Order Case 102 of 2009

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Case No. 102 of 2009 MERC Order for MSPGCL for APR of FY 2009-10 and Tariff for FY 2010-11

MERC, Mumbai Page 1 of121

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

Documents

Order Case 102 of 2009