Central Electricity Regulatory Commission
Power Grid Corporation Of India Limited vs Karnataka Power Transmission ... on 6 February, 2007
ORDER
1. The petition has been filed for approval of tariff for 400 kV D/C Madurai- Thiruvananthapuram Transmission System (the transmission system) in Southern Region for the period from 1.8.2005 to 31.3.2009, based on the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004, (hereinafter referred to as "the 2004 regulations") after accounting for additional capitalization of Rs. 600.21 lakh during 2005-06. The petitioner has also prayed for the reimbursement of expenditure from the beneficiaries incurred towards publishing notices in newspapers and the petition filing fee.
2. The investment approval for the transmission system was accorded by the Board of Directors of the petitioner company under Memo dated 22.11.2000 at an estimated cost of Rs. 19597 lakh, which included IDC of Rs. 2371 lakh. Subsequently, the revised cost estimates were approved by the Board of Directors of the petitioner company as per Memorandum dated 30.1.2006 for Rs. 26003 lakh, including IDC of Rs. 3422 lakh.
3. The provisional transmission charges for the transmission system were approved by the Commission in its order dated 13.2.2006 in Petition No. 137/2005. The present petition is for approval of final tariff from the date of commercial operation.
4. The petitioner has claimed the transmission charges as under:
(Rs. in lakh) 2005-06 2006-07 2007-08 2008-09 (Pro rata) Depreciation 446.29 677.99 677.99 677.99 Interest on Loan 955.70 1378.65 1294.15 1188.07 Return on Equity 645.35 980.63 980.63 980.63 Advance against Depreciation 0.00 185.75 328.97 801.89 Interest on Working Capital 60.37 94.70 97.78 106.36 O & M Expenses 302.02 471.39 489.80 509.79 Total 2409.73 3789.10 3869.32 4264.73
5. The details submitted by the petitioner in support of its claim for interest on working capital are given hereunder:
(Rs. in lakh) 2005-06 2006-07 2007-08 2008-09 (Pro rata) Maintenance Spares 243.33 253.07 268.25 284.35 O & M expenses 37.75 39.28 40.82 42.48 Receivables 602.43 631.52 644.89 710.79 Total 883.52 923.87 953.96 1037.62 Rate of Interest 10.25% 10.25% 10.25% 10.25% Interest 60.37 94.70 97.78 106.36
6. The reply to the petition has been filed by Karnataka Power Transmission Corporation Ltd and Tamil Nadu Electricity Board. No comments or suggestions have been received from the general public in response to the notices published by the petitioner under Section 54 of the Electricity Act, 2003.
CAPITAL COST
7. As per Clause (1) of Regulation 52 of the 2004 regulations, subject to prudence check, the actual expenditure incurred on completion of the project shall form the basis for determination of final tariff. The final tariff shall be determined based on the admitted capital expenditure actually incurred up to the date of commercial operation of the transmission system and shall include capitalised initial spares subject to a ceiling norm as 1.5% of original project cost. The regulation is applicable in case of the transmission system declared under commercial operation on or after 1.4.2004.
8. The petitioner has claimed additional capitalization of Rs. 600.21 lakh on works for the period from 1.8.2005 to 31.3.2006 over the capital expenditure of Rs. 24333.47 lakh as on the date of commercial operation. Additional capitalization -2005-06
9. Clause (1) of Regulation 53 of the 2004 regulations provides (1) The following capital expenditure within the original scope of work actually incurred after the date of commercial operation and up to the cut off date may be admitted by the Commission, subject to prudence check:
(i) Deferred liabilities;
(ii) Works deferred for execution;
(iii) Procurement of initial capital spares in the original scope of works subject to the ceiling norm specified in Regulation 52;
(iv) Liabilities to meet award of arbitration or compliance of the order or decree of a court; and
(v) On account of change in law:
Provided that original scope of work along with estimates of expenditure shall be submitted along with the application for provisional tariff:
Provided further that a list of the deferred liabilities and works deferred for execution shall be submitted along with the application for final tariff after the date of commercial operation of the transmission system.
10. The details submitted by the petitioner in support of its claim for additional capital expenditure are given hereunder:
Year Nature of expenditure
2005-06 Building and other Civil works = Rs. 169.63 lakh
PLCC = Rs. 87.03 lakh
Transmission line = Rs. 343.55 lakh
Total = Rs. 600.21 lakh
11. The additional capital expenditure claimed is within the original scope of work and is found to be in order as it was against the committed liability. Accordingly, the additional capital expenditure of Rs. 600.21 lakh has been allowed.
Time Over run
12. The transmission system was scheduled to be commissioned by October 2003. However, it was declared under commercial operation on 1.8.2005. Thus, there is delay of about 21 months in the commissioning. The petitioner has explained that transmission line passes through the States of Tamil Nadu and Kerala, with approximate length of 142 kms in the State of Tamil Nadu and approximate length of 74 kms in the State of Kerala. All major activities in the Tamil Nadu portion was completed. As regards the Kerala portion, 86 foundations and 46 towers were erected out of total number of 221 by February 2002, when. survey work was stopped in two villages, Kulathupuzha and Chithara, affecting about 30 Kms of transmission line (around 100 locations). The villagers were demanding diversion of the transmission line from the non-forest land to the forest land. The matter was taken up by the petitioner with District Magistrate, Kollam. In May 2002. The villagers filed case in Kerala High Court. The District Magistrate and the High Court issued separate orders in July 2002 and December 2002 respectively allowing the petitioner to commence work. However, land owners of these villages formed an action council and again stopped the work. The petitioner took up the matter with Secretary, Power, Chief Secretary and Power Minister, Govt of Kerala. Thereafter, the concerned Minister, Govt of Kerala convened a meeting with MLAs, Village Panchayat leaders on 2 May 2003 to resolve the problem amicably. After detailed deliberations, a Govt. order dated 16.5.2003 was issued constituting a Committee to go into the questions. Upon submission of report by the Committee, Govt of Kerala issued order dated 23.8.2003 advising the petitioner to divert the route. The petitioner is said to have lodged its protest vide letter dated 27.8.2003 and finally Govt of Kerala issued an order dated 22.9.2003 grating approval to the route originally proposed by the petitioner, after which the work in these areas was resumed on 26.9.2003. The local public raised objections again and thereafter Deputy Collector, Kollam, convened a meeting on 6.11.2003 and the matter was resolved to mark the corridor before taking up work. However, the work was stopped again on 9.12.2003 by the public demanding compensation amount to be finalized first and distributed before resuming the work. The Minister for Power, Govt. of Kerala is stated to have convened a fresh meeting on 27.12.2003 and gave direction to District Collector, Thiruvanananthapuram to finalize the rate for compensation for cash crops like rubber, coconut spices etc in consultation with Rubber Board, Agriculture Department and Spices Board as demanded by the public. During the meeting, the Minister also concluded to pay user fee for the tower location area in line with the procedures followed by KSEB and in line with order of High Court of Kerala. It was also decided that the compensation needed to be finalized and trees were to be removed within three weeks from the date of preparation of Tree Enumeration. Subsequently, the villagers with the support of Action Council members of the affected villages stopped all the construction activities on 29.1.2004.The matter was again taken by the CMD, Powergrid with the Chief Minister, Kerala on 3.2.2004 and intimation was also sent to Secretary (Power), Government of India. Subsequently, a meeting was held on 23.2.2004 with Minister of Energy, Kerala. In the meeting the guidelines for fixing the compensation were approved so as to complete the work on urgent basis. The Action Council members were informed by the Minister that the construction work should be resumed immediately, all cooperation must be extended to complete the transmission line in a time bound manner in May 2004 itself and work should not be disrupted at any cost. Even after the above resolution, the work was not allowed to be resumed by the Action Council members who were demanding compensation amount before commencement of work. The officials of the petitioner reportedly met the Principal Secretary Power on 12.4.2004 and apprised him of the persisting ROW problems, hindering the progress of work. A request to deploy additional revenue staff for early assessment of the compensation amount was also made by the petitioner. The copies of communication exchanged between petition and authorities concerned have been placed on records by the petition.
13. The above factual background shows that the whole process of stoppage of work in February 2002 to the finalization of modalities for fixation of compensation in March 2004 has consumed more that two years time, due to which commissioning of the transmission system got delayed. Therefore, the overall impact of the delay of 21 months with reference to investment approval is not attributable to the petitioner.
TOTAL CAPITAL COST
14. Against the above background, gross block of Rs. 24933.68 lakh as on 31.3.2006 has been worked out for the purpose of tariff over the gross block of Rs. 24333.47 lakh as on the date of commercial operation.
DEBT- EQUITY RATIO
15. Clause (2) of Regulation 54 of the 2004 regulations inter alia provides that, (2) In case of the transmission system for which investment approval was accorded prior to 1.4.2004 and which are likely to be declared under commercial operation during the period 1.4.2004 to 31.3.2009, debt and equity in the ratio of 70:30 shall be considered:
Provided that where equity actually employed to finance the project is less then 30%, the actual debt and equity shall be considered for determination of tariff:
Provided further that the Commission may in appropriate cases consider equity higher than 30% for determination of tariff, where the transmission licensee is able to establish to the satisfaction of the Commission that deployment of equity higher than 30% was in the interest of general public.
16. The Note 1 below Regulation 53 lays own that any expenditure on account of committed liabilities within the original scope of work is to be serviced in the normative debt-equity ratio specified in Regulation 54.
17. The petitioner has considered debt-equity ratio of 71.95:28.05 as actually deployed on the date of commercial operation. The petitioner has further considered entire amount of additional capitalization against loan. We have considered the debt-equity ratio of 71.95:28.05 on the date of commercial operation. The additional capitalisation on works of Rs. 600.21 lakh has been segregated into debt and equity in the normative debt-equity ratio of 70:30 in view of Note 1 below Regulation 53. Accordingly, for the purpose of tariff, an amount of Rs. 6824.47 lakh has been considered as equity as on 1.8.2005 and Rs. 7004.53 lakh as on 1.4.2006.
RETURN ON EQUITY
18. As per Clause (iii) of Regulation 56 of the 2004 regulations, return on equity shall be computed on the equity base determined in accordance with Regulation 54 @ 14% per annum. Equity invested in foreign currency is to be allowed a return in the same currency and the payment on this account is made in Indian Rupees based on the exchange rate prevailing on the due date of billing.
19. The petitioner has claimed return on equity of Rs. 6824.47 lakh. For the reasons recorded in para 17 above equity of Rs. 6824.47 lakh has been considered as on 1.8.2005 and from 1.4.2006 onwards, equity of Rs. 7004.53 lakh has been considered each year. However, tariff for the period 1.8.2005 to 31.3.2006 has been allowed on average equity of Rs. 6914.50 lakh. Accordingly, the petitioner shall be entitled to return on equity of Rs. 645.35 lakh during 200506 on pro rata basis and Rs. 980.63 lakh each year during 2006-09. INTEREST ON LOAN
20. Clause (i) of Regulation 56 of the 2004 regulations inter alia provides that,
(a) Interest on loan capital shall be computed loan wise on the loans arrived at in the manner indicated in Regulation 54.
(b) The loan outstanding as on 1.4.2004 shall be worked out as the gross loan in accordance with Regulation 54 minus cumulative repayment as admitted by the Commission or any other authority having power to do so, up to 31.3.2004. The repayment for the period 2004-09 shall be worked out on a normative basis.
(c) The transmission licensee shall make every effort to re-finance the loan as long as it results in net benefit to the beneficiaries. The costs associated with such re-financing shall be borne by the beneficiaries.
(d) The changes to the loan terms and conditions shall be reflected from the date of such re-financing and benefit passed on to the beneficiaries.
(e) In case of dispute, any of the parties may approach the Commission with proper application. However, the beneficiaries shall not withhold any payment ordered by the Commission to the transmission licensee during pendency of any dispute relating to re-financing of loan;
(f) In case any moratorium period is availed of by the transmission licensee, depreciation provided for in the tariff during the years of moratorium shall be treated as repayment during those years and interest on loan capital shall be calculated accordingly.
(g) The transmission licensee shall not make any profit on account of re-financing of loan and interest on loan;
(h) The transmission licensee may, at its discretion, swap loans having floating rate of interest with loans having fixed rate of interest, or vice versa, at its own cost and gains or losses as a result of such swapping shall accrue to the transmission licensee:
Provided that the beneficiaries shall be liable to pay interest for the loans initially contracted, whether on floating or fixed rate of interest.
21. The petitioner has claimed interest on loan in the following manner:
(i) Gross loan opening has been considered from 2005-06.
(ii) Gross loans drawn for additional capital expenditure during 2005-06 has been added to the gross loan up to date of commercial operation.
(iii) On the basis of actual rate of interest on actual average loan, the weighted average rate of interest on loan is worked out for various years.
(iv) Weighted average rate of interest on loan for respective years as per above has been has been multiplied to arrive at interest on loan.
22. In our calculation, the interest on loan has been worked out as detailed below:
(i) Gross amount of loan, repayment of instalments as per the loan allocation statement for 2005-06 has been prepared on the basis of loan allocation details submitted by the petitioner and rate of interest as given in the petition. The same is used to work out weighted average rate of interest on actual loan. The gross loan as per loan reconciliation has been considered as gross loan as on date of commercial operation.
(ii) Notional loan arising out of additional capitalization during the year 2005-06 has been considered.
(iii) Tariff has been worked out considering normative loan and normative repayments. Once the normative loan has been arrived at, it has been considered for all purposes in the tariff. Normative repayment has been worked out by the following formula:
Actual repayment of actual loan during the year
-----------------------------------------------X Opening balance of normative Opening balance of actual loan during the year loan during the year
(iv) Moratorium in repayment of loan has been considered with reference to normative loan and if the normative repayment of loan during the year is less than the depreciation during the year, it has been considered as moratorium and depreciation during the year has been deemed as normative repayment of loan during the year.
(v) Weighted average rate of interest on actual loan worked out as per (i) above has been applied on the average loan during the year to arrive at the interest on loan.
(vi) Bridge financing of loan from IOB having a floating rate of interest 5.90% was replaced with Bond XVII having a fixed rate of interest of 7.39%. Therefore, weighted average rate of interest has been arrived at before calculating the interest pertaining to this loan, subject to mutual settlement between the parties in case of any change/resetting of the interest rate during the tariff period.
23. Based on the above, the year-wise details of interest worked out are given hereunder:
(Rs. in lakh) Details of loan 2005-06 2006-07 2007-08 2008-09 (Pro rata) Interest on Loan Opening Gross Loan 17509.00 17929.15 17929.15 17929.15 Cumulative Repayment 288.82 735.11 1598.84 2606.15 Net Loan-Opening 17220.18 17194.04 16330.31 15323.00 Additions due to Additional 420.15 Capitalisation Repayment during the year 446.29 863.73 1007.31 1508.71 Net Loan-Closing 17194.04 16330.31 15323.00 13814.28 Average Loan 17207.11 16762.17 15826.65 14568.64 Weighted Average Rate of Interest on 8.24% 8.21% 8.16% 8.12% Loan Interest 945.73 1375.41 1290.89 1183.63
24. The detailed calculations in support of the weighted average rate of interest are contained in Annexure I attached.
DEPRECIATION
25. Sub-clause (a) of Clause (ii) of Regulation 56 of the 2004 regulations provides for computation of depreciation in the following manner, namely:
(i) The value base for the purpose of depreciation shall be the historical cost of the asset.
(ii) Depreciation shall be calculated annually based on straight line method over the useful life of the asset and at the rates prescribed in Appendix II to these regulations. The residual value of the asset shall be considered as 10% and depreciation shall be allowed up to maximum of 90% of the historical capital cost of the asset. Land is not a depreciable asset and its cost shall be excluded from the capital cost while computing 90% of the historical cost of the asset. The historical capital cost of the asset shall include additional capitalisation on account of Foreign Exchange Rate Variation up to 31.3.2004 already allowed by the Central Government/Commission.
(iii) On repayment of entire loan, the remaining depreciable value shall be spread over the balance useful life of the asset.
(iv) 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.
26. The petitioner has claimed the depreciation on the capital cost of Rs. 24777.37 lakh.
27. The gross depreciable value of the transmission system is 0.9 x (Rs. 24777.37 lakh-) = Rs. 22299.63 lakh.
28. Depreciation works out to Rs. 446.29 lakh for the period 1.8.2005 to 31.3.2006 on average gross block of Rs. 24633.58 and Rs. 677.99 lakh each year for the period 1.4.2006 to 31.3.2009 on gross block of Rs. 24777.37 lakh by applying rate of depreciation of 2.7192% as shown below:
(Rs. in lakh) Details of Depreciation 2005-06 2006-07 2007-08 2008-09 (Pro rata) Gross block at the beginning 24333.47 24933.68 24933.68 24933.68 of the period Additional Capitalisation 600.21 during the period 24933.68 24933.68 24933.68 24933.68 Gross Block at the end of the period 24333.47 24933.68 24933.68 24933.68 Rate of Depreciation 2.7192% 2.7192% 2.7192% 2.7192% Depreciable Value (90%) 21772.90 22043.00 22043.00 22043.00 Balance Useful life of the asset - - - -
Remaining Depreciable Value 21772.90 21596.71 20732.97 19725.66 Depreciation 446.29 677.99 677.99 677.99 ADVANCE AGAINST DEPRECIATION
29. As per Sub-clause (b) of Clause (ii) of Regulation 56 of the 2004 regulations, in addition to allowable depreciation, the transmission licensee is entitled to Advance Against Depreciation, computed in the manner given hereunder:
AAD = Loan repayment amount as per Regulation 56(i) subject to a ceiling of 1/10th of loan amount as per Regulation 54 minus depreciation as per schedule
30. It is provided that Advance Against Depreciation shall be permitted only if the cumulative repayment up to a particular year exceeds the cumulative depreciation up to that year. It is further provided that Advance Against Depreciation in a year shall be restricted to the extent of difference between cumulative repayment and cumulative depreciation up to that year.
31. The petitioner has claimed Advance Against Depreciation in the following manner:
(i) 1/10th of gross loan considered for tariff computation.
(ii) Cumulative loan as well as repayment of notional loan considered during the year.
(iii) Depreciation as claimed in the petition.
32. In our calculation, Advance Against Depreciation has been worked as under:
(i) 1/10th of gross loan has been worked out from the gross notional loan as per para 23 above.
(ii) Repayment of notional loan during the year has been considered as per para 23 above.
(iii) Depreciation as worked out as per para 28 has been taken into account.
33. The details of Advance Against Depreciation allowed for the transmission scheme is given hereunder:
(Rs. in lakh) Details of Advance Against Depreciation 2005-06 2006-07 2007-08 2008-09 1/10th of Gross Loan(s) 1750.90 1792.91 1792.91 1792.91 Repayment of Loan 446.29 863.73 1007.31 1508.71 Minimum of the above 446.29 863.73 1007.31 1508.71 Depreciation during the year 446.29 677.99 677.99 677.99 (A) Difference 0.00 185.75 329.32 830.72 Cumulative Repayment of the Loan 735.11 1598.84 2606.15 4114.86 Cumulative Depreciation/Advance against 446.29 1124.28 1988.01 2995.32 Depreciation (B) Difference 288.82 474.56 618.14 1119.54 Advance Against Depreciation Minimum 0.00 185.75 329.32 830.72 of (A) and (B) OPERATION & MAINTENANCE EXPENSES
34. In accordance with Clause (iv) of Regulation 56 the 2004 regulations, the following norms are prescribed for O & M expenses Year 2004-05 2005-06 2006-07 2007-08 2008-09 O&M expenses (Rs. in lakh per ckt-km) 0.227 0.236 0.246 0.255 0.266 O&M expenses (Rs in lakh per bay) 28.12 29.25 30.42 31.63 32.90
35. The petitioner has claimed O & M expenses for 432.3 ckt km and 12 bays, which have been allowed. Accordingly, the petitioner's entitlement to O & M expenses has been worked out as given hereunder:
(Rs. in lakh) Year 2005-06 2006-07 2007-08 2008-09 (Pro rata) O&M expenses for 432.3 ckt kms line length 68.02 106.35 110.24 114.99 O&M expenses for 12 bays 234.00 365.04 379.56 394.80 Total 302.02 471.39 489.80 509.79
36. The petitioner has submitted that the wage revision of its employees is due with effect from 1.1.2007. Therefore, O&M expenses should be subject to revision on account of revision of employee cost from that date. In the alternative, it has been prayed that the increase in employee cost due to wage revision be allowed as per actuals for extra cost to be incurred consequent to wage revision. We are not expressing any view, as this issue does not arise for consideration at this stage. The petitioner may approach for a relief in this regard at an appropriate stage in accordance with law.
INTEREST ON WORKING CAPITAL
37. The components of the working capital and the interest thereon are discussed hereunder:
(i) Maintenance spares Regulation 56(v)(1)(b) of the 2004 regulations provides for maintenance spares @ 1% of the historical cost escalated @ 6% per annum from the date of commercial operation. In the present case, the capital expenditure on the date of commercial operation is Rs. 24333.47 lakh, which has been considered as the historical cost for the purpose of the present petition and maintenance spares have been worked out accordingly by escalating 1% of the historical cost @ 6% per annum. In this manner, the value of maintenance spares works out to Rs. 243.33 lakh as on 1.8.2005.
(ii) O & M expenses Regulation 56(v)(1)(a) of the 2004 regulations provides for operation and maintenance expenses for one month as a component of working capital. The petitioner has claimed O&M expenses for 1 month of O&M expenses of the respective year as claimed in the petition. This has been considered in the working capital.
(iii) Receivables As per Regulation 56(v)(1)(c) of the 2004 regulations, receivables will be equivalent to two months average billing calculated on target availability level. The petitioner has claimed the receivables on the basis 2 months' transmission charges claimed in the petition. In the tariff being allowed, receivables have been worked out on the basis 2 months' transmission charges.
(iv) Rate of interest on working capital As per Regulation 56(v)(2) of the 2004 regulations, rate of interest on working capital shall be on normative basis and shall be equal to the short-term Prime Lending Rate of State Bank of India as on 1.4.2004 or on 1st April of the year in which the project or part thereof (as the case may be) is declared under commercial operation, whichever is later. The interest on working capital is payable on normative basis notwithstanding that the transmission licensee has not taken working capital loan from any outside agency. The petitioner has claimed interest on working capital @ 10.25% based on SBI PLR as on 1.4.2005, which is in accordance with the 2004 regulations and has been allowed.
38. The necessary computations in support of interest on working capital are appended hereinbelow:
(Rs. in lakh) 2005-06 2006-07 2007-08 2008-09 (Pro rata) Maintenance Spares 243.33 253.07 268.25 284.35 O & M expenses 37.75 39.28 40.82 42.48 Receivables 599.90 630.97 644.39 714.92 Total 880.99 923.32 953.46 1041.75 Rate of Interest 10.25% 10.25% 10.25% 10.25% Interest 60.20 94.64 97.73 106.78 TRANSMISSION CHARGES
39. The capital cost and other relevant details are contained in the summary sheet attached as Annexure II. The transmission charges being allowed for the transmission system are summarised below:
(Rs. in lakh) 2005-06 2006-07 2007-08 2008-09 (Pro rata) Depreciation 446.29 677.99 677.99 677.99 Interest on Loan 945.73 1375.41 1290.89 1183.63 Return on Equity 645.35 980.63 980.63 980.63 Advance against Depreciation 0.00 185.75 329.32 830.72 Interest on Working Capital 60.20 94.64 97.73 106.78 O & M Expenses 302.02 471.39 489.80 509.79 Total 2399.60 3785.80 3866.37 4289.55
40. In addition to the transmission charges, the petitioner shall be entitled to other charges like income-tax, incentive, surcharge and other cess and taxes in accordance with the 2004 regulations.
41. The petitioner has sought approval for the reimbursement of expenditure of Rs. 1,27,224/- incurred on publication of notices in the newspapers. The petitioner shall claim reimbursement of the said expenditure directly from the respondent in one installment. The petitioner has also sought reimbursement of filing fee of Rs. 5 lakh paid. A final view on reimbursement of filing fee is yet to be taken by the Commission for which views of the stakeholder have been called for. The view taken on consideration of the comments received shall apply in the present case as regards reimbursement of filing fee.
42. The petitioner is already billing the respondents on provisional basis in accordance with the Commission's order dated 13.2.2006 in Petition No. 137/2005. The provisional billing of tariff shall be adjusted in the light of final tariff now approved by us.
43. This order disposes of Petition No. 136/2006.