BEFORE THE MAHARASHTRA ELECTRICITY REGULATORY COMMISSION, MUMBAI JAIGAD POWERTRANSCO LIMITED (JPTL)

Transcription

1 BEFORE THE MAHARASHTRA ELECTRICITY REGULATORY COMMISSION, MUMBAI JAIGAD POWERTRANSCO LIMITED (JPTL) REVISED PETITION FOR APPROVAL OF TRUE UP OF FY & FY AND PROVISIONAL TRUE UP of FY AND MID TER M REVIEW OF FY & FY Filed by Jaigad Power Transco Limited

2 BEFORE THE MAHARASHTRA STATE ELECTRICITY REGULATORY COMMISSION, MUMBAI Case No. 167 of 2017 IN THE MATTER OF FILING OF THE REVISED PETITION FOR APPROVAL OF TRUE UP OF FY AND FY , PROVISIONAL TRUE UP OF FY AND MID TERM REVIEW OF FY AND FY OF JAIGAD POWER TRANSCO LIMITED (JPTL) UNDER MAHARASHTRA ELECTRICITY REGULATORY COMMISSION (MULTI YEAR TARIFF) REGULATIONS, 2011, MAHARASHTRA ELECTRICITY REGULATORY COMMISSION (MULTI YEAR TARIFF) REGULATIONS, 2015 AND UNDER SECTION 62 READ WITH SECTION 86 OF THE ELECTRICITY ACT 2003 AND SUBSEQUENT AMENDMENTS. AND IN THE MATTER OF JAIGAD POWER TRANSCO LIMITED (JPTL), NANDIWADE, KUNBIWADI, POST JAIGAD, RATNAGIRI , MAHARASHTRA PETITIONER PAGE No. 1

3 TABLE OF CONTENT 1. EXECUTIVE SUMMARY Preamble True Up for FY True Up for FY Provisional True Up for FY Mid Term Performance Review of FY & FY INTRODUCTION Preamble Background Provision of Law Petition Structure TRUE UP OF FY Preamble Provision of Law True Up of Aggregate Revenue Requirement of FY Operation and Maintenance Expenses Capital Expenditure and Capitalisation Depreciation Interest on Loan Capital Interest on Working Capital Return on Equity Contribution to Contingency Reserve Income Tax Non-Tariff Income: Incentive on Transmission Availability: Sharing of Gains and Losses Revenue Gap of Past Years: Annual Aggregate Revenue Requirement for FY : Revenue gap of FY TRUE UP OF FY Preamble PAGE No. 2

4 4.2. Provision of Law True Up of Aggregate Revenue Requirement of FY Operation and Maintenance Expenses Capital Expenditure and Capitalisation De-capitalisaiton of Assets Depreciation Interest on Loan Capital Interest on Working Capital Return on Equity Contribution to Contingency Reserve Income Tax Non-Tariff Income: Incentive on Transmission Availability: Sharing of Gains and Losses Impact of De-capitalisation Revenue Gap of Past Years: Annual Aggregate Revenue Requirement for FY : Revenue Gap for FY PROVISIONAL TRUE UP OF FY Preamble Provision of Law Provisional True Up of FY Operation and Maintenance Expenses Capital Expenditure and Capitalization Depreciation Interest on Loan Capital Refinancing of Loan Interest on Working Capital Return on Equity Contribution to Contingency Reserve Income Tax Non-Tariff Income: PAGE No. 3

5 5.4. Annual Aggregate Revenue Requirement for FY : Revenue Gap / Surplus of FY Carrying Cost of the past gaps MID TERM PERFORMANCE REVIEW OF FY & Preamble Provision of Law Redetermination of ARR for FY & Operation and Maintenance Expenses Capital Expenditure and Capitalization Depreciation Interest on Loan Capital Interest on Working Capital Return on Equity Contribution to Contingency Reserve Income Tax Non-Tariff Income: Annual Aggregate Revenue Requirement for FY & FY : Non-Receipt of Delayed Payment Charge OF Rs Crores from TSUs: JPTL Appeal in the Supreme Court of India regarding Delayed Payment Charges: PRAYERS TO HON BLE COMMISSION PAGE No. 4

6 LIST OF TABLES Table 1: Comparison of MYT Order & Audited Accounts for FY (Rs. Crores)... 8 Table 2: Comparison of MYT Order & Audited Accounts for FY (Rs. Crores)... 9 Table 3: Provisional True Up for FY (Rs. Crores) Table 4: Mid Term Performance Review of FY & FY (Rs. Crores) Table 5: Details of existing transmission system of JPTL Table 6: O & M Norms for MSETCL Table 7: O & M Expenses for JPTL as per Norms for FY Table 8: Actual O & M Expenses for FY (Rs. Crores) Table 9: Actual O & M Expenses for FY (Rs. Crores) Table 10: Actual Capitalisation for FY Table 11: Capital expenditure and Capitalisation for FY (Rs. Crores) Table 12: Depreciation Expenses for FY (Rs. Crores) Table 13: Interest on Debt for FY (Rs. Crores) Table 14: Interest on Working Capital for FY (Rs. Crores) Table 15: Return on Equity for FY (Rs. Crores) Table 16: Contribution to Contingency Reserve for FY (Rs. Crores) Table 17: Income Tax payable after reduction of efficiency gains, Income from Other Business and Incentive (Rs. Crore) Table 18: Income Tax for FY (Rs. Crores) Table 19: Non- Tariff Income for FY (Rs. Crores) Table 20: Incentive on higher transmission system availability Table 21: Sharing of Gains and Losses for FY Table 22: Annual Aggregate Revenue Requirement for FY (Rs. Crores) Table 23: Revenue entitled to recover for FY Table 24: Total ARR for FY including the past gap Table 25: O & M Norms for JPTL Table 26: O & M Expenses for JPTL as per Norms for FY Table 27: Actual O & M Expenses for FY (Rs. Crores) Table 28: Comparison O & M Expenses for FY (Rs. Crores) Table 29: Actual Capitalisation for FY Table 30: Capital Expenditure and Capitalisation for FY (Rs. Crores) Table 31: Depreciation Expenses for FY (Rs. Crores) Table 32: Interest on Debt for FY (Rs. Crores) Table 33: Interest on Working Capital for FY (Rs. Crores) Table 34: Return on Equity for FY (Rs. Crores) Table 35: Contribution to Contingency Reserve for FY (Rs. Crores) Table 36: Income Tax payable for FY (Rs. Crore) Table 37: Income Tax for FY (Rs. Crores) Table 38: Non-Tariff Income for FY (Rs. Crores) Table 39: Incentive on higher transmission system availability for FY PAGE No. 5

7 Table 40: Sharing of Gains and Losses for FY (Rs. Crores) Table 41: Impact of amount adjusted in ARR due to de-capitalisation Table 42: Annual Aggregate Revenue Requirement for FY (Rs. Crores) Table 43: Revenue to be considered as per Tariff Order for FY Table 44: Revenue Gap for FY (Rs. Crores) Table 45: O & M Expenses for JPTL as per Norms for FY Table 46: Estimated O & M Expenses for FY Table 47: Revised Cost of the Office Building Table 48: Capitalisation during FY (Rs. Lakhs) Table 49: Capital Expenditure for FY Table 50: Depreciation Expenses for FY Table 51: Interest on Debt for FY (Rs. Crores) Table 52: Finance Charges for refinance of Loan Table 53: Saving of interest on loan due to refinancing Table 54: Weighted Interest Rate on working capital Loan Table 55: Interest on Working Capital for FY (Rs. Crores) Table 56: Return on Equity for FY (Rs. Crores) Table 57: Contribution to Contingency Reserve for FY (Rs. Crores) Table 58: Income Tax for FY (Rs. Crores) Table 59: Income from Contingency Reserves Investment Table 60: Non-Tariff Income for FY (Rs. Crores) Table 61: Aggregate Revenue Requirement for FY Table 62: Revenue Gap / Surplus for FY Table 63: Carrying Cost claimed on past gap Table 64: O & M Expenses for JPTL as per Norms for FY & Table 65: Estimated O & M Expenses for FY & Table 66: Capital Expenditure for FY and FY Table 67: Depreciation Expenses for FY & FY Table 68: Interest on Debt for FY & FY (Rs. Crores) Table 69: Saving of interest on loan due to refinancing Table 70: Weighted Interest Rate on working capital Loan Table 71: Interest on Working Capital for FY & FY (Rs. Crores) Table 72: Return on Equity for FY & FY (Rs. Crores) Table 73: Contribution to Contingency Reserve for FY & FY (Rs. Crores) Table 74: Income Tax for FY & FY (Rs. Crores) Table 75: Income from Contingency Reserves Investment Table 76: Non-Tariff Income for FY & FY (Rs. Crores) Table 77: Aggregate Revenue Requirement for FY & FY PAGE No. 6

8 LIST OF ANNEXURES Annexure: 1 Audited Accounts for FY Annexure: 2 Documentary evidence for weighted average interest for FY Annexure: 3 Contingency Reserve Investment for FY Annexure: 4 Income Tax Challan paid in FY Annexure: 5 Reconciliation of Non-Tariff Income Annexure: 6 System Availability for FY Annexure: 7 Audited Accounts for FY Annexure: 8 Clarification on the increase in the carpet area of JPTL Proposed Building Annexure: 9 Revision in Bay cost Annexure: 10 Documentary evidence for weighted average interest for FY Annexure: 11 Contingency Reserve Investment for FY Annexure: 12 Income Tax Challan paid in FY Annexure: 13 SBI letter approving cash credit limit Annexure: 14 System Availability for FY Annexure: 15 Loan refinance arrangement with ABFL Annexure: 16 Cost benefit analysis of refinancing Annexure: 17 Replies to the Data Gaps Annexure: 18 Basis for computation of energy transmitted Annexure: 19 Statement of Interest payment and principal repayment for FY and FY PAGE No. 7

9 1. EXECUTIVE SUMMARY 1.1. Preamble This section sumarises the petition for True Up of FY and FY , Provisional True Up of FY and mid performance review of FY & FY of Jaigad Power Transco Limited True Up for FY JPTL has calculated its ARR for FY as part of True Up for FY JPTL has presented the actual cost based on audited annual accounts for FY and applied norms wherever applicable as per MERC (Multi Year Tariff) Regulations The detailed comparison of various cost components with cost approved by the Hon ble Commission as per MERC order Case No. 12 of 2016 dated 27th June 2016, has been presented in Chapter for True Up for FY A summary of the proposed True Up of FY with the approved ARR for FY is presented below: Table 1: Comparison of MYT Order & Audited Accounts for FY (Rs. Crores) Sl. No. Particulars Approved Actual Net Entitlement after sharing of Deviation gains/(losses) 1 Operation & Maintenance Expenses Depreciation Interest on Long-term Loan Interest on Working Capital Contribution to Contingency Reserves Income Tax Expense Total Revenue Expenditure Return on Equity Capital Gross Aggregate Revenue Requirement Less: Non-Tariff Income Add: Incentive Net Aggregate Revenue Requirement Add: Gap/ (Surplus) for FY including carrying cost Add: Gap/ (Surplus) for FY including carrying cost Revenue gap/ (surplus) including carrying/ (holding) cost for FY Add: Past period Recovery for 2 months of FY & FY Add: Carrying Cost / (Holding Cost) for contingency reserves Total Annual Revenue Requirement including past gaps PAGE No. 8

10 1.3. True Up for FY JPTL has calculated its ARR for FY as part of the True Up for FY JPTL has presented the actual cost based on audited annual accounts for FY and applied norms wherever applicable as per MERC (Multi Year Tariff) Regulations The detailed comparison of various cost components with cost approved by the Hon ble Commission as per MERC order CASE No. 12 of 2016 dated 27 th June 2016, has been presented in Chapter for True Up for FY A summary of the proposed True Up of FY with the approved ARR for FY is presented below: Table 2: Comparison of MYT Order & Audited Accounts for FY (Rs. Crores) Sl. No. Particulars Approved Actual Net Entitlement after sharing of Deviation gains/(losses) 1 Operation & Maintenance Expenses Depreciation Interest on Long-term Loan Interest on Working Capital Contribution to Contingency Reserves Income Tax Expense Total Revenue Expenditure Return on Equity Capital Gross Aggregate Revenue Requirement Less: Non-Tariff Income Add: Incentive Net Aggregate Revenue Requirement Revenue gap/ (surplus) including carrying/ (holding) cost for FY Revenue gap/ (surplus) cost for FY Less: Return on surplus Fund invested in market Total Annual Revenue Requirement including past gaps Provisional True Up for FY As per MERC (Multi Year Tariff) Regulations, 2015, provisional true up of FY is based on the approved forecast in the MYT order and half yearly results. The summary of the ARR is shown in table below: PAGE No. 9

11 Table 3: Provisional True Up for FY (Rs. Crores) Sl. No. Particulars Approved Provisional FY Operation & Maintenance Expenses Depreciation Interest on Long-term Loan Interest on Working Capital Contribution to Contingency Reserves Income Tax Expense Total Revenue Expenditure Return on Equity Capital Gross Aggregate Revenue Requirement Less: Non-Tariff Income Add: Net Entitlement after sharing of gains/(losses) - refinancing of loan - clause of MYT Regulations Net Aggregate Revenue Requirement Total Annual Revenue Requirement Mid Term Performance Review of FY & FY As per MERC (Multi Year Tariff) Regulations, 2015, mid-term performance review for FY & is based on the approved forecast in the MYT order. The summary of the ARR is shown in table below: Table 4: Mid Term Performance Review of FY & FY (Rs. Crores) Sl. No. Particulars Approved Estimates Approved Estimates FY FY Operation & Maintenance Expenses Depreciation Interest on Long-term Loan Interest on Working Capital Contribution to Contingency Reserves Income Tax Expense Total Revenue Expenditure Return on Equity Capital Gross Aggregate Revenue Requirement Less: Non-Tariff Income Add: Net Entitlement after sharing of gains/(losses) - refinancing of loan - clause of MYT Regulations Net Aggregate Revenue Requirement Add: Gap/ (Surplus) for FY & FY Add: Gap/ (Surplus) for FY Carrying cost of above gap Total Annual Revenue Requirement including past gaps PAGE No. 10

12 2. INTRODUCTION 2.1. Preamble This section presents the background and reasons for filing of this Petition Background a) Jaigad Power Transco Limited (JPTL) is a Joint Venture between JSW Energy Limited (JSWEL) and Maharashtra State Electricity Transmission Company Limited (MSETCL) which has developed, operates and maintains the transmission system consisting of two 400 kv transmission lines along with associated equipment and terminal bays, etc. Table 5: Details of existing transmission system of JPTL Name of the Line Jaigad New Koyna Jaigad Karad Line Length & Voltage Level 55 kms 400 kv Double Circuit (Quad) transmission line 110 kms 400 kv Double Circuit (Quad) transmission line District Ratnagiri, Maharashtra Ratnagiri / Satara, Maharashtra Grid Interface Point MSETCL Substation, New Koyna MSETCL Substation, Karad COD 7 th July nd December 2011 b) The Hon ble Commission has granted the Transmission License (License No. 1 of 2009) on February 8, 2009, for a period of 25 years to JPTL for establishing, operating and maintaining the above referred transmission system including the associated infrastructure and hence as per Electricity Act, 2003, JPTL is a transmission licensee within the state of Maharashtra for above transmission system. c) JPTL had submitted its MYT Petition on January 28, 2016 for third control period from FY , FY and FY The Hon ble Commission has approved the ARR for third control period vide order dated June 27, d) As per MERC MYT Regulations, 2011, JPTL through this petition has submitted the True Up of FY and as per MERC MYT Regulations, 2015 and the True Up of FY , Provisional True Up for FY and mid-term performance review of FY and FY on 29 th November 2017 to the Hon ble Commission. PAGE No. 11

13 e) Subsequently, the Hon ble Commission asked for data gap queries Set-1 notified by MERC vide dated 8 th December 2017 and 22st December 2017 against the said case no. 167 of Also, a detailed discussion was carried out with MERC officials on 12 th December 2017 on the said data gaps and was directed to file the revised Petition post including the changes as claimed in the Data Gaps. f) In line with the same as per the directions of the Hon ble Commission, JPTL is submitting the revised petition including the relevant disclosure wherever required and specified in the data gaps which are also Annexure: 17 to this Petition Provision of Law a) The Hon ble Commission has notified the MYT Regulations, The scope of the regulations includes tariff determination for transmission licensee under the Multi Year Tariff principle. From FY to FY Hence the True Up petition for FY is as per the provisions of MERC MYT Regulations, b) The Hon ble Commission has notified the MYT Regulations, The scope of the regulations includes tariff determination for transmission licensee under the Multi Year Tariff principle. From FY onwards, the MERC MYT Regulations, 2015 are applicable, hence the True Up petition for FY , Provisional True Up for FY and mid-term performance review of FY and FY are as per the provisions of MERC MYT Regulations, Scope of Regulations 3.1 The Commission shall determine the Aggregate Revenue Requirement, Tariff and Fees and Charges, including terms and conditions thereof, in accordance with these Regulations for all matters for which the Commission has jurisdiction under the Act, including the following:.. (ii) For Intra-State transmission of electricity;. Provided that the Commission shall determine such Tariff and Fees and Charges, having regard to the terms and conditions contained in Parts E, F, G, H and I of these Regulations, as may be applicable. 5. Petitions to be filed in the Control Period: 5.1 The Petitions to be filed in the Control Period under these Regulations are as under: PAGE No. 12

14 (a). (b) Mid-Term Review Petition shall be filed by November 30, 2017, comprising: (i) Truing-up for FY to be carried out under the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2011; (ii) Truing-up for FY to be carried out under the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2015; (iii) Provisional Truing-up for FY to be carried out under the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2015; (iv) Revised forecast of Aggregate Revenue Requirement, expected revenue from existing Tariff and charges, expected revenue gap and proposed category-wise Tariff for the third and fourth year of the Control Period; (c) Petition Structure The MYT Petition includes the following sections: Sr. No. Section Contents 1 Section 1 Executive summary of Petition 2 Section 2 Introduction and overall approach to filling the Petition 3 Section 3 True Up of FY Section 4 True Up of FY Section 5 Provisional True Up for FY Section 6 Mid-term performance review of FY & FY Section 7 Prayers to the Hon ble Commission PAGE No. 13

15 3. TRUE UP OF FY Preamble This section outlines performance of JPTL for FY In line with provisions of MYT Regulations, 2011, JPTL hereby submits the True Up Petition comparing the actual performance of JPTL during FY with the forecast approved by the Hon ble Commission vide MYT Order dated June 27, Provision of Law For MYT control period up to FY , the Hon ble Commission has notified MYT Regulations, 2011 and the same are applicable for treatment of True Up petition for FY The scope of regulations includes tariff determination for transmission licensee under the Multi Year Tariff principle. Thereafter the Hon ble Commission notified the MYT Regulations, 2015 which are applicable from FY Hence, JPTL is submitting the True Up petition for FY as per the provisions of MERC MYT Regulations, True Up of Aggregate Revenue Requirement of FY The audited annual accounts for FY are attached to this petition as Annexure: 1. As per the provisions of MYT Regulations, 2011, JPTL seeks true up of its expenses and revenue for FY Operation and Maintenance Expenses a) MERC MYT Regulations, 2011 are applicable for tariff determination of transmission licensee for the period up to March 31, The norms for O & M expenditure for transmission licensees are specified in these regulations, relevant paragraph of the regulation is reproduced below: 61.5 Operation and Maintenance expenses The norms for O&M expenses for existing and new Transmission Licensees have been stipulated for the Control Period on the basis of circuit kilometre of transmission lines and number of bays in the substation of the Transmission Licensee, as given below: Explanation: For the purpose of deriving normative O&M expenses under these Regulations, the Bay shall mean a set of accessories that are required to connect an electrical equipment such as Transmission Line, Bus Section Breakers, Potential Transformers, Power Transformers, Capacitors and Transfer Breaker and the feeders emanating from the bus at Sub-station of Transmission Licensee. Further, the Bays referred herein shall include only the Bays at the Transmission substation and shall exclude any Bays of the Generating Station switchyard whose maintenance is usually PAGE No. 14

16 the responsibility of the Generating Company. Provided that for deriving the O&M expenses of a year, the circuit kilometre of transmission lines and number of bays in the substation of the Transmission Licensee added during the year shall also be considered. Table 6: O & M Norms for MSETCL Sr. No. Voltage Level Unit Norms for FY kv Transmission Lines Rs. Lakh/ckt km kv Terminal Bays Rs. Lakh/bay O&M Norms for New Transmission Licensee For the new Transmission Licensees, the year-wise O&M norms as stipulated for MSETCL shall be the applicable norms for transmission assets added by such new Transmission Licensee(s) for respective year during the third Control Period. Provided that the same shall not be applicable to those new projects which are awarded on a competitive bidding basis. Explanation: The term "New Transmission Licensee" shall mean the transmission licensee(s) for which Transmission Licence is granted by the Commission prior to or after the date of effectiveness of these Regulations, and whose transmission project assets are commissioned after March 31, b) As specified above, O & M norms for each year of control period from FY to FY for New Transmission Licensee in the State are linked to the norms specified for MSETCL and the same are applicable for calculating the O & M norms for JPTL. Accordingly, the Hon ble Commission approved net O & M expenses of Rs Crores for FY based on norms stipulated under MYT Regulations, c) JPTL submits that the actual O & M expenses for FY are lower than the norms specified in the MYT Regulations. Due to various efforts employed by JPTL in managing and optimising the O & M expenses, the overall R & M expenses for lines & bays has reduced compared with the norms. Table 7: O & M Expenses for JPTL as per Norms for FY Particulars Unit Normative O &M Length of Line of 400 kv(a) ckt. kms Norms as per Regulations (B) Rs. lakh/ ckt. kms Cost (C = A * B) Rs. Crore 2.18 No of bays (D) No Norms as per Regulations (E ) Rs. lakh/ bay Cost (F = D * E) Rs. Crore 4.68 Total O&M expenses (G = C + F) Rs. Crore 6.86 PAGE No. 15

17 Table 8: Actual O & M Expenses for FY (Rs. Crores) Particulars As per norms Actual Employee expense 0.91 Administrative and General 1.35 expense 2.18 Repairs and Maintenance 0.72 expense O&M expenses for lines 2.98 O&M expenses for terminal bays as per the contract with MSETCL Total O&M expenses d) Comparison of O & M Expense approved by the Hon ble Commission and O & M Expense as per norms for FY and actual is shown below Table 9: Actual O & M Expenses for FY (Rs. Crores) Particulars Normative Actual O & M Expenses for line 2.18 O & M Expenses for terminal bays 4.68 Total O & M Expenses e) JPTL request the Hon ble Commission to approve the submitted O & M Expenses for FY for determination of ARR Capital Expenditure and Capitalisation a) JPTL in its petition for provisional true up of FY had submitted capital expenditure and capitalisation of Rs Crore for items like laptops, heavy duty rack, aluminium ladder, UPVC porta cabin, etc. for FY The Hon ble Commission vide order dated June 27, 2016 has approved the above capitalisation for FY The relevant para is reproduced below: Commission s Analysis and Ruling As sought by the Commission, JPTL submitted the details of capitalisation proposed for FY vide letter dated 18 th February 2016, stating that it had incurred capital expenditure on items like laptops, heavy duty racks, aluminium ladders and UPVC porta cabin which is proposed to be capitalized in FY The Commission provisionally approves the capitalisation of assets as Rs Crore. PAGE No. 16

18 b) Accordingly, the actual capitalisation incurred for FY is highlighted in the table below: Table 10: Actual Capitalisation for FY Sr. No. Particulars Amounts (Rs. Lakhs) 1. UPVC PORTA CABIN HEAVY DUTY RACK ALUMINIUM LADDER HEAVY DUTY STORAGE, LAPTOP TOTAL 8.95 c) Based on the above, JPTL request the Hon ble Commission to approve the actual capital expenditure and addition to the GFA as outlined below: Table 11: Capital expenditure and Capitalisation for FY (Rs. Crores) FY * Sr. No. Particulars MYT Order April-March (Audited ) True-Up requirement (a) (b) (c) = (b) - (a) 1 Capital Expenditure Capitalisation IDC - 4 Capitalisation + IDC Depreciation a) Regulation 31 of MERC (MYT) Regulation, 2011 provides for computation of depreciation to be estimated by JPTL based on capital cost of assets approved by the Hon ble Commission and rates of depreciation applicable as per Annexure 1 specified in the Regulation 31.2 (b) of MERC (MYT) Regulation, b) Regulation 31.5 of MERC (MYT) Regulation, 2011 also provides for depreciation to be calculated based on average of opening and closing value of assets for assets having achieved commercial operation for only part of the financial year. c) Actual addition of assets as per audited statement of accounts is taken in consideration for calculation of depreciation. d) JPTL has calculated the depreciation considering the addition of assets during FY and based on applicable depreciation rate specified in the above referred regulations. The depreciation has been computed based on actual date of addition of assets during the financial year. PAGE No. 17

19 Table 12: Depreciation Expenses for FY (Rs. Crores) Particulars Approved Actual Opening GFA Addition of GFA Retirement of GFA 0.00 Closing GFA Depreciation Average Depn. Rate 5.28% 5.28% e) JPTL request the Hon ble Commission to approve the submitted Depreciation for FY for determination of ARR Interest on Loan Capital a) The Hon ble Commission has approved a debt equity ratio of 75:25 during the inprinciple approval of project cost of the transmission system for JPTL. b) JPTL has considered debt equity ratio of 70:30 for small additional capital expenditure considered in FY against the details as specified in Table 10 of the Petition, in line with norms specified in the Regulation 33.1 of MYT Regulations. c) The repayment for FY is considered equal to the depreciation for the year as specified in Regulation 33.3 MERC (MYT) Regulation, 2011, relevant para reproduced below: The repayment for the year of the tariff period FY to FY shall be equal to the depreciation allowed for that year. d) As per the clause 33.5 of MYT Regulations 2011, it states as follows: 33.5 The rate of interest shall be the weighted average rate of interest calculated on the basis of the actual loan portfolio at the beginning of each year applicable to the Generating Company or the Transmission Licensee or the Distribution Licensee: e) During the process of filing of tariff petition during 2015, as part of submission of details of data gaps, JPTL has already submitted the weighted average rate of interest at % calculated on the basis of actual loan portfolio at the beginning of the year. JPTL submitted all the supporting documents on 18 th February and 9 th March Accordingly, JPTL has considered the weighted average interest rate for FY as %. f) However, Documentary evidence for weighted average % on loan capital for FY is re-submitted by JPTL as reply to Data Gap-1 as Annexure: 2 of this petition. PAGE No. 18

20 Table 13: Interest on Debt for FY (Rs. Crores) Particulars Approved Actual Opening balance of Debt Addition Repayment Retirement Closing Debt Interest Rate (%) 11.50% 11.5% Interest on the Debt Capital operation Finance Charges 0.08 Total Interest and Finance charges g) Also, in addition to the interest claimed on the normative loan, JPTL has also incurred finance charges such as bank charges, commitment charges, annual processing charges, etc. h) JPTL requests the Hon ble Commission to approve the Interest on loan and the finance charges as submitted above for FY for determination of ARR Interest on Working Capital a) Regulation 35.2 of the MYT Regulations, 2011 specifies the methodology for assessment of Working Capital requirements by a Transmission Licensee: 35.2 (a) The Transmission Licensee shall be allowed interest on the estimated level of Working Capital for the financial year, computed as follows: i. One-twelfth (1/12) of the amount of operation and maintenance expenses for such financial year; plus ii. One-twelfth (1/12) of the sum of the book value of stores, materials and supplies including fuel on hand at the end of each month of such financial year; plus iii. One and a half (1.1/2) months equivalent of the expected revenue from transmission charges at the prevailing tariffs; minus iv. Amount, if any, held as security deposits from Transmission System Users b) JPTL has calculated the expected revenue considering the ARR proposed along with past recoveries for computation of Working Capital requirement as the same was recoverable as revenue in FY and the Regulations state that while computing the Working capital requirement, it is necessary to calculate the expected revenue from transmission charges. The expected revenue includes the past gap as approved by the Hon ble Commission in its past orders and is not restricted to ARR of FY only. c) Interest on working capital is calculated according to Regulation 35.2 (b) of MERC (MYT) Regulation, 2011, relevant para reproduced below: Rate of interest on working capital shall be on normative basis and shall be equal to the State Bank Advance Rate (SBAR) of State Bank of India as on the date on which PAGE No. 19

21 application for determination of tariff is made d) Based on the above referred regulation, interest on working capital has been calculated at the rate of % equivalent to SBAR as approved by the Hon ble Commission in its tariff order dated 27 th June e) JPTL has calculated interest on working capital as per norms, as shown is table below: Table 14: Interest on Working Capital for FY (Rs. Crores) Particulars Approved Actual O&M Expenses Stores, Materials & Supplies Expected Revenue from Transmission Tariff Total Working Capital Rate of Interest on Working Capital 14.75% 14.75% Interest on Working Capital f) JPTL request the Hon ble Commission to approve the Interest on Working Capital as submitted above for FY for determination of ARR Return on Equity a) Return on Equity is calculated as per the regulated rate of return of 15.5 % on the average opening and closing balance of equity capital for the financial year based on Regulation 32 of MERC (MYT) Regulation, 2011 b) JPTL has considered addition to equity capital at 30% for additional capital expenditure capitalised during the financial year for furniture & fixtures and office equipment s as per Regulation 33.1 of MERC (MYT) Regulation, 2011 Table 15: Return on Equity for FY (Rs. Crores) Particulars Approved Actual Opening Equity Additions to equity towards capital investments Retirement Closing balance of Equity % on the average balance c) JPTL request the Hon ble Commission to approve the Return on Equity as submitted above for FY for determination of ARR Contribution to Contingency Reserve PAGE No. 20

22 a) For contribution to Contingency Reserve, the same is based on MERC (MYT) Regulation, 2011, relevant para reproduced below: 36 Contribution to contingency reserves 36.1 Where the Transmission Licensee or Distribution Licensee has made an appropriation to the Contingency Reserve, a sum not less than 0.25 per cent and not more than 0.5 per cent of the original cost of fixed assets shall be allowed annually towards such appropriation in the calculation of aggregate revenue requirement: Provided that where the amount of such Contingencies Reserves exceeds five (5) per cent of the original cost of fixed assets, no such appropriation shall be allowed which would have the effect of increasing the reserve beyond the said maximum: Provided further that the amount so appropriated shall be invested in securities authorised under the Indian Trusts Act, 1882 within a period of six months of the close of the financial year. b) The Hon ble Commission vide MYT order dated August 16, 2013 has approved a contingency reserve of 0.25 % of original cost of fixed assets. The relevant para of the said order is reproduced below: The Commission has allowed contribution to contingency reserves at 0.25 % of the opening GFA in accordance with the provisions of the MERC MYT Regulations. c) Based on above provisions, JPTL has provided for contingency reserve in the audited accounts and as invested as per the MERC MYT Regulations, The detail of amount invested is attached in Annexure: 3 of the Petition. Table 16: Contribution to Contingency Reserve for FY (Rs. Crores) Particulars Approved Actual GFA Contribution to contingency reserves Income Tax a) Income Tax of Rs Crore in FY has been computed considering the current Minimum Alternate Tax (MAT) rate of 21.35%. The deviation in the Income Tax is mainly due to True-up for FY and FY along with carrying costs. b) The MYT Regulations, 2011 stipulate that Income Tax on account of efficiency gains, Income from Other Business and incentive shall not be a pass through: 34.1 The Commission, in its MYT Order, shall provisionally approve Income Tax payable for each year of the Control Period, if any, based on the actual income tax paid on permissible PAGE No. 21

23 return as allowed by the Commission relating to the electricity business regulated by the Commission, as per latest Audited Accounts available for the applicant, subject to prudence check: Provided that no Income Tax shall be considered on the amount of efficiency gains and incentive earned by the Generating Companies, Transmission Licensees and Distribution Licensees. c) However, as Clause 34.1 of the Regulations states that no income tax shall be considered on incentive earned by Transmission licensee, it is submitted that the incentive claimed in ARR for FY is post finalisation of the audited accounts and hence the income tax was not payable on the same. Accordingly, the same is not reduced from the Profit. d) Also, it is submitted that while computing income tax as per regulations, income tax on other income which is earned by the Licensee but not reduced from ARR is also not to be considered. However, JPTL submits that due to de-capitalisaiton of the assets, JPTL has considered the Opportunity cost on surplus fund and has reduced ARR to that extent. Therefore, JPTL submits that they are entitle to claim income tax on the surplus fund adjusted in ARR and hence the same is adjusted. e) Based on the above, computation of the net tax payable after reducing gains, Income from Other Business from the taxable income and adding the Return on surplus fund, the computation of income tax is provided as below: Table 17: Income Tax payable after reduction of efficiency gains, Income from Other Business and Incentive (Rs. Crore) Income Tax payable after reduction of efficiency gains, Income from Other Business and Incentive (Rs. Crore) FY Particular (excluding Actual gains & incentive) Profit Before Tax Add: Income from Surplus fund 0.36 Less: Income from other business 2.51 Gain/(loss) 1.58 Book Profit Tax payable on book profit Interest on tax Net Tax Income Tax Rate 21.35% 21.35% f) Accordingly, JPTL claims income tax of Rs Crores in FY and the same is displayed in table below: PAGE No. 22

24 Table 18: Income Tax for FY (Rs. Crores) Particulars Approved Actual Income Tax g) Actual Income Tax payment challan is attached to this petition as Annexure: 4 and request the Hon ble Commission to kindly approve the same on actual basis Non-Tariff Income: a) As per Regulation 36.1 of MERC MYT Regulations, 2011, out of the revenue recovered, the amount accumulated against the contribution to contingency reserve is required to be invested in securities authorized under Indian Trust Act, 1882 within six months of the close of the financial year, which shall be treated as non-tariff income. b) The non- tariff income includes income from investments made by JPTL. However, it is submitted that the Delay Payment charges of Rs Crs has not been claimed by JPTL in determination of ARR for FY as the matter is sub-judice and is pending with the Supreme Court. c) An amount of Rs Crore is interest income from investment in government recognised instruments for contingency reserve, the same is considered as Non-Tariff Income for FY d) In the Audited Annual Accounts for FY , an amount of Rs crores is on account of gain on sale of current investments. JPTL clarifies that this income is on account of Mutual Funds which have been funded from internal accruals, and is therefore not considered in the Non-Tariff Income. The detail reconciliation of the Non- Tariff Income as per audited accounts and claimed in this petition, which was sought in the data gaps is enclosed as per Annexure: 5. e) Accordingly, JPTL is only claiming the interest on contingency reserve investment and request the Hon ble Commission to approve the same as non-tariff income. Table 19: Non- Tariff Income for FY (Rs. Crores) Particulars Approved Actual Non-Tariff Income Incentive on Transmission Availability: a) JPTL has further claimed that as per Order dated 27 June 2006 in Case No. 58 of 2005, it would be entitled for incentive on availability greater than 98%. The Commission, in its Order in Case No. 58 of 2005 had ruled as under: PAGE No. 23

25 2.8.7 Accordingly, the Commission rules that the transmission licensee shall be entitled to incentive on achieving annual availability beyond the target availability as stipulated under MERC (Terms and Conditions for Tariff) Regulations 2005, in accordance with the following formula: Incentive = Annual Transmission Charges x [Annual availability achieved Target Availability] / Target Availability; Where, Annual transmission Charges shall correspond to ARR for the particular transmission licensee within State, as the case may be. Provided that no incentive shall be payable above the availability of 99.75% for AC system and 98.5% for HVDC system. b) The MERC MYT Regulations, 2011 specify the following: 60 Norms for operation 60.1 Target availability for full recovery of annual transmission charges (a) AC system: 98 per cent (b) HVDC bi-pole links: 92 per cent (c) and HVDC back-to-back stations: 95 per cent Note 1: Recovery of annual transmission charges below the level of target availability shall be on pro rata basis. At zero availability, no transmission charges shall be payable. Note 2: The target availability shall be calculated in accordance with procedure provided in the Annexure-II to these Regulations and to be certified by Maharashtra State Load Despatch Centre The Transmission Licensee shall be entitled to incentive on achieving annual availability beyond the target availability, in accordance with the following formula: Incentive = Annual Transmission Charges x [Annual availability achieved Target Availability] / Target Availability; Where, Annual transmission Charges shall correspond to Aggregate Revenue Requirement for each year of the Control Period for the particular Transmission Licensee within the State: Provided that no incentive shall be payable above the availability of 99.75% for AC system and 98.5% for HVDC system: Provided further that the computation of incentive/disincentive shall be undertaken during mid-term performance review and at the end of Control Period. c) It is submitted that in the last tariff order dated 27 th June 2016 in case no. 12 of 2016, the Hon ble Commission has calculated incentive after deducting income tax and as stated as below: Accordingly, the Commission has computed the incentive for Transmission PAGE No. 24

26 System in accordance with the Regulations and considering the approved ARR. The Commission has not considered Income Tax as part of the ARR for the computation of incentive. d) However, JPTL would like to submit that as per MYT Regulations, 2011, the detail calculation is provided as below: 34 Tax on Income Provided that no Income Tax shall be considered on the amount of efficiency gains and incentive earned by the Generating Companies, Transmission Licensees and Distribution Licensees. 60 Norms for operation 60.2 The Transmission Licensee shall be entitled to incentive on achieving annual availability beyond the target availability, in accordance with the following formula: Incentive = Annual Transmission Charges x [Annual availability achieved Target Availability] / Target Availability; Where, Annual transmission Charges shall correspond to Aggregate Revenue Requirement for each year of the Control Period for the particular Transmission Licensee within the State, as the case may be: As specified in the above clause, Incentive is calculated on the Annual Transmission Charges which also includes the income tax paid by the licensee and allowed by the Hon ble Commission for the recovery of the same from the Transmission System User. Therefore, in line with the Regulations, JPTL is claiming incentive on the total Annual transmission charges including income tax but excluding any efficiency gains/loss. e) The actual transmission system availability is % and the incentive on the basis of actual availability works out to Rs Crores for FY : Table 20: Incentive on higher transmission system availability Particulars FY Annual Transmission Charges (Rs. Crore) Target Availability (%) 98.00% Actual Availability Achieved (%) 99.78% Upper Cap for Incentive Availability 99.75% Incentive (Rs. Crore) 1.92 f) The System Availability based on certification by Maharashtra State Load Despatch Centre (MSLDC) is enclosed as per Annexure: 6 of this Petition Sharing of Gains and Losses PAGE No. 25

27 a) The relevant provisions of MERC (MYT) Regulation, 2011 stipulating the sharing of gains/losses due to controllable factors is reproduced below: 14 Mechanism for sharing of gains or losses on account of controllable factors 14.1 The approved aggregate gain to the Generating Company or Transmission Licensee or Distribution Licensee on account of controllable factors shall be dealt with in the following manner: (a) One-third of the amount of such gain shall be passed on as a rebate in tariff over such period as may be stipulated in the Order of the Commission under Regulation 11.6; (b) The balance amount, which will amount to two-third of such gain, may be utilised at the discretion of the Generating Company or Transmission Licensee or Distribution Licensee The approved aggregate loss to the Generating Company or Transmission Licensee or Distribution Licensee on account of controllable factors shall be dealt with in the following manner: (a) One-third of the amount of such loss may be passed on as an additional charge in tariff over such period as may be stipulated in the Order of the Commission under Regulation 11.6; and (b) The balance amount of loss shall be absorbed by the Generating Company or Transmission Licensee or Distribution Licensee Gains and losses on account of controllable factors during the second Control Period shall be shared with the consumers at the time of Mid-term Performance Review and also at the time of tariff determination process of third Control Period. MERC MYT Regulations, 2011 has defined various controllable and uncontrollable factors for transmission licensee. The relevant para is reproduced below: 12 Controllable and uncontrollable factors Some illustrative variations or expected variations in the performance of the applicant, which may be attributed by the Commission to controllable factors include, but are not limited to the following: (a) Variations in capital expenditure on account of time and/or cost overruns/ efficiencies in the implementation of a capital expenditure project not attributable to an approved change in scope of such project, change in statutory levies or force majeure events; (b) Variations in technical and commercial losses, including bad debts; (c) Variations in performance parameters; (d) Variations in working capital requirements; (e) Failure to meet the standards specified in the Standards of Performance Regulations, except where exempted in accordance with those Regulations; (f) Variations in labour productivity; (g) Variation in operation & maintenance expenses; PAGE No. 26

28 (h) Variation in Wires Availability and Supply Availability; and (i) Coal transit losses. b) The O & M expense of JPTL for said transmission system is significantly less than the norms specified for JPTL. As defined in the MERC MYT Regulations, 2011, JPTL submits that the expenditure incurred for O & M expenses were controllable due to various efficiency measures implemented by JPTL for optimising and managing the O & M expenses as explained in the O & M expense section of this petition. c) JPTL has also claimed the sharing of loss in the interest on working capital which has been increased due to increase in revenue receivable entitled by JPTL due to past recoveries which was recoverable as revenue in FY and the Regulations state that while computing the Working capital requirement, it is necessary to calculate the expected revenue from transmission charges. The expected revenue includes the past gap as approved by the Hon ble Commission in its past orders and is not restricted to ARR of FY only. d) JPTL has considered sharing of efficiency gains in accordance with the MERC MYT Regulations, 2011 as show in the table below: Table 21: Sharing of Gains and Losses for FY O&M Expenses FY Particulars MYT Order Actual Entitlement as per Regulations/ Order Variation 2/3rd of efficiency gain / loss retained by JPTL Net entitlement after sharing of gains /losses O & M Expense Interest on working capital Total e) JPTL request the Hon ble Commission to approve the above amount towards sharing of efficiency gains Revenue Gap of Past Years: a) The Hon ble Commission in its Order dated June 26, 2015 has approved the revenue gap of past period from FY to FY and allowed the recovery of the same in FY The relevant para of the order is reproduced below: 4.15 Cumulative ARR recovery for FY Commission s Analysis Based on the analysis detailed in the foregoing Sections, the Commission has approved the revenue gap/ (surplus) for FY , FY and FY as PAGE No. 27

29 summarized in the Table below: b) Based on the above, cumulative ARR to be recovered in FY is as shown below: c) Accordingly, JPTL has claimed the past revenue gap as approved by Hon ble Commission in ARR for FY Annual Aggregate Revenue Requirement for FY : Based on the parameters as explained and submitted in the above section, the Annual Revenue Requirement for JPTL for FY is summarized in the table below: PAGE No. 28

30 Table 22: Annual Aggregate Revenue Requirement for FY (Rs. Crores) Sl. No. Particulars Approved Actual Net Entitlement after sharing of Deviation gains/(losses) 1 Operation & Maintenance Expenses Depreciation Interest on Long-term Loan Interest on Working Capital Contribution to Contingency Reserves Income Tax Expense Total Revenue Expenditure Return on Equity Capital Gross Aggregate Revenue Requirement Less: Non-Tariff Income Add: Incentive Net Aggregate Revenue Requirement Add: Gap/ (Surplus) for FY including carrying cost Add: Gap/ (Surplus) for FY including carrying cost Revenue gap/ (surplus) including carrying/ (holding) cost for FY Add: Past period Recovery for 2 months of FY & FY Add: Carrying Cost / (Holding Cost) for contingency reserves Total Annual Revenue Requirement including past gaps Revenue gap of FY a) For FY , the ARR (Revenue) recovered through transmission tariff is Rs Crs based on the Transmission Tariff of Intra-State Transmission System approved by Hon ble Commission vide Order No. 123 of 2014 (applicable for April to May 2015) and Order No. 57 of 2015 (applicable for June 2015 to March 2016). The revenue in line with the tariff order is submitted in line with the Data gaps raised by the Hon ble Commission vide dated 18th December Earlier the revenue submitted was in line with accounts which follows the principle of accrual basis of accounting. However, in line with the gap approved for past year and the ARR for FY , JPTL is entitled to recover total revenue of Rs crores which includes the revenue gap of FY , FY , FY & FY including the carrying cost & net of holding cost of Rs Crores. PAGE No. 29

31 Table 23: Revenue entitled to recover for FY Particulars Approved Accounted Net Aggregate Revenue Requirement Add: Gap/ (Surplus) for FY including carrying cost Add: Gap/ (Surplus) for FY including carrying cost 9.93 Revenue gap/ (surplus) including carrying/ (holding) cost for FY Add: Past period Recovery for 2 months of FY & FY Add: Carrying Cost / (Holding Cost) for contingency reserves Revenue Recovery for the month of April 2015 to May 2015 as per Case No. 123 of Rs Crs per month Revenue Recovery for the month of June 2015 to March 2016 as per Case No. 57 of Rs Crs per month Revenue to be considered for ARR b) JPTL request the Hon ble Commission to approve the revenue gap for recovery from the ARR. The total ARR for FY including the past gap and the carrying cost is given below Table 24: Total ARR for FY including the past gap Sl.No. Particulars Actual 1 Total ARR ARR recovered through Transmission Tariff Revenue Gap Carrying Cost 7.68 PAGE No. 30

32 4. TRUE UP OF FY Preamble This section outlines performance of JPTL for FY In line with provisions of MYT Regulations, 2015, JPTL hereby submits the True Up Petition comparing the actual performance of JPTL during FY with the forecast approved by the Hon ble Commission vide MYT Order dated June 27, Provision of Law For the MYT control period starting from FY , the Hon ble Commission notified the MYT Regulations, 2015 and the same are applicable for treatment of True Up petition for FY The scope of the regulation includes tariff determination for transmission licensee under the Multi Year Tariff principle. Accordingly, JPTL submits the True Up petition for FY as per the provisions of MERC MYT Regulations, True Up of Aggregate Revenue Requirement of FY As part of the True Up petition for FY , the audited annual accounts for FY are attached as Annexure: 7 to this petition. As per the provisions of MERC MYT Regulations, 2015, JPTL seeks true up of its expenses and revenue for FY Operation and Maintenance Expenses a) MERC MYT Regulations, 2015 is applicable for tariff determination of transmission licensee from April 1, The norms for O & M of transmission licensees is specified in these regulations, relevant paragraph of the regulation is reproduced below: 58. Operation and Maintenance expenses: 58.1 The norms for O and M expenses for existing and new Transmission Licensees have been specified on the basis of circuit kilometre of transmission lines and number of bays in the substation of the Transmission Licensee, as given below: Explanation: For the purpose of applying normative O and M expenses under these Regulations, a Bay shall mean a set of accessories that are required to connect an electrical equipment such as Transmission Line, Bus Section Breakers, Potential Transformers, Power Transformers, Capacitors and Transfer Breaker and the feeders emanating from the bus at sub-station of Transmission Licensee. Further, the Bays referred to shall include only the Bays at the Transmission substation and shall exclude any Bays of the Generating Station switchyard whose maintenance is usually the responsibility of the Generating Company: PAGE No. 31

33 Provided that for computing the allowable O and M expenses for any Year, 50 per cent of the circuit kilometre of transmission lines and number of bays in the substation of the Transmission Licensee added during the Year shall also be considered: Provided further that at the time of Truing up along with the Mid-term Review or at the end of the Control Period, the allowable O and M expenses for any Year shall be based on the norms for O and M expenses specified by the Commission in this Regulation and documentary evidence of assets capitalised by the Petitioner, subject to the prudence check of the Commission The norms for O and M expenses for Jaigad Power Transmission Company Limited (JPTL) shall be: Table 25: O & M Norms for JPTL Sr. No. Voltage Level Unit Norms for FY kv Transmission Lines Rs. Lakh/ckt km kv Terminal Bays Rs. Lakh/bay b) The Hon ble Commission approved the net O & M expenses of Rs Crores for FY based on the norms stipulated under the MYT Regulations, c) JPTL submits that the actual O & M expenses for FY are lower than the norms specified in the MYT Regulations. Due to various efforts employed by JPTL in managing and optimising the O & M expenses, the overall O & M expenses for lines & bays has reduced compared to the norms. Table 26: O & M Expenses for JPTL as per Norms for FY Particulars Unit Normative O & M Length of Line of 400 kv(a) ckt. kms Norms as per Regulations (B) Rs. lakh/ ckt. kms Cost (C = A * B) Rs. Crore 1.39 No of bays (D) No Norms as per Regulations (E ) Rs. lakh/ bay Cost (F = D * E) Rs. Crore 2.97 Total O&M expenses (G = C + F) Rs. Crore 4.35 Table 27: Actual O & M Expenses for FY (Rs. Crores) Particulars As per norms Actual Employee expense 1.03 Administrative and General 1.05 expense 1.39 Repairs and Maintenance 1.72 expense O&M expenses for lines 3.81 O&M expenses for terminal bays as per the contract with MSETCL Total O&M expenses PAGE No. 32

34 d) The Comparison of O & M Expense approved by the Hon ble Commission and the O & M Expense as per norms for FY and actual are shown below Table 28: Comparison O & M Expenses for FY (Rs. Crores) Particulars Normative Actual O & M Expenses for line 1.39 O & M Expenses for terminal bays 2.97 Total O & M Expenses e) JPTL requests the Hon ble Commission to approve the Operations and Maintenance Expenses as per the norms specified in the MERC MYT Regulations, Capital Expenditure and Capitalisation a) The actual capitalisation incurred for FY is mentioned in the table below which has been undertaken for the normal office operation. However, the freehold land site was acquired for the office, guest house & shed at Chiplun : Table 29: Actual Capitalisation for FY Sr. No. Particulars Amounts (Rs. Lakhs) 1. Free Hold Land Computers Office Equipment s TOTAL b) Accordingly, JPTL requests the Hon ble Commission to approve the actual capitalisation as outlined below: Table 30: Capital Expenditure and Capitalisation for FY (Rs. Crores) FY Sr. No De-capitalisaiton of Assets Particulars MYT Order April-March (Audited ) True-Up requirement 1 Capital Expenditure Capitalisation IDC Capitalisation + IDC a) It is submitted that at the time of CoD, MSETCL has submitted that total terminal bay cost is Rs Cr vide letter no Accordingly, JPTL has capitalised asset at the said value in their books of accounts. MSETCL has included Rs Cr in total cost towards supervision charges i.e. 15% of labour work of transmission line. However, JPTL has not paid same amount to MSETCL as PMC & construction supervision work PAGE No. 33

35 has been awarded to M/s Power Links Transmission limited, this concern had communicated to MSETCL vide JPTL letter dated 18th June Vide letter dated 21st Nov 2016, MSETCL has agreed for not to include supervision cost in total cost and MSETCL and MSETCL submitted revised cost of Rs Cr vide their letter dated 19th Jan b) Based on the said letter dated 19 th January 2017 from MSETCL, enclosed as Annexure: 9 to this petition, the revised bay cost and supervision cost towards the construction of 400 kv line bays at New Koyna and Karad Substation worked out to be Rs Crs against which the Capitalisation claimed earlier was Rs Crs. c) Accordingly, JPTL has claimed the reduction of GFA of Rs crs in FY and relevant adjustment has been carried out in Depreciation, Loan and Return on Equity. d) The Hon ble Commission is requested to approve above retirement of asset due to revision of charges/ cost payable to MSETCL and hence revise the ARR for FY Depreciation a) Regulation 27 of MERC (MYT) Regulation, 2015 provides for computation of depreciation to be estimated by JPTL based on capital cost of assets approved by the Hon ble Commission and rates of depreciation applicable as per Annexure I specified in the Regulation 27.1 (b) of MERC (MYT) Regulation, Actual addition of assets as per audited statement of accounts is taken in consideration for calculation of depreciation. b) JPTL has calculated the depreciation considering the addition and retirement of assets during FY and based on applicable depreciation rate specified in the above referred regulations. The depreciation has been computed based on actual date of addition/ retirement of assets during the financial year. c) The impact of reduction of capitalisation amount of Rs Crs undertaken in FY has been made separately in para of this petition and therefore, the depreciation has been computed on the total assets. Table 31: Depreciation Expenses for FY (Rs. Crores) Particulars Approved Actual Opening GFA Addition of GFA Retirement of GFA 5.07 Closing GFA Depreciation Average Depn. Rate 5.28% 5.29% PAGE No. 34

36 d) JPTL request the Hon ble Commission to approve the above Depreciation for FY for determination of ARR Interest on Loan Capital a) The Hon ble Commission has approved a debt equity ratio of 75:25 during the inprinciple approval of project cost of the transmission system for JPTL. The Regulation 26.1 MERC (MYT) Regulation, 2015 specifies the following norms for debt equity ratio for capital expenditure. 26. Debt-equity ratio 26.1 For a capital investment Scheme declared under commercial operation on or after April 1, 2016, debt-equity ratio as on the date of commercial operation shall be 70:30 of the amount of capital cost approved by the Commission under Regulation 23, after prudence check for determination of Tariff: Provided that if the equity actually deployed is more than 30% of the capital cost, equity in excess of 30% shall be treated as normative loan for the Generating Company or Licensee or MSLDC for determination of Tariff: b) JPTL has considered debt equity ratio of 70:30 for small additional capitalisation undertaken in the FY in line with norms specified in the Regulation 26.1 of MYT Regulations. Further, for retired assets, JPTL has reduced the debt component by 75% of the original cost of the retired asset as per the debt equity ratio approved at the time of Capitalisation. c) The repayment for FY is considered equal to the depreciation for the year as specified in Regulation 29.3 MERC (MYT) Regulation, 2015, relevant para reproduced below: 29.3 The repayment during each year of the Control Period from FY to FY shall be deemed to be equal to the depreciation allowed for that year. d) As per Regulation 29.5 of the MYT Regulations, 2015 specifies that: The rate of interest shall be the weighted average rate of interest calculated on the basis of the actual loan portfolio at the beginning of each year. e) JPTL s loan portfolio comprises loans from SBI, Punjab National Bank and Indian Overseas Bank. The actual weighted average rate of interest is 10.79% which is considered for calculation of interest on loan for FY f) However, Documentary evidence for weighted average 10.79% on loan PAGE No. 35

37 capital for FY is re-submitted by JPTL as reply to Data Gap-1 as Annexure: 10 of this petition Table 32: Interest on Debt for FY (Rs. Crores) Particulars Approved Actual Opening balance of Debt Addition Repayment Retirement Closing Debt Interest Rate (%) 10.80% 10.79% Interest on the Debt Capital operation Finance Charges Total Interest and Finance charges g) Also, in addition to the interest claimed on the normative loan, JPTL has also incurred and claimed the finance charges of Rs. 13,089/-. h) JPTL request the Hon ble Commission to approve the above Interest on loan and finance charges for FY for determination of ARR Interest on Working Capital a) Regulations 31.2 of the MYT Regulations, 2015 specifies the methodology for assessment of Working Capital requirements by a Transmission Licensee: (a) The working capital requirement of the Transmission Licensee shall cover: i. Operation and maintenance expenses for one month; ii. Maintenance spares at one per cent of the opening Gross Fixed Assets for the Year; and iii. One and a half month equivalent of the expected revenue from transmission charges at the prevailing Tariff; minus iv. Amount held as security deposits in cash, if any, from Transmission System Users: Provided further that for the purpose of Truing-up for any year, the working capital requirement shall be re-computed on the basis of the values of components of working capital approved by the Commission in the Truing-up before sharing of gains and losses; b) JPTL has calculated the expected revenue considering the ARR proposed along with past recoveries for computation of Working Capital requirement as the same was recoverable as revenue in FY and the Regulations state that while computing the Working capital requirement, it is necessary to calculate the expected revenue from transmission charges. The expected revenue includes the past gap as approved PAGE No. 36

38 by the Hon ble Commission in its past orders and is not restricted to ARR of FY only. c) Interest on working capital is calculated according to Regulation 31.2 (b) of MERC (MYT) Regulation, 2015, relevant para reproduced below: (b) Rate of interest on working capital shall be on normative basis and shall be equal to the Base Rate as on the date on which the Petition for determination of Tariff is filed, plus 150 basis points: Provided that for the purpose of Truing-up for any year, interest on working capital shall be allowed at a rate equal to the weighted average Base Rate prevailing during the concerned Year plus 150 basis points. d) Based on the above referred regulation, interest on working capital has been calculated at the rate of % equivalent to SBAR as on date of application for determination of tariff. e) JPTL has calculated interest on working capital as per norms, as shown is table below Table 33: Interest on Working Capital for FY (Rs. Crores) Particulars Approved Actual O&M Expenses Stores, Materials & Supplies Expected Revenue from Transmission Tariff Total Working Capital Rate of Interest on Working Capital 10.80% 10.80% Interest on Working Capital f) JPTL request the Hon ble Commission to approve the above Interest on Working Capital for FY for determination of ARR Return on Equity a) Return on Equity is calculated as per the regulated rate of return of 15.5 % on the average opening and closing balance of equity capital for the financial year based on Regulation 28.2 of MERC (MYT) Regulation, b) JPTL has considered addition to equity capital at 30 % for additional capital expenditure capitalised during the financial year for furniture & fixtures and office equipment s as per Regulation 26.1 of MERC (MYT) Regulation, PAGE No. 37

39 c) However, for reduction in the capitalisation, the impact of the same has been reduced from considering the approved debt: equity ratio of 75:25. Based on the above provisions, JPTL has calculated the Return on Equity for FY at Rs crores. Table 34: Return on Equity for FY (Rs. Crores) Particulars Approved Actual Opening Equity Additions to equity towards capital investments Retirement Closing balance of Equity % on the average balance d) JPTL request the Hon ble Commission to approve the above Return on Equity for FY for determination of ARR Contribution to Contingency Reserve a) For contribution to Contingency Reserve, the same is based on MERC (MYT) Regulation, 2015, relevant para reproduced below: 34. Contribution to Contingency Reserves 34.1 Where the Licensee has made a contribution to the Contingency Reserve, a sum not less than 0.25 per cent and not more than 0.5 per cent of the original cost of fixed assets shall be allowed annually towards such contribution in the calculation of Aggregate Revenue Requirement: Provided that where the amount of such Contingency Reserves exceeds five (5) per cent of the original cost of fixed assets, no further contribution shall be allowed: Provided further that such contribution shall be invested in securities authorised under the Indian Trusts Act, 1882 within a period of six months of the close of the Year No diminution in the value of Contingency Reserve as mentioned above shall be allowed to be adjusted as a part of Tariff. b) Based on above provisions, JPTL has provided for contingency reserve in the audited accounts and has invested as per MERC MYT Regulations, The details of amount invested are attached in Annexure: 11. Table 35: Contribution to Contingency Reserve for FY (Rs. Crores) Particulars Approved Actual GFA Contribution to contingency reserves PAGE No. 38

40 Income Tax a) Income Tax of Rs Crore in FY has been computed considering the current Minimum Alternate Tax (MAT) rate of 21.34%. b) The MYT Regulations, 2015 stipulate that Income Tax on account of efficiency gains, Income from Other Business and incentive shall not be a pass through: 33.1 The Commission, in its MYT Order, shall provisionally approve Income Tax payable for each year of the Control Period based on the actual Income Tax paid by the Generating Company or Licensee or MSLDC, in case the Generating Company or Licensee or MSLDC has not engaged in any other regulated or unregulated Business or Other Business, as allowed by the Commission relating to the electricity Business regulated by the Commission, as per latest available Audited Accounts, subject to prudence check: Provided that in case the Generating Company or Licensee or MSLDC has engaged in any other regulated or unregulated Business or Other Business, and the actual Income Tax paid by the Generating Company or Licensee or MSLDC has to be allocated to the different Businesses, then the Income Tax shall be provisionally allowed based on the Income Tax on the regulatory Profit Before Tax, as allowed by the Commission relating to the electricity Business regulated by the Commission, subject to prudence check: Provided further that no Income Tax shall be considered on the amount of income from Delayed Payment Charges or Interest on Delayed Payment or Income from Other Business, as well as on the income from any source that has not been considered for computing the Aggregate Revenue Requirement: Provided also that no Income Tax shall be considered on the amount of efficiency gains and incentive approved by the Commission, irrespective of whether or not the amount of such efficiency gains and incentive are billed separately: 33.2 The benefits of any Income Tax holiday and any other Income Tax benefits allowed under the Income Tax Act, 1961, credit for unabsorbed losses or unabsorbed depreciation, or amount of Minimum Alternate Tax paid in previous Years and available for set off against Corporate Tax liability, shall be taken into account for computation of the Income Tax liability of the Generating Company or Licensee or MSLDC, as the case may be, irrespective of whether or not such Income Tax benefits and allowances have actually been claimed: Provided that in case such claim for Income Tax holiday or any other Income Tax benefits allowed under the Income Tax Act, 1961 is rejected by the Income Tax Department, the Generating Company or Licensee or MSLDC may approach the Commission for necessary relief at the appropriate time. PAGE No. 39

41 33.3 Variation between the Income Tax actually paid or Income Tax on regulatory Profit Before Tax of the regulated Business of Generating Company or Licensee or MSLDC, as applicable, and the Income Tax approved by the Commission for the respective Year after truing up, shall be allowed for recovery as part of the Aggregate Revenue Requirement at the time of Mid-term Review or Truing-up, subject to prudence check Income Tax on any income stream from sources other than the Business regulated by the Commission shall not constitute a pass-through component in Tariff, and Income Tax on such other income shall be borne by the Generating Company or Licensee or MSLDC, as the case may be. c) However, as Clause 32.1 of the Regulations states that no income tax shall be considered on incentive earned by Transmission licensee, it is submitted that the incentive claimed in ARR for FY is post finalisation of the audited accounts and hence the income tax was not payable on the same. Accordingly, the same is not reduced from the Profit. d) Also, it is submitted that while computing income tax as per regulations, income tax on other income which is earned by the Licensee but not reduced from ARR is also not to be considered. However, JPTL submits that due to de-capitalisaiton of the assets, JPTL has considered the Opportunity cost on surplus fund and has reduced ARR to that extent. Therefore, JPTL submits that they are entitle to claim income tax on the surplus fund adjusted in ARR and hence the same is adjusted. e) Based on above provision, the computation of net tax payable after reducing gains, income from other business and incentive from the taxable income is shown in table below: Table 36: Income Tax payable for FY (Rs. Crore) Income Tax payable after reduction of efficiency gains, Income from Other Business and Incentive (Rs. Crore) FY Particulars (excluding Actual gains & incentive) Profit Before Tax Add: Income from Surplus fund 0.22 Less: Income from other business 4.54 Gain/(loss) Delay Payment Surcharge 3.49 Incentive Book Profit Tax payable on book profit Interest on tax Net Tax Income Tax Rate 21.34% 21.34% PAGE No. 40

42 f) Accordingly, JPTL claims income tax of Rs Crores in FY as shown in table below: Table 37: Income Tax for FY (Rs. Crores) Particulars Approved Actual Income Tax g) Actual Income Tax payment challan is attached to this petition as Annexure: 12 and request the Hon ble Commission to approve the same on actual basis Non-Tariff Income: a) As per Regulation 34.1 of MERC MYT Regulations, 2015, out of the revenue recovered, the amount accumulated against the contribution to contingency reserve is required to be invested in securities authorized under Indian Trust Act, 1882 within six months of close of financial year and any income from the same will be recognised as as non-tariff income as per clause 59 of MERC MYT Regulations, b) The non- tariff income includes income from above investments made by JPTL. However, it is submitted that the Delay Payment charges of Rs Crs has not been claimed by JPTL in determination of ARR for FY as the matter is sub-judice and is pending with the Supreme Court. c) In the Audited Annual Accounts, an amount of Rs Crs is gain due sale of current investments, JPTL clarifies that this income is on account of Mutual Funds which have been funded from internal accruals, and is therefore not considered in the Non-Tariff Income. The same is also clarified in clause 59 of MERC MYT Regulations, 2015 and stated as follows: Provided that the interest earned from investments made out of Return on Equity corresponding to the regulated Business of the Transmission Licensee shall not be included in Non-Tariff Income. d) The reconciliation of the Non-Tariff Income as per Audited accounts and MTR petition is submitted as per Annexure: 5 e) Accordingly, JPTL is claiming the interest on the contingency reserve investment for which the details are submitted as per Annexure: 11 and request the Hon ble Commission to approve the same as non-tariff income. f) The Hon ble Commission has approved the non-tariff income of Rs Crores for FY The income from investments for FY is Rs crores and the same is considered as non-tariff income as given in table below: PAGE No. 41

43 Table 38: Non-Tariff Income for FY (Rs. Crores) Particulars Approved Actual Non-Tariff Income Incentive on Transmission Availability: a) The MERC MYT Regulations, 2015 specify the following: 57.2 The Transmission Licensee shall be entitled to incentive on achieving annual availability beyond the target availability, in accordance with the following formula: Incentive = Annual Transmission Charges x (Annual availability achieved Target Availability) / Target Availability; Where, Annual transmission Charges shall correspond to Aggregate Revenue Requirement for each year of the Control Period for the particular Transmission Licensee within the State: Provided that no incentive shall be payable above the availability of % for AC system and 98.5 % for HVDC system: Provided further that for AC system, two trippings per element per year shall be allowed, and after two trippings in a year, additional 12 hours outage for that particular element for each such tripping shall be considered in addition to the actual outage: Provided also that in case of outage of a transmission element affecting evacuation of power from a generating Station, outage hours shall be multiplied by a factor of 2: Provided also that the computation of incentive/disincentive shall be undertaken during Mid-Term Review and at the end of Control Period. b) It is submitted that in the last tariff order dated 27 th June 2016 in case no. 12 of 2016, the Hon ble Commission has calculated incentive after deducting income tax and as stated as below: Accordingly, the Commission has computed the incentive for Transmission System in accordance with the Regulations and considering the approved ARR. The Commission has not considered Income Tax as part of the ARR for the computation of incentive. c) As specified in the clause 57.2 of the MYT Regulations 2015, Incentive is calculated on the Annual Transmission Charges which also includes the income tax paid by the licensee and allowed by the Hon ble Commission for the recovery of the same from the Transmission PAGE No. 42

44 System User. Therefore, in line with the Regulations, JPTL is claiming incentive on the total Annual transmission charges including income tax but excluding any efficiency gains/loss. d) The actual transmission system availability is % and the incentive on the basis of actual availability works out to Rs Crores for FY Table 39: Incentive on higher transmission system availability for FY Particulars FY Annual Transmission Charges (Rs. Crore) Target Availability (%) 98.00% Actual Availability Achieved (%) 98.82% Upper Cap for Incentive Availability 99.75% Incentive (Rs. Crore) 0.78 e) The System Availability based on certification by Maharashtra State Load Despatch Centre (MSLDC) is enclosed as Annexure: 14 to this petition Sharing of Gains and Losses a) The relevant provisions of MERC (MYT) Regulation, 2015 stipulating the sharing of gains/losses due to controllable factors is reproduced below: 11. Mechanism for sharing of gains or losses on account of controllable factors 11.1 The approved aggregate gain to the Generating Company or Licensee or MSLDC on account of controllable factors shall be dealt with in the following manner: (a) Two-third of the amount of such gain shall be passed on as a rebate in Tariff over such period as may be stipulated in the Order of the Commission under Regulation 8.4; (b) The balance amount of such gain shall be retained by the Generating Company or Licensee or MSLDC The approved aggregate loss to the Generating Company or Licensee or MSLDC on account of controllable factors shall be dealt with in the following manner: (a) One-third of the amount of such loss may be passed on as an additional charge in Tariff over such period as may be stipulated in the Order of the Commission under Regulation 8.4; (b) The balance amount of such loss shall be absorbed by the Generating Company or Licensee or MSLDC. b) The O & M expense of JPTL for the said transmission system is significantly less than the norms specified for JPTL in the relevant Regulations. As defined in the MERC MYT Regulations, 2015, JPTL submits that the expenditure incurred for O & M expenses were controllable due to various efficiency measures implemented by JPTL for optimising and managing the O & M expenses. PAGE No. 43

45 c) With regards to Sharing of gains/loss on the interest on working capital, MYT Regulations 2015 states as follows: 31.6 For the purpose of Truing-up for each year, the variation between the normative interest on working capital computed at the time of Truing-up and the actual interest on working capital incurred by the Generating Company or Licensee or MSLDC, substantiated by documentary evidence, shall be considered as an efficiency gain or efficiency loss, as the case may be, on account of controllable factors, and shared between it and the respective Beneficiary or consumer as the case may be, in accordance with Regulation 11 : d) However, JPTL would like to submit that there was no actual working capital loan availed for the FY and the same was met through internal accrual of the organisation. In line with the above submission, JPTL would also like to submit the observation made by the Hon ble APTEL in certain Order with regards to interest on working capital loan funded through internal accrual and submitted below: Appeal No. 111 of 2008: 7) The Commission observed that in actual fact no amount has been paid towards interest. Therefore, the entire interest on working capital granted as pass through in tariff has been treated as efficiency gain. It is true that internal funds also deserve interest in as much as the internal fund when employed as working capital loses the interest it could have earned by investment elsewhere. Further the licensee can never have any funds which has no cost. The internal accruals are not like some reserve which does not carry any cost. Internal accruals could have been inter corporate deposits, as suggested on behalf of the appellant. In that case the same would also carry the cost of interest. When the Commission observed that the REL had actually not incurred any expenditure towards interest on working capital it should have also considered if the internal accruals had to bear some costs themselves. The Commission could have looked into the source of such internal accruals and the cost of generating such accruals. The cost of such accruals or funds could be less or more than the normative interest. In arriving at whether there was a gain or loss the Commission was required to take the total picture into consideration which the Commission has not done. It cannot be said that simply because internal accruals were used and there was no outflow of funds by way of interest on working capital and hence the entire interest on working capital was gain which could be shared as per Regulation No. 19. Accordingly, the claim of the appellant that it has wrongly been made to share the interest on working capital as per Regulation 19 has merit. 15 b): The interest on Working Capital for the year in question, shall not be treated as efficiency gain. e) Based on the above order, JPTL submits that the working capital was funded through internal accruals and therefore it is submitted that internal accruals invested in working capital results in loss of opportunity cost whereby such fund might have been invested PAGE No. 44

46 in other investment providing return. Therefore, this aspect is required to be considered while computing sharing of gains/loss on interest of working capital. f) Over and above that, JPTL has already applied for the working capital loan whereby on 20 th April 2015, State Bank of India has already approved the limit of Rs. 22 Crs. However due to usage of internal accrual, the same was never availed. The Hon ble Commission is required to undertake this submission while allowing sharing for gains/losses on interest on working capital. The SBI letter approving the cash credit limit of Rs. 22 Crs is enclosed as Annexure: 13. g) Based on provisions of Regulations, JPTL has considered sharing of efficiency gains in accordance with the MERC MYT Regulations, 2015 as shown in the table below: Table 40: Sharing of Gains and Losses for FY (Rs. Crores) FY Particulars MYT Order Actual Entitlement as per Regulations/ Order Variation 1/3rd of efficiency gain and 2/3rd of Efficiency loss retained by JPTL Net entitlement after sharing of gains /losses O & M Expense Interest on working capital Total h) JPTL request the Hon ble Commission to approve the above amount as JPTL share for efficiency gains Impact of De-capitalisation a) As outlined in para of this petition, a de-capitalisation of assets of Rs Crs was carried out in FY However, JPTL submits that at the time of financial closure, the debt: equity was tied up based on Rs Crs as outlined in the letter no of MSETCL. Since the matter was under dispute, the same was not released. Surplus Equity was invested in Call Market at specified rate of return as provided in the table below. Based on the discussion with the Hon ble Commission on 12th December 2017, JPTL agrees to withdraw the costs related to such unreleased fund such as depreciation, interest on loan and RoE and has been adjusted in the ARR of FY PAGE No. 45

47 Table 41: Impact of amount adjusted in ARR due to de-capitalisation Particulars FY FY FY FY FY FY Date of CoD Total Date of De-capitalised No. of Days Amount to be capitalised Depreciation Depreciation rate 2.57% 5.28% 5.28% 5.28% 5.28% 5.28% Impact of depreciation Income from Equity invested in Money Market Surplus Equity due to final adjustment Rate of Return on Market 8.22% 8.09% 8.28% 7.97% 6.98% 6.25% Return on Surplus Equity Income from Debt invested in Money Market Opening Balance Addition 3.80 Less: Repayemt Less: Reduced from debt due to decapitalisatoin 2.52 Closing Balance Rate of Return on Market 8.22% 8.09% 8.28% 7.97% 6.98% 6.25% Return on Surplus Debt Total amount to be adjusted in ARR Revenue Gap of Past Years: a) The Hon ble Commission in its order dated 27 th June 2016 has approved the Revenue gap of FY and allowed the recovery of same in FY The relevant para is reproduced below: 4.12 Cumulative ARR recovery for 3rd Control Period Commission s Analysis and Ruling Based on the analysis detailed in the foregoing Sections, the cumulative ARR to be recovered in the 3rd Control Period is as shown below: The Commission approves the cumulative ARR to be recovered in the 3rd Control Period as Rs Crore, Rs Crore, Rs Crore and Rs Crore for FY PAGE No. 46

48 , FY , FY and FY , respectively, through Transmission Charges. b) Accordingly, JPTL while claiming the ARR for FY , has included the Revenue gap/ (surplus) including carrying/ (holding) cost for FY and actual revenue gap of FY Annual Aggregate Revenue Requirement for FY : a) Based on the parameters as explained and submitted in the above section, the Annual Revenue Requirement for JPTL for FY is summarized in the table below: Table 42: Annual Aggregate Revenue Requirement for FY (Rs. Crores) Sl. No. Particulars Approved Actual Net Entitlement after sharing of Deviation gains/(losses) 1 Operation & Maintenance Expenses Depreciation Interest on Long-term Loan Interest on Working Capital Contribution to Contingency Reserves Income Tax Expense Total Revenue Expenditure Return on Equity Capital Gross Aggregate Revenue Requirement Less: Non-Tariff Income Add: Incentive Net Aggregate Revenue Requirement Revenue gap/ (surplus) including carrying/ (holding) cost for FY Revenue gap/ (surplus) cost for FY Less: Return on surplus Fund invested in market Total Annual Revenue Requirement including past gaps Revenue Gap for FY a) For FY , the ARR (Revenue) recovered through transmission tariff is Rs Crs based on the Transmission Tariff of Intra-State Transmission System approved by Hon ble Commission vide Order No. 57 of 2015 (applicable for April 2016 to June 2016) and Order No. 91 of 2016 (applicable from July 2016 to March 2017). The revenue in line with the tariff order is submitted in line with the Data gaps raised by the Hon ble Commission vide dated 18th December Earlier the revenue submitted was in line with accounts which follows the principle of accrual basis of accounting. However, in line with the gap approved for past year and the ARR for FY , JPTL PAGE No. 47

49 is entitled to recover total revenue of Rs Crs which includes the revenue gap of FY b) Also, rebate given to Tata Power D and BEST for prompt payment amounting to Rs. 6,44,717/- has been reduced from the total revenue and accordingly the ARR requirement for FY has been computed. The treatment of the same is provided in line with Regulations 35 of MYT regulations 2015 as stated below: 35.3 All rebates or incentives earned by the Generating Company or Licensee or MSLDC shall be considered under its Non-Tariff Income, while all rebates or incentives given by the Generating Company or Licensee or MSLDC shall be allowed as an expense for the Generating Company or Licensee or MSLDC. c) The same is calculated in the table below: Table 43: Revenue to be considered as per Tariff Order for FY Sl. No. Particulars JPTL Petition 1 Revenue Recovery for the month of April 2016 to June 2016 as per Case No. 57 of Rs Crs per month 2 Revenue Recovery for the month of July 2016 to March 2017 as per Case No. 91 of Rs Crs per month Less: Rebate Revenue considered for ARR d) JPTL request the Hon ble Commission to allow recovery of the net total gap including the carrying cost of Rs crores through the InSTS Tariff Order. Table 44: Revenue Gap for FY (Rs. Crores) Sl. No. Particulars JPTL Petition 1 Total ARR ARR recovered through Transmission Tariff Revenue Gap Carrying Cost 2.46 PAGE No. 48

50 5. PROVISIONAL TRUE UP OF FY Preamble This section outlines the provisional true up of FY whereby it highlights the Performance for FY based on half year results. As per the provisions of MYT Regulations, 2015, JPTL hereby submits the provisional true up for FY comparing actual performance during April to September (H1) and revised estimates for October to March (H2) of FY with forecast approved by Hon ble Commission vide MYT Order dated June 27, Provision of Law For MYT control period from FY onwards, Hon ble Commission has notified the MYT Regulations, 2015 and the same are applicable for treatment of provisional true up petition for FY The scope of regulations includes tariff determination, true up, provisional true up, annual performance review and mid-term performance review for transmission licensee under the Multi Year Tariff principle Provisional True Up of FY Operation and Maintenance Expenses a) MERC MYT Regulations, 2015 are applicable for tariff determination and annual performance review of transmission licensee from April 1, The Hon ble Commission approved the net O & M expenses of Rs Crores for FY based on the norms stipulated under the MYT Regulations, The relevant para of the above MYT order is reproduced below: The Commission approves normative O&M Expenses of Rs Crore, Rs Crore, Rs Crore and Rs Crore for FY , FY , FY and FY , respectively. b) JPTL submits that the estimated O & M expenses for FY are lower than the norms specified in the MYT Regulations. This is due to various efforts employed by JPTL in managing and optimising the overall O & M expenses for lines & bays. PAGE No. 49

51 Table 45: O & M Expenses for JPTL as per Norms for FY Particulars Unit FY Length of Line of 400 kv(a) ckt. kms Norms as per Regulations (B) Rs. lakh/ ckt. kms Cost (C = A * B) Rs. Crore 1.45 No of bays (D) No Norms as per Regulations (E ) Rs. lakh/ bay Cost (F = D * E) Rs. Crore 3.11 Total O&M expenses (G = C + F) Rs. Crore 4.57 Table 46: Estimated O & M Expenses for FY Particulars Norms Provisional FY Employee expense 1.11 Administrative and General 1.58 expense 1.45 Repairs and Maintenance 1.33 expense O&M expenses for lines 4.03 O&M expenses for terminal bays as per the contract with MSETCL Total O&M expenses c) During any financial year, the O & M expenses during H1 are comparatively lower than H2, this due to the monsoon season, wherein washing of transmission lines and insulators may not be required vis-à-vis the dry season from October onwards. Accordingly, for FY , the O & M expense will increase from October to March due higher maintenance requirement for washing. However, JPTL has estimated that the overall O & M expenses for FY will be marginally lower than the amount approved by the Hon ble Commission in the MYT order. d) JPTL requests the Hon ble Commission to approve the Operations and Maintenance Expenses as per the norms specified in the MERC MYT Regulations, Capital Expenditure and Capitalization a) The Hon ble Commission in the MYT order approved capitalisation of Rs. 2 crores for FY for setting up office, guest house & shed at Chiplun The Commission approves Capitalisation of Rs Crore for FY c) JPTL has already initiated the process of establishing JPTL office in its own premises. PAGE No. 50

52 The project is behind schedule due to delay in identifying a suitable land parcel at a convenient location for establishing the office. Suitable freehold land was finally purchased and acquired in Oct Currently, architectural and design work is underway. The construction of office building is likely to commence in March 2018 and it is expected that the office building will be completed by March d) Considering the above reason for delay and market fluctuation, the expected revised building cost is as under: Table 47: Revised Cost of the Office Building Sr. No Head Earlier Cost (Rs. Crs) Basis Revised Cost (Rs. Crs) Revised Basis 1. Land 0.8 Assessed 0.70 Actual 2. Construction of office building 3000 Sq. Ft. & Sq. Rs. 2200/-Sq Sq. Rs. 2200/-Sq. Ft. Guest House 2000 Sq. Ft. Ft. 3. Compound Wall Rs /RMT 4. Parking, Interior Works 0 Not Assessed Earlier 0.65 for area about 4100 Sq. Rs. 1400/-Sq. Ft. 5. Total e) In line with the queries raised by the Hon ble Commission for the change in the Carpet Area and the overall Cost, JPTL submits as follows: a. Freehold Land i. It is submitted that the cost of land has already been incurred whereby Rs Crs has been incurred in FY and Rs Lacs has been incurred in H1 of FY b. Construction of Office i. The details of 5062 Sq. Ft area is been provided in Annexure: 8 of this petition. c. Parking & Interior Works: i. In preliminary building design, stilt parking space was considered, but now architect has modified the design by incorporating separate parking area from main building. ii. In addition, provision for interior works was not assessed earlier. Now, the estimate for interior works is included as per JSW standard norms, which comes to around Rs 1400/-per sqft. d. Compound Wall: i. Earlier the land was not finalized; hence the basic compound wall design had been taken in to consideration. But, after purchase of land, design of the compound wall was modified considering remote location & safety aspects. Now the height of compound wall had to be increased and a concertina coil has to be provided. This in terms has increased the earlier estimated cost. PAGE No. 51

53 e. Calculation: i. Previous estimate: Basic Design for Laterite compound wall without RCC column a. Length of compound wall = 250 meter b. Height of compound wall = 1.2 meter c. Concertina Coil = Not considered d. Per running meter cost = Rs. 4000/- e. Total estimated cost of the compound wall = Rs.10,00,000/- Approx. ii. Revised Estimate: Special Design for Laterite compound wall with RCC column a. Length of compound wall = 250 meter b. Height of compound wall = 2.4 meter c. Concertina Coil = Considered d. Per running meter cost = Rs.10000/- e. Total estimated cost of the compound wall = Rs.25,00,000/- Approx. f) Also, with regards to the Capitalisation undertaken in FY , JPTL submits the detailed as follows: Table 48: Capitalisation during FY (Rs. Lakhs) Sr. FY Particulars Head of Assets No. H1 H2 Total 1 Washing Truck Plant & Machinery Binocular Office Equipment Freehold Land for office Land Computer Computer Furniture & Fixtures Furniture & Fixtures Total g) JPTL Transmission lines passes through locations containing atmospheric pollution in the form of dust, coal dust, ash and chemicals. Along with these the other contributing geographical factors such as proximity to coastal areas, salt deposits, smog, rain etc. These factors cause serious damage and maintenance issues in the form of heavy chattering noise and corona discharge from the transmission lines during dry seasons i.e. from Feb to June every year. h) The pollution build up on these transmission lines provide a conducting path, resulting in flashover and de-capping of insulators that in turn cause power disruptions. To arrest such contamination of Insulators, it is necessary to have a schedule of cleaning the insulators at regular intervals. The cleaning is done either by cold line method or Hot line method. i) For cold line washing, shutdown is required which causes interruption of Transmission PAGE No. 52

54 system. This is where the process of Hotline Washing proves invaluable, as there is no need for power shut downs and has proved to be a safer and economical. In the long run, outsourcing of hotline washing is costlier than having own hotline washer units. j) The portable live line insulator washing equipment is fitted on truck and driven from PTO of an engine. The truck is fitted with stainless water tank, washing guns with hose pipes, pressure gauge, conductive meter, grounding cable etc. The advantages of Live line washing are: No shut down/outages required. Time and money saved as power generation and transmission are not disrupted. It increases transmission line availability. The work can be carried out almost every day during dry season. Early attention to the transmission system problems saves huge expenditure incurred on breakdowns and hence results savings in O&M cost. k) Based on the above, JPTL request the Hon ble Commission to approve the above capital expenditure based on the progress of work for establishing the office at Chiplun. Table 49: Capital Expenditure for FY FY Sr. No. Particulars MYT Order Apr-Sep (Actual) Oct-Mar (Estimated) April - March (Estimated) Provisional True-Up requirement 1 Capital Expenditure Capitalisation IDC Capitalisation + IDC Depreciation a) Regulation 27 of MERC (MYT) Regulation, 2015 provides for computation of depreciation based on capital cost of assets approved by the Hon ble Commission and rates of depreciation applicable as per Annexure I specified in the Regulation 27.1 (b) of MERC (MYT) Regulation, Actual addition of assets as per audited statement of accounts is taken in consideration for calculation of depreciation. b) JPTL has calculated the depreciation considering the addition and retirement of assets during FY and based on applicable depreciation rates specified in the above referred regulations. The depreciation has been computed based on actual date of addition/ retirement of assets during the financial year. PAGE No. 53

55 Interest on Loan Capital Table 50: Depreciation Expenses for FY Particulars Approved Provisional FY Opening GFA Addition of GFA Retirement of GFA 0.00 Closing GFA Depreciation Average Depn. Rate 5.28% 5.28% a) The Hon ble Commission has approved debt: equity ratio of 75: 25 during the inprinciple approval of project cost of JPTL transmission system. The Regulation 26.1 MERC (MYT) Regulation, 2015 specifies the following norms for debt equity ratio for capital expenditure. 26. Debt-equity ratio 26.1 For a capital investment Scheme declared under commercial operation on or after April 1, 2016, debt-equity ratio as on the date of commercial operation shall be 70:30 of the amount of capital cost approved by the Commission under Regulation 23, after prudence check for determination of Tariff: Provided that if the equity actually deployed is more than 30% of the capital cost, equity in excess of 30% shall be treated as normative loan for the Generating Company or Licensee or MSLDC for determination of Tariff: b) JPTL has considered debt: equity ratio of 70: 30 for small additional capitalisation undertaken from FY to FY in line with norms specified in the Regulation 26.1 of MYT Regulations. c) The repayment is considered equal to the depreciation for the year as specified in Regulation 29.3 MERC (MYT) Regulation, 2015, relevant para is reproduced below: 29.3 The repayment during each year of the Control Period from FY to FY shall be deemed to be equal to the depreciation allowed for that year. d) JPTL has considered the weighted average interest rate on loans for FY at 9.83 % as per refinancing arrangement undertaken by JPTL. Also, in addition to the interest claimed on the normative loan, JPTL has also incurred and claimed the finance charges of Rs Crs towards the expenses incurred for refinancing of loan. The details of the same is provided in the subsequent section of this petition. PAGE No. 54

56 Refinancing of Loan Table 51: Interest on Debt for FY (Rs. Crores) Particulars Approved Provisional FY Opening balance of Debt Addition Repayment Retirement Closing Debt Interest Rate (%) 10.80% 9.83% Interest on the Debt Capital operation Finance Charges Total Interest and Finance charges a) During the start of the project, JPTL had arranged debt for funding of capital cost for the said transmission system from SBI, PNB and IOB with an average % to %. However, during FY , the interest rates were reduced to %. Thereafter, to lower the interest burden on the transmission system users/ beneficiaries and thereby reduce the ARR, JPTL refinanced the loan in FY through Aditya Birla Finance Limited (ABFL) at an applicable interest rate of 9.25%. The details of loan from ABFL are enclosed as Annexure: 15 to this petition. JPTL has incurred finance charges of Rs Crs for refinance of loan and the details of finance charges are mentioned in the table below: Table 52: Finance Charges for refinance of Loan Refinancing Charges Amount in Rs Consultancy Charges 4,13,000 Rating Fees 2,36,000 Trusteeship Fees 1,78,000 LLC Fees 11,99,364 Processing Fees - ABFL 1,13,17,144 Stamp duty 12,30,200 Total Fees 1,45,73,708 b) The clause of MERC MYT Regulations 2015, specifies that any saving in interest cost due to refinance is to be shared in the ratio of 2:1 and the relevant para is reproduced below: The Generating Company or the Licensee or the MSLDC, as the case may be, shall make every effort to re-finance the loan as long as it results in net savings on interest and in that event, the costs associated with such re-financing shall be borne by the Beneficiaries and the net savings shall be shared between the Beneficiaries and them in the ratio of 2:1, subject to prudence check by the Commission: PAGE No. 55

57 Provided that the Generating Company or the Licensee or the MSLDC, as the case may be, shall submit documentary evidence of the costs associated with such re-financing: Provided further that the net savings in interest shall be calculated as an annuity for the term of the loan, and the annual net savings shall be shared between the entity and Beneficiaries in the specified ratio. c) Also, JPTL based on the discussion on Data gaps with MERC officials on 12 th December 2017, hereby submits the cost benefit analysis as per Annexure: 16 of the Petition. d) In line with above Regulations, JPTL has claimed share on saving of interest on loan due to refinancing and same is mentioned in the table below: Table 53: Saving of interest on loan due to refinancing Sr. No. Particulars FY Opening Balance of Net Normative Loan Less: Reduction of Normative Loan due to retirement or replacement of assets - 3 Addition of Normative Loan due to capitalisation during the year Repayment of Normative loan during the year Closing Balance of Net Normative Loan Average Balance of Net Normative Loan Approved Weighted average Rate of Interest on actual Loans (%) 10.60% 8 Interest Expenses as per approved rate Actual Weighted average Rate of Interest on actual Loans (%) - due to refinancing 9.83% 10 Interest Expenses as per approved rate Saving in interest Sharing of interest with consumers as per clause of MYT Regulations, Net entitlement after sharing of gains Interest on Working Capital a) Interest on working capital is calculated according to Regulation 31.2 (b) of MERC (MYT) Regulation, 2015, relevant para reproduced below: (b) Rate of interest on working capital shall be on normative basis and shall be equal to the Base Rate as on the date on which the Petition for determination of Tariff is filed, plus 150 basis points: PAGE No. 56

58 Provided that for the purpose of Truing-up for any year, interest on working capital shall be allowed at a rate equal to the weighted average Base Rate prevailing during the concerned Year plus 150 basis points. b) However, the above regulations has been amended by the Hon ble Commission on 29 th November 2017 as per MERC (Multi Year Tariff) Regulations, 2015 whereby the definition of the base rate has been changed as follows: 2.1 (10) Base Rate shall mean the one-year Marginal Cost of Funds-based Lending Rate ( MCLR ) as declared by the State Bank of India from time to time ; c) Accordingly, the weighted average Interest has been calculated to determine interest on working capital which is computed as below: Table 54: Weighted Interest Rate on working capital Loan Particulars Base Rate till November % MCLR Rate post December % Weighted Average Rate 8.85% Plus 150 Basis Point 1.50% Total Weighted Average Rate 10.35% d) Based on the above referred regulation, interest on working capital has been calculated at the rate of % equivalent to SBAR as on date of application for determination of tariff. JPTL has calculated interest on working capital as per norms, as shown is table below: Table 55: Interest on Working Capital for FY (Rs. Crores) Particulars Approved Provisional FY O&M Expenses Stores, Materials & Supplies Expected Revenue from Transmission Tariff Total Working Capital Rate of Interest on Working Capital 10.80% 10.35% Interest on Working Capital e) JPTL requests the Hon ble Commission to approve the above interest on working capital Return on Equity a) Return on Equity is calculated as per the regulated rate of return of 15.5 % on the average opening and closing balance of equity capital for the financial year based on Regulation 28.2 of MERC (MYT) Regulation, 2015 PAGE No. 57

59 b) JPTL has considered addition to equity capital at 30 % for additional capital expenditure capitalised during the financial year for furniture & fixtures and office equipment s as per Regulation 26.1 of MERC (MYT) Regulation, c) Based on the above provisions, JPTL has calculated the Return on Equity for FY at Rs crores vis-à-vis the MYT order as per table below: Table 56: Return on Equity for FY (Rs. Crores) Particulars Approved Provisional FY Opening Equity Additions to equity towards capital investments Retirement Closing balance of Equity % on the average balance d) JPTL requests the Hon ble Commission to approve the above return on equity Contribution to Contingency Reserve a) Contribution to Contingency Reserve is based on MERC (MYT) Regulation, 2015, relevant para is reproduced below: 34. Contribution to Contingency Reserves 34.1 Where the Licensee has made a contribution to the Contingency Reserve, a sum not less than 0.25 per cent and not more than 0.5 per cent of the original cost of fixed assets shall be allowed annually towards such contribution in the calculation of Aggregate Revenue Requirement: Provided that where the amount of such Contingency Reserves exceeds five (5) per cent of the original cost of fixed assets, no further contribution shall be allowed: Provided further that such contribution shall be invested in securities authorised under the Indian Trusts Act, 1882 within a period of six months of the close of the Year No diminution in the value of Contingency Reserve as mentioned above shall be allowed to be adjusted as a part of Tariff. b) Based on above provisions, JPTL has submitted the expected contingency reserves of 0.25% of the GFA after considering the capitalisation expected in the respective years. PAGE No. 58

60 Table 57: Contribution to Contingency Reserve for FY (Rs. Crores) Particulars Approved Provisional FY GFA Contribution to contingency reserves Income Tax a) The MYT Regulations, 2015 stipulate that Income Tax for the control period needs to be in line with the actual income tax paid for the previous year. The same is outlined below: 33.1 The Commission, in its MYT Order, shall provisionally approve Income Tax payable for each year of the Control Period based on the actual Income Tax paid by the Generating Company or Licensee or MSLDC, in case the Generating Company or Licensee or MSLDC has not engaged in any other regulated or unregulated Business or Other Business, as allowed by the Commission relating to the electricity Business regulated by the Commission, as per latest available Audited Accounts, subject to prudence check: b) Accordingly, JPLT is claiming Income tax of Rs Crs for FY in line with the actual claimed in FY Non-Tariff Income: Table 58: Income Tax for FY (Rs. Crores) Particulars Approved Provisional FY Income Tax a) The estimated income from investments from FY is based on the additional capitalisation undertaken for the respective period and the return on investment at 8.29%. The calculation of income from investment under contingency reserves is outlined as below: Table 59: Income from Contingency Reserves Investment Particulars Investment as per Norms Opening 7.49 Addition 1.38 Closing 8.87 Interest Income as per Bond 8.29% PAGE No. 59

61 Non-Tariff Income 0.68 b) Based on the above calculation, JPTL has considered non-tariff income as given in table below: Table 60: Non-Tariff Income for FY (Rs. Crores) Particulars Approved Provisional FY Non-Tariff Income Annual Aggregate Revenue Requirement for FY : a) Based on the parameters as explained and submitted in the above section, the Annual Revenue Requirement for JPTL for FY is summarized in the table below: Table 61: Aggregate Revenue Requirement for FY Sl. No. Particulars Approved Provisional FY Operation & Maintenance Expenses Depreciation Interest on Long-term Loan Interest on Working Capital Contribution to Contingency Reserves Income Tax Expense Total Revenue Expenditure Return on Equity Capital Gross Aggregate Revenue Requirement Less: Non-Tariff Income Add: Net Entitlement after sharing of gains/(losses) - refinancing of loan - clause of MYT Regulations Net Aggregate Revenue Requirement Total Annual Revenue Requirement Revenue Gap / Surplus of FY a) As per the Tariff Order dated 27 th June 2016 vide case no. 12 of 2016, the Hon ble Commission has approved the ARR of Rs Crs for FY and has allowed the recovery of the same. Against the total ARR approved of Rs Crs, the expected ARR for FY as projected in this petition is Rs Crs. Accordingly, the resultant surplus is Rs Crs. PAGE No. 60

62 Table 62: Revenue Gap / Surplus for FY Sl. No. Particulars FY Total ARR ARR recovered through Transmission Tariff Revenue Gap Carrying/Holding Cost Carrying Cost of the past gaps a) In the said petition, JPTL has claimed the past gaps for FY and FY as specified in para 3.8 and 4.7. Accordingly, JPTL is entitled for a carrying cost from FY For carrying/ (holding) cost computation, JPTL has considered the Trued-up ARR of FY and FY excluding the Availability incentive, since that is due for recovery only after the Truing-up based on similar methodology has been adopted by the Hon ble Commission in the past tariff order. The detailed calculation is outlined below: Table 63: Carrying Cost claimed on past gap Particulars Opening Balance ARR during the year (Excluding incentive) Recovery during the year Closing Balance Wtg. Average rate of Interest Carrying / (Holding) Cost Effective carrying/ (holding) cost for FY FY FY FY % 10.80% 10.35% b) The carrying/ (holding) cost is computed considering simple interest on the gap/ (surplus) using the weighted average SBAR prevailing during FY , and applying the interest rate equivalent to the Base Rate plus 150 basis points for FY as per the MYT Regulations, c) The calculation of carrying cost has been undertaken in line with the APTEL Order vide Appeal No. 160 of 2012 and Appeal Nos. 211, 215, 3, 4, 57, 274, 164, 166, 121 of 2013 dated 8 th April 2015 which states as follows: PAGE No. 61

63 42. The interest should be calculated for the period from the middle of the financial year in which the revenue gap had occurred upto the middle of the financial year in which the recovery has been proposed. Thus, for the revenue gap of FY , the Commission has to consider interest from middle of FY to middle of FY in which the recovery is proposed. This is because the expenditure is incurred throughout the year and its recovery is also spread out throughout the year. Admittedly, the revenue gap will be determined at the end of the financial year in which the expenditure is incurred. However, the under or over recovery is the resultant of the cost and revenue spread out throughout the year. Similarly, the revenue gap of the past year will be recovered throughout the year in which its recovery is allowed. Therefore, the interest on revenue gap as a result of true up for a financial year should be calculated from the mid of that year till the middle of the year in which such revenue gap is allowed to be recovered. d) Accordingly, JPTL request the Hon ble Commission to approve the carrying cost as per the gap claimed in the petition. PAGE No. 62

64 6. MID TERM PERFORMANCE REVIEW OF FY & Preamble This section outlines the mid-term review of balance control period of FY & FY whereby it highlights the redetermination of ARR for FY & As per the provisions of MYT Regulations, 2015, JPTL hereby submits the redetermination of ARR for FY with forecast approved by Hon ble Commission vide MYT Order dated June 27, Provision of Law For MYT control period from FY onwards, Hon ble Commission has notified the MYT Regulations, 2015 and the same are applicable for redetermination of ARR for FY & The scope of regulations includes tariff determination, true up, annual performance review and mid-term performance review for transmission licensee under the Multi Year Tariff principle Redetermination of ARR for FY & Operation and Maintenance Expenses a) MERC MYT Regulations, 2015 are applicable for tariff determination and annual performance review of transmission licensee from April 1, The Hon ble Commission approved the net O & M expenses of Rs Crores for FY and Rs Crore for FY based on the norms stipulated under the MYT Regulations, The relevant para of the above MYT order is reproduced below: The Commission approves normative O&M Expenses of Rs Crore, Rs Crore, Rs Crore and Rs Crore for FY , FY , FY and FY , respectively. Table 64: O & M Expenses for JPTL as per Norms for FY & Particulars Unit FY FY Length of Line of 400 kv(a) ckt. kms Norms as per Regulations (B) Rs. lakh/ ckt. kms Cost (C = A * B) Rs. Crore No of bays (D) No Norms as per Regulations (E ) Rs. lakh/ bay Cost (F = D * E) Rs. Crore Total O&M expenses (G = C + F) Rs. Crore PAGE No. 63

65 Table 65: Estimated O & M Expenses for FY & Particulars Norms Estimates Norms Estimates FY FY Employee expense Administrative and General expense Repairs and Maintenance expense O&M expenses for lines O&M expenses for terminal bays as per the contract with MSETCL Total O&M expenses b) For FY and FY , JPTL has maintained the same O & M expenses equivalent to the norms approved by the Hon ble Commission. Any changes in the O & M expense will be adjusted and submitted during the time of true-up for the respective years. c) JPTL requests the Hon ble Commission to approve the Operations and Maintenance Expenses as per the norms specified in the MERC MYT Regulations, Capital Expenditure and Capitalization a) The Hon ble Commission in the MYT order approved capitalisation of Rs. 2 crores for FY for setting up office, guest house & shed at Chiplun The Commission approves Capitalisation of Rs Crore for FY b) JPTL has already initiated the process of establishing JPTL office in its own premises. The project is behind schedule due to delay in identifying a suitable land parcel at a convenient location for establishing the office. Suitable freehold land was finally purchased and acquired in Oct Currently, architectural and design work is underway. The construction of office building is likely to commence in March 2018 and it is expected that the office building will be completed by March c) JPTL request the Hon ble Commission to approve the above capital expenditure based on the progress of work for establishing the office at Chiplun. PAGE No. 64

66 Table 66: Capital Expenditure for FY and FY Sr. No Depreciation Particulars MYT Order FY FY Revised Projections MYT Order Revised Projections 1 Capital Expenditure Capitalisation IDC Capitalisation + IDC c) Regulation 27 of MERC (MYT) Regulation, 2015 provides for computation of depreciation based on capital cost of assets approved by the Hon ble Commission and rates of depreciation applicable as per Annexure I specified in the Regulation 27.1 (b) of MERC (MYT) Regulation, Actual addition of assets as per audited statement of accounts is taken in consideration for calculation of depreciation. d) JPTL has calculated the depreciation considering the addition and retirement of assets and based on applicable depreciation rates specified in the above referred regulations. The depreciation has been computed based on actual date of addition/ retirement of assets during the financial year Interest on Loan Capital Table 67: Depreciation Expenses for FY & FY Particulars Approved Estimates Approved Estimates FY FY Opening GFA Addition of GFA Retirement of GFA Closing GFA Depreciation Average Depn. Rate 5.27% 5.27% 5.27% 5.27% a) The Hon ble Commission has approved debt: equity ratio of 75: 25 during the inprinciple approval of project cost of JPTL transmission system. The Regulation 26.1 MERC (MYT) Regulation, 2015 specifies the following norms for debt equity ratio for capital expenditure. 26. Debt-equity ratio 26.1 For a capital investment Scheme declared under commercial operation on or after April 1, 2016, debt-equity ratio as on the date of commercial operation shall be 70:30 of the amount of capital cost approved by the Commission under Regulation 23, after prudence check for determination of Tariff: PAGE No. 65

67 Provided that if the equity actually deployed is more than 30% of the capital cost, equity in excess of 30% shall be treated as normative loan for the Generating Company or Licensee or MSLDC for determination of Tariff: b) JPTL has considered debt: equity ratio of 70: 30 for small additional capitalisation undertaken in FY in line with norms specified in the Regulation 26.1 of MYT Regulations. c) The repayment is considered equal to the depreciation for the year as specified in Regulation 29.3 MERC (MYT) Regulation, 2015, relevant para is reproduced below: 29.3 The repayment during each year of the Control Period from FY to FY shall be deemed to be equal to the depreciation allowed for that year. d) JPTL has considered the weighted average interest rate on loans at 9.25 % for FY and FY as per refinancing arrangement undertaken by JPTL. Table 68: Interest on Debt for FY & FY (Rs. Crores) Particulars Approved Estimates Approved Estimates FY FY Opening balance of Debt Addition Repayment Retirement Closing Debt Interest Rate (%) 10.80% 9.25% 10.80% 9.25% Interest on the Debt Capital operation Finance Charges Total Interest and Finance charges e) The clause of MERC MYT Regulations 2015, specifies that any saving in interest cost due to refinance is to be shared in the ratio of 2:1 and the relevant para is reproduced below: The Generating Company or the Licensee or the MSLDC, as the case may be, shall make every effort to re-finance the loan as long as it results in net savings on interest and in that event, the costs associated with such re-financing shall be borne by the Beneficiaries and the net savings shall be shared between the Beneficiaries and them in the ratio of 2:1, subject to prudence check by the Commission: Provided that the Generating Company or the Licensee or the MSLDC, as the case may be, shall submit documentary evidence of the costs associated with such re-financing: PAGE No. 66

68 Provided further that the net savings in interest shall be calculated as an annuity for the term of the loan, and the annual net savings shall be shared between the entity and Beneficiaries in the specified ratio. f) In line with above Regulations, JPTL has claimed share on saving of interest on loan due to refinancing and same is mentioned in the table below: Table 69: Saving of interest on loan due to refinancing Sr. No. Particulars FY FY FY Opening Balance of Net Normative Loan Less: Reduction of Normative Loan due to retirement or replacement of assets Addition of Normative Loan due to capitalisation during the year Repayment of Normative loan during the year Closing Balance of Net Normative Loan Average Balance of Net Normative Loan Approved Weighted average Rate of Interest on actual Loans (%) 10.60% 10.60% 10.60% 8 Interest Expenses as per approved rate Actual Weighted average Rate of Interest on actual Loans (%) - due to refinancing 9.83% 9.25% 9.25% 10 Interest Expenses as per approved rate Saving in interest Sharing of interest with consumers as per clause of MYT Regulations, Net entitlement after sharing of gains Interest on Working Capital a) Interest on working capital is calculated according to Regulation 31.2 (b) of MERC (MYT) Regulation, 2015, relevant para reproduced below: (b) Rate of interest on working capital shall be on normative basis and shall be equal to the Base Rate as on the date on which the Petition for determination of Tariff is filed, plus 150 basis points: Provided that for the purpose of Truing-up for any year, interest on working capital shall be allowed at a rate equal to the weighted average Base Rate prevailing during the concerned Year plus 150 basis points. b) However, the above regulations has been amended by the Hon ble Commission on 29 th November 2017 as per MERC (Multi Year Tariff) Regulations, 2015 whereby the PAGE No. 67

69 definition of the base rate has been changed as follows: 2.1 (10) Base Rate shall mean the one-year Marginal Cost of Funds-based Lending Rate ( MCLR ) as declared by the State Bank of India from time to time; c) Accordingly, the weighted average Interest has been calculated to determine interest on working capital which is computed as below: Table 70: Weighted Interest Rate on working capital Loan Particulars Base Rate till November 2016 MCLR Rate post December % 7.95% Weighted Average Rate 7.95% 7.95% Plus 150 Basis Point 1.50% 1.50% Total Weighted Average Rate 9.45% 9.45% d) Based on the above referred regulation, interest on working capital has been calculated at the rate of 9.45% equivalent to SBAR as on date of application for determination of tariff. JPTL has calculated interest on working capital as per norms, as shown is table below Table 71: Interest on Working Capital for FY & FY (Rs. Crores) Particulars Approved Estimates Approved Estimates FY FY O&M Expenses Stores, Materials & Supplies Expected Revenue from Transmission Tariff Total Working Capital Rate of Interest on Working Capital 10.80% 9.45% 10.80% 9.45% Interest on Working Capital e) JPTL requests the Hon ble Commission to approve the above interest on working capital Return on Equity a) Return on Equity is calculated as per the regulated rate of return of 15.5 % on the average opening and closing balance of equity capital for the financial year based on Regulation 28.2 of MERC (MYT) Regulation, 2015 b) JPTL has considered addition to equity capital at 30 % for additional capital expenditure capitalised during the financial year for furniture & fixtures and office equipment s as per Regulation 26.1 of MERC (MYT) Regulation, PAGE No. 68

70 c) Based on the above provisions, JPTL has calculated the revised RoE for FY & FY vis-à-vis the MYT order as per table below: Table 72: Return on Equity for FY & FY (Rs. Crores) Particulars Approved Estimates Approved Estimates FY FY Opening Equity Additions to equity towards capital investments Retirement Closing balance of Equity % on the average balance d) JPTL requests the Hon ble Commission to approve the above return on equity Contribution to Contingency Reserve a) Contribution to Contingency Reserve is based on MERC (MYT) Regulation, 2015, relevant para is reproduced below: 34. Contribution to Contingency Reserves 34.1 Where the Licensee has made a contribution to the Contingency Reserve, a sum not less than 0.25 per cent and not more than 0.5 per cent of the original cost of fixed assets shall be allowed annually towards such contribution in the calculation of Aggregate Revenue Requirement: Provided that where the amount of such Contingency Reserves exceeds five (5) per cent of the original cost of fixed assets, no further contribution shall be allowed: Provided further that such contribution shall be invested in securities authorised under the Indian Trusts Act, 1882 within a period of six months of the close of the Year No diminution in the value of Contingency Reserve as mentioned above shall be allowed to be adjusted as a part of Tariff. b) Based on above provisions, JPTL has submitted the expected contingency reserves of 0.25% of the GFA after considering the capitalisation expected in the respective years. Table 73: Contribution to Contingency Reserve for FY & FY (Rs. Crores) Particulars Approved Estimates Approved Estimates FY FY GFA Contribution to contingency reserves PAGE No. 69

71 Income Tax a) The MYT Regulations, 2015 stipulate that Income Tax for the control period needs to be in line with the actual income tax paid for the previous year. The same is outlined below: 33.1 The Commission, in its MYT Order, shall provisionally approve Income Tax payable for each year of the Control Period based on the actual Income Tax paid by the Generating Company or Licensee or MSLDC, in case the Generating Company or Licensee or MSLDC has not engaged in any other regulated or unregulated Business or Other Business, as allowed by the Commission relating to the electricity Business regulated by the Commission, as per latest available Audited Accounts, subject to prudence check: b) Accordingly, JPLT is claiming Income tax of Rs Crs for FY in line with the actual claimed in FY Table 74: Income Tax for FY & FY (Rs. Crores) Particulars Approved Estimates Approved Estimates FY FY Income Tax Non-Tariff Income: a) The estimated income from investments from FY & FY is based on the additional capitalisation undertaken for the respective period and the return on investment at 8.29%. The calculation of income from investment under contingency reserves is outlined as below: Table 75: Income from Contingency Reserves Investment Particulars Investment as per Norms Opening Addition Closing Interest Income as per Bond 8.29% 8.29% Non-Tariff Income b) Based on the above calculation, JPTL has considered non-tariff income as given in table below: PAGE No. 70

72 Table 76: Non-Tariff Income for FY & FY (Rs. Crores) Particulars Approved Estimates Approved Estimates FY FY Non-Tariff Income Annual Aggregate Revenue Requirement for FY & FY : a) Based on the parameters as explained and submitted in the above section, the Annual Revenue Requirement for JPTL for FY & FY is summarized in the table below whereby the Gap / (Surplus) of FY , FY and FY alongwith the carrying cost is claimed in FY : Table 77: Aggregate Revenue Requirement for FY & FY Sl. No. Particulars Approved Estimates Approved Estimates FY FY Operation & Maintenance Expenses Depreciation Interest on Long-term Loan Interest on Working Capital Contribution to Contingency Reserves Income Tax Expense Total Revenue Expenditure Return on Equity Capital Gross Aggregate Revenue Requirement Less: Non-Tariff Income Add: Net Entitlement after sharing of gains/(losses) - refinancing of loan - clause of MYT Regulations Net Aggregate Revenue Requirement Add: Gap/ (Surplus) for FY & FY Add: Gap/ (Surplus) for FY Carrying cost of above gap Total Annual Revenue Requirement including past gaps Non-Receipt of Delayed Payment Charge OF Rs Crores from TSUs: a) The Hon ble Commission in the Order dated 27 th June 2016 (Case No 12 of 2016) for JPTL had approved Delayed Payment Charge (DPC) of Rs crore to be received PAGE No. 71

73 from the Transmission System Users (TSUs) Relevant para of the above order is reproduced below: As sought, the State Transmission Utility (STU) provided, details of the DPC due to each Transmission Licensee from it as on 31 March, DPC of Rs Crore yet is to be recovered by JPTL from TSUs, i.e. mainly Distribution Licensees. As in the MTR Order, the Commission has considered this amount as Non-Tariff Income to be recovered in FY over and above the interest income on investment of the contribution to Contingency Reserves. The Non-Tariff Income approved by the Commission is shown in the following Table: Table 47: Non-Tariff Income for FY approved by Commission (Rs. Crore) b) JPTL humbly submits to the Hon ble Commission that of the total amount of Rs Crores receivable towards delayed payment charges, post the direction of the Hon ble Commission, Rs Crs has been received by TSUs. c) The non-payment of the said balance DPC amount of Rs crores by the STU to JPTL has resulted in lower recovery of ARR for FY through the transmission tariff. d) Hence JPTL humbly requests the Hon ble Commission to direct the TSUs to devise a mechanism for recovery of said amount of DPC along with applicable interest amount from the distribution licensee and accordingly arrange for payment of said amount to JPTL at the earliest JPTL Appeal in the Supreme Court of India regarding Delayed Payment Charges: a) The Hon ble Commission approved the Business Plan of JPTL based on projections for FY to FY vide Order dated ; and the Aggregate Revenue Requirement (ARR) for FY to FY vide order dated b) In accordance with the Tariff Regulations, the order dated , directed JPTL to submit a petition for Mid-Term Review of performance, JPTL filed the MTR petition on (Case no. 208 of 2014). The Mid-Term review petition comprised of true up of ARR for FY to FY based on actuals and approval of revised ARR for FY and FY c) The Hon ble Commission vide order dated considered Delayed Payment Charges (DPC) or the interest receivable by JPTL from the transmission system users on delayed payment of transmission tariff, amounting to Rs Crore as Non-Tariff PAGE No. 72