Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION ... · Before the MAHARASHTRA ELECTRICITY...

MERC, Mumbai of 103

Before theMAHARASHTRA ELECTRICITY REGULATORY COMMISSION

World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai – 400 005Tel. 22163964/ 65/ 69 Fax 22163976Email: [email protected]

Website: www.mercindia.org.in

Case No. 71 of 2007

IN THE MATTER OFMaharashtra State Power Generation Company Ltd.’s (MSPGCL) Petition for

approval of Annual Performance Review for FY 2007-08 and Tariff forFY 2008-09

Dr. Pramod Deo, ChairmanShri A. Velayutham, MemberShri S. B. Kulkarni, Member

O R D E R Dated: May 31, 2008

In accordance with the MERC Tariff Regulations and upon directions from theMaharashtra Electricity Regulatory Commission (Commission), the Maharashtra StatePower Generation Company Ltd. (MSPGCL), submitted its Petition for approval ofAnnual Performance Review for FY 2007-08 and Tariff for FY 2008-09, on affidavit.The Commission, in exercise of the powers vested in it under Section 61 and Section62 of the Electricity Act, 2003 (EA 2003) and all other powers enabling it in thisbehalf, and after taking into consideration all the submissions made by MSPGCL, allthe objections and comments of the public, responses of MSPGCL, issues raisedduring the Public Hearing, and all other relevant material, and after review of AnnualPerformance for FY 2007-08, determines the revenue requirement and as a result of it,determines the tariff for the generating stations of MSPGCL for FY 2008-09 as under:

mailto:[email protected]

http://www.mercindia.org.in

MERC, Mumbai of 103

Table of Contents

1 BACKGROUND AND BRIEF HISTORY ___________________________ 6

1.1 Tariff Regulations _________________________________________________ 6

1.2 Commission’s Order on ARR And Tariff Petition for FY 2005-06 and FY2006-07 ________________________________________________________________ 6

1.3 Review Petition on Tariff Order for FY 2006-07 ________________________ 7

1.4 Commission’s Order on MYT Petition For MSPGCL for FY 2007-08 to FY2009-10 ________________________________________________________________ 7

1.5 MSPGCL APPEAL with ATE and ATE Judgment _____________________ 7

1.6 Petition For Annual Performance Review for FY 2007-08 and TariffDetermination for FY 2008-09 ____________________________________________ 14

1.7 Admission of Petitions and Public Process ____________________________ 15

1.8 Organisation of the Order _________________________________________ 16

2 OBJECTIONS RECEIVED, MSPGCL s RESPONSE ANDCOMMISSION S RULING _________________________________________ 17

2.1 PROCEDURAL issues ____________________________________________ 17

2.2 Power Generation ________________________________________________ 18

MSPGCL s response_____________________________________________________ 18

MSPGCL s response_____________________________________________________ 19

3 TRUING UP OF ANNUAL REVENUE REQUIREMENT FOR FY 2006-0720

3.1 Fuel Costs_______________________________________________________ 20

3.2 Depreciation_____________________________________________________ 26

3.3 Advance against depreciation ______________________________________ 27

3.4 Interest Expenses_________________________________________________ 29

3.5 Return on Equity (RoE) ___________________________________________ 30

4 PERFORMANCE PARAMETERS _______________________________ 38

4.1 Performance Parameters __________________________________________ 38

4.2 Generating Stations of MSPGCL ___________________________________ 38

4.3 station-Wise Performance Parameters and Tariff______________________ 41

5 ANALYSIS OF ENERGY AVAILABILITY, ENERGY CHARGE AND AFCFOR FY 2007-08 & FY 2008-09______________________________________ 63

5.1 Energy Availability and Gross Generation during FY 2007-08 ___________ 63

MERC, Mumbai of 103

5.2 ENERGY AVAILABILITY FROM MSPGCL GENERATING STATIONSduring FY 2008-09 ______________________________________________________ 65

5.3 VARIABLE COSTS OF THERMAL GENERATING STATIONS _______ 68

5.4 Lease rent for hydel stations _______________________________________ 71

5.5 OPERATION AND MAINTENANCE EXPENSES ____________________ 72

5.6 Capital expenditure and capitalisation _______________________________ 76

5.7 Depreciation_____________________________________________________ 79

5.8 Advance against depreciation ______________________________________ 81

5.9 Interest Expenses_________________________________________________ 83

5.10 Return on Equity (RoE) ___________________________________________ 85

5.11 Interest on Working Capital for FY 2007-08 __________________________ 87

5.12 Interest on Working Capital for FY 2008-09 __________________________ 88

5.13 Non Tariff Income for FY 2007-08 __________________________________ 89

5.14 Non Tariff Income for FY 2008-09 __________________________________ 89

5.15 Income Tax for FY 2007-08 and FY 2008-09 __________________________ 89

5.16 Fixed Cost of Generation __________________________________________ 90

6 TARIFF OF MSPGCL S GENERATING STATIONS ________________ 92

6.1 Tariff for Thermal Power Generating Stations ________________________ 92

6.2 Tariff for Hydel Power Generating Stations __________________________ 95

6.3 AppliCAbility of Order and Tariff _________________________________ 101

MERC, Mumbai of 103

List of AbbreviationsATE Appellate Tribunal for ElectricityA&G Administrative and GeneralAPR Annual Performance ReviewARR Aggregate Revenue RequirementAPH Air Pre HeaterAOH Annual OverhaulingBHEL Bharat Heavy Electriacals Ltd.Capex Capital ExpenditureCPI Consumer Price IndexCEA Central Electricity AuthorityCu.m Cubic meterCV Calorific ValueCOD Commercial Operation DateDPR Detailed Project ReportEA 2003 Electricity Act, 2003FAC Fuel Adjustment CostFOCA Fuel & Other Cost AdjustmentFY Financial YearGCV Gross Calorific ValueGFA Gross Fixed AssetsGOM Government of MaharashtraGOMWRD Government of Maharashtra-Water Resource DepartmentHPCL Hindustan Petroleum Corporation LimitedID Induced draftIWC Interest on Working CapitalKcal kilo calorieskW kilo WattkWh kilowatt hourLD Liquidity DamagesMCM Million Cubic MeterMMSCMD Million Standard Cubic Meters per DayMERC Maharashtra Electricity Regulatory CommissionMSEB Maharashtra State Electricity BoardMSPGCL Maharashtra State Power Generation Company LimitedMT Metric TonnesMU Million Units

MERC, Mumbai of 103

MW MegaWattMYT Multi Year TariffOEM Original Equipment ManufacturerO&M Operations and MaintenancePLF Plant Load FactorPLR Prime Lending RateR&M Repair and MaintenanceRH Re-heaterSH Super HeaterSHPs Small Hydel PlantsTVS Technical Validation SessionWPI Wholesale Price Index

MERC, Mumbai of 103

1 BACKGROUND AND BRIEF HISTORYThis Order relates to the Petition filed by the Maharashtra State Power GenerationCompany Limited (MSPGCL) for approval of Annual Performance Review for FY2007-08 and tariff determination for FY 2008-09.

The Maharashtra State Power Generation Company Limited (MSPGCL or MahaGENCO) is a Company formed under the Government of Maharashtra GeneralResolution No. ELA-1003/P.K.8588/Bhag-2/Urja-5 dated January 24, 2005 witheffect 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 EA2003 on June 6, 2005, which resulted in the creation of following four successorcompanies and MSEB Residual Company, to the erstwhile Maharashtra StateElectricity 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.

MSPGCL is in the business of generation of electricity.

1.1 TARIFF REGULATIONS

The Commission, in exercise of the powers conferred by the Electricity Act, 2003,notified the Maharashtra Electricity Regulatory Commission (Terms and Conditionsof Tariff) Regulations, 2005, on August 26, 2005. These Regulations superseded theMERC (Terms and Conditions of Tariff) Regulations, 2004.

1.2 COMMISSION’S ORDER ON ARR AND TARIFF PETITION FOR FY2005-06 AND FY 2006-07

MSPGCL submitted its ARR and Tariff Petition for FY 2006-07 on February 10,2006. The Commission, in exercise of the powers vested in it under Sections 61 and62 of the Electricity Act, 2003, and all other powers enabling it in this behalf, and

MERC, Mumbai of 103

after taking into consideration all the submissions made by MSPGCL, all theobjections, responses of MSPGCL, issues raised during the Public Hearing, and allother relevant material, issued the Order on the ARR Petition of MSPGCL for FY2005-06 and ARR and Tariff Petition of MSPGCL for FY 2006-07 on September 7,2006.

1.3 REVIEW PETITION ON TARIFF ORDER FOR FY 2006-07

MSPGCL filed a review Petition on the above said Commission’s Order. TheCommission disposed off the Review Petition through its Order dated December 7,2006, in Case 34 of 2006.

1.4 COMMISSION’S ORDER ON MYT PETITION FOR MSPGCL FOR FY2007-08 TO FY 2009-10

MSPGCL submitted its ARR and Multi Year Tariff (MYT) Petition for the firstControl period from FY 2007-08 to FY 2009-10 on January 2, 2007. TheCommission, in exercise of the power vested in it under Sections 61 and 62 of theElectricity Act, 2003, and all other powers enabling it in this behalf, and after takinginto consideration all the submissions made by MSPGCL, all the objections,responses of MSPGCL, issues raised during the Public Hearing, and all other relevantmaterial, issued the MYT Order for MSPGCL for the first Control Period, i.e., FY2007-08 to FY 2009-10, on April 25, 2007, which came into effect from April 25,2007, and the tariffs were valid upto March 31, 2008. As the Annual PerformanceReview for FY 2007-08 and Tariff determination for FY 2008-09 were under process,the various Utilities filed Petition for continuation of tariff determined for FY 2007-08till the time of issuance of the respective Tariff Orders of each Utility. Accordingly,the Commission in its Order on April 1, 2008 extended the applicability of theaforesaid Tariff Orders for the Utilities till the revised tariffs are determined for FY2008-09 under the APR framework and orders issued thereunder.

1.5 MSPGCL APPEAL WITH ATE AND ATE JUDGMENT

MSPGCL, in its APR Petition, submitted that it has preferred Appeals with theAppellate Tribunal for Electricity (ATE) on the true up of expenses for FY 2005-06and for relaxation of the norms prescribed by the Commission during the ControlPeriod, and submitted that the ATE is likely to issue the Order on the Appeals beforethe issuance of the Order on this APR Petition by the Commission. MSPGCLrequested the Commission to consider such directives from the ATE on the norms ofperformance and true-up of expenses while issuing the Order on APR Petition.

MERC, Mumbai of 103

MSGPCL further requested the Commission to allow it to provide additionalinformation, if required, to comply with such directives from the ATE.

MSPGCL filed two Appeals before the Honourable Appellate Tribunal for Electricity(ATE), viz., Appeal No.s 86 of 2007 and 87 of 2007, on the Commission’s Orderapproving ARR and tariff Order for FY 2005-06 and FY 2006-07, and the MYTOrder for the first Control Period from FY 2007-08 to FY 2009-10, respectively.

MSPGCL challenged the Commission’s Order for FY 2005-06 and FY 2006-07 onthe issues of:

• Administrative and General expenses• Transit loss of coal• Station Heat Rate• Tariff for small hydro projects

MSPGCL challenged the Commission’s MYT Order on the issues of:• Truing up of the fuel expenses for FY 2005-06• Disapproval of A&G expenses• Truing up of depreciation• Truing 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• Specific oil consumption• O&M expenses for base year for MYT Period• Hydel tariff• Tariff for small hydro power station• Reactive energy charges• Normative O&M expenses for hydel plants• Employee incentive schemes

The ATE dealt with the above issues vide its Judgment dated April 10, 2008 inAppeal No.s 86 & 87 of 2007. The ATE’s ruling on various aspects raised inMSPGCL’s Appeals have been summarised below:

• ATE upheld MSPGCL’s appeal regarding actual A&G expenses for FY 2005-06 for truing up purposes and directed the Commission to true up the said

MERC, Mumbai of 103

expenses based on actuals, subject to prudence check. ATE also directed theCommission not to consider the A&G expenses towards projects underconstruction as recoverable through tariff, since such expenses should becapitalised.

• ATE directed the Commission to consider the transit loss levels in terms of thestation-wise loss reduction trajectory approved by the Commission in its TariffOrder for FY 2003-04,.

• ATE directed the Commission to engage an appropriate agency/ies either onits own or through MSPGCL, to carry out a study in a time bound manner(preferably within three months) to reasonably assess the achievable heat rateof the plants owned by MSPGCL. Such agency may also be asked to suggestmeasures to improve the heat rates over a period of time. ATE further directedthe Commission to determine the heat rate based on the outcome of the studyand directed that the pre-existing tariffs may be continued, subject to truing upbased on the revised heat rates, when available.

• ATE directed the Commission to take into consideration the independent studyand reset the operating parameters, viz., transit loss of coal, station heat rate,auxiliary consumption, and specific oil consumption, and align its Regulationsby prescribing achievable norms and not merely ideal norms. ATE alsoadvised the Commission to be cautious that deliberate inefficiencies on thepart of the Utility are not passed on to the consumers.

• Regarding the tariff for small hydro power stations, the ATE stipulated thatfixed charge as determined by the Commission is subject to change only onaccount of re-determination of the lease rents payable to Government ofMaharashtra and change in the working capital on account of the change in theexpenses towards lease rentals.

• ATE rejected MSPGCL’s appeal for entitlement of higher tariff for smallhydro projects as the Commission’s Order in this regard is applicable only inthe case of new projects. The ATE also did not agree with MSPGCL’scontention that the Commission has disregarded the provisions of Section 61(h) of the Electricity Act, 2003 while considering the tariff fixation of smallhydro project.

• ATE upheld MSPGCL’s appeal for monthly billing of the incentives and heldthat any under or over recovery on account of such claims may be adjusted onmonthly basis

• ATE upheld MSPGCL’s appeal as regards truing up of actual fuel expensestill such time the re-assessed improvement trajectory of parameters isavailable.

MERC, Mumbai of 103

• ATE upheld MSPGCL’s appeal as regards truing-up of depreciation, whileruling that if the Commission has allowed any extra recovery in the past underthe head of depreciation, the same may be adjusted.

• ATE, while allowing the truing of other debits, held thato Both, MSPGCL and the consumers may bear the burden on this

account, and hence, the sum to be recovered from the consumers maybe spread over a period of three years, without any interest, to lessenthe burden on the consumers. However, the above cannot be taken as aprecedent for making similar claims in the future.

o Agreed with the Commission’s observation on the material costvariance of Rs 0.36 Crore

o Directed the Commission to examine the claim of MSPGCL for truingup on account of miscellaneous losses & write off, sundry expenses,intangible assets written off and intangible assets interest charges forHVDC, subject to prudence check.

• ATE directed the Commission to consider the interest on working capitalcomputed on normative basis for FY 2005-06 truing up and if any interest onshort-terms loans has been allowed which are in the nature of working capital,the same should be disallowed

• As regards truing of other income, the ATE ruled that if the other incomecannot be reasonably linked to any cost item allowed by the Commission as apart of the ARR, the same should not be adjusted against the ARR ofMSPGCL.

• ATE held that the Commission has considered MSPGCL’s estimates of O&Mexpenses for FY 2006-07 and also allowed escalation at the rate of 5.38%,which results into deviation from norms in favour of MSPGCL. ATE directedMSPGCL to take up the claim for base O&M expense for FY 2006-07.

• ATE directed the Commission to devise a mechanism which addresses theconcern of peak and off peak generation, by determining the ratio of peak andoff-peak generation after taking into consideration the operational capacity ofMSPGCL and system pattern, and also meets the objective of the Commissionto send economic signal about pricing of hydel generation.

• ATE held that since MSPGCL is incurring additional expenditure withoutbeing compensated, for extending support for reactive energygeneration/absorption for grid stability, the Commission should either workout a scheme specifically for State power generators for compensation forincurring the additional expenditure or extend the incentive/penalty

MERC, Mumbai of 103

mechanism available for transmission licensees, distribution licensees andopen access users, to the State generators.

• ATE rejected MSPGCL’s request to set aside the norm for O&M expenses setby the Commission for old hydel plants and ruled that since the existing hydroelectric plants are not covered by the Policy of the Government it will beinappropriate to compare the O&M expenses of the existing plants with that ofthe new hydel stations covered under Regulations.

• ATE directed the Commission to consider the issue of employee incentiveschemes in accordance with law.

The ATE, in view of the above findings/observations, set aside the impugnedTariff Orders and allowed the appeals partially, and remitted the matter back tothe Commission for re-determination of the tariff for MSPGCL.

As ATE has set aside the Commission’s Order dated September 7, 2006 onMSPGCL’s ARR and Tariff Petition for FY 2005-06 and FY 2006-07 andCommission’s Order dated April 25, 2007 on MSPGCL’s MYT Petition for thefirst Control Period from FY 2007-08 to FY 2009-10, the Commission askedMSPGCL to submit the impact of the ATE Judgement for each year separatelyalongwith 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

Further, in order to implement the directions given by ATE in its Order onproposed treatment towards certain heads of expenses and revenue and asrequested by MSPGCL in its Petition, the Commission asked MSPGCL to submitthe additional information/clarifications related to following heads of expensesand revenue:

i. Actual A&G Expenses for FY 2005-06 and A&G expenses incurred in FY2005-06, FY 2006-07 and FY 2007-08 incurred in respect of projectsunder construction

ii. Interest on Working Capital for FY 2005-06iii. Expenses on Intangible Assets, Sundry Expenses, etc., during FY 2005-06iv. Non Tariff Income for FY 2005-06v. Reactive Power Injection into the system during FY 2006-07vi. GFA and Depreciation details for FY 2005-06

MERC, Mumbai of 103

MSPGCL vide its letter Ref. SE/RC/BD/07450 dated May 29, 2008 has submittedthe impact of the ATE Judgement for each year separately and the reply to someof the queries sought by the Commission under certain heads of expenses andrevenue.

The Commission is of the view that as the Orders of the Commission have beenset aside and the ATE in its Order has directed the Commission to re-determinethe tariff, and as the original Orders in both the cases, i.e., ARR and TariffDetermination 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 processincluding public hearing, the re-determination of ARR and tariff for MSPGCLneeds to be undertaken after following the due public process including publichearing. The Commission will initiate a separate process for re-determination oftariff for MSPGCL for FY 2005-06, 2006-07 and FY 2007-08. However, thisOrder has to be issued, since the tariff payable to MSPGCL is a major input costto MSEDCL, and the Order of MSEDCL cannot be delayed till such time thecomplete data is submitted by MSPGCL and the due regulatory process isfollowed to revise the tariff of MSPGCL.

As regards norms for performance parameters, viz., transit loss of coal, stationheat rate, auxiliary consumption, and specific oil consumption of MSPGCL’sgenerating stations, ATE directed the Commission to undertake an independentstudy, either through MSPGCL or on its own, and reset the operating parametersand align its Regulations by prescribing achievable norms and not merely idealnorms after taking into consideration the results of such independent study. ATE,in its Order, has also mentioned that till such time the Commission re-determinesthe Station Heat Rate, MSPGCL may continue with the pre-existing tariff, subjectto truing up when revised Station Heat Rates when available. The Commission,abiding by the directions of ATE, will engage an appropriate independent agencyto carry out independent study to reasonably assess the achievable performance ofMSPGCL stations and to suggest the measures to improve the performance over aperiod of time. Based on the outcome of the study, the Commission will re-determine the performance parameters of MSGPCL’s generating stations, whetherhigher or lower than the norms stipulated in the Tariff Regulations and normsapproved in the Tariff Orders, and will carry out the truing up of MSPGCL’sexpense and revenue based on re-determined performance parameters.

MERC, Mumbai of 103

Further, the impact of directions of ATE in respect of following heads of expensesand revenue needs to be assessed based on additional information/clarifications:

• A&G Expenses• Truing up of Depreciation for FY 2005-06• 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 firstControl Period, has already undertaken the final truing up of expenses andrevenue for FY 2005-06. However, consequent to ATE Order, the truing up ofexpenses and revenue for FY 2005-06 will have to be undertaken againconsidering the ATE’s directions and based on impact and additionalinformation/clarifications submitted by MSPGCL. The Commission is of the viewthat it will be preferable to carry out the truing up of all elements of expenses andrevenue for FY 2005-06 once again based on impact of truing up and additionalinformation/clarifications from MSPGCL and after following due public process.The Commission has therefore not undertaken the truing up of expenses andrevenue for FY 2005-06 again in this Order. The Commission, after following thedue public process, will issue an Order which will deal with the truing up of allthe elements of expenses and revenue for FY 2005-06.

The truing up of expenses and revenue for FY 2005-06 will have certainimplications on ARR for FY 2006-07 and for subsequent years. The O&Mexpenses for FY 2005-06 approved after truing up, will have a bearing onallowable O&M expenses in subsequent years’. Similarly, the truing up ofdepreciation for FY 2005-06 may have effect on depreciation expenses to beallowed for FY 2006-07 and subsequent years. As regards truing up of fuelexpenses for FY 2006-07, the Commission is of the view that MSPGCL hasalready recovered variation in fuel prices through the FAC mechanism and truingup of fuel expenses on account of variation in performance parameters has to beexamined based on approved performance parameters upon completion of studyby independent agency. The Commission, in this Order, has therefore undertakenthe truing up of certain expenses and revenue for FY 2006-07. The Commissionwill undertake the final truing up of expenses and revenue for FY 2006-07 along

MERC, Mumbai of 103

with truing up of expenses and revenue for FY 2005-06 and re-determination ofperformance parameters.

In addition, the Commission in this Order has carried out the Annual PerformanceReview for FY 2007-08 and determined the tariff for FY 2008-09.

1.6 PETITION FOR ANNUAL PERFORMANCE REVIEW FOR FY 2007-08AND TARIFF DETERMINATION FOR FY 2008-09

As per the MERC Tariff Regulations, application for the determination of tariff isrequired to be made to the Commission not less than 120 days before the date fromwhen the tariff is intended to be made effective. The Commission had directedMSPGCL to submit the Petition for Annual Performance Review latest by November30 of each year in line with the Regulation 9.1 of the Tariff Regulations.

MSPGCL submitted its Petition for Annual Performance Review for FY 2007-08 andtariff determination for FY 2008-09 on November 30, 2007, based on actual auditedexpenditure for FY 2006-07, actual expenditure for first half of FY 2007-08, i.e.,from April to September 2007 and revised estimated expenses for October 2007 toMarch 2008, and projections for FY 2008-09. MSPGCL, in its Petition, requested theCommission to

• Undertake truing up for FY 2006-07 based on actual audited data;• Undertake Annual Performance Review for FY 2007-08;• Consider the revised projections for FY 2007-08 and approve the ARR for FY

2008-09 in accordance with the submissions and rationale given in thePetition;

• Approve the revised ARR and tariff for FY 2008-09;• Recover the revenue gap, if any, in FY 2006-07 on account of applicability of

the MYT Order from April 25, 2007 instead of April 1, 2007.

The Commission, vide its letter dated December 12, 2007, forwarded the preliminarydata gaps and information required from MSPGCL. MSPGCL submitted its replies topreliminary data gaps and information requirement on December 24, 2007.

The Commission held a Technical Validation Session (TVS) on MSPGCL’s APR forFY 2007-08 and Tariff Petition for FY 2008-09, on December 26, 2007, in thepresence of authorised Consumer Representatives. The list of individuals, whoparticipated in the TVS, is provided at Appendix-1. During the TVS, the Commission

MERC, Mumbai of 103

directed MSPGCL to provide additional information and clarifications on the issuesraised during the TVS. The Commission also directed MSPGCL to submit the draftPublic Notice in English and Marathi in the format prescribed by the Commission.

1.7 ADMISSION OF PETITIONS AND PUBLIC PROCESS

MSPGCL submitted its responses to the queries raised during the TVS, on January 9,2008, and the Commission admitted the APR Petition of MSPGCL on January 10,2008.

In accordance with Section 64 of the EA 2003, the Commission directed MSPGCL topublish its application in the prescribed abridged form and manner, to ensure publicparticipation. The Commission also directed MSPGCL to reply expeditiously to allthe suggestions and comments received from stakeholders on its Petition. MSPGCLissued the Public Notice in newspapers inviting comments/suggestions fromstakeholders on its APR Petition. The Public Notice was published in The Times ofIndia, Indian Express, Loksatta and Samana newspapers on January 12, 2008 andrevised Public notice was published on January 27 2008. The copies of MSPGCL'sPetitions and its summary were made available for inspection/purchase to members ofthe public at MSPGCL's offices and on MSPGCL's website (www.mahagenco.in) andalso on the web site of the Commission (www.mercindia.org.in) in downloadableformat. The Public Notice specified that the suggestions/objections, either in Englishor Marathi, may be filed in the form of affidavit along with proof of service onMSPGCL.

The Commission received written objections expressing concerns on proceduralissues, quantum of generation, etc. The Public Hearing originally scheduled onFebruary 4, 2008 was held on February 13, 2008 at 11:00 hours at Vista Hall, 30th

Floor, Centre 1, World Trade Centre, Cuffe Parade, Mumbai-400 005. The list ofobjectors, who participated in the Public Hearing, is provided in Appendix- 2.

The Commission ensured that the due process, contemplated under the law to ensuretransparency and public participation was followed at every stage meticulously andadequate opportunity was given to all the persons concerned to file their say in thematter.

This Order deals with the Annual Performance Review of FY 2007-08 and tariffdetermination of generating stations of MSPGCL for FY 2008-09. Various objectionsthat were raised on MSPGCL’s Petition after issuing the public notice both in writing

MERC, Mumbai of 103

as well as during the public hearing, along with MSPGCL’s response andCommission’s rulings have been detailed in Section 2 of this Order.

1.8 ORGANISATION OF THE ORDER

This Order is organised in the following six Sections:

• Section 1 of the Order provides a brief history of the quasi-judicial regulatoryprocess undertaken by the Commission. For the sake of convenience, a list ofabbreviations with their expanded forms has been included.

• Section 2 of the Order lists out the various objections raised by the objectors inwriting as well as during the Public Hearing before the Commission. The variousobjections have been summarized, followed by the response of MSPGCL and therulings of the Commission on each of the points.

• Section 3 of the Order details the MSPGCL’s proposal on truing up of expensesand revenue for FY 2006-07

• Section 4 of the Order details the performance parameters as approved by theCommission in MYT Order for first Control Period and MSPGCL’s proposal forperformance parameters during FY 2007-08 and FY 2008-09.

• Section 5 of the Order comprises the review of performance for FY 2007-08(including provisional truing up) and the Commission's analysis on variouscomponents of Energy Charges and Annual Fixed Charges of MSPGCL’s Stationsfor FY 2008-09.

• Section 6 of the Order details the tariff design for MSPGCL’s Stations and theapproved Annual Fixed Charges and Energy Charges for FY 2008-09.

MERC, Mumbai of 103

2 OBJECTIONS RECEIVED, MSPGCL’s RESPONSEAND COMMISSION’S RULING

2.1 PROCEDURAL ISSUES

Shri Rakshpal Abrol and others quoted the provisions of Regulation 90 (a) of MERC(Conduct of Business) Regulations, 2004, and submitted that adequate time of threeweeks as stipulated in the Regulations were not provided to the public to study thedocuments and submit the responses. They added that the Commission has notfollowed Regulations 8.4, 9.1 and 11.1 of the MERC (Terms and Conditions ofTariff) Regulations, 2005.

The Sidhpura Co-Operative Industrial Estate Ltd. submitted that no tariff or part oftariff may ordinarily be amended more frequently than once in any financial year,except in respect of any changes expressly permitted under the terms of any fuelsurcharge formula as specified in Regulation 82 of MERC (Terms and Conditions ofTariff) Regulations, 2005.

MSPGCL ResponseMSPGCL submitted that the format of Public Notice was provided and approved bythe Commission and it has followed the directives issued by the Commission fromtime to time.

Commission s RulingAs mentioned in Section 1 of the Order, MSPGCL submitted its Petition for AnnualPerformance Review for FY 2007-08 and tariff determination for FY 2008-09 for itsGeneration business on November 30, 2007. The Commission communicated the datagaps in the Petition and held a Technical Validation Session on MSPGCL’s Petition,in the presence of authorised Consumer Representatives. Upon submission of revisedPetition by MSPGCL incorporating the additional information and replies to queriesraised by the Commission, the Petition was admitted for further public process onJanuary 10, 2008. The Commission directed MSPTCL to host the detailed RevisedAPR Petition and formats in MS Excel on its website for easy download by interestedstakeholders.

The Public Notice was published on January 12, 2008 in leading newspapers and thepublic hearing was originally scheduled to be held on February 4. Considering therequests made by the stakeholders for additional time, the Commission postponed the

MERC, Mumbai of 103

Public Hearing, which was finally held on February 13, 2008. Thus, adequate time, asenvisaged under the Regulations has been provided to stakeholders to submit theirviews/suggestions before the Public Hearing, and additional time of 7 days was alsoprovided to file rejoinders.

As regards determination of tariff on annual basis, the Commission in its MYT Orderfor MSPGCL dated April 25, 2007 has approved the Annual Fixed Charges andtrajectory of performance parameters for MSGPCL stations for the Control Periodfrom FY 2007-08 to FY 2009-10, while the tariff was determined for FY 2007-08only, in accordance with Regulation 20.1 of the MERC (Terms and Conditions ofTariff) Regulations, 2005, which stipulates that the tariff will be determined on anannual basis. Hence, in this Order, the Commission is approving the tariff ofMSPGCL stations for FY 2008-09. The Commission would like to clarify that thetariff of MSPGCL stations for FY 2007-08 was approved in MYT Order and tariff ofMSPGCL stations for FY 2007-08 is being approved in this Order. Thus, the tariff isnot amended more frequently than once a year.

2.2 POWER GENERATION

Shri George John submitted that the net generation indicated in the APR Petition filedby MahaGenco does not give the details for gas power station, power purchased, totalpower sold and T&D losses. Shri George John pointed out that the figures for FY2004-05 and FY 2005-06 should also be provided in the Petition.

MSPGCL’s response

MSPGCL responded that the net generation from Thermal Plant (Coal based) andThermal (Gas Based) for three years is given as under:

ThermalGeneration( MU)

FY 2006-07Actual

FY 2007-08Estimated

FY 2008-09Projected

Coal Based 37494 38939 38807Gas Based 4028 3737 3939Total Thermal 41522 42676 42746

MSPGCL further clarified that as a Generation Company, MSPGCL does notpurchase any power and Transmission & Distribution (T&D) losses do not pertain tothe Generation Company.

MERC, Mumbai of 103

Commission s RulingThe Commission would like to clarify this Petition relates to determination ofGeneration Tariff for MSPGCL’s stations for sale of power to MSEDCL. The issuesrelated to total power purchase, net energy sold and distribution losses are included inMaharashtra State Electricity Distribution Company Limited’s (MSEDCL) APRPetition. As regards providing generation data for FY 2004-05 and FY 2005-06, asper APR formats issued for submitting the information, the Generating Company hasto submit information for previous year (based on actual performance), current year(based on actual performance for first six months and estimated performance for nextsix months) and projected performance for ensuing year.

2.3 FUELShri G.P. Misra submitted that the revenue losses due to “Unburnt Fuel EnergyLosses through exhaust” in power generation should be addressed in separate table.

MSPGCL’s response

MSPGCL has not responded to this objection.

Commission s RulingMSPGCL has submitted the information with respect to performance parameters andvarious elements of cost and revenue in accordance with the provisions of MERC(Terms and Conditions of Tariff) Regulations, 2005 and formats prescribed forsubmitting the information. Further, the Commission does not find any merit in thesuggestion made by the objector, as the above aspect gets addressed in the StationHeat Rate.

MERC, Mumbai of 103

3 TRUING UP OF ANNUAL REVENUE REQUIREMENTFOR FY 2006-07

MSPGCL, in its Petition for Annual Performance Review for FY 2007-08 anddetermination of revenue requirement and tariff for FY 2008-09, has included asection on the final truing up of expenditure for FY 2006-07 based on actualexpenditure as per Audited accounts. MSPGCL provided the comparison of actualexpenditure against each head with the expenditure approved by the Commissionalong with the reasons for deviations.

Further, the Commission has stipulated in its Order dated September 7, 2006, that thegains and losses on account of controllable and uncontrollable factors will be sharedbetween the Generating Company and the Licensee at the time of truing up of ARRbased on actuals, in accordance with Regulation 19 of the MERC (Terms andConditions of Tariff) Regulations, 2005. As discussed in Section 1, the Commissionwill carry out the final truing up of expenses and revenue for FY 2006-07 throughseparate proceedings in the context of the ATE Judgment. Hence, the Commissionwill carry out the sharing of gains and losses on account of controllable anduncontrollable factors alongwith final truing up of expenses and revenue for FY 2006-07.

3.1 FUEL COSTS

MSPGCL, in its Petition, has submitted that the total actual fuel cost for FY 2006-07as per audited accounts was Rs. 5565.22 Crore as against the Commission approvedamount of Rs 5054.95 Crore. MSPGCL submitted that the increased fuel costs arelargely on account of expenditure on other variable charges (including water,chemical, lubricants etc.), variation in performance parameters, poor quality of coaland higher transit losses.

3.1.1 Other Variable Charges

MSPGCL submitted that the main variation in fuel expenses is due to non-consideration of other charges such as lubricants, chemicals, water charges, etc.,pursuant to change of Fuel and Other Costs Adjustment (FOCA) mechanism to FuelAdjustment Cost (FAC) mechanism. MSPGCL further submitted that the Commissionhas considered such charges while truing up of fuel costs for FY 2005-06 and hasincluded such expenses in the variable cost of generation in the MYT Order.

MERC, Mumbai of 103

MSPGCL sought true-up of the expenses on such other variable charges for FY 2006-07 to the tune of Rs 229.42 Crore.

The summary of such expenses are provided in the Table below:

Table : Break-up of other fuel related expenses (Rs Crore)S. No. Particulars Amount

1. Other Fuel Related Costs 110.22. Verification of Coal Stock 8.33. Stock Shortages on Physical Verification of Oil Stock 0.04. Excess found on physical verification of fuel stock – oil -0.05. Cost of Water 82.66. Lubricants & Consumable Stores 23.67. Station Supplies 4.9

Total 229.6

The Commission asked MSPGCL to submit the details of the other fuel related costs.MSPGCL submitted the details under various sub heads like charges for coal handlingcontract charges, demurrage on coal wagons, siding charges, penalties foroverloading, commission to agents, payments to railway staff posted at powerstations, coal stock maintenance cost, other coal related cost, oil handling contractcharges and demurrage on oil tankers. MSPGCL submitted that in case ofChandrapur station, an amount of Rs 44.79 Crore pertaining to other coal related costshas been booked, which corresponds to coal washing charges, which the station hasinadvertently booked under a wrong head in FY 2006-07 and the washing chargeswere not included in the fuel expenses for the station.

3.1.2 Performance Parameters

MSPGCL submitted that increase in the fuel cost is on account of increased stationheat rate as compared to norms approved by the Commission in its Tariff Order forFY 2006-07. MSPGCL submitted that the actual heat rate achieved by the generatingstations of the MSPGCL have not deviated much from the estimated heat rate valuesas submitted in its Petition for FY 2006-07.

3.1.3 Heat Rate

The actual heat rate achieved during FY 2006-07 for all the sations exceptKhaperkheda was higher as compared to the heat rate approved by the Commission inthe Tariff Order for FY 2006-07. MSPGCL further submitted that as regard to thedeviation between heat rate especially for Bhusawal, Nasik, Parli and Chandrapur, theCommission in its MYT Order had approved revised levels of heat rate for FY 2007-

MERC, Mumbai of 103

08 based on a comparative exercise with plants of similar vintage operating elsewherein the country.

The summary of Station-wise heat rate approved in the Order and actual heat rate forFY 2006-07 is given in the following Table:

Table: Heat Rate kcal / kWh)Particulars FY 2006-07Gross Generation (MU) Tariff Order ActualsKhaparkheda 2644 2612Paras 3105 3261Bhusawal 2561 2666Nasik 2584 2672Parli 2573 2678Koradi 2907 2997Chandrapur 2480 2600Uran Gas 1950 1969

3.1.4 Secondary Fuel Oil Consumption

The Commission, in its Order on ARR and Tariff Petition for FY 2006-07, approvedthe station-wise secondary oil consumption of 2 ml/kWh based on the normativesecondary fuel oil consumption of 2 ml/kWh specified in the Tariff Regulations.,MSPGCL submitted that the actual secondary fuel consumption utilised during FY2006-07 is different from the norm of 2 ml/kWh. The summary of actual secondaryfuel oil consumption for FY 2006-07 and that approved by the Commission in theTariff Order for FY 2006-07 is given in the following Table:

Table: Secondary Fuel Oil Consumption ( ml/ kWh)Particulars FY 2006-07

Specific Oil Consumption(ml/kWh) Tariff Order Actuals

Khaparkheda 2.00 0.70Paras 2.00 1.41Bhusawal 2.00 4.04Nasik 2.00 2.41Parli 2.00 3.05Koradi 2.00 2.74Chandrapur 2.00 0.97

MSPGCL submitted that the quality of coal received by the stations primarily belongsto Grade D, E and F with calorific value ranging from 4900 to 2400 kcal/kg, which issignificantly lower than the design Gross Calorific Value (GCV) of coal, which isroughly in the range of around 5000 kcal/kg. MSPGCL also submitted that the ashcontent in such coal ranges from 35% to 45 % or even greater at times leading to

MERC, Mumbai of 103

either burning of excess coal or excess use of secondary oil for flame stabilisation,thus increasing the heat rate of the stations. Further, it was submitted that the situationworsens during the rainy season, as the coal received by the stations is from open castmines and the coal becomes muddy and wet in such seasons resulting in drop in boilerefficiency considerably resulting in deterioration of heat rate. Also, excess coal needsto be burnt in such a case, which requires increased air flow resulting in high dry fluegas losses.

MSPGCL submitted that the Commission had approved a transit loss of 0.8% for allits power stations. MSPGCL contended that it has no control over the loss duringtransit of coal and therefore, has a limited role to control the same and the actualtransit loss during FY 2006-07 have been more than 0.8% for majority of its stations,and requested the Commission to consider the actual transit loss for truing uppurposes of fuel cost.

MSPGCL submitted that it is inappropriate to calculate fuel cost consideringnormative levels of plant performance, because these are theoretically calculatedlevels, which do not consider the practical problems faced by the generating stations.

The summary of station wise total fuel cost as approved in the Order and actual fuelcost is given in the following Table:Table Fuel Costs (Rs Crore)Particulars FY 2006-07Fuel Cost (Rs Crore) Tariff Order ActualsKhaparkheda 620.36 661.49Paras 52.12 57.08Bhusawal 406.52 480.81Nasik 970.30 997.65Parli 654.43 657.76Koradi 746.44 794.65Chandrapur 1318.37 1379.46Uran Gas 286.42 306.00Sub-Total 5054.96 5334.91Other Fuel Cost 0.00 229.61Total Fuel Cost 5054.96 5564.52

As discussed in Section 1, the Commission is of the view that MSPGCL has alreadyrecovered variation in fuel prices through FAC mechanism. Moreover, truing up offuel expenses on account of variation in performance parameters has to be examinedbased on re-determined performance parameters after completion of study by theindependent agency. Regarding other variable charges of Rs 229.6 Crore, as the same

MERC, Mumbai of 103

was not included as part of fuel costs in the original Order due to change ofmechanism from Fuel and Other Cost Adjustment (FOCA) to Fuel Adjustment Cost(FAC), the Commission approves the actual amount of other variable charges of Rs229.6 Crore for FY 2006-07.

3.1.5 Operation & Maintenance Expenses

MSPGCL submitted that the Commission had approved the O & M expenses of Rs817.58 Crore in its Order for FY 2006-07, for the existing stations of MSPGCL. TheCommission had not provided the break-up of O & M expenses as Employeeexpenses, Administration & General expenses and Repairs and MaintenanceExpenses. MSPGCL submitted that as per the Audited accounts for FY 2006-07, theactual expenditure on O & M is Rs 854.45 Crore and submitted the following break-up:

Table: Details of O & M expenses (in Rs Crore) in 2006-07Particular Gross

ExpensesCapitalization Net Expenses

Employee Expenses 434.28 86.14 348.15A & G Expenses 54.58 7.05 47.53Repairs & Maintenance Expenses 459.25 0.47 458.78Total O & M Expenses 948.12 93.66 854.45

MSPGCL requested the Commission to kindly consider the O & M expenses as perAudited accounts for truing up purposes. MSPGCL submitted that it has relied on thejudgment of ATE (Appeal No. 251 of 2006/ Order dated April 4, 2007), wherein theATE has upheld the Appeal filed by Reliance Energy Limited regarding the allowanceof the Employee expense and A&G expense based on actual audited figures for FY2004-05 and FY 2005-06. MSPGCL also submitted that the ATE in its judgement inAppeal No 76 of 2007 had directed the Commission to allow the A&G expenses asper accounts subject to prudence check.

As regards the Repairs and Maintenance expenses, the Commission in its MYT orderhad made the following comments on such expenditure for 2006-07:

“ …..Actual Repair and Maintenance expenditure as given by MSPGCL aregiven in the Table below:

Spent uptoNov 06

Expenditure inDec 06

Total Expenditure inQ1,Q2,Q3

Projected expenditure inFY 2006-07

311.89 36.35 348.23 464.31

MERC, Mumbai of 103

Based on the actual expenditure incurred by MSPGCL as per details given byMSPGCL, it is projected that MSPGCL may spend Rs. 464 crore, i.e., 90 % ofthe proposed expenditure up to March 31, 2007. Further, considering that onan average, at least around 20 % of the expenditure is meant for upgradation,modernization, high cost insurance spares, etc., which are of capital nature,the actual expenditure on Repairs and Maintenance in FY 2006-07 isestimated at Rs. 370 crore, which works out to approximately 73 % ofMSPGCL’s proposal of Rs 508.64 Crore. This also amounts to a 12% increaseover the actual R&M expenditure booked by MSPGCL in FY 2005-06, whichcould also include expenditure of capital nature. Considering the aboveaspects, the Commission has not considered the truing up of R&M expensesfor FY 2006-07 at this stage. In order to have a clear picture regardingRepairs and maintenance expenditure, MSPGCL should maintain a cleardemarcation of capital expenditure and revenue expenditure heads, andsubmit Capital expenditure proposals for Renovation and Modernisationschemes, for the Commission’s approval. The Commission considering theaspects discussed above will consider the actual R&M Expenses based onaudited accounts for FY 2006-07 subject to prudence check at the time ofAnnual Performance Review for FY 2007-08, and based on clear segregationof capital related expenditure and revenue expenditure.”

MSPGCL submitted that the Commission in its MYT Order had opined that the true-up on Repairs and Maintenance expenses for FY 2006-07 shall be done on the basisof audited accounts subject to prudency check. As regards the separation ofexpenditure of capital nature from the repairs and maintenance expenditure, MSPGCLsubmitted that since the Order for MYT was issued on April 25, 2007, much after theyear under consideration i.e. FY 2006-07, it was therefore not possible to streamlinethe internal accounting principles on a retrospective basis. However, going forwardfrom FY 2007-08 onwards the MSPGCL submitted that it has implemented separatebooking of capital related expenditure in the manner directed by the Commission.

Accordingly, MSPGCL requested the Commission, to consider the O&M expenses asper the audited accounts and allow a true up of 36.87 Crore in O&M expenses for FY2006-07.

As discussed in Section 1, as the Commission will undertake the truing up of O&Mexpenses for FY 2005-06 and FY 2006-07 including A&G expenses through a

MERC, Mumbai of 103

separate process, the Commission in this Order has not carried out the truing up ofO&M expense for FY 2006-07, since the final truing-up cannot be undertaken twice.

3.2 DEPRECIATION

The Commission, in its earlier Order dated September 7, 2006 (Case 48 of 2005), hadpermitted depreciation to the extent of Rs 187.06 Crore for FY 2006-07, whichamounts to 1.98% of Opening level of Gross Fixed Assets (GFA) of MSPGCL for FY2006-07, which was stated at Rs 9444 Crore. The depreciation rates were consideredas prescribed under MERC (Terms and Conditions of Tariff) Regulations, 2005. Inthe absence of station-wise depreciation computation from MSPGCL, theCommission had determined the station-wise depreciation amount by spreading theunaccounted depreciation of each station (limited to 90% of GFA) over its remaininglife. For determining the life of the station, weighted average life (on the basis ofcapacity) of the units had been considered.

However, subsequently under its MYT petition, MSPGCL furnished station-wisecomputation of the depreciation. MSPGCL, under its APR Petition, submitted actualdepreciation expenses incurred for FY 2006-07 as Rs 337.55 Crore, at an overalldepreciation rate of 3.50% corresponding to opening GFA of Rs 9641.99 Crore.

The Commission has examined the depreciation and actual capitalisation claimed byMSPGCL in detail as against the various capex schemes approved by theCommission. The Commission has noted that the actual Opening level of GFA for FY2006-07 amounts to Rs 9641.99 Crore as against Rs 9444 Crore considered by theCommission in its earlier Tariff Order. The Commission has verified the same withaudited financial statements of MSPGCL. Accordingly, for the purposes of true-upexercise for FY2006-07, the Commission has considered opening GFA for MSPGCLat Rs 9641.99 Crore as claimed by MSPGCL, as per its audited accounts. Further,MSPGCL in its additional submissions confirmed that depreciation has not beenclaimed beyond 90% of the asset value in line with the Tariff Regulations. Thedepreciation expenses approved by the Commission for FY 2006-07 has beensummarised in the following Table:

Table: Depreciation (Rs Crore)Particulars Tariff Order Actuals Allowed after truing up

Depreciation 187.06 337.55 337.55Opening GFA 9444.00 9641.99 9641.99Depreciation Rate 1.98% 3.50% 3.50%

MERC, Mumbai of 103

Though, the Commission has carried out truing up of depreciation for FY 2006-07 inthis Order based on details submitted by MSPGCL, it may be noted that as discussedin Section 1, the truing up of depreciation for FY 2005-06 is to be undertaken througha separate process based on the data to be submitted by MSPGCL, and may have animpact on depreciation for FY 2006-07. Therefore, the Commission will carry out thefinal truing up of depreciation for FY 2006-07 alongwith the final truing up ofexpenses and revenue for FY 2005-06 and FY 2006-07 through a separate process.

3.3 ADVANCE AGAINST DEPRECIATION

MSPGCL sought approval for advance against depreciation in line with the conditionsstipulated under the Commission’s Tariff Regulations. Further, MSPGCL submittedthat since the Commission is determining the tariff separately for individual powerstations, hence, it may be allowed the advance against depreciation based on loanrepayment vis-à-vis the depreciation for individual stations. MSPGCL furthersubmitted that the loan repayment exceeds the depreciation as per the Commission’snorms by Rs 116.54 Crore (Rs 96.52 crore in case of Khaperkheda and Rs 20.01Crore in case of Koradi Thermal power Station). Accordingly, it has claimed totalAdvance against depreciation for FY 2006-07 at Rs 120.53 Crore.

As per Regulation 32.3 of MERC (Terms and Conditions of Tariff) Regulations,2005, where the actual amount of loan repayment in any financial year exceeds theamount of depreciation allowable under Regulation 34.4.1, the generating companyshall be allowed an advance against depreciation for the difference between the actualamount of such repayment and the allowable depreciation for such financial year.

The Commission observes that actual loan repayment of Rs 269.62 Crore for FY2006-07 does not exceed actual depreciation of Rs 337.55 Crore for the year forMSPGCL as a whole. The Commission opines that Advance against depreciation isintended to meet shortfall in meeting loan repayment obligations of the GeneratingCompany. In the absence of proper accounting of outstanding loans, apportionment ofexisting loans to various stations on certain basis (say, NFA) is desirable. At the sametime, it needs to be ensured that allowing advance against depreciation does not resultin unjust enrichment of the Generating Company at the cost of consumers on accountof its claim on AAD.

In this context, the Commission notes that as per outstanding loan allocated to variousgenerating stations by MSPGCL, while loan repayment in respect of Khaprkheda,Koradi and hydel stations exceeds depreciation claim in respect of these stations by

MERC, Mumbai of 103

Rs 120.53 during FY 2006-07 resulting in AAD claim in respect of these stations, thedepreciation claim in respect of other stations such as Chandrapur, Uran, Parali, Nasikand Bhusawal exceeds loan repayment by Rs 188.47 Crore during FY 2006-07, assummarised under following Table.

(Rs Cr)FY 2006-07Particulars

AAD claim byMSPGCL

Surplus Depn overLoan Repayment

Bhusawal 0.00 10.24Chandrapur 0.00 101.40Nasik 0.00 13.04Koradi (20.01) 0.00Paras 0.00 1.16Parali 0.00 15.57Uran 0.00 47.06Khaparkheda (96.52) 0.00Sub-total (Thermal) (116.54) 188.47Sub-total (Hydel) (4.00) 0.00GRAND TOTAL(Thermal+Hydel) (120.53) 188.47

It is worthwhile to note here that in case of Khaparkheda Generating station for whichAAD of Rs 96.52 Crore is claimed, Opening Balance of Net Fixed Assets (NFA) ofthe station has been reported as Rs 1140.90 Crore during FY 2006-07 whereasOpening regulated equity is reported as Rs 900.81 Crore for FY 2006-07 andoutstanding loan balance against this station for FY 2006-07 is reported as Rs 431.47Crore. Thus, basis of allocation of outstanding loans to generating station as well asbasis for determination of opening level of regulated equity for each Station needs tobe verified for its appropriateness and only then claim for AAD at the station levelcan be ascertained. Given these issues, the Commission has continued to determineclaim for AAD for the Generating Company as a whole. However, any revision onthis account can be considered based on actuals, subject to prudence check, whiletruing up, during subsequent Annual Performance Review exercise.

Accordingly, Advance against Depreciation (AAD) projected by MSPGCL andapproved by Commission for true-up of FY 2006-07 is summarised in the followingTable:

Rs CroreParticulars Tariff Order Actuals Allowed after truing upLoan Repayment 303.15 269.62 269.62

Depreciation 187.06 337.55 337.55Advance Against depreciation (AAD) 116.09 120.53 0.00

MERC, Mumbai of 103

3.4 INTEREST EXPENSES

The Commission under its earlier Order dated September 7, 2006 had approved netinterest expense of Rs 35.50 Crore, after considering the interest expense on debtcorresponding to capitalised assets only.

MSPGCL submitted that actual interest expenses of MSPGCL during FY 2006-07 onlong term loans, net of capitalisation, was Rs 47.9 Crore. Accordingly, MSPGCLrequested the Commission to true up the actual interest expenses as per the auditedaccounts. Upon verification with audited account statements, the Commission hasconsidered interest expense in line with that claimed by MSPGCL for the purpose oftrue up.Table: Interest Expenses (Rs Crore)Particulars Tariff Order Actuals Allowed after truing up

Opening balance of loan 919.78 1027.44 1027.44

Additions 518.40 195.25 195.25

Repayment (228.42) (269.62) (269.62)

Closing balance of loan 1209.31 953.07 953.07

Net Interest expense 35.50 47.9 47.9

Other Financing Charges for FY 2006-07MSPGCL in its Petition submitted that other finance charges comprise mainlyGuarantee fees, SBI Lease Rentals, Bank commissions and other finance charges andsubmitted that these expenses are legitimate items and does not necessarily move inexact proportions to the interest expenses. MSPGCL further requested theCommission to allow the guarantee fee on loans already contracted on actuals basis.

The Commission has approved the actual finance charges of Rs. 35.76 Crore for FY2006-07 as depicted in the table below:

Table: Interest and Finance Charges for FY 2006-07 (Rs Crore)

Description Order Actuals Allowed After Truing UpGuarantee Charges 25.09 25.09Financing Charges 4.11 4.11SBI Lease Rental 10.07 6.56 6.56Total 10.07 35.76 35.76

MERC, Mumbai of 103

3.5 RETURN ON EQUITY (ROE)

MSPGCL submitted that it has computed return on equity in accordance with theprinciples outlined under MERC (Terms and Conditions of Tariff) Regulations, 2005.It has claimed return on equity of Rs 358.88 Crore for FY 2006-07 as compared tothat approved by Commission in its earlier Tariff Order dated September 7, 2006 atRs 376.74 Crore. The reduced claim for ROE is mainly on account of the lower valueof actual opening regulated equity as per its audited accounts for FY 2006-07.

The Commission has verified MSPGCL’s claim for lower opening regulated equityfor FY 2006-07 as per its audited financial statements. Accordingly, the Commissionhas considered opening balance of regulated equity for FY 2006-07 as claimed byMSPGCL. The Commission has computed the RoE for FY2006-07 in accordancewith Regulation 34.1 of the Tariff Regulations as applicable for the generationbusiness. The summary of RoE as projected by MSPGCL and approved by theCommission for FY 2006-07 is summarised in the following Table:

Table: Return on Equity (Rs Crore)

FY 2006-07ParticularsTariffOrder

Revised Estimateby MSPGCL

Allowed aftertruing up

Regulatory Equity at the beginning of theyear 2691.00 2563.41 2563.41

Return on Regulatory Equity 376.74 358.88 358.88

3.5.1 Income Tax

MSPGCL submitted that a total provision of Rs 120.53 Crore has been made towardsincome tax as per the Audited accounts of FY 2006-07 as against the Commission’sapproval of Rs. 48 Crore of income tax for the year.

Hence, MSPGCL requested the Commission for truing up of Income tax for Rs 72.53Crore and allow the same, as per Audited accounts.

The Commission asked MSPGCL to submit the details of the income tax challanscopies for FY 2006-07 as part of the part of additional information requirement.MSPGCL submitted the details of income tax challans for FY 2006-07 and theCommission observes that the actual payment towards tax as per challans works outto Rs 43.15 Crore as against the income tax provisioning of Rs 120.53 Crore inMSPGCL’s Audited accounts. The Commission in its Tariff Order for FY 2006-07approved income tax by considering Minimum Alternate Tax (MAT) as MSPGCL

MERC, Mumbai of 103

had no income tax liability because of the erstwhile MSEB’s accumulated losses.Accordingly, the Commission has considered actual income tax paid of Rs 43.15Crore as per the income tax challans for FY 2006-07 for truing up purposes.

Further, in the context of income tax, the Commission specifically asked MSPGCL tosubmit the details of the income tax refund received by MSPGCL for FY 2005-06, ifany. MSPGCL, in its reply, submitted the details of the income tax refund for FY2005-06. The Commission has analysed the details provided by MSPGCL andobserved that MSPGCL has received a refund of Rs 30.694 Crore towards income taxrefund for FY 2005-06 and also received a refund of Rs 18.18 Lakh towards fringebenefit tax.

Though the Commission could have undertaken the truing up of the tax refundreceived by MSPGCL for FY 2005-06 in this Order, however, as discussed in Section1, the Commission will issue a separate Order, which will deal with the revised finaltruing up of all the elements of expenses and revenue for FY 2005-06 in accordancewith the ATE Judgment in this regard, after following the due regulatory process.Accordingly, the Commission would consider the amount received by MSPGCL asrefund for income tax and fringe benefit tax while undertaking the revised final truingup of FY 2005-06.

3.5.2 Prior period True-up computation on revenue earned by MSPGCL in2005-06

MSPGCL submitted that the Commission in its Order dated April 25, 2007considered true-up of revenue earned in FY 2005-06. MSPGCL submitted that it hasfiled an appeal before the ATE for the revenue considered for truing up. However,pending such decision of the Tribunal, MSPGCL submitted the following facts to theCommission for consideration in true-up for FY 2006-07.

The Commission while considering the true-up of FY 2005-06 has stated that “TheCommission has received the jointly reconciled accounts of the Utilities and hasconsidered the same while truing up the ARR and Revenue for FY 2005-06 instead oflimited review accounts submitted by MSPGCL”

MSPGCL submitted that the Commission has accordingly considered all expenditureincurred by it as per the jointly reconciled accounts. MSPGCL submitted that theCommission has inadvertently considered the notional revenue earned by it as per thelimited review accounts. MSPGCL submitted that it is erroneous to consider the

MERC, Mumbai of 103

notional revenue as far as truing up is concerned since an under recovery of revenuecan have serious repercussions on the cost recovery by the Utility and that thenotional income could be an overstated figure without having any practical basis.

The jointly reconciled accounts do not mention the revenue earned by sale of power toMSEDCL. MSPGCL accordingly has reworked the revenue side true-up for FY 2005-06 by prorating the revenue considered by the Commission into two periods i.e., 66days for April 1, 2005 to June 5, 2005 and 299 days from June 6, 2005 to Mar 31,2006 as provided below:

Table: Revised computation of Revenue side true-up for FY 2005-06MERC Order

for 2005-06(A)

True-up for 2005-06(MYT order)

(B)

Revisedcomputation

(C)Revenue from sale of power (Jun6,05 to Mar 31,06)

5370.531 5361.70 5361.702

Revenue from sale of power (Apr 1,2005 to June 5, 2005)

1185.473 1218.28 1185.47

Revenue from Generation 6556.00 6579.98 6547.17

Surplus/(Gap) (B-C) or (C-A) 23.98 (8.83)

MSPGCL claimed that it should have been allowed to recover the deficit of Rs 8.83Crore along with the gap in Net revenue requirement as computed by the Commissioni.e., Rs 15.03 Crore for FY 2005-06 in the MYT order.

However, by computing a revenue surplus of Rs 23.98 Crore after considering thenotional revenue as per the limited accounts, the Commission had adjusted the netrevenue requirement of Rs 15.03 Crore and has accordingly calculated an overallsurplus of Rs 8.95 Crore. The Commission has further reduced the revenuerequirement of FY 2007-08 by the same amount.

On the basis of true-up methodology adopted by the Commission, MSPGCLsubmitted that it should have been allowed to recover an overall gap of Rs 23.86Crore for FY 2005-06 (Rs 8.83 Crore + Rs 15.03 Crore) and also increase the amount

1 the total revenue considered by Commission has been proportionally split into two accounting periodsof 299 days ( June-6, 2005 to Mar 31, 2006) and 66 (Apr 1, 2005 to June 5, 2005 days2 As per Audited accounts for June 6, 2005 to Mar 31, 2006.3 MERC total revenue for 2005-06 considered on pro-rata basis for 99 days period.

MERC, Mumbai of 103

of ARR for FY 2006-07 by Rs 8.95 Crore thus, allowing a net recovery of Rs 32.81Crore (Rs 23.86 Crore for FY 2005-06 + Rs 8.95 Crore for FY 2006-07).

However, MSPGCL only sought an increase in true-up amount for FY 2006-07 by Rs8.95 crore since it tends to differ from the Commission’s viewpoint of revenue sidetrue-up. With regard to the Net Revenue Gap of Rs 15.03 Crore computed by theCommission in the MYT Order for FY 2005-06, MSPGCL requested the Commissionto reconsider the gap in light of the forthcoming judgment of Appellate Tribunal on itsappeal (Case No: 86 and 87 of 2007) and then issue suitable orders regarding thesame.

As discussed in Section 1, the Commission will separately carry out the truing up ofrevenue and expenses for FY 2005-06, hence, the Commission in this Order has notcarried out any truing up for prior period.

3.5.3 Non Tariff Income

The Commission, in its Tariff Order dated September 07, 2006 for determining ARRfor FY 2006-07, has not projected Non Tariff Income, on the grounds of absence ofhistorical actuals of Non Tariff Income and opined that any Non Tariff Income atactuals would be adjusted during the truing up.

Accordingly, MSPGCL submitted the Non Tariff Income (NTI) as Rs. 95.68 Crore,however, it has shown Rs. 37.96 Crore of non-tariff income, in formats for respectivegenerating stations. The Commission asked MSPGCL about the details of the sourceof remaining NTI. MSPGCL replied that some of the NTI is booked against the headoffice and has not been included in the formats for individual stations.

Further, the Commission observed that MSPGCL has not considered NTI for truingup purposes for FY 2006-07, for determining the revenue gap/surplus. TheCommission asked MSPGCL to compute the revenue gap/surplus for FY 2006-07,considering the actual revenue earned by MSPGCL in FY 2006-07, including tariffrevenue, FAC revenue and Non Tariff Income. MSPGCL in its reply submitted it hasappealed before the ATE for not considering the NTI as part of the revenue.

The ATE dealt with the above issues vide its Judgment dated April 10, 2008 inAppeal No.s 86 & 87 of 2007 and ruled that if the other income cannot be reasonablylinked to any cost item allowed by the Commission as a part of the ARR, the sameshould not be adjusted against the ARR of MSPGCL. Accordingly, the Commissionhas asked specific queries regarding this issue for each item of non-tariff income.

MERC, Mumbai of 103

Based on the replies received from MSPGCL and after the due regulatory process, theCommission will carry out the truing up of non tariff income for FY 2006-07alongwith truing up of non tariff income for FY 2005-06.

3.5.4 Interest on Working Capital

MSPGCL, in its Petition, submitted that it has computed interest on working capitalas per the Regulations and accordingly computed the interest on working capital forFY 2006-07 as Rs 205.92 Crore as against the approved interest on working capital ofRs 171 Crore in the Tariff Order for FY 2006-07.

As per the Regulations, interest on working capital has to be computed based on thenorms which depends on various elements of ARR like O&M expenses, maintenancespares, receivables, fuel expenses. As discussed in Section 1, the Commission willcarry out the truing up of various elements of expenses for FY 2006-07 such as O&Mexpenses, fuel expenses based on re-determined performance parameters through aseparate process. As the truing up of all these elements have impact on interest onworking capital, the Commission will carry out the truing up of interest on workingcapital as part of final truing up for FY 2006-07.

3.5.5 Revenue

MSPGCL, in its Petition, has not considered the actual revenue earned from sale ofpower generated at various generating stations for FY 2006-07, for determining therevenue gap/surplus. The Commission asked MSPGCL to compute the revenuegap/surplus in FY 2006-07 after considering the actual revenue earned by it in FY2006-07, including tariff revenue, FAC revenue and Non-tariff income.

MSPGCL replied that it has preferred an appeal in the ATE and has submitted thatnon-tariff income should not be considered as part of the revenue. Considering thatthe matter is subjudice, MSPGCL requested the Commission to consider the issue inaccordance with the outcome of the proceedings before the ATE. However, MSPGCLprovided the revenue earned under various heads as shown in the Table below:

Particulars Rs CroreRevenue from Tariff 6385.90FAC Revenue 612.03Other Income 95.68Total Revenue 7093.61

MERC, Mumbai of 103

Also, MSPGCL submitted that while the actual billed amount in FY 2006-07 was Rs6385.90 Crore, however in the Audited accounts there is an additional provision forFuel Adjustment Charges (FAC) charges of Rs 340 Crore and adjustments foradvance billing on the first and last day of the year (units generated from midnight ofApril 1, 2006 and units generated till midnight of Mar 31, 2007) on account of whichthe total revenue earned works out to Rs 7440.63 Crore.

The Commission observed a difference of Rs 50.40 Crore between the amount shownas revenue from sale of power to MSEDCL in the Audited Accounts of MSPGCL andthe amount shown as cost of power purchase from MSPGCL in the Audited Accountsof MSEDCL, for the period from April 1, 2006 to March 31, 2007 as shown in thefollowing Table: Rs Crore

Particulars 1-04-2006 to 31-03-2007MSPGCL Revenue 7338.87 (Audited A/c of MSPGCL)Power Purchase charge paid to MSPGCL 7287.974 (Audited A/c of MSEDCL)Difference 50.40

MSPGCL, in its reply, explained the difference as shown below:Amount billed by MSPGCL toMSEDCL

7338.37 Amount as per audited accounts of MSPGCL

Less: Amount disputed ( Excess Bill,hence not considered by MSEDCL)

26.36 This is a Disputed Amount not included inaccounts of MSEDCL

Less : Provision of differential billingrate in the books of accounts ofMSPGCL 142.10

This amount is not considered in accounts ofMSEDCL

Add : Differential of FAC consideredby MSEDCL in accounts than thatactually billed by MSPGCL ( 316.40-197.94) 118.46

MSEDCL has considered an FAC of Rs 316.40 cr.On the other hand MSPGCL has considered anamount of Rs 197.94 cr. Therefore in MSEDCL’saccounts Rs 118.46 is additional amount for FAC.

Less: Adjustments for advance billing (in Apr-07 and Apr-06) 0.40

The same pertains to correction in advance billing.

Final cost of power purchaseconsidered by MSEDCL 7287.97

This is the final amount as per books of accounts ofMSEDCL

Difference 50.40

Upon analysing the replies given by MSPGCL, the Commission observed that in itsreply to query 16 of its additional submission dated December 20, 2007, it hassubmitted total actual revenue billed by MSPGCL to MSEDCL for FY 2006-07, as Rs7441.11 Crore, which includes FAC revenue and excludes other income (non-tariffincome). In its reply to query 17, MSPGCL submitted the revenue earned fromMSEDCL as Rs 6997.93 Crore (Revenue from tariff Rs 6385.90 Crore plus FACrevenue of Rs. 612.03 crore). Also, there is a mention of additional provision of Rs340 Crore towards FAC under the Audited Accounts. Thus, the Commission observed

MERC, Mumbai of 103

that there is a difference of around Rs 103.2 Crore between the revenue indicated inreply to Query 16 (Rs 7441 Crore) and the total revenue from tariff indicated in replyto Query 17 (Rs 7338 Crore). The Commission asked MSPGCL to reconcile thedifference as discussed above and confirm the actual revenue to be considered fortruing up for FY 2006-07.

MSPGCL in its reply submitted that the revenue booked as per accounts comprise ofthe following:

S.No. Particulars Rs Crore1 Revenue From Tariff 6385.902 FAC Revenue 612.033 Provision for unbilled revenue in the books of accounts 340.654 Total Revenue 7338.58*

* may not tally due to rounding off

MSPGCL submitted that as per the actual billings done for FY 2006-07, the amountactually billed for S.No. 3 in the above table is Rs 450.60 Crore. Also there is areduction in the amount actually billed corresponding to billing period starting from00:00 hrs (in place of 12:00 pm ) since December 2006 to March 2007 of (Rs 7.41Crore). The amount actually billed as shown in the Table below:

S.No. Particulars Rs Crore1 Revenue From Tariff (As per accounts) 6385.902 FAC Revenue (As per accounts) 612.033 Actual billing against the provision of Rs 340.65 crore in

the books of accounts)450.60

4 Correction in Bill amount for 00:00 hrs -7.414 Total Revenue Billed for 2006-07 7441.12

MSPGCL submitted that therefore, there is a difference of around Rs 103 Crore andclarified that the actual billing of Rs 450.60 is correct and would be considered inaccounts in the subsequent year.

However, as discussed in Section 1, the Commission for truing up of non tariffincome has asked MSPGCL to submit certain additional information in accordancewith the ATE Order, and the Commission has not undertaken the truing up of revenuefor FY 2006-07 in this Order. The Commission will undertake the truing up ofrevenue of MSPGCL for FY 2006-07 as part of final truing up for FY 2006-07through due Regulatory process.

MERC, Mumbai of 103

3.5.6 Truing up for FY 2006-07

As discussed in this Section, the Commission has undertaken truing up of expensesrelated to other variable charges, depreciation, interest on long term loan and otherfinancing charges, return on equity and income tax for FY 2006-07. The summary ofthe truing up on account of the treatment of the elements of the ARR as approved inthis Order is shown in the Table below:

FY 2006-07ParticularsTariff Order Actual Approved after Truing up

Other Variable Charges 0.00 229.61 229.61Depreciation & AAD 303.15 337.55 337.55Interest Expenses and OtherFinance Charges 45.57 83.62 83.62Return on equity 376.74 358.88 358.88Income Tax 47.65 43.15 43.15Total 773.11 1052.81 1052.81

The net impact of truing up of certain elements of expenses for FY 2006-07 results inincrease in expenses allowed vis-à-vis the Order by Rs 279.7 Crore, which has beenadded to the revenue requirement of FY 2008-09 and allowed to be recovered as partof FY 2008-09 tariff.

MERC, Mumbai of 103

4 PERFORMANCE PARAMETERS

4.1 PERFORMANCE PARAMETERS

Regulation 16.1 of the MERC (Terms and Conditions of Tariff) Regulations, 2005,stipulates,

“The Commission may stipulate a trajectory, which may cover one or morecontrol periods, for certain variables having regard to the reorganization,restructuring and development of the electricity industry in the State.

Provided that the variables for which a trajectory may be stipulated include,but are not limited to, generating station availability, station heat rate,transmission losses, distribution losses and collection efficiency.” (emphasisadded)

The Commission, in its MYT Order for MSPGCL, had approved the trajectory offollowing performance parameters:

• Availability• Heat Rate• Auxiliary Consumption• Transit Loss• Secondary Fuel Oil Consumption

4.2 GENERATING STATIONS OF MSPGCL

The Commission, in its MYT Order, considered the total installed capacity ofMSPGCL as 9510 MW. The Commission had not considered the derated capacity asprojected by MSPGCL in its MYT Petition for some of its stations, as the applicationfor deration of the installed capacity was pending with Central Electricity Authority(CEA) for approval.

The Commission asked MSPGCL to submit the approval obtained from CEA forderated capacity of its generating stations and MSPGCL has submitted the same alongwith the APR Petition. MSPGCL, in its APR Petition, submitted that CEA hasapproved the de-rating of capacities on April 20, 2007 for Nasik, Koradi, Bhusawal,Paras and Parli TPS. The Commission has accepted the de-rated capacity as submittedby MSPGCL for its generating station in accordance with the approval granted byCEA.

MERC, Mumbai of 103

The derated capacity of MSPGCL’s existing generating stations is 9472 MW,comprising 2320 MW of hydel generation capacity, 6330 MW of coal based thermalgeneration capacity and 852 MW of gas based generation capacity. MSPGCL, in itsMYT Petition, had submitted that the Parli Expansion Unit 1 of 250 MW and ParasExpansion Unit 1 of 250 MW will be commissioned in March 2007 and April 2007,respectively. MSPGCL vide is letter (Ref no. SE/ RC/13D/12733 dated 18/08/2007)submitted that the Commercial Operation Date (COD) of Parli Expansion Unit-1 andParas Expansion Unit-1 are expected by the end of August 2007 and October 2007,respectively. However, in its APR Petition, MSPGCL submitted that the COD of ParliExtension Unit 1 of 250 MW has been achieved on November 01, 2007 and submittedthe following reasons for delay in COD:

i. Inconsistency in continuous operations of coal mills ‘AB’ and ‘EF’ dueto problems such as failure of HP pumps, liners, etc., of mill lubricantoil system.

ii. Delay in completion, erection and commissioning of mill CD(15/08/2007)

iii. Fire incidence in mill CD ( 17/08/2007)iv. Delay in restoration of mill CD works( 26/09/2007)v. Inconsistency in continuous operations of Unit due to high rate of

tripping.vi. Delay in sequential supplies of material by BHEL.

MSPGCL further submitted that in order to control time and cost overruns, it hasbrought the delay in supply of required materials at site to the notice of M/s BHELfrom time to time and made constant follow up at senior levels. MSPGCL has alreadyimposed Liquidated Damages (LD) on M/s BHEL for such delay in supply andcommissioning of the plant.

As regard to the COD of Paras Expansion Unit 1 of 250 MW, MSPGCL, in its APRPetition submitted that expected date of COD as February 15, 2008 as against theoriginal schedule of April 2007 (projected in MYT Petition) and submitted thefollowing reasons for delay in achieving COD:

i. Delay in supply of top hangers and headersii. Delay in supply of hanger supports for critical pipingiii. Delay in supply of coal mill materialsiv. Inadequate manpower of boiler erection agency.

Subsequently, MSPGCL submitted that the Paras 250 MW new Unit has achievedCOD on March 31, 2008 as against its revised estimate of February 15, 2008.

MERC, Mumbai of 103

MSPGCL also submitted that it has already imposed Liquidated Damages (LD) onM/s BHEL for such delay in supply and commissioning of the plant.

The station-wise and Unit-wise break up of total capacity of MSPGCL’s existingstations is given in the following Table:

Table: Summary of Existing Generation Capacity of MSPGCLApproved in MYT Order Considering Derated CapacityStation / Unit No of

Units Capacity ofeach unit in MW

Total Capacityin MW

Derated Capacity ofeach unit in MW

Total Capacityin MW

ThermalUran 852 852Unit 2,3,4 3 60 180 60 180Unit 5,6,7,8 4 108 432 108 432WHR_AO,WHR_BO 2 120 240 120 240Khaparkheda 840 840Unit 1,2,3,4 4 210 840 210 840Paras 1 58 58 55 55Bhusawal 478 475Unit 1 1 58 58 55 55Unit 2,3 2 210 420 210 420Nasik 910 880Unit 1,2 2 140 280 125 250Unit 3,4,5 3 210 630 210 630Parli 690 670Unit 1,2 2 30 60 20 40Unit 3,4,5 3 210 630 210 630Koradi 1080 1040Unit 1,2,3,4 4 115 460 105 420Unit 5 1 200 200 200 200Unit 6,7 2 210 420 210 420Chandrapur 2340 2340Unit 1,2,3,4 4 210 840 210 840Unit 5,6,7 3 500 1500 500 1500Sub-Total 7190 7152HydelKoyna 1956 1956Vaitarna 1 60 60 60 60Bhira 2 40 80 40 80Tillari 1 66 66 66 66Others 158 158Sub-Total 2320 2320Total 9510 9472

MERC, Mumbai of 103

In accordance with the provisions of MERC (Terms and Conditions of Tariff)Regulations, 2005, the Commission will separately approve the PerformanceParameters, Capital Cost and Tariff for Parli Expansion Unit 1 of 250 MW and ParasExpansion Unit-1 of 250 MW, which has been commissioned and hence, theCommission has not approved the Performance Parameters and Tariff for the aboveUnits in this Order. The Commission has also issued forms for data to be filed alongwith separate Petition to be filed for approval of tariff for new generating stations.However, MSPGCL has submitted a separate Petition for approval of tariff for ParliExpansion Unit 1 of 250 MW only a few days ago, and is yet to submit the same forParas Expansion Unit-1 of 250 MW.

The Commission, for the purpose of estimating the total ARR of MSPGCL, hasconsidered the Annual Fixed Charges and performance parameters for theseexpansion projects based on the in-principle tariff approved by the Commission in itsOrder on ARR and Tariff Determination for FY 2006-07.

4.3 STATION-WISE PERFORMANCE PARAMETERS AND TARIFF

The Commission, in its MYT Order for MSPGCL, had approved the performance ofindividual generating stations.

4.3.1 Availability and PLF of MSPGCL’s Generating Stations

The Commission, in its MYT Order, had approved the availability of generatingstations over the Control Period considering the availability projections of MSPGCLand approved the availability of 80% for such stations where MSPGCL had projectedavailability lower than 80%. As the approved availability of all the generating stationwas either more than normative availability of 80% or equal to the normativeavailability of 80%, the Commission allowed the full recovery of annual fixed chargesapproved by the Commission. However, for Uran Gas based station, the Commissionapproved the availability as projected by MSPGCL for recovery of Annual FixedCharges considering the short supply of gas.

MSPGCL submitted that the fixed charges are contracted capacity charges payable togenerating company irrespective of actual generation from the plants based onnormative availability. MSPGCL submitted that the Commission had considered theavailability projections as submitted by MSPGCL in its MYT petition. MSPGCLhighlighted that the availability projections submitted in the MYT petition were basedon the methodology of CEA and involved the concept of loadability. The availabilityhad thus been projected at a higher level for all the stations. However, in this Annual

MERC, Mumbai of 103

Performance Review, MSPGCL provided the availability as per the methodologystipulated in the Regulations. With this methodology, the availability of majority ofthe stations is lower than the normative levels approved by the Commission.

MSPGCL requested the Commission that the norm of availability as per MERC TariffRegulations should be made applicable for the new stations and that the same criteriashould not be applied to the vintage stations owned by it. MSPGCL submitted thatthere are serious constraints in increasing the loadability of the stations to preventbreakdowns and further to avoid shutdowns.

MSPGCL submitted that the reasons for lower availability are beyond its control andare primarily attributable to the deteriorated performance of the vintage units, whichare due for replacement. MSPGCL has undertaken only bare minimum R&Mexpenditure on such units just to keep them under running condition. MSPGCLhighlighted that considering the acute shortage of power in the State of Maharashtra,it is still in the interest of the consumers of the State to operate these vintage stationseven at their deteriorated performance (on account of their age). Accordingly,MSPGCL requested the Commission to consider its submission with regard to loweravailability and allow MSPGCL to fully recover the total fixed charges of theseStations, even though they may not achieve the normative availability levels requiredfor full recovery of fixed charges.

MSPGCL, in its Petition, submitted the revised estimates for availability and PLF forhydro and thermal generation Units for FY 2007-08, based on the actual availabilityand PLF for the first six months and projected for the remaining six months of FY2007-08. MSPGCL submitted that the planned repair and maintenance of the stationshas a direct bearing on the availability of thermal power stations. MSPGCL submittedthat considering the age of the plants and increased pressure on the stations owing tothe burgeoning demand-supply gap in the State, it understands the importance ofmaintaining at least the current performance level of its plants, if not improve on thesame.

MSPGCL has made the following submissions with respect to the revised projectionsof Station-wise availability and PLF during FY 2007-08 and FY 2008-09.

Uran PlantMSPGCL submitted that it has signed a Gas Supply Agreement with GAIL on01.07.2006 for gas linkage of 3.5 Million Standard Cubic Meters per day(MMSCMD) up to March 31, 2011 for its Uran gas plant. However, the average

MERC, Mumbai of 103

availability of gas has been varying between 1.98 MMSCMD to 2.67 MMSCMDduring first six months of FY 2007-08. MSPGCL submitted due to poor gas receiptand return swapping of gas to RCF, the availability of 53.22% as approved in MYTOrder could not be achieved. Considering the current availability of gas, the overallavailability of the plant has been projected by MSPGCL to be around 50.07% in FY2007-08.

In the first half of FY 2007-08, the actual Plant Load Factor (PLF) has been 48.56%and MSPGCL projected increase to 51.30% in the second half of FY 2007-08.Accordingly, MSPGCL projected PLF for FY 2007-08 slightly lower than thoseapproved by the Commission at 52.77%. For FY 2008-09, MSGPCL projected theavailability and PLF at 53.22% and 52.77%, respectively, as approved in the MYTOrder.

MSPGCL submitted that the availability and corresponding PLF of the units aresubject to availability of gas. Hence, MSPGCL submitted that it shall be eligible toearn incentives considering the availability of gas, and PLF corresponding to 80% ofthat availability and not the installed capacity.

Bhusawal Thermal PlantFor FY 2007-08, the Commission in its MYT Order, approved the availability of86.41%. MSPGCL highlighted that in its MYT Petition, MSPGCL projected anavailability of around 86.41% based on CEA methodology, however, the Commissionhas approved the same availability as per methodology specified in TariffRegulations. MSPGCL submitted that the methodology of CEA takes intoconsideration the loadability of the stations, which is not the case in availabilitydetermined as per the methodology specified in Tariff Regulations. MSPGCLrequested to consider this aspect and submitted that the availability as per the TariffRegulations would correspond to a lower availability as compared to availability asper CEA methodology.

MSPGCL submitted that as per CEA methodology, the availability has been around90.95% during the first half, i.e., April 2007 to September 2007. However, as per themethodology stipulated in the Tariff Regulations, the corresponding availability isaround 77.86%. MSPGCL has planned to undertake Annual Overhaul (AOH) ofboilers of all its Units in the station during the second half of FY 2007-08, the detailsof which has been shown in the Table below:

MERC, Mumbai of 103

Table: Details of Planned Outages in (Oct-Mar) FY 2007-08Unit-1 23 days each (AOH of both boilers)Unit-2 25 days (AOH)Unit-3 25 days (AOH)

Accordingly, MSPGCL projected availability of around 76.28% for the remainingpart of the year, i.e., October 2007 to March 2008. Correspondingly, the overallavailability for FY 2007-08 has been estimated to be around 77.41% (88.69% as perCEA definition) for the entire FY 2007-08.

As regards PLF, MSPGCL submitted that in the first half of FY 2007-08, the actualPLF was 77.86% and MSPGCL has projected PLF during the period October 2007 toMarch 2008 at 76.28%, on account of AOH as mentioned above. Accordingly,MSPGCL has estimated the achievable PLF as 77.41%for FY 2007-08.

For FY 2008-09, MSPGCL has projected a PLF of around 73.39% on account of theplanned outages during the year as shown in the table below:

Table: Details of Planned Outages in FY 2008-09Unit-1 25 days AOHUnit-2 75 days (COH)Unit-3 25 days (AOH)

Chandrapur Thermal PlantFor FY 2007-08, the Commission in its MYT Order, has approved an availability of85.97%. MSPGCL highlighted that in its MYT Petition, MSPGCL projected anavailability of around 85.97% based on CEA methodology, however, the Commissionhas approved the same availability as per methodology specified in TariffRegulations. MSPGCL submitted that the availability as per Regulations for the firsthalf of FY 2007-08 has been 70.16%, due to overhauling of some of the units duringthis period. For second half of FY 2007-08, MSPGCL estimated an availability of90.44% and hence, estimated overall availability of 80.28% for FY 2007-08.MSPGCL estimated the PLF for FY 2007-08 equivalent to availability of 80.28%. ForFY 2008-09, MSPGCL has projected availability and PLF of around 80.49%.

Nasik Thermal Power StationFor FY 2007-08, the Commission in its MYT Order, has approved an availability of85.39%. MSPGCL highlighted that in its MYT Petition, MSPGCL projected anavailability of around 85.39% based on CEA methodology, however, the Commissionhas approved the same availability as per methodology specified in Tariff

MERC, Mumbai of 103

Regulations. MSPGCL submitted that the availability as per Regulations for the firsthalf of FY 2007-08 has been 76.49%, due to overhauling of some of the units duringthis period. For second half of FY 2007-08, MSPGCL estimated an availability of79.50%, and hence, estimated overall availability of 77.70% for FY 2007-08.MSPGCL estimated the PLF for FY 2007-08 equivalent to availability of 77.70%.

For FY 2008-09, MSPGCL has projected availability and PLF of around 70.20% onaccount of annual overhauling of units as per schedule and considering a margin forforced outage for reasons not attributable to it.

Khaperkheda Thermal Power StationAs against the approved availability of 86.44%, the actual availability achieved duringfirst half of FY 2007-08, i.e., Apr 2007 to September 2007 is 87.99%. Considering theplanned outage towards overhauling of some of the units, for second half of FY 2007-08 MSPGCL has estimated availability of 76.52 %. Accordingly, the overallavailability has been estimated to be around 82.26% for FY 2007-08.

As regards PLF, MSPGCL submitted that the actual PLF has been 87.71% during thefirst half of FY 2007-08 and considering the planned COH/AOH, the PLF for secondhalf of FY 2007-08 is estimated at 76.52%. Accordingly, MSPGCL estimated the PLFfor FY 2007-08 as 82.12%.

For FY 2008-09, MSPGCL has projected availability and PLF of around 81.44 % onaccount of annual overhauling of units as per schedule and considering a margin forforced outage for reasons not attributable to it.

Paras Thermal Power StationFor FY 2007-08, the Commission in its MYT Order, approved an availability of83.70%. MSPGCL highlighted that in its MYT Petition, MSPGCL projected anavailability of around 83.70% based on CEA methodology, however, the Commissionhas approved the same availability as per methodology specified in TariffRegulations. MSPGCL submitted that the availability as per Regulations for the firsthalf of FY 2007-08 has been 62.49% due to 35 days of planned outage and 15 daysforced outage. For second half of FY 2007-08, MSPGCL estimated an availability of81.97%, and hence, estimated overall availability of 72.90% for FY 2007-08.

As regards PLF, MSPGCL submitted that the actual PLF has been 62.49% during thefirst half of FY 2007-08 and considering the planned COH/AOH, the PLF for second

MERC, Mumbai of 103

half of FY 2007-08 is estimated at 81.97%. Accordingly, MSPGCL estimated the PLFfor FY 2007-08 as 72.89%.

For FY 2008-09, MSPGCL has projected availability and PLF of around 77.67%, onaccount of annual overhauling of units as per schedule and considering a margin forforced outage for reasons not attributable to it.

Parli Thermal Power StationFor FY 2007-08, the Commission in its MYT Order, has approved availability of86.34%. MSPGCL highlighted that in its MYT Petition, MSPGCL projected anavailability of around 86.34% based on CEA methodology, however, the Commissionhas approved the same availability as per methodology specified in TariffRegulations. MSPGCL submitted that the availability as per Regulations for the firsthalf of FY 2007-08 has been 69.49%. For second half of FY 2007-08, MSPGCLconsidering the planned outages towards COH/AOH for some of the Units, estimatedavailability of 72.70%, and hence, estimated overall availability of 71.87% for FY2007-08. MSPGCL estimated the PLF for FY 2007-08 equivalent to availability of71.87%. For FY 2008-09, MSPGCL has projected availability and PLF of around80.93 %.

Koradi Thermal Power StationFor FY 2007-08, the Commission in its MYT Order, approved availability of 85.61%.MSPGCL highlighted that in its MYT Petition, MSPGCL projected availability ofaround 85.61% based on CEA methodology, however, the Commission has approvedthe same availability as per methodology specified in Tariff Regulations. MSPGCLsubmitted that the availability as per Regulations for the first half of FY 2007-08 hasbeen 68.92%. For second half of FY 2007-08, MSPGCL estimated availability of76.26%, and hence, estimated overall availability of 72.59% for FY 2007-08.

As regards PLF, MSPGCL submitted that the actual PLF has been 68.92% during thefirst half of FY 2007-08 and considering the planned COH/AOH, the PLF for secondhalf of FY 2007-08 is estimated at 76.26%. Accordingly, MSPGCL estimated the PLFfor FY 2007-08 as 72.14%.

For FY 2008-09, MSPGCL has projected availability and PLF of around 72.99% onaccount of annual overhauling of some of the units as given below:

MERC, Mumbai of 103

Table: Details of Planned Outages in FY 2008-09Unit-1 -Unit-2 25 days (AOH)Unit-3 40 days (COH)Unit-4 25 days (AOH)Unit-5 25 days (AOH)Unit-6 25 days (AOH)Unit-7 25 days (AOH)

The Commission approved the Station-wise Availability considering the availabilityprojections of MSPGCL for each year of the Control Period in its MYT Order. TheStations for which, MSPGCL projected the availability lower than 80%, theCommission approved the availability of 80%. However, for Uran Gas based station,considering the short supply of gas, the Commission approved the availability asprojected by MSPGCL for recovery of full fixed charges in its MYT Order.

For the Control Period, the Commission approved the Station-wise PLF consideringthe PLF projections of MSPGCL, and for stations for which MSPGCL projected PLFlower than 80%, the Commission considered the PLF of 80%, since in times of severeshortage, the PLF will be equal to Availability, and full recovery of fixed costs ispossible only when the normative availability of 80% is achieved. The Commissionhence, allowed the full recovery of Annual Fixed Charges for the Control Period in itsMYT Order on account of approval of the Availability and PLF at the normativelevels.

The Commission, while carrying out the provisional truing up for FY 2007-08 at thisstage, has not revised the availability for FY 2007-08 and will consider the actualavailability for the entire year during the truing up exercise. Further, at this stage theCommission has not revised the approved availability for FY 2008-09, however, theCommission would consider the deviations in actual availability during truing upexercise alongwith the reasons for deviations.

The Commission directs MSPGCL to continue to submit the Station-wise actualAvailability and PLF figures to the Commission on a monthly basis, strictly inaccordance with the provisions of MERC (Terms and Conditions of Tariff)Regulations, 2005 along with reasons for variation in Availability and PLF dulycertified by SLDC.

MERC, Mumbai of 103

The station-wise availability and PLF as approved by the Commission in MYT Order,projected by MSPGCL in the APR Petition, and approved by the Commission for FY2007-08 and FY 2008-09 is given in the following Table:

Table: Availability for FY 2007-08 & FY 2008-09FY 2007-08 FY 2008-09Particulars

MYTOrder

RevisedEstimate

Approved MYT Order

RevisedEstimate

Approved

Khaparkheda 86.44% 82.26% 86.44% 85.73% 81.44% 85.73%Paras 83.70% 72.90% 83.70% 86.41% 77.67% 86.41%Bhusawal 86.41% 77.41% 86.41% 86.44% 73.39% 86.44%Nasik 85.39% 77.70% 85.39% 80.00% 70.20% 80.00%Parli 86.34% 71.87% 86.34% 86.41% 80.93% 86.41%Koradi 85.61% 72.59% 85.61% 85.87% 72.99% 85.87%Chandrapur 85.97% 80.28% 85.97% 86.16% 80.49% 86.16%Uran Gas 53.22% 50.07% 53.22% 53.22% 53.22% 53.22%

Table: PLF for FY 2007-08 & FY 2008-09FY 2007-08 FY 2008-09Particulars

MYTOrder

RevisedEstimate

Approved MYT Order

RevisedEstimate

Approved

Khaparkheda 82.34% 82.12% 82.34% 81.44% 81.44 % 81.44%Paras 80.00% 72.89% 80.00% 80.00% 77.67% 80.00%Bhusawal 80.00% 77.41% 80.00% 80.00% 73.39% 80.00%Nasik 80.00% 77.70% 80.00% 80.00% 70.20% 80.00%Parli 80.00% 71.87% 80.00% 80.00% 80.93% 80.00%Koradi 80.00% 72.14% 80.00% 80.00% 72.99 % 80.00%Chandrapur 80.00% 80.28% 80.00% 80.00% 80.49% 80.00%Uran Gas 52.77% 50.07% 52.77% 52.77% 52.77 % 52.77%

The Commission will review the actual availability and PLF for each station at theend of the year, and in case the availability achieved for thermal stations is lower than80% as computed in accordance with the Regulations, the Commission will examinethe reasons for such deviation and may proportionately deduct the recovery of AnnualFixed Charges during the truing up exercise based on actual performance.

4.3.2 Auxiliary Consumption

MSPGCL, in its Petition, submitted that the auxiliary consumption for hydro andthermal generation units for FY 2007-08 is based on the actual auxiliary consumptionfor the first six months and projected performance for the remaining six months of FY2007-08. MSPGCL made the following submissions with respect to the revisedprojections of auxiliary consumption during FY 2007-08 and FY 2008-09.

MERC, Mumbai of 103

Uran PlantThe Auxiliary Consumption for the first six months of FY 2007-08 for Uran Plant is2.23% which is better than the target of 2.4% approved by Commission in its MYTOrder. MSPGCL projected a consumption of 2.56% for the remaining six months ofthe year 2007-08. Accordingly, a consumption of 2.40% has been projected byMSPGCL for FY 2007-08.

MSPGCL submitted that although MERC Tariff Regulations allows an auxiliaryconsumption of 3% for such plants, however MSPGCL has been maintainingauxiliary consumption at about 2.40% and envisaged the auxiliary consumption at alevel of 2.40% for FY 2008-09.

Bhusawal TPSMSPGCL, in its Petition, submitted that the actual Auxiliary Consumption for the firstsix months of FY 2007-08 for Bhusawal Plant was 10.24%, which is slightly higherthan the target approved by the Commission (9.75%) in FY 2007-08. MSPGCL hasenvisaged an improvement in the same in the remaining half of the year and estimatedthe overall auxiliary consumption of around 10% for the entire FY 2007-08.

MSPGCL submitted that the technical consultant M/s Mecon, in its ‘Report onachievable heat rate and auxiliary power consumption of thermal power stations’ hasobserved that due to poor quality of coal, one additional coal mill as compared todesigned number of operating mills is being operated in all the three Units, whichcauses not only additional consumption of auxiliary energy by the mills but alsoenhanced loads on the fans contributing to further consumption of auxiliary energy.Due to ageing of the Stage – 1 Units, the leakages in these boilers are higher, resultingin further overloading of ID fans, which leads to a higher auxiliary consumption thanthe normative levels approved by the Commission. Due to these reasons, MPSGCLhas projected the auxiliary consumption of BTPS to be around 10% for FY 2008-09.

Chandrapur TPSMSPGCL submitted that the Auxiliary Consumption for the first six months of FY2007-08 for Chandrapur Plant was 8.18%, which is higher than the approved auxiliaryconsumption of 7.8%, and submitted the reason for deviation as major overhaulsundertaken in the plant during the year. MSPGCL projected an improvement in thesame in the remaining half of the year, and estimated the auxiliary consumption forFY 2007-08 to be around 8.03% and also projected the auxiliary consumption for FY2008-09 at 8.03%.

MERC, Mumbai of 103

Nasik TPSMSPGCL submitted that the Auxiliary Consumption for first six months of FY 2007-08 for Nasik Plant was 9.32%, which is slightly higher than the approved auxiliaryconsumption of 9% and submitted the reasons for deviation as inferior quality of coalin terms of GCV, ash content, volatile matter and moisture as received from mines ascompared with designed quality of coal. MSPGCL further explained that in order tomeet the rated load of the units, one additional coal mill is always taken into serviceleading to increased loading on draft fans leading to increase in auxiliary powerconsumption of the plant. On account of the above reasons, MSPGCL projectedauxiliary consumption of 9.32% for FY 2007-08 and FY 2008-09.

Khaperkheda TPSMSPGCL submitted that the Auxiliary Consumption for the first six months of FY2007-08 for Khaperkheda Plant was 9.14%, which is higher than the approvedauxiliary consumption of 8.5%, and submitted the reasons for deviation as increase inplant auxiliary load due to commissioning of Ammonia Plant (30 kW) in 2005 andcommissioning of Ozone Dosing plant (500 kW) in 2006. Further, MSPGCLexplained that the Units are supposed to run with 4 coal cycles with designed GCVcoal, but due to poor quality of coal, Khaperkheda TPS has to practically run with 5coal cycles for full load operation. These two factors primarily contribute to increasein auxiliary consumption.

MSPGCL projected an improvement in the auxiliary consumption in the remaininghalf of the year and projected Auxiliary consumption of around 9.07% for FY 2007-08 and 9.00% for FY 2008-09.

Paras TPSMSPCGL submitted that the Auxiliary Consumption for the first six months of FY2007-08 for Paras was 11.81%, which is higher than the approved auxiliaryconsumption of 9.70% in FY 2007-08, on account of the vintage of the stations andthe ongoing annual overhauls during the first half of 2007-08. With regard to thedeviation in the auxiliary consumption, MSPGCL submitted the following key factorsas identified by M/s Mecon in its report:Ø Unit is supplied with two boilers as against single boiler as per present design

putting an additional loadØ Plant is 40 years old. As such, there was hardly any concern for energy

efficient designs during those days.

MERC, Mumbai of 103

MSPGCL projected an improvement in the same in the remaining half of the year andestimated the Auxiliary Consumption at around 10.79% for FY 2007-08 and around10.50% for FY 2008-09.

Parli TPSMSPGCL submitted that the Auxiliary Consumption for the first six months of FY2007-08 for Parli Plant was 10.28%, which is higher than the approved auxiliaryconsumption of 9%, and submitted the following key reasons for increase in auxiliaryconsumption:

a. Raw water source is situated about 22 km away from station, which alsoconsists of booster pump house 10 km away, besides raw water pump house atsource point.

b. Units are designed for coal calorific value ranging from 4445 to 5000 kcal/kg,however the CV of coal being received is in the range of 3400 to 3500 kcal/kg.Due to low CV of coal, 3 coal mills for Units 1 & 2 and 5 coal mills for Units3, 4 & 5 each are to be kept in service for rated output, which increases theauxiliary consumption.

c. For Unit 3, hot and cold CW pumps are provided, which increases theauxiliary consumption.

MSPGCL projected an improvement in the same in the remaining half of the year andestimated auxiliary consumption of 9.50% during the period October 2007 to March2008. Accordingly, MSPGCL projected overall auxiliary consumption of 9.88% forFY 2007-08 and 9.50% for FY 2008-09.

Koradi TPSMSPGCL, in its Petition, submitted that the Auxiliary Consumption for the first sixmonths of FY 2007-08 was 10.46%, which is higher than the target of 9.75%approved by the Commission in its MYT Order. MSPGCL submitted though it istaking all requisite measures to reduce the auxiliary consumption, however, it doesnot envisage much improvement in the same in the remaining half of the year and hastherefore, projected an overall auxiliary consumption of around 10.28% for the entireFY 2007-08.

MSPGCL submitted the following reasons for deviation in the auxiliary consumption,as identified by M/s Mecon in its report:Ø Due to poor coal quality of coal, one additional coal mill as compared to

designed number of operating mills is being operated in all the seven Units,

MERC, Mumbai of 103

causing overloading of mills and enhanced loads on the fans. Due to ageing ofthe Stage–1 Units and in absence of membrane wall construction, the leakagesin case of these boilers are higher, resulting in further overloading of ID fans,leaving hardly any margin in operation of ID fans. Further, due to poor coalquality, coal firing in boilers has increased by almost 15-20%, resulting inincrease in the auxiliary power consumption of all seven Units.

Ø Unit No. 5 is designed with open cycle condenser cooling system and thewater circulation system as designed, calls for two stage pumping of water,which adds to the working drives to the extent of about 1240 kW. Units 6 and7 are also designed with two stage cooling water pumping system, adding toauxiliary power consumption of these Units by about 1240 kW, i.e., increaseof about 0.6% for all Stage –2 Units.

Ø Units 5 and 6 are fitted with bag filters, which have added compressors for bagfilters, spray, etc., into the circuit. Over and above these, the ID fans are ofhigher design to take care of higher DP across the bag filters adding about1800 kW of auxiliary power consumption of these Units. This adds to about0.9% increase in auxiliary power consumption of these two Units.

Ø In case of stage-1 Units, it has been noticed that even if the power plantreceives coal of desired size, the feeding to boilers will be always throughcrushers only. This causes unnecessary loading on the crushers and adds tothe auxiliary power consumption. If the above additional loads are added,there is around 10% to 15% increase in aux. power consumption as comparedto the normative value of 9%.

MSPGCL submitted that the achievable auxiliary consumption levels as suggested byM/s Mecon in its report for the plant are as follows:

Koradi 2007-08 2008-09 2009-10Achievable Aux. Consumption 10.12% 10.12% 10.12%

MSPGCL requested the Commission to approve the Auxiliary Consumption for FY2008-09 as 10.00%.

The Commission asked MSPGCL to submit the details of all the Units of thegenerating Stations of MSPGCL, and computation of normative auxiliaryconsumption in accordance with Regulation 33.1.2 of the MERC (Terms and

MERC, Mumbai of 103

Conditions of Tariff) Regulations, 2005, which stipulates the normative auxiliaryconsumption for coal based generating stations, based on the presence of coolingtower, steam/electrical driven boiler feed pump, etc.

MSPGCL subsequently submitted the requisite details for each Unit of its generatingStations. The Commission has computed the auxiliary consumption based on thedetails furnished by MSPGCL strictly adhering to the norms specified in theRegulation 33.1.2 of the Tariff Regulations. The summary of the normative auxiliaryconsumption worked out as per the Regulations and as approved by the Commissionin MYT Order is shown in the Table below:

Particular Units DeratedCapacity

Boiler Pump Cooling Tower Status NormativeAuxiliary

Consumptionfor the Unit

WeightedAverage

Norm. Aux. forthe station

Approved byCommission in

MYT Order

1 55 Electricity Driven Without Cooling Tower 8.50%

2 210 Electricity Driven With Cooling Tower 9.00%

Bhusawal

3 210 Electricity Driven With Cooling Tower 9.00%8.94% 9.75%





5 500Two steam turbine +two motor driven With Cooling Tower 8.25%

6 500Two steam turbine+two motor driven With Cooling Tower 8.25%

Chandrapur

7 500Two steam turbine+two motor driven With Cooling Tower 8.25%

8.52% 7.80%





Nasik


9.00% 9.00%





5 200 Electricity Driven Without Cooling Tower 8.50%


Koradi


8.90% 9.80%

Paras 1 55 Electricity Driven With Cooling Tower 9.00% 9% 9.70%

1 201 electricity driven +1 steam driven With Cooling Tower 9.00%

2 201 electricity driven +1 steam driven With Cooling Tower 9.00%




Parli


9.00% 9.00%

MERC, Mumbai of 103

Particular Units DeratedCapacity

Boiler Pump Cooling Tower Status NormativeAuxiliary

Consumptionfor the Unit

WeightedAverage

Norm. Aux. forthe station

Approved byCommission in

MYT Order




Khaperkheda

4 210 Electricity Driven With Cooling Tower 9.00%9.00% 8.50%

2 60 Open cycle 1.00%



5 108 Closed cycle 3.00%



Uran


2.41% 2.40%

As observed from the above table, for most of the generating Stations, theCommission has approved the auxiliary consumption higher than the normativeauxiliary consumption.

MSPGCL appealed to the ATE against the MYT Order on the issue of the approvedauxiliary consumption as against the MSPGCL’s Petition. The ATE in its Judgmentdated April 10, 2008 against MSPGCL’s Appeal regarding the approved auxiliaryconsumption directed the Commission to undertake an independent study. Para 80 ofthe ATE Judgment is reproduced below:

“However, we find that there is a substantial difference between the normsprescribed by the Commission through the Tariff Regulations and thoseachieved by the Appellant. We find that the Tariff Regulations give powers tothe Commission to amend any provisions of the Tariff Regulations (Regulation84) and to remove difficulties in implementation of the Tariff Regulations(Regulation 85), which we feel can be used by the Commission to takecorrective measures so that the norms set are achievable under the operatingenvironment. Hence, we direct the Commission to take into consideration theindependent study which we have directed to be undertaken, and re-set theabove operating parameters. This will also help the Commission to align itsRegulations with the Tariff Policy issued by the Government of India advisingfor prescribing achievable norms and not merely ideal norms. At the sametime, the Commission has to be cautious to ensure that deliberate inefficiencyon the part of the utility is not passed on to the consumers.”

MERC, Mumbai of 103

In accordance with direction from the ATE, the Commission will initiate a separatestudy by an independent agency to assess the reasonably achievable performance ofMSPGCL Stations and to suggest measures to improve the performance over a periodof time. Based on the outcome of the study, the Commission will re-determine theperformance parameters of MSGPCL generating Stations, whether higher or lowerthan the norms stipulated under the Regulations and approved in the Tariff Orders andwill carry out the truing up of MSPGCL’s expense and revenue based on re-determined performance parameters. Therefore, the Commission in this Order is notrevising the Auxiliary Consumption for FY 2007-08 based on six months’ actualperformance. The Commission at the time of truing up for FY 2007-08, will alsoconsider the actual auxiliary consumption achieved during the year and reasonssubmitted by MSPGCL for deviations in actual auxiliary consumption as compared toauxiliary consumption approved in the Order.

The summary of auxiliary consumption as approved in MYT Order, proposed byMSPGCL in the APR Petition, and approved by the Commission for FY 2007-08 andFY 2008-09 is given in the following Table:

Table: Auxiliary Consumption for FY 2007-08 & FY 2008-09FY 2007-08 FY 2008-09

Particulars MYT OrderRevised EstimateApprovedMYT OrderRevised EstimateApprovedKhaparkheda 8.50% 9.07% 8.50% 8.50% 9.00% 8.50%Paras 9.70% 10.79% 9.70% 9.70% 10.50% 9.70%Bhusawal 9.75% 10.00% 9.75% 9.75% 10.00% 9.75%Nasik 9.00% 9.32% 9.00% 9.00% 9.32% 9.00%Parli 9.00% 9.88% 9.00% 9.00% 9.50% 9.00%Koradi 9.80% 10.28% 9.80% 9.80% 10.00% 9.80%Chandrapur 7.80% 8.03% 7.80% 7.80% 8.03% 7.80%Uran Gas 2.40% 2.40% 2.40% 2.40% 2.40% 2.40%

4.3.3 Heat Rate

The heat rate estimated by MSPGCL for each of the generating Stations for FY 2007-08 and FY 2008-09 and the rationale for the same is given below:

Uran PlantMSPGCL, in its Petition, submitted that in the first six months of FY 2007-08, theStation Heat Rate has been 1967 kcal/kWh and heat rate is projected at 2001kcal/kWh for the remaining six months for FY 2007-08, considering betteravailability of gas from M/s GAIL leading to open cycle operations of its Units.Accordingly, MSPGCL projected the heat rate for the entire year at 1980 kcal/kWh

MERC, Mumbai of 103

equivalent to the heat rate approved by the Commission for FY 2007-08 in MYTOrder. For FY 2008-09, MSPGCL projected heat rate of 1980 kcal/kWh equivalent tothe heat rate approved by the Commission for FY 2008-09 in the MYT Order.

MSPGCL submitted that it has solicited the technical consultancy services of a thirdparty, M/s Mecon Limited, to assess the current state of affairs of the plant andprovide its assessment of the expected performance level. MSPGCL explained thatthe Report has reference to various degradation standards considered for power plants,which are listed below:• DIN 1943 : increase in heat rate of 0.7% every year with age• IEC – 60953 -2 : increase in heat rate of 0.6% every year with age• BHEL PG test procedure : increase in heat rate of 0.6% every year with age• ASME PTC – 6 R (1985) : increase in heat rate of 0.4% every year with age• Report of the expert group constituted by CERC to review the operational norms

for thermal power stations: 0.4% per year as per ASME PTC-6R which has beenconsidered in this report.

MSPGCL further submitted the key reasons as mentioned by M/s Mecon in its reporttowards higher heat rate for thermal power stations as follows:

• Ageing of the plant• Conditions of Boiler including conditions of pressure parts• Axial Shift Problem• Operating Load of the Plant• Constraints in loading of Units• Design Constraints• Reheater metal temperature restriction• ID Fan overloading• Combustion Problem• Coal Quality• Condenser vacuum and CW inlet temperature• Increase in Flue gas temp. at APH outlet• Increase in coal mill rejects• Feed Water inlet temperature• Flue gas outlet temperature, Unburnt coal in ash, Leakages in boiler area and

moisture content in coal etc

MSPGCL submitted that the technical consultant suggested the following achievableheat rates for each year during the first Control Period:

MERC, Mumbai of 103

Table : Achievable Heat Rate suggested by M/s MECONFY 2007-08 FY 2008-09 FY 2009-10

Bhusawal 2696 2706 2692Chandrapur 2593 2603 2613Nasik 2678 2688 2675Khaparkheda 2635 2645 2655Paras 3250 3260 3270Parli 2724 2734 2744Koradi 2953 2963 2973

MSPGCL requested the Commission to consider the variation in performance of thestation in light of the technical report and approve such revised norms that adequatelyrepresent the state of affairs of this plant.

The Commission analysed the report submitted by MSPGCL on operating parameters.The Commission observed that the purpose of engaging MECON as stated byMSPGCL and the intent of report as stated by MECON in its report is to identify thevalues of station performances parameters at which the stations may operateconsidering the present conditions of the plant and equipment, i.e., without anyimprovement. This is not inline with the Regulation 16.1 which stipulates as follows:

“The Commission may stipulate a trajectory, which may cover one or morecontrol periods, for certain variables having regard to the reorganization,restructuring and development of the electricity industry in the State.Provided that the variables for which a trajectory may be stipulated include,but are not limited to, generating station availability, station heat rate,transmission losses, distribution losses and collection efficiency.”

The Commission observed that MECON has primarily collected data from MSPGCLand have not made any tests, checks, detailed observation at site. MECON. in itsreport, has elaborated the problems as narrated to them by MSPGCL throughdiscussions and records. MECON has calculated loss in plant performance due tothese problems based on standard trajectories available, which do not accurately fitthe specific condition and equipment in totality, and they have come out with kcal/kgdeviation in Heat Rate from design value.

Further, the report has certain annexures including extract of “Technical standard onoperation norms for coal/lignite fired thermal power stations’. The extract of the saidannexure stipulates that the normative heat rate for existing units (i.e., generating unit

MERC, Mumbai of 103

declared under COD from date prior to April 4, 2004) should be 10% of the above thedesign heat rate of the units.

As discussed in Section 1 of the Order, MSPGCL appealed to the ATE against theMYT Order on the issue of the approved station heat rate for each generating. TheATE in its Judgment dated April 10, 2008 against MSPGCL’s appeal regarding theapproved heat rate, directed the Commission to undertake an independent study. Para80 of the ATE Judgment is reproduced below:

However, we find that there is a substantial difference between the normsprescribed by the Commission through the Tariff Regulations and thoseachieved by the Appellant. We find that the Tariff Regulations give powers tothe Commission to amend any provisions of the Tariff Regulations (Regulation84) and to remove difficulties in implementation of the Tariff Regulations(Regulation 85), which we feel can be used by the Commission to takecorrective measures so that the norms set are achievable under the operatingenvironment. Hence, we direct the Commission to take into consideration theindependent study which we have directed to be undertaken, and re-set theabove operating parameters. This will also help the Commission to align itsRegulations with the Tariff Policy issued by the Government of India advisingfor prescribing achievable norms and not merely ideal norms. At the sametime, the Commission has to be cautious to ensure that deliberate inefficiencyon the part of the utility is not passed on to the consumers. (emphasis added)

The Commission would like to highlight that for FY 2007-08, the revised heat ratefigures submitted by MSPGCL are estimated figures based on actual performanceduring the first six months and estimated performance during the next six months ofthe year. The trajectory of performance parameters during the first Control Period wasapproved in MYT Order considering the past performance and based on submissionsmade by the Petitioner. The Commission does not find any merit in revising theapproved performance parameters based on just half year performance of the firstControl Period. The Commission is further of the view that it would not beappropriate to modify the performance trajectory approved for the Control Periodunless there are very pertinent reasons for doing so.

Further, in accordance with the ATE’s direction, the Commission will engage anappropriate independent agency to carry out independent study to reasonably assessthe achievable performance of MSPGCL stations and to suggest the measures toimprove 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

MERC, Mumbai of 103

generating stations, whether higher or lower than the norms stipulated in the TariffRegulations and approved in the Tariff Orders and will carry out the truing up ofMSPGCL’s expense and revenue based on re-determined performance parameters.

Thus, at this stage, the Commission has not considered any revision in heat rate andhas retained the heat rate approved by the Commission in its MYT Order. TheCommission will undertake final truing of FY 2007-08 based on the actual heat rateachieved by each station and reasons for any deviations and also based on outcome ofthe report to be submitted by the independent agency on the study of the operatingparameters during the APR of FY 2008-09. The summary of heat rate approved inMYT Order, heat rate proposed by MSPGCL in the APR Petition, and as approved bythe Commission for FY 2007-08 and FY 2008-09 is given in the following Table:

Table: Heat Rate (kcal/kWh) for FY 2007-08 & FY 2008-092007-08 2008-09Plant

MYT Order Revised Estimate Approved MYT Order Revised Estimate ApprovedKhaparkheda 2556 2644 2556 2561 2645 2561Paras 3105 3306 3105 3105 3300 3105Bhusawal 2649 2720 2649 2654 2710 2654Nasik 2648 2663 2648 2653 2663 2653Parli 2652 2765 2652 2657 2750 2657Koradi 2786 3102 2786 2792 3100 2792Chandrapur 2545 2600 2545 2551 2600 2551Uran Gas 1980 1980 1980 1980 1980 1980

4.3.4 Transit Loss

MSPGCL, in its Petition, submitted that the Commission had approved a transit lossof 0.8% for all its power stations for the Control Period. MSPGCL submitted that ithas no control over the loss during transit of coal and therefore, has a limited role tocontrol the same. MSPGCL submitted that with the same level of effort made by it,the reported transit losses in FY 2007-08 and FY 2008-09 have been even lower insome of the stations, as compared to the norm set by the Commission. MSPGCLsubmitted that the transit losses have been showing a varied trend for the stations andmay increase or decrease in the future.

Upon querying MSPGCL on the various steps undertaken by it to reduce transit loss,MSPGCL submitted the following steps initiated for reduction of transit loss:

MERC, Mumbai of 103

• Visiting and carrying out the inspection of the weigh bridges where transit lossis found increased.

• Calibration and sealing of weigh bridges at regular interval at the loading andunloading end.

• Insisting railway Police Force to have constant vigilant watch duringmovement of coal.

• Requesting railway authority to reduce or eliminate number of stoppages ofrakes in transit.

MSPGCL submitted that it is not within its purview to control the transit losses.Although efforts are made at its end, however, being an uncontrollable factor, thequantum of transit losses in future cannot be ascertained by MSPGCL.

MSPGCL submitted that it has preferred an appeal before the ATE that the actualtransit losses should be allowed. MSPGCL requested the Commission to rely uponforthcoming judgement of ATE since the matter is subjudice.

The ATE dealt with MSPGCL’s contentions on transit losses in its judgment datedApril 10, 2008 in Appeal No. 86 & 87 of 2007. The ATE directed the Commission toundertake an independent study, as reproduced earlier.

In accordance with the ATE’s direction, the Commission will engage an appropriateindependent agency to carry out independent study to reasonably assess theachievable performance of MSPGCL stations and to suggest the measures to improvethe performance over a period of time. Based on the outcome of the study, theCommission will re-determine the performance parameters of MSGPCL generatingstations, whether higher or lower than the norms stipulated in the Tariff Regulationsand approved in the Tariff Orders and will carry out the truing up of MSPGCL’sexpense and revenue based on re-determined performance parameters.

The Commission at this stage has therefore, considered the transit loss of 0.8% for allthe coal based stations for FY 2007-08 and FY 2008-09 in accordance with the TariffRegulations. The Commission will undertake final truing of FY 2007-08 based on theactual transit loss achieved by each station and reasons for any deviations and alsobased on outcome of the report to be submitted by the independent agency on thestudy for the operating parameters during the APR of FY 2008-09.

MERC, Mumbai of 103

4.3.5 Specific Oil Consumption

MSPGCL, in its Petition, submitted that considering the age of plants and reasonsmentioned for higher station heat rate, the projected station-wise specific oilconsumption for FY 2007-08 and FY 2008-09 is as follows:

Table: MSPGCL projection of Specific Oil Consumption (ml/kWh) for FY 2007-08& FY 2008-09Plant FY 2007-08 FY 2008-09Khaparkheda 1.94 2.00Paras 2.93 2.93Bhusawal 3.24 3.19Nasik 3.34 3.34Parli 3.94 3.38Koradi 3.78 3.78Chandrapur 1.31 2.00

MSPGCL appealed to the ATE against the MYT Order on the issue of the approvedspecific oil consumption as against the MSPGCL’s Petition. The ATE in its Judgmentdated April 10, 2008 against MSPGCL’s appeal regarding the approved auxiliaryconsumption directed the Commission to undertake an independent study.

In accordance with the ATE’s direction, the Commission will engage an appropriateindependent agency to carry out independent study to reasonably assess theachievable performance of MSPGCL stations and to suggest the measures to improvethe performance over a period of time. Based on the outcome of the study, theCommission will re-determine the performance parameters of MSGPCL generatingstations whether higher or lower than the norms approved in the Tariff Orders andwill carry out the truing up of MSPGCL’s expense and revenue based on re-determined performance parameters.

The Commission at this stage has therefore, considered the secondary fuel oilconsumption of 2 ml/kWh for all the coal based stations for FY 2007-08 and FY2008-09 in accordance with the Tariff Regulations. The Commission will undertakefinal truing of FY 2007-08 based on the actual secondary fuel oil consumptionachieved by each station and reasons for any deviations and also based on outcome ofthe report to be submitted by the independent agency on the study for the operatingparameters during the APR of FY 2008-09.

The summary of secondary fuel oil consumption as approved in MYT Order,proposed by MSPGCL in the APR Petition, and as approved by the Commission forFY 2007-08 and FY 2008-09 is given in the following Table:

MERC, Mumbai of 103

Table: Specific Oil Consumption (ml/kWh) for FY 2007-08 & FY 2008-09FY 2007-08 FY 2008-09Plant

MYT OrderRevised EstimateApproved MYT Order Revised Estimate ApprovedKhaparkheda 1.94 2.00Paras 2.93 2.93Bhusawal 3.24 3.19Nasik 3.34 3.34Parli 3.94 3.38Koradi 3.78 3.78Chandrapur

2.00

1.31

2.00 2.00

2.00

2.00

MERC, Mumbai of 103

5 ANALYSIS OF ENERGY AVAILABILITY, ENERGYCHARGE AND AFC FOR FY 2007-08 & FY 2008-09

MSPGCL, in its APR Petition for FY 2007-08 and Tariff Petition for FY 2008-09,submitted the performance for FY 2007-08 based on actual performance for the firsthalf of the year, i.e., April to September 2007, and revised estimate of performancefor the second half of the year, i.e., October 2007 to March 2008. MSPGCL submittedthe comparison of each element of cost for FY 2007-08 with that approved by theCommission in its Order dated April 25, 2007 on MSPGCL’s Multi Year TariffPetition for MSPGCL for the Control Period from FY 2007-08 to FY 2009-10.

The Commission will undertake the truing up of expenses and revenue for FY 2007-08 only after the audited accounts of MSPGCL for FY 2007-08 are available, i.e.,during Annual Review of Performance for the second year of the Control Period, i.e.,FY 2008-09. However, in this Order on APR for FY 2007-08 and tariff determinationfor FY 2008-09, the Commission has considered provisional truing up of certainelements of ARR in cases where the impact is very high, or there is a change in theprinciples/methodology, or due to revision in capital expenditure/capitalisationfigures. Before proceeding towards determination of tariff for FY 2008-09, it isessential to assess the performance during FY 2007-08 based on half year actuals andrevised estimates for second half of FY 2007-08. Accordingly, the revised estimate ofperformance of MSPGCL during FY 2007-08 as compared to Commission’s MYTOrder on MSPGCL is analysed in this Section, followed by the approval of theexpenditure for FY 2008-09.

5.1 ENERGY AVAILABILITY AND GROSS GENERATION DURING FY2007-08

The summary of actual gross generation during FY 2006-07, gross generationapproved by the Commission in its MYT Order for FY 2007-08, and revised estimatesof gross generation for FY 2007-08 are given in the following Table:

Table: Gross Generation (MU)FY 2006-07 FY 2007-08 FY 2007-08Particulars

Actual MYT Order Rev. Est.Khaparkheda 6582 6059 6059Paras 425 406 352Bhusawal 3197 3350 3221Nasik 6523 6377 5989Parli 4575 4836 4218Koradi 6799 7569 6572

MERC, Mumbai of 103

FY 2006-07 FY 2007-08 FY 2007-08ParticularsActual MYT Order Rev. Est.

Chandrapur 13161 16399 16501Uran Gas 4028 3938 3737Total 45290 48934 46650

As discussed in Section 4, the Commission has accepted the derated capacity assubmitted by MSPGCL for its generating station of Nasik, Koradi, Bhusawal, Parasand Parli TPS as approved by CEA. Accordingly, the Commission has considered thederated capacity of these stations from April 20, 2007 and hence, worked out therevised gross generation based on the approved PLF in its MYT Order for FY 2007-08. The Commission has not made any other change, on account of lower availabilityand PLF, since these have an impact on the fixed cost recovery, as explained inSection 4. The summary of the revised estimate of MSPGCL and approved grossgeneration for FY 2007-08 considering the derated capacity for MSPGCL’s thermalgenerating stations is shown in Table below:

Table: Gross Generation (MU)FY 2007-08Particulars

RevisedProjection

Approved afterProvisional Truing up

Khaparkheda 6059.00 6058.91Paras 352.17 387.59Bhusawal 3221.19 3339.01Nasik 5989.48 6194.88Parli 4218.48 4715.52Koradi 6572.00 7322.88Chandrapur 16501.02 16398.72Uran Gas 3736.75 3938.50Total 46650.09 48356.01

Accordingly, based on the revised gross generation and approved auxiliaryconsumption, the Commission has approved the revised net generation from thermalgenerating stations for FY 2007-08. As regards the generation from hydel generatingstations, the Commission approved net generation of 3934 MU for FY 2007-08.MSPGCL, in its Petition, has submitted a revised projection of net generation of 4606MU during FY 2007-08. As the overall variation in net generation between thequantum approved by the Commission in the MYT Order and as estimated byMSPGCL for FY 2007-08 is around 17%, the Commission has revised the quantum ofnet generation for FY 2007-08 for hydel stations. The summary of the revisedprojections and approved net generation from MSPGCL generating stations duringFY 2007-08 is shown in the Table below:

MERC, Mumbai of 103

Table: Net Generation from existing generating stations (MU)

FY 2007-08ParticularsRevised

ProjectionApproved after

Provisional Truing upKhaparkheda 5509.16 5543.90Paras 314.17 349.99Bhusawal 2899.14 3013.46Nasik 5431.23 5637.34Parli 3801.51 4291.12Koradi 5898.27 6605.24Chandrapur 15175.39 15119.62Uran Gas 3647.08 3843.98Sub-Total 42675.95 44404.65Hydel 4606.01 4606.01Total 47281.96 49010.66

Though the Commission has undertaken provisional truing up of thermal and hydelgeneration for FY 2007-08 in this Order, the Commission will undertake the finaltruing up of gross generation for FY 2007-08 based on actual performance for theentire year along with the reasons for variation in actual generation, duringPerformance Review for the second year of the Control Period, i.e., FY 2008-09, andconsider the impact on full recovery of fixed costs.

5.2 ENERGY AVAILABILITY FROM MSPGCL GENERATINGSTATIONS DURING FY 2008-09

5.2.1 Generation from Hydel Stations

As regards the generation from hydel generating stations, MSPGCL in its Petition hassubmitted a revised projection of net generation of 3682 MU during FY 2008-09. TheCommission, in its MYT Order, approved the generation from hydel stationsconsidering the actual generation during last ten years, excluding FY 2005-06 and FY2006-07, when the rainfall was much higher than the average rainfall. Accordingly,the Commission approved the net generation of 3934 MU for FY 2008-09 consideringthe average rainfall during the year.

The Commission at this stage has not revised the generation from hydel stations andand has approved the net generation of 3934 MU for FY 2008-09 as approved inMYT Order.

MERC, Mumbai of 103

5.2.2 Generation from thermal Stations

MSPGCL projected the net generation from its existing stations for FY 2008-09 basedon the projected PLF and auxiliary consumption for FY 2008-09 for each generatingstation.

The Commission has considered net generation from existing thermal generatingstations of MSPGCL for FY 2008-09, based on Station-wise PLF and AuxiliaryConsumption approved by the Commission as elaborated in Section 4 of the Order.However, the Commission for projecting the net generation has considered thederated capacities for some of the stations as discussed in above paragraphs. Thesummary of net energy availability from existing thermal stations projected byMSPGCL and considered by the Commission for FY 2008-09 is given in thefollowing Table:

Table: Net Generation from existing Thermal Stations for FY 2008-09S.No Station Net Generation (MU)

MSPGCL Approved1 Khaparkheda 5453.63 5483.30

2 Paras 334.92 348.05

3 Bhusawal 2748.38 3004.24

4 Nasik 4907.22 5612.01

5 Parli 4298.70 4272.78

6 Koradi 5985.00 6574.06

7 Chandrapur 15174.28 15119.62

8 Uran 3843.98 3843.98

sub-total 42746.11 44258.04

5.2.3 Generation from Paras and Parli Expansion Projects

MSPGCL, in its Petition and additional submissions, submitted that Parli ThermalExpansion Project Unit 1 achieved COD on November 1, 2007 and Paras ThermalExpansion Project Unit 1 achieved COD on March 31, 2008.

MSPGCL projected the month wise expected generation from Parli Expansion ProjectUnit-1 during FY 2007-08 as shown in the Table below:

Table: Envisaged gross generation from Parli Unit-1 in 2007-08Month MUNov 07 144Dec 07 149Jan 08 149

MERC, Mumbai of 103

Month MUFeb 08 139Mar 08 149Total 730

MSPGCL also submitted that the plant is expected to run at 80% PLF and is expectedto generate around 1752 MU (gross) during FY 2008-09.

MSPGCL, in its Petition, submitted that expected generation from Paras Unit 1 in2007-08 to be around 221 MU. However, subsequently MSPGCL informed theCommission that the actual generation from this Unit is 145.53 MU till February 2008and during March 2008, it has generated 88.29 MU. Thus, the total actual generationfrom this Unit has been 233.82 MU during FY 2007-08. MSPGCL submitted that theexpected generation from this Unit to be around 1752 MU (gross) during FY 2008-09based on the PLF of 80%.

MSPGCL submitted that it will approach the Commission separately with the actualcompleted cost for these projects once the audited accounts of FY 2007-08 arefinalised. In the interim, MSPGCL sought continuation of in-principle tariff approvedby the Commission in its Order of FY 2006-07 for the purpose of billing to MSEDCL.

For FY 2007-08, the Commission has approved the generation of 730 MU and 234MU for Parli Expansion Project Unit 1 and Paras Expansion Project Unit 1respectively.

For FY 2008-09, the Commission, based on PLF of 80%, has considered the grossgeneration of 1752 MU from Parli Expansion Project Unit 1 and Paras ExpansionProject Unit 1.

5.2.4 Total Net Generation

The summary of total net energy available from MSPGCL generating stations duringFY 2008-09 is given in following table:

Table : Total Net Generation for FY 2008-09 (MU) Particulars ApprovedExisting Thermal 44258Hydel 3934New Stations 3184Total 51376

MERC, Mumbai of 103

5.3 VARIABLE COSTS OF THERMAL GENERATING STATIONS

5.3.1 Fuel Costs for FY 2007-08

MSPGCL, in its Petition, submitted that the total fuel cost for FY 2007-08 isestimated to be Rs. 6278 Crore as against the estimate of Rs 5624 Crore approved bythe Commission for existing stations. MSPGCL submitted that the increased fuelcosts are largely on account of the increased fuel prices for coal and oil during FY2007-08 and also variation in calorific value. MSPGCL estimated the prices of fuelfor second half of FY 2007-08, considering the actual fuel prices during H1 of FY2007-08.

As the impact of variation in fuel prices is allowed as pass through under the FACmechanism, the Commission in this Order has not considered any revision in fuelprices for FY 2007-08. However, the Commission has undertaken provisional truingup based on the revised generation from MSPGCL’s existing generating stations asapproved in this Order. The Commission will undertake the final truing up of fuelcosts based on actual fuel costs during the entire year, subject to prudence check,during Performance Review for the second year of the Control Period, i.e., FY 2008-09. The summary of the approved fuel cost for existing stations after provisionaltruing up is shown in the Table below:

Table: Approved fuel cost after provisional truing upS.No Station Net Generation (MU) Variable Cost (Rs/kWh) Total Fuel Cost (Rs Crore)

Approved(in this Order)

Approved inMYT Order

Approved afterProvisional Truing up

1Khaparkheda 5543.90 1.038 575.252Paras 349.99 1.487 52.053Bhusawal 3013.46 1.641 494.654Nasik 5637.34 1.627 917.025Parli 4291.12 1.636 702.106Koradi 6605.24 1.083 715.287Chandrapur 15119.62 1.173 1773.238Uran 3843.98 0.835 320.94

sub-total 44404.65 1.252 5550.53

5.3.2 Fuel Price and Fuel Calorific Value for FY 2008-09

MSPGCL, in its Petition, has projected the cost of domestic coal by assuming anescalation rate of 4% p.a. over actual price of coal prevailing during the period Aprilto September 2006. For imported coal and secondary oils, MSPGCL has assumed anescalation rate of 6% per annum.

MERC, Mumbai of 103

For FY 2008-09, the Commission in accordance with the practice adopted in previousTariff Orders, has considered the actual price of fuel equivalent to average actual fuelprice for the latest period i.e., from October 2007 to January 2008. The Commissionhas considered the calorific value of fuels as estimated by MSPGCL. TheCommission has not considered any escalation in fuel prices as the adjustments forvariation in fuel prices is allowed as part of FAC mechanism. Further, theCommission has considered the utilisation of washed coal and imported coal atvarious stations of MSPGCL as proposed by MSPGCL in its Petition. The summaryof fuel prices and calorific value as projected by MSPGCL and as considered by theCommission for FY 2008-09 is given in the Tables below:

Table: Summary of Fuel Price and Calorific Value for Indian CoalMSPGCL Approved

Price Calorific Value Price Calorific ValueStation

Rs/MT kcal/kg Rs/MT kcal/kgKhaparkheda 1309 3375 1324 3375Paras 1709 3930 1639 3930Bhusawal 1726 2900 1735 2900Nasik 2052 3240 2091 3240Parli 1744 3110 1859 3110Koradi 1353 3593 1391 3593Chandrapur 1400 3030 1255 3030

Table: Summary of Fuel Price and Calorific Value for Washed CoalMSPGCL Approved

Price Calorific Value Price Calorific ValueStation

Rs/MT kCal/kg Rs/MT kCal/kgKhaparkheda 1414 4186 1424 4186Koradi 1460 4600 1489 4600Chandrapur 1664 4140 1617 4140

Table: Summary of Fuel Price and Calorific Value for Imported CoalMSPGCL Approved

Price Calorific Value PriceCalorific

ValueStation Rs/MT kCal/kg Rs/MT kCal/kg

Khaparkheda 4595 5622 4313 5622Bhusawal 4656 6600 4379 6600Nasik 4410 5700 4160 5700Parli 4789 6000 4545 6000

MERC, Mumbai of 103

Table: Summary of Fuel Price and Calorific Value for Secondary Fuels asapproved by the Commission

FO LDO LSHSSp.

Cons.Price Cal.

ValueSp.

Cons.Price Cal.

ValueSp.

Cons.Price Cal.

ValueStationml/kWh Rs/KL kCal/kg ml/kWh Rs/KL kCal/kg ml/kWh Rs/KL kCal/kg

Khaparkheda 1.60 22242 10224 0.40 29680 10676Paras 1.68 21357 10150 0.32 29004 10300Bhusawal 1.84 21562 10338 0.16 29495 10990Nasik 1.79 22202 10208 0.21 27647 10697Parli 1.82 22689 9783 0.18 28395 10472Koradi 0.88 1489 10000 0.33 29095 10640 0.78 26936 10300Chandrapur 1.40 22189 10150 0.60 28939 10670

5.3.3 Cost of Lubricants, Other Consumables and Water Charges, etc.

MSPGCL, in its Petition, submitted that it has considered lubricants, chemicals andwater charges, etc. as part of energy charge.

The Commission has included the cost of these other items, viz., lubricants, chemicalsand water charges, etc., as part of variable costs while estimating the energy charges.The Commission has considered these costs for each station based on actual costsincurred during FY 2006-07. The Commission asked MSPGCL for the basis andassumptions for estimating costs towards cost of lubricants, water, chemical, etc.MSPGCL, in its reply, submitted the various reasons for costs incurred for lubricants,other consumable and water charges and also submitted that earlier, as per theaccounting practice, coal washing charges were booked under ‘Other Coal RelatedCost’. As a result, Rs. 44.79 Crore was booked in ‘Other Coal Related Cost’ in FY2006-07 for Chandrapur thermal power station. MSPGCL clarified that from FY2007-08, washing charges is booked to cost of coal. Accordingly, the Commission hasnot considered the amount of Rs 44.79 Crore for computing the cost of lubricants,other consumables and water charges, etc. The summary of station-wise cost of theseother charges considered by the Commission is given in following Table:Table: Summary of Other Variable Costs and Adjustments for FY 2008-09 (Rs Crore)Station AmountKhaparkheda 13.77Paras 2.53Bhusawal 18.50Nasik 48.22Parli 40.99Koradi 29.52Chandrapur 30.57Uran 0.72Total 184.82

MERC, Mumbai of 103

The variation in other variable costs and adjustments shall not be considered as part ofFAC computations and the FAC computations should only include the variations infuel prices. Any variations in other charges and adjustments shall be considered at thetime of truing up.

5.3.4 Rate of Energy Charge

Based on performance parameters, i.e., heat rate and auxiliary consumption approvedfor FY 2008-09 and considering the fuel prices and fuel calorific value as discussed inabove paragraphs, the rate of energy charge for each thermal generating station for FY2008-09 as approved by the Commission is given in the Table below. For new ParasExpansion Unit 1 and Parli Expansion Unit 1, the Commission has considered thenorms of heat rate and secondary fuel consumption in accordance with the TariffRegulations. The coal price and oil price for expansion projects has been consideredsame as that approved by the Commission for existing stations of Paras and Parli. Thesummary of the rate of energy charge as projected by MSPGCL and as approved bythe Commission for FY 2008-09 is shown in the Table below:

Table: Rate of Energy Charge for FY 2008-09S.No Station Rate of Energy Charge (Rs/kWh)

MSPGCL Approved1 Khaparkheda 1.36 1.282 Paras 1.77 1.553 Bhusawal 2.03 1.914 Nasik 2.14 2.065 Parli 1.98 1.966 Koradi 1.38 1.237 Chandrapur 1.34 1.198 Uran 0.76 0.769 Parli Expansion Unit 1 1.47

10 Paras Expansion Unit 1 1.28

5.4 LEASE RENT FOR HYDEL STATIONSMSPGCL in its Petition submitted that in the MYT Order, the Commission haddirected the MSPGCL to file a separate petition for the lease rentals of the hydrostations and MSPGCL had already filed such petition for approval of lease rentals asper Government Resolution.

MERC, Mumbai of 103

The Government Resolution (GR) on the issue of revised lease rent stipulates “Thedecision of the Government on lease rent shall be implemented on approval by theMERC. MSPGCL should submit application seeking approval for the same.Implementation of the said decision of the Government shall be done in accordancewith the decision of the MERC and shall be applicable from the date as may beapproved by the Commission”.

As the lease rent for hydel stations has a direct bearing on tariff of hydel stations, theCommission has initiated a separate exercise of determining lease rent of hydelstations. Upon directions of the Commission, MSPGCL submitted a separate Petitionto the Commission on May 25, 2007 for approval of the lease rent, along with thesupporting documents and computations. The admissibility hearing in the matter washeld on July 18, 2007 during which the Commission directed the MSPGCL andGoMWRD (Govt. of Maharashtra-Water Resources Department) to submit certainclarifications. After receipt of clarifications, hearing in the matter was held onOctober 23, 2007 during which the Commission asked GoMWRD to submit theinformation regarding details of Actual Project Cost and Date of Commissioning ofeach Project. Upon receipt of the information from GoMWRD, the Commissionadmitted the Petition and public hearing was held on April 15, 2008. As the matter ofapproval of lease rent is under consideration under the same case, for the time being,the Commission has considered the lease rent for FY 2007-08 and FY 2008-09 as Rs85 Crore. Any variation in lease rent as determined by the Commission will beconsidered during truing up, depending on the date of effectiveness of the lease rentdetermined in the Order.

5.5 OPERATION AND MAINTENANCE EXPENSES

MSPGCL, in its Petition, submitted that the Commission approved the O&Mexpenses for FY 2007-08 considering an escalation of 5.38% on the approved O&Mexpenses for FY 2006-07. Accordingly, the Commission approved total O&Mexpenses of Rs. 861.54 Crore and Rs. 907.90 Crore for FY 2007-08 and FY 2008-09,respectively, in its MYT Order dated April 25, 2007.

MSPGCL submitted that the base year expenses considered by the Commission forprojection of O&M expenses for the Control Period were not the actual auditedexpenses. MSPGCL further requested that the expenses approved by the Commissionfor the Control Period needs to be revised based on the actual O&M expenses in thebase year i.e., FY 2006-07, on the basis of audited accounts. MSPGCL submitted thatthe actual gross O&M expenses for FY 2006-07 are Rs 919.09 Crore. MSPGCL

MERC, Mumbai of 103

further submitted that the actual net O&M expenses based on audited accounts for FY2006-07 works out to Rs 854.43 Crore after deducting the excess gratuity andexpenses capitalised during the year.

MSPGCL submitted that for the purpose of estimating the normative O&M expensesfor FY 2007-08 and FY 2008-09, it has considered an escalation of 5.38% over thegross O&M expenses as per the audited accounts for FY 2006-07 and provided thefollowing rationale for considering the gross O&M expenses for projections:

i. Gross employee expenses reflect the actual expenditure made by theindividual stations pertaining to employees posted in its stations andlooking after the overall operations and maintenance of the station.

ii. As per the accounting practices, in case there is a capital expenditure madeby a station, then a certain excess capitalisation (a fixed percentage of thecapital expenditure incurred) is added to the Gross Fixed assets (GFA) ofthe stations. Corresponding to such excess addition to GFA, there is acapitalisation shown under Schedule 14 of the audited accounts under theheads of Head office supervision charges and General Establishmentcharges. The overall impact of such capitalisation leads to reduction inemployee cost and A & G expenses of the station. In case no capitalintensive work is undertaken by the station, entire gross employee costshave to be allowed in the revenue expenditure. MSPGCL provided anexample of Uran station where the net employee costs have been reducedto around Rs 0.15 Crore on account of major capitalisation of Rs 132Crore made by the station.

iii. Employees working in the power station have to be provided gratuitybenefits under the existing labour laws and there has been an excessprovision for such expense in FY 2006-07, to the tune of Rs 32.93 Crore.Accordingly, MSPGCL submitted that it may not be possible to ascertainthe actual amount of such gratuity payable in FY 2007-08 and hence,requested the Commission to consider the revised estimates (six monthsactual and projections for the remaining part of FY 2007-08), based on theenvisaged gratuity provision without considering such excess provision inFY 2006-07.

iv. MSPGCL submitted that if projections for allowable O&M expenses aremade after considering the impact of such capitalisation and reduction ingratuity amount, the resulting projections might be skewed. The actualO&M expenses incurred by the stations might be on a higher side in casethere is no capitalisation and gratuity is payable as envisaged by thestations.

MERC, Mumbai of 103

Accordingly, MSPGCL projected the O&M expenses for FY 2007-08 and FY 2008-09 based on gross actual O&M expenses for FY 2006-07. MSPGCL projected O&Mexpenses as Rs 969.71 Crore for FY 2007-08 on the basis of actual expenses in theperiod from April 2007 to September 2007. MSPGCL also projected the revisedallowable O&M expenses for FY 2007-08 as Rs 968.54 Crore considering projectionsbased on the escalation rate of 5.38% on the actual gross O&M expenses for FY2006-07. For FY 2008-09, MSPGCL projected O&M expenses of Rs 1021.88 Croreconsidering 5.38% escalation on the O&M expenses for FY 2007-08.

MSPGCL submitted that the projected O&M expenses of Rs 969.71 Crore for FY2007-08 are almost in line with the revised allowable projections based on AuditedA/c, i.e., Rs 968.54 Crore. MSPGCL also submitted that O&M expenses mightincrease as with the passage of time; the older units might require more frequentrepair and maintenance expenses.Also, MSPGCL submitted that the Commission in its Tariff Order for FY 2006-07approved the hydro tariffs in accordance with the Tariff Regulations 2005. MSPGCLsubmitted that the hydro tariff worked out on the basis of this methodology werelower since it has not been undertaking the optimal level of Repairs and maintenancein these hydel stations in the past.

MSPGCL submitted that repairs and maintenance cost have almost been doubledfrom Rs 11.72 Crore in FY 2006-07 to Rs 21 Crore in FY 2007-08. MSPGCLsubmitted that such an increase in R & M expenses may not fit into the ideology ofsetting normative O&M expenses since the hydel assets are old and may require morerepairs and maintenance in future. MSPGCL submitted a comparison of allowable vs.anticipated O&M expenses for hydel station as shown in the Table below:

Table: comparison of Allowable Vs Anticipated O & M expensesParticulars 2006-07 2007-08 2008-09Allowable O & M expenses 43 61.51* 64.82*

Less Employee Cost 37.98 40.11 42.27Less A&G expenses 8.67 9.24 9.73

Balance left for R& M -3.65 12.16 12.82Actual R & M Expenses 11.72 21.01 22.14Shortfall in R & M expenses 15.37 8.85 9.32* Revised allowable O & M expenses

MSPGCL submitted that as evident from the above table, it is not left with enoughprovision to undertake the envisaged R&M expenses. Accordingly, MSPGCLrequested the Commission to kindly consider the same and issue suitable directions toaddress the issues which are common for its thermal stations as well.

MERC, Mumbai of 103

The ATE, in its Judgment in Appeal No. 86 & 87 of 2007 on the issue of O&Mexpenses for hydel stations, rejected the appeal of MSPGCL and held that theapproved O&M expenses by the Commission are based on the methodology adoptedin the Regulation. Para 92 of the Judgment is reproduced below:

“The Appellant has challenged the norms set by the Commission forallowability of O&M expenses in respect of hydel plants. As per Regulation34.6.1 quoted earlier, the O&M expenses for old generating stations is to bedecided based on the past expenditure. It is the Appellant’s case that the O&Mexpenses allowed by the Commission is working out to be lower than theO&M expenses allowable as per the Regulations in respect of the new hydelstations. Since the existing hydro electric power plants are not covered by thepolicy of the Government it will be inappropriate to compare the O&Mexpenses of the existing plant with that of new hydel stations covered underthe Regulations.”

As elaborated in Section 1, the Commission would undertake the truing up of certainexpenses and revenue for FY 2005-06 and FY 2006-07 through separate proceedings.The truing up of O&M expenses for FY 2005-06 and FY 2006-07 will have bearingon base O&M expenses for projecting O&M expenses for the Control Period.Accordingly, the Commission at this stage has not revised the approved O&Mexpenses for FY 2007-08 and FY 2008-09.

The summary of O&M expenditure as approved by the Commission in MYT Order,projected by MSPGCL and that allowed by the Commission for FY 2007-08 and FY2008-09 are as given below:

Table: O&M Expenses for FY 2007-08 and FY 2008-09 (Rs. Crore)FY 2007-08 FY 2008-09Particulars

MYTorder

RevisedProjections

Allowedafter

provisionaltruing up

MYTorder

RevisedProjections

Approved

Bhusawal 56.67 81.80 56.67 59.72 86.20 59.72Chandrapur 259.56 262.13 259.56 273.53 276.23 273.53Paras 6.87 20.45 6.87 7.24 21.55 7.24Parli 81.82 105.19 81.82 86.22 110.85 86.22Koradi 128.07 156.77 128.07 134.96 165.20 134.96Uran 75.73 33.11 75.73 79.80 34.89 79.80Khaperkheda 99.61 101.33 99.61 104.96 106.78 104.96Nasik 107.91 138.59 107.91 113.71 146.05 113.71Hydro 45.31 70.35 45.31 47.75 74.14 47.75Total 861.55 969.71 861.55 907.89 1021.88 907.89

MERC, Mumbai of 103

5.6 CAPITAL EXPENDITURE AND CAPITALISATION

Capital expenditure and capitalisation are two important variables that influencecomputation of various critical parameters such as depreciation, advance againstdepreciation, interest on long term debt and return on equity. Accordingly, variationin approved values of these variables over the Control Period needs to be evaluatedcarefully during annual performance review along with scrutiny of reasonsnecessitating such review.

(Rs Cr)FY 2007-08 FY 2008-09Particulars

MYTOrder

Revised Estimate byMSPGCL

MYT Order Revised Estimate byMSPGCL

Bhusawal 45.11 7.50 0.38 4.23Chandrapur 51.21 101.71 5.02 5.02Nasik 37.37 11.81 13.69 13.66Koradi 11.51 14.78 43.32 43.32Paras 4.12 4.11 0.04 0.04Parali 20.50 11.98 37.51 30.44Uran 1.63 58.08 1.72 4.94Khaparkheda 28.71 7.85 51.38 51.38Sub-total(Thermal) 200.17 217.83 153.05 153.03

Sub-total (Hydel) 13.20 28.12 6.21 6.21GRAND TOTAL(Thermal+Hydel) 213.37 245.94 159.26 159.24

The Commission, in its MYT Order, has approved capital expenditure of Rs 212.37Crore for FY 2007-08 and Rs 159.26 Crore for FY 2008-09. Against this, MSPGCLhas projected revised estimate of capital expenditure of Rs 245.94 Crore for FY 2007-08 and Rs 159.24 Crore for FY 2008-09. Significant variation is capital expenditure isproposed for Chandrapur station. As against capital expenditure of Rs 51.21 Croreconsidered under MYT Order, revised estimate is Rs 101.71 Crore.

The Commission notes that revised capital expenditure for FY 2007-08 includescapital expenditure of Rs 43.74 Crore towards Chandrapur rehabilitation. Further, theCommission observes that no such scheme has yet been submitted to Commission forin-principle approval as also, during first half of FY 2007-08, MSPGCL has notincurred any capital expenditure towards such scheme. Hence, the Commission hasnot considered capital expenditure towards this scheme for the purpose of provisionaltrue-up exercise for FY 2007-08. However, any revision on this account if necessarycan be considered based on actual capital expenditure, subject to prudence check andnecessary approval of the capex scheme by the Commission, at the time of final true-up exercise.

MERC, Mumbai of 103

Accordingly, approved capital expenditure for FY 2007-08 and FY 2008-09 issummarised in the following table:


MYTOrder

RevisedEstimate byMSPGCL

Approved

MYTOrder


Approved

Bhusawal 45.11 7.50 7.50 0.38 4.23 4.23Chandrapur 51.21 101.71 57.97 5.02 5.02 5.02Nasik 37.37 11.81 11.81 13.69 13.66 13.66Koradi 11.51 14.78 14.78 43.32 43.32 43.32Paras 4.12 4.11 4.11 0.04 0.04 0.04Parali 20.50 11.98 11.98 37.51 30.44 30.44Uran 1.63 58.08 58.08 1.72 4.94 4.94Khaparkheda 28.71 7.85 7.85 51.38 51.38 51.38Sub-total (Thermal) 200.17 217.83 174.08 153.05 153.03 153.03Sub-total (Hydel) 13.20 28.12 28.12 6.21 6.21 6.21GRAND TOTAL(Thermal+Hydel) 213.37 245.94 202.20 159.26 159.24 159.24

CapitalisationAs regards capitalisation, the Commission under its MYT Order has approvedcapitalisation of Rs 174.82 Crore for FY 2007-08 and Rs 200.48 Crore for FY 2008-09. Against this, MSPGCL has projected revised estimate of capitalisation of Rs346.26 Crore for FY 2007-08 and Rs 159.24 Crore for FY 2008-09, as shown in theTable below:


MYTOrder


MYTOrder


Bhusawal 9.08 7.52 40.32 4.23Chandrapur 38.58 148.05 31.19 5.02Nasik 40.51 11.85 14.84 13.66Koradi 12.48 35.37 9.02 43.32Paras 4.46 4.11 0.04 0.04Parali 22.22 34.14 40.66 30.44Uran 1.77 58.12 1.86 4.94Khaparkheda 31.12 8.02 55.69 51.38Sub-total (Thermal) 160.23 307.18 193.62 153.03Sub-total (Hydel) 14.59 39.08 6.86 6.21GRAND TOTAL(Thermal+Hydel) 174.82 346.26 200.48 159.24

As per Regulation 30.1 of Tariff Regulations, subject to prudence check by theCommission, actual capital expenditure incurred on completion of the project shallform the basis for determination of original cost of the project. For the purpose ofAPR exercise for FY 2007-08 and revised projection for FY 2008-09, theCommission has considered actual capital expenditure and capitalisation as projected

MERC, Mumbai of 103

by MSPGCL except projected capitalisation of Chandrapur rehabilitation during FY2007-08 and also verified the same in respect of the DPR schemes that have alreadybeen approved by the Commission.

As highlighted earlier, as MSPGCL is yet to submit capex scheme for Chandrapurrehabilitation and considering the fact that it has not incurred any capital expenditureduring H1 of FY 2007-08, the Commission has not considered any capitalisationtowards this scheme as projected by MSPGCL. In case actual capital expenditure andcapitalisation for FY 2007-08 and FY 2008-09 is different than that considered by theCommission, true up of the same can be undertaken at the time of subsequent AnnualPerformance review based on actual performance and subject to approval of thecapex scheme by the Commission.

Further, the Commission would like to reiterate that in-principle approval of the DPRschemes does not absolve the senior management of MSPGCL of their responsibilityto prioritise various schemes and undertake cost benefit analysis and financialanalysis to validate the commercial prudence of each scheme. MSPGCL shouldensure that the projected benefits actually accrue for the benefit of the stakeholders. Itwould be essential to monitor progress of each scheme as well as track expenditureand benefits accrued as per the scheme. The Commission believes that closemonitoring of scheme-wise capital expenditure and capitalisation of each schemewould enable MSPGCL to provide capital outlay related projections as close toreality, for the purpose of APR exercise. Accordingly, approved capitalisation for FY2007-08 and FY 2008-09 is summarised in the following table:


MYTOrder


Approved

MYTOrder


Approved


MERC, Mumbai of 103

5.7 DEPRECIATION

The Commission, in its MYT Order, had permitted depreciation to the extent of Rs336.15 Crore for FY 2007-08 and Rs 314.29 Crore for FY 2008-09, which amounts to3.30% and 3.04% of Opening level of Gross Fixed Assets (GFA) of MSPGCL for FY2007-08 and FY 2008-09, respectively. The opening GFA was stated at Rs 10174.44Crore for FY 2007-08 and Rs 10349.26 Crore for FY 2008-09. The depreciation rateswere considered as prescribed under MERC (Terms and Conditions of Tariff)Regulations, 2005.

MSPGCL, under its APR Petition, submitted revised estimate for depreciation for FY2007-08 and FY 2008-09 as Rs 347.74 Crore and Rs 357.98 Crore, respectively, at anoverall depreciation rate of 3.50% corresponding to opening GFA of Rs 9927.92Crore and Rs 10274.17 Crore.


MYTOrder


MYTOrder


Depreciation 336.15 347.74 314.29 357.98Opening GFA 10174.44 9927.92 10349.26 10274.17Depn as % of Op. GFA 3.30% 3.50% 3.04% 3.48%

Station-wise Depreciation expenditure claimed by MSPGCL for FY 2007-08 and FY2008-09 and that considered under MYT Order is summarised under following table:


MYT Order Revised Estimate byMSPGCL

MYTOrder


Bhusawal 11.77 13.20 12.07 13.45Chandrapur 122.14 117.39 123.48 122.52Nasik 20.09 20.15 21.89 20.56Koradi 29.53 29.33 29.97 30.58Paras 1.25 1.24 1.41 1.39Parali 25.12 22.68 25.90 23.84Uran 40.11 58.60 11.99 60.69Khaparkheda 81.99 82.24 83.09 82.52Sub-total(Thermal)

331.99 344.83 309.79 355.55

Sub-total (Hydel) 4.16 2.91 4.50 2.43GRAND TOTAL(Thermal+Hydel)

336.15 347.74 314.29 357.98

The Commission has examined the depreciation and actual capitalisation claimed byMSPGCL in detail as against the various capex schemes approved by theCommission. Further, MSPGCL in its additional submissions confirmed that

MERC, Mumbai of 103

depreciation has not been claimed beyond 90% of the asset value in line with theTariff Regulations.

Earlier under MYT Order, in respect of Uran Gas turbine based thermal station, theCommission, has observed that, “the accumulated depreciation against asset block ofplant and machinery at the end of FY 2005-06 has reached 82% of original cost ofasset and 88% at end of FY 2006-07. Accordingly, MSPGCL is entitled to claimdepreciation against original cost of assets during FY 2007-08 only, and that too tothe extent of balance 2% of GFA, as against depreciation proposed by MSPGCL forthe entire Control Period. However, MSPGCL shall be entitled for claimingdepreciation on new assets added during FY 2006-07 as well as over Control Periodas per the rates prescribed under the Schedule. The same has been considered by theCommission in its workings.”

However, based on audited financial Statements and revised submission under APRPetition as furnished by MSPGCL, the Commission observes that accumulateddepreciation corresponding to Plant & Machinery in respect of Uran Gas turbinebased thermal station amounts to 81% (FY 2006-07), 85% (FY 2007-08) and 89%(FY 2008-09) of the Original cost of assets (GFA).

Accordingly, approved Station-wise depreciation expenditure for FY 2007-08 and FY2008-09 have been summarised in the following table:


MYTOrder


Approved MYTOrder


Approved

Bhusawal 11.77 13.20 13.89 12.07 13.45 14.16Chandrapur 122.14 117.39 117.75 123.48 122.52 120.98Nasik 20.09 20.15 20.03 21.89 20.56 20.48Koradi 29.53 29.33 28.68 29.97 30.58 29.88Paras 1.25 1.24 1.21 1.41 1.39 1.37Parali 25.12 22.68 23.78 25.90 23.84 24.89Uran 40.11 58.60 58.16 11.99 60.69 60.42Khaparkheda 81.99 82.24 81.86 83.09 82.52 82.16Sub-total(Thermal) 331.99 344.83 345.37 309.79 355.55 354.34

Sub-total (Hydel) 4.16 2.91 4.57 4.50 2.43 3.37GRAND TOTAL(Thermal+Hydel) 336.15 347.74 349.94 314.29 357.98 357.71

In view of above, the depreciation expenditure approved by Commission for FY2007-08 and FY 2008-09 is summarised in the following Table :

MERC, Mumbai of 103


MYTOrder


Approved MYTOrder


Approved

Depreciation 336.15 347.74 349.94 314.29 357.98 357.71Opening GFA 10174.44 9927.92 9985.31 10349.26 10274.17 10280.80Depn as % ofOp. GFA 3.30% 3.50% 3.50% 3.04% 3.48% 3.48%

The Commission will undertake the truing up of Depreciation based on actualdepreciation expenditure during the entire year, subject to prudence check, duringPerformance Review for the second year of Control Period, i.e., FY 2008-09, andsubject to the impact of the separate regulatory process on account of impact of theATE Judgment.

5.8 ADVANCE AGAINST DEPRECIATION

MSPGCL has sought approval for advance against depreciation for FY 2007-08 andFY 2008-09 in line with the conditions stipulated under Tariff Regulations. Further,MSPGCL has submitted that since the Commission is determining the tariffseparately for individual power stations, hence, it may be allowed the advance againstdepreciation based on loan repayment vis-à-vis the depreciation for individualstations. MSPGCL has claimed AAD of amount Rs 62.67 during FY 2007-08 (Rs37.53 crore in case of Khaperkheda, Rs 14.99 crore in case of Koradi Thermal powerStation and Rs 10.15 Crore in case of Hydel stations) and Rs 25.11 Crore during FY2008-09 (Rs 16.29 crore in case of Koradi Thermal power Station and Rs 8.82 Crorein case of Hydel stations).

MSPGCL has also submitted that with reference to the Commission’s observationregarding segregation of loans, it has already identified plant wise loans in itsportfolio of loans inherited from MSEB. MSPGCL has proportionally allocated thecommon loans to each of the stations based on the NFA as at the end of FY 2005-06.

The Commission notes that as per Regulation 32.3 of MERC (Terms and Conditionsof Tariff) Regulations, 2005, where the actual amount of loan repayment in anyfinancial year exceeds the amount of depreciation allowable under Regulation 34.4.1,the generating company shall be allowed an advance against depreciation for thedifference between the actual amount of such repayment and the allowabledepreciation for such financial year.

MERC, Mumbai of 103

The Commission observes that revised estimate of loan repayment of Rs 236.77 Crorefor FY 2007-08 is far lower than estimated depreciation of Rs 347.74 Crore for theyear for MSPGCL as a whole. Also, during FY 2008-09 the projected loan repaymentof Rs 182.49 Crore is far lower than projected depreciation of Rs 357.98 Crore forMSPGCL as a whole. The Commission opines that Advance against depreciation isintended to meet shortfall in meeting loan repayment obligations of the GeneratingCompany. In the absence of proper accounting of outstanding loans, apportionment ofexisting loans to various stations on certain basis (say, NFA) is desirable. However, itneeds to be ensured that it does not result in unjust enrichment of the GeneratingCompany at the cost of consumers on account of its claim on AAD.

In this context, the Commission notes that as per outstanding loan allotted to variousgenerating stations by MSPGCL, while loan repayment in respect of Khaparkheda,Koradi and Hydel exceed depreciation claim in respect of these stations by Rs 62.67during FY 2007-08 and Rs 25.11 Crore during FY 2008-09 resulting in AAD claim inrespect of these stations, the depreciation claim in respect of other stations such asChandrapur, Uran, Parali, Nasik and Bhusawal exceed loan repayment by Rs 173.64Crore during FY 2007-08 and by Rs 200.60 Crore during FY 2008-09, as summarisedunder following Table.


AAD claimby MSPGCL


AAD claimby MSPGCL


Bhusawal 0.00 10.34 0.00 10.65Chandrapur 0.00 93.62 0.00 93.83Nasik 0.00 13.18 0.00 13.69Koradi (14.99) 0.00 (16.29) 0.00Paras 0.00 1.19 0.00 1.34Parali 0.00 14.99 0.00 16.13Uran 0.00 40.32 0.00 42.43Khaparkheda (37.53) 0.00 0.00 22.54Sub-total (Thermal) (52.52) 173.64 (16.29) 200.60Sub-total (Hydel) (10.15) 0.00 (8.82) 0.00GRAND TOTAL(Thermal+Hydel) (62.67) 173.64 (25.11) 200.60

In this context, the Commission is of the view that the basis of allocation ofoutstanding loans to generating stations as well as basis for determination of openinglevel of regulated equity for each Station needs to be verified for its appropriatenessand only then the claim for AAD at the station level can be ascertained. TheCommission has continued to determine claim for AAD for the Generating Companyas a whole. However, any revision on this account can be considered based on actuals,

MERC, Mumbai of 103

subject to prudence check, while truing up, during subsequent Annual PerformanceReview exercise.

Accordingly, Advance against Depreciation (AAD) projected by MSPGCL andapproved by Commission for FY 2007-08 and FY 2008-09 is as under:


MYTOrder


Approved MYTOrder


Approved

Depreciation 336.15 347.74 349.94 314.29 357.98 357.71Loan Repayment (239.60) (236.77) (236.77) (172.90) (182.49) (182.49)Advance againstdepreciation (AAD) 0.00 62.67 0.00 0.00 25.11 0.00

Depreciation incl.AAD 336.15 410.41 349.94 314.29 383.09 357.71

5.9 INTEREST EXPENSES

The Commission, in its MYT Order, had permitted net interest expense to the extentof Rs 108.72 Crore for FY 2007-08 and Rs 107.80 Crore for FY 2008-09. Loanaddition of Rs 143.12 Crore and Rs 161.76 Crore was considered in the MYT orderfor FY 2007-08 and FY 2008-09, respectively, corresponding to 80% of thecapitalised asset cost during respective years.

MSPGCL submitted that it had allocated the existing loans to each of the plants to theextent separately identifiable. The generic loans had been allocated plant-wise on thebasis of Net Fixed Assets as at the end of FY 2005-06. MSPGCL has continued withthis approach for allocation of interest expenses for such common loans for FY 2007-08 and FY 2008-09. Further, MSPGCL has considered the actual interest rate asapplicable to existing loans and has considered an interest rate of 11.50% to 12.50%during FY 2007-08 and FY 2008-09, respectively.

Accordingly, MSPGCL in its APR Petition, submitted revised estimate for net interestexpense for FY 2007-08 and FY 2008-09 as Rs 76.24 Crore and Rs 89.78 Crorerespectively, for FY 2007-08 and FY 2008-09 as summarised in the following Table.


MYTOrder


MYT Order Revised Estimateby MSPGCL

Op. balance of loan 1247.42 953.07 1150.95 951.03Loan Addition 143.12 234.73 161.76 159.24Loan Repayment (239.60) (236.77) (172.90) (182.49)Cl. Balance of loan 1150.95 951.03 1139.80 927.78

MERC, Mumbai of 103

FY 2007-08 FY 2008-09ParticularsMYTOrder



Gross InterestExpenses 108.72 82.82 107.80 89.78

Less Interest Expensescapitalised - (6.59) - -

Net Interest Expense 108.72 76.24 107.80 89.78

Station-wise interest expenditure claimed by MSPGCL for FY 2007-08 and FY 2008-09 and that considered in the MYT Order is summarised in the following Table:



MYTOrder


Bhusawal 3.78 1.98 5.63 2.00Chandrapur 31.82 18.67 33.15 23.68Nasik 5.30 3.50 7.09 5.23Koradi 14.14 9.72 12.76 15.54Paras 0.23 0.29 0.41 0.03Parali 9.48 3.72 11.39 8.92Uran 18.21 14.94 16.02 10.85Khaparkheda 17.33 17.22 13.50 16.75Sub-total (Thermal) 100.29 70.04 99.95 83.00Sub-total (Hydel) 8.44 6.20 7.85 6.78GRAND TOTAL(Thermal+Hydel) 108.72 76.24 107.80 89.78

The Commission has considered the means of finance for funding new capex schemeat Debt:Equity ratio of 80:20 in line with MYT Order as against 100% debt finance asproposed by MSPGCL, as MSPGCL has submitted that debt for capex funding is yetto be tied up. Accordingly, the Commission has considered interest rate of 10.5% p.a.as considered under MYT order instead of 11.5%-12.5% as proposed by MSPGCL.However, the Commission clarifies that any revision on this account shall beconsidered based on actuals, subject to prudence check, for the purpose of truing upduring subsequent annual performance review.

Accordingly, approved interest expense for FY 2007-08 and FY 2008-09 issummarised in the following table:


MYTOrder


Approved(Commissio

n)

MYTOrder


Approved(Commissi

on)Op. balance of loan 1247.42 953.07 953.07 1150.95 951.03 952.70Loan Addition 143.12 234.73 236.39 161.76 159.24 137.76Loan Repayment (239.60) (236.77) (236.77) (172.90) (182.49) (182.49)Cl. Balance of loan 1150.95 951.03 952.70 1139.80 927.78 907.96Goss Interest 108.72 82.82 81.28 107.80 89.78 86.50

MERC, Mumbai of 103

FY 2007-08 FY 2008-09ParticularsMYTOrder


Approved(Commissio

n)

MYTOrder


Approved(Commissi

on)ExpenseLess InterestExpenses capitalised - (6.59) - - - -

Net InterestExpense 108.72 76.24 81.28 107.80 89.78 86.50

The station-wise approved interest expenditure for FY 2007-08 and FY 2008-09 havebeen summarised in the following table:


MYTOrder


Approved

MYTOrder


Approved


Other Financing Charges for FY 2007-08 & FY 2008-09MSPGCL, in its Petition, projected other financing charges of Rs 37.51 Crore asagainst the approved expenses of Rs 15.60 Crore for FY 2007-08. The Commissionhas considered the revised estimate of MSPGCL’s projections of Rs 37.51 Crore forprovisional truing up for FY 2007-08.

Similarly, MSPGCL in its Petition has projected other financing charges of Rs 35.95Crore as against the approved expenses of Rs 14.62 Crore for FY 2008-09. TheCommission has approved the other financing charges of Rs 35.95 Crore for FY2008-09.

5.10 RETURN ON EQUITY (ROE)

The Commission, in its MYT Order, had permitted return on equity to the extent ofRs 358.87 Crore for FY 2007-08 and Rs 372.93 Crore for FY 2008-09, at rate ofreturn of 14% in accordance with regulations 34.1 of MERC (Terms and Conditionsof Tariff) Regulations, 2005.

MERC, Mumbai of 103

MSPGCL, in its APR Petition, submitted revised estimate for return on equity of Rs358.88 Crore for FY 2007-08 and FY 2008-09. MSPGCL has proposed to fund newcapital expenditure on 100% debt basis and has accordingly not considered anyaddition to regulated equity. The revised estimate of Regulated Equity and RoE forFY 2007-08 and FY 2008-09 as projected by MSPGCL is presented in the followingTable.


MYTOrder


MYTOrder


Regulatory Equity at thebeginning of the year 2563.41 2563.41 2663.84 2563.41

Equity portion of assetscapitalised 100.43 0.00 32.05 0.00

Regulatory Equity at theend of the year 2663.84 2563.41 2695.88 2563.41

Return on RegulatoryEquity 358.87 358.88 372.93 358.88

The Commission notes that MSPGCL is yet to tie up any debt for proposed capitalexpenditure, hence, the Commission has considered debt:equity of 80:20 inaccordance with earlier assumptions under MYT Order and computed return onequity accordingly. Station-wise Opening level of Regulated Equity for FY 2007-08and FY 2008-09 have been summarised in the following Table:


MYTOrder


Approved

MYTOrder


Approved


Station-wise Return on Regulated Equity for FY 2007-08 and FY 2008-09 have beensummarised in the following table:

MERC, Mumbai of 103


MYTOrder


Approved

MYTOrder


Approved


Accordingly, approved Return on Equity for FY 2007-08 and FY 2008-09 issummarised in the following table:


MYTOrder


Approved

MYTOrder


Approved

Regulatory Equity at thebeginning of the year 2563.41 2563.41 2621.26 2663.84 2563.41 2672.53

Equity portion of assetscapitalised 100.43 0.00 51.27 32.05 0.00 33.03

Regulatory Equity atthe end of the year 2663.84 2563.41 2672.53 2695.88 2563.41 2705.56

Return on RegulatoryEquity 358.87 358.88 366.98 372.93 358.88 374.15

5.11 INTEREST ON WORKING CAPITAL FOR FY 2007-08MSPGCL, in its Petition, submitted that the Working Capital has been calculated inaccordance with the Commission’s Tariff Regulations, which stipulate thecomponents of working capital of a generating station. MSPGCL further submittedthat the normative interest rate of 12.75% has been considered for estimating intereston working capital based on the revised Prime Lending Rate (PLR) of the State Bankof India, with effect from April 9, 2007.

The Commission has estimated the Station-wise working capital requirement for thegenerating stations of MSPGCL for FY 2007-08 considering the provisional truing upof various elements of costs. The Tariff Regulations stipulate that rate of interest onworking capital shall be on normative basis and shall be equal to the short-term Prime

MERC, Mumbai of 103

Lending Rate of State Bank of India as on the date on which the application fordetermination of tariff is made. As the application for determination of tariff for FY2007-08 was made on January 2, 2007, the Commission has considered the short-termPrime Lending Rate of State Bank of India of 11.5% prevalent at that time forestimating the interest on working capital.

The revised interest on working capital for thermal and gas based generating stationsof MSPGCL and aggregate for hydel stations for FY 2007-08 is given in thefollowing Table:

Table: Interest on Working Capital for FY 2007-08 (Rs Crore)APR PetitionStation

MYT Order MSPGCL Approved

Khaparkheda 25.83 35.02 26.54Paras 1.92 2.50 1.82Bhusawal 16.63 21.76 16.99Nasik 31.42 40.05 31.23Parli 25.52 28.55 24.94Koradi 26.84 33.77 26.57Chandrapur 65.66 80.50 65.29Uran 15.57 14.87 14.36Hydel 3.42 4.68 3.38Total 212.81 261.69 211.13

5.12 INTEREST ON WORKING CAPITAL FOR FY 2008-09

MSPGCL, in its Petition, submitted that the Working Capital has been calculated inaccordance with the Commission’s Tariff Regulations, which stipulate thecomponents of working capital of a generating station. MSPGCL further submittedthat the normative interest rate of 12.75% has been considered for estimating intereston working capital.

The Commission has estimated the Station-wise working capital requirement for thethermal and gas based generating stations of MSPGCL and aggregate working capitalrequirement for hydel stations of MSPGCL in accordance with the provisions ofTariff Regulations. For Uran gas project, the Commission has estimated the WorkingCapital requirement at estimated PLF rather than normative availability as projectedPLF for Uran gas is lower than the normative availability of 80%.

MERC, Mumbai of 103

As the prevailing short-term Prime Lending Rate of State Bank of India is around12.75%, the Commission has considered the interest rate of 12.75 % for estimatingthe interest on working capital.

The interest on working capital for each generating station and aggregate for hydelstations for FY 2008-09 is given in the following Table:

Table: Interest on Working Capital for FY 2008-09 (Rs Crore)APR PetitionStation

MYT Order MSPGCL Approved

Khaparkheda 26.00 34.66 33.82Paras 1.94 2.47 2.08Bhusawal 16.79 20.93 21.52Nasik 31.72 38.72 44.12Parli 25.78 32.16 31.80Koradi 27.06 33.34 32.84Chandrapur 66.35 81.82 76.86Uran 15.21 15.07 15.54Hydel 3.50 4.82 3.88Total 214.35 264.00 262.44

5.13 NON TARIFF INCOME FOR FY 2007-08

The Commission will undertake the truing up of Non Tariff Income based on auditedaccounts during Performance Review for the second year of Control Period, i.e., FY2008-09 and accordingly has considered the approved non-tariff income at the samelevel for each generating station as approved by the Commission in its MYT Order forFY 2007-08.

5.14 NON TARIFF INCOME FOR FY 2008-09

The Commission has considered the Non-tariff Income at the same level as approvedin the MYT Order for each generating stations and aggregate for hydel stations for FY2008-09.

5.15 INCOME TAX FOR FY 2007-08 AND FY 2008-09

MSPGCL submitted that as per the Tariff Regulations, Income Tax actually paid byMSPGCL is a component of fixed costs. Accordingly, it has projected income tax inFY 2006-07 and in the Control Period on the basis of income-tax rate charged overthe eligible return on equity. MSPGCL has considered the MAT rate applicable on the

MERC, Mumbai of 103

revised estimate of return on equity. MSPGCL submitted that the change in theincome tax is also on account of change in the tax rates during FY 2007-08.

The Commission has estimated the income tax for FY 2007-08 considering theapproved return on equity for each station in this Order and estimated the income taxas Rs 41.58 Crore as against the approved income tax of Rs 40.27 Crore on account ofchange in MAT rate from 11.22% to 11.33%.

As regards income tax for FY 2008-09, the Commission has considered the applicabletax rate of 11.33% on the approved return on equity in this Order for FY 2008-09 andaccordingly has considered Rs 42.39 Crore.

Table: Income Tax for FY 2007-08 & FY 2008-09 (Rs Crore)FY 2007-08 FY 2008-09Particulars

MYTOrder

RevisedEstimate

Approved AfterProvisionalTruing up

MYT Order RevisedEstimate

Approved

Return on Equity 358.88 358.88 366.98 358.88 358.88 374.15MAT Rate 11.22% 11.33% 11.33% 11.22% 11.33% 11.33%Income Tax 40.27 40.66 41.58 40.27 40.66 42.39

5.16 FIXED COST OF GENERATION

The summary of Annual Fixed Charges for existing Stations of MSPGCL as approvedby the Commission for FY 2007-08 is given in the following Table:

Table: Station-wise Annual Fixed Charges for FY 2007-08 (Rs Crore)Particulars Khaparkheda Paras Bhusawal Nasik Parli Koradi Cpur Uran Thermal Hydel TotalO&M Expenses 99.61 6.87 56.67 107.91 81.82 128.07 259.56 75.73 816.24 45.31 861.55Interest on LT Loans* 24.84 0.22 1.96 4.90 24.21 17.86 20.41 16.76 111.16 7.63 118.79IWC 26.54 1.82 16.99 31.23 24.94 26.57 65.29 14.36 207.75 3.38 211.13Depn. 81.86 1.21 13.89 20.03 23.78 28.68 117.75 58.16 345.37 4.57 349.94ROE 126.28 1.20 14.31 27.74 20.44 23.38 110.49 43.13 366.98 0 366.98Lease Rental 0.00 0.00 0.00 85.00 85.00Income Tax 14.31 0.14 1.62 3.14 2.32 2.65 12.52 4.89 41.58 0 41.58Less N T I 22.24 0.37 5.76 15.44 19.65 15.44 33.69 0.34 112.93 0.00 112.93

Total Fix. Ch 351.20 11.09 99.68 179.53 157.86 211.77 552.34 212.68 1776.15 145.88 1922.03* Includes Other financing charges also

Based on provisional truing up of various elements for FY 2007-08 as discussed inabove paragraphs, the Annual Fixed Charge for FY 2007-08 works out to Rs 1922.03

MERC, Mumbai of 103

Crore as against the amount of Rs 1897.19 Crore approved in MYT Order. Asdiscussed above in this Section, the Commission has not carried out any provisionaltruing up of fuel costs and revenue for FY 2007-08 in this Order as the increase is fuelcosts is allowed to be recovered under FAC mechanism. Thus, the net impact ofprovisional truing up for FY 2007-08 works out to increase in AFC for FY 2007-08by Rs 24.9 Crore. The Commission has considered this reduction of Rs 24.90 Crore inAnnual Fixed Charge for FY 2008-09. The Commission has also considered theimpact of truing up of certain elements of ARR as described in Section 3, of Rs279.70 Crore for FY 2006-07 for determining the AFC for FY 2008-09.

The summary of Annual Fixed Charges for existing Stations of MSPGCL as approvedby the Commission for FY 2008-09 is given in the following Table

Table: Station-wise Annual Fixed Charges for FY 2008-09 (Rs Crore)Particulars KhaparkhedaParas Bhusawal Nasik Parli Koradi Cpur Uran Thermal Hydel TotalO&M Expenses 104.96 7.24 59.72 113.71 86.22 134.96 273.53 79.80 860.14 47.75 907.89Interest on LT Loans* 18.38 0.40 2.27 5.48 25.61 18.81 24.59 18.21 113.76 8.70 122.45IWC 33.82 2.08 21.52 44.12 31.80 32.84 76.86 15.54 258.56 3.88 262.44Depn. 82.16 1.37 14.16 20.48 24.89 29.88 120.98 60.42 354.34 3.37 357.71ROE 126.52 1.32 14.54 28.10 21.36 24.33 113.10 44.89 374.15 0 374.15Lease Rental 85.00 85.00Income Tax 14.33 0.15 1.65 3.18 2.42 2.76 12.81 5.09 42.39 0 42.39Less N T I 22.24 0.37 5.76 15.44 19.65 15.44 33.69 0.34 112.93 0.00 112.93

Total Fix. Ch 357.93 12.19 108.10 199.63 172.65 228.13 588.17 223.60 1890.41 148.70 2039.11Truing up for FY 2006-07 2.89 3.65 21.97 51.75 47.32 61.06 78.35 9.88 276.89 2.81 279.70Provisional Truing up for FY 2007-08 1.31 -0.11 1.56 -0.46 13.15 1.36 -10.22 19.19 25.79 -0.89 24.89Total fixed charges for FY 2008-09 362.12 15.74 131.63 250.93 233.12 290.56 656.31 252.68 2193.08 150.62 2343.70* Includes Other financing charges also

MERC, Mumbai of 103

6 TARIFF OF MSPGCL’S GENERATING STATIONSRegulation 20.1 of the MERC (Terms and Conditions of Tariff) Regulations, 2005,stipulates that the tariff will be determined on an annual basis, as follows:

“The Commission shall determine the tariff of a Generating Company orLicensee covered under a multi-year tariff framework for each financial yearduring the control period, at the commencement of such financial year, havingregard to the following:

(a) The approved forecast of aggregate revenue requirement andexpected revenue from tariff and charges for such financial year,including approved modifications to such forecast; and(b) Approved gains and losses to be passed through in tariffs,following the annual performance review.”

The Commission, in its MYT Order, has approved the Annual Fixed Charge andparameters of variable cost for each thermal generating station and hydel generatingstation for the Control Period. The Commission further stipulated in the MYT Orderthat it will determine the Tariff of MSPGCL’s generating stations for each financialyear during the Control Period in accordance with the provisions of Regulation 20.1and considering the fuel prices prevalent during the current year. In line with theprinciples of Tariff Regulations, the Commission has determined the tariff, i.e.,Annual Fixed Charge as well as variable charge for MSPGCL generating stations forFY 2008-09 in this Order.

6.1 TARIFF FOR THERMAL POWER GENERATING STATIONS

Regulation 28 of the MERC Tariff Regulations specifies that “Tariff for sale ofelectricity from a thermal power generating station shall comprise of two parts,namely, the recovery of annual fixed charges and energy charges”.

The methodology and assumptions for estimating station-wise Annual Fixed Chargesand Energy Charges have been discussed in earlier Sections of this Order.

i) Approved Annual Fixed ChargesAs regards the recovery of Annual Fixed Charges, Regulation 33.1.1 of MERC TariffRegulations stipulates that the target availability for full recovery of annual fixedcharges shall be 80 percent. As elaborated in Section 4, the Commission for FY 2008-09 has projected the availability of 80% or more than 80% for thermal stations. TheCommission hence, approves the full recovery of fixed charges during FY 2008-09

MERC, Mumbai of 103

for all thermal stations. However, in the event of actual availability for the year,computed in accordance with the Commission’s Tariff Regulations (after accountingfor the unavailability of fuel), being less than 80%, the fixed charges shall beproportionately reduced as per MERC Tariff Regulations, while truing up the revenuerequirement in the next year. However, for Uran Gas based station, considering theshort supply of gas, the Commission approves the recovery of full fixed charges basedon the approved availability for FY 2008-09.

For New Paras Unit 1 and New Parli Unit 1 Project, the Commission has approved theAnnual Fixed Charges based on the Project Cost and other parameters approved bythe Commission in its Order on ARR and Tariff for FY 2006-07 for determination ofin-principle approval of Tariff of these projects. The Commission will separatelydetermine the final tariff of these Projects considering the actual completed capitalcost approved by the Commission, and the means of finance. The Commissiondirects MSPGCL to file separate Petition for approval of tariff for New ParasUnit 1 at the earliest, so that the same can be taken up for approval with thePetition filed a few days ago for approval of tariff for New Parli Unit 1.

The approved Station-wise Fixed Charges for Thermal Stations for FY 2008-09 isgiven in the following Table:

Table: Approved Fixed Charge of MSPGCL Thermal Stations for FY 2008-09 (Rs.Crore)Station AFC Monthly Fixed Charge

Khaparkheda 362.12 30.18Paras 15.74 1.31Bhusawal 131.63 10.97Nasik 250.93 20.91Parli 233.12 19.43Koradi 290.56 24.21Chandrapur 656.31 54.69Uran 252.68 21.06Paras Expn. Unit 1 137.68 11.47Parli Expn Unit 1 153.39 12.78

ii) Energy ChargeThe rate of energy charge (ex-bus) for FY 2008-09 has been approved for eachstation, based on approved operational parameters and assumed fuel price for FY2008-09. Any variations in the fuel price shall be dealt with under FAC mechanism.The following Table details the station-wise energy charge to be charged byMSPGCL for sale of power from its thermal generating stations.

MERC, Mumbai of 103

Table: Approved Energy Charge for MSPGCL Thermal Stations

S.No StationApproved EnergyCharge (Rs/kWh)

1 Khaparkheda 1.282 Paras 1.553 Bhusawal 1.914 Nasik 2.065 Parli 1.966 Koradi 1.237 Chandrapur 1.198 Uran 0.769 Parli Expansion Unit 1 1.47

10 Paras Expansion Unit 1 1.28

iii) IncentiveAs per Regulation 37 of MERC Tariff Regulations, MSPGCL shall be eligible for anincentive of 25.0 Paise/kWh for ex-bus scheduled energy corresponding to generationin excess of ex-bus energy corresponding to a target Plant Load Factor of 80 percent.

The Commission in its previous Orders approved the determination and billing ofincentives as an additional charge payable on this account by MSEDCL at the end ofSeptember 2007, and March 2008 on the basis of actual performance to even out thecash flow on account of the incentives.

MSPGCL appealed on this issue with the ATE and the ATE in its judgement inAppeal No. 86 & 87 of 2007 upheld the MSPGCL’s appeal for monthly billing ofincentives and held that any under or over recovery on account of such claims may beadjusted on monthly basis.

The Commission approves the monthly billing of incentives and directs MSPGCL todetermine the incentives at the end of each month on the basis of actual performanceand raise the bill for incentive amount to MSEDCL on monthly basis considering thecumulative generation till that particular month. Any under or over recovery onaccount of incentive computations at the end of every month may be adjusted onmonthly basis. However, the Commission rejects MSPGCL’s request for providingincentive for Uran gas thermal station on the basis of reduced availability and PLF,due to shortage of gas. The Commission is of the view that though full fixed costrecovery has been permitted to Uran gas station, despite non achievement ofnormative availability of 80%, it would not be fair to the consumers to provide

MERC, Mumbai of 103

incentive to MSPGCL at such low levels of generation.

6.2 TARIFF FOR HYDEL POWER GENERATING STATIONS

i) Energy Charges for Generation during Peak and Non Peak PeriodThe Electricity Act, 2003 requires the Commission to encourage economical use ofthe resources while determining the terms and conditions of tariff. Accordingly, theMERC Tariff Regulations propose an energy rate for hydro stations, which is equal tothe variable cost of the least-cost, available alternative source of power if suchhydropower generating station was not to be dispatched in accordance with the finaldispatch schedule of the State Load Despatch Centre.

The MERC Tariff Regulations in this regard specify that,“Tariff for sale of electricity from a hydro power generating station shallcomprise of two-parts, namely, recovery of annual capacity charge and energycharges.

Provided that the annual capacity charges for a hydro power generatingstation shall be computed in accordance with the following formula:

Annual Capacity Charges = (Annual Fixed Charge- Energy Charge)

Provided further that the Energy Charge shall not exceed the Annual FixedCharge under these Regulations (emphasis added)

The Commission in its Order dated September 7, 2006 on ARR and Tariff Petition ofMSPGCL for FY 2006-07 approved a differential hydro peaking tariff to optimise thehydel generation during peak hours as follows:

Differential Energy Charges for peak and non-peakhours Rs/kWh

Peak Hours (0900 to 1200 hrs & 1800 to 2200 hrs) 2.00Non Peak Hours (Other than peak hours) 1.65

MSPGCL in its Petition submitted that the generation during peak hours in the pastone year was merely 46% of the total generation and the peak generation had onlybeen 43% during the first six months of FY 2007-08.

MSPGCL further requested the Commission that it has control only on the DeclaredCapacity and it can maintain a specific mix of Declared Capacity in the peak and non-peak hours and any penalty on MSPGCL should be on the basis of Declared Capacity

MERC, Mumbai of 103

only. It should not be liable for any alteration in the desired peak and off-peakgeneration on account of issues at the MSEDCL and SLDC end and it shall be theresponsibility of SLDC and MSEDCL to issue such instructions to MSPGCL so as toabide by the peak–off-peak generation ratio as approved by the Commission

As regards to generation during peak and non-peak hours and differential tariff,MSPGCL made the following submissions:

• Peak demand period should not be defined on time of day basis and otherfactors like frequency, actual peak load hours, uncontrollable factors fordispatch in non-peak hours (flood situation, grid stability issues) etc., needs tobe considered.

• Dispatch of Koyna should be governed by MSEDCL and SLDC, whereinMSEDCL shall be authorized to dispatch a fixed percentage of Hydel capacityat its own discretion (on the basis of comprehensive definition of peak andnon- peak hours) and rest shall be vested with SLDC to maintain grid stability.

• Annual Fixed Charges of Koyna should be calculated in each year as sum ofproduct of peak hours (on the basis of comprehensive definition of peak andnon- peak hours) and target generation in peak hours and non-peak tariff andtarget generation in non-peak hours

• Annual Fixed Charges shall be allowed to recovered through differential peakand off peak tariff

• MSPGCL has control only on the Declared Capacity and it can maintain aspecific mix of Declared Capacity in the Peak and non-Peak hours and anypenalty on MSPGCL should be on the basis of Declared Capacity only

• Monthly payment to MSPGCL shall be minimum of 1/12th of Annual FixedCharges and amount corresponding to actual generation and it should beensured that subject to any penalty linked to declared capacity, Koyna gets atleast 1/12th of the ARR in each month

• For the higher generation during peak hours, the incentives in the form ofadditional revenue shall be shared between consumers and utilities equally

• Incentive amongst Utilities shall be shared in the specified ratio betweenMSPGCL, MSEDCL and SLDC.

The Commission obtained the break up of hydel generation during peak and non-peakhours from Koyna Hydel Station for the period April 2007 to November 2008 andcompared the same with generation during the peak and non-peak hours for thesimilar period of FY 2006-07. The month-wise comparison of hydel generation duringpeak and off peak hours is given in the following Table:

MERC, Mumbai of 103

Table: Hydel Generation during peak and non-peak hoursFY 2006-07 FY 2007-08

Month PeakHours

Non-peakHours

Total % duringPeak Hrs

PeakHours

Non-peakHours

Total % duringPeak Hrs

April 106.48 229.21 335.69 32% 108.30 216.69 324.98 33%May 47.93 137.05 184.98 26% 112.03 189.42 301.45 37%June 68.10 101.21 169.30 40% 72.99 73.66 146.64 50%July 120.47 116.21 236.68 51% 198.83 254.98 453.81 44%August 270.33 317.03 587.36 46% 195.61 242.46 438.07 45%September 184.23 124.61 308.84 60% 147.82 112.89 260.71 57%October 167.92 181.74 349.66 48% 173.17 193.77 366.94 47%November 171.68 207.62 379.30 45% 103.08 72.32 175.40 59%December 176.78 171.93 348.70 51%January 227.67 263.67 491.34 46%February 118.37 95.08 213.45 55%March 101.01 122.59 223.61 45%Total 1760.97 2067.95 3828.91 46% 1111.83 1356.18 2468.01 45%

As it is observed, the generation during peak hours during April 2007 to November2007 is 45% of the total hydel generation, which is approximately equal to thegeneration during peak hours for the corresponding months of previous year.

MSPGCL filed an appeal with ATE regarding the determination of peal and off peakgeneration and tariff. The ATE in its Judgment in Appeal No. 86 & 87 of 2007 on theissue of peak and off peak generation directed the Commission to devise a mechanismwhich addresses the concern of peak and off peak generation, by determining the ratioof peak and off-peak generation after taking into consideration the operationalcapacity of MSPGCL and system pattern, and also meets the objective of theCommission to send economic signal about pricing of hydel generation. Para 87 of thesaid Judgement has been reproduced below:

“The Commission’s order that ‘any variations in the recovery of charges onaccount of differential peaking tariff from the Commissions approved valuesshall not be trued up’ has resulted into a regulatory uncertainty as far asrecovery of revenue is concerned. While we may agree with the Commission’spoint that the ratio of 89:11 for peak-off-peak power generation has beenworked out on the basis of the data submitted by the Appellant, what is morerelevant is the regulatory and administrative environment in which theAppellant is operating. If dispatches from the Appellant’s generating stationsare subject to instructions of MSEDCL and SLDC (distribution company andthe state load dispatch centre, respectively) it is not fair to subject the

MERC, Mumbai of 103

Appellant to adverse consequences if it is not able to meet the ratio of 89:11due to instructions received from MSEDCL and SLDC. Alternatively, if theAppellant abides by the directions of the Commission to maintain ratio of89:11, it should not be subjected to adverse treatment from MSEDCL andSLDC. Therefore, it is essential that the ratio of peak-off-peak is determinedafter taking into consideration the operational capacity of the Appellant aswell as the system pattern and in our view reasonable flexibility is allowed,which should be respected by the Appellant, MSEDCL and SLDC. TheCommission is, therefore, directed to devise a mechanism which addresses theconcern of the Appellant, and also meets the objective of the Commission tosend economic signal about pricing of the electricity.” (emphasis added)

The Commission is of the view that as this matter involves concerns of more than oneparty, the modification to peak and non-peak differential tariff shall only be carriedout after giving the opportunity to other parties, i.e., MSEDCL and SLDC. TheCommission will take up this issue of modifying the hydel tariff mechanism duringpeak and non peak tariff alongwith truing up for FY 2005-06 and FY 2006-07.Further, the Commission at this stage has not penalised MSPGCL for reduction ingeneration during peak hours as against the target approved in the Order. TheCommission will address the issue of variations in the recovery of charges on accountof differential peaking tariff from the Commissions approved values in the revisedmechanism.

For the time being, till the mechanism is revised the Commission would like tocontinue the existing tariff as approved in MYT Order. Accordingly, the differentialenergy charges and estimated generation during peak and non-peak hours for FY2008-09, is given in Tables below:

Differential Energy Charges for peak and non-peakhours Rs/kWh

Peak Hours (0900 to 1200 hrs & 1800 to 2200 hrs) 2.00

Non Peak Hours (Other than peak hours) 1.65

Table: Hydro Generation during peak and non-peak hours for FY 2008-09 (MU)Source Total Generation Generation during

peak hoursGeneration during

non-peak hoursKoyna 3224 2874 350Other Hydro 710 710Total 3934 2874 1060

MERC, Mumbai of 103

iii) Treatment of excess amount recovered on account of hydro peaking tariffBased on the above assumption of generation in the peak and non-peak hours and thecorresponding energy tariffs during those hours, the total revenue recovery exceedsthe annual fixed charge of hydro generating stations by Rs. 599.08 Crore.

The Commission’s intention is to ensure that the economic signals are provided to theusers of the resources, i.e., generating stations and distribution utilities, while at thesame time without putting extra burden on the consumers by way of higher tariffs.However, there is need to provide some incentive to Generating Companies andDistribution Licensees to optimise the hydel generation during peak hours. TheCommission allows 5% of excess recovery of revenue from hydel stations on accountof higher generation during peak hours to be shared between Generating Companyand Distribution Licensees in the proportion of 50:50.

Considering the target generation during peak and off peak hours specified in theOrder, the Commission directs 95% of adjustment of excess recovery of Rs. 599.08Crore from hydro generating stations in the bills for sale of power to be raised byMSPGCL to MSEDCL. The reduction towards excess recovery should be providedevery month on pro-rata basis.

iv) Tariff for Small Hydel StationsAs regards tariff of small hydel stations, MSPGCL submitted that the tariff forMSPGCL’s Small Hydro Plants (SHPs) should be approved as Rs 3/kWh inaccordance with the Commission’s Order on Tariff Determination of Small HydelProjects. MSGPCL further submitted that it has filed an appeal with ATE regardingthe applicability of the small hydro tariff of Rs 3/kWh on a levelised basis for hydropower stations less than 25 MW and revision in O&M expenses of the hydro stationsviz., Koyna Complex, Bhira, Vaitarana and Tillari.

The ATE in its judgement in Appeal No. 86 & 87 of 2007 rejected the MSPGCL’sappeal for entitlement of higher tariff for small hydro projects as the Commission’sOrder in this regard is applicable only in the case of new projects. The ATE also didnot agree with MSPGCL’s contention that the Commission has disregarded theprovisions of Section 61 (h) of the Electricity Act, 2003 while considering the tarifffixation of small hydro project. Para 42 of the judgement regarding this issue isreproduced below:

MERC, Mumbai of 103

“We notice that the Commission has submitted that the Appellant did notapproach the Commission for review of its order dated 09 Nov 2005. Theorder of the Commission has to be seen in the context of Government ofMaharashtra policy to encourage private sector participation in developmentof small hydro projects, as per State Government’s Resolution dated 28 Nov2002, which was revised by the State Government on 15 Sep 2005. TheCommission has clarified that the revised policy is applicable to IPPs andCPPs developing hydropower projects up to 25 MW capacity. In view of therationale given by the Commission, we feel that the Appellant is not entitled toa higher tariff of Rs. 2.84/kWh as the order dated 09 Nov 2005 is applicableonly in the case of new projects. We do not agree with the Appellant’scontention that the Commission has disregarded the provisions of Section 61(h) of the Electricity Act, 2003 while considering tariff fixation of small hydroproject.” (emphasis added)

Thus the Commission’s Order for tariff determination for Small Hydro Projects (SHP)dated November 9, 2005 is primarily for new projects with the intention to promotesetting up of new SHPs, and the SHPs under MSPGCL do not fall under the ambit ofSHPs referred by the Order dated 9th November, 2005. Further, the Commission hasapproved all the cost elements of hydel stations for all the hydel stations in line withthe past trends. Therefore, the tariff approved for non-peak period shall be applicablefor small Hydel Stations of MSPGCL.

v) IncentiveMSPGCL shall be eligible for an incentive payable in accordance with Section 37.2 ofMERC Tariff Regulations. MSPGCL shall compute the incentives on the basis of theactual performance and shall bill the same as an additional charge on monthly basis.There shall be pro rata recovery of annual fixed charges in case the generating stationachieves capacity index below the prescribed normative levels. Any under or overrecovery on account of such claims should be adjusted on monthly basis.

vi) Tariff for Pumped StorageMSPGCL submitted that it has already filed a separate petition for approval of normsfor pumped storage plants namely Paithan, Ujjani, and Ghatghar power stations.Further, MSGCL submitted that as desired by the Commission, it has submitted theconsolidated ARR for all its hydro stations which includes the revenue requirementfor such pumped storage projects also. The Petition filed by MSPGCL for approval ofoperational norms for pumped storage is under process.

MERC, Mumbai of 103

6.3 APPLICABILITY OF ORDER AND TARIFF

This Order for the second year of the first Control Period i.e., for FY 2008-09 shallcome into force with June 1, 2008 and the Tariff approved in the Order shall beapplicable for the period from June 1, 2008 to March 31, 2009. The Commission willundertake the Annual Review of MSPGCL’s performance during the last quarter ofFY 2008-09 and determine the tariff for FY 2009-10. MSPGCL is directed to submitits Petition for Annual Review of its performance during the first half of FY 2008-09,as well as truing up of revenue and expenses for FY 2007-08 based on auditedaccounts, with detailed reasons for deviation in performance, latest by November 30,2008.

The Commission acknowledges the efforts taken by the Consumer Representativesand other individuals and organisations for their valuable contribution to the APRprocess for MSPGCL for FY 2007-08 and tariff determination for FY 2008-09.

The Commission would also like to put on record, the efforts of its advisors, M/sABPS Infrastructure Advisory Private Limited.

(S. B. Kulkarni) (A. Velayutham) (Dr. Pramod Deo) Member Member Chairman

(P.B. Patil)Secretary, MERC

MERC, Mumbai of 103

APPENDIX 1List of persons who attended the Technical Validation Session held on December26, 2007

S.No Name of Person / OfficialMSPGCL Officials1 Shri Ajay Mehta2 Shri V.T. Bapat3 Shri Ambekar L.N.4 Shri Narkhade G.L.5 Shri R.D. Kadam6 Shri V.V. Kulkarni7 Shri K.S. Jayaprakash8 Shri S.M. Madan9 Shri D.E.Sonaware10 Shri M. Shelar11 Shri G.J. Girase12 Shri S.V. Bedekar13 Shri S.A. Nikatye14 Shri J.K. Malvanker

Shri Arvind S.Shri R. D. AdhyayShri B.S. Musale

Others15 Shri Ramandeep Singh16 Shri Parag Sharma17 Shri Dipesh Narang18 Shri Anirban Banerjee19 Shri Shantanu Dixit20 Dr. Ashok Pendse

Consultant to theCommission/Staff21 Shri Suresh Gehani22 Shri M. Palaniappan23 Shri A.N. Vaze24 Shri M.N. Bapat25 Shri S.D. Chaudhari26 Shri Saurabh Gupta27 Shri Santosh Kumar Singh28 Shri Anand Kulkarni

MERC, Mumbai of 103

APPENDIX 2List of ObjectorsS.No Name of Person / Official Institution

1 Shri Shantanu Dixit Prayas Energy Group2 Dr.. Ashok Pendse Mumbai Grahak Panchayat3 Dr. S.L.Patil Thane Belapur Ind. Association4 Shri R.B.Goenka Vidarbha Industries Association5 Shri George John6 Shri G.P.Mishra Misra Engineering Services7 Shri Bankim Mistry Bharat Traders8 Shri S.N. Bathia The Sidhpura Co. op. Indl. Estate Ltd.9 Shri Rakshpal Abrol Bombay Small Scale Ind. Association

List of Objectors who attended the Public Hearing on February 13, 2008S.No Name of Person / Official Institution

1 Dr..Ashok Pendse Mumbai Grahak Panchayat2 Shri George John

Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION ... · Before the MAHARASHTRA ELECTRICITY...

Documents

Transcript of Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION ... · Before the MAHARASHTRA ELECTRICITY...