Before the
MAHARASHTRA ELECTRICITY REGULATORY COMMISSION
World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai 400 005.
Tel. No. 022 22163964/65/69 – Fax 022 22163976
E-mail: [email protected]
Website: www.mercindia.org.in
Case No. 105 of 2011
IN THE MATTER OF
The Tata Power Company Limited- Generation Business’ (TPC-G) Petition for
Truing Up for FY 2009-10 and Annual Performance Review for FY 2010-11
Shri V. P. Raja, Chairman
Shri Vijay L. Sonavane, Member
ORDER
Dated: February 15, 2012
In accordance with MERC (Terms and Conditions of Tariff) Regulations, 2005
(hereinafter referred as MERC Tariff Regulations) and upon directions from the
Maharashtra Electricity Regulatory Commission (hereinafter referred to as MERC or
the Commission), The Tata Power Company Limited’s Generation Business
(hereinafter referred to as TPC-G), submitted its application on affidavit for approval
of Truing up for FY 2009-10 and Annual Performance Review for FY 2010-11. The
Commission, in exercise of the powers vested in it under Section 61 and Section 62 of
the Electricity Act, 2003 (EA 2003) and all other powers enabling it in this behalf, and
after taking into consideration all the submissions made by TPC-G, all the suggestions
and objections of the public, responses of TPC-G, issues raised during the Public
Hearing, and all other relevant material, issues the following Order.
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Table of Contents
1
2
BACKGROUND AND BRIEF HISTORY ..................................................................... 11
1.1
Background ........................................................................................................................ 11
1.2
MERC Tariff Regulations................................................................................................. 11
1.3
MERC Order on MYT Petition For TPC-G for FY 2007-08 to FY 2009-10 ............... 11
1.4
MERC Order on APR Petition For TPC-G for FY 2007-08 and Tariff Determination
for FY 2008-09 ................................................................................................................... 11
1.5
Review Petition on Order on APR for FY 2007-08 and Tariff Determination for FY
2008-09 ............................................................................................................................... 12
1.6
Hon’ble ATE Order on APR of FY 2007-08 and Tariff Determination of FY 2008-09
............................................................................................................................................ 12
1.7
MERC Order on APR for FY 2008-09 and Tariff Determination for FY 2009-10 ..... 13
1.8
Hon’ble ATE Order on APR of FY 2008-09 and Tariff Determination of FY 2009-10
............................................................................................................................................ 13
1.9
MERC Order for Approval of Capital Cost and Determination of Tariff for Trombay
Unit# 8 ................................................................................................................................ 14
1.10
Hon’ble ATE’s Order on Approval of Capital Cost and Tariff Determination of
Trombay Unit# 8 ............................................................................................................... 14
1.11
MERC Order on APR for FY 2009-10 and tariff Determination for FY 2010-11 ...... 15
1.12
Review Petition on Order on APR for FY 2009-10 and Tariff Determination for FY
2010-11 ............................................................................................................................... 15
1.13
Petition for Truing up of FY 2009-10 and APR of FY 2010-11 ..................................... 16
1.14
Admission of Petitions and Public Process ...................................................................... 17
1.15
Organisation of the Order ................................................................................................ 18
OBJECTIONS RECEIVED ........................................................................................... 19
2.1
Multi Year Tariff Regime ................................................................................................. 19
2.2
Scope of Regulation 17.3 of MERC Tariff Regulations, 2005 ....................................... 19
2.3
Maintenance of Separate Accounts .................................................................................. 20
2.4
Non-compliance with Regulations .................................................................................... 22
2.5
Interest on Working Capital............................................................................................. 23
2.6
Brand Equity...................................................................................................................... 24
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
2.7
Return on Equity ............................................................................................................... 24
2.8
Cost of Generation ............................................................................................................. 25
2.9
Demand for ash from power plant ................................................................................... 26
2.10
Performance of Generation .............................................................................................. 26
2.11
Low PLF compared to other Generators ........................................................................ 27
IMPACT OF HON’BLE ATE’s JUDGMENTS............................................................ 29
3.1
Impact of Hon’ble ATE’s Judgment dated February 15, 2011 ..................................... 29
3.1.1
Denial of carrying/interest cost ................................................................................................... 29
3.1.2
Disallowances of Administrative and General (A&G) Expenses towards Tata brand equity
Expenses ...................................................................................................................................... 34
3.1.3
Entitlement of Normative Interest on Working Capital .............................................................. 35
3.1.4
Reduction in gains due to inclusion of FBT in Employee Expenditure ...................................... 39
3.1.5
Wrongful Treatment of Income Tax............................................................................................ 41
3.1.6
Revenue Gap/ Surplus of FY 2007-08 and FY 2008-09 ............................................................. 44
3.1.7
Summary of Recoverable Amount .............................................................................................. 47
3.2
4
Hon’ble ATE’s Judgment dated August 26, 2011 in Case No. 87 and 107 of 2010 ..... 49
3.2.1
Revision of approved capitalisation ............................................................................................ 51
3.2.2
Income Tax Treatment ................................................................................................................ 53
3.2.3
Interest rate for IDBI Tranche 3 Loan ......................................................................................... 53
TRUING UP OF AGGREGATE REVENUE REQUIREMENT FOR FY 2009-10.... 55
4.1
Performance of Unit# 4 to 7 and Hydro Stations............................................................ 55
4.1.1
Gross Generation ......................................................................................................................... 55
4.1.2
Auxiliary Consumption ............................................................................................................... 57
4.1.3
Heat Rate ..................................................................................................................................... 60
4.1.4
Fuel price and calorific value ...................................................................................................... 63
4.1.5
Fuel Costs .................................................................................................................................... 64
4.1.6
O&M Expenses ........................................................................................................................... 65
4.1.7
Capital expenditure and capitalisation......................................................................................... 73
4.1.8
Past De-Capitalisation ................................................................................................................. 79
4.1.9
Depreciation ................................................................................................................................ 85
4.1.10
Interest on Debt ........................................................................................................................... 87
4.1.11
Other Finance Charges ................................................................................................................ 91
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4.1.12
Interest on Working capital ......................................................................................................... 92
4.1.13
Return on Equity (RoE)............................................................................................................... 93
4.1.14
Non Tariff Income ....................................................................................................................... 94
4.1.15
Income tax ................................................................................................................................... 96
4.1.16
Revenue from sale of power ........................................................................................................ 99
4.1.17
Incentive on PLF and Capacity index ....................................................................................... 100
4.1.18
Incentive due to higher generation from hydro stations during peak hours .............................. 102
4.1.19
Sharing of gains and losses for FY 2009-10 ............................................................................. 103
4.1.20
Gap/(Surplus) for FY 2009-10 based on Truing up and sharing of efficiency gain/losses........ 111
4.2
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Performance of Unit# 8 ................................................................................................... 114
4.2.1
Gross Generation and Net Generation ....................................................................................... 114
4.2.2
Auxiliary Consumption ............................................................................................................. 116
4.2.3
Heat Rate ................................................................................................................................... 118
4.2.4
Fuel Price and Calorific Value .................................................................................................. 118
4.2.5
Fuel Cost ................................................................................................................................... 119
4.2.6
O&M Expenses ......................................................................................................................... 120
4.2.7
Capital Expenditure and Capitalization ..................................................................................... 122
4.2.8
Depreciation .............................................................................................................................. 124
4.2.9
Interest on Debt ......................................................................................................................... 126
4.2.10
Interest on Working Capital ...................................................................................................... 127
4.2.11
Return on Equity (ROE) ............................................................................................................ 128
4.2.12
Non Tariff Income ..................................................................................................................... 129
4.2.13
Income Tax................................................................................................................................ 130
4.2.14
Reduction in Annual Fixed Charges on Account of reduction in Availability .......................... 134
4.2.15
Revenue from sale of power ...................................................................................................... 134
4.2.16
Incentive on PLF ....................................................................................................................... 135
4.2.17
Sharing of Gains and Losses ..................................................................................................... 135
TRUING UP OF AGGREGATE REVENUE REQUIREMENT FOR FY 2010-11.. 143
5.1
Performance of Unit# 4 to 7 and Hydro Stations.......................................................... 143
5.1.1
Gross Generation ....................................................................................................................... 143
5.1.2
Auxiliary Consumption ............................................................................................................. 145
5.1.3
Heat Rate ................................................................................................................................... 147
5.1.4
Fuel price and calorific value .................................................................................................... 152
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5.1.5
Fuel Costs .................................................................................................................................. 153
5.1.6
O&M Expenses ......................................................................................................................... 154
5.1.7
Capital expenditure and capitalisation....................................................................................... 161
5.1.8
Past De-Capitalisation ............................................................................................................... 165
5.1.9
Depreciation .............................................................................................................................. 166
5.1.10
Interest on Debt ......................................................................................................................... 168
5.1.11
Other Finance Charges .............................................................................................................. 174
5.1.12
Interest on Working capital ....................................................................................................... 174
5.1.13
Return on Equity (RoE)............................................................................................................. 175
5.1.14
Non Tariff Income ..................................................................................................................... 176
5.1.15
Income Tax................................................................................................................................ 178
5.1.16
Revenue from sale of power ...................................................................................................... 182
5.1.17
Incentive on PLF and Capacity Index ....................................................................................... 183
5.1.18
Incentive due to higher generation from hydro stations during peak hours .............................. 186
5.1.19
Sharing of gains and losses for FY 2010-11 ............................................................................. 187
5.1.20
Gap/(Surplus) for FY 2010-11 based on Truing up and sharing of efficiency gain/(losses) ..... 193
5.2
Performance of Unit# 8 ................................................................................................... 197
5.2.1
Gross Generation and Net Generation ....................................................................................... 197
5.2.2
Auxiliary Consumption ............................................................................................................. 197
5.2.3
Heat Rate ................................................................................................................................... 198
5.2.4
Fuel Price and Calorific Value .................................................................................................. 198
5.2.5
Fuel Cost ................................................................................................................................... 199
5.2.6
O&M Expenses ......................................................................................................................... 199
5.2.7
Capital Expenditure and Capitalization ..................................................................................... 201
5.2.8
Depreciation .............................................................................................................................. 202
5.2.9
Interest on Debt ......................................................................................................................... 203
5.2.10
Interest on Working Capital ...................................................................................................... 204
5.2.11
Return on Equity (ROE) ............................................................................................................ 205
5.2.12
Non Tariff Income ..................................................................................................................... 206
5.2.13
Income Tax................................................................................................................................ 206
5.2.14
Revenue from sale of power ...................................................................................................... 211
5.2.15
Incentive on PLF ....................................................................................................................... 212
5.2.16
Sharing of Gains and Losses ..................................................................................................... 212
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
TOTAL RECOVERIES PERTAINING TO THE PAST PERIOD TILL FY 2010-11
...................................................................................................................................... 220
6.1
Recovery of the amount due to impact of Hon’ble ATE Judgment ............................ 220
6.2
Recovery for FY 2008-09 pertaining to the additional capitalization permitted in
Order in Case No. 71 of 2010 ......................................................................................... 221
6.3
Recovery for FY 2008-09 pertaining reinstatement of amount de-capitalised in FY
2008-09 ............................................................................................................................. 222
6.4
Recovery of gap/surplus of FY 2009-10 and FY 2010-11 ............................................. 222
6.5
Net amount to be recovered from Distribution Licensees ........................................... 224
APPENDIX 2................................................................................................................................. 230
APPENDIX 3................................................................................................................................. 232
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List of Abbreviations
AFC
Annual Fixed Charge
APM
Administered Pricing Mechanism
APR
Annual Performance Review
A&G
Administrative and General
ARR
Aggregate Revenue Requirement
ATE/APTEL
Appellate Tribunal for Electricity
BEST
Brihanmumbai Electric Supply & Transport Undertaking
BFP
Boiler Feed Pump
BHEL
Bharat Heavy Electricals Limited
BoP
Balance of Plant
Capex
Capital Expenditure
CERC
Central Electricity Regulatory Commission
CI
Capacity Index
COD
Commercial Operation Date
CCPP
Combined Cycle Power Plant
CPI
Consumer Price Index
CPRI
Central Power Research Institute
Cu.m
Cubic meter
CA/CL
Current Assets/Current Liabilities
CV
Calorific Value
DERC
Delhi Electricity Regulatory Commission
DPR
Detailed Project Report
EA 2003
Electricity Act, 2003
ESA
Electricity (Supply) Act, 1948
ESV
Emergency Stop Valve
FAC
Fuel Adjustment Cost
FERV
Foreign Exchange Rate Variation
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FBT
Fringe Benefit Tax
FY
Financial Year
GAIL
Gas Authority of India Limited
GERC
Gujarat Electricity Regulatory Commission
GFA
Gross Fixed Assets
GOM
Government of Maharashtra
GTG
Gas Turbine Generator
HDFC
Housing Development Finance Corporation
HRSG
Heat Recovery Steam Generator
HPCL
Hindustan Petroleum Corporation Limited
IBSM
Interim Balancing Settlement Mechanism
ICAI
Institute of Chartered Accountants of India
ICICI
Industrial Credit and Investment Corporation of India
IDBI
Industrial Development Bank of India
IDC
Interest During Construction
IDFC
Infrastructure Development Finance Company Limited
IOC
Indian Oil Corporation Limited
IWC/IoWC
Interest on Working Capital
IT Act, 1961
Income Tax Act, 1961
kcal
kilo calories
kcal/kWh
kilo calories per kilowatt hour
kW
kilo Watt
kWh
kilowatt hour
KWTA
Krishna Water Tribunal Award
LA
Licensed Area
LCC
Load Control Centre
LSHS
Low Sulphur Heavy Stock
MAT
Minimum Alternative Tax
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MbPT
Mumbai Port Trust
MCM
Million Cubic Meter
Mkcal
Million kilo calories
MOEF
Ministry of Environment & Forests
MoPNG
Ministry of Petroleum & Natural Gas
MERC
Maharashtra Electricity Regulatory Commission
MMSCMD
Million Metric Standard Cubic Metre per Day
MPCB
Maharashtra Pollution Control Board
MSETCL
Maharashtra State Electricity Transmission Company Limited
MSLDC
Maharashtra State Load Despatch Centre
MSPGCL
Maharashtra State Power Generation Company Limited
MT
Metric Tonnes
MU
Million Units
MW
Mega Watt
MYT
Multi Year Tariff
OEM
Original Equipment Manufacturer
O&M
Operations and Maintenance
ONGC
Oil and Natural Gas Corporation Limited
PBT
Profit Before Tax
PG
Performance Guarantee
PLF
Plant Load Factor
PLR
Prime Lending Rate
P&L
Profit and Loss
PPA
Power Purchase Agreement
REL/RInfra
Reliance Energy Limited/Reliance Infrastructure Limited
RLNG
Regassified Liquefied Natural Gas
RoE
Return on Equity
R&M
Repair and Maintenance
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RTC
Round The Clock
SBI
State Bank of India
SHR
Station Heat Rate
SLDC
State Load Dispatch Centre
STG
Steam Turbine Generator
STOP
Safety Training Observation Program
TO
Tariff Order
TPC
The Tata Power Company Limited
TPC-D
The Tata Power Company Limited- Distribution business
TPC-G
The Tata Power Company Limited- Generation business
TPC-T
The Tata Power Company Limited- Transmission business
TPTCL
The Tata Power Trading Company Limited
TVS
Technical Validation Session
VAT
Value Added Tax
WDV
Written Down Value
WPI
Wholesale Price Index
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1 BACKGROUND AND BRIEF HISTORY
1.1 BACKGROUND
A Petition has been filed by The Tata Power Company Limited (TPC), for Truing up of
Aggregate Revenue Requirement(ARR) for FY 2009-10 and Annual Performance
Review(APR) for FY 2010-11, for its Generation Business (TPC-G). This Order disposes off
the said Petition.
TPC was established in 1919. On April 1, 2000, the Tata Hydro-Electric Power Supply
Company Limited (established in 1910) and The Andhra Valley Power Supply Company
Limited (established in 1916), were merged into TPC to form one unified entity.
1.2 MERC TARIFF REGULATIONS
The Commission, in exercise of the powers conferred by the Electricity Act, (EA 2003),
notified the Maharashtra Electricity Regulatory Commission (Terms and Conditions of Tariff)
Regulations, 2005, on August 26, 2005 (hereinafter referred to as MERC Tariff Regulations).
These Regulations superseded the MERC (Terms and Conditions of Tariff) Regulations,
2004.
1.3 MERC ORDER ON MYT PETITION FOR TPC-G FOR FY 2007-08 TO FY 200910
TPC-G submitted its ARR and Multi Year Tariff (MYT) Petition for the first Control Period
from FY 2007-08 to FY 2009-10 on January 3, 2007 (Case No. 72 of 2006). The Commission
issued the MYT Order for TPC-G for the first Control Period on April 2, 2007, which came
into effect from April 1, 2007, with the Tariff being valid up 31, 2008, which was later
extended till the revised revenue requirement was determined for FY 2008-09, vide the
Commission’s Order dated April 1, 2008 in Case No. 102 of 2007.
1.4 MERC ORDER ON APR PETITION FOR TPC-G FOR FY 2007-08 AND TARIFF
DETERMINATION FOR FY 2008-09
TPC-G submitted its Petition for Annual Performance Review (APR) for FY 2007-08 and
Tariff Determination for FY 2008-09 on November 30, 2007 ( Case No. 68 of 2007 ). The
Commission issued the APR Order for TPC-G on April 2, 2008, which came into effect from
April 1, 2008, with the Tariff being up to March 31, 2009, and later extended till the revised
revenue requirement is determined for FY 2009-10, vide the Commission’s Order dated April
15, 2009 in Case No. 152, 153 and 154 of 2008.
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1.5 REVIEW PETITION ON ORDER ON APR FOR FY 2007-08 AND TARIFF
DETERMINATION FOR FY 2008-09
TPC-G filed a Review Petition against the Commission’s Order on APR for FY 2007-08 and
Tariff determination for FY 2008-09. The Commission vide Order dated December 1, 2008
(Case No. 29 of 2008) upheld most of the contentions raised in TPC-G’s Review Petition and
clarified that any impact of the same shall be taken into account by the Commission in its
Order on TPC-G’s Petition for APR for FY 2008-09 and tariff determination for FY 2009-10.
Further, TPC-G appealed against the Commission’s Order on APR for FY 2007-08 and
determination of ARR for FY 2008-09 before the Hon’ble ATE ( Appeal No. 137 of 2008).
Along similar lines, TPC also appealed before the Hon’ble ATE against the Commission’s
APR Order for FY 2007-08 in respect of TPC’s Distribution Business (TPC-D) (Appeal No.
139 of 2008) and Transmission Business (TPC-T) (Appeal No. 138 of 2008).
1.6
HON’BLE ATE ORDER ON APR
DETERMINATION OF FY 2008-09
OF
FY
2007-08
AND
TARIFF
In Appeal No. 137 of 2008, TPC-G preferred an appeal from this Order of the Commission
before the Hon’ble ATE under Section 111 of the EA 2003 on the following issues:
a) Disallowance of brand equity component of A&G expenses during true up for FY
2006-07.
b) Denial of rightful retention of the difference between normative interests on working
capital on account of the cost of its internal funds utilized for funding working capital.
c) Disallowance of entitlements to gains on account of maintaining O&M expenditure
despite significant increase in uncontrollable expenses.
d) Disallowance of depreciation expenditure projected for FY 2007-08 and FY 2008-09
for the assets expected to be capitalized during the year.
The appeals of TPC-G came to be allowed by the Hon’ble ATE’s Judgment dated July 15,
2009 in Appeal No. 137 of 2008, as follows:
a) The Hon’ble ATE held that TPC-G is entitled to Tata brand equity expenses and
directed the Commission to revise the ARR.
b) The Hon’ble ATE upheld the earlier Judgments issued in Appeal No. 111 of 2008 on
May 28, 2009 in the matter, stating that the Commission should look into the source
of internal accruals and the cost of generating such accruals while arriving at the gains
or losses.
c) The Hon’ble ATE held that any additional expenditure due to uncontrollable factors
needs to be deemed as pass through.
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d) The Hon’ble ATE directed the Commission to revise the ARR and allow Depreciation
Expenditure projected for FY 2007-08 and FY 2008-09 for the assets expected to be
capitalised during the year.
1.7 MERC ORDER ON APR FOR FY 2008-09 AND TARIFF DETERMINATION
FOR FY 2009-10
TPC-G submitted its APR petition for FY 2008-09 and Tariff Determination for FY 2009-10
on November 28, 2008 ( Case No. 111 of 2008 ). The Commission issued the APR Order for
TPC-G on May 28, 2009, which came into effect from June 1, 2009. TPC-G appealed against
the Commission’s Order before the Hon’ble ATE (Appeal No. 173 of 2009).
1.8
HON’BLE ATE ORDER ON APR
DETERMINATION OF FY 2009-10
OF
FY
2008-09
AND
TARIFF
In Appeal No. 173 of 2009, TPC-G preferred an appeal from certain portions of the Order
dated May 28, 2009 passed by the MERC in Case No. 111 of 2008 on the following issues:
a) Denial of carrying/interest cost;
b) Disallowance of increased heat rate for thermal units at Trombay;
c) Wrongful consideration of the difference between the normative interest on working
capital and actual interest on working capital as gains and sharing of 1/3rd amount
with the distribution licensee;
d) Disallowance of A&G expenses towards Tata brand equity payment;
e) Wrongful reduction in gains due to inclusion of fringe benefit tax(FBT) in employee’s
expenditure;
f) Wrongful treatment of income tax;
g) Entitlement of interest or carrying cost on deferred recoveries.
TPC-G claims came to be partly allowed by the Hon’ble ATE’s Judgment dated 15 February,
2011 in the case as follows:
a) The Hon’ble ATE held that the TPC-G is entitled to carrying cost and directed the
Commission to allow the carrying cost.
b) The Hon’ble ATE held the issue in favour of the Commission with respect to
disallowance of increased heat rate for thermal units at Trombay.
c) The Hon’ble ATE upheld the earlier Judgments issued in appeal no. 111 of 2008 on
28 May, 2009 and appeal no. 137 of 2008 on 15 July, 2009 in the matter, stating that
the Commission should look into the source of internal accruals and the cost of
generating such accruals while arriving at the gains or losses.
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d) The Hon’ble ATE held that TPC-G is entitled to Tata brand equity expenses and
directed the Commission to revise the ARR.
e) The Hon’ble ATE held that the FBT is an uncontrollable expense and should be
allowed as pass through.
f) The Hon’ble ATE directed the Commission to compute the income tax entitlement
by replacing return on equity by regulatory profit before tax (PBT) based on income
less permissible expenses.
g) The Hon’ble ATE held that TPC-G is entitled to carrying cost and directed the
Commission to allow the carrying cost.
1.9 MERC
ORDER
FOR
APPROVAL
OF
CAPITAL
DETERMINATION OF TARIFF FOR TROMBAY UNIT# 8
COST
AND
TPC-G submitted a Petition for approval of Capital Cost and Tariff Determination for
Trombay Unit#-8 on July 8, 2009 numbered as Case No. 35 of 2009. The Commission issued
the Order on the matter. TPC-G filed a Review Petition (Case No. 8 of 2010) against the said
Order; the Commission admitted the Petition and revised the capital cost and Tariff for Unit#
8 vide its Order dated August 3, 2010. TPC-G appealed against the revised Order in Case No.
35 of 2009 before the Hon’ble ATE (Appeal No. 107 of 2010).
1.10 HON’BLE ATE’S ORDER ON APPROVAL OF CAPITAL COST AND TARIFF
DETERMINATION OF TROMBAY UNIT# 8
In Appeal No. 87 and 107 of 2010, TPC-G preferred an appeal from certain portions of an
Order dated January 19, 2010 passed by MERC in Case No. 35 of 2009 in the matter of
Approval of capital cost and Tariff determination for Trombay Unit# 8 on the following
issues:
a) The Commission’s direction to ensure supplies corresponding to the capacity of
Trombay Unit# 8 contracted by Mumbai Distribution Licensees
b) Non-consideration of octroi payment while determining capital cost.
c) Wrongful treatment of income tax.
d) Disallowance of actual rate of interest paid by TPC-G.
The Appeals were allowed by the Hon’ble ATE’s Judgment dated August 26, 2011 in Appeal
No. 87 and 107 of 2010 as follows:
a) The Hon’ble ATE held that the Commission’s directions to ensure supplies
corresponding to the capacity of Trombay Unit# 8 contracted by Mumbai Distribution
Licensees rather than proportional to total capacity is contrary to the findings of the
Hon'ble Supreme Court and the PPA approved by the Commission.
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b) The Hon’ble ATE held that the octroi payment made by TPC-G should be allowed in
capital cost.
c) The Hon’ble ATE upheld the earlier Judgement in Appeal No. 68 of 2009 on March
23, 2010, directing the Commission to pass the consequential Order regarding the
wrongful treatment of Income Tax in the light of the findings of the Hon’ble ATE.
d) The Hon’ble ATE agreed with the findings of the Commission regarding the actual
interest rate paid by TPC-G for IDBI tranche-3 loan.
1.11 MERC ORDER ON APR FOR FY 2009-10 AND TARIFF DETERMINATION
FOR FY 2010-11
TPC-G submitted an APR petition for FY 2009-10 and Tariff Determination on December 29,
2009 numbered as Case No.96 of 2009. The Commission issued an Order on September 8,
2010, which came into effect from September 1, 2010. TPC-G has filed an appeal with the
Hon’ble ATE on certain issues, numbered as Appeal No. 18 of 2011, on which judgment is
awaited.
1.12 REVIEW PETITION ON ORDER ON APR FOR FY 2009-10 AND TARIFF
DETERMINATION FOR FY 2010-11
TPC-G filed a Petition on October 18, 2010 in Case No. 71 of 2010 in the matter of review of
the Commission’s Order on APR for FY 2009-10 and Tariff determination for FY 2010-11 on
the following issues:
i) To allow the benefit due to auxiliary consumption as part of expenditure and revise the
resulting revenue gap.
ii) To allow the recovery of additional revenue gap from the three distribution Utilities,
viz., BEST, RInfra-D and TPC-D in the ratio of 41:36:23, respectively.
iii) To allow the revised capitalisation for FY 2008-09 on account of non-consideration of
capitalisation of coal berth of Rs.2.10 crore in FY 2007-08.
The Commission, vide its Order dated November 30, 2010 (Case No. 71 of 2010) agreed on
most of the contentions raised by TPC-G in its Review Petition. The Commission’s views on
the above mentioned issues in the Order were as follows:
i) The Commission agreed with TPC-G on the revision of the share of efficiency gain of
distribution Utilities on account of lower auxiliary consumption as one-third of the
total gain instead of half of the total gains and allowed two-third of such gain to be
passed on as a part of additional revenue.
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ii) The Commission approved the recovery of additional revenue gap from the
distribution licensees on the basis of the ratio of their combined sales for FY 2007-08
and FY 2008-09 and not on the basis of ratios proposed by TPC-G.
iii) The Commission revised the capitalisation for FY 2008-09 by Rs. 2.52 crore and
clarified that any impact of the revision would be taken into account during the true-up
exercise of the next Tariff Petition of TPC-G.
1.13 PETITION FOR TRUING UP OF FY 2009-10 AND APR OF FY 2010-11
In view of the separate process being undertaken by the Commission for implementation of
the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2011
(hereinafter referred as MYT Regulations, 2011) for the Control Period from FY 2011-12 to
FY 2015-16, the Commission directed TPC-G to submit its Petition for Truing up for FY
2009-10 and APR for FY 2010-11, in accordance with the MERC Tariff Regulations, 2005.
TPC-G submitted its Petition for Truing up for FY 2009-10 and APR for FY 2010-11 on July
25, 2011, based on actual audited expenditure for FY 2009-10 and FY 2010-11.TPC-G, in its
Petition, requested the Commission to:
•
Accept the True-up and Annual Performance Review Petition for TPC-G in
accordance with guidelines outlined in MERC Orders passed in various matters
relating to TPC-G and the principles contained in MERC Tariff Regulations, 2005;
•
Include the impact of the Judgment of Hon’ble ATE in respect of Appeal No. 173 of
2009 received on February 15, 2011 along with appropriate carrying cost at SBI PLR
for any past or deferred recoveries/entitlements as presented in this Petition;
•
Condone any inadvertent omissions/errors/rounding off differences/ shortcomings and
permit TPC-G to add/ change/ modify/ alter this filing and make further submissions
as may be required at a future date;
•
Pass such further and other Orders, as the Commission may deem fit and proper,
keeping in view the facts and circumstances of the case.
The Commission, vide its email dated August 8, 2011, forwarded the preliminary data gaps
and the information required from TPC-G. TPC-G submitted its replies to preliminary data
gaps and information requirement on August 22, 2011. The Commission scheduled a
Technical Validation Session (TVS) on TPC-G’s Petition for approval of APR for FY 201011 on August 16, 2011 in the presence of Consumer Representatives authorised under Section
94 (3) of EA 2003 to represent the interest of consumers in proceedings before the
Commission. The Commission directed TPC-G to provide additional information and
clarifications on the issues raised during the TVS. TPC-G’s replies were received on August
29, 2011. The Commission scheduled the second TVS on September 3, 2011. The list of
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individuals, who participated in the first and second TVS, is provided in Appendix -1.
Replies to the queries raised in the second TVS were received on September 8, 2011. TPC-G
submitted a Revised Petition vide letter dated September 16, 2011, The Commission also
directed TPC-G to submit a draft of the Public Notice in English and Marathi in the format
prescribed by the Commission.
1.14 ADMISSION OF PETITIONS AND PUBLIC PROCESS
The Commission admitted the Petition of TPC-G on October 14, 2011. In accordance with
Section 64 of the EA 2003, the Commission directed TPC-G to publish its APR Petition in the
prescribed abridged form and manner, to ensure public participation. The Commission also
directed TPC-G to reply expeditiously to all the suggestions and objections received from
stakeholders on the Petition. TPC-G issued a Public Notice in newspapers inviting
suggestions and objections from stakeholders on the APR Petition. The notice was published
in the Times of India and Indian Express (English), Loksatta and Maharashtra Times
(Marathi) newspapers on October 25, 2011. Copies of TPC-G’s Petitions and its summary
were made available for inspection to members of the public at TPC’s offices and on TPC’s
website (www.tatapower.com). Copy of the Public Notice and an Executive Summary was
also made available on the website of the Commission (www.mercindia.org.in) in a
downloadable format. The Public Notice specified that the suggestions and objections, either
in English or Marathi, may be filed in the form of affidavit along with the proof of service on
TPC.
The Commission received written suggestions and objections on various issues. A Public
Hearing was held on November 26, 2011 at 10:00 hours at Rangsharda Natya Mandir, Bandra
Reclamation, Bandra (W), Mumbai 400 050.
The list of objectors who participated in the Public Hearing is provided in Appendix – 2.
The Commission has ensured that the due process as contemplated under the law to ensure
transparency and public participation was followed at every stage meticulously and adequate
opportunity was given to all the persons concerned to file their say in the matter.
Though a common Public Hearing was held for processing the APR petitions for FY 2010-11
file by TPC-G (Case No. 105 of 2011), TPC-T (Case No. 106 of 2011) and TPC-D (Case No.
104 of 2011), the Commission is issuing separate Orders on the three Petitions filed by TPC.
This Order deals with the Truing Up for FY 2009-10 and APR of FY 2010-11 for TPC-G.
Various suggestions and objections that were raised on TPC-G’s Petition after issuance of the
Public Notice both in writing as well as during the Public Hearing, along with TPC’s response
and the Commission’s rulings have been detailed in Section 2 of this Order.
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1.15 ORGANISATION OF THE ORDER
This Order is organised in the following six Sections:
• Section 1 of the Order provides a brief history of the quasi-judicial regulatory process
undertaken by the Commission. For the sake of convenience, a list of abbreviations with
their expanded forms has been included.
• Section 2 of the Order lists out the various suggestions and objections raised by the
objectors in writing as well as during the Public Hearing before the Commission.
Suggestions and objections submitted by the consumer representatives have been
summarized, followed by the response of TPC-G and the rulings of the Commission on
each of the issues.
• Section 3 of the Order comprises the impact of the Judgment of Hon’ble ATE on previous
years Truing up and Capital cost of Unit# 8.
• Section 4 of the Order details the Truing up of expenses and revenue of TPC-G for FY
2009-10, including sharing of efficiency gains/losses due to controllable factors.
• Section 5 of the Order details the Truing-Up of expenses and revenue of TPC-G for FY
2010-11, including sharing of efficiency gains/losses due to controllable factors.
•
Section 6 of the Order comprises the Total Recoveries pertaining to the past period till FY
2010-11
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2 OBJECTIONS RECEIVED
2.1
MULTI YEAR TARIFF REGIME
Shri. Vinayak G. Joshi and Nagari Nivara Parishad submitted that MYT regime is important
not only to ascertain the current year ARR but to look beyond and develop forecast for ARR
as envisaged in Regulation 15.2 of MERC (Terms and Conditions of Tariff) Regulations,
2005 and also develop forecast of expected revenue from the tariff and charges as envisaged
in Regulation 15.3 of MERC (Terms and Conditions of Tariff) Regulations, 2005. They
requested the Commission to take into account estimated revenue surplus for FY 2011-12 of
TPC-G before arriving at any decision regarding the passing on of revenue gaps to the
distribution licensees immediately, in the form of additional charge.
TPC’s Response
TPC replied that the present Petition is for only Truing up and for determination of past
period recoveries and it does not envisage any increase in the form of additional charge.
Commission’s Ruling
Since, TPC has not proposed any method for recovery of the past revenue gaps, and no such
relief in the form of levy of additional charge is being approved through this Order, this
objection is not relevant to the present Petition, which is for Truing up of expenses and
revenue for FY 2009-10 and FY 2010-11..
2.2
SCOPE OF REGULATION 17.3 OF MERC TARIFF REGULATIONS, 2005
Shri Vinayak G Joshi and Nagari Nivara Parishad submitted that as per Regulation 17.3 of
the MERC Tariff Regulations, 2005, the scope of APR is only to compare audited
performance for the previous year with the approved forecast. The scope of the Commission
was to deal with the amounts of claims related to FY 2009-10 and FY 2010-11 only and the
Commission should have not taken into accounts claimed by TPC-G for the years not under
consideration for the present exercise and restrict itself from acting beyond the scope of the
said Regulations while dealing with recoveries from past years prior to FY 2009-10.
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TPC’s Response
TPC replied that the Tariff for any ensuing year is determined by the Commission
considering the allowable recovery of the approved expenditure entitlements for that
particular year as well as recovery of any past year gaps/ surpluses and disallowances in
expenditures which are subsequently allowed through the Hon’ble ATE Judgments for any
ensuing year. This Petition deals with past recoveries for FY 2009-10, FY 2010-11 and
recoveries due to Judgments of the Hon’ble ATE. TPC further clarified that such gaps have
never been recovered in the past and if not allowed to be recovered now will remain
unrecovered.
Commission’s Ruling
While determining the revenue requirement for any year, the Commission has to consider the
prudent level of expenses and revenue for that year, as well as the unrecovered or surplus
amounts from the previous years, resulting either through the Truing up process or as a result
of Judgments given by the Hon'ble ATE or the Hon'ble Supreme Court. The objectors will
appreciate that the Hon'ble ATE is the appellate authority and its Judgments have to be
implemented by the Commission unless the same have been set aside by the Hon'ble
Supreme Court. It is clarified that the present exercise is within the scope of the Regulations
while dealing with recoveries from past years.
2.3 MAINTENANCE OF SEPARATE ACCOUNTS
Shri Vinayak G Joshi submitted that TPC has not submitted an Allocation Statement and
Accounting Statement as defined in Regulation 2.1 (c) and Regulation 2.1 (a), respectively of
MERC (Terms and Conditions of Tariff) Regulations, 2005.
Shri Joshi and Nagari Nivara Parishad submitted that the Commission should stop accepting
and solely relying upon a Reconciliation Statement in lieu of various mandatory provisions
regarding separate accounts, allocation statements and accounting statements of licensed
business. They also submitted that the Commission should disallow certain expenses as TPC
has not complied with the statutory provisions regarding maintenance of separate accounts as
envisaged in the EA 2003 and various other Regulations of the Commission.
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TPC’s Response
TPC replied that they have been maintaining the revenue and expenditure of the licensed and
non licensed businesses separately and the expenditure provided in the Petition pertains only
to the licensed Business and includes allocation of expenditure from head office and support
services (HO & SS) on a certain basis.
TPC submitted that Regulations 2.1(c), 7.3 and 27.2 of MERC (Terms and Conditions of
Tariff) Regulations, 2005 indicate that an allocation statement or a methodology of allocation
is required to be submitted for the allocation of certain costs and although TPC carries on
with various businesses on its balance sheet, the cost and the assets of all such businesses are
maintained separately under separate division code. Hence, the allocation of such cost of the
different businesses does not arise.
It was submitted by TPC that there are certain departments under the head HO & SS that
require allocation between the various businesses including the business of Mumbai Licensed
Area. TPC submitted that the cost of HO & SS is divided in two parts viz., (i) cost centres
that are dedicated to Mumbai Licensed Area called LA services and (ii) cost centres (HO
Services) that are being used by both Mumbai Licensed Area and other businesses. The cost
allocated to Mumbai Licensed Area is in turn allocated to the generation, transmission, and
distribution businesses on the basis of the methodology explained in the Petition. Hence, the
observation that TPC is not maintaining separate accounts for licensed and non licensed
business is incorrect.
TPC submitted it has submitted a Reconciliation Statement in Annexure 2. As far as penalty
for not complying with various Regulations of the Commission is concerned, TPC submitted
that they have been capturing the costs and revenue separately for each of the licensed
business including the generation business. Further, expenses of a common nature belonging
to shared services at corporate level are allocated to all businesses based on the operating
income of each business. TPC-G further clarified that it has presented in the APR Petition
that the costs and revenues pertaining to the generation business only. As such, TPC
requested the Commission to reject the request for any dis-allowance of expenses on account
of the above reasons.
Commission’s Ruling
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The relevant Regulations quoted by the objectors require the submission of audited accounts
of the Licensee in accordance with the accounting standards, and an Allocation Statement for
segregating the expenses and revenue of the regulated businesses from the non-regulated
businesses. The Commission has relied on the audited accounts as well as the Reconciliation
Statement, duly audited by the statutory auditor, which reconciles the expenses and revenue
indicated in the audited accounts with the values indicated in the APR Petition.
At the same time, the Commission appreciates the concern of the objectors that only those
expenses that are incurred for the regulated business should be passed on to the consumers of
the regulated business. In order to ensure this, the Commission has analysed the submissions
and accounts of TPC in detail and asked TPC to submit explanation and justification for the
HO & SS expenses as well as capital expenditure allocated to the regulated business. The
expenses have been allowed on the basis of replies submitted by TPC to these detailed
queries, and the Commission's analysis and disallowances in this regard are discussed in
Sections 4 and 5 of this Order.
2.4
NON-COMPLIANCE WITH REGULATIONS
Shri Vinayak G Joshi and Nagari Nivara Parishad submitted that as per the provisions of
MERC (Uniform Recording, Maintenance and Reporting of Information) Regulations, 2009,
TPC has failed to submit separate audited accounts and accounting statements of TPC-G in
the Petition. They desired to know whether TPC-G has been submitting the formats as
prescribed in the above said provisions on a quarterly basis to the Commission, and in case
TPC has not submitted the relevant formats, then the Commission may disallow certain
expenses (fixed percentage of total administration and other expenses) of TPC-G for nonadherence to Regulations.
TPC’s Response
TPC replied that in line with Regulation 2(c) of MERC (Uniform Recording, Maintenance
and Reporting of Information) Regulations, 2009, TPC-G has enclosed from page 295 of the
Petition, the Annual Report of TPC Ltd. for FY 2009-10, and from page 373 of the Petition,
the annual report for FY 2010-11 has been enclosed. The said annual reports contains all the
financial and non-financial information, including the audited accounts of the company.TPC
has also submitted reconciliation Statements for FY 2009-10 and FY 2010-11, duly certified
by a chartered accountant providing the allocation of major revenue and expense items
between the generation, transmission, distribution businesses of Mumbai Licensed Area and
other businesses of TPC.TPC further submitted that the information as stipulated in MERC
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(Uniform Recording, Maintenance and Reporting of Information) Regulations, 2009 has been
provided to the Commission on periodic basis and no disallowance of expense should be
done, as TPC-G has complied with the said Regulations.
Commission’s Ruling
The Commission has obtained the Reconciliation Statement towards reconciliation of
expenses and revenue submitted in the APR Petition with the expenses and revenue allocated
to TPC's various businesses as per the audited accounts, and the Reconciliation Statement has
been made part of the Petition that was published for inviting comments from the
stakeholders. Further, the audited accounts of the Petitioner as well as the Allocation
Statements for allocating the expenses and revenue to its various businesses are submitted by
the Petitioner on affidavit and are duly certified by the auditor. Hence, the Commission has
relied on the Reconciliation Statement duly certified by the statutory auditor, for the purpose
of determining the ARR.
The Commission has notified the MERC (Uniform Recording, Maintenance and Reporting of
Information) Regulations, 2009 on April 20, 2009 which is designed to show more clear
segment-wise information for each of the Businesses regulated by the Commission. TPC has
been submitting the required formats; however, it has been observed that the formats relating
to Cash Flow of the regulated business are not being submitted by TPC. TPC is directed to
submit all the Formats specified under the above-referred Regulations, and ensure
completeness of the submissions, in accordance with the Regulations.
2.5
INTEREST ON WORKING CAPITAL
Shri Guruprasad Shetty submitted that TPC is generating substantial surplus and investing the
same in securities and other investments or distributing the same as dividend. He further
submitted that TPC can conserve the surplus and repay the loans taken from the banks and
eliminate the interest on working capital and other finance charges.
TPC’s Response
TPC has not replied to this objection.
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Commission’s Ruling
The Commission does not find any merit in this suggestion. The Commission is concerned
only with the regulated business of TPC and the surplus allowed is equal to the return on
equity, which is regulated by the Commission. Any surplus that TPC earns in any other
business is outside the purview of the Commission and this regulatory process. Further,
interest on working capital is allowed on a normative basis, and in fact, in most years, TPC
does not incur any actual interest on working capital, and the Commission shares the
efficiency gains in accordance with the MERC Tariff Regulations, 2005, as explained in
detail in Sections 3, 4 and 5.
2.6
BRAND EQUITY
Shri. Guruprasad Shetty submitted that electricity, being a scarce resource, will be sold
irrespective of the brand name, and hence, the brand name does not matter.
He suggested that therefore, the brand equity expenses claimed by TPC, as payable to Tata
Sons Limited, the holding company of TPC, should be disallowed.
TPC’s Response
TPC has not replied to this objection.
Commission’s Ruling
The Commission had initially disallowed the brand equity expenses payable by TPC to Tata
Sons Limited for the use of the Tata brand name. However, TPC appealed against this
disallowance before the Hon'ble ATE, and the Hon’ble ATE has allowed this expense to be
claimed through the ARR and tariffs. Hence, this amount is being allowed as a pass through
expense in the ARR.
2.7
RETURN ON EQUITY
Shri Guruprasad Shetty submitted that return on equity should be given to new units only
while TPC-G has very old units and since the company has a small equity base and small
number of shareholders, their contribution has already been repaid thousand times. He further
submitted that the surpluses are of consumers and should be passed on to them.
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TPC’s Response
TPC has not replied to this objection.
Commission’s Ruling
The Commission does not find any merit in this suggestion. The Commission is concerned
only with the regulated business of TPC and the surplus allowed is equal to the return on
equity, which is regulated by the Commission in accordance with the MERC Tariff
Regulations, 2005. In the previous APR Order dated September 8, 2010 in Case No. 96 of
2009, the Commission has already directed TPC to submit the relevant data to enable the
Commission to ensure that in case any asset is being replaced or retired, then the
corresponding equity contribution is also reduced, so that TPC does not return on equity that
is no longer invested in the business.
TPC-G in its Petition has submitted such data and therefore, has complied with the directive.
2.8
COST OF GENERATION
Shri N Ponrathnam submitted that the oil which TPC uses in its power plants is the final
wastage from the refineries located adjacent to it. Hence, there is no transportation cost, and
the cost of oil generation should be comparable to the cost of coal-based generation.
TPC’s Response
TPC replied that the oil being used for power generation in its Trombay plant is special low
sulphur oil, which is necessary in view of the stringent environmental norms stipulated for
SO2 emissions. Further, although the same is a by- product in oil refineries, it still commands
a price that is linked to international crude oil prices, which is subject to fortnightly revision
by the oil marketing companies. The other alternative is to buy the same from international
market, which is more expensive. As such, there is no comparison between coal based
generation and oil based generation as implied by the objector.
Commission’s Ruling
The Commission agrees with TPC's reply in this regard, as TPC procures the low sulphur oil
from the oil refineries at a price determined by them, and the Commission verifies the fuel
cost incurred while approving the FAC, by checking the fuel bills. Hence, the cost incurred
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by TPC for procuring oil has to be passed through and oil based generation cannot be
compared to the coal based generation.
2.9
DEMAND FOR ASH FROM POWER PLANT
Shri N Ponrathnam submitted that ash is one of the raw materials for cement plants. He added
that ash, which was once a waste and also created the problem of disposal now, has a salvage
value. This has not been highlighted by TPC. He added that the cost of coal is not directly
proportional to the cost of electricity projected by TPC.
TPC’s Response
TPC submitted that as per environmental regulations and rules, a generating plant is expected
to utilise 100% of the ash generated in any plant within four years. In case, any expenditure is
incurred towards the same, the same is considered as part of ash handling expenses.
However, there are number of users who are ready to take this ash for various applications.
As such, there is scope for earning revenue out of the same, which is being done by TPC. The
revenue from sale of ash at Trombay is booked under the head of non tariff income (income
from operations) which is passed on to consumers by way of reducing the ARR of the
respective year.
Commission’s Ruling
The revenue from sale of fly ash is included under the non-tariff income of TPC and is used
to reduce the ARR and tariff of TPC-G. As regards the objection that the cost of coal is not
directly proportional to the cost of electricity, the generation tariff is determined by the
Commission by considering the fuel costs under the variable costs, as well as operational
performance parameters such as station heat rate, auxiliary consumption, transit loss and
secondary fuel oil consumption, in addition to the fixed cost elements such as O&M
expenses, capital related expenses like depreciation, interest and RoE, etc. The detailed
analysis of the cost elements is given in Section 4 and 5 of this Order for FY 2009-10 and FY
2010-11, respectively.
2.10 PERFORMANCE OF GENERATION
Shri Ashok Pendse submitted that if the performance of TPC-G is considered for FY 200809, FY 2009-10 and FY 2010-11, it has been deteriorating each year compared to the figures
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approved by the Commission in the respective years. He submitted that on comparing the
performance of TPC-G on the basis of
(a) Generation performance in MU
(b) Heat Rate
(c) Fixed Charges,
It is observed that the performance has been inferior compared to what has been approved by
the Commission in the respective Orders for all the three consecutive years. In addition, there
is deterioration from one year to the next, and the impact of such lower generation on
distribution companies in Mumbai license area would be costlier power purchase from the
imbalance pool and short term power purchase. He asked TPC to clarify as to why the
consumer should pay for the non-performance of TPC-G. He further submitted that the high
cost power purchase on account of reduced generation by TPC-G should be borne by TPC
and not by the consumers.
TPC’s Response
TPC replied that the generation performance should not be seen in isolation, and the
generation Plant Load Factor is high, if the generating station is meeting base load
requirement. However, TPC-G's stations are being operated to meet a mix of base load and
peak load and have to be backed down in accordance with merit order principles, which
results in lower generation as well as higher station heat rate, as well as fixed charges.
Commission’s Ruling
The analysis of the generation performance and operational parameters of TPC-G has been
elaborated in Section 4 and 5 of this Order. The fixed costs and variable costs have been
allowed in accordance with the MERC Tariff Regulations, 2005, wherein, the fixed costs
have been allowed fully, only in cases where the availability of the generating unit as
certified by SLDC is more the normative level of 80%. Also, generation incentive has been
considered when the PLF of the unit is higher than 80%. Further, it is a fact that TPC's oil
based generation is costly and has to be backed down during periods of low demand based on
the merit order despatch principles.
2.11 LOW PLF COMPARED TO OTHER GENERATORS
Shri Ashok Pendse submitted that presently Torrent in Ahmedabad and Reliance at Dahanu
have a PLF of 103% and 102%, respectively, and TPC should compare itself with these
generating units and take steps to increase its generation.
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Shri Ashok Pendse submitted that CPRI should be asked to conduct a study on TPC-G's units
on the lines of Mahagenco.
TPC’s Response
TPC replied that TPC’s coal based plants exclusively use imported Indonesian coal as against
the blended coal being used by Reliance at Dhanau and Torrent in Ahmedabad. The primary
reason for usage of imported coal is strict environmental pollution norms prescribed for the
Trombay Station, which necessitates use of low sulphur, low ash coal.
TPC submitted that as a result of this, the variable cost of TPC’s coal based plants would be
always higher as compared to domestic coal based plants. This results in these other plants
getting a constant load dispatch resulting in higher PLFs. However, TPC has been constantly
endeavouring to alter its fuel mix so as to lower the Tariff for the end consumers by way of
exploring use of the low sulphur, low ash Indonesian coal, switching to RLNG firing instead
of expensive LSHS and increasing the coal based generation while staying within the
environmental norms.
Commission’s Ruling
The analysis of the generation performance and operational parameters of TPC-G has been
elaborated in Section 4 and 5 of this Order. The fixed costs and variable costs have been
allowed in accordance with the MERC Tariff Regulations, 2005, wherein, the fixed costs
have been allowed fully, only in cases where the availability of the generating unit is over the
normative level of 80%. Also, generation incentive has been considered when the PLF of the
unit is higher than 80%. Further, it is a fact that TPC's oil based generation is costly and has
to be backed down during periods of low demand under the merit order despatch principles.
As per the Tariff Regulations, the normative availability for thermal generating station is 80%
and the actual availability of most of the TPC-G’s thermal generating units during FY 200910 and FY 2010-11 is more than the normative availability.
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3 IMPACT OF HON’BLE ATE’s JUDGMENTS
3.1
IMPACT OF HON’BLE ATE’S JUDGMENT DATED FEBRUARY 15, 2011
As discussed in Section 1 of this Order, the Commission had issued its Tariff Order on TPCG’s ARR Petition for FY 2009-10 on May 28, 2009 in Case No. 111 of 2008. In the said
Order, the Commission had carried out the final Truing up of the expenditure and revenue for
FY 2007-08, provisional Truing up for FY 2008-09 and approved the tariff for FY 2009-10.
TPC-G filed an Appeal (Appeal No. 173 of 2009) before the Hon’ble ATE against the said
Tariff Order claiming expenditure disallowed by the Commission under different heads for
three years.
TPC-G submitted that subsequently, it had filed the APR Petition for FY 2009-10 in
December 2009, wherein it had reserved the right to claim the disallowed expenditure,
subject to receiving a favourable Judgment from the Hon’ble ATE. The Hon’ble ATE issued
Judgment on the case on February 15, 2011. TPC-G has claimed the amount entitled to be
recovered consequent to the Hon’ble ATE’s Judgment in its Petition, which has been
discussed along with the Commission’s analysis and decisions, in this Section.
3.1.1
Denial of carrying/interest cost
TPC-G submitted that in its Appeal No. 173 of 2009 to the Hon’ble ATE, it had contended
that the Commission had unjustly disallowed the rightful entitlement of the carrying costs on
the expenses restored by the Hon’ble ATE in Judgment dated May 12, 2008 in the matter of
Appeal No. 60 of 2007. TPC-G had prayed for the carrying cost on these amounts, in its
Petition for Tariff determination for FY 2009-10 (Case 111 of 2008). The Commission had
disallowed these carrying costs on the grounds that in the earlier Appeal filed by TPC-G in
Appeal No. 60 of 2007, TPC-G had not prayed for the carrying cost and therefore, Hon’ble
ATE in that Appeal did not mention any specific finding regarding the carrying cost. In this
regard, TPC-G submitted the following extract of the Hon’ble ATE’s Judgment:
“9. The first issue is denial of carrying cost. According to the Appellant disallowance
of recovery of carrying cost of Rs. 137 crores on the ground that the carrying cost
was not prayed in Appeal No. 60/07 and in the judgment dated 12.05.2008 in the said
Appeal, the Tribunal has not given any specific finding about the carrying cost is
quite incorrect. It is pointed out that the State Commission has misinterpreted the said
judgment and did not appreciate the submissions made by the Appellant before the
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Tribunal. Similarly, it is wrong on the part of the State Commission to state that the
Appellant would be entitled to the carrying cost only on cash component and not on
book adjustment.
10. In the petition filed by the Appellant for ARR for FY 2008-09 and for tariff
determination for the FY 2009-10, the Appellant mentioned that the cost allowed by
the Tribunal by the order dated 12.05.2008 can only be recovered in FY 2009-10 and
since cost pertain to FY 2004-05 and 2005-06, the interest for 3 to 4 years would
accrue and the Appellant would be entitled to the said interest. It is also noticed from
the Appeal filed before the Tribunal in Appeal No. 60/07, it is specifically mentioned
that denial of legitimate expenses and assured reasonable return is unjust and the
aforesaid unjust denial of legitimate expenses and assured reasonable return and its
delayed payment will have a cascading effect and, therefore, the Appellant in such
situation is entitled to carrying cost. The Appellant also prayed for allowing the entire
legitimate expenditure which includes the carrying cost as well. This Tribunal in the
judgment dated 23.05.2007 reported in 2007 ELR (APTEL) 193 has held that once
expense is allowed then the Appellant is not only entitled to the expense but is also
entitled to the carrying cost as its legitimate claim. The relevant observation of the
judgment is as follows:
“The appellant is not only entitled to depreciation at this rate but also entitled
to a carrying cost as its legitimate claim was denied at the appropriate time”
11. Although the Appellant may have accrued income, the cost had already been
incurred by the Appellant and there has been cash outflow in respect of the same. On
accrual income is allowed because corresponding expenses to earn that income had
already been incurred. Hence it may not be appropriate to indicate that these
accruals are mere book adjustment and do not involve the cash flow. In other words,
it would not be appropriate to segregate the disallowance of expense into cash and
non-cash expenditure. In this context, the following observation made by this Tribunal
in the judgment dated 30.07.2010 in the case of New Delhi Power Limited V/s DERC
[passed in 153/09 2009(reported in 2010 ELR (APTEL) (891) is relevant
“45. The carrying cost is allowed based on the financial principle that
whenever the recovery of cost is deferred, the financing of the gap in cash flow
arranged by the distribution company from lenders and/or promoters and/or
accruals, has to be paid for by way of carrying cost. This principle has been
well recognized in the regulatory practices as laid down by this Tribunal as
well as the Hon’ble Supreme Court. In 2007 APTEL 193, this Tribunal has
held that along with the expenses, carrying cost is also to be given as
legitimate expense”. Hon’ble Supreme Court in 2007 (3) SCC 33 has also
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held “the reduction in the rate of depreciation is violative of the legitimate
expectation of the distribution company to get lawful and reasonable recovery
of expenditure.”
“58. (iv): The carrying cost is a legitimate expense and therefore recovery of
such carrying cost is legitimate expenditure of the distribution
company.”……” .
“13. Accordingly, the issue of carrying cost is decided in favour of the Appellant.”
(Emphasis Supplied)"
TPC-G submitted that the Hon’ble ATE has further reiterated its decision in the above matter
in the summary of findings as indicated in the extract of the Judgment reproduced below:
“43. Summary of Our Findings
(1) Carrying cost is a legitimate expense. Therefore, recovery of such carrying cost is
legitimate expenditure of the distribution companies. The carrying cost is allowed
based on the financial principle that whenever the recovery of cost is deferred, the
financing of the gap in cash flow arranged by the Distribution Company from
lenders/promoters/accruals is to be paid by way of carrying cost. In this case, the
Appellant, in fact, had prayed for allowing the legitimate expenditure including
carrying cost. Therefore, the Appellant is entitled to carrying cost. (Emphasis
Supplied)
As the Commission has already given effect to the Hon’ble ATE’s Judgment dated May 12,
2008 in its Tariff Order dated May 28, 2009 in the Case No. 111 of 2009, TPC-G in view of
the above Judgment requested the Commission to allow the entire amount of carrying/interest
cost.
TPC-G also submitted that it had received a refund towards VAT from the tax authorities
pertaining to FY 2005-06 and it had offered the said refund to the consumers in its Tariff
Petition for FY 2010-11. TPC-G had not considered carrying cost on this VAT refund as the
carrying cost was not allowed by the Commission in implementation of Appeal 60 of 2007.
TPC-G, in the light of the ATE Judgment in Appeal No. 173 of 2009, also proposed to offer
the carrying cost for the said VAT refund from the year in which it was due.
TPC-G submitted that the amount approved by the Commission (excluding the carrying cost)
that would have been restored in FY 2009-10, is as given in the table below:
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Table: Approved Amount Recoverable due to Hon’ble ATE Judgment dated May 12, 2008, as
submitted by TPC-G
TPC-G further submitted the computation of net carrying costs eligible for recovery by TPCG up to FY 2009-10 as tabulated below:
Table: Accumulated Carrying Cost Entitlement on the amounts restored by Hon’ble ATE
Judgment dated May 12, 2008 (Appeal No. 60 of 2007), as submitted by TPC-G
TPC-G further submitted that the above carrying cost amount of Rs. 156.24 crore has been
worked out on the basis that the impact of Appeal No.60 of 2007 would be restored in FY
2009-10. TPC-G added that on account of denial of the carrying cost by the Commission in
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that year, it can be recovered only during FY 2011-12 for which it would be entitled to
additional carrying costs, which has been submitted separately.
TPC added that as the VAT refund amount was received in FY 2005-06, the same has been
adjusted with the amount restored due to the Hon’ble ATE Judgment in FY 2005-06 while
working out the carrying cost on the amount restored and to pass on the carrying cost on
VAT refund. The Commission, in light of the said Hon’ble ATE Judgment, has allowed the
carrying cost on the net amount restored by the Hon’ble ATE's Judgment dated May 12, 2008
after VAT adjustment. The above said expenses were disallowed during the Truing up
process for FY 2004-05 and FY 2005-06 in the Commission's Order dated October 3, 2006 in
Case Nos 12 of 2005 and 56 of 2005. If these expenses had been approved by the
Commission while carrying out the truing up, TPC-G would have recovered this amount from
October 2006 onwards in FY 2006-07. Further, as these expenses were later restored by the
Commission in Order dated May 28, 2009 in Case No. 111 of 2008, and were recovered by
TPC-G from June 2009 onwards in FY 2009-10, the Commission is of the view that the
carrying cost is applicable only for the period when the recovery of these amounts were
deferred, i.e., from October 1, 2006 to May 31, 2009. The Commission, based upon the above
said principle, has recomputed the allowable carrying cost as Rs. 121.71 crore as shown in
the Table below:
Table: Accumulated Carrying Cost Entitlement on the amounts restored by the Hon’ble
ATE Judgment dated 12th May 2008 (Appeal 60 of 2007) (Rs. crore)
FY
2004-05
Amount Eligible for Carrying Cost
FY
2005-06
-0.55
372.54
Total
Months of Interest for
amount due
S No.
FY for which
interest
computed
1
FY 2004-05
10.25%
2
FY 2005-06
10.25%
3
FY 2006-07
10.94%
6
6
-0.030
20.38
20.35
4
FY 2007-08
12.48%
12
12
-0.069
46.49
46.42
5
FY 2008-09
12.79%
12
12
-0.070
47.65
47.58
6
FY 2009-10
11.87%
2
2
-0.011
7.37
7.36
-0.180
121.89
121.71
Total
Rate of
Interest
FY 2004-05
FY 2005-06
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Further, the Commission has also allowed the entitlement of additional carrying cost on this
carrying cost amount, which has been computed subsequently in this Section.
3.1.2
Disallowances of administrative and general (A&G) expenses towards Tata
brand equity expenses
On the issue of disallowance of the expenses on brand equity, the Commission, vide Order
dated May 28, 2009, stipulated as follows:
“The Commission obtained the details of ‘other expenses’ shown under A&G
expenses for FY 2007-08, which includes expenses towards Brand Equity, director
fees, scrapping of expenses, etc. As elaborated in its APR Order dated April 2, 2008
in Case No. 68 of 2007, the Commission has not considered the expense of Rs 9.06
crore towards Tata Brand Equity. The relevant Para of the said Order stipulates as
follows:
“…The Commission is of the opinion that this expense of Rs 7.29 Crore towards Tata
Brand Equity is a sort of internal arrangement between the Group Companies and
this amount is paid to the promoter of the Company, viz., Tata Sons. The kind of
support provided by Tata Sons to TPC, as stated by TPC in above paragraphs is
normal and usually in business, the promoter provides such support to its Group
Companies as it also earns returns from its Group Companies. TPC itself is a 100
year old business and a brand name in its own right and with assured returns in a
regulated business, has all the financial and other goodwill to conduct its business
optimally. Therefore, the amount paid by TPC to Tata Sons under Tata Brand Equity
should not be separately allowed, as it would amount to provide the promoters
additional return on equity. As per the MERC Tariff Regulations, a Generating
Company can only be provided a regulated Return on Equity of 14% on the
regulatory equity as estimated by the Commission and if any expense towards the
Tata Brand Equity is allowed, then it would tantamount to allowing a higher Return
on Equity. For FY 2006-07, if this expense of Rs 7.29 Crore is considered, the ROE
works out to around 14.7%. TPC, in its additional submissions, has stated that the
ceiling for expenditure under this head is Rs 50 Crore and if Rs 50 Crore is
considered as additional return (to be shared between TPC-G, TPC-T and TPC-D in
proportion to their RoE), than the effective RoE works out to more than 17%...”
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TPC-G submitted that in this matter also, the Hon’ble ATE has allowed the appeal in favour
of TPC-G. However, the Commission has already allowed brand equity for FY 2007-08, FY
2008-09 and FY 2009-10 in its Tariff Order dated 8th September 2010 in Case No. 96 of
2009. Therefore, TPC-G has not claimed any additional recovery on account of brand equity
expenditure for the said years.
In accordance with the Hon’ble ATE Judgment in Appeal No. 137 of 2008 on this issue, the
Commission has already considered the additional allowable expenses on account of brand
equity from FY 2006-07 onwards in the Commission’s Order dated September 8, 2010 in
Case No. 96 of 2009.
3.1.3
Entitlement of Normative Interest on Working Capital
On the issue of treatment of normative interest on working capital, the Commission, vide
Order dated May 28, 2009, stipulated as follows:
“As discussed in the above paragraphs, the actual interest on working capital
incurred by TPC-G during FY 2007-08 is Rs. 22 crore and the normative interest on
working capital approved by the Commission considering other elements of expenses
as approved after truing up, works out to Rs. 84.79 crore. The Commission has
considered the difference between the normative and actual interest on working
capital as efficiency gain and has considered sharing of the same with the
Distribution Licensees in accordance with the MERC Tariff Regulations.”
As regards the above, TPC-G filed its appeal (Appeal No. 173 of 2009) before the Hon’ble
ATE wherein it had contended that Interest on working capital is a normative expense
entitlement similar to the interest expense incurred on the normative debt for funding capital
expenditure, and any difference between the normative interest on working capital and actual
interest on working capital should not be treated as efficiency gains to be shared with
consumers.
TPC-G submitted that the Hon’ble ATE has ruled on this issue in Appeal No. 173 of 2009 as
follows:
“23.The next issue is wrongful consideration of the difference between normative
interest on working capital and the actual interest of working capital. In respect of
this issue, according to the Learned Counsel for the Appellant, the judgment rendered
by this Tribunal in Appeal NO. 137/08, this point has been referred in favour of the
Appellant. The relevant observation in the said judgment is as follows…….”
TPC-G submitted that the Hon’ble ATE has concluded its observations and has ruled on the
issue as below:
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“24.In view of the law laid down by his Tribunal in the aforesaid judgment which
covers the issue in hand, the State Commission is directed to restore the actual
amounts considered as part of the gains on account of saving in interest expenditure
in working capital.”(emphasis added)
TPC-G submitted that in the Tariff Order dated September 8, 2010, the Commission had
asked TPC-G to provide clarity on whether the working capital requirement was met from the
cash flows of TPC-G or cash flows from any other business. Further, the Commission also
asked TPC-G to submit the cash-flow statement indicating as to how the working capital
requirement has been met for TPC-G. Finally, the Commission did not find any merit in
clawing back this amount that was passed to the consumers.
TPC-G submitted that the Hon’ble ATE in the above Judgment has clearly stated that the
Commission should restore the amount of difference between the normative interest on
working capital and actual interest on working capital that was passed on to the consumers as
efficiency gains. TPC-G further submitted that the Hon’ble ATE has not put any condition or
any requirement of further scrutiny on the amounts that have been claimed. Since, the
Hon’ble ATE has established the principle clearly, TPC-G requested the Commission to
restore the said amounts earlier passed on to consumers /distribution licensees for FY 200607, FY 2007-08 and FY 2008-09 as the same issues are involved for the respective years.
TPC-G has claimed the following amount to be restored for FY 2006-07, FY 2007-08 and FY
2008-09:
Table: Entitlement of Interest on Working capital as submitted by TPC-G
Further in reply to the Commission’s query in the above matter, TPC-G submitted that since
last year it has been pointing out to the Commission the difficulty in computing cash flow
statement for different businesses on account of common balance sheet and common cash
balance. Therefore, TPC-G would not be able to provide the cash flow statement for
computing the financing of working capital. TPC-G further submitted that working capital is
an item of balance sheet while cash flow is worked out for a period of time such as one year.
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In other words, the cash flow statement can at most determine the cash that may be available
to meet the change in the net working capital (i.e., CA less CL) and not for the working
capital.
TPC-G added that it is willing to submit a Regulated Cash Flow Statement, if desired by the
Commission. TPC-G further submitted that if the objective of the Commission in seeking the
cash flow statements is to analyse sources of funds for meeting the working capital
requirement and thereby arrive at the efficiency gains due to difference between normative
interest entitlement on working capital and actual interest incurred on working capital
(IoWC), then the issue had been elaborately discussed in the Hon’ble ATE Judgments dated
February 15/14, 2011 in Appeal No. 173 of 2009 and Appeal No. 174 of 2009. The Hon’ble
ATE, in the said Judgments had ruled that the Commission has wrongfully denied the cost of
internal cash used for funding working capital by sharing 1/3rd of the difference between
normative IoWC and Actual IoWC. TPC-G submitted that the Hon’ble ATE had ruled that
the same should not be treated as an efficiency gain and had directed that the amounts passed
on to consumers on account of such difference should be restored to the appellant.
TPC-G further submitted the following extract from the Judgment dated February 15, 2011 in
Appeal No. 173 of 2009:
“23. The next issue is wrongful consideration of the difference between normative
interest on working capital and the actual interest of working capital. In respect of
this issue, according to the Learned Counsel for the Appellant, the judgment rendered
by this Tribunal in Appeal No. 137/08, this point has been referred in favour of the
Appellant. The relevant observation in the said judgment is as follows.
Analysis and decision
“20. in Appeal No. 111/08, in the matter of Reliance Infrastructure V/s MERC and
Ors., this Tribunal has dealt the same issue of full admissibility of the normative
interest on Working Capital where the Working Capital has been deployed from the
internal accruals. Our decision is set out in the following paras of our judgment dated
May 28, 2008 in Appeal No. 111 of 2008
“7. The Commission observed that in actual fact no amount has been paid towards
interest. Therefore, the entire interest on Working Capital granted as pass through in
tariff has been treated as efficiency gain. It is true that internal funds also deserve
interest in as much as the internal fund when employed on Working Capital loses the
interest it could have earned by investment elsewhere. Further, the licensee can never
have any fund which has no cost. The internal accruals are not like some reserve
which does not carry any cost. Internal accruals could have been inter corporate
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deposits, as suggested on behalf of the appellant. In that case the same would also
carry the cost of interest. When the Commission observed that the REL, had actually
not incurred any expenditure towards interest on Working Capital it should have also
considered if the internal accruals had to bear some costs themselves. The
Commission could have looked into the source of such internal accruals or funds
could be less or more than the normative interest. In arriving at whether there was a
gain or loss, the Commission was required to take the total picture into consideration
which the Commission has not done. It cannot be said that simply because internal
accruals were used and there was no outflow of funds by way of interest on Working
Capital and hence the entire interest on working capital was gain which could be
shared as per Regulation No. 19. Accordingly, the claim of the appellant that it has
wrongly been made to share the interest on Working Capital as per Regulation 19 has
merit.
15 b): The interest on Working Capital for the year in question, shall not be treated as
efficiency gain.”
21. In view of our earlier decision on the same issue we allow the appeal in this
regard also.”
24. In view of the law laid down by this Tribunal in the aforesaid judgment which
covers the issue in hand, the State Commission is directed to restore the actual
amounts considered as part of the gains on account of saving in interest expenditure
in working capital. (Emphasis supplied)
TPC’s contention that any difference between the normative interest on working capital and
actual interest on working capital should not be treated as efficiency gains to be shared with
consumers is not in line with the MERC Tariff Regulations, 2005. As per Regulation 17.6.2
(d) of the MERC (Terms and Conditions of Tariff) Regulations, 2005, variation in working
capital requirement is a controllable factor, and the sharing of gains has to be computed in
accordance with Regulation 19.1 of the MERC (Terms and Conditions of Tariff) Regulations,
2005. In its previous Orders, the Commission has considered the entire normative working
capital interest as efficiency gain, except in cases where TPC-G has submitted details of the
actual working capital interest incurred.
As seen from the above Judgments quoted by TPC-G, while ruling on the matter, the Hon’ble
ATE has observed that the Commission should have assessed whether the internal accruals
had to bear some costs themselves, and that the Commission could have looked into the
source of such internal accruals or funds, and the cost of these funds could be higher or lower
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than the normative interest. The Hon’ble ATE had also observed that in the original Appeal
filed by RInfra in this regard, based on which all subsequent Judgments in this regard have
been given, the Appellant had contended that the internal accruals could have been intercorporate deposits, which would carry a certain interest cost. The Hon’ble ATE had observed
that the Commission was required to take the total picture into consideration while deciding
at whether there was an efficiency gain or loss.
The Commission has been insisting that utilities maintain separate accounts for the regulated
business. Further, in accordance with the Hon’ble ATE's Judgments in this regard, the
Commission has consistently been asking TPC to provide clarity regarding whether the
working capital requirement has been met from the cash flows of TPC-G and/or cash flows
from other businesses. Further, TPC was also asked to submit the cash flow statement
indicating how the working capital requirement has been met for TPC’s generation business.
In addition, the source and cost of such funds with appropriate justification was sought from
TPC-G. However, no such details have been submitted by TPC for the years under
consideration. Thus, the Commission is unable to identify the actual source of funding the
working capital requirement and the actual interest expense incurred on working capital. The
Commission is of the view that by implication, TPC-G has managed to meet its working
capital requirements by its own operational efficiency, and has minimised the working capital
requirement and not relied on any funds to meet this requirement. The Commission has
therefore considered normative interest on working capital and has allowed the difference
between actual and normative working capital under the mechanism of sharing of efficiency
gains and losses in accordance with MERC Tariff Regulations, since interest on working
capital is a controllable factor as per the MERC Tariff Regulations.
In view of the above, the Commission finds that there is no merit in TPC-G's claim that the
entire amount of interest on working capital is allowable to TPC-G without any sharing, and
no amount has been 'restored' on this account. However, the same is subject to the Judgment
of the Hon'ble Appellate Tribunal on the Appeal filed by TPC-G on the same issue in the
context of the Tariff Order dated September 8, 2010 in Case No. 96 of 2009, which is
presently pending before the Hon'ble ATE.
3.1.4
Reduction in gains due to inclusion of FBT in Employee Expenditure
TPC-G submitted that in its Appeal No. 173 of 2009 before Hon’ble ATE, it had contended
that the Commission has failed to consider that fringe benefit tax (FBT) is a statutory expense
and is uncontrollable in nature and therefore, the same should be allowed as pass through.
The Hon’ble ATE’s decision on this issue is as follows:
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“28. It cannot be disputed that it is a statutory expense and hence it has to be
construed as uncontrollable. The State Commission in its MYT order had approved
the O&M expenses which did not envisage the FBT. As FBT was levied subsequently,
it will not be proper to compare the approved O&M expenses with the actual O&M
expenses. The correct approach would be to compare the actual O&M expenses
without FBT with the approved expenditure, compute the gains and loss and then add
the FBT paid by the Appellant to allow for the pass through for uncontrollable
factors.
29. The State Commission’s Tariff Regulations provide that any increase in O&M
expenses on account of uncontrollable expenses are entitled to be treated as pass
through in the computation of the efficiency gains.
30. In view of the above, the State Commission is directed to consider FBT as a pass
through being an element of tax or in the alternative to allow as pass through as
uncontrollable factor in O&M expenses and thereafter compare actual O&M
expenses excluding FBT with approved O&M expenses for computation of sharing of
gains and loss for controllable factors. Accordingly ordered”
TPC-G submitted that the Hon’ble ATE, in the above Judgment has clearly stated that the
Commission should either allow FBT to be passed through as an element of tax, or reduce
FBT from the actual O&M expenses. Thereafter compare it with approved O&M expenses
for computation of sharing of gains and losses for controllable factors. The recovery on this
amount has been computed by TPC-G as follows:
Table: Entitlement of account of uncontrollable expenditure as submitted by TPC-G
The Commission, in light of the said Judgment, has reduced the FBT from the actual O&M
expenses for FY 2007-08 and has thereafter, compared it with the approved O&M expenses
for computation of sharing of gains and losses for controllable factors. Accordingly, the
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additional entitlement for TPC-G for FY 2007-08 in this regard works out to Rs. 2.00 (two)
crore.
3.1.5
Wrongful treatment of Income Tax
TPC-G submitted that the Hon’ble ATE, in the Judgment in Appeal No 173 of 2009, has
ruled as under on the issue of wrongful treatment of income tax:
“ 37. In view of the above, the State Commission’s conclusion, in our view, may not
be correct and therefore, the State Commission is directed to compute the income tax
entitlement of the Appellant by replacing Return on Equity by Regulatory Profit
Before Tax i.e. income less permissible expenses. This point is answered accordingly.
TPC-G submitted that the Hon’ble ATE has summarized its finding as extracted below,
thereby allowing TPC-G to claim the difference between the income tax entitlement sought
by TPC-G and that allowed by the Commission for the period FY 2007-08.
“43. SUMMARY OF OUR FINDINGS:
(5) The next issue is treatment of Income Tax. The State Commission instead of
computing Profit before Tax as comprising total revenue minus allowable expenditure
has taken it as Return on Equity. In doing so it went against the principle of this
Tribunal’s judgment 2009 ELR (APTEL) 560. The State Commission did not consider
that the allowed income tax would also be considered as revenue gain and the
Appellant would have to pay income tax on the same. The State Commission should
have included the income due to incentive and efficiency gains with Return on Equity
and ought to have grossed up the tax computed by it. Accordingly, this issue is
decided in favour of the Appellant and the State Commission is directed to compute
income tax entitlement of the Appellant by replacing Return on Equity by regulating
Profit before Tax based on income less permissible expenses.”
TPC-G submitted that the Hon’ble ATE has directed the Commission to consider incentive as
well as efficiency gains along with return on equity as a part of regulatory profit before tax
and not return on equity alone while also directing that tax computation should be grossed up.
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TPC-G added that since the Hon’ble ATE has already laid down the principles for the above
issue, the Commission may apply the principle laid down in the Hon’ble ATE’s Judgment for
FY 2007-08 and FY 2008-09 also.
TPC-G further submitted that as per the Hon’ble ATE’s Judgment, return on equity needs to
be replaced by regulatory profit before tax, based on the income less permissible expenses.
TPC-G, in the annexure to its Petition, has submitted Income Tax computation methodology
for FY 2009-10 demonstrating that the tax liability may be either computed by (i) grossing up
RoE (as shown in the following table) or (ii) by first computing the regulatory profit before
tax and then computing the tax, and that both the approaches would lead to the same results.
Table: Calculation of Income Tax as submitted by TPC-G
TPC-G submitted that in light of the aforementioned Order of the Hon’ble ATE, the
Commission is requested to consider the additional entitlement of TPC-G, as given in the
table below:
Table: Additional Entitlement of Income Tax as submitted by TPC-G
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From the various pronouncements of Hon. APTEL the principle that clearly emerges is that
the income tax of a licensee that should be passed through in the tariff is to be based on the
actual tax impact. For working out actual tax impact working out the segmental income is
necessary. Income tax emerges from segmental working and that leads to segmental
calculations. Segmental calculations should be based on regulated income if tax is actually
paid on regulated income. If income tax is actually calculated and paid by the Licensee
Company on book profits under MAT method then the segmental division has to be based on
book profit and not on regulated profit; because regulated profit is not what has suffered
actual tax but book profit has suffered the actual tax.
It is clear from the licensee’s own submissions before Hon. APTEL and various observations
made by Hon. APTEL, that income tax has to be considered at actual as pass through
expense. Further in case of true up applications the claim has to be sanctioned on the basis of
actual tax payments because all the details are available by that time. Commission
accordingly sought the information related to actual tax payments made by the licensee to
determine the correct claim. The information sought was basic information such as copy of
income tax return filed; the statement of computation of income which is invariably
submitted along with the returns along with some other relevant information like break of
various additions and deductions claimed in tax computation in G-T-D and other segments.
Further it was noted that the licensee had claimed credit for tax paid by it under MAT
mechanism in earlier year; which being tax already recovered in tariff of earlier years should
now be reversed in the appropriate proportion from G-T-D and other segments.
The Commission is of the view that appropriate claim for actual income tax paid by the
company cannot be found out without these very basic documents viz. copy of income tax
return filed; the statement of computation of income which is invariably submitted along with
the returns along with some other relevant information like break of various additions and
deductions claimed in tax computation in G-T-D and other segments. The licensee responded
with partial information and in some case information which was submitted proved to be
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incorrect. For example initially incorrect computation statement was furnished which did not
match with figures appearing in income tax return filed. Thereafter on pointing out the fact
the further information provided as computation of income contained calculations of income
taxable under head “Business and Profession” only and was not total computation statement.
Till date licensee has not submitted complete and correct statement of computation of income
as matching with the income tax return filed. Licensee has also not submitted underlying
break-up of allowances / disallowances for tax purposes into G-T-D and other segments.
Licensee has also not submitted break up of MAT paid in earlier year, the part of which has
been claimed as credit in current year into G-T-D and other segments. There has been fair
amount of follow up on this issue with the licensee and ultimately vide mail dated 8th
February, 2012 the licensee has communicated that they do not have the relevant information.
Considering the fact that out of information sought; statement of computation of tax is really
mandatory statutory filings and the segmental breakup is obviously the base on which
licensees would have staked their claim for reimbursement; inability of the licensee to
produce these evidentiary documents is incomprehensible. However to be just and fair to the
licensee considering that they may have some issues in record retrieving, the Commission is
of the opinion that the licensee should claim income tax during the next year after the
licensee is able to produce the information sought for, because the present orders cannot be
held back on this account.
3.1.6
Revenue Gap/ Surplus of FY 2007-08 and FY 2008-09
TPC-G submitted that the Hon’ble ATE in its Judgment dated February 15, 2011 (in Appeal
No 173 of 2009) established the principle of claiming interest on deferred recovery. The
Hon’ble ATE has held as follows:
“43. Summary of Our Findings
(1)
Carrying cost is a legitimate expense. Therefore, recovery of such carrying
cost is legitimate expenditure of the distribution companies. The carrying cost
is allowed based on the financial principle that whenever the recovery of cost
is deferred, the financing of the gap in cash flow arranged by the Distribution
Company from lenders/promoters/accruals is to be paid by way of carrying
cost. In this case, the Appellant, in fact, had prayed for allowing the legitimate
expenditure including carrying cost. Therefore, the Appellant is entitled to
carrying cost. (Emphasis Supplied)”
TPC-G submitted that the Commission has not considered any interest on Gap/Surplus after
Truing up for passing it on to the consumer in the subsequent years. TPC-G further submitted
Page 44 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
that in view the Hon’ble ATE’s Judgment, it is necessary to compute the carrying cost on
Gap/ (Surplus) from the respective years till these are recovered. The summary of the
Gap/(Surplus) approved by the Commission after Truing up of FY 2007-08 and FY 2008-09
is as given in the table below:
Table: Revenue Gap/ (Surplus), as submitted by TPC-G
In this regard, TPC-G submitted that in the past, the Commission had dis-allowed the
entitlement of carrying costs on the amounts which were earlier disallowed and subsequently
restored by the Appellate Authority. TPC-G submitted that it had sought to establish its
entitlement on carrying costs on deferred recoveries as a general principle by way of its
Appeal in the Hon’ble ATE (Appeal No. 173 of 2009) and the Hon’ble ATE in its Judgment
dated February 15, 2011 on the said Appeal has ruled as under.
“42.The above judgments of the Tribunal lay down the dictum regarding entitlement
of carrying cost for deferred recoveries. However, in the present appeal the Appellant
has raised carrying cost as a general issue without reference to any finding of the
State Commission in the impugned order or specific claim of interest on deferred
recovery. Therefore, while holding the principle of carrying cost on deferred
recovery, we are not in a position to give any specific direction to the State
Commission in this regard except to take decision on the claim of the Appellant on
carrying cost keeping in view the above judgments of the Tribunal. However, we
would like to add that the Appellant is entitled to carrying cost on his claim of
legitimate expenditure if the expenditure is:
(a) accepted but recovery is deferred, e.g. interest on regulatory assets;
(b) claim not approved within a reasonable time; and
(c) disallowed by the State Commission but subsequently allowed by the superior
authority.”(emphasis added)
The interest computations on these amounts as submitted by TPC-G are given below. TPC-G
further submitted that in such computations, it has been kept in mind that the above gap/
(surplus) have been passed on in the tariffs of FY 2009-10 and FY 2010-11. Hence, as per
TPC-G, the interest expenses beyond these years up to FY 2011-12 would be computed only
on the gap/ (surplus) up to the year in which these amounts have been passed on in the tariff.
Page 45 of 234
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In other words, TPC-G has computed the carrying costs for FY 2010-11 and FY 2011-12, on
the carrying cost that was not allowed on the Truing up amounts for FY 2007-08 and FY
2008-09.
Table: Interest Computations for Gap/ (Surplus) for FY 2007-08 and FY 2008-09 as
submitted by TPC-G
In the above quoted Hon’ble ATE Judgment (Appeal No. 173 of 2009), the Hon’ble ATE has
ruled that carrying cost is allowable in case the claim is accepted but recovery is deferred by
the Commission (interest on regulatory assets), or the claim is not approved within reasonable
time, or expenses disallowed by the Commission are subsequently allowed by the superior
authority.
However, in the present case, revenue gap/ (surplus) is determined by the Commission within
reasonable time frame as per the MYT framework. In accordance with the present MYT
framework, the Truing up of the revenue and revenue requirement of any financial year is
done during the determination of Tariff/ARR for the second subsequent year and thus, the
actual revenue gap/ (surplus) derived out of the Truing up exercise for a financial year is
passed on to the consumer at the end of the second subsequent year, to be recovered through
the tariffs of the next year. Thus, by design itself, the Truing up process takes two years, and
the amount of revenue gap/ (surplus) after Truing up gets crystallised only after the final
Truing up is done. Thus, the Commission is of the view that the same cannot be treated either
Page 46 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
as a deferred allowance/disallowance on which carrying cost has to be permitted as the
expenses are allowed in reasonable time frame, or as an accepted claim on which recovery
has been deferred, since the amount gets crystallised only after the Truing up process. Hence,
the carrying cost can be considered only if the recovery of the trued up amount is deferred
beyond the normal time period. As the Commission has carried out final Truing up for FY
2007-08 and FY 2008-09 in FY 2009-10 and FY 2010-11, respectively, with the amount to
be recovered in FY 2009-10 and FY 2010-11, respectively, the Commission has not
considered carrying cost on the revenue gap/ (surplus) for FY 2007-08 and FY 2008-09.
Since, the carrying cost itself is not recoverable; there is no basis for computing consequent
carrying cost for FY 2010-11 and FY 2011-12, as submitted by TPC-G. Hence, no additional
amount is due to TPC-G under this head.
3.1.7
Summary of Recoverable Amount
TPC-G submitted that the Commission had disallowed these amounts for FY 2007-08 and FY
2008-09 and had factored these disallowances while determining the tariff for FY 2009-10
and FY 2010-11. TPC-G submitted that if these amounts are to be recovered in FY 2011-12,
TPC-G would be entitled for interest/carrying costs on the above. TPC-G further submitted
that as these items are largely revenue based, the interest has been calculated based on the
SBI PLR allowed by the Commission for computation of interest on working capital.
Hence, TPC-G requested the Commission to consider restoration of these earlier dis-allowed
entitlements along with the carrying costs as indicated in the table below:
Table: Amount Recoverable as submitted by TPC-G
Page 47 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
The Commission has given its ruling on the past period recoveries claimed by TPC-G in the
preceding paragraphs, considering the Hon’ble ATE Judgment and the submission by TPC.
As regards carrying cost on approved past period recovery, the Commission is of the view
that these expenses were liable to be approved during the Truing up process for the respective
years. As these expenses were disallowed during the Truing up process and have now been
allowed in accordance with the Hon’ble ATE’s Judgment, TPC-G is entitled to recover
carrying cost on the same. However, the carrying cost is applicable only for the period when
the recovery was deferred; .i.e. from the issuance of the Truing up Order to the recovery of
the said expenses.
The Commission has accordingly computed the carrying cost for the past period recoveries.
For recoveries pertaining to FY 2007-08, the Truing up Order was issued on May 28, 2009
therefore, the Commission has considered 10-months carrying cost for FY 2009-10 and 12
months for FY 2010-11. For recoveries pertaining to FY 2008-09, the Truing up Order was
issued on September 8, 2010 therefore, the Commission has considered 7-months carrying
cost for FY 2010-11.
In this Order, the Commission is approving expenses till FY 2010-11, i.e., March, 2011, thus
the carrying cost for FY 2011-12 is not considered in the current Order. The Commission
shall consider the carrying cost for FY 2011-12 when recovery of these expenses is sought
for by TPC-G and allowed by the Commission, depending upon the year of accrual and up to
year of recovery at SBI PLR for the respective years.
The summary of past period expenses approved by the Commission in view of the Hon’ble
ATE Judgment, for FY 2006-07, FY 2007-08, FY 2008-09 and FY 2009-10, is given in the
following table:
Table: Impact of Hon’ble ATE Judgment (Rs. Crore)
Sr.
No
1
FY 2006-07
Particulars
Denial of carrying cost/
interest cost pursuant to
the judgment passed by
the ATE in Appeal no.
60 of 2007 & Appeal
No. 173 of 2009
FY 2007-08
FY 2008-09
FY 2009-10
TPC-G
Approved
TPC-G
Approved
TPC-G
Approved
TPC-G
Approved
-
-
-
-
-
-
156.24
121.71
Page 48 of 234
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Sr.
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
FY 2006-07
Particulars
FY 2007-08
FY 2008-09
FY 2009-10
TPC-G
Approved
TPC-G
Approved
TPC-G
Approved
TPC-G
Approved
2
Normative Interest on
Working Capital
24.23
0.00
20.93
0.00
25.95
0.00
-
-
3
Reduction in Gains due
to inclusion of FBT in
Employee Expenditure
-
-
2.00
2.00
-
-
-
-
4
Wrongful treatment of
Income Tax
-
-
83.52
0.00
85.81
0.00
-
-
5
Total recoverable
amount (1+2+3+4)
24.23
0.00
106.45
2.00
111.76
0.00
156.24
121.71
6
Total interest on
recoverable amount
13.57
0.00
46.33
0.44
34.35
0.00
29.47
26.94
7
Interest on Gap/Surplus
not allowed for FY
2007-08 and FY 200809
-
-
51.96
0.00
(15.43)
0.00
-
-
37.80
0.00
204.74
2.44
130.68
0.00
185.71
148.65
8
Total Impact of ATE
Judgment (5+6+7)
9
Total as submitted by
TPC-G
558.92
10
Total as approved by
the Commission
151.09
3.2
HON’BLE ATE’S JUDGMENT DATED AUGUST 26, 2011 IN CASE NO. 87
AND 107 OF 2010
As discussed in Section 1 of this Order, the Commission had issued its Tariff Order for
approval of capital cost and Tariff determination of Trombay Unit# 8 on January 19, 2009 in
Case No. 35 of 2009. In the said Order, the Commission had approved the Capital Cost and
determined the Tariff of Unit# 8. The Commission also issued an Order in the matter of
review of the above-said Order.
TPC-G had filed an Appeal (Appeal No. 107 of 2010) before the Hon’ble Appellate Tribunal
for Electricity (ATE) against the Order in Case No. 35 of 2009, claiming the expenditure
disallowed by the Commission under different heads.
The Hon’ble ATE issued its Judgment on August 26, 2011 in Appeal No. 87 and 107 of
2010, partly upholding TPC-G’s stand on various issues filed in the said Appeal. TPC-G has
claimed the impact of the said Judgment in the current Petition. The relevant Extracts of the
Hon’ble ATE Judgment are quoted as under:
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Commission’s direction regarding contracted capacity of Trombay unit No. 8
“13.1 The first issue is regarding the direction issued by the State Commission to ensure
supplies corresponding to the capacity contracted by the Mumbai distribution licensees
before supply to other entities. In our opinion, the above direction is contrary to the PPAs
approved by the State Commission earlier by its order dated 6.11.2007 and has affected the
supply to Tata Trading under the PPA signed by it with TPC. Section 10(2) of the Act gives
freedom to generating company to supply electricity to a licensee or to any consumer. In our
opinion the State commission by the impugned direction has indirectly exercised control over
the capacity contracted by the generating company with the Trading licensee without any
jurisdiction. The impugned direction is also contrary to the findings of Hon’ble Supreme
Court in Tata Power Company vs. MERC & Ors. reported as 2009 ELR (SC) 246. The
impugned direction is also contrary to the directions dated 26.8.2009 of the State
Commission to the SLDC for pro-rata reduction in entitlement of BEST, TPC-D and Tata
Trading in case of reduced availability from Unit no. 8. Accordingly, the impugned direction
is set aside.”
Disallowance of Octroi
“13.2. The second issue is regarding the non-consideration of Octroi payment to determine
the capital cost. We find that the State Government has not issued the exemption certificate
despite the follow up made by the Appellant Generating Company. Subsequently, the State
Government vide its letter dated 4.8.2010 conveyed its decision not to allow exemption on
Octroi. Admittedly the Octroi has been paid by the Appellant and the expenditure on this
account cannot be termed as imprudent expenditure. The Regulations also provide for
including the actual expenditure incurred on completion of the project subject to prudence
check by the State Commission to be the basis of determination of capital cost of the project.
Accordingly, the Octroi payment is to be allowed in the capital cost as per the Regulations”.
Computation of Income Tax
“13.3. The third issue is regarding wrongful treatment of income tax. This issue has already
been decided by the Tribunal in its Judgment dated 23.3.2010 passed in Appeal No. 68 of
2009 read with Order dated 5.11.2009 passed in Review Petition No. 9 of 2010 in the matter
of Torrent Power Ltd. vs. Gujarat Electricity Regulatory Commission. The State Commission
is directed to pass the consequential order in light of the findings of the Tribunal in the above
judgment. Accordingly, this issue is decided in favour of the Appellant.”
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Disallowance of actual rate of interest paid by TPC-G
“13.4. The fourth issue is regarding disallowance of actual rate of interest paid by TPC-G
for IDBI Tranche 3 the loan was taken in October 2008. We notice that the loan agreement
dated 5.2.2008 between TPC and IDBI provides for interest at IDBI’s BPLR less 2.76% p.a.
The State Commission has allowed interest at the prevailing BPLR of IDBI which was
14.25% less 2.76% according to the loan agreement. The Appellant Generating Company
has not been able to provide any supporting document to establish the reason for availing
loan at interest rate above the terms and conditions agreed by IDBI and steps taken with
IDBI to get loan at the sanctioned interest rate as per the loan agreement. Therefore, we find
no reason to interfere with the findings of the State Commission. Accordingly, this issue is
decided against the Appellant generating company.”
3.2.1
Revision of approved capitalisation
The Commission, in its Order dated January 19, 2010 in the matter of approval of Capital
Cost and Tariff determination of 250 MW Unit# 8, had approved the capital cost of Rs
917.93 crore as on the date of commissioning. Subsequently, in response to the Review
Petition filed by TPC-G, the Commission in the Order dated August 3, 2010 in Case No. 8 of
2010, revised the Capital cost of 250 MW unit 8 to Rs. 917.18 crore from the earlier Rs
917.93 crore approved in Case No. 35 of 2009 as shown in the table below:
Table: Approved Capitalisation of 250 MW Unit# 8 (Rs Crore)
S.
No.
Item Head
1.0
Cost of land and site
development
2.0
Plant and Equipment
2.1
As submitted
by TPC
As approved by
the Commission
through Order in
Case 35 of 2009
Revised
Approval of
capital cost
through Order
in Case No. 8 of
2010
0.027
0.027
0.027
Steam Generator island
205.931
205.931
205.931
2.2
Turbine Generator island
203.607
203.607
203.607
2.3
BOP Mechanical
71.343
71.343
71.343
2.4
BOP Electrical
77.298
77.298
70.898
2.5
Control
13.735
13.735
13.735
Instrumentation
Page 51 of 234
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S.
No.
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Item Head
As submitted
by TPC
As approved by
the Commission
through Order in
Case 35 of 2009
Revised
Approval of
capital cost
through Order
in Case No. 8 of
2010
(C&I) package
Total excluding
and Duties
Taxes
571.941
571.941
565.541
27.021
0
0
1.978
1.978
1.978
2.6
Octroi charges
3.0
Initial spares
4.0
Civil works
165.808
165.808
165.808
5.0
Construction
&
Precommissioning expenses
106.353
81.413
87.073
6.0
Overheads
19.468
19.468
19.468
7.0
Capital cost
IDC & FC
excluding
892.569
840.608
839.868
7.1
Interest during construction
(IDC)
83.37
82.98
82.97
8.0
Capital cost including IDC
& FC
975.937
923.588
922.839
9.0
Revenue
power
infirm
-5.61
-5.66
-5.66
10.0
Total Capitalised
upto COD
cost
970.327
917.928
917.179
11.0
Additional capitalization
till cut-off date
162.760
128.866
128.866
1133.089
1046.794
1046.045
from
Total Capital Cost
As shown above, in the approved capital cost, the Commission had not allowed the Octroi
charges of Rs 27.021 crore levied on various equipment as part of the capital cost for the
project. The same has now been restored by Hon’ble ATE.
On account of the same, the revised approved Capitalisation as on March 31, 2009 as
proposed by TPC-G in the current Petition is as follows:
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Revised Approved Capitalisation as on March 31, 2009 as proposed by TPC-G
Sr. No.
Particulars
Amount
(Rs. Crore)
1)
Approved Capitalization Cost of 250 MW Unit# 8 as on COD and
March 31, 2009 (after incorporating the Review Order dated
August 3, 2010 in Case No. 8 of 2010).
917.18
2)
Add: Amount disallowed towards Octroi charges by the Hon’ble
Commission in Case 35 of 2009 but now restored by the Hon’ble
ATE
27
3)
Total Approved Capitalisation to be considered as on March 31,
2009
944.2
The Commission, while considering the above said Judgment in Appeal No. 87 and 107 of
2010, has approved the Capitalisation of Rs. 944.2 crore for 250 MW Unit# 8 as on March
31, 2009.
3.2.2
Income Tax Treatment
As regards the income tax, the Commission has discussed in detail, the treatment adopted for
computing the income tax for unit 8 for FY 2009-10 and FY 2010-11 later in Section 4 and 5
of this Order, respectively.
3.2.3
Interest rate for IDBI Tranche 3 Loan
The Commission, in its Order in Case No. 35 of 2009, in accordance with the loan agreement
between TPC-G and IDBI approved the interest rate for IDBI Tranche 3 loan as 11.49%, i.e.,
the prevailing BPLR of IDBI which was 14.25% less 2.76%. TPC-G, in this regard, filed an
appeal before the Hon’ble ATE to allow the actual rate of interest that was paid by TPC-G,
i.e., 13% instead of 11.49%. As extracted below, the Hon’ble ATE agreed with the findings
of the Commission regarding the interest rate paid by TPC-G for IDBI tranche-3 loan.
“12.4. The Appellant has not provided any supporting document on record to
establish the reason for availing loan at interest rate above the terms and conditions
agreed by IDBI and steps taken with IDBI to get loan at the sanctioned interest rate.
Therefore, we find no reason to interfere with the findings of the State Commission on
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
this issue. Accordingly, this issue is decided as against the Appellant generating
company.”
Hence, in this Order, the rate of interest for IDBI Tranche 3 loan has been considered as
11.49% for the purpose of computation of interest expenses.
Page 54 of 234
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4
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
TRUING
UP
OF
AGGREGATE
REQUIREMENT FOR FY 2009-10
REVENUE
TPC-G, in its Petition, has sought approval for the final Truing up of expenditure and revenue
for FY 2009-10 based on actual expenditure and revenue as per the audited accounts. TPC-G
provided the comparison of actual expenditure against each head with the expenditure
approved by the Commission along with the reasons for deviations.
Accordingly, in this Section, the Commission has analysed all the elements of actual
expenditure and revenue for TPC-G for FY 2009-10, and has undertaken the Truing up of
expenses and revenue after prudence check. Further, for FY 2009-10, the Commission has
approved the sharing of gains and losses on account of controllable factors between TPC-G
and the Distribution Licensees, in accordance with Regulation 19 of the MERC Tariff
Regulations, 2005, in this Section.
4.1 PERFORMANCE OF UNIT# 4 TO 7 AND HYDRO STATIONS
4.1.1 Gross generation
The Commission, in its APR Order dated September 8, 2010 in Case No. 96 of 2009 approved
gross generation from TPC-G’s Trombay generating station (Units 4 to 7) for FY 2009-10 as
9363 MU. However, the actual gross generation achieved by Trombay generating station
during FY 2009-10 was 8637 MU, which is around 7.75% lower than the gross generation
approved by the Commission. The generation from all the Units at Trombay Power Station,
was at lower level vis-à-vis the quantum approved by the Commission.
TPC-G submitted that the actual hydel generation for FY 2009-10 was 1455 MU, which is
slightly lower than the quantum of 1492 MU approved by the Commission, on account of
constraints due to compliance with Krishna Water Tribunal Award (KWTA) norms.
As regards Unit# 4, TPC-G submitted that the unit was operated as a standby unit and was
online only for very few hours during FY 2009-10, therefore, the gross generation of 47 MU
from Unit# 4 was lower than the approved gross generation of 78 MU.
TPC-G submitted that lower generation from Unit#-5 was due to the following reasons:
•
Three No. boiler tube leaks in the goose neck area and water wall and platen super
heaters till November 2009 requiring outages
•
Load restrictions due to condenser tube leakage
•
Scheduled outage of Unit# 5 for 30 days in January 2010
Page 55 of 234
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TPC-G submitted that the generation on Unit# 6 was lower than that approved by the
Commission owing to the fact that the unit was backed down to 150 MW during night hours
due to low system demand despite the unit availability being high (99%). TPC-G further
submitted that the unit faced five forced outages totalling 10.63 hours in FY 2009-10 resulting
in loss of generation of 5.316 MU.
For Unit# 7, TPC-G submitted that the reduction in generation was due to seven forced
outages of STG for a total of 1681.92 hours resulting in a loss of generation of 101 MU. One
of the forced outages, which had the maximum impact in terms of loss of generation (99 MU),
was from July 4, 2009 to September 11, 2009, which was due to the failure of STG Main
Transformer due to which the unit was operated on open cycle mode. Further, the unit was
taken out for minor inspection of hot gas path between July 25, 2009 and July 30, 2009.
As regards hydel generation, actual generation was lower during FY 2009-10 as compared to
approved generation due to reduction in water availability and compliance with Krishna
Water Tribunal Award (KWTA), which is beyond the control of TPC-G, and hence, the
Commission has considered the actual generation while truing-up the ARR for FY 2009-10.
As regards the thermal generation from Trombay generating stations, the gross generation
from all the Units was lower than the generation approved by the Commission. However,
despite the reasons stated above, the Units’ actual availability as certified by SLDC was
higher than the normative availability of 80%. The Commission therefore, accepts the actual
gross generation of TPC-G generating stations for FY 2009-10 and allows recovery of full
annual fixed charges for Unit# 4, 5, 6 and 7.
The summary of unit-wise gross generation and availability approved by the Commission in
APR Order for FY 2009-10, actual gross generation during FY 2009-10, actual availability as
certified by SLDC and gross generation considered after Truing up is shown in the Tables
below.
Table: Summary of Gross Generation for FY 2009-10 (MU)
Particulars
Gross Generation
FY 2009-10
APR Order
Actuals
1492
1455
1455
Unit# 4, Trombay
78
47
47
Unit# 5, Trombay
3988
3480
3480
Unit# 6, Trombay
3877
3694
3694
Hydel Stations
Approved after truing up
Page 56 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Particulars
Gross Generation
FY 2009-10
APR Order
Actuals
Unit# 7, Trombay
1420
1415
1415
Total Thermal
9363
8637
8637
10855
10092
10092
Total Gross Generation
Approved after truing up
Table: Summary of Availability for FY 2009-10
Particulars
Availability
FY 2009-10
APR Order
Actuals
Approved after truing up
Unit# 4, Trombay
86.86%
84.27%
84.27%
Unit# 5, Trombay
89.43%
81.25%
81.25%
Unit# 6, Trombay
99.42%
99.04%
99.04%
Unit# 7, Trombay
92.20%
92.51%
92.51%
4.1.2 Auxiliary Consumption
TPC-G, in its Petition, submitted that the auxiliary consumption of all its stations/units, except
Unit# 4 and hydel stations, is lower than the auxiliary consumption approved in the APR
Order. The weighted average auxiliary consumption for Trombay thermal station is 3.96%.
As regards the higher auxiliary consumption of Unit# 4, TPC-G submitted that in FY 200910, Unit# 4 was kept as standby unit and was started and shut down four times during FY
2009-10. TPC-G further submitted that whenever the unit is brought on line, it has to undergo
a stabilization phase before generating at full load. During this period, the consumption of
fuel, water and auxiliary power is higher than normal.
As regards the higher auxiliary consumption of hydel stations, TPC-G submitted that the
lower gross generation from hydel stations as compared to the approved quantum has resulted
in a marginally higher auxiliary consumption.
The Commission, in the data gaps sent before the Technical Validation Session (TVS), asked
TPC-G to clarify whether the auxiliary consumption of the generating Stations/units includes
colony consumption. In response to the Commission’s query, TPC-G submitted that the
colony consumption of thermal and hydro colonies has not been added as a part of auxiliary
consumption. It further submitted that TPC was operating as an integrated Utility in the past.
Page 57 of 234
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As a result, the colony consumption, though measured, was not being included for revenue
purposes. The same continued after the separation of the integrated business into generation,
transmission and distribution businesses. Hence, at present, the consumption of the colonies
though measured, is not accounted in the revenue computation and it forms a part of
transmission and distribution losses. The Commission directs TPC-G to separately measure
the consumption of the colonies and report the same to the Commission. Further, TPC-G
should not include the colonies consumption as part of T&D losses and propose an
appropriate mechanism for accounting of colony consumption as per statutory and regulatory
provisions.
TPC-G, in its Petition, requested the Commission to approve the actual auxiliary consumption
on account of the reasons stated above.
As regards the higher auxiliary consumption due to lower gross generation of hydel stations,
the Commission has clearly stated in its Order in Case No. 96 of 2009 dated September 8,
2010, as follows:
“The Commission is of the view that the reasons for higher auxiliary consumption in
percentage terms given by TPC-G will also be applicable when the actual generation
is on higher side, and the auxiliary consumption is reported lower, for which TPC-G
has claimed and received performance incentive in the past. The Commission, while
carrying out the final truing up of ARR for FY 2007-08, had considered the difference
between the normative auxiliary consumption and actual auxiliary consumption as
efficiency gains. In case the reasons given by TPC-G are accepted for higher
auxiliary consumption, then the same needs to be applied when generation has
increased as compared to normative generation and mechanism of approving
normative parameters and sharing of gains and losses for better/under performance
will not have any sanctity. Therefore, the Commission has considered the normative
auxiliary consumption for thermal and hydel stations approved for FY 2008-09 for
truing up purposes, and has considered the difference between actual auxiliary
consumption and normative auxiliary consumption as approved in the APR Order for
computing the sharing of efficiency gain/loss for FY 2008-09”.
The Commission has therefore, in line with its previous approach for Truing up purposes,
considered normative auxiliary consumption for hydel generating stations approved for FY
2009-10, and has considered the difference between actual auxiliary consumption and
normative auxiliary consumption for computing the sharing of efficiency gain/loss for FY
2009-10.
As regards the auxiliary consumption of Unit# 4, TPC-G, in its previous Petition for APR of
FY 2009-10 requested the Commission to approve the auxiliary consumption as 11.84%.
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TPC-G also submitted that though the unit is kept as a stand-by, there are certain essential
auxiliaries, which are required to be kept running or to be trial operated at regular intervals for
keeping the unit healthy. This leads to auxiliary consumption even when the unit is not in
service. TPC-G, in that Petition, also submitted that though the unit was run for short intervals
in April and June 2009, however, it has been constantly consuming auxiliary power
throughout the duration. TPC-G in APR Petition for FY 2009-10 requested the Commission to
approve the revised auxiliary consumption of 11.84% for FY 2009-10 for Unit# 4,
considering the fact that Unit# 4 will operate in the standby mode.
Also, in reply to the Commission’s query, TPC-G submitted the details of auxiliary
consumption of Unit# 4 for the time when it was in operation during FY 2009-10. It was
observed by the Commission that the average auxiliary consumption for the unit when it was
in operation was within the norm of 8.00%, as approved by the Commission in its APR Order.
Since, the Commission had allowed Unit# 4 to be operated as a standby unit during FY 200910, the Commission is of the view that the approved auxiliary consumption of Unit# 4 can be
relaxed to 11.84% against the normative and actual consumption of 8.00% and 22.02%
respectively, i. e., auxiliary consumption proposed by TPC-G in the Petition for APR for FY
2009-10 after considering the operation of Unit# 4 as a standby unit.
The summary of unit-wise auxiliary consumption approved by the Commission in APR Order
for FY 2009-10, actual auxiliary consumption during FY 2009-10, and auxiliary consumption
considered for sharing of gains/losses is shown in the table below:
Table: Auxiliary Consumption for FY 2009-10 (%)
Particulars
Auxiliary Consumption
FY 2009-10
APR Order
Actuals
Allowed after
Truing up
Hydel Stations
0.50%
0.53%
0.50%
Unit# 4, Trombay
8.00%
22.02%
11.84%
Unit# 5, Trombay
5.50%
5.36%
5.50%
Unit# 6, Trombay
3.50%
3.1%
3.50%
Unit# 7, Trombay
2.75%
2.15%
2.75%
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4.1.3 Heat Rate
TPC-G submitted the summary of the heat rate approved by the Commission and actual heat
rate for FY 2009-10 for all units of Trombay station, as shown in the table below:
Table: Heat Rate for FY 2009-10 (kcal / kWh)
Heat Rate (kCal/kWh)
APR Order
Actuals
Unit# 4, Trombay
2575
3021
Unit# 5, Trombay
2499
2554
Unit# 6, Trombay
2400
2386
Unit# 7, Trombay
1971
2098
TPC-G submitted that the overall station heat rate is marginally higher by 1.33% as compared
to the approved levels. The heat rate for Unit# 6 was within the level approved by the
Commission. However, in case of Unit# 4, Unit# 5 and Unit# 7, the heat rate was higher than
that approved by the Commission due to the following reasons:
TPC submitted that the increase in heat rate for Unit# 4 was mainly due to the following
reasons:
•
The unit was started and shut down four times during FY 2009-10. As Unit# 4 is kept
as standby unit, whenever the unit is brought on line it has to undergo a stabilization
phase before the unit generates at full load. During this period, the consumption of
fuel, water and auxiliary power is higher than normal and the steam pressure and
temperature remains lower than rated values resulting in higher heat rate. Also the unit
undergoes a cold start, which requires about 24 hours and therefore, requires higher
auxiliary consumption and fuel, the temperature of steam is relatively low resulting in
higher heat rate. Further frequent start up and shut downs have aggravated the
situation.
•
The major portion of generation on Unit# 4 was gas based which has deleterious effect
on its efficiency resulting in higher heat rate of Unit# 4.
•
In addition, during November 2009, when Unit# 4 was on line, there was one forced
outage of the unit on November 29, 2009 due to low vacuum. On April 6, 2009, the
unit tripped on spurious fuel control valve close command.
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As regards Unit# 5, TPC-G submitted that the Commission had approved a heat rate of 2499
kcal/kWh, however, the actual heat rate achieved was 2554 kcal/kWh, and the increase in heat
rate was mainly due to following reasons:
•
Higher forced outages of the unit due to boiler tube leakage. The unit had 5 forced
outages (totalling 411 hours) between June, 2009 and November, 2009 owing to boiler
tube leak. In addition, the load on the unit was restricted to 450 MW for a month
between November-December 2010 to reduce the heat flux in the boiler to prevent
tube leak, which were to be attended to in the next outage. Higher forced outages
entailed loss in generation, increased consumption of fuel, DM water and auxiliary
power.
•
Even after the outage of the unit in January 2010, the unit could not be loaded beyond
415 MW owing to Main Turbine shaft vibration reaching alarm limits. This happened
despite the overhaul being carried out under the expertise of OEM Siemens. However,
after implementing the necessary online corrections, the load could be increased to
490 MW. This has led to prolonged operation of the unit (Feb-Mar’10) in the less
efficient regime and resulted in higher heat rate.
•
Also in the last outage, the new boiler control system (FSSS) that was commissioned
necessitated operation of the unit at various loads for tuning of control systems.
TPC-G also submitted that CPRI was engaged by the Commission to conduct performance
audit of Unit# 5, in December 2009. The CPRI test conducted at 500 MW revealed a heat rate
of 2589.3 kcal/kWh. The actual heat rate for Unit# 5 even after considering the above outages
and the restrictions was lower than that noted by CPRI.
As regards Unit# 7, TPC-G submitted that the actual heat rate achieved is 2098 kcal/kWh and
the increased heat rate is mainly due to following reasons:
•
During FY 2009-10, the unit was forced to run on open cycle mode from July 4, 2009
to September 11, 2009, due to failure of steam turbine generator transformer, thus
contributing to higher heat rate. TPC-G further submitted that the overall availability
of Unit# 7 for FY 2009-10 was 92.5 %, i.e., much higher than the target availability of
80%. In other words, even if the unit was shut down and not operated in the open
cycle mode, TPC –G would have recovered the Fixed Charges. It is submitted that
despite the increase in heat rate in the open cycle mode, the cost of generation at Rs
1.50 per kWh was much lower than the alternate cost of power to be made available
by the Distribution Licensee. Hence, notwithstanding the resultant higher heat rate,
Unit# 7 was run in open cycle mode in the interest of consumers.
•
The inadequate availability of APM gas has also resulted in lower utilization of the
combined cycle mode and hence, higher heat rates. On an average, the availability of
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gas is about 0.8 MMSCMD as against the requirement of 1.0 MMSCMD. Thus, the
average load on the unit is around 130-160 MW as per gas availability. This was
predominant in December 2009.
TPC-G, citing the reasons mentioned above, requested the Commission to approve the actual
heat rates of the three Units.
The Commission agrees with the fact that Unit# 4 was operated as a standby unit during FY
2009-10, due to which the heat rate of the unit was more than the approved heat rate of 2575
kcal/kWh. TPC-G considered the operation of Unit#-4 as standby unit and proposed a heat
rate as 2683 kcal/kWh for FY 2009-10 with estimated gross generation of 144 MU. The
Commission is of the view that TPC-G was well aware that Unit#-4 would operate in standby
mode, and TPC-G in its APR Petition for FY 2009-10 had accordingly estimated the
generation and proposed the heat rate for Unit# 4. The Commission, therefore, has approved
the heat rate of 2683 kcal/kWh as estimated by TPC-G.
As regards Unit# 5, CPRI was engaged by the Commission to conduct a performance audit in
December 2009. Based upon the recommendation of CPRI, the Commission approved heat
rate of Unit# 5 for FY 2008-09 as 2551 kcal/kWh. As submitted by CPRI, the achievable heat
rate with degradation, improvements and impact of overhauls for FY 2009-10 was 2569
kcal/kWh and as the actual heat rate achieved by TPC-G for Unit#-5 is less than as
recommended by CPRI, the Commission has approved the actual heat rate of 2554 kcal/kWh
for FY 2009-10.
As regards Unit# 7, the Commission in its data gaps sent before the TVS, asked TPC-G to
submit the generation details regarding the open cycle operation of Unit# 7 during FY 200910. In reply to the Commission’s query, TPC-G submitted details of the open cycle operation
of Unit# 7 during FY 2009-10 as shown in the table below:
Table: Details regarding open cycle operation of Unit# 7 during FY 2009-10
Period
From
To
Gross
Generation
Actual Heat
Rate
(MU)
(kcal/kWh)
Normative Heat
Rate (kcal/kWh)
July 4, 2009
July 13, 2009
58
3052
2830
August 1, 2009
August 31, 2009
74
3182
2830
11, 24
3187
2830
September
2009
1, September
2009
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As per the submissions made by TPC-G, the total generation from Unit# 7 under the open
cycle operation was 156 MU. Further, considering that the MERC Tariff Regulations
stipulates separate heat rate norms for open cycle and combined cycle mode of operation. The
Commission approves a heat rate of 2047 kcal/kWh for FY 2009-10 for Unit# 7 by adopting
the weighted average approach, as shown in the table below:
Table: Approved heat rate for Unit# 7 for FY 2009-10
Mode of Operation
Normative Heat
Rate
Gross Generation
Open Cycle
2830 kcal/kWh
156 MU
Closed Cycle
1950 kcal/kWh
1258.6 MU
Approved Heat
Rate
2047 kcal/kWh
The summary of Unit-wise heat rate approved in the APR Order, actual heat rate and heat rate
approved after Truing up for FY 2009-10, is given in the following Table:
Table: Unit-wise heat rate approved for FY 2009-10
Particulars
Heat Rate (kcal/kWh)
FY 2009-10
APR Order
Actuals
Allowed after
truing up
Unit# 4, Trombay
2575
3021
2683
Unit# 5, Trombay
2499
2554
2554
Unit# 6, Trombay
2400
2386
2400
Unit# 7, Trombay
1971
2098
2047
4.1.4 Fuel price and calorific value
TPC-G submitted that it has been able to source its coal requirements at a price of Rs.
5,188/MT, lower than the Commission approved price of Rs. 5,195/MT. However, the fuel
prices for gas and oil have been higher due to higher rates prevailing in the markets, and the
actual average oil price for FY 2009-10 was Rs. 25,923/MT as against the approved value of
Rs. 20,472/MT. TPC-G also submitted that for FY 2009-10, it has also procured RLNG as
alternative fuel, at a price of Rs 19,281/MT.
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The variation in fuel price and calorific value of fuel during FY 2009-10 has been considered
as part of fuel adjustment cost (FAC) and has already been passed through to the consumers
on a monthly basis under the FAC charge mechanism. For the purpose of Truing up of fuel
costs (variable cost of generation) for FY 2009-10, the Commission has considered the actual
fuel costs and calorific value as given in the table below:
Table: Fuel Parameters
Particulars
APR Order
Actuals
Allowed after
Truing up
A. Fuel Price (Rs/MT)
Gas
4546
5012
5012
Coal
5195
5188
5188
20472
25923
25923
-
19281
19281
Gas
13136
13161
13161
Coal
5151
5046
5046
10550
10532
10532
-
13041
13041
Fuel Oil (LSHS)
RLNG
B. Calorific Value (kcal/kg)
Fuel Oil (LSHS)
RLNG
4.1.5 Fuel Costs
TPC-G submitted that the total fuel cost for FY 2009-10 was Rs. 2973 crore as against the
approved cost of Rs. 3003 Crore. TPC- G also submitted that it has been trying to optimise the
cost of generation on all its Units by varying its fuel mix. As part of the same, costlier
generation from Oil has been partly replaced by relatively cheaper generation from RLNG.
This has resulted in a lower fuel cost in FY 2009-10 for Unit# 4 and Unit# 6 to the extent of
Rs. 408 Crore.
Table: Savings from RLNG firing in Unit#-4 and Unit#-6 for FY 2009-10 as submitted by
TPC-G
Heat
Actual LSHS
RLNG Price
Differential
Saving on
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Contribution
by RLNG
Price
Mkcal
Rs./Mkcal
3,068,610
2,806
Cost
account of
RLNG Firing
Rs./Mkcal
Rs./Mkcal
Rs. Crore
1,478
1,328
408
TPC-G further submitted that despite the savings made on fuel cost due to usage of alternate
fuel, overall variance in fuel cost has not reduced substantially as the price of Oil has been
significantly higher than that approved by the Commission. The approved fuel price for Oil
for FY 2009-10 was 1941 Rs./Mkcal. Against this, the actual price at which TPC-G has been
able to source oil was 2,462 Rs./Mkcal. Despite change in the fuel mix, the total cost of fuel
has been only marginally lower than the approved fuel cost.
Based on the Heat Rate, fuel prices and fuel calorific value as discussed in above paragraphs,
the total fuel costs for FY 2009-10 are summarised in the table below:
Table: Fuel Costs (Rs Crore)
Particular
Actuals
Normative Allowed
after truing up
Unit# 4, Trombay
28.42
25.24
Unit# 5, Trombay
967.11
967.11
Unit# 6, Trombay
1814.52
1824.84
Unit# 7, Trombay
162.86
158.92
2972.92
2976.11
Total Thermal
4.1.6 O&M Expenses
The Operation and Maintenance (O&M) expenditure comprises of employee related
expenditure, Administrative and General (A&G) expenditure, and Repair and Maintenance
(R&M) expenditure. TPC-G submitted that the Commission in its Tariff Order dated May 28,
2009 had approved O&M expenditure for FY 2009-10 at Rs 347 Crore. TPC-G further
submitted that after including the share of the LCC Expenditure and Brand Equity, which was
approved in the Order dated September 8, 2010; this amount would need to be revised to Rs
357.9 Crore. The actual expenditure for various elements of O&M expenditure as submitted
by TPC-G are explained below:
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Table: O&M Expenditure as submitted by TPC-G
Particulars
(Rs. Crore)
Revised
Approved as
submitted by
TPC-G
Employee Expenses
130.4
Administration & General Expenses
95.5
Repair and maintenance
O&M Approved by the Commission
126.3
347.0
LCC Expenditure not considered by Commission
in earlier Estimates
1.3
Allocation of brand equity Expenses to TPC-G
9.6
Total
FY 2009-10
(Actuals)
357.9
1.7
354.0
TPC-G’s submissions on each of the expenditure heads, and the Commission’s ruling on the
Truing up of the O&M expenditure heads for FY 2009-10 are detailed below.
4.1.6.1 Employee Expenses
TPC-G submitted that the total actual employee related expenses for FY 2009-10 was Rs.
130.42 crore as against the actual expenditure of Rs. 139.91 crore in FY 2008-09. TPC-G
submitted that the employee expenses for FY 2009-10 are lower by Rs 10 crore in comparison
with actual employee expenses for FY 2008-09, primarily on account of the following
reasons:
•
Lower retiral provisions: There has been a change in the basis of computation of
Gratuity and Pension provision. Further, a higher Discounting Factor has been
prescribed to arrive at the present value of these provisions. As a result, the retirals
have been lower to the extent of Rs 7 crore from FY 2008-09.
•
Fringe benefit tax: TPC-G had paid Rs 3 crore towards FBT in FY 2008-09. Since,
FBT was done away with in FY 2009-10, employee expenditure was lower by Rs 3
Crore.
•
Marginal reduction in the number of employees in comparison with FY 2008-09. The
employees in FY 2008-09 were 1613, which reduced to 1593 in FY 2009-10 pending
filling up of vacancies due to retirements.
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The Commission asked TPC-G to submit the basis and assumptions for capitalising the
employee expenses for FY 2009-10. In response to the same, TPC-G submitted that
capitalisation of employee expense is computed based on the following:
i.
A time sheet sent by the concerned department to accounts for the time spent on
various projects.
ii.
Calculation for per hour job done is based on the following basis:
cost to company of the concerned employee
x no. of hours worked on the job
261 days x 8hrs/day
TPC-G added that this amount is booked every month by transferring to the respective
projects.
Considering the details of actual employee expenses, the Commission has allowed the
employee expenses of Rs. 130.42 crore for FY 2009-10 under the Truing up exercise.
4.1.6.2 A&G expenses
TPC-G submitted that the actual A&G expenditure for FY 2009-10 (including Brand Equity)
was Rs. 95.51 crore as against the approved expenditure of Rs. 79.63 crore for FY 2008-09.
TPC-G submitted that this increase is mainly due to:
•
TPC-G had paid land revenue taxes (for non-agricultural assessment) levied for
previous as well as current year of Rs 4 crore in FY 2009-10 (uncontrollable).
•
Higher premium paid on insurance coverage on replacement value instead of book
value by Rs 1.44 crore (uncontrollable).
•
Increased cost of services to the extent of Rs 4.63 crore due to services such as
environmental fees, cost towards security and safety of the plant.
•
Increased costs due to environmental studies and monitoring such as ash pond study
and monitoring leading to higher expenses to the extent of Rs 0.6 Crore.
•
Increase in Expenditure by about Rs 2.65 crore towards improving the safety measures
through engagement of reputed consultants, M/s Du Pont. The major initiatives like
capability building, safety incident investigation, STOP safety observation, contractors
safety management and developing of rules and procedures were taken up through
these consultants to ensure safe working in all operational activity.
•
Higher expenses on community welfare on account of various requirements
highlighted by the local communities around Tata Power-G’s generation facilities
resulting in increased expenditure by Rs 5 Crore. Activities undertaken include
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maintenance of roads at Mulshi, development of Schools and Fish Trawlers provided
to Mahul fishermen.
Further, the Commission asked TPC-G to submit the breakup of the expenses included under
the head “Others” under A&G expenses. In reply to the Commission’s query, TPC-G
submitted the details as follows:
The Commission observed that TPC has spent an amount of Rs 6.75 crore (combined for
generation, transmission and distribution businesses) towards community welfare expenses. In
reply to the Commission’s query, TPC clarified that the community welfare expenses are
mainly for educational/vocational training, health care, environment, infrastructure and other
social welfare initiatives. Further, the main activities include training to youth, medical
camps, HIV AIDS awareness programs/ rallies, training volunteers, afforestation,
environment education, etc.
Further, in reply to the Commission's query, TPC clarified that commemorative gold coins
were paid to employees on the occasion of commissioning of Unit#-8, and the expense on the
same has been claimed under gifts amounting to Rs. 4.52 crore in A&G expenses.
The Commission is of the view that these costs are towards TPC’s corporate social
responsibility and are not necessary for the functioning of any utility. These expenses should
not be passed on to the consumers of TPC as the consumers are not benefiting from the same
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and thus, these expenses should be borne by TPC. TPC-G is free to incur such expenses from
the returns earned from the business. TPC-G's share against community welfare expenses and
gifts is Rs. 6.55 crore and Rs. 2.95 Crore, respectively, which has been disallowed from the
A&G expenses, under the Truing up exercise and for the purpose of sharing of gain and
losses.
The Commission observed that TPC-G has also considered Rs 0.49 crore towards
contribution/donations under the A&G expenses for FY 2009-10. As regards such expenses,
the Commission has ruled in the APR Order for TPC-G in Case No. 111 of 2008 as under.
“....The Commission is of the view that if the Company or the shareholders of the
Company wish to contribute/donate towards charitable causes, the same should be
contributed from the return earned out of the business, rather than passed on to the
Utility’s consumers. Hence, for truing up purposes for FY 2007-08, the Commission
has not considered the expense of Rs 0.50 crore towards donation to Tata Medical
Centre”
Hence, on similar lines, the Commission has not considered the expense of Rs 0.49 crore
towards contributions/donations as claimed by TPC-G, under the Truing up exercise and for
the purpose of sharing of gain and losses.
TPC-G submitted that the actual brand equity expense to be borne by TPC-G for FY 2009-10
is Rs. 9.61 Crore. TPC-G, in its Petition, has submitted the details of computation of brand
equity expense and its allocation to TPC-G. The Commission observed that the TPC has
computed the brand equity for FY 2009-10 on the basis of net annual income for FY 200910. The Commission, in Case No. 96 of 2009 in Order dated September 8, 2010, has stated
the following:
“The Commission does not find any merit in TPC's above explanation. The Brand
Equity Agreement states that the payment towards Brand Equity has to be computed
on the basis of Annual Net income of the financial year immediately preceding the
year in which the use occurs. In other words, Brand Equity payment in FY 2007-08
would be linked to the annual net income of FY 2006-07 and so on, whereas TPC has
considered Brand Equity payment in FY 2007-08 based on the annual net income of
FY 2007-08 itself. TPC's explanation regarding actual payment happening in the next
year is of no consequence, since the expenses and revenue are being considered on
"accrual basis" rather than cash basis. As a result of TPC's method of computing the
Brand Equity expenses, the same have effectively been advanced by one year, i.e., the
Brand Equity amount that was payable in FY 2007-08 has actually been paid in the
earlier year, i.e., FY 2006-07, and this shift of one year has continued. At the same
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time, it is not that the Brand Equity payment was not due at all, and it is only a
question of timing. Since, all these expenses are now being allowed due to the ATE
Judgment and are for past years, the Commission is of the view that there would be
not much merit in shifting the Brand Equity expenses allowable by one year. Hence,
for the purpose of truing up for previous years, the Commission has not disallowed
any part of the Brand Equity expenses, on the above account. However, TPC should
ensure that henceforth, the Brand Equity expenses are computed exactly as
provided for in the Brand Equity & Brand Promotion Agreement, on the Annual
Net income of the financial year immediately preceding the year in which the use
occurs.”(emphasis added)
As per the Commission’s ruling in the previous APR Order, the Commission directed TPC to
submit the revised computation of brand equity, in line with the methodology approved by
the Commission in the last APR Order. Further, as seen in the above extract, the Commission
had directed TPC to compute brand equity expense on the annual net income of the financial
year immediately preceding the year in which the use occurs. However, TPC submitted the
brand equity expense considering the annual net income of the same financial year. This is
highly irregular and the Commission does not see any merit in TPC's continued approach to
compute the brand equity on the same year's revenue, merely because the actual cash
payment is being made in the subsequent year. However, the Commission observes that
considering the annual net income of the preceding year, i.e., FY 2008-09, the brand equity
expense for FY 2009-10 works out to be Rs. 16.38 crore as against Rs. 13.66 crore
considering the annual net income for FY 2009-10. The Commission has already allowed the
higher brand equity expense of Rs. 16.38 crore in FY 2008-09 in the last APR Order. Thus, in
the interest of the consumers, the Commission has computed brand equity expense at the
annual net income of the same year, i.e., FY 2009-10, at Rs. 13.66 Crore, the detailed
computation of which is given in the table below:
Table: Computation of brand equity Amount for FY 2009-10
(Rs. Crore)
Particulars
FY 2009-10
FY 2008-09
Revenue from Mumbai Licensed
Area Business based on allocation
statement
a
5786
4916.81
Add: Cash Discount pertaining to
Mumbai LA Area
b
39.33
34.91
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Particulars
FY 2008-09
FY 2009-10
Add: Income in respect of
services rendered pertaining to
Mumbai LA Area
c
5.26
0.91
Add: Delay Payment Charges
pertaining to Mumbai LA Area
d
1.3
1.54
Total Revenue to be considered
for Mumbai Licensed Area
e=a+b+c+d
5831.89
4954.17
Contribution to Tata Brand Equity
f=0.25%*e
14.58
12.39
Service Tax
g=service
tax%*f
1.80
1.28
h=f+g
16.38
13.66
Total contribution to Brand
Equity including service tax
TPC-G submitted that as the expenditure under this head is a part of A&G expenditure, the
same has been allocated to the business of generation, transmission and distribution on the
basis of the A&G expenses of these business areas. The Commission has allocated the brand
equity expense based on A&G expenses, and accordingly the share of TPC-G in brand equity
expense for FY 2009-10 is Rs. 8.93 Crore.
The Commission has accepted actual A&G expenses, except expenses towards donations,
community welfare expenses and gifts, as submitted by TPC-G. Considering the same the
Commission has allowed the A&G expenses of Rs. 84.84 crore for FY 2009-10 including
brand equity expenses under the Truing up exercise. The summary of the allowed A&G
Expenses has been tabulated below:
Table: Summary of the allowed A&G Expenses (Rs. Crore)
Particulars
Actual A&G Expenses
Amount
95.51
Less: Community Welfare Expenses
6.55
Less: Gifts
2.95
Less: Contribution/Donation
0.49
Less: Reduction in Brand Equity
0.68
Allowed A&G Expenses
84.84
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4.1.6.3 R&M Expenses
TPC-G submitted that the R&M expenses for FY 2009-10 were Rs. 126.34 Crore, which is
higher by Rs. 18.46 crore as compared to the actual R&M expenses of Rs. 107.88 crore during
FY 2008-09. The Commission asked TPC-G to submit the reasons for such an increase in
R&M Expenses in FY 2009-10. TPC-G submitted that the increase in expenditure has been
caused due to accounting of certain fuel handling costs and treatment given to such
expenditure in the year. TPC-G submitted that in FY 2009-10 it has adopted the Accounting
Standard AS 2 due to which TPC-G did not include the costs incurred to change the location
of the coal within the premises of the plant and to change its condition in the inventory and
the same was charged to the R&M Expenses in FY 2009-10. An amount of Rs. 13.60 crore is
towards the same in FY 2009-10. Such expenditure are towards various operations and
maintenance of conveying equipments, weigh bridge operation, removal of foreign material
from coal environment monitoring at Hajibunder, etc. Also in order to maintain TPC-G’s
plant and housing colony in good condition an amount of Rs. 4 crore was incurred towards
painting and dredging.
Considering the details of actual R&M expenses and reasons submitted by TPC-G for
increase in R&M expenses, the Commission has allowed the R&M expenses of Rs. 126.34
crore for FY 2009-10 under the Truing up exercise.
4.1.6.4 Allocation of Load Control Centre Expenses to TPC-G
TPC-G submitted that as per the methodology approved by the Commission, TPC-G’s share
of LCC expense for FY 2009-10 works out to Rs.1.72 Crore, as against the amount Rs. 1.25
crore of LCC expense approved by the Commission in its APR Order dated September 8,
2010.
Considering that the LCC costs are largely of O&M nature, the Commission has considered
the entire cost as part of O&M expenses. For Truing up purposes, the Commission has
accepted the allocation of the LCC cost for its Generation, Transmission and Distribution
businesses as submitted by TPC.
In the current Truing up exercise, the Commission has considered TPC-G's share of LCC cost
for FY 2009-10 as Rs. 1.72 Crore, accordingly, the Commission has added the total share of
TPC-G towards LCC costs of Rs 1.72 Crore, in allowable O&M expenditure for FY 2009-10.
Approved O&M Expenses
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Based on the approved Employee, A&G and R&M expenses for FY 2009-10 as mentioned in
above paragraphs, the Commission has approved the O&M expenses for FY 2009-10 as
shown in the Table below:
Table: O&M Expenses (Rs Crore)
Particulars
FY 2009-10
O&M Expenses
Revised
Actuals
Allowed after
Approved O&M
truing up
Employee Expenses
-
130.42
130.42
A&G Expenses
-
95.51
84.84
R&M Expenses
-
126.34
126.34
347.0
-
-
LCC cost
1.25
1.72
1.72
Brand Equity not
8.93
-
-
357.18
354.0
343.32
O&M expenses approved in
APR Order FY 2009-10
included earlier
Total O&M expenses
4.1.7 Capital expenditure and capitalisation
The Commission has examined the capital expenditure and actual capitalisation claimed by
TPC-G as against the various capex schemes approved by the Commission. As against
approved capitalisation of Rs. 55.48 crore considered under its earlier APR Order dated
September 8, 2010, actual capitalisation done by TPC-G during FY 2009-10 amounted to Rs.
153.65 Crore. TPC-G, in its Petition, submitted the breakup of the total capitalisation under
DPR, Non DPR, Merged DPR and HO&SS schemes as follows:
Table: Breakup of Capitalisation for FY 2009-10 (Rs Crore)
Schemes
Non DPR
Carry Forward
65
DPR
Merged DPR
50
-
Total DPR
HOSS
Total
50
116
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Schemes
New
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Non DPR
DPR
Merged DPR
9
Total DPR
21
74
50
Total
21
HOSS Allocation
Total
HOSS
21
71
30
8
8
8
154
Further, TPC-G through its letter dated November 24, 2011, submitted that it had
inadvertently considered two schemes which fell under DPR schemes as Non DPR schemes.
The details of the schemes were submitted as follows:
(Rs. Crore)
Capex Scheme
Approval
Scheme Value
Capitalisation
FY 2009-10
Capitalisation
FY 2010-11
Male Nallah Diversion Scheme
11.30
1.44
0.09
Replacement of U#5 HP FW heaters 5 & 6
12.85
5.67
5.63
7.11
5.72
Total
In view of this, the revised breakup of DPR capitalisation and Non-DPR capitalisation for FY
2009-10 as submitted by TPC-G is as follows:
Table: Revised Capital Expenditure for FY 2009-10 as submitted by TPC-G (Rs. Crore)
Capex as per submission in Petition
Non DPR
DPR
Merged
DPR
Total
DPR
HOSS
Total
74.38
50.17
21.00
71.17
8
154
-1.44
1.44
1.44
-5.67
5.67
5.67
8
154
Add (In DPR)/Less (From Non DPR)
Male Nallah Diversion Schemes
Replacement of Unit# 5 HP Heater 5 &
6
Merged DPR
-1.63
1.63
1.63
22.63
79.91
HOSS Allocation
Total
65.65
57.28
In reply to the Commission’s query regarding additional capitalisation for HO & SS, TPC has
submitted that most of the additional capitalisation for HO & SS is meant for regulated
business and based on materiality concept, there may not be any need for further break-up
into regulated and non-regulated business. Not being satisfied with TPC's response, the
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Commission asked further details from TPC regarding the assets capitalised under HO & SS
and whether the same was incurred for Mumbai LA operations, since the names of some of
the assets referred to Belgaum, Noida, etc.
The Commission observes that an expenditure of Rs. 8.09 Lakh was incurred in FY 2009-10
towards ‘Ambulance Van - Tata Motor’, which has been clarified to be Corporate Social
Responsibility expenditure under ‘HO and SS’ asset additions. As regards such expenses, if
TPC as a Company or the shareholders of the Company wish to contribute towards Corporate
Social Responsibility expenditure, the same should be contributed from the return earned out
of the business, rather than passing on such costs to the Utility’s consumers. On similar
grounds, the Commission has also disallowed the revenue expenditure towards CSR. Hence,
for Truing up purposes for FY 2009-10, the Commission has not considered this capital
expense of Rs. 8.09 Lakh.
The Commission further observed that expenses incurred towards projects located in
Belgaum and Noida, amounting to Rs. 15.60 Lakh were included under HO & SS. TPC
clarified that although these assets are under the HO books, they are not pertaining to
Mumbai LA. Hence, the Commission has not included these assets under additional
capitalisation for HO & SS.
The Commission queried TPC about Rs. 44.29 Lakh shown as expense towards ‘Bridge in
front of Walwan Dam’, which was capitalised on September 30, 2009. TPC replied that these
assets were transferred to Khopoli division in September 2009 itself. As these expenses have
already been transferred to Khopoli Division, the Commission has not considered the same
under HO & SS to avoid double accounting of the same in the books of Khopoli Division as
well as HO & SS. Similarly, TPC submitted that HO & SS expenses amounting to Rs. 50.37
Lakh, including solar panels amounting to Rs. 6.56 Lakh towards Transmission Business,
were transferred to Transmission Division in FY 2010-11. Hence, the Commission has not
included these expenses in HO & SS to avoid double accounting as these have been
transferred to Transmission Business.
Further, TPC submitted in its reply that Cisco Routers and Cisco Switches amounting to Rs.
1.47 crore were located at Dharavi Receiving Station although capitalised in the HO & SS
books. TPC also submitted the details of vehicles procured for employees who are a part of
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Mumbai LA, adding up to Rs. 1.25 Crore. The Commission has considered these assets
relating to Mumbai LA and approved the same.
Thus, based on TPC’s reply, the Commission has classified additional capitalisation for HO
& SS into three groups, as given below:
(a) Assets under HO & SS not approved by the Commission - These assets include
Corporate Social Responsibility expenditure, expenses relating to Noida and
Belgaum, and expenses already capitalised under generation and transmission
business of TPC, for which capitalisation has not been approved by the Commission,
as explained in the above paras.
(b) Assets Identified for Mumbai License Area - The Commission has accepted TPC’s
submission relating to assets at Dharavi Receiving Station and vehicles of Mumbai
LA employees capitalised under HO & SS.
(c) Balance capitalisation under HO & SS - For the remaining assets capitalised under
HO & SS, the Commission is of the view that HO & SS assets would be common and
used by all business segments. Moreover, the details of the assets added in HO & SS
include several computers, printers, mobile, etc., which are common assets and it will
not be appropriate to assume that these assets are exclusively meant for the use of the
regulated business. Hence, the Commission does not agree with TPC's rationale that
based on 'materiality concept', there may not be any need for further break-up into
regulated and non-regulated business. The Commission has allocated these HO & SS
assets in proportion of the GFA of regulated business (G, T & D) to Total Assets of
TPC, which is further allocated to G, T and D in the ratio of GFA, as shown in the
Table below:
Table: HO & SS Capitalisation for FY 2009-10
Category
Capitalisation (Rs.)
Assets under HO & SS not approved by the Commission
Ambulance Van CSR
809500
Belgaum
1396122
Khopoli Division
4429835
Noida
162966
Solar
656463
Transmission
Vehicle
4380973
29227077
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Category
Capitalisation (Rs.)
Total
41062937
Assets Identified for Mumbai License Area (allowed 100%)
Cisco routers, etc.
14650337
Vehicle
12498247
Total
27148584
Balance capitalisation under HO & SS (allowed 44.07%)
Other Expenses
64984469
Total
64984469
HO & SS Approved
55784980
Table: Approved HO & SS Capitalisation for FY 2009-10 (Rs.)
Particulars
HO & SS allocation
TPC-G
TPC-T
TPC-D
3,92,33,144 1,20,70,903 44,80,932
Accordingly, the HO & SS allocation considered by the Commission for Truing up for FY
2009-10 is Rs. 3.92 crore as against Rs. 8.58 crore submitted by TPC-G. These are included
under non-DPR schemes for the purpose of further analysis.
The Commission has verified the actual capitalisation claimed by TPC-G as against capex
schemes already approved by the Commission.
The Commission’s rationale for approving the capitalisation for FY 2009-10 in this Order is
discussed below:
a) The Commission has considered the actual capital expenditure and capitalisation of
the DPR schemes after scrutinising the data provided by TPC-G for FY 2009-10.
b) The Commission in the APR Order dated May 28, 2009 had issued a directive in
respect of Non-DPR Schemes, restricting the capitalisation of such schemes to 20% of
the capitalisation of DPR schemes during the year. The relevant extract of the Order is
reproduced as under.
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“In view of the above, as a general rule, the Commission has decided that the
total capital expenditure and capitalisation on non-DPR schemes in any year
should not exceed 20% of that for DPR schemes during that year. To achieve
the purpose, the purported non-DPR schemes should be packaged into larger
schemes by combining similar or related non-DPR schemes together, so that the
in-principle approval of the Commission can be sought in accordance with the
guidelines specified by the Commission and regulatory oversight can be
exercised while approving the capitalisation.” (Emphasis added)
c) The Commission observed that amount of capitalisation of Non-DPR Schemes as
submitted by TPC-G exceeds 20% of amount of capitalisation of DPR Schemes during
FY 2009-10. Hence, the Commission has considered capitalisation for Non-DPR
Schemes only to the extent of 20% of the approved capitalisation of DPR Schemes
during FY 2009-10.
TPC-G also submitted that it has filed an appeal before the Hon’ble ATE against the
disallowance arising out of the principle adopted by the Commission in the Tariff Order. Notwithstanding the outcome of the appeal TPC-G has requested to approve the entire
capitalization for FY 2009-10.
The Commission is of the view that since the Judgment on the appeal is pending, the approach
to be adopted in line with the previous Orders will be subject to the outcome of the said
appeal. Accordingly the Commission approves the total capitalisation for FY 2009-10 as
follows:
Table: Capitalisation approved by the Commission for FY 2009-10 (Rs Crore)
Particulars
TPC-G
Approved
DPR Schemes (Including Merged DPR schemes)
79.91
79.91
Non-DPR schemes (Including HO&SS) @20% of DPR
schemes
74.23
15.98
153.65
95.89
Total
Further, the Commission in its data gaps asked TPC-G, whether it has considered the impact
of the Review Order in Case No. 71 of 2010 dated November 30, 2010 in which the
Commission allowed an additional capitalisation of Rs. 2.52 crore for FY 2008-09. TPC-G, in
its reply confirmed that the capitalisation of Rs. 2.52 crore has been considered in the present
Petition submitted by TPC-G.
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The Commission, in this Order, has considered the impact of the additional capitalisation of
Rs. 2.52 crore for FY 2008-09 and has added the applicable amount to the approved closing
values (Equity, Debt, and GFA) for FY 2008-09. The Commission has also allowed the
recovery of amounts including carrying cost pertaining to such revision of capitalisation for
FY 2008-09 which is discussed later in Section 6 of this Order. As for FY 2009-10 and FY
2010-11 the Commission has added this additional capitalisation to the opening GFA for FY
2009-10 and accordingly made necessary additions in the opening equity and loan balance.
4.1.8 Past De-Capitalisation
The Commission in its Order in Case No. 96 of 2009 dated September 8, 2010 had directed
TPC-G to submit the impact of replacement schemes been implemented by Utilities, as
extracted below:
" Further, it should be noted that TPC-G, as well as other Utilities, have been proposing
asset replacement schemes with certain cost-benefit analysis, which have been approved
by the Commission in the past, and such replacement schemes have been implemented by
the Utilities. However, the impact of the replacement of the asset has not been clearly
shown by the Utilities in terms of reduction in GFA, outstanding loan, if any, accumulated
depreciation, as well as equity contribution, to the extent, the old asset that has been
replaced. This needs to be done, as the old asset is no longer part of the books of
accounts, and all the related components that have a bearing on the tariff also need to be
modified correspondingly, since the new asset gets added to the asset base as well as
equity base in its entirety. Not deducting all these components of the replaced asset leads
to double-accounting of the assets and the related revenue expenses. Hence, the
Commission directs TPC-G to submit all the relevant details in this regard for all years
from FY 2005-06 onwards for the Commission to ensure that the impact of such asset
replacement is passed on in the desired manner to the consumers, and the same can be
considered by the Commission in the next Order."
In compliance to the same TPC-G submitted the details of original cost of the assets which
have been replaced under 'DPR schemes' right from FY 2005-06 onwards after approval from
the Hon'ble Commission.
TPC-G submitted that all of these replaced assets are very old and have been depreciated to
90% of their acquisition value and have no outstanding loan against them. TPC-G further
submitted that it has restricted such compilation to replacement schemes undertaken under
the head 'DPR schemes' since the 'Non-DPR schemes' are large in number and as such these
details are difficult to retrieve from the system. In any case, the total cost of equipment
replaced under DPR schemes amounts to around Rs 1000 lakh, which is very small. Further,
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TPC-G submitted that if the exercise is exempted for Non-DPR, it will not dilute the accuracy
and materiality of our submission.
The Commission has gone through the submission made by TPC-G and observed that TPC-G
has not submitted the actual date of de-capitalisation of the assets however, it has mentioned
the year of in-principle clearance obtained from the Commission for de-capitalisation. The
Commission, for giving effect to the impact of de-capitalisation, has considered it from the
year such de-capitalisation has been approved by the Commission.
As the return on equity has already been allowed on the assets, which were de-capitalised and
therefore nonexistent in their respective years, the amount of such excess return on equity
needs to be charged back. Further, as the Hon’ble ATE has already allowed TPC-G to charge
carrying cost on deferred expenses therefore, the Commission has calculated carrying cost on
the excess return on equity allowed at the same rates as specified by TPC-G for respective
years. For computation of the period for which such carrying cost has to be allowed or disallowed, the Commission has considered the same from the year for which the ARR and
Tariff was determined. As this excess return on equity was realized during the year, the
carrying cost cannot be levied from the beginning of the year, therefore, for the first year for
which the ARR and Tariff was determined, the Commission has considered the carrying cost
for half of the period in which it was realized and for the entire year for subsequent years.
The Commission has accordingly computed the total amount of Return on Equity with
carrying cost to be charged back as follows:
Table: Excess return on Equity pertaining to de-capitalisation due to replacement scheme
to be charged back along with the carrying cost (Rs. Crore)
As shown in the above table, a sum of Rs 0.77 crore needs to be charged back. Further, since
the cumulative equity de-capitalisation till FY 2009-10 is Rs 1.86 Crore, the same has been
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deducted from the opening equity for FY 2009-10 and return on equity on such component
has not been allowed. As this component has not been allowed in the return on equity
workings for FY 2009-10 while carrying out the truing up, hence the amount of Rs 0.26 crore
and Rs 0.39 crore towards RoE is not included in Rs 0.77 crore to be charged back and only
the carrying cost of such amount has been taken into account for computation of total amount.
In addition to the details submitted by TPC-G regarding de-capitalisation due to asset
replacement, the Commission also observes that TPC-G has submitted details of asset
retirement for past years as part of computation of depreciation for the respective years under
relevant Formats submitted along with the Petition. Ideally, such asset retirements should
tally with the asset replacement/de-capitalisation as submitted vide above responses to
directives of the Commission for the respective years, barring any differences on account of
non-inclusion of retirements of Non-DPR assets. However, in the present case, it is observed
that there exists significant difference in the asset retirement data submitted by TPC-G under
its depreciation computation for respective years and under the separate submissions made in
response to the Commission’s directive. The below table highlights the aforesaid difference
for TPC-G for FY 2009-10 and FY 2010-11.
Table: Variation in submission of details by TPC-G
Particulars
Rs Crore
FY 2009-10
FY 2010-11
Year-wise Asset retirement as appearing in
Depreciation computation/formats
(19.53)
(4.37)
De-capitalisation due to asset replacement
as submitted by TPC-G separately in
current Petition
0.00
(3.17)
Similar differences in this regard are also observed in TPC-G’s submissions for the past years
as well. Despite this difference observed in this regard, the Commission, for the purpose of
current Order has considered the details of year-wise de-capitalisation due to asset
replacement as submitted by TPC-G separately, and has reduced the regulatory equity of
TPC-G for the corresponding year to this extent. However, the Commission directs TPC-G to
provide sufficient justification as regards the above observed discrepancy in terms of details
of asset retirement as appearing in Depreciation computation/formats and the details of decapitalisation due to asset replacement as submitted by TPC-G, for past years and for FY
2009-10 and FY 2010-11. TPC-G also should submit additional impact on equity or loans for
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the respective years on this account, if any. Such details have to be submitted by TPC-G as
part of its Tariff/ARR filings of the next year.
Further, TPC in its Truing up Petitions for FY 2008-09 in Case No. 96 of 2009, Case No. 97
of 2009 and Case No. 98 of 2009 for its Generation, Transmission and Distribution
businesses, respectively, had submitted details of certain assets, which were de-capitalised
during FY 2008-09. As regards the nature of the assets, TPC had stated that the de-capitalised
assets were corporate assets, which were being used as facilities meant for outside Mumbai
Licensed Area operations, which amounted to a total of Rs. 34.62 Crore. The same was
further allocated to TPC-G, TPC-T and TPC-D businesses on the basis of the ratio of their
respective GFA. Accordingly, for TPC-G, an amount of Rs. 22.22 crore was considered as
the net asset de-capitalisation in FY 2008-09. However, since there were no loans that were
outstanding against such assets de-capitalised, TPC had considered the pertaining impact on
Equity portion only. Accordingly, TPC-G claimed a reduction in Regulatory Equity for FY
2008-09 to the extent of Rs. 22.22 crore on account of the entire asset de-capitalisation
considered for the year. Based on the submissions made by TPC-G in the matter, the
Commission allowed the impact of such asset de-capitalisation vide its Order dated
September 8, 2010. However, during the TVS for the current Petition, the Commission raised
a few related queries to TPC in this regard. TPC’s replies to such queries and the
Commission's decision in the matter are given in the following paragraphs:
In response to the Commission’s specific query regarding de-capitalisation of assets such as
Guest Houses at book value, rather than market value, even though the market value of such
assets would be many times the book value, TPC submitted that the assets, which have been
de-capitalized were secretarial and administrative in nature and have been capitalised in the
Corporate Office and that these assets were not in the exclusive use of any licensed business
of the Company. TPC submitted that the assets were further allocated to the two licensed
businesses, namely TPC-T and TPC-D and the power generation business (which is delicensed) as per the allocation methodology filed with the Commission. TPC further
submitted that the allocation between TPC-G, TPC-T, and TPC-D was done on the basis of
the Opening GFA for FY 2008-09 of the respective business.
In reply to the Commission's query regarding whether the de-capitalisation or asset transfer
from one Division to another should be done at book value or market value, TPC submitted
that the subject assets were corporate assets, which are no longer used in Mumbai Licence
area operations. TPC submitted that the de-capitalisation also ensured that no burden was
passed on to the consumers of the licensed area on account of assets, which are no longer
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used in Mumbai License area. Further, the Commission observed that Guest House Expenses
have been claimed by TPC-G as HO & SS expense allocation to TPC-G, under the head
‘Cost of services’ under A&G expenses for FY 2010-11. The Commission asked TPC to give
details of services at various Guest Houses and also confirm whether these Guest House
expenses pertain to the assets transferred from Regulated Business to Other Business in past
years. TPC submitted that few Guest Houses are maintained by TPC for the benefit of guests
of the Company. The cost involves maintenance and care-taker charges and though the
expenses are booked under head office, a part is allocated to Mumbai License Area as the
Guest Houses are mostly located in and around Mumbai. TPC also clarified that the expenses
included in the ARR do not pertain to the Guest Houses that have been transferred out of
Licensed Area.
TPC further submitted that de-capitalisation had to be done at Book Value as there was no
transfer of the assets in question and were merely stopped from being allocated to Mumbai
activities.
TPC further submitted that since there is no specific dispensation under MERC Tariff
Regulations, 2005 or guidelines of the Central Electricity Regulatory Commission (CERC)
on appropriate regulatory treatment to deal with such de-capitalisation within the Company,
hence, the same has been recognized as per the standard accounting practice. TPC further
clarified that since the assets were not marked to the market, the consumers continue to pay
tariff worked out based on book value and not market value. Hence, the de-capitalisation was
also needed to be done at the book value.
TPC submitted that as per the Accounting Standards, the transfer of assets from one division
to another division of the same Company can only be done at book value. TPC further
submitted that under Regulation 8.8.1 of the MERC (General Conditions of Distribution
License) Regulation 2006, the Commission may specify a certain threshold ‘book value’ of
assets, and any transfer of assets over and above such book value can be done only with the
approval of the Commission. TPC-G submitted that as per their understanding no specific
threshold ‘book value’ has been prescribed under Regulation 8.8.1 by the Commission. TPCG further submitted that as a matter of abundant caution, TPC-G had appealed to the
Commission in the APR Petition for FY 2008-09 seeking its consent for de-allocation and
consequent de-capitalisation of the assets giving full details and proper justification. TPC-G
submitted that the Commission in its Order dated September 8, 2010, has duly considered the
proposal and had approved the same.
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In this regard, the Commission has re-considered the issue, since it has larger implications,
and there is a possibility that the consumers, who have contributed towards creation of certain
assets, may be deprived of realising the benefits in case of realisation from sale of the assets.
The issue of de-capitalisation of assets such as Guest Houses, etc., without any replacement
of asset, should be considered differently from asset replacement exercises, where the
Commission has rightly ruled that the equity component of the GFA of the replaced asset,
should be reduced from the equity base, so that the Utility does not continue to earn RoE on
an asset which no longer exists in its books of accounts, and also earns RoE on the new asset
that has replaced the old asset. In case of de-capitalisation of assets such as Guest Houses,
etc., where no replacement of asset is involved, the Commission is of the view that TPC's
contention that any transfer of assets within the same Company can only be done at book
value, and market valuation would be relevant only if the assets were being sold, is correct,
on a stand-alone basis. However, the issue is not so simple. Consider an instance, wherein,
today, the assets are being transferred at book value to an unregulated business under the
same Balance Sheet, and the asset is sold say, two years later, then the sale transaction will be
valued at market value, however, all the benefits of the market valuation will be realised by
the other unregulated business to whom the asset has been transferred, and the regulated
business, which has contributed towards creation of the assets will not benefit in any manner.
Hence, the Commission is of the view that the assets should continue to remain in the books
of the regulated business, since consumers have paid for it at some point in time. If the guest
houses are used by other Group Companies or other Business under the same Balance Sheet,
appropriate rentals at market rates, may be paid for use of the guest houses, and such rental
will be considered under the non-tariff income of the regulated business. Since, TPC should
be indifferent as to where the assets appear, since they will continue to appear under the same
Balance Sheet. However, this will ensure that as and when such assets are sold, then the
benefit of market valuation will be realised by the regulated business. It is understood that the
same principle would be applicable, irrespective of whether the asset has appreciated in value
or depreciated in value. Hence, the Commission disallows the de-capitalisation of the guest
houses and other administrative assets as proposed by TPC.
In view of the above, the asset de-capitalisation approved earlier for TPC-G for FY 2008-09
is disallowed now, and the corresponding Equity disallowed, i.e., Rs 22.22 Crore, has been
re-instated for the year (the same assets have been entirely funded by TPC-G through equity).
Thus, TPC-G is entitled to additional RoE for FY 2008-09 to this extent which works out to
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Rs 3.11 Crore. In addition, based on rationale explained in the above paragraphs of this
Order, carrying cost is allowable for the period when the recovery was deferred, i.e., from the
issuance of the original Truing up Order to the actual date of recovery of the said expenses.
Thus, for recoveries pertaining to FY 2008-09 the Truing up Order was issued on September
8, 2010 therefore, the Commission has considered 7-months carrying cost for FY 2010-11 (at
an interest rate of 12.24% based on SBI PLR). Thus, the carrying cost on the additional ROE
for FY 2008-09 currently allowed, works out to Rs 0.22 Crore. The carrying cost for FY
2011-12 will have to be considered at the time of considering the carrying cost for FY 201112 for all the heads of deferred recovery. Accordingly, the net impact of disallowance of
Asset De-capitalisation in FY 2008-09, i.e., additional RoE allowed due to equity reinstatement for FY 2008-09 and the corresponding carrying cost allowed works out to Rs.
3.33 Crore.
The impact of this disallowance of de-capitalisation of guest houses, etc., in FY 2009-10 and
FY 2010-11 has been considered by changing the opening asset values correspondingly for
FY 2009-10 and FY 2010-11.
Further to the above, the Commission directs TPC to consider appropriate market rates and
determine the rental receivable by its Regulated business (Generation, Transmission and
Distribution) for its assets referred above, which are currently being used by other Group
Companies or other Business, from such date of start of use of the said assets. The same
should be determined on a financial year basis and have to be considered under Non Tariff
Income of TPC for respective financial years. TPC should submit such details for the past
years till FY 2010-11 and should continue considering the income from such rentals for its
submissions in the subsequent years until such assets are owned by TPC. Further, in this
regard, the Commission also directs TPC to intimate the Commission upon disposal/sale of
such assets at market value and include the impact of the same in the Tariff Filings for the
respective years to ensure that the associated benefits are passed on to the consumers of the
regulated business of TPC.
4.1.9 Depreciation
The Commission, in its APR Order dated September 8, 2010, in Case No. 96 of 2009 had
permitted depreciation to the extent of Rs. 72.09 crore for FY 2009-10. The depreciation rates
were considered as prescribed under the MERC Tariff Regulations, 2005. TPC-G, in its APR
Petition, submitted that the actual depreciation in FY 2009-10 was Rs. 77.71 Crore.
Page 85 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
TPC-G submitted that the Commission while Truing up of expenses for FY 2008-09, had not
considered a part of capitalisation of Non-DPR Schemes based on the principle that
capitalisation of Non-DPR Schemes should not exceed 20% of capitalisation of DPR
Schemes. TPC-G has appealed against the same under Appeal No. 18 of 2011 to the Hon’ble
ATE and has considered the capitalisation of all the schemes for the purpose of computation
in this Petition. Further, TPC-G in its additional submission confirmed that depreciation has
not been claimed beyond 90% of the asset value in accordance with the MERC Tariff
Regulations.
TPC-G also submitted that the Commission in its Order dated September 8, 2010 had
permitted capitalisation to the extent of Rs 64 crore towards refurbishment of Unit# 7 in FY
2008-09. TPC-G further submitted that Unit# 7 is a Gas based unit requiring overhaul at
regular intervals and hence, there is expenditure incurred at such regular intervals.
TPC submitted that such jobs on Gas Turbines are carried out at an interval of about 5 years
and hence, the assets created under such job are required to be depreciated in 5 years
translating into an average deprecation of 18% per year. The depreciation rate available under
the depreciation schedule of the Tariff Regulations is 6%, TPC-G requested to allow an
additional 12% rate of depreciation per annum for the capitalization under this scheme. In
summary, depreciation of Rs 7.7 crore (i.e., 12% of Rs 64 Crore) should be permitted to TPCG on account of the above.
With regards to additional 12% depreciation in respect of refurbishment works carried out on
Unit# 7, the Commission is of the view that it already allows 6% depreciation rate for such
assets and there is no separate provision for higher depreciation rate under MERC Tariff
Regulations and therefore, the Commission has not considered any additional depreciation on
this account.
TPC-G, in its Petition, while considering the opening GFA for FY 2009-10 as Rs. 3172.26
crore has claimed the Depreciation expenditure for the year as Rs. 77.71 Crore. The opening
GFA considered by TPC-G for FY 2009-10 is higher than the closing GFA for FY 2008-09 as
approved by the Commission. For computing the depreciation,, the Commission, as discussed
in earlier subsection has reinstated the amount of Rs. 22.22 crore pertaining to the decapitalisation of assets such as Guests House to the closing GFA for FY 2008-09. The
Commission, for the purpose of Truing up has considered the opening GFA of Rs. 3141.76
crore for FY 2009-10 based on closing GFA for FY 2008-09 after reinstating the above said
amount and by adding the impact of Rs 2.52 crore allowed as additional Capex in the Order
dated November 30, 2010 in Case No. 71 of 2010. Further, the Commission has approved the
depreciation on the opening GFA for FY 2009-10 as well as on the assets added during the
year, subject to the actual capitalisation approved by the Commission for FY 2009-10, which
amounts to Rs. 70.11 Crore.
Page 86 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
The depreciation expenditure approved by the Commission in the APR Order, depreciation
expenditure claimed by TPC-G, and depreciation expenditure allowed after Truing up for FY
2009-10 on above mentioned basis have been summarised in the following Table.
Table: Depreciation
(Rs. Crore)
Particulars
APR Order
Apr-Mar
(Audited)
Allowed
truing up
Opening GFA
3117.02
3172.26
3141.76
Asset Addition During the Year 55.48
153.65
95.89
Asset Retirement
(19.53)
(19.53)
77.71
70.11
Depreciation
72.09
after
4.1.10 Interest on Debt
The Commission, in its APR Order dated September 8, 2010 in Case No. 96 of 2009 had
approved interest on debt of Rs. 45.99 crore for FY 2009-10.
TPC-G submitted that in addition to the normative loans for the previous years (70% of Capex
of FY 2003-04 and 70% of capitalisation of FY 2004-05 and FY 2005-06), TPC has availed
loans from IDFC- Loan 1 (Rs. 450 Crore), IDBI- Loan 1 (Rs. 400 Crore), IDBI- Loan 2 (Rs.
300 Crore) for funding the expenditure of FY 2006-07 to FY 2009-10. TPC-G further
submitted that the details of the IDFC-1 and IDBI-1 loans had already been submitted in the
previous Petitions.
TPC-G submitted that the Commission in its Order dated September 8, 2010 in Case No. 96
of 2009 has already discussed in detail the allocation of these loans and has also considered a
part of financing through normative loans. TPC-G further submitted that as the funding from
debt and equity depends upon the actual capitalisation rather than the approved capitalisation,
for the loan position given below in the table it had considered the entire capitalisation for FY
2008-09.
Table: Position of Loans based on capitalisation for FY 2006-07 to 2008-09, as submitted
by TPC (Rs. Crore)
Year
Generation (Excluding Unit#-8)
Total
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Normative
IDBI
Loan-1
IDFC
Loan-1
FY 2006-07
-
-
28.86
28.86
FY 2007-08
29.10
-
9.02
38.12
FY 2008-09
315.80
13.48
-
329.28
Total
344.89
13.48
37.88
396
TPC further submitted that in addition to the above; TPC had taken a new loan (“IDBI Loan
2”) for financing the capitalisation for FY 2009-10. The details of the new loans taken for
funding the capitalisation for FY 2009-10 are as given below:
• IDBI-2 Loan
As submitted by TPC, it had raised a loan of Rs. 300 crore from IDBI to fund its current
capital expenditure on the following terms:
IDBI LOAN-2
Tenor
2 year moratorium+5 years
Repayment
4 yearly instalments of 10% in the 3rd, 4th , 5th and 6th year followed by
60% repayment in the 7th year
Interest rate
12.5% for the first year; Subsequent reset on annual basis to an interest
rate linked to IDBI’s BPLR with a maturity agreeable spread.
TPC further submitted that this loan was refinanced on different terms in FY 2010-11. Based
on the capitalisation of FY 2009-10, the drawal of the IDBI loan 2 is given in the following
table. In the computation given in the table, the IDBI Loan 2 has been allocated to different
business areas (Generation, Transmission and Distribution) based on the ratio of capitalisation
of these business areas in FY 2009-10.
Table: Financing of Capitalisation for FY 2009-10 as submitted by TPC-G
Particulars
Business Areas
Interest
Page 88 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Gen.
Trans.
Dist.
Total
rate
(Rs Crore)
(Rs Crore)
153.65
167.49
107.50
428.64
107.56
117.24
75.25
300.05
107.54
117.22
75.24
300.00
12.47%
0.02
0.02
0.01
0.05
10.00%
(Excluding U8)
Units
(Rs Crore)
Capitalisation during
(Rs Crore)
(%)
FY 2009-10
Debt Portion for
Capitalisation=70%
of capitalisation
Financed through
IDBI Loan 2
Financed through
Normative Loan
As submitted by TPC, the drawal of the various loans after considering the IDBI Loan-2 for
FY 2009-10 is given in the following table:
Table: Loan Position after Capitalisation for FY 2009-10 as submitted by TPC-G
(Rs. Crore)
Year
Generation (Excluding Unit# 8)
Normative
IDBI
Loan-1
IDFC
Loan-1
Total
IDBI
Loan-2
FY 2006-07
-
-
28.86
-
28.86
FY 2007-08
29.10
-
9.02
-
38.12
FY 2008-09
315.80
13.48
-
-
329.28
FY 2009-10
-
-
-
107.54
107.54
344.89
13.48
37.88
107.54
503.79
Total
TPC-G submitted that considering the above, the interest charges for FY 2009-10 worked out
to Rs 57.82 crore as compared to Rs. 45.99 crore approved by the Commission in the APR
Order for FY 2009-10, as shown in the Table below:
Page 89 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Interest on Loan as submitted by TPC-G for FY 2009-10
TPC-G submitted that the difference in the actual interest expense and the approved interest
expense is mainly on account of the difference in capitalisation considered by the
Commission for FY 2008-09 and FY 2009-10. Further, TPC-G requested the Commission to
allow actual interest expenses for FY 2009-10 as computed above.
The Commission has gone through the submissions made by TPC-G and is of the view that
interest expenses should be allowed only on the loan corresponding to approved capitalisation
and has hence, recomputed interest expenses corresponding to approved capitalisation.
Accordingly, for computation of interest on loan, the Commission has considered the closing
balance of loan as approved for FY 2008-09 as the opening balance of loan for FY 2009-10,
which includes the impact of Rs 2.52 crore allowed as additional Capex in the Order dated
November 30, 2010 in Case No. 71 of 2010. In addition, the Commission has considered loan
availed as IDBI 2 loan for funding approved capitalisation for FY 2009-10, which works out
to Rs 67.12 crore as against TPC-G submission of Rs 107.54 Crore. The loan amounts
considered for computing interest expenses for FY 2009-10 are as shown in the Table below.
Table: Loan approved by the Commission after Capitalisation for FY 2009-10 (Rs. Crore)
Year
Generation (W/o unit # 8)
Normative
Total
IDBI Loan-1 IDFC Loan-1 IDBI Loan-2
FY 2003-04
40.50
40.50
FY 2004-05
73.24
73.24
FY 2005-06
14.59
14.59
FY 2006-07
-
-
28.86
-
28.86
FY 2007-08
26.25
-
9.02
-
35.27
FY 2008-09
280.37
13.48
-
-
293.84
FY 2009-10
-
-
-
67.12
67.12
Page 90 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Year
Generation (W/o unit # 8)
Normative
Total
Total
IDBI Loan-1 IDFC Loan-1 IDBI Loan-2
434.95
13.48
37.89
67.12
553.44
For computation of interest on loan from IDBI 2, TPC has submitted interest rate as 12.47%.
However, the Commission in its Order dated September 8, 2010 in Case No. 96 of 2009 has
already determined the interest rate as 11.48% for IDBI-2 loan for FY 2009-10 and the same
has been considered by the Commission for computation of interest for truing up. For
computation of interest on loan from IDFC, TPC has submitted interest rate as 11.69%.
However, the Commission has already determined the interest rate as 10.25% for IDFC loan
for FY 2009-10 in the APR Order and the same has been considered by the Commission for
computation of interest for truing up.
Further, for the interest on normative loan drawn in FY 2007-08, TPC has submitted interest
rate as 10%. However, the Commission has already determined the interest rate on normative
loan as 8.90% for FY 2007-08 in the APR Order for FY 2009-10 and the same has been
considered by the Commission for computation of interest. Similarly the loan repayments for
FY 2007-08 and FY 2008-09 have also been considered as approved in the APR Order for FY
2009-10.
Accordingly, the Commission has computed the interest expenses for FY 2009-10 and
approved interest on loan as Rs. 47.83 crore as against Rs 57.82 crore submitted by TPC-G.
The summary of loan and interest expenses approved by the Commission for FY 2009-10 is
given in the following table:
Table: Interest Expense
Particulars
Opening Balance of Loan
Loan Addition
Loan Repayment
Cl. Balance of Loan
Interest Expenses
(Rs. Crore)
APR Order
484.55
38.84
40.08
483.31
45.99
Actuals
523.14
107.54
40.59
590.09
57.82
Allowed after
truing up
486.31
67.12
38.74
514.69
47.83
4.1.11 Other Finance Charges
TPC-G has submitted the actual other finance charges for FY 2009-10 as Rs. 0.62 crore as
against the amount of Rs. 0.48 crore approved by Commission in the APR Order dated
September 8, 2010. TPC-G has considered the actual other finance charges for Truing up for
Page 91 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
FY 2009-10. The Commission accordingly has allowed other finance charges of Rs 0.62 crore
as submitted by TPC-G.
4.1.12 Interest on Working capital
TPC-G submitted that the normative interest on working capital has been computed based on
the elements specified in MERC Tariff Regulations, 2005. TPC-G submitted that for the
purpose of estimating the interest on working capital for FY 2009-10, interest rate of 13.0%
had been considered based on the Short Term PLR of SBI prevailing at the time of filing of
the Tariff Petition for FY 2009-10 and as approved by the Commission in the APR Order for
FY 2009-10 and as specified in MERC Tariff Regulations. TPC-G thus, submitted that total
interest on working capital requirement for FY 2009-10 was Rs. 104.13 crore as against Rs.
90.05 crore approved by the Commission in the APR Order.
TPC-G also submitted that it has claimed interest on working capital excluding two months of
receivables from sale of power to TPC-D and hence, it is appropriate to reduce the payables
towards power purchase cost to the extent sold from TPC-G to TPC-D while estimating the
working capital requirement for TPC-D.
The Commission observed that TPC-G while computing normative interest on working
capital has considered actual heat rate for computation of fuel cost instead of normative heat
rates approved by the Commission. For computation purposes, the Commission has
considered normative heat rate for Unit# 5 to Unit# 7 and the heat rate as approved by the
Commission in this Order for Unit# 4.
In response to the Commission’s query, regarding the usage of cash flows of TPC-G business
and/ or cash flows of any other business to meet the working capital requirement, TPC-G in
its reply stated its difficulty in computing the cash flow statements for the different businesses
on account of having a common balance sheet as well as common cash balance. Citing this
reason, TPC-G has not provided the cash flow statement for computation of financing of
working capital. TPC-G further submitted that Working capital is an item of balance sheet
while cash flow is worked out for a period of time such as one year. In other words cash flow
statement can at most determine the cash that may be available to meet the change in the Net
Working Capital (i.e. Current Assets less Current Liability) and not for the working capital.
TPC-G also submitted the details of the actual interest paid for FY 2009-10 as shown in the
table below:
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Details of actual Interest paid towards working capital as submitted by TPC (Rs
Crore)
Financial Year
FY 2009-10
TPC-G
9.36
TPC-T
0.58
TPC-D
9.94
Total
19.88
The Commission has estimated the normative working capital requirement and interest
thereof for FY 2009-10 based on the revised expenses approved in this Order after truing up.
However, interest on working capital is a controllable parameter as defined under the MERC
Tariff Regulations, and the Commission has therefore, computed the sharing of gains/losses
on the basis of normative working capital interest and the actual working capital interest
incurred, since this is a controllable parameter. The detailed rationale for such a treatment is
provided in Section 3 of this Order. Further, the MERC Tariff Regulations stipulates that rate
of Interest on Working Capital shall be considered on normative basis and shall be equal to
the short-term Prime Lending Rate of State Bank of India as on the date on which the
Application for determination of tariff is made. As the short-term Prime Lending Rate of State
Bank of India (SBI) at the time when TPC-G filed the Petition for tariff determination for FY
2009-10 was 13%, the Commission has considered the interest rate of 13% for estimating the
normative Interest on Working Capital, which works out to Rs. 101.98 Crore.
4.1.13 Return on Equity (RoE)
TPC-G submitted that based on the capitalised expenditure; the Debt: Equity norm of 70:30
and after considering RoE of 14% in accordance with Regulation 34.1 of MERC Tariff
Regulations, the RoE works out to Rs. 170.55 crore for FY 2009-10 as against the approved
amount of Rs. 168.23 Crore.
As discussed in the Section 4.1.8 above, for computation of Return on Equity the Commission
has reduced the Opening equity for FY 2009-10 to the extent of assets de-capitalised under
replacement scheme by TPC-G, the details of which have been submitted by TPC-G through
letter dated July 22, 2011. Further, as discussed earlier, the de-capitalisation of the assets such
as Guest Houses approved in FY 2008-09 is being disallowed now, and the corresponding
Equity of Rs. 22.22 crore is re-instated in FY 2008-09, and the impact of the same on the
Opening equity of FY 2009-10 has been considered while computing the Return on Equity for
FY 2009-10.
Accordingly, the RoE as claimed by TPC-G and approved by the Commission for FY 200910 is summarised in the following Table:
Page 93 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Return on Equity
(Rs Crore)
FY 2009-10
Particulars
APR
Order
Regulatory Equity at the beginning of the year
1201.62
1218.19
1224.60
-
(0.04)
(1.86)
1201.62
1218.15
1222.74
16.65
46.10
28.77
1218.23
1264.25
1251.51
168.23
170.55
171.18
Equity Portion of the asset de-capitalised
(replacement scheme)
Equity considered after de-capitalisation
Equity Portion of the capitalised expenditure
Regulatory Equity at the end of the year
Total Return on Regulatory Equity
Submitted
by TPC-G
Allowed after
truing up
4.1.14 Non Tariff Income
TPC-G submitted that the actual non-tariff income for FY 2009-10 was Rs. 12.18 Crore,
which is higher than the non-tariff income of Rs. 6.54 crore approved by the Commission.
TPC-G submitted that the Non Tariff Income comprised of the following elements:
•
Recurring Items
Rs. 4 Crore
•
Non-Recurring Items
Rs. 8 Crore
The Commission observed that though the expenses pertaining to Corporate Treasury have
been allocated to Mumbai Licence Area (in the ratio of operating revenue of Mumbai Licence
Area (LA) to total operating revenue), the ‘gain on exchange’ amounting to Rs. 50.61 crore
for FY 2009-10 has not been allocated to Mumbai LA. The Commission is of the view that
since, the expenses related to Corporate Treasury function have been allocated to the
regulated business in Mumbai, the income earned from the Corporate Treasury function
should also be allocated to the regulated business in Mumbai in the same proportion. If this is
not done, it will amount to undue enrichment of the unregulated business of TPC, since the
consumers of the regulated business are bearing the costs, but are being deprived of the
benefits of the income earned from the Corporate Treasury function. Accordingly, the
Commission has allocated this gain from the Corporate Treasury function to Mumbai LA on
the basis of operating revenue of Mumbai LA to total operating revenue, and further allocated
the same to the regulated business of Generation, Transmission and Distribution on the basis
of operating revenue.
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Table: Allocation of Gain on Exchange
Particulars
Total
Income
Allocated
Income to
other than
Mumbai
LA
Gain
on
exchange
50.61
15.18
Income
allocated to
Mumbai
LA
35.42
(Rs. Crore)
Generation Transmission Distribution
24.70
9.01
1.71
The Commission has further allocated the above mentioned gains to ‘Unit# 4 to 7 & Hydro’
and ‘Unit# 8’ on the basis of the actual non-tariff income reported by TPC-G, thus the share
for ‘Unit# 4 to 7 & Hydro’ and ‘Unit# 8’ for such gain comes as Rs. 21.69 crore and Rs. 3.01
Crore, respectively.
The Commission has added the gain from Corporate Treasury function in addition to the
actual non-tariff income reported by TPC-G under the Truing up exercise, as shown in the
table below:
Table: Non Tariff Income
Particulars
(Rs Crore)
APR
Order
Actual
Allowed
after
truing up
Rents
3.31
Other/Miscellaneous receipts
0.36
Interest on other investment
0.00
Interest on staff loans & Advances
0.46
Sale of Scrap
2.60
Income from Services Rendered
0.35
Profit/Loss On Sale / Retirement Of Assets.
(1.20)
Liquidated Damages
0.46
VAT Refund
4.00
Interest on IT Refund
0.89
Liability Written Back
0.95
Total
6.54
12.18
33.87
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4.1.15 Income tax
The Maharashtra Electricity Regulatory Commission (Terms and Conditions of Tariff)
Regulations, 2005 provides as follows:“34.2 Income-tax
Income-tax on the income of the Generating Business of the Generating
Company shall be allowed for inclusion in the annual fixed charges:
Provided that any change in such income-tax liability on account of
assessment under the Income-tax Act, 1961, as certified by the statutory
auditors, shall be allowed to be adjusted each year in the annual fixed
charges:
Provided further that any change in such income-tax liability on account
of change in income of the Generating Business of the Generating
Company from the approved forecast shall be attributed to the same
controllable or uncontrollable factors as have resulted in the change in
income and shall be dealt with accordingly:
Provided further that the generating station-wise profit before tax as
estimated for a financial year in advance shall constitute the basis for the
distribution of the corporate tax liability to all generating stations of a
Generating Company:
34.2.2The benefits of any income-tax holiday, credit for unabsorbed losses or
unabsorbed depreciation shall be taken into account in calculation of the
income-tax liability of the generating station of the Generating Company:
Provided that where such benefits cannot be directly attributed to a
generating station, they shall be allocated across the generating stations
of a Generating Company in the proportion of the generating station-wise
profit before tax.
The Petitioner is a company under the Companies Act and carries out several businesses
including G, T and D in an integrated manner. Allocation of tax liability to the regulated
businesses in Mumbai, viz., G, T and D, particularly the method of income tax calculations,
has in the past been a complex issue. The key issue was to arrive at the correct base.
Judgments of the Hon’ble Appellate Tribunal for Electricity (“APTEL”) –
(1) Appeal No. 173/2009 and 174/2009
Treatment of Income Tax came to be analysed in Appeal No. 173/2009 and 174/2009 before
Hon’ble APTEL In its judgement dated 15th February, 2011 in Appeal No. 173/2009,
Hon’ble APTEL examined the following issue:Page 96 of 234
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“Whether the State Commission is justified in computing the entitlement of income tax
to be recovered from the consumers considering the return on equity as the regulatory
profit before tax and disallowing tax on incentives on the ground that the expenses
incurred for achieving better performance has already been allowed?”
Hon’ble APTEL held as follows:“…the State Commission is directed to compute the income tax entitlement of the
Appellant by replacing Return on Equity by Regulatory Profit Before Tax i.e. income
less permissible expenses.”
Since, Hon’ble APTEL inter alia held that the actual income shall form the basis for
computation of income tax, hypothetical bases cannot be considered. Hon’ble APTEL has
discarded the theory of any treatment on notional basis. The Commission is of the view that
every base tried earlier, whether Normative ROE or hypothetical PBT was presumptive in
nature and did not indisputably demonstrate the relation with actual tax liability. Normative
ROE was clearly not the only income that would constitute taxable profits of the licensees; it
would also include incentives etc. Further hypothetical PBT was by very nature hypothetical.
The income allocation and expense allocation has to be as per actual taxable incomes and
expenses calculated as per the Income Tax Act. The approach has to be actual taxable income
of regulated business minus actual sanctioned tax deductible expenses of regulated business
as directed by Hon. APTEL.
(2) Appeal No. 111/2008
Further, an issue was dealt with in Hon’ble APTEL’s judgement dated 28th May, 2009 in
Appeal no. 111/2008 in case of R-Infra which related to non-inclusion of PLF incentive in
regulated business segment in the taxable income and therefore non-inclusion of income tax
on the incentive on the ground that it would be a burden on consumers. Hon’ble APTEL
directed that the actual and factual income tax impact had to be considered and it was no case
that such actual impact would be a burden on the consumers.
(3) Appeal No. 251/2006
Furthermore, on issue raised before Hon’ble APTEL in Appeal No. 251/2006 in case of RInfra Hon’ble APTEL inter alia held in its judgment dated April 4, 2007 that “The consumers
in the licensee’s area must be kept in a water tight compartment from the risks of other
business of the licensee and the Income Tax payable thereon. Under no circumstance,
consumers of the licensee should be made to bear the Income Tax accrued in other
Page 97 of 234
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businesses of the licensee. Income Tax assessment has to be made on stand alone basis for
the licensed business so that consumers are fully insulated and protected from the Income
Tax payable from other businesses.”
COMMISSION’S RULING:Taking into account the aforesaid judgments of the Hon’ble APTEL, the Commission is of
the opinion that Hon’ble APTEL has held that the base should be the factual tax liability and
there is no scope for presumptive disallowances / hypothetical calculations.
At paragraph 14 of Hon’ble APTEL’s judgment dated 14th February 2011 in the matter of
TPC-T, Hon’ble APTEL has clarified inter alia as follows:“Thus the intent of the Regulations is that the actual income tax paid by the transmission
licensee in the business of transmission is included in the ARR and the licensee does not
gain or lose on account of income tax which is a pass through in tariff.”
Thus, principles have been laid down by Hon’ble APTEL on the subject.
Hence, it was incumbent upon the Commission to examine this issue in consultation with
professional consultants. Having so examined this subject matter, the Commission proposes
to adopt the actual tax computation statement of the Petitioners and supporting Returns of
Income filed i.e., the documentary evidence as submitted by them as the base for true-up
petitions. The segmental allocation of taxable income and tax thereon is being done on line
by line basis based on segmental allocation of income and expenses as approved.
The method is based in actual tax computation statement and segmental break up will be
always the one that is used for approval of tariff / plan. The weighted income tax deductions /
accelerated depreciation / income tax exemptions will be allocated to underlying segment to
which they pertain as is clearly mandated by regulation. Cross tally of every line item in the
computation of income statement is key demonstrative strength of methodology and would
preclude the unwarranted disputes on the issue.
Accordingly computation of income statement was sought from petitioners and income tax
reimbursement claim is sanctioned on the basis of the same. It was observed from
computation statement that in the year under consideration the petitioner was liable to pay
based on Minimum Alternate Tax (MAT) mechanism under the Income Tax Act, which is
higher than the normal tax on taxable income. In view of Hon’ble APTEL’s pronouncements
as aforesaid, this higher impact is being considered for sanctioning of the claim and this
higher tax impact under MAT which has been actually suffered by the petitioner is allocated
to various segments as per Annexure A hereto. In case of MAT the same is charged on the
book profits. Book Profits are always calculated as income minus expenses as per books and
accordingly book income minus book expenses of various regulated business segments have
been considered as base as per audited allocation statements submitted by Licensee. This
Page 98 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
clearly is in conformity with the directives of Hon. APTEL which has directed income minus
expenses approach to be used vide its Judgment in case of Appeal No. 173/2009 as referred
to hereinabove. Further since the actual tax suffering in case of MAT happens on the basis of
book profits without any consideration to any other figures, the same base of book profits of
the relevant regulated segment has to be adopted. Accordingly the allocation of book profit
statement was sought from Licensee duly audited by their auditors. This audited statement
submitted by Licensee themselves has been considered as for arriving at book profits
attributable to concerned regulated segment. As will be apparent from Annexure A; the MAT
tax has been calculated on all the segments in accordance with this audited statement
submitted by Licensee themselves. The total MAT liability of company is duly reconciled
with the total tax liability of all the segments taken together thereby the correctness of tax
calculations stands duly demonstrated. In short following the Hon. APTEL verdicts the actual
tax payment of Licensee has been allocated to various segments. Further in this case since the
tax suffering is on MAT; which is based solely on book profits irrespective of any other
considerations, the same base of book profits on which Licensee has actually paid the tax has
been used to ensure that base remains the same base on which the Licensee has actually
suffered the tax.
As would be apparent from the Annexure A; the tax allocable to segment under consideration
of this order is Rs. 60.78 crore which is being sanctioned against the claim of Rs. 152 crore
under this petition. Further the MAT paid is not actual expenditure because credit of such tax
paid is available to Licensee in subsequent years. Needless to add that the credit of this tax
paid under MAT mechanism as permissible to be taken by the petitioner in the subsequent
years under the provisions of the Income Tax Act, 1961 will be adjusted on proportionate
basis of allowance made by this order, in subsequent year/s in which the petitioner actually
takes such credit at total company level.
4.1.16 Revenue from sale of power
TPC-G, in its Petition, has submitted the details of revenue from sale of power to the three
Distribution Licensees of Mumbai Region, viz., TPC-D, BEST and RInfra-D, under various
heads like fixed charge, energy charge, hydro rebate, etc., as shown in the Table below:
Table: Revenue from sale of power in FY 2009-10, as submitted by TPC-G (Rs. Crore)
Sr.
No.
1
Particulars
Fixed Charge
Unit
Rs. Crore
BEST
242
REL /
RInfra
151
Tata PowerD
144
Total
537
Page 99 of 234
Case No. 105 of 2011
Sr.
No.
Particulars
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Unit
BEST
REL /
RInfra
Tata PowerD
Total
2
Incentive
Rs. Crore
11
7
7
24
3
Hydro Rebate
Rs. Crore
(38)
(24)
(23)
(85)
4
Energy Rate
Rs./kWh
3.31
3.31
3.31
3.31
5
Energy Sold
MU
4,386
2,742
2,615
9,742
6
Energy Charge
Rs. Crore
1,451
907
865
3223
7
Cash Discount /
Settlement of
previous issues
(22)
-
-
(22)
Rs. Crore
Total =
1+2+3+6+7
Rs. Crore
1,643
1,041
993
3677
8
Based on the details of revenue submitted by TPC-G, the Commission has considered the total
revenue from sale of power during FY 2009-10 to BEST, RInfra-D and TPC-D as Rs. 1643
Crore, Rs. 1041 crore and Rs 993 Crore, respectively, and the total revenue as Rs. 3677 crore.
4.1.17 Incentive on PLF and Capacity index
TPC-G, in its Petition, submitted that the MERC Tariff Regulations permit incentive for
thermal generation higher than PLF of 80% and on capacity index higher than 85% for hydro
plants. TPC-G submitted that the incentive due to TPC-G for FY 2009-10 works out to Rs
24.32 Crore, as shown in the following Tables:
Table: Incentive Computations for thermal Units as submitted by TPC-G
Unit
Net
Net
Generation Generation
considering at 80% PLF
Norm Aux
(MU)
consumption
(MU)
Energy
eligible for
incentive
(MU)
Rate of
Incentive
(Rs./kWh)
Incentive
(Rs. Crore)
Page 100 of 234
Case No. 105 of 2011
Unit
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Net
Net
Generation Generation
considering at 80% PLF
Norm Aux
(MU)
consumption
(MU)
Energy
eligible for
incentive
(MU)
Rate of
Incentive
(Rs./kWh)
Incentive
(Rs. Crore)
Unit# 4
44
967
0
0.25
0
Unit# 5
3289
3311
0
0.25
0
Unit# 6
3565
3381
184
0.25
4.59
Unit# 7
1376
1227
149
0.25
3.72
Total
8273
8886
333
8.32
Table: Incentive Computations for hydro stations as submitted by TPC-G
Station
Actual
Normative
Diff. in
AFC as
Capacity
Capacity
Cap. Index approved in
Index - CIA Index – CIN eligible for the Order
(%)
(%)
incentive
(Rs Crore)
(%)
Incentive
(Rs Crore)
Khopoli
97.38%
85%
12.38%
66
5.3
Bhivpuri
99.04%
85%
14.04%
49
4.5
Bhira
98.73%
85%
13.73%
69
6.2
185
16.0
Total
The Commission has gone through the submission made by TPC-G and has found that the
incentives computed by TPC-G in the Petition are correct, whereas in the format F8 TPC-G
has submitted the revenue from incentive (hydro) as Rs. 15.83 Crore, which it has computed
on the capacity index of 97.00% for Khopoli unit instead of the revised capacity index
97.38% as certified by SLDC. For the computation of incentive, the Commission has
considered the capacity index of Khopoli unit as certified by SLDC and has therefore,
approved the incentive on account on higher PLF for thermal generating stations and higher
capacity index for hydro stations as Rs 8.32 and Rs 16.00 crore respectively.
Page 101 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
4.1.18 Incentive due to higher generation from hydro stations during peak hours
As regards the incentive due to higher generation from hydro stations during peak hours,
TPC-G submitted that the Commission in the APR Order dated April 2, 2008 stipulated as
follows:
“However, there is need to provide some incentive to Generating Companies and
Distribution Licensees to optimise the hydel generation during peak hours. The
Commission allows 5% of excess recovery of revenue from hydel stations on account
of higher generation during peak hours to be shared between Generating Company
and Distribution Licensees in proportion of 50:50. The share of the distribution
licensees in the additional excess recovery in case the actual hydel generation during
peak hours is higher than the target specified, will be shared by the Distribution
Licensees in proportion to their share of generation capacity of TPC-G.”
Accordingly, TPC-G submitted that the incentive amount on this account works out as shown
in the table below:
Table: Incentive due to higher generation from Hydro stations submitted by TPC-G
Particulars
Formula
Units
Peak
Period
Off-Peak
Period
Total
Rate
a
Rs./kWh
2.00
1.65
Actual Generation
b
MU
732
723
1455
c=a*b/10
Rs. Crore
146
119
266
AFC of the year
d
Rs. Crore
185
Excess revenue
e=c-d
Rs. Crore
81
5% of Excess revenue
f = 5% * e
Rs. Crore
4.05
TPC-G share of excess revenue
50%*e
Rs. Crore
2.03
Revenue
Earned
Generation
by
Hydel
The Commission has gone through the submissions made by TPC-G and observed that TPCG has considered gross generation for computation of the incentive instead on net generation.
The Commission has accordingly computed incentive on the basis of net generation of 1447
MU instead of 1455 MU. The Commission has proportionately reduced generation during
peak and non peak hours and has recomputed the incentive as Rs. 1.99 crore as against Rs.
2.03 crore computed by TPC-G, as shown in the Table below:
Page 102 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Incentive due to higher generation from Hydro stations as approved by
Commission
Particulars
Rate
Actual Generation
Revenue Earned by
Hydel Generation
AFC Approved in
APR Order
Excess Revenue
5% of excess
revenue
TPC-G share of
excess Revenue
Formula
Units
FY 2009-10
Off-Peak
Period
1.65
719
118.7
a
b
Rs./kWh
MU
Peak
Period
2.00
728
c=a*b/10
Rs. Crore
145.6
d
e=c-d
Rs. Crore
Rs. Crore
184.65
79.65
f=5%*e
Rs. Crore
Rs.
Crore
3.98
g=50%*f
Total
1447
264.30
1.99
4.1.19 Sharing of gains and losses for FY 2009-10
TPC-G categorised the various heads of expenditure as controllable and uncontrollable and
computed the gains and losses for the controllable expenditure and shared the same with the
consumers in accordance with the MERC Tariff Regulations. The relevant provisions under
the MERC Tariff Regulations stipulating sharing of gains/losses due to controllable factors
are reproduced below:
“17.6.2 Some illustrative variations or expected variations in the performance of the
applicant which may be attributed by the Commission to controllable factors include,
but are not limited to, the following:
(a) Variations in capital expenditure on account of time and/ or cost
overruns/efficiencies in the implementation of a capital expenditure project not
attributable to an approved change in scope of such project, change in statutory
levies or force majeure events;
(b) Variations in technical and commercial losses, including bad debts;
(c) Variations in the number or mix of consumers or quantities of electricity supplied
to consumers as specified in the first and second proviso to clause (b) of Regulation
17.6.1;
(d) Variations in working capital requirements;
(e) Failure to meet the standards specified in the Standards of Performance
Regulations, except where exempted in accordance with those Regulations;
Page 103 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
(f) Variations in labour productivity;
(g) Variations in any variable other than those stipulated by the Commission under
Regulation 15.6 above, except where reviewed by the Commission under the second
proviso to this Regulation 17.6.
…
19.1 The approved aggregate gain to the Generating Company or 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 tariffs over
such period as may be specified in the Order of the Commission under Regulation
17.10;
(b) In case of a Licensee, one-third of the amount of such gain shall be retained in a
special reserve for the purpose of absorbing the impact of any future losses on
account of controllable factors under clause (b) of Regulation 19.2; and
(c) The balance amount of gain may be utilized at the discretion of the Generating
Company or Licensee.
19.2 The approved aggregate loss to the Generating Company or Licensee on account
of controllable factors shall be dealt with in the following manner:
(a) One-third of the amount of such loss may be passed on as an additional charge in
tariffs over such period as may be specified in the Order of the Commission under
Regulation 17.10; and
(b) The balance amount of loss shall be absorbed by the Generating Company or
Licensee.”
TPC-G submitted the actual expenditure on account of various heads and the reasons for the
variations of the same. TPC-G categorised the various expenditure into two heads, viz., (i)
controllable and (ii) uncontrollable, as given in the table below:
Table: Controllable and Uncontrollable factors proposed by TPC-G
Sr. No.
1
Particulars
Fuel Cost
Category
TPC-G’s Remarks
Uncontrollable Uncontrollable to the extent of the fuel prices and
controllable to the extent of the operational
parameters
Page 104 of 234
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Sr. No.
Particulars
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Category
TPC-G’s Remarks
2
O&M expenditure Controllable
Uncontrollable to the extent they arise due to
factors such as increase in statutory levies, taxes,
changes due to requirements of other utilities and
other bodies such as municipal authorities, MbPT,
etc.
3
Interest on
Normative Loans
Uncontrollable Controllable to the extent they arise due to delay in
completion of the project thereby leading
to increase in the completed project cost and such
increase is not approved by the Commission.
4
Interest on
Working Capital
Uncontrollable Uncontrollable as worked out on normative
basis at target availability.
5
Other Finance
Charges
Controllable
6
Depreciation &
Advance
against
Depreciation
Uncontrollable Controllable to the extent they arise due to delay
in completion of the project thereby leading to
increase in the completed project cost and such
increase is not approved by the Commission.
7
Income Tax
Uncontrollable
8
Return on Equity
Uncontrollable Computed based on principles outlined by
the Commission in the Tariff regulations.
9
Non-Tariff income Uncontrollable Controllable to the extent of the recurring portion
of such non-tariff income.
The Commission has considered the various expenses for computing the sharing of
gains/losses in accordance with the MERC Tariff Regulations, as elaborated below:
Fuel Cost and reduction in auxiliary consumption
TPC-G submitted that the variation in the fuel cost is due to variation in the operational
parameters of the generating Units, which are controllable factors. For Unit#-6, TPC-G
computed the fuel cost based on the approved operational norms of Heat Rate, while for
Unit#-4, Unit#-5 and Unit#-7 TPC-G computed the fuel cost based on actual Heat Rate.
Page 105 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
The total efficiency gains due to variation in SHR as estimated by TPC-G works out to Rs. 10
Crore, which has been shared with the Distribution Licensees to the extent of Rs. 3.3 crore
(one-third). The summary of the efficiency gain on account of fuel cost as proposed by TPCG has been shown in the Table below:
Table: Gain and loss due to variation in fuel cost as proposed by TPC-G (Rs Crore)
Unit# 4 Unit# 5 Unit# 6 Unit# 7
Particulars
FHC &
Other
Adjustment
Total
Fuel
Cost
Fuel Cost (Rs. Crore)
a
28
967
1815
163
Actual heat rate
b
3021
2554
2386
2098
Normative heat rate
c
3021
2554
2400
2098
28
967
1825
163
2983
-
-
10
-
10
-
-
3.3
-
3.3
Fuel
Cost
applying
Normative Gross heat rate
(Rs. Crore)
d=c/b*a
Net Gains/ (Loss)
Crore)
(Rs.
e=d-a
Passed on to the Dist.
Licenses
j=1/3xe
2973
In addition to the variation in the SHR, TPC-G submitted that there are variations in the actual
auxiliary consumption of the Units vis-à-vis the approved parameters. TPC-G submitted that
it has considered the norms as approved by the Commission except for Unit#-4 where the
actual auxiliary consumption of 22.02% (10 MU) has been taken as normative auxiliary
consumption. The summary of the efficiency gain on account of auxiliary consumption as
proposed by TPC-G has been shown in the Table below:
Page 106 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Gain and loss due to variation in Aux. Consumption as proposed by TPC-G (Rs
Crore)
Particulars
Formula
Units
Gross Generation
1
MU
Actual Aux Cons
2
%
Actual Aux Cons
3=1*2
Actual Net
Generation
Unit# 4 Unit# 5 Unit# 6 Unit# 7 Hydro
47
3480
22.02%
5.36%
MU
10
187
114
30
8
4=1-3
MU
37
3294
3580
1384
1447
Normative Aux
Cons.
5
%
22.0%
5.5%
3.5%
2.8%
0.5%
Normative Aux
Cons.
6=1*5
MU
10
191
129
39
7
Normative Net
Generation
7=1-6
MU
37
3289
3565
1376
1448
Diff in Net
Generation
8=4-7
MU
0.00
4.86
14.94
8.50
-0.38
T.O Fixed Cost
9
Rs Crore
T.O Variable Cost
10
Rs Crore
39
1076
1791
97
T.O Gross
Generation
11
MU
78
3988
3877
1420
1500
12=11*5
MU
61
3769
3741
1381
1493
6.44
2.86
4.79
0.70
1.24
0.00
1.39
7.15
0.60
-0.05
T.O Net Generation
T.O Rate
Auxiliary
Consumption Gain
Passed on to the
Dist. Licensee
13=10/12*10(for
thermal) or
Rs./kWh
13=9/12*10 (for
Hydro)
14=13*8
Rs Crore
15=1/3*14
Rs Crore
3694
1415
Total
1455
3.10% 2.15% 0.53%
185
9
3
# T.O= APR Order for FY 2009-10
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
As discussed in the above sub-section, for computing the efficiency gain/loss, the
Commission has considered the heat rate for Unit# 4, Unit# 5 and Unit#7 as approved in this
Order, and the normative heat rate for Unit# 6 as approved in Order in Case No. 96 of 2009.
Accordingly, the Commission has considered the total efficiency gain on account of fuel cost
approved by the Commission, which works out to Rs. 3.19 Crore, one-third of which has been
passed on to the Distribution Licensees. The summary of the efficiency gain on account of
fuel cost as approved by the Commission has been shown in the Table below:
Table: Gain and loss due to variation in fuel cost as approved by the Commission (Rs
Crore)
Total
Fuel
Cost
Unit# 5
Unit# 6
a
b
c
28.42
3021
2683
967.11
2554
2554
1814.52
2386
2400
162.86
2098
2047
-
2972.92
d=c/b*a
25.24
967.11
1824.84
158.92
-
2976.11
e=d-a
j=1/3x
e
-3.18
-
10.32
-3.94
-
3.19
-1.06
-
3.44
-
1.06
Particulars
Fuel Cost (Rs. Crore)
Actual heat rate
Normative heat rate
Fuel Cost applying
Normative Gross Heat Rate
Net Gains/ (Loss) (Rs.
Crore)
Passed on to the
Distribution Licenses
FHC &
Other
Unit# 7
Adjust
ment
Unit#
4
The Commission has considered the benefit of reduction in auxiliary consumption in terms of
sharing of efficiency gains. Therefore, the Commission has estimated revenue from energy
charge from sale of additional power on account of reduction in auxiliary consumption, at Rs.
6.47 Crore. In accordance with the MERC Tariff Regulations, one third of the gain has to pass
on to Distribution Licensees and two thirds of such gain has been allowed to be retained by
TPC-G. The summary of the efficiency gain on account of auxiliary consumption approved by
the Commission has been shown in the Table below:
Page 108 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Gain and loss due to variation in Aux. Consumption approved by Commission (Rs
Crore)
Particular
Unit
Unit#4
Unit#5
Unit#6
Unit#7
Hydel Total
Rate of Energy Charges- as Rs./kWh
approved in Tariff Order for FY
2009-10
5.44
2.86
4.79
0.70
1.24
Additional Sales due to better
Auxiliary Consumption
MU
-4.83
4.86
14.94
8.50
-0.30
23.15
Additional Revenue due to
better Auxiliary Consumption
Rs Crore
-2.63
1.39
7.15
0.60 -0.038
6.47
Passed on
Licensee
Rs Crore
to
Distribution
2.16
Accordingly, the total efficiency gain on account of fuel cost approved by the Commission
and on account of additional revenue due to reduced auxiliary consumption works out to Rs
9.66 crore as against the estimate of Rs. 19 crore by TPC-G.
Gains and Losses on account of Operation & Maintenance Expenses
TPC-G submitted that the actual O&M expenditure in FY 2009-10 was lower as compared to
the approved O&M expenditure arrived at by including the allocation of brand equity charges
to the value previously approved by the Commission. TPC-G also requested the Commission
to accept the treatment of gains arising from lower expenditure on O&M as submitted by it
and as shown in the following table:
Table: Gains and Losses on account of Operation & Maintenance Expenses as submitted
by TPC-G
Sr. No.
Particulars
1
Approved O&M expenditure for FY 2009-10 (including
allocation of LCC Expenditure)
2
Add: Tata brand equity Expenses
3
Total Entitlement
Rs. Crore
348
10
358
Page 109 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Sr. No.
Particulars
Rs. Crore
4
Actual O&M Expenditure
354
5
Actual without Uncontrollable Expenditure
354
6
Amount passed on to the Distribution Licensees (1/3rd of
Gain/Loss) (1/3rd * (1) – (4))
1
7
Amount allowed to be retained by TPC-G
3
8
Net Entitlement (3)-(6)
357
Based upon the O&M Expenditure allowed by the Commission and the revised approved
O&M Expenditure for FY 2009-10, the Commission has re-computed the gains arising from
lower O&M Expenses as shown in the Table below:
Table: Gains and Losses on account of Operation & Maintenance Expenses as approved by
the Commission
Sr. No.
Particulars
Rs. Crore
1
Approved O&M expenditure for FY 2009-10
2
Add: LCC Expenditure
1.25
3
Add: Tata brand equity Expenses
8.93
4
Total Entitlement
5
Actual O&M Expenditure
6
Allowed after Truing up
343.32
7
Net Gains/ (Loss) (4)-(6)
13.86
8
Amount passed on to the Distribution Licensees (1/3rd of
Gain/Loss) (1/3rd * (7))
4.62
9
Amount allowed to be retained by TPC-G (7)-(8)
9.24
10
Net Entitlement (4)-(8)
347.00
357.18
354.0
352.56
Interest on Working Capital
As discussed in the earlier paragraphs, TPC-G claimed interest on working capital of Rs
104.13 crore during FY 2009-10 and the normative interest on working capital approved by
the Commission considering other elements of expenses as approved after truing up, works
Page 110 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
out to Rs 101.98 Crore. As discussed in Section 3 of this Order, TPC-G has been unable to
provide the cash flow statements for different businesses on account of common balance
sheet and common cash balance. However, TPC-G has submitted the actual interest on
working capital for FY 2009-10 as Rs. 19.88 crore and the allocation of TPC-G is Rs. 9.36
Crore, in reply dated August 22, 2011 to the Commission’s query. Hence, actual interest on
working capital is considered as Rs 9.36 Crore. The details of actual interest paid by TPC-G
are given in the following table:
Table: Details of Actual Interest Paid
(Rs. Crore)
Hence, the Commission has considered Rs. 101.98 crore as normative interest on working
capital, with actual working capital interest being Rs. 9.36 Crore, and has considered sharing
of 1/3rd of the difference as the efficiency gains, amounting to Rs. 30.87 crore with the
Distribution Licensee, while 2/3rd of the efficiency gains, i.e., Rs.61.74 crore is to be retained
by TPC-G, in accordance with the MERC Tariff Regulations.
4.1.20 Gap/(Surplus) for FY 2009-10 based on Truing up and sharing of efficiency
gain/losses
Based on the Truing up of various elements of expenses and revenue and TPC-G’s share of
efficiency gains/losses, the Commission has estimated the total deficit as Rs. 69.64 crore as
against the deficit of Rs. 242 crore estimated by TPC-G for FY 2009-10. The summary of the
net ARR and efficiency gains as approved by the Commission for FY 2009-10 is given in the
following Table:
Page 111 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Summary of Truing up for FY 2009-10 including sharing of Efficiency gains (Rs Crore)
FY 2009-10
Efficiency Gain
shared with
Distribution
Licensees
Order
Approved
After
Truing-up
3,003.46
2,972.92
2,972.92
2,976.11
1.06
2,975.04
347.00
353.99
343.32
357.18
4.62
352.56
130.42
130.42
-
95.51
84.84
-
126.34
126.34
1.72
1.72
72.09
77.71
70.11
70.11
45.99
57.82
47.83
47.83
-
47.83
90.05
0.48
9.36
0.62
9.36
0.62
101.98
0.62
30.87
71.10
0.62
S.No. Particulars
A
Entitlement
as per
Regulations/
Order
Actual/
Normative
Net Entitlement
Expenditure
1 Fuel Related Expenses
2
2.1
Operation & Maintenance
Expenses
Employee Expenses
Administration & General
Expenses
Repair & Maintenance
2.3
Expenses
2.2
2.4
Allocation of LCC cost
Depreciation, including
3
advance against depreciation
Interest on Long-term Loan
4
Capital
Interest on Working Capital
5
6 Other Finance Charges
70.11
Page 112 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
FY 2009-10
4.46
151.95
60.78
60.78
3,563.53
3,624.38
3,504.94
3,614.60
168 .23
170.55
171.18
171.18
171.18
26.17
26.30
26.30
26.30
6.47
6.47
3,821.09
3,708.89
3,818.55
3,779.85
3,676.34
3,676.34
3,676.34
3,676.34
12.18
33.87
33.87
33.87
3,688.52
3,710.21
3,710.21
3,710.21
69.64
S.No. Particulars
7 Other Expenses
Total Expenditure
Efficiency Gain
shared with
Distribution
Licensees
Approved
After
Truing-up
Order
8 Income Tax
Entitlement
as per
Regulations/
Order
Actual/
Normative
Net Entitlement
60.78
36.55
3,578.05
B
Return on Equity
C
Incentive for Higher PLF, CI
& Peak hour Generation
Revenue sharing due to
D
Reduced Aux Consumption
Total including expenditure
E
+RoE +Incentive
Revenue
F
1
Revenue from sale of
electricity
2 Non-tariff Income
3,731.76
6.54
G
Total Revenue
H
Revenue Gap/(surplus)
2.16
4.31
Page 113 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
4.2 PERFORMANCE OF UNIT# 8
TPC-G submitted that the 250 MW Unit# 8 at Trombay was commissioned on March
29, 2009. TPC-G had filed a Petition (Case No. 35 of 2009) for Capital Cost approval
for 250 MW and determination of Tariff for 150 MW with the Commission on July 8,
2009. The Commission issued its Order on January 19, 2010 for Approval of Capital
Cost and Tariff Determination of Unit# 8.
4.2.1 Gross Generation and Net Generation
The Commission, in its Order dated January 19, 2010 in Case No. 35 of 2009
approved gross generation from Unit#-8 for FY 2009-10 as 1206 MU. However, the
actual gross generation achieved by Unit#-8 during FY 2009-10 was 1022 MU.
Similarly, the quantum of actual net Generation of Unit# 8 was 952 MU, which is also
lower than the approved net generation quantum of 1096 MU.
TPC-G, in its Petition, submitted that lower generation from Unit#-8 during FY 200910 was due to the following reasons:
•
Unit was under a period of stabilisation for 6 months, and there were 23 forced
outages of the unit in FY 2009-10 for a total of 667.73 hours resulting in loss
of 166.915 MU
•
Unit was taken out for pre-Performance Guarantee (PG) test from 25th
November 25, 2009 to December 19, 2009 resulting in loss of 147.88 MU.
TPC-G further submitted that the availability of the unit was 79.45%, marginally
lower than the normative availability of 80 %. TPC-G submitted the reason for the
same as following:
•
Unit# 8 was under stabilisation from April 2009 to Dec 2009 after COD.
During this period, there were 23 forced outages and one planned outage of the
Unit. Out of these 23 forced outages, majority (11 Nos.) of them were due to
malfunctioning of control systems, e.g., drum level control, flame failures
requiring tuning up of the respective controllers. There were 4 forced outages
due to boiler tube leaks, 3 due to Boiler Feed Pumps (BFPs) and another 4 due
Page 114 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
to condenser debris filter getting choked. These forced outages were for a total
of 667.73 hours and resulted in a loss of generation to the extent 166.915 MU.
•
The planned outage was availed for pre Performance Guarantee test work from
November 25, 2009 to December 19, 2009 (592 Hrs. / 25 Days) which resulted
in a loss of generation of 147.88 MU.
•
Over and above the unit outages, partial loading of unit due to equipment
restrictions has resulted in 13% loss in Generation Availability, which
translates to annual loss in generation of approx. 286 MU. The problems
associated with critical auxiliaries like Cooling Water Pumps, Boiler Feed
Pumps, Primary Air Fans and condenser were the main contributors to partial
loading of the Unit.
TPC-G thus submitted that the lower availability of 79.45% of Unit# 8 in FY 2009-10
was primarily on account of various outages experienced during the stabilisation
period as well as preparation for conducting the PG test. The availability of the unit
has subsequently increased to 94% for FY 2010-11.
The Commission has accepted the actual gross generation of Unit# 8 for FY 2009-10
while carrying out the truing up. However, as the actual availability of Unit#-8 during
FY 2009-10 was 79.45%, which is lower than the normative availability of 80% for
recovery of full Annual Fixed Charges, the Commission has reduced the Annual Fixed
Charges for Unit# 8 on pro-rata basis as discussed in Section 4.2.14 of this Order. The
summary of gross generation and availability approved by the Commission, actual
gross generation during FY 2009-10, and gross generation considered after Truing up
is shown in the Table below.
Table: Gross generation and Availability 150 MW Unit# 8 for FY 2009-10
Particular
Availability
Gross
generation
Normative/
Order in Case
No. 35 of 2009
Actual
Approved
after Truing
up
80%
79.45%
80.00%
1206 MU
1022 MU
1022 MU
Page 115 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
4.2.2 Auxiliary Consumption
TPC-G submitted that for FY 2009-10, the Commission, in its Tariff Order dated
January 19, 2010 had approved separate norms for Auxiliary Consumption for
stabilisation period, post stabilisation period without FGD and post stabilisation period
with FGD. Accordingly, TPC-G worked out the weighted average normative auxiliary
consumption of 9.2%, whereas the actual auxiliary consumption for FY 2009-10 was
6.84%.
Table: Normative auxiliary consumption for Unit#-8 as submitted by TPC-G
Period
Stabilisation Period
Days of operation
Auxiliary Consumption
177
9.00%
Post stabilisation w/o FGD
37
8.50%
Post stabilisation with FGD
151
9.50%
Total FY 2009-10
365
9.2%
The Commission observed that TPC-G has incorrectly computed the weighted average
normative auxiliary consumption of 9.2%, based upon the number of days Unit# 8 was
in stabilisation period, post stabilisation period without FGD and post stabilisation
period with FGD in FY 2009-10. The Commission is of the view that weighted
average normative auxiliary consumption should be computed on the basis of the
actual gross generation during the stabilisation period, post stabilisation period without
FGD and stabilisation period with FGD and not on the basis of number of days the
unit was operating under these conditions.
The Commission therefore, asked TPC-G to submit the actual gross generation during
stabilisation period, post stabilisation period without FGD, and post stabilisation
period with FGD in FY 2009-10. In reply, TPC-G submitted the details of gross
generation during the period as shown in the table below:
Page 116 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Gross Generation under different conditions in FY 2009-10 as submitted by
TPC-G.
The Commission has accordingly re-worked the weighted average normative auxiliary
consumption for the unit for Truing up purposes.
The summary of auxiliary consumption approved by the Commission in Order dated
January 19, 2010 in Case No. 35 of 2009, actual during FY 2009-10 and approved
after Truing up is shown in the Table below.
Table: Auxiliary Consumption of 150 MW Unit# 8 (FY 2009-10)
Period
Stabilisation Period
Days of
Gross
Normative
Actual
#
operation Generation
Auxiliary
Auxiliary
(Days)
(MU)
Consumption Consumpt
(%)
ion (%)
Approved
after
truing up
(%)
177
412.8
9.00%
9.00%
Normal
Operation
without FGD
37
129.4
8.50%
8.50%
Normal
Operation
with FGD
151
481.1
9.50%
9.50%
Total/Weighted
Average
365
1023.4
9.17%
#
6.84%
9.17%
Quantum prior to final IBSM settlement by SLDC
Page 117 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
4.2.3 Heat Rate
TPC-G submitted that in line with the heat rate approved by the Commission for
“Stabilisation” and “Post Stabilisation” periods, the weighted average normative heat
rate for FY 2009-10 works out to 2548 kcal/kWh, whereas the actual heat rate for FY
2009-10 was 2499 kcal/kWh.
The Commission has observed that TPC-G has incorrectly computed the weighted
average normative heat rate of 2548 kcal/kWh based upon the number of days Unit# 8
was in stabilisation period and post stabilisation period in FY 2009-10. The
Commission is of the view that weighted average normative heat rate should be
computed on the basis of the actual gross generation during the stabilisation period
and post stabilisation period and not on the basis of number of days the unit was
operating under these conditions. Accordingly, the Commission has re-worked the
weighted average normative Heat Rate, based on gross generation data submitted by
TPC-G, as reproduced in earlier paragraphs. The summary of heat rate approved by
the Commission in Order dated January 19, 2010 in Case No. 35 of 2009, actual heat
rate during FY 2009-10 and approved after Truing up is shown in the Table below:
Table: Heat Rate of 150 MW Unit# 8 (FY 2009-10)
Period
Days of
Gross
operation Generation
(Days)
(MU)#
Normative
heat rate
(kcal/kWh)
Actual heat
rate
(kcal/kWh)
Approved
after truing
up
(kcal/kWh)
Stabilisation Period
177
412.8
2600
2600
Normal Operation
188
610.6
2500
2500
Total/Weighted
Average
365
1023.4
2540.3
#
2499
Quantum prior to final IBSM settlement by SLDC
4.2.4 Fuel Price and Calorific Value
TPC-G submitted that for Unit# 8, it has been able to source its coal requirements at a
price of Rs. 4,925/MT, which is lower than the price of Rs. 5,195/MT approved by the
Commission. However, the LSHS price for FY 2009-10 was Rs. 26,502/MT as against the
approved value of Rs. 20,472/MT. TPC-G submitted that for FY 2009-10, it has also
procured kerosene as one of the fuels at a price of Rs 29,024/KL.
Page 118 of 234
2540.3
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
The variation in fuel price and calorific value of fuel during FY 2009-10 has been
considered as part of Fuel Adjustment Cost (FAC) and has already been passed
through to the consumers on a monthly basis under the FAC charge mechanism. For
the purpose of Truing up of fuel costs (variable cost of generation) for FY 2009-10,
the Commission has considered the actual fuel costs and calorific value as given in the
Table below:
Table: Fuel Parameters Unit# 8 (FY 2009-10)
Particulars
Unit
Tariff Order in
Case No. 35 of
2009
Actuals
Allowed after
truing up
A. Fuel Price
Coal
(Rs/MT)
5195
4925
4925
LSHS
(Rs/MT)
20472
26502
26502
Kerosene
(Rs/KL)
-
29024
29024
Coal
(kcal/kg)
5151
5063
5063
LSHS
(kcal/kg)
10550
10545
10545
Kerosene
(kcal/L)
-
8845
8845
B. Calorific Value
4.2.5 Fuel Cost
TPC-G, in its Petition, has submitted that the total fuel cost for FY 2009-10 was Rs.
251.70 crore as against the approved cost of Rs. 313.39 Crore. As observed by the
Commission, the lower fuel cost is on account of the lower generation as well as lower
heat rate of Unit# 8 during FY 2009-10.
The Commission, in its Order in Case No. 35 of 2009 has approved the secondary fuel
oil consumption for Unit# 8 as 4.5 ml/kWh and 2 ml/kWh for stabilisation and post
stabilisation period, respectively, and in this Order for Truing up for FY 2009-10, the
Commission has considered the same norms.
Based on the Heat Rate, normative secondary fuel oil consumption, fuel prices and
fuel calorific values as discussed in above paragraphs, the total fuel costs for 150 MW
Unit# 8 for FY 2009-10 is summarised in the Table below:
Page 119 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Fuel cost of 150 MW Unit# 8 for FY 2009-10 (Rs. Crore)
Particular
Approved
Unit# 8
313.39
Actual
251.70
Normative allowed
after truing up
257.05
4.2.6 O&M Expenses
TPC-G submitted that the actual O&M Expenditure for Unit# 8 (for entire 250 MW
capacity) for FY 2009-10 was Rs. 12.76 Crore, as compared to Rs. 31.64 crore
approved in the Order in Case No. 35 of 2009. The proportionate actual O&M
Expenditure for 150 MW capacity was Rs. 7.66 crore as compared to Rs. 18.99 crore
approved by the Commission. The various components of O&M Expenses are
elaborated below:
4.2.6.1 Employee Expenses
TPC-G submitted that for 150 MW capacity of Unit# 8, the actual employee expenses
for FY 2009-10 were Rs. 2.34 Crore. The Commission has analysed the actual
employee expenses for FY 2009-10 under various sub-heads and accordingly allowed
the actual employee expenses under the Truing up process.
4.2.6.2 A&G Expenses
TPC-G submitted that for 150 MW capacity of Unit# 8, the actual A&G expenses for
FY 2009-10 were Rs. 2.48 Crore. The Commission has analysed the expenses under
this head and allowed the actual A&G Expenses of Rs.2.48 crore for FY 2009-10
under the Truing up process.
4.2.6.3 R&M Expenses
TPC-G submitted that for 150 MW capacity of Unit# 8, the actual R&M expenses for
FY 2009-10 were Rs. 2.84 Crore. The Commission has analysed the actual R&M
expenses for FY 2009-10 under various subheads and accordingly allowed the actual
R&M Expenses under the Truing up process.
O&M Expenses
TPC-G submitted that the MERC Tariff Regulations, 2005 specify the norms for
computing the O&M Expenses for new generating stations, the relevant extract of
which is reproduced below:
Page 120 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
“(i) Coal-based Generating Stations
200/210.250 MW sets: Rs. 10.82 lakh/MW
…..
The above operation and maintenance norms are for the base year
commencing April 1, 2005, which shall be escalated at the rate of 4 per cent
per annum to arrive at permissible operation and maintenance expenses for the
relevant year of tariff period.”
TPC-G added that as Unit# 8 was commissioned in FY 2008-09, based on the above
principle, the applicable norm for Unit# 8 for FY 2009-10 shall be 10.82*(1.04)4 = Rs.
12.66 lakh/MW. TPC-G submitted that the Commission in the Tariff Order for
MSPGCL for Parli Unit# 6 and for Paras Unit# 3 has considered a different escalation
rate from FY 2007-08 as compared to 4%. Accordingly, although the O&M
expenditure approved by the Commission for Unit# 8 in its Tariff Order is Rs. 31.64
crore for FY 2009-10, the same needs to be revised to Rs 33.13 crore as given in the
table below:
Table: Normative O&M Expenses for 250 MW Unit# 8, as submitted by TPC-G
Particulars Units
FY 2005-06 FY 2006-07 FY 2007-08
FY 2008-09 FY 2009-10
Inflation
Rate
%
0%
O&M
Norm
O&M
Norm
4%
5.38%
5.38%
6.04%
Rs
10.82
lakh/MW
11.25
11.86
12.50
13.25
Rs. Crore 27.05
28.13
29.65
31.24
33.13
As regards the escalation rates used for projecting the normative O&M expenses,
while approving the O&M expenses for Parli Unit# 6 and Paras Unit# 3, the
Commission has considered an escalation rate of 4% till the year of commissioning
and thereafter the Commission has escalated it as per the prevalent CPI and WPI
index. Therefore, TPC-G claim of higher escalation rate from FY 2007-08 is not
correct. The Commission has therefore, recomputed the normative O&M expenses
considering 4% escalation rate till FY 2008-09 and an escalation rate of 6.04% for FY
2009-10. Accordingly, the Commission approves normative O&M expenses of Rs
32.27 crore for FY 2009-10 as against approved value of Rs 31.64 Crore.
Page 121 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Based on the approved Employee, A&G and R&M expenses for FY 2009-10 as
mentioned above, the Commission has approved the O&M expenses for FY 2009-10
as shown in the Table below:
Table: O&M Expenses for Unit# 8 (150 MW)
Particulars
Order in Case
No. 35 of 2009
Revised
Normative
O&M Expenses
(Rs. Crore)
Actual
Allowed after
truing up
Employee
Expenses
2.34
2.34
A&G Expenses
2.48
2.48
R&M Expenses
18.99
19.36
2.84
2.84
Total
O&M
Expenses
18.99
19.36
7.66
7.66
4.2.7 Capital Expenditure and Capitalization
The Commission had issued its Order for approval of Capital Cost and Tariff
Determination of Trombay Unit# 8 on January 19, 2009 in Case No. 35 of 2009, and
the Order on the review Petition filed by TPC-G in this regard on January 19, 2010.
TPC-G filed an Appeal (Appeal No. 107 of 2010) before the Hon’ble Appellate
Tribunal for Electricity (ATE) against the Order in Case No. 35 of 2009, claiming the
expenditure disallowed by the Commission under different heads. As already
discussed in Section 3.2 of this Order, the Hon’ble ATE issued its Judgment on
August 26, 2011 in Appeal No. 87 and 107 of 2010, partly upholding TPC-G’s stand
on various issues filed in the said Appeal. Since, the Hon'ble ATE ruled that the
Octroi charges of Rs 27.02 crore levied on various equipments should be included in
the capital cost for the project, the revised approved capitalisation as on March 31,
2009, works out to Rs. 944.20 crore, as already elaborated earlier in Section 3 of this
Order.
TPC-G also submitted that the Commission in its Order in Case No. 35 of 2009 had
approved the additional Capitalisation from COD up to the cut off date as Rs. 128.87
Crore. TPC-G submitted that as against the approved capitalisation of Rs 128.87
Crore, the actual additional Capitalisation from COD up to cut off date or in FY 200910 is Rs. 103.79 Crore.
Page 122 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
The Commission in its data gaps asked TPC-G to submit the break up and details of
the capitalisation of Rs. 103.79 Crore, which is proposed to be included in the Capital
Cost of Unit# 8 up to March 31, 2010, as per Regulation 30.2 of the MERC Tariff
Regulations. TPC-G submitted that it is difficult to provide the quantum of
Capitalisation in the various heads as per above mentioned Regulation. However,
TPC-G submitted the approximate amount that was capitalised under the various
heads, the details of which are shown in the Table below:
The Commission also observed that for computation of depreciation for FY 2009-10,
TPC-G had considered total asset capitalisation for FY 2009-10 as Rs 84.5 Crore,
while for computation of interest on loan and equity infused during the year, TPC-G
has considered asset capitalisation for FY 2009-10 Rs 103.79 Crore. TPC-G, in its
reply to the query in this regard, submitted that the difference of Rs. 19 crore in the
above said capitalisation is on account of the treatment of fuel expenditure prior to
COD. TPC-G submitted that it had capitalised this amount in its books as on March
31, 2009. However, the Commission had allowed this fuel expenditure to be
recovered through separate bills from BEST and TPC-D in the Order dated January
10, 2010, after FY 2008-09 was over. TPC-G clarified that in order to comply with
the same, TPC-G has removed Rs. 19 crore from the Capitalisation considered for
computing Depreciation.
Page 123 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
The Commission examined the capital expenditure and actual capitalisation claimed
by TPC-G as per the Regulation 30.2 of MERC Tariff Regulations, pertaining to the
Additional capitalisation from date of commissioning up to the cut off date and has
accordingly, approved the capitalisation of Rs.103.79 crore for FY 2009-10 and has
considered the same for computing the depreciation, interest expenses and ROE for
FY 2009-10.
The revised approved capitalisation as on March 31, 2009, capitalisation approved for
FY 2009-10 and the approved capitalisation as on March 31, 2010 is summarised in
the Table below:
Table: Capitalisation as approved by the Commission for 250 MW Unit# 8
Sr. No.
Particulars
Amount (Rs. Crore)
1)
Approved Capitalization Cost of 250 MW
Unit# 8 as on COD and March 31, 2009 (after
incorporating the Review Order dated August
3, 2010 in Case No. 8 of 2010).
917.18
2)
Add: Amount disallowed towards Octroi
charges by the Hon’ble Commission in Case
35 of 2009 but now restored by the Hon’ble
ATE
27.02
3)
Total Approved Capitalisation
considered as on March 31, 2009
944.2
4)
Approved capitalisation for FY 2009-10
5)
Capitalisation as on March 31, 2010
to
be
103.79
1047.99
4.2.8 Depreciation
TPC-G submitted that the Commission had not approved capital cost of Rs. 0.4 crore
towards IDC charges and Rs. 27 crore towards octroi charges. TPC-G further
submitted that as the disallowance towards octroi charges has been restored by the
Hon’ble ATE in its Judgment dated August, 26, 2011, its has considered the actual
capital cost of Unit# 8 on COD as Rs. 964 crore and the same has been considered as
opening GFA for FY 2009-10 for computation of depreciation for the year.
Page 124 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
The Commission in its earlier Order dated September 8, 2010, in Case No. 96 of 2009
had permitted depreciation expenditure to the extent of Rs. 38.07 crore for Unit# 8
(250 MW) in FY 2009-10. The depreciation rates were considered as prescribed under
the MERC Tariff Regulations, 2005. TPC-G, in its Petition, submitted that actual
depreciation in FY 2009-10 after considering the impact of Hon’ble ATE Judgment
dated August 26, 2011, which restored the earlier disallowed Capital cost of Rs. 27
crore towards the octroi charges, was Rs. 37.59 Crore. The same is shown in the Table
below.
Table: Depreciation of 250 MW Unit# 8, as submitted by TPC-G (Rs. Crore)
Particulars
Approved in
Case No. 96 of
2009
FY 2009-10
(Actuals)
Opening GFA
917.93
964
Depreciation
38.07
37.59
4.15%
3.9%
% Depreciation
For the purpose of truing up, the Commission has approved the depreciation on the
opening GFA for FY 2009-10 as well as on the assets added during the year at the
rates submitted by TPC-G, subject to the actual capitalisation approved by the
Commission for FY 2009-10. The depreciation expenditure approved by the
Commission in the Order in Case No. 96 of 2009, depreciation claimed by TPC-G,
and depreciation expenditure allowed after Truing up for FY 2009-10 on above
mentioned basis have been summarised in the following Table
Table: Depreciation Unit# 8 FY 2009-10 (Rs. Crore)
Particulars
Order in
Case No. Actual
96 of 2009
Allowed
Allowed after
after
Truing up for
Truing up
Unit# 8 (250
for Unit# 8
MW)
(150 MW)
Opening GFA
917.93
964.20
944.2
Asset Addition During the Year
128.87
84.54
103.79
Page 125 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Allowed
Allowed after
after
Truing up for
Truing up
Unit# 8 (250
for Unit# 8
MW)
(150 MW)
Order in
Case No. Actual
96 of 2009
Particulars
Asset Retirement
-
Depreciation
38.07
-
-
37.59
37.20
22.32
4.2.9 Interest on Debt
TPC-G submitted that actual interest expenses for Unit# 8 (250 MW) for FY 2009-10
were Rs. 83 crore as against Rs. 72.14 crore approved by the Commission in the Order
dated September 8, 2010.
The Commission has considered the closing loan balance for FY 2008-09 after
including the impact of octroi charges of Rs 27.02 crore allowed by Hon’ble ATE in
its Judgment in Appeal No. 107 and 87 of 2010, to the opening loan balance for FY
2009-10 and total loan availed during the year corresponding to approved
capitalisation. The summary of funding for these loans is shown in the Table below:
Table: Loan approved by the Commission after Capitalisation for FY 2009-10 (Rs.
Crore)
Year
250 MW Unit# 8
Normative
IDBI Loan-1
Total
IDFC Loan-1
FY 2008-09
-
305.79
355.15
660.94
FY 2009-10
72.65
-
-
72.65
Total
72.65
305.79
355.15
733.59
Further, the Commission has computed the interest on loan at the interest rates
approved by the Commission in its Order dated September 8, 2010 in Case No. 96 of
2009. The interest rate approved for IDFC loan has been considered as 10.25% while
for IDBI 1 Loan, the rate of interest considered has been 10.49% as submitted by
TPC-G, and for IDBI 2 loan the rate of interest computed has been considered as
11.48%. For normative loan used for funding capitalisation for the year, the rate of
interest has been taken as 9.00% along with the repayment period of 10 years starting
Page 126 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
from third quarter of FY 2009-10. Accordingly, the Commission has worked out the
interest on loan as Rs. 72.16 crore for 250 MW Unit# 8 for FY 2009-10 as shown in
the Table below:
Table: Interest on Long Term Loan for Unit# 8 as approved by the Commission (Rs. Crore)
Years
250 MW Unit# 8
Opening
Balance
FY 2009-10
660.94
Drawal Repayment Closing Average
Interest
Balance
Int.
Normative Actual
Rate
72.65
12.55
721.04 10.44%
3.11
69.06
150 MW
Unit# 8
Interest
Total
72.16
4.2.10 Interest on Working Capital
TPC-G submitted that it has computed interest on working capital based on the norms
specified in the MERC Tariff Regulations and for the purpose of estimating the
interest on working capital for FY 2009-10, an interest rate of 13% (SBI PLR as on
date of Tariff filing) has been considered as specified in the Tariff Regulations. TPC-G
submitted that the total Interest on Working Capital for Unit#-8 (250 MW) for FY
2009-10 works out to Rs. 17 crore as against Rs. 18.90 crore approved by the
Commission in the Order dated January 19, 2010 in Case No. 35 of 2009.
TPC-G also submitted that it has claimed interest on working capital excluding two
months of receivables from sale of power to TPC-D and hence, it is appropriate to
reduce the payables towards power purchase cost to the extent sold from TPC-G to
TPC-D while estimating the working capital requirement for TPC-D.
The Commission has estimated the normative working capital requirement and interest
thereof for FY 2009-10 based on the revised expenses approved in this Order after
truing up. However, interest on working capital is a controllable parameter as defined
under the MERC Tariff Regulations and the Commission has therefore, computed the
sharing of gains/losses on normative working capital interest.
For FY 2009-10, the actual interest on working Capital for TPC-G Mumbai License
area as submitted by TPC-G is Rs. 9.36 Crore. As the Commission has considered this
entire amount of Rs 9.36 crore towards the actual interest paid for working capital for
‘Unit# 4 to 7 & Hydro’ in FY 2009-10, therefore, the actual interest on working
capital for Unit# 8 paid by TPC-G has been considered as nil. Further, the MERC
Tariff Regulations stipulate that rate of Interest on Working Capital shall be
considered on normative basis and shall be equal to the short-term Prime Lending Rate
of State Bank of India as on the date on which the Application for determination of
tariff is made. As the short-term Prime Lending Rate of State Bank of India at the time
Page 127 of 234
Total
43.30
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
when TPC-G filed the Petition for tariff determination for Unit# 8 for FY 2009-10 in
Case No. 35 on July 8, 2009 was 11.75% and not 13.00% as submitted by TPC-G, the
Commission has considered the interest rate of 11.75% for estimating the normative
Interest on Working Capital. Correspondingly, the interest on working capital for 150
MW Unit# 8 works out to Rs 7.95 Crore.
4.2.11 Return on Equity (ROE)
TPC-G submitted that based on the capitalised expenditure, the Debt: Equity norm of
70:30, and after considering RoE of 14% in accordance with Regulation 34.1 of
MERC Tariff Regulations, the RoE for Unit# 8 (250 MW) works out to Rs. 39.66
crore for FY 2009-10 as against the approved amount of Rs. 38.55 Crore.
The Commission has computed the RoE in accordance with Regulation 34.1 and
Regulation 31 of the MERC Tariff Regulations, which stipulate that the RoE for a
Generation Company is to be provided on the opening level of equity. Accordingly,
the Commission has not considered the equity corresponding to addition to assets
during the year while computing the RoE. Further, the Commission has considered the
rate of return as 14% for computation of RoE for FY 2009-10, in accordance with the
MERC Tariff Regulations, 2005.
The summary of RoE as claimed by TPC-G and approved by the Commission for FY
2009-10 is summarised in the following Table:
Table: Return on Equity Unit# 8
Particulars
(Rs Crore)
Unit# 8 (250 MW)
Unit# 8 (150
MW)
APR
Order
Actual
Allowed
after
Truing up
Regulatory Equity at the beginning of
the year
275.38
283.27
283.26
Capital expenditure capitalised during
the year
128.87
103.79
103.79
Equity portion of capital expenditure
capitalised
38.66
31.14
31.14
Allowed after
Truing up
Page 128 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Particulars
Unit# 8 (250 MW)
Unit# 8 (150
MW)
APR
Order
Actual
Allowed
after
Truing up
Regulatory Equity at the end of the year
314.04
314.41
314.40
Return on Regulatory Equity at the
beginning of the year
38.55
39.66
39.66
Total Return on Regulatory Equity
38.55
39.66
39.66
Allowed after
Truing up
4.2.12 Non Tariff Income
TPC-G submitted that the actual non-tariff income for Unit#-8 (150 MW) Mumbai
license area in FY 2009-10 was Rs. 1.69 Crore. As discussed in subsection 4.1.14, the
Commission under the Truing up exercise has allocated the gain of Rs. 3.01 crore
from Corporate Treasury function of TPC in addition to the actual non-tariff income
reported by TPC-G for Unit# 8.
Accordingly, the Commission has considered the non tariff income of Rs. 4.71 crore
for Unit# 8 for FY 2009-10 under the Truing up exercise.
The summary of actual non-tariff income and non-tariff income allowed by the
Commission after Truing up is shown in the Table below:
Table: Non Tariff Income for Unit# 8 (150 MW)
Particulars
(Rs Crore)
Actual
Allowed after
truing up
Rents
0.00
Other/Miscellaneous receipts
0.00
Delayed Payment Charges
-
Interest on staff loans & Advances
-
Sale of Scrap
0.09
Income from Services Rendered
-
Profit/Loss On Sale / Retirement Of Assets.
-
Interest on Income Tax/ VAT refund
Liability Written Back
1.60
Page 129 of 234
23.79
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Particulars
Interest on ST Deposit with Bank
Total
Actual
Allowed after
truing up
-
1.69
4.71
4.2.13 Income Tax
The Maharashtra Electricity Regulatory Commission (Terms and Conditions of Tariff)
Regulations, 2005 provides as follows:“34.2 Income-tax
Income-tax on the income of the Generating Business of the
Generating Company shall be allowed for inclusion in the annual
fixed charges:
Provided that any change in such income-tax liability on account
of assessment under the Income-tax Act, 1961, as certified by the
statutory auditors, shall be allowed to be adjusted each year in the
annual fixed charges:
Provided further that any change in such income-tax liability on
account of change in income of the Generating Business of the
Generating Company from the approved forecast shall be
attributed to the same controllable or uncontrollable factors as
have resulted in the change in income and shall be dealt with
accordingly:
Provided further that the generating station-wise profit before tax
as estimated for a financial year in advance shall constitute the
basis for the distribution of the corporate tax liability to all
generating stations of a Generating Company:
34.2.2The benefits of any income-tax holiday, credit for unabsorbed
losses or unabsorbed depreciation shall be taken into account in
calculation of the income-tax liability of the generating station of
the Generating Company:
Provided that where such benefits cannot be directly attributed to a
generating station, they shall be allocated across the generating
stations of a Generating Company in the proportion of the
generating station-wise profit before tax.
The Petitioner is a company under the Companies Act and carries out several
businesses including G, T and D in an integrated manner. Allocation of tax liability to
the regulated businesses in Mumbai, viz., G, T and D, particularly the method of
income tax calculations, has in the past been a complex issue. The key issue was to
arrive at the correct base.
Page 130 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Judgments of the Hon’ble Appellate Tribunal for Electricity (“APTEL”) –
(1) Appeal No. 173/2009 and 174/2009
Treatment of Income Tax came to be analysed in Appeal No. 173/2009 and 174/2009
before Hon’ble APTEL In its judgement dated 15th February, 2011 in Appeal No.
173/2009, Hon’ble APTEL examined the following issue:“Whether the State Commission is justified in computing the entitlement of
income tax to be recovered from the consumers considering the return on
equity as the regulatory profit before tax and disallowing tax on incentives on
the ground that the expenses incurred for achieving better performance has
already been allowed?”
Hon’ble APTEL held as follows:“…the State Commission is directed to compute the income tax entitlement of
the Appellant by replacing Return on Equity by Regulatory Profit Before Tax
i.e. income less permissible expenses.”
Since, Hon’ble APTEL inter alia held that the actual income shall form the basis for
computation of income tax, hypothetical bases cannot be considered. Hon’ble APTEL
has discarded the theory of any treatment on notional basis. The Commission is of the
view that every base tried earlier, whether Normative ROE or hypothetical PBT was
presumptive in nature and did not indisputably demonstrate the relation with actual tax
liability. Normative ROE was clearly not the only income that would constitute
taxable profits of the licensees; it would also include incentives etc. Further
hypothetical PBT was by very nature hypothetical. The income allocation and expense
allocation has to be as per actual taxable incomes and expenses calculated as per the
Income Tax Act. The approach has to be actual taxable income of regulated business
minus actual sanctioned tax deductible expenses of regulated business as directed by
Hon. APTEL.
(2) Appeal No. 111/2008
Further, an issue was dealt with in Hon’ble APTEL’s judgement dated 28th May, 2009
in Appeal no. 111/2008 in case of R-Infra which related to non-inclusion of PLF
incentive in regulated business segment in the taxable income and therefore noninclusion of income tax on the incentive on the ground that it would be a burden on
Page 131 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
consumers. Hon’ble APTEL directed that the actual and factual income tax impact had
to be considered and it was no case that such actual impact would be a burden on the
consumers.
(3) Appeal No. 251/2006
Furthermore, on issue raised before Hon’ble APTEL in Appeal No. 251/2006 in case
of R-Infra Hon’ble APTEL inter alia held in its judgment dated April 4, 2007 that
“The consumers in the licensee’s area must be kept in a water tight compartment from
the risks of other business of the licensee and the Income Tax payable thereon.
Under no circumstance, consumers of the licensee should be made to bear the Income
Tax accrued in other businesses of the licensee. Income Tax assessment has to be
made on stand alone basis for the licensed business so that consumers are fully
insulated and protected from the Income Tax payable from other businesses.”
COMMISSION’S RULING:Taking into account the aforesaid judgments of the Hon’ble APTEL, the Commission
is of the opinion that Hon’ble APTEL has held that the base should be the factual tax
liability and there is no scope for presumptive disallowances / hypothetical
calculations.
At paragraph 14 of Hon’ble APTEL’s judgment dated 14th February 2011 in the
matter of TPC-T, Hon’ble APTEL has clarified inter alia as follows:“Thus the intent of the Regulations is that the actual income tax paid by the
transmission licensee in the business of transmission is included in the ARR and the
licensee does not gain or lose on account of income tax which is a pass through in
tariff.”
Thus, principles have been laid down by Hon’ble APTEL on the subject.
Hence, it was incumbent upon the Commission to examine this issue in consultation
with professional consultants. Having so examined this subject matter, the
Commission proposes to adopt the actual tax computation statement of the Petitioners
and supporting Returns of Income filed i.e., the documentary evidence as submitted
by them as the base for true-up petitions. The segmental allocation of taxable income
and tax thereon is being done on line by line basis based on segmental allocation of
income and expenses as approved.
Page 132 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
The method is based in actual tax computation statement and segmental break up will
be always the one that is used for approval of tariff / plan. The weighted income tax
deductions / accelerated depreciation / income tax exemptions will be allocated to
underlying segment to which they pertain as is clearly mandated by regulation. Cross
tally of every line item in the computation of income statement is key demonstrative
strength of methodology and would preclude the unwarranted disputes on the issue.
Accordingly computation of income statement was sought from petitioners and
income tax reimbursement claim is sanctioned on the basis of the same. It was
observed from computation statement that in the year under consideration the
petitioner was liable to pay based on Minimum Alternate Tax (MAT) mechanism
under the Income Tax Act, which is higher than the normal tax on taxable income. In
view of Hon’ble APTEL’s pronouncements as aforesaid, this higher impact is being
considered for sanctioning of the claim and this higher tax impact under MAT which
has been actually suffered by the petitioner is allocated to various segments as per
Annexure A hereto. In case of MAT the same is charged on the book profits. Book
Profits are always calculated as income minus expenses as per books and accordingly
book income minus book expenses of various regulated business segments have been
considered as base as per audited allocation statements submitted by Licensee. This
clearly is in conformity with the directives of Hon. APTEL which has directed income
minus expenses approach to be used vide its Judgment in case of Appeal No.
173/2009 as referred to hereinabove. Further since the actual tax suffering in case of
MAT happens on the basis of book profits without any consideration to any other
figures, the same base of book profits of the relevant regulated segment has to be
adopted. Accordingly the allocation of book profit statement was sought from
Licensee duly audited by their auditors. This audited statement submitted by Licensee
themselves has been considered as for arriving at book profits attributable to
concerned regulated segment. As will be apparent from Annexure A; the MAT tax has
been calculated on all the segments in accordance with this audited statement
submitted by Licensee themselves. The total MAT liability of company is duly
reconciled with the total tax liability of all the segments taken together thereby the
correctness of tax calculations stands duly demonstrated. In short following the Hon.
APTEL verdicts the actual tax payment of Licensee has been allocated to various
segments. Further in this case since the tax suffering is on MAT; which is based
solely on book profits irrespective of any other considerations, the same base of book
profits on which Licensee has actually paid the tax has been used to ensure that base
remains the same base on which the Licensee has actually suffered the tax.
Page 133 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
As would be apparent from the Annexure A; the tax allocable to segment under
consideration of this order is Rs. 6 crore which is same as the claim of Rs. 6 crores
under this petition. Further the MAT paid is not actual expenditure because credit of
such tax paid is available to Licensee in subsequent years. Needless to add that the
credit of this tax paid under MAT mechanism as permissible to be taken by the
petitioner in the subsequent years under the provisions of the Income Tax Act, 1961
will be adjusted on proportionate basis of allowance made by this order, in subsequent
year/s in which the petitioner actually takes such credit at total company level.
4.2.14 Reduction in Annual Fixed Charges on Account of reduction in
Availability
TPC-G submitted that the actual availability of Unit# 8 (150 MW) was 79.45%, which
is lower than the normative availability of 80%. As per MERC Tariff Regulations, full
recovery of the Annual Fixed Charges is allowed only in case the actual availability is
equal or higher than the normative availability. The recovery of Annual Fixed Charges
reduces on a pro-rata basis in case the generating station achieves availability lower
than the normative availability. Accordingly, the Commission while Truing up for FY
2009-10, has reduced the recovery of Annual Fixed Charges on pro-rata basis. The
summary of AFC computations and AFC disallowed by the Commission is shown in
the table below:
Table: Reduction in Annual Fixed Charges of Trombay Unit# 8 (150 MW) for FY
2009-10 (Rs. Crore)
Particulars
AFC
after Actual
truing up
Availability
Normative
AFC
to
be Reduced AFC
Availability
disallowed
allowed after
truing up
FY 2009-10
111.43
79.45%
80.00%
0.77
110.66
4.2.15 Revenue from sale of power
TPC-G, in its Petition, submitted that the energy from 150 MW Unit# 8 was sold to
two Distribution Licensees of Mumbai Region, viz., TPC-D and BEST, and the
revenue from these two distribution licensee under heads like fixed charge and energy
charge is shown in the Table below:
Page 134 of 234
Case No. 105 of 2011
Sr.
No.
Particulars
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Unit
BEST
TPC-D
Total
1
Fixed Charge
Rs. crore
81.26
40.62
121.88
2
Incentive
Rs. crore
-
-
-
3
Energy Rate
Rs./kWh
2.77
2.77
2.77
4
Energy Sold
MU
635.07
317.52
952.58
5
Energy Charge
Rs. crore
175.66
87.83
263.49
6
Total = 1+2+5
Rs. crore
256.92
128.45
385.37
Based on the details of the revenue submitted by TPC-G, the Commission has
considered the total revenue from sale of power during FY 2009-10 to BEST and
TPC-D as Rs. 257 crore and Rs. 128 Crore, respectively, and the total revenue as Rs.
385 crore.
4.2.16 Incentive on PLF
TPC-G submitted that the PLF of Unit# 8 (150 MW) for FY 2009-10 was 78%, and as
the PLF is lower than 80%, no incentive has been claimed for FY 2009-10.
Accordingly, the Commission has not considered any incentive on PLF for Unit# 8 for
FY 2009-10.
4.2.17 Sharing of Gains and Losses
TPC-G has submitted the actual expenditure under various heads of expenditure and
the reasons for variation between the approved and the actual expenditure. Further,
TPC-G submitted that the Gains and Losses for Unit# 8 have been shared with the
Distribution Licensee in line with the principles adopted for Units 4 to 7 and Hydro.
The Commission has, however, considered the various expenses for computing the
sharing of gains/losses in accordance with the MERC Tariff Regulations, as elaborated
below:
Fuel Cost and reduction in auxiliary consumption
TPC-G submitted that the variation in the fuel cost is due to variation in the
operational parameters of the generating units, which are controllable factors. For
Unit#-8 (150 MW), TPC-G computed the fuel cost based on the approved operational
norms of Heat Rate. The total efficiency gains due to variation in heat rate estimated
by TPC-G is Rs. 6.47 Crore, which has been shared with the Distribution Licensees to
the extent of Rs. 2.18 crore (one-third). The summary of the efficiency gain on account
Page 135 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
of fuel cost as proposed by TPC-G and as approved has been shown in the Table
below:
Table: Gain/(Loss) due to variation in fuel cost for 150 MW Unit# 8
Sr.
No.
Particulars
Units
Submitted Approved
by TPC-G
a
Actual fuel cost
Rs. Crore
252
251.70
b
Cost of Generation
Rs/kWh
2.53
2.52
c
Gross Generation
MU
1022
1022
d
Normative fuel cost (b*c/10)
Rs. Crore
258
257.05
e
Efficiency gain (d-a)
Rs. Crore
6
5.35
f
Passed on to dist. Licensee
Rs. Crore
2
1.78
In addition to the variation in the Heat Rate, TPC-G submitted that there are variations
in the actual auxiliary consumption of Unit# 8 from approved parameters. The
summary of the efficiency gain on account of auxiliary consumption as proposed by
TPC-G has been shown in the Table below:
Table: Gain and loss due to variation in Aux. Consumption for 150 MW Unit# 8
Particulars
Formula
Units
Submitted
by TPC-G
Approved
Gross Generation
1
MU
1022
1022
Actual Aux Cons
2
%
6.84%
6.84%
Actual Aux Cons
3=1*2
MU
70
70
Actual Net Generation
4=1-3
MU
952
952
Normative Aux Cons.
5
%
9.2%
9.17%
Normative Aux Cons.
6=1*5
MU
94
93.74
Normative Net Generation
7=1-6
MU
928
928.32
Diff in Net Generation
8=4-7
MU
24
23.85
T.O Variable Cost
9
Rs Crore
306
306
T.O Gross Generation
10
MU
1206
1206
T.O Net Generation
11=10*5
MU
1096
1096
T.O Rate
12=9/12*10
Rs./kWh
2.79
2.79
Page 136 of 234
Case No. 105 of 2011
Particulars
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Formula
Units
Submitted
by TPC-G
Approved
Auxiliary Consumption Gain
13=12*7
Rs Crore
7
6.65
Passed on to the Dist.
Licensee
14=1/3*13
Rs Crore
2
2.22
Accordingly, the total efficiency gain on account of fuel cost approved by the
Commission and on account of additional revenue due to reduced auxiliary
consumption works out to Rs 12.0 Crore, as against the estimate of Rs. 13 crore by
TPC-G.
Gains and Loss on account of O&M Expenses
TPC-G submitted that the actual O&M expenditure in FY 2009-10 was lower as
compared to the O&M expenditure approved by the Commission. TPC-G also
requested the Commission to accept the treatment of gains arising from lower
expenditure on O&M as submitted by it and as shown in the following table:
Table: Gains/(Losses) on account of Operation & Maintenance Expenses for 150
MW Unit# 8 as submitted by TPC-G
Sr. No.
Particulars
Rs. Crore
1
Approved O&M expenditure for FY 2009-10
2
Add: Tata brand equity Expenses
3
Total Entitlement
4
Actual O&M Expenditure
8
5
Amount passed on to the Distribution Licensees (1/3rd of
Gain/Loss) (1/3rd * ((1) – (4)))
4
6
Amount allowed to be retained by TPC-G
8
7
Net Entitlement (3)-(5)
20
20
16
Based upon the O&M Expenditure allowed by the Commission and the revised
approved O&M Expenditure for FY 2009-10 the Commission has recomputed the
gains arising from lower O&M Expenses as shown in the Table below:
Page 137 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Gains/(Losses) on account of Operation & Maintenance Expenses for 150
MW Unit# 8 as approved by the Commission
Sr. No.
Particulars
Rs. Crore
1
Approved O&M expenditure for FY 2009-10
19.36
2
Total Entitlement
19.36
3
Actual O&M Expenditure
7.66
4
Allowed after truing up
7.66
5
Net Gains/ (Loss)
6
Amount passed on to the Distribution Licensees (1/3rd of
Gain/Loss) (1/3rd * ((2) – (4)))
3.90
7
Amount allowed to be retained by TPC-G
7.80
8
Net Entitlement (2)-(6)
11.70
15.46
Interest on Working Capital
As discussed in the earlier paragraphs, the actual interest on working capital incurred
by TPC-G for Unit# 8 during FY 2009-10 is nil and the normative interest on working
capital approved by the Commission considering other elements of expenses as
approved after Truing up works out to Rs 7.95 Crore. As discussed in Section 3 of this
Order, the Commission has considered the difference between normative interest on
working capital and actual interest on working capital as an efficiency gain and has
considered sharing of the same with the Distribution Licensees in accordance with the
MERC Tariff Regulations, as shown in the Table below.
Table: Gain and loss due to variation in Interest on Working Capital as approved by
the Commission
Particulars
Normative Interest on Working Capital
Actual interest on Working Capital
Rs. Crore
7.95
Nil
Amount passed on to distribution licensee
2.65
Amount retained by TPC-G
5.30
Page 138 of 234
Case No. 105 of 2011
Net Entitlement of TPC-G
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
5.30
Gap/(Surplus) for FY 2009-10 based on Truing up and sharing of efficiency
gain/losses
Based on the Truing up of various elements of expenses and revenue of TPC-G Unit#8 (150 MW) and share of efficiency gains/(losses), the Commission has estimated the
total surplus as Rs.14.55 crore as against the deficit of Rs. 6 crore estimated by TPC-G
for FY 2009-10. The summary of the net ARR and efficiency gains as approved by the
Commission for FY 2009-10 is given in the following Table:
Page 139 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Summary of Truing up for FY 2009-10 for Unit# 8 (150MW) including sharing of Efficiency gains (Rs Crore)
S.No.
Particulars
Actual/Normative
FY 2009-10
Approved After
Truing-up
Entitlement as per
Regulations/Order
Efficiency Gain
shared with
Distribution
Licensees
Net Entitlement
313.39
251.70
251.70
257.05
1.78
255.27
18.99
7.66
7.66
19.36
3.90
15.46
19.93
22.55
22.32
22.32
22.32
45.97
49.75
43.30
43.30
43.30
11.34
-
-
7.95
0.41
0.41
0.41
0.41
2.62
6.12
6.00
6.00
6.00
412.24
338.19
23.79
331.38
23.79
356.39
23.79
348.06
23.79
Order
A
Expenditure
1
Fuel Related Expenses
2
Operation & Maintenance Expenses
2.1
2.2
2.3
2.4
3
4
5
6
Employee Expenses
Administration & General Expenses
Repair & Maintenance Expenses
Allocation of LCC cost
Depreciation, including advance against
depreciation
Interest on Long-term Loan Capital
Interest on Working Capital
7
Other Expenses
8
Income Tax
Total Expenditure
B
2.65
5.30
Other Finance Charges
Return on Equity
Page 140 of 234
Case No. 105 of 2011
S.No.
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Particulars
Order
Actual/Normative
FY 2009-10
Approved After
Truing-up
Entitlement as per
Regulations/Order
Efficiency Gain
shared with
Distribution
Licensees
Net Entitlement
23.13
C
Incentive for Higher PLF
-
F
1
Revenue Sharing due to Reduced Aux
Consumption
Less: Reduction in AFC due to lower
availability
Total including expenditure +RoE
+Incentive
Revenue
Revenue from sale of electricity
2
Non-tariff Income
G
Total Revenue
H
Revenue Gap/(surplus)
D
E
E
6.65
6.65
2.22
4.44
0.77
435.37
361.99
361.83
386.84
375.52
385.37
385.37
385.37
385.37
1.69
4.71
4.71
4.71
387.06
390.07
390.07
390.07
(14.55)
Page 141 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Page 142 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
5 TRUING UP OF AGGREGATE REVENUE REQUIREMENT
FOR FY 2010-11
TPC-G, in its Petition, has sought approval for Truing up of expenditure and revenue for FY
2010-11 based on actual expenditure and revenue as per audited accounts. TPC-G provided
the comparison of actual expenditure against each head with the expenditure approved by the
Commission along with the reasons for deviations.
TPC-G, in its Petition, along with the audited accounts of expenditure also provided the
details of adjustments on account of sharing of gains and losses. Since, TPC-G has submitted
audited accounts for FY 2010-11, the Commission has decided to undertake the final Truing
up of the revenue requirement for FY 2010-11.
Accordingly, in this Section, the Commission has analysed all the elements of actual
expenditure and revenue for TPC-G for FY 2010-11, and has undertaken the Truing up of
expenses and revenue after prudence check. Further, for FY 2010-11, the Commission has
approved the sharing of gains and losses on account of controllable factors between TPC-G
and the Distribution Licensees, in accordance with Regulation 19 of the MERC Tariff
Regulations, 2005 in this Section.
5.1 PERFORMANCE OF UNIT# 4 TO 7 AND HYDRO STATIONS
5.1.1 Gross Generation
The Commission, in its Tariff Order dated September 8, 2010 in Case No. 96 of 2009,
approved gross generation from TPC-G’s Trombay generating station (Unit#s 4 to 7) for FY
2010-11 as 8412 MU. However, the actual gross generation achieved by Trombay generating
station during FY 2010-11 was 7621 MU, which is lower than the approved generation levels
by around 9.4%. The generation from Unit# 4 and Unit# 6 at Trombay Power Station, was at
lower level vis-à-vis the quantum approved by the Commission.
TPC-G submitted that the actual hydel generation for FY 2010-11 was 1310 MU, which is
lower than the quantum of 1450 MU approved by the Commission, on account of constraints
due to compliance with Krishna Water Tribunal Award (KWTA) norms.
TPC-G submitted that lower generation from Unit#-4 is because Unit# 4 at Trombay is a
Standby unit and is operated when the other Units of Trombay are under shutdown. TPC-G
submitted that in the Petition for Tariff determination for FY 2010-11, TPC-G had projected a
generation of about 143 MU as against which the actual generation was only 120 MU, which
was only on account of the difference in the running hours of the standby Unit. TPC-G
submitted that there was no standby requirement of Unit# 4 to the extent projected in the
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Petition for Tariff Determination for FY 2010-11. TPC-G further submitted that Unit# 4 was
not run at all in the second half of FY 2010-11.
Regarding Unit# 6, TPC-G submitted that in the APR Petition, it had projected a PLF of 80 %
in line with the generation that was possible with Target Availability of 80 %. TPC-G
submitted that the Commission is aware that the unit uses costly fuel (Oil and RLNG) for
generation. This Unit# 6 was backed down to minimise the impact of the high cost of
generation on the consumers. At times, the unit was run at the technical minimum to
accommodate cheaper power available in the market. Such backing down of the unit has
resulted in the PLF being lower than that approved by the Commission.
TPC-G submitted that the gross generation for Unit# 5 and Unit# 7 for FY 2010-11 was 3663
MU and 1569 MU respectively, which were higher than the gross generation approved by the
Commission in Order dated September 8, 2010.
As regards the hydel generation, actual generation was lower during FY 2010-11 as compared
to approved generation due to reduction in water availability and compliance with Krishna
Water Tribunal Award (KWTA), which is beyond the control of TPC-G and hence, the
Commission has considered the actual generation while truing-up the ARR for FY 2010-11.
As regards the thermal generation from Trombay generating Station, the gross generation
from Unit# 4 and Unit# 6 was lower than the generation approved by the Commission,
whereas the gross generation from Unit# 5 and Unit# 7 was higher than the generation
approved by the Commission.
However, despite the reasons stated above, the actual availability of Unit#s 4 and 6 as
certified by SLDC was higher than the normative availability of 80%. The Commission
therefore, accepts the actual gross generation of TPC-G generating stations for FY 2010-11
and allows recovery of full annual fixed charges for Unit# 4, 5, 6 and 7.
The summary of Unit-wise gross generation and availability approved by the Commission in
Order dated September 8, 2010, actual gross generation, actual availability as certified by
SLDC and gross generation for FY 2010-11 considered after Truing up is shown in the Tables
below:
Table: Summary of Gross Generation for FY 2010-11 (MU)
Particulars
Gross Generation
Hydel Stations
FY 2010-11
Order dated
September 8,
2010
1450
Actuals
1310
Approved after
truing up
1310
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Particulars
FY 2010-11
Gross Generation
Order dated
September 8,
2010
Actuals
Approved after
truing up
Unit# 4, Trombay
143
120
120
Unit# 5, Trombay
3504
3663
3663
Unit# 6, Trombay
3504
2268
2268
Unit# 7, Trombay
1261
1569
1569
Total Thermal
8412
7621
7621
Total Gross Generation
9862
8931
8931
Table: Summary of Availability for FY 2010-11
Particulars
Availability
FY 2010-11
Order dated
September
8, 2010
Actuals
Approved after truing
up
Unit# 4, Trombay
92.24%
97.74%
97.74%
Unit# 5, Trombay
99.00%
92.03%
92.03%
Unit# 6, Trombay
92.24%
92.03%
92.03%
Unit# 7, Trombay
97.17%
96.47%
96.47%
5.1.2 Auxiliary Consumption
TPC-G, in its Petition, submitted that the auxiliary consumption of Unit# 4, Unit# 6 and hydel
stations in FY 2010-11 was higher than the auxiliary consumption approved in the Order
dated September 8, 2010. TPC-G further submitted that the weighted average auxiliary
consumption for Trombay thermal station (Unit# 4 to 7) is 4.06%.
As regards higher auxiliary consumption of Unit# 4, TPC-G submitted that as Unit# 4 is kept
as standby Unit, the unit was started and stopped four times during FY 2010-11. TPC-G
submitted that, whenever the unit is brought on line it has to undergo a stabilization phase
before the unit generates full load. During this period, the consumption of auxiliary power
seems higher in percentage terms (at 12.13%) but was only 15 MU in absolute terms. TPC-G
requested the Commission to accept the actual auxiliary consumption of Unit# 4 as the higher
auxiliary consumption is a direct consequence of keeping the unit as a standby.
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As regards the higher auxiliary consumption of Unit# 6, TPC-G submitted that the actual PLF
of Unit# 6 for FY 2010-11 was only 52%. It further submitted that although the generation on
a unit may be reduced, the Auxiliary consumption does not come down in that proportion and
hence the Auxiliary Consumption in terms of percentage is higher at lower generation.
As regards the higher auxiliary consumption of hydel stations, TPC-G submitted that the
lower gross generation from hydel stations in FY 2010-11 as compared to the approved
quantum has resulted in a marginally higher auxiliary consumption.
TPC-G requested the Commission to approve the actual auxiliary consumption on account of
the reasons stated above.
As regards the higher auxiliary consumption due to lower gross generation of Unit# 6 and
hydel stations, the Commission has clearly stated in its Order dated September 8, 2010 in
Case No. 96 of 2009 as follows:
“The Commission is of the view that the reasons for higher auxiliary consumption in
percentage terms given by TPC-G will also be applicable when the actual generation
is on higher side, and the auxiliary consumption is reported lower, for which TPC-G
has claimed and received performance incentive in the past. The Commission, while
carrying out the final truing up of ARR for FY 2007-08, had considered the difference
between the normative auxiliary consumption and actual auxiliary consumption as
efficiency gains. In case the reasons given by TPC-G are accepted for higher auxiliary
consumption, then the same needs to be applied when generation has increased as
compared to normative generation and mechanism of approving normative
parameters and sharing of gains and losses for better/under performance will not have
any sanctity. Therefore, the Commission has considered the normative auxiliary
consumption for thermal and hydel stations approved for FY 2008-09 for truing up
purposes, and has considered the difference between actual auxiliary consumption
and normative auxiliary consumption as approved in the APR Order for computing the
sharing of efficiency gain/loss for FY 2008-09”
The Commission has, therefore, in line with its previous approach for Truing up purposes,
considered normative auxiliary consumption for Unit# 6 and hydel generating stations
approved for FY 2010-11, and has considered the difference between actual auxiliary
consumption and normative auxiliary consumption for computing the sharing of efficiency
gain/loss for FY 2010-11.
As regards the auxiliary consumption of Unit# 4, as discussed in the previous Section where
the Commission has approved the auxiliary consumption of 11.84% for FY 2009-10 (i.e.,
auxiliary consumption proposed by TPC-G in its APR Petition FY 2009-10), the Commission,
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considering the fact that the unit has operated as a Standby unit approves the auxiliary
consumption for FY 2010-11 also as 11.84%.
The summary of Unit-wise auxiliary consumption approved by the Commission in Tariff
Order for FY 2010-11, actual auxiliary consumption during FY 2010-11, and auxiliary
consumption considered for sharing of gains/losses is shown in the Table below:
Table: Auxiliary Consumption for FY 2010-11 (%)
Particulars
Auxiliary
Consumption
FY 2010-11
Approved Actuals
Allowed after truing up
Hydel Stations
0.50%
0.55%
0.50%
Unit# 4, Trombay
8.00%
12.13%
11.84%
Unit# 5, Trombay
5.50%
4.63%
5.50%
Unit# 6, Trombay
3.50%
4.05%
3.50%
Unit# 7, Trombay
2.75%
2.14%
2.75%
5.1.3 Heat Rate
TPC-G, in its Petition, submitted the summary of the heat rate approved by the Commission
and actual heat rate for FY 2010-11 for all Units of Trombay station as shown in the Table
below:
Table: heat rate for FY 2010-11 (kcal /kWh)
Heat Rate (kcal/kWh)
Approved
Actuals
Unit# 4, Trombay
2683
2763
Unit# 5, Trombay
2577
2613
Unit# 6, Trombay
2514
2559
Unit# 7, Trombay
1971
1973
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TPC-G submitted that the heat rate for Unit#s 4 to 7 was higher than that approved by the
Commission, due to the reasons mentioned below:
TPC-G submitted that Unit# 4 is a standby Unit, which is operated only when any of the
existing Units are under planned/forced outage. TPC-G also submitted that the strict
environmental norms at Trombay also pose a restriction on the operation/use of this Unit. As
submitted by TPC-G, the increase in heat rate of Unit# 4 for FY 2010-11 was mainly due to
following reasons:
•
Frequent Start up and shutdown of the unit as it is primarily kept as Standby
•
Impact of gas firing on boiler efficiency
TPC-G submitted that the Unit# 4 was started and shut down four times during FY 2010-11.
As Unit# 4 is kept as standby Unit, whenever the unit is brought on line it has to undergo a
stabilization phase before the unit generates full load. During this period, the consumption of
fuel, water and auxiliary power is much higher than normal while the steam pressure and
temperature remain lower than rated, resulting in higher heat rate. Also, frequent start up and
shut downs have aggravated the situation.
TPC-G further submitted that a major portion of the total generation (more than 93%) on
Unit# 4 was gas based. TPC-G submitted that it had highlighted the adverse impact of gas
firing on boiler efficiency for Unit# 6 vide its Petitions filed earlier. TPC-G submitted that the
gas firing in Unit# 4 boiler has similar deleterious effect on its efficiency as observed in Unit#
6, which has resulted in higher Heat Rte of Unit# 4. TPC-G requested the Commission to
approve the actual heat rate of 2763 kcal/kWh for FY 2010-11.
As regards the heat rate of Unit# 4, the Commission had approved the heat rate of 2683
kcal/kWh in its Tariff Order dated September 8, 2010 as proposed by TPC-G, considering the
fact that the unit will be operated as a standby unit during FY 2010-11. However, for FY
2010-11, considering the fact that the major portion (over 93%) of the generation from Unit#
4 was gas based, which is the primary reason for increase in actual heat rate to 2763 kcal/kWh
as against the approved heat rate of 2683 kcal/kWh, the Commission under the Truing up
process for FY 2010-11 has allowed the actual heat rate of Unit# 4 as 2763 kcal/kWh.
TPC-G submitted that for Unit# 5, the Commission had approved a heat rate of 2577
kcal/kWh, however, the actual heat rate achieved was 2613 kcal/kWh for FY 2010-11, and the
increase in heat rate was mainly due to following reasons:
•
Higher amount of coal firing has resulted in higher boiler losses due to wet coal
problem during monsoon season, restriction on coal mill outlet temperatures from
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63°C to 58/60°C owing to high volatility of Indonesian coal and hence, higher heat
rate of Unit# 5.
•
During the monsoon season, to surmount the problem of wet coal, gas was fired as
fuel instead of costly LSHS oil to save fuel cost.
•
After capital overhaul of Unit# 5 in January 2010, the vibration levels of main turbine
bearing number no. 2 remained higher than alarm value. As a consequence, load on
the unit was restricted to around 415 MW for the first two months of FY 2010-11.
Subsequently, the unit load could be raised to 475 MW in May 2010 and then to 490
MW in July 2010.
•
The HP heaters were out of service on account of tube leaks, for a duration exceeding
100 days in FY 2010-11, resulting into load restrictions and higher Heat Rate.
•
Higher forced outages of Unit# 5 in FY 2010-11. One of the five forced outages was
due to super heater tube leakage for duration of 7 days in August, 2010, due to which
the heat rate for the month reached 2747 kcal/kWh.
TPC-G further submitted that although Unit# 5 heat rate has increased on account of load
restriction due to turbine bearing vibrations, wet coal problem in monsoon, variation in fuel
mix and natural degradation in unit performance, it has made all possible efforts to reduce the
Heat Rate. In view of the above, TPC requested the Commission to approve the actual heat
rate of 2613 kcal/kWh for FY 2010-11.
The Commission is of the view that the reasons submitted by TPC-G for the higher heat rate
of Unit# 5, viz., load restrictions due to increased vibration level, improper functioning of
equipments like HP heaters, and higher forced outages cannot be attributed to uncontrollable
factors. In case the actual heat rate of Unit# 5 is approved, it would amount to passing on the
entire loss to the consumers and burdening them with higher cost on account of fuel that
should not have been used, which would be contrary to the treatment for Unit# 8, where the
benefit of reduction in fuel consumption is being shared between TPC-G and the distribution
licensees. Under the MYT mechanism, it is appropriate to share both gains and losses on
account of stipulated controllable factors instead of just sharing the gains for better
performance and passing on the entire losses due to under-performance to consumers. Thus,
for Truing up for FY 2010-11, the Commission has considered the heat rate for Unit# 5 as
2577 kcal/kWh as approved in APR Order dated September 8, 2010.
As regards Unit# 6, TPC-G submitted that the Commission had approved the heat rate of
2514 kcal/kWh for FY 2010-11 with oil and gas combination of 50:50. TPC-G submitted that
the actual heat rate achieved in FY 2010-11 is 2559 kcal/kWh, which is because of increased
proportion of gas based generation during FY 2010-11.
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TPC-G submitted that the actual fuel mix of Gas: Oil for Unit# 6 for FY 2010-11 was 68:32 at
an annual PLF of 51% with availability of 92 % (planned capital overhaul for 26 days)
resulting in annual heat rate of 2559 kcal/kWh. TPC-G submitted that it has fired a higher
quantum of gas than that envisaged by the Commission while prescribing the norm of 2514
kcal/kWh, so as to reduce the cost of generation. TPC-G submitted that along with higher gas
based generation; lower Plant Load Factor has further worsened the heat rate of the unit
especially in second half of FY 2010-11 wherein unit has operated at a plant load factor of
36.72%. TPC-G submitted that the impact of lower PLFs can be appreciated from the actual
generation in the months of April 2010 and May 2010 where the PLFs of the Units were
closer to that approved by the Commission (80%) and the Heat Rates were within that
approved by the Commission. TPC-G requested the Commission to allow the actual heat rate
for Unit# 6 for FY 2010-11.
The Commission had appointed Central Power Research Institute (CPRI) for conducting the
performance tests on Unit# 6 at various proportions of Gas:Oil fuel fired to the boiler. CPRI,
the specialist Government agency looked into the issue and summarised its findings as below:
i) “Due to inherent composition of H2 Gas (present in RLNG), the Boiler efficiency
decreases due to increased wet flue gas losses (latent heat + superheat in flue gas);
ii) the turbo-generator Heat rate is unaffected by the fuel used in the boiler;
iii) Extrapolation on the basis of the pure boiler efficiency and pure gas efficiency to
intermediate values of oil-gas combinations do not give correct values
iv) There is also further decrease in boiler efficiency because the design gas of 81%
Methane was envisaged but the actual gas contains over 95% Methane"
The Commission, in its Order dated September 8, 2010 based upon the findings of CPRI and
scrutiny of test records approved the heat rate of 2514 kcal/kWh for Unit# 6 for FY 2010-11,
and the relevant extract of the Order is reproduced below:
“Based on scrutiny of test records, the Commission has observed that at the firing of
Oil to Gas in the proportion of 15: 85 (+/- 5%). The load carried by the Unit comes
down in the range of 393 MW to 444 MW due to h in boiler parameters and the test
Heat rate observed at these conditions is approximately 2570 kcal/kWh.
The Commission feels that the conditions cited above, wherein high amount of gas is
fired and the oil firing is lower, cannot be considered as a normal operating condition
as various restrictions in the form of vital Boiler parameters such as metal
temperature force operation of the boiler at reduced loads. It is to be noted that the
performance parameters specified by the Commission are always the annualised
parameters at normal operating conditions of the Unit and the Utility is expected to
optimise its operations at the specified levels.
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The Commission observes that based on the findings of the reports as mentioned
above, approximately 50:50 (+/- 5%) Gas to Fuel firing can be considered as an
optimum fuel firing condition, and the Heat Rate measured at these conditions can be
considered as the optimum achievable Heat rate for the Unit to deliver its rated load.
On the basis of tests conducted and the observations made, the Commission specifies
annual Heat rate of 2514 kcal/kWh, which has been specified for the above fuel firing
condition for Trombay Unit 6 at full load and with present gas supplied by GAIL of
approx. 95% - 96% Methane, until modifications / alterations as required are carried
out by the Utility so that larger proportion of Gas firing can also be undertaken by the
Utility at full load condition with improved efficiency.”
The Commission, while Truing up for FY 2010-11, on the basis of the CPRI’s findings and
also considering the actual Gas: Oil mix of 68: 32 as submitted by TPC-G, has computed the
heat rate for Unit# 6 as 2543 kcal/kWh on pro-rata basis and has thus, approved the heat rate
of 2543 kcal/kWh as against the actual heat rate of 2559 kcal/kWh for FY 2010-11.
As regards Unit# 7, TPC-G submitted that the Commission has approved a heat rate of 1971
kcal/kWh for FY 2010-11. However, the actual heat rate achieved in FY 2010-11 is
marginally higher at 1973 kcal/kWh.
TPC-G submitted that the increase in heat rate was mainly due to following reasons:
•
During FY 2010-11, the GTG unit experienced 5 forced outages on account of various
reasons like ESV problem in July 2010, forced withdrawal of unit to remove hanging
thread on GTG Gantry in 220 kV switchyard.
•
During FY 2010-11, the STG unit experienced 15 forced outages on account of
various reasons like HRSG Super heater tube leakage and ESV problem in July 2010,
forced withdrawal for turbine shaft balancing in December 2010, Failure of Cooling
Water Pump in November 2010.
TPC-G also submitted that on an average the availability of gas is about 0.84 mmscmd as
against the requirement of 1.0 mmscmd. TPC-G submitted that it has made all the efforts to
address the problem of inadequate availability of APM gas by tying up additional gas with
GAIL to ensure full load on Unit. This has helped Unit# 7 to achieve an annual PLF of 99.5 %
with annual generation availability of 96.5 % and the heat rate of 1972.85 kcal/kWh could be
achieved in spite of 5 and 15 forced outages of GTG and STG, respectively. TPC-G requested
the Commission to approve the actual heat rate of 1973 kcal/kWh for FY 2010-11.
The Commission is of the view that the reasons submitted by TPC-G for the increased heat
rate of Unit# 7 on account of the higher forced outages of GTG and STG units cannot be
attributed to uncontrollable factors. In case the actual heat rate of Unit# 7 is approved, it
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would amount to passing on the entire loss to the consumers and burdening them with higher
cost on account of fuel that should not have been used, which would be contrary to the
treatment for Unit# 8, where the benefit of reduction in fuel consumption is being shared
between TPC-G and the distribution licensees. Under the MYT mechanism, it is appropriate
to share both gains and losses on account of stipulated controllable factors instead of just
sharing the gains for better performance and passing on the entire losses due to underperformance to consumers. Therefore, for the Truing up process, the Commission has
considered the normative heat rate of 1971 kcal/kWh as approved by the Commission in
Order dated September 8, 2010.
The summary of Unit-wise heat rate approved in the Tariff Order, actual heat rate and heat
rate allowed after Truing up for FY 2010-11 is given in the following Table:
Table: Unit-wise heat rate approved for FY 2010-11
Particulars
FY 2010-11
Order dated
September 8,
2010
Actuals
Unit# 4, Trombay
2683
2763
2763
Unit# 5, Trombay
2577
2613
2577
Unit# 6, Trombay
2514
2559
2543
Unit# 7, Trombay
1971
1973
1971
Heat rate (kcal/kWh)
Allowed after truing
up
5.1.4 Fuel price and calorific value
For FY 2010-11, TPC-G submitted in its Petition, the price of Coal and LSHS as Rs.
4,699/MT and Rs. 29,390/MT, respectively, which is higher than the approved price of Rs.
4,144/MT and Rs. 28,909/MT respectively. However, the fuel prices for Gas and RLNG as
submitted by TPC-G have been lower than the approved price. The actual average Gas price
for FY 2010-11 was Rs. 9,879/MT as against the approved price of Rs. 11,008/MT. TPC-G
also submitted that for FY 2010-11, it has also procured RLNG as one the fuels at a price of
Rs 19,287/MT as against Rs 18,555/MT approved by the Commission.
The variation in fuel price and calorific value of fuel during FY 2010-11 have been
considered as part of Fuel Adjustment Cost (FAC) and has already been passed through to the
consumers on a monthly basis under the FAC charge mechanism. For the purpose of Truing
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up of fuel costs (variable cost of generation) for FY 2010-11, the Commission has considered
the actual fuel costs and calorific value as given in the Table below:
Table: Fuel Parameters
Particulars
Approved
Actuals
Allowed after
truing up
A. Fuel Price (Rs/MT)
Gas
11008
9879
9879
Coal
4144
4699
4699
Oil (LSHS)
28909
29390
29390
RLNG
18555
19287
19287
Gas
13151
13014
13014
Coal
5134
5002
5002
Oil (LSHS)
10522
10481
10481
RLNG
13071
13048
13048
B. Calorific Value (kcal/kg)
5.1.5 Fuel Costs
TPC-G submitted that the total fuel cost for FY 2010-11 was Rs. 2343 crore as against the
approved cost of Rs. 3040 Crore. TPC-G submitted that the difference between the fuel cost
approved by the Commission and the actual fuel cost is mainly due to lower prices of Gas and
reduced consumption due to a drop in generation in Unit#-6 to minimise generation on oil.
TPC-G further submitted that reduction in the fuel cost is contributed by lower generation,
mix of fuel (gas replacing oil) and efficiency on account of reduction in SHR and Auxiliary
consumption, which has been partially offset by the rise in the price of fuel (Rs/Tonne).
Based on the Heat Rate, fuel prices and fuel calorific value as discussed in above paragraphs,
the total fuel costs allowed by the Commission after Truing up for FY 2010-11, is summarised
in the Table below:
Table: Fuel Costs (Rs Crore)
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Particular
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Actuals
Normative Allowed after
truing up
Unit# 4, Trombay
50.02
50.02
Unit# 5, Trombay
938.66
925.56
Unit# 6, Trombay
1102.13
1095.04
Unit# 7, Trombay
252.11
251.87
2342.91
2322.50
Total Thermal
5.1.6 O&M Expenses
The Operation and Maintenance (O&M) expenditure comprises of employee related
expenditure, Administrative and General (A&G) expenditure, and Repair and Maintenance
(R&M) expenditure. TPC-G’s submissions on each of these expenditure heads, and the
Commission’s ruling on the Truing up of the O&M expenditure heads for FY 2010-11 are
detailed below.
TPC-G, in its Petition, submitted that the actual O&M Expenditure for FY 2010-11 was Rs.
365.06 Crore, which included expenses towards Load Control Centre (LCC) and brand equity,
as compared to Rs. 381.03 crore approved in the Tariff Order of FY 2010-11. TPC-G’s
submissions on each of the expenditure heads, and the Commission’s ruling on the Truing up
of the O&M expenditure heads for FY 2010-11 are detailed below:
5.1.6.1 Employee Expenses
TPC-G submitted that the total actual employee related expenses for FY 2010-11 was Rs.
141.84 crore as against the actual expenditure of Rs. 130.42 crore in FY 2009-10. TPC-G
submitted that the Commission has approved the aggregate O&M Expenses and not approved
the Employee Expenses separately and hence, the same are not available for comparison.
However, TPC-G compared the actual employee expenses for FY 2010-11 with the
expenditure of the previous year. TPC-G submitted that it has presented the reasons for the
drop in the employee expenditure of FY 2009-10, hence, if one considers the expenditure in
FY 2008-09 as the base, the increase over the period FY 2008-09 to FY 2010-11 has been
only 1% per annum, which is very reasonable.
The Commission asked TPC-G to submit the basis and assumptions for capitalising the
employee expenses for FY 2010-11. In response, TPC-G submitted that capitalisation of
employee expense is computed based on the following:
iii.
A time sheet sent by the concerned department to accounts for the time spent on
various projects.
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iv.
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Calculation for per hour job done is based on the following:
cost to company of the concerned employee
x no. of hours worked on the job
261 days x 8hrs/day
TPC-G added that this amount is booked every month by transferring to the respective
projects.
Considering the details of actual employee expenses, the Commission has allowed the
employee expenses of Rs. 141.84 crore for FY 2010-11 under the Truing up exercise.
5.1.6.2 A&G Expenses
TPC-G submitted that the actual A&G expenditure for FY 2010-11 (including brand equity)
was Rs. 98.47 crore as against Rs. 95.51 crore for FY 2009-10. TPC-G submitted that the
increase in expenditure in FY 2010-11 over FY 2009-10 is about Rs 3 crore, i.e., an increase
of 3.09%, which is in line with the escalation rate considered for FY 2009-10 by the
Commission in its Order dated September 8, 2010.
TPC-G also submitted that the A&G expenses that relate to the Capex schemes (Consultant’s
Fees, Travelling, etc.) are directly debited to the capex scheme, and unlike employee
expenses, they are not routed through the P&L Account, and hence, they do not separately
appear as capitalised amount.
Further, the Commission asked TPC-G to submit the breakup of the cost included under the
head “Others” under A&G expenses. In reply to the Commission’s query, TPC-G submitted
the details as follows:
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The Commission observed that TPC has spent an amount of Rs 5.25 crore (combined for
Generation, Transmission and Distribution businesses) towards Community Welfare
Expenses. In reply to the Commission’s query, TPC clarified that the community welfare
expenses are mainly for Educational/vocational training, health care, environment,
infrastructure and other social welfare initiatives. Further, the main activities include training
to youth, medical camps, HIV AIDS awareness programs/ rallies, training volunteers,
afforestation, environment education, etc.
Further, in reply to the Commission's query, TPC clarified that commemorative gold coins
were paid to employees on the occasion of commissioning of Unit#-8, and the expense on the
same has been claimed under “Gifts” amounting to Rs. 0.74 crore in A&G expenses.
The Commission is of the view that these costs are towards TPC’s Corporate Social
Responsibility and are not necessary for the functioning of any Utility. In any case, these
expenses should not be passed on to the consumers of TPC as the consumers are not
benefiting from the same and thus, these expenses should be borne by TPC. TPC-G is free to
incur such expenses from the returns earned out of the business. TPC-G's share against
Community Welfare Expenses and Gifts is Rs. 4.89 crore and Rs. 0.45 Crore, respectively,
which have been disallowed from the A&G expenses under the Truing up exercise and for
the purpose of sharing of gain and losses.
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The Commission observed that TPC-G has also considered Rs 1.04 crore towards
Contribution/Donations under the A&G expenses for FY 2010-11. As regards such expenses,
the Commission has ruled in the APR Order for TPC-G in Case No. 111 of 2008 as under.
“....The Commission is of the view that if the Company or the shareholders of the
Company wish to contribute/donate towards charitable causes, the same should be
contributed from the return earned out of the business, rather than passed on to the
Utility’s consumers. Hence, for truing up purposes for FY 2007-08, the Commission
has not considered the expense of Rs 0.50 crore towards donation to Tata Medical
Centre”
Hence, on similar lines, the Commission has not considered the expense of Rs 1.04 crore
towards Contributions/Donations as claimed by TPC-G, under the Truing up exercise and for
the purpose of sharing of gain and losses.
TPC-G submitted that the brand equity expenses to be borne by TPC-G are Rs. 7.90 crore as
against Rs. 10.03 crore considered by the Commission while approving the O&M expenses
for FY 2010-11. The total brand equity expense for TPC as a whole in FY 2010-11 is Rs
13.95 crore and the allocation to G/T/ D functions based on ratio of actual A&G expenses as
submitted by TPC-G, is given in the table below:
Table: Allocation of brand equity Amount as submitted by TPC-G for FY 2010-11
Functions
Allocation of A&G (%)
Allocation of Brand Equity
(Rs. Crore)
Generation
57%
7.90
Transmission
18%
2.51
Distribution
6%
0.86
19%
2.68
100%
13.95
Supply
Total
As discussed in Section 4 of this Order, TPC-G has submitted revised computation of brand
equity in the format provided by the Commission. The brand equity expense submitted by
TPC-G, and the brand equity computed by the Commission for FY 2010-11 is shown in the
table below:
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Table: Computation of brand equity Amount for FY 2010-11
Particulars
Basis
(Rs. Crore)
Allowed after
truing up
Actuals
Revenue from Mumbai Licensed
Area Business based on allocation
statement
A
4837.07
4837.07
Add: Cash Discount pertaining to
Mumbai LA Area
B
43.09
43.07
Add: Income in respect of services
rendered pertaining to Mumbai LA
Area
c
3.26
0.51
Add: Delay Payment Charges
pertaining to Mumbai LA Area
d
2.49
2.82
Total Revenue to be considered for
Mumbai Licensed Area
e=a+b+c+d
4885.91
4883.47
Contribution to Tata Brand Equity
f=0.25%*e
12.21
12.21
Service Tax
g=service
tax%*f
1.26
1.26
h=f+g
13.47
13.47
Total contribution to brand
equity including service tax
The Commission has allocated the brand equity expense based on A&G expenses, and
accordingly the share of TPC-G in brand equity expense for FY 2010-11 is Rs. 7.62 Crore.
The Commission has accepted actual A&G expenses, except expenses towards donations,
Community Welfare Expenses and Gifts, as submitted by TPC-G. Considering the same, the
Commission has allowed the A&G expenses of Rs. 91.80 crore for FY 2010-11 including
brand equity expenses under the Truing up exercise. The summary of the allowed A&G
Expenses has been tabulated below:
Table: Summary of the allowed A&G Expenses (Rs. Crore)
Particulars
Actual A&G Expenses
Amount
98.47
Less: Community Welfare Expenses
4.89
Less: Gifts
0.45
Less: Contribution/Donation
1.04
Less: Reduction in Brand Equity
0.28
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Case No. 105 of 2011
Particulars
Allowed A&G Expenses
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Amount
91.80
5.1.6.3 R&M Expenses
TPC-G submitted that the total R&M expenses for FY 2010-11 were Rs. 123.21 crore as
against Rs 126.34 crore in FY 2009-10. The breakup of R&M Expenses as submitted by TPCG is given below:
Table: R&M Expenses as submitted by TPC-G
Particulars
FY
2009-10 H1 Actuals
Actuals
H2 Actuals
FY
2010-11
Actuals
Building & Civil Works
6
13
19
Machinery & Hydraulics
40
59
99
Furniture & Vehicles
1
1
2
Stores, Oil Consumed
2
1
4
49
74
123
Total
126
TPC-G, in reply to the query for increase in the R&M expenses during FY 2009-10, had
submitted that the change in the accounting procedure in FY 2009-10 has resulted in an
increase of Rs. 13.60 crore in R&M Expenses. It had also submitted that in FY 2010-11, on
recommendation of Expert Committee of ICAI, it changed the procedure again. In this regard,
the Commission observed that with change in procedure in FY 2010-11 there should have
been substantial reduction in R&M expenses for FY 2010-11 as compared to R&M expenses
for FY 2009-10. However, as per TPC-G’s submission, the expenditure under this head for
FY 2010-11 has reduced by only Rs. 3 Crore. TPC-G, in reply to this query, submitted that in
FY 2009-10, it had adopted the Accounting Standard AS 2 due to which TPC-G did not
include the costs incurred to change the location of the coal within the premises of the plant
and to change its condition in the inventory and the same was charged to the R&M Expenses
in FY 2009-10. However, TPC-G further submitted that as per the opinion of Expert Advisory
Committee of ICAI, for FY 2010-11, it has restored the practice followed in the earlier years
and has therefore, routed the above costs for the year through the inventory. TPC-G further
submitted that the R&M expenditure for FY 2009-10 was Rs. 126 Crore, which included the
expenditure of Rs. 13.60 crore towards changing the location of the coal within the premises
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of the plant and to change its condition in the inventory. Hence, the expenditure without this
element would have been about Rs 112 Crore.
Considering the details of actual R&M expenses and reasons submitted by TPC-G for
increase in R&M expenses, the Commission has allowed the R&M expenses of Rs. 123.21
crore for FY 2010-11 under the Truing up exercise.
5.1.6.4 Allocation of Load Control Centre expenses to TPC-G
TPC-G submitted that as per the methodology approved by the Commission, TPC-G’s share
of LCC expense for FY 2010-11 works out to Rs.1.55 Crore, as against the amount of Rs.
1.34 crore of LCC expense approved by the Commission in its APR Order dated September
8, 2010.
Considering that the LCC costs are largely of O&M nature, the Commission has considered
the entire cost as part of O&M expenses. For Truing up purposes, the Commission has
accepted the allocation of the LCC cost for its Generation, Transmission and Distribution
businesses as submitted by TPC.
In the current Truing up exercise, the Commission has considered TPC-G's share of LCC cost
for FY 2010-11 as Rs. 1.55 Crore. Accordingly, the Commission has added the total share of
TPC-G towards LCC costs of Rs 1.55 crore in allowable O&M expenditure for FY 2010-11.
Approved O&M Expenses
The Commission, in its Tariff Order for FY 2010-11, approved the total O&M expenditure for
FY 2010-11 as Rs. 381.03 Crore, which included the expenditure towards brand equity as Rs.
10.03 Crore. The actual brand equity expense allowed after Truing up for FY 2010-11 is Rs.
7.62 crore as against Rs. 10.03 crore considered by the Commission while approving the total
O&M expenditure for FY 2010-11 in Order dated September 8, 2010. As the brand equity
expense is a pass through element in the total O&M expenditure, the Commission has revised
the approved O&M expenditure based up on actual brand equity expenditure allowed after
Truing up for FY 2010-11.
Based on the approved Employee, A&G and R&M expenses for FY 2010-11 as mentioned in
above paragraphs, the Commission has approved the O&M expenses for FY 2010-11 as
shown in the Table below:
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Table: Approved O&M Expenses
(Rs Crore)
Particulars
FY 2010-11
O&M Expenses
Revised
Approved
O&M
Actuals
Allowed after
truing up
Employee Expenses
-
141.84
141.84
A&G Expenses(Including Brand Equity)
-
98.47
91.80
LCC cost
-
1.55
1.55
R&M Expenses
-
123.21
123.21
365.06
358.40
O&M approved in Tariff Order for FY 2010-11
381.03
Less: brand equity considered in Tariff Order
(10.03)
Add: brand equity allowed after truing up
7.62
Total O&M Expenses (Including Brand Equity)
378.61
5.1.7 Capital expenditure and capitalisation
The Commission has examined the capital expenditure and actual capitalisation claimed by
TPC-G as against the various capex schemes approved by the Commission. As against
approved capitalisation of Rs. 40.37 crore considered under its earlier Order dated September
8, 2010, actual capitalisation done by TPC-G during FY 2010-11 amounted to Rs. 102.57
Crore. TPC-G, in its Petition, submitted the breakup of the total capitalisation under DPR,
Non DPR, Merged DPR and HO&SS as follows:
Table: Breakup of Capitalisation for FY 2010-11 (Rs Crore)
Schemes
Carry Forward
New
Non DPR
DPR Merged DPR Total DPR
Total
37
4
20
24
61
8
1
22
23
31
HOSS Allocation
Total
HOSS
45
5
42
47
11
11
11
103
Further, TPC-G through its letter dated November 24, 2011, submitted that it had
inadvertently considered two schemes which fell under DPR schemes into Non DPR schemes.
These details of the schemes were submitted as follows:
(Rs. Crore)
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Capex Scheme
Approval
Scheme Value
Capitalisation
FY 2009-10
Capitalisation
FY 2010-11
Male Nallah Diversion Scheme
11.30
1.44
0.09
Replacement of U#5 HP FW heaters 5 & 6
12.85
5.67
5.63
7.11
5.72
Total
In view of this, the revised breakup of DPR capitalisation and Non-DPR capitalisation for FY
2010-11 as submitted by TPC-G is as follows:
Table: Revised Capital Expenditure for FY 2010-11 as submitted by TPC-G
Non
DPR
Capex as per submission in Petition
DPR
Merged
DPR
42.00
(Rs. Crore)
Total
DPR
45.00
4.84
46.84
Male Nallah Diversion Schemes
-0.09
0.09
0.09
Replacement of Unit# 5 HP Heater 5 & 6
-5.63
5.63
5.63
HOSS
Total
11
103
11
103
Add (In DPR)/Less (From Non DPR)
Merged DPR
0.07
-0.07
-0.07
41.93
52.49
HOSS Allocation
Total
39.35
10.56
In reply to the Commission’s query regarding additional capitalisation for HO & SS, TPC has
submitted that most of the additional capitalisation for HO & SS is meant for regulated
business and based on materiality concept, there may not be any need for further break-up
into regulated and non-regulated business.
The Commission further asked TPC to submit details of the assets capitalised under HO & SS
and whether the same was incurred for Mumbai LA operations.
The Commission observed that asset additions made for locations other than Mumbai LA
(Jojobera and Haldia) were included under ‘HO & SS’ asset additions, amounting to Rs. 60
Lakh. TPC clarified that although these assets are under the HO books they are not pertaining
to Mumbai LA. Thus, the Commission has not included these assets under additional
capitalisation for HO & SS.
The Commission asked TPC about Rs. 11.75 lakh shown as expense towards windmill
turbine along with solar panel 3.05KW. TPC replied that these windmill turbine/ solar panel
were initially capitalised in HO books and later transferred to XXXX division. The
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Commission has not considered the same under HO & SS as these assets do not pertain to
Mumbai LA.
TPC also submitted the details of vehicles procured for employees who are a part of Mumbai
LA summing to Rs. 49.60 lakh. The Commission has considered these assets relating to
Mumbai LA and approved the same.
Thus based on TPC’s reply, the Commission has classified additional capitalisation for HO &
SS in three groups as given below:
(a) Assets under HO & SS not approved by the Commission - These assets include
expenses relating to Jojobera and Haldia, and windmill turbine/ solar panel, for which
capitalisation has not been approved by the Commission as explained in the above
paras.
(b) Assets Identified for Mumbai License Area - The Commission has accepted TPC’s
submission relating vehicles of Mumbai LA employees capitalised under HO & SS.
(c) Balances capitalisation under HO & SS - For the remaining assets capitalised under
HO & SS, the Commission is of the view that HO & SS assets would be common and
used by all business segments. Moreover, the details of the assets added in HO & SS
include several computers, printers, mobile, etc., which are common assets and it will
not be appropriate to assume that these assets are exclusively meant for the use of the
regulated business. Hence, the Commission does not agree with TPC's rationale that
based on 'materiality concept', there may not be any need for further break-up into
regulated and non-regulated business. The Commission has allocated these HO & SS
assets in proportion of the GFA of regulated business (G, T & D) to Total Assets of
TPC, which is further allocated to G, T & D in ratio of GFA.
Table: HO & SS Capitalisation for FY 2010-11
Category
Capitalisation (Rs.)
Assets under HO & SS not approved by the Commission
Haldia
1228946
Jojobera
3240485
Vehicle
13591663
Wind & Solar
Total
1175150
19236244
Assets Identified for Mumbai License Area (allowed 100%)
Vehicle
4270228
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Category
Capitalisation (Rs.)
Total
4270228
Balances capitalisation under HO & SS (allowed 41.55%)
Other Expenses
149502721
Total
149502721
66383144
HO & SS Approved
Table: Approved HO & SS Capitalisation for FY 2010-11 (Rs.)
Particulars
TPC-G
HO & SS allocation
4,53,54,925
TPC-T
TPC-D
1,49,58,252 60,69,967
Accordingly, the HO & SS allocation considered by the Commission for Truing up for FY
2010-11 is Rs. 4.54 crore as against Rs. 10.73 crore submitted by TPC-G. These are included
under non-DPR schemes for the purpose of further analysis.
The Commission’s rationale for approving the capitalisation for FY 2010-11 in this Order is
discussed below:
d) The Commission has considered the actual capital expenditure and capitalisation of
the DPR schemes after scrutinising the data provided by TPC-G for FY 2010-11.
e) The Commission in the APR Order dated May 28, 2009 had issued a directive in
respect of Non-DPR Schemes, restricting the capitalisation of such schemes to 20% of
the capitalisation of DPR schemes during the year. The relevant extract of the Order is
reproduced as under.
“In view of the above, as a general rule, the Commission has decided that the
total capital expenditure and capitalisation on non-DPR schemes in any year
should not exceed 20% of that for DPR schemes during that year. To achieve
the purpose, the purported non-DPR schemes should be packaged into larger
schemes by combining similar or related non-DPR schemes together, so that the
in-principle approval of the Commission can be sought in accordance with the
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guidelines specified by the Commission and regulatory oversight can be
exercised while approving the capitalisation.” (Emphasis added)
f) The Commission observed that amount of capitalisation of Non-DPR Schemes as
submitted by TPC-G exceeds 20% of amount of capitalisation of DPR Schemes during
FY 2010-11. Hence, the Commission has considered capitalisation for Non-DPR
Schemes only to the extent of 20% of the approved capitalisation of DPR Schemes
during FY 2010-11.
TPC-G submitted that it has filed an appeal in the Hon’ble ATE against the disallowance
arising out of the principle adopted by the Commission regarding Non DPR schemes in the
Tariff Order. Not-withstanding the outcome of the appeal TPC-G has requested to approve the
entire capitalization for 2010-11.
The Commission is of the view that since the Judgment on the appeal is pending the approach
being adopted in line with the previous Order will be subject to the outcome of the said
appeal. Accordingly the Commission approves the total capitalisation for FY 2010-11 as
follows;
Table: Capitalisation approved by the Commission for FY 2010-11( Rs. Crore)
Particulars
TPC-G
Approved
DPR Schemes (Including Merged DPR schemes)
52.49
52.49
Non-DPR schemes (Including HO&SS) @20% of DPR
schemes
50.08
10.50
102.57
62.99
Total
5.1.8 Past De-Capitalisation
The Commission in its Order in Case No. 96 of 2009 dated 8th September 2010 in the matter
of ARR filing for FY 2010-11 had directed TPC-G as follows:
"Further, it should be noted that TPC-G, as well as other Utilities, have been proposing
asset replacement schemes with certain cost-benefit analysis, which have been approved
by the Commission in the past, and such replacement schemes have been implemented by
the Utilities. However, the impact of the replacement of the asset has not been clearly
shown by the Utilities in terms of reduction in GFA, outstanding loan, if any, accumulated
depreciation, as well as equity contribution, to the extent, the old asset that has been
replaced. This needs to be done, as the old asset is no longer part of the books of
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accounts, and all the related components that have a bearing on the tariff also need to be
modified correspondingly, since the new asset gets added to the asset base as well as
equity base in its entirety. Not deducting all these components of the replaced asset leads
to double-accounting of the assets and the related revenue expenses. Hence, the
Commission directs TPC-G to submit all the relevant details in this regard for all years
from FY 2005-06 onwards for the Commission to ensure that the impact of such asset
replacement is passed on in the desired manner to the consumers, and the same can be
considered by the Commission in the next Order"
As mentioned earlier, TPC-G has submitted the details of original cost of the assets which
have been replaced under ‘DPR schemes’ right from FY 2005-06 onwards. As TPC-G has
not submitted the exact date for de-capitalisation of these assets, the Commission, for giving
effect to the impact of de-capitalisation, has therefore considered it from the year such decapitalisation has been approved by the Commission. As discussed in Section 4, TPC-G
submitted that these assets are very old and have no outstanding loans against them; the
Commission has therefore, considered de-capitalisation of these assets from the equity base
of the year.
As per TPC-G’s submission the equity corresponding to de-capitalisation amount for FY
2010-11 is 0.95 Crore, the same has been deducted from the opening balance of the equity of
FY 2010-11. However, as directed in subsection 4.1.8, TPC-G should submit sufficient
justification as regards the discrepancy in terms of details of asset retirement as appearing in
Depreciation computation/formats and the details of de-capitalisation due to asset
replacement as submitted by TPC-G, for past years and for FY 2009-10 and FY 2010-11.
TPC-G also should submit additional impact on equity or loans for the respective years on
this account, if any. Such details have to be submitted by TPC-G as part of its Tariff/ARR
filings of the next year.
As regards the de-capitalisation of administrative assets such as Guest Houses, etc., the
Commission has given its detailed rationale in this regard in Section 4 of this Order and
accordingly, the same treatment has been done for FY 2010-11 also.
5.1.9 Depreciation
The Commission, in its Tariff Order dated September 8, 2010 in Case No. 96 of 2009 had
permitted depreciation to the extent of Rs. 71.81 crore for FY 2010-11. The depreciation rates
were considered as prescribed under the MERC Tariff Regulations, 2005. TPC-G, in its APR
Petition, submitted that the actual depreciation in FY 2010-11 was Rs. 78.92 Crore.
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TPC-G submitted that they have also considered the additional depreciation to the extent of
Rs. 7.7 crore (i.e., 12% of 64 crore) on account of the work carried out on Unit# 7 gas Turbine
in FY 2008-09 and requested the Commission to allow recovery of such depreciation. Further,
TPC-G in its additional submission, confirmed that depreciation has not been claimed beyond
90% of the asset value in accordance with the MERC Tariff Regulations.
As regards additional 12% depreciation with respect to refurbishment works carried out on
Unit# 7, the Commission is of the view that it already allows 6% depreciation rate for such
assets and there is no separate provision for higher depreciation rate under MERC Tariff
Regulations and therefore, the Commission has not considered any additional depreciation on
this account.
TPC-G, in its Petition, while considering the opening GFA for FY 2010-11 as Rs. 3306.39
crore has claimed the Depreciation expenditure for the year as Rs. 78.92 crore. The opening
GFA considered by TPC-G for FY 2010-11 is higher than the closing GFA for FY 2009-10 as
approved by the Commission. The Commission, for the purpose of Truing up has considered
the opening GFA of Rs. 3218.1 crore for FY 2010-11 based on closing GFA approved by the
Commission for FY 2009-10 in this Order. Further, the Commission has approved the
depreciation on the opening GFA for FY 2010-11 as well as on the assets added during the
year, subject to the actual capitalisation approved by the Commission for FY 2010-11, which
amounts to Rs. 67.74 crore.
The depreciation expenditure approved by the Commission in the Tariff Order, depreciation
claimed by TPC-G, and depreciation expenditure allowed after Truing up for FY 2010-11
have been summarised in the following Table:
Table: Depreciation
Particulars
Opening GFA
Asset Addition During the Year
Asset Retirement
Depreciation
(Rs. Crore)
Order dated
September 8,
2010
Apr-Mar
(Audited)
Allowed after
truing up
3168.75
3306.39
3218.1
40.37
102.57
62.99
---
(4.37)
(4.37)
71.81
78.92
67.74
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5.1.10 Interest on Debt
The Commission, in its Order dated September 8, 2010 in Case No. 96 of 2009 had approved
interest on debt of Rs. 45.33 crore for FY 2010-11.
TPC-G submitted that in addition to loans considered for financing the capitalisation from FY
2003-04 to FY 2009-10, it has taken new loans for (1) financing the capitalisation in FY
2010-11, (2) re-financing the normative loans taken in the previous years, and (3) refinancing
the IDBI- 2 loan at improved terms. The details of the new loans taken for funding the
capitalisation for FY 2010-11 are as given below:
IDBI-2 Loan (Refinancing of IDBI-2 Loan taken in FY 2009-10)
TPC submitted that it has re-financed a loan of Rs. 300 crore from IDBI to fund its current
capital expenditure on the following terms:
•
Tenor: 12 years
•
Repayment: The loan will be repayable in 47 quarterly instalments, commencing
from October 1, 2010
a) First 46 instalments of Rs 3.75 crore each ( 1.25% of loan amount) each;
b) 47th instalment of Rs 127.5 crore (42.5% of the loan amount)
•
Interest Rate: 10.75%; IDBI Bank Rate plus spread of 275 bps p.a. on the date of
each reset.
IDFC-2 Loan
TPC submitted that it has raised a loan of Rs 150 crore from IDFC for additional funding of
its capital expenditure on the following terms:
•
Tenor: 10 years
•
Repayment: First 36 instalments of Rs 1.875 crore and 37th to 40th instalments of
Rs. 20.625 Crore;
•
Interest Rate: IDFC 3 year benchmark rate plus 2%. For FY 2010-11, the interest
rate was 10.37%.
HDFC Loan
TPC submitted that it had raised a loan of Rs. 600 crore from HDFC to fund its current
capital expenditure and refinance the normative loans on the following terms. However, out
of the total sanctioned amount of Rs. 600 Crore, drawal in FY 2010-11 was to the extent of
Rs. 540.5 Crore. The terms of the Loan as submitted by TPC are as follows:
•
Tenor: 10 years
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•
Repayment: The loan shall be repayable in 40 quarterly instalments, commencing
from June 30, 2010 as under:
a) First 36 instalments, each of 1.25% of loan amount.
b) 37th to 40th instalment each of 13.75% of loan amount
•
Interest Rate: 10.95% for the first year; subsequent reset every 3 years from the
first disbursement to an interest rate linked to 5 year G-Sec +3.33% (average of
last 15 days prior to the reset date)
TPC submitted that loans have been allocated to different business areas (Generation,
Transmission, Distribution) based on the ratio of their Capitalisation for FY 2010-11 as
shown in the Table below:
Table: Financing of Capitalisation for FY 2010-11 as submitted by TPC
Particulars
Generation
Transmission
(Rs. Crore)
Distribution
Total
Debt for capitalisation in FY 2010-11
72
90
97
259
IDFC-2 Rs. 150 crore Loan
42
52
56
150
Balance loan to be financed
30
38
41
109
HDFC Bank Loan
30
38
41
109
Total HDFC Bank loan Available
541
Balance HDFC loan available
431
HDFC Loan Utilized for Unit#-8
Balance loan from HDFC available
6
425
TPC-G further submitted that the loans in addition to financing the capitalisation, have been
utilised for the re-financing of Normative Loans taken in the past. The normative loan has
been re-financed through the above remaining balance of the HDFC Loan and additional
ICICI Bank Loan. The details of the ICICI Bank Loan as submitted by TPC are as follows:
ICICI Bank Loan:
•
Tenor: 6 years
•
Repayment: The loan shall be repayable in 24 quarterly instalments commencing
from October 31, 2011 as under
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a) First 16 instalments, each of 5.17% of the loan amount.
b) Next 4 instalments, each of 3.33% of the loan amount.
c) 21st to 24th instalment, each would be 1% of the loan amount.
•
Interest Rate: 10% for the first year; subsequent reset every year from first
disbursement to an interest rate linked to ICICI Bank Base Rate +2.5%.
TPC, in its Petition, submitted the normative loan balance as on March 31, 2010 as shown in
Table below:
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Table: Financing of Normative Loan for FY 2010-11
Further, TPC submitted that IDBI-2 Loan has also been refinanced in FY 2010-11. The
quantum of the refinancing of IDBI-2 Loan in FY 2010-11 is Rs. 108 Crore. TPC-G
submitted that considering the above, the interest expenses for FY 2010-11 were Rs. 63 crore
as given in the Table below vis-à-vis Rs. 45.33 crore approved by the Commission.
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Table: Interest computation as submitted by TPC-G
TPC-G also submitted that the difference in the actual interest expenses vis-à-vis the approved
interest expenses is mainly on account of the difference in capitalisation considered by the
Commission for FY 2008-09 to FY 2010-11. TPC-G further requested the Commission to
approve the interest amount based on capitalisation figures submitted by TPC-G.
The Commission has gone through the submissions made by TPC-G and is of the view that
interest expenses should be allowed only on the loan corresponding to approved
capitalisation.
Further, as regards the refinancing of the normative loans as proposed by TPC, the
Commission is well aware that in the past, the entire capitalisation undertaken by TPC was
funded by its own funds (equity) and the Commission was considering the equity in excess of
30% of capital cost as normative loan (considering the normative Debt: Equity ratio as 70:30)
and allowing normative interest expense on the normative loan component. Only recently
(from FY 2006-07 onwards), TPC has started taking actual loans to part fund its
capitalisation. TPC has now proposed to refinance the 'normative loans' used for funding
capitalisation (from FY 2004-05 to FY 2008-09). In other words, TPC has proposed to
withdraw its own funds that have been used to fund capitalisation, but are in excess of the
30% equity ceiling.
Since, the normative loans were considered at lower interest rates and the actual interest rates
at present are higher, the refinancing of normative loans by actual loans has the effect of
increasing the interest expenses and hence, the ARR and tariff. Had the actual loans been
taken in the respective years for which such refinancing is proposed, the interest rates would
have been lower (same as that considered for the normative loans). However, since, the
refinancing is being proposed now, at a time when the interest rates are higher, the consumers
will be adversely affected by this transaction. TPC has also not submitted any justification for
this transaction. Further, there is no such provision in the MERC Tariff Regulations, 2005 for
refinancing of normative loans. In view of all the above, and keeping in mind the consumer
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interest and welfare, the Commission has not allowed the refinancing of the normative loans
proposed by TPC and thus, the corresponding part of HDFC Bank loan and ICICI Bank loans
have not been considered under the current Truing up exercise.
Further, as regards refinancing of the actual IDBI-2 Loan, the Commission in its Order dated
September 8, 2010 in Case No. 96 of 2009 has already approved the interest rate for FY 201011 for IDBI-2 loan as 10.75%, which is same as that proposed by TPC after refinancing of the
loan, and the same has been considered for computing the interest expenses for FY 2010-11.
However, as the new terms of repayment of refinanced IDBI-2 loan are in the interest of the
consumers, the Commission has allowed such refinancing of the actual IDBI-2 loan.
The Commission, for computation of interest on loan, has considered the closing balance of
loan as approved for FY 2009-10 as opening balance of loan for FY 2010-11 in addition to
loans approved for FY 2010-11, i.e., IDFC Loan -2 and HDFC Bank loan for additional
funding and has reworked interest expenses corresponding to approved capitalisation.
Accordingly, the loan drawal during FY 2010-11 works out to Rs. 111.22 crore as against
TPC-G’s submission of Rs. 534.77 Crore. The financing of these loans have been done as
follows:
Table: Refinancing of Loan and funding of capitalisation for FY 2010-11
Sr. No.
I
Particulars
(Rs Crore)
Allowed after truing up
Debt portion of expenditure on Capitalised Assets of FY
2010-11
44.09
II
Loans to be Refinanced in FY 2010-11
67.12
III
Total Loan Requirement (I+II)
IV
Loan Drawal during FY 2010-11
A.
IDFC-2 Loan
Capitalisation for FY 2010-11
B.
41.54
HDFC Loan
Funding of rest of capitalisation of FY 2010-11 after
accounting for loan from IDFC 2
Total funding for capitalisation for FY 2010-11
C.
111.22
2.55
44.09
IDBI 2 – Refinanced
Loan refinanced corresponding to capitalisation of FY 200910
67.12
Total Refinancing in FY 2010-11
67.12
Total Loan Drawal
111.22
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Further, for the interest on normative loan drawn in FY 2007-08, TPC has submitted interest
rate as 10%. However, the Commission has already determined the interest rate as 8.90% for
normative loan drawal in FY 2007-08 in the APR Order dated September 8, 2010 in Case No.
96 of 2009 and the same has been considered by the Commission for computation of interest.
Accordingly, the Commission has determined the interest expenses for FY 2010-11 and has
approved interest on loan as Rs. 49.62 crore as against Rs. 63.39 crore submitted by TPC-G.
The summary of loan and interest expenses approved by the Commission for FY 2010-11 is
given in the following table:
Table: Approved Interest Expenses for FY 2010-11 (Rs Crore)
Particulars
APR Order
Opening Balance of Loan
Loan Addition
Loan Repayment
Cl. Balance of Loan
Interest Expense
483.31
28.26
(41.32)
470.24
45.33
Actuals
590.10
534.77
(497.69)
627.18
63.39
Allowed after
truing up
514.69
111.22
(109.63)
516.27
49.62
5.1.11 Other Finance Charges
TPC-G has submitted that the actual other finance charges for FY 2010-11 were Rs. 0.57
crore as against nil approved by the Commission. The Commission has considered the actual
other finance charges of Rs 0.57 crore for Truing up for FY 2010-11.
5.1.12 Interest on Working capital
TPC-G submitted that the normative interest on working capital has been computed based on
the elements specified in MERC Tariff Regulations, 2005. TPC-G submitted that for the
purpose of estimating the interest on working capital for FY 2010-11, interest rate of 11.75%
had been considered based on the short term PLR of SBI prevailing at the time of filing of the
Tariff Petition for FY 2010-11 and as approved by the Commission in the Tariff Order for FY
2010-11 and as specified in MERC Tariff Regulations. TPC-G thus, submitted that total
interest on working capital requirement for FY 2010-11 was Rs. 92.43 crore as against Rs.
86.51 crore approved by the Commission in the Tariff Order.
TPC-G also submitted that it has claimed interest on working capital excluding two months of
receivables from sale of power to TPC-D and hence, it is appropriate to reduce the payables
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towards power purchase cost to the extent sold from TPC-G to TPC-D while estimating the
working capital requirement for TPC-D.
In response to the Commission’s query, regarding the usage of cash flows of TPC-G business
and or cash flows of any other business to meet the working capital requirement, TPC-G in its
reply stated its difficulty in computing the cash flow statements for the different businesses on
account of having a common balance sheet as well as common cash balance. Citing this
reason TPC-G has not provided the cash flow statement for computation of financing of
working capital. TPC-G further submitted that working capital is an item of balance sheet
while cash flow is worked out for a period of time such as one year. In other words, cash flow
statement can at most determine the cash that may be available to meet the change in the Net
working capital (i.e. current assets less current liability) and not for the working capital.
TPC-G also submitted the details of the actual interest paid for FY 2010-11 as shown in the
table below:
Table: details of actual Interest paid towards working capital as submitted by TPC (Rs
Crore)
Financial Year
FY 2010-11
TPC-G
TPC-T
3.18
TPC-D
Total
3.18
The Commission has estimated the normative working capital requirement and interest
thereof for FY 2010-11 based on the revised expenses approved in this Order after truing up.
However, interest on working capital is a controllable parameter as defined under the MERC
Tariff Regulations, and the Commission has therefore, computed the sharing of gains/losses
on the basis of normative working capital interest and the actual working capital interest
incurred, since this is a controllable parameter. The detailed rationale for such a treatment is
provided in Section 3 of this Order. Further, the MERC Tariff Regulations stipulate that rate
of Interest on Working Capital shall be considered on normative basis and shall be equal to
the short-term Prime Lending Rate of State Bank of India as on the date on which the
Application for determination of tariff is made. As the short-term PLR of State Bank of India
(SBI) at the time when TPC-G filed the Petition for tariff determination for FY 2010-11 was
11.75%, the Commission has considered the interest rate of 11.75% for estimating the
normative Interest on Working Capital, which works out to Rs. 89.76 Crore.
5.1.13 Return on equity (RoE)
TPC-G submitted that based on the capitalised expenditure; the Debt: Equity norm of 70:30
and after considering RoE of 14% in accordance with Regulation 34.1 of MERC Tariff
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Regulations, the RoE works out to Rs. 176.99 crore for FY 2010-11 as against the approved
amount of Rs. 170.55 Crore..
As discussed in the Section 5.1.8 above, for computation of Return on Equity the Commission
has reduced the opening equity for FY 2010-11 to the extent of assets de-capitalised under
replacement scheme by TPC-G, the details of which have been submitted by TPC-G through
letter dated July 22, 2011. Further, as discussed earlier, the de-capitalisation of the asset such
as guest houses approved in FY 2008-09 is being disallowed now, and the corresponding
Equity of Rs. 22.22 crore is re-instated in FY 2008-09, and the impact of the same on the
opening equity of FY 2009-10 and FY 2010-11 has been considered while computing the
return on equity for FY 2010-11.
Accordingly, the RoE as claimed by TPC-G and approved by the Commission for FY 201011 is summarised in the following table:
Table: Return on Equity
(Rs Crore)
FY 2010-11
Particulars
Tariff
Order
Regulatory Equity at the beginning of the year
Submitted
Allowed after
truing up
by TPC-G
1259.19
1264.25
1251.51
Equity Portion of the asset de-capitalised
-
-
(0.95)
Equity considered after de-capitalisation
1259.19
1264.25
1250.56
48.59
30.77
18.90
1307.78
1295.02
1269.45
170.55
176.99
175.08
Equity Portion of the capitalised expenditure
Regulatory Equity at the end of the year
Total Return on Regulatory Equity
5.1.14 Non Tariff Income
TPC-G submitted that the actual non-tariff income for FY 2010-11 was Rs. 17.26 Crore,
which is higher than the non-tariff income of Rs. 9.49 crore approved by the Commission.
TPC-G submitted that the Non Tariff Income comprised of the following elements:
•
Recurring Items
Rs. 6.13 Crore
•
Non-Recurring Items
Rs. 11.13 Crore
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The Commission observed that though the expenses pertaining to Corporate Treasury have
been allocated to Mumbai Licence Area (in the ratio of operating revenue of Mumbai Licence
Area (LA) to total operating revenue), the ‘gain on exchange’ amounting to Rs. 51.98 crore
for FY 2010-11 has not been allocated to Mumbai LA. The Commission is of the view that
since, the expenses related to Corporate Treasury function have been allocated to the
regulated business in Mumbai, the income earned from the Corporate Treasury function
should also be allocated to the regulated business in Mumbai in the same proportion. If this is
not done, it will amount to undue enrichment of the unregulated business of TPC, since the
consumers of the regulated business are bearing the costs, but are being deprived of the
benefits of the income earned from the Corporate Treasury function. Accordingly, the
Commission has allocated this gain from the Corporate Treasury function to Mumbai LA on
the basis of operating revenue of Mumbai LA to total operating revenue, and further allocated
the same to the regulated business of Generation, Transmission and Distribution on the basis
of operating revenue.
Table: Allocation of Gain on Exchange
Particulars
Total
Income
Allocated
Income to
other than
Mumbai
LA
Gain
on
exchange
51.98
15.07
(Rs. Crore)
Income
allocated to
Mumbai
LA
36.91
Generation Transmission Distribution
19.22
15.60
2.08
The Commission has further allocated the above mentioned gains to ‘Unit# 4 to 7 & Hydro’
and ‘Unit# 8’ on the basis of the actual non-tariff income reported by TPC-G, thus the share
for ‘Unit# 4 to 7 & Hydro’ and ‘Unit# 8’ for such gain comes as Rs. 17.67 crore and Rs. 1.55
crore respectively.
The Commission has added the gain from Corporate Treasury function in addition to the
actual non-tariff income reported by TPC-G under the Truing up exercise, as shown in the
table below:
Table: Non Tariff Income
Particulars
(Rs Crore)
Tariff
Order
Actual
Allowed after
truing up
Rents
5.64
Other/Miscellaneous receipts
1.22
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Particulars
Tariff
Order
Actual
Allowed after
truing up
Interest on contingency reserve
0.18
Delay Payment Charge
1.85
Interest on delayed payment
0.45
Interest on staff loans & Advances
0.42
Interest on advances to suppliers
0.07
Sale of Scrap
2.50
Income from Services Rendered
0.09
Profit/(Loss) On Sale / Retirement Of
Assets.
0.41
Liquidated Damages
0.22
VAT Refund
3.62
Interest on IT Refund
0.50
Liability Written Back
0.07
Total
9.49
17.26
34.92
5.1.15 Income Tax
The Maharashtra Electricity Regulatory Commission (Terms and Conditions of Tariff)
Regulations, 2005 provides as follows:“34.2 Income-tax
Income-tax on the income of the Generating Business of the Generating
Company shall be allowed for inclusion in the annual fixed charges:
Provided that any change in such income-tax liability on account of
assessment under the Income-tax Act, 1961, as certified by the statutory
auditors, shall be allowed to be adjusted each year in the annual fixed
charges:
Provided further that any change in such income-tax liability on account
of change in income of the Generating Business of the Generating
Company from the approved forecast shall be attributed to the same
controllable or uncontrollable factors as have resulted in the change in
income and shall be dealt with accordingly:
Provided further that the generating station-wise profit before tax as
estimated for a financial year in advance shall constitute the basis for the
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distribution of the corporate tax liability to all generating stations of a
Generating Company:
34.2.2The benefits of any income-tax holiday, credit for unabsorbed losses or
unabsorbed depreciation shall be taken into account in calculation of the
income-tax liability of the generating station of the Generating Company:
Provided that where such benefits cannot be directly attributed to a
generating station, they shall be allocated across the generating stations
of a Generating Company in the proportion of the generating station-wise
profit before tax.
The Petitioner is a company under the Companies Act and carries out several businesses
including G, T and D in an integrated manner. Allocation of tax liability to the regulated
businesses in Mumbai, viz., G, T and D, particularly the method of income tax calculations,
has in the past been a complex issue. The key issue was to arrive at the correct base.
Judgments of the Hon’ble Appellate Tribunal for Electricity (“APTEL”) –
(1) Appeal No. 173/2009 and 174/2009
Treatment of Income Tax came to be analysed in Appeal No. 173/2009 and 174/2009 before
Hon’ble APTEL In its judgement dated 15th February, 2011 in Appeal No. 173/2009,
Hon’ble APTEL examined the following issue:“Whether the State Commission is justified in computing the entitlement of income tax
to be recovered from the consumers considering the return on equity as the regulatory
profit before tax and disallowing tax on incentives on the ground that the expenses
incurred for achieving better performance has already been allowed?”
Hon’ble APTEL held as follows:“…the State Commission is directed to compute the income tax entitlement of the
Appellant by replacing Return on Equity by Regulatory Profit Before Tax i.e. income
less permissible expenses.”
Since, Hon’ble APTEL inter alia held that the actual income shall form the basis for
computation of income tax, hypothetical bases cannot be considered. Hon’ble APTEL has
discarded the theory of any treatment on notional basis. The Commission is of the view that
every base tried earlier, whether Normative ROE or hypothetical PBT was presumptive in
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nature and did not indisputably demonstrate the relation with actual tax liability. Normative
ROE was clearly not the only income that would constitute taxable profits of the licensees, it
would also include incentives etc. Further hypothetical PBT was by very nature hypothetical.
The income allocation and expense allocation has to be as per actual taxable incomes and
expenses calculated as per the Income Tax Act. The approach has to be actual taxable income
of regulated business minus actual sanctioned tax deductible expenses of regulated business
as directed by Hon. APTEL.
(2) Appeal No. 111/2008
Further, an issue was dealt with in Hon’ble APTEL’s judgment dated 28th May, 2009 in
Appeal no. 111/2008 in case of R-Infra which related to non-inclusion of PLF incentive in
regulated business segment in the taxable income and therefore non-inclusion of income tax
on the incentive on the ground that it would be a burden on consumers. Hon’ble APTEL
directed that the actual and factual income tax impact had to be considered and it was no case
that such actual impact would be a burden on the consumers.
(3) Appeal No. 251/2006
Furthermore, on issue raised before Hon’ble APTEL in Appeal No. 251/2006 in case of RInfra Hon’ble APTEL inter alia held in its judgment dated April 4, 2007 that “The consumers
in the licensee’s area must be kept in a water tight compartment from the risks of other
business of the licensee and the Income Tax payable thereon.
Under no circumstance,
consumers of the licensee should be made to bear the Income Tax accrued in other
businesses of the licensee. Income Tax assessment has to be made on stand alone basis for
the licensed business so that consumers are fully insulated and protected from the Income
Tax payable from other businesses.”
COMMISSION’S RULING:Taking into account the aforesaid judgments of the Hon’ble APTEL, the Commission is of
the opinion that Hon’ble APTEL has held that the base should be the factual tax liability and
there is no scope for presumptive disallowances / hypothetical calculations.
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At paragraph 14 of Hon’ble APTEL’s judgment dated 14th February 2011 in the matter of
TPC-T, Hon’ble APTEL has clarified inter alia as follows:“Thus the intent of the Regulations is that the actual income tax paid by the transmission
licensee in the business of transmission is included in the ARR and the licensee does not
gain or lose on account of income tax which is a pass through in tariff.”
Thus, principles have been laid down by Hon’ble APTEL on the subject.
Hence, it was incumbent upon the Commission to examine this issue in consultation with
professional consultants. Having so examined this subject matter, the Commission proposes to
adopt the actual tax computation statement of the Petitioners and supporting Returns of
Income filed i.e., the documentary evidence as submitted by them as the base for true-up
petitions. The segmental allocation of taxable income and tax thereon is being done on line by
line basis based on segmental allocation of income and expenses as approved.
The method is based in actual tax computation statement and segmental break up will be
always the one that is used for approval of tariff / plan. The weighted income tax deductions /
accelerated depreciation / income tax exemptions will be allocated to underlying segment to
which they pertain as is clearly mandated by regulation. Cross tally of every line item in the
computation of income statement is key demonstrative strength of methodology and would
preclude the unwarranted disputes on the issue.
Accordingly computation of income statement was sought from petitioners and income tax
reimbursement claim is sanctioned on the basis of the same. It was observed from
computation statement that in the year under consideration the petitioner was liable to pay
based on Minimum Alternate Tax (MAT) mechanism under the Income Tax Act, which is
higher than the normal tax on taxable income. In view of Hon’ble APTEL’s pronouncements
as aforesaid, this higher impact is being considered for sanctioning of the claim and this
higher tax impact under MAT which has been actually suffered by the petitioner is allocated
to various segments as per Annexure A hereto. In case of MAT the same is charged on the
book profits. Book Profits are always calculated as income minus expenses as per books and
accordingly book income minus book expenses of various regulated business segments have
been considered as base as per audited allocation statements submitted by Licensee. This
clearly is in conformity with the directives of Hon. APTEL which has directed income minus
expenses approach to be used vide its Judgment in case of Appeal No. 173/2009 as referred to
hereinabove. Further since the actual tax suffering in case of MAT happens on the basis of
book profits without any consideration to any other figures, the same base of book profits of
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the relevant regulated segment has to be adopted. Accordingly the allocation of book profit
statement was sought from Licensee duly audited by their auditors. This audited statement
submitted by Licensee themselves has been considered as for arriving at book profits
attributable to concerned regulated segment. As will be apparent from Annexure A; the MAT
tax has been calculated on all the segments in accordance with this audited statement
submitted by Licensee themselves. The total MAT liability of company is duly reconciled
with the total tax liability of all the segments taken together thereby the correctness of tax
calculations stands duly demonstrated. In short following the Hon. APTEL verdicts the actual
tax payment of Licensee has been allocated to various segments. Further in this case since the
tax suffering is on MAT; which is based solely on book profits irrespective of any other
considerations, the same base of book profits on which Licensee has actually paid the tax has
been used to ensure that base remains the same base on which the Licensee has actually
suffered the tax.
As would be apparent from the Annexure B; the tax allocable to segment under consideration
of this order is Rs. 57.81 crore which is being sanctioned against the claim of Rs. 109 crore
under this petition. Further the MAT paid is not actual expenditure because credit of such tax
paid is available to Licensee in subsequent years. Needless to add that the credit of this tax
paid under MAT mechanism as permissible to be taken by the petitioner in the subsequent
years under the provisions of the Income Tax Act, 1961 will be adjusted on proportionate
basis of allowance made by this order, in subsequent year/s in which the petitioner actually
takes such credit at total company level.
5.1.16 Revenue from sale of power
TPC-G, in its Petition, has submitted the details of revenue from sale of power to the three
Distribution Licensees of Mumbai Region, viz., TPC-D, BEST and RInfra-D, under various
heads like fixed charge, energy charge, hydro rebate, etc., as shown in the Table below:
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Revenue from Sale of Power for FY 2010-11 as submitted by TPC-G
Sr. no. Particulars
Unit
BEST
R-Infra
TPC-D
Others
(MSEDCL
+ TPTCL)
Total
1
Fixed Charge
Rs. crore
283
79
180
542
2
Incentive
Rs. crore
13.72
3.92
8.73
26
3
Hydro Rebate
Rs. crore
(38)
(11)
(24)
(73)
4
Energy Rate
Rs./kWh
2.90
2.86
2.91
4.57
13
5
Energy Sold
MU
4343
1273
2741
258
8616
6
Energy Charge
Rs. crore
1259
364
798
118
2538
7
Cash
Discount
/
Settlement
of
previous issues
Rs. crore
(20)
8
Total = 1+2+3+6+7
Rs. crore
1497
(20)
436
963
118
3014
TPC-G has sold some power outside Mumbai License area (i.e., to MSEDCL and TPTCL). In
reply to the query asked by the Commission regarding the revenue earned from such sale,
TPC-G submitted that any revenue that arises from sale of power from TPC-G Mumbai
License area needs to be returned to the distribution licensees, therefore, it has accounted for
the revenue from such sale under the total revenue of TPC-G for Mumbai License area.
Hence, based on the details of the revenue submitted by TPC-G, the Commission has
considered the total revenue from sale of power during FY 2010-11 to BEST, RInfra-D, TPCD and Others as Rs. 1497 Crore, Rs. 436 Crore, Rs 963 crore and Rs. 118 Crore, respectively,
and the total revenue as Rs. 3014 crore.
5.1.17 Incentive on PLF and Capacity Index
TPC-G, in its Petition, submitted that the MERC Tariff Regulations permit incentive for
thermal generation higher than PLF of 80% and on capacity index higher than 85% for hydro
plants. TPC-G submitted that the incentive due to TPC-G for FY 2010-11 works out to Rs
26.62 Crore. The incentive computations submitted by TPC-G for thermal and hydro stations
are given in the following Tables:
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Table: Incentive Computations for thermal Units as submitted by TPC-G
Unit
Net Generation
considering
Normative
Auxiliary
consumption (MU)
Net Generation
at 80% PLF
(MU)
Energy
eligible
for
incentive
(MU)
Rate of
Incentive
(Rs./kWh)
Incentive
(Rs. crore)
Unit# 4
110.8
967.1
-
0.25
-
Unit# 5
3461.5
3311.3
147.7
0.25
3.69
Unit# 6
2188.9
3381.4
-
0.25
-
Unit# 7
1525.6
1226.8
294.0
0.25
7.35
Total
7286.9
8886.5
441.7
11.04
Table: Incentive Computations for hydro stations as submitted by TPC-G
Station
Actual
Capacity
Index - CIA
(%)
Normative
Capacity Index
– CIN (%)
Diff. in Cap.
Index eligible for
incentive (%)
Khopoli
98.68%
85.00%
13.68%
67.78
6.02
Bhivpuri
95.22%
85.00%
10.22%
50.74
3.37
Bhira
98.05%
85.00%
13.05%
72.84
6.17
191.36
15.58
Total
AFC as
approved
(Rs Crore)
Incentive (Rs
Crore)
The Commission has gone through the submissions made by TPC-G for incentives on account
of higher PLF. The Commission observed that TPC-G in the year has claimed incentives
corresponding to the percentage of energy that it has sold to Mumbai Distribution Licensees.
However, the percentage of energy sold considered by TPC-G is not correct.
The Commission has recomputed energy eligible for incentive purpose by deducting sale of
power from Unit# 4 (104.27 MU) to outside Mumbai licensee area from the total sales of
257.99 MU outside Mumbai licensee area. The Commission has apportioned the total eligible
incentive on the basis of net energy supplied to Mumbai licensee area and outside Mumbai
licensee area after deducting the energy supplied from Unit#-4.
The following Tables show the incentive allowed on this account to TPC-G:
Page 184 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Incentive to be disallowed for thermal Units
Particulars
Total Energy Supplied to Outside Mumbai
Licensee Area
Units
FY 2010-11
MU
257.99
MU
104.28
MU
153.71
Total Incentive on Gross Generation
Rs Crore
11.23
Incentive to be disallowed
Rs Crore
0.240
Energy supplied from Unit# 4 to outside
Mumbai licensee area
Energy supplied by Unit# 5 to 7
Table: Incentive Computations for thermal Units as approved by the Commission
Net
Generation
considering
normative
Aux.
Consumption
(MU)
Net
Generatio
n at 80%
PLF (MU)
Energy
eligible for
incentive
(MU)
Unit# 4
106.18
926.73
-
0.25
-
Unit# 5
3461.49
3311.28
150.21
0.25
3.76
Unit# 6
2188.98
3381.36
-
0.25
-
Unit# 7
1525.65
1226.75
298.90
0.25
7.47
7,282
8,846.12
449.11
-
11.23
Unit
Total
Incentive
corresponding to
energy sold outside
Mumbai License
area
Total Incentive
Allowed
Rate of
Incentive
(Rs/kWh)
Incentive
(Rs. crore)
0.24
10.99
Further, the Commission has observed that the computations submitted by TPC-G in the
Petition for incentive on account of higher capacity index are correct. Accordingly, the
Page 185 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Commission approves the incentive on account on higher PLF for thermal generating stations
and higher capacity index for hydro stations as Rs 10.99 crore and Rs 15.58 Crore,
respectively.
5.1.18 Incentive due to higher generation from hydro stations during peak hours
As regards the incentive due to higher generation from hydro stations during peak hours,
TPC-G submitted that the Commission’s APR Order dated April 2, 2008 with regards to
generation during peak period from hydro stations, stipulates as follows:
“However, there is need to provide some incentive to Generating Companies and
Distribution Licensees to optimise the hydel generation during peak hours. The
Commission allows 5% of excess recovery of revenue from hydel stations on account
of higher generation during peak hours to be shared between Generating Company
and Distribution Licensees in proportion of 50:50. The share of the distribution
licensees in the additional excess recovery in case the actual hydel generation during
peak hours is higher than the target specified, will be shared by the Distribution
Licensees in proportion to their share of generation capacity of TPC-G.”
Accordingly, TPC-G submitted that the incentive amount on account of the above works out
as shown in the Table below.
Table: Incentive due to higher generation from Hydro stations submitted by TPC-G
Particulars
Basis
Units
Peak
Period
Off-Peak
Period
Total
Rate
a
Rs./kWh
2.00
1.65
Actual Generation
b
MU
659
651
1310
Revenue Earned by Hydel Generation
c=a*b/10
Rs. crore
132
107
239
AFC of the year
d
Rs. crore
191
Excess revenue
e=c-d
Rs. crore
48
5% of Excess revenue
f = 5% * e
Rs. crore
2.40
TPC-G share of excess revenue
50%*e
Rs. crore
1.20
The Commission has gone through the submissions made by TPC-G and observed that TPCG has considered gross generation for computation of the incentives, instead on net
Page 186 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
generation. The Commission has accordingly computed incentive on the basis of net
generation of 1303 MU instead of 1310 MU. The Commission has proportionately reduced
generation during peak and non peak hours and has re-computed the incentive Rs. 1.17 crore
as against Rs. 1.20 crore as shown in the Table below.
Table: Incentive due to higher generation from Hydro stations approved by Commission
Particulars
Basis
Units
Approved
Peak
Period
Off-Peak
Period
Total
Rate
a
Rs./kWh
2.00
1.65
Actual Generation
b
MU
655.3
647.4
1303
c=a*b/10
Rs. Crore
131
107
238
Revenue
Earned
Generation
by
Hydel
AFC Approved in Order dated
September 8, 2010
d
Rs. Crore
191
Excess Revenue
e=c-d
Rs. Crore
47
5% of excess revenue
f=5%*e
Rs. Crore
2.35
TPC-G share of excess Revenue
g=50%*f
Rs. Crore
1.17
5.1.19 Sharing of gains and losses for FY 2010-11
TPC-G categorised the various heads of expenditure as controllable and uncontrollable and
computed the gains and losses for the controllable expenditure and shared the same with the
consumers in accordance with the MERC Tariff Regulations. The Commission has considered
the various expenses for computing the sharing of gains/losses in accordance with the MERC
Tariff Regulations, as elaborated below.
Fuel Cost and reduction in auxiliary consumption
TPC-G submitted that the changes in fuel cost due to operational parameters of the generation
Units would be considered as controllable. For Unit#-5, TPC-G computed the fuel cost based
on the approved operational norms of Heat Rate, while for Unit#-4, Unit#-6 and Unit#-7,
TPC-G computed the fuel cost based on actual Heat Rate.
Page 187 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
The total efficiency loss due to variation in SHR as estimated by TPC-G works out to Rs. 13
crore, which has been shared with the Distribution Licensees to the extent of Rs. 4 crore (onethird). The summary of the efficiency losses on account of fuel cost as proposed by TPC-G
has been shown in the Table below
Table: Gain/(loss) due to variation in fuel cost as proposed by TPC-G (Rs Crore)
Particulars
FHC &
Total Fuel
Unit# 4 Unit# 5 Unit# 6 Unit# 7 Other
Cost
adjustment
Basis
Fuel Cost (Rs. crore)
a
50
939
1102
252
Actual heat rate
b
2763
2613
2559
1973
Normative heat rate
c
2763
2577
2559
1973
50
926
1102
252
2330
-
(13)
-
-
(13)
-
(4)
-
-
(4)
Fuel
Cost
applying
Normative Gross heat rate
(Rs. Crore)
d=c/b*a
Net Gains/ (Loss)
Crore)
e=d-a
(Rs.
Passed on to the Dist.
Licenses
j=1/3xe
2343
In addition to the variation in the Heat Rate, TPC-G submitted that there are variations in the
actual auxiliary consumption of the Units vis-à-vis the approved parameters. TPC-G
submitted that it has considered the norms as approved by the Commission except for Unit# 4
and Unit# 6 where the actual auxiliary consumption has been taken as normative auxiliary
consumption. The summary of the efficiency gain on account of auxiliary consumption as
proposed by TPC-G has been shown in the Table below:
Table: Gain and loss due to variation in Aux. Consumption as proposed by TPC-G (Rs
Crore)
Particulars
Formula
Units
Gross Generation
1
MU
Actual Aux Cons
2
%
Unit# 4
Unit# 5
Unit# 6 Unit# 7 Hydro
120
3663
2268
1569
1310
12.13%
4.63%
4.05%
2.14%
0.55%
Page 188 of 234
Total
Case No. 105 of 2011
Particulars
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Formula
Units
Actual Aux Cons
3=1*2
MU
15
170
92
33
7
Actual Net
Generation
4=1-3
MU
106
3493
2177
1535
1303
12.13%
5.50%
4.05%
2.75%
0.5%
MU
15
201
92
43
7
MU
106
3461
2177
1526
1304
MU
0.00
31.73
0.00
9.65
-0.62
Normative Aux
Cons.
5
Normative Aux
Cons.
6=1*5
Normative Net
Generation
7=1-6
Diff in Net
Generation
8=4-7
%
Unit# 4
Unit# 5
Unit# 6 Unit# 7 Hydro
T.O Fixed Cost
9
Rs Crore
T.O Variable Cost
10
Rs Crore
105
769
1957
208
T.O Gross
Generation
11
MU
143
3504
3504
1261
1450
T.O Net
Generation
12=11*5
MU
132
3311
3381
1226
1443
Rs./kWh
8
2
6
2
1
Rs Crore
0.00
7.37
0.00
1.64
-0.08
T.O Rate
Auxiliary
Consumption Gain
Passed on to the
Dist. Licensee
13=10/12*10(f
or thermal) or
13=9/12*10
(for Hydro)
14=13*8
15=1/3*14
Total
53
191
Rs Crore
8.93
3
# T.O= APR Order for FY 2009-10
As discussed in the above sub-section, for computing the efficiency gain/loss, the
Commission has considered the heat rate for Unit# 4 and Unit# 6 as approved in this Order,
and the normative heat rate for Unit# 5 and Unit# 7 as approved in Order in Case No. 96 of
2009. Accordingly, the Commission has considered the total efficiency loss on account of fuel
cost approved by the Commission, which works out to Rs. 20.42 Crore, one-third of which
Page 189 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
has been passed on to the Distribution Licensees. The summary of the efficiency gain/(loss)
on account of fuel cost as approved by the Commission has been shown in the Table below
Table: Gain and (loss) due to variation in fuel cost as approved by the Commission (Rs
Crore)
Particulars
Unit#
4
Unit#
5
Unit# 6
Unit#
7
FHC &
other
Adjustment
Total
Fuel
Cost
Fuel Cost (Rs. Crore)
a
50.02
938.66
1102.13
252.11
Actual heat rate
b
2763
2613
2559
1973
Normative heat rate
c
2763
2577
2543
1971
Fuel Cost applying Normative
Gross Heat Rate
d=c/b*a
50.02
925.56
1095.04
251.87
2322.50
Net Gains/ (Loss) (Rs. Crore)
0.00
-13.09
-7.08
-0.24
-20.42
0.00
-4.36
-2.36
-0.08
-6.81
e=d-a
Passed on to the Distribution
Licenses
f=1/3x e
2342.91
The Commission has considered the benefit of reduction in auxiliary consumption in terms of
sharing of efficiency gains. Therefore, the Commission has estimated revenue from energy
charge from sale of additional power on account of reduction in auxiliary consumption, at Rs.
1.64 Crore. In accordance with the MERC Tariff Regulations, one third of the gain has to pass
on to Distribution Licensees and two thirds of such gain has been allowed to be retained by
TPC-G. The summary of the efficiency gain on account of auxiliary consumption approved by
the Commission has been shown in the Table below:
Table: Gain and loss due to variation in Aux. Consumption approved by Commission (Rs
Crore)
Particular
Unit
Unit#-4
Unit#-5
Unit#-6
Unit#-7
Hydel
Rate of Energy Charges- Rs./kWh 8.01
as approved in the APR
Order for FY 2009-10
2.32
5.79
1.69
1.33
Additional Sales due to MU
better
Auxiliary
31.73
-12.40
9.65
0.62
-0.35
Total
29.25
Page 190 of 234
Case No. 105 of 2011
Particular
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Unit
Unit#-4
Unit#-5
Unit#-6
Unit#-7
Hydel
Total
7.37
-7.18
1.63
0.08
1.64
Consumption
Additional Revenue due Rs Crore -0.28
to
better
Auxiliary
Consumption
Passed on to Distribution Rs crore
Licensee
0.55
Accordingly, the net efficiency loss on account of fuel cost approved by the Commission and
on account of additional revenue due to reduced auxiliary consumption works out to Rs 18.78
crore, as against the estimate of Rs. 4 crore by TPC-G.
Gains and Loss on account of Operation & Maintenance Expenses
TPC-G submitted that the actual O&M expenditure in FY 2010-11 was lower as compared to
the O&M expenditure approved by the Commission. TPC-G requested the Commission to
accept the treatment of gains arising from lower expenditure on O&M as submitted by it as
shown in the following table:
Table: Gain/Losses on account of O&M Expenditure as submitted by TPC-G
Sr. No.
Particulars
Rs. crore
1
Approved O&M expenditure for FY 2010-11 (including allocation
of LCC Expenditure and brand equity)
381
2
Actual O&M Expenditure
365
3
Uncontrollable expenditure
4
Actual without Uncontrollable Expenditure (2)-(3)
5
Amount passed on to the Distribution Licensees (1/3rd of Gain/Loss)
(1/3rd * (1) – (4))
6
Amount allowed to be retained by TPC-G
7
Net Entitlement (3)+(4)+(6)
365
5
11
376
Page 191 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Based upon the O&M Expenditure allowed by the Commission and the approved O&M
Expenditure for FY 2010-11 the Commission has recomputed the gains arising from lower
O&M Expenses as shown in the Table below:
Table: Gains and Loss on account of Operation & Maintenance Expenses as approved by
the Commission
Sr. No.
Particulars
Rs. Crore
1
Approved O&M expenditure for FY 2010-11 (including allocation
of LCC Expenditure and Brand Equity)
2
Less: brand equity considered in Tariff Order
3
Add: brand equity allowed after truing up
4
Revised approved O&M expenditure (1)-(2)+(3)
378.61
5
Actual O&M Expenditure
365.06
6
Allowed after truing up
358.40
7
Net Gains/ (Loss) (4)-(6)
8
Amount passed on to the Distribution Licensees (1/3rd of Gain/Loss)
(1/3rd * (7))
9
Amount allowed to be retained by TPC-G (7)-(8)
10
Net Entitlement (4)-(8)
381.03
10.03
7.62
20.22
6.74
13.48
371.87
Interest on Working Capital
As discussed in the earlier paragraphs, TPC-G claimed interest on working capital of Rs
92.43 crore during FY 2010-11 and the normative interest on working capital approved by
the Commission considering other elements of expenses as approved after truing up, works
out to Rs 89.76 crore. As discussed in Section 3 of this Order, TPC-G has been unable to
provide the cash flow statements for different businesses on account of common balance
sheet and common cash balance. However, TPC-G in its reply dated August 22, 2011 to the
Commission’s query has submitted the actual interest on working capital for TPC-G for FY
2010-11 as Rs. 3.18 crore. Hence, actual interest on working capital is considered as Rs 3.18
crore. The details of actual interest paid by TPC-G are given in the following table:
Page 192 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Details of Actual Interest Paid
(Rs. Crore)
Hence, the Commission has considered Rs. 89.76 crore as normative interest on working
capital, with actual working capital interest being Rs.3.18 crore, and has considered sharing of
1/3rd of the difference between the two, i.e., Rs. 28.86 crore, as the efficiency gains with the
Distribution Licensee, while 2/3rd of efficiency gains, i.e., Rs.57.72 crore is to be retained by
TPC-G, in accordance with the MERC Tariff Regulations.
5.1.20 Gap/(Surplus) for FY 2010-11 based on Truing up and sharing of efficiency
gain/(losses)
Based on the Truing up of various elements of expenses and revenue and TPC-G’s share of
efficiency gains/(losses), the Commission has estimated the total deficit as Rs. 80.65 crore as
against the deficit of Rs. 223 crore estimated by TPC-G for FY 2010-11. The summary of the
net ARR and efficiency gains/(losses) approved by the Commission for FY 2010-11 is given
in the following Table:
Page 193 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Summary of Truing up for FY 2010-11 including sharing of Efficiency gains/(losses) (Rs Crore)
FY 2010-11
Order
S.No.
A
Actual/Normativ
e
Approved
After
Truing-up
Entitlement as per
Regulations/Order
Particulars
Expenditure
1 Fuel Related Expenses
2
2.1
Operation
Expenses
&
2,342.91
2,342.91
2,322.50
(6.81)
2,329.30
381.02
365.06
358.40
378.61
6.74
371.87
141.84
141.84
-
98.47
91.80
-
123.21
123.21
1.55
1.55
71.81
78.92
67.74
67.74
45.33
63.39
49.62
49.62
-
49.62
86.51
3.18
3.18
89.76
28.86
60.90
0.00
0.57
0.57
0.57
-
0.57
Maintenance
Employee Expenses
Administration & General
Expenses
Repair & Maintenance
2.3
Expenses
Allocation of LCC cost
Depreciation,
including
3
advance against depreciation
Interest on Long-term Loan
4
Capital
Interest on Working Capital
5
6
Net Entitlement
3,040
2.2
2.4
Efficiency
Gain/(Loss)
shared with
Distribution
Licensees
67.74
Other Finance Charges
Page 194 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
FY 2010-11
Actual/Normativ
e
Order
S.No.
7
B
Return on Equity
C
Incentive for Higher PLF,
CI &
Peak hour
Generation
Less: Fixed charge on
account of sharing facilities
by 150 MW of Unit# 8
Additional Revenue due to
Reduced Aux Consumption
Total including expenditure
+RoE +Incentive
Revenue
Revenue from sale of
electricity
F
1
2
Efficiency
Gain/(Loss)
shared with
Distribution
Licensees
Net Entitlement
-
Total Expenditure
E
Entitlement as per
Regulations/Order
Particulars
Other Expenses
8 Income Tax
D
Approved
After
Truing-up
24.48
109.38
57.81
57.81
3,649.33
2,963.42
2,880.23
2,966.61
170.55
176.99
175.08
175.08
175.08
27.57
27.74
27.74
27.74
12.50
12.50
12.50
12.50
1.64
1.64
3,155.48
3,072.18
3,158.57
3,129.23
3,013.65
3,013.65
3,013.65
3,013.65
17.26
34.92
34.92
34.92
12.50
3,807.38
57.81
28.79
0.55
2,937.82
1.09
Non-tariff Income
Page 195 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
FY 2010-11
Order
S.No.
G
H
Particulars
Total Revenue
Revenue Gap/(surplus)
Actual/Normativ
e
3,030.91
Approved
After
Truing-up
3,048.57
Entitlement as per
Regulations/Order
3,048.57
Efficiency
Gain/(Loss)
shared with
Distribution
Licensees
Net Entitlement
3,048.57
80.65
Page 196 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
5.2 PERFORMANCE OF UNIT# 8
5.2.1 Gross generation and net generation
TPC-G submitted that the actual gross generation achieved by Unit#-8 during FY
2010-11 was 1256 MU at a PLF of 96%, which was higher than the normative PLF of
80%. TPC-G also submitted that this will entitle TPC-G to earn the incentive for
generation above 80%. TPC-G submitted that for FY 2010-11, the quantum of net
generation of the Unit# 8 was 1171 MU, which is also higher as compared to the net
generation of 952 MU for FY 2009-10.
TPC-G further submitted that the availability of Unit# 8 for FY 2010-11 was 93.89%,
which is more than the normative availability of 80 %.
The Commission, while Truing up for Unit# 8 (150 MW) has considered the actual
gross generation and availability submitted by TPC-G as shown in the Table below.
Table: Approved Gross Generation and Availability for Unit# 8 (150 MW)
Particular
Gross Generation
Availability
Approved after
truing up
1256 MU
93.89%
5.2.2 Auxiliary Consumption
TPC-G submitted that the Commission, in its Order dated September 8, 2010, in line
with the MERC Tariff Regulations and after including (estimated) Auxiliary
Consumption for FGD at 1% had approved the normative auxiliary consumption of
9.5% for FY 2010-11. However, the actual auxiliary consumption was lower at 6.71%
for FY 2010-11. TPC-G also submitted that the actual auxiliary consumption of 84.26
MU for Unit# 8 included consumption to the extent of 0.418 MU for running the
FGD. Hence, the Auxiliary Consumption without the running of FGD works out to
83.84 MU, i.e., 6.68% of the Gross Generation.
The Commission has considered the normative auxiliary consumption of Unit# 8 for
FY 2010-11, without FGD as 8.5% and with FGD as 9.5%, in the Truing up process.
Page 197 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Auxiliary Consumption for Unit# 8 (150 MW)
Particular
Normative Actual
Approved after
truing up
Aux. Consumption
excluding
FGD
consumption
8.5%
6.68%
8.5%
Aux. Consumption
with
FGD
consumption
9.5%
6.71%
9.5%
5.2.3 Heat Rate
TPC-G submitted that the actual heat rate for Unit# 8 for FY 2010-11 was 2386
kcal/kWh, which is lower than the normative heat rate of 2500 kcal/kWh approved by
the Commission. For truing up, the Commission has therefore, allowed the actual heat
rate of 2386 kcal/kWh as submitted by TPC-G.
Table: heat rate for Unit# 8(150 MW) FY 2010-11
Particular
Heat
Rate
kcal/kWh
Normative
2500
Actual
2386
Approved after
truing up
2500
5.2.4 Fuel Price and Calorific Value
TPC-G submitted that for Unit# 8, Coal and Oil were procured at Rs 4642/MT and Rs
32617/MT, respectively.
The variation in fuel price and calorific value of fuel during FY 2010-11 has been
considered as part of Fuel Adjustment Cost (FAC) and has already been passed
through to the consumers on a monthly basis under the FAC charge mechanism. For
the purpose of Truing up of fuel costs (variable cost of generation) for FY 2010-11,
the Commission has considered the actual fuel costs and calorific value as given in the
Table below:
Page 198 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Fuel Price and Calorific Value for Unit# 8(150 MW) FY 2010-11
Particulars
Unit
Actuals
Allowed after
Truing up
A. Fuel Price
Coal
(Rs/MT)
4642
4642
LSHS
(Rs/MT)
32617
32617
Coal
(kcal/kg)
4989
4989
LSHS
(kcal/kg)
10481
10481
B. Calorific Value
5.2.5 Fuel Cost
TPC- G, in its Petition, has submitted that the total fuel cost for FY 2010-11 was Rs.
282.39 crore as compared to actual fuel cost of Rs. 251.70 crore for FY 2009-10.
The Commission, in its Order in Case No. 96 of 2009 has approved the secondary fuel
oil consumption for Unit# 8 as 2 ml/kWh for FY 2010-11. The Commission has
considered the same norms while Truing up for FY 2010-11 and has approved the
normative secondary fuel oil consumption of 2 ml/kWh for FY 2010-11.
Based on the normative Heat Rate, normative secondary fuel oil consumption, fuel
prices and fuel calorific value as discussed in above paragraphs, the total fuel costs for
FY 2010-11 is summarised in the Table below:
Table: Fuel cost of Unit# 8(150 MW) for FY 2010-11 (Rs. Crore)
Particular
Actual
Unit# 8
Normative allowed
after truing up
282.39
297.21
5.2.6 O&M expenses
TPC-G submitted that the actual O&M Expenditure for Unit# 8 (for entire 250 MW
capacity) for FY 2010-11 was Rs. 12.16 crore, as compared to Rs. 33.86 crore
approved in the Order in Case no. 96 of 2009. The proportionate actual O&M
Page 199 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Expenditure for 150 MW capacity was Rs. 7.30 crore as compared to Rs. 20.32 crore
approved by the Commission. The various components of O&M Expenses are
elaborated below:
5.2.6.1 Employee expenses
TPC-G submitted that for the 150 MW Unit# 8, the actual employee expenses for FY
2010-11 were Rs. 0.19 Crore. The Commission has analysed the actual employee
expenses for FY 2010-11 under various sub-heads and based upon the same has
allowed the actual employee expenses under the Truing up process.
5.2.6.2 A&G expenses
TPC-G submitted that for the 150 MW Unit# 8, the actual A&G expenses for FY
2010-11 were Rs. 1.95 crore. The Commission has analysed the expenses under this
head and has allowed the actual A&G Expenses of Rs. 1.95 crore for FY 2010-11
under the Truing up process.
5.2.6.3 R&M expenses
TPC-G submitted that for the 150 MW Unit# 8, the actual R&M expenses for FY
2010-11 were Rs. 5.16 crore. The Commission has analysed actual R&M expenses for
FY 2010-11 under various subheads and based upon the same has allowed the actual
R&M Expenses under the Truing up process.
O&M expenses
TPC-G has also requested to consider the inflation rates same as considered for
MSPGCL Parli Unit# 6 and Paras Unit# 3 for arriving at the normative O&M
expenditure for FY 2010-11. TPC-G submitted that accordingly, the approved quantum
would then stand revised to Rs 35.45 crore as shown in the table below:
Table: Normative O&M Expenses as submitted by TPC-G
Particulars
Units
FY 2005-06
FY 2006-07 FY 2007-08 FY 2008-09 FY 2009-10 FY 2010-11
Inflation
Rate
%
0%
4%
5.38%
5.38%
6.04%
7.00%
O&M Norm Rs
10.82
lakh/MW
11.25
11.86
12.50
13.25
14.18
O&M Norm Rs. Crore 27.05
28.13
29.65
31.24
33.13
35.45
As regards the escalation rates used for projecting the normative O&M expenses, the
Commission while approving the O&M expenses for Parli Unit# 6 and Paras Unit# 3
Page 200 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
has considered an escalation rate of 4% till the year of commissioning and thereafter,
the Commission has escalated it as per the prevalent CPI and WPI index. Therefore,
TPC-G's claim of higher escalation rate from FY 2007-08 is not correct. The
Commission has therefore, recomputed the normative O&M expenses considering 4%
escalation rate till FY 2008-09 and then escalation rate of 6.04% and 7.02% for FY
2009-10 and FY 2010-11, respectively. Accordingly, the Commission approves O&M
expenses of Rs 34.53 crore for FY 2010-11 as against approved value of Rs 33.86
Crore.
Based on the approved employee, A&G and R&M expenses for FY 2010-11 as
mentioned above, the Commission has approved the O&M expenses for FY 2010-11
as shown in the table below:
Table: O&M Expenses for Unit# 8 (150 MW)
Particulars
Tariff Order
Revised
(Rs. Crore)
Actual
Allowed after
Normative O&M
Expenses
truing up
Employee
Expenses
0.19
0.19
A&G Expenses
1.95
1.95
R&M Expenses
20.32
20.718
5.16
5.16
Total
O&M
Expenses
20.32
20.718
7.30
7.30
5.2.7 Capital expenditure and capitalization
In its Petition, TPC-G has submitted that the actual capitalisation for 250 MW Unit# 8
for FY 2010-11 is Rs. 8.58 Crore. TPC-G also submitted that the capitalisation in FY
2010-11 under Unit# 8 includes schemes towards
i)
ii)
Procurement of insurance spares.
Modification of CW Pump system for Unit# 8.
The Commission, in its data gaps, asked TPC-G to submit the break up and further
details of the capitalisation of Rs. 8.58 crore as per Regulation 30.3 of the MERC
Tariff Regulations, which are proposed to be included in the Capital Cost of Unit# 8
up to March 31, 2011. TPC-G, in reply, submitted the break up and details of the
capitalisation of Rs. 8.58 crore shown in the Table below:
Page 201 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Breakup of capitalisation of Unit# 8 (250 MW) for FY 2010-11 as submitted
by TPC-G
The Commission has examined the capital expenditure and actual capitalisation
claimed by TPC-G as per Regulation 30.3 of MERC Tariff Regulations, pertaining to
the capital expenditure incurred after the cut-off date and has approved the
capitalisation of Rs. 8.58 crore for 250 MW Unit# 8 for FY 2010-11.
5.2.8 Depreciation
The Commission, vide Tariff Order dated September 8, 2010 in Case No. 96 of 2009,
had approved depreciation expenditure of Rs. 40.56 crore for Unit# 8 (250 MW) in FY
2010-11. The depreciation rates were considered as prescribed under the MERC Tariff
Regulations, 2005. TPC-G, in its Petition, submitted that actual depreciation in FY
2010-11 is Rs. 39.34 Crore, as shown in the Table below:
Table: Depreciation of 250 MW Unit# 8 as submitted by TPC-G (Rs. Crore)
Particulars
Approved by
the Commission
FY 2010-11
(Actuals)
Opening GFA
1046.8
1048.74
Depreciation
40.56
39.34
% Depreciation
3.87%
3.75%
Page 202 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
For the purpose of truing up, the Commission has approved the depreciation on the
opening GFA for FY 2010-11 as well as on the assets added during the year at the
rates specified under the MERC Tariff Regulations, subject to the actual capitalisation
approved by the Commission for FY 2010-11. The depreciation expenditure approved
by the Commission in the Order in Case No. 96 of 2009, depreciation claimed by
TPC-G, and depreciation expenditure allowed after Truing up for FY 2010-11 on
above mentioned basis have been summarised in the following Table:
Table: Depreciation Unit# 8 FY 2010-11(Rs. Crore)
Particulars
Opening GFA
Order in Case
No. 96 of 2009
Apr-Mar
(Audited)
Allowed after
Truing up for
Unit# 8 (250
MW)
Allowed
after Truing
up for Unit#
8 (150 MW)
1046.80
1048.74
1047.99
Asset added during the
Year
-
8.58
8.58
Asset Retirement
-
0.01
0.01
40.56
39.34
39.30
Total Depreciation
23.58
5.2.9 Interest on Debt
TPC-G submitted that the actual interest expenses for Unit# 8 (250 MW) for FY 201011 was Rs. 77.04 crore as against Rs. 76.47 crore approved in Order dated September
8, 2010. TPC-G submitted that it has funded the entire capitalisation of Rs. 8.58 crore
for FY 2010-11 through HDFC bank loan; however, the Commission observed that
TPC-G has also claimed the addition of equity during the year as 30% of this
capitalisation during FY 2010-11. In reply to the Commission’s query, TPC-G replied
that it had erroneously computed the loan drawal for FY 2010-11, which was on
account of wrong linkage between Excel sheets. TPC-G further submitted that the loan
drawal should be considered as 70% of the capitalisation in FY 2010-11.
The Commission has considered the closing loan balance for FY 2009-10 as the
opening loan balance for FY 2010-11 and total loan availed during the year equal to
70% of the approved capitalisation, and has computed the interest on loan at the
interest rates approved by the Commission in its Order dated September 8, 2011 in
Case No. 96 of 2011. The loan approved by the Commission after capitalisation for
FY 2010-11 is shown in the Table below:
Page 203 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Loan approved by the Commission after Capitalisation for FY 2010-11 (Rs.
Crore)
Year
250 MW Unit# 8
Normative
IDBI Loan-1
Total
IDFC Loan-1 HDFC
FY 2008-09
-
305.79
346.23
652.02
FY 2009-10
69.02
-
-
69.02
FY 2010-11
Total
69.02
305.79
346.23
6.01
6.01
6.01
727.05
The interest rate approved for IDFC loan has been considered as 10.40% while for
IDBI 1 Loan the rate of interest considered has been considered as 10.49% as
submitted by TPC-G. For IDBI 2 loan, the rate of interest computed has been
considered as 10.75% and for the HDFC bank loan the interest rate has been
considered as 10.95%. For normative loan used for funding capitalisation of FY 200910, the interest rate has been taken as 9.00% along with the repayment for FY 2010-11
as 10% of the normative loan amount drawn. Accordingly, the Commission has
worked out the interest on loan as shown in the table below.
Table: Interest on Long Term Loan for Unit# 8 as approved by the Commission
(Rs. Crore)
Years
FY 2010-11
250 MW Unit# 8
Opening
Balance
Drawal
721.04
6.01
Repayment
25.33
Closing
Balance
Average
Int. Rate
Normative
701.72
10.35%
5.88
150 MW
Unit# 8
Interest
Interest
Actual
67.75
Total
73.63
5.2.10 Interest on Working Capital
TPC-G submitted that it has computed interest on working capital based on the
elements specified in the MERC Tariff Regulations and for the purpose of estimating
the interest on working capital for FY 2010-11, an interest rate of 11.75% (SBI PLR as
on date of Tariff filing) has been considered as specified in the Tariff Regulations.
TPC-G submitted that the total Interest on Working Capital for Unit#-8 (250 MW) for
FY 2010-11 works out to Rs. 14 crore as against Rs. 15.2 crore approved by the
Commission.
Page 204 of 234
Total
44.18
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
TPC-G also submitted that it has claimed interest on working capital excluding two
months of receivables from sale of power to TPC-D and hence, it is appropriate to
reduce the payables towards power purchase cost to the extent sold from TPC-G to
TPC-D while estimating the working capital requirement for TPC-D.
The Commission has estimated the normative working capital requirement and interest
thereof for FY 2010-11 based on the revised expenses approved in this Order after
truing up. However, interest on working capital is a controllable parameter as defined
under the MERC Tariff Regulations and the Commission has therefore, computed the
sharing of gains/losses on normative working capital interest.
For FY 2010-11, the actual interest on working Capital for TPC-G as submitted by
TPC-G is Rs. 3.18 Crore. As the Commission has considered this entire amount of Rs
3.18 crore towards the actual interest paid for working capital for ‘Unit# 4 to 7 and
Hydro’ in FY 2010-11, therefore, the actual interest on working capital for Unit# 8
paid by TPC-G is considered as nil. Further, the MERC Tariff Regulations stipulate
that rate of Interest on Working Capital shall be considered on normative basis and
shall be equal to the short-term Prime Lending Rate of State Bank of India as on the
date on which the Application for determination of tariff is made. As the short-term
Prime Lending Rate of State Bank of India at the time when TPC-G filed the Petition
for tariff determination for Unit# 8 for FY 2010-11 in Case No. 35 of 2009 was
11.75%, the Commission has considered the interest rate of 11.75% for estimating the
normative Interest on Working Capital. Correspondingly, the interest on working
capital for 150 MW Unit# 8 works out to Rs. 7.85 crore.
5.2.11 Return on equity (ROE)
TPC-G submitted that based on the capitalised expenditure; the Debt: Equity norm of
70:30 and after considering RoE of 14% in accordance with Regulation 34.1 of MERC
Tariff Regulations, the RoE for Unit# 8 (250 MW) works out to Rs. 44.02 crore for
FY 2010-11 as against the approved amount of Rs. 43.97 crore.
The Commission has computed the RoE in accordance with Regulations 34.1 and 31
of the MERC Tariff Regulations, which stipulate that the RoE for a Generation
Company is to be provided on the opening level of equity. Accordingly, the
Commission has not considered the equity corresponding to addition to assets during
the year while computing the RoE. Further, the Commission has considered the rate of
return as 14% for computation of RoE for FY 2010-11, in accordance with the MERC
Tariff Regulations, 2005.
Page 205 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
The summary of RoE as claimed by TPC-G and approved by the Commission for FY
2010-11 is summarised in the following Table:
Table: Return on Equity Unit# 8
(Rs. Crore)
Particulars
Unit# 8 (250 MW)
Order
Unit# 8 (150
MW)
TPC-G
Submission
Allowed
after
Truing up
Regulatory Equity at the beginning of the
year
314.04
314.41
314.40
Capital expenditure capitalised during the
year
0
8.58
8.58
Equity portion of capital expenditure
capitalised
0
2.57
2.57
314.04
316.98
316.97
Return on Regulatory Equity at the
beginning of the year
43.97
44.02
44.02
Total Return on Regulatory Equity
43.97
44.02
44.02
Regulatory Equity at the end of the year
Allowed after
Truing up
5.2.12 Non Tariff income
TPC-G submitted that the actual non tariff income for Unit#-8 150 MW Mumbai
license area in FY 2010-11 was Rs. 1.52 Crore. TPC-G further submitted that this
income is on account of the VAT refund and sale of scrap.
As discussed in subsection 5.1.14, the Commission under the Truing up exercise has
allocated the gain of Rs. 1.55 crore from Corporate Treasury function of TPC in
addition to the actual non-tariff income reported by TPC-G for Unit# 8.
Accordingly, the Commission has considered the non tariff income of Rs. 3.07 crore
for Unit# 8 for FY 2010-11 under the Truing up exercise.
5.2.13 Income tax
The Maharashtra Electricity Regulatory Commission (Terms and Conditions of Tariff)
Regulations, 2005 provides as follows:“34.2 Income-tax
Page 206 of 234
26.41
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Income-tax on the income of the Generating Business of the
Generating Company shall be allowed for inclusion in the annual
fixed charges:
Provided that any change in such income-tax liability on account
of assessment under the Income-tax Act, 1961, as certified by the
statutory auditors, shall be allowed to be adjusted each year in the
annual fixed charges:
Provided further that any change in such income-tax liability on
account of change in income of the Generating Business of the
Generating Company from the approved forecast shall be
attributed to the same controllable or uncontrollable factors as
have resulted in the change in income and shall be dealt with
accordingly:
Provided further that the generating station-wise profit before tax
as estimated for a financial year in advance shall constitute the
basis for the distribution of the corporate tax liability to all
generating stations of a Generating Company:
34.2.2The benefits of any income-tax holiday, credit for unabsorbed
losses or unabsorbed depreciation shall be taken into account in
calculation of the income-tax liability of the generating station of
the Generating Company:
Provided that where such benefits cannot be directly attributed to a
generating station, they shall be allocated across the generating
stations of a Generating Company in the proportion of the
generating station-wise profit before tax.
The Petitioner is a company under the Companies Act and carries out several
businesses including G, T and D in an integrated manner. Allocation of tax liability to
the regulated businesses in Mumbai, viz., G, T and D, particularly the method of
income tax calculations, has in the past been a complex issue. The key issue was to
arrive at the correct base.
Judgments of the Hon’ble Appellate Tribunal for Electricity (“APTEL”) –
(1) Appeal No. 173/2009 and 174/2009
Treatment of Income Tax came to be analysed in Appeal No. 173/2009 and 174/2009
before Hon’ble APTEL In its judgement dated 15th February, 2011 in Appeal No.
173/2009, Hon’ble APTEL examined the following issue:-
Page 207 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
“Whether the State Commission is justified in computing the entitlement of
income tax to be recovered from the consumers considering the return on
equity as the regulatory profit before tax and disallowing tax on incentives on
the ground that the expenses incurred for achieving better performance has
already been allowed?”
Hon’ble APTEL held as follows:“…the State Commission is directed to compute the income tax entitlement of
the Appellant by replacing Return on Equity by Regulatory Profit Before Tax
i.e. income less permissible expenses.”
Since, Hon’ble APTEL inter alia held that the actual income shall form the basis for
computation of income tax, hypothetical bases cannot be considered. Hon’ble APTEL
has discarded the theory of any treatment on notional basis. The Commission is of the
view that every base tried earlier, whether Normative ROE or hypothetical PBT was
presumptive in nature and did not indisputably demonstrate the relation with actual tax
liability. Normative ROE was clearly not the only income that would constitute
taxable profits of the licensees; it would also include incentives etc. Further
hypothetical PBT was by very nature hypothetical. The income allocation and expense
allocation has to be as per actual taxable incomes and expenses calculated as per the
Income Tax Act. The approach has to be actual taxable income of regulated business
minus actual sanctioned tax deductible expenses of regulated business as directed by
Hon. APTEL.
(2) Appeal No. 111/2008
Further, an issue was dealt with in Hon’ble APTEL’s judgement dated 28th May, 2009
in Appeal no. 111/2008 in case of R-Infra which related to non-inclusion of PLF
incentive in regulated business segment in the taxable income and therefore noninclusion of income tax on the incentive on the ground that it would be a burden on
consumers. Hon’ble APTEL directed that the actual and factual income tax impact had
to be considered and it was no case that such actual impact would be a burden on the
consumers.
(3) Appeal No. 251/2006
Furthermore, on issue raised before Hon’ble APTEL in Appeal No. 251/2006 in case
of R-Infra Hon’ble APTEL inter alia held in its judgment dated April 4, 2007 that
“The consumers in the licensee’s area must be kept in a water tight compartment from
Page 208 of 234
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MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
the risks of other business of the licensee and the Income Tax payable thereon.
Under no circumstance, consumers of the licensee should be made to bear the Income
Tax accrued in other businesses of the licensee. Income Tax assessment has to be
made on stand alone basis for the licensed business so that consumers are fully
insulated and protected from the Income Tax payable from other businesses.”
COMMISSION’S RULING:Taking into account the aforesaid judgments of the Hon’ble APTEL, the Commission
is of the opinion that Hon’ble APTEL has held that the base should be the factual tax
liability and there is no scope for presumptive disallowances / hypothetical
calculations.
At paragraph 14 of Hon’ble APTEL’s judgment dated 14th February 2011 in the
matter of TPC-T, Hon’ble APTEL has clarified inter alia as follows:“Thus the intent of the Regulations is that the actual income tax paid by the
transmission licensee in the business of transmission is included in the ARR and the
licensee does not gain or lose on account of income tax which is a pass through in
tariff.”
Thus, principles have been laid down by Hon’ble APTEL on the subject.
Hence, it was incumbent upon the Commission to examine this issue in consultation
with professional consultants. Having so examined this subject matter, the
Commission proposes to adopt the actual tax computation statement of the Petitioners
and supporting Returns of Income filed i.e., the documentary evidence as submitted
by them as the base for true-up petitions. The segmental allocation of taxable income
and tax thereon is being done on line by line basis based on segmental allocation of
income and expenses as approved.
The method is based in actual tax computation statement and segmental break up will
be always the one that is used for approval of tariff / plan. The weighted income tax
deductions / accelerated depreciation / income tax exemptions will be allocated to
underlying segment to which they pertain as is clearly mandated by regulation. Cross
tally of every line item in the computation of income statement is key demonstrative
strength of methodology and would preclude the unwarranted disputes on the issue.
Page 209 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Accordingly computation of income statement was sought from petitioners and
income tax reimbursement claim is sanctioned on the basis of the same. It was
observed from computation statement that in the year under consideration the
petitioner was liable to pay based on Minimum Alternate Tax (MAT) mechanism
under the Income Tax Act, which is higher than the normal tax on taxable income. In
view of Hon’ble APTEL’s pronouncements as aforesaid, this higher impact is being
considered for sanctioning of the claim and this higher tax impact under MAT which
has been actually suffered by the petitioner is allocated to various segments as per
Annexure A hereto. In case of MAT the same is charged on the book profits. Book
Profits are always calculated as income minus expenses as per books and accordingly
book income minus book expenses of various regulated business segments have been
considered as base as per audited allocation statements submitted by Licensee. This
clearly is in conformity with the directives of Hon. APTEL which has directed income
minus expenses approach to be used vide its Judgment in case of Appeal No.
173/2009 as referred to hereinabove. Further since the actual tax suffering in case of
MAT happens on the basis of book profits without any consideration to any other
figures, the same base of book profits of the relevant regulated segment has to be
adopted. Accordingly the allocation of book profit statement was sought from
Licensee duly audited by their auditors. This audited statement submitted by Licensee
themselves has been considered as for arriving at book profits attributable to
concerned regulated segment. As will be apparent from Annexure A; the MAT tax has
been calculated on all the segments in accordance with this audited statement
submitted by Licensee themselves. The total MAT liability of company is duly
reconciled with the total tax liability of all the segments taken together thereby the
correctness of tax calculations stands duly demonstrated. In short following the Hon.
APTEL verdicts the actual tax payment of Licensee has been allocated to various
segments. Further in this case since the tax suffering is on MAT; which is based
solely on book profits irrespective of any other considerations, the same base of book
profits on which Licensee has actually paid the tax has been used to ensure that base
remains the same base on which the Licensee has actually suffered the tax.
As would be apparent from the Annexure B; the tax allocable to segment under
consideration of this order is Rs. 10.46 crore which is same as the claim of Rs. 11
crores under this petition. Further the MAT paid is not actual expenditure because
Page 210 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
credit of such tax paid is available to Licensee in subsequent years. Needless to add
that the credit of this tax paid under MAT mechanism as permissible to be taken by the
petitioner in the subsequent years under the provisions of the Income Tax Act, 1961
will be adjusted on proportionate basis of allowance made by this order, in subsequent
year/s in which the petitioner actually takes such credit at total company level.
5.2.14 Revenue from sale of power
TPC-G, in its Petition submitted that the energy from 150 MW Unit# 8 was sold to
two Distribution Licensees of Mumbai Region, viz., TPC-D and BEST.
The revenue from these two distribution licensee under heads like fixed charge and
energy charge is shown in the Table below:
Table: Revenue from sale of power as submitted by TPC-G
Sr.
No.
Particulars
Unit
BEST
TPC-D
Total
1
Fixed Charge
Rs. crore
87.83
43.92
131.75
2
Incentive
Rs. crore
3.11
1.55
4.66
3
Energy Rate
Rs./kWh
2.61
2.61
2.61
4
Energy Sold
MU
782
391
1173
5
Energy Charge
Rs. crore
203.74
101.87
305.61
Total = 1+2+5
Rs.
crore
294.68
147.34
442.02
6
As regards the Fixed Charge and the Incentive shown in the above table, the
Commission observed that there was some discrepancy between the Petition and the
Formats as submitted by TPC-G. However, the total revenue obtained by TPC-G from
both the Distribution Licensees was consistent. In reply to the query asked by
Commission regarding the total revenue collected from BEST, TPC-G submitted that
it has inadvertently added incentive from Unit# 8 in the fixed charges instead of
showing them separately. The Commission has therefore, considered the above table
as correct and had made the corresponding changes in the Formats for its analysis.
Hence, based on the details of the revenue submitted by TPC-G, the Commission has
considered the total revenue from sale of power during FY 2010-11 to BEST and
TPC-D as Rs. 294.68 crore and Rs. 147.34 Crore, respectively, and the total revenue
as Rs. 442.02 crore.
Page 211 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
5.2.15 Incentive on PLF
TPC-G submitted that the PLF of Unit# 8 (150 MW) for FY 2010-11 was higher than
80%, therefore, TPC-G is entitled to an incentive for the net generation above 80%.
TPC-G submitted that the incentive for FY 2010-11 works out to Rs. 4.62 crore as
shown in the Table below:
Table: Computation of incentive on higher PLF
Unit
Net
Generation
considering
Norm Aux
consumption
(MU)
Net
Generation
at 80% PLF
(MU)
Energy
eligible for
incentive
(MU)
Unit# 8 (150
MW)
1136.33
951.34
184.99
Total
1136.33
951.34
184.99
Rate of
Incentive
(Rs./kWh)
0.25
Incentive
(Rs. crore)
4.62
4.62
The Commission has gone through the submission made by TPC-G, and found that the
incentive computed by TPC-G is correct, and has hence, approved the incentive of Rs.
4.62 crore on account on higher PLF for Unit# 8.
5.2.16 Sharing of Gains and Losses
TPC-G in its Petition submitted the actual expenditure under various heads of
expenditure and the reasons for variation between the approved expenditure and the
actual expenditure. Further, TPC-G submitted the Gains and Losses for Unit# 8 have
been shared with the Distribution Licensees in line with the principles adopted for
Unit#-4 to 7 and Hydro.
The Commission has, however, considered the performance parameters and expenses
for computing the sharing of gains/losses in accordance with the MERC Tariff
Regulations, as elaborated below:
Fuel Cost and reduction in auxiliary consumption
TPC-G submitted that the variation in the fuel cost is due to variation in the
operational parameters of the generating units, which are controllable factors. For
Unit#-8 (150 MW), TPC-G computed the fuel cost based on the approved operational
Page 212 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
norms of Heat Rate. The total efficiency gains due to variation in heat rate estimated
by TPC-G is Rs. 18 Crore, which has been shared with the Distribution Licensees to
the extent of Rs. 6 crore (one-third). The summary of the efficiency gain on account of
fuel cost as proposed by TPC-G and as approved by the Commission after truing up,
has been shown in the Table below:
Table: Gain and (Loss) due to variation in fuel cost for 150 MW Unit# 8
Sr. No.
Particulars
Units
Submitted
by TPC-G
Approved
a
Actual fuel cost
Rs. Crore
282
282.39
b
Cost of Generation
Rs/kWh
2.40
2.37
c
Gross Generation
MU
1256
1256
d
Normative fuel cost (b*c/10)
Rs. Crore
301
297.21
e
Efficiency gain (d-a)
Rs. Crore
18
14.82
f
Passed on to dist. Licensee
Rs. Crore
6
4.94
In addition to the variation in the Heat Rate, TPC-G submitted that there are variations
in the actual auxiliary consumption of Unit# 8 as compared to approved parameters.
The summary of the efficiency gain on account of auxiliary consumption as proposed
by TPC-G and as approved has been shown in the Tables below:
Table: Gain and (loss) due to variation in Aux. Consumption for 150 MW Unit# 8 as
submitted by TPC-G
Particulars
Formula
Units
Submitted
by TPC-G
Gross Generation
1
MU
1256
Actual Aux Cons Excluding
FGD
2
%
Actual Aux Cons Excluding
FGD
3=1*2
MU
84
Actual Net Generation
4=1-3
MU
1172
Normative Aux Cons. Excluding
FGD
5
%
8.5%
6.68%
Page 213 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Particulars
Formula
Units
Submitted
by TPC-G
Normative Aux Cons. Excluding
FGD
6=1*5
MU
107
Normative Net Generation
7=1-6
MU
1149
Diff in Net Generation
8=4-7
MU
23
T.O Rate as approved in Order
dated September 8, 2010
9
Rs./kWh
2.27
Auxiliary Consumption Gain
10=9*8/(10)
Rs Crore
5
Passed on to the Dist. Licensee
11=(10)/3
Rs Crore
2
Table: Gain and (loss) due to variation in Aux. Consumption for 150 MW Unit# 8 as
approved by the Commission
Particulars
Formula
Units
Submitted
by TPC-G
Gross Generation
1
MU
1255.6
Actual Aux Cons Excluding
FGD
2
%
6.68%
Actual Aux Cons Excluding
FGD
3=1*2
MU
83.87
Actual Net Generation
4=1-3
MU
1171.74
Normative Aux Cons. Excluding
FGD
5
%
Normative Aux Cons. Excluding
FGD
6=1*5
MU
106.73
Normative Net Generation
7=1-6
MU
1148.88
Diff in Net Generation
8=4-7
MU
22.85
T.O Rate as approved in Order
dated September 8, 2010
9
Rs./kWh
2.27
Auxiliary Consumption Gain
10=9*8/(10)
Rs Crore
5.19
Passed on to the Dist. Licensee
11=(10)/3
Rs Crore
1.73
8.5%
Page 214 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Accordingly, the total efficiency gain on account of fuel cost approved by the
Commission and on account of additional revenue due to reduced auxiliary
consumption works out to Rs 20.01 Crore, as against the estimate of Rs. 23 crore by
TPC-G.
Gains and Loss on account of O&M Expenses
TPC-G submitted that the actual O&M expenditure in FY 2010-11 was lower as
compared to the O&M expenditure approved by the Commission. TPC-G also
requested the Commission to accept the treatment of gains arising from lower
expenditure on O&M as submitted by it as shown in the following table:
Table: Gains /(Losses) on account of Operation & Maintenance Expenses for 150
MW Unit# 8 as submitted by TPC-G
Sr. No.
Particulars
Rs. Crore
1
Approved O&M expenditure for FY 2010-11
2
Actual O&M Expenditure
7
3
Uncontrollable expenditure
-
4
Total Entitlement
5
Amount passed on to the Distribution Licensees (1/3rd of Gain/Loss)
(1/3rd * ((4) – (2)))
5
6
Amount allowed to be retained by TPC-G
9
7
Net Entitlement (4)-(5)
21
21
17
Based upon the O&M Expenditure allowed by the Commission and the revised
approved O&M Expenditure for FY 2010-11, the Commission has recomputed the
gains arising from lower O&M Expenses as shown in the Table below:
Page 215 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Gains/ (Loss) on account of Operation & Maintenance Expenses for 150
MW Unit# 8 as approved by the Commission
Sr. No.
Particulars
Rs. Crore
1
Approved O&M expenditure for FY 2010-11
20.72
2
Total Entitlement
20.72
3
Actual O&M Expenditure
7.30
4
Allowed after truing up
7.30
5
Net Gains/ (Loss)
6
Amount passed on to the Distribution Licensees (1/3rd of
Gain/(Loss)) (1/3rd * ((2) – (4)))
4.47
7
Amount allowed to be retained by TPC-G
8.95
8
Net Entitlement (2)-(6)
13.42
16.24
Interest on Working Capital
As discussed in the earlier paragraphs, the actual interest on working capital incurred by
TPC-G for Unit# 8 during FY 2010-11 is nil and the normative interest on working
capital approved by the Commission considering other elements of expenses as approved
after Truing up works out to Rs 7.85 Crore. As discussed in Section 3 of this Order, the
Commission has considered the difference between normative interest on working capital
and actual interest on working capital as an efficiency gain and has considered sharing of
the same with the Distribution Licensees in accordance with the MERC Tariff
Regulations, as shown in the Table below.
Table: Gain and (loss) due to variation in Interest on Working Capital as approved by
the Commission
Particulars
Normative Interest on Working Capital
Actual interest on Working Capital
Rs. Crore
7.85
Nil
Amount passed on to distribution licensee
2.62
Amount retained by TPC-G
5.23
Net Entitlement of TPC-G
5.23
Page 216 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Gap/(Surplus) for FY 2010-11 based on Truing up and sharing of efficiency
gain/losses
Based on the Truing up of various elements of expenses and revenue of TPC-G Unit#8 (150 MW), and share of efficiency gains/(losses), the Commission has estimated the
total surplus as Rs. 11.11 crore as against the surplus of Rs. 6 crore estimated by TPCG for FY 2010-11. The summary of the net ARR and efficiency gains as approved by
the Commission for FY 2010-11 is given in the following Table:
Page 217 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Summary of Truing up for FY 2010-11 for Unit# 8 (150MW) including sharing of Efficiency gains (Rs Crore)
FY 2010-11
Order
S.No.
A
Particulars
Expenditure
1
Fuel Related Expenses
2
2.1
2.2
2.3
2.4
3
Operation & Maintenance Expenses
Employee Expenses
Administration & General Expenses
Repair & Maintenance Expenses
Allocation of LCC cost
Depreciation, including advance against
depreciation
4
Interest on Long-term Loan Capital
5
Interest on Working Capital
6
Other Finance Charges
7
Other Expenses
8
Income Tax
Total Expenditure
Approved
After
Truing-up
Actual
Entitlement as per
Regulations/Order
Efficiency
Gain shared
with
Distribution
Licensees
Net Entitlement
282.39
282.39
297.21
4.94
292.27
20.32
7.30
7.30
20.72
4.47
16.24
24.34
23.62
23.58
23.58
23.58
45.88
46.22
44.18
44.18
44.18
9.12
-
-
7.85
0.02
0.02
0.02
0.02
11.01
10.46
10.46
10.46
370.56
367.93
404.02
2.62
5.23
5.26
12.03
Page 218 of 234
391.99
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
FY 2010-11
Order
S.No.
Particulars
B
Return on Equity
C
F
G
Incentive for Higher PLF
Add: Fixed charge on account of
sharing facilities by 150 MW of Unit# 8
Additional Revenue due to Reduced
Aux Consumption
Total including expenditure +RoE
+Incentive
Revenue
1
Revenue from sale of electricity
2
Non-tariff Income
H
Total Revenue
I
Revenue Gap/(surplus)
D
E
26.38
7.50
Actual
Approved
After
Truing-up
Entitlement as per
Regulations/Order
Efficiency
Gain shared
with
Distribution
Licensees
Net Entitlement
26.41
26.41
26.41
26.41
4.62
4.62
4.62
4.62
7.50
7.50
7.50
7.50
5.19
5.19
409.09
411.65
447.74
433.98
442.02
442.02
442.02
442.02
1.52
3.07
3.07
3.07
443.54
445.09
445.09
445.09
1.73
3.46
(11.11)
Page 219 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
6 TOTAL RECOVERIES PERTAINING TO THE PAST
PERIOD TILL FY 2010-11
6.1 RECOVERY OF THE AMOUNT DUE TO IMPACT OF HON’BLE ATE
JUDGMENT
TPC-G submitted that during FY 2006-07, TPC operated as an integrated utility,
while for FY 2007-08 onwards, it had presented its APR Petition for its generation
business separately, hence, the methodology for recovering the amounts pertaining to
FY 2006-07 and the rest of the years would be different.
For FY 2006-07, TPC-G proposed the amounts to be recovered from the three
distribution utilities viz. BEST, R Infra (then REL) and TPC-D in the proportion of
energy sold by Tata Power as an Integrated Utility to them. TPC-G submitted that for
the amounts pertaining to FY 2007-08 onwards, the same may be recovered in
proportion to the sales of TPC-G to each of the Distribution Licensees. TPC-G has
worked out the average share of sales for these years and accordingly the resulting
amounts to be recovered from the three Licensees are as follows:
Table: Amounts to be recovered from each Distribution Utility as submitted by
TPC-G
However, as detailed in Section 3, the Commission in this Order has not allowed any
recovery of amount prior to FY 2007-08, therefore, the total amount on account of the
impact of Hon’ble ATE Judgment in appeal No. 173 of 2009 should be recovered by
TPC-G from the three distribution licensees i.e. BEST, RInfra-D and TPC-D in
weighted average proportion of energy supplied to these licensees from FY 2007-08
to FY 2009-10. The summary of the amount recoverable on account of the impact of
Hon’ble ATE's Judgment form each Distribution Licensee as approved by the
Commission is shown in the table below:
Page 220 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Recoverable amount on account of impact of Hon’ble ATE Judgment from
each Distribution Licensee as approved by Commission
Sales
Licensee
FY 2007-08
FY 2008-09
FY 2009-10#
MU
MU
MU
Total
% Share
Total
MU
%
Rs. Crore
BEST
4086
4757
4386
13229
42.15%
63.68
R Infra
4748
2974
2742
10464
33.34%
50.37
TPC-D
2246
2836
2615
7696
24.52%
37.04
11080
10567
9742
31389
100.00%
151.09
Total
# excluding Unit# 8
Therefore, the amounts due on account of the impact of the Hon’ble ATE’s Judgment
to be recovered by TPC-G from the distribution licensees, viz. BEST, RInfra and
TPC-D are Rs. 63.68 Crore, Rs. 50.37 crore and Rs. 37.04 Crore, respectively.
6.2 RECOVERY FOR FY 2008-09 PERTAINING TO THE ADDITIONAL
CAPITALIZATION PERMITTED IN ORDER IN CASE NO. 71 OF 2010
The Commission, in its Review Order dated November 30, 2010 in Case No. 71 of
2010, approved the additional capitalisation of Rs. 2.52 crore for FY 2008-09. The
Commission in Section 4 and Section 5 of this Order has already considered the
impact of this additional capitalisation pertaining to FY 2009-10 and FY 2010-11.
However, this additional capitalisation of Rs. 2.52 crore in FY 2008-09 also entitles
TPC-G for the recovery of additional revenue pertaining to FY 2008-09. As this
recovery of additional revenue was liable to be approved during the Truing up process
of FY 2008-09 in Order dated September 8, 2010 in Case No. 96 of 2009, the
Commission in accordance with the Hon’ble ATE’s Judgment, is also allowing a
carrying cost on approved past recovery for FY 2008-09. The recovery of the amount
pertaining to FY 2008-09 along with the carrying cost is summarised in the Table
below:
Page 221 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Table: Amount recoverable on account of the additional capitalisation allowed in
Case No. 71 of 2010
(Rs. Crore)
Sr. No.
1
2
3
Particular
Increase in Interest on Loan
RoE Impact
Depreciation
FY 2008-09
0.079
0.024
Total Recoverable amount pertaining to the
additional capitalisation of Rs. 2.52 crore for
4 FY 2008-09
5 Interest on Recoverable amount
Interest year Rate of
Months of
Interest
interest for the
amount due in
following years
FY 2008-09
12.79%
FY 2009-10
11.87%
FY 2010-11
12.24%
6 Total Recovery including interest
7
0.103
0.007
-
0.007
0.111
The above mentioned amount of Rs. 0.111 crore should be recovered from BEST,
RInfra-D and TPC-D in the ratios of sale of power to these distribution licensees in
FY 2008-09.
6.3 RECOVERY FOR FY 2008-09 PERTAINING REINSTATEMENT OF
AMOUNT DE-CAPITALISED IN FY 2008-09
As discussed in subsection 4.1.8, the asset de-capitalisation of Rs. 22.22 crore
approved by the Commission for FY 2008-09 is disallowed now, and the
corresponding Equity is re-instated for the year, TPC is entitled to additional RoE for
FY 2008-09 to this extent along with the carrying cost. The entitled amount for the
same has been computed in the mentioned subsection as Rs. 3.33 Crore. This amount
of Rs. 3.33 crore should be recovered from BEST, RInfra-D and TPC-D in the ratios
of sale of power to these distribution licensees in FY 2008-09.
6.4 RECOVERY OF GAP/SURPLUS OF FY 2009-10 AND FY 2010-11
In the previous Sections, the Commission has determined the Gap/(Surplus) amounts
for FY 2009-10 and FY 2010-11 due to TPC-G from various distribution licensees.
The Commission has also discussed the impact of past de-capitalisation to be charged
back from TPC-G to various distribution licensees. The summary of the net
Page 222 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
recoverable amount to be recovered by TPC-G from distribution licensees for various
years is given in the following Table:
Summary of amounts recoverable from distribution licensees as approved by the
Commission
Sr. No.
Particulars
Rs. Crore
1
Gap/(Surplus) of Unit# 4 to 7 & Hydro for FY 2009-10
69.64
2
Gap/(Surplus) of Unit# 4 to 7 & Hydro for FY 2010-11
80.65
3
Impact of De-capitalisation (Replacement Scheme) of
Unit# 4 to 7 & Hydro
(0.77)
4
Gap/(Surplus) of Unit# 8 for FY 2009-10
(14.55)
5
Gap/(Surplus) of Unit# 8 for FY 2010-11
(11.11)
6
Total amount recoverable for Unit# 4 to 7 & Hydro
(1)+(2)+(3)
149.52
7
Total amount recoverable/(Surplus) for Unit# 8 (4)+(5)
(25.66)
Table: Amount Recoverable from each distribution Licensee as approved by the
Commission
Licensee
FY
2009-10
FY
2010-11
Sales
Sales
Ratio
of sales
Net amount
recoverable
FY
2009-10
FY
2010-11
Sales
Sales
Ratio
of sales
Net amount
recoverable
Total Amount
recoverable due to
Gap/Surplus and
impact of De-cap
(Replacement)
MU
MU
%
Rs. Crore
MU
MU
Unit# 4 to 7 & Hydro
%
Rs. Crore
Unit# 8
Rs. Crore
Total
BEST
4386
4343
48.23%
72.11
635
782
66.67%
-17.11
55.00
RInfra-D
2742
1273
22.18%
33.17
0
0
0
0.00
33.17
TPC-D
2615
2741
29.59%
44.24
318
391
33.33%
-8.55
35.69
Total
9742
8358
100%
149.52
953
1173
100%
-25.66
123.85
Page 223 of 234
Case No. 105 of 2011
6.5 NET AMOUNT
LICENSEES
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
TO
BE
RECOVERED
FROM
DISTRIBUTION
Based on the impact of Hon’ble ATE's Judgment, recovery for FY 2008-09 due to
additional capitalisation approved in Order in Case No. 71 of 2010, reinstatement of
amount de-capitalised for assets such as Guest House etc and Truing up for FY 200910 and FY 2010-11, the net amount to be recovered by TPC-G from Distribution
Licensees for previous years is summarised in the Table below:
Table: Net amount recoverable by TPC-G
Particulars
Amount due to the impact of
Hon'ble ATE Judgment
Recovery for FY 2008-09 pertaining
to the additional capitalization
permitted in Order in Case No. 71 of
2010
Recovery for FY 2008-09 pertaining
reinstatement of amount decapitalised in FY 2008-09
Gap/Surplus of FY 2009-10 and FY
2010-11 and impact of Decapitalisation (Replacement
Scheme)
Net recoverable amount
Sd/-
(Vijay L. Sonavane)
Member
(Rs. Crore)
BEST
Rinfra
TPC-D
Total
63.68
50.37
37.04
151.09
0.05
0.03
0.03
0.11
1.50
0.94
0.89
3.33
55.00
33.17
35.69
123.85
120.22
84.50
73.66
278.39
Sd/-
(V.P. Raja)
Chairman
Page 224 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Annexure A: Income Tax: As per MAT working 20092010.
Total as per
petitioner’s
computation
Generation
1,259.27
353.53
Fringe Benefit Tax
4.73
2.32
Prov. For doubtful assets
8.55
1.69
Particulars
Net profit before Taxes and Statutory Appropriations
and provisions as per P & L A/c
Add:
Prov. In respect of current assets held for disposal
Interest under IT Act
TOTAL ADDITIONS
Less:
Exempt Income
Generation
unit - 8
Transmission
34.97
0.34
Distribution
Others
129.31
24.59
716.87
0.17
0.83
1.42
0.73
5.64
0.16
26.91
26.91
1.02
1.02
41.22
4.00
0.34
0.90
6.47
29.51
90.70
90.70
108.83
108.83
Prov. For wealth tax
1.51
1.51
Others
0.01
-
201.05
-
1,099.44
186.90
Withdrawal from Contingencies and DTLF
TOTAL DEDUCTIONS
Amt. Taxable as per MAT
MAT Liability (@ 17% ) allocation.
-
-
0.01
-
-
-
201.05
357.53
35.31
130.21
31.06
545.33
60.78
6.00
22.14
5.28
92.71
Page 225 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Annexure B: Income Tax: As per MAT working 20102011.
Particulars
Net profit before Taxes and Statutory Appropriations
and provisions as per P & L A/c
Add:
Interest under IT Act
TOTAL ADDITIONS
Less:
Exempt Income
Prov. For doubtful debts
Prov. For wealth tax
TOTAL DEDUCTIONS
Amt. Taxable as per MAT
MAT Liability (@ 19.9305%) allocation.
Total as per
petitioner’s
computation
Generation
1112.36
290.06
52.49
99.23
104.26
566.31
(27.32)
(27.32)
-
-
-
-
(27.32)
(27.31)
202.32
5.28
0.53
-
-
-
5.12
-
202.32
0.16
0.53
208.14
876.89
174.77
290.06
57.81
52.49
10.46
99.23
19.78
5.12
99.14
19.76
203.02
335.96
66.96
Generation
unit - 8
Transmission
Distribution
Others
Page 226 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
APPENDIX 1 (A)
List of people who attended the Technical Validation Session held on August 16,
2011
Sr. No.
Name of Person
1
Shri. T. N. Ramakrishnan
2
Shri. Terence Lewis
3
Shri. Amol Apte
4
Shri. Prashant V. Joshi
5
Shri. D.S. Kudalkar
6
Shri. Jayesh Chauhan
7
Shri. M. Shenbaga
8
Shri. S. M. Joshi
9
Shri. Krishnajith M.U.
10
Shri. Sanjiv Kumar Singh
11
Smt. Puja Gupta
12
Shri. A.B. Bhat
13
Shri. V. Srinivasan
14
Shri. Amey S. Mhapsekar
15
Shri. Ashok Pendse
16
Shri. Madan
17
Shri. Kiran Budhlani
Page 227 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
APPENDIX 1 (B)
List of people who attended the Technical Validation Session held on September
3, 2011
Sr. No.
Name of Person
1 Shri. T. N. Ramakrishnan
2 Shri. Rahul M. Ranade
3 Shri. V. H. Wagle
4 Shri. Prashant V. Joshi
5 Shri. D.S. Kudalkar
6 Shri. Jayesh Chauhan
7 Shri. M. Shenbaga
8 Shri. S. M. Joshi
9 Shri. Karthik Krishnan
10 Shri. Sanjiv Kumar Singh
11 Smt. Puja Gupta
12 Shri. S. Suresh
13 Shri. V. Srinivasan
14 Shri. Amey S. Mhapsekar
15 Shri. Raksh Pal Abrol
16 Shri. Amey Naik
17 Smt. Swati Mehendale
18 Shri. Kailash Mali
19 Shri. Sandeep N. Ohri
20 Shri. A. Sethi
21 Shri. Anand Gurav
22 Shri. Pillai Ramachandran
23 Shri. N. Ponrathnam
Page 228 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Sr. No.
Name of Person
24 Shri. V.R.
25 Shri. T.K. Bhaskaran
Page 229 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
APPENDIX 2
List of Objectors
Sr. No. Name of the Objector
Institution/ Individual
1
Shri. Sandeep Ohri
Individual
2
Shri. Rakshpal Abrol
Bhartiya Udhami Avam Upbhokta
Sangh
3
Shri. Ponarathanam
Vel Induction Hardenings
4
Shri Vinayak Joshi
Individual
5
Representative
Nagari Nivara Parishad
6
Representative
Central Railways
7
Shri Chandrakant Mudras
Individual
8
Shri Ashokbhai Pandya
Individual
9
Shri Vijaya Vaidya
Individual
10
Shri Ganesh Khankar
BJP
11
Shri Collin Dmello
Individual
12
Smt Rosy Pinto
Individual
13
Shri Rajesh Dabholkar
Individual
14
Shri Ganesh Subramaniam
Individual
15
Representative
Parish Mehta & Co.
16
Sri Jesu Roy Avroor
Individual
17
Shri Jayantilal Shah
Individual
18
Shri Anil V. Tharthare
Individual
19
Representative
Popular Power Supply
20
Shri Guruprasad Shetty
Individual
21
Shri Jitendra Pawar
Individual
22
Representative
Mumbai International Airport Pvt Ltd
23
Representative
Shree Laxmi Denim Clinic
Page 230 of 234
Case No. 105 of 2011
Sr. No. Name of the Objector
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Institution/ Individual
24
Shri V.V. Shinde
Individual
25
Shri Tarak Oza
Individual
26
Shri. M. K. Sawant
Individual
27
Smt. Virginia Dias
Individual
28
Shri. S. R. Patil
Individual
Page 231 of 234
Case No. 105 of 2011
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
APPENDIX 3
List of Objectors who attended Public Hearing on November 26, 2011
Sr. No. Name of the Objector
Institution/ Individual
1
Shri. Sandeep Ohri
Individual
2
Shri. Rakshpal Abrol
Bhartiya Udhami Avam Upbhokta
Sangh
3
Shri. Ponarathanam
Vel Induction Hardenings
4
Miliwa pakhar
Central Railways
5
Shri Chandrakant Mudras
Individual
6
Shri Ganesh Khankar
BJP
7
Representative
Parish Mehta & Co.
8
Representative
Popular Power Supply
9
Shri Guruprasad Shetty
Individual
10
Shri Jitendra Pawar
Individual
11
Representative
Mumbai International Airport Pvt Ltd
12
Representative
Shree Laxmi Denim Clinic
13
Shri V.V. Shinde
Individual
14
Shri. Pravind Kumar
Individual
15
Shri. Sunil Parate
Individual
16
Shri. Saji Morlh
Individual
17
Shri S. Narl
Individual
18
Shri. A. P. Benale
Individual
19
Shri. Vikas Nikum
Individual
20
Shri. Mohit kumar
Individual
21
Shri. Jayesh Chauhan
Individual
22
Shri. S. S. Yadav
Individual
Page 232 of 234
Case No. 105 of 2011
Sr. No. Name of the Objector
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Institution/ Individual
23
Smt. Virginia Dias
Individual
24
Shri. Mahesh K.
Individual
25
Shri. AVP Mirashi
Individual
26
Smt. Kiran Karande
Individual
27
Shri. Jay Lalaghela
Individual
28
Shri. A. G. Pendse
Individual
29
Shri. Abhinav Sharma
Individual
30
Shri. Atul Thakkur
Individual
31
Shri. S. R Patil
Individual
32
Shri K. K Chopra
Individual
33
Shri Nishant Bhargaur
Individual
34
Shri. Ramesh Khalat
Individual
35
Shri Prashant V. Joshi
Individual
36
Shri Amey Naik
Individual
37
Shri Rahul M Ranade
Individual
38
Shri V. H. Wagle
Individual
39
Shri Kailash Mall
Individual
40
Shri R M Kasar Patil
Individual
41
Shri Pillai Ramachandran
Individual
42
Shri S M Javed
Individual
43
Shri T. N. Ramakrishnan
Individual
44
Shri J. N. Joshi
Individual
45
Smt. Shetal Khiraiya
Individual
46
Shri D S Kudalkar
Individual
47
Shri V.K. Chourey
Individual
48
Shri S.C. Dhapave
Individual
49
Shri V. B. Patil
Individual
Page 233 of 234
Case No. 105 of 2011
Sr. No. Name of the Objector
MERC Order for TPC-G for Truing up of FY 2009-10 and FY 2010-11
Institution/ Individual
50
Shri Ranjit Ganguly
Individual
51
Shri Roopesh Srivastava
Individual
52
Shri M Shenbagune
Individual
53
Shri Manish Vashnya
Individual
54
Shri A.A Bhat
Individual
55
Shri Jitendra D. Pawar
Individual
56
Shri Deepak Mahendra
Individual
57
Shri K R Cooper
Individual
58
Shri M. D. Joshi
Individual
59
Shri C.V. Niranjan
Individual
60
Shri M.C. Putphode
Individual
61
Shri Hitesh Gokhani
Individual
Page 234 of 234