Case No. 201 of 2014 IN THE MATTER OF

Transcription

1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai Website: Case No. 201 of 2014 IN THE MATTER OF Maharashtra State Power Generation Company Limited s Petition for approval of Capital Cost and determination of Tariff of Bhusawal Units # 4 and # 5 for FY to FY , and true up for FY and FY Smt. Chandra Iyengar, Chairperson Shri. Azeez M. Khan, Member Shri. Deepak Lad, Member Date: 20 April, 2015 ORDER The Maharashtra State Power Generation Company Limited (MSPGCL) has filed a Petition under Sections 61, 62 and 86 (1)(a)(b) of the Electricity Act (EA) 2003, Part E of MERC (Terms and Conditions of Tariff) Regulations, 2005 and Part F of MERC (Multi Year Tariff (MYT)) Regulations, 2011 before the Maharashtra Electricity Regulatory Commission ( MERC or the Commission ) on 19 November, The Petition seeks approval of the Capital Cost and determination of the Tariff of Units #4 and #5 of its Bhusawal Thermal Power Station (TPS), Distt. Jalgaon, for the period from FY to , along with true up for FY and The Commission, in exercise of the powers vested in it under Sections 61 and 62 of the EA 2003 and all other powers enabling it in this behalf, and after taking into consideration the submissions made by MSPGCL, the suggestions and objections of the public, the responses of MSPGCL, the issues raised during the Public Hearing, and all other relevant material, passes the following Order.

2 Table of Contents 1 BACKGROUND AND BRIEF HISTORY Background Admission of the Petition and Public Hearing process Organisation of the Order OBJECTIONS RAISED, RESPONSE OF MSPGCL AND COMMISSION S VIEW Utilisation of drinking water for bhusawal project Railway siding for Bhusawal Unit # 4 and Unit # Environmental pollution Project Cost Filing of Petition APPROACH OF THIS ORDER CAPITAL COST OF BHUSAWAL UNIT # 4 & UNIT # Capital Cost of Bhusawal Unit # 4 & Unit # Background to Project Commissioning Comparison of capital cost Hard cost Land & Site Development BTG Package BoP Electrical and Mechanical Package Civil Works Construction and Pre-Commissioning activities Overheads Initial Spares Interest During Construction Liquidated Damages MEANS OF FINANCE Allocation of Capital Cost to Unit # 4 and Unit # Tariff of Bhusawal Unit # 4 and Unit # 5 for FY to FY Energy Charges MERC- Order in Case No 201 of 2014 Page 2 of 82

3 Fuel Supply Agreement Operational Parameters Additional capitalisation Annual Fixed Charges Operation and Maintenance Expenses Depreciation Interest on Long Term Loan Return on Equity Income Tax Interest on Working Capital Non-Tariff Income Annual Fixed Charges True up for Bhusawal Unit # 4 and Unit # 5 for FY and FY Rulings of the Commission MERC- Order in Case No 201 of 2014 Page 3 of 82

4 List of Tables Table 1-1: Notice of Public Hearing issued in Newspapers Table 4-1: Comparison of Ordering Cost and Cost upto COD as submitted by MSPGCL (Rs. Crore) Table 4-2: Award of BoP package as submitted by MSPGCL Table 4-3: Award of other Packages, as submitted by MSPGCL Table 4-4: Milestone activities for Unit # Table 4-5: Milestone activities for Unit # Table 4-6: Reasons for extension in completion schedule for Unit # Table 4-7: Reasons for extension in completion schedule for Unit # Table 4-8: Letters to BHEL, as submitted by MSPGCL Table 4-9: Comparison of Capital Cost, as submitted by MSPGCL Table 4-10: Land and Site Development Cost upto COD of Unit # 5 (for 1000 MW)30 Table 4-11: Land & Site Development Cost upto COD approved by the Commission (Rs. Crore) Table 4-12: Cost of BTG upto COD approved by the Commission (Rs. Crore) Table 4-13: Cost of BoP Electrical and Mechanical upto COD, as approved by the Commission (Rs. Crore) Table 4-14: Cost of Civil Works upto COD, approved by the Commission (Rs. Crore) Table 4-15: Cost of Construction and pre commissioning activities upto COD, approved by the Commission (Rs. Crore) Table 4-16: Overheads upto COD, approved by the Commission (Rs. Crore) Table 4-17: Initial Spares upto COD, approved by the Commission (Rs. Crore) Table 4-18: Hard Cost upto COD, approved by the Commission (Rs. Crore) Table 4-19: Assumptions for IDC Computation submitted by MSPGCL Table 4-20: Project Cost including IDC approved by the Commission (Rs. Crore) Table 4-21: Capital Cost upto COD, approved by the Commission (Rs. Crore) Table 4-22: Debt and Equity as on COD, submitted by MSPGCL Table 4-23: Means of Finance upto COD (Rs. Crore) Table 4-24: Capital Cost and Means of Finance approved for Unit # 4 and Unit # Table 5-1: Applicability of Tariff Regulations for Bhusawal Unit # 4 and Unit # 5, as submitted by MSPGCL Table 5-2: Actual performance parameters, as submitted by MSPGCL Table 5-3: Actual Availability for Bhusawal Unit # 5 for FY , as approved by the Commission Table 5-4: Performance parameters approved by the Commission for FY Table 5-5: Performance Parameters approved by the Commission for FY Table 5-6: Performance parameters approved by the Commission for FY MERC- Order in Case No 201 of 2014 Page 4 of 82

5 Table 5-7: Variable Charges approved by the Commission (Rs. Crore) Table 5-8: Performance Parameters approved by the Commission for FY Table 5-9: Energy Charge approved by the Commission for FY Table 5-10: Details of Additional Capitalisation submitted by MSPGCL (Rs. Crore)59 Table 5-11: Normative O&M expenses claimed by MSPGCL (Rs. Crore) Table 5-12: Normative O&M Expenses approved by the Commission (Rs. Crore) Table 5-13: Depreciation approved by the Commission (Rs. Crore) Table 5-14: Interest on Loan, as approved by the Commission (Rs. Crore) Table 5-15: Return on Equity approved by the Commission (Rs. Crore) Table 5-16: Income Tax, as approved by the Commission for FY (Rs. Crore) Table 5-17: Interest on Working Capital approved by the Commission (Rs. Crore).. 65 Table 5-18: AFC approved by the Commission for Bhusawal Unit # 4 and Unit # 5 (Rs. Crore) Table 5-19: Tariff approved by the Commission for FY Table 6-1: Reduction in AFC on true up for FY (Rs. Crore) Table 6-2: Reduction in AFC on true up for FY (Rs. Crore) Table 6-3: Summary of true up for FY as submitted by MSPGCL (Rs. Crore) Table 6-4: Summary of true up for FY approved by the Commission (Rs. Crore) Table 6-5: Summary of Expenses towars payments made to TIDC and NHAI Table 6-6: Carrying cost on approved revenue gap for FY approved by the Commission Table 6-7: Summary of true up for FY approved by the Commission (Rs. Crore) Table 6-8: Carrying cost on approved revenue gap for FY approved by the Commission Table 6-9: Carrying cost on provisional AFC for Bhusawal Unit # 4 approved by the Commission Table 6-10: Provisional true up approved by the Commission for FY Table 6-10: Total principal amount and carrying cost allowed by the Commission for recovery (Rs. Crore) MERC- Order in Case No 201 of 2014 Page 5 of 82

6 List of Abbreviations ACW Auxiliary Cooling Water AFC Annual Fixed Cost ARR Aggregate Revenue Requirement ATE Appellate Tribunal for Electricity A&G Administrative & General BHEL Bharat Heavy Electricals Ltd. BoP Balance of Plant BTG Boiler, Turbine and Generator CEA Central Electricity Authority CERC Central Electricity Regulatory Commission CHP Coal Handling Plant COD Commercial Operation Date CPI Consumer Price Index CPRI Central Power Research Institute CV Calorific Value CIL Coal India Limited CW Cooling Water DCB Domestic Competitive Bidding DPR Detailed Project Report EA 2003 Electricity Act, 2003 FC Financing Charges FD Forced Draft FO Furnace Oil FSA Fuel Supply Agreement FY Financial Year GAAP Generally Accepted Accounting Principles GCV Gross Calorific Value GFA Gross Fixed Assets GoI Government of India GoM Government of Maharashtra IBPL India Bulls Power Ltd. ICB International Competitive Bidding ID Induced Draft IDC Interest During Construction IWC Interest on Working Capital kcal kilo calories MERC- Order in Case No 201 of 2014 Page 6 of 82

7 kg kv kw kwh LD LDO MAT MCR MCL MCM MDBFP MERC MGR Mkcal MoEF MoU Kilogram kilo Volt Kilo Watt Kilo Watt hour Liquidated Damages Light Diesel Oil Minimum Alternative Tax Maximum Continuous Rating Mahanadi Coalfields Limited Million Cubic Meter Motor Driven Boiler Feed Pump Maharashtra Electricity Regulatory Commission Merry-Go-Round Million kilo calories Ministry of Environment and Forest Memorandum of Understanding MSEDCL/ MahaVitaran MSETCL MSLDC/SLDC MSPGCL MT MMT MTPA MU MW MYT NDCT NHAI NTPC O&M PLF PLR PPA RCC REC RFP Maharashtra State Electricity Distribution Co. Ltd. Maharashtra State Electricity Transmission Co. Ltd. Maharashtra State Load Despatch Centre Maharashtra State Power Generation Co. Ltd. Metric Tonnes Million Metric Tonne Million Tonne per Annum Million Units Mega Watt Multi Year Tariff Natural Draft Cooling Tower National Highways Authority of India National Thermal Power Corporation Operations and Maintenance Plant Load Factor Prime Lending Rate Power Purchase Agreement Reinforced Cement Concrete Rural Electrification Corporation Request For Proposal MERC- Order in Case No 201 of 2014 Page 7 of 82

8 R&M RoE RTD SFO SFOC SHR SLDC STPP STPS TDBFP Th.MT TIDC TPS TVS WCL WRD WPI Repair & Maintenance Return on Equity Resistance Temperature Detector Secondary Fuel Oil Secondary Fuel Oil Consumption Station Heat Rate State Load Dispatch Centre Super Thermal Power Plant Super Thermal Power Station Turbine Driven Boiler Feed Pump Thousand Metric Tonnes Tapi Irrigation Development Corporation Thermal Power Station Technical Validation Session Western Coalfields Ltd. Water Resources Department Wholesale Price Index MERC- Order in Case No 201 of 2014 Page 8 of 82

9 1 BACKGROUND AND BRIEF HISTORY 1.1 Background This Order relates to the Petition filed by MSPGCL for approval of the Capital Cost and determination of Tariff for FY to FY , along with true up for FY and FY for the new Unit # 4 and Unit # 5 of 500 MW capacity each at its Bhusawal TPS, Distt. Jalgaon. MSPGCL is a Government Company formed under Government of Maharashtra (GoM) Resolution No. ELA-1003/P.K.8588/Bhag-2/Urja-5 dated 24 January, 2005 with effect from 6 June, 2005, in accordance with the provisions of Part XIII of the EA, MSPGCL is a Company registered under the Companies Act, In its Petition, MSPGCL has prayed as under: a. Approve the Capital cost and tariff of Bhusawal Unit 4 and 5 as computed for FY to FY b. Approve the true-up for and considering the issues of coal/heat realisation for FY and effects of abnormal rain submitted by MSPGCL in its submissions. c. Allow the carrying cost for delay in recovery of provisional charges from MSEDCL as detailed in the petition. d. Allow the carrying cost on the final true-up amounts for and till the actual recovery of the aforesaid amount from MSEDCL. e. Condone any shortcomings in the petition and allow the Petitioner to submit additional information as may be required by the Commission. f. Allow MSPGCL to recover difference between approved tariff vis-à-vis the provisional tariff in three monthly installments from the date of order from MSEDCL. g. Issue appropriate directives to MSEDCL for payment of the approved charges as prayed by MSPGCL. h. Provide the Petitioner with the workable excel model used to determine the final tariff for the unit. i. Issue any such further orders as the Commission may deem fit. MERC- Order in Case No 201 of 2014 Page 9 of 82

10 1.1.3 MSPGCL submitted that, in its endeavour to meet the demand supply gap in Maharashtra, it has commissioned power generation Unit # 4 and Unit # 5 at Bhusawal on 16 November, 2012 and 3 January, 2014, respectively, with an installed capacity of 500 MW each MSPGCL submitted that it has entered into a Power Purchase Agreement (PPA) with the Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) for supply of power from these Units for a period of 25 years MSPGCL submitted that the Commission, vide its MYT Regulations, 2011 notified on 4 February, 2011, introduced the second MYT Control Period in Maharashtra with effect from 1 April, Vide the Commission s Order dated 23 August, 2011 in Case No. 44 of 2011, MSPGCL was granted two years exemption from the second MYT Control Period. Accordingly, the second Control Period for MSPGCL is applicable from FY to FY MSPGCL submitted that, in the light of this Order, the Tariff for FY has been computed as per MERC Tariff Regulations, 2005, while the Tariff for FY to FY has been computed as per MERC MYT Regulations, Admission of the Petition and Public Hearing process A set of data gaps were forwarded to MSPGCL on 1 January, The Commission also raised additional data gaps to ensure adequacy of information for processing the Petition further. The data gaps raised by the Commission can be grouped under the following heads: a. Details of Competitive Bidding process carried out for award of various Packages b. Board approval at various levels of execution c. Justification for revision in Cost Estimates d. Verification of actual expenditure incurred e. Justification for increase in cost under various heads f. Fuel related issues The Technical Validation Session (TVS) was held on 21 January, During the TVS, MSPGCL made a presentation on the salient features of the Petition. MSPGCL also highlighted issues such as increase in Interest During Construction (IDC) as compared to the original estimated IDC, delays in MERC- Order in Case No 201 of 2014 Page 10 of 82

11 implementation, reasons for delay, and measures taken to minimize the increase in Project cost due to time overruns. The list of persons who participated in the TVS held on 21 January, 2015, is at Appendix-I MSPGCL submitted replies to the data gaps raised, vide its letters dated 15 January, 17 January, 29 January, 30 January, and 31 January, The Commission admitted MSPGCL s Petition on 13 February, In accordance with Section 64 of the EA, 2003, the Commission directed MSPGCL to publish its Petition in an abridged form to ensure public participation. The Public Notice was published in the following newspapers, inviting suggestions/objections from the stakeholders: Table 1-1: Notice of Public Hearing issued in Newspapers Newspaper Sakal( Marathi) Saamna (Marathi) Indian Express (English) Times of India (English) Date of Publication 16 February, MSPGCL s Petition and its Executive Summary were made available at MSPGCL s offices and on its website ( The Public Notice and Executive Summary of the Petition were also made available on the website of the Commission ( ) in downloadable format. The Public Notice stipulated that the objections and comments, in English or Marathi, may be filed along with the proof of service on MSGPCL The Commission received written objections/suggestions/comments from Shri. Rajendra Choudhari on the Petition filed by MSPGCL The Public Hearing was held on 11 March, 2015 at 11:30 hours at Centrum Hall, 1 st Floor, Centre No. 1, World Trade Centre, Cuffe Parade, Mumbai. The list of persons who participated in the Public Hearing is at Appendix II. The Commission has ensured that the due process as contemplated under the law to ensure transparency and public participation was followed at every stage and adequate opportunity was given to all the persons concerned to file their say in the matter. MERC- Order in Case No 201 of 2014 Page 11 of 82

12 1.3 Organisation of the Order This Order is organised in the following Seven Sections: Section 1 provides a brief history of the quasi-judicial regulatory process undertaken by the Commission. A list of abbreviations with their expanded forms has been included. Section 2 lists out the suggestions and objections raised by stakeholders in writing as well as during the Public Hearing before the Commission. These suggestions and objections have been summarized, followed by the response of MSPGCL and the Rulings of the Commission. Section 3 of the Order deals with the approach of this Order. Section 4 deals with approval of Capital Cost of Bhusawal Unit # 4 and Unit # 5. Section 5 deals with the determination of Tariff for Bhusawal Unit # 4 and Unit # 5 for FY to FY Section 6 deals with the true up for Bhusawal Unit # 4 and Unit # 5 for FY and FY Section 7 sets out the Rulings of the Commission. MERC- Order in Case No 201 of 2014 Page 12 of 82

13 2 OBJECTIONS RAISED, RESPONSE OF MSPGCL AND COMMISSION S VIEW 2.1 UTILISATION OF DRINKING WATER FOR BHUSAWAL PROJECT Shri. Keshav Choudhari, on behalf of Shri Rajendra Choudhari, submitted that MSPGCL should lift water from the Shelgaon Dam for Bhusawal TPS as Jalgaon District falls under the dark zone and, after meeting the drinking and irrigation requirements, use of the balance water for industrial purposes is illegal. During the Public Hearing held by Ministry of Environment and Forests (MoEF), Govt. Of India (GoI), approval was accorded on the basis that water requirement would be met from the Shelgaon Dam. After the change of source of water, no Public Hearing in the matter was conducted. MSPGCL s reply MSPGCL submitted that the Shelgaon Dam is not completed yet. A Dam has been built on Tapi River at Sudgaon, downstream of Hatnur Dam, with capacity of 12 MCM. The capacity of Hatnur dam is 388 MCM. The water requirement of MCM for 2 x 500 MW Units at Bhusawal will be provided throughout the year by Water Resources Department (WRD), GoM through Varangaon-Talvel Irrigation Scheme by lifting of Tapi river flood water to Ozarkheda Dam. MSPGCL submitted that the capacity of Ozarkheda Dam is MCM. The water would flow down the river if it is not lifted. Hence, the WRD has reserved MCM water from Ozarkheda Dam. Hence, the contention that drinking water/irrigation water is being used for the Bhusawal Project is not true as the Ozarkheda Dam water reserved for drinking/irrigation purpose is not used for it. Commission s view The present exercise relates to the approval of Capital Cost and Tariff determination of Bhusawal Unit # 4 and Unit # 5. The source and quantum of water allocation for a Power Project is under the purview of GoM. The appropriate authorities may be approached regarding any grievances relating to water allocation for the Project. MERC- Order in Case No 201 of 2014 Page 13 of 82

14 2.2 RAILWAY SIDING FOR BHUSAWAL UNIT # 4 AND UNIT # Shri. Choudhari submitted that MSPGCL has constructed a new railway siding for Bhusawal Unit # 4 and Unit # 5 in addition to the existing railway siding for the existing Units of Bhusawal TPS. He also submitted that the location of the TPS should be selected based on availability of coal, water, transmission system, etc. MSPGCL has ignored all these factors because of its assumption that the entire power will be supplied to MSEDCL. The Commission may direct MSEDCL to purchase power from the open market since, it is available at cheaper rate. MSPGCL s reply MSPGCL submitted that, although the new 2 x 500 MW Units are in the vicinity of the existing Bhusawal TPS, it was not technically feasible to make arrangements for coal supply by using the existing railway siding. The transportation of coal for the new Units over the existing railway lines is very difficult for Railways. The coal for the old Units is brought to Bhusawal Junction from the Nagpur side and then diverted in reverse direction by a cord line to Bhusawal TPS MSPGCL submitted that considering the heavy railway traffic at Bhusawal Junction, it was not possible for Railways to establish uninterrupted supply of coal wagons for the new Project at Bhusawal. This would have affected the electricity generation and coal supply management at Bhusawal Project. MSPGCL further submitted that after considering such operational constraints, suggestions from Railway Consultants, M/s RITES Ltd., and approval from Railways, it was necessary to establish a straight railway line from Varangaon Railway station to the Bhusawal 2 x 500 MW Project. MSEDCL further submitted that Railways is now insisting on transportation of coal for the old Bhusawal Units also from Varangaon station. Thus, the new railway line was essential for the Project. Further, as per the Rules and Regulations of National Highway Authority of India, the construction of an over bridge was also necessary to avoid the railway crossing. Due to availability of open space/land owned by MSPGCL and availability of other infrastructure near the old Bhusawal Units, it was decided to undertake the Project at this location. MERC- Order in Case No 201 of 2014 Page 14 of 82

15 Commission s view The proposal for construction of a new Project by MSPGCL is approved by its Board of Directors and the location is generally selected based on technoeconomic feasibility. Further, the development of any new Project requires statutory clearances and approvals at various levels, and the various agencies, while according such clearances and approvals, consider various factors. The scope of this Petition is limited to approval of Capital Cost and Tariff for Bhusawal Unit # 4 and Unit # 5. Thus, the Commission in this Order has approved the capital cost of Bhusawal Unit # 4 and Unit # 5 after due prudence check of the actual cost incurred by MSPGCL, as detailed in Section 4 of the Order The present Petition is filed by MSPGCL for approval of Capital Cost and Tariff for Bhusawal Unit # 4 and Unit # 5. The responder may take up his comments/objections relating to power purchase of MSEDCL on the relevant Petitions filed by MSEDCL. 2.3 ENVIRONMENTAL POLLUTION Shri. Choudhari submitted that MSPGCL has constructed a wall on the banks of Bhagwati River in violation of the norms of River Regulation Zone. MSPGCL should have opted for installing high capacity motors for lifting of water from Bhagwati River and also considered the option of utilising water from Ozerkheda - Bhagwati. He also submitted that a green belt should be developed for mitigating environmental pollution. MSPGCL s reply MSPGCL submitted that the canal from the ash bund reaches the Velhala pond about 3 km away. The water leaving the ash bund contains some ash and, hence, cannot be disposed/mixed with natural resources (Velhala River) as per the Rules and Regulations of MoEF. Ash water recovery works are being implemented to recover the water after flocculation of ash in order to stop pollution in the 3 km area. The work of ash water recovery is in progress and is expected to be completed by May, Except during the rainy season, the water from the ash bund does not reach the Project site through Bhagwati River. MERC- Order in Case No 201 of 2014 Page 15 of 82

16 2.3.3 The compound wall of the Project is built on MSPGCL s land along the banks of Bhagwati River. For convenience of MSPGCL employees to reach raw water pump house on the other bank of the river, a river over bridge is being constructed by MSPGCL. To facilitate such construction, a temporary Dam has been built on the river. Within two months, it will be removed after completion of the over bridge As a part of development of green belt, 8095 trees have been planted in 6.99 hectares of land under the Project. The work order for Rain Water Harvesting scheme has been issued, and 6 months is envisaged for its completion. Commission s view The Commission has taken note of the submissions of MSPGCL on these issues. However, these issues are not primarily related to Capital Cost and Tariff determination. 2.4 PROJECT COST Shri. Choudhari submitted that additional cost incurred on account of deficiencies in the quality of material supplied should not be included in the Project cost. MSPGCL s reply MSPGCL submitted that the Project engineers and civil engineers supervise and check the work relating to the various contracts within terms and conditions of these contracts and quality norms. There is no provision in the contracts for recovery of cost incurred due to any accident in future. Guarantee is enforced in the contract for the quality of work/supply. As per the terms and conditions of the contracts, the responsibility of successful operation and commissioning of the machinery during the guarantee period lies on the contractors. The cost incurred for such works is not included in the Project cost The Petition for approval of Capital Cost and Tariff for Bhusawal Unit # 4 and Unit # 5 has been filed in accordance with MERC Tariff Regulations and audited Capital Cost of the Project. MERC- Order in Case No 201 of 2014 Page 16 of 82

17 Commission s view The Commission, in this Order, has approved the Capital Cost of Bhusawal Unit # 4 and Unit # 5 after due prudence check of the actual cost incurred by MSPGCL, as detailed in Section 4 of the Order. 2.5 FILING OF PETITION Shri. Choudhari submitted that MSPGCL has not submitted the Petition in Marathi. MSPGCL s reply MSPGCL submitted that the Petition has been filed under the provisions of MERC Tariff Regulations. As per the MERC (Conduct of Business) Regulations, 2004, the regular work of the Commission is in English and hence, MSPGCL has submitted the Petition in English. As per the directives of the Commission, it was mandatory to prepare and make available free of cost to the public the Executive Summary of the Petition in both English and Marathi. Accordingly, the English and Marathi versions of the Executive Summary were made available on MSPGCL s website, and the complete Petition was also made available on MSPGCL s website free of cost. The printed version of the Petition was also made available on payment of prescribed fees. Commission s view The Commission has noted the objection. In this regard, the Commission is in agreement with the reply submitted by MSPGCL. MERC- Order in Case No 201 of 2014 Page 17 of 82

18 3 APPROACH OF THIS ORDER MSPGCL has filed the present Petition for determination of Capital Cost and Tariff of Bhusawal Unit # 4 and Unit # 5 for FY to FY , along with true up for FY and FY under Sections 61, 62 and 86(1) (a) (b) of the EA, 2003 and Part E of MERC (Terms and Conditions of Tariff) Regulations, 2005 and Part F of MERC MYT Regulations, It is to be noted that MERC (Terms and Conditions of Tariff) Regulations, 2005 were applicable till the end of FY The Commission notified the MERC (Multi Year Tariff) Regulations, 2011 to be applicable from FY to FY However, the Commission exempted MSPGCL from applicability of MERC MYT Regulations, 2011 for a period of 2 years through its Order dated 23 August, 2011 in Case No. 44 of 2011, stating as follows: There is no choice but to enable the Petitioner to file its ARR and Tariff filings under the Maharashtra Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, In light of the above, the Commission is of the view that it has become necessary to invoke the proviso to Regulation 4.1 of MYT Regulations, 2011 in order to exempt the determination of tariff of the Petitioner under the Multi-Year Tariff framework till March 31, 2013 (i.e., for a period of 2 years). The said exemption is hereby granted. The Commission is also empowered under Regulation 100 of MYT Regulations, 2011 to remove any difficulty arising in giving effect to the provisions of MYT Regulations, Bhusawal Unit # 4 was commissioned on 16 November, 2012, and Unit # 5 on 3 January, Hence, the Commission in this Order has approved the Tariff of Bhusawal Unit # 4 for FY in accordance with MERC (Terms and Conditions of Tariff) Regulations, 2005 and of Bhusawal Unit # 4 and Unit # 5 for FY to FY in accordance with MERC MYT Regulations, MERC- Order in Case No 201 of 2014 Page 18 of 82

19 4 CAPITAL COST OF BHUSAWAL UNIT # 4 & UNIT # Capital Cost of Bhusawal Unit # 4 & Unit # Bhusawal Unit # 4 was commissioned on 16 November, 2012 and Unit # 5 was commissioned on 3 January, MSPGCL submitted that the proposal for developing 1000 MW Bhusawal Unit # 4 and Unit # 5 was approved vide its Board Resolution MSPGCL/BM-9/Item- 5 dated 28 March, As per this Resolution, the approved estimated cost was Rs Crore, which included hard cost of Rs Crore and IDC of Rs. 472 Crore. In the initial estimates of the capital cost, IDC was considered as a fixed percentage of the capital cost and not as per envisaged drawal pattern of loans. The Boiler Turbine Generator (BTG) contract was placed on M/s Bharat Heavy Electricals Ltd. (BHEL) on 20 September, Tata Projects Ltd (TPL) was appointed for undertaking the Balance of Plant (BoP) works on 28 May, MSPGCL submitted that the capital cost approved by its Board was indicative and should not be considered as base cost. The capitalised Project cost as on the Date of Commercial Operation (COD) of Unit # 5 is Rs Crore, which includes hard cost of Rs Crore and IDC of Rs Crore. The comparison of various components of Capital Cost as per orders placed for various packages of the Project (i.e., Ordering Cost) and actual cost incurred (i.e., Cost upto COD), as submitted by MSPGCL, is given in the Table below: Table 4-1: Comparison of Ordering Cost and Cost upto COD as submitted by MSPGCL (Rs. Crore) Particulars Ordering Cost Cost upto COD of Unit # 5 (for 1000 MW) Land & Site Development N.A BTG BoP Civil Works Construction & Pre- Commissioning activities N.A Overheads Control &Instrumentation * Total *included in BoP MERC- Order in Case No 201 of 2014 Page 19 of 82

20 4.1.4 The submissions of MSPGCL and the Commission s analysis of various components of Capital Cost are detailed in subsequent Sections of this Order. 4.2 Background to Project Commissioning MSPGCL submitted that the proposal for developing 1000 MW Bhusawal Unit # 4 and Unit # 5 was approved vide its Board Resolution MSPGCL/BM-9/Item- 5/ dated 28 March, As per the said Resolution, the approved cost estimate was Rs Crore. The Board also resolved to invite International Competitive Bidding (ICB) tenders for Main Plant Package and separate tenders through Domestic Competitive Bidding (DCB) for BoP Package, including the civil works for Main Plant Package MSPGCL submitted that it had initiated the ICB process for award of BTG, and BHEL and M/s Doosan Heavy Industries & Construction Co. Ltd. purchased the Bid documents. Pursuant to ICB process, BHEL emerged as the sole participant and was found to qualify under the requirements of the Request for Proposal (RFP). Accordingly, the order was placed on BHEL on 20 September, MSPGCL submitted that, pursuant to the DCB process, the contract for BoP and other works was placed on TPL on 28 May, Four bidders had submitted bids, and TPL, the lowest bidder, was awarded the Contract for BoP and the civil and structural works of Main Plant. The details of Award of BoP package, as submitted, by MSPGCL is given in the Table below: Table 4-2: Award of BoP package as submitted by MSPGCL Package Agencies participated Qualified Agencies Final Order placed on BoP (Electrical, Tata Projects Ltd. Tata Projects Ltd. Tata Projects Ltd. Mechanical and BGR Energy Systems Ltd. BGR Energy Systems Ltd. Civil) Larsen & Toubro Ltd. Larsen & Toubro Ltd. Reliance Energy Ltd. Reliance Energy Ltd MSPGCL submitted that, in order to ensure least cost principle, it had adopted the conventional route of inviting tenders through Competitive Bidding process for placement of associated auxiliaries and sub-systems for Bhusawal Unit # 4 and Unit # 5. The following agencies were awarded the other works of these Units through DCB, as per details given in the Table below: MERC- Order in Case No 201 of 2014 Page 20 of 82

21 Table 4-3: Award of other Packages, as submitted by MSPGCL Sl. No. Package Scope of works Award process No. of bids received Final Order placed on Date of award 1 Railway Construction of Broad DCB 5 Indrajit Singh 16 October, Siding Gauge Railway Siding Chhabra, Bhusawal Staff Construction of E type DCB 3 Shah Construction 28 January, Quarters staff quarters 14 building Engineering & 2009 Contractors, Karad 3 Staff Construction of staff DCB 7 Prakash Constrwell 9 June, Quarters quarters, D type 144 Pvt. Ltd., Nasik 2009 tenements 5 Staff Construction of staff DCB 2 Shah Construction 7 July, Quarters quarters, A-type 1 Engineering & 2007 tenements, B-type 24 Contractors, Karad tenements & C-type 48 tenements 6 Railway Supply of OHE items / DCB 3 M/s. Umesh Brothers 22 July, Siding Material for BG Rly & Construction Pvt siding at Deepnagar, Ltd., Navi Mumbai Bhusawal MSPGCL submitted that its Board approved the revised cost estimates of Bhusawal Unit # 4 and Unit # 5 vide Resolution MSPGCL/BM-69/Item-69.18/ dated 24 May, The revised Project cost as per the revised approval is Rs Crore, with hard cost of Rs Crore and IDC of Rs Crore MSPGCL submitted that its Board approved the further revised cost estimates of Bhusawal Unit # 4 and Unit # 5 vide Resolution MSPGCL/BM-140/ dated 25 August, The revised Project cost as per the revised approval is Rs Crore, with hard cost of Rs Crore and IDC of Rs Crore MSPGCL submitted that the completion time as per the Contract Agreement with BHEL was 43 months for Unit # 4 and 47 months for Unit # 5. The actual MERC- Order in Case No 201 of 2014 Page 21 of 82

22 period taken for completion of trial run of Unit # 5 is 77 months as against the contractual schedule of 43/47 months. The delay in key milestones, as submitted by MSPGCL, for Unit # 4 and Unit #5 is shown in the Tables below: Sl. No. Milestone Activity Scheduled Date Table 4-4: Milestone activities for Unit # 4 Actual Date Lag (+)/ Lead (-) (Days) Period Required for Completion from Previous Activity as per Schedule (Days) Period Required for Completion from Previous Activity as per Actual (Days) Additional Period taken for completing Activity (Days) = =7-6 Boiler Activities 1 Project Start Boiler Start Erection Drum lifting Hydraulic (D) Test Boiler Light Up Turbine Activities Condenser Erection Start Turbine Erection Start Oil Flushing Completion Commissioning Activities Steam Blowing Synchronization Coal Firing Trial Operation MERC- Order in Case No 201 of 2014 Page 22 of 82

23 Sl. No. Milestone Activity Table 4-5: Milestone activities for Unit # 5 Scheduled Date Actual Date Lag (+)/ Lead (-) (Days) Period Required for Completion from Previous Activity as per Schedule (Days) Period Required for Completion from Previous Activity as per Actual (Days) Additional Period taken for completing Activity (Days) = =7-6 Boiler Activities 1 Project Start Boiler Start Erection Drum lifting Hydraulic Test (D) Boiler Light Up Turbine Activities Condenser Erection Start Turbine Erection Start Oil Flushing Completion Commissioning Activities Steam Blowing Synchronization Coal Firing Trial Operation The reasons submitted by MSPGCL for extension in Project completion schedule for Unit # 4 and Unit #5, are shown in the Tables below: Table 4-6: Reasons for extension in completion schedule for Unit # 4 Sl. No. Milestone Activity Reason for extension in completion schedule 1. Boiler Erection Start Foundation handed over on instead of (delay MERC- Order in Case No 201 of 2014 Page 23 of 82

24 Sl. No. Milestone Activity Reason for extension in completion schedule by 17 days.) BHEL failed to provide the cranes in time. 45 T crane and 10 T Hydra arrived at site on Drum Lifting Non-Availability of crane: - 350T/250T capacity crane commissioned on , which is required for top side columns, ceiling girders and WNs & RBs. Delay in supplies: Boiler main column S8R 3 rd, 4 th, 5 th, 6 th & 7 th tire piece received at site on Similarly, Boiler column S4R 4 th, 5 th, 6 th & 7 th tier piece received on Insufficient man power deployed by contractor 3. Hydraulic Test (D) Delay in Supplies: Supply of Boiler bottom ring header delayed by 9 months. Its scheduled date for supply was whereas it was supplied on Similarly supply of LTSH outlet header was also delayed by 10.5 months. Its scheduled date was whereas it was supplied Supplies of material for Hydraulic test completed on Boiler Light Up Boiler non drainable Hydraulic test carried out on As Permanent Chimney was not available, clearance was received for boiler light up on with temporary chimney. 5. Condenser Erection Start While the Deck was ready for condenser erection on , the condenser erection started on Turbine Erection Start 7. Oil Flushing Completion TG deck handed over on against the scheduled date of , i.e., 11.5 months delay. TG erection was delayed due to delay in receipt of TG material. TG box up completed on Supplies of TG modules affected the turbine box up activity, which resulted in delay of oil flushing activity. Oil flushing started on Activity delayed due to delay in start of oil flushing. 8. Steam Blowing Steam blowing activity delayed due to delay in Boiler light up, alkali boil out and acid cleaning. MERC- Order in Case No 201 of 2014 Page 24 of 82

25 Sl. No. Milestone Activity Reason for extension in completion schedule 9. Synchronization Supplies of TG modules were delayed and delay in supply of IP bus duct material from BHEL Rudrapur & GTR commissioning was delayed. Supply of HP turbine delayed by 270 days. Scheduled date of supply was Aug whereas actually it was supplied on , i.e., delay of 9 months. Supply of IP turbine delayed by 6 months. Its scheduled date was September 2009 but was supplied on Delay in supply of LP rotor & completion of centering of rotor. LP rotor was delayed by 11 months. Its scheduled date was whereas it was supplied on LPT also received late. 10. Coal firing Delay in wagon tippler commissioning. Delay in GEHO pump commissioning Delay in supply of coal mill bowl extension ring by 10 months. Its scheduled date was whereas actually supplied on Delay in supply of coal mill guard support by 10.5 months. Its scheduled date was whereas supplied on The delay of supply of coal mill matter resulted in delay in erection of coal mill. During full load operation on incidence of Boiler tube leakage occurred. After rectification work, again Boiler was lighted up on Non availability of CHP. 11. Trial Operation All above said factors attributed to the delay. Generator exciter assembly failed on and was replaced on Non availability of coal delayed trial operation and thereby COD. MERC- Order in Case No 201 of 2014 Page 25 of 82

26 Table 4-7: Reasons for extension in completion schedule for Unit # 5 Sl. No. Milestone Activity Reason for extension in completion schedule 1. Boiler Erection Start Erection agency of BHEL along with equipment was not mobilized at site till July Boiler column S5R erection started on though the site was handed over to M/s. BHEL for erection on Drum Lifting Delays in erection start up. 180 T capacity crane was not available for Unit 5. It was made available on & erection of 5 th & 6 th tier stared. S10L column 1 st, 2 nd, 3 rd, tier piece received at site on S9R column 4 th, 5 th, 6 th tier piece received at site on S11R column 4 th, 5 th, 6 th & 7 th tier piece received at site on Jack for drum lifting was received at site on Other 150 T Crane was diverted to Unit-IV for Boiler Erection. 3. Hydraulic Test (D) Drum lifting delayed by 3.5 months. The bottom ring header was received at site on instead of , i.e., delay of 10.5 months. 4. Boiler Light Up Drainable hydraulic test delayed by 7 months Re-erection of chimney flue. Erection of Bottom Ash Hopper started on Boiler aux. cable trenches, trays and cabling works, NDCT, CW Forebay, ACW/CW pipelines works attributed to delay. 5. Condenser Erection Start 6. Turbine Erection Start Deck ready for condenser erection on Start of condenser erection on Deck ready for TG erection on TG erection started on due to delay in receipt of material. 7. Oil Flushing Completion TG box up completed on Supplies of TG modules affected the turbine box up activity, which resulted in delay of oil flushing activity. 8. Steam Blowing Drainable hydraulic delayed by 7 months. Delayed in erection of RHS bunker columns effect on boiler feed line. Steam blowing activity delayed due to delay in Boiler light up, alkali boil out and acid cleaning. 9. Synchronization Drainable hydraulic test delayed by 7 months. TG modules & MERC- Order in Case No 201 of 2014 Page 26 of 82

27 Sl. No. Milestone Activity Reason for extension in completion schedule generator dispatch schedule delayed. Stator lifted on Safety valve floating & steam blowing activity delayed. 10. Coal firing Synchronization delayed for above reasons. CHP not yet ready. Delay in supply of coal mill bowl extension ring by 10 months. Its scheduled date was whereas actually supplied on Delay in supply of coal mill guard support by 10.5 months. Its scheduled date was whereas supplied on The delay of supply of coal mill matter resulted in delay in erection of coal mill. 11. Trial Operation All above said factors attributed to the delay. Delay in completion of Varangaon railway siding, Ash disposal pipelines. Non availability of coal delayed trial operation and thereby COD MSPGCL submitted that the main reason for delay of around 1000 days in commissioning of Unit # 5 was due to delay in construction of Railway siding from Varangaon Station to the Bhusawal New Units due to the following reasons: Settlement with land owners demanding enhanced payments for handing over of private land in Fulgaon and Pimprisekam Shivar. Stoppage of work in Fulgaon Shivar by villagers demanding employment. Late handing over of site on National Highway No. 6 crossing portion Delay in approval of Commissioner of Railway Safety for commissioning of Railway siding. Delay in approval for RCC culvert at km 451/18-20 for crossing of Mumbai-Howrah Railway line. For the purpose of initial commissioning with coal, two pipelines were temporarily laid within existing culvert below rail track. However, these temporary lines were not adequate for entire plant on continuous and sustainable basis. Thus, the completion of ash disposal pipe line was delayed by 1359 days on account of delay in receipt of final approval from Railways MSPGCL submitted that commissioning of Unit # 5 was further delayed due to poor coal quality. MERC- Order in Case No 201 of 2014 Page 27 of 82

28 MSPGCL submitted that the Project Management Group was vigilant on the performance of the contractors in terms of quality, quantity and supply of materials. MSPGCL submitted that it was very proactive in pursuing the contractors through letters and communication at the highest level for supply of equipment at the right time and of the best quality. The list of letters written by MSPGCL to BHEL is given in the Table below: Table 4-8: Letters to BHEL, as submitted by MSPGCL Date of Letter Issue highlighted 5 April, 2008 Non-sequential supply of material for Drum Lifting 17 April, 2008 Non-sequential supply of material for Drum Lifting 8 October, 2008 Inadequate manpower for erection 9 June, 2009 Non-availability of critical material for Turbine erection for Unit # 4 2 September, 2009 Non-availability of critical material for erection of Unit # 4 condenser 12 October, 2009 Non-supply of Circulating Water Pumps 3 November, 2009 Non-availability of critical material for erection of Turbine Generator 18 November, 2009 Non-availability of material for Boiler Feed Pump for Unit # 4 4 March, 2010 Non-supply of critical material for drainable hydraulic test of Unit # 4 28 June, 2010 Non-supply of critical material for erection 10 August, 2010 Delay in start of erection work of pressurising pumps 16 August, 2010 Non-sequential supply of material 10 December, 2010 Pending material for Boiler light up of Unit # 4 and Unit # 5 14 September, 2010 Non supply of critical material for erection 15 December, 2011 Pending works of Unit # 4 17 January, 2012 Slow rehabilitation work of Unit # 4 9 June, 2012 Rectification of damage in generator exciter of Unit # The Commission s view on the above submissions of MSPGCL regarding the justification for the delay in commissioning of the Project and its impact on the IDC to be approved as part of the Capital Cost is set out Section 4.5 of this Order. MERC- Order in Case No 201 of 2014 Page 28 of 82

29 4.3 COMPARISON OF CAPITAL COST MSPGCL submitted the audited capital cost upto the respective CODs of Unit # 4 and Unit # 5. At the TVS, the Commission directed MSPGCL to submit the comparison of capital cost of Bhusawal Unit # 4 and Unit # 5 with other Units of 500 MW capacity MSPGCL submitted that the Central Electricity Regulatory Commission (CERC), vide its Order dated 4 June, 2012, had suggested the benchmark hard cost for thermal power plants with coal as primary fuel. As per CERC, the benchmark cost for a greenfield 2 x 500 MW Project is Rs Crore/MW, excluding taxes and duties, IDC, Financing Charges (FC), Merry Go Round (MGR), Railway siding, unloading equipment at jetty, rolling stock, locomotive, transmission line till tie point, Right of Way (RoW) charges, cost of Relief and Rehabilitation (R&R), etc. MSPGCL also compared the capital cost of Bhusawal Unit # 4 and Unit # 5 with other 500 MW Units set up in the Public and Private sectors, and submitted that the capital cost of Bhusawal Unit # 4 and Unit # 5 falls within the range of industry benchmarks, as shown in the Table below: Table 4-9: Comparison of Capital Cost, as submitted by MSPGCL MERC- Order in Case No 201 of 2014 Page 29 of 82

30 4.4 HARD COST Land & Site Development MSPGCL submitted that Bhusawal Unit # 4 and Unit # 5 were set up on land lying vacant in the vicinity of Bhusawal TPS MSPGCL submitted that the actual cost for Land and Site Development incurred uptocod is Rs Crore. Commission s Analysis The Commission asked MSPGCL to submit justification for Land and Site Development cost. MSPGCL submitted the details of Land and Site Development cost as shown in the Table below: Table 4-10: Land and Site Development Cost upto COD of Unit # 5 (for 1000 MW) (Rs. Crore) Particulars Total Soil investigation and Area Grading Land development Cost of land acquisition for Railway siding from Varangaon station 5.11 Total The Commission has gone through the submissions of MSPGCL and observes that the actual cost under land and site development as claimed by MSPGCL is justifiable. Hence, the Commission approves the cost of Rs Crore for Land and Site Development Cost upto COD of Unit # 5 for 1000 MW, as submitted by MSPGCL. Table 4-11: Land & Site Development Cost upto COD approved by the Commission (Rs. Crore) MSPGCL Approved uptocost upto Particulars Cost upto COD of Unit Ordering Cost COD of Unit # 5 # 5 (for 1000 MW) (for 1000 MW) Land & Site Development

31 BTG Package MSPGCL submitted a copy of the Note put up to its Board for approval of placement of Order for Main Plant Package for Bhusawal Unit # 4 and Unit # 5 on BHEL. Pursuant to negotiations, the order was placed on BHEL at a discounted price. In order to assess the reasonability of the revised price offer of BHEL, the total price was compared with estimated price of Korba Stage III 500 MW Unit of NTPC ordered from BHEL in March, 2006, with price escalation upto the base date for the Bhusawal offer. Based on the comparison of Korba Stage III, having a similar scope of main plant package, with the quoted price for Bhusawal Unit # 4 and Unit # 5, the quoted price of BHEL for these Units was assessed to be reasonable. MSPGCL submitted that the price for erection, testing and commissioning was also compared with the accepted price for Parli Unit # 6, Paras Unit # 4 and Khaperkheda Unit # 5 Main Plant Equipment MSPGCL submitted that the actual cost of BTG package upto COD of Unit # 5 for 1000 MW is Rs Crore. Commission s Analysis As directed by the Commission, MSPGCL submitted the Contract Agreements executed with BHEL for supply and erection and commissioning of Main Plant Package along with statement of bills received. MSPGCL also submitted that the increase in Cost upto COD with respect to ordering cost is due to Price Variation and Taxes & Duties The Price Variation clause as per the Contract Agreements is reproduced below: 4.0 CONTRACT PRICE ADJUSTMENT / VARIATION 4.1 The Ex-works supply price shall be subjected to the price variation and shall be paid as per the formulae given in clause No.11.0 of Section-3 of Volume-I of the Bid Specification under ref.1, if any, for the corresponding period, with base indices as on June 06. The Price Variation shall be subjected to a ceiling of (+/-) 20% of the Ex-works supply price 4.2 In case the contract period is required to be extended beyond the cut off dates for reasons attributable to the Contractor, for making payments towards price variation, the Owner shall select the indices in the P.V. formula either by restricting their value to contractual cut off date or the actual indices prevailing at that time, whichever is lower. MERC- Order in Case No 201 of 2014 Page 31 of 82