ANNUAL REVENUE REQUIREMENT & TARIFF APPLICATION

Transcription

1 ANNUAL REVENUE REQUIREMENT & TARIFF APPLICATION FY & FY Uttar Pradesh Power Transmission Corporation Limited UP TransCo LUCKNOW MARCH 2011

2 Table of Contents 1 Introduction U P Power Transmission Corporation Limited (UPPTCL) Transmission Tariff Regulations: ARR Petition FY : Public Notice of the Petition Public Hearing Tariff Order FY ARR FY & FY : UP Power Transmission Corporation Limited: Existing Transmission System - a preview: Interconnections and Northern Region Load Dispatch Centre (NRLDC) Availability of Lines Load Levels Bulk Transmission System Flows: Performance Analysis of ARR FY Filing: Comparison of Approved Cost and Actual Figures: Demand Forecast-Tariff Order and Actual FY ( ): Expense items- Approved and Actual: Investments: Proposal for Ensuing Years: Normal Development Works: Transmission Works in NCR Renovation and Modernization Augmentation of Transmission System Due To RE Works Compliance of UPERC Directives: Power Wheeling & Demand: Losses external to UPPTCL system: Annual Revenue Requirement: FY & FY ARR - FY & FY Escalation Index/Inflation Rate Operation & Maintenance Expenses O&M Expenses on Addition to Assets during the Year Employee Costs Administration and General (A&G) Expenses: Gross Fixed Assets (GFA) Balances and Capital Formation Assumptions Repair and Maintenance (R&M) Expenses Depreciation Expense Interest and Financing costs Other Income Reasonable return/ Return on Equity...48 Uttar Pradesh Power Transmission Corporation: TransCo Page ii

3 5.12 Provision for Bad and Doubtful Debts Service tax Revised Transmission Tariff for FY & FY : UPPTCL ARR Proposed Transmission Tariff Derivation of Tariff SLDC Charges...54 Uttar Pradesh Power Transmission Corporation: TransCo Page iii

4 List of Tables Table 2-1: Generation Capacity FY 2010-FY 2012:...16 Table 2-2: Total existing Sub-Stations:...17 Table 2-3: Total existing Lines (Circuit Km)...17 Table 2-4: Yearly System Peak in MW...18 Table 2-5: Table 3-1: Monthly System Peak for current Year (MW)...19 Approved and Actual FY : Energy Demand (MU)...20 Table 3-2: Approved and Actual ARR FY 2010, Expense Items (Rs Crs):...21 Table 3-3: Proposed Program for Transmission Works (Rs.Cr.)...24 Table 3-4: Compliance of UPERC Directives:...29 Table 4-1: Actual & Estimated Energy Profile:...33 Table 5-1: Escalation Index...36 Table 5-2: Allocation of incremental O&M expenses(rs. Crs.)...38 Table 5-3: Details of Employee Cost (Rs Crs)...39 Table 5-4: Table 5-5: A &G Expenses (Rs Crs)...41 Transco Investment Plan: (Rs. Cr)...42 Table 5-6: Capitalisation & WIP of Investment during FY & FY Table 5-7: Gross Fixed Assets for FY & FY Table 5-8: R&M Expenses...44 Table 5-9: Depreciation Expenses...45 Table 5-10: Details of Interest & Finance Cost...46 Table 5-11: Interest on Working Capital...47 Table 5-12: Table 5-13: Summary of Other Income...48 Return on Equity...49 Table 5-14: Annual Revenue Requirement...52 Table 6-1: Table 7-1: Derivation of Transmission Tariff...53 Break-up of SLDC Charges...54 Uttar Pradesh Power Transmission Corporation: TransCo Page iv

5 Executive Summary: In accordance with Section 62 of the Electricity Act 2003 and provisions of the Transmission Tariff Regulations notified by the Commission, UP Power Transmission Corporation Limited is submitting before UPERC the Aggregate Revenue Requirement and Tariff petition for FY & FY In this petition licensee is submitting simultaneous application for Aggregate Revenue Requirement for FY & FY The ARR for FY was due to be submitted by 30 th Nov 2009, but due to inordinate delay in submitting the previous petition & the issue of FY Tariff Order by the Hon ble Commission on 31 March 2010, this submission got further delayed. In the meanwhile in accordance with the guidelines issued in Tariff Order FY read with section 62 of Electricity Act 2003 licensee sought permission from Hon ble Commission to file MYT petition for 3 years from FY onward, but Commission did not issue necessary guidelines/regulation for want of certain information. In order to cope up with further delay in submission of ARR FY & future ARRs, licensee sought permission from the Commission to file simultaneous submission of ARR for FY & FY by 30 th November Commission vide their order dated allowed simultaneous submission of ARR for FY & FY in order to regulate regulatory synchronism. This petition contains simultaneous submission of ARR for FY & FY before the Hon ble Commission in accordance with section 62 of Electricity Act As the ARR & Tariff proposal is to be approved by the Energy Task Force, licensee has requested for granting further time extension for filling the above ARR and Tariff proposals. As prescribed in the Regulation, the petitioner is required to file the Aggregate Revenue Requirement complete in all respects along with requisite fee as prescribed in the Commission s Fee and Fine Regulations each year containing the details of the estimated expenditure and the Uttar Pradesh Power Transmission Corporation: TransCo Page v

6 expected revenue that it may recover in the ensuing financial year at the prevailing tariff. Further the petitioner is required to file ARR for the ensuing financial year indicating the manner in which the gap between the expenses, which is permitted to recover and expected revenue for ensuing financial year, shall be bridged. As per provisions under Electricity Act 2003, separate State Load Despatch Centre (SLDC) is to be established by the state government to ensure integrated operation of Power System in the State. Further Transmission Regulations provide that till such time the State Govt establishes separate SLDC, STU shall also operate SLDC functions and till complete segregation of accounts between SLDC function & transmission function, STU shall apportion its cost between (i) SLDC function and (ii) Transmission Function based on an allocation statement & basis of such apportionment shall be clearly indicated in the ARR petition. Currently the function of SLDC is being discharged by a separate section within UPPTCL. Expenses of SLDC function & ARR has been worked out on the basis of best estimate available. In present petition, expenses of SLDC are being charged through UPPTCL ARR. However, in a separate section of SLDC, ARR has been added for approval of SLDC charges for other practical purposes as such charges are being levied to open access consumers. The layout of this petition among other things includes background, proposed expenditure plan for the ensuing year,estimation of the Aggregate Revenue Requirement, explanatory notes where ever required and status of directive issued by the Hon ble Commission and other information as mandated in the regulation. The objective of the petitioner in this filing has been to contain the expenses to a reasonable level to offset inflationary pressure as prevailing in the market. For the current year petitioner has endeavoured to limit the expenses with in the approved limit. For ensuing year petitioner has also taken a daunting task to control the expenses to the reasonable level but Uttar Pradesh Power Transmission Corporation: TransCo Page vi

7 due to prevailing market condition some time it is not possible to limit expenses to current level due to uncontrollable factors. The petitioner in the current and ensuing year has continued with the execution with all major capital investment project as also the must do projects for meeting the demand growth,creating adequate capacity for reducing the over loading of heavily loaded feeders and transformers. The petitioner has proposed a capital expenditure of Rs cr. for FY and Rs cr. for FY Details of major capital investment plan are submitted in subsequent section with the proposed funding mechanism. The petitioner while estimating expenses for current & ensuing year has taken into account the actual expenses incurred in previous years as per its audited /un audited balance sheet and up to date expenses for current year are incorporated to drive the expenses at a reasonable level. The petitioner has endeavoured to control the employee expenses in the current year to the approved level. While projecting the expenses for ensuing year, petitioner has adopted the same method to contain inflationary pressure, but due to annual increment, time scale order & instalment of arrears arising out of implementation of recommendations of 6th pay commission, it is bound to increase from the level of un-audited balance sheet of FY , which has been explained at the subsequent section. The petitioner while projecting A&G expenses for ensuing year has proposed a marginal increase in the A&G expenses which is only done to off-set the inflationary pressure. This in real term can be treated as reduction in expenses, as virtually nearly same expenses are expected to be incurred in spite of creation of additional Divisions & Circles in TRANSCO. The petitioner has projected R&M expenses for current year taking into account actual trends and for ensuing year R&M expenses has been estimated as per methodology adopted by Hon ble Commission in its last Tariff Order & guidelines provided in the Transmission Tariff Regulation. Uttar Pradesh Power Transmission Corporation: TransCo Page vii

8 The petitioner is making all round efforts to optimize the R&M expenses despite steep rise in costs. The proactive preventive maintenance initiatives and capital expenditure are done in various improvement schemes which would definitely result in improvement in quality of supply and reduction in number of overloaded lines & substations. The petitioner has projected Rs per unit Tariff for FY & Rs per unit for FY Uttar Pradesh Power Transmission Corporation: TransCo Page viii

9 1 Introduction 1.1 U P Power Transmission Corporation Limited (UPPTCL) The U P Power Transmission Corporation Limited (hereinafter referred to as UPPTCL) is the company incorporated under the Companies Act, 1956 by making amendment in the Object and Name clause of Uttar Pradesh Vidyut Vyapar Nigam Ltd and having duly passed Special Resolution on 7th June 2006 in term of Section 21 of the Companies Act, UPPTCL started functioning with effect from 26 th July 2006 and is entrusted with the business of transmission of electrical energy to various utilities with the help of its transmission lines and substations within the geographical area of Uttar Pradesh. Before incorporation of UPPTCL, transmission work was entrusted with UPPCL. Govt. of UP in exercise of power under section 30 of the Electricity Act 2003, vide notification No: 122/U.N.N.P/24-07 dated 18 July 2007, notified U P Power Transmission Corporation Limited as the State Transmission Utility of Uttar Pradesh. The UPPTCL now deals with the transmission of electricity for catering to the power requirements of four distribution companies viz. Madhayanchal Vidyut Vitran Nigam Ltd, Dakshinanchal Vidyut Vitran Nigam Ltd, Pashchimanchal Vidyut Vitran Nigam Ltd and Poorvanchal Vidyut Vitran Nigam Ltd in addition to two other distribution companies serving Kanpur (KESCO) and Noida (NPCL). On 23 rd December, 2010 Go UP, in exercise of power conferred under sub section (4) of section 131 of Electricity Act, 2003 and in partial modification of the scheme made under section 23 of the U P Electricity Reforms Act, 1999 issued Transfer Scheme for the purpose of transfer of the Transmission activities including the assets, liabilities and related proceedings from U P Power Corporation Ltd to the U P Power Transmission Corporation. 1.2 Transmission Tariff Regulations: In exercise of powers conferred under section 61 & 181 of the Electricity Act,2003 Hon ble UP Electricity Regulatory Commission on 6th October 2006 issued Terms & Uttar Pradesh Power Transmission Corporation: TransCo Page 9

10 Conditions for determination of Transmission Tariff (Regulation 2006) specifying the principles and procedures of filing for the Annual Revenue Requirement (ARR) and Tariff proposals. Accordingly, the Petitioner has filed this ARR complete in all respect along with requisite fee for ensuing year with details of the estimated expenditure and the expected revenue that it may recover in the ensuing financial year at the prevailing Tariff. The ARR filing includes the detailed Tariff proposal for Transmission and wheeling of Electricity. In this petition the petitioner is submitting the following as part of the ARR and Tariff filings for FY & FY O & M Expenses for FY and FY Depreciation. Interest on Loan. Interest on working capital. Return on equity. The filing also includes a brief analysis of the performance of the Petitioner during the FY vis-à-vis the ARR & Tariff Order. 1.3 ARR Petition FY : Under section 64 of Electricity Act, 2003 and the provisions of Transmission Tariff Regulations 2006, U P Power Transmission Corporation, (hereinafter referred to as UPPTCL) had submitted their ARR & Tariff Petition for FY on 30th July 2009 and subsequently revised Petition on 1 st Dec The Hon ble Commission accepted the ARR & Tariff Petition on 11 th Dec 2009 and finally issued tariff order for FY on Public Notice of the Petition The Commission while admitting the ARR & Tariff Petition for FY on 11 th December, 2009 directed the Licensee to publish the public notice with salient features of ARR and Tariff in at least two daily news papers (English and Hindi) for two successive days for inviting comments, objections and suggestions from all stakeholder and public at large within 3 days from the issue of admittance order. In compliance to the admittance order the Public Notice dealing the salient features of Uttar Pradesh Power Transmission Corporation: TransCo Page 10

11 ARR & Tariff were published in various Hindi and English language daily newspapers as detailed below:- Hindustan Times Amar Ujala Indian Express Rashtriya Sahara Public Hearing The Commission invited comments from consumers and all stake holders on ARR & Tariff proposals submitted by the Licensee and further to provide an opportunity for comments, objection and suggestion to all section of the population, Public hearing were also conducted at various places in the area of Licensee by the Hon ble Commission. Details of places of public hearing and date of hearing are as under:- Jhansi Allahabad Noida & Greater Noida Saharanpur Lucknow Saharanpur Tariff Order FY Consequent to acceptance of Annual Revenue Requirement and Tariff application, the Hon'ble Commission had issued Tariff Order for FY on 31st, March 2010 and directed the licensee to publish the salient features of Tariff order. Salient features of Tariff order were published in following news papers in the larger interest of public and other stake holders. Dainik Jagran-(Hindi) Aaj-(Hindi) Lucknow, Bareilly and Gorakhpur Varanasi Uttar Pradesh Power Transmission Corporation: TransCo Page 11

12 Amar Ujala-(Hindi) In Dino-(Urdu) Hindustan Times Hindustan Times of India Swatantra Bharat Dainik Jagran (Hindi) Amar Ujala (Hindi) Rastriya Sahara (Hindi) Meerut, Agra and Jhansi Lucknow Lucknow, Delhi Lucknow Lucknow Kanpur Kanpur Moradabad Lucknow 1.7 ARR FY & FY : Uttar Pradesh Power Transmission Corporation Ltd was scheduled to submit their ARR and Tariff Petition for the ensuing year (FY ) by 30 th November 2009 before the Regulatory Commission under section 62 & 64 of Electricity Act, 2003 and the Regulations framed there under UPERC Terms and Conditions for Determination of Transmission Tariff Regulations UPPTCL submitted a petition before the Hon ble UPERC seeking time extension up to 31 st March 2010, for submission of the ARR & Tariff Petition as the ARR & Tariff petition of FY were under consideration before Hon ble Commission for approval and as such in the absence of approved Tariff for FY , expanses, revenue,transmission and wheeling charges and other regulating factors as stipulated in regulations may not be truly worked out for FY Thereby Hon ble Commission vides order dated 16 th February 2010 allowed time extension for filing ARR & Tariff Petition up to 31 st March, The Commission issued Tariff Order for FY on 31 st March 2010, with the directives for implementation in the area of transmission of energy by Uttar Pradesh Power Transmission Corporation Ltd. Further to ascertain the correct revenue assessment as per approved Tariff for ensuing year ARR petition, it was essential to work out the true value of estimated gap for designing the new Tariff for FY Uttar Pradesh Power Transmission Corporation: TransCo Page 12

13 As such licensee sought further time extension up to 31 st July 2010.The Hon ble Commission vide their order dated allowed the requested time extension. Further in accordance with the Electricity Act 2003 and guide lines provided under Multi Year Tariff Frame work of section 10.6 in Tariff Order FY , licensee sought permission for filling MYT petition for to FY Though Hon ble Commission has already issued MYT regulation as well as Tariff Order for Generation Licensees but for Transmission licensees MYT regulation are still awaited. As per section 2.1 of Tariff Regulations 2006, the ARR & Tariff Petition FY was originally scheduled to be filed by the Licensee before the Commission on 30 th November, In order to maintain regulatory time frame mechanism Licensee submitted a petition before the Hon ble Commission for simultaneous submission of ARR & Tariff Petition for FY & ARR FY and requested for time extension up to 30 th Nov The Hon ble Commission admitted the petition filed by the licensee and granted time extension up to 30th November 2010 for filing ARR & Tariff Petition for FY and also allowed the simultaneous submission of ARR & Tariff Petition FY & FY UPPTCL as a government company needs to ratify its ARR & proposed Tariff from Energy Task Force as such proposal has been sent for approval of ETF. Presuming delay in approval from ETF Petitioner further requested through petition to Hon ble Commission for time extension up to 31 st January Petition is still under consideration of the Commission. In accordance with the provisions of Transmission Tariff Regulations UPPTCL is filing Annual Revenue Requirement of the Transmission business including tariff and charges. This ARR filing includes detailed Tariff proposal for transmission and wheeling of Electricity. Uttar Pradesh Power Transmission Corporation: TransCo Page 13

14 The structure of this ARR & Tariff Petition FY & FY are as under: Section 1. Section 2. Introduction: This contains a brief background and rationale used for the submission; major assumptions used and describe the structure of the submission. UPPTCL, Transmission System- a preview Section 3. Performance Analysis of ARR FY Filing: This includes: Section 4. Section 5. Section 6. Section 7. a) Transmission Tariff Regulations: b) ARR Petition FY : c) Public Notice of the Petition d) Public Hearing. e) Tariff Order FY : f) ARR FY & FY : Power Wheeling & Demand: This includes demand forecasts for FY & FY , also summarised actual for FY Annual Revenue Requirement: (ARR) for FY & FY : This includes the ARR forecast for FY & FY for UPPTCL. Proposed Transmission Tariff: This provides the proposed transmission tariff for UPPTCL. This tariff would be applied to all DisComs and current Bulk Supply consumers. SLDC-Annual Revenue Requirement (ARR) for FY & FY : This includes the ARR forecast for FY & FY for SLDC. Uttar Pradesh Power Transmission Corporation: TransCo Page 14

15 2 UP Power Transmission Corporation Limited: 2.1 Existing Transmission System - a preview: The transmission system in UP is composed of 400 kv, 220 kv and 132 kv AC lines and substations. UPPTCL has also constructed one 765 kv AC single circuit line which connects the Anpara thermal station in the southern part of UP to Unnao s/s (Unnao District). Presently, this line is being operated at 400 kv, while 765 kv switchyard at Anpara end is under construction. Majority of the transmission lines & substations in UP are owned and operated by UPPTCL. However, there are other transmission lines & substations in UP (including a ± 500 kv HVDC line from Rihand to Dadri) that carry electricity from the central sector plants to the neighbouring states and these are owned and operated by the Power Grid Corporation of India Limited (PGCIL). In addition, some of the above transmission facilities are jointly owned by UPPTCL & PGCIL. Until the 400 kv grid was fully developed, the 132 kv lines were part of the transmission network. Now the 400 kv and 220 kv network forms the transmission grid while the 132 kv systems can be treated as a sub transmission system. Over a period of time, some of the 132 kv lines formed local grids while a majority of them are radial lines. The present transmission network of UPPTCL is capable to cater about MW of power. At the end of 11 th five year plan ( ) it is expected that additional power to the tune of around MW will be available from different sources i.e. new power generating stations in private as well as public sectors such as Anpara-C, Anpara-D, Roja, Harduaganj, Parichha, Tanda extn., and also from increased share from central pool and co- generation units. Uttar Pradesh Power Transmission Corporation: TransCo Page 15

16 A brief summary of existing and expected generation capacity addition are summarised as under:- Table 2-1: Generation Capacity FY 2010-FY 2012: Sl. Particulars Existing Capacity as on (MW) Capacity Addition up to (MW) Total Capacity by the end of 11th Plan (MW) A State i) State Sector Thermal Hydro ii) IPP Thermal Hydro B Central i) Thermal ii) Hydro iii) Nuclear iv) IPP & JV TOTAL At the end of 11 th five year plan, UP Power Transmission system will be required to be expanded in such a way that it is capable to evacuate around MW of power. To accomplish this, a Transmission Development Plan of Rs crores has been framed and projects of 765 kv, 400 kv as well as 220kV and 132kV have been identified. UPPTCL intends to construct 03 nos. of 765 kv and 09 nos. of 400 kv substations along with associated transmission lines under PPP for evacuation of power from upcoming thermal power stations like Bara (3x660MW), Karchana (2x660MW), and Meja (3x660MW). The details of existing 765 kv, 400 kv, 220 kv and 132 kv substations are given in Table 2-2 & for Transmission lines, the details are in Table 2-3. Uttar Pradesh Power Transmission Corporation: TransCo Page 16

17 Table 2-2: Total existing Sub-Stations: Voltage Level Existing Substations New Added andcapacity Enhanced Total Capacity (MVA) 765 kv kv kv 54 7 new+8 enhanced kv new+19enchanced Table 2-3: Total existing Lines (Circuit Km) Voltage Level Existing Length New Added Total Length (Ckt Km) 765 kv (Charged at 400kV) 400 kv kv kv Interconnections and Northern Region Load Dispatch Centre (NRLDC) UPPTCL s existing transmission system is interconnected to the electrical grids of its neighbouring States, namely, Uttaranchal, Haryana, Rajasthan and the central system of New Delhi. In addition, it maintains asynchronous ties (i.e. AC-DC-AC) with the electrical grids of Bihar in the east and Madhya Pradesh in the South. Until November 2002, there was only one State of UP and one transmission grid for the entire erstwhile UP. The ownership of lines and substations have changed since division of UP into two States, i.e. UP & Uttaranchal. The UPPCL power system is a part of the Northern Regional Grid of India. The Northern Grid is controlled from a unified regional load dispatch centre at Delhi. The Northern Regional Load Dispatch Center (NRLDC) is equipped with modern SCADA Uttar Pradesh Power Transmission Corporation: TransCo Page 17

18 and Energy Management System Software. The SCADA system is fully functional as are key applications like State Load Estimation, Economic Load Dispatch and security assessment. The NRLDC has modified its economic load dispatch software to take into account the Availability Based Tariff (ABT). UPPTCL is upgrading its own unified load dispatch centre at its head office in Lucknow and the four area control centres. 2.3 Availability of Lines Availability of lines and other equipments of UPPTCL system is positively around 98% and with this system UPPTCL handles Transmission of energy from different generating units to the Distribution Licensees (Points) effectively. 2.4 Load Levels The load centre power demands and their daily, monthly & yearly load levels and associated load power factors are important factors that influence the planning of the bulk transmission system. UPPTCL loads are generally scattered throughout the state with heavy demands in Varanasi, Allahabad, Lucknow, Kanpur, Agra and Meerut areas. The annual peak load generally occurs in summer month. Table 2-4 & Table 2-5 typically show the yearly peak demand of previous years & monthly peak demand for FY11, respectively. Table 2-4: Yearly System Peak in MW Year Availability R.D.M Restriction U.D.M MW MW MW MW Uttar Pradesh Power Transmission Corporation: TransCo Page 18

19 Table 2-5: Monthly System Peak for current Year (MW) Availability R.D.M Restriction U.D.M Month MW MW MW MW Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Bulk Transmission System Flows: Bulk transmission system flow characteristics are dominated by the coal based thermal generating plants available in southeast of UP. These plants at Anpara, Obra, Rihand and Singrauli generate about 6300 MW out of which 4500 to 5000 MW generation flows to the western regions after meeting Varanasi regional demand. This power transfer level continues through Sultanpur-Allahabad, Lucknow-Kanpur, Moradabad-Agra interfaces since the available generation in each of the regions almost matches with its respective demand. In the east, power from the aforementioned plants flows towards north to supply Varanasi, Azamgarh and Gorakhpur load centers. A small amount of power is imported from Bihar through a connection at 132 kv level. Power supply to Uttaranchal in the North West is normally less than 500 MW due to the availability of hydroelectric generation in the state. In the west, more than 3000 MW power flows to Delhi and Rajasthan through ± 500 kv HVDC bi-pole link and 400 kv transmission network across the state. The existing bulk transmission system capacity with the current level of power transfer requirements is well equipped to handle the flow of energy. Uttar Pradesh Power Transmission Corporation: TransCo Page 19

20 3 Performance Analysis of ARR FY Filing: As previously mentioned, this section contains the following: a) Comparison of Approved cost and actual figures to-date b) An action plan undertaken by UPPTCL for improvement of Transmission Loss. c) Investments plan. d) Compliance with Commission directives. 3.1 Comparison of Approved Cost and Actual Figures: Demand Forecast-Tariff Order and Actual FY ( ): Table 3-1 provides a summary of UPERC approved demand in Tariff Order FY and actual demand for FY Table 3-1: Approved and Actual FY : Energy Demand (MU) Licensee (Rs Cr) Tariff Order FY Actual FY Meerut ,884 2% Agra ,950 6% Lucknow ,755 7% Varanasi ,701 4% Bulk ,074-2% Total ,365 4% Expense items- Approved and Actual: Diff Table 3-2 provide a summary of the various ARR components approved in Tariff Order FY2010 & actual expenses in FY It is evident from these tables that all expenses are well with in the approved limit. Uttar Pradesh Power Transmission Corporation: TransCo Page 20

21 Table 3-2: Approved and Actual ARR FY 2010, Expense Items (Rs Crs): Expense Items (Rs Cr) Tariff Order FY Actual FY Employee cost % A&G expenses % R&M expenses % Interest charges % Depriciation % Gross Expenditure % Expenses capitalisation Employee cost capitalised % Interest capitalised % A&G expenses capitalised % Net expenditure % Special appropriation Other Debits (incl. Prov for Bad debts) Prior period Adjustment (0.16) Total net expenditure with provision add: Return on Equity % Less: Non Tariff Income (20) (24.54) 24% Annual Revenue Requirement(ARR) % 3.2 Investments: Investments will be made in key areas with the objective of strengthening the transmission networks, thus contributing to the reduction of losses and reliability of supply. This work will be conducted with the help of loans from financial institution and equity from GoUP. Diff Proposal for Ensuing Years: It will be necessary to execute many works for ensuring reliability, stability and quality of transmission system but on the basis of experience of the previous years, it is observed that the availability of money and other constraints, in fact, restricted the list of transmission works. During FY & FY investments will be made in key areas with the objective of strengthening the transmission networks, thus contributing to the reduction of losses & improving reliability of supply. Most of the Uttar Pradesh Power Transmission Corporation: TransCo Page 21

22 works are to be financed by M/s. Power Finance Corporation, New Delhi and Rural Electrification Corporation, New Delhi. The transmission works have been categorized as follows:- 1. Normal Development Works. 2. Transmission works in National Capital Region 3. Renovation and Modernization. 4. Transmission works on account of 100% electrification of villages. 5. Installation of Capacitors Normal Development Works: Due to increase in demand of electricity, some of the sub-stations/lines are overloaded. To meet out this demand it is essential to increase the capacity of the sub-stations and to create new sub-stations and lines Transmission Works in NCR All the districts of Meerut Commissionery are covered in National Capital Region. Industries from Delhi are to be shifted to National Capital Region for which Electricity Supply position has to be improved. For this NCR Board will provide financial aid by way of loan Renovation and Modernization A large number of S/Ss, Transmission lines & communication equipment are around 30 years old and equipments like transformers, circuit breakers, control & protection panels etc. needs replacement for reliable service, as spares for same are not available anymore as of now, due to the fact that the technology on which they are based, has become obsolete. Therefore, adequate provisions have been made for the renovation and modernization of various equipments Augmentation of Transmission System Due To RE Works In order to meet the increased demand due to electrification of villages in REC schemes and mazras in Rajiv Gandhi village electrification scheme, various Uttar Pradesh Power Transmission Corporation: TransCo Page 22

23 transmission sub-stations and lines are to be strengthened and new sub-stations and lines are required to be constructed. Installed capacities of various 132 and 220 kv substations are being enhanced significantly in addition to new 132 and 220 kv substations. The associated transmission lines are also being constructed to cope up with future load growth as well as to prevent overloading, so as to ensure stable system operation at diversified load levels. The proposed transmission works for FY & FY is provided in following table: Uttar Pradesh Power Transmission Corporation: TransCo Page 23

24 Table 3-3: Proposed Program for Transmission Works (Rs.Cr.) Sl. No. Name of Work Investment Investment FY FY (A) 765 KV Substation a 765 KV S/s Unnao & Lines Total: b 765 KV Lines KV Anpara D -Unnao KV Shifting Anpara B-Unnao to Anpara C KV SC Anpara C - Anpara D Total: (B) 400 KV Works a Substations KV S/S Aligarh & lines KV S/S Orai & lines KV S/S Banda & lines KV S/S Muradnagar II Increasing cap 400 KV MVA Reactor 3 Nos MVAR 1 nos Total: b Lines KV DC Paricha- Orai KV DC Orai- Mainpuri KV DC Aligarh- Sikandarabad LILO of 400 KV DC Panki- Muradnagar at Aligarh KV DC (Q) Banda- Orai KV DC (Q) Orai-Allahabad KV DC (Q) AnparaB- Anpara D Total: (C) 220KV Works a Ongoing Works 1 Nanauta Sardhana Jhusi Kanpur South Bithur Gajokhar Bhelupur Pratapgarh Gorakhpur II Total: b New Works 1 Ballia Bansi Mirzapur Sirathu Nighasan Jansath Behat Khair Tanda Rampur Sirsaganj Increasing cap 220 KV 9 nos Total: Uttar Pradesh Power Transmission Corporation: TransCo Page 24

25 Sl. No. (D) Name of Work Investment FY Investment FY KV Works a Ongoing Works 1 Mehdaval Muzaffarnagar Zolly Rd Meharbansing Purwa Shahabad Dhaurhara Lakhimpur Total: b New Works 1 Gurudeo Nager Kaithi chakia Mehnagar Nathnagar Mubarakpur Gharwara Siddiquepur Karelabagh Gorakhpur New Rudrapur Padrauna Kota (Saharanpur) UPSIDC Massoorie Gulauti Anoop Shahar Ramraj (Muzaffarnagar) Rampur Maniharan Gangalheri (Saharanpur) Kundarki(Moradabad) DPH Ghaziabad Vasundhra Dhankur (G.B.Nager) Khekhda Pratapvihar Ujhani Biswan Utraula Bnada(Saharanpur) Tilhar Anoop shahar Rd Bindki Kamalgaj(Etah) Meharauni Dayalbagh Gangiri Aurayya Increasing cap 132 KV Total: Uttar Pradesh Power Transmission Corporation: TransCo Page 25

26 Sl. No. Name of Work Investment FY Investment FY (E) (F) (G) 220KV LINES & BAYS ON GOING SC Muzaffarnagar (400)- Nanauta SC Muzaffarnagar (400)- Shamli LILO II Ckt. Muzaffarnagar (400)-Modipura SC Meerut PG (400)- Gajraula LILO Agra (400) - Firozabad at Shamshabad LILO of Allahabad PG - Phoolpur SC Sarnath - Gajokhar SC Gajokhar - Jaunpur DC Sahupuri- Bhelupur OH DC Sahupuri- Bhelupur UG LILO Sultanpur - Phoolpur Gonda-Basti Parichcha-Jhasi Total: NEW SC Gazipur-Ballia SC Deoria- Ballia SC Sitapur - Nighasan SC Shahjahanpur - Nighasan LILO of (220) Tanda- Sultanpur@Tanda DC Sohawal PG-Tanda DC Saharanpur PG- Behat LILO of Khara- Saharanpur@ Behat LILO of Greater Noida- Sec LILO of Moradabad- CB Ganj@ Rampur SC Dasna- Madhuvan SC Attor- Madhuvan SC Dasna (400)- Bapudham SC Attor- Bapudham SC Aligarh (400)- Khair (Now Lilo Of HDG-Hathras at Kahir) Total: KV LINES ON GOING Nanauta - Gangoh SC Nanauta - Deoband DC Sardhana (220)- Sardhana (132) SC Gajraula (220) - Gajraula (132) SC Gajraula (220) -Amroha (132) LILO Sikandrabad - Samsabad LILO Jawaharpur - Bilhaur@Bithoor SC Gajikhar - Kerakat Gajokhar - Raja ka Talab LILO FCI - Kasia@ GKP new LILO Mohaddipur - Shatrughanpur SC Shahjahanpur - Shahabad SC Hardoi - Shahabad LILO NKN - Hardoi Rd LILO Lakhimpur - Palia Total: Uttar Pradesh Power Transmission Corporation: TransCo Page 26

27 Sl. No. (H) Name of Work Investment Investment FY FY NEW Basti - Mehndawal LILO of Mirzapur - Jigna I Ckt.@MZP LILO of Mirzapur - Jigna II Ckt.@MZP SC Sirathu - Sirathu SC Sirathu (220)- Khaga LILO SC Lakhimpur - Pallia SC Nighasan - Dhaurhara SC Nanpara - Dhaurhara SC Nighasan - Gola SC Tanda (220)- Tanda (132) LILO Moradabad - Kashipur@ Tanda SC Rampur (220) - Rampur Railway SC Khair (220) - Jattari LILO Hathras-Bonerline at Aligarh III SC Sarnath (400) - Kaithi LILO Sahupuri (220) - Robertsganj@Chakiya LILO Azamgarh - Lalganj@Mehnagar LILO Basti - Khalilabad@Nathnagar LILO Azamgarh - Bindwal LILO Sultanpur- Pratapgarh@Garwara SC Deoria (220) - Rudrapur LILO of FCI - Kasia@Padrauna LILO Saharanpur -Deoband@Kota SC Dadri - Massoorie SC Jahangirabad- Anoopshahar SC Nanauta (220)- Maniharan LILO Saharanpur -Roorkee@Gangalheri LILO of SC Muradnagar (220) - DPH LILO Mohannagar - Sahibabad SC Sikandrabad - Dhankaur LILO Loni - Bagpat DC Indirapuram - Pratap Vihar SC Badaun - Ujhani SC Sitapur (220) - Biswan SC Gonda (400) - Utraula SC Balrampur - Utraula SC Puwayan - Bannda Gola - Bandda LILO Saharanpur - Badaun LILO Harduaganj - Khurja@Anupshahar LILO Nibkarori - Chibramau@Kamalgunj SC Hasari - Lalitpur SC Lalitpur - Mehrauni DC Agra (400) - Dayalbagh LILO Phukrayan - Orai@Kalpi SC Atrauli (220)- Gangiri Bharthana - Aurayya Total: Uttar Pradesh Power Transmission Corporation: TransCo Page 27

28 Sl. No. (I) (J) Name of Work Investment Investment FY FY OTHER NEW 132 LINES 132 kv Lines Bharthana - Bidhuna Hathras-Jalesar Ferozabad-Naseerpur Hathras-Iglas Lilo of Lalitpur-Hasari@Jhansi Bansi-Naugarh Sohawal-Ramsanehi ghat Lilo of B/Rd-Partapur@ MFR ngr Sambhal-Sardhana Atrauli-Grasim Cement Lilo of FCI-Kasiai@Padrauna Kasgung-Gunj Dundwara Etah-Gunj Dundwara Mainpuri-Saifai@Dannahar Rath-Mahoba Sonik-Bighapur Bangarmau-Chakalvanshi Sonik-Chakalvanshi Mathura-Kosi@ Mathura-II kV Charla-Mawana Behat-Pikhlani Behat-Chutmalpur MBD-Bilari Bilari-Chandausi Lilo of Jaunpur-Shahgunj@Siddiqpur Lilo of GKL-Hathras@Bamoli Lilo of Banda-Karwi@Atarra kV DC Etah-Tundla Total: NEW 220 kv LINES 220 kv line 220kV DC HDG-JBD kV Lilo of 400ALG kV DC ALG-Atarauli kV SC Aurai-MZP kV SC Aurai-Phoolpur kV GKL-Mitai kV Rosa-Badaun kV Lilo of Khair Total: GRAND TOTAL Uttar Pradesh Power Transmission Corporation: TransCo Page 28

29 3.3 Compliance of UPERC Directives: The Commission had issued a number of directives to the Utilities in Tariff order FY with the objective of attaining operational efficiency and streamlines the flow of information, which would be beneficial for the sector both in short term and long term. The Licensee is submitting the compliances in the following table: Table 3-4: Compliance of UPERC Directives: S. N Ref. Description of Directive for TRANSCO Time Period for compliance from the date of issue of the tariff order The Commission directs UPPTCL to co-ordinate with GoUP and expedites the approval process of Transfer Scheme The Commission directs UPPTCL to request State Government to constitute a separate SLDC body which shall have independent functioning. Transfer Scheme has been notified by GoUP vide notification No:2974(1)/24-P ,Lucknow,dated 23 rd December,2010 Go UP vide notification No 78/24-UNNP /08 dated notified Power System Unit of UPPTCL as SLDC for discharging functions as per EA The Commission directs UPPTCL to submit details of voltage-wise losses, method of assessment adopted and supporting data / information on the same The Commission directs UPPTCL to suggest an appropriate policy on capitalization of salaries & wages The Commission directs UPPTCL to submit the Fresh Actuarial Valuation Study Report in respect to employee expenses The Commission directs UPPTCL to capitalise the expenditure based on the actual A&G expenses incurred/ projected to be incurred. Further UPPTCL should have proper accounting system to capture the expenses related to capital schemes rather than There is an existing practice that the share of establishment expenditure incurred and attributable to the construction is capitalized. Action is being taken as per UPERC directives. Status report will be submitted to the Commission. The capitalisation of A&G charges towards CWIP is being done on 132kV & & on Uttar Pradesh Power Transmission Corporation: TransCo Page 29

30 S. N Ref. Description of Directive for TRANSCO Time Period for compliance from the date of issue of the tariff order assuming a standard capitalisation %age The Commission reiterates its direction to the UPPTCL to ensure proper maintaining of detailed fixed assets registers to work out the depreciation expense as specified in the Transmission Tariff Regulations and directs the UPPTCL to submit a report to the Commission citing clearly as to how they are maintaining fixed assets registers for the various assets The Commission directs UPPTCL to develop a system whereby the actual interest accrued/ incurred till the capital scheme is completed and put to use gets captured in separate account typically called as Interest during Construction (IDC) rather than assuming a standard capitalisation % age The Commission hereby redirects the UPPTCL / SLDC that the ARR / budget for SLDC should be submitted separately along with the ARR submission of TRANSCO. The costs have to be separately identified and not embedded in the TRANSCO ARR The Commission directs UPPTCL to submit the detailed billing procedure of transmission charges for approval of the same. All units have been directed to maintain fixed assets register to workout the depreciation. Next Filing Budgetry provision of UPPTCL/SLDC are being submitted to the Commission. 1. Billing of transmission charges for Discoms of UP is being done on the quantum of energy received by Discoms, duly informed by Chief Engineer (Commercial & Energy Accounts), UPPCL and at the rate approved by UPERC. 2. Billing of transmission charges for Short Term Open Access customers has been started as per the procedure laid down by UPERC vide its notification no. 419 dated The transmission charges are being recovered by SLDC/STU on proformas approved by UPERC namly ST-1, ST- 2, ST-6 and ST-7 as per Uttar Pradesh Power Transmission Corporation: TransCo Page 30

31 S. N Ref. Description of Directive for TRANSCO Time Period for compliance from the date of issue of the tariff order notification of UPERC mentioned above The Commission directs UPPTCL to initiate the process of signing of BPTA with distribution licensees who are the existing long-term customers and submit the status on execution of BPTA of the same. Status and execution report regarding BPTA will be submitted to the Commission very shortly The Commission directs the SLDC/ UPPTCL to submit the status of compliance on scheduling, energy accounting, balancing and settlement of Open Access Transactions. A separate report of compliance on scheduling, energy accounting etc will be submitted shortly to the Commission Uttar Pradesh Power Transmission Corporation: TransCo Page 31

32 4 Power Wheeling & Demand: UPPTCL (TRANSco) is performing the business of transmission of electricity received at UP periphery from various central generating stations, as well as those within the state and dispatching this power to the Distribution Licensees as required, using Transmission system of UPPTCL. In purchasing/ wheeling of electricity from various generating station out side the state, losses out side of the UP transmission system also come into effect. Therefore it is prudent to separately analyze losses internal as well as external to the system so that petitioner should not be accountable for losses external to the system. 4.1 Losses external to UPPTCL system: The petitioner submits that while considering losses to meet the requirement of various distribution licensees, losses external to UPPTCL system, i.e. in the Northern Region PGCIL system need to be accounted for. The availability of power from various sources out side the state gets reduced to the extent of these losses. NRLDC computes the losses in the regional transmission system on a weekly basis and the same are used by it in the scheduling process subsequently. These losses have varied between 2.56% to 5.15% between 2 nd Nov2009 and 31 st October UPPTCL has considered an average level of 3.63% losses in its energy transactions with the Northern Region for FY &FY which is an average loss for above mentioned period. Here it is to be noted that these losses are applicable to only energy received external to state. The energy received through PGCIL lines is estimated to be MU in FY & MU in FY On applying average loss of 3.63% to above mentioned energy received from PGCIL lines, energy received at UP periphery has been calculated. Therefore petitioner has computed a weighted average periphery loss of 1.73% for FY & 1.47% for FY when taken on the basis of whole energy received from all Generators. On the basis of Power requirement provided by DisComs a detailed energy balance is summarized for Distribution Licensees of the state using Transmission system of TransCo for dispatching the energy in Table 4-1: - Uttar Pradesh Power Transmission Corporation: TransCo Page 32

33 Table 4-1: Actual & Estimated Energy Profile: Licencsee FY FY FY MEERUT AGRA LUCKNOW VARANASI BULK Purchased & Billed Energy (MU) Periphery Loss (Upto inter connection Point) 3.85% 1.73% 1.47% Energy Available for Transmission(MU) Energy Delivered to DisCom(MU) Input into DisCom(MU) MEERUT AGRA LUCKNOW VARANASI BULK Transmission Losses (%) UPPTCL 4% 4% 4% Uttar Pradesh Power Transmission Corporation: TransCo Page 33

34 5 Annual Revenue Requirement: FY & FY The development of FY & FY ARR follows the methodology as adopted in the last Tariff Order and in accordance with the guidelines provided in Terms and Conditions for Determination of Transmission Tariff Regulations, ARR - FY & FY Hon ble Commission has issued Transmission Tariff regulation 2006 which require that ARR shall consist of following items: 1. Operation & Maintenance expenses Employee Expenses Administrative & General Expense. Repair & Maintenance Expenses 2. Interest expenses Loan capital Working Capital 3. Depreciation Expenses 4. Other Expenses 5. Return on equity 6. Contingency Reserve 7. Taxes on Income 8. Any other relevant expenditure Further regulation provide that the State Transmission Utility, when also looking after the SLDC function, shall file segregated costs for SLDC operations and any surplus / deficit in recovery of SLDC costs vis-à-vis SLDC fee and charges collected by the STU shall form part of its ARR. In this petition the Petitioner is filing expenses for two years FY & FY for approval of the Commission. This section provides ARR for FY & FY in accordance with the Tariff regulation and methodology adopted by the Commission Uttar Pradesh Power Transmission Corporation: TransCo Page 34

35 in its last Tariff Order. Each component of ARR as mentioned above is dealt in detail in the following section. Further, it is to submit that UPPTCL is also looking after the functions of SLDC as such SLDC cost is embedded in UPPTCL cost. However, as prescribed in Tariff Regulation, segregated costs for SLDC has also been computed at the end. The petitioner has estimated ARR for ensuing year based on provisional unaudited account of FY and expenses available till date. Further, the Tariff regulation provide that O&M expenses and other expense shall be escalated on the basis of prevailing rate of inflation from base figure & inflation shall be calculated on the basis of indexes notified by central government. As per the Tariff Regulation for determination of Operation & Maintenance expenses(which comprises of employee, A&G and R&M expenses) for year under consideration,the O&M expenses of the base year shall be escalated at inflation rates notified by the central Government for different years. The inflation rate for above purpose shall be the weighted average of Wholesale Price Index and Consumer Price Index in the ratio of 60:40. Therefore it is imperative to first calculate an Escalation index based on guide lines provided in the regulation. Petitioner has calculated inflation index in following section: Escalation Index/Inflation Rate Regulation issued by Hon ble commission provides that expenses of the base year shall be escalated at inflation/escalation rate notified by central government for different years. The inflation rate for this purpose shall be weighted average of wholesale Price Index and Consumer Price Index in the ratio of 60:40. Therefore for the purpose of this ARR petitioner has used this methodology in arriving at Escalation Index/ Inflation Rate of 9.68 %. This escalation/inflation index has been used in estimation of various components of ARR. Calculation of Escalation/ Inflation Index is given in the following table: Inflation Rate=0.6* Inflation based on WPI + 0.4*Inflation based on CPI. Uttar Pradesh Power Transmission Corporation: TransCo Page 35

36 Table 5-1: Escalation Index Inflation index for FY &FY Month Wholesale Price Index Consumer Price Index Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Inflation 9.55% 9.88% Weighted Average (WPI 60%:CPI 40%) 9.68% WPI- CPI Operation & Maintenance Expenses Operation & maintenance expense comprises Employee costs, Administrative & General Expenses and Repair & Maintenance expenses. The regulation 4.2 of the Transmission Tariff Regulation issued by the Commission stipulates: 1. The O&M expenses for the base year shall be calculated on the basis of historical/audited costs and past trend during the preceding five years. However, any abnormal variation during the preceding five years shall be excluded. O & M expenses so calculated for the base year shall then be escalated on the basis of prevailing rates of inflation for the year as notified by the Central Government and shall be considered as a weighted average of Wholesale Price Index and Consumer Price Index in the ratio of 60:40. Base year, for these regulations means, the first year of tariff determination under these regulations. 2. Where such data for the preceding five years is not available the Commission may fix O&M expenses for the base year as certain percentage of the capital cost. Uttar Pradesh Power Transmission Corporation: TransCo Page 36

37 3. Incremental O&M expenses for the ensuing financial year shall be 2.5% of capital addition during the current year. O&M charges for the ensuing financial year shall be sum of incremental O&M expenses so worked out and O&M charges of current year escalated on the basis of predetermined indices as indicated in regulation above. However in last tariff order Commission was of the opinion that a suitable norm for allowance of O&M expenses could be adopted only after undertaking a thorough study of the O&M expenditure based on the past performances and the cost drivers of the same, through a separate process. This study also has to be backed by audited information for the past which needs to be made available by the licensees. Only then the true picture of the trend in the O&M expenses may emerge. Till any such norm for O&M expenditure is determined, the Commission emphasised to consider the individual elements of O&M expenditure. Further in addition to the O&M cost based on inflationary indices based escalation, regulation provides an additional O&M 2.5% of the additions to GFA during the previous year. As such this portion of expenses has separately been calculated. As stated above, in the absence O&M norms petitioner has estimated individual components of O&M expenses based on methodology described in following section. 5.3 O&M Expenses on Addition to Assets during the Year In addition to the Employee cost, A&G cost and R&M expenses described in the succeeding section, Regulation provide for incremental O&M expenses on addition to assets during the year. Regulation stipulates that Incremental O&M expenses for the ensuing financial year shall be 2.5% of capital addition during the current year. O&M charges for the ensuing financial year shall be sum of incremental O&M expenses so worked out and O&M charges of current year escalated on the basis of predetermined indices as indicated in regulation 4.3 (1). Uttar Pradesh Power Transmission Corporation: TransCo Page 37

38 Accordingly based on above the incremental O&M has been worked out in following table.the same are allocated across the individual elements of the O&M on the basis of the contribution of each element in the gross O&M expenses excluding the incremental O&M charges and 6 th Pay Commission installment arrears. Table 5-2: Allocation of incremental O&M expenses(rs. Crs.) Incremental O&M of capital additions during the previous year FY FY Capitalised Assets during previous year Incremental O&M Expenses a) Employee Costs b) A&G Expenses c) R&M Expeses Employee Costs The projection of employee costs involves a detailed examination of the various components of salary such as basic pay and dearness allowance for the various grades of employees. It would also involve an understanding of the extent of retirements as well as the manpower additions planned. Considering above Petitioner has estimated employee cost for FY based on un-audited data of FY and data available to date. Here it is also to mention that UPPCL vide order dated 27 Nov 2010 has allowed its employees benefit of Assured Career Progression (ACP) scheme in line with the recommendation of sixth pay commission & GOUP order in this regard. Under this scheme employees of UPPCL are allowed first, second and third time scale in the year of 09, 14 & 19 th years of their service respectively. Further UPPCL vide order dated 14 August 2010 has allowed applicability of third time scale since which was previously allowed on different dates between to Impact of these order has also been included in estimation of employees cost. Further as per UPPCL order for implementation of Sixth Pay commission, the cost burden on account of payment of instalment of arrear has also been provided. As per arrear payment schedule the first instalment of three months arrear from Jan2006 to March 2006 is due in FY and the second instalment of arrear for the period April2006 to March 2007 is due in FY So burden of arrear has also been Uttar Pradesh Power Transmission Corporation: TransCo Page 38

39 included in the employee expenses. Detail of each elements of employees cost has been provided in this section. The employee cost is computed in following table: Table 5-3: Details of Employee Cost (Rs Crs) Details FY FY FY (Rs.Cr) Unaudited Estimated Projected Salaries Dearness Allowance Other Allowances & Relief Bonus/Exgratia Medical reimbursment Leave travel alownce Earned Leave Encashment Compensation to Employees Employeee welfare expencess Pension and gratuity Other terminal benefits Expenses on trust Arrear of Pay Commission/Time Scale Additional employee of incremental GFA) Employee Costs (before charge to capital) Less expenses capitalized Net employee cost As mentioned above evolution of sub account of employee cost has been forecasted from base figure of FY balance sheet and actual figure available till date. While projecting the expenses for ensuing year, petitioner has endeavoured to control the employee expenses but cost has increased due to impact of implementation time scale and arrear of pay commission which is totally beyond the control of the petitioner. Various sub account are estimated as follows: Basic salary: The petitioner would like to submit that the projected growth in basic salaries in FY is mainly due to time bound increment, annual increase in pay & implementation of third time scale retrospectively. The combined impact of third time scale, annual increment and time bound increment has been estimated 16% over the basic salary of FY Therefore petitioner has estimated basic salaries for FY to increase by 16% from FY value Uttar Pradesh Power Transmission Corporation: TransCo Page 39

40 and for FY it has been estimated to increase by inflation as provided in the regulation Dearness Allowance (DA): In the Pay Scales effective from January 2006 the instalment of Dearness Allowance are due on each 1 st January & 1 st July of each calendar year. The dearness allowance is incremented every sixth month based on the bench mark set by the central government. For FY petitioner has estimated dearness allowance to be 44 %( 35% for 3 month,45% for 6month & 50% for next three month). For FY it has been linked to inflation. Other allowance: Other allowance for FY has been forecasted in the ratio as actually incurred in FY of basic salary & for FY it has been escalated by inflation index. Arrear of 6 th Pay Commission: First instalment of arrear of 6 th Pay Commission for the period Jan 2006 to March 2006 was due in FY and same has been paid.the impact of this arrear is estimated to be Rs Crs.The second instalment for the period April 2006 to March 2007 is due for payment in FY and impact of the same has been estimated to be Rs Crs. Likewise, Medical Reimbursement, LTA, Earn leave encashment, staff welfare expenses and other terminal benefit have been forecast to increase by inflation index per year from FY Pension and Gratuity: Pension and Gratuity have been calculated at 16.7% and 2.38% (i.e., 19.08%) of Basic Salary and Dearness Allowance. Capitalisation of Expenses: Employee Expenses Capitalized has been taken 29% as approved by Hon ble Commission in last Tariff order. As mentioned in clause: 5.3 an additional incremental expenses of 2.5% of GFA addition during the previous year has also been added. 5.5 Administration and General (A&G) Expenses: These expenses are incurred by the petitioner for meeting day-to-day expenses related to the administration of its offices, insurance, communication, professional charges, audit fees, advertisement expenses & freight etc. All these expenses are directly Uttar Pradesh Power Transmission Corporation: TransCo Page 40

41 affected by inflation.therefore A&G expenses have been projected considering the impact of inflation and need for addition of more substation and offices.forecast A&G expenses for Transco are summarised below in Tables 5-4, beginning with the figures from the provisional figures for FY Table 5-4: A &G Expenses (Rs Crs) Details FY FY FY (Rs.Cr) Unaudited Estimated Projected Rent, Rates & Taxes Insurance Telephone,Postage&Telegrams,Telex charges Legal charges Audit fees Consultancy charges Technical fees and professional charges Conveyance and traveling Regulatory expenses Electricity Charges Other expenses Additional Expenses(@2.5% of incremental GFA) Total Capitalized Net It may be noted that licensee is capitalizing a portion of A&G cost.for current submission licensee has taken capitalization as 19%, approved by commission in its last tariff order. As a reflection of the continuing commitment of the Petitioner to keep costs under control, almost all A&G Expenses are forecast to increase by only inflation index per year across the board to only offset the effect of inflation. In addition to above regulatory expenses an application fees and Rs 500 per MU energy delivered to distribution licensees as license fees has been added in A&G expenses in FY & FY which is Rs 3.16& Rs 3.59 crs respectively. As mentioned in clause:5.3 an additional incremental expenses of 2.5% of GFA addition during the previous year has also been added Uttar Pradesh Power Transmission Corporation: TransCo Page 41

42 5.6 Gross Fixed Assets (GFA) Balances and Capital Formation Assumptions The assumptions used for projecting GFA and CWIP are as follows: The opening GFA and CWIP for FY have been taken as per the closing figures provisional annual accounts of FY % the opening CWIP and 25% of investment made during the year, expenses capitalised & interest capitalised (25% of total investment) has been assumed to get capitalised during the year. Investment through deposit work has not been taken for capital formation as per policy adopted by commission in its last tariff Order. Thus investments shown in capital formation table below don t include work funded through deposit work. Table 5.5 shows Licensee s investment plan for FY and FY along with the proposed funding of each component of the investment plan. The detail of activities carried out in each scheme has already been explained in section 3.2. Table 5-5: Transco Investment Plan: (Rs. Cr) Particular FY FY Loan Grant Deposit Equity Total Loan Grant Deposit Equity Total Equity from GOUP Loan REC PFC , Deposit Work Total , Petitioner has considered capitalisation of investment as 25% of the sum of opening WIP, investment made during the year (excluding deposit work), employees expenses capitalised, A&G expenses capitalised and interest capitalised. Detail of capitalisation & work in progress for the FY & FY is calculated in following table: Uttar Pradesh Power Transmission Corporation: TransCo Page 42

43 Table 5-6: Capitalisation & WIP of Investment during FY & FY Particulars (Rs Crs) FY FY Projected Projected Opening WIP A Investment B Employee Expenses C A&G Expenses D 3 3 Interest Capitalisation E Total Investments F=A+B+C+D+E Transferred to GFA (Total Capitalisation) G=25%*F Closing WIP H=F-G Notes: (1) Opening Balances as per provisional figures of FY (2) Capitalized expenses are from Table 5-3, 5-4 &5-10 (3) Transfer from WIP to GFA=25% of beginning WIP+25% of total investment, capitalized Interest, Capitalized employee cost, capitalized A&G expenses. Table 5-7: Gross Fixed Assets for FY & FY Particulars FY FY Projected Projected Opening GFA A Addition to GFA during the year B Closing GFA C=A+B Notes: (1) Opening Balances as per provisional figures of FY (2) Addition to GFA is taken from above table 5.7 Repair and Maintenance (R&M) Expenses The Hon ble commission in the last Tariff Order has approved a total R&M expenditure of Rs crs for FY as against Rs projected by the petitioner. As per un-audited balance sheet of FY the actual expenditure incurred by the licensees under R&M expenditure is Rs crs which is more than the amount approved by the commission. This increase is mainly attributed to substantial increase in raw material prices for electrical equipment and fuel cost. This has substantially increased the cost burden to the petitioner. Moreover, the petitioner has added a number of transformers, cables, grid substation, etc for which there has been an increase in the amount of annual maintenance contracts, this has translated to a higher R&M expenses in the ensuing year for the petitioner. Further petitioner has initiated proactive preventive maintenance and capital expenditure to improve the Uttar Pradesh Power Transmission Corporation: TransCo Page 43

44 quality of supply and reduction in number of overloaded transformer etc. The Forecast R&M expenses for FY & FY are summarized below: In this ARR petitioner has assumed same methodology as approved in last tariff order. Therefore R&M expenses have been projected from expenses of FY and has been increased with Escalation index only to offset impact of inflation. The amount so estimated has been spread out proportionally among the sub-accounts. Further as mentioned in clause: 5.3 an additional incremental expenses of 2.5% of GFA addition during the previous year has also been added. Table 5-8: R&M Expenses Details FY FY FY (Rs.Cr) Unaudited Estimated Projected Plant & Machinery Building Civil works (0.00) Other Expenses Lines, Cable Network, etc Vehicles Furniture & Fixtures Office equipment Additional of incremental GFA) Total Depreciation Expense The Commission in its Transmission Tariff Regulations has specified the methodology for the computation of depreciation. The regulation also specifies the rates to be used for the purpose of computation of the depreciation charged during the year. In the last Tariff Order the Commission has approved depreciation on the basis of weighted average depreciation rates as against specific depreciation rates for each class of asset. Further Transmission Tariff Regulations provide for charging depreciation on opening GFA and a pro-rata basis on assets capitalized during the year. Petitioner has used same methodology for computing depreciation in this ARR. In last tariff order Commission had assessed weighted average depreciation rate of 3.08%, so in this petition petitioner has also used same rate for depreciation. Uttar Pradesh Power Transmission Corporation: TransCo Page 44

45 The depreciation has been charged for the entire year on the opening GFA and prorata basis for the assets capitalized during the year. Opening GFA for FY has been taken from provisional balance sheet of FY Opening GFA for FY and addition to fixed assets has already been dealt in previous section. Hence based on the same and using above specified weight average depreciation rate of 3.08%,the petitioner has calculated depreciation for FY & FY in following table: Table 5-9: Depreciation Expenses Particular FY FY Projected Projected Depreciation Rate A 3.08% 3.08% Opening GFA B Addition to GFA during the year C Depreciation on opening GFA + addition during the year D= (A*B)+(C*A/2) Interest and Financing costs Transmission Tariff Regulation stipulate that Interest and finance charges on loan capital shall be computed on the outstanding loans based on the existing agreements and arrangements terms regarding the interest rate and the repayment schedules. Interest on fresh loans shall be allowed only on loan raised for projects approved and undertaken in accordance with the guidelines contained in Para 3.7 of these regulations. Accordingly petitioner has computed interest and financing costs for FY & FY based on the current schedule of long-term debt, repayments and new debt requirements for new project to be executed. The summary of the interest and finance costs is provided in Table 5-10 below: Uttar Pradesh Power Transmission Corporation: TransCo Page 45

46 Table 5-10: Details of Interest & Finance Cost Details FY FY FY (Rs.Cr) Unaudited Estimated Projected World Bank Loan R.E.C.'N' REC(uppcl) I.D.B.I P.F.C.(T.L.) P.F.C.(B.L.C.) N.C.R.P.B HUDCO REC Trans PFC Trans sub Total(I) Other Interest & Finance Charges Bank Charges Other Bank Charges Guarantee Fees Sub Total(II) Gross Interest & Financing Cost IDC Net Interest Cost Interest on Working Capital 1. The Transmission tariff regulation provides for normative interest on working Capital based on the methodology outlined in the regulations. The petitioner is eligible for interest on working capital worked out on methodology specified in the regulations. 2. Further Transmission tariff regulations provide following methodology for calculating working capital (i) Operation and Maintenance expenses, which includes Employee costs, R&M expenses and A&G expenses, for one month; (ii) One-twelfth of the sum of the book value of stores, materials and supplies at the end of each month of current financial year. Uttar Pradesh Power Transmission Corporation: TransCo Page 46

47 (iii) Receivables equivalent to 60 days average billing of consumers less security deposits by the beneficiaries 3. Rate of interest on working capital shall be the Bank Rate as specified by Reserve Bank of India as on 1st April Based on above methodology petitioner has computed interest on working capital in following table: Table 5-11: Interest on Working Capital Details FY FY FY (Rs.Cr) Unaudited Estimated Projected One month's O & M Expenses One-twelfth of the sum of the book value of stores, materials and supplies at the end of each month of such financial year Receivables equivalent to 60 days average billing of Beneficiaries Gross Total Security Deposits by the beneficiaries (if any ) Net Working Capital Rate of Interest for Working Capital 12.50% 12.50% Interest on Working Capital Other Income Other Income includes only non-tariff income, which comprises interest on loans and advances to employees, income from fixed rate investment deposits and interest on loans and advances to Licensees. It is estimated that other income will increase by inflation index for FY & FY from FY Uttar Pradesh Power Transmission Corporation: TransCo Page 47

48 Table 5-12: Summary of Other Income Details FY FY FY (Rs.Cr) Unaudited Estimated Projected Share of Income from the other businesses Interest on loan to Staff Income from Investments Revenue from surcharges for late payment Any other Income Total Non- tariff Income Reasonable return/ Return on Equity Under provisions of the Regulation licensees are allowed a return 14% on equity base, For equity base calculation debt equity ratio shall be 70:30.Where equity involves is more than 30%, the amount of equity for the purpose of tariff shall be limited to 30%.Equity amount more than 30% shall be considered as loan. In case of actual equity employed is less than 30%, actual debt and equity shall be considered for determination of tariff. In this petition return on equity has been computed as per methodology adopted by Hon ble Commission in last Tariff Order. In view of the huge gap in the recovery of cost of supply at the DisComs level, Petitioner is of the view that return on equity would only result in accumulation of receivables. As such Petitioner proposes to charge return on 2% for the financial year & FY ROE is being calculated on the equity inflow from GOUP up to FY and normative equity portion in capitalised assets during the year. Computation is provided in following table: Uttar Pradesh Power Transmission Corporation: TransCo Page 48

49 Table 5-13: Return on Equity Particulars (Rs Crs) Return on Equity Regulatory equity at the beginning Capitalised assets during the year Equity portion of expenditure on capitalised assets Regulatoryequity at the end FY FY FY , , , , , , Return computation Return Regulatory equity at the beginning Returnon Equity portion of expenditure on capitalised assets Total return on regulatory equity Provision for Bad and Doubtful Debts In last year Tariff petition Petitioner had projected Rs Cr as bad & doubtful debts but Hon ble Commission in its Tariff Order rejected this element of ARR with the view that Commission failed to understand the reason for bad debts. Here Petitioner would like to humbly submit to the Hon ble Commission that annual provisioning towards bad and doubtful debts is an accepted method of accounting. The amount, if any, written off towards bad debts is only adjusted against the accumulated provisions in the books, irrespective of the actual amount of bad debts during any particular year. Therefore petitioner maintains that this is a legitimate ARR component. As such petitioner has made provisions for bad debts Rs Crs for FY & Rs Crs for FY Service tax Para 4.9 of UPERC Transmission Regulations provide Any cess or duty or royalty or tax imposed by the State Government shall be allowed as pass through to be recovered from the distribution licensees / long term open access consumers in proportion of their allotted capacity or quantity of energy delivered, as the case may be. Uttar Pradesh Power Transmission Corporation: TransCo Page 49

50 Service tax if levied then only it will be charged as pass thru from the effective date in the tariff Revised Transmission Tariff for FY & FY : At the time of determination of transmission tariff for the years and the transfer scheme of UPPTCL was not finalized. As the opening balances for the successor transmission company were not available the balance sheet could not be prepared. Hence UPPTCL had applied for the transmission tariff for the years and based on best estimates available at that time. In this regard the Hon ble Commission had considered the above fact and had determined the transmission tariff for the years and The relevant excerpt of the tariff order for FY and FY dated April 15, 2008 has been reproduced below: Further, UPPTCL had filed its ARR and tariff petition for FY on July 30, During the course of ARR proceedings, a presentation was made by UPPTCL in the office of the Commission in Lucknow on 23rd October 2009 wherein UPPTCL presented a revised ARR / Tariff proposal which indicated some changes in the cost estimates. Therefore, the Hon ble Commission had directed UPPTCL to submit the revised ARR and tariff petition for consideration of the Hon ble Commission. UPPTCL in compliance with the above directions submitted this on December 1, In the revised petition, the UPPTCL had submitted corresponding figures considering actual unaudited data for FY , provisional accounts for FY and estimates/projections for FY Uttar Pradesh Power Transmission Corporation: TransCo Page 50