Central Electricity Regulatory Commission
Neyveli Lignite Corporation Ltd. vs Tamil Nadu Electricity Board And Ors. on 23 March, 2007
ORDER
1. This petition has been filed by the petitioner, Neyveli Lignite Corporation Ltd (NLC), a generating company owned and controlled by the Central Government for approval of tariff in respect of its Thermal Power Station II (hereinafter referred to as "the generating station") for the period from 1.4.2001 to 31.3.2004, in accordance with the Central Electricity Regulatory Commission (Terms & Conditions of Tariff) Regulations, 2001, (hereinafter referred to as "the 2001 regulations").
2. The generating station consists of three generating units each with a capacity of 210 MW under Stage-I and four generating units each with a capacity of 210 MW under Stage-II. The dates of commercial operation of the units of the TPS-II Stage-I and Stage-II are as follows:
Stage-I Stage-II (4x210 MW)
Unit-I 29.9.1986 Unit-IV 25.1.1992
Unit-II 8.5.1987 Unit-V 2.6.1992
Unit-III 23.4.1988 Unit-VI 17.3.1993
Unit-VII 9.4.1994
3. The tariff for the generating station for the period 1.4.1996 to 31.3.2001 was determined in accordance with the terms and conditions of the Bulk Power Supply Agreement (BPSA) executed between the petitioner and the respondents or their predecessor entities. The tariff in the BPSA was based on the net fixed assets concept and was the result of mutual negotiation among the parties.
4. The petitioner initially filed the petition for determination of tariff of the generating station on "Gross Fixed Assets" basis. As the tariff for the period up to 31.3.2001 was being determined on the basis of Net Fixed Assets, it was decided that tariff for 2001-04 should also be determined on the same basis. Accordingly, the petitioner filed the revised tariff proposal dated 13.6.2005 on "Net Fixed Assets" basis along with additional information needed for the purpose of determination of tariff. The petitioner has claimed following Annual Fixed Charges based on "Net Fixed Assets" approach:
(Rs in lakh) Stage I Stage II 2001-02 2002-03 2003-04 2001-02 2002-03 2003-04 Depreciation 2052 1380 887 4417 4267 4258 Interest on loan 0 0 0 0 0 0 Return on Equity 2199 1956 1825 7109 6455 5789 Advance against 0 0 0 0 0 0 Depreciation Interest on 2009 2169 2548 3024 3032 3540 Working capital O&M expenses 6071 6235 6523 8130 8349 8735 TOTAL 12331 11740 11783 22680 22104 22321
5. The petitioner has furnished the following details in support of its claim for interest on working capital:
(Rs in lakh) Stage I Stage II 2001-02 2002-03 2003-04 2001-02 2002-03 2003-04 Fuel Cost 3018 3402 4241 2904 3047 4902 Lignite Stock 1469 1661 2081 580 580 580 Oil stock 160 160 160 110 110 110 O & M expenses 506 520 544 704 746 791 Spares 2511 2511 2511 1178 1178 1178 Receivables- 2 months 8090 8760 10446 8530 8879 12759 Total Working Capital 15754 17014 19983 14006 14539 20320 Interest rate on 12.75% 12.75% 12.75% 12.75% 12.75% 12.75% working capital Interest on 2009 2169 2548 3024 3032 3540
6. In addition, the petitioner has claimed the following energy charges:
2001-02 2002-03 2003-04
Stage-I Stage-II Stage-I Stage-II Stage-I Stage-II
Energy charge 1.01 1.13 1.14 1.14 1.42 1.42
(Rs./kWh)
7. The Commission allowed the capacity charge and the energy charge provisionally based on lignite transfer price at 80% of the lignite transfer price of respective year considered in the tariff proposal.
LIGNITE TRANSFER PRICE
8. The petitioner, in its proposal for approval of tariff considered the lignite transfer price as under:
Year Mine Stand alone Price Pooled Price
2001-02 Mine-II Stage-I 795 Not applicable
Mine-II Stage - II 891
2002-03 Mine-II Stage-I 847 899
Mine-II Stage-II 941
2003-04 Mine-II Stage-I 905 1123
Mine-II Stage-II 996
Mine-I (Expansion) 1553
Mine-IA 1137
9. It was submitted that lignite transfer price was decided by the Board of Directors of the petitioner company and was approved by Ministry of Coal, the nodal Ministry.
10. The lignite transfer price considered by the petitioner was disputed by the respondents.
11. The matter was referred to Ministry of Coal for its fresh consideration of the lignite transfer price after opportunity to the beneficiaries of the generation station. Ministry of Coal considered the issue and formulated certain principles for determination of lignite transfer price. Its report was placed before the Commission. As the disagreement over the lignite transfer price persisted even after the petitioner worked out the lignite transfer price based on the principles decided by Ministry of Coal, the Commission by its order dated 25.4.2006 constituted a One-member Bench with Shri A.H.Jung, Member as Presiding Member (hereinafter referred to as "Bench") to consider the question of lignite transfer price and make appropriate recommendations to the Commission for its consideration.
12. The Bench submitted his recommendations vide order dated 8.1.2007. The recommendations of the Bench on computation of lignite transfer price in the said order are as follows:
Computation of lignite transfer price Mine-II Stage-I Mine-II Stage-II Mine-I Mine I A Total Expansion 2001 2002 2003 2001 2002 2003 2003-04 2003-04
-02 -03 -04 -02 -03 -04 Parameter considered Gross 47 47 47 58 58 58 40 30 capacity at 100% production-LTs Return on 16 16 16 16 16 16 16 16 Equity % (Rs in lakh) Opening 72161 73300 74053 89050 90456 91386 172272 82086 744764 Gross block Cumulative 28118 29755 31508 66658 68678 70842 0.00 0.00 depreciation Opening NFA 44043 43545 42545 22392 21778 20544 172272 82086 Additions 1139 753 459 1406 930 567 2894 9984 Depreciation 1637 1753 1812 2020 2164 2236 16630 8689 Closing NFA 43545 42545 41192 21778 20544 18875 158536 83381 Avg NFA 43794 43045 41869 22085 21161 19709 165404 82734 yr wise Avg debt 678 789 1054 39719 41471 Avg Equity 43116 42256 40815 22085 21161 19709 125685 41263 Cost computation (Rs in lakh) O&M 14027 15149 16361 17310 18695 20190 17117 5025 123874 Recovery of 1231 1231 1231 1519 1519 1519 balance deferred revenue expenditure Depreci- 1637 1753 1812 2020 2164 2236 16630 8689 36941 ation Interest 25 27 32 - 0 0 1546 30607 5237 Debt Interest 800 864 838 987 1066 1034 1320 489 7398 on Working capital ROE 6899 6761 6530 3534 3386 3153 20110 6602 56974 FERV (-) 1 4 42 0.00 0.00 0.00 1305 66 1416 Income Tax As per actual Cost 24617 25789 26846 25369 26829 28133 58028 24478 240089 before Royalty Add 1998 1998 1998 2465 2465 2465 1700 1275 16363 royalty @ Rs 50 per ton, corresponding to 85% utilisation.
Cost 26615 27786 28844 27634 29294 30598 59728 25753 256452
including
royalty
(Rs per Ton)
Lignite 666 696 722 565 594 621 1757 1010
transfer
price
Pooled Lignite 974.27
transfer price
13. The petitioner and the first respondent have filed their comments on the recommendations of the Bench. The petitioner, vide its affidavit dated 6.2.2007, has submitted its calculation of lignite transfer price taking into account the recommendations of the Bench. The necessary calculations are as under:
(Rs./MT) 2001-02 2002-03 2003-04 Mine-II-(1) 682 712 740 Mine-II-(2) 580 610 638 Mine-I Expansion 1753 Mine-IA 1026 Pooled Price - - 987
14. We have considered the recommendations of the Bench on various issues connected with determination of lignite transfer price. We have also considered the objections/comments of the parties in their written affidavits and oral submissions during the hearing.
Gross Block
15. The Bench, after considering the rival contentions, has recommended to be guided by the gross block as per the books of accounts to arrive at the lignite transfer price since gross block certified by the statutory auditors is a clear indicator of actual capital expenditure.
16. We note that the parties do not have any objection to the recommendations of the Bench with regard to gross block in respect of Mine-II, Stage I & Stage II as on 1.4.2001 and Mine-IA as on 1.4.2003. With regard to gross block of Mine-I (Expansion), the first respondent, vide its affidavits dated 8.2.2007 and 5.3.2007, has submitted that the assets of Mine-I Expansion were put to use prior to the date of commercial operation and therefore, the opening capital cost of Rs. 130510 lakh, as noted by the statutory auditors, with further reduction of Rs. 3298 lakh on account of the capital works-in-progress in respect of Mine-I(Expansion) should be considered as against Rs. 172272 lakh adopted by the Bench. The petitioner, in its affidavit dated 16.2.2007 has clarified that the Net Fixed Assets value of Rs. 133508 lakh was worked out by the statutory auditors after taking into account Rs. 3298 lakh on account of capital works-in-progress and deducting Rs. 41763 lakh therefrom on account of depreciation. As per the recommendation of the Bench, the Gross Fixed Assets as per the books of accounts in respect of all mines have been adopted and the depreciation recovered through tariff has been adjusted. In respect of Mine I (Expansion), as no depreciation was recovered through tariff during 2003-04, this being the first year of lignite pricing, the opening gross fixed investment is the same as opening Net Fixed Assets and accordingly, as submitted by the petitioner, gross block of Rs. 172272 lakh has been correctly adopted by the Bench. The first respondent has further submitted that the gross block of Rs. 172263 lakh is more than the approved cost of Rs. 165838 lakh. To this, the petitioner, in its affidavit dated 2.3.2007, has submitted that the sanctioned cost of Rs. 165838 lakh and completion cost of Rs. 166776 lakh as approved by the Central Government were at the price level of December, 2000. The actual expenditure of Rs. 172272 lakh as on the date of commercial operation which includes escalation over the period upto March 2003 has been considered.
17. We note that there is general agreement among the parties with regard to the principle recommended by the Bench for adoption of gross block for working out the lignite transfer price in respect of Mine-II (Stage I & Stage II) and Mine-IA. Therefore, we accept the recommendation of the Bench and direct that the gross block as certified by the statutory auditors as per the books of accounts is to be considered to arrive at the lignite transfer price for these mines.
18. We find that the objections of the first respondent in the case of Mine-I (Expansion) are for the reason that as per certificate of the statutory auditors the net block as on the date of commercial operation of Mine-I (Expansion) is Rs. 133808 lakh after deducting the depreciation of Rs. 41763 lakh from the gross block of Rs. 172272 lakh. This certification is perhaps because of the fact that the accounts of Mine-I (Expansion) are part of the Mine-I at the Company level as is evident from the annual reports of the petitioner company. Some of the assets could be put to use prior to commercial operation for testing, commissioning and trial run etc. and this is essential and incidental to achieving the commercial operation. As per accounting procedure, revenue expenses incurred as incidental expenditure during construction (IEDC) get capitalized along with the assets treating it to be capital investment and is required to be serviced from the date of commercial operation. Similarly, revenue earned during the construction period is also accounted for in the IEDC leading to reduction in capital cost. The petitioner has clarified that the gross block of Rs. 172272 lakh has been arrived at after due reconciliation of accounts and considering the abatement of lignite production during construction. The depreciation booked in the accounts is for accounting and the investment in the project is required to be serviced from the date of commercial operation. We are in agreement with the recommendation of the Bench that the gross block as on the date of commercial operation should be considered for calculation of lignite transfer price for Mine-I (Expansion) as well.
19. In view of the above, the following gross blocks are adopted for arriving at the net block as on 1.4.2001 for Mine-II, Stage-I & Stage-II and as on 1.4.2003 for Mine-I (Expansion) and Mine-IA.
(Rs in lakh)
As on 1.4.2001 As on 1.4.2003
Mine-II ,Stage-I 72161 -
Mine-II ,Stage-II 89050 -
Mine-I (Expansion) - 172272
Mine-I A 82086
Additional Capitalization for Mines
20. The actual additional capital expenditure was considered by the Bench for the purpose of working out lignite transfer price as lignite transfer price was being determined post facto with adjustment of gross and net blocks in each year, based on actual expenditure. In future, the practice of considering additional capitalization based on budget estimates may continue if lignite transfer price is worked out upfront. The additional capital expenditure as recommended by the Bench is as under:
(Rs in lakh) 2001-02 2002-03 2003-04 Total Mine-II- Stage-I Works/Supplies 1138.45 749.17 458.52 2346.14 FERV 0.81 4.27 1.00 6.09 Total 1139.27 753.45 459.51 2352.23 Mine-II, Stage-II Works/Supplies 1404.90 924.51 565.83 2895.24 FERV 1.01 5.28 1.23 7.51 Total 1405.90 929.79 567.06 2902.75 Mine-I (Expansion) Works/Supplies 5081.63 44103.23 1579.65 50764.51 FERV 1332.24 7872.40 1314.85 10519.46 Total 6413.87 51975.63 2894.50 61284.00 Mine- I A Works/Supplies 16026.68 60455.93 9957.77 86440.38 FERV 28.60 144.44 25.88 198.92 Total 16055.28 60600.37 9983.65 86639.30
21. As the parties have not raised any objection to the above recommendations of the Bench, we accept the same for the purpose of working out lignite transfer price.
Depreciation and Cumulative Depreciation
22. The depreciation recovered till 31.3.2001 in respect of Mine-II, Stage-I & Stage- II was Rs. 133531 lakh which included the deferred revenue expenditure charge of Rs. 38753 lakh. The Bench has disallowed recovery of deferred revenue expenditure as part of the depreciation recovery and has recommended that the actual depreciation of Rs. 94776 lakh recovered in tariff need only to be considered. The depreciation recovery has been apportioned between Stage-I & Stage-II at Rs. 28118 lakh and Rs. 66658 lakh respectively. Mine-I (Expansion) and Mine-IA, were commissioned in the year 2002-03 and achieved full capacity utilization in 2003-04. The Bench has disallowed recovery of depreciation before the date of commercial operation and has accordingly not considered the cumulative depreciation in respect of these mines for the year 2002-03. For the year 2003-04, the Bench has accepted the depreciation details submitted by the petitioner, which have been arrived at in accordance with the provisions of the Companies Act. Accordingly, the Bench has recommended the net block after considering the cumulative depreciation as under:
(Rs. In lakh) Mine-II Stage-I Mine-II Stage-II Mine-I Mine-IA (Expansion) 2001 2002 2003 2001 2002 2003 2003-04 2003-04
-02 -03 -04 -02 -03 -04 Opening 72161 73300 74053 89050 90456 91386 172272 82086 Gross Block Cumulative 28118 29755 31508 66658 68678 70842 0.00 0.00 depreciation Opening NFA 44043 43545 42545 22392 21778 20544 172272 82086 Additions 1139 753 459 1406 930 567 2894 9984 depreciation Depreciation 1637 1753 1812 2020 2164 2236 16630 8689 Closing NFA 43545 42545 41192 21778 20544 18875 158536 83381
23. The petitioner, while accepting the recommendations of the Bench, has re- calculated the depreciation amounts after taking into account the actual additional capitalization. Accordingly, the net block worked out by the petitioner is as follows:
(Rs. In lakh) Mine-II Stage-I Mine-II Stage-II Mine-I Mine-IA (Expansion) 2001 2002 2003 2001 2002 2003 2003-04 2003-04
-02 -03 -04 -02 -03 -04 Opening 72161 73300 74053 89050 90456 91386 172272 82086 Gross block Cumulative 28118 29692 31322 66658 68592 70555 0 0 Depreciation Opening NFA 44043 43608 42731 22392 21864 20831 172272 82086 Addns 1139 753 459 1406 93 567 2894 9984 Depreciation 1574 163 1661 1934 1963 2028 16491 9128 Closing NFA 43608 42731 41529 21864 20831 19370 158675 82942
24. The first respondent who had submitted before the Bench that the cumulative depreciation recovered in tariff should be considered to arrive at the net block instead of cumulative depreciation as per books of accounts, accepted the cumulative depreciation as the basis for arriving at the net block. As the total recovery of depreciation over the lifetime of the asset should only correspond to the total investment made or the value of the assets actual recovery of depreciation is relevant and not the depreciation booked in the accounts. The recommendation of the Bench to consider the cumulative depreciation recovered in lignite transfer price computations is, therefore, in order and is accepted.
25. In the case of Mine-II, Stage-I and Stage-II, the Bench has deducted the deferred revenue expenditure of Rs. 38783 lakh from the total recovery of Rs. 133531 lakh up to 31.3.2001 to arrive at the cumulative depreciation recovered in tariff. After reducing the deferred revenue expenditure from the total recovery, the Bench has considered cumulative depreciation recovered as Rs. 21818 lakh and Rs. 66658 lakh in respect of Stage I and Stage II respectively. The Bench has further recommended recovery of balance of deferred revenue expenditure Rs. 8249 lakh in the next three years in equal installments in order to avoid its undue loading into the tariff.
26. The first respondent has submitted that if the recommendations of the Bench are accepted, this would mean that the petitioner has incurred deferred revenue expenditure of Rs. 47003 lakh (Rs. 38753 lakh + Rs. 8250 lakh) instead of Rs. 38753 lakh as shown in the books of accounts, which has also been fully adjusted in the cumulative depreciation recovered through tariff as on 31.3.2001. The first respondent has urged that the recovery of Rs. 8250 lakh on account of unrecovered deferred revenue expenditure during 2001-04 as recommended by the Bench be disallowed.
27. We find that the Bench, while dealing with the O & M expenses for 2000-01 has recommended recovery of Rs. 8250 lakh out of the deferred revenue expenditure of Rs. 10832 lakh shown in the books of accounts, treating it as the balance deferred revenue expenditure of previous years. However, the total deferred revenue expenditure of Rs. 38753 lakh shown in the books of accounts also included the deferred revenue expenditure of Rs. 10832 lakh charged under O&M expenses in 2000-01. It appears to us that this fact has escaped the attention of the Bench.
28. The petitioner has now submitted that the total deferred revenue expenditure of Rs. 10832 lakh booked to accounts in 2000-01 includes un-recovered deferred revenue expenditure of Rs. 7371 lakh for the previous period and only Rs. 3462 lakh pertains to the year 2000-01. Accordingly, the deferred revenue expenditure recovered in tariff up to 2000-01 works out as Rs. 31383 lakh (Rs. 38753 lakh - Rs. 7371 lakh). Thus, the cumulative depreciation recovery in tariff up to 2000-01 works out to Rs. 102147 lakh (Rs. 133531 lakh - Rs. 31383 lakh) and allocated to Mine-II, Stage-I & Stage II as Rs. 30071 lakh and Rs. 72076 lakh respectively. The balance deferred revenue expenditure of Rs. 7371 lakh is to be recovered in three years in equal proportion in the following manner, allocated between Mine II Stage-I & Stage II in the ratio of cumulative depreciation recovered:
(Rs in lakh) Mine-II Stage-I Mine-II Stage-II 2001-02 2002-03 2003-04 2001-02 2002-03 2003-04 651 651 651 1806 1806 1806
29. Accordingly, the following cumulative depreciation recovered in tariff is considered in respect of different mines:
(Rs in lakh) Mine-II, Stage-I Mine-II, Stage-II Mine-I (Expansion) Mine-I A up to up to 31.3.2001 up to 31.3.2001 up to 31.3.2003 31.3.2003 30071 72076 0.00 0.00
30. The net block for the respective year, therefore, is worked out as follows:
(Rs. In lakh) Mine-II Stage-I Mine-II Stage-II Mine-IA Mine-I (Expansion) 2001 2002 2003 2001 2002 2003 2003-04 2003-04
-02 -03 -04 -02 -03 -04 Opening 72161 73300 74053 89050 90456 91386 172272 82086 Gross block Cumulative 30071 31644 33274 72076 74011 75973 0 0 Depreciation Opening NFA 42090 41656 40779 16974 16445 15413 172272 82086 Additions 1139 753 459 1406 93 567 2894 9984 Depreciation 1574 1630 1661 1934 1963 2028 16491 9128 Closing NFA 41656 40779 39577 16445 15413 13951 158675 82942 O&M Expense for Mines
31. For Mine II, Stage I & Stage II, the Bench has considered 20% increase in expenses under the heads 'employee cost' and 'corporate office' expenses, over the expenses for the year 1999-2000 and the average value of the deferred revenue expenditure at Rs. 2584 lakh as part of O & M expenses for 2000-01. In the case of Mine-I (Expansion) and Mine-IA, O&M expenses as indicated by the petitioner have been considered. Accordingly, the following O&M expenses were considered by the Bench for computation of lignite transfer price:
(Rs in lakh) 2001-02 2003-04 Mine-II ,Stage-I 14027 Mine-II ,Stage-II 17310 Mine-I Expansion 17117 Mine-I A 5025
32. The petitioner has now furnished the following details of wage revision arrears for the previous period included in O&M expenses for the year 2000-01 for the Mine- II, Stage-I & Stage II which have been duly adjusted against the actual O&M expenses for the purpose of lignite transfer price:
(Rs. in lakh) Particulars Arrears relating to previous periods Salaries & Wages 1122 Corporate office Expenses 2569
33. The petitioner has also furnished the details of the actual deferred revenue expenditure for the year 2000-01 as Rs. 3462 lakh and the balance deferred revenue expenditure to be recovered as Rs. 7371 lakh. Accordingly, the petitioner has re-calculated O&M expenses of Mine-II, Stage I & Stage II as follows:
(Rs In lakh) 2001-02 Mine-II, Stage-I 14842 Mine-II, Stage-II 18316
34. The first respondent has submitted that O&M expenses for Mine-I (Expansion) should be taken as 6% of the project cost as agreed to by the petitioner.
35. The Bench has considered O&M expenses for Mine-I (Expansion) and Mine- 1A as indicated by the petitioner, which works out to about 9.94% and 6.12% of the gross block. The petitioner has submitted that O&M expenses considered are based on the PIB notes for the approval of the capital expenditure by Central Government. In the absence of specified norms in respect of the mines, O&M expenses considered by the petitioner are accepted in the present case, but should not be taken as a precedent in future cases. Accordingly, the following O&M expenses are considered.
(Rs in lakh)
2001-02 2003-04
Mine-II, Stage-I 14842
Mine-II, Stage-II 18316
Mine-I Expansion 17117
Mine-I A 5025
Capacity Utilization Factor
36. The Bench has considered the capacity utilization factor of 85 % as recommended by Ministry of Coal for computing the lignite transfer price. The first respondent has submitted that differential pricing be adopted for lignite excavated beyond 85% capacity. The recommendation of the Bench, which are also in accordance with the recommendations of Ministry of Coal, are accepted.
Interest On Working Capital
37. As regards the interest on working capital for the years 2001-02 to 2003-04 contained in order of Bench, the first respondent has submitted that the rate of interest of 12.75 % considered therein is high. The petitioner is agreeable to adopt SBI PLR of 11.50%. After considering the changes in O&M expenses for the Mine-II Stage-I & Stage-II, interest on working capital works out as follows:
(Rs in lakh) 2001-02 2002-03 2003-04 Mine-II, Stage-I 729 788 765 Mine-II, Stage-II 900 972 944 Mine-I (Expansion) - - 1190 Mine-IA - - 441
38. The recommendations of the Bench with regard to power charges, return on equity, interest on loan and income-tax have not been objected to by the parties. Accordingly, the recommendations of the Bench on these respects are accepted.
39. Accordingly, lignite transfer prices are worked out as follows:
(Rs./MT) 2001-02 2002-03 2003-04 Mine-II Stage-1 661 691 719 Mine-II Stage-2 570 599 628 Mine-I (Expansion) 1749 Mine-IA 1024 Pooled Price - - 977
40. With the above lignite transfer price in view we shall now consider the tariff for the generating station for the period 2001-04.
Capital Cost of Power Station
41. The Gross Fixed Assets and Net Fixed Assets considered by the petitioner in the respective year of tariff period are as per table given below:
(Rs. In lakh) Stage-I Stage-II Financial Year 2001-02 2002-03 2003-04 2001-02 2002-03 2003-04 Gross Block as on 1.4.2001 57330 117795 Accumulated Depreciation 42743 71379 up to 31.3.2001 Opening Net Fixed Assets 14587 12899 11550 46416 42445 38248 Additions 364 30 600 446 71 119 Total 14952 12929 12149 46862 42516 38367 Depreciation 2052 1380 887 4417 4267 4258 Closing Net Block 12899 11550 11263 42445 38248 34109 Average Investment 13743 12225 11406 44430 40346 36179
42. The gross block as on 31.3.2001 has been arrived at by the petitioner in the following manner:
(Rs. In lakh) Stage-I (1988) Stage-II (1994) Gross Block as on 95-96 (considered in the BPSA) 53835 128368 Additions 1996-97 to 2000-01 3823 97 Deletions 1996-97 to 2000-01 (-) 328 (-)10670 Gross Block as on 31.3.2001 57330 117795
43. The gross block as on 31.3.2001 is as per books of accounts and reconciliation of account submitted by the petitioner, and is, therefore, considered for working out the net block.
44. As regards the cumulative depreciation recovered in tariff, the figures submitted by the petitioner in its affidavits dated 23.7.2005 and 13.6.2005, and those submitted by the first respondent are at variance. The petitioner has clarified that the depreciation details as per affidavit dated 13.6.2005 are based on books of accounts and those furnished in affidavit dated 23.7.2005 are based on depreciation up to 1995-96 as per books of accounts and thereafter as recovered in tariff. The petitioner vide affidavit dated 27.10.2005 furnished the following amounts for the cumulative depreciation recovered in tariff:
(Rs. In lakh) Parameters Cumulative depreciation recovered in tariff Cumulative depreciation for Stage-I up to 31.3.2001 43467 Cumulative depreciation for Stage-II up to 31.3.2001 91985
45. The details submitted by the first respondent are at slight variance with those of the petitioner. We accept the details submitted by the petitioner for calculation of cumulative depreciation recovered in tariff, as these are considered to be more authentic.
46. The petitioner has further submitted that initial spares capitalized on the date of commercial operation have been written off from the gross block and hence corresponding depreciation should also be reduced by the amount of initial spares written off. Since depreciation recovery is allowed up to 90 % of the cost of asset, only 90% of the cost of initial spares can be reduced from the cumulative depreciation recovered in tariff. Accordingly the following recovery of cumulative depreciation as on 1.4.2001 is adopted for the purpose of tariff:
(Rs. In lakh) Stage-I Stage-II Cumulative depreciation recovered in tariff 43467 91985 up to 31.3.2001 Cost of Initial spares capitalised 1376 7530 as on the date of commercial operation 90% of the cost of initial spares 1238 6777 Cumulative depreciation recovered in 42229 85208 tariff up to 31.3.2001 corresponding to gross block as on 31.3.2001
47. In view of the above, the following net block is considered for the purpose of tariff determination:
(Rs in lakh) Stage-I Stage-II Financial Year 2001-02 2001-02 Gross Block as on 1st April 2001 57330 117795 90% of Gross Block (Excluding 50926 105876 land cost) Accumulated Depreciation upto 42229 85208 31st March 2001 Opening Net Fixed Assets 15101 32587 as on 1st April 2001 Additions 0 0 Total 15101 32587 Additional Capital Expenditure after 31.3.2001
48. The petitioner has considered additional capitalisation for Stage-I during 2001- 02 (Rs. 364 lakhs), 2002-03 (Rs. 30 lakhs) and 2003-04 (Rs. 600 lakhs) & for Stage-II during 2001-02 (Rs. 446 lakhs), 2002-03 (Rs. 71 lakhs) and 2003-04 (Rs. 119 lakhs), which is less than 20% of the approved project cost. Para 1.10 of the 2001 regulations provides that tariff revisions during the tariff period on account of capital expenditure within the approved project cost incurred during the tariff period may be entertained by the Commission only if such expenditure exceeds 20% of the approved cost. In all cases, where such expenditure is less than 20%, tariff revision shall be considered in the next tariff period. As the additional capital expenditure claimed is less than 20% of the approved project cost, it has not been considered in this tariff period in terms of the 2001 Regulations.
Extra Rupee Liability
49. The petitioner has not claimed any FERV and, hence, the extra rupee liability is considered as nil.
Debt: Equity Ratio
50. As per para 2.5 of the 2001 regulations, the capital expenditure of the project shall be financed as per the approved financial package set out in the techno- economic clearance of the Authority or as approved by an appropriate independent agency, as the case may be. During the discussions between the petitioner and respondents on 15.7.2005, the respondents had indicated that funding pattern may be considered with a deb-equity ratio of 70:30 as in the case of new power projects or in the alternative at 50:50 as per approval of Central Govt. The petitioner has submitted that normative funding pattern could be considered if Gross Fixed Assets method was agreed. Since Net Fixed Assets principle has been adopted, the actual funding pattern should be considered for the purpose of debt-equity ratio. The approved financial package, actual source of financing on the date of commercial operation and actual source of financing as on 31.3.2001 for Stage-I and Stage II as considered by the petitioner in revised petition are as under:
(Rs. in lakh) Approved D/E Ratio Source of Financing D/E Ratio Financial (%) as on the date of (%) package commercial operation Financial package for Stage-I Debt (GOI loan) 15066 27% 15066 31% Equity (including IR) 41508 73% 33015 69% Total 56574 100% 48081 100% Financial package for Stage-II GOI loan 244 15383 Bonds 78127 32883 Total Debt 78371 54% 48266 38% Equity (including IR) 66180 46% 78759 62% Total 144551 100% 127025 100%
51. Since Net Fixed Assets method is being adopted in the case of NLC Projects, actual source of funding would be considered for calculating debt-equity ratio as on the date of commercial operation. However Debt Equity ratio looses relevance once the repayment is allowed on actual basis. In the instant case, all the loans have already been paid, hence the entire depreciation would be utilized to reduce the equity capital.
Return on Equity
52. As per para 2.7(c) of the 2001 regulations, return on equity shall be computed on the paid up and subscribed capital and shall be 16 percent of such capital. Accordingly, return on equity @ 16% is allowed as under:
(Rs. In lakh) Stage I 2001-02 2002-03 2003-04 Opening Balance 15101 14377 13652 Increase/Decrease 0 0 0 due to FERV Increase/Decrease due 0 0 0 to Additional Capitalization Closing Balance 14377 13652 12927 Average 14739 14014 13290 Rate of Return 16% 16% 16% on Equity Return on Equity 2358 2242 2126 Stage II Opening Balance 32587 31439 30291 Increase/Decrease 0 0 0 due to FERV Increase/Decrease due 0 0 0 due to Additional Capitalization Closing Balance 31439 30291 29142 Average 32013 30865 29716 Rate of Return on Equity 16% 16% 16% Return on Equity 5122 4938 4755 Interest on Loan Capital
53. As per para 2.7(a) of the 2001 regulations, interest on loan capital shall be computed on the outstanding loans duly taking into account the schedule of repayment, as per the financial package approved by the Authority or an appropriate independent agency, as the case may be. As entire loans have been repaid prior to 1.4.2001, there is no liability towards payment of interest on loan. Hence, the interest on loan is considered as nil.
Depreciation
54. Para 2.7(b) of the 2001 Regulations provides:
(i) The value base for the purpose of depreciation shall be the historical cost of the asset.
(ii) Depreciation shall be calculated annually as per straight-line method at the rate of depreciation as prescribed in the Schedule attached to this notification as Appendix-II. Provided that the total depreciation during the life of the project shall not exceed 90% of the approved original cost. The approved original cost shall include additional capitalization on account of foreign exchange rate variation also.
(iii) Advance against depreciation (AAD), in addition to allowable depreciation, shall be permitted wherever originally scheduled loan repayment exceeds the depreciation allowable as per schedule and shall be computed as follows:
AAD = Originally scheduled loan repayment amount subject to a ceiling of 1/12th of original loan amount minus Depreciation as per schedule
(iv) On repayment of entire loan, the remaining depreciable value shall be spread over the balance useful life of the asset.
(v) Depreciation shall be chargeable from the first year of operation. In case of operation of the asset for part of the year, depreciation shall be charged on pro rata basis.
(vi) Depreciation against assets relating to environmental protection shall be allowed on case-to-case basis at the time of fixation of tariff subject to the condition that the environmental standards as prescribed have been complied with during the previous tariff period.
55. Cumulative depreciation recovered up to 1.4.2001 has been considered as Rs. 42229 lakh for Stage-I and Rs. 85208 lakh for Stage-II. As the loan in respect of the generating station has been fully repaid in 2000-01, balance depreciation to be recovered has been spread over the balance useful life of the generating station. The balance useful life has been taken as 12 years for Stage-I and 18 years for Stage-II, considering useful life of 25 years from the date of commercial operation of the respective asset. The depreciation amount per year to be recovered from 1.4.2001 works out to Rs. 725 lakh each year for Stage-I and Rs. 1148 lakh each year for Stage-II as given below:
(Rs. in lakh) Stage-I 2001-02 2002-03 2003-4 Remaining Asset life as on 1.4.2001 (years) 12 Rate of Depreciation 3.62% 3.62% 3.62% 3.62% Depreciation value 90% excluding land cost 50926 Remaining Depreciable value Balance Depreciation 8697 7972 7247 6522 Depreciation recovered 0 725 725 725 in tariff Stage-II 2001-02 2002-03 2003-4 Remaining Asset life as on 1.4.2001 (years) 18 Rate of Depreciation 3.66% 3.66% 3.66% 3.66% Depreciation value 90% excluding land cost 105876 Remaining Depreciable value Balance Depreciation 20668 19520 18372 17223 Depreciation recovered 0 1148 1148 1148 in tariff Advance Against Depreciation
56. As per para 2.7(b) (iii) of the 2001 Regulations, advance against depreciation (AAD), in addition to allowable depreciation, shall be permitted wherever originally scheduled loan repayment exceeds the depreciation allowable as per schedule and shall be computed as follows:
AAD = Originally scheduled loan repayment amount subject to a ceiling of 1/12th of original loan amount minus Depreciation as per schedule.
57. Since loan has been fully repaid, the petitioner is not entitled to Advance Against Depreciation.
O & M Expenses
58. The petitioner has claimed the following O&M expenses based on average of the actual O&M expenses incurred during the year 1995-96 to 1999-2000.
(Rs. In lakh)
Year 2000-01 2001-02 2002-03 2003-04
(Base Year)
Stage-I 5866 6071 6235 6523
Stage-II 7856 8130 8349 8735
59. The above O & M expenses claimed by the petitioner are based on actual expenses for the years 1995-96 to 1999-2000 as per 2001 regulations with escalation rate of around 4% as against 6%. This is based on the Commission's order dated 7.1.2005 in Petition No. 196/2005 (Suo-motu).
60. O&M expenses for the years 1995-96 to 1999-2000 as given by the petitioner are as follows:
(Rs in lakh) Year 1995-96 1996-97 1997-98 1998-99 1999-2000 Stage-I 4121 3952 4785 5177 5173 Stage-II 5560 5297 6391 6891 6941
61. There is abnormal increase in O&M expense for the years 1997-98 and 1998- 99 over the expenses for the respective previous year. The actual O&M expenses have been examined for abnormalities in various elements and are discussed below for the purpose of normalization:
Employee Cost
62. The petitioner has indicated following expenditure on employee cost for 1995-96 to 1999-2000:
(Rs. In lakh) TPS 1995-96 1996-97 1997-98 1998-99 1999-2000 Stage-I 1025 1130 1614 1634 1738 Stage-II 1366 1506 2152 2179 2317
63. There has been an increase of 43% in employee cost in 1997-98 for Stage-I and Stage-II. The petitioner has stated that increase in employee cost is due to provision for the wage revision. The actual payments of the arrears were made in 2001-02. The petitioner vide affidavit dated 19.12.2005 has furnished the details of arrears of wage revision relating to the respective year of 1995-96 to 1999-2000. The spreading of these arrears in the respective year will have additional impact on the employee cost as follows:
(Rs In lakh) Particulars 1995-96 1996-97 1997-98 1998-99 1999-2000 Stage-I Provisions - - 54 210 148 Arrears of Pay 97 390 383 382 Additional impact 97 336 173 234 due to pay revision Stage-II Provisions - - 72 280 198 Arrears of Pay 130 520 510 510 Additional impact due 130 448 230 312 to pay revision
64. The petitioner has also furnished the following details of ex gratia/incentive payments included in the employee cost, which are to be deducted for arriving at normalised O&M expenses for the purpose of tariff.
(Rs in lakh)
TPS 1995-96 1996-97 1997-98 1998-99 1999-2000
Stage-I 28 144 129 113 105
Stage-II 37 192 172 150 140
65. After excluding ex gratia/incentive payments from the employee cost and including additional impact of pay revision, normalised employee cost has been arrived at as given below:
(Rs. In lakh) Stage-I Particulars 1995-96 1996-97 1997-98 1998-99 1999-00 Employee Cost 1025 1130 1614 1634 1738 Additional impact of pay revision 97 336 173 234 Less incent-
ive/Ex-gratia 28 144 129 113 105 Normalized Emp- loyee Cost 997 1083 1821 1694 1867 Stage-II Particulars 1995-96 1996-97 1997-98 1998-99 1999-00 Employee Cost 1366 1506 2152 2179 2317 Additional impact Of pay revision 130 448 230 312 Less incentive 37 192 172 150 140 /Ex-gratia Normalised Employee Cost 1329 1444 2428 2259 2489 Repair & Maintenance
66. The petitioner has indicated the following amounts under this head for 1995-96 to 1999-2000:
(Rs. In lakh) TPS 1995-96 1996-97 1997-98 1998-99 1999-2000 Stg-I 349 323 505 369 453 Stg-II 466 431 673 491 604
67. There has been an increase of 56% in 1997-98, and 23% in 1999-00 Stage-I and Stage-II. The petitioner has clarified that the increase in 1997-98 is due to special works like Boiler overhaul, furnace/Coil cleaning, condenser Acid/Jet cleaning, Ball cleaning Installation, Turbine Generator overhaul works, Water wall Replacement etc. to improve the efficiency of the generating station. In 1999-2000 the increase is due to special works like ABG Changing, HP Heater replacement, Water lance installation, HP/IP Turhine Overhauling, attending to TG vibration etc. to improve the efficiency of the generating station. It is seen that there are some works which are of the nature of normal and periodic O&M jobs such as Boiler overhaul, furnace/Coil cleaning, condenser Acid/Jet cleaning etc. are necessary to maintain the operating performance of the generating station. There are some works of R&M nature such as Ball cleaning Installation, Water wall Replacement, ABG Changing, HP Heater replacement, Water lance installation etc., which are not of repetitive nature. The petitioner has not furnished details of such items under the repair & maintenance. In the absence of such details, expenses on repair & maintenance works in 1997-98 and 1999-2000 have been restricted to 20% of the expenses for the respective previous year. Accordingly, the following amounts have been considered for arriving at normalized O&M charges:
(Rs in lakh) TPS 1995-96 1996-97 1997-98 1998-99 1999-2000 Stage-I 349 323 388 369 443 Stage-II 466 431 517 491 589 Stores
68. The petitioner has shown the following expenditure under this head for 1995-96 to 1999-2000:
(Rs in lakh) TPS 1995-96 1996-97 1997-98 1998-99 1999-2000 Stage-I 1732 1518 1548 1698 1704 Stage-II 2347 2042 2071 2252 2317
69. The petitioner has given break-up of stores consumed, which mainly include spares, consumables, chemicals and dre-spares. The amounts claimed have been considered for normalisation.
Corporate Expenses
70. The petitioner has allocated the following amounts to the station under this head for 1995-96 to 1999-2000:
(Rs. In lakh) TPS 1995-96 1996-97 1997-98 1998-99 1999-2000 Stage-I 491 461 575 897 810 Stage-II 654 615 767 1196 1081
71. As clarified by the petitioner, the expenses shown above represent the common charges which consist of expenses incurred by various service units like transport, medical establishment/hospital, Township administration, Central Workshop, Corporate Office etc. The common charges in total are allocated on the basis of salaries/wages of the respective unit. Therefore, the petitioner has stated that element-wise expenditure under corporate office expenses cannot be furnished. There has been an increase of 56% in corporate office expenses in the year 1998-99 for Stage-I and Stage-II compared to the expenses pertaining to the previous year. The petitioner has not furnished any reasons for this abnormal increase in corporate office expenses.
72. After excluding the abnormal expenses and limiting increase to 20% for the year 1998-99, the following amounts in the respective year have been considered as normalized corporate office expenses for the generating station:
(Rs. In lakh) TPS 1995-96 1996-97 1997-98 1998-99 1999-2000 Stage - I 491 461 575 690 810 Stage-II 654 615 767 920 1081
73. Under all other remaining heads percentage increase is less than 20%. Therefore, amounts indicated by the petitioner have been considered to arrive at normalised O&M charges.
74. Accordingly, O&M expenses for the period 2001-04 worked out considering escalation rate of 6% instead of 4% considered by the petitioner in line with methodology adopted for NTPC generating stations are as follows:
(Rs in lakh) Particulars 2001-02 2002-03 2003-04 Stage-I 6307 6685 7087 Stage-II 8446 8953 9490
75. However, above O&M expenses would get revised in terms of the order of the Appellate Tribunal for Electricity dated 3.1.2006 in Appeal No. 103/2005 and will be settled between the petitioner and beneficiaries.
Interest on Working Capital:
76. Interest on Working Capital is worked out as under:
(a) Fuel Cost: As per the 2001 regulations, fuel cost for one month corresponding to target availability has been considered.
(b) Lignite Stock: As per 2001 regulations reasonable fuel stock as actually maintained but limited to 15 days for pit head station and thirty days for non-pit head stations, corresponding to target availability is permissible. Accordingly, the lignite stock for 15 days would be permissible, as it is a pithead station, which should be restricted to the actual stock as per balance sheet pertaining to the generating station for the year 2000-01. The actual stock as per the balance sheet for the year 2000-01 is given for all the generating stations owned by the petitioner. As such, the same has been allocated in ratio of the installed capacity of the respective generating station to the total installed capacity. For tariff, lignite stock has been restricted to the calculated actual stock.
(c) Oil Stock: As per 2001 regulations, 60 days stock of secondary fuel oil, corresponding to target availability is permissible. Accordingly, the oil stock for 60 days would be permissible, which should be restricted to the actual stock as per the balance sheet for the year 2000-01. The actual stock as per the balance sheet for the year 2000-01 is given for all the generating stations of the petitioner. As such, the same has been allocated in ratio of the installed capacity of the respective generating station to the total installed capacity. For tariff, oil stock has been restricted to the calculated actual stock.
(d) O&M Expenses: As per the 2001 regulations, operation and maintenance expenses for one month are permissible as component of working capital. O&M expenses for 1 month have been considered in tariff of the respective year.
(e) Maintenance Spares: As per the 2001 regulations, maintenance spares at actual subject to a maximum of 1% of the capital cost but not exceeding 1 year's requirements less value of 1/5th of initial spares already capitalized for first 5 years is permissible. Actual spare consumption/one year requirement has been considered for maintenance spares. This amount is restricted to 1% of capital cost as on 1.4.2001. As the generating station is more than 5 years old, 1/5th of initial spares are not deducted.
(f) Receivables: In terms of the 2001 regulations, receivables equivalent to two months average billing for sale of electricity calculated on target availability have been considered.
77. As per the 2001 regulations, the interest rate for the purpose of working capital shall be the cash credit rate prevailing at the time of filing of the tariff petition The petitioner has claimed a weighted average rate of interest @ 12.75%. In line with the Commission's order in other cases for the tariff period 2001-04, the SBI PLR of 11.50% as on 1.4.2001 has been considered as the rate of interest on working capital. The details of the interest on working capital are given hereunder:
(Rs. In lakh) Interest on Working Capital (Stage I) 2001-02 2002-03 2003-04 Fuel Cost for 1 month 2513 2624 3677 Lignite Stock for 15 days (MT) 435 435 435 Oil stock for 60 days (KL) 82 82 82 O & M expenses for 1 month 526 557 591 Spares 573 573 573 Receivables- 2 months 6801 7074 9290 Total Working Capital 10931 11345 14648 Working Capital Margin (WCM) 0 0 0 Total Working Capital allowed 10931 11345 14648 Rate of Interest on working capital 11.50% 11.50% 11.50% Interest on Allowed Working Capital 1257 1305 1685 (Rs. In lakh) Interest on Working Capital (Stage II) 2001-02 2002-03 2003-04 Fuel Cost for 1 month 2904 3047 4902 Lignite Stock for 15 days (MT) 580 580 580 Oil stock for 60 days (KL) 110 110 110 O & M expenses for 1 month 704 746 791 Spares 1178 1178 1178 Receivables- 2 months 8530 8879 12759 Total Working Capital 14006 14539 20320 Working Capital Margin (WCM) 0 0 0 Total Working Capital allowed 14006 14539 20320 Rate of Interest on working capital 11.50% 11.50% 11.50% Interest on Allowed Working Capital 1611 1672 2337 Annual Fixed Charges
78. The annual fixed charges for the period 1.4.2001 to 31.3.2004 allowed in this order are summed up below:
(Rs. in lakh) Stage I Stage II Particulars 2001-02 2002-03 2003-04 2001-02 2002-03 2003-04 Interest on Loan 0 0 0 0 0 0 Interest on Working Capital 1257 1305 1685 1611 1672 2337 Depreciation 725 725 725 1148 1148 1148 Advance Against Depreciation 0 0 0 0 0 0 Return on Equity 2358 2242 2126 5122 4938 4755 O & M Expenses 6307 6685 7087 8446 8953 9490 TOTAL 10647 10957 11623 16327 16711 17730 Energy charge
79. Based on the lignite transfer price as arrived at para 39 above, the energy charge for the generating station works out as given below:
2001-02 2002-03 2003-04 Description Unit Stage-I Stage-II Stage-I Stage-II Stage-I Stage-II Capacity MW 630.00 840 630.00 840 630.00 840 Hours corre- sponding to Availability of 72% PLF % 6307.20 6307.20 6307.20 6307.20 6307.20 6307.20 Gross Station Heat Rate kCal/kWh 2960.00 2960.00 2960.00 2960.00 2960.00 2960.00 Specific Fuel Oil Consumption ml/kWh 3.00 3.00 3.00 3.00 3.00 3.00 Aux. Energy Consumption % 10.00 10.00 10.00 10.00 10.00 10.00 Weighted Average GCV of Oil kCal/l 10000.00 10000.00 10000.00 10000.00 10000.00 10000.00 Weighted Average GCV of Lignite kCal/Kg 2635.33 2635.33 2635.33 2635.33 2635.33 2635.33 Weighted Average Price of Oil Rs./KL 8034.98 8034.98 8034.98 8034.98 8034.98 8034.98 Weighted Average Price of Lignite Rs./MT 661.00 570.00 691.00 599.00 977.00 977.00 Rate of Energy Charge from Sec. Fuel Oil Paise/kWh 2.41 2.41 2.41 2.41 2.41 2.41 Heat Con- tributed from SFO kCal/kWh 30.00 30.00 30.00 30.00 30.00 30.00 Heat Con- tributed from Lignite kCal/kWh 2930.00 2930.00 2930.00 2930.00 2930.00 2930.00 Specific Lignite Consumption Kg/kWh 1.11 1.11 1.11 1.11 1.11 1.11 Rate of Energy Charge from Lignite Paise/kWh 73.49 63.37 76.83 66.60 108.62 108.62 Rate of En- ergy Charge ex-bus per kWh Sent Paise/kWh 84.33 73.09 88.04 76.68 123.37 123.37
80. In addition to the generation tariff, the petitioner shall be entitled to other charges like Development Surcharge, income tax, incentive, surcharge and other cess and taxes in accordance with the 2001 regulations. The petitioner shall also be entitled to recovery of filing fee of Rs. 5 lakh, which shall be recovered from the respondents in five monthly instalments of Rupees one lakh each and shall be shared by the respondents in the same ratio as the generation tariff.
81. The petitioner is already billing the respondents on provisional basis in accordance with the Commission's directions. The provisional billing of tariff shall be adjusted in the light of final tariff now approved by us.
82. This disposes Petition No. 5/2002.