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