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TARIFF PHILOSOPHY PAPER OF M.P.E.R.C.
ALLOWED RATE OF
RETURN
- RoR or PBR regulation of tariffs
discussed to in section 4.0 requires choosing the appropriate rate
of return on capital invested. This capital typically takes the
form of a mix of debt and equity. The allowed rate of return
should reasonably generate enough resources to cover debt and
equity payments, to enable the utility to attract the needed new
capital.
- The process of tariff
determination is based on fixation of a just and fair rate of
return which may yield sufficient income to the utility over its
capital base. This principle has been specified under the
provisions of the Sixth Schedule of the Electricity (Supply) Act,
1948 which has fixed the allowed rate of return on assets of
licensees; while for the Board, a surplus of not less than three
percent, or such higher percentage as the State Government may
specify, is allowed as a reasonable return as per section 59 of
the Electricity (Supply) Act, 1948.
- The Commission will be guided by
the provisions of section 59 of the Electricity (Supply) Act, 1948
in the case of the Board and of the Sixth Schedule thereof, in the
case of licensee, in the matter of allowed rate of return.
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