order case 102 of 2009
TRANSCRIPT
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Before the
MAHARASHTRA ELECTRICITY REGULATORY COMMISSION
World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai400 005
Email: [email protected]
Website: www.mercindia.org.in
Case No. 102 of 2009
IN THE MATTER OF
Petition filed by The Maharashtra State Power Generating Company Limited (MSPGCL)
for approval of Truing up for FY 2008-09, Annual Performance Review for FY 2009-10
and Determination of Tariff for FY 2010-11
Shri V. P. Raja, Chairman
Shri S. B. Kulkarni, Member
Shri V. L. Sonavane, Member
Date: September 12, 2010
O R D E R
In accordance with MERC (Terms and Conditions of Tariff) Regulations, 2005 and upondirections from the Maharashtra Electricity Regulatory Commission (hereinafter referred as
MERC or the Commission), Maharashtra State Power Generating Company Limited (MSPGCL),
submitted its application on affidavit for approval of truing up of Aggregate Revenue
Requirement (ARR) for FY 2008-09, Annual Performance Review (APR) for FY 2009-10 and
tariff for FY 2010-11. The Commission, in exercise of the powers vested in it under Section 61
and Section 62 of the Electricity Act, 2003 (EA 2003) and all other powers enabling it in this
behalf, and after taking into consideration all the submissions made by MSPGCL, all the
suggestions and objections of the public, responses of MSPGCL, issues raised during the Public
Hearing, and all other relevant material, and after review of Annual Performance for FY 2009-
10, determines the tariff for MSPGCL for FY 2010-11 as under.
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List of AbbreviationsAAD Advance Against Depreciation
AOH Annual Overhaul
APR Annual Performance Review
ATE Appellate Tribunal for Electricity
A&G Administrative and General
APR Annual Performance Review
ARR Aggregate Revenue Requirement
APH Air Pre Heater
AOH Annual Overhauling
BHEL Bharat Heavy Electrical Ltd.
Capex Capital Expenditure
CPI Consumer Price Index
CEA Central Electricity Authority
CERC Central Electricity Regulatory Commission
Cu.m Cubic meter
CV Calorific Value
COD Commercial Operation DateCPRI Central Power Research Institute
DPR Detailed Project Report
EA 2003 Electricity Act, 2003
FAC Fuel Adjustment Cost
FOCA Fuel & Other Cost Adjustment
FY Financial Year
GAAP Generally Accepted Accounting Principles
GCV Gross Calorific Value
GFA Gross Fixed Assets
GOM Government of Maharashtra
GOMWRD Government of Maharashtra-Water Resource Department
ID Induced draftITAT Income Tax Appellate Tribunal
ICAI Institute of Chartered Accountants of India
IWC Interest on Working Capital
Kcal kilo calories
kW kilo Watt
kWh kilowatt hour
LD Liquidity Damages
MCM Million Cubic Meter
MMSCMD Million Metric Standard Cubic Meters per Day
MERC Maharashtra Electricity Regulatory Commission
MSEB Maharashtra State Electricity BoardMSETCL Maharashtra State Electricity Transmission Company Limited
MSLDC Maharashtra State Load Despatch Centre
MSPGCL Maharashtra State Power Generation Company Limited
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MT Metric Tonnes
MU Million Units
MW Mega Watt
MYT Multi Year Tariff
OEM Original Equipment Manufacturer
O&M Operations and Maintenance
PLF Plant Load Factor
PLR Prime Lending Rate
PPA Power Purchase Agreement
R&M Repair and Maintenance
RH Re-heater
RLNG Re-gasified Liquid Natural Gas
SFOC Secondary Fuel Oil Consumption
SH Super Heater
SHPs Small Hydel Plants
TVS Technical Validation Session
WPI Wholesale Price Index
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Table of Contents
1 BACKGROUND AND BRIEF HISTORY .......................................................................................... 7
1.1 TARIFF REGULATIONS ............................................................................................................ 7
1.2 COMMISSIONS ORDER ON ARR AND TARIFF PETITION FOR FY 2005-06 AND FY
2006-07 ..................................................................................................................................................... 7
1.3 REVIEW PETITION ON TARIFF ORDER FOR FY 2006-07 ................................................... 7
1.4 COMMISSIONS ORDER ON MYT PETITION OF MSPGCL FOR FY 2007-08 TO FY
2009-10 ..................................................................................................................................................... 8
1.5 MSPGCLS APPEAL BEFORE ATE AND ATE JUDGMENT ................................................. 8
1.6 COMMISSION'S ORDER IN THE MATTER OF TRUING UP PROCESS FOR MSPGCL
FOR FY 2005-06, FY 2006-07 & FY 2007-08 BASED ON APPELLATE TRIBUNALS JUDGMENT
AND CPRI REPORT. ............................................................................................................................. 14
1.7 PETITION FOR ANNUAL PERFORMANCE REVIEW FOR FY 2009-10 ANDDETERMINATION OF TARIFF FOR FY 2010-11 ............................................................................. 15
1.8 ADMISSION OF PETITIONS AND PUBLIC PROCESS ........................................................ 16
1.9 ORGANISATION OF THE ORDER ......................................................................................... 17
2 OBJECTIONS RECEIVED, MSPGCLS RESPONSE AND COMMISSIONS RULING .............. 19
2.1 Non Compliance to MYT framework ......................................................................................... 19
2.2 Inadequate Time for Filing Suggestions and Objections ............................................................ 19
2.3 Capital Expenditure and Capitalisation ....................................................................................... 20
2.4 Interest Expenses ........................................................................................................................ 222.5 Depreciation Including Advance Against Depreciation ............................................................. 23
2.6 O&M Expense Projections.......................................................................................................... 24
2.7 Earned Leave Encashment .......................................................................................................... 25
2.8 Material Cost Variance ............................................................................................................... 26
2.9 Performance Parameters and Variable Cost ................................................................................ 27
2.10 Coal Price .................................................................................................................................... 29
2.11 Renovation & Modernisation Schemes ....................................................................................... 30
2.12 Comparative Analysis of MSPGCL and NTPC Plants ............................................................... 31
2.13 Lease Rent ................................................................................................................................... 32
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2.14 Power Purchase Agreement ........................................................................................................ 32
2.15 Uniform Tariff for all Generating Stations ................................................................................. 33
2.16 ARR for Ensuing Year ................................................................................................................ 33
3 TRUING UP OF REVENUE REQUIREMENT FOR FY 2008-09 ................................................... 35
3.1 PERFORMANCE PARAMETERS AND FUEL COSTS .......................................................... 35
Gross Generation ................................................................................................................................ 37
Auxiliary Consumption ....................................................................................................................... 40
Station Heat Rate (SHR) ..................................................................................................................... 40
Secondary Fuel Oil Consumption ....................................................................................................... 41
Transit Loss ......................................................................................................................................... 42
Fuel Price, Fuel Mix and Calorific Value ........................................................................................... 42
Other Variable Charges ....................................................................................................................... 42
Total Variable Costs ........................................................................................................................... 44
3.2 OPERATION & MAINTENANCE (O&M) EXPENSES .......................................................... 44
Establishment Expenses ...................................................................................................................... 45
Administrative & General Expenses ................................................................................................... 47
Repair & Maintenance Expense .......................................................................................................... 47
3.3 CAPITAL EXPENDITURE (CAPEX) AND CAPITALISATION ........................................... 48
3.4 DEPRECIATION AND ADVANCE AGAINST DEPRECIATION (AAD) ............................. 50
3.5 INTEREST EXPENSES AND FINANCE CHARGES ............................................................. 53
3.6 Return on Equity ......................................................................................................................... 54
3.7 Income Tax ................................................................................................................................. 57
3.8 Interest on Working Capital ........................................................................................................ 58
3.9 Other Debits ................................................................................................................................ 59
3.10 Prior Period Items ....................................................................................................................... 60
3.11 Revenue side Truing-up computation ......................................................................................... 61
3.12 Reduction in Annual Fixed Charges on account of Reduction in Availability ........................... 62
3.13 Sharing of Gains and Losses ....................................................................................................... 633.14 Provisional Truing up for FY 2008-09 ....................................................................................... 65
4 PERFORMANCE PARAMETERS .................................................................................................... 66
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4.1 GENERATING STATIONS OF MSPGCL ............................................................................... 66
4.2 STATION-WISE PERFORMANCE PARAMETERS AND TARIFF ...................................... 71
4.2.1 Availability and PLF of MSPGCLs Generating Stations .................................................. 71
4.2.2 Auxiliary Consumption ....................................................................................................... 80
4.2.3 Heat Rate ............................................................................................................................. 84
4.2.4 Transit Loss ......................................................................................................................... 85
4.2.5 Secondary Fuel Oil Consumption ....................................................................................... 87
5 ANALYSIS OF ENERGY AVAILABILITY, ENERGY CHARGE AND ANNUAL FIXED
CHARGES FOR FY 2009-10 AND FY 2010-11 ....................................................................................... 89
5.1 ENERGY AVAILABILITY DURING FY 2009-10 .................................................................. 89
5.2 ENERGY AVAILABILITY AND GROSS GENERATION DURING FY 2010-11 ................ 91
5.2.1 Generation from Hydel Stations ......................................................................................... 91
5.2.2 Generation from Thermal Stations ...................................................................................... 91
5.3 VARIABLE COSTS OF THERMAL GENERATING STATIONS .......................................... 92
5.3.1 Fuel Costs for FY 2009-10.................................................................................................. 92
5.3.2 Fuel Price and Fuel Calorific Value for FY 2010-11 .......................................................... 93
5.3.3 Cost of Lubricants, Other Consumables and Water Charges, etc. ...................................... 96
5.3.4 Rate of Energy Charge ........................................................................................................ 96
5.4 LEASE RENT FOR HYDEL STATIONS ................................................................................. 97
5.5 OPERATION & MAINTENANCE (O&M) EXPENSES .......................................................... 98
5.6 CAPITAL EXPENDITURE AND CAPITALISATION .......................................................... 100
6 TARIFF OF MSPGCLS GENERATING STATIONS ................................................................... 113
6.1 TARIFF FOR THERMAL POWER GENERATING STATIONS .......................................... 113
6.2 TARIFF FOR HYDEL POWER GENERATING STATIONS ................................................ 116
6.3 Provisional Tariff for Paras Unit 4 and Parli Unit 7 ................................................................. 119
6.4 APPLICABILITY OF ORDER AND TARIFF ........................................................................ 120
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1 BACKGROUND AND BRIEF HISTORYThis Order relates to the Petition filed by the Maharashtra State Power Generation Company
Limited (MSPGCL) for approval of Annual Performance Review for FY 2009-10 and tariff
determination for FY 2010-11. The Maharashtra State Power Generation Company Limited(MSPGCL or Mahagenco) is a Company formed under the Government of Maharashtra General
Resolution No. ELA-1003/P.K.8588/Bhag-2/Urja-5 dated January 24, 2005 with effect from
June 6, 2005 according to the provisions envisaged in the Electricity Act, 2003 (EA 2003).
MSPGCL has been registered with the Registrar of Companies, Mumbai under the Companies
Act, 1956.
The provisional Transfer Scheme was notified under Section 131(5)(g) of the EA 2003 on June
6, 2005, which resulted in the creation of following four successor companies and MSEB
Residual Company, to the erstwhile Maharashtra State Electricity Board (MSEB), namely,
MSEB Holding Company Ltd.,
Maharashtra State Power Generation Company Ltd.,
Maharashtra State Electricity Transmission Company Ltd., and
Maharashtra State Electricity Distribution Company Ltd.
1.1 TARIFF REGULATIONSThe Commission, in exercise of the powers conferred by the EA 2003, notified the Maharashtra
Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2005,
(hereinafter referred as the MERC Tariff Regulations) on August 26, 2005. These Regulations
superseded the MERC (Terms and Conditions of Tariff) Regulations, 2004.
1.2 COMMISSIONS ORDER ON ARR AND TARIFF PETITION FOR FY 2005-06AND FY 2006-07
The Commission issued the Order on the ARR Petition of MSPGCL for FY 2005-06 and ARR
and Tariff Petition of MSPGCL for FY 2006-07 in Case No. 48 of 2005 on September 7, 2006.
1.3 REVIEW PETITION ON TARIFF ORDER FOR FY 2006-07MSPGCL filed a Review Petition (numbered as Case No. 34 of 2006) against the above saidCommissions Order. The Commission disposed off the Review Petition vide its Order dated
December 7, 2006.
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1.4 COMMISSIONS ORDER ON MYT PETITION OF MSPGCL FOR FY 2007-08 TOFY 2009-10
The Commission issued the MYT Order (Case No. 68 of 2006) for MSPGCL for the first
Control Period, i.e., FY 2007-08 to FY 2009-10, on April 25, 2007, which came into effect from
April 25, 2007.
1.5 MSPGCLS APPEAL BEFORE ATE AND ATE JUDGMENTMSPGCL filed two Appeals before the Honble Appellate Tribunal for Electricity (ATE), viz.,
Appeal No. 86 of 2007 on the Commissions Order dated September 7, 2006 on ARR and Tariff
for FY 2005-06 and FY 2006-07 in Case No. 48 of 2005, and Appeal No. 87 of 2007 on the
Commissions Order dated April 25, 2007 on MSPGCLs MYT Petition in Case No. 68 of 2006.
MSPGCL challenged the Commissions Order for FY 2005-06 and FY 2006-07 on the following
issues:
Administrative and General expenses
Transit loss of coal
Station Heat Rate
Tariff for small hydro projects.
MSPGCL challenged the Commissions MYT Order on the following issues:
Truing up of the fuel expenses for FY 2005-06
Disapproval of A&G expenses
Truing up of depreciationTruing up of other debits
Truing up of interest expenses and financing charges
Truing up of revenue earned
Transit loss of coal
Station Heat Rate
Auxiliary consumption of various stations
Secondary Fuel Oil Consumption
O&M expenses for base year for MYT Period
Hydel tariff
Tariff for small hydro power stations
Reactive energy charges
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Normative O&M expenses for hydel plants
Employee incentive schemes
The Honble ATE dealt with the above issues vide its Judgment dated April 10, 2008 in Appeal
Nos. 86 and 87 of 2007. The ATEs ruling on various aspects raised in MSPGCLs Appeals havebeen summarised below:
ATE upheld MSPGCLs appeal regarding allowance of actual A&G expenses for FY
2005-06 for truing up purposes and directed the Commission to true up the said expenses
based on actuals, subject to prudence check. ATE also directed the Commission not to
consider the A&G expenses towards projects under construction as recoverable through
tariff, since such expenses should be capitalised.
ATE directed the Commission to consider the transit loss levels in terms of the station-
wise loss reduction trajectory approved by the Commission in its Tariff Order for FY
2003-04.
ATE directed the Commission to engage an appropriate agency/ies either on its own or
through MSPGCL, to carry out a study in a time bound manner (preferably within three
months) to reasonably assess the achievable heat rate of the plants owned by MSPGCL
and to suggest measures to improve the heat rates over a period of time. ATE further
directed the Commission to determine the heat rate based on the outcome of the study
and directed that the pre-existing tariffs may be continued, subject to truing up based on
the revised heat rates, when available.
ATE directed the Commission to take into consideration the independent study and reset
the operating parameters, viz., transit loss of coal, station heat rate, auxiliary
consumption, and secondary fuel oil consumption, and align its Regulations by
prescribing achievable norms and not merely ideal norms. ATE also advised the
Commission to ensure that deliberate inefficiencies on the part of the Utility are not
passed on to the consumers.
Regarding the tariff for small hydro power stations, the ATE stipulated that fixed chargeas determined by the Commission is subject to change only on account of re-
determination of the lease rent payable to Government of Maharashtra and change in the
working capital on account of the change in the expenses towards lease rentals.
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ATE rejected MSPGCLs appeal for entitlement of higher tariff for small hydro projects
as the Commissions Order in this regard is applicable only in the case of new projects.
The ATE also did not agree with MSPGCLs contention that the Commission has
disregarded the provisions of Section 61 (h) of the Electricity Act, 2003, while
undertaking the tariff fixation of small hydro projects.ATE upheld MSPGCLs appeal for monthly billing of the incentives and held that any
under or over recovery on account of such claims may be adjusted on monthly basis.
ATE upheld MSPGCLs appeal as regards truing up of actual fuel expenses till such time
the re-assessed improvement trajectory of performance parameters is available.
ATE upheld MSPGCLs appeal as regards truing-up of depreciation, while ruling that if
the Commission has allowed any extra recovery in the past under the head of
depreciation, the same may be adjusted.
ATE, while allowing the truing up of other debits due to bad debts written off, held that
o Both, MSPGCL and the consumers may bear the burden on this account, andhence, the sum to be recovered from the consumers may be spread over a period
of three years, without any interest, to lessen the burden on the consumers.
However, the above cannot be taken as a precedent for making similar claims in
the future.
o The Commission should examine the claim of MSPGCL for truing up on accountof miscellaneous losses and write off, sundry expenses, intangible assets writtenoff and intangible assets interest charges for HVDC, subject to prudence check.
ATE directed the Commission to consider the interest on working capital on normative
basis for FY 2005-06.
As regards truing up of other income, the ATE ruled that if the other income cannot be
reasonably linked to any cost item allowed by the Commission as a part of the ARR, the
same should not be adjusted against the ARR of MSPGCL.
As regards O&M expenses, ATE directed MSPGCL to take up the claim for base O&M
expense for FY 2006-07 based on the audited accounts subject to prudence check as
submitted by the Commission during the course of proceedings before the ATE.
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ATE directed the Commission to devise a mechanism, which addresses the concern of
peak and off peak generation from hydel stations, by determining the ratio of peak and
off-peak generation after taking into consideration the operational capacity of MSPGCL
and system pattern.
ATE held that since MSPGCL is incurring additional expenditure without being
compensated for extending support for reactive energy generation/absorption for grid
stability, the Commission should either work out a scheme specifically for State power
generators for compensation for incurring the additional expenditure or extend the
incentive/penalty mechanism applicable for transmission licensees, distribution licensees
and open access users, to the State generators.
ATE rejected MSPGCLs request to set aside the norm for O&M expenses set by the
Commission for old hydel plants and ruled that since the existing hydro electric plants are
not covered by the Policy of the Government, it will be inappropriate to compare the
O&M expenses of the existing plants with that of the new hydel stations covered under
MERC Tariff Regulations.
ATE directed the Commission to consider the issue of employee incentive schemes in
accordance with law.
The ATE, in view of the above findings/observations, set aside the impugned Tariff Orders
and allowed the appeals partially, and remitted the matter back to the Commission for re-
determination of the tariff for MSPGCL. The Commission asked MSPGCL to submit the
impact of the ATE Judgment for each year separately along with appropriate reasons and
justification as follows:
Impact on Truing up of Revenue and Expenses for FY 2005-06
Impact on Truing up of Revenue and Expenses for FY 2006-07
Impact on Revised estimates of expenses for FY 2007-08
Impact on Projected Expenses for FY 2008-09
The Commission, in the APR Order for FY 2007-08 in Case No. 71 of 2007, has ruled as
under:
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The Commission is of the view that as the Orders of the Commission have been setaside
and the ATE in its Order has directed the Commission to re-determine the tariff, and as
the original Orders in both the cases, i.e., ARR and Tariff Determination for FY 2006-07
and MYT Order for the first Control Period, i.e., FY 2007-08 to FY 2009-10 were issued
after following the due public process including public hearing, the re-determination of ARR and tariff for MSPGCL needs to be undertaken after following the due public
process including public hearing. The Commission will initiate a separate process for re-
determination of tariff for MSPGCL for FY 2005-06, 2006-07 and FY 2007-08. However,
this Order has to be issued, since the tariff payable to MSPGCL is a major input cost to
MSEDCL, and the Order of MSEDCL cannot be delayed till such time the complete data
is submitted by MSPGCL and the due regulatory process is followed to revise the tariff of
MSPGCL.
As regards norms for performance parameters, viz., transit loss of coal, station heat rate,
auxiliary consumption, and specific oil consumption of MSPGCLs generating stations,
ATE directed the Commission to undertake an independent study, either through
MSPGCL or on its own, and reset the operating parameters and align its Regulations by
prescribing achievable norms and not merely ideal norms after taking into consideration
the results of such independent study. ATE, in its Order, has also mentioned that till such
time the Commission re-determines the Station Heat Rate, MSPGCL may continue with
the pre-existing tariff, subject to truing up when revised Station Heat Rates when
available. The Commission, abiding by the directions of ATE, will engage an appropriateindependent agency to carry out independent study to reasonably assess the achievable
performance of MSPGCL stations and to suggest the measures to improve the
performance over a period of time. Based on the outcome of the study, the Commission
will re-determine the performance parameters of MSGPCL's generating stations, whether
higher or lower than the norms stipulated in the Tariff Regulations and norms approved
in the Tariff Orders, and will carry out the truing up of MSPGCL's expense and revenue
based on re-determined performance parameters.
Further, the impact of directions of ATE in respect of following heads of expenses and revenue
needs to be assessed based on additional information/clarifications:
A&G Expenses
Truing up of Depreciation for FY 2005-06
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Truing up of Other Debits for FY 2005-06
Truing up of Interest and Finance Charges for FY 2005-06
Truing up of Revenue earned in FY 2005-06
Truing up of non-tariff income earned in FY 2005-06 and FY 2006-07
Compensation for Reactive Energy generation.
The Commission, in its Order dated April 25, 2007 on MYT Petition for the first Control Period,
has already undertaken the final truing up of expenses and revenue for FY 2005-06. However,
consequent to ATE Order, the truing up of expenses and revenue for FY 2005-06 will have to be
undertaken again considering the ATEs directions and based on impact and additional
information/clarifications submitted by MSPGCL. The Commission is of the view that it will be
preferable to carry out the truing up of all elements of expenses and revenue for FY 2005-06
once again based on impact of truing up and additional information/clarifications from
MSPGCL and after following due public process. The Commission has therefore not undertaken
the truing up of expenses and revenue for FY 2005-06 again in this Order. The Commission,
after following the due public process, will issue an Order which will deal with the truing up of
all the elements of expenses and revenue for FY 2005-06.
The truing up of expenses and revenue for FY 2005-06 will have certain implications on ARR for
FY 2006-07 and for subsequent years. The O&M expenses for FY 2005-06 approved after truing
up, will have a bearing on allowable O&M expenses in subsequent years. Similarly, the truing
up of depreciation for FY 2005-06 may have effect on depreciation expenses to be allowed for
FY 2006-07 and subsequent years. As regards truing up of fuel expenses for FY 2006-07, the
Commission is of the view that MSPGCL has already recovered variation in fuel prices through
the FAC mechanism and truing up of fuel expenses on account of variation in performance
parameters has to be examined based on approved performance parameters upon completion of
study by independent agency. The Commission, in this Order, has therefore undertaken the
truing up of certain expenses and revenue for FY 2006-07. The Commission will undertake the
final truing up of expenses and revenue for FY 2006-07 along with truing up of expenses and
revenue for FY 2005-06 and re-determination of performance parameters."
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Subsequently, the Commission appointed M/s Central Power Research Institute (CPRI) to carry
out a detailed study of the various performance parameters in accordance with the Honble
Tribunals Judgment in Appeal Nos. 86 and 87 of 2007.
Based on the draft report submitted by CPRI, the Commission observed certain differences in thefigures of actual station heat rate and other performance parameters as provided by MSPGCL to
CPRI and as submitted by MSPGCL under its APR Petitions under affidavit. The Commission,
vide its letter dated December 30, 2009, asked MSPGCL to submit the reasons for the
differences between the actual performance parameters as recorded by CPRI based on the station
records and as submitted by MSPGCL for selected Stations under its APR Petitions. MSPGCL
submitted its replies vide its letter dated January 5, 2010. Further, the Commission, vide letter
dated January 5, 2010 asked MSPGCL to submit the impact of the Honble Tribunals directives
and the CPRIs report, which was submitted by MSPGCL on January 8, 2010.
1.6 COMMISSION'S ORDER IN THE MATTER OF TRUING UP PROCESS FORMSPGCL FOR FY 2005-06, FY 2006-07 & FY 2007-08 BASED ON APPELLATE
TRIBUNALS JUDGMENT AND CPRI REPORT.
For undertaking the final truing up of expenses and revenue, the Commission asked MSPGCL to
submit the impact of the ATE Judgment and accordingly submit the year-wise truing up
requirement from FY 2005-06 onwards. MSPGCL submitted the year-wise truing up
requirement from FY 2005-06 onwards considering the impact of the ATE Judgment and CPRIReport, on January 8, 2010.
The Order in Case No. 16 of 2008 was issued on March 5, 2010 based on Appellate Tribunals
Judgment in Appeal No. 86 and 87 of 2007 and CPRI Report. The Commission, in its Order
dated March 5, 2010 approved the truing up of expenses and revenue for MSPGCL for FY 2005-
06, FY 2006-07 and FY 2007-08 and provisional truing up of certain elements of the Annual
Fixed Cost and variable charges for FY 2008-09, considering the re-setting of norms of various
performance parameters and change in the normative expenses, if any, for FY 2008-09.
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1.7 PETITION FOR ANNUAL PERFORMANCE REVIEW FOR FY 2009-10 ANDDETERMINATION OF TARIFF FOR FY 2010-11
In accordance with Regulation 9.1 of the MERC Tariff Regulations, the application for the
determination of tariff has to be made to the Commission not less than 120 days before the date
from which the tariff is intended to be made effective. Further, the first proviso to Regulation 9.1states that the
date of receipt of application for the purpose of this Regulation shall be the date of intimation
about the receipt of a complete application in accordance with Regulation 8.4 above:
MSPGCL submitted its Petition for APR for FY 2009-10 and tariff determination for FY 2010-
11 on December 31, 2009, based on actual audited expenditure for FY 2008-09, actual
expenditure for first half of FY 2009-10, i.e., from April to September 2009 and revised
estimated expenses for October 2009 to March 2010, and projections for FY 2010-11. MSPGCL,
in its Petition, requested the Commission to
Undertake truing up for FY 2008-09 based on actual audited data and normative
parameters as applicable for various heads of expenditure;
Approve the revised ARR for FY 2009-10 and FY 2010-11 in accordance with the
submissions and rationale given in the Petition;
Approve the tariff of its generating stations for FY 2010-11;
Allow MSPGCL to apply the tariff approved by the Commission from the beginning of
FY 2010-11.
Subsequently, MSPGCL in its additional submission dated April 8, 2010 requested the
Commission to approve provisional tariff for Paras Unit4 and Parli Unit-7.
The Commission, vide its letter dated January 29, 2010, forwarded the preliminary data gaps and
information required from MSPGCL. MSPGCL submitted its replies to preliminary data gaps
and information requirement on February 11, 2010 and March 4, 2010. The Commission held a
Technical Validation Session (TVS) on MSPGCLs Petition for approval of APR for FY 2009-
10 and Tariff for FY 2010-11, on February 15, 2010 in the presence of Consumer
Representatives authorised under Section 94(3) of the EA 2003 to represent the interest of
consumers in the proceedings before the Commission.
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The list of individuals, who participated in the TVS, is provided at Appendix-1. During the
TVS, the Commission directed MSPGCL to provide additional information and clarifications on
the issues raised during the TVS. The Commission also directed MSPGCL to submit the draft
Public Notice in English and Marathi in the format prescribed by the Commission.
1.8 ADMISSION OF PETITIONS AND PUBLIC PROCESSMSPGCL submitted its responses to the queries raised during the TVS on February 15, 2010.
MSPGCL submitted the replies to queries raised during TVS on March 22, 2010 and the
Commission admitted the APR Petition of MSPGCL on April 8, 2010. MSPGCL also submitted
supplementary petition dated April 08, 2010 submitting impact of additional import of coal and
asking for provisional true up for Paras unit 4 and Parli unit 7. In accordance with Section 64 of
the EA 2003, the Commission directed MSPGCL to publish its application in the prescribedabridged form and manner, to ensure adequate public participation. The Commission also
directed MSPGCL to reply expeditiously to all the suggestions and comments received from
stakeholders on its Petition. MSPGCL published the Public Notice in Business Standard, Indian
Express, Sakal and Maharashtra Times newspapers on April 12, 2010, inviting suggestions and
objections from stakeholders on its APR Petition. The copies of MSPGCL's Petition and its
Executive Summary were made available for inspection/purchase to members of the public at
MSPGCL's offices and on MSPGCL's website (www.mahagenco.in). The copy of the Public
Notice and the Executive Summary of the Petition was also uploaded on the website of the
Commission (www.mercindia.org.in) in downloadable format. The Public Notice specified that
the suggestions and objections, either in English or Marathi, may be filed in the form of affidavit
along with proof of service on MSPGCL. The Commission received written suggestions and
objections expressing concerns on O&M expenses, performance parameters, fuel expenses, etc.
The Public Hearings were held at the following six locations across the State as per the given
schedule:
Sl. Place/Venue of Public Hearing Time Date of
Hearing1 Amravati:
Hall No. 1, Divisional Commissioner's Office Camp,Amravati, District - Amravati
11.00
hours
Friday, May
14, 2010
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Sl. Place/Venue of Public Hearing Time Date of
Hearing
2 Nagpur:Vanamati Hall, V.I.P Road, Dharampeth, Nagpur,
District - Nagpur
11.00
hours
Saturday, May
15, 2010
3 Nashik:Office of the Commissioner, Niyojan Bhavan, NasikRevenue Division, Nashik Road, Nashik - 422101
11.00
hours
Monday, May
17, 2010
4 Pune :Council Hall, Office of the Divisional Commissioner,Pune, District - Pune - 411011
11.00
hours
Wednesday,
May 19, 2010
5 Aurangabad:Meeting Hall, Office of the Divisional Commissioner,
Aurangabad, District - Aurangabad
11.00
hours
Friday, May
21, 2010
6 Navi Mumbai:Conference hall, 7th Floor, CIDCO Bhavan, CBD,
Belapur, Navi Mumbai - 400614
11.00hours Saturday, May22, 2010
The list of objectors, who participated in the Public Hearing, is provided in Appendix- 2.
The Commission has ensured that the due process, 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. This
Order deals with the truing up for FY 2008-09, APR of FY 2009-10 and determination of tariff
of MSPGCL for FY 2010-11. Various suggestions and objections that were raised on
MSPGCLs Petition after issuing the Public Notice, both in writing as well as during the Public
Hearing, along with MSPGCLs response and the Commissions rulings have been detailed in
Section 2 of this Order.
1.9 ORGANISATION OF THE ORDERThis Order is organised in the following six 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.
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Section 2 of the Order lists out the various objections raised by the objectors in writing as well as
during the Public Hearing before the Commission. The various objections have been
summarized, followed by the response of MSPGCL and the rulings of the Commission on each
of the issues.
Section 3 of the Order details the Commission's analysis and ruling on MSPGCLs proposal for
final truing up of expenses and revenue for FY 2008-09.
Section 4 of the Order details the performance parameters as approved by the Commission in
MYT Order for first Control Period, MSPGCLs proposal for performance parameters during FY
2009-10 and FY 2010-11 and the Commissions approved performance parameters for FY 2010-
11.
Section 5 of the Order comprises the review of performance for FY 2009-10 (including
provisional truing up) and the Commission's analysis of various components of Energy Charges
and Annual Fixed Charges of MSPGCLs Stations for FY 2010-11.
Section 6 of the Order details the tariff design for MSPGCLs Stations and the approved Annual
Fixed Charges and Energy Charges for FY 2010-11.
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2 OBJECTIONS RECEIVED, MSPGCLS RESPONSE AND COMMISSIONSRULING
2.1 Non Compliance to MYT frameworkM/s Vidarbha Industries Association and M/s ISPAT Industries Limited submitted that the
Petition filed by MSPGCL should be filed under Multi Year Tariff. MSPGCL had to file Petition
for 5 years based on future projections; however, they have filed for FY 2010-11 only.
MSPGCLs Response
MSPGCL submitted that it did not file a MYT Petition, as the first Control Period under MYT
framework was pertaining to the period from FY 2007-08 to FY 2009-10. The new MYT
Regulations are yet to be finalized by the Commission. Moreover, the single year APR Petition
for FY 2010-11 was filed based on the directive of the Commission.
Commissions Ruling
The Commission has initiated the process of framing new MYT Regulations for the next Control
Period. In the meantime, the Commission directed the Generating Companies and Utilities to file
ARR and Tariff Petition for FY 2010-11 and accordingly, MSPGCL has filed a single year
Petition for approval of Annual Performance Review for FY 2009-10 and tariff for FY 2010-11.
2.2 Inadequate Time for Filing Suggestions and ObjectionsM/s Vidarbha Industries Association and ISPAT Industries Limited submitted that the Petitioner
has failed to comply with the requirement of timely submission of its filings. The analysis of
Petition and its implications on the consumers requires substantial amount of time and effort and
adequate time has not been provided to the public for filing their comments.
MSPGCLs Response
MSPGCL submitted that it was awaiting the finalization of the MYT Regulations for the next
Control Period, under which, an MYT Petition was envisaged to be filed during the year.
However, pending finalization of the same, based on the directive of the Commission, MSPGCLhas met the deadline for December 31, 2009 for filing the said Petition.
Commissions Ruling
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As mentioned in Section 1 of the Order, MSPGCL submitted its Petition for approval of Annual
Performance Review for FY 2009-10 and tariff determination for FY 2010-11 on December 31,
2009. The Commission communicated the data gaps in the Petition and held a Technical
Validation Session on MSPGCLs Petition, in the presence of authorised Consumer
Representatives. Upon submission of revised Petition by MSPGCL incorporating the additionalinformation and replies to queries raised by the Commission, the Petition was admitted for
further public process on April 8, 2010. The Commission directed MSPGCL to host the detailed
Revised APR Petition and formats in MS Excel on its website for easy download by interested
stakeholders.
The Public Notice was published on April 12, 2010 in leading newspapers and the public
hearings were scheduled from May 14, 2010 to May 22, 2010. Thus, adequate time, as envisaged
under the Regulations has been provided to stakeholders to submit their views/suggestions beforethe Public Hearing, and additional time of 7 days was also provided to file rejoinders. In any
case, since tariff determination is a time bound exercise under Section 64 of the EA 2003, no
further relaxation of time could be made for submission of suggestions and objections by the
public in the interests of consumers as the same would have resulted in delay in issuing of the
Tariff Order.
2.3 Capital Expenditure and CapitalisationM/s ISPAT Industries Limited, M/s Vidarbha Industries Association and others submitted that
actual Capital Expenditure (capex) incurred in FY 2008-09 is higher than that approved by the
Commission, whereas, the estimated figures for capex for FY 2009-10 have been doubled as
compared to approved MYT Petition. MSPGCL should submit the reasons behind delayed
capitalisation of expenses and to submit the reasons behind considerable increase in the capital
expenditure in FY 2010-11.
M/s Vidarbha Industries Association, M/s ISPAT Industries Limited and others submitted that
there is a gap between the actual capitalisation provided in the workings and the amount
approved by the Commission. For FY 2007-08, the audited capitalisation figures are lower than
approved amount, whereas in FY 2008-09, the audited capitalisation is higher than that approved
by the Commission.
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Further, the non-capitalisation of certain projects leads to non-accrual of benefits and affects the
performance of the Utility. The excess capitalisation over approved amount has not been justified
by any description of physical progress. Hence, they requested the Commission to direct
MSPGCL to provide the justification on physical progress of projects and justification of
projections for FY 2010-11.
MSPGCLs Response
MSPGCL submitted that there are several schemes that are currently being implemented in
various power stations. It may be appreciated that at times, the parts for such old generating
assets are not readily available and therefore, need to be manufactured using reverse engineering
techniques. This sometimes leads to delay in ordering, causing spillover of the schemes to the
next financial year.
Regarding the increase in projected Capex for FY 2010-11, MSPGCL submitted that it is in the
process of implementing the recommendations made by M/s CPRI for bringing in technical
improvements in the stations. MSPGCL is preparing the DPRs for such schemes, which will be
submitted to the Commission for approval shortly.
MSPGCL submitted that the consumer has produced tables, which represent that the actual
capitalization is either lower than the approved capitalization or vice versa. In this regard,
MSPGCL submitted that the capitalization of a scheme depends upon the month in which the
scheme is implemented. A scheme, if started in May (say) may get capitalized in the month of
November (assuming that the implementation period is around 6 months). However, in case due
to some practical difficulties, the scheme gets started in the month of December, it will get
capitalized only in the next financial year even if the implementation period remains the same. In
certain cases, the requirement of reverse engineering for very old assets may require complete
spillover of the scheme to the next financial year. Besides, spillover may also happen in case
adequate time for shut down of Units is not available on account of persistent grid shortages.
Under such cases, the schemes are bundled to be undertaken as soon as MSPGCL gets an
opportunity in the planned overhauls. Due to such practical reasons, the actual capitalization of
the scheme may deviate from the approved capitalization.
MSPGCL has transparently submitted the details of capex incurred during the previous year,
expected capex during the current year and likely capital expenditure in the ensuing year. All
such details have been provided in Forms F5.3 and F5.4 of the main submission. MSPGCL
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submits that apart from the DPR schemes, which are examined in detail by the Commission, bulk
of the capital expenditure comprises of small schemes, which do not have much scope of cost
overrun. However, with the recent directive of the Commission, even such small schemes are to
be clustered and will get classified into the DPR schemes, which will also get monitored by the
Commission in the long run. With such regulatory arrangements in place, it is expected that theapprehensions of the consumers will get answered more explicitly.
As far as projection of capex and capitalisation during FY 2010-11 is concerned, MSPGCL
submitted that the capex is based on the recommendations of M/s CPRI and subject to approval
of the Commission, the projected capex may get capitalised to a large extent. The capex planned
in FY 2010-11 is subject to approval of the Commission and the actual progress will be
submitted in the subsequent Petition of MSPGCL.
Commissions Ruling
The Commission has taken note of the concerns raised by several stakeholders regarding the
capital expenditure being undertaken by MSPGCL, and the impact of the same on the tariff. The
Commission has carried out a detailed analysis of the capital expenditure and capitalisation and
the treatment of the same on tariff in Section 5 of this Order. The Commissions computations in
this regard have been elaborated subsequently in Section 3 on truing up of expenses and revenue
for FY 2008-09 and in Section 5 while approving the revised revenue requirement for FY 2009-
10 and FY 2010-11.
2.4 Interest ExpensesM/s ISPAT Industries Limited, M/s Vidarbha Industries Association and others submitted that
the interest expenses shown are very high (the interest rate for some of the loans is as high as 15-
17%), and MSPGCL should submit the reasons behind the high interest bearing loans along with
loan drawal and repayment information.
MSPGCLs Response
MSPGCL submitted that there had been a levy of Debt Restructuring premium charged to
revenue. On addition of such premium, the net interest expenses appears to be on the higher side.
The actual interest rates are not higher than 13-14% in any case.
Further, MSPGCL has been submitting copies of loan agreements to the Commission as and
when required, for prudence check by the Commission. MSPGCL understands that the
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Commission will undertake the necessary prudence check before allowing such interest expenses
as part of the tariff.
Commissions Ruling
The Commission has examined the interest expenses for FY 2008-09 in Section 3 while carrying
out the truing up, and for FY 2009-10 and FY 2010-11 in Section 5 of the Order. The
Commission has considered the addition to the loans corresponding only to the schemes
approved by the Commission and hence, the interest expenses as approved by the Commission
have reduced substantially as compared to interest expenses projected by MSPGCL.
2.5 Depreciation Including Advance Against DepreciationM/s Vidarbha Industries Association, M/s ISPAT Industries Limited and others
submitted that MSPGCL has not followed the MERC Tariff Regulations for computing
depreciation including AAD. MSPGCL has stated that the apportionment has been done on the
basis of capacity of individual plants. It is inappropriate for the Utility to carry out such
segregation based on capacity of the plant. Further, it is observed that the depreciation projected
by MSPGCL is around Rs. 341.18 crore, which is much higher than the actual loan repayment of
Rs. 199.84 crore in FY 2008-09 as per audited accounts. Therefore, MSPGCL should submit the
reasons behind AAD sought by MSPGCL.
MSPGCLs Response
MSPGCL submitted that the issue of AAD is sub-judice in Appeal 191 of 2009 and MSPGCL
will abide by the decision of the ATE. However, MSPGCL has submitted the entire rationale for
asking AAD in its Petitions. MSPGCL has been requesting the Commission to work out
appropriate methodology for rational allocation of loan.
Commissions Ruling
The Commission, in accordance with the treatment in previous Orders, has not computed the
advance against depreciation by allocating loans to various stations as the basic objective of the
advance against depreciation is to provide cash shortfall for meeting the repayment obligations,
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and for the Company as a whole, the total depreciation allowed by the Commission is much
higher than the total repayment.
2.6 O&M Expense ProjectionsM/s Vidarbha Industries Association, M/s ISPAT Industries Limited and others
submitted that the MERC Tariff Regulations clearly stipulates the methodology for calculating
O&M expenditure, and projections made by MSPGCL are not in line with the specified
methodology.
The Commission adopted a different methodology to arrive at the escalation rate of 5.38%
whereas; MSPGCL has varied even from this, to arrive at the escalation rate of 6.1%.
In the APR Petition, MSPGCL has pointed out that barring the new items in FY 2008-09 the
base O&M expense has actually increased by 2.88%. The purpose of allowing an escalation was
to enable the Petitioner to create provisions for future liabilities that might occur. The actual
escalation in base O&M expense by MSPGCL was only 2.88%, thus, the additional escalation
being allowed should have been used to meet future liabilities.
MSPGCLs Response
MSPGCL submitted that the base expenses of FY 2006-07 have been considered for the purpose
of estimation of approved O&M expenses from FY 2007-08 onwards. The Commission agreed
to the rationale submitted by MSPGCL that the O&M expenses on generation assets during the
erstwhile MSEB period were on the lower side. Further, the escalation rates have been worked
out by the Commission based on CPI and WPI indices in the MYT Order. MSPGCL submitted
that the base expenses of FY 2006-07 have been considered for the purpose of estimation of
approved O&M expenses from FY 2007-08 onwards.
MSPGCL submitted that the escalation rate has been computed correctly. However, the same
may be examined by the Commission for prudence. Escalation rates are applied to cover the
expenses envisaging certain increase in base year expenses. Working out such expenses on the
conservative side may have financial impact on the working of the Utility. In any case, MSPGCL
understands that such charges are subject to true-up and are not entirely retained by the Utility.
MSPGCL submitted that the actual increase in O&M expenses, excluding expenses that result in
an increase in the base year expenses (viz., leave encashment, etc.) is around 2.88%.
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MSPGCL submitted that for FY 2008-09, the impact of pay revision arrears has been considered
as Rs 95 Crore.
MSPGCL submitted that the items considered under Repairs and Maintenance expenses are
recurring in nature and are essentially consumable items. The one-time expenses are largely
considered as part of the capex schemes for which, a separate claim is being placed. MSPGCL
submitted that the annual accounts are verified by statutory auditors and are also subject to
prudence check by the Commission. Being a public Company, MSPGCL is following all
accounting practices as per the applicable laws/rules. MSPGCL is open to share the details of the
accounts in case required by the Commission for undertaking any prudence check of the same.
Commissions Ruling
The Commission, in its Order dated March 5, 2010 in Case No. 16 of 2008 carried out the truing
up of O&M expenses for FY 2005-06 and FY 2006-07. In accordance with the ATE Judgment in
Appeal No. 86 and 87 of 2007, the Commission in its Order dated March 5, 2010 considered the
actual expenses for FY 2006-07 as base expenses and revised the O&M expenses for the first
Control Period i.e., from FY 2007-08 to FY 2009-10.
The Commission, in this Order, for carrying out the truing up of O&M expenses for FY 2008-09
has considered the revised O&M expenses approved in its Order dated March 5, 2010 as base
O&M expenses. The Commission has also considered the pay revision arrears as submitted by
MSPGCL. The details of O&M expenses approved by the Commission for FY 2008-09 after
sharing of gains and losses as per provisions of MERC Tariff Regulations are discussed in
Section 3 of the Order.
2.7 Earned Leave EncashmentM/s Vidarbha Industries Association, M/s ISPAT Industries Limited and others
submitted that allowing escalation in cost is to enable the MSPGCL to make yearly provisions
for future costs including pay revision. However, MSPGCL has asked for Rs. 35.47 Crore
additional cost for earned leave encashment amortisation over and above the escalation.
MSPGCLs Response
The Commission, in its APR order dated August 17, 2009, had allowed Rs 177.37 Crore towards
provisioning for earned leave encashment liability towards existing power stations of MSPGCL,
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but had stipulated that such expense would be spread over five years starting from FY 2007-08.
Accordingly, the Petitioner has added the impact of earned leave encashment liability for FY
2009-10 and FY 2010-11 at Rs 35.47 Crore each year.
Commissions Ruling
The Commission agrees with the MSPGCLs reply in the matter and the Commission has also
considered the same while approving the O&M expenses for FY 2009-10 and FY 2010-11.
2.8 Material Cost VarianceM/s ISPAT Industries Limited and others submitted that the primary expense on this account has
been incurred for recognising loss on account of old stores. The amount of Rs. 59.23 Crore
cannot be established from annual accounts provided along with the Petition. Holding obsolete
stock to an extent of Rs. 59.23 Crore signifies that the management is unable to utilise the stock
in an efficient manner leading to deterioration of assets.
Further, MSPGCL has requested for a true up of Rs. 0.10 crore on account of bad debts written
off. In FY 2008-09 MSPGCL also incurred additional O&M and Coal cost. Therefore, the
Objectors requested the Commission to direct MSPGCL to undertake proper steps to avoid
additional expenditure and disallow the same.
MSPGCLs Response
MSPGCL submitted that material cost variance is an integral part of the core business of theCompany, and therefore, any such incidental expenses needs to be allowed in the tariff.
There is significant expense on account of recognition of loss on obsolescence of old stores. The
statutory auditors of MSPGCL had observed that the company had not made any provision on
slow moving, non-moving, obsolete and damaged items of stock". Accordingly MSPGCL has
made a provision equivalent to 100% value of obsolete stock, 60% value of non-moving stock
and 30% value of slow-moving stock in its audited accounts amounting to Rs 57.64 crore.
MSPGCL submitted that such items were procured earlier for safe and smooth operations of
plants, however, the same were not required during the life of such equipments.
MSPGCL quoted from the Judgment of ATE in Appeal No.s 86 and 87 of 2007 regarding
recovery of bad and doubtful debts pertaining to MSEB period. ATE had ruled that It can
reasonably be inferred that had MSEB continued in its earlier form, the Commission would have
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taken a decision on the basis of actual facts of the matter but at the same time delay in claiming
such irrecoverable sums and then passing on the same to paying consumers results into greater
uncertainties for the consumers. Disallowing any pass through in the form of tariff would have
an adverse impact of the financial position of the Appellant on the one hand and passing on
entire non-recovered amount after such a long period to the consumers would not be fair fromthe consumers point of view on the other. Hence, under the circumstances we feel it to be
reasonable that both, the Appellant and the consumers may bear the burden on this account. The
sum to be recovered from the consumers may be spread over a period of three years, without any
interest, to lessen the burden on the consumers.
In view of the above, MSPGCL should be allowed to recover the bad and a doubtful debt, which
in this case, generally pertains to advances made to suppliers for implementing various contracts.
MSPGCL submitted that such costs are incidental to the core business of the Company.
Moreover, such cost is not even 0.05% of the total ARR of the Company. However, MSPGCL
endeavours to ensure that there is no such incidence that unnecessarily inflates the cost of its
operations.
Commissions Ruling
The Commission has deliberated on this issue in detail in its Order dated March 5, 2010 in Case
No. 16 of 2008 while carrying out the truing up of ARR for FY 2005-06, FY 2006-07 and FY
2007-08 in accordance with the ATE Judgment in Appeal No. 86 and 87 of 2007.
2.9 Performance Parameters and Variable CostM/s ISPAT Industries and others submitted that in the true up Petition for FY 2008-09,
MSPGCLprojected fuel cost of Rs. 6952.32 crore against the Commissions approved amount of
Rs. 6223.15 crore. The reasons provided by MSPGCL are, decrease in gross generation, change
in GCV and price of the fuel, change in imported coal and washed coal quantities, and deviation
in technical parameters. Based on the previous submissions made by MSPGCL, one of the
recurring reasons for increase in fuel cost was higher secondary fuel oil consumption due to wet
coal related issues during rainy season. Since this is a repetitive situation leading to increase in
fuel expenses, they requested the Commission to direct MSPGCL to provide information on
steps taken to overcome this issue.
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M/s ISPAT Industries Limited and others submitted that all the actual performance parameters
of the plant in FY 2008-09 were below approved values, which resulted in increase in variable
cost by 46% against approved values. They requested the Commission to direct MSPGCL to
provide reasons for the significant gap between actual PLF and target PLF during April-
September 2009.
Further, in compliance with the ATE Judgment, the Commission appointed CPRI to carry out a
comprehensive study of the operational parameters for variable expenses. Based on CPRI
Report, MSPGCL has requested to allow the recovery of normative fuel cost of Rs. 6267 crore.
They requested the Commission to not take the results of the Report and to adhere to the existing
normative parameters, which are the reflection of the cost and operational effectiveness of
MSPGCL.
MSPGCLs Response
MSPGCL submitted that it has no control on coal getting wet during rail route transportation.
However, on receipt, MSPGCL is taking all possible measures to retain the quality of coal. The
stacked coal is covered with tarpaulin in rainy season to avoid deterioration of quality of coal.
MSPGCL highlighted that in FY 2008-09, on account of the coal shortages, where barely 1-2
days of coal stock was available with the stations, the quality of coal as received was directly fed
to the boilers. The problem aggravates during rainy season when wet and sticky coal is directly
fed for power generation. Such issues with coal cannot be overcome by any power plant
operator.
MSPGCL submitted that the Terms of Reference for the appointment of M/s CPRI were decidedby the Commission. The agency had submitted its report to the Commission and the Commission
has already been apprised of the key findings of the report. The report prescribes implementation
of certain schemes for improvement in the technical performance. MSPGCL is religiously
pursuing implementation of such schemes for which detailed DPRs will be submitted to the
Commission shortly. MSPGCL understands that the performance parameters suggested by CPRI
adequately address the practical difficulties of MSPGCL and the recommendations of such a
third party report need to be taken into consideration while deciding on the normative
performance parameters. It may be highlighted that setting up of optimistic performance
parameters without taking into cognizance the actual ground conditions has led to significant
disallowance of fuel cost in the past. The same were however, allowed later, pursuant to the
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imported coal. The escalation rates for these sub components as considered by CERC for release
of payments to the generators show that the escalation in price of coal sub component had been
as high as 112% during April 2008-Septemeber 2008. In order to avoid such risks in the overall
process, for procuring its small quantity of imported coal, MSPGCL prefers to enter into short
term firm price contracts for one year. MSPGCL furthers submitted that the procurement ofimported coal even for the period less than one year, is done through a competitive bidding
process. Considering the increasing requirement of imported coal, MSPGCL is exploring options
to procure imported coal on long-term basis and is planning to appoint a Consultant to explore
different possible options of procurement/tie up of imported coal on long-term basis and cost
benefit and feasibility study of options.
Commissions Ruling
The Commission has addressed the issue of coal prices in Section 5 of the Order while
determining the Energy Charges. As regards reduction in fuel prices, the Commission has
obtained and analysed the month-wise actual fuel prices for the period from January 2010 to
March 2010 and has considered the same for projecting the fuel costs for FY 2009-10.
2.11 Renovation & Modernisation SchemesM/s Vidarbha Industries Association, M/s ISPAT Industries Limited and others submitted that
one of the reasons for non-achievement of norms as submitted by MSPGCL was vintage of
power plants. They requested the Commission to direct MSPGCL to provide the details of
Renovation & Modernisation schemes.
MSPGCLs Response
MSPGCL submitted that several Renovation & Modernization schemes have been planned
though the aid of World Bank in the XIth
Plan and the details of the schemes are as follows:
1. Koradi TPS 210 MW Unit No.62. Chandrapur STPS 210 MW Unit No.1 and 23. Bhusawal TPS 210 MW Unit No.2
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4. Parli TPS 210MW Unit No.3
Besides, MSPGCL is implementing the recommendations of CPRI and for this purpose the capex
schemes are detailed out in form 5.3 of the petition.
Commissions Ruling
The Commission has taken note of Renovation & Modernization schemes planned by MSPGCL
and the Commission directs the MSPGCL to submit the detailed status of R&M schemes
planned by it within one month from the date of issue of this Order.
2.12 Comparative Analysis of MSPGCL and NTPC PlantsM/s Vidarbha Industries Association and M/s ISPAT Industries Limited provided the
comparison of performance of MSPGCL's stations with NTPC Korba, which is the oldest power
plant of NTPC commissioned in 1983 and Badarpur, which was commissioned in 1973. They
submitted that the fixed cost of generation for Paras and Khaperkheda stations are higher than
that of the NTPC plants. The per unit O&M costs of these plants are also high as compared to the
same parameters of the NTPC stations.
MSPGCLs Response
MSPGCL submitted that the consumers have given a comparison of Paras with that of other
Units. In this regard, MSPGCL submitted that Paras Unit is under consideration for scrapping
and the Unit is being run with bare minimum R&M expenses, in order to mitigate the grave
power shortages in the State. Besides, MSPGCL submitted that it is not correct to compare fixed
cost per unit or O&M cost per unit of two stations of different capacities. The comparison of
fixed cost per unit itself holds no meaning because the fixed cost does not increase in proportion
to the capacity of a station. It is obvious that a 2100 MW Korba Station is likely to produce more
units. Dividing the fixed cost with such high generation will obviously reduce the per unit fixed
cost. However, it cannot be used to say if any one of the plants is operating efficiently or not. Forexample, it may be observed that Khaperkheda plant in absolute terms is getting just half the
O&M expenses in comparison to Korba units. However, in per unit terms, the expenses of
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Khaperkheda are relatively higher. Therefore, such comparison may be inconclusive for the
purpose of comparing the technical performance.
Commissions Ruling
The tariff for the generating stations of MSPGCL has been determined in accordance with the
MERC Tariff Regulations. Further, while inter-Utility comparison has its advantages, there are
certain disadvantages too, and comparison has to be done between Plants of similar capacity and
vintage.
2.13 Lease RentShri N. Ponrathnam, an authorised Consumer Representative, submitted that the concept of
Hydro Power Generating Stations paying rent to State Government or State Government
collecting money as lease rent from MSPGCL in any form is illegal and should not be approved.
Commission Ruling
The Commission does not find any merit in the objection, as lease rentals are charges to be paid
by MSPGCL to GoM, as the hydel generating stations are owned by GoM which has given these
stations on lease to MSPGCL for power generation.
2.14 Power Purchase AgreementShri N. Ponrathnam submitted that the Power Purchase Agreement (PPA) between MSPGCL
and MSEDCL should be approved by the Commission. The total generation of MSPGCL is
purchased by MSEDCL as on date. PPA should be executed to fix the price of electricity and to
ensure the availability of electricity in the time of shortage. The Fuel Adjustment Cost (FAC)
Charges should be specified separately in PPA and it should be transparent to the public.
Commissions Ruling
As regards the issue of FAC computations, it is clarified that the FAC computations are being
carried out by Utilities and being vetted on post-facto basis by the Commission in accordance
with the MERC Tariff Regulations. It is also clarified that the PPA between MSPGCL and
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MSEDCL has been approved by the Commission after following the due regulatory process,
including Public Hearing.
2.15 Uniform Tariff for all Generating StationsShri. N. Ponrathnam submitted that the electricity is produced by various means such as Hydro
Power, Thermal Power, Wind Energy, Nuclear Power, Geothermal Energy, Solar Energy, etc.,
and the cost of generation varies with size of the generating station and the fuel. He suggested
that the energy produced by coal should be taken as the benchmark tariff (cost of generation of
electricity supply) and the units generated by all power stations with similar generation profile
should be charged the same.
Commissions Ruling
As regards the suggestion of uniform tariff for all generating stations, the Commission does not
find any merit in the suggestion, as each generating station has different capital cost based on the
capacity of the plant and vintage of station, the fuel mix at each generating station is different,
and landed fuel cost at each generating station varies depending upon the fuel mix and source of
fuel. In such circumstances, it is not possible to approve uniform tariff across all the generating
stations, as the generation tariff has to reflect the cost of generation of the respective generating
station.
2.16 ARR for Ensuing YearMaharashtra Rajya Veej Grahak Sangathana submitted that approved ARR for FY 2009-10 was
Rs 9812.29 Crore. For FY 2010-11, the total ARR is estimated at Rs. 11175.34 Crore which is
higher by Rs.1000 Crore, as compared to ARR approved by the Commission for FY 2009-10.
Therefore, ARR for FY 2009-10 and 2010-11 should be kept same as that in FY 2008-09, and
the Commission should not approve inappropriate reduction in generation and inappropriate
increase in expenditure.
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Commissions Ruling
The Commission does not find any merit in the objection as input cost and other costs are bound
to vary year on year. Further, the total ARR also depends upon the quantum of power generation
and if the power generation increases, the ARR is bound to increase. It is clarified that the ARR
for the generating stations of MSPGCL has been determined in accordance with the MERCTariff Regulations.
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3 TRUING UP OF REVENUE REQUIREMENT FOR FY 2008-09MSPGCL, in its Petition for Annual Performance Review for FY 2009-10 and determination of
tariff for FY 2010-11, has included a Section on the final truing up of expenditure and revenue
for FY 2008-09 based on actual expenditure as per audited accounts. MSPGCL has provided the
comparison of actual expenditure with the expenditure approved by the Commission along with
the reasons for deviations.
The Commission, in its MYT Order in Case No. 68 of 2006 dated April 25, 2007 stipulated that
the gains and losses on account of controllable and uncontrollable factors will be shared between
the Generating Company and the Licensee at the time of truing up of ARR based on actuals, in
accordance with Regulation 19 of the MERC Tariff Regulations.
3.1 PERFORMANCE PARAMETERS AND FUEL COSTSMSPGCL, in its Petition, submitted that the total actual fuel cost for FY 2008-09 as per Audited
Accounts for the existing stations (excluding Paras Unit-3 and Parli Unit-6) was Rs. 6953.32
Crore (including other fuel related costs of Rs. 270.66 Crore) as against the approved amount of
Rs. 6223.15 Crore (including other fuel related costs of Rs. 184.82 Crore). MSPGCL submitted
the key reasons for the deviation in fuel cost as follows:
Decrease in gross generation,
Change in GCV and price of fuel,Change in quantities of imported coal and washed coal, and
Deviation in technical parameters.
MSPGCL provided the financial impact of each of the above mentioned aspects as given in
Table below:
Table: Element-wise impact of deviation on Actual Fuel Cost for FY- 2008-09 (Rs Crore)
Particulars Impact
Decrease in gross generation -557Change in GCV and Price of fuel 318
Change in Imported coal and washed coalquantities -71
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Particulars Impact
Deviation in technical parameters 710
Change in Gas Quantity & price at Uran 244
Total Impact 644
In this regard MSPGCL, submitted as follows:
a. Decrease in GenerationMSPGCL submitted that the decrease in generation led to a reduction in the overall fuel cost by
Rs 557 Crore. MSPGCL further submitted that one of the key reasons for reduction in generation
is because the Commission has considered a PLF of 80% for the purpose of projecting the gross
generation, however, the actual PLF is significantly lower than the normative PLF for 2008-09.
MSPGCL submitted that the major reason for reduction in PLF is the increased planned andforced outages of the Units. MSPGCL added that that the reduction in PLF results in an increase
in auxiliary consumption and secondary fuel oil consumption, which eventually increases the
effective SHR of the station.
MSPGCL further submitted that besides the above mentioned reasons, the generation was further
reduced on account of backing down of stations due to non-availability of transmission lines or
due to reduction in demand from the system. On this account, MSPGCL was not able to supply
around 67.39 MU in 2008. MSPGCL submitted that such grid issues not only reduce the net
generation of the stations, but also lead to significant increase in fuel oil consumption (required
for flame stability) thereby increasing the Station Heat Rate of the station.
b. Change in CV and Price of the fuelMSPGCL submitted that the other important factor that led to deviation in fuel cost is the
variation in fuel price and calorific value of fuel. MSPGCL submitted a comparison of the actual
price and GCV of the fuel vis--vis that considered by the Commission. MSPGCL submitted that
the change in calorific value and price of the fuel has led to an increase in fuel cost by
approximately Rs. 318 Crore.
c. Change in quantum of imported and washed coal
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MSPGCL submitted the actual quantum of imported and washed coal vis--vis the consumption
considered by the Commission and submitted that that the impact of change in quantity of
washed coal and imported coal is around Rs. 71 Crore.
d. Deviation in Performance Parameters of the stationsMSPGCL submitted that the normative performance parameters approved by the Commission
for the purpose of deriving the variable cost of generation were very optimistic MSPGCL
submitted that it had contested such optimistic performance parameters before the ATE and as
per the directions of the ATE, the Commission had appointed M/s CPRI for estimating the
current level of performance of the stations of MSPGCL and recommend the investments
required to improve the performance of the Units. CPRI has determined the current level of
performance of the stations by operating the Units at a load factor of 80% and have considered
other factors influencing the performance of the Units. Accordingly, CPRI has suggested thecurrent level of performance for such Units, viz., the current SHR and auxiliary consumption and
has also given an estimate of the stacking losses prevalent at the stations.
MSPGCL highlighted that if the parameters as derived by CPRI are applied to the actual
consumption of imported and washed coal and further considering the actual price and CV of
fuels, the cost as per CPRI parameters is higher than the actual cost of generation as per the
books of accounts.
MSPGCL further submitted that the Report submitted by M/s CPRI defined the current state of
operations of the stations duly taking into account the operational constraints and other ground
realities. MSPGCL submitted that considering such realistic operational parameters as
demonstrated in the CPRI report, MSPGCL understands that its claim for true-up in fuel cost
may be approved by the Commission. However, the above true-up amount pertaining to price of
the fuel is already recovered in the FAC claims and such recovery of cost will be considered in
the revenue side true-up and therefore, no separate treatment has been considered by MSPGCL.
Gross Generation
The actual gross generation achieved by MSPGCL during FY 2008-09 is 44506 MU as
compared to gross generation of 48194 MU approved by the Commission in APR Order.
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The summary of station-wise gross generation as approved by the Commission in its APR Order
for FY 2008-09 and actual achieved during FY 2008-09 is given in the Table below:
Stations
Gross Generation
(MU)
APR Order Actual
Khaparkheda 5993 6320
Paras 385 341
Bhusawal 3329 3042
Nasik 6167 5698
Parli 4695 3919
Koradi 7288 5744
Chandrapur 16399 15004Uran 3938 4438
Total 48194 44506
For the purpose of truing up of expenses and revenue for FY 2008-09, the Commission has
considered the actual gross generation.
The Commission approved the Station-wise Availability in its MYT Order for each year of the
Control Period. The Stations for which MSPGCL projected the availability lower than 80% (i.e.,
Bhusawal and Parli); the Commission approved the availability of 80%. However, for Uran Gasbased station, considering the short supply of gas, in its MYT Order, the Commission approved
the availability as projected by MSPGCL for recovery of full fixed charges. For the Control
Period, the Commission approved the Station-wise PLF considering the PLF projections of
MSPGCL, and for stations for which MSPGCL projected PLF lower than 80%, the Commission
considered the PLF of 80%, since in times of severe supply shortage, the PLF will be equal to
Availability, and full recovery of fixed costs is possible only when the normative availability of
80% is achieved.
The Commission, in its Order dated March 5, 2010 in Case No. 16 of 2008, considered the actual
availability and PLF from FY 2005-06 to FY 2007-08 and did not disallow any amount
pertaining to Annual Fixed Charges for existing stations on account of lower availability. Further
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the Commission in the said Order stated that From FY 2008-09 onwards, the Commission
would consider the targets for Unit-wise availability and PLF based on CPRI
recommendations.
As regards the availability and PLF, the recommendations made by CPRI in its reports are asfollows:
Koradi units (1-4) have never exceeded 80 % PLF in their lifetime in spite of de-rating.
As per steady trends in Figure 3, the Units the achievable PLFs are around 65 %.
As per the trends Nasik units (1-2) are capable of achieving PLFs of around 75 % after
de-rating.
Bhusawal (Unit 1), Paras (Unit 2) and Parli units (1 & 2) are capable of achieving PLF
of 80 %.
Units of 210 MW and above can easily achieve the PLF of 80 % with focused attention on coal
quality, R & M programs, adherence to planned maintenance schedule, leakage control,
operational optimization, etc.
Accor