Presentation
on CERC Discussion
Paper on Tariff
Norms
By
powergrid
CHARGES
The electricity Act, 2003 provides for open
access.
This would create demand from third party
for wheeling of Power.
No additional wheeling charges unless any
new system is added.
TRANSMISSION & WHEELING CHARGES
Cont…
POWERGRID views:
Transmission systems associated with Central
Sector energy:
Central generation shall have priority.
Beneficiaries to pay full transmission charges.
Wheeling parties
to settle / share transmission charges amongst
themselves.
to absorb the incremental transmission losses.
to pay fee to RLDCs for the extra efforts.
Transmission elements
Central generation:
not
associated
with
Central generation shall not be assigned a priority
Transmission charges may be shared by all the
beneficiaries.
METHODOLOGY FOR SHARING OF
TRANSMISSION CHARGES
Charges for inter-regional lines
may be shared by two contiguous
regions on 50 : 50 basis.
may not be pooled in the respective
regions.
Charges for the regional assets may be
shared by the regional beneficiaries.
If an inter regional asset is used for
wheeling by a third party the balance
transmission charges may be shared by the
beneficiaries of the contiguous region on
50 : 50 basis.
METHODOLOGY FOR SHARING OF
Cont…
TRANSMISSION CHARGES
POWERGRID views:
It will not affect POWERGRID as to how the
tariff is shared. However, in the present
scenario, it would increase the burden of the
ER beneficiaries.
Inter-regional links are established for
transfer of power both ways. Ideally, tariff
for such assets should be shared 1/3rd ,
1/3rd by the beneficiaries of both regions
and remaining 1/3rs as per use.
Charges should
not be pooled in the
respective regions.
RATE OF RETURN
Return on Capital Employed (ROCE), i.e.
Return on Total Investment;
or
Return on Equity (ROE) i.e. Return on Total
Investment less the borrowings.
The
interest on borrowing is separately payable
on actual basis along with FERV.
RATE OF RETURN
POWERGRID Views:
Fairness to the investor
 Profit making PSUs have to pay dividend at least 30% of
Net Profit or 20% of the equity, whichever is higher.
 Thus, investor’s expectation is at least 20%.
 As such, 16% ROE falls short of that requirement.
 ROR of 16% entails IRR of 15. 5% if the ROE is
capitilised during construction
 In case ROE capitalisation is not allowed, the IRR falls to
12.4% approx.
Fairness to consumer
 High credit risk
 Return @ 16% does not appear to be unfair to the
consumer for quality service.
RATE OF RETURN (Contd….)
The need to attract capital
 During X Plan period:.
Planed Capital investment on transmission- Rs
21,370 Crore
Required Internal Resource(IR) generation - Rs
6,000 Crore
 16% ROE is not sufficient for targeted amount.
 Present policy / environment not able to attract
new investments.
 As a result tremendous shortfall in planned
capacity addition.
 Returns needs to be attractive and comparable
with alternative investments avenues.
RATE OF RETURN (Contd….)
Administrative simplicity
ROCE approach:
 Simple
to
administer
in
case
implemented on balance sheet basis.
 In case of project-wise basis, normative
D:E ratio may skew the tariff with respect
to actual D:E ratio as ROE is higher than
prevailing rate of IOL.
 Uncertainty and instability in the debt
market.
 Till the market gets stabilized and is
predictable, the ROCE concept may not
RATE OF RETURN (Contd….)
Administrative simplicity
ROE approach:
 ROE approach taking actual equity is more
scientific.
 Present method of ROE @ 16% (post tax) and
IOL as per actual may be continued.
 Gross Fixed Asset basis may be considered,
because, the Net Worth in the balance sheet
does not depreciate.
 Thus return on Net Fixed Asset basis pulls
down the Return on Net Worth and sends
adverse signals to the lenders and investors
RATE BASE
POWERGRID Views:
Retain the existing approach of ROE.
Tariff to be fixed in two stages;
Provisional
tariffbased
on
estimated
completion cost
Final tariff- final cost including remaining minor
works completed after COD.
Any expenditure on new works/services not
included in the approved cost or
replacement of assets/works arising out of
contingencies/accident may be admitted as
FOREIGN EXCHANGE RATE VARIATION
Payment of FERV, arising on account of interest
payments and payments of installments of loan, at
actuals, on quarterly or yearly basis.
Payment of FERV in accordance with Accounting
Standard-11 (AS-11)of Institute of Chartered
Accountants of India.
Payment of FERV in accordance with AS-11 of
Institute of Chartered Accountants of India after
dividing the FERV component into normative Debt
and Equity.
POWERGRID views:
FERV as per existing CERC norms for principal
repayment.
FERV on Interest payment may be made pass
INTEREST ON WORKING CAPITAL
Working Capital covers:
1 month Operation and maintenance
spares @1% of the capital cost less 1/5th of the initial
capitalized spares.
2 months Receivables
As per Tripartite Agreements (TPA) signed with
States under Securitisation Scheme, current dues
payable in not later than 60 days from the date of
billing, or within 45 days of their receipt,
whichever is later.
POWERGRID views:
Working Capital should cover 3 months
receivables.
OPERATION AND MAINTENANCE
CHARGES
As percentage of capital cost OR
As a bench mark cost per bay / per Ckt. KM for a
typical installation based on
either average
normative O&M charges of all the regions or
normative O&M charges of the most efficient
region.
POWERGRID views.
• Most efficient region as norms would not reflect
the difficulties being faced in different regions.
• Present methodology of CERC takes care of the
actual expenses and technological advances with
time.
• Frequent failure of Converter Transformers needs
to be taken care of through appropriate provision
DEPRECIATION
CERC vide its tariff notification dated
26.03.2001, have revised the depreciation
rate to around 3%.
POWERGRID views.
Depreciation rate should be as per the
Schedule XIV of Companies Act 1956.
All power sector entities should be treated
as ‘continuous process plant’.
Advance against depreciation (AAD)
should also be allowed so as to cover
loan repayment.
INCENTIVE
 Incentive beyond availability of 98%.
POWERGRID Views.
 Transmission system is ageing.
 Availability of sub station equipments is
comparable to that of generating plant, for which
the availability level is 85%.
 Average total system availability should be 95% as
threshold.
 Normative availability of converter transformers
should be fixed based on average availability over
last five years.
 Concept
of
incentive
is
a
time-tested
DEVELOPMENT SURCHARGE
 Development Surcharge to be used for new
projects on regional basis upto maximum one
third of equity.
POWERGRID views.
 Should be allowed for use on national basis for
system strengthening and inter-regional projects
without any conditionality.
 Depreciation should be allowed on investment
made through development surcharge
 ROE should be allowed on Development
surcharge
 The ROE should be post tax.
TARIFF PERIOD & SURCHARGE
TARIFF PERIOD
stable over a longer period of time, preferably for 5
years period
INTEREST
ON
DELAYED
PAYMENT
OF
TRANSMISSION CHARGES
Present norm is interest @18% per annum, simple
interest.
In view of the TPA signed with status under
Securitisation Scheme, interest @15% per annum,
compounded quarterly should be introduced to
match with TPA provisions.
Thank
You