(1) Operation and Maintenance (O&M) Expenses shall comprise of the following:-
(a) salaries, wages, pension contribution and other employee costs;
(b) administrative and general expenses;
(c) repairs and maintenance expenses;
(d) other miscellaneous expenses, statutory levies and taxes (except corporate income tax).
1 [(1-a) O&M Norms -
(i) The power system operation company shall propose separate trajectories of norms for each of the components of O&M expenses viz., employee cost, R&M expense and A&G expense;
(ii) Norms shall be defined in terms of combination of number of personnel per long/ medium term consumer, number of personnel per MW of capacity handled for long/ medium term consumers along with annual expenses per personnel for Employee expenses, combination of A&G expense per personnel and A&G expense per long/ medium term consumer (or per MW of capacity handled) for A&G expenses and R&M expense as percentage of gross fixed assets for estimation of R&M expenses;
(iii) One-time expenses such as expense due to change in accounting policy, arrears paid due to pay commissions and interim relief etc., shall be excluded from the norms in the trajectory;
(iv) The expenses beyond the control of the power system operation company such as dearness allowance, pension liabilities and terminal benefits in Employee cost etc., shall be excluded from the norms in the trajectory;
(v) The One-time expenses and the expenses beyond the control of the power system operation company as per sub-regulations (c) and (d) above 1 Ins .vide Not. no. HPERC/F(5)(3)(1)(SLDC) dated 1st November,2013 13 published in the R H.P. dated 5th November, 2013 at p. 4619 to 4626.
Compendium of HPERC Regulations, March 2021 15 shall be allowed by the Commission over and above normative Operation & Maintenance Expenses after prudence check;
(vi) The norms in the trajectory shall be proposed over the control period with due consideration to productivity improvements and commercial viability;
(vii) The norms shall be proposed at constant prices of base year and escalation on account of inflation shall be over and above the baseline;
(viii) Based on the proposal submitted by the power system operation company, the Commission shall fix the norms for the said purposes which shall be taken into account for determining the trajectories for various components of O&M expenses for the remaining years of the control period;
(ix) Till such time the norms are fixed by the Commission, the trajectories of various components of O&M expenses shall be submitted by the power system operation company and determined by the Commission on the basis of the actual costs for the previous years in accordance with the provisions of these regulations;]
(2) The O&M expenses for the base year will be approved by the Commission taking into account the latest available audited accounts, business plan filed by the Power System Operation Company for the State Load Despatch Centre, estimates of the actuals for the base year, prudence check and any other factors considered appropriate by the Commission.
1 [(3) The O&M expenses for the n th year of the control period shall be approved based on the formula given as follows:- O&Mn = R&Mn + EMPn + A&Gn :
1 Subs. vide Not. no. HPERC/F(5)(3)(1)(SLDC) dated 1 st November,2013 published in the R H.P.
dated 5 th November, 2013 at p. 4619-4626. Before its substitution sub-regulation (3) read as under:
“(3) The O&M expenses for the n th year of the control period shall be approved based on the formula given below:- O&Mn = (R&Mn + EMPn + A&Gn) R&Mn= K x (GFAn-1) Where – EMPn = (EMPn-1) x (1+Gn) x (CPI inflation) A&Gn = (A&Gn-1) x (WPI inflation) ‘K’ is a constant (could be expressed in %). Value of K for each year of the control period shall be determined by the Commission based on the Power System Operation Company/State Load Despatch Centre’s filing, benchmarking of R&M Expenses, approved R&M Expenses vis-à-vis GFA approved by the Commission in past and any other factor considered appropriate by the Commission;
CPI inflation – is the average increase in the Consumer Price Index (CPI) for immediately preceding three years before the base year;
WPI inflation – is the average increase in the Wholesale Price Index (WPI) for immediately preceding three years before the base year;
EMPn – is the employee costs of the Power System Operation Company for the State Load Despatch Centre functions for the nth year;
A&Gn – is the administrative and general costs of the Power System Operation Company for the State Load Despatch Centre functions for the nth year;
R&Mn – is the repair and maintenance costs of the State Load Despatch Centre for the nth year;
GFAn-1 – is the Gross Fixed Asset of the Power System Operation Company for the State Load Despatch Centre functions for n-1th year;
Gn - is a growth factor for nth year. Value of Gn shall be determined by the Commission in the MYT order for meeting the additional manpower requirement based on the Power System Operation Company/State Load Despatch Centre’s filings, benchmarking, approved cost by the Commission in past and any other factor that the Commission feels appropriate.” 16 Compendium of HPERC Regulations, March 2021 Where – R&Mn = K x GFA n-1:
EMPn = [(EMPn-1) x (1+Gn) x (CPIinflation)] + Provision(Emp) ;
A&Gn = [(A&Gn-1) x (WPIinflation)] + Provision(A&G) ;
‘K’ is a constant (could be expressed in %). Value of K for each year of the control period shall be determined by the Commission in the MYT Tariff order based on power system operation company’s filing, benchmarking of R&M expenses, approved R&M expenses vis-à-vis GFA approved by the Commission in past and any other factor considered appropriate by the Commission;
CPIinflation – is the average increase in the Consumer Price Index (CPI) for immediately preceding three or five years before the base year, whichever is higher;
WPIinflation – is the average increase in the Wholesale Price Index (CPI) for immediately preceding three or five years before the base year, whichever is higher;
EMPn-1 & EMPn – employee costs of the power system operation company for the (n- 1) th and n th year; (employee cost for the base year would be adjusted for provisions for (n-1) th year for the items corresponding to clauses (iii), (iv) and (v) of subregulation (1-a) of regulation 19);
Provision(Emp): Provision corresponding to clauses (iii), (iv) and (v) of sub-regulation (1-a) of regulation 19, duly projected for relevant year for expenses beyond control of the power system operation company and expected one-time expenses as specified above;
A&Gn-1 & A&Gn –administrative and general costs of the power system operation company for the (n-1) th and n th year;
Provision(A&G): Cost for initiatives or other one-time expenses as proposed by the power system operation company and validated by the Commission;
R&Mn-1 R&Mn – repair and maintenance costs of the power system operation company for the (n-1) th and n th year;
GFAn-1 – Gross Fixed Asset of the power system operation company for the (n-1) th year;
Gn is a growth factor for the nth year. Value of Gn shall be determined by the Commission in the MYT tariff order for meeting the additional manpower requirement based on power system operation company’s filings, benchmarking, and approved cost by the Commission in past and any other factor that the Commission feels appropriate:
Provided that, R&M expenses determined shall be utilised towards R&M works only;
Compendium of HPERC Regulations, March 2021 17 Note: After the fixation of norms of various components of O&M expenses as per these regulations, the above formulae shall be suitably modified in line with the provisions.]
1 [20. Return on Equity .- (1) Return on equity shall be computed on the equity determined in accordance with these regulations and on pre-tax basis at the base rate of
15.5% to be grossed up as per sub-regulation (3) of this regulation.
The rate of return on equity shall be computed by grossing up the base rate with the normal tax rate for the base year applicable to the concerned power system operation company as per the latest available audited accounts:
Provided that return on equity with respect to the actual tax rate applicable in line to the power system operation company with the provisions of the relevant Finance Acts of the respective year during the control period shall be trued up separately for each year of the control period during the mid-term review or during true-up at the end of the control period.
(2) Rate of return on equity shall be rounded off to three decimal points and be computed according to the following formula:- Rate of pre-tax return on equity = Base rate / (1-t);
t is the applicable tax rate in accordance with sub-regulation (2) of this regulation.
Illustration:- i. In case of the power system operation company paying 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 the power system operation company paying normal corporate tax @
33.99% including surcharge and cess:
Rate of return on equity = 15.50/ (1-0.3399) = 23.481%.]