Commercial Tariff

8/8/2019 Commercial Tariff

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Commercial & Tariff Management

Submitted By:

CWA Manthan Dave

Executive Trainee (Finance)

Western Region II, Baroda


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Table of ContentsTable of Contents

CERCCERC A brief introductionA brief introduction Functions of CERCFunctions of CERC

TariffTariff

Tariff RegulationsTariff Regulations

Tariff Determination ProcessTariff Determination Process

Salient features of tariff determinationSalient features of tariff determination Tariff ComponentsTariff Components


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Central Electricity

Regulatory Commission

A regulatory body appointed by Central Government in order to monitor andA regulatory body appointed by Central Government in order to monitor and

control the tariff related issues and policies for all the three major functionscontrol the tariff related issues and policies for all the three major functions

vizviz--aa--vizviz

Electricity GenerationElectricity Generation

Electricity TransmissionElectricity Transmission

Electricity DistributionElectricity Distribution


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Functions of CERCFunctions of CERC


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TariffTariff

Its a charge for a particular service.Its a charge for a particular service.

Its different for different type of business.Its different for different type of business.

In Electricity sector there are:In Electricity sector there are:

Generation TariffsGeneration Tariffs

Transmission TariffsTransmission Tariffs

Distribution(Supply) TariffDistribution(Supply) Tariff


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Tariff RegulationTariff Regulation

Under the Electricity Act, 2003, the GoI has the power to issue tariffUnder the Electricity Act, 2003, the GoI has the power to issue tariff

policy.policy.

CERC determines norms for Electricity tariffs, guided by the tariff policyCERC determines norms for Electricity tariffs, guided by the tariff policy

and the provisions of the Act.and the provisions of the Act.

CERC has issued regulations setting forth certain parameters for generationCERC has issued regulations setting forth certain parameters for generation

and transmission tariffs.and transmission tariffs.

Tariff is set at a level intended to compensate the licensee for theTariff is set at a level intended to compensate the licensee for the

construction of the project and for operating the project thereafter.construction of the project and for operating the project thereafter.

Contd.Contd.


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Tariff RegulationTariff Regulation

The Regulatory Commission shall specify the tariff in such aThe Regulatory Commission shall specify the tariff in such a

manner that the Generation , Transmission and Supply ofmanner that the Generation , Transmission and Supply of

Electricity is conducted on commercial principles.Electricity is conducted on commercial principles.

Encourage Competition and Efficiency.Encourage Competition and Efficiency.

Safeguarding consumers interest.Safeguarding consumers interest.

Tariff progressively reduces and reflects the cost of supply ofTariff progressively reduces and reflects the cost of supply of

electricity.electricity.


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Tariff DeterminationTariff Determination

ProcessProcess

yy Central Electricity Regulatory Commission (Terms and Conditions ofCentral Electricity Regulatory Commission (Terms and Conditions of

Tariff) Regulations2009Tariff) Regulations2009 -- applicable for a period of 5 years with effectapplicable for a period of 5 years with effectfrom April 1, 2009.from April 1, 2009.

yy The process by which a tariff is set is public and follows establishedThe process by which a tariff is set is public and follows established

procedures, and interested parties can challenge the level of tariff theyprocedures, and interested parties can challenge the level of tariff they

seek.seek.

yy CERC issues a tariff order, which stipulates an annual transmissionCERC issues a tariff order, which stipulates an annual transmission

charge (ATC) that may be levied in the relevant region each year for acharge (ATC) that may be levied in the relevant region each year for a

predetermined block of time.predetermined block of time.


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Salient Features of Tariff DeterminationSalient Features of Tariff Determination

It should be able to cover fixed costs of the

utility.

It should cover running (variable) costs.

It should give reasonable return on

investments made which in turn encourages

development of the industry.


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Tariff ComponentsTariff Components

A. Annual Fixed ChargeA. Annual Fixed Charge

Return on Equity.Return on Equity.

Interest on loan.Interest on loan.

Depreciation.Depreciation.

Operation & Maintenance.Operation & Maintenance.

Interest on Working Capital.Interest on Working Capital.

B. Other Charges includes Incentives, FERV,B. Other Charges includes Incentives, FERV,Income Tax.Income Tax.

C. Rebate.C. Rebate.

D. Late Payment Surcharge.D. Late Payment Surcharge.


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Return on EquityReturn on Equity

yy ROE shall be preROE shall be pre--tax basis at base rate of 15.5% to be grossed up with thetax basis at base rate of 15.5% to be grossed up with the

normal tax rate applicable to the utility.normal tax rate applicable to the utility.

yy For Powergrid, ROE(pro tax) shall be 17.481/18.674% considering presentFor Powergrid, ROE(pro tax) shall be 17.481/18.674% considering present

level of MAT of 11.33/16.995%.level of MAT of 11.33/16.995%.

yy ROE to be reviewed on the basis of actual during the next tariff block basedROE to be reviewed on the basis of actual during the next tariff block based

on actual tax rate applicable in line with Finance Act of respective years.on actual tax rate applicable in line with Finance Act of respective years.

yy For projects commissioned on or after 01.04.09, additional ROE of 0.5% toFor projects commissioned on or after 01.04.09, additional ROE of 0.5% to

be allowed for projects within time line stipulated by CERC.be allowed for projects within time line stipulated by CERC.


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Interest on LoanInterest on Loan

yy Cap of 30% on Equity deployment. Equity deployed in excess of 30% to beCap of 30% on Equity deployment. Equity deployed in excess of 30% to be

treated as normative loan.treated as normative loan.

yy In case loan deployment is more than 70%, actual loan deployed to beIn case loan deployment is more than 70%, actual loan deployed to be

considered for the purpose of calculation of interest on loan.considered for the purpose of calculation of interest on loan.

yy ReRe finance benefit to be shared between the beneficiaries andfinance benefit to be shared between the beneficiaries andtransmission license in the ratio of 2:1transmission license in the ratio of 2:1


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Operation & MaintenanceOperation & Maintenance

ExpensesExpenses

Unit O&M rates have been specified for different configuration of linesUnit O&M rates have been specified for different configuration of lines

(S/C or D/C, with single, double, triple, or quadruple conductor) and(S/C or D/C, with single, double, triple, or quadruple conductor) and

voltage level of substations (bays).voltage level of substations (bays).

Unit O&M rates for 2009Unit O&M rates for 2009--10 escalated @ 5.72% per year to arrive at the10 escalated @ 5.72% per year to arrive at the

rates for subsequent years.rates for subsequent years.

Rates have been enhanced to take care of wage hike for PSU employees.Rates have been enhanced to take care of wage hike for PSU employees.


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DepreciationDepreciation

DEPRECIATION ALLOWED EXISTING NEW

Transmission Lines 2.57% 5.28%

Sub Station 3.60% 5.28%

Land Under Lease 0.00% 3.34%

Civil Works 1.80% 3.34%

Communication Equipments 6.00% 6.33%

Wt. Avg. Rate of Depreciation 3.00% 5.25%


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Interest on Working CapitalInterest on Working Capital

Working Capital consists ofWorking Capital consists of

EXISTING NEWEXISTING NEW

2 months receivables2 months receivables .. 2 months receivables2 months receivables

1 % of Gross Block1 % of Gross Block .. Maintenance Spares @ 15% ofMaintenance Spares @ 15% of

O&M ExpensesO&M Expenses

1 month O&M1 month O&M.

.

1 month O&M1 month O&M

Interest on Working Capital @SBI PLR Rate as on 01.04.2009 for existingInterest on Working Capital @SBI PLR Rate as on 01.04.2009 for existing

assets or 1assets or 1stst April of the year of DOCO for new assets.April of the year of DOCO for new assets.


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Other Charges: IncentivesOther Charges: Incentives

The incentive billing allowed as part of Monthly Transmission Charge

Based on monthly availability certified by RPC

Normative Annual Availability

EXISTING NEW

AC system 98% 98%

HVDC bi-pole link 95% 92% HVDC back-to-back station 95% 95%


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Foreign Exchange RateForeign Exchange Rate

VariationVariation

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.


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RebateRebate

For payment of bills of the generating company and the

transmission licensee through letter of credit on presentation, arebate of 2% shall be allowed.

Where payments are made other than through letter of creditwithin a period of one month of presentation of bills by thegenerating company or the transmission licensee, a rebate of 1%

shall be allowed


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Late Payment SurchargeLate Payment Surcharge

In case the payment of any bill for charges payable underthese regulations is delayed by a beneficiary beyond a period

of 60 days from the date of billing a late payment surcharge at

the rate of 1.25% per month shall be levied by the generating

company or the transmission licensee, as the case may be.


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Capital CostCapital Cost

The expenditure incurred or projected to be incurred, including interestduring construction and financing charges, any gain or loss on account offoreign exchange risk variation during construction on the loan - (i) beingequal to 70% of the funds deployed, in the event of the actual equity inexcess of 30% of the funds deployed, by treating the excess equity asnormative loan, or (ii) being equal to the actual amount of loan in the eventof the actual equity less than 30% of the funds deployed, - up to the date ofcommercial operation of the project, as admitted by the Commission, afterprudence check;

capitalized initial spares subject to the ceiling rates specified inregulation 8; and

additional capital expenditure determined under regulation 9:Provided that the assets forming part of the project, but not in use shall betaken out of the capital cost.


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Commercial Tariff

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