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NCT Delhi - Section

Section 5 in The Delhi Electricity Regulatory Commission (Terms and Conditions for Determination of Transmission Tariff) Regulations, 2011

5. Principles For Determination Of ARR.

(1)The Transmission Licensee shall segregate its business into Transmission Business and SLDC activity. The Transmission Business revenue requirement would be used for determining non-discriminatory transmission charges.
(2)Till such time there is a complete segregation of accounts between Transmission Business and SLDC activity, the ARR for each business shall be supported by an Allocation Statement containing the apportionment of all costs, revenues, assets, liabilities, reserves and provisions between the Transmission Business, SLDC activity and any Other Business of the Transmission Licensee. The Allocation Statement shall also contain the methodology used for the apportionment between different businesses.Operational Norms
(3)The Commission shall specify suitable norms of operation for the Transmission Licensee in the Multi Year Tariff Order, based on the submission of the Business Plans. The parameter which shall be considered would cover, among others:
(a)Normative Annual Transmission System Availability Factor(NATAF): The Target Availability for recovery of full annual transmission charges during the Control Period shall be as under:
(b)AC system: 98.0%
(c)Recovery of full annual transmission charges below the target availability shall be on a pro rata basis.
ARR for Transmission Business
(4)The Aggregate Revenue Requirement for the Transmission Business for each year of the Control Period shall contain the following items:
(i)Operation and Maintenance expenses;
(ii)Return on Capital Employed;
(iii)Depreciation;
(iv)Income Tax;
(v)Less: Non-Tariff Income ; and
(vi)Less: Income from Other Business.
Operation and Maintenance Expenses
(5)Normative Operation and Maintenance (O&M) expenses shall include:
(a)Salaries, wages, pension contribution and other employee costs;
(b)Administrative and General expenses;
(c)Repairs and Maintenance; and
(d)Other miscellaneous expenses, statutory levies and taxes (except corporate income tax).
(6)The Licensee shall submit the O&M expenses for the Control Period as prescribed in multiyear tariff filing procedure. The O&M expenses for the Base Year shall be approved by the Commission taking into account the latest available audited accounts, business plan filed by the Licensees, estimates of the actuals for the Base Year, prudence check and any other factor considered appropriate by the Commission.
(7)O&M expenses permissible towards ARR for each year of the Control Period shall be determined using the formula detailed below:
(a)O&Mn = (R&Mn + EMPn + A&Gn) * (1 – Xn)
Where,
(i)R&Mn = K * GFAn-1;
(ii)EMPn + A&Gn = (EMPn-1 + A&Gn-1) * (INDX); and
(iii)INDX = 0.55 * CPI + 0.45 * WPI
(iv)EMPn – Employee Costs of the Licensee for the nth year;
(v)A&Gn – Administrative and General Costs of the Licensee for the nth year;
(vi)R&Mn – Repair and Maintenance Costs of the Licensee for the nth year;
(vii)Xn is an efficiency factor for nth year. Value of Xn shall be determined by the Commission in the MYT Tariff order based on Licensee's filing, benchmarking, approved cost by the Commission in past and any other factor the Commission feels appropriate.
(8)Where,
(i)'K' is a constant (could be expressed in %). Value of K for each year of the Control Period shall be determined by the Commission in the MYT Tariff order based on Licensee's filing, benchmarking, approved cost by the Commission in past and any other factor considered appropriate by the Commission;
(ii)INDX - Inflation Factor to be used for indexing. Value of INDX shall be a combination of the Consumer Price Index (CPI) and the Wholesale Price Index (WPI) for immediately preceding ten years before the base year;
Return on Capital Employed
(9)Return on Capital Employed (RoCE) shall be used to provide a return to the Transmission Licensee, and shall cover all financing costs and taxes, without providing separate allowances for interest on loans and interest on working capital.
(10)The Regulated Rate Base (RRB) shall be used to calculate the total capital employed which shall include the original cost of assets and working capital, less the accumulated depreciation. Capital work in progress (CWIP) shall not form part of the RRB. Capital subsidies / grants shall be deducted in arriving at the RRB.
(11)The RRB shall be determined for each year of the Control Period at the beginning of the Control Period based on the approved capital investment plan with corresponding capitalisation schedule and normative working capital.
(12)The Regulated ate Base for the ith year of the Control Period shall be computed in the following manner:RRBi = RRBi-1 + ∆ABi/2 + ∆WCi;Where,'i' is the ith year of the Control Period, i = 1,2,3,4 for the first Control Period;RRBi: Regulated Rate Base for the ith year of the Control Period;∆ABi: Change in the Regulated Rate Base in the ith year of the Control Period. This component shall be the average of the value at the beginning and end of the year as the asset creation is spread across a year and is arrived at as follows:∆ABi = Invi – Di-CCiWhere,Invi: Investments projected to be capitalised during the ith year of the Control Period and approved;Di: Amount set aside or written off on account of Depreciation of fixed assets for the ith year of the Control Period;CCi: Consumer Contributions, capital subsidy/grant pertaining to the ∆ABi and capital grants/subsidies received during ith year of the Control Period for construction of service-lines or creation of fixed assets;RRBi-1: Regulated Rate Base for the Financial Year preceding the ith year of the Control period. For the first year of the Control Period, RRBi-1 shall be the Regulated Rate Base for the Base Year i.e. RRB;RRBo = OCFAo – ADo – CCo;Where;OCFAo:Original Cost of Fixed Assets at the end of the Base Year available for use and necessary for the purpose of the Licenced Business;ADo: Amounts written off or set aside on account of depreciation of fixed assets pertaining to the regulated business at the end of the Base Year;CCo: Total contributions pertaining to the OCFAo, made by the consumers towards the cost of construction of Transmission System by the Transmission Licensee and also includes the capital grants/subsidies received for this purpose;∆WCi: Change in normative working capital requirement in the ith year of the Control Period, from the (i-1)th year. For the first year of the Control Period(i=1),∆WCi shall be taken as the normative working capital requirement of the first year. Working capital for wheeling of electricity shall consist of
(i)Receivables for two months towards transmission tariffs calculated on NATAF;
(ii)Maintenance spares @ 15% of operation and maintenance expenses ; and
(iii)Operation and maintenance expenses for one month.
(13)Return on Capital Employed (RoCE) for the year 'i' shall be computed in the following manner:Where,WACCi is the Weighted Average Cost of Capital (pre-tax) for each year of the Control period;RoCE=WACCi*RRBiRRBi - Regulated Rate Base is the asset base for each year of the Control Period based on the capital investment plan and working capital.
(14)The WACC (pre-tax) for each year of the Control Period shall be computed at the start of the Control Period in the following manner:Where,
WACC= [ D/E ] * rd + [ 1 ] * re                
1+D/E 1+D/E                
D/E is the Debt to Equity Ratio and for the purpose of determination of tariff, debt-equity ratio for the asset capitalized shall be 70:30. Where equity employed is in excess of 30%, the amount of equity for the purpose of tariff shall be limited to 30% and the balance amount shall be considered as notional loan. The interest rate on the amount of equity in excess of 30% treated as notional loan shall be the weighted average rate of the loans of the Licensee for the respective years and shall be further limited to the prescribed rate of return on equity in the Regulations. Where actual equity employed is less than 30%, the actual equity and debt shall be considered:Provided that the Working capital shall be considered 100% debt financed for the calculation of WACC;Provided further that the Debt to Equity Ratio for the assets covered under Transfer Scheme, dated July 1, 2002 shall be considered as per the debt and equity in the transfer scheme;Provided further that Debt to Equity Ratio for the assets capitalised till 1.04.2012 (other than assets covered under Transfer Scheme) shall be considered as per the debt and equity approved by the Commission at the time of capitalization.rd is the Cost of Debt and shall be determined at the beginning of the Control Period after considering Transmission Licensee's proposals, present cost of debt already contracted by the Transmission Licensee, credit rating, benchmarking and other relevant factors (risk free returns, risk premium, prime lending rate etc.).re is the Return on Equity (pre-tax) and shall be considered at 14% post-tax for the transmission business.
(15)The repayment of loans for the year of the tariff period 2012-15 shall be deemed to be equal to the depreciation allowed for that year.
(16)Notwithstanding any moratorium period availed by the Transmission Licensee, 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.Depreciation
(17)Depreciation shall be calculated for each year of the Control Period, on the amount of Original Cost of the Fixed Assets considered for calculation of the Regulated Rate Base of the corresponding year.
(i)Provided that depreciation shall not be allowed on assets funded by any capital subsidy / grant.provision for replacement of such assets shall be made in the Capital Investment Plan;
(ii)Provided further that the Licensee shall submit year-wise details of the assets which have completes its useful life.
(18)Depreciation for each year of the Control Period shall be determined based on the methodology as specified in these Regulations along with the rates and other terms specified in Appendix -I to these Regulations.
(19)The residual value of assets shall be considered as 10% and depreciation shall be allowed to a maximum of 90% of the original cost of the asset. Land is not a depreciable asset and its cost shall be excluded while computing 90% of the original cost of the asset:Provided that if the Licensee is recovering less than residual value on disposing any retired assets, it shall take prior approval of the Commission before disposing such asset.
(20)Depreciation shall be calculated annually, based on the straight line method, over the useful life of the asset. The base value for the purpose of depreciation shall be original cost of the asset.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.
(21)In case of the existing Projects, the balance depreciable value as on 1.4.2012 shall be worked out by deducting the cumulative depreciation including Advance Against Depreciation as admitted by the Commission upto 31.3.2012 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 of these Regulations 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%.
(22)Depreciation shall be charged from the first year of operation of the asset. In case, of commercial operation of the asset for part of the year, depreciation shall be charged on a pro rata basis.Tax on Income
(23)Tax on the income streams of the Transmission Licensee shall not be recovered from the Beneficiaries and the long-term customers:
(24)Provided that the deferred tax liability, excluding Fringe Benefit Tax, for the period up to 31st March, 2012 whenever it materializes, shall be recoverable directly from the Beneficiaries and the long-term customers;
(25)The actual assessment of income-tax should take into account benefits of tax holiday, and the credit for carry forward losses applicable as per the provisions of the Income Tax Act, 1961 shall be passed on to the consumers.Non-Tariff Income
(26)All incomes being incidental to electricity business and derived by the Licensee from sources, including but not limited to profit derived from disposal of assets, rents, delayed payment surcharge and miscellaneous receipts from the Beneficiaries shall constitute Non-Tariff Income of the Licensee.
(27)The amount received by the Licensee on account of Non-Tariff Income shall be deducted from the Aggregate Revenue Requirement in calculating the net revenue requirement of such Licensee.Other Income of the Transmission Licensee
(28)Where the Transmission Licensee is engaged in any other business, the income from such business shall be calculated as per "DERC Treatment of Income from Other Business of Transmission Licensee and Distribution Licensee Regulation 2005"and shall be deducted from the Aggregate Revenue Requirement in calculating the revenue requirement of the Transmission Licensee;
(29)Provided that the Transmission Licensee shall follow a reasonable basis for allocation of all joint and common costs between the Transmission Business and the Other Business and shall submit the Allocation Statement as approved by the Board of Directors to the Commission along with his application for determination of tariff;
(30)Provided further that where the sum total of the direct and indirect costs of such Other Business exceed the revenues from such Other Business or for any other reason, no amount shall be allowed to be added to the Aggregate Revenue Requirement of the Transmission Licensee on account of such Other Business.Late Payment Surcharge
(31)In case the payment of any bills for charges payable under these Regulations is delayed by a beneficiary beyond a period of 60 days from the date of billing a late payment surcharge at the rate of 1.25% per month shall be levied by the Transmission Licensee.Rebate
(32)For payment of bills of the Transmission Licensee through a letter of credit on presentation, a rebate of 2% shall be allowed. If the payment is made by any other mode but within a period of one month of presentation of bills by the Transmission Licensee, a rebate of 1% shall be allowed.Quality of Supply
(33)The Commission shall monitor the following Quality of Supply parameters during the Control Period:
(a)Transmission System Availability
(b)Transformer Failure, across various capacities which represents the number of transformer failures as a percentage of the total number of transformers in that specified capacity within the Transmission System, over a specified period of time.
(34)The Transmission Licensee in its Business Plan filings shall submit and propose the trajectory for the achievement of quality targets. The Commission shall specify the targets for each parameter. The Transmission Licensee shall submit its performance on each parameter in the form and manner specified by the Commission.Safety Standards
(34)The Transmission Licensee shall develop a Safety Manual and follow procedures to maintain atleast minimum safety standards during construction, operation, etc. in line with the provisions of Section 53 of the Act.