Transcript MPERC Comments on CERC Paper on Terms and Conditions of …

Terms and Conditions
of Tariff
MPERC Comments on CERC Discussion Paper
Madhya Pradesh Electricity Regulatory Commission
In this presentation
Market Development
– Transmission and wheeling charges for Transmission Lines
– Transmission and wheeling charges for Inter-regional Lines
Tariff Setting
– Rate of return methodology
– Depreciation
– Development Surcharge
– Rate base
– Interest on working capital
– Operational norms
Other Discussion Points
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Market Development
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Market Development
Transmission and Wheeling Charges
Pan Caking (2.3.3.2)
 Definition: Term used to describe stacking up
of charges in a transmission system due to
repeated application of charges for different
regions
 Implications
– Increase in the landed cost of power
– Discouragement to inter regional
exchange of power
 Comments
– Open Access mechanism of Regional
Incremental Postage Stamp
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 Mechanism of charging
– Original Beneficiaries cover full cost
– Reimbursed by income from Open
Access Charges and from Traded Power
 Comments
– Expansion of network should be done on
the basis of a Long-Term Transmission
Capacity Demand Forecast (Example: 7Year Plan in UK)
– Commission must regulate the level of
investment by CTU / STU and ensure
that it is at a certain margin above strictly
required.
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Market Development
Transmission and Wheeling Charges for Inter-Regional Lines
Charging of Fixed Costs
 Present system of sharing of costs of Interregional assets is 50:50 between Regions.
 Method of charging should be changed to
allocated usage basis.
– Provisional fixed costs may be charged
based on Allocation of Capacity in
Agreement between CTU and
Beneficiaries
– Adjustments to be made at the month-end
based on actual allocation. These
adjustments may be billed in next months
bill
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Sharing of Income from Open Access /
Traded Power
 Should be adjusted on a monthly basis
 Should be returned to Firm Users in the
proportion of costs paid in that month
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Tariff Setting
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Tariff Setting
Rate of Return
Existing methodology
ROCE, ROE and Return on Debt
 Cost-plus approach
 ROE:
– Interest rates have reduced
– Escrows and LC’s are established
– Suggestion: Government Bond Return + 5% =
say 11%
Options
 ROE
– Return to equity investment is measured
 ROCE (= ROI)
– Return on total investment is measured
– Measured against WACC
– Incentive for optimization by financial
engineering / refinancing – incentive to
investors
– No FERV
– Beneficial to consumers
 ROCE may be adopted
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 Margin to cover:
– Risk premium
– Investment incentive
 Return on Debt @ PLR
 Normative Debt Equity Ratio: 80:20
 ROCE = 11*80/100 + 11*20/100 = 11%
 Annual revision, retrospective-forward
compensation or through VCA
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Tariff Setting
Depreciation, Development Surcharge
Depreciation
Development Surcharge
 Purpose of depreciation
– Wear and tear
– Repayment of loan
 There should not be any such surcharge on the
beneficiaries for the purpose of creation of corpus
for investment in generation
 Comments
– Allow to explicitly charge loan repayment
– After full loan repayment, balance
depreciation may be charged on SLM till
useful life of the plant
– Develop norms for loan repayment
 Reasonable return is being provided
– Rate = PLR
– Term of loan = Moratorium +
Minimum 10 years
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– Buyers must be protected by ensuring term of
PPA is for the fair life of the plant. If such an
assurance is not given, then depreciate at the
current rates
 Instead, a Developmental Charge may be levied
for a "Universal Service Obligation" Fund
 USO Fund can be used for improving access to
all
– Rural electrification programs
– Promotion to non-conventional sources
– Off-grid generation
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Tariff Setting
Rate Base, Interest on Working Capital
Rate Base
Interest on Working Capital
 Asset-side NFA approach
 Allow interest portion as pass-through on net
Normative Working Capital
Initial Capital Expenditure
 Initial Capex:
– In case a prior order exists: As per the order
– In case prior order does not exist: Should be
determined by competitive bidding.
 Net of working capital may be derived after
deduction of fuel costs
 Norms must be developed by the CERC / CEA for
setting up of projects for quality of equipment,
costs, gestation, competitive bidding processes for
EPC etc
 Additional Capex:
– Allow subject to prior approval by the CERC
– Or, norms may be developed for this
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Tariff Setting
Operating Norms
Operating Norms
Generation – Gross Calorific Value
 Define operational norms; this should consider
technology in place, inflation, age of the plant /
equipment
 Price of coal is notified based on UHV and coal
consumed is determined based on GCV
Operation and Maintenance Expenses
 There is a need of fixing norms for linking UHV with
GCV.
 Pass-through on actuals subject to a limit as a
percentage of capital costs
 Norms for stacking and transit losses should also be
fixed based on transport mode and distance
 Allow a portion of the savings to be retained
Generation – Specific Oil Consumption
Generation – SHR
 Norms should be reduced to 2 ml/kwh from the
current 3.5 ml/kwh if the target PLF is above
normative
 Should be linked with guaranteed heat rate. A
reasonable margin should be provided above this
which should keep in view the age of the plant
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 At low PLF Specific Oil Consumption is higher to
keep the furnace stable. Higher Sp.oil consumption
can be allowed at low targeted PLF
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Other Issues
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Other Issues
Tariff Period
Peak and Off-peak Tariff for Hydel
 MPERC suggestion
– 5-year period, which is a business planning
cycle
– May be reviewed before in case of drastic
change
 MPERC suggestion
– Apply to depreciated hydel plants for peak
period
– Off-peak tariff need not be changed
– Surplus income may be paid into a "Universal
Service Obligation" fund for to provide access
to all
Declared Capacity
 Current Definition / Analysis
– One MWh ex-bus capacity
– Scheduling is on MW basis
 MPERC suggestion
– Change definition to MW basis
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Single Regional Tariff
 MPERC’s views
– Promotes generation from lower cost stations,
since they now earn more, but an expensive
generator will not generate
– Not recommended
– Individual tariff setting is preferable
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Other Issues
Auxiliary Consumption
 Current
AxC =
[Σ KWH Generator terminal –
Σ KWH delivered at station switchyard]
[Σ Gross generator terminal]
 Proposed
AxC =
[Σ KWH Generator terminal –
NET Σ KWH exported ex-bus]
[Σ Gross generator terminal]
 MPERC suggestion
– Do not adopt the proposed change. A change
will result in beneficiaries bearing the cost of
losses between switchyard and bus
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Madhya Pradesh Electricity Regulatory Commission
MPERC
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Pan caking
TC = 10
Rourkela
WC = 12.5
212.5
200
Exportin
g Region
Raipur
ER
TC = 10
Chandrapur
TC = 10
WC = 12.5
Ramagundam
TNEB
SR
242.5
255
Selling price = 200 P/U
Landed cost = 255 P/U
Thus, pan caking is a major disincentive to inter regional sale
Numbers are purely for the purpose of illustrating the concept and may not be correct
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Transmission / OA Charges
Inter-Regional Lines
Units
Monthly Charge
Crores 100
Allocated usage
MU
Ratio
Charge
Crores
Open Access Income Crores 20
Refund / Adjustment Crores
Net Cost
Crores
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East-West Link
East Zone Users
E1
E2
E3
E4
800
8%
8.0
500
5%
5.0
700 1,000
7%
10%
7.0
10.0
1.6
6.4
1.0
4.0
1.4
5.6
2.0
8.0
West Zone Users
W1
W2
W3
W4
Total
1,200 1,600 2,400 1,800
12%
16%
24%
18%
12.0
16.0
24.0
18.0
10,000
100%
100
2.4
9.6
3.2
12.8
4.8
19.2
3.6
14.4
20
80
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Tariff Setting
Operating Norms
Grade
A
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UHV (Kcal/Kg) Ash + Moisture
Range
Range
> 6200
Upto 19.6
GCV Kcal/Kg
@ 5% Moisture @ 7% Moisture
> 6450
> 6350
B
6200 – 5600
19.6 – 23.9
6049 – 6454
5940 – 6360
C
4950 – 5600
23.9 – 28.7
5597 – 6049
5490 – 5940
D
4200 – 4940
28.7 – 34.1
5089 – 5597
4990 – 5490
E
3360 – 4200
34.1 – 40.1
4524 – 5089
4400 – 4990
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