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Case Number

Petition No. 100/2011

Attorney(S)

1. Shri. S.S Raju, PGCIL
2. Shri M.M Mondal, PGCIL

Judges

Pramod Deo
Member
V.S Verma
Member
Member
M. Deena Dayalan

Acts

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Smart Summary

Structured Summary of the Provided Opinion (Petition No. 100/2011)

Factual and Procedural Background

The petition sought approval under Regulation 86 of the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2009 ("the 2009 regulations") for determination of transmission tariff for the 400 kV D/C Koderma TPS–Biharsharif Transmission Line and two associated line bays at Biharsharif Substation (the "transmission project") for the period from the anticipated date of commercial operation 1.4.2011 to 31.03.2014.

The petitioner also made specific prayers to: gross up the base rate of return for tax (Finance Act); permit year-to-year settlement of tax liability between the transmission licensee and beneficiaries; approve reimbursement of petition filing fee and publication expenses; permit billing/adjustment for interest-on-loan changes due to floating rates during 2009–14; allow separate billing/recovery of service tax (if exemption withdrawn); and allow separate recovery of licensee fee.

The petition records that the petitioner's Board accorded investment approval for the project by letter dated 29.4.2008 at an estimated cost of Rs. 29,049 lakh (including IDC of Rs. 1,633 lakh) based on Q1 2008 price levels. The asset was declared under commercial operation on 1.6.2011 (actual) though the auditor's certificate filed with the petition had indicated an anticipated commercial operation date of 1.4.2011. The Commission directed the petitioner to file a Management Certificate showing expenditures incurred between anticipated and actual COD; the petitioner filed details by affidavit dated 2.9.2011.

Notices were published under section 64 of the Electricity Act, 2003; no public comments were received and none of the respondents filed replies. The Commission heard the parties and proceeded to dispose of the petition.

Legal Issues Presented

Whether tariff for the transmission project should be approved under Regulation 86 of the 2009 regulations for the period from the anticipated COD (1.4.2011) to 31.3.2014, and on what admitted capital cost and components.
Whether the time over-run (delay in commissioning) should be condoned and, if so, whether the reasons advanced (forest clearance, law & order, ROW problems, increase in line length) justify condonation.
Whether cost over-run is allowable and, if so, whether the increase in line length is an acceptable ground to admit the increased cost.
Determination of the admitted capital cost as on date of commercial operation in light of Regulation 7 (prudence check) and whether capital cost should be restricted to apportioned approved cost.
Appropriate treatment of initial spares under Regulation 8 and any necessary deduction for excess initial spares claimed.
Whether any additional capital expenditure up to COD should be admitted.
Appropriate debt-equity ratio to be applied under Regulation 12 and the treatment of equity in excess of 30%.
Computation of return on equity in accordance with Regulation 15 (grossing up, base rate, tax rate, any additional 0.5% incentive), and whether the petitioner's prayer to gross up across various relevant tax elements is addressed by the regulations/amendments.
Calculation of interest on loan and applicable weighted average rate of interest under Regulation 16, including treatment of refinancing and inclusion of a newly-disclosed bond in the loan portfolio.
Computation of depreciation as per Regulation 17, including pro rata charge in the first year of commercial operation.
Allowance for operation and maintenance expenses as per Regulation 19 norms and treatment of wage hike and licence fee claims.
Computation of interest on working capital (components and applicable rate) under Regulation 18 and subsequent amendment(s).
Whether the petitioner is entitled to reimbursement of petition filing fee and publication expenses and the permissibility/timing of separate recovery of service tax and licence fee.

Arguments of the Parties

Petitioner's Arguments

Approval sought for transmission tariff for the transmission project from anticipated COD (1.4.2011) to 31.3.2014 under Regulation 86 of the 2009 regulations.
Requested grossing up of base rate of return with applicable tax rate as per the Finance Act for the relevant year and direction for year-to-year settlement of tax liability between the transmission licensee and beneficiaries/long-term transmission customers.
Sought approval for reimbursement of expenditure by beneficiaries for petition filing fee and notice publication expenses in terms of Regulation 42 of the 2009 regulations.
Requested permission to bill and adjust any impact on interest on loan due to change in interest rate on account of floating rates during 2009–14 period.
Prayed for permission to bill and recover service tax on transmission charges separately if exemption is withdrawn and transmission service is made taxable.
Prayed for recovery of licence fee separately from respondents, asserting that O&M norms did not capture licence-fee-related costs.
Explained causes for 13-month delay in commissioning (forest clearance delay, law-and-order difficulties, severe ROW problems, increased line length to avoid wildlife sanctuary) and submitted that much of the delay was beyond petitioner's control.
Provided details of expenditure, revised loans deployed, and calculations for elements such as interest on working capital, O&M, depreciation, interest on loan, and return on equity.

Respondents' Position

None of the respondents filed a reply to the petition. Therefore, no respondent arguments are available in the record.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Commission applied the 2009 regulations and their relevant amendments step-by-step to each contested or claimed component. The court's analysis as set out in the order is summarized below in the sequence addressed by the Commission:

Time over-run: The project was scheduled to be commissioned by May 2010 but was actually commissioned on 1.6.2011 (a delay of 13 months). The petitioner attributed the delay primarily to delay in obtaining forest clearances (Jharkhand clearance 21.9.2010; Bihar clearance 9.3.2011), law-and-order problems, severe ROW issues, and increase in line length from 80 km to 110.69 km to avoid a wildlife sanctuary. The Commission observed that the delay was mainly due to the forest clearance delay, which was beyond the control of the petitioner, and accordingly condoned the delay.
Cost over-run: The petition disclosed a total estimated completion cost of Rs. 23,946.41 lakh versus an approved capital cost of Rs. 18,022.37 lakh—i.e., a cost variation of Rs. 5,924.04 lakh. The Commission accepted that the principal reason was the increase in line length (to avoid the wildlife sanctuary) and allowed the cost over-run on that basis.
Capital cost and prudence check (Regulation 7): The Commission noted the regulation's requirement that expenditure admitted by the Commission (including IDC and financing charges etc.) be subject to prudence checks. The actual expenditure up to the date of commercial operation exceeded the apportioned approved cost. Consequently, the Commission restricted admitted capital cost on the date of commercial operation to the apportioned approved cost of Rs. 18,022.37 lakh. The Transmission Line, Sub-station and PLCC costs were specified before adjustment for initial spares.
Initial spares (Regulation 8): The petitioner had included initial spares of Rs. 67.88 lakh for sub-station and PLCC. The Commission noted Regulation 8 ceilings and that the 2009 regulations did not provide an allowance for PLCC initial spares; it therefore treated PLCC initial spares under sub-station initial spares. Regulation 8 produced an allowed initial-spares figure of Rs. 32.51 lakh for the sub-station; the petitioner's claim thus exceeded the ceiling by an excess amount. The Commission computed the excess amount allocable to the apportioned sub-station cost and reduced the admitted capital cost accordingly. After adjustment, the capital cost considered for tariff was Rs. 18,005.62 lakh (with component amounts for Transmission Line, Sub-station and PLCC as specified in the order).
Additional capitalization: Because actual expenditure as of COD was higher than the apportioned approved cost and the Commission restricted capital cost to the apportioned approved cost, no additional capitalization was allowed at COD.
Debt‑Equity ratio (Regulation 12): The Commission applied Regulation 12. For the admitted capital cost of Rs. 18,005.62 lakh, the Commission adopted a normative debt–equity composition of 70:30 (i.e., Debt Rs. 12,603.93 lakh; Equity Rs. 5,401.68 lakh). The same ratios were carried forward for the period up to 31.3.2014 since no additional capital expenditure was admitted.
Return on Equity (Regulation 15 and amendment): The Commission followed Regulation 15 (as amended) for computation of ROE. The base rate of 15.5% was grossed up for tax to yield a pre‑tax ROE of 17.481%. The Commission noted that the petitioner's prayer to gross up the base rate on the basis of various tax elements (MAT, surcharge, cesses, etc.) is addressed by the 2nd amendment to the 2009 regulations (i.e., the regulation provides the mechanism). The Commission computed ROE for the part-year 2011–12 (from COD to 31.3.2012) as Rs. 786.89 lakh and Rs. 944.27 lakh for each year of 2012–14.
Interest on loan (Regulation 16): The Commission applied Regulation 16 methodology: normative loan (per Regulation 12) and normative repayments equal to depreciation; the weighted average rate of interest was calculated on the actual loan portfolio at the beginning of each year. The petitioner had filed a revised loan statement (affidavit 2.9.2011) adding Bond XXXV (gross loan Rs. 175.10 lakh, withdrawal 31.5.2011, interest 9.64%)—this was included in the loan portfolio. The Commission applied the computed weighted average interest rates to the normative average loan to arrive at allowed interest on loan amounts (as shown in its calculations).
Depreciation (Regulation 17): The Commission applied Regulation 17—depreciation based on admitted capital cost, straight-line method using rates in Appendix‑III, with salvage 10% and depreciation limited to 90% of capital cost. Depreciation is chargeable from the first year of commercial operation; for the first year it is pro rata. The Commission computed depreciation as Rs. 792.89 lakh for 2011–12 (COD to 31.3.2012 pro rata) and Rs. 951.47 lakh for each year of 2012–14.
Operation & Maintenance expenses (Regulation 19): The Commission applied the O&M norms provided by Regulation 19 for the relevant elements (400 kV line and 400 kV bays) and allowed O&M expenses calculated on that basis (total allowed O&M: Rs. 194.57 lakh for the 2011–12 pro rata period, Rs. 246.82 lakh and Rs. 260.87 lakh for 2012–13 and 2013–14 respectively). The petitioner’s claims regarding wage-hike impact and licence-fee recovery were noted; the Commission recorded that those matters are under consideration in other petitions and any decision will be applied to this case when taken.
Interest on working capital (Regulation 18 and amendment): The Commission enumerated working-capital components per Regulation 18 (receivables = 2 months of fixed cost; maintenance spares @15% of O&M; O&M for one month). The Commission referred to the second amendment which provides a rate of interest (it records an 11.00% figure in the body of the order), and the computations appended to the order show a numerical interest-rate used with resulting interest-on-working-capital figures. The Commission set out the computations and allowed interest on working capital as indicated in its calculation tables.
Aggregation into allowed transmission charges and billing/sharing: The Commission aggregated allowed elements (depreciation, interest on loan, ROE, interest on working capital, O&M) to arrive at allowed transmission charges for each year of the tariff period. The Commission directed that transmission charges be recovered monthly under Regulation 23 and shared by beneficiaries under Regulation 33 up to 30.6.2011, and from 1.7.2011 billing/collection/disbursement to be governed by the 2010 Sharing Regulations and related Removal of Difficulties orders.
Reimbursement of petition filing fee and publication costs: The Commission, relying on its earlier order dated 11.1.2010 in Petition No. 109/2009, allowed recovery of the filing fee and publication expenses from beneficiaries on a pro‑rata basis.
Service tax & licence fee: The Commission considered the petitioner’s prayer to bill/recover service tax separately if exemption is withdrawn and transmission becomes taxable; it deemed that prayer premature but left the petitioner free to approach the Commission at the appropriate time. As to licence fee reimbursement, the Commission noted the matter is under consideration and any decision will apply to this petition.

Holding and Implications

The Commission issued an order implementing the regulatory computations and directions described above. The core outcomes and their direct consequences on the parties are set out below.

Core Ruling: The petition is disposed of and the transmission charges for the transmission project are allowed in the amounts computed by the Commission in the order for the tariff period (the order provides the year‑wise admitted figures and computation tables).

Direct effects and specific consequences:

The Commission condoned the 13‑month commissioning delay on the stated grounds (primarily delay in forest clearances and related issues beyond the petitioner's control).
The cost over‑run attributable mainly to the increase in line length was allowed in principle, but the admitted capital cost on the date of commercial operation was restricted to the apportioned approved cost (subject to the prescribed adjustments such as for initial spares), resulting in an admitted capital cost of Rs. 18,005.62 lakh for tariff computation.
Initial spares in excess of Regulation 8 ceilings were disallowed to the quantified extent and deducted from the admitted capital cost.
No additional capitalisation at COD was admitted.
Debt–equity considered on normative basis as 70:30 for tariff calculation (Debt Rs. 12,603.93 lakh; Equity Rs. 5,401.68 lakh).
Return on equity computed at a pre‑tax rate of 17.481% (i.e., base 15.5% grossed up as per regulations/amendment), yielding ROE allowances of Rs. 786.89 lakh (2011–12 pro rata) and Rs. 944.27 lakh (each year of 2012–14).
Interest on loan, depreciation, O&M, and interest on working capital were computed in accordance with the cited regulations and admitted in the amounts set out in the order. The Commission's tables provide the precise year‑wise figures; aggregate allowed transmission charges were recorded for each year of the tariff period.
The petitioner is entitled to recover the petition filing fee and expenses of publication of notices from the beneficiaries (on a pro‑rata basis) in accordance with the Commission's prior order (11.1.2010 in Petition No. 109/2009).
The petitioner's prayer to bill and recover service tax separately was held premature; the petitioner may approach the Commission at the appropriate future time. The licence‑fee issue remains under consideration and any decision will apply to this case.
Billing and recovery: Transmission charges to be recovered monthly under Regulation 23 and shared under Regulation 33 up to 30.6.2011; from 1.7.2011 billing/collection/disbursement to follow the 2010 Sharing Regulations and Removal of Difficulties orders.

The opinion does not announce a new judicial precedent; it applies the 2009 regulations (and their amendments) and prior Commission orders to the facts of this petition to determine admitted costs and allowed tariff components. Any broader rule changes (for example, on licence fee or wage‑hike reimbursement) are reserved and will be applied to this case if and when decided in related proceedings.

Summary of Key Numerical Allowances (as recorded in the order)

Note: figures below are reproduced from the computations set out in the order.

Component / Year	2011–2012 (pro rata)	2012–2013	2013–2014
Depreciation (lakh)	792.89	951.47	951.47
Interest on Loan (lakh)	914.67	1,018.67	932.38
Return on Equity (lakh)	786.89	944.27	944.27
Interest on Working Capital (lakh)	59.15	70.05	69.00
Operation & Maintenance (lakh)	194.57	246.82	260.87
Total Allowed Transmission Charges (lakh)	2,748.17	3,231.28	3,157.98

This summary is strictly confined to the content and figures that appear in the provided opinion and does not add, infer or extrapolate beyond that text.

Disposition: This order disposes Petition No. 100/2011 as recorded in the opinion.

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Power Grid Corporation Of India Ltd. v. Haryana Power Purchase Centre

This petition has been filed seeking approval under Regulation-86 of Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations 2009, (hereinafter referred to as “the 2009 regulations”) for determination of transmission tariff for 400 KV D/C Koderma TPS-Biharsharif Transmission Line and 02 nos. associated Line bays at Biharsharif Substation under Transmission System for Start-up Power to DVC and Maithon Right Bank Generation Projects in Eastern Region (hereinafter referred to as the transmission project) from anticipated date of commercial operation, i.e 1.4.2011 to 31.03.2014 The petitioner has also made the following prayers:—

(a) Allow grossing up of the base rate of return with the applicable tax rate as per the Finance Act for the relevant year and direct settlement of tax liability between the transmission licensee and the beneficiaries/long term transmission customers on year to year basis;

(c) Approve the reimbursement of expenditure, by the beneficiaries towards petition filing fee and publishing of notices in newspapers in terms of Regulation 42 of the 2009 regulations and other expenditure (if any) in relation to the filing of petition;

(d) Allow the petitioner to bill and adjust impact on Interest on Loan due to change in interest rate on account of floating rate of interest applicable during 2009-14 period, if any, from the respondents;

(e) Allow the petitioner to bill and recover Service Tax on transmission charges separately from the respondents, if at any time exemption from service tax is withdrawn and transmission of power is notified as a taxable service; and

(f) Allow the petitioner to bill and recover licensee fee separately from the respondents.

2. Investment approval for the transmission project was accorded by the petitioner's Board of Directors vide their letter dated 29.4.2008 at an estimated cost of ‘29049 lakh including IDC of’ 1633 lakh based on the 1st quarter 2008 price level.

3. The petitioner, during the hearing submitted that the asset under consideration has been declared under commercial operation on 1.6.2011 and requested that the tariff be approved based on the auditor's certificate filed along with the petition wherein the anticipated date of commercial operation was given as 1.4.2011 The Commission directed the petitioner to submit the Management Certificate indicating details of expenditure incurred during the intervening period between the anticipated date of commercial operation and the actual date of commercial operation. The petitioner filed, vide affidavit dated 2.9.2011, the details of the expenditure incurred during the period between the anticipated and actual date of commercial operation and the revised statement of actual loans deployed for funding the asset.

4. The details of the transmission charges claimed by the petitioner are as given overleaf:—

(Rs. in lakh)

2011-2012 2012-2013 2013-2014 Depreciation 1222.56 1265.58 1265.58 Interest on Loan 1400.57 1339.20 1224.40 Return on equity 1213.18 1255.82 1255.82 Interest on Working Capital 97.37 98.62 96.82 O&M Expenses 233.48 246.82 260.87 Total 4167.16 4206.04 4103.49

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

(Rs. in lakh)

2011-2012 2012-2013 2013-2014 Maintenance Spares 35.02 37.02 39.13 O&M expenses 19.46 20.57 21.74 Receivables 694.53 701.01 683.92 Total 749.01 758.60 744.79 Interest 97.37 98.62 96.82 Rate of Interest 13.00% 13.00% 13.00%

6. No comments or suggestions have been received from the general public in response to the notices published by the petitioner under section 64 of the Electricity Act, 2003. None of the respondents have filed their reply to the petition.

7. Having heard the representatives of the parties and perused the material on record, we proceed to dispose the petition.

TIME OVER-RUN

8. As per the investment approval the project was scheduled to be commissioned by May 2010. The project has been declared under commercial operation on 1.6.2011 and there has been a delay of 13 months.

9. The petitioner has submitted that the delay has been on account of delay in getting forest clearance, law and order problem, severe ROW problems and increase in the length of the transmission line from 80 km to 110.69 km to avoid the wild life sanctuary. The forest clearance proposal for the Jharkhand portion has been submitted to the Ministry of Environment&Forest in the month of September 2008 and the clearance has been issued on 21.9.2010 The forest clearance proposal for the Bihar portion has been submitted in the month of October 2008 and the clearance has been issued on 9.3.2011 Out of 294 locations, foundation of 61 locations, erection of 76 locations and stringing of work of 55 km has not been taken up due to forest clearance and severe ROW problem related issues.

10. It has been observed that the delay of 13 months in commissioning of the assets has been mainly due to delay in obtaining the forest clearance, which is beyond the control of the petitioner. Accordingly, the delay in commissioning of the project is condoned.

COST OVER-RUN

11. The total estimated completion cost of the project was Rs. 23946.41 lakh against the approved capital cost of Rs. 18022.37 lakh. There has been a cost variation of Rs. 5924.04 lakh. The main reason for the cost over-run is due to increase in the line length to 110.69 km from 80 km to avoid the wild life sanctuary. The cost over-run has been due to increase in line length and hence it is allowed.

CAPITAL COST

12. As regards the capital cost, Regulation 7(1) of the 2009 regulations provides as under:—

“The expenditure incurred or projected to be incurred, including interest during construction and financing charges, any gain or loss on account of foreign exchange risk variation during construction on the loan - (i) being equal to 70% of the funds deployed, in the event of the actual equity in excess of 30% of the funds deployed, by treating the excess equity as normative loan, or (ii)being equal to the actual amount of loan in the event of the actual equity less than 30% of the fund deployed, - up to the date of commercial operation of the project, as admitted by the Commission, after prudence check.”

13. The details of expenditure and estimated additional capitalization projected to be incurred are given below:—

(Rs. in lakh)

Sl. No. Asset Apportioned approved cost Actual Expenditure incurred upto DOCO (01.06.2011) Add-cap Exp. From DOCO to 31.03.2012 Total Exp. 1. LILO of Kahalgaon-Patna 400kV D/C (Quad) line at Barh 18022.37 23221.78 994.00 24215.78

Capital Cost as on the date of commercial operation is inclusive of initial spares of Rs. 67.88 lakh for Sub-station and PLCC.

14. The actual expenditure as on the date of commercial operation exceeds the apportioned approved cost. Therefore, capital cost as on the date of commercial operation has been restricted up to apportioned approved cost of Rs. 18022.37 lakh. Consequently, the Transmission Line cost, Sub-station cost and PLCC cost on the date of commercial operation shall be Rs. 17315.88 lakh, Rs. 632.59 lakh and Rs. 73.90 lakh respectively, before adjustment of Initial spares. The effect of cost over-run and time over-run shall be considered after RCE is filed by the petitioner.

TREATMENT OF INTIAL SPARES

15. Regulation 8 of the 2009 regulations provides as under:—

“Initial Spares. Initial spares shall be capitalized as a percentage of the original project cost, subject to following ceiling norms:

Transmission system

(a) Transmission line — 0.75% (b) Transmission sub-station — 2.5% (c) Series Compensation devices and HVDC Station — 3.5%

Provided that where the benchmark norms for initial spares have been published as part of the benchmark norms for capital cost under first proviso to clause (2) of regulation 7, such norms shall apply to the exclusion of the norms specified herein.”

16. The capital cost claimed by the petitioner as on the date of commercial operation is inclusive of the initial spares of Rs. 67.88 lakh for Sub-station and PLCC. The 2009 regulations do not provide for allowance of initial spares for PLCC. To overcome this difficulty, the initial spares for PLCC are considered under the initial spares for the Sub-station.

17. The details of the initial spares claimed by the petitioner and the initial spares allowed are as under:—

Particulars % allowed Exp. upto to DOCO as per certificate Claimed by the petitioner Initial spares calculated as per Regulation Excess claimed Apportioned cost of substation as per restricted capital cost Excess initial spares to be deducted from expenditure (1) (2) (3) (4) (5)= {(3)-(4)}*(2)/{100%-(2)} (6) (7) (8)= (7)*(6)/(3) Sub-station (including PLCC) 2.50 1335.72 67.88 32.51 35.37 632.59 16.75

18. The petitioner has claimed Rs. 67.88 lakh initial spares for sub-station. As per Regulation 8 of the 2009 regulations the initial spares for sub-station works out to Rs. 32.51 lakh and hence the claim made by the petitioner is in excess of the ceiling limit specified in the 2009 regulations by Rs. 35.57 lakh. The excess amount corresponding to the sub-station cost of Rs. 632.59 lakh works out to Rs. 16.75 lakh and it has been reduced from the sub-station cost. Accordingly, capital cost of Rs. 18005.62 has been considered for the purpose of tariff calculation, it includes the Transmission Line portion of Rs. 17315.88 lakh, Sub-station portion of × 615.84 lakh and PLCC portion of Rs. 73.90 lakh.

ADDITIONAL CAPITAL EXPENDITURE

19. The actual expenditure as on the date of commercial operation is higher than the apportioned approved cost and hence no additional capital expenditure is allowed.

DEBT-EQUITY RATIO

20. Regulation 12 of the 2009 regulations provides that—

“12. Debt-Equity Ratio. (1) For a project declared under commercial operation on or after 1.4.2009, if the equity actually deployed is more than 30% of the capital cost, equity in excess of 30% shall be treated as normative loan:

Provided that where equity actually deployed is less than 30% of the capital cost, the actual equity shall be considered for determination of tariff:

Provided further that the equity invested in foreign currency shall be designated in Indian rupees on the date of each investment.

Explanation.- The premium, if any, raised by the generating company or the transmission licensee, as the case may be, while issuing share capital and investment of internal resources created out of its free reserve, for the funding of the project, shall be reckoned as paid up capital for the purpose of computing return on equity, provided such premium amount and internal resources are actually utilised for meeting the capital expenditure of the generating station or the transmission system.

(2) In case of the generating station and the transmission system declared under commercial operation prior to 1.4.2009, debt-equity ratio allowed by the Commission for determination of tariff for the period ending 31.3.2009 shall be considered.

(3) Any expenditure incurred or projected to be incurred on or after 1.4.2009 as may be admitted by the Commission as additional capital expenditure for determination of tariff, and renovation and modernisation expenditure for life extension shall be serviced in the manner specified in clause (1) of this regulation.”

21. The details of Debt-Equity of asset considered for the purpose of tariff calculation as on the date of commercial operation are given as under:—

Capital Cost as on DOCO Amount (Rs. Lakh) % Debt 12603.93 70.00 Equity 5401.68 30.00 Total 18005.62 100.00

22. As no additional capital expenditure is allowed, the details of debt-equity as on 31.3.2014 are given below:

Cost as on 31.03.2014 Amount (Rs. Lakh) % Debt 12603.93 70.00 Equity 5401.68 30.00 Total 18005.62 100.00

RETURN ON EQUITY

23. Regulation 15 of the 2009 regulations, as amended vide Central Electricity Regulatory Commission (Terms and Conditions of Tariff) (Second Amendment) Regulations, 2011, provides that,

“15. (1) Return on equity shall be computed in rupee terms, on the equity base determined in accordance with regulation 12

(2) Return on equity shall be computed on pre-tax basis at the base rate of 15.5% to be grossed up as per clause (3) of this regulation:

Provided that in case of projects commissioned on or after 1st April, 2009, an additional return of 0.5% shall be allowed if such projects are completed within the timeline specified in Appendix-II:

Provided further that the additional return of 0.5% shall not be admissible if the project is not completed within the timeline specified above for reasons whatsoever.

(3) The rate of return on equity shall be computed by grossing up the base rate with the Minimum Alternate/Corporate Income Tax Rate for the year 2008-2009, as per the Income Tax Act, 1961, as applicable to the concerned generating company or the transmission licensee, as the case may be.

(4) Rate of return on equity shall be rounded off to three decimal points and be computed as per the formula given below: Rate of pre-tax return on equity = Base rate/(1-t) Where “t” is the applicable tax rate in accordance with clause (3) of this regulation.

(5) The generating company or the transmission licensee, as the case may be, shall recover the shortfall or refund the excess Annual Fixed Charge on account of Return on Equity due to change in applicable Minimum Alternate/Corporate Income Tax Rate as per the Income Tax Act, 1961 (as amended from time to time) of the respective financial year directly without making any application before the Commission:

Provided further that Annual Fixed Charge with respect to the tax rate applicable to the generating company or the transmission licensee, as the case may be, in line with the provisions of the relevant Finance Acts of the respective year during the tariff period shall be trued up in accordance with Regulation 6 of these regulations.”

24. In this order, Return on Equity has been calculated as per Regulation 15 of the 2009 regulations with pre-tax ROE of 17.481%. The petitioner's prayer to allow grossing up the base rate of ROE based on the tax rates viz., MAT, surcharge, any other cess, charges, levies etc., as per the relevant Finance Act, has already been taken care of through the 2nd amendment to the 2009 regulations.

25. The Return of Equity works out to Rs. 786.89 lakh for the period 2011-2012, from the date of date of commercial operation to 31.03.2012 and Rs. 944.27 lakh for the period 2012-14.

26. Details of return on equity calculated are given hereunder:—

(Rs. in lakh)

2011-2012 2012-2013 2013-2014 Opening Equity 5401.68 5401.68 5401.68 Addition due to Additional Capitalisation 0.00 0.00 0.00 Closing Equity 5401.68 5401.68 5401.68 Average Equity 5401.68 5401.68 5401.68 Return on Equity (Base Rate) 15.50% 15.50% 15.50% Tax rate for the year 2008-2009 (MAT) 11.330% 11.330% 11.330% Rate of Return on Equity (Pre Tax) 17.481% 17.481% 17.481% Return on Equity (Pre Tax) 786.89 944.27 944.27

INTEREST ON LOAN

27. Regulation 16 of the 2009 regulations provides that—

“16. (1) The loans arrived at in the manner indicated in regulation 12 shall be considered as gross normative loan for calculation of interest on loan.

(2) The normative loan outstanding as on 1.4.2009 shall be worked out by deducting the cumulative repayment as admitted by the Commission up to 31.3.2009 from the gross normative loan.

(3) The repayment for the year of the tariff period 2009-2014 shall be deemed to be equal to the depreciation allowed for that year:

(4) Notwithstanding any moratorium period availed by the generating company or the transmission licensee, as the case may be the repayment of loan shall be considered from the first year of commercial operation of the project and shall be equal to the annual depreciation allowed,.

(5) The rate of interest shall be the weighted average rate of interest calculated on the basis of the actual loan portfolio at the beginning of each year applicable to the project:

Provided that if there is no actual loan for a particular year but normative loan is still outstanding, the last available weighted average rate of interest shall be considered: Provided further that if the generating station or the transmission system, as the case may be, does not have actual loan, then the weighted average rate of interest of the generating company or the transmission licensee as a whole shall be considered.

(6) The interest on loan shall be calculated on the normative average loan of the year by applying the weighted average rate of interest.

(7) The generating company or the transmission licensee, as the case may be, shall make every effort to re-finance the loan as long as it results in net savings on interest and in that event the costs associated with such re-financing shall be borne by the beneficiaries and the net savings shall be shared between the beneficiaries and the generating company or the transmission licensee, as the case may be, in the ratio of 2:1.

(8) The changes to the terms and conditions of the loans shall be reflected from the date of such re-financing.

(9) In case of dispute, any of the parties may make an application in accordance with the Central Electricity Regulatory Commission (Conduct of Business) Regulations, 1999, as amended from time to time, including statutory re-enactment thereof for settlement of the dispute:

Provided that the beneficiary or the transmission customers shall not withhold any payment on account of the interest claimed by the generating company or the transmission licensee during the pendency of any dispute arising out of re-financing of loan.”

28. In the calculations, the interest on loan has been worked out as detailed below:

(i) Gross amount of loan, repayment of instalments and rate of interest and weighted average rate of interest on actual average loan have been considered as per the petition.

(ii) Tariff has been worked out considering normative loan and normative repayments. Depreciation allowed has been taken as normative repayment for the tariff period 2009-14.

(iii) Weighted average rate of interest on actual loan worked out as above has been applied on the notional average loan during the year to arrive at the interest on loan.

29. The petitioner, vide affidavit dated 2.9.2011, has submitted a revised statement of actual loans deployed for funding the asset. Gross loan of Rs. 175.10 lakh (Bond XXXV), withdrawal date 31.5.2011 and interest rate of 9.64% has been included in the loan portfolio. This Bond has also been taken into consideration while calculating the weighted average rate of interest.

30. Detailed calculations of the weighted average rate of interest are annexed to this order as Annexure. Details of the calculation of Interest on Loan are given as under:—

(Rs. in lakh)

2011-2012 2012-2013 2013-2014 Gross Normative Loan 12603.93 12603.93 12603.93 Cumulative Repayment upto Previous Year 0.00 792.89 1744.37 Net Loan-Opening 12603.93 11811.04 10859.57 Addition due to Additional Capitalisation 0.00 0.00 0.00 Repayment during the year 792.89 951.47 951.47 Net Loan-Closing 11811.04 10859.57 9908.09 Average Loan 12207.49 11225.30 10383.83 Weighted Average Rate of Interest on Loan 8.9912% 8.9867% 8.9791% Interest 914.67 1018.67 932.38

DEPRECIATION

31. Regulation 17 of the 2009 regulations provides for computation of depreciation in the following manner, namely:—

“17. (1) The value base for the purpose of depreciation shall be the capital cost of the asset admitted by the Commission.

(2) The salvage value of the asset shall be considered as 10% and depreciation shall be allowed up to maximum of 90% of the capital cost of the asset.

(3) Land other than the land held under lease and the land for reservoir in case of hydro generating station shall not be a depreciable asset and its cost shall be excluded from the capital cost while computing depreciable value of the asset.

(4) Depreciation shall be calculated annually based on Straight Line Method and at rates specified in Appendix-III to these regulations for the assets of the generating station and transmission system:

Provided that, the remaining depreciable value as on 31st March of the year closing after a period of 12 years from date of commercial operation shall be spread over the balance useful life of the assets.

(5) In case of the existing projects, the balance depreciable value as on 1.4.2009 shall be worked out by deducting the cumulative depreciation as admitted by the Commission up to 31.3.2009 from the gross depreciable value of the assets.

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

32. The actual date of commercial operation is 1.6.2011 and the asset will complete 12 years beyond 2013-2014. Depreciation, therefore, has been calculated annually based on Straight Line Method and at rates specified in Appendix-III of the 2009 regulations.

33. Accordingly, depreciation has been worked out on the basis of capital expenditure from the first year of commercial operation wherein depreciation for the first year is calculated on pro-rata basis for the part of year. The depreciation is computed for the tariff period of 2009-14 as Rs. 792.89 lakh in 2011-2012, the date of commercial operation to 31.03.2012 and Rs. 951.47 lakh for the period 2012-14.

34. Details of the depreciation worked out are as under:—

(Rs. in lakh)

2011-2012 2012-2013 2013-2014 Opening Gross Block 18005.62 18005.62 18005.62 Addition due to Projected Additional Capitalisation 0.00 0.00 0.00 Gross Block 18005.62 18005.62 18005.62 Average Gross Block 18005.62 18005.62 18005.62 Rate of Depreciation 5.2843% 5.2843% 5.2843% Depreciable Value 20899.60 20899.60 20899.60 Remaining Depreciable Value 20899.60 20106.71 19155.24 Depreciation 792.89 1744.37 2695.84

OPERATION&MAINTENANCE EXPENSES

35. Clause (g) of regulation 19 of the 2009 regulations prescribes the norms for operation and maintenance expenses based on the type of sub-station and line. Norms prescribed in respect of the elements covered in the instant petition are given overleaf:—

Name of Elements 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 400 kV D/C four conductor T/L (Rs. lakh/bay) 0.940 0.994 1.051 1.111 1.174 400 kV bay (Rs. lakh/bay) 52.40 55.40 58.57 61.92 65.46

36. Based on the above norms, the petitioner has calculated the following operation and maintenance expense which is allowed:—

(Rs. in lakh)

Name of Elements 2009-2010 2010-2011 2011-2012 (Pro-rata) 2012-2013 2013-2014 110.69 km, 400 kV D/C four conductor T/L Nil Nil 96.95 122.98 129.95 6 nos. 400 kV bay Nil Nil 97.62 123.84 130.92 Total Nil Nil 194.57 246.82 260.87

37. The petitioner has submitted that O&M expenditure for the year 2009-14 had been arrived at on the basis of normalized actual O&M expenses during the period 2003-2004 to 2007-2008. The wage hike of 50% on account of pay revision of the employees of public sector undertaking has also been considered while calculating the O&M charges for the tariff period 2009-14. The petitioner has further submitted that it reserves the right to approach the Commission for suitable revision in the norms for O&M expenditure in case the impact of wage hike with effect from 1.1.2007 is more than 50%. The petitioner has further submitted that in O&M norms for the period 2009-14, the cost associated with license fees had not been captured and therefore licence fee be allowed to be recovered separately from the respondents.

38. We observe that these issues have been raised by the petitioner in other petitions also. A view is yet to be taken by the Commission on reimbursement of the cost of wage hike and reimbursement of licence fees. The decision as and when taken will be applicable to the present case also.

INTEREST ON WORKING CAPITAL

39. As per the 2009 regulations the components of the working capital and the interest thereon are discussed hereunder:—

(i) Receivables As per Regulation 18(1)(c)(i) of the 2009 regulations, receivables will be equivalent to two months of fixed cost. The petitioner has claimed the receivables on the basis of 2 months transmission charges claimed in the petition. In the tariff being allowed, receivables have been worked out on the basis of 2 months transmission charges.

(ii) Maintenance spares Regulation 18(1)(c)(ii) of the 2009 regulations provides for maintenance spares @ 15% per annum of the O&M expenses from 1.4.2009 The value of maintenance spares has accordingly been worked out.

(iii) O&M expenses Regulation 18(1)(c)(iii) of the 2009 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 the respective year as claimed in the petition. This has been considered in the working capital.

(iv) Rate of interest on working capital In accordance with the 2009 regulations as amended vide the second amendment regulations notified in June 2011, interest rate of 11.00% (SBI Base Rate 7.50% as on 01-07-2010 plus 350 bps) has been considered for calculating interest on working capital.

40. Necessary computations in support of interest on working capital are appended herein below:—

(Rs. in lakh)

2011-2012 2012-2013 2013-2014 Maintenance Spares 35.02 37.02 39.13 O&M expenses 19.46 20.57 21.74 Receivables 549.63 538.55 526.33 Total 604.11 596.14 587.20 Rate of Interest 11.75% 11.75% 11.75% Interest 59.15 70.05 69.00

TRANSMISSION CHARGES

41. The transmission charges being allowed for the transmission lines are summarized below:—

(Rs. in lakh)

2011-2012 2012-2013 2013-2014 Depreciation 792.89 951.47 951.47 Interest on Loan 914.67 1018.67 932.38 Return on equity 789.89 944.27 944.27 Interest on Working Capital 59.15 70.05 69.00 O&M Expenses 194.57 246.82 260.87 Total 2748.17 3231.28 3157.98

OTHER ISSUES

42. The petitioner has sought approval for the reimbursement of fee paid by it for filing the petition. In accordance with the Commission's decision in order dated 11.1.2010 in Petition No. 109/2009, the petitioner shall be entitled to recover the filing fee from the beneficiaries. The petitioner shall also be entitled for reimbursement of expenses in connection with publication of notices of the present petition from the beneficiaries on pro-rata basis.

43. The petitioner has made a specific prayer to be allowed to bill and recover the service tax on transmission charges separately from the respondents if the exemption granted to it is withdrawn and transmission of power is made a taxable service. We consider the prayer pre-mature. The petitioner is at liberty to approach the Commission for any relief at the appropriate time as per law.

44. As regards the prayer for reimbursement of licence fee, it is clarified that the matter is under consideration of the Commission and any decision taken will apply to this case as well.

45. The transmission charges allowed shall be recovered on monthly basis in accordance with Regulation 23 and shared by the beneficiaries in accordance with Regulation 33 of the 2009 regulations upto 30.6.2011 With effect from 1.7.2011, the billing, collection and disbursement of the transmission charges shall be governed by the provisions of Central Electricity Regulatory Commission (Sharing of Inter-State Transmission Charges and Losses, Regulations, 2010) and the Removal of Difficulties orders issued thereunder.

46. This order disposes Petition No. 100/2011.

Annexure

Details of Loan 2011-2012 2012-2013 2013-2014 1 Bond-XXXIII Gross loan opening 1963.00 1963.00 1963.00 Cumulative Repayment upto DOCO/previous year 0.00 0.00 0.00 Net Loan-Opening 1963.00 1963.00 1963.00 Additions during the year 0.00 0.00 0.00 Repayment during the year 0.00 0.00 0.00 Net Loan-Closing 1963.00 1963.00 1963.00 Average Loan 1963.00 1963.00 1963.00 Rate of Interest 8.64% 8.64% 8.64% Interest 169.60 169.60 169.60 Rep Schedule 12 Annual instalments from 08.07.2014 2 Bond-XXVIII Gross loan opening 2385.00 2385.00 2385.00 Cumulative Repayment upto DOCO/previous year 0.00 0.00 198.75 Net Loan-Opening 2385.00 2385.00 2186.25 Additions during the year 0.00 0.00 0.00 Repayment during the year 0.00 198.75 198.75 Net Loan-Closing 2385.00 2186.25 1987.50 Average Loan 2385.00 2285.63 2086.88 Rate of Interest 9.33% 9.33% 9.33% Interest 222.52 213.25 194.71 Rep Schedule 12 Annual instalments from 15.12.2012 3 Bond-XXXIV Gross loan opening 2744.00 2744.00 2744.00 Cumulative Repayment upto DOCO/previous year 0.00 0.00 0.00 Net Loan-Opening 2744.00 2744.00 2744.00 Additions during the year 0.00 0.00 0.00 Repayment during the year 0.00 0.00 0.00 Net Loan-Closing 2744.00 2744.00 2744.00 Average Loan 2744.00 2744.00 2744.00 Rate of Interest 8.84% 8.84% 8.84% Interest 242.57 242.57 242.57 Rep Schedule 12 Annual instalments from 21.08.2014 4 Bond-XXIX Gross loan opening 4330.00 4330.00 4330.00 Cumulative Repayment upto DOCO/previous year 0.00 0.00 360.83 Net Loan-Opening 4330.00 4330.00 3969.17 Additions during the year 0.00 0.00 0.00 Repayment during the year 0.00 360.83 360.83 Net Loan-Closing 4330.00 3969.17 3608.33 Average Loan 4330.00 4149.58 3788.75 Rate of Interest 9.20% 9.20% 9.20% Interest 398.36 381.76 348.57 Rep Schedule 12 Annual instalments from 12.03.2013 5 Bond XXX Gross loan opening 2966.00 2966.00 2966.00 Cumulative Repayment upto DOCO/previous year 0.00 0.00 0.00 Net Loan-Opening 2966.00 2966.00 2966.00 Additions during the year 0.00 0.00 0.00 Repayment during the year 0.00 0.00 247.17 Net Loan-Closing 2966.00 2966.00 2718.83 Average Loan 2966.00 2966.00 2842.42 Rate of Interest 8.80% 8.80% 8.80% Interest 261.01 261.01 250.13 Rep Schedule 12 Annual instalments from 29.09.2013 6 Bond XXXI Gross loan opening 1691.00 1691.00 1691.00 Cumulative Repayment upto DOCO/previous year 0.00 0.00 0.00 Net Loan-Opening 1691.00 1691.00 1691.00 Additions during the year 0.00 0.00 0.00 Repayment during the year 0.00 0.00 0.00 Net Loan-Closing 1691.00 1691.00 1550.08 Average Loan 1691.00 1691.00 1620.54 Rate of Interest 8.90% 8.90% 8.90% Interest 150.50 150.50 144.23 Rep Schedule 12 Annual instalments from 25.02.2014 7 Bond XXXV Gross loan opening 175.10 175.10 175.10 Cumulative Repayment upto DOCO/previous year 0.00 0.00 0.00 Net Loan-Opening 175.10 175.10 175.10 Additions during the year 0.00 0.00 0.00 Repayment during the year 0.00 0.00 0.00 Net Loan-Closing 175.10 175.10 175.10 Average Loan 175.10 175.10 175.10 Rate of Interest 9.64% 9.64% 9.64% Interest 16.88 16.88 16.88 Rep Schedule 12 Annual instalments from 31.05.2015 Total Loan Gross loan opening 16254.10 16254.10 16254.10 Cumulative Repayment upto DOCO/previous year 0.00 0.00 559.58 Net Loan-Opening 16254.10 16254.10 15694.52 Additions during the year 0.00 0.00 0.00 Repayment during the year 0.00 559.58 947.67 Net Loan-Closing 16254.10 15694.52 14746.85 Average Loan 16254.10 15974.31 15220.68 Weighted Average Rate of Interest 8.9912% 8.9867% 8.9791% Interest 1461.44 1435.57 1366.68

Power Grid Corporation Of India Ltd. v. Haryana Power Purchase Centre

Structured Summary of the Provided Opinion (Petition No. 100/2011)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

Respondents' Position

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Summary of Key Numerical Allowances (as recorded in the order)

Power Grid Corporation Of India Ltd. v. Haryana Power Purchase Centre

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