PGCIL Comment On Approach Paper

Submissions on
Approach Paper for

(Terms and Conditions of Tariff)
Regulations, 2024
By
Power Grid Corporation of India Limited
31st July, 2023

Contents
1) General .............................................................................................................................. 2
2) Summary of Observations on Approach Paper ...........................................................8
3) Detailed Observations of POWERGRID....................................................................... 16
Chapter -3 of Approach Paper ...................................................................................... 17
Possible Approaches to Tariff Determination ...................................................................................... 17
Chapter -4 of Approach Paper ...................................................................................... 21
Para 4.2.1: Capital Cost- Background ..................................................................................................... 21
Para 4.2.2: Procurement of Equipment and Services ........................................................................... 22
Para 4.2.3: Reference Cost for Approval of Capital Cost .................................................................... 23
Para 4.3: Capital Cost for projects acquired post NCLT Proceedings ..............................................24
Para 4.4.1 Computation of IDC – Post Scheduled COD .......................................................................26
Para 4.4.2 Treatment of Liquidated Damages ......................................................................................... 27
Para 4.5 Price Variation...............................................................................................................................28
Para 4.6 Renovation and Modernisation ................................................................................................. 30
Para 4.7 Initial Spares.................................................................................................................................. 32
Para 4.8 Controllable and Un-Controllable Factors ............................................................................... 33
Para 4.9: Differential Norms – Servicing Impact of Delay ..................................................................... 35
Para 4.11: GFA/NFA/Modified GFA Approach......................................................................................... 37
Para 4.12.1: Segregation of Normative Expenses ..................................................................................38
Para 4.12.2: Norms for HVDC Stations .....................................................................................................42
Para 4.12.3: O&M Norms for Special Cases ............................................................................................ 43
Para 4.12.4: Inclusion of Capital Spares ..................................................................................................44
Para 4.12.5: Impact on account of Change in Law and Taxes .............................................................46
Para 4.13: Depreciation ............................................................................................................................... 47
Para 4.15: Return on Equity (RoE) v/s Return on Capital Employed (RoCE) ....................................49
Para 4.16: Rate of Return on Equity .........................................................................................................50
Para 4.17: Tax Rate ......................................................................................................................................69
Para 4.19: Life of Generating Stations and Transmission System ..................................................... 70
Para 4.21: Sharing of Charges ................................................................................................................... 73
Para 4.22: Treatment of arbitration award – Servicing of Principal and Interest Payment ............. 75
Para 4.23: Treatment of interest on differential tariff after truing up .................................................. 75
Chapter-6 of Approach Paper....................................................................................... 77
Para 6.3 & 6.6: Decommissioning/Upgradation/Replacement of Assets ........................................... 77
Additional Suggestions ................................................................................................ 79
To optimise high number of petitions ...................................................................................................... 79
Interest applicable for delay in Final Tariff orders: ............................................................................... 81
Useful life of Control & Protection, IT equipment: ................................................................................. 81
Conditions on filing Tariff Petitions: ........................................................................................................82
Observations on interest calculation on Recovery / Refund due to subsequent order: ................83
Observations/Suggestions on Approach Paper for Terms and Condition of Tariff Regulation for 2024-29 1
1) General
At the outset we would like to take this opportunity to acknowledge and express our
sincere appreciation for the Central Electricity Regulatory Commission (CERC) for its
invaluable contribution to the development and growth of the power sector in India over
the past two decades. CERC has formulated and enforced regulatory framework which
created an enabling environment for the power sector's expansion. These regulations
have not only encompassed aspects such as tariffs, grid connectivity, power trading,
and grid operation but have also fostered transparency, consistency, stability, fair
competition, and investor confidence within the Indian power sector. CERC's regulations
and timely interventions have been instrumental in driving the rapid growth of renewable
energy capacity in India.
CERC has facilitated market mechanisms, including power exchanges, to promote

efficient electricity trading. This has created a competitive environment, attracted private
investments, and stimulated innovation and efficiency enhancements. Further, acting as
a guardian in the power sector, CERC has also established a fair and efficient dispute
resolution mechanism protecting stakeholders’ genuine interest and thus ensuring a
safe and stable business environment and inspiring investor confidence.
Regarding tariff, CERC has played a pivotal role in ensuring fair and reasonable tariffs
for generating and transmission companies and at the same time prioritizing the
interests of Indian consumers. CERC's Tariff regulations have aimed to simplify the tariff
determination process, requiring minimal regulatory interface while upholding regulatory
jurisprudence. By providing stability and predictability to utilities, it has encouraged
investments in the sector. The stable and transparent approach of CERC has facilitated
predictable future returns for generating and transmission companies, leading to
substantial capacity additions. Ultimately, this has benefited end consumers by
providing them with reliable and affordable power at cheapest costs under regulatory
oversight.
Here we would also like to highlight that under the regulatory oversight and guidance of
CERC, POWERGRID along with other Transmission licensees have made significant
investments in ISTS transmission. This substantial investment has led to a muti fold
expansion of the Transmission infrastructure throughout the country. The developed
Indian transmission sector has played a special role in delivering the generated power
to the customers in a reliable and efficient manner. POWERGRID, being the country’s
major transmission licensee has always been in the forefront to facilitate the reliable
transmission of power from generators to load centers through its transmission system
that is spread across the length and breadth of the country. It strives to provide the best
transmission service to its customers by building and maintaining one of the largest and
most robust interconnected grid networks in the world.
As of today, every distribution utility has the flexibility of sourcing the cheapest power
available in the market, thereby reducing their power purchase costs. Though, this
flexibility in the system has been built keeping in mind the future requirements of the
sector which has enabled us to reach to a stage wherein General Network Access (GNA)
has been implemented and transmission planning is now delinked from generation
contract. Further, with the motive of enhancing competition in the power sector and
subsequently, lowering the cost of electricity to consumers, Market Based Economic
Dispatch (MBED) may soon be implemented. These paradigm changes have been
enabled by Transmission and it requires further augmentation of transmission network
to ensure successful realization of ambitious goals set by Government of India. It is
worth noting that Transmission has been an enabler for growth of overall Power Sector.
While ISTS transmission costs account for a very small fraction of the total costs of
supply for Distribution Utilities, it provides them with immense benefits, as follows:
 Reduction in power procurement costs: The robust transmission network has

given flexibility to the Distribution Utilities and in turn created pressure on the Generation
projects to adopt cost control measures, thereby bringing in efficiency. This has provided
every distribution utility options to source the cheapest available power from the market.
 Reduction in congestion: Robust ISTS network with increasing Inter regional

capacity has facilitated merit order dispatch and the development of One Nation -One
Grid. Transmission Congestion, experienced earlier, along with market splitting has
become a rarity now, resulting in discovery of single price across the power market. The
volume of electricity that cannot be cleared in Power Exchanges as percentage of
Unconstrained Clear Volume has reduced to only 0.06% in 2020-21 as compared to
16% in 2013-14. Para 2.1 ‘Review of Power Sector Growth’ of the Approach paper also
provides a glimpse of the changed scenario where Peak Deficit & Energy Deficit has
reduced substantially despite high growth in energy demand.
 Higher Realised Revenues: The development of One Nation-One Grid has resulted
in improving and emboldening Power Trade where surplus electricity generated can
be sold at the Energy Exchange without it being wasted. It not just reduced power
shortages but also helped all generating stations, especially with high degree of
seasonality such as Hydro Power Plants to realize additional revenue. This fact is
further supported by the growth trends in the Short-Term power market where volume
of Electricity transacted through Power Exchanges has increased at a CAGR of 31.9
% between 2008 and 2022 (Source: Market monitoring report 2021-22).
 Rural Electrification: Percentage of Rural Population with Access to Electricity
has increased from 72.3% in 2011 to 99.3% in 2021 (as per data from The World Bank),
the same has also been enabled by the robust growth in Transmission Sector.
 Reliability: The grid has become more efficient, reliable, and secure to facilitate
enhanced power transmission. The robust transmission network ensures a reliable and
uninterrupted power supply to Distribution Utilities.
 Renewable integration: Transmission system plays a catalyst role in energy

transition by extending the grid to renewable rich areas and facilitating the Renewable
Energy projects to connect into the grid. The augmentation of the transmission system
has enabled the Grid to adjust to the variability due to the increase in Renewable
penetration and has helped in achieving installed capacity of Renewable Energy to
176.49 GW as on 30.06.2023.
 Support for Industrial Growth: Open access and availability of reliable and high-
quality power through efficient transmission networks has encouraged industrial growth
leading to economic development.
The need to meet the peak demand of the system and to provide reliable access to the
generation capacity including Renewable integration as discussed above is met by rapid
expansion and strengthening of the transmission system. In view of the above
discussion, investments in the transmission sector should be viewed in a positive sense,
since the benefits reaped by it are multifold.
Approach paper:
We appreciate the efforts put in by the Staff of the CERC in bringing out this well-
researched and thoughtful Approach paper which analyses key macroeconomic and
other indicators along with issues and challenges of the power sector at large. It
encompasses different aspects of the regulated tariff and proposes several options to
spur discussion among various stakeholders. The paper succeeds in highlighting
various aspects of transmission tariff in depth, the existing scenario in the power sector
and likely developments in the future that shall have an impact on tariff determination.
We understand that the objective of the Approach Paper is to ensure a balance between
the financial viability of the sector developers and the consumer’s interest, while
attracting steady investments towards the development of the sector. We therefore
appreciate the focus given in the Approach paper on following key areas;
 Regulatory Certainty: Regulatory certainty is the key to the growth of the Power
Sector and is required to provide a stable and predictable environment for investors.
When regulations are clear and consistent, it instills confidence in investors to commit
their funds to power sector projects. This confidence is particularly important considering
that the investments in power generation and transmission projects are for longer
durations (25-35 years) and therefore, the investment decisions are made based on
their individual feasibility and the returns based on the then prevailing norms. With
regulatory certainty, investors can assess risks accurately and make informed decisions,
leading to increased investments in the sector.
As the tariff is determined on multiyear principles, it is important to maintain certainty in

approach over each control period to maintain the confidence of investors and regulated
entities. Any major departure in established regulatory approaches creates considerable
risk for regulated entities. This is particularly so for existing assets which have been set
up based on the prevailing regulations and tariff principles applicable at the time of the
assets being planned. Here it is to mention that predictability in regulatory approaches
is one of the main objectives of Tariff Policy, 2016.
Quote:
4.0 OBJECTIVES OF THE POLICY
The objectives of this tariff policy are to:
(a) Ensure availability of electricity to consumers at reasonable and competitive

rates;
(b) Ensure financial viability of the sector and attract investments;
(c) Promote transparency, consistency and predictability in regulatory
approaches across jurisdictions and minimise perceptions of regulatory
risks;
………….
Unquote:
We appreciate that the Approach paper has duly recognized the importance of
regulatory certainty and highlighted it at multiple places. At preamble, it expresses that
Quote:
“The very essence of a multi-year tariff framework is to maintain regulatory certainty by

not only considering the existing scenario but also anticipating likely future
developments that may impact the tariff.”
Unquote:
At para 2.4 of the Approach paper “Assured Returns, Mitigation of Risk Perception and
Regulatory Certainty” has been duly recognized as a key aspect to encourage private
investments. We welcome the views expressed here.
Further, considering the future investment requirement which is discussed in detail in

,
Approach paper and to attract investors, there is necessity to minimize regulatory risks
and install regulatory certainty. Tariff Policy,2016 also lists one of its objective as to
“Ensure financial viability of the sector and attract investments”. Here it is to mention
that Approach paper while discussing RoE at para 4.16 has rightly pointed out that
considering the events in last 5 years in Power Sector wherein a large number of Power
Utilities underwent financial constraints including insolvency, the risk perception of
financial institutions towards the power sector has increased. Thus, the risk perception
of investors, including other stakeholders such as lenders, needs to be lowered so that
it provides right signal to the investors to invest in the sector for creating the much
needed capacity.
In view of the above, regulatory risks have to be minimised and regulatory certainty is
to be ensured. It may be ensured that any change, if deemed necessary to the terms
and conditions of tariff should be implemented without compromising on regulatory
certainty. Further, any change in the regulations in the ensuing Tariff period that shall
have any financial implications be levied only on new projects/assets and avoid
complications in the functioning of the existing projects/assets. To have regulatory
certainty and financial stability of the Utilities, we therefore suggest that any
changes in the Regulations shall be brought out only for the projects/assets for
which Investment Approval is achieved after 31st March 2024.
 Anticipating Future Growth and Energy Transition: India has now targeted to
achieve 500 GW of non-fossil fuel based capacity by 2030. As more and more
Renewable generation is projected to be integrated with the Grid, augmentation of Grid
is required on a continuous basis. Strengthening of the existing transmission network is
required to accommodate an additional 300 GW which will require considerable capital
investment.
CEA in its report titled “Transmission System for Integration of over 500 GW RE
Capacity by 2030” has estimated that the transmission network capacity addition
planned under ISTS for integration of additional wind and solar capacity by 2030 will be
50,890 ckm and 4,33,575 MVA respectively with an estimated investment of Rs
2,44,200 crores. The present inter-regional transmission capacity is 1,12,250 MW. With
the additional inter-regional transmission corridors under implementation/ planned, the
cumulative inter-regional transmission capacity is likely to be enhanced to about
150,000 MW in 2030.
Further, CEA in its 20th Electric Power Survey, published in November 2022 has
projected the Peak Demand to grow to around 273 GW by FY 2026-27 and to 361 GW
by FY 2031-32 on account of the multiple Government initiatives such as energy
efficiency measures, penetration of electric vehicles, solar roof top, National Hydrogen
Mission, PM KUSUM Yojna, etc.
In order to achieve the above targets, the renewable generator and their investors will
need assurances regarding the availability of transmission system capacity and
connectivity to sell power without any transmission constraint and realize their
investments. Therefore, huge investment in the transmission sector is required in a
timely manner. Therefore, an environment of regulatory certainty and gaining investors’
confidence will be key factors for executing the transmission system augmentation
projects.
 Simplification of Tariff Determination Process: We appreciate and share the

concern raised in Approach paper that due to the increasing number of assets whose
tariff needs to be determined under the Regulated Tariff Mechanism (RTM), the tariff
determination process has become repetitive and cumbersome. We also feel that there
is an immediate need to simplify the tariff determination process.
Approach paper has proposed various alternatives in this regard and has kept
simplification of the tariff determination process as the core idea to drive the terms and
conditions of tariff determination for the period FY 2024-25 to FY 2028-29. We welcome
these initiatives. POWERGRID, based on its past experiences, also wishes to propose
some additional suggestions in this regard which are not covered in the Approach paper.
These suggestions are discussed in the subsequent part of our Submissions.
Considering the above discussion, we would again like to express our sincere
appreciation and gratitude to CERC & its staff. We further reemphasize the need to
maintain the fast pace of growth and continued investors’ confidence in the power
sector. To achieve this it is crucial to maintain and reinforce the current approach of
regulatory certainty and minimizing regulatory risks for investor throughout the lifespan
of their investments. Further, given the scale of investments required, POWERGRID
believes that a focused Regulatory impetus in the coming tariff block of 2024-29 is
essential to facilitate mobilization of debt at competitive rates from the market and also
generation of adequate internal resources to infuse equity.
Summary of observations/ suggestions by POWERGRID on Approach Paper is

presented in next paras and detailed observations on transmission related matters is
discussed subsequently.
2) Summary of Observations on Approach Paper
 Tariff Determination: In the case of the Normative Approach -1, the method
of indexation factor requires more clarity as indexation factor is required to be
calculated for all projects which may increase the complexity of tariff calculations
as different assets and different projects have different issues. In the case of the
Performance Based Hybrid Approach i.e., Approach 2, we are of the view that for
Transmission, it is very similar to the current approach except suggesting Interest
on loan component also on normative basis instead of actual weighted average
loan portfolio. The CERC may explore this option to link the interest on loans with
reference rate enabling utilities to recover the cost incurred. Accordingly, it is
requested that the reference rate may be provided as below:
o Projects wherein no foreign funding is deployed –SBI MCLR (1 Year) plus 200
basis points which would be able to cover the interest costs and its fluctuations.
o Project wherein foreign loans have been deployed – Reference rate may be
allowed as SBI MCLR (1 year) plus 400 basis points, which shall also be
inclusive of FERV.
 Interim Tariff: Presently Transmission utilities are not being able to recover the
tariff till the time the CERC comes out with the final tariff order as despite having
provision in present regulations, interim tariff is not being issued. This leads to
delays in cashflow for licensees besides an additional burden of one-time arrear
on DICs. Therefore, it is suggested that 90% of the claimed tariff as per the filed
petition may be allowed by CERC to be provisionally billed (as per sharing
regulations) to the beneficiaries without interim / final order in the new regulations.
After final order, the under and over recovery of tariffs can be adjusted along with
simple interest at Bank rate, which may be notified by CERC.
 Reference Cost for Approval of capital Cost: Considering the large

number of variables involved, it is practically challenging to determine
Benchmarking cost in Transmission. Therefore, POWERGRID support the views
expressed in the Approach Paper regarding continuing the present methodology
of carrying out the prudence check of the capital cost.
 Computation of Interest during Construction: Since POWERGRID

follows prudent phasing approach to keep overall IDC low, we are of the view that
the second approach (ref para 4.4 of approach paper) wherein the IDC is allowed
on the basis pro rata deduction of total IDC worked out till actual COD may be
allowed.
 Treatment of Liquidated Damages: POWERGRID follows the approach
as laid down in Judgment by APTEL in Appeal No. 72 of 2010 in its tariff petitions
for the treatment of LD. We agree that the additional capitalisation forms need to
be tweaked so that LD information is submitted along with the tariff petition to bring
in more clarity and avoid risk of double deduction. Accordingly, CERC is requested
to notify a separate disclosure form for the Liquidated Damages along with the tariff
formats for proper representation of LD amount.
 Price Variation: POWERGRID deals with Price Variation in its EPC contracts
strictly as per the contractual provisions and if there is delay on account of the
contractor, then the price variation is invariably restricted to the date up to SCOD
or actual PV, whichever is lower. We are of the view that the PV impact for the
period of delay not condoned is very minimal and to capture the same for restriction
in tariff world be cumbersome and increase complexity of tariff determination
without commensurate benefit. Therefore, the existing approach of treatment for
price variation may be continued.
 Renovation and Modernisation (R&M): Considering the peculiar nature

of Transmission, where certain assets keep getting added to the original asset in
a phased manner to provide continued service, R&M approach is not followed in
true sense. Therefore, we are of the view R&M may not be made applicable for
Transmission. Regarding expenditure required to extend the life as proposed in
Approach paper, it is proposed that for assets completing useful life beyond 20
years, a normative special allowance may be allowed to transmission licensees to
recover cost on account of replacement due to obsolescence, unavailability of
spare or failure of some equipment etc.
Special Allowance may be allowed for AC system on ‘per km’/ ‘per MVA’ / ‘per bay’
basis, similar to component wise normative O&M. In addition, AddCap for HVDC
Systems and FACTS devices may be continued as per the prevailing practice of
allowing AddCap after prudence check. Further, outage availed to carry out any
refurbishment/ replacement works under special allowance may be considered as
deemed available.
 Initial Spares: We support the view to reduce the number of categories for Initial
spares but considering separate spare requirement for AIS & GIS Substation,
existing practice of separate norms for both categories may be continued. Further,
regarding one norm for both Green field and Brown field sub-stations, it is
requested that common norm for both may be specified in line with the spare
requirement of brownfield assets only as most of the works coming under RTM are
likely to be extensions of existing substations only. Further, HVDC S/s may also
be clubbed with AIS S/s.
For system reliability, initial spare requirement is mandatory for Transmission

assets including HV cables and therefore it is prayed that in line with spare
requirement in “±320kV VSC based 2000 MW Pugalur (HVDC) - North Trichur
HVDC(Kerala) HVDC link” project, initial spare with ceiling limit of 3% may be
allowed for HV Underground Cables.
 Delay towards obtaining Statutory Clearances: POWERGRID

supports the proposal to continue land acquisition as an uncontrollable factor and
to include the delay in obtaining forest clearance as an uncontrollable factor.
Further, it is proposed that delay on account of obtaining statutory clearances like
Railway Clearance/ NHAI clearance, delay in grant of Shutdowns by
RPCs/RLDCs/SLDCs etc. also needs to be covered under uncontrollable factors
as they are beyond the control of the transmission utilities.
 Servicing Impact of Delay even if it is condoned – POWERGRID and

its Senior management has always been proactively and rigorously pursuing the
statutory authorities for getting clearances and approvals at the earliest and take
all necessary actions at highest level possible to reduce delay in project execution.
It is requested that once the delay has been condoned, project should not be
subjected to any further deduction / penalty. Considering that the utilities are
automatically disincentivized if the project gets delayed, if any additional penalty
as discussed is imposed, it will lead to further loss to developer without any fault.
Such approach may unnecessarily result in increased uncertainty and risk in the
sector and will affect Investor’s sentiment. Therefore, it is prayed to the CERC to
continue with the existing approach.
 Segregation of Normative Expenses: We agree with the observation

made that O&M expenses have historically been allowed as one expense, and any
change in the methodology as discussed by segregating them in Employee
Expenses and other expenses may result in unnecessary complications. Further,
Regulations should provide for pass through of any extraordinary items like pay
revision impact as and when the decision of a pay revision is finalized in the
subsequent year as it is a Change in Law event.
POWERGRID has implemented the pay revision in accordance with the Guidelines
by the Department of Public Enterprises (DPE) and Presidential Directive.
Performance Related Pay (PRP) is an integral part of basic wage under Pay
Revision in line with the notification of Government of India. Therefore, PRP may
be included as part of employee cost in the normalized O&M expenditure for FY
2018-19 to FY 2022-23 to arrive at the normative O&M norms for 2024-29.
 O&M Norms for Special Cases: POWERGRID is of the opinion that present
approach of single country wise rate for a given configuration has evolved over last
20 years based on past experiences and has given desired result of efficiency,
simplicity and uniformity. Therefore, the same may be continued. Specifying
region-wise rates may result in complexity and may make the process regressive
in nature.
We propose that instead of devising two different norms of O&M Expenses for plain
and hilly areas, the present approach may be continued. Regarding specific
difficulties faced by some single project RTM companies, separate rates or an
additional factor over and above single normative notified rates may be provided.
 Inclusion of Capital Spares: We agree with the proposal that recurring and
low value spares below Rs. 20 lakhs may be made part of normative O&M
expenses, while capital spares with a value in excess of Rs. 20 lakhs may be
allowed to be reimbursed through a separate petition to be filed by the utility.
 Depreciation: We welcome the proposal that the depreciation rate may be

specified considering a loan tenure of 15 years instead of the current practice of
12 years. However, the same shall be applied prospectively in new tariff
Regulations i.e it should be made applicable for only for assets whose Investment
Approval is done post 31.03.2024.For other assets, it is requested to continue with
the existing approach of considering loan tenure as 12 years for depreciation
computation.
 Rate of Return on Equity: We submit the following

o RoE for Transmission must be in line with the risk perception and market
expectations, and we feel that with time, construction and operational risks are
only increasing, and there has been no reduction in the risk profile of
Transmission in last 5 years.
o Construction risk in Transmission is very high in complete value chain in
Power Sector compared to Generation and Distribution.
o The recommendation made in said FoR report may not be relevant in present
changed circumstances where many initiatives to improve cash flow to
Generation business etc. have been taken.
o For Transmission, the upside revenue is capped i.e., maximum at an
availability of 99.75% whereas there is no limit to the downside. Thus, any
reduction in RoE will impact Transmission more than any other sectors.
o Reduction in ROE during the life of the project would create regulatory uncertainty
and make investments in the sector less attractive to the investors.
o To attract international investors the return on equity for generation/ transmission

business in India should be at par if not more than the return allowed by regulators
in other countries.
o Reduction in RoE if any, may potentially result in higher cost of debt i.e., on 70%
of the project cost.
o Reduction of Rate of RoE has negligible impact on overall cost of power to the
end consumer, but it may end up in creating adverse financial situation for
Generators and Transmission Companies.
o Investments in generation and transmission projects are for a long duration

(25-35 years) and therefore, the investment decisions are made based on
the returns prevalent at the relevant times. Reduction in rates will have a
negative impact on the equity already invested in the existing and under
construction projects.
Therefore, we are of the view that the existing RoE of 15.5% should be maintained
for transmission business for Tariff block 2024-29 also to have regulatory
certainty and financial stability of investors.
If in case CERC considers to revise the RoE for transmission business, it should
be done only for the assets whose Investment Approval is done post 31.03.2024
i.e., for new projects/assets only.
 Tax Rate: Tax liability of the companies for a particular financial year depends
upon the level of income, rebate/exemptions available, tax holidays, applicability
of MAT, deferred tax liability, etc. The implications of tax liability are long term in
nature, and the amount of tax paid/to be paid by the company may not be on the
current year income level and varies from time to time as per applicable sections
of relevant Finance Act. In future when tax holiday u/s 80 IA /any other
exemption/deduction will not be available, the effective tax rates for POWERGRID
will be higher than MAT rate or ceiling of Corporate Tax Rate. With this background
it is proposed that actual effective tax rates as applicable for POWERGRID may
be considered for grossing up.
 Life of Transmission Systems: We support the view that the useful life of
Substation may be increased to 35 years. However, to mitigate any adverse effect
on system performance due to increase in useful life, following is proposed:
o A normative special allowance may be allowed to transmission licensees from

20th year onwards for assets of AC system completing useful life to cover cost
on account of periodic replacement due to obsolescence, unavailability of
spare or failure of some equipment etc.
o AddCap may continue to be allowed for HVDC Systems as per the prevailing
practice after prudence check.
o Cases where existing assets may be required to be replaced before completing

35 Years including cases of Reconductoring, Capacity augmentation etc.,
some allowable depreciation for original asset will remain unrecovered.
Therefore, it is proposed that in such cases, any unrecovered cost /
depreciation with carrying cost and any other relevant charges may be allowed
as one time reimbursement.
 Sharing of Charges: POWERGRID is committed towards Government of

India’s vision of promoting Renewable energy. It is proposed that in-principal
approval required under section 17(3) of the Electricity Act 2003 permitting
lease/rent for pre specified related business i.e. RE installations, Data Centre,
Green Hydrogen, BESS, EV Charging Station, etc. in Sub-station areas may be
provided through enabling regulations under the next Tariff regulations.
Further, rent charges due to above businesses may be considered as non-tariff

income or alternatively, decapitalization of lands from the existing transmission
projects may be allowed for utilizing the same for new business by expanding or
bringing in more clarity to existing Regulation 19.5.(d).
 Decommissioning/Upgradation/Replacement of Assets: The

provisions under Tariff Regulations should be supportive to the upgradation of
existing transmission system while providing the benefits to the beneficiaries.
Thus, there is a need that transmission licenses be suitably compensated wherein
replaced assets cannot be put into use again and therefore it is proposed that one
time allowance of unrecovered depreciation along with dismantling or any other
associated cost may be allowed.
 ADDITIONAL SUGGESTIONS:
o Additional Suggestions to optimise handling of large number of petitions:
 Suggestion 1: Licensees may be allowed to claim tariff based on tariff

norms specified in regulations on last approved capital cost without mandatory
requiring hearing of all the petitions. Licensees may be mandated to submit the
calculation sheets and requisite information to CERC on affidavit accompanied by
applicable filing fees and forward the same to all respondents and upload required
calculations on their website as per existing requirements. For the same Separate
standard tariff forms may be notified by CERC.
Further, Tariff Petition may be allowed to be clubbed into a single Petition on the
basis of region wise or block wise or any other combination as deemed fit. The
uniqueness of the projects as per the Investment approvals will be maintained in
the clubbed petitions. This will significantly reduce number of petitions especially
for the True up petitions having no AddCap or DeCap or any directions/liberty
specified by CERC in its last orders, where True up process is majorly limited to
arithmetic truing up exercise based on actual MAT rates, interest rates applicable
etc.
 Suggestion 2: In case hearing for some petitions is deemed required under

regulatory framework, CERC may notify simplified tariff formats as proposed in
option 1 and utilities shall file petition in accordance with revised simplified format.
Subsequently CERC may conduct hearings and issues orders for such petitions.
Standardised formats will simplify the process of Petition filing, scrutiny and
onwards issuance of orders by CERC.
Further, regarding filing fee in all above options, the same shall be paid as per the
current requirement even though the petitions are clubbed. Thus, POWERGRID
will ensure that fee applicable shall continue to be calculated on project basis.
o Useful life of Control & Protection for HVDC, FACTS, AC Sub-stations:

Based on international experience of utilities, guidelines of CIGRE W.G. 4.54 and
POWERGRID experience of O&M of HVAC, HVDC & FACTS systems, useful life
of Control & Protections (C&P) of these systems may be defined as 12 years in
the interest of timely upgradation/ replacement of obsolete systems for reliable &
secure Grid operation.
o Conditions on filing Tariff Petitions: Existing Tariff Regulations directs
utilities to file tariff petition only if expenditure incurred is more than 70% of the cost
envisaged in the Investment Approval or Rs. 200 Crore, whichever is lower. It is
requested to provide provisions in Tariff Regulations for filing of Tariff Petition in
case an element is commissioned for more than a specified period such as 6
months regardless of the criteria provided under present Tariff Regulations.
o Observations on interest calculation on Recovery / Refund due to

subsequent order: In case of modification in sharing of charges due to any order
by CERC/ APTEL or higher court at a later date, any credit / debit adjustment of
transmission charges to the relevant DICs may be allowed to be done along with
simple interest at the SBI bank MCLR rate. Above will reduce the litigation and
brings clarity to paying as well as receiving entity.
3) Detailed Observations of POWERGRID
on the
Approach Paper
CHAPTER -3 of Approach Paper
Possible Approaches to Tariff Determination
The Approach paper discusses the different tariff approaches adopted over the years
and how it has eventually moved to present hybrid approach wherein most of the
components of the tariffs are allowed on a normative basis irrespective of actual cost.
Approach paper also highlights that due to the increasing number of assets under the
Regulated Tariff Mechanism (RTM), the tariff determination process over time has
become repetitive and cumbersome. Therefore, simplification of the tariff determination
process is the core idea that shall drive the terms and conditions of tariff determination.
Paper underlines the need of bringing efficiency and simplification in the present system
of hybrid mechanisms of tariff setting by moving closer to a normative or performance-
based approach so that the same would positively impact the interests of consumers as
well as utilities. With the above background, Approach paper explores the option for
determination of tariff on a complete normative basis or modifying the existing approach
to allow more parameters on a normative basis and proposes following two options;
i. Approach 1: Under this approach capital cost for a project shall be continued to
be approved on an actual basis after prudence check. Transmission tariff is to be
determined as per existing methodology upto the cut-off date and subsequently the AFC
components determined for the base year (1st year post cut-off date for new projects &
FY 2024-25 for old projects) shall be clubbed under the following two categories.
1) AFC excluding O&M expenses

2) O&M expenses
Indexation - The above two components subsequent to base year for each project shall
be determined based on indexation factors which will be specified by CERC. Indexation
factor for each component will be specified as % of the previous year component, i.e.
AFC component for the Nth year/AFC component for the (N-1)th year.
Post expiry of each tariff period, the CERC shall revise only the indexation factor
pertaining to “AFC excluding O&M component” for each Project for each year and no
revision to be made to the indexation with regard to O&M expenses.
Further, in case any additional capitalisation is incurred or is required, the petitioner may
file a separate petition seeking approval of capital expenditure and once such capital
expenditure is allowed, the variation on account of additional capitalisation on the AFC
can be serviced by first computing the impact on the AFC and then adjusting the same
through the same indexation mechanism as specified above.
Through the same exercise, the CERC can also specify the indexation factor, for the
above two categories for the next tariff period.
ii. Approach 2: Paper proposes further simplification of the existing Performance

Based Hybrid Approach. It has been stated that for Transmission, all components of
tariff except ‘Interest on Loan’ is already allowed on normative basis. Interest on
normative loan capital is allowed at the actual weighted average rate of interest. It is to
be analysed whether this interest rate can also be fixed with linkage to the reference
rate.
Submissions/Suggestions by POWERGRID
Keeping in mind the objective of simplification of the process by exploring the option for
determination of tariff on a normative basis or allowing more parameters on a normative
basis, following is suggested:
1) Approach 1: We appreciate the shifting of present tariff methodology towards

normative tariff, wherein, once capital costs are approved on an actual basis after
prudence check, all other AFC components are determined on normative basis. We
understand that the basic idea is to allow AFC components to post cutoff date based on
the predetermined trajectory or indexation. It will save considerable and recurring efforts
being put in by the generating companies and transmission licensees as well as the
CERC. While adopting the normative approach, this predetermined trajectory or
indexation plays the decisive role and same to be derived by analysing the trend of
various AFC components or finding statistical correlation, if any, of AFC components
with capital cost encompassing each kind of transmission projects. In addition, this
predetermined trajectory or indexation must cater to all kinds of situations or exceptions
faced during the project lifecycle.
However, after going through the sample calculation provided at Annexure -I, it is
observed that under this approach, tariff for each project shall be determined as per the
present practice and subsequently, five tariff components shall be bifurcated into two
categories. Further, an indexation factor for a particular year shall be the ratio of current
year tariff to previous year tariff as indicated in Annexure-I. Thereafter, base year or first
year tariff shall be arrived for successive years based on indexation factor derived.
It is submitted that proposed approach in current form may not be able to meet the
desired objective of simplicity and efficiency in tariff determination process as it adds
more steps to existing practice and thus it may increase the complexity of tariff
determination. Specifically, determination of proposed indexation for each project would
be a tedious task and may not deliver the desired results. POWERGRID had filed around
430 True up petitions for the current tariff block which is expected to increase up to about
530 in next tariff block. Considering the high number of petitions, working out indexation
for each project based on proposed methodology may result in repetitive task and thus,
proposed approach through this methodology may not serve the intended purpose of
simplification of Tariff Determination Process.
In view of the above, there is a need to bring in more clarity, fine tuning, and details
regarding the methodology by way of detailed discussion with the relevant stakeholders.
Therefore, we are of the view that the first approach in present form is not going to meet
the desired objective of simplification of process.
2) Approach 2 - Performance Based Hybrid Approach: This approach proposes

to allow tariff component “interest on normative loan capital” to be linked to the reference
rate rather than at the actual weighted average rate of interest as done presently. It is
submitted that presently four tariff components out of total 5 components, viz.
depreciation, return on equity, O&M & Interest on Working Capital (IoWC) are allowed
on normative basis and easy to compute.
However, the rate of interest for allowing ‘Interest on loan’ component is the weighted
average rate of interest calculated on the basis of actual loan portfolio. Usually, Debt is
raised through various modes like bank term loans, bonds, or loans from multi-lateral
agencies and no. of loans are also commensurate to capital cost of particular projects.
Typically, a project consists of around 10-20 different loans and utilities are required to
provide details regarding each loan such as loan drawl date, interest rate, etc. which
makes the process of petition preparation and approval repetitive and time consuming.
Accordingly, simplification of process of approving interest on loans by linking interest
on normative loan capital to the reference rate is a welcome step as it will reduce the
tedious task of developing and submitting project and element wise loan schedules and
thus shorten/simplify the tariff filing and tariff determination process resulting in
increased efficiency.
Further, experience gained after implementation of this Approach-2 in block 2024-29

may lay path for shifting to complete normative tariff in future, as intended through
Approach-1.
POWERGRID Suggestion: Based on above discussion, POWERGRID
proposes that
 In Approach -1, the method of indexation factor requires more clarity as

indexation factor is required to be calculated for all projects which may
increase the complexity of tariff calculations as different assets and
different projects have different issues. Therefore, we are of the view that
the first approach in present form is not going to meet the desired
objective of simplification of process.
 Approach 2 i.e., Performance Based Hybrid Approach would result into

simplification in tariff determination as by linking fixing interest rate to the
reference rate will provide intended objective of all five tariff components
on normative basis.
However, it is requested that the reference rate may be fixed to enable
recovery of cost incurred. Keeping view of the above, reference rate may
be provided as follow:
o Projects wherein no foreign funding is deployed – Reference rate may
be linked with the benchmark rates such as Marginal Cost of fund
based lending rate (1 years) of the State Bank of India (SBI MCLR)
issued from time to time plus 200 basis points which would cover the
interest costs and its fluctuations.
o Project wherein foreign loans have been deployed –Reference rate
may be allowed as SBI MCLR (1 year) plus 400 basis points, which
shall also be inclusive of FERV.
Further, at para 4.14 of the Approach paper, Weighted Average rate

of Interest and FERV is discussed. Regrading proposal for allowing
hedging cost instead of FERV in para 4.14, it is submitted that 100%
hedging to foreign loans may not be possible. Even if the same is
exercised, the cost would be very high which would far outweigh the
saving in cost on account of exchange rate variations. Therefore
suggestion as proposed above for approach-2 may be considered for
FERV also.
The above suggestion by POWERGRID may also be considered for

para 4.14 also.
Financial Aspects impacting Tariff
Para 4.2.1: Capital Cost- Background

The Approach paper discusses that Tariff Regulations provides provision for interim tariff
for new projects before issuance of final tariff order. This helps utilities minimise time
gap between the commissioning of the project and the generation of cash flows by
means of interim tariff.
Alternatives proposed in Approach Paper
The provision for interim tariff can, therefore, be continued in the next tariff period as
well. However, comments and suggestions are sought from stakeholders on the
continuation of the said provision.
CERC Tariff Regulations provides for granting interim tariffs as a certain % of claimed
tariff till final tariff is issued. The difference between the provisional tariff and final tariff
are billed subsequently as per the regulations. Tariff up to 80-90% of the claimed tariff
were allowed in past through Interim tariff order.
This provided a sound mechanism to start the cash flows from commissioned asset by
allowing the licensee to bill a major portion of tariff from the COD. However, despite of
such provisions existing in the Regulations, the CERC did not prefer issuing provisional
tariffs in 2019-24 tariff block. In this regard it is submitted that
o Considering the high number of Tariff Petitions being filed regularly in CERC, time
required for prudence check and other case to case constraints, considerable time
is invariably required in issuance of final tariff order.
o Till issuance of final tariff order, no cash flow is generated for Transmission licensee
whereas it has to pay its debt and O&M expenses from its internal resources. In the
past also, issuance of final order in high capex projects like NER-Agra HVDC
projects, Raigarh-Pugulur- Thrichur HVDC projects, etc. took considerable time
which led to cash flow constraint for POWERGRID and large one-time arrear impact
along with interest on DICs
o With regard to Generators, it is understood that the provisional billing starts from
COD as per PPA clauses. TBCB Transmission licensee’s tariff also starts from their
COD in terms of TSA.
o Issuance of final order without provisional orders also results high one-time arrear
burden on DICs along with interest burden.
o Issuance of two tariff orders i.e Provisional order and Final order leads to duplicity of
work and considering petition loads at CERC, this may not be the best approach.
POWERGRID Suggestion: Based on above discussion, it is requested that 90%

of the claimed tariff as per the filed petition may be allowed to be provisionally
billed as per the provision of Sharing regulations without interim / final order as it
would provide cash flow to RTM licensee. Further, it will remove the requirement
of provisional tariff order, hence, reducing the workload of CERC. The under /
over recovery of tariffs as per final order can be adjusted as per existing
regulations. This would also benefit to the DICs by way of reducing their interest
and sudden impact of arrears.
Para 4.2.2: Procurement of Equipment and Services

The Approach paper discusses that in order to protect consumer interests and
considering benefits of transparent process of competitive bidding, it would be prudent
to mandate the procurement of equipment and services for all RTM projects through
competitive bidding duly following the policy/guidelines issued by Government of India.

Need to mandatorily award work and services contracts for developing projects under
the regulated tariff mechanism through a transparent process of competitive bidding,
duly complying with the policy/guidelines issued by the Government of India as
applicable from time to time.
All works and services contracts for RTM projects undertaken by POWERGRID are
already being awarded through a transparent Open Competitive Bidding process duly
complying with the policy/guidelines issued by the Government of India as applicable
from time to time.
However, under exceptional circumstances such as due to compressed time schedule
or any other exigency, works may have to be awarded from an empanelled list or through
limited tenders to known suppliers/vendors with good past record. The same may also
be allowed under exceptional conditions after prudence check by CERC.
POWERGRID Observation: POWERGRID welcomes and support the suggestion
to make it mandatory to award all work and services contracts for developing RTM
projects through a transparent process of competitive bidding.
 Para 4.2.3: Reference Cost for Approval of Capital Cost –

Benchmark Cost v/s Investment Approval Cost
The Approach paper discusses that historically in the absence of a better
reference/benchmark cost, paucity of reliable data and the complexities and difficulties
involved, the Commission in previous control period has relied on investment approval
for approving capital costs for RTM projects. With regards to transmission systems, the
cost is affected by tower design, terrain, soil type and wind zones, and therefore, it is
generally argued that benchmarking will serve a limited purpose and may not be a better
alternative to current project specific Investment Approvals
Comments and suggestions of stakeholders are invited on other efficient reference costs
other than Investment Approval costs that can be considered for prudence checks.
As mentioned in Approach paper, Capital cost in the context of transmission assets

depends upon multiple variables:
o Project specific conditions such as terrain, soil type, wind zones, tower design,
compensation, cost of land, project location, Right of Way (RoW) Constraints
(including urbanization, river/highway/ railway line crossings, crossing of other
transmission lines, forest area) and weather conditions may lead to different capital
costs of similar transmission assets.
o Market forces driven by demand supply balance viz availability of competition among
vendors, purchase quantum (one time order vs repeat orders), input cost variations,
economic environment, etc.
o Technology adopted for implementation of the substation (AIS or GIS) and
requirement of reactive compensation, etc.
Considering the large number of variables involved, it is practically challenging to

determine Benchmarking cost.
It is pertinent to highlight that for RTM projects, POWERGRID follows a robust and time-
tested system of preparing cost estimates for obtaining Investment Approval. The cost
estimates are prepared based on estimated BOQ as per approved scope of work, period
of commissioning, estimated cost of financing, overhead expenditure, Schedule of Rates
(SOR) costs, compensation, etc. Further, the capital cost of the project is obtained from
contract price discovered through a transparent Open Competitive Bidding process and
are also subjected to internal and external checks and balances. Therefore, the outcome
of such bidding process is the best that the market could offer at a particular point of
time depending on the prevailing market forces.
POWERGRID Suggestion: POWERGRID supports the views presented in

Approach paper regarding continuing the present methodology of carrying out the
prudence check of the capital cost.
 Para 4.3: Capital Cost for projects acquired post NCLT

Proceedings
The paper discusses that for projects acquired post NCLT Proceedings, acquisition
value of Assets is generally lower than the historical cost of Assets. Therefore, for
Section 62 projects acquired post NCLT Proceedings, clarity needs to be provided in
the Regulations as to what capital cost is to be considered for the purpose of computing
the tariff. Further, the issue of the cost of debt servicing, including repayment, that were
allowed as a part of the tariff during the CIRP process is to be addressed.
1. Historical Cost or Acquisition Value whichever is lower should be considered for

the determination of tariff post approval of Resolution Plan.
2. Tariff provisions to be included to address the issue of the cost of debt servicing,
including repayment, that were allowed as a part of the tariff during the CIRP process.
1) Though various generators are presently undergoing insolvency proceedings, the

possibility of transmission companies also likely to undergo the NCLT proceedings
cannot be ruled out. Thus, the issue needs to be deliberated from transmission
perspective also.
2) As discussed in the Approach paper, the acquisition costs of projects acquired post
NCLT Proceedings may be considerably lower than the historical value of the assets.
The possibility of securing the acquisition price higher than the present market value/
historical value through the insolvency proceedings is very unlikely, which is typically
associated with mergers and acquisition process. Generally, creditors have to take
huge haircut as the acquisition price is very less compared to present market value/
historical value. Thus, the benefit of lower acquisition cost discovered through the
bidding process is required to be passed on to the consumers for Section 62 projects
acquired post NCLT Proceedings.
3) Further, the CIRP process may take considerable time in some cases. In such cases
if the assets are either stranded, not operational for a longer duration or proper O&M
is not done, additional capital expenditure may be required for operationalizing the
assets as per required standards, rules and regulations. In addition, while
acquisition, buying entity may have to incur legal and statutory expenses which
should also be allowed to be capitalised.
4) In regard to the Tariff provisions for addressing the issue of the cost of debt servicing,
including repayment, we are of the view that as the project is already in Insolvency
and undergoing financial constraint, the existing cash flow ensured by Section 62
tariff may be the only mean for its future survival and hence required to be continued.
The same is also essential to make the project financially lucrative for strategic
investors. Any reduction in tariff at this stage may jeopardise chances of its revival.
Further, it is incorrect to state that debt servicing may not be done during the
resolution/ liquidation process and some proportionate revenue proceeds may be
allocated by the IRP for debt servicing besides statutory and operational payments.
POWERGRID suggestion: Based on above discussion, regarding Capital

cost, we agree that Historical Cost or Acquisition Value whichever is lower
should be considered for the determination of tariff post approval of
Resolution Plan. Additional capitalization required for operationalizing the
assets may also be allowed. Further, the equity part of the original
investment or equity deployed in acquisition cost as per Resolution plan
whichever is lower may be retained as equity while determining tariff so as
to make the investment lucrative while allowing the tariffs for such acquired
assets.
Regarding Tariff during CIRP process it is proposed that till the time, CIRP
process concludes, the existing tariffs may need to be continued. Once the
revival process is concluded, future tariff to be allowed may be revisited
based the acquisition price as discussed.
 Para 4.4.1 Computation of IDC – Post Scheduled COD
The Approach Paper discusses the issues and challenges faced during computation of
IDC to be deducted in certain cases where delay is not condoned but due to prudent
phasing of loans either no or very less IDC pre SCOD is accrued or even after delay,
IDC is well within the amount approved in Investment Approval. In such cases, owning
to utilities’ best phasing practices, overall IDC is minimized but still, presently significant
IDC is disallowed in case of non-condonation of delay. Considering the above issues,
the paper recognized the need for a pragmatic and holistic approach towards
determining IDC.

The paper puts forth the following options for Regulatory Framework and invites
comments and suggestions on the same to arrive upon the intended purpose:
i) Existing mechanism wherein the pro-rata deduction (based on delay not condoned)
is done on IDC beyond SCOD.
ii) Pro-rata IDC may be allowed considering the total implementation period wherein
the actual IDC till the implementation of the project is pro-rated considering the
period upto SCOD and period of delay condoned over total implementation period.
iii) IDC approved in the original Investment Approval to be considered while allowing
actual IDC in case of delay.
An illustration has been provided to explain the above options:
Consider an asset that was supposed to be implemented in 36 months but suffers a
delay of 12 months. Further, the Commission has condoned a delay of 4 months.
X = IDC upto SCOD (0-36 months)
Y= IDC beyond SCOD (36-48 months)
Then, allowable IDC shall be as follows.
In Option-i (i.e. Existing approach): Allowable IDC: Rs. X + [Y*(4/12)]

In Option-ii (i.e. Proposed approach): Allowable IDC: Rs. (X+Y) *[(36+4)/48]
It has always been the endeavor of POWERGRID to follow a prudent fund phasing
practice wherein funding in the projects are closely linked to progress of the project and
in case of delays, most of the payments are done at the later stages of the construction
period in order to reduce IDC incurred towards the project. Further, generally at the initial
stages of the projects, funding is done mostly from internal resources only. Through
such best practices, POWERGRID ensures a minimum increase in IDC in project costs,
even if it is delayed for any reason.
However, as discussed in Approach paper, in spite of this, under existing approach (i.e.,
under Option 1 of the Approach paper) disproportionate IDC is deducted even when late
infusion of funds in delayed project has minimized overall increase in project cost. The
same is not desirable. Proposed Option 2 is rational as it ensures deduction of IDC
corresponding to the delay not condoned without unduly penalizing utilities despite their
efforts to reduce IDC. Further we feel that after adopting Option 2, Option 3 may not be
required as it may end up resulting in increased complexities in the process.
POWERGRID Suggestion: Based on above discussion, it is proposed that
 Existing Approach i.e Approach 1 may be discontinued.

 Proposed Approach 2 wherein proportionate IDC is allowed on the basis of
pro rate deduction of IDC worked out till actual COD may be adopted as it is
rational to all Stakeholders.
 Proposed Approach 3 may not be required as it may result in additional
complexities.
 Para 4.4.2 Treatment of Liquidated Damages

The Approach paper discusses that the treatment of liquidated damages (LD) while
determining capital cost of a project is to be done as per the methodology provided in
APTEL Judgment in Appeal no. 72 of 2010. However, difficulty is being faced by CERC
in ascertaining the treatment of LD by the generating stations and the transmission
licensees and there is ambiguity in the details of LD being adjusted in the tariff forms,
due to which there may be chances of double deduction.
In view of the above, comments and suggestions are sought from stakeholders on
necessary changes in tariff forms and regulations, if any, to provide further clarity on the
adjustment of LD.
POWERGRID agrees with the views expressed in Approach paper with regard to the
treatment of Liquidated Damages in line with the specific approach laid down in
Judgment by APTEL in Appeal No. 72 of 2010. POWERGRID follows the same
approach in its tariff petitions for the treatment of LD.
Here we would like to highlight that LD to be levied on the Vendors/Contractors is
generally determined at a later stage of the project and the same is adjusted in
subsequent payments to vendors/contractors. After adjustment of LD, net amount gets
capitalised in the books of accounts. However, in cases where deduction is made by
CERC in COD cost/AddCap cost on account IDC/IEDC for FYs prior to LD adjustment,
appropriate adjustments are required to be made in Capital cost obtained from Books
of accounts to match it with CERC orders.
Presently there is no standard format prescribed to show this adjustment in tariff forms.
This sometimes results in ambiguity and confusion to CERC while ascertaining LD
treatment and in past it has led to double deduction on account of LD for some assets.
One such instant of double deduction was regarding “400 kV D/C (Quad) Lara STPS-I-
Champa Line along with associated bays at Champa Pooling Station” wherein
POWERGRID had to file Review Petition 19/RP/2021 against order in petition
312/TT/2020 to get double deduction on account of LD reversed.
POWERGRID Suggestion: Based on above discussion, we support CERC’s view

that the additional capitalisation forms need to be tweaked so that LD information
is submitted along with the tariff petition. Accordingly, CERC is requested to notify
a separate disclosure form for the Liquidated Damages along with the tariff formats
for proper representation of LD amount.
 Para 4.5 Price Variation

The Approach paper discusses that due to delay in commissioning of projects not only
IDC and IEDC increases, but it may also result in increase in the hard cost in case the
contract provides for cost escalation beyond SCOD. If the impact corresponding to such
a delay is disallowed for the delay not condoned, it appears logical to extend the same
treatment to price variation.
The Paper proposes the following and invites comments and suggestions from the
stakeholders.
a. The utilities may be mandated to submit the statutory auditor certificate along with
the petition duly certifying the price variation corresponding to delay and the same
may be allowed on pro-rata basis corresponding to the delay condoned.
b. A separate form may also be specified to submit the relevant information pertaining
to price variation.
POWERGRID deals with Price Variation in its EPC contracts strictly as per the
contractual provisions, which are aligned to relevant policy/guidelines issued by
concerned agencies of Government of India from time to time. All factors affecting PV
are taken care of in our contracts, and in case of delay on part of the contractor, PV is
restricted to the date prior to SCOD or actual PV, whichever is lower. For illustration
following is the excerpt from one of the standard EPC contracts awarded by
POWERGRID:
“a. For the purpose of Price Adjustment on ex works price components of the
equipment, the date of shipment for Goods shall mean scheduled date of
shipment, or actual date of shipment, whichever is earlier. ……….
No price increase shall be allowed beyond the original delivery dates unless
specifically stated in the Time Extension letter, if any issues by the Employer. The
Employer will, however, be entitled to any decrease in the Contract Price which
may be caused due to lower price adjustment amount in case of delivery of goods
beyond the original delivery dated. Therefore, in case of delivery of Goods beyond
the original delivery dated, the liability of the Employer shall be limited to the lower
of the price adjustment amount which may work out either on schedule date or
actual date of dispatch of Goods.”
Through such clauses, POWERGRID restricts PV claims of contractors to the lower of

the price adjustment amount which may work out either on schedule date or actual date
of dispatch of Goods. In very few cases, POWERGRID revise supply schedule beyond
SCOD, which is on account of force majeure events and additional PV, if any, over and
above the PV amount on schedule date may be allowed. However, the same happens
under conditions such as force majeure which are generally considered after prudence
check.
POWERGRID Suggestion: Based on above discussion, we are of the view that

the PV impact for the period of delay not condoned is very minimal and to capture
the same for restriction in tariff world be cumbersome and increase complexity of
tariff determination without commensurate benefit. Therefore, the existing
approach of treatment for price variation may be continued.
 Para 4.6 Renovation and Modernisation
The Approach Paper discusses the provisions related to renovation & modernisation in
the existing Tariff Regulations.
Comments and suggestions are sought from stakeholders on continuation of the existing
provisions and on the above suggestion of continuing with Special Allowance, if opted
at the beginning of the tariff period for the rest of the tariff period.
1) Renovation and Modernization (R&M) involves an overhaul of major components of a

system. It is a long process involving preparation of Detailed Project Report that
includes identification of specific parts to be replaced/repaired, assessing cost
involved in R&M, cost-benefit analysis, schedule of completion etc.
2) Prolonged use of existing depreciated assets is beneficial to beneficiaries due to lower

tariffs and therefore use of such assets beyond useful life is to be promoted.
POWERGRID through its best practices and AddCap wherever required (after due
approvals) have been continuously extending life of its assets beyond their useful life.
However, regarding the existing proviso of R&M, the same may not be relevant to
Transmission due to the following:
a. Transmission is uniquely placed in comparison with Generation. While generation

projects are distinctively identifiable as all assets/plants or units under the project
are located at a single location and having one commissioning date. In
comparison, Transmission as a project usually involves multiple assets comprising
one or more transmission lines spread over different Geography/States, Voltage
levels along with green or brown field Substations. These Substation can be of
different technologies viz., GIS, AIS or Hybrid. Being typical linear infrastructure
projects, different assets under a project have different commercial date of
operations.
b. Depending upon transmission planning and system requirements, usually an

existing Substation expands progressively over time with augmentation of ICTs,
Reactors, Bay etc. under different projects. Over time in the same S/s one asset
may be close to its useful life while another may be newly commissioned. E.g.
Original assets under Vizag Substation have already completed their useful life,
however, under different projects, multiple elements were commissioned
progressively such that some element have its useful life till 2042.
c. With time, multiple technology may be deployed in the same S/s under new
projects. E.g. An AIS substation may have a GIS extension, or a 400/220 kV S/s
may be upgraded to a 765/400 kV S/s over time. Thus, the nature of Substation
and its equipment also changes over time.
d. In Transmission, under approved Upgradation and System strengthening

schemes, major Substation equipment like ICTs/Reactors are being
upgraded/replaced to higher levels based on grid conditions and planning
consideration. LILO/ Reconductoring is also being done in existing lines. Thus,
before its useful life transmission assets under a project may undergo multiple
changes and majority of major upgradation of Transmission assets are undertaken
as part of new projects as directed by System Planners with approvals from
agencies like RPCs, Government of India etc.
e. Further, for Substation equipment other than ICTs/Reactors, with time and
improvement in technology, supplier changes their line of production of similar
nature of equipment or totally stops the production of equipment and switch over
to different type of equipment. It is seen that after 15/20 years, some of the
manufacturers/suppliers/OEMs have also closed their establishments. This
obsolescence of product and non-availability of spares/services, which is beyond
the control of Transmission licensee, have forced them to go for replacement of
problematic/unreliable equipment for smooth and reliable operation of the grid.
Such expenditures are usually covered in routine O&M expenses or approved
AddCaps.
f. In Transmission System, generally after the replacement of

obsolete/defective/problematic equipment which is generally in range of 10-20%
only, balance old assets continue to remain in service even after 25/35 years of
useful life.
POWERGRID Suggestion: Based on above discussion, we are of the view that

the provisions of R&M may not be made applicable for Transmission and any
Capital expenditure after completion of 20 years may be allowed to be met through
a Special Allowance on a ‘per km’/ ‘per MVA’ / per bay basis similar to component
wise normative O&M.
In addition, AddCap for HVDC & FACTS Systems may be allowed as per the
prevailing practice of allowing O&M addcap after prudence check. Further, outage
availed to carry out any refurbishment/ replacement works under special
allowance may be considered as deemed available.
 Para 4.7 Initial Spares
The Approach Paper discusses that there are eleven (11) separate categories and sub-
categories for Transmission pertaining to ceiling norms for initial spares and the same
needs to be optimised.
A single norm can be considered for each of the following classes of transmission
assets:
1. Transmission Lines, including HVDC lines
2. Substations (including HVDC S/s)
3. Dynamic Reactive Compensation Devices
4. Communication Systems
5. Underground cable
Comments and suggestions are sought from stakeholders on the above proposed
approach and alternative options to standardize and simplify the norms for initial spares.
1) We agree with the view expressed that the number of categories may be reduced.
However, it may be pertinent to note that GIS equipment being design & vendor
specific require higher level of inventories. Further, in the case of GIS Substation,
upgradation of the same is carried out by the OEMs only where difficulties have been
faced in getting the spares for the earlier designed systems.
With regard to Green field and Brown field S/s, it is to be mentioned that most of the
new transmission projects including all Green field Substation projects are being
awarded under the TBCB mode only. Only some augmentation works, i.e. Brownfield
projects are being considered under the RTM mode. Therefore, in the next tariff block,
mostly Brown field projects will come under RTM.
POWERGRID Suggestion: Based on above discussion, it is proposed that

considering separate spare requirement for AIS & GIS Substation, existing
practice of separate norms for both categories may be continued . Further,
regrading one norms for both Green field and Brown field sub-stations , it is
requested that common norm for both may be specified in line with the spare
requirement of brownfield assets only. Further, HVDC S/s may also be clubbed
with AIS S/s.
2) Regarding separate norms for High Voltage Underground cable, it is submitted that
due to severe RoW issues and increasing urbanization, increasing number of projects
are being planned considering a portion or complete transmission line with HV
underground cables. Presently, there is no norm specified for Initial Spares for HV
Underground Cable Systems in the CERC Tariff Regulations, 2019 and therefore we
agree with the approach paper regarding requirement of separate norms. While
deciding norms the following may be considered
o High Voltage Underground cable being an imported item and supplied by a

selected few foreign manufacturer, the lead time of procurement here is much
higher than any onshore equipment. Hence it is necessary to ensure an
adequate supply of spares to take care of any contingency so that the system
does not remain idle due to unavailability of spares.
o In CERC Tariff Regulations 2019, for first time new technology equipment i.e.,
Static Synchronous Compensator, 6% initial spare is allowed. Thus, in the
past CERC has provided higher spare norms for new technology equipment.
POWERGRID Suggestion: Considering that there is no historical data for HV

underground cable except “±320kV VSC based 2000 MW Pugalur (HVDC) - North
Trichur HVDC(Kerala) HVDC link” project, it would be difficult to come to a ceiling
initial spare norm based on historical data. However, for system reliability, initial
spare requirement is mandatory for HV cables also and therefore it is prayed that
in line with said HVDC project, initial spare with ceiling limit of 3% may be allowed
for High Voltage Underground Cables.
 Para 4.8 Controllable and Un-Controllable Factors

The Approach paper highlights the fact that delay on account of land acquisition was
included in the list of uncontrollable factors in CERC Tariff Regulations, 2019 as the
issue had become a major deterrent in timely commissioning of projects. In a similar
vein, the paper acknowledges that delays on account of getting forest clearances have
proved to be beyond the control of transmission licensees.
In view of above, the Paper proposes that delays on account of forest clearances can
also be considered for inclusion as uncontrollable factor provided that such delays are
not attributable to the generating company or the transmission licensee.
Comments and suggestions are sought from stakeholders on continued inclusion of
delay on account of land acquisition as an uncontrollable factor and on the further
inclusion of delay on account of forest clearances as an uncontrollable factor.
The acquisition of land for new projects continues to be a mammoth task and invariably
becomes a major factor which stretches the commissioning of projects well beyond
SCOD. Hence, the continued inclusion of delay on account of land acquisition as
an uncontrollable factor is a must and the views in the Approach paper in this regard
are well appreciated.
The Approach Paper rightly recognizes that delay in obtaining forest clearance is a
major factor contributing to time and cost over-runs in projects and POWERGRID
supports the proposal to identify the same as an uncontrollable factor. It is highlighted
that getting statutory clearances from Railways is another arduous task which consumes
considerable time and effort. In some cases, the consequences of delay in getting Forest
/ railway clearances have been so severe that the commissioning of projects have been
pushed back by years. Moreover, POWERGRID wishes to stress upon the fact that
obtaining shutdown in case of power line crossings in new projects is also a major area
of concern during execution of projects. There are technical constraints in obtaining
shutdown of lines associated with Renewable Energy (RE) Generating Stations, which
are ‘Must-Run’ in nature, and high capacity thermal plants, which are required to operate
at technical minimum. This usually leads to non-issuance of timely shutdown by RLDCs
(despite the shutdowns being approved in OCC meetings in some cases) and ultimately
prevents commissioning of projects within scheduled time frame. Also, it is emphasized
that abnormal amount of time is required for obtaining shutdown of power lines owned
by State Discoms/Distribution Utilities, which in turn delays the projects. Though it is
conceded that such delays are admitted by CERC on case to case basis, a regulatory
provision supporting the same would make filing petitions less cumbersome for
licensees.
POWERGRID Suggestion: Based on above discussion, POWERGRID supports

that the land acquisition is required to be continued as an uncontrollable factor.
Further, we also support and request that the delay in obtaining forest clearance
may be considered as an uncontrollable factor. Further, it is proposed that delays
in obtaining statutory clearances like Railway Clearance, Highway Clearance,
delay in grant of Shutdowns by RPCs/RLDCs/SLDCs, including may also be
covered under uncontrollable factor as they are beyond the control of Transmission
licensees.
 Para 4.9: Differential Norms – Servicing Impact of Delay
The Approach Paper discusses the need of rigorous pursuit and involvement of Senior
management for obtaining approvals from statutory authorities and explores
requirement of provisions of deduction in capital cost or reduced rate of RoE for such
condoned delay period, if required.

1. To encourage rigorous pursuit of such approvals from statutory authorities, even if
delay beyond SCOD on account of clearances and approvals that are condoned,
some part of the cost impact (Say 20%) corresponding to the delay condoned may
be disallowed.
2. Alternatively, RoE corresponding to cost and time overruns allowed over and above
project cost as per investment approval may be allowed at the weighted average
rate of interest on loans instead of a fixed RoE.
3. The current mechanism of treating time overrun may be continued, considering that
utilities are automatically disincentivised if the project gets delayed.
Comments and suggestions are sought from stakeholders on the above so that
developers may make more efforts to control the delays.
1) Transmission projects are linear infrastructure projects that span across different
geographies utilizing land owned by public/private/ State/Forest. Some of the project
gets delayed due to delay in obtaining statutory clearances like forest clearance for
transmission lines, acquisition of land for sub-stations, acquiring right of way for
transmission lines, Law and Order issues, obtaining other clearances such as power
line and railway crossings etc. which falls under the definition of Force Majeure events
as per CERC Tariff Regulations and are beyond the control of the POWERGRID.
Despite challenges, POWERGRID implements most of the transmission projects/
elements within specified timeline by adopting best utility practices, project
management, prudence and commitment.
POWERGIRD gets actively involved with the authorities at Local, State and Central
level to resolve required clearances in a timely manner. Further, many steps have
been taken in the past by POWERGRID in consultation with concerned Government
departments, Ministries Infrastructure developers to improve the system, timely review
, escalation and resolution of the issue.
Regarding Forest proposals, it is submitted that POWERGRID as a utility takes all
measures to submit complete proposals in line with the Ministry of Environment,
Forests and Climate Change (MoEFCC)/ State Specific requirements. Wherever
required POWERGRID takes the help of MoP and different Ministries, State Govts.,
various levels of Central govt. to minimize delay in forest approvals. As and when
required, specific issues faced in expediting forest clearance are also brought to the
notice of MoP e.g., for bringing changes in the PARIVESH portal for expediting forest
proposals including notification of Standard Checklist required for submission of forest
proposals by MoEFCC. MoP has taken up these issues with MoEFCC .
Senior management of POWERGRID also participates in Fortnightly Regional

Coordination Meeting (FRCM) on Linear Project conducted by MoEFCC, wherein all
heads of Integrated Regional Offices (IROs) of the Ministry meet with all User
Agencies relating to forest and wildlife clearances in respect of linear projects. In these
meetings POWERGRID Senior management takes up its issues for timely resolution.
Further, if required matters where delay is attributed to factors outside the control of
POWERGRID are also put up for resolution in PRAGATI (Pro-Active Governance and
Timely Implementation) which is a three-tier platform (PMO, Union Government
Secretaries, and Chief Secretaries of the States) to inter-alia monitor/review projects
and to resolve issues under the chairmanship of Hon’ble Prime Minister.
POWERGRID Suggestion: Based on above discussion, it may be noted that

POWERGRID and its Senior management has always been proactively and
rigorously pursuing the statutory authorities for getting clearances and approvals at
the earliest and takes all necessary actions at highest level possible to reduce delay
in project execution.
2) Further, it is to mention the delays or inactive pursual of the authorities for the
clearances is never in favour of POWERGRID’s interest as it results in deferred cash
flow and reduction in envisaged return to the Company. Therefore, POWERGRID
always does its best to minimise the delay. For delayed projects, regarding proposed
alternatives in Approach paper, following is submitted:
o Under Alternative 1, disallowing some part of the cost impact corresponding to the
delay condoned will lead to an additional penalty apart from already reduced IRR
due to extended timelines. A delay of 1 year even condoned reduces Effective RoE
to 11.99% from 12.8 % when there is no delay. Detailed calculation of the same is
provided in suggestion for para 4.16.
o Similarly, Under Alternative 2, allowing RoE at the rate of weighted average rate
of interest on loans for the capital cost corresponding to allowed cost and time will
further reduce IRR (returns) over already reduced IRR. The reduced RoE will lead
to an additional penalty apart from already reduced IRR due to extended timelines.
o Further, in cases where delay is condoned but there is a mismatch with
upstream/downstream network, then transmission licensees already have to pay
charges for mismatch period which can be considerably high at times.
o Efforts put in by POWERGRID has to undergo the litmus test of Prudence check
by CERC and even in case of best effort by POWERGRID, sometimes delays are
disallowed due to lack of proper documentations.
POWERGRID Suggestion: Based on above discussion, it is requested that once

the delay has been condoned, project should not be subjected to any further
deduction / penalty.
Considering that the utilities are automatically disincentivized if the project gets
delayed, if any such additional penalty is imposed, it will lead to further loss to
developer without any fault. Such approach may unnecessarily result in increased
uncertainty and risk in the sector and will affect Investor’s sentiment. Therefore, it
is prayed to the CERC to continue with the existing approach.
 Para 4.11: GFA/NFA/Modified GFA Approach
The Approach paper discusses the existing GFA approach, modified GFA approach and
NFA approach and proposes that the existing GFA approach, being a balanced
approach, may be continued.

Increasing the Investors’ confidence by ensuring assured returns is important, and
further considering the recent spikes in power tariffs in power exchanges indicating
shortage of power availability, investment in Power sector needs a boost, and therefore
the existing GFA approach, being a balanced approach, may be continued. However,
comments/ suggestions are invited on alternate approaches, i.e., GFA/ NFA/ Modified
GFA approach.
1) The Approach Paper rightly recognizes that the GFA Approach incentivizes the Equity
investors to efficiently operate and maintain the infrastructure even after the plant is
fully depreciated and it facilitates generation of internal resources required for further
capacity additions.
2) Further, GFA approach is suitable for RoE approach which is in vogue whereas NFA
approach is suitable for ROCE approach. Regarding ROCE approach detailed
comment of POWERGRID at reply to para 4.15 discussing why ROCE approach
should not be adopted.
3) Considering current state of Indian power sector which has to grow manifold in the
coming years to support the economic development of our country and RE
integeration, GFA approach should be continued. Therefore, increasing the Investors’
confidence is a necessity in such case and providing regulatory certainty will be a key
factor.
POWERGRID Suggestion: Based on above discussion, POWERGRID supports

the views expressed in Approach paper that increasing Investor’s confidence by
ensuring assured returns is important and further considering investment
requirement in Power sector, existing GFA approach, being a balanced
approach, may be continued.
 Para 4.12.1: Segregation of Normative Expenses

The Approach paper discusses that difficulty is being faced in allowing one time impact
on issues affecting one of the components of O&M Expenses (Employee, A&G and R&M
Expense) especially Pay/Wage Revision impact, due to absence of segregation of
baseline expenses forming part of O&M expenses.
<
O&M norms may be specified under the following two categories.

1. Employee Expenses
2. Other O&M Expenses comprise Repair and Maintenance and Administrative and
General Expenses
However, ………. the above suggestion may also be seen from the perspective that
these expenses have historically been allowed as one expense, and any change in the
methodology as suggested above may result in unnecessary complications.
Alternatively, to give effect to the impact of pay/wage revision, 50% of the actual wage
revision can be allowed on a normative basis.
Comments and suggestions are sought from stakeholders on the above suggestions
and alternatives, if any.
1) Regarding proposal that O&M norms may be specified under two categories, we agree
with the observation made that O&M expenses have historically been allowed as one
expense, and any change in the methodology as suggested above may result in
unnecessary complications. If these two categories are to be specified, then the same
has to be done for all configurations for which separate O&M rates are notified.
Further, presently only one escalation factor for yearly increase in O&M rates is
provided. However, employee cost escalates due to increase in DA, annual increment
and promotion but other expenses, mainly A&G and repair and maintenance, spares
etc. may escalate at different rates. Thus, in the proposed case two different
escalation rates has to be specified. Such as approach will be regressive in nature
and instead of desired simplification, it will result in unnecessary complications.
POWERGRID Suggestion: Based on above discussion, we would urge CERC to

continue with the existing approach of allowing the O&M expenses as per
norms.
2) Regarding wage revision impact, the implementation of wage/pay revision and

quantum of increase is beyond the control of the PSUs and are governed as per the
government policies. The Government of India through Department of Public
Enterprises (DPE) Office Memorandum dated 03.08.2017 provided revision of pay
with effect from 01.01.2017 for the Central Public Sector Enterprises.
In keeping with the above Guidelines, the Ministry of Power (being the administrative
Ministry for POWERGRD) issued a Presidential Directive vide Letter dated
10.05.2018 and the POWERGRID’s Board accorded approval for revision of Pay and
Allowances with effect from 01.01.2017.
The aforementioned Guidelines and Presidential Directive were compulsorily to be
implemented by POWERGRID. Therefore, such implementation of pay revision is in
nature of change of law event for POWERGRID and impact related to such change of
law event needs to be considered.
The proposal to allow 50% of the actual wage revision on a normative basis shall
essentially mean that the remaining 50% has to be met through the existing norms or
from the profit of the company. As optimizing O&M expenses beyond a level is not
possible, this will ultimately result in loss of 50 % wage revision impact to
POWERGRID. Wage revision is a Change in Law event as and when the decision of
a pay revision is finalized and therefore its impact should be allowed as pass through
item.
POWERGRID Suggestion: Regarding impact of pay revision, following is
proposed:
o Regulations should provide for pass through of Wage revision impact
as it is a Change in Law event in the subsequent year as and when the
decision of a pay revision is finalized
o Actual Pay revision impact may not be compared with normative O&M
charges allowed for same control period or FY
o Appropriate Carrying cost should be allowed on Wage revision impact.
3) Further, it is to mention that Performance Related Pay (PRP), which is an

essential part of employee compensation package, is not being considered while
formulating the O&M norms. This has already resulted in the non-recovery of approx.
Rs 1600 Crs of PRP amount in the last 5 years. Regarding PRP, it is submitted that it
is an integral part of basic wage structure as per DPE guidelines and therefore, the
same may be considered as part of O&M expenses while formulating O&M norms for
new block and following is submitted.
Inclusion of Performance Related Pay
a) Presently PRP is payable to employees of POWERGRID as per DPE guidelines

and Presidential Directive as discussed above for pay revision of Board level and
below Board level executives of CPSEs, as a part of pay structure since pay
revision in 2007 and subsequent revision in 2017. Further, PRP is also part of the
wage agreement for the non-executives.
b) The PRP scheme was formulated as a variable pay component linking the
payment to the organization, team as well as individual performance.
c) In the report of the 2nd Pay Revision Committee, PRP was envisaged as a variable
pay and PRP was made an integral part of overall compensation package.
d) The 3rd PRC report, published in Gazette of 09th June 2016 (Page No. 79-84,
Para 3.17) has envisaged the following objectives behind allowing payment of PRP
to the employees of CPSEs: -
i. Allowing the PRP for better team performance will also build a competitive
environment within the Company and motivation to excel as a team.
ii. To equip the CPSEs to compete in the emerging domestic and global
economic scenario.
iii. Inculcating performance oriented culture across the organization.
iv. The PRP gives emphasis to the team’s performance to inculcate a team culture
and achieve desired productivity levels of CPSEs.
v. The PRC viewed that PRP for team performance is a win-win situation, both
for individual executives and the CPSEs.
e) The objectives behind allowing PRP is essentially to improve competitiveness,

team culture and to raise the CPSEs to global standards. It also opined that the
present PRP mechanism is beneficial for the firm as well as the employees.
f) The exact amount of PRP payable to an individual employee is calculated as per

the methodology given in DPE circular No. W-02/0028/2017-DPE (WC)-GL-
XIII/17, Annexure-IV dated 03rd August, 2017, which envisaged the following
points:-
 Rating of MoU entered between POWERGRID and Ministry of Power for the
corresponding year. MoU is a performance measuring tool containing no. of
performance parameters along with weightages assigned to each parameter.
 Profitability of the Company during the corresponding year.
 Incremental profit of the Corporation in comparison to previous year.
 Performance of the Regions in achievements of the company Targets.
 Performance of the Individuals in achievements of the company Targets.
g) In DPE memorandum dt 03.08.2017 in respect of Revision of Pay w.e.f

01.01.2017, it is clearly stated that the revised compensation structure is inclusive
of PRP [Annex II(b) & (c) of the OM]. Moreover, due importance is given to PRP in
the revised structure to ensure better team performance and to build a competitive
environment within the company. This clearly shows a shift in philosophy and
calculation of PRP from the earlier pay revisions and their guidelines where for
revision of Pay w.e.f 01.01.2007, PRP was envisaged as a component directly
linked to the profits of the CPSE [Annex III, (i) of the OM].
h) From the above, it is clear that PRP is actually an integral and variable part of
compensation package of the employees. The PRP scheme was formulated as a
variable pay component linking the payment to the organization, team as well as
individual performance. PRP is based on the overall performance of the
organization as measured by its MoU rating as well as appraisal ratings of
individual employees. Therefore, the ambit of PRP is much larger and is not akin
to a productivity-linked incentive scheme which provides for payment linked to
physical parameters such as generation, availability, etc. The PRP as a variable
pay component is intended to link the overall employee remuneration to
performance as opposed to fixed pay entitlements which are independent of
performance.
It may also be noted, from the calculation method of PRP, that there may be situations
where the company has earned less/no profits, but PRP has to be paid to the
employees under the present norms of DPE.
If the PRP is not added to the O&M expenses, it will affect the profitability of the
company by sizable margin and is not in tandem with the philosophy in which PRP is
envisaged and impacts the desired return on equity as provided in the provision of the
regulations.
POWERGRID Suggestion: Regarding Performance Related Pay, following is

proposed:
o Performance Related Pay (PRP) may be considered as part of employee cost
in O&M expenditure for FY 2018-19 to FY 2022-23 while arriving at the
normative O&M norms for 2024-29.
 Para 4.12.2: Norms for HVDC Stations

The Approach paper discusses the need for uniform rates for HVDC Stations. Presently
specific O&M norms for some HVDC schemes have been specified and for the rest of
the schemes, formulation of normative O&M expenses have been specified linking it
with similar nature schemes.

It is observed that there is a need to simplify the same and therefore one norm for all
HVDC schemes in terms of per MW considering the actual expenses incurred in the
past may be specified.
Comments and suggestions are sought from stakeholders on the above suggestions
and alternatives, if any.
1) In CERC Tariff Regulations, 2019, separate O&M norms for existing Bipole HVDC
Stations are specified based on their past actual expenses. For new HVDC Stations,
there was no distinctive way to determine O&M expenses and hence, it was decided
to formulate the O&M expenses by linking it to similar natured stations.
2) For Back to Back Scheme, same rate for all HVDC Stations except Gazuwaka is
already being notified.
3) With increasing number of HVDC bi-pole stations, specifying separate norms for each
Stations is only increasing the complexity in the process. It will be a cumbersome task
for the CERC to work out O&M norms for all Bipole HVDC schemes on a case-to-case
basis.
4) Formulating O&M norms in case of HVAC substations has been a success in getting
common norms for assets across the country. With sufficient number of HVDC
Stations and experience in O&M of HVDC Stations, similar methodology of
computation of O&M Expenses may be taken up by the CERC in case of HVDC
Schemes.
POWERGRID Suggestion: Based on above discussion, we agree and support the

views presented in Approach paper regarding the notification of one norm for all
HVDC stations in terms of per MW considering the actual expenses incurred in the
past. Further, for the bi-pole system, MW capacity for each terminal of bi-pole
may be accounted separately.
 Para 4.12.3: O&M Norms for Special Cases

The Approach paper discusses the need of separate O&M norms in the North Eastern
and hilly areas of India as these projects entails an additional cost for the upkeep of the
transmission systems.
Comments and suggestions are sought from stakeholders on whether additional O&M
expenses can be given for transmission assets being operated in the North Eastern and
Hilly Regions and the manner in which such additional costs can be considered.
1) Depending upon age, technology, geography, tropology and other factors, O&M
expenses generally vary from region-to-region, Project to project etc. We agree with
the Approach paper that the O&M expenses towards upkeep of Transmission System
in the North-Eastern region and other hilly regions entails additional costs due to
logistical challenges as well as poor infrastructure growth of the region. However, the
same may also be true for certain other specific geography like it has been observed
that more O&M is required in Substations situated near the Coasts. Further, even in
hills O&M requirement in snow bound areas would be substantially higher than other
hilly regions.
2) POWERGRID would like to highlight that we operate and maintain a diverse network
across the country and often operations and maintenance work are managed on a
regional or overall basis instead of project-wise. The existing system of allowing O&M
Expenses based on common norms of circuit kms, transformation capacity and
number of bays has worked well for POWERGRID and stakeholders, as it allows
normalization of expenses across the country and beneficiaries.
3) POWERGRID has many transmission lines that may be passing through both hills
and plain areas. Segregated O&M expense for hilly and plain portion for each line may
be required to specify sperate norms as discussed which may turn out to be a complex
task. Further, it may not be best approach to consider such lines either as completely
Hilly or completely Plain as it will result in higher and lower O&M norms from actual
respectively. Further it may unintentionally lead to increase in the complexity and step
backwards from a unified approach undermining years of work towards streamlining
the process of progressive steps taken in past to simplify the O&M expenses norms
(Normative benchmarks set in 2004-2009 MYT).
POWERGRID Suggestion: Based on above discussion, POWERGRID is of the

opinion that uniformity and present approach of single country wise rate for
a given configuration is best and may be continued. Specifying region wise
rates may result in complexity and may make the process regressive in nature.
We propose that instead of devising two different norms of O&M Expenses for
plain and hilly areas, present approach may be continued. Regarding specific
difficulties faced by some single project RTM companies, separate rates or an
additional factor over single notified rates may be provided.
 Para 4.12.4: Inclusion of Capital Spares
The Approach paper discusses that presently Capital Spares are being allowed on an
actual basis and Initial Spares and O&M Spares are being allowed on normative basis.
This leads to considerable effort to map these expenses separately. Further, the
expenses for capital spares are non-recurring and sporadic, therefore, benchmarking
them can be challenging.
If the same (Capital spare) can be projected with some degree of predictability, the same
may be allowed on a normative basis along with O&M expenses. Alternatively, instead
of including all such capital spares as part of normative O&M expenses, recurring and
low value spares below Rs. 20 lakh may be made part of normative O&M expenses,
while for capital spares with a value in excess of Rs. 20 lakh, utilities may submit the
same on a case to case basis for reimbursement with appropriate justification for the
Commission’s consideration.
Comments and suggestions are sought from stakeholders on the above suggested
approach and alternatives, if any, to streamline the approval process for spares.
Capital spares expense are non-recurring and sporadic. From actual usage purpose
there is no difference between Initial Spare, Capital Spares, Maintenance Spares as all
are inventories used in O&M but as per accounting requirement, the same had to be
booked separately. Considerable effort is required to map these expenses and difficulty
is being faced.
In the present tariff block, spares of value >5 lakh have been considered as capital
spares by POWERGRID as per IND AS policy. Capital Spares were not required
separately before CERC Tariff Regulations, 2019, therefore the record of the same for
past periods may not have been maintained separately.
Considering above, we are of the view that the analysis of Capital Spares for a longer
duration, say 15-20 years may not give any useful inference as right set of data may not
be available.
POWERGRID Suggestion: Based on above discussion, POWERGRID

supports that the Capital Spare may not be benchmarked.
We agree with the proposal that recurring and low value spares below Rs. 20
lakh may be made part of normative O&M expenses, while for capital spares
with a value in excess of Rs. 20 lakhs, utilities may submit a separate petition
for reimbursement of the same.
Further, if the same is to be implemented, POWERGRID may be given

opportunity to furnish the details of spares between value 5 lakh to 20 lakh to
the CERC as the same has to be considered as part of O&M norms to be
notified.
 Para 4.12.5: Impact on account of Change in Law and Taxes
The Approach paper discusses that presently there are no provisions with regard to
allowing additional expenses on account of any change in law. However, including the
same may lead to recurring impacts, and claims that may result in regulatory
overburden.

Comments and suggestions are therefore sought from stakeholders on whether to
include any provisions with regard to allowing impact of a change in law on O&M
expenses.
1) The CERC Tariff Regulations 2019 define “Change in Law” and “Change in taxes” but
does not provide for any regulatory provision to claim additional O&M expenses on
the same.
2) There are certain expenses that may be prone to change in law such as GST rate for
different services, increase in employee expenses due to pay revisions, any additional
levies/duties, etc. imposed by the local authorities/government. These expenses may
be substantial in some cases. As on date, the utilities don’t have any clarity around
the changes that may occur in this regard. Hence, it would be difficult to incorporate
the same in base norms to be notified for the control period. Further, there is ambiguity
in terms of prospective timeline in which these changes may occur.
3) Further, recently notified CEA cybersecurity guidelines require annual audit of OT

systems, with mandate for regular patching and firmware upgrade to address
vulnerabilities. CEA is in process to issue regulations on cybersecurity which are likely
to propose tighter life-cycle cybersecurity vulnerability management requirements.
These requirements are expected to lead to phasing out of legacy equipment for which
security patches and OEM support are no longer available. This shall lead to an
increase in O&M expenditure. As CEA regulations are to be strictly complied with and
constitute as a change in law event, increased expenditure for such above
compliance requirements may be allowed to recover as one time
reimbursement.
POWERGRID Suggestion: Based on above discussion, it is proposed to
provide regulatory provisions for recovery of any substantial increase in O&M
cost on account of Change in law as per actuals.
For this Regulation may specify the threshold limit for yearly impact say Rs 50
Crs or 10 % of yearly O&M charge whichever is lower, on company level can be
claimed. Expenses below this limit may be continued to be considered under
allowed normative O&M norms.
 Para 4.13: Depreciation

The Approach Paper observed that shorter loan duration and higher depreciation in the
initial years have resulted in front loading of tariffs. Considering that nowadays loans are
available for 15-18 years, the possibility of increasing the loan tenure for the computation
of depreciation rates needs to be explored.
A depreciation rate may be specified considering a loan tenure of 15 years instead of

the current practice of 12 years. Further, additional provisions may also be specified that
allow lower rate of depreciation to be charged by the generator in the initial years if
mutually agreed upon with the beneficiary(ies)
Comments and suggestions are therefore sought from stakeholders on the above
proposal and any modifications required, if any.
1) Depreciation is a major component of the annual fixed cost and is designed so as to

meet the debt service obligation of Utilities. As debt obligations has to be met in initial
years, therefore higher depreciation has been allowed in initial 12 years. Under the
present method for recovery of depreciation around 63% (i.e., 5.28% *12) of capital
cost is recovered in initial 12 years.
2) POWERGRID supports all the steps which could bring in relief to Consumers including
the proposal wherein considering that higher tenure loan may be available in market,
depreciation rate may be specified considering a loan tenure of 15 years instead of
the current practice of 12 years. This will provide relief to DICs in the form of reduced
tariff in initial years. However, it is proposed that the same may only be done
prospectively i.e. only for assets whose Investment Approval is done post
31.03.2024. For existing assets and assets which are under construction stage, loans
are already deployed or earmarked. The repayment terms for this debt have already
been agreed with the lenders considering the cashflows as per CERC Tariff
Regulations and may not be changed. A change in methodology of depreciation would
impact the ability of POWERGRID to service debt. Further, POWERGRID’s present
debt comprises majorly privately placed bonds having tenure ranging between 10-15
years with no prepayment option.
3) If depreciation rate are specified considering a loan tenure of 15 years, a mismatch in

cashflows on account of upfront reduction in depreciation rates in case of existing
projects would require POWERGRID to meet debt obligations from raising additional
loans and would attract additional cost. In this regard, POWERGRID requests to
provide risk protection against any additional costs (such as refinancing cost, interest
cost of new term loans etc.) which may arise due to the above change, and
POWERGRID may please be allowed to recover such additional costs through tariff.
POWERGRID suggestion: We welcome the proposal that the depreciation rate

may be specified considering a loan tenure of 15 years instead of the current
practice of 12 years. However, the same shall be applied prospectively in new tariff
Regulations i.e it should be made applicable only for assets whose Investment
Approval is done post 31.03.2024.
For other assets, it is requested to continue with the existing approach of
considering loan tenure as 12 years for depreciation computation. In case CERC
decides to move forwards considering normative loan tenure of 15 years across all
the assets, then it is requested to provide risk protection against any additional costs
(such as refinancing cost, interest cost of new term loans etc.) which may arise due
to the above change and POWERGRID may please be allowed to recover such
additional costs through tariff.
 Para 4.15: Return on Equity (RoE) v/s Return on Capital
Employed (RoCE)
The paper discusses RoE and RoCE approaches that can be adopted to allow a return
on investments made by generating companies or transmission licensees. After
discussion it has been proposed that the present system, i.e RoE approach, may be
continued.
As in the past, much has been deliberated and discussed on the two approaches, and
in view of the long-standing position of this Commission, the present system, or RoE
approach, may be continued. Comments and suggestions are, however, sought from
stakeholders on the continuation of the RoE approach.
We agree with the views presented in Approach paper that the present system of the
RoE method may be continued considering the various bottlenecks in adopting the
RoCE method. ROE approach should be continued on account of the following reasons:
o It would be difficult to follow ROCE approach due to fluctuations in the interest

rates and it may not be feasible to arrive at a normative interest rate which can
be applied for calculating the return on capital employed.
o A single WACC for the entire power sector may not be possible as the terms and
conditions at which a company raises debt keep on changing depending upon
the creditworthiness of the company.
o Further, in case of ROCE approach, the Return on Capital Employed has to be
computed every year and may be complex as D/E ratio changes with time.
o Various stakeholders, especially the lenders, will also not feel secure if there is
sudden change in the method of computing transmission charges.
POWERGRID Suggestion: Based on above discussion, we support that it may

not be prudent to change the approach of allowing returns on the investments
made in the sector for both existing and under construction projects. Therefore,
the existing approach on allowing the ROE should be continued.
 Para 4.16: Rate of Return on Equity
The Approach Paper discusses the various factors and recent market developments
which may affect Rate of RoE, need for attracting Investments and methodology to
calculate rate of RoE. The rate of return should be determined based on the assessment
of overall risk and the prevalent cost of capital. Further, it should lead to the generation
of a reasonable surplus and attract investment for the growth of the sector. Further
Forum of Regulator (FoR) recommendation on differential RoE for Generation and
Transmission Business is also mentioned.
Comments and suggestions are sought from stakeholders on the following issues:
1) Review of Rate of RoE to be allowed, including that to be allowed on additional
capitalisation that is carried out on account of Change in Law and Force Majeure.
2) Whether the revised rate of RoE to be made applicable to only new projects or to
both existing and new projects?
3) Whether timely completion of hydro generating stations can be incentivised to attract
investments?
4) Merit behind approving different Rate of RoE to thermal, hydro generation and
transmission projects with further incentives for dam/reservoir based projects
including PSP.
5) Merit in allowing RoE by linking the rate of return with market interest rates such as
G-SEC rates/MCLR/RBI Base Rate.
For the calculation of RoE using the CAPM Model, the following may be considered:
1) Keeping in view the international approaches to regulated rates of return, the

average 10-year GOI securities rate over a one-year
2) Keeping in view the international approaches, daily data on the SENSEX and BSE
Power Index for the latest 5 years may be considered for equity beta estimation
3) Keeping in view the international approaches, daily data on the SENSEX and BSE
Power Index for the latest 5 years may be considered for equity beta estimation
4) Comments and suggestions are sought from stakeholders on the above proposed
methodology for estimation of RoE and alternative suggestions, if any.
In a Regulated Tariff Mechanism, the utilities are allowed to earn reasonable return on
their investments as a compensation for assuming the investment related risks. It is
based on the opportunity cost principle and risk premium for the investments made in
the sector. The rate of Return on Equity is determined based on the assessment of
overall risk and the prevalent cost of capital. Further, it should lead to a generation of
reasonable surplus and attract investment for the growth of the sector. Para 5.8.4 of
NEP, 2005 provides that Return on investment will need to be provided in a manner that
the sector is able to attract adequate investments at par with, if not in preference to,
investment opportunities in other sectors.
To ensure that it is fair to both the investors and the consumers, the return allowed
should be commensurate with the returns available from alternate investment
opportunities having comparable risk.
Power projects or Inter-State Transmission Lines are complex, capital intensive and
require a higher gestation period of about 2 to 4 years. The equity deployment starts
with land purchase & other development activities and debt is deployed only after
investment approval. While interest on loan during construction period is considered as
part of project cost, no ROE is allowed during the construction period which brings down
the effective returns to the developer. The effective return reduces with delay in
construction of the project which may be due to uncontrollable factors including
challenges in RoW, topography etc. Even if delays are condoned, no return on equity
deployed during the construction period is permitted, which pulls down the overall
project. For a delay of 1 year, the effective rate of return reduces from 12.8 % to 11.9%.
As delay increases, effective return further decreases as shown below:
S. Delay in COD Effective ROE (%) *

No.
1. No delay 12.80
2. 1 year 11.99
3. 1 year (Cost overrun disallowed Gets below 10 %

in tariff)
* Calculation provided at para H below
With this background, the points raised in Approach paper is discussed below;
A. Transmission Risk
Execution of transmission projects face various risks during the construction period
starting from land acquisition, environment, forest and other clearances, challenges
related to obtaining Right of Way in varying terrain spanning across the length and
breadth of the country and involving agencies across multiple states, contractor defaults,
equipment delays etc. Recent experiences of stringent Environmental norms, GIB issue
etc. has proven that risk of construction is increasing. Further, RoW issue is also being
continuously faced during Operational phases. Considering frequent cyclones, natural
calamity and climate change effect, Operational risks in transmission is also significant.
The details of major disasters that has happened in last 5 years is provided below:
1. UP & Bihar Floods (2022)

2. Cyclone Asani (2022)
3. Assam Earthquake (2021)
4. Cyclone Gulab (2021)
5. Cyclone Tauktae (2021)
6. Cyclone Yaas (2021)
7. Maharashtra Floods (2021)
8. Cyclone Nisarga (2020)
9. Cyclone Nivar (2020)
10. Kerala, Assam & Hyderabad Floods (2020)
11. Karnataka & Kerala Floods (2019)
12. Cyclone Fani (2019)
13. Bihar Floods & heatwave (2019)
Increased disputes and litigations especially regarding mismatch issues and Sharing
mechanism involving Generators, Discoms, Other transmission licensees, STUs etc.
has posed new uncertainty and risk on recovery of transmission charges. The returns
for a Transmission Licensee must be in line with risk perception and market expectations
and we feel that with time construction, operation and payment risks are only increasing
day by day. Therefore, we are of the view that the existing RoE of 15.5 % should
be maintained for transmission businesses.
B. Differential RoE
One to one comparison of risks in Generation and Transmission may not be a right
approach. In line with difference in the nature of two businesses, Risk profile of
Generation and Transmission projects is different. In terms of project construction,
generating projects are restricted to limited area and geography, however, the
transmission projects span across hundreds of kms and requires back to back
clearances from statutory and local authorities, land acquisition, forest clearances,
managing local disturbances, RoW issues etc. Unavailability of land and corridor
scarcity is continuously increasing the risk of executing the transmission schemes going
forward. Therefore, we feel that Construction risk in Transmission is very high in
complete value chain in Power Sector compared to Generation and Distribution.
Regarding FOR’s recommendation wherein differential RoE for Generation and

Transmission Businesses and reduction in RoE for Transmission Business was made
in the report titled “Analysis of Factors Impacting Retail Tariff And Measures To Address
Them” published in Apr’2021, it is mention that the subject Report does not provide any
rationale or discussion for such recommendation and we feel that the same does not
reflect the true risk reality. The subject report mentions about stranded Generation and
the same is also discussed in Approach paper that “the risk perception of financial
institutions towards the power sector has increased due to the initiation of insolvency
proceedings against these projects, forcing lending institutions to take massive haircuts.
This has resulted in an increase in risk perception towards power projects, especially
generation projects”. We agree that the risk perception of the power sector has
increased substantially in the past, and it is not only limited to Generation companies.
Many of the prominent transmission Companies like Reliance Infra, Essar Power, Essel
Group, JP Group, ILFS etc. has to sell their transmission business/asset over the last 5
years.
It is to mention that, at the time of publishing of said FOR report in May’2021, the country
was undergoing the impact of the COVID pandemic and power demand remained
subdued due to closure of industries. Post COVID, the country witnessed a surge in
power demand with peak demand surging to an all-time high leading to improved PLF
for generators. In fact, there was severe generation shortage vis-à-vis power demand
during year 2022 and Govt of India as well as CERC took various measures to ensure
power demand is met.
Further, to address various Sector specific issues, the Ministry of Power (MoP) has
come up with multiple Policy decisions, Rules, Orders such as Electricity (Late Payment
Surcharge and Related Matters) Rules, 2022, Electricity (Timely Recovery of Costs due
to Change in Law) Rules, 2021, Automatic pass through of the fuel and power
procurement cost in tariff for ensuring the viability of the power sector etc. Through LPS
Rules, MoP has bought in a Statutory Mechanism ensuring timely payment of
Generating Companies. Outstanding dues has come down significantly after
implementation of LPS Rules compared to pre LPS, as shown below:
These all-policies intervention by MoP has been issued focusing on Generation and has
bring in much relief to them. Now Outstanding dues and mitigation methods including
Regulation of Power is being monitored through PRAPTI portal and being reviewed
periodically by MoP.
Thus, the recommendation made in said FoR report may not be relevant in the
present context.
Further, it is suggested that the existing RoE of 15.5% should be maintained for
the transmission business. However, considering the penetration of renewable
generation in the grid, higher RoE may be continued for Storage type Hydro
Stations
C. Transmission has no other avenues than Annual Fixed Charge (AFC) to

increase revenue from Transmission Business
For Transmission, the upside revenue is capped i.e maximum at an availability of 99.75
and there are negligible avenues to earn extra revenues. In case if availability goes
below 98%, AFC decreases proportionally and there is no limit to downside. Even
additional Return on Equity of 0.5% for timely completion of projects which was provided
in Tariff Regulations, 2014 was also discontinued in the Tariff Regulations, 2019. Return
on RoE for AddCaps beyond Original Scope and after Cutoff date is also restricted to
Weighted average rate of interest. Further, in case of non-tariff incomes from sale of
scrap etc. though negligible for Transmission but still has to share 50 % with
beneficiaries.
Here it is to mention that Unlike Transmission, Generators have other avenues for
additional revenue from Business. Hydro generators can earn additional revenues
through the sale of secondary energy and additional revenue from overachievement of
NAPAF, however, in case of underachievement, they are allowed to recover the total
AFC. For thermal generation, they can earn additional revenue through
 Sale of unscheduled power in market, UI, sale of ancillary services,
 Efficiency gain in Controllable parameters i.e., Station Heat Rate; Secondary Fuel
Oil Consumption; and Auxiliary Energy Consumption.
 Proceeds of carbon credit under Clean Development Mechanism
 Under SCED schemes, flexible operations based on GoI policy on flexibility.
Considering above, it is submitted that unlike others, Revenue in Transmission Business

is limited to Regulated AFC and RoE is only source of Profit for it. Thus, any reduction
in RoE will impact Transmission more than other sector.
D. Regulatory Certainty
Regulatory certainty is an integral part of tariff approach for attracting requisite

investments into the sector. The Tariff should also reflect the changing market condition
and macroeconomic parameters. As the tariff is determined on multiyear principles, it is
important to maintain certainty in approach over each control period to maintain the
confidence of investors and regulated entities. Any major departure in established
regulatory approaches create considerable risk for regulated entities. This is particularly
so for existing assets which have been set up based on the prevailing regulations and
tariff principles applicable at the time of the assets being planned.
Investments in generation and transmission projects are for long duration (25-35 years)
and therefore, the investment decisions are made based on the returns prevalent at the
relevant times. Reduction in ROE during the life of the project would create regulatory
uncertainty and make investments in the sector less attractive to the investors.
Reduction in rates will have negative impact on the equity already invested in the
existing and under construction projects. To have regulatory certainty and
financial stability of investors, if in case, CERC considers to revise the RoE for
transmission business, it should be done only for the assets whose Investment
Approval is done post 31.03.2024 i.e for new projects/assets only.
E. Investment Requirement in Sector
Considering the fast pace with which different sectors in the country are growing,
resource allocation among different sectors is becoming very tough and competitive.
Power Sector requires investment from Domestic as well as International Investors. To
attract international investors the return in generation/ transmission business in India
should be at par if not more than the return allowed by regulators in other countries.
The Government of India has set an ambitious target of 500 GW of renewable

generation by 2030. For required energy transition to RE, we need to preserve existing
assets and continued operation is to be incentivized. Reduced RoE will act as dampener
and may delay essential investment in the sector. Reduction in RoE will reduce the
investment by 3.33 times (as D:E ratio is 70:30). Reduction in IR by Rs. 1000 Cr will
cause a fall in investment potential of the companies by Rs. 3300 Cr annually. The ability
to raise capital from market by POWERGRID is limited as the current GoI shareholding
is already down to 51.34%.
F. Impact of reduction of RoE
 Increase in borrowing cost
POWERGRID is highly leveraged. Reduction in RoE would weaken its credit metrics
such as Interest Coverage ratio, Debt service ratio, Debt: EBIDTA, FFO: Debt (Funds
from operation to debt) which are critically viewed by the rating agencies as well as debt
investors. With reduction in returns and increase in debt, all other things remaining
constant, the ratio, is likely to shoot up and breach the covenant, triggering
recall/renegotiation of the existing loans by lenders. Historically, POWERGRID has been
able to debt finance its capex at a much cheaper rate of 7.0%-9% p.a. with a tenure of
10-15 years whereas the two public sector funding agencies viz. Power Finance
Corporation and Rural Electrification Corporation offers long term loans at a rate from
10% - 12% p.a.
Existing loan portfolio of POWERGRID stands at around Rs. 1,26,000 Cr and even slight
increase in debt rate will have a high additional implication on the beneficiaries as debt
servicing is pass through in tariff. The benefits of lower RoE if any (on 30% of project
cost) may be partially offset by the increase in tariffs due to higher cost of debt
on 70% of the project cost. Increase in cost of borrowing may significantly wipe
out the benefit of lower RoE.
 Insignificant benefit to end Consumers
Forum of Regulator in its report “Analysis of Factors Impacting Retail Tariff And
Measures To Address Them” as referred in approach paper has pointed that
“The contribution of RoE on generation, transmission and distribution, in respect of 12

States were studied. It transpired that if the RoE was reduced from 15.5% to 14%, there
would be reduction of 2 paisa per unit of retail tariff “.
Thus, it is evident that reduction of Rate of RoE has negligible impact on overall
cost of power to the end consumer, but it may end up in creating adverse financial
situation of Generators and Transmission Company. Further, it is to be noted that
presently Generation and Transmission projects under RTM has been acting as
backbone of the entire Power System and despite being adverse market reality faced in
past specially Generators going in Insolvency, RTM projects has prevented the Power
Sector from collapsing.
G. Other points to be considered.
o RoE in CERC regulations acts as a guiding principle for SERCs. Any reduction at
this stage will also impact future investment in Intra State and Distribution sectors
which are in dire need of investment.
o Cashflows generated in RTM is utilised by PSUs to invest in new technologies and

R&D activities required in Sector. R&D activities are essential to bring in new
technologies and best practises in Sector.
o POWERGRID Substations are mostly located at remote locations away from Towns
where working environment is inherently tough. Unlike Generations, Facilities like
School, Hospitals etc. cannot be provided in Substations. In some cases, such
locations are hardship and very tough snow filled location in J&K, Ladakh which
remains inaccessible for most of the time. Some locations are situated in Insurgency
affected areas. Employee morale has to be kept high. Profitability of Company is
one of the major factors which makes the employee feel proud & keep them
motivated.
o The current 10-year G-Sec yield is around 7.1% which is almost the same as it was
at the time of the commencement of the current tariff period, i.e., April 2019.
o POWERGRID have close to 49% public shareholding. Changing the returns on the
already done investments may not send right signals to existing and potential
investors and would ultimately result in fall in shareholder wealth due to lower market
capitalization.
POWERGRID Suggestion: POWERGRID submit the following;
o RoE for Transmission must be in line with risk perception and market
expectations, and we feel that with time, construction and operational risks
are only increasing, and there has been no reduction in risk profile in last 5
years.
o Construction risk in Transmission is very high in complete value chain
in Power Sector compared to Generation and Distribution.
o The recommendation made in said FoR report may not be relevant in present
changed circumstances where many initiatives to improve cash flow to
Generation business etc. have been taken.
o For Transmission, the upside revenue is capped i.e maximum at an
availability of 99.75 % whereas there is no limit to the downside. Thus,
reduction in RoE will impact Transmission more than any other sectors.
o Reduction in ROE during the life of the project would create regulatory
uncertainty and make investments in the sector less attractive to the investors.
o To attract international investors the return on equity for generation/
transmission business in India should be at par if not more than the return
allowed by regulators in other countries.
o Reduction in RoE if any, may potentially result in higher cost of debt on
70% of the project cost.
o Reduction of Rate of RoE has negligible impact on overall cost of power to
the end consumer, but it may end up in creating adverse financial situation of
Generators and Transmission Companies.
o Investments in generation and transmission projects are for a long
duration (25-35 years) and therefore, the investment decisions are made
based on the returns prevalent at the relevant times. Reduction in rates
will have a negative impact on the equity already invested in the existing
and under construction projects.
Therefore, we are of the view that the existing RoE of 15.5 % should be
maintained for transmission business for Tariff block 2024-29 also to have
regulatory certainty and financial stability of investors. If in case CERC
considers to revise the RoE for transmission business, it should be done
only for the assets whose Investment Approval is done post 31.03.2024 i.e
for new projects/assets only.
H. Review of Rate of RoE to be allowed on additional capitalisation that is
carried out on account of Change in Law and Force Majeure.
o All laws of the land are dynamic in nature and with time it undergoes modifications
and amendments. It is not possible to ascertain these future “change in law” events
and subsequent financial impacts. At times these may lead to large investment
requirements. Transmission licensees at that stage will have no option but to do the
investment in accordance with the law. In case if adequate return on this investment
is not provided, it will adversely impact the return of overall project. Further, in cases
where investments required are very high, it may make the project financially unviable
without adequate return.
o Therefore, the equity investment on account of additional capitalization due to

Change in Law cannot be treated any differently from equity investment during
construction of asset and should be allowed the same fair rate of return. Further, the
return allowed on equity investment cannot be compared with that of debt, which is a
fixed income instrument.
o Further, the lenders do not fund the entire cost and insist for deployment of equity for
a portion. Since the risk borne by the equity holders and lenders is different, it is not
appropriate to compensate equity component at the cost of debt.
POWERGRID Suggestion: Based on above discussion, it is proposed that the

return on the entire equity invested on all accounts including Change in Law and
Force Majeure may need to be retained as in the Principal Regulations.
I. Calculation of effective rate of return on equity, considering construction

period
The return on equity is allowed at the specified rate from the date of commissioning of
project perpetually until project is operational. However, no return is allowed during the
construction period, which reduces the overall return to the project owner. In light of this,
the effective rate of return can be defined as the actual rate of return for the company
over the project life i.e. from the start of construction to till the end of useful life of asset.
Scenario 1: Assumptions:
o Project Construction period - 3 years, Useful Life: 35 years
o Equity of 100 lakhs is phased in ratio of 40%:40%:20% during construction.
o No equity addition during the project life
o For Initial 12 years, return on equity is adjusted for residual repayment over and
above the regulated repayment
Considering no return in the construction period, the effective return for a transmission
project comes at 12.80%.
Scenario 2: Delay of 1 year
Effective return for a transmission project reduces to 11.99%, considering a delay of 1

year, since return on equity only after start of commercial operation of the project.
J. Expected Rate of RoE based on CAPM for Indian Transmission Entities
The CERC in the approach paper has suggested the following methodology for
determining the expected rate of return using the CAPM:
 “The average 10-year GOI securities rate over a one-year horizon may be
considered a risk free rate
 Daily data on the SENSEX and BSE Power Index for the latest 5 years may be
considered for equity beta estimation.
 Market Risk Premium reflecting the historical returns for a period of 30-years or
beyond instead of the existing practice of considering 20 years may be considered
for MRP estimation. Alternatively, MRP may be computed using any other method,
including the Survey Method.”
o Considering a horizon of 5 years for computing beta doesn’t allow the period of
uncertainty to be averaged out such as impact of COVID 19 pandemic where the
markets were volatile. The beta computation should be in line with the computation of
Market risk premium. Further, the use of extended periods of market data in CAPM is
described in various literature as well, highlighting the decrease in standard error of
risk premium with the increase in estimation period. [Aswath Damodaran, 2014,
Applied Corporate Finance (4th Edition)]
o As highlighted above, the beta and market risk premium should be in congruence,
therefore, a similar period should be considered for computing beta and market risk
premium. Further, most of the entities in the power sector were listed in last 2 decades.
Therefore, it would be prudent to consider market risk premium based on 20
years of data instead of 30 years.
o Allowing the RoE by linking the rate of return with market interest rates such as G-Sec
rates /MCLR/ RBI base rate would require an extensive study of risk profile of business
for finalizing the margin to be allowed over and above the selected reference rate.
Further, this margin would vary from entity to entity and would be difficult to normalise
as it depends upon risk profile, organisations size, projected cash flows etc.
o Since, most of the investments will be done in the assets with useful life of 25 -35
years, therefore, it would be prudent to consider a longer duration of periods for
computing the beta, risk free rate and market risk premium and consequently, the
expected rate of return on equity.
Capital asset pricing model (CAPM) is the most widely used method to estimate the
required rate of return. According to this method, the expected rate of return on equity
can be calculated as:
Ra = Rf + [β x (Rm – Rf)]
Where:
Ra = Expected rate of return
Rf = Risk-free rate
β = Beta of the security
Rm = Expected return on market
For estimating the rate of return on equity using CAPM, following steps were followed:
• Calculate historical market returns for the past 10 years (2003 – 2023)
Step 1 using BSE Sensex data to determine Rm
• Calculate risk free rate for similar period of 20 years using 10 year govt.
Step 2 bond yields
• Estimate the Beta for POWERGRID using data of listed Indian transmission
Step 3 companies
The beta for POWERGRID has been estimated as depicted below:
Calculate equity Calculate each Un-lever the

Re-lever the
beta for major firm’s financial average equity beta
average un –
listed transmission leverage and using average
levered beta using
firms and determine average financial leverage
POWERGRID’s
determine average of financial to get average un-
financial leverage
of equity betas leverage levered beta
The unlevered beta is then calculated using the following formula:

Unlevered Beta = ( )/((1 + ((1 − ) ( / )))
i.Calculation of market return

The market return has been estimated based on historical data of returns of BSE
Sensex. The market return for the period from 2003-23 was 19.80%.
ii.Calculation of risk free rate based on 10-year government bond yields
Risk free rate is estimated using yield of 10-year government bond. The Risk free rate
(Rf) based on 10-year Indian government bond yield for 2003-23 works out to be
7.42%.
The risk free rate for India has been estimated based on yield on average yield of 10-
year government bond over past 20 years.
10-Year Bond Yield (India)

10%
10%
9%
9%
8% 7.42%
8%
7%
7%
6%
6%
5%
iii. Estimation of expected Beta for POWERGRID
Calculation of unlevered Beta
Equity / Tax Un-levered

Firm D/E
Levered Beta Rate Beta
Adani
Transmission 0.917 2.713 25% 0.302
Ltd.
POWERGRID 0.685 2.291 25% 0.252
Overall
0.801 2.502 25% 0.277
Average
• For Adani, data used from July 2015 – till date, since it got listed in July 2015
• For POWERGRID, data used from 2007 – till date
The unlevered beta works out to be 0.277.
Re-levering the Beta
The average Un-levered Beta for all Indian transmission players is levered using
financial leverage for POWERGRID to give expected Equity Beta.
Re-levered Beta = Un-levered Beta x (1 + ((1 – Tax Rate) x (Debt/Equity)))

= 0.277 x (1 + (1-0.25) x (70/30))
= 0.762
Thus, the Beta for calculation for expected return for POWERGRID is estimated at
0.762.
iv. Calculating the expected rate of return
Expected rate of return = Rf + [b x (Rm – Rf)]

= 7.42% + [0.762 x (19.80% - 7.42%)]
= 16.85%
POWERGRID Suggestion: Thus, it can be observed that using the CAPM method,
the expected return works out to be 16.85 %, which is much higher than the existing
number of 15.50%.
K. Estimating return on equity for transmission business in India based on
allowed return by regulators in other countries
The transmission business is regulated in most parts of the world. Consequently,
regulators allow return on the capital invested at a specified rate, based on methodology
adopted by them. The return on equity for transmission business in India has been
estimated based on return allowed in five countries. The countries have been selected
based on factors including development status, geographic region, the structure of
transmission sector and the regulation of the transmission sector etc. A summary has
been presented below:
Country Development Geographic Sector structure Regulation of
Status Region transmission
sector
Australia Developed Australia Unbundled utilities; Revenue regulated
State and privately by energy regulator
owned companies; in respective markets
USA Developed North Unbundled utilities; Revenue regulated

America Significant private by federal and state
participation commission
Malaysia Developing Asia Single state owned Revenue regulated
integrated entity by energy
commission
South Developing Africa Single state owned Revenue regulated
Africa integrated entity by single energy
regulator
Brazil Developing South Unbundled utilities; Auction determined
America Significant private revenue; overall
participation; regulations by
electricity regulator
These countries adopt different methodologies for setting of allowed rate of return.
Australia France Malaysia South Africa Brazil
Australia Electricity Federal Energy NERSA sets ANEEL envisages
Regulator Electricity Commission regulated a rate of return
determines WACC Regulatory determines fair return for while setting
with rate of equity Commission rate of return Eskom- maximum
based on CAPM. determines the based on integrated revenue for
The decision is base RoE based WACC using utility of South auction.
made as per the on two-step CAPM model. Africa. The actual rate of
‘rate of return DCF The rate of Common rate return depends
methodology’ for methodology. return is based is applied for on revenue
each transmission Incentive RoE is on method in three ring- discovered during
operator. allowed on incentive fenced the auction
case-to-case regulation. businesses.
basis.
,
In order, to estimate the required rate of return in India, first step is to calculate the
business risk premium in the selected country. Thereafter, the business risk for
transmission business is India is estimated using the business risk premium in the
selected country and the differential country risk premium. The country risk premium is
estimated using the default spread based on rating by independent agencies (such as
Moody’s), adjusted for the additional volatility of equity market. Finally, the business risk
for India is added to risk free rate for India to estimate the required rate of return. A step-
by-step approach is shown below:
i. Finding ‘expected rate of return’ in a country
The expected rate of return for transmission business can be estimated using the
allowed rate of return for a transmission entity by regulator in a country.
Expected rate of return = Risk free rate + Business risk premium
ii. Calculating ‘business risk premium’ for a country

Using the equation in step i:
Business risk premium = Expected rate of return - Risk free rate
iii. Estimating ‘business risk premium’ for India
Business risk premium (India) = Business risk premium (other country) + Δ Country
risk premium
Country risk premium: default spread based on rating by independent agencies (such
as Moody’s) adjusted for the additional volatility of equity market. So,
Δ Country risk premium = Country risk premium (India) – Country risk premium
(other country)
iv. Calculating ‘expected rate of return’ in India
Expected rate of return (India) = Risk free rate (India) + Business risk premium
(India)
The calculation for estimation of business risk premium in India is shown below:
Country Risk Allowed Business Country Δ Country Business
free return risk risk risk risk
rate (B) premium premium* premium # premium
(A) in that (D) (E = CRP (India)
country (India) – D) (F = C + E)
(C = B -
A)
Australia 1.59% 5.25% 3.66% 0.00% 3.79% 7.45%

5.19% -1.40% 5.64%
South Africa 8.66% 15.70% 7.04%
Malaysia 3.82% 10.9% 7.08% 2.07% 1.72% 8.80%
USA 2.25% 10.57% 8.32% 0.00% 3.79% 12.11%
Germany 0.74% 6.91% 6.17% 0.00% 3.79% 9.96%
Brazil 5.83% 14.71% 8.88% 5.19% -1.40% 7.48%
Average 8.57%
# Negative ‘Δ Country risk premium’ implies countries riskier than India and positive implies countries less risky
than India.
* https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html
Country risk premium for India (CRP (India))* = 3.79%
Source:
 Australia: AER’s decision on transmission revenue for AusNet for 2022-27 (AusNet operates transmission
network in Victoria)
 South Africa: Eskom application to NERSA for approval for electricity tariff 2018-19
 Malaysia: Tariff for Peninsular Malaysia under Incentive-based regulation mechanism by Energy
Commission
 USA: FERC decision on RoE for New England Transmission Operators (NETO), 2014
 Germany: Return on investment under incentive regulation in Germany
 Brazil: Regulator (ANEEL) allowed “rate of return on own capital” in transmission auction 02/2017 for Lot
7
Country Default Spreads and Risk Premiums by Aswath Damodaran (Professor at Stern School of Business at
New York University
Thus, the rate of return for transmission business can be estimated at 8.57%+7.42% =
15.99%. Therefore, the current rate of Return on Equity @15.5% is lower than the
return allowed by regulators in other countries.
L. Expected Rate of RoE based Return on Equity Allowed in Other

Infrastructure Sectors in India
o Aviation Sector
Airport Economic Regulatory Authority of India (AERA) sets Fair Rate of Return (FRoR)
for a control period is based on weighted average cost of capital.
 Cost of equity, for a control period is estimated by using the Capital Asset Pricing
Model (CAPM) for each airport operator.
 Cost of debt is based on forecast cost of existing debt and forecast cost of future
debt to be raised during the control period.
FRoR = (g x Rd) + ((1-g) x Re)
The return allowed to private airports in the country is listed in the table below:
S.No. Airport Allowed RoE Source
1 Indira Gandhi 15.41% AERA’s order on determination of

International Aeronautical Tariff for IGI Airport, Delhi for
(D: E – 48%:
Airport., Delhi second control period (2019-24)
52%)
2 Chhatrapati Shivaji 15.13% AERA’s order on determination of
International Airport, Aeronautical Tariffs in respect of Chhatrapati
Mumbai (D: E – 48%: Shivaji International Airport, Mumbai for the
52%) first Regulatory Period (2019-24)
3 Rajiv Gandhi 15.17% AERA’s order on determination of
International Airport, Aeronautical Tariffs in respect of Rajiv
Shamshabad, (D: E – 48%: Gandhi International Airport, Shamshabad,
Hyderabad 52%) Hyderabad for the first control period (2021-
26)
4 Kempegowda 15.05% AERA’s order on determination of
International Airport, Aeronautical Tariffs in respect of
Bengaluru (D-E – 48%:52%) Kempegowda International Airport,
Bengaluru, for the third Control Period (2021-
26)
5 Chennai 14% AERA’s order on determination of
International Airport Aeronautical Tariffs in respect of Chennai
(Airports Authority of (D: E – 26%:74%) International Airport, for the third Control
India) Period (2021-26);
It can be observed that for an entity like airport with limited geographic spread,
the allowed return of ~15% with very high equity base compared to Transmission
. Thus, overall regulated return in aviation are higher to electricity transmissions
sector.
o Natural Gas Transmission
The regulator for natural gas transmission, the Petroleum and Natural Gas Regulatory
Board, has set a fixed RoCE of 12% for the sector.
Assuming ‘Weighted Average Cost of Capital (WACC)’ based approach to return on

capital employed, the WACC can be calculated as:
WACC = g * Rd * (1 – Tc) + (1-g) * Re
Where:
g: gearing
Rd = Cost of debt
Tc = Tax rate
Re: Cost of equity
Based on the below assumption, the return on equity (Re) can be calculated as:
S.No. Parameter Assumed value Basis
1. Gearing (g) 70% Based on normative gearing in power
sector of country
2. Cost of debt (Rd) 10.62% SBI base rate + 1%
3. Tax rate (Tc) 30% Tax rate for corporate business in India
WACC = g * Rd * (1 – Tc) + (1-g) * Re

 12% = 0.7 * 10.62% * (1-30%) + (1-0.7) * Re
 Re = 22.66%
For a sector requiring infrastructure spread across a larger geography, the
allowed return is significantly higher than the electricity transmission business.
A. Summary of Expected Return on Equity using different methods
Expected
Method Return Key Takeaways
on Equity
International 15.99% o The transmission business risk premium across

Comparison countries adjusted for respective country risk premium over
India works out to 8.57%
o Adding risk free rate of 7.42%, the expected return
works out to 15.99 %
CAPM – India 16.85% o Market return premium adjusted for beta for Indian
Transmission transmission business entities works out to be 8.57%.
Entities o Adding risk free rate of 7.42%, the expected return
works out to 16.85%
Aviation 15.41% o For an entity like airport with limited geographic

spread, the allowed return is ~15% with high allowable
equity base compared to Transmission.
Natural Gas 22.66% o For a sector requiring infrastructure spread across a

larger geography, the allowed return is significantly higher
than the electricity transmission business.
POWERGRID Suggestion: Based on above, It can be concluded that the existing

allowed rate of Return on equity is inadequate for transmission business in India.
Therefore, higher return should be allowed to transmission companies or at
least, it should be retained at the current level.
 Para 4.17: Tax Rate
The Approach paper discusses the tax rate to be considered while grossing up of rate
of RoE. A utility may be paying taxes at the MAT Rate, Corporate Tax Rate or falls under
any other tax bracket as per the relevant Finance Act as applicable from time to time. In
such cases, the grossing up of RoE shall be at the effective tax rate which can be a rate
in between MAT and the Corporate Tax Rate, or any other tax bracket as may be
specified from time to time.

A domestic company shall fall under one of the following brackets, and the maximum
tax amount that shall be payable is limited by the tax rates notified for the relevant
category.
- Therefore, Base Rate of RoE may be grossed up as follows: At MAT rate (If not opted
for Section 115 BAA)
- At effective tax rate (if not opted for Section 115BAA) subject to ceiling of Corporate
Tax Rate
- At reduced tax rate under Section 115BAA of the Income Tax Act or any other
relevant categories notified from time to time subject to ceiling of rate specified in the
relevant Finance Act.
Further, tax shall be allowed only in cases where the company has actually paid taxes
as under no circumstances tax can be allowed to be recovered if the company has not
paid any tax for the year under consideration.
In view of the above discussion, comments and suggestions are sought on the above
and any other alternative(s).
Tax liability of the companies for a particular financial year depends upon the level of
income, rebate/exemptions available, tax credits, tax holidays, applicability of MAT,
deferred tax liability, etc. The implications of tax liability are long term in nature, and the
amount of tax paid/to be paid by the company may not be on current year income level
and varies from time to time as per applicable sections of relevant Finance Act. A
Company may be subjected to only MAT for a particular year on account of tax
exemptions/ tax credits/ tax holidays available to it but the effective tax applicable for
the company could be different and company may be paying higher/lower amount of
taxes in future on account of various factors as mentioned above. Thus, the effective
tax rate of the Company assumes critical importance and should be considered for
grossing up of RoE. With this background only effective tax rate was allowed by the
Commission in previous regulations for grossing up purpose.
POWERGRID will be paying MAT only till the availability of tax holiday u/s 80 IA /any
other exemption/deduction as well as availability of unutilized MAT Credit. Thus,
restricting the grossing up rate of ROE to MAT may not be sufficient to meet the actual
tax liability of POWERGRID in future. Similarly, grossing up of ROE by effective tax rate
if subjected to the ceiling of Corporate Tax Rate will not result in complete recovery of
tax since the effective tax rates are bound to increase in the future years due to
application of timing difference and restricting the same to corporate tax rate is not fair
due to change in base component on which such tax is calculated.
Regarding reduced tax rate under Section 115BAA of the Income Tax Act, the Company
is yet to opt for section 115BAA, it will be able to opt for the same only after the
expiry/utilization of MAT credit in full or where the benefit of the difference in tax rate
exceeds available MAT Credit.
POWERGRID Suggestion: Based on above discussion, it is to submit that in

future when tax holiday u/s 80 IA /any other exemption/deduction will not be
available, the effective tax rates for POWERGRID will be higher than MAT rate or
ceiling of Corporate Tax Rate. Therefore, it is proposed that actual effective tax
rates as applicable for POWERGRID may be considered for grossing up even if
the same is higher than ceiling of Corporate Tax Rate.
 Para 4.19: Life of Generating Stations and Transmission

System
Regarding Transmission, the Approach paper discusses that through proper O&M, sub-
stations can operate way beyond 25 years similar to transmission lines. However,
incentives like Special Allowance may be required.
The useful life of coal based thermal generating stations and transmission sub-stations
may be increased to 35 years from the current specified useful life of 25
years…………………………
…………
As the need for higher repairs will still be required, the current dispensation of allowing
a special allowance or provision of R&M may be continued after 25 years.
Comments and suggestions are sought from stakeholders on the above proposal and
the necessity of further changes, if required.
1) As per the provisions of repealed CEA (Technical standards for Electric Plant and
Electric Lines) Regulations 2010, Substations were to be designed for a life of 25
years. However, The CEA (Technical standards for Electric Plant and Electric Lines)
Regulations 2022 requires Substations to be designed for a life not less than 35 years.
In TBCB Projects from the start, useful life for all assets including Substation and its
assets is also 35 years only.
2) Although the earlier Substation equipment may have been designed in line with
prevailing Rules and standard technical specification i.e for 25 years, we agree with
the Approach paper that with best practices, proper O&M and timely replacement of
faulty component, POWERGRID has been able to operate most of its major
equipment beyond specified useful life of 25 years.
3) Here it is to mention that POWERGRID for the past many years, has been
participating in the International Transmission Operation and Maintenance Study
(ITOMS), a global O&M benchmarking platform, comprising 32 leading global power
transmission utilities, where it has consistently ranked among the top performing
transmission companies. POWERGRID has developed an in-house software tool,
POWERGRID Asset Life Management System (PALMS), for improved monitoring of
its fleet of transformers and reactors. A Centralized Circuit Breaker health indexing
system was developed in-house, which has enabled transition towards predictive
maintenance of circuit breakers, a critical element in system protection. Analysis of
data generated empowers asset managers with better knowledge and awareness
about the assets, helping them in timely and appropriate decision making.
4) However, to implement the proposal the following issues may need to be addressed.
a) The life span of the equipment is governed by a number of parameters during its
service-span like the loading pattern, high voltage, types and frequency of faults
experienced by the transmission system and such other technical considerations. In
cases where Assets which are designed for 25 years are operated beyond that, the
same may be vulnerable and some equipment’s may be required to be replaced
before 35 years.
b) With time and with the improvement in technology, suppliers change their line of
production of similar nature of equipment or totally stops the production of equipment
and switch over to different types of equipment. Thus, supply till 35 years cannot be
ascertained. Further, it is seen that after 15/20 years, some of the
manufacturers/suppliers / OEMs have also closed their establishments. This
obsolescence of product and non-availability of spares/services, which is beyond the
control of POWERGRID, have forced POWERGRID to go for replacement of
problematic/unreliable equipment for smooth and reliable operation of the grid.
Further, some parts like Polymer Insulators requires replacements after 15-20 years
only as it is either damaged by Birds or does not remain effective.
c) Presently, for new AddCap proposals, recommendations of RLDCs/CTU, OEM

communication for obsolescence of technology and CERC approvals are required.
For extension of useful life, such recommendation/mandates will delay the process.
d) Considering the above, it is proposed that to extend useful life beyond 25 years for
existing assets, a normative special allowance may be allowed to transmission
licensees for assets completing useful life beyond 20 years to recover cost on account
of replacement due to obsolescence, unavailability of spare or failure of some
equipment, ageing of equipment after 25 years etc.
e) With increase in useful life, recovery of allowable depreciation will also spread over
35 years. In cases as discussed above, Cases where existing assets may be required
to be replaced before completing 35 Years including cases of Reconductoring,
Capacity augmentation etc., some allowable depreciation for original asset will remain
unrecovered. Therefore, there is a need to cover the cost of Transmission licensee for
cases arising out of increase in useful life.
POWERGRID Suggestion: Based on above discussion, we support that

the useful life of Substation may be increased to 35 years. However,
following may be allowed :
 Capital expenditure after completion of 20 years may be met through a
normative Special Allowance on a ‘per km’/ ‘per MVA’ / per bay basis
similar to component wise normative O&M.
 In addition, AddCap for HVDC Systems may be allowed as per the

prevailing practice after prudence check.
 Unrecovered cost / depreciation with carrying cost and any other

relevant charges may be allowed as one time reimbursement.
 Para 4.21: Sharing of Charges
The Approach paper discusses that both generating companies as well as transmission
utilities have considerable resources in the form of assets that can be utilised to increase
non-core revenues through lease, Data Centres, ecotourism, etc., which should be
explored and in order to generate such lateral revenue opportunities, the utilities need
to be incentivized.
Comments and suggestions are sought from the stakeholders on the following:
1. Ways to increase non-core revenues through optimal utilisation of available
resources.
2. Any modification in the sharing mechanism that may be required
1) We agree that both generating companies as well as transmission utilities have
considerable resources in the form of assets such as land banks and other enabling
infrastructure and human resources that can be utilised to increase non-core revenues
through lease, data centers, ecotourism, etc, POWERGRID in past has been in
forefront to use such infrastructure to create long term business opportunities even
after incurring losses in start. POWERGRID entered into the Telecom business way
back in the year 2001. Apart from Telecom, POWERGRID is further trying to use
existing infrastructure for Data Center business, Telecom antennas in existing
transmission towers etc.
2) POWERGRID is also planning to develop expertise in the renewable spaces and

related green business to support the Government of India’s vision of achieving
Renewable Energy target of 500 GW by 2030. Installation of RE (especially solar
power) requires the availability of large patches of land. In this regard, it may be noted
that POWERGRID has availability of land in some of the projects across India which
can be suited for Solar Generation. Further, considering PAN India presence of
POWERGRID at more than 250 locations, it is also strategically placed for business
like BESS, EV Charging Station, etc.
However, presently regulatory provisions require prior approval of the Appropriate
Commission before transfer of his utility or any part thereof, by lease, exchange or
otherwise. Relevant provisions of the Electricity Act is extracted below;
“Section 17. (Licensee not to do certain things): --- (1) No licensee shall, without
prior approval of the Appropriate Commission, -
………
(3) No licensee shall at any time assign his licence or transfer his utility, or any part
thereof, by sale, lease, exchange or otherwise without the prior approval of the
Appropriate Commission.”
Accordingly, POWERGRID for all such businesses has approached CERC for
regulatory compliances and approvals. Until the approval is issued, POWERGRID is
not able to start such business. Further, due to lack of clarity it also leads to delays
and creates uncertainty. Thus, certain provisions in the Tariff regulations may be
provided allowing in principle approval to transmission licensees for utilization of
existing infrastructure for undertaking businesses such as Data Centre or installation
for RE generation etc.
In this regard, it is to mention that Regulation 19 (5)(d) of Tariff regulations 2019

already provides the following.;
19 (5) (5) The following shall be excluded from the capital cost of the existing and
new projects:
………….
(d) Proportionate cost of land of the existing project which is being used for
generating power from generating station based on renewable energy; and
Similar provisions for other businesses may be provided granting in principle approval
required under section 17(3) of the Electricity Act and methodology to share lease/rent
for RE installations, Data Centre, Green Hydrogen, BESS, EV Charging Station etc in
sub-station to shorten the approval process providing clarity and confidence to existing
Investor to try new businesses.
POWERGRID Suggestion: Based on above discussion, following is proposed;

o In-principal approval required under section 17(3) of the Electricity Act
2003 permitting lease/rent for pre specified related businesses i.e. RE
installations, Data Centre, BESS, EV Charging Station, etc. in Sub-station
areas may be provided through enabling regulations under the next Tariff
regulations.
o Further, rent charges due to above businesses may be considered as non-

tariff income provided under Tariff Regulations or alternatively,
decapitalization of lands from the existing transmission projects may be
allowed for utilizing the same for these business by expanding or bringing
in more clarity to existing Regulation 19.5.(d).
 Para 4.22: Treatment of arbitration award – Servicing of
Principal and Interest Payment
The Approach Paper discusses that the Additional capitalisation including liabilities, to
meet an award of arbitration or for compliance with the directions or an order of any
statutory authority, or order or decree of any court of law may be substantial including
principal amount and interest amount.
To avoid such situations, the principal amount may be capitalised and the interest
amount may be allowed to be recovered in instalments from the beneficiaries. However,
such a recovery of interest may also involve carrying costs.
Comments and suggestions are sought from stakeholders on the above approach and
alternative ways, if any.
POWERGRID would like to highlight that these awards are done in compliance of the
statutory orders or to meet an award of arbitration, which otherwise would have been
capitalised as part of the capital cost. We support the view of Approach paper that to
reduce the impact of such orders/direction, only the principal amount may be capitalised.
However, the interest amount may be allowed to be one time reimbursed along with
carrying costs.
POWERGRID Suggestion: It is suggested that the principal amount may be

capitalised as given in the Approach paper , however, the interest amount may be
allowed to be one time reimbursed along with carrying costs
 Para 4.23: Treatment of interest on differential tariff after

truing up
As per existing regulations, the differential amount of tariff after truing up needs to be
recovered or refunded with simple interest in six equal monthly instalments. In this
regard, the Approach Paper has brought to light that stakeholders have raised concerns
over the method of charging interest on the differential amount up to the liquidation of
the last instalment.
In order to streamline the rate of interest on the differential amount, the current practice
of allowing a simple interest rate as per Regulation 10(7) in the 2024-29 tariff block may
be continued. Further, interest may be allowed to be charged on the differential amount
by the utility only until the issuance of the order, and no interest may be allowed during
the recovery in six equal monthly instalments.
POWERGRID endorses the view that the current practice of allowing simple interest
rate on differential tariff after truing up should be continued but clarity is required with
regard to interest applicable for installment period. Such delay in payment under
installments are not covered under tariff norms set for ‘Interest on Working Capital’ and
therefore payment in installments increases the working capital requirement for
Transmission/Generation Companies.
Installment payment adversely impacts the cash flow position but considering the
interests of Discoms, POWERGRID supports the existing approach of allowing six equal
monthly instalments.
POWERGRID Suggestion: Based on above discussion and to balance the interests

of both Generating /Transmission Companies and Discoms, it is proposed that the
simple interest may be made applicable for installment period.
Other Key Issues
 Para 6.3 & 6.6: Decommissioning/Upgradation/Replacement

of Assets
The paper discusses the cases where a transmission system may be decommissioned
prior to the completion of its useful life in order to comply with any statutory orders or
due to technological obsolescence duly approved by RPC or any other uncontrollable
factors. In such cases, there is a need for appropriate provisions to allow recovery or
refund of cost resulting in non-recovery of the full capital cost of the assets.
6.3…….In view of the above, comments and suggestions are sought from stakeholders
on the possible approaches to recover or refund the impact of decommissioning costs
in case the generating stations/transmission systems are decommissioned before the
completion of their useful lives, if such decommissioning is done in compliance of a
statutory order or due to technological obsolescence duly approved by RPC.
6.6…. In view of the above, comments and suggestions are invited from stakeholders
regarding the treatment of unrecovered depreciation.
Up-gradation or modification in the existing transmission system is an ongoing dynamic

process. Such up-gradation or modification is being planned by Central planning
agencies in existing transmission system so as to enable the servicing of the
beneficiaries with increased capacity. Further, it avoids the establishment of greenfield
new transmission system involving much higher capital investment and dealing with
associated right of way issues etc.
Transmission licensees are not involved in the above planning process and are only
required to implement the upgradation/replacement schemes as planned and agreed in
various forums. These projects are not on account of any deficiency, default, failure or
otherwise any factor attributable to Transmission licensees.
Present Tariff Regulations, 2019 provides for decapitalization of the replaced assets
from respective projects in cases where replaced assets or parts thereof cannot be put
to use again. It is resulting in serious financial consequences to the Transmission
Licensee due to no fault of it. High number of similar projects which involves upgradation
and modification have already been planned and assigned to POWERGRID for
implementation. To address the difficulty being faced, POWERGRID has already filed a
Miscellaneous Petition 61/MP/2022 on the subject and the order is yet to be issued in
the same.
POWERGRID suggestion: Based on above discussion, it is required that the

provisions under Tariff Regulations should be supportive to the upgradation of
exiting transmission system while providing the benefits to the beneficiaries. Thus,
there is a need that transmission licenses be suitably compensated wherein
replaced assets can not to be out into use and therefore it is proposed that One
time allowance of unrecovered depreciation along with dismantling or any
other associated cost may be allowed.
Additional Suggestions
 To optimise high number of petitions
Over 3 decades, POWERGRID’s Transmission projects have gradually increased

resulting in a large number of Tariff/True up Petitions to be filed. In the 2019-24 control
period, POWERGRID has filed around 430 True up petitions and in the next tariff block,
this number is expected to further increase up to about 530. Filing, hearing and
disposing of such a large number of petitions has become a repetitive and cumbersome
exercise for CERC, POWERGRID and concerned Respondents. These petitions have
to be filed in a time bound manner and upon filing, CERC endeavors to dispose the
same in a timely manner. Despite of best efforts from all stakeholders, considering the
quantum of work required including Legal and Regulatory formalities involved in the
filing, hearing, issuance of Order, etc. it has resulted in increased amount of repetitive
work. Therefore, it would be prudent to explore options to reduce the number of
True up petitions.
Further, in multiple cases, the capital cost or number of new assets being commissioned
or approved under RTM mode are very less e.g Bays extensions work under RTM for
Transmission lines under TBCB Projects, Bus Sectioniser or extension Schemes,
Communication Schemes etc. For such projects also, irrespective of their size, presently
separate tariff pettiions has to be filed wherein in some cases capital cost is even less
than Rs 1 Crs . In view of the above, some suggestions to optimise number of
petitions as follows are proposed:
Suggestion 1:
a. Mandatory requirement of hearing may be dispensed with
Licensees may be mandated to submit the calculation sheets and requisite information
to CERC on an affidavit and forward the same to all respondents and upload required
calculations on their website as per existing requirements. For the same Separate
standard tariff forms may be notified by CERC for information and calculations to be
submitted. One such draft format is prepared by POWERGRID for ready reference of
CERC and the same is enclosed as Annexure-I. If required, CERC may mandate any
more information as deemed necessary. Respondents may be allowed a pre-defined
time to give any objections/comments on the tariff calculation submitted by Licensee.
b. Multiple Tariff Petitions may be allowed to be clubbed in one petition
Tariff Petition may be allowed to be clubbed into a single Petition on the basis of region
wise or block wise or any other combination as deemed fit. The uniqueness of the
projects as per Investment approval will be maintained in clubbed petitions. This will
significantly reduce number of petitions, especially for the True up petitions having no
AddCap or DeCap or any directions/liberty specified by CERC in its last orders, where
True up process is majorly limited to arithmetic truing up exercise based on actual MAT
rates, interest rates applicable etc;
For such type of single petition on a regional basis, there will be uniformity of
respondents which will be of ease for respondents to go through a single petition and
give its feedback/comments. Separate standard forms may be notified by CERC for
information and calculations to be submitted for such projects.
Uniqueness of the projects as per Investment approval will be maintained in clubbed

petitions. Tariff forms and other required unique information of the project may be
provided through separate standard forms for each project as part of single petition.
Therefore, even in case any AddCap or DeCap is required for coming tariff blocks, the
concerned project can be easily separated from clubbed petitions.
Suggestion 2:
In case petition hearing is required considering present regulatory framework, CERC

may notify simplified tariff formats as proposed in option 1 and utilities shall file petition
in accordance with revised simplified format. Standardise formats will simplify the
process of Petition filing, scrutiny and onward issuance of orders by CERC.
Further, regarding filing fee in all above options, the same shall be paid as per the
current requirement even though the petitions are clubbed. Thus, POWERGRID will
ensure that fee applicable shall continue to be calculated on project basis.
 Additional Comments on Interest applicable for delay in Final
Tariff orders:
Although provisions are provided in Tariff Regulations, CERC is issuing final orders in
2019-24 block and no provisional orders are being issued. It may be noted that after
filing of tariff petition, considering the prudence check done at CERC end and
considering other constraints, the issuance of final tariff order takes considerable
amount of time. Regulation does not specifically cover scenarios on applicability of
interest rate where direct Final order is issued without issuance of provisional order.
Regulatory provisions are required to provide clarity and certainty for arrear billing along
with applicable interest.
POWERGRID Suggestion: Based on above discussion and to address the

issue, it is proposed that Regulatory provisions for applicability of interest on final
tariff order from COD may be provided to avoid any dispute.
 Useful life of Control & Protection, IT equipment:
1) Major part of the control & protection of HVAC, HVDC & FACTS stations are electronic
type and software based, which gets obsolete within a period of 10 years due to fast
changes /development in electronics and software technology.
2) Various Manufacturers keep on upgrading the hardware and software platform with
new technologies. In view of the fast-paced technological advancements, old models
are being declared obsolete within 10-12 years of age. Some of the benefits seen in
new relays are:
i. Improved selectivity of protection relays.

ii. Faster operating times.
iii. Improved cyber security measures
iv. Better fault analysis capabilities.
3) As per CIGRE Technical Brochure (TB) No. 649 “Guidelines for Life Extension of
Existing HVDC Systems” by working group (WG)- 4.54, lifetime of HVDC Digital
Control System is 12-15 years. Control & protection of FACTS are same as HVDC
station and faces similar issues of obsolescence in C&P System.
4) The cost of C&P in HVDC & FACTS system is considerably high. Further the
protection relays in AC substations experience major challenges due to differences in
the technical life and regulatory life.
5) For optimum utilization (Better reliability and availability) of HVAC, HVDC & FACTS
system, it is proposed to keep the useful life of Control & Protection System separate
from the useful life of Sub-stations.
6) In addition, presently, life of IEDs such as Relays, BCUs etc is clubbed with substation,
and not distinctly mentioned despite same having the nature of IT equipment. The
digital relays have computing resources and networking interfaces and hence likely to
become obsolete in less than 7 years. The useful life of IED may be explicitly defined
as 7 years.
POWERGRID Suggestion: Based on above discussion, international experience

of utilities, guidelines of CIGRE W.G. 4.54 and POWERGRID experience of O&M
of HVAC, HVDC & FACTS systems, useful life of Control & Protections (C&P)
of these systems may be defined as 12 years in the interest of timely
upgradation/ replacement of obsolete systems for reliable & secure Grid
operation.
Further, life of IT equipment such as SCADA/ relays / BCUs, considering that the
same usually become obsolete in 3-7 years, may be defined as 7 years.
 Conditions on filing Tariff Petitions:
1) Existing Tariff Regulations directs utilities to file tariff petition only if expenditure
incurred is more than 70% of the cost envisaged in the Investment Approval or Rs.
200 Crore, whichever is lower.
2) A transmission system may comprise of multiple elements and if any of the major
element of such project is inordinately delayed, filing of tariff petition for other
commissioned assets may be delayed till commissioning of delayed element resulting
in accumulation of stuck up/unrecovered capital expenditure and cash flow
constraints. Examples:
a. The scheme - “POWERGRID works associated with immediate evacuation for

North Karanpura (3x660 MW) generation project of NTPC in Eastern Region”
consists of 02 nos 400kV line bays each at Gaya and Chandwa sub-station.
- Bays at Gaya sub-station were complete in all respects w.e.f. 06.10.2019.

However, in line with regulations, a petition could be filed only after commissioning
of bays at Chandwa on 09.09.2021 resulting in delay of COD of approx. 23 months
for Gaya Bays vis-à-vis COD i.e., 06.10.2019.
b. The project - “ERSS-XVIIB in Eastern Region” consists of 11 assets, which

includes Installation/Replacement of 9 nos. 400/220 kV 315 MVA ICTs at various
locations, 1 no. LILO bypass arrangement at Angul S/s and Reconductoring of
Maithon RB – Maithon (PG) 400 kV D/C line along with modification/addition of
bay equipment at both ends of the line.
- Asset were commissioned progressively from 09.06.2019 to 02.03.2022,
with the exception of said reconductoring of 400 kV D/C line, which is expected to
be completed by Dec’2023. Thus, in spite of almost all elements of the project
being commissioned, the petition for ERSS-XVIIB cannot be filed because of
existing provisions.
c. In case of Transmission licensees facing force majeure events during

implementation of a particular asset, abovementioned provision of present Tariff
Regulations jeopardizes the tariff recovery of other assets in the same project
without having any fault of Transmission licensees.
POWERGRID suggestion: Considering abovementioned issues faced by

Transmission licensees, Provisions in Tariff Regulations may be provided for filing
of Tariff Petition in case an element is commissioned for more than a specified
period such as 6 months regardless of the criteria provided under present Tariff
Regulations.
 Observations on interest calculation on Recovery / Refund

due to subsequent order:
Certain issues related to payment of interest are being faced due to the change in
sharing methodology by way of subsequent orders by CERC / APTEL / Any other court
etc. For example, based on the order of CERC a DIC / DICs is/are billed for a
transmission project, however, DIC feels that the billing is not correct and DIC
approaches Commission / APTEL for review / appeal towards that order. Under this
scenario, it is observed that DIC is reluctant to pay because if he pays and order comes
in his favour there is no explicit regulatory provision towards payment of interest to him
although principal amount is paid back to him. Similarly in case the DIC does not pay
then LPS liability accrue on him and in case orders revise the sharing, fresh bills are
raised upon new entity in compliance to order then who would pay the interest is not
clear in Regulations.
POWERGRID suggestion: To mitigate the issue, it is proposed that in case of
modification in sharing of charges due to any order by CERC/ APTEL or higher court
at a later date, the amount due to any DIC may be paid back alongwith the simple
interest at Bank rate and the same may be allowed to be recovered in the revised bill
from the new entity on whom the liability is imposed as it was supposed to pay the
bill from original date.
Above will reduce the litigation and bring clarity to paying as well as receiving entity.
********* X ********
Annexure -1
Date: ......./.../2023
POWERGRID CORPORATION OF INDIA LTD.
Petition Format (True up)
Sl Particulars Description
No
1. Subject/Project Approval under regulation-86 of CERC (Conduct of Business)
Regulations’1999 and CERC (Terms and Conditions of Tariff) Regulations,
2019 and CERC (Terms and Conditions of Tariff) Regulations’ 2024 for
(i) Truing up of Transmission tariff for 2019-14 tariff block and
(ii) Determination of Transmission tariff for 2024-29 tariff block
For Assets under Substation works associated with additional inter-regional AC

link for import of power into Southern Region i.e., Warora- Warangal and
Chilakaluripeta- Hyderabad - Kurnool 765kV Link
2. Asset(s) covered Asset name DOCO Remarks
under subject date
project 2 nos of 240 MVAR, 765kV Switchable Line
Reactors (6x80MVAR, 765kV, 1-Ph Shunt
Reactor), along with Reactor Bays & 2 Nos 765kV Covered
11.03.2019
Line Bays excluding PLCC, Telecom equipment under ----
and Line Terminal equipment such as LA, CVT &
Wave Trap" at 765/400kV Kurnool S/s
3. Investment Rs. 283.72 Cr including IDC of Rs. 17.68 Cr, dated 11.04.2017 Copy of
Approval/ Revised Memorandum attached at Encl-1
Cost Estimate (if
any)
4. Latest Hon’ble Order dated 23.09.2022 in petition no. 23/TT/2022, copy enclosed at Encl-2
commission Order
5. Cost detail Cost detail is explained below:
(approved vs
Actual)
Cost claimed in previous petition: Rs Lakhs

Apportioned Cost Capital Cost Add-Cap 2019-24
Name of Total estimated
as on
the As per 20- 21- 22- 23- Completion cost as
As per FR DOCO/31.0 19-20
asset RCE 21 22 23 24 0n 31.03.2024
3.2019
Asset-I 11488.19 NA 7931.20 415.40 8346.60
Cost allowed as per order
Asset-I 11488.19 NA 7900.42 445.87 8346.29
Cost claimed in the instant petition
Asset-1 11488.19 NA 7931.20 445.87 8377.07
Annexure -1
Deductions:
Accrual IDC of Rs 30.47 Lakhs adjusted from DOCO and added in respective year of
discharge.
IDC of Rs 0.31 Lakhs was deducted on account of Computation Difference subject to true-up.
The same is being reclaimed in the instant petition.
Reasons for cost variation in claimed cost and approved cost.
Capital cost claimed for 2024-29 tariff block:

Rs in Lakhs
Actual/Projected Add Cap 2024-29 as

Apportioned Expenditur
Asset per auditor’s certificate Claimed Cost as
appd, cost as e as on
Details on 31.03.2029
per FR 31.03.2024
2024-25 2025-26 2026-27
Asset-1 11488.19 8346.29 1121.40 510.10 149.11 10126.90
Copy of auditor certificate w.r.t. claimed cost in the instant petition is enclosed at Encl-3.
6. Direction of Direction-1
Hon’ble As per para 28
Commission “The Petitioner has submitted IDC computation statement which consists of
in latest the name of the loan, drawl date, loan amount, interest rate and interest
available claimed. IDC is worked out based on the details given in the IDC statement.
order and its Further, the loan amount as on COD has been mentioned in Form 6 and Form
compliance 9C. While going through these documents, certain discrepancies have been
observed such as mismatch in loan amount between IDC statement and in
Form 6 and Form 9C. The allowable IDC has been worked out based on the
available information and relying on loan amount as per Form 9C. However,
the Petitioner is directed to submit the detailed IDC statement by rectifying the
above-mentioned deviation, at the time of true up of capital cost for 2014-19
period.”
Compliance:
Cash IDC statement is submitted as Encl -4. It is also submitted that the
repayment of all the loans (bonds and other loans) is duly accounted for in the
calculation of IDC in the Cash IDC statement, i.e., the impact of loans repaid
upto DOCO is duly considered while computing the IDC of the respective loan.
Direction 2
Compliance
Annexure -1
7. Commissioni
ng schedule Treatment of delay
Asset
SCOD DOCO Delay by Hon’ble
Commission
11.12.2019
Asset- (i.e. 32 months 11.03.2019
Nil No time overrun
I from I.A. date: (actual)
11.04.2017)
Delay reason justification if any asked by Hon’ble commission
8. Initial spares Project wise detailed calculation of Initial Spares as per Regulation -- of Tariff
Regulation 2019 is tabulated below: -
Rs. In lakhs
Asset Plant and Initial Ceiling limit Initial Difference
type Machinery spares as per spares as (B-D)
cost for claimed Regulations per
calculation (B) (%) (C) Ceiling
of initial limit D=
spares (A) (A-
B)*C/100-
C)
Sub-
station
(brown
9455.21 270.18 586.27 6.00
field/
Green
field/GIS)
TL
Further, Year wise initial spares discharge detail is enclosed at Encl-5.
9 Additional
capitalization Sl No. Asset DOCO date Cutoff date
claim 1. Asset-1
11.03.2019 10.03.2022
Add cap for 2019-24 block:
Add cap claimed for 2019-24 block is within the cutoff date and covered under
regulation 24(1)(a) (For undischarged liability) and 24(1)(b) (unexecuted work)
Add cap for 2024-29 block:

Add cap claimed for 2024-29 block is within the cutoff date and covered under
regulation --) (For undischarged liability) and -- (unexecuted work)
Liability flow statement having Package/ Contractor wise detail along with
applicable relevant regulation is enclosed at Encl-6
Annexure -1
10 Capital cost (Rs in Lakhs)
. claimed for Freehold
Sl.No Expenditure S/S Total
tariff Land
calculation As per Auditor Certificate (Upto
1 365.97 7565.23 7931.2
for 2014-19 DOCO) as on 10.03.2019
and 2019-24 2 Less : Accrual IDC upto DOCO 0 30.78 30.78
block Expenditure upto DOCO
3 365.97 7534.45 7900.42
Excluding Accrual IDC
Expenditure 2018-19 (Including
4 0 445.87 445.87
Accrual IDC)
Add Cap during 2019-20 (As per
5 0 1090.62 1090.62
auditor certificate)
Add: Accrual IDC (Discharge
6 0 30.78 30.78
during 2019-20)
7 0 1121.4 1121.40
Accrual IDC)
8 0 510.1 510.10
Accrual IDC)
Estimated Expenditure 2021-22
9 0 149.11 149.11
(Including Accrual IDC)
10 Total Estimated Completion Cost 365.97 9760.93 10126.90
11 MAT rate As per regulation 25(3) of CERC (Terms and Conditions of Tariff) Regulations,
. 2014 dated 21.02.2014, the Petitioner is required to adjust grossed up rate of
return on equity at the end of every financial year (for the tariff period 2014-19)
based on actual tax paid. The petitioner is liable to pay income tax at MAT
rates.
Petitioner has been granted trued-up tariff of 2014-19 by the Hon’ble

Commission vide order dated 08.07.2022 in petition no. 486/TT/2019 for
transmission assets under the respective petitions, whereas following effective
tax rate based (for tariff block 2014-19) on notified MAT rates are considered for
the purpose of grossing-up of rate of return on equity (ROE).
Notified MAT rates Grossed up ROE

Effective
YEAR (inclusive of surcharge & (Base Rate/1-t) (in
tax (in %)
cess) %)
2014-15 20.961 20.961 19.610
2015-16 21.342 21.342 19.705
2016-17 21.342 21.342 19.705
2017-18 21.342 21.342 19.705
2018-19 21.549 21.549 19.758

Annexure -1
12 Details of Sl Line/Bay/ICT MVA Voltage Line No of bays/ICTs
. O&M No capacity detail level configuration with MVA /Line
charges detail length
calculation 1 Line bays at Kurnool 765 - 2
S/s
2 Switchable line Reactor 765 - 2
bays at Kurnool S/S
13 True up 2019- 2020- 2021- 2022-
Project 2023-24
. annual 20 21 22 23
transmission AFC approved 0.00 0.00 0.00 0.00 102.58
tariff claimed
for 2019-24 Asset-1 Revised AFC
based on truing 0.00 0.00 0.00 0.00 103.04
tariff block
up
(Rs in Lakhs) The tariff for block 2019-24 has been worked out as per Annexure-I, Part III of
the tariff regulations for period 2019-14 and the Tariff Filing Formats along with
the other relevant information and supporting documentation are attached
hereto as Encl-7 and interest rate proof compendium has submitted alongwith
petition no. ------.
14 Tariff claimed Asset name 2024-25 2025-26 2026-27 2027-28 2028-29
. for 2024-29
Asset-1
tariff block 1654.39 1755.97 1774.70 1752.08 1716.55
(Rs. in lakhs)
The Tariff Filing Formats along with the other relevant information and
supporting documentation are attached hereto as Encl-8.
15 Sharing of As per Regulation 57 of Central Electricity Regulatory Commission (Terms and

Transmission Conditions of Tariff) Regulations, 2019 and shall be shared as per Central
Charges Electricity Regulatory Commission (Sharing of Inter State Transmission Charges
and Losses) Regulations, 2020 dated 01.07.2020 and amendment to these
Regulations as amended from to time.
16 Respondent Respondent list is enclosed at Encl-9.
. detail
17 Prayers a) Approve the true up Transmission Tariff for 2019-24 block and
transmission tariff for 2024-29 block for the assets covered under this
petition.
b) Approve the Completion cost and additional capitalization incurred during

2019-24 and allow the projected additional capitalization during 2024-29.
c) Allow the petitioner to recover the shortfall or refund the excess Annual
Fixed Charges, on account of Return on Equity due to change in
applicable Minimum Alternate/Corporate Income Tax rate as per the
Income Tax Act, 1961 (as amended from time to time) of the respective
financial year directly without making any application before the
Commission as provided in Tariff Regulation 2019 and Tariff regulations
2024.
Annexure -1
d) Approve the reimbursement of expenditure by the beneficiaries towards
petition filing fee, and expenditure on publishing of notices in newspapers
in terms of Regulation 70 (1) Central Electricity Regulatory Commission
(Terms and Conditions of Tariff) Regulations, 2024, and other
expenditure (if any) in relation to the filing of petition.
e) Allow the petitioner to bill and recover Licensee fee and RLDC fees and
charges, separately from the respondents in terms of Regulation 70 (3)
and (4) Central Electricity Regulatory Commission (Terms and
Conditions of Tariff) Regulations, 2019.
f) Allow the petitioner to bill and adjust impact on Interest on Loan due to
change in Interest rate on account of floating rate of interest applicable
during 2024-29 period, if any, from the respondents.
g) Allow the petitioner to file a separate petition before Hon’ble Commission

for claiming the overall security expenses and consequential IOWC on
that security expenses as mentioned at para 11.6 above.
h) Allow the Initial spares claimed as project as a whole.
i) Allow the petitioner to claim the capital spares at the end of tariff block
as per actual.
j) Allow the Petitioner to bill and recover GST on Transmission Charges

separately from the respondents, if GST on transmission is levied at any
rate in future. Further, any taxes including GST and duties including cess
etc. imposed by any statutory/Govt./municipal authorities shall be
allowed to be recovered from the beneficiaries.
Filed by
Gurgaon Power Grid Corporation of India Ltd
Dated:
Represented by
General Manager (Commercial)
Annexure -1
BEFORE
THE CENTRAL ELECTRICITY REGULATORY COMMISSION
NEW DELHI
PETITION NO.: ……….
IN THE MATTER OF
Approval under regulation-86 of CERC (Conduct of Business) Regulations’1999 and CERC

(Terms and Conditions of Tariff) Regulations, 2014 and CERC (Terms and Conditions of Tariff)
Regulations’ 2019 for

For Transmission Asset “2 nos of 240 MVAR, 765kV Switchable Line Reactors (6x80MVAR,
765kV, 1-Ph Shunt Reactor), along with Reactor Bays & 2 Nos 765kV Line Bays excluding PLCC,
Telecom equipment and Line Terminal equipment such as LA, CVT & Wave Trap" at 765/400kV
Kurnool S/s” under “Substation works associated with additional inter-regional AC link for
import of power into Southern Region i.e., Warora- Warangal and Chilakaluripeta- Hyderabad
- Kurnool 765kV Link''.
Power Grid Corporation of India Ltd. --- PETITIONER

Registered office: B-9, Qutab Institutional Area,
Katwaria Sarai, New Delhi. 110 016.
Corporate Centre : ‘SAUDAMINI’, Plot No-2,
Sector-29, Gurgaon-122 001 ( Haryana).
Tamil Nadu Generation and Distribution Corporation Ltd --- RESPONDENTS

(Formerly Tamilnadu Electricity Board -TNEB)
NPKRR Maaligai, 800, Anna Salai
Chennai – 600 002
Represented by its Chairman
And Others
AFFIDAVIT VERIFYING THE PETITION
I, Zafrul Hasan, S/O ……………, working as General Manager (Commercial) in the Power Grid
Corporation of India Ltd., having its registered Office at B-9, Institutional Area, Katwaria Sarai, New
Delhi-110 016, do hereby solemnly affirm and state as under:-
1. That I am the General Manager (Commercial) of Power Grid Corporation of India Ltd., the
representative of the Petitioner in the above matter, and am duly authorised to make this
affidavit.
Annexure -1
2. That the enclosed tariff Petition is being filed for determination of Truing up Transmission tariff
for 2014-19 tariff block and Transmission tariff for 2019-24 tariff block for Transmission Asset
“2 nos of 240 MVAR, 765kV Switchable Line Reactors (6x80MVAR, 765kV, 1-Ph Shunt
Reactor), along with Reactor Bays & 2 Nos 765kV Line Bays excluding PLCC, Telecom
equipment and Line Terminal equipment such as LA, CVT & Wave Trap" at 765/400kV Kurnool
S/s” under “Substation works associated with additional inter-regional AC link for import
of power into Southern Region i.e., Warora- Warangal and Chilakaluripeta- Hyderabad -
Kurnool 765kV Link''.
3. That no other tariff Petition except this petition has been filed directly or indirectly for
determination of Truing up Transmission tariff for 2014-19 tariff block and Transmission tariff for
2019-24 tariff block for Transmission Asset “2 nos of 240 MVAR, 765kV Switchable Line
Reactors (6x80MVAR, 765kV, 1-Ph Shunt Reactor), along with Reactor Bays & 2 Nos 765kV
Line Bays excluding PLCC, Telecom equipment and Line Terminal equipment such as LA, CVT
& Wave Trap" at 765/400kV Kurnool S/s” under “Substation works associated with
additional inter-regional AC link for import of power into Southern Region i.e., Warora-
Warangal and Chilakaluripeta- Hyderabad - Kurnool 765kV Link''.
4. That the statements made in the tariff Petition herein are based on petitioner company’s official
records maintained in the ordinary course of business and I believe them to be true and correct.
5. The documents attached with the petition are legible copies and duly attested by me.
(DEPONENT)
VERIFICATION
Solemnly affirmed at Gurgaon on this -- that the contents of the above affidavit are true to my
knowledge and belief and no part of it is false and nothing material has been concealed there from.
(DEPONENT)
Annexure -1
BEFORE
THE CENTRAL ELECTRICITY REGULATORY COMMISSION
NEW DELHI
IN THE MATTER OF
Approval under regulation-86 of CERC (Conduct of Business) Regulations’1999 and CERC (Terms and
Conditions of Tariff) Regulations, 2014 and CERC (Terms and Conditions of Tariff) Regulations’ 2019
for

For Transmission Asset “2 nos of 240 MVAR, 765kV Switchable Line Reactors (6x80MVAR, 765kV,
1-Ph Shunt Reactor), along with Reactor Bays & 2 Nos 765kV Line Bays excluding PLCC, Telecom
equipment and Line Terminal equipment such as LA, CVT & Wave Trap" at 765/400kV Kurnool S/s”
under “Substation works associated with additional inter-regional AC link for import of power into
Southern Region i.e., Warora- Warangal and Chilakaluripeta- Hyderabad - Kurnool 765kV Link''.
Power Grid Corporation of India Ltd. --- PETITIONER

Registered office: B-9, Qutab Institutional Area,
Katwaria Sarai, New Delhi. 110 016.
Corporate Centre : ‘SAUDAMINI’, Plot No-2,
Sector-29, Gurgaon-122 001 (Haryana).
Tamil Nadu Generation and Distribution Corporation Ltd

(Formerly Tamilnadu Electricity Board -TNEB) --- RESPONDENT
NPKRR Maaligai, 800, Anna Salai
Chennai – 600 002
Represented by its Chairman And Others
MEMO OF APPEARANCE
POWER GRID CORPORATION OF INDIA LTD. -- PETITIONER
1. Shri Mukesh Khanna, ED (Commercial & RC), POWERGRID

2. Shri Mohd. Mohsin, Senior GM (Comml- Petition), POWERGRID
3. Shri B. B. Rath, Senior GM (Comml- Petition), POWERGRID
4. Shri Zafrul Hasan, GM (Comml- Petition), POWERGRID
POWER GRID CORPORATION OF INDIA LTD.
GURGAON REPRESENTED BY
DATED:
General Manager
(Commercial)
Comments on Approach Paper
for (Terms and Conditions of Tariff) Regulations, 2024
POWERGRID

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Submissions on

Approach Paper for

31st July, 2023

CERC has facilitated market mechanisms, including power exchanges, to promote

 Reduction in power procurement costs: The robust transmission network has

 Reduction in congestion: Robust ISTS network with increasing Inter regional

 Renewable integration: Transmission system plays a catalyst role in energy

As the tariff is determined on multiyear principles, it is important to maintain certainty in

4.0 OBJECTIVES OF THE POLICY

The objectives of this tariff policy are to:

(a) Ensure availability of electricity to consumers at reasonable and competitive

“The very essence of a multi-year tariff framework is to maintain regulatory certainty by

Further, considering the future investment requirement which is discussed in detail in

 Simplification of Tariff Determination Process: We appreciate and share the

Summary of observations/ suggestions by POWERGRID on Approach Paper is

 Reference Cost for Approval of capital Cost: Considering the large

 Computation of Interest during Construction: Since POWERGRID

 Renovation and Modernisation (R&M): Considering the peculiar nature

For system reliability, initial spare requirement is mandatory for Transmission

 Delay towards obtaining Statutory Clearances: POWERGRID

 Servicing Impact of Delay even if it is condoned – POWERGRID and

 Segregation of Normative Expenses: We agree with the observation

 Depreciation: We welcome the proposal that the depreciation rate may be

 Rate of Return on Equity: We submit the following

o To attract international investors the return on equity for generation/ transmission

o Investments in generation and transmission projects are for a long duration

o A normative special allowance may be allowed to transmission licensees from

o Cases where existing assets may be required to be replaced before completing

 Sharing of Charges: POWERGRID is committed towards Government of

Further, rent charges due to above businesses may be considered as non-tariff

 Decommissioning/Upgradation/Replacement of Assets: The

o Additional Suggestions to optimise handling of large number of petitions:

 Suggestion 1: Licensees may be allowed to claim tariff based on tariff

 Suggestion 2: In case hearing for some petitions is deemed required under

o Useful life of Control & Protection for HVDC, FACTS, AC Sub-stations:

o Observations on interest calculation on Recovery / Refund due to

1) AFC excluding O&M expenses

ii. Approach 2: Paper proposes further simplification of the existing Performance

1) Approach 1: We appreciate the shifting of present tariff methodology towards

2) Approach 2 - Performance Based Hybrid Approach: This approach proposes

Further, experience gained after implementation of this Approach-2 in block 2024-29

 In Approach -1, the method of indexation factor requires more clarity as

 Approach 2 i.e., Performance Based Hybrid Approach would result into

Further, at para 4.14 of the Approach paper, Weighted Average rate

The above suggestion by POWERGRID may also be considered for

Para 4.2.1: Capital Cost- Background

Alternatives proposed in Approach Paper

POWERGRID Suggestion: Based on above discussion, it is requested that 90%

Para 4.2.2: Procurement of Equipment and Services

Alternatives proposed in Approach Paper

 Para 4.2.3: Reference Cost for Approval of Capital Cost –

Alternatives proposed in Approach Paper

As mentioned in Approach paper, Capital cost in the context of transmission assets

Considering the large number of variables involved, it is practically challenging to

POWERGRID Suggestion: POWERGRID supports the views presented in

 Para 4.3: Capital Cost for projects acquired post NCLT

Alternatives proposed in Approach Paper

1. Historical Cost or Acquisition Value whichever is lower should be considered for

1) Though various generators are presently undergoing insolvency proceedings, the