MPERC Comments on CERC Paper on Terms and - Central

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					Terms and Conditions
      of Tariff
  MPERC Comments on CERC Discussion Paper




        Madhya Pradesh Electricity Regulatory Commission
In this presentation


Market Development
   – Transmission and wheeling charges for Transmission Lines
   – Transmission and wheeling charges for Inter-regional Lines


Tariff Setting
    – Rate of return methodology
    – Depreciation
    – Development Surcharge
    – Rate base
    – Interest on working capital
    – Operational norms


Other Discussion Points

2                                                           Madhya Pradesh Electricity Regulatory Commission
Market Development



    Madhya Pradesh Electricity Regulatory Commission
 Market Development
 Transmission and Wheeling Charges

Pan Caking (2.3.3.2)                              § Mechanism of charging
                                                     – Original Beneficiaries cover full cost
§ Definition: Term used to describe stacking up
                                                     – Reimbursed by income from Open
  of charges in a transmission system due to
                                                       Access Charges and from Traded Power
  repeated application of charges for different
  regions                                         § Comments
                                                     – Expansion of network should be done on
§ Implications                                         the basis of a Long-Term Transmission
   – Increase in the landed cost of power              Capacity Demand Forecast (Example: 7-
   – Discouragement to inter regional                  Year Plan in UK)
      exchange of power                              – Commission must regulate the level of
§ Comments                                             investment by CTU / STU and ensure
   – Open Access mechanism of Regional                 that it is at a certain margin above strictly
     Incremental Postage Stamp                         required.

  4                                                        Madhya Pradesh Electricity Regulatory Commission
  Market Development
  Transmission and Wheeling Charges for Inter-Regional Lines

Charging of Fixed Costs                           Sharing of Income from Open Access /
                                                  Traded Power
§ Present system of sharing of costs of Inter-
  regional assets is 50:50 between Regions.       § Should be adjusted on a monthly basis

§ Method of charging should be changed to         § Should be returned to Firm Users in the
                                                    proportion of costs paid in that month
  allocated usage basis.
   – Provisional fixed costs may be charged
       based on Allocation of Capacity in
       Agreement between CTU and
       Beneficiaries
   – Adjustments to be made at the month-end
       based on actual allocation. These
       adjustments may be billed in next months
       bill
   5                                                      Madhya Pradesh Electricity Regulatory Commission
Tariff Setting



 Madhya Pradesh Electricity Regulatory Commission
 Tariff Setting
 Rate of Return

Existing methodology                            ROCE, ROE and Return on Debt
§ Cost-plus approach                            § ROE:
                                                   – Interest rates have reduced
Options                                            – Escrows and LC’s are established
§ ROE                                              – Suggestion: Government Bond Return + 5% =
   – Return to equity investment is measured         say 11%

§ ROCE (= ROI)                                  § Margin to cover:
   – Return on total investment is measured        – Risk premium
   – Measured against WACC                         – Investment incentive
   – Incentive for optimization by financial    § Return on Debt @ PLR
     engineering / refinancing – incentive to
     investors                                  § Normative Debt Equity Ratio: 80:20
   – No FERV                                    § ROCE = 11*80/100 + 11*20/100 = 11%
   – Beneficial to consumers
                                                § Annual revision, retrospective-forward
§ ROCE may be adopted                             compensation or through VCA
  7                                                       Madhya Pradesh Electricity Regulatory Commission
  Tariff Setting
  Depreciation, Development Surcharge

Depreciation                                                 Development Surcharge
§ Purpose of depreciation                                    § There should not be any such surcharge on the
   – Wear and tear                                             beneficiaries for the purpose of creation of corpus
   – Repayment of loan                                         for investment in generation
§ Comments                                                   § Reasonable return is being provided
   – Allow to explicitly charge loan repayment
   – After full loan repayment, balance                      § Instead, a Developmental Charge may be levied
     depreciation may be charged on SLM till                   for a "Universal Service Obligation" Fund
     useful life of the plant
   – Develop norms for loan repayment                        § USO Fund can be used for improving access to
             – Rate = PLR                                      all
             – Term of loan = Moratorium +                       – Rural electrification programs
               Minimum 10 years                                  – Promotion to non-conventional sources
       – Buyers must be protected by ensuring term of            – Off-grid generation
         PPA is for the fair life of the plant. If such an
         assurance is not given, then depreciate at the
         current rates
   8                                                                   Madhya Pradesh Electricity Regulatory Commission
 Tariff Setting
 Rate Base, Interest on Working Capital

Rate Base                                               Interest on Working Capital
§ Asset-side NFA approach                               § Allow interest portion as pass-through on net
                                                          Normative Working Capital
Initial Capital Expenditure
                                                        § Net of working capital may be derived after
§ Initial Capex:
                                                          deduction of fuel costs
    – In case a prior order exists: As per the order
    – In case prior order does not exist: Should be
         determined by competitive bidding.
§ Norms must be developed by the CERC / CEA for
  setting up of projects for quality of equipment,
  costs, gestation, competitive bidding processes for
  EPC etc
§ Additional Capex:
   – Allow subject to prior approval by the CERC
   – Or, norms may be developed for this
  9                                                               Madhya Pradesh Electricity Regulatory Commission
 Tariff Setting
 Operating Norms

Operating Norms                                        Generation – Gross Calorific Value
§ Define operational norms; this should consider       § Price of coal is notified based on UHV and coal
  technology in place, inflation, age of the plant /     consumed is determined based on GCV
  equipment
                                                       § There is a need of fixing norms for linking UHV with
Operation and Maintenance Expenses                       GCV.
§ Pass-through on actuals subject to a limit as a      § Norms for stacking and transit losses should also be
  percentage of capital costs                            fixed based on transport mode and distance
§ Allow a portion of the savings to be retained        Generation – Specific Oil Consumption

Generation – SHR                                       § Norms should be reduced to 2 ml/kwh from the
                                                         current 3.5 ml/kwh if the target PLF is above
§ Should be linked with guaranteed heat rate. A          normative
  reasonable margin should be provided above this
                                                       § At low PLF Specific Oil Consumption is higher to
  which should keep in view the age of the plant
                                                         keep the furnace stable. Higher Sp.oil consumption
                                                         can be allowed at low targeted PLF
  10                                                             Madhya Pradesh Electricity Regulatory Commission
Other Issues



Madhya Pradesh Electricity Regulatory Commission
 Other Issues

Tariff Period                                      Peak and Off-peak Tariff for Hydel

§ MPERC suggestion                                 § MPERC suggestion
   – 5-year period, which is a business planning      – Apply to depreciated hydel plants for peak
     cycle                                              period
                                                      – Off-peak tariff need not be changed
   – May be reviewed before in case of drastic
                                                      – Surplus income may be paid into a "Universal
     change                                             Service Obligation" fund for to provide access
Declared Capacity                                       to all

§ Current Definition / Analysis                    Single Regional Tariff
   – One MWh ex-bus capacity                       § MPERC’s views
   – Scheduling is on MW basis                        – Promotes generation from lower cost stations,
§ MPERC suggestion                                      since they now earn more, but an expensive
   – Change definition to MW basis                      generator will not generate
                                                      – Not recommended
                                                      – Individual tariff setting is preferable
  12                                                        Madhya Pradesh Electricity Regulatory Commission
 Other Issues

Auxiliary Consumption
§ Current
               [Σ KWH Generator terminal –
            Σ KWH delivered at station switchyard]
AxC =
               [Σ Gross generator terminal]

§ Proposed
                [Σ KWH Generator terminal –
                NET Σ KWH exported ex-bus]
   AxC =
                [Σ Gross generator terminal]

§ MPERC suggestion
   – Do not adopt the proposed change. A change
     will result in beneficiaries bearing the cost of
     losses between switchyard and bus
  13                                                    Madhya Pradesh Electricity Regulatory Commission
    MPERC



Madhya Pradesh Electricity Regulatory Commission
Pan caking

                                                                        WC = 12.5
                                                          212.5                                 200
                                     TC = 10
                              Rourkela                                  Exportin                ER
                                                                        g Region
                                                         Raipur
                              TC = 10


                                                Chandrapur

                              TC = 10                             WC = 12.5

                                                Ramagundam
                                                                      SR                       TNEB
                                        242.5                                          255



     Selling price = 200 P/U
     Landed cost = 255 P/U
     Thus, pan caking is a major disincentive to inter regional sale

     Numbers are purely for the purpose of illustrating the concept and may not be correct
15                                                                            Madhya Pradesh Electricity Regulatory Commission
Transmission / OA Charges
Inter-Regional Lines




16                     Madhya Pradesh Electricity Regulatory Commission
Tariff Setting
Operating Norms



     Grade   UHV (Kcal/Kg) Ash + Moisture               GCV Kcal/Kg
                Range          Range         @ 5% Moisture @ 7% Moisture
      A         > 6200        Upto 19.6         > 6450                  > 6350
      B        6200 – 5600     19.6 – 23.9     6049 – 6454             5940 – 6360
      C        4950 – 5600     23.9 – 28.7     5597 – 6049             5490 – 5940
      D        4200 – 4940     28.7 – 34.1     5089 – 5597             4990 – 5490
      E        3360 – 4200     34.1 – 40.1     4524 – 5089             4400 – 4990




17                                             Madhya Pradesh Electricity Regulatory Commission

				
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posted:10/21/2013
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