CIVIC NETWORK OPORA AND UKRAINE CRISIS MEDIA CENTER THE COST OF HEATING Where does the money paid for heating go? How to control monopoly?

1. CIVIC NETWORK OPORA AND UKRAINE CRISIS MEDIA CENTER
THE COST OF HEATING
Where does the money paid for heating go?
How to control monopoly?
The main problem that energy sector reforms are to fight with is monopolies.
We have only one company to supply heating, one to supply electricity and one to
supply gas. A monopolist can invent a million ways to include whatever they want in a
tariff: from "Mercedes" for the management to railway carriages with screws and clamps
at excessive prices. The recently adopted law on tariff transparency obliges suppliers
and the regulator - NKREKP - to explain in great detail what we pay for. But due to an
atmosphere of constant distrust Ukrainians have a feeling that we still do not know
everything. The Civic Network OPORA experts decided to analyze in detail the heating
tariffs of one monopolist, JSC Kyivenergo, which supplies heating to most residents of
the capital in order to separate what is open and what is in the "gray zone" of
expenditures.
Our expenditures.
Kyivenergo
Can a consumer find out where the money paid for heating goes?
Photo: WHAT DOES ECONOMY CONSIST OF? Kyivenergo is a company that, in fact, uses
the Soviet system of heating production and distribution of heating, hot water and electricity.
In the near future, heating will be supplied to our apartment buildings by the same boiler
facilities and CHPs as 20, 30, 50 years ago.
Energy reforms will lead (hopefully) to a full-fledged competition one day. But so far,
most buildings depend on the old Soviet system, which is often in private hands. Much
of the heating tariff is the price of gas (or coal). But not only this, as power distribution
companies include in them considerable expenditures on staff salaries, maintenance of
networks, upgrading technology and investment programs.
How can we control whether they are correct? What do we pay for? Formally, the data
are open as the law provides tariff transparency. But only hard work of independent
analysts can help to understand "open" data.
OPORA did this using the example of Kyivenergo heating tariffs. We found quite a lot.
But not all data were open indeed. The draft gives clear recommendations on who
should do what to solve the problem. We recommend that journalists and experts in
each city carry out the same analysis of their heating suppliers.

2. STRUCTURE
Do we know how each single hryvnia paid for heating is allocated?
Photo: Starting July 1, 2016 central heating tariff is 1416, 96 UAH per 1 gigacalorie (including
VAT) for residents of apartment buildings equipped with a communal meter and 32,97 UAH
(including VAT) per 1 square meter per month during the heating season for residents of
apartment buildings without metering devices.
Every time we pay for a heating gigacalorie, the money should be allocated according to
a tariff structure approved by NKREKP. The price includes the cost of fuel and
electricity, staff salaries, the cost of investment programs, current expenditures, etc.
The structure is available both on the monopolist’s website and on the regulator’s
special website.
As a result, everyone should get a quality service: the temperature of 18 degrees
Celsius (and 20 degrees in the "corner" apartments).
Formally, the legal requirements for the promulgation of the structure are fulfilled: the
illustration shows that most of the money goes to procure gas, part of it to pay wages
and electricity. The rest is spent on consumables, repairs and other necessary
expenses.
Overall, the tariff distribution looks clearly and effectively on the monopolist’s website:
With graphics http://kyivenergo.ua/te-home/infotsentr
details http://kyivenergo.ua/te-home/opalennya
Interaction http://kyivenergo.com/infografic/index_ua.html
and financial report http://kyivenergo.com/uk/kompaniya/ofitsiyni-dokum...
However, this does not mean that the monopolist’s expenditures are open for the
consumer. Kyivenergo reports and NKREKP data do not provide enough figures.
Figures to show real expenditures in the monopolist’s main "problem areas".
GREY ZONE 1: REPAIRS
In order to maintain the system,we should regularly spend money on
its maintenance. But how much?
Customers themselves pay for the monopolist’s customer service offices. But it is impossible to
find out the precise amount.
Repairs of aging infrastructure are what a lot of institutions like doing. After all, hardly
anybody will doubt this need. However, we would like to know what percentage of each
paid hryvnia goes to repairs, what to support the consumer heat main, what to purchase

3. spare parts, etc. This information should be included in the structure of tariffs for
services.
The components of the heating tariff are approved by NKREKP Resolution number
1101 of June 9, 2016. This document also defines the structure of the tariff, under which
residents of the capital pay Kyivenergo for heating and water supply (Annex No. 89).
The structure of tariffs for thermal energy, which the company produces and supplies to
the population, is also known.
Similarly, you can find the structure of other suppliers’ tariffs for thermal energy and
central heating on NKREKP website.
The Civic Network OPORA wanted to analyze the "execution", i.e. compare actual
expenses with planned, match them with the tariff and investigate how the money paid
by Kyiv residents were actually spent.
The tariff implementation is reflected in the income statement and performance of the
licensed activities budget (form number 8 NKP-ZHKK). Unfortunately, this report is not
public. To get it, OPORA analysts sent an information request to NKREKP.
Let’s move on. Tariffs changed twice in 2015 (NKREKP Resolution number 146 of
17.10.2014 and NKREKP Resolution number 1171 of 31.03.2015), therefore the report
presents consolidated annual figures.
Another obstacle for the qualitative analysis was that the report form is different from the
approved structure of the central heating tariff.
What does it mean? Only NKREKP can fully analyze how tariff funds are used
compared to the approved structure.
If we also want to understand where the money we paid goes, we should correlate the
tariff structure and report data and describe this with as much detail as possible.
The usual analysis of expenditures shows purchases at excessive prices.
What is the problem?
Since we do not know the percentage allotted to repairs and maintenance of
infrastructure, we cannot compare how much we have spent. When you operate a car,
you can compare the amount of repair expenditures a year, for example, the amount of
a new car loan. In case with a monopoly, it does not provide such information, so we
just know that Kyivenergo spent 62 million UAH on repairs. We cannot compare this
with anything else. We can only analyze procurement for the repairement itself,
because both the previous reporting systems and the ProZorro system give activists
such mechanisms.

4. It was through the analysis of procurement that we could find out, for example, that one
supplier had received more than half of the 62 million UAH spent on the
procurement of spare parts in 2015. Moreover, some of the purchases proved to be
twice as expensive as similar goods in online stores.
GREY ZONE 2: INVESTMENT PROGRAM
The system should be updated to exclude air heating.
But how to measure a result?
Photo: Investment program analysis. Click to enlarge the image
Investment program means that you entrust your own money to Kyivenergo workers
and managers for them to invest it in the effectiveness of the whole system, i.e., to
replace pipes, insulate the system, or update heat generation.
How can we be certain that the measures provided by the investment program are
really effective and will reduce losses?
In the Ukrainian realities, everything is settled among Kyivenergo and NKREKP on the
basis of reports and calculations to be submitted for the approval of the investment
program.
Photo: An update of heating pipe mains is a national problem No. 1. We lose more heat than any other
country in Europe. It is the investment programs that are to ensure this.
What is the problem?
Kyivenergo investment program for 2015 totaled 243 million UAH.
An estimated output of the investment program is 45 million UAH savings a year.
Money invested ensured a fuel saving of 982.98 tons.
The total financing of the Kyivenergo investment program comprised 71% of the
projected financing.
We cannot confirm the investment efficiency. Everyone (including pensioners and
breastfed babies) invested about 100 UAH in updating the infrastructure. But we do not
know what the real saving was.
Who should monitor the situation and account before the citizens?
It is the responsibility of NKREKP – the National Commission for State Regulation in the
Energy Sector.

5. Investment programs provide for measures that are to help reduce costs and pertain to
specific projects. Therefore, there must be a public report that would enable us to track
the effectiveness of these programs in general and specifically.
Only then society will understand why we should pay for rendered services on
time.
GREY ZONE 3: CONSUMPTION
To evaluate the fuel efficiency,it is necessary to know exactly and not
approximately how much we consumed.
The photo shows a thermal image made by well-known expert Svyatoslav Pavlyuk a few years
ago, on a frosty winter day. On this photo is a heating main that is heated up to 90 degrees in
some areas. "To heat air" is not just a phrase, it is a reality. We are paying for air heating,
because in fact, this heat consumption is not metered.
Now the transportation heat loss rate exceeds the standard value through deterioration of the
system.
If you noticed, the heat price is available in two versions: for a gigacalorie and "for
heating per 1 square meter." When charges for public utility services are calculated
according to "the standard value" without a service quality monitoring, it results in
overpaying for a poor-quality service. The lack of communal heat meters is a serious
problem.
In 2014, Kyivenergo planned to install 541 communal heat meters in the capital. At the
beginning of December 2014, 46.8% of Kyivenergo consumers were equipped with heat
meters. Unfortunately, not all companies fulfill their obligations on installing heat meters.
It should be noted that Kyivenergo is working to ensure proper heat metering. For
example, in 2015, 100% of heat meters provided for by the investment program were
installed.
Why is it so important to monitor the consumption? Because the cost of energy
resources behind the tariff depends on it. And it is just this information on the
consumption that is lacking in the tariff structure now.
More than needed energy can be produced and more than planned can be consumed.
But if we have the information on the consumption amount, we will manage to analyze
the efficiency of the investment program implementation.
SOLUTION
Our attempt to analyze the monopolist’s expenditures has revealed that, in fact, the law
does not work. In fact, the rates are not open yet. Despite the law on tariff setting
transparency, the data which NKREKP and the monopolist present for the analysis are

6. insufficient to accurately inform the consumers for what they pay. We know more than
we did a few years ago, but not enough yet. This is not a " treason." This is a situation
that can be solved by joint efforts. That is why NGOs and experts insist on the
continuation of reforms in the energy sector and housing and utilities infrastructure.
Some specific steps that will make the "grey zones" understandable are as follows:
STEP 1
To develop a reporting form, open and understandable for consumers. It is obvious that
the consumer cannot understand all the intricacies of heating companies. But the basic
distribution of cash flows should be open.
To open the data behind the rate of actual costs of energy resources in kind for
comparison.
To open the data on consumption of the so-called "primary energy resource": to explain
how much fuel has actually been consumed, and how much is behind the rate of its
consumption.
To open the reporting on the cost of production, transportation and heating supply to the
full extent, indicating the efficiency of the use of fuel and energy resources and ambient
air temperature. To analyze the effectiveness of the implemented investment program
measures; this report should be on each individual facility.
Responsible stakeholders:
NKREKP: the regulator can create such a format and make it mandatory.
The monopolists themselves can do it without any additional effort.
STEP 2
To ensure conditions for full heat metering: 100% installation of heat energy meters and
service quality monitoring.
We still pay according to the "standard values" of the so-called "average consumption."
Instead, we need a 100 percent heat metering. When we know what we pay for, we will
be able to monitor in the right way.
Responsible stakeholders:
NKREKP: the regulator has already been putting pressure on the monopolists.
Local authorities: have leverage over the monopolists.
The Verkhovna Rada of Ukraine: has been considering the law "On commercial
accounting of utility services."
STEP 3
To publish the data on winners of tenders for implementing the investment program and
repairs.

7. Responsible stakeholders:
The monopolists themselves can do this by joining ProZorro.
STEP 4
To perform a similar analysis of monopolist’s expenditures in your city.
Responsible stakeholders:
Journalists and NGOs in your city.
The Civic Network “OPORA” is ready to provide methodological support to
activists.
Ukraine Crisis Media Center is ready to provide professional support to
journalists.