21 January 2016

Kubanenergo, the largest electricity distribution company within the Krasnodar region and the Adygea Republic, applied to the courts of first instance and courts of appeal requesting that an order dated December 2013 and issued by a regional energy commission — the Department of Prices and Tariffs of the Krasnodar Region (DPT of KR) which sets out the department’s calculations for electricity transmission tariffs for the Krasnodar region, should be ruled invalid. Kubanenergo retained K&Ps to challenge this order in the courts on their behalf as it applied to them.

Kubanenergo’s appeal was based on the argument that the tariffs were not correctly calculated and contravened laws of a higher judiciary. Kubanenergo was obliged to purchase electricity to compensate losses in the electricity network under its contract with Kubanenergosbyt. Under existing legislation, such costs may be compensated to network companies by being included when calculating capital gains and thus in determining tariffs for the next regulatory period. K&P’s client — Kubanenergo was facing costs of over US$27 million.

DPT of KR claimed that the cost of electricity was incorrectly calculated by Kubanenergosbyt and Kubanenergo did not have the right to offset their losses as capital gains. This claim contradicted the rulings of courts of three instances where Kubanenergo attempted to recover overpayment from Kubanernergosbyt. The judicial authorities ruled that under the contract between the two companies payment calculations made by Kubanenergosbyt were correct and the amount paid by Kubanenergo to purchase electricity may be considered as justifiable compensation for losses in the electricity network the company had incurred, thereby vindicating the position of K&P’s client.

K&P’s legal counsel consisted of preparing the necessary arguments which required in depth knowledge of the power industry. The firm’s lawyers were able to successfully contest the legitimacy of a statutory act of a regional energy commission which ultimately resulted in a favourable decision for K&Ps client and a significant financial remedy.