Tariff for

Transmission System
its
Sharing Among Beneficiaries
and
Revenue Management

By Rakesh Prasad, B.E.

DGM (Commercial), POWERGRID
 TOPICS
• ELECTRICITY ACT, 2003
• NATIONAL ELECTRICITY POLICY, 2005
• TARIFF POLICY, 2006
• TARIFF DETERMINATION PROCESS
• CERC REGULATION, 2004
• TARIFF COMPONENTS
• SHARING OF TRANSMISSION CHARGES
• IMPORTANT ISSUES IN TRANSMISSION
• GLIMPSE OF CERC REGULATION, 2009
• REVENUE MANAGEMENT
 ELECTRICITY ACT, 2003
• SEC-3 (NATIONAL ELECTRICITY POLICY & TARIFF POLICY)
– CENTRAL GOVT. TO FORMULATE THE NATIONAL ELECTRICITY
POLICY AND TARIFF POLICY
– REVISE THE SAME FROM TIME TO TIME IN CONSULTAION WITH
CEA
– FOR DEVELOPMENT OF POWER SYSTEM BASED ON OPTIMAL
UTILISATION OF RESOURCES

• SEC-12-14 (LICENSING)
– LICENSING OF TRANSMISSION, DISTRIBUTION AND TRADING OF
ELECTRICITY BY REGULATORY COMMISSION

• SEC-25-29 (INTER STATE TRANSMISSION)

– CENTRAL GOVT. TO DEMARCATE ELECTRICAL REGIONS WITHIN
COUNTRY FOR EFFICIENT, ECONOMICAL AND INTEGRATED
TRANSMISSION
– FACILITATE INTER-STATE, REGIONAL AND INTER-REGIONAL
GENERATION AND TRANSMISSION OF ELECTRICITY
– FORMATION AND FUNCTIONING OF NLDC & RLDC
 ELECTRICITY ACT, 2003
• SEC-61 (TARIFF REGULATIONS)
– CENTRAL COMMISSION TO SPECIIFY TERMS AND CONDITIONS
OF TARIFF

• SEC-62 (DETERMINATION OF TARIFF)

– FOR GENERATION, TRANSMISSION, WHEELING & SALE OF
ELECTRICITY

• SEC-64 (PROCEDURE FOR TARIFF ORDER)

– APPLICATION BY UTILITY
– PUBLISHING IN NEW PAPER
– SUGESTIONS/ OBJECTIONS TO BE CONSIDERED BY
REGULATORY COMMISSION

• SEC-79 (FUNCTIONS OF CERC)

– TO DETERMINE THE TARIFF OF ISTS -- 79(D)

• SEC-111 (APPEAL TO APPELLATE TRIBUNAL)

 NATIONAL ELECTRICITY
POLICY, 2005
AIMS & OBJECTIVES (SEC-2.0)

• ACCESS OF ELECTRICTY TO ALL IN NEXT 5 YRS

• AVAILABILITY OF POWER TO ALL BY 2012

• SUPPLY OF RELIABLE AND QUALITY POWER

• PROTECTION OF CONSUMER INTEREST

NATIONAL ELECTRICITY PLAN (SEC-3.0)

• CEA TO PREPARE SHORT TERM (5 YRS) AND LONG TERM (15 YRS)
PLANS
NATIONAL ELECTRICITY POLICY, 2005

TRANSMISSION (SEC-5.3)

• ADEQUATE AUGMENTATION IN TRANSMISSION CAPACITY

• CTU+STU TO DO NETWORK PLANNING DEVELOPMENT BASED ON

NATIONAL ELECTRICITY PLAN

• CTU TO HAVE RESPONSIBILITY OF NATIONAL AND REGIONAL

TRANSMISSION SYSTEM PLANNING AND DEVELOPMENT

• NETWORK EXPANSION TO KEEP OPEN ACCESS IN VIEW

• PRIOR AGREEMENT WITH BENEFICIERIES NOT A PRE-CONDITION

FOR NETWORK EXPANSION BUT IN CONSULTATION WITH STAKE
HOLDERS & REGULATORY AUTHORITY

• CAPACITY TO CATER TO BOTH REDUNDANCY AND MARGINS IN

LINE WITH INTERNATIONAL STANDARD AND PRACTICES
NATIONAL ELECTRICITY POLICY, 2005
TRANSMISSION (SEC-5.3- CONTD.)

• TECHNOLOGY DEVELOPMENT AND R&D FOR HIGH VOLTAGE

POWER FLOW OVER LONG DISTANCES WITH MINIMUM LOSSES
AND CONTROL FOR TRANSMISSION OPERATIONS

• NATIONAL TRANSMISSION TARIFF FRAMEWORK NEEDED AND

TARIFF TO BE SENSITIVE TO DISTANCE, DIRECTION AND
QUANTUM OF FLOW(5.3.5)

• INDEPENDENT SYSTEM OPERATION THROUGH NLDC, RLDC &

SLDC

• RPCs TO BE CONSTITUTED

• PRIVATE INVESTMENT IN TRANSMISSION SECTOR TO BE

ENCOURAGED
 TARIFF POLICY, 2006
SALIENT FEATURES OF TARIFF POLICY, 2006

• The Central Commission may adopt either Return on Equity

approach or Return on Capital approach whichever is considered
better in the interest of the consumers.

• The rates of depreciation would be applicable for the purpose of

tariffs as well as accounting.

• There should be no need for any advance against depreciation.

• Savings in costs on account of subsequent restructuring of debt

should be suitably incentivised by the Regulatory Commissions
keeping in view the interests of the consumers.

• Foreign exchange variation risk shall not be a pass through and

Appropriate costs of hedging and swapping to take care of
foreign exchange variations
 TARIFF POLICY, 2006
SALIENT FEATURES OF TARIFF POLICY, 2006 (contd.)

• The operating parameters in tariffs should be at “normative

levels” only and not at “lower of normative and actuals”.

• National tariff framework should be sensitive to distance,

direction and related to quantum of power flow.

• Such tariff mechanism should be implemented by 1st April 2006.

• Transmission charges can be determined on

– MW per circuit kilometer basis,
– zonal postage stamp basis,
– or some other pragmatic variant,

• MULTI YEAR TARIFF

• BENEFITS OF CLEAN DEVELOPMENT MECHANISMS (CDM)

 TARIFF POLICY, 2006
SALIENT FEATURES OF TARIFF POLICY, 2006 (contd.)

• In view of the approach laid down by the NEP, prior agreement

with the beneficiaries would not be a pre-condition for network
expansion.

• CTU/STU should undertake network expansion after identifying

the requirements in consonance with the National Electricity Plan
and in consultation with stakeholders, and taking up the
execution after due regulatory approvals.

• Investment by transmission developer other than CTU/STU would

be invited through competitive bids.

• The tariff of the projects to be developed by CTU/STU would also

be determined on the basis of competitive bidding after five
years or when the Regulatory Commission is satisfied that the
situation is right to introduce such competition.
 TARIFF POLICY, 2006
SALIENT FEATURES OF TARIFF POLICY, 2006 (contd.)

• It would be desirable to move to a system of loss compensation

based on incremental losses.

• CERC to permit adequate capital investments in new assets for

upgrading the transmission system.

• Financial incentives and disincentives should be implemented

for the CTU/STU around the key performance indicators (KPI) for
these organisations.

• All available information should be shared with intending users

by the CTU/STU and the load dispatch centers, particularly
information on available transmission capacity and load flow
studies.
TARIFF DETERMINATION PROCESS
HISTORY (PRIOR TO 2001)
• After Commercial operation of assets:

- Cost data and Tariff calculations were sent to CEA

- Tariff was notified by MOP
- Provisional billing was done by consent at the REB
forum

The rules of the game changed after

enactment of EA-03 and formation of CERC12
 TARIFF DETERMINATION PROCESS

• Tariff is set at a level intended to compensate the

licensee for the construction of the project and for
operating the project thereafter.

• The process by which a tariff is set is public and follows

established procedures, and interested parties can
challenge the level of tariff we seek.

• CERC issues a tariff order, which stipulates an annual

transmission charge (“ATC”) that may be levied in the
relevant region each year for a predetermined block of time.
13
 CERC (Terms & Conditions of Tariff)
Regulations,2004
* Applicable from 01.04.2004 to
31.03.2009

* Prescribes the norms for determination

of tariff for thermal & hydro power
generating stations and interstate
transmission

* Historical Cost plus based Normative

Tariff:
– Fixed Charges primarily on
Historical Cost Base 14
 TARIFF COMPONENTS

* Return on Equity
* Interest on Loan
* Depreciation
* Advance against Depreciation
* Operation & Maintenance Expenses
* Interest on working capital
- O&M Expense
- Maintenance spares
- Receivables
15
 Return on Equity & Interest on Loan

• ROE @ 14% per annum

• Interest On Loan
Interest rate is on actual basis.
Loan repayment-normative basis.
Swapping of loan allowed, as long as it results in net
benefit to the customers. The associated cost shall be
borne by the customers.

16
 DEPRECIATION
• Straight line method based on the
technical life of the assets recoverable
upto 90 % of the value of the asset

• During the moratorium period of the loan,

the normative depreciation charged is
considered to go towards payment on the
loan in that period. Upon repayment of the
entire loan, the remaining depreciable
value of the relevant assets is spread over
the balance of the useful life of assets.
17
ADVANCE AGAINST DEPRECIATION
• AAD is to facilitate loan repayments.

• The advance is calculated assuming a 10-year loan

repayment schedule. The maximum amount we can
charge under AAD is the lower of the following:
Actual loan repaid during the year minus depreciation
charged during that particular year; or
One tenth of the original loan amount minus
depreciation charged during that particular year;

18
OPERATION AND MAINTENANCE EXPENSES
- Transmission
• All India O&M expenses per Ckt km & per Bay has
been derived by CERC on the basis of past five years
Actual O&M for WR, NR, SR & ER.

Rs. In lakhs
2004-05 2005-06 2006-07 2007-08 2008-
09

O&M expenses in 0.227 0.236 0.246 0.255 0.266

lakh per ckt.Km.

O&M expenses 28.12 29.25 30.42 31.63 32.90

(Rs.in lakh per
bay)
19
 INTEREST ON WORKING CAPITAL

• Working Capital consists of:

1 month O&M
Maintenance spares@ 1% of the historical cost
2 months receivables.

• Rate of IOWC= short term Prime Lending rate of SBI as

on 1.4.2004 or on 1st April of the year of the project or
part thereof.

20
 INCOME TAX & FERV

• Reimbursement of income tax as per actual- for core

business only.

• Reimbursement for FERV for offshore borrowings,

recoverable on a year-to-year basis on actuals in
respect of payment of interest & principal.

21
 INCENTIVE
• Incentive for Transmission
= Equity x (Annual availability achieved- Target
Availability)
Target Availability
Where Normative Availability for
AC system = 98%
HVDC system= 95%

In case of Annual Availability is below

Normative Availability the prorata tariff shall
be charged.
22
 DETAILS REQUIRED FOR FILING TARIFF PETITIONS

 ESTIMATED COMPLETION COST DULY CERTIFIED

BY AUDITOR’S

 REASONS FOR VARIATION IN COST, UPWARD OR

DOWNWARD, W.R.T.APPROVED COST ALONGWITH
FULL JUSTIFICATION AND DOCUMENTARY PROOF

 REASONS FOR VARIATION IN COMPLETION DATE

(ADVANCE/DELAY) W.R.T.APPROVED TIME
SCHEDULE ALONGWITH FULL JUSTIFICATION AND
DOCUMENTARY PROOF.

23
DETAILS REQUIRED FOR FILING TARIFF
PETITIONS

 IN CASE OF DELAY, IF DELAY IS NOT

ATTRIBUTABLE TO POWERGRID, WHETHER
LD HAS BEEN IMPOSED. IF YES, THEN
AMOUNT BE INDICATED AND IF NOT THEN
FULL JUSTIFICATON BE GIVEN

 IN CASE OF VARIATION OF COST PER CKM

OF LINE W.R.T.THAT AS PER APPROVED
COST THE REASONS FOR THE SAME
ALONGWITH MAPS AND NECESSARY
DOCUMENTS
24
 SAMPLE CALCULATION OF TARIFF
• CAPITAL COST OF THE PROJECT : Rs 100 Crs
• LOAN : Rs 70 Crs
• EQUITY : Rs 30 Crs
• RATE OF INTEREST ON LOAN : 8% PA
• Tariff P/A (2008-09)

• IOL : 70 x 0.08 = 5.60 Crs

• ROE : 30 x 0.14 = 4.20 Crs
• DEPRECIATION : 100 x 0.0297 = 2.97 Crs
• O&M : 276 x 0.266 = 73.42 Lakhs (for 276 ckt kms Line)
: 2 x 32.90 = 65.80 Lakhs ( for 2 bays)
TOTAL O&M : 73.42+65.80 = 139.22 LAKHS
 : 1.39 Crs
 IOWC : 10%

25
 CALCULATION OF TARIFF
• WC : 4.02 Crs
i) Two months receivables : 2.90 Crs
ii) One month O&M : 0.12 Crs
iii) 1% of capital cost as spares: 1.00 Crs
 IOWC : 4.02 x .10=0.40 Crs
 AAD : 5.83 -2.97= 2.86 Crs
Repayment of loan @ 5.83 Crs per annum in 12 yrs
 TOTAL ANNUAL TARIFF : 17.42 Crs

26
Process of Determination of Tariff

Petitioner Respondents

Arguments
CERC

Order Review Petition

Appeal in High Court/

Appellate Tribunal

27
 SHARING OF
TRANSMISSION
CHARGES AMONG
VARIOUS BANEFICIARIES

28
 SHARING
• The commercial pooling of the new ATS with the
existing regional ISTS shall be possible if all the
regional beneficiaries agree on it
• Sharing of tr. Charges for new ATS which are
not agreed to be pooled shall be as agreed
between the transmission owner and the
beneficiaries
• ATS for UMPP: tr charges for one part of the
ATS shared by respective UMPP beneficiaries
and for remaining part be pooled with existing
regional system
29
 SHARING: Intra-Regional
• In case of more than one longterm transmission
customer of the regional transmission system,
the transmission charges leviable on each long-
term transmission customer shall be computed
in accordance with the following formula:

n
• =Σ TCi _ TRSC X CL
i=1 12 SCL
30
 SHARING: Intra-Regional
• TCi = Annual Transmission Charges for the ith project in
the region.
• n = Number of projects in the region
• ARSC = Adjustable part of the recovery of transmission
charges for the month from Short-term transmission
customers for the regional transmission system
• CL = Allotted Transmission Capacity to the long-term
transmission customer
• SCL = Sum of the Allotted Transmission Capacities to all
the long-term transmission customers of the regional
transmission system

31
 SHARING: Inter-Regional
• After deducting the recovery from the short term
customers, the transmission charges for the existing
regional ISTS, including the step down transformers and
downstream system shall be pooled and shared by the
regional beneficiaries as per existing practice.
• The step down transformers and down stream systems
presently in commercial operation shall continue on
pooled basis as presently agreed and in vogue.
• The step down transformers and down stream systems
yet to be brought under commercial operation shall be
payable only by the beneficiary directly served.

32
 SHARING: Inter-Regional
(w.e.f. 01-04-2008)
Between Shared by
ER to NER 50:50
ER to NR 100% by NR

ER to SR 100% by SR

ER to WR 100% by WR

WR to SR 50:50

NR to WR 50:50
33
GLIMPSE OF CERC REGULATION, 2009
* Return on Equity
* 15.5% +0.5% (TIMELY COMPLETION) -- BASE RATE
* Rate of pre-tax ROE=Base rate/ (1-t) =17.48% (pre-tax)
* t= 11.33% (MAT)
* Interest on Loan
* AS PER ACTUALS
* Benefits of refinancing to be passed on in the ratio of 2:1
(Beneficiary : Utility)
* Depreciation & Advance against
Depreciation
* Bldg.- 3.34%; TL/ SS - 5.28%; PLCC – 6.33%
* After 12 years remaining depreciation spread in remaining useful
life
* AAD DISCONTINUED
GLIMPSE OF CERC REGULATION, 2009
* Operation & Maintenance Expenses
* Normative rates on yearly basis in Terms of Voltage profile for
SS and for TL as per route Km and conductor configuration
* All India Basis
* HVDC norm defined in terms of Rs in lakhs per 500 MW
* Interest on working capital
* O&M Expense (1 month)
* Receivables (2 months)
* Maintenance spares (@ 15% of O&M Exp.)
* Incentive
* Incentive is calculated as % of Tariff.
* PARAMETERS: AC - 98%; HVDC B/B - 95%; Bi-pole - 92%
36