RAB regulation

Electric energy transmission to consumers via the UNEG is a natural monopoly, thus tariffs are set by the Federal Tariff Service (FTS) according to government regulation.

In accordance with the Russian Federal Law “On the power industry” since January 1, 2010, Federal Grid Company transitioned to a new tariff system based on the return on invested capital method (RAB regulation). Under RAB, the tariffs are set for a period of 5 years. The main principal of RAB regulation is that the capital invested in a natural monopoly should generate enough return to attract new investment and develop the enterprise, as well as correspond to the level of investment risk.

The procedure of setting tariffs using RAB regulation encompasses:

  • declaring operating expenses,
  • determining the amount of investment,
  • setting the rate of return on investment.

The new tariff regulation fosters conditions to attract capital for the development and support of the Company’s assets, as well as provides a financial incentive to improve the quality of customer service and efficiency of operations. RAB regulation directly correlates profits with the reliability of the electricity supply and the level of customer service.

The promising outlook of this model of regulating tariffs has already been demonstrated worldwide.

On 12 May 2012, Russia’s Federal Tariff Service approved tariffs under RAB regulation for 2012 – 2014:

Year Return on initial invested capital Return on new invested capital
2010 3.9% 11%
2011 5.2% 11%
2012 6.5% 11%
2013 7.8% 10%
2014 10% 10%

Source: FTS Order №347-э/4 04.12.2009
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Prior to and including 2009, the Costs Plus method used. Under this method the tariffs were established for one-year period and covered Company expenditures to support the networks and a profit level necessary to finance the investment program.