VIEWS OF GRIDCO ON CERC DISCUSSION PAPER ON TERMS & CONDITIONS OF TARIFF

Dt. 11-11-2003

Presented By: -

GRIDCO,ORISSA

iv) v) vi)

State Electricity Boards (SEB’s) were forced to be sick partly due to the following reasons: -

i) Introduction of accelerated rate of depreciation.

ii) iii) Increase in Return on Equity from 12% to 16% on Debt Equity Ratio of 50:50 for ISGS.

Allowing higher norm for Specific Fuel oil consumption, Heat Rate and Auxiliary Consumption. Higher incentive including deemed generation.

Fixation of normative PLF far below from the capacity. Income Tax burden including income tax on notional interest.

State Electricity Utilities can survive if the following aspects are addressed: -

i) Pre-92 rate of Depreciation may be allowed instead of Accelerated rate of Depreciation, i.e, the Depreciation may be on linear basis. ii) Return on Equity (ROE) may be allowed @ 11% Pre-Tax. iii) For Specific Fuel oil consumption, Heat Rate and Auxiliary Consumption, the actual Consumption or Ceiling Norm, which ever is lower may be passed on to Tariff. iv) Incentive may be allowed beyond 85% PLF.

v) Swapping of Costlier Loan may be done with in a year.

1.0

Debt Equity Ratio CERC Discussion Paper

Broadly, a debt- equity ratio of 80:20 is generally preferable.

However, in order to ensure a smooth change over, perhaps it would be advisable to adopt a normative debt equity of 70:30.

Views of GRIDCO

Gridco propose to consider Notional debt equity ratio of 80:20 for New Projects instead of 70:30 as proposed in the CERC Discussion Paper. However, 70:30 normative debt equity ratio may be considered for Old Projects.

2.0

ROE / ROCE CERC Discussion Paper

It can be considered if this could be an appropriate time to switch over from ROE to ROCE in view of the fact that the interest rate are stabilising.

CERC assured to allow 16% ROE in its order dtd. 21.12.2000 in para 2.6. Now suggested for debate for consideration whether it would be advisable to disturb the existing ROE.

Suggested for debate whether to consider the present PLR for computation of ROCE (for debt portion only).

Rate base for computation of ROCE is suggested for debate.

Views of GRIDCO ROCE is preferred provided the followings are considered

: (1) ROCE is on Net Fixed Assets (NFA) in each year instead of Gross .

(2) ROCE may be determined on assumption of: i.

11% Pre - Tax for equity portion (30%). (Based on Bank Rate) ii.

Concessional Loan Assistance Funded from ADB, World Bank etc.

iii. Swapping of debt other than concessional loan assistance.

Alternatively

(I) 12% Pre-Tax on ROE (30%) or (20%) for Old & New Plants (ii) Interest on loan based on Net balance after Schedule /Normative repayment (iii) Actual rate/Normative rate based on SBI PLR.

3.0

Depreciation CERC DISCUSSION PAPER

Whether Depreciation is to be linked with Loan Repayment Whether Depreciation (Non Cash Exp) is necessary for a Cost based Tariff.

Whether liberal Depreciation would need to be deliberately provided.

Views of GRIDCO

 Pre-1992 rate of Depreciation may be allowed.

Advance Depreciation may be paid for loan repayment subject to the condition that: (i) Depreciation + Advance Depreciation shall not in any year exceed 1/10 th of the actual / Normative loan amount.

(ii) (iii) (iv) Cumulative Depreciation + Advance Depreciation should not exceed cumulative actual / normative loan repayment In case the Cumulative depreciation exceeds normative loan 70% or 80% for old & new plants respectively then the same may be reduced from the normative ROE.

Depreciation as per Companies Accounts may not be allowed in the Tariff as the tariff is based on normative.

4.0

Interest on Loan CERC Discussion Paper -

CERC concluded that the Cost of Capital Approach is preferable - Debt portion of Capital Employed is to be paid at Bank PLR.

- Capital Base is to be debated.

Views of GRIDCO

- Cost of Capital approach is preferred on Net Fixed Assets.

- SBI PLR may be considered for Debt Portion and 11% pre-Tax may be considered for Equity Portion.

Alternatively

(I) Interest on loan based on average Net balance after Schedule /Normative repayment (iii) Actual rate/Normative rate based on SBI PLR.

5.0

Operation and Maintenance Expenses CERC Discussion Paper

Whether it would be advisable to move away from to “Normative” system.

“Actual“ 

Views of GRIDCO

Prudence of actual expenditure is difficult to be tested.

 There is wide variation in expenditure towards O&M from plant to plant.

 GRIDCO propose that the O&M charges should be restricted to 2.5%, 1.5% & 1.5% of the Actual Capital Cost approved by the authority instead of past 5 years average at actual for Thermal Stations, Hydro Stations and Transmission systems respectively.

 The derived figure may be escalated as per the formula for WPI and CPI arrived at by the Commission.

6.0

  

Interest on Working Capital CERC Discussion Paper

Whether the ROCE needs to be increased suitably to take care of the additional cash flows which may be necessary for the actual operation of the project.

Views of GRIDCO

Gridco propose to allow interest on net working capital instead of gross working capital i.e the credit given by the suppliers should be deducted from the working capital value.

The rate of interest may be linked with working capital finance available with PFC to NTPC instead of linking to PLR.

Margin money deduction from working capital should be discouraged to avoid return on equity on the margin money.

   The base interest rate for working capital may be fixed for the Tariff period, in case there is a increase or decrease in interest rate, the same may be passed on to the beneficiary like FPA.

Salary/ Wages may be excluded from Operation and Maintenance Expenses for the purpose of computation of working capital as the Salary and Wages due for payment is being paid after the completion of the month.

Thirty days stock of Secondary Fuel Oil may be allowed instead sixty days under the present improved Transportation and communication link .

of

7.0

Incentive CERC Discussion Paper

An alternative approach is to be debated which could be delink incentive totally from the fixed cost and providing incentive for generation above target PLF at a flat rate (Paise/kWh), which is attractive to the generators and fare to beneficiaries.

Views of GRIDCO Thermal

Flat Rate at a reasonable rate beyond the normative PLF of 85% to all thermal station may be fixed.

Gridco propose to consider 3.0 paise per every rise of 1% Availability over & above the normative availability of 85% instead of linking the same to ROE. If the incentive is linked to ROE then the New plant shall get more incentive than the old plant.

HYDRO STATION

It has been proposed to determine the incentive payment calculated on the following formula.

Actual Peak time Generation x (Incentive Rate in Rs./kWh) x (CI A -CI N )/100 It may be difficult to recommend a uniform incentive rate for all hydro stations (Old & New), having different operating conditions.

As ROE is paid to achieve normative Capacity Index (CI), GRIDCO proposes the following formula Incentive = ROE X(CI A -CI N )/ CI N However the Capacity Index should be 90% and 88% for ROR or Storage Plants respectively for computation of Incentive.

INTER STATE TRANSMISSION

Incentive for Transmission system may be linked with ROE based on the following formulae.

Incentive = ROE X(Actual Availability - Normative Availability )/ Normative Availability. However the incentive over 99.75% Availability may not be allowed. The Commission should fix a Normative loss in transmission system. In case of loss exceeding the normative loss, the incentive should be reduced in the same proportion.

Income Tax on Incentive may be borne by the Generators / CTU.

Views of GRIDCO on other aspects 8.0

Variable Cost

The Generator may provide the required information as per the CERC format no. 13, 13A,14 & 14A in the respective month to the beneficiary along with the reasons for change in cost. The ratio of F.O. and L.D.O. should be specified for fuel consumption.

Normative percentage of loss of coal & oil may be fixed instead of allowing the actual loss. Any insurance benefit covering against abnormal loss to be passed on to Tariff in FPA.

9.0

10.0

11.0

12.0

13.0

14.0

Target Availability and target PLF may be same at 85%.

Colony Consumption may be excluded from Auxiliary Consumption.

Station wise tariff may be computed instead of region wise.

LPS @ 1.00% (simple) may be allowed rather than 1.5% under the existing norm notification dtd. 26.03.01.

Income Tax element may be eliminated as ROE before tax may be allowed.

Peak, Off-peak tariff may be ignored for Generation.

15.0

16.0

17.0

Development Surcharge may be eliminated.

Long term tariff (for 3 years) may be considered.

Terms and Conditions of Tariff under the new policy may also be applicable to the existing PPA’s.

Present Bank Rate may be considered for fixation of ROE / ROCE.

18.0

19.0

20.0

21.0

22.0

Transformation loss for Thermal Generating Station may be determined.

Normative Transmission Loss in % may be specified for CTU.

O&M expenses for transmission system may be computed separately for lines and substations based on the norms instead of actual expenses for last 5 years.

ERL / FERV may be on account of Generators / CTU if ROCE is allowed.

23.0 FERV may be allowed as Bullet payment instead of capitalizing the same as the FERV is directly linked with Debt only. Alternatively the same may be linked with Hedging tools.

24.0

Commitment Charges for non Drawal of Scheduled loan may not be allowed in Tariff. 25.0

Reduced Guarantee Fees may be passed on to tariff after deducting the actual repayment.

TARIFF STRUCTURE

1.0

2.0 3.0

(THERMAL)

Debt Equity Ratio ROCE Interest on Loan:-

CERC PROPOSAL

80:20 / 70:30

GRIDCO Views

80 :20 New Plant 70:30 Old Plant 13% on (NFA)11% on (NFA) (Pre- Tax) (Pre –Tax) Included in ROCE To be included in ROCE.

4.0 Depreciation 5.0

O & M Exp.

At actual cash out flow for repayment of debt.

At actual/Norm cash out flow for Repayment of debt.

Normative Normative.

CERC GRIDCO

6.0 7.0 8.0

9.0 10.0 11.0 Int. on W.Cap

may be Included in ROCE INCENTIVE (a) Thermal (b) Hydro Flat rate Linked to Peak-time generation INCOME TAX Generator A/c. TARGET PLF Operational Norm 80% SEB’s to provide may be included in ROCE. Flat rate ROE based on higher availability Generator A/c.

FERV Generator A/c. Generator A/c.

85% CERC is to determine from the data collected from NTPC as per assurance given under Cl. 5.5.3 of CERC order dated 21-12-2000 on Tariff Norms.

VIEWS OF GRIDCO FOR OPERATING NORM

Operating Norm for different capacity may be fixed.

(i) Aux. Cons.

to Generation.

(ii) Heat Rate (Kcal/kWh) (iii) Specific Oil Consumption (Ml./ kWh)

upto 60

10.0% 2700 2.5

61 MW to MW 110MW

9.0% 2600 2.0

111 MW to 251 MW to 250 MW 500 MW

8.0% 7.0% 2400 1.5 2300 1.0

Information to the actual variable cost to be furnished to beneficiary in each month in the prescribed format of CERC(13,13A,14,14A)

VARIABLE CHARGES

• Landed Cost of Coal and Oil may be fixed based on the Existing price Circular of Coal & Oil Authorities instead of depending on the audited report of the Generator as it is very much relevant in the present improved Communication Link. However the Monthly FPA Formulae may be prescribed. • Information to the actual variable cost to be furnished to the beneficiaries in each month in the prescribed format of CERC (13,13A,14,14A) The reasons of increase / decrease in landed Cost of Coal & Oil may be outlined with the certified Copy of the Price Circular.

PERFORMANCE OF IB THERMAL POWER STATION (2x210) MW YEAR GENERATI ON (MU) PLF (%) SPECIFIC COAL CONSUMPTI ON (Kg/kWh) (Kcal/kg.) SPECIFIC OIL COAL GCV CONSUMPTI ON (Ml./kWh) Station Heat Rate (Kcal/kW h) 1998-1999

2804

1999-2000

3166 76.21% 85.82% 0.88

0.86

2749.08

2816.79

1.74

1.21

2436.59

2434.539

2000-2001

3001 81.58% 0.85

2730.43

1.43

2335.166

2001-2002

2599 70.64% 0.84

2709.23

1.52

Presently IB Thermal is operating at 88% PLF. GCV of oil is 10,000 Kcal/KL

2290.953