TMI Blog2016 (11) TMI 1698X X X X Extracts X X X X X X X X Extracts X X X X ..... l Auxiliary Energy Consumption as 9.61%, the availability for the year works out to be 85.40% which is more than the Target Availability and consequently, the Appellant is entitled for recovery of entire Annual Fixed Charges for FY 2014-15. 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 - HELD THAT:- The compensation as per IEGC amendments are described under Sub Regulation 6.3 B. Further as per Notification dated 6.4.2016, the IEGC fourth amendment Regulations shall come into force with effect from date of publication in Official Gazette except subregulation 6.3B which shall come into force on such date as the Commission may appoint by notification in the Official Gazette - Hence these Amendments related to APC have not come into effect. Hence the State Commission cannot allow such increase in Auxiliary Power Consumption due to part load compensation due to backing down instructions by SLDC. Consequent to this, there can be no change in the availability of the Power Station for the period FY 2014-15. This issue is decided against the Appellant. Approval of Gross Station Heat Rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such disposal difficulties was not allowed to be passed on to the Beneficiaries - the impact of any such lapse in planning/ design of the Ash Utilization facilities should not be passed on to the Beneficiaries. Hence this issue is decided against the Appellant. Disallowance of Additional O M expenses towards RO Plant - HELD THAT:- The State Commission in its Impugned Order has detailed out the issue related to additional O M expenses for RO Plant as well as normative O M expenses allowed in the Impugned Order - We have perused the findings of the State Commission and do not find any infirmity. Jurisdiction of the State Commission to order refund of the excess amount - HELD THAT:- As in the case of FY 2014-15, the State Commission directed the Appellant to refund the Revenue Surplus of FY 2015-16, determined as ₹ 405.89 crore upon provisional truing up, to Rlnfra-D in 6 monthly instalments. Whether Respondent No.1 has the power, authority or jurisdiction to pass an order of refund as has been done in the present case? - HELD THAT:- The Tariff can be determined by the State Commission with either upward revision resulting in increase in charges payable by the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: A) Disallowance of fuel cost for the period FY 2014-15 and 2015-16 as set out inter alia, in paragraphs 2.10.30, 3.10 and 4.10 of the Impugned Order; B) The consideration of actual Interest on Working Capital ( IWC ) of ₹ 33.43 crores for computing efficiency gain on the purported basis as held in paragraphs 2.23.6 and 2.23.7 C) Direction to refund the alleged surplus purportedly arrived at as set out in paragraphs 2.31 and 3.28 of the Impugned Order. D) The computation of the amount of ₹ 405.89 crores in paragraph 3.28 of the Impugned Order for FY 2015-16 and directing refund of the same. E) 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 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. F) Approval of Gross Station Heat Rate of 2401 kcal/kwh in paragraphs 2.7 of the Impugned Order as against 2457 kcal/kwh for FY 2014-15 as proposed by the Appellant; G) The computation of Income Tax as proposed by the Appellant instead of restatement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Final Tariff for FY 2014-15 and 2015-16 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 1st Respondent? E) Whether the Impugned Order has been passed in breach of principles of natural justice? F) Whether the Impugned Order could have been passed when admittedly the 1st Respondent has repeatedly in its earlier two Orders dated 17.01.2014 and 09.03.2015 also relating to determination of Tariff (Provisional/Final) directed the Appellant to make efforts to expedite execution of the FSA, thus having acquiesced to the fact that not only is such execution beyond the control of the Appellant and the Appellant cannot be held responsible, but the costs so incurred were for compliance of the Appellant's obligations under the PPA with Respondent No.2 and that such costs would be claimed from Respondent No.2 to which at all points of time no objection of whatsoever nature has been raised by Respondent No.1? G) Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consumption as well as Gross Station Heat Rate as proposed by it, specifically in view of 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? P) Whether on a true and proper interpretation of the provisions of Regulation 35 read with Regulation 14, the 1st Respondent ought to have computed Efficiency Gain on IWC including the internal accruals deployed by the Appellant? Q) 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 to the Appellant in the Impugned Order, Ash Utilization and Disposal Expenses and O M expenses incurred for Reverse Osmosis Plant as proposed by it in view of supporting data and details given by the Appellant to the 1st Respondent? R) Whether the 1st Respondent has correctly computed Income Tax in accordance with Regulation 34 of the Tariff Regulations, 2011 for FY 2014-15? S) Whether Respondent No.1 has the power, authority or jurisdiction t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et up as an IPP. An loa dated 12/13.07.2010 was issued by WCL to the Appellant for 11,10,800 TPA of Grade E coal to be supplied for Unit II on terms and conditions set out therein. V. The Appellant's intense efforts to market the concept of Unit I as GCPP to industrial consumers in Maharashtra was of no avail and on account of certain concerns envisaged by such industrial consumers, they refrained from opting for the Group Captive option. Thus Unit I was to be converted from GCPP to IPP. Vi. The Appellant filed a Petition being Case No. 2 of 2013 filed before the State Commission for approval of Power Purchase Agreement (PPA) signed for 600 MW entered into between the Appellant and Respondent No.2, the distribution licensee in the suburbs of Mumbai. The State Commission by an order dated 20.02.2013 approved the PPA for 300 MW from Unit-II (IPP) for supply of power to Respondent No 2 on long term basis after incorporating the modifications required to be carried out as per said order. In course of hearing of the said Case No.2 of 2013, Respondent No.2 gave the rationale for entering into a PPA with the Appellant. It pointed out, inter alia, that in Case-1 Bid Process calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 when the audited accounts are finalized, then only the determination of final Tariff would arise. Accordingly, the present Petition does not seek the determination of final Tariff for supply of power from the generating company to the distribution licensee. Admittedly, the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies/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 W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge for VIPL 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, there was no 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 Determinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Provisional Truing-Up of Fuel 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 Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard the State Commission's findings 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erformance and optimum investments; D) safeguarding of consumers interest and at the same time, recovery of the cost of electricity in a reasonable manner; E) the principles rewarding efficiency in performance; F) 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers. ............ Multi Year Tariff ............ 4) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons from the public and the holding of public hearings in the areas of supply of Rlnfra-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these submissions, the commission, vide its subsequent Order dated 19 July, 2013 in Case No. 76 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the coal procurement for these Units in order to achieve the variable cost estimated in the Petition. VIPL submitted that the FSA for Unit 2 for 1.11 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-plu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition Energy Charge of ₹ 1.91/kwh for FY 2014-15 considering a substantial part of the coal requirement to be met from linkage coal. 2.10.22 From the above Orders, it is clear that, 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 ₹ 1.74 in FY 2014-15 and ₹ 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 obliviou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Charge of ₹ 3.62/kwh claimed is more than double the rate of ₹ 1.74/kwh projected by them (for FY 2014-15) under the pessimistic scenario presented during the PPA approval proceedings. 2.10.26 In the light of these 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h its Fuel Adjustment Charge (FAC) submissions to the State Commission. However, it is important to note that the FAC is intended only to enable recovery of that variation in fuel prices and calorific value which is legitimate and due as against the values 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the Power purchase Agreement of the Appellant with Respondent No 2 for supply of 300 MW power from Unit-II (IPP) of the Appellant Power Plant. While approving the PPA, the State Commission had asked the Appellant about the Scenario Analysis considering various fuel 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 Char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of determining the Multi-Year Tariff for fys 2016-17 and 2019-20. F) The State Commission has not allowed the actual fuel cost for FY 2014-15 and FY 2015-16 incurred by the Appellant on the ground that the procurement of fuel was done at a rate higher than and on a different basis 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 Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced to use Cost Plus coal as well as use coal from other sources ( e-Auction/ Imported) .To safeguard the interest of the consumers, the prudence check of the Appropriate Commission has also been well recognised. In the present case while deciding on the True Up petition filed by the Appellant, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , this issue stands decided as per para m) above. P) The next related issue i.e. Whether the Impugned Order could have been passed disallowing fuel costs, since the 1st Respondent has at all times been kept informed since seeking approval of the PPA, determination of Provisional Final Tariff for FY 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fically stated that the State Commission would take a view in the matter at the time of truing up based on analysis of actual auxiliary consumption, so as to arrive at auxiliary power consumption for the aforesaid 2 systems over and above the normative auxiliary consumption. V. The actual Auxiliary Energy Consumption 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant has contended that higher Auxiliary Consumption of 9.61% during FY 2014-15 was due to backing down instructions by the State Load Dispatch Centre (SLDC) as well as various factors like initial teething problems faced during stabilization and since Auxiliary Consumption varies with the load, the Respondent Commission in 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 Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given the reasons for considering Availability as 84.83%, which is as certified by the SLDC. The relevant para 2.3.4 of the impugned Order is reproduced below: 2.3.4 Thus, the appropriate authority to certify the Availability of the Generating Station is the MSLDC, which has certified the actual Availability for FY 2014-15 as 84.83%. The 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 Auxil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought approval of actual Gross Station Heat Rate of 2457 kcal/kwh in view of the problems faced by the Appellant during first year of operation due to initial teething problems faced during stabilization, backing down of units due to low demand in the grid, tripping of units etc. v. It is submitted that the SHR is dynamic in nature and is affected by a 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Appellant (VIPL-G) in accordance with the MYT Regulations, 2011 whereas in the cited Order dated 4 September, 2013 in Case No. 44 of 2013, the Respondent Commission has determined MSPGCL's Capital Cost and Tariff for Khaperkheda Unit No. 5, in accordance with the Commission's Tariff Regulations, 2005. The Tariff Regulations, 2005 and the MYT Regulations, 2011 have 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Station Heat rate, the issue at para 7 (o) i.e. 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 to the Appellant in the Impugned Order the Auxiliary Energy Consumption as well as Gross Station Heat Rate as proposed by it, specifically in view of 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 ₹ 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 ₹ 79.91 Crore and actual IWC for FY 201415 as ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns for our consideration. i. The Appellant has contended that it had deployed working capital through internal accruals/sources, and submitted that the internal accruals are not like some reserve which does not carry any cost. ii. The State Commission had sought the month-wise cash flow statement to substantiate that the internal accruals were utilised to meet the working capital requirement. In reply, the Appellant had 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 ₹ 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 VI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal will not be applicable to the present case. D-III Our observations on the Issue No 4 regarding Interest on Working for the period FY 2014-15, are as follows:- i. MYT Regulations 2011 Regulation 14 provides mechanism for sharing of gains or losses on account of controllable factors. 14.1 The approved aggregate gain to the Generating Company or Transmission Licensee or Distribution Licensee on account of controllable factors shall be dealt 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission ought to have allowed the Income Tax which the Appellant is entitled irrespective of such disallowance. However, the State Commission has erred in computation of Income Tax. ii. The State Commission in the Impugned Order computed the Income Tax considering the disallowance such as fuel cost. The Appellant states that the State Commission should have allowed Income Tax as proposed by the Appellant instead of restatement of the same based on the such disallowance. E-II On the Issue No 5 regarding computation of Income Tax raised in the present Appeal, the learned counsel for the State Commission has made the following submissions for our consideration; i. The State Commission has provisionally approved the Income Tax for FY 2015-16 based on the actual Income Tax paid for FY 2014-15, which is in accordance with Regulation 34.1 of the MYT Regulations, 2011 which reads as follows : 34.1 The Commission, in its MYT Order, shall provisionally approve 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In accordance with the Ministry of Environment and Forestation (moef) Notification dated 03.11.2009 relating to utilization of ash, a generating station is required to achieve 100 % disposal of ash generated by it in its 4th year of operation. The ash pond of the Appellant is designed with an assumption that 100% utilisation of ash would be achieved after the 3rd year of operation and accordingly storage capacity of Ash pond had been designed. ii. Coal fired power plants in India operate on coal having lower GCV and higher ash content as Indian coal has the GCV from around 3500 to 3700 kcal/kg and contains around 40% ash content. The Fly ash generated as a by-product of burning of coal is generally used in manufacture of cement, building and construction material, whereas the bottom ash generated is generally used for land filling and embankment. The unused ash (fly ash and bottom ash) is generally disposed to the ash pond in slurry form, which can be used later depending 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Phase-I ash dyke to 46 acres which was further reduced to 42 acres due to creation of green belt for complying moef norms and construction of approach road to ash dyke. E) This resulted in availability of a small strip of approx only 50 Meters on MIDC land which could be used for development of ash dyke. F) In lieu of land allotted to MSETCL, MIDC allotted additional land which included the 50 meters strip mentioned above and certain other areas. However, these two plots were not suitable for development of ash pond. G) In view of the above, 42 acres could only be used to develop ash pond so as to accommodate ash from both the phases of the Power Plant as per the relevant moef Guidelines. H) In view of the some of the area given by MIDA being hilly, the same was developed as a green belt. vii. Moef vide its Notification dated 25.01.2016 notified after the filing of the Petition as under - A) The cost of transportation of ash for road construction projects or for manufacturing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be passed on to the Beneficiaries. F-III Our observations on the Issue No 6 regarding Disallowance of Ash Utilization and Disposal Expenses are as follows:- i. The State Commission in the impugned Order has categorically dealt with the issue of disallowance of ash utilization and disposal expenses. The relevant para of the Impugned Order is reproduced below: 3.14.6 As per the relevant extracts of DPR submitted by VIPL-G, 52 acres of land was reserved for ash disposal for Phase 1 of the Project, and additional 32 acres of land was required for ash storage including green belt around the ash pond.* Phase 11. As against this, the actual area of ash dyke at the Generating Station is 42 acres. This is a significant deviation from the DPR design. 3.14.7 The Report on land requirement of Thermal Power Stations published by the Central Electricity Authority (CEA) in December, 2007 specifies the maximum land requirement for ash storage area as 360 acres for a. Power Station of 1000 MW (2 x 500 MW) 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 pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows: 5.1.1: Additional Reverse Osmosis (RO) operation and Maintenance expenses. A) VIPL submits that Environment Clearance (EC) by moef CTO by MPCB to VIPL was granted with condition of zero discharge outside the plant. B) In order to achieve absolute zero discharge, waste generated during power generation need to be processed for reutilization within a plant. C) As per industrial practice, Reverse Osmosis (RO) system is predominantly used for treatment of excess effluent generated from plant which is designed to meet zero discharge norms. D) As per water balance of the plant, excess effluent generation from process is approximately 170 m3/ hr from cooling water blow down. E) In compliance to moef EC condition, VIPL has installed RO plant to achieve zero discharge. F) To operate RO plant, original equipment manufacturer has provided the estimate of chemicals required for running the plant form 90 days which is included in DBR provided by OEM. G) The estimated cost of the chemicals required per annum based on the recommendation by OEM as per the offer received from vendors is ₹ 4.19 Crs H) In addition to above, being the special plant installed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant raised in the present Appeal, the learned counsel for the Respondent No 1 has made the following submissions for our consideration. i. The Respondent Commission has observed that the actual Operation and Maintenance (O M) expenses are substantially lower than the normative, and hence there is no need to separately allow the O M expenses for the Reverse Osmosis (RO) Plant. The relevant para of the Commission's Impugned Order are reproduced below: 4.18.7 In its Order dated 17 January, 2014 in Case No. 91 of 2013, the Commission had approved the provisional Tariff or FY 2014-15 and FY 2015-16. In that Order, the Commission had approved the Auxiliary Energy Consumption for the RO Plant and additional water pumping system over and above the normative O M expenses as per the MYT Regulations, 2011. Hence, it was envisaged that the RO Plant would be operational from FY 2014-15 onwards. In Case No. 91 of 2013, VIPL-G had proposed O M expenses as per the normative expenses specified in the MYT Regulations, 2011. VIPL-G had not sought any additional O M expenses towards the RO Plant even though it was fully aware of the Act that the RO Plant was being commissioned in the Generat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 to the Appellant in the Impugned Order, Ash Utilization and Disposal Expenses and O M expenses incurred for Reverse Osmosis Plant as proposed by it in view of supporting data and details given by the Appellant to the 1st Respondent, against the Appellant. H. Issue No 8 : Jurisdiction of the State Commission to order refund of the excess amount H-I On the Issue No 8 regarding Jurisdiction of the State Commission to order refund of the excess amount in the present Appeal, the learned senior counsel for the Appellant has made the following submissions for our consideration; i. The State Commission has by the Impugned Order for the period FY 2014-15 and FY 2015-16 directed to refund with effect from July 2016 in monthly instalments of an aggregate amount of ₹ 840.6 crore to Respondent No.2 from whom the Appellant has recovered charges for supply of electricity with effect from April 2014 pursuant to an approved PPA. ii. The Appellant had during the Truing Up exercise under the said Petition so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected the Appellant to refund this surplus of ₹ 434.70 crore to Rlnfra-D in six monthly instalments. iii. After determining a Revenue Surplus of ₹ 405.89 crore, taking into account its analysis of fuel costs and other elements, in its provisional Truing up for FY 2015-16 the Commission has stated at para. 3.28.2 of the impugned Order that Although the net revenue surplus for FY 2015-16 has been determined as above, the entire amount cannot be considered as surplus to be adjusted from the ARR of FY 2016-17 since the Rlnfra-D MTR Order, in the provisional Truing up for FY 2015-16, has not allowed the variation in Energy Charge from VIPL. Accordingly, the surplus of FY 2015-16 is to be refunded to Rlnfra-D. Accordingly, as in the case of FY 2014-15, the State Commission directed the Appellant (at para. 3.28.3 of the Impugned Order) to refund the Revenue Surplus of FY 2015-16, determined as ₹ 405.89 crore upon provisional truing up, to Rlnfra-D in 6 monthly instalments. H-III On the last issue i.e. Whether Respondent No.1 has the power, authority or jurisdiction to pass an order of refund as has been done in the present case?, our observations are as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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