JKSERC Regulations 10Chapter 0 · Preliminary

Section 10 · Principles for determination of tariff

- Existing Generating Station :

10.1

Where the Commission has, at any time prior to the notification of these Regulations, adopted or approved the tariff contained therein for supply of electricity from an existing generating station on the basis of a Power Purchase Agreement or arrangement, the tariff for the supply of electricity by the Generating Company to the Beneficiary shall henceforth, in the Control Period, be decided in accordance with these Regulations :Provided that where the Commission has approved a Power Purchase Agreement (PPA) or arrangement between a Generating Company and a Beneficiary, the supply of electricity by the Generating Company to the Beneficiary shall be decided in accordance with such PPA or arrangement for such a period as may be approved or adopted by the Commission, to the extent of existing installed Capacity as contained in the PPA or arrangement :Provided further that the Regulation or provisions stated in this Regulation is in line with the Regulation and provisions of "Norms of Operation to be Threshold Norms" of these Regulations.

10.2In case of the existing projects, the generating company, may be allowed tariff by the Commission based on the admitted capital cost as on 31.3.2018 and projected additional capital expenditure for the respective years of the tariff period 2018-19 to 2020-21 in accordance with these Regulations :Provided that :

(a)where the capital cost considered in tariff by the Commission on the basis of projected capital cost as on COD or the projected additional capital expenditure exceeds the actual capital cost incurred on year to year basis by more than 5%, the generating company shall refund to the beneficiaries, the excess tariff recovered corresponding to excess capital cost, as approved by the Commission alongwith interest at 1.20 times of the J&K Bank base rate as prevalent on 1st April of respective year :

(b)where the capital cost considered in tariff by the Commission on the basis of falls short of the actual capital cost incurred on year to year basis by more than 5%, the generating company shall be entitled to recover from the beneficiaries, the shortfall in tariff corresponding to reduction in capital cost, as approved by the Commission alongwith interest at 0.80 times of J&K Bank base rate as prevalent on 1st April of respective year.

New Generating Station :

10.3Where the generating station has been declared under commercial operation from the date of issue of these Regulations or on or after April 1, 2018, the tariff for supply of electricity by the generating company shall be decided in accordance with these Regulations.

10.4The generating company may make an application for determination of tariff for new generating station or unit thereof in accordance with these Regulations, in respect of the generating station or generating units thereof within 180 days of the anticipated date of commercial operation.

10.5In case of the new projects, the generating company, may be allowed tariff by the Commission based on the projected capital expenditure from the anticipated COD in accordance with these Regulations :Provided that :

(a)if the date of commercial operation is delayed beyond 180 days from the date of issue of tariff order, the tariff granted shall be deemed to have been withdrawn and the generating company shall be required to file a fresh application for determination of tariff after the date of commercial operation of the project ;

(b)where the capital cost considered in tariff by the Commission on the basis of projected capital cost as on COD or the projected additional capital expenditure exceeds the actual capital cost incurred on year to year basis by more than 5%, the generating company shall refund to the beneficiaries, the excess tariff recovered corresponding to excess capital cost, as approved by the Commission alongwith interest at 1.20 times of the J&K Bank base rate as prevalent on 1st April of respective year ;

(c)where the capital cost considered in tariff by the Commission on the basis of falls short of the actual capital cost incurred on year to year basis by more than 5%, the generating company shall be entitled to recover from the beneficiaries, the shortfall in tariff corresponding to reduction in capital cost, as approved by the Commission alongwith interest at 0.80 times of J&K Bank base rate as prevalent on 1st April of respective year.

10.6Tariff Determination. -

(1)

The tariff in respect of a generating station under these Regulations shall be determined stage-wise, unit-wise or for the whole generating station.

(2)

For the purpose of tariff, the capital cost of the project shall be broken up into stages and by distinct units forming part of the project. Where the stage-wise or unit-wise break-up of the capital cost is not available and in case of on-going projects, the common facilities shall be apportioned on the basis of the installed capacity of the units. In relation to multipurpose hydroelectric projects, with irrigation, flood control and power components, the capital cost chargeable to power component to the project only shall be considered for determination of tariff.

(3)

The developer of a hydroelectric project, including Pumped Storage Plant (PSP), would have the option of getting the tariff determined by the Commission for the power to be sold through long term Power Purchase Agreements (PPAs) on the basis of performance based cost of service regulations if the following conditions are fulfilled :-

(a)

The Commission is satisfied that the project site has been allotted to the developer by the State Government after following a transparent two stage process. The first stage should be for prequalification on the basis of criteria of financial strength, past experience of developing infrastructure projects of similar size, past track record of developing projects on time and within estimated costs, turnover and ability to meet performance guarantee etc. In the second stage, bids are to be called on the basis of quantifiable parameter, such as, additional free power in excess of percentage of free power, as notified by the State Government, equity participation offered to the State Government, or any other parameter to be notified by the State Government from time to time ;

(b)

Concurrence of CEA (if required under Section 8 of the Act), financial closure, award of work and long term Power Purchase Agreement (PPA) (of the duration of 35 years or more) of the capacity specified in (c) below with distribution licensees are completed by 15-08-2022 ;

(c)

Long term PPA is firmed up for 60% or more of the total saleable design energy, balance being allowed for merchant sale ;

Provided that distribution licensees can extend the duration of long term PPA beyond 35 years for a further period of 15 years at the existing terms and conditions subject to the approval of Appropriate Commission :Provided further that nothing contained in this Regulation shall apply to Pumped Storage Plants (PSP) ;

(d)

The time period for commissioning of all the units of the project shall ordinarily be fixed at four years from the date of approval of the commissioning schedule by the Commission. However, the Commission may, after recording reasons in writing, fix longer time period for hydroelectric projects (reservoir as well as run-of- river projects) of more than 100 MW capacity. Agreed timelines to achieve the fixed commissioning schedule along with penalty for delay shall be decided by the Commission. The Commission shall allow pass through the Interest During Construction (IDC) and Financing Cost (FC) only up to the period of delay not attributable to the developer. The approval of CEA, wherever required as per Section 8 of the Act, shall be sought ;

(e)

Award of contracts for supply of equipment and construction of the project, either through a turnkey or through well defined packages, are done on the basis of international competitive bidding.

(4)

Notwithstanding anything contained in Paras (3) above, the developers of hydroelectric projects of more than 100 MW design capacity for which sites have been awarded earlier by following a transparent process and on the basis of pre-determined set of criteria would have the option of getting the tariff determined by the Appropriate Commission for the power to be sold through long term PPA on the basis of cost plus under Section 56 of the Act.In case of projects covered under Paras (3) and (4), the Commission shall determine tariff ensuring the following :-i. Any expenditure incurred or committed to be incurred by the project developer for getting project site allotted (except free power as notified) would neither be included in the project cost, nor any such expenditure shall be passed through in tariff ;ii. The project cost shall include the cost of the approved R&R plan of the project which shall be in conformity with the State Rehabilitation and Resettlement Policy currently in force. In case no such policy has been notified by the State Government, then the R&R plan shall be formulated in the light of National R&R policy ;iii. Annual fixed charges shall be taken pro-rata to the saleable design energy tied up on the basis of long term PPAs with respect to total saleable design energy. The total saleable design energy shall be arrived at by deducting the following from the design energy at the bus bar :-

(a)

Free power as may be notified by the State Government from time to time for the host State and percentage for contribution towards Local Area Development Fund as may be constituted by the State Government. This free power may be suitably staggered as decided by the State Government.

Energy to be provided free of cost every month to every Project Affected Family as may be notified by the State Government to be offered through the concerned distribution licensee in the designated resettlement area/ projects area for a period of ten years from the date of commissioning.Capital Cost of the Project. -

10.7Capital cost for a Project shall include,-

(a)the expenditure incurred or projected to be incurred, including interest during construction, IEDC and financing charges on the loan -(i) being equal to 70% of the funds deployed, in the event of the actual equity in excess of 30% of the funds deployed, by treating the excess equity as normative loan, or (ii) being equal to the actual amount of loan in the event of the actual equity less than 30% of the funds deployed,-up to the date of commercial operation of the project, as admitted by the Commission after prudence check shall form the basis for determination of tariff :

Provided that the foreign exchange variation risk shall not be a pass through. However, appropriate costs of hedging and swapping to take care of foreign exchange variations shall be allowed for debt obtained in foreign currencies. This provision would be relevant only for the projects where tariff has not been determined on the basis of competitive bids.

(b)Interest During Construction (IDC) :

i. Interest during construction shall be computed corresponding to the loan from the date of infusion of debt fund, and after taking into account the prudent phasing of funds up to SCOD.ii. In case of additional costs on account of IDC due to delay in achieving the SCOD, the generating company shall be required to furnish detailed justifications with supporting documents for such delay including prudent phasing of funds :Provided that if the delay is not attributable to the generating company and is due to uncontrollable factors as specified in Regulation 9.10, IDC may be allowed after due prudence check :Provided further that only IDC on actual loan may be allowed beyond the COD to the extent, the delay is found beyond the control of generating company after due prudence and taking into account prudent phasing of funds.

(c)Incidental Expenditure During Construction (IEDC) :

i. Incidental expenditure during construction shall be computed from the zero date and after taking into account pre-operative expenses up to SCOD :Provided that any revenue earned during construction period up to SCOD on account of interest on deposits or advances, or any other receipts may be taken into account for reduction in incidental expenditure during construction.ii. In case of additional costs on account of IEDC due to delay in achieving the SCOD, the generating company shall be required to furnish detailed justification with supporting documents for such delay including the details of incidental expenditure during the period of delay and liquidated damages recovered or recoverable corresponding to the delay :Provided that if the delay is not attributable to the generating company and is due to uncontrollable factors as specified in Regulation 9.11, IEDC may be allowed after due prudence check :Provided further that where the delay is attributable to an agency or contractor or supplier engaged by the generating company, the liquidated damages recovered from such agency or contractor or supplier shall be taken into account for computation of capital cost.iii. In case the time over run beyond SCOD is not admissible after due prudence, the increase of capital cost on account of cost variation corresponding to the period of time over run may be excluded from capitalization irrespective of price variation provisions in the contracts with supplier or contractor of the generating company.

(d)capitalised initial spares subject to the ceiling norms specified as under:

Initial spares shall be capitalized as a percentage of the plant and machinery cost up to cut-off date, subject to following ceiling norms :i. Coal-based/lignite fired thermal generating stations-4.0%ii. Gas Turbine/Combined Cycle thermal generating stations-4.0%iii. Hydro Generating stations-4.00% :Provided that where the benchmark norms for initial spares have been published as part of the benchmark norms for capital cost under first proviso to Regulation10.8, such norms shall apply to the exclusion of the norms specified herein.

(e)additional capital expenditure determined under Regulation10.9 and 10.10 of these Regulations :

Provided that the assets forming part of the project, but not in use shall be taken out of the capital cost.

10.8The capital cost admitted by the Commission after prudence check shall form the basis for determination of tariff :Provided that in case of the thermal generating station prudence check of capital cost may be carried out based on the benchmark norms specified by the Central Commission from time to time :Provided further that in cases where benchmark norms have not been specified by the Central Commission, the Commission may specify the benchmark norms or allow the capital cost on the basis of a prudence check which shall include scrutiny of the reasonableness of the capital expenditure, financing plan, interest during construction, incidental expenditure during construction, use of efficient technology, cost over-run and time over run, and such other matters as may be considered appropriate by the Commission for determination of tariff :Provided that the capital cost with respect to thermal generating station, incurred or projected to be incurred on account of the Perform, Achieve and Trade (PAT) scheme of Government of India will be considered by the Commission on case to case basis and shall include,-

(a)cost of plan proposed by developer in conformity with norms of PAT Scheme ; and

(b)sharing of the benefits accrued on account of PAT Scheme :

Provided also that the Commission may issue guidelines for vetting of capital cost of hydroelectric projects by independent agency or expert and in that event the capital cost as vetted by such agency or expert may be considered by the Commission while determining the tariff for the hydro generating station :Provided also that in case the site of a hydro generating station is awarded to a developer (not being a State controlled or owned company), by a State Government by following a two stage transparent process of bidding, any expenditure incurred or committed to be incurred by the project developer for getting the project site allotted shall not be included in the capital cost :Provided also that the capital cost in case of such hydro generating station shall include cost of approved Rehabilitation and Resettlement (R&R) plan of the project :Provided also that where the power purchase agreement entered into between the Generating Company and the Beneficiaries, provides for a ceiling of actual expenditure, the capital expenditure admitted the Commission shall take into consideration such ceiling for determination of tariff :Provided also that in case of the existing projects the additional capital expenditure projected to be incurred for the ensuing year shall form the basis for determination of tariff during control period the capital cost admitted by the Commission prior to 01.04.2018 and the additional capital expenditure projected to be incurred for respective year of the control period, as may be admitted by the Commission, shall form the basis for determination of tariff.Additional Capitalization. -

10.9The capital expenditure incurred or projected to be incurred, on the following counts within the original scope of work, after the date of commercial operation and up to the cut-off date may be admitted by the Commission, subject to prudence check :-

(i)Undischarged liabilities recognized to be payable at a future date ;

(ii)Works deferred for execution ;

(iii)Procurement of initial capital spares within the original scope of work, subject to the provisions under Regulations10.7 and 10.8 ;

(iv)Liabilities to meet award of arbitration or for compliance of the order or decree of a court ; and

(v)Change in law :

Provided that the details of works asset-wise/workwise included in the original scope of work along with estimates of expenditure, undischarged liabilities and the works deferred for execution shall be submitted along with the application for determination of tariff.

10.10The capital expenditure incurred on the following counts after the cut-off date may, in its discretion, be admitted by the Commission, subject to prudence check :-

(i)Liabilities to meet award of arbitration or for compliance of the order or decree of a court ;

(ii)Change in law ;

(iii)Deferred works relating to ash pond or ash handling system in the original scope of work ;

(iv)Any additional works/services which have become necessary for efficient and successful operation of the generating station, but not included in the original project cost ;

(v)Any liability for works executed prior to the cut-off date, after prudence check of the details of such undischarged liability, total estimated cost of package, reasons for such withholding of payment and release of such payments etc ;

(vi)Impact of additional capitalization in tariff revision may be considered by the Commission twice in a tariff period, including revision of tariff after the cut-off date ;

(vii)Any capital expenditure found justified after prudence check necessitated on account of modifications required or done in fuel receiving system arising due to non-materialisation of coal supply corresponding to full coal linkage in respect of thermal generating station as result of circumstances not within the control of the generating station ;

(viii)In case of hydro generating stations, any expenditure which has become necessary on account of damage caused by natural calamities (but not due to flooding of power house attributable to the negligence of the generating company) including due to ecological reasons after adjusting for proceeds from any insurance scheme, and expenditure incurred due to any additional work which has become necessary for successful and efficient plan operation :

Provided that in respect Sub-Regulation (vii) above, any expenditure on acquiring the minor items or the assets like tools and tackles, furniture, air conditioners, voltage stabilizers, refrigerators, coolers, fans, washing machine, heat convectors, mattresses, carpets etc. brought after the cut-off date shall not be considered for additional capitalization for determination of tariff w. e. f. 01-04-2018 for the control period :Provided also that if any expenditure has been claimed under Renovation and Modernization (R&M), Life Extension, repairs and maintenance under (O&M) expenses and Compensation Allowance, same expenditure cannot be claimed under this regulation.Any expenditure admitted on account of committed liabilities within the original scope of work and the expenditure deferred on techno-economic grounds but falling within the original scope of work shall be serviced in the normative debt-equity ratio arrived at in the manner indicated in debt-equity ratio computation. Any expenditure on replacement of old assets shall be considered after writing off the gross value of the original assets from the original capital cost, except such items as are listed under additional capitalization computation of this Regulation. Any expenditure admitted by the Commission for determination of tariff on account of new works not in the original scope of work shall be serviced in the normative debt-equity ratio specified in debt-equity ratio computation.Renovation and Modernization. -

10.11The generating company, for meeting the expenditure on Renovation and Modernization (R&M) for the purpose of extension of life beyond the useful life of the generating station or a unit thereof, shall make an application before the Commission for approval of the proposal with a Detailed Project Report giving complete scope, justification, cost benefit analysis, estimated life extension from a reference date, financial package, phasing of expenditure, schedule of completion, reference price level, estimated completion cost including foreign exchange component, if any, record of consultation with beneficiaries and any other information considered to be relevant by the generating company.

10.12Where the generating company, makes an application for approval of R&M proposal, the approval shall be granted after due consideration of reasonableness of the cost estimates, financing plan, schedule of completion, interest during construction, use of efficient technology, cost benefit analysis, and such other factors as may be considered relevant by the Commission.

10.13Any expenditure incurred or projected to be incurred and admitted by the Commission after prudence check based on the estimates of renovation and modernization expenditure and life extension, and after deducting the accumulated depreciation already recovered from the original project cost, shall form the basis for determination of tariff :Provided that the Commission may revise the plant specific performance norms in order to share the benefits of efficiency improvement on account of renovation and modernisation between the generator and the beneficiaries.Special allowance for coal-based thermal generating stations.

10.14The generating company in case of coal-based thermal generating station, may, in its discretion, avail of a 'special allowance' either for a unit or a group of units as compensation for meeting the requirement of expenses including renovation and modernization beyond the useful life of the generating station or a unit thereof, and in such an event revision of the capital cost shall not be considered and the applicable operational norms shall not be relaxed but the special allowance shall be included in the annual fixed cost :Provided also that such option shall not be available for a generating station or unit for which renovation and modernization has been undertaken and the expenditure has been admitted by the Commission before commencement of these Regulations, or for a generating station or unit which is in a depleted condition or operating under relaxed operational and performance norms.

10.15A generating company (coal-based/lignite fired thermal generating station) on opting for the alternative in the Regulation10.14, shall be allowed special allowance at the rates as approved by the Central Commission from time-time, unit-wise from the next financial year from the respective date of the completion of useful life with reference to the date of commercial operation of the respective unit of generating station.In the event of granting special allowance by the Commission, the expenditure incurred or utilized from special allowance shall be maintained separately by the generating station and details of same shall be made available to the Commission as and when directed to furnish details of such expenditure.Sale of Infirm Power

10.16Supply of infirm power shall be accounted as Deviation and paid for from the regional deviation settlement fund accounts in accordance with the Central Electricity Regulatory Commission (Deviation Settlement Mechanism and Related Matters) Regulations, 2014, as amended from time to time or any subsequent re-enactment thereof :Provided that any revenue earned by the Generating Company from sale of infirm power after accounting for the fuel expenses shall be applied for reduction in capital cost.Debt-Equity Ratio

10.17In case of the generating station declared under commercial operation prior to 01.04.2018, debt-equity ratio allowed by the Commission for determination of tariff for the period ending 31.03.2018 shall be considered for determination of tariff.

10.18For the project declared under commercial operation on or after 01.04.2018, if the equity actually deployed is more than 30% of the capital cost, equity in excess of 30% shall be treated as normative loan :Provided that where equity deployed is less than 30% of capital cost, the actual equity shall be considered for determination of tariff :Provided further that the equity invested in foreign currency shall be designated in Indian rupees on the date of each investment :Explanation. - The premium, if any, raised by the generating company, while issuing share capital and investment of internal resources created out of its free reserve, for the funding of the project, shall be reckoned as paid up capital for the purpose of computing return on equity, provided such premium amount and internal resources are actually utilized for meeting the capital expenditure of the generating station :Provided, further that any consumer contribution, deposit work and grant obtained for the execution of the project shall not be considered as part of the capital structure for the purpose of computation of normative debt equity.Return on Equity

10.19Return on equity shall be computed in rupee terms, on the equity base determined in accordance with Regulation10.17.

10.20Return on equity shall be computed on pre-tax basis at the base rate of 15.50% for thermal generating stations and run of the river hydro generating station, and at the base rate of 16.50% for the storage type hydro generating stations including pumped storage hydro generating stations and run of river generating station with pondage, to be grossed up as per Regulation 10.21 :Provided that return on equity with respect to the actual base rate applicable to the Generating Company, in line with the performance of the respective generating station for the respective year during the Control Period shall be trued up separately for each year of the Control Period along with the tariff petition filed for the next Control Period :Provided that in case of Projects commissioned on or after 1st April, 2018, an additional return of 0.5% shall be allowed if such projects are completed within the timeline specified in the Capital Investment plan approved by the Commission :Provided the rate of return of a new project shall be reduced by 1% for such period as may be decided by the Commission, if the generating station is found to be declared under commercial operation without commissioning of any of the Restricted Governor Mode Operation (RGMO)/ Free Governor Mode Operation (FGMO), data telemetry, communication system up to load dispatch centre or protection system.As and when any of the above requirements are found lacking in a generating station based on the report submitted by the respective SLDC, RoE shall be reduced by 1% for the period for which the deficiency continues.

10.21The rate of return on equity shall be computed by grossing up the base rate with the normal applicable tax rate for the year FY 2018-19 applicable to the generating company :Provided that return on equity with respect to the actual tax rate applicable to the generating company, in line with the provisions of the relevant Finance Acts of the respective year during the Control Period shall be Trued-Up separately for each year of the Control Period along with the Tariff Petition filed for the next Control Period.

10.22Rate of return on equity shall be rounded off to three decimal points and be computed as per the formula given below :Rate of pre-tax return on equity = Base rate / (1-t)Where "t" is the applicable tax rate in accordance with Regulation 10.21.Illustration. - (i) In case of generating company paying Minimum Alternate Tax (MAT) @ 20.96% including surcharge and cess :Rate of pre-tax return on equity = 15.50/ (1- 0.2096) =19.610%

(ii)In case of generating company paying normal corporate tax @ 33.99% including surcharge and cess :

Rate of pre-tax return on equity = 15.50/ (1-0.3399) = 23.481%.Provided the generating company shall True-Up the grossed up rate of return on equity at the end of every financial year based on actual tax paid together with any additional tax demand including interest thereon, duly adjusted for any refund of tax including interest received from the income tax authorities pertaining to the tariff period 2018-19 to 2020- 21 on actual gross income of any financial year :Provided penalty, if any, arising on account of delay in deposit or short deposit of tax amount shall not be claimed by the generating company. Any under-recovery or over-recovery of grossed up rate on return on equity after truing up, shall be recovered or refunded to beneficiaries on year to year basis :Provided that the actual tax on income from other business streams including deferred tax liability (i.e. income on business other than business of generation or transmission, as the case may be) shall not be considered for the calculation of applicable tax rate.Interest and Finance Charges

10.23The loans arrived at in the manner indicated in Regulation 10.17 shall be considered as gross normative loan for calculation of interest on loan.

10.24The normative loan outstanding as on 01.04.2018 shall be worked out by deducting the cumulative repayment as admitted by the Commission up to 31.03.2018 from the gross normative loan.

10.25Notwithstanding any moratorium period availed by the generating company, the repayment of loan shall be considered from the first year of commercial operation of the project and shall be equal to the annual depreciation allowed.

10.26The rate of interest shall be the weighted average rate of interest calculated on the basis of the actual loan portfolio at the beginning of each year applicable to the Project :Provided that if there is no actual loan for a particular year but normative loan is still outstanding, the last available weighted average rate of interest shall be considered :Provided further that if the generating station does not have actual loan, then the weighted average rate of interest of the generating company as a whole shall be considered :Provided further, in case of new generating company commencing its operation after the date of effectiveness of these Regulations, and which doesn't have actual loan portfolio, the rate of interest shall be considered on normative basis and shall be equal to the Base Rate of J&K Bank plus 200 basis points as on the date on which the generating unit is declared under commercial operation.

10.27The interest on loan shall be calculated on the normative average loan of the year by applying the weighted average rate of interest.

10.28The generating company shall make every effort to re-finance the loan as long as it results in net savings on interest and in that event there is costs associated with such refinancing, such cost shall be pass through to the beneficiaries and the net savings shall be shared between the beneficiaries and the generating company, in the ratio of 2:1.

10.29The changes to the terms and conditions of the loans shall be reflected from the date of such re-financing.

10.30In case of dispute, any of the parties may make an application in accordance with the Conduct of Business Regulation :Provided that the beneficiaries shall not withhold any payment on account of the interest claimed by the generating company during the pendency of any dispute arising out of re-financing of loan.

10.31In case of Hydroelectric projects (HEPs), if the developer uses long-term financial instruments which results in reduction of tariff burden in the initial years, the Commission may devise a suitable incentive mechanism at the time of issuance of tariff order to share the benefits accrued between the generator and beneficiaries :Provided that the developer shall provide necessary documentary evidence as well as analysis of savings along with any other information deemed important by the Commission.Depreciation

10.32Depreciation shall be calculated for each year of the tariff period, on the amount of Capital Cost of the assets admitted by the Commission :Provided that depreciation shall not be allowed on assets funded by any capital subsidy/grant.

10.33The salvage value of the asset shall be considered as 10% and depreciation shall be allowed up to maximum of 90% of the capital cost of the asset.The historical capital cost of the asset shall include additional capitalization on account of Foreign Exchange Rate Variation up to 31.03.2017 already allowed by the Government/ Commission :Provided that the salvage value for IT equipment and software shall be considered as NIL and 100% value of the assets shall be considered depreciable.

10.34Land other than land held under lease and the land for reservoir in case of hydro generating station shall not be a depreciable asset and its cost shall be excluded from the capital cost while computing depreciable value of the asset.

10.35Depreciation shall be calculated annually based on "Straight Line Method" and at rates specified in Appendix-I to these Regulations for the assets of the generating station :Provided that, the remaining depreciable value as on 31st March of the Year closing after a period of 12 years from the date of commercial operation shall be spread over the balance useful life of the assets.

10.36In case of existing projects, the balance depreciable value as on 01.04.2018 shall be worked out by deducting the cumulative depreciation as admitted by the Commission upto 31.03.2018 from the gross depreciable value of the assets.The rate of depreciation shall be continued to be charged at the rate specified in Appendix-I till cumulative depreciation reaches 70%. Thereafter the remaining depreciable value shall be spread over the remaining life of the asset such that the maximum depreciation does not exceed 90%.

10.37Depreciation shall be chargeable from the first year of commercial operation. In case of commercial operation of the asset for part of the year, depreciation shall be charged on pro rata basis.Interest on Working Capital

10.38The Commission shall determine the working capital requirement for coal-based generating stations containing the following components :-

(a)Cost of coal or lignite and limestone towards stock, if applicable, for 15 days for pit-head generating stations and 30 days for non-pit-head generating stations for generation corresponding to the normative annual plant availability factor or the maximum coal/lignite stock storage capacity whichever is lower ;

(b)Cost of coal or lignite and limestone for 30 days for generation corresponding to normative annual plant availability factor ;

(c)Cost of secondary fuel oil for two months for generation corresponding to the Normative Annual Plant Availability Factor, and in case of use of more than one secondary fuel oil, cost of fuel oil stock for the main secondary fuel oil ;

(d)Maintenance spares @ 20% of operation and maintenance expenses specified in Regulation 10.43 ;

(e)Operation and Maintenance expenses for 1 month ; and

(f)Receivables equivalent to 2 months of capacity charges and energy charges for sale of electricity calculated on the Normative Annual Plant Availability Factor.

10.39For the gas based generating stations, the working capital requirement shall be determined using the following components :

(a)Fuel expenses for 1 month corresponding to the Normative Annual Plant Availability Factor, duly taking into account mode of operation of the generating station on gas fuel and liquid fuel ;

(b)Liquid fuel stock for ½ month corresponding to the Normative Annual Plant Availability Factor, and in case of use of more than one liquid fuel, cost of main liquid fuel ;

(c)Maintenance spares @ 30% of Operation and Maintenance expenses specified in Regulation10.43 ;

(d)Operation and Maintenance expenses for 1 month ; and

(e)Receivables equivalent to two months of capacity charge and energy charge for sale of electricity calculated on Normative Annual Plant Availability factor, duly taking into account mode of operation of the generating station on gas fuel and liquid fuel.

10.40For hydro generating station, the working capital requirements shall be determined using the following components :

(a)Receivables equivalent to two (2) months of fixed cost calculated on normative capacity index ; and

(b)Maintenance spares @ 15% of Operation and Maintenance expenses specified in Regulation 10.44 ;

(c)Operation and Maintenance expenses for 1 month.

10.41The cost of fuel in cases covered under Regulation10.38 shall be based on the landed cost incurred (taking into account normative transit and handling losses) by the generating company and gross calorific value of the fuel as per actual for the three months preceding the first month for which tariff is to be determined and no fuel price escalation shall be provided during the tariff period.

10.42Rate of interest on working capital shall be equal to the J&K Bank Base Rate plus 350 basis points, as on 01.04.2018 or as on 1st April of the year during the tariff period 2018-19 to 2020-21 in which the generating station or a unit thereof, is declared under commercial operation, whichever is later.Operation and Maintenance (O&M) expenses :

10.43Thermal generating station.-

(a)Operation and Maintenance (O&M) expenses for thermal generating company shall include-

I. Employees costs ;II. Administrative and General expenses ;III. Repairs and Maintenance expenses.

(b)The Commission shall stipulate a separate trajectory for each of the components of O&M expenses viz., employee cost, R&M expense and A&G expense for the Control Period for all existing thermal generating stations except for the new generating stations for which the O&M expenses would be determined as per the CERC (Terms and Conditions of Tariff) Regulations, 2014.

Employee Cost :

(c)The employee cost, excluding pension fund contribution, impact of pay revision arrears and any other expense of non-recurring nature, for the base year i.e. FY 2017-18, shall be derived on the basis of the normalized average of the actual employee expenses excluding pension fund contribution, impact of pay revision arrears and any other expense of non-recurring nature, available in the accounts for the previous five (5) years immediately preceding the base year FY 2017-18, subject to prudence check by the Commission.

(d)The normalization shall be done by applying last five year average increase in Consumer Price Index (CPI) on year to year basis. The average of normalized net present value for FY2012-13 to FY 2016-17, shall then be used to project base year value for FY 2017-18. The base year value so arrived, shall be escalated by the above inflation rate to estimate the employee expense (excluding impact of pension fund contribution and pay revision and any other expense of nonrecurring nature, if any) for each year of the Control Period.

At the time of True-Up, the employee costs shall be considered after taking into account the actual increase in CPI during the year instead of projected inflation for that period :Provided further that impact of pay revision (including arrears) and pension fund contribution shall be allowed on actual during the true-up as per accounts, subject to prudence check and any other factor considered appropriate by the Commission.A&G Expenses and R&M Expenses :

(e)The administrative and general expenses (excluding water charges) and repair and maintenance expenses, for the base year i.e. FY 2017-18, shall be derived on the basis of the normalized average of the actual administrative and general expenses (excluding water charges) and repair and maintenance expenses, respectively available in the accounts for the previous five (5) years immediately preceding the base year FY 2016-17, subject to prudence check by the Commission. Any other expense of non-recurring nature shall be excluded while determining normalized average for the previous five (5) years.

(f)The normalization shall be done by applying last five year average increase in Wholesale Price Index (WPI) on year to year basis. The average of normalized net present value for FY2012-13 to FY 2016-17, shall then be used to project base year value for FY 2017-18. The base year value so arrived, shall be escalated by the above inflation rate to estimate the administrative and general expense and repair and maintenance expenses for each year of the control period.

At the time of true up, the administrative and general expenses and repair and maintenance expenses shall be considered after taking into account the actual inflation instead of projected inflation for that period :Provided that water charges shall be pass-through in tariff on reimbursement basis :Provided that the thermal power plant(s) including the existing plants located within 50 km radius of sewage treatment plant of Municipality/local bodies/similar organization shall in the order of their closeness to the sewage treatment plant, mandatorily use treated sewage water produced by these bodies and the associated cost on this account shall be allowed as a pass through in the tariff on reimbursement basis. Such thermal plants may also ensure back-up source of water to meet their requirement in the event of shortage of supply by the sewage treatment plant. The associated cost on this account shall be factored into the fixed cost so as not to disturb the merit order of such thermal plant.

10.43.1. The O&M expenses for the base year i.e. FY 2017-18, for the units / stations coming into commercial operation after 01.04.2012, shall be considered as under :-

(a)The normative O&M expenses as specified in the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulation 2009 for the FY 2012-13 and shall be admissible at the rate of 90% of the value allowed by CERC for the respective year. Such normative value shall be exclusive of water taxes payable to the State Government which shall be pass through to the beneficiary on actual basis. However, except for pension fund liabilities, normative value, so derived, shall be considered inclusive of all expenses incurred to meet head office or holding company expenses.

(b)The adjusted value for FY 2012-13, as arrived above, shall be escalated by the actual inflation at a weighted average of 60:40 of CPI: WPI ratio, respectively on year to year basis till FY 2016-17.

(c)For projecting the normative value for FY 2017-18 and onwards, average inflation of last five years (i.e. FY 2012-13 to FY 2016-17) shall be applied :

Provided, at the time of True-Up, the normative O&M cost shall be readjusted to take into account the effect of actual inflation for that period :Provided, further that impact of pay revision (including arrears), if any, shall be considered separately during the true-up as per accounts, subject to prudence check and any other factor considered appropriate by the Commission.

10.44Existing Hydro Generating Stations.-

(a)Operation and Maintenance (O&M) expenses for generating company shall include :

I. Employees costs ;II. Administrative and general expenses ;III. Repairs and Maintenance.

(b)The Commission shall stipulate a separate trajectory for each of the components of O&M expenses viz., employee cost, R&M expense and A&G expense for the Control Period.

Employee Cost :

(c)The employee cost, excluding pension fund contribution and impact of pay revision arrears for the base year i. e. FY 2017-18, shall be derived on the basis of the normalized average of the actual employee expenses excluding pension fund contribution and impact of pay revision arrears available in the accounts for the previous five (5) years immediately preceding the base year FY 2017-18, subject to prudence check by the Commission. Any other expense of nonrecurring nature shall be excluded while determining normalized average for the previous five (5) years.

At the time of true up, the employee costs shall be considered after taking into account the actual increase in CPI during the year instead of projected inflation for that period :Provided further that impact of pay revision (including arrears) and pension fund contribution shall be allowed on actual during the true-up as per accounts, subject to prudence check and any other factor considered appropriate by the Commission.A&G Expenses and R&M Expenses :

(e)The administrative and general expenses (excluding water charges) and repair and maintenance expenses, for the base year i.e. FY 2017-18, shall be derived on the basis of the normalized average of the actual administrative and general expenses (excluding water charges) and repair and maintenance expenses, respectively available in the accounts for the previous five (5) years immediately preceding the base year FY 2017-18, subject to prudence check by the Commission. Any other expense of non-recurring nature shall be excluded while determining normalized average for the previous five (5) years.

At the time of True-Up, the administrative and general expenses and repair and maintenance expenses shall be considered after taking into account the actual inflation instead of projected inflation for that period :Provided that water charges shall be pass through in tariff on reimbursement basis.

(g)In case of the hydro generating stations, which have not been in commercial operation for a period of five years as on 01.4.2018, operation and maintenance expenses shall be fixed at 2% of the original project cost (excluding cost of rehabilitation & resettlement works). Further, in such case, operation and maintenance expenses in first year of commercial operation shall be escalated up to the FY 2017-18 and then averaged to arrive at the O&M expenses at FY 2017-18 price level. It shall be thereafter escalated annually to arrive at operation and maintenance expenses in respective year of the Tariff Period. The escalation factor shall be computed based on the weighted average increase in WPI and CPI during last five years (FY 2012-13 to FY 2016-17). The weighted average shall be computed in ratio of 80:20 for WPI and CPI, respectively.

10.45For new hydro generating stations.-

(a)O&M expenses for the first year of operation will be 2% of the original project cost (excluding cost of rehabilitation and resettlement works) ;

(b)The O&M expenses for each year of the Control Period shall be determined by escalating the base year expenses determined above for the first year of operation, at the escalation factor computed in line with Regulation 6.40 (g).

Tax on Income :

10.46Tax on the income streams of the Generating Company, other than the core business, shall not be recovered from the Beneficiaries :Provided that the deferred tax liability, excluding Fringe Benefit Tax, for the period from 1st April 2018 to 31st March 2021 whenever it materializes, shall not be recoverable directly from the beneficiaries and the long-term customers :Provided further that any tax liability on incentives and savings due to improved performance on any parameter, if any, shall be considered for passing onto the Beneficiaries in the ratio of the sharing of the gains as prescribed under these Regulations.

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