1. During 2012 the organization of on-site customer service was subject to the following changes:
   • in Vologdaenergo branch in December 2012 the customer service center (CSC) was opened in Cherepovets;
   • in Komienergo branch in order to create a comfortable environment for customer service the production department Southern Electric Grids of the branch increased the area of customer service center from 17 to 29 m²;
   • in Komienergo branch in November 2012 (in Trotsko-Pechersk village in Komi) customer reception center was opened in compliance with the requirements of Standard SRT 01.B1.03-2011. Earlier this center was located in Trotsko-Pechersk distribution zone at a considerable distance from the village.
2. Interactive consumer service was aligned with the Standard "Quality Management System. Centralized Customer Service System" of JSC IDGC of the North-West:
   • information was systematized, processed, prepared and edited: in the public domain in subsection "Regulatory Documents";
   • contact data of Customer Service Centers (CSC) were extended by interactive map of CSCs of JSC IDGC of the North-West;
   • information on the second form of distance feedback (hot-line "Turn on the light") was included;
   • a number of new services was launched on an electronic site of the Internet reception:
     • tool "To fill out an application of intent" enables online customers to receive comprehensive consultation on how to fill out technological connection or restoration service requests or to obtain new technical conditions, applications for installation, replacement and operation of electric power metering devices;
     • e-map of utilization of main substations contains information about the presence or absence of free capacity and technical characteristics of each main substation;
     • a unique interactive guide on energy efficiency is dedicated to the issues of energy efficiency and energy saving;
     • within the framework of child electrical injury prevention, a specialized portal "Make friends with electricity" was opened in Internet reception. The portal provides a single database of materials on child electrical injury developed in the JSC IDGC of the North-West executive apparatus and branches: training materials, books, brochures, magazines, stationery products, videos, flash-applications and computer games. In 2012, the number of views of Internet reception was about 90,000 and the number of unique visitors was 15,000. The site is visited by at least 1,200 consumers per month. Due to the unification and expansion of interactive services the Internet reception attendance increased by more than 3.5 times by the IV quarter of 2012.
3. In order to improve the quality of distance communication channels, the requirements for "hot lines" were defined in Order No.435 of August 22, 2012 on Increase of the Level of Transparency and Efficiency of Interaction with Service Consumers. The main requirement: "to eliminate interaction of operative control personnel with consumers". Hot-line operators are the employees of customer service centers (CSC). Operators were trained, a number of practical workshops were conducted, and regulations on interaction of "hot-line" operators with operative control personnel were developed.
4. In 2012, the service quality indicators established by the executive bodies of the constituent entities of the Russian Federation in the field of state tariff regulation in accordance with the regulations of all JSC IDGC of the North-West branches were achieved.

• in order to provide consumers with a complete, reliable and prompt information in 2013 it is planned to create a single Internet reception for "clients" of the executive apparatus and branches of JSC IDGC of the North-West,
• a launch of an interactive service "Personal Account" will help consumers, promptly and in convenient time, receive information on the processing of their applications for technological connection to the distribution network;
• in order to monitor consumers' opinions and suggestions on the service quality, on-site and distance surveys;
• in 2013-2014 the Company will open a unified call-center. In order to provide a single access point for distance phone service a single multi-line phone number of the call-center in the zone of responsibility of the Company will be organized. A call to the single phone number will be toll-free for a user. Each consumer will be able to obtain information about outages, consultation on grid connection and other company's activities.

Implementation of a new KPI system for the purpose of provision of financial incentives to all levels of management. The Resolution of the Board of Directors of the Company of October 30, 2012 (Minutes No.114/12) approved the system of key performance indicators (as well as the list and share of premiums, the method of calculation and the implementation assessment) for Director General and top managers.

The Company's business plan for 2013 was approved with regard to the implementation of the new KPI system.

On December 14, 2012 the Board of Directors (Minutes No.116/14) approved the target values of annual and quarterly KPIs for Director General and top managers of the Company for 2013.

In order to optimize the cost of and to maintain the repair program physical volumes at an appropriate level, to ensure the reliability of electricity supply facilities, the Company has performed activities for relocation of a part of work from contractors to own resources since 2008. For example, in 2008 the share of contracted works and the share of works performed using own resources were 64% and 36%, respectively, while in 2010 they were 37% and 63%. The ratio of contracted works to works performed using own resources has now reached the optimal value and further increase of the share of works performed using own resources would be inexpedient. It would require increased funding for repair operations, as there would be an additional necessity to increase the quantity of special equipment and special mechanisms and the number of repair and maintenance personnel in branches, to create specialized repair shops, etc.

In addition, in order to optimize costs in repair and maintenance operations, reconstruction materials and spare parts suitable for use and released in the process are reused.

Monetary funds saved as a result of purchasing activities are referred to perform additional works.

• creation of a full and efficiently structured database of equipment, keeping of up-to-date databases on implementation of planned and unplanned works, resources used (is implemented as part of a production asset management system);
• improvement of the accounting and analysis equipment damage system and development, on its basis, of measures to improve the reliability and efficiency of equipment operation;
• establishment of objective functional links between subsections and specialists to enable the entire control system maintenance and repairs to function effectively in a period of preparation and in the course of performance of works.

• standard formats of justification and monitoring of projects on the basis of a "risk matrix".

On November 10, 2011 the Board of Directors passed a resolution to determine the implementation of the construction management system for major investment projects as a priority area of the Company's activity.

The Company's Decree No. 595 of December 29, 2011 approved the following documents:

• the Regulation on Implementation of the Construction Management System for Major Investment Projects of JSC IDGC of the North-West;
• the nominees to position of project managers in Vologdaenergo and Komienergo branches of JSC IDGC of the North-West;
• the methodology instructions on drawing up the project charter;
• the Regulation on Working Groups, Technical Board, Steering Committee for the Construction of Major Investment Projects;
• the Regulation of the Procedure "Support of Designing Major Investment Projects";
• the Regulation of the Procedure "Implementation of the Technical Supervision of Construction of Major Investment projects".

Before June 26, 2012 the Program of Construction Management for Major Investment Projects Primavera was fully implemented and the information portal was launched.

Within the scope of the project management an action plan was drawn up and the three pilot projects were identified:

• construction of SS 110/35/10 kV "Yuzhnaya" and Overhead Line 110/35/10 kV in the Zasheksninsk District in Cherepovets (Vologdaenergo branch);
• construction of Overhead Line110/35/10 kV "Sokolovka-Pazhga" with the expansion of SS 110/35/10 kV "Sokolovka", SS 110/35/10 kV "Pazhga" (Komienergo branch);
• upgrade of SS 110/35/10/6 kV "Zapadnaya" (Vologdaenergo branch).

• a system of standards was created and measures for a comprehensive standardization of business processes of the Company were realized;
• a unified information consulting system was created, providing the company with all necessary legal and technical documents of external and internal origin, implemented a common information space in terms of regulatory and methodological support of the Company's activities;
• measures to optimize and unify the organizational model of the Company were implemented and improvement of organizational and functional structure was carried out;
• the system of oriented planning, monitoring, analysis and performance assessment was created and is regularly updated;
• the system of internal control and audit of the existing Company's management was organized and is supported;
• the Company organized, on a permanent basis, the conduct of audits of the quality management system, combining divisions of the executive apparatus and branches (including software), as well as conducting cross-audits of "Quality Management" business process.

Conduct of analysis of the effectiveness of the system used to monitor business processes to assess the Company's performance.

Building of the system of balanced parameters of performance and effectiveness assessment.

Self-evaluation of the Company's management system maturity level.

Automation of the system of planning and data recording through quality management system: reporting the results of business processes monitoring, the results of internal audits and monitoring procedures and activities coordination.

Development of the Company's integrated management system elements and the introduction of an integrated system based on the quality management system.

• as a tool for collecting and entering data in the PAMS and certification, "Forga-Energy" software product was defined;
• contracts have been signed by each of the Company's branch with LLC Thomas Lewtas for the purchase and maintenance of computer software "Forga-Energo" PAMS, staff training was carried out by the software provider;
• an agreement was concluded with LLC AMC for services on PAMS methodological support and training on PAMS methodology by efforts of the contractor;
• the Production Asset Management Standard of JSC IDGC of the North-West was developed on the basis of the typical standard of production asset management of subsidiaries and affiliates of JSC Holding IDGC, engaged in the transmission and distribution of electric energy, consistent with JSC Holding IDGC; on October 26, 2012 the Board of Directors of the Company approved the Production Asset Management Standard of JSC IDGC of the North-West;
• on August 23, 2012 the Board of Directors decided to determine the priority of the implementation of Company's production asset management system;
• as of December 31, 2012 collection of statistical data on the core network equipment and distribution network equipment involved in the formation of the production program in 2013 in the existing information systems was carried out; 97% of data were introduced to and converted in the "Forga-Energo" software product; the collection of dynamic data on equipment and customers was made and is now being submitted to "Forga-Energy";
• consumer data is entered in "Forga-Energo". Requests for provision of customer data were sent to TGOs.

Ensuring the adequacy of data on equipment and consumers entered in "Forga-Energo" to calculate the equipment condition index (CI) for assessment of the condition of technical equipment, calculation of the consequences of equipment failure and the formation of the production program for 2014, based on the existing techniques.

Making suggestions on the adjustment of production programs for 2014 on the basis of CI and the consequences of equipment failures.

Taking actions for confirmation of the Company's quality management system certificate.

Preparation of organizational and technical actions for implementation and certification of the integrated quality management system.

• from 2010 — switching Novgorodenergo branch to RAB-regulation;
• from 2011— switching Pskovenergo and Vologdaenergo branches to RAB-regulation.

In May 2012 in accordance with Resolution No. 1178 of the Government of December 29, 2011 measures for reloading of long-term parameters of regulation of Vologdaenergo, Novgorodenergo and Pskovenergo branches with extension of the RAB-regulation period until 2017 were taken.

In summer of 2012 the Company referred proposals to the regulating authority of the Republic of Karelia on the switch of Karelenergo branch to RAB-regulation. In accordance with the Procedure for Approval, the Federal Tariff Service of Russia was carrying out works on substantiation of such switch during September. Based on the Resolution of the Management Board of the Federal Tariff Service of Russia of October 2, 2102 Karelenergo branch of JSC IDGC of the North-West Karelenergo was switched to RAB-regulation from November 01, 2012.

In 2011 RUB 56 million were referred for consolidation of electric grid assets. As a result, in 2011 the Company acquired 866 km of overhead and cable transmission lines and transformer substations of the total capacity of 86 MVA, mainly, through lease agreements made with 20 municipal units. Moreover, the Company acquired over 70 energy facilities — power transmission lines and transformer substations which were not serviced by their owners in a proper manner. Power losses in such grids were unacceptably high, mainly, due to poor technical condition, irrational utilization and non-optimal consumer supply scheme.

In 2012 RUB 166 million were referred for consolidation of electric grid assets. As a result, in the reporting year the Company acquired 1,600 km of overhead and cable transmission lines and transformer substations of the total capacity of 107 MVA, mainly, through lease agreements made with municipal units.

The Company applies a unified technical policy to all equipment acquired and accepted for operation, implements capital repair programs, develops and implements investment programs. The level of excessive loss in the obtained electric grids is being reduced.

At the moment the centralized management of the energy businesses providing for both minimization of costs due to the economy of scale and typical solutions and high reliability of the system performance due to a unified management vertical and the absence of conflicts of interest is more preferable for the industry.

The Investment Program provides for consolidation costs in the amount of RUB 8.3 million in 2013. It is planned to acquire 19.7 km of transmission lines and 10 transformer substations of the total capacity of 7.1 MVA.

The Company's business plan for 2013 provides for expenses in the amount of RUB 6.1 million to lease 3,400 km of transmission lines and transformer substations of the total capacity of 7.1 MVA.

Overall, the Company's Consolidation Programs provide for increase of capacity by 3,500 MVA and increase of the length of lines by 15 thousand km until 2017.

As a result of acquisition of small and ineffective TGOs, the share of TGOs is expected to decrease from 31% to 24% of revenue of end consumers.

In the end, consolidation of grid assets will lead to decrease in tariffs for consumers.

• for half a year (from 2011);
• for each quarter (from 2012).

The first semi-year financial statements prepared in accordance with IFRS were published for the first 6 months of 2011.

Implementation of the project for automation in order to keep parallel accounting and preparation of consolidated statements according to IFRS on the base of Corporate Information System of Tax and Accounting Records Energo (on the platform of 1C: Enterprise 8) enables the Company to prepare quarterly statements according to IFRS, to reduce the period of preparation of consolidated financial statements in accordance with IFRS, to increase its quality and to reduce expenses relating to its preparation, control and audit.

The first quarterly financial statements prepared in accordance with IFRS were published for 9 months of 2012.

Two R&D projects were realized, one is fully completed and the other one is at the stage of completion. Research and development work "Development of Methodology of Effective Management and Reliability of Electric Grids on the Basis of Statistical Analysis of Retrospective Information on Electric Equipment Operation of JSC IDGC of the North-West" was carried out in 2012. The cost of the work is RUB 1 million.

Research and development work "Optimization of Construction and Technology of Production of Outdoor Isolating Switch of a Cutoff Type for 10 kV with Built-in Grounders not Requiring Blocking" the cost of which is RUB 8.4 million — work completion documents are being executed. Patent No. 118791 of the Russian Federation for utility model "High-Voltage Isolating Switch" was obtained. The patent holder is JSC IDGC of the North-West.

• "Methodology Instructions for Assessment of Target and Actual Efficiency of Electric Energy Loss Reduction Actions";
• "Regulation on Development, Substantiation, Approval and Adjustment of the Company's Energy Saving and Energy Efficiency Increase Program".

• the Energy Saving and Energy Efficiency Increase Programs for 2011 and for the period until 2015;
• the Energy Saving and Energy Efficiency Increase Programs for 2012 and the forecast for 2013-2017.

• to adjust the Energy Saving and Energy Efficiency Increase Program for 2013 and the forecast for 2014-2018 taking into account results achieved in 2012;
• development of Energy Saving and Energy Efficiency Increase Program for 2014 and further years.

• by implementing the practice of use of funds saved in realization of measures for reduction of energy consumption for financing of the energy saving program as it relates to the reduction of energy consumption;
• - by referring funds saved in tender purchasing activities insofar as it relates to measures aimed at loss reduction.

During the implementation of "Program for Prospective Development of Energy Metering Systems in the Retail Energy Market in Distribution Grids of the Company" in 2012 installation and automation of 13,744 meter points with total expenses of RUB 240,210 thousand. The 2012 effect was 11.33 million kWh.

Within the framework of measures provided by "Program for Prospective Development of Energy Metering Systems in the Retail Energy Market in Distribution Grids of the Company" it is planned to perform works for creation/modernization of information and metering complexes of energy metering on 123,730 meter points and to automate data collection on 124,913 meter points.

Total expenses in 2012-2017 will be RUB 3,060.204 million (excluding VAT).

In implementation of measures provided by "Program for Prospective Development of Energy Metering Systems in the Retail Energy Market in Distribution Grids of the Company", the reduction of costs for loss purchase in 2012-2017 and transmission volumes increase will be RUB 700.52 million.

The expected results of "Program for Prospective Development of Energy Metering Systems in the Retail Energy Market in Distribution Grids of the Company" are: obtainment of accurate information on volumes of transmitted electricity and energy loss reduction in the Company's grids by 234.30 million kWh and reduction of a metrological component of loss due to inaccurate energy metering.

In 2010 software product "Technological Connection Process Automated System" was put into commercial operation.

Since July 1, 2012 an option for sending a preliminary request via JSC IDGC of the North-West website has been provided.

Heads of regional electric grids of all branches undergo advanced trainings in the area of technological connection on a regular basis.

In certain branches with the highest number of applicants of up to 15 kW, mobile units were created in order to implement these connections using own resources.

Decree No. 554 of October 15, 2012 of JSC IDGC of the North-West approves updated standard forms of agreements with annexes.

Decree No. 466 of September 06, 2012 approves a standard form of the technological connection agreement with FGC and agreement for the procedure of interaction between the parties.

A working group for optimization of technological connection activities was created.

In 2012 works for updating and closing the effective technological connection agreement under which the applicants failed to fulfill their obligations were performed.

• to organize works for execution and closing of technological connection agreements for energy receivers of applicants with capacity of up to 670 kW (inclusive) to electric grids of JSC IDGC of the North-West;
• to approve a regulation on the procedure for preparation and approval of technological connection agreements made in the executive apparatus of JSC IDGC of the North-West;
• to approve a regulation on the procedure of execution of technological connection agreements.

Centralization of technological connection software product Technological Connection Automated Management System (TC AMS).

All required information (technological connection tariffs, standard forms of documents, effective laws regulating technological connection activities) is placed in the Internet reception in section "Technological Connection". For more information on the Internet reception see clause 1.2.

The grid organization also places all required information in the Internet reception in accordance with the Information Disclosure Standard.

An interactive map of utilization of main substations was developed and placed on JSC IDGC of the North-West website.

In order to increase the responsibility of the Company's management for capacity unused by consumers the Resolution of the Board of Directors of December 14, 2012 (Minutes No.116/14) approved target values of annual and quarterly key performance indicators "Utilization of New Capacities" for Director General and top managers of the Company.

A standard form of the agreement for technological connection by capacity redistribution was approved.

• The Collective Agreement of JSC IDGC of the North-West for 2009-2011 and the Collective Agreement of JSC IDGC of the North-West for 2012 provided for a list and amounts of payments exceeding those provided by the Industry Tariff Agreement.
• The minimum monthly tariff rate (MMTR) was indexed in accordance with the consumer price index in the RF of the basis of joint informational letters of the Association RaEl and VEP (All-Russian Electric Union).

The parties of the social partnership made an agreement on the extension in 2013 of the term of the Collective Agreement of JSC IDGC of the North-West for 2012.

The Company's expenses under the Collective Agreement in 2013 will, according to the plan, be RUB 502.6 million.