In accordance with Articles 5 and 15 of the Federal Law "On State Regulation of Tariffs for Electric and Thermal Power in the Russian Federation," the Government of the Russian Federation decrees:

1. The following enclosed documents shall be approved:

• Fundamentals of Pricing in Respect of Electric and Thermal Power in the Russian Federation;
• Rules for State Regulation and Application of Tariffs (Prices) for Electric and Thermal Power in the Russian Federation;
• Amendments and Supplements Introduced to Individual Acts of the Government of the Russian Federation.

2. The acts of the Government of the Russian Federation according to the list enclosed hereto shall be recognized to have lost their force.

Chairman of the Government of the Russian Federation
M. Kasyanov

APPROVED
by Decree No. 226, dated April 2, 2002
of the Government
of the Russian Federation

FUNDAMENTALS OF PRICING in Respect of Electric and Thermal Power in the Russian Federation

I. General Provisions

1. This document has been developed in accordance with Article 5 of the Federal Law "On State Regulation of Tariffs for Electric and Thermal Power in the Russian Federation" and determines the basic principles and methods for the formation and regulation of tariffs (prices) for electric and thermal power as well as of payment for related services.

2. The following notions are used in this document:

• "regulating bodies" mean the Federal Energy Commission of the Russian Federation and regional energy commissions that exercise the state regulation of tariffs (prices) for electric and thermal power in accordance with powers established by the legislation of the Russian Federation;
• "regulated activities" mean the activities, within the framework of which settlements for supplied products (services) shall be effected at tariffs (prices) regulated by the state. This notion shall be applied exclusively for the purposes of identification of expenses relating to regulated activities and does not mean the application of any other regulation in respect of these activities, except for setting tariffs (prices);
• "tariffs" mean a system of price rates (rates of payment for services, price rates, etc.) at which settlements for electric and thermal power as well as for related services are made;
• "price of electric (thermal) power" means the cost of one unit of electric (thermal) power, not including the cost of its transmission services and other related services;
• "pricing" means a process of formation of the level (amounts) of tariffs (prices) applied to settlements for electric and thermal power as well as for related services;
• "validity period of tariffs (prices)" means a period of time between changes in tariffs (prices) by regulating bodies;
• "accounting regulation period" means a period for which tariffs (prices) are established, equal to one calendar year;
• "necessary gross earnings" means an economically substantiated volume of financial funds which is necessary for an organization to carry out regulated business activities during the accounting regulation period;
• "wholesale market" means the federal (All-Russian) wholesale electric power (capacity) market defined by Article 1 of the Federal Law "On State Regulation of Tariffs for Electric and Thermal Power in the Russian Federation."

Other notions used in this document shall correspond to those accepted in the legislation of the Russian Federation.

II. Normative Methodological Basis for Regulation of Tariffs (Prices)

3. The normative methodological basis for regulation of tariffs (prices) shall consist of this document and of the Rules for State Regulation and Application of Tariffs (Prices) for Electric and Thermal Power in the Russian Federation, approved by the Government of the Russian Federation in accordance with the Federal Law "On State Regulation of Tariffs for Electric and Thermal Power in the Russian Federation."

The Federal Energy Commission of the Russian Federation shall approve methodological instructions binding upon all regulating bodies on the issues of calculation (formation) of regulated tariffs (prices) listed in Clause 4 of this document.

III. System of Tariffs (Prices)

4. The system of tariffs (prices) applied for making settlements for electric and thermal power as well as for related services shall include:

1) tariffs (prices) for electric power and capacity in the wholesale market, including:

• tariffs (prices) for electric power and capacity supplied to the wholesale market by market entities supplying electric power and capacity;
• tariffs (prices) for electric power and capacity for buyers operating in the regulated sector of the wholesale market;
• regulated marginal tariff (price) formed in the free trading sector of the wholesale market;

2) a fee for services rendered in natural monopoly conditions, regulated in the procedure established by the Federal Law "On Natural Monopolies," including:

• a fee for electric power transmission services in the unified national grid and regional electric power grids;
• a fee for thermal power transmission services;
• a fee for services of natural monopoly entities in the sphere of transmission of electric power related to connecting consumers to their electric power grids (the procedure, terms and conditions for paying the fee shall be approved by the Federal Energy Commission of the Russian Federation);

3) a fee for services rendered in the wholesale market, including:

• a fee for services related to ensuring the system reliability, that are rendered by wholesale market entities to other entities of that market (the list, terms and conditions for paying the fee shall be approved by the Federal Energy Commission of the Russian Federation);
• a fee for use (non-use) of capacities (including reserves) in the wholesale market (hereinafter referred to as the balancing fee);
• a fee for services of the wholesale market commercial operator (trading system administrator);
• a price rate for forming the funds intended for ensuring the safe functioning and development of nuclear power plants;

4) tariffs (prices) for electric power supplied to consumers;

5) tariffs (prices) for thermal power;

6) tariffs (prices) for thermal power generated by organizations supplying electric power to the wholesale market;

7) price of sale by generators of electric power not supplied to the wholesale market;

8) a fee for services related to organizing the functioning and development of the Unified Energy System of Russia (subscription fee);

9) an equilibrium competitive price formed in the free trading sector of the wholesale market.

5. Tariffs (prices) listed in Subclauses 1-3 and 6-8 of Clause 4 of this document shall be regulated by the Federal Energy Commission of the Russian Federation, and tariffs (prices) listed in Subclauses 4 and 5 of Clause 4 of this document shall be regulated by regional energy commissions, unless otherwise established by the legislation of the Russian Federation. The list of services related to organizing the functioning and development of the Unified Energy System of Russia and the procedure for their payment shall be determined by the Government of the Russian Federation.

Regulation of tariffs for operational dispatch control services, tariffs for electric power transmission services via electric power transmission lines within the unified national electric power grid and tariffs for other services related to organizing the functioning and development of the Unified Energy System of Russia shall be introduced after the establishment of organizations rendering such services and after the approval of the list of the said services and the procedure for their payment, while simultaneously excluding expenses for these purposes (including investment expenses) from the subscription fee for the services related to organizing the functioning and development of the Unified Energy System of Russia (in case of financing these expenses at the expense of the said subscription fee).

6. If regulating bodies establish marginal tariffs (prices) when making direct electric and thermal power (capacity) purchase (supply) contracts in settlements for the sold electric and thermal power (capacity) and for rendered services, contractual tariffs (prices) within the framework of the established marginal tariffs (prices) may be applied.

IV. General Principles and Methods for the Formation of Regulated Tariffs (Prices)

7. When setting tariffs (prices) to organizations conducting regulated activities, the compensation for economically substantiated expenses on generation of products (services) and receipt of profit, determined in accordance with this document, shall be ensured.

8. The calculation and formation of tariffs (prices) shall be effected proceeding from the principle of an obligatory separate accounting of volumes of products, incomes and expenses on generation, transmission and supply of energy by organizations conducting regulated activities in accordance with Decree No. 700, dated July 6, 1998, of the Government of the Russian Federation "On Introduction of Separate Accounting of Expenses in Respect of Regulated Types of Activities in the Electric Power Industry."

9. For the purposes of creating a mechanism for attracting investments when setting tariffs (prices), regulating bodies shall determine for organizations conducting regulated activities the amount of profit necessary for their efficient functioning and development by establishing a substantiated rate of return on the capital employed in the regulated activities.

Before developing a methodology for making assessments of the cost of the capital employed by the said organizations in their regulated activities for the purposes of regulation, the amount of profit necessary for provision of organizations performing regulated activities with funds for servicing the attracted and borrowed capital, with their own funds for development and payment of dividends and for financing other substantiated expenses at the expense of the profit, shall be taken into account. The amount of investments included in calculation of tariffs (prices) shall be determined on the basis of development programs for organizations conducting regulated activities and shall be approved by regulating bodies in the established procedure as a component part of the tariff (price).

10. The main method for calculation of regulated tariffs (prices) shall be the method of economically substantiated expenses.

When formulating regulated tariffs (prices) in accordance with the method of economically substantiated expenses, tariffs (prices) shall be calculated by dividing the amount of the necessary gross earnings by the volume of generation of products (services) planned by the organization conducting regulated activities and determined on the basis of the consolidated balance of generation and supplies of electric power (capacity) within the framework of the Unified Energy System of Russia among the constituent entities of the Russian Federation, which balance is approved by the Federal Energy Commission of the Russian Federation.

11. The composition of expenses shall be determined and the economic substantiation shall be assessed in accordance with the Federal Law "On State Regulation of Tariffs for Electric and Thermal Power in the Russian Federation," Chapter 25 of the Tax Code of the Russian Federation and with the methodological instructions approved by the Federal Energy Commission of the Russian Federation.

12. Regulating bodies shall be obliged to include in the composition of regulated tariffs (prices) the expenses on fuel, which shall be determined on the basis of:

1) standard rates of specific consumption of fuel, with the exception of nuclear fuel (differentiated by type of generating equipment, by kind of fuel, etc.), for generation of one kilowatt-hour of electric power, approved by the Ministry of Energy of the Russian Federation upon agreement with the Federal Energy Commission of the Russian Federation;

2) fuel prices provided for by Clause 15 of this document;

3) documents regulating the need for nuclear fuel of generating sets of nuclear power plants as well the creation of an emergency stock of nuclear fuel at them;

4) estimate volumes of consumption of fuel taking into account the consumption structure formed over the last three years;

5) standard rates for creation of fuel stocks (with the exception of nuclear fuel) calculated in accordance with the methodology approved by the Ministry of Energy of the Russian Federation upon agreement with the Federal Energy Commission of the Russian Federation.

13. When determining expenses on remuneration of labor included in regulated tariffs (prices), regulating bodies shall use the amount of the fund for remuneration of labor of specific categories of employees, determined in accordance with sectoral tariff agreements taking into account the actual volume of the labor remuneration fund for these categories of employees formed over the last accounting regulation period.

14. When determining expenses on carrying out repair works included in regulated tariffs (prices), regulating bodies shall be guided by:

1) standard rates for expenses on repair of fixed production assets (taking into account their substantiated indexation) approved by authorized bodies upon agreement with the Federal Energy Commission of the Russian Federation;

2) prices provided for by Clause 15 of this document;

3) programs for carrying out repair works for the purposes of ensuring reliable and safe functioning of production technical facilities and preventing emergency situations, to be approved by organizations conducting regulated activities.

15. When carrying out calculations of tariffs (prices) for raw and other materials, works and services of production nature, fuel for technological purposes and its transportation services as well as other commodities and services, regulating bodies shall apply:

1) tariffs (prices) regulated by the state;

2) prices set on the basis of agreements concluded in accordance with purchases rules (contests, tenders);

3) officially published forecast market prices and tariffs established for the accounting regulation period, including stock exchange quotations of prices (in case of the absence of contractual prices). In the absence of contractual prices, forecast indexes of price changes by sectors of industry as a whole, worked out by the Ministry of Economic Development and Trade of the Russian Federation, shall be applied.

16. For the purposes of attracting investors' funds into the electric power industry, regulating bodies shall, while establishing tariffs (prices) for electric power for new electric power plants and other power generating facilities whose construction and technical re-equipment investment projects are agreed upon with regulating bodies in the established procedure, envisage the rate of return on investment capital:

• at the level of the refinancing rate of the Central Bank of the Russian Federation in effect at the time of adopting the decision on approval of the tariff (price) increased by 1.1 times, if investments are made in Roubles;
• at the level calculated on the basis of the London Interbank Offered Rate (LIBOR) in accordance with the methodological instructions approved by the Federal Energy Commission of the Russian Federation upon agreement with the Ministry of Economic Development and Trade of the Russian Federation, if investments are made in foreign currency.

Regulating bodies shall in this case be obliged to include expenses connected with returning attracted funds and deriving a profit on the investment capital in the composition of tariffs (prices) established for the respective accounting regulation period, beginning from the time of receipt of funds for the implementation of the project, and to ensure the inclusion of such expenses in the composition of tariffs (prices) set for subsequent accounting regulation periods, during the whole term of the project's recoupment.

The procedure for considering investment projects of organizations conducting regulated activities shall be approved by the Federal Energy Commission of the Russian Federation upon agreement with the Ministry of Energy of the Russian Federation and the Ministry of Economic Development and Trade of the Russian Federation.

17. By decision of the Federal Energy Commission of the Russian Federation, additional methods other than the method of economically substantiated expenses may also be applied for formulating regulated tariffs (prices), including:

• the method of indexing tariffs (prices);
• the method of tying up regulated tariffs (prices) to a weighted average price of purchase of electric power in the wholesale market determined once in three months (calculated proceeding from the cost of electric power supplied in the regulated sector of the wholesale market at regulated tariffs (prices) and the cost of electric power supplied in the free trading sector of the wholesale market at an equilibrium competitive price).

Simultaneous application of various methods for formulation of tariffs (prices) in respect of business entities conducting homogeneous kinds of activities shall not be allowed.

18. The method of indexing tariffs (prices) may be applied in the conditions of a high level of change of prices for individual groups of commodities (services) consumed by organizations conducting regulated activities and shall consist of determining a regulated tariff (price) taking into account the indexation of funds for purchase of respective commodities (services).

The procedure and the terms for application of the said method shall be approved by the Federal Energy Commission of the Russian Federation.

19. The method of tying up regulated tariffs (prices) to a weighted average price of purchase of electric power in the wholesale market shall consists of the application of a formula establishing the dependence of the change of the said tariffs (prices) on the change of the weighted average price of purchase of electric power in the wholesale market.

V. Pricing in the Wholesale Market

20. Marginal tariffs (prices) for electric power (capacity) for wholesale market suppliers and buyers shall be approved by the Federal Energy Commission of the Russian Federation proceeding from the terms and conditions of ensuring an integral equality of the cost of electric power purchased in the wholesale market and from the aggregate cost of the supplied electric power during the accounting regulation period as well as proceeding from the volumes of supply and consumption of electric power (capacity) in the wholesale market determined by the consolidated balance of generation and supplies of electric power (capacity).

21. Tariffs (prices) for electric power for wholesale market buyers and a balancing fee shall be determined by the commercial operator (trading system administrator) within the framework of the marginal tariffs (prices) approved by the Federal Energy Commission of the Russian Federation, proceeding from offer prices announced by suppliers within the framework of marginal regulated tariffs (prices) for electric power (capacity) and of planned and actual volumes of supplies of electric power (capacity) to the wholesale market in the procedure approved by the Federal Energy Commission of the Russian Federation.

The said procedure shall envisage the equality of actual total commitments of buyers regarding the cost of electric power (capacity) supplied from the wholesale market and the total cost of electric power (capacity) supplied to the wholesale market.

If this condition is met with the settlement price exceeding the marginal price for wholesale market buyers, regulating bodies shall take measures in the next accounting regulation period for eliminating the cost imbalance formed in the wholesale market, taking into account the results of the analysis carried out by the regulating bodies to find out the reasons for emergence of the imbalance.

22. Specific features of setting tariffs (prices) for electric power supplied to the wholesale market and an equilibrium competitive price formed in the free trading sector of the wholesale market, including regulated marginal price, balancing fee as well as the procedure for making direct electric power supply (sale) contracts shall be determined by the basic principles of development and functioning of the competitive wholesale electric power market and by the wholesale market rules approved in the established procedure.

VI. Pricing in the Retail (Consumer) Market

23. Tariffs (prices) for electric and thermal power supplied to consumers shall be a sum of the following components:

1) an average cost of a unit of electric (thermal) power of, including the price of its purchase in the wholesale market from, other generators of electric power or power supplying organizations as well as the cost of electric power of own generation;

2) a total cost of electric power transmission services, operational dispatch control services and other services whose rendering is an integral part of the process of supplying power to consumers, including regulated supply-related markups and a balancing fee.

When an invoice is issued to a consumer for payment of electric and thermal power, it shall, in addition to the total payment, specify separately the cost of the power supplied to the consumer and a fee for its transmission services and for other services whose rendering is an integral part of supplying power to consumers.

24. Regulated tariffs (prices) for electric and thermal power supplied to consumers (except for the population) shall be established simultaneously in three variants:

1) in the form of one tariff rate which includes the full cost of purchase of one kilowatt-hour of electric power;

2) in the form of two rates which include the rate of the fee for purchase of one kilowatt-hour of electric power and the rate of the fee for one kilowatt of electric power;

3) zonal tariffs (prices) establishing a differentiated cost of purchase of one kilowatt-hour of electric power in accordance with weekly or daily zones of the electricity load schedule.

Only single-rate and zonal tariffs differentiated by daily zones of the electricity load schedule shall be established for the population.

A consumer shall select on his own one of the above-listed tariff variants for making settlements for electric power, giving a prior notice thereof to the organization that supplies electric power to him.

25. Tariffs (prices) for electric and thermal power (capacity) shall be differentiated by consumer (buyer) groups, proceeding from:

1) volumes of consumption (purchase) of electric and thermal power;

2) regime for the use of electric power by consumers;

3) category of reliability of electric power supply.

The Federal Energy Commission of the Russian Federation shall approve the criteria for forming consumer (buyer) groups and methodological instructions determining specific features of calculating tariffs (prices) for the said groups.

26. The amount of the fee for electric power transmission services shall be differentiated by the level of voltage at the point of consumer's connection to the electric power grid and by the magnitude of the connected capacity. The differentiation of the fee for electric power transmission services shall be effected in a uniform procedure for all consumers (buyers).

VII. Requirements for Activities of Regulating Bodies

27. It shall not be allowed to establish reduced (privileged) tariffs (prices) for individual consumers by regulating bodies without determining the source and mechanism for compensation of the privileges.

It shall not be allowed to adopt decisions on the compensation of privileges at the expense of business entities without their consent. When setting reduced (privileged) tariffs (prices), it shall not be allowed to raise tariffs (prices) for other consumers.

The decision of the regulating body on setting reduced (privileged) tariffs (prices) for individual business entities shall be preliminarily agreed upon with the Ministry of the Russian Federation for Anti-Monopoly Policy and Entrepreneurial Support in the established procedure.

28. If, in addition to regulated activities, an organization performs other types of activities, expenses on their performance shall not be taken into account when calculating the regulated tariffs (prices).

29. Regulating bodies shall take measures aimed at the exclusion from regulated tariffs (prices) of excessive and unproductive expenses of organizations conducting regulated activities, which expenses are caused by attraction of excessive resources by these organizations, underutilization (non-optimal utilization) of production capacities, by financing at the expense of receipts from regulated activities, other expenditure (including unprofitable) spheres of activities that do not relate to the regulated activities as well as by other factors underlying the said excessive and unproductive expenses.

30. Regulating bodies shall, on the basis of measures agreed upon with them in advance for reducing expenses of organizations conducting regulated activities, be obliged to keep the estimated level of specific expenses formed in the period preceding the reduction of the expenses, for two years after the end of the term of recoupment of the expenses on carrying out these measures.

31. If organizations conducting regulated activities incurred economically substantiated expenses during the accounting regulation period, which were not taken into account when tariffs (prices) were set for the accounting regulation period, including the expenses connected with the objective and unplanned growth of the price for products consumed during the accounting regulation period, these expenses shall be taken into account by regulating bodies when establishing tariffs (prices) for the next accounting regulation period (including the expenses connected with servicing borrowed funds attracted to cover a shortage of funds).

Expenses directed towards the coverage of losses from writing off overdue accounts receivable, which have arisen before January 1, 2001, as well as towards the payment of a part of electric power industry organizations' accounts payable which are not covered by debtors' counter liabilities shall also be taken into account in subsequent accounting regulation periods.

If unsubstantiated expenses of organizations conducting regulated activities, funded at the expense of receipts from regulated activities are discovered according to the results of the accounting regulation period on the basis of the data of statistical and accounting reports and other materials, regulating bodies shall have the right to adopt the decision on exclusion of the respective funds from the total volume of expenses taken into account when setting tariffs for the next accounting regulation period.

Funds attracted at the expense of receipts from regulated activities and directed for payment of the interest on bank loans received for funding the unsubstantiated expenses shall be excluded from the total volume of expenses taken into account when setting tariffs (prices) for the next accounting regulation period.

32. Funds found according to the data of the reports to have not been used during the basic period in respect of individual items of expenses shall be taken into account by regulating bodies when setting tariffs (prices) for the next accounting regulation period as a source for the coverage of new expenses.

33. When regulating bodies set tariffs (prices) for organizations conducting regulated activities, double recording of one and the same expenses shall not be allowed in tariffs (prices) for electric and thermal power, for electric and thermal power transmission services, operational dispatch control services and other services whose rendering is an integral part of the process of supplying electric power to consumers.

APPROVED
by Decree No. 226, Dated April 2, 2002
of the Government
of the Russian Federation

RULES
for State Regulation and Application of Tariffs (Prices)
for Electric and Thermal Power in the Russian Federation

I. General Provisions

1. These Rules developed in execution of Article 15 of the Federal Law "On State Regulation of Tariffs for Electric and Thermal Power in the Russian Federation" determine the grounds and procedure for setting (revising) tariffs (prices) in the electric power industry, which are within the regulated tariff (price) system envisaged by the Fundamentals of Pricing in Respect of Electric and Thermal Power in the Russian Federation approved by the Government of the Russian Federation (hereinafter referred to as the Pricing Fundamentals).

2. The following main terms and notions shall be used in these Rules:

• "regulating bodies" mean the Federal Energy Commission of the Russian Federation and regional energy commissions carrying out the state regulation of tariffs for electric and thermal power within the framework of powers established by the legislation of the Russian Federation;
• "tariffs (prices)" mean tariffs (prices) for electric and thermal power that are subject to state regulation in accordance with the legislation of the Russian Federation and with the Pricing Fundamentals;
• "setting tariffs (prices)" means the adoption of decisions by regulating bodies on the introduction of new or change (revision) of the effective tariffs (prices), and on the procedure and timeframe for putting them into effect.

Other terms and notions shall be used in these Rules in the meaning in which they are used in the Pricing Fundamentals as well as in legislative acts.

II. Grounds for Setting Tariffs (Prices)

3. One year shall be taken as an accounting regulation period of tariffs (prices), with the exception of the following cases:

• change of tariffs (prices) on one of the grounds listed in Clause 4 and Subclause 2 of Clause 5 of these Rules;
• application by the regulating body of the method of indexing regulated tariffs (prices) or the method of tying up regulated tariffs (prices) to a weighted average price of purchase of electric power in the wholesale market.

The regulation period of tariffs (prices) for electric and thermal power supplied to organizations financed at the expense of funds of budgets of respective levels may not be less than one year.

When making direct electric and thermal power purchase (supply) contracts, regulating bodies may set tariffs (prices) for electric power and its transmission services with the validity period of two and more years in accordance with their competence and with the consent of the organization conducting regulated activities and consumers (buyers) of electric power.

If regulating bodies set marginal tariffs (prices), free (contractual) tariffs (prices) within the framework of the set marginal tariffs (prices) may be applied in settlements for sold products (services).

4. The grounds for setting tariffs (prices) at the request of an organization conducting regulated activities shall be:

1) a change by more than 5 per cent of total expenses on performance of regulated activities as compared with indexes accepted when calculating tariffs (prices);

2) a change by more than 5 per cent of the volumes of sale of products (services) envisaged in the consolidated balance of generation and supplies of electric power (capacity) within the framework of the Unified Energy System of Russia for constituent entities of the Russian Federation, taking into account the actual execution of the balance in the previous accounting regulation period by the organization conducting regulated activities;

3) a change by more than 5 per cent of the sum of taxes and levies to be paid by organizations conducting regulated activities in accordance with the legislation of the Russian Federation;

4) a change of the interest rate of the Central Bank of the Russian Federation and rates of commercial banks in respect of long-term loans by more than 10 per cent;

5) adoption by organizations conducting regulated activities of long-term special-purpose programs for production development, technical re-equipment or capital repairs, which are necessary to maintain a reliable and accidents-free functioning of production technological facilities, to reduce production-related or other expenses as well as to implement investment projects agreed upon in the established procedure;

6) appearance of new organizations conducting regulated activities, identification of new groups of consumers of electric (thermal) power as well as other material changes in the structure of production and consumption of electric (thermal) power.

5. The grounds for establishing tariffs (prices) at the initiative of the regulating body shall be:

1) a need for indexation or revision of tariffs (prices) in connection with a change of tariffs for electric power for wholesale market buyers in the regulated sector of the wholesale market or of the equilibrium competitive price formed in the free trading sector of the wholesale market;

2) results of auditing business activities of organizations conducting regulated activities in the previous accounting regulation period.

6. The regulating body shall have the right, including on the basis of information received from third persons, to arrange for auditing business activities of organizations conducting regulated activities in the procedure established by the legislation of the Russian Federation and, upon its results, to consider the issue of setting tariffs (prices) at its own initiative.

Planned audits of business activities of organizations conducting regulated activities may not be carried out by regulating bodies more often than once in two years.

7. The consideration of the issue of setting tariffs (prices) on grounds other than those listed in Clauses 4 and 5 of these Rules shall not be allowed.

III. Setting Tariffs (Prices)

8. Tariffs (prices) shall be set by regulating bodies by way of consideration of the case on setting tariffs (prices) opened on the grounds listed in Clauses 4 and 5 of these Rules, with the exception of the cases of application by regulating bodies of the method of indexing regulated tariffs (prices) or the method of tying up regulated tariffs (prices) to a weighted average price of purchase of electric power in the wholesale market.

A term for consideration of the case on setting tariffs (prices) may not be more than 30 calendar days, with the exception of cases where, by mutual consent between the regulated body and the organization conducting regulated activities, that term may be extended for carrying out an additional or a repeated expert analysis of case materials, but for no more than 30 calendar days. After expiration of the said term, the regulating body shall be obliged to adopt the decision on setting tariffs (prices) or on keeping the effective tariffs (prices).

9. In order to open a case on setting tariffs (prices) at the request of an organization conducting regulated activities, the organization shall submit the following materials to the regulating body:

1) balance of electric power;

2) balance of electric capacity;

3) balance of demand and supply of thermal power;

4) balance of thermal power;

5) accounting reports as of the last reporting date;

6) calculation of effective sales of electric and thermal power with the substantiation of the amount of consumption of electric power for the own and production needs and for transmission (losses) in grids;

7) data on the structure and prices of consumed fuel taking into account the shipment;

8) calculation of expenses and incomes on (from) regulated activities, enclosing their economic substantiation elaborated in accordance with the methodological instructions of the Federal Energy Commission of the Russian Federation;

9) calculation of tariffs for individual services rendered in electric and thermal power markets;

10) investment program with the substantiation of the need for funds necessary for direct financing and servicing the borrowed capital;

11) amount of under-received incomes or additionally derived profit in the previous regulation period, which were discovered on the basis of the official statistical and accounting reports or upon the results of auditing the business activities of the organization conducting regulated activities;

12) norms and standard rates of calculation of individual items of expenses in accordance with the list established by the regulating body;

13) tariff agreement between the employer, the trade union and the Government of the Russian Federation.

10. If necessary, the regulating body shall, no later than 10 working days prior to the date of consideration of the case on setting tariffs (prices), have the right to request additional materials, specifying the forms of their presentation and requirements for them, and the organization conducting regulated activities shall be obliged to submit the same provided that the regulating body substantiates the expediency of enclosing those materials to the case on setting tariffs (prices).

The absence of any materials listed in Clause 9 of these Rules or a part thereof shall be a ground for the refusal to open the case on setting tariffs (prices) until the respective materials are submitted.

11. Materials submitted by organizations conducting regulated activities shall be registered by the regulating body on the day of receiving them (assigning the registration number and specifying the date and hour of their receipt) and shall be marked with a special stamp of the regulating body.

The regulating body shall carry out the analysis of the submitted materials within a 10 day period from the day of registration and shall give a notice to the organization conducting regulated activities of opening a case on setting tariffs (prices), specifying the person appointed as the authorized person in respect of the case and, if necessary, supplying a list of additional materials (with the substantiation of the need for their presentation) or, if the materials do not meet the established requirements, a notice of the refusal to open the case containing the motivation for the refusal.

If the regulating body failed to give a notice on opening or on the refusal to open the case on setting tariffs (prices) to the organization conducting regulated activities within a 10 day period, the materials shall be deemed to have been accepted for consideration, and the term for consideration of the case shall be counted from the day of receipt of the materials by the regulating body.

Organizations conducting regulated activities shall have the right to submit any additional materials pertaining to the case on setting tariffs (prices) to the regulating body no later than 10 working days prior to the date of consideration of the case on setting tariffs (prices). If the regulating body has not taken into account the information contained in the additional materials that might have influenced the decision on setting tariffs (prices) when adopting the decision on the case, that decision may be appealed against in the established procedure, including with the requirement to re-open the case and adopt the decision.

If a decision to re-open the case on setting tariffs (prices) is adopted upon the results of consideration of the appeal, the term for its consideration shall not exceed 15 working days.

12. If regulating bodies apply the method of indexing regulated tariffs (prices) or the method of tying up regulated tariffs (prices) to a weighted average price of purchase of electric power in the wholesale market, no case on setting tariffs (prices) shall be opened. The issue of setting tariffs (prices) shall in this case be considered within a 15 day period from the day of receipt of the respective request by the regulating body from the organization conducting regulated activities.

13. The Federal Energy Commission of the Russian Federation shall approve the rules for consideration of cases on setting tariffs (prices), which shall stipulate, among other things:

• procedure for registration, acceptance for consideration and for issuing refusals to consider applications for setting tariffs (prices);
• procedure for conducting an expert analysis of cases on setting tariffs (prices).

14. The expert analysis of a case on setting tariffs (prices) shall be carried out by in-house experts of the regulating body or by independent experts.

The expert analysis conclusion shall be prepared and enclosed to the case no later than 5 working days prior to the date of consideration of the case and shall, in addition to general motivated conclusions and recommendations with respect to the adopted decision, contain an assessment of whether the data indicated in proposals on setting tariffs (prices) is true, as well as:

• assessment of the financial position of the organization conducting regulated activities (in accordance with generally accepted indexes);
• analysis of the economic substantiation of expenses (by items of expenses);
• analysis of the economic substantiation of the amount of profit necessary for the effective functioning of the organization conducting regulated activities;
• comparative analysis of the dynamics of expenses and the amount of necessary profit in relation to the previous accounting regulation period;
• analysis of the compliance of the calculation of tariffs (prices) and the form of presentation of proposals with the approved normative methodological documents on the issues of regulation of tariffs (prices).

If an organization conducting regulated activities presents a substantiated conclusion that the quality of the carried out expert analysis is low or that its results are not true, the collective body may adopt a decision on carrying out a repeated expert analysis by other experts. The performance of a repeated expert analysis shall be paid for by the organization conducting regulated activities, unless regulating bodies establish another procedure. In this case, the term for consideration of the case shall be extended for 30 days.

15. The appearance of newly opened information which the regulating body was not aware of at the time of adopting the decision on setting tariffs (prices) may serve as a ground for new revision of tariffs (prices), but shall not be a ground for canceling the decision of the regulating body.

16. The decision on setting tariffs (prices) shall be adopted by the board of the regulating body upon the results of the public consideration of the case on setting tariffs (prices), about the date, time and place of which the organization conducting regulated activities shall be informed not later than 5 days in advance (with the confirmation of receiving the notification). A copy of the expert analysis conclusion shall be enclosed to the decision.

If the case on setting tariffs (prices) is considered at the initiative of the regulating body, interested organizations conducting regulated activities shall be notified of the date and time of consideration no later than 15 days in advance, with a draft decision on setting tariffs (prices) being enclosed.

17. The head of the regulating body shall appoint the authorized person in respect of the case from among the employees of the regulating body to organize the consideration of the case on setting tariffs (prices), including to carry out an expert analysis, compile a conclusion, prepare the case for consideration by the board and elaborate a draft decision. If the organization conducting regulated activities has substantiated objections to the candidature of the authorized person, it shall, within a ten day period from the day of receiving a notice of opening the case on setting tariffs (prices), have the right to request the head of the regulating body to replace the authorized person.

18. The consideration of the case on setting tariffs (prices) shall be deemed to be valid, if more than a half of the members of the board participate in it.

Information on the date, time and place of consideration of the case on setting tariffs (prices) shall be published in the mass media as well as on the official site of the regulating body in the Internet.

Any persons shall have the right to be present at the meeting of the board when the case on setting tariffs (prices) is considered.

If the official representatives of the organization conducting regulated activities are absent for a valid reason when considering a case on setting tariffs (prices), the consideration may be adjourned for a period of time to be determined by the board. If the said representatives are absent again, the case shall be considered without their participation.

Minutes to be approved by the chairing person shall be kept during the case consideration.

19. The case on setting tariffs (prices) shall be considered in accordance with the rules approved by the Federal Energy Commission of the Russian Federation.

20. The regulating body's decision on setting tariffs (prices) shall be communicated to the organization conducting regulated activities within a 10 day period.

The minutes of consideration of the case on setting tariffs (prices), in which all factors shall be specified, including expenses in respect of individual items taken into account when adopting the decision, shall be an integral part of the decision on setting tariffs (prices). These minutes shall be furnished to the organization conducting regulated activities within a 2 week period.

21. Decisions of regulating bodies on setting tariffs (prices) shall be subject to official publication in the press as well as on the regulating body's official site in the Internet within a 10 day period. Unpublished decisions shall not be subject to application.

22. Differences connected with setting tariffs (prices) shall be considered by the Federal Energy Commission of the Russian Federation in the procedure established by the Government of the Russian Federation on the basis of a request from the organization conducting regulated activities, consumers of electric (thermal) power or the regional energy commission of the constituent entity of the Russian Federation. Consideration of differences at the initiative of other persons shall not be allowed.

The said requests made to the Federal Energy Commission of the Russian Federation within a period of time exceeding 30 calendar days from the day of adopting the decision on setting tariffs (prices) shall not be considered.

IV. Content of Decision on Setting Tariffs (Prices)

23. Tariffs (prices) shall be set with the specification of:

1) principal components of their structure, including the amount of expenses by individual items;

2) date of putting tariffs (prices) into effect.

24. Decisions on setting tariffs (prices) shall not be retroactive. The introduction of set tariffs (prices) from a date preceding the date of adopting the decision on their setting shall not be allowed.

25. If the regulating body refuses to include any expenses suggested by the organization conducting regulated activities in tariffs (prices), it shall motivate this in its decision (by each item of expenses).

26. The application of reduced (privileged) tariffs (prices) in settlements with consumers (buyers) of power shall only be allowed if there is a respective decision of the regulating body agreed upon in the established procedure with the Ministry of the Russian Federation for Anti-Monopoly Policy and Entrepreneurial Support, which shall indicate specific consumers (groups of consumers) enjoying privileges in tariffs (in prices), grounds for granting the privileges and the source of compensation for the privileges.

The regulating body shall be obliged to publish annually lists of power consumers (buyers) that have the right to the privileges (with the exception of natural persons).

APPROVED
by Decree No. 226, Dated April 2, 2002
of the Government
of the Russian Federation

AMENDMENTS AND SUPPLEMENTS

To Be Introduced to Individual Acts of the Government of the Russian Federation

1. In Decree No. 239, dated March 7, 1995, of the Government of the Russian Federation "On Measures for Streamlining State Regulation of Prices (Tariffs)" (Collected Legislation of the Russian Federation, 1995, No. 11, Article 997; 1996, No. 7, Article 690; No. 17, Article 2002; No. 32, Article 3942; No. 1997, 27, Article 3232; 1998, No. 32, Article 3907; 1999, No. 1, Article 201; 2001, No. 7, Article 656; No. 20, Article 2015; No. 26, Article 2680; No. 36, Article 3561):

paragraph three of the list of products of production technical designation, consumer commodities and services, for which the state regulation of prices (tariffs) in the domestic market of the Russian Federation is effected by the Government of the Russian Federation and federal bodies of executive power approved by the said Decree shall be amended to read as follows:

"Electric and thermal power generated by organizations supplying electric power to the wholesale market, electric power transmission services via grids, operational dispatch control services and other services rendered in the electric power (capacity) markets for which tariffs (prices) are regulated by the Federal Energy Commission of the Russian Federation according to the list approved by the Government of the Russian Federation";

paragraph three of the list of products of production technical designation, consumer commodities and services for which the state regulation of prices (tariffs) in the domestic market of the Russian Federation is effected by bodies of executive power of the constituent entities of the Russian Federation approved by the said Decree, shall be amended to read as follows:

"Electric and thermal power (with the exception of thermal power generated by organizations supplying electric power to the wholesale market), sales-related markups of organizations conducting regulated activities being guaranteeing suppliers of electric power to the retail (consumer) markets of electric power, for which tariffs (prices) are regulated by regional energy commissions."

2. Clause 1 of Decree No. 700, dated July 6, 1998, of the Government of the Russian Federation "On Introduction of Separate Accounting of Expenses in Respect of Regulated Types of Activities in the Electric Power Industry" (Collected Legislation of the Russian Federation, 1998, No. 28, Article 3357; No. 39, Article 4913) shall be supplemented with the paragraphs to read as follows:

• "operational dispatch control activities;
• supply (sale) of electric power;
• supply (sale) of thermal power."

APPROVED
by Decree No. 226, Dated April 2, 2002,
of the Government
of the Russian Federation

LIST

of Acts of the Government of the Russian Federation Which Have Lost Their Force

1. Decree No. 121, dated February 4, 1997, of the Government of the Russian Federation "On Fundamentals of Pricing and Procedure for State Regulation and Application of Tariffs for Electric and Thermal Power" (Collected Legislation of the Russian Federation, 1997, No. 7, Article 855).

2. Clause 5 of Decree No. 1231, dated September 26, 1997, of the Government of the Russian Federation "On Step-by-Step Termination of Cross-Subsidizing in the Electric Power Industry and Bringing the Level of Tariffs for Electric Power for the Population to the Actual Cost of Its Generation, Transmission and Distribution" (Collected Legislation of the Russian Federation, 1997, No. 40, Article 4597).

3. Decree No. 1498, dated December 1, 1997, of the Government of the Russian Federation "On Pricing in Respect of Electric Power Consumed by Railway Transport (Electric Traction)" (Collected Legislation of the Russian Federation, 1997, No. 49, Article 5595).

4. Decree No. 472, dated May 20, 1998, of the Government of the Russian Federation "On Extension for the Year 1998 of the Validity Period of the Guidelines of Pricing for Electric and Thermal Power in the Territory of the Russian Federation and the Procedure for Approval and Application of Tariffs for Electric and Thermal Power in the Russian Federation" (Collected Legislation of the Russian Federation, 1998, No. 21, Article 2246).

5. Decree No. 686, dated July 1, 1998, of the Government of the Russian Federation "On Introduction of Amendments to Decree No. 121, dated February 4, 1997, of the Government of the Russian Federation" (Collected Legislation of the Russian Federation, 1998, No. 27, Article 3201).

6. Decree No. 915, August 10, 1998, of the Government of the Russian Federation "On Introduction of Amendments and Supplements to Decree No. 121, dated February 4, 1997, of the Government of the Russian Federation" (Collected Legislation of the Russian Federation, 1998, No. 33, Article 4021).

7. Decree No. 1413, dated December 1, 1998, of the Government of the Russian Federation "On Extension of the Validity Period of the Guidelines of Pricing for Electric and Thermal Power in the Territory of the Russian Federation and the Procedure for Approval and Application of Tariffs for Electric and Thermal Power in the Russian Federation" (Collected Legislation of the Russian Federation, 1998, No. 49, Article 6054).

8. Clause 3 of Decree No. 23, dated January 7, 1999, of the Government of the Russian Federation "On Urgent Measures for Improving the Efficiency of Work of Hot-House Enterprises in 1999" (Collected Legislation of the Russian Federation, 1999, No. 3, Article 337).

9. Decree No. 224, dated February 26, 1999, of the Government of the Russian Federation "On Improvement of Regulation of Tariffs for Electric Power Consumed by Railway Transport" (Collected Legislation of the Russian Federation, 1999, No. 10, Article 1241).

10. Clauses 4 and 5 of Decree No. 781, dated July 5, 1999, of the Government of the Russian Federation "On Ensuring Reliable Electric Power Supply of Strategic Organizations" (Collected Legislation of the Russian Federation, 1999, No. 29, Article 3730).

11. Decree No. 1202, dated October 31, 1999, of the Government of the Russian Federation "On Introduction of Amendments and Supplements to Decree No. 121, dated February 4, 1997, of the Government of the Russian Federation" (Collected Legislation of the Russian Federation, 1999, No. 45, Article 5428).