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CERC’s Terms and Conditions of Tariff Regulations’2009 (Tariff Block 2009-14)

CERC’s Terms and Conditions of Tariff Regulations’2009 (Tariff Block 2009-14) . CERC notified regulations on Terms and Conditions of Tariff for the period 2009-14 on 19 th Jan.’2009 . The salient features of CERC regulations summarized. FINAL CERC TARIFF NORMS FOR 2009-14 .

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CERC’s Terms and Conditions of Tariff Regulations’2009 (Tariff Block 2009-14)

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  1. CERC’s Terms and Conditions of Tariff Regulations’2009(Tariff Block 2009-14)

  2. CERC notified regulations on Terms and Conditions of Tariff for the period 2009-14 on 19th Jan.’2009. The salient features of CERC regulations summarized. FINAL CERC TARIFF NORMS FOR 2009-14

  3. CERC TARIFF NORMS FOR 2009-14TARIFF COMPONENTS A. ANNUAL FIXED CHARGE (AFC ) • ROE (RETURN ON EQUITY) • IOL (INTEREST ON LOAN) • DEP (DEPRECIATION) • O&M (OPERATION & MAINTENANCE) • IOWC (INTEREST ON WORKING CAPITAL) B. OTHER CHARGES • INCENTIVE • FERV • INCOME TAX C. REBATE D. LATE PAYMENT SURCHARGE

  4. CERC TARIFF NORMS FOR 2009-14(ANNUAL FIXED CHARGE ) Return on Equity • ROE shall be on pre-tax basis at base rate of 15.5%, to be grossed up with the normal tax rate applicable to the utility. • For POWERGRID, ROE (pre-tax) shall be 17.481%, considering present level of MAT of 11.33%. • ROE to be reviewed on the basis of actuals during the next tariff block based on actual tax rate applicable, in line with Finance Act of respective years. • For projects commissioned on or after 1.4.2009, additional ROE of 0.5% to be allowed for projects completed within the time line.pdf stipulated by CERC. Existing Regulation for 2004 -2009: • ROE @ 14% (post-tax)

  5. CERC TARIFF NORMS FOR 2009-14(ANNUAL FIXED CHARGE ) Interest on Loan: • Cap of 30% on Equity deployment. Equity deployed in excess of 30% to be treated as normative loan. • In case loan deployment is more than 70%, actual loan deployed to be considered for the purpose of calculation of Interest on Loan. • Re-finance benefit to be shared between the beneficiaries and transmission licensee in the ratio of 2:1 Existing Regulation for 2004 -2009: • Similar provision for Interest on Loan calculation • Re-financing of the loan allowed if it results in net benefit to the beneficiaries. The costs associated to be borne by the beneficiaries. • Utilities not to make any profit on account of swapping on loan and interest on loans

  6. CERC TARIFF NORMS FOR 2009-14(ANNUAL FIXED CHARGE ) O&M Expenses • Unit O&M rates have been specified for different configuration of lines (S/C or D/C, with single, double, triple, or quadruple conductor) and voltage level of substations (bays). • Unit O&M rates for 2009-10 escalated @ 5.72% per year to arrive at the rates for subsequent years. • Rates have been enhanced to take care of wage hike (due w.e.f. 1.1.2007) for PSU employees. Existing Regulation for 2004-2009: • Normative O&M on per ckt-km /per bay allowed. Annual escalation from 2004-05 allowed @ 4%

  7. CERC TARIFF NORMS FOR 2009-14(ANNUAL FIXED CHARGE ) Depreciation • Depreciation allowed New Existing • T/L 5.28% 2.57% • S/Station 5.28% 3.6 % • Land under lease 3.34% 0 % • Bldg & civil works 3.34% 1.8% • Communication equipments 6.33% 6 % • Weighted average rate of Dep. 5.25 % 3% • Advance Against Depreciation (AAD) has been discontinued in the new norms, since Depreciation rate has been enhanced.

  8. CERC TARIFF NORMS FOR 2009-14(ANNUAL FIXED CHARGE ) Interest on Working Capital • Working Capital consists of New Existing • 2 months receivables 2 months receivables. • Maintenance Spares 1 % of Gross Block. @ 15% of O&M Exp. • 1 month O&M 1 month O&M • Interest on Working Capital @SBI PLRate as on 01.04.2009 for existing assets or 1st April of the year of DOCO for new assets.

  9. CALCULATION OF TRANS. TARIFF • CAPITAL COST OF THE PROJECT : Rs 100 Crs • LOAN : Rs 70 Crs • EQUITY : Rs 30 Crs • Rate of Interest on Loan : 8% PA • IOWC : 10% • Line Length : 138 Km. • Type of line : 400 kV D/C (Twin Conductor) • No. of bays : 2 nos. 400kV • Project is completed within time schedule Tariff P/A • IOL : 70 x 0.08 = 5.60 Crs • ROE : 30 x 0.16 = 4.80 Crs • DEPRECIATION: 100 x 0.0528 = 5.28 Crs

  10. CALCULATION OF TRANS. TARIFF • O & M For line : 138 x 0.627 = 86.53 Lakhs For Bays : 2 x 52.40 = 104.80 Lakhs TOTAL O&M = 191.33 LAKHS = 1.91 Crs • Working Capital i) Two months receivables : 2.99 Crs| ii) One month O&M : 0.16 Crs | = 3.44 Crs iii) Maintenance (15% of O&M): 0.29 Crs | • IOWC : 3.44 x .10 = 0.35 Crs • TOTAL ANNUAL TARIFF : =17.94 Crs

  11. CERC TARIFF NORMS FOR 2009-14( OTHER CHARGES) Availability based Incentive • The incentive billing allowed as part of Monthly Transmission Charge based on monthly availability certified by RPC. • Normative Annual Availability NEW EXISTING • AC system : 98% 98% • HVDC bi-pole link : 92% 95% • HVDC back-to-back station : 95% 95% Existing Regulation for 2004-2009: • Yearly billing on Availability Certificate issued by RPC • Incentive is calculated as % of equity

  12. CERC TARIFF NORMS FOR 2009-14(OTHER CHARGES ) Foreign Exchange Rate Variation • Hedging of foreign currency loans in part or full allowed, with cost of hedging being pass through. • To the extent utility is not able to hedge, extra rupee liability towards interest payment and loan repayment will be pass through. Existing Regulation for 2004-2009: • Extra rupee liability towards interest payment and loan repayment was pass through.

  13. CERC TARIFF NORMS FOR 2009-14(OTHER CHARGES) Tax on Income • ROE being pre-tax, therefore no separate billing for Income Tax. Existing Regulation for 2004-2009: • Income Tax as pass through.

  14. CERC TARIFF NORMS FOR 2009-14 Rebate • Allowed @ 2% for payment through LC on presentation of bills. • @1% for payment other than through LC within one month on presentation of bills Existing Regulation for 2004-2009: • Same provisions

  15. CERC TARIFF NORMS FOR 2009-14 Late payment surcharge • Surcharge @ 1.25% per month on delay in payment beyond 60 days from date of billing. Existing Regulation for 2004 -2009: • Same provisions.

  16. CERC TARIFF NORMS FOR 2009-14(OTHER ISSUES) Useful Life: • AC and DC sub-station - 25 years • Transmission Line - 35 years Existing Regulation for 2004-2009: • Different Useful life was defined for T/L, S/stn, Communication equipments, lightning arrestors, batteries etc.

  17. CERC TARIFF NORMS FOR 2009-14(OTHER ISSUES) Application for determination of Tariff • As per present norms, tariff to be calculated based on actual expenditure incurred (cash out flow). In the new norms, tariff for block 2009- 14 to be allowed based capital expenditure actually incurred (cash out flow ) and also to include estimated expenditure up to Cut-off date. • Capital cost to include initial spares and estimated/actual additional capital expenditure (if any) after cut-off date. • The tariff so determined (for block 2009-14) to be reviewed in next tariff block beginning on 01.04.2014 and impact of revision to be adjusted with interest at SBI PLR Existing Regulation for 2004 -2009: • Tariff applications to be made in two stages (i) Provisional tariff in advance of anticipated DOCO (ii) Final Tariff. • Tariff is calculated on the basis of capital expenditure actually incurred. • Additional Capitalisation can be claimed two times in a tariff block.

  18. CERC TARIFF NORMS FOR 2009-14(OTHER ISSUES) Initial Spares: • Initial spares shall be capitalised as a percentage of the original project cost, subject to following ceiling norms: New Existing • Transmission Line 0.75% 1.5% • Sub-station 2.5 % 1.5% • Series compensation devices and HVDC stations 3.5 % 1.5%

  19. CERC TARIFF NORMS FOR 2009-14(OTHER ISSUES) Add Cap up to Cut Off date: • Undischarged liabilities; • Works deferred for execution; • Procurement of initial capital spares • Liabilities to meet award of arbitration or for compliance of the order or decree of a court • Change in law: Existing Regulation for 2004 -2009: • Same provisions

  20. CERC TARIFF NORMS FOR 2009-14(OTHER ISSUES) Add Cap after Cut Off date: • (i)Liabilities to meet award of arbitration or for compliance of the order or decree of a court, (ii) Change in law • (iii) Exp. on items such as relays, control and instrumentation, computer system, power line carrier communication, DC batteries, replacement of switchyard equipment due to increase of fault level, emergency restoration system, insulators cleaning infrastructure, replacement of damaged equipment not covered by insurance and any other expenditure which has become necessary for successful and efficient operation of trans. system Existing Regulation for 2004 -2009: • (i)Deferred liabilities, (ii) Liabilities to meet award of arbitration or for compliance of the order or decree of a court, (iii) Change in law • (iv) Any additional works /services which have become necessary for efficient and successful operation of the project but not included in the original capital cost” was allowed.

  21. CERC TARIFF NORMS FOR 2009-14( OTHER ISSUES) Renovation and Modernisation • R&M allowed for the purpose of extension of life beyond the useful life of the transmission system. • R&M proposal to contain DPR, justification, cost-benefit analysis, estimated life extension from a reference date, financial package, phasing of expenditure, schedule of completion, reference price level, estimated completion cost including foreign exchange component, if any, record of consultation with beneficiaries etc. • R&M can be carried out only after CERC approval. Existing Regulation for 2004-2009: • R&M was envisaged however, no detailed procedure was provided in Regulation. CERC through a separate order dated 11August 2005 in Petition No 67/2003 made some procedure for R&M.

  22. Thank You

  23. IMPACT OF NEW CERC NORMS ON TRANSMISSION CHARGES FOR 2009-10 • INCREASE / DECREASE: -RETURN ON EQUITY (+) Rs.160 CRS. -DEPRECIATION (+) Rs.595 CRS. -INCENTIVE (-) Rs. 64 CRS. -IOWC,IT ON INCENTIVE ETC. (-) Rs. 47 CRS. NET INCREASE (+) Rs.644 CRS.

  24. IMPACT OF NEW CERC NORMS ON PROFIT FOR 2009-10 • INCREASE / DECREASE: -RETURN ON EQUITY (+) Rs.160 CRS. -INCENTIVE (-) Rs. 64 CRS. -IOWC, IT ON INCENTIVE (-) Rs. 47 CRS. NET INCREASE (+) Rs.49 CRS

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