MADHYA PRADESH ELECTRICITY REGULATORY COMMISSION 5th Floor, "Metro Plaza", Bittan Market, Bhopal - 462 016 Petition No. 05 of 2016 PRESENT: Dr. Dev Raj Birdi, Chairman A.B. Bajpai, Member Alok Gupta, Member IN THE MATTER OF: Determination of generation tariff for 2x250MW (Phase-I) coal based power project at Bina, District Sagar (M.P.) for the control period of FY 2016-17 to FY 2018-19 based on the tariff petition filed by Jaiprakash Power Ventures Limited under Section 62 and 86(1) (a) of the Electricity Act, 2003. M/s Jaiprakash Power Ventures Ltd., Uttar Pradesh: PETITIONER 1. M.P. Power Management Company Ltd., Jabalpur 2. M. P. Poorv Kshetra Vidyut Vitaran Co. Ltd., Jabalpur 3. M. P. Madhya Kshetra Vidyut Vitaran Co. Ltd., Bhopal RESPONDENTS 4. M. P. Paschim Kshetra Vidyut Vitaran Co. Ltd., Indore M.P. Electricity Regulatory Commission Page 1
ORDER (Passed on this day of 08 th August 2016) 1. Madhya Pradesh Electricity Regulatory Commission (hereinafter referred to as the Commission or MPERC ) issued MPERC (Terms and Conditions for determination of Generation Tariff) Regulations, 2015 {RG-26(III) of 2015} (hereinafter referred to as the Regulations 2015) for the new control period i.e. FY 2016-17 to FY 2018-19. These were notified in the official gazette on 1 st January 2016. 2. M/s Jaiprakash Power Ventures Ltd. (hereinafter referred to as the petitioner or JPVL ) filed the subject petition on 24 th February 2016 for determination of generation tariff of its 2X250 MW (Phase-1) coal based Thermal Power Plant at Bina, District Sagar (M.P) for the next Control Period of FY 2016-17 to FY 2018-19. The subject petition is filed under section 62 and 86 (1) (a) of the Electricity Act, 2003 and in terms of MPERC (Terms & Conditions for Determination of Generation Tariff) Regulations, 2015. 3. The Commission has scrutinized the subject petition in accordance with the principles, methodology and the norms specified in the above mentioned MPERC (Terms & Conditions for determination of Generation Tariff) Regulations, 2015. 4. The Bina Thermal Power Plant (Phase I) comprises of two generating units of 250 MW each. Date of Commercial Operation (CoD) of both units of the petitioner s power plant under Phase 1 are as given below: Table 1: Capacity and COD of Generating Units under Phase-1 Date of Commercial S. No Units Installed Capacity (in MW) Operation 1 Unit-I 250 MW 31 st August' 2012 2 Unit-II 250 MW 07 th April' 2013 5. Earlier, vide tariff order dated 26 th November 2014 (in petition no. 40 of 2012), the Commission determined the final generation tariff for 2X250 MW of Bina Thermal Power Project under Section 62 of the Electricity Act 2003 for FY 2012-13 and FY 2013-14, based on the Annual Audited Accounts. In the aforesaid tariff order, the generation tariff for FY 2014-15 and FY 2015-16 was determined on provisional basis subject to true up on the basis of Audited Accounts for the respective year. 6. On 23 rd January 2015, the petitioner filed a review Petition No. 05 of 2015 M.P. Electricity Regulatory Commission Page 2
seeking review of the aforesaid Commission s order dated 26th November 2014 on some issues. 7. Vide order dated 8 th May 2015 in the aforesaid review petition, the Commission revised the Annual Capacity (fixed) charges on the basis of revision in only one issue i.e. interest and finance charges on loan. Regarding other issues, the petitioner has filed an appeal with the Hon ble Appellate Tribunal for Electricity, New Delhi. The issues in the aforesaid Appeal are sub judice before the Hon ble Tribunal for Electricity. 8. Further, vide order dated 3 rd June 2016, the Commission determined the true-up of generation tariff for FY 2014-15 based on Annual Audited Accounts for FY 2014-15. True-up petition for FY 2015-16 is to be filed by the petitioner after finalization of its Annual Audited Accounts for FY 2015-16. 9. The element- wise Annual Capacity (fixed) charges claimed by the petitioner in the subject petition for next control period of FY 2016-17 to FY 2018-19 are as given below: Table 2: Element-Wise Annual Capacity (fixed) Charges filed: (` in Crores) Particular FY 2016-17 FY 2017-18 FY 2018-19 Return on Equity 212.67 212.67 212.67 Interest on Term Loan 230.27 208.53 186.80 Depreciation 177.12 177.12 177.12 O&M Expenses 135.00 143.50 152.55 O&M Expenses (Transmission Lines & Bay) 0.32 0.33 0.34 Interest on Working Capital 58.06 58.09 58.15 Lease Charges 0.27 0.28 0.30 Total 813.71 800.53 787.93 68.42% of Capacity Charges 556.75 547.73 539.11 10. The petitioner filed the following Energy (variable) charges for the control period of FY 2016-17 to FY 2018-19:- Table 3: Energy Charges Filed in the Petition (`/Unit) Financial Years Energy Charges FY 2016-17 2.481 FY 2017-18 2.481 FY 2018-19 2.481 M.P. Electricity Regulatory Commission Page 3
11. The petitioner broadly prayed the following in its petition: a. Determine the Generation Tariff of the 2x250 MW (Coal Based Power Project at Bina, Dist. Sagar, Madhya Pradesh, for the period commencing from 1 st April, 2016 upto 31.03.2019 as required under the PPA dated 05.01.2011; b. The Petitioner may be allowed to raise bills from April, 2016 onwards as per tariff already determined for the year 2015-16, pending the determination of MYT tariff for FY 2016-17, FY 2017-18 and FY 2018-19; c. Allow the recovery of the filing fees as and when paid to the Commission and also the publication expenses from the beneficiaries; d. Petitioner respectfully seeks an opportunity to present their case prior to the finalization of the Tariff Order. The Petitioner believes that such an approach would provide a fair treatment to all the stakeholders and may eliminate the need of a review or clarification 12. While scrutinizing the subject petition, the Commission has considered the opening figures of capital cost and funding of the project as admitted by the Commission in its true-up order for FY 2014-15 issued on 3 rd June 2016. 13. The Commission has also examined the subject petition in light of the comments/ suggestions offered by the Respondent No. 1 (MPPGCL) / other stakeholders and considering the response of petitioner on the same. Procedural History 14. Motion hearing in the subject matter was held on 26 th April 2016, when the petition was admitted and the petitioner was directed to serve copies of petition on all Respondents in the matter. The respondents were also asked to file their comments/ response on the petition if any, by 26 th May 2016. 15. By affidavit dated 26 th May 2016, Respondent No. 1, M.P. Power Management Company Ltd. filed its comments on the petition. 16. Vide Commission s letter dated 31 st May 2016, the information gaps in the subject petition were communicated to the petitioner and it was asked to file a comprehensive reply along with relevant supporting documents by 20 th June 2016. 17. Vide letter dated 20 th June 2016, the petitioner sought time extension of 30 days M.P. Electricity Regulatory Commission Page 4
for filing its response. Vide Commission s letter dated 29 th June 2016, the petitioner was allowed to file its response at the earliest but not later than 20 th July 2016. 18. By affidavit dated 19 th July 2016, the petitioner filed its response on the issues raised by the Commission. The details of the issues raised in Commission s letter dated 31 st May 2016 along with the response filed by the petitioner by affidavit dated 19 th July 2016 are mentioned in Annexure-I enclosed with this order. 19. The public notice inviting comments/suggestions from all stakeholders was published on 2 nd July 2016 in the following news papers: a) Raj Express, Bhopal (Hindi) b) Raj Express, Gwalior (Hindi) c) Raj Express, Indore(Hindi) d) Raj Express, Jabalpur (Hindi) e) Times of India, Bhopal (English) 20. By affidavit dated 20 th July 2016, JPVL filed its reply on comments offered by (M.P. Power Management Company Ltd.) Respondent No.1 in the matter. The comments offered by MPPMCL and the response of JPVL are mentioned in Annexure-II enclosed with this order. 21. Public hearing in the subject petition was held on 26 th July 2016. The comments/objections filed by the objector and the response of the petitioner on the same are mentioned in Annexure II with this order. Capital Cost Petitioner s Submission: 22. The details of Gross Fixed Assets as on 1 st April 2015, proposed/provisional additional capitalization during FY 2015-16 and Gross Fixed Assets as on 1 st April 2016 as field by petitioner are given below: Table 4: Opening GFA as on 1.04.2016 Filed by the Petitioner (` in Crores) Particulars Amount Opening GFA as on 1.04.2015 3497.37 Additional Capitalization during FY 2015-16 100.16 GFA as on 1.04.2016 3597.54 Provisions in Regulation: 23. With regard to capital cost, Regulation 15 of MPERC (Terms and Conditions for M.P. Electricity Regulatory Commission Page 5
Determination of Generation Tariff) Regulations, 2015 provides that, 15.1 Capital cost as determined by the Commission after prudence check in accordance with this Regulation shall form the basis of determination of tariff for existing and new projects. 15.2 Capital cost for a Project shall include (a) (b) the expenditure incurred or projected to be incurred up to the date of commercial operation of the project; Interest during construction and financing charges, on the loans (i) being equal to 70% of the funds deployed, in the event of the actual equity in excess of 30% of the funds deployed, by treating the excess equity as normative loan, or (ii) being equal to the actual amount of loan in the event of the actual equity less than30% of the funds deployed; Any gain or loss on account of foreign exchange risk variation pertaining to the loan amount availed during the construction period shall form part of the capital cost. (c) Increase in cost in contract packages as approved by the Commission; (d) Interest during construction and incidental expenditure during construction as computed in accordance with Regulation 17 of these Regulations; (e) (f) (g) capitalised Initial spares subject to the ceiling rates specified in Regulation 19 of these Regulations; expenditure on account of additional capitalization and de-capitalisation determined in accordance with Regulation 20 of these Regulations; and adjustment of revenue due to sale of infirm power in excess of fuel cost prior to the COD as specified under Regulation 24 of these Regulations; 15.3 The Capital cost of an existing project shall include the following: (a) (b) the capital cost admitted by the Commission prior to 1.4.2016 duly trued up by excluding liability, if any, as on 1.4.2016; additional capitalization and de-capitalization for the respective year of tariff as determined in accordance with Regulation 20; and M.P. Electricity Regulatory Commission Page 6
(c) expenditure on account of renovation and modernization as admitted by the Commission in accordance with Regulations 21. Commission s Analysis: 24. Based on Annual Audited Accounts for FY 2014-15, the Commission issued last True-Up order for FY 2014-15 on 3 rd June 2016 in this matter and the petition for true-up of generation tariff for FY 2015-16 is to be filed by petitioner on availability of Annual Audited Accounts for FY 2015-16. 25. To work out the capital cost as on 1 st April 2016 in this order, the Commission has considered the closing Gross Fixed Assets of ` 3484.12 crores as on 31 st March 2015 (as admitted in its true up order dated 3 rd June 2016 for FY 2014-15) as a base figure for 1 st April 2015. Additional Capitalization during FY 2015-16 26. The petitioner filed the provisional additional capitalization during FY 2015-16 and its corresponding funding as given below: Table 5: Additional Capitalization and Funding during FY 2015-16 (` in Crores) Particulars Amount Additional Capitalization during FY 2015-16 100.16 Loan 70.11 Equity 30.05 27. Vide Commission s letter dated 31 st May 2016, the petitioner was asked to file a comprehensive reply to the following issues on additional capitalization with all relevant supporting documents: (i) (ii) (iii) (iv) Whether the addition of assets is on account of the reasons (a) to (e) in clause 20.1 of the MPERC (Terms and Conditions for determination of Generation tariff) Regulations, 2012. Whether the assets capitalized during the year are under original scope of work. Supporting documents were also sought in this regard. Whether the additional capitalization is within the cut-off date of the project. Statement showing the detailed break-up of the project cost originally approved by the competent authority, cost incurred up to 31 st March, 2015, addition capitalization proposed during FY 2015-16, along with the reasons of increase in each item of additional capitalization proposed during FY 2015-16 was also sought. M.P. Electricity Regulatory Commission Page 7
(v) (vi) (vii) Details of the works completed as on 31 st March 2016 along with supporting documents were sought. Reasons for delay in completion of works under additional capitalization and the anticipated date of completion of these additional works were also sought. Details of any penalty/ld if any, imposed on the contractor for delay in completion of these works under additional capitalization were sought. 28. The petitioner was also asked to file the following: (i) The copy of its Board of Director s approval for additional capitalization of `100.16 Crore filed by it during FY 2015-16. (ii) Board s Resolutions for equity investments and shareholder certificate for the equity infusion for the additional capital investment of `100.16 in FY 2015-16. 29. In response to above, by affidavit dated 19 th July 2016, the petitioner submitted the following: (i) Reply to issue (i), (ii) and (iii) The additional proposed capitalization of Rs 100.16 Crs falls within the norms specified under Regulation 20.1 of MPERC (Terms and Conditions for determination of Generation Tariff) Regulations, 2012. The said Regulation reads as under:- The Capital Expenditure incurred or projected to be incurred, on the following counts within the original scope of work, after the Date of Commercial Operation and up to cut-off date may be admitted by the Commission, subject to prudent check: (a) Undisclosed liabilities (b) Work deferred for execution (c) Liabilities to meet award of arbitration or for compliance of order or decree of a court, (d) Change in Law, (e) Procurement of initial spares within the original scope of work, subject to the provisions of Regulation 17.1(b) Provided that the details of works included in the original scope of along with estimates of expenditure, un-discharged liabilities and works deferred for execution shall be submitted along with the application for Tariff. The Petitioner would humbly like to draw the kind attention of Hon ble Commission in the light of the above Regulation that the said additional capitalization is within the original scope of the work authorized by the Resolution of Board of Directors dated May 17 th, 2014 and is also within the prescribed cut-off date. M.P. Electricity Regulatory Commission Page 8
(ii) Reply to issue (iv) Break up of Originally Approved Project Cost, Revised Project Cost Proposed capitalization during 2015-16 and Final Project Cost are given as under:- Particulars Original Project Cost Revised Project Cost Final Project Cost (Rs in Crores) Cost Incurred upto 31-03-2015 Proposed Capitalization during 2015-16 Land 7 7 7 6.86 BTG 1294 1338 1381 1740.80 7 BOP 480 575 954 1153.70 47 Civil Cost 433 686 479 596.02 46 Overhead & 201 201 253 Pre-Operative IDC/IEDC 294 398 524* Margin Money 45 35 Total 2754 3240 100 3598 3497.38 * This includes Rs 23.46 Crs approved by Hon ble Commission towards interest from COD of Unit I to COD II on Debt Component of unallocated capital cost as on COD of Unit I vide Para 4.30 and 4.31 Order dated Nov 26th, 2014. Reasons of increase/decrease between proposed capitalization during 2015-16 and actual capitalization shall be provided after approval of shareholders in Annual General Meeting of Balance Sheet as on March 31st, 2016 of Jaypee Bina Thermal Power Plant. (iii) (iv) (v) Reply to issue (v) Details of work completed up to March 31st, 2016 will be furnished only after approval of shareholders in Annual General Meeting of Balance Sheet as on March 31st, 2016 of Jaypee Bina Thermal Power Plant. Reply to issue (vi) In response to the query a detailed chart is enclosed herewith as Annexure-2. Reply to issue (vii) As regards Liquidated Damages & Legal Remedies, the same shall be looked into after the completion of balance of works as our current priority is to ensure that progress of work in not hampered. M.P. Electricity Regulatory Commission Page 9
30. With regard to Board s approval for additional capitalization, the petitioner submitted that since, this addition is part of original scope of work with a project completion cost of `3575 Crores, hence it does not require fresh approval of its Board of Director. The petitioner enclosed the Board s approval for Rs 3,575 Crs with its reply. 31. On perusal of the reply and documents filed by the petitioner, the Commission observed that the reply filed by the petitioner regarding the proposed additional capitalization during FY 2015-16 is not to the satisfaction and it will require detailed examination on several counts specified in the MPERC (Terms and Conditions for Determination of Generation Tariff) Regulations, 2012. Based on the information made available by JPVL, this exercise may be carried out while undertaking true up exercise for FY 2015-16 based on Annual Audited Accounts and other necessary details in this regard. The true-up exercise upto FY 2014-15 has been undertaken by the Commission and the petition for true-up of FY 2015-16 is to be filed by the petitioner. Therefore, the Commission shall consider the asset addition during FY 2015-16 at the time of dealing with the true up petition for FY 2015-16 based on the Annual Audited Accounts and also on detailed examination of assets addition in terms of applicable Regulations. 32. Accordingly, the status of opening Gross Fixed Assets (GFA) as on 1 st April 2016 will remain same in this order as considered by the Commission as on 31 st March 2015, in its true up order dated 3 rd June 2016 for FY 2014-15. 33. The petitioner has not claimed any additional capitalization during the control period of FY 2016-17 to FY 2018-19. Therefore, the same Gross Fixed Assets as on 1 st April 2016 is considered till 31 st March 2019. Funding Status Petitioner s Submission: Equity 34. To work out the equity balance as on 1 st April 2016, the petitioner considered the closing balance of equity as on 31 st March 2015, as filed in the true up petition for FY 2014-15 as opening equity base figure as on 1 st April 2015 and further, equity addition of 30% of proposed/provisional additional capitalization filed during FY 2015-16 is considered. The petitioner has not filed any additional capitalization during the control period of FY 2016-17 to FY 2018-19. 35. The details of the opening balance of equity as on 1 st April 2015, addition during M.P. Electricity Regulatory Commission Page 10
FY 2015-16 and opening balance of equity as on 1 st April 2016, as filed by petitioner are as given below: Table 6: Opening Equity as on 1.04.2016 (` in Crores) Particulars Amount Opening equity as on 1.04.2015 1049.21 Additions during FY 2015-16 30.05 Opening equity as on 1.04.2016 1079.26 Loan 36. To work out the loan balance as on 1 st April 2016, the petitioner considered the closing balances of loan as on 31 st March 2015, as filed in the true up petition for FY 2014-15 as opening loan as on 1 st April 2015. Further, loan addition of 70% of proposed/provisional additional capitalization filed during FY 2015-16 is considered and repayment equivalent to estimated depreciation during FY 2015-16 has also been considered by the petitioner to arrive at the loan balance as on 1 st April 2016. The petitioner has not filed any additional capitalization during the control period of FY 2016-17 to FY 2018-19. 37. The details of the opening balance of loan as on 1 st April 2016, repayment during the control period for FY 2016-17 to FY 2018-19 and closing loan balances filed by the petitioner are as given below: Table 7: Opening and Closing Balance of Loan Filed (` in Crores) Financial Years Opening Balance Repayments Closing Balance FY 2016-17 1964.92 177.12 1787.80 FY 2017-18 1787.80 177.12 1610.67 FY 2018-19 1610.67 177.12 1433.55 Provisions in Regulation: 38. With regard to funding of the project, Regulation 25 of MPERC (Terms and Conditions for Determination of Generation Tariff) Regulations, 2015 provides that, Debt-Equity Ratio: 25.1 For a project declared under commercial operation on or after 1.4.2016, the debt-equity ratio would be considered as 70:30 as on COD. If the equity actually deployed is more than 30% of the capital cost, equity in excess of 30% shall be treated as normative loan: M.P. Electricity Regulatory Commission Page 11
Provided that: a. where equity actually deployed is less than 30% of the capital cost, actual equity shall be considered for determination of tariff: b. the equity invested in foreign currency shall be designated in Indian rupees on the date of each investment: c. any grant obtained for the execution of the project shall not be considered as a part of capital structure for the purpose of debt : equity ratio. Explanation.-The premium, if any, raised by the generating company while issuing share capital and investment of internal resources created out of its free reserve, for the funding of the project, shall be reckoned as paid up capital for the purpose of computing return on equity, only if such premium amount and internal resources are actually utilised for meeting the capital expenditure of the generating station. 25.2 The generating company shall submit the resolution of the Board of the company regarding infusion of fund from internal resources in support of the utilization made or proposed to be made to meet the capital expenditure of the generating station. 25.3 In case of the generating station declared under commercial operation prior to 1.4.2016, debt- equity ratio allowed by the Commission for determination of tariff for the period ending 31.3.2016 shall be considered. 25.4 In case of the generating station declared under commercial operation prior to 1.4.2016, but where debt: equity ratio has not been determined by the Commission for determination of tariff for the period ending 31.3.2016, the Commission shall approve the debt: equity ratio based on actual information provided by the generating company. 25.5 Any expenditure incurred or projected to be incurred on or after 1.4.2016 as may be admitted by the Commission as additional capital expenditure for determination of tariff, and renovation and modernisation expenditure for life extension shall be serviced in the manner specified in clause 25.1 of this Regulation. Commission s Analysis: Equity as on 1 st April 2016 39. Regulation 25.3 of MPERC (Terms & Conditions for Determination of Generation Tariff) Regulations, 2015 provides that in case of the generating station declared under commercial operation prior to 1 st April 2016, the debt-equity ratio allowed M.P. Electricity Regulatory Commission Page 12
by the Commission for determination of tariff for the period ending 31 st March 2016, shall be considered. Thus, the Commission has considered the opening equity as on 1 st April 2015, based on the true-up order for FY 2014-15 issued on 3 rd June 2016. 40. Further, the Commission has not considered the provisional additional capitalization during FY 2015-16 in this order. Therefore, the equity balance of `1045.24 crore as on 31 st March 2015, as approved by the Commission in true up order dated 3 rd June 2016 for FY 2014-15 would remain same as on 1 st April 2016. 41. The petitioner has not filed any equity additional during the control period FY 2016-17 to FY 2018-19. Therefore, the equity amount of `1045.24 crore shall remain unchanged during the control period till 31 st March 2019. Loan balances as on 1 st April 2016 42. In light of the aforesaid Regulation 25.3 of MPERC (Terms & Conditions for Determination of Generation Tariff) Regulations, 2015, the Commission has considered the loan amount as on 1 st April 2015, based on the true-up order for FY 2014-15 issued on 3 rd June 2016. 43. Further, as discussed in preceding paragraphs of this order, the Commission has not considered the proposed/provisional additional capitalization during FY 2015-16 at this stage. Therefore, the loan balance as on 1 st April 2016 is worked out by considering the estimated repayment equivalent to depreciation for FY 2015-16. 44. Based on the above, the status of loan balances as on 1 st April 2015, repayment during FY 2015-16 and loan balances as on 1 st April 2016 are worked out as given below: Table 8: Loan as on 1 st April 2015, Repayment during the FY 2015-16 and loan as on 1 st April 2016 (` in Crores) Particulars Amount Opening Loan as on 1.04.2015 2061.37 Repayment during FY 2015-16 171.94 Loan balance as on 1.04.2016 1889.43 45. The petitioner has not filed any loan addition during the control period of FY 2016-17 to FY 2018-19. Therefore, no loan addition is considered during the control period in this order. M.P. Electricity Regulatory Commission Page 13
Cumulative depreciation as on 1 st April 2016: 46. For computation of cumulative depreciation as on 1 st April 2016, the Commission has considered the closing cumulative depreciation as on 31 st March 2015, as approved in true-up order dated 3 rd June 2016 for FY 2014-15 and depreciation during FY 2015-16 has been computed using the weighted average rate of depreciation as filed by the petitioner. 47. In view of the above, the status of cumulative depreciation as on 1 st April 2015, addition during FY 2015-16 and cumulative depreciation as on 1 st April 2016 is worked out as given below : Table 9: Cumulative Depreciation as on 1 st April 2015, depreciation during FY 2015-16 and Cumulative Depreciation as on 1 st April 2016 (` in Crores) Particulars Amount Opening Cumulative Depreciation as on 1.04.2015 377.51 Depreciation during FY 2015-16 171.94 Cumulative depreciation as on 1.04.2016 549.45 48. The details of opening GFA, Loan balance, equity balance and cumulative depreciation as on 1 st April 2016 considered in this order are as follows: Table 10: Status as on 1 st April 2016 (` in crores) Particulars Amount Gross Fixed Assets 3484.12 Loan Balance 1889.43 Equity Balance 1045.24 Cumulative Deprecation 549.45 Annual Capacity (fixed) Charges 49. As per Regulation 27 of the MPERC (Terms and Conditions for Determination of Generation Tariff) Regulations, 2015, the Annual Capacity (Fixed) Charges shall consist of the following components: (a) Return on Equity; (b) Interest on Loan Capital; (c) Depreciation; (d) Interest on Working Capital; (e) Operation and Maintenance Expenses; M.P. Electricity Regulatory Commission Page 14
Return on Equity Petitioner s Submission 50. The petitioner filed the Return on Equity during control period of FY 2016-17 to FY 2018-19 in form 1(II) of the petition as given below:- Table 11: Return on Equity Filed (` in Crores) Particulars FY 2016-17 FY 2017-18 FY 2018-19 Opening Equity 1079.26 1079.26 1079.26 Equity Additions 0.00 0.00 0.00 Closing Equity 1079.26 1079.26 1079.26 Average Equity 1079.26 1079.26 1079.26 Base Rate of ROE 15.50% 15.50% 15.50% Tax Rate considered under MAT 21.34% 21.34% 21.34% Pre-Tax Rate of Return on Equity 19.71% 19.71% 19.71% Return on Equity 212.67 212.67 212.67 Provisions in the Regulation: 51. With regard to Return on Equity, Regulation 30 and 31 of MPERC (Terms and Conditions for Determination of Generation Tariff) Regulations, 2015 provides that, 30 Return on Equity: 30.1 Return on equity shall be computed in rupee terms, on the equity base capital determined in accordance with Regulation 25. 30.2 Return on equity shall be computed at the base rate of 15.5% for thermal generating stations and hydro generating stations. Provided that (a) in case of Projects commissioned on or after 1 st April, 2016, an additional return of 0.5% shall be allowed if such Projects are completed within the timeline specified in Appendix-I : (b) the additional return of 0.5% shall not be admissible if the Project is not completed within the timeline specified above for reasons whatsoever. (c) the rate of return of a new project shall be reduced by 1% for such period as may be decided by the Commission, if the Generating station is found to be declared under commercial operation without M.P. Electricity Regulatory Commission Page 15
commissioning of any of the Restricted Governor Mode Operation (RGMO)/ Free Governor Mode Operation (FGMO): (d) as and when any of the above requirements are found lacking in a generation station based on the report submitted by the respective SLDC/RLDC, ROE shall be reduced by 1% for the period for which the deficiency continues: 31 Tax on Return on Equity: 31.1 The base rate of return on equity as allowed by the Commission under Regulation 30 shall be the shall be grossed up with the effective tax rate for the Year respective financial years. For this purpose, the effective tax rate shall be considered on the basis of actual tax paid in the respective financial year in line with the provisions of the relevant Finance Acts by the concerned generating company. The actual income tax on other income stream including deferred tax i.e., income of non generation business shall not be considered for the calculation of effective tax rate. 31.2 Rate of return on equity shall be rounded off to three decimal places and shall be computed as per the formula given below: Rate of pre-tax return on equity = Base rate / (1-t) Where t is the applicable tax rate in accordance with Regulation 31.1 of this Regulation and shall be calculated at the beginning of every financial year based on the estimated profit and tax to be paid estimated in line with the provisions of the relevant Finance Act applicable for that financial year to the company on prorata basis by excluding the income of non-generation business and the corresponding tax thereon. In case of generating company paying Minimum Alternate Tax (MAT), t shall be considered as MAT rate including surcharge and cess. For example: - In case of the generating company paying (i) Minimum Alternate Tax (MAT) @ 20.96% including surcharge and cess: Rate of return on equity = 15.50/(1-0.2096) = 19.610% (ii) In case of generating company paying normal corporate tax including surcharge and cess: (a) Estimated Gross Income from generation business forfy2016-17 is Rs 1000 crore. (b) Estimated Advance Tax for the year on above is Rs 240 crore. (c) Effective Tax Rate for the year 2016-17 = Rs 240 Crore/Rs 1000 Crore =24% (d) Rate of return on equity = 15.50/ (1-0.24) = 20.395% M.P. Electricity Regulatory Commission Page 16
31.3 The actual tax paid together with any additional tax demand including interest thereon, duly adjusted for any refund of tax including interest received from the income tax authorities pertaining to the tariff period 2016-17 to 2018-19 on actual gross income of any financial year shall be trued-up every year. However, penalty, if any, arising on account of delay in deposit or short deposit of tax amount shall not be claimed by the generating company. Any under-recovery or over-recovery of grossed up rate on return on equity after truing up, shall be allowed to be recovered or refunded to beneficiaries on year to year basis. Commission s Analysis 52. As discussed in preceding paragraphs of this order, the Commission has not considered the provisional additional capitalization proposed during FY 2015-16. Thus, the equity balance as on 1 st April 2016 shall remain same as admitted by the Commission in last true-up order for FY 2014-15 as on 31 st March 2015. Further, the petitioner has not filed the additional capitalization during FY 2016-17 to FY 2018-19, therefore, the equity balance as on 1 st April 2016 shall remain unchanged during the control period. 53. On scrutiny of the petition, it was observed that the petitioner claimed Return on Equity by grossing up the base rate with MAT. Therefore, vide Commission s letter dated 31 st May 2016, the petitioner was asked to explain with supporting documents whether the Petitioner s Bina Power Project is eligible for MAT in accordance with the balance sheet of Bina Power Project. 54. In response, by affidavit dated 19 th July 2016, the petitioner submitted that the Generation Company (JPVL) has been paying MAT upto 2014-15 on the basis of which the petitioner has grossed up base rate with MAT. The petitioner further submitted that the Income Tax Return is yet to be prepared and filed. 55. Regulation 31.1 of the Regulations 2015, provides that the base rate of return on equity shall be grossed up with the effective tax rate of the respective financial year. For this purpose the effective tax rate shall be considered on the basis of actual tax paid in the respective financial year by the generating company. 56. In terms of the above Regulation, the Commission shall deal with the tax liability based on the Annual Audited Accounts during truing- up exercise for each financial year under the control period. Accordingly, while computing the return on equity in this order, the Commission has not considered the grossing up of the base rate of return i.e.15.5% with MAT at this stage and worked out the Return on Equity for the control period FY 2016-17 to FY 2018-19 at the base M.P. Electricity Regulatory Commission Page 17
rate as given below: Table 12: Return on Equity Allowed (` in Crores) Particulars FY 2016-17 FY 2017-18 FY 2018-19 Opening Equity 1045.24 1045.24 1045.24 Equity Additions 0.00 0.00 0.00 Closing Equity 1045.24 1045.24 1045.24 Average Equity 1045.24 1045.24 1045.24 Base Rate of ROE 15.50% 15.50% 15.50% Return on Equity 162.01 162.01 162.01 57. The petitioner is directed to file the details of actual tax status of Bina Thermal Power Station in light of the Annual Audited Account with the true-up petitions of each year of the control period. Interest on Loan Capital Petitioner s submission: 58. The petitioner submitted the detailed break-up of opening loan balances, repayment during the year, closing balance of loan, weighted average rate of interest and interest on loan in form TPS 13 A of the petition as given below: Table 13: Loan and Interest Filed (` in Crores) Particulars FY 2016-17 FY 2017-18 FY 2018-19 Opening Loan Balance 1964.92 1787.80 1610.67 Repayments during the Year 177.12 177.12 177.12 Closing Loan Balance 1787.80 1610.67 1433.55 Average Loan Balance 1876.36 1699.23 1522.11 Weighted Average rate of interest 12.27% 12.27% 12.27% Interest on Loan balance 230.27 208.53 186.80 Provisions in Regulation 59. With regard to Interest on loan capital, Regulation 32 of MPERC (Terms and Conditions for Determination of Generation Tariff) Regulations, 2015 provides that, 32.1 The loans arrived at in the manner indicated in Regulation 25 shall be considered as gross normative loan for calculation of interest on loan. 32.2 The normative loan outstanding as on 1.4.2016 shall be worked out by deducting the cumulative repayment as admitted by the Commission up to M.P. Electricity Regulatory Commission Page 18
31.3.2016 from the gross normative loan. 32.3 The repayment for the Year of the Tariff period 2016-19 shall be deemed to be equal to the depreciation allowed for the corresponding year/ period. In case of de- capitalization of assets, the repayment shall be adjusted by taking into account cumulative repayment on a pro rata basis and the adjustment should not exceed cumulative depreciation recovered upto the date of de-capitalisation of such asset. 32.4 Notwithstanding any moratorium period availed by the Generating Company, the repayment of loan shall be considered from the first Year of commercial operation of the Project and shall be equal to the annual depreciation allowed for the year or part of the year. 32.5 The rate of interest shall be the weighted average rate of interest calculated on the basis of the actual loan portfolio after proving appropriate accounting adjustment for interest capitalized. Provided that if there is no actual loan for a particular Year but normative loan is still outstanding, the last available weighted average rate of interest shall be considered: Provided further that if the generating station does not have actual loan, then the weighted average rate of interest of the Generating Company as a whole shall be considered. 32.6 The interest on loan shall be calculated on the normative average loan of the Year by applying the weighted average rate of interest. 32.7 The Generating Company 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 the Generating Company, in the ratio of 2:1. 32.8 The changes to the terms and conditions of the loans shall be reflected from the date of such re-financing. 32.9 In case of dispute, any of the parties may make an application in accordance with the MPERC (Conduct of Business) Regulation, 2004, as amended from time to time: Provided that the beneficiaries shall not withhold any payment on account M.P. Electricity Regulatory Commission Page 19
of the interest claimed by the generating company during the pendency of any dispute arising out of re-financing of loan. Commission s Analysis: 60. Regulation 32.2 of MPERC (Terms and Conditions for Determination of Generation Tariff) Regulations, 2015 provides that the normative loan outstanding as on 1 st April 2016, shall be worked out by deducting the cumulative repayment as admitted by the Commission up to 31 st March 2016, from the gross normative loan. 61. The Commission has worked out the loan balances as on 1 st April 2016, considering the following approach: a) Loan balances (as on 31 st March 2015) admitted by the Commission in last true-up order for FY 2014-15 are considered as the base figures for loan balance as on 1 st April 2015,. b) The proposed additional capitalization during FY 2015-16 and its corresponding loan has not been considered in this order. c) Thereafter, depreciation for FY 2015-16 computed by applying depreciation rate as filed by the petitioner for FY 2015-16 is considered as repayment during the FY 2015-16 to arrive at the opening balances of loan as on 1 st April 2016. 62. The petitioner has not filed any loan addition during the control period. Therefore, the loan balance for each financial year is worked out accordingly by considering the normative repayment equivalent to depreciation for the respective year. 63. It is observed that in TPS form 13 of the petition, the petitioner has taken loan/debt from 10 different lending agencies and the weighted average rate of loan has been worked out by considering the loan balances of all lending agencies. 64. Vide letter dated 31 st May 2016, the Commission asked the petitioner to file supporting documents in respect of weighted average rate of interest claimed in the petition. 65. By affidavit dated 19 th July 2016, the petitioner submitted that To substantiate the Rate of Interest, a summary of Actual amount of monthly interest paid, rate of interest, sample payment instructions to Bank along with the true copy of bank M.P. Electricity Regulatory Commission Page 20
statement showing payment thereof has been attached herewith as Annexure-4. 66. Based on the above details submitted by petitioner, the interest on loan is worked out during the control period as given below: Table 14: Interest on Loan considered (` in Crores) Particulars FY 2016-17 FY 2017-18 FY 2018-19 Opening Loan Balance 1889.43 1718.01 1546.59 Repayments 171.42 171.42 171.42 Closing Loan Balance 1718.01 1546.59 1375.17 Average Loan Balance 1803.72 1632.30 1460.88 Weighted Average rate of Interest 12.27% 12.27% 12.27% Interest Amount 221.32 200.28 179.25 67. The petitioner is directed to file actual weighted average rate of interest in respect of each lending agency along with supporting documents while filing the true-up petitions for each year of the control period. Depreciation Petitioner s Submission: 68. The petitioner submitted the opening Gross Fixed Assets, closing Gross Fixed Assets and depreciation in form TPS 12 of the Petition are as given below:- Table 15: Depreciation on the Assets Filed (` in Crores) Financial Year FY 2016-17 FY 2017-18 FY 2018-19 Opening Capital Cost 3597.54 3597.54 3597.54 Closing Capital Cost 3597.54 3597.54 3597.54 Average Capital Cost 3597.54 3597.54 3597.54 Rate of Depreciation 4.92% 4.92% 4.92% Depreciation on Capital Cost 177.12 177.12 177.12 Cumulative Depreciation at the end of year 730.48 907.60 1084.72 Provisions of the Regulation: 69. Regulation 33 of MPERC (Terms and Conditions for Determination of Generation Tariff) Regulations, 2015 provides that, 33.1 Depreciation shall be computed from the date of commercial operation of a generating station or unit thereof. In case of the tariff of all the units of a generating station for which a single tariff needs to be determined, the depreciation shall be computed from the effective date of commercial operation of the generating station taking into consideration the depreciation of individual M.P. Electricity Regulatory Commission Page 21
units. Provided that effective date of commercial operation shall be worked out by considering the actual date of commercial operation and installed capacity of all the units of the generating station for which single tariff needs to be determined. 33.2 The value base for the purpose of depreciation shall be the capital cost of the asset admitted by the Commission. In case of multiple units of a generating station, weighted average life for the generating station shall be applied. Depreciation shall be chargeable from the first year at the commercial operation. 33.3 The salvage value of the asset shall be considered as 10% and depreciation shall be allowed up to maximum of 90% of the capital cost of the asset: Provided that in case of Hydro generating stations, the salvage value shall be as provided in the agreement signed by the developers with the State Government for creation of the site: Provided further that the capital cost of the assets of the hydro generating station for the purpose of computation of depreciable value shall correspond to the percentage of sale of electricity under Long-term power purchase agreement at regulated Tariff. Provided also that any depreciation disallowed on account of lower availability of generating station or generating unit shall not be allowed to be recovered at a later stage during the useful life and extended life. Provided also that salvage value for IT equipment and softwares shall be considered as NIL and 100 % value of the assets shall be considered depreciable. 33.4 Land other than land held under lease and the land for reservoir in case of hydro generating station shall not be a depreciable asset and its cost shall be excluded from the capital cost while computing depreciable value of the asset. 33.5 Depreciation shall be calculated annually based on Straight Line Method and at rates specified in Appendix-II to these Regulations for the assets of the generating station: Provided that, the remaining depreciable value as on 31 st March of the Year closing after a period of 12 Years from the Date of M.P. Electricity Regulatory Commission Page 22
Commercial operation shall be spread over the balance Useful life of the assets. 33.6 In case of the existing Projects, the balance depreciable value as on 1.4.2016 shall be worked out by deducting the cumulative depreciation as admitted by the Commission upto 31.3.2013 from the gross depreciable value of the assets. 33.7 The rate of Depreciation shall be continued to be charged at the rate specified in Appendix-II till cumulative depreciation reaches 70%. Thereafter the remaining depreciable value shall be spread over the remaining life of the asset such that the maximum depreciation does not exceed 90%. 33.8 Depreciation shall be chargeable from the first Year of commercial operation. In case of commercial operation of the asset for part of the Year, depreciation shall be charged on pro rata basis. 33.9 The generating company shall submit the details of proposed capital expenditure during the fag end of the project (five years before the useful life) along with justification and proposed life extension. The Commission based on prudence check of such submissions shall approve the depreciation on capital expenditure during the fag end of the project. 33.10 In case of de-capitalization of assets in respect of generating station or unit thereof, the cumulative depreciation shall be adjusted by taking into account the depreciation recovered in tariff by the de-capitalized asset during its useful services. Commission s Analysis:- 70. The Commission has worked out the accumulated depreciation as on 1 st April 2016, considering the following: a) Accumulated depreciation as on 31 st March 2015 as admitted by the Commission in the last true-up order for FY 2014-15 is considered as the base figure as on 1 st April 2015, for Accumulated Depreciation. b) Thereafter, Depreciation is worked out during FY 2015-16 by applying the weighted average rate of depreciation as filed by the petitioner to arrive at the opening balance of Accumulated depreciation as on 1 st April 2016. 71. Vide Commission s letter dated 31 st May 2016, the petitioner was asked to M.P. Electricity Regulatory Commission Page 23
furnish a statement showing year wise details of depreciation un-recovered if any, till 31.03.2016, on account of plant availability lower than the NAPAF and ensuring adherence with third proviso under Regulation 33.3 of MPERC (Terms and Conditions for Determination of Generation Tariff) Regulations, 2015 along with asset cum depreciation register in support of depreciation worked out in this petition. 72. By affidavit dated 19 th July 2016, the petitioner submitted the statement of yearwise details of depreciation un-recovered. The petitioner submitted that there is no unrecovered depreciation in any year except FY 2012-13. However the unit no. 1 of the project was under operation only for part of the year and PAF was lower than the norms fixed in the Regulations. Further with regard to Asset-cum- Depreciation, the petitioner submitted that the Balance sheet as on 31-03-2016 is yet to be approved by shareholder in the Annual General Meeting, hence, as soon as the same is approved, the Asset-cum-Depreciation register shall be submitted to the Commission. 73. In view of the above, the petitioner is directed to file a detailed year-wise Assets- Cum-Depreciation register with the true-up petition for respective years. 74. The depreciation on the Gross Fixed Assets (considered as on 1 st April 2016) is worked out by the Commission on the following basis: i) For the purpose of computation of depreciation, the opening Gross Fixed Assets as on 1 st April 2016, is worked out as explained in preceding paragraphs. ii) The petitioner has not filed any additional capitalization during the control period of FY 2016-17 to FY 2018-19. iii) The depreciation during the control period has been computed on the aforesaid Gross Fixed Assets by applying the weighted rate of depreciation as filed by the petitioner during the control period. 75. Based on above, the depreciation is worked out in this order as given below:- Table 16: Depreciation allowed (` in Crores) Financial Year FY 2016-17 FY 2017-18 FY 2018-19 Opening Capital Cost 3484.12 3484.12 3484.12 Additions 0.00 0.00 0.00 Closing Capital Cost 3484.12 3484.12 3484.12 Average Capital Cost 3484.12 3484.12 3484.12 M.P. Electricity Regulatory Commission Page 24
Rate of Depreciation 4.92% 4.92% 4.92% Depreciation for the year 171.42 171.42 171.42 Cumulative Depreciation 720.87 892.29 1063.71 Operation & Maintenance Expenses Petitioner s Submission: 76. The petitioner filed the Operation & Maintenance expenses of thermal power station (in Form TPS 1) and Operation & Maintenance expenses of Transmission lines & Bay are as given below: Table 17: Operation & Maintenance Expenses Filed (` in Crores) Operation & Maintenance Expenses for Thermal Operation & Maintenance Expenses (Transmission lines & Financial Years Power Station Bay) FY 2016-17 135.00 0.32 FY 2017-18 143.50 0.33 FY 2018-19 152.55 0.34 Provisions in Regulation: 77. Regulation 35.7 of MPERC (Terms and Conditions for Determination of Generation Tariff) Regulations, 2015 provides that, The Operation and Maintenance expenses admissible to existing thermal power stations commissioned prior to 01.04.2012 comprise of employee cost, Repair & Maintenance (R&M) cost and Administrative and General (A&G) cost. These norms exclude Pension and Terminal Benefits, EL encashment, Incentive, arrears to be paid to employees, taxes payable to the Government, and fees payable to MPERC. The generating company shall claim the rate, rent & taxes payable to the Government, cost of chemicals and consumables, fees to be paid to MPERC, EL encashment and any arrears paid to employees separately as actuals. The claim of pension and Terminal Benefits shall be dealt as per Regulation 35.4 of these Regulations. Table 18: O&M Norms for Thermal Generating Units Commissioned on or after 01.04.2012 (` in lakh/mw) Units (MW) FY 2016-17 FY 2017-18 FY 2018-19 45 32.07 34.09 36.24 200/210/250 27.00 28.70 30.51 M.P. Electricity Regulatory Commission Page 25