30 September 2022

Grid Connection Technical Specifications: Legal Consequences of Property Ownership Changes in Russia

September 30, 2022

BRACE Law Firm ©

Grid connection is a vital condition for ensuring the functionality of a real estate property. Connection to power grids is implemented based on a grid connection agreement (the "GCA"), the essential terms of which include technical specifications for connection, issued as a separate document. This document defines the measures and technical actions that each party must undertake to complete the grid connection.

What happens to previously issued technical specifications if the owner of the property that originally applied for the grid connection changes? An even more compelling question is what happens to the technical specifications if ownership changes with respect to a portion of the facilities for which the technical specifications were issued. These and other issues are addressed in this article.

What Is Included in Technical Specifications for Grid Connection?

The legal regulation for entering into a grid connection agreement and issuing technical specifications (the "TS", or "TS for grid connection") is governed by Federal Law No. 35-FZ dated March 26, 2003, On Electric Power Industry (the "Law on Electric Power Industry") and the Rules for Grid Connection of Power Receiving Devices of Electric Power Consumers, Electric Power Production Facilities, as well as Electric Grid Facilities Belonging to Grid Companies and Other Persons, to Electric Grids, approved by Resolution of the Government of the Russian Federation No. 861 dated December 27, 2004 (the "Grid Connection Rules"). [1] Technical specifications for grid connection constitute an integral appendix to a grid connection agreement and are an essential term of the grid connection agreement.

The Grid Connection Rules strictly regulate the information that the TS must contain. The composition of such information depends on the category of the applicant (status of the applicant, requested capacity, reliability category, etc.).

In a mandatory manner, TS for grid connection contain the following information:

Power output or intake schemes and points of connection;
Maximum capacity in accordance with the application and its distribution for each point of connection to the electric grid facilities;
Distribution of duties between the parties for the execution of technical specifications (grid connection measures within the boundaries of the plot where the applicant's power receiving devices are located are carried out by the applicant, while grid connection measures up to the boundary of the plot, including the settlement of relations with third parties, are carried out by the grid company);
Reasoned requirements for the reinforcement of the existing electric grid of the grid companies, as well as reasoned requirements for the construction (reconstruction) of electric power production facilities in connection with the connection of new capacities;
Requirements for relay protection devices, grid, emergency, and regime automation, recording of emergency events and processes, telemechanics, communications, insulation and overvoltage protection, control and maintenance of electric power quality, as well as electric power metering devices;
Requirements for the installation of an autonomous backup power source in cases of connecting power receiving devices under a special first-category reliability classification.

The technical specifications themselves represent a specific special permission to perform certain actions, issued by the grid company to the applicant, formalized as a contractual appendix.

Thus, technical specifications for grid connection are a set of actions and technical requirements that each party to the grid connection agreement must fulfill to implement the grid connection. At the same time, by its nature, a grid connection agreement is a mixed contract, which, among other things, includes provisions regulated by the norms on the remunerated rendering of services. [2] Consequently, the TS for grid connection is an essential term of the grid connection agreement, while maintaining its own period of validity.

Technical Specifications for Grid Connection: Execution Deadlines and Validity Periods

When entering into and executing a grid connection agreement, it is necessary to distinguish between the deadlines for performing measures under the grid connection agreement and the validity periods of the TS for grid connection. Measures under the grid connection agreement are actions that each party must take to perform the grid connection agreement. Some of these measures are specified in the TS. Furthermore, the measures include:

The preparation and issuance of technical specifications by the grid company and their coordination with the system operator;
The development of design documentation by the grid company according to the obligations provided for in the technical specifications;
The development of design documentation by the applicant within the boundaries of its land plot according to the obligations provided for in the technical specifications;
The execution of the technical specifications by the applicant and the grid company;
The implementation of measures to commission the electric power facilities of the applicant, the grid company, and other persons (Clause 18 of the Grid Connection Rules).

The deadline for performing these measures is established in the grid connection agreement and is an essential term of the contract.

The validity period of technical specifications for grid connection ranges from 2 to 5 years. A validity period for the TS exceeding 5 years may be established only in cases provided for by law (for example, during the integrated development of a land plot).

If the applicant fails to fulfill the technical specifications within the agreed period, and if technical capacity for grid connection exists on the expiration date, the grid company, upon the applicant's request, may extend the validity period of the previously issued technical specifications. No additional fee is charged in this case.

If the conditions for grid connection change upon the expiration of the technical specifications' validity period, the grid company may issue new technical specifications to the applicant, taking into account the measures already completed under the previously issued technical specifications. In this case, the issuance of new technical specifications does not entail the invalidity of the contract, provided that the parties agree on the deadlines for performing the grid connection measures.

The issuance of new technical specifications within the framework of an existing contract to applicants who are individuals is carried out without charging an additional fee.

Thus, technical specifications are an appendix to the aforementioned agreement on the implementation of grid connection to electric grids, and these Technical Specifications contain a list of mandatory measures that the grid company and the customer must perform to connect the customer's power receiving devices to the electric grids. Consequently, the measures provided for by the technical specifications for grid connection must be completed prior to the implementation of the grid connection measures. At the same time, the period for implementing grid connection measures is determined in the contract not arbitrarily, but in accordance with the provisions of the Grid Connection Rules.[3] Under the meaning of the Grid Connection Rules, the existence of valid technical specifications is an indispensable attribute of grid connection.

At the same time, the expiration of the technical specifications' validity period legally prevents the applicant from implementing grid connection measures but does not terminate the grid connection agreement as a whole, as the applicant retains the right to initiate an extension of the technical specifications' validity period or the issuance of new technical specifications throughout the entire term of the contract.

This allowance does not prohibit the grid company from accepting performance offered by the applicant with a delay and enables the parties to the contract to complete the connection of the facility. Thus, the expiration of the technical specifications' validity period legally prevents the applicant (defendant) from implementing grid connection measures but does not terminate the grid connection agreement as a whole, as the applicant retains the right to initiate an extension of the technical specifications' validity period or the issuance of new technical specifications throughout the entire term of the contract.

Furthermore, liability for violating the deadlines for performing measures arises from the date of expiration of the period for performing the measure specified in the grid connection agreement. In this case, the TS for grid connection must be valid on the specified date.

The mere extension of the technical specifications' validity period as a necessary prerequisite for performing grid connection measures does not indicate an extension (change) of the deadline for performing such measures, which must clearly follow from the amended technical specifications. Upon the extension of the technical specifications' validity period, an applicant who is in default regarding its part of the measures but has not lost interest in the grid connection as a whole receives the opportunity to perform the measures to achieve the purpose of the contract, but the default in performing its duties persists, as does the liability for it.

Only if the duties of the applicant and the grid company to perform grid connection measures are mutually dependent can a change in the deadline for performing measures by the grid company shift the deadline for performing measures by the applicant with reference to Clause 2 of Article 328 of the Civil Code of the Russian Federation or Clause 3 of Article 405 and Article 406 of the Civil Code of the Russian Federation (the choice of application of which depends on whether the applicant is able to perform its part of the measures before the grid company performs its similar duty).[4] That is, liability for violating the deadline for performing measures arises for the relevant party provided that the other party has not committed a violation of its own measures, and the performance of such measures was not a reciprocal obligation for the first party.

Legal Consequences upon Change of Property Owner

When there is a change of owner of an object — a power receiving device — it should be noted that the mere fact of the change of property owner does not always automatically entail the transfer of rights to the capacity previously connected under the GCA, and more importantly, it does not mean the automatic re-registration of the TS in cases where the grid connection was not completed.

If the grid connection has taken place (the TS were fulfilled by the parties, an act on grid connection was signed, and actual connection was effected), the transfer of capacity under the executed GCA is carried out in full only with respect to the entire facility (set of facilities) for which the act on grid connection was issued.

A partial transfer of capacity under a previously implemented connection is possible only within the framework of a capacity assignment procedure, which is carried out based on a capacity assignment agreement. The procedure for entering into this agreement is regulated by the Grid Connection Rules and mandatory requirements include:

The existence of an act on connection regarding the capacity that will be assigned in whole or in part;
The capacity is assigned only at the point of connection, which is determined in accordance with the GCA and the TS issued for the connection.

In the event of a change of owner of the PRD before the grid connection is implemented, the new owner becomes a party to the previously concluded GCA only upon agreement with the grid company. Otherwise, the grid company may terminate the previously concluded GCA on the grounds of impossibility of performance, since the party to the GCA has ceased to be the owner of the PRD.

Let us consider in more detail the mechanisms for re-registering documents upon a change of owner of power receiving devices.

Change of Owner for Whom TS for Grid Connection Were Issued

In the event of a change of owner of a facility for which TS for grid connection have been issued, let us consider two situations:

A case where grid connection is completed with the issuance of a grid connection act;
A case where such grid connection is not completed.

In the event that there is a change of owner or other legal possessor of power receiving devices or electric power facilities that were previously grid-connected in the proper manner, and if the types of production activities carried out by the new owner or other legal possessor do not entail a review of the magnitude of the connected capacity and do not require a change in the external power supply scheme or the reliability category of power supply, repeated grid connection is not required, and the previously determined boundaries of the balance sheet ownership of devices or facilities and the liability for violating the rules for operating electric grid facilities remain unchanged. In this case, the new owner or other legal possessor of the power receiving devices or electric power facilities is obliged to notify the grid company or the owner of the electric grid facilities regarding the transfer of ownership or the occurrence of another basis for possession of the power receiving devices or electric power facilities. In the event of a transfer of ownership of a portion of said power receiving devices or electric power facilities, or the occurrence of another basis for possession thereof, documents regarding the boundaries of the balance sheet ownership of such facilities and liability for violating the rules for operating electric grid facilities are subject to formalization in the manner established by the rules for non-discriminatory access to electric power transmission services.

Thus, upon a change of owner, no additional actions are required except for notifying the grid company, provided the following conditions are simultaneously met:

The facility was previously connected in the proper manner (in compliance with the terms of the Grid Connection Rules, and there is a grid connection act issued by the grid company);
There is no change in the types of activity that require a review of the maximum capacity;
No change in the power supply scheme is required;
The reliability category of power supply does not change.

Clause 2 of the Grid Connection Rules specifies that documents on grid connection mean documents compiled in the process of grid connection of power receiving devices (electric power facilities) to electric grid facilities, including technical specifications, a grid connection act, an act on the demarcation of the balance sheet ownership of electric grids, and an act on the demarcation of the operational liability of the parties.

Consequently, in the event of a change in the right holder of power receiving devices or electric power facilities that have already been grid-connected in the proper manner, the new right holder and the grid company to which the grid connection was implemented are duty-bound to resolve the issue of the conditions for the grid connection of the power receiving devices, including the re-registration of grid connection documents.

A consumer (buyer) of services, for the purpose of entering into a power supply agreement, has the right to present any legal documents confirming the right of possession and (or) use of the power receiving devices. In this case, the Grid Connection Rules do not provide for the possibility of refusing to re-register documents if there is no corresponding agreement between grid companies. Furthermore, the transfer of ownership must take place with respect to the entire complex previously connected to a specific capacity.

In a specific case, the court established that a maximum capacity of 2,478 kW was allocated to the entire property complex connected to the electric grids, which belonged to an organization. As the court correctly pointed out, in this case, there was a transfer of rights to cable lines connected to electric grids, while a portion of the power receiving devices was not transferred; thus, partial legal succession occurred.

It follows from the above that the re-registration of grid connection documents occurs only as a result of universal succession. Upon the transfer of rights to a portion of power receiving devices previously connected to electric grids, the transfer of maximum capacity to a singular successor is not provided for by current legislation.

In accordance with Clause 4 of the Grid Connection Rules, the electric capacity allocated for consumption is provided based on the existence of rights to power receiving devices. The ownership of points of connection cannot serve as a basis for obtaining the use of electric capacities.

Moreover, the right to maximum capacity passes to the new owner of specifically the power receiving device. In the case under consideration, the right to the PRD did not pass to the organization, since this grid company is not a universal successor and the sole owner of the entire property complex to which the maximum capacity was allocated.[5] This means that when implementing grid connection with respect to a power receiving device, the transfer of ownership is a basis for re-registering documents. At the same time, the sale of a real estate object is a basis for the transfer of the right to connected capacity only under the condition of universal succession — that is, upon the transfer of the entire power receiving device with respect to which the connection was implemented, but not a part thereof. If a portion of the object is transferred, the only option for transferring capacity is to enter into a capacity reassignment agreement.

The conditions for entering into a reassignment agreement are specified in Section 4 of the Grid Connection Rules:

Persons who own power receiving devices on the basis of ownership or another legal basis, with respect to which grid connection to electric grids was implemented in the established manner prior to January 1, 2009, have the right to enter into an agreement;
Reassignment is carried out by reducing the capacity of the old owner with simultaneous reassignment of the volume of the maximum capacity reduction in favor of other owners from the volume of the maximum capacity specified in the grid connection documents of the applicant's power receiving devices, within the range of the corresponding supply center.

The aforementioned persons shall send to the grid company copies of the technical specifications issued to the person whose maximum capacity of power receiving devices is being reassigned;

A copy of the grid connection act;
An application for grid connection of the power receiving devices of the person in whose favor the excess maximum capacity is intended to be reassigned;
A certified copy of the concluded capacity reassignment agreement.

In the absence of the information and documents attached to the notification of reassignment, grid connection by means of capacity reassignment is not carried out. The reassignment agreement is signed by the parties, and the grid company is notified of the conclusion of the agreement.

The provisions established by these Rules for grid connection apply to relations arising after the grid company receives the notification of reassignment with respect to persons in whose favor the maximum capacity is intended to be reassigned.

The period for implementing grid connection measures for the power receiving devices of persons in whose favor the maximum capacity is intended to be reassigned cannot exceed 30 days as a general rule.

Maximum capacity is recognized as its greatest magnitude, determined for simultaneous use by power receiving devices in accordance with the grid connection documents. Within the limits of the maximum capacity, the grid company assumes obligations to ensure the transmission of electric power. The magnitude of the maximum capacity of power receiving devices (electric grid facilities) is determined during the grid connection process or through its reassignment.

Persons who have entered into a maximum capacity reassignment agreement between power receiving devices belonging to them shall send a notification, signed by the parties to the reassignment agreement, to the grid company to whose electric grid facilities the power receiving devices of the person intending to reassign its maximum capacity were previously connected. The notification shall, among other things, specify the volume of capacity being reassigned.

The capacity reassignment agreement shall provide for obligations to perform grid connection measures for power receiving devices as stipulated by the technical specifications. The existence of the specified notification serves as a basis for implementing grid connection measures.

In a specific case, a company applied to the court with a claim to recognize its right to electric capacity. The claims were motivated by the fact that, despite its repeated requests, the company did not reassign its maximum capacity in favor of the plaintiff and did not allocate 100 kVA to the latter. Legislation on power supply does not allow for the reassignment of maximum capacity in favor of third parties at their request without the consent of the person who previously connected its power receiving devices to the grid company. Capacity may be reassigned (assigned) exclusively by the will of its previous right holder. The court noted that since the object of the initial connection was the entire building of a single owner (no evidence was presented of an owner's application to connect a portion of the object except for the third floor; furthermore, the third floor previously received power supply), the defendant did not have the right to re-register the entire capacity for its non-residential premises, effectively changing the object of connection, as this contradicts the principle of identity when re-registering grid connection documents. The one-time nature of grid connection to electric grids means that:

The grid connection fee is charged once;
If the form of ownership or the owner (applicant or grid company) changes, no new grid connection procedure is required;
A change in the form of ownership or the owner (applicant or grid company) does not entail repeated payment for grid connection;
The reconstruction of a capital construction object previously grid-connected, during which there is no reconstruction or increase in the maximum capacity of the consumer's power receiving devices, or during which there is no change in the reliability category of power supply, points of connection, or types of production activity resulting in a change in the external power supply scheme, does not require a new (repeated) grid connection. [6]

Furthermore, the court took into account that the company was the owner of the entire non-residential building, including the non-residential premises of the third floor. Under such circumstances, the court of first instance reached the correct conclusion that the electric capacity in the amount of 50 kW was allocated to the company for the power supply of the entire building, including the non-residential premises of the third floor, and therefore, the claims were lawfully and reasonably satisfied by the court. [7]

That is, the above indicates that upon a change of owner of an object that was previously connected, the transfer of previously connected capacity occurs only under the condition of the transfer of ownership of the entire object.

Change of Owner Prior to Completion of Grid Connection

How is the issue resolved if the change of owner occurred after the issuance of the TS but before the grid connection was implemented?

It must be taken into account that upon a change of owner, there is no automatic re-registration of the grid connection agreement and the TS to the new owner. Furthermore, although the previous owner may sell the object for which the TS were issued, the party to the grid connection agreement nevertheless remains the previous owner, which entails corresponding risks arising from the contract (for example, liquidated damages or compensation for the grid company's losses upon termination of the contract).

Thus, in a specific case, the court pointed out that the grid connection of the defendant's facility to the plaintiff's (the grid company) electric grids had not taken place as of the time of the court's consideration of the case. The defendant transferred the rights under the land lease agreement to a third party, with whom the plaintiff concluded a grid connection agreement. Meanwhile, the defendant did not notify the plaintiff of the termination of the grid connection agreement. According to Clause 3 of Article 425 of the Civil Code of the Russian Federation, law or contract may provide that the expiration of the term of a contract entails the termination of the parties' obligations under the contract. A contract in which no such condition exists is recognized as valid until the moment of the completion of the parties' performance of the obligation specified therein. Under the meaning of these provisions of the Code, another condition for the termination of the contract's validity established by the parties must be expressed by them unambiguously and definitely. No such condition exists in the disputed contract. The subject of this public contract — in which, by virtue of its public nature, the grid company's rights to unilateral extrajudicial withdrawal from the contract are limited — is the grid connection of the consumer's power receiving devices to the grid company's networks. The moment of completion of the parties' performance of obligations under it is the actual connection of the named devices to the network with the formalization of corresponding documents and settlement under the contract. [8]

Thus, when selling an object, one should not forget about the existing grid connection agreement and the current conditions, and should re-register such grid connection TS to the new owner, or, if the new owner is not interested in such a contract, terminate the grid connection agreement. The procedure for re-registering a contract is determined by the general norms of civil legislation: a change of party to a contract, and the universal transfer of rights and duties. [9]

There are three options for terminating a grid connection agreement:

Agreement of the parties;
Unilateral withdrawal from performance due to the grid company's fault (for example, violation of the deadlines for performing measures by the grid company);
Unilateral unmotivated withdrawal. Since, according to the position of the Supreme Court of the Russian Federation, a grid connection agreement is, among other things, a service agreement, the applicant consequently has the right to withdraw from the performance of the contract at any time, compensating the grid company for the losses incurred (in the event the grid company has performed measures for the construction of certain facilities).

Furthermore, when compensating for losses associated with the unilateral termination of the GCA at the applicant's initiative, the amount of such losses cannot exceed the cost of the fee determined on the basis of the tariff and specified in the contract. A tariff rate cannot correctly reflect a grid company's costs for providing services to a specific person, as it is calculated from planned expenditures on grid connection for the regulatory period, which is not equivalent to actual costs. At the same time, grid companies' expenditures on grid connection are limited by the tariff authority to economically justified values; therefore, the expenditures subject to compensation to a grid company must not exceed the cost of services calculated using the tariff rate. [10]

Thus, when selling a real estate object for which TS for grid connection have been issued and the GCA has not been fully performed (grid connection has not been completed), the seller must check which measures the grid company has actually performed within the framework of the previously issued TS for grid connection, since the specified expenditures within the limits of the tariff may be recovered from the seller.

The issue is more difficult to resolve if there are multiple right holders of the object for which TS for grid connection have been issued. A classic example is the ownership (lease) of a single land plot by several persons, on which construction was planned, and with respect to such a land plot, a grid connection agreement has been concluded and TS for grid connection have been issued. It should be taken into account that a lease with multiple persons may arise provided that the object is in common joint ownership.

According to Part 3 of Article 5 of the Land Code of the Russian Federation, lessees of land plots are persons who simultaneously possess and use land plots under a lease agreement. The provision of a land plot for lease implies the transfer to the lessee of exclusive rights of possession and use of the land plot. The transfer of the full volume of powers of possession and use of one and the same land plot to several persons acting individually contradicts current legislation — specifically, Articles 606 and 615 of the Civil Code of the Russian Federation — and would effectively not allow each co-lessee to exercise its right of use of the land plot in full. Consequently, each participant in a multi-party lease on the lessee's side is not entitled to use the entire land plot individually; co-lessees must jointly possess and use the land plot — that is, the right of possession and use of the co-lessees is joint and several in nature — and, accordingly, none of the participants on the lessee's side under this agreement could have a right to use a portion of the land plot. Therefore, to enter into a grid connection agreement, make changes to it, etc., all co-lessees (co-owners) must act together. Thus, in a specific case, the conclusion of a grid connection agreement was refused because not all right holders of the land plot had applied. [11]

When subdividing an object (as a rule, a land plot) for which technical specifications were previously issued, when making corresponding changes to the grid connection agreement, the following must be taken into account:

Upon the subdivision of a plot, independent objects of rights must arise: the subdivided plot must not meet the criteria for indivisibility, as in such a case the grid company will refuse to make changes to the grid connection agreement. [12]
When adjusting the TS, the following conditions must be met: there must be no increase in the maximum capacity; no change in the reliability category of power supply, points of connection, or change in the types of production activity resulting in a review of the maximum capacity magnitude or a change in the external power supply scheme.

If these criteria are present, the adjustment of the TS will be considered a new application for grid connection, as a result of which the grid company, by virtue of the provisions of the Grid Connection Rules, will have the right to issue new TS and recalculate the grid connection fee.

In conclusion, it should be noted that implementing a grid connection to electric grids is not only a complex technical process but is also mediated by complex legal relations. Although the applicant has been provided with sufficient legal protection recently, the legislator nevertheless provides protection for the grid company as well, insuring it against the negative consequences of non-performance of the contract. Technical specifications for grid connection, as an appendix to the grid connection agreement, terminate (other than upon the expiration of the established term) both upon proper performance (the issuance of a connection act) and in connection with the termination of the grid connection agreement.

______________________________

References

[1] Resolution of the Government of the Russian Federation No. 861 dated December 27, 2004, On Approval of the Rules for Non-Discriminatory Access to Electric Power Transmission Services and the Rendering of These Services, the Rules for Non-Discriminatory Access to Operational Dispatch Management Services in the Electric Power Industry and the Rendering of These Services, the Rules for Non-Discriminatory Access to the Services of the Trading System Administrator of the Wholesale Market and the Rendering of These Services, and the Rules for Grid Connection of Power Receiving Devices of Electric Power Consumers, Electric Power Production Facilities, as well as Electric Grid Facilities Belonging to Grid Companies and Other Persons, to Electric Grids.

[2] Ruling of the Judicial Chamber for Economic Disputes of the Supreme Court of the Russian Federation No. 305-ES17-11195 dated December 25, 2017.

[3] Resolution of the Arbitration Court of the Moscow District No. F05-10855/2017 dated August 24, 2017, in Case No. A41-84879/2016.

[4] Resolution of the Arbitration Court of the West Siberian District No. F04-3571/2022 dated July 19, 2022, in Case No. A45-28418/2021.

[5] Resolution of the Arbitration Court of the Central District No. F10-4347/2020 dated July 15, 2021, in Case No. A84-416/2020.

[6] Decision of the Supreme Court of the Russian Federation No. AKPI15-499 dated July 03, 2015.

[7] Resolution of the Fifteenth Arbitration Court of Appeals No. 15AP-6346/2021 dated May 20, 2021, in Case No. A32-2494/2019.

[8] Judicial acts in Case No. A45-14349/2020.

[9] Resolution of the Eighth Arbitration Court of Appeals No. 08AP-1615/2022 dated March 22, 2022, in Case No. A46-10646/2021.

[10] Ruling No. 304-ES16-16246 dated March 24, 2017, in Case No. A45-12261/2015.

[11] Resolution of the Eleventh Arbitration Court of Appeals dated October 11, 2012, in Case No. A55-4377/2012.

[12] Resolution of the Eleventh Arbitration Court of Appeals No. A55-4385/2012 dated October 11, 2012.