(Website: ORDER. Case No. 55 and 56 of 2003

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1 MAHARASHTRA ELECTRICITY REGULATORY COMMISSION 13 th Floor, Centre No.1, World Trade Centre, Cuffe Parade, Mumbai (Tel: /65/69 Fax: ) ( (Website: ORDER Case No. 55 and 56 of 2003 IN THE MATTER OF POWER PURCHASE AND OTHER DISPENSATION IN RESPECT OF FOSSIL FUEL BASED CAPTIVE POWER PLANTS MERC Date: September 08, 2004

2 IN THE MATTER OF POWER PURCHASE AND OTHER DISPENSATION IN RESPECT OF FOSSIL FUEL BASED CAPTIVE POWER PLANTS Table of Contents Sr. No. Description Page No. SECTION Preamble 1 Power Generating Capacity in Maharashtra 1 Electricity Consumption in Maharashtra 1 Generation and Consumption Mismatch and Load Shedding 2 Captive Power Scenario in Maharashtra 2 2 Background and Chronology 3 3 Formulation of Proposed Policy 4 4 Public Hearing Process 4 5 Tariff Principles 4 6 Approach 5 7 Tariff and related Issues addressed in this Order 6 8 Commission s Ruling on Tariff and related Issues 6 Definition of a CPP with respect to Own Consumption versus Sale Mix 6 Reduction in Contract Demand of a CPP Holder 7 Reduction in Contract Demand of the Third Party Purchaser of CPP Power 7 Additional Demand Charges in respect of CPP Holder 8 Rate of Purchase of CPP Power by Distribution Licensee 8 Rate of Purchase of CPP Power by Third Party 11 Banking of Surplus Power with Distribution Licensee 11 Provisions related to Wheeling of CPP Power 12 Surcharge on third Party Sale of CPP Power 13 9 General Conditions 14 CPP Holders to furnish details related to CPP to the SLDC 14 Supervision Charges for Synchronisation of CPP with Grid 14 Reactive Power Supply 14 Payment Security for Firm Power Purchase by Distribution Licensee from CPP 14 Holder Billing and Payment to CPP Holder by Distribution Licensee for Purchase of Firm/ 15 Infirm Power Evacuation Facilities 15 Deemed Generation Benefits 15 Energy Purchase Agreement (EPA) 15 Energy Wheeling Agreement (EWA) 16 Energy Banking Agreement (EBA) 16 Planned and Unplanned Shutdown of Captive Power Plant 16 ToD Meters 16 Distribution Licensees to Furnish Details related to Power Purchased/ Banked from 17 MERC, Mumbai I

3 Sr. No. Description Page No. Waste Heat Recovery based Generation Definitions 17 Fossil Fuel 17 Co-generation 18 Firm Power 18 Infirm Power Applicability of Order Advice to the Government of Maharashtra 19 Electricity Duty Organisation of the Detailed Order 19 MERC, Mumbai II

4 Sr. No. Description Page No. SECTION 2 COMMENTS AND SUGGESTIONS RECEIVED DURING PUBLIC PROCESS AND COMMISSION'S RULING 14 Preamble Issue-wise Compilation of Comments and Suggestions received on 20 Proposed Policy and Commission s Ruling Definition of a CPP with respect to Own Consumption versus Sale Mix 20 Reduction in Contract Demand of a CPP Holder 23 Reduction in Contract Demand of the Third Party Purchaser of CPP Power 24 Additional Demand Charges in respect of CPP Holder 25 Rate of Purchase of CPP Power by Distribution Licensee 29 Rate of Purchase of CPP Power by Third Party 33 Banking of Surplus Power with Distribution Licensee 35 Provisions related to Wheeling of CPP Power 37 Surcharge on Third Party Sale of CPP Power Suggestions received on General Conditions and Definitions 40 Supervision Charges for Synchronisation of CPP with Grid 40 Payment Security- for Firm Power Purchase by Distribution Licensee from CPP 41 Holder Evacuation Facilities 41 Energy Purchase Agreement (EPA), Energy Banking Agreement (EBA) and Energy 42 Wheeling Agreement (EWA) Reactive Power 43 Planned/ Unplanned Shutdown 43 Open Access 44 Special ToD Meters 44 Details to be given one month prior to commissioning of CPP to SLDC and 44 Distribution Licensee Fossil Fuels 45 MERC, Mumbai III

5 Sr. No. Description Page No. SECTION 3 COMMISSION S DECISION ON TARIFF AND TARIFF RELATED ISSUES 17 Introduction Tariff Principles Approach Commission s Analysis and its Ruling 48 Definition of a CPP with respect to Own Consumption versus Sale Mix 48 Reduction in Contract Demand of a CPP Holder 51 Reduction in Contract Demand of the Third Party Purchaser of CPP Power 52 Additional Demand Charges in respect of CPP Holder 52 Rate of Purchase of CPP Power by Distribution Licensee 54 Rate of Purchase of CPP Power by Third Party 59 Banking of Surplus Power with Distribution Licensee 60 Provisions related to Wheeling of CPP Power 61 Surcharge on Third Party Sale of CPP Power General Conditions 64 CPP Holder to furnish details related to CPP to the SLDC 64 Supervision Charges for Synchronisation of CPP with Grid 64 Reactive Power Supply 64 Payment Security for Firm Power purchase by Distribution Licensee from CPP 64 Holder Billing and Payment to CPP Holder by Distribution Licensee for purchase of Firm/ 64 Infirm Power Evacuation Facilities 65 Deemed Generation Benefits 65 Energy Purchase Agreement (EPA) 65 Energy Wheeling Agreement (EWA) 66 Energy Banking Agreement (EBA) 66 Planned and Unplanned Shutdown of Captive Power Plant 66 ToD Meters 66 Distribution Licensees to Furnish Details related to Power Purchased/ Banked from 67 Waste Heat Recovery based Generation Definitions 67 Fossil Fuel 67 Co-generation 68 Firm Power 68 Infirm Power Advice to the Government of Maharashtra 68 Electricity Duty 68 MERC, Mumbai IV

6 ANNEXURE Annexure No. Description 1 Summary of Major Policies of Government of Maharashtra and a Copy of Relevant Government Resolutions (GRs)/ Notifications in the matter of Page No. 2 Evolution of Captive Power Plant Policy of MSEB 77 3 Interim Order of the Commission dated in the matter of Fossil Fuel based 4 Public Notice Inviting Suggestions/ Comments on Proposed Policy for Power Purchase from Fossil Fuel based 5 Summary of Draft Policy for Fossil Fuel based in Maharashtra 6 List of Organisations/ Persons who have provided Suggestions/ Comments to the Commission on Proposed Policy on Fossil Fuel based Captive Power Plants 7 List of Persons who attended Public Hearing on Details related to ToD slot-wise Average Realisation of MSEB for Year Calculations related to Surcharge and Level of Cross-subsidy for MSEB for year Format for submitting details related to Fossil Fuel based Captive Power Plant (CPPs) to the State Load Dispatch Centre (SLDC) (For existing as well as New CPPs) 11 Format for submitting details related to Sale and/ or Banking of Energy from with the Distribution Licensee and/ or Third Party to the State Load Dispatch Centre (SLDC) 12 Plot of UI Charges as per CERC Notification dated in the matter of Availability based Tariff 13 Past Orders of the Commission in the matter of Fossil Fuel based Captive Power Plant MERC, Mumbai V

7 Table No. LIST OF TABLES Description 1 Interpretation of Primarily in Definition of CPP under Section 2(8) of EA Treatment for Existing/ New CPPs in case of Special Conditions with respect to Self Consumption and Sale to Grid/ Third Party 3 Penal Additional Demand Charges for exceeding Contract Demand plus Standby 4 Mechanism for Penal Additional Demand Charges for exceeding Contract Demand plus Standby during Unplanned Shutdown of CPP Page No. 5 Rate for Purchase (including Band) of Firm/ Infirm Power from CPP 10 6 Accounting Mechanism for Banking of Energy during Off-peak Period 12 7 Level of Cross Subsidy for MSEB ( [P]) 13 8 Charges applicable on account of excess drawal of Power (for Illustrative Example) 9 Interpretation of Primarily in Definition of CPP under Section 2(8) of EA Treatment for existing/ new CPPs in case of Special Conditions with respect to Self Consumption and Sale to Grid/ Third Party 11 Penal Additional Demand Charges for exceeding Contract Demand plus Standby 12 Mechanism for Penal Additional Demand Charges for exceeding Contract Demand plus Standby during Unplanned Shutdown of CPP 13 Average Realisation of MSEB for Year (for ToD Slots) Rate for Purchase (including Band) of Firm Power from CPP Rate for Purchase (including Band) of Infirm Power from CPP Accounting Mechanism for Banking of Energy during Off-peak Period Level of Cross Subsidy for MSEB ( [P]) Exhibit No. LIST OF EXHIBITS Description Page No. 1 Illustrative Example to explain applicability of Additional Demand Charges 27 2 Treatment of word Primarily in the Definition of CPP u/s 2(8) of EA MERC, Mumbai VI

8 LIST OF ABBREVIATIONS USED IN THE ORDER ABT Availability Based Tariff AoP Association of Persons BEST Brihan Mumbai Electric Supply and Transport Undertaking BILT Ballarpur Industries Limited BSSL Bhushan Steel and Strips Limited BOOT Build Own Operate Transfer BR Board Resolution CA Chartered Accountant CAGR Compounded Annual Growth Rate CC Commercial Circular CD Contract Demand CERC Central Electricity Regulatory Commission CII Confederation on Indian Industry CPP Captive Power Plant CPPA Captive Power Producer's Association Cr. Crore DC Departmental Circular Discom Distribution Company DPC Dabhol Power Company EA 2003 Electricity Act 2003 EBA Energy Banking Agreement ED Electricity Duty EPA Energy Purchase Agreement ERC Act Electricity Regulatory Commission Act EWA Energy Wheeling Agreement FO Fuel Oil FY Financial Year GoM Government of Maharashtra GR Government Resolution Hrs Hours HSD High Speed Diesel HT High Tension Hz Hertz IIL Ispat Industries Limited km Kilometer kva Kilo Volt Ampere kwh Kilo Watt Hour LC Letter of Credit LDC Load Dispatch Centre LDO Light Diesel Oil LPG Liquefied Petroleum Gas LSHS Light Sulphur Heavy Stock LT Low Tension MEDA Maharashtra Energy Development Agency MERC Maharashtra Electricity Regulatory Commission Misc. Miscellaneous MoP Ministry of Power MERC, Mumbai VII

9 Contd. MSEB Mn. MPECS MU MVA MW NOC ONGC P PF PRIA REL RkVAh R-LNG Rs. SCM SEM SKO SLDC SPV TBIA T&D ToD TPC UI U/s VIA w.e.f Maharashtra State Electricity Board Million Mula Pravara Electric Co-operative Society Ltd. Million Unit Mega Volt Ampere Mega Watt No Objection Certificate Oil and Natural Gas Corporation Limited Provisional Power Factor Patalganga and Rasayani Industries Association Reliance Energy Limited Reactive Kilo Volt Ampere Hour Re-gasified Liquefied Natural Gas Rupees Standard Cubic Metre Special Energy Meter Superior Kerosene Oil State Load Dispatch Centre Special Purpose Vehicle Thane Belapur Industries Association Transmission and Distribution Time of Day Tata Power Companies Limited Unscheduled Interchange Under Section Vidarbha Industries Association With Effect From MERC, Mumbai VIII

10 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. 55 and 56 of 2003 IN THE MATTER OF POWER PURCHASE AND OTHER DISPENSATION IN RESPECT OF FOSSIL FUEL BASED CAPTIVE POWER PLANTS Shri P. Subrahmanyam, Chairman Dr. Pramod Deo, Member Shri A. Velayutham, Member Dated: 08 th September 2004 ORDER Through this Order, the Maharashtra Electricity Regulatory Commission (MERC), in exercise of the powers vested in it under Section 86 of the Electricity Act (EA), 2003 and all other powers enabling it in this behalf, determines the power purchase and procurement process, including the price for procurement of power by the Maharashtra State Electricity Board (MSEB) and other Distribution Licensees in Maharashtra from Fossil Fuel based (CPPs) in the State. PREAMBLE Power Generating Capacity in Maharashtra 1.1 Total generating capacity of major utilities in Maharashtra (including Central Sector allocation and Dabhol Power Company) was 15,089 MW as of , with MSEB s own generating capacity accounting for more than 60% of the total generation capacity (including Central Sector allocation). In , the total generating capacity stood at 15,643 MW. Electricity Consumption in Maharashtra 1.2 A total of 46,400 MUs of power was consumed in the year in Maharashtra. A category-wise split of this consumption reveals that industrial consumers accounted for 38% of the power consumed in Maharashtra, followed by domestic and agricultural consumers at 26% and 19%. In , a total of 50,569 MUs of power was consumed. MERC, Mumbai Page 1

11 Section 1 Background and Operative Order Generation and Consumption Mismatch and Load Shedding 1.3 Currently Maharashtra has been facing a significant demand-supply gap in the power sector with daily load shedding being undertaken both in the morning and evening peak hours by the MSEB. An analysis of the recent data published by the State Load Despatch Centre (SLDC), Kalwa (for the period October 2003 to March 2004) reveals average peak load shedding of over 1,500 MW in Maharashtra. 1.4 Additionally, as per MSEB s estimates 1, there is a bus bar energy shortage of about 1,704 MUs, which translates into a shortage of 1,079 MUs at the consumer end (after accounting for 36.62% of T&D losses). There is a potential to bridge this demand-supply gap through surplus saleable CPP power in the state. Captive Power Scenario in Maharashtra 1.5 An analysis of data provided by MSEB to MERC on CPPs sanctioned under Section 44 of the erstwhile Electricity (Supply) Act, 1948 reveals that there were 46 sanctioned and operational CPP s in Maharashtra whose cumulative capacity stood at 657 MW as of March In addition another 883 MW capacity (consisting of 33 projects) had been sanctioned by MSEB as of March A study of CPP capacity reveals that most CPPs in Maharashtra are of relatively smaller capacity with no commissioned plant exceeding 100 MW. The top 10 CPPs in Maharashtra account for about 70% of total CPP capacity with a majority of them being Natural Gas/ Naphtha based. A further analysis reveals that most CPPs of capacity under 25 MW use liquid fuels (mostly Diesel), with the larger ones being mainly Gas/ Naphtha based and to a lesser extent coal based. Overall, Gas/ Naphtha based CPPs account for the largest share of capacity in Maharashtra (in MW terms). 1.7 A break-up of usage wise split of CPP Capacity as of August 2003, as provided by MSEB (in its letter to MERC dated ) shows that out of 143 CPPs about 136 CPPs (applications to MSEB, commissioned as well as un-commissioned) are for own use, while only 3 CPP Holders are using power through wheeling/ Third Party sale and 4 CPP Holders are using power for self consumption and for sale to MSEB. 1.8 However, in future the scenario with respect to CPPs is going to be significantly different from the past due to the following reasons- The EA 2003 has brought about fundamental changes in the way the CPPs are regulated Dispensation with respect to the fossil fuel based CPPs is likely to bring clarity/ stability in the way CPPs are regulated Expected completion of the Dahej-Uran gas pipeline (March 2005), is likely to provide further impetus to new gas-based CPP capacity addition in the State 1.9 With the above background, it is estimated that the CPP capacity in the State is going to grow significantly over the next 3 years. The CPP capacity additions would be in the range of about 500 MW to 600 MW 2. The capacity additions would be on two accounts: 1 : These estimates are based on MSEB letter dated 04/12/2003 addressed to the Commission. 2 : Estimates based on discussions held by MERC s consultants with Industry, leading Captive Power Plant manufacturers, etc. MERC, Mumbai Page 2

12 Section 1 Background and Operative Order Industrial units which had taken permission from the MSEB but did not commission the CPPs due to unfavourable conditions (like discouraging/ changing policy of the Government of Maharashtra [GoM] and the MSEB) prevailing in the State, would install CPPs (estimated capacity addition of about 300 to 330 MW assuming that all these CPPs are commissioned by ). New, which were not envisaged earlier but which would be set-up once the dispensation related to the fossil fuel based CPPs comes in force (estimated capacity addition of about 200 to 300 MW) It is estimated that the CPPs would have excess saleable capacity of about 23% to 25% of the total installed capacity (fuelled by the fundamental changes brought about by the EA 2003), which is expected to be about 270 to 320 MW of saleable capacity in the year More importantly, if about 300 MW of captive power is harnessed, it would translate into about Rs.1,200 crores of avoided cost of generation for the State. BACKGROUND AND CHRONOLOGY 1.12 The Government of Maharashtra liberalised the Captive Power Policy vide Government Resolution No. MISC/1095/CR/2776/NRG-2 dated in view of the liberalised Industrial Policy for the State, the growing demand for electricity by the industrial consumers and the prevalent load shedding within the State. This Policy included various industry friendly provisions like purchase of power from CPP (although limited to a certain extent of the total installed capacity of the CPP), Banking of power, Wheeling of surplus CPP power for sale to Third Party, etc. This industry friendly policy led to commissioning of substantial captive generating capacity in the State, especially by those consumers of the MSEB who desired continuous and quality power However, in the subsequent years the Policy 3 in respect of underwent changes from time to time depending on the prevailing power and tariff scenario within the State Due to the frequently changing policies of the State Government/ MSEB, the persons with CPP faced difficulties in the matter of various conditions (like sale to Third Party not allowed, reduction in Contract Demand, etc.) and changes in other factors like increase in fuel prices (most of the plants set up in the initial years used fuels like Diesel, Furnace Oil, Naphtha, etc.), which endangered the economics under which the CPPs were originally set up This led to filing of a number of Petitions by various CPP Holders with the Commission in respect of various conditions stipulated by the MSEB 4 in its various Commercial Circulars. The Commission convened a meeting in this matter on 29 th January 2003 to understand views of all the stakeholders preceding the issuance of a Captive Power Plant Policy Directive / Regulation for the State of Maharashtra Subsequently, the EA 2003 came into force on 10 th June 2003, which mandated reforms and competition in the electricity industry including de-licensing of generation of electricity. Later, MSEB came out with a Commercial Circular No. 689 dated , which was issued without prior approval from the Commission. The same was pointed out by the Commission in its letter dated , which outlined among other things that the Circular was not in conformity with the 3 : Refer Annexure-1 for Summary of Major Policies of Government of Maharashtra and a Copy of Relevant Government Resolutions (GRs)/ Notifications in the Matter of 4 : Refer Annexure-2 for Evolution of Captive Power Plant Policy of MSEB MERC, Mumbai Page 3

13 Section 1 Background and Operative Order various provisions of the EA 2003 and the MSEB had no jurisdiction to issue such Circular before prior approval of the Commission. The same letter directed the MSEB to keep the said Circular in abeyance (except for Banking provisions) until the Commission s final decision on the Captive Power Plant Policy In the meanwhile, two separate Petitions were filed by Vidarbha Industries Association (VIA) on (Case No. 55 of 2003) and by M/s Ballarpur Industries Ltd. (BILT) on (Case No. 56 of 2003) with the main prayer, among other things, that MSEB be directed to withdraw the said Circular dated , being illegal on various grounds. Both Petitions challenged MSEB s jurisdiction on various issues related to the CPP Policy, particularly on sale of power to MSEB and/ or Third Parties, Purchase Rate, Synchronisation Charges, Additional Demand Charges, etc., after the enactment of the EA 2003, which has brought about fundamental changes in the dispensation for A preliminary hearing in these two cases was held by the Commission on , wherein the Petitioners elaborated on the averments and arguments set out in both the Petitions. The Circular No. 689 dated was stayed by the Interim Order 5 dated , except for Banking related provisions, until the Commission comes out with the final dispensation for fossil fuel based. FORMULATION OF PROPOSED POLICY 1.19 As the Commission was already seized of the matter, it prepared a document containing a proposed Policy for the Fossil Fuel based for public comment and hearing, and subsequent finalisation. PUBLIC HEARING PROCESS 1.20 A Notice 6 dated for Pubic Hearing 7 to be held on , was published on the Website of the Commission and in leading daily newspapers in English and Marathi. The summary 8 of the proposed Policy (in Marathi and English) inviting comments and suggestions 9 from the Public was made available free of cost. The summary and the detailed proposed Policy (without Annexures) was also hosted on the Website of the Commission for greater access to the Public. The detailed Proposed Policy Document was provided for inspection at the Commission s office and also made available for sale. The comments/ objections were required to be submitted by TARIFF PRINCIPLES 1.21 The Commission has generally been guided by the most suitable and implementable practices of tariff determination, especially in the context of the rapidly evolving electricity sector in India, which it has consistently used since its first major tariff Order in year 2000 for determination of tariff for the MSEB consumers. The Commission has also followed the letter and spirit of the various relevant provisions of the Electricity Act 2003 while formulating this Policy. The tariff principles followed by the Commission in its Orders on Wind Energy and on Bagasse and other nonfossil fuel based Co-generation have also been considered. 5 : Refer Annexure-3 for Interim Order of the Commission dated : Refer Annexure-4 for Public Notice Inviting Suggestions/ Comments on Proposed Policy for Power Purchase from Fossil Fuel based 7 : Refer Annexure-7 for List of Persons who Attended Public Hearing on : Refer Annexure-5 for the Summary of the Proposed Order on Fossil Fuel based 9 : Refer Annexure-6 for List of Persons who have provided Suggestions/ Comments to the Commission on Proposed Policy on Fossil Fuel based MERC, Mumbai Page 4

14 Section 1 Background and Operative Order 1.22 The key tariff principles are: Implementation based on spirit of EA 2003 and the relevant provisions Consistency in principles and its application Minimise uncertainty and regulatory interference Fair and equal treatment to all stakeholders Forward looking and implementable Incentives to Co-generation based CPPs for efficient utilisation of Fossil Fuels Consonance with regulatory aspects APPROACH 1.23 The Commission has taken into consideration the genesis of the Captive Power Plant industry in the State and its evolution. The Commission has noted the reasons for commissioning of substantial CPP capacity initially when the Captive Power Policy was introduced by the Government of Maharashtra in The Commission notes that there is an opportunity to harness the excess saleable capacity with the (CPPs) which could be utilised to partially bridge the demand-supply gap prevailing in the State. Further analysis has revealed that about MW of excess capacity of could be utilised to meet the growing power deficit in the State The Commission has carried out a detailed analysis of the various policies of the Government of Maharashtra and various Commercial Circulars of MSEB introduced from time to time Subsequent to the coming into force of the Electricity Act 2003 on June 10, 2003, several Petitions and applications were filed with the Commission, which brought various issues to its notice. While formulating this Order, the Commission has tried to take into account these issues While determining the tariff for Fossil Fuel 10 based, the Commission has evaluated the various factors that affect the cost of generation like technology, fuels used, other operational constraints, etc. On further analysis the Commission observed that the cost of generation varies depending on the size of CPP, type of fuel used, among other things, and hence, the Commission is of the opinion that the tariff should be generic in nature and would not be different for various CPP holders based on size of CPP or type of fuel used. To arrive at the tariff the Commission has considered various options available. The details for arriving at the tariff and other related issues are provided in the section on Commission s Analysis and its Ruling on Tariff and related Issues The Commission has also taken into consideration comments/ suggestions provided by the public on the proposed Policy while finalising this Order. 10 : To qualify under this Policy, the shall utilise only Fossil Fuels, i.e. Primary as well as Secondary fuels should also be Fossil Fuels. MERC, Mumbai Page 5

15 Section 1 Background and Operative Order TARIFF AND RELATED ISSUES ADDRESSED IN THIS ORDER 1.28 The Commission has addressed the following issues in this Order relating to Fossil Fuel based : Issue No.1: Issue No.2: Issue No.3: Issue No.4: Issue No.5: Issue No.6: Issue No.7: Issue No.8: Issue No.9: Definition of a CPP with respect to own consumption versus sale mix Reduction in Contract Demand of a CPP Holder Reduction in Contract Demand of the Third Party Purchaser of CPP Power Additional Demand Charges in respect of CPP Holder Rate of Purchase of CPP Power by Distribution Licensee Rate of Purchase of CPP Power by Third Party Banking of Surplus Power with Distribution Licensee Provisions related to Wheeling of CPP Power Surcharge on Third Party Sale of CPP Power COMMISSION S RULING ON TARIFF AND RELATED ISSUES 1.29 The Commission s ruling on the Tariff and related issues is given here. ISSUE NO. 1: DEFINITION OF A CPP WITH RESPECT TO OWN CONSUMPTION VERSUS SALE MIX 1.30 Table 1 provides the interpretation of word primarily in the definition of the CPP u/s 2(8) of EA 2003 for Self-Consumption versus Sale to Distribution Licensee and/ or the Third Party. Table 1 Interpretation of Primarily in Definition of CPP under Section 2(8) of EA 2003 Self Consumption Sale to Distribution Licensee/ Third Party (as % of Installed Capacity of CPP) (as % of Installed Capacity of CPP) 51% 49% 1.31 The above interpretation of the word primarily is the Commission s current stand in this matter, and is in line with the Order dated in Case No. 57 of However, as the Commission is to be guided by the National Electricity Policy and Tariff Policy of the Government of India as and when it is notified MERC may revisit the above interpretation, if required. Relief to CPP Holders- Special Conditions 1.32 In order to facilitate better utilisation of excess CPP capacity the following conditions (as shown in Table 2) shall apply in the specific cases to ensure discipline in the share of self consumption: MERC, Mumbai Page 6

16 Section 1 Background and Operative Order Table 2 Treatment of Existing/ New CPPs in Case of Special Conditions with Respect to Self Consumption and Sale to Grid/ Third Party Particulars Condition on Consumption as a Percentage of Total Installed Capacity of Captive Power Plant (CPP) Self Sale to Distribution Sale to Third Cumulative Sale Consumption Licensee Party (Distribution Licensee and Third Party) Normal Condition* Minimum 51% Maximum 49% Maximum 49% Maximum 49% Special Condition Minimum 25% with Maximum 75% with Maximum 49% Maximum 75% a time limit a time limit with a time limit Note: *Normal Condition is the share of consumption for self use and that for sale to the grid/ third party as defined by the Commission 1.33 CPP Holders will be allowed to sell power in excess of the defined ceilings in this dispensation under the following Special Conditions: 1) Low Capacity Utilisation: Where the existing CPP Holder has a low capacity utilisation, viz. less than or equal to 25% of the installed capacity and hence lower offtake of power for self consumption. This relaxation would be applicable for a time limit of 3 years, before a review by the Commission in case extension of this time period is desired by the CPP Holder on valid grounds. 2) Shutdown of Manufacturing Capacity: Where the existing CPP Holder s unit is shut down and hence there is lower offtake of power for self-consumption. This relaxation would be applicable for a time limit of 3 years, before a review by the Commission in case extension of this time period is desired by the CPP Holder on valid grounds. 3) Proposed Capacity Expansion of Existing CPP: Where the existing CPP Holder goes for CPP capacity expansion in anticipation of the higher future requirements and hence there is lower proportion of offtake of power for self consumption till the additional capacity is utilised. This relaxation would be applicable for a time limit of 3 years, before a review by the Commission in case the CPP Holder desires the extension of this time period on valid grounds. 4) Proposed Capacity Expansion for New CPP: Where a new CPP is installed which has excess capacity in anticipation of higher future requirements, and hence there is lower proportion of offtake of power for self-consumption in the intervening period. This relaxation would be applicable for a time limit of 3 years, before a review by the Commission in case the extension of this time period is desired by the CPP Holder on valid grounds. ISSUE NO. 2: REDUCTION IN CONTRACT DEMAND OF A CPP HOLDER 1.34 The CPP Holder shall be allowed to reduce his Contract Demand with the Distribution Licensee to the desired level. ISSUE NO. 3: REDUCTION IN CONTRACT DEMAND OF THE THIRD PARTY PURCHASER OF CPP POWER 1.35 The Third Party Captive Power Purchaser shall be allowed to reduce his Contract Demand with the Distribution Licensee to the desired level. MERC, Mumbai Page 7

17 Section 1 Background and Operative Order ISSUE NO. 4: ADDITIONAL DEMAND CHARGES IN RESPECT OF CPP HOLDER 1.36 Applicability of Additional Demand Charges shall be as follows: The Additional Demand Charges should be charged to only those CPP Holders whose Captive Power Plants are synchronised with the grid. In line with the MERC Tariff Orders, HT consumers having captive generation facilities synchronised with the grid will pay Additional Demand Charges of Rs.20 per kva per month only on the Standby component, and only on the quantum, if any, in excess of the consumer s Contract Demand. For exceeding the Contract Demand (over and above the standby component, if applicable), the CPP Holder would be levied penal charges as provided in Table 3. Table 3 Penal Additional Demand Charges for Exceeding Contract Demand plus Standby Particulars Penal Additional Demand Charges Excess Drawal in case of Planned Shutdown of CPP 1.5 times Demand Charges (on monthly basis) in force Excess Drawal in case of Unplanned Shutdown of CPP 2.0 times Demand Charges (on hourly basis) in force 1.37 The Penal Additional Demand Charges for exceeding Contract Demand under unplanned shutdown shall be linked to the reasonably closest possible duration of actual shutdown of the CPP. However, in order to make this implementable, the penal charges would be in terms of hour-basis as provided in Table 4. Table 4 Mechanism for Penal Additional Demand Charges for Exceeding Contract Demand plus Standby during Unplanned Shutdown of CPP Un-planned Shutdown Duration: Illustrative Cases Calculation Methodology for Penal Charges Remarks Case 1: 3 Hour Penal Charges = [ 2.0 times Demand Charges For 3 hours, the penal charges per (for Month in kva) / (30 * 24) ] * 3 hour are multiplied by 3 Case 2: 2 Days (48 Hours) Penal Charges = [ 2.0 times Demand Charges (for Month in kva) / (30 * 24) ] * 48 For 48 hours, the penal charges are multiplied by 48 Note: In case of the odd-units of duration it would be rounded-off to the closest unit of selected timeduration. To implement this, it is necessary to have ToD meters installed at the CPP Holders end 1.38 Higher Penal Additional Demand Charges for unplanned shutdown (2 times normal Demand Charges) shall be levied to discourage incidences of unplanned shutdown. ISSUE NO. 5: RATE OF PURCHASE OF CPP POWER BY DISTRIBUTION LICENSEE Need for Purchase of CPP Power by Distribution Licensee 1.39 Based on the analysis of the current demand and planned future additions in generation capacity, it is likely that Maharashtra would have a demand-supply gap of about 1,850 MW in the year Hence, purchase of (both Firm and Infirm) power from Fossil Fuel based CPPs, MERC, Mumbai Page 8

18 Section 1 Background and Operative Order considering their low gestation period, would be expected of Distribution Licensees. In any case, some of them incur considerable expenditure on Unscheduled Interchange (UI) charges even after resorting to load shedding in order to partially bridge the prevalent demand-supply gap The eligibility criterion will be the purchase of minimum 1 MW (i.e. equivalent to units per hour) of power, applicable in case of both Firm power and Infirm power purchase The Distribution Licensee should sign an Energy Purchase Agreement (EPA), for a minimum period of 3-years and a maximum period of 5-years, with the CPP Holders, for both Firm as well as Infirm power purchase from CPP. Rate of Purchase of Firm and Infirm Power by Distribution Licensee 1.42 Rate of Purchase of Firm as well as Infirm CPP Power shall be based on the UI rate under the Principles of Availability Based Tariff (ABT) as notified (latest being No. L-7/25(5)/2003-CERC dated 26th March 2004 and w.e.f ) by the Central Electricity Regulatory Commission from time to time. The relevant portion (as applicable at present) is quoted below: Unscheduled Interchange (UI) Charges: (1) Variation between actual generation or actual drawal and scheduled generation or scheduled drawal shall be accounted for through Unscheduled Interchange (UI) Charges. UI for a generating station shall be equal to its actual generation minus its scheduled generation. UI for a beneficiary shall be equal to its total actual drawal minus its total scheduled drawal. UI shall be worked out for each 15- minute time block. Charges for all UI transactions shall be based on average frequency of the time block and the following rates shall apply with effect from Average Frequency of Time Block UI Rate (Paise per kwh) 50.5 Hz and above 0.0 Below 50.5 Hz and up to Hz 8.0 Below Hz and up to Hz Below Hz Between 50.5 Hz and Hz linear in 0.02 Hz step (Each 0.02 Hz step is equivalent to 8.0 paise/ kwh within the above range.) 1.43 Basically, therefore, the UI charges are presently governed by the following formula; UI Charges = 600 paise per unit for f < 49 Hz = 600-[400*(f-49)] paise per unit for 49 < f < 50.5 Hz = 0 paise per unit for f > 50.5 Hz 11 : Operational Definition: The eligibility criterion of minimum 1 MW would be equivalent to 700 units per hour i.e. minimum 700 units per hour should be fed into the Distribution Licensee s grid. This calculation is based on a normative load factor of 70% for (i.e kwh x 70% Load Factor = 700 units per hour). MERC, Mumbai Page 9

19 Section 1 Background and Operative Order Notation: > is greater than, and < is lower than Hence, the rate of purchase from CPPs would be linked to Unscheduled Interchange (UI) charges as explained below The rate of purchase of Firm CPP power shall be linked to the prevailing grid frequency and subject to a band of a minimum (floor) and maximum (ceiling) rate of purchase as shown in the Table 5 below. Thus, for the current level of applicable UI charges at Rs per unit at 49 Hz, the band of the maximum and minimum rate of purchase of Firm CPP power shall be Rs per unit (two third of UI charges at 49 Hz) and Rs per unit (currently, intersecting at UI Rate 12 frequency of Hz) In view of the provisions of Section 86 (1)(e) of EA 2003 mandating promotion of cogeneration, the Commission hereby rules that CPPs adopting the principle of Co-generation based on fossil fuel, shall be entitled to a rate premium of 10% as prescribed above. Table 5 Rate for Purchase (including Band) of Firm/ Infirm Power from CPP Purchase Condition Frequency Purchase Rate Firm Purchase Non-Co-generation CPP At all frequency within ABT range As per UI rate subject to the Floor rate of Rs per kwh (intersection frequency of Hz) and Ceiling rate of 2/3 rd of UI Charge at 49 Hz. Co-generation based CPP In-Firm Purchase Non-Co-generation CPP Co-generation based CPP At all frequency within ABT range At all frequency within ABT range At all frequency within ABT range 10% premium over Rate prescribed under Firm purchase for Non-Co-generation based CPPs i.e. As per UI rate subject to the Floor rate of 110% of Firm power rate of Non-Cogeneration based CPPs (intersection frequency of Hz) and Ceiling rate of 110% of 2/3 rd of UI Charge at 49 Hz. 90% of the applicable rate prescribed under Firm purchase for Non-Co-generation based CPPs 90% of the applicable rate prescribed under Firm purchase for Co-generation based CPPs 1.47 The Commission may revisit the rate at the beginning of the next 5-year Plan period, i.e , if required. Common requirements for both Firm and Infirm CPP Power purchases by Distribution Licensee 1.48 The Distribution Licensee shall purchase Firm as well as Infirm power from any CPP Holder on application by him for this purpose. The payments for the power purchase from the CPPs by the Distribution Licensee should be settled at the end of each billing cycle Each CPP Holder whose CPP is synchronised with the grid and desirous of selling power 12 : It shall be noted that the intersecting frequency is based on the current UI Rate prescribed by the CERC and subject to change in future. Refer Annexure-12 for Plot of UI Charges as per CERC Notification dated in the matter of Availability based Tariff MERC, Mumbai Page 10

20 Section 1 Background and Operative Order to the Distribution Licensee or to Third Party should install ToD 13 meters (including SEMs) at his end. ISSUE NO. 6: RATE OF PURCHASE OF CPP POWER BY THIRD PARTY 1.50 The rate of purchase of CPP Power by the Third Party Consumer is not within the purview of the Commission However, the sale of CPP Power to the Third Party shall be subject to the following conditions; The Infirm power supply will not be accounted for, in case the Distribution Licensee s network is being used for wheeling such power, since the CPP Holder has the banking option with the Distribution Licensee. For the purpose of operational simplicity, the eligibility criterion applicable for purchase of Firm power through the Distribution Licensee s network will be a minimum of 1 MW (i.e. equivalent to units per hour). In case a CPP holder puts less than 1 MW of power into the grid then such lower quantum of energy should not be accounted for by the Distribution Licensee. ToD (including Special Energy Meters- SEMs) meters should be installed by both the CPP Holder synchronised with the grid and desirous of selling power to the Third Party consumer as well as the Third Party consumer of CPP Power at the receiving end. Third Party sale through the grid will be subject to the Commission providing Open Access in the Distribution Licensee s area where the Third Party Consumer of CPP power is located. ISSUE NO. 7: BANKING OF SURPLUS POWER WITH DISTRIBUTION LICENSEE 1.52 Banking of energy shall be allowed by the Distribution Licensee, and will be regulated by the following conditions: An Energy Banking Agreement (EBA) should be executed between the CPP holder and the Distribution Licensee. The EBA will be for a minimum of 3-years and a maximum period of 5-years. Accounting of the banked energy units would be carried out on Time of Day (ToD) basis, i.e. energy units banked by the CPP Holder during a particular ToD-slot should be accounted against the same ToD slot when the CPP holder draws the banked units. For this purpose the ToD slots as per latest approved tariff of the Distribution Licensee would be applicable. It should be noted that units banked during a higher tariff ToD-slot could be consumed in a lower tariff ToD slot at the option of CPP Holder, but the reverse would not be allowed (i.e. units banked during a lower tariff ToD-slot cannot be drawn by the CPP Holder during a higher tariff ToD-slot). 13 : Note: Given that the Commission is planning to introduce Intra-state ABT regime, installation of Special ToD Meters with continuous communication capability with the concerned LDC/ Distribution Licensee would be desirable. Refer to section on General Conditions, which has covered this topic in detail. 14 : Operational Definition: The eligibility criterion of minimum 1 MW would be equivalent to 700 units per hour i.e. minimum 700 units per hour should be fed into the Distribution Licensee s grid. This calculation is based on a normative load factor of 70% for (i.e kwh x 70% Load Factor = 700 units per hour). MERC, Mumbai Page 11

21 Section 1 Background and Operative Order In case the Distribution Licensee does not provide 24 hour banking facility to the CPP Holder, then the accounting of the energy fed into the grid during the time period for which Banking is not desired (mostly the off-peak demand period for the Distribution Licensee) should be linked to the grid frequency prevailing at that time as detailed in the Table 6 below. Table 6 Accounting Mechanism for Banking of Energy during Off-peak Period Sr. No Grid Frequency (Hz) Credit for Banking as a percentage of total energy fed into the grid (%) and above 0% 2 Below % 1.53 The above mechanism is for accounting of energy fed into the grid during off-peak period The banked units should be accounted for by the Distribution Licensee on a monthly basis. The Distribution Licensee would give the credit for the balance units in the subsequent month s bill It should be noted that at the end of the Financial Year accounting of the banked units should be carried out, and balance banked units would be adjusted against the energy purchased by the CPP holder during the Financial Year. However, subsequent to adjustment of banked units at the end of the Financial Year, if there are additional balance banked units, such banked units would lapse at the end of the year. Note: In case a CPP holder has a EBA (for Banking) as well as EPA (for Selling Infirm power) arrangement with the Distribution Licensee, then the Infirm power fed into the grid should be either Banked and/ or sold to the Distribution Licensee as per the conditions of EPA and/ or EBA signed between the CPP Holder and the Distribution Licensee. However, in case priority is not mentioned for Banking or selling of such power in EBA and/ or EPA, then priority shall be given for Banking. In such cases, CPP holder shall have the right to choose the maximum quantum (in units) of power to be Banked, and if the additional power (beyond maximum quantum specified by the CPP Holder) is fed into the grid of the Distribution Licensee, then the same should be treated as Infirm power sold (at the option of the CPP Holder) to the Distribution Licensee by the CPP Holder. ISSUE NO. 8: PROVISIONS RELATED TO WHEELING OF CPP POWER 1.56 The Wheeling Charges and Transmission charges will be the same (2% and 5% respectively) as those approved by the Commission in its Order dated 16 th August 2002 for purchase of power from Bagasse based Co-generation Projects and Order dated 24 th November 2003 for Procurement of Wind Energy and Wheeling for Third Party Sale and/ or Self-use, pending State-wide Load Profile Studies to arrive at the actual levels of Transmission Losses and applicable Wheeling Charges In case the CPP power is wheeled over the grid, separate Energy Wheeling Agreement (EWA) should be signed by the CPP holder as well as CPP power Consumer (consumer may be CPP holder himself or the Third Party) with its respective Distribution Licensee. The Distribution Licensee should provide 24 hour wheeling facility on ToD basis (wherever applicable). MERC, Mumbai Page 12

22 Section 1 Background and Operative Order ISSUE NO. 9: SURCHARGE ON THIRD PARTY SALE OF CPP POWER Part 1: Surcharge on Third Party Sale of CPP Power 1.58 The Surcharge is to be levied on the sale of CPP power by the CPP Holder to compensate the Distribution Licensee for cross-subsidies within his Distribution License area. In the absence of a detailed study, the Cross-subsidy may be calculated based on the Average Realisation from various consumer categories of Distribution Licensee s supply area, and is computed as the difference between the Average Realisation of the HT Industrial Consumer and the overall Average Realisation of all the consumer categories of the Distribution Licensee Based on the analysis for the year the level of cross-subsidy 15 provided by the HT Industrial Consumers of the MSEB is as detailed in the Table 7 below For other Distribution Licensees like REL, TPC and BEST, the Commission is aware that the level of Cross-Subsidy is much less than that of MSEB as these licensees have an insignificant number of agricultural consumers in their license area. On the other hand, the Commission is also aware of the high levels of cross-subsidy for Mula-Pravara Electric Co. Op. Society Limited. However, since similar data for all other Distribution Licensees was not available, the level of crosssubsidy to be applicable for other Distribution Licensees can be taken to be at the same level as that for the MSEB. Name of Distribution Licensee Table 7 Level of Cross Subsidy for MSEB ( [P]) Gross Average Realisation for Distribution Licensee Average HT Industrial Realisation for Distribution Licensee Level of Cross Subsidy provided by the HT Industrial Consumers in Rs. and in %ge MSEB (134%) Source: MSEB Statement of Accounts-Un-audited ( ) Note: P- Data analysed from MSEB Statement of Accounts is provisional data for year However, if the full level of Cross Subsidy (as in case of MSEB, Rs per unit for year ), is loaded on CPP Power Sale to Third Party consumer, then it would act as a deterrent as it would render the sale of CPP power uneconomical In view of the demand-supply gap in the State and load shedding being undertaken by MSEB, the excess saleable capacity from the would help bridge this demand supply gap to a certain extent. Hence, any CPP capacity addition and sale to the Third Party consumer/s from the CPPs should also be looked at from the point of view of the avoided cost of generation capacity The Commission has noted that the average realisation of MSEB is Rs per unit while the variable cost of generation for fossil fuel based is broadly in the range of Rs. Rs to 3.20 per unit, depending on the size and type of fuel used in the CPP among other things. Considering the average variable cost of CPP power at about Rs per unit in the light of the average realisation of MSEB, the Commission believes that if the current level of cross-subsidy of Rs per unit is levied on the CPP Holder, it would render CPP power unviable vis-à-vis the power sold by the Distribution Licensee. 15 : Refer Annexure-9 for Calculation related to Surcharge and level of cross-subsidy for the MSEB. MERC, Mumbai Page 13

23 Section 1 Background and Operative Order 1.64 Therefore, in order that the Distribution Licensees are fairly compensated for crosssubsidy and, at the same time, the CPP Holders are not overburdened by the Surcharge, a Surcharge of 25% of the total cross-subsidy of the Distribution Licensee shall be applicable on the sale of CPP power to the Third Party consumer. Part 2: Additional Surcharge on Third Party Purchaser of CPP Power 1.65 Given the current situation of demand-supply gap in the State, no Additional Surcharge shall be levied on the Third Party purchase of CPP power under Section 42(4) at present, but the Commission would review its applicability from time to time depending upon the demand-supply situation in future. GENERAL CONDITIONS CPP Holder to Furnish Details related to CPP to the SLDC 1.66 All the existing CPP holders in the State of Maharashtra shall provide details related to their CPPs to the State Load Dispatch Centre (SLDC) within a period of six months from the date of this Order For the CPPs that are commissioned after this Order, the CPP Holder shall provide intimation of date of commissioning of CPP to the SLDC and the Distribution Licensee at least onemonth in advance. Additionally, the details related to the various aspects of such CPPs shall be submitted by the respective CPP Holders to the SLDC within one month after commissioning of the CPP Also, any modification/ augmentation of the existing CPP capacity shall be reported to the SLDC 16 within one month of the said modification/augmentation. Supervision Charges for Synchronisation of CPP with Grid 1.69 The CPP Holder desirous of synchronising the CPP with the grid shall pay to the Distribution Licensee an amount equivalent to 15% of the cost of labour that would have been employed by the Distribution Licensee in carrying out such work. Reactive Power Supply 1.70 The Commission has taken note of various comments/ suggestions received in this matter. For the purposes of this Order, the Commission rules that the CPP Holders synchronised with the grid shall supply reactive power at nominal voltage at point of injection equivalent to at least 25% 17 of the active power (kwh) supplied to the grid on a monthly basis. The penalty/ incentive for extra Reactive Energy drawal/ supply than the desired quantum at the point of injection, if any, shall be based on Commission s future directive on the matter. Payment Security- for Firm Power Purchase by Distribution Licensee from CPP holder 1.71 A Letter of Credit (irrevocable and revolving) in favour of the CPP holder for an amount equivalent to an average monthly bill shall be opened at the cost and option of the CPP holder by the Distribution Licensee, in case an EPA is signed for Firm power purchase between Distribution Licensee and the CPP holder. 16 : Refer Annexure-10 for format related to submitting details of the captive power plant to the SLDC by the CPP Holder 17 : Based on discussions held by MERC s consultants with leading CPP manufacturers MERC, Mumbai Page 14

24 Section 1 Background and Operative Order Billing and Payment to CPP Holder by Distribution Licensee for Purchase of Firm/ Infirm Power 1.72 The Distribution Licensee shall raise the bill after accounting for the Firm/ Infirm power purchased from the CPP applicable as first charge, at the end of each monthly billing cycle. In case the Distribution Licensee needs to make payment to the CPP holder, this shall be done after adjusting charges payable in respect of the energy consumed by the CPP holder or other charges (like Demand Charges, etc.) due to the Distribution Licensee The payments in respect of the energy consumed from CPP after adjustments shall be made by the Distribution Licensee within the same period as provided by the Distribution Licensee to recover payments from its HT Industrial Consumers. The monetary penalties for delayed payments by the Distribution Licensee to the CPP Holder shall be the same as those levied by the Distribution Licensee on its HT Consumers for delayed payments. Evacuation Facilities 1.74 The CPP holder desirous of synchronising the CPP with the grid shall bear the cost of switchyard and interconnection facilities (to be accommodated within CPP premises) upto the point of energy metering. The Distribution Licensee shall bear the cost of transmission lines and associated facilities beyond the point of energy metering for the evacuation of power. The CPP Holder shall provide an interest free advance to the Distribution Licensee equivalent to 50% of the cost of works to be carried out by the Distribution Licensee for power evacuation purposes The Distribution Licensee shall refund the above interest free advance to the CPP Holder in five equal instalments spread over five years commencing from one year after the date of synchronisation of the CPP. Deemed Generation Benefits 1.76 No compensation shall be provided to the CPP Holder or the Third Party purchaser of CPP Power by the Distribution Licensee for deemed generation benefits in case the Distribution Licensee fails to evacuate power due to failure of the Transmission facility. Energy Purchase Agreement (EPA) 1.77 The CPP Holder shall sign an EPA with Distribution Licensee or Third Party consumers for sale of power of minimum 1MW (i.e. equivalent to 700 units per hour). The above criterion shall be applicable for Firm as well as Infirm power. Any power injected into the grid for the purpose of selling to the Distribution Licensee or the Third Party which is less than 1 MW shall not be considered while billing by the Distribution Licensee It is not intended that the Commission would approve EPA for each CPP Holder individually. Distribution Licensees shall draft EPA taking cognisance of the Tariff provisions and EPA-related principles elaborated in this Order A short tenure such as 1 year for Firm power purchase agreement would be an area of concern (to lending institutions) keeping in mind that CPP Holder needs to provide details related to revenue realisation on account of excess power sold (for the duration of financial assistance) while seeking financial assistance from the lending agencies/ institutions In the absence of a long-term EPA (for excess saleable energy), the ability of the CPP holder to re-pay the principal amount and interest could be questioned by the lending institutions/ agencies that provide financial assistance to the CPP holder. MERC, Mumbai Page 15

25 Section 1 Background and Operative Order 1.81 Therefore, the Distribution Licensee should sign an EPA for a minimum of 3-years and a maximum period of 5-years, with the CPP Holders, for both Firm as well as Infirm power purchase from CPP The Distribution Licensee should sign the EPA within 1-month from the date of submission of the application for such agreement by the CPP Holder. Energy Wheeling Agreement (EWA) 1.83 The CPP Holder/ Third Party buyer of CPP power and the concerned Distribution Licensee shall sign an EWA for the purpose of Wheeling of only Firm power from the CPP Holder to the Third Party buyer of CPP power. Such Wheeling Agreement shall be applicable for a minimum quantum of 1 MW (i.e. equivalent to 700 units per hour) if wheeled over the Distribution Licensee s Network. It is not intended that the Commission would approve EWA for each CPP holder individually. The Distribution Licensees shall draft EWA taking cognisance of the energy Wheeling principles elaborated in this Order The tenure of the EWA shall be same as that of the EPA signed with the Third Party buyer of CPP power The Distribution Licensee should execute the EWA within 1-month from the date of submission of the application for such agreement by the CPP Holder or the Third Party purchaser of CPP power, as the case may be. Energy Banking Agreement (EBA) 1.86 The CPP Holder and the Distribution Licensee shall sign an EBA for the purpose of banking of CPP power with the Distribution Licensee. It is not intended that the Commission would approve EBA for each CPP Holder individually. The Distribution Licensees shall draft EBA taking cognisance of the Banking principles elaborated in this Order The tenure of the EBA shall be for a minimum of 3-years and a maximum period of 5- years. The Distribution Licensee should sign the EBA within 1-month from the date of submission of the application for such agreement by the CPP Holder. Planned and Unplanned Shutdown for Captive Power Plant 1.88 For a shutdown to be treated as planned shutdown, the CPP Holder shall inform the Distribution Licensee at least one-month in advance. ToD Meters 1.89 Given that the Commission is planning to introduce Intra-State ABT regime in the State, Special Real Time ToD meters with online reading features and continuous communication facility with the relevant Load Dispatch Centre or the Distribution Licensee are desirable Existing and the Third Party consumers of the CPP power would continue to use the current ToD meters (including Special Energy Meters- SEMs). All the new CPPs to be commissioned shall install Special ToD meters at their end. Also, all the Third Party purchasers of CPP power entering into a contract with a CPP Holder/s after this Order shall install special ToD meters at their end It is expected that all CPP Holders as well as the Third Party purchasers of CPP power shall shift from ToD meters (including SEMs) to Special ToD meters as and when the Intra-State ABT mechanism is implemented. MERC, Mumbai Page 16

26 Section 1 Background and Operative Order 1.92 The cost of such special ToD meters shall be borne by the respective CPP Holders or the Third Party consumer of CPP power (as the case may be) and not by the Distribution Licensee. Distribution Licensees to furnish details related to power purchased/ Banked from Captive Power Plants 1.93 Distribution Licensees shall provide and update every month details in respect of quantum of power purchased (both Firm as well as Infirm power), source from which power is procured and the cost of purchased power (both monthly and moving year average) on their websites Additionally, the Distribution Licensee shall provide month-wise details related to Banked units from the CPP and the same shall be updated on their website. Captive Power Plant Holders must furnish details related to CPP power sales and/ or Banking with Distribution Licensee and/ or Third Party 1.95 The CPP Holder shall provide details in respect of quantum of power sales to Distribution Licensee (both Firm as well as Infirm power) as well as to Third Party purchaser of CPP power, if any, along with details such as units sold and realisation from sale of such power, at the end of every Financial Year to the SLDC The said details shall be duly audited by an independent energy auditor approved by the Maharashtra Energy Development Agency (MEDA), before submission to the SLDC. A copy of the same shall also be submitted to the relevant Distribution Licensee in whose license area the CPP is situated. Waste Heat Recovery based Generation 1.97 Any power generation on waste heat recovery system by an industrial unit shall be treated as captive generation. However, for the same to be applicable under this Order, fossil fuel should be used for the purpose of heat generation in the manufacturing process from which waste heat recovery is done. However, the same shall not be treated as co-generation so long as such generation does not satisfy the criteria defining co-generation for the purpose of this dispensation. DEFINITIONS Fossil Fuel 1.98 Fossil fuel is defined as a natural substance with hydrocarbon contents that can be burnt to generate useful heat. Major fossil fuels that are covered by this Order include- Solid Fossil Fuels like Coal, Lignite; Liquid Fossil Fuels like Diesel, Fuel Oil (FO), Low Sulphur Heavy Stock (LSHS), Naphtha, Light Diesel Oil (LDO), Superior Kerosene Oil (SKO), High Speed Diesel (HSD) and Gaseous Fossil Fuels like Natural Gas, Re-gasified Liquefied Natural Gas (R-LNG), Liquefied Petroleum Gas (LPG), Other Lean Gases (like Propane, Butane, etc.) 1.99 It should be noted that the fuels mentioned above are major fossil fuels used in fossil fuel based. However, it is not an exhaustive list, and any other fossil fuel with hydrocarbon content shall be covered by this Order. Any non-fossil fuel used for captive generation is not covered under this Order. MERC, Mumbai Page 17

27 Section 1 Background and Operative Order Co-generation The Ministry of Power (MoP) in its Resolution dated has defined the qualifying requirements for a co-generation facility as follows: Firm Power A Co-generation facility is defined as one, which simultaneously produces two or more forms of useful energy such as electrical power and steam, electrical power and shaft (mechanical) power, etc. There are essentially two basic forms of co-generation, viz. a) Topping cycle b) Bottoming cycle. Topping cycle: Any facility that uses fuel input for power generation and also utilises for useful heat applications in other industrial activities. Bottoming cycle: Any facility that uses waste industrial heat for power generation by supplementing heat from fossil fuels. A facility may qualify to be termed as co-generation facility if it satisfies certain operating and efficiency standards. For the co-generation facility to qualify under topping cycle mode it would be required that at least 20% of the total energy output is in the form of useful thermal energy Firm Power means the quantum of energy which a supplier is obliged to deliver as scheduled in the given period. For example, if the CPP Holder has signed an EPA with the Distribution Licensee for selling 700 units of Firm Power in 1 hourbut actually sells less, then the same would not qualify as Firm power but would be considered as Infirm power. Infirm Power Infirm Power means the energy supplied that is not Firm Power, which is interruptible on a very short notice. APPLICABILITY OF ORDER This Order shall be applicable to all the fossil fuel based continuous duty (base load) of above 1 MW (overall combined capacity of units of the CPP) and located in Maharashtra State. It shall be applicable to all-existing and future fossil fuel based Captive Power Plants within the State. It should be noted that the existing contracts in the matter of Captive Power Plants between the CPP Holders and the Distribution Licensee signed before the finalisation of this dispensation would remain in force. However, in case of the existing Contracts which have been signed before this order comes into force, the CPP Holder would have an option to reduce his contract demand to the extent he desires (in the context of the Commission s Order in the matter of Captive Power and reduction of Contract Demand of Oil and Natural Gas Corporation Uran Plant - Case No. 26 of 2002, dated and in respect of Case No.35 of 2002 of Eurotex Industries and Exports Ltd.). Also, the CPP Holders and Distribution Licenses shall have the option to mutually re-negotiate the existing contracts in line with this Order even before the expiry of the contracts. Any renewal of the said contracts/ new contracts should be in line with this Order Further, this Order shall be subject to the provisions of the Regulations regarding the Electricity Supply Code and Standards of Performance of Licensees as and when they are notified, and would stand modified to that extent. MERC, Mumbai Page 18

28 Section 1 Background and Operative Order ADVICE TO THE GOVERNMENT OF MAHARASHTRA Electricity Duty State taxation is outside the domain of determination by the Commission. However, the Commission notes that the Government of Maharashtra currently levies an Electricity Duty (ED) on the consumption of the units generated from the Captive Power Plant, under the Bombay Electricity Duty Act 1958, at the rate of 30 Paise per unit on CPPs commissioned after , and at the rate of 15 paise per unit on CPPs commissioned before 1 st April An important aspect of the philosophy behind this Order on Fossil Fuel based Captive Power Plants is to gainfully utilise the excess saleable capacity of the. This is important especially in the context of the considerable demand- supply gap prevailing in the State, which could be partially bridged through surplus CPP power Given the above, to encourage and promote sale of available surplus captive power within the State and to avoid unduly overburdening the with further levy of Electricity Duty, the Commission, in exercise of the powers vested in it under Section 86 (2), advises the Government of Maharashtra to abolish the Electricity Duty on the self-consumption by Fossil Fuel based in the State. The Commission also recommends that Tax on Sale of Electricity should not be levied in the case of CPPs. ORGANISATION OF THE DETAILED ORDER The detailed Order is broadly divided into following three Sections: This first Section consists of the Background and chronology of events, tariff principle adopted and the approach of the Commission in formulating the Policy, issues addressed, the Commission s ruling on Tariff and related Issues and organisation of the Detailed Order The second section discusses the comments and suggestions raised by the public in writing as well as during the Public Hearing before the Commission. For the purpose of simplicity, the said comments and suggestions have been compiled issue-wise along with the Commission s ruling on each issue The third Section of the detailed order comprises the Commission s analysis and its approach to tariff and overall policy. This section describes the issues involved and the Commission s ruling on the issues Relevant Annexures to the Detailed Policy are provided at the end of the Section 3. MERC, Mumbai Page 19

29 Section 2 Public Hearing Process 2. COMMENTS AND SUGGESTIONS RECEIVED DURING PUBLIC PROCESS AND COMMISSION S RULING PREAMBLE 2.1 A Notice dated for inviting comments and for Public Hearing to be held on , was published on the website of the Commission and in leading daily Newspapers in English and Marathi. A summary of the Proposed Policy on the Fossil Fuel based Captive Power Plants was Published by the Commission on its website (in English as well as Marathi) on along with the detailed Proposed Policy document inviting comments and suggestions on the said Proposed Policy from the public. The detailed Proposed Policy Document was provided for inspection at the Commission s office and also made available for sale. 2.2 The Commission had provided about 21 days for sending comments and suggestions: Twenty submissions were received from various entities on the Proposed Policy. 2.3 Subsequently, the Public Hearing was held on at the Centrum Hall, World Trade Centre in Mumbai, which was attended by a cross-section of people representing various stakeholders involved. 2.4 This Section sets out the comments and suggestions received by the Commission from various entities before as well as during the public hearing. For the purpose of simplicity, the comments and suggestions have been compiled issue-wise along with the Commission s ruling on each issue. ISSUE-WISE COMPILATION OF COMMENTS AND SUGGESTIONS RECEIVED ON PROPOSED POLICY AND COMMISSION S RULING ISSUE NO. 1: DEFINITION OF A CPP WITH RESPECT TO OWN CONSUMPTION VERSUS SALE MIX 2.5 In the matter of definition of a CPP with respect to own consumption versus sale mix Mr. Kawish B. Dange has submitted that the quantum of sale of electricity to the Licensee/ Third Party should be decided based on the Policy decided by the Government of Maharashtra or other States. 2.6 Mr. Ashok Khinvasara, M/s Ispat Industries Limited (IIL) submitted that the definition of the CPP Holder needs elaboration and any contributor to the share capital or corpus or capital of the SPV or other vehicle for the CPP setup should be construed as CPP Holders collectively. He has further added that definition of CPP should also include Group Captives set-up by several users through an SPV or an Association of Persons (AOP)/ Co-operative. In a Group Captive scenario, the consumption of the power by the contributors/ off-takers as a whole should also be considered for defining self consumption. 2.7 Mr. Khinvasara has also submitted that the definition of CPP should also include an existing Captive Power Plant acquired by an industry user with the objective of operating it as a Captive Generating Plant. 2.8 Mr. R. B. Goenka representing Vidarbha Industries Association (VIA) giving the example of a co-generation based CPP for Sponge Iron Plant, has mentioned the following- MERC, Mumbai Page 20

30 Section 2 Public Hearing Process In case of co-generation in Sponge Iron Plants the requirement of power for running 100 TPD kiln is about 500 KW only, where as the power generation capacity by waste heat recovery is about 2500 KW i.e. about 5 times his own demand. If he calculates in terms of energy considering 70% as load factor, his own consumption shall be equivalent to 350 KW power only and such plants may sale the surplus capacity in terms of energy equivalent to 2150 KW and in percentage the self consumption works out to be 14% only. For a co-generation plant having 400 TPD sponge iron kiln the requirement of power for own consumption is about 1200 KW whereas his co-generation based on waste heat recovery shall be about 10 MW. Considering 70% load factor his own consumption of unit shall be equivalent to 840 kwh per hour this corresponds to 8.4% of total consumption only. Similar example can be given for a normal captive power plant. Considering own requirement of 1000 KVA load, the developers shall have to put a generator of capacity at least 1250 KVA. He will have to keep stand by generator of similar rating and the total generation capacity shall become 2500 KVA. Considering the load factor to be 70%, his own consumption shall be equivalent to 700 KVA power only and such plants may sale the surplus capacity in terms of energy equivalent to 1800 KVA and in percentage the self consumption works out to be 28% only. 2.9 Based on the above, Mr. Goenka has submitted that the CPP should be allowed to sell 80% of the total power generated, while the Co-generation based CPP should be allowed to sell 90% of total power generated to Third Party/ Distribution Licensee. He has further added that the Normal condition should be as above, and there should not be any Special Condition Mr. Pratap Hogade, Vice President, Janata Dal (Secular), Maharashtra has mentioned that the word primarily in the EA 2003 should be interpreted as meaning that minimum Self Consumption should be 66% or more. Furthermore he has submitted that the relief period under Special Conditions should be 6 months and 1 Year instead of 1 Year and 2 Years proposed in the Draft Policy on Fossil Fuel based Mr. Subodh Shah, Director, M/s Reliance Energy Limited, has submitted the following in the matter of definition of a CPP with respect to own consumption versus sale mix; It is submitted that the definition contained in Section 2(8) does not contemplate that a person may set up a power plant for more than his requirement and sell the excess electricity to others. It is submitted that if the Captive Generating Plant is allowed to sell, as proposed in the Policy, 49 per cent to third party, it would mean that the power plant is not primarily set up for his own use. It will be more a commercial activity. It is submitted that no percentage for sale to third party can be fixed by this Hon ble Commission in its proposed policy, much less to the extent of 49 per cent. Captive Generating Plant can be allowed to sell power only on account of exceptional circumstances in which the person setting up the plant is unable to consume for his personal requirement. It appears to REL that the word primarily has sought to be interpreted as predominantly. Predominance can mean 51 per cent to be for personal use and 49 per cent for sale to third party. It is submitted that the definition must be read in the context in which it is used and must be given its meaning to achieve the objective of the Act. MERC, Mumbai Page 21

31 Section 2 Public Hearing Process 2.12 Furthermore, Mr. Subodh Shah has submitted that the Proposed Policy does not address the issue of ownership and its linkages with usage 2.13 Mr. Shantanu Dixit, Prayas (Energy Group), Pune has submitted that CPP must meet the primarily criterion at all times, and if for some reason it is not possible to meet that criterion then CPP owner is free to convert the plant into merchant plant and sell electricity to all consumers/ traders. Mr. Dixit has suggested that the share of sale of power to either Third Party/ Distribution Licensee should be linked to size of captive power plant as follows- upto 5 MW- 51% ownership and usage by members (excluding process driven co-generation) and more than 5 MW- 75% ownership and usage by members. Additionally, Mr. Dixit has submitted that the ownership restriction should be implemented. In absence of such restriction, merchant plants can give shares to each other and may subvert the provisions of cross-subsidy. Also, it is submitted that the Special Conditions proposed in the Draft Policy would lead to discretionary decision making power and may act as a backdoor entry for merchant plants Dr. Pendse of Mumbai Grahak Panchayat has made the following submissions in the matter of Group, Association of Persons (AoP) and Co-operative Societies; Section 2(8): Captive Generating Plant means a power plant set up by any person to generate electricity primarily for his own use and includes a power plant set up by any cooperative society or association of persons for generating electricity primarily for use of members of such co-operative society or association. Here the generators are co-operative society or association of persons. Co-operative society This has been covered by Society s Act Association of person- There is a Supreme Court judgement which defines two or more persons coming to together for a purpose whether incorporated or not. It has illustrated that in case of business, association is for generating profit. In this case the association could be for generating electricity. In both the cases viz. co-operative society as well as association of persons, there is no binding on any of its member regarding the percentage financial contribution towards the central pool which could be equity, capital etc. To illustrate this further if there are 100 members and Rs.100/- equity, it is still possible that only one member contributes Rs. 99/- by equity and rest 99 members contribute only Re. 1/-. Yet this group of people will qualify for association of persons as well as co-operative society. Generation of electricity: Generating electricity primarily for the use of its members of such co-operative society. This sentence comes from the definition. MERC has already defined a word primarily as of the electricity generated 51% or more is used by him or members of co-operative society or association of members then it will satisfy the condition of the word primarily In the above context, Dr. Pendse had sought clarification on the following matters; There is no minimum or maximum requirement of the share capital or equity by individual member of co-operative society and association of persons. It is the responsibility of co-operative society and association of persons and not any individual member to use a minimum of 51% of the electricity generated (Corollary- some of its members may not use electricity at all in spite of being largest share or equity holder.) The share holding pattern requirement is beyond the purview of the Commission. It is the commercial requirement of that Group and not a regulatory requirement. MERC, Mumbai Page 22

32 Section 2 Public Hearing Process COMMISSION S RULING 2.16 In its Order on alleged breach of permission granted to M/s Bhushan Steel and Strips Limited (Case No. 57 of 2003) for Captive Generation and related matters dated , the Commission has observed as follows; Section 2(8) of EA, 2003 defines a captive generating plant as a power plant set up by any person to generate electricity primarily for his own use. MSEB have conceded that the word primarily may be construed in its dictionary sense as meaning mostly or mainly and, as such, self-use to the extent of more than 50% would satisfy the meaning. The Commission is of the view that a plant may be treated as captive if more than 50% of the power generated is for self-use In the context of the above, the definition of the CPP with respect to own consumption versus sale mix shall be as follows: minimum self-consumption of 51% of the Installed Capacity of the CPP by the CPP Holder (which could be any person or AoP or a co-operative society) It should be noted that the above interpretation of the word primarily is the Commission s current stand in this matter. However, as the Commission is to be guided by the National Electricity and Tariff Policy of the Government of India as and when it is notified, MERC may revisit the above interpretation, if required. ISSUE NO. 2: REDUCTION IN CONTRACT DEMAND OF A CPP HOLDER 2.19 In the matter of reduction in Contract Demand (CD) of a CPP Holder, Mr. Kawish B. Dange submitted that the CPP Holder should be allowed to reduce his CD only upto 50% as indicated in point no. 17 of Affidavit submitted by MSEB Mr. Ashok Khinvasara, M/s Ispat Industries Limited (IIL) submitted that the provision of reduction of the Contract Demand of the CPP Holder with the Distribution Licensee to the desired level would stand diluted if the Electricity Supply Code were to impose a restriction on the extent to which the Contract Demand may be reduced by the CPP Holder. Hence, in his prayer to the Commission in the matter of Reduction in Contract Demand with the Distribution Licensee, Mr. Khinvasara has submitted that the reduction in Contract Demand should be unconditional and without subject to the Electricity Supply Code Mr. K. P. Chhabria of M/s Finolex Cables Limited has re-iterated as outlined in the Proposed Policy that the CPP Holder should be allowed to reduce the Contract Demand the extent desired by CPP Holder instead of the limit of 50% being imposed by MSEB Mr. D. V. Subhedar, Executive Secretary, Patalganga and Rasayani Industries Association (PRIA) has requested the Commission to review the Electricity Supply Code and other Conditions of Supply Regulations and issue guidelines so that above directive of the Commission reduction in Contract Demand of the CPP Holder to the extent he desires- is implementable. COMMISSION S RULING 2.23 The Commission has taken a note of the concerns expressed in this matter and would like to state that the Electricity Supply Code and other Conditions of Supply Regulations would allow reduction in Contract Demand (with the Distribution Licensee) of a CPP Holder to the desired extent, as and when they are notified by the Commission. MERC, Mumbai Page 23

33 Section 2 Public Hearing Process ISSUE NO. 3: REDUCTION IN CONTRACT DEMAND OF THE THIRD PARTY PURCHASER OF CPP POWER 2.24 Mr. Kawish Dange has submitted that the reduction in Contract Demand of the Third Party Purchaser of CPP Power should not be allowed for the reasons canvassed by MSEB, which interalia, are as under; In case of third parties the Board is providing and maintaining the infrastructure for the consumers and supply partial power to such consumers. As such the third parties (purchasers of CPP power) will not be permitted to reduce their Contract Demand In this matter Mr. R. B. Goenka, Vidarbha Industries Association (VIA) has re-iterated that the Third Party captive power purchaser should be allowed to reduce his Contract Demand as he desires. Mr. Goenka has further added that the Billing Demand of Third Party purchaser should be equal to MD recorded by the Third Party energy meter less MD recorded (export) by the CPP energy meter Mr. D. V. Subhedar, Exec. Secretary, Patalganga and Rasayani Industries Association (PRIA), has requested the Commission to review the Electricity Supply Code and other Conditions of Supply Regulations and issue guidelines so that the above directive of the Commission reduction in Contract Demand of the Third Party purchaser of CPP power to the extent he desires- is implementable. COMMISSION S RULING 2.27 The Commission in its Order in the matter of Captive Power and reduction of Contract Demand of Oil and Natural Gas Corporation Uran Plant (Case No. 26 of 2002) dated has stated as follows: Thus, in exercise of its jurisdiction under Sections 22(2)(e) and 22(2)(n) and in view of the foregoing, the Commission finds the condition imposed by MSEB on ONGC with regard to maintaining a certain level of contract demand, except at their discretion and irrespective of their captive generation, as being untenable under the ERC Act under which the present Petition was filed (and even more so under the provisions of the EA, 2003) In the above Order, the Commission has taken a view that ONGC as a consumer of Distribution Licensee irrespective of their Captive Generation shall be allowed to reduce their Contract Demand with the Distribution Licensee The Commission has taken a note of the concerns expressed in this matter and would like to state that the Electricity Supply Code and other Conditions of Supply Regulations would allow reduction in Contract Demand of the Third Party purchaser of CPP Power (with the Distribution Licensee) to the desired level, as and when these Regulations are notified by the Commission As far as the calculation of Billing Demand with the Distribution Licensee for the Third Party purchaser of CPP Power is concerned, this would be governed by provisions in the relevant Tariff Orders and/ or applicable Regulations. MERC, Mumbai Page 24

34 Section 2 Public Hearing Process ISSUE NO. 4: ADDITIONAL DEMAND CHARGES IN RESPECT OF CPP HOLDER 2.31 Mr. Kawish B. Dange, has submitted that the Additional Demand Charges in respect of CPP Holder proposed in the Draft Policy are acceptable and the same should be implemented In this matter M/s Viraj Power Limited has submitted following; In the new proposed policy it has been clarified that there would be no 10% Additional Demand charge. However, the only point needs clarification is that in future if we want to have a stand by load, then what charges MSEB would levy for the same. For example if a plant unit having 15 MW contracted demand and 15 MW CPP installed asks MSEB for a standby load of 10 MW so that whenever the CPP is closed the minimum requirement of the plant can be met, when MSEB will charge 1.5 times of what is exceeded over and above the Contract Demand. But in the Draft Policy, it has been mentioned that Additional Demand charge of 1.5 to 2.0 times would be applicable over and above the standby component. This needs to be clarified as otherwise it would be misinterpreted. The concept of standby load, would have to be completely removed, or alternatively, MSEB charges for the same should be clarified as the Draft Policy is not clear and there are chances of misinterpretation by MSEB at a later date In the matter of Additional Demand charges Mr. Ashok Khinvasara, M/s Ispat Industries Limited (IIL) has submitted the following; Unplanned shutdowns are never desirable by any industry and it is every industry s endeavour to cut down on its unplanned shutdown periods. IIL therefore requests the Honourable Commission to consider charging 1.5 times normal demand charges during unplanned shutdowns of the CPP and 1.25 times normal demand charges during planned shutdowns as against 2 times and 1.5 times suggested in the Draft Policy. IIL feels that instead of the penal charges for exceeding Contract Demand (when actual demand is in excess of Contract Demand + Stand-by Demand) the Distribution Licensee may consider charging a premium for proving stand-by power during maintenance (scheduled and unscheduled) linked to the UI tariff prevailing at the time, following the same principles as that of selling power to the Distribution Licensee. IIL also pleads with the Commission that stand-by charges should not be levied during first 6-months of the commissioning of the CPP. The period is required for the plant to stabilise and ramp-up its generation to the desired operating level Mr. R. B. Goenka, Vidarbha Industries Association (VIA) has submitted that the additional standby demand charges of Rs. 20/- per KVA should be charged to only those CPP holders whose are synchronized with the grid and who want standby demand to be sanctioned by the Distribution Licensee Mr. Goenka has added that the excess demand recorded over and above the standby demand by the CPP meter should be charged equivalent to the penalty charges specified in the HT tariff of the Commission 150% of normal demand charges. Mr. Goenka has provided the basis for the same as follows: The reasons for above suggestion is that the distribution licensee is not providing any spare capacity as stand by demand need of the CPP since particularly MSEB is not having enough power even to supply to the regular consumer and imposing load shedding because of demand and supply gap. In case, whenever the CPP shall draw excess power, the situation MERC, Mumbai Page 25

35 Section 2 Public Hearing Process shall be similar to the case of a normal consumer drawing more power than his contract demand. In such situation of over drawl of power, the network of distribution licensee shall either the overloaded or shall utilize their spare capacity if any and in such period the distribution licensee shall receive 150% demand charges compared to normal demand charges Mr. Goenka has further suggested that the Additional Demand Charges for planned as well as unplanned shut-down of CPPs should be the same, viz. 1.5 times the demand charges, as the unplanned shut-downs are because of unforeseen circumstances. Moreover, Mr. Goenka has submitted that Additional Demand charges for excess consumption should be charged on hourly basis Dr. S. L. Patil, Secretary General, Thane Belapur Industries Association (TBIA) has submitted the following in the matter of Additional Demand Charges: Clause 4.82 (refers to Draft Policy floated for Public Hearing) and subsequent clauses refer to levy of ADC to those CPP holders whose plants are synchronised with the grid. TBIA assumes that the Contract Demand referred to in the clauses relates to the Contract Demand registered during the day time i.e to 2200 hours and excludes the demand registered during night period i.e to 0600 hours, as is the case at present Mr. Virendra Mital representing Captive Power Producers Association has also expressed the same point in his submission to the Commission Mr. K. P. Chhabria representing M/s Finolex Cables Limited has stated in the matter of Additional Demand charges that: Additional Demand charges for exceeding Contract Demand: There might be some occasions, CPP Holder may exceed the Contract Demand during planned or unplanned shutdowns of CPP. In such cases the extra demand charges should be applicable as per MERC guidelines. The present ToD meters does not have facility to indicate the demand drawn on hourly basis and hence, this needs to be replaced with suitable meters. The present practice of recovering 10% Additional Demand charges equivalent to 10% of installed capacity of CPP and Standby Generating sets (if any) should be discontinued. Instead penal charges as per MERC guidelines can be proposed Mr. Shantanu Dixit, Prayas (Energy Group) Pune, has submitted following in this matter: For the purpose of Additional Demand charges there should be no differentiation between CPP consumer and other consumers. Both consumers should be required to pay similar charges/ penalty for exceeding Contract Demand. Similar to normal consumer of licensee, no special treatment should be given for following areas; (1) planned vs unplanned outage of CPP, (2) Time of Day and (3) Duration of excess demand. COMMISSION S RULING 2.41 The Commission has noted the various issues raised in the matter of Additional Demand charges and would like to clarify these issues so as to avoid any misinterpretation of its Order. MERC, Mumbai Page 26

36 Section 2 Public Hearing Process Exhibit 1 Illustrative Example to Explain Applicability of Additional Demand Charges Total Requirement of unit = 25 MW Arrangement of CPP Holder with Distribution Licensee 15 MW 15 MW 5 MW 25 MW 10 MW 10 MW 10 MW Unit with 10 MW CD and 15 MW CPP Capacity Case 1: Stand-by Demand of 15 MW Case 2: Stand-by Demand of 5 MW Actual Consumption during Shut-down of Captive Power Plant 2.42 It should be clearly understood that the Additional Demand charge is applicable only on the Standby component and only on the quantum, if any, in excess of the Contract Demand This has been explained with an illustrative example of a unit with a Captive Power Plant of 15MW capacity. This unit has a Contract Demand of say 10 MW with his Distribution Licensee. Total maximum demand of this unit is 25 MW. To illustrate the applicability of the Additional Demand charges, two hypothetical cases have been considered in Exhibit In case 1, the unit has a Stand-by demand arrangement with the Distribution Licensee for 15 MW, while in case 2 it is only to the extent of 5 MW. The difference in these two cases is that in case of CPP failure, the first has a 100% stand-by power arrangement and would normally never have excess demand with his Distribution Licensee, while the second case has Stand-by to the extent of only 5MW and if, in case of CPP failure, it draws entire requirement (i.e. 25MW), then it would be drawing excess power (i.e. Excess Demand) to the extent of 10MW (Note: Excess Demand = Total Demand [25 MW] - Contract Demand [10 MW] Stand-by Demand [5 MW]) 2.45 The charges to be applicable in the above example shall be as provided in Table 8 below. MERC, Mumbai Page 27

37 Sr. No. Order on Fossil Fuel based Section 2 Public Hearing Process Table 8 Charges Applicable on Account of Excess Drawal of Power (for Illustrative Example) Charges Applicable Case 1 Case 2 Remarks 1. Contract Demand charges As per Commission s latest Tariff Order 2. Additional Demand charges on Stand-by Component 3. Additional Demand charges for Excess Demand As per Commission s latest Tariff Order - Currently, Rs.20 per kva per month on the Standby component (here, 15 MW) Not Applicable as Excess Demand is Nil As per Commission s latest Tariff Order As per Commission s latest Tariff Order - Currently, Rs.20 per kva per month on the Standby component (here, 5 MW) For Planned Shut-down 1.5 times Demand Charges (on monthly basis) in force on 10 MW For Unplanned Shutdown 2.0 times Demand Charges (on hourly basis) in force on 10 MW In this case the Contract Demand charges would be applicable on 10 MW In line with the Commission s latest Tariff Order- 1. Stand-by Demand charges to be applicable only on the standby component and only on the quantum, if any, in excess of the Contract Demand 2. Applicable to HT consumers having captive generation facilities synchronised with the grid 2.46 As regards suggestions from Mr. Khinvasara, Mr. Goenka and Mr. Dixit regarding the basis of arriving at Additional Demand charges during unplanned shutdowns and planned shutdowns (viz. 2 times and 1.5 times of the Demand Charges suggested in the Draft Policy), the Commission would like to point-out that the Additional Demand charge of 1.5 times the normal Demand Charges to be charged for excess drawal during planned shutdown is based on the Commission s latest Tariff Order in respect of HT Tariff - the penalty 150% of normal Demand charges It should be noted that the Commission has consciously prescribed higher Additional Demand charges for unplanned shut-down (i.e. 2.0 times Demand Charges vs 1.5 times in case of planned shutdown) to bring self-discipline in the operations of CPPs and maintain grid stability. This is important and specifically relevant here as the Commission envisages that a fairly large CPP capacity would be commissioned consequent to this Order Additionally, the Commission wants to draw attention to the time-periods suggested for calculation of Additional Demand charges in case of planned and unplanned shutdowns- for planned shutdown the charges would be calculated on monthly basis, while in case of unplanned shutdown although the Commission has prescribed higher penal charges, at the same time it has provided relief to the CPP holders by hourly-basis for calculating Additional Demand charges during the shutdown period As regards Dr. Patil s and Mr. Mital s submission regarding to the definition of Contract Demand and that it refers to the demand registered during the day time i.e to 2200 hours and excludes the demand registered during night period i.e to 0600 hours, as is the case at present, the Commission clarifies that the Contract Demand should be interpreted as defined by the Commission in its approved tariff for the HT Industrial Consumer of the relevant Distribution Licensee. MERC, Mumbai Page 28

38 Section 2 Public Hearing Process ISSUE NO. 5: RATE OF PURCHASE OF CPP POWER BY DISTRIBUTION LICENSEE 2.50 In the matter of purchase of CPP power by the Distribution Licensee, Mr. S. R. Sibal, M/s Sunflag Iron and Steel Co. Ltd., has submitted the following points: Point 1- Co-generation is generally available when co-generation based bottoming cycle waste heat is only available when the plant is running. It is not possible to control waste heat output from the operating plant. Hence all such plants should be permitted banking on 24 hour basis or guaranteed purchase rather than any rate premium. This will in fact ensure maximum conservation and efficiency in energy generation. Point 2- It may be kindly noted that all co-generation based CPPs necessarily shall generate infirm power because power will be generated only when the operation are running hence purchase from such plants should be preferred. It is suggested that purchase/ banking be guaranteed rather than premium on the energy transferred, to promote co-generation units Mr. Kawish Dange has submitted that alternative 3 proposed in the Draft Policy is the best alternative for rate of purchase of CPP power, viz. Purchases during peak hour should be linked with average variable as well as average fixed cost of power purchased from various sources while purchases during off-peak hour should be linked to the average variable cost of power purchased by the Distribution Licensee Mr. Dange has also submitted that there must not be any differentiation in purchase of Firm Power and Infirm Power. Further, he has added that the eligibility criterion of power purchase must be exceeding 1MW M/s Technocraft Industries have submitted that the compensation for Power fed to the grid should be given on realistic cost calculation. However, they have not indicated any mechanism for the same Mr. Ashok Khinvasara on behalf of M/s Ispat Industries Ltd. sought clarification regarding the maximum and minimum rates for purchase of power, i.e. whether they shall be in line with the CERC guidelines or would vary as per the CERC guidelines. Further, Mr. Khinvasara has suggested that the floor rate and ceiling rate for purchase of Firm power should be 1/2 and 3/ 4 of the UI charge at 49 Hz to bring in line the present Tariff for the Co-generation Plants and Wind Power Mr. Khinvasara has also sought clarification as to how the charges will be linked to the cost of fuel- will the cost of fuel be a Pass-through to the Discom or will there be any adjustments on the maximum rates of purchase of Firm CPP power in the event of increase in cost of the fuel? 2.56 Mr. Khinvasara has also suggested that there should not be any preferential treatment for Co-generation based CPPs for the purchase of power with a rate premium at 10%. He has further added that a floor rate of Rs.1.50 should be specified for purchase of Infirm power Mr. Ved Leekha representing M/s Pudumjee Pulp and Paper Mills Limited has drawn attention of the Commission to the recommendations of the Task Force. In recommendation no (ii) the Task Force report has proposed that rate of purchase should be based on agreed variable cost plus a reasonable compensation for fixed cost. Further, he has added that this mechanism should be applicable to only large CPPs with excess saleable power that are going to be installed after this Order comes into force. Additionally, Mr. Leekha has drawn attention of the Commission to the point that the Order should balance the interests of MSEB as well as the CPP Holder considering his investment. MERC, Mumbai Page 29

39 Section 2 Public Hearing Process 2.58 Mr. Leekha in the proposed mechanism has suggested that the Power purchase Rate should be agreed variable cost per unit plus ten percent (towards part fixed costs), which will be certified by C.A. of the Company every month. Also, he has submitted that MSEB should accept all energy fed into its grid by existing CPPs during the daytime when the frequency is less than 50 Hz and pay as per the formula suggested above, while the Licensee will not pay for any energy exported to it in the night Mr. M. B. Kulkarni representing M/s Tata Motors Limited has submitted that while considering the basic HT tariff for arriving at the unit rate, the following points should be considered- T&D loss of 36.2% (for the year ) is mandated to be reduced to 15% as per MERC s order of May, 2000 on MSEB s tariff hike proposal The RLC charge of Rs per unit is to be refunded to consumers by MSEB at some time through future tariff reduction Subsidy and cross-subsidy portion is to be reduced over the period of 5 years from May 2000 as per MERC Order and effect of this directive needs to be considered The CPP Power providers should not be asked to pay any surcharge to meet the unit price comparable with MSEB s HT tariff price or any other Distribution Licensee s HT tariff price, as at present it is quite high on account of cross-subsidisation Electricity Duty charged on the generated units from CPP needs to be levied at the same level as MSEB or any other Distribution Licensee, and it should not be Rs per unit 2.60 Representing Vidarbha Industries Association (VIA), Mr. R. B. Goenka has submitted as follows: This rate is not practical and is very less as compared to cost of Generation of CPP holder. If we see the frequency pattern of the grid which is being maintained by the distribution licensee to save UI charges, by imposing load shedding, we shall observe that the frequency is generally above 50 c/s most of the time of the day. A typical graph of frequency is enclosed for 10 th & 11 th August The graph of dt. 10 th August shows that the frequency was above 50 c/s for about 18 hrs in the day of 24 hrs. The graph of dt. 11 th August 2004 shows that the frequency was above 50 c/s for about hrs in a day of 24 hours. This means that most of the time of the day the rate of purchase in accordance with the proposed draft policy based on frequency, shall be Rs. 2/- per unit only. Similarly, in the enclosed graph of frequency, the frequency was below 49 c/s for about 45 minutes only on dt. 11 th August 2004 and for 10 minutes only on 10 th August This means that as per the proposed draft policy based on frequency, the CPP shall get Rs.4/- per unit for 45 minutes on 11 th August & 10 minutes on 10 th August The above example clearly shows that the minimum (floor rates) should not be frequency based till load shedding is being imposed by the distribution licensee and as per the projections the estimated demand & supply gap during the year shall remain nearly at the same level of about 1854 MW Keeping the above in mind, Mr. Goenka has suggested that the rate of purchase of Firm CPP power should be minimum floor rate equal to 5% less than the average realisation rates of the MERC, Mumbai Page 30

40 Section 2 Public Hearing Process Distribution Licensee in different time slots of the HT and LT consumers for previous year, and the rates above the floor rates should be determined based on the frequency as per the Draft Policy subject to a ceiling of 80% at 49Hz, i.e. Rs Further, he suggests that the Infirm power purchase should be allowed during all 24 hours of the day and the rate should be 90% of the Firm power purchase rate Also, he has suggested the stand that CPPs adopting Co-generation be entitled to purchase preference and rate premium of 10% In the matter of EPA, Mr. Goenka has recommended the following: The eligibility criteria for minimum 1 MW (1 Mn unit equivalent) is not correctly understood. It is not very clear that how the judgement of 1 MW of power export by CPP shall be done. To supply 1 MU a 1 MW generation may require 1000 Hrs at 100% capacity and in 1 Hrs 1 MW generator may supply only 1000 units at 100% capacity. The 1 MW unit can generate units in a day considering 70% load factor. Hence this clause shall be revised in such a way that in case a firm power generator supplies less the units in any day i.e hrs to 6.00 hrs next day (24 Hrs), then these units shall not be taken into account in billing of distribution licensee Regarding floor rate for rate of purchase of CPP power, Dr. S. L. Patil, Secretary General, Thane Belapur Industries Association has submitted that the floor rate does not cover even the variable cost of generation. He has opined that the floor rate of purchase for firm power from liquid/ gaseous fuels based CPPs should be Rs per unit instead of Rs per unit proposed in the Draft Policy. Similar suggestions have also been made by Mr. Banmali Agravala, Vice Chairman, CII Maharashtra State Council and Mr. Virendra Mital of Captive Power Producers Association (CPPA) Mr. S. Deb-Roy on behalf of ONGC, Uran has submitted the following points in the matter of rate of purchase of power from CPPs: ABT Tariff and Spirit: Western Grid (MSEB grid) frequency in FY 04 so far has been at 50 Hz level (or very near to it), which is quite puzzling given the power demand supply gap today. Western region maintaining the same level of frequency as in FY 04 despite huge demand supply gap would result in the seller getting an uneconomical tariff under ABT regime. This is accentuated as part of sale from CPP would always be Infirm given the nature of internal demand Issue relating to Firm commitment is not clear as the given period is not defined The Draft Policy is not clear about the ways to determine the extent of Firm / Infirm power for a CPP selling power to the same Distribution Licensee on both Firm (upto the committed level) and Infirm (additional to committed level) basis There should be no cap on tariff for infirm power if a Floor tariff is not guaranteed for the same Mr. Pratap Hogade, Vice President, Janata Dal (Secular) Maharashtra has proposed that the rate of purchase of CPP power by Distribution Licensee should be Rs or 90% of HT Industrial Tariff, whichever is less Mr. Subhedar on behalf of Patalganga Rasayani Industries Association (PRIA) has submitted that at present the sale of power from CPP is accounted on monthly basis with quarterly banking facility. Mr. Subhedar has suggested that the Commission should allow round the clock wheeling and accounting on monthly basis with quarterly banking facility Mr. Shantanu Dixit of Prayas (Energy Group) has submitted that a fixed rate should not be determined through the Order. He has further added that for Firm purchase, the Distribution MERC, Mumbai Page 31

41 Section 2 Public Hearing Process Licensee should float a tender and CPPs should be free to participate in the competitive bidding process. Mr. Dixit has suggested that the said bidding process, PPA, etc. should be regulated/ approved by the Commission Regarding non-firm purchase of power from CPPs, Mr. Dixit has suggested that CPPs should be allowed to inject/ sell infirm power to the Distribution Licensee and the rate of purchase should be less than the UI charges applicable at that point of time to account for transaction costs. Mr. Dixit has suggested that the Distribution Licensees could be given about 10% as transaction cost. COMMISSION S RULING 2.70 Given the existing demand-supply gap prevailing in the State and in the absence of any substantial capacity addition in the State in the near future, the Commission is of the opinion that the excess capacity from should be gainfully utilised to partially meet the demandsupply gap in the short-term Analysis of the current demand and planned future additions in generation capacity, the Commission anticipates a demand-supply gap of about 1,850 MW in the year In this scenario, purchase of (both Firm and Infirm) power from Fossil Fuel based CPPs is expected of Distribution Licensees- especially when some of the Distribution Licensee incur considerable expenditure on Unscheduled Interchange (UI) charges even after resorting to load shedding in order to partially bridge the prevalent demand-supply gap In such a scenario the Commission is of the opinion that the Distribution Licensees should purchase excess saleable power available with CPPs, and more so if such power is cheaper than other sources tapped to bridge the demand-supply gap, for example power purchases in terms of Unscheduled Interchanges Based on the analysis of various options available for rate of purchase of the CPP power, the Commission is of the opinion that the Availability Based Tariff mechanism with rate of purchase linked to the Unscheduled Interchange (UI) charges (as notified by the CERC from time to time) is the best mechanism. Considering that the Commission is already working on a road map for introduction of Intra-State ABT mechanism, UI charge linked rate of purchase for CPP power would augur well in the long term for the CPP Holders, the Distribution Licensees and the state as a whole The Commission appreciates the concern expressed regarding the basis of calculation for the rate of purchase of power and also understands that the feasibility of the CPP is linked to a great extent to effective utilisation of the CPP and rate realised on the excess saleable power. The Commission is aware of the cost of generation of the CPPs but at the same time it also feels that the commercial interests of the Distribution Licensees should be protected. Keeping the above in mind, the Commission has prescribed the upper limit and floor rate for purchase of Firm power as well as Infirm power. Based on the Commission s analysis of the variable cost of generation and average realisation of the MSEB, the Commission has prescribed a floor rate of Rs per unit for Firm power sold by the non-co-generation based CPP so that the CPP Holder is fairly compensated for the power sold even during the period when grid frequency is close to 50.5 Hz Keeping in mind Section 86 (1)(e) of the Electricity Act 2003 mandating promotion of cogeneration, the Commission has prescribed a 10% premium in the rate of purchase of the co-generation based fossil fuel Also the Commission rules that the Distribution Licensee shall purchase Firm as well as Infirm power from any CPP Holder on application by him for this purpose. MERC, Mumbai Page 32

42 Section 2 Public Hearing Process 2.77 The Commission would be monitoring the performance of the mechanism and may revisit the rate in the beginning of next 5-year Plan period, i.e , if required Having stated the guiding principles for arriving at the rate of purchase from the Fossil Fuel based CPPs, the Commission would like to provide clarifications to various queries raised Regarding Mr. Khinvasara s query regarding the maximum and minimum rates for purchase of power, i.e. whether they shall be in line with the CERC guidelines or would vary as per the CERC guidelines, the Commission would like to clarify that the rates would vary from time to time based on CERC s guidelines Regarding the eligibility criterion of minimum 1 MW mentioned in the EPA, the Commission accepts the suggestion provided by Mr. Goenka as an operative definition. The Commission clarifies that the eligibility criterion of minimum 1 MW would be defined for operational purposes as being equivalent to 700 units per hour, i.e. minimum 700 units per hour should be fed into the Distribution Licensee s grid. This computation is based on a normative load factor of 70% for. The Commission has defined Firm power on hourly basis to enable those CPP Holders who would like to sell CPP power to the Distribution Licensee only during the peak demand hours of the Licensee. ISSUE NO. 6: RATE OF PURCHASE OF CPP POWER THIRD PARTY 2.81 In the matter of rate of purchase of CPP power by Third Party Mr. Ashok Khinvasara on behalf of M/s Ispat Industries Ltd. has sought clarification on how billing for supply of Infirm Power to the Third Party is going to be done in the Distribution Licensee s system if the Infirm power is not accounted for over wheeling through the grid Mr. Ved Leekha of M/s Pudumjee Pulp and Paper Mills Limited has submitted following: If any neighbouring consumer is prepared to use spare capacity, at the rates as may be agreed to, the CPP may be allowed to sell the same, be laying a direct connection with the approval of the Electrical Inspector for the supply line as permissible under Section 54 of the Act. In this case the provisions in Section 42, sub section 2, or sub-section 4, including surcharge for subsidy, will obviously not get involved, as there will be no case of access being used over a licensee system Mr. R. B. Goenka representing Vidarbha Industries Association (VIA) has submitted that the Infirm power should also be accounted for in case Distribution Licensee's network is used for wheeling such power. Mr. Goenka has further submitted that the effect of such credit could be reduced to 90% Mr. Deb-Roy, M/s ONGC, Uran has sought clarification as to whether a CPP Holder can enter into an agreement with Third Party to sell power only during off-peak hours Representing M/s Reliance Energy Limited (REL), Mr Subodh Shah has submitted that the proposed Policy is silent on protecting the rights of the Distribution Licensee. Mr. Shah has expressed concern over the possibility that a consumer of a Distribution Licensee, in order not to pay the dues of the Licensee may approach and procure power from CPP Holder directly. To avoid such situations, Mr. Shah has suggested that some measure of protection needs to be incorporated in the Policy Mr. Subhedar, Executive Secretary, Patalganga and Rasayani Industries Association (PRIA) has submitted the following: MERC, Mumbai Page 33

43 Section 2 Public Hearing Process The Infirm power supply will not be accounted for in case Distribution Licensee network being used for wheeling such power: We submit to the Honourable Commission to modify the clause (sale of Infirm CPP power to Third Parties is not allowed) in line with clause no. 409 and allow for round the clock wheeling to the Third Party with monthly accounting and quarterly Banking. The wheeled energy can be accounted on ToD basis and adjusted against zone-wise consumption of Third Party Captive Power Consumer. Special ToD meter with continuous communication capability with concerned LDC/ Distribution Licensee should be installed by both the CPP Holders synchronised with the grid and desirous of selling power to Third Party consumers as well as the Third Party consumer of CPP power at the receiving end: We submit to the Honourable Commission, currently installed ToD meters are without communication facility. However, the data of complete export/ import of power to public grid/ Distribution Licensee (as per existing practice) to be continued in the interest of Third Party and Distribution Licensee. To provide, continuous communication with LDC/ Distribution Licensee is not feasible, as the infrastructure for such communication is not readily available, also the cost of this type of facility is prohibitive. This will add to the cost of power wheeled and makes the sale to Third Party/ Distribution Licensee unviable. Hence, request the Commission to allow use of existing ToD meter and existing practice of data acquisition by Distribution Licensee on monthly basis. COMMISSION S RULING 2.87 With regard to the points raised by Mr. Khinvasara, Mr. Goenka and Mr. Subhedar, the Commission would like to clarify that keeping in mind energy accounting required in such processes, the Commission has consciously taken a decision of not allowing sale of Infirm power to the Third Party over Distribution Licensee s network. However, the CPP Holder has an option of either Banking or selling such Infirm power to the Distribution Licensee subject to conditions elaborated in this Order The Commission would like to clarify that there are no restrictions on sale to third Party from a CPP during off-peak hours and the Distribution Licensee shall provide 24-hour wheeling facility in case of sale of CPP power to the Third Party. Also, accounting of such CPP power wheeled to the Third Party should be carried out on ToD basis, wherever it exists. However, the CPP Holder and the Third Party purchaser of CPP power should satisfy various conditions set out in the Order like signing EWA with the respective Distribution Licensee in case the electricity is going to be wheeled over the grid, etc The points raised by Mr. Shah regarding protecting the rights of Distribution Licensee while allowing sale of CPP power to the Third Party is a Commercial matter and would be covered under Electricity Supply Code and Standards of Performance of Licensees as and when they are notified by the Commission Given that a number of CPPs are already synchronised with the grid and many more are likely to be synchronised in future, it is recommended that special ToD meters (including SEM) with continuous communication facility with the LDC/ the Distribution Licensee be installed at CPP Holder s and Third Party consumer s end. This would help in continuously monitoring the demandsupply situation of CPP Holders and maintain stability of the overall grid. MERC, Mumbai Page 34

44 Section 2 Public Hearing Process 2.91 However, existing and the Third Party consumers of the CPP power may continue to use the current ToD meters (including Special Energy Meters- SEMs). All the new CPPs to be commissioned shall install Special ToD meters at their end. Also, all the Third Party purchasers of CPP power entering into a contract with a CPP Holder/s post-finalisation of this Order shall install special ToD meters at their end It is expected of all CPP Holders as well as the Third Party purchasers of CPP power to shift from use of ToD meters (including SEMs) to Special ToD meters with continuous communication capability with the Load Dispatch Centre, as and when the Intra-State ABT mechanism is implemented. ISSUE NO. 7: BANKING OF SURPLUS POWER WITH DISTRIBUTION LICENSEE 2.93 In the matter of Banking of surplus power with the Distribution Licensee, Mr. S. R. Sibal, M/s Sunflag Iron & Steel Co. Ltd. has submitted the following two points; Co-generation based CPPs should be permitted Banking on a 24 hour basis Banking facility should be guaranteed for the Co-generation based CPPs 2.94 Mr. Ashok Khinvasara representing M/s Ispat Industries Ltd. has submitted that Banking Services should be mandatory on the Distribution and Transmission Licensees. Further Mr. Khinvasara has added that the reconciliation period should be every two months and not one month as suggested by the Commission in its Draft Policy. The reconciliation period may be progressively reduced to one month after 2 years of operation of the CPP as the load profile and the off-take patterns would be stabilised by then Mr. Khinvasara opined that the Banking should be linked to the off taker industry load pattern. Also, he has suggested that the banked power should be offset from power flows during scheduled and unscheduled maintenance or any peak period over-drawals from the grid by the offtakers and/ or CPP Holder. For accounting of banked power Mr. Khinvasara has suggested that Banked power should be carried forward over a two-year period and not lapse every year Commenting on the proposed mechanism for accounting of energy fed into grid during offpeak period credit for banked units is 0% if frequency is 50 Hz and above and 100% below 50 Hz- Mr. Khinvasara has recommended a staggered rate of credit for banked energy fed into the grid during off-peak period rather than the full or nil credit system envisaged under the Draft Policy Mr. Ved Leekha of M/s Pudumjee Pulp and Paper Mills Limited has submitted that the banking account should be settled on the time zone basis for each time zone in the ToD metering system Mr. R. B. Goenka of Vidarbha Industries Association (VIA) has recommended that Banking should be allowed for 24 hours and could be linked with the 4 time slots of the day and the credit for Banking of Infirm power may be given for 90% of the energy banked during 4 time slots of the day. Furthermore, Mr. Goenka has suggested that the tenure of EBA should be for 5 years Dr. S. L. Patil representing Thane Belapur Industries Association (TBIA) has submitted that Banking of surplus power with the Distribution Licensee is tantamount to deemed sale, and hence there should be clear differentiation between Banking for self-use and Banking for sale. Mr. Banmali Agravala, Vice Chairman, CII Maharashtra State Council has also made a similar submission Mr. Virendra Mital on behalf of Captive Power Producers Association has made following submissions: MERC, Mumbai Page 35

45 Section 2 Public Hearing Process Clause refers to banking of surplus power with the Distribution Licensee. The clause states that such banking tantamounts to Deemed Sale. As submitted in Point (8) above, there needs to be a clear distinction and differentiation between banking for self use and banking for sale. The Commission at clause has referred to the Industry s view regarding accounting of the banked energy with the Distribution Licensee to be carried out on Time of the Day basis. The Commission, however, has not addressed this issue while laying down the Policy under clause and in subsequent clauses. CPPA submits that in case of energy banked by CPP holder for its own self-use, it is rational, equitable and fair that the energy accounting for such banked energy should be carried out on Time of the Day basis. Unfortunately, MSEB has not taken any decision on the matter despite representations by CPP holders on this issue. CPPA requests that the Hon ble Commission should lay down the Policy in this regard Mr. Shantanu Dixit of Prayas (Energy Group) has submitted that for simplicity and to avoid gaming, Banking facility should not be allowed. He has further added that CPP should get compensated at the rate of Infirm sales to the Distribution Licensee for power injected in the Distribution Licensee s grid, and all such sales should be charged at the applicable tariff. COMMISSION S RULING The Commission would like to first elaborate on Principles of Banking and philosophy behind allowing Banking. At the outset, it should be clearly understood that Banking facility is provided to the CPP holders for the purpose of self-use only and not for sale to Distribution Licensee/ Third Party. Banking, as the word itself suggests, is that energy which is banked with the Distribution Licensee and which could be drawn for self-consumption at any point in time The provisions related to Banking are provided to the CPP Holders as they would help them optimise on the generation capacity considering that consumption patterns of manufacturing units may vary across industries. Also, this would help the CPP Holders to avoid paying Additional Demand charges in case of planned/ unplanned shutdowns of the CPP, among other things However, the Commission is also of the opinion that the commercial interests of the Distribution Licensees should be protected while allowing Banking facilities and they should not be forced to bank power during the off-peak periods when supply outstrips demand. To safeguard CPP Holders interests, the Commission has provided for frequency linked banking mechanism during offpeak hours of the Distribution Licensee Having clarified the guiding principles followed by the Commission while outlining Policy, the Commission would like to provide clarifications for certain important issues raised on the Draft Policy It should be noted that Banking would be allowed for both Firm as well as Infirm power fed into Distribution Licensee s grid and would be subject to the conditions in the EBA between the CPP Holder and the Distribution Licensee The Commission has considered the suggestion made related to accounting of banked units on Time of the Day (ToD) basis and it feels that it is a fair and equitable provision for the CPP Holders as well as the Distribution Licensees. Hence, the Commission rules that ToD based accounting principle should be adopted in addition to the other provisions outlined in respect of Banking of surplus power with the Distribution Licensee. MERC, Mumbai Page 36

46 Section 2 Public Hearing Process ISSUE NO. 8: PROVISIONS RELATED TO WHEELING OF CPP POWER In the matter of provisions related to wheeling of CPP power, Mr. Kawish B. Dange has submitted that the proposed policy in respect of wheeling of power can be adopted. However, Mr. Dange has added that a separate EWA needs elaboration in detail Mr. Ashok Khinvasara, M/s Ispat Industries Ltd. has requested the Commission to reduce the wheeling charges applicable for self-use. He has also proposed differential wheeling charges based on voltage level at which power is wheeled, i.e. wheeling charges could be lower for transmission at higher voltage levels Mr. Pratap Hogade, Vice President, Janata Dal (Secular) Maharashtra has submitted that the Wheeling charges and Transmission charges should be based on actual levels of expenses and losses Mr. V. C. Gopalkrishnan of M/s Hanil Era Textiles Limited has submitted the following: The MSEB have installed overhead transmission lines from the CPPs and charged the CPPs for the same as SLC. In addition to charging the CPPs for installation of separate overhead lines, MSEB also charges wheeling charges for wheeling the electricity from the CPP at the rate of 2% of energy received for wheeling upto 50 km, 4% above 50 km upto 200 km and 6% above 200 km. In fact, wheeling charges are taken in lieu of maintenance of transmission line provided by MSEB and to cover other expenses, overheads, etc. The Policy declared by MSEB for line losses is unreasonable We submit that the line losses charged for wheeling power through MSEB line should be rationalised and should be fixed as under: 0 to 5 km = 1% 5 to 10 km = 2% 10 to 15 km = 3% 15 to 25 km = 4% 25 to 50 km = 5% 50 to 100 km = 7% above 100 km = 10% Mr. Shantanu Dixit, Prayas (Energy Group) has submitted that Transmission and Wheeling charges are a major issue beyond the scope of the Order. Further he has quoted from the EA 2003 Section 42 (2)- in determining the charges for wheeling, it shall have due regard to all relevant factors including such cross subsidies. COMMISSION S RULING The Wheeling Charges and Transmission charges will be the same (i.e. 2% and 5% respectively) as those approved by the Commission in its Order dated for purchase of power from Bagasse based Co-generation Projects and Order dated for Procurement of MERC, Mumbai Page 37

47 Section 2 Public Hearing Process Wind Energy and Wheeling for Third Party Sale and or Self-use, pending state-wide Load Profile Studies to arrive at the actual levels of Transmission Losses and applicable Wheeling Charges Also, the Commission rules that the Distribution Licensee shall provide 24 hour wheeling facility on ToD basis (wherever applicable). ISSUE NO. 9: SURCHARGE ON THIRD PARTY SALE OF CPP POWER MSEB has submitted that the Additional Surcharge should be levied on the CPP Holder itself if sale to the Third Party is permitted In the matter of Surcharge on Third Party sale of CPP power, Mr. Kawish B. Dange has submitted that Third Party sale must be avoided. If not, the surcharge must be levied to meet the current level of cross subsidy within the area of Licensee except in cases of proviso to section 42 of the Electricity Act Mr. Pratap Hogade has submitted that as per EA 2003, the surcharge is to be utilised to meet the requirements of current level of cross-subsidy within the area of supply of Distribution Licensee. So, as per the Act, the surcharge must be equal and linked to the current level of crosssubsidy within that area Mr. Subodh Shah, M/s Reliance Energy Limited has submitted the following: The proposed policy provides for a surcharge of 25 per cent of the total cross-subsidy of the distribution licensee shall be made applicable on the sale of CPP power to third party consumer. The cross subsidy surcharge should be set equal to the current level of cross subsidy for each utility. The first and second proviso to Section 42 (2) provides that the surcharge should be determined to meet the current level of cross subsidy within the area of supply of a distribution licensee. There is no rationale in linking the extent to which such surcharge meets the current level of cross subsidy surcharge to the demand supply gap existing with some other licensee. Further, if the surcharge does not cover the current level of cross subsidy and the tariff of such subsidized consumers are not rationalized, such costs of the licensee will be recovered from the subsidizing customers remaining with the licensee, which will lead to an increase in the level of cross subsidy. If, on the other hand, the licensee is not allowed to recover these costs, it will severely affect the financial status of the licensee and may also affect the quality of service to the customers remaining with the licensee. The benchmark to compute the level of cross subsidy should be the consumer category-wise embedded cost and not the average cost of the licensee. The extent of cross subsidy varies from licensee to licensee and the same cross subsidy surcharge cannot therefore be made applicable to all licensees in the state. The additional surcharge also needs to be imposed on such sale of CPP power to third parties. MERC, Mumbai Page 38

48 Section 2 Public Hearing Process Section 42 (4) provides that an additional surcharge may be imposed by a licensee to meet the fixed costs incurred towards his obligation to supply. Irrespective of the demand supply gap, a distribution licensee has incurred certain fixed costs towards obligation to supply and such costs need to be recovered from any consumer that opts to source power from any other entity Mr. Shantanu Dixit, Prayas (Energy Group) has submitted that surcharge on the sale to the Third Party is a much bigger issue and is beyond the scope of the Order. COMMISSION S RULING Part 1: Surcharge on Third Party Sale of CPP Power The Commission is aware of the complexities involved in calculating surcharge on Third Party sale of power and would carry out detailed studies to arrive at the actual level of surcharge to be imposed on such sale at the appropriate time. Till such time, the surcharge has been calculated based on level of cross-subsidy provided by the MSEB as an interim measure Also, for Distribution Licensees like REL, TPC and BEST, the Commission is aware that the level of Cross-Subsidy is much lesser than that of MSEB as these Licensees have an insignificant number of agricultural consumers in their license areas. On the other hand, the Commission is also aware about the high levels of cross-subsidy for Mula-Pravara Electric Co. Op. Society Limited. Similar data for all other Distribution Licensees was not available. The surcharge has therefore been calculated based on the level of cross-subsidy provided by the MSEB as an interim measure The Commission is of the opinion that in case the full level of Cross Subsidy (as in case of MSEB, Rs per unit for year ) is charged on CPP Power Sale to Third Party consumer, then it would substantially overburden the CPP Holder and act as a deterrent to the sale of CPP power to Third Parties Also, in view of the demand-supply gap in the State and load shedding being undertaken by MSEB, the excess saleable capacity from the would help bridge this to a certain extent. Hence, any CPP capacity addition and sale to the Third Party consumer/s from the CPPs should also be looked at from the point of view of the avoided cost of generation capacity The Commission has noted that the average realisation of MSEB is Rs per unit while the variable cost of generation for fossil fuel based is broadly in the range of Rs. Rs to 3.20 per unit, depending on the size and type of fuel used in the CPP among other things. Considering the average variable cost of CPP power at about Rs per unit in the light of the average realisation of MSEB, the Commission feels that if current level of cross-subsidy of Rs per unit is levied on the CPP Holder, it would render CPP power unviable vis-à-vis the power sold by the Distribution Licensee Therefore, in order that the Distribution Licensees are fairly compensated for providing cross-subsidy and, at the same time, the CPP Holders are not overburdened by the Surcharge, a Surcharge of 25% of the total cross-subsidy of the Distribution Licensee shall be applicable on the sale of CPP power to the Third Party consumer. Part 2: Additional Surcharge on Third Party Purchaser of CPP Power The Commission, after taking into account the current situation of demand-supply gap in the State is of the opinion that no Additional Surcharge should be levied on the Third Party purchase MERC, Mumbai Page 39

49 Section 2 Public Hearing Process of CPP power. However, the Commission would review its applicability from time to time depending upon the demand-supply situation in future. SUGGESTIONS RECEIVED ON GENERAL CONDITIONS AND DEFINITIONS Below is a compilation of the comments/ suggestions received from the public on General Conditions and Definitions covered in the Draft Policy along with the Commission s ruling on the same. For the purpose of simplicity, the comments/ suggestions have been compiled for each General Condition/ Definition. GENERAL CONDITION: SUPERVISION CHARGES FOR SYNCHRONISATION OF CPP WITH GRID M/s MSEB has submitted the following in the matter of processing fees: Processing fees for Grid connectivity fees - Rs.10/ KVA upto 500 KVA Rs.7,500 for 5000 KVA and Rs for every 500 KVA or part thereof over 5000 KVA subject to maximum Rs. 25, Mr. Ashok Khinvasara, M/s Ispat Industries Ltd. has sought clarification as to whether supervision charges for synchronisation with the grid are a one time charge Further Mr. Khinvasara has suggested that 15% of the cost of synchronisation as the Supervision Charge is very much on the higher side and should be revised down to a one-time charge of 5% of the cost of synchronisation Mr. R. B. Goenka of Vidarbha Industries Association (VIA) has submitted that the Supervision Charges should be 15% of the labour cost of the synchronisation arrangement as per IE Rules 1956 Annex VI (Rule 27) condition no. 6 and Part III Mr. M. B. Kulkarni representing M/s Tata Motors Limited has submitted that 15% of the cost of synchronisation charges seems to be on higher side considering the scope of work and the present accepted norms of consultancy firms. The Commission may allow Distribution Licensee 7 to 8% supervision cum consultancy charges. Moreover, Mr. Kulkarni has opined that the condition should include a definite time frame for Distribution Licensee to complete the above work Mr. Banmali Agravala of CII Maharashtra State Council has submitted that, in place of levy of supervision charges of 15% as cost of synchronisation, one time fixed Inspection Fees should be applicable, only to new CPPs. Mr. Virendra Mital representing Captive Power Producers Association (CPPA) has made similar comments in this matter Mr. S. Deb-Roy has submitted on behalf of M/s ONGC, Uran the following: Is this charge applicable only to new case of synchronisation or also to CPPs already synchronised? Whether this charge is on one time basis or continuous basis? MERC, Mumbai Page 40

50 Section 2 Public Hearing Process COMMISSION S RULING The Commission has taken note of various comments/ suggestions received in this matter. The Commission rules that the CPP Holder desirous of synchronising the CPP with the grid shall pay to the Distribution Licensee, an amount equivalent to 15% of the cost of labour that would have been employed by the Distribution Licensee in carrying out such work Also, it should be noted that supervision charge is a one-time fee and shall be applicable to a CPP Holder at the time of synchronisation of his CPP with the grid. GENERAL CONDITION: PAYMENT SECURITY- FOR FIRM POWER PURCHASE BY DISTRIBUTION LICENSEE FROM CPP HOLDER Mr. S. Deb-Roy representing M/s ONGC, Uran has submitted that the cost of opening a Letter of Credit (LC) should be borne by the consumer (the Distribution Licensee) not the seller. Mr. Deb-Roy has suggested that another option for Distribution Licensee is to deposit an equivalent amount as Security Deposit with CPP Further Mr. Deb-Roy has added that there is no provision for payment security for Infirm power in the Policy M/s MSEB has submitted that Letter of Credit should not be made compulsory for MSEB (or the Distribution Licensee). COMMISSION S RULING The Commission is of the view that the CPP Holders are entitled to payment security for the payments due to them. However, this should be at the option of the CPP Holder. The Commission rules that the cost of opening a Letter of Credit (irrevocable and revolving) would be borne by the CPP Holder, as in the case of its earlier Orders on Bagasse based co-generation and Wind Energy In the matter of payment security for Infirm power, the Commission has consciously not prescribed any payment security as the power is Infirm in nature and there cannot be any basis for providing such payment security in such cases. GENERAL CONDITION: EVACUATION FACILITIES Mr. Ashok Khinvasara, M/s Ispat Industries Ltd. has submitted that it is not proper for the CPP Holder to provide interest free advance to the Licensee equivalent to 50% of the cost of works to be carried out by it. However, if deposit advance is required to be paid, then it should bear interest and should be paid by the Licensee along with the repayment of the advance Further Mr. Khinvasara has submitted that the Distribution Licensee should be responsible for paying the Deemed Generation benefits to the CPP Holder to ensure accountability of the Licensee Mr. M. B. Kulkarni, M/s Tata Motors Limited has submitted that the Order should provide some deterrent to compensate for the inconvenience caused on account of the failure of the distribution network of Distribution Licensee and in turn to compensate the CPP Holder for loss of business and goodwill. MERC, Mumbai Page 41

51 Section 2 Public Hearing Process Mr. Banmali Agravala, CII Maharashtra State Council has suggested that advance provided to Distribution Licensee for synchronisation with grid / power equipment purpose should be interest bearing since industry borrows funds from the market at commercial rates. Mr. Virendra Mital of Captive Power Producers Association (CPPA) has also submitted similar comments. COMMISSION S RULING The Commission has taken note of various comments/ suggestions received in this matter. For the purpose of this Order, the Commission has continued its stand taken in the Wind Energy and Bagasse based co-generation Orders. GENERAL CONDITION: ENERGY PURCHASE AGREEMENT (EPA), ENERGY BANKING AGREEMENT (EBA) AND ENERGY WHEELING AGREEMENT (EWA) M/s MSEB has submitted that the tenure of Energy Purchase Agreement (EPA), Energy Wheeling Agreement (EWA) and Energy Banking Agreement (EBA) should be initially for a period of 3 years- renewable on year to year basis for a maximum period of 5 years M/s MSEB has further submitted the following in the matter of processing fees: Processing fees Rs.5,000 per proposal related with sale to Licensee/ third Party and Banking, etc Mr. S. R. Sibal, M/s Sunflag Iron and Steel Co. Ltd. has submitted that tenure of EBA should be the same as that for EPA i.e. the EBA should be valid for 5 years Mr. Ashok Khinvasara, M/s Ispat Industries Ltd. has submitted that tenure of EBA should be made co-terminus with the EPA and EWA Dr. S. L. Patil, Secretary General, TBIA, Mr. Banmali Agravala, Vice Chairman, CII Maharashtra State Council and Mr. Mital of Captive Power Producers Association (CPPA) have objected to the proposed clause in EPA that sale of power should be minimum 1 MW, and have further submitted that it may not be possible to have such minimum requirement. If 3 or 4 parties situated close to each other opt for purchase of power from a CPP, then the Commission should provide for such sale. Dr. Patil has added that above-mentioned conditions should not be there for EWA In the matter of EPA, Dr. Patil has suggested that it should be valid for a period of 10 years Mr. S. Deb-Roy, M/s ONGC, Uran has submitted that the Draft is silent about premature termination of the EPA and compensation for losses accruing to either of the two parties, and sought Commission s clarification on this matter Mr. M. B. Kulkarni of M/s Tata Motors Limited has drawn Commission s attention to the time-frame for the execution of the Energy Purchase, Banking and Wheeling agreements and has requested the Commission to define a definite time-frame for the execution of the above-said agreements to safeguard the interest of CPP Holder as well as Third Party purchaser of CPP power Mr. R. B. Goenka of Vidarbha Industries Association (VIA) has suggested that the 1MW capacity in the EPA should be defined. He has proposed that the EPA between CPP holder and Distribution Licensee or Third Party consumer should be for sale of power equivalent to 1 MW MERC, Mumbai Page 42

52 Section 2 Public Hearing Process capacity considering 70% load factor and should be in terms of energy (kwh) i.e units per day, and more and less than the specified limit in any day should not be considered for billing purpose. Further Mr. Goenka has added that the same principle should be applicable for EWA. Regarding EBA, Mr. Goenka has submitted that tenure should be 5 years. COMMISSION S RULING The Commission after taking into account the above suggestions/ comments, rules that Energy Purchase, Wheeling and Banking agreements should be signed for a minimum of 3-years and a maximum of 5-years. This would bring uniformity to that extent in this matter Regarding Mr. Kulkarni s submission related to time-frame for execution of EPAs, EWAs and EBAs, the Commission rules that the Distribution Licensee should execute the relevant agreement within 1-month from the date of submission of the application for such agreement by the CPP Holder and/ or Third Party purchaser of CPP power. GENERAL CONDITION: REACTIVE POWER Mr. Banmali Agravala, CII Maharashtra State Council and Mr. Virendra Mital, Captive Power Producers Association (CPPA) have submitted that Reactive power supply is not applicable for synchronous generators used by CPPs Mr. D. V. Subhedar, Executive Secretary, Patalganga Rasayani Industries Association (PRIA), has objected to the condition proposed by the Commission on the grounds that technically it is not feasible for CPPs with internal consumption and supplying surplus power to Distribution Licensee/ Third Party consumers to supply 36% of RkVAh, as there are limitations for RkVAh generation from CPPs during high voltage periods of grid. Mr. Subhedar has added that, during such periods, high RkVAh leads to high bus voltage for internal consumers, which is dangerous for health of electrical equipment, and has requested the Commission to review and reduce reactive power supply (RkVAh) equivalent to 25%. COMMISSION S RULING The Commission has taken note of various comments/ suggestions received in this matter. For the purpose of this Order, the Commission rules that, the CPP Holders synchronised with the grid shall supply reactive power at nominal voltage at point of injection equivalent to at least 25% of the active power (kwh) supplied to the grid on a monthly basis. The penalty/ incentive for extra Reactive Energy drawal/ supply than the desired quantum at the point of injection, if any, shall be based on Commission s future directive on the matter. GENERAL CONDITION: PLANNED/ UNPLANNED SHUTDOWN Mr. Banmali Agravala, CII Maharashtra State Council and Mr. Virendra Mital, Captive Power Producers Association (CPPA) have submitted that notice period of planned shut-down be reduced to 15 days from 1 month, looking at practicalities. COMMISSION S RULING The Commission has noted the suggestion from Mr. Agravala and Mr. Mital in this matter. However, the Commission is of the opinion that notice period for planned or unplanned shutdowns should be 1-month, and would be more reasonable than the shorter period suggested. MERC, Mumbai Page 43

53 Section 2 Public Hearing Process GENERAL CONDITION: OPEN ACCESS Mr. Banmali Agravala, CII Maharashtra State Council and Mr. Virendra Mital, Captive Power Producers Association (CPPA) has submitted that notwithstanding Distribution Licensee s open access policy for other generating company and traders, CPP Holders should be provided immediate open access. COMMISSION S RULING The Commission is currently in the process of formulating Transmission Open Access Regulation, and this Order would be subject to the Regulations when notified. GENERAL CONDITION: SPECIAL TOD METERS Mr. Ashok Khinvasara, M/s Ispat Industries Ltd. has submitted that it is unfair to levy entire liability of the cost of ToD meters on either the CPP Holder or on the Third Party Purchaser of CPP Power. Mr. Khinvasara has further added that the cost also should be shared by the Licensee since it will be earning a certain revenue Mr. Ved Leekha of M/s Pudumjee Pulp and Paper Mills Limited has submitted that The ToD meters with continuous communication capability should not be made mandatory for small infirm power sales. COMMISSION S RULING Given that the Commission is planning to introduce Intra-State ABT regime in the State, installation of Special Real Time ToD meters with online reading features and continuous communication facility with the relevant Load Dispatch Centre or the Distribution Licensee is desirable Existing and the Third Party consumers of the CPP power would continue to use the current ToD meters (including Special Energy Meters- SEMs). All the new CPPs to be commissioned shall install Special ToD meters at their end. Also, all the Third Party purchasers of CPP power entering into a contract with a CPP Holder/s after the date of this Order shall install special ToD meters at their end It is expected of all CPP Holders as well as the Third Party purchasers of CPP power that they would shift from ToD meters to Special ToD meters as and when the Intra-State ABT mechanism is implemented. GENERAL CONDITION: DETAILS TO BE GIVEN ONE MONTH PRIOR TO COMMISSIONING OF CPP TO SLDC AND DISTRIBUTION LICENSEE MSEB has submitted that the details related to the CPP should be submitted one month prior to commissioning of the CPP to the SLDC and the Distribution Licensee. MERC, Mumbai Page 44

54 Section 2 Public Hearing Process COMMISSION S RULING The Commission has noted the submission of MSEB, and rules that the CPP Holder shall provide intimation of date of commissioning of CPP to the SLDC and the Distribution Licensee at least 1-month in advance. However, as recommended in the Draft Policy the details related to the CPP would be provided within one-month from the date of commissioning of CPP to the SLDC as well as to the Distribution Licensee. DEFINITION: FOSSIL FUELS Mr. Ashok Khinvasara, M/s Ispat Industries Ltd. has requested the Commission to include blast furnace gas, coke oven gas and sponge iron furnace gas under the definition of lean gases. Mr. Khinvasara has further added that CPPs which use fossil fuel as a secondary fuel should be included in the purview of the Order Mr. Banmali Agravala, CII Maharashtra State Council, has submitted that Fuels should include (a) Fossil Fuels- all derivatives such as washery rejects, petcoke, etc. (b) waste heat recovery based power generation where heat generation in manufacturing process is not limited to fossil fuel being burned. Mr. Mital of Captive Power Producers Association (CPPA) has made a similar submission to the Commission. COMMISSION S RULING Commission has taken note of Mr. Khinvasara s submission, and clarifies that any lean gas with hydrocarbon content generated from usage of fossil fuel in the process would qualify for the definition of lean gases under this Order. Regarding inclusion of fossil fuel as a secondary fuel, the Commission would like to clarify that its Order would be applicable only to fossil fuel based CPPs using fossil fuel as Primary and Secondary fuel, i.e. CPPs that use a non-fossil fuel as primary fuel and a fossil fuel as secondary fuel, for example, would not qualify Regarding Mr. Agrawala s and Mr. Mital s submission the Commission would like to clarify that all conventional fuel with hydrocarbon content would qualify under this Order and would cover washery rejects, and petcoke. However, Mr. Agrawala s and Mr. Mital s submission (b) would not be covered. It should be clearly understood that waste heat recovery based power generation, where heat is generated in the manufacturing process, if not based on fossil fuel, would not be covered under this Order. MERC, Mumbai Page 45

55 Section 3 Commission s Decision on Tariff and related Issues 3. COMMISSION S DECISION ON TARIFF AND TARIFF RELATED ISSUES INTRODUCTION 3.1 The Government of Maharashtra liberalised the Captive Power Policy vide Government Resolution No. MISC/1095/CR/2776/NRG-2 dated in view of the liberalised Industrial Policy for the State of Maharashtra, the growing demand for electricity by the industrial consumers and the prevalent load shedding within the State. This Policy included various industry friendly provisions like purchase of power from CPP (although limited to a certain extent of the total installed capacity of the CPP), Banking of power, Wheeling of surplus CPP power for sale to Third Party, etc. This industry friendly policy led to commissioning of substantial captive generating capacity in the State post 1995, especially for those consumers of the State Electricity Board who desired continuous and quality power. 3.2 Subsequently, the capacity addition by way of CPPs in the State slowed down and the reason for the same can be attributed to following- Frequently changing policy of the State Government in the matter of CPPs Perception of CPPs as a threat and, hence, perceived obstructionist stand taken by the MSEB (indirectly discouraging sale of surplus power from the CPP, Banking of CPP power through various Commercial Circulars from time to time) Significant increase in the fuel prices in past few years (primarily liquid fuels like Furnace Oil, Naphtha) Un-availability/ inadequate availability of Natural Gas (one of the reasons for significant CPP capacity addition in Gujarat is availability of Natural Gas and development of gas grid across the State) 3.3 However, in future the scenario with respect to CPPs is going to be significantly different from the past due to the following reasons- The EA 2003 has brought about fundamental changes in the way the CPPs are regulated Dispensation with respect to the fossil fuel based CPPs is likely to bring clarity/ stability in the way CPPs are going to be regulated With the completion of the Dahej-Uran pipeline (likely to be completed by March 2005), the increased availability of Natural Gas is likely to provide further impetus to capacity addition by way of new natural gas based CPPs in the State 3.4 Currently Maharashtra is facing a significant demand-supply gap in the power sector with daily load shedding being undertaken both in the morning and evening peak hours by the MSEB. An analysis of the recent data published by the State Load Despatch Centre (SLDC), Kalwa (for the period October 2003 to March 2004) reveals average peak load shedding of over 1,500 MW in Maharashtra and the Commission is very concerned about this situation. 3.5 In light of the above, harnessing the unutilised capacity of the in the short term is of prime importance and would help in bridging the demand-supply gap to a certain extent, if not completely. MERC, Mumbai Page 46

56 Section 3 Commission s Decision on Tariff and related Issues 3.6 Currently, Maharashtra has a significant amount of captive power capacity with a number of operational CPPs. An analysis of data provided by MSEB to MERC on CPPs sanctioned under Section 44 of the erstwhile Electricity (Supply) Act of 1948 reveals that there were 46 sanctioned and operational CPP s in Maharashtra whose cumulative capacity stood at 657 MW as of March The Commission is aware that the CPP capacity in the State is likely to grow significantly over the next 3 years and estimates that the capacity additions in the State would be in the range of about 500 MW to 600 MW. It is estimated that the CPPs would have excess saleable capacity of about 23% to 25% of the total installed capacity, fuelled by the fundamental changes brought about by the EA 2003, which is expected to be about 270 to 320 MW of saleable capacity in the year More importantly, it should be noted that if about 300 MW of captive power is harnessed, it would translate into about Rs.1,200 crores of avoided cost of generation for the State. TARIFF PRINCIPLES 3.9 The Commission has generally been guided by the most suitable and implementable practices of tariff determination, especially in the context of the rapidly evolving electricity sector in India, which it has consistently used since its first major tariff Order in year 2000 for determination of tariff for the MSEB consumers. The Commission has also followed the letter and spirit of the various relevant provisions of the Electricity Act 2003 while formulating this Policy. The tariff principles followed by the Commission in its Orders on Wind Energy and Bagasse and other non-fossil fuel based Co-generation have also been considered The key tariff principles are: Implementation based on spirit of EA 2003 and the relevant provisions Consistency in principles and their application Minimise uncertainty and regulatory interference Fair and equal treatment to all stakeholders Forward looking and implementable Incentives to co-generation based CPPs for efficient utilisation of Fossil Fuels Consonance with regulatory aspects APPROACH 3.11 The Commission has taken into consideration the genesis of the Captive Power Plant industry in the state and its evolution. The Commission has noted the reasons for substantial commission of CPP capacity initially when the Captive Power Policy was introduced by the Government of Maharashtra in The Commission strongly feels that there is opportunity to harness the excess saleable capacity with the (CPPs) which could be utilised to partially bridge the demand-supply gap prevailing in the State. Further analysis has revealed that about MW of excess capacity of could be utilised to meet the growing power deficit in the State The Commission has carried out a detailed analysis of the various policies of the Government of Maharashtra and various Commercial Circulars of MSEB introduced from time to time. The Commission felt that it is important to scrutinise various policies implemented earlier before formulating this Policy Subsequent to the coming into force of the Electricity Act 2003 on June 10, 2003, several Petitions and applications were filed with the Commission, which brought various issues to its notice. MERC, Mumbai Page 47

57 Section 3 Commission s Decision on Tariff and related Issues While formulating this Order, the Commission has tried to take into account these issues While determining the tariff for Fossil Fuel based the Commission has evaluated the various factors that affect the cost of generation like technology, fuels used, other operational constraints, etc. On further analysis the Commission observed that the cost of generation varies depending on the size of CPP, type of fuel used among other things and hence, the Commission is of the opinion that the tariff should be generic in nature and would not be different for various CPP holders based on size of CPP or type of fuel used. To arrive at the tariff the Commission has considered various options available. The details of tariff and other related issues are provided in the section on Commission s Analysis and its Ruling The Commission has also taken into consideration comments/ suggestions provided by the public on the Draft Policy while finalising this Order. COMMISSION S ANALYSIS AND ITS RULING 3.16 The Commission s analysis is provided below, referring wherever applicable to past Orders of the Commission, along with the ruling of the Commission on each issue. ISSUE NO. 1: DEFINITION OF A CPP WITH RESPECT TO OWN CONSUMPTION VERSUS SALE MIX EA 2003 Provisions related to CPP 3.17 Under Section 2 (8) of the Electricity Act 2003, a Captive Power Plant (CPP) is defined as: Part-1: Captive generating plant means a power plant set up by any person to generate electricity primarily for his own use In the above Section, the definition of the word primarily is critical in deciding the proportion of power usage for self consumption and the extent of power which can be sold to the Distribution Licensee or a Third Party. Part-2:..and includes a power plant set up by any co-operative society or association of persons for generating electricity primarily for use of members of such cooperative society or association As per Section 2 (49) of the EA 2003, a person is defined as;: person shall include any company or body corporate or association or body of individuals, whether incorporated or not, or artificial juridical person; 3.20 Further to the above definition of a CPP in section 2(8) of EA 2003, as per Section 9(1) of the EA 2003, power generation by a CPP is de-licensed. This Section states that: MERC, Mumbai Page 48

58 Section 3 Commission s Decision on Tariff and related Issues Not withstanding anything contained in this act, a person may construct, maintain or operate a captive generating plant and dedicated transmission lines: Provided that the supply of electricity from the captive generating plant through the grid shall be regulated in the same manner as the generating station of a generating company A CPP Holder has been provided the right to Open Access, under Section 9(2) of EA The Section states that: Every person, who has constructed a captive generating plant and maintains and operates such plant, shall have a right to open access for the purposes of carrying electricity from his captive generating plant to the destination of his use: Provided that such open access shall be subject to availability of adequate transmission facility and such availability of transmission facility shall be determined by the Central Transmission Utility or the State Transmission Utility, as the case may be: Provided further that any dispute regarding the availability of transmission facility shall be adjudicated upon by the Appropriate Commission. Commission s Analysis and Ruling 3.22 Exhibit 2 depicts the treatment with respect to the word primarily in the definition of CPP u/s 2(8) of EA Exhibit 2 Treatment of Word Primarily in the Definition of CPP u/s 2(8) of EA 2003 Manufacturing Unit Dedicated Line CPP Synchronisation with Grid Generation for self use Supply through grid (Sale, banking, wheeling, etc.)! No license required u/s 9 (1) of EA 2003! No MSEB permission now required " Earlier NOC was required u/s 44 of erstwhile Electricity (Supply) Act, 1948! Parity with generating station - effectively CPP has freedom to supply to any distribution licensee and subject to s. 42 (2) and 42 (4) of EA 2003 to any third party (consumer)! Quantum of sale is limited by interpretation of word primarily 3.23 The following options were considered for interpretation of the word primarily in the definition of the CPP u/s 2(8) of EA 2003 as shown in Table 9. MERC, Mumbai Page 49

59 Section 3 Commission s Decision on Tariff and related Issues Table 9 Interpretation of Primarily in Definition of CPP under Section 2(8) of EA 2003 Options Self Consumption (as % of Installed Capacity of CPP) Sale to Distribution Licensee/ Third Party (as % of Installed Capacity of CPP) Remarks Option 1 75% 25% Based on GoM Captive Power Plant related policy Option 2 66% 33% Option 3 51% 49% Based on Report of the Task Force on Power Sector Investments and Reforms, February, 2004, and the Commission s determination in Order dated (Case No. 57 of 2003) For the purpose of this Policy Option 3 shall be adopted, i.e. minimum self-consumption of 51% of the Installed Capacity of the CPP by the CPP Holder (which could be any person or AoP or a co-operative society) The above interpretation of the word primarily is the Commission s current stand in this matter, and is in line with the Order dated in Case No. 57 of However, as the Commission is to be guided by the National Electricity Policy and Tariff Policy of the Government of India as and when it is notified MERC may revisit the above interpretation, if required. Relief to CPP Holders- Special Conditions 3.26 In order to facilitate better utilisation of excess CPP capacity the following conditions (as shown in Table 10) shall apply in the specific cases to ensure discipline in the share of self consumption: Table 10 Treatment of Existing/ New CPPs in Case of Special Conditions with Respect to Self Consumption and Sale to Grid/ Third Party Particulars Condition on Consumption as a Percentage of Total Installed Capacity of Captive Power Plant (CPP) Self Consumption Sale to Distribution Licensee Sale to Third Party Cumulative Sale (Distribution Licensee and Third Party) Normal Condition* Minimum 51% Maximum 49% Maximum 49% Maximum 49% Special Condition Minimum 25% with a time limit Maximum 75% with a time limit Maximum 49% Maximum 75% with a time limit Note: *Normal Condition is the share of consumption for self use and that for sale to the grid/ third party as defined by the Commission 3.27 CPP Holders will be allowed to sell power in excess of the defined ceiling under the following Special Conditions: 1) Low Capacity Utilisation: Where the existing CPP Holder has a low capacity utilisation, viz. less than or equal to 25% of the installed capacity and hence lower offtake of power MERC, Mumbai Page 50

60 Section 3 Commission s Decision on Tariff and related Issues for self consumption. This relaxation would be applicable for a time limit of 3 years, before a review by the Commission in case extension of this time period is desired by the CPP Holder on valid grounds. 2) Shutdown of Manufacturing Capacity: Where the existing CPP Holder s unit is shut down and hence there is lower offtake of power for self-consumption. This relaxation would be applicable for a time limit of 3 years, before a review by the Commission in case extension of this time period is desired by the CPP Holder on valid grounds. 3) Proposed Capacity Expansion of Existing CPP: Where the existing CPP Holder goes for CPP capacity expansion in anticipation of the higher future requirements and hence there is lower proportion of offtake of power for self consumption till the additional capacity is utilised. This relaxation would be applicable for a time limit of 3 years, before a review by the Commission in case the CPP Holder desires the extension of this time period on valid grounds. 4) Proposed Capacity Expansion for New CPP: Where a new CPP is installed which has excess capacity in anticipation of higher future requirements, and hence there is lower proportion of offtake of power for self-consumption in the intervening period. This relaxation would be applicable for a time limit of 3 years, before a review by the Commission in case the extension of this time period is desired by the CPP Holder on valid grounds. ISSUE NO. 2: REDUCTION IN CONTRACT DEMAND OF A CPP HOLDER MERC Jurisdiction 3.28 As per the Order of the Honourable High Court Mumbai in MERC Appeal No. 1 of 2001 (MSEB Vs. MERC and Others) decided on , the permission of reduction of Contract Demand shall be a matter of Conditions of Supply, which shall be decided by MERC. Past Orders of the Commission related to Reduction in Contract Demand 3.29 The Commission in its Order in the matter of Captive Power and reduction of Contract Demand of Oil and Natural Gas Corporation Uran Plant (Case No. 26 of 2002) dated has ruled that: Thus, in exercise of its jurisdiction under Sections 22(2)(e) and 22(2)(n) and in view of the foregoing, the Commission finds the condition imposed by MSEB on ONGC with regard to maintaining a certain level of contract demand, except at their discretion and irrespective of their captive generation, as being untenable under the ERC Act under which the present Petition was filed (and even more so under the provisions of the EA, 2003). Commission s Ruling 3.30 The CPP Holder shall be allowed to reduce his Contract Demand with the Distribution Licensee to the desired level. MERC, Mumbai Page 51

61 Section 3 Commission s Decision on Tariff and related Issues ISSUE NO. 3: REDUCTION IN CONTRACT DEMAND OF THE THIRD PARTY PURCHASER OF CPP POWER Jurisdiction of MERC 3.31 As per the Order of the Honourable High Court Mumbai in the MERC Appeal No. 1 of 2001 MSEB Vs. MERC and Others decided on : THE PERMISSION OF REDUCTION OF CONTRACT DEMAND SHALL BE A MATTER OF CONDITIONS OF SUPPLY, WHICH SHALL BE DECIDED BY MERC Since the above Order is applicable to the CPP Holder for reduction of Contract Demand the same principle shall be applicable to the Third Party Consumer of the CPP Power. Hence, the decision on the reduction in Contract Demand of the third party consumer (in whose area Open Access is introduced as mentioned above) of CPP Power is under the jurisdiction of the Commission. Past Orders of the MERC related to Reduction in Contract Demand 3.33 The Commission in its Order in the matter of Captive Power and reduction of Contract Demand of Oil and Natural Gas Corporation Uran Plant (Case No. 26 of 2002) dated has stated that: Thus, in exercise of its jurisdiction under Sections 22(2)(e) and 22(2)(n) and in view of the foregoing, the Commission finds the condition imposed by MSEB on ONGC with regard to maintaining a certain level of contract demand, except at their discretion and irrespective of their captive generation, as being untenable under the ERC Act under which the present Petition was filed (and even more so under the provisions of the EA, 2003) In the above Order, the Commission has taken the view that ONGC as a consumer of Distribution Licensee, irrespective of its Captive Generation, shall be allowed to reduce its Contract Demand with the Distribution Licensee. Commission s Ruling 3.35 The Third Party Captive Power Purchaser shall be allowed to reduce his Contract Demand with the Distribution Licensee to the desired level. ISSUE NO. 4: ADDITIONAL DEMAND CHARGES IN RESPECT OF CPP HOLDERS Jurisdiction of MERC 3.36 As per Section 62(1) of EA 2003 the decision on the Additional Demand Charges to be levied on the CPP Holder by the Distribution Licensee is under the jurisdiction of the Commission. Past Orders of the Commission related to Additional Demand Charges 3.37 The Commission in its Order on non-fossil fuel based co-generation projects dated has stated as follows in the case of Contract Demand (para ): The reduction in Contract Demand will be allowed in case power generated by the cogeneration project is used only for self consumption by the developer. In case of Standby power requirement, the contract demand charges should be levied as per the Captive MERC, Mumbai Page 52

62 Section 3 Commission s Decision on Tariff and related Issues Generation Policy of the MSEB (viz. As per MSEB Departmental Circular Commercial No. 663/664 dated ). The relevant extract of the same is indicated below The Captive Generator will be required to pay Demand Charges per month equivalent to 10% of the installed capacity of the CPP and Standby generating sets in MW to the new unit, if any, in addition to normal monthly contract demand charges, if connected with the MSEB System. The additional Demand in MVA will be calculated based on the installed capacity of the CPP and the Standby generating set [MVA= MW / p f. (0.8)]. These additional demand charges will be payable as per HT Industrial Tariff in force. However, the MSEB should not charge Contract Demand in case the standby power is not requested by the developer. During the startup the MSEB may charge for the supply of electricity at the prevailing rate. Commission s Ruling 3.38 Applicability of Additional Demand Charges shall be as follows: The Additional Demand Charges should be charged to only those CPP Holders whose Captive Power Plants are synchronised with the grid. In line with the MERC Tariff Orders, HT consumers having captive generation facilities synchronised with the grid will pay Additional Demand Charges of Rs.20 per kva per month only on the Standby component, and only on the quantum, if any, in excess of the consumer s Contract Demand For exceeding the Contract Demand (over and above the standby component, if applicable), the CPP Holder would be levied penal charges as provided in Table 11. Table 11 Penal Additional Demand Charges for Exceeding Contract Demand plus Standby Particulars Penal Additional Demand Charges Excess Drawal in case of Planned Shutdown of CPP 1.5 times Demand Charges (on monthly basis) in force Excess Drawal in case of Unplanned Shutdown of CPP 2.0 times Demand Charges (on hourly basis) in force 3.40 The Penal Additional Demand Charges for exceeding Contract Demand under unplanned shutdown shall be linked to the reasonably closest possible duration of actual shutdown of the CPP. However, in order to make this implementable, the penal charges would be in terms of hour-basis as provided in Table 12. Table 12 Mechanism for Penal Additional Demand Charges for Exceeding Contract Demand plus Standby during Unplanned Shutdown of CPP Un-planned Shutdown Duration: Illustrative Cases Calculation Methodology for Penal Charges Remarks Case 1: 3 Hour Penal Charges = [ 2.0 times Demand Charges For 3 hours, the penal charges per (for Month in kva) / (30 * 24) ] * 3 hour are multiplied by 3 Case 2: 2 Days (48 Hours) Penal Charges = [ 2.0 times Demand Charges (for Month in kva) / (30 * 24) ] * 48 For 48 hours, the penal charges are multiplied by 48 Note: In case of the odd-units of duration it would be rounded-off to the closest unit of selected timeduration. To implement this, it is necessary to have ToD meters installed at the CPP Holders end 3.41 Higher Penal Additional Demand Charges for unplanned shutdown (2 times normal Demand Charges) shall be levied to discourage incidences of unplanned shutdown. MERC, Mumbai Page 53

63 Section 3 Commission s Decision on Tariff and related Issues ISSUE NO. 5: RATE OF PURCHASE OF CPP POWER BY DISTRIBUTION LICENSEE Jurisdiction of MERC 3.42 As per Section 62(1)(a) of EA 2003 the Commission shall determine the tariff for supply of electricity by a generating company to a Distribution Licensee. Past Orders of the MERC related to Rate of Purchase of CPP Power by the Distribution Licensee 3.43 The Commission in its Order dated in the matter of payment for sale of power to the MSEB submitted by M/s. Sunflag Iron and Steel Co. Ltd. (Case No. 14 of 2001) has observed as follows: The Commission further observed that during the delivery of its first Tariff Order dated 5 th May 2000, it had clearly directed the MSEB not to follow an obstructionist policy in the matter of Captive Co-generation Unit [Section 41 of tariff order]. The Commission directed the MSEB to follow Section 44 of the Electricity (Supply) Act, 1948 in its true spirit and should welcome distributed private power at economical rates and clear all pending applications by Load Shedding on the one hand, and refusal to the Captive Units on the other hand, is obviously contradictory. Commission s Analysis Need for Purchase of Power by Distribution Licensee 3.44 Based on the analysis of the current demand and planned future additions in generation capacity, it is likely that Maharashtra would have a demand-supply gap of about 1,850 MW in the year Hence, purchase of (both Firm and Infirm) power from Fossil Fuel based CPPs, considering their low gestation period, would be expected of Distribution Licensees. In any case, some of them incur considerable expenditure on Unscheduled Interchange (UI) charges even after resorting to load shedding in order to partially bridge the prevalent demand-supply gap. Alternatives for Rate of Purchase of Firm Power Alternative 1: Rate of purchase of CPP power by Distribution Licensee shall be linked to the average realisation of the Distribution Licensee of the previous year as per Time of Day (ToD) 3.45 In this approach the purchase price of CPP Power by a Distribution Licensee shall be linked to the Time of the Day Principle. The Average Realisation of the Distribution Licensee during a particular ToD Slot should be the benchmark for deciding the purchase price of the CPP power by the Distribution Licensee. The Distribution Licensee should purchase CPP Power at a certain discounted rate of its Average Realisation during particular ToD slot. It should be noted that as per the CC 602,dated of MSEB, the CPP power purchase rate of MSEB is defined as Board s Average Realisation from the sale of energy of the previous year less 10% The purchase price based on Average Realisation of MSEB 18 (as a Distribution Licensee) during the respective ToD slots of the day is provided in the Table 13 below. 18 : Refer Annexure-8 for details related to ToD slot-wise Average Realisation of the MSEB for Year MERC, Mumbai Page 54

64 Section 3 Commission s Decision on Tariff and related Issues Table 13 Average Realisation of MSEB for Year (for ToD Slots) Sr. ToD Slots Average Realisation of MSEB No. (Paisa per Unit) 1 For 22:00 to 06:00 Hrs For 06:00 to 09:00 Hrs For 09:00 to 12:00 Hrs For 12:00 to 18:00 Hrs For 18:00 to 22:00 Hrs 309 Average for Day 284 Source: Analysis of data provided for year Note: Average realisation excludes charges recovered from Consumers related to T&D Losses 3.47 The rate of purchase of CPP power by the Distribution Licensee would be at a 10% discount over the Average Realisation of the Distribution Licensee during the ToD slot. However, in case of the Co-generation based CPPs, the rate of discount would be 5% (incentive of 5% to promote Co-generation Units) over the Average Realisation of the Distribution Licensee The average rate of purchase for CPP power should be based on the previous year s Average Realisation (ToD slot-wise) of the Distribution Licensee and the same should be applicable for a period of 1-year. The ToD Slots should be as per the approved tariff of the Distribution Licensee in force. Alternative 2: Rate of purchase of Firm CPP power by Distribution Licensee shall be governed by the Principles of Availability Based Tariff (ABT) 3.49 Rate of Purchase of Firm CPP Power shall be based on the UI rate under the Principles of Availability Based Tariff (ABT) as notified (latest being No. L-7/25(5)/2003-CERC dated 26 th March 2004 and w.e.f ) by the Central Electricity Regulatory Commission from time to time. The relevant portion (as applicable at present) is quoted below: Unscheduled Interchange (UI) Charges: (1) Variation between actual generation or actual drawal and scheduled generation or scheduled drawal shall be accounted for through Unscheduled Interchange (UI) Charges. UI for a generating station shall be equal to its actual generation minus its scheduled generation. UI for a beneficiary shall be equal to its total actual drawal minus its total scheduled drawal. UI shall be worked out for each 15- minute time block. Charges for all UI transactions shall be based on average frequency of the time block and the following rates shall apply with effect from Average Frequency of Time Block UI Rate (Paise per kwh) 50.5 Hz and above 0.0 Below 50.5 Hz and up to Hz 8.0 Below Hz and up to Hz Below Hz Between 50.5 Hz and Hz linear in 0.02 Hz step (Each 0.02 Hz step is equivalent to 8.0 paise/ kwh within the above range.) MERC, Mumbai Page 55

65 Section 3 Commission s Decision on Tariff and related Issues 3.50 Basically, therefore, the UI charges are presently governed by the following formula: UI Charges = 600 paise per unit for f < 49 Hz = 600-[400*(f-49)] paise per unit for 49 < f < 50.5 Hz = 0 paise per unit for f > 50.5 Hz Notation: > is greater than, and < is lower than The rate of purchase of Firm CPP power shall be linked to the prevailing grid frequency and subject to a band of a minimum (floor) and maximum (ceiling) rate of purchase as shown in the Table below. Thus, for the current level of applicable UI charges at Rs per unit at 49 Hz, the band of the maximum and minimum rate of purchase of Firm CPP power shall be Rs per unit (two third of UI charges at 49 Hz) and Rs per unit (currently, intersecting at UI Rate 19 frequency of Hz). Table 14 Rate for Purchase (including Band) of Firm Power from CPP Purchase Condition Frequency Purchase Rate Non-Co-generation CPP Co-generation based CPP At all frequency within ABT range At all frequency within ABT range As per UI rate subject to the Floor rate of Rs per kwh (intersection frequency of Hz) and Ceiling rate of 2/3 rd of UI Charge at 49 Hz. 10% premium over Rate prescribed under Firm purchase for Non-Cogeneration based CPPs i.e. As per UI rate subject to the Floor rate of 110% of Firm power rate of Non- Co-generation based CPPs (intersection frequency of Hz) and Ceiling rate of 110% of 2/3 rd of UI Charge at 49 Hz In view of provisions of the Section 86 (1) (e) of EA 2003 mandating promotion of cogeneration, the Commission rules that CPP s adopting the principle of Co-generation based on fossil fuel, shall be entitled to rate premium of 10% as prescribed above. Alternatives for purchase of Infirm CPP Power by the Distribution Licensee Alternative 1: Rate of purchase of Infirm CPP power by Distribution Licensee shall be governed by the principles of Availability Based Tariff (ABT) 3.53 Rate of Purchase of Infirm CPP Power shall be based on the UI rate under the Principles of Availability Based Tariff (ABT) as notified (latest being No. L-7/25(5)/2003-CERC dated 26 th 19 : It may be noted that the intersecting frequency based on the current UI Rate prescribed by the CERC and subject to change in future. Refer Annexure-12 for Plot of UI Charges as per CERC Notification dated in the matter of Availability based Tariff MERC, Mumbai Page 56

66 Section 3 Commission s Decision on Tariff and related Issues March 2004 and w.e.f ) by the Central Electricity Regulatory Commission from time to time. The relevant portion (as applicable at present) is quoted below: Unscheduled Interchange (UI) Charges: (1)Variation between actual generation or actual drawal and scheduled generation or scheduled drawal shall be accounted for through Unscheduled Interchange (UI) Charges. UI for a generating station shall be equal to its actual generation minus its scheduled generation. UI for a beneficiary shall be equal to its total actual drawal minus its total scheduled drawal. UI shall be worked out for each 15- minute time block. Charges for all UI transactions shall be based on average frequency of the time block and the following rates shall apply with effect from Average Frequency of Time Block UI Rate (Paise per kwh) 50.5 Hz and above 0.0 Below 50.5 Hz and up to Hz 8.0 Below Hz and up to Hz Below Hz Between 50.5 Hz and Hz linear in 0.02 Hz step (Each 0.02 Hz step is equivalent to 8.0 paise/ kwh within the above range.) 3.54 Basically, therefore, the UI charges are presently governed by the following formula: UI Charges = 600 paise per unit for f < 49 Hz = 600-[400*(f-49)] paise per unit for 49 < f < 50.5 Hz = 0 paise per unit for f > 50.5 Hz Notation: > is greater than, and < is lower than The rate of purchase of Infirm CPP power shall be linked to the prevailing grid frequency as in case of the Firm power and would be equivalent to 90% of the Firm rate prescribed subject to a maximum (ceiling rate) rate of purchase and floor rate as shown in the Table 15. Table 15 Rate for Purchase (including Band) of Infirm Power from CPP Purchase Condition Frequency Purchase Rate Non-Co-generation CPP Co-generation based CPP At all frequency within ABT range At all frequency within ABT range 90% of the applicable rate prescribed under Firm purchase for Non-Co-generation based CPPs 90% of the applicable rate prescribed under Firm purchase for Co-generation based CPPs 3.56 In view of the provisions of Section 86 (1)(e) of EA 2003 mandating promotion of cogeneration, the Commission rules that CPP s adopting the principle of Co-generation based on fossil fuel, shall be entitled to rate premium of 10% as prescribed above. MERC, Mumbai Page 57

67 Section 3 Commission s Decision on Tariff and related Issues Alternative 2: Rate of purchase of Infirm CPP power by Distribution Licensee shall be linked to the rate of purchase of Firm CPP power by the Licensee (as discussed above under Alternative 1 of Section on rate of purchase of Firm Power) 3.57 For administrative simplicity, the purchase price for Infirm CPP power by a Distribution Licensee should be linked to the rate of purchase of Firm CPP power by the Licensee. The rate of purchase for Infirm CPP Power would be at 10% discount over the rate of purchase of Firm CPP power by the Distribution Licensee However, in case of the Co-generation based CPPs, the rate of discount would be 5% (incentive of 5% to promote Co-generation Units) over the rate of purchase of Firm CPP Power (from Co-generation Unit) of the Distribution Licensee It should be noted that the average rate of purchase for CPP power should be based on the previous year s Average Realisation (ToD slot-wise) of the Distribution Licensee. The ToD Slots should be as per the approved tariff of the Distribution Licensee in force. Alternative 3: Rate of purchase of CPP Power to the Distribution Licensee shall be linked to the prevailing HT Tariff of the Licensee 3.60 To make the accounting of the purchase of infirm CPP Power by the Distribution Licensee simpler, the rate of purchase of power shall be linked to HT Industrial Tariff of the Licensee during the ToD Slot. The MSEB had recommended this method in the CC No. 689 dated (now stayed by the Commission), wherein it proposed to purchase the CPP Power at Rs per unit or 90% of HT Industrial Tariff in force, whichever is less Under this method the rate of purchase of Infirm CPP power by the Distribution Licensee should be 70% of the HT Industrial Tariff in force. However, in case of the Co-generation based CPPs, the rate of discount should be 25% i.e. 75% of the HT Industrial Tariff in force (incentive of 5% to promote Co-generation Units over non-co-generation based CPPs) The ToD Slots should be as per the approved tariff of the Distribution Licensee in force. Commission s Ruling 3.63 Out of the above alternatives, the Alternative no.2 for purchase of Firm and Alterrnative 1 for purchase of Infirm power shall be applicable for the purposes of this Order The Commission may revisit the rate at the beginning of the next 5-year Plan period, i.e , if required. Common requirements for both Firm and Infirm CPP Power purchases by Distribution Licensee 3.65 The eligibility criterion will be the purchase of minimum 1 MW (i.e. equivalent to units per hour) of power, applicable in case of both Firm power and Infirm power purchase The Distribution Licensee should sign an EPA, for a minimum 3-years and a maximum period of 5-years, with the CPP Holders, for both Firm as well as Infirm power purchase from CPP. 20 : Operational Definition: The eligibility criterion of minimum 1 MW would be equivalent to 700 units per hour i.e. minimum 700 units per hour should be fed into the Distribution Licensee s grid. This calculation is based on a normative load factor of 70% for. MERC, Mumbai Page 58

68 Section 3 Commission s Decision on Tariff and related Issues 3.67 The payments for the power purchase from the CPPs by the Distribution Licensee should be settled at the end of each billing cycle Each CPP Holder whose CPP is synchronised with the grid and desirous of selling power to the Distribution Licensee or to Third Party should install ToD 21 meters (including SEMs) at his end. ISSUE NO. 6: RATE OF PURCHASE OF CPP POWER BY THIRD PARTY Jurisdiction of MERC 3.69 The rate of purchase of CPP Power is a matter between the two parties, i.e. the buyer of CPP Power and the CPP Holder selling the surplus power. The rate of purchase of CPP Power by the Third Party is beyond the jurisdiction of the Commission. Commission s Analysis and Ruling 3.70 The rate of purchase of CPP Power by the Third Party Consumer is not within the purview of the Commission However, the sale of CPP Power to the Third Party shall be subject to the following conditions; The Infirm power supply will not be accounted for, in case the Distribution Licensee s network is being used for wheeling such power, since the CPP Holder has the banking option with the Distribution Licensee. For the purpose of operational simplicity, the eligibility criterion applicable for purchase of Firm power through the Distribution Licensee s network will be a minimum of 1 MW (i.e. equivalent to units per hour). In case a CPP holder puts less than 1 MW of power into the grid then such lower quantum of energy should not be accounted for by the Distribution Licensee. ToD (including Special Energy Meters- SEMs) meters should be installed by both the CPP Holder synchronised with the grid and desirous of selling power to the Third Party consumer as well as the Third Party consumer of CPP Power at the receiving end Third Party sale through the grid will be subject to the Commission providing Open Access in the Distribution Licensee s area where the Third Party Consumer of CPP power is located. 21 : Note: Given that the Commission is planning to introduce Intra-state ABT regime, installation of Special ToD Meters with continuous communication capability with the concerned LDC/ Distribution Licensee would be desirable. Refer to section on General Conditions, which has covered this topic in detail. 22 : Operational Definition: The eligibility criterion of minimum 1 MW would be equivalent to 700 units per hour i.e. minimum 700 units per hour should be fed into the Distribution Licensee s grid. This calculation is based on a normative load factor of 70% for (i.e kwh x 70% Load Factor = 700 units per hour). MERC, Mumbai Page 59

69 Section 3 Commission s Decision on Tariff and related Issues ISSUE NO. 7: BANKING OF SURPLUS POWER WITH DISTRIBUTION LICENSEE MERC Jurisdiction 3.73 Banking of surplus power with the Distribution Licensee amounts to Deemed Sale. Hence, under Section 62(1) of the Electricity Act 2003, the Commission will have jurisdiction to determine Banking related provisions. Commission s Analysis and Ruling 3.74 Banking of energy shall be allowed by the Distribution Licensee, and will be regulated by the following conditions: An Energy Banking Agreement (EBA) should be executed between the CPP holder and the Distribution Licensee. The EBA will be for a minimum of 3-years and a maximum period of 5-years. Accounting of the banked energy units would be carried out on Time of Day (ToD) basis, i.e. energy units banked by the CPP Holder during a particular ToD-slot should be accounted against the same ToD slot when the CPP holder draws the banked units. For this purpose the ToD slots as per latest approved tariff of the Distribution Licensee would be applicable. It should be noted that units banked during a higher tariff ToD-slot could be consumed in a lower tariff ToD slot at the option of CPP Holder, but the reverse would not be allowed (i.e. units banked during a lower tariff ToD-slot cannot be drawn by the CPP Holder during a higher tariff ToD-slot) In case the Distribution Licensee does not provide 24 hour banking facility to the CPP Holder, then the accounting of the energy fed into the grid during the time period for which Banking is not desired (mostly the off-peak demand period for the Distribution Licensee) should be linked to the grid frequency prevailing at that time as detailed in the Table 16 below. Table 16 Accounting Mechanism for Banking of Energy during Off-peak Period Sr. No Grid Frequency (Hz) Credit for Banking as a percentage of total energy fed into the grid (%) and above 0% 2 Below % 3.76 The above mechanism is for accounting of energy fed into the grid during off-peak period The banked units should be accounted for by the Distribution Licensee on a monthly basis. The Distribution Licensee would give the credit for the balance units in the subsequent month s bill It should be noted that at the end of the Financial Year accounting of the banked units should be carried out, and balance banked units would be adjusted against the energy purchased by the CPP holder during the Financial Year. However, subsequent to adjustment of banked units at the end of the Financial Year, if there are additional balance banked units, such banked units would lapse at the end of the year. MERC, Mumbai Page 60

70 Section 3 Commission s Decision on Tariff and related Issues Note: In case a CPP holder has a EBA (for Banking) as well as EPA (for Selling Infirm power) arrangement with the Distribution Licensee then the Infirm power fed into the grid should be either Banked and/ or sold to the Distribution Licensee as per the conditions of EPA and/ or EBA signed between the CPP Holder and the Distribution Licensee. However, in case priority is not mentioned for Banking or selling of such power in EBA and/ or EPA, then priority shall be given for Banking. In such cases, CPP holder shall have the right to choose the maximum quantum (in units) of power to be Banked, and if the additional power (beyond maximum quantum specified by the CPP Holder) is fed into the grid of the Distribution Licensee, then the same should be treated as Infirm power sold (at the option of the CPP Holder) to the Distribution Licensee by the CPP Holder. ISSUE NO. 8: PROVISIONS RELATED TO WHEELING OF CPP POWER MERC Jurisdiction 3.79 As per Section 30 of the Electricity Act 2003: Transmission within a State.- The State Commission shall facilitate and promote transmission, wheeling and inter-connection arrangements within its territorial jurisdiction for transmission and supply of electricity by economical and efficient utilisation of electricity 3.80 Under the Electricity Act 2003, Section 42(2) states that: State Commission shall introduce Open Access in such phases and subject to such conditions, (including the cross-subsidies and other operational constraints) as may be specified within one year of the appointed date by it and in specifying the extent of Open Access in successive phases and in determining the charges for billing, it shall have due regard to all relevant factors including such cross-subsidies, and other operational constraints: Provided that such Open Access may be allowed before the cross-subsidies are eliminated on payment of surcharge in addition to the charges for wheeling as may be determined by the State Commission: 3.81 As per the provisions mentioned above, the Commission has jurisdiction to determine the Wheeling Charges applicable for transmission and distribution of CPP power for self use or Third Party sale. Commission s Analysis and Ruling 3.82 The Wheeling Charges and Transmission charges will be the same (2% and 5% respectively) as those approved by the Commission in its Order dated 16 th August 2002 for purchase of power from Bagasse based Co-generation Projects and Order dated 24 th November 2003 for Procurement of Wind Energy and Wheeling for Third Party Sale and/ or Self-use, pending State-wide Load Profile Studies to arrive at the actual levels of Transmission Losses and applicable Wheeling Charges In case the CPP power is wheeled over the grid, separate Energy Wheeling Agreement (EWA) should be signed by the CPP holder as well as CPP power Consumer (consumer may be CPP holder himself or the Third Party) with its respective Distribution Licensee. The Distribution Licensee should provide 24 hour wheeling facility on ToD basis (wherever applicable). MERC, Mumbai Page 61

71 Section 3 Commission s Decision on Tariff and related Issues ISSUE NO. 9: SURCHARGE ON THIRD PARTY SALE OF CPP POWER MERC Jurisdiction 3.84 Under the Electricity Act 2003, Section 42(2) states that: State Commission shall introduce Open Access in such phases and subject to such conditions, (including the cross-subsidies and other operational constraints) as may be specified within one year of the appointed date by it and in specifying the extent of Open Access in successive phases and in determining the charges for billing, it shall have due regard to all relevant factors including such cross-subsidies, and other operational constraints: Provided that such Open Access may be allowed before the cross-subsidies are eliminated on payment of surcharge in addition to the charges for wheeling as may be determined by the State Commission: Provided further that such surcharge shall be utilised to meet the requirements of current level of cross subsidy within the area of supply of the Distribution Licensee: Provided also that such surcharge and cross subsidies shall be progressively reduced and eliminated in the manner as may be specified by the State Commission: Provided also that such surcharge shall not be leviable in case Open Access is provided to a person who has established a captive generating plant for carrying the electricity to the destination of his own use Section 42(4) of Electricity Act 2003 states that: Where the State Commission permits a consumer or a class of consumers to receive supply of electricity from a person other than a distribution licensee of his area of supply, such consumer shall be liable to pay an additional surcharge on the charges of wheeling, as may be specified by the State Commission, to meet the fixed cost of such distribution licensee arising out of his obligation to supply As per the above provisions, the Commission has jurisdiction to determine the Surcharge on sale of CPP Power to Third Party Consumer until the cross- subsidies are eliminated within the network of the Distribution Licensee wherein Open Access has been introduced. Also, the Commission has the jurisdiction in the matter of deciding Additional Surcharge to be paid by the consumer of CPP power to the Distribution Licensee on the charges of Wheeling to meet the fixed cost of such Distribution Licensee arising out of his obligation to supply to Third Party Consumer of CPP Power. Commission s Analysis and Ruling Part 1: Surcharge on Third Party Sale of CPP Power 3.87 The Surcharge is to be levied on the sale of CPP power by the CPP Holder to compensate the Distribution Licensee for cross-subsidies within his Distribution License area. In the absence of a detailed study, the Cross-subsidy may be calculated based on the Average Realisation from various consumer categories of Distribution Licensee s supply area, and is computed as the difference between the Average Realisation of the HT Industrial Consumer and the overall Average Realisation of all the consumer categories of the Distribution Licensee. MERC, Mumbai Page 62

72 Section 3 Commission s Decision on Tariff and related Issues 3.88 Based on the analysis for the year the level of cross-subsidy 23 provided by the HT Industrial Consumers of the MSEB is as detailed in the Table 17 below. Table 17 Level of Cross Subsidy for MSEB ( [P]) Name of Distribution Licensee Gross Average Realisation for Distribution Licensee Average HT Industrial Realisation for Distribution Licensee Level of Cross Subsidy provided by the HT Industrial Consumers in Rs. and in %ge MSEB (134%) Source: MSEB Statement of Accounts-Un-audited ( ) Note: P- Data analysed from MSEB Statement of Accounts is provisional data for year For other Distribution Licensees like REL, TPC and BEST, the Commission is aware that the level of Cross-Subsidy is much lower than that of MSEB as these licensees have an insignificant number of agricultural consumers in their license area. On the other hand, the Commission is also aware of the high levels of cross-subsidy for Mula-Pravara Electric Co. Op. Society Limited. However, since similar data for all other Distribution Licensees was not available, the level of crosssubsidy to be applicable for other Distribution Licensees can be taken to be at the same level as that for the MSEB However, if the full level of Cross Subsidy (as in case of MSEB, Rs per unit for year ), is loaded on CPP Power Sale to Third Party consumer, then it would act as a deterrent as it would render the sale of CPP power uneconomical In view of the demand-supply gap in the State and load shedding being undertaken by MSEB, the excess saleable capacity from the would help bridge this demand supply gap to a certain extent. Hence, any CPP capacity addition and sale to the Third Party consumer/s from the CPPs should also be looked at from the point of view of the avoided cost of generation capacity The Commission has noted that the average realisation of MSEB is Rs per unit while the variable cost of generation for fossil fuel based is broadly in the range of Rs. Rs to 3.20 per unit, depending on the size and type of fuel used in the CPP among other things. Considering the average variable cost of CPP power at about Rs per unit in the light of the average realisation of MSEB, the Commission believes that if the current level of cross-subsidy of Rs per unit is levied on the CPP Holder, it would render CPP power unviable vis-à-vis the power sold by the Distribution Licensee Therefore, in order that the Distribution Licensees are fairly compensated for crosssubsidy and, at the same time, the CPP Holders are not overburdened by the Surcharge, a Surcharge of 25% of the total cross-subsidy of the Distribution Licensee shall be applicable on the sale of CPP power to the Third Party consumer. Part 2: Additional Surcharge on Third Party Purchaser of CPP Power 3.94 Given the current situation of demand-supply gap in the State, no Additional Surcharge shall be levied on the Third Party purchase of CPP power under Section 42(4) at present, but the Commission would review its applicability from time to time depending upon the demand-supply situation in future. 23 : Refer Annexure-9 for Calculation related to Surcharge and level of cross-subsidy for the MSEB. MERC, Mumbai Page 63

73 Section 3 Commission s Decision on Tariff and related Issues GENERAL CONDITIONS CPP Holder to Furnish Details related to CPP to the SLDC 3.95 All the existing CPP holders in the State of Maharashtra shall provide details related to their CPPs to the State Load Dispatch Centre (SLDC) within a period of six months from the date of this Order For the CPPs that are commissioned after this Order, the CPP Holder shall provide intimation of date of commissioning of CPP to the SLDC and the Distribution Licensee at least onemonth in advance. Additionally, the details related to the various aspects of such CPPs shall be submitted by the respective CPP Holders to the SLDC within one month after commissioning of the CPP Also, any modification/ augmentation of the existing CPP capacity shall be reported to the SLDC 24 within one month of the said modification/augmentation. Supervision Charges for Synchronisation of CPP with Grid 3.98 The CPP Holder desirous of synchronising the CPP with the grid shall pay to the Distribution Licensee an amount equivalent to 15% of the cost of labour that would have been employed by the Distribution Licensee in carrying out such work. Reactive Power Supply 3.99 The Commission has taken note of various comments/ suggestions received in this matter. For the purposes of this Order, the Commission rules that the CPP Holders synchronised with the grid shall supply reactive power at nominal voltage at point of injection equivalent to at least 25% 25 of the active power (kwh) supplied to the grid on a monthly basis. The penalty/ incentive for extra Reactive Energy drawal/ supply than the desired quantum at the point of injection, if any, shall be based on Commission s future directive on the matter. Payment Security- for Firm Power Purchase by Distribution Licensee from CPP holder A Letter of Credit (irrevocable and revolving) in favour of the CPP holder for an amount equivalent to an average monthly bill shall be opened at the cost and option of the CPP holder by the Distribution Licensee, in case an EPA is signed for Firm power purchase between Distribution Licensee and the CPP holder. Billing and Payment to CPP Holder by Distribution Licensee for Purchase of Firm/ Infirm Power The Distribution Licensee shall raise the bill after accounting for the Firm/ Infirm power purchased from the CPP applicable as first charge, at the end of each monthly billing cycle. In case the Distribution Licensee needs to make payment to the CPP holder, this shall be done after adjusting charges payable in respect of the energy consumed by the CPP holder or other charges (like Demand Charges, etc.) due to the Distribution Licensee. 24 : Refer Annexure-9 for format related to submitting details of the captive power plant to the SLDC by the CPP Holder 25 : Based on discussions held by MERC s consultants with leading CPP manufacturers MERC, Mumbai Page 64

74 Section 3 Commission s Decision on Tariff and related Issues The payments in respect of the energy consumed from CPP after adjustments shall be made by the Distribution Licensee within the same period as provided by the Distribution Licensee to recover payments from its HT Industrial Consumers. The monetary penalties for delayed payments by the Distribution Licensee to the CPP Holder shall be the same as those levied by the Distribution Licensee on its HT Consumers for delayed payments. Evacuation Facilities The CPP Holder desirous of synchronising the CPP with the grid shall bear the cost of switchyard and interconnection facilities (to be accommodated within CPP premises) upto the point of energy metering. The Distribution Licensee shall bear the cost of transmission lines and associated facilities beyond the point of energy metering for the evacuation of power. The CPP Holder shall provide an interest free advance to the Distribution Licensee equivalent to 50% of the cost of works to be carried out by the Distribution Licensee for power evacuation purposes The Distribution Licensee shall refund the above interest free advance to the CPP holder in five equal instalments spread over five years commencing from one year after the date of synchronisation of the CPP. Deemed Generation Benefits No compensation shall be provided to the CPP Holder or the Third Party purchaser of CPP Power by the Distribution Licensee for deemed generation benefits in case the Distribution Licensee fails to evacuate power due to failure of the Transmission facility. Energy Purchase Agreement (EPA) The CPP Holder shall sign an EPA with Distribution Licensee or Third Party consumers for sale of power of minimum 1MW (i.e. equivalent to 700 units per hour). The above criterion shall be applicable for Firm as well as Infirm power. Any power injected into the grid for the purpose of selling to the Distribution Licensee or the Third Party which is less than 1 MW shall not be considered while billing by the Distribution Licensee It is not intended that the Commission would approve EPA for each CPP Holder individually. Distribution Licensees shall draft EPA taking cognisance of the Tariff provisions and EPA-related principles elaborated in this Order A short tenure such as 1 year for Firm power purchase agreement would be an area of concern (to lending institutions) keeping in mind that CPP Holder needs to provide details related to revenue realisation on account of excess power sold (for the duration of financial assistance) while seeking financial assistance from the lending agencies/ institutions In the absence of a long-term EPA (for excess saleable energy), the ability of the CPP holder to re-pay the principal amount and interest could be questioned by the lending institutions/ agencies that provide financial assistance to the CPP holder Therefore, the Distribution Licensee should sign an EPA for a minimum of 3-years and a maximum period of 5-years, with the CPP Holders, for both Firm as well as Infirm power purchase from CPP The Distribution Licensee should sign the EPA within 1-month from the date of submission of the application for such agreement by the CPP Holder. MERC, Mumbai Page 65

75 Section 3 Commission s Decision on Tariff and related Issues Energy Wheeling Agreement (EWA) The CPP Holder/ Third Party buyer of CPP power and the concerned Distribution Licensee shall sign an EWA for the purpose of Wheeling of only Firm power from the CPP Holder to the Third Party buyer of CPP power. Such Wheeling Agreement shall be applicable for a minimum quantum of 1 MW (i.e. equivalent to 700 units per hour) if wheeled over the Distribution Licensee s Network. It is not intended that the Commission would approve EWA for each CPP holder individually. The Distribution Licensees shall draft EWA taking cognisance of the energy Wheeling principles elaborated in this Order The tenure of the EWA shall be same as that of the EPA signed with the Third Party buyer of CPP power The Distribution Licensee should execute the EWA within 1-month from the date of submission of the application for such agreement by the CPP Holder or the Third Party purchaser of CPP power, as the case may be. Energy Banking Agreement (EBA) The CPP Holder and the Distribution Licensee shall sign an EBA for the purpose of banking of CPP power with the Distribution Licensee. It is not intended that the Commission would approve EBA for each CPP Holder individually. The Distribution Licensees shall draft EBA taking cognisance of the Banking principles elaborated in this Order The tenure of the EBA shall be for a minimum of 3 years and a maximum period of 5- years. The Distribution Licensee should sign the EBA within 1month from the date of submission of the application for such agreement by the CPP Holder. Planned and Unplanned Shutdown for Captive Power Plant For a shutdown to be treated as planned shutdown, the CPP Holder shall inform the Distribution Licensee at least one month in advance. ToD Meters Given that the Commission is planning to introduce Intra-State ABT regime in the State, Special Real Time ToD meters with online reading features and continuous communication facility with the relevant Load Dispatch Centre or the Distribution Licensee are desirable Existing and the Third Party consumers of the CPP power would continue to use the current ToD meters (including Special Energy Meters- SEMs). All the new CPPs to be commissioned shall install Special ToD meters at their end. Also, all the Third Party purchasers of CPP power entering into a contract with a CPP Holder/s after this Order shall install special ToD meters at their end It is expected that all CPP Holders as well as the Third Party purchasers of CPP power shall shift from ToD meters (including SEMs) to Special ToD meters as and when the Intra- State ABT mechanism is implemented The cost of such special ToD meters shall be borne by the respective CPP Holders or the Third Party consumer of CPP power (as the case may be) and not by the Distribution Licensee. MERC, Mumbai Page 66

76 Section 3 Commission s Decision on Tariff and related Issues Distribution Licensees to furnish details related to power purchased/ Banked from Captive Power Plants Distribution Licensees shall provide and update every month details in respect of quantum of power purchased (both Firm as well as Infirm power), source from which power is procured and the cost of purchased power (both monthly and moving year average) on their websites Additionally, the Distribution Licensee shall provide month-wise details related to Banked units from the CPP and the same shall be updated on their website. Captive Power Plant Holders must furnish details related to CPP power sales and/ or Banking with Distribution Licensee and/ or Third Party The CPP Holder shall provide details in respect of quantum of power sales to Distribution Licensee (both Firm as well as Infirm power) as well as to Third Party purchaser of CPP power, if any, along with details such as units sold and realisation from sale of such power, at the end of every Financial Year to the SLDC The said details shall be duly audited by an independent energy auditor approved by the Maharashtra Energy Development Agency (MEDA), before submission to the SLDC. A copy of the same shall also be submitted to the relevant Distribution Licensee in whose license area the CPP is situated. Waste Heat Recovery based Generation Any power generation on waste heat recovery system by an industrial unit shall be treated as captive generation. However, for the same to be applicable under this Order, fossil fuel should be used for the purpose of heat generation in the manufacturing process from which waste heat recovery is done. However, the same shall not be treated as co-generation so long as such generation does not satisfy the criteria defining co-generation for the purpose of this dispensation. DEFINITIONS Fossil Fuel Fossil fuel is defined as a natural substance with hydrocarbon contents that can be burnt to generate useful heat. Major fossil fuels that are covered by this dispensation include- Solid Fossil Fuels like Coal, Lignite; Liquid Fossil Fuels like Diesel, Fuel Oil (FO), Low Sulphur Heavy Stock (LSHS), Naphtha, Light Diesel Oil (LDO), Superior Kerosene Oil (SKO), High Speed Diesel (HSD) and Gaseous Fossil Fuels like Natural Gas, Re-gasified Liquefied Natural Gas (R-LNG), Liquefied Petroleum Gas (LPG), Other Lean Gases (like Propane, Butane, etc.) It should be noted that the fuels mentioned above are major fossil fuels used in fossil fuel based. However, it is not an exhaustive list, and any other fossil fuel with hydrocarbon content shall be covered by this Order. Any non-fossil fuel used for captive generation is not covered under this Order. MERC, Mumbai Page 67

77 Section 3 Commission s Decision on Tariff and related Issues Co-generation The Ministry of Power (MoP) in its Resolution dated has defined qualifying requirements for a co-generation facility as follows: Firm Power A Co-generation facility is defined as one, which simultaneously produces two or more forms of useful energy such as electrical power and steam, electrical power and shaft (mechanical) power, etc. There are essentially two basic forms of co-generation, viz. a) Topping cycle b) Bottoming cycle. Topping cycle: Any facility that uses fuel input for power generation and also utilises for useful heat applications in other industrial activities. Bottoming cycle: Any facility that uses waste industrial heat for power generation by supplementing heat from fossil fuels. A facility may qualify to be termed as co-generation facility if it satisfies certain operating and efficiency standards. For the co-generation facility to qualify under topping cycle mode it would be required that at least 20% of the total energy output is in the form of useful thermal energy Firm Power means the quantum of energy which a supplier is obliged to deliver as scheduled in the given period. For example, if the CPP Holder has signed an EPA with the Distribution Licensee for selling 700 units of Firm Power in 1 hour but actually sells less, then the same would not qualify as Firm power but would be considered as Infirm power. Infirm Power Infirm Power means the energy supplied that is not Firm Power, which is interruptible on a very short notice. ADVICE TO THE GOVERNMENT OF MAHARASHTRA Electricity Duty State taxation is outside the domain of determination by the Commission. However, the Commission notes that the Government of Maharashtra currently levies an Electricity Duty (ED) on the consumption of the units generated from the Captive Power Plant, under the Bombay Electricity Duty Act 1958, at the rate of 30 Paise per unit on CPPs commissioned after , and at the rate of 15 paise per unit on CPPs commissioned before 1 st April An important aspect of the philosophy behind this Order on Fossil Fuel based Captive Power Plants is to gainfully utilise the excess saleable capacity of the. This is important especially in the context of the considerable demand- supply gap prevailing in the State, which could be partially bridged through surplus CPP power Given the above, to encourage and promote sale of available surplus captive power within the State and to avoid unduly overburdening the with further levy of Electricity Duty, the Commission, in exercise of the powers vested in it under Section 86 (2), advises the Government of Maharashtra to abolish the Electricity Duty on the self-consumption by Fossil Fuel based in the State. The Commission also recommends that Tax on Sale of Electricity should not be levied in the case of CPPs. MERC, Mumbai Page 68

78 Section 3 Commission s Decision on Tariff and related Issues The Commission acknowledges the efforts taken by the Consumer Representatives and Industry Associations viz. (i) Prayas, (ii) Mumbai Grahak Panchayat, (iii) Vidarbha Industries Association (iv) Thane Belapur Industries Association, (v) Patalganga and Rasayani Industries Association (vi) Captive Power Producers Association and (vii) Confederation of Indian Industry (CII), the Licensees, and the various other individuals, organisations and associations for their valuable contribution to the regulatory process, and also places on record the services rendered to the Commission by M/s A. F. Ferguson & Co. as its advisors With this Order, the Commission disposes of Case No. 55 of 2003 filed by Vidarbha Industries Association and Case No. 56 of 2003 filed by M/s. Ballarpur Industries Ltd. Sd/- Sd/- Sd/- (A. Velayutham) Member (Dr. Pramod Deo) Member (P. Subrahmanyam) Chairman, MERC (A. M. Khan) Secretary, MERC MERC, Mumbai Page 69

79 Annexure-1 SUMMARY OF MAJOR POLICIES OF GOVERNMENT OF MAHARASHTRA IN THE MATTER OF CAPTIVE POWER PLANTS Sr. No. Particulars 1. G.R. No. MISC 1095/ CR 2776/ NRG-2 2 G.R. No. MISC 1195/ CR 8/ NRG-7 Date of the Policy Major Points / Highlights of the Policy MSEB should freely give permission to new industrial units intending to set-up captive generation in accordance with the following-! New industrial units who would like to carry on their industrial production using power generated only from the captive units! Industrial units who would like to have captive generating sets as a standby arrangement. Also, industrial units who want to meet excess power demand may be freely given such permission.! Industrial units wanting to have captive generation in parallel to supply from MSEB would be given permission for captive generation. However, in such cases MSEB will decide a reasonable formula for fixing demand charges based on the current fixed and energy charges.! If an industrial unit is having captive generation as well as a parallel connection from MSEB, in such case, the industrial unit should be given permission to sell surplus power to MSEB. MSEB will decide the norms for fixing the general rate of purchase of power, the rate during peak hours and during off-peak hours. MSEB will decide the formula from time to time.! The exemption from electricity duty which is at present available to the electricity generated from captive generation will continue to remain in force hereafter The following major changes were introduced through this policy-! The captive power plant should consume minimum 75% of the capacity in-house. CPP holder is allowed to sell remaining 25% (maximum allowed to sell) of the capacity to maximum 2 parties.! The technical as well as commercial arrangements in case of third party sale would be decided by the Board or by relevant Distribution Licensee.! Captive power plant can be owned by an industrial unit through a separate company, however, such industrial unit should hold minimum 51% shares of that company that sets-up captive power plant.! Energy generated from captive power plants would be purchased by MSEB at 90% average realisation of MSEB during the last year, except between evening 10:00 hrs to morning 06:00 hrs MERC, Mumbai Page 70

80 Sr. No. Particulars 3 G.R. No. MISC 1195/ CR 8 (A)/ NRG-7 4 G.R. No. MISC 1099/ CR 455/ NRG-7 Date of the Policy Major Points / Highlights of the Policy Annexure-1! In case of planned shut-down of the CPP, the units consumed over and above stand-by demand would be charged twice the prevailing rate while for unplanned shut-down the excess units would be charged at three times the normal rate. MSEB/ Distribution Licensee should be informed at least Three months in advance in case of planned shut-down To encourage private generation in the state, the Captive Power Plants are allowed to sell maximum to the extent of 40% of the installed capacity to two parties (maximum). The said permission will be applicable till the next GR by the State Government. However, in each case, prior permission from the Energy Department would be necessary ! The existing captive power plants or those who have taken concrete steps towards installation of CPPs would be allowed to continue captive generation! Those earlier allowed to sell surplus CPP power to the third party/ parties would continue selling the captive power to those parties.! If a captive power plant is hydro-based or co-generation based then such CPPs should be allowed without regard to the capacity of such CPPs or the prevailing electricity scenario in the state.! Captive power plants set-up by Information and Technology industry should be allowed MERC, Mumbai Page 71

81 Annexure-1 COPIES OF RELEVANT NOTIFICATIONS IN THE MATTER OF CAPTIVE POWER PLANTS GoM Notification on Electricity Duty dated MERC, Mumbai Page 72

82 Annexure-1 GoM Notification on Electricity Duty dated MERC, Mumbai Page 73

83 Annexure-1 GoM Notification on Electricity Duty dated MERC, Mumbai Page 74

84 Annexure-1 GoM Notification on Electricity Duty dated (Page 1 of 2) MERC, Mumbai Page 75

85 Annexure-1 Continued on next page GoM Notification on Electricity Duty dated (Page 2 of 2) MERC, Mumbai Page 76