(1) Return on equity shall be computed on the equity determined in accordance with regulation and on pre-tax basis at the base rate of 15.5% to be grossed up as per sub- regulation of this regulation:
[ 1 [(2) The rate of return on equity shall be computed by grossing up the base rate with the normal tax rate as per latest available audited accounts of the generating company:
1 Sub. vide Not. No. HPERC-F(1)-2/2018 dated 22 nd November, 2018 published in the R.H.P. 27 th November, 2018 at p. 6249-6255. Before its substitution it read as under:
“(2) The salvage value of the asset shall be considered as 10% and depreciation shall be allowed up to maximum of 90% of the capital cost of the asset:
Provided that in case of hydro generating stations, the salvage value shall be as provided in the agreement signed by the developers with the State Government for creation of the site:
Provided further that the capital cost of the assets of the hydro generating station for the purpose of computation of depreciable value shall correspond to the percentage of sale of electricity under long-term power purchase agreement at regulated tariff.” 18 Compendium of HPERC Regulations, March 2021
Provided that in line with the provisions of the relevant Finance Acts of the respective year, the return on equity with respect to the actual tax rate applicable to the generating company during the years of the control period shall be trued up separately for each year during the mid-term performance review and at the end of the control period along with the tariff petition filed for the next control period.]
(3) Rate of return on equity shall be rounded off to three decimal points and be computed as per the formula given below-
(a) Rate of pre-tax return on equity = Base rate / (1-t)
(b) Where t is the applicable tax rate in accordance with sub-regulation of this regulation.
Illustration.-
(i) In case of the generating company paying Minimum Alternate Tax (MAT) @ 19.93% including surcharge and cess:
Rate of return on equity = 15.50/ (1-0.1993) = 19.358%
(ii) In case of generating company paying normal corporate tax @ 2 [32.99%] including surcharge and cess:
Rate of return on equity = 15.50/ (1-0.3399) = 23. 481% 3 [22. Operation and Maintenance (O&M) Expenses.-(1) Operation and Maintenance (O&M) expenses shall comprise of the following:- 1 Subs. vide Not No. HPERC/F (5)(3)(1)(Gen.) dated 1 st Nov., 2013 published in the R H.P.
dated 4 th November, 2013 at p. 4599-4606. Before its substitution it stood as under:
“(2) The rate of return on equity shall be computed by grossing up the base rate with the normal tax rate for the year 2010- 11 applicable to the concerned generating company:
Provided that return on equity with respect to the actual tax rate applicable to the generating company in line with the provisions of the relevant Finance Acts of the respective year during the tariff period shall be trued up separately for each year of the tariff period along with the tariff petition filed for the next tariff period.” 2 Subs. for “33.22%” vide Not No. HPERC/F (5)(3)(1) (Gen.) dated 1 st Nov., 2013 published in the R H.P. dated 4 th November, 2013 at p. 4599-4608.
3 Substituted vide Not. No. HPERC/F(5)(3)(1)(Gen) dated 1 st November, 2013 published in the Rajpatra Himachal Pradesh dated 4 th November, 2013 at p. 4599-4606 and before its substitution it stood as under:
“22. Operation and Maintenance (O&M) Expenses
(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 costs;
(c) repairs and maintenance; and
(d) other miscellaneous expenses including insurance costs, statutory levies and taxes (except corporate income tax).
(2) Operation and maintenance expenses, for the existing generating stations which have been in operation for 3 years or more in the base year of 2010-11, shall be derived on the basis of actual operation and maintenance expenses for the years 2007- 08 to 2009-10, based on the audited balance sheets, excluding abnormal operation and maintenance expenses, if any, after prudence check by the Commission
(3) The normalised operation and maintenance expenses after prudence check, for the years 2007-08 to 2009-10, shall be escalated @ 8.32% to arrive at the normalized operation and maintenance expenses at the 2009-10 price level respectively and then averaged to arrive at normalised average operation and maintenance expenses for the 2007-08 to 2009-10 at 2009-10 price level. The average normalized operation and maintenance expenses for year 2009-10 shall be escalated by 8.32% to arrive at the normalized operation and maintenance of base year 2010-11. The normalized operation and maintenance expenses or the actual operation and maintenance expenses for the base year 2010-11, whichever is lower shall be escalated at the rate of 8.32% to arrive at the operation and maintenance expenses for year 2011-12.
(4) The operation and maintenance expenses for the year 2011-12 shall be escalated further at the rate of 8.32% per annum to arrive at permissible operation and maintenance expenses for the subsequent years of the control period.
(5) In case of the hydro generating stations, which have not been in commercial operation for a period of three years as on 1.4.2011, operation and maintenance expenses shall be fixed at 2% of the original project cost (excluding cost of rehabilitation and resettlement works) and shall be escalated at the rate of 8.32% per annum from the subsequent year to arrive at operation and maintenance expenses for the base year 2010-11. The base operation and maintenance expenses shall be further escalated at the rate of 8.32% per annum to arrive at permissible operation and maintenance expenses for the respective year of the tariff period.
(6) In case of the hydro generating stations declared under commercial operation on or after 1.4.2011, operation and maintenance expenses shall be fixed at 2% of the original project cost (excluding cost of rehabilitation and resettlement works) and shall be subject to annual escalation of 8.32% per annum for the subsequent years.
Compendium of HPERC Regulations, March 2021 19
(a) salaries, wages, pension contribution and other employee costs;
(b) administrative and general costs;
(c) repairs and maintenance; and
(d) other miscellaneous expenses including insurance costs, statutory levies and taxes (except corporate income tax).
1 [(2) Operation and maintenance expenses, for the existing generating stations which have been in operation for 5 years or more as on 31st March, 2018, shall be derived on the basis of actual operation and maintenance expenses for the years 2013-14 to 2017- 18, based on the audited balance sheets, excluding abnormal operation and maintenance expenses, if any, after prudence check by the Commission.
(3) In case of hydro generating stations, which have been in commercial operation for less than 5 years as on 31st March, 2018, the Operation and maintenance expenses shall be fixed at 2% of the original project cost, excluding cost of rehabilitation and resettlement works, and shall be escalated in accordance with the escalation principles specified in subregulation (6).
(4) In case of the hydro generating stations declared under commercial operation on or after 1-4-2018, operation and maintenance expenses shall be fixed at 2% of the original project cost, excluding cost of rehabilitation and resettlement works, and shall be escalated in accordance with the escalation principles specified in sub-regulation (6).; and]
(5) Post, determination of base O&M Expenses for the generator/generating company in sub-regulation (2), the O&M expenses for the n th year and also for the year immediately preceding the control period, shall be approved based on the formula given below:- O&Mn = R&Mn + EMPn + A&Gn:
Where – ‘O&Mn’ – Operation and Maintenance expenses for the n th year;
‘EMPn’ – Employee Costs for the n th year;
‘R&Mn’ – Repair and Maintenance costs for the n th year;
‘A&Gn’ – Administrative and General Costs for the n th year; and - ‘EMPn’ = [(EMPn-1) x (1+Gn) x (CPIinflation)] + Provision(Emp) ‘A&Gn’ = [(A&Gn-1) x (WPIinflation)] + Provision(A&G) ‘R&Mn’ = K x (GFA n-1 ) x (WPIinflation); and –
(7) Of the O&M expenses so determined based on the above regulations, at least 30% shall be spent towards repair and maintenance activities.” 1 Sub. vide Not. No. HPERC-F(1)-2/2018 dated 22 nd November, 2018 published in the R.H.P. 27 th November, 2018 at p. 6249-6255. Before its substitution it read as under:
“(2) Operation and maintenance expenses, for the existing generating stations which have been in operation for 3 years or more as on 31 March 2013, shall be derived on the basis of actual operation and maintenance expenses for the years 2010-11 to 2012-13, based on the audited balance sheets, excluding abnormal operation and maintenance expenses, if any, after prudence check by the Commission.
(3) In case of hydro generating stations, which have been in commercial operation for less than 3 years as on 31 March 2013, the Operation and maintenance expenses shall be fixed at 2% of the original project cost, excluding cost of rehabilitation and resettlement works, and shall be escalated in accordance with the escalation principles specified in sub-regulation (6).
(4) In case of the hydro generating stations declared under commercial operation on or after 1.4.2013, operation and maintenance expenses shall be fixed at 2% of the original project cost, excluding cost of rehabilitation and resettlement works, and shall be escalated in accordance with the escalation principles specified in sub-regulation (6).” 20 Compendium of HPERC Regulations, March 2021 EMPn-1 – Employee Cost of the generator for the (n-1) th year; (employee cost for the base year would be adjusted for provisions for expenses beyond the control of the licensee and one time expected expenses, such as recovery/ adjustment of terminal benefits, implication of pay revisions, arrears and interim relief);
‘Provision(Emp)’- Provision for expenses beyond control of the Generating company and expected one-time expenses as specified above;
A&Gn-1 – Administrative and General Costs of the generator/generating company for the (n-1) th year;
Provision(A&G): Cost for initiatives or other one-time expenses as proposed by the generating company and approved by the Commission after prudence check;
‘K’ is a constant to be specified by the Commission: % Value of K for each year of the control period shall be determined by the Commission in the MYT Tariff order based on generator/generating company’s filing, benchmarking of repair and maintenance expenses, approved repair and maintenance 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 the three years immediately preceding the base year;
WPIinflation – is the average increase in the Wholesale Price Index (WPI) for the three years immediately preceding the base year;
GFAn-1 – Gross Fixed Asset of the generator/generating company for the (n-1) th year;
Gn is a growth factor for the n th year: Value of Gn shall be determined by the Commission in the MYT tariff order for meeting the additional manpower requirement based on generator/generating company’s filings, benchmarking, approved cost by the Commission in past and any other factor that the Commission feels appropriate. The Commission may also determine the appropriate level of employees and provide a roadmap for rationalization of employees during the control period:
Provided that repair and maintenance expenses determined shall be utilized towards repair and maintenance works only.
(6) O&M expenses determined in sub-regulations (3) and (4), shall be escalated for subsequent years to arrive at the O&M expenses for the control period by applying the Escalation factor (EFk) for a particular year (K th year) which shall be calculated using the following formula:
EFk = 0.20xWPIInflation + 0.80xCPIInflation
Provided that, out of the O&M expenses so determined based on the above regulations, at least 30% shall be spent towards repair and maintenance activities:
Provided further that, the impact of pay revision (including arrears) shall be allowed on actual during the mid-term performance review or at the end of the control period as per audited /unaudited accounts, subject to prudence check and any other factor considered appropriate by the Commission.]
Compendium of HPERC Regulations, March 2021 21 1 [(7) The generating company, wherever applicable, 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.]
PART-IV NORMS OF OPERATION