legal provision for tariff determination 61. the appropriate commission shall, subject to the...
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Legal provision for Tariff determination61. The Appropriate Commission shall, subject to the provisions of this Act,
specify the terms and conditions for the determination of tariff, and in doing so, shall be guided by the following, namely:-
(a) the principles and methodologies specified by the Central Commission for determination of the tariff applicable to generating companies and transmission licensees;
(b) the generation, transmission, distribution and supply of electricity are conducted on commercial principles;
(c) the factors which would encourage competition, efficiency, economical use of the resources, good performance and optimum investments;
(d) safeguarding of consumers' interest and at the same time, recovery of the cost of electricity in a reasonable manner;
(e) the principles rewarding efficiency in performance; multi year tariff principles;(g) that the tariff progressively reflects the cost of supply of electricity and also, reduces and
eliminates cross-subsidies within the period to be specified by the Appropriate Commission;
(h) the promotion of co-generation and generation of electricity from renewable sources of energy;
(i) the National Electricity Policy and tariff policy: Provided that the terms and conditions for determination of tariff under the Electricity
(Supply) Act, 1948, the Electricity Regulatory Commission Act, 1998 and the enactments specified in the Schedule as they stood immediately before the appointed date, shall continue to apply for a period of one year or until the terms and conditions for tariff are specified under this section, whichever is earlier.
Legal provision for Tariff determination62. (1) The Appropriate Commission shall determine the tariff in accordance with provisions of
this Act for – (a) supply of electricity by a generating company to a distribution licensee:
Provided that the Appropriate Commission may, in case of shortage of supply of electricity, fix the minimum and maximum ceiling of tariff for sale or purchase of electricity in pursuance of an agreement, entered into between a generating company and a licensee or between licensees, for a period not exceeding one year to ensure reasonable prices of electricity;(b) transmission of electricity ; (c) wheeling of electricity; (d) retail sale of electricity.
Provided that in case of distribution of electricity in the same area by two or more distribution licensees, the Appropriate Commission may, for promoting competition among distribution licensees, fix only maximum ceiling of tariff for retail sale of electricity.(2) The Appropriate Commission may require a licensee or a generating company to furnish separate details, as may be specified in respect of generation, transmission and distribution for determination of tariff. (3) The Appropriate Commission shall not, while determining the tariff under this Act, show undue preference to any consumer of electricity but may differentiate according to the consumer's load factor, power factor, voltage, total consumption of electricity during any specified period or the time at which the supply is required or the geographical position of any area, the nature of supply and the purpose for which the supply is required. (4) No tariff or part of any tariff may ordinarily be amended more frequently than once in any financial year, except in respect of any changes expressly permitted under the terms of any fuel surcharge formula as may be specified. (5) The Commission may require a licensee or a generating company to comply with such procedures as may be specified for calculating the expected revenues from the tariff and charges which he or it is permitted to recover. (6) If any licensee or a generating company recovers a price or charge exceeding the tariff determined under this section, the excess amount shall be recoverable by the person who has paid such price or charge along with interest equivalent to the bank rate without prejudice to any other liability incurred by the licensee.
What are Terms and Conditions of Tariff?
• Rules and Norms for determining the Tariff of ISGS and Transmission licensees.
• Applicable to – a) Generating Stations supplying to more than
one beneficiary (Thermal, Hydro, CCGT) – (NTPC, NLC, NHPC, DVC, NEEPCO)– b) Inter State Transmission System
• Tariff of Nuclear power stations is fixed by DAE.
Some Imp Definitions and terminology • Control Period : Period for which tariff is specified (April 2009-
March 2014)• MYT : Multi Year Tariff: The tariff spread over useful life of the
equipment• Beneficiary : Person purchasing power from the ISGS• Cut off date :Last day of FY after 2 years from the CoD. • Date of Commercial Operation: date from which Tariff recovery
starts • ‘Infirm power’ : Power injected before CoD. • ‘Inter-State generating station’ or ‘ISGS’ : Gen Stns supplying
power to more than one state.• ‘Useful life’: Life of the system from CoD used for computing
Depreciation and determination of Tariff norms.• ( Coal/Gas based/ Substation=25 yrs, Hydro/Line 35 yrs)• ‘Design energy' means the quantum of energy which can be
generated in a 90% dependable year with 95% installed capacity of the hydro generating station;
Time Lines in Tariff PeriodP
roje
ctS
tart
dat
e (
2- 4
yea
rs)
1st T
rial s
ynch
ron
isa
tion
Co
D
Cut
-Off
Dat
e fo
r ad
dl .
Cap
italis
atio
n
App
ly fo
r T
rue
I Up
of T
arrif
f
End
of L
oan
repa
ymen
t
End
of U
sefu
l Life
Dep
reci
atio
n in
str
aigh
t Lin
e m
etho
d (1
2 ye
ars)
2-4 years
2-3 months10-12 yrs
2-3 months
2+ years
Project schedule and CoD to determine addl. RoE
Control Period 1
Eligibility for R&M
Control Period 1
Control Period 2
Control Period 5
Tariff after Renovation and Modernisation
Construction Period
Operating
Norms for
extended
period of life
Billing starts
Tru
e I U
p by
CE
RC
Adj
ustm
ent b
illin
g fo
r as
per
Tru
e I U
p
Steps in Tariff and Collection
Apply for Tariff fixation (6 months before)
Tariff fixation Bench mark norms
of Project Cost
Billing by the ISGS/ ISTS
Filing of AddCap+ deferred Liabilities +actual Expenditure
Accounting in REA
Truing up by CERC
CoD
Cut off Date
Adjustment of Excess or Deficit collection
Audited Costs
Interest RatesBeneficiaries
Audited Costs
Project Exp.
IDC
FERV
Initial Spares
AddlCap
Rehab &Resettle (hydro)
Contribution to RGGYY
(hydro)
Asstetsnot in Use
(for next tariff periods)
Profit in Sale ofInfirm power
Debt:Equity Ratio
Capital Cost
Loan Equity
Total Project Cost considered for Tariff fixation
Rs.
Equity Return EquityRate of RoE
Loan Interest on LoanRate of Interest
Loan +EquityDepreciationRate of
Depreciation
Type/Size of Unit/ / Tr. system
O&M ExpNormative O&M Exp
Working Capital Interest on Working CapitalInterest rates
Sec Oil chargesNormative
Seondary Oil consumption
Sec. Oil rates
Interest on Loan
Return Equity
O&M Exp
Depreciation
Interest on Working Capital
Annual Fixed Charges
Availability factor
Monthly Fixed Charges
Secondary Oil Consumption
R&M allowance (after Useful Life)
Interest On Loan
• Normative Loans = Actual Loan + Equity beyond 30% (A)
• Normative Loan Outstanding= Loan- Depreciation (B)
• Interest on Loan = Normative Loan Outstanding * Wt, Avg. Rate of Interest
DepreciationRegulation 17• Allowed up to maximum of 90% of the capital
cost and salvage value is 10%• 5.28% for 1st 12 years Balance depreciable
value spread over the balance useful life• IT eqpt.=15% ; PLCC=6.33 ; Motor
vehicles=9.5% ; AC=9.5%• Bldgs= 3.34%• Land under lease=3.34%• Temp erections=100%
• Advance Against Depreciation removed
Equity Return EquityRate of RoE
Loan Interest on LoanRate of Interest
Loan +EquityDepreciationRate of
Depreciation
Type/Size of Unit/ / Tr. system
O&M ExpNormative O&M Exp
Working Capital Interest on Working CapitalInterest rates
Sec Oil chargesNormative
Seondary Oil consumption
Sec. Oil rates
Interest on Loan
Return Equity
O&M Exp
Depreciation
Interest on Working Capital
Annual Fixed Charges
Availability factor
Monthly Fixed Charges
Secondary Oil Consumption
R&M allowance (after Useful Life)
Interest On Loan
• Normative Loans = Actual Loan + Equity beyond 30% (A)
• Normative Loan Outstanding= Loan- Depreciation (B)
• Interest on Loan = Normative Loan Outstanding * Wt, Avg. Rate of Interest
DepreciationRegulation 17• Allowed up to maximum of 90% of the capital
cost and salvage value is 10%• 5.28% for 1st 12 years Balance depreciable
value spread over the balance useful life• IT eqpt.=15% ; PLCC=6.33 ; Motor
vehicles=9.5% ; AC=9.5%• Bldgs= 3.34%• Land under lease=3.34%• Temp erections=100%
• Advance Against Depreciation removed
O&M Exp for 1 month
Cost of 1.5* month primary fuel / Lime Stone Stock
Cost of Maint. Spares (as a % of O&M ch.)
Cost of 2 months Sec oil Stock
2 months receivables
Working Capital
Interest rates
Interest on Working Capital
* 2 months for non-pit head stns.
Note :For Hydro stations and Transmission system, fuel stock, sec. oil stock not applicable
Bench marking Model for Transmission lines
Benchmarking by CERC
Voltage classNo. of circuitsConductor typeNo. of ConductorsInsulator type
Line lengthWind zones & Terrain No. of Towers Types of TerrainsNo. of River crossings
Bill of Quantities
• Conductor length• Earthwire length• No. of insulators• Qty. of Hardware
• Tower Weights• Foundation Volume
Total cost / Cost per ckm
Source: CERC Explanatory Memorandum ( 8th Dec.’09)
Generous set of assumptions
Unit cost based on historical data and
Application of PVFormula and
indices
Availability Calculation of Transmission System
Availability = (100-100*NAFM)Where NAFM= Non-availability factor in per unit for the month
1) For AC system
[ Σ ( OHL x CktkmL x NSCL ) + Σ ( OHT x MVA T x 2.5 ) +Σ ( OHR x MVAR R x 4 ) ]
THM x [ Σ (Cktkml xNSCL ) + Σ (MVAT x 2.5 ) + Σ (MVARR x 4 ) ]
Where
OHL, OHT & OHR = Outage hours for Line or Transformer or Reactor Cktkm = Length of a transmission line circuit in kmNSC = Number of sub-conductors per phaseMVA = MVA rating of a transformer / ICTMVAR = MVAR rating of a bus reactor, THM = Total hours in the month
2) NAFM for each HVDC systemNAFM = [ Σ (TCR x hours) ] ÷ [ THM x RC ]• TCR = Transmission capability reduction of the system in MW• RC = Rated capacity of the system in MW.
Transmission charges of ISTS :
• Monthly transmission Charges
= AFC x ( NDM / NDY )
x ( TAFM / NATAF )
• If TAFM > NATAF, incentive will be given
• For 1% increase in Avb, 1% of Fixed charges are given
Sample Calculation of Tariff – CERC Norms 2009-14Case Study :A Project Consisting 1 No. 400KV D/C Transmission Line of 75 km line length and 4 Nos of 400KV Bays. Capital Cost of the Project : Rs 100 CrAdopting Debt : Equity Ratio of 70 : 30 Loan (Debt) Amount : Rs 70 Cr Equity Amount : Rs 30 Cr
CALCULATION OF TARIFF for 2009-10 (For illustration purpose only) Interest on Loan : 70 x 0.095 = 6.65 Cr( IOL @ 9.5%)Return on Equity : 30 x 0.17481 = 5.24 Cr(ROE @ 17.481% {15.5%/ 16% before MAT})Depreciation : 100 x 0.0528 = 5.28 Cr(Depreciation @ 5.28% {Building : 3.34%, TL/SS : 5.28% ,PLCC : 6.33 % and balance spread over after 12 Years})O&M Expenses = 2.57 Cr4 No * 52.40 Lakh/Bay (400KV)75 Km * 0.627 Lakh/Km (400KV D/c Twin) Interest on Working Capital @ 12.25% = 0.41 Cr( WC=2 Month Receivables + 1 Month O&M + 15% O&M for spares)TOTAL TARIFF = Rs. 20.15 Cr / year
Yearly variation of Components of Tariff
0.00
5.00
10.00
15.00
20.00
25.00
30.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Year
Rs.
Cr./
yea
r
RoE Interest on Loan Depreciation O&M Exp Int on WC Total tariff
O&M exp
Return on Eqiuty
Depreciation
Total Tariff
Interest on Loan
Interest on Working Capital
Note : Only for illustration purpose. Norms assumed to remain same through out for all control periods
Will Tariff be paid after ‘Useful life’? Yes. Tariff is receivable by the Owner ‘Depreciation’ component will not be receivable Eligible for Renovation and Moderation Various options for the owner:
Asset can be written off and new project can be constructed
or R&M can be taken up Allowance for R&M Rs.5Lac/MW/yr through Fixed Charges R&M charges escalable @5.72%p.a. R&M as a separate project
‘useful life’ in relation to a unit of a generating station and transmission system from the COD shall mean the following, namely:-
(a) Coal/Lignite based station :25 years(b) Gas/Liquid fuel based station :25 years(c) AC and DC sub-station: 25 years(d) Hydro generating station : 35 years(e) Transmission line : 35 years