VIEWS OF GRIDCO ON
CERC DISCUSSION PAPER
ON TERMS & CONDITIONS OF TARIFF
Dt. 11-11-2003
Presented By: GRIDCO,ORISSA
State Electricity Boards (SEB’s) were forced to be sick partly
due to the following reasons: i)
Introduction of accelerated rate of depreciation.
ii)
Increase in Return on Equity from 12% to 16% on
Debt Equity Ratio of 50:50 for ISGS.
iii)
Allowing higher norm for Specific Fuel oil consumption,
Heat Rate and Auxiliary Consumption.
iv)
Higher incentive including deemed generation.
v)
Fixation of normative PLF far below from the capacity.
vi)
Income Tax burden including income tax on notional
interest.
State Electricity Utilities can survive
if the following aspects are addressed: -
i)
Pre-92 rate of Depreciation may be allowed instead of
Accelerated rate of Depreciation, i.e, the Depreciation may be
on linear basis.
ii) Return on Equity (ROE) may be allowed @ 11% Pre-Tax.
iii) For Specific Fuel oil consumption, Heat Rate and Auxiliary
Consumption, the actual Consumption or Ceiling Norm, which
ever is lower may be passed on to Tariff.
iv) Incentive may be allowed beyond 85% PLF.
v) Swapping of Costlier Loan may be done with in a year.
1.0
Debt Equity Ratio
CERC Discussion Paper
Broadly, a debt- equity ratio of 80:20 is generally preferable.
However, in order to ensure a smooth change over, perhaps it
would be advisable to adopt a normative debt equity of 70:30.
Views of GRIDCO
Gridco propose to consider Notional debt equity ratio of 80:20 for
New Projects instead of 70:30 as proposed in the CERC
Discussion Paper. However, 70:30 normative debt equity ratio may
be considered for Old Projects.
2.0
ROE / ROCE
CERC Discussion Paper
It can be considered if this could be an appropriate time to switch
over from ROE to ROCE in view of the fact that the interest rate
are stabilising.
CERC assured to allow 16% ROE in its order dtd. 21.12.2000 in
para 2.6. Now suggested for debate for consideration whether it
would be advisable to disturb the existing ROE.
Suggested for debate whether to consider the present PLR for
computation of ROCE (for debt portion only).
Rate base for computation of ROCE is suggested for debate.
Views of GRIDCO
ROCE is preferred provided the followings are considered: (1) ROCE is on Net Fixed Assets (NFA) in each year instead of Gross .
(2) ROCE may be determined on assumption of:
i.
11% Pre - Tax for equity portion (30%). (Based on Bank Rate)
ii. Concessional Loan Assistance Funded from ADB, World Bank etc.
iii. Swapping of debt other than concessional loan assistance.
Alternatively
(I) 12% Pre-Tax on ROE (30%) or (20%) for Old & New Plants
(ii) Interest on loan based on Net balance after Schedule /Normative repayment
(iii) Actual rate/Normative rate based on SBI PLR.
3.0
Depreciation
CERC DISCUSSION PAPER
Whether Depreciation is to be linked with Loan Repayment
Whether Depreciation (Non Cash Exp) is necessary for a Cost based
Tariff.
Whether liberal Depreciation would need to be deliberately provided.
Views of GRIDCO

Pre-1992 rate of Depreciation may be allowed.
Advance Depreciation may be paid for loan repayment subject to the
condition that:
(i)
Depreciation + Advance Depreciation shall not in any year
exceed 1/10 th of the actual / Normative loan amount.
(ii)
Cumulative Depreciation + Advance Depreciation should not
exceed cumulative actual / normative loan repayment
(iii)
In case the Cumulative depreciation exceeds normative loan
70% or 80% for old & new plants respectively then the same
may be reduced from the normative ROE.
(iv)
Depreciation as per Companies Accounts may not be allowed in
the Tariff as the tariff is based on normative.
4.0
Interest on Loan
CERC Discussion Paper
- CERC concluded that the Cost of Capital Approach is preferable
- Debt portion of Capital Employed is to be paid at Bank PLR.
- Capital Base is to be debated.
Views of GRIDCO
- Cost of Capital approach is preferred on Net Fixed Assets.
- SBI PLR may be considered for Debt Portion and 11% pre-Tax
may be considered for Equity Portion.
Alternatively
(I) Interest on loan based on average Net balance after
Schedule /Normative repayment
(iii) Actual rate/Normative rate based on SBI PLR.
5.0
Operation and Maintenance Expenses
CERC Discussion Paper
Whether it would be advisable to move away from “Actual“
to “Normative” system.
Views of GRIDCO
 Prudence of actual expenditure is difficult to be tested.
 There is wide variation in expenditure towards O&M from plant to
plant.
 GRIDCO propose that the O&M charges should be restricted to 2.5%,
1.5% & 1.5% of the Actual Capital Cost approved by the authority
instead of past 5 years average at actual for Thermal Stations, Hydro
Stations and Transmission systems respectively.
 The derived figure may be escalated as per the formula for WPI and
CPI arrived at by the Commission.
6.0
Interest on Working Capital
CERC Discussion Paper
Whether the ROCE needs to be increased suitably to take care of
the additional cash flows which may be necessary for the actual
operation of the project.
Views of GRIDCO

Gridco propose to allow interest on net working capital instead of
gross working capital i.e the credit given by the suppliers should be
deducted from the working capital value.

The rate of interest may be linked with working capital finance
available with PFC to NTPC instead of linking to PLR.

Margin money deduction from working capital should be
discouraged to avoid return on equity on the margin money.

The base interest rate for working capital may be fixed for the Tariff
period, in case there is a increase or decrease in interest rate, the
same may be passed on to the beneficiary like FPA.

Salary/ Wages may be excluded from Operation and Maintenance
Expenses for the purpose of computation of working capital as the
Salary and Wages due for payment is being paid after the completion
of the month.

Thirty days stock of Secondary Fuel Oil may be allowed instead
sixty days under the present improved Transportation and
communication link .
of
7.0
Incentive
CERC Discussion Paper
An alternative approach is to be debated which could be delink
incentive totally from the fixed cost and providing incentive for
generation above target PLF at a flat rate (Paise/kWh), which is
attractive to the generators and fare to beneficiaries.
Views of GRIDCO
Thermal
Flat Rate at a reasonable rate beyond the normative PLF of 85% to
all thermal station may be fixed.
Gridco propose to consider 3.0 paise per every rise of 1% Availability
over & above the normative availability of 85% instead of linking the
same to ROE. If the incentive is linked to ROE then the New plant
shall get more incentive than the old plant.
HYDRO STATION
It has been proposed to determine the incentive payment calculated on the
following formula.
Actual Peak time Generation x (Incentive Rate in Rs./kWh) x (CIA -CIN)/100
It may be difficult to recommend a uniform incentive rate for all hydro stations
(Old & New), having different operating conditions.
As ROE is paid to achieve normative Capacity Index (CI), GRIDCO proposes
the following formula
Incentive = ROE X(CIA -CIN)/ CIN
However the Capacity Index should be 90% and 88% for ROR or Storage
Plants respectively for computation of Incentive.
INTER STATE TRANSMISSION
Incentive for Transmission system may be linked with ROE based on the
following formulae.
Incentive = ROE X(Actual Availability - Normative Availability )/
Normative Availability.
However the incentive over 99.75% Availability may not be allowed.
The Commission should fix a Normative loss in transmission system. In
case of loss exceeding the normative loss, the incentive should be reduced
in the same proportion.
Income Tax on Incentive may be borne by the Generators / CTU.
Views of GRIDCO on other aspects
8.0
Variable Cost
The Generator may provide the required information as per the CERC format
no. 13, 13A,14 & 14A in the respective month to the beneficiary along with the
reasons for change in cost. The ratio of F.O. and L.D.O. should be specified for
fuel consumption. Normative percentage of loss of coal & oil may be
fixed instead of allowing the actual loss. Any insurance benefit
covering against abnormal loss to be passed on to Tariff in FPA.
9.0
Target Availability and target PLF may be same at 85%.
10.0
Colony Consumption may be excluded from Auxiliary Consumption.
11.0
Station wise tariff may be computed instead of region wise.
12.0
LPS @ 1.00% (simple) may be allowed rather than 1.5% under the existing norm
notification dtd. 26.03.01.
13.0
Income Tax element may be eliminated as ROE before tax may be allowed.
14.0
Peak, Off-peak tariff may be ignored for Generation.
15.0
Development Surcharge may be eliminated.
16.0
Long term tariff (for 3 years) may be considered.
17.0
Terms and Conditions of Tariff under the new policy may also be applicable
to the existing PPA’s.
18.0
Present Bank Rate may be considered for fixation of ROE / ROCE.
19.0
Transformation loss for Thermal Generating Station may be determined.
20.0
Normative Transmission Loss in % may be specified for CTU.
21.0
O&M expenses for transmission system may be computed separately for lines
and substations based on the norms instead of actual expenses for last 5
years.
22.0
ERL / FERV may be on account of Generators / CTU if ROCE is allowed.
23.0
FERV may be allowed as Bullet payment instead of capitalizing
the same as the FERV is directly linked with Debt only.
Alternatively the same may be linked with Hedging tools.
24.0
Commitment Charges for non Drawal of Scheduled loan may
allowed in Tariff.
not be
25.0
Reduced Guarantee Fees may be passed on to tariff after deducting
the actual repayment.
TARIFF STRUCTURE
(THERMAL)
CERC
PROPOSAL
80:20 / 70:30
GRIDCO
Views
80 :20 New Plant
70:30 Old Plant
13% on (NFA)11% on (NFA)
(Pre- Tax)
(Pre –Tax)
1.0
Debt Equity Ratio
2.0
ROCE
3.0
Interest on Loan:-
Included
in ROCE
To be included
in ROCE.
4.0
Depreciation
At actual cash
out flow for
repayment of debt.
At actual/Norm
cash out flow for
Repayment of debt.
5.0
O & M Exp.
Normative
Normative.
6.0
Int. on W.Cap
7.0
INCENTIVE
(a) Thermal
(b) Hydro
CERC
GRIDCO
may be Included
in ROCE
may be included
in ROCE.
Flat rate
ROE based on higher
availability
Generator A/c.
8.0
INCOME TAX
Flat rate
Linked to Peak-time
generation
Generator A/c.
9.0
FERV
Generator A/c.
Generator A/c.
10.0
TARGET PLF
80%
85%
11.0
Operational Norm
SEB’s to provide
CERC is to determine
from the data collected
from NTPC as per
assurance given under
Cl. 5.5.3 of CERC order
dated 21-12-2000 on
Tariff Norms.
VIEWS OF GRIDCO FOR OPERATING NORM
Operating Norm for different capacity may be fixed.
(i) Aux. Cons.
to Generation.
(ii) Heat Rate
(Kcal/kWh)
(iii) Specific Oil
Consumption
(Ml./ kWh)
upto 60 61 MW to
MW 110MW
10.0% 9.0%
2700
2.5
111 MW to 251 MW to
250 MW
500 MW
8.0%
7.0%
2600
2400
2300
2.0
1.5
1.0
Information to the actual variable cost to be furnished to beneficiary
in each month in the prescribed format of CERC(13,13A,14,14A)
VARIABLE CHARGES
• Landed Cost of Coal and Oil may be fixed based on
the Existing price Circular of Coal & Oil Authorities
instead of depending on the audited report of the
Generator as it is very much relevant in the present
improved Communication Link. However the Monthly
FPA Formulae may be prescribed.
• Information to the actual variable cost to be furnished
to the beneficiaries in each month in the prescribed
format of CERC (13,13A,14,14A) The reasons of
increase / decrease in landed Cost of Coal & Oil may be
outlined with the certified Copy of the Price Circular.
PERFORMANCE OF IB THERMAL POWER STATION (2x210) MW
YEAR
SPECIFIC Station
SPECIFIC
OIL
Heat
COAL
CONSUMPTI Rate
GENERATI
CONSUMPTI COAL GCV
ON
(Kcal/kW
ON (MU) PLF (%) ON (Kg/kWh) (Kcal/kg.) (Ml./kWh)
h)
1998-1999
2804
76.21%
0.88
2749.08
1.74
2436.59
1999-2000
3166
85.82%
0.86
2816.79
1.21
2434.539
2000-2001
3001
81.58%
0.85
2730.43
1.43
2335.166
2001-2002
2599
70.64%
0.84
2709.23
1.52
2290.953
Presently IB Thermal is operating at 88% PLF. GCV of oil is 10,000 Kcal/KL