NOTIFICATIONS BY HEADS OF DEPARTMENTS, Etc.,
PUBLIC WORKS NOTIFICATIONS
ANDHRA PRADESH ELECTRICITY REGULATORY COMMISSION
Regulation No. 4 of 2005
Section 61 of the Electricity Act, 2003, provides that the Appropriate Commission shall, specify the terms and conditions for determination of tariff, while Section 62 of Act empowers the Commission to determine the tariffs, inter alia: for wheeling and retail sale of electricity and requires the Licensees to comply with such procedure as may be specified by the Commission for calculating the expected revenue from the tariff and charges which the Licensee is permitted to recover. The Commission formulated a draft Regulation specifying the Terms and Conditions for determination of Distribution Tariff including the procedure for calculating the expected revenue, published the same in A.P. Gazette on 29-09-2005 and issued a press release seeking comments / suggestions from all stakeholders and the public at large and also placed it on the website of the Commission. Comments / suggestions were received from 11 persons / organizations including all the 5 licensees (4 DISCOMs and APTRANSCO). The Commission considered all the comments / suggestions and has made modifications, as considered appropriate, allowing for determination of tariff for wheeling and the retail sale of electricity separately, modifying in the process, the nomenclature of the Regulation.
In exercise of powers conferred under clause (zd), (ze) and (zf) of Section 181 (2) read with Sections 61 and 62 of the Electricity Act 2003 (36 of 2003) and all other enabling powers in that behalf, the Andhra Pradesh Electricity Regulatory Commission hereby makes the following Regulation, namely:
1. This Regulation
may be called the Andhra Pradesh Electricity Regulatory Commission (Terms and Conditions
for Determination of Tariff for
2. This Regulation shall extend to the whole of Andhra Pradesh.
3. This Regulation shall come into force on the date of its publication in the Andhra Pradesh Gazette
1. In this Regulation, unless the context otherwise requires:
1. “Act” means the Electricity Act, 2003 (36 of 2003);
2. “Aggregate Revenue Requirement” (ARR) means the revenue required to meet the costs pertaining to the licensed business, for a financial year, which would be permitted to be recovered through tariffs and charges by the Commission.
3. “Base Year” means the financial year immediately preceding the first year of the Control Period;
4. “CERC” means the Central Electricity Regulatory Commission established under Section 76 of the Act;
5. “Commission” means the Andhra Pradesh Electricity Regulatory Commission;
6. “Conduct of Business Regulations” means the Andhra Pradesh Electricity Regulatory Commission (Conduct of Business) Regulations in force from time to time;
7. “Consumer / User contributions” means any contributions made by those using or intending to use the Distribution network of a licensee for supply or wheeling of electricity . Any grant received by Licensees would also be treated as Consumer / User contribution.
8. “Control Period” means a multi-year period fixed by the Commission from time to time, usually 5 years, for which the principles for determination of revenue requirement will be fixed, the first Control Period, however, being of the duration of 3 years;
9. “Distribution Business” means the business of operating and maintaining a distribution system for supplying electricity in the area of supply of the Distribution Licensee in terms of the Distribution and Retail Supply Licence granted by the Commission;
10. “Financial year” means the period commencing on 1st April of a calendar year and ending on 31st March of the subsequent calendar year;
11. “Licensees’ Standards of Performance Regulation” means the A.P. Electricity Regulatory Commission (Licensees’ Standards of Performance) Regulation, 2004 (Regulation No.7 of 2004).
12. “Non-Tariff Income” means income relating to the licensed business other than from tariffs for wheeling and retail sale , and excludes any income from Other Business and income on account of Fuel Surcharge Adjustment, Cross-subsidy Surcharge and Additional Surcharge;
13. “Other Business” means any business engaged in by a Distribution Licensee under Section 51 of the Act for optimum utilization of the assets of such Distribution Licensee and shall include any business of the Distribution Licensee other than the licensed business;
14. “Retail Supply Business” means the business of sale of electricity by a Licensee to consumers, in accordance with the terms of the Distribution and Retail Supply Licence;
15. “ Regulated Rate Base (RRB)” is the value of the gross fixed assets net of the consumer contributions and accumulated depreciation;
“State” means the State of
2. Words and expressions used and not defined in this Regulation but defined in the Act shall have the meanings as assigned to them in the Act.
3. All proceedings under this Regulation shall be governed by the Andhra Pradesh Electricity Regulatory Commission (Conduct of Business) Regulations.
The Guidelines already issued by the Commission for computing the Aggregate Revenue Requirement / Expected Revenue from Charges (ARR / ERC) to the extent modified herein would continue to apply for the Distribution and the Retail Supply Businesses separately till such time as fresh Guidelines are issued.
Till such time as there is a complete segregation of accounts between Distribution and Retail Supply businesses, the ARR for each business shall be supported by an Allocation Statement that contains the apportionment of costs and revenues to that business. The allocation statement shall also contain the methodology that has been used for the apportionment.
1. The Operation and Maintenance (O&M) costs which include employee-related costs, repair & maintenance costs and administrative & general costs, estimated for the Base Year and the year prior to the Base Year in complete detail, together with the forecast for each year of the Control Period based on the norms proposed by the Distribution Licensee including indexation and other appropriate mechanisms in terms of the principles enunciated in this Regulation for O&M cost allowance.
2. Regulated Rate Base (RRB) for the Base Year and each year of the Control Period which requires submission of the working capital requirement and a detailed scheme/project-wise Capital Investment Plan with a capitalisation schedule covering each year of the Control Period consistent with the Commission’s approved Resource Plan.
3. A proposal for appropriate capital structure and its cost of financing (interest cost and return on equity) for the purpose of computing Weighted Average Cost of Capital.
4. Targets proposed for reduction of distribution losses during the Control Period duly adhering to the Licensees’ Standards of Performance Regulation.
5. Details of depreciation, including Advance against depreciation if any required and capitalisation schedules for each year of the Control Period.
6. Description of external parameters proposed to be used for indexation;
7. Details of taxes on income;
8. Any other relevant expenditure;
9. Proposals for sharing of gains and losses;
10. Proposals for efficiency parameter targets;
11. Proposals for rewarding efficiency in performance
12. Any other matters considered appropriate
1. Power purchase costs for each year of the Control Period. The power purchase costs shall also include the transfer price of own generation for the supply business in line with the Power Procurement Plan approved by the Commission as part of the Distribution Licensee’s Resource Plan.
2. All other items mentioned for the distribution business to the extent applicable and in accordance with cost allocation statement mentioned in clause 5 of this Regulation.
1. Wheeling of electricity, i.e. Wheeling Charges to recover the ARR of Distribution Business
2. Retail sale of electricity, i.e. Tariffs for Retail sale of electricity to recover the ARR of Retail Supply Business
1.The Distribution system or network usage forecast for each year of the Control Period consistent with the Resource Plan.
2.Proposals for computation of tariffs for wheeling of electricity for each of the years of the Control Period, including the losses to be charged in kind and the procedure therefor.
3.Proposals for Non-Tariff Income with item-wise description and details.
5.The proposed wheeling charges shall be voltage-wise. For the first Control Period, however, the Distribution Licensee may propose these charges computed on normative basis.
6.Expected Revenue from the proposed Wheeling Charges, Non-Tariff Income and Income from Other Business(es).
1.Proposal for retail sale of electricity to the consumers pertaining to its retail supply business and the details may include tariffs for each consumer category, slab-wise and voltage-wise. The tariffs proposed may also include energy charges, fixed/demand charges and minimum charges .
2.Proposals for Non-Tariff Income with item-wise description and details.
3.Each tariff proposal submitted by the Distribution Licensee shall be supported with a cost-of-service model allocating the costs of the licensed business in respect of each category of consumers based on appropriate assumptions.
4.Expected Revenue from the proposed Retail Sale Tariffs, Non-Tariff Income and income from Other Business(es) and other matters considered appropriate by the Distribution Licensee, including incentive schemes to consumers, voltage surcharge and power factor surcharge.
Provided that the Resource Plan for the first Control Period may be filed along with the Multi-year filings for ARR of the first Control Period.
Operation & Maintenance expenses
Return on Capital Employed
Taxes on Income
In addition to the above items the retail supply business shall include the following :
Retail Supply Business
Cost of power purchase
Provided that the Commission shall allow the financing cost on account of the time gap between the time when the true-up becomes due and when it is actually allowed and the corrections shall not be normally revisited.
1.Cost of power procurement
2.Transmission charges for Retail Supply Business alone
3.Load dispatch charges;
4.Operation and maintenance expenses;
5.Return on capital employed;
7.Taxes on Income;
8.Corrections for “uncontrollable” items and “controllable” items (indexed to external parameters);
9.Any other relevant expenditure
Provided that where the procurement is for sale to consumers permitted open access by the Nodal Agency under the Open Access Regulation or purchase for trading, the Distribution Licensee shall provide an Allocation Statement as referred to in clause 5 clearly specifying the costs that are attributable to the sales made to such consumers, utilities, etc.
2. The power procurement plan will not generally require any revisions during the Control Period, and the Commission-approved category-wise power procurement forecast shall be applied for estimating the Distribution Licensees’ power procurement requirement for each year of the Control Period;
3. While approving the cost of power procurement, the Commission shall determine the quantum of electricity to be procured, consistent with the power procurement plan, from various sources of supply, in accordance with the principle of merit order schedule and dispatch, based on a ranking of all approved sources of supply in the order of variable cost or price.
1. Salaries, wages and other employee costs;
2. Administrative and General costs;
3. Repairs and maintenance, and
4. Other miscellaneous expenses, like legal charges, audit fees, lease charges, rent, rates and taxes, etc.
RoCE = WACC * RRBi
WACC is the Weighted Average Cost of Capital as fixed by the Commission for the Control period and expressed in terms of percentage;
RRB is the Regulated Rate Base (the asset base) approved by the Commission for each year of the Control period on which the Distribution Licensee shall be entitled to earn a return based on the Commission approved Weighted Average Cost of Capital (WACC).
i: ith year of the Control Period, i = 1, 2, 3 for the first Control Period
1. The WACC shall be computed in the following manner:
D/E is the Debt to Equity Ratio and shall be determined at the beginning of the Control Period after considering Distribution Licensee’s proposal, previous years’ D/E mix, market conditions and other relevant factors
rd is the Cost of Debt and shall be determined at the beginning of the Control Period after considering Distribution Licensee’s proposals, present cost of debt, market conditions and other relevant factors.
re is the Return on Equity and shall be determined at the beginning of the Control Period after considering CERC norms, Distribution Licensee’s proposals, previous years’ D/E mix, risks associated with distribution & supply business, market conditions and other relevant factors
The Weighted Average Cost of Capital as determined above shall remain unchanged during the Control Period
2. The Regulated Rate Base (RRB) for the purposes of computing the RoCE for a year of the Control Period will be computed in the following manner.
RRBi = RRB i-1 +∆ RABi + WCi
RRBi : Regulated Rate Base for the ith year of the Control period
∆RABi: Change in the Rate Base in the ith year of the Control Period. This component would be the average of the value at the beginning and end of the year as the asset creation is spread across a year and is arrived at as follows:
∆RABi = (Invi – Di – CCi)/2
Invi: Investments projected to be capitalised during the ith year of the Control Period and approved.
Di: Amount set aside or written off on account of Depreciation of fixed assets for the ith year of the Control Period.
CCi: User Contributions pertaining to the ∆RABi and capital grants/subsidies received during ith year of the Control Period for construction of service lines or creation of fixed assets.
RRB i-1: Regulated Rate Base for the financial year preceding the ith year of the Control period and shall be determined on the basis of approved Capital Investment Plan referred to in clause 16.1 of this Regulation. For the first year of the Control Period, RRB i-1 will be the Regulated Rate Base for the Base Year i.e. RRBO. The values for the Base Year will be determined based on the latest audited accounts available, best estimates of the actuals pertaining to the relevant years and any other factors considered relevant by the Commission.
= OCFAO –
OCFAO: Original Cost of Fixed Assets at the end of the Base Year available for use and necessary for the purpose of the licensed business
ADO: Amounts written off or set aside on account of depreciation and advance against depreciation if any, of fixed assets pertaining to the regulated business at the end of the Base Year
CCO: Total contributions pertaining to the OCFAo, made by the users towards the cost of construction of distribution/service lines by the Distribution Licensee and also includes the capital grants/subsidies received for this purpose.
1. WCi: Working Capital Requirement in the ith year of the Control Period and shall be considered as being equal to one twelfth of the Operations and Maintenance expenses as allowed for that year.
Provided that for the first Control Period, the Distribution Licensee shall file its Capital Investment Plan for the Control Period as part of its Multi-Year Filings for Commission’s approval.
Provided that depreciation on assets funded by consumer /user contributions or through any capital subsidy/grant etc shall not be allowed in the revenue requirement of the Distribution Licensee.
To ensure smooth implementation of the Multi-Year Tariff (MYT) Framework, the Commission may undertake periodic reviews of Distribution Licensees’ performance during the Control Period, to address any practical issues, concerns or unexpected outcomes that may arise, and in general to assess the efficacy of Multi Year Tariff Principles.
The Commission may, at any time add, vary, alter, modify, delete or amend any provisions of this Regulation.
(BY ORDER OF THE COMMISSION)
(S.SURYA PRAKASA RAO)