- (1.) BACKGROUND AND BRIEF HISTORY 1.1 BACKGROUND Adani Power Maharashtra Limited Transmission (APML -T) has been granted Transmission License No. 2 of 2009 and subsequent Amendment Order dated 30 March, 2011, by the Commission, authorizing the Licensee to establish and operate a transmission system identified by the STU in the State Transmission Network Plan for FY 2010 -11 to 2014 -15. 1.2 MERC MYT REGULATIONS, 2011 The Commission, in exercise of the powers conferred by the Electricity Act (EA), 2003, notified the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2011, (hereinafter referred as the MYT Regulations, 2011) on 4 February, 2011. These Regulations are applicable for the second control period starting from FY 2012 -13 to FY 2015 -16 along with its amendment vide notification dated 21 October, 2011 called Maharashtra Electricity Regulatory Commission (Multi Year Tariff) (First Amendment) Regulations, 2011. 1.3 Business Plan Order for AMPL -T for the Second Control Period Pursuant to notification of MERC, MYT Regulations on 4 February, 2011, APML -T submitted its MYT Petition and Business Plan Petition for the second control period under affidavit on 13 April, 2011. Subsequent to submission of the said MYT and Business Plan Petition, the Commission held a technical validation session (TVS) in the matter on 12 May, 2011. As directed by the Commission, APML -T filed its revised Petition vide its letter dated 27 May, 2011. Further, the Commission vide its letter dated 28 July, 2011 directed APML -T to submit Business Plan Petition separately on affidavit. In compliance with the directive, APML -T submitted its Petition for approval of the Business Plan for the second control period from FY 2011 -12 to FY 2015 -16 on 5 August, 2011. The Commission, in exercise of the powers vested in it under Section 61 and Section 62 of the Electricity Act, 2003 and all other powers enabling it in this behalf, and after taking into consideration all the submissions made by APML -T, issues raised during the public hearing, and all other relevant material, issued the Order on 27 March, 2012 in the matter of Case No. 60 of 2011 for approval of MYT Business Plan for APML -T for the second control period from FY 2012 -13 to FY 2015 -16. 1.4 MYT Order for AMPL -T for the Second Control Period Pursuant to issuance of MYT Business Plan Order for APML -T and in compliance with the direction of the Commission in the said Order, APML -T submitted its Petition for approval of ARR as per MYT Principles for the second control period from FY 2012 -13 to FY 2015 -16 on 3 May, 2012. The Commission approved the ARR for the MYT Control Period of FY 2012 -13 to FY 2015 -16 vide its Order in Case No. 44 of 2012 dated 10 January, 2013. 1.5 Mid -Term Performance Review under MYT Regulations, 2011 Regulation 11 of the MYT Regulations, 2011 specifies provisions of Mid Term Performance Review by Transmission Licensees. Regulation 11.1 of the said Regulations specifies the requirement of filing of Mid Term Performance Review by Transmission Licensees during the Control Period. The scope of Mid -Term Performance Review as specified under Regulation 11.3 is as under. (a) A comparison of the audited performance of the applicant for the previous two financial years with the approved forecast for such previous financial year; and (b) A comparison of the performance of the applicant for the first half of the current financial year with the approved forecast for the current financial year. (c) Carrying cost on surplus/deficit amounts, if any, at the time of Mid -Term Performance review. Further as per Regulations 11.6 of the said Regulations, the Commission, upon completion of Mid -Term Performance Review shall pass an Order recording the approved aggregate gain or loss to Transmission Licensee on account of controllable factors and the amount of such gains or such losses that may be shared, the approved modifications to the forecast of the Transmission Licensee for the remainder of the Control Period. In line with the above Regulations, the Commission under its MYT Order dated 10 January, 2013 for APML -T had directed APML -T to submit its Petition for Mid -Term review of its performance during the third quarter of FY 2013 -14, with detailed reasons for deviation in performance, latest by 30 November, 2013. 1.6 Mid -Term Performance Review Petition by APML -T APML -T filed the present Petition dated 9 December, 2013 for Mid Term Performance review in accordance with relevant provisions of the MYT Regulations, 2011. The present Mid -Term Performance review Petition by APML -T was submitted to the Commission for Truing up of ARR for FY 2012 -13, approval of estimated ARR projections for FY 2013 -14 and revised ARR projections for FY 2014 -15 to FY 2015 - 16. The main prayers of the Petitioner are mentioned below: a. Admit the Petition for Truing up of Aggregate Revenue Requirement for FY 2012 - 13, approval of estimated Aggregate Revenue Requirement for FY 2013 -14 and revised ARR for FY 2014 -15 and FY 2015 -16. b. Approve the revenue gap of FY 2012 -13 as presented in the Petition alongside revised carrying cost and incentive. c. Approve estimated ARR for FY 2013 -14. d. Approve revised projections of ARR for FY 2014 -15 and FY 2015 -16 as presented in this Petition. e. Allow Petitioner to carry out additions/alterations/changes/modifications to the application at a future date, if necessary. f. Allow any other relief, order or direction, which the Commission deems fit to be issued. The Commission, vide its email dated 27 January, 2014, forwarded the preliminary data gaps and information required from APML -T. The Commission scheduled a Technical Validation Session (TVS) on APML -T's Petition for approval of Mid -term Performance Review for Second Control Period from FY 2012 -13 to FY 2015 -16, under Section 94(3) of the EA, 2003. The list of individuals, who participated in the TVS held on 6 February, 2014 is provided at Appendix -1. During the TVS, the Commission directed APML -T to provide additional information and clarifications on the issues raised during the TVS. APML -T has filed the revised Petition for Mid Term Performance review on 3 March, 2014, in accordance with relevant provisions of MYT Regulations incorporating replies to the queries raised by the Commission vide its preliminary data gaps and clarifications on the issues raised during the TVS. 1.7 Admission of Petition and Public Hearing Process APML -T submitted its original Petition on 19 December, 2013 and subsequently the revised Petition on 3 March, 2014, and the Commission admitted the Petition of APML -T on 30 April, 2014. In accordance with Section 64 of the EA, 2003, the Commission directed APML -T to publish its Petition in the prescribed abridged form and manner, to ensure wide public participation. The Commission also directed APML -T to reply expeditiously to all the suggestions and objections received from stakeholders on its Petition. APML -T issued the Public Notice in newspapers inviting suggestions and objections from stakeholders on its Petition. The Public Notice was published in Lokmat Times (English), Indian Express (English), Loksatta (Marathi) and Dainik Deshonnati (Marathi) newspapers on 4 May, 2014. The copies of APML - T's Petitions and its summary were made available for inspection/purchase to members of the public at APML -T's offices and on APML -T's website. A copy of the Public Notice and an Executive Summary of the Petition was made available on the website of the Commission in a downloadable format. The Public Notice stipulated that the suggestions and objections, either in English or Marathi, may be filed in the form of affidavit along with proof of service on APML -T. No written suggestions or objections on the Petition were received by the Commission. The public hearing was held in Mumbai on 29 May, 2014 at 11:30 hours at the office of the Commission at 13th Floor, Centre No.1, World Trade Centre, Cuffe Parade, Mumbai 400 005. The list of persons who participated in the public hearing is provided in Appendix - 2. The Commission has ensured that the due process as contemplated under law to ensure transparency and public participation, has been followed at every stage meticulously and adequate opportunity was given to all the persons concerned to file their say in the matter. 1.8 Organisation of the Order This Order is organised in the following three Sections: Section 1 of the Order provides a brief history of the quasi -judicial regulatory process undertaken by the Commission. For the sake of convenience, a list of abbreviations with their expanded forms has been included. Section 2 of the Order details the Truing up of expenses of APML -T for FY 2012 -13. Section 3 of the Order details the performance review and approval of ARR as per MYT Regulations, 2011 for the FY 2013 -14. Section 4 of the Order details the approval of revised estimates of ARR as per MYT Regulations, 2011 for the second control period from FY 2014 -15 to FY 2015 -16. Section 5 and 6 of the Order covers the aspects of recovery of transmission charges and applicability of the Order
(2.) TRUE UP OF AGGREGATE REVENUE REQUIRMENT OF FY 2012 -13 APML -T in its MYT Petition had submitted ARR projections for FY 2012 -13. Based on the projections, the ARR for FY 2012 -13 was approved by the Commission vide its Order dated 10 January, 2013. In line with provisions of MYT Regulations and directions given under MYT Order, the Petitioner has submitted true up for FY 2012 - 13 comparing the actual expenses with approved expenses. APML -T has given details of its expenses under various heads, viz., Capital Expenditure, O&M expenses, depreciation, interest on loans, interest on working capital, income tax, etc. as per the data formats prescribed by the Commission. The Commission has discussed allowed expenditure on each of the expense heads and the total expenditure of APML -T approved by the Commission for the control period from FY 2012 -13 to FY 2015 -16, in the subsequent Sections. APML -T has submitted actual expenses incurred during FY 2012 -13 and has considered such expense from commercial operation date (COD) of its transmission assets on 26 August, 2012. Thus, while truing up of expenses for FY 2012 -13, the Commission has considered the number of days of operation of transmission infrastructure of APML -T during FY 2012 -13 as 218 days (number of days from actual COD till end of the financial year, i.e., FY 2012 -13). 2.1 OPERATION AND MAINTENANCE EXPENSES Operation and maintenance (O&M) expenses comprises employee related costs, administrative and general (A&G) expenses, and repair and maintenance (R&M) expenditure. The Commission in its MYT Regulations, 2011 specifies O&M norms for each year of the Control Period from FY 2012 -13 to FY 2015 -16 for 'New Transmission Licensees' in the State which shall be the applicable norms for arriving at the O&M norms for APML -T. Regulation 61.5 of the MYT Regulations, 2011 specifies as following: "61.5 Operation and Maintenance expenses 61.5.1 The norms for O&M expenses for existing and new Transmission Licensees have been stipulated for the control Period on the basis of circuit kilometre of transmission lines and number of bays in the substation of the Transmission Licensee, as given below: ... 61.7 O&M norms for New Transmission Licensee 61.7.1 For the new Transmission Licensees, the year -wise O&M norms as stipulated for MSETCL shall be applicable norms for the transmission assets added by such new Transmission Licensee(s) for respective year during the third control period. Provided that same shall not be applicable to those new projects which are awarded on a competitive bidding basis. Explanation: The term " New Transmission Licensee" shall mean the transmission Licensee for which Transmission License is granted by the Commission prior to or after the date of effectiveness of these Regulations, and whose transmission project assets are commissioned after March 31, 2010. In accordance with the above provisions of MYT Regulations, 2011, based on the year -wise O&M norms and the proposed circuit kilometres and number of bays, the Commission had approved a net amount of Rs 3.83 Crore towards O&M for FY 2012 - 13 in its MYT Order. Against this, APML -T in the present Petition has claimed Rs 4.88 Crore incl. O&M cost towards bus reactors bays as actually incurred O&M expense for FY 2012 -13 and the same is shown in the table below: Table 2.1 :O&M Expenses as submitted by APML -T (Rs Crore) Particulars Approved Actual Rent, Rates and Taxes Based on O&M norms 0.09 stipulated under MYT Telephone and Postage 0.02 Professional, consultancy, technical audit Regulations on per ckt 0.32 km and per bay fees Conveyance and travel expense 0.19 Office Expense 0.20 Patrolling and maintenance charges 0.64 Vehicle charges 0.21 Employee salary expenses 1.92 Provident fund contribution 0.10 Amount to be paid to MSETCL towards 1.18 O&M contract for Bays at Warora Total O&M Expense 3.83 4.88 In reply to the Commission's query, APML -T submitted the following details of bays and transmission lines being maintained by APML -T. Table 2.2: Details of Bays and Transmission Lines as submitted by APML -T Sr. Name of SS Voltage No. Description of O&M Actual No. Level of the bay done by date of Bays put to use 1 Tiroda SS 400 kV 2 Line Bays APML -T 28 August, 2 Tiroda SS 400 kV 2 Bus reactor APML -T 2012 bays 3 Warora SS 400 kV 2 Line Bays MSETCL under O&M contract Total No of Bays 400 kV 6 Total Ckt.km of the 400 kV 438 APML -T line kms The Commission enquired APML -T regarding the status of signing of O&M contract with MSETCL for O&M of Warora Substation line bays. APML -T was also asked to submit signed documents with MSETCL assigning responsibility to the latter to perform O&M activities for the bays located at MSETCL switching station. The Petitioner submitted a letter showing they have been pursuing the matter with MSETCL and is yet to sign the said O&M contract. APML -T submitted that their Statutory Auditor has duly verified the O&M expenses in this regard and certified the same as shown in Accounting Statements. The Accounting Statements and extracts of books of accounts for FY 2012 -13 for transmission business under the scope of License no. 2 of 2009 has been carved out from the audited balance accounts of APML as a whole for the year. A copy of the accounting statements and extracts of the book of accounts for APML -T, APML as a whole for FY 2012 -13 certified by Statutory Auditor and Asset register for APML -T were submitted along with the present Petition. APML -T further submitted that majority of expense of transmission business has been booked on actual basis as incurred for transmission segment. Only telephone and postage expenses, conveyance and travelling expenses and office expenses are allocated in Generation and transmission business as follows. Step 1: Categorization of revenue of company as whole under heads regulated and non -regulated business as below: Table 2.3: Revenue of regulated and non -regulated business for FY 2012 -13 (Rs Crore) Category Amount Non -regulated Business 256.42 Regulated Business 82.04 Total 338.46 Step 2: Arriving percentage revenue contribution of each business to the total revenue of APML as whole, for e.g., for APML -T, the percentage contribution is 24.23%. Step 3: Applying the revenue percentage contribution of each business to arrive at the respective allocation of expenses for each business category which comes to Rs 0.02 Crore, Rs. 0.19 Crore and Rs. 0.20 Crore for Telephone and Postage expenses, Conveyance and Travelling expenses and office expenses respectively. As regards Commission's query regarding reconciliation of O&M expense with annual accounts of FY 2012 -13, the Petitioner has presented Break -up of the expenditure as audited by their statutory auditors which is reproduced here below: Table 2.4 : Break -up of O&M expenses for FY 2012 -13 (Rs Crore) Sr. Parameter Reference in balance Amount No. sheet 1 Employee Benefit Schedule 10 2.01 Expense 2 Other Expense Schedule 12 1.68 3 Total 3.69 APML -T stated that the above mentioned O&M expenses do not include the O&M expenses pertaining to 400 kV bays at Warora SS which are to be paid to MSETCL. It further stated that, based on MERC norms, the estimated amount on this account works out to about Rs. 1.18 Crore for the FY 2012 -13 and thus the total O&M expenses for FY 2012 -13 works out to Rs. 4.88 Crore. Regarding the application of the O&M norms applicable to MSETCL for even new transmission Licensee like APML -T, it submitted that the O&M requirement for the Petitioner's Transmission system is different in size and nature than that of MSETCL. It further submitted that owing to large scale of operations, MSETCL could optimize the resources available for O&M, while the Petitioner claimed to have very little scope to optimize the manpower and other resources for O&M activities such as commercial, regulatory, legal, co -ordination with other agencies, maintenance, etc. It is submitted that it would be possible to arrive at a predictable trend of O&M expenses for APML - T only over a period of 5 -7 years during which the O&M requirement would get stabilized. In this context, APML -T requested the Commission to consider the actual O&M expenses for FY 2012 -13 as uncontrollable and allow pass through for the variation from normative O&M expenses approved. The Commission has carefully noted the submissions of the Petitioner. The Commission has also verified the audited accounts as submitted by APML -T for the claim made under O&M expenses during FY 2012 -13. However, Regulation 61.7.1 of the MYT Regulations, 2011 specifies that O&M norms for the new Transmission Licensees shall be determined based on year -wise O&M specified over the Control Period. The relevant extract of the said Regulation is reproduced as under: "61.7.1 For the new Transmission Licensees, the year -wise O&M norms as stipulated for MSETCL shall be the applicable norms for transmission assets added by such new Transmission Licensee(s) for respective year during the third Control Period." Accordingly, APML -T being a new Transmission Licensee, for the second control period is entitled only to that level of O&M determined based on O&M norms stipulated for MSETCL. In view of this, the Commission would allow the O&M for APML -T on normative basis only. However, the number of bays to be considered for computing the normative O&M expenses shall be 4(four) 400 kV as was approved in the MYT Order. The additional 2 (two) bays highlighted by APML -T, which belongs to the bays for bus reactors are not considered at this moment, as presently these do not form part of the APML -T Transmission Licence No. 2 of 2009, issued by the Commission. The Commission would consider the same, at the time of final truing of the MYT period, in accordance with the Transmission Licence and amendment thereof, if any being issued to APML -T. APML -T would be required to initiate process to amend its Transmission Licence to reflect the addition of these two bays for bus reactors at Tiroda SS as part transmission asset. Further, the Commission observes that APML -T should submit copy of its contract with MSETCL for undertaking O&M of two line bays at Warora SS within four weeks from date of issuance of this Order. Thus, in this Order while computing the normative O&M, the Commission has considered a total of 4 (four) 400 kV bays and 438 Ckt Km of 400 kV line. Further, the CoD on 26 August, 2012 has also been taken into account for the computation to get the exact number of days for which the assets remained operational in FY 2012 -13. Accordingly, the O&M expense for APML -T allowed after truing up for FY 2012 -13 works out to Rs. 3.83 Crore. Table 2.5: O&M Expenses approved by the Commission (Rs Crore) O&M Expenses Units 2012 -13 For line Distance of line Ckt.km 438.00 MERC norms Rs lakh/ckt -km 0.56 For bay No of bays No. 4 MERC norm Rs lakh/bay 99.11 Days/months in operation Days/ Months 218 days O&M expenses Rs Crore 3.83 The Commission considers employee expense of APML -T as a controllable expense and thus the variation of the present allowed O&M expense of Rs. 3.83 Crore over the actual O&M incurred by APML -T during FY 2012 -13 is considered as an efficiency loss and the Commission has considered the impact of sharing of efficiency loss as per MERC Tariff Regulations. The approved net entitlement of O&M expense for FY 2012 -13 after sharing of loss is elaborated under the section 'sharing of gains and losses' of this Order. 2.2 CAPITAL EXPENDITURE AND CAPITALISATION APML -T in its MYT Petition submitted on 13 July, 2012 had claimed a capital cost of Rs. 684.92 Crore. The Commission had approved Rs. 684.60 Crore as the capital cost in the MYT Order. In the said Order dated 10 January, 2013, the Commission observed that the capital cost approved therein was based on the completed cost certified by Statutory Auditor and unaudited documents / information / explanations provided by the Petitioner for the remaining period up to COD. It was clarified that the final approval of capital cost for the transmission project shall be subject to prudence check to be carried out later. The Commission also directed the Petitioner to submit the duly audited completed capital cost which is certified based on the audited accounts of the financial year during which the project has achieved CoD. Subsequently, the Commission initiated process of prudence check in March, 2013 in order to carry out technical and economical evaluation of the scheme as well as to verify the capital cost and capitalization carried out by the Petitioner. The consultant appointed by the Commission has carried out technical and economical evaluation during 15 March, 2013 to 17 March, 2013 by visiting the entire transmission system including bays on both ends. The consultant of Commission has also verified the books of account of the Petitioner for ascertaining the capital cost and capitalization of Rs. 684.60 Crore. In the present Petition, APML -T has submitted that along with the transmission system, the Petitioner has also commissioned two bus reactors at Tiroda and put into use along with the transmission lines. APML -T has claimed a capital cost of Rs. 23.24 Crore towards two bus reactors. Accordingly, APML -T has submitted a revised capital cost of Rs. 707.84 Crore including bus reactors at Tiroda as against approved capital cost in the MYT Order. The Petitioner submitted Certificate of Statutory Auditor for ascertaining the Capital Cost of bus reactors as to Rs. 23.24 Crore. According to the Petitioner, there was a high voltage situation prevailing in Wardha, Warora areas. The line capacitance and low line loading in the transmission network causing over voltages. APML -T submitted that the capacitance generated by the transmission line needs to be compensated by installation of switchable shunt reactors. The shunt reactors can be either line connected or bus connected. High voltage prevailing in Wardha, Warora areas coupled with the line capacitance results in impossibility of keeping the Tiroda -Warora line in service without bus reactors at Tiroda. As regards Commission's enquiry regarding recommendations of MSLDC for installation of bus reactors, the Petitioner submitted that the said bus reactors have been operated as per instructions of MSLDC and confirmed the same by submitting necessary letter correspondence from MSLDC. It was further submitted that before charging 400 kV Tiroda -Warora D/C transmission line, WRLDC have conducted analysis in which it was observed that charging of Tiroda ­ Warora line through Wardha sub -station will raise the open end voltage to 430kV and can be controlled with reactor. Based on the study, it was confirmed that the reactors were required during the initial charging as well as during normal operation. The Petitioner stated that MSETCL has also confirmed requirement of Bus Reactors for Intra -State Transmission System. Copy of MSETCL letter dated 19 November, 2012 has been submitted to the Commission. APML -T was asked to clarify whether the CoD of bus reactors and associated bays was coterminous with the CoD of the Transmission system of APML -T. It has submitted that issue of higher Billing Demand cropped up first time for the billing period of 22 August, 2012 to 20 September, 2012 just because of the Bus Reactors. As against contracted demand of 50 MVA, Demand recorded was 171 MVA because of the Bus Reactors. Based on the above submission APML -T submitted that Bus Reactors were commissioned along with 400 kV D/c Torda -Warora transmission line as per instructions of MSLDC/ STU. The Petitioner also stated that during the proceedings of Case no. 51 of 2013, the Commission constituted a committee to look at the broader aspects of provision of shunt compensation for transmission and distribution system. The Report prepared by the Committee headed by Mr. S.A. Soman, IIT, Mumbai covers the requirement of shunt compensation in Extra High Voltage (EHV) AC transmission, with particular reference to the 400 kV D/c Tiroda and Warora transmission line. The relevant excerpts of the report are reproduced below: "... On the other hand, in an EHV transmission system, voltage rise is observed at receiving end for light load conditions (below SIL) due to dominance of shunt capacitive VARs. The capacitive VARs generated by EHV transmission lines, may require compensation by inductive VARs, to maintain proper Regulation and improve voltage profile of the system. Shunt reactors are also required during charging of EHV transmission lines to control the transient over voltages that are likely to occur when such lines are energized." The Petitioner has also quoted certain portions of the Commission's Order to substantiate its claim for additional capital cost for commissioning of two number of bus reactors. The excerpts are reproduced below: "Summary of the Commission's Ruling: 31. The bus reactors which are part of intra -state transmission system and being operated as per instructions from SLDC for controlling the system voltages are assisting the STU / SLDC to maintain the grid voltage. Therefore ..." In response to a query regarding impact of additional capitalization on account of bus reactors on ARR and transmission tariff, the Petitioner submitted there would be negligible impact on overall tariff and illustrated the same considering the parameters of ARR. AMPL -T has also submitted that as per Regulation 28.1(f) of MYT Regulations, 2011, the Commission has stipulated that capital expenditure, actually incurred on any additional works/services, which have become necessary for efficient and successful operation of a Generating Station or a transmission project may be admitted by the Commission. Further, Petitioner has submitted that, Regulation 27.5 of MYT Regulations, 2011 is important to note in this regard. "27.5 The Commission may approve for each year of the Control Period, an additional amount equivalent to 20% of the total capital expenditure approved for respective financial year of the Control Period towards unplanned capital expenditure or .........." The Petitioner, in view of the Regulations cited above of MYT Regulations, 2011 submitted that both the Regulations would adequately cover the capital expenditure incurred by the Company on bus reactors and thus the License amendment is not warranted. In view of the above, APML -T requested the Commission to consider the bus reactors as integral part of APML -T's Licensed transmission system and thus the capital cost. The total estimated capital expenditure submitted by APML -T against that approved under MYT Order has been summarised in the table below: Table 2.6 : Capital Cost as submitted by APML -T (Rs Crore) S. No Particulars In -Principle Approved Actual Cost Revised Capital Cost 684.60 707.84 1 Commission's Ruling: The Commission in its MYT Order for APML -T had provisionally approved the capital cost of Rs. 684.60 Crore. The Commission had directed APML -T to submit the duly audited completed capital cost, which is certified based on the audited accounts of the financial year during which the project has achieved CoD for necessary prudence check. The Commission observes that, APML -T vide its submission made under the present Petition has complied with the requirements as stipulated under the MYT Order. The Commission has verified the audited accounts of APML -T for FY 2012 -13 for the completed capital cost of APML -T. The Commission now observes that the issue of capital cost for additional bus reactors to the tune of Rs. 23.24 Crore has come up for the first time in the present Petition. The Commission has carefully observed all the submissions regarding the commissioning of the two bus reactors at Tiroda. The Commission has scrutinised the submissions and observed that commissioning of the two bus reactors at Tiroda was necessary for smooth functioning of the transmission line which has been highlighted in various technical reports, letter correspondence from WRLDC/SLDC, and as stipulated within the Commission's Order in Case No. 51 of 2013. The Commission agrees that without bus reactors 400 kV Tiroda -Warora line could not be charged. The only issue which came before the Commission was the fact that, the two bus reactors were not included as a part of in principally approved scope of work. Hence, the corresponding capex worth Rs 23.24 Crore was not approved earlier. The Commission had highlighted this fact during the TVS, that the two concerned bus reactors at Tiroda are not covered as part of the present Transmission Licence. Though, the Commission understands the technical requirement of the two 400 kV Bus Reactors, however, the same cannot be considered under the cost of additional capitalization, under present process without undertaking regulatory process of amendment of the Transmission Licence. Unless bus reactors and associated bays are included as part of the asset of the Transmission Licensee (APML -T), it would not be appropriate for the Commission to allow the capitalisation of the costs and other associated costs thereof as part of present Mid -Term Review process. However, these costs including cost of additional capitalisation towards bus reactors and associated bays can be considered at the time of final true up at the end of the control period, upon due regulatory scrutiny and prudence check only after amendment to the Transmission Licence to incorporate such assets as a part of the Transmission Licence. Therefore, in this Order, the Commission restricts the capital cost to Rs 684.60 Crore, which relates to the existing Transmission Licence as approved by the Commission. Table 2.7 : Capital Cost and capitalisation as approved by Commission (Rs Crore) Page 18 of 62 Case No.190 of 2013 APML -T Mid -Term Review of approved MYT for FY 2012 -13 to FY 2015 -16 Approved S. In -Principle Capital Cost Particulars No Approved as per Actual and MYT Order Cost Capitalisation Capital Cost 684.60 707.84 684.60* 1 *This corresponds to bays and transmission lines as forming part of the existing Transmission Licence. 2.3 DEPRECIATION APML -T submitted that the depreciation for FY 2012 -13 is calculated on Gross Fixed Asset pro -rated for the period since CoD till end of FY 2012 -13. Further, the Petitioner stated that the capital cost considered for GFA has been revised upwards to Rs. 707.84 Crore owing to the inclusion of the bus reactors at Tiroda end of the transmission line. APML -T has considered depreciation rates as per the rates specified in the MYT Regulations, 2011. It was further submitted that there is no assets retiring from the service during the current control period. The details of actual depreciation claimed by APML -T as against depreciation approved in the MYT Order are as follows: Table 2.8: Depreciation for FY 2012 -13 as submitted by Petitioner (Rs Crore) Particulars Approved Actual Days in operation 218 218 GFA 684.60 707.84 Depreciation Rate 5.28% 5.28% Total Depreciation 21.59 22.38 The Commission vide data gaps had sought for asset class -wise calculation of depreciation. In response the Petitioner submitted that there are only two asset classes i.e. Transmission line and Bays and the detailed asset -class wise calculation of actual depreciation was furnished as part of the data format to the Petition. The Petitioner has mentioned that since the variation in depreciation is owing to uncontrollable variation in the capital cost, it requested the Commission to allow the variation in the depreciation as uncontrollable and allow pass through of variations in the same for the purpose of True -up for FY 2012 -13 in accordance with the MYT Regulations, 2011. For, the reason as elaborated in the previous section, the Commission has approved the capital expenditure of Rs. 684.60 Crore for the transmission system of the Petitioner. Accordingly, for computing depreciation, the Commission has considered the Gross Page 19 of 62 Case No.190 of 2013 APML -T Mid -Term Review of approved MYT for FY 2012 -13 to FY 2015 -16 Fixed Asset as Rs 684.60 Crore for FY 2012 -13. Further, the Commission opines that depreciation costs corresponding to additional capitalisation towards bus reactors and associated bays can be considered at the time of final true up at the end of the control period, upon due regulatory scrutiny and prudence check only after amendment to the Transmission Licence to incorporate such transmission assets to be part of the Transmission Licence. Further the depreciation has been arrived at considering the rates as specified under MYT Regulations for respective asset class of the Petitioner and the same has been computed on a pro rata basis for the period since CoD till end of FY 2012 -13. Accordingly the depreciation expenses trued up by the Commission for FY 2012 -13 are as shown below. Table 2.9: Depreciation for FY 2012 -13 as approved by Commission ( Rs Crore) Actual Approved after Particulars Truing up Days in operation 218 218 GFA 707.84 684.60 Depreciation Rate 5.28% 5.28% Total Depreciation 22.38 21.59 2.4 RETURN ON EQUITY The Petitioner has considered equity for FY 2012 -13 based on the revised capital cost owing to considerations of the bus reactors and the equity contribution towards the same. It has been submitted that since capital expenditure for the bus reactors has been incurred from internal funding, the overall equity has exceeded normative equity level of 30%. However, the Petitioner has considered equity of 30% for the purpose of computation of Return on Equity. The Return on Equity has been computed by applying regulated return of 15.5 % on the average of the opening and closing balance of the FY 2012 -13 in lines with the Regulation 32 of MYT Regulation, 2011. Details of actual Return on Equity as against approved Return on Equity (RoE) in the MYT Order are shown as below: Table 2.10 : Return on Equity for FY 2012 -13 (Rs Crore) Particulars Approved Actual Opening Equity 205.38 212.35 Particulars Approved Actual Addition to equity towards - - capital investment Closing balance of Equity 205.38 212.35 ROE@ 15.5% on the 19.01 19.66 average balance For the purpose of truing up of RoE for FY 2012 -13, the Commission has considered the normative equity portion (30%) of the approved capitalisation of Rs. 684.60 Crore during the year. Further, the Commission opines that return on equity component corresponding to additional capitalisation towards bus reactors and associated bays can be considered at the time of final true up at the end of the control period, upon due regulatory scrutiny and prudence check only after amendment to the Transmission Licence to incorporate such assets as a part of the Transmission Licence. Further, RoE has been allowed on pro -rata basis for the number of days in the financial year during which the transmission asset of APML -T was operational post actual COD. The Commission has considered RoE at the rate of 15.5% of the equity, in accordance with the MYT Regulations, 2011. The computation of RoE as approved by the Commission under the present MYT Order is shown in the table below: Table 2.11 : RoE as approved by Commission (Rs Crore) Actual as Approved after Particulars submitted by Truing up APML -T Opening Equity 212.35 0 Addition to equity towards 0 205.38 * capital investment 212.35 205.38 Closing balance of Equity ROE@ 15.5% on pro -rata basis from CoD till end of 19.66 19.01 FY2012 -13. *(As asset had achieved CoD during the Financial Year and not in the beginning of the financial year, the equity addition has been represented as additions during the year and not as opening equity) 2.5 INTEREST ON LOAN The Petitioner has considered the debt for FY 2012 -13 based on the revised capital cost of Rs. 707.84 Crore owing to considerations of the bus reactors and the debt contribution towards the same. The Petitioner submitted that since capital expenditure for the bus reactors has been incurred from internal funding, the overall debt becomes lower than minimum debt level of 70%. Hence, the Petitioner has considered a normative debt of 70% for the purpose of computation of interest on loan in line with Regulation 33.1 of MYT Regulations. APML -T submitted that for computing the interest on long term loan, it has considered applicable rate of interest for FY 2012 -13 as 12.75% (i.e. base rate of BoI + 2%) based on the terms of project specific term loan availed. Further, the Petitioner also submitted that for creation of mortgage / security in favour of transmission lenders, the Petitioner applied on 7 January, 2012 and obtained approval of the Commission vide Order dated 11 April, 2012. The Petitioner claimed delay in approval from lenders and thereafter statutory permissions for the Non - Agricultural approval from Government of Maharashtra (GoM) and adjudication on interpretation issue for stamp duty on the mortgage document by sub -registrar of stamp, Bhandara district are not within the control of the Petitioner. Consequently, the Petitioner could not create security in favour of transmission business lenders in time. The Petitioner submitted they have also requested the lenders to waive the interest but could not get any relief. As part of the present submissions, the Petitioner submitted a letter to the Commission showing the communication with lenders. The Petitioner further mentioned that Bank of India has charged additional interest, which is an additional burden on the Petitioner owing to factors beyond control of the Petitioner. APML -T could create the security in favour of lenders on 31 December, 2013 and BOI have stopped charging additional interest. In this context, APML -T requested the Commission to consider the additional interest burden as uncontrollable and allow pass through of the same. APML -T also stated that it is making efforts for refund of the interest charged by lenders till date and in case of refund the same was submitted to be passed on to the customers. The Petitioner submitted that it has also incurred financing cost of Rs. 0.24 Crore over and above interest on loan which again was stated to be beyond the control of the Petitioner. Details of actual interest on loan as against approved interest on loan in the MYT Order as submitted by the Petitioner are as follows: Table 2.12 : Interest on Loan FY 2012 -13 as submitted by APML -T (Rs Crore) Page 22 of 62 Case No.190 of 2013 APML -T Mid -Term Review of approved MYT for FY 2012 -13 to FY 2015 -16 Particulars Approved Actual Opening Balance of Loan 479.22 495.49 Loan Addition - - Loan Repayment 21.59 22.32 Closing balance of loan 457.63 473.16 Interest Rate 12.50% 12.75% Interest Expense 34.97 36.88 Additional interest charged by BOI - 1.15 and other financing cost Total Interest Expense 34.97 38.03 As regards clarifications sought by the Commission regarding additional interest expense of Rs 1.15 Crore, the Petitioner submitted that it has made several efforts for early creation of security in favour of lenders to avoid charging of additional interest. However, owing to reasons beyond control of the Petitioner, it did not get any relief in view of non -creation of security in favour of lenders due to reasons elaborated in the Petition. The Petitioner has also requested the lenders to waive the interest but could not get any relief. In reply to a query by the Commission regarding reconciliation of the additional interest charge and finance cost with the Annual Accounts of FY 2012 -13 for APML - T, the Petitioner replied that additional interest charge and finance cost is part of Interest Expenses on loan and other finance charges as shown in Schedule 11 of the Annual Accounts submitted along with the Petition. As part of the data gaps, the Commission asked APML -T to submit necessary documentary proof towards claim of the base rate or interest rate charge by BOI during FY 2012 -13. APML -T provided snapshots of BOI webpage, which gives a table on the movement of BOI base rate over a period from 1 July, 2010 till 20 January, 2013. The Commission has carefully analyzed the submissions of APML -T regarding the interest paid on long term loan. For the purpose of truing up of FY 2012 -13, the interest expenses has been computed on the basis of approved capitalisation of Rs 684.60 Crore, opening, addition and closing of loans during FY 2012 -13 and on the basis of actual commissioning date of the transmission assets of APML -T. The Commission has approved normative loan on the approved capital cost which works out to Rs. 479.22 Crore. Interest for the FY 2012 -13 has been computed on pro -rata basis from CoD (26 August, 2012) till end of financial year which was also the approach considered by APML -T. Further, the Commission opines that interest costs corresponding to additional capitalisation towards bus reactors and associated bays can be considered at the time of final true up at the end of the control period, upon due regulatory scrutiny and prudence check only after amendment to the Transmission Licence to incorporate such transmission assets to be part of the Transmission Licence. As regards the interest rates, the Commission observes that Petitioner has claimed interest rate of 12.75% linked to BOI base rate, for the entire year. The Commission perused the snapshots of BOI webpage (which gives a table on the movement of BOI base rate over a period from 1 July, 2010 till 20 January, 2013) submitted by APML -T as proof of interest rate considered for FY 2012 -13 under the present Petition. However upon perusal of the same, it was observed that the 'BOI base rate' over the said period (FY 2012 -13) has varied from 10.75% (1 April, 12 - 30 April, 12) to 10.50% (1 May, 12 - 8 Feb, 13) and then to 10.25% (9 Feb, 13 to 31 March, 13). Thus the actual interest rate for long term loan during these periods works out to be 12.75%, 12.50% and 12.25% respectively. Accordingly, the weighted average interest rate for FY 2012 -13 works out to be 12.49%, which the Commission has considered for the purpose of calculating interest expenses under this truing up exercise. Further as regards additional interest paid by the Petitioner and the finance cost amounting Rs 1.15 Crore, the Commission would like to emphasize the fact that, the Clause 12.1 of the MYT Regulations outlines exhaustive list of uncontrollable factors as below: "12.1 The "uncontrollable factors" shall comprise of the following factors which were beyond the control of, and could not be mitigated by the applicant, as determined by the Commission. List of uncontrollable factors is as follows: (a) Force Majeure events, such as acts of war, fire, natural calamities, etc.; (b) Change in law; (c) Variation in fuel cost on account of variation in coal, oil and all primary - secondary fuel prices; (d) Taxes and Duties; (e) Variation in the cost of power generation and/or power purchase due to the circumstances specified in Regulation 26; and (f) Variation in freight rates;" It is clear from the Regulation, that only above mentioned six factors can be covered under the "uncontrollable factors" and any other factor will have to be treated as "controllable factors". Therefore, the delay in creating security in favour the lenders by APML ­ T cannot be considered as "uncontrollable factor" for the purpose of computation of gain/loss. In view of this, the Commission treats the additional interest paid by the Petitioner and the finance cost amounting Rs 1.15 Crore as controllable expense and in accordance to Regulation 14 of MYT Regulations, 2011 has considered the impact of sharing of efficiency loss. The interest expense for FY 2012 -13 allowed after truing up are given below: Table 2.13 : Interest on Loan FY 2012 -13 as approved by Commission (Rs Crore) Actual as Allowed after Particulars Submitted by APML Truing up Opening Balance of Loan 495.49 0 Loan Addition 0 479.22 Loan Repayment 22.32 21.59 Closing balance of loan 473.16 457.63 Average balance of loan 484.33 468.43 Interest Rate 12.75% 12.49% Interest Expense (w.e.f. 26 August ,2012 to 31 March 36.88 34.93 ,2013, i.e. 218 days) Additional interest charged by BOI and other financing 1.15 0.38* cost Total Interest Expense 38.03 35.32 *(Net entitlement by APML -T after sharing of gains and losses has been provided in the subsequent section of this Order) 2.6 INTEREST ON WORKING CAPITAL The Petitioner submitted that owing to uncontrollable variation in O&M expenses and receivables, the Working capital has been revised to that extent in line with MYT Regulations, 2011. The Petitioner submitted that APML has been maintaining common inventory for both transmission and generation business. In view of common inventory, the Petitioner has considered stores, material and supplies at 1% of GFA. In view of the above, for the purpose of True up, APML -T's interest on working capital has been calculated considering revised working capital and SBAR of SBI. Details of actual interest on working capital as against approved Interest on working capital in MYT Order are as follows: Table 2.14 : Interest on Working Capital (Rs Crore) Actual as Particulars Approved in Submitted by MYT Order APML 1/12th of O&M Expense 0.53 0.68 Stores, materials and 0.57 0.59 supplies @ 1% of GFA 1.5 months expected revenue from 17.17 19.32 Transmission charges Total Working Capital 18.28 20.59 Requirement Interest Rate 14.75% 14.75% Interest on Working 1.61 1.82 Capital The Commission has estimated the normative working capital requirement and interest thereof for FY 2012 -13 based on the revised expenses approved in this Order after Truing up. Further, the MERC Tariff Regulations stipulate that rate of interest on working capital shall be considered on normative basis and shall be equal to the short -term Prime Lending Rate of State Bank of India as on the date on which the application for determination of Tariff is made. As the short -term Prime Lending Rate of State Bank of India (SBI) at the time when APML -T filed the Petition for tariff determination for FY 2012 -13 was 14.75% p.a., the Commission has considered the interest rate of 14.75% p.a., for estimating the normative interest on working capital. The approved interest on working capital for APML -T for FY 2012 -13 is given in the following table: Table 2.15 : Interest on working Capital as approved by Commission (Rs Crore) Approved in Actual Allowed after Particulars MYT Order True Up 1/12th of O&M Expense 0.53 0.68 0.58 Stores, materials and 0.57 0.59 0.57 supplies @ 1% of GFA 1.5 months expected revenue from Transmission 17.17 19.32 18.18 charges Total Working Capital 18.28 20.59 19.33 Requirement Interest Rate 14.75% 14.75% 14.75% Interest on Working 1.61 1.82 1.70* Capital *Interest being computed for the period wef CoD only, i.e. 26 August 2012 to 31 March 2013, i.e. 218 days 2.7 INCOME TAX EXPENSE APML -T submitted that as per audited accounting statements and extracts of books of account of the Petitioner for transmission business, APML -T's Income Tax liability for FY 2012 -13 is Rs. 4.56 Crore against the Commission approved Income Tax of Rs. 4.76 Crore in the MYT Order. In reply to a query by the Commission regarding submission of proof of actual Income Tax paid during FY 2012 -13, APML -T referring to various judgments (in cases Appeal No. 251 of 2006 (2007 APTEL 164) dated 4.4.2007, Appeal No. 111 of 2008 (2009 ELR(APTEL 560) dated 28.5.2009, Appeal No. 115 of 2008 dated 28.5.2009, Appeal No. 68 of 2009 23.3.2010, Appeal No. 174 of 2009 dated 14.02.2011 and Appeal No. 173 of 2009 dated 15.02.2011), stated that the APTEL has laid down broad principles with reference to Income tax claims by the Licensee/ generating companies. whereby Income Tax for generating station or a transmission Licensee has to be computed on a standalone basis, since the Income Tax actually paid by a company as a whole which also carries other businesses apart from the regulated businesses and thus may not reflect the correct Income Tax that would have been required to be paid had the regulated transmission system operated as a separate business. APML -T also referred to relevant note forming part of the financial statements as at 31 March, 2013 of Accounting Statements and extracts of books of account Audited Accounts for FY 2012 -13 certified by the statutory auditor to justify its claim on Income Tax expense. The relevant extract of the aforesaid note is reproduced as under: "21. The activities of Adani Power Maharashtra Limited, revolve against generation of electricity and transmission. The company has been granted a License by MERC to construct a 400 kV Tiroda Warora Transmission Line. Hence the Company has two business segment viz. Transmission business and Generation business. Transmission business of the Company has earned profits, but Generation business has suffered losses. In this case, overall Income Tax payable by the company is nil, due to the losses of the Generation business. Transmission business is a regulated business and as per its Statement of Profit and Loss for year ended on 31 March, 2013, the profit for the year for Transmission business is Rs. 22.77 Crore. As per the Income Tax Act, 1961, the Minimum Alternate Tax (MAT) liability on the same works out to be Rs 4.56 Crore." In view of above, APML -T in its present Petition submitted that it has claimed in line with the principles set by the Hon'ble APTEL and the Petitioner requested the Commission to approve the same as given in the following table: Table 2.16 : Income Tax Expenses for FY 2012 -13 (Rs Crore) Actual as Submitted Particulars Approved in MYT by APML Regulated PBT (equivalent to RoE) 19.01 - MAT Rate 20.01% - Total Income tax 4.76 4.56 The Commission has verified the submission of APML -T in the matter of Income Tax and for the purpose of truing up of FY 2012 -13 and accepts the Income Tax as claimed by APML -T. 2.8 CONTRIBUTION TO CONTINGENCY RESERVE In the MYT Order dated 10 January, 2013, the Commission approved Contingency Reserves at Rs. 1.02 Crore for FY 2012 -13. The Petitioner has submitted that owing to variation in capital cost as elaborated in the present Petition, the contribution to contingency reserve has changed. The Petitioner claimed the change in capital cost is uncontrollable, hence it requested the Commission to consider variation in contribution to contingency reserve as uncontrollable and allow as pass through. However, since the Commission has not modified the Capital Cost as mentioned in detail in the previous paras, the Commission has also not made any changes in contribution to contingency reserve approved in the MYT Order. However, the Commission opines that contribution to contingency reserve corresponding to additional capitalisation towards bus reactors and associated bays can be considered at the time of final true up at the end of the control period, upon due regulatory scrutiny and prudence check only after amendment to the Transmission Licence to incorporate such transmission assets to be part of the Transmission Licence. The table below summarises the Contribution to contingency reserve as submitted by the Petitioner and approved by the Commission in this Order: Table 2.17 : Contribution to contingency reserve for FY 2012 -13 (Rs Crore) Actual as Allowed Particulars Approved in submitted by after True MYT Order APML up Contribution to 1.02 1.06 1.02 contingency reserve 2.9 NON TARIFF AND OTHER BUSINESS INCOME APML -T submitted that as per Regulation 36.1 of MYT Regulations, out of the revenue recovered, the amount accumulated against the contribution to contingency reserve is required to be invested in securities authorized under Indian Trust Act, 1882 within six months of the close of the financial year, which shall be treated as non -tariff income. It further submitted that the recovery of approved transmission tariff for FY 2012 -13 has commenced only from June 2013 and will continue up to April 2014. The Petitioner would be able to invest the same thereafter. APML -T submitted in view of the above, non -tariff income during FY 2012 -13 as 'nil'. Further, the Petitioner stated that it has not undertaken any "Other Business" during the year in question and consequently there is no Income from Other Business. As part of the data gaps, the Commission enquired as to why APML -T was not considering the interest income earned to the tune of Rs. 0.53 Crore during FY 2012 - 13 and recorded under the audited accounts for FY 2012 -13 as part of the Non -Tariff income for the year. Responding to the same, APML -T submitted that there are instances where there is mismatch in income earned and expense expenses made against tariff components of interest on loan, Depreciation, O&M expenses, interest on Page 29 of 62 Case No.190 of 2013 APML -T Mid -Term Review of approved MYT for FY 2012 -13 to FY 2015 -16 working capital, etc. During this mismatch period, the surplus money, if any, is invested on temporary basis and interest is earned on it. Further, APML -T stated that it also earns interest on investment of RoE. Thus, APML -T submitted that the interest income shown in the audited accounts for FY 2012 -13 and FY 2013 -14 pertains to investment of ROE and the transient surplus funds available with the Petitioner for short period for reasons such as time gap between availability of fund and its usage. The Commission observes that, owing to delay in recovery of approved transmission tariff for FY 2012 -13, the Petitioner was not able to make the investment of allowed contingency reserve and thus could not earn any interest on the same. The Commission accepts the submission of the Petitioner in this regard. However, the Commission does not agree with the contention of the Petitioner for not considering the interest income earned during FY 2012 -13 as reflected in the Audited accounts of APML -T for the period. In this context the Commission would like to refer to the definition of 'non - tariff income' as specified in the MYT Regulations, 2011. The relevant extract of the MYT Regulations, 2011 is reproduced as shown below. "(42) "Non -Tariff Income" means income relating to the regulated business other than from tariff, excluding any income from Other Business and, in case of the Retail Supply Business of a Distribution Licensee, excluding income from wheeling and receipts on account of cross -subsidy surcharge and additional surcharge on charges of wheeling;" According to the above Regulations, any income earned by the Regulated business which is not of the nature of tariff income or income from other business can be considered as Non -tariff income of the said Regulated business. In view of this, the Commission does not agree with the contentions of Petitioner in this regard and considers the interest income earned during FY 2012 -13 to the tune of Rs. 0.53 Crore as recorded in the audited accounts of AMPL -T as Non -tariff income for the purpose of truing up for FY 2012 -13. 2.10 CARRYING COST The Commission has passed MYT Order approving ARR for 2012 -13 on10 January, 2013 with carrying cost of Rs. 4.20 Crore for FY 2012 -13. APML -T submitted that owing to revision of ARR for FY 2012 -13, the carrying cost would get revised to Rs. 4.46 Crore as against approved carrying cost of Rs. 4.20 Crore. It further submitted that, Commission has allowed a carrying cost of Rs. 4.20 Crore, assuming that the Commission would pass the InSTS Order by March 2013 and the Petitioner would recover the ARR of FY 2012 -13 in April 2013. However, as the notification of InSTS Tariff Order took place in May, 2013, the actual recovery of ARR for FY 2012 -13 could be commenced in June, 2013 only. Hence, according to APML -T the delay in recovery of ARR by two more months has resulted in additional burden towards carrying cost. APML -T has further submitted that even after compensation in terms of carrying cost up to April , 2014 for revenue of FY 2012 -13, there is a burden on account of staggered recovery of the said amount in FY 2013 -14. As per the methodology adopted by InSTS Order dated 13 May, 2013, the Petitioner requested to let them recover the transmission tariff for FY 2012 -13 in FY 2013 -14 in a distributed manner over the period of 12 months. It stated that over and above revised carrying cost of Rs 4.46 Crore for recovery for FY 2012 -13 in April 2013, there is additional carrying cost of Rs. 6.72 Crore considering recovery of ARR for FY 2012 -13 in 12 equal monthly instalments over FY 2013 -14. Summary of calculations of additional carrying cost as submitted by APML -T is as follows: Table 2.18 : Additional carrying cost for FY 2012 -13 for staggered revenue in FY 2013 -14 submitted by APML -T (Rs Crore) Submitted by Particulars APML -T Carrying cost burden owing to revision in ARR for 2012 -13 0.27 Additional carrying cost due to delayed and staggered recovery for revised ARR for 2012 -13 6.72 Total additional carrying cost burden 6.99 The Commission has verified the submission and computation of carrying cost made by APML -T and accepts the contentions of the Petitioner in this regard. However, the Commission has reworked the Carrying Cost based on the ARR trued up for FY 2012 - 13, against the ARR claimed by APML -T for truing up. Further, the interest rate for computing carrying cost has been considered same as SBI PLR prevailing during the period as claimed by the Petitioner. Further, the total Trued up ARR for FY 2012 -13 (i.e. Rs. 86.86 Crore) considered for the purpose of Carrying Cost computation excludes availability incentive since, the same is due for recovery only after completion of the specified period which is being approved only vide the Truing up exercise for FY 2012 -13 under the present Order. The carrying cost as approved by the Commission after truing up of FY 2012 -13 is summarized as under. Table 2.19 : Carrying cost for FY 2012 -13 for staggered revenue in FY 2013 -14 approved by Commission (Rs Crore) Approved in Particulars this Order Carrying cost burden owing to revision in ARR for 2012 -13 nil Additional carrying cost due to delayed and staggered recovery for revised ARR for 2012 -13 6.33 Total additional carrying cost burden 6.33 2.11 AVAILABILITY OF APML -T NETWORK APML -T submitted that the availability of its transmission system for FY 2012 -13 is 100%. APML -T submitted a copy of the letter issued by Maharashtra State Load Dispatch Centre (MSLDC) certifying the transmission system availability of APML -T as 100% for FY 2012 -13. Regulation 60.1 provides for full recovery of annual transmission charges on the target availability of AC system being 98%. In view of the actual availability being 100%, the Petitioner stated that it is eligible for full recovery of its aggregate revenue requirement. APML -T referred to Regulation 60.2 of the MYT Regulations, 2011 which specifies the following: "Where, Annual transmission Charges shall correspond to Aggregate Revenue Requirement for each year of the Control Period for the particular Transmission Licensee within the State: Provided that no incentive shall be payable above the availability of 99.75% for AC system and 98.5% for HVDC system: Provided further that the computation of incentive/disincentive shall be undertaken during mid -term performance review and at the end of Control Period. Incentive = Annual Transmission Charges * ((Annual Availability Achieved Target Availability)/Target Availability)." Accordingly, APML -T Petitioner claimed an incentive of Rs. 1.98 Crore including Income Tax on incentive for achieving the system availability of 100% during FY 2012 -13. The Commission has verified the MSLDC certificate regarding availability of the transmission lines and considered the availability as 99.75% as capped under the above referred Regulations. Further, the Commission recomputed the availability incentive based on the final trued up ARR allowed for FY 2012 -13. However, the Commission rejects the claim of the tax amount on the availability incentive as claimed by the Petitioner based on Regulation 34.1 of the MYT Regulations, 2011, which specifies that no Income Tax shall be considered on the efficiency gains and incentive earned by Transmission Licensees. The relevant Regulation is produced below: "Clause 34.1 says "Provided that no Income Tax shall be considered on the amount of efficiency gains and incentive earned by the Generating Companies, Transmission Licensees and Distribution Licensees." Accordingly, the availability incentive approved for FY 2012 -13 works out to be Rs. 1.55 Crore as against Rs. 1.98 Crore claimed by APML -T. 2.12 SHARING OF GAINS AND LOSSES: The relevant provisions under the MYT Regulations, 2011 stipulating sharing of gains/losses due to controllable factors are reproduced below: "13 Mechanism for pass through of gains or losses on account of uncontrollable factors 13.1 The approved aggregate gain or loss to the Generating Company (except the adjustment provided to the Generating Company as per Regulation 49.6 of these Regulations) or Transmission Licensee or Distribution Licensee on account of uncontrollable factors shall be passed through under Z -factor Charge, as an adjustment in the tariff of the Generating Company or Transmission Licensee or Distribution Licensee on a half yearly basis or a yearly basis, as specified in these Regulations and as may be determined in the Order of the Commission passed under these Regulations." ... "13.10 Other components of Z -Factor Charge (ZOUC) In case there is variation in cost for Generating Company or Transmission Licensee or Distribution Licensee, on account of any other uncontrollable factors as specified in Regulation 12, the same shall be pass -through under Z factor Charge, on a yearly basis, in a manner as stipulated by the Commission." The relevant provisions under the MYT Regulations, 2011 stipulating sharing of gains/losses due to controllable factors are reproduced below: 14 Mechanism for sharing of gains or losses on account of controllable factors 14.1 The approved aggregate gain to the Generating Company or Transmission Licensee or Distribution Licensee on account of controllable factors shall be dealt with in the following manner: (a) One -third of the amount of such gain shall be passed on as a rebate in tariff over such period as may be stipulated in the Order of the Commission under Regulation 11.6; (b) The balance amount, which will amount to two -third of such gain, may be utilised at the discretion of the Generating Company or Transmission Licensee or Distribution Licensee. 14.2 The approved aggregate loss to the Generating Company or Transmission Licensee or Distribution Licensee on account of controllable factors shall be dealt with in the following manner: (a) One -third of the amount of such loss may be passed on as an additional charge in tariff over such period as may be stipulated in the Order of the Commission under Regulation 11.6; and (b) The balance amount of loss shall be absorbed by the Generating Company or Transmission Licensee or Distribution Licensee. 14.3 Gains and losses on account of controllable factors during the second Control Period shall be shared with the consumers at the time of Mid -term Performance Review and also at the time of tariff determination process of third Control Period. APML -T had identified all the expenditure heads of ARR under uncontrollable category. APML -T submitted the following table for sharing of gains and losses due to variations in the ARR components approved as part of MYT Order and the actual being currently claimed for truing up. Table 2.20 : Comparison of Actual and Approved APR for FY 2012 -13 by APML -T (Rs Crore) Approved Actual Sr. Controll Particular in MYT submitt Deviation Uncontrollable No. able Order ed O&M 1 Expenses 3.83 4.88 (1.05) (1.05) Page 34 of 62 Case No.190 of 2013 APML -T Mid -Term Review of approved MYT for FY 2012 -13 to FY 2015 -16 Approved Actual Sr. Controll Particular in MYT submitt Deviation Uncontrollable No. able Order ed 2 Depreciation 21.59 22.32 (0.73) (0.73) Interest on 3 Loan 34.97 38.03 (3.06) (3.06) Interest on 4 Working 1.61 1.82 (0.20) (0.20) Capital Other 5 - Expenses - - - Contribution 6 to contingency 1.02 1.06 (0.03) (0.03) 7 Income Tax 4.76 4.56 0.20 0.20 Total 8 Expenditure 67.78 72.67 (4.89) - (4.89) Return on 9 Equity 19.01 19.66 (0.65) (0.65) Gross Aggregate 10 Revenue 86.80 92.33 (5.53) - (5.53) Requirement Less: Non - 11 tariff Income - - Income 12 from Other - - Business Net Aggregate 13 Revenue 86.80 92.33 (5.53) - (5.53) requirement Based on the above, the Petitioner has submitted the sharing of gains and losses due to controllable and uncontrollable factors which is summarized below: Table 2.21 : Sharing of Gains and losses for FY 2012 -13 (Rs Crore) Particulars Pass through by To be Total adjustment of tariff retained Particulars Pass through by To be Total adjustment of tariff retained Controllable gain(loss) nil nil Uncontrollable gain(loss) (5.53) (5.53) Total gain(loss) (5.53) (5.53) The Commission has verified the submissions by APML -T. It is observed that APML - T has claimed the entire deviation in ARR component as uncontrollable. However, as discussed in the respective sections of ARR heads above, the Commission based on its analysis has considered the deviations in a) O&M expenses and b) Additional interest and financing cost as controllable gain and controllable loss respectively. The detailed rationales for considering these deviations in these ARR heads are elaborated in the respective sections above, of this Order. Accordingly, the Commission in accordance with the principles enumerated under Regulation 14 of the MYT Regulations, 2011, has shared the efficiency gains and efficiency losses. The sharing of gains and loss of expenses for FY 2012 -13 for APML -T as approved by the Commission is summarised in the following table. Table 2.22 : Sharing of gains and losses approved by Commission (Rs Crore) 2/3 rd of Net Efficiency Gain 1/3 rd Entitlement Allowed Approved in Actual by retained by efficiency loss after Sr.No. Particular after Truing Deviation Uncontrollable Controllable MYT Order APML -T APML -T passed on to sharing of Up (1/3rd -APML, consumer gains and 1/3rd -reserve) losses 1 O&M Expenses 3.83 4.88 3.83 (1.05) 1.05 0.70 0.35 4.18 2 Depreciation 21.59 22.32 21.59 (0.73) 21.59 3 Interest on Loan 34.97 36.88 34.93 (1.91) 34.93 Additional Interest charged s4 by Bank of India in FY 2012 - - 1.15 0.00 (1.15) 1.15 0.77 0.38 0.38 13 and Financing charges 5 Interest on Working Capital 1.61 1.82 1.70 (0.20) 1.70 6 Other Expenses - - - - - 7 Contribution to contingency 1.02 1.06 1.02 (0.03) 1.02 8 Income Tax 4.76 4.56 4.56 0.20 4.56 9 Total Expenditure 67.78 72.67 67.64 (4.89) 2.20 1.47 0.73 68.37 10 Return on Equity 19.01 19.66 19.01 (0.65) 19.01 Gross Aggregate Revenue 11 86.80 92.33 86.65 (5.53) 2.20 1.47 0.73 87.39 Requirement 12 Less: Non -Tariff Income - 0.53 - 0.53 Less: Income from Other 13 - - - - Business Net Aggregate Revenue 14 86.80 92.33 86.12 (5.53) - 2.20 1.47 0.73 86.86 requirement TRUE UP SUMMARY FOR FY 2012 -13 2.13 FY 2012 -13 (Rs Crore) Approved in Net MYT Order Actual Entitlement S.No. Particulars (Petitioned) after truing Up Operation and Maintenance 1 3.83 4.88 4.18 Expenses 2 Depreciation Expenses 21.59 22.32 21.59 Interest on Long -term Loan 3 34.97 36.88 34.93 Capital Additional Interest charged by 4 Bank of India in FY 2012 -13 and - 1.15 0.38 Financing charges Interest on Working Capital and 5 1.61 1.82 1.70 on consumer security deposits Other Expenses 6 - - - 7 Income Tax 4.76 4.56 4.56 Contribution to contingency 8 1.02 1.06 1.02 reserves 9 Total Revenue Expenditure 67.78 72.67 68.37 10 Return on Equity Capital 19.01 19.66 19.01 Aggregate Revenue 11 86.80 92.33 87.39 Requirement 12 Less: Non Tariff Income - - 0.53 Less: Income from Other 13 - - - Business Aggregate Revenue 86.86 14 Requirement from 86.80 92.33 Transmission Tariff Incentive for higher transmission 1.55 15 - 1.98 availability Trued up Aggregate Revenue 88.41 16 86.80 94.31 Requirement incl. incentive The variation in net ARR approved by the Commission after Truing -up for FY 2012 - 13 as compared to that claimed by APML -T, because of the following reasons: a) Decrease owing to non consideration of additional capitalisation of bus reactors and associated interest, depreciation, ROE at this stage, pending amendment to Transmission Licence. b) Decrease in O&M expenses on account of non consideration of bus reactors at this stage, pending amendment to Transmission Licence c) Allowance of transmission system availability incentive d) Reduction in interest expenses considering lower interest approved against Petitioned. e) Reduction in Additional interest charged by Bank of India in FY 2012 -13 and Financing charges owing to treating the same as controllable loss and resultant loss sharing. f) Approval of Non -Tariff income by Commission against Rs.0' Non Tariff income considered by APML -T 2.14 REVENUE GAP AFTER TRUING UP OF FY 2012 -13. After truing up ARR for FY 2012 -13, the revenue gap approved to be recovered by APML -T is Rs. 7.69 Crore. The revenue gap shall be allowed to be recovered through next Transmission Tariff Order. The summary of revenue gap approved for FY 2012 - 13 is tabulated as given below: Table 2.24 : Revenue gap approved for APML -T for FY 2012 -13 (Rs Crore) Allowed after Sr.No. Particulars Formula Truing Up ARR approved in the MYT Order for 1 A 86.80 FY 2012 -13 Approved Carrying Cost for FY 2012 - 2 B 4.20 13 3 Sub total c=a+b 91.00 ARR considered after truing up before 4 d 86.12 sharing of gains/losses Controllable loss in O&M (1/3rd loss 5 e 0.35 to be passed on to consumer) Controllable loss in Finance Charges 6 (1/3rd loss to be passed on to f 0.38 consumer) ARR allowed after truing up and 7 g 86.86 post sharing of gains/losses 8 Incentive for FY 2012 -13 h 1.55 Trued up ARR of FY 2012 -13 9 i 88.41 including incentive Additional Carrying Cost on account 10 j 0.00 of revision in ARR for FY 2012 -13 Additional carrying cost on account of 11 delayed and staggered recovery for k 6.33 ARR of FY 2012 -13 Allowed after Sr.No. Particulars Formula Truing Up Trued up ARR for FY 2012 -13 12 including total carrying cost and l= i+j+k 94.74 availability incentive 13 Less : expected revenue from TSUs m 91.00 14 Net Revenue Gap/ (Surplus) n= l -m 3.74
(3.) PERFORMANCE REVIEW OF ARR FOR FY 2013 -14 As per Regulation 11.6 of MYT Regulations, the Commission shall approve the modifications to the forecast for the remaining control period at the time of Mid Term Performance Review. Regulation 11.6 of MYT Regulations reads as follows: "Upon completion of the Mid -term Performance Review, the Commission shall pass an order recording - (a) the approved aggregate gain or loss to the Generating Company or Transmission Licensee or Distribution Licensee on account of controllable factors and the amount of such gains or such losses that may be shared in accordance with Regulation 14. (b) the approved modifications to the forecast of the Generating Company or Transmission Licensee or Distribution Licensee for the remainder of the Control Period." APML -T, in its MYT petition had submitted projections for FY 2013 -14. Based on the projections, the ARR for FY 2013 -14 was approved by the Commission vide its Tariff Order dated 10 January, 2013. In line with the provisions of the MYT Regulations, the Petitioner submitted revised estimations for FY 2013 -14 based on actual for the first half and estimations for the second half of the FY 2013 -14. While estimating ARR for second half of FY 2013 -14, the Petitioner has taken into account actual performance of FY 2012 -13 and first half of FY 2013 -14. APML -T stated that except O&M expenses, all other parameters are calculated based on annualized parameters. The Petitioner has accordingly shown the estimations for FY 2013 -14. APML -T has given details of its expenses under various heads, viz., O&M expenses, depreciation, interest on loans, interest on working capital etc. as per the data formats prescribed by the Commission. 3.1 OPERATION AND MAINTENANCE EXPENSES Operation and maintenance (O&M) expenses comprises employee related costs, administrative and general (A&G) expenses, and repair and maintenance (R&M) expenditure. Regulation 61.5 of the MERC MYT Regulations specifies: "61.5 Operation and Maintenance expenses 61.5.1 The norms for O&M expenses for existing and new Transmission Licensees have been stipulated for the control Period on the basis of circuit kilometre of transmission lines and number of bays in the substation of the Transmission Licensee, as given below: ... 61.7 O&M norms for New Transmission Licensee 61.7.1 For the new Transmission Licensees, the year -wise O&M norms as stipulated for MSETCL shall be applicable norms for the transmission assets added by such new Transmission Licensee(s) for respective year during the third control period. Provided that same shall not be applicable to those new projects which are awarded on a competitive bidding basis. Explanation: The term " New Transmission Licensee" shall mean the transmission Licensee for which Transmission License is granted by the Commission prior to or after the date of effectiveness of these Regulations, and whose transmission project assets are commissioned after March 31, 2010. Based on actual expenses for first half of FY 2013 -14 and estimated O&M expenses for second half of FY 2013 -14, the Petitioner has estimated the O&M expenses for the entire FY 2013 -14. The Petitioner submitted that its transmission system includes two bays at Warora which has been maintained by MSETCL since CoD. It is also submitted that MSETCL has been seeking O&M expenses per bay basis in line with norms stipulated for O&M by the Commission in MYT Regulations. The Petitioner mentioned that they are in process of concluding O&M agreement with MSETCL, which shall be applicable from the CoD and payment for O&M carried out by MSETCL for two bays at Warora during FY 2012 -13 is likely to be made during second half of FY 2013 -14. APML -T further submitted O&M expenses for FY 2013 - 14 shall also be paid to MSETCL during second half of FY 2013 -14. Accordingly, the Petitioner has considered O&M expenses of FY 2013 -14 in the estimated O&M expenses for second half of FY 2013 -14. Further, APML -T submitted the actual O&M expenses for the first half of FY 2013 -14 do not reflect O&M expenses for the Bus Reactors at Tiroda end. It is submitted that the Petitioner will identify the O&M expenses for the same and consider the same during second half of FY 2013 -14. APML -T submitted that expenses identified for first half of FY 2013 -14 does not capture specific one -time expenses and expenses to be booked in second half of the FY 2013 -14 for the entire financial year. It is submitted that the Petitioner shall book such O&M expenses during second half of FY 2013 -14. Hence APML -T has submitted O&M expenses estimations for FY 2013 -14 based on actual of first half and estimated for second half of FY 2013 -14 as against approved O&M expenses for FY 2013 -14. The submissions are tabulated below: Table 3.1 : O&M Expenses submitted by the Petitioner for FY 2013 -14 (Rs Crore) FY 2013 - FY 2013 - FY 2013 - FY 2013 - 14 14 14 14 S.N Particulars Approved Total - o. H1 -Actual H2 - as per Estimate Petitioned Estimated MYT d Rent Rates and Taxes 1 0.08 0.08 0.17 Telephone and Postage, etc. 2 0.02 0.02 0.04 Professional, Consultancy, Regulatory, Technical and Audit 3 fee etc. 0.19 0.20 0.39 Conveyance and Travel Expenses 4 0.01 0.20 0.21 Office Expenses 5 0.07 0.26 0.33 Patrolling and Maintenance 6 Charges 0.55 1.55 2.10 Vehicle Charges 7 0.28 0.28 0.56 8 Employee Salary Expenses 2.13 2.33 4.46 Provident Fund Contribution 9 0.09 0.09 0.19 Maintenance Contract at 10 Warora Bays 2.08 2.08 Total Operation and 11 Maintenance Expenses 6.78 3.43 7.09 10.52 The Commission is of the view that truing up can be done only when audited accounts for the period is available. Hence the Commission decided to compute the O&M cost for FY 2013 -14 on normative basis as according to Clause 61.7 of MYT Regulations, 2011. It is pertinent to note here that for FY 2013 -14 also, the Commission has not considered two number of bus reactors at Tiroda for computation as discussed in the true up section, pending amendment to Transmission Licence of APML -T. The Commission, after taking into account the O&M norms stipulated under MERC Tariff Regulations for applicable year under consideration for the present MYT Order along with the respective transmission network parameters, approves the O&M expenses for FY 2013 -14 as summarised in the following table: Table 3.2 : O&M Expenses approved by the Commission for FY 2013 -14(Rs Crore) O&M Expenses Units FY 2013 -14 For 400kV line Distance of line Ckt.km 438.00 MERC norms Rs lakh/ckt -km 0.59 For 400kV bay No of bays No. 4 MERC norm Rs lakh/bay 104.78 Days/months in operation Days/ Months 12 months O&M expenses Rs Crore 6.78 3.2 CAPITAL EXPENDITURE AND CAPITALISATION The Petitioner submitted that the there has been no additional capitalization for FY 2013 -14. Accordingly, the capital cost is Rs. 684.60 Crore as on 1 April, 2013. As sought by the Commission, the Petitioner has submitted unaudited/ provisional accounts for FY 2013 -14. The Commission has taken note of the submission and approves the capital cost as Rs 684.60 Crore. As covered under para 2.2, the cost of additional capitalisation towards bus reactors and associated bays may be considered at the time of final true up at the end of the control period, upon due regulatory scrutiny and prudence check only after amendment to the Transmission Licence to incorporate such transmission assets to be part of the Transmission Licence. 3.3 DEPRECIATION The Petitioner has computed the depreciation on revised capital cost in accordance with the rates specified in the MYT Regulations. The detail of estimation of the depreciation as against approved is as follows. Table 3.3 : Depreciation for FY 2013 -14 submitted by Petitioner (Rs Crore) Particulars Approved Earlier Estimated Opening GFA 684.60 707.84 Addition to GFA - - Closing of GFA 684.60 707.84 Depreciation Rate 5.28% 5.28% Months in Operation 12 months 12 months Total Depreciation 36.15 37.37 As elaborated earlier, Commission observes that capitalisation and depreciation towards bus reactors cannot be considered at this stage pending amendment to Transmission Licence. Hence, the Commission approves the depreciation amount as per approved capitalisation and gross fixed asset approved under this Order. Accordingly, the Commission hereby approves a net depreciation of Rs 36.15 Crore for FY 2013 -14. Table 3.4 : Depreciation approved by the Commission for FY 2013 -14 (Rs Crore) Depreciation FY 2013 -14 Opening Gross Fixed Assets (GFA) 684.60 Addition of Gross Fixed Assets - Closing Gross Fixed Assets 684.60 Depreciation rate (r) 5.28% Days / Months in operation 365 days Depreciation 36.15 3.4 INTEREST ON LONG -TERM LOAN APML -T submitted that it has already tied up for project specific loan from syndication of banks led by Bank of India in November 2011 at 2% above the base rate. Accordingly, based on current base rate of Bank of India, the applicable rate of interest for FY 2013 -14 is given as 12.25%. . APML -T further submitted that since capital expenditure for the bus reactors has been incurred from internal funding, the overall debt becomes lower than minimum debt level of 70%. Hence, the Petitioner has considered normative debt of 70% for the purpose of computation of interest on loan in line with Regulation 33.1 of MYT Regulations. Further the repayment has been computed as according to Clause 33.3 of the Regulation. Relevant excerpt is produced below: 33.3 "The repayment for the year of the tariff period FY 2011 -12 to FY 2015 -16 shall be deemed to be equal to the depreciation allowed for that year:" The interest is computed based on the average loan on that financial year. Relevant excerpt of the Regulation is produced below: "33.6 The interest on loan shall be calculated on the normative average loan of the year by applying the weighted average rate of interest. " The interest on long -term debt projected by APML -T is summarised in the table below: Table 3.5 : Interest on Long Term Loans submitted by APML -T (Rs Crore) Particulars Actual of Approved in H1+Estimated MYT for H2 Opening Balance of Loan 457.63 473.16 Loan Addition - - Loan Repayment 36.15 37.37 Cl. Balance of Loan 421.48 435.79 Average Balance 439.56 454.48 Interest Rate 12.50% 12.25% Interest Expenses 54.94 55.67 The Commission has scrutinized the submissions of APML -T regarding interest expenses for FY 2013 -14. As regards the interest rates, the Commission observes that Petitioner has claimed interest rate of 12.25% linked to BOI base rate, for the entire year. The Commission perused the snapshots of BOI webpage (which gives a table on the movement of BOI base rate over a period from 1 July, 2010 till 30 April, 2014) submitted by APML -T as proof of interest rate considered for FY 2012 -13 under the present Petition. However upon perusal of the same, it was observed that the 'BOI base rate' over the period, FY 2013 -14 has varied from 10.25% (1 April, 13 - 7 July, 13) to 10.00% (8 July, 13 - 31 Aug, 13) to 10.25% (1 Sept, 13 - 19 Jan, 14) and then to 10.20% (20 Jan, 14 to 31 March, 14). Thus the actual interest rate for long term loan during these periods works out to be 12.25%, 12.00%, 12.25% and 12.20% respectively. Accordingly, the weighted average interest rate for FY 2013 -14 works out to be 12.20%, which the Commission has considered for the purpose of calculating interest expenses under this truing up exercise. Accordingly, for the purpose of Mid Term MYT approval, the interest expenses as approved by the Commission over the second control period is summarised in the table below: Table 3.6 :Interest on Long Term loans approved by the Commission for FY 2013 -14 (Rs Crore) Particulars As submitted by APML Approved Opening Balance of Loan 473.16 457.63 Loan Addition - - Loan Repayment 37.37 36.15 Cl. Balance of Loan 435.79 421.48 Average Balance 454.48 439.56 Interest Rate (%) 12.25% 12.20% Interest Expense 55.67 53.64 3.5 INTEREST ON WORKING CAPITAL APML -T, in its Petition submitted that the Commission has approved interest on Working Capital on normative basis according to Regulations 35 of MYT Regulations. It mentioned that owing to uncontrollable variation in O&M expenses and receivables, the Working Capital has been revised to that extent in line with Regulations 35.2 of MYT Regulations. The Petitioner further submitted that as stipulated in Regulation 35.2 (b) of MYT Regulations, the interest rate of SBI PLR as on date of application i.e. 14.75% is considered. The Petitioner's revised working of the interest on working capital and approved interest on working capital is provided as below: Table 3.7 : Interest on WC as submitted by APML -T (Rs Crore) Particulars Actual of Approved in H1+Estimated MYT for H2 1/12th of O&M Expense 0.56 0.88 Stores, materials and supplies @ 1% of GFA 0.57 0.59 1.5 months expected revenue from 16.75 18.74 transmission charges Total Working capital requirement 17.89 20.21 Particulars Actual of Approved in H1+Estimated MYT for H2 Interest rate on working capital 14.75% 14.75% Interest on working capital 2.64 2.98 The O&M cost, which has been computed on normative basis, has changed after inclusion of the two bus reactors at Tiroda. This has resulted in the modification of the computation of revenue from transmission charges. However, the same has not been considered pending amendment of Transmission Licence. The SBI PLR as estimated is verified and found to be 14.75% as submitted by the Petitioner. The approved interest on working capital over the control period under this MYT Order is as under: Table 3.8 : Interest on Working Capital as approved by Commission for FY 2013 -14 (Rs Crore) Particulars As submitted by Approved APML -T 1/12th of O&M Expense 0.88 0.56 Stores, materials and supplies @ 1% of GFA 0.59 0.57 1.5 months expected revenue from 18.74 17.63 transmission charges Total Working capital requirement 20.21 18.77 Interest rate on working capital 14.75% 14.75% Interest on working capital 2.98 2.77 3.6 CONTRIBUTION TO CONTINGENCY RESERVE In MYT Order dated 10 January, 2013, the Commission approved Contingency Reserves of Rs. 1.71 Crs for FY 2013 -14. APML -T in its present Petition submitted that owing to variation in capital cost as elaborated in Petition, the contribution to contingency reserve would get changed accordingly for FY 2013 -14. APML -T submitted that since the change in capital cost is uncontrollable, hence it requested the Commission to treat variation in contribution to contingency reserve as uncontrollable and allow as pass through. APML -T has projected the contribution to contingency reserves as 0.25% of the GFA in line with the MERC MYT Regulations .Contribution to contingency reserve approved in the MYT Order as against revised estimation of APML -T is tabulated below: Table 3.9 : Contribution to Contingency Reserves submitted by APML -T (Rs Crore) Particulars As submitted by Approved in MYT APML -T Contribution to Contingency Reserves 1.77 1.71 The Commission has allowed contribution to contingency reserves at 0.25 % of the GFA in accordance with the provisions of the MERC MYT Regulations and based on the revised capitalisation approved by the Commission during the years starting from FY 2012 -13. As regards contribution to contingency reserve for FY 2013 -14, the Commission has computed the same based on the above. The contribution to contingency reserves as allowed by the Commission for FY 2013 - 14 is given in table below: Table 3.10 : Contribution to Contingency Reserves approved by Commission for FY 2013 -14 (Rs Crore) Particulars As submitted by APML -T Approved Contribution to Contingency Reserves 1.71 1.77 3.7 RETURN ON EQUITY The Petitioner has calculated return on equity considering revised capital cost. Since there is no additional capital expense, there is no change in equity capital. Accordingly, the Petitioner has considered normative equity of 30% of the capital cost for the calculation of Return on Equity. APML -T submitted that it has projected the Return on Equity (RoE) in accordance with the MERC MYT Regulations, which stipulates a 15.5% return on equity per annum based on the capital expenditure and capitalisation and debt: equity norm of 70:30. Further, APML has computed RoE on the basis of opening equity, 50% of the equity portion of the capitalisation during the year and reduction in equity on account of de -capitalisation of certain assets. Accordingly, RoE as projected by APML is shown in the table below: Table 3.11 : Return on Equity submitted by APML -T for FY 2013 -14 (Rs Crore) Particulars Approved in Estimated MYT Opening Equity 205.38 212.35 Equity portions of the assets capitalized - - Closing Equity 205.38 212.35 Particulars Approved in Estimated MYT ROE at the beginning of the year 31.83 32.91 ROE portion of the assets capitalized - - ROE @ 15.5 % on the average balance 31.83 32.91 The Commission has considered RoE at the rate of 15.5% of the equity, in accordance with the MERC MYT Regulations, Clause 32.2.1, on the opening equity of the year and on 50% of the projected levels of assets capitalised during the year of the control period and considering the debt: equity ratio as 70:30. As regards RoE for FY 2013 -14, after carrying out computations based on normative parameters, the Commission approves the amount of Rs 31.83 Crore as was earlier approved for FY 2013 -14. 3.8 NON TARIFF INCOME APML -T in its Petition submitted that the Commission had approved Non -Tariff income from investments towards contingency reserves at an interest rate of 8.3%. As per Regulation 36.1 of MYT Regulations, out of the revenue recovered, the amount accumulated towards the contribution to contingency reserve is required to be invested in securities authorized under Indian Trust Act, 1882 within six months of the close of the financial year. APML -T stated the recovery of tariff for FY 2012 -13 and FY 2013 - 14 has commenced only from June 2013 and will continue up to April 2014. The Petitioner said it would be able to invest the same thereafter. In view of above, non - tariff income during FY 2013 -14 is nil as submitted by the Petitioner. The non -Tariff income estimated by APML -T is shown in the table below: Table 3.12 : Non -Tariff Income submitted by APML -T (Rs Crore) Earlier Approved Particulars Estimated under MYT Non -tariff Income 0.04 - The Commission based on analysis of the balance sheet for FY 2012 -13 observed that there is an interest from income component amounting Rs 0.53 Crore. Similarly, based on audited accounts of APML -T for the period ended 30 September, 2013, it was also observed that there would be an additional income of Rs 0.26 Crore under this head for FY 2013 -14, which has now been considered as Non -tariff income for FY 2013 -14 by the Commission. The rationale for considering interest income under non -tariff income has been provided under relevant sections of this Order above. The Commission accept the Petitioner's contention of delayed invest of previous approved contingency reserve due to delay in receipt of revenue and thus has not considered interest from such investment in FY 2013 -14. The approved the Non -Tariff income under the present Mid Term Review Order for FY 2013 -14 as summarised in the table below: Table 3.13 : Non -Tariff Income approved by Commission for FY 2013 -14(Rs Crore) Particulars As submitted Approved in Petition Non -tariff Income - - - 0.26 3.9 INCOME TAX APML -T in its Petition submitted that the Commission in its Order dated 10 January, 2013 in Case No. 44 of 2012 of MYT for Second Control Period, had specified that it has approved the Income Tax in accordance with the Hon'ble ATE judgment in Appeal No 174 of 2009 for considering RoE as base for computation of income tax. It was further submitted that in Order to segregate complete accounts for transmission business and for better regulatory compliance, the Petitioner is envisaging options to carve out the transmission business from generation business by formation new entity and assigning License to the new entity. The Petitioner plans to approach the Commission separately once the scheme is finalized. The Petitioner claimed that in view of above, the Income Tax liability for FY 2013 -14 could not be finalized at present. Hence, the Petitioner has calculated revised Income Tax expense by grossing up revised RoE by applicable MAT rate of 20.01% for FY 2013 -14. Table 3.14 : Income Tax submitted by APML -T for FY 2013 -14 (Rs Crore) Particulars Approved in MYT Estimated Regulated PBT 31.83 32.91 (equivalent to ROE) Income Tax Rate 20.01% 20.96% Income Tax Expense (Grossed up) 7.96 8.73 Regulation 34 of the MERC MYT Regulations, 2011 specifies that the Commission under its MYT Order shall provisionally approve Income tax for each year of the control period and the same shall be treated as a separate revenue head to reimbursement in the bills of the transmission Licensee. Further, the Regulations also provide for variation between the actual and approved Income Tax to be reimbursed at the time of mid -term performance review. The Commission has considered the Return on Equity method for computation of Income Tax for approval of the Mid -Term Review Order, as the actual data is not available for FY 2013 -14. Further, the true up based on actual reimbursement shall be considered at the time of end of MYT Period by the Commission. Further, the Commission has considered Income -Tax based on applicable MAT rate as submitted by APML -T. The Income Tax as provisionally approved by the Commission for the second control period FY 2013 -14 is as summarised in the table below: Table 3.15 : Income Tax approved by the Commission for FY 2013 -14 (Rs Crore) Particulars Submitted by Approved by APML -T Commission Regulated PBT 32.91 31.83 (equivalent to ROE) Income Tax Rate 20.96% 20.96% Income Tax Expense (Grossed up) 8.73 8.44 3.10 PERFORMANCE PARAMETERS: TRANSMISSION LOSS AND TRANSMISSION AVAILABILITY Based on details submitted with Maharashtra State Load Despatch Centre (MSLDC), the cumulative availability for first half of FY 2013 -14 is 99.74 %. APML -T has submitted Copies of monthly availability certificates issued by MSLDC from April 2013 to August 2013. The Petitioner submitted that the Tariff Regulation (Regulation 60.1) provides for full recovery of annual transmission charges on the target availability of AC system being 98%. Further, Regulation 60.2 of the MYT Regulations states as follows: "Where, Annual transmission Charges shall correspond to Aggregate Revenue Requirement for each year of the Control Period for the particular Transmission Licensee within the State: Provided that no incentive shall be payable above the availability of 99.75% for AC system and 98.5% for HVDC system. Provided further that the computation of incentive/disincentive shall be undertaken during mid -term performance review and at the end of Control Period." The incentive shall be calculated in the following manner: Incentive = Annual Transmission Charges * ((Annual Availability - Achieved Target Availability)/Target Availability). APML -T further submitted that for FY 2013 -14, the certificate for cumulative availability up to Sep ,2013 is awaited from MSLDC. Hence, the Petitioner shall claim the incentive if any at the time of annual performance review for FY 2013 -14 on receipt of certificate of cumulative availability for entire FY 2013 -14. Regulation 60.1 of the MERC MYT Regulations specifies a target availability of 98% for AC system of Transmission Licensee for full recovery of its annual transmission charges. The relevant Regulations are reproduced as given below: "60.1. Target availability for full recovery of annual transmission charges (a) AC system : 98 per cent (b) HVDC bi -pole links : 92 per cent (c) and HVDC back -to -back stations : 95 per cent ..."(Emphasis added) Thus, APML -T has to maintain its Transmission system availability in line with the norms stipulated in the aforesaid Regulations, in order to be eligible to recover the annual transmission charges, i.e., ARR, as determined by the Commission. Any reduction in system availability will lead to pro -rata reduction in recovery of the ARR. As regards trajectory of transmission system availability, the Commission is of the view that APML -T should comply with the targets stipulated as per above referred Regulations. Under/over achievement of the system availability compared to the specified targets shall be dealt in accordance with provisions specified in the MERC MYT Regulations. The Commission is of the view that the Petitioner would be adequate incentivized during true up of FY 2013 -14 provided all the submissions are made from MSLDC and other relevant departments. 3.11 AGGREGATE REVENUE REQUIREMENT FOR FY 2013 -14 The ARR submitted by APML -T for the second control period is summarised in the following table. Table 3.16: Aggregate Revenue Requirement by APML -T FY 2013 -14 (Rs Crore) FY13 -14 Mid Sl approved FY13 -14 Particulars Term No in MYT Estimated Approved Order 1 Operation and maintenance Expenses 6.78 10.52 6.78 2 Depreciation 36.15 37.37 36.15 3 Interest on Long -term Loan Capital 54.94 55.67 53.64 4 Interest on Working Capital 2.64 2.98 2.77 5 Other Expenses - - 6 Income tax 7.96 8.73 8.44 7 Contribution to Contingency Reserves 1.71 1.77 1.71 8 Total Revenue Expenditure 110.18 117.04 109.48 9 Add: Return on Equity Capital 31.83 32.91 31.83 10 Aggregate Revenue Requirement 142.01 149.96 141.32 11 Less: Non tariff Income 0.04 - 0.26 12 Less: Income from other business - - 13 Net Aggregate Revenue Requirement 141.97 149.96 141.06 The variation in net ARR approved by the Commission after approval for FY 2013 -14 as compared to that claimed by APML -T, is because of the following reasons: a) Reduction in interest expenses considering lower interest rate approved against Petitioned. b) Approval of Non -Tariff income by Commission against Rs.0' Non Tariff income considered by APML -T ;