Generation Tariff -ABT.

In this presentation

Evolution of Tariff in India Tariff provisions in Electricity Act 2003 Availability based Tariff Tariff Regulations

Tariff Could be
Market Driven Soap, Real estate, Automobiles etc. Cost Plus Electricity,Petroleum, Fertilizer, Railways etc.

Issues in Determination of Electricity Tariff

Highly perishable commodity Infrastructure requirement Highly capital intensive

Objectives for Tariff determination
Recovery of prudent costs of generation transmission and distribution of electricity and allowance of a fair return to energy company Promote competition, efficiency and economy including provision of incentives for operation at minimum costs Protect the right of the consumers to reasonably priced and quality power Protection of the environment and promotion conditions for improvement in the ecological sphere of

Encouraging customers to implement energy efficiency measures Ensure universal supply including supply to rural areas and supply to poor

Power Generation Business in Electricity Sector Pre-NTPC Players BBMB Nuclear Power Neyveli Lignite Badarpur TPS Post NTPC Amendment in Electricity Supply Act 1948. NHPC. to include Generation Business Enabled new entities in Power Production. like NTPC. NPC and a host of IPPs .

Evolution of Bulk Electricity Tariff in India Single Part Tariff: Both Fixed Charges and Variable Charges realized in one part as energy charge. . Existed before NTPC Initially adopted for NTPC Causes Over / Under charging Distorts Economic Dispatch (Merit Order Operation) Resentment by customers Under drawal accrues monetary benefit to beneficiaries: Unhealthy competition to prevent / reduce drawals Need to change to avoid the above was felt.

Evolution of Bulk Electricity Tariff in India Conventional Two Part Tariff: Fixed Charges and Variable Charges computed separately Fixed Charges compensate for the cost of capacity. in Rs/KWh Provides the correct market perception. including investment cost Variable Charges compensates for cost of energy Fixed Charges booked against Maximum Demand (or Contracted Demand) in Rs/kW Variable Charges realized against energy consumed. .

Causes no Over / Under charging Promotes incorrect market perception Continued to Distort Economic Dispatch Resentment by customers Under drawal accrues monetary benefit to beneficiaries: Unhealthy competition to prevent / reduce drawals Laid down fairly sound costing principles .Evolution of Bulk Electricity Tariff in India K P Rao Tariff (1992) A pseudo Two Part Tariff Fixed Charges and Variable Charges computed separately Both Fixed Charges and Variable Charges booked and realized in one part against energy drawn during the billing period.

due to dispute on principles as well as structure NTF & RTF (National and Regional Task Forces) debated implementation modalities of ECC recommendations Several sub groups were formed. Accepted by GoI in 1995 Implementation delayed till 2003. tariff setting role transferred from Government of India to CERC ABT order issued by CERC for ISGS.Evolution of Bulk Electricity Tariff in India ECC (Energy Control Consultants. USA) Report: GoI appointed ECC to study and recommend Bulk Power and Transmission Tariff for India as K P Rao tariff was soon resented by customers Report submitted in 1994. along with Inter-system exchange Tariff in 1999. some recommendations of ECC were modified and final implementation was agreed by 1998-99. Electricity Regulatory Commissions formed in 1998. stipulated mock trial to begin ABT finally implemented progressively from 2003 . Fairfax.

in that time slice. Time slice of 15 minutes each in use Average Frequency of operation in the time slice used as an index of system sufficiency Settlement through a pool account Promotes better market perception Encourages Economy in Dispatch . ex-bus) energy at normatively computed rates Actual Energy Generation (AG. measured ex-bus) would be different from scheduled and the deviations positive or negative settled at a price linked to system sufficiency.Evolution of Bulk Electricity Tariff in India ABT as Implemented (Generation) A true two part tariff with supplementary adjustment for Net Exchange deviations from schedule Fixed cost recovered against Capacity made available. Full recovery at pre-set EAF Energy Charges recovered against requisitioned (scheduled.

in that time slice.Evolution of Bulk Electricity Tariff in India ABT as Implemented (Beneficiary) A true two part tariff with supplementary adjustment for Net Exchange deviations from schedule Fixed cost recovered from customers in proportion to capacity allocation Energy Charges recovered against requisitioned (scheduled. ex-bus) energy at normatively computed rates. on the respective drawal schedule Actual Energy Generation (AG. Time slice of 15 minutes each in use Average Frequency of operation in the time slice used as an index of system sufficiency Settlement through a UI pool account Promotes better market perception Encourages Economy in Dispatch . measured ex-bus) would be different from scheduled and the deviations positive or negative settled at a price linked to system sufficiency.

Central Electricity Regulatory Commission The Central Electricity Regulatory Commission (CERC) established under the Electricity Regulatory Commissions Act. the tariff of generation and transmission. and the inter state transmission of power Promoting competition. efficiency and economy. 1998 Vested with the jurisdiction inter-alia. 1948 Mandated to regulate only bulk electric power tariffs viz. to regulate the tariff of generating companies owned or controlled by the Central Government Jurisdiction with regard to tariff with effect from 15th May. encouraging investment in the industry and safeguarding the consumer interest Simulate some of the possible effects of a market . 1999 Prior to this date.. the tariff jurisdiction was exercised by the Central Government by virtue of Section 43A(2) of the Electricity Supply Act.

. 2003 provides that “ The Central Commission shall discharge the following functions. (d)To determine tariff for inter-state transmission of electricity. (c)To regulate the inter-State transmission of electricity. (e)……. if such generating companies enter into or otherwise have a composite scheme for generation and sale of electricity in more than one State. namely :(a)To regulate the tariff of generating companies owned or controlled by the Central Government. (b)To regulate the tariff of generating companies other than those owned or controlled by the Central Government specified in clause (a).Tariff determination by CERC Section 79 of the Electricity Act.

within the State:…… (b)Regulate electricity purchases and procurement process of distribution licensee …. transmission and wheeling of electricity . bulk or retail.Tariff determination by SERC Section 86 of the Electricity Act. .2003 provides that the SERC shall – “(1)(a) determine the tariff for generation. supply.. as the case may be. wholesale.

Role of Regulator in Cost Plus Tariff Actual or Norms Prudence Check in case of Actuals Fixation of Norms .

. Low frequency during peak load hours with frequency going to 48.Problems in grid operation High frequency during off-peak hours with frequency going upto 50.5 Hz for many hours during the day.048.0 Hz for many hours of the day.5 to 51. Rapid and wide changes in frequency in band of 1 Hz in 5 to 10 minutes for many hours every day. Very frequent grid disturbances causing tripping of generating stations interruption of supply to large consumers and disintegration of the regional grids. Least cost power not dispatched in preference of more costly power .

p eak hours keeping the merit order of generation in view. Backing down of generation to match the system load reduction during off . Maximization of generation during peak load hours and load curtailment equal to deficit in generation. .Resolutions Integrated grid operation requires the normalization of frequency across all five Regions requiring proactive load management by Beneficiaries and dispatch discipline by Generators.

2000 of CERC Generators and beneficiaries must declare day.Availability Based Tariff ABT order dated January 4.ahead availability and demand based on 15-minute time blocks Energy charges are proposed to be charged only to the extent of the scheduled drawal by the beneficiary Unscheduled interchange of power (UI charges) are payable/receivable depending upon who has deviated from the schedule and also subject to the grid conditions at that point of time ABT system will entitle the generating station to reimbursement of fixed cost based on the availability or declared capacity of the generating station ABT introduces system of incentives and disincentives based on actual performance .

Economic efficiency dictates that least cost power should be dispatched in preference to more costly power (merit order dispatch) Generators have a perverse financial incentive to go on generating even when there may be no demand.Why ABT Plan as an integrated National Grid five Regional grids work at vastly varying operational parameters Chronic surpluses in the East and shortages in the South. have resulted in sustained functioning of these grids at frequencies which are far beyond even the normal band of 49.5 to 50.3 Hz Inducing grid discipline. Beneficiaries were not liable for payment of the fixed cost associated with the share of capacity allocated to them. .

. The order emphasizes prompt payment of dues. Nonpayment of prescribed charges will be liable for appropriate action under sections 44 and 45 of the ERC Act.ABT Overview It is a performance based tariff for supply of electricity by Interstate Generating Stations. It is a system of scheduling and dispatch which requires both Generators and Beneficiaries to commit to day ahead schedules. It is a system of rewards and penalties seeking to enforce day ahead committed schedules though variations are permitted if notified one and half hour in advance.

An energy charge (defined as per the prevailing operational cost norms) per kWh of energy supplied as per a pre-committed schedule of supply drawn upon a daily basis. UI charge . The FC.ABT It has three parts: Capacity Charges A fixed charge (FC) payable every month by each beneficiary to the generator for making capacity available for use.A charge for Unscheduled Interchange for the supply and consumption of energy in variation from the pre-committed daily schedule. will also vary with the level of availability achieved by a generator. payable by each beneficiary. It varies with the share of a beneficiary in a generators capacity. Hence it reflects the marginal value of energy at the time of supply. This charge varies inversely with the system frequency prevailing at the time of supply/consumption. Energy Charges . . The FC is not the same for each beneficiary.

for the purpose of this order. How is availability calculated? Availability of thermal generating station for any period shall be the percentage ratio of average SOC for all the time blocks during that period and rated Sent Out Capability of the generating station as per the following formula: . means the readiness of the generating station to deliver ex-bus output expressed as a percentage of its related exbus output capability as per rated capacity.Availability What exactly is availability? ‘Availability’.

C. where. = Installed Capacity of the station in MW SOCi = SOC of the ith time block of the period n = Number of time blocks during the period AUX = Normative Auxiliary Consumption as a percentage of gross generation. I. . h = Number of hours during the period = n/4 CL = Gross MWH of capacity of unit(s) kept closed on account of Generation scheduling order.Availability {n } Availability ={ Σ SOCi + CL } x 100 { i=1 (1-AUX/100) } h x I.C.

iv) The Scheduling as referred to above should be in accordance with the operating procedures in force.Scheduling To match the supply and demand on a daily basis at least one day in advance. the generator should ensure that the capability during peak hours is not less than that during other hours. v) Based on the above declaration. In addition. These shall constitute the basis of generation scheduling. the total ex-bus MWh which can actually be delivered during the day will also be declared in case of hydro stations. the regional load despatch centre shall communicate to the various beneficiaries their respective shares of the available capability. ii) Each generating station is to make advance declaration of its capacity for generation in terms of MWh delivery ex-bus for each time block of the next day. . i) Each day of 24 hours starting from 00. iii) While declaring the capability.00 hours be divided into 96 time blocks of 15 minutes each.

scheduled drawals shall be quantified at their respective receiving points. viii) For calculating the drawal schedule for beneficiaries. whereas for beneficiaries. but any such revisions shall be effective only from the 6th time block reckoned in the manner as already stated.Scheduling vi) After the beneficiaries give their requisition for power based on the generation schedules. ix) In case of any forced outage of a unit. vii) The schedule of actual generation shall be quantified on ex-bus basis. counting the time block in which the revision is advised by the generator. the transmission losses shall be apportioned in proportion to their drawals. x) It is also permissible for the generators and the beneficiaries to revise their schedules during a day. RLDC will revise the schedules. or in case of any transmission bottleneck. to be the 1st one. the RLDC shall prepare the generation schedules and drawal schedules for each time block after taking into account technical limitations and transmission constraints. . The revised schedules will become effective from the 4th time block.

. the schedules of both generation and drawal shall be deemed to have been revised to be equal to their actual generation/drawal.Scheduling xi) RLDC is also entitled to revise (if need be). These revised schedules shall become effective from the 4th time block counting the time of issue of revised schedule as the 1st time block. The grid disturbance and its duration shall be certified by RLDC. the schedules during the day in the interest of better system operation. xiii) The schedules issued/revised by RLDC shall be effective from designated time block. irrespective of communication success or failure. xii) In the event of any grid disturbance.

02 Hz step Below 49.5 Hz and up to 49.00 Hz 18 p/kWh per 0. UI to be worked out for each 15 minutes time block. Average Frequency of time block UI Rate (Paise/ KWh) 50. thereby decreasing the frequency.02 Hz 1000 p/kWh (Rates subject to change through a separate notification from time to time) .80 Hz and upto 49. iii) a beneficiary overdraws power. The charges shall be based on the average frequency of the relevant time block.5 Hz and above 0.02 Hz step Below 49. iv) a beneficiary underdraws power.80 Hz 8 p/kWh per 0. ii) a generator generates less than the schedule.Unscheduled Interchange i) a generator generates more than the schedule.48 Hz 8 p/kWh Below 50. thereby increasing the frequency. thereby decreasing the frequency. thereby increasing the frequency.0 p/kWh Above 50.

5 0.1 Hz = 30 p/kWh 0.7 Hz = 210 p/kWh 0.745 p/kWh UI Rate Chart 585 425 345 210 150 0 49.5 Hz = 400 p/kWh 0.1 Hz = 80 p/kWh 0.8 50.02 Hz = 09 p/kWh .0 49.1 Hz = 45 p/kWh 0.3 Hz = 135 p/kWh 0.6 49.0 50.02 Hz = 16 p/kWh 0.3 49.02 Hz = 06 p/kWh Hz 0.

02 Hz = 08 p/kWh Hz 0.5 0.1 Hz = 40 p/kWh 0.02 Hz = 18 p/kWh .0 50.8 Hz = 720 p/kWh 0.4 49.7 Hz = 280 p/kWh 0.1 Hz = 90 p/kWh 0.0 49.1000 p/kWh UI Rate Chart 820 640 460 280 200 0 49.8 50.6 49.

Tariff Regulations .

CERC (Terms & Conditions of tariff) Regulations 2004 Date of notification 26th March 2004 Effective from 1st April 2004 Valid for a period of 5 years Thermal Stations stage-wise. substation wise and system wise as the case may be and aggregated to regional tariff . unit-wise or for the whole generating station Transmission system line-wise.

consists of: Return on Equity Interest on Loans Depreciation O&M Cost Interest on Working Capital Variable Charges i.Oil . consists of-Primary fuel (Coal/Gas) Secondary fuel .e. cost of fuel.Elements of Tariff Fixed Cost which do not vary with level of generation. varies directly with level of generation.

. rate of return is notified by CERC was 16% for Tariff period 2001-04 and 14% for the period 2004-09. Income tax is separately recoverable through tariff on Actuals.Return on Equity Objective To provide fair return on the investment by the investor and for generation of internal resources for capacity additions. For generating companies. Rate of Return Section 61 of the Electricity act provides that tariff by appropriate Commission are determined on Commercial Principles taking care of consumers’ interest as well as recovery of the cost of electricity in a reasonable manner.

For the purpose of tariff. whichever is less. .4. Equity component of the capital cost is worked out based on the approved debt:equity ratio which is 50:50 for earlier stations and 70:30 for the new projects.2004. capital cost adopted is the amount capitalized on year to year basis as per audited accounts. For the stations coming up after 1.Computing Return in case of NTPC tariff Return on equity is computed on the equity component of capital cost of the project considering the approved debt:equity ratio. the equity allowed is 30% or actual. Rate of return is applied to the equity component of the capital cost worked out as above.

. No interest element is included in tariff after repayment of the entire loan.Interest on Loan Interest on loan is calculated based on the weighted average rate of interest and applied to the outstanding loans. Loans are reduced to the extent of repayment each year during the tariff period.

Rates of Depreciation There is no mention of depreciation rate in the Electricity Act.6 % (Life 25 years) for gas based stations – 6 % (life 15 years) . for tariff CERC has adopted the rates which were there in the E(S) 1948. Rates applicable for coal based stations – 3. The objective is that the recoveries through depreciation should be adequate to provide resources to the investor to replace the assets after their useful life.Depreciation Objective Depreciation is an important element of cost and forms a part of the fixed cost recovery. So for accounts though Companies act rate are applicable. 2003.

AAD is limited to 1/12 of loan amount in 2001-04 tariff period and is limited to 1/10 of loan amount in 2004-09 Tariff period. Depreciation recovery is limited to 90% of the capital cost based on plant residual value of 10%. .Depreciation Computing Depreciation in case of NTPC Tariff The average depreciation rate is multiplied with capital cost for computing amount of depreciation to be charged in tariff. Advance Against Depreciation In addition to depreciation . AAD is provided to service the loan obligation.

Interest on Working capital Elements of Working Capital O&M expenses for one month Fuel expenses for one month at normative generation level Fuel stock .coal 15 days for pit head stations and 30 days for non.pit head stations Secondary fuel oil stock of 60 days Spares inventory for one year consumption Receivables – 2 months Funding of working capital By working capital margin provided in capital cost By short term borrowings from banks .

For the balance amount of working capital. • VARIABLE COST Normative fuel cost based on norms for . .station heat rate . For the amount funded by working capital margin. the bank cash credit rate is considered.secondary fuel oil consumption Provision of monthly fuel price adjustment to take care of variations in fuel price and quality.Interest on Working capital Computing Interest on Working Capital in Tariff Total working capital required for the above elements of working capital is calculated.auxiliary power consumption . weighted average rate of interest for long term loans and rate of returns as applicable for the project are considered.

O&M Cost •Elements of O&M expenditure Salary & wages Spares and consumables for operation & maintenance of the plant Cost of repair and maintenance Administrative overheads Regional & corporate overheads Water charges Insurance charges Basis of O&M Expenditure .O&M expenses can be computed based on Detailed budgeting Past Actuals Normative based on industry trend Provisions in Tariff Old stations .based on the Actuals of the preceding year. New stations – normative at the rate of 2.5% of capital cost Annual escalation of 6 per cent for the tariff period .

200MW & 500 MW units: Normative O&M Cost Coal stations (Rs.4 Lakh/MW for 2004-09) Gas Station . 10.Normative O&M New stations – normative at the rate of 2.O&M Cost Provisions in Tariff Old stations – Coal Stations Less than 200 MW units :Norm based on the actuals of the preceding years.5% of capital cost Annual escalation of 4 per cent for the tariff period .

3. with 6% escalation per annum .6% Gas based – 6.0% Return on Equity O&M expenses 16% Based on Actuals for 1995-96 to 1999-00. Depreciation Coal based.Norms for 2001-02 to 2003-04 Capital cost Actual expenditure incurred subject to limitation of the approved cost Debt: Equity As approved by Govt.

Norms for 2004-05 to 2008-09 Capital cost Actual expenditure incurred subject to limitation of the approved cost Debt: Equity 70: 30 Depreciation Coal based.6% Gas based – 6.3.0% Return on Equity O&M expenses 14% Normative (Rs. Lakh/ MW) .

Norms for 2001-02 to 2003-04 Availability 80% Incentive Heat rate Above 77% PLF Coal – 2500 kCal/kWh Gas – 2000 kCal/kWh Old gas stations – as per GOI tariff notifications 3.5 ml/kWh As per GOI tariff notifications SOC APC .

Norms for 2004-05 to 2008-09 Availability Incentive Heat rate 80% Above 80% PLF Coal – 2500 kCal/kWh – 200 MW .2450 kCal/kWh .5% across the board SOC APC .0 ml/kWh Reduced by 0.500 MW Gas – 2000 kCal/kWh Old gas stations – reduced by 25 kCal/ kWh 2.

36 9.25 2007-08 11.95 2004-05 10.40 2005-06 10.12 10.17 .70 2008-09 12. Lakh/MW) Year 200/210/250 MW 500 MW & above 9.82 2006-07 11.52 10.73 10.O&M expenses for 2004-09 (Coal Based Stations) (Rs.

85 6.62 5.80 8. Lakh/MW) Year 2004-05 2005-06 2006-07 2007-08 2008-09 With warranty spares of 10 years 5.11 8.41 5.20 5.44 8.77 9.12 .08 Without warranty spares of 10 years 7.O&M expenses for 2004-09 (Gas Based Stations) (Rs.

namely: (a) Coal-based and lignite-fired generating stations. .4.180 days (b) Gas turbine/combined cycle generating stations90 days The stabilization period and relaxed norms applicable during the stabilization period shall cease to apply from 1. stabilization period shall be reckoned commencing from the date of commercial operation of that unit as follows.2006.Stabilization period In relation to a unit.

a late payment surcharge at the rate of 1.25% per month shall be levied by the generating company. Late Payment Surcharge: In case the payment of bills of capacity charges and energy charges by the beneficiary (ies) is delayed beyond a period of 1 month from the date of billing. If the payments are made by a mode other than through a letter of credit but within a period of one month of presentation of bills by the generating company. .Other provisions Incentive: Incentive shall be payable at a flat rate of 25.0 paise/kWh for ex-bus scheduled energy corresponding to scheduled generation in excess of ex-bus energy corresponding to target Plant Load Factor. Rebate: For payment of bills of capacity charges and energy charges through a letter of credit on presentation. a rebate of 2% shall be allowed. a rebate of 1% shall be allowed.

the penalty shall be multiplied in the geometrical progression. These books shall keep record of machine operation and maintenance. (3) The operating log books of the generating station shall be available for review by the Regional Electricity Board or Regional Power Committee. In the event of the generating company failing to demonstrate the declared capability. as the case may be. . (2) The quantum of penalty for the first mis-declaration for any duration/block in a day shall be the charges corresponding to two days fixed charges.Other provisions Demonstration of Declared Capability: (1) The generating company may be required to demonstrate the declared capability of its generating station as and when asked by the Regional Load Despatch Centre of the region in which the generating station is situated. the capacity charges due to the generator shall be reduced as a measure of penalty. For the second mis-declaration the penalty shall be equivalent to fixed charges for four days and for subsequent misdeclarations.

which can be traded Un-requisitioned capacity to be made available by the RLDCs through their respective websites.Billing & payment of Capacity Charges Billing and payment of capacity charges on a monthly basis Each beneficiary to pay the capacity charges in proportion to its percentage share in Installed Capacity Allocated portion along with unallocated if any Re-allocation of Unallocated to be done by central govt. . Beneficiaries liable to make full payment of capacity charges & energy charges corresponding to his total allocation and schedule respectively. RLDCs to advise all beneficiaries in the region and the other RLDCs if any capacity remains un-requisitioned during day-to-day operation.

Thank you .