In the matter of the CERC (Conduct of Business) and (Terms and Conditions of Tariff) Regulations for truing up and determination of transmission tariff for North Eastern Region Strengthening Scheme-II (NERSS-II) Part-A – EQ
Summary:
—
### **Part 1: Truing-up for the 2019-24 Tariff Period**
This section finalizes the actual Annual Fixed Charges (AFC) that PGCIL is allowed to recover from the beneficiaries (state power utilities in the NER) for the period from April 1, 2019, to March 31, 2024.
**Key Business & Financial Points:**
1. **Finalized Capital Cost:** The Commission approved a final capital cost of **₹2,718.81 lakh** as of March 31, 2024. This was calculated by taking the opening cost as of April 1, 2019 (₹2,640.04 lakh) and adding approved additional capital expenditure (ACE) of **₹78.77 lakh** incurred during the period.
2. **Additional Capital Expenditure (ACE):** The primary reason for the ACE was the payment of undisclosed liabilities from contracts that were executed before the project’s cut-off date. PGCIL was allowed to recover these payments, which totaled ₹72.23 lakh in 2019-20 and ₹6.54 lakh in 2020-21.
3. **Debt-Equity Structure:** The project’s funding structure was maintained at a standard **70:30 (Debt:Equity) ratio**. This ratio is critical as it forms the basis for calculating Return on Equity and Interest on Loan.
4. **Return on Equity (RoE):**
– PGCIL is liable to pay Minimum Alternate Tax (MAT).
– The Commission approved an effective tax rate of **17.472%** (the notified MAT rate including surcharge and cess) for all years in the period.
– This resulted in a grossed-up pre-tax RoE of **18.78%** for each year of the 2019-24 block.
– **Business Implication:** PGCIL can recover any shortfall or must refund any excess on account of RoE due to tax rate changes directly with beneficiaries without filing another petition. This provides a mechanism for financial adjustment based on actual tax liabilities.
5. **Interest on Loan (IoL):** The IoL was calculated based on PGCIL’s actual loan portfolio and the weighted average rate of interest (WAROI) for each year, which ranged from **7.61% to 8.07%** .
6. **Operation & Maintenance (O&M) Expenses:** The O&M expenses were allowed exactly as claimed by PGCIL, based on the normative rates prescribed in the 2019 Tariff Regulations. The total O&M for the period increased from **₹191.93 lakh in 2019-20 to ₹220.42 lakh in 2023-24**.
7. **Interest on Working Capital (IWC):** The IWC was calculated based on the SBI 1-year MCLR plus 350 basis points, as per regulations. The rates varied from **10.50% to 12.05%** over the five-year period.
**Final Outcome for 2019-24:** The total Annual Fixed Charges (AFC) allowed after truing-up were **₹611.44 lakh for 2019-20**, decreasing slightly to **₹603.70 lakh for 2023-24**. The amounts claimed by PGCIL were approved in full.
—
### **Part 2: Determination of Tariff for the 2024-29 Tariff Period**
This section sets the tariff that PGCIL will charge for the next five years, from April 1, 2024, to March 31, 2029.
**Key Business & Financial Points:**
1. **Opening Capital Cost:** The starting capital cost for this period is the closing cost from the previous period: **₹2,718.81 lakh** as of April 1, 2024. No additional capital expenditure was claimed or allowed for this period.
2. **Stable Debt-Equity Ratio:** The **70:30** debt-equity ratio is carried forward for the entire 2024-29 period, in line with Regulation 18 of the 2024 Tariff Regulations.
3. **Return on Equity (RoE):**
– The base rate of RoE is maintained at **15.50%** .
– The MAT rate of **17.472%** is used to gross up the RoE, resulting in a pre-tax RoE of **18.78%** for each year of the 2024-29 block. This will be subject to truing-up based on actual taxes paid.
4. **Interest on Loan (IoL):** The IoL is projected to decrease significantly over the period as the loan principal is repaid through depreciation. It drops from **₹60.38 lakh in 2024-25 to just ₹14.17 lakh in 2028-29**. This reflects the asset aging and loan repayment schedule.
5. **Depreciation:** Depreciation remains constant at **₹143.14 lakh per year** for the entire block, calculated using the Straight-Line Method on 90% of the asset’s value.
6. **O&M Expenses:** O&M expenses are calculated based on new, slightly higher normative rates prescribed in the 2024 Tariff Regulations. The total O&M is projected to increase from **₹158.93 lakh in 2024-25 to ₹195.22 lakh in 2028-29**.
7. **Interest on Working Capital (IWC):** The IWC rate is fixed at **11.90%** for the entire block, based on the SBI 1-year MCLR as of April 1, 2024 (8.65%) plus 325 basis points.
**Final Outcome for 2024-29:** The total Annual Fixed Charges (AFC) are projected to decline over the period, from **₹527.81 lakh in 2024-25 to ₹518.76 lakh in 2028-29**. This decline is primarily driven by the decreasing interest on loan.
—
For more information please see below link:
