Section 5 in The West Bengal Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2011
5. Capital Cost.
-5.1- The Commission shall be guided by the following principles to compute the cost and return.(i)Investments made prior to the notification of these regulations by the generating company and licensees shall be accepted on the basis of audited accounts, subject to prudence check.(ii)Wherever Power Purchase Agreement or Agreement for transmission / wheeling provides for a ceiling of capital cost, the capital cost to be considered shall not exceed such ceiling.(iii)Capital cost for licensee to be considered as below :(a)The capital expenditure incurred by a licensee or a generating company in any financial year, being a part of a capital building project spanning a number of financial years, shall be, subject to prudence check by the Commission, considered in terms of the instant regulations :Provided that the aforesaid stipulations shall apply to such capital building projects that have been initiated on, or after these regulations have come into force :Provided also that only such capital expenditures that have resulted in both building and full operationalisation of one or more capital asset(s) which is/are components of the total capital building project referred to above shall qualify to be considered for this purpose.Provided also that investment approval for such capital expenditure is being allowed for the improvement of the norms of the operational parameter, then the norms associated with such parameter shall be revised after the effect of such capital expenditure take place subject to condition that such investment approval shall specifically mention the targeted norms.(b)For each capital expenditure project, the sum total of annual allowable capital cost from the date of commencement of such project till the date of commissioning shall be the original cost of such project, subject to its approval in accordance with these regulations wherever applicable.Provided that the Commission may permit reasonable additional costs, which are in the nature of capital expenditure, to be included in the original project cost beyond the date of commissioning upon application for the same made by the licensee or generating company within one year from the date of commissioning.(c)Where the actual cost incurred on a capital expenditure project exceeds or is likely to exceed the estimate of original project cost, then the licensee or generating company shall apply to the Commission for approval for variation in the estimate of original project cost with supporting documents and proper justification of variation of cost.(d)Where the actual cost incurred on a capital expenditure project is lower than the approved original project cost, the Commission shall, after due scrutiny, permit the resultant savings in interest on loan capital during the construction period of such project to be dealt with in the manner specified in these regulations. Scrutiny of the original project cost shall be limited to the reasonableness of the capital cost, financing plan, interest during construction stage, use of efficient technology, economic use of resources, need to optimize investment and such other matters for determination of tariff.(e)Notwithstanding anything contained in these regulations, for any capital expenditure project approved by the authority concerned before notification of these regulations, the actual cost as recorded in the books of account of the licensee or generating company shall be considered as the original cost of project, subject to its approval by the then statutory authority concerned wherever applicable and also subject to prudence check by the Commission,(f)The amount of any contributions made by users of transmission system or distribution system towards works for access to the intra-State transmission system or distribution system of the licensee or generating company shall be deducted from the original cost for such project for the purpose of calculating the amount of loan capital and equity capital under these regulations.Provided that for the purpose of depreciation under these regulations, the original project cost before deduction of any such contribution shall be taken into account.(iv)Prudent accounting practice shall apply, to the extent not inconsistent with these regulations, in determining the original project cost of capital expenditure and / or original cost of fixed assets capitalized.(v)The resultant Foreign Exchange variations on account of repayment are to be dealt as specified in these regulations.(vi)The capital cost may include capitalized initial spares as follows :(a)Up to 2.5% of original capital cost in case of coal based / lignite fired Generating Stations;(b)Up to 4.0% of original capital cost in case of Gas Turbine / Combined Cycle Generating Stations;(c)Up to 1.5% of original capital cost in case of Hydro-Generating Stations;(d)Up to 2.0% of original capital costs for distribution projects;(e)Up to 1.0% of approved original capital costs for transmission projects;(vii)Restructuring of capital cost in terms of relative share of equity and loan shall be permitted during the tariff period provided such restructuring is cost effective. Any savings in costs on account of subsequent restructuring shall be dealt with in accordance with these regulations.(viii)Any new generating station or any project of any licensee which is planned to be implemented and whose tariff is to be determined by WBERC, shall get its investment plan approved by the Commission before the construction starts. The project, which is already under construction on the date of publication of these regulations, shall get its investment plan approved in accordance with regulation 2.8.3 by the Commission prior to filing its tariff application for the project.(ix)For any new generating station for which tenders for supply of plants and equipments have been invited after 15.10.2007 and whose project cost is not determined / approved under these regulations, the concerned generating station shall submit all the information as required under regulation 2.8.1.4 to the Commission and obtain approval of the Commission before electricity is supplied by that generating station. to the distribution licensee at a tariff determined under section 62 of the Act.(x)If the tariff of any generation station of a generating company or licensee is adopted under section 63 of the Act and subsequently the generating company or licensee, as the case may be, intends to have the tariff determined for that generating station under section 62 of the Act, then the licensee/generating company shall submit all information as required under regulation 2.8.1.4 to the Commission and obtain the investment approval of the Commission before electricity is supplied by that generating station to the distribution licensee at a tariff determined under section 62 of the Act.5.2Additional Capitalization. -5.2.1- The following capital expenditure incurred within the scope of work as approved by the Commission after the date of commissioning and up to the cut off date may be allowed by the Commission for inclusion in the original project cost, subject to prudence check :(i)Deferred liabilities:(ii)Procurement of initial capital spares in the original scope of work, subject to ceiling specified in regulation 5.1(vi) of these regulations.(iii)Liabilities to meet award of arbitration or for compliance of the order or decree of a court; and(iv)Liabilities on account of change in law, if any.Provided that original scope of work along with estimates of expenditure shall be submitted along with the next application for determination of tariff.Provided further that a list of the deferred liabilities and works deferred for execution shall be submitted along with the next application for determination of tariff after the date of commercial operation of the generating station.5.2.2- The capital expenditure of the following nature actually incurred after the cut-off date may be allowed by the Commission for inclusion in the original cost of project, subject to prudence check :(i)Deferred liabilities relating to works / services within the original scope of work;(ii)Liabilities to meet award of arbitration or for compliance of the order or decree of a court;(iii)Liabilities on account of change in law;(iv)Any additional works / services which have become necessary for efficient and successful operation of the generating station or licensed business, but not included in the original project cost;(v)Deferred works relating to ash pond or ash handling system in the original scope of work;(vi)Works related to Pollution Control Measures; and(vii)Works related to compliance of any statutory requirements.5.2.3- Any expenditure on minor items / assets like normal tools tackles, personal computers, furniture, air-conditioners, voltage stabilizers, refrigerators, fans, coolers, TV, washing machines, heat-convectors, carpets, mattresses, etc. bought after the cut-off date may not be considered for additional capitalization subject to prudence check by the Commission for determination of tariff. The list of items is illustrative and not exhaustive.Provided that approval of the Commission under this regulation shall not be required where the aggregate expenditure on such assets in any financial year does not exceed 1`)/0 of total business turnover of that financial year subject to a maximum of Rupees Ten (10) crores.5.2.4- Prudent accounting principles shall apply, to the extent not inconsistent with these regulations, in determining the original project cost.5.2.5- The approved capital expenditure of the project shall be considered as the original project cost of such project for the purpose of these regulations.5.2.6- The amount of capital expenditure at actual shall be considered, subject to the normative debt equity ratio and the completion schedule not exceeding the time approved by the Commission at the time of approval of the investment proposal.5.2.7- The following considerations shall apply for regulations 5.1 and 5.2 :(i)Any expenditure admitted on account of committed liabilities within the original scope of work and the expenditure deferred on techno-economic grounds but falling within the original scope of work shall be financed in the normative debt equity ratio specified in these regulations;(ii)Any expenditure incurred on replacement of old assets shall be capitalized subject to satisfaction of the condition in sub-clause (a) of clause (iii) of regulation 5.1 and such capitalization shall be considered after writing off the gross value of the original assets from the original capital cost.(iii)Any expenditure admitted by the Commission for determination of tariff on account of new works not in the original scope of work shall be financed in the normative debt equity ratio specified in these regulations.(iv)Any expenditure admitted by the Commission for determination of tariff on renovation and modernization and life extension shall be financed on normative debt equity ratio specified in these regulations after writing off the original amount of the replaced assets.(v)Any expenditure admitted by the Commission incurred on purchase of other fixed assets shall be assumed to be financed at a normative debt: equity ratio specified in these regulations;5.2.8- The licensee shall submit the list of capital assets that are to be capitalized in terms of sub-clause (a) of clause (iii) of regulation 5.1 of these regulations showing the capital value of the capitalized assets along with the operational status of full commissioning or quantifiable partial commissioning of those assets clearly.5.3Revenue / charges during trial stage (prior to COD). -5.3.1- The actual cost incurred excluding fuel cost during trial up to COD shall be treated as capital cost;5.3.2- The actual revenue earned from sale of power (infirm power) net of fuel cost shall be treated as reduction in capital cost:5.3.3- For sale of infirm power Commission shall determine tariff or price of such infirm power on application from owner of the generating station.5.4Debt-Equity Ratio. -5.4.1- For the purpose of these regulations, the amount of loan capital and equity capital for existing business shall be calculated as follows :(i)The amount of loan capital shall be equal to the sum of the outstanding balance of all long-term loans taken to finance the purchase or construction of assets of the generating company or licensee, at the commencement of the financial year for which tariff is being determined, as reflected in the books of account of the generating company or licensee subject to prudence check by the Commission;(ii)The amount of equity capital at the beginning of any financial year shall be equal to -(a)Equity capital as at 1st April of that year as determined by the Commission on the basis of approved equity capital as on 1st April of the preceding year; plus(b)Equity component of approved capital expenditure for the preceding financial year ending 31st March;(iii)Equity component of approved capital expenditure for the concerned year would be added to the equity capital as on 1st April of that year to arrive at the equity capital at the end of the year.Explanation - for the purpose of these regulations, 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, and share premium amount along with free reserves which have been used for capitalization in the core business along with the embedded generation, if any, inclusive of capitalization through issuing of bonus share. The amount of any grant, revaluation reserve, development reserve, contingency reserve and contributions from customers 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 core business shall be added or deducted, as the case may be, from the amount of equity capital. The premium if any raised by the generating company or the licensees while issuing share capital and investment of internal resources created out of its free reserve for the funding of the project, shall be reckoned as paid up capital for the purpose of computing Return on Equity, provided such premium amount and internal resources are actually utilized for meeting the capital expenditure.5.4.2- For the purpose of determination of tariff on new capital expenditure including expansion of existing business, debt-equity ratio as on the date of commercial operation of generating station and transmission projects, sub-station, distribution lines or capacity expanded after the notification of these regulations shall be 70:30. Where equity employed is more than 30% the amount of equity shall be limited to 30% and the balance amount shall be considered as normative loan capital.Provided that in case of a generating company or other licensees, where actual equity employed is less than 30%, the actual debt and equity shall be considered for determination of return on equity in tariff computation;Provided further that in case of equity invested in foreign currency, the value of Indian rupees on the date of each such investment of equity shall be considered as respective equity for the purpose of tariff determination under these regulations.Explanation : For the purpose of computation of actual debt equity ratio, the permitted additional capital expenditure incurred after 1st April 2006 is to be considered in aggregate along with actual debt and equity provided to finance such expenditure. For the purpose of the above mentioned computation, equity shall include any project cost or part thereof financed by internal resources subject to ceiling of debt-equity norms indicated above.5.4.3- Any approved change in the original cost of a project / fixed asset after the date of commissioning shall be assumed to have been financed at the normative debt equity ratio.5.4.4- The debt and equity amount arrived at in accordance with the instant regulations shall be used for calculating interest on loan, return on equity, advance against depreciation and incentive to transmission licensee.5.5Loan repayment schedule. -5.5.1- The repayment schedule for the loan capital shall be in accordance with the loan agreements. In case where low cost loan is found to be cheaper than the existing loan after taking into account all the contents of loan agreements, then the licensee / generating company shall resort to replacing the existing loan through swapping by new loan.5.5.2- Where, the actual amount of depreciation falls short of actual amount of loan repayment in any financial year allowable under these regulations, such shortfall shall be allowed as an advance against depreciation (AAD) for the difference between the actual amount of such- repayment and the allowable depreciation for such financial year.Provided that such advance against depreciation shall be restricted to the 1/10th of the principal amount of original approved loans minus the amount of depreciation allowable under these Regulation.Provided also that upon repayment of the entire loan amount, the original cost of the fixed asset shall be reduced by the aggregate of accumulated depreciation and advance against depreciation availed by the generating company or the licensee and the resulting depreciable value shall be spread over the balance useful life of the fixed asset.5.5.3- During the tenure of loan repayment, where the actual amount of loan repayment in any financial year is less than the amount of depreciation allowable under these regulations, then an interest credit at the rate of weighted average cost of debt for the corresponding year shall be provided on such excess depreciation charged.5.6Calculation of some elements of Fixed charges. -5.6.1Return on Equity (ROE). -5.6.1.1- Return on equity for generating company and transmission licensee shall be computed on the equity capital determined in accordance with these regulations and the applicable rate will be the same as provided for / to be provided for by the Central Electricity Regulatory Commission for generating company and transmission licensee from time to time. Such return on equity shall be calculated on the pre-tax basis and actual income tax liability related to the core business only will be allowed separately on actual payment basis subject to final assessment.5.6.1.2- Return on equity for a distribution licensee shall be computed on the equity capital determined in accordance with these regulations and applicable rate will be one percent higher than the rate which is applicable as per relevant Regulations of CERC for a generating station of a generating company : Provided that such additional one percent return on equity as specified above for distribution licensee shall be applicable for the equity contribution related to distribution assets only.5.6.1.3- When a run-of-river hydro-generating station with pondage operates to support the peak demand in a day, the Commission will allow an additional return on equity to such a hydro-generating station, the additionality being 1% more than what has been provided for in this behalf by the CERC for any hydro-generating station.5.6.1.4- Any of the hydro-generating stations, excluding pumped storage hydro generating station, with allocated installed capacity of 100 MW or above under the purview of the Commission shall be entitled to additional return on equity of 4% more than what has been provided for in this behalf by the CERC for hydro-generating stations for supply of electricity to distribution licensees :Provided that if such hydro-generating station is not owned by the concerned distribution licensee who is taking the supply, then for entitlement to such additional return on equity there shall be a long term agreement of supply including a PPA covering a period of supply not less than 20 years :Provided also that for such hydro-generating stations regulation 5.6.1.3 shall not be applicable.5.6.1.5- While computing return on equity for a generating company or a licensee, those equity capital against the tangible assets only shall be considered if such assets are duly recorded in the asset register and have been fully commissioned and are under operation. The equity for any intangible asset will be considered for computation of return on equity if such asset is duly recorded in the asset register and is in use. The equity for receiving any services will be considered for computation of return on equity if such services are actually received and intangible asset concerned for such services is duly recorded in the asset register.5.6.1.6- In case, any asset of a licensee or a generating company remains inoperative for more than three months at a stretch, resulting in discontinuance of flow of electricity through or from such asset during that period, then the return on equity proportionate to such asset will be fifty percent for the period it remains inoperative and the share will be adjusted with the ARR during determination of ARR or after APR, as the case may be. Similarly, if any asset remains inoperative for a period exceeding six months at a stretch. then the return on equity proportionate to such asset will be nil for the period it remains inoperative and it will be adjusted with the ARR during determination of ARR or after APR, as the case may be.Provided that tariff determination related to such asset is not done in accordance with availability based tariff determination mechanism :-Provided further that where the actual value of equity corresponding to such inoperative asset is not available and such asset is commissioned prior to coming into force of the Act, the Commission shall determine the deemed value of equity for such asset for tariff determination purposes as follows :(a)For a generating station the value of equity of the inoperative unit of a generating station for tariff determination purpose only, shall be :-Eunit = (Etot x lCunit)/∑lCunit x (0.9085)AunitWhere,Eunit = Deemed Equity of inoperative unit under consideration.Etot = Actual Equity against the concerned generating station.Aunit = Age difference of the latest unit and the concerned inoperative unit.lCunit = Installed capacity of the inoperative unit under consideration.∑lCunit = Summation of the installed capacity of the generating station i.e., total installed capacity of the concerned generating stations.(b)For transmission or distribution system for inoperative transmission or distribution transformers or line, 15% of the value of a comparable asset at present day price level will be considered as the equity value of such inoperative transmission or distribution asset in relation to tariff determination purpose only.(c)Where project cost of any asset is available, then instead of using the methodology under (a) or (b) above, 30% of such project cost or the ratio in % of actual equity, whichever is less, will be considered for tariff determination purpose only as equity of such project and the equity for inoperative portion will be determined in proportion to the effected installed rated capacity of such inoperative portions to installed rated capacity of the total asset for the purpose of tariff determination only.(d)For the purpose of determination of age of any unit of a generating station, the available date of any period of synchronization or COD, whichever is later, will be applicable :Provided also that where actual value of equity for any particular unit of a generating station is available, then the equity for such unit shall be taken on the basis of actual value and for the balance units of the generating station the methodology mentioned under (a) or (b) or (c) shall be applied prudently by considering the balance units of the generating station.5.6.1.7- Return on equity shall be applicable to that portion of the equity only which is in use under the business operation for which gross aggregate revenue requirement is to be determined and not invested in any security or other business.5.6.2Depreciation - For the purpose of tariff, depreciation shall be computed in the following manner :(i)The value base for the purpose of depreciation shall be historical cost of the asset.(ii)The depreciation shall be calculated annually, based on straight line method at the rates prescribed in the Annexure - A to these regulations.(iii)The residual value of assets shall be considered as 10% and depreciation shall be allowed up to maximum of 90% of the original cost of the Asset.(iv)Freehold land is not a depreciable asset and its cost shall be excluded from the capital cost while computing 90% of the historical cost.(v)The historical cost of the asset shall include additional capitalization.(vi)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.(vii)Prudent accounting principles shall apply to the extent not inconsistent with these regulations.(viii)In case any asset remains inoperative for more than three months continuously in a financial year, the depreciation related to such an asset shall be reduced on proportionate basis for the period it remains inoperative and such reduction shall be adjusted in due course and it will be adjusted with the ARR during determination of ARR or after APR, as the case may be.Provided that tariff determination related to such asset is not done in accordance with the availability based tariff determination mechanism.Provided further that where actual book value of the asset corresponding to such inoperative asset is not available and such asset is commissioned prior to coming into force of the Act, the Commission will determine the deemed book value for such asset for tariff determination purposes in the following manner :-(a)For generating station the deemed book value of asset of the inoperative unit of a generating unit for tariff determination purposes only, isVAunit = (VAtotx lCunit∑/lCunit)x (0.9085)AunitWhere,VAunit Deemed Book Value of inoperative unit under consideration.VAtot Actual Book Value against total power stations concerned.Aunit Age difference of the latest unit and the concerned inoperative unit.ICunit Installed capacity of the inoperative unit under consideration.∑ICunit = Summation of the installed capacity of the generating station i.e. total installed capacity of the concerned generating station.(b)For inoperative transmission or distribution transformers or line in any transmission or distribution system, 15% of price of a comparable asset in terms of vintage will be considered as deemed book value of such inoperative transmission or distribution asset for tariff determination purposes only :(c)Where project cost of any asset is available but book value of such asset is not available then instead of methodology under (a) or (b), admissible project cost shall be considered as opening value of such gross fixed asset.(d)For the purpose of determination of age of any unit of a generating station, the available date of any period of synchronization or COD, whichever is later, will be applicable.Provided also that where actual value of asset for any particular unit of a generating station is available, then the asset for such unit shall be taken on the basis of actual value and for the balance units of the generating station the methodology depicted under (a) or (b) or (c) shall be applied prudently by considering the balance units of the generating station.5.6.3Advance Against Depreciation. -5.6.3.1- In addition to depreciation, the licensee shall be entitled to Advance Against Depreciation, which is the difference between the actual amount of loan repayment, subject to a ceiling specified in Regulations 5.5.2 and allowed depreciation as per schedule for such financial year along with reflection of accumulated depreciation in the book of accounts.5.6.3.2- The licensee shall be permitted to recover amortization of intangible assets up to 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 as has fairly arisen in promoting the core business and / or of embedded generation business and shall exclude any amount paid or otherwise accounted as goodwill.5.6.4Financing cost : -5.6.4.1- Financing costs will comprise of :-(i)Interest on and charges relating to loan capital,(ii)Interest on and charges relating to working capital.5.6.4.2- Interest on and charges relating to loan capital will be allowed by the Commission as under :-(i)The generating company or the licensee shall be allowed to recover the interest expenses on all borrowing towards capital works as per terms of such borrowing including the repayment schedule.(ii)Interest on normative loan capital shall be allowed at weighted average rate of interest on borrowings coming under (i) above.Provided that such normative capital loan as specified in regulation 5.4.2 is invested in creation of fixed asset to the concerned activity of electricity business of the licensee or generating company.(iii)The generating company / licensee shall put in every effort to swap the existing loans as long as it results in net benefit to the consumers / beneficiaries after taking into consideration a!! the associated cost inclusive of prepayment of premium for such benefit analysis. The cost associated with such beneficial swapping shall be borne by the consumers / beneficiaries. The generating company / licensee shall not make any profit on account of swapping on loan and interest on loan, except to the extent provided in these regulations.(iv)The Commission shall also allow all financing charges relating to loan capital viz. front-end fees, bank charges, commitment charges, foreign exchange rate variations in case of loan repayments, guarantee fees, etc.(v)The interest on borrowings and any other charges thereon for specific capital works-in-progress will not be allowed in the revenue accounts and those need to be charged to the cost of such capital works in progress.(vi)No interest during construction for any unit of a generating station shall be allowed to be capitalized for the period beyond the scheduled date of commercial operation (COD) as set out in the contract agreement of boiler and/or turbine-generator or the COD as per norms under Schedule-9C, whichever is earlier. However if Commission feels appropriate then it can allow additional capitalization that arises out of force majeure events or extenuating circumstances. No interest during construction for any unit of a generating station whose order for construction has been placed before 15.10.2007 shall be allowed to be capitalized for the period beyond the scheduled date of commercial operation (COD) as set out in the contract agreement of boiler and/or turbine-generator or the COD as per norms under Schedule-9C, whichever is later. For common assets covering more than one unit of the generating station, it will be considered on the basis of proportional allocation to the installed capacity of the unit concerned with reference to the total installed capacity of the project under consideration. Such interest during construction, which has been disallowed to be capitalized, shall also not be allowed to be recovered subsequently through tariff in any form.Provided that if the Commission is satisfied that the time over run of any project was due to force majeure event including natural calamities or geological surprise in case of hydro generating stations or any reasons beyond the control of the licensee or generating company, the Commission, at its discretion, may allow full or part of such interest to be capitalized.5.6.5Interest on Working Capital. -5.6.5.1- The working capital requirement shall be assessed on normative basis @ 18% on summation of annual fixed charge, fuel cost and power purchase cost reduced by the amount of depreciation, deferred revenue expenditure, return on equity and other non cash expenditures such as, the provision for bad-debt, reserve for unforeseen exigencies, special appropriation against any withheld amount of previous year, arrear on account of adjustment due to Annual Performance Review , FPPCA, etc. of a generating company or a licensee, as the case may be. If there is recovery through Monthly Fuel Cost Adjustment or Monthly Variable Cost Adjustment then for working capital requirement the above normative basis shall be 10% instead of 18%.5.6.5.2- Rate of interest on working capital so assessed on normative basis, shall be equal to the short-term prime lending rate of State Bank of India or adjusted base rate for short term lending as on the 1st April of the year preceding the year for which tariff is proposed to be determined or at the actual rate of borrowing whichever is less.5.6.5.3- In addition to interest on working capital, the licensee shall be allowed interest on cash security deposit taken by it at the rate in terms of the regulations of the Commission on actual basis.5.6.5.4- The Commission may allow, if considered necessary, interest on temporary financial accommodation taken by the generating company / licensee from any source to a reasonable extent of unrealized arrears from the consumers / beneficiaries.5.6.6- For any licensee or a generating company where rental or lease rental charge has been allowed on any of its assets, such asset shall be entitled to depreciation or advance against depreciation to an extent it is reduced by the amount of rental or lease rental charge from the computed depreciation or advance against depreciation in pursuance of these regulations, since the lease and rental charge will be considered separately under these regulations. In case the lease or rental charges is higher than the depreciation or advance against depreciation, such depreciation charge, shall be nil for the asset which is under lease or rental for the period as per the existing agreement of lease or rental. However, if the asset is acquired after the lease, the depreciation for the remaining period may be considered on the basis of book value of the asset as per accounting standard on the date of such acquisition.5.7Operation and Maintenance Expenses. -5.7.1- Operation and Maintenance or O & M expenses include the following :- Repair & Maintenance Expenses (R & M)- Administrative and General Expenses subject to the conditions that for generating station actual expenses may be reduced by Rent and Lease charges where it is required.5.7.2- Administrative and General Expenses will also include the expenditure to be incurred on account of the following heads, viz.,(i)Rent and lease charge for asset,(ii)Legal charges:(iii)Auditor's expenses, which include auditor's fees, auditor's expenses and payment to auditors in any other capacity or for any work which is necessary to be got done from them and audited.(iv)Consultancy charges for work which cannot be done in-house or is uneconomical in doing in-house or is essential to be done from outside sources except payment to Auditors:(v)Other expenses necessary and arising from and ancillary or incidental to the business of electricity except penalty etc. levied under this Act or any other Act;5.7.3- The Commission shall accept Operation and Maintenance Expenditure subject to prudence check and other specific provision on this respect in these regulations.5.8Fuel Cost Determination Principle. -5.8.1- Determination of the Rate of Energy Charge (REC) for thermal generating stations, as well as the projection of fuel cost shall be based on the following considerations :(i)Useful Heat Value of coal / lignite or gas or liquid fuel based on weighted average of actual amount of fuel consumed annually or to be consumed for the year under consideration. In case of coal for each notified grade, the Commission will take the weighted average of UHV of received coal of that grade as per the last available audited data of the generating company or the licensee, as the case may be, for the purpose of REC or Variable Charge computation during tariff determination stage. However, in order to increase coal procurement efficiency, the UHV considered in tariff determination will not be less than "X" Kilo Calorie / Kilogram.Where,X = {∑(UHVgm x CLWT g)}/∑CLWT gWhere;UNVgm = Minimum UHV of each notified grade of coal.CLWT g = Corresponding weight of coal actually consumed or to be consumed annually for the year under consideration for the each notified grade.For FPPCA the actual UHV as per audited report will be considered but generally it shall not be less than 'X' Kilo Calorie/ Kilogram as defined above.However, the Commission may allow lesser UHV in certain case if the generating company or licensee is able to prove through document that inspite of its sincere efforts, it is not possible to receive coal of higher UHV in the same grade.(ii)During tariff determination, the price of each type of fuel for the base year shall be as per the latest declared price of such fuel received from the tariff applicant or from the declared price list of the coal company, subject to modification by the Commission to the extent as decided from the conditions, if any, in fuel purchase agreement between coal company and the licensee or generating company in case of any price revision by the coal supplier after submission of tariff application and if Commission desires so. For the ensuing year the fuel price will be considered after due adjustment on the basis of Compounded Annual Growth Rate in the period covering previous years and base year, subject to application of prudence check wherever required. However, during FPPCA calculation, actual price of fuel will be considered.(iii)In case where coal price from indigenous source is not on the basis of any notified grade as prevalent for determination of administered price for Coal India Limited (CIL) and its subsidiaries, then maximum admissible price will be arrived at after prudence check on the basis of administered price per heat value for coal of same geographical area of supply from. CIL and its subsidiaries. Maximum admissible price per unit of UHV will be computed as follows :Pind = (P admin/UHVi) x 1000Where,Pind = Maximum admissible price per UHV of coal from said indigenous sources in Rs./Gcal.P admin = Administered price of coal in Rs./Ton supplied from same geographical area for CIL & subsidiaries corresponding to the notified grade of CIL coal to which UHV of the said indigenous coal belongs.UHVi = UHV of Coal in Kcal/Kg for the i th year to be determined in the following manner :
