Terms and Conditions of Tariff

MPERC Comments on CERC Discussion Paper

Madhya Pradesh Electricity Regulatory Commission

In this presentation
Market Development Transmission and wheeling charges for Transmission Lines Transmission and wheeling charges for Inter-regional Lines Tariff Setting Rate of return methodology Depreciation Development Surcharge Rate base Interest on working capital Operational norms Other Discussion Points
2 Madhya Pradesh Electricity Regulatory Commission

Market Development

Madhya Pradesh Electricity Regulatory Commission

Market Development
Pan Caking (2.3.3.2) Definition: Term used to describe stacking up of charges in a transmission system due to repeated application of charges for different regions Implications Increase in the landed cost of power Discouragement to inter regional Comments exchange of power Open Access mechanism of Regional Incremental Postage Stamp
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Transmission and Wheeling Charges

Mechanism of charging Original Beneficiaries cover full cost Reimbursed by income from Open Access Charges and Comments from Traded network should Expansion of Power be done on the basis of a Long-Term Transmission Capacity Demand Forecast (Example: 7-Year Plan in UK) Commission must regulate the level of investment by CTU / STU and ensure that it is at a certain margin above Madhya Pradesh Electricity Regulatory Commission strictly required.

Market Development
Charging of Fixed Costs Present system of sharing of costs of Inter-regional assets is 50:50 between Regions. Method of charging should be changed to allocated usage basis. Provisional fixed costs may be charged based on Allocation of Capacity in Agreement between CTU and Beneficiaries Adjustments to be made at the month-end based on actual allocation. These adjustments may be billed in next months 5 bill

Transmission and Wheeling Charges for Inter-Regional Lines

Sharing of Income from Open Access / Traded Power Should be adjusted on a monthly basis Should be returned to Firm Users in the proportion of costs paid in that month

Madhya Pradesh Electricity Regulatory Commission

Tariff Setting

Madhya Pradesh Electricity Regulatory Commission

Tariff Setting
Rate of Return
Existing methodology Cost-plus approach Options ROE Return to equity investment is measured ROCE (= ROI) Return on total investment is measured Measured against WACC Incentive for optimization by financial engineering / refinancing incentive to investors No FERV 7 Beneficial to consumers ROCE, ROE and Return on Debt ROE: Interest rates have reduced Escrows and LCs are established Suggestion: Government Bond Return + 5% = say 11% Margin to cover: Risk premium Investment incentive Return on Debt @ PLR Normative Debt Equity Ratio: 80:20 ROCE = 11*80/100 + 11*20/100 = 11% Annual revision, retrospectiveforward compensation or through Madhya Pradesh Electricity Regulatory Commission VCA

Tariff Setting
Depreciation

Depreciation, Development Surcharge

Development Surcharge There should not be any such surcharge on the beneficiaries for the purpose of creation of corpus for investment in generation Reasonable return is being provided Instead, a Developmental Charge may be levied for a "Universal Service Obligation" Fund USO Fund can be used for improving access to all

Purpose of depreciation Wear and tear Repayment of loan Comments Allow to explicitly charge loan repayment After full loan repayment, balance depreciation may be charged on SLM till useful life of the plant Develop norms for loan repayment
Rate = PLR Term of loan = Moratorium + Minimum 10 years

Buyers must be protected by ensuring term of PPA is for the

Rural electrification programs Promotion to nonconventional sources Madhya Pradesh Electricity Regulatory Off-grid generation Commission

Tariff Setting
Rate Base

Rate Base, Interest on Working Capital

Interest on Working Capital Allow interest portion as passthrough on net Normative Working Capital Net of working capital may be derived after deduction of fuel costs

Asset-side NFA approach Initial Capital Expenditure Initial Capex: In case a prior order exists: As per the order In case prior order does not exist: Should be determined by competitive bidding. Norms must be developed by the CERC / CEA for setting up of projects for quality of equipment, costs, gestation, competitive bidding processes for EPC etc Additional Capex:
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Madhya Pradesh Electricity Regulatory Commission

Tariff Setting
Operating Norms
Operating Norms Define operational norms; this should consider technology in place, inflation, age of the plant / equipment Operation and Maintenance Expenses Pass-through on actuals subject to a limit as a percentage of capital costs Generation SHR the savings to be Allow a portion of Generation Gross Calorific Value Price of coal is notified based on UHV and coal consumed is determined based on GCV There is a need of fixing norms for linking UHV with GCV. Norms for stacking and transit losses should also be fixed based on Generation Specific Oil transport mode and distance Consumption

Norms should be reduced to 2 retained linked with guaranteed Should be ml/kwh from the current 3.5 ml/kwh if heat rate. A reasonable margin the target PLF is above normative should be provided above this which At low PLF Specific Oil Consumption should keep in view the age of the is higher to keep the furnace stable. plant Higher Sp.oil consumption can be Madhya Pradesh Electricity Regulatory Commission 10 allowed at low targeted PLF

Other Issues

Madhya Pradesh Electricity Regulatory Commission

Other Issues
Tariff Period MPERC suggestion 5-year period, which is a business planning cycle May be reviewed before in case of drastic change Declared Capacity Current Definition / Analysis One MWh ex-bus capacity Scheduling is on MW basis MPERC suggestion Change definition to MW basis Peak and Off-peak Tariff for Hydel MPERC suggestion Apply to depreciated hydel plants for peak period Off-peak tariff need not be changed Surplus income may be paid into a "Universal Service Obligation" fund for to provide access to all Single Regional Tariff MPERCs views Promotes generation from lower cost stations, since they now earn more, but an expensive generator will not generate Not recommended Madhya Pradesh Electricity Regulatory Commission Individual tariff setting is preferable

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Other Issues
Auxiliary Consumption Current
AxC = [ KWH Generator terminal KWH delivered at station switchyard] [ Gross generator terminal]

Proposed
AxC = [ KWH Generator terminal NET KWH exported ex-bus] [ Gross generator terminal]

MPERC suggestion Do not adopt the proposed change. A change will result in beneficiaries bearing the cost of losses between switchyard and 13 bus

Madhya Pradesh Electricity Regulatory Commission

MPERC

Madhya Pradesh Electricity Regulatory Commission

Pan caking
TC = 10 Rourkela TC = 10 Chandrapur TC = 10 Ramagundam WC = 12.5 SR

212.5
Raipur

WC = 12.5 Exportin g Region

200 ER

TNEB 255

242.5

lling price = 200 P/U nded cost = 255 P/U us, pan caking is a major disincentive to inter regional sale

mbers are purely for the purpose of illustrating the concept and may not be correct
15 Madhya Pradesh Electricity Regulatory Commission

Transmission / OA Charges
Inter-Regional Lines

Units Monthly Charge Crores 100 Allocated usage MU Ratio Charge Crores Open Access Income Crores 20 Refund / Adjustment Crores Net Cost Crores

East-West Link East Zone Users E1 E2 E3 E4 800 8% 8.0 1.6 6.4 500 5% 5.0 1.0 4.0 700 1,000 7% 10% 7.0 10.0 1.4 5.6 2.0 8.0

West Zone Users W1 W2 W3 W4 1,200 1,600 2,400 1,800 12% 16% 24% 18% 12.0 16.0 24.0 18.0 2.4 9.6 3.2 12.8 4.8 19.2 3.6 14.4

Total 10,000 100% 100 20 80

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Madhya Pradesh Electricity Regulatory Commission

Tariff Setting
Operating Norms

Grade

UHV (Kcal/Kg) Range

Ash + Moisture Range

GCV Kcal/Kg @ 5% Moisture @ 7% Moisture

A B C D
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> 6200 6200 5600 4950 5600 4200 4940 3360 4200

Upto 19.6 > 6450 > 6350 19.6 23.9 6049 6454 5940 6360 23.9 28.7 5597 6049 5490 5940 28.7 34.1 5089 5597 4990 5490
Madhya 5089 4400 4990 34.1 40.1 4524 Pradesh Electricity Regulatory Commission