Supply

Description of business

The ‘Supply in the Russian Federation’ segment unites the Group’s companies whose main business involves the supply (sale) of electric power (capacity). In 2020, the Group’s power supply companies had an 18.2% share of the retail electric power market, while the customer base expanded to 17.2 million customers. A higher level of market penetration, expansion in specialized services, and the enlargement of the product portfolio all combined to have a positive impact on the profit margins of this segment. Inter RAO sees great potential for business diversification in the segment through the development of additional customer services.

The segment consists of:

  • 11 power supply companies (PSCs) that are guaranteed suppliers (GS) operating within 14 regions of the Russian Federation
  • 4 unified information and payment centers (UIPCs) that provide face-to-face customer service for individuals
  • 3 independent (unregulated) power supply companies (IPSCs) that supply electric power to major industrial consumers in 66 regions of the Russian Federation.
2018 2019 2020 2019/2020
Net supply in Russia, bln kWh 1,076.1 1,075.2 1,050.4 − 2.3%
Net supply by segment, mln kWh 191,908 198,456 193,748 − 2.4%
Share of the segment’s net supply in RussiaExcluding operations on the wholesale market., % 17.7% 18.3% 18.2% −0.1 p.p.
Number of customers served as of the end of the year EU 3
2018 2019 2020 2020/2019
Population, housing and utility services, management companies, homeowners’ associations, housing cooperatives, and equivalent organizations 15,212,591 16,488,029 16,849,567 2.2%
Industry 13,814 14,875 15,229 2.4%
Transport and communication 335 588 1,453 147.1%
Other commercial enterprises 247,503 268,638 273,949 2.0%
Agriculture 9,620 10,195 10,751 5.5%
Publicly-funded institutions 34,932 37,554 37,839 0.8%
Total 15,518,795 16,819,879 17,188,788 2.2%

Results of operating activities EU 3

In 2020, electricity sales by companies in the ‘Supply in the Russian Federation’ segment declined by 2.4% compared with 2019 and amounted to 193.748 billion kWh. The following factors had the biggest impact on this increase:

  • Electricity sales by JSC Petersburg Supply Company decreased by 1.933 billion kWh, or 6.2%, due to reduced consumption by small and medium-sized businesses as a result of the introduction of restrictive measures to prevent the spread of COVID-19
  • Electricity sales by JSC Mosenergosbyt decreased by 1.421 billion kWh, or 1.6%, because of higher temperatures (the outside air temperature in the Moscow region was 3.7°С warmer in the first quarter of 2020 than in the same period of the previous year and was the warmest quarter on record since observations began in 1972) as well as lower consumption by businesses during the period when restrictive measures were imposed to prevent the spread of COVID-19

Unregulated supply companies saw an aggregate decrease in electricity sales of 1.551 billion kWh, or 5.1%, primarily due to reduced electricity consumption by Rosneft subsidiaries as a result of restrictions on production under the OPEC+ agreement as well as the effect of measures to prevent the spread of COVID-19.

For all guaranteed suppliers, the key factors behind the lower sales were the higher air temperatures in 2020 compared with that of 2019 as well as reduced consumption due to the imposition of restrictive measures to prevent the spread of COVID-19 in the second quarter of 2020. Major electricity consumers continue to join the wholesale electric power market.

The customer base was projected to expand by 235,000 customers in 2020 compared with 2019, but actually increased by 369,000 to 17.2 million customers. The largest increase in the customer base occurred at JSC Petersburg Supply Company (+90,000 customers) and JSC Mosenergosbyt (+186,000 customers). The driving factors behind this increase included: subscribers were accepted for servicing from third-party organizations, primarily management companies (individuals were accepted for direct settlements based on the decisions of the general meetings of residential premises owners at apartment buildings), land owners who had previously made settlements with gardeners’ non-commercial partnerships and cooperative housing societies transitioned to direct settlements with guaranteed suppliers, new household subscribers (new buildings) were accepted for settlements, new contracts were concluded with non-industrial consumers, and customers were recognized as equal to the population.

Fulfillment of contractual obligations EU 27

Companies in the segment constantly work to improve the payment discipline of customers. This became particularly relevant in 2020 due to the restrictive measures that were imposed to prevent the spread of COVID-19. These measures temporarily curtailed the ability of power supply companies to collect debts. In particular, Resolution No. 424 of the Government of the Russian Federation dated April 2, 2020 'On Specific Aspects of Providing Utility Services to Owners and Users of Premises in Apartment and Residential Buildings' (Resolution No. 424) placed a moratorium on the right to file claims against individual debtors seeking the payment of penalties (fines) for utilities as well as restrict or suspend the provision of utilities until January 1, 2021. The moratorium not only affected the payment discipline of ordinary people, but also organizations whose financial standing largely depends on payments by individuals for utilities and resources, such as utility service providers and utility companies that provide heat and water supply services.

The lockdown that was in effect from April to June 2020 also impacted the payment discipline of customers. Organizations that provide entertainment and consumer services as well as host cultural events had their activities suspended during this period. The hotel and catering businesses faced serious problems as well. Educational institutions switched to remote learning. Some of these restrictions still remain in place today.

Collection of payments for electric power supplied
2018 2019 2020
Collection of payments for electric power supplied in the retail segment 98.8% 99.6% 99.5%

The Group managed to prevent the level of collections from plummeting in 2020 by stepping up work to collect receivables. The slight decrease compared with 2019 is due to the diminished payment discipline of the categories of customers that were most affected by the COVID-19 pandemic (the population, resource supply organizations, utility providers as well as small and medium-sized businesses).

Inter RAO paid particular attention to work with legal entity debtors in 2020 by focusing on effective methods of influence, such as imposing restrictions on power consumption modes and litigation.

Given the moratorium on the imposition of restrictions that was in place from April to December 2020, the volume of collections from individuals through the courts increased significantly, while methods of out-of-court debt settlement were expanded, particularly methods involving remote communication with customers (telephone calls, banners in a customer’s personal account, the inclusion of information about debts in receipts as well as sending notifications and information letters, among other things).

Resolution No. 424, which imposed a moratorium on restricting or shutting off utilities until January 1, 2021, was the primary factor that resulted in a substantial decrease in the number of household subscribers who had their power shut off in 2020.

Financial results in the 'Supply in the Russian Federation' segment
Indicator 'Supply in the Russian Federation' segment
2018 2019 2020 2020/2019
Revenue, RUB mln 632,368 695,098 696,696 0.2%
Share of the Inter RAO Group’s revenue, % 66% 67% 71% +4 p.p.
Operating expenses, including
Purchased electricity and capacity, RUB mln (368,026) (412,102) (413,302) 0.3%
Electricity transmission fees, RUB mln (218,047) (233,393) (233,671) 0.1%
EBITDA, RUB mln 24,960 25,807 24,412 −5.4%
EBITDA marginEBITDA margin was calculated excluding intersegment revenue in the ‘Supply in the Russian Federation’ segment in the amount of RUB 1.821 billion for 2020, RUB 1.758 billion for 2019, and RUB 1.674 billion for 2018., % 4% 4% 4% 0 p.p.
Share of the Inter RAO Group’s EBITDA, % 21% 18% 20% 2 p.p.
Number of disconnections among residential subscribers for non-payment with a breakdown of the duration of disconnections in 2020Information for GS and IPSC. EU 27
Number of disconnections among residential subscribers for non-payment with a breakdown of the duration of disconnections in 2019There is no accounting conducted for the length of time between debt settlement and a customer’s reconnection. EU 27

Revenue in this segment grew by RUB 1.6 billion (0.2%) primarily as a result of the increased external revenue generated by JSC Mosenergosbyt, LLC Northern Supply Company (NSC), LLC Energosbyt Volga, and JSC Tomskenergosbyt, which boosted sales markups and net supply to the population and equivalent categories as people switched to remote work en masse. All the Group’s sales companies were negatively affected by the higher average temperatures compared with the previous year, the diminished business activity of small and medium-sized businesses due to the imposition of restrictions associated with COVID-19 as well as lower revenue at a number of companies from major customers who became direct energy market consumers in 2020. In addition, income from fines and penalties slumped in 2020 as a result of the moratorium on charging penalties for the late payment of arrears during the pandemic as well as income from additional paid services due to the enactment of Federal Law No. 522-FZ 'On Amendments to Certain Legislative Acts of the Russian Federation in Connection with the Development of Metering Systems for Electric Power (Capacity) in the Russian Federation' (Federal Law No. 522), which stipulates that guaranteed suppliers and network organizations must install and maintain metering devices at their own expense.

LLC Omsk Power Supply Company increased revenue from external customers by RUB 15.0 billion after being granted the status of a guaranteed supplier in the Omsk Region starting from January 1, 2020. Petersburg Supply Company, which had the status of a guaranteed supplier in the region during the previous year, saw its revenue decline by a comparable amount.

Expenses on purchased electricity and capacity grew by RUB 1.2 billion in the segment due to higher prices for purchased capacity. Expenses on electricity transmission services increased by RUB 0.3 billion as a result of the effect of growth in regulated tariffs trumping the effect of reduced electricity consumption.

EBITDA in the ‘Supply in the Russian Federation’ segment fell by RUB 1.4 billion, or more than 5%, in 2020 compared with the previous year due to the varied influence of the abovementioned factors.

Commercial services

The ideology behind Inter RAO’s power supply activities is to improve the quality of customer service through competition in the power supply sector of the electricity business. In order to expand the areas of activities of the retail business, the Group is actively developing the following commercial services:

  • Installation and maintenance of electricity meter devices and systems as well as other resources (including automated commercial electricity metering systems)
  • Electrical, plumbing, and construction work
  • Sales of electrical products
  • Preparation of technical documentation and integrated solutions in such areas as energy conservation and energy efficiency
  • Provision of consulting services on energy conservation matters
  • Generation of a unified/single payment document

The Group’s power supply assets and UIPCs generated revenue of RUB 4.366 billion from commercial services in 2020 (0.6% of total revenue in the segment). This indicator was down from RUB 5.509 billion in 2019 due to diminished business activity during the period when restrictive measures were imposed. At the same time, revenue in certain areas, such as the sale of electrical products and intermediary activities, increased compared with the previous year. As changes were made to legislation, the product portfolio was restructured with the focus shifting to the provision of services in the legal entities segment.

Development of smart metering systems

Starting from July 1, 2020, guaranteed suppliers and grid companies, as professional participants in retail electricity markets, became obligated to only ensure the installation/replacement of metering devices, without the introduction of smart functions, in accordance with Federal Law No. 522. Since the description of what the government views as ‘smart’ metering devices only appeared in mid-June 2020, electricity metering devices that meet all the requirements could not be produced for the entire market. As a result, legislators pushed the deadline for transitioning from ordinary meters to smart devices back to January 1, 2022.

In order to comply with the requirements of Federal Law No. 522, in the second half of 2020, the Group started the process of replacing metering devices that had gone beyond the calibration interval (or installing them in places where they had not previously been) with metering devices available on the market.

At present, the power supply companies of PJSC Inter RAO are actively working on the project to create smart metering systems.

Digitalization

In 2020, as restrictions were introduced due to the spread of COVID-19, the retail business paid particular attention to expanding the availability of electronic customer service, expanding functionality, and shifting customer interaction from offline to online. Official company websites offer the following existing services:

  • Personal accounts
  • Online consultation
  • Transfer of meter readings
  • Payment of charges without registration
  • Printing of receipts for cash payments
  • Online appointment to visit offices

The Group’s companies are actively working on digitalizing their operations and prioritizing actions that will maximize the transition of interaction with customers online. In particular, nine of the Group’s companies switched to the unified solution of the Customer’s Personal Account in 2020, which enabled numerous customers to gain access to new electronic services. Several power supply companies have launched mobile applications that enable customers to use their personal accounts from a mobile device.

Several projects have been launched to fully unify the Group’s electronic services as well as to meet all customers’ needs in terms of interaction with power supply companies and UIPCs.

Cybersecurity and personal data protection of customers GRI 418Management Approach: Personal data protection system.

In 2020, in an effort to improve information security mechanisms in the segment, the Group implemented Information Security Development Programs, which include the following projects to update the personal data protection system:

  • Technical solutions to protect information systems that process personal data
  • Technical information protection solutions using the cryptographic protection of communication channels
  • An anti-cyberattack software and hardware system

In addition, companies in the ‘Supply in the Russian Federation’ segment have been designated as being responsible for organizing the protection of confidential information. Commissions have been set up to determine the level of protection of personal data during processing in the information system that manages electricity supplies to household consumers.

Companies in the segment use a multi-level system software and hardware system for information protection. In addition to technical measures, employees regularly monitor security vulnerabilities.

Safety recommendations have been prepared to organize remote user workstations as a solution to the COVID-19 pandemic. The corresponding technical solutions have been introduced on the basis of products and equipment used by Inter RAO.

Customer satisfaction assessment

Companies in this segment devote extensive attention to building trust-based relationships with their customers. The Group regularly assesses the level of service quality and organizes training for employees. In an effort to identify customers’ needs, Inter RAO regularly conducts surveys and research using in-house resources and with the involvement of third-party organizations.

In order to ensure a client-oriented approach, the Group conducted a segmentation of the customer base for the first time in 2020 and also built customer experience maps as regards regulated activities and competitive services. Updated service standards were developed based on the data obtained and will be introduced at the Group’s power supply companies and UIPCs in 2021.

In 2020, Inter RAO conducted a wave of customer satisfaction surveys among 3,375 people at all UIPCs and power supply companies using international TLR methods (a summary assessment of customer engagement and loyalty). The overall level of engagement and loyalty (TLR) was 64%, which is 5 percent higher than the 2019 result. Customers in all segments rated the staff’s courtesy and professionalism as the highest, while older people proved to be the most loyal clients.

Factors affecting the industry’s development

Smart electric power metering systems (SEPMU)

Starting from July 1, 2020, responsibility for the installation, replacement, and operation of metering devices passed from customers to professional market participants – network organizations and guaranteed suppliers. Starting from January 1, 2022, guaranteed suppliers will be required to provide access to the minimum set of SEPMU functions, which will be approved by the Government of the Russian Federation. The necessary regulations are currently being drafted for this.

Maximum capacity reserve (MCR)

A new obligation will be introduced for customers to pay for electricity transmission services as regards payment for MCR. The obligation to pay for MCR will arise if the volume of MCR in an annual period was more than 40% of the maximum capacity in each consecutive month of the year (provided that the customer did not redistribute the capacity to other customers and/or did not sign over the available reserves to a network organization). MCR will be subject to payment taking into account a decreasing coefficient with the prospect of a gradual transition to full payment for capacity.

Demand management aggregators and Active Power Complexes (APC)

Demand management aggregators have become an integral tool for balancing supply and demand on both the wholesale and retail electricity markets. This pilot project was extended until the end of 2021. APC are a new type of microgrid that is primarily used by groups of industrial and commercial customers uniting various entities (electricity producers and consumers) that enter into economic relations regarding the production and consumption of electricity and capacity, both within the microgrid and from the external grid with respect to the APC. The project has been launched and may be approved as a component of the retail electricity markets based on the results of an economic assessment.

Refueling of electric vehicles and energy storage systems

The refueling of electric vehicles has been excluded from regulations on power supply activities, which will stimulate the economic development of this type of business. Electricity storage systems require the establishment of a legal structure for their operation and may become part of the electricity demand management system or a component of distributed generation depending on how they are developed.

Low carbon certifications and micro-generation

Low carbon certificates are slated to be put into circulation in Russia. The certificates are an electronic document that is issued when electricity is produced using nuclear or renewable generation. The certificate consists of a set (‘package’) of market rights based on the environmental effect produced from generating a certain amount of electricity. Above all, the effect implies a less adverse impact on the environment and human health compared with the combustion of fossil fuels.

Microgeneration refers to a customer-owned generating facility that runs on renewable energy sources and is used for internal consumption as well as for the sale of electricity. Such generation should have capacity of no more than 15 kW and be technologically connected to power grid facilities with a voltage level of up to 1,000 volts. Microgeneration is granted the right to sell surplus electricity on retail markets.

Licensing and transfer of power supply activities

Power supply companies were not supposed to be able to engage in activities starting from July 1, 2020 without an appropriate license. Permits must be issued by the relevant department in the Russian Ministry of Energy, and the documents submitted by applicants must be considered by a commission set up under the licensing authority. However, the period for engaging in power supply activities without a license was extended until July 1, 2021. All Inter RAO supply companies are ready to introduce this mechanism.

'Regulatory Guillotine'

Plans are in the works to repeal obsolete regulatory legal acts of the USSR, the RSFSR, and the Government of the Russian Federation and also abolish regulatory legal acts containing mandatory requirements that are assessed for compliance during state control measures over the activities of companies (including energy supplies).

Consumer debt

There are plans to change the parameters for working with receivables through legislative amendments regarding the collection of commissions and the organization of out-of-court work and litigation to recover overdue debts. Regulatory acts have been adopted restricting the ability to conduct litigation without providing information on the identification data of debtors in addition to a ban on the transfer (ceding) of citizens’ debts for electricity to third parties (including collectors). A number of draft laws that restrict the rights of payment agents and bank payment agents, in particular, are under consideration by the state authorities and the expert community concerning the collection of fees from citizens for payments for housing and utility services as well as a ban on involving third parties in work with citizens’ debts (including making phone calls, the introduction of a mode limiting energy consumption, and judicial protection, among other things). These changes may adversely affect the ‘Supply in the Russian Federation’ segment.

Development prospects

Given the lack of stability in the regulatory framework as regards the regulation of retail business as well as the high level of competition for consumers from adjacent segments, in accordance with the Inter RAO Development Strategy for the Period until 2025 with a View to 2030, the Group will primarily focus its efforts on the existing circuit of power supply assets in an effort to realize the existing potential to improve operational efficiency and the quality of customer service.

One of the Strategy’s target indicators is the share of the Group’s presence on the Russian retail supply market.

Actual Strategic goals
2020 2025 2030
Target share of the Russian retail market, % 18.2% >18% ~20%