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Case Number

Petition No. 53/2007

Advocates

1. Shri U.K Tyagi, PGCIL
2. Shri C. Kannan, PGCIL
3. Shri M.M Mondal, CM (Fin), PGCIL
4. Shri Rakesh Prasad, pGcil
5. Shri V.V Sharma, PGCIL
6. Shri Harmeet Singh, PGCIL
7. Shri A.K Nagpal, PGCIL
8. Shri S.N Goel, NTPC
9. Shri Sameer Agarwal, NTPC
10. Shri A.K Juneja, NPTC
11. Shri D.G Salpekar, NTPC

Judges

Bhanu Bhushan, Member
R. Krishnamoorthy, Member

Acts

Section 17(3) of the Electricity Act, 2003 (the Act)

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Smart Summary

Structured Summary of the Opinion — Petition No. 53/2007

Factual and Procedural Background

The petitioner sought approval under Section 17(3) of the Electricity Act, 2003 for transfer of ownership of the switchyard forming part of the Kayamkulam Transmission System (associated with the Rajiv Gandhi Combined Cycle Power Project) to the second respondent, NTPC, based on a Ministry of Power letter dated 31.8.2000. The petitioner also prayed that, after approval of de-capitalization on account of transfer of the switchyard to NTPC, it be allowed to pass on the credit or adjust the transmission charges for the transferred assets with the first respondent, Kerala State Electricity Board (KSEB).

The Ministry of Power letter dated 31.8.2000 decided to transfer ownership and control of the switchyard to NTPC. The petitioner initially sought “in principle” approval and proposed an effective date for the transfer; it later informed the Commission that the switchyard was transferred to NTPC on 1.9.2007 and provided a Memorandum of Agreement. The Commission accepted 1.9.2007 as the effective date of transfer.

The transmission system at issue comprises two assets: (a) 220 kV D/C Kayamkulam–Edmon transmission line with associated bays (Asset-I), and (b) 220 kV D/C Kayamkulam–Pallom transmission line with associated bays (Asset-II). The Commission had earlier determined annual transmission charges for overlapping periods in orders dated 30.6.2003, 9.5.2006 and later revised by order dated 16.4.2008 (the latter revision being based on an Appellate Tribunal judgment).

Legal Issues Presented

Whether the Commission should grant approval under Section 17(3) of the Electricity Act, 2003 for transfer of ownership (de-capitalization) of the switchyard to NTPC and, if so, with effect from which date (the parties agreed on 1.9.2007 and the Commission accepted that date).
How to determine and allow de-capitalized value of the switchyard and to reflect that de-capitalization in the capital cost, debt–equity allocation, and tariff (transmission charges) for the remaining portion of the transmission system retained by the petitioner.
Whether the petitioner may pass on credit/adjust the revised transmission charges with KSEB following de-capitalization, and the manner/timing of such adjustment.
Whether NTPC may provisionally claim charges for the switchyard from the effective transfer date and the conditions for finalization (including filing a petition for revised capacity charges of the generating station based on final transfer price).

Arguments of the Parties

Petitioner's Assertions

The petitioner sought “in principle” approval under Section 17(3) of the Act for transfer of the asset to NTPC and subsequently identified the effective date of transfer as 1.9.2007 (as per the Memorandum of Agreement).
The petitioner provided an auditor's certificate with details of the gross block, depreciation recovered and net block for the transferred switchyard elements, and claimed de-capitalization amounts based on audited accounts (Rs. 5550.85 lakh for Asset-I and Rs. 3159.09 lakh for Asset-II as on 31.8.2007).
On the basis of audited accounts and the accepted effective date, the petitioner proposed revised transmission charges for the periods 1.4.2007–31.8.2007 and 1.9.2007–31.3.2008 after de-capitalization.
The petitioner claimed tariff calculations using the debt–equity ratios and other bases as considered in the Commission's earlier order dated 9.5.2006, adjusting for de-capitalization in the same debt–equity proportion.

NTPC's Arguments

NTPC sought “in principle” approval of the transfer and stated it would approach the Commission later to claim revision of capacity charges of the generating station from the date of transfer, based on final transfer price and related taxes/charges in a separate petition.
Pending final determination of revised capacity charges, NTPC requested permission to provisionally bill additional capacity charges (as billed previously by the petitioner), subject to retrospective adjustment after determination of the revised capacity charges.
NTPC later indicated it had no objection to the transfer value of the switchyard as reflected in the petitioner's submitted figures, but sought capitalization of stamp duty levied by the State Government and paid by NTPC.

KSEB's Arguments

KSEB contended that any additional liability such as stamp duty and registration fee (stated to be Rs. 7.8629 crore) arising from the transfer should not be charged to the beneficiary and should be accounted for in the utility's accounts, because the transfer does not benefit KSEB.
KSEB pointed out that split-up details for arriving at net block had not been submitted and urged that the net block for tariff calculation be considered only after discounting depreciation and advance against depreciation as effective in retrospective tariff.
KSEB requested that the debt–equity mix considered for the transmission system be maintained when fixing revised charges and that the switchyard life be adopted as 35 years so as not to increase tariff due to a shorter gestation period.
KSEB observed that, had the asset transfer taken effect in 2000 (when the Ministry approved transfer), it would have been relieved of paying depreciation and Advance Against Depreciation for approximately six years, implying KSEB saw a financial disadvantage from the timing of the transfer.

Table of Precedents Cited

The opinion cites an Appellate Tribunal judgment which influenced earlier tariff revisions. No other judicial precedents are cited in the provided text.

Precedent	Rule or Principle Cited For	Application by the Court
Appellate Tribunal judgment dated 4.10.2006 in Appeals No. 135-140/2005	This judgment was the basis for revision of annual transmission charges for the period 2004–09 as previously decided by the Commission.	The Commission revised the transmission charges (earlier order dated 9.5.2006 was subsequently revised by order dated 16.4.2008) based on that Appellate Tribunal judgment; the present calculations and comparisons reference the revised figures that result from that process.

Court's Reasoning and Analysis

The Commission's analysis proceeds through fact-finding and application of prior regulatory determinations and the 2004 Regulations, on the specific points summarized below. The reasoning follows the evidence supplied (audited accounts, MOA) and established regulatory methodology set out in earlier orders and the 2004 regulations.

Effective Date of Transfer: The Commission accepted the parties' agreed effective date of transfer of the switchyard to NTPC as 1.9.2007, on the strength of the Memorandum of Agreement and the petitioner’s subsequent information.
De-capitalization and Capital Cost: The petitioner claimed de-capitalization based on audited accounts (gross block, depreciation recovered and net block as on 31.8.2007). The Commission accepted the de-capitalization figures of Rs. 5550.85 lakh (Asset-I) and Rs. 3159.09 lakh (Asset-II) and adjusted the gross block for each asset accordingly to arrive at capital expenditure left with the petitioner as on 1.9.2007 (Asset-I: Rs. 7690.09 lakh; Asset-II: Rs. 5209.62 lakh).
Debt–Equity Treatment: For tariff purposes the Commission retained the debt–equity ratios as considered in its earlier order dated 9.5.2006. The de-capitalized amounts were segregated into debt and equity in the same proportions as in the earlier order; the Commission then computed the reduced equity balances for each asset and used those to compute return on equity for the specified periods.
Return on Equity and Other Components: Using the adjusted equity, the Commission computed return on equity year-wise for the relevant sub-periods (1.4.2007–31.8.2007 and 1.9.2007–31.3.2008). It similarly computed interest on loan, applying weighted average interest rates derived from the loan details considered in the order dated 16.4.2008, and using normative loan and pro rata repayment methods to reflect the portion of the asset retained by the petitioner after de-capitalization.
Depreciation and Advance Against Depreciation: Depreciation was calculated using the specified rates and depreciable values after allowing de-capitalization. Advance Against Depreciation was worked out following the methodology set out (including 1/10th of gross loan, repayment figures and depreciation), and the Commission applied the formulae consistently to determine the allowed amounts for the sub-periods.
Operation & Maintenance Expenses: The Commission applied the O&M norms provided in the 2004 regulations (per ckt-km and per bay figures) and allowed O&M for the retained line lengths and bays (pro rata for partial-year periods where appropriate).
Maintenance Spares and Interest on Working Capital: The Commission reviewed the petitioner's claimed maintenance-spares calculation and identified a double-escalation problem in the petitioner's method. It therefore adopted a methodology based on the amount existing on 31.3.2007 (escalated appropriately and applied pro rata) to compute maintenance spares for the relevant periods. Interest on working capital was computed with approved components (maintenance spares, one-month O&M, two months' receivables) and an interest rate of 10.25% (SBI PLR as of 1.4.2004), consistent with the 2004 regulations and prior practice.
Computation of Revised Transmission Charges: Applying the above components (depreciation, interest on loan, return on equity, advance against depreciation, interest on working capital, O&M), the Commission computed and summarized the revised transmission charges for Asset-I and Asset-II for the periods 1.4.2007–31.8.2007, 1.9.2007–31.3.2008 and for 2008–2009 where applicable. The computations are set out in the body of the order and form the basis for allowances to the petitioner and provisional allowances to NTPC.
Provisional Allowance for NTPC and Further Proceedings: The Commission allowed NTPC to provisionally claim charges for the transferred switchyard from 1.9.2007, calculated as the difference between transmission charges approved by the Commission’s earlier order dated 16.4.2008 and the transmission charges allowed in the present order for the period from 1.9.2007 to 31.3.2009. The Commission directed NTPC to file a petition by 31.10.2008 for final approval of revised capacity charges for the generating station after accounting for the capital cost of the switchyard transferred to it; the Commission will consider KSEB's issues when adjudicating that petition.
Adjustments and Compliance: The petitioner was allowed to pass credit to/adjust the revised transmission charges with KSEB. Any excess recovery (if any) made by the petitioner based on the earlier order dated 9.5.2006 was to be adjusted within three months against future bills. The petitioner was directed to pay the balance filing fee of Rs. 80,000 (it had paid Rs. 20,000 earlier).

Holding and Implications

DISPOSED OF

Core holdings and direct effects on the parties:

The Commission accepted 1.9.2007 as the effective date of transfer of the switchyard to NTPC (as agreed between the parties).
The Commission allowed de-capitalization of Rs. 5550.85 lakh (Asset-I) and Rs. 3159.09 lakh (Asset-II) based on audited accounts and adjusted the capital costs of the portions of the transmission system retained by the petitioner accordingly.
The Commission approved the detailed tariff computations (revised transmission charges) for the relevant sub-periods and for 2008–2009 as summarized in the order, applying earlier regulatory parameters (debt–equity ratios, O&M norms, rates of interest, etc.).
The petitioner was permitted to pass on credit/adjust the revised transmission charges with KSEB; any excess recovery based on prior orders was to be adjusted within three months.
NTPC was permitted to provisionally claim charges for the transferred switchyard from 1.9.2007 (figures for both assets for the relevant periods were set out in the order). NTPC was directed to file a petition by 31.10.2008 for final approval of revised capacity charges for the generating station after accounting for the capital cost of the transferred switchyard; KSEB’s concerns will be considered when that petition is decided.
The petitioner was directed to deposit the balance filing fee of Rs. 80,000.
The order formally disposes of Petition No. 53/2007.

Broader implications: The opinion applies established regulatory methodologies (as reflected in the Commission's prior orders and the 2004 regulations) to the specific facts of this transfer. The order implements de-capitalization and tariff adjustments for the retained transmission assets and grants provisional treatment to NTPC pending finalization; the opinion does not purport to establish a new legal precedent beyond the application of existing regulatory provisions and earlier appellate authority referenced in the record.

End of summary based solely on the provided opinion.

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Power Grid Corporation Of India Limited v. Kerala State Electricity Board

The petition has been filed seeking approval under Section 17(3) of the Electricity Act, 2003 (the Act) for transfer of ownership of switchyard, forming part of Kayamkulam Transmission System (the transmission system) and associated with Rajiv Gandhi Combined Cycle Power Project (the generating station) to the second respondent, NTPC, based on Ministry of Power letter No. 5/33/99-Th.2 dated 31.8.2000 The petitioner has prayed that after approval of de-capitalization on account of transfer of switchyard to NTPC it be allowed to pass on the credit to/adjust the transmission charges for the transferred assets with the first respondent, KSEB.

2. Ministry of Power vide its letter dated 31.8.2000 ibid. inter alia, decided to transfer ownership and control of the switchyard from the petitioner to the second respondent, NTPC.

3. In response to query from the Commission, the petitioner vide IA No. 22/2007 had prayed for ‘in principle’ approval and effective date of transfer of ownership of the switchyard as 1.4.2007 or any other date as deemed proper by the Commission. Subsequently, the petitioner informed that the switchyard was transferred to NTPC on 1.9.2007 The petitioner submitted a copy of the Memorandum of Agreement signed with NTPC. Thus, the effective date of transfer of the switchyard to NTPC, as agreed to between the parties is 1.9.2007 We have accepted this date.

4. The following assets form part of the transmission system, namely:—

(a) 220 kV D/C Kayamkulam-Edmon transmission line along with associated bays (Asset-I), and

(b) 220 kV D/C Kayamkulam-Pallom transmission line along with associated bays (Asset-II).

5. The annual transmission charges from 1.4.2001 to 31.3.2004 were decided by the Commission in its order dated 30.6.2003 in Petition No. 52/2002 considering capital cost of Rs. 12655.33 lakh and Rs. 7848.04 lakh for Asset-I and Asset-II, respectively. The annual transmission charges for the period 2004-09 were approved by the Commission in its order dated 9.5.2006 in Petition No. 74/2004, which were subsequently revised vide order dated 16.4.2008 based on the Appellate Tribunal's judgment dated 4.10.2006 in Appeals No. 135-140/2005 as under, considering additional capitalization of Rs. 259.61 lakh on works for Kayamkulam-Pallom line and Rs. 585.82 lakh and Rs. 261.05 lakh for Asset-I and Asset-II respectively on account of FERV for the period 1.4.2001 to 31.3.2004:

(Rs. in lakh)

Asset-I Asset-II 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Depreciation 405.57 405.57 405.57 405.57 405.57 256.80 256.80 256.80 256.80 256.80 Interest on Loan 610.20 521.98 431.65 339.07 258.15 422.74 366.84 310.03 252.25 199.25 Return on Equity 213.73 213.73 213.73 213.73 213.73 200.10 200.10 200.10 200.10 200.10 Advance against Depreciation 0.00 304.63 683.74 724.02 560.84 0.00 269.65 417.83 435.24 368.58 Interest on Working Capital 41.14 46.01 52.21 52.54 49.61 27.58 31.96 34.26 34.30 33.00 O & M Expenses 147.89 153.82 160.06 166.30 173.10 133.82 139.18 144.80 150.49 156.60 Total 1418.54 1645.74 1946.96 1901.22 1661.00 1041.04 1264.53 1363.83 1329.18 1214.33

6. The petitioner vide its affidavit dated 15.1.2008 filed its claim for the revised transmission charges for the years 2007-2008 and 2008-2009 in both the assets after decapitalization of the capital cost on account of transfer of the switchyard, at Kayamkulam, as under:

(Rs. in lakh)

2007-2008 2008-2009 1.4.2007 to 31.8.2007 1.9.2007 to 31.3.2008 Asset-I 800.34 400.68 656.32 Asset-II 559.76 310.77 511.87

7. The line length and number of bays left with the petitioner after transfer of the switchyard to NTPC are as under:

(Rs. in lakh)

Line Lenght (Ckt km) No of bays As per order dated 9.5.2006 in Petition No. 74/2004 Transferred to NTPC Balance with petitioner, subsequent to transfer As per order dated 9.5.2006 in Petition No. 74/2004 Transferred to NTPC Balance with petitioner subsequent to transfer Asset-I 156.00 0.00 156.00 04 02 02 Asset-II 94.00 0.00 94.00 04 02 02 Total 250.00 0.00 250.00 08 04 04

8. The petitioner has submitted an auditor's certificate dated 11.1.2008 containing the following details of the capital cost of the switchyard transferred to NTPC:

(Rs. in lakh)

Asset-I Asset-II Total Gross Block as on 31.8.2007 Depreciation recovered as on 31.8.2007* Net Block as on 1.9.2007 Gross Block as on 31.8.2007 Depreciation recovered as on 31.8.2007* Gross Block as on 1.9.2007 Net Block as on 1.9.2007 Depreciation recovered as on 31.8.2007* Net Block as on 1.9.2007 Building 0.00 0.00 0.00 263.48 71.27 192.21 263.48 71.27 192.21 Sub-station 5512.32 1847.14 3665.18 2845.03 769.58 2075.45 8357.35 2616.72 5740.63 PLCC 38.53 12.91 25.62 50.58 13.68 36.90 89.11 26.59 62.52 Total 5550.85 1860.05 3690.80 3159.09 854.53 2304.56 8709.94 2714.58 5995.36

9. The reply to the petition has been filed by NTPC and Kerala State Electricity Board (KSEB).

10. The second respondent, NTPC vide its affidavit dated 25.4.2007 sought ‘in principle’ approval, that it shall approach the Commission at later date to claim revision of capacity charges of the generating station from the date of transfer, based on final transfer price along with additional statutory duties or taxes and other related cost through a separate petition. Pending revision of the capacity charges, NTPC has prayed for approval of provisional billing of the additional capacity charges of the generating station, as was being billed by the petitioner, subject to retrospective adjustment after determination of the revised capacity charges.

11. The first respondent, KSEB vide its affidavit dated 25.4.2007 has contended that any additional liability on account of stamp duty and registration fee, stated to be of Rs. 7.8629 crore, accompanying the transfer should not be charged to the beneficiary and should be accounted for in the utilitie's account as this transfer no way benefits KSEB. KSEB pointed out that the split-up details of cost for arriving at net block had not been submitted. It was urged that the net block of the switchyard for tariff calculation may be considered only after discounting the depreciation as well as advance, against components effective in retrospective tariff. According to KSEB, while fixing the revised charges, after the transfer the switchyard, debt-equity ratio already considered for the assets constituting the transmission system be maintained and the life of the switchyard may be adopted as 35 years so that the tariff does not increase due to constriction of the gestation period. It has also pointed out that if the asset had been transferred in the year 2000 itself when the transfer was approved by Ministry of Power, it would have been relieved of paying depreciation as well as Advance Against Depreciation for almost 6 years.

12. The petitioner in its replication has stated that it had approached the Commission for ‘in principle’ approval of transfer of asset to NTPC in accordance with sub-section (3) of Section 17 of the Act and after approval, the basis of determination of de-capitalised value of the switchyard, against the total capital cost of the transmission system needed to be firmed up. The petitioner summed up that KSEB's concerns may get addressed at the time of determination of de-capitalised/transfer value of the switchyard and tariff thereof. The petitioner subsequently furnished the details of net value of the switchyard on the date of transfer to NTPC

13. NTPC has no objection to the transfer value of the switchyard as extracted in para 8 above. However, the additional charges in the form of stamp duty levied by the State Government and paid by NTPC have been sought to be capitalised.

14. None was present at the hearing on behalf of KSEB.

CAPITAL COST

15. The petitioner has considered the capital expenditure admitted by the Commission in the order dated 9.5.2006 ibid. The petitioner has considered decapitalization of Rs. 5550.85 lakh and Rs. 3159.09 lakh as on 31.8.2007 on account of transfer of switchyard to NTPC for Asset-I and Asset-II respectively. Accordingly, based on the audited accounts the capital expenditure including de-capitalization as on 1.9.2007 considered by the petitioner for tariff of the left-over portion of transmission system is given hereunder:

(Rs. in lakh)

Name of the Assets Capital cost as on 31.8.2007 Expenditure decapitalized as on 31.8.2007 Capital expenditure as on 1.9.2007 left with the petitioner Asset-I 13240.94 5550.85 7690.09 Asset-II 8368.70 3159.09 5209.62

16. The details submitted by the petitioner in support of its claim for decapitalisation are given hereunder:

Asset-I Asset-II Nature of expenditure Nature of expenditure Sub-station = Rs. 5512.32 lakh PLCC = Rs. 38.53 lakh Total = Rs. 5550.85 lakh Buildings = Rs. 263.48 lakh Sub-station = Rs. 2845.03 lakh PLCC = Rs. 91.61 lakh Total = Rs. 3159.09 lakh

17. The de-capitalization claimed is based on audited accounts and accordingly, has been allowed.

18. Based on the above, gross block as given below has been considered for the purpose of tariff for each of the element, after allowing de-capitalization on works and as claimed by the petitioner:

(Rs. in lakh)

Name of the Assets Capital expenditure as on 31.8.2007 Expenditure de-capitalised as on 31.8.2007 Capital expenditure as on 1.9.2007 Asset-I 13240.94 5550.85 7690.09 Asset-II 8368.70 3159.09 5209.62

DEBT - EQUITY RATIO

19. The petitioner has claimed tariff based on debt-equity ratio as considered by the Commission in its order dated 9.5.2006 Based on this, the debt-equity ratio claimed by the petitioner for the purpose of revision of tariff in the present petition is indicated below:

Name of the Element Debt-equity ratio Asset-I 88.47:11.53 Asset-II 82.92:17.08

20. The petitioner has claimed tariff after accounting for the de-capitalization expenditure of Rs. 5550.85 lakh and Rs. 3159.09 lakh for Asset-I and Asset-II respectively. For the purpose of approval of tariff, de-capitalised amount has been segregated into same debt-equity ratio as considered in the order dated 9.5.2006 Therefore, equity considered for tariff for each asset is as under:

(Rs. in lakh)

Name of the Element Equity as per order dated 9.5.2006 Expenditure Decapitalised Equity corresponding to de-capitalised expenditure Balance equity as on 1.9.2008 Asset-I 1169.70 5550.85 639.99 886.63 Asset-II 1526.62 3159.09 539.55 889.76

RETURN ON EQUITY

21. The petitioner has claimed return on equity on the basis of order dated 9.5.2006 ibid along with minus equity corresponding to de-capitalization on account of transfer of the switchyard to NTPC. However, we have already arrived at equity as given in the table under para 20. Thus, return on equity recoverable each year is given hereunder:

(Rs. in lakh)

Name of the Asset Equity Return on equity 2007-2008 2008-2009 1.4.2006 to 31.8.2007 1.9.2007 to 31.3.2008 Asset-I 886.63 89.05 72.41 124.13 Asset-II 889.76 83.38 72.66 124.57

INTEREST ON LOAN

22. The petitioner has claimed interest on loan in the following manner:

(i) Gross loans opening has been considered from 2005-2006 for both assets;

(ii) On the basis of actual rate of interest on actual average loan, the weighted average rate of interest on loan is worked out for various years.

(iii) Gross loans at (i) above has been considered and the weighted average rate of interest on loan for respective years as per above has been has been multiplied to arrive at interest on loan.

(iv) For the years 2007-2008 and 2008-2009, the petitioner has considered the net loan opening in proportion to the value of the asset being transferred.

(v) Repayment during 2007-2008 as per the order dated 16.4.2008 in petition No. 74/2004 has been considered and calculated on pro rata for the period 1.4.2007 to 31.8.2007

(vi) Cumulative repayment up to previous year (corresponding to 1.4.2007 to 31.8.2007) has been added to the pro rata figure arrived at in (v) above and this sum has been considered proportionately to the percentage of assets left with the petitioner as on 1.9.2007 to arrive at the cumulative repayment of loan figure for the period 1.9.2007 to 31.3.2008

(vii) Finally, the repayment of the loan for the period from 1.9.2007 to 31.3.2008 has been arrived at by using the following formula:

Repayment=(Actual repayment of loans during the year/Actual net loan opening) × (notional net loan opening)x (1.9.2007 to 31.3.2008 in years)

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

(i) Gross amount of loan, repayment of instalments and rate of interest as per the loan details considered in the order dated 16.4.2008 ibid have been used to work out weighted average rate of interest on actual loan.

(ii) Normative loan and normative repayments up to 31.3.2007 as those considered in the order dated 16.4.2008 have been taken. Repayment for the period 1.4.2007 to 31.8.2007 has been worked out on pro rata basis against repayment for the year 2007-2008.

(iii) Gross normative loan as on 1.9.2007 is the loan part remaining after de-capitalization. Cumulative repayment up to the previous period has been multiplied by the percentage of the assets remaining after de-capitalization to arrive at the cumulative repayment for the period from 1.9.2007 to 31.3.2008

(iv) Repayment of loan during the period from 1.9.2007 to 31.3.2008 has been calculated by using the following formula:

{(Gross normative loan during Period-II)/(Gross normative loan for the period from 1.4.2007 to 31.8.2007)}

X [(Repayment during Period-I converted to yearly repayment) X (for the period from 1.9.2007 to 31.3.2008 in years)]

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

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

(Rs. in lakh)

Asset-I Asset-II 2007-2008 2008-2009 2007-2008 2008-2009 1.4.2007 to 31.8.2007 1.9.2007 to 31.3.2008 1.4.2007 to 31.8.2007 1.9.2007 to 31.3.2008 Gross Normative Loan 11714.32 6803.46 6803.46 6939.40 4319.85 4319.85 Cumulative Repayment upto Previous Year 5943.56 3725.26 4107.95 3143.48 2136.36 2387.66 Net Loan-Opening 5770.76 3078.20 2695.51 3795.92 2183.50 1932.20 Repayment during the year 470.66 382.69 561.27 288.35 251.30 389.31 Net Loan-Closing 5300.10 2695.51 2134.23 3507.56 1932.20 1542.89 Average Loan 5535.43 2886.85 2414.87 3651.74 2057.85 1737.54 Weighted Average Rate of Interest on Loan 6.5131% 6.5131% 6.2086% 7.3118% 7.3118% 7.1384% Interest 150.22 109.68 149.93 111.25 87.77 124.03

DEPRECIATION

25. Depreciation allowed has been worked out as calculated below:

(Rs. in lakh)

Asset-I Asset-II 2007-2008 2008-2009 2007-2008 2008-2009 1.4.2007 to 31.8.2007 1.9.2007 to 31.3.2008 1.4.2007 to 31.8.2007 1.9.2007 to 31.3.2008 Gross Block as 13240.94 7690.09 7690.09 8368.71 5209.62 5209.62 Rate of Depreciation 2.66336% 2.66336% 2.66336% 2.81412% 2.81412% 2.81412% Depreciable Value 11916.85 6921.08 6921.08 7479.05 4635.87 4635.87 Balance Useful life of the asset - - - - Remaining Depreciable Value 5973.29 5502.63 7243.20 4335.57 4047.22 4816.23 Depreciation 168.99 119.48 204.81 107.00 85.52 146.60

ADVANCE AGAINST DEPRECIATION

26. The petitioner has claimed Advance Against Depreciation in the following manner:

(i) 1/10th of gross loan considered for tariff computation.

(ii) Cumulative loan as well as repayment of notional loan considered during the year.

(iii) Depreciation as claimed in the petition.

27. In our calculation, Advance Against Depreciation has been worked as under:

(i) 1/10th of gross loan has been worked out from the gross notional loan as per para 24 above.

(ii) Repayment of notional loan during the year has been considered as per para 24 above.

(iii) Depreciation as worked out as per para 25 above has been taken into account.

(iv) In calculations of Advance Against Depreciation, cumulative depreciation/Advance Against Depreciation up to preceding year along with the depreciation of the current year has been considered for working out the Advance Against Depreciation. Therefore this figure of cumulative depreciation/Advance Against Depreciation would be different from the figure appearing under the similar head elsewhere in tariff calculations where Advance Against Depreciation for the current year is also included for 90% restriction of the depreciation.

(iv) The cumulative repayment of loan for the period from 1.4.2007 to 31.8.2007 is the sum of the cumulative repayment up to the previous year and the repayment during the period for the period from 1.4.2007 to 31.8.2007 as considered for working out the interest on loan.

28. The details of Advance Against Depreciation allowed for both assets are given hereunder:

(Rs. in lakh)

Asset-I Asset-II 2007-2008 2006-2007 2007-2008 2007-2008 2008-2009 1.4.2007 to 31.8.2007 1.9.2007 to 31.3.2008 1.4.2007 to 31.8.2007 1.9.2007 to 31.3.2008 1/10th of Gross Loan(s) 1171.43 680.35 680.35 693.94 693.94 431.99 Repayment of the Loan 470.66 382.69 561.27 674.63 288.35 389.31 Minimum of the above 470.66 382.69 561.27 674.63 288.35 389.31 Depreciation during the year 168.99 119.48 204.81 256.80 107.00 146.60 (A) Difference 301.67 263.22 356.46 417.83 181.35 242.70 Cumulative Repayment of the Loan 6414.22 4107.95 4669.22 3143.48 3431.83 2776.97 Cumulative Depreciation/Advance against Depreciation 6112.54 4673.64 4878.46 2725.65 3250.48 2809.43 (B) Difference 301.67 -565.69 -209.24 417.83 181.35 -32.46 Advance against Depreciation Minimum of (A) and (B) 301.67 0.00 0.00 417.83 181.35 0.00

OPERATION & MAINTENANCE EXPENSES

29. In accordance with clause (iv) of Regulation 56 the 2004 regulations, the following norms are prescribed for O & M expenses

(Rs. in lakh)

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

30. The petitioner has claimed the revised O & M expenses for 156 ckt-km of line length and 2 bays for Asset-I and 94 ckt.km of line length and 2 bays for Asset-II, 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 2007-2008 (1.9.2007 to 31.3.2008) 2008-2009 2007-2008 (1.9.2007 to 31.3.2008) 2008-2009 O&M expenses for 156 Ckt km of line length 13.98 25.00 O&M expenses for 94 Ckt km of line length 23.21 41.50 O&M expenses for 2 bays 36.90 65.80 O&M expenses for 2 bays 36.90 65.80 50.88 90.80 60.11 107.30

31. O&M expenses for the period 1.4.2007 to 31.8.2007 have been calculated on pro rata basis for 5 months of O&M expenses for the year 2007-2008 approved by the Commission in the order dated 9.5.2006 ibid.

INTEREST ON WORKING CAPITAL

32. 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, the capital cost as on 1.9.2007, for Asset-I and Asset-II retained by the petitioner is 58.08% and 62.25%, respectively of gross blocks as on 1.4.2004

The petitioner has claimed cost of maintenance spares of Rs. 62.62 lakh for 7 months (1.9.2007 to 31.3.2008) in respect of Asset-II. Escalating Rs. 62.62 lakh by 6%, the cost of maintenance spares of Rs. 66.38 lakh for the year 2008-2009 has been claimed. The cost of maintenance spares as on 31.3.2007 was Rs. 94.83 lakh. This has been escalated by 6% and its share on pro rata basis for 5 months (1.4.2007 to 31.8.2007) is Rs. 97.20 lakh. The petitioner has claimed cost of maintenance spares for 7 months (1.9.2007 to 31.3.2008) by using of Rs. 97.20 lakh and escalated it by 6%. In this way, there is a double escalation since Rs. 97.20 lakh has already escalated and beneficiaries will have to pay more. This aspect has been taken by considering cost of Rs. 94.83 lakh, which originally existing on 31.3.2007, for calculation of maintenance spares for 7 months (1.7.2007 to 31.3.2008) and the same works out to be Rs. 61.10 lakh. Escalating it by 6%, the cost of maintenance spares for the period 2008-2009 work out to be Rs. 64.76 lakh. The above methodology as considered for Asset-II will also applies for Asset-I. Accordingly, the cost of maintenance spares has been taken as under:

(Rs. in lakh)

Asset-I Asset-II Maintenance spares as on 31.3.2007 171.53 94.83 Maintenance spares for 5 months (1.4.2007 to 31.8.2007) 175.81 97.20 {171.53 × (1 + 5/12 × 0.06)} {94.83 × (1 + 5/12 × 0.06)} Maintenance spares for 7 months (1.9.2007 to 31.3.2008) 103.11 61.10 {171.53 × 0.5808 × (1+ 0.06)} {94.83 × 0.6225 × (1+7/12 × 0.06)} 2008-2009 109.30 64.76

(ii) O & Mexpenses

The 2004 regulations provide for operation and maintenance expenses for one month as a component of working capital, which has been considered in the working capital.

(iii) Receivables

In the tariff being allowed, receivables have been worked out on the basis 2 months' transmission charges.

(iv) Rate of interest on working capital

The petitioner has claimed interest on working capital @ 10.25% based on SBI PLR as on 1.4.2004, as in the Petition No. 74/2004 which is in accordance with the 2004 regulations and has been allowed.

33. The necessary computations in support of interest on working capital are appended herein below.

(Rs. in lakh)

Asset-I Asset-II 2007-2008 2007-2008 2008-2009 1.4.2007 to 31.8.2007 1.9.2007 to 31.3.2008 1.4.2007 to 31.8.2007 1.9.2007 to 31.3.2008 Maintenance Spares 175.81 103.11 109.29 97.20 61.10 64.76 O & M expenses 5.77 5.01 8.94 5.23 4.24 7.57 Receivables 135.28 63.21 101.45 94.31 51.47 83.67 Total 316.87 171.32 219.68 196.73 116.80 155.99 Rate of Interest 10.25% 10.25% 10.25% 10.25% 10.25% 10.25% Interest 32.48 17.56 22.52 20.16 11.97 15.99

TRANSMISSION CHARGES

34. The revised transmission charges for the year 2007-2008 and 2008-2009 being allowed are summarized below.

(Rs. in lakh)

Asset-I Asset-II 2007-2008 2008-2009 2007-2008 2008-2009 1.4.2007 to 31.8.2007 1.9.2007 to 31.3.2008 1.4.2007 to 31.8.2007 1.9.2007 to 31.3.2008 Depreciation 168.99 119.48 204.81 107.00 85.52 146.60 Interest on Loan 150.22 109.68 149.93 111.25 87.77 124.03 Return on Equity 89.05 72.41 124.13 83.38 72.66 124.57 Advance against Depreciation 301.67 0.00 0.00 181.35 0.00 0.00 Interest on Working Capital 32.48 17.56 22.52 20.16 11.97 15.99 O & M Expenses 69.29 60.11 107.30 62.70 50.88 90.80 Total 811.70 379.23 608.69 565.85 308.81 501.99

35. 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.

36. The petitioner is allowed to pass credit to/adjust the revised transmission charges with the first respondent, KSEB. The excess recovery of the transmission charges, if any, made by the petitioner based on the order dated 9.5.2006, shall be adjusted in three months against the future bills.

37. We permit NTPC to provisionally claim the charges for the switchyard transferred from the petitioner w.e.f 1.9.2007 as under:

(Rs. in lakh)

Asset-I Asset-II 2007-2008 (1.9.2007 to 31.3.2008) 2008-2009 2007-2008 (1.9.2007 to 31.3.2008) 2008-2009 Depreciation 117.10 200.76 64.28 110.20 Interest on Loan 79.17 108.22 53.23 75.21 Return on Equity 52.27 89.60 44.06 75.54 Advance against Depreciation 422.35 560.84 253.89 368.58 Interest on Working Capital 2.50 27.09 2.17 17.01 O & M Expenses 36.90 65.80 36.91 65.80 Total 710.29 1052.21 454.54 712.34

38. The provisional charges being allowed as above are the difference of the transmission charges for Asset-I and Asset-II approved by order dated 16.4.2008 and the transmission charges approved in para 34 above, for the period from 1.9.2007 to 31.3.2009 NTPC is directed to file a petition for approval of the revised capacity charges for the generating station after accounting for the capital cost of the switchyard transferred to it, by 31.10.2008 A view on the issues raised by KSEB will be taken while considering the revised capacity charges in the petition to be filed by NTPC.

39. The petitioner is directed to deposit balance filing fee of Rs. 80,000/-, since it has paid fee of Rs. 20,000/- only.

40. This order disposes of Petition No. 53/2007.

Power Grid Corporation Of India Limited v. Kerala State Electricity Board

Structured Summary of the Opinion — Petition No. 53/2007

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Assertions

NTPC's Arguments

KSEB's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Power Grid Corporation Of India Limited v. Kerala State Electricity Board

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