(1) Operation and Maintenance (O&M) expenses shall include: -
(a) salaries, wages, pension contribution and other employee costs;
(b) administrative and general expenses;
(c) repairs and maintenance expenses; and
(d) other miscellaneous expenses, statutory levies and taxes (except corporate income tax).
1 [(1-a) O&M Norms -
(i) The licensee 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 for various activities such as per 1000 consumers and number of personnel per substation, line length alongwith annual expenses per personnel for Employee expenses combination of A&G expense per personnel and A&G expense per 1000 consumers for A&G expenses and R&M expense as percentage of gross fixed assets for estimation of R&M expenses;
1 Ins. vide Not. No. HPERC/F(5)(3)(1)(Retail) dated 1st November, 2013 published in the R. H.P. dated 4th November, 2013 at p. 4539-4596.
Compendium of HPERC Regulations, March 2021 21
(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 distribution licensee 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 Distribution Licensee as per sub-regulations (c) and (d) above 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) The Distribution Licensee shall also carry out absolute and relative analysis while proposing the norms;
(ix) In absolute analysis, Distribution Licensee’s audited accounts of operations for last three years, expenses claimed for control period, historically approved cost, and prudence check shall be used by the Commission to estimate values of norms;
(x) In relative analysis, performance parameters of other Distribution Licensees within the same state or in other states shall be considered by the commission to estimate norms:
Provided that other Distribution Licensees so chosen shall have similar profile as that of the Distribution Licensee under consideration in terms of consumer mix, type of license area (city, state, etc.) type of distribution networks, viz, underground/overhead, HT-LT ratio, etc;
(xi) Suitable average of outcomes of absolute and relative analysis may be taken by the licensee while proposal the norms over the control period for the distribution licensee;
(xii) Based on the proposal submitted by the licensee, 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;
(xiii) Till such time the norms are fixed by the Commission, the trajectories of various components of O&M expenses shall be submitted by the licensee 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 distribution licensee shall submit the O&M expenses for the control period as laid down in the multiyear tariff filing procedure. The O&M expenses for the base year shall be approved by the Commission taking into account the latest available audited accounts, business plan filed by the distribution licensee, estimates of the actuals for the base year, prudence check and any other factors considered appropriate by the Commission.
22 Compendium of HPERC Regulations, March 2021 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 :
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 licensee’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 distribution licensee 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 sub-regulation (1-a) of regulation 17);
1 Subs. vide Not. No. HPERC/F(5)(3)(1)(Retail) dated 1 st November, 2013 published in the R.H.P.
dated 4 th November, 2013 at p. 4579 - 4596 and 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 Where - R&Mn = K*GFA n-1 EMPn = (EMPn-1)* (1+Gn) * (CPIinflation) A&Gn = (A&Gn-1)*(WPIinflation) ‘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 licensee’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 years before the base year;
WPIinflation – is the average increase in the Wholesale Price Index (CPI) for immediately preceding three years before the base year;
EMPn – employee costs of the distribution licensee for the nth year;
A&Gn – administrative and general costs of the distribution licensee for the nth year;
R&Mn – repair and maintenance costs of the distribution licensee for the nth year;
GFAn-1 – Gross Fixed Asset of the distribution licensee for the n-1th 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 licensee’s filings, benchmarking, 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 23 Provision(Emp): Provision corresponding to clauses (iii), (iv) and (v) of sub-regulation (1-a) of regulation 17, duly projected for relevant year for expenses beyond control of the distribution licensee and expected one-time expenses as specified above;
A&Gn-1 & A&Gn – administrative and general costs of the distribution licensee for the (n-1) th and n th year;
Provision (A&G): Cost for initiatives or other one-time expenses as proposed by the distribution licensee and validated by the Commission;
R&Mn-1 R&Mn – repair and maintenance costs of the distribution licensee for the (n- 1) th and n th year;
GFAn-1 – Gross Fixed Asset of the distribution licensee 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 licensee’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;
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 [(4) The distribution licensee shall submit the detail of sharing of the terminal benefits including pension of its employees as per the Himachal Pradesh Electricity Regulatory Commission (Terms and Conditions for Sharing of Cost of Terminal Benefits of Personnel of the Erstwhile Himachal Pradesh State Electricity Board and Successor Entities) Regulations, 2015.]
[218. Asset Base.— (1) The Commission shall determine the asset base for each year of the control period at the beginning of the control period, which shall be Sum of —
(a) The asset base of the base year as determined by the Commission, considering the most recent audited accounts, estimates of actuals during the base year after doing prudence check and any other factors considered appropriate by the Commission, and 1 Subs. vide Not. HPERC-F(1)-1/2018 dated 22nd November, 2018 published in R.H.P. dated 27th November, 2018 at p. 6265-6277.
2 Subs. vide Not. HPERC-F(1)-1/2018 dated 22nd November, 2018 published in R.H.P. dated 27th November, 2018 at p. 6265-6277. Before its substitution sub-regulation(3) read as under:
“Asset Base.-The Commission shall determine the asset base for each year of the control period at the beginning of the control period, which shall be- Sum of -
(a) The asset base of the base year as determined by the Commission, considering the most recent audited accounts, estimates of actuals during the base year checked for prudence and any other factors considered appropriate by the Commission, and
(b) Proposed capitalisation during the year, checked for prudence covering-
(i) schemes for which Commission’s approval has been granted,
(ii) schemes which have been submitted for Commission’s approval, and
(iii) schemes not requiring Commission’s approval;
Less- Assets proposed to be retired during the year.
(2) The interest on loan capital and return on equity shall be computed on the financing of the cost of the schemes included in the asset base.” 24 Compendium of HPERC Regulations, March 2021
(b) Proposed capitalisation during the year after exercising prudence check shall be—
(i) schemes for which Commission’s approval has been granted,
(ii) schemes which have been submitted for Commission’s approval, and
(iii) schemes not requiring Commission’s approval;
Less— Assets proposed to be retired during the year.
The net value of such retired assets shall be calculated as follows:
Net Value of retired Assets = OCFA – AD – CC Where;
OCFA: Original capital cost of Replaced Assets AD: Accumulated depreciation pertaining to the Replaced Assets CC: Total Consumer Contribution pertaining to the Replaced Assets:
Provided that the amount of insurance proceeds received, if any, towards damage to any asset requiring its replacement shall be first adjusted towards outstanding actual or normative loan and the balance amount, if any, shall be utilised to reduce the capital cost of such replaced asset, and any further balance amount shall be considered as Non-Tariff Income.
(2) The interest on loan capital and return on equity shall be computed on the financing of the cost of the schemes included in the asset base.]
1 [18-A. Consumer Contribution, Deposit Work, Grant and Capital Subsidy.—(1) The works carried out by the distribution licensee after obtaining the estimated cost from the users shall be classified as Deposit Works.
(2) Capital works undertaken by the distribution licensee utilising grants received from the State and Central Governments, including funds under various schemes shall be classified under the category of Grants.
(3) The works carried out with any other grant of similar nature or such amount received without any obligation to return the same and with no interest costs attached to such subvention shall also be classified as works performed through consumer contribution, deposit work, capital subsidy or grant.
(4) The expenses on such capital expenditure shall be treated as follows:—
(a) normative O&M expenses as specified in these regulations shall be allowed.
However, any departmental charges taken by the licensee against deposit works and which are executed departmentally shall be adjusted in the employee cost;
(b) the debt to equity ratio shall be considered in accordance with regulation 19, after deducting the amount of financial support provided through consumer contribution, deposit work, capital subsidy or grant;
(c) depreciation to the extent of works performed through consumer contribution, deposit work, capital subsidy or grant shall not be allowed as specified in regulation 23;
1 Ins. regulation (18-a) vide Not. HPERC-F(1)-1/2018 dated 22nd November, 2018 published in R.H.P. dated 27th November, 2018 at p. 6265-6277.
Compendium of HPERC Regulations, March 2021 25
(d) provisions related to return on equity, as specified in regulation 20, shall not be applicable to the extent of financial support provided through consumer contribution, deposit work, capital subsidy or grant;
(e) provisions related to interest and finance charges, as specified in regulation 21, shall not be applicable to the extent of financial support provided through consumer contribution, deposit work, capital subsidy or grant.]