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Thermal power generating stations operating after April 1, 2009, will have to undergo scrutiny and prudence checks on their capital costs by the Central Electricity regulatory Commission (CERC), according to a new 5-year (2009-2014) tariff guideline scheduled to release soon. The CERC checks will include scrutiny of the reasonableness of the capital expenditure, financing plan, interest during construction, use of efficient technology, cost and time over run and any other matter on which the commission would like to have a probe. The capital cost of a project shall form the basis of tariff determination depending on the checks and balances carried out by CERC.

The tariff for supply of electricity from a thermal stations will comprise a fixed and energy charge, covering RoE, interest on loan and working capital, depreciation, O&M expenses and fuel cost. CERC also formulates that in a project if equity is deployed over 30 per cent of the capital cost, the excess equity shall be treated as a normative loan.

If equity is below 30 per cent then it shall be considered for determination of tariff.
In case of generating stations and transmission systems operating before April 1 2009, CERC will allow the debt-equity ratio to be considered for the period ending March 31 2009 for determination of tariff.

Expenditure beyond April 1, 2009, will be treated as an additional capital expenditure for tariff determination. CERC stipulated that infirm power, if any, shall be sold as unscheduled interchange (UI) and paid from the regional or state pool acount at the
applicable frequency linked UI rate.

This, however, is subject to any revenue being earned by the generating company from sale of the infirm power and shall be used for reduction of capital cost. The capital cost shall finally consist of expenditure actually incurred or projected to be incurred including interest during construction and financing charges upto the date of commercial operations.

Courtsey - Business standard