Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION 13th Floor, Centre No.1, World Trade Centre, Cuffe Parade, Mumbai- 400 005 Tel: 022-22163964/65/69 Fax: 022-22163976 E-mail: mercindia@merc.gov.in Website: www.merc.gov.in / www.mercindia.org.in CASE No. 32 of 2016 In the matter of Petition of Tata Power Company Ltd. (Generation) for Truing-up of FY 2014-15, Provisional Truing-up for FY 2015-16 and ARR and Tariff for the 3rd Control Period FY 2016-17 to FY 2019-20 CORAM Shri Azeez M. Khan, Member Shri Deepak Lad, Member ORDER Date: 8 August, 2016 The Tata Power Company Limited (Generation Business) (TPC-G) has, under Regulation 5 of the MERC (Multi Year Tariff (MYT)) Regulations ( MYT Regulations ), 2015, filed its Petition for Truing-up of FY 2014-15, Provisional Truing-up of FY 2015-16 and Aggregate Revenue Requirement (ARR) and Tariff for the 3 rd Control Period from FY 2016-17 to FY 2019-20. The Truing-up for FY 2014-15 and Provisional Truing-up for FY 2015-16 is approved under the MYT Regulations, 2011, while the ARR forecast and Tariff for FY 2016-17 to FY 2019-20 are as per MYT Regulations, 2015. The original Petition was filed on 11 February, 2016. TPC-G filed a revised Petition on 24 March, 2016. The Commission, in exercise of its powers under Sections 61 and 62 of the Electricity Act (EA), 2003 and all other powers enabling it in this behalf, and after considering the submissions made by TPC-G, suggestions and objections received, issues raised during the Public Hearing and other relevant material, issues the following Order. MERC Order in Case No. 32 of 2016 Page 1 of 224
TABLE OF CONTENTS 1 BACKGROUND AND REGULATORY PROCEEDINGS... 16 1.1. Background... 16 1.2. MYT Regulations, 2011... 16 1.3. Business Plan Order for MYT 2 nd Control Period... 16 1.4. Truing-up of FY 2011-12 and ARR for 2 nd Control Period FY 2012-13 to FY 2015-16... 16 1.5. Truing-up of FY 2012-13 and FY 2013-14, Provisional Truing-up of FY 2014-15 and Projection of ARR and Tariff for FY 2015-16... 17 1.6. MYT Regulations, 2015... 17 1.7. Admission of the Petition and Public Consultation Process... 17 1.8. Organisation of the Order... 19 2 SUGGESTIONS/ OBJECTIONS RECEIVED, TPC-G S RESPONSE AND COMMISSION S VIEW... 21 2.1 Fuel Prices... 21 2.2 Competitive Bidding for Power Purchase... 24 2.3 Blended Tariff for Unit-7... 26 2.4 GT Losses... 27 2.5 Colony Consumption... 28 2.6 Unit-7 PLF for 3 rd Control Period... 29 2.7 Foreign Exchange Loss... 29 2.8 Income Tax... 30 2.9 Capital Expenditure and Capitalisation... 31 2.10 O&M Expenses... 33 2.11 Sharing of Unit-6 Fixed Cost... 34 2.12 Delayed Payment Charges... 35 2.13 Force Majeure in case of Units 7 and 8... 35 2.14 Incentive for Backing Down of Units... 37 2.15 Property Tax... 37 2.16 Recovery of Fixed Cost for Bhira Hydro Station... 38 2.17 Submissions for 3 rd Control Period... 39 2.18 Shortcomings in Petition Filing... 41 MERC Order in Case No. 32 of 2016 Page 2 of 224
3 IMPACT OF ATE JUDGMENTS ON PREVIOUS YEARS TRUE-UP... 42 3.1 Appeal challenging MTR Order dated 26 June, 2015 in Case 6 of 2015... 42 4 TRUING-UP FOR FY 2014-15... 49 4.1 Background... 49 4.2 Performance Parameters... 49 4.3 Performance of Units-4 to 7 and Hydro Stations... 49 4.3.1 Availability and Gross Generation... 49 4.3.2 Auxiliary Energy Consumption... 52 4.3.3 Gross Station Heat Rate... 61 4.3.4 Fuel Cost... 63 4.3.5 Fuel Cost of Unit-6 under MSLDC Directions... 66 4.3.6 Entry Tax... 67 4.3.7 Operation and Maintenance Expenses... 68 4.3.8 Capital Expenditure and Capitalisation... 73 4.3.9 Non-DPR Capitalisation for FY 2010-11 to FY 2013-14... 75 4.3.10 Depreciation... 79 4.3.11 Interest on Long-term Loans... 81 4.3.12 Return on Equity... 83 4.3.13 Interest on Working Capital... 84 4.3.14 Income Tax... 85 4.3.15 Non-Tariff Income... 87 4.3.16 Revenue from Sale of Power... 87 4.3.17 PLF Incentive for Thermal Station and Hydro Incentive for Hydro Stations... 88 4.3.18 Reduction of Fixed Charges on account of lower Availability of Unit-7... 89 4.3.19 Sharing of Gains / Losses for FY 2014-15... 93 4.3.20 Gains / Losses on account of fuel costs... 93 4.3.21 Gains / Losses on account of Auxiliary Consumption... 94 4.3.22 Gains / Losses on account of O&M Expenses... 95 4.3.23 Net Entitlement, and resultant Gap/ Surplus for Units 4 to 7 and Hydro Stations... 97 4.4 Performance of Unit-8... 99 4.4.1 Gross Generation... 99 4.4.2 Auxiliary Energy Consumption... 100 4.4.3 Gross Station Heat Rate... 100 MERC Order in Case No. 32 of 2016 Page 3 of 224
4.4.4 Fuel Cost... 101 4.4.5 Operation and Maintenance Expenses... 102 4.4.6 Capital Expenditure and Capitalisation... 103 4.4.7 Non-DPR Capitalisation for FY 2011-12 to FY 2013-14... 104 4.4.8 Depreciation... 106 4.4.9 Interest on Long-term Loan... 107 4.4.10 Return on Equity... 109 4.4.11 Interest on Working Capital... 110 4.4.12 Income Tax... 110 4.4.13 Non-Tariff Income... 111 4.4.14 Revenue from Sale of Power... 111 4.4.15 Reduction of Fixed Charges on account of lower Availability of Unit-8... 112 4.4.16 Sharing of Gains / Losses for FY 2014-15... 119 4.4.17 Gains / Losses on account of fuel cost... 119 4.4.18 Efficiency Gains / Losses on account of Auxiliary Energy Consumption... 119 4.4.19 Efficiency Gains / Losses on account of O&M Expenses... 120 4.4.20 Net Entitlement, and resultant Revenue Gap/ Surplus for Unit-8... 121 5. PROVISIONAL TRUE-UP OF ARR FOR FY 2015-16... 124 5.1 Background... 124 5.2 Performance Parameters... 124 5.3 Performance Parameters of TPC-G s Generating Station/ Units... 124 5.3.1 Availability... 124 5.3.2 Gross Generation... 126 5.3.3 Auxiliary Energy Consumption... 128 5.3.4 Gross Station Heat Rate... 130 5.3.5 Design Energy for Hydro Generating Stations... 132 5.3.6 Fuel Price and Calorific Value... 134 5.3.7 Fuel Cost... 135 5.3.8 Fuel Cost of Unit-6 operating under MSLDC Directions... 135 5.3.9 Entry Tax... 136 5.3.10 Operation and Maintenance Expenses... 136 5.3.11 Capital Expenditure and Capitalisation... 137 5.3.12 Depreciation... 141 MERC Order in Case No. 32 of 2016 Page 4 of 224
5.3.13 Interest on Long-term Loan... 142 5.3.14 Return on Equity... 144 5.3.15 Interest on Working Capital... 145 5.3.16 Income Tax... 146 5.3.17 Non-Tariff Income... 147 5.3.18 PLF Incentive for Thermal Station... 147 5.3.19 Provisional Truing-up for FY 2015-16... 148 5.4 Past Recoveries from Distribution Licensees... 149 5.4.1 Incentive for backing down instructions from MSLDC for FY 2011-12 to FY 2013-14. 149 5.4.2 Fuel Cost of Unit-6 under MSLDC Directions... 150 5.4.3 Other Past Recoveries from Distribution Licensees... 151 6. ARR FOR 3RD CONTROL PERIOD FROM FY 2016-17 TO FY 2019-20... 158 6.1 Background... 158 6.2 Performance Parameters... 158 6.3 Generating Stations... 158 6.4 Performance Parameters... 159 6.4.1 Availability... 159 6.4.2 Gross Generation... 160 6.4.3 Auxiliary Energy Consumption... 162 6.4.4 Gross Station Heat Rate... 166 6.4.5 Fuel Cost... 168 6.4.6 Operation and Maintenance Expenses... 172 6.4.7 Capital Expenditure and Capitalisation... 176 6.4.8 Depreciation... 180 6.4.9 Interest on Long-term Loan... 182 6.4.10 Return on Equity... 185 6.4.11 Interest on Working Capital... 188 6.4.12 Income Tax... 190 6.4.13 Non-Tariff Income... 191 6.4.14 Fixed Cost of Unit-4... 193 6.4.15 Summary of Annual Fixed Charges... 194 7. MULTI-YEAR TARIFF FOR 3RD CONTROL PERIOD FROM FY 2016-17 TO FY 2019-20... 196 7.1 AFC for TPC-G... 196 MERC Order in Case No. 32 of 2016 Page 5 of 224
7.2 Energy Charges for Thermal Generating Units... 201 7.3 Capacity Charges and Energy Charges for Hydro Generating Units... 201 8. COMPLIANCE OF DIRECTIVES IN MTR ORDER... 204 8.1 Non-DPR Capitalisation... 204 8.2 Section 80 IA of Income Tax Act... 206 8.3 BHEL Circular... 206 8.4 Replacement of Blades... 207 8.5 Operating Conditions... 209 9. SUMMARY OF THE RULINGS... 212 9.1 Carrying Cost on impact of ATE Judgment... 212 9.2 True-up For FY 2014-15... 212 9.2.1 Performance of Unit-8... 213 9.3 Provisional True-up for FY 2015-16... 215 9.4 Past Recoveries from Distribution Licensees... 215 9.5 ARR for the 3 RD Control Period from FY 2016-17 TO FY 2019-20... 217 10. DIRECTIVES... 220 10.1 Imported Coal Purchase... 220 10.2 Expiry of PPA... 220 11. APPLICABILITY OF ORDER... 221 MERC Order in Case No. 32 of 2016 Page 6 of 224
LIST OF TABLES Table 1: Potential Impact of ATE Appeal 244 of 2015 as submitted by TPC-G... 42 Table 2: Potential Impact of ATE Appeal 244 of 2015 as submitted by TPC-G... 43 Table 3: Potential Impact of ATE Appeal 244 of 2015 including carrying cost as submitted by TPC-G. 45 Table 4: Revised Tax Computation for FY 20-14-15 as submitted by TPC-G... 46 Table 5: Gross Generation and Availability certified by MSLDC for FY 2014-15... 50 Table 6: Summary of Availability for Units 4 to 7 and Hydro Stations for FY 2014-15 as approved by Commission... 51 Table 7: Summary of Gross Generation for Units 4 to 7 and Hydro Stations for FY 2014-15 as approved by Commission... 51 Table 8: Auxiliary Energy Consumption for FY 2014-15 as submitted by TPC-G... 52 Table 9: Unit-4Auxiliary Energy Consumption for FY 2014-15 as submitted by TPC-G... 52 Table 10: Auxiliary Energy Consumption of Hydro Stations for FY 2014-15 as submitted by TPC-G... 54 Table 11: Auxiliary Energy Consumption for nallah diversion as submitted by TPC-G for FY 2014-15. 54 Table 12: Actual GT Losses for FY 2014-15 as submitted by TPC-G... 55 Table 13: Headworks consumption as submitted by TPC-G... 56 Table 14: Hydro Auxiliary Energy Consumption for FY 2014-15 as submitted by TPC-G... 57 Table 15: Normative Auxiliary Energy Consumption for Hydro Generating Stations as approved by Commission for FY 2014-15... 61 Table 16: Auxiliary Energy Consumption for FY 2014-15 as approved by Commission... 61 Table 17: SHR for Unit-6 for FY 2014-15 as submitted by TPC-G... 62 Table 18: Actual SHR for Unit-6 under different modes of operation, as submitted by TPC-G for FY 2014-15... 62 Table 19: Unit-wise SHR for 2014-15 approved by Commission... 63 Table 20: Break-up of Fuel Cost, as submitted by TPC-G for FY 2014-15... 63 Table 21: Fuel Parameters as approved by Commission for FY 2014-15... 64 Table 22: Fuel Cost Reconciliation as submitted by TPC-G for FY 2014-15... 65 Table 23: Fuel Cost for Units 4 to 7 for FY 2014-15 as approved by Commission... 65 Table 24: Impact of Entry Tax as submitted by TPC-G for FY 2014-15... 68 Table 25: Recovery of Entry Tax, as approved by Commission... 68 Table 26: Employee Expenses for Trombay Units 4-7 &Hydro Stations for FY 2014-15... 69 Table 27: Summary of O&M Expenses for FY 2014-15 as approved by Commission... 72 Table 28: Non-DPR Schemes not considered for Capitalisation... 74 Table 29: Capitalisation approved by Commission for FY 2014-15... 75 Table 30: Summary of Merged DPRs, as submitted by TPC-G... 76 Table 31: Summary of Merged Non-DPR Capitalisation now approved by Commission for Units 4 to 7 and Hydro Generating Stations... 78 Table 32: Non-DPR Capitalisation for Units 4 to 7 and Hydro Generating Stations as approved by Commission for FY 2010-11 to FY 2013-14... 78 Table 33: Depreciation as approved by Commission for FY 2014-15... 80 Table 34: Details of Fresh Loans for FY 2014-15... 81 Table 35: Allocation of Loans as submitted by TPC-G... 81 Table 36: Interest on Long-term Loans as approved by the Commission for FY 2014-15... 83 MERC Order in Case No. 32 of 2016 Page 7 of 224
Table 37: Return on Equity as approved by the Commission for FY 2014-15... 84 Table 38: Interest on Working Capital as approved by Commission for FY 2014-15... 85 Table 39: Income Tax as approved by Commission for FY 2014-15... 86 Table 40: Non-Tariff Income as approved by Commission for FY 2014-15... 87 Table 41: Revenue from Sale of Power for FY 2014-15... 87 Table 42: Approved Reduction in AFC for Unit-7 for FY 2014-15... 92 Table 43: Gains and Losses due to variation in Fuel Cost, as approved by Commission for FY 2014-15 94 Table 44: Gain/Loss due to variation in Auxiliary Energy Consumption as approved by Commission for FY 2014-15... 95 Table 45: Property Tax Summary as submitted by TPC-G for FY 2014-15... 96 Table 46: Gains due to variation in O&M Expenses for Units 4 to 7 and Hydro Stations for FY 2014-15 as approved by Commission... 97 Table 47: Truing-up for FY 2014-15 for Units 4 to 7 and Hydro Stations, including sharing of efficiency gains/ losses... 98 Table 48: Unit-8 Performance in FY 2014-15 as submitted by TPC-G... 99 Table 49: Availability of Unit-8 as approved by Commission for FY 2014-15... 100 Table 50: Gross Generation of Unit-8 as approved by the Commission for FY 2014-15... 100 Table 51: Summary of Auxiliary Energy Consumption of Unit-8 as approved by Commission for FY 2014-15... 100 Table 52: Summary of SHR of Unit-8 as approved by Commission for FY 2014-15... 101 Table 53: Fuel Cost of Unit-8 for FY 2014-15 as submitted by TPC-G... 101 Table 54: Fuel Parameters as approved by Commission for Unit-8 for FY 2014-15... 102 Table 55: Fuel Cost as approved by Commission for Unit-8 for FY 2014-15... 102 Table 56: Summary of O&M Expenses approved by Commission for Unit-8 for FY 2014-15... 103 Table 57: Capitalisation of Unit-8 as approved by Commission for FY 2014-15... 104 Table 58: Summary of Non-DPR Capitalisation now approved by Commission for Unit-8... 105 Table 59: Non-DPR Capitalisation for Unit-8 as approved by Commission for FY 2011-12 to FY 2013-14... 106 Table 60: Depreciation for Unit-8 as approved by Commission for FY 2014-15... 107 Table 61: Interest on Long-term Loan as approved by Commission for FY 2014-15... 108 Table 62: Return on Equity for Unit-8 as approved by Commission for FY 2014-15... 109 Table 63: Income Tax for Unit-8 for FY 2014-15 as approved by Commission... 110 Table 64: Revenue from GenerationofUnit-8 for FY 2014-15, as submitted by TPC-G... 112 Table 65: Summary of Reduction of AFC for Unit-8 for FY 2014-15 as approved by Commission... 118 Table 66: Gains/Losses in Fuel Cost as approved by Commission for FY 2014-15... 119 Table 67: Efficiency Gains/ Losses due to variation in Auxiliary Energy Consumption of Unit-8 in FY 2014-15, as approved by Commission... 120 Table 68: Efficiency Gains/ Losses due to variation in O&M Expenses for Unit-8 for FY 2014-15... 121 Table 69: Truing-up for FY 2014-15 for Unit 8, including sharing of Efficiency Gains/ (Losses)... 122 Table 70: Availability of Generating Units as submitted by TPC-G for FY 2015-16... 124 Table 71: Availability of Generating Units as submitted by TPC-G (revised submission) for FY 2015-16... 125 Table 72: Availability as approved by the Commission for FY 2015-16... 125 Table 73: Gross Generation and PLF as submitted by TPC-G for FY 2015-16... 127 MERC Order in Case No. 32 of 2016 Page 8 of 224
Table 74: Gross Generation and PLF as submitted by TPC-G in revised submission for FY 2015-16... 127 Table 75: Gross Generation and PLF as approved by Commission for FY 2015-16... 128 Table 76: Auxiliary Energy Consumption as submitted by TPC-G for FY 2015-16... 128 Table 77: Auxiliary Energy Consumption as submitted by TPC-G in its revised submission for FY 2015-16... 129 Table 78: Auxiliary Energy Consumption as approved by Commission for FY 2015-16... 130 Table 79: SHR for FY 2015-16 as submitted by TPC-G... 130 Table 80: SHR as submitted by TPC-G in its revised submission for FY 2015-16... 130 Table 81: Revised Normative SHR for Unit-6 for FY 2015-16... 131 Table 82: SHR as approved by the Commission for FY 2015-16... 131 Table 83: Fuel Prices in FY 2015-16, as submitted by TPC-G... 134 Table 84: Fuel Prices and Calorific Value as approved by Commission for FY 2015-16... 134 Table 85: Impact of Entry Tax as submitted by TPC-G for FY 2015-16... 136 Table 86: Recovery of Entry Tax, as approved by Commission for FY 2015-16... 136 Table 87: O&M Expenses as approved by Commission for FY 2015-16... 137 Table 88: Schemes with major impact on Capitalisation, as submitted by TPC-G... 137 Table 89: Summary of disallowed DPR Capitalisation for restricted cumulative Capitalisation... 139 Table 90: Summary of Capitalisation disallowed by Commission for FY 2015-16... 140 Table 91: Capitalisation as approved by Commission for FY 2015-16... 140 Table 92: Depreciation as approved by Commission for FY 2015-16... 142 Table 93: Interest on Long-term Loan as approved by Commission... 143 Table 94: Return on Equity as approved by Commission for FY 2015-16... 144 Table 95: IoWC for Units 4 to 7 and Hydro Stations as approved by Commission for FY 2015-16... 145 Table 96: IoWC for Unit-8 as approved by Commission for FY 2015-16... 146 Table 97: Income Tax as approved by Commission for FY 2015-16... 146 Table 98: Non-Tariff Income as approved by Commission for FY 2015-16... 147 Table 99: Incentive as claimed by TPC-G on account of Backing Down in FY 2015-16... 148 Table 100: Provisional Truing-up for FY 2015-16 as approved by Commission... 148 Table 101: PLF Incentive on account of Backing Down for FY 2011-12 to FY 2013-14, as submitted by TPC-G... 150 Table 102: Fuel Cost for Unit-6 under MSLDC Directions... 150 Table 103: Amounts Recoverable from Distribution Licensees as submitted by TPC-G... 152 Table 104: Amounts Recoverable from Distribution Licensees as approved by Commission... 154 Table 105: Break up of recoverable amount as approved by the Commission... 155 Table 106: Carrying Cost on recovery as approved by the Commission... 156 Table 107: Net Amount to be recovered from Distribution Licensees in FY 2016-17... 156 Table 108: Monthly recovery from Distribution Licensees in FY 2016-17... 157 Table 109: Existing Generation Capacity of TPC-G... 159 Table 110: Availability of Generating Units in 3 rd Control Period as submitted by TPC-G... 159 Table 111: Availability of Generating Units in 3 rd Control Period as approved by Commission... 160 Table 112: Summary of Gross Generation and PLF as submitted by TPC-G for 3 rd Control Period... 161 Table 113: Summary of Gross Generation and PLF as approved by the Commission for 3 rd Control Period... 162 MERC Order in Case No. 32 of 2016 Page 9 of 224
Table 114: Normative Auxiliary Energy Consumption for Thermal Generating Stations for 3 rd Control Period as submitted by TPC-G... 162 Table 115: Auxiliary Energy Consumption for Nallah Diversion as submitted by TPC-G for 3 rd Control Period... 163 Table 116: Auxiliary Energy Consumption for Thermal Generating Units for 3 rd Control Period as approved by Commission... 164 Table 117: Auxiliary Energy Consumption for Nallah Diversion as approved by Commission for 3 rd Control Period... 165 Table 118: Auxiliary Energy Consumption for Hydro Generating Stations as approved by Commission for 3 rd Control Period... 166 Table 119: Normative SHR for Thermal Generating Stations for 3 rd Control Period as submitted by TPC- G... 166 Table 120: SHR as approved by Commission for 3 rd Control Period... 168 Table 121: Fuel proposed for Thermal Generating Stations in 3 rd Control Period as submitted by TPC-G... 168 Table 122: Existing Contracts for APM Gas as submitted by TPC-G... 169 Table 123: Fuel Parameters as projected by TPC-G for 3 rd Control Period... 170 Table 124: Summary of Fuel Parameters as approved by Commission for 3 rd Control Period... 171 Table 125: Summary of Energy Charges as approved by Commission for 3 rd Control Period... 172 Table 126: O&M Expenses for Base Year as submitted by TPC-G for 3 rd Control Period... 172 Table 127: O&M Expenses as submitted by TPC-G for Units 4 to 7 and Hydro for 3 rd Control Period. 173 Table 128: O&M Expenses as submitted by TPC-G for Unit-8 for 3 rd Control Period... 173 Table 129: Summary of O&M Expense escalation computation for 3 rd Control Period... 175 Table 130: Summary of O&M Expense escalation computation for 3 rd Control Period... 175 Table 131: O&M Expenses as approved by Commission for Units 4 to 7 and Hydro Generating Stations for 3 rd Control Period... 176 Table 132: O&M Expenses as approved by Commission for 3 rd Control Period for Unit-8... 176 Table 133: Capitalisation for Units 4 to 7 and Hydro Generating Stations for 3 rd Control Period as submitted by TPC-G... 177 Table 134: Capital Expenditure and Capitalisation as submitted by TPC-G for Unit-8 during 3 rd Control Period... 178 Table 135: Capitalisation disallowed by Commission for FY 2015-16... 179 Table 136: Capitalisation approved by Commission for 3 rd Control Period... 179 Table 137: Depreciation for Units 4 to 7 and Hydro Stations as submitted by TPC-G for 3 rd Control Period... 180 Table 138: Depreciation for Unit-8 as submitted by TPC-G for 3 rd Control Period... 181 Table 139: Depreciation approved by Commission for Units 4 to 7 and Hydro Stations for 3 rd Control Period... 182 Table 140: Summary of Depreciation approved by Commission for Unit-8 for 3 rd Control Period... 182 Table 141: Interest on Long-term Loan for Units 4 to 7 and Hydro Stations as submitted by TPC-G for 3 rd Control Period... 183 Table 142: Interest on Long-term Loan for Unit-8 as submitted by TPC-G for 3 rd Control Period... 183 Table 143: Interest on Long-term Loan for Units 4 to 7 and Hydro Stations as approved by Commission for 3 rd Control Period... 184 MERC Order in Case No. 32 of 2016 Page 10 of 224
Table 144: Interest on Long-term Loan for Unit-8 as approved by Commission for 3 rd Control Period 184 Table 145: Return on Equity as submitted by TPC-G for 3 rd Control Period for Units 4 to 7 and Hydro Stations... 185 Table 146: Return on Equity as submitted by TPC-G for 3 rd Control Period for Unit-8... 186 Table 147: Return on Equity as approved by the Commission for Units 4 to 7 and Hydro Generating Stations for 3 rd Control Period... 187 Table 148: Return on Equity as approved by the Commission for Unit-8 for 3 rd Control Period... 187 Table 149: Interest on Working Capital as submitted by TPC-G for Units 4 to 7 and Hydro Stations for 3 rd Control Period... 188 Table 150: Interest on Working Capital as submitted by TPC-G for Unit-8 for 3 rd Control Period... 188 Table 151: Interest on Working Capital as approved by the Commission for Units 4 to 7 and Hydro for 3 rd Control Period... 189 Table 152: Interest on Working Capital as approved by Commission for Unit-8 for 3 rd Control Period 189 Table 153: Income Tax for Units 4 to 7 and Hydro Stations as submitted by TPC-G for 3 rd Control Period... 190 Table 154: Income Tax for Unit-8 as submitted by TPC-G for 3 rd Control Period... 190 Table 155: Income Tax for Units 4 to 7 and Hydro Stations as approved by TPC-G for 3 rd Control Period... 191 Table 156: Income Tax for Unit-8 as approved by TPC-G for 3 rd Control Period... 191 Table 157: Non-Tariff Income as submitted by TPC-G for Units 4 to 7 and Hydro Stations for 3 rd Control Period... 192 Table 158: Non-Tariff Income as submitted by TPC-G for Units 4 to 7 and Hydro Stations for 3 rd Control Period... 192 Table 159: Non-Tariff Income as submitted by TPC-G for Unit-8 for 3 rd Control Period... 192 Table 160: Non-Tariff Income as approved by the Commission for Units 4 to 7 and Hydro Stations for 3 rd Control Period... 193 Table 161: Non-Tariff Income as approved by the Commission for Unit-8 for 3 rd Control Period... 193 Table 162: Annual Fixed Charges for Units 4 to 7 and Hydro Stations for 3 rd Control Period... 194 Table 163: Annual Fixed Charges for Unit-8 for 3 rd Control Period... 194 Table 164: Annual Fixed Charges as approved by Commission for FY 2016-17... 197 Table 165: Annual Fixed Charges as approved by Commission for FY 2017-18... 198 Table 166: Annual Fixed Charges as approved by Commission for FY 2018-19... 199 Table 167: Annual Fixed Charges as approved by Commission for FY 2019-20... 200 Table 168: Energy Charges as approved by Commission for Thermal Stations for 3 rd Control Period... 201 Table 169: Capacity and Energy Charges for Khopoli Hydro Generating Station as submitted by TPC-G for 3 rd Control Period... 201 Table 170: Capacity and Energy Charges for Bhira Hydro Generating Station as submitted by TPC-G for 3 rd Control Period... 202 Table 171: Capacity and Energy Charges for Bhivpuri Hydro Generating Station as submitted by TPC-G for 3 rd Control Period... 202 Table 172: Capacity and Energy Charges for Khopoli Hydro Generating Station as approved by Commission for 3 rd Control Period... 202 Table 173: Capacity and Energy Charges for Bhira Hydro Generating Station as approved by Commission for 3 rd Control Period... 203 MERC Order in Case No. 32 of 2016 Page 11 of 224
Table 174: Capacity and Energy Charges for Bhivpuri Hydro Generating Station as approved by Commission for 3 rd Control Period... 203 Table 175: Disallowed Capitalisation towards Non-DPR Schemes as submitted by TPC-G for FY 2012-13... 205 Table 176: Disallowed Capitalisation towards Non-DPR Schemes for FY 2013-14... 205 Table 177: Past recoveries from Distribution Licensees as approved by Commission... 216 Table 178: Net Amount to be recovered from Distribution Licensees in FY 2016-17... 217 Table 179: Monthly recovery from Distribution Licensees in FY 2016-17... 217 MERC Order in Case No. 32 of 2016 Page 12 of 224
List of Abbreviations Abbreviations A&G AFC APR ARR ATE BEST BHEL BPCL CAGR CAPEX CAT CERC CFR COD CPI CPRI CRZ Cu. M GCV DPC DPR EA FAC FCCB FGD FOB FY GAIL GFA GoI GoM GT HBA Index HOSS HPCL IDC IOC IWC Definitions Administrative and General Annual Fixed Charges Annual Performance Review Aggregate Revenue Requirement Appellate Tribunal for Electricity BEST Undertaking Bharat Heavy Electricals Limited Bharat Petroleum Corporation Limited Compounded Annual Growth Rate Capital Expenditure Conservation Action Trust Central Electricity Regulatory Commission Cost and Freight Commercial Operation Date Consumer Price Index Central Power Research Institute Coastal Regulation Zone Cubic meter Gross Calorific Value Delayed Payment Charges Detailed Project Report Electricity Act Fuel Adjustment Charge Foreign Currency Convertible Bond Flue Gas De-sulphurisation Free On Board Financial Year Gas Authority India Limited Gross Fixed Assets Government of India Government of Maharashtra Generator Transformer Harga Patokan Batubara Index Head Office and Support Services Hindustan Petroleum Corporation Limited Interest During Construction Indian Oil Corporation Limited Interest on Working Capital MERC Order in Case No. 32 of 2016 Page 13 of 224
Abbreviations IDBI IDFC kcal kw kwh LCC LSHS MAT MbPT MCGM MCM MERC or the Commission MoD MoEF MoPNG MPCB MT MTR MU MW MWRRA MYT NAPAF NGT OEM O&M ONGC PLF PPA RBI RLNG RTL RoE RPM R&M SBAR SBI SBI-PLR SHR SLP Definitions Industrial Development Bank of India Limited Infrastructure Development Finance Company Limited kilo Calories kilo Watt kilo Watt hour Load Control Centre Low Sulphur Heavy Stock Minimum Alternative Tax Mumbai Port Trust Municipal Corporation of Greater Mumbai Million Cubic Meters Maharashtra Electricity Regulatory Commission Merit Order Despatch Ministry of Environment & Forest Ministry of Petroleum and Natural Gas Maharashtra Pollution Control Board Metric Tonnes Mid-Term Review Million Units Mega Watt Maharashtra Water Resources Regulatory Authority Multi Year Tariff Normative Annual Plant Availability Factor National Green Tribunal Original Equipment Manufacturer Operation and Maintenance Oil and Natural Gas Corporation Limited Plant Load Factor Power Purchase Agreement Reserve Bank of India Re-gasified Liquefied Natural Gas Rupee Term Loan Return on Equity Rotations Per Minute Repair and Maintenance State Bank of India Advance Rate State Bank of India State Bank of India-Prime Lending Rate Station Heat Rate Special Leave Petition MERC Order in Case No. 32 of 2016 Page 14 of 224
Abbreviations STU SBAR TPC TPC-D TPC-G TPC-T TVS UMPP USD WPI Definitions State Transmission Utility State Bank Advance Rate The Tata Power Company Ltd. Tata Power Company-Distribution Tata Power Company-Generation Tata Power Company-Transmission Technical Validation Session Ultra Mega Power Project US Dollar Wholesale Price Index MERC Order in Case No. 32 of 2016 Page 15 of 224
1 BACKGROUND AND REGULATORY PROCEEDINGS 1.1. Background 1.1.1 TPC is a Company with its registered office at Bombay House, 24, Homi Mody Street, Fort, Mumbai. TPC has various regulated and non-regulated business verticals. TPC (Distribution Business) (TPC-D), TPC (Transmission Business) (TPC-T) and TPC-G (Generation Business) are regulated businesses under the provisions of the EA, 2003. TPC-G s installed generation capacity is 2027 MW, comprising 447 MW of Hydro Generation and 1580 MW of Thermal Generation. However, the 150 MW Unit-4 Generating Capacity is no longer in use, and hence the operational Thermal Generation Capacity is 1430 MW. The entire generation capacity of TPC-G is tied up on a longterm basis with two Distribution Licensees of Mumbai, namely TPC-D and Brihanmumbai Electric Supply and Transport Undertaking (BEST). 1.1.2 This Order relates to TPC-G s Petition for Truing-up of FY 2014-15, Provisional Truing-up of FY 2015-16 and approval of ARR and determination of Tariff for the 3 rd Control Period from FY 2016-17 to FY 2019-20. 1.2. MYT Regulations, 2011 The Commission notified its MYT Regulations, 2011 on 4 February, 2011, applicable for determination of Tariff for the 2 nd Control Period from FY 2011-12 to FY 2015-16. 1.3. Business Plan Order for MYT 2 nd Control Period In its Order dated 9 August, 2012 in Case No. 166 of 2011 on TPC-G s Business Plan Petition, the Commission directed TPC-G to file a MYT Petition for the 2 nd Control Period from FY 2012-13 to FY 2015-16. However, for FY 2011-12, the Commission directed it to file the ARR as per the Tariff Regulations, 2005. On TPC-G s Appeal against that directive, the Appellate Tribunal for Electricity (ATE), in its Order dated 28 November, 2013, entitled it to claim ARR based on the MYT Regulations, 2011 for FY 2011-12. 1.4. Truing-up of FY 2011-12 and ARR for 2 nd Control Period FY 2012-13 to FY 2015-16 In its Order dated 5 June, 2013 in Case No. 177 of 2011 ( previous MYT Order ), the Commission undertook the Truing-up of FY 2011-12 and approved the Tariff for FY 2012-13 to FY 2015-16. Aggrieved on issues relating to wrongful computation of Operation and Maintenance (O&M) expenses, considering income from gain/losses on MERC Order in Case No. 32 of 2016 Page 16 of 224
Foreign Exchange as a part of Non-Tariff Income, disallowance of Auxiliary Energy Consumption of Unit-6 and non-allowance of carrying cost on past recovery, TPC-G filed an Appeal No. 212 of 2013. In its Judgment dated 27 October, 2014, the ATE entitled TPC-G to claim some of the earlier disallowed expenditure. 1.5. Truing-up of FY 2012-13 and FY 2013-14, Provisional Truing-up of FY 2014-15 and Projection of ARR and Tariff for FY 2015-16 On TPC-G s Mid-Term Review (MTR) Petition for the 2 nd Control Period (Case No. 6 of 2015) for Truing-up of FY 2012-13 and FY 2013-14, Provisional Truing-up of FY 2014-15 and projection of ARR and Tariff for FY 2015-16, the Commission issued its Order on 26 June, 2015 ( MTR Order ). 1.6. MYT Regulations, 2015 1.6.1 The Commission notified the MYT Regulations, 2015 on 8 December, 2015. These Regulations are applicable for determination of Tariff for the 3 rd Control Period, i.e., FY 2016-17 to FY 2019-20. 1.6.2 TPC-G requested the Commission to extend the time for filing of MYT Petition stating its difficulties in collecting the data and preparation of MYT Petition within the due date. Considering the requests of various Generating Companies and Licensees, including TPC-G, vide Order dated 15 January, 2016 the Commission allowed TPC-G to file its Petition by 31 January, 2016. 1.7. Admission of the Petition and Public Consultation Process 1.7.1 TPC-G filed its MYT Petition on 11 February, 2016. Preliminary data gaps were forwarded to TPC-G on 24 and 29 February and 4 March, 2016. TPC-G stated its replies on 3 March, 2016. 1.7.2 The Commission conducted a Technical Validation Session (TVS) on 4 March, 2016. The list of persons who participated in the TVS is at Appendix - 1. TPC-G made a presentation on the salient features of the Petition. 1.7.3 The Commission sought additional information and clarifications on the issues raised during the TVS. TPC-G stated replies to the pending data gaps and issues raised during the TVS vide its letters dated 10, 17, and 18 March 2016. Thereafter, TPC-G filed a revised Petition on 24 March, 2016 incorporating the changes pointed out through data gaps. 1.7.4 TPC-G s prayers are as follows: MERC Order in Case No. 32 of 2016 Page 17 of 224
I. Accept the Truing-up for FY 2014-15, Provisional Truing-up of FY 2015-16 and past Gap / (Surplus) thereof in accordance with the guidelines & principles outlined in MYT Regulations, 2011; II. III. IV. Accept the Projections for FY 2016-17 to FY 2019-20 in accordance with the guidelines & principles outlined in MYT Regulations, 2015; Allow determination of normative Auxiliary Energy Consumption in Standby Mode for Unit 6. Allow Heat Rate and Auxiliary Energy Consumption for Unit 6 under Technical Minimum operation. V. Allow Heat Rate and Auxiliary Energy Consumption for Unit 7 in open cycle mode for the Third Control Period, similar to that approved in the Business Plan Order in Case 166 of 2011 for the Second Control Period. VI. VII. VIII. To treat the release of 30 MCM water from Mulshi dam for drinking water purpose as uncontrollable over and above that of low rainfall during FY 2015-16 and allow us to apply the appropriate regulatory mechanisms provided in the Regulations in the future years to enable the recovery of the entire fixed cost of the Generating Stations. Condone any inadvertent omissions / errors / rounding off differences / shortcomings and permit Tata Power- G to add / change / modify / alter this filing and make further submissions as may be required at a future date; Pass such further and other orders, as the Hon ble Commission may deem fit and proper, keeping in view the facts and circumstances of the case. 1.7.5 The Commission admitted the revised Petition on 29 March, 2016, directed TPC-G to publish it Petition in an abridged form by 1 April, 2016, and to reply expeditiously to all suggestions and objections received on its Petition. 1.7.6 TPC-G published the Public Notice in the daily newspapers Hindustan Times and Indian Express (English), and Loksatta and Saamna (Marathi) on 31 March, 2016. Copies of the Petition and its Executive Summary were made available at TPC s offices and on TPC-G s website (www.tatapower.com). The Public Notice and Executive Summary of the Petition were also made available on the websites of the Commission (www.mercindia.org.in / www.merc.gov.in) in downloadable format. 1.7.7 A Public Hearing was held on 26 April, 2016 in the Office of the Commission, 13th Floor, Centre No. 1, World Trade Centre, Cuffe Parade, Colaba, Mumbai. The list of persons at the Public Hearing is atappendix-2. MERC Order in Case No. 32 of 2016 Page 18 of 224
1.7.8 Two more sets of data gaps were sent to TPC-G on 20 and 25 April, 2016, seeking additional information relating to fuel purchase and revised actual unaudited data of FY 2015-16 (since the year was over). TPC-G stated its replies vide letters dated 5, 6, 10 and 13 May, 2016. 1.7.9 TPC-G made additional submission on Plant Load Factor (PLF) incentive on account of backing down instructions for FY 2011-12 to FY 2015-16 vide letters dated 25 April and 23 May, 2016. 1.7.10 The Commission has ensured that the due process contemplated under the law to ensure transparency and public participation was followed at every stage, and adequate opportunity was given to all to submit their views. 1.7.11 The Commission received written suggestions and objections, and oral submissions at the Public Hearing. 1.8. Organisation of the Order This Order is organised in the following Sections: Section 1 provides a brief history of the quasi-judicial regulatory process undertaken by the Commission. A list of abbreviations with their expanded forms has been included. Section 2 discusses the suggestions and objections given in writing as well as those presented during the Public Hearing. The suggestions and objections have been summarised, followed by the response of TPC-G and the views of the Commission on each issue. Section 3 details the impact of ATE Judgments on the previous years' Truing-up. Section 4 details the Truing-up of the ARR for FY 2014-15, including sharing of efficiency gains/ losses. Section 5 details the approval of the Provisional Truing-up for FY 2015-16. Section 6 details the ARR and Tariff for the 3 rd Control Period. Section 7 deals with summary of approved Tariff for the 3 rd Control Period Section 8 covers the directives given in the MTR Order, TPC-G's responses and new directives. MERC Order in Case No. 32 of 2016 Page 19 of 224
Section 9 summarises the rulings of the Commission. Section 10 deals with Directives to TPC-G. Section 11 sets out the applicability of this Order MERC Order in Case No. 32 of 2016 Page 20 of 224
2 SUGGESTIONS/ OBJECTIONS RECEIVED, TPC-G S RESPONSE AND COMMISSION S VIEW 2.1 Fuel Prices Suggestions/Objections 2.1.1 The Indian Hotel and Restaurant Association, Shri Kamlakar Shenoy, Shri Guruprasad Shetty and Shri Lalit Vashista stated that TPC-G has inflated the purchase price of fuel. TPC-G has projected LSHS price of Rs. 47211 per MT for the 3 rd Control Period, while the same is sold by Bharat Petroleum at Rs. 15678 per MT. Similarly TPC-G has projected coal purchase price as Rs. 4747 per MT, while it is being sold by Coal India Ltd. (CIL) at Rs. 1600 per MT. TPC-G has projected purchase of Administered Pricing Mechanism (APM) Gas at Rs. 16138 per MT, while the APM rate of Gas Authority of India Ltd. (GAIL) is $2.32 MMBTU which works out to Rs. 6669 per MT. TPC-G has also projected the price of imported coal as Rs 4747 per MT, which has in fact crashed to $ 45 per MT or Rs 2992 per MT. Thus, TPC-G has inflated fuel prices by almost 3 times, thereby inflating the ARR. TPC-G is able to inflate its costs as it has the monopoly of supplying to two major power Distribution Licensees, namely BEST and TPC-D, who in turn charge high Tariff to their consumers. 2.1.2 Shri Kamlakar Shenoy and Shri Lalit Vashista further stated that this act of inflating the fuel costs on affidavit filed before the Commission is a gross misrepresentation of facts, and that such false declaration is an offence under the Indian Penal Code, IPC and hence the Commission is duty bound to register a First Information Report (FIR) against TPC s Directors and concerned officials. Such deterrent actions are required to stop such Companies from inflating expenses and thereby causing wrongful loss to consumers. 2.1.3 They also questioned why the cost of electricity has not come down as expected after the enactment of the EA, 2003. The cost in the neighboring States is almost one third of what is paid by electricity consumers of Mumbai. Further, verification by the Commission of the cost of raw materials and expenses incurred was necessary before fixing the Tariff. TPC-G s Response 2.1.4 TPC-G has projected the fuel prices based on its analysis of the market and to the best of its knowledge. As per the Regulations, the fuel price gets charged at actuals by way of the Fuel Adjustment Charge (FAC). The assumptions for fuel-wise price projections are as below: MERC Order in Case No. 32 of 2016 Page 21 of 224
Oil 2.1.5 The fuel oil prices have gone down recently, and thus the projections of future prices are in line with this trend. TPC-G uses oil in its 500 MW Unit-6, which is operated intermittently. This intermittent operation requires it to maintain a certain inventory of fuel oil in order to be available for generation as per requirements. As the Unit was under economic shutdown, the fuel oil procured earlier is part of the inventory. Accordingly, the price of fuel oil includes the weighted price of fuel oil procured earlier at the then prevailing rates. Hence, the fuel oil price projections for the 3 rd Control Period appear to be slightly higher. 2.1.6 As per Bharat Petroleum Corporation Ltd. (BPCL), the current price of LSHS with Low Sulphur content of 0.5-0.65 % is Rs. 21639 per MT, which is higher than the projected oil prices of future purchases, i.e., Rs. 20998 per MT indicated in the MYT Petition. Coal 2.1.7 For the Trombay Generating Station, TPC-G has to abide by the stringent emission norms on Sulphur and Ash stipulated by the Maharashtra Pollution Control Board (MPCB). Accordingly, TPC-G has to use coal with Sulphur content below 0.3% and Ash below 5%, which is sourced from Indonesia as Indian coal of the required specifications is not available. Even washed domestic coal has an ash content of 34%. 2.1.8 It is not stated whether the imported coal price of USD 42 per MT cited by the objectors is Free On Board (FOB) or Cost and Freight (CFR), and the type of coal has also not been mentioned. Thus, TPC-G is not in a position to comment on the price of coal cited. It appears that the price referred to is the FOB price and does not include sea freight, local logistics, taxes and duties to arrive at the landed cost. TPC-G s projections of FOB price is also in the range of USD 35 to 37.5 per MT, based on the market view on imported coal and the current FOB prices. Considering this FOB price, the landed cost of coal works out to Rs. 4747 per MT for FY 2016-17, as stated in the Petition. APM Gas 2.1.9 The price of APM gas is governed by the Ministry of Petroleum & Natural Gas (MoPNG), and the gas prices indicated in the MYT Petition are based on its pricing guidelines. 2.1.10 Thus, the projections of fuel prices are not inflated. MERC Order in Case No. 32 of 2016 Page 22 of 224
Commission s View 2.1.11 The Commission has examined the data stated by TPC-G and sought additional information, viz. imported coal contracts and bills, details of quantity, price and Gross Calorific Value (GCV) of fuel, details of process followed for competitiveness, etc. The GCV, price and quantity of fuel have been approved based on scrutiny, as summarized below a. Regarding imported coal, the Commission asked for the Letter of Award (LoA) for contracts relating to imported coal and asked TPC-G to clarify whether the procurement was through competitive bidding. TPC-G has provided all the bills for imported coal for FY 2014-15 and FY 2015-16. The Commission analyzed these contracts, bills and submissions. The Commission found that the payments for coal-related invoices were made to the agencies with whom the LoAs were signed. The quantity of fuel claimed in the Petition matched the totals of the quantity in the bills for imported coal. The Commission sought details of the process followed for entering into supply agreements for imported coal for the Trombay Station. TPC-G stated that the annual coal requirement is about 2.70 MMT. The Trombay Station requires low sulphur, low ash and medium GCV coal to meet the stringent environment norms. TPC-G had existing contracts for 1.3 MMT per annum with P. T Adaro, Indonesia. For the balance 1.4 MMT, global competitive bids were invited on 25 March, 2015 in EXIM (Weekly newsletter) and Platts International Coal Trader (Daily News Letter). In response, three bidders submitted their interest: i. P.T. Adaro, Indonesia ii. iii. Samtan Co. Ltd., Korea P.T. Mitrabara, Indonesia b. After technical evaluation and quality checks, two bidders, viz. P.T. Adaro and Samtan Co. were found to be technically suitable and were invited for price negotiations. Thereafter, in order to have two sources for better operational flexibility, the contract was awarded to both these bidders at the same negotiated price (P.T. Adaro 0.6 MMT per annum and Samtan 0.8 MMT per annum). The Commission noted that the negotiated price was linked the international coal index. c. The Commission sought details of month-wise opening stock (quantity and price), procurement and closing stock of each fuel. The Commission has also considered MERC Order in Case No. 32 of 2016 Page 23 of 224
the month-wise weighted average price calculations for fuel based on existing stock and new purchases. d. The Commission also cross-checked the fuel cost claim for FY 2014-15 with the audited allocation statement of accounts. 2.1.12 The Commission has approved the fuel prices and GCV for the 3 rd Control Period as per the MYT Regulations, 2015, i.e., considering the actual weighted average fuel price as considered above and the GCV of the past three months. The landed price of coal is also adjusted for the variation in Clean Environment Cess (earlier known as Clean Energy Cess). The Commission has not allowed any year-wise escalation in fuel prices as the future variations upwards or downwards are taken into account through the FAC charges. 2.2 Competitive Bidding for Power Purchase Suggestions/Objections 2.2.1 The Indian Hotel and Restaurant Association and Shri Guruprasad Shetty stated that the object of the EA, 2003 is to bring in competition. The Govt. of India (GoI) has issued guidelines that power procured by the Distribution Licensees should be through competitive bidding. Many Licensees, i.e., from Gujarat, Goa, Madhya Pradesh, Karnataka, etc. have benefited by competitive bidding, lowering their power purchase cost. M/s Torrent, Adani, National Thermal Power Corporation (NTPC), Videocon, Reliance Infrastructure Ltd. (RInfra) and TPC have opted for competitive bidding and have obtained at lower cost. RInfra s Sasan Ultra Mega Power Project (UMPP) has publicized the cost of Rs 1.19/ kwh. To be fair to the consumers, TPC-G should not be given the comfort of monopoly supply and Distribution Utilities should undertake transparent competitive bidding for price discovery. Further, if electricity generation and distribution are two separate businesses of the same Company, it should be ensured that there is no conflict of interest. 2.2.2 Shri Guruprasad Shetty further stated that, in the recent past, the prices of raw material required for power generation have substantially decreased. Coal, oil and gas are now amply available at rates which are one third of the rates prevailing a few years back. The electricity prices in the open market have crashed, and electricity in the open market is now available at around Rs. 2.00 per Unit whereas the Tariff proposed by TPC-G is nearly double that. As TPC-G s cost of generation is more than the rates at which power is being sold through competitive bidding and in the open market, TPC should buy power from the open market instead of generating itself. Alternatively, the Distribution Licensee can buy power through competitive bidding from the open market. Further, Comptroller & Auditor General (CAG) audits have revealed that some of the biggest MERC Order in Case No. 32 of 2016 Page 24 of 224
scams occurred when competitive bidding was bypassed. Even the Supreme Court has reprimanded the authorities for not calling for competitive tenders. 2.2.3 Shri Kamlakar Shenoy and Shri Lalit Vashista also stated that Sections 61(c) and (d) of the EA, 2003 regarding encouraging competition and safeguarding of consumers' interest have not been complied with while determining Tariff in the past. The final cost borne by electricity consumers in neighboring States is around Rs. 4.00/kWh to Rs. 5.00/kWh whereas it is around Rs. 17.00/kWh for Mumbai consumers. Hence, gross injustice is caused to the electricity consumers of Mumbai due to non-compliance of Section 61. TPC-G s Response 2.2.4 The objections pertain to the Distribution Business, and hence no response is required from TPC-G. Commission s View 2.2.5 The issues raised relate to the procurement modalities of the Mumbai Distribution Licensees in general and TPC-D in particular, and whether at all they should buy apparently costly power from TPC-G. TPC-D and BEST, both Mumbai Distribution Licensees, have entered into a long-term Power Purchase Agreements (PPA) for power procurement from TPC-G (in addition to sourcing a smaller quantum from elsewhere). This PPA procurement is at Tariffs approved by the Commission from time to time after examination and in accordance with Section 62 and other provisions of the EA, 2003 and the MYT Regulations. 2.2.6 Long-term power procurement through PPA and short-term power procurement from the open market both have certain merits and demerits. While short-term power procurement from the open market appears to be beneficial and cheaper at present (and is, indeed, being resorted to from time to time), Distribution Licensees cannot depend upon it for the bulk of their requirements considering variations in availability and price (which is also influenced by the extent of their purchases), and stable long-term arrangements are required which also enable better transmission system planning. 2.2.7 Moreover, sourcing of power from outside for Mumbai, in particular, is still constrained by transmission availability. This also limits the quantum of power which can be procured through competitive bidding. Hence, the power purchase costs of Distribution Licensees in other States cannot be compared with that of Licensees in Mumbai. On the other hand, along with stand-by arrangements with Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL), sourcing from Mumbai s embedded generation also provides security advantages by facilitating the islanding of Mumbai. MERC Order in Case No. 32 of 2016 Page 25 of 224
2.2.8 In this background, and as explained above, the Commission has approved the Tariff after due examination. Further, with the PPAs of TPC-D and BEST with the embedded generation of TPC-G expiring in March, 2018, the Commission would be addressing the issue of their future procurements in its forthcoming MYT Orders in respect of those Distribution Licensees. 2.3 Blended Tariff for Unit-7 Suggestions/Objections 2.3.1 With regard to TPC-G s justification for a blended rate for Unit-7 despatch, Shri R. G. Sonawane stated that TPC-G has considered an average power purchase rate of Rs. 3.49/kWh. The Commission should verify the proposed rates with the actual short-term power purchase cost, and accept the proposal only if TPC-G commits not to charge more than the rate cited in its cost-benefit analysis. 2.3.2 Shri Ashok Pendse, for Thane-Belapur Industries Association (TBIA), an authorised Consumer Representative (CR) stated that Unit-7 generation from RLNG comes at Rs. 3.49/kWh and hence is not likely to come within the Merit Order Despatch (MOD). Some Units of National Thermal Power Corporation (NTPC) are also facing a similar situation (Kawas and Gandhar). Due to the high cost of RLNG-based generation and lower position in MOD, they are not able to generate around 3800 MU yearly. No different treatment should be given to Unit-7, which should be operated as per the MOD criteria. TPC-G s Response 2.3.3 TPC-G has proposed that Unit-7 run with blended gas for the following benefits: Unit-7 will run to its full capacity and, thus, be efficient on account of Heat Rate and Auxiliary Consumption being within the normative parameters. On account of higher generation, the fixed cost of the Generating Unit will be spread over a larger generation quantum, reducing the overall per Unit cost. The probability of running Unit-6 under the directions of Maharashtra State Load Despatch Centre (with significantly higher cost of generation) may reduce, as Unit-7 RLNG generation will become available. 2.3.4 Further, this blending will ensure assured demand, providing better leverage to TPC-G for tying up fuel gases at better contractual terms. MERC Order in Case No. 32 of 2016 Page 26 of 224