Mosenergo Trims Investment After Regulator Caps Prices

Electricity producer Mosenergo is suspending plans to build four new turbines after regulators capped the price of power from a recently installed plant, a company spokesman said Friday.

A company source said that at the tariff allowed by the regulator, it would take Mosenergo more than 20 years to see a return on an investment of some $2 billion.

Power-hungry corporations such as steel and oil firms buy capacity offered by utilities at auction. They face intense cost pressure, however, amid the global financial crisis and are lobbying hard for state watchdogs to rein in growing electricity costs.

At the most recent capacity auction in December, Mosenergo, which is controlled by Gazprom, offered the output from two existing state-of-the-art turbines.

The Mosenergo source said the industry watchdog capped prices at 370,000 rubles ($11,500) per megawatt for one proposed turbine and at 402,000 rubles per megawatt for the other.

The source spoke on condition of anonymity as the regulator does not make the prices public from power auctions.

"We think that our [initial] offers were capped. On average, the price set for the new capacity is about a third lower than what we first offered. Aside from that, there was no clear methodology for making these adjustments," Mosenergo spokesman Vitaly Koskovetsky said in separate comments.

The firm's investment committee has already approved the partial suspension of its spending plans, which must still be finalized by the board of directors at its next meeting. The power sector's regulator, known as the Market Council, insisted in August that Mosenergo lower its asking price at the first capacity auction. After days of negotiation, they agreed on a price cut of 20 percent on Mosenergo's original offer. The watchdog at first demanded a 30 percent cut.