Case No. 9 of 2013 IN THE MATTER OF

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1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13 th Floor, Cuffe Parade, Mumbai Tel /65/69 Fax Website: Case No. 9 of 2013 IN THE MATTER OF Petition filed by Reliance Infrastructure Limited Distribution (RInfra-D) seeking approval of Aggregate Revenue Requirement (ARR) and determination of Multi Year Tariff for Second Control Period ( to ) Shri V.P. Raja, Chairman Shri Vijay L. Sonavane, Member Reliance Infrastructure Limited (RInfra), H Block, 1 st Floor, Dhirubhai Ambani Knowledge City, Navi Mumbai Petitioner ORDER Date: 22 August, 2013 In accordance with Regulation 7.1 and Regulation 8 of the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2011(hereinafter referred to as MERC MYT Regulations, 2011 or MYT Regulations ) and upon the directions from the Maharashtra Electricity Regulatory Commission (hereinafter referred to as the Commission ) in its Order in Case No. 158 of 2011 dated 23 November, 2012 (Order on RInfra-D s Business Plan for the second Control Period from to ), Reliance Infrastructure Limited Distribution (hereinafter referred to as RInfra-D or the Petitioner ), submitted its Petition

2 dated 29 January, 2013 for approval of Aggregate Revenue Requirement (ARR) and determination of Multi Year Tariff for Second Control Period from to The Commission, in exercise of the powers vested in it under Section 86, Section 62 (read with Section 61) of the Electricity Act, 2003 (hereinafter referred to as the Act or the EA, 2003) and all other powers enabling it in this behalf, and after taking into consideration all the submissions made by RInfra-D, issues raised during the Public Hearing and all other relevant material, issues the following Order: Page 2 of 302

3 TABLE OF CONTENTS 1. BACKGROUND AND SALIENT FEATURES OF THE ORDER Background Technical Validation Session (TVS) Admission of the Petition and Public Process Organisation of the Order OBJECTIONS, RINFRA-D S RESPONSE AND COMMISSION S RULINGS Tariff related suggestions Sales Distribution Loss Power Purchase Expenses Operation and Maintenance (O&M) Expenses Capital Expenditure and Capitalisation Depreciation Procedural Issue Energy s Wheeling s Cross Subsidy Surcharge Regulatory Asset and its Recovery Mechanism Distribution License related issues DETERMINATION OF THE ARR FOR THE CONTROL PERIOD FROM TO Sales forecast Approach Estimation of Total Sales Estimation of Changeover Sales Estimation of RInfra-D Own Sales Page 3 of 302

4 3.1.5 Demand Side Management (DSM) Measures Commission s Rulings Distribution Losses Distribution Losses for period from to Commission s Rulings Energy Balance and Power Purchase Requirement Energy Balance from to Commission s Rulings Power Procurement Plan and Expenses Estimation of Base and Peak Load Procurement from Dahanu TPS (DTPS) Procurement from Medium term Contracts (upto ) Procurement from Vidarbha Industries Power Limited (VIPL) Procurement from Renewable Sources Short Term bilateral Power Purchases Transmission s Stand-by s SLDC s Capital Expenditure and Capitalisation Capital Expenditure submitted by RInfra-D Capitalisation Plan submitted by RInfra-D Commission s Rulings Depreciation Depreciation submitted by RInfra-D Commission s Rulings Interest on Long Term Loan Capital Interest on Long Term Loan Capital submitted by RInfra-D Commission s Rulings Return on Equity Return on Equity submitted by RInfra-D Commission s Rulings Operations and Maintenance Expenditure Operations and Maintenance Expenditure Employee Expenses Administrative and General Expenditure Repairs and Maintenance Expenditure Commission s Rulings Interest on Working Capital and Security Deposits Page 4 of 302

5 RInfra-D s Submission Commission s Rulings Income Tax RInfra-D s Submissions Commission s Rulings Contribution to Contingency Reserves RInfra-D s Submissions Commission s Rulings Non-Tariff Income RInfra-D s Submissions Commission s Rulings Income from Other Businesses RInfra-D s Submissions Commission s Rulings Past Recovery of TPC-G Wire Availability and Supply Availability Wire Availability Supply Availability Aggregate Revenue Requirement RECOVERY OF REGULATORY ASSET Quantification of Regulatory Asset till Commission s Rulings Regulatory Asset Recovery Mechanism Proposed Recovery Mechanism Commission s Rulings TARIFF PHILOSOPHY Wheeling s and Wheeling Losses RInfra-D submission on Wheeling s Commission s Rulings Cross Subsidy Surcharge RInfra-D s Submissions Commission s Rulings Revenue Gap and Revenue requirement from retail tariff Revenue Gap at existing tariff Page 5 of 302

6 5.3.2 Commission s Rulings Revenue requirement to be recovered from Revised Tariffs Commission s Rulings Tariff Philosophy Commission s Tariff Philosophy Tariff Design Ceiling Tariff Rationalisation of Tariff Categories/Consumption Slabs Fuel Adjustment s Cross-Subsidy Reduction Trajectory REVISED TARIFFS WITH EFFECT FROM 1 September, 2013 (for ) REVISED TARIFFS WITH EFFECT FROM 1 APRIL, 2014 (for ) REVISED TARIFFS WITH EFFECT FROM 1 APRIL, 2015 (for ) INCENTIVES AND DISINCENTIVES Power Factor Incentive (Applicable for all HT categories, and LT II (B), LT II (C), and LT IV categories) Power Factor Penalty (Applicable for all HT categories, and LT II (B), LT II (C), and LT IV categories) Prompt Payment Discount Delayed Payment s (DPC) Rate of Interest on Arrears Load Factor Incentive APPLICABILITY OF THE ORDER Page 6 of 302

7 List of Tables TABLE 1: TOTAL SALES CAGR - CATEGORY WISE TOTAL SALES (%) AS SUBMITTED BY RINFRA-D TABLE 2: TOTAL SALES AS PROJECTED BY RINFRA-D OF CONSUMER CONNECTED TO ITS DISTRIBUTION SYSTEM (MU) TABLE 3: ADDITIONAL CHANGEOVER OVER CONSUMERS AS SUBMITTED BY RINFRA-D TABLE 4: CHANGEOVER SALES AS PROJECTED BY RINFRA-D (MU) TABLE 5: OWN SALES AS PROJECTED BY RINFRA-D (WITHOUT CONSIDERING IMPACT OF DSM) (MUS) TABLE 6: ENERGY SAVINGS (MU) THOUGH DSM ACTIVITIES AS SUBMITTED BY RINFRA-D TABLE 7: OWN SALES AS PROJECTED BY RINFRA-D (CONSIDERING IMPACT OF DSM) (MUS) TABLE 8: OWN SALES APPROVED BY THE COMMISSION (CONSIDERING IMPACT OF DSM) (IN MUS) TABLE 9: CHANGEOVER SALES APPROVED BY THE COMMISSION IN CASE 179 OF 2011 (IN MU) TABLE 10: ACTUAL DISTRIBUTION LOSS OF 12 AS SUBMITTED BY RINFRA-D TABLE 11: DISTRIBUTION LOSS TRAJECTORY AS SUBMITTED BY RINFRA-D FOR THE 2 ND CONTROL PERIOD TABLE 12: DISTRIBUTION LOSS REDUCTION TRAJECTORY APPROVED BY THE COMMISSION IN CASE NO. 158 OF TABLE 13: DISTRIBUTION LOSS TRAJECTORY APPROVED BY THE COMMISSION FOR THE 2 ND CONTROL PERIOD TABLE 14: IMPACT OF APPEAL NO. 160 OF 2012 AS SUBMITTED BY RINFRA-D (IN RS. CR) TABLE 15: ENERGY BALANCE FOR SECOND CONTROL PERIOD (MU) AS SUBMITTED BY RINFRA-D TABLE 16: POWER PURCHASE REQUIREMENT FOR SECOND CONTROL PERIOD (MU) AS SUBMITTED BY RINFRA-D TABLE 17: INSTS TRANSMISSION LOSSES AS PER MSLDC WEBSITE (%) TABLE 18: ENERGY BALANCE APPROVED BY THE COMMISSION (MU) TABLE 19: ENERGY REQUIREMENT APPROVED BY THE COMMISSION (MU) TABLE 20: BASE AND PEAK LOAD ESTIMATION AND ADDITIONAL CAPACITY REQUIREMENT FOR TABLE 21: ENERGY AVAILABILITY FROM DTPS AS SUBMITTED BY RINFRA-D TABLE 22: COST OF POWER PURCHASE FROM DTPS AS SUBMITTED BY RINFRA-D TABLE 23 POWER PURCHASE FROM RINFRA-G FOR TO TABLE 24: ENERGY AVAILABILITY FROM EXISTING MEDIUM TERM CONTRACTS (MU) AS SUBMITTED BY RINFRA-D 70 TABLE 25: TARIFF RATES FOR MEDIUM TERM CONTRACTS AS SUBMITTED BY RINFRA-D TABLE 26: COST OF POWER PROCUREMENT FROM MEDIUM TERM CONTRACTS (RS. CRORE) AS SUBMITTED BY RINFRA-D TABLE 27 POWER PURCHASE COST AS APPROVED FOR WPCL, ABHIJEET AND VIPL TABLE 28: POWER PURCHASE QUANTUM FROM VIPL FOR 15 & 16 AS SUBMITTED BY RINFRA-D TABLE 29: POWER PROCUREMENT COST FROM VIPL FOR 15 & 16 AS SUBMITTED BY RINFRA-D TABLE 30 POWER PURCHASE FROM VIPL FOR TO TABLE 31: SOLAR RPO REQUIREMENT AS SUBMITTED BY RINFRA-D TABLE 32: CUMULATIVE SHORTFALL IN SOLAR RPO IN 11 AND 12 AS SUBMITTED BY RINFRA-D TABLE 33: ACTUAL MONTH-WISE GENERATION FROM DSSPL AS SUBMITTED BY RINFRA-D TABLE 34: SOLAR POWER COST SUMMARY AS SUBMITTED BY RINFRA-D FOR THE SECOND CONTROL PERIOD TABLE 35: NON SOLAR OBLIGATION AS SUBMITTED BY RINFRA-D (MU) TABLE 36: EXISTING NON SOLAR CONTRACTS AS SUBMITTED BY RINFRA-D (MU) TABLE 37: POWER PURCHASE RATE WITH EXISTING NON SOLAR CONTRACTS AS SUBMITTED BY RINFRA-D (RS/KWH) TABLE 38: QUANTUM AND COST OF NON- SOLAR REC PROCUREMENT AS SUBMITTED BY RINFRA-D TABLE 39: DISCOUNT CLAUSE BY VARIOUS RES GENERATORS AS SUBMITTED BY RINFRA-D TABLE 40 SOLAR POWER PURCHASE APPROVED BY THE COMMISSION FOR THE SECOND CONTROL PERIOD TABLE 41 NON-SOLAR POWER PURCHASE AS APPROVED BY THE COMMISSION TABLE 42 PURCHASE OF NON-SOLAR RECS APPROVED BY THE COMMISSION FOR TO Page 7 of 302

8 TABLE 43: ANNUAL HOUR WISE DEFICIT AND SURPLUS AS SUBMITTED BY RINFRA-D (MU) TABLE 44: QUANTUM AND RATE OF SHORT TERM POWER PROCUREMENT AS PROJECTED BY RINFRA-D TABLE 45: QUANTUM AND RATE OF SURPLUS POWER SALE PROJECTED BY RINFRA-D TABLE 46 ACTUAL SHORT-TERM POWER PURCHASE DURING TABLE 47 PURCHASE FROM SHORT-TERM SOURCES BY RINFRA-D (MU) TABLE 48 SHORT-TERM POWER PURCHASE APPROVED BY THE COMMISSION TABLE 49 SALE OF SURPLUS POWER AS APPROVED BY THE COMMISSION FOR RINFRA-D TABLE 50: TRANSMISSION CHARGES FOR THE SECOND CONTROL PERIOD AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 51 TRANSMISSION CHARGES PAYABLE BY RINFRA-D AS APPROVED BY THE COMMISSION TABLE 52: STANDBY CHARGES FOR THE SECOND CONTROL PERIOD AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 53 STANDBY CHARGES AS APPROVED BY THE COMMISSION FOR RINFRA-D TABLE 54: SLDC CHARGES FOR THE SECOND CONTROL PERIOD AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 55: SLDC FEES AND CHARGES AS APPROVED BY THE COMMISSION FOR RINFRA-D TABLE 56: SUMMARY OF POWER PURCHASE REQUIREMENT AS SUBMITTED BY RINFRA-D (MU) TABLE 57: SUMMARY OF POWER PURCHASE COST AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 58: SUMMARY OF POWER PURCHASE REQUIREMENT AS APPROVED BY THE COMMISSION (MU) TABLE 59: SUMMARY OF POWER PURCHASE COST AS APPROVED BY THE COMMISSION (RS. CRORE) TABLE 60: CAPEX-RETAIL SUPPLY BUSINESS AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 61: CAPEX-WIRES BUSINESS AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 62: SUMMARY OF CAPEX (WIRE & RETAIL) AS SUBMITTED BY RINFRA-D (RS. CR.) TABLE 63: CAPITALISATION PLAN FOR RETAIL SUPPLY BUSINESS AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 64: CAPITALISATION PLAN FOR WIRES BUSINESS AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 65: SUMMARY OF CAPITALISATION (WIRE & RETAIL) AS SUBMITTED BY RINFRA-D (RS. CR.) TABLE 66: COMPARISON OF CAPITALISATION AS APPROVED BY THE COMMISSION IN BUSINESS PLAN AND AS SUBMITTED BY RINFRA-D IN MYT PETITION (RS. CR) TABLE 67: CAPITALISATION PLAN FOR WIRE BUSINESS AS APPROVED BY THE COMMISSION (RS. CR) TABLE 68: CAPITALISATION PLAN FOR RETAIL SUPPLY BUSINESS AS APPROVED BY THE COMMISSION (RS. CR) TABLE 69: VARIATION IN CAPITALISATION AS APPROVED BY THE COMMISSION IN BUSINESS PLAN ORDER AND AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 70: ADDITIONAL SCHEMES APPROVED POST ISSUANCE OF BUSINESS PLAN ORDER AND PRE SUBMISSION OF MYT PETITION (RS. CR) TABLE 71: DEPRECIATION RATES AS SUBMITTED BY RINFRA-D (AFTER CROSSING 70% THRESHOLD) TABLE 72: DEPRECIATION FOR RETAIL SUPPLY BUSINESS AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 73: DEPRECIATION FOR WIRE BUSINESS AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 74: COMPARISON OF DEPRECIATION AS APPROVED BY THE COMMISSION IN BUSINESS PLAN AND AS SUBMITTED BY RINFRA-D IN MYT PETITION (RS. CR) TABLE 75: DEPRECIATION FOR WIRES BUSINESS AS APPROVED BY THE COMMISSION (RS. CR) TABLE 76: DEPRECIATION FOR RETAIL SUPPLY BUSINESS AS APPROVED BY THE COMMISSION (RS. CR) TABLE 77: TOTAL DEPRECIATION AS APPROVED BY THE COMMISSION FOR THE SECOND CONTROL PERIOD (RS. CR) TABLE 78: LOAN SCHEDULE AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 79: SUMMARY OF INTEREST EXPENSES FOR EXISTING LOANS FOR RETAIL SUPPLY BUSINESS AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 80: SUMMARY OF INTEREST EXPENSES FOR EXISTING LOANS FOR WIRES BUSINESS AS SUBMITTED BY RINFRA- D (RS. CR) TABLE 81: SUMMARY OF INTEREST EXPENSES FOR NEW LOANS FOR WIRES BUSINESS AS SUBMITTED BY RINFRA-D (RS. CR) Page 8 of 302

9 TABLE 82: SUMMARY OF INTEREST EXPENSES FOR NEW LOANS FOR RETAIL SUPPLY BUSINESS AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 83: SUMMARY OF TOTAL INTEREST EXPENSES FOR WIRES & RETAIL BUSINESS AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 84: COMPARISON OF INTEREST EXPENSES AS APPROVED BY THE COMMISSION IN BUSINESS PLAN ORDER AND AS SUBMITTED BY RINFRA-D IN MYT PETITION (RS. CR) TABLE 85: WEIGHTED AVERAGE INTEREST RATE OF RINFRA AS COMPUTED BY THE COMMISSION TABLE 86: INTEREST EXPENSES ON LONG TERMS LOANS FOR THE MYT PERIOD AS APPROVED BY THE COMMISSION (IN RS. CRORE) TABLE 87: RETURN ON EQUITY FOR WIRES BUSINESS AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 88: RETURN ON EQUITY FOR RETAIL SUPPLY BUSINESS AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 89: RETURN ON EQUITY FOR WIRES AND RETAIL BUSINESS AS SUBMITTED BY RINFRA-D (RS. CR). 126 TABLE 90: COMPARISON OF ROE AS APPROVED BY THE COMMISSION IN BUSINESS PLAN AND AS SUBMITTED BY RINFRA-D IN MYT PETITION (RS. CR) TABLE 91: RETURN ON EQUITY AS APPROVED BY THE COMMISSION FOR THE SECOND CONTROL PERIOD OF THE MYT PERIOD TABLE 92: COMPARISON OF O&M EXPENSES AS SUBMITTED BY RINFRA-D TABLE 93: SUMMARY OF EMPLOYEE EXPENSES AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 94: SUMMARY OF A&G EXPENSES AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 95: SUMMARY OF R&M EXPENSES AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 96: SUMMARY OF INDICES USED BY RINFRA-D TO PROJECT O&M EXPENSES TABLE 97: O&M EXPENSES APPROVED BY THE COMMISSION (RS CRORE) TABLE 98: INTEREST ON WORKING CAPITAL AND SECURITY DEPOSIT FOR WIRE & RETAIL SUPPLY BUSINESS AS SUBMITTED BY RINFRA-D (RS. CRORE) TABLE 99: INTEREST ON WORKING CAPITAL FOR WIRE & RETAIL SUPPLY BUSINESS APPROVED BY THE COMMISSION (RS. CRORE) TABLE 100: INCOME TAX PROJECTIONS AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 101: INCOME TAX APPROVED BY THE COMMISSION (IN RS. CRORE) TABLE 102: CONTRIBUTION TO CONTINGENCY RESERVES AS SUBMITTED BY RINFRA-D (WIRES, RS. CRORE) TABLE 103: CONTRIBUTION TO CONTINGENCY RESERVE AS SUBMITTED BY RINFRA-D (RETAIL, RS. CRORE) TABLE 104: CONTRIBUTION TO CONTINGENCY RESERVE APPROVED BY THE COMMISSION (RS. CRORE) TABLE 105: ACTUAL RECOVERY FROM THEFT OF POWER FOR 13 TILL JANUARY 2013 AS SUBMITTED BY RINFRA-D TABLE 106:NON-TARIFF INCOME AS SUBMITTED BY RINFRA-D FOR RETAIL SUPPLY (RS. CRORE) TABLE 107: NON-TARIFF INCOME AS SUBMITTED BY RINFRA-D FOR WIRES BUSINESS (RS. CRORE) TABLE 108:NON-TARIFF INCOME APPROVED BY THE COMMISSION FOR RETAIL SUPPLY (RS. CRORE) TABLE 109: NON-TARIFF INCOME APPROVED BY THE COMMISSION FOR WIRES BUSINESS (RS. CRORE) TABLE 110: INCOME FROM DEVIDAS LANE OFFICE AS SUBMITTED BY RINFRA-D TABLE 111: INCOME FROM OTHER BUSINESS AS SUBMITTED BY RINFRA-D (RS. CR) TABLE 112: INCOME FROM OTHER BUSINESS APPROVED BY THE COMMISSION (RS. CRORE) TABLE 113: AGGREGATE REVENUE REQUIREMENT SUBMITTED BY RINFRA-D- RETAIL SUPPLY BUSINESS (RS. CRORE) TABLE 114: AGGREGATE REVENUE REQUIREMENT SUBMITTED BY RINFRA-D- WIRES BUSINESS (RS. CRORE) TABLE 115: TOTAL AGGREGATE REVENUE REQUIREMENT SUBMITTED BY RINFRA-D- (RETAIL SUPPLY +WIRES) BUSINESS (RS. CRORE) TABLE 116: AGGREGATE REVENUE REQUIREMENT APPROVED BY THE COMMISSION- RETAIL SUPPLY BUSINESS (RS. CRORE) TABLE 117: AGGREGATE REVENUE REQUIREMENT APPROVED BY THE COMMISSION- WIRES BUSINESS (RS. CRORE) Page 9 of 302

10 TABLE 118: TOTAL AGGREGATE REVENUE REQUIREMENT APPROVED BY THE COMMISSION- (RETAIL SUPPLY +WIRES) BUSINESS (RS. CRORE) TABLE 119: CUMULATIVE REVENUE GAP WITH CARRYING COST TILL AS SUBMITTED BY RINFRA-D (RS. CRORE) TABLE 120: CUMULATIVE REGULATORY ASSET WITH CARRYING COST TILL AS APPROVED BY THE COMMISSION (RS. CRORE) TABLE 121: BIFURCATION OF REGULATORY ASSET TO OWN AND CHANGEOVER CONSUMERS AS SUBMITTED BY RINFRA-D TABLE 122: REGULATORY ASSET RECOVERY FOR OWN CONSUMERS AS SUBMITTED BY RINFRA-D TABLE 123: DETERMINATION OF REGULATORY ASSET CHARGE FOR CHANGEOVER SUBMITTED BY RINFRA-D TABLE 124: REGULATORY ASSET CHARGE APPROVED BY THE COMMISSION (RS CRORE) TABLE 125: REGULATORY ASSET CHARGE APPROVED BY THE COMMISSION (RS/KWH) TABLE 126: EXISTING WHEELING CHARGES AS SUBMITTED BY RINFRA-D TABLE 127: WHEELING CHARGES AS PROPOSED BY RINFRA-D FOR THE REMAINING PART OF SECOND CONTROL PERIOD TABLE 128: WHEELING CHARGES APPROVED BY THE COMMISSION FOR SECOND CONTROL PERIOD (RS CRORE) TABLE 129: MARGINAL POWER PURCHASE COST PER UNIT FOR CSS CALCULATIONS AS SUBMITTED BY RINFRA-D (RS. /KWH) TABLE 130: SYSTEM LOSSES FOR CSS CALCULATIONS AS SUBMITTED BY RINFRA-D TABLE 131: WHEELING CHARGES FOR CSS CALCULATIONS AS SUBMITTED BY RINFRA-D TABLE 132: CSS (RS. /KWH) FOR THE SECOND CONTROL PERIOD AS SUBMITTED BY RINFRA-D TABLE 133: MARGINAL COST OF POWER PURCHASE BY RINFRA-D APPROVED BY THE COMMISSION (RS/KWH) TABLE 134: SYSTEM LOSSES FOR CSS CALCULATIONS APPROVED BY THE COMMISSION (%) TABLE 135: WHEELING CHARGES FOR CSS CALCULATIONS AS APPROVED BY THE COMMISSION (RS/KWH) TABLE 136: APPROVED CSS FOR (RS/KWH) TABLE 137: APPROVED CSS FOR (RS/KWH) TABLE 138: APPROVED CSS FOR (RS/KWH) TABLE 139: REVENUE GAP FOR AS SUBMITTED BY RINFRA-D (RS CRORE) TABLE 140: REVENUE GAP FOR APPROVED BY THE COMMISSION (RS CRORE) TABLE 141: NET REVENUE REQUIREMENT FOR THE SECOND CONTROL PERIOD FROM RINFRA-D CONSUMERS AS SUBMITTED BY RINFRA-D (RS CRORE) TABLE 142: REVENUE GAP FOR THE SECOND CONTROL PERIOD AT EXISTING TARIFF APPROVED BY THE COMMISSION (RS CRORE) TABLE 143: NET REVENUE REQUIREMENT AND NORMALISED RECOVERY FOR THE SECOND CONTROL PERIOD AT EXISTING TARIFF APPROVED BY THE COMMISSION (RS CRORE) TABLE 144: FIXED CHARGES AS SUBMITTED BY RINFRA-D (RS/ CONSUMER/ MONTH) TABLE 145: DEMAND CHARGES AS SUBMITTED BY RINFRA-D (RS/ KVA/ MONTH) TABLE 146: NET REVENUE REQUIREMENT AND NORMALISED RECOVERY FOR THE SECOND CONTROL PERIOD AT EXISTING TARIFF APPROVED BY THE COMMISSION EXCLUDING REGULATORY ASSET RECOVERY (RS CRORE) 198 TABLE 147: NET REVENUE REQUIREMENT AND NORMALISED RECOVERY FOR THE SECOND CONTROL PERIOD AT EXISTING TARIFF APPROVED BY THE COMMISSION INCLUDING REGULATORY ASSET RECOVERY (RS CRORE). 199 Page 10 of 302

11 List of Abbreviations AAD Advance Against Depreciation A&G Administrative and General ABR Average Billing Rate ACOS Average Cost of Supply APR Annual Performance Review ARR Aggregate Revenue Requirement ATE Appellate Tribunal for Electricity BPL Below Poverty Line BPP Bilateral Power Purchase BEST Brihanmumbai Electric Supply & Transport Undertaking CAGR Compound Annual Growth Rate Capex Capital Expenditure CBA Cost Benefit Analysis CERC Central Electricity Regulatory Commission CGRF Consumer Grievance Redressal Forum COD Date of Commissioning CSR Corporate Social Responsibility CSS Cross Subsidy Surcharge CPI Consumer Price Index DPC Delayed Payment DPR Detailed Project Report DSM Demand Side Management DSS Distribution Substation EA, 2003 Electricity Act, 2003 FAC Fuel Adjustment Cost FBSM Final Balancing and Settlement Mechanism Financial Year GoM Government of Maharashtra GFA Gross Fixed Assets G, T & D Generation, Transmission and Distribution HT High Tension IEGC Indian Electricity Grid Code IoWC Interest on Working Capital InSTS Intra State Transmission System LMC Load Management s LT Low Tension kva Kilo Volt Ampere kw Kilo Watt kwh Kilo Watt hour LCC Load Control Centre Page 11 of 302

12 MAT MCGM MERC MIAL MMOPL MOD MSEDCL MSLDC MU MVA MW MYT MERC Tariff Regulations MERC MYT Regulations, 2011 OA O&M R&M RE RAC REC RInfra RInfra-G RInfra-T RInfra-D RoE RPO RPO Regulations RPS SAIDI SBAR SBI PLR SLDC TL TOD TVS UI WPI WL Minimum Alternate Tax Municipal Corporation of Greater Mumbai Maharashtra Electricity Regulatory Commission Mumbai International Airport Ltd. Mumbai Metro One Private Limited Merit Order Dispatch Maharashtra State Electricity Distribution Company Ltd. Maharashtra State Load Despatch Centre Million Units Mega-Volt Ampere MegaWatt Multi Year Tariff MERC (Terms and Conditions of Tariff) Regulations, 2005 MERC (Multi Year Tariff) Regulations, 2011 Open Access Operation and Maintenance Repair and Maintenance Renewable Energy Regulatory Asset Renewable Energy Certificate Reliance Infrastructure Limited Reliance Infrastructure Limited- Generation Business Reliance Infrastructure Limited- Transmission Business Reliance Infrastructure Limited- Distribution Business Return on Equity Renewable Purchase Obligation MERC (Renewable Purchase Obligation, its Compliance and implementation of REC framework) Regulations, 2010 Renewable Purchase Specification System Average Interruption Duration Index State Bank of India Advance Rate State Bank of India Prime Lending Rate State Load Despatch Centre Transmission Loss Time of Day Technical Validation Session Unscheduled Interchange Wholesale Price Index Wheeling Loss Page 12 of 302

13 1. BACKGROUND AND SALIENT FEATURES OF THE ORDER 1.1 Background Reliance Infrastructure Limited (RInfra) is an integrated Utility engaged in Generation, Transmission and Distribution of electricity in and around suburban areas of Mumbai. RInfra was granted a licence to distribute electricity by the Commission for a period of 25 years with effect from August 16, Prior to this, RInfra was a deemed Distribution Licensee having a licence to distribute electricity in the suburbs of Mumbai, under the terms of the Electricity Act, The distribution business of RInfra shall be, hereafter referred to as RInfra-D RInfra-D in this Petition submitted that it is currently catering to electricity needs of approximately 2.8 million consumers in its licensed area (in and around suburbs of Mumbai) spread over 400 Sq. kms with energy input requirement of more than 9 Billion Units per annum and coincident Maximum Demand in the range of 1650 MVA. As on 31 March, 2012, the distribution system of RInfra-D included 5775 Nos. of 11kV Substations, 4519 ckt-kms of HT cable and 4202 ckt-kms of LT cable The Commission, in exercise of the powers conferred by the EA, 2003, notified the Maharashtra Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2005, (hereinafter referred as the "MERC Tariff Regulations") on August 26, These Regulations superseded the MERC (Terms and Conditions of Tariff) Regulations, The Commission, in exercise of the powers conferred by the EA, 2003, notified the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2011, (hereinafter referred as the MERC MYT Regulations, 2011) on 4 February, These Regulations are applicable for the second Control Period starting from to RInfra-D filed a Petition before the Commission on March 25, 2011, under Section 94 (2) of the Electricity Act, 2003 (EA, 2003), Regulation 85 (a) of the MERC (Conduct of Business) Regulations, 2004, and Regulations 4.1, 99 and 100 of the MERC Multi Year Tariff (MYT) Regulations, 2011, in Case No. 45 of 2011 seeking deferment of the implementation of MYT Regulations, Page 13 of 302

14 The Commission vide its Order dated September 2, 2011 in the said case, allowed the exemption to RInfra-D from MERC (MYT) Regulations, 2011 for a period of 1 year, till March 31, The Commission also directed RInfra-D to file the Petition for determination of tariff for under Maharashtra Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2005, on or before October 31, The relevant extract from the Order is as under: 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 RInfra under the Multi-Year Tariff framework till March 31, 2012 (i.e., for a period of 1 year). The said exemption is hereby granted. The Commission is also empowered under Regulation 100 of the MYT Regulations, 2011 to remove any difficulty arising in giving effect to the provisions of MYT Regulations Accordingly, the Commission hereby directs RInfra to file the Petition for determination of tariff for within 2 months time, i.e., on or before October 31, The Commission amended the MYT Regulations vide its notification dated 21 October, 2011; notified as Maharashtra Electricity Regulatory Commission (Multi Year Tariff) (First Amendment) Regulations, The Commission in this amendment to the Regulations specified, as under: Provided in case an Order of exemption has been issued under Regulation 4.1 then the concerned Generating Company, Transmission Licencee or Distribution Licencee shall file annual Petitions for approval of ARR and tariff during the period of exemption, in accordance with MERC (Terms and Conditions of Tariff) Regulations, The Commission vide its Order in Case No. 158 of 2011 dated 23 November, 2012 directed RInfra-D as under: The Commission s computations for the Business Plan of RInfra-D shall form the basis for filing the MYT Petition for the second Control Period. RInfra-D shall submit the MYT Petition within 60 days from the date of issuance of this Business Plan Order... Page 14 of 302

15 In accordance with the above direction from the Commission and as per Regulation 8 of the MERC MYT Regulations, 2011 RInfra-D submitted its MYT Petition dated 29 January, 2013 registered by the Commission as Case No. 9 of 2013 for approval of ARR and determination of Tariff from to The prayers made by the Petitioner in Case No. 9 of 2013 are as under: 1. Approve the ARR forecast and Tariff & s for to , as contained in this Petition; 2. Allow the revision in wheeling charges and Cross-Subsidy Surcharge, as proposed in this petition for the period to ; 3. Approve the recovery of regulatory assets along with carrying cost, as proposed in the petition; 4. Approve the deviations from the norms prescribed in the MYT Regulations, as sought in this Petition. 5. Allow additions / alterations / modifications / changes to the Petition at a future date; 6. Allow any other relief, order or direction, which the Hon'ble Commission deems fit to be issued; 7. Condone any inadvertent errors/ inconsistencies/omissions/rounding of 1.2 Technical Validation Session (TVS) differences, etc. as may be there in the Petition. The Commission scrutinised the Petition of RInfra-D and directed RInfra-D to address data gaps raised before the first Technical Validation Session (TVS) held on 8 February, 2013, in the presence of authorised Consumer Representatives authorised under MERC (Authorised Consumer Representative Regulations, The list of persons, who participated in the TVS, held on 8 February, 2013 is provided at Appendix-1. During the TVS, the Commission directed RInfra-D to provide additional information and clarifications on the issues raised during the TVS and submit the revised Petition. Subsequently, RInfra-D submitted its replies to the data gaps vide its submissions dated 11 Page 15 of 302

16 February 2013, 12 February 2013 and 16 February RInfra-D submitted its revised Petition on 18 February, 2013, all required information for admission of the Petition. 1.3 Admission of the Petition and Public Process The Commission admitted the Petition on 22 February, 2013 and vide its letter MERC/Case No. 9 of 2013/2683 conveyed the same to RInfra-D and further directed them to publish the approved Public Notice. In accordance with Section 64 of the Act, RInfra-D published Public Notices in two (2) English newspapers (Hindustan Times and Indian Express) and two (2) Marathi newspapers (Loksatta and Samana) dated 1 March, 2013 inviting suggestions and objections from stakeholders on its Petition. Further, RInfra-D made available copies of its Petition and executive summary (in both English and Marathi version) for inspection/ purchase by members of the public at RInfra-D's offices. RInfra-D's website ( hosted the documents in downloadable format. The Petition, its executive summary and copy of public notice were also hosted on the website of the Commission ( in downloadable format. The Commission received written objections expressing concerns on several issues, including tariff of RInfra-D, Power Purchase Expenses, Average cost of supply, Wheeling and distribution losses, Recoveries against vigilance, Interest on longterm loan capital, Recovery of regulatory asset, Consumer migration, etc. The Commission held Public hearing on RInfra-D on 6 April, 2013 at Rang Sharda Natya Mandir, Bandra Reclamation, Bandra (W), Mumbai Consumer representatives also participated actively in this process. The list of objectors, and persons who participated in the public hearing, is provided in Appendix-2. The Commission has ensured that the due process, contemplated under law, was followed meticulously at every stage to ensure transparency and public participation. Adequate opportunity was given to all the persons concerned to submit their response in the matter. Various objections that were raised on RInfra-D s Petition after publication of the notice both in writing as well as during the Public Hearing, along with RInfra-D s Page 16 of 302

17 response and the Commission s rulings have been summarised in Section 2 of this Order. 1.4 Organisation of the Order A list of abbreviations with their expanded forms has been included at the beginning of this Order. This Order is organised in the following Sections: a) Section 1 of the Order provides a brief background of the process undertaken by the Commission; b) Section 2 of the Order summarises the various objections raised by the objectors in writing as well as during the Public Hearing held. Each of the objections is followed by the response of RInfra-D and ruling of the Commission respectively; c) Section 3 of the Order details the RInfra-D s submission for Second Control Period from to for ARR and Commission s analysis; d) Section 4 of the Order details the Regulatory Asset of RInfra-D and its recovery mechanism; e) Section 5 of the Order discusses the tariff philosophy and submission of RInfra-D for Tariff determination and further Tariff determination by the Commission for RInfra-D for the period from to Page 17 of 302

18 2. OBJECTIONS, RInfra-D S RESPONSE AND COMMISSION S RULINGS 2.1 Tariff related suggestions i. Shri George John submitted that Tariff proposed by RInfra-D will adversely affect competition. He also suggested that there should not be any further increase in CSS, Regulatory Asset and other related charges. ii. Bharatiya Udhami Avam Upbhokta Sangh (BUAUS) represented by Shri Rakshpal Abrol, an authorised Consumer Representative submitted that RInfra-D must clarify as to why issues of Cross Subsidy Surcharge, Regulatory Asset, etc., were not projected in its Business Plan Petition. iii. Shri Abrol further inquired about maximum ceiling of tariff to be fixed by the Commission for retail supply where two or more Distribution Licensees exist. Similar query was submitted by Mumbai Grahak Panchayat, an authorised Consumer Representative in the present Case. iv. Mumbai Metro One Private Limited (MMOPL) submitted that the Commission should determine tariff applicable to MMOPL considering cost of supply rather than Average Cost of Supply, as estimated by RInfra- D. v. Niwara Vidyalaya submitted that there must be creation of separate category for schools run by Public Trusts. vi. Prana Studios Pvt. Ltd. submitted that it belongs to HT-I category and is from Animation and Visual effects Industry which is in nascent stage in India and objected to proposed increase of CSS and Regulatory Asset proposed by RInfra-D in its MYT petition. vii. Shri. Ulhas Chaudhari suggested that MMOPL should be categorized under HT-II Commercial category rather than HT-Railways category. viii. Urja Prabodhan Kendra submitted that RInfra-D has proposed anew surcharge under the head Regulatory Asset Surcharge apart from FAC, Wheeling and CSS, and suggested that such practice of recovery from past cases should be discontinued in general in future. Page 18 of 302

19 ix. Larsen & Toubro Ltd., Arch-V-Shan Creations, Shri. Geoffrey Mascarenhas, Mahindra & Mahindra Ltd., Kohinoor Ind. Prem Co-op Society Ltd., Yojna Udyog Pvt. Ltd., Franco-Indian Pharmaceuticals Pvt. Ltd., Indus Towers Ltd., Unimark Remedies Ltd., Garima Sadan Co-op. Housing Society Ltd., Momai Impex, Amar Texdys Corporation, have also raised objection to the increase in CSS and RAC recovery, as proposed by RInfra-D. All of these objectors submitted that they are currently not a consumer of RInfra-D but still as per submissions of RInfra-D in their MYT Petition they need to pay CSS and Regulatory Asset which is not justifiable. x. Shri Shirish Deshpande from Mumbai Grahak Panchayat submitted during Public Hearing Process that the Commission may like to consider the implementation of maximum ceiling tariff in Mumbai, in view of two licensees supplying power in same area. xi. Shri Arun Kadam appeared on behalf of Shri Thakur Ramesh Singh (MLA) and Shri Shantaram Karande (Maharashtra Navnirman Sena (MNS)) submitted during Public Hearing Process that Commission may relook at the Stand by charges, Wheeling charges and CSS, as these are on higher side and lead to tariff shock to the consumers and also submitted that there should be equalized Tariff for all Distribution Licensees. xii. Shri N. Ponrathnam submitted that there should not be any levy of demand charges on LT consumers. Further, RInfra-D has proposed 115% increase in demand charges for LT consumers and further submitted that there is tariff shock to BPL category of consumers in the MYT Petition. Further, Shri N. Ponrathnam submitted that RInfra-D should provide reason for considering Mumbai Metro tariff as that of Railways (tariff is Rs. 5/kWh which is less than ACoS of Rs. 7.48/kWh). xiii. Shri N. Ponrathnam further submitted that the consumers of commercial categories (LT II-a, LT II-b, and LT II-c) at the same voltage are charged differently and RInfra-D should explain the reason for differentiation between consumers supplied at same voltage. Page 19 of 302

20 RInfra-D s Response i. RInfra-D submitted that the power purchase cost of RInfra-D is significantly lower than TPC-D for each year of the MYT Period. However, since RInfra-D is saddled with a consumer mix highly skewed in favour of low end/ low paying capacity consumers, its tariffs to high end consumers continue to be higher so as to maintain affordability of tariffs for its large mass of low end consumers. RInfra-D further submitted that equity has to be created through self balancing means such as Cross Subsidy Surcharge; otherwise historical legacy of consumer mix will wipe out competition and create another monopoly. ii. In response to BUAUS query, RInfra-D clarified that Business Plan submitted before the Commission was not a Tariff Petition and hence retail tariffs were not proposed therein and the tariff proposal including the CSS charges and the Regulatory Asset recovery forms part of the present MYT petition. iii. In the reply to the query raised by BUAUS that the MYT Petition submitted vide letter reference RInfra-D/MERC/MYT 13-16/001 was not covering the issues of Cross Subsidy Surcharges, Regulatory Assets, hike of Wheeling s etc. on Changeover Consumers, RInfra-D submitted that the Petition submitted covered all the issues mentioned above and the objector being a Consumer Representative on the direction of the Commission, a copy of the Petition was served to him. Also, RInfra- D submitted that these issues were also covered in the presentation made before the Commission during the Technical Validation Session held on February 8, iv. In response to suggestion of BUAUS and Mumbai Grahak Panchayat regarding implementation of ceiling tariff, RInfra-D submitted that in the present situation in the common area of supply of RInfra-D and TPC-D, the network spread, cost structure, consumer mix, cross-subsidy situation, etc., are widely different between the two Licensees. Due to this, the costplus retail tariffs of the two licensees are very different and there is a wide Page 20 of 302

21 gap between the two. RInfra-D suggested that in this situation, the determination of ceiling Tariff may not be practicable. v. In response to MMOPL query, RInfra-D submitted that the tariff categorisation, determination, methodology for cost of supply, crosssubsidisation and reduction of cross-subsidies are prerogative of the Commission and tariffs will be charged to the consumer in accordance with the tariff schedule as approved by the Commission. vi. In response to Niwara Vidyalaya query regarding creation of separate category for schools run by Public Trusts, RInfra-D submitted that categorisation is the sole prerogative of the Commission. vii. In response to Prana Studios Pvt. Ltd., RInfra-D submitted that: a) Tariff and charges are proposed based on the presently approved methodology and in line with the principle that the CSS should reflect the currently approved level of cross-subsidy for the licensee, which is also borne out of the Commission s Order in Case No. 138 of b) The recovery of regulatory assets is proposed to recover past accumulated deficits from the users of the network so that the burden of past liability is not passed on to the remaining consumers of RInfra- D, but is equitably shared. c) In a competitive retail supply market consumers decide which supplier they want to avail power from and such decision is not static, but it is dynamic, i.e., depending upon the cost economics, suppliers can be switched by the consumer on any number of occasions. viii. In response to Shri. Ulhas Chaudhari, RInfra-D submitted that it had proposed HT-Railways tariff for Metro based on the Commission s recognition of Metro and Mono rail under HT- Railways tariff category in TPC-D s Tariff Order dated 12 September, 2010 in Case No. 98 of ix. In response to Urja Prabodhani Kendra, RInfra-D submitted that it only recovers tariff from consumers as approved for it by the Commission. x. In response to Shri N. Ponrathnam, RInfra-D submitted that Page 21 of 302

22 a) It is only charging tariffs as approved by the Commission. To make any change in tariff structure or its applicability is the prerogative of the Commission. b) The demand charges for LT categories are proposed to increase from Rs. 150/kVA/month to Rs. 210/kVA/month. The objector seems to suggest that present charges are denominated in Rs. /kw and hence when converted to Rs. /kva it becomes Rs. 97.5/kVA and has computed the increase as 115% whereas the actual increase proposed is only 40%. c) There is no tariff shock for BPL consumers in the present MYT Petition. d) MMOPL has laid its own 33kV cable and associated infrastructure from the outgoing side of the RInfra s transmission substation located at Aarey. Metro Rail is also a form of Railways and hence tariff for supply to Metro is proposed considering the existing tariff to railways in Mumbai area. Further, Delhi Metro s tariff is lower than tariff applicable to Railways. e) With regards to differentiation between consumers supplied at same voltage, RInfra-D submitted that tariff determination and categorisation is a prerogative of the Commission. However, voltage is not the only factor to be considered for tariff determination. RInfra-D recognises the need to reduce the differentiation and has attempted to do so in its Petition by reducing the cross-subsidy contribution of LT- II (b) and LT II (c) categories. Commission s Rulings The Commission has noted the suggestion and objections submitted by consumers and Consumer Representatives and also their replies submitted by RInfra-D. The Commission has elaborated its views on Regulatory Asset Recovery and the tariff philosophy in Section 4 and 5 of this Order. The Commission noted that Business Plan submitted by RInfra-D was as per MERC MYT Regulations, 2011 and was not a Tariff Petition and Page 22 of 302

23 hence retail tariffs, CSS charge and the Regulatory Asset recovery were not part of the Business Plan Petition. 2.2 Sales i. Shri George John submitted that RInfra-D projected lower Sales from Changeover consumers with an assumption that Changeover consumers would be switched over in a year time, which seems to be an incorrect assumption. ii. Shri. Sandeep Ohri, an authorised consumer representative in this case submitted that in the present Case submitted that RInfra-D should explain the difference in total sales figures between Business Plan Order and MYT Petition. iii. The Tata Power Company Ltd. (TPC) submitted that RInfra-D has proposed lower Wheeling charges recovery by inflating Switchover Sales and decreasing Changeover Sales. iv. Shri N. Ponrathnam submitted that RInfra-D should submit various steps taken to bring down the level of Commercial loss. RInfra-D s Response i. Regarding reply to Mr. Sandeep Ohri, RInfra-D submitted that there is very little variation between RInfra-D s Own sales as computed in the Business Plan Order and that submitted in the MYT Petition as given in the table below: Own Sales (MU) As per Business Plan As per RInfra-D MYT Petition Difference 3 28 (7) (18) ii. RInfra-D submitted: a) The power purchase requirement depends only on sales to its own consumers hence the quantum of power purchase requirement does not change significantly. Page 23 of 302

24 iii. iv. b) Sales to Changeover consumers has been projected to reduce drastically, as in future Changeover consumers are expected to migrate to TPC-D network based on the Commission s directions given to TPC-D in Order in Case No. 151 of Therefore, total sales, shows a decline of 19.7% between and In response to TPC s query regarding over estimation of Switchover sales, RInfra-D submitted the same reply as submitted to Shri Sandeep Ohri. In response to Shri N. Ponrathnam, RInfra-D submitted that the theft related losses due to a variety of reasons meter bypass, theft from LT pillars, meter tampering, etc. RInfra-D has been able to bring down the commercial losses over the years and is continuing its efforts in that direction through innovative technical solutions such as modular meter cabins, etc. Commission s Rulings The Commission observed that the variation in Sales projected in MYT Petition and Business Plan Order, was mainly on account of changeover sales estimated by RInfra-D. Variation is as tabulated below: Own Sales Change Over Sales Particulars Business Plan Order MYT Petition Variation Business Plan Order MYT Petition Variation From the above table, it can be inferred that: a) Own Sales: There has been marginal variation in RInfra-D Own sales as projected in RInfra-D Business Plan Order in Case No. 158 of 2011 and present MYT Petition of RInfra-D, and that is on account of actual sales of as has been considered by RInfra-D. Page 24 of 302

25 b) Changeover Sales: Variation in changeover sales is mainly due to assumption of RInfra- D that conversion of changeover consumers to switchover in accordance with the directions of the Hon ble Commission in Case No. 151 of 2011 dated 22 August, However, the Commission has approved sales for the second Control Period based on the latest data available on Changeover sales and also considered the changeover sales approved by the Commission in its Order in Case 179 of 2011 in the matter of approval of MYT Petition of TPC-D. The Commission has elaborated its views in Section 3 of this Order. 2.3 Distribution Loss i. Shri George John submitted that Distribution loss of 9.46% is on higher side and a benchmark of 9.25 % may be set and a suitable incentive may be provided (2/3rd-1/3rd profit sharing between Utility and Consumers), to incentivise Utility to achieve 8.5% distribution loss. ii. Shri. Sandeep Ohri submitted that RInfra-D should explain the difference in Distribution loss trajectory between Business Plan Order and MYT Petition. iii. Shri N. Ponrathnam submitted that during Public Hearing Process, RInfra-D should submit the basis for the statement made in the proceedings before the Hon ble ATE that 65% customers come under the category of non-slum dwellers and 35% are slum dwellers, and that the distribution losses of nonslum consumers is less than 1% while losses in slum area vary between 15% to 70% with an average of 22%. He further suggested that the Distribution losses projected by RInfra-D are on higher side and the Commission should fix the realistic target of achieving distribution loss. RInfra-D s Response i. RInfra-D submitted that it cannot comment on distribution loss trajectory suggestions which are not supported by any analysis. RInfra-D further Page 25 of 302

26 ii. iii. submitted that in its MYT Petition it has considered Distribution loss on the current base value of and reductions thereafter are considered based on the Capex plan. RInfra-D submitted that in the Business Plan the figures were not available and hence, it considered the distribution loss of Further, the movement of consumers from RInfra-D s network to TPC-D s network could likely cause distribution losses to go up due to worsening of consumer mix on RInfra-D s network. In response to Shri. N. Ponrathnam s query, RInfra-D submitted that: a. Overall distribution losses for RInfra-D area are 9.46% as per actuals. The area comprises of high loss and low loss pockets. In the present arrangement of ACoS, all cost and losses are socialised so that all consumers pay for the same loss level and based on the same ACoS, irrespective of usage of network, voltage of connection or actual loss levels in a particular geographical area. b. Distribution loss target is set for the area of supply as a whole and not separately for different pockets within the supply area. However, losses applicable on wheeling consumers are differentiated voltagewise in the presently approved methodology. c. As long as the consumer remains with RInfra-D supply, it absorbs the commercial loss of RInfra-D distribution system, however the moment it transfer to TPC-D as Changeover consumer, it is insulated from commercial losses of RInfra-D, despite the fact that for all the changeover consumers metering, assessment of sale towards theft, stopped/ faulty meters, giving credit for high consumption complaints is unilaterally done by TPC-D. Commission s Rulings The Commission observes that RInfra-D submitted in its Business Plan Petition that the distribution losses of are considered as 9.05%, which were based on actual losses of RInfra-D projected no reduction in base Page 26 of 302

27 losses of 9.05% till , while assuming the loss reduction to 9.00% in and 8.95% in For the purpose of the Business Plan, the Commission in its Order in Case No. 158 of 2011 dated 23 November, 2012 considered the loss trajectory as submitted by RInfra-D for the period from to However, RInfra-D in its present MYT petition has considered the actual distribution loss for as mentioned in the True-up Order for as approved in Case No. 124 of The same base has now been considered for the MYT period with reduction of 0.05% in the last two years. The quantum of reduction i.e., 0.05% for and is kept same as that submitted by RInfra-D in its Business Plan. The Commission has considered the loss reduction trajectory as approved in its Business Plan Order and applied it to actual distribution loss approved in Case No. 124 of The Commission has elaborated its views in Section 3 of this Order. 2.4 Power Purchase Expenses i. Prayas Energy Group and Mr. Sandeep Ohri submitted that RInfra-D should explain the variation in Power Purchase Costs as submitted in its MYT Petition with that approved by the Commission in its Business Plan Order in Case No. 158 of 2011 dated 23 November, Further, RInfra-D should specifically explain high cost of Short term and Medium term Power Purchase for the MYT Period. ii. Shri. Rakshpal Abrol inquired about the procurement of electricity more than 500 MW from their Generating plant, cost of Transmission towers already recovered till 15 August 2011and RInfra-D must submit information about fixed assets transferred of land and properties of Distribution division. iii. Shri Shirish Deshpande from Mumbai Grahak Panchayat submitted during public hearing process that Power Purchase Cost of RInfra-D is less than TPC-D even Page 27 of 302

28 then tariff of RInfra-D is higher than that of TPC-D. Further, FAC may not be increased in following three years of the MYT from to and wheeling s should be kept constant. RInfra-D s Response i. RInfra-D submitted that the main variation in power purchase cost of Rs Crore in MYT Petition as compared to approved power purchase cost exists due to DTPS cost estimates. In the Business Plan Order, the Commission considered prevailing DTPS Tariff Order of September 2010 (applicable for ) which was based on the fuel prices prevalent in Whereas in its current MYT Petition, RInfra-D has considered the forecast of RInfra-G made in its MYT Petition from to ii. RInfra-D further submitted that the difference existed only on variable cost as it considered appropriate to factor in the actual landed cost of coal and secondary oil as per the available data of Further, the increase in freight charges was considered based on the actual freight increase effective from March 2012 onwards. RInfra-D further submitted that even the present MYT Petition does not entirely reflect the increase in freight charges may be effective from onwards (an increase of 6% announced in the recent Rail Budget, whereas the MYT petition only considers an increase of 4.37% in the freight charges). iii. RInfra-D further submitted that it has to procure power mainly during peak hours in view of peculiar load curve. RInfra-D submitted that average rate of Peak Power purchase as per CERC Market Monitoring Report as given below: Year Average Peak Rate in Rs/kWh * (Upto Nov 12) 5.41 iv. RInfra-D also submitted that the peak power rates are fluctuating year on year with no specific trend. RInfra-D further submitted that its power purchase rate for short term Page 28 of 302

29 power for was Rs 4.47/unit which was much lower than peak power rate of transactions across the Country. v. RInfra-D has considered power purchase rate for as base rate with escalation of 3% for the Control Period. Regarding Medium term power purchase rate, RInfra-D submitted that the rates are as discovered following the due process of competitive bidding and have been adopted by the Commission. vi. In response to Shri Abrol s query, RInfra-D submitted that under an arrangement, the other sources of power already tied up and to be tied up is adequately addressed in its MYT Petition. Regarding recovery of cost of generation, transmission and distribution till 15 August, 2011, RInfra-D stated that all expenses to construct develop, upgrade, operate and maintain are ongoing in nature and have to be recovered on an annual basis including expenditure in transmission business. Both the Capex and Opex related costs are ongoing for the business and therefore recovered on an ongoing basis. RInfra-D further submitted that no fixed assets are transferred out of Mumbai distribution business. Commission s Rulings The Commission has observed that Shri Ohri seems to have estimated the variation of Rs Crore in power purchase is on account of reasons mentioned below: a) DTPS cost which is projected by RInfra-D based on MYT Petition of RInfra-G: Extract of Order in Case 158 of 2011 in the matter of Business Plan approval of RInfra-D dated 23 November The Commission has considered the fixed and energy charges same as those approved while determining Tariff for RInfra-G for in the Order in Case 99 of i.e. fixed charges of Rs Crore and energy charges at Rs per unit, for the purpose of this Order on provisional basis and the Commission shall consider the year-wise rate and fixed charges approved in RInfra-G s MYT Petition, while issuing the Order on RInfra-D s MYT Petition. The variation in Power Purchase cost of DTPS is tabulated as under: DTPS (in Rs. Crore) Business Plan Order 1, , , , Page 29 of 302

30 DTPS (in Rs. Crore) MYT Petition 1, , , , Variation Total (a) 1, b) Transmission s: In the Commission s Order in Case No. 158 of 2011 in the matter of Business Plan approval of RInfra-D dated 23 November 2012, Transmission s were not considered in the Power Purchase Expenses table referred by Shri Ohri and were treated as a separate Head. However, RInfra-D in their MYT petition have considered Transmission s as a part of their Power Purchase Expenses table, due to which there is a variation of Rs Crore, which is as provided in the table below: Transmission s (in Rs. Crore) MYT Petition Variation Total Variation (c) c) Short Term Power Procurement Rate and Quantum: Extract of Order in Case No. 158 of 2011 in the matter of Business Plan approval of RInfra-D dated 23 November The Commission has accepted the short-term rates (for procurement or sale of surplus) as projected by RInfra-D in the business plan for the period to and utilised the same for computing the cost of power purchase Relevant Extract of MYT Petition submitted by RInfra-D: The base price of short term power purchase is considered as the actual weighted average price of the short term power purchased by RInfra-D in Further annual escalation rate of 3% is used to project the price of short term power purchase from to The short term power procurement cost approved by the Hon ble Commission is Rs. 4 per kwh based on RInfra-D s estimates at such point in time. However in the Page 30 of 302

31 present petition, RInfra-D, in an attempt to be more realistic, has considered the cost of short term power procurement based on the weighted average price of the actual short-term power purchase in Short Term MU Rate Rs. Cr MU Rate Rs. Cr Business Plan Order MYT Petition Variation (Rs Cr) Short Term MU Rate Rs. Cr MU Rate Rs. Cr Business Plan Order MYT Petition Variation (Rs Cr) Total variation on account of this head is Rs. 349 Crore. d) Revenue from Sale of Surplus Power: Relevant Extract of MYT Petition submitted by RInfra-D: The sale of surplus power considered by the Hon ble Commission is Rs.4 per unit. However, considering the fact that RInfra-D s surplus power is mostly available in the night hours when the demand of power is low and realised rate is accordingly poor, RInfra-D has considered the rate of sale of surplus power based on the actual realization from of sale of surplus power in Sale of Surplus Power MU Rate Rs. Cr MU Rate Rs. Cr Business Plan Order MYT Petition Page 31 of 302

32 Variation (Rs Cr) Sale of Surplus Power MU Rate Rs. Cr MU Rate Rs. Cr Business Plan Order MYT Petition Variation (Rs Cr) Total variation on this account is Rs. 375 Crore e) Additional payment to WPCL: The additional payment made to WPCL as directed by the Commission in its Order in Case No. 39 of Such payment is due to change in Excise duty, VAT and Customs duty. As against the total claim of Rs Crore for , RInfra-D has made payment of Rs 19.5 Crore as undisputed amount till date. The relevant extract for further payment to WPCL in the MYT Petition is as below: Further claim of Rs 26.7 Crs was raised by WPCL for the period April 12 to September 12, against which RInfra-D has made payment of Rs 7.23 Crs. Matter is sub-judice before Hon ble Commission for adjudication and any future payments will be based on the outcome of Case No 39 of The same liability is expected for the second half of Hence, an additional payment of Rs Crore is considered in the MYT Petition for 12-13, over and above the payment of Rs Crore (pertaining to 11-12) as described above. Further, since power will be off taken from WPCL during as well, the same change in law impact will cause an additional liability of Rs Crore for as well. The same is accordingly added to the power purchase cost of Wardha Power (in Rs. Crore) Business Plan Order MYT Petition Variation Total variation on this account is Rs. 49 Crore. f) Long Term Contract with VIPL: Page 32 of 302

33 In the Business Plan Order in Case No. 158 of 2011 dated 23 November, 2012, the Commission considered as given below: RInfra-D has submitted that for the purpose of Business Plan, it has assumed that about 500 MW of power would be procured for and and the rate of procurement for the same is assumed at Rs per unit,. For the approval of Business plan, the Commission has accepted RInfra-D s submissions for the quantum (MW) and rate as projected. RInfra-D in its present MYT Petition has submitted as given below: Since the existing medium term contracts are applicable till 13-14, for the period 15 onwards, there would be a significant shortfall in base load supply without additional power procurement. The additional quantum required in is about 530 MW as already worked out in the previous section of this petition. To meet the shortfall, R-Infra D is considering procuring 600MW from Vidarbha Industries Power Limited from onwards. Net energy availability after subtracting auxiliary consumption would be about 544 MW. A petition for approval of Long Term PPA between Reliance Infrastructure Limited (Mumbai Distribution) and Vidarbha Industries Power Limited and Determination of Provisional Tariff for VIPL s Butibori Plant has been submitted on 28 December, 2012 to the Hon ble Commission and assigned Case No. 2 of VIPL (in Rs. Crore) Business Plan Order , , MYT Petition , , Variation Total Variation (f) g) Power Procurement from Renewable Energy Sources: Renewables (in Rs. Crore) Business Plan Order MYT Petition Variation Total Variation (g) Page 33 of 302

34 The Commission observed that above mentioned variation is mainly on account of assumption of RInfra-D that shortfall in Non-Solar RPO would be met through purchase of REC at Rs 1.85 per kwh. Hence, the total variation amounts to Rs Crore under various heads as mentioned above. The Commission has admitted the Petition after detailed scrutiny of the MYT Petition and does not find any discrepancy in admission of the Petition. The Commission noted the other suggestion and objections submitted by consumers and Consumer Representatives and also their replies submitted by RInfra-D. 2.5 Operation and Maintenance (O&M) Expenses Shri Abrol inquired about nature and utilisation of O&M expenses and Service line charges. A similar query was submitted by Shri Ulhas Chaudhari and TPC. RInfra-D s Response i. RInfra-D submitted that O&M cost is an ongoing expense to run the distribution business, maintain and upkeep the network. It is annual expense and not a onetime cost, which can be recovered till a particular point in time and not thereafter. ii. RInfra-D further submitted that the service line charges are paid for by the consumers for last mile connectivity only and that too up to a normative amount as per the applicable Schedule of s. All recovery made towards service line contribution is deducted from the GFA to work out the allowable interest on loans and Return on Equity. The Service Line contribution is charged to the consumers, based on the Commission s approved schedule of charges, and is deducted from the capitalisation during the respective years. Therefore, such amount is not included in the capitalisation amount considered for ARR purposes. Commission s Rulings The Commission has noted various objections and suggestions of the consumer representatives on this issue and also the reply submitted by the RInfra-D in this matter of utilisation of Service line charges. The Commission has elaborated its views on O&M expenses in Section 3 of this Order. Page 34 of 302

35 2.6 Capital Expenditure and Capitalisation i. Shri. Sandeep Ohri submitted that RInfra-D should explain increase in capitalisation as submitted in its MYT Petition with that approved by the Commission in its Business Plan Order in Case No. 158 of 2011 dated 23 November, ii. TPC submitted that RInfra-D has proposed huge Capital Expenditure thereby creating large quantum of stranded assets. iii. Urja Prabodhan Kendra suggested that the necessary HT/ LT network used by TPC-D for Changeover consumers may be purchased by TPC and wheeling charge portion proposed by RInfra-D should be eliminated. RInfra-D s Response i. Regarding difference in Capitalisation figures in its Business Plan Order and in its present MYT Petition, RInfra-D submitted that the difference is on account of approval of additional schemes after the issuance of Business Plan Order and before the submission of MYT Petition. ii. In response to TPC-D query, RInfra-D submitted that the entire Capex plan and each individual scheme has already undergone the due process of in-principle approval from the Commission and the Commission has exercised its wisdom in assessing the need for the schemes, their benefits to the customers and the prudence of cost estimates. iii. In response to Urja Prabodhan Kendra s suggestion, RInfra-D submitted that it means that RInfra-D would sell its network to TPC-D in a given area and end up laying its fresh network in such area and the obligation of TPC-D to lay its own network gets transferred to RInfra-D. Commission s Rulings The Commission in its Order in Case No. 158 of 2011 dated 23 November 2012 directed as under: With relation to Regulation 27 of the MERC MYT Regulations, 2011 (Capital cost and capital structure), it is clarified by the Commission that for the Capital Expenditure schemes which are under process of getting in-principle approval, Page 35 of 302

36 RInfra-D may include in its MYT Petition, the capitalisation pertaining to the in-principle approved schemes. The Commission also notes that the schemes for Retail Supply business of RInfra-D are yet to receive in-principle approval. RInfra-D may include those schemes as well in their MYT Petition if they are approved before filing of the same. The Commission has noted that subsequent to issuance of Business Plan Order, the Commission has approved Capex scheme of capitalisation of Rs 1076 Crore in the second Control Period. The Commission noted the suggestion and objections submitted by consumers and Consumer Representatives and also their replies submitted by RInfra-D. The Commission has elaborated its views in Section 3 of this Order. 2.7 Depreciation i. Prayas Energy Group submitted that RInfra-D should explain the reason for higher Depreciation expenses and Interest on long term loans submitted in its MYT Petition with that approved by the Commission in its Business Plan Order in Case No. 158 of 2011 dated 23 November, RInfra-D s Response RInfra-D submitted that the difference is on account of approval of additional schemes after the issuance of Business Plan Order and before the submission of MYT Petition. On account of such increase in capitalisation there has been higher Depreciation expenses and Interest on long term loans submitted in MYT Petition as compared to the expenses approved by the Commission in its Business Plan Order in Case No. 158 of Commission s Rulings The Commission in its Order dated 23 November 2012, in Case No. 158 of 2011, has approved capital expenditure (Capex) related expenses based on the Capex approved by the Commission till date and directed RInfra-D to incorporate the additional Capex schemes approved by the Commission after issuance of Business Plan Order and before submission of the MYT Petition. Page 36 of 302

37 2.8 Procedural Issue i. Shri. Sandeep Ohri and TPC submitted that RInfra-D s present MYT Petition filed by RInfra-D was not duly supported by a properly executed affidavit. ii. TPC submitted that there was misrepresentation of category-wise tariffs in RInfra- D s MYT Petition and Public Notice. RInfra-D s Response i. RInfra-D submitted that it had originally prepared the MYT Petition to be filed on 14 February Accordingly, the affidavit supporting the Petition was notarised on 14 February However, there were certain clarifications sought by the Commission in the meeting held on 15 February These clarifications did not cause any material change in the Petition and therefore were to be submitted as an Annexure to the letter dated 16 February However, these were inadvertently included as Annexure to the Petition. RInfra-D regretted the inadvertent error and requested the Commission to condone the mistake and treat the submissions as a part of the covering letter and may disregard these to be part of the Petition. ii. RInfra-D denied any misrepresentation of information in the Public Notice. Commission s Rulings The Commission has noted the objections submitted by TPC and Consumer Representatives and also their replies submitted by RInfra-D. The Commission accepts the request of RInfra-D in condonation of the procedural error in filing reply by RInfra- D. The Commission noted that RInfra-D has represented the Regulatory Asset (RAC) as a separate line item mainly because it needs to be charged to changeover consumers also; hence RAC needs to be separated out from the retail tariff of direct consumers of RInfra-D. The Commission is of the opinion that RInfra-D has submitted in its Petition that RAC would be charged over and above the retail tariff and hence, there is no misrepresentation. However, the Commission in this Order has shown the impact of including recovery of Regulatory Asset on various tariff categories. Page 37 of 302

38 2.9 Energy s Mumbai Grahak Panchayat submitted that RInfra-D has not proposed hike in Energy s for LT consumers which is misleading, as there is no guarantee whether RInfra- D would not seek FAC at a later date. RInfra-D s Response RInfra-D submitted that the net average billing rate to any consumer consuming above 300 units is proposed to be lowered than the present rate, due to the reduction in energy charges proposed by RInfra-D. The existing tariffs include the presently applicable FAC. In accordance with the MYT Regulations, 2011, the incremental FAC, if any, during a given year going forward would be dependent on approved power purchase rates in the MYT Order and the actual movement of power prices in the market during the year. Commission s Rulings The Commission noted the objections and also their replies submitted by RInfra-D. The Commission is of the view that Z factor charge needs to be charged as per MERC MYT Regulations, 2011.The Commission has elaborated its views in Section 5 of this Order Wheeling s i. Mumbai Grahak Panchayat and Niwara Vidyalaya submitted that RInfra-D proposed unjustified hike in wheeling charges in its MYT Petition. ii. Shri Ulhas Chaudhari submitted that the sale of energy to RInfra-D consumers is nearly 3 times that of energy wheeled to Changeover consumers, but the amount of wheeling charges recovered from changeover consumers is only 20% of the total expenses. iii. Shri N. Ponrathnam submitted that Wheeling s denomination proposed by RInfra-D is in Rs/kWh format and not in Rs/kW/Month. It was further submitted that whether RInfra-D uses system load factor in computation of the Wheeling s. Page 38 of 302

39 RInfra-D s Response i. RInfra-D submitted that the Wheeling s have not been revised for nearly four years. The present Wheeling charges were approved vide Commission s Clarificatory Order dated 22 July 2009, in Case No. 121 of The increase in network cost from what was approved in Case No. 121 of 2008 till the projection made for in the present MYT Petition is around 73% and is the main reason for the its proposal of increase in Wheeling charges. Further, RInfra-D submitted that the Wheeling charges are proposed based on the presently applicable methodology. ii. In response to Shri Ulhas Chaudhary s query, RInfra-D submitted that the Wheeling s is computed based on total Wires ARR divided by total voltage-wise energy sales (including both own and changeover sales).this yields different rates of wheeling charge for HT sales and LT sales. Wheeling charge for HT consumers is much lower than that for LT consumers. Since, a large part of changeover consumption is at HT, the wheeling charges recovery is less as compared to the total wires expenses. Thus, the consumption mix of changeover consumers creates a situation of lower recovery of wires cost from change-over consumers, while passing on a larger share to remaining (almost 96%) LT consumption of RInfra-D s own consumers. iii. In response to Shri N. Ponrathnam s query, RInfra-D clarified that a) Wheeling charges are proposed by RInfra-D in Rs/unit denomination and not in Rs./kW/month denomination. The System Load Factor of 68% used in the MYT Petition to determine Peak Demand of RInfra-D represents the ratio of Peak Demand to Average Demand in a given year and is based on the previous few years data, which is verifiable from SLDC records. b) It has not determined system Load Factor based on ABR. Further, Wheeling s proposed by RInfra-D is independent of system Load Factor. RInfra- D further submitted that the Hon ble Supreme Court has laid down that Distribution Licensees who are yet to lay down their networks can supply electricity in retail to consumers using other licensee s network, on payment Page 39 of 302

40 of surcharge in addition to charges of wheeling. Hence, wheeling charges are clearly payable. Further, the Hon ble ATE, in its Judgment in Appeal Nos. 132, 133, 139, 144 and 164 of 2011, dated 21 December 2012, clearly held that the act of supply by TPC-D to retail consumers using network of RInfra- D is Open Access. Commission s Rulings The Commission noted the suggestion and objections and also their replies submitted by RInfra-D. The Commission has elaborated its views in Section 5 of this Order Cross Subsidy Surcharge i. Prayas Energy Group and Abhinav Shikshan Prasarak Mandal submitted that RInfra-D should rework its methodology, as it imposes higher level of Cross Subsidy Surcharge and also there must be some roadmap for reduction in Cross Subsidy Surcharge. Similar query was submitted by Mumbai Grahak Panchayat, TPC and Nagari Nivara Parishad. ii. Abhinav Shikshan Prasarak Mandal further submitted that CSS is to be applicable for new consumers changing over in and not to consumers changed over earlier and requested the Commission not to approve high CSS as submitted by RInfra-D. Similar query was submitted by Nagari Nivara Parishad. iii. Shri Abrol submitted that RInfra-D should explain applicability of Cross-subsidy Surcharge and Regulatory Asset charge for consumers below 1000 kva. iv. Indian Hotel & Restaurant Association submitted that RInfra-D has created hurdles in TPC-D s network development and CSS cannot be levied on changeover consumers. v. MMOPL submitted that RInfra-D had not represented CSS correctly by considering Average Tariff and Average Cost of supply (ACoS). vi. Retailers Association of India and Shopping Centres Association of India submitted that RInfra-D s submission to impose sudden large increase in CSS is Page 40 of 302

41 an attempt to deter other consumers of itself from changing over to TPC-D and it is abuse of dominant position and denial of market access. RInfra-D s Response i. Regarding CSS, RInfra-D submitted that it has been calculated with reference to the proposed tariff and using the formula as provided in the Tariff Policy (with modification for grossing up of losses). RInfra-D further submitted that the Commission has also ruled, in its Order in Case No. 138 of 2012 that Surcharge for each tariff category and sub-category / slab should be based on the approved current level of cross-subsidy ii. RInfra-D submitted that as the approved current level of cross-subsidy will vary from one year to next, the CSS shall also vary in accordance with the same. Further, RInfra-D submitted that the development of cross-subsidy reduction roadmap is the prerogative of the Commission and there is a clear cross-subsidy reduction roadmap in RInfra-D s MYT Petition itself which indicate that the tariffs and consequently the cross-subsidy levels and the Cross-Subsidy Surcharge progressively come down till from their starting level in iii. RInfra-D further submitted that its proposal of CSS, including its recovery from change-over/open access consumers is based entirely on the methodology as approved by the Commission. iv. In response to Indian Hotel & Restaurant Association s query RInfra-D submitted that it has never placed any hurdles in TPC s network development v. In response to MMOPL, RInfra-D submitted it has computed the ACoS as per the present methodology adopted in State of Maharashtra. ACoS reflects the average cost of distribution business as a whole. It is not specific to any consumer or consumer category. Similarly, cross-subsidy is worked out as a ratio of ABR (based on the proposed tariffs) and the Average Cost of Supply. vi. RInfra-D replied to Nagari Nivara Parishad and Abhinav Shikshan Prasarak Mandal that the Cross-Subsidy Surcharge for residential slabs is proposed to apply telescopically, i.e., the Rs per unit shown for will only apply to units above 500. Therefore, if there is consumption of 550 units then the Page 41 of 302

42 effective CSS would be = 0.00* * * *50 = Rs per unit, instead of Rs per unit as considered by the objectors. With this correction, the effective increase in tariffs would be much less than what the objectors had stated. Commission s Rulings The Commission noted the suggestion and objections submitted by consumers and Consumer Representatives and also their replies submitted by RInfra-D. The Commission has elaborated its views in Section 5 of this Order Regulatory Asset and its Recovery Mechanism i. Abhinav Shikshan Prasarak Mandal submitted that Regulatory Asset charges cannot be made applicable to Changeover consumers as they are open access consumers and the Act does not provide levy of any charges on them other than wheeling charges, CSS and Additional Surcharge. A similar query was raised by Indian Hotel & Restaurant Association, Urja Prabodhan Kendra and Nagari Nivara Parishad. ii. Shri Abrol submitted that the consumers are already paying wheeling charges, distribution and commercial losses and requested for verification of Regulatory Assets which was being claimed. iii. Shri. Ulhas Chaudhari submitted that the entire Regulatory Asset approved in Case No. 180 of 2011 should be recovered through a one-time monthly bill of the consumers along with the carrying cost accumulated till date. iv. TPC submitted that RInfra-D has no right to claim Regulatory Asset from Changeover Consumers. A similar submission was made by Shri N. Ponrathnam submitted during Public Hearing Process. RInfra-D s Response i. RInfra-D submitted that the Regulatory Assets represent past accumulated receivables and are in nature to arrears, recoverable from all consumers, including past consumers. Page 42 of 302

43 ii. iii. iv. In response to Shri Abrol s query, RInfra-D submitted that Wheeling charges are presently being levied on the changeover/open access consumers as per the Order of the Commission in Case No. 121 of RInfra-D further submitted that Regulatory Assets refer to past accumulated revenue deficit and has no relation with the capital assets, except to the extent to accumulated deficit due to nonrecovery of capital related expenses such as depreciation, interest and return. RInfra-D further submitted that TPC-D is well aware of the treatment provided for regulatory asset recovery for its Distribution License in Delhi which allows recovery of a separate 8% Surcharge on tariffs for recovery of past accumulated deficit. In response to Shri. Ulhas Chaudhari, RInfra-D submitted that the suggestion of entire one time recovery of Regulatory Asset, would lead to a tariff shock for consumers. Accordingly, RInfra-D has suggested a phased recovery of regulatory asset. In response to TPC query, RInfra-D submitted that Regulatory Assets represent past accumulated receivables and are akin to arrears, recoverable from all consumers, including past consumers. The Regulatory Assets represent a deferred recovery of the past cost and it is prudent to let the consumer know the current cost as reflected in tariff and the past deferred recovery separately. RInfra-D further submitted that TPC-D is well aware of the treatment provided for regulatory asset recovery for its Distribution License in Delhi which allows recovery of a separate 8% Surcharge on tariffs for recovery of past accumulated deficit. Commission s Rulings The Commission noted the suggestion and objections submitted by consumers and Consumer Representatives and also replies submitted by RInfra-D. The Commission has elaborated its views in Section 5 of this Order. Page 43 of 302

44 2.13 Distribution License related issues i. MMOPL submitted that its load is directly connected with 220/33kV receiving station of RInfra-T. Entire cost of laying 33kV network is borne by MMOPL and it is directly off-taking power from receiving station at Aarey and cannot be regarded as connected to RInfra-D and a consumer of RInfra-D. ii. Shri N. Ponrathnam submitted that the concept of Wheeling was introduced in the Act to enable Distribution Licensees who are yet to install their distribution line to supply electricity directly to retail consumers, subject to payment of surcharge in addition to the charges for Wheeling as determined by the State Commission. Hence, RInfra-D should provide its wires to TPC-D to enable them to supply power to retail consumers. RInfra-D s Response a. RInfra-D submitted that it has a composite licence for wires business and supply business as stipulated in the EA, 2003 and the expenses are approved in Order to correctly determine the expenses of network to be levied on Open Access / Wheeling consumers. b. In response to MMOPL query, RInfra-D submitted that physical connection pertaining to Metro Load is made directly with the 33 kv side of RInfra-T s Aarey R/S. However, the consumer is a consumer of RInfra Distribution business only. c. In response to Shri N. Ponrathnam query, RInfra-D submitted that under the Act, each Distribution Licensee is obligated to lay its own distribution network in order to supply electricity to the consumers. The Distribution Licensee is duty bound under its license to develop, maintain and operate its distribution network and meet its Universal Supply Obligation. Commission s Rulings This licence related issues are outside the ambit of present proceeding in tariff determination process. The Commission notes that Section 2(15) of the Act, states as under: Page 44 of 302

45 (15) "consumer" means any person who is supplied with electricity for his own use by a licensee or the Government or by any other person engaged in the business of supplying electricity to the public under this Act or any other law for the time being in force and includes any person whose premises are for the time being connected for the purpose of receiving electricity with the works of a licensee, the Government or such other person, as the case may be; emphasis added The Commission notes that the definition of consumer clearly recognises a person who is supplied by a Licensee as a consumer. Hence, the Commission is of the opinion that MMOPL is a consumer of RInfra-D, though it may have been connected to RInfra-T network. Page 45 of 302

46 3. DETERMINATION OF THE ARR for the CONTROL PERIOD from to Sales forecast Approach RInfra-D submitted that it adopted following approach for estimation of its Own Sales for the Second Control Period from to as: a) Estimation of total sales in the RInfra-D area including energy supplied to Changeover consumers by TPC-D. b) Estimation of Changeover sales category-wise considering the impact of Order in Case No. 151 of 2011 dated 22 August, c) Estimation of RInfra-D own sales which is difference of the total sales and Changeover sales Estimation of Total Sales RInfra-D submitted that a) The actual sales data available for the period April 2012 to September 2012 (both own and change-over) was used to estimate total sales for b) Due to huge seasonal variations in demand, sales estimate for period October 2012 to March 2013 needed to consider the effect of seasonality. Hence, the consumer category wise total sales for the period October 2012 to March 2013 was estimated by applying a Seasonality Factor on the actual data for the period April 2012 to September c) The Seasonality factor was computed category wise based on the ratio of actual total sales of October 2011 March 2012 (6 months cumulative) to actual Total Sales for the period April 2011-September 2011 (6 months cumulative) for each consumer category The total sales for each year of the rest of the Control Period was estimated by applying historical total sales growth rate to the estimated total sales for RInfra-D further submitted that the growth rate for each consumer category was estimated based on the last five years ( to ) actual total sales Page 46 of 302

47 (MU) data. The category wise growth rates used by RInfra-D, for estimation of total sales, are given in the table below: Table 1: Total sales CAGR - Category wise Total Sales (%) as submitted by RInfra-D Consumer Category Growth Rate (%) LT Residential 2.99% LT Commercial 4.36% LT Industrial 2.65% LT Advertisements 5.28% LT Street Light 2.14% LT Temporary 3.49% HT Industrial 2.11% HT Commercial 9.05% HT Housing 2.06% RInfra-D submitted that in its MYT Petition, it has adopted the approach of forecasting total sales (i.e. total sales in license area, including change-over consumers) based on historical growth rates, as past growth rates in electricity consumption will be reflective of the future and the future growth rates will not be very different from the past. RInfra-D also submitted that in the past, even in the face of increasing urbanisation and commercialisation in the licensed area, the CAGR based sales forecast has produced fairly accurate results when the sales as forecast at the time of ARR submission is compared with the actual sales at the time of true-up The total energy consumption in the licensed area of supply for each year of the MYT Period as submitted by RInfra-D is given in the table below: Page 47 of 302

48 Table 2: Total Sales as projected by RInfra-D of consumer connected to its Distribution System (MU) Consumer Category & Consumption Slab LT I - Below Poverty Line LT -I Residential (Single Phase) , , , , , , , , and above LT -I Residential Three phase and above LT II (a) kw 1, , , , LT II (b) kw LT II (c) - above 50 kw LT III - LT Industrial upto 20 kw LT IV - LT Industrial above 20 kw LT-V : LT- Advertisements and Hoardings LT VI: LT -Street Lights LT-VII (A): LT -Temporary Supply Religious LT-VII (B): LT -Temporary Supply Others LT VIII: LT - Crematorium & Burial Grounds LT IX: LT Agriculture Total- LT Sales 8, , , , HT I: HT-Industry HTII : HT- Commercial HT III: HT-Group Housing Society HTIV : HT - Temporary Supply HT - Railways (New Category) Total - HT Sales 1, , , , Total 9, , , , Page 48 of 302

49 Further, in reply to the Commission s query regarding basis of CAGR for LT VIII, LT IX and HT IV as these were hard punched values in the model, RInfra-D submitted vide its reply dated 11 February, 2013 that: Sales for HT IV category (HT temporary supply) has been introduced in and the data from onwards shows wide variations on a Year on Year basis, due to less volume, no specific trend in consumption as connections are only temporary, etc. Hence, historical CAGR may not provide the right picture while estimating sales for a longer period from to Hence sales for this category have been considered at a moderate growth rate of 2% per annum. For LT VIII (Crematorium) and LT IX (Agriculture), historical 5 year CAGR ( to ) was relatively high compared to growth rate considered in other categories. Considering the huge difference in Historical 5 year CAGR ( to ) and Historical 2 year CAGR ( ), the higher growth rate may not be realized in the future simply because there is no reason to believe that there would be any spurt in the number of crematoriums or for that matter agriculture pumpset connections in the area of supply. Hence a moderate growth rate of 3% has been considered, which is representative of the average increase in sales (including both HT and LT) for two year period from to for both these categories Estimation of Changeover Sales RInfra-D submitted that its approach for estimating Changeover Sales is based on consideration of the directions given by the Commission to TPC-D in its Order in Case No. 151 of 2011 dated 22 August, RInfra-D further submitted its approach for estimation of Changeover Sales as given below: a) Existing Changeover sales estimation: Estimation of sales to existing changeover consumers as on September 2012 in all 20 clusters was considered by RInfra-D. For , to estimate sales from existing changeover Page 49 of 302

50 consumers, actual data for the period April to September 2012 was considered. For rest of , seasonality factor was applied to sales of April to September 2012 to arrive at the sales for October 2012 to March Seasonality Factor used in estimation of Total sales was adjusted to reflect the lack of additional growth in consumers while estimating sales from existing changeover consumers. For the period to , a specific consumption growth rate of 2% was assumed on the estimated sales number to determine sales to existing changeover consumer for the respective year. b) Additional Changeover sales estimation: Estimation of Sales to additional changeover consumers in all clusters only from the residential (0-300 units) category. RInfra-D submitted that for the period April 2012 to September 2012, around 37,500 consumers in the region common to RInfra-D and TPC-D from Residential category (0-300 units) have additionally migrated/changed over to TPC-D. Based on this trend, around 75,000 consumers can potentially migrate from RInfra-D to TPC-D in the above mentioned categories. Hence, for MYT Petition, RInfra-D assumed that 75,000 consumers will migrate/change over each year from onwards to RInfra-D submitted that a uniform specific consumption growth rate of 2% was used to estimate the sales for additional changeover consumers for the period to RInfra-D submitted year wise addition considered in change-over residential consumers (Single & Three Phase) with consumption between units per month as given in the table below: Table 3: Additional Changeover over Consumers as submitted by RInfra-D Additional Changeover consumers (H2) Total Number of consumers 37,500 75,000 75,000 75,000 Residential (1 Phase) ,000 36,000 36,000 36, ,250 34,500 34,500 34,500 Residential (3 Phase) ,500 1,500 1,500 Page 50 of 302

51 Additional Changeover consumers (H2) ,500 3,000 3,000 3,000 c) Pending applications sales estimation: RInfra-D submitted that it included Sales pertaining to Pending applications as on August 22, 2012 in all 20 clusters. Further, the effect of Order in Case No. 151 of 2011 was applied by RInfra-D as: d) Subsequent to 21 August, 2013, the sales to existing changeover consumers were pruned down proportionately to represent the same only from the 9 clusters as per Order in Case No. 151 of e) Subsequent to 21 August, 2013 till end of , the sales to additional change-over consumers from residential category were pruned down to proportionately represent the same from only the remaining 9 clusters. RInfra-D also submitted that the existing ratio between changeover sales in 9 clusters with respect to total changeover sales in all 20 clusters was used to estimate the sales in the 9 clusters post 22 August The sales projections for changeover consumers as submitted by RInfra-D, is given in the table below: Table 4: Changeover Sales as projected by RInfra-D (MU) Consumer Category & Consumption Slab LT I - Below Poverty Line LT -I Residential (Single Phase) and above LT -I Residential Three phase and above LT II (a) kw LT II (b) kw Page 51 of 302

52 Consumer Category & Consumption Slab LT II (c) - above 50 kw LT III - LT Industrial upto 20 kw LT IV - LT Industrial above 20 kw LT-V : LT- Advertisements and Hoardings LT VI: LT -Street Lights LT-VII (A): LT -Temporary Supply Religious LT-VII (B): LT -Temporary Supply Others LT VIII: LT - Crematorium & Burial Grounds LT IX: LT Agriculture Total- LT Sales 2, , HT I: HT-Industry HTII : HT- Commercial HT III: HT-Group Housing Society HTIV : HT - Temporary Supply HT - Railways (New Category) Total - HT Sales Total 3, , RInfra-D submitted that it has projected a significant reduction in Changeover sales from onwards, due to conversion of existing Changeover consumers in to Switchover, i.e., connection to TPC-D s distribution network Estimation of RInfra-D Own Sales RInfra-D submitted it estimated its own sales as the difference between the Total Sales and Changeover Sales. RInfra-D submitted that it projected additional requirement from Versova- Andheri- Ghatkopar (VAG) Corridor metro Mass Rapid Transit System (MRTS) project, being implemented by Mumbai Metro One Pvt. Ltd. which is categorised in a new category HT Railways Further, in reply to the Commission s query regarding Own Sales increasing from past, based on the 5 year CAGR whereas there was reduction in the number of consumers as projected, RInfra-D submitted vide its reply dated 12 February, 2013 that the number of RInfra-D consumers shows a declining trend in the second Page 52 of 302

53 Control Period. RInfra-D submitted that this is primarily due to reduction of consumers in the residential (0-300) categories due to migration of consumers to TPC-D. Also, the number of customers in the residential (0-300) categories is more than thrice the number of consumers in other categories. Hence, even though the number of consumers shows a reduction on absolute number basis, however on percentage terms, the reduction in sales is small (less than 3% CAGR basis for the period (H2) to ). Further, the contribution per consumer of Residential (0-300) categories to total sales is significantly lower compared to other categories. Therefore, the growth in sales in other categories is higher than the small reduction in sales from residential (0-300) categories. Hence, due to the changing sales and consumer mix of RInfra-D, there is an increase in sales despite the reduction in overall number of consumers The Own sales projections as submitted by RInfra-D without considering impact of Demand Side Management (DSM) is given in the table below: Table 5: Own Sales as projected by RInfra-D (without considering impact of DSM) (MUs) Consumer Category & Consumption Slab LT I - Below Poverty Line LT -I Residential (Single Phase) , , , , , , , , and above LT -I Residential Three phase and above LT II (a) kw 1, , , , LT II (b) kw LT II (c) - above 50 kw LT III - LT Industrial upto 20 kw LT IV - LT Industrial above 20 kw LT-V : LT- Advertisements and Hoardings Page 53 of 302

54 Consumer Category & Consumption Slab LT VI: LT -Street Lights LT-VII (A): LT -Temporary Supply Religious LT-VII (B): LT -Temporary Supply Others LT VIII: LT - Crematorium & Burial Grounds LT IX: LT -Agriculture Total- LT Sales 6, , , , HT I: HT-Industry HTII : HT- Commercial HT III: HT-Group Housing Society HTIV : HT - Temporary Supply HT - Railways (New Category) Total - HT Sales Total 6, , , , Further, as a part of reply to data gaps raised by the Commission, RInfra-D submitted provisional figures for month-wise Own Sales and revenue from sale of power as MU and Rs Crore (including incentives and disincentives), for Demand Side Management (DSM) Measures RInfra-D submitted that it has continued its efforts to reduce the system demand and energy consumption through DSM initiatives. The energy savings from various DSM activities and its Own Sales considering impact of DSM, as submitted by RInfra-D is as given in the table below: Table 6: Energy Savings (MU) though DSM activities as submitted by RInfra-D Program Consumer Category T5 FTL Residential Five Star Fans Residential (<500 units) Five Star Split A/C LT II <20kW Solar PV plant at LT II <20kW Page 54 of 302

55 Program Consumer Category MIDC Five Star Refrigerators Residential Five Star Fans Ph II Residential(<500 units) Five Star Split A/C LT II <20kW and Ph II LT III (<20 kw) Total Table 7: Own Sales as projected by RInfra-D (considering impact of DSM) (MUs) Consumer Category & Consumption Slab LT I - Below Poverty Line LT -I Residential (Single Phase) , , , , , , , , and above LT -I Residential Three phase and above LT II (a) kw 1, , , , LT II (b) kw LT II (c) - above 50 kw LT III - LT Industrial upto 20 kw LT IV - LT Industrial above 20 kw LT-V : LT- Advertisements and Hoardings LT VI: LT -Street Lights LT-VII (A): LT -Temporary Supply Religious LT-VII (B): LT -Temporary Supply Others LT VIII: LT - Crematorium & Burial Grounds LT IX: LT -Agriculture Total- LT Sales 6, , , , HT I: HT-Industry HTII : HT- Commercial HT III: HT-Group Housing Society HTIV : HT - Temporary Supply Page 55 of 302

56 Consumer Category & Consumption Slab HT - Railways (New Category) Total - HT Sales Total 6, , , , Further, in response to the Commission s query regarding classifying 7.5 kw Solar Power Plant at MIDC under DSM activities/schemes, RInfra-D submitted vide its reply dated 11 February, 2013 that this project is planned on a pilot basis for study purpose to demonstrate the feasibility of demand curtailment during peak hours. RInfra-D submitted that if reasonable energy savings are achieved and there is sufficient benefit of the project, the technology would be advocated in the licence area and consumers will be encouraged to install rooftop solar plants for the purposes of reducing grid dependency and demand management Commission s Rulings The Commission has accepted the RInfra-D s submission of actual total retail sales in its licence area as MU for , since year is already over and actual figures are available The Commission has noted that for period from to , there is a marginal variation in projected Own Sales in the MYT Petition as compared to the Order issued by the Commission in Case No. 158 of 2011, which is as under: In MU Particulars Own sales as per Business plan order of MERC (table , page 55) Own Sales as per RInfra-D MYT petition (table 38, page 78) Difference 28 (7) (18) Hence, the Commission has accepted and approves the Own Sales projected by RInfra-D, which is as under: Table 8: Own Sales approved by the Commission (considering impact of DSM) (in MUs) Page 56 of 302

57 Consumer Category & Consumption Slab LT I - Below Poverty Line LT -I Residential (Single Phase) , , , , , , and above LT -I Residential Three phase and above LT II (a) kw 1, , , LT II (b) kw LT II (c) - above 50 kw LT III - LT Industrial upto 20 kw LT IV - LT Industrial above 20 kw LT-V : LT- Advertisements and Hoardings LT VI: LT -Street Lights LT-VII (A): LT -Temporary Supply Religious LT-VII (B): LT -Temporary Supply Others LT VIII: LT - Crematorium & Burial Grounds LT IX: LT -Agriculture Total- LT Sales 6, , , HT I: HT-Industry HTII : HT- Commercial HT III: HT-Group Housing Society HTIV : HT - Temporary Supply HT - Railways (New Category) Total - HT Sales Total 6, , , For the purpose of estimation of Changeover Sales, the Commission has considered same Changeover sales as approved in Order in Case 179 of 2011 in the matter of approval of ARR and Multi Year tariff of TPC-D for the second Control Period as tabulated below: Page 57 of 302

58 Table 9: Changeover Sales approved by the Commission in Case 179 of 2011 (in MU) Category LT 1 - Residential LT II Commercial LT Industrial LT VII - Temporary Supply LTV- Advertisement HT I Industrial HT II Commercial HT III - Group Housing Society HT VI - Temporary Supply Grand Total The same Changeover sales has to be approved by the Commission at the distribution periphery of RInfra-D for RInfra-D for the period to , as both the sales figures have to be identical and no variation is acceptable. 3.2 Distribution Losses Distribution Losses for period from to RInfra-D submitted in its MYT Petition that actual distribution loss for as mentioned in the True-up Petition in Case No. 124 of 2012 is 9.46% compared to 9.05% considered in the Business Plan Petition. In the Business plan Petition for the second control period of RInfra-D the distribution loss for was provisional and was considered equivalent to the loss level of as the energy balancing under FBSM was held up since August 2011 on account of various constraints and issues RInfra-D further submitted that the actual distribution loss of of 9.46% is higher than those considered in the Business Plan of 9.05% for the same period. This is on account of the issues in accounting of changeover sales such as: a) Large number of unbilled consumers by TPC-D. b) No proper data sharing between RInfra-D and TPC-D and settlement of Page 58 of 302

59 difference in readings. c) Mismatch in reading cycles for several types of consumers between the two licensees and issues relating to multiplying factors RInfra-D submitted that it has considered the actual loss level for as the base level for the MYT Period. Further, for the purpose of estimation of Aggregate Revenue Requirement and Tariff for the second MYT Control Period, no reduction in losses of 9.46% is anticipated till but losses shall reduce by 0.05% in the last two years to reach 9.36% in RInfra-D further submitted status of the Commission s direction in Case No. 180 of 2011 regarding carrying out a study of technical losses in RInfra-D system. RInfra- D submitted that it has awarded the assignment of technical loss study to the Administrative Staff College of India (ASCI) and was carrying out the study till May However, the study is submitted to the Commission on 29 May, Since distribution loss is one of efficiency parameter and the study report and its findings were not made available before the Public consultation process and hence, it is presently not considered by the Commission in this Order. RInfra-D may submit the report along with proper justification at the time of mid-term performance review for the consideration of the Commission The detailed computation for distribution loss for , as submitted by RInfra-D in the True-up petition in Case No. 124 of 2012 is as given in the table below: Table 10: Actual Distribution Loss of 12 as submitted by RInfra-D Particulars Energy sold - RInfra-D own consumers (MU) 6, Energy consumption by Open Access consumers (MU) 8.66 Energy sold Changeover consumers (MU) 2, Total (MU) 9, Distribution loss (%) 9.46% T<>D Energy input (MU) 9, Page 59 of 302

60 The Distribution loss trajectory as submitted by RInfra-D for second Control Period in its MYT Petition is as given in the table below: Table 11: Distribution Loss Trajectory as submitted by RInfra-D for the 2 nd Control Period Loss Levels Distribution Loss 9.46% 9.46% 9.41% 9.36% In reply to the Commission s query regarding reduction of 0.05% in the Distribution loss in the last two years, RInfra-D submitted vide its reply dated 12 February, 2013 that there could likely be an increase in the loss levels considering that the mix of consumers served on the network could worsen as more change-over consumers opt for conversion to Group III (switchover to TPC-D network). However, this effect could be offset in the later years of the MYT Petition as a result of Capex interventions as well the fact that new consumers added to RInfra-D network could balance the degradation in the consumer mix. Therefore, a moderate reduction in distribution losses has been forecast in the last two years of the MYT Period Commission s Rulings The Commission in its Order dated 23 November 2012 in Case No. 158 of 2011 has approved a distribution loss reduction trajectory as under: Table 12: Distribution Loss reduction trajectory approved by the Commission in Case No. 158 of 2011 Year wise Distribution Loss reduction Trajectory 0% 0% 0.05% 0.05% The Commission in its Order dated 23 November, 2012 in Case No. 158 of 2011 has approved distribution loss of as 9.05% based on actual distribution loss of , as at the time of issuance of the Order, the actuals of were not available. Page 60 of 302

61 Subsequently, the Commission in its Order dated 4 April 2013 in Case No. 124 of 2012 has approved distribution loss of as 9.46 % based on actual distribution loss Hence, the Commission in the present Order has considered the actual distribution loss of as base for approving the distribution loss for the second Control Period as under: Table 13: Distribution Loss Trajectory approved by the Commission for the 2 nd Control Period Year wise Distribution Loss Target 9.46% 9.46% 9.41% 9.36% 3.3 Energy Balance and Power Purchase Requirement Energy Balance from to RInfra-D submitted that the energy balance and power purchase forecast is prepared considering the view of the Commission in its Order in Case No. 180 of 2011, i.e., the wheeling losses for LT are considered at 9% and that for HT at 1.94% for all the years in the second Control Period, as a part of its MYT Petition As a part of data gaps, the Commission enquired about the impact of RInfra-D contention in Appeal No. 160 of 2012, i.e., impact of all distribution losses i.e., technical and commercial losses to its Own and Wheeling Consumers. In reply, RInfra-D submitted the impact for , and as given in the table below: Table 14: Impact of Appeal No. 160 of 2012 as submitted by RInfra-D (in Rs. Cr) Impact Summary Impact on own consumers due to additional power purchase / lower increment to the Imbalance Pool Impact on own consumers due to lower recovery of wheeling charges from change-over consumers Page 61 of 302

62 Impact Summary Total Cumulative Total RInfra-D submitted that for it has considered transmission losses at actuals. Further, from, onwards, the transmission losses are projected at 4.85% as considered by Commission in the Business Plan Order in Case No. 158 of RInfra-D submitted the Energy Balance and Power Purchase requirement for the Second Control Period as given in the table below: Table 15: Energy Balance for Second Control Period (MU) as submitted by RInfra-D Particulars Sales (Own) 6, , , , Sales (changeover) 3, , Total 9, , , , Distribution Loss (%) 9.46% 9.46% 9.41% 9.36% Energy Input to the Distribution System 10, , , , Table 16: Power purchase requirement for second Control Period (MU) as submitted by RInfra-D Particulars Migrated HT sales HT Loss (%) 1.94% 1.94% 1.94% 1.94% HT grossed up energy at T-D boundary Migrated LT sale 2, , LT loss (%) 9.00% 9.00% 9.00% 9.00% LT grossed up energy at T-D boundary 2, , Total T-D energy attributable to Migration 3, , Page 62 of 302

63 Particulars Net T-D energy attributable to RInfra-D sale 7, , , , InSTS losses (%) 4.85% 4.85% 4.85% 4.85% Total power requirement of RInfra-D 7, , , , Commission s Rulings The Commission has approved the energy balance and power purchase considering the wheeling losses for LT are considered at 9% and that for HT at 1.94% for all the years in the second Control Period, as submitted by RInfra-D in its MYT Petition Further, the Commission has observed that the transmission loss trajectory since past few years has been decreasing. The Transmission loss trajectory for past few years as available on MSLDC website is shown in the following Table: Table 17: InSTS Transmission Losses as per MSLDC website (%) Particulars * Transmission Losses 4.88% 4.59% 4.31% 4.17% 4.19% *Up to December As evident from the above Table, Transmission losses have been decreasing and hence, the Commission finds no merit in approving the Power Purchase requirement at G <> T interface with the same transmission loss as approved in the past and subsequently having to change the same at the time of Truing-Up. Further, considering that a higher transmission loss level will result in over-estimating the energy requirement and increase the burden on the consumers, for the purpose of this Order, the Commission has considered Transmission losses at 4.17% (actuals for ) for each year of the Control Period Page 63 of 302

64 The Energy Balance and Power Purchase requirement for the period from to , approved by the Commission, is as under: Table 18: Energy Balance approved by the Commission (MU) Particulars Sales (Own) 6,594 6,790 7,020 Sales (changeover) 3,293 3,595 3,903 Total 9,887 10,385 10,923 Distribution Loss (%) 9.46% 9.41% 9.36% Energy Input to the Distribution System Table 19: Energy Requirement approved by the Commission (MU) Particulars UoM Energy Input to the Distribution System MU Changeover HT sales MU HT Wheeling Loss % 1.94% 1.94% 1.94% Changeover HT sales grossed up to at Distribution Periphery MU Changeover LT sales MU LT Wheeling Loss % 9.00% 9.00% 9.00% Changeover LT sales grossed up to at Distribution Periphery MU Total T-D energy attributable to Changeover Sales MU Net energy attributable to RInfra-D retail sales at Distribution Periphery MU InSTS losses % % 4.17% 4.17% 4.17% Total Power Purchase Requirement of RInfra-D (MU) at Transmission periphery MU Power Procurement Plan and Expenses Page 64 of 302

65 3.4.1 Estimation of Base and Peak Load RInfra-D submitted that it has forecasted Base Load and Peak Load in MW on the basis of its sales forecast and energy input requirement at the G<>T boundary. Using the energy input at G<>T in MU forecast in the Business Plan, the same is converted to average demand in MW. The Maximum demand corresponding to RInfra-D customers is then obtained by applying a representative system load factor to the average demand. The load factor for the period from to is estimated based on the average of the load factors for the five year period from to Base Load is considered as the lowest requirement as per the Load Duration Curve or it could be considered as the load, which is incident on the system for majority of time. However, RInfra-D submitted that its load duration curve varies significantly between day and night hours and over seasons. For instance in , in winters, load goes down to as low as MW in late night hours, whereas in peak summers, minimum load would hover around 900 MW. Monsoon season requirement is in between the two. Hence, there is no single Base Load or Peak Load value for RInfra-D s system RInfra-D further submitted that the varying nature of load during the day time and across different seasons poses difficulty in planning the supply side (Generation) to meet the demand with assured availability and optimum cost. Further there are large variations in the short term power rates which in turn may result in the increase in the power purchase cost RInfra-D submitted that it has to plan the power purchase such that Consumers of Mumbai are assured of continuous supply, the surplus and shortfall will be manageable during the real time operation period and the entire operation is cost effective Base Load Generation Capacity assures the reliable and Continuous availability of supply. RInfra-D submitted that it has done an analysis of the surplus and shortfall based on the Generation capacity for various levels to meet the requirement for Page 65 of 302

66 RInfra-D submitted that from the above figure that the surplus/shortfall position is optimal 68% if the capacity is contracted around the average load. Therefore RInfra-D has considered the average Load as the Base Load for arriving at the Base Load Capacity requirement for each year of the MYT Period in its Petition. Further, RInfra-D has considered 85% of assured availability from the generators The corresponding Base and Peak Load for the control period as submitted by RInfra-D is as given in the table below: Table 20: Base and Peak Load Estimation and additional capacity requirement for Second control period (MU) as submitted by RInfra-D Particulars Power Purchase requirement (MU) System Load Factor (%) 68% 68% 68% 68% Peak Demand (MW) Average Demand (MW) =Base Demand (MW)) DTPS Capacity 467# 451* 451* 451* Additional Capacity (met through (met through requirement (MW) (Base contracts of contracts of Demand Base capacity WPCL, WPCL,AMENPL contracted) AMENPL and VIPL) and VIPL) Capacity to be contracted, considering 85% availability # As per RInfra-G MYT Petition (Case No. 1 of 2013) actual energy as per the Petition converted to equivalent MW *After subtracting normative auxiliary consumption of 8.5%, plus actual of FGD as projected in MYT Petition of RInfra-G (Case No. 1 of 2013) RInfra-D submitted that the power procurement for meeting base load would be done through a mix of long-term contracts, and medium-term contracts. RInfra-G s Dahanu Thermal Power Station would cater to a part of the base load requirement of RInfra-D. For the period , rest of the Base demand would be met through existing medium -term contracts with Wardha Power Company Limited, Page 66 of 302

67 Abhijeet MADC and VIPL s Butibori plant. These medium-term contracts are valid till In order to meet the base load requirement from onwards, RInfra-D submitted that it has entered into a long-term contract with VIPL for procurement of 600 MW of power. The plant is located at Butibori, Nagpur. After subtracting auxiliary consumption, the net availability from VIPL would be approximately 540 MW RInfra-D further submitted that the requirement over and above the base load i.e., the peaking requirements of power would be met through short-term purchases from the external market as well as separate contracts with traders, Power Exchanges, merchant and captive power plants as well as inter-utility transfer through the state imbalance pool. Renewable energy will also be procured to meet Renewable Purchase Obligation (RPO) targets as specified by the Commission, while also adding to purchases made to meet base and peak load requirements. Renewable energy from Solar has been considered by RInfra-D towards meeting peak load requirement Further, in reply to Commission s query regarding consideration of different System Load Factor of 68% for Power Procurement Plan in the MYT Petition, while 72% was considered in the Business Plan, RInfra-D submitted vide its reply dated 12 February, 2013 that its system load factor is about 68.49% considering past few years data and it is only to arrive at Peak Demand from Average Demand. However, in the MYT Petition, the Base Demand is considered same as Average Demand and thereafter, demand profiling is done on an hourly basis for each year of the MYT Control Period to arrive at the short-term power requirement and surplus power availability at various times of day. In that context, as the Peak Demand is not being used to derive Base Demand, the value of load factor is not very relevant Procurement from Dahanu TPS (DTPS) Page 67 of 302

68 RInfra-D submitted that RInfra-G s Dahanu Thermal Power Station shall cater to its base load requirement. It has entered into a 10-year Power Purchase Arrangement with generating station at Dahanu (DTPS or RInfra-G). The arrangement has been approved by the Commission vide its Order in Case No. 8 of It is a long-term contract for delivery of all generated energy to RInfra-D from 2 X 250 MW units at the tariff determined by the Commission for RInfra-G RInfra-D submitted that for the period from to , the energy availability and cost of power purchase from DTPS is based on the projections provided in RInfra-G MYT Petition in Case No. 1 of The referred Petition of RInfra-G contains estimated energy availability from DTPS for based on 9 month actuals and thereafter, energy availability has been determined considering 500 MW installed capacity, projected auxiliary consumption and 95.90% availability The summary of the energy availability and cost of power purchase from DTPS as submitted by RInfra-D is given in the tables below: Table 21: Energy Availability from DTPS as submitted by RInfra-D DTPS Capacity available (MW) Availability (%) Auxiliary Consumption (%) Energy availability (MU) ,798.13* *One day extra generation due to leap year Table 22: Cost of Power Purchase from DTPS as submitted by RInfra-D DTPS Fixed s (Rs. Crore) Rate of Energy s (Rs. per kwh) Total Variable Cost (Rs. Crore) 1, , , , Total Cost of Power (Rs. Crore) 1, , , , Page 68 of 302

69 Subsequently, in reply to the details sought regarding the actual power purchase cost for , RInfra-D provided the actual power purchase cost from DTPS. The Commission has considered the actual power purchase cost for from DTPS as submitted by RInfra-D As regards power purchase from RInfra-G for the period from to , the Commission has considered the net energy available from RInfra-G and cost of power purchase in accordance with the Commission s Order dated 13 June, 2013 in Case No. 1 of 2013 in the matter of Petition filed RInfra-G for approval of ARR and determination of tariff for MYT Second Control Period from to The summary of the energy availability and cost of power purchase from DTPS as approved by the Commission for each year of the MYT Second Control Period is given in the Table below: Table 23 Power Purchase from RInfra-G for to Power purchase from Unit RInfra-G Approved after Provisional Truing up Approved Approved Approved Power Purchase Quantum MU 3, , , , Power Purchase Cost Rs. Crore 1, , , , Average Rate Rs./kWh Procurement from Medium term Contracts (upto ) RInfra-D submitted that it has existing medium-term power procurements contracts with Wardha Power (WPCL), Abhijeet MADC and Vidarbha Industries Power Limited (VIPL) RInfra-D submitted that it has considered power purchase from WPCL in accordance with specified quantum and at the rate adopted by the Commission s Order under Case No.85 of 2011 dated 1 July, Page 69 of 302

70 Further, RInfra-D submitted that it has considered the power purchase from Abhijeet MADC for the period 1 July, 2011 up to 31 March, 2014 at the rates adopted by the Commission vide its Order under Case No.84 of 2011 dated 1 July, In case of power purchase from VIPL, RInfra-D submitted that it has considered procurement of 134 MW from 1 April, 2012 up to 31 March, 2014 in accordance with the judgment of the Hon ble ATE in Appeal No. 106 of The summary of power purchase from above mentioned sources till as submitted by RInfra-D is given in the table below: Table 24: Energy availability from Existing Medium Term Contracts (MU) as submitted by RInfra-D Source Wardha (MW) Abhijeet (MW) VIPL (MW) Wardha (MU) 1, , Abhijeet (MU) VIPL (MU) RInfra-D further submitted that WPCL has filed a Petition before the Commission bearing Case No. 39 of 2012 wherein purported claim of Rs 27.6 Crore has been made by WPCL on account of Change in Law for the period April 2011 to March 2012 broadly classified under the following four heads: a) Excise Duty on Coal consumed; Clean Energy Cess on Domestic Coal consumed b) VAT on Domestic Coal consumed c) VAT on LDO and HFO consumed d) Customs duty on Generation using Imported Coal e) VAT on Spares consumed RInfra-D submitted that it has executed PPA with WPCL dated 4 June, 2010, for the period commencing from 1 April, 2011 to 31 March, 2014 for the Contracted Page 70 of 302

71 Capacity of 260 MW. As per Articles and 10.2 of PPA, supplier is entitled to any additional recurring/nonrecurring expenditure by reason of introduction of taxes which are made applicable which were not contemplated by the supplier at the time the bid was submitted by the supplier pursuant to which the PPA was entered into. Such taxes should have been introduced 7 days prior to the Bid Deadline RInfra-D submitted that it has contended before the Commission that in view of the provisions in the PPA, it is liable to pay only the non-escalable capacity and energy charges. Consequently, any liability on RInfra-D by reason of introduction of any tax would be restricted to such taxes being applicable to the tariff payable by the Respondent under the PPA so as to restore the Petitioner to the same economic position as if such taxes/levies had not been levied 7 days prior to the Bid Deadline The Commission, during the hearing held in the Case No. 39 of 2012 dated 2 November, 2012, directed RInfra-D to immediately make payment of Rs. 10 Crore and subsequently make payment which is undisputed as per RInfra-D. As against the total claim of Rs Crore for , RInfra-D submitted that it has made payment of Rs Crore as undisputed amount till date. As the payment has been made in and included in the Fuel Adjustment Cost (FAC) of , RInfra-D has considered the same in the present MYT Petition RInfra-D submitted that further claim of Rs Crore was raised by WPCL for the period April 2012 to September 2012, against which RInfra-D has made payment of Rs 7.23 Crore. This matter is sub-judice before Commission for adjudication and any future payments will be based on the outcome of Case No. 39 of RInfra-D submitted in its MYT Petition that the same liability is expected for the second half of Hence, an additional payment of Rs Crore is considered in the MYT Petition for , over and above the payment of Rs Crore (pertaining to ) RInfra-D submitted that, since power will be off taken from WPCL during as well, the same change in law impact will cause an additional liability of Rs Crore for as well. The same is accordingly added to the power purchase cost of Page 71 of 302

72 As a part of data gaps replies, RInfra-D submitted that it has entered into Medium- Term PPA with Wardha, Abhijeet and VIPL pursuant to competitive bidding process undertaken as per guidelines issued by the Ministry of Power, GoI. PPAs entered into have been approved by the Commission and Tariffs have been adopted as per Section 63 of the Act The summary of fixed and variable charges from already existing medium term contracts till as submitted by RInfra-D is as given in the table below: Table 25: Tariff Rates for Medium term contracts as submitted by RInfra-D Source Fixed s (Rs Crore) Wardha * ** Abhijeet VIPL Variable Cost (Rs. per kwh) Wardha Abhijeet VIPL * includes fixed cost of Cr and a charge due to change in law of Cr ** includes an additional liability of Cr due to change in law Table 26: Cost of Power Procurement from Medium Term Contracts (Rs. Crore) as submitted by RInfra-D Source Wardha Abhijeet VIPL Subsequently, in reply to the details sought regarding the actual power purchase cost for , RInfra-D provided the actual power purchase cost from Wardha, Abhijeet and VIPL. The Commission has considered the actual power purchase cost for from these sources as submitted by RInfra-D The Commission noticed that RInfra-D has considered the rates for power purchase from Wardha Power Company Ltd., Abhijeet MADC Nagpur and VIPL as adopted by the Commission and accordingly approves the same. Page 72 of 302

73 The summary of the energy availability and cost of power purchase from Wardha Power Company Ltd., Abhijeet MADC Nagpur and VIPL as approved by the Commission for each year of the MYT Second Control Period is given in the Table below: Table 27 Power Purchase cost as approved for WPCL, Abhijeet and VIPL Particulars Unit WPCL Abhijeet VIPL Approved Approved Approved Approved Approved Approved after Provisional Truing up after Provisional Truing up after Provisional Truing up Power Purchase Quantum MU 2, , , Power Purchase Rs. Cost Crore 1, Average Rate Rs./kWh Procurement from Vidarbha Industries Power Limited (VIPL) RInfra-D submitted that since the existing medium term contracts are applicable till , for the period onwards, there would be a significant shortfall in base load supply without additional power procurement. The additional quantum required in is about 530 MW To meet this shortfall, R-Infra D submitted that it is considering to procure 600 MW from Vidarbha Industries Power Limited (VIPL) from onwards. Net energy availability from VIPL after subtracting auxiliary consumption would be about 544 MW. A Petition for approval of Long Term PPA between RInfra (Mumbai Distribution) and VIPL and determination of Provisional Tariff for VIPL s Butibori Plant was submitted on 28 December, 2012 to the Commission bearing Case No. 2 of RInfra-D submitted following key reasons for procuring power from VIPL: Page 73 of 302

74 a) Power procurement of the utility has to be from a reliable and competitive source. b) Tariff proposed by VIPL is in line with that of other cost plus generating stations that have recently been commissioned and approved by the Commission. Further, the tariff has also been found to be competitive with Case 1 tariffs discovered in Maharashtra and more recently in UP. c) No risk of delay in commencement of supply as the plant is expected to be commissioned much earlier than the committed date of commencement of supply. d) Any bid process to procure power by competitive bidding would have a lead time of months, whereas the long-term supply from VIPL would commence from 1 April, e) RInfra has indirect majority ownership of Butibori project. This ownership structure provides RInfra a greater control over VIPL functioning and secures stronger contractual commitment on the part of VIPL. Thus reliability of supply from Butibori project of VIPL will be comparable to that from DTPS. Combined with DTPS, supply from Butibori ensures reliable and long-term supply and hence energy security for millions of consumers in RInfra-D license area in Mumbai. f) VIPL s offer to RInfra-D for supply under tariff determined by the Commission under Section 62 of EA, 2003 also ensures that benefit of lower price of power is transparently passed on to retail consumers. In a domestic coal supply constrained market, this aspect completely aligns VIPL offer with interests of millions of RInfra electricity consumers in Mumbai As regards to the Commission s query regarding power purchase from VIPL, RInfra-D replied as given below: a) On account of absence of any performance track record available for VIPL, the availability for the station has been projected by RInfra-D in accordance with MERC MYT Regulations, 2011 i.e., 85% during and b) Unit-I synchronisation achieved on 25 June, 2012 and COD achieved dated 4 April, Further, from Unit-1, no infirm power was purchased by RInfra-D during trial period during However, RInfra-D submitted that VIPL sold infirm power for the period from31 March, 2013 to 4 April, 2013 to RInfra- D, for which SLDC has not yet finalised the FBSM because of which no revenue Page 74 of 302

75 realisation happened to VIPL. c) Unit-II synchronisation achieved on 2 January, 2013 and COD is likely to happen shortly. Further, RInfra-D submitted that it would not be possible to estimate the generation for Unit-II during trial period. d) Annual Fixed s is Rs Crore and Rs Crore for and respectively for installed capacity of 600 MW. e) Energy is Rs. 1.22/kWh and Rs. 1.30/kWh for and respectively The summary of Power Purchase from VIPL s Butibori Plant for and as submitted by RInfra-D is given in the table below: Table 28: Power purchase quantum from VIPL for 15 & 16 as submitted by RInfra-D Source Capacity available (MW) Availability (%) 85% 85% Auxiliary Consumption (%) 9.40% 9.40% VIPL 4, ,058.91* *One day extra generation due to leap year Table 29: Power Procurement Cost from VIPL for 15 & 16 as submitted by RInfra-D Source Capacity charge (Rs Cr.) Energy ( Rs per kwh) Total Cost (Rs Cr.) As regards the procurement of power from VIPL s Butibori Plant for and , the Commission in its Order dated 23 February, 2013 in Case No. 02 of 2013 stipulated as under: In view of the above, the Commission hereby accords its in-principle approval to the Power Purchase Agreement (PPA) between RInfra-D and VIPL for Page 75 of 302

76 procurement of 300 MW power on long-term basis from Unit 2 (IPP) of VIPL s Power Station as submitted by the Petitioner on 15 February, 2013 with modifications to be made in the PPA as per the directions given by the Commission in Para 44 of the Order. The Commission directs the Petitioners to submit the final PPA executed between RInfra-D and VIPL for procurement of 300 MW power on long-term basis from Unit 2 of VIPL s Power Station after incorporating the above-stated modifications, as compliance of this order within one month from the date of this Order In accordance with the decision of the Commission for in-principle approval of PPA for 300 MW Unit-2 on long-term basis, the Commission has considered the procurement of power from Unit-2 for the period from to As regards the purchase rate for power from VIPL, the Commission in the said Order ruled as under: the Commission is prima facie of the view that the PPA between RInfra- D and VIPL with tariff to be determined by the Commission in accordance with the MERC MYT Regulations, on Cost plus basis by applying critical prudence checks while examining the tariff proposal, will help RInfra-D to meet the energy requirement of its consumers. As the PPA between RInfra- D and VIPL provides for determination of tariff in accordance with MERC MYT Regulations, the Petition submitted by RInfra-D and VIPL for approval of PPA complies with Regulation 25.2 (c) of MERC MYT Regulations, Accordingly, the Commission has provisionally considered the rate of power purchase from VIPL Unit-2 based on the rates as submitted by RInfra-D since the approval of final tariff for VIPL is yet to be accorded As regards the procurement of power from Unit-1 of VIPL, the Commission in the above mentioned Order ruled as under: During the hearing before the Commission Shri. Bushan Gagrani, CEO of MIDC, referred to an MOU for setting up of a 130 MW Group Captive Page 76 of 302

77 Power Project (subsequently converted into a 300 MW GCPP). He has also submitted that the MIDC Board is in the process of obtaining a legal opinion in regard to the conversion of Unit 1 from Group Captive Power Plant to Independent Power Project, in view of the bid conditions. This Commission has not been called upon, through the present Petition, to decide the issue of conversion of Unit 1 from a Group Captive Power Plant to an Independent Power Project. Hence, according approval of sale of power from Unit 1 to RInfra-D, may amount to changing the character of the power plant from a Group Captive Power Plant to an Independent Power Project. During the hearing, it was submitted on behalf of the Petitioners that approval may be given only Case No. 02 of 2013 to the PPA pertaining to Unit 2 in view of the pendency of the approval of conversion of Unit 1 from GCPP to IPP. Considering these facts and submissions made by MIDC and the Petitioners regarding conversion of Unit 1 from GCPP to IPP, the Commission has, at this stage, considered the PPA for supply of power from Unit 2 of VIPL to RInfra-D. The Petitioners may file an appropriate application /Petition for approval of supply of power from Unit 1 of VIPL to RInfra-D, once these issues are sorted out Subsequently, MIDC vide its letter dated 18 May, 2013 submitted as under: In view of the facts and status mentioned in VIPL s letter dated 18/01/2013, the board item was placed before 349 th Board meeting of MIDC held on 08/02/2013. In the meeting it was decided to issue directives to obtain legal opinion and conduct the separate meeting with industries/industry associations to participate under GCPP. The said meeting with industries/industry associations to participate in GCPP was conducted on 22/05/2013 in which industries have expressed their unwillingness to participate at this juncture as according to them participation in GCPP is not attractive and workable in present scenario. On obtaining the legal opinion and conclusion of meeting dated 22/05/2013 with industries/industry associations, the issue was discussed Page 77 of 302

78 in 351 st Board Meeting held on 24/05/2013. The Board has accorded its approval for conversion of 300 MW GCPP into an IPP Considering the fact that MIDC has submitted that its Board has accorded its approval for conversion of 300 MW GCPP into an IPP, the Commission has considered the purchase of power by RInfra-D from 300 MW Unit-1 for to , for the purpose of estimation of Power Purchase availability. Further, the Commission has provisionally considered the rate of power purchase from VIPL Unit-1 based on the rates as submitted by RInfra-D, on ad-hoc basis, subject to final approval by the Commission The summary of the energy availability and cost of power purchase from both Units of VIPL as submitted by RInfra-D and approved by the Commission for each year of the MYT Second Control Period is given in the Table below: Table 30 Power Purchase from VIPL for to Power purchase from VIPL Unit RInfra-D Approved RInfra-D Approved Power Purchase Quantum MU 4, , , , Power Purchase Cost Rs. Crore 1, , , , Average Rate Rs./kWh Procurement from Renewable Sources RInfra-D submitted that the quantum of the renewable energy purchased to meet the Renewable Purchase Obligations (RPO), is in line with the MERC (Renewable Purchase Obligation, Its Compliance and Implementation of REC Framework) Regulations, 2010, which specifies the following percentage of minimum purchases from renewable energy: 7.1 Every Obligated Entity shall procure electricity generated from eligible renewable energy sources at the percentages as per the following schedule: Page 78 of 302

79 Minimum Quantum of purchase (in %) from renewable energy sources (in terms of energy Year equivalent in kwh) Solar Non- Solar Total (other RE) % 5.75% 6.0% % 6.75% 7.0% % 7.75% 8.0% % 8.50% 9.0% % 8.50% 9.0% % 8.50% 9.0% Provided that Distribution Licensee(s) shall meet 0.1% per year of its Non Solar including mini and micro hydro (other RE) RPO obligation for the period from to and up to 0.2% of its Non Solar (other RE) RPO obligation for the period from to by way of purchase from Mini Hydro or Micro Hydro power project Based on the above mentioned Regulations, RInfra-D submitted its Solar Purchase requirement from to as given in the table below: Table 31: Solar RPO requirement as submitted by RInfra-D Particulars Gross Input (MU) 7, , , , Solar RPO (%) 0.25% 0.50% 0.50% 0.50% Solar Obligation (MU) RInfra-D further submitted that it has considered the impact of the Order in Case No. 101 of 2012 in which the Commission directed RInfra-D as: RInfra-D is directed to fulfil its RPO target for Solar and Non-Solar RPO for , and cumulatively before 31 March, RInfra-D submitted the shortfall in Solar RPO compliance in and as under: Page 79 of 302

80 Table 32: Cumulative Shortfall in Solar RPO in 11 and 12 as submitted by RInfra-D Actual Gross Input Solar Solar RPO Procurement Shortf Financial (As per Final RPO Target (including all Year True-Up Target (MU) Solar REC) (MU) Petition) (MU) (%) (MU) Nil Cumulative Shortfall RInfra-D submitted that in order to meet its Solar Renewable purchase obligations, it has signed an Energy Purchase Agreement (EPA), dated 28 March, 2011, for purchase of energy generated from the 40 MW solar power (PV) plant of Dahanu Solar Power Private Limited (DSPPL). The plant is located in Rajasthan with delivery point at Maharashtra State periphery. The delivered tariff is estimated as per Tariffs approved by the Commission in its Order in Case No. 20 of As per the Commission s query regarding difference in projected purchase of 60 MU of Solar Power per year for the MYT period from DSPPL s 40 MW Solar power plant, while in the Business Plan, it was projected as 42 MU per year, RInfra- D submitted vide its reply dated 12 February, 2013 that in the Business Plan petition RInfra-D indicated that the likely generation from onwards from the plant would be 60 MU. However, as the same would lead to excess procurement over target from onwards, RInfra-D had, for the purposes of the Business Plan, projected the procurement to 42 MU per annum from 2013 onwards so as to cumulatively meet the target of solar RPO from 2011 to Further, RInfra-D confirmed that the plant is capable to generate approximately 60 MU on an annual basis and provided actual month-wise generation till December 2012 as given below: Page 80 of 302

81 Table 33: Actual month-wise generation from DSSPL as submitted by RInfra-D Month Actual Generation (in MU) April May June July August September October November December Total Table 34: Solar Power Cost Summary as submitted by RInfra-D for the second Control Period Solar Power Cost Solar Purchase from DSPPL (MU) Solar Tariff (Rs. per kwh) Solar Power purchase cost (Rs Cr.) Solar Obligation including shortfall (MU) Solar Shortfall in previous years (MU) Deficit/(Surplus) (MU) (1.78) (21.49) (20.51) (19.36) Further, RInfra-D submitted that for the period from to , it is expected that there will be a surplus in solar power purchase w.r.to, the solar purchase obligation for the respective year. The surplus is expected to be a result of the impact of migration of consumers to TPC-D. Due to migration of consumers, RInfra-D own sales and power purchase requirement is lower than estimated at the time of contracting with DSPPL. RInfra-D further added that over contracting is prudent considering uncontrollable events such as increase in sales, reduction in output due to bad weather or malfunctioning in solar panels, etc RInfra-D submitted its Non Solar Purchase as per MERC (Renewable Purchase Obligation, Its Compliance and Implementation of REC Framework) Regulations 2010 requirement from to as given in the table below: Page 81 of 302

82 Table 35: Non Solar Obligation as submitted by RInfra-D (MU) Non Solar Obligation Gross Input (MU) 7, , , , Non Solar RPO (%) 7.75% 8.50% 8.50% 8.50% Non Solar Obligation (MU) RInfra-D further submitted details of its existing Renewable Contracts in order to meet its Non Solar RPO as given in the tables below: Table 36: Existing Non Solar Contracts as submitted by RInfra-D (MU) Existing Non Solar Contracts Reliance Innoventures Pvt. Ltd AAA Sons Enterprise Jindal Steel and Power Limited Jindal Steel and Power Limited Tembhu Power Private Limited Reliance Clean Power Pvt. Ltd Table 37: Power Purchase rate with Existing Non Solar Contracts as submitted by RInfra-D (Rs/kWh) Power Purchase Rate Reliance Innoventures Pvt. Ltd AAA Sons Enterprise Jindal Steel and Power Limited Jindal Steel and Power Limited Tembhu Power Private Limited Reliance Clean Power Pvt. Ltd RInfra-D submitted that the shortfall in non-solar power purchase requirement obligation after considering the existing contracts is estimated to be met through purchase of Renewable Energy Certificates (REC). The purchase price of REC is established based on the actual purchase of REC for the first six months of Page 82 of 302

83 RInfra-D submitted month-wise details of actual RECs purchased during which amounted to Rs Crore. RInfra-D submitted details of the estimated REC procurement for the MYT Period as given in the table below: Table 38: Quantum and Cost of Non- Solar REC procurement as submitted by RInfra- D Particulars Non- Solar RPO requirement (MU) Non-Solar Contracted (MU) REC requirement (MU) Cost of REC (Rs per kwh) Total Cost of REC purchase (Rs Cr) Further, in response to the Commission s query regarding provision in PPA for applicability of rebate from Renewable Energy Sources (RES) for payment within the due date, RInfra-D submitted its replies as given in the table below: Table 39: Discount clause by various RES Generators as submitted by RInfra-D Seller Discount Clause AAA Sons Discount of 2% on total bill prompt payment within 10 days from date of receipt of the bill Reliance Innoventures No Discount JSPL Discount of 1.25% on total bill prompt payment within 7 days from date of receipt of the bill Tembhu Hydro Discount of 1.25% on total bill prompt payment within 15 days from date of receipt of the bill Reliance Clean Power Discount of 1.25% on total bill prompt payment within 15 days from date of receipt of the bill Dahanu Solar Power Discount of 1.25% on total bill prompt payment within 15 days from date of receipt of the bill Further, vide the Business Plan Order in Case No. 158 of 2011, RInfra-D was directed to submit Accelerated Depreciation details for power purchase from Reliance Clean Power Pvt. Ltd. as follows: Page 83 of 302

84 ... RInfra-D at the time of filing of MYT Petition, may submit necessary documentary evidence to ascertain whether this project has availed AD benefit or not and based on prudence check, the Commission may consider the same at the finalisation of MYT Order. In response to the above direction, RInfra-D submitted that Reliance Clean Power Pvt. Ltd is yet to declare COD in view of difficulties faced in acquiring land and infrastructure development and is likely to achieve COD shortly. Further, as per PPA terms, the seller is required to submit documentary evidences for Accelerated Depreciation (AD) and Wind Zone within 12 months after completion of the financial year of COD. Since this project is yet to achieve COD, the AD certificate has not been provided yet Subsequently, in reply to the details sought by the Commission for , RInfra-D provided the actual power purchase cost from renewable sources including solar. The Commission has considered the actual power purchase cost for from these sources as submitted by RInfra-D for provisional truing up purpose. The Commission has provisionally considered the power purchase expenses, however, the same would be trued up subject to the verification and compliance of RPO targets for As regards the purchase of solar power in excess for RPO targets for the period from onwards, the Commission does not wish to burden the consumers with undue cost burden estimated approximately as Rs Crore for second Control Period, by allowing the additional solar power purchase over and above cost pertaining to the minimum quantum of solar power purchase allowed as per MERC (Renewable Purchase Obligation, its Compliance and Implementation of REC Framework) Regulations However, the Commission is allowing the additional quantum of power at highest rate in merit order stack of power purchase at the short-term power purchase rates of respective years The summary of the solar purchase as approved by the Commission is shown in the Table below: Page 84 of 302

85 Table 40 Solar Power Purchase approved by the Commission for the Second Control Period Power purchase to meet Solar RPO Unit Approved after Provisional Truing up Approved Approved Approved Power Purchase Quantum MU Power Purchase Cost Rs. Crore Average Rate Rs./kWh As regards the purchase of non-solar power, the Commission observed that RInfra- D has projected to purchase RECs to meet the short-fall of non-solar RPO. The Commission suggests RInfra-D that it should ensure the compliance to the RPO targets by way of purchase of renewable power or by way of RECs from Power Exchanges. The summary of the non-solar purchase as approved by the Commission is shown in the Table below: Table 41 Non-solar power purchase as approved by the Commission Power purchase to meet Non-Solar RPO Unit Approved after Provisional Truing up Approved Approved Approved Power Purchase Quantum MU Power Purchase Cost Rs. Crore Average Rate Rs./kWh Page 85 of 302

86 Further, the Commission observed that RInfra-D has also proposed to purchase nonsolar RECs to meet the shortfall of non-solar RPO target for to In response to query of the Commission regarding actual purchase of RECs during , RInfra-D submitted the details of actual purchase of RECs during in the format provided and observed that Trading Margin shown in the power purchase made from IEX is towards trading margin of trader. As regards the procurement of RECs from Power Exchanges, it is observed that Distribution Licensee should have procured directly from the Exchange as the Exchange platform provides the double-sided undisclosed bidding and therefore in such case a trader is not expected to provide any additional benefit for procurement of RECs. Moreover, considering the fact that on account of shortfall to meet RPO, RECs are being purchase in certificate form, the Commission directs that RInfra-D should ensure that only the cost associated with market clearing price at the Exchange and the exchange related fees and charges should be considered in future and not the trading margin paid to the trader for procurement of RECs. The Commission further directs RInfra-D to provide the cost benefit analysis and other associated benefits for purchase of RECs from Power Exchanges Accordingly, for the purpose of provisional truing up for , the Commission has considered the actual purchase of RECs during Further, for the period from to , the Commission has presently considered the shortfall in non-solar RPO to be met through purchase of RECs, subject to prudence check. As regards the cost of purchase of RECs, the Commission has considered the average Market Clearing Price of Rs. 1500/Certificate for past 10 months trade data. Further, the Commission has considered Rs. 20/Certificate towards the fees of Power Exchanges based on the actual trade data for The summary of the cost of RECs for to as approved by the Commission is shown in the Table below: Page 86 of 302

87 Table 42 Purchase of Non-Solar RECs approved by the Commission for to Power purchase to Unit meet Non-Solar RPO Approved after Approved Approved Approved Provisional Truing up RPO shortfall MU Cost of Purchase of RECRs. Crore Average Rate Rs./kWh Short Term bilateral Power Purchases RInfra-D in its MYT Petition has projected the hourly demand and generation availability from base load sources and determined, on an hourly basis, the surplus and shortfall in energy terms. The summary of daily load profiling, giving rise to energy surplus and deficit on an hourly basis for each year of the MYT Period as submitted by RInfra-D is as given in the table below: Table 43: Annual Hour wise Deficit and Surplus as submitted by RInfra-D (MU) Hour Deficit Surplus Deficit Surplus Deficit Surplus Deficit Surplus (30.74) (21.65) (33.32) (28.85) (49.20) (37.99) 9.66 (54.06) (48.50) (61.96) 7.15 (49.22) 3.58 (68.29) 5.39 (62.08) (70.71) 3.36 (57.51) 0.91 (78.00) 1.92 (71.41) (73.85) 1.42 (59.85) 0.20 (81.68) 0.56 (74.57) (70.52) 0.71 (55.96) 0.02 (78.24) 0.16 (70.78) (57.55) 0.69 (42.41) 0.05 (64.39) 0.13 (56.36) (47.67) 1.58 (32.82) 0.33 (53.89) 0.60 (45.64) (27.69) 7.40 (16.28) 1.91 (32.51) 3.68 (24.95) (15.16) (7.61) 7.54 (18.09) (12.81) (7.96) (3.64) (9.31) (6.34) (6.57) (3.06) (7.38) (5.17) (8.26) (4.17) (9.14) (6.65) (14.22) (8.09) (15.55) (11.96) (15.96) (9.87) (17.40) (13.88) Page 87 of 302

88 Hour Deficit Surplus Deficit Surplus Deficit Surplus Deficit Surplus (16.46) (10.63) (17.84) (14.57) (17.29) (11.29) (19.01) (15.52) (16.82) (10.55) (18.84) (15.01) (8.83) (4.82) (10.66) (7.91) (1.65) (0.44) (2.31) (1.18) (1.70) (0.45) (2.15) (1.14) (3.42) (1.19) (3.83) (2.51) (6.69) (3.43) (6.69) (5.25) (15.06) (9.38) (15.35) (12.89) Total (645.94) (462.32) (717.93) (615.91) RInfra-D proposed to meet its peak load requirement for the Control Period based on the time period for which power is to be purchased i.e., weather power is to be purchased for 9 Hrs to 24 Hrs for the entire month or for few hours during day peak and evening peak. At times, customised power (i.e., only during peak hours, matching load profile) is not available in the market and RInfra-D, in order to avoid load shedding to its customers, has to purchase Round the Clock (RTC) power Further, RInfra-D submitted that Peak Power requirement for the entire month for the period 9 Hrs to 24 Hrs would be purchased by inviting short term tender from Merchant Generators/Traders /IPPs as per Guidelines issued by Ministry of Power for Short Term Power Purchase. Whereas power required for few hours of the day would be purchased from Power Exchange at competitive price discovered on Exchange. Also, RInfra-D submitted that it would explore the possibility of tying up long-term power from any upcoming hydro power plant in order to meet its peak power requirement Further, RInfra-D submitted that in its MYT Petition, no projection of any banking is made at and the entire surplus power as projected is considered as sold RInfra-D considered the quantum of short-term power purchase as worked out in the table above, considering the likely hourly pattern of load for each year of the MYT Page 88 of 302

89 Control Period and the base load capacity availability projected considering its present and proposed contracts with DTPS, WPCL, AMNEPL and VIPL RInfra-D calculated the base price of short-term power purchase as the actual weighted average price of the short term power purchased by RInfra-D in Further annual escalation rate of 3% is used to project the price of short term power purchase from to The quantum and cost of short term power purchase as projected by R-Infra D is as given in the table below: Table 44: Quantum and Rate of Short Term Power procurement as projected by RInfra-D Particulars Short term procurement in MU Short term Power procurement cost per unit (11-12 value of Rs per kwh escalated annually at 3%) (Rs/kWh) Total short term power purchase cost (Rs Crore) RInfra-D submitted that additional surplus energy as worked out using the hourly load pattern would be utilised by RInfra-D for sale outside the License area, after fully meeting the demand of its customers. The estimated revenue from the sale of surplus power is adjusted against the gross power procurement cost. RInfra-D further submitted that this approach is consistent with the methodology adopted by the Commission in its Tariff Orders for Maharashtra Utilities, where surplus (if any) is considered to be sold at the prevailing short-term market rates for power RInfra-D submitted that the base price for surplus sale is the actual weighted average price of the surplus sale realised by RInfra-D in Further annual escalation rate of 3% is used to project the rate of sale of surplus power from to The quantum and cost of surplus power purchase as projected by R-Infra D is as given in the table below: Page 89 of 302

90 Table 45: Quantum and Rate of Surplus Power sale projected by RInfra-D Particulars Surplus power sale rate (Rs per kwh) Surplus Power (MU) Realization from sale of surplus power (Rs Cr) As regards the purchase of power from short-term sources, the Commission has accepted the method for estimating the requirement of power purchase from shortterm sources and accordingly approve the same quantum as proposed by RInfra-D. As regards the purchase rate for procurement of power on short-term basis, the Commission has not accepted the rates as considered by RInfra-D. The Commission observed that RInfra-D has conveniently chosen to consider only purchase from Power Exchange, however, the weighted average rate for power purchase from bilateral and power exchange works out to Rs. 4.20/kWh as against Rs. 4.47/kWh as estimated by RInfra-D summarised as under: Table 46 Actual short-term Power Purchase during Particulars Purchase Quantum Purchase amount Average Rate MU Rs. Crore Rs./kWh Bilateral 1, * 4.16 Exchange Weighted Average 4.20 *Note: Penalty of Rs Crore paid to GEPL for no-off take reduced to arrive at realistic purchase cost Further, the Commission is of the view that past trend would not be ideal for estimating the power purchase rate for short-term power procurement as there has been gradual shift in the power availability to RInfra-D from medium and long-term sources and there is expected increased availability with additional long-term sources. The Commission observed that RInfra-D in the past has been procuring Page 90 of 302

91 substantial requirement from short-term sources as evident from the following Table: Table 47 Purchase from short-term sources by RInfra-D (MU) Particulars Actual Actual Actual Estimated Estimated Estimated Bilateral 2, , Exchange Total 2, , It can be observed from the above Table that there has been significant decrease in the requirement of the short-term purchases as evident from the actual purchase of MU during and estimated during the Control Period. The Commission opines that since the actual data for is now available, the Commission has considered the actual power purchase rate for for estimating the power purchase expenses for procurement from short-term sources. The summary of the estimated power purchase quantum and cost as approved by the Commission for each year of the Control Period is shown in the Table below: Table 48 Short-term power purchase approved by the Commission Power purchase for Unit short-term Power Approved after Approved Procurement Provisional Approved Approved Truing up Power Purchase QuantumMU Power Purchase Cost Rs. Crore Average Rate Rs./kWh For estimating the revenue from sale of surplus power, the Commission has considered the rate of Rs 2.50 per kwh for and Rs 2.35 per kwh for and for estimating the revenue from sale of surplus power. The Page 91 of 302

92 summary of the estimated sale quantum of surplus power and revenue as approved by the Commission for each year of the Control Period is shown in the Table below: Table 49 Sale of surplus power as approved by the Commission for RInfra-D Sale of Surplus Power Unit Approved after Approved Approved Approved Provisional Truing up Power Purchase QuantumMU Power Purchase Cost Rs. Crore Average Rate Rs./kWh Transmission s RInfra-D submitted that transmission charges to be borne by it is Rs 265 Crore in as per the Commission s Order dated 21 May, 2012 in Case No. 51 of The same has been considered in the MYT Petition for From onwards, RInfra-D has escalated transmission tariff determined in the above Order at the rate of 5% per annum. The intra-state transmission charges considered by RInfra-D are given in the table below: Table 50: Transmission s for the second Control Period as submitted by RInfra- D (Rs. Cr) Particulars Transmission s Page 92 of 302

93 As regards the transmission charges payable by RInfra-D for utilisation of intra- State Transmission system, the Commission has relied upon the Order dated 13 May, 2013 in Case No. 56 of 2013 issued in the matter of Suo motu Determination of Transmission Tariff for Intra-State Transmission System (InSTS) for to of the second MYT Control Period. Accordingly, the Commission has considered the annual transmission charges as approved in the said Order, summarised as under: Table 51 Transmission s payable by RInfra-D as approved by the Commission Transmission s Unit Approved after Approved Approved Approved Provisional Truing up Intra-State Transmission s Rs. Crore Stand-by s RInfra-D submitted that the Commission has determined the Standby charges in its Business Plan Order in Case No. 158 of 2011 dated 23 November, 2012 as Crore for each year of the MYT Period RInfra-D submitted that in however, it is paying Rs Crore as the Standby s as approved by the Commission in its order in Case No. 126 of As the MYT Order is only expected to be effective from onwards, the excess stand-by charges paid during can be adjusted in Accordingly, RInfra-D submitted that it has made adjustment in the projected stand-by charges of in the MYT Petition Further, it was submitted by RInfra-D that in its Petition in Case No. 124 of 2012, RInfra-D had mentioned that it paid an excess charge of Rs Crore in for stand-by support due to incorrect representation of RInfra-D s share in the Commission s Order in Case No. 180 of This excess payment has also been adjusted in the projected stand-by charges of in the present MYT Petition. From onwards a payment of standby charges of Rs Page 93 of 302

94 Crore is considered as determined by the Commission in the Business Plan Order in Case No. 158 of 2011 dated 23 November, The year wise projection of standby charges as submitted by RInfra-D is given in the table below: Table 52: Standby s for the second Control Period as submitted by RInfra-D (Rs. Cr) Particulars Standby charges (Business Plan Order) Actual Paid Past Period adjustment of excess payment Standby s As regard the estimation of standby charges for the MYT Control Period the Commission has considered the % share of Coincident Peak Demand and Noncoincident Peak Demand as approved in the Order in Case No. 56 of 2013 for the period from to Further, the Commission has considered the adjustments towards excess charge of Rs Crore in for stand-by support. This excess payment has also been adjusted in the approved stand-by charges of summarised as under: Table 53 Standby s as approved by the Commission for RInfra-D Standby s Unit Approved after Provisional Truing up Approved Approved Approved Standby s Rs. Crore Actual Paid Rs. Crore Past Period adjustment of excess payment Rs. Crore Standby s Rs. Crore Page 94 of 302

95 3.7 SLDC s RInfra-D submitted that the Commission has determined the SLDC charges in Order dated 30 March, 2012 in Case No.181 of 2011 for The same has been considered in the MYT Petition for From onwards, RInfra-D has escalated SLDC s determined in the above Order at the rate of 5% per annum. The SLDC s considered by RInfra-D is given in the table below: Table 54: SLDC s for the second Control Period as submitted by RInfra-D (Rs. Cr) Particulars SLDC s As regards the SLDC charges payable by RInfra-D, the Commission has relied upon the Order dated 22 March, 2013 in Case No. 133 of 2012 issued in the matter of Petition filed by MSETCL for approval of MSLDC Budget for Accordingly, the Commission has considered share of RInfra-D out of the approved Budget for MSLDC for Further, the Commission has considered the same value for each year of the Control Period summarised as under: Table 55: SLDC Fees and s as approved by the Commission for RInfra-D SLDC Fees and s Unit Approved after Provisional Truing up Approved Approved Approved SLDC Fees and s Rs. Crore The Summary of Power Purchase Quantum and Cost is as given in the tables below: Table 56: Summary of Power Purchase requirement as submitted by RInfra-D (MU) Particulars Energy Requirement Long Term Page 95 of 302

96 Particulars DTPS Medium Term Wardha Power Abhijeet MADC VIPL VIPL (Long Term) Renewable Short term purchase Total Deficit/(Surplus) (645.94) (462.32) (717.93) (615.92) Table 57: Summary of Power Purchase Cost as submitted by RInfra-D (Rs. Cr) Particulars DTPS Wardha Power Abhijeet MADC VIPL VIPL (Long Term) Renewable Short term purchase Realization from surplus sale (195.60) (144.20) (230.64) (203.81) SLDC s Standby s Total power purchase cost without transmission charges Transmission s Total power purchase cost with transmission charges The Summary of Power Purchase Quantum and Cost as approved by the Commission is as given in the tables below: Table 58: Summary of Power Purchase requirement as approved by the Commission (MU) Particulars Long Term Page 96 of 302

97 Particulars DTPS 3, , , , Medium Term Wardha Power 2, , Abhijeet MADC VIPL 1, VIPL (Long Term) 4, , Renewable Banking Return Short term purchase Deficit/(Surplus) Total Power Purchase 7, , , , Table 59: Summary of Power Purchase Cost as approved by the Commission (Rs. Crore) Particulars Long Term DTPS 1, , , , Medium Term Wardha Power 1, Abhijeet MADC VIPL VIPL (Long Term) 1, , Renewable REC Banking Return Short term purchase Deficit/(Surplus) Stand-by s SLDC s Transmission Total 3, , , , Capital Expenditure and Capitalisation Capital Expenditure submitted by RInfra-D RInfra-D submitted that it has prepared its capital expenditure plan for to based on the forecast of system maximum demand, with the anticipated developments in the area of supply relating to new load, replacement of Page 97 of 302

98 existing assets, strengthening and modernization in response to new load, etc. The capital expenditure plan also interacts with the developments at transmission level and forecasts the development of downstream infrastructure required for connectivity to transmission delivery points and evacuation of power thereon RInfra-D submitted that it used the demand projections arrived at by IIT Bombay (IITB) as a base for the formulation of the MYT Capex plan. The IITB study used statistical tools and parameters such as historical demand of RInfra-D, Gross District Domestic Product growth (GDDP for Mumbai) and other parameters, based on 17 years historical data to arrive at the Maximum demand. It is anticipated that maximum demand will be about 2022 MVA, by the end of The forecast of maximum demand for the next five years is then used for estimating the investments required to meet the forecast demand. However, considering the huge investments required to meet n-1 contingencies and the financial constraints in making such high levels of investments, the business plan proposed augmentation of capacity for three nos. of existing receiving stations and commissioning of 17 nos. of new receiving stations, during the plan period, where substantial loads are coming up and the nearby power transformers are loaded above 70 %, to optimize the network and the cost. As a result of the proposed EHV receiving stations, the network needs to be re-configured which is necessary from the loss reduction perspective and also to create more Outlets. The associated 11 kv network, Distribution transformers, Switchgear, LT network, Services and Metering are proposed to meet the new load requirement and necessary improvement in the network at different voltage level, which are absolutely essential. Also it is proposed to replace the existing 11kV Oil type RMUs with SF6/Vacuum RMUs which are more compact, less prone to failure and safer in operations in order to improve system reliability and to ensure safety Apart from the network and allied infrastructure investments proposed above, RInfra-D submitted setting up of an Energy Park, to impart knowledge and create awareness of the various aspects of Generation, Transmission and Distribution and other areas forming part of the Power Sector. RInfra-D has already received inprincipal approval of the said Capex on Energy Park from the Commission for the Page 98 of 302

99 same, vide letter dated 4 July, 2012 (MERC/CAPEX/ /00764). Accordingly, the same was included in the capital expenditure plan RInfra-D further submitted that, the Business Plan submitted by RInfra-D had forecasted capital expenditure for (based on actuals upto December 2011). However, at the time of the present MYT Petition, the actual capital expenditure against various schemes in is known. There is a slight under spend during , which will spill-over into the period going forward from Accordingly, the capital expenditure plan submitted under MYT Petition is slightly different from what was presented in the Business Plan Petition. RInfra-D further submitted that fresh capital expenditure of about Rs Crore is planned for the period to In additional there shall be capital expenditure against on-going schemes of and previous years RInfra-D further submitted that the Commission, while estimating the capitalisation for DPR schemes in the Business Plan Order in Case No. 158 of 2011 considered only those schemes which have been granted in-principle approval. Further, an additional 20% (of the approved DPR capitalisation) capitalisation was considered by the Commission towards unplanned expenditure (i.e. Non-DPR schemes limited to 20% of approved DRR capitalisation) during each year in accordance with MERC MYT Regulations, Further, till the time of filing of the MYT Petition, in-principle approvals of the Commission have been received for all DPR schemes as submitted by RInfra-D for the MYT Period except for schemes for release of supply ( Services DPR), for replacement of 11 kv Oil Type RMUs and for Metering. The approval of these schemes is anticipated during the proceedings of MYT Petition and accordingly RInfra-D has considered all capital expenditure schemes in the present Petition for projection of ARR Details of the total capital expenditure proposed during the plan period from to , for the Retail Supply business as submitted by RInfra-D are given in the table below: Page 99 of 302

100 Table 60: Capex-Retail Supply Business as submitted by RInfra-D (Rs. Cr) Particulars Metering Schemes Energy Park Total Retail Supply Capital Expenditure Details of the total capital expenditure proposed during the plan period from to , for the Wires business as submitted by RInfra-D is given in the table below: Table 61: Capex-Wires Business as submitted by RInfra-D (Rs. Cr) Particulars DPR Schemes 11kV Network Strengthening Schemes kV Oil Type RMU Replacement kv feeder reorientation from GIS Chembur /11 kv Receiving Station Schemes /11 kv Receiving Station Schemes ( ) /11 kv Receiving Station Schemes ( ) kV Network reconfiguration for new EHV stations Disaster Management (North Division) ( ) Distribution Corporate Office (R&D Bldg.) ( ) LT Mains Schemes Revised DPR of Receiving Station Revised DPR of Receiving Station Services Schemes Street Lighting Schemes Underground OFC Network ( ) Page 100 of 302

101 Particulars Sub-total - DPR Schemes Non DPR Schemes Total Distribution Wires - Capital Expenditure Table 62: Summary of Capex (Wire & Retail) as submitted by RInfra-D (Rs. Cr.) Particulars Capital Expenditure Distribution Wires Business Capital Expenditure Retail Supply Business Total Capital Expenditure RInfra-D submitted that the capital expenditure mentioned in the tables above includes schemes already approved by the Commission, where commissioning is expected during the period to and also includes schemes which have yet to be approved by the Commission. In addition, unplanned capital expenditure in the form of Non-DPR schemes has also been estimated for each year of the MYT Period Capitalisation Plan submitted by RInfra-D The summary of the Capitalisation Plan as submitted by RInfra-D for its Retail supply business is given in the table below: Table 63: Capitalisation Plan for Retail Supply Business as submitted by RInfra-D (Rs. Cr) Particulars Metering Schemes Energy Park Total Retail Supply - Capitalisation Page 101 of 302

102 The summary of the Capitalisation Plan as submitted by RInfra-D for its Wires business is given in the table below: Table 64: Capitalisation Plan for Wires Business as submitted by RInfra-D (Rs. Cr) Particulars DPR Schemes 11 kv Mains and Distribution Transformers kV Network Strengthening Schemes kV Oil Type RMU Replacement kv feeder reorientation from GIS Chembur /11 kv Receiving Station Schemes kV Network reconfiguration for new EHV stations Building Construction & Interior Works Corporate Office, Customer Care Centre etc Disaster Management (North Division) ( ) Distribution Corporate Office (R&D Bldg.) ( ) LT Mains Schemes Receiving Station Schemes Revised DPR of Receiving Station Revised DPR of Receiving Station Services Schemes Slum Electrification & Loss Reduction Project Street Lighting Schemes Underground OFC Network ( ) Sub Total - DPR Schemes Non DPR Schemes Total Distribution Wires business - Capitalisation (including IDC) Table 65: Summary of Capitalisation (Wire & Retail) as submitted by RInfra-D (Rs. Cr.) Particulars Capital Expenditure Distribution Wires Business Capital Expenditure Retail Supply Business Total Capital Expenditure Page 102 of 302

103 Further, RInfra-D submitted deviation in Capitalisation as approved by the Commission in its Business Plan Order and submitted in its MYT Petition as given in the table below: Table 66: Comparison of Capitalisation as approved by the Commission in Business Plan and as submitted by RInfra-D in MYT Petition (Rs. Cr) Particulars B-Plan Order Total Capitalisation R-Infra-D estimates Total Capital Expenditure Total Capitalisation RInfra-D further submitted that the Business plan Petition was based on the provisional data for For the purpose of MYT petition, the final audited accounts for have been considered and the numbers relating to capital expenditure and capitalization have been accordingly revised. Due to some underspending in , there is spill-over expenditure in onwards. Further, RInfra-D submitted that it considered both the schemes already approved by the Commission as well as those schemes yet to be approved by the Commission in the capital expenditure and capitalization proposed for the second control period Commission s Rulings The Commission analysed the schemes submitted by RInfra-D and restricted the DPR scheme named Distribution Corporate Office (R&D Bldg) ( ) with Code No. REL-D/12/11, whose proposed cost was Rs Crore. This scheme is under scrutiny of the Commission. Accordingly, the Commission approves the Capitalisation Plan of RInfra-D for the Second Control Period from to for Retail and Wire business as given in the table below: Page 103 of 302

104 Table 67: Capitalisation Plan for Wire Business as approved by the Commission (Rs. Cr) Particulars DPR Schemes 11 kv Mains and Distribution Transformers kV Network Strengthening Schemes kV Oil Type RMU Replacement kv feeder reorientation from GIS Chembur /11 kv Receiving Station Schemes kV Network reconfiguration for new EHV stations Building Construction & Interior Works Corporate Office, Customer Care Centre etc Disaster Management (North Division) ( ) LT Mains Schemes Receiving Station Schemes Revised DPR of Receiving Station Revised DPR of Receiving Station Services Schemes Slum Electrification & Loss Reduction Project Street Lighting Schemes Underground OFC Network ( ) Sub Total - DPR Schemes(including IDC) Non DPR Schemes(including IDC) Total Distribution Wires business - Capitalisation (including IDC) Table 68: Capitalisation Plan for Retail Supply Business as approved by the Commission (Rs. Cr) Particulars Total Retail Supply - Capitalisation The Commission in its Order on Business Plan of RInfra-D in Case No. 158 of 2011 dated 23 November, 2012 approved total Capitalisation from to Page 104 of 302

105 at Rs Crore whereas in the MYT Petition, RInfra-D submitted the total Capitalisation Plan from to as Rs Crore. The Variation is on account of Seven (7) DPR Schemes pertaining to the proposed Capitalisation amount of Rs Cr approved by the Commission after issuance of Business Plan Order and before submission of RInfra-D MYT Petition. RInfra-D submitted these schemes as per the directive of the Commission to in its Business Plan Order in Case No. 158 of 2011:. RInfra-D may include in its MYT Petition, the capitalisation pertaining to the in-principle approved schemes. The Commission also notes that the schemes for Retail Supply business of RInfra-D are yet to receive in-principle approval. RInfra-D may include those schemes as well in their MYT Petition if they are approved before filing of the same The variation in Capitalisation in Business Plan Order and Capitalisation submitted by RInfra-D in its MYT Petition and details of additional approved Seven (7) DPR schemes is as given in the tables below: Table 69: Variation in Capitalisation as approved by the Commission in Business Plan Order and as submitted by RInfra-D (Rs. Cr) Particulars B-Plan Order Total Capitalisation R-Infra-D estimates Total Capitalisation Variation Total Variation Page 105 of 302

106 Table 70: Additional Schemes approved Post issuance of Business Plan Order and Pre Submission of MYT Petition (Rs. Cr) S No Proposed Scheme In principle Clearance As Prop. R- Infra-D As Appr. MERC Code No Year wise Schemes /11 kv Receiving Station Schemes ( ) REL-D/13/ Capitalisation kV Network Strengthening Schemes ( ) REL-D/13/ Capitalisation LT Mains Schemes ( ) REL-D/13/ Capitalisation Services Schemes ( ) REL-D/13/ Capitalisation Metering Schemes ( ) REL-D/13/ Capitalisation Street Lighting Schemes ( ) REL-D/13/ Capitalisation kV Oil Type RMU Replacement ( ) REL-D/13/ Capitalisation Total Capex Year Wise Total Capitalisation Year Wise Total Cost 3.9 Depreciation Depreciation submitted by RInfra-D RInfra-D submitted that in accordance with MERC MYT Regulations, 2011 it has computed depreciation expenses as provided below: Page 106 of 302

107 31.2 The Generation Company and Transmission Licensee or Distribution Licensee shall be permitted to recover depreciation on the value of fixed assets used in their respective Business computed in the following manner: (a) The approved original cost of the project/fixed assets shall be the value base for calculation of depreciation: Provided that the depreciation shall be allowed on the entire capitalised amount of the new assets after reducing the approved original cost of the project/fixed assets of retired or replaced assets. (b) Depreciation shall be computed annually based on the straight line method at the rates specified in the Annexure I to these Regulations: Provided that the Generating Company or Transmission Licensee or Distribution Licensee shall ensure that once the individual asset is depreciated to the extent of seventy (70) percent, remaining depreciable value as on 31st March of the year closing shall be spread over the balance useful life of the asset, as provided in these Regulations. Provided that the Generating Company or Transmission Licensee or Distribution Licensee, shall submit all such details or documentary evidence, as may be required under this Regulation and as stipulated by the Commission, from time to time, to substantiate the above claims. (c) The salvage value of the asset shall be considered at 10 per cent of the allowable capital cost and depreciation shall be allowed upto a maximum of 90 per cent of the allowable capital cost of the asset RInfra-D submitted that the computation of depreciation in its MYT Petition for the Second Control Period is divided into two parts as under: a) Effective Depreciation rate for each asset class is determined for application after crossing 70% threshold. For this purpose, the useful life of assets defined in MYT Regulations, 2011 has been considered as per the said Regulations and the assets for which no useful life is provided in the Regulations, the same have been considered as per the Companies Act, The effective depreciation rate after crossing 70% threshold is worked out as given in the table below: Table 71: Depreciation rates as submitted by RInfra-D (after crossing 70% threshold) Type of Asset Till 70% (AS per MYT Regulations) Useful Life as per MERC/ based on companies act Year Lapsed till 70% Remaining life after 70% Depreciation rate after 70% Lease Hold Land 3.34% % Building 3.34% % Plant & Machinery 5.28% % Page 107 of 302

108 Type of Asset Till 70% (AS per MYT Regulations) Useful Life as per MERC/ based on companies act Year Lapsed till 70% Remaining life after 70% Depreciation rate after 70% Distribution System 5.28% % Vehicles 9.50% % Furniture/Fixture 6.33% % Off. Equipment 6.33% % Computer & Software 15.00% % Elect. Fittings 6.33% % Refg & Domestic Appliances 6.33% % b) Depreciation on the opening GFA as on 1 April, 2012: The assets comprising the Opening GFA as on 1 April 2012 and their corresponding accumulated depreciation considered. Depreciation calculated based on query run in the SAP system on the asset database with the following conditions which are in line with MERC MYT Regulations 2011: i. Depreciation was calculated at the rates specified by the MERC MYT Regulations, 2011 upto the 70% threshold. On reaching 70%, depreciation is computed using the effective rate as shown in the table above. ii. The MYT Regulations, 2011 have specified the useful life for substation and distribution lines. For other assets, useful life has been considered as per the Companies Act, c) Depreciation for new capitalized asset during the period to : In the case of assets capitalized during the period to , the depreciation is calculated on straight line basis, as per the rates & the useful life as specified in the MERC MYT Regulations, 2011, applying the same principles as above. However, for these new assets, depreciation has been calculated considering mid-year capitalisation. RInfra-D further submitted that no asset from this category will reach 70% of its value during the MYT Period. Page 108 of 302

109 RInfra-D further submitted that the effect of retirement of assets and withdrawal of corresponding accumulated depreciation, differential depreciation rates, and salvage value were considered in these calculations for depreciation for opening GFA as on 1 April, RInfra-D submitted that depreciation has not been claimed beyond 90% of the asset value RInfra-D submitted that the projections of Asset base and Depreciation have been made considering projected capitalisation and the existing mix in which assets are added in However, there could be changes on account of variation in capitalization, asset mix of assets added, retirement of assets, etc. which would alter the actual depreciation from what is estimated RInfra-D submitted that the Commission in its Order on the Business Plan in Case No. 158 of 2011 directed RInfra-D to provide details of retired assets during the period to In this regard, RInfra-D submitted that currently only a lump-sum value for asset retirement has been estimated in the MYT Petition and the same is not based on any actual analysis of assets based on their accounting or physically useful life. RInfra-D submitted that even with assets reaching 90% of historical value during MYT Period, the same may not be retired as the asset might still be useful based on its actual physical condition. RInfra-D requested the Commission to kindly waive this direction as it would be very difficult to currently estimate actual asset-wise retirement during the MYT Period Further, in reply to the Commission s query of certificate from the Statutory Auditor certifying that the calculation of depreciation as presented in the MYT petition is based on the balances as appearing in the books of accounts as on 31 March, 2012 and the depreciation working is correctly prepared as per the applicable MYT Regulations, 2011 and placement of the certificate in the Audit Committee of the Company, RInfra-D submitted vide its reply dated 11 February, 2013 that the depreciation working for the years under consideration is based on depreciation on Opening GFA as well as on asset projected to be added during the year. The depreciation workings are based on estimates of asset additions and not actuals, and Page 109 of 302

110 therefore the auditor would not be able to certify the same. Since the certification is not possible the same could not be placed before the Audit Committee The depreciation calculation for the Retail Supply business as submitted by RInfra- D for the period to is given in the table below: Table 72: Depreciation for Retail Supply business as submitted by RInfra-D (Rs. Cr) Particulars Opening GFA Addition Retirement Closing GFA Depreciation for Opening Balance (1 Apr 2012) Depreciation for new additions Total Depreciation The depreciation calculation for the Wires business as submitted by RInfra-D for the period to is given in the table below: Table 73: Depreciation for Wire business as submitted by RInfra-D (Rs. Cr) Particulars Opening GFA Addition Retirement Closing GFA Depreciation for Opening Balance (1 Apr 2012) Depreciation for new additions Total Depreciation Further, RInfra-D submitted deviation in Depreciation from the value approved by the Commission in its Business Plan Order in Case No. 158 of 2011 and those submitted in its MYT Petition as given in the table below: Page 110 of 302

111 Table 74: Comparison of Depreciation as approved by the Commission in Business Plan and as submitted by RInfra-D in MYT Petition (Rs. Cr) Particulars Business Plan Order Depreciation Wires Depreciation Retail Total MYT Petition Depreciation Wires Depreciation Retail Total RInfra-D also provided reasons for above deviation in the depreciation expenses as given below: a) The Business Plan Petition was based on provisional accounts for Subsequently, the annual accounts for were finalized and audited and therefore changes have been made to the capital expenditure and capitalisation numbers based on such audited annual accounts, which causes change in the opening value of gross block for MYT Period i.e. as 1 April, b) In the Business Plan Order the Commission approved capitalisation in the second control period based on then approved schemes. For the purpose of MYT Petition, the total capital expenditure and capitalisation, RInfra-D considered both approved and yet to be approved schemes, has been included for the second control period Commission s Rulings The Commission has considered the approved Capitalisation from to for addition of assets during the year and has prorated for each asset category. The Commission has considered the opening GFA for as Page 111 of 302

112 approved in its Order in Case No. 124 of 2012 (truing up of depreciation for ) for further projections of GFA for Second Control Period of the MYT The Commission has considered Depreciation Expenses in two stages separately, first Depreciation on opening GFA and secondly on asset addition for Second Control Period of the MYT. The Depreciation on opening GFA has been calculated by dividing the depreciation amount claimed by RInfra-D and prorated it to the ratio of opening GFA for each asset category as submitted by RInfra-D and opening GFA for that asset category as projected by the Commission in that respective year. For depreciation on asset addition i.e., in the case of assets capitalised during the period to , the depreciation is calculated on straight line basis, as per the rates & the useful life as specified in the MERC MYT Regulations, 2011, mid-year capitalisation rate for each asset category. The estimated retirement of assets for Second Control Period of MYT as submitted by RInfra-D has been taken as the retirement of assets The total depreciation allowed for Second Control Period of MYT from to , which is the sum of the depreciation for both Wires and the Retail businesses is summarised in the Table below: Table 75: Depreciation for Wires business as approved by the Commission (Rs. Cr) Particulars Opening GFA Addition Retirement Closing GFA Depreciation for Opening Balance Depreciation for new additions Total Depreciation Page 112 of 302

113 Table 76: Depreciation for Retail Supply business as approved by the Commission (Rs. Cr) Particulars Opening GFA Addition Retirement Closing GFA Depreciation for Opening Balance Depreciation for new additions Total Depreciation Table 77: Total Depreciation as approved by the Commission for the Second Control Period (Rs. Cr) Particulars MYT Order Depreciation Wires Depreciation Retail Total MYT Petition (RInfra-D) Depreciation Wires Depreciation Retail Total Interest on Long Term Loan Capital Interest on Long Term Loan Capital submitted by RInfra-D RInfra-D submitted that from it has looked beyond its conventional practice of funding all capital expenditure through its own equity pool and has tied up loans from financial institutions and commercial banks. RInfra-D raised Rs Crore by the way of Non-Convertible Debentures (NCD) during RInfra-D also took a loan of Rs. 350 Crore from Central Bank of India, for which RInfra-D has offered for security, the assets already created and capitalized before the disbursement of the loan. Accordingly, RInfra-D considered the loan amounts Page 113 of 302

114 towards setting off already admitted normative debt as on 1 April, 2011 Therefore, the opening normative debt of Rs Crore (as per the Petition in Case No.124 of 2012) was replaced by the above mentioned Rs Crore actual borrowing. The balance of Rs Crore is used for new capital expenditure for RInfra-D provided explanation of the financing arrangement and the corresponding interest computation as given below: Interest expenses for opening normative debt balance as on 1 April, Issue of Rs Crore non-convertible debentures: RInfra-D submitted it raised Rs Crore by way of issue of secured Non-Convertible Debentures (NCD) during (issue subscribed by various agencies LIC, New India Assurance, GIC, Yes Bank, Pension funds, etc.). The NCDs are secured by creation of charge on the distribution business assets of RInfra-D. The intimation of creation of charge was forwarded by RInfra-D to the Commission vide its letter dated 24 April, 2012 as required under the terms of MERC (General Conditions of Distribution License) Regulations, The NCDs of Rs Crore have been utilized against the opening normative debt as on 1 April, 2011 of Rs Crore Term Loan of Rs. 350 Crore from Central Bank of India: RInfra-D submitted it has also contracted debt of Rs. 350 Crore from the Central Bank of India during for financing its capital expenditure. A major part of this loan is considered towards refinancing the normative debt balance (left over from refinancing by NCD) as on 1 April, RInfra-D submitted that according to the MERC MYT Regulations, 2011 repayment for the second control period is equal to depreciation for that year as given below: 33.3 The repayment for the year of the tariff period to shall be deemed to be equal to the depreciation allowed for that year. Accordingly, for computation of Interest on long term loan, RInfra-D considered repayment equivalent to depreciation. The depreciation has been apportioned Page 114 of 302

115 across the loan considering the opening balance of loans. Further, MYT Regulations, 2011 provide the following with respect to depreciation: 31.2 (b) Depreciation shall be computed annually based on the straight line method at the rate specified in the Annexure I to these Regulations: Provided that the Generating company or transmission licensee or distribution licensee shall ensure that once the individual asset is depreciated to the extent of seventy (70) percent, remaining depreciable value as on 31st March of the year closing shall be spread over the balance useful life of the asset, as provided in these Regulations RInfra-D submitted that, considering depreciation rates as mentioned in the MYT Regulations, 2011 and debt percentage of 70%, the repayment period considered for tariff purposes stretches to more than 13 years. RInfra-D further added that however MERC (General Conditions of Distribution License) Regulations, 2006 provides that the tenure of any financing arrangement, where assets have been utilized for facilitating financing (i.e. creation of charge on assets), cannot exceed 7 years as under: The Distribution License shall be entitled to utilize the assets for facilitating financing its investment requirement subject to the conditions (b) that the financing arrangement is for a period not exceeding seven years or such other period as the commission may specifically direct RInfra-D submitted its loan schedule as given in the table below: Table 78: Loan Schedule as submitted by RInfra-D (Rs. Cr) Amt. Interest Particulars (Rs Rate Cr) NCDs Repayment Schedule LIC others % 585 NIACL % Yes Bank % 121 Yes Bank % 120 Yes Bank % 124 Page 115 of 302

116 Particulars Amt. (Rs. Cr) Interest Rate Total 1000 Term Loan Central Bank of India RInfra-D submitted that loan conditions mentioned in the MERC (General Conditions of Distribution License) Regulations, 2006 and that which has been considered for Tariff purposes as per MYT Regulations, 2011 do not match. This mismatch will lead to imbalances in the cash flow for RInfra-D. Hence, while RInfra-D has not contracted secured loans for more than seven years, it has to manage the debt redemption obligation with project accruals of depreciation. In order to overcome this problem, RInfra-D intends to refinance the bullet repayment when the same falls due (for e.g. in case of NCD, first redemption is due in and in case of term loan, bullet repayment is due in ). Further, RInfra-D submitted that as the estimation of the interest rate in the future is unpredictable at the present the refinancing has been considered at the prevailing interest rate of each of the tranches. In case of loans with moratorium, the refinancing shall be done after setting off depreciation accrued during the moratorium period RInfra-D further submitted that entire outstanding normative debt is now replaced with actual loans through issue of NCD and Term Loans. The actual interest rates applicable for the existing loans have been considered for computing interest on long term loan capital after considering that repayment for these loans is equal to the depreciation as per the MYT Regulations, RInfra-D submitted that the interest rate for normative portion of the debt considered in is assumed to be 11.50% which is as per the Business Plan Order in Case No. 158 of 2011 and the repayment amount is considered same as proportionate depreciation. Page 116 of 302

117 RInfra-D further submitted that a small portion of the term loan from Central Bank of India is also considered towards funding of capitalization during The interest rate and repayment schedule for actual term loan is considered as per the terms of the loan i.e. for the interest rate was 11.80% which was revised to 11.55% from May The summary for loan computation for loans existing as on 31 March 2012, including the NCD, Term Loan and Normative Loan bifurcated into Retail supply Business and Wires Business as submitted by RInfra-D is provided in the table below: Table 79: Summary of Interest Expenses for existing loans for Retail Supply Business as submitted by RInfra-D (Rs. Cr) Particulars Opening balance Addition Repayment Closing Balance Interest on opening balance of debt Table 80: Summary of Interest Expenses for existing loans for Wires Business as submitted by RInfra-D (Rs. Cr) Particulars Opening balance Addition Repayment Closing Balance Interest on opening balance of debt Interest expenses for new loans in the period to Financing of Capital Expenditure for the Second Control Period: RInfra-D submitted that for the proposed capital expenditure and capitalisation for the second control period, the financing is considered on the normative debt/equity ratio of 70:30 based on MERC MYT Regulations, The consumer contribution has Page 117 of 302

118 been deducted from the total capitalisation while working out the 70% debt requirement. RInfra-D submitted that currently there are no plans to draw any fresh actual debt during the MYT Period for the purpose of capital expenditure. Hence, all fresh debt requirements is considered normative at the interest rate of 11.5% as approved by the Commission in the Business Plan Order in Case No. 158 of The proportionate depreciation for the fresh capital expenditure was considered as repayment according to the MERC MYT Regulations, The summary for interest computation for new loans for Retail supply Business and Wires Business as submitted by RInfra-D is provided in the table below: Table 81: Summary of Interest Expenses for New loans for Wires Business as submitted by RInfra-D (Rs. Cr) Particulars Opening balance Addition Repayment Closing Balance Interest rate (%) 11.50% 11.50% 11.50% 11.50% Interest Table 82: Summary of Interest Expenses for New loans for Retail Supply Business as submitted by RInfra-D (Rs. Cr) Particulars Opening balance Addition Repayment Closing Balance Interest rate (%) 11.50% 11.50% 11.50% 11.50% Interest The summary of the interest rate expenses for Retail supply Business and Wires Business as submitted by RInfra-D is provided in the table below: Page 118 of 302

119 Table 83: Summary of Total Interest Expenses for Wires & Retail Business as submitted by RInfra-D (Rs. Cr) Particulars Interest on opening Balance as on 1st April 2012 Wires Retail Total Interest on New Loans ( to ) Wires Retail Total Total Interest Expenses Further, with respect to the Commission s query regarding actual/normative loan outstanding against the retired assets, RInfra-D submitted vide its reply dated 11 February, 2013 that the loan component in the cost of the asset is only 70%, the loan would be completely repaid by way of depreciation before the asset is retired Further, RInfra-D submitted deviation in interest rate expenses as approved by the Commission in its Business Plan Order in Case No. 158 of 2011 and submitted in its MYT Petition as given in the table below: Table 84: Comparison of Interest Expenses as approved by the Commission in Business Plan Order and as submitted by RInfra-D in MYT Petition (Rs. Cr) Interest on Loans Business Plan Order Retail Wire Total MYT Petition Retail Wire Total Page 119 of 302

120 RInfra-D submitted reasons for above deviation in the interest rate expenses as given below: a) In the MYT Petition RInfra-D considered the actual interest rates corresponding to the NCD and Term Loans, for the purpose of computing the interest on the opening normative debt, whereas the Commission in the Business Plan Order considered normative interest rates as approved by it in the previous Orders (i.e. 8%, 10%, 9%, depending upon the year of admittance of loan). b) The amount of debt balance considered by RInfra-D is based on the actual capitalisation till The Business Plan Petition was based on provisional accounts for Subsequently, the annual accounts for were finalized and audited and therefore changes have been made to the capital expenditure and capitalization numbers based on such audited annual accounts. c) In the Business Plan Order, the Commission approved capitalisation in the second control period based on the then approved schemes. For the purpose of MYT Petition, the total capital expenditure and capitalisation, considering both approved and yet to be approved schemes, were included for the Second Control Period Commission s Rulings As regards the refinancing of the existing normative loan with actual loan, the Commission in its Order in Case No. 180 of 2011 has ruled as under: The Commission has already approved interest rates for normative debt corresponding to the capitalisation approved in respective years before As per the Commission s view, present Petition cannot seek review of the decisions already taken in the earlier Orders which have remained unchallenged and hence have attained finality. In line with the Page 120 of 302

121 practice followed for the past years, the Commission approves fixed interest rate of 11.50% for normative debt corresponding to the capitalisation which belongs to Accordingly, for the purpose of estimating interest expenses for Second Control Period of MYT from to , the Commission has not considered the proposed financing of normative loans by actual loans as submitted by RInfra-D. Moreover, it was observed that the proposed re-finance of the normative loans have been done with expensive loan. The comparison of the normative loan and actual is as given in the table below: Particulars Closing Balance for Projects initiated during Projects initiated during Projects initiated during Projects initiated during Projects initiated during Outstanding Loan Approved Interest Rate by the Commission % Actual Loan for re-finance LIC & Others Loan Amount Applicable Actual Interest Rate as submitted by RInfra-D % % NIACL % % YES Bank % % YES Bank % % YES Bank % % Central Bank of India Total 1, , % In regard to the actual loans availed by RInfra-D, the Commission on scrutiny of the term sheets of these loans, observed that all the actual loans availed by RInfra-D have a repayment period of 7 years or less. This clearly indicates that repayment of these loans will have to be refinanced as instalments for repayment becomes due. The Commission observes that RInfra-D s proposal to refinance all the actual loans stated above as and when repayment becomes due could expose its consumers to Page 121 of 302

122 refinancing risk, which might be detrimental to the interest of the consumers Further, as regards the contention of RInfra-D regarding provisions specified in the General Conditions of the Distribution Licence that the financing arrangement is for a period not exceeding seven years or such other period as the Commission may specifically direct and hence it has not contracted loan for repayment of more than 7 years does not hold true, since, by way of notifying the MERC MYT Regulations, 2011, the Commission has specified that the repayment for each year of the MYT Control Period shall be deemed to be equal to the depreciation allowed for that year Therefore, the Commission, considering prudency of the expenditure, is of the view that refinancing of normative loan with actual loans as proposed by RInfra-D should not be allowed. Further, the Commission disallows admittance of actual loans of shorter duration The Commission has considered the closing balance of loan as on as approved by the Commission in its Order in Case No. 124 of 2012 as the opening balance of loan for From to , the Commission has considered loan addition for each of the year as 70% of the capitalisation approved for the respective year Regulation 33 of the MERC MYT Regulations, 2011 specifies that the repayment of loan shall be equal to the depreciation allowed in the respective year. Accordingly, the Commission has considered the repayment of loan equal to the depreciation as approved for respective years Regulation 33 of the MERC MYT Regulations, 2011 specifies that the rate of interest used for calculation of interest on long-term loans shall be weighted average rate of interest on the basis of actual loan portfolio at the beginning of each year. Further, the interest should be calculated on the normative average loan availed in a particular year However, the Commission has considered all loans availed by RInfra-D as normative loans for the approval of MYT Petition. Hence, as per the 2 nd proviso to Regulation 33.5 of MERC MYT Regulations, 2011, if the Distribution Licensee doesn t have any actual borrowings, then the weighted average interest of the generating company or transmission licensee or distribution licensee as a whole needs to be considered. Page 122 of 302

123 The Commission computed the weighted average interest rate in accordance with Regulations quoted above. For computing weighted average interest of RInfra company as a whole all long-term loans availed by RInfra as provided in the latest audited financial statements, i.e., for is considered. However, the loans disallowed by the Commission in the Business Plan Order for RInfra-D (Case No. 158 of 2011) and RInfra-T (Case No. 159 of 2011) have not been considered for computation of weighted average interest rate. The Commission has further not considered the loan of Rs. 300 Crore toward NCD being short-term repayable in one year. The weighted average interest rate of RInfra as computed is provided below: Table 85: Weighted average interest rate of RInfra as computed by the Commission SL No Particulars of long term borrowing Amount (Rs crore) Yearly interest (Rs crore) % secured NCD % secured NCD % secured NCD % secured NCD % secured NCD ECB in foreign currency unsecured Central bank of India Total 2, Weighted average interest rate 8.78% The Commission has applied interest rate on the average of opening balance and closing balance of loan for each year in order to compute the interest expense on long-term loans admitted during the MYT second Control Period for each of the year from to The summary of the outstanding loans, new loan, repayment of loans and interest expense for Wire and Retail business for the Second Control Period of the MYT is as given in the table below: Table 86: Interest Expenses on Long Terms loans for the MYT period as approved by the Commission (in Rs. Crore) Page 123 of 302

124 Particulars Retail Opening Balance Additions of New Loans Repayments Closing Balance Interest Expenses Wires Opening Balance 1, , , , Additions of New Loans Repayments Closing Balance 1, , , , Interest Expenses Retail + Wires Opening Balance 1, , , , Additions of New Loans Repayments Closing Balance 1, , , , Interest Expenses Return on Equity Return on Equity submitted by RInfra-D RInfra-D submitted that in its MYT Petition it has worked out the Return on Equity by considering the opening equity balance and equity portion of new capitalisation. The equity portion of new capitalisation in the period to has been considered at 30% of capitalisation for respective year. The consumer contribution during the year was reduced from the capitalisation during the respective years to arrive at the regulatory equity at the end of the year. The opening equity as on 1 April, 2013 is based on the True-Up Petition for in Case No. 124 of 2012, for RInfra-D. Further, it was submitted that to the equity thus determined, the rate of return as specified in MERC MYT Regulations 2011 was applied. RInfra-D considered return on the opening equity for the full year, while Page 124 of 302

125 50% equity was considered for the capital expenditure capitalised during the year as per the MYT Regulations Return on equity capital for the Transmission Licensee and Wires Business of Distribution Licensee shall be computed on the equity capital determined in accordance with Regulation 30 at the rate of 15.5 % per cent per annum, and for the Retail Supply of Electricity of Distribution Licensee, Return on equity capital shall be allowed a return at the rate of 17.5 % per cent per annum, in Indian Rupee terms, on the amount of equity capital determined in accordance with Regulation The details of the Return on Equity as submitted by RInfra-D for its Wires and Retail supply business are as given in the tables below: Table 87: Return on Equity for Wires Business as submitted by RInfra-D (Rs. Cr) Particulars Regulatory Equity at the beginning of the year 1, , , , Capitalisation during the year Equity portion of capitalisation during the year Consumer Contribution and Grants used during the year for Capitalisation Reduction in Equity Capital on account of retirement / replacement of assets Regulatory Equity at the end of the year 1, , , , Return Computation 15.50% 15.50% 15.50% 15.50% Return on Regulatory Equity at the beginning of the year Return on Equity portion of capitalisation during the year Total Return on Regulatory Equity Page 125 of 302

126 Table 88: Return on Equity for Retail Supply Business as submitted by RInfra-D (Rs. Cr) Particulars Regulatory Equity at the beginning of the year Capitalisation during the year Equity portion of capitalisation during the year Consumer Contribution and Grants Reduction in Equity Capital on account of retirement / replacement of assets Regulatory Equity at the end of the year Return Computation 17.50% 17.50% 17.50% 17.50% Return on Regulatory Equity at the beginning of the year Return on Equity portion of capitalisation during the year Total Return on Regulatory Equity Table 89: Return on Equity for Wires and Retail Business as submitted by RInfra-D (Rs. Cr) Particulars Retail Wire Total Further RInfra-D submitted that in its Business Plan Order in Case No. 158 of 2011 dated 23 November, 2012 the Commission considered the closing balance of equity as approved in its Order in Case No. 180 of 2011 as the opening balance for and additional thereafter was considered as per the capitalisation approved for each year of MYT Period. However, RInfra-D in its MYT Petition considered the opening equity for as per the actual closing equity of as Page 126 of 302

127 per its Petition under Case No. 124 of 2012, which considered the actual capitalisation during RInfra-D considered both approved and yet-to-be approved schemes for the purpose of projections of the capital expenditure and capitalization during the second control period, whereas the Commission in its Business Plan Order in Case No. 158 of 2011considered only then approved schemes for the purpose of projecting capitalisation for the Second Control Period. The deviation in Return on Equity as approved by the Commission in its Business Plan Order in Case No. 158 of 2011 dated 23 November, 2012 and projected by RInfra-D in its MYT petition was submitted by RInfra-D as given in the table below: Table 90: Comparison of RoE as approved by the Commission in Business Plan and as submitted by RInfra-D in MYT Petition (Rs. Cr) Particulars As per Business Plan Order As per MYT Petition Commission s Rulings While estimating Return on Equity (RoE) for the Second Control period of the MYT from to , the Commission has subtracted 30% of the GFA of the retired assets and Consumer Contribution and Grants while computing closing level of Regulatory Equity. The Opening Equity for has been considered as the Closing Regulatory Equity for approved by the Commission in its Order in Case No. 124 of 2012 (Final truing up of and ).Further, while computing RoE for the Second Control Period of the MYT, the Commission added 50% of the equity portion of the approved Capitalisation during the year. The RoE has been considered in line with the MYT Regulations, 2011, i.e., 17.5% for Retail Supply business and 15.5% for Wire business as quoted below: Page 127 of 302

128 Return on equity capital for the Transmission Licensee and Wires Business of Distribution Licensee shall be computed on the equity capital determined in accordance with Regulation 30 at the rate of 15.5 % per cent per annum, and for the Retail Supply of Electricity of Distribution Licensee, Return on equity capital shall be allowed a return at the rate of 17.5% per cent per annum, in Indian Rupee terms, on the amount of equity capital determined in accordance with Regulation The summary of RoE approved by the Commission for the Second Control period of the MYT from to is as given in the table below for Retail and Wire Business: Table 91: Return on Equity as approved by the Commission for the Second Control Period of the MYT Period Particulars Retail Regulatory Equity at the beginning of the year Capitalized Expenditure Less: Reduction in Regulatory Equity during the year due retirement of assets Equity portion of capitalized expenditure Regulatory Equity at the end of the year Return on Regulatory Equity at the beginning of the year Return on Equity portion of capitalized expenditure Total Return on Regulatory Equity Wires Regulatory Equity at the beginning of the year Capitalized Expenditure Less: Consumer contribution Less: Reduction in Regulatory Equity during the year due retirement of assets Equity portion of capitalized expenditure Regulatory Equity at the end of the year Return on Regulatory Equity at the beginning of the year Return on Equity portion of capitalized Page 128 of 302

129 expenditure Particulars Total Return on Regulatory Equity Retail+Wires Regulatory Equity at the beginning of the year 1, , , , Equity portion of capitalized expenditure Regulatory Equity at the end of the year 1, , , , Return on Regulatory Equity at the beginning of the year Return on Equity portion of capitalized expenditure Total Return on Regulatory Equity Operations and Maintenance Expenditure Operations and Maintenance Expenditure RInfra-D submitted that: a) Prior to issuance of the final MERC MYT Regulations, 2011, the Commission had issued the Draft Multi Year Tariff Regulations (referred to as Draft Regulations ) for public consultation on 30 August, b) The norms for O&M expenditure were specified in Clauses 73.3 and 87.6 of the Draft Regulations for the Distribution Wires business and the Retail Supply business respectively. c) There was a significant difference between the norms specified in the Draft Regulations, consulted upon with the utilities and members of public and those specified in the final Regulations. d) RInfra-D submitted that the change in O&M norms between the Draft Regulations and Final Regulations had significantly reduced the total allowable O&M expenses to RInfra-D much lower than its actually incurred expenses RInfra-D also submitted the comparison of the O&M Expenses calculated based on the norms specified as in the MERC MYT Regulations 2011, the actual expenses as per Audited Accounts for and the O&M expenses and as approved by the Commission in its Order in Case No. 180 of 2011 as given in the table below: Page 129 of 302

130 Table 92: Comparison of O&M Expenses as submitted by RInfra-D MYT Actual Particulars Regulations, Expenses 2011 Approved Expenses as per Order in Case No. 180 of 2011 Employee Expenses A&G Expenses R&M Expenses Total Expenses RInfra-D further submitted that, in its Business Plan Petition, it has highlighted that the migration of consumers from RInfra-D to TPC-D for supply would not alter the O&M expenses in any significant manner as the only activities that would be discontinued for Changeover consumers would be bill printing and bill distribution. All other activities would continue to remain, just the same way as presently done for own consumers. Further, the effect of migration whether on own network or to another network would also be offset by natural addition of consumers to the licensee s fold. Hence, the distribution network activities are not likely to see any change on account of change-over or switchover of consumers. Similarly, the supply activities only reduce to a minor extent RInfra-D submitted that even though its retail supply business is witnessing competition and consumer migration at present, the O&M expenses shall be reduced marginally over the Plan Period. RInfra-D further indicated that it is still carrying out a number of its usual business activities even for changeover consumers. These activities primarily include: a) Regular monthly meter reading of Changeover consumers to validate the consumption data being shared by TPC, as RInfra-D is responsible for maintaining the distribution system losses. b) Meter replacement during Joint Meter Reading (JMR), if consumer wants SDL (Supply Distribution Licensee) meter. c) Accompanying TPC-D representative for recovery of arrears and disconnect the supply if TPC-D dues are not paid by the changeover consumers; Page 130 of 302

131 d) Accompanying TPC-D representatives for on-site activities such as meter testing, meter replacement, consumer complaints related to meter/metering equipment, etc.; e) Continued (and increased) vigilance efforts for changeover consumers, as TPC- D is unaffected by such theft as its losses are fixed at normative level which do not even include commercial losses including theft of electricity; f) Follow-up activities such as monitoring and improvement of power factor, etc. for changeover consumers, RInfra-D added that while poor PF of the changeover consumers overload the distribution of RInfra-D, however it is TPC- D who retains PF surcharge recovered from the changeover consumers g) Coordinating with TPC-D for jobs such as service shifting, load enhancement, etc. such as monitoring and power factor improvement for changeover consumers, etc RInfra-D submitted that however, in its Order on the Business Plan in Case No. 158 of 2011 dated 23 November, 2012, the Commission only computed O&M expenses for each year of the MYT Period as per the MYT Regulations, RInfra-D submitted that the Commission may kindly review its decision under Regulation 100 (Power to Remove Difficulties) of the MYT Regulations, 2011 so as to provide a more representative allowance of O&M expenses for the MYT Period, which is relatable to past expenses. RInfra-D further submitted that because the O&M norms specified in the MERC MYT Regulations 2011 lead to lower base value of expenses, all expenses to be allowed in future based on the norms would also be much lower than the actual expenses. RInfra-D submitted that this would lead to significant financial difficulties in terms of managing day to day network operations, paying salaries and wages to employees, making payments to vendors, etc. Such significant reduction in allowed expenses would naturally lead to significant cost cutting if RInfra-D is forced to manage its operations within those expenses, which will have negative impact on quality and reliability of supply. Page 131 of 302

132 RInfra-D submitted its approach adopted in the MYT Petition for calculation of the O&M expenses for the second control period ( to ) as given below: a) As is almost over, the actual expenses for the first half of and estimates for the second half are used to estimate the expenses of , which were considered as base expenses for the MYT Period. b) Inflation based indices (Consumer Price Index & Wholesale Price Index) were then applied to the base year number to arrive at the annual expenses for each of the O&M categories for the period to c) Certain arrears and one-time expenses in estimates were not escalated, but considered separately by RInfra-D. d) RInfra-D proposed to recover charges for usage of SCADA system from RInfra-T. Such recovery has been reduced from each head of O&M expenses RInfra-D submitted that, RInfra has established a State of the Art System Control Centre at Aarey. RInfra-T does not have a separate SCADA centre, but the existing System Control Centre caters to entire Transmission and Distribution Network of RInfra in Mumbai area RInfra-D further submitted that as per prevailing practice, entire cost of this control centre is being considered in RInfra-D ARR. However, with effect from , RInfra-D intends to apportion the costs applicable to the operations pertaining to RInfra-T. For , the actuals have been considered till October 2012 and the same is annualised for the entire year and the effect of the same is considered. The projection for to has been arrived at after considering the escalation of 7.57% year on year basis for employee expenses, escalation of 7.16% YoY basis for A&G expenses and escalation of 6.89% year on year basis for R&M expenses, in line with the Commission approved escalation for Employee and A&G expenses in its Order in Case No. 167 of Further, as a part of reply to data gaps, RInfra-D submitted its actual (based on provisional account) O&M expenses including corporate allocation for as: Page 132 of 302

133 Employee Expenses a) Employee Expenses: Rs Crore b) A&G expenses : Rs Crore c) R&M expenses : Rs Crore RInfra-D submitted that it has estimated the employee expenses for the period to by considering impact of wage revision and the effect on inflation RInfra-D submitted that the wage agreement was revised in July 2012, with wage revision effective from July 2010 onwards. The Actual Employee expenses in was Rs Crore and in it is Rs Crore. RInfra-D submitted various factors for increase in employee cost as given below: a) Wage agreement of Non-executives in July 2012 which was effective from July On account of wage revision an amount of Rs. 16 Crore is pertaining to and Rs. 24 Crore pertaining to has been accounted in RInfra-D submitted that this is a onetime expense for the past arrears b) Normal annual increment of executives c) Compounding effect on Gratuity & Leave Encashment Liability due to wage revision RInfra-D further submitted that there was an impending wage revision for unionised employees due from 1 July, 2010 and another wage revision would be due by the end of the MYT period. RInfra-D revises wages of the unionised employees every four years as well as for the staff in the officers and supervisory category Further, it was submitted that the projected employee expense for of the RInfra-D is then escalated by 9.28% (based on Consumer Price Index (CPI) for the period ) to arrive at the Employee expenses for the period to The summary of the employee expenses for the period to as submitted by RInfra-D is given in the table below: Page 133 of 302

134 Table 93: Summary of Employee Expenses as submitted by RInfra-D (Rs. Cr) Particulars Employee Expenses Add: Past Period Adjustments Less: SCADA s from RInfra-T Total Employee Expenses Administrative and General Expenditure RInfra-D submitted that the actual A&G expenses in were Rs Crore. The A&G expenses have been projected considering two categories. Firstly, expense for the is escalated annually by an inflation index to arrive at projected A&G expenses for the years from to RInfra-D considered Inflation index for projecting A&G expense which was a mix of 60% CPI and 40% WPI. Secondly, estimates are separately considered for charges relating to usage of RInfra Transmission (RInfra-T) land for installations of RInfra-D The summary of the A&G expenses for the period to as submitted by RInfra-D is given in the table below: Table 94: Summary of A&G Expenses as submitted by RInfra-D (Rs. Cr) Particulars A&G Expenses Add: Past Period Adjustments Less: SCADA s from RInfra-T Total A&G Expenses Repairs and Maintenance Expenditure RInfra-D submitted that the actual R&M Expenses for were Rs Crore which increased to Rs. 230 Crore in RInfra-D submitted that the increase is largely due to uncontrollable factors as given below: Page 134 of 302

135 a) Wage agreement of Contracted labourers in July 2012 with effect from July Since contracted labourers do not form a part of the employee expenses they are considered in R&M. b) Increase in material consumption cost from the previous year due to nonreceipt of many materials in RInfra-D further submitted that the projected Repair and Maintenance expense for is then escalated by 7.02% (Based on Wholesale Price Index (WPI) for the period ) to arrive at the Repair and Maintenance expenses for the period to The summary of the R&M expenses for the period to as submitted by RInfra-D is given in the table below: Table 95: Summary of R&M Expenses as submitted by RInfra-D (Rs. Cr) Particulars R&M Expenses Add: Past Period Adjustments Less: SCADA s from RInfra-T Total R&M Expenses RInfra-D further submitted that it considered Inflation Indices based on Consumer Price Index (CPI) and Whole Sale Price Index (WPI) for the purpose of escalating O&M Expenses. For escalating Employee Expenses, Inflation index based on CPI was considered. The data for CPI was taken from the website of the Labour Bureau, Govt. of India. For estimating R&M Expenses, RInfra-D considered Inflation index based on WPI. The data for WPI was taken from the Office of Economic Advisor, Govt. of India. RInfra-D considered mix of 60% CPI and 40% WPI for projecting A&G expenses. The indices considered by RInfra-D for projecting O&M Expenses are as given in the table below: Table 96: Summary of Indices used by RInfra-D to project O&M Expenses Page 135 of 302

136 Index Basis Value Employee Expense CPI 9.28% Repairs and Maintenance WPI 7.02% Administrative Expenses Mix of CPI and WPI 8.38% Commission s Rulings The Commission accepts RInfra-D contentions that the O&M expenses in subsequent years cannot be approved at levels lower than the approved values of the past years. Although, the Commission is of the view that licensee should bring enhanced productivity in its operations and consequently should induce reduction in O&M expenses for controllable factors, however the increase on account of uncontrollable factors like wage revision of the past period and inflation, cannot be done away with The Commission notes the submissions of RInfra-D that it is still carrying out a number of its usual business activities for changeover consumers, which are as under: Regular monthly meter reading of changeover consumers to validate the consumption data being shared by Tata Power Company as RInfra-D is responsible for maintaining the distribution system losses. RInfra-D contended that the migrated consumers are required to pay in kind only normative distribution system losses and not the actual. Meter replacement during Joint Meter Reading (JMR), if consumer wants SDL (Supply Distribution Licensee) meter. Accompanying SDL representative for recovery of arrears and disconnect the supply if TPC-D dues are not paid by the changeover consumers; Accompanying SDL representatives for on-site activities such as meter testing, meter replacement, consumer complaints related to meter/metering equipment, etc.; Page 136 of 302

137 Continued (and increased) vigilance efforts for changeover consumers, as SDL is unaffected by such theft as its losses are fixed at normative level which not even include commercial losses including theft of electricity; Follow-up activities such as monitoring and improvement of power factor, etc. for changeover consumers, RInfra-D added that while poor PF of the changeover consumers overload the distribution of WDL, however it is SDL who retains PF surcharge recovered from the changeover consumers Coordinating with SDL for jobs such as service shifting, load enhancement, etc. such as monitoring and power factor improvement for changeover consumers, etc The Commission observes that the assumption while framing Regulations was that there would be reduction in O&M cost owing the consumers switching over to TPC- D and it will in turn lead to optimisation of O&M Cost The Regulation 100 of the part K of the MERC MYT Regulations, 2011 vests the Commission with the power to remove difficulties. The Regulation 100 is reproduced hereunder: 100 Power to remove difficulties If any difficulty arises in giving effect to the provisions of these Regulations, the Commission may, by general or specific order, make such provisions not inconsistent with the provisions of the Act, as may appear to be necessary for removing the difficulty The Commission exercising its power as provided under Regulation 100 of the MERC (MYT) Regulations 2011 relaxes the O&M norms for RInfra-D provided under Regulation and Regulation RInfra-D in its reply to data gaps has submitted the actual O&M expenses for and certified Reconciliation statement and also submitted following justification to increase in O&M expenses: Page 137 of 302

138 Particulars Average Growth rate for Actuals as per ARR Wage Revision Impact (84) Total % Particulars Average Growth rate for Actuals as per ARR Wage Revision Impact (27.63) Total % RInfra-D also submitted the A&G expenses for as Rs Crore The Commission for the purpose of approving O&M cost has considered the actuals of and escalation rates of 6.15%, 6.83% for employee expenses and R&M, respectively, based on the average growth rate submitted by RInfra-D in the reply to data gaps mentioned above. The Commission has computed a escalation rate of A&G expenses based on 60% weightage of growth rate of employee expenses (6.15%) and 40% weightage of growth rate of R&M expenses (6.83%). The Commission has not considered wage revision impact of Rs Crore on R&M expenses as submitted by RInfra-D, as RInfra-D has not substantiated its claim. The Commission directs RInfra-D to submit justification of the above mentioned wage revision impact with proper justification in the next tariff determination process for the consideration of the Commission, subject to prudence check. The Commission has applied same ratio for allocation to wires and supply business as submitted by RInfra-D and reduced SCADA charges from RInfra-T as submitted by RInfra-D in its Petition The O&M expenses approved by the Commission are as under: Table 97: O&M Expenses approved by the Commission (Rs Crore) Particulars Total O&M (Wires +Supply) Wires Business Supply Business Page 138 of 302

139 3.13 Interest on Working Capital and Security Deposits RInfra-D s Submission RInfra-D submitted that for the computation of the value of sum of the book value of stores, materials and supplies for it has considered the same amount as the actuals for For ensuing years an escalation rate is used which is based on the growth rate of the total line length (ckt-km) for the business RInfra-D submitted that it computed Interest on Security Deposit based on Consumer Security Deposit (CSD) estimates and interest rate considered. RInfra-D considered CSD for , as submitted in its True-Up Petition in Case No. 124 of CSD for the period was estimated by escalating the values by the respective year consumer growth rate RInfra-D further submitted that it the current bank rate of 9% for the purpose of the forecast in accordance with Sub-clause c of the Regulation 35.4 of the MERC MYT Regulations, 2011: Interest shall be allowed on the amount held as security deposit from retail supply consumers at the Bank Rate as on the date on which the application for determination of tariff is made RInfra-D submitted the Interest on working capital for its Retail and Wires business as given in the table below for the period from to : Table 98: Interest on Working Capital and Security Deposit for Wire & Retail Supply Business as submitted by RInfra-D (Rs. Crore) Particulars Interest on Working Capital-Wires Interest on Working Capital-Retail Total Interest on Working Capital Commission s Rulings Page 139 of 302

140 The Commission has approved Interest on Working Capital and security Deposit, in accordance with Regulation 35.3 and 35.4 of the MERC MYT Regulations, 2011, the Interest rate on working capital was calculated at the prevailing State Bank Advance Rate (SBAR) which was 14.50% at the time of filing of MYT Petition, which is as under: 35.3 Distribution Wires Business: (a) The Distribution Licensee shall be allowed interest on the estimated level of working capital for the Distribution Wires Business for the financial year, computed as follows: (i) One-twelfth (1/12) of the amount of Operation and Maintenance expenses for such financial year; plus (ii) One-twelfth (1/12) of the sum of the book value of stores, materials and supplies including fuel on hand at the end of each month of such financial year; plus (iii) Two (2) months equivalent of the expected revenue from charges for use of Distribution Wires at the prevailing tariff; minus (iv) Amount held as security deposits from Distribution System Users. (b) Rate of interest on working capital shall be on normative basis and shall be equal to the State Bank Advance Rate (SBAR) of State Bank of India as on the date on which the application for determination of tariff is made. (c) Interest shall be allowed on the amount held as security deposit from Distribution System Users at the Bank Rate as on the date on which the application for determination of tariff is made Retail Supply of Electricity (a) The Distribution Licensee shall be allowed interest on the estimated level of working capital for the financial year, computed as follows: (i) One-twelfth (1/12) of the amount of Operation and Maintenance expenses for such financial year; plus Page 140 of 302

141 (ii) One-twelfth (1/12) of the sum of the book value of stores, materials and supplies including fuel on hand at the end of each month of such financial year; plus (iii) Two (2) months equivalent of the expected revenue from sale of electricity at the prevailing tariff; minus (iv) Amount held as security deposits under clause (a) and clause (b) of sub-section (1) of Section 47 of the Act from retail supply consumers; minus (v) One (1) month equivalent of cost of power purchased, based on the annual power procurement plan: Provided that in case of power procurement from own Generating Stations, no amount shall be allowed towards payables, to the extent of supply of power by the Generation Business to the Retail Supply Business, in the computation of working capital in accordance with these Regulations. (b) Rate of interest on working capital shall be on normative basis and shall be equal to the State Bank Advance Rate (SBAR) of State Bank of India as on the date on which the application for determination of tariff is made. (c) Interest shall be allowed on the amount held as security deposit from retail supply consumers at the Bank Rate as on the date on which the application for determination of tariff is made The summary of approved Interest on Working Capital and security Deposit is as under: Table 99: Interest on Working Capital for Wire & Retail Supply Business approved by the Commission (Rs. Crore) Particulars Retail Supply Wires Total Page 141 of 302

142 3.14 Income Tax RInfra-D s Submissions RInfra-D submitted that in its Business Plan Order in Case No. 158 of 2011 the Commission approved income tax equivalent to an amount approved by the Commission in its Order in Case No. 180 of 2011 dated 15 June, In the Order in Case No. 180 of 2011, the Commission computed income tax based on the Profit before tax method and had allowed income tax on the segmental profit. The same income tax amount of Rs Crore (for wires and retail supply business put together) for RInfra-D was considered as allowable for the second control period in the Business Plan Order The details of the income tax projections as submitted by RInfra-D, is as given in the table below: Table 100: Income Tax projections as submitted by RInfra-D (Rs. Cr) Particulars Income Tax (Retail) Income Tax (Wires) Total Income Tax Commission s Rulings For computation of income tax for to , the MERC (MYT) Regulations, 2011 specifies that the Commission may provisionally approve income tax payable for each year of the MYT second control period based on the actual income tax payable as per the latest audited accounts and the variation between the actual and approved income tax shall be reimbursed at the time of mid-term performance review. The said Regulation is reproduced below for reference: 34.1 The Commission in its MYT Order shall provisionally approve Income Tax payable for each year of the Control Period, if any, based on the actual income tax paid on permissible return as allowed by the Commission relating to electricity business regulated by the Commission, as per latest Audited Accounts available for the applicant, subject to prudence check. Page 142 of 302

143 Variation between Income Tax actually paid and approved, if any, on the income stream of the regulated business of Generating companies, Transmission licensees and Distribution licensees shall be reimbursed to /recovered from the Generating Companies, Transmission Licensees and Distribution Licensees, based on the documentary evidence submitted at the time of Mid-term Performance Review and MYT Order for the third Control Period, subject to prudence check." Since, the recovery of the Income Tax through the ARR and tariffs will be viewed as income by the Income Tax authorities, the Income Tax component for has to be duly grossed up by the applicable tax rate (Corporate tax rate of 33.99% or MAT rate of 20.96%) in the year of recovery, in accordance with the various Judgments issued by the Hon'ble ATE in this regard. Accordingly, the Income Tax amount of Rs. 0 Crore considered for recovery for , has been grossed up by the applicable tax rate, thereby, resulting in an amount of Rs. 0 Crore to be allowed for recovery, in the next tariff period when it is actually offered to tax In accordance with the MERC MYT Regulations, 2011, the Income Tax for to will have to be considered at the same level as approved by the Commission for (Rs 0 Crore), which has been grossed up for income tax, since that is the latest year for which audited accounts/ information has been submitted and prudence check has been undertaken by the Commission. Further, the true up based on actual Income Tax paid by RInfra-D shall be considered at the time of mid-term review by the Commission The income tax considered by the Commission for the years under consideration for the MYT second control period starting from to is as summarised in the table below:- Table 101: Income tax approved by the Commission (in Rs. Crore) Particulars Income tax Page 143 of 302

144 Further, as per Regulation 34 of the MERC MYT Regulations, 2011, the distribution company is required to bill the income tax under a separate head called Income Tax Reimbursement. However, if income tax is allowed as separate reimbursement, it may lead to some problems in claiming expenses with income tax authorities. In view of this, the Commission in exercise of its powers under Regulation 100 Power to remove difficulties of the MERC (MYT) Regulations, 2011 hereby orders that the difficulty in implementing Regulation 34 stands removed by allowing the inclusion of income tax expense as a part of the annual revenue requirement Contribution to Contingency Reserves RInfra-D s Submissions RInfra-D submitted that it has projected for Contingency Reserve Contributions during the MYT plan period by considering 0.25% of opening GFA value as contribution to Contingency Reserve. It is in accordance with Regulation 36.1 of the MERC MYT Regulations, 2011: 36.1 Where the Transmission Licensee or Distribution Licensee has made an appropriation to the Contingency Reserve, a sum not less than 0.25 per cent and not more than 0.5 per cent of the original cost of fixed assets shall be allowed annually towards such appropriation in the calculation of aggregate revenue requirement: The details of contribution to Contingency Reserves as submitted by RInfra-D, is as under: Table 102: Contribution to Contingency Reserves as submitted by RInfra-D (Wires, Rs. Crore) Particulars Opening balance of GFA % Contribution 0.25% 0.25% 0.25% 0.25% Contribution to Contingency Reserve Page 144 of 302

145 Table 103: Contribution to Contingency Reserve as submitted by RInfra-D (Retail, Rs. Crore) Particulars Opening balance of GFA % Contribution 0.25% 0.25% 0.25% 0.25% Contribution to Contingency Reserve Commission s Rulings The Commission has approved the contribution to contingency reserves as 0.25% of approved Opening GFA, which is as under: Table 104: Contribution to Contingency Reserve approved by the Commission (Rs. Crore) Particulars Wires Retail Supply Total Non-Tariff Income RInfra-D s Submissions RInfra-D submitted that it analysed the various elements of Non-Tariff Income in and segregated the same into escalable and non-escalable components. The approach followed for forecasting non-tariff income by RInfra-D is as given below: a) For items such as miscellaneous receipts from consumers (except for any one time arrears), burnt meter charges, connection, reconnection fee, etc., which are effected by Schedule of s are forecast with a 10% escalation over value, considering the fact that the Commission has revised the Schedule of s. Page 145 of 302

146 b) For other items such as delayed payment charges, interest on delayed payment etc. similar approach of applying escalation factor of 10% is applied over the value, to arrive at the projections from onwards. c) Recovery from theft of power is not forecast with any escalation, but considered at the same level as per actuals of d) For projections of items such as rebate on power purchase and interest on contingency reserve investments, a specific approach has been adopted as under: i. Rebate on Power Purchase: It was included in Non-Tariff Income in and in Case No. 124 of This was in pursuance of a direction by the Commission in Case No. 180 of Further into the MYT Period as the power purchase cost is not forecast considering any rebate, an element of rebate has to be included in the Non-Tariff Income as prompt payment discounts would be availed by RInfra-D going forward as well. Therefore, in order to forecast rebate on power purchase, the rebate amount of has been determined as a percentage of total power purchase cost (except DTPS on which there is no prompt payment discount, being own generator) and the percentage as worked out for is considered same for each year of the MYT period going forward. ii. Interest on Contingency reserve investments: In the case of interest on contingency reserve investments, the weighted average rate of interest on the investments as per the Annual accounts for , pertaining to distribution business, is arrived at. Next, the cumulative opening balance of contribution to contingency reserve as at 1April,2012 is considered and to this the yearly accretion to the contingency reserve for the second control period from to is added to arrive at the closing balance of contribution to contingency reserve at the end of each year. To this closing balance so arrived at the end of each year, the weighted average interest rate as mentioned above, is applied to arrive at the projected interest on contingency reserve investments for each year of the second control period from to Page 146 of 302

147 In reply to the Commission s query, RInfra-D submitted that the All-in-Hire charges paid by BMC/MMRDA to RInfra-D on the Street Lighting Systems are accounted in the Miscellaneous receipts category of Non-Tariff Income (NTI). Further, regarding submission of the details of actual recovery from theft of power in , RInfra-D submitted the requisite information vide its reply dated 11 February, 2013 as given below: Table 105: Actual recovery from theft of power for 13 till January 2013 as submitted by RInfra-D Category Recovery (Rs. Crore) LT-I Residential (Single phase) 6.18 LT-I Residential (Three phase) 1.28 LT-II (A) Commercial 8.67 LT-II (B) Commercial 0.17 LT-III Industrial 0.34 LT-IV Industrial 0.07 LT-V Advertisement & Hoardings 0.05 LT-VII (A) Temporary Supply Religious 0.01 LT-VII (B) Temporary Supply Others 0.48 Total The details of Non Tariff Income as submitted by RInfra-D are as given in the table below for Wire and Retail supply business: Table 106:Non-tariff Income as submitted by RInfra-D for Retail supply (Rs. Crore) Particulars Non-Tariff Income - Retail Supply Table 107: Non-tariff Income as submitted by RInfra-D for Wires Business (Rs. Crore) Particulars Total Non-Tariff Income Distribution Wires Page 147 of 302

148 Commission s Rulings The Commission has considered the income from land usage charges for EHV stations that is proposed to be paid by RInfra-T to RInfra-D as non-tariff income for its Wires business, as explained in Section 3.17 of this Order. RInfra-T will pay land usage charges for its receiving stations installed on the land owned by RInfra-D at Aarey, Versova and Ghodbunder EHV sub-stations The Commission has considered the rental income for Devidas lane office that is proposed to be paid by corporate business to RInfra-D as non-tariff income for its Supply business, as explained in Section 3.17 of this Order The Commission has accepted the submission of RInfra-D and approved the Nontariff Income, which is as under: Table 108:Non-tariff Income approved by the Commission for Retail supply (Rs. Crore) Particulars Non-Tariff Income - Retail Supply Table 109: Non-tariff Income approved by the Commission for Wires Business (Rs. Crore) Particulars Total Non-Tariff Income - Wires Income from Other Businesses RInfra-D s Submissions RInfra-D submitted that it considered recovery of costs presently being borne by it pertaining to certain common assets being used by RInfra-T. Such recovery would form part of the Income from Other Business RInfra-D submitted that its old Corporate Office building at Santacruz (E) is presently under construction. Accordingly, some of the Corporate Office employees (i.e. employees of other group companies of RInfra) are accommodated temporarily at RInfra-D s Devidas Lane Office till such time the building at Santacruz is Page 148 of 302

149 constructed and occupied. A Minute of Meeting has been signed in this regard, which gives out the details of area to be occupied by corporate business, including shared facilities and the rental to be charged by RInfra-D for the same. This revenue is arising on account of optimum utilisation of distribution business assets (Devidas Lane building is a regulated asset of Distribution business). Accordingly, as per the Regulations, only 1/3 rd of the rental should be included in the ARR and that too as Income from Other Business. For each year of the MYT Period, RInfra-D further submitted that such rental income has been projected as per the arrangement worked out between RInfra-D and the Corporate Business and same in given in the table below: Table 110: Income from Devidas Lane office as submitted by RInfra-D Particulars Area occupied by Corporate business (Office / Shared) 53,089 53,089 53,089 53,089 Rate (per sq. ft) Total Rental Income from Devidas Lane office (Rs Crore) Land Usage s: RInfra-D submitted that as a part of Mumbai System Strengthening schemes, RInfra-T had put up DPRs for EHV stations. Post approval from STU and MERC, schemes were taken up for commissioning. Conventional AIS EHV stations require over 40,000 sq mtr space. Such a large portion of land is not available within the City limits. Hence, RInfra-T innovatively based on the latest technology, vertically configured GIS EHV stations, which can be accommodated in just 10% of space than conventional AIS EHV stations require. RInfra-D submitted that the Commission in the proceedings of the Business Plan petition of RInfra-T in Case No. 159 of 2011 raised a query on the land leased / owned by RInfra-T. As part of the response vide letter dated 20 August, 2012 bearing reference no. RInfra/MERC/Business Plan/Transmission/003, RInfra-T submitted the requisite information. RInfra-T also submitted that an appropriate arrangement will be formalized with RInfra-D. Page 149 of 302

150 In view of above, RInfra-D submitted that it intends to enter into an arrangement by way of (Memorandum of Understanding) MoU, with RInfra-T, wherein the Land usage charges would be payable by RInfra-T to RInfra-D for the EHV Stations located on RInfra-D land. Similarly, Land usage charges would be payable by RInfra-D to RInfra-T for the installations located on RInfra-T land. Accordingly, the amounts receivable by RInfra-D from RInfra-T are considered under Income from other business, while the amounts payable by RInfra-D to RInfra-T for installations of RInfra-D on RInfra-T land have been considered in the Administration & General expenses, as part of the O&M for the second control period. RInfra-D submitted brief methodology as: a) The total plot area is considered after deducting setback area for each of the eight locations based on the documented Municipal approved copy. b) The plot occupied by RInfra-T and RInfra-D within these locations is determined based on their respective T&D installations on site. Land usage charge: c) The Commission in the ARR Order for for RInfra-D in Case No. 180 of 2011 has considered rent at the rate of 1% per month for the purpose of determining the rental income. d) RInfra-D accordingly has computed annual Land usage charge at 12% of the Land valuation in proportion to land occupancy of RInfra-T and RInfra-D. e) Value of the land is worked out based on present Ready Reckoner rate (in Rs. /sq. mtr) for each of the plots. The proportion of land occupancy by RInfra-T and RInfra-D is then multiplied by the rate to arrive at the land valuation. RInfra-D submitted that, RInfra-T wishes to submit that rates as applicable as per the Ready Reckoner on the date of entering into MoU shall be considered for the purpose of calculating the valuation. f) The NA tax and the Property tax paid for is considered to be the same for onwards and the same is allocated based on the proportion of Land occupancy between RInfra-T and RInfra-D. Page 150 of 302

151 RInfra-D submitted that Land usage charges are related to usage of the Distribution Wires assets and therefore these were considered in the income from other business, as per the MERC MYT Regulations, 2011: 80.1 Where the Distribution Licensee has engaged in any Other Business, an amount equal to one-third of the revenues from such Other Business after deduction of all direct and indirect costs attributed to such Other Business shall be deducted from the Aggregate Revenue Requirement in determining the wheeling charges of Distribution Wires Business of the Distribution Licensee: Further, RInfra-D submitted that it has let out its receiving station roof-tops to Reliance Communication Ltd. for installation of BTS towers and other equipment. The transaction is on arms length basis and has been done under an agreement dated 21 April, Accordingly, as per the provisions of Regulations, 1/3rd of rent received would be considered as Income and to reduce the ARR of distribution wires business (as this income pertains to utilisation of wires assets only, no adjustment is considered in retail business ARR). The rent agreement provides for an escalation in rental of 25% after five years. The rental income has been considered as per the annual accounts for The same is considered constant up to and escalated by 25% for as per the terms of the Agreement and 1/3rd is considered as Income from Other Business for the purpose of reducing the ARR of distribution business in each year of the Plan Period In addition to above, RInfra-D also submitted that it has entered into an arrangement with an advertising firm to put up advertisement kiosks on street light poles in Mira Bhayander area. The kiosks shall generate rental income for RInfra-D and shall also entail certain expenses of capital and maintenance nature. RInfra-D submitted that it has already intimated the Commission about the said arrangement vide letter dated 9 September, For , the net income to be reduced from wheeling ARR is considered as per the Petition of RInfra-D in Case No. 180 of 2011, and thereafter estimated. Page 151 of 302

152 The details of the Income from other business as submitted by RInfra-D during second Control Period of the MYT is as given in table below: Table 111: Income from other business as submitted by RInfra-D (Rs. Cr) Particulars Rental Income from Devidas Lane office Land Usage s (EHV Station) Income from Other Business - rental income from RCom Towers Income from Other Business - advertisement Kiosks Total (A) B 1/3rd of (A) considered as income from other business Commission s Rulings RInfra-D in the present Petition has proposed to account for the land usage charges received from the RInfra-T in lieu of utilisation of RInfra-D s land and rental income from Devidas lane office, as income from other business. The Commission opines that this income is recognised only to correctly account the costs involved in business operations of the respective licensees. Also it is important to reflect the true expenditure for each of the licensed business and also recover the same from the respective licensee s consumer. In the present case, the expense and income is occurring between the regulated businesses of the same parent company in the same State The Commission considering the above is not accepting the proposal of RInfra-D to treat this as income from other business and the same is approved as non-tariff income The Commission has accepted the submission of RInfra-D for other heads under income from other business and approved the Income from other business as under: Table 112: Income from other business approved by the Commission (Rs. Crore) Page 152 of 302

153 Particulars Income from other business Past Recovery of TPC-G The Commission approved the past recoveries of the TPC-G, while carrying out the truing up for 10 and 11, vide Order dated 15 February, 2012 in Case No. 105 of TPC-G filed a petition with the Commission under Case No.55 of 2012 on the grounds that the Commission did not give any specific directions to the distribution utilities for payment of such recovery and TPC-G was facing cash flow problems due to the past under recoveries. The quantum of the past recoveries sought by TPC- G was of the tune of Rs Crore RInfra-D has considered the above mentioned charges of Rs Crore payable by RInfra-D, as a cost in the present MYT petition, in The Commission in this Order has considered Rs Crore as approved in its Order dated5 June 2013 in Case No. 177 of 2011 in the matter of petition filed by TPC-G, for approval of Aggregate Revenue Requirement for and Multi Year Tariff petition for the second Control Period from to The Commission has also considered interest on FAC charges that is passed on to consumers of Rs 2.96 Crore, as FAC charged to the consumers includes this amount and since same is considered in the revenue side, hence, the Commission has also allowed Rs 2.96 Crore as an expense item in ARR Wire Availability and Supply Availability Wire Availability As regards Wires Availability, Regulation 84 of MERC MYT Regulations, 2011 specifies as follows: Page 153 of 302

154 84.1 The target Wires Availability for full recovery of Return on Equity Capital for Wires Business shall be as under: (a) Rural Areas 90 percent (b) Towns and cities 95 percent Provided that the Commission may stipulate a trajectory for achieving the target Availability for Wires Business of the Distribution Licensee as part of the Order on the Business Plan filed by the Distribution Licensee: Provided further that for every 1 percent under-achievement in Wires Availability, Rate of Return on Equity Capital shall be reduced by 0.1%: Provided further that for every 1 percent over-achievement in Wires Availability, Rate of Return on Equity Capital shall be increased by 0.1% Wires Availability shall be computed in accordance with the following formula: Wires Availability = (1- (SAIDI / 8760)) x 100 where Provided that the SAIDI shall be calculated in accordance with the definition specified in Maharashtra Electricity Regulatory Commission (Standards of Performance of Distribution Licensees, Period for Giving Supply and Determination of Compensation) Regulations, 2005, as amended from time to time Wires Availability shall be measured over the course of a year and shall be expressed in percentage terms RInfra-D in reply to data gaps, has submitted that its wires availability for last two year is 99.98%, which is shown as under S.No. Particulars Actuals Actuals a) SAIDI (in Hrs) b) Wires Availability (%) Page 154 of 302

155 As regards the target for Wires availability, the Commission has analysed the data submitted by RInfra-D, i.e., actuals for and from which it is observed that wires availability for RInfra-D is 99.98% for and Accordingly, the Commission has stipulated the trajectory of Wires Availability at 99.98% during the Control Period. Further, the reduction and increase in ROE shall be computed below/ above the stipulated target based on the under/over achievement vis-a-vis the set target of Wires Availability by RInfra-D Supply Availability As regards Supply availability, Regulation 97 of MERC MYT Regulations, 2011 specifies as follows: Supply Availability shall comprise of the following parameters in the proportion as mentioned below: (a) Base load Supply Availability 75 percent (b) Peak load Supply Availability 25 percent 97.2 Target Supply Availability for full recovery of Return on Equity Capital for Retail Supply of electricity is in the range of 85 percent to 95 percent, as may be determined by the Commission as part of the Order on the Business Plan filed by the Distribution Licensee: Provided that the Commission may stipulate a trajectory for achieving the target Supply Availability for Retail Supply of electricity as part of the Order on the Business Plan filed by the Distribution Licensee: Provided that for every 1 percent under-achievement in Supply Availability, rate of Return on Equity Capital shall be reduced by 0.1%. Provided that for every 1 percent over-achievement in Supply Availability, rate of Return on Equity Capital shall be increased by 0.1% Base load Supply Availability shall be computed in accordance with the following formula: = (Actual Contracted Base Load Supply in MW) (Base load in MW) Provided that the base load shall be calculated based on unrestricted demand of a Distribution Licensee for the retail supply of electricity. Page 155 of 302

156 97.4 Peak load Supply Availability shall be computed in accordance with the following formula: = (Actual Contracted Peak Load Supply in MW) (Peak load in MW) Provided that the peak load shall be calculated based on unrestricted demand of a Distribution Licensee for the retail supply of electricity RInfra-D in reply to data gaps, has submitted that its supply availability for last two year is 110% and 116% The Commission is of the view that in Mumbai Supply Area, load shedding is not done, and the Distribution Licensees have been allowed to purchase high cost power to avoid load shedding in extreme cases, and in such a scenario RInfra-D must have Supply Availability of 100% during the Control Period. Any incentive/disincentive for achieving Supply Availability above/below the targeted Supply Availability shall be considered at the time of Truing-up Aggregate Revenue Requirement Summary of ARR submitted by RInfra-D for to in its Petition is as under: Table 113: Aggregate Revenue Requirement submitted by RInfra-D- Retail Supply Business (Rs. Crore) S.No. Particulars Power Purchase Expenses Operation & Maintenance Expenses Depreciation Expenses a) Depreciation Interest on Long-term Loan Capital Interest on Working Capital and on consumer security deposits Income Tax Transmission s - intra-state Contribution to contingency reserves Total Revenue Expenditure Return on Equity Capital Aggregate Revenue Requirement Page 156 of 302

157 S.No. Particulars Less: Non Tariff Income Less: Income from Other Business Add: TPC-G Aggregate Revenue Requirement from Retail Tariff Table 114: Aggregate Revenue Requirement submitted by RInfra-D- Wires Business (Rs. Crore) S.No. Particulars Power Purchase Expenses 2 Operation & Maintenance Expenses Depreciation Expenses a) Depreciation Interest on Long-term Loan Capital Interest on Working Capital and on consumer security 5 deposits Income Tax Contribution to contingency reserves Total Revenue Expenditure Return on Equity Capital Aggregate Revenue Requirement Less: Non Tariff Income Less: Income from Other Business Aggregate Revenue Requirement from Wires Business Page 157 of 302

158 Table 115: Total Aggregate Revenue Requirement submitted by RInfra-D- (Retail Supply +Wires) Business (Rs. Crore) S.No. Particulars Power Purchase Expenses Operation & Maintenance Expenses Depreciation Expenses a) Depreciation Interest on Long-term Loan Capital Interest on Working Capital and on consumer 5 security deposits Provisioning for Bad & Doubtful Debts Other Expenses Income Tax Transmission s - intra-state Contribution to contingency reserves Total Revenue Expenditure Return on Equity Capital Aggregate Revenue Requirement Less: Non Tariff Income Less: Income from Other Business Add: TPC-G Aggregate Revenue Requirement from Retail and Wires Business Summary of ARR approved by the Commission for to in its Petition is as under: Table 116: Aggregate Revenue Requirement approved by the Commission- Retail Supply Business (Rs. Crore) S.No. Particulars Power Purchase Expenses Operation & Maintenance Expenses Depreciation Expenses a) Depreciation Interest on Long-term Loan Capital Interest on Working Capital and on consumer 5 security deposits Page 158 of 302

159 6 Income Tax Transmission s - intra-state Contribution to contingency reserves Total Revenue Expenditure Return on Equity Capital Aggregate Revenue Requirement Less: Non Tariff Income Less: Income from Other Business 14 Add:TPC-G Interest on FAC charges Aggregate Revenue Requirement from Retail Tariff Table 117: Aggregate Revenue Requirement approved by the Commission- Wires Business (Rs. Crore) S.No. Particulars Power Purchase Expenses 2 Operation & Maintenance Expenses Depreciation Expenses a) Depreciation Interest on Long-term Loan Capital Interest on Working Capital and on consumer 5 security deposits Income Tax Contribution to contingency reserves Total Revenue Expenditure Return on Equity Capital Aggregate Revenue Requirement Less: Non Tariff Income Less: Income from Other Business Aggregate Revenue Requirement from Wires Business Page 159 of 302

160 Table 118: Total Aggregate Revenue Requirement approved by the Commission- (Retail Supply +Wires) Business (Rs. Crore) S.No. Particulars Approved Approved Approved Approved 1 Power Purchase Expenses Operation & Maintenance Expenses Depreciation Expenses a) Depreciation Interest on Long-term Loan Capital Interest on Working Capital and on consumer 5 security deposits Provisioning for Bad & Doubtful Debts Other Expenses Income Tax Transmission s - intra-state Contribution to contingency reserves Total Revenue Expenditure Return on Equity Capital Aggregate Revenue Requirement Less: Non Tariff Income Less: Income from Other Business Add: TPC-G Add: Interest on FAC Aggregate Revenue Requirement from Retail and Wires Business Page 160 of 302

161 4. RECOVERY OF REGULATORY ASSET 4.1 Quantification of Regulatory Asset till RInfra-D submitted Regulatory Asset/Revenue Gap from till without carrying cost till which was as claimed in its Petition in Case No. 124 of 2012 (Final Truing up of and ) as Rs Crore. It included Rs Crore as already approved Revenue Gap by the Commission in its Order in Case No. 180 of 2011 dated 15 June Further, RInfra-D applied carrying cost on cumulative revenue gap till in accordance with the Hon ble ATE Judgment in RInfra-D Review Petition No.13 on Appeal No.202/203 of 2010 dated 2 January, The relevant extracts of the Judgment were submitted by RInfra-D as given below: 15. Accordingly, paragraphs 11.5 & 11.6 of the judgment dated may be amended to read as under: The utility is entitled to carrying cost on its claim of legitimate expenditure if the expenditure is: accepted but recovery is deferred e.g. interest on regulatory assets, claim not approved within a reasonable time, and disallowed by the State Commission but subsequently allowed by the Superior authority. Revenue gap as a result of allowance of legitimate expenditure in the true up The State Commission shall decide the claim of the appellant on the above principles 16. The Review Petition is allowed. The State Commission is directed to pass consequential order RInfra-D in this Petition submitted cumulative Regulatory Asset including carrying cost till as Rs Crore RInfra-D further submitted that the Hon ble ATE clarified that all legitimate expenditure, whether identified during truing-up process or allowed subsequently to the licensee by any higher authority or on account of deferment of recovery by the State Commission itself, should be eligible for carrying cost. Page 161 of 302

162 RInfra-D submitted that the cumulative revenue gap till including carrying cost, by considering the respective year State Bank Advance Rate (SBAR) as the cost of debt and the rate of return on equity capital as prevailing for the period from to , i.e., 16% for both Distribution Wires as well as Retail Supply business as per the Maharashtra Electricity Regulation Commission (Terms & Conditions of Tariff) Regulations, RInfra-D further submitted that since is over and the new MYT tariff would be applicable from onwards, would be the year when the recovery of Regulatory assets would commence and carrying cost needs to be worked out on different elements of Revenue Gap from the year of accrual of such gap up to the middle of RInfra-D submitted cumulative Revenue Gap with Carrying Cost accrued till as given in the table below: Table 119: Cumulative Revenue Gap with Carrying Cost till as submitted by RInfra-D (Rs. Crore) S.No. Particulars Revenue gap , Debt portion 70% 70% 70% 70% 70% 70% Equity Portion 30% 30% 30% 30% 30% 30% 2 Revenue Gap for as per order of MERC in Case No. 121 of Debt portion Equity Portion Carrying cost for Debt portion Interest rate for respective years 10.75% 11.50% 12.75% 13.00% 11.75% 14.75% Opening Balance , , Additions for the year Interest Closing Balance , , , Carrying cost for Equity portion ROE (%) for respective years 16% 16% 16% 16% 16% 16% Opening Balance Additions for the year Page 162 of 302

163 S.No. Particulars Interest Closing Balance , Total Revenue Gap/Regulatory asset with Carrying Cost , , , RInfra-D vide its letter reference no RInfra-D/ MERC/ MYT 13-16/ 025 dated 23 May 2013, submitted that Hon ble APTEL in its Judgment dated 20 May 2013 in Appeal No 85 of 2012 held that The third issue regarding non-consideration of assessed sale for the and is decided in favour of the Appellant. The State Commission shall consider the assessed energy from unauthorized uses of electricity which has been detected by the vigilance action as sale of electricity in computing the Distribution Loss RInfra-D further in the above mentioned letter estimated the total additional amount to be allowed as Rs Crore. 4.2 Commission s Rulings The Commission in its Order dated 4 April 2013 in Case 124 of 2012, has approved total Regulatory Asset till as Rs Crore and same has been considered for the purpose of this Petition by the Commission In accordance with Hon ble APTEL Judgment dated 20 May 2013 in Appeal no. 85 of 2012, regarding issue of allowance of efficiency gains on assessed sales also, the Commission has allowed additional sharing of efficiency gains of Rs Crore The Commission has not considered the proposal of RInfra-D for allowance of additional Return on Equity equivalent 16% return on 30% of the Regulatory Asset, as there is no provision in MERC Tariff Regulations, 2005 and MERC MYT Regulations, 2011 to allow such additional ROE. Hence, the Commission has allowed interest rate for computation of carrying cost equivalent to the interest rate allowed by the Commission for calculation of interest on working capital requirement in respective years in the Orders of the Commission. The cumulative Page 163 of 302

164 Regulatory Asset after including carrying cost approved by the Commission till is as under: Table 120: Cumulative Regulatory Asset with Carrying Cost till as approved by the Commission (Rs. Crore) Particulars Revenue gap , Debt portion 100% 100% 100% 100% 100% 100% Revenue Gap for as per order of MERC in Case No. 121 of * Debt portion Carrying cost for Debt portion Interest rate for respective years 10.75% 11.50% 12.75% 13.00% 11.75% 14.75% Opening Balance , , Additions for the year , Carrying Cost Closing Balance , , Total Regulatory asset with Carrying Cost , , Regulatory Asset Recovery Mechanism Proposed Recovery Mechanism RInfra-D submitted that in Order in Case No. 72 of 2010 dated 29 July, 2011, the Commission classified consumers into three groups for the purpose of determining the recovery of cumulative revenue gap/regulatory assets, due to the phenomenon of migration/changeover occurring as an outcome of the Supreme Court ruling allowing TPC-D to supply power in the common area of supply between RInfra-D and TPC-D and also the ruling of the Commission in the Order in Case No. 50 of 2009, detailing the operating procedures to be followed in case of changeover. RInfra- D proposed to apportion the Cumulative Regulatory Asset of Rs Crore till , between RInfra-D Own consumer and Changeover consumers based on ratio of Own sales and Changeover sales of RInfra-D for , as given in the table below: Table 121: Bifurcation of Regulatory Asset to Own and Changeover consumers as submitted by RInfra-D Page 164 of 302

165 Particulars Amount (in Rs. Cr) Opening Balance of recovery in 13 3, Own Sales 6, Change Over Sales 2, Revenue Gap (RInfra-D Own consumers) 2, Revenue Gap (RInfra-D Changeover consumers) 1, RInfra-D proposed the recovery of the Revenue Gap over the period to , i.e., over a period of six years from so as to prevent tariff shock to the consumers. RInfra-D submitted that since, the recovery was spread over 6 years; there will be further accumulation of interest (carrying cost) on the outstanding average balance of each year RInfra-D has estimated the carrying cost from onwards considering 70:30 debt: equity and weighted average cost of capital as 14.80% based on the rate of raising debt of 14.5% based on SBI Advance Rate (SBAR) and rate of return on equity invested as 15.5%. RInfra-D proposed that Regulatory Assets are recovered as a separate line item and not merged with retail tariff. The recovery towards Regulatory Assets including Carrying Cost for its Own Consumers as submitted by RInfra-D is given in the table below: Table 122: Regulatory Asset Recovery for Own Consumers as submitted by RInfra-D Particulars Carrying Cost rate 14.80% 14.80% 14.80% 14.80% 14.80% 14.80% 14.80% Opening Balance (Rs. Crore) 2, , , , , Recovery from opening balance (Rs Crore) Closing Balance (Rs. Crore) 2, , , , Carrying cost for the year (Rs. Crore) Total Recovery (Rs. Crore) Smoothened recovery Page 165 of 302

166 Particulars (Rs. Crore) RInfra-D Own sales (MU) Avg. per unit Recovery (Rs. / kwh) , , , , RInfra-D further submitted that for the estimation of sales from Changeover consumers it considered that a large group of consumers would convert to Group III (i.e. switchover to the other distribution licensee s network) due to effect of Order in Case No. 151 of RInfra-D also submitted that Regulatory Asset cannot be fixed assuming such a large scale conversion to Group III, when the same has not yet happened and if the same conversion to Group III is assumed, the sales from Changeover consumers would significantly decline and the per-unit Regulatory Asset would substantially increase RInfra-D further submitted that since the Regulatory Asset s would be published and come into effect immediately upon issue of MYT Order, RInfra-D would start charging the same to change-over consumers, even though actual Switchover may not have happened till then. RInfra-D has submitted that all sales Own or Migrated were considered for ex-ante determination of Regulatory Asset by RInfra-D. The recovery towards Regulatory Assets for Changeover consumers as submitted by RInfra-D is given in the table below: Table 123: Determination of Regulatory Asset for Changeover submitted by RInfra-D Particulars Carrying Cost rate 14.80% 14.80% 14.80% 14.80% 14.80% 14.80% 14.80% Opening Balance (Rs. 1, , , Crore) Recovery from opening balance (Rs. Crore) Closing Balance (Rs. 1, , Page 166 of 302

167 Crore) Carrying cost for the year (Rs. Crore) Total Recovery (Rs. Crore) Smoothened recovery (Rs. Crore) Total Migration Sales (MU) including Switchover Sales Avg. per unit Recovery (Rs. / kwh) , , , , RInfra-D further submitted that the actual charge applicable to a consumer category would be dependent on the K factor, which was determined by dividing the consumer category s approved ABR by the overall ACoS of RInfra-D for any given year RInfra-D proposed that during the recovery period if any consumer terminates its contract with RInfra-D, the outstanding un-recovered regulatory asset amount from such consumer shall be recovered in the following manner: Balance Recovery = ΣA * B i * C i (in Rs) A - Avg. monthly consumption for last 12 months (or available period if less than 12 months) (in units) B i - Balance recovery period (in months) for year i C i - specified for relevant category (in Rs/unit) for year i RInfra-D proposed that a) The outstanding Regulatory Asset liability would be adjusted with the Consumer Security Deposit maintained by consumer with RInfra-D as on date of termination of the contract. After adjustment of the same, the balance outstanding liability could be cleared by the outgoing consumer in one goes as indicated in the formula above. In such case, the specified Ci would be discounted for the future carrying cost included in the said charge. Page 167 of 302

168 b) If the consumer, however, opts for monthly payment of Regulatory Asset charge, the recovery would continue in the normal manner at the specified charge multiplied by month s consumption of such consumer. RInfra-D further proposed that the collection of charges levied on Changeover and Switchover consumers (who opt for future monthly payments) and the remittance of the same to RInfra-D would be the responsibility of the licensee supplying power to such consumer. RInfra-D also proposed that a separate Regulatory Asset recovery account would be maintained which shall maintain opening balance of Regulatory Asset plus interest, amount set off (recovered) during the year and the closing balances each year. If, however, for any reason, the amount remains un-recovered, the same shall remain identified with the premises for the purpose of recovery RInfra-D further submitted that any under-recovery or over-recovery each year, within the six-year period of recovery proposed, was to remain within the Regulatory Asset basket only and not passed on to the retail ARR. At the end of the six-year recovery period, however, if there remained any over or under-recovery vis-à-vis the approved Regulatory Assets, the same would be absorbed within RInfra-D s ARR Commission s Rulings The Commission is the opinion that the Regulatory Asset needs to be collected from the consumers connected to the RInfra-D network, i.e., retail supply consumers and Changeover consumers The Commission in its Order in Case 72 of 2010 has ruled that Regulatory Asset can be recovered from Group I and Group II consumers. The relevant extracts of the Commission s ruling in Case No. 72 of 2010 is as given below: h) Given this background, the applicability of the charges to recover the regulatory assets for the above Groups and the rationale for the same are discussed below: Page 168 of 302

169 i) Group I: will have to pay the charges for recovery of regulatory assets, since they continue to be consumers of RInfra-D, both for Wires as well as Supply. ii) Group II: will have to pay the charges for recovery of regulatory assets, since they continue to be consumers of RInfra-D for Wires iii) Group III: will not have to pay the charges for recovery of regulatory assets, since they are no longer consumers of RInfra-D, either for Wires or Supply, and charges can be levied by a licensee only on a 'consumer'. Accordingly, RInfra-D should propose recovery of the regulatory asset from Group I and Group II consumers, in the subsequent years Hence, the Commission has approved recovery of Regulatory Asset from Group I and Group II consumer, which are connected to the RInfra-D network and sourcing power either from RInfra-D or TPC-D The Commission notes that RInfra-D has not submitted any rationale for apportionment of the cumulative revenue gap between RInfra-D own consumers and changeover consumers based on ratio of sales from RInfra-D and changeover consumers of Also, the Regulatory Asset Liability needs to be shared equally by all the consumers of RInfra-D network (Changeover and Direct consumers). Hence, the Commission is also of the opinion that Regulatory Asset needs to be borne equally by Direct Consumers and Changeover consumers The Commission has accepted the interest rate of 14.5% as cost of debt as submitted RInfra-D for the purpose of calculating the carrying cost for the second Control Period. However, the Commission has considered the Regulatory Asset would be funded entirely by debt component, as explained earlier in this section The Commission has approved Regulatory Asset to be recovered from Retail consumer and Changeover consumers of RInfra-D as under: Table 124: Regulatory Asset approved by the Commission (Rs Crore) Particulars Carrying Cost rate 14.50% 14.50% 14.50% 14.50% 14.50% 14.50% 14.50% Opening Balance 3, , , , , , Recovery from opening balance Page 169 of 302

170 Closing Balance 3, , , , , Carrying cost for the year Total Recovery , , Smoothened recovery RInfra-D Own sales and Changeover Sales 10,141 10,664 11,229 Recovery charge per unit The Commission is also of the opinion that Regulatory Asset shall be recovered from the consumers on a proportionate basis, which is as under: Table 125: Regulatory Asset approved by the Commission (Rs/kWh) Particulars LT LT I - Below Poverty Line LT -I Residential and above LT II (a) kw LT II (b) -> 20 to 50 kw LT II (c) - above 50 kw LT III - LT Industrial upto 20 kw LT IV - LT Industrial above 20 kw LT-V : LT- Advertisements and Hoardings LT VI: LT -Street Lights LT-VII (A): LT -Temporary Supply Religious LT-VII (B): LT -Temporary Supply Others LT VIII: LT - Crematorium & Burial Grounds LT IX: LT -Agriculture LT X- Public Services HT HT I: HT-Industry HTII : HT- Commercial HT III: HT-Group Housing Society HTIV : HT - Temporary Supply Page 170 of 302

171 Particulars HT - Railway HT Public Services The Commission has approved RAC as a separate charge, as this liability pertaining to the past period needs to be borne by consumers who are connected to the RInfra- D distribution network, i.e., the direct retail sale consumers and changeover consumers. For levying the RAC to the changeover consumers, it should be a separate charge and not merged with the retail tariff The Commission is also the opinion that RAC as a separate line item in Tariff is also required to enable RInfra-D to maintain a separate regulatory asset recovery account and RInfra-D shall maintain the opening balance of Regulatory Asset allowed including carrying cost for a year, Recovered Regulatory Asset and closing balance of Regulatory Asset for a year. Hence, the Commission has approved RAC as a separate charge and directs RInfra-D to maintain a separate account for Regulatory Asset recovery As regards to creation of a liability on a consumer, if consumers decides to terminate its contract, the Commission is also of the opinion that a distribution licensee should be considered to be operating on a Going concern basis, which is one of the fundamental assumptions in accounting on the basis of which financial statements are prepared. The Commission also notes that there would be new consumers being added to the consumers who will also be paying Regulatory Asset. Hence, the consumers will be paying Regulatory Asset till they are connected to the RInfra-D distribution network as Direct or Changeover consumers and the day consumer terminates its contract, the recovery of RAC from such consumers shall stop. Further, the Regulatory Asset approved by the Commission shall be levied on energy consumption of the direct consumers and changeover consumers connected to the RInfra-D network on a monthly basis and not after termination of contract with RInfra-D As regards to the proposal of RInfra-D that outstanding Regulatory Asset liability would be adjusted with the Consumer Security Deposit maintained by consumer Page 171 of 302

172 with RInfra-D as on date of termination of the contract, the Commission has clarified that the Regulatory Asset charge cannot be recovered after termination of contract with RInfra-D, hence cumulative Regulatory Liability on such consumers shall not be applicable. Page 172 of 302

173 5. TARIFF PHILOSOPHY 5.1 Wheeling s and Wheeling Losses RInfra-D submission on Wheeling s RInfra-D submitted that the Commission vide its Order in Case No. 121 of 2008 dated 22 July 2009 has last determined the wheeling charges to be paid by consumers who are connected to the RInfra-D s network, which are as under: Table 126: Existing Wheeling s as submitted by RInfra-D Particulars HT LT Wheeling s (Rs per kwh) RInfra-D further submitted that for the purpose of estimation of income from wheeling charges, it has not considered any revision in wheeling charges for For the remaining years of the second Control Period, i.e., from to , RInfra-D has proposed to recover its Wires revenue requirement from consumer connected to the RInfra-D network including RInfra-D Own consumers and Changeover consumers through wheeling charges RInfra-D has proposed that the recovery would be in the proportion of energy sales for the respective years as projected in the MYT Petition. The Wheeling s for the Second Control Period from to as submitted by RInfra- D is as given in the table below: Table 127: Wheeling s as proposed by RInfra-D for the remaining part of Second Control Period Particulars Determination of Wheeling s Revenue Requirement from Wire Business (Rs Crore) , , , , Total Sales (Own + Migration) (MU) 9, , , , Wheeling s per unit (Rs/kWh) Distribution of s between HT and LT Network GFA attributable to HT network (Rs Crore) 55% 55% 55% 55% GFA attributable to LT network (Rs Crore) 45% 45% 45% 45% recoverable for HT Network (Rs Crore) recoverable for LT Network(Rs Crore) Page 173 of 302

174 Particulars Distribution of s between HT and LT consumers HT Sales (MU) 1, LT Sales (MU) 8, , , , recoverable for HT consumers (Rs Crore) recoverable for LT consumers (Rs Crore) 1, , , , Wheeling s applicable/proposed HT Category (Rs/kWh) LT Category (Rs/kWh) RInfra-D has submitted the wheeling losses of 1.94% for HT Category and 9% for LT Category Commission s Rulings The Commission has accepted the methodology suggested by RInfra-D and approved wheeling charges are as under Table 128: Wheeling s approved by the Commission for second Control Period (Rs Crore) Particulars Existing Revised Revised Revised Revenue Requirement from Wire Business 1, , , , Total Sales (Own + Migration) (MU) 10, , , Distribution of s between HT and LT Network GFA attributable to HT network 55% 55% 55% GFA attributable to LT network 45% 45% 45% recoverable for HT Network (Rs Crore) recoverable for LT Network(Rs Crore) Distribution of s between HT and LT consumers Page 174 of 302

175 Particulars HT Sales (MU) 1, ,312 1,429 1,576 LT Sales (MU) 8, ,829 9,236 9,653 recoverable for HT Network (Rs Crore) recoverable for LT Network(Rs Crore) 1, , , Wheeling s HT (Rs/ kwh) LT (Rs/ kwh) Revenue From Wheeling s of Changeover Consumers HT Sales (MU) LT Sales (MU) Recovered from HT Consumers Recovered from LT consumers Total Revenue from Wheeling Recovered (Rs Crore) from Changeover Consumers The Commission has approved the wheeling loss of 1.94% for HT Category and 9% for LT Category Further, the Commission rules that the applicable wheeling charges will be shown separately in the bills of all consumers, irrespective of whether they are own consumers or changeover consumers, so that the consumers are made aware of the tariffs payable for creation of the distribution infrastructure. 5.2 Cross Subsidy Surcharge RInfra-D s Submissions RInfra-D submitted the following formula for estimation of Cross Subsidy Surcharge with detailed explanations in its MYT Petition as given below: CSS = T [C / (1-L %) + D] Where, CSS is the cross subsidy surcharge for the relevant year Page 175 of 302

176 T is the Tariff payable by the relevant category of consumers for the relevant year; C is the Weighted average cost of power purchase of top 5% at the margin excluding liquid fuel based generation and renewable power for the relevant year D is the Wheeling charge applicable for the relevant year L is the system Losses for the applicable voltage level, expressed as a percentage. Further, T was the proposed Tariff for the respective years from the period to C considered for the different years of the MYT Petition is given in the table below: Table 129: Marginal Power Purchase Cost per unit for CSS calculations as submitted by RInfra-D (Rs. /kwh) Particulars Marginal Power Purchase Cost per unit L referred to the System Losses for the applicable voltage level, expressed as a percentage. The system losses were considered in the Cross Subsidy Surcharge formula were the same as considered in the determination of Energy Balance in MYT Petition as given in table below: Page 176 of 302

177 Table 130: System Losses for CSS calculations as submitted by RInfra-D Particulars Transmission Losses 4.85% 4.85% 4.85% 4.85% Distribution Losses : HT network 1.94% 1.94% 1.94% 1.94% Distribution Losses : LT network 9.00% 9.00% 9.00% 9.00% D referred to the Wheeling s for usage of RInfra-D network. For , it was retained at the present level, while from , the proposed wheeling charges were considered as given in the table below: Table 131: Wheeling s for CSS calculations as submitted by RInfra-D Particulars Wheeling s per unit HT Wheeling s per unit LT RInfra-D submitted that for , the Cross Subsidy Surcharge recovery per unit (Rs. / kwh) were retained as applicable at present, based on the Order in Case No. 43 of 2010 dated 9 September, From to , the Cross Subsidy Surcharge per unit (Rs. / kwh) proposed for each year to be recovered from the Changeover Consumers as given in the table below: Table 132: CSS (Rs. /kwh) for the Second Control Period as submitted by RInfra-D Particulars Existing LT LT I - Below Poverty Line LT -I Residential (Single Phase) and above LT -I Residential Three phase Page 177 of 302

178 Particulars Existing and above LT II (a) kw LT II (b) - >20 to 50 kw LT II (c) - above 50 kw LT III - LT Industrial upto 20 kw LT IV - LT Industrial above 20 kw LT-V : LT- Advertisements and Hoardings LT VI: LT -Street Lights LT-VII (A): LT -Temporary Supply Religious LT-VII (B): LT -Temporary Supply Others LT VIII: LT - Crematorium & Burial Grounds LT IX: LT -Agriculture HT HT I: HT-Industry HTII : HT- Commercial HT III: HT-Group Housing Society HTIV : HT - Temporary Supply HT Railway Commission s Rulings As per Section 61 of the Act, tariff should progressively reflect the cost of supply and reduce cross subsidies in the manner specified by the Commission Also, second proviso to Section 42 (2) stipulates as under: Provided further that such surcharge shall be utilised to meet the requirements of current level of cross subsidy within area of supply of the distribution licensee Emphasis added Page 178 of 302

179 It is clear from the above extracts the CSS needs to be determined for meeting current level of cross subsidy of a distribution licensee Further, Regulation 13.8 of MERC (Distribution Open Access) Regulations, 2005 is reproduced below: The Commission shall, based on the approved current level of cross subsidy, stipulate the cross subsidy surcharge for each approved Tariff category and/or subcategory and/or Tariff slab, of the Distribution Licensee. Emphasis added Hence, the above mentioned extracts also emphasise on the current level of cross subsidy as a basis of determination of CSS In light of the above stated Regulation, the Commission has proceeded with the computation of CSS for RInfra-D based on the approved cost and tariffs determined in this Order, for respective years of the second Control Period With regards to the objections raised by consumers and other stakeholders in the Public consultation process, on the proposal of RInfra-D to increase the CSS, the Commission is of the view the CSS needs to reflect the current level of cost and tariff and formulae to be adopted should be the formulae as provided in the Tariff Philosophy. Since, there is change in marginal cost of power and the Average Billing Rate of RInfra-D, the same needs to be considered for the CSS computation The Commission observed that there is a variance in formulae is in respect of grossing up of the component C, wherein, RInfra-D has adopted C /(1-L/100) instead of C *(1+L/100) specified in the formulae of CSS in Tariff Policy. The Commission has computed the CSS as per formulae provided in the Tariff Policy The Commission opines that the CSS computation needs to be undertaken only as per the approved values of various components of CSS formulae, which are as under: Computation of C Computation of C for RInfra-D for the period from to is based on the power purchase quantum and power purchase rate approved in this Order for purchase from different sources, as elaborated in Section 3 of this Order and is given in the table below:- Page 179 of 302

180 Table 133: Marginal Cost of Power Purchase by RInfra-D approved by the Commission (Rs/kWh) Particulars Marginal Power Purchase Cost per unit Average Billing Rate (ABR) The category-wise ABR for the period from to have been considered as approved by the Commission for the retail consumers of RInfra-D and as elaborated later in this section. System Loss L The system loss for RInfra-D comprises the Wheeling Loss and Transmission Loss approved by the Commission while approving the Energy Balance for RInfra-D for the period from to , as elaborated in Section 3 of this Order The computation of System Loss L for the period from to is given in the Table below: Table 134: System Losses for CSS calculations approved by the Commission (%) Particulars Intra-State Transmission Losses 4.85% 4.85% 4.85% Distribution Losses : HT network 1.94% 1.94% 1.94% Distribution Losses : LT network 9.00% 9.00% 9.00% Wheeling s D Page 180 of 302

181 D referred to the Wheeling s for usage of RInfra-D network. For , it is retained at the present level, while from to , the proposed wheeling charges were considered as given in the table below: Table 135: Wheeling s for CSS calculations as approved by the Commission (Rs/kWh) Particulars Wheeling s per unit HT Wheeling s per unit LT Approved Category wise Cross Subsidy Surcharge (CSS) For , the Cross Subsidy Surcharge recoveries per unit (Rs. / kwh) were calculated as per applicable rates in , based on the Order in Case No. 43 of 2010 dated 9 September, From to , the Cross Subsidy Surcharge per unit (Rs. / kwh) approved for each year to be recovered from the Changeover Consumers as given in the table below: Table 136: Approved CSS for (Rs/kWh) Particulars T C C*(1+L%) W CSS Rs/kWh Rs/kWh Rs/kWh Rs/kWh Rs/kWh LT Category LT I - Below Poverty Line LT -I Residential and above LT II (a) kw LT II (b) - >20 to 50 kw LT II (c) - above 50 kw Page 181 of 302

182 Particulars T C C*(1+L%) W CSS Rs/kWh Rs/kWh Rs/kWh Rs/kWh Rs/kWh LT III - LT Industrial upto 20 kw LT IV - LT Industrial above 20 kw LT-V : LT- Advertisements and Hoardings LT VI: LT -Street Lights LT-VII (A): LT -Temporary Supply Religious LT-VII (B): LT -Temporary Supply Others LT VIII: LT - Crematorium & Burial Grounds LT IX: LT -Agriculture HT Category HT I: HT-Industry HTII : HT- Commercial HT III: HT-Group Housing Society HTIV : HT - Temporary Supply HT - Railway (New Category) Note: a) CSS for LT- X public services shall be equivalent to CSS determined for LT-II-A Non-domestic or Commercial (0-20 kw) b) CSS for HT-VI public services shall be equivalent to CSS determined for HT-V Railways (0-20 kw) Table 137: Approved CSS for (Rs/kWh) Particulars T C C*(1+L%) W CSS Rs/kWh Rs/kWh Rs/kWh Rs/kWh Rs/kWh LT Category LT I - Below Poverty Line LT -I Residential Page 182 of 302

183 Particulars T C C*(1+L%) W CSS Rs/kWh Rs/kWh Rs/kWh Rs/kWh Rs/kWh and above LT II (a) kw LT II (b) - >20 to 50 kw LT II (c) - above 50 kw LT III - LT Industrial upto 20 kw LT IV - LT Industrial above 20 kw LT-V : LT- Advertisements and Hoardings LT VI: LT -Street Lights LT-VII (A): LT -Temporary Supply Religious LT-VII (B): LT -Temporary Supply Others LT VIII: LT - Crematorium & Burial Grounds LT IX: LT -Agriculture HT Category HT I: HT-Industry HTII : HT- Commercial HT III: HT-Group Housing Society HTIV : HT - Temporary Supply HT - Railway (New Category) Note: a) CSS for LT- X public services shall be equivalent to CSS determined for LT-II-A Non-domestic or Commercial (0-20 kw) b) CSS for HT-VI public services shall be equivalent to CSS determined for HT-V Railways (0-20 kw) Table 138: Approved CSS for (Rs/kWh) Particulars T C C*(1+L%) W CSS Page 183 of 302

184 Rs/kWh Rs/kWh Rs/kWh Rs/kWh Rs/kWh LT Category LT I - Below Poverty Line LT -I Residential and above LT II (a) kw LT II (b) kw LT II (c) - above 50 kw LT III - LT Industrial upto 20 kw LT IV - LT Industrial above 20 kw LT-V : LT- Advertisements and Hoardings LT VI: LT -Street Lights LT-VII (A): LT -Temporary Supply Religious LT-VII (B): LT -Temporary Supply Others LT VIII: LT - Crematorium & Burial Grounds LT IX: LT -Agriculture HT Category HT I: HT-Industry HTII : HT- Commercial HT III: HT-Group Housing Society HTIV : HT - Temporary Supply HT - Railway (New Category) Note: a) CSS for LT- X public services shall be equivalent to CSS determined for LT-II-A Non-domestic or Commercial (0-20 kw) Page 184 of 302

185 b) CSS for HT-VI public services shall be equivalent to CSS determined for HT-V Railways (0-20 kw) 5.3 Revenue Gap and Revenue requirement from retail tariff Revenue Gap at existing tariff RInfra-D has not proposed any change in tariff for the period For , RInfra-D has considered revenue for the period April 2012 to September 2012 as per actuals and the revenue for the period October 2012 to March 2012 has been estimated based on the existing tariff applicable and revised FAC which is based on the FAC applicable for the month of October RInfra-D has proposed that the revenue gap of may be recovered from Tariff in the year The following table provides the Revenue gap for as submitted by RInfra-D: Table 139: Revenue Gap for as submitted by RInfra-D (Rs Crore) Particulars 13 ARR Retail Business ARR Wires Business Total Less Income from Wheeling s Less Income from CSS ARR (net) Revenue from Sale of Power Revenue Gap/ (Surplus) Commission s Rulings The Commission has considered the computed the revised ARR of , as discussed in Section 3 of this Order. The Commission has approved the provisional revenue of Rs Crore for and approved the revenue Gap at existing tariff as under: Page 185 of 302

186 Table 140: Revenue Gap for approved by the Commission (Rs Crore) Particulars 13 ARR Retail Business ARR Wires Business Total Less Income from existing Wheeling s Less Income from existing CSS 98.7 ARR (net) requirement Revenue from Sale of Power at existing tariff Revenue Gap/ (Surplus) Revenue requirement to be recovered from Revised Tariffs RInfra-D has submitted that recovery of wheeling charges and cross subsidy surcharge from changeover consumers shall reduce the net revenue requirement to be recovered from the Retail Tariff RInfra-D has considered the existing tariffs as at the end of after merging the presently applicable FAC with the energy charges. The same tariff has been considered by RInfra-D to compute revenue from Existing tariff for to RInfra-D has estimated revenue from existing tariffs for the rest of the control period (from to 15-16) which is as under: Table 141: Net Revenue Requirement for the second Control Period from RInfra-D Consumers as submitted by RInfra-D (Rs Crore) Particulars ARR Retail Business ARR Wires Business Total Less Income from Wheeling s Less Income from CSS ARR Revenue Gap of ARR (net) Revenue from Sale of Power Revenue Gap/ (Surplus) (72.00) (380.52) (287.78) Average Cost of Supply (Rs/kWh) Page 186 of 302

187 5.3.4 Commission s Rulings The Commission noted that RInfra-D has computed the revenue from CSS and wheeling charges based on its revised proposal, while calculating the Revenue at the existing tariff The Commission is of the view that for computing revenue for existing retail tariff, CSS and wheeling charges for , the existing prevailing applicable rates at the end of , shall be considered For and , the Commission is of the view that for computing revenue for existing retail tariff, CSS and wheeling charges, the revised tariffs, CSS and wheeling charges of and , has been considered, which are approved later in this section Revenue Gap at existing tariffs for the rest of the Control Period approved by the Commission is as under: Table 142: Revenue Gap for the second Control Period at existing tariff approved by the Commission (Rs Crore) Particulars ARR Retail Business ARR Wires Business Total ARR Revenue Gap of Less Income from existing Wheeling s Less Income from existing CSS ARR (net) Revenue from Sale of Power at existing tariff Revenue Gap/ (Surplus) ( ) (375.30) Average Cost of Supply (Rs/kWh) The Commission further observes that for CSS, wheeling charges and retail tariff are inter-related. Also, revenue from revised CSS and wheeling charges would have to be factored in to ascertain revenue requirement from the retail tariff The Commission has computed the revenue from approved revised CSS and wheeling charges as discussed earlier in this section to ascertain revenue requirement from retail tariff. Page 187 of 302

188 The Commission has further normalised adjustment of surplus in order to avoid tariff shock to the consumers and considered holding cost at interest rate of 14.5% similar to carrying cost allowed to RInfra-D for recovery of its Regulatory Asset Net revenue requirement and normalised recovery for the second Control period and normalised recovery approved by the Commission is as under Table 143: Net Revenue Requirement and normalised recovery for the second Control Period at existing tariff approved by the Commission (Rs Crore) Particulars ARR Retail Business ARR Wires Business Total Less Income from Revised Wheeling s Less Income from Revised CSS Regulatory asset recovery ARR (net) requirement from Retail Tariff Revenue from Sale of Power at existing tariff Revenue Gap/ (Surplus) (705.41) ( ) Average Tariff Increase /( Decrease) -13% -22% 1.04% Average Tariff Increase /( Decrease) (equalised) (570.04) (570.04) (570.04) Carrying cost (19.63) (69.64) Normalised Tariff Increase /( Decrease) (589.67) (639.67) (570.04) Normalised Tariff Increase (%) -11% -13% -13% Adjusted Revenue Requirement from Retail Tariff Adjusted Average Cost of Supply (Rs/kWh) Tariff Philosophy RInfra-D has proposed the following principles while making the Tariff proposal for the second control period as under: Rationalization of Fixed charges across consumer categories so that progressively a larger component of fixed cost is recovered through fixed charges Page 188 of 302

189 To reduce the cross-subsidy between the consumer categories and rationalising tariffs in a manner reflecting cost to serve the consumer category. Staggered change in Tariffs across consumer categories to provide tariff relief to consumers whose tariffs are presently much higher than cost of supply and are thus cross subsidising other consumer categories to a large extent. Achieve a near parity with the tariffs of cross-subsidising consumer categories with the competing distribution licensee so as to prevent loss of cross-subsidy and protect interest of low end consumers. Minimize the impact of tariff on the subsidized consumers in the Residential category Propose tariffs to categories which are presently not included in the tariff schedule, but are likely to come up in MYT period A. Fixed and Demand s RInfra-D submitted that the Tariff currently applicable for RInfra-D consumers was is as per Order 121 of 2008 dated 15 June, 2009 and there has been no revision in fixed charges since last the 4 years. RInfra-D requested that since the recovery of fixed charges/ Demand charges does not vary with consumption, adequate recovery of fixed/demand charges is important to any utility since they provide revenue stability. Further, RInfra-D submitted that majority of the costs of RInfra- D as provided in the ARR are fixed in nature except for the variable portion of power purchase cost Based on above principle, RInfra-D has proposed an increase in fixed charges and demand charges, which are as under: Table 144: Fixed s as submitted by RInfra-D (Rs/ Consumer/ Month) Particulars Existing Proposed LT LT I - Below Poverty Line 3 5 LT -I Residential (Single Phase) Page 189 of 302

190 Particulars Existing Proposed and above LT -I Residential Three phase and above LT II (a) kw LT II (b) - >20-50 kw - - LT II (c) - above 50 kw - - LT III - LT Industrial upto 20 kw LT IV - LT Industrial above 20 kw - - LT-V : LT- Advertisements and Hoardings LT VI: LT -Street Lights - - LT-VII (A): LT -Temporary Supply Religious LT-VII (B): LT -Temporary Supply Others LT VIII: LT - Crematorium & Burial Grounds LT IX: LT -Agriculture - - HT HT I: HT-Industry - - HTII : HT- Commercial - - HT III: HT-Group Housing Society - - HTIV : HT - Temporary Supply HT - Railway (New Category) - - Table 145: Demand s as submitted by RInfra-D (Rs/ kva/ Month) Particulars Existing Proposed LT LT I - Below Poverty Line - - LT -I Residential (Single Phase) and above - - Page 190 of 302

191 Particulars Existing Proposed LT -I Residential Three phase and above - - LT II (a) kw - - LT II (b) - >20-50 kw LT II (c) - above 50 kw LT III - LT Industrial upto 20 kw - - LT IV - LT Industrial above 20 kw LT-V : LT- Advertisements and Hoardings - - LT VI: LT -Street Lights LT-VII (A): LT -Temporary Supply Religious - - LT-VII (B): LT -Temporary Supply Others - - LT VIII: LT - Crematorium & Burial Grounds - - LT IX: LT -Agriculture HT HT I: HT-Industry HTII : HT- Commercial HT III: HT-Group Housing Society HTIV : HT - Temporary Supply - - HT - Railway (New Category) B. Billing demand RInfra-D proposed that billing demand definition for the LT consumer categories should be similar to the billing demand definition for HT categories and proposed that the following change in billing demand definition: Billing Demand (for LT categories): Monthly Billing Demand will be the higher of the following: a) Actual Maximum Demand recorded in the month during 0600 hours to 2200 hours Page 191 of 302

192 b) 75% of the highest billing demand recorded during preceding eleven months subject to limit of contract demand. c) 50% of the Contract Demand Commission s Ruling The Commission has analysed RInfra-D s submissions in this context. The Commission has consciously defined the Billing Demand for such consumers as under: Billing Demand (for LT categories): Monthly Billing Demand will be the higher of the following: a) 65% of the actual Maximum Demand recorded in the month during 0600 hours to 2200 hours. b) 40% of the Contract Demand The rationale behind stipulating the Billing Demand as 65% of the actual Maximum Demand or 40% of the Contract Demand was that consumers in this category are smaller consumers and would typically not be able to assess their Demand very accurately, and should not be subjected to very high demand charges because of their inability to assess their Contract Demand accurately Hence, even if the consumer s actual Maximum Demand is equal to 100% of the Contract Demand, then such consumer is required to pay Demand s equivalent to 65% of the Contract Demand. Page 192 of 302

193 C. Energy s RInfra-D proposed following reduction in cross subsidy levels for tariff design: Particulars ACoS LT LT I - Below Poverty Line 13.20% 16.61% 17.25% 17.61% LT -I Residential (Single Phase) % 47.21% 49.52% 51.11% % 94.18% 99.22% 99.98% % % % % 501 and above % % % % LT -I Residential Three phase % 49.00% 51.31% 52.76% % 89.49% 93.95% 94.50% % % % % 501 and above % % % % LT II (a) kw % % % % LT II (b) kw % % % % LT II (c) - above 50 kw % % % % LT III - LT Industrial upto 20 kw % % % % LT IV - LT Industrial above 20 kw % % % % LT-V : LT- Advertisements and Hoardings % % % % LT VI: LT -Street Lights % % % % LT-VII (A): LT -Temporary Supply Religious % % % % LT-VII (B): LT -Temporary Supply Others % % % % LT VIII: LT - Crematorium & Burial Grounds 58.10% 59.19% 62.28% 62.84% LT IX: LT -Agriculture 12.12% 12.36% 13.01% 13.16% HT HT I: HT-Industry % % % % Page 193 of 302

194 Particulars HTII : HT- Commercial % % % % HT III: HT-Group Housing Society 82.41% 85.63% 87.94% 90.55% HTIV : HT - Temporary Supply % % % % HT - Railway (New Category) 0.00% 71.63% 75.35% 75.95% RInfra-D proposed following energy charges to be recovered from retail consumers: Particulars LT LT I - Below Poverty Line LT -I Residential (Single Phase) and above LT -I Residential Three phase and above LT II (a) kw Existing Proposed Proposed Proposed LT II (b) - >20-50 kw LT II (c) - above 50 kw LT III - LT Industrial upto Page 194 of 302

195 Particulars Existing Proposed Proposed Proposed kw LT IV - LT Industrial above 20 kw LT-V : LT- Advertisements and Hoardings LT VI: LT -Street Lights LT-VII (A): LT -Temporary Supply Religious LT-VII (B): LT -Temporary Supply Others LT VIII: LT - Crematorium & Burial Grounds LT IX: LT -Agriculture Total LT HT HT I: HT-Industry HTII : HT- Commercial HT III: HT-Group Housing Society HTIV : HT - Temporary Supply HT - Railway (New Category) D. Time of Day Tariffs The Time of Day (ToD) tariffs are currently applicable compulsorily to HT I and HT II categories, LT II (B) and (C) and LT IV category consumers having TOD meters, as well as optionally available to LT II (A) and LT III category consumers, who have TOD meters The TOD tariffs are available for five time slots, viz., (a) 2200 to 0600 hours, (b) 0600 to 0900 hours, (c) 0900 to 1200 hours, (d) 1200 to 1800 hours, and (e) 1800 to 2200 hours. Page 195 of 302

196 RInfra-D has proposed increase in the rebate applicable during off peak consumption (during 2200 Hrs to 0600 Hrs) to encourage shifting of load from peak to off peak hours In its Tariff proposal, RInfra-D has proposed an increase the TOD rebate applicable for all consumer categories for consumption during the off peak hours ( hrs) to Rs 2.50 per kwh. E. Creation of new category for Railways RInfra-D had submitted that there are a number of projects being envisaged for Public Transportation, in furtherance of the existing suburban Rail transport system such as Metro Rail, Mono Rail and some of which are under construction in RInfra- D Distribution area and are being provided supply at Temporary Tariff as applicable for construction. RInfra-D in its MYT Petition for to has proposed creation of new category Railways and proposes following tariff to be charged to this category Particulars HT Railways: Applicable to electricity supply at 100 kv/33 kv/ 22 kv/11 kv/6.6 kv to Railways including Metro and Monorail. Demand s (Rs /kva/month) Energy s (Rs per kwh) F. Clarification on Distribution Franchising RInfra-D submitted that in Tariff Order dated June 15, 2009, in case 121 of 2008, the Commission has specified as under The Consumers belonging to HT II requiring a single point supply for the purpose of downstream consumption by separately identifiable entities will have to either operate through a franchisee route or such entities will have to take individual connections under relevant category. These downstream entities will pay appropriate tariff as applicable as per RInfra Tariff Schedule i.e. LT II. ( Emphasis added). Page 196 of 302

197 RInfra-D further submitted that from the above Order, it is clear that if a few consumers falling under HT II category collectively avail franchise route and become downstream consumers of a single point franchisee, then the tariff applicable for such consumers will be LT II RInfra-D has requested the Commission to clarify on the principles to be adopted for deciding bulk supply tariff (BST) for the franchise where the mix load exists The Commission is of the opinion that BST for supply to the Distribution Franchisee at single point for distribution to mixed loads within the franchised area will have to reflect its own consumption mix. Also, the Commission cannot determine BST for all the possible combinations of consumer mix Hence, it is clarified that in respect of Distribution Franchisees, the licensees are free to prepare separate terms and conditions for each Franchisee Agreement, on a case by case basis. It may be noted that in either case, the retail consumers cannot be charged a tariff higher or lower than that approved by the Commission for the same category of consumers for that licensee, and also, the responsibility of ensuring conformance with Standards of Performance, safety and all other relevant Regulations rests with the respective Licensees. Page 197 of 302

198 5.5 Commission s Tariff Philosophy Tariff Design In this Order, the Commission has decreased the tariffs in general in order to match the approved revenue requirement, as detailed earlier in this, while at the same time, reducing the cross-subsidy prevailing between consumer categories, over the levels approved by the Commission in the previous Tariff Order. It may be noted that the tariffs are being revised after more than four years, which has resulted in accumulated regulatory asset, which have to be amortised along with associated carrying cost over the MYT Control Period, as discussed in Section 4 of this Order Normalised recovery of Revenue Requirement as approved earlier in this section is as under: Table 146: Net Revenue Requirement and normalised recovery for the second Control Period at existing tariff approved by the Commission excluding Regulatory Asset Recovery (Rs Crore) Particulars ARR Retail Business ARR Wires Business Total Less Income from Revised Wheeling s Less Income from Revised CSS Regulatory asset recovery ARR (net) requirement from Retail Tariff Revenue from Sale of Power at existing tariff Revenue Gap/ (Surplus) (705.41) ( ) Average Tariff Increase /( Decrease) -13% -22% 1.04% Average Tariff Increase /( Decrease) (equalised) (570.04) (570.04) (570.04) Carrying cost (19.63) (69.64) Normalised Tariff Increase /( Decrease) (589.67) (639.67) (570.04) Normalised Tariff Increase (%) -11% -13% -13% Adjusted Revenue Requirement from Retail Tariff Adjusted Average Cost of Supply (Rs/kWh) Page 198 of 302

199 As observed from the above Table, if each of the years is considered on a standalone basis and tariffs revised in such a manner that the respective revenue requirement of each year is met, the average normalised tariff decrease required varies from a 11% to 13%. The Commission has normalised the tariff decrease to avoid tariff shock in after substantial decrease in ARR for Further, under a MYT regime, it would be better to have a smooth tariff trajectory. Hence, the Commission has adjusted the revenue requirement of each year, by deferring adjustment of surpluses in future periods, in such a manner that the average tariff increase for all three years is similar. The Commission has also allowed commensurate carrying cost, on the amount of revenue surplus deferred to future periods With the above determined average tariff increase/decrease, the Commission has determined the category-wise tariffs in line with the tariff philosophy adopted by it in the past, and the provisions of law. The tariffs and tariff categorisation have been determined so that the cross-subsidies are reduced gradually without subjecting any consumer category to a tariff shock The Commission observed that RInfra-D represented RAC as a separate line item as not included it retail tariff comparison. However, the Commission is of the opinion though RAC would be charged as separate charge and its accounting would also be separately for the reasons elaborated in Section 4 of this Order, but for the estimation of landed cost of the consumers, it should be included to enable consumers to understand the billing impact of revised tariffs. Normalised recovery of Revenue Requirement after including RAC as approved earlier in this section is as under: Table 147: Net Revenue Requirement and normalised recovery for the second Control Period at existing tariff approved by the Commission including Regulatory Asset Recovery (Rs Crore) Particulars Adjusted Revenue Requirement from Retail Tariff Regulatory Asset recovery through RAC from Retail Consumers of RInfra-D Total Revenue Requirement from Retail Tariff including Regulatory Asset recovery 5, , , Page 199 of 302

200 Particulars Revenue from Existing Tariff including RAC 5, , , Revenue Gap/ (Surplus) 9.46 (675.24) (605.23) Adjusted Average Cost of Supply (Rs/kWh) Average Tariff Increase including RAC 0.18% -12% -12% Ceiling Tariff Shri Shirish Deshpande of MGP during the Public Hearing has suggested that the Commission should determine the ceiling tariffs in RInfra s area of supply Section 62 (1) of EA, 2003 states: The Appropriate Commission shall determine the tariff in accordance with the provisions of this Act for... (d) retail sale of electricity. Provided that in case of distribution of electricity in the same area by two or more distribution licensees, the Appropriate Commission may, for promoting competition among distribution licensees, fix only maximum ceiling of tariff for retail sale of electricity The Commission noted that the sales and revenue mix of RInfra-D is as under: 13- Actual RInfra-D Commercial (HT+LT) 28% Sales (MU) Others 3% Domestic LT Industrial HT Industrial Agriculture 0% HT Industrial 1% LT Industrial 5% Domestic 63% Agriculture Commercial (HT+LT) Others Page 200 of 302

201 13- Actual RInfra-D Commercial (HT+LT) 39% Others 5% Revenue (Rs Cr) Domestic 48% Domestic LT Industrial HT Industrial Agriculture Commercial (HT+LT) Others Agriculture 0% HT Industrial 2% LT Industrial 6% It is clear from the above charts that the sales to domestic category of RInfra-D contributes 63% of sales and 48 % of revenue of RInfra-D. Also it also noted that industrial sales is around 6% of sales mix of RInfra-D contributing to 8% of revenue, whereas sales to commercial consumers is 28% of sales mix contributing around 39% of revenue of RInfra-D The Commission noted that the sales and revenue mix of TPC-D is as under: 13- Actual TPC-D Commercial (HT+LT) 40% Others 1% Sales (MU) Domestic 16% LT Industrial 10% Domestic LT Industrial HT Industrial Railways Commercial (HT+LT) Railways 13% HT Industrial 20% Others Page 201 of 302

202 13- Actual TPC-D Others 1% Domestic 11% Revenue (Rs Cr) Domestic Commercial (HT+LT) 43% LT Industrial 10% LT Industrial HT Industrial Railways Commercial (HT+LT) Railways 14% HT Industrial 21% Others It is clear from the above charts that the sales to domestic category of TPC-D contributes 16% of sales and 11 % of revenue of TPC-D. Also it also noted that industrial sales including railways is around 43% of sales mix of TPC-D contributing to 45 % of revenue, whereas sales to commercial consumers is 40 % of sales mix contributing around 43% of revenue of RInfra-D The Commission notes that sales and revenue mix of RInfra-D and TPC-D is distinct and heterogeneous in nature and fixing ceiling tariff would require homogeneous sales and revenue mix of the Licensees for whom ceiling needs to fixed The Commission further notes that are several operational and legal issues that need to be debated before implementation of the ceiling tariff and without consideration of the same, it will not be appropriate to consider implementation of ceiling tariff. Hence, the Commission has not considered this suggestion for tariff design in this Tariff Order. Page 202 of 302