Petition No. 975 of 2014 and 1017 of 2015 BEFORE THE UTTAR PRADESH ELECTRICITY REGULATORY COMMISSION LUCKNOW. Date of Order:

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1 Petition No. 975 of 2014 and 1017 of 2015 BEFORE THE UTTAR PRADESH ELECTRICITY REGULATORY COMMISSION LUCKNOW Date of Order: IN THE MATTER OF: AND IN THE MATTER OF M/s Lalitpur Power Generation Co. B-10, Sector -3, Jamnalal Bajaj Marg, Noida (U.P) UP Power Corporation Limited (Through its Chairman) 7 th Floor, Shakti Bhawan 14 - Ashok Marg, Lucknow. Following were present: Approval of capital cost and Fixation of provisional tariff of 3 x 660 MW Lalitpur Thermal Power Project of under UPERC (Terms and Conditions of Generation Tariff) Regulations, Shri V.P. Srivastava, CE (PPA), UPPCL 2. Shri V. K. Asthana, SE (PPA), UPPCL 3. Shri Ramashankar Awasthi, Consumer Petitioner Respondent 4. Shri Awadesh Kumar Verma, Chairman, UP Rajya Vidyut Upbhokta Parishad 5. Shri H. Aslam, EE (PPA), UPPCL 6. Shri SNM Tripathi, Director, LPGCL 7. Shri Anant Swaroop, Sr. VP(L),, LPGCL 8. Shri Praveen Bansal, Advocate,, LPGCL 9. Shri Amrendra, Manager, BBPL 10. Shri Manish Garg, Chartered Accountant, UPPCL Page 1 of 14

2 Order (Date of Public Hearing and ) 1. The Government of Uttar Pradesh declared Energy Policy, 2009 envisaging development of Independent Power Plants within the state to meet out the demand of power, under various routes including Memorandum of Understanding (MOU) route, at various places identified by the state and /or by the private developers. Generating projects of capacity 250 MW and above being set up through MoU route would be eligible to get the benefits under this Policy. Subsequently, vide order dated , the GoUP has made another amendment to GoUP Energy Policy, 2009 which states as below: Where the developer sells electricity to state utilities, the transmission lines including sub-stations and its up gradation of existing equipment etc. if any, shall be done by the state utilities for evacuating the power from generating station. However, the work at generating stations end including switch yard, bay etc. shall be the responsibility of developer. For the projects under MoU route, the signed MoUs affirm that the projects will be treated as Industry in terms of Industrial Policy of the State and all the incentives available to new projects will be applicable. Under the aforesaid policy, Uttar Pradesh Power Corporation Limited (UPPCL) (the state nominated agency) identified a site in District Lalitpur (U.P) for setting up of 3 X 660 MW Super Critical Thermal Power project under a SPV namely M/s Lalitpur Power Generation Company Limited (LPGCL), the state Government and M/s Bajaj Hindustan Limited (lead member of consortium) signed an MOU on for setting up of the said power project. LPGCL and UPPCL followed the standard document available for Case 2 based power procurement process and the respective Regulations of UPERC for the terms and conditions for determination of tariff under the draft PPA as directed by the Commission. The general conditions were taken from Case 2 standard bidding documents and the terms and conditions Page 2 of 14

3 for determination of tariff were taken from UPERC (Terms and Conditions of Generation Tariff) Regulations, Along with the petitions the list of deviations sought was also submitted for approval of the Commission. The Commission approved the Power Purchase Agreement (PPA) with the list of deviations from the standard documents forming part of the PPA, vide its order dated November 18, 2010 read with order dated November 18, 2010 read with order dated December 07, The PPA was signed for 90% of power on Subsequently UPPCL, also entered into a Supplementary Power Purchase Agreement (SPPA) with the respondent on June 15, 2011for sale of 100% saleable power generated from power stations to the respondent at a price to be determined by the Commission. 2. As per the Regulations, PPA may provide a ceiling on capital expenditure which would be admitted by the Commission after prudence check, although, the actual capital cost incurred on completion of the project shall form the basis for determination of tariff which shall be approved by the Commission under Regulation 17 of UPERC (Terms and Conditions of Generation Tariff) Regulations, Regulation 17 of UPERC (Terms and Conditions of Generation Tariff) Regulations, 2009 provides that: Subject to prudence check by the Commission, the actual expenditure incurred on completion of the project shall form the basis for determination of final tariff. The final tariff shall be determined based on the admitted capital expenditure actually incurred up to the date of commercial operation of the generating station Provided that where the Power Purchase Agreement entered into between the generating company and the beneficiaries provides a ceiling on capital expenditure and the actual capital expenditure exceeds such ceiling, such increase/escalations shall be decided by the Commission on case to case basis on an application filed by the generating company. 3. The scheduled COD of the project as per PPA is December 25, 2015 for 1 st Unit, June 25, 2016 for the 2 nd unit and December 25, 2016 for the 3 rd unit. Page 3 of 14

4 4. For determination of provisional tariff, the Regulation 5 (3) of the UPERC (Terms and Conditions of Generation Tariff) Regulations, 2014, provides as below: (3) In case of a generating station declared under commercial operation on or after the date of commencement of this regulation, an application for fixation of tariff shall be made as per Appendix II to these regulations, for determination of provisional tariff within 180 days of the anticipated date of commercial operation based on the capital expenditure actually incurred up to the date of making of the application or a date prior to making of the application, duly audited and certified by the statutory auditors, and the provisional tariff shall be charged from the date of commercial operation of the respective unit of the generating station. A generating company shall make a fresh application as per Appendix II to these regulations, for determination of final tariff based on actual capital expenditure incurred up to the date of commercial operation of the generating station, duly audited and certified by the statutory auditors. Provided further that over or under recovery of charges by the generating company on account of provisional tariff shall be subject to retrospective adjustment on the basis of final tariff determined by the Commission. The generating company, on the basis of such final tariff, shall calculate the amount of under or over recovery of charges and bill such amount to be recovered or paid by it from or to the beneficiary (ies), for the period the provisional tariff remained effective, within six months of determination of final tariff, along with simple interest calculated at rate equal to Bank Rate as on 1st April of the relevant year. (4) Where application for determination of tariff of an existing or a new project has been filed before the Commission in accordance with clauses (2) and (3) of this regulation, the Commission may consider in its discretion to grant provisional tariff up to 95% of the annual fixed cost of the project claimed in Page 4 of 14

5 the application subject to adjustment as per proviso to clause (3) of this regulation after the final tariff order has been issued. Provided that recovery of capacity charge and energy charge, as the case may be, in respect of the existing or new project for which provisional tariff has been granted shall be made in accordance with the relevant provisions of these regulations. 5. The Petitioner has submitted the certified and audited capital costs incurred by them up to as Rs Crores. The Capital cost is financed through apportioning Debt of Rs Crores and Equity of Rs Crores in the ratio of 72:28. The details are as shown below: Table 1: Capital cost submitted by the Petitioner S. No Total Amount Spent Amount (Rs. In Crore) 1 Land, leasehold land and R &R Payment for BTG package Payment for BOP Package Payment for Misc. BOP works Preoperative Expenses including insurance, consultancy etc. 6 Power & water arrangement for construction Payment for Startup fuel cost Interest during Construction period (Net) Finance Charges Total Thereafter, the petitioner submitted the incurred capital cost up to as Rs crores. The details for the same has been shown below: Page 5 of 14

6 Table 2: Capital Cost submitted as on S. No Total Amount Spent Amount (Rs. In Crore) 1 Land, leasehold land and R &R Payment for BTG package Payment for BOP Package Payment for Misc. BOP works Preoperative Expenses including insurance, consultancy etc. 6 Power & water arrangement for construction Payment for Startup fuel cost Interest during Construction period (Net) Finance Charges Total It has been observed that the petitioner has claimed incresed capital cost of Rs Crores with the following breakup detailed in the below table: Table 3: Difference in Capital Cost filed by the Petitioner S. No Particulars Capital Cost as on Amount (Rs.Crore) Capital Cost as on Amount (Rs.Crore) Difference Amount (Rs.Crore) 1 Land, leasehold land and R &R Payment for BTG package Payment for BOP Package Payment for Misc. BOP works Preoperative Expenses including insurance, consultancy, etc 6 Power & water arrangement for construction Payment for Startup fuel cost Interest during Construction Page 6 of 14

7 S. No Particulars period (Net) Capital Cost as on Amount (Rs.Crore) Capital Cost as on Amount (Rs.Crore) Difference Amount (Rs.Crore) 9 Finance Charges Total Shri Awadesh Kumar Verma, Chairman, UPRVUP, vide letter dated made written submission which he reiterated during the Public Hearing as follows: (i) The Capital Cost of the project was Rs Crs. in the year 2011 which has increased to Rs Crs.(Rs Cr./MW). The capital cost should be considered by the Commission only after CAG Audit. (ii) The capital cost should be considered in reference to CERC benchmarks (iii) Other financial parameters should be properly examined otherwise power from this project would be made available to consumers at a higher cost. (iv) The Commission should take final view on capital cost after considering the three member committee report made by UPPCL and only after conducting further public hearing. 8. Shri Rama Shankar Awasthi, Consumer Representative, vide letter dated made written submission. Shri Awasthi stated during the hearing that: (i) The petition has not been filed as per Regulations, 2014 (ii) The transmission line for power evacuation has not been completed yet. Page 7 of 14

8 (iii) LPGCL has charged Rs. 300 Crs. on construction of 132/220 KV transmission line which should not be taken in tariff. (iv) (a) The capital cost in the Petition, Rs. 8.6 Crs./MW is too high. The cost has been increased due to the reason that contracts have been allocated to associates companies like CIPL, Singapore, BIDCO (Bajaj Infrastructure Development Company Ltd.) India, Anand Projects Ltd. The company also has common directors. (b) For additional work, Rs Crs. has been charged in the capital cost which should not be part of fixed charge. (c) Undisclosed liability should not be made the part of capital cost. (d) The project having capacity of 2960 MW has been conceived under mega Power Policy. Therefore, the common facilities should be equally divided between stage- 1 (3 x 660 MW) and stage -2 ( 2 x 660 MW). (e) The details of R&R cost of Rs. 193 Crore has not been provided. (f) The details of pre operative expenditure of Rs Crores has not been provided. (v) The capital cost is not in tune with CERC norms. (vi) No hearing is required on the ceiling capital cost. (vii) The CoD of Unit-1 has not been intimated yet therefore, no requirement of provisional tariff. (viii) Taking escalation of 7% from Dec onwards, the project cost should not be allowed more than Rs. 5.7 Crore/ MW. (ix) Further opportunity for hearing should be given. Page 8 of 14

9 Shri Awasthi has also enclosed a letter regarding non availability of transmission system and its effects on CoD. On , Shri Awasthi made another submission in the matter of provisional tariff as follows: (i) The petition has not been filed under Regulation, 2014 (ii) The petition should be disposed of with the petition on Capital Cost. (iii) Since the petition has not been filed under Regulation 2014, the parameters taken are from Regulation 2009 which should not be allowed. (iv) In the petition of provisional tariff, project cost has been shown as Rs Crs. (v) In absence of transmission line, CoD cannot be achieved. (vi) Debt equity ratio has been taken 75:25 whereas as per the regulation it should be 70:30. (vii) Audited balance sheet, Scheduled for evacuation, Details of undisclosed liabilities etc. have not been submitted. Shri Awasthi further made submission on regarding capital cost and provisional tariff as follows: (i) Expenditure of Rs Crs. on foreign exchange fluctuation and Rs / Crs. under IDC should be properly verified as the agreed Capital Cost is more than Rs. 8 Cr./MW. (ii) RoE should be reduced on 5% equity if debt equity of 75:25 is approved. (iii) Capital Cost should be approved only after prudence check. (iv) Parameter should be allowed as per Regulations, 2014 as the CoD would be in the period of Regulations, (v) The variable cost of Rs. 3.47/KwH is higher. 9. UPPCL on has made following submission: Page 9 of 14

10 (i) The petitioner should clarify that whether the application has been filed under section 62 or 63. (ii) Additional RoE of 0.5% should not be allowed. (iii) Normative parameters should be taken as per Regulations (iv) Undercharged liabilities should be deducted. (v) IWC should be charged as per Regulations,2014. (vi) The expenditure on CSR should be disallowed. (vii) The details of IDC and expenditure on common facilities have not been provided. (viii) Provisional tariff should not be allowed more than 90% of the Capital Cost. UPPCL on , further submitted an amendment to its submission dated as follows: Prayer d in submission dated : Disallow prayer for grant in principle approval of the ceiling cost of the project i.e. Rs Crs. as the matter is beyond the scope of this petition. Amended clause vide submission dated : Provisional tariff may be approved on the basis of actual expenditure incurred by the petitioner upto the date indicated in the petition without any reference to the ceiling capital cost. 10. LPGCL filed rejoinder on in which they have given point wise reply on UPPCL s counter in which they have reiterated there earlier submitted points. LPGCL also filed replies dated on objections of Shri A.K. Verma and Shri R.S. Awasthi as follows: Reply to Shri A.K. Verma s objections: Page 10 of 14

11 (i) The request of CAG audit is totally misplaced. (ii) As agreed cost has already been filed, the objection on capital cost is misconceived. (iii) The request has been made for provisional tariff which is always subject to final fixation of tariff. (iv) The cost of BoP package as shown in petition is lower than CERC norms. Reply to Shri R.S. Awasthi s objections in the matter of Provisional Tariff: (i) As MoU has been entered during the period Regulations 2009, hence the petition is filed under Regulations, (ii) Both petitions should be disposed of separately. (iii) Duly filled statutory forms with the certificate of Chartered Accountant have been filed in the petition. (iv) The request for provisional tariff has been made based on the actual capital expenditures certified by statutory auditors. In general, LPGCL has submitted that the objections are not tenable and liable to be rejected. Reply to Shri R.S. Awasthi s objections in the matter of Capital Cost: (i) As MoU has been entered during the period Regulations 2009, hence the petition is filed under Regulations, (ii) The cost on construction of 132/220 KV transmission line has not been taken in tariff. (iii) The agreed capital cost of Rs Crs. has been submitted by UPPCL. (iv) The contracts have been awarded based on best competitive prices in a transparent manner. Page 11 of 14

12 (v) All the companies mentioned by Shri Awasthi are separate legal entities and are independent to the LPGCL. Regarding same director in many companies, LPGCL has submitted that it is permissible in the Companies Act. (vi) Regulation 19(2) of 2014 clearly specified the methodology to arrive on actual capital cost subject to prudence check. 11. UPPCL has replied to LPGCL rejoinder on : (i) LPGCL has accepted that the petition has been filed under section 62 (ii) Parameter should be as per Regulation, (iii) Un discharged liability should not be considered. UPPCL vide written submission dated has replied to the objections of Shri A.K. Verma and Shri R.S. Awasthi as follows: (i) The amount spent on 132/220 KV transmission system is not part of capital cost of the project. (ii) UPPCL has submitted consent to the ceiling capital cost of Rs Crs. (iii) The scheduled CoD of unit -1 is (iv) It is not proper for UPPCL to comment on figure quoted by Shri Awasthi in a piece meal manner. (v) The ceiling cost of Rs Crs. submitted by UPPCL is the decision of the corporation arrived at through the laid down decision making process in UPPCL. Therefore, Shri Verma s request for handing over of the report of three member committee is not justified. (vi) UPPCL has conveyed its agreed capital cost on affidavit. Page 12 of 14

13 12. LPGCL has informed during the hearing that Unit-1 has been synchronized with the grid on and hopefully they would achieve scheduled CoD and therefore requested for early approval of provisional tariff. 13. The Commission has observed that as compared to other generation stations of similar installed capacity, there is an increase in capital cost of the petitioner s generation station. The petitioner has submitted that these costs are primarily due to the location of the generating station in the region of Bundelkhand and source of water being far away from the project. These costs include additional cost of Rs Cr towards lining of water canal from Rajghat Dam for bringing the water from Rajghat Dam through canal as the project is far away from the source of water, Rs Crores additionally spent on switchyard at the company end, Rs. 250 Crores towards supplementary water pipeline including associated pump house and auxiliaries etc., Rs 83 Crores on railway electrification siding and station, Rs 142 Crs on site development, repairing of approach roads from NH 25 to project site and environmental protection cost etc. These costs are specific to this project for which neither benchmarking has been given by CERC nor is any other yardstick readily available to decide the matter. Hence, considering the need for early determination of provisional tariff subsequent to Unit-1 having been synchronized, the Commission decides to take a view on these issues at a later stage. The Capital Cost for the project shall also be finalized at the time of determination of final tariff for the project subject to prudence check. Also, it will required to be considered if these additional costs should be loaded on to this project or UPPCL should request the State Government to bear this cost as the decision regarding location of the plant has been taken by them only. UPPCL should explore this option to reduce the burden on tariff. 14. In view of the above, the Commission considers the capital cost of Rs Crores for determining the provisional tariff for the project at this stage as the project specific cost mentioned above and increase in costs on account of BTG and BOP need to be verified further and a view is to be taken regarding its incidence. Thus, in the present petition, the Commission considers it appropriate to consider 90% of the actual Page 13 of 14

14 incurred capital expenditure of Rs Crores duly verified for the determination of provisional tariff. For, variable charges, the coal cost as submitted by LPGCL is considered and 85% of the requested variable charge is allowed. The Commission approves Rs. 1.88/kWh as annual fixed charge and Rs.2.95 /kwh energy charges as provisional tariff for the project. The details are as follows: Table 4: Approved Cost S.No Particular Units LPGCL Submission UPERC Provisional Approval 1. Capital cost filed by the Petitioner Rs.Cr Provisional approval by the Commission % 90% 3. Capital Cost provisionally considered by UPERC Apportioned Capital Cost for Unit-1 Rs.Cr Annual Fixed Charges 6. Interest on loans Rs.Cr Return on Equity Rs.Cr Depreciation Rs.Cr Operation and Maintenance Expenses Rs.Cr Interest on working Capital Rs.Cr Annual Fixed Charges Rs.Cr AFC Rs./kWh Energy Charge Rate Rs./kWh Total Tariff Rs./kWh Any over or under recovery arising out of the finally approved tariff shall be adjusted according to provisions of UPERC (Terms and Conditions of Generation Tariff) Regulations, 2014 and its amendments. 16. The petitions are disposed of with directions as above. (Indu Bhushan Pandey) Member Place: Lucknow Dated: (Desh Deepak Verma) Chairman Page 14 of 14