Presentation on theme: "T TARIFF FILING PROCEDURES A Presentation By UGVCL"— Presentation transcript:
1 T TARIFF FILING PROCEDURES A Presentation By UGVCL
2 Summary of Presentation MYT framework –A Brief UnderstandingDrafting a petition and procedures to be followed by SERC & DISCOMs.
3 MYT – A Brief Understanding MYT Principles & BackgroundMYT conceptNeed for MYTMYT Benefits to StakeholdersMYT Framework
4 MYT Principles & Background Traditionally, tariff regulation in India was managed by the owners of the system, i.e. State GovernmentsState Governments played the all-encompassing role of policy-maker, owner, operator and regulatorGoI enacted the Electricity Regulatory Commissions Act, 1998 (ERC Act)Aim was to provide an independent regulatory regimeCentral Electricity Regulatory Commission (CERC) and a number of State Electricity Regulatory Commissions were establishedAs per the EA 2003, the SERCs have to formulate new tariff guidelines for tariff determination and they have been mandated to develop the same keeping the Multi-Year Tariff (MYT) Principles in mind
5 MYT conceptThe pre-existing annual filing of expected revenues and expenditure was done and the Commission has to either approve the tariff proposed by the licensee or provide an alternative tariff.The earlier system of annual determination was too flexible, giving considerable freedom, and leading to arbitrary decision-making. MYT system was introduced as the answer to make the tariff-setting exercise more predictable.MYT is a system where the tariff determination is done for a number of years, in one exercise.The concept of MYT can mean several things, such as prescribing the actual numbers or adhering to certain specific benchmarks.It could also involve broader principles that will prevail for a number of years, covering, at one end, the principles that will govern the input costs of a utility and at the other end, the output prices of the utility.These two can be linked, as the quantum of revenue to be allowed is linked to the quantum of costs to be allowed.
6 Need for MYTThe electricity business has certain characteristics that make it imperative to remove regulatory uncertainty:capital-intensive infrastructure requiring large investments made in anticipation of demand.Licensees need to raise large funds to build / renovate networks and contract generation, which becomes difficult if future income is risky and unpredictable.Electricity generation and consumption happen together. There is no storage – so licensees have to build or contract capacity to meet peak demand (used only for a short period) of consumers, maintain a reserve for system reliability, and import from other states if availability at any instance is insufficient to meet requirementsLicensees are subject to universal service obligation, which mandates them to supply to all consumers irrespective of market conditions.Also, licensees cannot directly control how much or when electricity will be consumed.
7 Need for MYTThe cost of this uncertainty and risk falls on the licensees and ultimately on the consumers. However, it is becoming increasingly important to mitigate this uncertainty.Distribution companies (DISCOMs) need a large amount of capital to expand their networks, reduce the Aggregate Transmission and Commercial (AT&C) losses and also improve the quality of supply. Their ability to do so could however be adversely affected if there is any regulatory uncertainty that has a bearing on their future income.Thus, some income predictability needs to be provided over a certain timeframe (three to five years) for a DISCOM to plan effectively.
8 MYT Benefits to Stakeholders Investor:Some degree of predictabilityAlso, may reduce the need for frequent tariff filings by the licensee(s), which would lead to reduced administrative costs.Consumer:Multi-year tariffs based on improvement in performance have a tendency to instil in the utility a sense of efficiency.In a well-designed MYT based tariff system, the constant endeavour by the utility to improve operational efficiency can be expected to reduce tariffs. Utilities would have to provide better customer service or face penalties to be paid to customers.Regulator:The multi-year tariff introduces a stretched out regulatory lag, which reduces the necessity for rigid regulatory command and control very frequently.
9 MYT FrameworkMYT framework lists out the general principles that will provide regulatory certainty in determining retail tariffs.Expected to provide predictability in the tariff regime and of regulating outcomes as compared to the present ARR processMYT Principles will be applied for determination of Annual Revenue Requirement of the Discoms for a specified duration viz. the Control PeriodUnder MYT, performance targets would be set for items that are considered ‘controllable’ or ‘manageable’ by the Discoms
10 MYT FrameworkThe “controllable” items as identified by various ERCs include:Consumer SalesSystem LossesNetwork CostsInvestment PlanFinancing cost (for the above mentioned Investment Plan)Quality of Supply and Customer Service StandardsProfitability neither guaranteed nor capped, but dependent on performance. Profit in excess of normative returns achieved by means of higher efficiency, growth etc shall be shared with consumers through rebatesStandards of quality for supply and customer service is to be monitored and penalties for falling short is also introduced.
11 MYT FrameworkDiscoms will not have to bear the burden of items that are considered “uncontrollable”. The consequent financial gain or loss will be adjusted in the revenue requirement :vagaries of naturechanges in the laws of the landjudicial pronouncementsGovernment policiesfuel costs, costs on account of inflation, taxes and cess etcDiscoms will need to ensure adequate investments in the business for asset creation and working capital, and will be fully compensated for it in the revenue requirement
12 MYT Framework MYT aims at incentivising DISCOMs to improve performance Presently, all surplus generated by the DISCOM is utilised by the state for the sector as a wholeWith MYT30% surplus may be retained by the company30% may go to a common poolRemaining may go to a reserve fund, to be utilised by the DISCOMs when required
13 How to draft a Petition? Regulatory Provisions Cost element of ARR Demand & Financial assumptionsInitiation of Tariff Filing ProcessTruing Up Procedure for Previous YearTariff Determination of Ensuing YearFiling of Petition to the Hon’ble GERCIssuance of Public NoticeInviting Public ObjectionsPublic Hearing held by GERC on Tariff PetitionIssuance of Tariff Order by GERC
14 Regulatory Provisions ARR is the Revenue Required by an Utility to meet all the expenses to carry on the business in a year and to earn a reasonable return on equity;SERCs to decide tariff for generation, supply, transmission and wheeling of electricity;SERCs to Regulate electricity purchase and procurement process of distribution licensees;SERCs to Regulate Intra-state transmission and wheeling of electricity;SERCs to Promote cogeneration and renewable energy;SERCs to Specify and enforce Standards of Performance;SERCs to Fix trading margin;Gujarat Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2011 (hereinafter referred to as the “MYT Regulations”) were notified by the Commission on 22nd March 2011; which supersede the “Gujarat Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2005” and “Gujarat Electricity Regulatory Commission (Multi Year Tariff Framework) Regulations, 2007”The provision under the Distribution Tariff Regulations requires the licensees to submit their ARR / Tariff petitions latest by 30th November each year to be made applicable for the subsequent financial year
15 Cost elements of ARR Provision for bad and doubtful debts ARR is the Revenue Required by an Utility to meet all the expenses to carry on the business in a year and to earn a reasonable return on equity;Power Purchase CostOperation and Maintenance CostInterest & Finance chargesInterest on Working capitalDepreciationReturn on equityOther ExpendituresProvision for bad and doubtful debtsProvision for contingency reservesPrior period adjustments/ power purchase arrearsIncome Tax ProvisionThe tariff may undergo a change depending upon the approval of ARR by the Commission
16 Distribution Companies – Demand Projections Sales for FY estimated based on:Five Year CAGR Growth considered;Necessary smoothening of growth considered in abnormal casesHigher Growth assumed in Residential & Commercial CategoriesGrowth in Agriculture consumers on account of release of new connectionsNorm for computation of consumption of new metered agriculture connection Units/HP/Annum
17 Financial Assumptions (FY 2011-12 to 2015-16) as per GERC MYT Regulations, 2011 O&M CostAverage of the O&M expense of FY , & is taken. Considering this average as O&M expense for FY , an escalation of 4% given till FY & then further escalated by 5.72% for rest of the MYT periodDepreciation – Based on new CERC Rates (5.23% %): Weighted average depreciation rates of the DiscomsInterest on LoansOpening loan for FY is considered as approved by CommissionExisting Loans – Actual Interest Rate for FYNew Loans – 10.50%Repayments of Loans – depreciation allowed for that yearReturn on Equity – 14%Interest on Working Capital – 11.75% (SBAR as on 1st April 2011)Receivables equivalent to one month of revenueDebt : Equity Ratio – 70:30Provision for Doubtful Debts – 0.2% of RevenueTax on Income: As per the actual of FY1717
18 Treatment to meet revenue gap The difference between ARR and revenue would be met by:Tariff increaseSubsidy from state governmentIncreasing the efficiency of the utility – by reduction of distribution loss, targets based on utility plans including CAPEXEfficiency normsBilling & collectionLevel of arrearsQuality of serviceEnhancement in operational efficienciesEffective demand supply management (DSM)Savings in power procurementRegulatory assetRevolving bank guarantee from financial institutions
19 Rationalization of Tariff Structure Tariff Philosophy shall be guided by Sec 61 (g) of the Electricity Act as well as Clause of the National Tariff Policy which necessitates movement of Tariff Structure towards Cost of Supply; tariff should be within +_ 20 % of the Average Cost of SupplyMajor Constraints for achieving this end are:Legacy Tariff, Consumer Mix and Paying Capacity of subsidised consumer categories;Approach of a gradual reduction in Cross Subsidy, which is an important feature in the Electricity Act, 03 and the Tariff Policy has to be undertaken;Suitable merger of categories and sub categories may be done to evolve a simple, comprehensible and logical tariff structure;Provision of peak and off peak, load factor rebate, power factor rebate are an important tool;Seasonal and time differentiated tariff would help in aligning revenue and cost structure.
20 Tariff determination methodology Scrutiny of the petitionadditional dataClarifications /Public Hearing ProcessDetermination of ARRRevenue DeterminationTariff alternatives & its ImplicationTariff DesignIssue of tariff Order
21 Initiation of Tariff Filing Process The Hon’ble GERC vide tariff order dated 6th September 2011, determined ARR for entire second control period (FY to FY ).As per MYT Regulations 2011, Tariff Filing should be done each year for the entire second control period.The Tariff Petition should include true-up of previous year ( say FY ) and tariff determination for ensuing year (FY ).In accordance with the same Licensee has to initiate the procedure for tariff filing each year.Licensee is required to collect required relevant data from all its sources in order to correctly execute the tariff filing process.
22 Truing Up Procedure for Previous Year Truing Up means comparison of expenses incurred as per Audited Accounts with that of Approved ARR in order to find Revenue Gap if any which needs to be adjusted in tariff of subsequent year.Based on the nature of the expense, MYT Regulations have defined a particular expense as either Controllable or Un-Controllable.Controllable Expenses are such which are within the scope of the Licensee, whereas Un-Controllable Expenses are beyond the control of the LicenseeAs per MYT Regulations, 1/3rd of the Controllable Expenses are to be shared with the Consumer while 2/3rd is to be retained by the Licensee.Uncontrollable Expenses are entirely pass through to the consumers without any sharing mechanism.With the above said calculation, Licensee has the determine the Revenue Gap for that particular year.
23 Tariff Determination for Ensuing Year The Hon’ble GERC has determined ARR for the entire second control period and therefore the Licensee has to adhere to this ARR till FYHowever the Licensee can file for tariff revision every year during the second control period based on the truing up process.The Licensee can revise the tariff for the ensuing year based on the revenue gap determined by the truing up process.Similar Procedure can be followed by the Licensee each year during the second control period.
24 Filing of Petition to Hon’ble GERC The petition with full details of the calculation showing truing up of previous year and tariff of following year, is the be filed before the Hon’ble GERC by 30th November of each financial year.The Licensee is also require to file other relevant information along with the petition and supporting documents like the Audited Accounts for the previous year.The Licensee has to also make payment to the Hon’ble GERC as petition fees as specified in the MYT Regulations.
25 Issuance of Public Notice The Licensee has to issue public notice within seven days of the acceptance letter issued by the Hon’ble GERC.The public notice is an advertisement or brief note on the petition filed by the Licensee.The format of the public notice to be issued needs to be approved by the Hon’ble GERCThe public notice is to be published in at least 2 daily newspapers, one in English and one in local language.
26 Inviting Public Objections Through the Public Notice, the Licensee is required to invite public objections on the petition filed.The Licensee has to also make a summary of the entire petition and make it available to the public on demand.The Licensee has to allow a time period of 30 days to the public for suggestions/objections to approach them.
27 Public Hearing held by GERC on Tariff Petition The Hon’ble GERC issues a notice to the Licensee on schedule of public hearing.Public Hearing can be held by GERC once the period of 30 days given by Licensee for inviting public objections is over.The Licensee is legally responsible for giving replies to the public objections raised, before the schedule of the public hearing.The general public has the right to be present at the public hearing and can directly question the management of the licensee present at the hearing.They can also raised questions/doubts based on the replies made by the licensee during the allotted time slot.The Management of the Licensee is responsible to satisfactorily respond to these queries.The Hon’ble Commission has a right to hold the public hearing once again if it feels that appropriate objections were not raised.
28 Issuance of Tariff Order As per MYT Regulations, the Hon’ble Commission has to come up with the tariff order for the coming year within 120 days of the filing of the petition by the Licensee.During the period, the Licensee is free to file additional information or addendum to the petition, if the Licensee feels the need to do so.The Licensee is also liable to produce any document/information before the Hon’ble GERC on demand.After in depth understanding, analysis, authentication and scrutiny of the data submitted and adhering to the scope of the Regulation the Hon’ble GERC comes up with the tariff order for the Licensee.
29 Mechanism to monitor Implementation of Tariff Order Process / SystemsDevelopment of a Regulatory Information Management System (RIMS) database to keep a check on the various performance parameters and to assist the compliance of the regulations;By benchmarking the processesAS-IS process mapping;Business Process Re-engineering;Designing a Monitoring and Evaluation Plan for various;Asking the utility to use advance IT/ MIS enabled tools for better & efficient monitoring;Meetings/ WorkshopsOrganizing and conducting an Annual / Half yearly meetings & Knowledge sharing workshops;Quarterly meetings (official/unofficial) could be arranged;Co-ordination CommitteeA monitoring committee could be formed comprising of a nodal officer from the Commission and from each licensee’s side;Various Directives/ issues such as Short term power purchase/ Fuel Adjustment charge can be discussed;Meetings/ WorkshopsCommitteeProcess/ Systems
30 Other Critical Elements of ARR process Collection EfficiencyTheftsDepreciation & Loan repaymentDistribution LossesUnmetered consumption4/1/2017