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Petition No. 143/2005

Attorney(S)

Shri U.K Tyagi, PGCIL
Ms. Sangeeta Edwaros, PGCIL
Shri. M.M Mondal, PGCIL
Shri V.V Sharma, PGCIL Shri Harmeet Singh, PGCIL

Judges

Pramod Deo
Chairperson
Bhanu Bhushan, Member
R. Krishnamoorthy, Member
S. Jayaraman, Member

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Smart Summary

Structured Summary of the Opinion — Petition No. 143/2005

Factual and Procedural Background

The petition seeks approval of charges for the "Unified Load Despatch & Communication Scheme in Southern Region" (the Scheme) for the period 1.4.2004 to 30.6.2017 and approval of additional capitalization for certain financial years (2002-2003 to 2004-2005). The Scheme relates to strengthening load despatch infrastructure in the Southern Region and covers capital investment in the Southern Regional Load Despatch Centre (SRLDC), the State Load Despatch Centres (SLDCs) in the Southern Region and the associated communications system.

The Central Electricity Authority (CEA) originally accorded techno-economic clearance on 27.1.1994, and the Central Government (Ministry of Power) gave investment approval on 16.2.1995. Based on later recommendations, the Central Government gave fresh approval to revised cost estimates on 5.2.2002; the Scheme was declared under commercial operation on 1.7.2002.

The Commission had earlier determined charges in related proceedings (notably Petition No. 139/2005 and Petition No. 83/2002) and, after a review process, issued directions to the petitioner on 18.6.2008 to file specific information by affidavit. The petitioner filed the information on 30.9.2008; Respondent No. 4 filed a reply and the matter was heard on 18.11.2008. The Commission proceeded to dispose of the petition in this opinion.

Legal Issues Presented

Whether the Commission should approve the annual fees and charges for the Scheme for the period beginning 1.4.2004 (and the broader tariff period identified) and on what basis those charges should be calculated.
Whether and to what extent additional capital expenditure (for the periods 2002-2003 to 2004-2005, and up to 31.3.2008) should be admitted for recovery through the Scheme charges.
How to treat Foreign Exchange Rate Variation (FERV) and how to apportion it between debt and equity for different periods.
Appropriate debt-equity ratio to be applied to additional capital expenditure for periods before and after 1.4.2004.
Whether the methodology for calculation of capital recovery factor (return on equity and interest on loan) should follow the revision adopted in review proceedings (affecting the period 1.4.2004 to 31.3.2009).
How operation & maintenance (O&M) expenses, interest on working capital and other tariff components should be computed (including whether O&M should be levelised and how maintenance spares/receivables should be treated).
Several specific contentions raised by Respondent No. 4: adequacy of information on additional capitalization, timing of payments, apportionment of royalties to Department of Telecommunications, asset transfer on recovery, and treatment of investments in Digital Microwave vs. Fibre Optic systems.

Arguments of the Parties

Petitioner (as expressly recorded)

Filed revised calculations of annual fees and charges in accordance with the Commission's methodology (as directed).
Submitted audited accounts up to 31.3.2008 with year-wise capital expenditure and claimed charges based on expenditure up to 31.3.2008.
Provided weighted average rates of interest (including floating-rate loans) for the years 2004-05 to 2007-08 and worked out year-wise additional interest.
Claimed O&M expenses for the central sector and sought interest on working capital based on SBI PLR (the petitioner claimed 10.25%).

Respondent No. 4 (specific submissions recorded in the opinion)

Details of additional capital expenditure were not provided; payments were released two years after declaration of commercial operation without explanation.
FERV should not be apportioned between debt and equity after 1.4.2004.
Additional capital expenditure should be apportioned between debt and equity as per the Commission's order dated 13.9.2005 in Petition No. 83/2002, irrespective of funding source.
Since the entire capital cost (with interest and return) is being recovered through the charges, assets should be transferred to beneficiaries without any cost.
The petitioner should clarify whether additional capitalization is for new equipment or replacement for failed equipment; if new, petitioner should produce sanction and beneficiaries' concurrence.
Due to earmarking of the 2.3–2.5 GHz band to Broadband Wireless Access, the Digital Microwave System (executed at Rs. 106.65 crore) will be removed from service and recovery for that system should cease from the date it was discontinued; additional investment in fibre optic communications will be required.
The petitioner should absorb anticipated expenditure for upgrading the fibre optic system.
Details of apportionment of royalty (reported as Rs. 1,537.60 lakh paid to Department of Telecommunications) between the Scheme and the petitioner's telecom business should be furnished.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commission order dated 9.5.2006 in Petition No. 139/2005 (Northern Region)	The methodology and principles for calculation of fees and charges for a Unified Load Despatch and Communication Scheme (including levelised capital recovery over 15 years, O&M treatment, and related principles).	The Commission adopted the principles considered in Petition No. 139/2005 for calculation of fees and charges in the present Southern Region case (e.g., levelised recovery over 15 years, O&M not levelised initially, O&M payable @7.5% of admitted capital cost, retrospective reimbursement subject to prudence check).
Commission order dated 11.4.2008 in Review Petition No. 133/2006 (in Petition No. 139/2005)	Revised methodology for calculation of the capital recovery factor for return on equity and interest on loan for the period 1.4.2004 to 31.3.2009 after accounting for additional capital expenditure during 2001-04.	The Commission directed adoption of that revised methodology for the present petition and required the petitioner to submit revised calculations in accordance with it; the Commission used that methodology in determining recovery factors and calculations for the tariff period.
Commission order dated 13.9.2005 in Petition No. 83/2002	Determination of charges for the Scheme up to 31.3.2004 and the capital cost as on the date of commercial operation.	The capital cost as on the date of commercial operation used in the present proceeding (and the baseline for further additional capital expenditure) corresponds to that order's figures; the Commission used the previously admitted capital cost for earlier periods.
Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004 ("the 2004 regulations") — Regulation 54	Provision governing debt-equity ratio for tariff purposes (used as the basis for applying 70:30 post 1.4.2004).	The Commission applied a 70:30 debt-equity ratio for additional capital expenditure after 1.4.2004 in line with regulation 54.
Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004 — Regulation 56 (v)(1)(a),(b),(c) and (v)(2)	Provisions setting out components of working capital (maintenance spares, O&M for one month, receivables) and the normative rate of interest on working capital (short-term SBI PLR as on the relevant date).	The Commission computed working capital components using these provisions (maintenance spares @1% of historical cost escalated @6% per annum; O&M for one month; receivables equivalent to two months' average billing) and allowed interest on working capital at 10.25% (based on SBI PLR as applied by the petitioner for the year).

Court's Reasoning and Analysis

The Commission proceeded by first addressing the submissions made by Respondent No. 4 and then applying the previously adopted methodology (from Petition No. 139/2005 and the Review order) together with the 2004 regulations to determine admissible capital cost, debt-equity treatment, returns, interest and working capital components. The reasoning unfolded in discrete steps:

Respondent submissions: The Commission found several of Respondent No. 4's contentions (paras (d), (f) and (g)) to be premature and suitable for consideration at an appropriate time. For other submissions (e.g., details of additional capital expenditure, apportionment of FERV, debt-equity treatment, apportionment of royalty), the Commission examined the justification and applied statutory provisions where relevant.
Adoption of prior methodology: The Commission adopted the principles used in Petition No. 139/2005 (Northern Region) for calculation of fees and charges in this Southern Region case. These principles include:
- Levelised annual capital cost recovery over a 15-year horizon using a recovery factor formula based on the weighted average rate of interest or return on equity.
- IWC (Interest on Working Capital) and O&M are not to be levelised.
- O&M to be initially payable at 7.5% of the admitted capital cost, with retrospective adjustment possible after prudence scrutiny.
- O&M for State portion excluded since State utilities bear those costs.
Determination of admissible capital expenditure: The Commission examined audited accounts and accepted certain additional capital expenditure items while disallowing others where justification was not provided. Specifically:
- Accepted additional capital expenditure of Rs. 1,359.79 lakh (DOCO to 31.3.2003), Rs. 424.85 lakh (2003-04), and Rs. 472.82 lakh (2004-05).
- Declined to consider additional capital expenditure totalling Rs. 116.10 lakh for 1.4.2005 to 31.3.2008 in the computation of charges because justification was not provided (breakdown shown in the opinion).
Debt-equity treatment and FERV: For additional capital expenditure in 2002-03 and 2003-04, the Commission treated the additional capital expenditure as 100% equity and treated FERV as 100% loan. For additional capital expenditure after 1.4.2004, the Commission applied a 70:30 debt-equity ratio in accordance with regulation 54 of the 2004 regulations.
Return on equity and interest on loan: Return on equity was allowed at 14% for the period 2004-09, consistent with treatment in the Northern Region decision. For interest on loan, the Commission considered a weighted average rate of interest for the tariff period as 6.4847% as on 1.4.2004 (while noting the petitioner's year-wise weighted average figures). The Commission observed that requests to adjust floating rates year-to-year are generally left to settlement between the parties and suggested the same approach here.
Capital recovery factor and years: Recovery factors for loan and equity were computed using specified periods (13.25 years for amounts up to 31.3.2004 and 12.25 years for certain additional capital expenditure), with the resulting annual recovery factors applied to derive annual capital recovery charges (detailed tabulations are set out in the opinion).
O&M, Working Capital and Interest on Working Capital: O&M was retained at Rs. 897.72 lakh per annum as approved in the previous tariff period (subject to adjustment based on actuals). Components of working capital were calculated strictly in accordance with Regulation 56(v) of the 2004 regulations: maintenance spares @1% of historical cost escalated @6% p.a., O&M for one month, receivables equivalent to two months' billing. Interest on working capital was allowed at 10.25% (based on SBI PLR applied by the petitioner).
Numeric application: Using the above principles and admitted capital costs, the Commission computed annual capital recovery charges, O&M, interest on working capital and total annual tariff separately for the Central and State portions for the tariff years 2004-05 to 2008-09 (detailed figures are tabulated in the opinion). The computations reflect admitted additions and exclude amounts lacking justification.
Other charges and asset transfer: The Commission noted the petitioner shall be entitled to other charges (income-tax, incentive, surcharge, other cess and taxes) in accordance with the 2004 regulations. It also recorded that as the full capital cost (with interest/return) is recovered over a period of 15 years, the assets shall be transferred to the respective constituents at nominal value upon full recovery.

Holding and Implications

HOLDING: DISPOSED OF. The Commission disposed of Petition No. 143/2005 after admitting specified additional capital expenditure, applying the methodology adopted in prior Commission decisions and the 2004 regulations, and determining the annual fees and charges for the Scheme (with detailed yearly figures set out in the opinion).

Direct implications and consequences:

The Commission admitted specific additional capital expenditure amounts (detailed in the opinion) for recovery through charges and excluded certain amounts for lack of justification (notably Rs. 116.10 lakh for 1.4.2005–31.3.2008 from computation of charges).
Debt-equity treatment: for 2002-03 and 2003-04 additional capex treated as 100% equity with FERV as 100% loan; for post-1.4.2004 additional capex, a 70:30 debt-equity ratio was applied in accordance with regulation 54 of the 2004 regulations.
Return on equity was allowed at 14% for 2004-09; weighted average interest on loan for the tariff period taken as 6.4847% as on 1.4.2004; floating-rate adjustments to be settled between parties.
O&M allowed at Rs. 897.72 lakh per annum (subject to adjustment on actuals); interest on working capital allowed at 10.25% based on SBI PLR as applied in the petition.
Detailed annual charges for Central and State portions for the years 2004-05 to 2008-09 were computed and recorded in the opinion; the petitioner is entitled to other statutory charges (taxes, incentives, surcharges) in accordance with the 2004 regulations.
After full recovery of the capital cost (over 15 years), the assets are to be transferred to constituents at nominal value.
No novel legal precedent was created beyond application of the previously adopted methodologies and the 2004 regulations; the decision implements and applies those prior principles to the facts and accounts presented in this petition.

This summary reflects only the matters expressly stated in the provided opinion and does not add or infer facts or rulings beyond that text.

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Power Grid Corporation Of India Limited v. Karnataka Power Transmission Corporation Ltd.

The petition has been filed seeking approval of charges for Unified Load Despatch & Communication Scheme in Southern Region (hereinafter referred to as “the Scheme”) for the period from 1.4.2004 to 30.6.2017 and additional capitalization after the date of commercial operation during 2002-2003 to 2004-2005.

2. The Scheme, designed to strengthen the load despatch infrastructure in Southern Region, covers investment in the Southern Regional Load Despatch Centre (SRLDC), the State Load Despatch Centres (SLDCs) in the Southern Region and the associated communication system.

3. Central Electricity Authority had accorded techno-economic clearance for the Scheme vide its letter dated 27.1.1994 at an estimated cost of Rs. 55234 lakh, including IDC of Rs. 7065 lakh based on 4th quarter 1992 price level. The investment approval and expenditure sanction was accorded by the Central Government in Ministry of Power by its letter dated 16.2.1995 at an estimated cost of Rs. 62157 lakh, including IDC of Rs. 12598 lakh. During execution of the Scheme there has been an increase in the cost on account of change in scope of approved items of work, Foreign Exchange Rate Variation and other reasons. As such, based on the recommendations of Public Investment Board, the Central Government vide its letter dated 5.2.2002, accorded its fresh approval to the Revised Cost Estimates of Rs. 68380 lakh, including IDC of Rs. 11809 lakh, consisting of (i) Power Grid's portion of Rs. 55904 lakh, including IDC of Rs. 9224 lakh and (ii) States' portion of Rs. 12475 lakh, including IDC of Rs. 2585 lakh, based on 2nd quarter 2001 price level. As per the revised approval, the Scheme was to be commissioned by June 2002 and was in fact declared under commercial operation on 1.7.2002

4. Earlier, the Commission vide its order dated 9.5.2006 in Petition No. 139/2005 awarded the charges for the Unified Load Despatch and Communication Scheme in Northern Region for the period 1.4.2004 onwards. The petitioner filed review application No. 133/2006 seeking review of the above order on the ground that methodology for calculation of recovery of return on equity and interest on loan capital allowed by the Commission did not ensure full recovery of investment made during the life of the assets. The Commission, vide its order dated 11.4.2008 in Review Petition No. 133/2006 in Petition No. 139/2005 revised the methodology for calculation of the capital recovery factor for return of equity and interest on loan for the period from 1.4.2004 to 31.3.2009 after accounting for the additional capital expenditure incurred during 2001-04. Thereupon, the petitioner in the present petition was directed vide the Commission's order dated 18.6.2008 to submit the following information on affidavit with advance copy to the respondents, who were allowed to file their reply, if any:

(a) Revised calculations of the annual fees and charges for the Scheme in accordance with the methodology considered by the Commission in order dated 11.4.2008, ibid;

(b) “Right-of-way” charges, if any, for laying optic fibre cable underground, duly apportioned between the telecom business of the petitioner and the Scheme; and

(c) Detailed year-wise O&M expenses attributable to the Scheme from the date of commercial operation till 31.3.2008, with details of royalty and other charges, if any, paid to the Department of Telecommunications for optic fibre cable and their apportioning between the Scheme and the telecom business.

(d) Proposal for interest rate resetting in case of loans with floating rate of interest being considered by the Commission in the Scheme.

5. The petitioner filed the above vide its affidavit dated 30.9.2008, reply to which was filed by Respondent No. 4. The case was heard on 18.11.2008 Having heard the parties and gone through the pleadings, we proceed to dispose of the petition.

6. Before taking up the issue of determination of the charges, we propose to dispose of the issues raised by Respondent. No. 4 which is as under:

(a) Details of additional capital expenditure have not been provided. Besides, payment has been released 2 years after declaration of commercial operation of the scheme for which no explanation has been provided.

(b) FERV is not to be apportioned between debt and equity after 1.4.2004

(c) Additional capital expenditure is to be apportioned between debt and equity as per the Commission's order dated 13.9.2005 in Petition No. 83/2002, irrespective of the source of funding.

(d) As the entire capital cost together with interest and return is being recovered through the charges, the assets must be transferred to the beneficiaries without any cost.

(e) The petitioner be directed to clarify as to whether additional capitalization is due to addition of new equipment or replacement for the failed equipment. In the former event, the petitioner is to furnish sanction for the same and concurrence of the beneficiaries.

(f) Consequent to earmarking of 2.3-2.5 GHz frequency band to broad band Wireless Access, Digital Microwave System executed at the cost of Rs. 106.65 crore is to be removed from service in the next 6 months and additional investment in Fibre Optic Communication is required. Recovery of investment in respect of Digital Microwave system needs to be discontinued from the date its service was discontinued.

(g) The petitioner be directed to absorb the anticipated expenditure for upgradation of Fibre Optic system.

(h) As regards the royalty amounting to Rs. 1537.60 lakh reported to have been paid to Department of Telecommunication, the petitioner be directed to furnish details of apportionment between the Scheme and the telecom business.

7. We feel that the submissions of the respondent at para (d), (f) and (g) above are pre-mature and deserve to be taken up at the appropriate time. As regards the remaining submissions the Commission has examined the justification for additional capitalization. Besides treatment of FERV and debt equity ratio are in accordance with the relevant statutory provisions. As O&M charges are being allowed on the basis of the expenditure allowed in the previous tariff period, we do not consider it necessary, at this stage, to go into the question of apportionment of royalty paid to the Department of Telecommunication.

8. The following principles, as considered in Petition No. 139/2005 pertaining to Northern Region have been adopted in this case. For calculation of fee and charges for the Scheme, namely—

(a) Annual capital cost recovery shall be based on the levelised fees and charges for 15 years through recovery factor = i(1+i)/[(1+i)-1] where, i = weighted average rate of interest and rate of return on equity as the case may be, and n = period.

(b) IWC and O. & M. charges shall not be levelised.

(d) Actual O&M expenses incurred by the petitioner may, if found appropriate, be reimbursed with retrospective effect after a thorough scrutiny and prudence check.

(e) O&M expenses for State portion are not being considered as the expenses are being borne by the State utilities concerned, the respondents.

CAPITAL COST

9. Charges for the period up to 31.3.2004 were awarded vide the Commission's order dated 13.9.2005 in Petition No. 83/2002 wherein the following capital cost as on date of commercial operation was considered:

(Rs. in lakh)

Central portion 11969.63 State portion 38578.57 Total 50548.20

10. Based on the audited accounts up to 31.3.2008, the petitioner has submitted the following details of capital expenditure:

(Rs. in lakh)

Expenditure up to date of commercial operation (1.7.2002) 50548.20 Expenditure from date of commercial operation to 31.3.2003 1359.79 Expenditure from 1.4.2003 to 31.3.2004 424.85 Expenditure from 1.4.2004 to 31.3.2005 472.82 Expenditure from 1.4.2005 to 31.3.2006 116.10 Expenditure from 1.4.2006 to 31.3.2007 (−) 31.43 Expenditure from 1.4.2007 to 31.3.2008 0.00 Balance estimated expenditure 1091.55 Total 53981.88

11. The petitioner has claimed the charges based on the expenditure from the date of commercial operation to 31.3.2008 The following additional capital expenditure for 1.4.2005 to 31.3.2008 period is not being considered for computation of charges because justification has not been given:

(Rs. in lakh)

Description 1.4.2005 to 31.3.2006 1.4.2006 to 31.3.2007 1.4.2007 to 31.3.2008 Building & other civil works 0.62 Auxiliary power supply 6.86 EMS/SCADA System 109.24 Fibre Optic system Digital microwave system PLCC/PABX Consultancy charges (−)32.05 Total 116.10 (−) 31.43

12. Remaining additional capital expenditure amounting to Rs. 1359.79 lakh from the date of commercial operation to 31.3.2003, 424.85 lakh during 2003-2004 and 472.82 lakh during 2004-2005 are allowed.

DEBT-EQUITY RATIO

13. For the period 2002-2003 and 2003-2004, additional capital expenditure amount has been considered as 100% equity and the FERV as 100% loan. As regards the additional capital expenditure for the period after 1.4.2004, it has been decided to apply the debt-equity ratio of 70:30 in tune with regulation 54 of the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004 (hereinafter “the 2004 regulations”)

RETURN ON EQUITY

14. Return on equity as applicable @ 14% has been considered in the present calculation for the period 2004-09, as was done in the case of Northern Region vide the Commission's order dated 9.5.2006 in Petition No. 139/2005.

INTEREST ON LOAN

15. The petitioner has worked out year wise weighted average rate of interest as tabulated below after taking into consideration loans carrying floating interest rates for the years 2004-2005 to 2007-2008. The same has been used by the petitioner to workout the yearwise additional interest amount for Central as well as State portion. However, we have considered the weighted average rate of interest for the tariff period as 6.4847% as on 1.4.2004

Weighted average rate of interest As on 1.4.2004 6.4703% 2004-2005 6.51% 2005-2006 6.72% 2006-2007 7.17% 2007-2008 7.33%

16. As regards the petitioner's request to adjust floating rate of interest on year-to-year basis, the Commission generally allows these to be settled between the parties themselves. We feel that the same procedure may be adopted in the case of charges in the present case also.

CAPITAL RECOVERY FACTOR

17. Capital recovery factor corresponding to loan and equity up to 31.3.2004 as well as additional capital expenditure have been considered taking the period as 13.25 years and 12.25 years respectively. Further, weighted average rate of interest for loan capital has been considered based on weighted rate of interest as on 1.4.2004 Recovery factor applied in the determination of charges awarded is as under:

Period Annual Recovery Factor for loan Annual Recovery Factor for equity 2002-2003 0.114764 0.169945 2003-2004 0.114764 0.169945 2004-2005 0.120794 0.175191

18. Main reason for difference between the above figures and those adopted by the petitioner is that there is difference in outstanding loan of IBRD I as on 1.4.2004 In these calculations, outstanding loan as on date of commercial operation and repayment as per reconciliation for loan outstanding as on 31.3.2004 have been taken. Besides, the petitioner has worked out the weighted average rate of interest of loan by considering individual gross loans, whereas in these calculations, net loan as on 1.4.2004 has been considered.

OPERATION AND MAINTENANCE EXPENSES

19. The Commission, vide its order dated 9.5.2005 in Petition No. 139/2005, has decided to retain the O&M charges allowed for the previous period. Accordingly, in these calculations also O&M charges amounting to Rs. 897.72 lakh per annum as approved in the previous tariff period, subject to adjustment based on actuals.

INTEREST ON WORKING CAPITAL

20. 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, capital expenditure as on the date of commercial operation is Rs. 11969.63 lakh for the Powergrid portion, which has been considered as the historical cost for the purpose of the present petition and maintenance spares haven worked out accordingly by escalating 1% of the historical cost @ 6% per annum. The value of maintenance spares works out to Rs. 119.70 lakh as on date of commercial operation.

(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 central sector 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' charges claimed in the petition. In the fees and charges being allowed, receivables have been worked out on the basis 2 months' charges.

(iv) Rate of interest on working capital

As per Regulation 56(v)(2) of the 2004 regulations, rate of interest on working capital shall be on normative basis and shall be equal to the short-term Prime Lending Rate of State Bank of India as on 1.4.2004 or on 1st April of the year in which the project or part thereof (as the case may be) is declared under commercial operation, whichever is later. The interest on working capital is payable on normative basis notwithstanding that the transmission licensee has not taken working capital loan from any outside agency. The petitioner has claimed interest on working capital @ 10.25% based on SBI PLR as on 1.4.2005, which is in accordance with the 2004 regulations and has been allowed.

21. The detailed calculation in support of interest on working capital are as under:

CENTRAL PORTION

(Rs. in lakh)

2004-2005 2005-2006 2006-2007 2007-2007 2008-2009 Maintenance spares 119.70 126.88 134.49 142.56 151.11 O&M Expenses 74.81 74.81 74.81 74.81 74.81 Receivables 392.14 392.42 392.54 392.67 392.81 Total 586.65 594.11 601.84 610.04 618.74 Rate of Interest on Working Capital 10.25% 10.25% 10.25% 10.25% 10.25% Interest on Working Capital 60.13 60.90 61.69 62.53 63.42

STATE PORTION

(Rs. in lakh)

2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Maintenance spares 0.00 0.00 0.00 0.00 0.00 O&M Expenses 0.00 0.00 0.00 0.00 0.00 Receivables 775.87 786.59 786.59 786.59 786.59 Total 775.87 786.59 786.59 786.59 786.59 Rate of Interest on Working Capital 10.25% 10.25% 10.25% 10.25% 10.25% Interest on Working Capital 79.53 80.63 80.63 80.63 80.63

22. Based on the foregoing principles and methodologies, the annual fees and charges for the Scheme are calculated as under:

CENTRAL PORTION

IMPACT OF ADDITIONAL CAPITAL EXPENDITURE

(Rs. in lakh)

Particulars On Capital expendit ure upto DOCO On Capital expenditure from DOCO to 31.03.2003 (including FERV) On Capital expenditure from 01.04.2003 to 31.03.2004 (including FERV) Total (On the Capital exenditure upto 31.03.2004) On Capital expenditure from 01.04.2004 to 31.03.2005 Capital Cost 11969.63 320.33 89.29 12379.25 11.83 Notional Loan 10964.74 174.02 -90.83 11047.92 8.28 Equity 1004.89 146.31 180.12 1331.32 3.55 O/S Loan as on 01.04.2004 10166.93 166.47 -90.83 O/S Equity as on 01.04.2004 968.52 143.10 180.12 Years 13.25000 13.250000 13.250000 12.25000 Recovery Factors-Loan 0.114764 0.114764 0.114764 0.120794 Annual Capital Recovery Charge - Loan 1166.80 19.10 -10.42 1175.48 1.00 Recovery Factors-Equity 0.169945 0.169945 0.169945 0.175191 Annual Capital Recovery Charge-Equity 164.59 24.32 30.61 219.52 0.62 Annual Capital Recovery Charge - Total 1331.40 43.42 20.19 1395.01 1.62 O&M Expenses 897.72 0.00 0.00 897.72 0.00 Interest on Working Capital1 59.03 0.75 0.35 60.13 0.03 Total Tariff 2288.14 44.18 20.54 2352.86 1.65

ANNUAL CHARGES

(Rs. in lakh)

2004-2005 2005-2006 2006-2007 2007-07 2008-2009 Annual Capital Recovery Charge-Total 1395.01 1396.63 1396.63 1396.63 1396.63 O&M Expenses 897.72 897.72 897.72 897.72 897.72 Interest on Working Capital4 60.13 60.90 61.69 62.53 63.42 Total Tariff 2352.86 2355.24 2356.04 2356.88 2357.77

STATE PORTION

IMPACT OF ADDITIONAL CAPITAL EXPENDITURE

(Rs. in lakh)

Particulars On Capital expenditure upto DOCO On Capital expenditure from DOCO to 31.03.2003 (including FERV) On Capital expenditure from 01.04.2003 to 31.03.2004 (including FERV) Total (On the Capital exenditure upto 31.03.2004) On Capital expenditure from 01.04.2004 to 31.03.2005 Capital Cost 38578.57 1774.34 -48.02 40304.90 460.99 Notional Loan 35339.76 560.86 -292.75 35607.88 322.693 Equity 3238.81 1213.48 244.73 4697.02 138.297 O/S Loan as on 01.04.2004 32884.35 536.54 -292.75 O/S Equity as on 01.04.2004 3121.57 1186.84 244.73 Years 13.25000 13.250000 13.250000 12.250000 Recovery Factors-Loan 0.114764 0.114764 0.114764 0.120794 Annual Capital Recovery Charge-Loan 3773.95 61.58 -33.60 3801.93 38.98 Recovery Factors-Equity 0.169945 0.169945 0.169945 0.175191 Annual Capital Recovery Charge-Equity 530.49 201.70 41.59 773.78 24.23 Annual Capital Recovery Charge - Total 4304.44 263.27 7.99 4575.71 63.21 O&M Expenses 0.00 0.00 0.00 0.00 0.00 Interest on Working Capital1 74.81 4.58 0.14 79.53 1.10 Total Tariff 4379.26 267.85 8.13 4655.24 64.31

ANNUAL CHARGES

(Rs. in lakh)

2004-2005 2005-2006 2006-2007 2007-07 2008-2009 Annual Capital Recovery Charge-Total 4575.71 4638.92 4638.92 4638.92 4638.92 O&M Expenses 0.00 0.00 0.00 0.00 0.00 Interest on Working Capital1 79.53 80.63 80.63 80.63 80.63 Total Tariff 4655.24 4719.54 4719.54 4719.54 4719.54

23. In addition to the above 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.

24. It is to be noted that as the full capital cost is being recovered over a period of 15 years with interest/return. After full recovery, the assets shall be transferred to the respective constituents at nominal value

25. This disposes of Petition No. 143/2005

Power Grid Corporation Of India Limited v. Karnataka Power Transmission Corporation Ltd.

Structured Summary of the Opinion — Petition No. 143/2005

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner (as expressly recorded)

Respondent No. 4 (specific submissions recorded in the opinion)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Power Grid Corporation Of India Limited v. Karnataka Power Transmission Corporation Ltd.

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