Karnataka Electricity Regulatory Commission TARIFF ORDER 2012 - KPTCL

CHAPTER - 5

REVISED ANNUAL REVENUE REQUIREMENT FOR FY13

5.1 ERC & Tariff Application

KPTCL in its application dated 25 th November 2011 has requested the Commission to
approve the Annual Performance Review for FY11 and accordingly revise the
transmission tariff for FY13. KPTCL in its application dated 2 nd March 2012 has filed
its application for approval of ARR and transmission tariff for FY13.

KPTCL has proposed an ARR of Rs.2266.82 Crores for FY13. The details of the
proposals are as follows:
TABLE – 5.1
Proposed ERC for the Control Period FY13

Sl. No. Particulars FY13

Revenue from Transmission of

1 1769.74
power
2 Expenditure Rs Crs  
3 O&M Expenses 669.29
4 Depreciation 561.39
5 Interest & Finance Charges 751.94
6 Interest on working capital
7 RoE 368.79
8 Provision for taxation 72.17
9 Other Debits 5.00
10 Less
Interest & Finance Charges
11 96.35
capitalized
12 Other Expenses capitalised 30.40
13 Other Income 35.00
14 Net Prior Period Charges 0.00
15 NET ARR 2266.82
16 Gap 497.08

Based on the above, KPTCL has requested the Commission to revise the transmission
tariff as follows:

Particulars FY13
Transmission Capacity in MW 13806
NET ARR In Rs. Crs 2266.82
Carry forward of deficit of FY11 237.20

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 Karnataka Electricity Regulatory Commission TARIFF ORDER 2012 - KPTCL

Carry forward of deficit of FY12 376.78

Net ARR including deficit of FY11 & FY12 2880.80
Transmission Tariff in Rs. Per MW per Month 1,73,884.50

5.2 Commission’s Analysis and Decisions

The analysis and decisions of the Commission on items of expenditure for computing
the annual revenue requirement for FY13 are discussed as under:

i. Capital Investment Program for FY13:

KPTCL has not indicated work wise capital works programme in their filing.
However it has indicated Rs.1500 Crores as its CAPEX proposed to be incurred
during FY13. The Commission in its tariff order dated 07.12.2010 had approved a
CAPEX programme of Rs.1692 Crores for FY13 as against the KPTCL proposal of
Rs.2500 Crores as detailed in the following table.
Rs.Crores

Particulars FY13
Nos. Investment made
Completed works 258 965.74
On going stations 64 256.00
On going augmentation 110 440.00
On going lines 50 200.00
New Stations 60 350.00
New Augmentation 110 90.00
New Lines 50 60.00
General including civil - 138.26
works
Total 2500.00

The Commission has noted that their actual expenditure on capital works is around
Rs.1133 Crores for FY11. Further, during the public hearing, MD, KPTCL has
submitted that the CAPEX for FY12 was likely to be about Rs.1000.00 Crores against
the amount of Rs.1692.00 Crores approved in the Commission’s MYT order dated
07.12.2010. Keeping the above in view the Commission approves a CAPEX of
Rs.1150 Crores for FY13.

ii. Transmission losses:

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Karnataka Electricity Regulatory Commission TARIFF ORDER 2012 - KPTCL

The Commission in its Tariff Order dated 07.12.2010 had fixed a transmission loss
target of 3.96% for FY13. KPTCL in its present filing has not sought any revision of
targeted transmission losses for FY13.

The Commission notes that, the transmission losses reported by KPTCL for FY11 is
4.39% as against a target of 4.00% for FY11. KPTCL has been investing substantial
CAPEX in the past five years, which should have resulted in significant reduction in
transmission losses. The data of the CAPEX and transmission losses for the period
FY08 to FY11 are as follows:

CAPEX %
Year in Transmission
Rs Crs Losses
FY08 2030 4.18
FY09 1809 4.06
FY10 1452 4.20
FY11 1133 4.39
FY12* 1422 3.98
FY13* 1500 3.96
* Proposed CAPEX & approved Transmission losses

As discussed in the earlier paras on capex, the Commission has allowed capex of
Rs.1150.00 Crores for FY13. The Commission is of the view that such CAPEX
programs continued by KPTCL in the past five years should reflect in a reduction of
transmission losses and KPTCL should be in a position to achieve the benchmarked
level of transmission losses for FY13. As such, the Commission retains the approved
transmission losses of 3.96% for FY13.

iii. O & M Expenses:

KPTCL’s Proposal:

KPTCL in its filing has projected O&M expenses under separate items like Repairs
and Maintenance expenses, Employee Costs and A & G expenses. The detailed
submission under each of the items is as under:

Sl.
Particulars FY13
No
1 Repairs & Maintenance expenses 86.69

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Karnataka Electricity Regulatory Commission TARIFF ORDER 2012 - KPTCL

2 Employee Cost 537.27

3 Administrative & General Expenses 45.33
Total O&M Expenses 669.29

Commission’s Analysis and decision:

In accordance with the MYT Regulations the O & M expenses for transmission
licensee are proposed on the basis of per ckt-km of transmission lines and per bay of
substation for the base year and appropriate inflation factors, norms for operation and
maintenance expenses for the first control period. The Commission has adopted
these norms and determined the O & M expenses for the control period FY11-13.
Accordingly the approved O & M expenses for FY13 was Rs.519.81 Crores.

KPTCL in its filing has stated that O & M expenses as per norms is not sufficient to
meet the actual O & M expenses since the norms do not consider escalations due to
revision of pay scales, increased R&M expenses on account of unforeseen events and
massive repair works in a year etc.

The Commission has been computing the allowable O&M expenses as per norms, by
considering the following components.

i) Average of Actual O & M expenses for the past three years i.e. FY08 to
FY10 in real terms inflated by actual inflation to arrive at the base year
figure.
ii) Actual rate of inflation for relevant years
iii) No. of bays and length of lines in CKMs as furnished by KPTCL for the
relevant years.
iv) WPI & CPI as per CERC orders for the relevant years, giving weightage of
67% to CPI and 33% to WPI. For FY-11 to FY-13 inflation is considered at
5.17% for FY13 as per CERC orders.

Thus the normative O & M expenses for FY13 are worked out as under:

TABLE – 5.2
Allowable Normative O&M Expenses for FY13
Particulars FY13
O&M cost in terms Rs. thousands/bay 66.31

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Karnataka Electricity Regulatory Commission TARIFF ORDER 2012 - KPTCL

O&M cost in terms Rs. thousands/Km of Line 88.09

Inflation rate* 5.17
No. of Bays 21371.00
Length of Line in Kms 35186.62
O&M Expenses for Bays Rs Crs 141.72
O&M Expenses for Lines Rs Crs 309.96
O&M Expenses as per Norms Rs Crs 451.68
* Inflation rates are as per CERC orders on inflation rates issued from time to time

As regards the request of KPTCL for allowing amounts towards increase in employee
costs due to revision of pay scales at 25% on the existing basic pay, increase in the
rate of contributions to pension and gratuity and due to increase in employee cost due
to new recruitments, the Commission decides to consider these expenses as
uncontrollable and allow the same separately in addition to the expenses allowable as
per norms, as indicated in the following table.

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Karnataka Electricity Regulatory Commission TARIFF ORDER 2012 - KPTCL

TABLE – 5.3
Additional Employee Cost –FY13
Rs. Crs
Particulars FY13
Basic Pay 159.25
25% increase in pay due to revision 39.81
26.13% Pension contribution 41.61
2.24% Gratuity contribution 3.57
2.98% increase in Pension contribution 4.48
1.10% increase in Gratuity contribution 2.19
DA on revised basic pay 30.06
HRA on revised basic pay 2.74
HRA due to revision from 01.11.2010 2.74
Additional Employee cost on account of recruitment
of AEs, JEs etc., 7.41
Total additional employee cost 134.61

Therefore, the allowable O & M expenses for FY13 is computed as follows:

TABLE – 5.4
Allowable O&M Expenses for FY13
Rs. Crs
Particulars FY-13
Normative O & M 451.68
Additional employee cost (Uncontrollable expenses) 134.61
Total 586.29

iv. Depreciation:

KPTCL’s Proposal:

KPTCL, in its filing has stated that, the depreciation is computed based on prevailing
depreciation rates as specified by CERC. KPTCL has claimed an amount of
Rs.561.39 Crores towards depreciation for FY13 on opening balance of GFA of
Rs.10152.29 Crores.

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Karnataka Electricity Regulatory Commission TARIFF ORDER 2012 - KPTCL

Commission’s Analysis and Decisions:

In accordance with the KERC (Terms & Conditions of determination of transmission

Tariff) Regulations 2006, amended on 1st February 2012, the Commission has
considered the rate of depreciation as prescribed by CERC. Accordingly, based on the
opening balance of GFA for FY13 as proposed by KPTCL the allowable
depreciation is computed as follows:

Balance at the
beginning of the Net Depreciation Rate of
Sl. No. Particulars year for the Year Depreciation

1 Land and rights 162.49    

2 Building and structures 408.39 13.64 3.34%
3 Plant and Machinery
Substation Transformers,
Circuit breakers, other fixed
apparatus of rating 100
MVA and above. 5,934.19 313.33 5.28%
4 Substation Transformers,
Circuit breakers, other fixed
apparatus of rating below
100 MVA .
3,547.03 187.28 5.28%
5 Towers, Poles, fixture,
overhead conductors and
devices
  -  
6 Underground cables and
devices   -  
7 Service lines   -  
8 Metering equipment   -  
9 Misc equipment   -  
10 Other items   -  
a Hydraulic Works 39.99 1.34 3.34%
b Other Civil Works 37.29 1.25 3.34%
c Vehicles 7.22 0.69 9.50%
d Furniture Fixtures 12.01 0.76 6.30%
e Office Equipments 3.69 0.23 6.33%
Grand Total 10,152.30 518.51 5.11%

As regards the addition of assets during the control period, the Commission had
retained the same levels of CAPEX of Rs.1692.00 Crores for FY11 to FY13.
However, KPTCL in its present filing has proposed revised CAPEX of Rs.1422.00
Crores for FY12 and Rs.1500.00 Crores for FY13. The Commission has allowed a
capex of Rs.1150 Crores for FY13. The depreciation claimed by KPTCL works out to
a weighted average rate of 5.53%.
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Karnataka Electricity Regulatory Commission TARIFF ORDER 2012 - KPTCL

The allowable depreciation is worked out as follows:

TABLE – 5.5
Approved Depreciation for FY13
Rs Crs
Particulars FY13
Opening GFA 10152
Capex 1150
Additions 1293
Retirement of Assets 81
Closing GFA 11364
Depreciation at CERC Rates 518.51
Weighted average rate of depreciation 5.11%

Accordingly, the Commission decides to approve a depreciation of Rs.518.51

Crores to be considered in the ARR for FY13.

v. Interest and Finance Charges:

KPTCL’s Proposal:

KPTCL has proposed an amount of Rs.751.94 Crores towards interest and finance
charges for FY13. The break up of the same are as follows:

Rs. in Crores
Sl. Particulars FY13
No.
1 Interest on long term loans 692.81
2 Interest on working capital 59.13
Total interest on finance charges 751.94

KPTCL has stated that, it has proposed a revised capex programme of Rs.1500 Crores
during FY13 and has projected a loan of Rs.1100 Crores. KPTCL has stated that it
has raised loans at an interest rate of 11% to 11.5%.

Commission’s Analysis & Decisions:

The Commission in its Tariff Order dated 7 th December 2010 had allowed interest on
loan of Rs.639.59 Crores for FY13. KPTCL has achieved a capex of Rs1133 Crores
during FY11. The Capex proposed by KPTCL for FY12 is Rs1422 Crores.
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Karnataka Electricity Regulatory Commission TARIFF ORDER 2012 - KPTCL

Considering the actual capex in FY11, the Commission decides to factor a capex of
Rs. 1150 Crores for FY13 subject to prudence check at the time of APR. As such new
loans of Rs.805 Crores (at 70% of the proposed capex) are considered for projecting
the interest and finance charges for FY13. The allowable interest on loan are
computed as follows:

TABLE – 5.6
Interest on Long Term Loans for FY13
Rs. Crs.
Particulars FY13

Secured Loans 5548.79

Unsecured Loans 12.40
Total 5561.19
Less Interest accrued & dues 0.00
Long term secured & unsecured loans 5561.19
Add new Loans 805.00
Less Repayments 354.30
Total loan at the end of the year 6011.89
Average Loan 5786.54
Allowable Interest Rate in % 11.00%
Interest Allowed 636.52

The approved interest and finance charges are subject to prudence check of CAPEX.

vi. Interest on Working Capital:

KPTCL has claimed an amount of Rs. 59.13 interest on working capital separately in
its ERC filing. The Commission, has worked out the interest on working capital
based on the norms as per MYT Regulations considering the prevailing rate of
interest at 11.75% p.a as follows:

TABLE – 5.7
Approved Interest on Working Capital for FY13
Rs. Crs
Particulars FY 13
One-twelfth of the amount of O&M Exp. 48.86

Opening GFA 10152.29

Stores, materials and supplies at 1% of Opening

101.52
balance of GFA

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Karnataka Electricity Regulatory Commission TARIFF ORDER 2012 - KPTCL

One-sixth of the expected revenue from

294.96
Transmission user at the prevailing tariffs*

Total Working Capital 445.34

Rate of Interest (% p.a.) 11.75%
Interest on Working Capital 52.33
*Revenue as projected by KPTCL

Accordingly, the approved interest on working capital for FY13 is Rs.52.33

Crores.

vii. Interest expenses capitalized:

KPTCL in its filing has proposed capitalization of interest and finance charges to an
extent of Rs.96.35 Crores for FY13. The Commission in its MYT Order dated
07.12.2010 had approved capitalization of interest and finance charges of Rs.158.67
Crores. The Commission notes that, KPTCL has achieved a capex of Rs. 1133
Crores in FY11 and has proposed a capex of Rs.1422 Crores for FY12. The
Commission has allowed a capex of Rs.1150 Crores for FY11. As per actuals in
FY11, the interest capitalization is Rs.87.39 Crores and the interest on loans was
Rs.450.28 Crores. Considering the rate of capitalization in FY11, the capitalization of
interest for FY13 will be Rs. 123.42 Crores. The Commission decides to allow the
same in the ARR for FY13.

viii. Other Expenses Capitalised:

KPTCL has proposed to capitalize other expenses of Rs.30.40 Crores for FY13.
Considering the actual other expenses capitalized in FY11, the capitalization of other
expenses for FY13 will be Rs. 31.87 Crores. The Commission decides to allow the
same in the ARR for FY13.

ix. Other Debits:

KPTCL’s Proposal:

KPTCL, in its filing, has claimed an amount of Rs.5.00 Crores for FY13.

Commission’s Analysis and Decisions:

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Karnataka Electricity Regulatory Commission TARIFF ORDER 2012 - KPTCL

As decided by the Commission in its MYT Order dated 07.12.2010, other debits
cannot be projected before hand and hence it would not be appropriate to allow the
same in the ERC. However, based on the audited accounts to be made available by
KPTCL at the end of the year, the same would be reviewed and considered
appropriately, at the time of APR for the relevant years. Hence, for the present also
the Commission decides not to consider estimates of other debits for FY13.

x. Return on Equity:

KPTCL’s Proposal:

KPTCL has stated that there was an additional equity infusion of Rs.100.00 Crores
for FY12 and further an amount of Rs.200.00 Crores of equity infusion is expected
during FY12. Accordingly, KPTCL has computed RoE at 15.5% on equity plus
reserves and surpluses as indicated below:
TABLE – 5.8
Return on Equity as proposed by KPTCL
Rs. Crores.
Particulars FY 13
Equity 1918.26
Reserves & Surplus 461.05
Total 2379.31
RoE @ 15.5% 368.79

Commission’s Analysis and Decisions:

KPTCL, in its filing has considered Rs.300 crores additional equity infusion from
GoK for FY12. The Commission in its tariff order dated 07.12.2010 had allowed
RoE of Rs.327.25 Crores at 17.481% (inclusive of MAT, Surcharge and Cess) for
FY11. Further, the Commission has computed RoE based on the equity as per
audited accounts submitted by KPTCL for FY11. The proposed addition of equity of
Rs.200.00 Crores has not been considered, since there is no commitment from the
GoK. However, the Commission has computed reserves and surplus duly considering
the carried forward RoE of FY12. The computation of RoE by the Commission is as
follows:
TABLE – 5.9
Approved RoE for FY13
Rs. Crs.
Particulars FY13
Paid up share capital 690.32

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Karnataka Electricity Regulatory Commission TARIFF ORDER 2012 - KPTCL

Share Deposit 885.00

Capital Reserves & Surplus 522.53
Total Equity 2097.85
RoE @ 19.377%(considering MAT of 406.50
20.00775%)

xi. Income Tax:

KPTCL Submission:

KPTCL has proposed provisions for Income Tax to an extent of Rs.72.17 Crores
considering MAT of 19% and surcharge of 3% for FY13.

Commission’s Analysis and Decisions:

As decided in the tariff order dated 7 th December 2010, the tax payable on the returns
has been included in the rate of return on equity. The rate of return of 15.5% has been
grossed up to 19.3777% duly considering MAT of 20.00775%. As such, considering
the provision for income tax separately does not arise.

xii. Non-Tariff Income:

KPTCL Proposal:

KPTCL has indicated an amount of Rs.35.00 Crores as income for FY13.

Commission’s Analysis and Decisions:

In the tariff order dated 07.12.2010 the Commission had analysed abnormal items in
the miscellaneous income due to write back of excess provisions of expenses made in
earlier years which had resulted in inflated other income. For FY13 also the
Commission decides to exclude such abnormal items while computing allowable
other income. Accordingly, the Commission decides to allow an amount of Rs.90.00
Crores as other income for FY13.

xiii. SLDC Charges:

KPTCL Submission:

Chapter- 5 : Revised Annual Revenue Requirement for FY13 Page 50

Karnataka Electricity Regulatory Commission TARIFF ORDER 2012 - KPTCL

Since the system operation by SLDC is not a Transmission activity, The Commission,
in its Order dated 07.12.2010, had not included SLDC charges in the ARR of
Transmission activity for the control period FY11 – FY13. However, KPTCL was
directed to bill and collect the same from ESCOMs/other system users in proportion
to capacity allocation of the ESCOMs.

Accordingly, in the present filing KPTCL has proposed SLDC charges of Rs.22.31
Crores for FY13 to be deducted from ARR of KPTCL. The Commission has
considered the same for computation of ARR for FY13. The SLDC charges shall be
collected from the ESCOMs on the basis of allocation of installed generation capacity
(till such time transmission capacity is contracted), while for the other long-term
transmission network users, the SLDC charges shall be based on the contracted
capacity.

xiv. Abstract of ARR for FY13:

The abstract of ARR as per the application of KPTCL and as approved by the
Commission for FY13 given below:
TABLE – 5.10
Revised ARR for FY13
Rs. Crs

Sl.
Particulars As Filed As approved
No

1 O&M Expenses 669.29 586.29

2 Depreciation 561.39 518.51
3 Interest & Finance Charges 751.94 636.52
4 Interest on working capital   52.33
5 Return on Equity 368.79 406.50
6 Provision for taxation 72.17 0.00
7 Other Debits 5.00 0.00
Less    
8 Interest & Finance Charges capitalised 96.35 123.42
9 Other Expenses capitalised 30.40 31.87
10 Other Income 35.00 90.00
11 Net Prior Period Charges 0.00 0.00

12 Carry forward of deficit (-) of FY11 & FY12 -613.99 13.78

13 Less SLDC Charges   22.31

  NET ARR 2880.82 1918.77

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Karnataka Electricity Regulatory Commission TARIFF ORDER 2012 - KPTCL

The computation of transmission tariff and open access charges for the transmission
network users are discussed in Chapter - 6 of this Order.

Chapter- 5 : Revised Annual Revenue Requirement for FY13 Page 50