Translate
Text Highlighter

Bookmark

PDF

Share

Report a problem
AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • 1. Shri U.K Tyagi, PGCIL
  • 2. Shri C. Kannan, PGCIL
  • 3. Shri P.C Pankaj, PGCIL
  • 4. Shri R.T Agrawal, PGCIL
  • 5. Shri Sunil Agrawal, PGCIL
  • 6. Shri M.M Mondal, CM (Fin), PGCIL
Judges
  • Ashok Basu
  • Member
  • Bhanu Bhushan
  • Member
  • Member
  • A.H Jung
Acts
  • 3.09% 3.09% 3.09% 3.09% 3.09% Interest 78.36 50.06 21.75 3.80 0.00DEPRECIATION22. Sub-clause (a) of clause (ii) of Regulation 56
  • sub-clause (b) of clause (ii) of Regulation 56
Are you a practicing lawyer?
Enhance your digital presence and reach by creating a Casemine profile.
Upload pleading to use the new AI search
Click here to upload
Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • 1. Shri U.K Tyagi, PGCIL
  • 2. Shri C. Kannan, PGCIL
  • 3. Shri P.C Pankaj, PGCIL
  • 4. Shri R.T Agrawal, PGCIL
  • 5. Shri Sunil Agrawal, PGCIL
  • 6. Shri M.M Mondal, CM (Fin), PGCIL
Judges
  • Ashok Basu
  • Member
  • Bhanu Bhushan
  • Member
  • Member
  • A.H Jung
Acts
  • 3.09% 3.09% 3.09% 3.09% 3.09% Interest 78.36 50.06 21.75 3.80 0.00DEPRECIATION22. Sub-clause (a) of clause (ii) of Regulation 56
  • sub-clause (b) of clause (ii) of Regulation 56
See more information ...
Smart Summary

Structured Summary of the Opinion — Petition No. 126/2004

Factual and Procedural Background

The petition seeks approval of transmission charges for the transmission system associated with Farakka (I & II) STPS in the Eastern Region for the tariff period 1.4.2004 to 31.3.2009, under the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004 (the "2004 regulations"). The petitioner also prayed for permission to continue billing transmission charges on the same basis as on 31.3.2004 pending the determination of tariff in the present petition. No other specific relief was sought.

Background facts recorded in the opinion include:

  • Central Government (Ministry of Power) approved a revised cost estimate for the transmission system on 19.8.1997 at Rs. 28,589.00 lakh (including FERV component Rs. 5,798.00 lakh).
  • The Commission had earlier fixed annual transmission charges for the period 1.4.2001 to 31.3.2004 in its order dated 4.8.2003 in Petition No. 12/2002 at a gross block of Rs. 32,313.96 lakh (including additional capitalization of Rs. 1,712.96 lakh for 1997–2001 FERV).
  • The petition set out the transmission lines, their dates of commercial operation and total line length used for O&M calculations (total 1,539 circuit-km).
  • Replies to the petition were filed by West Bengal State Electricity Board (WBSEB) and Bihar State Electricity Board (BSEB). Notices were published; no public comments were received.
  • The order disposes Petition No. 126/2004.

Legal Issues Presented

  1. Whether the Commission should approve the transmission charges for the Farakka (I & II) transmission system for the period 1.4.2004 to 31.3.2009 under the 2004 regulations.
  2. Whether the petitioner should be permitted to continue billing transmission charges on the same basis as charged on 31.3.2004 pending final determination.
  3. Whether capitalization of Foreign Exchange Rate Variation (FERV) up to 31.3.2004, calculated in accordance with Accounting Standard-11 (AS-11), is admissible for tariff purposes.
  4. Determination of the appropriate debt-equity ratio and related division of notional debt and equity for tariff computations for the existing project as on 1.4.2004.
  5. Computation and allowance of the principal tariff components under the 2004 regulations: return on equity, interest on loan, depreciation (including useful life and residual value rules), advance against depreciation, O&M expenses, and interest on working capital.

Arguments of the Parties

Petitioner's Arguments

  • Filed for approval of transmission charges for 2004–2009 under the 2004 regulations.
  • Prayed for permission to continue billing on the same basis as at 31.3.2004 pending final tariff determination (provisional billing already in place under interim directions).
  • Submitted capital cost and additional capitalization figures, and claimed FERV (Rs. 416.98 lakh for 1.4.2001–31.3.2004) in accordance with AS-11; used prior admitted capital expenditure (Rs. 32,313.96 lakh) and added the FERV figure to arrive at gross block Rs. 32,730.94 lakh for computation as on 1.4.2004.
  • Claimed tariff calculations on a basis of notional debt-equity split of 50:50 (consistent with earlier Central Government/Commission treatment and the Net Fixed Asset approach as on 1.4.1997).
  • Provided detailed schedules and calculations for components including depreciation, interest on loan, return on equity, O&M expenses, and interest on working capital.
  • Asserted that a wage revision effective 1.1.2007 would increase employee cost and sought revision or allowance of extra cost due to wage revision (alternate relief: allow increase as per actuals). The Commission did not decide this issue at this stage.

Respondents' / Other Parties' Arguments

  • Bihar State Electricity Board (BSEB) specifically objected to capitalization of FERV. The opinion records and addresses this objection.
  • West Bengal State Electricity Board filed a reply; the opinion records its filing but does not set out any detailed argument from WBSEB in the text.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Commission's analysis proceeds by applying the relevant provisions of the 2004 regulations and earlier applicable provisions where they govern projects existing up to 31.3.2004. The opinion records the step-by-step application of regulatory provisions to each tariff component as follows:

Capital Cost and FERV

  • Applied clause (2) of regulation 52 of the 2004 regulations: for projects existing up to 31.3.2004, the project cost admitted by the Commission for determination of tariff prior to 1.4.2004 forms the basis for tariff determination.
  • The petitioner considered the capital expenditure of Rs. 32,313.96 lakh admitted by the Commission in its order dated 4.8.2003. The petitioner did not claim additional capitalization for works but did claim additional capitalization on account of Foreign Exchange Rate Variation (FERV) of Rs. 416.98 lakh for 1.4.2001–31.3.2004.
  • Addressing BSEB's objection to capitalization of FERV, the Commission found the objection not valid: the FERV calculation by the petitioner complied with AS-11 applicable up to 31.3.2004 and matched the petitioner's submitted calculations. Consequently the claim was allowed for tariff calculations.
  • On this basis the gross block of Rs. 32,730.94 lakh (including the Rs. 416.98 lakh FERV) as on 1.4.2004 was considered for tariff purposes.

Debt–Equity Ratio

  • Referred to regulation 54 of the 2004 regulations which provides that, for existing projects, the debt–equity ratio considered by the Commission for fixation of tariff for the period ending 31.3.2004 shall be used for determination of tariff.
  • The petitioner based its claim on a 50:50 debt–equity ratio, as considered by the Central Government on Net Fixed Assets as on 1.4.1997 and as considered by the Commission in the earlier order dated 4.8.2003. The petitioner divided additional capitalization (FERV amounts) into debt and equity on a 50:50 basis for tariff calculation.
  • Following this approach, Rs. 13,129.47 lakh was considered as equity for the present petition's tariff calculations.

Return on Equity (ROE)

  • Applied clause (iii) of regulation 56 of the 2004 regulations: ROE shall be computed on the equity base determined under regulation 54 at 14% per annum.
  • Equity invested in foreign currency is to be allowed a return in the same currency and paid in INR based on the prevailing exchange rate on the billing due date (as stated in the regulations).
  • The petitioner’s claimed equity base of Rs. 13,129.47 lakh (after FERV adjustments) was accepted and the Commission allowed ROE of Rs. 1,838.13 lakh for each year of the tariff period.

Interest on Loan

  • Applied clause (i) of regulation 56 of the 2004 regulations, which prescribes loan-wise computation, opening loan outstanding as on 1.4.2004, normative repayment for 2004–09, and provisions on loan swapping and moratorium treatment.
  • The petitioner’s method: opening gross loans and cumulative repayments up to the previous year as admitted in the 4.8.2003 order were taken; adjustments were made for notional loan components arising out of FERV; a weighted average rate of interest was worked out based on actual loan interest rates as per the admitted debt–equity allocations in the earlier order.
  • The Commission’s detailed computation steps include:
    • Taking loan details submitted by the petitioner (letter dated 31.8.2005) for net outstanding loan as on 31.3.2004 and repayment schedules for 2004–09.
    • Adding 50% of the notional loan arising out of FERV to the loan outstanding to arrive at total notional loan.
    • Considering proportional repayment of the notional loan up to 31.3.2004 consistent with actual loan repayment.
    • Working out repayments for 2004–2009 for the notional loan using a formula: maximum of (depreciation) or (notional net loan at beginning of year × (actual repayment of respective loan / actual net respective loan at beginning of year)).
    • Applying the weighted average rate of interest on the notional average loan during the year to arrive at interest on loan for each year.
  • The resulting interest on loan figures (rounded in the opinion) are: 2004–05: Rs. 78.36 lakh; 2005–06: Rs. 50.06 lakh; 2006–07: Rs. 21.75 lakh; 2007–08: Rs. 3.80 lakh; 2008–09: Rs. 0.00 lakh (loan fully repaid during 2007–08).

Depreciation

  • Applied sub-clause (a) of clause (ii) of regulation 56 of the 2004 regulations which prescribes straight line depreciation on historical cost, residual value 10% (depreciation allowed up to 90%), land excluded from depreciable value, inclusion of allowed FERV up to 31.3.2004 in historical cost, and rules on spread of remaining depreciable value after loan repayment.
  • Land cost included in capital cost: Rs. 684.27 lakh (opinion uses 693.10 lakh in summary sheet — the order text applies 684.27 lakh in the calculation paragraph). The opinion calculates the gross depreciable value as 90% × (gross block minus land cost) = Rs. 28,834.05 lakh (as per the textual calculation in the opinion).
  • Cumulative depreciation and AAD recovered up to 31.3.2004: Rs. 16,539.62 lakh; remaining depreciable value as on 1.4.2004: Rs. 12,294.43 lakh.
  • Depreciation for 1.4.2004 to 31.3.2008 computed at 2.80% per annum, resulting in Rs. 917.54 lakh per year for each of 2004–05 through 2007–08. Since the loan fully repays during 2007–08, depreciation for 2008–09 is computed by spreading the balance depreciable value (Rs. 8,624.29 lakh as on 1.4.2008) over the remaining useful life (16 years as on 1.4.2008), giving depreciation of Rs. 539.02 lakh for 2008–09.

Advance Against Depreciation (AAD)

  • Referred to sub-clause (b) of clause (ii) of Regulation 56: AAD is permitted only if cumulative repayment up to a year exceeds cumulative depreciation up to that year, and is limited to the difference between cumulative repayment and cumulative depreciation, subject to a ceiling.
  • The petitioner did not claim AAD. The Commission accordingly held that the petitioner is not entitled to AAD for the tariff period.

Operation & Maintenance (O&M) Expenses

  • Applied clause (iv) of Regulation 56 which prescribes norms for O&M: expressed in Rs. lakh per ckt-km for line length and Rs. lakh per bay for bays.
  • The petitioner claimed O&M for 1,539 ckt-km and 17 bays (locations and bay numbers identified in the opinion). The Commission allowed O&M on that basis and applied the yearly per-unit norms shown in the order.
  • Computed O&M totals (for lines + bays) for each year, yielding the annual O&M figures included in the tariff summary (e.g., 2004–05: Rs. 827.39 lakh; rising thereafter to Rs. 968.67 lakh in 2008–09).
  • The Commission noted the petitioner's wage revision claim effective 1.1.2007 and expressly declined to decide the matter at this stage, indicating the petitioner may seek relief at an appropriate time in accordance with law.

Interest on Working Capital

  • Applied Regulation 56(v) on working capital components and interest rate: components include maintenance spares, one month O&M, and receivables equivalent to two months' average billing on target availability level. Rate of interest is normative and equals SBI PLR as on 1.4.2004 (or on the commercial operation date where later).
  • For maintenance spares, since element-wise capital expenditure at date of commercial operation was not available, the Commission used the earliest available capital expenditure of Rs. 306.01 crore as on 1.4.1997 as "historical cost" and applied 1% escalated at 6% p.a. to derive maintenance spares as on 1.4.2004 (Rs. 460.13 lakh) and thereafter for each year.
  • O&M one-month component and receivables (two months) were computed from the O&M and transmission charge claims respectively.
  • The petitioner’s claimed interest on working capital @ 10.25% (SBI PLR as on 1.4.2004) was allowed and applied to the normative working capital totals to derive the interest amounts for each year (e.g., 2004–05: Rs. 118.81 lakh; 2008–09: Rs. 127.15 lakh as per the computations in the opinion).

Overall Tariff Computation and Administrative Directions

  • The Commission prepared a summary of allowed tariff components (depreciation, interest on loan, ROE, AAD, interest on working capital, O&M) and produced an annual transmission charge for each year of the tariff period (summary figures are provided in the order and reproduced in the summary sheet annexed to the opinion).
  • The Commission noted that the petitioner was already billing the respondents on a provisional basis under interim directions; the provisional billing is to be adjusted in the light of the final tariff approved by the Commission.
  • The Commission also recorded that in addition to the approved transmission charges, the petitioner shall be entitled to other charges (income-tax, incentive, surcharge and other cess and taxes) in accordance with the 2004 regulations, and these charges will be included in the regional transmission tariff for the Eastern Region shared by regional beneficiaries as per the 2004 regulations.

Holding and Implications

Holding:

TRANSMISSION CHARGES FOR THE FARAKKA (I & II) TRANSMISSION SYSTEM FOR THE PERIOD 1.4.2004 TO 31.3.2009 WERE APPROVED by the Commission in accordance with the computations and regulatory provisions discussed in the opinion.

The core tariff figures allowed (as summarized in the opinion) are:

Tariff Component / Year 2004–2005 (Rs. lakh) 2005–2006 (Rs. lakh) 2006–2007 (Rs. lakh) 2007–2008 (Rs. lakh) 2008–2009 (Rs. lakh)
Depreciation 917.54 917.54 917.54 917.54 539.02
Interest on Loan 78.36 50.06 21.75 3.80 0.00
Return on Equity 1,838.13 1,838.13 1,838.13 1,838.13 1,838.13
Advance Against Depreciation 0.00 0.00 0.00 0.00 0.00
Interest on Working Capital 118.81 122.06 125.54 129.36 127.15
O&M Expenses 827.39 860.45 895.73 930.16 968.67
Total Transmission Charge 3,780.22 3,788.23 3,798.68 3,818.98 3,472.96

Implications and immediate consequences:

  • The allowed transmission charges will be included in the regional transmission tariff for the Eastern Region and shared by regional beneficiaries in accordance with the 2004 regulations.
  • The petitioner may continue provisional billing (already in place under interim directions), but provisional bills are to be adjusted in the light of the final tariff approved by the Commission.
  • The Commission allowed capitalization of FERV (to the extent claimed for 1.4.2001–31.3.2004) as computed under AS-11 and included it in the gross block for tariff determination; BSEB's objection to FERV capitalization was rejected.
  • No advance against depreciation was allowed because the petitioner did not claim it; the petitioner is therefore not entitled to AAD for the tariff period.
  • The order records that other statutory charges (income-tax, incentive, surcharge, cess and other taxes) shall be payable in accordance with the 2004 regulations and treated in the regional tariff sharing mechanism.
  • No new legal precedent beyond the application of the 2004 regulations and prior admitted figures was set by this order; the decision applies the regulatory rules to the petitioner's factual and accounting submissions and disposes Petition No. 126/2004.

Note: This summary is strictly limited to the information contained in the provided opinion. Where the opinion records the filing of replies or raises issues but does not elaborate the parties' positions in detail (for example, West Bengal State Electricity Board's reply), those details are not expanded beyond what the opinion itself states.

Show full summary ...

    Power Grid Corporation Of India Limited v. Bihar State Electricity Board, Patna

    The petition has been filed for approval for transmission charges for the transmission system associated with Farakka (I&II) STPS (the transmission system) in Eastern Region for the period from 1.4.2004 to 31.3.2009, based on the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004, (hereinafter referred to as “the 2004 regulations”). The petitioner has also prayed that it be permitted to continue the billing of transmission charges on the same basis as charged on 31.3.2004, pending determination of tariff in the present petition. No other specific relief is prayed for.

    2. The revised cost estimate for the transmission system were approved by the Central Government in Ministry of Power under letters dated 19.8.1997 at a total cost of Rs. 28589.00 lakh, including FERV component of Rs. 5798.00 lakh.

    3. The annual transmission charges for the period from 1.4.2001 to 31.3.2004 for the transmission system were decided by the Commission in its order dated 4.8.2003 in Petition No. 12/2002 at a gross block of Rs. 32313.96 lakh, including additional capitalization of Rs. 1712.96 lakh from 1997 to 2001 on account of FERV.

    4. The transmission lines included in the transmission system, and the date of commercial operation of the respective transmission line is as stated below:

    S. No. Name of the transmission line/sub-station Date of commercial operation Line length in ckt-km (for O&M) Farakka STPS Stage-I (i) 400 kV S/C Farakka-Jeerat transmission line-I 1.1.1986 238 (ii) 400 kV S/C Farakka-Durgapur transmission line-I 1.7.1987 150 Farakka STPS Stage-II (i) 400 kV D/C Farakka-Kahalgaon transmission line (ckt-1) 1.5.1993 95 (ii) 400 kV D/C Farakka-Kahalgaon transmission line (ckt-2) 1.10.1991 95 (iii) 400 kV D/C Kahalgaon-Biharshariff transmission line (ckt-1) 1.10.1991 201 (iv) 400 kV D/C Kahalgaon-Biharshariff transmission line (ckt-2)) 1.1.1993 201 (v) 400 kV S/C Farakka-Durgapur transmission line-II 1.8.1992 146 (vi) 400 kV S/C Farakka-Jeerat transmission line-II&associated Jeerat sub-station extn. 1.12.1994 236 (vii) 400 kV S/C Durgapur-Jamshedpur&associated sub-station at Durgapur & Jamshedpur 1.9.1994 177 Total 1539

    5. The petitioner has claimed the transmission charges as under:

    (Rs. in lakh)

    2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Depreciation 917.54 917.54 917.54 917.54 784.03 Interest on Loan 78.50 52.23 25.96 6.41 0.00 Return on Equity 1838.13 1838.13 1838.13 1838.13 1838.13 Advance against Depreciation 0.00 0.00 0.00 0.00 0.00 Interest on Working Capital 163.28 169.23 175.58 182.37 187.55 O&M Expenses 827.39 860.45 895.73 930.16 968.67 Total 3824.83 3837.58 3852.93 3874.60 3778.37

    6. The details submitted by the petitioner in support of its claim for interest on working capital are given hereunder:

    (Rs. in lakh)

    2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Maintenance Spares 886.56 939.75 996.14 1055.90 1119.26 O&M expenses 68.95 71.70 74.64 77.51 80.72 Receivables 637.47 639.60 642.16 645.77 629.73 Total 1592.98 1651.05 1712.94 1779.18 1829.71 Rate of Interest 10.25% 10.25% 10.25% 10.25% 10.25% Interest 163.28 169.23 175.58 182.37 187.55

    7. The replies to the petition have been filed by West Bengal State Electricity Board and Bihar State Electricity Board. The petitioner has published notices in the newspapers in accordance with the procedure specified by the Commission. However, no comments have been received from the general public on the tariff proposals.

    CAPITAL COST

    8. As per clause (2) of regulation 52 of the 2004 regulations in case of the projects existing up to 31.3.2004, the project cost admitted by the Commission for determination of tariff prior to 1.4.2004 shall form the basis for determination of tariff.

    9. The petitioner has considered the capital expenditure of Rs. 32313.96 lakh admitted by the Commission in the order dated 4.8.2003 ibid. The petitioner has not claimed additional capitalisation on works. The petitioner has considered additional capitalisation of Rs. 416.98 lakh on account of FERV for the period 1.4.2001 to 31.3.2004 Accordingly, gross block of Rs. 32730.94 lakh has been claimed for the purpose of tariff.

    Extra Rupee Liability during the years 2001–04:

    10. Regulation 1.13 (a) of the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2001 provided as under:

    (a) Extra rupee liability towards interest payment and loan repayment actually incurred, in the relevant year shall be admissible; provided it directly arises out of foreign exchange rate variation and is not attributable to Utility or its suppliers or contractors. Every utility shall follow the method as per the Accounting Standard-11 (Eleven) as issued by the Institute of Chartered Accountants of India to calculate the impact of exchange rate variation on loan repayment.

    (b) Any foreign exchange rate variation to the extent of the dividend paid out on the permissible equity contributed in foreign currency, subject to the ceiling of permissible return shall be admissible. This as and when paid, may be spread over the twelve-month period in arrears.

    11. Regulation 1.7 of the 2001 further provided that recovery of foreign exchange rate variation would be done directly by the utilities from the beneficiaries without filing a petition before the Commission. In case of any objections by the beneficiaries to the amounts claimed on these counts, they may file an appropriate petition before the Commission.

    12. BSEB in its reply has objected to capitalisation of FERV. We do not find the objection to be valid. FERV worked out by the petitioner is in accordance with the provision of AS-11, applicable for the period up to 31.3.2004 and is matching with calculations submitted by the petitioner. The claim has accordingly been allowed for tariff calculations.

    13. Based on the above, gross block of Rs. 32730.94 lakh, including additional FERV of Rs. 416.98 claimed, as on 1.4.2004 has been considered for the purpose of tariff.

    DEBT-EQUITY RATIO

    14. Regulation 54 of the 2004 regulations inter alia provides,—

    (1) In case of the existing project, debt-equity ratio Considered by the Commission for fixation of tariff for the period ending 31.3.2004 shall be considered for determination of tariff.

    (2) In case of the transmission system for which investment approval was accorded prior to 1.4.2004 and which is likely to be declared under commercial operation during the period 1.4.2004 to 31.3.2009, debt-equity in the ratio of 70:30 shall be considered:

    Provided that where deployment of equity is less than 30%, the actual equity deployed shall be considered for the purpose of determination of tariff.

    Provided further that the Commission may in appropriate case consider equity higher than 30% for the purpose of determination of tariff, where the transmission licensee is able to establish to the satisfaction of the Commission that deployment of equity more than 30% was in the interest of general public;

    (3) In case of the transmission system for which investment approval is accorded on or after 1.4.2004, debt-equity in the ratio of 70:30 shall be considered for the purpose of determination of tariff:

    Provided that where deployment of equity is less than 30%, the actual equity deployed shall be considered for the purpose of determination of tariff.

    (4) The debt and equity amount arrived at in accordance with above sub-clause (1), (2) or (3), as the case may be, shall be used for calculation of interest on loan, return on equity, advance against depreciation and foreign exchange rate variation.”

    15. The petitioner has claimed tariff based on debt-equity of 50:50 as considered by the Central Government on the Net Fixed Asset as on 1.4.1997 and also considered by the Commission in its order dated 4.8.2003 ibid. Accordingly, the Net Fixed Asset of Rs. 24129.00 lakh as on 1.4.1997 after adjusting cumulative depreciation of Rs. 6472.00 lakh up to 31.3.1997 has been considered. Additional capitalization on account of FERV (Rs. 1712.96 lakh from 1.4.1997 to 31.3.2001 and Rs. 416.98 lakh from 1.4.2001 to 31.3.2004) has been divided into debt and equity in the ratio of 50:50. Based on this, Rs. 13129.47 lakh has been considered as the equity for the purpose of determination of tariff in the present petition.

    RETURN ON EQUITY

    16. As per clause (iii) of regulation 56 of the 2004 regulations, return on equity shall be computed on the equity base determined in accordance with regulation 54 @ 14% per annum. Equity invested in foreign currency is to be allowed a return in the same currency and the payment on this account is made in Indian Rupees based on the exchange rate prevailing on the due date of billing.

    17. The petitioner has claimed return on equity of Rs. 13129.47 lakh, after adjustment of amount of FERV from 1.4.2001 to 31.3.2004, which has been considered. Accordingly, the petitioner shall be entitled to return on equity @ Rs. 1838.13 lakh each year during the tariff period.

    INTEREST ON LOAN

    18. As per clause (i) of regulation 56 of the 2004 regulations,—

    (a) Interest on loan capital shall be computed loan-wise on the loans arrived at in the manner indicated in regulation 54.

    (b) The loan outstanding as on 1.4.2004 shall be worked out as the gross loan as per regulation 54 minus cumulative repayment as admitted by the Commission for the period up to 31.3.2004 The repayment for the period 2004–09 shall be worked out accordingly on normative basis.

    (c) The transmission licensee shall make every effort to swap the loan as long as it results in net benefit to the long-term transmission customers. The costs associated with such swapping shall be borne by the long-term transmission customers.

    (d) The changes to the loan terms and conditions shall be reflected from the date of such swapping and benefits passed on to the beneficiaries.

    (e) In case any moratorium period is availed of by the transmission licensee, depreciation provided for in the tariff during the years of moratorium shall be treated as repayment during those years and interest on loan capital shall be calculated accordingly.

    19. The partitioner has claimed interest on loan in the following manner:

    (i) Gross loans, cumulative loan repayment up to previous year as admitted by the Commission in the order dated 4.8.2003 ibid have been taken as the opening balance as on 1.4.2004 after adjusting notional loan component arising out of FERV claimed.

    (ii) On the basis of actual rate of interest on average loan as worked out in the debt-equity ratio as admitted in the order dated 4.8.2003 ibid, the weighted average rate of interest on loan is worked out for various years.

    20. In our calculations, the interest on loan has been worked as detailed below:

    (i) Details of net outstanding loan as on 31.03.2004, repayment schedule for the period 2004–09, rate of interest as on 01.04.2004 etc. have been taken as per the loan details submitted by the petitioner under his letter dated 31.8.2005 based on which loan allocation approved for the year 2003–2004 has been reset for the instalments for the period 2004–09 for working out weighted average rate of interest.

    (ii) 50% of the notional loan arising out of FERV has been added in the loan outstanding as per order dated 4.8.2003 ibid to arrive at total notional loan.

    (iii) Repayment of notional loan up to 31.3.2004 has been considered in proportion to repayment up to that date of actual loan.

    (iv) The repayment for the years 2001–2002 to 2003–2004 of the notional loan component of FERV has been considered in proportion to total actual loan repaid during 2001–04.

    (v) The repayment for the year 2004–2005 to 2008–2009 of the total notional loan has been worked out as per the following formula:

    Maximum of depreciation or (Notional net loan at the beginning of the year X (actual repayment of the respective loan/actual net respective loan at the beginning of the year)).

    (vi) Weighted average rate of interest on actual loan worked out is applied on the notional average loan during the year to arrive at the interest on loan.

    21. The detailed calculations on interest on loan up to 2007–2008 are given hereunder:

    Details of loan Up to 31.3.2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Interest on Loan Gross Loan as per last Order 12920.98 Addition due to Additional Capitalisation 0.00 Addition due to FERV 208.49 Gross Normative Loan 13129.47 13129.47 13129.47 13129.47 13129.47 13129.47 Cumulative Repayment up to Previous Year 10130.56 11048.10 11965.64 12883.17 13129.47 Net Loan-Opening 2998.90 2081.37 1163.83 246.30 0.00 Repayment during the year 917.54 917.54 917.54 246.30 0.00 Net Loan-Closing 2081.37 1163.83 246.30 0.00 0.00 Average Loan 2540.14 1622.60 705.06 123.15 0.00 Weighted Average Rate of Interest on Loan 3.09% 3.09% 3.09% 3.09% 3.09% Interest 78.36 50.06 21.75 3.80 0.00

    DEPRECIATION

    22. Sub-clause (a) of clause (ii) of Regulation 56 of the 2004 regulations provides for computation of depreciation in the following manner, namely:

    (i) The value base for the purpose of depreciation shall be the historical cost of the asset.

    (ii) Depreciation shall be calculated annually based on straight line method over the useful life of the asset and at the rates prescribed in Appendix II to these regulations. The residual value of the asset shall be considered as 10% and depreciation shall be allowed up to maximum of 90% of the historical capital cost of the asset. Land is not a depreciable asset and its cost shall be excluded from the capital cost while computing 90% of the historical cost of the asset. The historical capital cost of the asset shall include additional capitalisation on account of Foreign Exchange Rate Variation up to 31.3.2004 already allowed by the Central Government/Commission.

    (iii) On repayment of entire loan, the remaining depreciable value shall be spread over the balance useful life of the asset.

    (iv) Depreciation shall be chargeable from the first year of operation. In case of operation of the asset for part of the year, depreciation shall be charged on pro rata basis.

    23. Land cost included in the capital cost of the transmission system is Rs. 684.27 lakh. Thus, the gross depreciable value of the asset, as per (ii) above, is 0.9 × (Rs. 32730.94 lakh-Rs. 684.27 lakh) = Rs. 28834.05 lakh. Cumulative depreciation and AAD recovered in tariff up to 31.3.2004 is Rs. 16539.62 lakh. Remaining depreciable value as on 1.4.2004 is thus Rs. 12294.43 lakh.

    24. For the period 1.4.2004 to 31.3.2008, the depreciation works out to Rs. 917.54 lakh each year by applying rate of depreciation of 2.80%, as shown below:

    (Rs. in lakh)

    Details of Depreciation Up to 31.3.2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 As per order dated 4.8.2003 32313.96 Addition during 2001–04 due to Additional Capitalisation 0.00 Addition during 2001–04 due to FERV 416.98 Gross Block as on 31.3.2004 32730.94 32730.94 32730.94 32730.94 32730.94 32730.94 Rate of Depreciation 2.80% Depreciable Value 90% 28834.05 28834.05 28834.05 28834.05 28834.05 Balance Useful life of the asset 20 19 18 17 16 Remaining Depreciable Value 12294.43 11376.90 10459.36 9541.82 8624.29 Depreciation 917.54 917.54 917.54 917.54 539.02

    25. As the entire loan for the transmission system would be repaid during 2007–2008, the depreciation for 2008–2009 has been worked out by spreading the balance depreciable value (Rs. 8624.29 lakh as on 1.4.2008) over the remaining useful life of the transmission system (16 years as on 1.4.2008), and it comes to Rs. 539.02 lakh. The weighted average life of the transmission system works out to 33 years against the actual life of 17 years as on 31.3.2008 Accordingly, balance useful life has been taken as 16 years.

    ADVANCE AGAINST DEPRECIATION

    26. As per sub-clause (b) of clause (ii) of Regulation 56 of the 2004 regulations, in addition to allowable depreciation, the transmission licensee is entitled to Advance Against Depreciation, computed in the manner given hereunder:

    AAD = Loan repayment amount as per regulation 56(i) subject to a ceiling of 1/10th of loan amount as per regulation 54 minus depreciation as per schedule.

    27. It is provided that Advance Against Depreciation shall be permitted only if the cumulative repayment up to a particular year exceeds the cumulative depreciation up to that year. It is further provided that Advance Against Depreciation in a year shall be restricted to the extent of difference between cumulative repayment and cumulative depreciation up to that year.

    28. The petitioner has not claimed Advance Against Depreciation. Accordingly, the petitioner is not entitled to Advance Against Depreciation

    OPERATION&MAINTENANCE EXPENSES

    29. In accordance with clause (iv) of Regulation 56 the 2004 regulations, the following norms are prescribed for O&M expenses:

    Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 O&M expenses (Rs. in lakh per ckt-km) 0.227 0.236 0.246 0.255 0.266 O&M expenses (Rs. in lakh per bay) 28.12 29.25 30.42 31.63 32.90

    30. The petitioner has claimed O&M expenses for 1539 ckt km of line length and 17 bays (4 at Biharshariff, 7 at Durgapur, 3 at Jamshedpur, and 3 at Jeerhat), which has been allowed. Accordingly, the petitioner's entitlement to O&M expenses has been worked out as given hereunder:

    (Rs. in lakh)

    Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 O&M expenses for line length 349.35 363.20 378.59 392.45 409.37 O&M expenses for bays 478.04 497.25 517.14 537.71 559.30 Total 827.39 860.45 895.73 930.16 968.67

    31. The petitioner has submitted that the wage revision of its employees is due with effect from 1.1.2007 Therefore, according to the petitioner, O&M expenses should be subject to revision on account of revision of employee cost from that date. In the alternative, it has been prayed that the increase in employee cost due to wage revision be allowed as per actuals for extra cost to be incurred consequent to wage revision. We are not expressing any view, as this issue does not arise for consideration at this stage. The petitioner may approach for a relief in this regard at an appropriate stage in accordance with law.

    INTEREST ON WORKING CAPITAL

    32. The components of the working capital and the interest thereon are discussed hereunder:

    (i) Maintenance spares

    Regulation 56(v)(1)(b) of the 2004 regulations provides for maintenance spares @ 1% of the historical cost escalated @ 6% per annum from the date of commercial operation. In the present case, element wise capital expenditure on the date of commercial operation has not been made available by the petitioner. The earliest available capital expenditure of Rs. 306.01 crore as on 1.4.1997 has been considered as the historical cost for the purpose of the present petition and maintenance spare have been worked out accordingly by escalating 1% of the historical cost @ 6% per annum. The value of maintenance spares as on 1.4.2004 works out to Rs. 460.13 lakh.

    (ii) O&M expenses

    Regulation 56(v)(1)(a) of the 2004 regulations provides for operation and maintenance expenses for one month as a component of working capital. The petitioner has claimed O&M expenses for 1 month of O&M expenses of the respective year as claimed in the petition. This has been considered in the working capital.

    (iii) Receivables

    As per Regulation 56(v)(1)(c) of the 2004 regulations, receivables will be equivalent to two months average billing calculated on target availability level. The petitioner has claimed the receivables on the basis 2 months' transmission charges claimed in the petition. In the tariff being allowed, receivables have been worked out on the basis 2 months' transmission charges.

    (iv) Rate of interest on working capital

    As per Regulation 56(v)(2) of the 2004 regulations, rate of interest on working capital shall be on normative basis and shall be equal to the short-term Prime Lending Rate of State Bank of India as on 1.4.2004 or on 1st April of the year in which the project or part thereof (as the case may be) is declared under commercial operation, whichever is later. The interest on working capital is payable on normative basis notwithstanding that the transmission licensee has not taken working capital loan from any outside agency. The petitioner has claimed interest on working capital @ 10.25% based on SBI PLR as on 1.4.2004, which is in accordance with the 2004 regulations and has been allowed.

    33. The necessary computations in support of interest on working capital are appended hereinbelow.

    (Rs. in lakh)

    2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Maintenance Spares 460.13 487.73 517.00 548.02 580.90 O&M expenses 68.95 71.70 74.64 77.51 80.72 Receivables 630.04 631.37 633.11 636.50 578.83 Total 1159.11 1190.81 1224.76 1262.03 1240.45 Rate of Interest 10.25% 10.25% 10.25% 10.25% 10.25% Interest 118.81 122.06 125.54 129.36 127.15

    TRANSMISSION CHARGES

    34. A summary sheet showing basic details of capital cost and other related aspects is annexed to this order. The transmission charges being allowed for the transmission system are summarised below.

    (Rs. in lakh)

    2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Depreciation 917.54 917.54 917.54 917.54 539.02 Interest on Loan 78.36 50.06 21.75 3.80 0.00 Return on Equity 1838.13 1838.13 1838.13 1838.13 1838.13 Advance against Depreciation 0.00 0.00 0.00 0.00 0.00 Interest on Working Capital 118.81 122.06 125.54 129.36 127.15 O&M Expenses 827.39 860.45 895.73 930.16 968.67 Total 3780.22 3788.23 3798.68 3818.98 3472.96

    35. In addition to the transmission charges, the petitioner shall be entitled to other charges like income-tax, incentive, surcharge and other cess and taxes in accordance with the 2004 regulations. These transmission charges shall be included in the regional transmission tariff for Eastern Region and shall be shared by the regional beneficiaries in accordance with the 2004 regulations.

    36. The petitioner is already billing the respondents on provisional basis in accordance with the Commission's interim directions. The provisional billing of tariff shall be adjusted in the light of final tariff now approved by us.

    37. This order disposes of Petition No. 126/2004.

    Summary Sheet

    Name of the Company PGCIL Name of the Scheme Transmission System associated with Farakka (I & II) STPS IN Eastern Region Date of Commercial Operation Between 21986 to 1994 Tariff setting Period 2004-09 Petition No. 126/2004 Rs. in lakh 1 Capital Cost of the Project 32313.96 2 Cumulative depreciation recovered as on 31.03.97 6472.00 3 Net Fixed Assets as on 1.4.1997 24129.00 4 Admitted Capital Cost as on 01.04.2004 for Calculation of Dedt and Equity 25841.96 5 Additional Capitalisation (works) 0.00 For the year 2001–02 0.00 For the year 2002–03 0.00 For the year 2003–04 0.00 Total 0.00 6 Additional Capitalisation (FERV) 416.98 For the year 2001–02 -53.48 For the year 2002–03 314.31 For the year 2003–04 156.14 Total 416.98 7 Total Capital Cost as on 01.04.2004(2+3+4) 26258.94 8 Means of Finance 1: Debt 50.00% 13129.47 Equity 50.00% 131129.47 Total 100.00% 26258.94 9 Gross Loan as on 1.4.2004 13129.47 Cumulative Repayment up to 31.3.2009 13129.47 Repaid up to 31.3.2004 10086.65 From 1.4.2001 to 31.3.2004 (ACE & FERV) 43.91 From 1.4.2004 to 31.3.2009 2998.90 Total 13129.47 10 Balance Loan to be repaid beyond 31.3.2009D 0.00 11 Depreciation recovered up to 31.03.09: 207848.78 Dep AAD Total Recovered up to 31.03.2001 16357.06 170.90 8238.16 From 01.04.01 to 31.04.2004 11.66 0.00 11.66 From 01.04.2004 to 31.03.2009 4209.16 0.00 4209.16 Total 20748.78 10 Balance Depreciation to be recovered beyond 31.03.2009: 5812.53 Capital cost for the purpose of Depreciation 2 32313.96 ACE + FERV 416.98 Capital cost as 01.04.2004 32730.94 Less: Land Cost 693.10 32037.84 90% of Capital Cost as above 28834.05 Cum. Depreciation to be recovered up to 31.03.09 20748.78 Balance 8085.27 1 Debt and Equity are notional and not actual as per division of debt & equity taken by GOI as 50:50 and the same has been accepted by the Commission. The last tariff set by GOI for the period 1997–98 to 2001–02 on NFA basis and the Gross Block as on 01.04.1997 as per GoI Notification F no. 2/3.POWERFRID/Tariff/98 dated 04.12.1998 and F no. 2/3.Powergrid/Tariff/99-(II) dated 11.05.1999 2 was Rs. 30601.00 lacs. Cumulative depreciation recovered up to 31.03.1997 amounting to Rs. 6472.00 lacs was deducted to arrive at NFA as on 31.03.1997 amounting to Rs. 24129.00 lacs. The same was divided into notional loan and notional equity in the ratio of 50:50 which has been considered by the Commission while awarding the tariff for the period 2001–04 in petition 12/2002. The Commission in petition no. 12/2002 and in this petition has allowed FERV of Rs. 1712.96 lacs and Rs. 416.98 lacs for the period up to 31.3.2001 and 1.4.2001 to 31.3.2004 respectively.
    Use AI to get other relevant cases.
    Try AI Pro free for 7 days Upgrade to AI Pro

    Comments

    Power Grid Corporation Of India Limited v. Bihar State Electricity Board, Patna
    (Jan 5, 2006)