17_Order_dt_10_04_2006_CN_01 of 200500005

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3.23     Mr Mulla, a representative from Maharashtra State Electricity Distribution Company
         Limited (MSEDCL), submitted that MSEDCL would need to purchase peaking power
         as there is a significant deficit during the peak time. Further, it was submitted that the
         there has been no identical proposal for long-term peak power purchase with any of
         the SEB’s / utilities in India. He also submitted that the current peak power cost was
         around Rs 3.45 – Rs 3.50 per unit.

3.24     Further, the Commission also observed that there were no CERC norms for the
         peaking power.

Commission’s Analysis and Observations

3.25     As regards ‘peaking tariff’ or differential tariff for peak/off-peak supply, the
         Commission notes that as per Clause 6.2(1) of the recently notified National Tariff
         Policy, the Appropriate Commission is required to introduce differential rates of fixed
         charges for peak and off-peak hours for better management of load. Accordingly, the
         Commission will have to establish methodology for determination of peaking tariff or
         time of the day tariff for purchase of power by utilities taking into consideration their
         ‘base load’ demand and ‘peaking demand requirements.

3.26     However, at present, BHEP II can only operate as run of the river plant with the
         generation dependent on release of water for irrigation purpose. So, as per the current
         generation BHEP II cannot be treated as a peaking station. Once Nilwande dam
         reaches the height of 613 m, the re-regulation of discharge would be possible for
         irrigation needs and hence the power generation during the periods of release of less
         than 34 cumecs would be possible by utilizing the pondage available at Randha Weir.
         It would also be possible to operate the BHEP II for peaking.

3.27     Though GOMID has indicated that construction of Nilwande dam upto the height of
         613 m would be done in 3 years, no definite time frame has been made available.
         Therefore, the Commission is of the view that it is not justified to treat the project as a
         peaking plant under the existing circumstances.


3.28     Mr Rajadhyaksha presented the case of DLHPPL and pointed out that the tariff
         proposed starts at Rs 3.05 per unit and escalates at 5% per year upto 12th year, stays
         constant for 5 years and then escalates at 4% per year until it reaches Rs 8.69 per unit.
         In case CERC norms are followed, the first year tariff works out to be Rs 5.25 per unit
         which goes down to Rs 2.50 per unit until 11th year and steadily increases to about Rs
         9.35 per unit in 30 th year. He pointed out that the proposed tariff is back loaded and
         the rate proposed would be affordable to MSEB and at the same time enable the
         developer to ensure payments to GOMID, paying operating expenses and meeting
         debt-service obligations.

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3.29   Further, DLI also submitted that the tariff comparisons for Nathpa-Jhakri, Uri,
       Chamera and Rangit cited by CRISIL was not appropriate and cannot be compared
       with BHEP II as these projects are located in Himalayas with perpetual flowing rivers
       and have has capacity in hundreds of MW with PLF in excess of 60%.

3.30   PRAYAS observed that the DLHPPL has proposed extremely high tariff i.e. the
       levelised tariff over 30 years is Rs 4.36 per unit. PRAYAS also pointed out that the
       proposed repairs and maintenance cost of Rs 10 crore amounts to 17% of Rs 60 crore
       (the amount to be paid upfront). Further, they also pointed out that no comparison
       with alternatives have been considered for the project. The comparison of the project
       should be with a peak power provider or a peak power reliever like Agricultural
       feeder segregation, open cycle gas turbines, mass scale DSM scheme using CFLs.

3.31   PRAYAS also raised the issue of obligation of MSEB to purchase power from BHEP
       II and submitted that MSEB is under no obligation to purchase power from BHEP II
       as stated in para 3.5.13 of the bidding document and therefore it should not be made
       mandatory for MSEB to procure power from BHEP – II. The promoter is free to sell
       the same to any trader or in the market.

Commission’s Analysis and Observations

3.32   The Commission notes that, during Phase-I of its operation (i.e. when height of
       Nilawande dam is below 610/613 M) the project (BHEP-II) can essentially be
       operated as ‘run of the river’ hydel project and hence energy benefit that project can
       offer are linked to irrigation releases. The peaking benefits of hydel project can only
       be exploited only after height of Nilawande dam reaches 613 M, (i.e. during Phase-II
       and subsequent phases and re-regulation pondage is available. The overall energy
       generation would still be constrained by availability of water, releases for irrigation
       purposes and operational philosophy thereof, however, it would be possible to exploit
       the capacity benefit (or peaking benefit) upto installed capacity of the hydel station
       BHEP-II with the help of re-regulation pondage during Phase-II and subsequent
       phases of the project.

3.33   Under the circumstances, the Commission is of the view that determination of tariff
       for a period of thirty years will involve significant assumptions on the various issues
       related to time frame for completion of various phases of Nilwande dam like
       projected energy generation, power output etc. The Commission notes that the project
       is under operation since its commissioning in 1999. The generation from the project is
       limited to the extent of 14 to 18 MW due to above cited constraints. The full potential
       of the project can only be harnessed when height of Nilawande dam is raised upto 613
       M, which is intended to be carried out by GOMID. The timeframe of 3 years to
       achieve the same, as indicated by GOMID is only indicative and there is no firm
       commitment to that extent.

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3.34   The existing petition by MSEDCL to procure power from BHEP-II does not
       specifically seek to determine tariff for ‘peaking’ supply, neither MSEDCL has
       furnished its ‘peak load’ requirement to that effect. In order to determine ‘peak tariff’
       for procurement of power from BHEP-II to meet ‘peak demand’ of MSEDCL, peak
       demand profile will have to be ascertained at the time when BHEP-II would be ready
       to supply ‘peak power’ and timeframe for the same is uncertain. It could be anytime
       beyond three years after transfer of project from GOMID to private developer.

3.35   Under the circumstances, it would neither be fair to off-taker (MSEDCL) nor to
       developer of BHEP-II, if ‘peaking tariff’ for the said project is determined at this
       stage. At the same time, it should be open to project developer and off-taker to
       approach for tariff determination, as and when, the nature of the project changes and
       the project is capable to deliver the ‘peaking benefit’ as envisaged.

3.36   Accordingly, the Commission finds that the current characteristics of the project is
       similar to that of a Small Hydro Power (SHP) project in the following ways:

       (a)    The projected power output in the current phase is 18.78 MWs. The power
              output will change, as submitted by GOMID only with the height of Nilwande
              dam reaching 613 m.

       (b)    In the GoMID ‘State Hydel Policy for Development of Small Hydro Power
              Projects through Private Sector Participation’ dated 15th September, 2005, it
              has been stated that the policy is applicable to hydropower projects up to 25
              MW installed capacity. Further, as per the SHP order dated 9 th November,
              2005, approved by the Commission the tariff has been made applicable for
              projects upto an installed capacity of 25 MWs.

       (c)    Considering the above the Commission finds merit in treating the project as
              similar to a Small Hydro Power project, for the purpose of applicability of
              tariff, till the height of Nilwande dam is raised to 610/613 meters.

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4.1   Under the provisions of the Electricity Act (EA) 2003, electricity tariffs, power
      purchase agreements and provisions regarding wheeling, banking, distribution and
      transmission loss charges, and related dispensation are within the exclusive
      jurisdiction of the Commission. The Commission not only has to balance the interest
      of the consumers and producers, but is also mandated by the Act with the
      responsibility of promotion of investment in electricity industry.

4.2   Under Section 62(1) of EA 2003, the Appropriate Commission is empowered to
      determine the Tariff in accordance with the provisions of the Act for supply of
      electricity by a generating company to a distribution Licensee, and for transmission
      and wheeling of electricity. Further, Section 86(1)(b) states that –

        The State Commission shall discharge following functions, namely          regulate
      electricity purchase and procurement process of distribution licensees including the
      price at which electricity shall be procured from the generating companies or
      licensees or from other sources through agreements for purchase of power for
      distribution and supply within the State.

4.3   The Commission has earlier issued an Order dated November 9, 2005 (in Case No.25
      of 2004) in the matter of ‘Determination of Tariff for Small Hydel Power (SHP)
      Projects within Maharashtra’. The Order is applicable for supply of electricity from
      all small hydro projects (upto 25MW) to the Distribution Licensees in the State of
      Maharashtra. The Order is applicable only to those small hydro projects developed in
      Maharashtra and commissioned in the State, and intended for sale of electricity to
      Distribution Licensees within Maharashtra.

Tariff Principles
4.4   The Commission has generally been guided by the prudent practices of tariff
      determination, which it has consistently used since its first major Tariff Order (2000).
      The Electricity Act 2003 also requires the Commission to be guided by the principles
      provided in section 61 of the Electricity Act and the National Electricity and Tariff
      Policies. The tariff principles followed by the Commission in the determination of
      tariff are as follows:

      (a)    Consistency in principles and its application;

      (b)    Minimise regulatory uncertainty;

      (c)    Uniform principles for tariff setting;

      (d)    Transparency and compliance of regulatory procedures;

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