9911796707
TMI Blog2016 (11) TMI 1698X X X X Extracts X X X X X X X X Extracts X X X X ..... ant. In its Petition, the Appellant sought Final True-up of FY 2014-15, Provisional True-up for FY 2015-16 and determination of the Aggregate Revenue Requirement (ARR) for FY 2015-16 and Multi Year Tariff for FY 2016-17 to FY 2019-20 under Sections 61 and 62 of the Electricity Act, 2003 and the State Commission's Multi Year Tariff (MYT) Regulations 2011 and 2015. 2. The Appellant is a generating company within the meaning of Section 2 (28) of Electricity Act 2003 and is engaged in generation of electricity and has developed a 600 MW (2 x 300 MW) coal-fired Thermal Power Plant at the Maharashtra Industrial Development Corporation (MIDC) Butibori Industrial Area, District Nagpur, Maharashtra. 3. The Respondent No 1 is the Electricity Regulatory Commission for the State of Maharashtra exercising jurisdiction and discharging functions in terms of the Electricity Act 2003. 4. The Power from the Appellant's generating station is being supplied to Reliance Infrastructure Limited i.e. Respondent No. 2, which is a distribution licensee in a part of suburban Mumbai, under a long term PPA with effect from 01.04.2014 as approved by the State Commission. 5. Aggrieved by the Order 20.06. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aggrieved by the Impugned Order, the Appellant preferred the present Appeal. 7. QUESTIONS OF LAW As per Appellant, following questions of law arise in the present Appeal: A) Whether the Appellant, is entitled to claim the fuel costs incurred by it due to delay in execution of Fuel Supply Agreement (FSA) with Coal India Limited ("CIL") and its subsidiaries for reasons not attributable to the Appellant in its tariff to Respondent No.2, with whom there is a valid, duly approved Power Purchase Agreement, in accordance with the applicable Tariff Regulations of the State Commission? B) Whether Respondent No.1 has ignored the inordinate delay on part of various Government Authorities and Public Sector Companies which are not within the control of the Appellant and /or are force majeure events which in turn has delayed execution of the FSA between the Appellant and WCL despite all efforts on part of the Appellant? C) Whether the 1st Respondent could have disallowed such cost of fuel incurred by reason of there being no FSA in favour of the Appellant? D) Whether the Impugned Order could have been passed disallowing fuel costs, since the 1st Respondent has at all times been kept i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L) Whether the 1st Respondent in passing the Impugned Order has failed to consider the foundation behind a regulated regime where the Regulator such as the Regulatory Commission is mandated under law to balance the interest of the Consumer as well as the private generator to protect the investment in the Power Sector? M) Whether the 1st Respondent in passing the Impugned Order has failed to consider the impact thereof which has made the entire project of the Appellant completely commercially unviable and would resultantly lead to the asset becoming non-operational which would not only be a loss to the Appellant but would also be a loss to the State of Maharashtra? N) Whether the 1st Respondent has failed to appreciate that in terms of the PPA signed between the Appellant and Respondent No.2, the Appellant in the absence of an FSA was not barred from sourcing coal from other sources to meet its supply obligation to Respondent No.2 which was also duly accepted by the Respondent No.2 ? O) Whether the 1st Respondent ought to have exercised its powers under the provisions of the relevant Tariff Regulations regarding "Power to amend" and "Power to remove difficulties" and granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plated issuance of a Letter of Assurance (loa) to applicants including Captive Power Plants as well as Independent Power Plants requiring such allottees to fulfil certain stipulated conditions and meet the milestones within the specified period and thereafter approach the coal company for entering into a Fuel Supply Agreement (FSA) covering the commercial arrangement for supply of coal. It was contemplated that such FSA would be executed within a period of three months on fulfilment of the said stipulations for supply of the entire normative quantity of coal either domestically or by import on achievement of milestones set out therein. Iii. The Standing Linkage Committee - Long Term (SLC) comprising of representatives of Ministry of Coal, Ministry of Power, the Central Electricity Authority and others on 06.11.2007 approved issuance of loa for the Appellant's Unit I. An loa was issued by Western Coal fields Limited ("WCL") on 24.06.2008. The loa contemplated, inter alia, execution of a Fuel Supply Agreement (FSA) as set out there in between the Appellant and WCL. Iv. Thereafter, the Appellant contemplated augmentation of the capacity of the Project by setting up an addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ERC and thereafter, escalated on current CERC evaluation escalation rates. Table : Levelised Tariff comparison of Bids received in Maharashtra Distribution Licensee Bidding year Bidder Capacity in MW Levelised Tariff (Rs/ kwh) MSEDCL 2009 Adani Power 1200 4.15 MSEDCL 2009 Emcowarora 200 3.74 MSEDCL 2009 Indiabulls Power 1200 4.31 Rinfra 2011 Vandanavidyut 150 5.15 Rinfra 2011 Dhariwal Infrastructure Ltd. 200 5.82 Rinfra 2011 PTC -MB Power 200 5.82 Rinfra 2011 Rkmpowergen Pvt. Ltd. 300 4.49 Rinfra 2011 Indiabulls Power Ltd. 490 6.55 Rinfra 2011 PTC -DB Power 150 7.22 Rinfra 2011 Reliance Power Ltd. 1000 4.16 Rinfra 2011 VIPL Proposal 3.9 Vii. It was further held by the State Commission that, for the purpose of determination of Provisional Tariff, the provisions of Section 64 of EA 03 would be required to be followed and that the Appellant and Respondent No.2 would seek approval of Provisional Tariff at a later stage. The State Commission further held as follows: "30. It has been noted at Para 3(g) that the distribution licensee has submitted that once the power plant achieves commercial operation date and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us scenarios as submitted by VIPL. Scenario FY 14-15 FY 15-16 Optimistic (Entire Annual contracted quantity of E grade coal from coal India) 1.32 1.4 Realistic Scenario with 100% Annual Contracted quantity delivery from Coal India but price changed to pooling principles 1.43 1.53 Realistic Scenario with 80% Annual Contracted Quantity Delivery from Coal India at price charged on pooling principles and VIPL to arrange the remaining coal from market sources such as E-Auction/Imports 1.64 1.75 Pessimistic Scenario with Coal India supplying 65% of the committed coal in FY 15 and 70% in FY 16 and VIPL has to arrange remaining coal from market sources such as eauction/Imports 1.74 1.79 As discussed earlier, the Commission has not analyzed the details of Tariff and its competitiveness as submitted by the Petitioners in this order. 41. Based on the above and considering Rinfra-D's submissions regarding the numerous challenges in the overall bidding scenario including, prices likely to be higher if the bidding is conducted on a long-term basis in the present industry circumstances and competitiveness of VIPL, tariff as submitted by the Petitioners, the Commission is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es/departments and obtain the approval from concerned authorities/ departments regarding the conversion of status of Unit-1 from Group Captive to IPP. The Commission further directs VIPL to submit the status of the same within one month from the date of this Order. Further, the Commission also directs VIPL to submit the halfyearly status report of loa/FSA of Unit-1 as IPP till FSA is signed, and also submit the copy of signed FSA of Unit 1 and Unit 2 of VIPL within one month of signing the FSA to the Commission." Ix. In the meantime due to acute shortage in availability of domestic coal, the Cabinet Committee on Economic Affairs (CCEA) on 21.06.2013 approved the mechanism for supply of coal to power producers, which, inter alia, permitted CIL to import and supply coal to willing Thermal Power Plants on cost-plus basis and also permitted such Thermal Power Plants to import coal themselves. X. By a letter dated 23.07.2013 the Appellant wrote to Government of India, Ministry of Power, inter alia, requesting for recommending to Ministry of Coal for change of category of Unit I from GCPP to IPP for the purpose of signing of FSA and also for advising the said Ministry, CIL and WCL t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering 100% domestic coal for FY 2014-15 and FY 2015-16 as submitted by the Petitioner in its Petition. The Commission directs VIPL to submit the fsas executed for the project along with its Petition for determination of final Tariff Ix) The Commission has considered the calorific value of fuels as submitted by VIPL. The Commission has considered the landed fuel prices of fuels as submitted by VIPL for FY 2014-15. The Commission has not considered the escalation in fuel prices for projecting the fuel prices for FY 2015-16, as any variation in actual fuel prices shall get adjusted in the fuel cost adjustment mechanism. Xi) Any variation in Price and Gross Calorific Value of coal vis-avis approved values for computing the provisional Energy Charge shall be recoverable through Adjustment of rate of energy charge (REC)(Fuel surcharge Adjustment)in accordance with the provisions of Regulation 49.6 of MERC MYT Regulations, 2011." Xii. By a letter dated 04.03.2014, Government of India, Ministry of Coal forwarded inter alia to CIL the minutes of meeting of SLC-LT dated 21.02.2014. A perusal of the said Minutes shows that the conversion of Unit I of the Appellant from GCPP to IPP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FSA and supply to Respondent No.2 was by procuring coal from alternate sources. However, the Appellant continued its efforts by following up with the relevant authorities for execution of the FSA in respect of Unit-I. Considering that coal at notified price of WCL was not available, the Appellant requested WCL for change in the source of supply for Unit-I. By a letter dated 11.11.2014, WCL addressed a letter to South Eastern Coalfields Ltd. (SECL) with regard to change of source of coal from itself to SECL, which states as under :- "It is hereby certified that the LOA holder has achieved the milestones of the loa consequent upon change of category from GCPP to IPP. However, verification of achievement of special milestones of Synchronization and COD as well as PPA may please be ensured by SECL." Thus, even with regard to Unit I, apart from following up the execution of the FSA with the relevant authorities, the Appellant was making its best efforts to procure even linkage coal at notified price as against coal at cost plus price from WCL. Xvii. In the meantime, on 30.05.2014 the Appellant filed a Petition being Case No.115 of 2014 for Determination of Capital Cost and Final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Cost for FY 2015-16 notionally considered 100% supply of coal on cost-plus basis from WCL for Unit II for the period April 2014 to October 2014 and 100% supply of linkage coal from SECL for Unit I. This basis has been followed for the purpose of determining the Multi-Year Tariff for fys 2016-17 and 2019-20. The State Commission has thus for the aforesaid period disallowed all procurements done or to be done from e-auction of WCL, through domestic open market and by importing coal for Units I and II. Such procurement of coal other than through linkage was by reason of the absence of FSA with SECL and the delayed supply from October 2014 from WCL despite Unit I having started supply of power to Respondent No.2 from 01.04.2014. Xxi. At the time of seeking approval of the PPA, the Appellant had categorically submitted that loas for Units I and II were in place. This fact has been recorded in the order dated 20.02.2013 by which "in principle" approval for the PPA then executed for Unit II was given. The State Commission had approved the PPA wherein the determination of Tariff would be under Section 62 of EA03. While approving the PPA , the State Commission has taken following factor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings are as follows: "Commission's Analysis 4.6.44 The Commission observes that fsas for the project have not been executed. The Commission directs VIPL to expedite the process of executing the fsas so as to ensure the availability of linkage coal by the date of commencement of supply under the regulated business from 1 April, 2014. " Thus at the time of approval of the Provisional Tariff, the State Commission was aware of the fact that approval was sought for by the Appellant for the ppas to expedite the FSA and had approved the Energy Charge on a provisional basis based on 100% domestic coal. It specifically held that any variation in the price and the Gross Calorific Value (GCV) of coal as against the provisional Energy Charge would be recoverable through adjustment i.e. By levying Fuel Adjustment Charges (FAC) in accordance with the relevant Regulations. At the time when the said order dated 17.01.2014 was passed, the State Commission was aware that the supply of power to the Respondent No.2 was to commence from 01.04.2014 and that none of the fsas were in place. Xxiv To the knowledge of State Commission, such approvals for FAC were sought by the Appellant on a mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarding 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) multi year tariff principles; G) that the tariff progressively reflects the cost of supply of electricity and also, reduces and eliminates cross-subsidies within the period to be specified by the Appropriate Commission; H) the promotion of co-generation and generation of electricity from renewable sources of energy; I) the National Electricity Policy and tariff policy:" From the perusal of the above it is abundantly clear that the State Commission is bound to determine tariff which would encourage optimum investment, ensure recovery of cost of electricity in a reasonable manner. Clearly in the facts of the present case, due to nonsigning of FSA (which is in any case admittedly beyond the powers of the Appellant), the Appellant was compelled to seek supply of coal from other sources to meet its primary obligation under the PPA i.e. To supply power to Respondent No.2. The non-signing of the FSA was at all times disclosed to the Respondent No.2 procurer. In the absence of any inefficiency and imprudence on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Uncontrollable costs should be recovered speedily to ensure that future consumers are not burdened with past costs. Uncontrollable costs would include (but not limited to) fuel costs, costs on account of inflation, taxes and cess, variations in power purchase unit costs including on account of adverse natural events. ........... 6.1 Procurement of power As stipulated in para 5.1, power procurement for future requirements should be through a transparent competitive bidding mechanism using the guidelines issued by the Central Government from time to time. These guidelines provide for procurement of electricity separately for base load requirements and for peak load requirements. This would facilitate setting up of generation capacities specifically for meeting such requirements. However, some of the competitively bid projects as per the guidelines dated 19th January, 2005 have experienced difficulties in getting the required quantity of coal from Coal India Limited (CIL). In case of reduced quantity of domestic coal supplied by CIL, vis-a-vis the assured quantity or quantity indicated in Letter of Assurance/ FSA the cost of imported/ market based e-auction coal procured for mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lnfra-D, the process of securing a fuel supply agreement from the Ministry of Coal may get delayed and may perhaps get defeated on account of the activities required to be followed under the provisions of Section 64 of the Electricity Act. These procedures are mandatory and are to be completed within 4 (four) months. During the hearing, the Petitioners have stated that the prayer for determination of a Provisional Tariff may not be taken up while issuing the order approving the power purchase agreement as this will help them to quickly secure the fuel supply agreement. It has also been stated that the Commission may grant an approval of the Provisional Tariff, separately... At para. 36, the Commission has quoted an earlier Order in Case No. 64 of 2011, including the following: "...the Electricity Act clearly specifies the two routes namely, the determination of tariff through mou route as per Section 62 of the Act and the tariff discovery route through competitive bidding through Section 63 of the Act... The Commission is expected to examine the fairness, transparency and competitiveness of the terms, conditions and finally the price, as also the benefits of entering into a PPA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2013 had also approved the PPA for supply of power from Unit 1 (earlier envisaged as a Group CPP) of VIPL-G's Generating Station to Rlnfra-D and the Consolidation Agreement for supply under the two ppas for Unit 1 and Unit 2 to be treated as supply from the Generating Station as a whole. 2.10.17 Thereafter, vide Order dated 17 January, 2014 in Case No. 91 of 2013, the Commission had approved the provisional tariff for VIPL-G's Generating Station for FY 2014-15 and FY 2015-16. Regarding the fuel for power generation that Order states as follows: "4.6.74 The Commission observes that the loas issued to VIPL assure supply of 2.34 MMT of coal per annum against requirement of approximately 2.30 MMT of coal per annum at PLF of 85%. The Cabinet Committee on Economic Affairs (CCEA) vide its notification dated 21 June, 2013 approved the mechanism of supply of coal to power producers. In the said mechanism, CCEA formulated that fsas to be signed for domestic coal quantity of 65%, 65%, 67%, and 75% of Annual Contracted Quantity for the remaining four years of 12th five year plan. 4.6.75 The Commission has taken note of V1PL's submission. The Commission observes that the fs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .11 MTPA was signed with WCL on.10 March, 2014 along with a Side Agreement. Under the FSA, the supply of coal has started at the costplus price from October, 2014. 4.11.8. VIPL has submitted that, though the Letter of Assurance (LOA) was for the supply of coal at the WCL notified price, it was compelled to sign the FSA and the Side Agreement for coal from cost-plus sources at the cost-plus price. WCL had refused to sign the FSA at notified price with any new consumer. However, in its Order dated 27 October, 2014 in the matter of M/s Wardha Power Co. Ltd. (Case No. 88 of 2013), the Competition Commission of India (CC1) has questioned the cost-plus pricing methodology of WCL, which has been asked to rework it. Accordingly, WCL's coal prices are expected to reduce substantially. 4.11.9. As regards the FSA for Unit 1, VIPL submitted that the conversion of Unit 1 from GCPP to IPP was approved by the SLC-LT at its meeting on 12 February, 2014. With WCL's insistence for signing of FSA for coal supply for Unit 2 at cost-plus price, VIPL made elfin-is to transfer the LOA of Unit 1 to South Eastern Coalfields Ltd. (SELL) from WCL. 4.11.10. VIPL has submitted that, based on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, in all these proceedings and its Petitions, including approval of Capital Cost and Final Tariff for FY 2014-15 and FY 2015-16, VIPL-G had projected the Energy Charge for those years considering a substantial proportion of linkage coal although it was aware of the status of fuel arrangements for its Generating Station. As recorded in the Order in Case No. 2 of 2013, the PPA through Section 62 route was approved by the Commission considering also the projections of VIPL-G showing that, even in a pessimistic scenario (CIL supplying, out of the committed coal, 65% in FY 2014-15 and 70% in FY 2015-16, the rest being procured from the domestic open market and/or imports), the Energy Charge would still be competitive, at Rs. 1.74 in FY 2014-15 and Rs. 1.79 in FY 2015-16. Had a higher tariff been envisaged, the Commission might well not have approved the PPA under Section 62 and asked infrad to explore other options and modalities. VIPL-G would not have been unaware and could not be oblivious to the prevailing situation and difficulties in securing linkage coal as projected in a series of regulatory proceedings before the Commission. Even in its Petition filed on 30 May, 2014 (two mont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese facts and circumstances, the Commission does not find it prudent or otherwise appropriate to approve the actual fuel cost incurred by VIPL-G in FY 2014-15. 2.10.27 The Commission is Of the view that, since a basic premise of approval of the PPA was the availability of linkage coal from CIL and its facilitation, and VIPL-G in all its Petitions had also projected the Energy Charge based on utilisation of domestic coal, deviating from this underlying principle while approving the Energy Charge in the Truing up for FY 2014-15 cannot be justified. 2.10.28 In its Petition for approval of final Tariff for FY 2014-15, which was filed on 30 May, 2014, i.e., after the commencement of FY 2014-15 and of supply under the PPA, VIPL-G had also envisaged SECL linkage coal for Unit 1 and cost-plus coal from WCL for Unit 2. The Commission also notes that VIPL-G had got the linkage of Unit 1 transferred from WCL to SECL because of non-availability of linkage coal from WCL. 2.10.29 Although VIPL-G's Petition in that Case considered utilisation of 100% domestic coal from WCL for Unit 2 and 100% domestic SECL linkage coal, around 20% of the actual coal utilised during FY 2014-15 consisted of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lues considered in the Tariff Order. The objective of FAC is not merely to enable all or any variation in costs arising from departures from the basic premise underlying the operation of the generation plant as a part of a regulated business. In the present case, if the basic premise on the basis of which the PPA and Tariff have been approved by the Respondent Commission is altered by the Appellant, the increase in costs arising therefrom cannot be allowed to be recovered through FAC. The relevant extract of para 2.10.29 of the Impugned Order is reproduced below: "The Commission notes that the process of Truing up is not intended merely for the approval of actual costs when these are at complete variance with the basic assumptions put forward at the time of approval of the PPA and the initial tariff:" Iv. The Appellant has contended that the PPA between the Parties clearly gives the Appellant the right to procure fuel from any available source to meet its obligations there-under to the extent that there is a shortfall under the FSA. In such an eventuality, the adjustment in the rates of Energy Charge based on the actual price / heat value of fuel is payable by Respondent No.2 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply scenario and its impact on Energy Charges during FY 14-15 and FY 15-16. After examining all the aspects including the price competitiveness of Appellant power, the State Commission accorded its in-principle approval for the PPA between Appellant and Respondent No 2 with Tariff to be determined by the State Commission in accordance with the MYT Regulations on cost plus basis by applying critical prudence checks while examining the Tariff proposal. B) Further the State Commission has also approved the Power purchase Agreement for supply of 300 MW power from Appellants Unit-I to Respondent No 2 vide order dated 19.07.2013 in Case No 76 of 2013. C) The State Commission has observed the non-signing of fsas by the Appellant in its order dated 17.01.2014 in Case No.91 of 2013 for determination of Provisional Tariff for Appellant plant for FY 2014-15 and FY 2015-16. The State Commission determined the Energy Charges considering 100% availability of Domestic coal with the observation that Any variation in Price and Gross Calorific Value of coal vis-a-vis approved values for computing the provisional Energy Charge shall be recoverable through Fuel surcharge Adjustment mechanism as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from that considered while approving the PPA with Rlnfra-D. G) The State Commission while giving in-principle approvals for the Power Purchase Agreements for Unit-II vide order dated 20.02.2013 as well as for Unit-I vide order dated 19.07.2013 has not put any specific conditions as far as Energy Charges are concerned. The State Commission has put its observations in Annexure-1 of the order on the PPA which also does not include any specific reference to the limitation/ capping/ outer limit of Energy Charges. Further, the State Commission also approved the Consolidation Agreement executed between rinfra-D and VIPL for supply under the two ppas for Unit 1 and Unit 2 to be treated as supply from the Power Station as a whole. H) As per the provisions of Electricity Act 2003, there are two specific modes of power procurement and tariff determination by the Appropriate Commission. The State Commission after going through its prudence check for analysing the options of power procurement by Respondent No 2 and ensuring competitiveness of the power proposed to be supplied by the Appellant had taken a conscious decision to grant in-principle approval of the Power Purchase Agreements bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Commission ought to have considered the factors for arranging coal from other sources despite putting up best efforts to get coal from CIL/ WCL/ SECL sources by the Appellant. The State Commission while applying its prudence check must allow the actual fuel mix used by the Appellant while determining the Energy charges for FY 14-15 and FY 15-16. While giving this observation, we would like to underline the fact that it is the prime responsibility of the Appellant to ensure supply of domestic linkage coal from CIL to have most competitive energy charges for the supply of its power to Respondent No 2. Further as the domestic coal availability position in the country has eased out, the Appellant as well as the State Commission has to ensure the supply and use of Domestic coal to the extent possible for supply of power under the current agreements. L) It is abundantly clear that the prime responsibility of arranging coal is that of the Appellant. Inspite of all efforts put in by the Appellant, it could not get the FSA for Unit-I executed. As such the Appellant arranged/is arranging the coal through alternate sources for Unit-I. The Appellant should put in all possible efforts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014-15 and FY 201516 as well as at the time of final True up and provisional True up for the aforesaid years respectively, including filing of Fuel Adjustment Charge (`FAC') petitions with regard to the cost incurred for procurement of coal in absence of an FSA and such costs, were admittedly incurred with the knowledge of the State Commission, stands decided as discussed above. Q) Similarly Issues at 7 (e) to (n) as indicated above related to disallowance of Fuel Charge stand decided as discussed above. B On Issue No 2: (a) Approval of Auxiliary Energy Consumption of 9.05% for FY 2014-15 in paragraphs 2.5.9 to 2.5.19 of the Impugned Order as against 9.61% as proposed by the Appellant and (b) The consequent computation of Availability in paragraph 2.3 of the Impugned Order of 84.83% as against 85.40% as proposed by the Appellant, our observations are as follows; B-I On the Issue regarding Auxiliary Power Consumption raised in the present Appeal, the learned senior counsel for the Appellant has made the following submissions for our consideration; i. Regulation 2.1 (6) of the Tariff Regulations, 2011 defines "Auxiliary Energy Consumption" as under: "Auxiliary Energy Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in FY 2014-15 of the Plant was 9.61% which is higher than the normative Auxiliary Energy Consumption of 9% which was on account of operations at sub-optimal load due to backing down instructions of SLDC and initial teething problems during stabilization. The outage hours for Unit I were 513.30 hours resulting in generation loss of 152.99 MU and 1388.64 hours for Unit II resulting in generation loss of 416.54 MU. The RO Plant was commissioned in FY 2015-16. Vi. The Appellant in the said Petition at the time of truing up of for FY 201415 sought relaxation of norms and approval of actual Auxiliary Energy Consumption of 9.61% which was due to backing down instructions by the SLDC as well as various factors like initial teething problems faced during stabilization. The State Commission in its Impugned Order considered Auxiliary Energy Consumption of 9.05% for truing up purposes and treated the difference between the same as efficiency loss for FY 2014-15 as per the Tariff Regulations, 2011. Vii. With reference to the plant having achieved a higher Auxiliary Energy Consumption during FY 2014-15, the auxiliary load can be divided in three groups as below: Group A - The Copper lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Impugned Order at para 2.5.13 has stated that "As regards the higher Auxiliary Energy Consumption in percentage terms due to lower gross generation, the Commission is of the view that this would also be applicable when the actual generation is higher and the Auxiliary Energy Consumption is reported as lower in percentage terms, for which VIPL-G would be entitled for efficiency gains. In case the reasons given by VIPL-G are accepted for higher Auxiliary Energy Consumption, then the same would be applicable when generation has increased as compared to normative generation, and the mechanism of approving normative parameters and sharing of gains and losses for better/under performance will not have any sanctity." ii. The Tribunal in its Judgments dated 18 September, 2015 in Appeal No.196 of 2014 (HPGCL V/s HPERC) on a similar issue of Auxiliary Consumption due to backing down has ruled that the reasons cited by the Appellant for invoking the power to relax have already been considered and rejected by this Appellate Tribunal. The relevant portion of para 15 of the Judgment is reproduced below: "That the appellant has prayed for relaxation of norms in respect of auxiliary co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commission does not find any merit in the submissions of VIPL-G regarding higher or lower Auxiliary Energy Consumption and the consequential impact on the Availability to be considered for Truing up in view of the standing of the certification of the actual Availability for Truing up. VIPL-G has not disputed the certification of MSLDC. Hence, the Commission has considered the actual Availability of 84.83% for FY 2014-15, as certified by MSLDC." B-III After having a careful examination of all the aspects related to Issue No 2 i.e. Disallowance of Auxiliary Energy Consumption at the rate of 9.61 % as proposed by Appellant and consequent computation of Availability at 85.40% for the period FY 2014-15 brought before us for our consideration, our observations on the Issue are as follows:- i. The Appellant has sought approval of higher Auxiliary Consumption of 9.61% during FY 2014-15 which was as a result of the backing down instructions by the State Load Dispatch Centre (SLDC) as well as certain initial teething problems. ii. Further the reference has been made by the Appellant on the provisions of fourth amendment in Indian Electricity Grid Code (IEGC) dated 06 April, 2016 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of parameters during operation of the plant like GCV of fuel, Steam Parameters, Condenser Vacuum, generator load etc. The Appellant faced with various issues, such as : A) Part Load Operation due to Grid Restriction resulting into PLF loss of 4.84% in FY 2014-15 due to transmission capacity constraints against availability, backing down by SLDC and corresponding PLF loss was 8.56% against availability. B) Turbine Single Valve Operation: Plant operated for first eight months with single valve operation as per OEM recommendations for uniform heating & expansion of turbine internals and subsequently shifted to sequential valve control which is desired mode. Single valve operation is inefficient than normal sequential operation mode operation as it has more throttling losses across the valve resulting into increase in heat rate. C) Process Parameter Optimization: Process parameters variation has significant impact on heat rate. During initial operation of the plant most of the critical parameters need some stabilisation period to optimize and it took around six months to optimize all critical parameters listed below which resulted into adverse impact on heat rate. vi. CE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e two distinct provisions regarding stabilisation period for generating Unit which are explained as below: "In Regulation 33.1.3 of the Tariff Regulations, 2005, on the Gross SHR there was a provision for SHR during the Stabilisation period and the subsequent period, whereas the MYT Regulations, 2011 do not have any explicit provisions on relaxation during the stabilisation and subsequent period." v. The Respondent Commission has also determined the Capital Cost and Tariff for MSPGCL's Bhusawal Unit 4 and 5 in its Order dated 20 April, 2015 in Case No. 201 of 2014. For Bhusawal Unit 5, the Respondent Commission has determined the Tariff in accordance with the MYT Regulations, 2011. The Respondent Commission has taken similar approach on the issue of SHR as done for the Appellant's Unit. Hence, the Appellant is clearly misguiding and misleading the Tribunal by stating that the Respondent Commission has accounted for transitional problems during the stabilisation period for various new Plants commissioned by MSPGCL in Case No. 44 of 2013. C-III Our observations on the Issue No 3 i.e. Disallowance of Station Heat Rate of 2457 Kcal/Kwhr as proposed by Appellant for the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the Appellant's Generating Station was in the 1st and 2nd year of operations after its Commercial Date and the Appellant had produced sufficient material before Respondent No.1 for exercise of such powers, is decided against the Appellant. D Issue No. 4 - The consideration of actual Interest on Working Capital (IWC) of Rs. 33.43 Crore for computing efficiency gain on the purported basis as held in paragraphs 2.23.6 and 2.23.7. D-I On the Issue regarding Interest on Working Capital raised in the present Appeal, the learned senior counsel for the Appellant has made the following submissions for our consideration; i. The Appellant in the said Petition while truing up for FY 2014-15 had sought normative IWC as Rs. 79.91 Crore and actual IWC for FY 201415 as Rs. 78.34 Crore. As per Audited Accounts, IWC paid by the Appellant is reflected as Rs. 33 crores which reflects the cost incurred by the Appellant for financing through external sources. However, in actual operations, the interest on working capital expenditure over and above Rs. 33 crores (as per Audited Accounts) was financed through internal accruals and cost of which is not reflected in the Audited Account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad submitted the details of working capital requirement on a monthly basis and the working capital limit used from the Banks for funding it. The Appellant had submitted that as per the audited accounts, the actual Interest on Working Capital was Rs. 33 Crore. The State Commission has considered this actual IWC as reflected in its books of accounts for the sharing of gains and losses. The relevant extract of the Impugned Order at para 2.23.6 is reproduced below: "2.23.6 The Commission also does not find merit in VIPL-Gs contention regarding the cost of internal accruals used for working capital requirements, as such cost is a not a real amount incurred and the MYT Regulations do not provide for it. The actual iowc can be lower than the normative because VIPL-G has efficiently managed its cash inflows and cash outflows such that its working capital requirement itself is reduced. The references cited by VIPL-G in this regard are not relevant as they pertain to entities doing multiple businesses.VIPL-G is a corporate entity engaged in the regulated businesses of electricity generation and transmission, and hence it would be appropriate to consider the actual iowc as reflected in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with in the following manner: (a) One-third of the amount of such gain shall be passed on as a rebate in tariff over such period as may be stipulated in the Order of the Commission under Regulation 11.6;" ii. The State Commission in the Impugned Order has approved normative Interest on Working capital for FY 2014-15 as Rs. 60.68 Crs. The sharing of gains on account of controllable factors for FY 14-15 has been decided by the State Commission in the para 2.28 of the Impugned Order as : Rs Crs Particulars Actual Normative (Gain)/Loss Entitlement of A B C=A-B 1/3 * C Energy Charge 746.54 744.51 2.03 0.68 O&M expenses 76.86 105.00 (28.14) (9.38) Interest on Working Capital 33.43 60.68 (27.26) (9.09) Total 856.83 910.20 (53.36) (17.79) iii. Reference has been cited on this Tribunals Judgment dated 28.05.2009 in Appeal no 111 of 2008 wherein it was observed that "14) In view of our above discussion, we allow the appeal in part. The Commission will have to allow the claim of the appellant towards efficiency gain on account of lower auxiliary consumption, treatment of interest on internal sources, contributions and donations as well as income t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pprove Income Tax payable for each year of the Control Period, if any, based on the actual income lax paid on permissible return as allowed by the Commission relating to the electricity business regulated by the Commission, as per latest Audited Accounts available for the applicant, subject to prudence check: ..." ii. In accordance with Regulation 34.2 of MYT Regulations, 2011, the difference between the actual and approved Income Tax, if any, shall be reimbursed at the time of True Up. Regulation 34.2 of MYT Regulations, 2011 is reproduced below: "34.2 Variation between Income Tax actually paid and approved, if any, on the income stream of the regulated business of Generating Companies, Transmission Licensees and Distribution Licensees shall be reimbursed to/recovered from the Generating Companies, Transmission Licensees and Distribution Licensees, based on the documentary evidence submitted at the time of Mid-term Performance Review and MYT Order of third Control Period, subject to prudence check" E-III Our observations on the Issue No 5 regarding computation of Income Tax for FY 2015-16 are as follows:- i. The State Commission has allowed the Income Tax for FY 2015-16 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng upon the requirement. As there are several power plants in the vicinity of Butibori, where the Appellant's power plant is situated, the limited potential of ash disposal in the area gets shared amongst all power plants. iii. Cement plants, which are major source of ash utilization, are located far away from the power plants where transportation cost is the deciding factor for disposal of ash from any particular plant. Building construction agencies are continuing to use clay bricks in spite of a directive issued by moef to use only fly ash bricks. Further, excise duty and toll tax on ash are acting as deterrents for ash utilisation. iv. The Appellant, despite best efforts could achieve only 26% and 41% ash utilization in FY 2014-15 and FY 2015-16 respectively and rest of the unutilized ash was dumped into ash pond. The Ash pond which has limited capacity was almost exhausted thereby endangering the plant which would be required to shutdown. To avoid the above situation, the Appellant incurred additional expenditure for evacuating the ash from Ash pond and ash silo by (i) dumping ash into abandoned mines with due permission of Maharashtra Pollution Control Board (MPCB) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of ash based products or use as soil conditioner in agriculture activity within a radius of hundred kilometres from a coal or lignite based thermal power plant shall be borne by such coal or lignite based thermal power plant and the cost of transportation beyond the radius of hundred kilometres and up to three hundred kilometres shall be shared equally between the user and the coal or lignite based thermal power plant. B) The coal or lignite based thermal power plants shall within a radius of three hundred kilometres bear the entire cost of transportation of ash to the site of road construction projects under Pradhan Mantri Gramin Sadak Yojna and asset creation programmes of the Government involving construction of buildings, road, dams and embankments. F-II On the Issue No 6 regarding Disallowance of Ash Utilization and Disposal Expenses raised in the present Appeal, the learned counsel for the State Commission has made the following submissions for our consideration; i. The Appellant has contended that the Respondent Commission has ignored the fact that the Appellant is not able to dispose the ash generated due to exhaustion of its existing ash dyke. The Respondent Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capacity: 3.14.8 The maximum land requirement for ash storage area was worked out by CEA on certain assumptions. Although these assumptions may not exactly fit the present case, CEA 's observations on the design of the ash dyke need to be kept in view. As against the CEA recommendation of a maximum area of 360 acres for ash storage for a 1000 MW power plant, the actual area the ash dyke at VIPL-G's Generating Station of 600 MW is 42 acres, i.e. Very low compared to that recommended by CEA. 3.14.9 While acknowledging the mandated 100% ash .utilisation, CEA also observed that it is difficult in most of cases and, therefore, the Power Station authorities have no alternative but to keep sufficient space for ash disposal without which the power plant might have to be shut down after a few years of operation. It appears that, though VIPL-G commenced the Project work in 2010, it has not heeded this observation of the CEA. 3.14.10 In the light of the above, the Commission does not consider it prudent to accept VIPL-G claim for ash disposal expenses, considering inappropriate design by VIPL-G. Moreover, the actual ash dyke area is half the area considered in the DPR itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the recommendation by OEM as per the offer received from vendors is Rs. 4.19 Crs H) In addition to above, being the special plant installed to meet statutory requirement, additional skilled manpower is also required to run, operate & maintain the RO plant. Expected manpower requirement and corresponding estimated cost as per the offer received from the vendor is approx Rs. 1.99 Cr. I) Total additional O&M cost on account of RO plant operation & Maintenance would be approx is Rs. 6.18 Crs/ annum and same is considered as part of other expenses for third control period. VIPL submits that since the RO plant is not a standard system required for the power plant which is unique and being installed at VIPL specifically to meet the requirement of moef, its O&M cost is not covered in normative O&M expenses being approved by the State Commission. ii. In this regard, VIPL requested the State Commission to approve the request for relaxation of norms and/or removal of difficulty and allow additional actual expenditure towards O&M expenses of RO plant under other expenses considering the RO plant costs required to be incurred to achieve regulatory compliances subject to true up based on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses towards the RO Plant even though it was fully aware of the Act that the RO Plant was being commissioned in the Generating Station. 4.18.8 In Case No. 115 of 2014, the Commission had approved the Final Tariff' for FY 2014-15 and FY 2015-16. In its Order in that Case, the Commission had approved the additional capitalisation of the RO Plant in FY 2014-15. Hence, it was envisaged that the RO Plant would be operational from FY 2014-15 onwards. In its submissions in that Case, VIPL-G had proposed the O&M expenses as per the normative expenses specified in the MYT Regulations, 2011. In that Case also, VIPL-G had not sought any additional O&M expenses towards RO Plant even though it was aware that the RO Plant was being commissioned in the Generating Station. 4.18.9 VIPL-G would not have been unaware that the operation and maintenance of the RO Plant might require additional expenditure over and above the normative O&M expenses. V1PL-G itself has submitted in the present Petition that the OEM had provided the estimate of chemicals required for running the RO Plant. 4.18.10 The Commission has allowed the additional Auxiliary Consumption of the RO Plant, the actual Auxili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ursuant to an approved PPA. ii. The Appellant had during the Truing Up exercise under the said Petition sought for an amount of Rs. 59.95 crores for FY 2014-15 and Rs. 76.87 for FY 2015-16 to be adjusted in future recovery from Respondent No.2 and any such refund directed by the State Commission is clearly illegal and contrary to law. iii. The entire power generated by the Appellant is supplied to Respondent No.2 which is the only source of the Appellant's income. The PPA is for a period of 25 years for supply of entire power generated from the Appellant's generating station. Any such direction for refund of a huge amount would render the Appellant's business unviable and make the Appellant's Project unviable. The Fuel Cost which is recovered from Respondent No.2 has already been expended for procurement of fuel and Respondent No.2 has sourced such power to further supply to its consumers. Such a purported refund would drive the Appellant out of business and would render the power plant idle. H-II On the Issue No 8 regarding Jurisdiction of the State Commission to order refund of the excess amount in the present Appeal, the learned counsel for the State Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund as has been done in the present case?, our observations are as follows; i. The Multi Year Tariff (MYT) Regulations issued by the State Commission are applicable to the whole of the State of Maharashtra. MYT Regulations 2011 were applicable for determination of tariff in all cases covered under these Regulations from April 1, 2011 and onwards up to FY 2015-16 [i.e., till March 31, 2016]. Further the MYT Regulations are applicable to all existing and future Generating Companies, Transmission Licensees and Distribution Licensees and their successors, if any. ii. The Appellant has submitted that the State Commission has no jurisdiction, power or authority to direct such refund from a Generator to a Distribution Company iii. The State Commission has the jurisdiction to determine the Generation Tariff of the Appellant as per the Regulation 3.1 of the MYT Regulations 2011 issued by the State Commission. "3.1 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: . ..... X X X X Extracts X X X X X X X X Extracts X X X X
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