Industry risks

The table demonstrates the evaluation of risk importance and its dynamics, with due regard to existing risk passports and expertise according to the following scales:

Importance scale
Critical
Significant
Moderate
Risk importance dynamics
Increase of risk importance
Importance remains unchanged  
Decrease of risk importance

Risk type

Risk description

Measures minimizing the risk consequences

Evaluation of risk importance and its dynamics

Tariff risks

Energy transmission and connection are state-regulated services. State policy focuses on the repression of tariff growth that may lead to the limitation of tariff resources for investments and operations of the Company. Approval of the Company’s tariffs by regulators has a direct influence on revenues and produces the following risks:

  1. Tariffs prescribed below economically feasible levels.
  2. Reduced revenues due to changed actual structure of energy transmission (in terms of voltage levels) in comparison to the structure approved during tariff-approval procedure.
  3. Reduced revenues due to decreased actual transmission volumes compared to previously approved volumes approved as a result of dropped energy consumption. In the service area of the Company industrial enterprises occupy a significant part of the overall productive supply. Decrease of their production volumes immediately results in significant decrease of the Company’s performance.
  4. Additional expenses caused by cross-subsidization that impedes to set economically feasible tariffs for various voltage levels.
  5. Risks related to changes in legislation on pricing for electric and thermal energy on retail markets.
  1. Close cooperation with regional regulators over feasibility of expenses incurred by the Company;
  2. Cooperation with the Federal Tariff Service over approval of balance sheet parameters for the next year at Company’s forecast level;
  3. Cooperation with the Federal Tariff Service on the introduction of changes into the Russian legislation on pricing on energy retail markets, etc.
  4. Implementation of cost-cutting program,
  5. Well-balanced planning of activities according to the approved tariffs,
  6. Control over the execution of the approved business plan,
  7. Cooperation with regional authorities over long-term programs on regional development and approval of financing volumes and sources for Company’s investment program.

Connection risks

Violation of antimonopoly legislation during connection process. Key risk factor is poor financing of liabilities imposed on grid company related to connection.

  1. Cooperation with regional regulators over inclusion of privileged connection expenses into a transmission tariff.
  2. Requests to regulators on establishing individual connection fee.
  3. Activities to improve the efficiency of a connection process consolidated into a corporate roadmap on connection.
  4. Establishment of targets for each branch related to increased productivity and reduction of overdue contract share.
  5. Monitoring of requests and preparation of forecast productive supply, demand for connection for the next year as well as requests to regulators on establishing individual connection fee.

Shortfall in income risks due to cross-subsidization

Cross-subsidization of other consumers, including residents, by large industrial consumers. Several large industrial consumers connected to UNES networks pay for transmission services according to transmission tariffs in cases when facilities are rented by the Company under last-mile contracts concluded between IDGCInterregional Distributive Grid Company of Urals and FSK UESFederal Grid Company.

  1. The Federal Tariff Service works on the decrease of cross-subsidization by applying a higher level of maximum capacity utilization time when approving tariffs for residents. This may result in a drop of paid capacity and our branches will cooperate with regulators over increasing transmission tariffs for residents;
  2. Introduction of social norm for the determination of volume of services rendered to residents and similar consumers.
  3. Prolongation of last-mile mechanism (the Chelyabinsk region).

Risks related to increased overdue and bad receivables

Overdue receivables for transmission services occupy a prominent position in the structure of Company’s receivables and have a significant influence on the financial results. As a result, the Company has to attract credit resources due to contractor underpayment under the pressure of demanding schedule of payments to suppliers, employees, tax authorities and other payments. Risks related to underpayment related to payment failures by energy sales companies.

  1. Dialogue with contractors focused on timely discharge of contractual liabilities and settlement of overdue debts.
  2. Claim administration focused on debt collection (forfeits for overdue payments) and shaping of positive judicial practices.
  3. Preparation of proposals related to the changes of the present legislation to enhance payment discipline, including increased forfeit for overdue payments.
  4. Conclusion of direct contracts with energy consumers.
  5. Elimination of factors causing conflicts with consumers, decrease of contested and overdue receivables,
  6. Cooperation with regional bodies responsible for monitoring of payments for energy and its transmission to find a joint solution that will decrease receivables.
  7. Search of alternative solutions focused on the decrease of receivables caused by non-payments by providers of last resort.

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