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Power Grid Corporation Of India Limited v. Karnataka Power Transmission Corporation Ltd.
Structured Summary of the Opinion — Petition No. 5/2009
Factual and Procedural Background
The petition sought approval of final transmission charges for three transmission assets (collectively "the transmission assets") forming part of the transmission system associated with Kaiga Units 3 and 4 (2×235 MW). The assets are: (i) a 50 MVAR Reactor at Narendra (Asset‑I), (ii) Narendra‑Devangiri transmission line and Bus Reactor at Mysore (Asset‑II), and (iii) a 2nd 315 MVA Auto Transformer at Hiriyur sub‑station with associated bays (Asset‑III). The period for which charges were sought is from each asset's date of commercial operation up to 31.3.2009, determined under the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004 ("the 2004 regulations"), after accounting for additional capitalization during 2007‑2008.
Investment approval for the transmission system was initially granted by the Ministry of Power on 29.3.2005 at an estimated cost of Rs. 58,825 lakh (including IDC Rs. 3,072 lakh); a revised cost estimate was approved by the petitioner's Board on 29.12.2008 at Rs. 100,716 lakh (including IDC Rs. 9,503 lakh). Provisional transmission charges had earlier been approved by the Commission on 30.9.2008 (Petition No. 93/2008). The petitioner also sought reimbursement of newspaper publication expenses and the petition filing fee.
A reply was filed by Tamil Nadu Electricity Board (TNEB); no public comments were received in response to statutory notices. The Commission held hearings, directed documentary support where necessary (for example in relation to delay in commissioning of Asset‑III), and reviewed submissions and calculations before issuing the final order that disposed of Petition No. 5/2009.
Legal Issues Presented
- Whether the transmission charges for the three transmission assets from their respective dates of commercial operation to 31.3.2009 should be admitted and quantified in accordance with the 2004 regulations, after accounting for additional capitalization during 2007‑2008.
- Whether the additional capital expenditure incurred after date of commercial operation up to the cut‑off date (2007‑2008) for Asset‑I and Asset‑II falls within the original scope of work and may be admitted subject to prudence check under Regulation 53 of the 2004 regulations.
- Whether the time over‑run in commissioning of Asset‑III is excusable (i.e., beyond the control of the petitioner) and thus should not attract any penal consequences for tariff determination.
- Whether certain adjustments requested by the objector (TNEB) — including restrictions on initial spares, equity treatment for Asset‑III, and correction of bays for O&M expenses — should be accepted.
- Whether the petitioner is entitled to reimbursement of publication expenses and the petition filing fee.
Arguments of the Parties
Tamil Nadu Electricity Board (Respondent) — Key Submissions / Requests
- Directed the petitioner to furnish details in Form 5B based on revised cost estimates.
- Requested that cost of mandatory (initial) spares be restricted to 1.50% of project cost for Asset‑I and Asset‑III.
- Requested that equity in respect of Asset‑III be restricted to ceiling norms of 30%.
- Requested that O&M expenses for Asset‑II be allowed only for 5 bays (instead of 6 bays claimed by the petitioner).
Petitioner — Key Responses and Submissions
- Furnished Form 5B details as requested by TNEB.
- Submitted that the cost of initial spares and the debt‑equity ratio should be considered for the transmission system as a whole and not on an asset‑wise basis.
- Corrected an inadvertent claim for O&M expenses for 6 bays (Asset‑II) to 5 bays by affidavit dated 6.4.2009.
- Explained delay in commissioning of Asset‑III (about 3 months) was due to delayed transformer supply caused by worldwide shortage of CRGO; furnished BHEL letter dated 6.12.2007 as documentary evidence.
- Claimed reimbursement of Rs. 1,52,883/‑ for publication of statutory notices and also sought petition filing fee reimbursement (the latter addressed separately by the Commission's general order).
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Commission's analysis proceeded by direct reference to and application of the applicable provisions of the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004. The Commission applied the relevant regulatory framework step‑by‑step to the petitioner's submissions and supporting documents.
Capital cost and additional capitalization (Regulation 52 & 53):
- Regulation 52(1) was applied to determine the admitted capital expenditure for final tariff — i.e., actual expenditure incurred up to the date of commercial operation including capitalised initial spares subject to a ceiling of 1.5% of original project cost, applicable to projects declared under commercial operation on or after 1.4.2004.
- Regulation 53(1) was applied to consider admissible categories of additional capital expenditure incurred after the date of commercial operation and up to the cut‑off date, subject to prudence check (examples include deferred liabilities, works deferred for execution, procurement of initial spares within the original scope, liabilities from arbitration/court orders, and change in law).
- The petitioner provided details of additional capitalization for 2007‑2008 for Asset‑I (Rs. 151.40 lakh) and Asset‑II (Rs. 83.05 lakh), identified as balance payments against committed liabilities. The Commission found that these additions were within the original scope and related to committed liabilities and therefore allowed capitalization for Asset‑I and Asset‑II.
Cost over‑run and time over‑run:
- The Commission noted that the estimated completion cost for the transmission assets remained within the revised cost estimate approved by the petitioner's Board (no cost over‑run in that sense).
- Regarding time over‑run for Asset‑III, the petitioner attributed a roughly three‑month delay to delayed transformer supply due to global shortage of CRGO and furnished a letter from BHEL. The Commission considered the explanation and documentary evidence satisfactory and held that the delay in commissioning Asset‑III was for reasons beyond the control of the petitioner.
Gross block and total capital cost:
- After allowing the admitted additional capitalization for the relevant assets, the Commission determined the gross block / total capital expenditure as on 1.4.2008 for each asset (figures recorded in the order and used for tariff calculations).
Debt‑equity ratio (Regulation 54):
- The Commission applied Regulation 54 (and Note 1 under Regulation 53) regarding the normative debt‑equity ratio. For additional capitalization admitted under Regulation 53, equity in the admitted additional capitalization is to be the least of: (a) 30% of additional capex, (b) equity approved in the financial package, or (c) actual equity employed; the Commission may consider equity above 30% only if satisfied it was in public interest.
- The petitioner had reported asset‑wise actual debt‑equity ratios close to 70:30. For tariff calculations the Commission adopted a normative 70:30 debt‑equity ratio for admitted additional capitalization, and accordingly derived the equity figures used for return calculations.
Return on equity (Regulation 56(iii)):
- The Commission applied Regulation 56(iii), which prescribes a return on equity @ 14% per annum on the equity base determined under Regulation 54. The order records the return on equity amounts allowed (pro rata for part‑year where applicable).
Interest on loan (Regulation 56(i)) and calculation methodology:
- The Commission followed Regulation 56(i)'s provisions for interest on loan capital, including the methodology to compute loan‑wise interest, treatment of loan outstanding as on 1.4.2004, normative repayment, re‑financing principles and moratorium treatment.
- In practical computation the Commission: used the gross amount of loans, repayment schedules and rates submitted by the petitioner to compute weighted average rates; added notional loan corresponding to admitted additional capitalization to the loan amount to arrive at a normative loan; applied normative repayment rules; and applied the weighted average interest rate to the notional average loan to compute interest on loan for the tariff period. Specific year‑wise interest computations are set out in annexures attached to the order.
Depreciation (Regulation 56(ii)):
- The Commission computed depreciation pursuant to Regulation 56(ii): straight‑line method, historical cost basis, residual value 10% (maximum depreciation 90% of historical cost), pro rata treatment for part‑year operations. Depreciation amounts allowed for each asset for the relevant period are recorded in the order.
Advance Against Depreciation (AAD):
- Regulation 56(ii)(b) provides for AAD where cumulative repayments exceed cumulative depreciation; however the petitioner did not claim AAD and the Commission therefore did not consider it.
Operation & Maintenance (O&M) expenses (Regulation 56(iv)):
- The Commission applied the normative O&M expense norms prescribed by Regulation 56(iv) (specified per ckt‑km and per bay for relevant years). The petitioner claimed O&M based on circuit kilometres and bays; the Commission allowed O&M for the assets using the prescribed rates and allowed the corrected number of bays (petitioner corrected an earlier inadvertent claim for 6 bays to 5 bays for Asset‑II).
- The petitioner also raised a wage revision issue; the Commission stated that it was not deciding that matter at this stage and left open the petitioner's right to seek relief separately as per law.
Interest on working capital (Regulation 56(v)):
- The Commission applied Regulation 56(v) for the composition of working capital (maintenance spares @1% of historical cost escalated at 6% p.a. from COD, one month O&M, and two months receivables at target billing). The petitioner calculated and claimed interest on working capital using SBI PLR (short‑term) as on the relevant date; the Commission accepted the petitioner's claimed rate of 12.25% (SBI PLR as on 1.4.2007) and computed interest accordingly.
Final aggregation and adjustment:
- The Commission aggregated allowed components (depreciation, interest on loan, return on equity, interest on working capital, O&M, and zero AAD) to arrive at the transmission charges for each asset for the specified periods; the order summarizes the allowed transmission charges.
- The Commission directed that amounts already being paid on provisional basis (per 30.9.2008 order) shall be adjusted against the final transmission charges now approved.
Reimbursement of publication and filing costs:
- The Commission allowed the petitioner to claim reimbursement of Rs. 1,52,883/‑ incurred for publication of statutory notices directly from the respondents in one installment in the sharing ratio applicable to transmission charges.
- The Commission noted its separate general order (dated 11.9.2008 in Petition No. 129/2005 (Suo‑motu)) which has decided that the petitioner shall not be allowed reimbursement of the petition filing fee; accordingly the filing fee reimbursement is not allowed.
Holding and Implications
HOLDING: The Commission approved the final transmission charges for the three transmission assets (Assets I, II and III) for the respective periods from their dates of commercial operation to 31.3.2009 as computed and summarized in the order, after admitting additional capitalization for Asset‑I and Asset‑II and making the regulatory adjustments described in the order. The order also allowed reimbursement of publication expenses (Rs. 1,52,883/‑) to be claimed from the respondents, but did not allow reimbursement of the petition filing fee as per a prior general order.
IMPLICATIONS / DIRECT EFFECTS:
- The transmission charges allowed (componentwise totals are recorded in the order) will be the final tariff for the stated period; amounts already recovered on provisional basis will be adjusted against these final charges.
- The petitioner is entitled to claim other charges such as income‑tax, incentive, surcharge and other cesses/taxes in accordance with the 2004 regulations (as noted in the order).
- The additional capitalization for Asset‑I and Asset‑II being admitted means those capital expenditures are incorporated into the capital base and affect future depreciation, interest and return calculations as reflected in the tariff approved.
- The Commission did not create any new normative departure from the 2004 regulations; it applied the regulations (Regulations 52‑56) to the facts and granted relief consistent with those provisions. The order disposes of Petition No. 5/2009.
Disposition: "This order disposes of Petition No. 5/2009." (as recorded in the opinion)
This petition has been filed for approval of transmission charges for 50 MVAR Reactor at Narendra (Asset-I), Narendra-Devangiri transmission line and Bus Reactor at Mysore (Asset-II) and 2nd 315 MVA Auto Transformer at Hiriyur sub-station along with associated bays (Asset-III) (collectively referred to as “the transmission assets”) under transmission system associated with Kaiga-3 and 4 (2×235 MW) project (hereinafter referred to as “the transmission system”) in Southern Region from date of commercial operation to 31.3.2009, based on the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004 (hereinafter referred to as “the 2004 regulations”) after accounting for additional capitalization during 2007-2008 for the respective transmission asset. The petitioner has also prayed for reimbursement of expenditure from the beneficiaries incurred towards publishing of notices in newspapers and the petition filing fee.
2. The investment approval for the transmission system was accorded by Ministry of Power vide letter dated 29.3.2005 at an estimated cost of Rs. 58825 lakh, including IDC of Rs. 3072 lakh. Subsequently, the approval for revised cost estimate was accorded by the Board of Directors of the petitioner company vide its memorandum dated 29.12.2008 at an estimated cost of Rs. 100716 lakh including IDC of Rs. 9503 lakh.
3. The provisional transmission charges for the transmission assets were approved by the Commission in its order dated 30.9.2008 in Petition No. 93/2008. The date of commercial operation of each of the transmission assets, details of their apportioned approved cost, the estimated completion cost, etc. are as under:
(Rs. in lakh)
S. No. Name of the Assets Date of commercial operation Apportioned approved cost (as per revised cost estimate) Expenditure up to date of commercial operation Expenditure from the date of commercial operation to 31.3.2008 Expenditure up to 31.3.2008 Balance estimated Expenditure Estimated completion Cost 1. Asset-I 1.1.2008 2193 1791 151 1942 177 2119 2. Asset-II 1.2.2008 19103 16061 83 16144 2177 18321 3. Asset-III 1.4.2008 2922 2242 0.00 2242 378 2620 Total 24218 20093 234 20328 2732 23060
4. The petitioner has claimed the transmission charges as under:
(Rs. in lakh)
Asset-I Asset-II Asset-III 2007-2008 2008-2009 2007-2008 2008-2009 2008-2009 Depreciation 16.80 69.92 72.88 438.40 80.15 Interest on Loan 29.83 120.95 173.70 1021.50 142.10 Return on Equity 19.59 81.53 112.71 677.98 94.17 Advance against Depreciation 0.00 0.00 0.00 0.00 0.00 Interest on Working Capital 2.19 8.98 12.24 73.62 13.51 O & M Expenses 7.91 32.90 44.93 280.66 131.60 Total 76.32 314.28 416.46 2492.16 461.53
5. The details submitted by the petitioner in support of its claim for interest on working capital are given hereunder:
Asset-I Asset-II Asset-III 2007-2008 2008-2009 2007-2008 2008-2009 2008-2009 Maintenance Spares 17.91 18.18 160.61 162.21 22.42 O & M expenses 2.64 2.74 22.47 23.39 10.97 Receivables 50.88 52.38 416.46 415.36 76.92 Total 71.43 73.30 599.54 600.96 110.31 Rate of Interest 12.25% 12.25% 12.25% 12.25% 12.25% Interest 2.19 8.98 12.24 73.62 13.51
6. Reply to the petition has been filed by Tamil Nadu Electricity Board. In response to the public notices published by the petitioner in accordance with the procedure specified by the Commission, no comments have been received from the general public.
7. Tamil Nadu Electricity Board has vide its reply made the following prayers:
(a) The petitioner be directed to furnish details in Form 5B based on revised cost estimates.
(b) Cost of mandatory spares be restricted to 1.50% of the project cost in respect of Asset-I and Asset-III
(c) Equity in respect of Asset-III be restricted to the ceiling norms of 30%.
(d) O&M expenses be allowed only for 5 bays in respect of Asset-II as against 6 bays claimed by the petitioner.
8. In reply to the above submissions, the petitioner has furnished the details in Form 5B as required by the respondent. As regards the requests at sub-paras (b) and (c) above, the petitioner has requested that the cost of initial spares and debt-equity ratio be considered in respect of the transmission system as a whole and not asset-wise. So far as the request at sub-para (d) above is concerned, it has been clarified that the petitioner had inadvertently claimed O&M expenses for 6 bays instead of 5 bays and the error has been rectified by furnishing the revised details vide affidavit dated 6.4.2009
9. In the light of the above we consider that the objections raised by Tamil Nadu Electricity Board do not survive. The cost of initial spares has been worked out for the transmission system.
CAPITAL COST
10. As per clause (1) of Regulation 52 of the 2004 regulations, subject to prudence check, the actual expenditure incurred on completion of the project shall form the basis for determination of final tariff. The final tariff shall be determined based on the admitted capital expenditure actually incurred up to the date of commercial operation of the transmission system and shall include capitalised initial spares subject to a ceiling norm as 1.5% of original project cost. The regulation is applicable in case of the transmission system declared under commercial operation on or after 1.4.2004.4
11. The petitioner has claimed tariff after accounting for additional capitalization in respect of the Asset-I and Asset-II from the respective date of commercial operation up to 31.3.2008 as given in the table below para 3 above.
ADDITIONAL CAPITALIZATION 2007-2008
12. Clause (1) of Regulation 53 of the 2004 regulations provides—
“(1) The following capital expenditure within the original scope of work actually incurred after the date of commercial operation and up to the cut off date may be admitted by the Commission, subject to prudence check:
(i) Deferred liabilities;
(ii) Works deferred for execution;
(iii) Procurement of initial capital spares in the original scope of works subject to the ceiling norm specified in regulation 52;
(iv) Liabilities to meet award of arbitration or compliance of the order or decree of a court; and
(v) On account of change in law:
Provided that original scope of work along with estimates of expenditure shall be submitted along with the application for provisional tariff:
Provided further that a list of the deferred liabilities and works deferred for execution shall be submitted along with the application for final tariff after the date of commercial operation of the transmission system.”
13. The details submitted by the petitioner in support of its claim for additional capital expenditure for Asset-I and Asset-II are given hereunder:
Asset-I Asset-II Sl. No. Year Amount Nature and details of expenditure Year Amount Nature and details of expenditure 1. 2007-2008 Sub-station = Rs. 151.40 lakh Balance supply, erection and retention payments 2007-2008 Transmission line = Rs. 67.64 lakh Sub-station = Rs. 15.41 lakh Balance payment for compensation payments, and diverted material 2. Total Rs. 151.40 lakh Total Rs. 83.05 lakh
14. The additional capital expenditure claimed is within the original scope of work and is found to be in order as it was against the committed liability. Accordingly, capitalization of the additional expenditure claimed by the petitioner has been allowed for the transmission Asset-I and Asset-II.
Cost over-run
15. There is not cost over-run as the estimated completion cost is within the revised cost estimate approved by the Board of Directors of the petitioner company vide Memorandum dated 29.12.2008
Time over-run
16. During the hearing on 21.4.2009, the petitioner submitted that there was a delay of about 3 months in commissioning of Asset-III because of the delayed supply of transformers due to acute shortage of raw material at the manufacture's end, especially Cold Rolled Gain Oriented (CRGO), an imported item in short supply worldwide. Accordingly the petitioner contended that the delay was beyond its control. The Commission directed the petitioner to furnish documentary evidence in support of its claim. The petitioner, vide its affidavit dated 5.5.2009 has submitted a copy of letter dated 6.12.2007 from BHEL, the transformer manufacturer. BHEL has, in the above letter stated there was a delay in delivery due to unavailability of CRGO in international market.
17. We have considered the matter. There is satisfactory explanation from the petitioner for the delay in completion of the Asset-III. Therefore, the delay in commissioning of Asset-III is considered to be for reasons beyond the control of the petitioner.
TOTAL CAPITAL COST
18. Based on the above, gross block as given below has been considered for the purpose of tariff for the transmission assets, after allowing additional capitalization on woks as claimed by the petitioner, which is within the limits of apportioned approved cost:
(Rs. in lakh)
Name of the assets Capital cost as on the date of commercial operation Additional capital expenditure up to 31.3.2008 Total Capital expenditure as on 1.4.2008 Asset-I 1790.95 151.40 1942.35 Asset-II 16060.82 83.05 16143.87 Asset-III 2241.67 — 2241.67
DEBT- EQUITY RATIO
19. Clause (1) of Regulation 54 of the 2004 regulations inter alia provides that,—
“(1) In case of the existing projects, debt-equity ratio Considered by the Commission for fixation of tariff for the period ending 31.3.2004 shall be considered for determination of tariff with effect from 01.04.2004:
Provided that in cases where the tariff for the period ending 31.3.2004 has not been determined by the Commission, debt-equity ratio shall be as may be decided by the Commission:
Provided further that in case of the existing projects where additional capitalisation has been completed on or after 1.4.2004 and admitted by the Commission under Regulation 53, equity in the additional capitalisation to be considered shall be:
(a) 30% of the additional capital expenditure admitted by the Commission, or
(b) equity approved by the competent authority in the financial package, for additional capitalisation, or
(c) actual equity employed, whichever is the least:
Provided further that in case of additional expenditure admitted under the second proviso, the Commission may consider equity of more than 30% if the transmission licensee is able to satisfy the Commission that deployment of such equity of more than 30% was in the interest of general public.”
20. The Note 1 below Regulations 53 lays down that any expenditure on account of committed liabilities with the original scope of work is to be serviced in the normative debt-equity ratio specified in Regulation 54.
21. The petitioner has considered debt-equity ratio of 70.02:29.98, 70:30 and 69.99:30.01 for Asset-I, Asset-II and Asset-III respectively, as actually deployed on the date of commercial operation of the respective transmission asset. The petitioner has further considered the amount of additional capitalization in the debt-equity ratio of 70:30 and 69.99:30.01 for Asset-I and Asset-II, respectively. In our calculations, debt-equity ratio of 70:30 has been considered for the additional capital expenditure approved, in accordance with the 2004 regulations. Accordingly, for the purpose of tariff, equity considered for the transmission assets is as under:
(Rs. in lakh)
Equity as on date of commercial operation Notional additional equity during 2007-2008 Average equity for 2007-2008 Equity as on 1.4.2008 Asset-I 536.95 45.52 559.66 582.37 Asset-II 4817.82 24.92 4830.28 4842.74 Asset-III 672.50 — — 672.50
RETURN ON EQUITY
22. As per clause (iii) of Regulation 56 of the 2004 regulations, return on equity shall be computed on the equity base determined in accordance with regulation 54 @ 14% per annum. Equity invested in foreign currency is to be allowed a return in the same currency and the payment on this account is made in Indian Rupees based on the exchange rate prevailing on the due date of billing.
23. Equity has been considered as on the date of commercial operation and as on 1.4.2008 onwards as given in the table in para 21 above. However, tariff for the period from date of commercial operation to 31.3.2008 has been allowed on average equity. Accordingly, the petitioner shall be entitled to return on equity as under:
(Rs. in lakh)
Name of the asset Return on equity 2007-2008 2008-2009 Asset-I 19.59 (Pro rata) 81.53 Asset-II 112.71 (Pro rata) 677.98 Asset-III — 94.15
INTEREST ON LOAN
24. Clause (i) of regulation 56 of the 2004 regulations inter alia provides that,—
“(a) Interest on loan capital shall be computed loan wise on the loans arrived at in the manner indicated in regulation 54.
(b) The loan outstanding as on 1.4.2004 shall be worked out as the gross loan in accordance with Regulation 54 minus cumulative repayment as admitted by the Commission or any other authority having power to do so, up to 31.3.2004 The repayment for the period 2004-09 shall be worked out on a normative basis.
(c) The transmission licensee shall make every effort to re-finance the loan as long as it results in net benefit to the beneficiaries. The costs associated with such re-financing shall be borne by the beneficiaries.
(d) The changes to the loan terms and conditions shall be reflected from the date of such re-financing and benefit passed on to the beneficiaries.
(e) In case of dispute, any of the parties may approach the Commission with proper application. However, the beneficiaries shall not withhold any payment ordered by the Commission to the transmission licensee during pendency of any dispute relating to re-financing of loan;
(f) In case any moratorium period is availed of by the transmission licensee, depreciation provided for in the tariff during the years of moratorium shall be treated as repayment during those years and interest on loan capital shall be calculated accordingly.
(g) The transmission licensee shall not make any profit on account of refinancing of loan and interest on loan;
(h) The transmission licensee may, at its discretion, swap loans having floating rate of interest with loans having fixed rate of interest, or vice versa, at its own cost and gains or losses as a result of such swapping shall accrue to the transmission licensee:
Provided that the beneficiaries shall be liable to pay interest for the loans initially contracted, whether on floating or fixed rate of interest.”
25. In our calculation, the interest on loan has been worked out as detailed below:
(a) Gross amount of loan, repayment of instalments and rate of interest submitted by the petitioner have been used to work out weighted average rate of interest on actual loan.
(b) Notional loan arising out of additional capitalisation from date of commercial operation to 31.3.2008 has been added in loan amount as on date of commercial operation to arrive at total Notional loan. This adjusted Gross loan is considered as normative loan for tariff calculations.
(c) Tariff has been worked out considering normative loan and normative repayment. Normative repayments are worked out by the following formula:
(d) Moratorium in repayment of loan is considered with reference to normative loan and if the normative repayment of loan during the year is less than the depreciation including Advance Against Depreciation during the year, then depreciation including Advance Against Depreciation during the year is deemed as normative repayment of loan during the year.
(e) Weighted average rate of interest on actual loan worked out as per (a) above is applied on the notional average loan during the year to arrive at the interest on loan.
(f) Short-term ICICI Bank loan was replaced by Bond XXVI. Weighted average rate of interest for 2007-2008 has been considered based on number of days.
26. Based on the above, the year-wise details of interest worked out are given hereunder:
(Rs. in lakh)
Asset-I Asset-II Asset-III 2007-2008 (Pro rata) 2008-2009 2007-2008 (Pro rata) 2008-2009 2008-2009 Opening Gross Loan 1254.00 1359.98 11243.00 11301.14 1569.17 Cumulative Repayment up to date of commercial operation/Previous Year 0.00 16.80 0.00 72.88 0.00 Net Loan-Opening 1254.00 1343.18 11243.00 11228.26 1569.17 Additions including additions due to Additional Capital expenditure 105.98 — 58.14 — — Repayment during the year 16.80 69.92 72.88 438.40 80.15 Net Loan-Closing 1343.18 1273.26 11228.26 10789.86 1489.01 Average Loan 1298.59 1308.22 11235.63 11009.06 1529.09 Weighted Average Rate of Interest on Loan 9.19% 9.25% 9.28% 9.28% 9.29% Interest 29.83 120.95 173.70 1021.50 142.11
27. The detailed calculations in support of the weighted average rate of interest are contained in Annexure-I, Annexure-II and Annexure-III attached.
DEPRECIATION
28. Sub-clause (a) of clause (ii) of Regulation 56 of the 2004 regulations provides for computation of depreciation in the following manner, namely:
(i) The value base for the purpose of depreciation shall be the historical cost of the asset.
(ii) Depreciation shall be calculated annually based on straight line method over the useful life of the asset and at the rates prescribed in Appendix II to these regulations. The residual value of the asset shall be considered as 10% and depreciation shall be allowed up to maximum of 90% of the historical capital cost of the asset. Land is not a depreciable asset and its cost shall be excluded from the capital cost while computing 90% of the historical cost of the asset. The historical capital cost of the asset shall include additional capitalisation on account of Foreign Exchange Rate Variation up to 31.3.2004 already allowed by the Central Government/Commission.
(iii) On repayment of entire loan, the remaining depreciable value shall be spread over the balance useful life of the asset.
(iv) Depreciation shall be chargeable from the first year of operation. In case of operation of the asset for part of the year, depreciation shall be charged on pro rata basis.
29. Depreciation allowed has been worked out as below:
(Rs. in lakh)
Asset-I Asset-II Asset-III 2007-2008 (Pro rata) 2008-2009 2007-2008 (Pro rata) 2008-2009 2008-2009 Gross block as on the date of commercial operation 1790.95 1942.35 16060.82 16143.87 2241.67 Additional Capitalization during 2007-2008 151.40 — 83.05 — — Gross Block at the end of the year 1942.35 1942.35 16143.87 16143.87 2241.67 Rate of Depreciation 3.60% 3.60% 2.7155% 2.7156% 3.5757% Depreciable Value 1679.99 1748.12 14492.11 14529.48 2017.50 Balance useful life of the asset — — — — — Remaining Depreciable value 1679.99 1731.32 14492.11 14456.61 2017.50 Depreciation 16.80 69.92 72.88 438.40 80.15
ADVANCE AGAINST DEPRECIATION
30. As per sub-clause (b) of clause (ii) of Regulation 56 of the 2004 regulations, in addition to allowable depreciation, the transmission licensee is entitled to Advance Against Depreciation, computed in the manner given hereunder:
AAD = Loan repayment amount as per regulation 56(i) subject to a ceiling of 1/10th of loan amount as per regulation 54 minus depreciation as per schedule
31. It is provided that Advance Against Depreciation shall be permitted only if the cumulative repayment tip to a particular year exceeds the cumulative depreciation up to that year. It is further provided that Advance Against Depreciation in a year shall be restricted to the extent of difference between cumulative repayment and cumulative depreciation up to that year.
32. The petitioner has not claimed Advance Against Depreciation and accordingly, Advance Against Depreciation has not been considered.
OPERATION & MAINTENANCE EXPENSES
33. In accordance with clause (iv) of Regulation 56 the 2004 regulations, the following norms are prescribed for O & M expenses
Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 O&M expenses (Rs. in lakh per ckt-km) 0.227 0.236 0.246 0.255 0.266 O&M expenses (Rs. in lakh per bay) 28.12 29.25 30.42 31.63 32.90
34. The petitioner has claimed O & M expenses 234.931 ckt.km and one bay for Asset-I and 313 ckt.km and 5 bays for Asset-II, and 4 bays for Asset-III which have been allowed. Accordingly, the petitioner's entitlement to O & M expenses has been worked out as given hereunder:
(Rs. in lakh)
Asset-I Asset-II Asset-III 2007-2008 (Pro rata) 2008-2009 2007-2008 (Pro rata) 2008-2009 2008-2009 — — O&M expenses for 313 ckt km 13.30 83.26 O&M expenses for 1 bay 7.91 32.90 O&M expenses for 5 bays 26.36 164.50 O&M expenses for 4 bays 131.60 Total 7.91 32.90 Total 39.66 247.76 131.60
35. The petitioner has submitted that the wage revision of its employees is due with effect from 1.1.2007 Therefore, according to the petitioner, O&M expenses should be-subject to revision on account of revision of employee cost from that date. In the alternative, it has been prayed that the increase in employee cost due to wage revision be allowed as per actuals for extra cost to be incurred consequent to wage revision. We are not expressing any view, as this issue does not arise for consideration at this stage. The petitioner may approach for a relief in this regard at an appropriate stage in accordance with law.
INTEREST ON WORKING CAPITAL
36. The components of the working capital and the interest thereon are discussed hereunder:
(i) Maintenance spares
Regulation 56(v)(1)(b) of the 2004 regulations provides for maintenance spares @ 1% of the historical cost escalated @ 6% per annum from the date of commercial operation. In the present case, element wise capital expenditure on the date of commercial operation which has been considered as the historical cost for the purpose of the present petition and maintenance spares have been worked out accordingly by escalating 1% of the historical cost @ 6% per annum. In this manner, the value of maintenance spares works out to Rs. 17.91 lakh and Rs. 160.81 lakh and Rs. 22.42 lakh for Asset-I, Asset-II and Asset-III respectively as on the date of commercial operation. The necessary details are given hereunder:
Transmission assets Date of Commercial Operation Capital Expenditure on the date of commercial operation (Rs. in lakh) Cost of maintenance spares as on 1.4.2008 (Rs. in lakh) Asset-1 1.1.2008 1790.95 18.18 Asset-II 1.2.2008 16060.82 162.21 Asset-III 1:4.2008 2241.67 22.42
(ii) O & M expenses
Regulation 56(v)(1)(.a) of the 2004 regulations provides for operation and maintenance expenses for one month as a component of working capital.’ The petitioner has claimed O&M expenses for 1 month of O&M expenses of the respective year as claimed in the petition. This has been considered in the working capital.
(iii) Receivables
As per Regulation 56(v)(1)(c) of the 2004 regulations, receivables will be equivalent to two months average billing calculated on target availability level. The petitioner has claimed the receivables on the basis 2 months' transmission charges claimed in the petition. In the tariff being allowed, receivables have been worked out on the basis 2 months' transmission charges.
(iv) Rate of interest on working capital
As per Regulation 56(v)(2) of the 2004 regulations, rate of interest on working capital shall be on normative basis and shall be equal to the short-term Prime Lending Rate of State Bank of India as on 1.4.2004 or on 1 April of the year in which the project or part thereof (as the case may be) is declared under commercial operation, whichever is later. The interest on working capital is payable on normative basis notwithstanding that the transmission licensee has not taken working capital loan from any outside agency. The petitioner has claimed interest on working capital @ 12.25% based on SBI PLR as on 1.4.2007, which is in accordance with the 2004 regulations and has been allowed.
37. The necessary computations in support of interest on working capital are appended herein below:
(Rs. in lakh)
Asset-I Asset-II Asset-III 2007-2008 (Pro rata) 2008-2009 2007-2008 (Pro rata) 2008-2009 2008-2009 Maintenance Spares 17.91 18.18 160.61 162.21 22.42 0 & M expenses 2.64 2.74 19.83 20.65 10.97 Receivables 50.88 52.38 411.02 409.71 76.92 Total 71.42 73.30 591.46 592.57 110.31 Rate of Interest 12.25% 12.25% 12.25% 12.25% 12.25% Interest 2.19 8.98 12.08 72.59 13.51
TRANSMISSION CHARGES
38. The transmission charges being allowed for the transmission assets are summarized below:
(Rs. in lakh)
Asset-I Asset-II Asset-III 2007-2008 (Pro rata) 2008-2009 2007-2008 (Pro rata) 2008-2009 2008-2009 Depreciation 16.80 69.92 72.88 438.40 80.15 Interest on Loan 29.83 120.95 173.70 1021.50 142.11 Return on Equity 19.59 81.53 112.71 677.98 94.15 Advance against Depreciation 0.00 0.00 0.00 0.00 0.00 Interest on Working Capital 2.19 8.98 12.08 72.59 13.51 O & M Expenses 7.91 32.90 39.66 247.76 131.60 Total 76.32 314.29 411.02 2458.23 461.53
39. The petitioner is already being paid the transmission charges for the transmission assets on provisional basis in terms of the order dated 30.9.2008 ibid. The transmission charges already recovered shall be adjusted against the final transmission charges approved now.
40. In addition to the transmission charges, the petitioner shall be entitled to other charges like income-tax, incentive, surcharge and other cess and taxes in accordance with the 2004 regulations.
41. The petitioner has sought approval for the reimbursement of expenditure of Rs. 1,52,883/- incurred on publication of notices in the newspapers. The petitioner shall claim reimbursement of the said expenditure directly from the respondents, in one installment in the ratio applicable for sharing of transmission charges. The Commission by its separate general order dated 11.9.2008 in Petition No. 129/2005 (Suo-motu) has decided that the petitioner shall not be allowed reimbursement of the petition filing fee.
42. This order disposes of Petition No. 5/2009.
Annexure-I
CALCULATION OF WEIGHTED AVERAGE RATE OF INTEREST ON LOAN
(Rs. in lakh)
Details of Loan 2007-2008 2008-2009 1 Bond-XIX Gross Loan opening 130.00 130.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 0.00 Net Loan-Opening 130.00 130.00 Additions during the year 0.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 130.00 130.00 Average Loan 130.00 130.00 Rate of Interest 9.25% 9.25% Interest 12.03 12.03 Repayment Schedule 12 Annual installments from 24.7.2010 2 Bond-XX Gross Loan opening 300.00 300.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 0.00 Net Loan-Opening 300.00 300.00 Additions during the year 0.00 0.00 Repayment during the year' 0.00 0.00 Net Loan-Closing 300.00 300.00 Average Loan 300.00 300.00 Rate pf Interest 8.93% 8.93% Interest 26.79 26.79 Repayment Schedule 12 Annual installments from 7-9-2010 3 Bond-XXI Gross Loan opening 200.00 200.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 0.00 Net Loan-Opening 200.00 200.00 Additions during the year 0.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 200.00 200.00 Average Loan 200.00 200.00 Rate of Interest 8.73% 8.73% Interest 17.46 17.46 Repayment Schedule 12 Annual installments from 11-10-2010 4 Bond-XXII Gross Loan opening 200.00 200.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 0.00 Net Loan-Opening 200.00 200.00 Additions during the year 0.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 200.00 200.00 Average Loan 200.00 200.00 Rate of Interest 8.68% 8.68% Interest 17.36 17.36 Repayment Schedule 12 Annual installments from 7-12-2010 5 Bond-XXIV Gross Loan opening 400.00 400.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 0.00 Net Loan-Opening 400.00 400.00 Additions during the year 0.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 400.00 400.00 Average Loan 400.00 400.00 Rate of Interest 9.95% 9.95% Interest 39.80 39.80 Repayment Schedule 12 Annual installments from 26-3-2011 6 Bond-XXV Gross Loan opening 24.00 24.00 Cumulative Repayment up to date of commercial operation/previous yeaf 0.00 0.00 Net Loan-Opening 24.00 24.00 Additions during the year 0.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 24.00 24.00 Average Loan 24.00 24.00 Rate of Interest 10.10% 10.10% Interest 2.42 2.42 Repayment Schedule 12 Annual installments from 12-6-2011 7 Bond XXVI (Bridge loan from ICICI 01.01.2008 to 06.03.2008 @ 8% Replaced by Bond XXVI @ 9.3% from 07.03.2008 (ADDCAP FOER 2007-2008)) Gross Loan opening 0.00 151.00 Cumulative Repayment up to date of commercial 0.00 0.00 operation/previous year Net Loan-Opening 0.00 151.00 Additions during the year 151.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 151.00 151.00 Average Loan 75.50 151.00 Rate of Interest 8.36% 9.30% Interest 6.31 14.04 Repayment Schedule 12 Annual installments from 7.3.2012 Total Loan Gross Loan opening 1254.00 1405.00 Cumulative Repayment up to date of commercial 0.00 0.00 operation Net Loan-Opening 1254.00 1405.00 Additions during the year 151.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 1405.00 1405.00 Average Loan 1329.50 1405.00 Rate of Interest 9.1892% 9.2457% Interest 122.17 129.90
Annexure II
(Rs. in lakh)
Details of Loan 2007-2008 2008-2009 1 Bond-XIX Gross Loan opening 260.00 260.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 0.00 Net Loan-Opening 260.00 260.00 Additions during the year 0.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 260.00 260.00 Average Loan 260.00 260.00 Rate of Interest 9.25% 9.25% Interest 24.05 .24.05 Repayment Schedule 12 Annual installments from 2 Bond-XX Gross Loan opening 930.00 930.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 0.00 Net Loan-Opening 930.00 930.00 Additions during the year 0.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 930.00 930.00 Average Loan 930.00 930.00 Rate of Interest 8.93% 8.93% Interest 83.05 83.05 Repayment Schedule 12 Annual installments from 7.9.2010 3 Bond-XXI Gross Loan opening 1600.00 1600.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 0.00 Net Loan-Opening 1600.00 1600.00 Additions during the year 0.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 1600.00 1600.00 Average Loan 1600.00 1600.00 Rate of Interest 8.73% 8.73% Interest 139.68 139.68 Repayment Schedule 12 Annual installments from 11.10.2010 4 Bond-XXII Gross Loan opening 3860.00 3860.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 0.00 Net Loan-Opening 3860.00 3860.00 Additions during the year 0.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 3860.00 3860.00 Average Loan 3860.00 3860.00 Rate of Interest 8.68% 8.68% Interest 335.05 335.05 Repayment Schedule 12 Annual installments from 5 Bond-XXIV Gross Loan opening 1690.00 1690.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 0.00 Net Loan-Opening 1690.00 1690.00 Additions during the year 0.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 1690.00 1690.00 Average Loan 1690.00 1690.00 Rate of Interest 9.95% 9.95% Interest 168.16 168.16 Repayment Schedule 12 Annual installments from 26.3.2011 6 Bond-XXV Gross Loan opening 2903.00 2903.00 Cumulative Repayment up to dale of commercial operation/previous year 0.00 0.00 Net Loan-Opening 2903.00 2903.00 Additions during the year 0.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 2903.00 2903.00 Average Loan 2903.00 2903.00 Rate of Interest 10.10% 10.10% Interest 293.20 293.20 Repayment Schedule 12 Annual installments from 12.6.2011 7 Bond XXVI (Bridge loan from ICICI 01.02.2008 to 06.03.2008 @8% Replaced by Bond XXVI @ 9.3% from 07.03.2008 (Additional capital expenditure for 2007-2008)) Gross Loan opening 0.00 83.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 0.00 Net Loan-Opening 0.00 83.00 Additions during the year 83.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 83.00 83.00 Average Loan 41.50 83.00 Rate of Interest 8.54% 9.30% Interest 3.54 7.72 Repayment Schedule 12 Annual installments from 7.3.2012 Total Loan Gross Loan opening 11243.00 11326.00 Cumulative Repayment up to date of commercial operation 0.00 0.00 Net Loan-Opening 11243.00 11326.00 Additions during the year 83.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 11326.00 11326.00 Average Loan 11284.50 11326.00 Rate of Interest 9.2758% 9.2787% Interest 1046.73 1050.90
Annexure III
(Rs. In lakh)
Details of Loan 2008-2009 1 Bond-XIX Gross Loan opening 50.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 Net Loan-Opening 50.00 Additions during the year 0.00 Repayment during the year 0.00 Net Loan-Closing 50.00 Average Loan 50.00 Rate of Interest 9.25% Interest 4.63 Repayment Schedule 12 Annual installments from 24.7.2010 2 Bond-XX Gross Loan opening 200.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 Net Loan-Opening 200.00 Additions during the year 0.00 Repayment during the year 0.00 Net Loan-Closing 200.00 Average Loan 200.00 Rate of Interest 8.93% Interest 17.86 Repayment Schedule 12 Annual installments from 7.9.2010 3 Bond-XXI Gross Loan opening 200.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 Net Loan-Opening 200.00 Additions during the year 0.00 Repayment during the year 0.00 Net Loan-Closing 200.00 Average Loan 200.00 Rate of Interest 8.73% Interest 17.46 Repayment Schedule 12 Annual installments from 11.10.2010 4 Bond-XXII Gross Loan opening 200.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 Net Loan-Opening 200.00 Additions during the year 0.00 Repayment during the year 0.00 Net Loan-Closing 200.00 Average Loan 200.00 Rate of Interest 8.68% Interest 17.36 Repayment Schedule 12 Annual installments from 7.12.2010 5 Bond-XXIV Gross Loan opening 100.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 Net Loan-Opening 100.00 Additions during the year 0.00 Repayment during the year 0.00 Net Loan-Closing 100.00 Average Loan 100.00 Rate of Interest 9.95% Interest 9.95 Repayment Schedule 12 Annual installments-from 26.3.2011 6 Bond-XXV Gross Loan opening .300.00 Cumulative Repayment up to-date of commercial operation/previous year 0.00 Net Loan-Opening 300.00 Additions during the year 0.00 Repayment during the year 0.00 Net Loan-Closing 300.00 Average Loan 300.00 Rate of Interest 10.10% Interest 30.30 Repayment Schedule 12 Annual installments from 12.6.2011 7 Bond-XXVI Gross Loan opening 519.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 Net Loan-Opening 519.00 Additions during the year 0.00 Repayment during the year 0.00 Net Loan-Closing 519.00 Average Loan 519.00 Rate of Interest 9.30% Interest 0.00 48.27 Repayment Schedule 12 Annual installments from 7.3.2012 Total Loan Gross Loan opening 1569.00 Cumulative Repayment up to date of commercial operation 0.00 Net Loan-Opening 1569.00 Additions during the year 0.00 Repayment during the year 0.00 Net Loan-Closing 1569.00 Average Loan 1569.00 Rate of Interest 9.2939% Interest 145.82 Repayment Schedule 12 Annual installments from 7-12-2010 5 Bond-XXIV Gross Loan opening 400.00 400.00 Cumulative Repayment up to date of commercial operation/previous year 0.00 0.00 Net Loan-Opening 400.00 400.00 Additions during the year 0.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 400.00 400.00 Average Loan 400.00 400.00 Rate of Interest 9.95% 9.95% Interest 39.80 39.80 Repayment Schedule 12 Annual installments from 26-3-2011 6 Bond-XXV Gross Loan opening 24.00 24.00 Cumulative Repayment up to date of commercial operation/previous yeaf 0.00 0.00 Net Loan-Opening 24.00 24.00 Additions during the year 0.00 0.00 Repayment during the year 0.00 0.00 Net Loan-Closing 24.00 24.00 Average Loan 24.00 24.00 Rate of Interest 10.10% 10.10% Interest 2.42 2.42 Repayment Schedule 12 Annual installments from 12-6-2011
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