RERC Regulations 18Chapter III · Financial principles for computing costs and return

Section 18 · Capital Cost and capital structure

(1)

In case of a generating company, transmission or distribution licensee, investments made prior to 1.4.2009 shall be accepted on the basis of audited accounts, and on the basis of the principles specified in these Regulations.

(2)

Petition for 'in principle' approval of capital costAny person intending to establish, operate and maintain a generating station or transmission system may make an application to the Commission for 'in principle' approval of the project capital cost and financing plan before taking up a project through a separate petition. The petition shall have the salient features of the project including capacity, location, site specific features, fuel, beneficiaries, break up of capital cost, financial package, performance parameters, commissioning schedule, reference price level, estimated completion cost including foreign exchange component, if any, consent of beneficiary licensees to whom the electricity is proposed to be sold, environment standards prescribed and to be achieved, etc:Provided that where the Commission has given an 'in principle' approval to the estimated capital cost and financing plan, this be the guiding factor for applying prudent check on the actual capital expenditure.

(3)

The approved Capital Cost shall be considered for tariff determination, and if sufficient justification is provided for any escalation in the Project Cost, the same may be considered by the Commission subject to prudent check:Provided that in case the actual capital cost is lower than the approved capital cost, then the actual capital cost be considered for determination of tariff and the Licensee be entitled to earn an incentive due to reduction in capital cost.

(4)

The actual capital expenditure as on COD for the original scope of work based on audited accounts of the company limited to original cost may be considered subject to prudent check by the Commission.

(5)

Where power purchase agreement or transmission or wheeling agreement provides for a ceiling of capital cost, the capital cost to be considered shall not exceed such ceiling.

(6)

The capital cost may include capitalised initial spares for a maximum of first five years of operation as follows:

(a)

upto 2.5% of original capital cost in case of coal based/ lignite fired generating stations,

(b)

upto 4.0% of original capital cost in case of gas turbine/ combined cycle generating stations,

(c)

upto 1.5% of original capital cost in case of hydro-generating stations and

(d)

upto 1.5% of original capital cost in case of transmission and distribution licensees.

(7)

Scrutiny of the cost estimates by the Commission shall be limited to the reasonableness of the capital cost, financing plan, interest during construction, use of efficient technology, and such other matters for determination of tariff.

(8)

Swapping of foreign currency loans be permitted. Cost of swapping and interest rate charges thereafter, be considered by the Commission after prudent check. The generating company or transmission or distribution licensee shall provide full particulars of the swapped loans. Cost of swapping be considered towards interest and finance charges.

(9)

Restructuring of capital in terms of relative share of equity and loan shall be permitted during the tariff period provided it does not affect tariff adversely. Any benefit from such restructuring shall be passed on to persons sharing the capacity charge in case of a generating company and to long term intrastate open access customers of transmission or distribution licensee or consumers in case of such licensees.

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