APPENDIX“C”

ASSUMPTIONS FOR TARIFF FORMULATION

(Used for filling the formats)

1.1 Capacity Charge: Capital Cost & Depreciation

1.1.1 Power Stations and T & D Infrastructure

1.1.1.1 The capital cost on the entire power stations as on March

2004, has been taken as the base. The capital cost incurred on
commissioning of such non-operating units (units which are under
shutdown) has been combined with the capital cost of other units in
the same station. The capital cost of the Gas Turbine Station has been
combined with the capital cost of the thermal stations. As has been
mentioned earlier, most of the generating units being old, the
Corporation has taken up R&M of such units, which have not been
operating / are under shutdown. The R&M Programme shall be
completed in the year 2007-08, by when these plants shall deliver
improved operating plant performance.
The details of the R&M programme of such units are placed at
Appendix – ‘F’ to the petition.

1.1.1.2 The depreciation for the year 2004-05 for the individual
items in the stations have been taken as per CERC norms, and, the
actual depreciation in that year has been limited to the allowable
depreciation left to be claimed, after deducting the cumulative
depreciation upto 2003-04.

1.1.1.3 The capital cost of T&D infrastructure as on March 2004 has

been taken as the base. The ratio of estimated capital cost on the
Sub-station, Transformers and Transmission Lines installed at 220KV
and 132KV level, considered on the Transmission side, vis-a-vis the
estimated expenditure on similar infrastructure at 33KV, considered
on the Distribution side, (details given at Appendix –‘G’ ) is used to
make the necessary allocation. The normative ratio, thus, arrived for
T& D is 87:13.

1.1.1.4 Depreciation in case of T&D infrastructure has been worked

out separately for various components within the T & D infrastructure.
Depreciation has been calculated for one stage (i.e. the infrastructure
created during a certain phase). The weighted average depreciation,
so computed for this stage, is applied to other stages (i.e. the
infrastructure created during different phases). Similar approach has
been taken for the c omponents of the Main Division.

1.1.2 Direction Offices and Other Offices

The capital cost in respect of the above offices has been allocated in
the ratio of the direct capital cost of the generating station and T&D
infrastructure.

1.1.3 Subsidiary Activities

The capital cost in respect of the subsidiary activities is shared

amongst the main objects. The capital cost in respect of power is,
further, allocated to the individual stations and T & D infrastructure in
the ratio of their direct capital costs.

1.1.4 Multi-Purpose Dams

1.1.4.1 The capital cost in respect of the multi-purpose dams has

been taken against hydel stations only. Further, their allocation to the
individual hydel station has been made in the ratio of the direct capital
cost of the station.

1.1.4.2 The capital cost in respect of the Konar dam has been
allocated to the individual hydel stations in the ratio of the direct
capital cost of the station.

1.1.5 The capital cost in respect of Multi-purpose Dams, Subsidiary

Activities and Central Offices, as allocated to individual station and
T&D infrastructure, as mentioned earlier, has been depreciated at the
rate of weighted average depreciation on the capital cost for the
individual station / T&D infrastructure.

1.2 Capacity Charge: Return on Equity

1.2.1 According to the Section 30 of the DVC Act 1948, the entire
capital requirement of the Corporation is to be provided by the
participating Govts. The total loan capital provided by the participating
Govts. till 1968-69 amounted to Rs.214.72 crores. There has,
however, been no contribution by participating Govts. after 1968-69.
The Corporation has been ploughing back power surplus and retained
interest each year. Further, the loan capital contributed by the
participating Govts. to meet the capital cost of the project has been
treated as DVC’s own resources.
1.2.2 In respect of majority of DVC’s assets, the market borrowings to
the extent availed in the past years have since been mostly repaid.
However, these assets which have either fully completed its technical
project life or are on the verge of completion, are continuing to
generate power with periodical additional capital expenditure required
for maintaining their health and being considered for R&M after RLA
Study during the Xth Plan Period. Due to this fact, the depreciation
reserves have been mostly invested in continuous Life Extension and
Improvement (E&I) of these vintage assets over the past years. Since
DVC is operating for about six decades, it is not possible to ascertain
the project-wise debt equity structure at the time of COD in respect of
these vintage Plants. The capital base and debt equity ratio as on 31st
March, 2004 has therefore been considered for the purpose of
ascertainment of allocation of return and interest recoverable through
tariff on actual basis.

1.2.3 In the above backdrop, DVC’s debt equity is more of statutory

nature than a management issue in respect of its existing thermal
plants & assets whose debt equity mix has come to the present shape
as a natural flow emanating from the provisions of the DVC Act on
which management of DVC has little control. DVC has, therefore,
claimed return and interest in respect of its existing plants based on
actual debt equity ratio as on 31.3.2004. However for any future new
projects, CERC debt equity norms of 70:30 shall be applicable. Hon’ble
Commission is requested to allow the debt equity and the capital base
as per actuals as on 31.3.2004 for the purpose of tariff fixation in
respect of its existing plants.

1.2.4 As on March 2004, DVC’s net worth from power related activities
was Rs. 3844.46 crores. The outstanding market borrowings / loans
stood at Rs.679.09 crores, resulting in debt equity ratio of 15:85. This
capital structure has been assumed as a normative one, and, used as
the basis for arriving at the equity capital for the individual station
corresponding to its capital cost.

1.3 Capacity Charge: Interest on Long Term Borrowings

1.3.1 Majority of the loans raised by the Corporation are not project
specific. The normative loan outstanding for individual station, as on
March 2004, has been computed by applying the normative debt
equity structure of 15:85 (as mentioned above at Para 1.2.2) to the
capital cost of the station.
1.3.2 The yearly repayment against the normative loan outstanding
for individual station calculated, as per Para 5.3.1 above, have been
computed as follows:

1.3.2.1 The cumulative repayment till March 2004 against the

normative loan outstanding for individual station is initially computed
on a pro -rata basis to the actual cumulative repayment till March 2004
against the gross loan corresponding to the loans outstanding as on
March 2004.

1.3.2.2 Thereafter, the yearly repayment in the subsequent years

against the normative loan outstanding for individual station is
computed on a pro -rata basis to the actual yearly repayment against
the loans outstanding as on March 2004.

1.3.3 The weighted average interest rate on the outstanding market

borrowings / loans has been taken as the normative interest rate to
arrive at the interest cost on long-term loans, computed at Para 5.3.1
above, for individual stations.

1.4 Capacity Charge: O&M Cost

1.4.1 The O&M cost in respect of the individual stations has been
tabulated, based on the Audited Accounts, for the period 1998 to
2003. The average of O&M expenses over these 5 years is taken as a
reference amount for the base year as 2000 -01. Further, as per the
CERC norms, these expenses have been increased by 4% on year-year
basis to arrive at the O&M expenses for the base year 2003-04.

1.4.2 As has been mentioned earlier, around 50% of the total installed
capacity has been commissioned more than 25 years back.
Considering the fact that the Hon’ble Commission has allowed the
plants of NTPC at Talcher and Tanda (which was commissioned about
25 years and 16 years back resp.) to use the actual O & M expenses
as a reference to project the O&M expenses for the subsequent years,
it is, therefore, submitted similar norms to the stations of DVC may be
allowed.

1.4.3 The O&M cost in respect of Transmission & Distribution

infrastructure, too, has been arrived in the similar manner as done for
generating stations. Its further allocation to Transmission and
Distribution is separately made in the ratio of their estimated capital
cost.
1.4.4 In respect of the subsidiary activities, the O&M expenses are
shared amongst the main objects i.e. power, irrigation and flood
control. Such expenses in the case of power sector related activities
have been allocated to the individual stations and T&D infrastructure in
proportion to their direct O&M costs.

1.5 Capacity Charge: Interest on Working Capital

The interest on working capital has been arrived at based on the

norms specified by the CERC.

1.6 Energy Charge: Fuel Consumption

1.6.1 Around 50% of DVC’s generation comes from the plants, which
are much older than NTPC’s Talcher and Tanda plants. As the CERC
has allowed deviation from its norms in the case of these power plants
of NTPC, at Talcher and Tanda, it is submitted that the CERC may
allow DVC to follow the actual operating parameters.

1.6.2 Further, it may be mentioned that the CERC norms for SHR have
not been defined for plants with capacity below 210 MW. Since 45% of
the installed capacity of thermal plants of DVC are below 210 MW, the
fuel consumption has been arrived at, based on the actual operating
parameters.

1.6.3 All the thermal stations of DVC are non-pit head stations. The
coal transit loss, too, has been based as per actuals.