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Power Grid Corporation Of India Limited v. Madhya Pradesh Power Transmission Company Ltd.

Central Electricity Regulatory Commission
Sep 15, 2010
Judgment
Subsequent
References
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Case Information
CITATION CODES
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CASE NO.

Petition No. 7/2010 with I.A No. 16/2010

Attorney(S)

1. Shri U.K Tyagi, PGCIL

2. Shri M.M Mondal, PGCIL

3. Shri R. Prasad, PGCIL

4. Shri Pramod Choudhery, MPPTCL

JUDGES

S. Jayaraman

Member

Member

M. Deena Dayalan

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Structured Summary of the Opinion — Petition No. 7/2010

Factual and Procedural Background

The petitioner filed Petition No. 7/2010 seeking approval of tariff for Fixed and Thyristor controlled series compensation for the Korba-Budhipadar transmission system for the period 1 April 2009 to 31 March 2014, under the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2009 ("the 2009 regulations"). The petitioner also filed Interlocutory Application No. 16/2010 seeking several specific reliefs (detailed below).

The petition states that the Board of Directors of the petitioner had earlier approved revised cost estimates vide memorandum dated 10 March 2000 at an estimated cost of Rs. 3553.00 lakh (including IDC Rs. 120.00 lakh). The transmission assets were declared under commercial operation on 1 September 1999. The Commission had earlier determined annual transmission charges for 1 April 2004 to 31 March 2009 by order dated 29 April 2003 in Petition No. 69/2004 at a gross block of Rs. 3003.76 lakh as on 31 March 2009. The petitioner indicated no additional capitalization for the period 2009-14.

The petitioner submitted year-wise claims for depreciation, interest on loan, return on equity, interest on working capital and O&M expenses for 2009-10 through 2013-14. Maharashtra State Electricity Distribution Company Limited (MSEDCL) filed a reply. No public comments were received in response to notices published by the petitioner under section 64 of the Electricity Act, 2003.

Legal Issues Presented

  1. Whether the Commission should approve the tariff for the Korba-Budhipadar transmission system for 1.4.2009 to 31.3.2014 under the 2009 regulations.
  2. Whether Regulation 44 of the 2009 regulations should be invoked to relax Regulation 15(3) so as to permit grossing up the base rate of Return on Equity (ROE) to reflect applicable tax rates (MAT, surcharge, cess) and to allow direct yearly settlement of consequential tariff impact with beneficiaries.
  3. Whether reimbursement of petition filing fee and publication expenses incurred by the petitioner should be allowed under Regulation 42 of the 2009 regulations.
  4. Whether the petitioner may bill and recover service tax on transmission charges separately from the respondents, if such service tax is applicable.
  5. Whether the petitioner may bill and recover the impact on interest on loan arising from floating rate changes during 2009-14 from the respondents.
  6. Whether the petitioner may bill and recover license fee separately from the respondents.

Arguments of the Parties

Petitioner's Arguments

  • Petitioner sought approval of the claimed transmission charges for 2009-14 based on the 2009 regulations, using a gross block of Rs. 3003.76 lakh as on 31.3.2009 and no additional capitalization.
  • Petitioner requested relaxation under Regulation 44 for grossing up ROE base rate to reflect applicable tax rates (MAT, surcharge, cess etc.) and year-to-year settlement of tax impact with beneficiaries.
  • Petitioner sought approval to recover filing fee and publication expenses incurred in relation to this petition.
  • Petitioner asked to be allowed to bill and recover service tax on transmission charges separately from respondents if the petition becomes subject to service tax; petitioner referred to an order of the Commissioner, Central Excise, Shillong received on 23.11.2009 indicating service tax is to be paid by the petitioner company.
  • Petitioner requested to bill and adjust interest-on-loan impact due to floating rate changes during 2009-14.
  • Petitioner sought permission to bill and recover license fee separately and reserved right to approach the Commission for revision in O&M norms if wage hike w.e.f. 1.1.2007 increases employee cost by more than 50%.

Respondent's Arguments (MSEDCL)

  • MSEDCL requested that the impact of wage hike should not be considered until the exact quantum is declared by the petitioner.
  • MSEDCL objected to inclusion of service tax towards transmission and wheeling charges on the ground that it may lead to excessive burden on the Distribution Company and ultimately to consumers.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Commission applied the 2009 regulations to each component of tariff and explained its methodology and conclusions for each head of claim as follows. The discussion reflects the Commission's application of the specific regulatory provisions cited in the opinion.

Capital Cost

Under clause (2) of Regulation 7 of the 2009 regulations, the Commission held that the project cost admitted by the Commission for determination of tariff prior to 1.4.2009 shall form the basis for determination of tariff. The petitioner had claimed a capital expenditure (gross block) of Rs. 3003.76 lakh as on 31.3.2009 and no additional capitalization was claimed. The Commission therefore considered the gross block of Rs. 3003.76 lakh for tariff purposes.

Debt-Equity Ratio

Clause (2) of Regulation 12 provides that for transmission systems declared under commercial operation prior to 1.4.2009, the debt-equity ratio allowed by the Commission for determination of tariff for the period ending 31.3.2009 shall be considered. The petitioner used the ratio 77.96:22.04 as considered by the Commission in its earlier order dated 29.4.2008. The Commission accepted and applied that same debt-equity ratio.

Return on Equity (ROE)

Regulation 15(1)-(4) prescribes computation of ROE on pre-tax basis at base rate 15.5% grossed up for tax, with grossing up to be done using the normal tax rate for the year 2008-2009 and true-up of the actual tax rate in subsequent filings. The petitioner computed ROE on a pre-tax basis using MAT at 11.33% (applicable tax rate for 2008-09), yielding a grossed-up ROE rate of 17.481% and claimed Rs. 115.71 lakh each year based on equity of Rs. 661.94 lakh. The Commission found this computation to be in order and granted ROE of Rs. 115.71 lakh for each year in the tariff period.

The Commission further noted that, in a separate order dated 3.8.2010 in Petition No. 17/2010, it had directed staff to prepare draft amendments to the 2009 regulations to allow grossing up of base rate with the applicable tax rate as per the Finance Act for the relevant year and to permit direct year-to-year settlement of tax liabilities between licensees and beneficiaries; any under/over recovery would be subject to final adjustment at true-up. In view of that, the Commission stated that the petitioner's prayer on MAT/grossing up would be addressed after amendment of the regulations.

Interest on Loan

The Commission applied Regulation 16 to compute interest on loan. The methodology used:

  • Used details of net outstanding loan, cumulative repayment up to 31.3.2009, repayment schedule and rates of interest from the earlier order dated 29.4.2008 in Petition No. 69/2004 to derive weighted average rate of interest.
  • Worked out tariff considering normative loan and normative repayments, with depreciation taken as normative repayment for 2009-14 as per Regulation 16(3) and (4).
  • Applied the weighted average rate of interest on the average normative loan during the year to arrive at interest on loan for each year.
  • Considered specific loan rates (PNB-I loan and Bank of India foreign currency loan) as on 1.4.2009 and foreign exchange rates as on 31.3.2004 where applicable.

The petitioner requested permission to bill and adjust interest-on-loan impact due to floating rate changes; the Commission noted that changes in interest rate due to floating rates would be trued up at the end of the tariff period in accordance with the 2009 regulations.

Depreciation

Applying Regulation 17, the Commission determined depreciation on the admitted capital cost of Rs. 3003.76 lakh as on 31.3.2009. Cumulative depreciation up to 31.3.2009 was taken from the earlier order (29.4.2003 in Petition No. 69/2004). Because the elapsed life as on 31.3.2012 exceeded 12 years, the remaining depreciable value as on 31 March of the year was spread over the balance useful life of the assets as required by Regulation 17(4). The resulting depreciation figures for each year of the tariff block were computed accordingly (e.g., Rs. 159.06 lakh for 2009-10 through 2011-12; Rs. 29.62 lakh for 2012-13 and 2013-14).

Operation & Maintenance (O&M) Expenses

The petitioner claimed O&M expenses based on norms in Regulation 19(g) for 220 kV bays and AC lines. The petitioner claimed O&M for 1 bay and 184 ckt. km; the Commission applied the Regulation 19(g) norms and computed year-wise O&M expenses accordingly (resulting totals: Rs. 69.62 lakh in 2009-10 up to Rs. 87.04 lakh in 2013-14). The petitioner reserved the right to apply for revision of O&M norms if wage hike w.e.f. 1.1.2007 causes employee cost increases beyond 50%, but the petitioner had not claimed any wage hike or licence fee in the present petition; those issues would be considered on separate application.

Interest on Working Capital

Working capital components were determined under Regulation 18:

  • Receivables: two months' average billing (per Regulation 18(1)(c)(i)); computed on two months' transmission charges claimed by the petitioner.
  • Maintenance spares: 15% of O&M expenses (per Regulation 18(1)(c)(ii)); value computed as Rs. 10.44 lakh as on 1.4.2009.
  • O&M for one month: component of working capital (per Regulation 18(1)(c)(iii)).
  • Rate of interest: normative short-term Prime Lending Rate of State Bank of India as on 1.4.2009 (12.25%), per Regulation 18(3); interest on working capital was allowed on that basis.

The Commission accepted the petitioner's calculation of interest on working capital at 12.25% and allowed the year-wise interest amounts submitted (e.g., Rs. 10.00 lakh for 2009-10; Rs. 9.90 lakh for 2010-11, etc.).

Application Fee and Publication Expenses

The petitioner sought reimbursement of filing fees and publication expenses. The Commission, relying on its earlier decision dated 11.1.2010 in Petition No. 109/2009, held that the petitioner shall be entitled to recover the filing fee and the publication expenses directly from beneficiaries on a pro rata basis.

Service Tax

The petitioner sought permission to bill and recover service tax on transmission charges. The Commission noted that service tax on transmission service had been exempted by the Government of India via notifications No. 20/2010 dated 27.2.2010 and No. 45/2010 dated 20.7.2010; accordingly, the prayer to recover service tax on transmission charges from beneficiaries was not considered/allowed. The Commission also noted that the petitioner had received a communication from the Commissioner, Central Excise, Shillong dated 23.11.2009 suggesting service tax liability, but the Commission observed that no demand for service tax in respect of the transmission assets had actually been received; the petitioner was at liberty to approach the Commission if a demand is received.

Other Taxes and Recovery Mechanism

The Commission stated that, in addition to approved transmission charges, the petitioner shall be entitled to recover other charges like income-tax, surcharge and other cess and taxes in accordance with the 2009 regulations. Transmission charges allowed were to be recovered on a monthly basis in accordance with Regulation 23 and shared by respondents under Regulation 33.

Holding and Implications

Holding: The Commission's order granted the tariff and ancillary reliefs as follows and concluded the proceeding. The order itself states: DISPOSED OF in the sense that "This order disposes of Petition No. 7/2010 with I.A No. 16/2010."

Core Rulings

  • The Commission approved tariff components for the Korba-Budhipadar transmission system for 1.4.2009–31.3.2014 based on the 2009 regulations, applying a gross block of Rs. 3003.76 lakh as on 31.3.2009 and no additional capitalization.
  • Return on Equity was allowed at Rs. 115.71 lakh per year (computed using MAT 11.33% for 2008-09 producing a grossed-up return of 17.481%), as claimed by the petitioner.
  • Interest on loan, depreciation, O&M expenses, and interest on working capital were computed and allowed in accordance with Regulations 16, 17, 19 and 18 respectively, using the methodologies and norms described in the 2009 regulations and earlier Commission orders referenced in the opinion.
  • The petitioner is entitled to recover filing fee and publication expenses directly from beneficiaries on a pro rata basis.
  • Prayer to recover service tax on transmission charges was not allowed because service tax on transmission service had been exempted by Government notifications cited in the opinion; petitioner may approach the Commission if a specific demand is later received.
  • Other taxes such as income-tax, surcharge and other cess shall be recoverable in accordance with the 2009 regulations.
  • Transmission charges are to be recovered monthly (Regulation 23) and shared by respondents as per Regulation 33.

Implications

The immediate consequences of the order are:

  • The petitioner's tariff for the specified period is approved with detailed year-wise amounts for depreciation, interest on loan, ROE, interest on working capital and O&M expenses as computed and summarized in the order.
  • Reimbursement of application filing fees and publication expenses is permitted and to be charged pro rata to beneficiaries.
  • Service tax recovery on transmission charges is not permitted at present due to government exemption notifications; the petitioner may renew the request if an actual demand arises.
  • Any change in applicable taxes (including treatment of MAT/grossing up) will be addressed pursuant to the Commission's direction to amend the 2009 regulations (as described in the Commission's order dated 3.8.2010). The petitioner's request related to grossing up under Regulation 15(3) will be handled after that regulatory amendment.
  • No claim in the present petition for wage hike impact or license fees was allowed; these remain to be raised by separate application if and when the petitioner chooses to do so.
  • The order does not purport to set judicial precedents; it applies the 2009 regulations and prior Commission orders to the facts of this petition.

Direct citations, regulatory provisions, and year-wise numerical computations (tables and detailed loan schedules) appear in the full opinion. This summary strictly reflects the content and conclusions expressly contained in the provided opinion text.

Show all summary ...

The petition has been filed for approval of tariff for Fixed and Thyristor controlled series compensation for Korba-Budhipadar transmission system (the transmission system) for the period from 1.4.2009 to 31.3.2014 based on the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2009 (hereinafter referred to as “the 2009 regulations”).

2. The petitioner has also filed Interlocutory Application No. 16/2010 in which following additional prayers have been made:

(i) Invoke the provision of Regulation 44 of the 2009 regulations, for relaxation of regulation 15(3) of the 2009 regulations so that grossing up the base rate of ROE may be allowed considering the tax rates viz., MAT, surcharge, any other cess, charges, levies etc, as per the relevant Finance Act of the year and consequential impact of tariff including interest on working capital on account of truing up may be allowed to be billed and settled directly with the beneficiaries every year in the tariff block;

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

(iii) Allow the petitioner to bill and recover Service Tax on transmission charges separately from the respondents, if petition is subjected to such service tax;

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

(v) Allow the petitioner to bill and recover license fee separately from the respondents.

3. The approval for the revised cost estimates in respect of the transmission system was accorded by the Board of Directors of the petitioner company vide its memorandum dated 10.3.2000 at an estimated cost of Rs. 3553.00 lakh, including IDC of Rs. 120.00 lakh. The transmission assets were declared under commercial operation 1.9.1999

4. The annual transmission charges for the period from 1.4.2004 to 31.3.2009 were decided by the Commission in its order dated 29.4.2003 in Petition No. 69/2004 at a gross block of Rs. 3003.76 lakh as on 31.3.2009 and thereafter no additional capital expenditure is involved for the transmission asset.

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

(Rs. in lakh)

2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 Depreciation 159.06 159.06 159.06 29.62 29.62 Interest on Loan 38.06 23.79 10.11 2.42 0.47 Return on Equity 115.71 115.71 115.71 115.71 115.71 Interest on Working Capital 10.00 9.90 9.83 7.20 7.39 O & M Expenses 69.62 73.56 77.80 82.35 87.04 Total 392.45 382.02 372.51 237.30 240.23

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

(Rs. in lakh)

2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 Maintenance Spares 10.44 11.03 11.67 12.35 13.06 O & M expenses 5.80 6.13 6.48 6.86 7.25 Receivables 65.41 63.67 62.09 39.55 40.04 Total 81.65 80.83 80.24 58.76 60.35 Rate of Interest 12.25% 12.25% 12.25% 12.25% 12.25% Interest 10.00 9.90 9.83 7.20 7.39

7. Reply to the petition has been filed by Maharashtra State Electricity Distribution Company Limited (MSEDCL). 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. MSEDCL in its reply has requested not to consider the impact of wage hike at present unless and until the exact quantum of the wage hike is declared by the petitioner. MSEDCL has further requested not to consider the elements of service tax towards transmission and wheeling charges as proposed by the petitioner as this may lead to excessive burden to the Distribution Company and in turn to the electric power consumers all over the country. In regard to wage hike, the petitioner in its rejoinder dated 10.3.2010 has submitted that the O & M expenses claimed are subject to adjustment on account of the additional employee cost which becomes payable after wage revision, which is due w.e.f 1.1.2007 and actual impact of wage revision will be filed in due course of time. In regard to service tax, the petitioner has submitted that order of Commissioner, Central Excise, Shilliong regarding non-registration and non payment of service tax on transmission charges and demand for payment of service tax on transmission charges has been received on 23.11.2009 and it implies service tax is to be paid by the petitioner company. Service tax is a statutory liability and has to be born by the beneficiaries. However, we notice that demand for service tax in respect of the transmission assets has not been received. The petitioner is at liberty to approach the Commission as and when the demand for service tax is received in respect of the transmission assets.

CAPITAL COST

8. As per clause (2) of regulation 7 of the 2009 regulations, the project cost admitted by the Commission for determination of tariff prior to 1.4.2009 shall form the basis for determination of tariff.

9. The petitioner has claimed the capital expenditure of 0003.76 lakh. The petitioner has not claimed any additional capitalization.

10. Accordingly, gross block of 0003.76 lakh as on 31.3.2009 has been considered by us for the purpose of tariff.

DEBT-EQUITY RATIO

11. Clause (2) of Regulation 12 of the 2009 regulations inter alia provides that,—

“(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.”

12. The petitioner has claimed tariff based on debt-equity ratio of 77.96:22.04 as considered by the Commission in its order dated 29.4.2008 ibid. The same debt-equity ratio has been considered for the purpose of tariff.

RETURN ON EQUITY

13. Regulation 15 of the 2009 regulations 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 normal tax rate for the year 2008-2009 applicable to the concerned generating company or the transmission licensee, as the case may be:

Provided that return on equity with respect to the actual 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 separately for each year of the tariff period along with the tariff petition filed for the next tariff period.

(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 it is the applicable tax rate in accordance with clause (3) of this regulation.

Illustration.—

(i) In case of the generating company or the transmission licensee paying Minimum Alternate Tax (MAT) @ 11.33% including surcharge and cess: Rate of return on equity = 15.50/(1-0.1133) = 17.481%

(ii) In case of generating company or the transmission licensee paying normal corporate tax @ 33.99% including surcharge and cess:

Rate of return on equity = 15.50/(1-0.3399) = 23.481%.”

14. The petitioner has computed return on equity on pre-tax basis on 11.33% MAT in accordance with tax rate applicable for the year 2008-2009 and claimed return on equity of Rs. 115.71 lakh each year during the tariff period @ 17.481% against equity of Rs. 661.94 lakh. This has been found to be in order. Accordingly, the petitioner shall be entitled to return on equity @ Rs. 115.71 lakh each year during the tariff period, as claimed.

15. In regard to MAT, Commission vide its order dated 3.8.2010 in Petition No. 17/2010 has already taken a decision to amend the 2009 regulations. The relevant portion of the said order is extracted as under:

“We are of the view that this issue of ‘grossing up the base rate with the normal tax rate for the year 2008-2009’ is generic in nature and therefore, it will be appropriate to make suitable provisions in the 2009 regulations to cater to any future changes in the tax rate. Accordingly, we direct the staff of the Commission to prepare and submit draft amendment to the 2009 regulations for allowing grossing up of 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 generating company/transmission licensee and the beneficiaries/long term transmission customers on year to year basis. Any under/over recovery on account of direct settlement of tax liability shall be subject to the final adjustment at the time of true up exercise.”

16. In view of our above order the prayer of the petitioner will be taken care of after amendment of the regulations.

INTEREST ON LOAN

17. 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 2009-14 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.”

18. In our calculation, the interest on loan has been worked out as detailed below:

(i) Details of net outstanding loan as on 31.3.2009, cumulative repayment up to 31.3.2009, repayment schedule for the loans, rate of interest have been taken from the order dated 29.4.2008 in Petition No. 69/2004 for working out weighted average rate of interest;

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

(iii) Weighted average rate of interest on actual loan worked out as per (i) above is applied on the average loan during the year to arrive at the interest on loan;

(iv) Rates of interest of PNB-I loan and Bank of India (foreign currency) loan as on 1.4.2009 as per the supporting documents enclosed with this petition have been considered. Foreign exchange rates have been considered as on 31.3.2004

19. The petitioner has prayed to allow to bill and adjust impact on interest on loan due to change in interest rate on account of floating rate of interest applicable during the period 2009-14, if any from the respondents. In this regard, it is mentioned that the change in interest rate due to floating rate of interest applicable, if any shall be trued up at the end of the tariff as per 2009 regulations.

20. Based on the above, the year-wise details of interest worked out are given hereunder:

Details of loan Up to 31.3.2009 2009-2010 2010-2011 2011-2012 2012-13 2013-14 Gross Notional loan 2341.82 Addition due to additional capitalisation 0.00 Gross Normative Loan 2341.82 2341.82 2341.82 2341.82 2341.82 2341.82 Cumulative Repayment up to Previous Year 1811.68 1970.74 2129.79 2288.85 2318.47 Net Loan-Opening 530.14 371.08 212.03 52.97 23.35 Addition due to Additional Capitalisation 0.00 0.00 0.00 0.00 0.00 Repayment during the year 159.06 159.06 159.06 29.62 23.35 Net Loan-Closing 371.08 212.03 52.97 23.35 0.00 Average Loan 450.61 291.56 132.50 38.16 11.68 Weighted Average Rate of Interest on Loan 8.4452% 8.1581% 7.6309% 6.3469% 4.0676% Interest 38.06 23.79 10.11 2.42 0.47

21. The detailed calculations in support of the weighted revised average rate of interest are contained in Annexure attached.

DEPRECIATION

22. 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.”

23. The depreciation has been worked out on the admitted capital expenditure of 0003.76 lakh as on 31.3.2009 Cumulative depreciation up to 31.3.2009 has been taken as per order dated 29.4.2003 in Petition No. 69/2004. As the elapsed life as on 31.3.2012 from the date of commercial operation is more than 12 years, the remaining depreciable value as on 31 March of the year has been spread over the balance useful life of the transmission assets.

24. For the period 1.4.2009 to 31.3.2014 the depreciation works out to Rs. 159.06 lakh for the year 2009-2010 to 1011-2012 and 09.62 lakh for the year 2012-2013 and 2013-2014 by applying rate of depreciation of 5.2952% as shown below:

Details of Depreciation Up to 31.3.2009 2009-2010 2010-2011 2011-2012 2012-13 2013-14 As per order dated 7.8.2009 3003.76 3003.76 3003.76 3003.76 3003.76 3003.76 Addition during 2009-14 due to projected Additional Capitalisation 0.00 0.00 0.00 0.00 0.00 Gross block as on 31.3.2009 3003.76 3003.76 3003.76 3003.76 3003.76 Average gross block 3003.76 3003.76 3003.76 3003.76 3003.76 Rate of Depreciation 5.2952% 5.2952% 5.2952% 5.2952% 5.2952% Depreciable Value 90% 2703.38 2703.38 2703.38 2703.38 2703.38 Elapsed Life 10 11 12 13 14 Balance Useful life of the asset 24 23 22 21 20 Remaining Depreciable Value 1099.24 940.19 781.13 622.08 592.45 Depreciation 159.06 159.06 159.06 29.62 29.62

OPERATION & MAINTENANCE EXPENSES

25. In accordance with clause (g) of Regulation 19 the 2009 regulations, the following norms for 220 kV sub-station bay and transmission line are prescribed for O & M expenses:

Norms for sub-station

220 KV bays Year 2009-2010 2010-2011 2011-2012 2012-13 2013-14 O&M expenses Rs. in lakh per bay) 36.68 38.78 41.00 43.34 45.82 Norms for AC lines Single circuit (single conductor) in lakh per km) 0.179 0.189 0.200 0.212 0.224

26. The petitioner has claimed O & M expenses for 184 ckt. km. and 1 bay, which has been allowed. Accordingly, the petitioner's entitlement to O & M expenses has been worked out as given hereunder:

220 KV bays Year 2009-2010 2010-2011 2011-2012 2012-13 2013-14 O&M expenses for 1 bay 36.68 38.78 41.00 43.34 45.82 O&M expenses for 184 ckt. km. 32.94 34.78 36.80 39.01 41.22 Total 69.62 73.56 77.80 82.35 87.04

27. The petitioner has submitted that transmission charges claimed for the year 2009-14 is inclusive of O & M expenses for project derived based on the norms for expenditure as specified under Regulation 19(g) of the 2009 regulation. Accordingly, O & M expenses for the transmission assets have been considered as per Regulation 19(g) of the 2009 regulations. The petitioner has further submitted that he reserves the right to approach the Commission for suitable revision in the norms for O & M expenditure in case the impact of wage hike w.e.f 1.1.2007 is more then 50%. The petitioner has further submitted that O & M norms for the period 2009-14, the cost associated with license fees had not been captured and the licence fee be allowed to be recovered separately from the respondents. The petitioner has not made any claim towards wage hike and licence fee in the present petition, these issues shall be considered after making the application by the petitioner in this regard.

INTEREST ON WORKING CAPITAL

28. 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 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.

(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 works out to Rs. 10.44 lakh as on 1.4.2009

(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 O & M expenses of the respective year as claimed in the petition. This has been considered in the working capital.

(iv) Rate of interest on working capital

As per Regulation 18(3) of the 2009 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 1.4.2009 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. Further, as per Regulation 18(4) of the 2009 regulations, 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 @ 12.25% based on SBI PLR as on 1.4.2009, which is in accordance with the 2009 regulations and has been allowed.

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

2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 Maintenance Spares 10.44 11.03 11.67 12.35 13.06 O & M expenses 5.80 6.13 6.48 6.86 7.25 Receivables 65.41 63.67 62.08 39.55 40.04 Total 81.65 80.83 80.24 58.77 60.35 Rate of Interest 12.25% 12.25% 12.25% 12.25% 12.25% Interest 10.00 9.90 9.83 7.20 7.39

TRANSMISSION CHARGES

30. The transmission charges being allowed for the transmission asset are summarised below:

(Rs. in lakh)

2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 Depreciation 159.06 159.06 159.06 29.62 29.62 Interest on Loan 38.06 23.79 10.11 2.42 0.47 Return on Equity 115.71 115.71 115.71 115.71 115.71 Interest on Working Capital 10.00 9.90 9.83 7.20 7.39 O & M Expenses 69.62 73.56 77.80 82.35 87.04 Total 392.45 382.02 372.51 237.31 240.24

Application fee and the publication expenses

31. The petitioner has sought approval for the reimbursement of fee paid by it for filing the petition. In accordance with our 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.

32. Accordingly, expenses incurred by the petitioner on application filing fees and publication of notices in connection with the present petition shall be directly recovered from the beneficiary on pro rata basis.

Service Tax

33. Presently, service tax on transmission service has been exempted by Government of India vide its notifications No. 20/2010 dated 27.2.2010 and No. 45/2010 dated 20.7.2010 Therefore, prayer made by the petitioner to recover the service tax on transmission charges from the beneficiaries has not been considered.

34. In addition to the transmission charges, the petitioner shall be entitled to other charges like income-tax, surcharge and other cess and taxes in accordance with the 2009 regulations.

35. The transmission charges allowed shall be recovered on monthly basis in accordance with Regulation 23 and shall be shared by the respondents in accordance with Regulation 33 of the 2009 regulations.

36. This order disposes of Petition No. 7/2010 with I.A No. 16/2010.

(Rs. In Lakh)

Details of Loan 2009-2010 2010-2011 2011-2012 2012-13 2013-14 1 Bond VII Gross Loan opening 669.00 669.00 669.00 669.00 669.00 Cumulative Repayment up to the date of commercial operation/previous year 669.00 669.00 669.00 669.00 669.00 Net Loan-Opening 0.00 0.00 0.00 0.00 0.00 Additions during the year 0.00 0.00 0.00 0.00 0.00 Repayment during the year 0.00 0.00 0.00 0.00 0.00 Net Loan-Closing 0.00 0.00 0.00 0.00 0.00 Average Loan 0.00 0.00 0.00 0.00 0.00 Rate of Interest 0.00% 0.00% 0.00% 0.00% 0.00% Interest 0.00 0.00 0.00 0.00 0.00 Rep Schedule 5 Annual Instalments from 4.8.2003 2 Bond XIII Opion II Gross Loan opening 518.00 518.00 518.00 518.00 518.00 Cumulative Repayment up to the date of commercial operation/previous year 517.99 517.99 517.99 517.99 517.99 Net Loan-Opening 0.01 0.01 0.01 0.01 0.01 Additions during the year 0.00 0.00 0.00 0.00 0.00 Repayment during the year 0.00 0.00 0.00 0.00 0.00 Net Loan-Closing 0.01 0.01 0.01 0.01 0.01 Average Loan 0.01 0.01 0.01 0.01 0.01 Rate of Interest 7.85% 7.85% 7.85% 7.85% 7.85% Interest 0.00 0.00 0.00 0.00 0.00 Rep Schedule 6 Annual Instalments from 31.7.2003 3 Corp Bank Gross Loan opening 334.00 334.00 334.00 334.00 334.00 Cumulative Repayment up to the date of commercial operation/previous year 183.70 217.10 250.50 283.90 317.30 Net Loan-Opening 150.30 116.90 83.50 50.10 16.70 Additions during the year 0.00 0.00 0.00 0.00 0.00 Repayment during the year 33.40 33.40 33.40 33.40 16.70 Net Loan-Closing 116.90 83.50 50.10 16.70 0.00 Average Loan 133.60 100.20 66.80 33.40 8.35 Rate of Interest 10.90% 10.90% 10.90% 10.90% 10.90% Interest 14.56 10.92 7.28 3.64 0.91 Rep Schedule 20 Half yearly Instalments from 10.3.2004 4 PNB-I Gross Loan opening 669.00 669.00 669.00 669.00 669.00 Cumulative Repayment up to the date of commercial operation/previous year 401.40 468.30 535.20 602.10 669.00 Net Loan-Opening 267.60 200.70 133.80 66.90 0.00 Additions during the year 0.00 0.00 0.00 0.00 0.00 Repayment during the year 66.90 66.90 66.90 66.90 0.00 Net Loan-Closing 200.70 133.80 66.90 0.00 0.00 Average Loan 234.15 167.25 100.35 33.45 0.00 Rate of Interest 9.41% 9.41% 9.41% 9.41% 9.41% Interest 22.03 15.74 9.44 3.15 0.00 Rep Schedule 10 Annual Instalments from 30.3.2004 5 BOI (foreign currency) Gross Loan opening 151.98 151.98 151.98 151.98 151.98 Cumulative Repayment up to the date of commercial operation/previous year 40.00 47.99 55.99 63.99 71.99 Net Loan-Opening 111.99 103.99 95.99 87.99 79.99 Additions during the year 0.00 0.00 0.00 0.00 0.00 Repayment during the year 8.00 8.00 8.00 8.00 8.00 Net Loan-Closing 103.99 95.99 87.99 79.99 71.99 Average Loan 107.99 99.99 91.99 83.99 75.99 Rate of Interest 3.3163% 3.3163% 3.3163% 3.3163% 3.3163% Interest 3.58 3.32 3.05 2.79 2.52 Rep Schedule Equal Half yearly instalments from 10.6.2004 Total Loan Gross Loan opening 2341.98 2341.98 2341.98 2341.98 2341.98 Cumulative Repayment up to the date of commercial operation/previous year 1812.09 1920.38 2028.68 2136.98 2245.28 Net Loan-Opening 529.90 421.60 313.30 205.00 96.70 Additions during the year 0.00 0.00 0.00 0.00 0.00 Repayment during the year 108.30 108.30 108.30 108.30 24.70 Net Loan-Closing 421.60 313.30 205.00 96.70 72.00 Average Loan 475.75 367.45 259.15 150.85 84.35 Rate of Interest 8.4452% 8.1581% 7.6309% 6.3469% 4.0676% Interest 40.18 29.98 19.78 9.57 3.43

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