Before the MAHARASHTRA ELECTRICITY … 58 42/Order Case No. 147...Case No. 147 of 2014 Page 5 of 22 Sr. No Parameter Unit Value Description/Remark 6 Revised price of alternate source

Case No. 147 of 2014 Page 1 of 22

Before the

MAHARASHTRA ELECTRICITY REGULATORY COMMISSION

World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai 400005.

Tel. 022 22163964/65/69 Fax 22163976

Email: [email protected] Website: www.mercindia.org.in, www.merc.gov.in

Case No. 147 of 2014

Petition under Section 86 of the Electricity Act, 2003 for adjustment in tariff under the

Power Purchase Agreements (PPA’s) dated 22 April, 2010 and 5 June, 2010 executed

between Maharashtra State Electricity Distribution Company Limited and Indiabulls

Power Limited pursuant to impact on tariff due to shortage in domestic coal availability

and consequent changes in New Coal Distribution Policy dated 18 October, 2007

Smt. Chandra Iyengar, Chairperson

Shri Vijay L. Sonavane, Member

Shri Azeez M. Khan, Member

Parties to the present case:

Indiabulls Power Limited (“IPL”) ...…..Petitioner

Maharashtra State Electricity Distribution Company Limited (“MSEDCL”) ..…Respondent

Present on behalf of the Petitioner Shri Sanjay Sen, Advocate

Shri Rajiv Rattan

Present on behalf of the Respondent Smt. Deepa Chawan

Authorised Consumer Representatives Dr. Ashok Pendse, TBIA

ORDER

Dated: 20 August, 2014

http://www.mercindia.org.in/

http://www.merc.gov.in/


Three Generators (Indiabulls Power Limited, Adani Power Limited and JSW Energy Limited)

which had tied up power under the Case 1 route of the “Guidelines for Determination of Tariff

by Bidding Process for Procurement of Power by Distribution Licensees" issued by Ministry of

Power, Government of India (hereinafter referred to as “Competitive Bidding Guidelines” with

Maharashtra State Electricity Distribution Company Limited (hereinafter referred to as

“MSEDCL”), had approached the Commission for compensation/adjustment in Tariff due to

shortage of domestic coal availability, increase of price of imported coal, etc. in Case No. 154,

189 and 118 of 2013. Considering the common issues involved in the matters, the Commission

had heard the cases jointly and approved a framework for compensatory fuel charge in Order

dated 15 July, 2014. The Commission had directed the three Petitioners in those cases to

approach the Commission with detailed justification of their hardships to claim the compensatory

fuel charge under the approved framework. Accordingly, Indiabulls Power Limited (hereinafter

referred to as “IPL”), the Petitioner in Case No. 154 of 2013, has filed the present Petition for

approval of compensatory fuel charge.

2. IPL has made the following prayers in the present Petition:-

“

a) condone the delay in filing the present petition;

b) allow 100% transportation and transaction costs which would be incurred by the

Petitioner post the CCEA notification dated 21 June, 2013 and the amendment of NCDP

dated 26 July, 2013;

c) Allow full pass through of incremental cost in procuring alternate coal for meeting the

shortfall quantity by modifying the formula in para 33.1.2 of Order dated 15.07.2014 as

below:

i. change in Step - 1 by using the actual ‘as received’ GCV for calculation of Units

generated from domestic coal instead of using Baseline GCV

OR

ii. revise the Step - 4 so that compensation calculated in Step - 3 is multiplied with

Units generated by units from imported coal, calculated in Step – 2

OR

iii. apportion the incremental cost of alternate coal over actual units delivered

Hon’ble Commission may consider option (iii) above for the reasons enumerated

in this Petition.

d) the Hon’ble Commission may recognize the losses suffered by the Petitioner on account

of lower generation resulting from supply of lower grade of coal vis-à-vis the grade

assured by the LoAs compensate the Petitioner for the same;

e) pass such other order or order(s) as this Hon’ble Commission deems fit in the facts and

circumstances of the present case.”


3. In its Petition, IPL submitted as follows:

3.1 IPL has executed two Power Purchase Agreements (hereinafter referred to as “PPA”), for

supply of aggregate 1200 MWs (450 MWs and 750 MWs respectively) of power to the

MSEDCL. There has been a substantial increase in the fuel cost due to non-supply of

assured quantity of coal by the State owned coal supplier Coal India Limited and its

subsidiaries (hereinafter referred to as “CIL”), and also failure to supply the assured grade

of coal. On the said matter, the Petitioner had filed a Petition, which was numbered as Case

No. 154 of 2013. The Commission had issued an Order on 15 July, 2014 in the said matter.

In the aforesaid Order, the Commission has recognised hardships being faced by the

Petitioner and has proposed a methodology for allowing Compensatory Fuel Charge on

account of changes in the business environment related to coal demand-supply situation,

prices of coal in the international market, etc.

3.2 IPL submitted that while accepting most of the findings of the Order in Case No. 154 of

2013, it is seeking clarification on the following issues in the present Petition:

i. under recovery of entire cost of incremental Alternate coal;

ii. recovery of only 60 % of the transportation and transaction cost;

iii. Non recovery of entire cost of Alternate coal to be sourced due to slippage in

assured quality of domestic coal.

iv. Not adopting the principles of the Article 10.2.1 of the PPA which stipulates as

follows:

“while determining the consequences of Change in Law under this Article 10, the

parties shall have due regards to the principle that the purpose of compensating

the party affected by such Change in Law, is to restore through monthly tariff

payment, to the extent contemplated in this Article 10, the affected party to the

same economic position as if such Change in Law has not occurred.”

On Recovery of Alternate coal costs under the proposed mechanism

3.3 The Petitioner submitted that the Commission has laid down a methodology to recover

Compensatory fuel charge in paragraph 32 of the said Order. IPL has worked out the actual

recovery under the said methodology applying various formulae specified therein at

Paragraph 32, 33, 33 and 34 of the said Order dated 15 July, 2014. Following are the

underlying parameters:


Table 1: Underlying parameters for computing Compensatory fuel charge

Sr. No Parameter Unit Value Description/Remark

1 Baseline quantity MTPA 5.493 As per the Fuel Supply Agreement

(hereinafter referred to as “FSA”) executed

with the South Eastern Coalfields Limited

(hereinafter referred to as “SECL”), the

Subsidiary Company of CIL

2 P Linkage INR/MT 2,298 As per the existing landed coal costs from

SECL

3 Baseline GCV Kcal/kg 4,150 As per the FSA, G10, G11 and G12 grades

of coal are allocated. However, currently,

SECL is supplying G11 grade of coal and

accordingly, the mid-point GCV of G11

grade of coal i.e. 4150 Kcal/kg is

considered. Range of G11 grade coal is

4000 – 4300 Kcal/kg.

4 Shortfall quantity

of domestic coal

MTPA 1.648 Currently, the Petitioner is receiving ~ 70%

of FSA quantity and hence the quantum of

coal supply would be 3.845 (70% of

baseline quantity i.e. 70% x 5.493) MTPA.

Accordingly, the shortfall quantity to be

Minimum of:

(a) 5.493 – 3.845 = 1.648; and

(b) 65% of 5.493 = 3.570

Kindly note that the coal supplies from

SECL are commenced in phased manner,

as and when each unit gets commissioned

on pro-rata basis of commissioned capacity

of 2 units (2x270MW). Realisation of

~70% of coal against FSA quantum is an

approximate number which will be

computed based on actual coal received

during the period under consideration vis-

a-vis entitlement of domestic coal under

FSA.

5 (i) Revised GCV of

alternate source

kcal/kg 5000 Based on Argus (5000 Kcal/kg GAR)

Index for Indonesian coal for the purpose

of computation

5 (ii) Shortfall quantity

of alternate coal

required

MTPA 1.368 (Shortfall Quantity of domestic coal x

Baseline GCV ) / Revised GCV of

alternate source

i.e. (1.648 x 4150) / 5000


Sr. No Parameter Unit Value Description/Remark

6 Revised price of

alternate source

Rs/ton 4,814 Price based on Argus (ICI3, 5000 Kcal/kg

GAR) indices for Indonesian coal. The

break-up of coal price is given in the Table

2

7 Net SHR kcal/kWh 2692 Norms specified by CERC taken in to

consideration

Turbine Heat Rate - 1955 kcal/kWh

Boiler Efficiency - 85%

Multiplying factor - 1.065

Auxiliary consumption - 9%

Net SHR = {(1955/85%) * 1.065}/(1-

9%)

8 Units generated

from alternate coal

MUs 2541 Quantity of Alternate Coal in MTPA x

10^3 x Revised GCV of imported/alternate

source (kCal/kg)/Net SHR (kCal/kWh)

i.e. (1.368 x 10^3 x 5000 / 2692)

9 Units that can be

generated with

domestic coal at

baseline GCV

MUs 5928 = Quantity supplied under FSA x baseline

GCV x 10^3 / net SHR

= (5.493 x 70% x 4150 x 1000)/2692

10 Actual units

generated with

domestic coal at

actual GCV of

3600 kcal/kg

MUs 5142 = Quantity supplied under FSA x actual

GCV x 10^3 / net SHR

= (5.493 x 70% x 3600 x 10^3)/2692

11 Actual units that

will be delivered

with available

domestic coal at

actual GCV and

coal sourced from

alternate source

MUs 7683 5142 + 2541

Table 2: Break-up of PAlternate as per approved methodology

Component Price Recovery

FOB Price ($/ton) 51.33 100%

Sea Freight ($/ton) 8.50 $/ton 60%

Insurance ($/ton) 1 $/ton 60%

CIF Price ($/ton) 60.83

Rupee -$ rate 60.85

CIF Price (Rs/ton) 3,702


Component Price Recovery

Port handling charges (Rs/ton) 500 60%

Duties, cess and taxes on coal (Rs/ton) 305 100%

Railway freight from Dahej to plant – distance ~740 KMs

(Rs/ton) 969 60%

Duties, cess and taxes on railway freight (Rs/ton) 244 60%

Total coal cost (Rs/ton) 5,720

Transit loss (0.2%) 11 100%

Actual Landed Coal Cost (Rs/ton) (P Alternate_ Actual) 5,731

Coal cost for recovery at 60% considered by Hon’ble

Commission (Rs/ton) (P Alternate) 4,814

3.4 Accordingly, the compensatory fuel charge is worked out as follows:

Table 3: Computation of compensatory fuel charge

Sr. No. Parameter Computation

I Quantity of Alternate coal

in MTPA

= (Shortfall in CIL Qty x Baseline GCV) /Alternate Coal

GCV

= (1.648 x 4150) /5000

= 1.368 MTPA

II Compensatory Fuel Charge

(Rs/kWh)

(i) Cost of Alternate Coal = (Q Alternate x P

Alternate(Actual))

= (1.368 x 5731) = Rs. 784 Crores

(ii) Cost of Alternate Coal with 60% restriction on

transaction and transportation costs

= (Q Alternate x P Alternate)

= (1.368 x 4814) = Rs. 658 Crores

(iii) Cost of Domestic Coal = (Q Shortfall x P Linkage)

= (1.648 x 2298)

= Rs. 379 Crores

(iv) Actual incremental cost incurred on Alternate coal =

Cost of Alternate Coal – Cost of Domestic coal

= Rs 784 Crores – Rs 379 Crores

= Rs 405 Crores

(v) Hence, Actual Compensatory fuel charge at 100%

recovery of entire cost of alternate coal

= (Q Alternate x P Alternate Actual) - (Q Shortfall x P

Linkage)

Units generated from alternate coal

= 784 Crores – 379 Crores

(2541/10)

= Rs 1.59/kWh

(vi) As per the Order dated 15 July, 2014, passed in Case

No. 154 of 2013 Compensatory fuel charge at 60% recovery

of transportation and transaction costs of alternate coal will

be:

= 658 Crores – 379 Crores

(2541/10)


Sr. No. Parameter Computation

= Rs 1.10/kWh

III Computation of total

amount of compensatory

charge

Step 1: Units from domestic coal

= (Baseline Quantity – Shortfall Quantity) x Baseline GCV/

Net SHR

= (5.493 – 1.648) x (4150 / 2692)

= 5928 MUs

Step 2: Actual units generated from Alternate coal

= Quantity of Alternate Coal in MTPA x ‘Revised GCV of

imported/alternate source’/Net SHR

= (1.368 x 5000 x 10^3)/2692

= 2541 MUs

Step 3: The denominator for the formula for compensatory

fuel charge per unit shall be computed using the Units from

imported coal in Step 2

Step 4: Compensatory fuel charge payable shall be the

compensatory fuel charge per unit payable in Step 3

multiplied by minimum of:

(i) Actual units delivered at delivery point from

the contracted capacity – Units from domestic coal as

computed in Step 1

= (7683 – 5928)

= 1755 MUs

(ii) Units from imported coal computed in Step

2

= 2541 MUs

Hence, the Compensatory fuel charge arrived at above i.e. Rs

1.10/kWh will be applied on 1755 MUs (minimum at step 4),

and will work out to Rs 193 Crores i.e., (Rs 1.10/kWh x 1755

MUs/ 10)

3.5 Based on the above, the Petitioner has claimed that:

The total compensation as per the adopted formula will be Rs 193 Crores, whereas the

total incremental cost incurred by the Petitioner is Rs 405 Crores as computed at Sr.

No. II (iv) in the Table 3 above leading to under recovery of 212 Crores, i.e., 52%.

The actual units generated with domestic coal, i.e., 5142 MUs are significantly lower

due to slippage in quality of coal. Using theoretical units generated from domestic coal

of 5928 MUs in Step 4 (Sr. No. III in Table 3) above is leading to recovery of

compensatory fuel charge on far lesser units than the actual units generated with

imported coal.

Reasons for under recovery of Alternate coal costs under the proposed methodology:


3.6 IPL submitted while the incremental cost for alternate coal is Rs. 405 Crores, it is being

granted compensation of Rs. 193 Crores only. The primary reasons of this under recovery

to the extent of 52% of actual costs are:

Restriction imposed at Step 4 (Sr. No. III in Table 3) above on number of units allowed

to claim Compensatory fuel charge (21% of the actual costs); and

Only 60% recovery of transportation and transaction cost of Alternate coal (31% of the

actual costs).

3.7 The following tables depict the impact of above two factors:

Table 4: Impact of restriction on number of units on which compensatory fuel charge will

be applicable

Factor Rs Crores % of under

recovery

[Units generated with imported coal, i.e., 2541 MUs

minus

Units for which compensation granted, i.e., 1755 MUs

Hence, units for which Compensatory fuel charge of Rs

1.10/kWh not applied are

(2541 – 1755) = 786 MUs

Rs 87 Crores

(786 MUs x Rs

1.10 kWh)

21%

Table 5: Impact of restriction imposed for 60% recovery of transportation and transaction

cost of alternate coal

Factor Rs Crores % of under

recovery

Revised Compensatory fuel charge based on 100%

transportation and transaction costs, i.e., Rs 1.59/kWh

minus

Compensatory fuel charge at 60% cost recovery of

transportation and transaction costs, i.e., Rs 1.10/kWh

multiplied with total generation from alternate coal, i.e.,

2541 MUs

Rs 125 Crores

(1.59 – 1.10)

Rs/kWh x 2541

MU)

31%


3.8 The following tables summarises the total recovery and under-recovery of the cost incurred

on alternate coal:

Table 6: The total incremental cost of Rs 405 Crores incurred by the Petitioner is

bifurcated as follows:

Factor Rs Crores In % terms

Cost recovered by the Petitioner as per

the formula

193 48%

Unrecovered cost due to restriction

imposed on units

87 21%

Unrecovered cost due to restriction

imposed on recovery of only 60% of

transaction and transportation cost

125 31%

Total incremental cost on Alternate

Coal incurred by the Petitioner

405 100%

Changes that may be considered in the proposed methodology to address the under

recovery in costs of Alternate coal

3.9 IPL submitted that the formula adopted by the Commission for calculating the

Compensatory fuel charge for the under recovery of the cost of imported coal does not

entail full recovery of incremental coal cost as enumerated above. IPL submitted that the

formula applies Baseline GCV instead of using actual ‘as received’ GCV. Since ‘as

received’ GCV is significantly lower than the Baseline GCV, the actual units generated

from domestic coal (5142 MUs) are significantly lower than theoretical units calculated.

IPL stated that as a result, the Compensatory fuel charge computed as per the approved

methodology (Rs 1.10/kWh) is being multiplied with lower number of units (1755 MUs)

than actual units generated from alternate coal over which it would need to be applied, i.e.,

2541 MUs, so as to allow complete recovery of cost incurred in procuring alternate coal.

IPL submitted that the under recovery is to the extent of 52% of cost incurred in procuring

imported coal.

3.10 The Petitioner has proposed that to enable full recovery of cost of alternate coal, the

Commission may make one of the changes in the Steps mentioned on Page 36 of the Order

dated 15 July, 2014:

Make change in Step - 1 by using the actual ‘as received’ GCV instead of baseline

GCV for calculation of actual units delivered;


OR

Revise the Step - 4 so that compensation calculated in Step - 3 is multiplied with Units

generated with Alternate coal, calculated in Step – 2;

OR

Apportion the incremental cost of alternate coal over actual units delivered.

3.11 IPL submitted that instead of measurement of power generation from different coal sources

which is impracticable technically and consequent computation of Tariff which would be

highly theoretical, the cost of blended coal should be considered and the consequent

Compensatory fuel charge should be based on the total generation. In the case of MSPGCL

power plants using blended coal, the practice followed is Tariff computation considering

cost of blended coal and total generation rather than computation of Tariff separately for

different sources of coal.

3.12 IPL submitted that sourcing of coal from alternative sources entails significantly increased

transportation and transaction costs which were not part of the bid assumptions, and is a

recurring expenditure which needs to be compensated in terms of the provisions relating to

Change in Law. The principle of granting a compensatory fuel charge in the present case

has to be in line with the principle laid down under the Change in Law provisions of the

PPA, and as such the Commission may allow recovery of 100% of such costs to the

Petitioner in entirety. Hence, the allowance of only 60% of the transportation and

transaction costs is an anomaly. Further, by allowing only 60% of the transportation and

transaction cost, the Commission has also gone against the principles laid down under

Section 61(d) of the Electricity Act, 2003, which are relevant for granting Compensatory

fuel charge.

3.13 IPL submitted the under-recovery on various costs of transportation and transaction costs

as follows:

Table 7: Indicates various components of Transportation and Transaction costs which are

proposed to be recovered to the extent of 40% by the Commission

Indicative Components of Transportation

and Transaction cost

(Rs/ton) Under recovery (40%)

Rs/ton

Ocean Freight


- Sea Freight (8.5$ x Rs 60.85/$) 517 207

Port Handling Charges 500 200

Inland Transportation

- Railway freight from Dahej to plant –

distance ~740 KMs

969 388

- Duties, cess and taxes on railway

freight

244 98

Transaction Cost

- Insurance (1$ x Rs 60.85/$) 61 24

Total Transportation and transaction cost 2291 917

3.14 Based on the above break-up, against the landed cost of Rs. 5731 per ton, the Petitioner

would be allowed only Rs, 4814 considering the approach of allowing 60% of

transportation and transaction costs.

Quantity shortfall due to low GCV coal supplied by CIL

3.15 IPL submitted that the Commission accepted that the generator/ developer needs to be

compensated for any additional changes resulting from the changes in New Coal

Distribution Policy, 2007 (hereinafter referred to as “NCDP, 2007”). The following may be

noted in this respect:

As per NCDP 2007, power utilities including Independent Power Producers (IPPs)

have to be provided with 100% of coal required for operating the plant at Normative

Availability.

Letter of Assurances (“LOAs”) for certain quantity of particular grade (quality) are

issued to fulfill such requirement of the IPPs to operate the plant at Normative

Availability as per the NCDP, 2007.

The quantity for which LOAs are issued are always driven by the grade (quality) of

coal – higher quantity for low grade coal and vice versa;

In case the GCV supplied is less, then the quantity has to be adjusted accordingly so

that plant can operate at Normative Availability, which is not the case in the present

matter.

3.16 IPL submitted that with the available quality and quantity, it is barely in position to run the


power plant at ~ 50% Plant load factor (“PLF”). Running the power plant at lower PLF as

compared to the Normative Availability as envisaged at the time of bidding makes the

Tariff offered at the time of bidding untenable and causes severe hardships to the Petitioner

due to inability to completely recover all costs. The Commission has recognised the

quantity shortfall in supplies from CIL and passed an Order to address the same. However,

the loss in generation on account of grade slippages in supplies from CIL has not been

addressed. This grade slippage has caused additional shortfall which needs to be addressed

by the Commission. This shortfall is further resulting into lower PLF as compared to the

PLF assumed at the time of bidding. IPL submitted that it is incurring huge losses on a

regular basis on account of such hardships. Therefore, in case this situation continues, it

will result the power plant of the Petitioner becoming a Non Performing Asset and

ultimately the operations of the power plant may have to be stopped. The same will

deprive the State of Maharashtra, the advantage of having access to cheaper power from a

power plant located within the State of Maharashtra.

4. The Commission held the hearing in this matter on 12 August, 2014. The Commission

directed MSEDCL to submit its arguments if any by 14 August, 2014.

5. MSEDCL made a submission on 14 August, 2014. The arguments made by MSEDCL in

the said submission are as follows:

5.1 Quoting its earlier submission in Case No. 118, 154 and 189 of 2013 and the methodology

adopted by the Commission, MSEDCL submitted that as per its interpretation, the award

of the transportation and transaction cost is understood to mean computation of the said

60% transportation and transaction cost upon appropriate deduction / adjustment of the

transportation and transaction cost to the extent of the composition of fuel — imported /

domestic as included in the original bid / PPA. MSEDCL averred that any other

interpretation to the above dispensation of the Commission would result in going beyond

what was envisaged in the CCEA decision (guidelines).

5.2 To clarify its interpretation, MSEDCL submitted an illustration as follows:-

“If 1 Rs/ Kwh works out to be total cost of transportation and transaction costs imported

coal, 0.60 Rs/ Kwh will be allowed as per order 154 of 2013. MSEDCL respectfully

submits that if 0.20 Rs/Kwh has already been considered while computation of Energy

charge in the bid/PPA then only 0.40 Rs/Kwh (0.60-0.20) should be allowed as a part of

transportation and transaction cost.”


5.3 MSEDCL further submitted that the computation of shortfall quantity is not as per the

formula provided by the Commission in its Order in Case No. 118, 154 and 189 of 2013.

As per the said formula, the shortfall quantity will be minimum of:

Baseline Quantity - Actual Quantity received from CIL; and

Baseline Quantity - Quantity assured under amended NCDP, 2007.

5.4 MSEDCL added that the above methodology has not been adopted by the Petitioner.

5.5 MSEDCL submitted that the computation of SHR and Auxiliary Consumption provided by

the Petitioner is not in line with the formula approved by the Commission. For

computation of SHR and Auxiliary Consumption, lower of actual or CERC/ MERC norms

are required to be adopted as approved in Case No. 118, 154 and 189 of 2013. However,

Petitioner has computed the above said parameters by following CERC computation

methodology.

5.6 MSEDCL further submitted that the date of applicability of Compensatory fuel charge

should be with effect from the date of Judgement.

5.7 In respect of the figures / computation / contentions relating to the purported under

recovery as stated by the Petitioner, MSEDCL submitted that it refrains from dealing with

the same as presently the Order dated 15 July, 2014 passed by the Commission in Case No.

154 of 2013 is being implemented. MSEDCL submitted that it reserves its right to deal

with the same if the occasion so arises and does not accept the said figures / computation /

contentions.

6. On 16 August, 2014, Dr. Ashok Pendse, Thane Belapur Industries Association (hereinafter

referred to as “TBIA”), Authorised Consumer Representative, submitted the following:

6.1 The scope of the Order was to determine the Compensatory Fuel Charge as per formula

advised by the Consultant, KPMG. TBIA added that the Petitioner is enlarging the scope

of Order by introducing additional parameters, which will increase the Compensatory Fuel

Charge. The Petitioner has suggested change in the following parameters:

a) Change from Baseline GCV to GCV on as received basis

b) Consideration of 100% of transportation costs

c) Change of generation on account of imported coal mandated as per Order


6.2 TBIA submitted that the scope of Compensatory Fuel Charge cannot be enlarged at this

stage. TBIA submitted that the Petitioner is within its legal rights to move another Petition.

TBIA submitted that the Compensatory Fuel Charge shall be calculated as per formula

only and no effect should be given on account of additional parameters pointed out by the

Petitioner.

7. On 14 August, 2014, Prayas requested the Commission to allow additional time to submit

its views on the Petition.

7.1 The said request has been received after the matter was reserved for Order. Further, the

present proceedings are limited to implementation of the Order dated 15 July, 2014.

Hence, the extension of time cannot be granted.

Commission’s Analysis

8. As per the ruling in Order in Case No. 154 of 2013, IPL approached the Commission

seeking a suitable adjustment to Tariff on account of shortage in domestic coal availability

and consequent amendment to NCDP, 2007 dated 26 July, 2013 which reduced the assured

quantum of domestic coal. IPL has approached the Commission for compensatory fuel

charge for the PPAs dated 22 April, 2010 and 5 June, 2010 with MSEDCL. IPL has signed

these PPAs for 1200 MW from the Amravati Power Project (hereinafter referred to as

“Amravati Project”) having an installed capacity of 1350 MW.

9. The proceedings were limited to implementation of the formula provided in the Order in

Case No. 154 of 2013 for calculation of Compensatory Fuel Charge. While deciding the

implementation aspects of the formula, the Commission has taken into account the issues

raised by the Petitioner supported by analysis and impacts. The Commission has taken into

consideration submissions and representations made by all the stakeholders including the

consumer representatives.

10. The Commission has analysed this matter under the following heads:

A. Petitioner’s eligibility for compensatory fuel charge as per framework outlined by the

Commission in Order dated 15 July, 2014

B. Issues raised by the Petitioner/Stakeholders with respect to the framework

C. Approved Methodology


A. Petitioner’s eligibility for compensatory fuel charge as per framework outlined by the

Commission in Order dated 15 July, 2014

11. The following excerpts of the Order dated 15 July, 2014 are relevant to determine the

applicability of framework in the present case:

“32.1 The objective of the Commission, while arriving at the methodology to determine

compensatory fuel charge is to enforce the decision of CCEA dated 21 June, 2013 and

MoP advice dated 31 July, 2013….

…

36. The CCEA in it decision, dated 21st June 2013, has addressed two categories of

projects. The first category project are those which fall in the identified list of project

accounting for 78000 MW and for which CIL has to sign FSAs and which are to be

commissioned by 31st March 2015. The second category projects are those which are

likely to be commissioned by 31st March 2015 but do not have any coal linkage and have

obligations to supply power under long-term PPA with high bank exposure.

37. With respect to the second category of projects, the CCEA decision mentions “(v)

Mechanism will be explored to supply coal subject to its availability to the TPPs with

4660 MW capacity and other similar cases which are not having any coal linkage but are

likely to be commissioned by 31.03.2015, having long term PPAs and a high Bank

exposure ……….”

38. The current Petitions before the Commission cover multiple projects. Of these

projects mentioned in these petitions, the Commission notes that there are some units

which fall under the second category. All the units which fall under second category are

either commissioned or likely to be commissioned by 31st March 2015. The mechanism

reflected in the CCEA decision for second category projects with no coal linkage is yet to

be laid down. Till such time the mechanism is laid down, the Petitioners of such units

may approach the Commission, with a proposed mechanism to address the issue. The

Commission, after examining the merits of the cases, may decide to address the issue

appropriately.

……

44. For units that fall in the second category mentioned in para 36-38, the Petitioners

may approach the Commission suggesting the proposed mechanism with detailed

justification for the same.”

12. The Commission notes that IPL has signed the FSA on 22 December, 2012 for the


Amravati power project, from which it has contracted power under the PPAs dated 22

April, 2010 and 5 June, 2010. As per the FSA of the Petitioner, the threshold level of

penalty for the balance period of the 12th five year plan is 65%, 65%, 70% and 75%.

However, as per the Amendment dated 22 August, 2013, the threshold levels of penalty

have been revised as 65%, 65%, 67% and 75% for the balance period of 12th

five year

plans.

13. The Commission noted that Amravati Project is included in the list of projects with a

capacity of 78000 MW, which was referred to in the CCEA decision dated 21 June, 2013.

Therefore, the framework for compensatory fuel charge as per the Order dated 15 July,

2014 is applicable is applicable to the PPAs dated 22 April, 2010 and 5 June, 2010.

B. Issues raised by the Petitioner/Stakeholders with respect to lacunae in the framework

Computation of Units from Domestic Coal

14. The Petitioner has claimed that the present formula does not take into account the fact that

the GCV of coal actually received at the power station is lower than the expected GCV as

per the LoA/FSA. As a result, actual units generated from domestic coal are lower than the

units arrived using the formula stipulated by the Commission which considers GCV as per

FSA/LoA.

15. The Petitioner has further submitted that the Compensatory Fuel Charge is applicable only

to incremental generation after considering the generation from domestic coal. To arrive at

the units generated from domestic coal, the formula stipulated by the Commission

considers GCV as per FSA whereas the actual generation is much lesser due to the lower

GCV of coal received, thereby leading to a higher estimate of units generated from

domestic coal. This computation results in reducing the amount of incremental units

generated. Therefore, the compensatory fuel charge is being applicable to a lower number

of incremental units leading to under-recovery for the Petitioner. The Commission notes

that as per the claim of the Petitioner, it may under recover cost of alternate coal to the

extent of Rs. 87 Crores.

16. In this regard, as the payment has to be made to CIL as per the invoice, the Commission

enquired whether the Petitioner has made the payment under protest bringing to the

attention of CIL the difference in the GCV of coal received and GCV committed as per

LoA/FSA. In reply, the Petitioner submitted that it had taken up the issue with CIL from


time to time, and has submitted letters dated 17 June, 2014, 24 July, 2014 and 1 August,

2014 written to CIL informing the deficiency in quality of coal. The Petitioner further

submitted that they have not received any response from CIL to these letters.

17. The Commission notes the concerns of the Petitioner on the formula which considers

Baseline GCV leading to under-recovery of cost of alternate coal determined under the

methodology. However, the present proceeding is limited to implementation of the

methodology laid out in Order dated 15 July, 2014. Therefore the request for a change in

formula cannot be considered under the present proceedings. However, the Petitioner is at

liberty to approach Commission under separate proceedings.

Consideration of transportation charges upto 60%

18. With respect to transportation charges, the Commission notes the CCEA decision to

consider the pass-through of imported coal on a cost plus basis. The landed costs will

include all elements of costs including the transportation costs.

Table 8: Breakup of cost of imported coal

Particular Amount %

FoB price 3,123.43 54.5%

Port charges 500.00 8.7%

Ocean freight 517.23 9.0%

Domestic transportation 1213.00 21.2%

Taxes and duties on coal 305.00 5.3%

Others 71.85 1.3%

Landed price 5,730.51

19. Transportation forms a significant part of the landed cost of coal. Based on the breakup

provided by the Petitioner, domestic transportation forms 21%, ocean freight 9% and port

charges 8.7% of the total landed cost of coal. Therefore, the disallowance of transportation

costs would dissuade the Generator from procuring such alternate coal.

20. The Commission notes that the transportation costs for domestic transport have been

benchmarked to the Railway Freight notified by Indian Railways owned and operated by

Government of India. Further, the port handling charges for various activities such as

unloading, loading have been benchmarked to the Tariff for such activity of the nearest port

for which Tariff is approved by Tariff Authority of Major Ports. Further, widely accepted


and stringent benchmarks have been provided for ocean freight and other charges.

Therefore, the Commission is of the view that transportation charges be allowed in full

subject to the benchmarks provided by the Commission.

Not considering compensation for quality

21. The Commission in its Order has adopted the framework for compensatory fuel charge

based on the decision of CCEA dated 21 June, 2013 and MoP advice dated 31 July, 2013 in

its Order dated 15 July, 2014. The MoP advice, as highlighted in the Order, only relates to

the aspect of shortfall in quantity. Therefore, the compensation for shortfall in quality or

any other hardships is outside the purview of the present proceedings, which relate to the

enforcement of decision of CCEA and advice of MoP.

Not considering SHR, Auxiliary Consumption and shortfall quantity as per approved

methodology

22. MSEDCL has argued that the Petitioner has not considered the shortfall quantity, SHR and

Auxiliary Consumption as per the framework approved by the Commission.

23. The Commission has not allowed any variation in the above parameters and the

methodology prescribed in Order dated 15 July, 2014 will continue to be applicable.

C. Approved Methodology

24. Based on the discussion in the above paragraphs, the approved methodology and

parameters are as follows:

Where:

Parameter Unit Description


Parameter Unit Description

Baseline quantity MTPA Coal quantity as per LoA/ FSA/ relevant documents

PLinkage INR/MT Existing Landed coal price based on CIL’s notified prices and

logistics cost linked to index/benchmark

Baseline GCV kcal/kg As per LoA/ FSA/ relevant documents. In case of range of GCV

is given, the mid-point GCV of such range shall be considered

Shortfall quantity MTPA Minimum of:

(a) Baseline Quantity – Actual Quantity received from CIL;

and

(b) Baseline Quantity – Quantity assured under amended

NCDP, 2007 (CIL to supply minimum

65%,65%,67%,75% for the remaining four years of 12th

five year plan).

For clarity, if there is an actual shortfall of 1 MTPA but as per

the Amended NCDP, 2007, the shortfall from CIL was to be a

maximum of 0.8 MTPA, the shortfall quantity shall be

considered as 0.8 MTPA

For computation of provisional compensatory fuel charge, one

year trailing average of actual shortfall from Baseline quantity,

or 65% of LoA quantity, as per CCEA notifications for the first

year.

Revised GCV of

alternate source

kcal/kg GCV of imported/ alternate coal required for achieving optimal

blend

Revised price of

alternate source

INR/MT Landed price of imported/alternate coal (which may include e-

auction coal), derived from relevant indices/ benchmarks

Net SHR kcal/kWh For SHR and Auxiliary Consumption, lower of actual and norms

specified for new thermal generating stations in CERC (Terms

and Conditions of Tariff), 2014. Shall be computed as (Gross

SHR / (1 - Auxiliary Consumption ));

Units generated from

alternate coal**

MU ‘Quantity of Alternate Coal in MTPA’ * 10^3 x ‘Revised GCV

of imported/alternate source’ (kCal/kg)/Net SHR (kCal/kWh)

## For the purpose of true up, in case the Generator imports lesser than the ‘Quantity of

Alternate Coal in MTPA’, the values of Qshortfall and QAlternate will need to be revised to take

account of the actual coal imported. QAlternate will be taken as actual quantity of coal imported

and QShortfall will be arrived based on the following formulae.


Further QAlternate will be limited to the Alternate/Imported Coal Requirement arrived at in the

formula for ‘Quantity of Alternate Coal in MTPA’.

** At the time of true-up, the compensatory fuel charge payment will be computed as follows:

Step 1: Units from domestic coal = (Baseline Quantity – Shortfall Quantity) x Baseline GCV /

Net SHR

Step 2: Units from imported coal = Quantity of Alternate Coal in MTPA x ‘Revised GCV of

imported/alternate source’/Net SHR

Step 3: The denominator for the formula for compensatory fuel charge per unit shall be

computed using the Units from imported coal in Step 2.

Step 4: Compensatory fuel charge payable shall be the compensatory fuel charge per unit

payable in Step 3 multiplied by minimum of:

(i) Actual units delivery at delivery point from the contracted capacity – Units from

domestic coal as computed in Step 1

(ii) Units from imported coal computed in Step 2

For clarity, if the ‘((Q Alternate x P Alternate)- (Q shortfall * x P linkage))’ is Rs. 200 Crore and units generated

from imported coal considering Net SHR is 1000 MU. The compensatory charge is Rs. 2/kWh. However, if the units

generated from imported coal is 900 MU instead of 1000 MU, the generator shall recover only 900 MU * Rs.2/kWh,

i.e. Rs.180 Crore (instead of Rs. 200 Crore).

Table 9: Approved Indices/ Benchmarks for imported coal

Factor Category Description

FoB price of imported

coal

Relevant indices as identified by CERC for composite imported coal

escalation rates

Platts (5000 Kcal/kg GAR) and Argus ( ICI3, 5000 Kcal/kg GAR) indices

for Indonesian coal with equal weightage

API4 index for South African coal

Global COAL New Castle Index for Australian coal

Forex rate Reference Exchange Rate as mentioned in the PPA, since the rate is provided

in PPA

Ocean Freight Lower of :

Ocean freight as per appropriate index sourced from reputed publishers

such as Clarkson, Lloyds etc.; and

Actual ocean freight

Transit losses as per CERC norms or actuals, whichever is lower

Port handling charges Lower of:

Actual port handling charges, and

Port handling charges of nearest port approved by Tariff Authority for

Major Ports.

Inland Transportation Commercial Freight rates as published by Indian railways

Actual cost for road transport subject to a maximum of 110% of the rail



freight for the same distance, as per new Case I SBD guidelines

Table 10: Approved Indices/ Benchmarks for domestic coal


Ex mine price of coal Based on CIL notified price structure and project specifics

Government duties and

taxes

As per the relevant regulations

Inland Transportation Commercial Freight rates as published by Indian railways

Actual cost for road transport subject to a maximum of 110% of the rail

freight for the same distance, as per new Case I SBD guidelines

Transit losses to be considered as per actual or CERC norms, whichever is

lower

E-Auction Coal

25. The Petitioner may either procure imported coal or procure coal through e-auction coal to

meet its shortfall. For e-auction coal, the price discovered through the pricing mechanism

for e-auction will be allowed at actuals. All other costs will be allowed as per benchmarks

suggested for domestic coal, subject to the restriction on transportation and transactional

costs.

Commission’s Ruling

26. The Commission in Order dated 15 July, 2014 had approved the framework for

compensatory fuel charge and ruled as follows:

“The Commission approves the formulae as described in Paragraph 33. The

Commission has provided a framework for treatment of shortfall in quantity and will

deal with the merits and facts of each of the cases separately.”

27. The Commission has implemented the above framework based on the proceedings in

the present Petition filed by the Petitioner as per the above ruling. In the current

proceedings, the Commission has addressed the issues raised by the stakeholders on

merits as elaborated in Commission’s Analysis section of this Order. On the basis of

issues and facts placed before the Commission and various submissions by the parties,

the Commission considered the impact of transportation costs and rules that all

transportation and transaction costs will be considered in full while computing the

compensatory fuel charge, subject to the prescribed benchmarks.


28. The Commission notes the concerns of the Petitioner on the formula which considers

Baseline GCV leading to under-recovery of cost of alternate coal determined under

the methodology. However, the present proceeding is limited to implementation of the

methodology laid out in Order dated 15 July, 2014. Therefore the request for a

change in formula cannot be considered under the present proceedings. However, the

Petitioner is at liberty to approach the Commission under separate proceedings.

29. The framework for compensatory fuel charge outlined in Order dated 15 July, 2014 is

applicable for PPAs dated 22 April, 2010 and 5 June, 2010 between IPL and

MSEDCL.

30. The indicative compensatory fuel charge at the current level of linkage

materialisation (70% of quantity) works out to ~Rs. 1.55 per kWh and is applicable

only to the incremental generation from imported coal. Generation from domestic

coal received under the FSA shall continue to be at the Tariff as per the PPA.

However, the amount pertaining to the indicative compensatory fuel charge shall be

reduced when the Petitioner progressively secures higher materialisation of domestic

linkage coal.

31. The compensatory fuel charge shall be applicable from the date which is later of (a)

date of MoP Advice (31 July, 2013); (b) Scheduled Date of Delivery; and (c) Actual

Date of Delivery.

32. A periodic review of compensatory fuel charge is required on account of changes in

the business environment related to coal demand-supply situation, prices of coal in

the international market, etc. Further, the amendment to NCDP, 2007 and advice of

MoP relates to the period of the 12th

plan only. Accordingly, the compensatory fuel

charge will be reviewed by the Commission at the end of FY 2016-17. Further,

Procurer may approach the Commission intermittently for review of any aspect of the

compensatory fuel charge with changing scenarios.

With the above, Indiabulls Power Limited’s Petition in Case No. 147 of 2014 is disposed of.

sd/- sd/- sd/-

(Azeez M. Khan) (Vijay L. Sonavane) (Chandra Iyengar)

Member Member Chairperson

Documents

Before the MAHARASHTRA ELECTRICITY … 58 42/Order Case No. 147...Case No. 147 of 2014 Page 5 of 22 Sr. No Parameter Unit Value Description/Remark 6 Revised price of alternate source