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Case Number
Attorney(S)
  • 1. Shri S.S Raju, PGCIL
  • 2. Shri Rajeev Gupta, PGCIL
  • 3. Shri U.K Tyagi, PGCIL
Judges
  • Pramod Deo
  • Chairperson
  • V.S Verma, Member
  • M. Deena Dayalan, Member
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Citation Codes
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citation codes
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Attorney(S)
  • 1. Shri S.S Raju, PGCIL
  • 2. Shri Rajeev Gupta, PGCIL
  • 3. Shri U.K Tyagi, PGCIL
Judges
  • Pramod Deo
  • Chairperson
  • V.S Verma, Member
  • M. Deena Dayalan, Member
Acts
See more information ...
Smart Summary

Comprehensive Summary of the Opinion — Petition No. 18/2011

Factual and Procedural Background

This petition sought approval for determination of transmission tariff for specified transmission assets under Western Region Strengthening Scheme-II (WRSS-II), Set C, for the period from the respective dates of commercial operation (DOCO) to 31.3.2014, based on the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2009 ("the 2009 regulations").

The transmission assets comprised extensions and bay works at specified 400/220 kV substations (GETCO and POWERGRID portions) and associated 400 kV D/C lines; they were grouped as "Combined Asset-1" (DOCO 1.4.2011) and "Combined Asset-2" (DOCO 1.6.2011) for tariff determination. Administrative approval and expenditure sanction was given by the Ministry of Power (letter No. 12/7/2004-PG dated 24.7.2006) at an estimated cost of Rs. 522,123 lakh (including IDC of Rs. 38,042 lakh) based on 4th quarter, 2005 price levels, with portions apportioned between PGCIL and IPTC.

The petitioner published notices under Section 64 of the Electricity Act, 2003; no comments from the general public were received and none of the respondents filed replies. The Commission heard representatives of the petitioner, examined the material on record, applied relevant provisions of the 2009 regulations and other applicable Commission directions, and disposed of the petition by issuing this order.

Legal Issues Presented

  1. Whether approval should be granted for determination of transmission tariff for the identified transmission assets (Combined Asset-1 and Combined Asset-2) for the period up to 31.3.2014 in accordance with the 2009 regulations.
  2. How to treat capital cost and its components (including allocation of expenditure as on DOCO and projected additional capitalization) for tariff purposes under Regulation 7 and Regulation 9 of the 2009 regulations.
  3. Whether interest during construction (IDC) and interest on pre‑operative expenditure (IEDC) should be disallowed because of delay in commissioning, or allowed given the revised contractual/RCOD position.
  4. Admissibility and treatment of projected additional capital expenditure within the cut‑off date defined by the 2009 regulations.
  5. Appropriate debt‑equity ratio to be applied for tariff calculation and treatment of equity in excess of 30% (Regulation 12).
  6. Computation of Return on Equity (ROE), including grossing up and the applicable pre‑tax rate (Regulation 15).
  7. Computation of interest on loan using normative loan principles, weighted average rate of interest and repayments (Regulation 16).
  8. Computation of depreciation (Regulation 17) and application of prescribed rates and methods.
  9. Norms for Operation & Maintenance (O&M) expenses applicable to the assets (Regulation 19) and treatment of wage‑revision impacts.
  10. Components and rate for interest on working capital (Regulation 18), including the rate to be applied for the tariff period.
  11. Determination of the final transmission charges for the tariff years (pro‑rata and annual figures) and directions regarding sharing of charges and other incidental claims (filing fee, service tax, licence fee).

Arguments of the Parties

Petitioner's Submissions

  • The petitioner sought approval for tariff for Combined Asset‑1 (DOCO 1.4.2011) and Combined Asset‑2 (DOCO 1.6.2011) for the 2009‑14 period as computed in the petition.
  • The petitioner provided detailed capital cost, projected additional capitalization (final and retention payments), and the date‑wise apportionment of expenditure; it sought admission of additional capital expenditure within the cut‑off date.
  • The petitioner stated that the delay in commissioning (9 months for Asset‑1 and 11 months for Asset‑2 from original DOCO) was not attributable to it because assets were commissioned prior to the Required Commercial Operation Date (RCOD) of 30.6.2011 agreed between PGCIL and WRTGL; accordingly, IDC and IEDC should not be disallowed.
  • The petitioner calculated ROE by grossing up the base rate per Regulation 15 and requested grossing up the base rate of ROE based on tax rates (MAT, surcharge, other levies) "as per the relevant Finance Act", to be settled in accordance with Regulation 15 and its amendment.
  • The petitioner claimed O&M based on normalized actual O&M expenses (2003‑04 to 2007‑08) and included a 50% wage‑hike on account of pay revision; it reserved the right to approach the Commission for revision in O&M norms if the wage‑revision impact exceeds 50%.
  • The petitioner sought recovery of petition filing fee and publication expenses from beneficiaries.
  • The petitioner prayed for permission to bill and recover service tax separately from respondents if the exemption is withdrawn (a prayer the Commission considered premature).
  • The petitioner sought reimbursement of licence fee (to be dealt with as per the Commission's earlier order dated 25.10.2011).

Respondents / Other Parties

  • No respondents filed any reply to the petition, and no public comments were received in response to the notices published under Section 64 of the Electricity Act, 2003.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Commission's Letter No. C‑7/189(204)/2009‑CERC dated 23.10.2009 Procedure for clubbing assets for tariff determination (administrative procedure used by the Commission). The assets in the petition were clubbed for tariff determination in line with the procedure defined in this letter; tariff for Combined Asset‑1 and Combined Asset‑2 were computed accordingly.
Order dated 31.12.2010 in Petition No. 296/2010 (Central Electricity Regulatory Commission) Directed WRTGL and PGCIL to mutually decide extension of RCOD and related commissioning issues in terms of the Implementation Agreement; addressed delay in commencement/completion. The Commission relied on the finding and direction in that order to accept that the petitioner commissioned assets prior to the mutually agreed RCOD of 30.6.2011 and therefore did not disallow IDC/IEDC on account of the delay which was not attributable to the petitioner.
Order dated 11.1.2010 in Petition No. 109/2009 (Central Electricity Regulatory Commission) Decision on entitlement of a petitioner to recover petition filing fee from beneficiaries. The Commission applied this decision to allow the petitioner to recover filing fee and publication expenses from beneficiaries on pro rata basis in the present petition.
Order dated 25.10.2011 in Petition Nos. 21/2011 and 22/2011 (Central Electricity Regulatory Commission) Determination/process for reimbursement of licence fee. The Commission clarified that the petitioner's prayer for reimbursement of licence fee will be dealt with in accordance with that order.

Court's Reasoning and Analysis

The Commission analyzed the petition by applying the specific provisions of the 2009 regulations and the Commission's prior directions and procedures. The analysis proceeded issue‑by‑issue as set out below, reflecting the explicit reasoning in the opinion.

Capital Cost (Regulation 7)

The Commission applied Regulation 7(1) of the 2009 regulations to determine capital cost, considering "expenditure incurred or projected to be incurred, including interest during construction and financing charges" up to the date of commercial operation as admitted after prudence check. The Commission considered capital expenditure as on the respective DOCOs (Rs. 2,017.43 lakh for Combined Asset‑1 as on 1.4.2011 and Rs. 5,159.78 lakh for Combined Asset‑2 as on 1.6.2011) for tariff determination for 2009‑14.

Treatment of IDC and IEDC

The Commission noted the Implementation Agreement context and prior Commission directions (including the 31.12.2010 order in Petition No. 296/2010) which led to an amended RCOD (Required Commercial Operation Date) of 30.6.2011. The petitioner had commissioned Asset‑1 and Asset‑2 prior to that RCOD. The Commission concluded that the delay from the original DOCO was not attributable to the petitioner and therefore did not disallow IDC and IEDC. However, the Commission held that any liquidated damages received by the petitioner from the party at fault shall be passed on to the beneficiaries.

Additional Capital Expenditure and Cut‑off Date (Regulation 9)

The Commission applied Regulation 9(1) and the 2009 regulations' definition of "cut‑off date" (31st March of the year closing after two years of the year of commercial operation, with special rule for last quarter DOCOs) to determine that the cut‑off date for the assets is 31.3.2014. The petitioner’s claimed additional capital expenditure (final and retention payments) for the years 2011‑12, 2012‑13 and 2013‑14 fell within the cut‑off date and was therefore considered for tariff calculation after prudence check.

Debt‑Equity Ratio (Regulation 12)

The Commission applied Regulation 12 to treat the normative debt‑equity ratio as 70:30 for both Combined Asset‑1 and Combined Asset‑2 for tariff calculation. The detailed tables provided in the petition were accepted, and the 70:30 split was used for both capital cost as on DOCO and projected additional capital expenditure.

Return on Equity (Regulation 15)

Regulation 15 was applied to compute ROE on the equity base determined under Regulation 12. The Commission computed ROE on a pre‑tax basis: base rate 15.5% grossed up using the specified tax rate (tax rate for 2008‑09 stated as 11.33%), resulting in a pre‑tax ROE of 17.481%. The Commission recorded that the petitioner's prayer to gross up ROE based on tax rates (MAT, surcharge, etc.) would be settled in accordance with Regulation 15 and the Second Amendment Regulations, 2011. The Commission then applied the computed ROE to the average equity figures to derive the ROE amounts for the relevant years (e.g., Rs. 128.12 lakh for Combined Asset‑1 pro‑rata period, and specified amounts for Combined Asset‑2 for 2011‑12 through 2013‑14).

Interest on Loan (Regulation 16)

The Commission applied Regulation 16 to calculate interest on loan using gross normative loan, normative repayments (deemed equal to depreciation), and the weighted average rate of interest based on the actual loan portfolio. Specific methodological points applied by the Commission (and reflected in the order) include:

  • Using gross amount of loan, repayment schedule and actual rates from the petition to compute the weighted average rate of interest.
  • Applying normative loan and normative repayments for tariff calculation; depreciation used as normative repayment.
  • For floating rate loans, using interest rate as on date of commercial operation.
  • Considering cumulative repayments where petitioner omitted them (example: cumulative repayment against Bond XXIV for Combined Asset‑2).

The Commission then applied the computed weighted average interest rates to the normative average loan to arrive at interest on loan figures (tables and annexures give detailed calculations and rates such as 2.6907% for Combined Asset‑1 in 2011‑12 and weighted rates for Combined Asset‑2 across years).

Depreciation (Regulation 17)

Depreciation was computed under Regulation 17 on the admitted capital base using the Straight Line Method and the rates specified in Appendix‑III to the regulations. Salvage value of 10% and maximum allowable depreciation up to 90% were taken into account as per the regulation. Depreciation was charged pro rata for part years of commercial operation. The Commission accepted the petitioner's depreciation calculations for the admitted capital base and additional capitalization, and applied the stated depreciation rates to derive the yearly depreciation amounts for each combined asset.

Operation & Maintenance (Regulation 19)

The Commission applied the O&M norms prescribed in Regulation 19(g) for 400 kV bays (with year‑wise per‑bay norms for 2009‑10 through 2013‑14). The petitioner’s O&M calculations—based on normalized historical O&M and including a 50% wage‑hike assumption—were allowed in accordance with the prescribed norms for the relevant pro‑rata and full years. The Commission noted that a broader decision on reimbursement arising from wage revision would be applied to this case when taken in other petitions.

Interest on Working Capital (Regulation 18)

The Commission applied Regulation 18 to compute the components of working capital: maintenance spares (@15% of O&M), one month O&M, and receivables equivalent to two months of fixed charges. The rate of interest on working capital used was 11.75% (SBI Base Rate 8.25% as on 1.7.2010 plus 350 bps), in terms of the Second Amendment Regulations, 2011 dated 21.6.2011. The Commission computed interest on working capital accordingly for the assets and tariff periods.

Transmission Charges and Other Directions

Applying all of the above computations, the Commission summarized the allowed transmission charges for Combined Asset‑1 and Combined Asset‑2 for the relevant tariff periods (including pro‑rata figures). The Commission directed that the petitioner may recover petition filing fee and publication expenses from beneficiaries as per its earlier order (11.1.2010). The petitioner's prayer to bill and recover service tax separately was held premature; the petitioner was permitted to approach the Commission at the appropriate time. Reimbursement of licence fee would be dealt with in accordance with the Commission's order dated 25.10.2011. The Commission also gave directions on sharing of transmission charges: prior to 1.7.2011 the charges shall be shared as per Regulation 33 of the 2009 regulations, and from 1.7.2011 onwards as per the Central Electricity Regulatory Commission (Sharing of inter‑State Transmission Charges and Losses) Regulations, 2010 and Removal of Difficulties orders issued thereunder.

Holding and Implications

Core Ruling: Petition No. 18/2011 is disposed of. The tariff for the transmission assets identified in the petition (Combined Asset‑1 and Combined Asset‑2) has been determined and allowed for the periods and in the amounts summarized in the order, applying the provisions of the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2009 and relevant Commission directions.

Direct implications and orders given in this decision:

  • Capital expenditure as on DOCO considered: Rs. 2,017.43 lakh for Combined Asset‑1 (as on 1.4.2011) and Rs. 5,159.78 lakh for Combined Asset‑2 (as on 1.6.2011) for tariff determination for 2009‑14.
  • Additional capital expenditure claimed by the petitioner (final and retention payments) falling within the cut‑off date (31.3.2014) is considered for tariff calculation.
  • IDC and IEDC are not disallowed because the assets were commissioned prior to the mutually agreed RCOD of 30.6.2011; liquidated damages, if any, shall be passed on to beneficiaries.
  • Normative debt‑equity ratio of 70:30 has been applied for both Combined Asset‑1 and Combined Asset‑2 for tariff calculation.
  • Return on Equity has been computed on pre‑tax basis at the grossed‑up rate of 17.481% (base 15.5% grossed up using the stated tax rate), and applied to average equity to obtain ROE amounts set out in the order.
  • Interest on loan has been computed using normative loans, normative repayments (depreciation), and weighted average rates of interest derived from the petitioner's loan schedules; detailed computations are set out in Annexures I and II to the order.
  • Depreciation has been allowed as computed under Regulation 17 using Straight Line Method and prescribed rates; O&M norms applied as per Regulation 19.
  • Interest on working capital has been allowed with components per Regulation 18 and at the rate of 11.75% (per Second Amendment Regulations, 2011).
  • The petitioner's filing fee and publication expenses shall be recovered from beneficiaries on a pro rata basis (in accordance with the Commission's 11.1.2010 order); the petitioner's prayer to bill service tax separately is premature and may be pursued later if appropriate; licence fee reimbursement will be dealt with per the Commission's 25.10.2011 order.
  • Sharing of transmission charges: prior to 1.7.2011 as per Regulation 33 of the 2009 regulations; from 1.7.2011 onwards as per the CERC (Sharing of inter‑State Transmission Charges and Losses) Regulations, 2010 and Removal of Difficulties orders.

The order contains detailed numeric schedules and annexures (including Annexure I and II setting out weighted average rate of interest calculations) which specify the exact figures used to arrive at the allowed transmission charges. The opinion does not state that it establishes a novel legal precedent beyond application of the 2009 regulations and prior Commission directions; it applies those provisions to the facts and grants the reliefs and directions described above.

This summary is prepared strictly from the content of the provided opinion and does not add, infer or interpret facts beyond what is stated in that text.

Show full summary ...

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

    This petition has been filed seeking approval for determination of transmission tariff for assets of (i) Bay Extension at 400/220kV Limbdi Substation (GETCO)&Ranchchodpura (Vadavi) (GETCO) Sub-station for 400 kV D/C Limbdi - Vadavi (WRGL) Transmission Line&Bay Extension at 400/220 kV Ranchchodpura (Vadavi) (GETCO) Sub-station&Zerda Sub-station (GETCO) for 400 kV D/C Vadavi - Zerda (WRGL) TL and (ii) Combined assets of (i) and Bay Extension at 400/220 kV Rajgarh Sub-station (Power Grid) along with 25% FSC&Bay extension at 400/220 kV Karamsad (Kasor) (GETCO) Sub-station for 400 kV D/C Rajgarh - Kasor (WRGL) TL under Western Region Strengthening Scheme-II (WRSS-II), Set C Scheme of Western Region (hereinafter referred to as “the transmission assets”) for the period from date of commercial operation 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 administrative approval and expenditure sanction to the transmission project was accorded by the Ministry of Power, Government of India, vide their letter No. 12/7/2004-PG dated 24.7.2006 at an estimated cost of Rs. 522123 lakh including IDC of Rs. 38042 lakh (based on 4th quarter, 2005 price level) consisting of (i) Rs. 358140 lakh (including IDC of Rs. 25062 lakh) for PGCIL portion and (ii) Rs. 163983 lakh (including IDC of Rs. 12980 lakh) for IPTC's portion.

    3. The details of the assets under WRSS-II, Set C Scheme, covered under the present petition and their respective dates of commercial operation are as under:—

    S. No. Name of Assets Date of commercial operation 1 Bay Extension at 400/220 kV Limbdi sub-station (GETCO)&Ranchchodpura (Vadavi)(GETCO) sub-station for 400 kV D/C Limbdi-Vadavi (WRGL) transmission line&Bay Extension at 400/220 kV Ranchchodpura (Vadavi)(GETCO) sub-station&Zerda sub-station (GETCO) for 400 kV D/C Vadavi-Zerda (WRGL) transmission line -Asset I 1.4.2011 2 Bay Extension at 400/220 kV Rajgarh substation (POWERGRID) along with 25% FSC&Bay extension at 400/220 kV Karamsad (Kasor) (WRGL) transmission line-Asset-II 1.6.2011

    4. In line with the procedure defined in the Commission's Letter No C-7/189(204)/2009-CERC dated 23.10.2009, assets of (i) Bay Extension at 400/220kV Limbdi Sub-station (GETCO)&Ranchchodpura (Vadavi) (GETCO) Sub-station for 400 kV D/C Limbdi - Vadavi (WRGL) Transmission Line&Bay Extension at 400/220 kV Ranchchodpura (Vadavi) (GETCO) Substation&Zerda Sub-station (GETCO) for 400 kV D/C Vadavi - Zerda (WRGL) TL and (ii) Bay Extension at 400/220 kV Rajgarh Sub-station (Power Grid) along with 25% FSC&Bay extension at 400/220 kV Karamsad (Kasor) (GETCO) Sub-station for 400 kV D/C Rajgarh - Kasor (WRGL) Transmission Line have been clubbed for the purpose of determination of transmission charges as per details given overleaf:—

    (a) Tariff for Combined Asset-1 (date of commercial operation: 1.4.2011) has been computed for the 2009-14 period and which would be applicable for the period 1.4.2011 to 31.5.2011;

    (b) Tariff for Combined Asset-2 has been computed for the period 1.6.2011 to 31.3.2014

    5. Details of the transmission charges claimed by the petitioner are as given hereunder:—

    (Rs. in lakh)

    Combined Asset 1 2011-2012 (Pro-rata) Depreciation 130.85 Interest on Loan 44.25 Return on equity 128.12 Interest on Working Capital 29.76 O&M Expenses 468.56 Total 801.54

    (Rs. in lakh)

    Combined Asset 2 2011-2012 2012-2013 2013-2014 Depreciation 282.14 423.78 452.01 Interest on Loan 84.92 117.63 113.75 Return on equity 277.86 417.88 445.92 Interest on Working Capital 47.62 63.36 66.93 O&M Expenses 683.32 866.88 916.44 Total 1375.86 1889.53 1995.05

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

    (Rs. in lakh)

    Combined Asset 1 2011-2012 (Pro-rata) Maintenance Spares 70.28 O & M expenses 39.05 Receivables 133.59 Total 242.92 Rate of Interest 12.25% Interest 29.76 Combined Asset 2 2011-2012 2012-2013 2013-2014 Maintenance Spares 123.00 130.03 137.47 O & M expenses 68.33 72.24 76.37 Receivables 275.17 314.92 332.51 Total 466.50 517.19 546.35 Rate of Interest 12.25% 12.25% 12.25% Interest 47.62 63.36 66.93

    7. 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 any reply to the petition.

    8. Having heard the representatives of the petitioner and perused the material on records, we proceed to dispose of the petition.

    CAPITAL COST

    9. As regards the capital cost, regulation 7(1) of the 2009 regulations provides as under:

    “(1) Capital cost for a project shall include

    (a) 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.”

    10. Details of apportioned approved cost, cost as on date of commercial operation and estimated additional capitalization projected to be incurred for the assets covered in the petition are given hereunder:—

    (Rs. in lakh)

    Sl. No. Asset Apportioned approved cost Expenditure as on anticipated DOCO (1.4.11/1.6.11) Projected expenditure during 2011-2012 Total estimated expenditure during 2012-2013 Projected expenditure during 2013-2014 Total estimated completion cost 1. Combined Asset-1 3373.72 2017.43 850.97 230.00 55.00 3153.40 2. Combined Asset-2 9725.76 5159.78 2396.38 824.15 245.13 8625.43

    Accordingly, capital expenditure of Rs. 2017.43 lakh for Combined Asset-1 and Rs. 5159.78 lakh for Combined Asset-2 as on 1.4.2011 and 1.6.2011 respectively has been considered for tariff determination for 2009-14.

    TREATMENT OF IDC AND IEDC

    11. It has been mentioned in the petition that as per investment approval in WRSS Scheme-II, PGCIL is implementing substation portion (including bay extension works) for Set-B and Set-C whereas WRTGL is implementing transmission lines under Set-C. This project is being implemented by these two entities, i.e PGCIL and WRTGL. As per the Implementation Agreement, the lines and sub-stations are to be commissioned simultaneously. The scheduled date of commercial operation of the Projects (Project-B and Project-C) was 31.3.2010 The Commission while granting the transmission licence to WRTGL allowed nine months extension for achieving the commercial operation of the projects, i.e, up to 31.12.2010, considering the delay in signing of Power Transmission Agreement by the beneficiaries. Accordingly, amendment in Revised Commercial Operation Date (RCOD) upto 31.12.2010 was issued by PGCIL on 27.3.2009 Subsequently, in the order dated 31.12.2010 in Petition No. 296/2010, the Commission had directed WRTGL and PGCIL to mutually decide the issue of extension of RCOD in respect of the transmission lines of WRTGL and the commissioning of the sub-stations of PGCIL in terms of the relevant provisions of the Implementation Agreement keeping in view the finding of the Commission regarding the delay in commencement and completion of the project and to arrive at a mutual agreement for early completion of the project. PGCIL and WRTGL have mutually agreed to amend the provisions regarding RCOD as under:—

    “Required Commercial Operation Date-means the date by which the Project-C is required to be made ready for commercial operation under the Agreement which, unless extended in accordance with Clause 3.5 or Clause 4.4, shall be June 30, 2011.

    12. The transmission system developed by WRTGL has not yet been commissioned. However, the petitioner has commissioned the Asset-1 and Asset-2 on 1.4.2011 and 1.6.2011 respectively. Though there is a delay of 9 months in the commissioning of Asset-1 and 11 months in the commissioning of Asset-2 respectively from the original date of commercial operation, the assets have been commissioned prior to the date of RCOD of 30.6.2011 which was necessitated on account of the delay in commissioning of the transmission lines of WRTGL. The delay is therefore not attributable to the petitioner and therefore, IDC and IEDC are not being disallowed. However, liquidated damages, if any, received by the petitioner from party at default shall be passed on to the beneficiaries.

    PROJECTED ADDITIONAL CAPITAL EXPENDITURE

    13. As regards additional capital expenditure, Regulation 9(1) of the 2009 regulations provides as under:—

    “Additional Capitalisation: (1) The capital expenditure incurred or projected to be incurred, on the following counts within the original scope of work, after the date of commercial operation and up to the cut-off date may be admitted by the Commission, subject to prudence check:

    (i) Undischarged liabilities;

    (ii) XXX

    (iii) XXX

    (iv) XXX

    (v) XXX”

    14. Further, the 2009 regulations defines cut-off date as—

    “cut-off date means 31st March of the year closing after 2 years of the year of commercial operation of the project, and in case the project is declared under commercial operation in the last quarter of the year, the cut-off date shall be 31st March of the year closing after 3 years of the year of commercial operation”.

    Based on the above definition, cut-off date for the above mentioned assets is 31.3.2014

    15. The petitioner has claimed additional capital expenditure of Rs. 850.97 lakh, Rs. 230.00 lakh and Rs. 55.00 lakh for Combined Asset-1 and Rs. 2396.38 lakh, Rs. 824.15 lakh and Rs. 245.13 lakh for Combined Asset - 2 for the years 2011-2012 (date of commercial operation to 31.3.2012), 2012-2013 and 2013-2014 respectively. Additional capital expenditure claimed is for Final and Retention Payment. Additional capital expenditure falls within the cut-off date. Hence, the same has been considered for the purpose of tariff calculation.

    DEBT-EQUITY RATIO

    16. Regulation 12 of the 2009 regulations provides as under:—

    “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.

    17. Details of debt-equity of assets considered the purpose of tariff calculation as on date of commercial operation are given hereunder:—

    Capital Cost as on date of commercial operation Combined Asset-1 Particulars (Rs. (in lakh) % Debt 1412.19 70.00 Equity 605.24 30.00 Total 2017.43 100.00
    Combined Asset-2 Particulars (Rs. (in lakh) % Debt 3611.85 70.00 Equity 1547.93 30.00 Total 5159.78 100.00

    18. Details of debt equity ratio considered for projected additional capital expenditure (referred to as “Add cap” in the tables herein below) for Asset-1 are given hereunder:—

    Normative (Rs. in lakh) % Combined Asset-1 Add Cap for 2011-2012 Debt 595.68 70.00 Equity 255.29 30.00 Total 850.97 100.00 Add Cap for 2012-2013 Debt 161.00 70.00 Equity 69.00 30.00 Total 230.00 100.00 Add Cap for 2013-2014 Debt 38.50 70.00 Equity 16.50 30.00 Total 55.00 100.00

    19. Details of debt-equity projected for Add-Cap for Asset 2 are given hereunder:—

    Combined Asset-2 Add Cap for 2011-2012 Debt 1677.47 70.00 Equity 718.91 30.00 Total 2396.38 100.00
    Add Cap for 2012-2013 Debt 576.91 70.00 Equity 247.25 30.00 Total 824.15 100.00
    Add Cap for 2013-2014 Debt 171.59 70.00 Equity 73.54 30.00 Total 245.13 100.00

    20. Details of debt-equity ratio as on 31.3.2014 are as given hereunder:—

    As on 31.3.2014 Asset-2 Particulars (Rs. (in lakh) % Debt 6037.81 70.00 Equity 2587.63 30.00 Total 8625.44 100.00

    21. The above stated debt - equity ratio of 70:30 for Combined Asset-1 and Combined Asset-2 have been applied for the purpose of tariff calculation in this order.

    RETURN ON EQUITY

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

    “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 ofprojects 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:

    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 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 financial year during the tariff period shall be trued up in accordance with Regulation 6 of these regulations”

    23. Return on equity has been calculated as per Regulation 15 of the 2009 regulations with pre-tax ROE of 17.481%.

    24. 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, shall be settled in accordance with the provisions of Regulation 15 of 2009 regulations as amended by Central Electricity Regulatory Commission (Terms and Conditions of Tariff) (Second Amendment) Regulations, 2011.

    25. Return on Equity for Combined Asset-1 works out to Rs. 128.12 lakh from date of commercial operation to 31.3.2012 Combined Asset-1 has been clubbed in Combined Asset-2 as on 1.6.2011 Therefore, Return on Equity for Combined Asset-1 works out to Rs. 21.35 lakh from 1.4.2011 to 31.5.2011 Return on Equity for Combined Asset-2 works out to Rs. 277.86 lakh from date of commercial operation, i.e 1.6.2011 to 31.3.2012, Rs. 417.88 lakh for 2012-2013 and Rs. 445.92 lakh for 2013-2014. In view of the above, the following amount of equity has been considered for calculation of return on equity:—

    (Rs. in lakh)

    Combined Asset 1 2011-2012 Opening Equity 605.24 Addition due to additional capital expenditure 255.29 Closing Equity 860.53 Average Equity 732.89 Return on Equity (Base Rate) 15.50% Tax rate for the year 2008-2009 11.33% Rate of Return on Equity (Pre Tax) 17.481% Return on Equity (Pre Tax) 128.12

    (Rs. in lakh)

    Combined Asset 2 2011-2012 2012-2013 2013-2014 Opening Equity 1547.93 2266.84 2514.09 Addition due to additional capital expenditure 718.91 247.25 73.54 Closing Equity 2266.84 2514.09 2587.63 Average Equity 1907.39 2390.47 2550.86 Return on Equity (Base Rate) 15.50% 15.50% 15.50% Tax rate for the year 2008-2009 11.33% 11.33% 11.33% Rate of Return on Equity (Pre Tax) 17.481% 17.481% 17.481% Return on Equity (Pre Tax) 277.86 417.88 445.92

    INTEREST ON LOAN

    26. Regulation 16 of the 2009 regulations provides as under:—

    “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.”

    27. In these calculations, interest on loan has been worked out as given hereunder:—

    (a) Gross amount of loan, repayment of instalments and rate of interest on actual loan have been considered as per the petition to work out the weighted average rate of interest;

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

    (c) For loans with floating interest rates, rates of interest as on date of commercial operation have been considered;

    (d) Repayment installments for IBRD IV loans have been calculated as per the supporting documents;

    (e) 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;

    (f) For combined Asset-2 cumulative repayment against Bond XXIV up to date of commercial operation was not considered by the petitioner. The same has been considered in the calculation for working out the Weighted Average Rate of Interest.

    28. Detailed calculation of the weighted average rate of interest has been given in Annexure 1 and 2 to this order.

    29. Details of the interest on loan worked on the above basis are given hereunder:—

    (Rs. in lakh)

    Combined Asset-1 2011-2012 Gross Normative Loan 1412.19 Cumulative Repayment upto Previous Year 0.00 Net Loan-Opening 1412.19 Addition due to additional capital expenditure 595.68 Repayment during the year 130.85 Net Loan-Closing 1877.02 Average Loan 1644.61 Weighted Average Rate of Interest on Loan 2.6907% Interest 44.25

    (Rs. in lakh)

    Combined Asset-2 2011-2012 2012-2013 2013-2014 Gross Normative Loan 3611.85 5289.32 5866.22 Cumulative Repayment upto Previous Year 21.81 303.95 727.73 Net Loan-Opening 3590.04 4985.37 5138.49 Addition due to additional capital expenditure 1677.47 576.91 171.59 Repayment during the year 282.14 423.78 452.01 Net Loan-Closing 4985.37 5138.49 4858.07 Average Loan 4287.71 5061.93 4998.28 Weighted Average Rate of Interest on Loan 2.3238% 2.2702% 2.2209% Interest 83.03 114.91 111.01

    DEPRECIATION

    30. 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.”

    31. Depreciation has been calculated on the basis of capital expenditure as on the date of commercial operation. Cumulative depreciation of Combined Asset 1 upto the date of commercial operation of Combined Asset 2 has been considered for the purpose of calculation of tariff.

    32. Details of the depreciation worked out are as given hereunder:—

    (Rs. in lakh)

    Combined Asset-1 2011-2012 Opening Gross Block 2017.43 Addition during 2009-14 850.97 Closing Gross Block 2868.40 Average Gross Block 2442.92 Rate of Depreciation 5.3561% Depreciable Value 2198.62 Remaining Depreciable Value 2198.62 Depreciation 130.85 Draft Order in Petition No. 18-2011

    (Rs. in lakh)

    Combined Asset-2 2011-2012 2012-2013 2013-2014 Opening Gross Block 5159.78 7556.16 8380.31 Addition during 2009-14 2396.38 824.15 245.13 Closing Gross Block 7556.16 8380.31 8625.44 Average Gross Block 6357.97 7968.24 8502.88 Rate of Depreciation 5.3251% 5.3184% 5.3160% Depreciable Value 5722.17 7171.41 7652.59 Remaining Depreciable Value 5700.37 6867.46 6924.86 Depreciation 282.14 423.78 452.01

    OPERATION&MAINTENANCE EXPENSES

    33. Clause (g) of Regulation 19 of the 2009 regulations prescribes the norms for operation and maintenance expenses based on the type of substation and line. Norms prescribed in respect of the elements covered in the instant petition are as given as under:—

    Element 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 400 kV bays (Rs. lakh per Bay) 52.40 55.40 58.57 61.92 65.46

    34. Based on the above norms, the petitioner has calculated the following operation and maintenance expenses which are allowed as per details given hereunder:—

    (Rs. in lakh)

    Combined Asset-1 Elements 2011-2012 (pro-rata for 2 months, i.e, April-May 2011) 8 Nos. 400 kV, bays 78.09 Total 78.09
    Combined Asset-2 Elements 2011-2012 (pro-rata for 10 months, i.e, June 2011-March 2012) 2012-2013 2013-2014 14 Nos. 400 kV, bays 683.32 866.88 916.44 Total 683.32 866.88 916.44

    35. The petitioner has submitted that O&M expenditure for the period 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 would 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%.

    36. We observe that the issue regarding reimbursement of additional expenditure on account wage revision has been raised by the petitioner in other petitions also. The decision as and when taken will be applicable to the present case also.

    INTEREST ON WORKING CAPITAL

    37. As per the 2009 regulations the components of the working capital and the interest thereon are discussed overleaf:

    (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 these calculations, interest rate of 11.75% (SBI Base Rate 8.25% as on 1.7.2010 plus 350 bps) has been considered for calculating interest on working capital, in terms of Central Electricity Regulatory Commission (Terms&Conditions of Tariff) (Second Amendment) Regulations, 2011 dated 21.6.2011

    38. Necessary computations in support of interest on working capital are given hereunder:—

    (Rs. in lakh)

    2011-2012 (pro-rata) Maintenance Spares 70.28 O&M expenses 39.05 Receivables 133.38 Total 242.71 Rate of Interest 11.75% Interest 28.52

    (Rs. in lakh)

    Combined Asset-2 2011-2012 2012-2013 2013-2014 Maintenance spares 123.00 130.03 137.47 O&M expenses 68.33 72.24 76.37 Receivables 274.39 314.02 331.58 Total 465.72 516.29 545.41 Rate of Interest 11.75 11.75 11.75 Interest 45.60 60.66 64.09

    TRANSMISSION CHARGES

    39. The transmission charges being allowed for the transmission assets are summarized as under:—

    (Rs. in lakh)

    Combined Asset-1 2011-2012 Tariff for 2 months Depreciation 130.85 21.81 Interest on Loan 44.25 7.38 Return on equity 128.12 21.35 Interest on Working Capital 28.52 4.75 O&M Expenses 468.56 78.09 Total 800.29 133.38

    (Rs. in lakh)

    Combined Asset-2 2011-2012 2012-2013 2013-2014 Depreciation 282.14 423.78 452.01 Interest on Loan 83.03 114.91 111.01 Return on equity 277.86 417.88 445.92 Interest on Working Capital 45.60 60.66 64.09 O&M Expenses 683.32 866.88 916.44 Total 1371.95 1884.12 1989.46

    OTHER ISSUES

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

    41. The petitioner has made a specific prayer to be allowed to bill and recover the service ta Rs. 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.

    42. As regards the prayer for reimbursement of licence fee, it is clarified that the same shall be dealt with in accordance with our order dated 25.10.2011 in Petition Nos. 21/2011 and 22/2011.

    43. As regards the sharing of the transmission charges, we direct that prior to 1.7.2011, the transmission charges shall be shared by the respondent in accordance with Regulation 33 of the 2009 regulations. From 1.7.2011 onwards, the charges shall be shared in accordance with Central Electricity Regulatory Commission (Sharing of inter-State Transmission Charges and Losses, Regulations, 2010) and the Removal of Difficulties orders issued thereunder.

    44. This order disposes of Petition No. 18/2011.

    ANNEXUREI

    CALCULATION OF WEIGHTED AVERAGE RATE OF INTEREST ON

    (Rs. in lakh)

    Details of Loan 2011-2012 2012-2013 2013-2014 1 Bond XXIV Gross loan opening 187.20 187.20 187.20 Cumulative Repayment upto DOCO/previous year 15.60 31.20 46.80 Net Loan-Opening 171.60 156.00 140.40 Additions during the year 0.00 0.00 0.00 Repayment during the year 15.60 15.60 15.60 Net Loan-Closing 156.00 140.40 124.80 Average Loan 163.80 148.20 132.60 Rate of Interest 9.95% 9.95% 9.95% Interest 16.30 14.75 13.19 Rep Schedule 12 annual Instalments from 26.03.2011 2 IBRD IV Gross loan opening 1224.99 1224.99 1224.99 Cumulative Repayment upto DOCO/previous year 0.00 0.00 0.00 Net Loan-Opening 1224.99 1224.99 1224.99 Additions during the year 0.00 0.00 0.00 Repayment during the year 0.00 0.00 27.11 Net Loan-Closing 1224.99 1224.99 1197.88 Average Loan 1224.99 1224.99 1211.43 Rate of Interest 1.72% 1.72% 1.72% Interest 21.07 21.07 20.84 Rep Schedule 30 half yearly Instalments from 15.11.2013 Total Loan Gross loan opening 1412.19 1412.19 1412.19 Cumulative Repayment upto DOCO/previous year 15.60 31.20 46.80 Net Loan-Opening 1396.59 1380.99 1365.39 Additions during the year 0.00 0.00 0.00 Repayment during the year 15.60 15.60 42.71 Net Loan-Closing 1380.99 1365.39 1322.68 Average Loan 1388.79 1373.19 1344.03 Rate of Interest 2.6907% 2.6082% 2.5320% Interest 37.37 35.82 34.03

    ANNEXURE II

    CALCULATION OF WEIGHTED AVERAGE RATE OF INTEREST ON LOAN

    (Rs. in lakh)

    Details of Loan 2011-2012 2012-2013 2013-2014 1 Bond XXIV Gross loan opening 299.70 299.70 299.70 Cumulative Repayment upto DOCO/previous year 24.98 49.95 74.93 Net Loan-Opening 274.73 249.75 224.78 Additions during the year 0.00 0.00 0.00 Repayment during the year 24.98 24.98 24.98 Net Loan-Closing 249.75 224.78 199.80 Average Loan 262.24 237.26 212.29 Rate of Interest 9.95% 9.95% 9.95% Interest 26.09 23.61 21.12 Rep Schedule 12 annual Instalments from 26.03.2011 2 IBRD IV Gross loan opening 3312.01 3312.01 3312.01 Cumulative Repayment upto DOCO/previous year 0.00 0.00 0.00 Net Loan-Opening 3312.01 3312.01 3312.01 Additions during the year 0.00 0.00 0.00 Repayment during the year 0.00 0.00 73.31 Net Loan-Closing 3312.01 3312.01 3238.70 Average Loan 3312.01 3312.01 3275.36 Rate of Interest 1.72% 1.72% 1.72% Interest 56.97 56.97 56.34 Rep Schedule 30 half yearly Instalments from 15.11.2013 Total Loan Gross loan opening 3611.71 3611.71 3611.71 Cumulative Repayment upto DOCO/previous year 24.98 49.95 74.93 Net Loan-Opening 3586.74 3561.76 3536.79 Additions during the year 0.00 0.00 0.00 Repayment during the year 24.98 24.98 98.28 Net Loan-Closing 3561.76 3536.79 3438.50 Average Loan 3574.25 3549.27 3487.64 Rate of Interest 2.3238% 2.2702% 2.2209% Interest 83.06 80.57 77.46

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    Power Grid Corporation Of India Limited v. Madhya Pradesh Power Trading Company Ltd.
    (Dec 13, 2011)