rates) for services of acceptable quality, but also the provision of non-discriminatory access of grid organizations' customers to power networks, including the approval by executive authorities of the conditions of standard contracts and the procedure for their conclusion.
 
Grid companies based on the paid services in accordance with electricity transmission agreement provide electricity transmission services. The electricity transmission agreement has a public nature and must be obligatory concluded by the grid company according to the customer's request.
 
The main obligations of the network organization and customer of services in the performance of the contract for the transmission of electric energy determined by the rules of non-discriminatory access, adopted by Russian Federation Government Resolution No. 861 of December 27, 2004.
 
Depending on the specific nature of the basic conditions, the following types of transmission contracts may be distinguished:
 
1) "Grid company – End consumer" contracts.
  
2) "Grid company – Last resort supplier (Power Retail Company)" contracts.
A distinctive feature of this type of contracts is that they don’t just include the terms of interaction between grid and power retail companies, they also include additional terms that define the procedure of interaction when providing services to a large amount of small and medium-sized consumers.
 
3) "Grid Company – Grid Company" contracts.
Such contracts must additionally contain a list of power grid facilities of internetwork coordination, in respect of which it is necessary to conduct joint monitoring of operational status, coordinate repairs and other activities.
 
For PJSC "Federal Grid Company", the payers under the contract are the owners of grid facilities connected to it, including other owners of the Unified National Power Grid (UNPG), if they provide electricity transmission services independently. In other words, territorial grid companies must pay UNPG owners, including PJSC "Federal Grid Company", for their share of electricity transmission services.
 
For territorial grid companies, the terms of mutual settlements (payment direction, payment amount) under "Grid Company - Grid Company" contracts significantly depend on the model of setting transmission service tariffs adopted in their respective constituent entity of the Russian Federation. Since 2008 it has become mandatory to establish uniform ("boiler") tariffs differentiated by voltage level for all consumers located in a constituent entity of the Russian Federation.
 
The electricity transmission service tariff system based on the following two main principles:
 
The two above-listed principles answer the question how the necessary gross revenues (NGR) are distributed among the consumers.
 
  • the cascade principle: a part of the necessary gross revenue (NGR) of grid companies at the high voltage level is taken into account together with the NGR of grid companies at medium voltage when forming the medium voltage tariff, and so on through to the low voltage level. Thus, for the transmission services consumer the tariff includes payments for the transmission services of all "upstream" grid infrastructure, which was (may have been) used to provide electricity transmission for this customer;
  • the principle of uniform ("boiler") tariffs. The tariffs for electricity transmission services must be equal for consumers located in the same region and using the same voltage level (also has other comparable conditions), regardless of which grid company’s networks they are connected.
 
 
REGULATION OF THE WHOLESALE ELECTRICITY AND CAPACITY MARKET
 
The wholesale electricity and capacity market (WECM), as defined in Federal Law No.35-FZ of March 23, 2003 "On the Electric Power Industry", is the field of circulation of special commodities - electricity and capacity - within the United Power System of Russia within the boundaries of the common economic space of the Russian Federation.   Large generators and large buyers of electricity and capacity, as well as other entities holding the status of wholesale market participants and acting on the basis of the Wholesale Market Rules approved by the Russian Federation Government, participate in wholesale electricity market trading.
 
The legal grounds of wholesale market operation are established by the Federal Law “On the Electric Power Industry”, as well as the Wholesale Market Rules approved by the Russian Federation Government and regulatory legal acts of federal executive bodies provided for by the Rules of Wholesale Electricity and Capacity Market Operation.
 
Trading in the wholesale electricity and capacity market is conducted in accordance with the Wholesale Market Trading System Accession Contract and wholesale market regulations establishes by Association “NP Market Council”.
 
The Wholesale Market Rules govern the relations associated with the movement of electricity and capacity in the wholesale market, to the extent envisaged by the Federal Law "On the Electric Power Industry". The rules for electricity export and import established in accordance with legislation on state regulation of foreign trade activities.
 
In the instances and in the manner determined by the Russian Federation Government relations associated with the circulation of a special commodity - capacity and other commodities and services required for effective trading in electric power are subject to regulation in the wholesale market.
 
 
Main principles of WECM organization
 
The wholesale market organized according to the following main principles:
 
  • free non-discriminatory access to wholesale market participation for all electricity sellers and buyers that comply with wholesale market rules and meet the requirements for wholesale market entities established by Article 35 of the Federal Law "On the Electric Power Industry" should be provided;  
  • wholesale market entities operating according to wholesale market rules approved by the Russian Federation Government should be able to interact freely;  
  • wholesale market entities should be free to choose the procedure of purchase and sale of electricity either by forming market prices and selecting buyers' price bids and sellers' price bids based on establishing minimum electricity prices in the separate price zones of the wholesale market according to the wholesale market rules, or by concluding bilateral electricity purchase and sale contracts; 
  • the particularities of participation in the wholesale market of certain entities providing system reliability and (or) generating electric power in thermal, nuclear or hydraulic power plants need to be taken into account;  
  • wholesale market participants should interact based on unconditional compliance with contractual obligations and financial discipline;  
  • wholesale market entities are obligated to  purchase capacity in accordance with the procedure and in the instances established by the Government of the Russian Federation.   
 
Powers of the Russian Federation Government with regard to Wholesale Electricity and Capacity Market Regulation 
 
With regard to wholesale electricity and capacity market regulation the Government of the Russian Federation has the following powers:
 
  • adopting the wholesale market rules;
  • establishing the rules of providing system reliability services, United Power System emergency recovery services, capacity reserve services;  
  • adopting the rules of concluding and performing public contracts in the wholesale market; 
  • adopting the rules of state price (tariff) regulation (review, introduction) in the electric power industry, including the timeframes for making these decisions, an exhaustive list of documents to be submitted, the procedures of obligatory proposal assessment and collective decision-making;  
  • adopting  the fundamentals of pricing mechanisms for regulated prices (tariffs) in the electric power industry that define the principles and methods of calculating prices (tariffs) in the electric power industry;  
  • establishing the procedure of price bid submission by wholesale market entities, the procedure of their selection and calculation of the wholesale market equilibrium price with account of the particularities of its price zones;  
  • defining and changing the boundaries of the wholesale market price zones with account of technological and system constraints of the United Power System of Russia.
  • The Government of the Russian Federation or the federal executive bodies authorized thereby exercise the following powers in the wholesale electricity and capacity market:
  • state price (tariff) regulation, including establishment of their extreme (minimum and (or) maximum) levels), excluding prices (tariffs) that, in accordance with federal laws, are regulated by the executive authorities of constituent entities of the Russian Federation; 
  • controlling the application of state regulated prices (tariffs) in the electric power industry and inspecting the business activities of organizations operating in regulated pricing conditions in order to determine whether the size of these prices (tariffs) is reasonable and their application is correct; 
  • controlling wholesale market entities’ compliance with the requirements of Russian Federation legislation; 
  • controlling the activities of the trading infrastructure organizations; 
  • establishing the premium added to the wholesale market equilibrium price in order to determine the price of electric power produced at qualified generation facilities operating on renewable energy sources;  
  • establishing the minimum volume of electric power produced at qualified generation facilities operating on renewable energy sources that wholesale market buyers are obligated to purchase;  
  • creating a public information disclosure system in the wholesale market.
 
Powers of the Association “NP Market Council’’ with regard to WECM Regulation 
 
The following organizations maintain the functioning of the wholesale market trading infrastructure: 
 
  • a self-regulatory organization - "Market Council" (the Association “NP Market Council (Non-profit Partnership);
  • the Trading Operator of the wholesale market (JSC "Trading System Administrator")
  • other organizations, which, in accordance with the Wholesale Market Trading System Accession Contract, were entrusted, by the Market Council, with functions of related to the operation of the trading infrastructure (JSC "Centre of Financial Settlements").
 
 The Association “NP Market Council” performs the following functions:
 
  • determining the procedure of maintaining the wholesale market entities register and maintaining the register, adopting decisions to grant (withdraw) wholesale market participant status; 
  • designing the standard form of the Wholesale Market Trading System Accession Contract; wholesale market regulations; standard forms of contracts securing the conduct of trade on the wholesale market in electricity, capacity, other commodities circulating on the wholesale market, as well as the provision of services related to the circulation of the said commodities on the wholesale market;  
  • organizing a system of pre-court dispute resolution between wholesale market participants and other entities of the electric power industry in accordance with the Wholesale Market Trading System Accession Contract;  
  • establishing the system and procedure of applying pecuniary sanctions for infringement of the Wholesale Market Rules;
  • participating in preparing drafts of wholesale and retail market rules and proposals on their amendment;  
  • exercising control over the compliance of wholesale market participants and the trading and technological infrastructure organizations with the wholesale market rules and regulations;
  • acknowledging generating facilities operating on renewable energy sources as qualified generating facilities; 
  • maintaining the register of issued and redeemed certificates confirming the volume of electric power produced on renewable energy sources;  
  • exercising control over the observance, by wholesale market electricity buyers, of their obligation to purchase a certain volume of electric power produced at qualified generation facilities operating on renewable energy sources, at a price determined in accordance with the procedure established by the Russian Federation Government;
  • participating the Executive authorities activity of the regions of the Russian Federation due to the State tariff regulation – according to the regulation of tariffs (prices) in the electricity industry.
  •  
State control over the Association’s activity
 
In order to ensure state control over Market Council activities, the federal executive body authorised by the Russian Federation Government has the following powers: 
 
  • a right to veto the decisions of the Market Council’s management bodies; 
  • relegating issues, which the Market Council's management bodies responsible for these issues are obligated to consider and include in the agenda of a regular or extraordinary meeting,  to the Market Council management bodies;  
  • making a decision on an issue that is obligatory for consideration and was relegated to the Market Council management bodies, who failed to make a decision thereon within 45 days. 
 
Control over the activities of trading infrastructure organizations is exercised by the Russian Federation Government or federal executive bodies authorized thereby, particularly, through participation in the work of the Association “NP Market Council” Supervisory Board.