27.08.2020 - Foundation Course

Basic Structure of Tariff of Thermal
Stations
Based on CERC Tariff Regulation 2019-24 1

Business Model of ISGS
• How do a business started ?
• Capital
• Equity
• Debt
• To Continue the business
• Working Capital
• How de we get the return ?
• Servicing of Capital employed (Fixed Charge)
• Return on Equity
• Interest on loan capital
• Depreciation (getting back the capital deployed)
• Interest on working Capital required to continue the business
• O&M Expenses (Employee cost, R&M cost, Overhead, CC Expenses)
• Variable Charges ( to recover primary and secondary fuel cost, cost of reagent) 2
Basic Definitions
• ISGS = Inter State generating Station
• Beneficiaries who are entitled to get power from a station
• Generation ( Million kWh) (500 MW x 24 Hr/1000 = 12 mu)
• PLF (%) = Gross generation at generator output terminal / (Capacity)
• DC (%) = Power which is committed to supply on a particular time (block) from the
boundary of plant
• SG (%) = Power which is committed to be scheduled by beneficiaries on a particular
time (block) from the boundary of plant
• AG (%) = Power which is actually supplied to beneficiaries on a particular time
(block) from the boundary of plan
• Heat Rate (kCal/kWh) = Amount of heat energy from fuel is required for generation
on one unit of electrical energy ,
• APC(%) = Energy consumed by auxiliary equipment / (Gross Generation)
3
Basic Definitions
• Concept of Normative
• Repair and Maintenance (R&M)
• Renovation and Modernization (R&M)
• Appellate Tribunal and CERC
• Appellate Tribunal for Electricity has been established by Central Government for
those who are not satisfied with the Central Electricity Regulatory Commission’s
order or with an order of SERC. The Tribunal has the authority to overrule or
amend that order.
• The tribunal has to be approached within 45 days from getting the order by the
aggrieved person.
4
Evolution of Bulk Power Tariff
Single part based on BPSA
1985 – 87
Mutual Negotiation
Umpire Award
Single part based on MOU
1982 – 85 1987-1992
Mutual Negotiation (Still Single Part)
Two part- K P Rao

Tariff Regulation 2019-24 1992 – 97
By CERC
MarketBidding
Based
Competitive
Tariff
Guidelines
GOI
GOI
Two part- 30.03.1992 for
Tariff Regulation 2001-04, ECC Study on IPP
2004-09,2009-14 by Tariff & Regulatory GOI
CERC Reform
1994
Enactment of CERC Order on Tariff Regulation (K P Rao)

Electricity Act, ABT 1998-01
2003 04 Jan, 2000
th CERC
5
Evolution of Tariff Framework
CPSU Generating Companies
Prior to 1992 : Single Part Tariff – set through MOU / BPSA / by the
Central Govt .
6
Two part – K P Rao
Since November’1992, the tariff notifications based on K P Rao Committee
recommendations were issued by GOI.
 It has two parts : Fixed Charge and Variable Charge

 50% Fixed charge is guaranteed irrespective of plant availability
 100% Fixed charges were recoverable at 62.8% PLF
 Incentive @1 paisa/kWh for every 1% increase in PLF above 68.5%
 Variable charges in paisa per kWh to fuel price adjustment
7
Two part – K P Rao
Issues of Two Part Tariff based on K P Rao
 Did not encourage Grid discipline

 Low frequency during peak hours
 High frequency during Off-peak hours
 Rapid changes in frequency and fluctuation of grid voltages
8
Background
• In the year 1994, M/s ECC of USA was appointed under a grant from Asian
Development Bank to undertake a comprehensive study of the Indian power
system and recommend a suitable tariff structure.
• ECC submitted their report in February, 1994, recommending Availability based

Tariff for generating stations, which was accepted in principle by GOI in November,
1994.
• A National Task Force (NTF) was constituted by the Ministry of Power in February,
1995 to oversee the implementation of ECC's recommendations. Based on NTF
deliberations between 1995 and 1998, Ministry of Power had crystallized the
formulation for the so-called Availability-based tariff (ABT).
Regulatory Framework Evolution
 Central Electricity Regulatory Commission Set up in Aug 1998
under Electricity Regulatory Commissions Act,1998. Apart from
CERC, the act also introduced a provision for the states to
create SERC.
The CERC has been vested with the responsibility of regulation of

tariff of
• generating companies owned or controlled by the Central

Government,
• generating companies having composite scheme for generation and

sale of electricity in more than one state and inter-State
transmission systems under Section 79 of the Electricity Act, 2003
(“the Act”)
• The Section 61 of the Act provides the principles for determination

of tariff.
10
Regulatory Framework Evolution
Objectives of this Tariff Policy :
a) Ensure availability of electricity to consumers at reasonable and

competitive rates;
b) Ensure financial viability of the sector and attract investments;
c) Promote competition, efficiency in operations and improvement in quality

of supply;
d) Promote generation of electricity from Renewable sources;
e) Promote Hydroelectric Power generation including Pumped Storage

Projects (PSP) to provide adequate peaking reserves, reliable grid
operation and integration of variable renewable energy sources;
f) Evolve a dynamic and robust electricity infrastructure for better

consumer services; 11
Business Model of ISGS
• How do a business started ?
• Capital
• Equity
• Debt
• To Continue the business
• Working Capital
• How de we get the return ?
• Servicing of Capital employed (Fixed Charge)
• Return on Equity
• Interest on loan capital
• Depreciation (getting back the capital deployed)
• Interest on working Capital required to continue the business
• O&M Expenses (Employee cost, R&M cost, Overhead, CC Expenses)
• Variable Charges ( to recover primary and secondary fuel cost, cost of reagent) 12
Two Part Tariff System
 Commission Notified its first Terms & Conditions

of Tariff for the tariff period 2001-04 on
26.3.2001
 Fixed / Capacity Charge for servicing the
 Investment for starting the business

 Capital required for carrying out the business
 Variable Charge / Energy Charge Rate for

servicing the operational cost
13 13
CERC Tariff Regulation 2019-24
Capacity Charge
Based on the Annual Fixed Cost (AFC)
• Servicing of Capital Cost
1. Return on Equity – Normative

2. Interest on Loan Capital
a) Loan Amount largely Normative
b) Interest Rate at Actual
3. Depreciation
a) Initially higher (Accelerated)- 5.28% for 12 years, later spread to
balance period of life on straight line method
4. O&M Expenses- Normative (in Rs L/ MW)
a) Employee cost, b) Overhead d) Repair and Maintenance c) CC Expenses
• Other Fixed Expenses
5. Interest on Working Capital- Both Quantum and Rate normative
6. Water Charges, RLDC Charge, Security Expenses etc. additionally at actual

7. Special Allowance (for units more than 25 years old)- Normative
14 14
sm1 CERC Tariff Regulation 2019-24
Arriving at Capital Cost
 Capital cost (Normative basis)
‒ All the expenditure incurred or projected till SCOD for land and
equipment
‒ IDC (Interest on the capital employed during construction

stages, to be incurred from the actual date of infusion of
debt Prudent phasing of fund).
‒ IEDC (pre-operative expenses e.g. salary, administrative
expenses), to be paid from zero date, date of commencement
of project mentioned in Investment approval / date of
investment approval upto SCOD envisaged in Investment
approval or agreed in PPA
‒ Initial Capital spares (limiting to 4% for coal / Hydro / Gas) at

actual
‒ Adjustment of revenue in excess of fuel cost due to sale of

infirm power prior to COD, Interest on deposits and LD
recovered from agency
15 15
Slide 15
sm1 sagnik majumdar, 3/14/2019

Arriving at Capital Cost
Capital cost (Normative basis) Exclusions
• The assets forming part of the project, but not in use (Hydrogen Generation plant)
• Decapitalisation of Asset
• the proportionate cost of land which is being used for generating power from
generating station based on renewable energy
• Provided that any grant received from the Central or State Government or any
statutory body or authority for the execution of the project which does not carry
any liability of repayment shall be excluded from the Capital Cost for the purpose
of computation of interest on loan, return on equity and depreciation;
• Adjustment of revenue in excess of fuel cost due to sale of infirm power prior to
COD, Interest on deposits and LD recovered from agency
16 16
Prudence check of Capital Cost for new stations

 Prudence check generally includes scrutiny of the capital expenditure,
financing plan, interest during construction, incidental expenditure
during construction for its reasonableness, use of efficient technology,
cost over-run and time over-run etc.
 Capital Cost prudence check w.r.t benchmark norms specified / to be
specified by Commission from time to time.
 CERC has already issued an order on Benchmarking of capital cost for
different unit size and unit configurations.
Unit Size in No of Total Hard cost Unit Size in MW No of units Total Hard cost
MW units (Rs. Cr/ MW) (Rs. Cr/ MW)
500 1 to 4 5.08 -4.34 660 1 to 4 5.37-4.37
(Greenfield) (Greenfield)
500 1 to 2 4.92-4.53 660 1 to 2 4.95-4.67
(Extension) (Extension)
600 1 to 4 4.87-4.01 800 1 to 4 4.96-4.44
(Greenfield) (Greenfield)
600 1 to 2 4.47-4.19 800 1 to 2 4.63-4.44
(Extension) (Extension)
17 17
IDC/ IEDC- in case of delay in projects
• Additional IDC due to delay beyond SCOD will be allowed

only after prudence check.
• Additional IDC & IEDC will be allowed only for delay due
to uncontrollable factors such as:
• Force Majeure
• Change in Law
• If the delay is attributable to agencies or contractors, no
IDC/ IEDC will be allowed for the delay period
18
Additional Capitalization
Additional
Capitalization
Within Beyond
original scope original scope
of work of work
Upto Cut-of Beyond Cut

date off date
Additional Capitalization after COD but within Cut-
Off Date and included in original scope of work
Cut Off Date Date by which all works within the original scope of work are required
to be completed.
- last day of calendar month after 36 months from the actual date of
commercial (COD) for the project
Additional Capital expenditure means the capital expenditure incurred, or
projected to be incurred after the date of commercial operation of the project
a. Undischarged liabilities recognized to be payable at a future date;
b. Works deferred for execution;
c. Procurement of initial capital spares within the original scope of work,
d. Liabilities to meet award of arbitration
e. Change in law or compliance of any existing law;
f. Force Majeure events
In case of any replacement of the assets, the additional capitalization shall be worked out
after adjusting the gross fixed assets and cumulative depreciation of the assets replaced on
account of de-capitalization.
The generating company shall submit the details of works asset wise/work wise included20in 20
the original scope of work
Additional Capitalization within the original scope
and after the cut-off date
The additional capital expenditure incurred or projected to be incurred in
respect of an existing project or a new project on the following counts
within the original scope of work and after the cut-off date may be
admitted by the Commission, subject to prudence check:
(a) Liabilities to meet award of arbitration or for compliance of the directions

or order of any statutory authority, or order or decree of any court of law;
(b) Change in law or compliance of any existing law;
(c) Deferred works relating to ash pond or ash handling system in the original
scope of work;
(d) Any liability for works executed prior to the cut-off date but payment was
not made, the details of such undischarged liability, reasons for such
withholding of payment and release of such payments etc.
(e) Force Majeure events;
21 21
Additional Capitalization for existing projects
original scope and after the cut-off date
In case of replacement of assets deployed under the original scope of the existing project
after cut-off date, the additional capitalization may be admitted by the Commission, after
making necessary adjustments in the gross fixed assets and the cumulative depreciation,
subject to prudence check on the following grounds:
(a) The useful life of the assets is not commensurate with the useful life of the project and
such assets have been fully depreciated in accordance with the provisions of these
regulations;
(b) The replacement of the asset or equipment is necessary on account of change in law
or Force Majeure conditions;
(c) The replacement of such asset or equipment is necessary on account of obsolescence
of technology; and
(d) The replacement of such asset or equipment has otherwise been allowed by the
Commission of payment and release of such payments etc.
22 22
Additional Capitalization for existing projects beyond the
original scope
The capital expenditure, in respect of existing generating station on the
following counts beyond the original scope, may be admitted by the
Commission, subject to prudence check:
(a) Liabilities to meet award of arbitration or for compliance of order or
directions of any statutory authority, or order or decree of any court
of law;
(b) Change in law or compliance of any existing law;
(c) Force Majeure events;
(d) Need for higher security and safety of the plant as advised or
directed by appropriate Indian Government Instrumentality or
statutory authorities responsible for national or internal security;
(e) Deferred works relating to ash pond or ash handling system in
additional to the original scope of work, on case to case basis:
(f) Usage of water from sewage treatment plant in thermal generating
station. 23 23
Truing up for 2014-19
 Truing up exercise based on actual CAPEX upto
31.03.2019 for tariff period 2014-19 to be done with the
new Tariff petition for 2019-24 latest by 31.10.2019
 The capital cost admitted after truing up as on

31.03.2019 will be the opening capital cost for Tariff
period 2019-24 for determination of tariff for 2019-24
 Difference between tariff allowed and revised after

Truing-up to be adjusted with simple interest at the
bank rate as on 1st April of respective year in six equal
monthly instalments
24 24
Truing up for 2019-24
 Truing up exercise based on actual CAPEX for tariff period
2019-24 to be done with the new Tariff petition for 2024-29
 Generating company has to make an application for Truing

up latest by 30.11.2024
 Generating company can apply for interim truing up in the

year 2021-22 if actual Fixed cost is more than 20% as
envisaged in Tariff Notification. However, if it is less, it is to
be reimbursed with interest at bank rate to beneficiaries
without going to CERC
 Difference between tariff allowed and revised after Truing-up

to be adjusted with simple interest at the bank rate as on 1st
April of respective year in six equal monthly instalments
25 25
Typical AFC Break up (%)
Old New Gas

stations Stations Stations
ROE 35~38% 28~ 30% 35~37%
Interest on Loan 5% 20% 3%
O&M Cost 40~ 45% 20~25% 27%
Interest on 10% 8% 23%
Working Capital
Depreciation 5% 20% 10~12%
26 26
Return on Equity (ROE)

 Rate of return on equity (Base rate - Post-tax) retained at 15.5% (thermal),
16.5% (hydro- storage & pumped storage).
 Additional ROE of 0.5% for timely completion of projects deleted.
 Ramp rate requirements for thermal (w.e.f 01.04.2020)- new provision

 Reduction in rate of ROE by 0.25% for not achieving ramp rate of 1% per
min. ( 1st block 0.5 % per minute, one block gate closure. Evaluation will
be done for every block)
 Additional ROE @ 0.25% for every incremental ramp rate of 1% per min
achieved subject to ceiling of 1%.
 RGMO/FGMO, data telemetry, communication system up to LDC, protection
system mandatory for existing/new projects – Otherwise, Rate of RoE may
be reduced by 1% for the period of deficiency as decided by CERC based on
report by RLDC. 27 27
Return on Equity- treatment of tax

 Tax to be paid by the generator
 Mechanism of recovery of tax to be paid is through
grossing up of the Base Rate of Return
 Actual tax rate to be used for grossing up purpose.
Example:
 If estimated effective Income Tax rate is 25% to be calculated at the
beginning of every year based on estimated profit and tax to be
paid, then Pre-Tax Grossed up ROE would be 15.5%/(1-25%) =
20.67%
 Grossed up ROE will be trued up at the end of each financial year
based on actual income tax paid
D/E ratio retained at 70:30
Equity in excess of Normative (30%) treated as deemed loan and if Equity
less than 30%, ROE shall be given on actual equity. 28 28
Deferred Tax Liability
As per Income Tax Rules Depreciation is at higher rate than the accounting Depreciation. Because of this
in initial years of plant, we pay less tax and accordingly our accounting profit becomes high.
Rs.100 Capital
Depreciation as per Income Tax = Rs.15.00
Depreciation as per Accounting = Rs.10.00

Old Stations beyond Useful Life - Reg.- 18(3)

 In case of generating station which has completed its useful life
on or after 01.04.2019, if actual equity deployed on 01.04.2019
is more than 30% of capital cost, equity in excess of 30% shall
not be considered for tariff computation.
 Definition of “useful life” provides that extension of life of projects
beyond their useful life may be decided by CERC on case to case basis.
30 30
Old Stations beyond Useful Life - Reg.- 18(3)

Tariff Regulations 2014 Tariff Regulations 2019
Stations that have
completed useful life / Revised
S. No. MW Normative ROE Allowed Equity Revised
are completing useful life Capital Cost Reduction
in 2019-24 Equity @ 15.5% (@30% of RoE
in ROE
capital cost)
1 Dadri-1 840 1690 847 131 507 79 53

2 Farakka-1&2 1600 3197 1567 243 959 149 94
3 Kahalgaon-1 840 2206 1067 165 662 103 63
4 Korba-1&2 2100 1780 871 135 534 83 52
5 Ramagundam-1&2 2100 2306 1146 178 692 107 70
6 Rihand-1 1000 2423 1202 186 727 113 74
7 Singrauli 2000 1247 602 93 374 58 35
8 Talcher Super-1 1000 2867 1362 211 860 133 78
9 Unchahar-1 420 968 480 74 291 45 29
10 Vindhyachal-1 1260 1482 736 114 444 69 45
11 Dadri Gas 830 902 446 69 271 42 27
12 Anta 419 836 343 53 251 39 14
Total 14409 21905 10669 1654 6572 1019 635
31 31
Interest on Loan
 To be charged from 1st year of CoD irrespective of moratorium @ Actual
Wt. Avg. Rate of interest at the beginning of each year
 The repayment shall be considered as equal to the depreciation allowed
in the previous year.
 Generator to attempt re-financing - Net Benefit of refinancing to be
shared in the ratio of 1 (Gen):2 (beneficiaries); Refinancing cost is to be
borne by the beneficiaries
Why should we try to do COD at the earliest ?
32 32
S. No. Unit size Likely Loss

(MW) (Rs. Cr /month of delay)
1 500 24
2 660 30
3 800 36
33 33
Depreciation
Why depreciation is given at all ?
 Depreciable value 90% (except land) ; 100% for IT components

 Depreciable life:
 Thermal - 25 years
 Gas –25 years
 Hydro - 40 years (35) years
 5.28% for the first 12 years after commercial operation and rest shall be
spread over balance life
34 34
Working
capital
Inventory
O&M expenses Receivables
Fuel [20%/30%(gas)
( 1 month) (45 days)
of O&M cost]
Advance
Stock (10/20
payment
days) Oil (2 months)
(1 month)
Interest on Working Capital

• Coal Based Stations
o Cost of Coal stock for 10 (15 ) days for pit head stations, 20 (30 days) days
for non-pit head stations for normative plant availability ( 30 days for gas station)
or maximum coal storage capacity, whichever is lower
o Advance payment for 30 days towards cost of coal for normative plant
availability
o Secondary fuel oil (for main Secondary fuel) for 2 months for normative
consumption
o Maintenance spares @ 20% (coal) / 30% (gas) of O&M (Inventory) cost

including Water charges and security expenses
o Receivables for 45 days (60 days) (capacity charge and energy charge) on
normative PAF
o O&M expenses including water charges and security expenses for 1 month
• Cost of fuel – Coal cost for IWC computation to be based on actuals of the 3rd quarter of
preceding year every year and for new stations cost for the first year wiil be the landed cost of
coal during three months prior to COD i.e for infirm power generation. 36 36
Interest on Working Capital

• Rate of interest will be bank rate as on 1.4.2019 or 1st of
April of the year in which the station is declared under
commercial operation whichever is later (Bank Rate (SBI) is
MCLR plus 350 point basis . MCLR- Marginal cost based lending
rates refers to the minimum interest rate of a bank below
which it cannot lend, except in some cases allowed by the RBI
• In case of truing-up, the rate of interest on working capital
shall be considered at bank rate as on 1st April of each of
the financial year during the tariff period 2019-24.
• IWC will be paid on normative basis irrespective of whether
generating company taken loan or not?
37 37
Input price of coal in case of integrated mines
• If the generating company has been allocated the coal block and is
extracting coal which is used for generation in one or more generating
stations of the company, separate tariff order will be issued for
determining the coal rates by CERC.
• However, till the time no Tariff order is issued, coal rates as notified by
Coal India will be used for the purpose of ECR calculation.
• However, the reconciliation will be done after declaration of tariff and

receipt or reimbursement will be done to beneficiary.
Components of O&M Expenses
 Employee cost
 Repair & Maintenances
 Overhead (Power charges, Chemical Consumptions, Insurance Premiums,
Boiler licence fees, Training expenses, Technical studies (EMG), Education
expenses, Inland travel expenses, tender expenses, guest house
expenses, IT expenses (consumables, UPL and contract employees)
Legal expenses
 CC Expenses
 Water and Pollution cess,
 RLDC Charges, water charges, security expenses, Tariff filing fees
 Capital spares cost for replenishment of initial capital spares
39 39
O&M Expenses
Unit size / Station (MW) 2019-20 (Lakhs/MW) 2018-19 (Lakhs/MW)
200 MW 32.96 + actual security expenses 30.59 (32.532)
500 MW 22.51 + actual security expenses 20.43
600 MW & Above 20.26 + actual security expenses 18.38
800 MW & Above 18.23 + actual security expenses 18.38
TTPS 56.34 + actual security expenses 55.09
TANDA 46.16 + actual security expenses 45.80
GAS STATIONS 17.58 + actual security expenses 18.72
Koldam Hydro 15.82 + actual security expenses + impact of GST, min wages & 25.24
pay revision
 Security expenses to be allowed separately after prudence check (Similar to water charges & capital
spares). Generator to submit assessment of security requirement & estimated expenses.
 Additional units after first 4 units declared COD after 01.04.2019 – 90% of O&M expenses norms
 Annual escalation: Thermal - 3.5% (6.35% p.a. in Reg. 2014); Hydro – 4.77%
 O&M expenses for ECS to be notified separately. Till such time, to be decided on case to case basis.
Security Exp.- Separate account to be kept. All CISF & other security Exp. (including housing, medical, etc.
40 40
related to security) to be booked separately.
Tentative break up expenses for a coal station
Net Profit
14%
Interest
2%
Depr.
6%
CC Exp
1%
Stn OH
1%
R&M Cost
3%
Emp Cost
4%
Fuel Cost
69%
Target Availability – Reg. 42
AFC split into capacity charges for High Demand Season and Low Demand Season (w.e.f 01.04.2020)
 Concerned RLDCs shall notify high / low demand months at least 6 months in advance.
 Peak hours to be declared by RLDC at least 1 week in advance- 20% of monthly FC to be recovered
in peak hrs
High Demand Season Low Demand Season
3 months – (Consecutive or otherwise) 9 months –(consecutive or otherwise)
Peak Hours (4 hours in a day) Peak Hours (4 hours in a day)

Target Availability of 85% to be achieved on 85% Target Availability to be achieved. (on
cumulative basis for 3 months cumulative basis for 9 months)
Off-Peak Hours (20 hours in a day) Off-Peak Hours (20 hours in a day)
85% Target Availability to be achieved on 85% Target Availability to be achieved (on
cumulative basis for 3 months cumulative basis for 9 months)
Any under achievement in availability during Any under achievement in availability in off-
off-peak hrs can be off-set by over- peak hrs can be off-set by over-achievement in
achievement in peak hours during high peak hours during low demand season.
demand season.
Strategy
Peak Hours 16.67% of the day and Off Peak hours 83.33% of the day
Suppose we have annual AFC 120 Cr.
To be recovered in High Demand season Rs.30 Cr and Low demand season Rs.90 Cr.
High Demand Season : During Peak hours (16.67%), 20% of 30 cr. = Rs.6 Cr and During Off peak hours 24 Crores
Low Demand Season : During Peak hours (16.67%), 20% of 90 cr. = Rs.18 Cr and During Off peak hours 72 Crores
1.0 No overhauling during high demand season
2.0 Irrespective of situation we must give 105% DC during peak hours. It should start right from day one to avoid
any complexity in future.
3.0 For units under RSD, we can’t give DC more than 100%
3. In coal shortage scenario, stations can minimize under recovery of AFC by declaring higher DC (>85%) in peak
hrs.
4.0 Change in ABT software.

Incentive Reg.- 42 (6)
 Applicable on achieving Normative Annual Plant Loading Factor (NAPLF calculated based on
Ex-bus SG) of 85% on a cumulative basis within each Season (High Demand or Low Demand
Season) (wef 01.04.2020) (Months for Season may be continuous or discrete)
 Plant Load factor for Incentive = SG/(IC*1-NAPC/100)
 Differential incentive rate for peak / off-peak hours (wef 01.04.2020)
 Incentive @65 paisa/kwh during Peak hours
 Incentive @50 paisa/kwh during off-peak hours
 Capacity charges and incentives shall have to be recovered on season basis
Strategy : At any time we should declare higher DC during peak hours that may lead to earning
higher incentive in particular at the time of difficulty i.e. coal shortage, unit problems etc.
Copyright © 2016 Your Company All Rights Reserved. 44

APC - Reg.- 49(E)
Unit / Station APC Comparison with Tariff Regulations 2014
200 MW 8.5% No change

500 MW & above - With TDBFP 5.75% increase by 0.50%
- With MDBFP 8% increase by 0.25%
Additional APC:
1. Tube type coal mill (Talcher-I, VSTPS-2 & Unchahar-2) 0.8 % Provided in Tariff Regulations 2019
2. IDCT 0.5% No change
3. Air Cooled Condenser – Direct / Indirect cooling 1% / 0.5% No change
Gas stations (CC) – 2.75% Increase by 0.25%
 With electric motor driven Gas Booster Compressor 2.95%
 Additional APC for ACC (direct cooling with mechanical 0.35%
draft fans)
TTPS 10.5% No change
Tanda 11.5% Reduced by 0.5%
 APC for ECS (Emission Control System), Sewage Treatment Plant and External CHP (Jetty & associated
infrastructure) to be considered separately.
 APC shall not include colony consumption, construction power and consumption by integrated coal mine.
However, CERC in the SOR has clarified that generating stations shall continue to draw power from the
station for colony consumption.
New Projects - - Reg.- 22
 For stations where PPAs have been signed before 05.01.2011 but financial
closure has not taken place by 31.03.2019, fresh consent of beneficiaries is
required for eligibility for determination of tariff.
 Time and cost overrun on account of land acquisition included in “uncontrollable

factors”.
 Delay in obtaining statutory approval for new projects to be treated as Force

Majeure.
 Except cases where delay is attributable to project developer.

Special Allowance
• Alternatively, the generating company may opt to avail
‘Special Allowance’ (SA). In such a case:
• Will be allowed for units completing 25 years from COD
 Special allowance @9.5 Lakh/MW without escalation for the
tariff period 2019-24. (18-19: 9.59 L/MW 6.35% escalation)
 Special Allowance to be transferred to a separate fund for
utilization towards R&M activities, for which a detailed
methodology shall be issued separately.
47 47
Renovation and Modernization

R&M
 Generating company intending to undertake R&M shall
obtain consent of the beneficiaries and submit the same
along with the petition to the Commission.
48 48
Thanks

GCV - Reg.- 43
 GCV for ECR computation retained on “as received basis”
 GCV margin of 85 kcal/kWh is provided for variation on account of storage at generating station.
 Measurement of GCV as received:
 At the unloading point of generating station through collection, preparation and testing of
samples from the loaded wagons, trucks, ropeways, Merry-Go-Round (MGR), belt conveyors
and ships in accordance with the IS 436 (Part-1/ Section 1)- 1964.
 Through Third party sampling to be appointed by the generating companies in accordance
with the guidelines, if any, issued by Central Government:
 Expenses towards 3rd party sampling shall be reimbursed as part of landed cost of fuel by
the beneficiaries (Reg. – 38)
 Transit & Handling Loss : No change (0.8% for non-pit heat and 0.2% for pit head)
 For every 100 Kcal/Kg increase in GCV there will be impact 7 paisa/kWh in
ECR
Strategy ???
Co-firing Biomass with Coal
Various provisions of the Regulations provides for co-firing of biomass with coal.
 Definition of “Project” includes Biomass pellet handling system.

 Definition of “thermal generating station” provides for co-firing biomass with
coal.
 Capital cost of new project includes capital cost on account of biomass
handling equipment and facilities for co-firing;
 Landed cost of fuel includes landed cost of biomass.
 Landed cost of biomass fuel shall be worked out based on its delivered cost at
unloading point of the generating station, inclusive of taxes and duties as
applicable.
 ECR of the blended fuel shall be worked out considering consumption of
biomass based on blending ratio as specified by CEA or actual consumption of
biomass, whichever is lower.
Sharing of Net Gain –Thermal Stations
 Sharing of Net Gain on account of operational parameters (Station
heat rate, Secondary fuel oil consumption & APC) shall be on annual
basis between Generator and Beneficiaries in 50:50 ratio.
(Regulations 2014 provides sharing in 60:40 ratio).
 Net Gain = (ECRn - ECRa) x Scheduled Generation.

ECRn = Normative Energy Charge Rate computed on the basis of normative
operational parameters.
ECRa = Actual Energy Charge Rate computed on the basis of actual operational
parameters.

Special Provision for Stations > 25 years - Reg.- 17
“In respect of a thermal generating station that has completed 25 years of operation
from the date of commercial operation, the generating company and the beneficiary
may agree on an arrangement, including provisions for target availability and incentive,
where in addition to the energy charge, capacity charges determined under these
regulations, shall also be recovered based on scheduled generation.”
 The beneficiary will have the first right of refusal to enter into agreement
 On refusal, the generator shall be free to sell the electricity generated from such
station in a manner as it deems fit

Additional Capitalization - ECS – Reg. 29
 Emission Control Systems (ECS) as those required for compliance of Dec’15
Notification of MoEF, GoI- new provision
 Supplementary capacity charges for additional capitalization and supplementary
energy charge on account of implementation of ECS shall be determined separately.
 Equity infused to be serviced at ROE Rate (70:30 ratio)
 Application with Proposal for ECS to be submitted to CERC.
 Proposal to contain details of proposed technology as specified by CEA, Scope of
work, phasing of expenditure, schedule of completion, estimated completed cost
and detailed computation of impact on tariff.
 Proposal to be shared with beneficiaries.
 Commission may grant approval for incurring add-cap on account of ECS
 Petition for determination of tariff to be filed after completion of implementation of
Emission Control System (ECS)
 Petitions for ECS to be submitted at the earliest
Energy Charges- servicing the operational cost
• Computation of Energy charges (EC)

- Cost of primary and secondary fuel,
- Cost of limestone and any other reagent
• EC covering primary fuel cost shall be payable for total

ex-bus energy scheduled to be supplied to the
beneficiary during the calendar month, at the specified
energy charge rate.
• Total Energy Charge payable in a month:

Energy Charge Rate x Scheduled Energy (ex-bus)
55 55
Energy Charges- servicing the operational cost

• Computation of Energy charges (EC)
• ECR = {(SHR – SFC x CVSF) x LPPF / (CVPF + SFC x LPSFi + LC x LPL} x 100
/(100 – AUX)
• EC = Constant x Landed price of coal

As received GCV of coal
• EC covering primary fuel cost shall be payable for total ex-bus energy
scheduled to be supplied to the beneficiary during the calendar month, at the
specified energy charge rate.
• Total Energy Charge payable in a month:

Energy Charge Rate x Scheduled Energy (ex-bus)
Constant depends on normative parameters
Heat Rate, APC, Specific Oil
56 56
Issues… Tightening of Norms
2001-04 2004-09 2009-14 2014-19 2019-24

O&M Station 9.36 Lac/MW 13 Lac/MW 16 Lac/MW 22.51
expenses specific with 4% with 5.72% with 6.35% Lac/MW with
norms with escalation escalation escalation escalation of
6% escalation 3.5%
Incentive Based on Based on Based on Based on Based on
Scheduled Scheduled Availability Scheduled Scheduled
PLF PLF PLF PLF
Income Tax Pass through Pass through Grossed up Grossed up Grossed up
(Corporate (actual tax (actual tax
Tax) rate) rate)
CERC is revising the norms based on actual performance of stations.

In future CERC may further tighten the norms.
Issues… Tightening of Norms
2001-04 2004-09 2009-14 2014-19 2019-24

Heat Rate
2390 (2430
(kCal/kWh) 2500 2450 2425 2375
for 200 MW)
(500 MW)
Target
80 80 85 83 (85) 85
Availability
APC 8 7.5 6 5.25 5.75
SOC
3.5 2 1 0.5 0.5
(ml/kWh)
ROE (%) 16 14 15.5 15.5 15.5
CERC is revising the norms based on actual performance of stations.

In future CERC may further tighten the norms.
Thanks

Heat Rate - New Stations

New coal based stations after 1.4.2009 5% margin over design Heat Rate
New gas based stations after 1.4.2009 5% margin over design Heat Rate
New liquid fuel stations after 1.4.2009 7.1% margin over design Heat Rate
Pressure Rating (Kg/cm2) 150 170 170 247
SHT/RHT (0C) 535/535 537/537 537/565 565/593
Type of BFP Electrical Turbine Turbine Turbine
Max Turbine Cycle Heat rate 1955 1950 1935 1850
(kCal/kWh)
Min.Boiler Efficiency
Sub-Bituminous Indian Coal 0.86 0.86 0.86 0.86
Bituminous Imported Coal 0.89 0.89 0.89 0.89
Max Design Unit Heat rate
(kCal/kWh)
Sub-Bituminous Indian Coal 2273 2267 2250 2151
Bituminous Imported Coal 2197 2191 2174 2078
60 60

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Basic Structure of Tariff of Thermal

Based on CERC Tariff Regulation 2019-24 1

Two part- K P Rao

Enactment of CERC Order on Tariff Regulation (K P Rao)

CPSU Generating Companies

 It has two parts : Fixed Charge and Variable Charge

Issues of Two Part Tariff based on K P Rao

 Did not encourage Grid discipline

• ECC submitted their report in February, 1994, recommending Availability based

The CERC has been vested with the responsibility of regulation of

• generating companies owned or controlled by the Central

• generating companies having composite scheme for generation and

• The Section 61 of the Act provides the principles for determination

a) Ensure availability of electricity to consumers at reasonable and

b) Ensure financial viability of the sector and attract investments;

c) Promote competition, efficiency in operations and improvement in quality

d) Promote generation of electricity from Renewable sources;

e) Promote Hydroelectric Power generation including Pumped Storage

f) Evolve a dynamic and robust electricity infrastructure for better

 Commission Notified its first Terms & Conditions

 Fixed / Capacity Charge for servicing the

 Investment for starting the business

 Variable Charge / Energy Charge Rate for

1. Return on Equity – Normative

5. Interest on Working Capital- Both Quantum and Rate normative

6. Water Charges, RLDC Charge, Security Expenses etc. additionally at actual

Arriving at Capital Cost

 Capital cost (Normative basis)

‒ IDC (Interest on the capital employed during construction

‒ Initial Capital spares (limiting to 4% for coal / Hydro / Gas) at

‒ Adjustment of revenue in excess of fuel cost due to sale of

sm1 sagnik majumdar, 3/14/2019

Arriving at Capital Cost

Capital cost (Normative basis) Exclusions

Prudence check of Capital Cost for new stations

IDC/ IEDC- in case of delay in projects

• Additional IDC due to delay beyond SCOD will be allowed

Upto Cut-of Beyond Cut

(a) Liabilities to meet award of arbitration or for compliance of the directions

 The capital cost admitted after truing up as on

 Difference between tariff allowed and revised after

 Generating company has to make an application for Truing

 Generating company can apply for interim truing up in the

 Difference between tariff allowed and revised after Truing-up

Typical AFC Break up (%)

Old New Gas

Return on Equity (ROE)

 Additional ROE of 0.5% for timely completion of projects deleted.

 Ramp rate requirements for thermal (w.e.f 01.04.2020)- new provision

Return on Equity- treatment of tax

Depreciation as per Income Tax = Rs.15.00

Depreciation as per Accounting = Rs.10.00

Old Stations beyond Useful Life - Reg.- 18(3)

Old Stations beyond Useful Life - Reg.- 18(3)

1 Dadri-1 840 1690 847 131 507 79 53

Why should we try to do COD at the earliest ?

S. No. Unit size Likely Loss

Why depreciation is given at all ?

 Depreciable value 90% (except land) ; 100% for IT components