The Himachal Pradesh Electricity Regulatory Commission (HPERC) on August 30th 2024 issued a significant notification that amends the Himachal Pradesh Electricity Regulatory Commission (Levy and Collection of Fees and Charges by State Load Despatch Centre) Regulations, 2011. These amendments are designed to update various aspects of the regulations governing the State Load Despatch Centre (SLDC).
The new set of regulations will be referred to as the Himachal Pradesh Electricity Regulatory Commission (Levy and Collection of Fees and Charges by State Load Despatch Centre) (Third Amendment) Regulations, 2024.
2. Key Amendments to Regulation 20
Regulation 20 of the existing SLDC regulations has been revised in two important ways:
Adjustment to Rate of Return on Equity
The rate of return on equity (RoE) has been adjusted. Previously set at 15.5%, it has now been reduced to 14.5%. This change reflects a revised understanding of financial conditions and the cost of equity for power system operations.
Updated Illustrations for RoE Calculation
The examples provided for calculating the rate of return on equity have been updated as follows:
- Example 1: In case of the power system operation company paying Minimum Alternate Tax (MAT)@ 17.16% including surcharge and cess: Rate of return on equity = 14.50/ (1- 0.1716) = 17.504%.
- Example 2: In case of the power system operation company paying normal corporate tax @ 27.82% including surcharge and cess:Rate of return on equity = 14.50/(1- 0.2782) =20.089%.”
These updated calculations ensure that the RoE aligns more closely with the current tax environment and financial realities.
3. Changes to Regulation 27
Regulation 27 has undergone the following revisions:
Increase in Minimum Fee
The minimum fee stipulated in sub-regulation (2) has been increased from Rs. 1 Lakh to Rs. 3 Lakhs. This change aims to better reflect the administrative and operational costs associated with managing the SLDC.
Omission of Sub-Regulation (3)
Sub-regulation (3) has been omitted, which simplifies the regulatory framework and may streamline operational procedures.
4. Revisions to Depreciation Schedule (Appendix II)
Appendix II, which outlines the Depreciation Schedule, has been updated with new rates for various assets. This is a crucial change that affects how depreciation is calculated for different types of assets. Here’s a summary of the key updates:
Land and Buildings
- Land owned under full ownership remains at 0.00%.
- Land under lease for investment and site clearing costs remains at 3.34%.
Buildings and civil engineering works:
- Offices and residential buildings: Increased from 1.63% to 3.34%.
- Temporary wooden structures: Increased to 100%.
- Roads (other than kutcha roads): Reduced from 100% to 3.34%.
Transformers and Switchgear
- Transformers (100 kVA and over) and Switchgear rates remain at 5.28%.
Batteries
- Depreciation for batteries has been increased from 5.28% to 15.00%, reflecting their higher wear and tear.
Overhead Lines and Cables
- Depreciation rates for various types of lines and cables remain largely unchanged, except for treated wood supports, which are now set at 5.28%.
Office Equipment and IT Assets
- IT Equipments: Remain at 15.00%.
- Softwares: Depreciation has been reduced from 30.00% to 15.00%, acknowledging the longer useful life of software investments.
Implications of the Amendments
These updates are expected to have several implications for the electricity sector in Himachal Pradesh:
- Financial Adjustments: The reduction in the RoE rate and changes in the tax illustrations will likely influence financial planning and investment decisions for power system operators.
- Increased Administrative Costs: The rise in the minimum fee could lead to higher upfront costs for entities dealing with the SLDC, potentially impacting their operational budgets.
- Depreciation Changes: Adjustments in depreciation rates could affect asset management strategies and financial statements, particularly in terms of accounting for asset wear and tear.
Overall, these amendments reflect an effort by the HPERC to align regulatory practices with current economic conditions and operational realities, thereby ensuring more accurate financial and operational management within the electricity sector.
