5.1. Electricity and capacity
5.1.1. Regulations on the Russian wholesale electricity market

TGC-1 is a participant in the wholesale electricity and capacity market, purchasing and selling electricity and capacity under regulated contracts and in the competitive markets.

The Government of the Russian Federation adopted decree no. 205 of April 7, 2007 amending several laws on definition of the electricity volume sold at free (non-regulated) prices, establishing from January 1, 2007 the share of the electricity to be supplied to the wholesale electricity market at regulated prices (tariffs) in the total basic forecast electricity volume for 2007.


Starting from January 1, 2011 the electricity and capacity in the wholesale power and capacity market will be supplied at free (non-regulated) prices, except for supplies to residents.

Terms and conditions of the regulated contracts are defined by the Federal Tariff Service of Russia, the contractors list and schedule of supplies under regulated contracts are set by the System Operator of UES so that the total cost of basic electricity and capacity volumes under the regulated contracts does not exceed the cost of basic supplies defined in accordance with the indicative consumer prices (tariffs).

Electricity volumes not covered by the regulated contracts, are sold at non-regulated prices under free contracts in the day-ahead market and the balancing market.

Starting from June 1, 2008 capacity trading is provided by System Operator of UES on competitive capacity outtake basis. Participants of the wholesale market, who passed the acceptance procedure of the competitive capacity outtake, may submit their bids for the volume not exceeding the maximum capacity stipulated in the forecast balance sheet of the Federal Tariff Service of Russia for the corresponding regulation period.

For the generating facilities specified in the forecast balance sheet of 2007, the bid price should not exceed the tariff set by the Federal Tariff Service of Russia. The bid price for the facilities commissioned after 2007, should not exceed the economically justified rate calculated by the Market Council in accordance with the approved methodology. Pursuant to the capacity market rules, all capacity supplied on a competitive capacity outtake basis, should be paid by consumers.

The capacity market liberalization comes along with the electricity market liberalization.

Capacity sales under regulated prices (tariffs) are provided under regulated contracts in accordance with the established liberalization pace. The capacity supply contract is a specific mechanism of capacity sales under regulated prices for nuclear power plants and HPPs, made by commercial operators.

The capacity is sold on a competitive basis under free-trade electricity and capacity contracts and sales and commission contract.

In 2010, the Government of Russia is supposed to adopt a decree defining the rules of long-term capacity market.

Today, the major sectors of the capacity market are as follows:

5.1.2. Electricity and capacity sales

Objectives and principles of the Company's sales policy

The major goal of TGC-1 sales is to gain maximum marginal revenue from electricity plants operation in the electricity and capacity markets and from heat power sales. In its sales policy, the Company is guided by the following principles:







To sell the capacity commissioned after 2007 TGC-1 submitted at the end of 2008 and 2009 price bids for competitive capacity auctions organized by the System Operator. In accordance with the established rules, the bid price could not exceed the economically justified rate calculated by the Market Council pursuant to the approved methodology. Following the results of competitive capacity outtake in 2008 and 2009, all new capacity of TGC-1 passed competitive procedures, and the Market Council approved the following tariffs for the commissioned capacity (see table below).



5.1.3. Electricity and capacity purchasing

The main reasons of electricity procurement in 2009 were power purchases to ensure unregulated electricity and capacity contracts, export supplies and obligations under regulated contracts taking into consideration the shutting down the equipment for scheduled repairs.

The main reasons of capacity procurement in 2009 were penalties for non-readiness of the process data exchange system with the automated system operator system, equipment breakdown and unscheduled starts/shutdowns.

5.1.4. Electricity exports

TGC-1 holds a unique position in the electricity exports market of the Russian Federation supplying electricity to Finland and Norway from its HPPs which are synchronized with importer power systems and are located in Leningrad and Murmansk regions. TGC-1 has a substantial potential for cross-border trading thanks to the location of its generating facilities. At the same time, prospects of the export development depend on the prices in the Scandinavian electricity market NordPool and interest of foreign buyers in Russian electricity.

Besides, the export potential development is limited by system constraints, including:

Furthermore, the export supplies volume is influenced by:

At the present time electricity is supplied to Finland by:

Electricity supplies to Norway are provided through buses of Borisoglebskaya HPP (Pazskie HPPs Cascade), located in the Murmansk Region via the 150 kV L-225 line. Maximum supply capacity is 56MW with 28MW in normal mode.

The delivery volume of the electricity generated by HPPs of Pazskie HPPs Cascade is within the range of 720 mn kWh up to 760 mn kWh. In 2009, export supplies totalled 1,299 mn kWh.

One of the largest buyers of electricity supplied by TGC-1 is Fortum, with which TGC-1 has long-term cooperation. In 2008, the 10-year contract between Lenenergo and Fortum Power and Heat for electricity supply to Finland expired. Total electricity supplies under that contract amounted to 3,375 mn kWh. Starting from 2008 TGC-1 and Fortum entered contracts for one-year-term with price calculation formula anchored to spot prices of NordPool within an agreed price corridor.



5.2. Heat

TGC-1 is a strategic supplier of heat to St. Petersburg, Petrozavodsk, Murmansk, Kirovsk (Leningrad Region) and Apatity (Murmansk Region). The Company provides heat power sales at tariffs approved by local regulating authorities.

In 2009, total useful heat output from TGC-1 plants (not including Murmanskaya CHPP) amounted to 23.55 mn GCal compared to 23.04 mn GCal in 2008. Revenue from heat power supplied increased by 22% to RUR 15,135 mn.

As of the end of 2009, accounts receivable of the consumers for heat supplied by TGC-1, totalled RUR 3,122 mn.

TGC-1 is actively working to connect consumers to its heating grids. In 2009, the total revenue from connection to grids amounted to RUR 763.9 mn compared to RUR 708.1 mn in 2008.