Vidarbha Industries Power Limited - Transmission

Vidarbha Industries Power Limited - Transmission Revised Petition towards: Approval of Capital Cost and Determination of Aggregate Revenue Requirement ( ARR ) for the period FY 14-15 to FY 15-16 Filed with Maharashtra Electricity Regulatory Commission

Before the Hon ble Maharashtra Electricity Regulatory Commission, Mumbai Filing No. Case No. IN THE MATTER OF REVISED PETITION WITH REGARD TO APPROVAL OF CAPITAL COST AND DETERMINATION OF AGGREGATE REVENUE REQUIREMENT ( ARR ) FOR THE PERIOD FY 14-15 TO FY 15-16 FOR TRANSMISSION BUSINESS OF `VIDARBHA INDUSTRIES POWER LIMITED, UNDER SECTION 61 & 62 OF THE ELECTRICITY ACT 2003 AND PART G OF MERC (MULTI YEAR TARIFF) REGULATIONS 2011 AND IN THE MATTER OF VIDARBHA INDUSTRIES POWER LIMITED H-BLOCK, 1 st FLOOR, DHIRUBHAI AMBANI KNOWLEDGE CITY, NAVI MUMBAI 400 710 ----------------------The Petitioner The petitioner, Vidarbha Industries Power Limited (hereinafter being referred as VIPL ), a company incorporated under the provisions of the Indian Companies Act, 1956 having its registered office at H- Block, 1 st Floor, Dhirubhai Ambani Knowledge City, Navi Mumbai 400 710, is filing this Revised Application seeking Approval of Capital Cost and Determination of Aggregate Revenue Requirement ( ARR ) FY 14-15 to FY 15-16 for Transmission Business of Vidarbha Industries Power Limited (hereinafter referred as VIPL-T ) VIPL - T is submitting the revised petition in accordance with the following relevant Sections of the Electricity Act 2003 and MERC Regulations: Regulation 3 of Part A, Regulation 4-10 of Part B and Regulation 16, 18 and 19 of Part C and respective provisions of Part E and Part G of MERC (MYT) Regulations, 2011 A. Facts of the Case: A.1. VIPL, a Special Purpose Vehicle (SPV) fully owned by Reliance Power Limited, has established a 600 MW (i.e. 2 x 300 MW each) thermal generating station at Butibori location near Nagpur in the State of Maharashtra. VIPL approached Reliance Infrastructure Limited Distribution (hereinafter referred as RInfra-D) for procurement of entire 600 MW from its power station to serve the energy requirement of its consumers in its License area in Mumbai.

A.2. RInfra D and VIPL submitted the petition in Case No 2 of 2013 for Approval of Power Purchase Agreement (hereinafter referred as PPA ) between RInfra-D and VIPL for purchase of 600 MW from VIPL s Butibori plant and Determination of Provisional tariff for VIPL. Hon ble Commission vide its Order dated 20th February 2013, while defining the interconnection point of the power station, directed to comply with the definition of interconnection point as given in its Order in Case No 34 of 2007 dated 13th November 2007. In this Order, the Hon ble Commission defined evacuation arrangement including transmission lines for generating project to form part of InSTS network and transmission pricing to be worked out as per MERC Transmission Pricing framework. Accordingly, VIPL was directed to approach the Hon ble Commission for grant of transmission license for such evacuation arrangement set up. A.3. The Petitioner submitted a Petition dated 20 February, 2014 citing Sections 14, 61 and 62 of the Electricity Act (EA), 2003, the MERC (Transmission Licence Conditions) Regulations, 2004 and MERC (Multi Year Tariff (MYT)) Regulations, 2011 for grant of Transmission Licence and Aggregate Revenue Requirement (ARR) in respect of its Transmission Business. A.4. Technical Validation Session (TVS) was held on 15 April, 2014. During the proceedings, Hon ble Commission directed VIPL to segregate the petition in two matters one for obtaining the license and other for approval of ARR in accordance with MERC (MYT) Regulations, 2011. Accordingly, Hon ble Commission considered petition filed on 20 February 2014 as licensee petition and completed the hearing with direction to revise the petition accordingly. Accordingly, VIPL submitted a revised Application for grant of Transmission Licence on 25 April 2014. A.5. In exercise of the powers vested in the Commission under Section 14 of EA, 2003, the Commission granted a Transmission Licence to VIPL for a period of 25 years vide order dated January 5, 2015 from the date of the order, under Alternative 2 and in accordance with the MERC (Transmission Licence Conditions) Regulations, 2004 as amended in 2006. The Commission also directed the Petitioner to make its ARR submissions to the Commission in accordance with the applicable Regulations within 60 days of this Order. A.6. Following the directives by the Hon able Commission, VIPL-T submitted the Petition towards Approval of Capital Cost and Determination of Aggregate Revenue Requirement ( ARR ) for the period FY 14-15 to FY 15-16 on 18 th Feb 2015. Hon able Commission raised clarifications on data-gaps vide E-mail for Data Gaps Set-1 & 2 dated 2 nd July, 2015 & 7 th July 2015 respectively which were duly replied by VIPL-T vide submissions Ref No: VIPL/MUM/2015-16/MERC/VIPL- T/1 dated 17 th July 2015 and Ref No.: VIPL/MUM/2015-16/MERC/VIPL-T/2 dated 20 th July 2015. The reply to the data gaps are attached in Appendix 12.

A.7. Technical Validation Session (TVS) was held on 21 July 2015. During the proceedings, Hon ble Commission directed VIPL to ensure compliance with the data-gaps raised by the Commission and based on scrutiny of the responses submitted by VIPL-T, the Commission shall decide on the next steps to be adopted before the admittance of the Petition. B. Submission: B.1 In view of above, VIPL-T is submitting the revised application for approval of Capital Cost and Determination of Aggregate Revenue Requirement ( ARR ) for the period FY 14-15 to FY 15-16, where the projections are guided by respective provisions of MERC (MYT) Regulations 2011. C. Prayers: C.1 In view of the above facts and circumstances, VIPL-T prays to the Hon ble Commission to: 1. Admit this revised petition; 2. Approve the capital cost incurred in creation of transmission assets for the purpose of approval of ARR; 3. Approve the Aggregate Revenue Requirement for the period FY 2014-15 to FY 2015-16 as submitted herewith; 4. Allow timely recovery of ARR from April 1, 2014 through Order for this petition/any other Order/Transmission Order for InSTS for the current year or any other mechanism as may be deemed fit by the Hon ble Commission; 5. Allow additions / alterations / modifications / changes to this Revised Petition at a future date; 6. Condone any inadvertent errors / inconsistencies / omissions / rounding off differences, etc. as may be there in this Revised Petition 7. Allow any other relief, order or direction, as the Hon ble Commission may deem fit Mumbai August, 2015 Manoj Pongde Additional Vice President Vidarbha Industries Power Limited

Table of Contents 1. Executive Summary... 6 2. Introduction... 14 3. Approach and Objective of the Petition... 17 4. Capital Expenditure... 23 5. Aggregate Revenue Requirement... 34 6. Prayers... 43 Appendix-1..44 Appendix-2..49 Appendix-3..54 Appendix-4..59 Appendix-5.115 Appendix-6.136 Appendix-7.139 Appendix-8.141 Appendix-9.147 Appendix-10...151 Appendix-11...166 Appendix-12...168 Vidarbha Industries Power Limited Transmission 5

1. Executive Summary A.1 Introduction Vidarbha Industries Power Limited (hereinafter referred as VIPL ) is a special purpose vehicle and a wholly owned subsidiary of Reliance Power Limited. VIPL has established a 600 (2X300) MW coal based power plant in the Butibori area in Nagpur district of State of Maharashtra. VIPL has signed a PPA with Reliance Infrastructure Limited Distribution (hereinafter referred as RInfra-D) for procurement of entire 600 MW from the station to serve the energy requirement of its consumers in its license area. RInfra-D has filed a petition bearing Case No 2 of 2013 for approval of PPA signed with VIPL. In the same petition, the petitioner requested to approve the provisional capital cost of VIPL as well. Hon ble Commission vide its Order in Case No 2 of 2013 dated 20 th February 2013, has approved the PPA for procurement of 300 MW from Unit 2 and accorded conditional approval for procurement of another 300 MW from Unit 1 subject to No Objection from MIDC. In the said Order, the Hon ble Commission directed to segregate the associated transmission arrangement developed by VIPL to be part of Maharashtra InSTS. Accordingly asked to apply for a transmission license for the transmission arrangement, said directive was pursuant to the Order in Case No 34 of 2007 dated 13 th September 2013. VIPL subsequently submitted another supplementary application bearing Case No 76 of 2013 for approval of PPA for procurement of 300 MW from Unit 1 after obtaining No Objection from MIDC. Hon ble Commission vide its Order dated 17 th July 2013 accorded approval to the PPA and consolidated agreement combining the individual PPA for both the units. Further to this, VIPL submitted another application for provisional tariff determination of VIPL-G segregating the capital cost of transmission assets. The Petitioner submitted a Petition No 60 of 2014, dated February 20, 2014 citing Sections 14, 61 and 62 of the Electricity Act (EA), 2003, the MERC (Transmission Licence Conditions) Regulations, 2004 and MERC (Multi Year Tariff (MYT)) Regulations, 2011 for VIPL-T Transmission business. Technical Validation Session (TVS) was held on April 15, 2014. During the proceedings, Hon ble Commission directed VIPL to segregate the petition in two matters one for obtaining the license Vidarbha Industries Power Limited Transmission 6

and other for approval of ARR in accordance with MERC (MYT) Regulations, 2011. Accordingly, Hon ble Commission considered petition filed on February 20, 2014 as licensee petition and completed the hearing with direction to revise the petition accordingly. Accordingly, VIPL submitted a revised Application for grant of Transmission Licence on April 25 2014. In exercise of the powers vested in the Commission under Section 14 of EA, 2003, the Commission granted a Transmission Licence to VIPL-T for a period of 25 years vide order dated January 5, 2015 from the date of the order, under Alternative 2 and in accordance with the MERC (Transmission Licence Conditions) Regulations, 2004 as amended in 2006. The Commission also directed the Petitioner to make its ARR submissions to the Commission in accordance with the applicable Regulations within 60 days of this Order. Following the directives by the Hon able Commission, VIPL-T submitted the Petition towards Approval of Capital Cost and Determination of Aggregate Revenue Requirement ( ARR ) for the period FY 14-15 to FY 15-16 on 18 th Feb 2015. Hon able Commission raised clarifications on data-gaps vide E-mail for Data Gaps Set-1 & 2 dated 2 nd July, 2015 & 7 th July 2015 respectively which were duly replied by VIPL-T vide submissions Ref No: VIPL/MUM/2015-16/MERC/VIPL- T/1 dated 17 th July 2015 and Ref No.: VIPL/MUM/2015-16/MERC/VIPL-T/2 dated 20 th July 2015. The reply to the data gaps are attached in Appendix 12. Technical Validation Session (TVS) was held on 21 July 2015. During the proceedings, Hon ble Commission directed VIPL to ensure compliance with the data-gaps raised by the Commission and based on scrutiny of the responses submitted by VIPL-T, the Commission shall decide on the next steps to be adopted before the admittance of the Petition. B.1 Approach and Objective of the Petition VIPL-T is hereby submitting the revised application for approval of Capital Cost and Determination of Aggregate Revenue Requirement ( ARR ) for the period FY 14-15 to FY 15-16, where the projections are guided by respective provisions of MERC (MYT) Regulations 2011. Vidarbha Industries Power Limited Transmission 7

C.1 Capital Expenditure VIPL-T has constructed the interconnecting transmission arrangement from the generating station VIPL-G to respective substations of MSETCL in Butibori location (viz., Butibori I and Butibori III). The capital cost identified for the transmission assets is Rs 28.64 Cr. VIPL submits that transmission system was not envisaged to be developed as separate installation and envisaged to be considered as part of the generating station as a whole. Because of this arrangement, capitalization of transmission assets was linked with generation assets as the commissioning and capitalization of generating assets was a pre-requisite for capitalization of transmission assets. This is the reason for showing capitalization of Scheme 1 in audited accounts of VIPL for FY2013-14, even though the same was charged and tested (and thus was ready to use) on June 29 th 2012. Further, as already stated above, transmission Scheme 2 is also charged and tested on June 13 th 2013 and the same is capitalized in the books of accounts of VIPL during 2013-14. However, Hon ble Commission vide its order in case 2 of 2013 dated February 28, 2013, directed to separate the evacuation lines from generation project and treat same as part of InSTS. However, if the transmission assets are to be considered on standalone basis as part of the InSTS system, both the transmission lines are to be considered as capitalized on respective dates of commissioning for regulatory purpose. The lines were tested by an electrical inspector and charged on June 29, 2012 and June 13, 2013 (Certificates of Electrical Inspector attached in Appendix 1. The COD date of the generating units and actual starting date of evacuation of the power from the transmission lines is summarized below: E 1: Summary of Dates of COD of Generating Units & Transmission Lines Units Dates Generating Units COD Unit 1 April 4, 2013 Unit 2 March 28, 2014 Transmission Lines Actual Evacuation Starting Date Transmission Line 1 & 2 June 29, 2012 Transmission Line 3 & 4 June 13, 2013 Vidarbha Industries Power Limited Transmission 8

VIPL-T submits that the present filing is in accordance with the Order of the Hon ble Commission in Case No 97 of 2010 dated May 25, 2011 for approval of capital cost based on date of commissioning of the transmission lines. VIPL further submits that the project was funded as part of total power station, there is no segregated source wise funding identified towards creation of the transmission asset. However, for the purpose of the Interest rate for the project, the Petitioner submits that interest rate as per Rupee of loan availed for the VIPL project has been considered for transmission assets. The actual capitalization of the assets by the commissioning date of the project is as provided in the table below: E 2: Capitalisation for Transmission Licensee (in Rs Cr) FY 12-13 FY 13-14 FY 14-15 FY 15-16 Total Actual Actual 7.27 21.37 - - 28.64 D.1 Capital Expenditure considered for ARR for FY 14-15 & FY 15-16 As already explained above, that the generating stations linked with transmission system were considered the same project, so the financing and capex of these two components were completed considering the same as single project. Later, when Hon able Commission guided to separate both the asset components and file separate petitions, same has been followed by VIPL-T. Though, the transmission lines were commissioned much earlier i.e. on June, 29 th 2012 & June 13 th, 2013, VIPL-T is claiming the ARR from 1 st April 2014, since the PPA for Butibori power station for supply of power commences from this date. This is the date when the actual power supply through the transmission lines commenced. Further, the Petitioner has considered the depreciated cost of the project as on March 31, 2014 for the purpose of determination of ARR for 2014-15 and 2015-16. The depreciation on the assets since the COD of the respective schemes till March 31, 2014 has been worked out as Rs 1.41 Crore. The overall value of assets of the Power Station considered by Petitioner for the purpose of ARR determination is therefore Rs 27.22 Crore (Rs 28.64 Crore - Rs 1.41 Crore). Vidarbha Industries Power Limited Transmission 9

E.1 Funding Pattern of the project cost as on April 1, 2014 VIPL-T in accordance with the Regulation 30 of the MYT Regulations 2011 proposes a debtequity ratio of 70:30 for the total capital cost. It is submitted that the actual capital structure of VIPL as a whole is also 70:30 1 and therefore the same capital structure can be adopted for both generation and transmission segments for the purposes of determining opening debt and equity. The details of debt and equity to be considered for determination of ARR are provided in table below: E 3: Source of Funding Particulars Amount (Rs Cr) Hard Cost 18.69 Supervision Charges 5.75 Pre-Operative Expenses 1.45 IDC and financing charges 2.75 Project Cost including IDC 28.64 Less: Audited Accumulated Depreciation for FY 12-13 & FY 13-14 1.41 Capex as at April 1, 2014 27.22 Equity (30 %) 8.17 Debt (70%) 19.05 Interest Rate 14% The overall value of assets considered by Petitioner for the purpose of ARR determination is as provided earlier Rs 27.22 Crore. VIPL-T has considered the D/E ratio of 70:30 for the purpose of ARR calculation. Accordingly the overall normative loan and equity components as on April 1, 2014 based on the WDV value of the capital cost of station is provided above. F.1 Annual Revenue Requirement VIPL-T has estimated the components of ARR based on actual capital cost of the transmission assets. a. Operation and Maintenance Expenses: O&M expenses for the 2 nd MYT control period from FY 2014-15 & FY 2015-16 are provided in the table below E 4: O&M Expenses (in Rs Cr) O&M Expenses UoM FY 2014-15 FY 2015-16 Normative Normative O&M Expenses Rs Cr 0.66 0.69 1 Kindly refer section 4.3.4 of Order of Hon ble Commission in Case No 91 of 2013 dated 17 th January 2014 Vidarbha Industries Power Limited Transmission 10

b. Depreciation: Depreciation has been computed in accordance with the depreciation rates in MERC MYT Regulations 2011, depreciation for the 2 nd MYT control period from FY 2014-15 & FY 2015-16 is provided in the table below: E 5: Depreciation (Rs. Cr.) Particulars UoM FY 2014-15 FY 2015-16 Normative Normative Depreciation Rs Cr 1.49 1.49 c. Interest on Loan Capital: VIPL-T has estimated the Interest on loan based on interest rate applicable on Rupees Loan borrowings of the VIPL project and the same for the 2 nd MYT control period is shown below: E 6: Interest on Loan Capital (Rs. Cr.) Particulars UoM FY 2014-15 FY 2015-16 Est. Est. Interest on Loan Capital Rs. Cr 2.56 2.10 d. Interest on Working Capital: VIPL-T has estimated the Interest on working capital in accordance with MERC MYT Regulations and considering the applicable SBI Advance rate. VIPL-T projects the same for the 2 nd MYT control period as in table below: E 7: Interest on Working Capital (Rs. Cr) Particulars UoM FY 2014-15 FY 2015-16 Prov. Est. Interest on Working Capital @ 14.75% Rs. Cr 0.13 0.13 e. Contribution to contingency reserves: VIPL -T has estimated contingency reserves for the control period on the basis of provisions of MYT Regulations, 2011 as in table below: E 8: Contribution to contingency reserves (Rs. Cr) Particulars UoM FY 2014-15 FY 2015-16 Est. Est. Contingency Reserves Rs Cr 0.14 0.14 Vidarbha Industries Power Limited Transmission 11

f. Return on Equity: VIPL -T has estimated RoE for the control period on the basis of provisions of MYT Regulations, 2011 as in table below: E 9: Return on Equity (Rs. Cr.) Particulars UoM FY 2014-15 FY 2015-16 Normative Normative RoE @ 15.5% on Average Equity Balance Rs. Cr 1.27 1.27 g. Income Tax: VIPL T has estimated the Income Tax in accordance with the judgment of the Particulars Hon ble ATE in its Judgment in Appeal No 104/2012, 138/2012 and139/2012 w.r.t. treatment of income tax allowances for the regulated business activities. VIPL-T submits that as per the settled law of the Hon ble ATE, each regulated business segments need to be treated on standalone business based on the profit of respective business. Accordingly the estimations has been made in table below considering the grossing up of tax: E 10: Income Tax (Rs. Cr.) UoM FY 2014-15 Normative FY 2015-16 Normative Income Tax Liability Rs. Cr 0.34 0.34 h. Non-Tariff Income and Income from other businesses: VIPL-T envisages no other business opportunity in forthcoming period for VIPL-T and therefore accordingly projected income from other businesses has been considered as nil. However, for Non-Tariff income, the interest proposed to be accrued on contingency reserves is considered as in table below: Particulars E 11: Non-Tariff Income (Rs. Cr.) UoM FY 2014-15 Prov. FY 2015-16 Est. Non-Tariff Income Rs Cr 0.01 0.02 Vidarbha Industries Power Limited Transmission 12

i. Aggregate Revenue Requirement: Based on the above parameters, the Aggregate Revenue Requirement for VIPL-T for the second control period FY 2014-15 to 2015-16 is summarized in the table below: E 12: Aggregate Revenue Requirement for FY 14-15 and FY 15-16 (in Rs Cr) Particulars MYT Period FY 14-15 FY 15-16 Operation & Maintenance Expenses 0.66 0.69 Depreciation Expenses 1.49 1.49 Interest on Long-term Loan Capital 2.56 2.10 Interest on Working Capital and on consumer security deposits 0.13 0.13 Other Expenses - - Income Tax (FY 15, FY 16) 0.34 0.34 Contribution to contingency reserves 0.14 0.14 Total Revenue Expenditure 5.32 4.89 Return on Equity Capital 1.27 1.27 Aggregate Revenue Requirement 6.59 6.16 Less: Non-Tariff Income 0.01 0.02 Less: Income from Other Business - - Aggregate Revenue Requirement from Transmission Tariff 6.58 6.14 VIPL-T submits that since the transmission arrangement of VIPL-T is part of InSTS network, this entails recovery of transmission charges on monthly basis in line with Regulation 64 of MYT Regulations 2011. Vidarbha Industries Power Limited Transmission 13

2. Introduction Background 2.1. Vidarbha Industries Power Limited (hereinafter referred as VIPL ) is a special purpose vehicle and a wholly owned subsidiary of Reliance Power Limited. VIPL has established a 600 MW coal based power plant in the Maharashtra Industrial Development Corporation ( MIDC ) area in Nagpur district of State of Maharashtra. The power station comprises of two units of 300 MW each and is based on sub-critical technology. It is one of the most compact power plants in the country. VIPL as part of its generating station has also established an interconnecting transmission system with MSETCL transmission network for evacuation of power from individual units of its power station (i.e. Unit 1 and Unit 2 of 300 MW each). 2.2. VIPL approached Reliance Infrastructure Limited Distribution (hereinafter referred as RInfra- D) for procurement of entire 600 MW from the station to serve the energy requirement of its consumers in its license area of Mumbai and Mira Bhayander municipal area. Past Tariff Proceeding 2.3. To serve the diversified consumers of Mumbai, RInfra-D has entered into a PPA with VIPL for supply of power from April 1, 2014. Subsequently VIPL submitted a petition to this Hon ble Commission, bearing Case No 2 of 2013, for approval of PPA and Provisional Tariff Determination of VIPL. Hon ble Commission vide its Order dated February 20, 2013, approved the PPA for procurement of 300 MW from Unit 2 of the Power Station and further directed to approach this Hon ble Commission after receiving Maharashtra Industrial Development Corporation s (MIDC) s No Objection, in order to make it available for procurement by RInfra- D. Upon receipt of No Objection from MIDC, RInfra-D and VIPL (hereinafter jointly referred as the parties ) entered into a PPA for procurement of remaining 300 MW from Unit 1 and subsequently filed an application bearing Case No 76 of 2013 with this Hon ble Commission. In addition to this, the parties entered into a Consolidated Agreement for supply of power from Unit 1 and Unit 2 to be treated as supply from the Power Station as a whole. 2.4. While issuing its Order approving the PPA between VIPL and RInfra-D in Case No. 2 of 2013 referred above, the Hon ble Commission referred to its above said Order in Case No. 34 of 2007 wherein the Hon ble Commission had stated that the evacuation arrangement, including the transmission lines, connecting a generating station to the transmission grid substation will be considered a part of the Intra-State Transmission System of the State of Maharashtra, Vidarbha Industries Power Limited Transmission 14

instead of the same being considered a part of the generating and directed to modify the definition of interconnection point accordingly. 2.5. As a consequence of the above, the transmission lines and other infrastructure forming the evacuation system would form part of the InSTS. Accordingly, in order to own and operate the said assets, a separate transmission license would be required by VIPL. For which, The Petitioner submitted a Petition No 60 of 2014, dated February 20, 2014 citing Sections 14, 61 and 62 of the Electricity Act (EA), 2003, the MERC (Transmission Licence Conditions) Regulations, 2004 and MERC (Multi Year Tariff (MYT)) Regulations, 2011. 2.6. Technical Validation Session (TVS) was held on April 15, 2014 in Case No. 60 of 2014. During the proceedings, Hon ble Commission directed VIPL to segregate the petition in two matters one for obtaining the license and other for approval of ARR in accordance with MERC (MYT) Regulations, 2011. Accordingly, Hon ble Commission considered petition No 60 of 2014 filed on February 20, 2014 as licensee petition and completed the hearing with direction to revise the petition accordingly. Accordingly, VIPL submitted a revised Application for grant of Transmission Licence on April 25 2014. 2.7. In exercise of the powers vested in the Commission under Section 14 of EA, 2003, the Commission granted a Transmission Licence to VIPL-T for a period of 25 years vide order dated January 5, 2015 in case no. 60 of 2014 from the date of the order, under Alternative 2 and in accordance with the MERC (Transmission Licence Conditions) Regulations, 2004 as amended in 2006. The Commission also directed the Petitioner to make its tariff submissions to the Commission in accordance with the applicable Regulations within 60 days of this Order. 2.8. Following the directives by the Hon able Commission, VIPL-T submitted the Petition towards Approval of Capital Cost and Determination of Aggregate Revenue Requirement ( ARR ) for the period FY 14-15 to FY 15-16 on 18 th Feb 2015. Hon able Commission raised clarifications on data-gaps vide E-mail for Data Gaps Set-1 & 2 dated 2 nd July, 2015 & 7 th July 2015 respectively which were duly replied by VIPL-T vide submissions Ref No: VIPL/MUM/2015-16/MERC/VIPL-T/1 dated 17 th July 2015 and Ref No.: VIPL/MUM/2015-16/MERC/VIPL-T/2 dated 20 th July 2015. The reply to the data gaps are attached in Appendix 12. 2.9. Technical Validation Session (TVS) was held on 21 July 2015. During the proceedings, Hon ble Commission directed VIPL to ensure compliance with the data-gaps raised by the Commission Vidarbha Industries Power Limited Transmission 15

and based on scrutiny of the responses submitted by VIPL-T, the Commission shall decide on the next steps to be adopted before the admittance of the Petition. 2.10. In view of above, VIPL-T is submitting the revised application for approval of Capital Cost and Determination of Aggregate Revenue Requirement ( ARR ) for the period FY 14-15 to FY 15-16, where the projections are guided by respective provisions of MERC (MYT) Regulations 2011. 2.11. The transmission network of VIPL-T has been tested and ready for use by the generating station viz., VIPL-G, from, June 2012 onwards and supply of power as per PPA has been started from April 1, 2014, therefore the ARR of VIPL-T would have to be determined for the period from FY 2014-15 to 2015-16 under the MYT Regulations. Vidarbha Industries Power Limited Transmission 16

3. Approach and Objective of the Petition 3.1. The Hon ble Commission has issued the MYT Regulations, specifying the terms and conditions of determination of tariff for the Transmission business. In accordance with the said Regulations, VIPL - T is filing this Petition for consideration of the Hon ble Commission along with the specified formats laid down for providing information for various parameters under consideration. The key aspects of the approach to the filing are discussed below: Multiyear Tariff Framework 3.2. Pursuant to the provisions of Electricity Act 2003 (hereinafter referred as EA 2003 ), VIPL-T is required to submit its ARR and Tariff petition as per the procedures outlined in Section 61, 62 and 64 of the EA 2003 and the governing regulations thereof. 3.3. As per EA 2003, Section 61 empowers the SERCs to determine the terms and conditions for determination of tariff. Further, it also lists down certain guiding principles which have to be considered while determining the terms and conditions of tariff. One of the key guiding factors is that the Commission shall adopt Multi Year Tariff (MYT) principles and other principles that reward efficiency in performance. Relevant extracts are reproduced below: The Appropriate Commission shall, subject to the provisions of this Act, specify the terms and conditions for the determination of tariff, and in doing so, shall be guided by the following, namely:- a) the principles and methodologies specified by the Central Commission for determination of the tariff applicable to generating companies and transmission licensees; b) the generation, transmission, distribution and supply of electricity are conducted on commercial principles; c) the factors which would encourage competition, efficiency, economical use of the resources, good performance and optimum investments; d) safeguarding of consumers' interest and at the same time, recovery of the cost of electricity in a reasonable manner; e) the principles rewarding efficiency in performance; f) multiyear tariff principles; g) that the tariff progressively reflects the cost of supply of electricity and also, reduces cross-subsidies within the period to be specified by the Appropriate Commission; Vidarbha Industries Power Limited Transmission 17

h) the promotion of co-generation and generation of electricity from renewable sources of energy; i) the National Electricity Policy and Tariff Policy: Provided that the terms and conditions for determination of tariff under the Electricity (Supply) Act, 1948, the Electricity Regulatory Commission Act, 1998 and the enactments specified in the Schedule as they stood immediately before the appointed date, shall continue to apply for a period of one year or until the terms and conditions for tariff are specified under this section, whichever is earlier. 3.4. Accordingly, the Hon ble Commission has notified MERC (Terms and Conditions of Tariff) Regulations, 2005. Subsequently, the Hon ble Commission has notified the MERC (Multi Year Tariff) Regulations, 2011 on February 4, 2011 for the Control Period from FY 2011-12 to FY 2015-16, in accordance with respective provisions of the EA 2003. 3.5. The key provisos of MYT Regulations, 2011 notified by MERC are reproduced below. Regulation 3.1 of MYT Regulations, 2011: The Commission shall determine tariff, including terms and conditions thereof, for all matters for which the Commission has jurisdiction under the Act, including in the following cases:- (i) Supply of electricity by a Generating Company to a Distribution Licensee: (ii) Intra-State transmission of electricity; (iii) Rates and charges for use of intervening transmission facilities; (iv) Distribution Wires Business of electricity; (v) Retail Supply Business of electricity; (vi) Surcharge in addition to the charges for wheeling under the first proviso to subsection (2) of Section 42 of the Act, in accordance with the Distribution Open Access Regulations and as amended through Orders issued by the Commission from time to time; (vii) Additional surcharge on the charges for wheeling under sub-section (4) of Section 42 of the Act, in accordance with the Distribution Open Access Regulations and as amended through Orders issued by the Commission from time to time. Provided that the Commission shall determine such tariff, having regard to the terms and conditions contained in Part G, Part H and Part I of these Regulations for applications under this Regulation for determination of tariff, for transmission, distribution wires business and retail supply business: Vidarbha Industries Power Limited Transmission 18

Provided further that the Commission, while determining tariff upon an application made to it under this Regulation, shall also have regard to the terms and conditions of tariff as may be specified by the State Commission of such other State and/or the terms and conditions of tariff as may be specified by the Central Commission where any of the Parties to such transaction come under the jurisdiction of such State Commission or of the Central Commission. 3.6. For applicability of Control Period, Clause 4 and 5 of MYT Regulations, 2011 provides as follows: 4 Multi-Year Tariff Framework 4.1 The Commission shall determine the tariff for matters covered under clauses (i), (ii), (iii), (iv) and (v) of Regulation 3.1 above under a Multi-Year Tariff framework with effect from April 1, 2011: Provided that the Commission may, either on suo-motu basis or upon application made to it by the applicant, exempt the determination of tariff of a Generating Company or Transmission Licensee or Distribution Licensee or category of Transmission Licensee or Distribution Licensee under the Multi- Year Tariff framework for such period as may be contained in the Order granting such an exemption. 4.2 The Multi-Year Tariff framework shall be based on the following elements, for calculation of Aggregate Revenue Requirement and expected revenue from tariff and charges for Generating Companies, Transmission Licensee, Distribution Wires Business and Retail Supply Business: i. Control Period, before commencement of which a forecast of the Aggregate Revenue Requirement and expected revenue from existing tariff and charges shall be submitted by the applicant and approved by the Commission; ii. A detailed Business Plan based on the Operational Norms and trajectories of performance parameters specified in the MYT Regulations, for each year of the Control Period, shall be submitted by the applicant for the Commission's approval; iii. Based on the Business Plan, the applicant shall submit the forecast of Aggregate Revenue Requirement and expected revenue from existing tariff for each year of the Control Period, and the Commission shall approve the Vidarbha Industries Power Limited Transmission 19

tariff for Generating Companies, Transmission Licensee, Distribution Wires Business and Retail Supply Business, for each year of the Control Period; iv. The Commission shall, notify by order, the change in indexation, if required, for indexed parameters as specified in these Regulations, on the 30th day of April of every year of the Control Period, starting from the second year of Control Period and notify by order, the change in tariff, as applicable to Generating Companies, Transmission Licensee, Distribution Wires Business and Retail Supply Business; v. Mid-term review of performance vis-à-vis the approved forecast and categorization of variation in performance as those caused by factors within the control of the applicant (controllable factors) and those caused by factors beyond the control of the applicant (uncontrollable factors) shall be undertaken by the Commission; vi. The mechanism for pass-through of approved gains or losses on account of uncontrollable factors as specified by the Commission in these Regulations; vii. The mechanism for sharing of approved gains or losses arising out of controllable factors as specified by the Commission in these Regulations; viii. One-time tariff determination for Generating Companies, Transmission Licensee, Distribution Wires Business and Retail Supply Business, for each financial year within the Control period along with specification of indexation for specific parameters based on the approved forecast, shall be undertaken at the start of the Control Period and also reviewed at the time of the Mid-term Performance Review. 3.7. The Hon ble Commission has further mentioned in Clause 5.1 of the MYT Regulations, 2011 that the first application under the Regulations shall be made for the Control Period of five (5) financial years from April 1, 2011 to March 31, 2016. 3.8. For the forecast of Aggregate Revenue Requirement the relevant Clauses of MYT Regulations, 2011 are reproduced below : 8.2 Forecast of Aggregate Revenue Requirement 8.3 The applicant shall develop the forecast of Aggregate Revenue Requirement using the assumptions relating to the behaviour of individual variables that comprise the Aggregate Revenue Requirement during the Control Period. 8.4 Forecast of expected revenue from tariff and charges Vidarbha Industries Power Limited Transmission 20

The applicant shall develop the forecast of expected revenue from tariff and charges based on the following: a) In the case of a Transmission Licensee, estimates of transmission capacity allocated to Transmission System Users for each financial year within the Control Period; b) In the case of a Distribution Licensee, estimates of quantum of electricity to be supplied to consumers and wheeled on behalf of Distribution System Users for each financial year within the Control Period; and c) Prevailing tariff as at the date of making the application. 3.9. VIPL-T in this regard has projected the Aggregate Revenue Requirement for FY 2014-15 and FY 2015-16 of the 2 nd MYT control period based on the norms prescribed in the MYT Regulations, 2011. Petition Structure 3.10. The petition includes the following Chapters: a) Chapter 1 contains Executive Summary b) Chapter 2 contains Introduction c) Chapter 3 contains Overall approach to filing d) Chapter 4 contains Capital Expenditure incurred for the Transmission Project e) Chapter 5 contains Aggregate Revenue Requirement for VIPL T for the FY 2014-15 to FY 2015-16 of the 2 nd MYT control period f) Chapter 6 contains the Prayers to the Hon ble Commission Vidarbha Industries Power Limited Transmission 21

CAPITAL COST AND ANNUAL REVENUE REQUIREMENT Vidarbha Industries Power Limited Transmission 22

4. Capital Expenditure Project Description 4.1. The petitioner, VIPL-T, has set up the power evacuation arrangement separately for Unit-1 & Unit- 2. As per the statutory requirement, VIPL approached MSETCL for grid connectivity and power evacuation arrangement. MSETCL vide its letter ref no MSETCL/CO/Tr.Proj/S &C I/378/15206 (Demand Note) dated September 30, 2010 & MSETCL/CO/Tr.Proj/S&C I/378/7768 (Demand Note) dated May 23, 2011 conveyed the scope of work for the evacuation arrangement to be implemented by VIPL under its supervision. Copies of letters from MSETCL are enclosed as Appendix 2 & 3. (These letters also provide for MSETCL s recommendation for inclusion of GIS bays and 220 kv cable in the scope along with reasons stating MSETCL s inability to provide necessary space). VIPL-T, also submits that it has complied with all the required technical compliances mentioned under Annexure-I to the MSETCL s letter referred under Appendix 2 and Appendix 3. Scope of Work for Unit 1 Evacuation (Scheme 1) 1. 220 kv Double Circuit Line on Double Circuit Towers from MSETCL 200 kv Butibori III to M/s VIPL premises 2. Optical fibre/adss cable between MSETCL Butibori III Substation and proposed switchyard of M/s VIPL for data transfer and pilot wire protection 3. Metering Room (AC) 4. Metering CT, PT, Isolator at M/s VIPL premises 5. Bus Bar protection for 220 kv Bus at M/s VIPL premises 6. Control Room and allied works 7. SCADA for remote monitoring to be installed at 220 kv Butibori III substation - 1 set 8. ABT metering/ Energy metering for provision of link with RLDC/SLDC Scope of Work for Unit 2 Evacuation (Scheme 2) MSETCL as per its feasibility report for providing evacuation from Unit 2 had observed the following: a) There was no vacant bay available at 220 kv Butibori-I MIDC substation. Hence 2 Nos of 220 kv Gas Insulated Switchgear (GIS) Bays are recommended b) Since there is insufficient space for locating towers in the premises of 220 kv Butibori I MIDC substation, 220 kv cable from gantry to GIS bays is proposed Vidarbha Industries Power Limited Transmission 23

In wake of above, MSETCL asked VIPL to implement the following scope of work under its supervision 1. 220 kv D/C line (double circuit line on double circuit towers) from MSETCL s 220 kv Butibori-I MIDC substation to M/s VIPL premises 2. Underground cable from gantry to GIS bays at MSETCL s 220 kv Butibori I MIDC substation 3. 220 kv GIS bay at MSETCL s 220 kv Butibori I MIDC substation 2 Bus (2 Nos) 4. 220 kv Interconnector Isolator between GIS and Bus at MSETCL s 220 kv Butibori I MIDC substation 2 Nos 5. Optical fibre cable between GIS and bus of MSETCL s 220 kv Butibori I MIDC to M/s VIPL premises data transfer and pilot wire protection 6. Metering CT, PT, Isolator at M/s VIPL premises 7. Bus bar protection at M/s VIPL premises 8. SCADA for remote monitoring of switchyard of M/s VIPL premises to be installed at MSETCL s 220 kv Butibori I MIDC substation ABT metering/ Energy metering for provision of link with RLDC/SLDC to be installed at MSETCL s Butibori I MIDC substation 9. Control & Relay panels for feeder bays in MSETCL s Butibori I MIDC substation 2 Sets 10. Extension of existing Numerical Busbar protection in MSETCL s Butibori I MIDC substation to cover new GIS bays 11. Extension of AC/DC supply to GIS bays in MSETCL s Butibori I MIDC substation 12. Metering Room 4.2. The petitioner submits that the entire work of installation of transmission system is completed, the required approvals are obtained and the lines are connected to the InSTS network. Project Capital Cost 4.3. The petitioner hereby submits the depreciated project cost of the transmission system as on March 31, 2014 as Rs 27.22 Crore. In this regard, final audited accounts of Financial Year 13-14 & Financial Year 14-15 is being submitted as Appendix 4. 4.4. As per the Audited accounts, Regarding assets allocation statement for Generation and Transmission business, VIPL would like to submit that Schedule 5 of audited accounts of FY Vidarbha Industries Power Limited Transmission 24

13-14 of VIPL provides details of generation as well as transmission components. In the said schedule, CA has already demarcated assets towards transmission as Leasehold land Transmission line and Transmission line. Besides the above, rest of the elements pertain to generation project. Detailed break up of allocation of assets to Transmission and Generation business as on Mar 31, 2014 is as under. Table 1: Break-up of allocation of Assets to Generation & Transmission as on Mar 31, 2014 SN Particulars Amount (Rs.) Remarks 1 Opening Gross Block as per Audited accounts of 4033,84,56,704/- FY 14-15 ( Ref 3.10.1 & 3.10.2of Audited accounts) 2 Less- 1) Leasehold Land Transmission Line (Ref 3.10.1 of Audited Accounts) 12,971,180/- Rs 28.64/- Crs. is claimed through Transmission Business Less- 2) Transmission Line 27,34,37,002/- (Ref 3.10.1 of Audited Accounts) Gross Block claimed by VIPL in Generation Tariff petition No 115 of 2014 4005,20,48,522/- Gross block excluding Transmission assets 4.5. VIPL would like to submit that development of project was undertaken through EPC contract which were combined for both Generation and Transmission assets. VIPL awarded turnkey EPC contract of the development of project to Reliance Infrastructure Limited on fixed price basis. VIPL further submits that there has been no delay on account of EPC and/or other contractors and no liquidated damages have been levied on Contractors. 4.6. VIPL-T submits that the transmission system was not envisaged to be developed as a separate installation and was considered to be a part of the generating station as a whole. Because of this arrangement, capitalization of transmission assets was linked with generation assets as the commissioning and capitalization of generating assets was a pre-requisite for capitalization of transmission assets. This is the reason for showing capitalization of Scheme 1 in audited accounts of VIPL for FY2013-14, even though the same was charged and tested (and thus was ready to use) on June 29 th 2012. Further, as already stated above, transmission Scheme 2 is also charged and tested on June 13 th 2013 and the same is capitalized in the books of accounts of VIPL during 2013-14. The Commissioning Confirmation issued by MSETCL to Hon ble MERC pursuant to filing for grant of Transmission Licence to VIPL-T as Appendix 6. VIPL has applied to SLDC for issue of certificate for the availability of the transmission line for Vidarbha Industries Power Limited Transmission 25

FY 14-15 and copy of the acknowledgement is attached as Appendix 7. The Certificate would be submitted to Hon ble Commission once it is issued by SLDC. 4.7. However, in view of the Hon ble Commission s directive, the transmission assets have to be considered as separate stand-alone business, the commissioning of which cannot be considered dependent upon the commissioning and capitalization of generating assets. Hence, in view that the activities w.r.t. transmission project have been completed in entirety and the transmission system has been charged and tested by statutory independent body (i.e., Electrical Inspector), on June 29, 2012 and June 13, 2013 respectively, the accordingly the transmission assets of VIPL-T ought to be considered as having achieved COD on the abovementioned respective dates. The month-wise power evacuated between 1 st April 2014 and 31 st July 2015 is provided in Appendix 11. 4.8. VIPL submits here that the cost of transmission project is not considered in the cost of generation project. Transmission assets are shown separately in Assets table in Financial Accounts. VIPL also declared the same in Final Tariff petition No 115 of 2014 under Capital Cost of the project and same has been approved by Hon ble commission in its order dated Mar 9, 2015. 4.9. In view of this, VIPL-T requests the Hon ble Commission to consider the submission of the present MYT Petition based on actual capital cost as on March 31, 2014 (depreciated from the date of COD of Transmission line till March 31, 2014). 4.10. A comparison of actual capital cost with the original estimates is as given below: Vidarbha Industries Power Limited Transmission 26

Table 2: Project Cost Comparison (in Rs Cr) S. No. Particulars Actual Capital Cost Original Estimates Difference Reason for Deviation 1. Preliminary and Pre-Operative expenses 1.45 1.45 - Pre-operative expenses of Rs. 1.45 Crs. were considered as a part of overall preoperative expenses for generation and transmission project together and same is now considered separately for transmission project. Therefore, there is no deviation. 2. EPC cost of the Project 2.1. Supply & Erection (Services) Cost 17.39 14.00 3.39 GIS bays and 220 kv cable were required to be included in the scope subsequently based on the recommendations of MSETCL due to space constraints in the MSETCL Substation I. Refer Pont 5.12 (a) for detailed justification. 2.2. Type Test 2.3. Spares and Tools 3. Non-EPC Cost 3.1. Consultancy 3.2. Cost towards terminal bays 3.3. Right of Way 3.4. Design Cost 3.5. Compensation of Land cost 1.30 1.30 - Land cost of Rs. 1.3 Crs. were considered as a part of overall land cost for generation and transmission project together and same is now considered separately for transmission project. Therefore, there is no deviation 3.6. Detailed Survey Cost 4. Overheads 5. Contingency Cost 6. Incremental expenditure on GIS bays and cable was required Interest during Construction and Financing 2.75 1.92 0.83 and hence the incremental IDC on account of the same. Cost * Refer Pont 5.12 (c) for detailed justification. 7. Cost towards MSETCL Supervision 5.75-5.75 Supervision charges by MSETCL came up later during the implementation. Refer Pont 5.12 (b) for detailed justification. 8. Total 28.64 18.67 9.97 Vidarbha Industries Power Limited Transmission 27

4.11. The detailed justification for variation between the original estimates and actual capital cost is explained herewith: a) Deviation in Supply and Erection Cost ~ Rs. 3.39 Crs. MSETCL carried out the feasibility of 220 KV double circuit line under Scheme 2 from Butibori plant to MSETCL Butibori- I MIDC substation. Based on the feasibility Report, MSETCL informed VIPL about non availability of vacant bay at the respective substation, for the purpose of power evacuation. Accordingly MSETCL asked VIPL to establish 2 Nos. of 220 kv Gas Insulated Switchgear (GIS) bays at the Butibori substation. In addition to this, there was insufficient space for locating towers in the premises of 220 kv Butibori I MIDC substation and therefore 220 kv cable from gantry to GIS bays was required to be laid in the MSETCL switchyard. This entailed following additional scope of work. 220 kv GIS bay at MSETCL s 220 kv Butibori I MIDC substation 2 Bus (2 Nos) Underground cable from gantry to GIS bays at MSETCL s 220 kv Butibori I MIDC substation 220 kv Interconnector Isolator between GIS and Bus at MSETCL s 220 kv Butibori I MIDC substation 2 Nos. Because of aforementioned reasons, the deviation in the cost as Rs 3.39 Cr may be observed b) Deviation in MSETCL Charges ~ Rs. 5.75 Crs. In the original estimates, the supervision charges and cost of works in MSETCL sub-station was not envisaged based on the preliminary information gathered at that point of time. It was assumed that no supervision charge would have to be paid to MSETCL as the transmission lines would be implemented by VIPL directly. It was also envisaged that the works required to be carried out by MSETCL in their sub-station would be carried out by MSETCL at their own cost. However, in the demand notes raised by MSETCL, it required VIPL to pay for the bay equipment that would be installed by MSETCL. Accordingly VIPL was required to pay the total supervision charges as Rs 5.75 Crs comprising of following: Scheme 1 Rs. 3.84 Crs supervision of transmission line works and installation of 2 nos. 220 KV bays at MSETCL Butibori III sub station Scheme 2 Rs. 1.91 Crs supervision of works to be carried out by VIPL for transmission line and in MSETCL sub-station I such as GIS bays, 220 KV underground cable, isolators etc. 4.12. VIPL submits that, the breakup of Charges paid to MSETCL is as under Vidarbha Industries Power Limited Transmission 28