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Current Issues of Legal Regulation of the Electric Power Industry

Anastasia Borisovna Bondarenko, Head of the Legal Department of the Ministry of Energy of the Russian Federation

In this article, the author reviews current issues of Legal Regulation of the electric power industry, features of the legal status of electric power entities, features of state control in the electric power industry, provisions on technical regulation and legislative development trends in the electric power industry.

Problems arising in legal regulation of the electric power industry can be conditionally divided into two broad clusters.

The first cluster is derived from the current goals and tasks faced by statutory regulation in the electric power industry. They include global goals and tasks faced by the branch: higher reliability with simultaneous restraint of increase in prices for relevant services (goods); goals and tasks arising due to external factors, for example, challenges associated with the economic crisis; and, of course, ambitious goals to improve quality of the business environment, inter alia, to improve Russia’s positions in the world ratings (implementation of the road maps adopted by the Government of the Russian Federation in pursuance of the May decrees of the President of the Russian Federation in 2012). The first cluster also includes problems caused by ever changing models of relationships between electric power entities and consumers of relevant goods and services (for example, the model of competitive capacity outtake for 4 years, which so far takes place every year, features of operation of organizations deprived of the status of territorial grid operators, legal approaches to payment for maximum reserved capacity, etc.).

The second cluster includes “pure” problems of legal regulation caused by, first of all, imperfect regulatory legal instruments, inter alia:

- non-systemic use of terminology employed in the electric power legislation of the Russian Federation and related areas of legislation of the Russian Federation, and the need to improve the conceptual framework (for example, the notion “energy systems” requires legislative definition; the notion “electric power entity”, which is key for defining special legal capacity of legal relations arising in the electric power industry, is in need of improvement);

- need to define (specify) legal status of certain bodies participating in relations associated with the electric power industry (for example, provider of public utilities; horticultural organizations; owners of power grid facilities; organizations not eligible to be referred to territorial grid operators, in relationships with grid operators to ensure reliable power supply to consumers, etc.);

- need to regulate relationships of electric power entities and third parties during technological connection and their mutual impact along with contractual models mediating such legal relations;

- addressing issues of imposing “sanctions” on a number of institutions operating in the electric power industry (for example, over violations of the decommissioning procedure for facilities generating electric power; on electric power entities, which activities involved violations in implementation of such entities’ investment programs);

- problems arising from areas related to the electric power legislation of the Russian Federation, for example, land (granting land plots for construction of power grid facilities), town-planning (introduction of notions “power distribution scheme” and “energy facilities”) and civil (operation of ownerless power grid facilities) areas, matching of strategic and territorial planning documents (schemes and programs of electric power industry development, schemes of territorial planning, strategies of sectoral development); matching of technical regulation and regulation of operation of electric power systems.

Let us start with general issues conditioning approaches to the role of electric power legislation of the Russian Federation in the system of legal regulation.

The term “electric power systems” remains unregulated in the legislation of the Russian Federation. It should also be noted that the term “federal energy systems” specified in the Constitution of the Russian Federation, which pursuant to Art. 71 fall within the authority of the Russian Federation, has no definition in the legislation of the Russian Federation. The said term is institutional for addressing issues of legal regulation of all branches of the fuel and energy complex.

The definition proposed by P.G. Lakhno can serve as one of definitions of the term “federal electric power systems”: “… production facilities of the fuel and energy complex located in the territory of the Russian Federation and meant for production (extraction, processing), transportation (transmission), storage, distribution and delivery (consumption) of energy sources (electric power and heat energy, gas, crude oil, petroleum products and coal) performed by legal entities on a basis of and in accordance with federal laws, other regulatory legal instruments of the Russian Federation and reference standards”[1]. However, in my opinion, this definition should be updated with a systemic component, because it is impossible to define the system (its essence) enumerating facilities that form the system.

When giving a general (consolidated) definition or referring certain fuel and energy complex facilities (ranges of facilities) to federal power systems, we should establish a stricter differentiation of powers of the Russian Federation and constituent entities of the Russian Federation in regulation of certain legal relations. This includes not only establishment of direct mechanisms of economic regulation (for example, mechanisms of operation of the wholesale and retail markets), but mostly regulation in legislative areas related to the fuel and energy complex, for example, urban development legislation. It can be exemplified by matching strategic and territorial planning documents. The said documents affect one another, which is why it is so important to formalize, which electric power facilities belong to facilities of federal significance (for example, facilities included in the scheme of territorial planning of the Russian Federation) and which belong to facilities of regional or municipal significance.

Turning to improvement of the terminology employed in the electric power legislation of the Russian Federation, we should mention improvement of the current conceptual framework.

In this regard, the key notion “electric power entity” – bodies engaged in electric power activities, including production of electric power, heat energy and capacity, purchase and sale of electric power and capacity, energy supply to consumers, electric power transmission services, supervisory control in the electric power industry, distribution of electric power (capacity), arrangement of purchase and sale of electric power and capacity – raises questions as to its content:

— whether electric power entities include bodies engaged in construction of electric power facilities (that are going or not going to operate the relevant facilities). At this point it should be noted that, for instance, commissioning of the relevant facilities in accordance with the current technical rules requires complex approval;

— what is the status of an owner of power grid facilities meeting criteria of the Unified National Power Grid;— whether it is possible to extend that status to such bodies as public utility providers, horticultural organizations, etc.

The electric power industry in the Russian Federation is characterized by specific features, most of which are attributable to historical aspects of development of economic relations in the said area and special legal regulation. In 2008, RAO UES of Russia – the largest monopoly of our state in the electric power industry – ceased to exist. Following the “reform” of RAO UES of Russia, former accurately and vertically managed economic and technological processes within one company were divided and faced the market’s regulatory function and state supervisory functions. In the meantime, production, sale and distribution of electric power became competitive types of activities, while transmission of electric power through grids and supervisory control became monopolistic. New legal entities with special legal status, inter alia, with special control of the state over them, were established (transformed) accordingly.

The relevance of supervisory functions in the electric power industry is attributable to the need to improve the regulatory framework, inter alia, by differentiating basic notions, and additionally justify participation of business entities in control of other business entities’ activities (for example, system operator).

Pursuant to Federal Law dd. December 26, 2008 No. 294-ФЗ “On Protection of Rights of Legal Entities and Individual Entrepreneurs in Exercising State Control (Supervision) and Municipal Control”[2] (hereinafter referred to as Law No. 294-ФЗ), state control (supervision) includes activities of authorized public bodies aimed at prevention, identification and restraint of violations of obligatory requirements established by federal laws and other regulatory legal instruments adopted in accordance therewith (hereinafter referred to as the obligatory requirements), and activities in systematic monitoring of execution of obligatory requirements, analyzing and forecasting the state of execution of obligatory requirements by legal entities and individual entrepreneurs in the course of their activities.

Powers of the Ministry of Energy of the Russian Federation in electric power control are featured by the fact that not all of them belong to “state control” in the meaning conventional for the legislator. Such control is often focused on checking (analyzing, assessing) the efficiency of activities of entrepreneurs strategically important for the entire national economy (for example, in implementation of investment programs).

Control implemented by the state (through its executive bodies) is not always “state control (supervision)”.

One type of electric power control is control over implementation of electric power entities’ investment programs, which also does not fall within the scope of regulation of Law No. 294-ФЗ. The Ministry of Energy of the Russian Federation controls implementation of approved investment programs of electric power entities meeting the criteria established by Resolution of the Government of the Russian Federation dd. December 1, 2009 No. 977[3]. Control over implementation of investment programs is exercised in view of terms and stages of implementation of investment programs and financing of projects covered by investment programs, and includes checking implementation of investment programs, inter alia, construction (reconstruction, modernization) of electric power facilities. In general, on a basis of the results of control over implementation of electric power entities’ investment programs, the Ministry of Energy of the Russian Federation analyzes, generalizes and publishes relevant reports and provides annual information to the Government of the Russian Federation.

It should be noted that the legislation of the Russian Federation does not stipulate any obligatory requirements to implementation of investment programs by electric power entities. Therefore, the said type of control exercised by the Ministry of Energy of the Russian Federation cannot be referred to the notion “state control”.

As for participation of business entities in control over activities of other business entities (for example, system operators), it should be mentioned that, pursuant to Federal Law dd. March 26, 2003 No. 35-ФЗ “On the Electric Power Industry”[4], control over timely and proper implementation of investment programs of generating companies formed by the results of capacity trade shall be exercised by the system operator. In this regard, assignment of the said type of control to an authorized public body seems to be more appropriate due to the following facts. A system operator (System Operator of the United Power System, OJSC) is a specialized organization individually exercising centralized supervisory control within the Unified Energy System of Russia and authorized to give supervisory orders and instructions binding on electric power entities and electric power consumers affecting electric power operation of the energy system, including consumers of load-controlled electric power. The system operator is a natural monopoly entity, independent business entity with special legal status. Supervisory control in the electric power industry is aimed at provision of reliable and safe operation of the entire system. But even so, charging a commercial organization with control over other business entities contradicts the principles of civil legislation on equality of participants in civil-law relations.

Thus, there are the following legal problems in exercising control functions in the electric power industry:

- lack of strictly differentiated notions and subjects of “state control” and “electric power control” (sectoral control) in the legislation of the Russian Federation;

- indefinite regulation of participation of business entities in control over activities of other business entities.

The proposed options of statutory regulation of the state control functions, inter alia, in the electric power industry, include establishment of a unified legal framework for regulation of control and supervising activities of executive bodies, accurate differentiation of notions “state control (supervision)” and “sectoral control”, determination of a single approach to control and supervision targets, unification of sectoral legislative and subordinate acts, exclusion of duplication and intersection of public bodies’ functions in implementation of control and supervision, exclusion of control functions on the part of business entities.

Technical regulation in the electric power industry is still one of the most sensitive issues.

Nowadays, the regulatory technical framework of the electric power industry lags greatly behind the branch interests and objectives.

An extensive range of regulatory technical documents approved at the level of departmental regulatory instruments prior to the entry into force of Federal Law “On Technical Regulation” and inherited by the electric power industry from RAO UES of Russia at the level of corporate instruments is of unclear status.

Legitimacy of most of the documents (including key documents for the branch: technical maintenance rules, electric installation code, Guidelines for Designing Development of Energy Systems, technological design standards of power plants, alternating-current substations and power transmission lines, Rules for Staff Relations in Electric Power Organizations, etc.) is currently put into question. Availability of a modern regulatory technical framework for the electric power industry and mechanisms for its continuous updating are prerequisites for modernization and innovative development of the branch.

In such a situation, the technical regulation system turned out to be dysfunctional. In recent years, no technical regulations with a systematic branch-wide effect have been adopted in the electric power industry.      

National and organization standards do not serve the purposes of technical regulation without any technical rules.

It should be noted that Federal Law “On Technical Regulation”[5] is mostly focused on provision of product safety.

The national system of technical regulation is being transformed according to the rules of the Eurasian Economic Union based on the need to establish requirements, first of all, to marketable products involved in the trade turnover between the countries and included in the unified list. Electric power facilities, equipment and devices being part thereof do not belong to such products.

The analysis of European and North American experience reveals that reforms of electric power relations were everywhere accompanied by establishing a system of regulatory and engineering provisions. Almost every country has a developed system of organizational and technical standards and rules established by binding national documents. The said system is distinguished by complex statutory regulation and continuous updating.

Russia’s electric power industry also needs effective mechanisms to establish the branch regulatory technical framework and update it. A number of binding regulatory documents need to be adopted to create a regulatory technical framework of the electric power industry.

In 2011, relations associated with development, adoption, application and execution of requirements to provision of reliability and safety of electric power systems and electric power facilities were excluded from the scope of Federal Law “On Technical Regulation”. Moreover, the Government of the Russian Federation is empowered to approve rules of technological operation of electric power systems. These rules drafted by the system operator generated intense discussions and partly resistance of electric power producers (as regards stricter rules and higher possible costs of generating companies). Currently, the document has been presented to the Government of the Russian Federation, which is expected to put an end to this dispute. Implementation of the said rules will also require updates of the regulatory technical framework at the sectoral level.

Meanwhile, today’s Federal Law “On the Electric Power Industry” defines no relevant powers of federal executive bodies, without which the branch cannot develop and approve the obligatory requirements fundamental for preservation of the branch technical unity and its development.

Federal Law “On the Electric Power Industry” needs to be amended with a view to empowering the Government of the Russian Federation or its authorized federal executive bodies to establish the obligatory requirements in the electric power industry.

Pursuant to a draft federal law developed by the Ministry of Energy of the Russian Federation, the Government of the Russian Federation or its authorized federal executive bodies shall be empowered to establish the obligatory requirements to provision of reliability and safety of electric power systems and electric power facilities.

Pursuant to the draft law, the said obligatory requirements include requirements to operation of electric power systems, electric power facilities and consumers’ energy-consuming installations being part thereof, federal standards and rules of safety of electric power facilities and consumers’ energy-consuming installations, requirements to stability and reliability of electric power systems and to planning of their development, requirements to modes and parameters of operation of electric power facilities, to relay protection and automation, including emergency control and security automation, requirements to staff relations in the electric power industry.

Adoption of this draft federal law will help to create legal mechanisms for establishing unified “rules of the game” for industry players, ensuring stable operation and developing the electric power industry, increasing reliability of operation of the energy system, safety of operation of electric power facilities and reliability of power supply to consumers, modernizing the electric power industry and introducing advanced technologies.



[1] Lakhno, P.G. Energy Law of the Russian Federation: Formation and Development. Moscow: Moscow University Press, 2014, p. 179 (in Russian).

[2] Federal Law dd. December 26, 2008 No. 294-ФЗ “On Protection of Rights of Legal Entities and Individual Entrepreneurs in Exercising State Control (Supervision) and Municipal Control” // Collection of Legislative Acts of the Russian Federation, 2008, No. 52 (P. I), Art. 6249 (in Russian).

[3] Resolution of the Government of the Russian Federation dd. December 1, 2009 No. 977 “On Investment Programs of Electric Power Entities” // Collection of Legislative Acts of the Russian Federation, 2009, No. 49 (P. II), Art. 5978 (in Russian).

[4] Federal Law dd. March 26, 2003 No. 35-ФЗ ‘On the Electric Power Industry” // Collection of Legislative Acts of the Russian Federation, 2003, No. 13, Art. 1177 (in Russian).

[5] Federal Law dd. December 27, 2002 No. 184-ФЗ “On Technical Regulation” // Collection of Legislative Acts of the Russian Federation, 2002, No. 52 (P. I), Art. 5140 (in Russian).

References:

  1. Lakhno, P.G. Energy Law of the Russian Federation: Formation and Development. Moscow: Moscow University Press, 2014, p. 179 (in Russian).