Case No. 30 of In the matter of Petition filed by MSETCL for approval of SLDC Budget for FY and FY

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1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13 th floor, Cuffe Parade, Mumbai Tel. No /65/69 Fax Website: Case No. 30 of 2005 In the matter of Petition filed by MSETCL for approval of SLDC Budget for FY and FY Dr Pramod Deo, Chairman Shri A. Velayutham, Member Shri S.B.Kulkarni, Member ORDER Dated: 16 th May, The Maharashtra State Electricity Transmission Company Limited (MSETCL) filed a Petition on 4 th November, 2005 seeking the Commission s approval for the budget of the State Load Dispatch Centre (SLDC) for the year , in pursuance of Regulation 18.1 read with Regulation 18.2 of the MERC (Transmission Open Access) Regulations, 2005 and prayed as under -. (a) Hon ble Commission may consider and approve the Budget of cost of operation of the State Load Dispatch Centre for financial year (b) Pass such other and further orders as are deemed fit and proper in the facts and circumstances of the case. 2. The Commission conducted a hearing in the matter on 13 th December, 2005 in the presence of distribution licensees and consumer representatives. At the hearing, MSETCL made a presentation to the Commission on the SLDC budget for FY During the hearing, the Commission opined that in view of the critical role envisaged for SLDC under the Electricity Act 2003, independence in operations of SLDC should be clearly established. Further, the Commission observed that although as of now SLDC forms part of MSETCL, expenditure pertaining to SLDC activities should be accounted for separately and there should be no overlap with expenditure pertaining to transmission related activities. The Commission suggested that SLDC should develop standard budget data formats and budgeting procedures to cover historical estimates, actual expenses incurred as well as variance analysis. 3. MSETCL submitted Draft Data Formats for SLDC Budget on 4 th February 2006, and the same were finalized by the Commission in consultation with MSETCL and their consultant on 16 th February 2006 to reflect Revenue Budget and Capital Budget separately. Further, the Commission directed MSETCL on 24 th February 2006 to submit SLDC Budget for FY as per Revised Data Formats and also directed MSETCL to Page 1 of 17

2 submit their Proposal for Levy and Collection of SLDC fees and charges, alongwith comparative evaluation of various options for sharing of SLDC related costs amongst various stakeholders, as directed earlier during the hearing held on 13 th December MSETCL filed a Petition for approval of SLDC Budget for FY vide its letter no. CELDK/Tech/SLDC Budget 06-07/00385 dated 23 rd March 2006 and proposed the methodology for levy and recovery of SLDC fees and charges vide its letter no. CELDK/Tech/SLDC Budget No dated 8 th March Under the said Petition, MSETCL prayed as under - (a) Hon ble Commission may consider and approve the Budget of cost of Operation of the State Load Dispatch Centre for Financial Year (b) Approve the SLDC charges as deemed appropriate (c) Approve advance payment of SLDC charges every quarter 5. In this context, the Commission notes that the EA 2003 has mandated a crucial role for the SLDC and SLDC is the apex body to ensure integrated operations of the power system within the State. Further, as per Sub-section (2) of Section 32 of the EA 2003, SLDC is required to perform following functions: (2) The State Load Despatch Centre shall - (a) be responsible for optimum scheduling and despatch of electricity within a State, in accordance with the contracts entered into with the licensees or the generating companies operating in that State; (b) monitor grid operations; (c) keep accounts of the quantity of electricity transmitted through the State grid; (d) exercise supervision and control over the intra-state transmission system; and (e) be responsible for carrying out real time operations for grid control and despatch of electricity within the State through secure and economic operation of the State grid in accordance with the Grid Standards and the State Grid Code. 6. In view of above statutory mandate, the Commission recognizes that SLDC will have to embark upon a plan for technological upgradation, introduction of IT systems and enhance manpower capabilities to meet the requirements emanating from the provisions of the Electricity Act 2003, open access requirements and Regulations as prescribed by the Commission, Western Regional Power Committee (WRPC) / Western Regional Load Despatch Centre (WRLDC). The role of SLDC needs to be expanded to cover the following areas: a) Optimal scheduling and merit order dispatch in accordance with the contracts entered into by licensees. b) Management of Open Access consumers in accordance with the provisions of the Commission s Regulations c) Put in place a comprehensive State Energy Accounting System and Unscheduled Interchange accounting system for energy transactions within the State. Page 2 of 17

3 d) Ensure coordination between WRLDC, Generation Companies, Distribution Companies, Open Access Consumers and other users of the intra-state grid e) Compliance of RLDC/RPC directives, Grid Standards and Grid Code. f) Capability enhancement of Supervisory Control and Data Acquisition (SCADA) System, Computer and Communication systems to address requirement of real time data/information gathering and sharing with stakeholders. g) Establish and maintain records of Un-scheduled Interchanges, Revenue transactions, cost and other accounting related information pertaining to operations for SLDC. 7. Accordingly, scrutiny and review of Capital Budget and investment in capital expenditure schemes of SLDC is critical, apart from scrutiny and approval of the Revenue Budget. Further, the Commission observes that financial year is already over, hence at this stage, scrutiny and approval of SLDC Budget for FY alone needs to be taken into consideration. Accordingly, the Commission has considered the Petition of MSETCL dated 23 rd March 2006 for FY for further regulatory process and approval. 8. Under its Petition, MSETCL has sought approval for SLDC Budget (termed as Annual Revenue Requirement or ARR) of Rs Crore comprising estimated revenue budget of Rs Crore and capital budget of Rs Crore for FY Further, MSETCL has proposed to recover SLDC charges from generating companies and transmission licensees on 50:50 basis. The basis for recovery from generating companies has been proposed as the peak generation of power and that for recovery from transmission licensees has been proposed as peak demand catered by transmission licensees. 9. The Commission observes that MSETCL s Petition comprises three prayers, viz., (a) Approval of Revenue Budget (b) Approval of Capital Budget (c) Determination SLDC Fees and Charges and approval for mechanism for recovery of SLDC Fees and Charges. A] Approval of Revenue Budget 10. MSETCL has proposed its Revenue Budget for FY comprising following components (i) Employee expenses (ii) Administration and General expenses (iii) Repairs and maintenance expenses (iv) Depreciation (v) interest and finance charges, and (vi) interest on working capital. MSETCL has projected the expenditure considering cost of operations of its two load despatch centres located at Kalwa and Ambazari (Nagpur). Further, MSETCL has submitted that separate accounts of expenditure has not been maintained for the SLDC till the year , as SLDC was considered as an integral part of transmission activity and wasn t accounted for separately. Page 3 of 17

4 11. In this context, the Commission observes that MSETCL will have to maintain accounts pertaining to SLDC related activities and Transmission related activities separately. The Commission hereby directs that MSETCL shall also submit Allocation Statement thereof for the Previous Year (PY) and Current Year (CY) alongwith its petition for approval of SLDC Budget for each Ensuing Year (EY). The Commission notes that MSETCL has come into existence with notification of Transfer Scheme by Government of Maharashtra with effect from 5 th June 2005.Hence, such Allocation Statement shall be prepared for the years commencing from FY Allocation Statement shall mean for each financial year, a statement in respect of each of the separate businesses of MSETCL, such as transmission related activity and SLDC related activities, showing the amounts of any revenue, cost, asset, liability, reserve or provision, which has been either; (i) charged from or to each such separate business together with a description of the basis of that charge; or (ii) determined by apportionment or allocation between the Transmission business and SLDC related activities of the MSETCL, together with a description of the basis of the apportionment or allocation. 13. In the meantime, the Commission has proceeded to consider SLDC Budget for FY as submitted by MSETCL. However, MSETCL should submit Allocation Statement for FY within one month of the issue of this Order. (i) Employee expenses 14. MSETCL has projected to increase employee related expenses pertaining to SLDC from Rs lakh during FY , to Rs lakh during FY and to Rs lakh during FY with corresponding increase in number of employees from 110, 114 to 196. The employee related expenses comprises several heads such as basic salary, dearness allowance, house rent allowance, other allowances, medical reimbursements, conveyance allowance, leave travel encashment, earned leave encashment, staff welfare expenses, terminal benefits, etc. The terminal benefits includes contribution to provident fund, provision for provident fund, gratuity payment, and retirement leave encashment, which have been projected based on number of employees projected to retire during FY Further, MSETCL has submitted that, apart from all these expenses another major expense projected for FY covers the interim wage revision. The revision of pay scales of employees of the erstwhile MSEB was due from April 1, 2003, though the actual revision was undertaken after an agreement between the Board and the employee unions on 2 nd June As part of this agreement the interim wage revision would happen in the year The amount projected under this head is Rs 85 Lakh. 16. The details of employee related expenses actually incurred for FY , FY and projected for FY have been summarized under the following Table: Page 4 of 17

5 Item Description Remarks No. of Employees Employee expenses, Rs L Salary and other allowances, Rs L Salary per employee, Growth 4.23% p.a. Rs L per person Wage Revision / Interim relief, Rs L As per Board s agreement with Unions on 2 nd June Terminal Benefits, Rs L Includes PF fund contribution and provision, gratuity payment, retirement leave encashment etc. based on projected no. of employees due for retirement. Total Employee Expenses, Rs L Less 5% - - (37.56) Net Employee Expenses/Budget 17. The Commission observes that projected employee expenses of Rs lakh during FY represents significant increase in absolute terms from actual expenses of Rs lakh actually incurred during FY However, excluding terminal benefits and interim wage revision the employee expenses per employee corresponding to salaries and other allowances represents a normal rise of 4.23% from Rs 2.46 L per employee to Rs 2.68 L per employee. The Commission notes that consumer price index for industrial workers (CPI_IW) for past 5 years from FY to FY has varied from 3.42% to 4.31%. Further, as regards wage revision or interim relief, the Commission notes that MSETCL in its ARR Petition for FY for MSETCL as STU has not claimed any wage revision or interim relief as per Form 2.1 of its ARR Petition. Hence, at this stage for the purpose of SLDC Budget, the Commission has not considered wage revision/interim relief of Rs 85 Lakhs as proposed by MSETCL. Accordingly, the Commission approves budget of employee related expenses of Rs lakh excluding Rs 85 lakh towards interim relief/wage revision, as claimed by MSETCL in its proposal. (Rs. Lakh) Item Description (MSETCL) (Commission) Employee related expenses Further, while the Commission is aware that activities and obligations of SLDC will increase to include State-wide energy accounting and facilitation of open access transactions and doing regular and intensive load flow studies etc, it cannot accept increase in number of Page 5 of 17

6 employees as proposed. MSETCL is directed to undertake and submit detailed study covering SLDC organization structure, manpower requirement at various levels, analysis of training need requirement, plan for enhancement of skills etc. The study should pay special attention to the use of technological tools, automation, sophisticated hardware and software rather than manual applications. It should also pay due attention as regarding getting outside specialised help on retainer or job work basis to undertake specific or one time jobs in preference to creating machinery and manpower in-house. In short, emphasis should be on analytically strong SLDC with most sophisticated systems and least manual interface or dependence. Further, the Commission would like to clarify that while it has approved the budget for employee related expenses above, it has not approved the employee strength of 196 as proposed as the same can be reviewed only after MSETCL furnishes the detailed report. MSETCL has to restrict its employee expenses for FY within the amount approved for the year. (ii) Administration and General Expenses 19. MSETCL has projected that Administration and General (A&G) expenses pertaining to SLDC operations will remain steady at Rs lakh during FY as against the expenditure actually incurred during FY at Rs lakh. The A&G expenses comprises several heads such as Rent, rate & taxes, insurance, Legal charges and audit fees, technical and professional fees, telephone and P&T charges, stamp charges, conveyance and travel charges, electricity charges, vehicle running charges, security and service charges and other miscellaneous charges, etc. MSETCL has stated that they have assumed increase in A&G charges at around 5% p.a and capitalization of A&G expenses at 5%. The estimated Administrative and General Expenses after capitalization for FY have been submitted as under:- Amount in Rs. Lakh Administration & General Expenses Kalwa Ambazari Total The Commission approves the budget for A&G expenses for FY , as proposed by MSETCL. (iii) Repairs and Maintenance Expenses 21. MSETCL has projected that Repairs and Maintenance (R&M) expenses pertaining to SLDC operations will increase significantly to Rs lakh during FY as against actually incurred expenditure during FY at Rs lakh. MSETCL has submitted that the Repair and Maintenance expenditure for SLDC has been estimated based on a detailed analysis of various components of R&M for both Kalwa as well as Ambazari units. Page 6 of 17

7 Further, MSETCL has stated that the R&M expenses for the year was very high because of few major expenses booked under the head like Marol Kalwa Unified Load Despatch Center Data Link, whose expense was about Rs 132 Lakh and Additional Data Integration to EMS, whose expense was about Rs.95 Lakh. MSETCL has submitted that since such kind of expenditure is not recurring in nature and no expenditure of such type is expected in the year , the total R&M Expense for the ensuing year has been projected by removing the effect of such expenditure and hence the expenses have come down considerably. Amount in Rs. Lakh Repairs and Maintenance Expenses Kalwa Ambazari Total In the absence of any basis for evaluating R&M expenses, the Commission has considered R&M expenses for FY with escalation at rate of 5% p.a. for 2 years (average increase in WPI for the past years being 4.2%p.a.). 23. Accordingly, R&M expenses approved by the Commission for the purpose of SLDC budget for FY are as under (iv) Depreciation (Rs. Lakh) Repairs and Maintenance Expenses (MSETCL) (Commission) Kalwa Ambazari Total MSETCL has submitted that the fixed assets related to SLDC were segregated after detailed analysis of the books of accounts. The assets related to SLDC were identified along with the proportionate depreciation on the same from the fixed assets register prepared at the divisional level. The depreciation on these assets for FY is based on actual balances as per books of accounts. The depreciation for FY was calculated based on a detailed analysis of the fixed asset schedule, the balance useful life of the assets, and the depreciation rate for each fixed assets. The Depreciation expenses for the year have been calculated using the depreciation rates prescribed under the MERC (Terms and Conditions of Tariff) Regulations, Gross Fixed Assets, Depreciation and Net Fixed Asset for FY , FY and FY as projected by MSETCL has been summarized under following Table: Page 7 of 17

8 (Rs. Lakh) Particulars Gross Fixed Assets (end of year) Kalwa Ambazari Total (GFA) Depreciation Kalwa Ambazari Total (Depreciation) Net Fixed Assets (end of year) Kalwa Ambazari Total (NFA) The Commission notes that depreciation claimed by MSETCL for FY is in line with the MERC (Terms and Conditions for Tariff) Regulations Further, MSETCL has proposed to capitalize capital investments amounting to Rs Crore during FY The depreciation corresponding to such capitalization has been claimed for half year. The Commission accordingly, approves the depreciation as proposed by MSETCL for the purpose of SLDC Budget for FY (v) Interest (Rs. Lakh) Particulars (MSETCL) (Commission) Gross Fixed Assets (end of year) Kalwa Ambazari Total (GFA) Depreciation Kalwa Ambazari Total (Depreciation) Net Fixed Assets (end of year) Kalwa Ambazari Total (NFA) MSETCL has submitted that the details of loan and interest expenses specifically related to SLDC are not available from the books of accounts as this item is accounted for at the Head Office. Therefore, MSETCL has allocated a portion of the interest cost of Transmission Company to SLDC. For this purpose, the total interest cost of Transmission Company has been allocated between MSETCL and SLDC in the ratio of net fixed assets. Page 8 of 17

9 Amount in Rs. Lakhs NFA For Interest & NFA Finance For Charges Interest & Finance Charges MSETCL SLDC Kalwa Ambazari Total In this context, the Commission notes that MSETCL in their ARR/Tariff Petition for FY , which is currently under scrutiny, has projected Interest costs for FY as Rs lakh as per Form F4 of their submission, instead of Rs lakh as claimed under their Petition for SLDC Budget. Accordingly, the Commission has considered interest cost for SLDC Budget for FY to be proportionately reduced. 28. Further, MSETCL has submitted that proposed capital expenditure of Rs 2505 lakh for FY has been incorporated as a pass-through expense. This will help SLDC in ensuring that the implementation of the planned capital expenditure projects is not hampered. Hence, in FY budget, interest against new capital expenditure has not been considered for calculation of Cost of Budget of Operations of SLDC. 29. In this context, the Commission notes that recovery of capital expenditure relates to issue of mechanism for levy and recovery of SLDC Fees and Charges, which has been dealt with separately in the subsequent paragraphs of this Order. For the purpose of estimation of interest cost corresponding to new loans for new capital expenditure schemes, the Commission has considered interest costs based on normative debt to equity of 70:30 in line with MERC (Terms and conditions for Tariff) Regulations, 2005, and the interest rate has been considered at 10.75% equivalent to weighted average interest rate considered by MSETCL in its ARR/Tariff Petition for FY for all loans together. Accordingly, interest costs approved by the Commission for the purpose of SLDC Budget for FY have been summarized under the following Table. Amount in Rs. Lakhs Interest & Finance Charges MSETCL Commission MSETCL SLDC (a) Kalwa Ambazari Interest cost (New Loans) Capital Cost Debt amount (based on normative D:E of 70:30) % (b) Nil Total Interest Cost (a+b) Page 9 of 17

10 30. Further, as discussed separately under approval of capital budget, MSETCL will have to submit Investment Plan along with capex schemes for approval of the capital budget. The Investment Plan as approved shall form the basis for estimation of the interest cost and other capital related charges and shall form part of the SLDC Budget. MSETCL is hereby directed to submit its investment plan for proposed capex plan of Rs 2505 lakh for FY within two weeks from issuance of this Order. (vi)return on Equity 31. MSETCL has not claimed any return on equity as a part of its SLDC Budget citing provision under MERC (Transmission Open Access) Regulations, 2005 that SLDC shall not earn any profit from its operations. However, during the hearing held on 13 th December 2005, MSETCL has requested the Commission to review its decision in this regard and argued that if MSETCL insists on investment of capital or contribution by SLDC then equity will be required, which need to be serviced. The relevant extract of MERC (Transmission Open Access) Regulations, 2005 is as under The Commission shall, after due scrutiny of the budget submitted to it, approve the budget with such modifications as it may consider appropriate, and also specify the fees and charges to be recovered by the State Load Despatch Centre from generating companies and Transmission Licensees: Provided that the State Load Despatch Centre shall not earn profits from its operations (emphasis added) 32. In this context, the Commission recognizes that if any investment is required to be undertaken by SLDC by way of contribution or equity investment, the same needs to be serviced. The objective of SLDC not earning profit from its operations does not necessarily mean that such equity contribution will not be serviced. However, actual investment or equity contribution needs to be serviced, which will have to be established by MSETCL through supporting documents and Allocation Statement. Hence, scrutiny of investment plan for capex schemes of SLDC is equally important. At this stage, the Commission has considered the normative equity contribution equivalent to 30% of the proposed capital expenditure of Rs 2505 lakh during FY The same has been considered to be serviced at the rate of 14% as considered for transmission business in line with MERC (Terms and Conditions for Tariff) Regulations, Accordingly, return on equity of Rs lakh (based on 14% on equity base of Rs lakh equivalent to 30% of capital cost of Rs 2505 lakh) has been considered as part of SLDC budget for FY (vii) Interest on working capital 33. MSETCL has submitted that working capital requirement and interest on working capital have been estimated in line with provisions under MERC (Terms and Conditions of Tariff) Regulations, The working capital is projected to comprise 1/12 th of O&M Page 10 of 17

11 expenses, maintenance spares at 1% of projected GFA for FY , and receivables equivalent to 1.5 months expected revenue from SLDC charges for FY The interest rate has been considered at the rate of 10.25% in line with short-term prime lending rate of State Bank of India. 34. The Commission has estimated the working capital requirement based on the O&M expenses as approved for FY in the earlier paragraphs. As regards receivables, the Commission notes that issue needs to be addressed taking into consideration the methodology for recovery of SLDC fees and charges discussed in the subsequent paragraphs. MSETCL has proposed to recover operating cost related charges on month-to-month basis, whereas, capital charge related charges such as depreciation, interest and return on equity shall be recovered through Annual Fees on semi-annual basis on 10 th April and 10 th October of each year. Accordingly, receivables corresponding to operating cost budget only need to be accounted for. Accordingly, the Commission has determined the working capital requirement and interest on working capital thereof, as follows: Amount in Rs. Lakh (MSETCL) (Commission) 1/12th of O& M Expenses Maintenance Spares at 1% of GFA Receivable equivalent of one and half months of expected revenue from SLDC charges Total Working Capital Interest on Working Capital (vii) RLDC related charges 35. MSETCL has not claimed any charges towards RLDC fees and charges. The Commission is of the opinion that as per Section 32(2) of EA 2003, SLDC is required to exercise supervision and control of intra-state transmission system, co-ordinate with RLDC in the process and is also required to ensure compliance of the directions issued by RLDC as per Section 29 (3) of EA Hence, all costs, fees and charges pertaining to RLDC related activities should form part of SLDC Budget and should be recovered through RLDC fees and charges as may be notified by the Commission from time to time. Accordingly, for the purpose of SLDC Budget for FY , the Commission has estimated RLDC related fees and charges forming part of SLDC Budget as under. 36. The Commission notes that CERC has issued an Order dated 5 th October 2005 in the matter of Petition no. 8/2004 regarding approval of fees and charges payable to RLDCs for undertaking load dispatch functions for the period to As per the Clause 17 of the said Order, CERC has approved RLDC charges for WRLDC for FY as Rs Lakh. Further, CERC has also directed the manner of sharing of such RLDC fees and Page 11 of 17

12 charges amongst the beneficiaries of central sector power within the region and long term open access customers. 37. Further, the Commission notes that MSEDCL in their ARR/Tariff Petition for FY has proposed that share of power (firm and non-firm share allocation) from central sector power stations amount to 35.52%. (i.e., 2476 MW out of total central sector power of 6973 MW within the region, comprising share from NTPC as MW and that from NPC as MW). Accordingly, the Commission has considered RLDC Fees and charges forming part of SLDC budget for FY as Rs lakh (35.52% of Rs lakh). (viii)summary of Revenue Budget 38. In view of above, the Revenue Budget for FY as approved by the Commission is summarized in the following Table: Amount in Rs. Lakh (MSETCL) (Commission) Operating Cost Budget Employee Expenses A&G Expenses R&M Expenses Interest on working capital RLDC Fees and charges Sub-total (Operating Cost Budget) Capital Charge Budget Depreciation Interest costs Return on Equity Sub-total (Capital Charge Budget) TOTAL (Revenue Budget) B] Approval of Capital Budget 39. MSETCL has projected an outlay of Rs Crore in the next 4 years (FY to FY ). The investment for FY has been very nominal and the proposed investment of Rs 1 crore planned for second half of FY has been carried forward to FY The planned capital investment for FY is Rs Cr. Further, MSETCL has submitted that the proposed investment for FY will be made towards: Enhancement of Real Time Data Acquisition system Establishment of System Studies Facilities for Contingency Planning Development of Application Software for operator assistance Effective Communication System Energy Accounting Balancing & Settlement mechanism Infrastructural Development 40. The details of overall capital expenditure plan and capital budget for FY as submitted by MSETCL is as under - Page 12 of 17

13 Sl. No. 1 2 o For enhancement of real time data acquisition system SLDC proposes to make a planned investment of Rs Cr over the next five years. Out of which the proposed capital outlay for FY06-07 will be Cr. o Out of total investment of Rs. 2 Cr over the next 3 years for Establishment of System Studies Facilities for Contingency Planning, SLDC proposes to make a capital investment of Rs. 90 lakhs in FY o New Area load dispatch centre (ALDC) is planned to be developed at a cost of Rs. 42 Crs. Work is schedule to start from FY o A capital investment of 1 Cr spread equally over the next 2 years has been planned for development of application software for operational assistance. o An effective communication system is planned to be developed at a total capital cost of 87 lakhs over the next 2 years. Out of this, 80 lakhs is the planned expenditure for FY o SLDC proposes to develop an energy balancing and settlement mechanism at a total cost of Rs. 1.2 Cr in FY o A total of Rs Cr is proposed to be invested in the next 5 years for development of infrastructure of which Rs Crs is proposed to be the expenditure for FY o Out of the total Cr of capital expenditure planned over the next 5 years Rs Cr will be the expenditure for SLDC, kalwa and Rs Cr for area load dispatch centre at Ambazari. The rest 42 Cr will be the expenditure for establishing new load dispatch centre. Procedure for development of a new load dispatch centre is proposed to be started in FY In FY06-07 the total capital expenditure at Kalwa and Ambazari LDC is proposed to be Rs Cr and Rs Cr respectively. Name of the Scheme Kalwa Ambazari Total Enhancement of Real Time Data Acquisition Capability Establishment of Training & System Studies Facilities at LD Centre. 3 Establishment of New LDC Development of Application Software for 4 Operator Assistance 5 Effective Communication System Energy Accounting Balancing & Settlement 6 Mechanism. 7 Infrastructural Development Grand Total Page 13 of 17

14 41. The Commission recognizes that EA2003 has mandated crucial role for SLDC and that SLDC shall be the apex body to ensure integrated operations of the power system within the State. In view of above statutory mandate, SLDC will have to embark upon a plan for technological upgradation, introduction of IT systems and enhance manpower capabilities to meet the requirements emanating from the provisions of the Electricity Act 2003, open access requirements and regulations as prescribed by the Commission, WRPC/WRLDC. 42. Thus, capital expenditure schemes of SLDC will have to be scrutinized for its purpose, application, system improvement aspects, timeframe for implementation, how it shall facilitate stakeholder requirement including open access transactions. Further, details of each scheme needs to be submitted alongwith proposed investment plan and sources of funding for approval, as the same would have bearing on capital budget related charges to be recovered from the stakeholders, as discussed later. In view of above, while the Commission has considered capital budget of Rs 2505 Lakh for FY , it does not mean approval of capital expenditure of the schemes. MSETCL is directed to submit details of each scheme involving outlay exceeding Rs 100 lakh along with investment plan, sources of funding, and statement of justification/rationale for the scheme for the scrutiny and approval of the Commission within two weeks from issuance of this Order. Further, the Commission observes that implementing the capital budget of Rs 2505 lakh within a year for SLDC is mammoth task, particularly since, entire capital investment for SLDC until now (as per GFA for FY ) has been only around Rs 5007 lakh. The Commission hereby directs MSETCL to submit the detailed schedule including milestones and plan for implementation, monitoring and control for each scheme separately, proposed to be undertaken during FY , within two weeks from date of issuance of this Order for Commission s records and perusal. C] Determination of SLDC Fees and Charges and Mechanism for recovery 43. MSETCL has proposed to levy two types of SLDC charges on the generating companies and transmission licensees within the State, viz., (a) SLDC charges towards recovery of cost of operations, and (b) Rescheduling Charges in order to develop discipline in the scheduling system and incentivise better grid management and system control. 44. In this context, the Commission needs to determine Fees and Charges that SLDC may levy as per Sub-section (3) of Section 32 of EA 2003 and may notify necessary Regulations for this purpose, as per clause (g) of Sub-Section (2) of Section 181 of EA The relevant extract of Sub-section (3) of Section 32 of EA 2003 is as under - The State Load Despatch Centre may levy and collect such fee and charges from the generating companies and licensees engaged in intra-state transmission of electricity as may be specified by the State Commission. Page 14 of 17

15 45. Further, as per Regulation no. 18.2, 18.3 and 18.4 of the MERC (Transmission Open Access) Regulations, 2005 notified on 21 st April 2005, the Commission is required to specify the SLDC Fees and Charges that SLDC may levy and recover from generating companies and transmission licensees. The relevant extract of the Transmission Open Access Regulations is as under The Commission shall, after due scrutiny of the budget submitted to it, approve the budget with such modifications as it may consider appropriate, and also specify the fees and charges to be recovered by the State Load Despatch Centre from generating companies and Transmission Licensees: Provided that the State Load Despatch Centre shall not earn profits from its operations: Provided further that a Transmission Licensee shall be entitled to recover the fees and charges so paid to the State Load Despatch Centre from its Transmission System Users in pro rata proportions to their transmission capacity rights The State Load Despatch Centre shall issue bills to generating companies and Transmission Licensees not later than the tenth (10) day of each month in respect of fees and charges payable for the previous month The State Load Despatch Centre shall, alongwith its budget, submit to the Commission the details of any excess or deficit in recovery of its fees and charges in the preceding financial year The Commission may, after due scrutiny of such excess or deficit in recovery of fees and charges, permit appropriate adjustments in the fees and charges for the subsequent financial year. 46. However, the Commission observes that Central Government through its Order 795(E) dated 8th June 2005 has notified The Electricity (Removal of Difficulty) Sixth Order, 2005 wherein, it has clarified that SLDC fees and charges may be levied on distribution licensees instead of transmission licensees as stated under Section 32(3) of EA The relevant extract of said Order is as under The State Load Dispatch Centre may levy and collect such fee and charges from licenses using the intra-state transmission system, as may be specified by the State Commission. (Cl. 2 of The Electricity (Removal of Difficulty) Sixth Order, 2005) 47. Thus, principles for determination of SLDC Fees and Charges will have to be established first before specifying SLDC Fees and Charges for FY Further, the same should be finalized after due regulatory process including consultation with distribution Page 15 of 17

16 licensees, generating companies and consumer representatives. Hence, the Commission has not determined or approved any SLDC Fees and Charges for FY at this stage under this Order. 48. However, in order to facilitate the process of determination of the same, the Commission is suggesting draft principles that can be adopted for determination of SLDC Fees and Charges. MSETCL is directed to submit its computation of SLDC Fees and Charges based on the suggested Draft Principles for levy of SLDC Fees and Charges and also furnish copies of its submission to authorized Consumer Representatives, distribution licensees and generating companies within three weeks from date of this Order. 49. The Commission shall finalise the principles for levy and recovery of SLDC Fees and Charges and also approve applicable SLDC Fees and Charges upon consultation with all stakeholders including hearing, if necessary, in the matter. 50. The suggested Principles for levy of SLDC Fees and Charges are as under: i. SLDC charges and Fees shall comprise three components (a) Registration or Connection Fees (b) Annual SLDC Fees corresponding to annualized capital cost linked to specified period to be payable on semi-annual basis. (c) SLDC Operating Charges corresponding to annual operating costs comprising Employee expense, R&M expense, A&G expense, interest on working capital and RLDC fees and charges, payable monthly in arrears. ii. Annual SLDC Fees shall be determined based on annualized capital cost of approved capex schemes and approved specified period for annualisation depending on nature of scheme. The annualized capital cost shall comprise cost of amortization over specified period, interest and financing cost including RoE, if any. For FY , the capital charge budget as approved under para 38 of this Order shall constitute Annual SLDC Fees. The SLDC shall submit investment plan alongwith capex plan for approval for each scheme separately, for capex amount exceeding Rs 100 Lakh. The Annual SLDC fees shall include depreciation on capitalized costs and interest cost of borrowing corresponding to SLDC assets at the beginning of FY (as on 31-Mar-2006) and return on equity, wherever applicable. MSETCL will have to submit Allocation Statement to that effect. iii. SLDC Operating charges - corresponding to annual operating costs comprising Employee expense, R&M expense, A&G expense, interest on working capital and RLDC related fees and charges, payable monthly in arrears. iv. Annual SLDC Fees and Annual SLDC Operating Charges shall be levied on distribution licensees in proportion to their maximum demand (MW) met during previous year. Annual SLDC Fees shall be recovered Page 16 of 17

17 on semi-annual basis on 10th April and 10th October of each fiscal year, whereas Annual SLDC Operating Charges shall be recovered on monthly basis, in arrears. v. Rescheduling Charges: To be levied on generating companies, distribution licensees, trading companies, transmission OA users, as the case may be, at the rate of Rs 3000 per schedule for revision in schedule upon finalization of schedules by SLDC on day-ahead basis or for non-submission of schedule as per State Grid Code requirements. 51. The Commission approves the SLDC Budget for FY as stated under para 38. The Commission hereby directs MSETCL as underi. To submit its computation of SLDC Fees and Charges based on the suggested Draft Principles for levy of SLDC Fees and Charges and also furnish copies of its submission to authorized Consumer Representatives, distribution licensees and generating companies within three weeks from date of this Order. ii. To submit Allocation Statement including basis for allocation of expenses between transmission activities and SLDC related activities, based on audited financial statement for FY iii. To submit detailed activity schedule including milestones for proposed Capex Plan for FY and plan for implementation, monitoring and control for each scheme separately, within two weeks from date of issuance of this Order for records and perusal of the Commission. iv. To submit details of each scheme involving outlay exceeding Rs 100 lakh along with investment plan, sources of funding and statement of justification/rationale for the scheme for scrutiny and approval of the Commission within two weeks from date of issuance of this Order. Sd/- Sd/- Sd/- (S.B. Kulkarni) (A. Velayutham) (Dr Pramod Deo) Member Member Chairman (Ms Malini Shankar) Secretary, MERC Page 17 of 17