Indirect Connection to Power Grid Facilities by Non-Grid Organizations in Russia

September 30, 2022

BRACE Law Firm ©

Technological connection to electric grids occurs under a technological connection agreement. The connection procedure is regulated by the Rules for Technological Connection of Power Receiving Devices of Consumers of Electric Power, Electric Power Production Facilities, as well as Power Grid Facilities Belonging to Grid Organizations and Other Persons to Electric Grids, approved by Decree of the Government of Russia No. 861 dated December 27, 2004 (the "Rules for Technological Connection to Electric Grids" or the "Rules for Technological Connection").

However, non-grid organizations may also own power grid facilities. Is connection to the grids of such companies possible, on what terms, and what regulates such connection? This article aims to provide answers to these questions.

The Concept of Technological Connection to Electric Grids

Federal Law No. 35-FZ dated March 26, 2003, On Electric Power Industry (the "Electric Power Industry Law") and the Rules for Technological Connection to Electric Grids regulate the procedure for concluding a technological connection agreement and issuing technical specifications.

Technological connection is a comprehensive service provided by grid organizations to all interested parties to create the technical capacity for electric power consumption. It provides for the actual connection of the consumer's power receiving devices to the power grid facilities of grid organizations. [1] Based on a connection agreement for power receiving devices to the electric grid, technological connection includes the following complex of measures implemented by the grid organization:

• preparation and issuance of technical specifications;
• fulfillment of technical specifications;
• actual connection of the customer's power receiving device to the electric grid of the grid organization;
• ensuring the operation of such device;
• verification of the fulfillment of technical specifications;
• execution of a certificate of technological connection.

The law defines a grid organization as an "organization owning power grid facilities by right of ownership or on another basis established by federal laws, through which such organization provides electric power transmission services and carries out the technological connection of power receiving devices (energy units) of legal entities and individuals to electric grids in accordance with the established procedure, and also concludes agreements for the provision of electric power transmission services using power grid facilities belonging to other owners and other legal possessors that are part of the unified national (all-Russian) electric grid". [2]

Electric power legislation regulates public relations with grid companies, providing only minor regulation for "non-grid" companies.

Non-Grid Companies and How They Differ from Grid Companies

A technological connection agreement is a public contract for a grid organization, meaning it must conclude an agreement with any applicant if the technical capacity for technological connection exists. Connection is subject to a fee. The fee for technological connection is regulated and established by the authorized body. The grid organization must conclude a technological connection agreement with any applicant when technical capacity is available and within the established timeframes.

According to Article 3 of the Electric Power Industry Law, a territorial grid organization is a commercial organization that provides electric power transmission services using power grid facilities and meets the criteria established by the Government of the Russian Federation for classifying owners of power grid facilities as territorial grid organizations. Decree of the Government of the Russian Federation No. 184 dated February 28, 2015, established the Criteria for Classifying Owners of Power Grid Facilities as Territorial Grid Organizations.

Owners of power grid facilities that meet the criteria for classification as territorial grid organizations must perform the measures provided for by the Rules for Technological Connection. The list of criteria is exhaustive and includes ownership (or other right) of transformer substations with a certain rated capacity, and ownership of power transmission lines (overhead and/or cable) with an established length of such cable lines.

Considering the provisions of Clause 16 of the Rules for Technological Connection and taking into account the public nature of the agreement for the grid organization, the price for technological connection falls within the sphere of state regulation. When concluding a technological connection agreement, the price established by the authorized body must be determined as the fee.[3]

According to Clause 4 of Article 23.1 of the Electric Power Industry Law, the fee for technological connection to the unified national (all-Russian) electric grid, to the electric grids of territorial grid organizations, and/or the standardized tariff rates determining its magnitude are subject to state regulation. Clause 2 of Article 23.2 of the Electric Power Industry Law provides that the amount of the technological connection fee is determined based on the costs of performing measures to be implemented by the grid organization during the technological connection, including the construction and reconstruction of power grid facilities. Costs for technological connection measures, including the grid organization's expenses for the construction and/or reconstruction of power grid facilities necessary for technological connection, are included in the grid organization's expenses taken into account when establishing tariffs for electric power transmission services and/or technological connection fees.

Thus, grid organizations establish the fee for technological connection taking into account data on costs incurred by the organizations during technological connection for the preceding regulatory period. To obtain the status of a grid organization, an entity must meet the specified criteria and obtain a connection tariff.

Organizations that meet the above criteria and have obtained the corresponding status are grid organizations. At the same time, grid organizations and territorial grid organizations (the "TGO") do not have fundamental differences. However, other owners of power grid facilities that do not meet the criteria of a grid organization are other subjects of the electric power industry — owners of power grid facilities (a "non-grid organization").

Power Grid Facilities Owned by Non-Grid Organizations

At the same time, individual subjects may own power grid facilities. However, due to failure to meet the criteria for classification as a TGO, such owners will simply be owners of power grid facilities without the status of grid organizations, so-called non-grid organizations. Electric power legislation does not contain the term "non-grid organization", using the terminology "owner of a power grid facility that is not a grid organization".

The main and fundamental rule for such persons is stated in Clause 6 of the Rules for Technological Connection to Electric Grids. Owners and other legal possessors of power grid facilities, through which the power receiving device of a consumer is indirectly connected to the electric grids of a grid organization, may not obstruct the flow of electric power through their facilities for such consumer or demand payment for it. These owners and other legal possessors of power grid facilities, through which the consumer's power receiving device is indirectly connected to the grid organization's electric grids, may provide electric power transmission services using their facilities after a tariff for electric power transmission services is established for them. In this case, the provisions of the Rules to Electric Grids provided for grid organizations apply to their relations regarding electric power transmission.

Compliance with the prohibition on obstructing power flow becomes the duty of the person owning the power grid facilities under certain conditions established by the Rules for Technological Connection. [4] In this case, this refers to the existence of a previously implemented technological connection. However, as stated in a resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation, indirect connection does not exclude the necessity of having a technological connection.

Documents on technological connection are documents executed during the process of technological connection (after the completion of technological connection) of power receiving devices (electric power facilities) to power grid facilities, including technical specifications, a certificate of technological connection, a certificate of delimitation of balance sheet membership of electric grids, and a certificate of delimitation of operational responsibility of the parties. [5]

Under Clause 1 of Article 26 of the Electric Power Industry Law, technological connection of power receiving devices of electric power consumers, electric power production facilities, as well as power grid facilities belonging to grid organizations and other persons to power grid facilities is carried out in the established procedure and is of a one-time nature. Technological connection is carried out on the basis of a technological connection agreement concluded between the grid organization and the person who applied to it.

A violation of Clause 6 of the Rules for Technological Connection may be attributed to owners and legal possessors of power grid facilities to which a consumer's power receiving device is connected. In the event of a violation of the connection procedure, or its actual absence, the corresponding violation cannot be attributed to the owner. Moreover, when an applicant applies to a non-grid organization for technological connection, the latter is not obliged to perform such technological connection. This means that the owner of a power grid facility may refuse to carry out technological connection using the facility in its ownership.

In a specific case, the court indicated that the obligation of a company to approve a working project for the construction of a cable line, as well as a connection access point for the purpose of indirect technological connection of the plaintiff's facilities, is not based on rules of law. Based on Clause 5 of the Rules for Technological Connection, the coordination of capacity throughput issues with adjacent organizations that are owners of power grid facilities but not grid organizations is the responsibility of the grid organization. At the same time, adjacent organizations have the right, but not the obligation, to coordinate capacity throughput. [6]

An owner of electric power facilities that does not meet the criteria for classification as a territorial grid organization is not a grid organization and does not occupy a dominant position in the market for electric power transmission services. [7] This means that the owner of electric power facilities, including the owner of power grid facilities that does not meet the criteria for classifying owners of power grid facilities as territorial grid organizations, has the right, but not the obligation, to carry out technological connection to its facilities.

Such owners are only obliged to bear the burden of maintaining their property in accordance with Article 210 of the Civil Code, as well as to comply with the prohibition on obstructing the flow of electric power. [8] To carry out electric power transmission activities and to obtain the corresponding tariff for electric power transmission services, the owner of power grid facilities must meet the established criteria.

If a fee is charged without establishing a tariff, the paid amount is subject to recovery as unjust enrichment. The court reached this conclusion in a specific case after evaluating the presented evidence and establishing that a tariff for electric power transmission services had not been set for the defendant by the competent state body; the court also noted that the defendant was not included in the register of natural monopolies regarding the provision of electric power transmission services, had not applied for the establishment of tariffs for such services for its electric grids as a subject of natural monopolies, a local monopolist, or other owner of grid facilities, and did not belong to organizations engaged in other regulated activities in the electric power industry. [9]

Fees that a Non-Grid Organization May Claim

The question of what fee the owner of a power grid facility that is not a grid organization may claim was a subject of debate for a long time.

The Constitutional Court of the Russian Federation provided a clarification on the constitutionality of Clause 6 of the Rules for Nondiscriminatory Access in connection with the complaint of the joint-stock company "Verkhnevolgoelektromontazh-NN" in Resolution No. 19-P dated April 25, 2019. Owners (possessors) are forced to independently pay the cost of electric power losses arising in connection with ensuring its flow through their power grid facilities to other electric power consumers, with whom they concluded technological connection agreements under significantly different economic conditions. Besides incurring expenses for paying for electric power losses in power grid facilities, the owners (possessors) of such facilities, by virtue of the burden of maintaining their property imposed on them by Article 210 of the Civil Code of the Russian Federation, bear expenses for the maintenance of such facilities, including ensuring the unobstructed flow of electric power to its other consumers. From the third paragraph of Clause 4 of Article 26 of the Electric Power Industry Law, it follows that the use of power grid facilities through which power receiving devices of electric power consumers are indirectly connected to electric grids is carried out not only for the flow of electric power in the interests of these consumers. Using these power grid facilities, their owners (possessors) carry out the flow of energy, including in the interests of the territorial grid organization to which the power receiving devices of the electric power consumers are indirectly connected. Thus, the owners (possessors) of these power grid facilities, in essence, assume part of the public functions of this territorial grid organization. Furthermore, the expenses they incur in connection with ensuring the flow of electric power to its consumers, with whom technological connection agreements were concluded by them in the status of a territorial grid organization, cannot be considered as voluntarily assumed. Placing these expenses exclusively on the said owners (possessors) of power grid facilities does not meet the constitutional criteria for limiting the constitutional rights of citizens, violates the principle of maintaining citizens' trust in the law and the actions of the state, and requires the establishment of a legal mechanism for reimbursing these expenses that meets the principles of justice. [10]

Thus, according to the legal approach of the Constitutional Court of the Russian Federation, non-grid owners of power grid facilities have the right to claim reimbursement for their costs. Evaluating the list and composition of such costs that may be subject to compensation, the following should be noted. Reimbursement of any other expenses related to the acquisition of electric power transmitted using the power grid facilities belonging to them to other consumers by a person participating in the electric power turnover without obtaining the status of a professional participant in the relevant relations, a tariff, and compliance with other mandatory requirements established for such activities, negates the principle of economic justification of the costs of commercial organizations for the production, transmission, and sale of electric power and violates the balance of consumer interests. That is, at the very least, such a subject has the right to claim compensation for costs related to covering expenses associated with the acquisition and transmission of electric power, including compensation for losses. This obligation of the owner of power grid facilities to compensate for losses is based on the law.

The third paragraph of Clause 4 of Article 26, Clause 3 of Article 32 of the Electric Power Industry Law, as well as Clause 4 of the Basic Provisions for the Functioning of Retail Electric Power Markets, approved by the Government of Russia (the "Basic Provisions for the Functioning of Retail Electric Power Markets"), [11] define the subjects obliged to pay for losses in electric grids. These include the grid organization or another owner of power grid facilities to which power receiving devices or electric power facilities are technologically connected in the proper manner.

By virtue of Clause 4 of the Basic Provisions for the Functioning of Retail Electric Power Markets, owners of power grid facilities acquire electric power (capacity) for the purpose of compensating for electric power losses arising in power grid facilities belonging to them by right of ownership or on another legal basis, and act in this case as consumers. Furthermore, the determination of the volume of actual electric power losses arising in the power grid facilities belonging to them is carried out in the procedure established by Section X of this document for grid organizations.

Based on the fifth paragraph of Clause 4 of the Basic Provisions for the Functioning of Retail Electric Power Markets, other owners of power grid facilities acquire electric power (capacity) for the purpose of compensating for electric power losses arising in power grid facilities belonging to them by right of ownership or on another legal basis, and act in this case as consumers.

Consequently, the legally significant circumstances for resolving the issue of the legality of a person who is not a professional participant in the retail electric power market receiving from a counterparty a fee exceeding the amount of this person's expenses for the acquisition of electric power from an electric power supply organization are the issues of the economic justification for the fee charged by the expenses incurred by the person who gave consent for the implementation of an indirect technological connection to its grids and related to the redistribution of capacity, as well as the reimbursement of electric power losses caused by the resulting flow. The circumstances of a person who joined the electric grids of another person extracting an economic benefit consisting of saving expenses that this person would have incurred in the case of another technological connection do not, in themselves, give rise to the right of the person who gave consent for the connection to its grids to charge an additional fee within the framework of reimbursing the cost of the acquired electric power; however, they may be taken into account when determining economically justified compensation to be paid to this person for the capacity redistribution carried out as a result of the technological connection. In other words, the charging of such a fee may be directly agreed upon by the parties when concluding a technological connection agreement, and only such a form of compensation will comply with the provisions of Article 421 of the Civil Code, without conflicting with the requirements of Clause 6 of the Rules for Technological Connection. The parties' agreement on the condition of paying such a fee in the future, as a component of the fee paid to reimburse the cost of consumed electric power, also does not contradict the general provisions of civil legislation (Article 421 of the Civil Code) and is subject to determination based on the general principles of contract interpretation established by the provisions of Article 431 of the Civil Code. At the same time, the presence of an indirect technological connection cannot limit the rights of the person who previously implemented it to organize the energy supply of its facilities in another way provided for by current legislation, including by concluding a technological connection agreement with a territorial grid organization. Such an interest of the consumer is lawful. [12]

Also interesting is the practice related to connection to gas supply grids, according to which proper maintenance by owners (possessors) of gas distribution network facilities requires them to incur necessary costs (expenses). This means that such an owner is not deprived of the possibility to condition its consent for the connection of another person's facilities to its network by including a provision in the capacity redistribution agreement between the parties to the indirect connection, according to which losses in its networks related to the flow (transportation) of energy through them to another person are partially or fully assigned to that person.

Consequently, the agreement by the parties in the contract on providing permission for connection to the defendant's network does not, in itself, contradict the rules of law, is aimed at implementing the connection (technological connection) of the plaintiff's capital construction facility to the defendant's gas distribution network. Meanwhile, in the absence of technological connection to the gas distribution network, the company's consent to join its network has no independent consumer value. [13] It appears that the conclusion of the judicial instances is applicable by analogy to situations of connection to electric grids as well.

From these examples of judicial practice, it can be concluded that the courts, while indicating the justification for making the issuance of one's consent for connection conditional upon a fee in the amount of the incurred costs, allow that such a fee amount may include not only cost compensation but also other economically justified components. However, the courts clearly indicate that such a fee must be clearly specified and, moreover, economically justified.

Indirect Connection to Power Grid Facilities

Clause 1 of Article 26 of the Electric Power Industry Law establishes that technological connection of power receiving devices of electric power consumers, electric power production facilities, as well as power grid facilities belonging to grid organizations and other persons to power grid facilities is carried out in the procedure established by the Rules for Technological Connection.

According to the provisions of the Rules for Technological Connection, the procedure for the technological connection of power receiving devices of electric power consumers, electric power production facilities, as well as power grid facilities belonging to grid organizations and other persons to electric grids includes the execution of a certificate of delimitation of balance sheet membership and operational responsibility of the parties. Clauses 5 and 6 of the Rules for Technological Connection establish that if the consumer's power receiving devices are connected to the electric grids of a grid organization through facilities including the power grid facilities of persons not providing electric power transmission services, such consumer concludes an agreement with that grid organization to whose grids the power receiving devices (power grid facilities) of the persons not providing electric power transmission services are connected, and to which its power receiving device is directly connected.

Owners and other legal possessors of power grid facilities through which the consumer's power receiving device is indirectly connected to the grid organization's electric grids may not obstruct the flow of electric power through their facilities for such consumer or demand payment for it.

Current legislation allows for the implementation of indirect connection to the electric grids of a grid organization only upon coordination with the grid organization, subject to the procedure provided for by Clauses 40(4)–40(10) of the Rules for Technological Connection. This is due to the fact that the arbitrary connection of additional capacity not provided for by the technological connection documents may lead to emergency situations at the grid organization's power grid facilities to which such capacity was connected.

By virtue of Clause 40(4) of the Rules for Technological Connection, the owner of power receiving devices previously technologically connected in the proper manner to the power grid facilities of a grid organization, upon coordination with the grid organization, has the right to connect power receiving devices of another person to the power grid facilities belonging to it, provided that the previously issued technical specifications are complied with (the "Indirect Connection"). Indirect connection may be implemented if the connection of the power grid facilities belonging to the owner of the previously connected power receiving devices to the grid organization's power grid facilities was made before January 1, 2015.

Clause 40(5) of the Rules for Technological Connection establishes that in the case of an indirect connection, the owner of the previously connected power receiving devices redistributes the maximum capacity of the power receiving devices belonging to it in favor of the power receiving devices of another person. Thus, the legislator has provided a special procedure for implementing indirect connection (Clauses 40(4)–40(10) of the Rules for Technological Connection), according to which the grid organization makes the decision on the admissibility of indirect connection.

Furthermore, if the consumer's power receiving device is technologically connected to the grid organization's power grid facilities indirectly through power receiving devices, electric power (capacity) production facilities, or power grid facilities of persons not providing transmission services, the guaranteeing supplier and the grid organization bear responsibility to the consumer for the reliability of its electric power supply and its quality within the boundaries of the balance sheet membership of the grid organization's power grid facilities. [14]

Government of Russia Order No. 511-r dated April 25, 2019, approved the Strategy for the Development of the Power Grid Complex of the Russian Federation, which provides for measures to counteract the destabilization of the tariff system, such as defining criteria for classifying an organization as a territorial grid organization, establishing technical requirements for its activities (introduction of mandatory technical security standards, availability of reserves for disaster recovery, qualified personnel), and reducing the number of territorial grid organizations following the introduction of criteria for classifying an organization as a territorial grid organization. These measures, being aimed at reducing the degree of fragmentation of territorial grid organizations and increasing control over them, significantly lose their effectiveness when other owners of power grid facilities have the opportunity to limitlessly compensate for their own costs associated with their operation at the expense of other adjacent consumers. In other words, by allowing such an opportunity for other owners of power grid facilities that clearly do not meet the criteria of grid organizations and do not have the possibility to obtain a tariff, the economic incentive to transfer the power grid facilities belonging to them into the possession of professional market participants in the electric power transmission services market is lost. Current legislation grants the owner of power receiving devices previously technologically connected in the proper manner to the power grid facilities of a grid organization the right of indirect connection of other persons' power receiving devices to the power grid facilities belonging to it upon coordination with the corresponding territorial grid organization and provided that the previously issued technical specifications are complied with. In this case, the parties to such an indirect connection conclude a capacity redistribution agreement between the power receiving devices belonging to them, in which, in particular, they provide for the procedure for the parties to the indirect connection to compensate for electric power losses in the electric grids of the owner of the previously connected power receiving devices (Clauses 40(4), 40(5), 40(7), and 40(8) of the Rules for Technological Connection).

This means that an electric power consumer is not deprived of the possibility to condition its consent to an indirect connection by including a provision in the capacity redistribution agreement under which electric power losses in its electric grids related to the flow of electric power through them to another person are partially or fully assigned to that person.

Thus, when implementing technological connection using the power grid facilities of persons that are not grid organizations, the options for such connection are limited either to a capacity redistribution agreement at the connection point, or an indirect connection with the conclusion of a capacity redistribution agreement, or the issuance of consent for the implementation of power flow through such person's power grid facility. The issue of such a person receiving payment, in accordance with the legal provisions of the Constitutional Court of the Russian Federation and based on law enforcement practice, is limited to establishing economically justified compensation in favor of the owner of the power grid facility.

In conclusion, it should be noted that although owners of power grid facilities that are not grid organizations do not have an obligation to connect consumers to their facilities and/or indirectly through their facilities to the grid organizations' facilities. However, such non-grid organizations may not restrict the free flow of electric capacity in cases where a proper technological connection has taken place. When determining whether such subjects have the right to charge a fee for an indirect connection or for issuing consent for connection, it is necessary to take into account the position of the Constitutional Court of the Russian Federation and judicial instances, which, while recognizing such a possibility, point to the necessity of the economic justification of such a fee from the perspective of the costs incurred by the non-grid organization in ensuring the flow of electric power.

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References

1. Letter of the Ministry of Energy of Russia No. VK-6542/09 dated June 11, 2015, On Posting Information.
2. Decree of the Government of Russia No. 354 dated May 6, 2011, On the Provision of Utility Services to Owners and Users of Premises in Apartment Buildings and Residential Houses; Decree of the Government of Russia No. 861 dated December 27, 2004, On Approval of the Rules for Nondiscriminatory Access to Electric Power Transmission Services and the Provision of These Services, the Rules for Nondiscriminatory Access to Operational Dispatch Management Services in the Electric Power Industry and the Provision of These Services, the Rules for Nondiscriminatory Access to the Services of the Administrator of the Trading System of the Wholesale Market and the Provision of These Services, and the Rules for Technological Connection of Power Receiving Devices of Consumers of Electric Power, Electric Power Production Facilities, as well as Power Grid Facilities Belonging to Grid Organizations and Other Persons to Electric Grids.
3. Resolution of the Arbitration Court of the Volga District No. F06-66343/2020 dated November 9, 2020, in case No. A06-8454/2019.
4. Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated November 20, 2012, in case No. A50-5359/2011.
5. Clarification of the Presidium of FAS Russia No. 12 dated September 13, 2017, On the Application of the Provisions of Antimonopoly Legislation Regarding Owners of Electric Power Facilities, Including Those Not Meeting the Criteria for Classifying Owners of Power Grid Facilities as Territorial Grid Organizations (approved by the minutes of the Presidium of FAS Russia No. 19 dated September 13, 2017).
6. Resolution of the Arbitration Court of the West Siberian District No. F04-22739/2015 dated October 16, 2015, in case No. A45-21256/2014.
7. Clause 1 of the Clarification of the Federal Antimonopoly Service No. 12 dated September 13, 2017, On the Application of the Provisions of Antimonopoly Legislation Regarding Owners of Electric Power Facilities, Including Those Not Meeting the Criteria for Classifying Owners of Power Grid Facilities as Territorial Grid Organizations (approved by the minutes of the Presidium of the Federal Antimonopoly Service No. 19 dated September 13, 2017).
8. Ruling of the Supreme Court of the Russian Federation No. APL16-632 dated February 2, 2017.
9. Resolution of the Arbitration Court of the West Siberian District No. F04-790/2018 dated April 19, 2018, in case No. A03-8471/2017.
10. Resolution of the Constitutional Court of the Russian Federation No. 19-P dated April 25, 2019, In the Case Concerning the Review of the Constitutionality of Clause 6 of the Rules for Nondiscriminatory Access to Electric Power Transmission Services and the Provision of These Services in Connection with the Complaint of the Joint-Stock Company "Verkhnevolgoelektromontazh-NN".
11. Decree of the Government of the Russian Federation No. 442 dated May 4, 2012, On the Functioning of Retail Electric Power Markets, Total and/or Partial Restriction of the Electric Power Consumption Regime.
12. Resolution of the Arbitration Court of the West Siberian District dated June 9, 2022, No. A81-3411/2021; Resolution of the Arbitration Court of the West Siberian District dated May 19, 2022, No. A70-16401/2019.
13. Resolution of the Arbitration Court of the West Siberian District No. F04-1721/2022 dated June 28, 2022, in case No. A45-17037/2021.
14. Resolution of the Arbitration Court of the West Siberian District dated June 8, 2021, No. A45-2239/2019.