CERC Tariff Regulations, 2014

ApplicabilityThese regulations shall come into force on 1.4.2014 and shall remain in force for a period of 5 years.Where a project has been declared under commercial operation before 31.03.2014, tariff in respect of such project for the period ending 31.3.2014 shall be determined in accordance with the CERC (Terms and Conditions of Tariff) Regulations, 2009. These regulations shall apply in all cases except projects based on non-conventional energy sources.

Procedure for tariff determinationAs per Reg 7(3),application under 2014-19 has to bemade within 180 days from the date of the Regulation (21.02.2014 )

As per Reg7(7)and 7(8),any variation above 5% in capital cost is subject to interest payment at 1.2 times (Base Rate+350) and interest recovery at .80 times(Base Rate +350 ).As per Reg 8(13), under /over recovery of AFC is subject to simple interest at Base rate +350 as on 1 st April of the respective year .Regulation 8(1),provides for filling interim truing up application in the FY2016-17 .

Capital CostCapital cost for tariff base to include For existing stations capital cost admitted up to 31.3.2014.For new stations on actual cash expenditure incurred plus projected expenditure up to CoD includingIDC , IEDC and financing chargesFERV during constructionInitial Spares - Coal: 4%, Gas: 4%, Hydro: 4% of plant and machinery cost up to cut off date. (Earlier in 2009-14 period initial spares allowed up to original project cost.) .P & M cost shall be project cost excluDing IDC ,IEDC,Land cost and cost of civil works .Plus Estimated Additional Capital Expenditure on cash basis for the respective years of the tariff period 2014-19.

Capital Cost1- As per Reg 9(2), capital cost for new projects shall include increase in cost of packages only on approval by the commission .2-As per Reg 9(6) ,proportionate cost of land which is being used for generating power from generating station based on renewable energy shall be excluded from capital cost . Assets forming part of the project but not in use ,to be excluded from capital cost .Decapitalisation of assets to be excluded from capital cost .-3As per Reg 11A(1) ,IDC shall be allowed upto scheduled COD ( investment approval or PPA which ever is earlier ) .-4 As per Reg 11A(2) ,IDC shall be allowed after SCOD ,if the delay is beyond the control of the company after due prudence check .-5 Notional IDC shall be allowed only upto SCOD even if the delay is beyond the contol of the company .-6 As per Reg 12(1) , variation in capital expenditure on a/c of time and/or cost overruns on a/c of land acquisition issues has been considered as cotollable factor .

Where the capital cost considered in tariff by the commission on the basis of projected capital cost as on COD or the projected additional capital expenditure exceed the actual cost incurred on year to year basis by more than 5%, the generating co. shall refund to the beneficiaries, the excess tariff recovered corresponding to excess capital cost as approved by the commission along with interest at 1.20 times of the bank rate as prevalent on 1st April of respective year.Where the capital cost considered in tariff by the commission on the basis of projected capital cost as on COD or the projected additional capital expenditure falls short of the actual cost incurred on year to year by more than 5%, the generating co. shall be entitled to recover from beneficiaries, the short fall in tariff corresponding to reduction in capital cost, as approved by commission along with interest at 0.8 times of bank rate as prevalent on 1st April of respective year.

Cut Off DateCut-Off Date means 31st March of the year closing after two years of the year of commercial operation of the project, and in case the project is declared under commercial operation in the last quarter of a year, the cut-off date shall be 31st March of the year closing after three years of the year of commercial operation.Cut- Off Date may be extended by the commission if it is proved on the basis of documentary evidence that the capitalization could not be made within the cut off date for reasons beyond the control of the developer.

Controllable and uncontrollable factors The following shall be considered as controllable and uncontrollable factors leading to cost escalation contract price, IDC and IEDC of the project: The controllable factors shall include but shall not be limited to the following: Variations in capital expenditure on account of time and/ or cost over- runs on account of land acquisition issues;Efficiency in the implementation of the project not involving approved changes in scope of such project, changes in statutory levies or forces majeure events; and Delay in execution of the project on account of contractor, supplier or agency of the generating company or transmission licensee.The uncontrollable factors shall include but shall not be limited to the following:Force Majeure events; and Changes in low

Debt:EquityDebt: Equity for new stations 70:30 or actual whichever is higherExisting Stations As allowed by the Commission for determination of tariff for the period ending 31.3.2014.70:30 for additional capital expenditure on or after 1.4.2014

Elements of TariffAnnual Fixed Cost

Variable /Energy charges

Annual Fixed CostReturn on EquityInterest on Loan CapitalDepreciationInterest on Working CapitalOperation and Maintenance ExpensesCompensatory Allowance ( for coal & lignite based power station )Special Allowance in lieu of R&M

Return on EquityPre-Tax Rate of Return will be 15.5% for existing stationsFor new projects it can be 16% if projects is completed with in the following timeline from investment approval:200/210/250/300/330 MW- 33 months subsequent units at 4 months intervalExtension projects - 31 months subsequent units at 4 months interval500/600/660 MW - 44 months subsequent units at 6 months intervalExtenson projects - 42 months subsequent units at 6 months interval660/800 MW - 52 months subsequent units at 6 months intervalExtension projects - 50 month subsequent units at 6 months interval Gas Stations >100MW - 30 month subsequent units at 4 months intervalExtension projects - 28 months subsequent units at 4 months interval

Return on Equity..Contd.Pre Tax return will be grossed up with the Effective tax rate of the respective F.Y.Rate of pre-tax return on equity = base rate/(1-effective tax rate )Effective tax rate shall be calculated at the beginning of each year based on the estimated profit and tax in line withThe provisions of the relevant FY on prorata basis by excluding the income of non-generation&tax due thereon.In case of generating company paying MAT rate including surcharge and cess thereon.Generating co to true-up the grossed up rate of return on equity based on the actual tax paid at the end of FY. The rate on return of new project shall be reduced by 1% for such period as may be decided by the Commission, if the generating station or transmission system is found to be declared under commercial operations without commissioning of any of the Restricted Governor Mode Operation (RGMO) / Free governor Mode Operation (FGMO), data telemetry, communication system up to load dispatch center or protection system:

Interest on LoanCalculated on the basis of normative average loan and weighted average rate of interest for the year taking loan portfolio at the beginning of the each year.The normative loan outstanding as on 1.4.2014 shall be worked out by deducting the cumulative repayment from the gross normative loan. Normative Repayment equal to depreciation irrespective of actual repaymentGenerator to attempt re-financing and Net Benefit of refinancing to be shared in the ratio of 1(genco): 2 (beneficiaries), Refinancing cost is to be borne by the beneficiaries

DepreciationDepreciable value 90% (except land);Depreciable life:Thermal- 25 years for both coal and gas stationHydro - 35 yearsAs per appendix of regulation, rates for Assets based on schedule XIV of Companies Act for the first 12 years after commercial operation and balance depreciation shall be spread over balance life

Interest on Working CapitalCoal Based Stations1.5 months fuel expenses for pit head and 2 months for non pit headSecondary fuel oil for 2 monthsMaintenance spares @ 20% of O&MReceivables for 2 monthsO&M 1 monthGas Based Stations note- cost of coal stock will be limited1 month fuel expenses to coal storage capacity only .Liquid fuel stock for monthMaintenance spares @ 30% of O&MReceivables for 2 monthsO&M 1 monthHydro StationsMaintenance spares @ 15% of O&MReceivables for 2 monthsO&M 1 month

Interest on Working Capital .Contd.Cost of fuel w.r.t Price & GCV of preceding 3 months Rate of interest will be bank rate as on 1.4.2014 (base rate + 350 point basis )or 1st April of the year in which the generation station is declared under commercial operation, which ever is later. No fuel escalation will be permitted in working capital.Interest on working capital shall be payable on normative basis.

O&M Expenses for 2014-19Coal Based stations: in Rs Lac/MW 200 MW -23.90 Lac/MW300/330/350 -19.95 Lac/MW500 MW-16.00 Lac/MW660 MW-14.00 Lac/MWTTPS -43.16 Lac/MWBTPS -35.88 Lac/MW Tanda -30.88 Lac/MW Gas Based stations: Rs 14.67 Lac/MW Annual Escalation @ 6.35% .Water charges and capital spares for thermal generating stnShall be allowed separately .

O&M Expenses .. contd.Additional units commissioned after 1.4.2014 in the same station200/210/250 MW 90% of norms for Unit 5 & 685% of norms for 7th onwards300/330/350 MW 90% of norms for Unit 4 & 585% of norms for 6th onwards500 MW and above90% of norms for Unit 3 & 485% of norms for 5th onwards

CERC has provided following Compensatory Allowance for meeting expenses on new assets of capital nature in lieu of any additional Capitalisation beyond Cut Off DateCompensatory Allowance

This element will not be considered for the working capital.

Years of OperationCompensation Allowance (in Rs. Lac/MW/yr) 0 10 Nil11 - 150.2016 200.5021 - 251.00

Renovation and Modernization (R&M)Two options for R&MOption-I For extension of life beyond the useful life of generating station or a unit thereof GENCO to make an application before CERC for approval of R&M proposal with a DPR givingComplete scope & justification, Financial package & phasing of expenditure, cost-benefit analysis, estimated completion cost , Schedule of completion & estimated life extension from a reference date,Record of consultation with beneficiariesNo capitalization of R&M is allowed upto 25 years for both coal and gas based stations/unitsAny expenditure towards R&M for life extension will be allowed by CERC after prudence check and after deducting the accumulated depreciation already recovered from the original project cost.

Renovation and Modernization (R&M) Option-2 Special allowance for coal based station @ Rs. 7.5 lakh / MW / year can be availed along with annual escalation of 6.35% during the tariff period 2014-19 as compensation for meeting the R&M expenses, Unit-wise from the respective date of the completion of useful life (25 years) w.r.t. COD of respective units of the generating stationThis shall be in addition to normal O&M which is being allowed,however This will not be considerd for working capital

Provided further that the special allowance for the generating station which has already availed special allowance in terms of CERC REG. 2009, shall be allowed special allowance by escalating the special allowance allowed for the year 2013-14 @6.35% i.e Rs 6.64lakh/MW/Year for the year 2014-15 everIn such an event revision of the capital cost shall not be consideredSuch option shall not be available for: Generating station for which R&M has been undertaken and the expenditure has been admitted by the Commission for life extension before commencement of these RegulationsGenerating stations which is in a depleted condition or operating under relaxed operational and performance norms.

Recovery of Fixed Charge -IncentiveFixed Charges payable on monthly basis based on the normative availability factor of 85%.

INCENTIVEIncentive to a generating station or unit there off shall be payable at a flat rate of 0.50p/kwh for ex-bus scheduled energy corresponding to scheduled energy in excess of ex- bus energy corresponding to Normative Annual Plant Load Factor (NAPLF) as specified regulation 36 b.

Operating NormsTarget Availability (NAPAF) for recovery of fixed charges85% for all stations. However ,keeping un view the shortage of coal and uncertainty of sustained coal supply on assured basis, NAPAF for recovery of fixed charges shall be kept as 83% till itIs reviewed .The review shall be after 3 years .

Auxiliary Energy Consumption 200 MW units: 8.5%; 500 MW units & above: Steam driven BFP:5.25%Electricity Driven BFP: 7.75% with Induced Draft Cooling Tower: 0.5% extra&1% extra for direct cooling air cooled condensor with mechanical draft fanTalcher TPS- 10.5%; Tanda TPS- 12%; Badarpur TPS- 8.5%CCGT: 2.5%; Open-cycle: 1.0%Specific Oil -0.5 ml/kwh for NTPC coal based stns.Specific Oil 0.5 ml/kwh. Savings on this account will be shared in the ratio of 60;40 between developer generator and beneficiaries.

Operating Norms Heat RateKcal/kWhA.

Existing 200/210/250 MW2425500 MW Sub critical Units (for EDBFP 40 Kcal less)2375BTPS2750TTPS2850Tanda2750Anta, Dadri2075/30102000/3010Faridabad, Kayamkulam1975/29002000/2900Auriya2100/3045Gandhar2040/2960kawas2050/3010

Operating Norms Heat Rate.Cont.New thermal generating station achieving COD on or after 1/4/2014. the heat rate will be 1.045 into design heat rate ( K CAL/KWH)Where the design heat rate of generating unit means the unit heat rate guaranteed by the supplier at conditions of 100% MCR, 0% makeup, design coal and design cooling water temperature/ back pressure.B.

Financial gains on account of station heat rate ,Auxiliary consumption and secondary fuel oil Shall be shared between generating companyAnd beneficiaries in the ratio of 60:40 on monthlyBasis with annual reconciliation as per followingFormulae :-NET GAIN =(ECRN-ECRA ) X SCHEDULED GENERA

NOTE:- Financial gains on account of station heat rate, auxiliary consumption and secondary fuel oil shall be shared between generating company and the beneficiaries in the ratio of 60:40FINANCIAL GAINS ON CONTROLABLE PARAMETERS

Energy ChargeEC covering primary & secondary fuel cost and lime stone consumption cost ( where applicable) shall be payable for total ex-bus energy scheduled to be supplied to the beneficiary during the calendar month, at the specified energy charge rate.Energy charge rate (ECR) in Rs. per kWh is calculated on ex-power plant basis in accordance with the following formula: FOR COAL BASED AND LIGNITE FIRED STATION

ECR ={(GHR-SFC*CVSF)*LPPF/CVFP+SFC*LPSFI+LC*LPL}*100/(100- AUX)

FOR GASS AND LIQUID FUEL BASED STATIONECR = GHR*LPPF*100/{CVPF*(100-AUX)}

Landed Cost of Coal shall include Price of coal corresponding to the grade and quality inclusive of royalty, taxes and duties applicable & transportation costConsidering normative transit and handling losses :Pit head stations : 0.2% ; Non-Pit head stations : 0.8%

Landed cost of the fuelThe landed cost of fuel for the month shall include price of fuel corresponding to the grade and quality of fuel inclusive of royalty, taxes and duties as applicable, transportation cost by rail / road or any other means, and, for the purpose of computation of energy charges, and in case of coal/lignite shall be arrived at after considering normative transit and handling losses as percentage of the quality of coal or lignite dispatch by the coal or lignite supply during the month as given bellow:Pithead generating stations:0.2%Non-pithead generating stations:0.8%Provided that in case of pit head stations if coal or lignite is procured from sources other than the pit head mines which is transported to the station through rail, transit loss of 0.8% shall be applicable:Provided that further that in case of imported coal, the transit and handling losses shall be 0.2%

DEVEATION CHARGESAll variations between actual net injection and scheduled net injection for the generating stations, and all variations between actual net drawal and scheduled net drawal for the beneficiaries shall be treated as their respective deviations and charges for such deviations shall be governed by the Central Electricity Regulatory Commission ( Deviation settlement and related matters ) Regulations 2014, as amended from time to time.Actual net deviation of every inter-State entity shall be metered on its periphery through special energy meters (SEMs) installed by the Central Transmission Utility (CTU), and computed in MWh for each 15-minute time block by the concerned Regional Load Despatch Centre.

FERVHedging Cost of hedging corresponding to the normative foreign debt shall be recovered as expense in the period in which it arises FERV corresponding to such hedged foreign debt shall not be allowed. To the extent the foreign exchange exposure is not hedged, the FERV towards interest payment and loan repayment corresponding to the normative foreign currency loan shall be permissible.Every generating company and the transmission licensee shall recover the cost of hedging and foreign exchange rate variation on year-to-year basis as income or expense in the period in which it arises.

Miscellaneous ProvisionsTax on Income Tax on the income streams of company shall not be recovered from the beneficiaries, Deferred tax liability, excluding FBT, for the period up to 31st March, 2009 whenever it materializes, shall be recoverable directly from the beneficiaries. Approved CDM projects- proceeds from carbon credits100% of the gross proceeds to be retained by developer in the 1st yrTo be reduced @10% every year for the next 4 yrsTo be shared 50:50 from 6th year onwards

Rebate and SurchargeRebateFor payment of bills through LC on presentation, a rebate of 2% shall be allowed.Where payments are made other than through LC within a period of one month of presentation of bills, a rebate of 1% shall be allowed. Late payment surcharge. In case the payment of any bill is delayed beyond a period of 60 days from the date of billing a late payment surcharge at the rate of 1.5% per month shall be levied.

**Refund in upto 6 instalments starting 3 months from the date of the order*Refund in upto 6 instalments starting 3 months from the date of the order******No capitalisation of FERV**Methodology: Normalised O&M expenses for 2004-05, 05-06 & 06-07- AveragedAvg. for 2005-06 escalated @5.17% twice to arrive at 2007-08 figure.Pay revision impact considered @45% increase in Employee cost component (35%) of O&M cost. Escalated once more at 4.17% to arrive at 2009-10 figure.Escalation rate of 5.17% arrived at considering 6):40 WPI & CPI actual of last 5 years.*******VCR = Energy charge rate, in Rupees per kWh sent out.GHR = Gross station heat rate, in kcal per kWh.SFC = Specific fuel oil consumption, in ml/kWhCVSF = Calorific value of secondary fuel, in kCal/mlLPPF = Landed price of primary fuel, in Rupees per kg, per litre or per standard cubic metre, as applicable.CVPF = Gross calorific value of primary fuel, in kCal per kg, per litre or per standard cubic metre as applicable.****