Section 50 in The Maharashtra Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2005
50. Calculation of aggregate revenue requirement.
- 50.1 Return on equity capital50.1.1The Transmission Licensee shall be allowed a return at the rate of 14 per cent per annum, in Indian Rupee terms, on the amount of approved equity capital:Explanation I - for the purpose of this Regulation, equity capital shall be the sum total of paid-up equity capital, preference share capital, fully/compulsorily convertible debentures (or other financial instruments with equivalent characteristics), foreign currency convertible bonds, share premium account and any reserves, available for distribution as dividend or for capitalization by way of issue of bonus shares, which have been invested in the Transmission Business. The amount of any grant, revaluation reserve, development reserve, contingency reserve and contributions from users shall not be included in the equity capital.The amount reflected in the books of account as deferred tax liability or deferred tax asset of the Transmission Business shall be added or deducted, as the case may be, from the amount of equity capital.Explanation II - for the purpose of this Regulation, the amount of equity capital as at April 1, 2005 shall be computed as follows:Equity capital as at April 1, 2004 as determined by the Commission in accordance with Explanation I above, plus Equity capital portion of the allowable capital cost, for the investments put to use in transmission business, calculated in accordance with Regulation 46 and Regulation 47 above, for the year ending March 31, 2005:Provided that in case of a Transmission Licensee formed as a result of a transfer scheme under Section 131 of the Act, the date of the said transfer scheme shall be the effective date instead of April 1, 2004 for determination of equity capital above.The amount of equity capital at the commencement of each financial year thereafter shall be computed as follows:Equity capital as at the commencement of the previous financial year, calculated in accordance with these Regulations, plus Equity capital portion of the allowable capital cost, for the investments put to use in transmission business, calculated in accordance with Regulation 46 and Regulation 47 above, for the previous financial year.50.1.2The return on equity capital shall be computed in the following manner:(a)Return at the allowable rate as per Regulation 50.1.1 above, applied on the amount of equity capital at the commencement of the financial year; plus(b)Return at the allowable rate as per Regulation 50.1.1 above, applied on 50 per cent of the equity capital portion of the allowable capital cost, for the investments put to use in transmission business, calculated in accordance with Regulation 46 and Regulation 47 above, for such financial year.50.1.3Any over-recovery or under-recovery of return on equity capital on account of variations in the annual allowable capital cost from the approved level shall be attributed to the same controllable or uncontrollable factors as have resulted in such capital cost variations.50.2Income-tax50.2.1Income-tax on the income of the Transmission Business of the Transmission Licensee shall be allowed for inclusion in the aggregate revenue requirement.50.2.2The Transmission Licensee shall include an estimate of the income-tax liability of his Transmission Business along with the application for determination of tariff, based on the provisions of the Income-Tax Act, 1961:Provided that any change in such income-tax liability on account of assessment under the Income-tax Act, 1961 shall be dealt with as being on account of uncontrollable factors:Provided further that any change in such income-tax liability on account of changes in the provisions of the Income-Tax Act, 1961 shall be dealt with as being on account of uncontrollable factors:Provided further that any change in such income-tax liability on account of change in income of the Transmission Licensee from the approved forecast shall be attributed to the same controllable or uncontrollable factors as have resulted in the change in income and shall be dealt with accordingly.50.2.3The benefits of any income-tax holiday, credit for unabsorbed losses or unabsorbed depreciation on the intra-State transmission system or any part thereof shall be taken into account in calculation of the income-tax liability of the Transmission Business.50.3Interest on loan capital50.3.1The Transmission Licensee shall be allowed to recover the interest expense on all approved loans as at March 31, 2005, based on the approved interest rate and the repayment schedules of such loans in accordance with Regulation 48 above:50.3.2The Transmission Licensee shall be allowed to recover the interest rate on loan capital for approved capital expenditure projects commenced on or after April 1, 2005, approved additions to fixed assets and approved purchases of fixed assets on or after such date based on the following terms and conditions:(a)The interest rate shall be as approved by the Commission in the investment plan;(b)The value base shall be the normative loan capital of such capital expenditure project/fixed asset;(c)The normative loan capital shall be assumed to be repaid in accordance with the normative repayment schedule as per Regulation 48 of these Regulations.50.3.3The provisions of the Statements of Accounting Standard (AS 16): Borrowing Costs of the Institute of Chartered Accountants of India shall apply, to the extent not inconsistent with the provisions of these Regulations, in the determination of interest on loan capital.50.3.4The Commission shall allow taxes on interest, commitment charges, finance charges and any exchange rate difference arising from foreign currency borrowings, to the extent recognised as interest cost in the books of account of the Transmission Licensee.50.4Depreciation, including Advance Against Depreciation50.4.1The Transmission Licensee shall be permitted to recover depreciation on the value of fixed assets used in the Transmission Business computed in the following manner:(a)The approved original cost of the project/fixed assets shall be the value base for calculation of depreciation;(b)Depreciation shall be computed annually based on the straight line method at the rates specified in the Annexure I to these Regulations:Provided that the residual value of the asset shall be considered at 10 per cent of the allowable capital cost and depreciation shall be allowed upto a maximum of 90 per cent of the allowable capital cost of the asset:Provided further that depreciation shall not be permitted on land and the value of land shall be excluded from the allowable capital cost for the purpose of calculation of depreciation:Provided also that the provisions of the Statements of Accounting Standard (AS 6):Depreciation Accounting shall apply, to the extent not inconsistent with these Regulations, in calculating depreciation under these Regulations.50.4.2In addition to depreciation, the Transmission Licensee shall be entitled to Advance Against Depreciation, computed in accordance with Regulation 48.3 above.50.4.3The Transmission Licensee shall be permitted to recover amortisation of intangible assets upto such level as may be approved by the Commission.Explanation - for the purpose of this Regulation, the term "intangible assets" shall mean such pre-operative and promotional expenditure incurred in cash and shown as a debit in the capital account of the Transmission Licensee as has fairly arisen in promoting the Transmission Business and shall exclude any amount paid or otherwise accounted as goodwill.50.5Operation and Maintenance expenses50.5.1The Transmission Licensee shall be permitted to recover all reasonable and justifiable operation and maintenance expenses relating to the Transmission Business:Provided that the Transmission Licensee shall submit a forecast of all such operation and maintenance expenses along with the application for determination of tariff:Provided further that such forecast shall be based on past performance and/or operating norms and shall be supported by detailed calculations that explain the basis for such forecast:Provided further that the Commission may adopt suitable norms for allowance of operation and maintenance expenses relating to the Transmission Business.Explanation - for the purpose of this Regulation, "operation and maintenance expenses" shall include the following:(a)employee costs, including bonus and contributions to provident fund, staff pension and gratuity computed under any law for the time being in force or any scheme approved by the Commission;(b)repairs and maintenance;(c)rent, rates and taxes, other than income-tax;(d)legal charges;(e)provisions for doubtful debts;(f)auditors' fees;(g)expenses on apprentice and training schemes;(h)any other expense not covered above or elsewhere in these Regulations, relating to the Transmission Business that is allowable as a deduction in the calculation of income under the Income-tax Act, 1961.50.6Interest on working capital50.6.1The Transmission Licensee shall be allowed interest on the estimated level of working capital for the financial year, computed as follows:(a)One-twelfth of the amount of operation and maintenance expenses for such financial year; plus(b)One-twelfth of the sum of the book value of stores, materials and supplies including fuel on hand at the end of each month of such financial year; plus(c)One and a half months equivalent of the expected revenue from transmission charges at the prevailing tariffs; minus(d)Amount, if any, held as security deposits from Transmission System Users.50.6.2Interest shall be allowed at a rate equal to the Short Term Prime Lending Rate of the State Bank of India as at the date on which the application for determination of tariff is made.50.6.3Interest shall be allowed on the amount held as security deposit from Transmission System Users at the Bank Rate as at the date on which the application for determination of tariff is made.50.7Contribution to contingency reserves50.7.1Where the Transmission Licensee has made an appropriation to the Contingencies Reserve, a sum not less than 0.25 per cent and not more than 0.5 per cent of the original cost of fixed assets shall be allowed towards such appropriation in the calculation of aggregate revenue requirement:Provided that where the amount of such Contingencies Reserves exceeds five (5) per cent of the original cost of fixed assets, no such appropriation shall be allowed which would have the effect of increasing the reserve beyond the said maximum:Provided further that the amount so appropriated shall be invested in securities authorized under the Indian Trusts Act, 1882 within a period of six months of the close of the financial year.50.7.2The Contingency Reserve shall not be drawn upon during the term of the licence except to meet such charges as may be approved by the Commission as being:(a)Expenses or loss of profits arising out of accidents, strikes or circumstances which the management could not have prevented;(b)Expenses on replacement or removal of plant or works other than expenses requisite for normal maintenance or renewal;(c)Compensation payable under any law for the time being in force and for which no other provision is made:Provided that such drawal from Contingency Reserve shall be computed after making due adjustments for any other compensation that may have been received by the Licensee as part of an insurance cover.
