CASE NO. 17 of 1999

Present:
Shri S. C. Mahalik, Chairman
Shri D. K. Roy, Member

 
For Petitioner: Shri R.C. Mohapatra, Director (Commerce), GRIDCO

For Respondent 1: Shri N. Patel Director (Operation), OHPC
For Respondent 2: Shri R.C Padhi
For Respondent 3: Shri M.V. Rao Chairman, Power Committee, UCCI Ltd.
For Respondent 4: Shri R.P. Mohapatra

Date of argument: 25.02.2000

Date of Order : 22.03.2000

ORDER

Grid Corporation of Orissa Ltd. (hereafter referred to as GRIDCO), Bhubaneswar, the holder of Orissa Transmission and Bulk Supply Licence (No.2/97) has applied on 27th October, 1998 to this Commission for approval of it’s Power Purchase Agreement dated 18th day of August, 1998 entered with Orissa Hydro Power Corporation Ltd., a government owned generation company incorporated under the Companies Act, 1956 having its corporate office at Bhubaneswar, Orissa (hereafter referred to as OHPC). 

2. The application has been filed in pursuance of Condition 16 of above mentioned Licence. The Power Purchase Agreement (hereafter referred to as PPA) filed along with the application was scrutinised preliminarily and GRIDCO was directed vide Commission letter No. Secy/PPA/892 dtd.13.5.99 to clarify certain financial, technical and commercial aspects of the said PPA for further detailed examination.

3. After receipt of clarifications from GRIDCO contained in letter No. 5497 dtd.26.6.99, the application was admitted ex-parte under Regulation 32 of the OERC (Conduct of Business) Regulation, 1996 (hereafter referred to as Regulation, 1996), arraying CMD, GRIDCO as the petitioner/applicant and M.D., OHPC as the respondent. The Commission directed for issue of public notice to the respondent as well as the other affected parties/interested parties indicating the salient features of PPA and inviting reply in shape of objection, if any, with liberty to inspect the PPA in the office of the Commission. Accordingly, draft of a public notice incorporating the salient features of the PPA was forwarded to the Chairman-cum-Managing Director, GRIDCO, Janpath, Bhubaneswar vide Commission letter No. 2502 dtd.20.9.99. While GRIDCO suggested alteration of certain facts and figures in the said draft notice, OHPC agreed in general and had no comments on the same. OHPC requested the Commission that the details of revised cost estimate and scrutiny by agency other than Govt. or GRIDCO should not be disclosed. This request of OHPC was not found acceptable in view of the fact that it has not assigned sufficient reasoning for maintaining confidentiality. Further, Commission considers that PPA is a public document which affects the tariff structure and therefore should be liable to total public scrutiny and exposure.

4. GRIDCO was requested to identify the documents filed or to be filed before the Commission which would be treated as confidential and the list of such document/information along with reasons for claiming privilege before the Commission. GRIDCO in its reply dated 21.10.99 referred to the clause 19.4 of the PPA regarding confidentiality for information of the Commission but did not specially claim privilege or confidentiality for any document. It was decided to treat the entire filing as open to public scrutiny and to dispose of the matter through proceeding open to public.

5. GRIDCO was further directed to publish the notice approved by the Commission in two consecutive issues of one English and two Oriya daily newspapers having wide circulation with a further request to put a copy of the said notice in the Notice Board of their office and at such other places as they considered appropriate. Public notice as approved by the Commission was advertised in Dharitri on 26/27.11.99 and Samaj on 27/28.11.99 and in The New Indian Express on 26/27.11.99. The notice contained the salient features of the PPA indicating the parties to the agreement, date of execution of the PPA, location, gross and contracted capacity, design and saleable energy, provisional project cost, components of equity and debts, return on equity, O&M expenses, O&M escalation, rates of depreciation, interest on working capital, income tax discounts for payment, penalty for delayed payment, tariff rates from 2001 to 2030, etc. The notice made it clear that the proceeding to dispose of GRIDCO’s application for approval of PPA was open to the public.

6. Notice was given to the affected/interested parties to inspect the connected documents in the office of the Commission and take note thereof during the working hours within a fortnight of publication of the notice. Interested parties were also informed that a full set of PPA dtd. 18.8.98 and clarification submitted together with supporting material could be obtained from M/s. GRIDCO on payment of Rs.20/- towards photocopying charges within 15 days from the date of publication of the notice. Objections and/or suggestions supported by an affidavit and documents relied upon along with five copies thereof were to be filed within a period of 45 days from the date of publication of the notice with a copy of the statement of objections with documents relied upon to be served on the petitioner and the respondent and service proof thereof to be filed along with the copy.

7. It was also notified that all the valid objections would be taken up for consideration and the date of hearing would be notified through newspaper without issuing any individual notice to objectors.

8. The Commission received 3 objections against the PPA and all three objections were admitted for public hearing. The objectors whose objections were admitted for hearing are (1) Shri R.C. Padhi, Retd. C.E., MIG-A/24, Brit Colony, Nayapalli, Bhubaneswar, (2) Shri M.V. Rao, Chairman Power Committee, M/s. Utkal Chamber of Commerce and Industry, Barabati Stadium, Cuttack and (3) Shri R.P. Mohapatra, Retd. C.E. & Member, OSEB, Plot No. 775, Jayadev Vihar, Bhubaneswar-13.

9. After receipt of the objections and scrutiny thereof the Commission in their letter No. 130 dtd.18.01.2000 to GRIDCO and OHPC conveyed the date of hearing as 01.02.2000 in the office of the Commission arraying the C.M.D., GRIDCO as Petitioner/Applicant and Managing Director, OHPC as the Respondent No. 1 and the three objectors as respondent Nos. 2,3 and 4 respectively. Copies of the objections were sent to GRIDCO and OHPC for filing rejoinder on or before 27.01.2000 without fail endorsing a copy thereof to Respondent No 2, 3 & 4 with service proof thereof.

10. GRIDCO filed a rejoinder on 27.01.2000 against three nos. of objections received in response to the public notice. OHPC submitted a time petition requesting extension for a period of 15 days for filing a rejoinder after perusal of records, previous decision and consultation with the Deptt. of Energy, Govt. of Orissa which was rejected by the Commission.

11. Hearing in this case (17/99) was conducted on 01.02.2000. Shri R.C. Mohapatra, Director (Commercial) was present on behalf of the petitioner and Shri N. Patel, Director (Operation) OHPC on behalf of Respondent No. 1. Shri M.V. Rao and Shri B.N. Das were present on behalf of Respondent No. 3 (UCCI). Shri R.C. Padhi and Shri R.P. Mohapatra were present on their own behalf i.e., Respondent No.2 & 4. The Director (Operation) OHPC filed rejoinder on behalf of OHPC. The Commission heard Shri R.C. Mohapatra, Director (Com), GRIDCO on behalf of the petitioner and Shri R.P. Mohapatra, Shri B.N. Das and Shri R.C. Padhi for on behalf of the respondents. OHPC was permitted to file any supplementary rejoinder on or before 07.02.2000 and the CMD, OHPC permitted to appear before the Commission during hearing on 25.02.2000.

12. The case was heard on 25.02.2000. Thus the hearing was concluded on the same day. Opportunity was given to the parties to file their written notes of argument on or before 03.3.2000.

THE PPA IN BRIEF

13. The salient features of the PPA are as follows :

(1) Parties to the Agreement

M/s. Grid Corporation of Orissa Ltd.
M/s. Orissa Hydro Power Corporation Ltd.

(2) Date of Execution of the PPA - 18.8.98

(3) Location of the Power Generating Station - At/Po-Mukhiguda, Dist-Kalahandi (Orissa)

(4) Gross Capacity - 600 MW (4x150 MW)

(5) Contracted capacity - 594 MW (4x148.5 MW)

(6) Design Energy - 1962 MU

(7) Saleable Energy - 1942.38 MU

(8) Provisional Project cost - Rs.1327.1 cr. (Rs.1195.42 cr.+Rs.131.685 cr. interest free Govt. loan)

(9) Equity - 25% (Rs.298.854 cr.)

(10) Provisional Debt - 75% (Rs.896 cr.+ 131.685 cr. interest free Govt. loan)

(11) Return on Equity - 16%

(12) O&M Expenses - 1.50%

(13) O&M escalation - 8% (Assumed)

(14) Depreciation - 3.6%

(15) Interest on working capital - 18%

(16) Income tax rate - 35%

(17) Discount for payment

Payment by L.C - 2.5%
Payment by cheque - 2.0% (within 15 days)
Payment within 1 month - 1.0% 

(18) Penalty for delayed payment - Interest at default rate (beyond 30 days)

(19) Tariff in Rs. per Kwh with 8% escalation on O&M :-

(20) Levelised Tariff (at 10% discount rate) - Rs.1.20

(21) Term of the PPA - Thirty years from the date of commercial operation of the last unit.

(22) Initial Scheduled date of commissioning of Unit-I - January'99. Subsequent units to be commissioned at an interval of every four months.

14. As per the said PPA, OHPC is to construct, own and operate the power stations along with its dams, dykes, spillways, reservoir, water conductor system and associated facility. OHPC has agreed to grant GRIDCO the sole and exclusive right to the capacity, availability and despatched output of the power station from time to time.

15. GRIDCO has agreed to purchase the capacity, availability and despatched output of the power station and pay to OHPC the charges calculated and payable pursuant to the terms and conditions of the PPA. OHPC is bound by the agreement and the Grid Code. OHPC shall take up renovation and modernisation of the power station in accordance with the plan and programme approved from time to time by GRIDCO, OERC, CEA and Govt. of Orissa.

16. OHPC has also agreed that in consultation with respective departments of the State Government, if would fix the quantity of water that has to be released through the power plant for downstream utilisation on a monthly basis.

17. The PPA contains principal obligation of the parties, condition precedent to the operation of the PPA, clauses on adjustment on renovation, sale and purchase of capacity and electricity, defines the pre-operation period, explains the operation of the power stations, specifies about metering and access to property. The PPA also specifies about the unit capacity, despatched output, method of invoicing and payment, third party liability and insurance, force majeure conditions, terms for termination of agreement, methodology of dispute resolution, waiver of immunity, assignment and security interest along with miscellaneous provisions.

18. The PPA has got seven schedules forming part of the PPA which includes definition, technical limits, interconnection facilities and site responsibilities, schedule on metering, tariff, computation of post-failure availability, monitoring and coordination of operation.

19. The PPA also contains two annexe on tariff calculation for UIHEP (provisional) and power station’s interconnection points.

OBJECTIONS RAISED DURING HEARING

20. Shri R.C. Padhi, a former Chief Engineer, Govt. of Orissa : 

1. If UIHEP was sold by OHPC or transferred in any other way, the new owner may not be under any obligation to honour the terms of the PPA. If at any time GRIDCO/OHPC is privatized the motive and actions of the private entrepreneurs cannot be predicted. Interest of the consumers can be d only by a provision that no transfer or mortgage of UIHEP shall be done without the consent of the OERC. 

2. The generating company should return the excess depreciation collected with interest before it transfers, sells or mortgages the project to any other company or entity. 

3. The capital cost of the power project has been given as Rs.1195.42 crores. But the capital recovery given in the calculation is Rs.1327.1 crores which includes the interest free Orissa Govt. loan on perpetuity of Rs.131.685 crores for the dam cost apportioned to irrigation. Inclusion of the cost of irrigation in the power project cost is incorrect and unfair. 

4. The debt equity ratio may be verified by OERC. 

5. The capital cost of Rs.1195.42 crores should allow only if the project cost is approved by CEA. 

6. OERC should check the correctness of the depreciation rate of 3.6% and suggested that depreciation should be calculated only on the project cost excluding interest during construction. 

7. Annual escalation of operation and maintenance should be allowed on weighted average escalation in general prices during the year and not at a rate of 8% which is four times that of the present inflation rate of 2%. 

8. Requirement of interest on working capital on account of two months receivable needs to be renewed by OERC. 

9. Units installed have a continuous overload capacity of 10% over the name plate rating i.e. the units can be continuously loaded upto 165 MW. Therefore, OERC should direct GRIDCO/OHPC to move CEA for re-rating of the units. 

10. He pointed out that financial loss to GRIDCO for following the instructions of EREB should be borne by EREB or the order should not be implemented. If spilling of water takes place due to directions of EREB then the cost thereof should be borne by EREB for levy on relevant users. 

11. Colony consumption should be paid for at GRIDCO/DISTCO rate. 

12. There is no provision for cost adjustments if the unit does not achieve it’s scheduled performance. GRIDCO may even give consent to the reduced performance but such approval should be only on reduced capital cost. 

13. OERC may consider how OHPC can be penalised for spilling the water by not maximising the generation output. 

14. OERC may re-determine the periodicity of testing of meters as any error in metering can be very costly to either party. 

15. The term ‘designed energy’ has been defined in the agreement in line with the GoI notification. The GoI has set 90% availability to serve the interest of its own companies. As water availability in 89 out of 100 years would be far higher, tariff based on 90% availability is against the consumers’ interest. Therefore, departure should be made from GoI norms. 

16. There is no justification for payment for secondary energy (at 30% of primary energy charges it comes to 12/13 paise/unit) as the generator has to make no effort to produce the energy. But at the same time the price should be such that the generating company would have sufficient incentive to keep its units ready for maximisation of generation. 

17. Reactive power charges to be limited to the period when such high reactive power is specially asked by GRIDCO. 

18. Seasonal energy be priced at 5 paise/unit. 

19. Total profit on equity on all accounts including income tax on return on equity be not allowed to exceed 25%. 

20. He also suggested norms for availability, definition about the commercial operation, interim tariff till commercial operation of all 4 units, accounting of infirm power, non-interest payment for 1999-00, tariff for peaking power to other states and proposal to recommend the Govt. to bear the additional expenses in the project cost due to flooding of the project during construction in 1991-92.

21.Shri R.P. Mohapatra, Former Member (Generation), OSEB & Chief Electrical Inspector, Orissa :

1. The notification of the GoI under Section 43(A) of the Electricity (Supply) Act, 1948, stipulates that the approved project cost and any excess capital expenditure approved by the authority shall be deemed to be actual capital expenditure for the purpose of determining the tariff. Therefore the capital cost determined by Government of Orissa cannot be the basis for determination of tariff. 

2. The CEA did not scrutinise the revised project estimate submitted by the GoO in December, 1996. CEA has the statutory responsibility to approve the capital cost of the project and give techno-economic clearance because the UIHEP commenced commercial operation after 01.01.1997. The Commission may pass orders requesting the authority to determine the approved capital expenditure of UIHEP.

3. Shri R.P. Mohapatra submitted a calculation stating that the Commission may allow an interim amount of Rs.468.07 crores excluding IDC as the capital expenditure for the purpose of tariff determination based on the following considerations - 

1. Projects like UIHEP should have been completed in a period of about 10 years. But the actual period of work has crossed 22 years. The OERC having been charged with the responsibility to promote efficiency and economy in the power sector cannot allow any escalation of cost on account of such delays which are solely attributable to the generator. 

2. Orissa system will have surplus peak availability of 500 MW after commissioning of the 4 units at Indravati and this surplus will rise to 1200 MW after commissioning of 7th and 8th unit of Balimela, AES and Kalinga Power’s Thermal Plant. Unless GRIDCO is able to get payment for the peak support to EREB, the allowable capital expenditure of UIHEP should be for installation of 2X150 units. 

3. The actual capital expenditure including IDC for determination of tariff should be, even on a liberal basis, the cost estimates of 1990+15% based on the principle that the delay in project execution shall be reasonable and that no capital expenditure required to make good the damages due to accident be considered for tariff determination. The actual capital expenditure on 4 units basis should be Rs.468.07 crores and on 2 units basis should be Rs.352.95 crores. 

4. This amount is to be reduced by the amount billed for the sale of infirm power. The amount to be charged to the power project towards the cost of the dam, etc. should not be exceed 50% of the 1990 estimated cost + 15%. This works out to Rs.68.48 crores. Since Upper Indravati project is a multi-purpose project with flood control and irrigation being important activities in addition to power generation, the share of the dam cost chargeable to irrigation should be more. As the water is utilised for irrigation down stream in addition to the direct drawal of water from the reservoir for irrigation.

22. The representative of UCCI Shri M.V. Rao stressed the point that the cost/unit should not exceed 87.06 paise under the PPA in support of which he submitted a calculation.

23. During the course of the hearing Director (Tariff) of the Commission pointed out that in terms of licence condition, taking into account the subsisting PPAs, contracts/MoUs with various generating units and in the regime of proposed availability based tariff for the central generating stations the necessity of procurement of power from UIHEP need to be justified. GRIDCO has to demonstrate that such power procurement will achieve the least cost combination of power procurement.

REJOINDER BY GRIDCO

1. GRIDCO in their reply dtd.25.01.2000 have submitted that the capital cost of the UIHEP was approved by the planning Commission/CEA during 1977-78 at an estimated cost of Rs.208 crores (1975-76 price level) out of which the cost allocated to power was Rs.130.48 crores which included 50% cost of dam apportioned to power. 

2. Due to delayed execution of the project the cost estimate was revised in 1983, 1990, 1994 and the final revised cost amounting to Rs.1107.10 crores excluding IDC was submitted to CEA by Govt. of Orissa for approval (27.12.96). 

3. This estimate was returned by the CEA with observation that it would not be possible for CEA to examine such fait accompli revised cost estimate and as such CMD, OHPC/HOD should satisfy himself about the reasonableness of cost estimate. The draft PPA submitted by OHPC indicated the project cost as Rs.1450 crores which included 100% cost of the dam. 

4. Approved Capital Expenditure of the Project
   In the absence of CEA approval the final cost as approved by the Govt. of Orissa was accepted and accordingly provisions kept in the PPA. 

5. Requirement of power from Indravati
   GRIDCO has stated that in all load growth projections and power planning study in the past UIHEP is considered as a dedicated station for the State of Orissa as this project was conceived by GoO.

6. GRIDCO has furnished the interest rates applicable for loans taken from the Govt. as 13%, from PFC at 17.34% and Govt. guarantee and commission at 0.5% of PFC loan. 

7. GRIDCO has also stated that in absence of TEC the apportioning of the cost during different phases of the construction has been mutually agreed as no guidelines exists on apportioning the cost between different units of the hydro stations in the construction stage. 

8. As regards to the allotment of Rs.131.685 crores as a loan on perpetuity to cover civil construction work and appurtenant work they have stated that the matter has been referred to the Dept. of Energy for consideration and reply is awaited. 

9. GRIDCO has stated that the renovation and modernisation work would be cheaper than the installation of the new projects and as provided in the PPA R&M works can only be taken up in accordance with plan and programme approved by OERC. During the said approval the justification viability and cost to be passed on to tariff can be examined. 

10. GRIDCO in response to the objections raised by Shri R.C. Padhi, Former Chief Engineer has stated that as per Clause 15 of the PPA, the capital/tariff structure of the project cannot be amended or revised merely by change of the ownership of the power station. 

11. GRIDCO has stated that any change in the provision of the PPA in future is only applicable after approval by the OERC. GRIDCO has also stated that the terms and conditions of the PPA is binding for all the successor of the GRIDCO. GRIDCO have reiterated the view out of the 5% dam and appurtenant cost chargeable, Rs.100 crores will be grant-in-aid and balance of Rs.131.685 crores will be interest free Govt. of Orissa loan to OHPC. Accordingly Rs.131.685 crores is considered in the project cost for calculation of O&M and Depreciation. GRIDCO have requested the Dept. of Energy to consider Rs.131.685 crores as loan on perpetuity/grant-in-aid and the reply is awaited. 

12. As regards the determination of debt equity ratio raised by Shri Padhi, GRIDCO have stated that as per Govt. notification dtd.01.04.96 on transfer of asset to OHPC, after commissioning of UIHEP Rs.500 crores out of loan amounting to Rs.644.3 crores along with interest accrued thereon will be equity. 

13. GRIDCO has stated that as decided in the meeting taken by the Addl. Secretary, Dept. of Energy on 4.2.98 the capital cost with IDC for UIHEP should be apportioned in the ratio of 75:25 between debt and equity in line with debt equity ratio for existing power stations under OHPC and notified by Govt. of Orissa. 

14. GRIDCO has reiterated that as the revised cost estimate was returned by the CEA treating it as a fait accompli revised cost estimate it has been decided to adopt the final cost as approved by Govt. of Orissa and accordingly provisions in the PPA has been kept. 

15. GRIDCO has stated that the rate of depreciation may vary from power station to power station as the cost depends on the cost of various component. Based on the revised estimated cost, the rate of depreciation comes to 3.6%. However depreciation is linked with repayment of loan in a year the above rate is only applicable for 3-4 years and bears no impact on tariff.

Rejoinder by Orissa Hydro Power Corporation

1. OHPC has submitted that the PPA for UIHEP between OHPC and GRIDCO is an independent agreement applicable for UIHEP. OHPC has clarified that the weighted average rate of depreciation of all equipments taken together for this hydro project is 3.6%. 

2. OHPC has further submitted that a sum of Rs.131.685 crores has been shown as interest free govt. loan (on perpetuity to OHPC out of 50% dam cost attributable to irrigation). As OHPC has to repay the interest free govt. loan as per the loan repayment schedule, the amount has to be considered against depreciation. 

3. OHPC has also submitted that the irrigation dept. may not spent any amount towards dam maintenance as all its shares has been treated as grant-in-aid/interest free loan to OHPC. As OHPC has to maintain the dam Rs.131.685 crores should be considered to O&M charges. Thus for depreciation and O&M charges the capital cost will be enhanced by Rs.131.685 crores. 

4. As regards to the issue of debt equity ratio OHPC has clarified that the debt equity ratio has been adopted as per Govt. of India norms. 

5. As regards to the approved project cost OHPC has stated that the CEA do not accord approval to revised estimates. Only original cost estimate is approved by CEA if no technical specification is changed further approval is not necessary. 

6. OHPC has clarified that the rate of depreciation has been calculated on Rs.875.42 crores but the depreciation for the purpose of tariff should be calculated on the basis of the capital cost of the project as per the Govt. of India guidelines. 

7. OHPC has further stated that over loading of the generator is over and above the rating of the machine. The re-rating of the units as requested to 165 MW is not logical. Such re-rating including the over load capacity of the units is not in line with the prudent utility practice. As such the same is not acceptable to OHPC. The same logic applies for determination of net dependable capacity which should not include the continuous over loading capacity and as such there is no necessary of re-rating the machine. 

8. OHPC has submitted that the sale of electricity prior to commercial operation of the unit will be treated as infirm power. Commissioning of a machine means successful operation after achievement of all the guaranteed performance. As such question of going for commissioning without satisfying the performance characteristic does not arise. 

9. OHPC has clarified that in UIHEP a variation of output if any will be of no significance as the head of water of this power station is stable. 

10. As regards to the question of penalising OHPC for spilling the water for not maximising generation output OHPC has stated that the generation from hour to hour of the OHPC stations is done according to the generation schedule of SLDC. By not maximising the generation out put during monsoon and allowing water to spill, OHPC automatically gets penalised due to reduction in generation. As such OHPC cannot afford not to maximise the generation output unless the units are under forced outage which are beyond the control of OHPC. Therefore, OHPC should not be doubly penalised which will not be in line with the prudent utility practice. 

11. To the question that if OHPC cannot justify the forced outage it should pay the liquidated damages, OHPC has stated that a forced outages is normally beyond the control of OHPC as such all forced outages are justified. Hence, liquidated damage would not be applicable. 

12. As regards to the pricing of the secondary energy OHPC has stated that expenditures incidental to generation of power like maintenance of equipments, wear and tear of the machines and equipments and additional maintenance personnel engaged for higher generation required a pricing of secondary energy. 

13. As regards to the fact that the project cost has substantially increased due to flooding during construction in 1991-92, the additional expenses on that account should be borne by the Govt. OHPC has submitted that the asset of the project and the cost thereof has been transferred by Govt. on 1.4.96 and the transferred value has taken as the project cost. 

14. In response to the objections regarding high operation and maintenance expenses and escalation thereon raised by Shri M.V. Rao OHPC has stated that there is no record known where the annual escalation of O&M is less than 8%. OHPC has further stated apart from the increase in cost of spares per annum which is around 10% the increase in salary expenditure is more than 8% per annum. As the above two components as the major items in O&M charges the annual escalation of 8% is justified. 

15. Regarding the issue of interim tariff till commercial operation of all units by considering 70% of the project cost after commercial operation (not commissioning) of unit 1 and increasing it by 10% after commercial operation of another unit is on the higher side, OHPC has stated that by the time of commissioning of first unit most of the dam works, power house and civil works are completed and as such the percentage project cost is fixed for post commissioning generation of each one till commissioning of last unit is quite reasonable and justified and in line with prudent utility practice. 

16. UCCI had raised the issue that the UIHEP was approved during may 1978 and administratively approved in July, 1979 for an amount of Rs.208.14 crores including an amount of Rs.42.74 crores for irrigation. After 3 revisions the cost has reached Rs.1107.10 crores. The project has taken 22 years for completion as against a normal period of completion of a hydro electric project is 10 to 12 years resulting in escalation of cost as well as in capitalisation of higher IDC. There were severe damage to the project due to unprecedented flood in 1991-92 for which the project cost went out abruptly about 80% during the years. The dam and appurtenant cost went up about 90%. Increase in project cost due to force majeure should not be passed on to the consumers but be treated as a grant-in-aid by the Govt. which may be evaluated and deducted by OERC from the project cost. Based on the these observations, a tariff rate of 87.06 paise has been worked out. 

17. OHPC has stated that the accident July 1991 resulted in severe damage to the electrical equipments which was surveyed by Japanese experts. Due to flood the requirement of man-days went up substantially. Due to financial crisis of the State there was time and cost over run for which OHPC cannot held responsible as it was formed only in 1996. The project has been transferred with a project cost of Rs.1107 crores on which the PPA has been approved and tariff calculated accordingly. 

18. An issue has been raised that as against a firm power of 224 MW the installed capacity is 600 MW. Therefore, increased availability does not increase the energy generating station availability. During peak load period installed capacity can be of advantage only if GRIDCO receives high revenue for peak support to the EREB. Presently higher availability during peak load period is not required by the Orissa power system. Therefore, a stipulation may be made that this clause will be made applicable in future whenever the peak demand of the Orissa Grid increases or GRIDCO obtains higher peak load tariff. OHPC has replied that the PPA is for a period of 30 year which is quite long and the eventuality of requirement of increased availability during the peak load period can not be ruled out. 

19. A question was raised that the installed capacity being far in excess of the firm power requirement, secondary energy resulted only on account of good hydrological conditions. When the short fall of energy generated due to poor hydrological condition is being paid for no payment should be made for secondary energy which neither requires any expenditure or effort on the part of OHPC. 

20. OHPC has stated that the hydrological condition is only for 7 years as against the proposed PPA with a duration of 30 years. Further that no expenditure is incurred for generation of secondary energy is not correct. Generation of secondary energy will cause extra expenditure in terms of consumables, lubricant and warranty of the major and auxiliary equipment and other expenditure for deployment of personnel for monitoring during machine operation at full load and above.

Observations by the Commission

1. The Commission has examined the PPA in the light of the objections raised by the various parties, the rejoinders submitted by GRIDCO and OHPC as well as presentations made during the course of the hearing.

2. The Commission’s first concern was to examine the requirement of power in the Orissa system which would justify the purchase of power from Upper Indravati Hydro Electric Project. 

3. Upper Indravati Hydro Electric Project with an installed capacity of 4X150 MW has an energy potential of 1942 MU. As far as the hydro stations of Orissa are concerned (excluding Upper Indravati) a net availability of 4000 MU is a fair assumption which includes around 300 MU from Machhkund hydro electric project. The two thermal stations of Orissa namely Orissa Power Generation Corporation with 420 MW capacity and Talcher Thermal Power Station with an installed capacity of 460 MW can supply around 4530 MU considering normative level of operation of these power stations. The total availability under the aforesaid condition is 8530 MU excluding Indravati. 

4. During the year 2000-01, with the likely implementation of Availability Based Tariff, the net availability of power in Orissa from central sector has to be recalculated. Central sector thermal power stations normally operated at a level of 70% availability. To get the benefit of recovery of full fixed cost, the plants have to operate with an availability of 80%. Two alternative scenarios based on the availability of 70% or 80% are worked out. 

5. In the first scenario, it is assumed that plants shall operate at a level of 80% with no scope of surrender/sale of any power from these stations. The utility has to bear the share of fixed cost in proportion to the allocated and unallocated shares of these stations. (Financially most unfavourable for the licensee) 

6. In the second scenario, these plants may operate at an availability of 70% (considering their past performance), there is scope for surrender/sale/allotment of the unallocated share. (Favourable for the licensee) 

7. The allocated share of Orissa is 632 MW and the unallocated share is 179 MW from the three Super Thermal Power Stations at Farakka, Kaniha and Kahalgaon. 

8. Under these two extreme conditions Orissa is entitled to 5077 MU in the first scenario and 3452 MU in the second scenario. To summarise, the power availability of Orissa from all sources can be as follows. 

Scenario - 1

Scenario - 2

9. The current requirement of power for Orissa for the year 1999-00 is estimated as 10176 MU. The requirement of power for the year 2000-01 may be at the level of 1999-00 as there is no proposal for addition of any major load in the Orissa system. The distribution licensees are required to reduce the transmission and distribution loss by which any normal growth in load will be getting offset due to reduction of losses in the system.

10. The loss reduction programme of Orissa system as presented by CMD, GRIDCO in tariff filing of 1998-99 is given below.

TABLE : System loss in % 

11. Therefore, the estimated energy requirement may be 10200 MU for the year 2000-01. With this level of requirement, the State is in a position to utilise around 10200 MU of power for the present. However, this figure would change depending upon the actual load growth and actual level of loss. 

12. From the regulators point of view the Commission has only to look to the overall economy in the cost of power and ensure that power is being purchased at the lowest possible cost not only on the date of approval of this PPA but foreseeable future requirement of power in the overall growth perspective of the State. 

13. If energy availability is the only consideration, then acceptance of the draft PPA would mean acceptance of a fixed burden by the consumers of the State to the extent of Rs.162 crores. 

14. Need for UIHEP 
    Indravati is a hydro station constructed by the State Govt. for the State of Orissa and has been made operational after construction for the last two decades. A hydro station like UIHEP provides flexibility in power system operation. It has the unique advantage of providing peak support during the peak load hours with option of marketing these powers at a much higher price. There is still a mismatch of the load and demand in the country during peak hours, though Eastern Zone is an exception. With the implementation of Zonal interconnection facilities, the utilisation of peak support can not be ruled out at a future date. Any power which appears to be surplus today may be required to be purchased at a much higher rate if major loads materialise at a future date. In the present scenario the surplus energy, if sold outside the State, would have the effect of lowering electricity tariff in Orissa. 
    In this connection, para 4.2 of the Annual Report 1998-99 of the Central Electricity Authority is reproduced below : "Relentless efforts by CEA motivated other deficit States in one region to avail power from other regions to their mutual advantage to the extent possible whenever and wherever such surpluses were available. The inter-regional exchanges increased from 5093 MU in 1997-98 to 7297 MU in 1998-99 representing an increase of 43.3%. While the beneficiaries of the increased export have been the States in Southern, Western, North-Eastern and Northern Regions namely Kerala, Andhra Pradesh, Tamil Nadu, Madhya Pradesh, Gujarat, Daman & Diu and Dadar & Nagar Haveli, Uttar Pradesh and Assam, the major contributor towards these exports has been Eastern Region which has a surplus power on sustained basis during last two years or so. The export from Eastern Regional increased from 2474.6 MU in 1997-98 to 3628.1 MU in 1998-99 representing an increase of 46%. As a result of these initiatives, the rate of energy for NTPC stations in the Eastern Region for exports outside the region also reduced gradually from 215 p/Kwh in January, 1998 to 159 p/Kwh in March, 1999, benefiting the States both outside and within the Eastern Region." 
    Further it is stated in para 4.3.4 of the Report that "Export of power to Western Region was effected by isolating IbTPS of Orissa from Eastern Region and connecting to Western Region through 220 KV Budhipadar-Korba 220 KV D/C line. Power transfer upto 400 MW was affected to Western Region, out of which 100 MW was transferred to Southern Region through Chandrapur HVDC back-to-back system Andhra Pradesh received assistance of the order of 150 to 180 MW from Eastern Region directly over Balimela-Upper Sileru link on radial mode. 
    The above administrative report of CEA mentions very clearly that there is potential of sale of power from Orissa to other States and regions. Transactions which were hither to being carried out by the Eastern Region/NTPC if taken over by GRIDCO through appropriate marketing strategy can mitigate, to some extent, the fixed cost of these stations. 

15. The next issue is to determine if the power is being purchased at the lowest cost. If UIHEP is contracted, the licensee will be required to bear the fixed cost and pay the variable cost in proportion to the energy drawn from this power station at a rate of 38.69 paise/unit. If it is not contracted, the licensee will have no burden of payment of fixed cost but will also be deprived of the benefit of additional revenue if any, on account of sale of such power which will offset to a great extent the burden of cost of power to the licensee. 
    Therefore, a comparative study is made to determine the per unit cost of power purchase based on the data available as on today with assumption that (i) Indravati power will be contracted, and (ii) Indravati power will not be contracted. The calculations and projections are being made based on the present available figures and assumed operating conditions. 
    In both cases availability at 70% of allocated capacity of the central station is assumed. 
    In case No. (i) above the average cost works out to 146.95 paise/unit. In case (ii), the average cost works out to 135.54 paise/unit. If the present level of sale outside Orissa to the extent of 3213 MU is maintained at the present sale rate of 205 paise/unit, the per unit cost in case No. (i) will come down to 108.45 paise/unit. This proves that if Indravati power will be contracted and power is sold outside, the consumers in Orissa will stand to benefit. With 80% availability of central station similar inference can be drawn. This is explained in the following illustration.

16. Period of PPA 
    
    The Commission considers that a PPA should be a dynamic document to meet the changing needs of the times. In the light of rapid regulatory changes and reforms in electricity sector all over the world, there is a necessity of incorporating a clause for review of the terms of the PPA during its life time so as to safeguard the public interest while keeping in mind the interest of the contracting parties. 
    
    Hence clause 15.1, Clause 12.6.4 and condition 11 of Schedule 5 should be suitably altered so as to enable the contracting parties to review the terms of the agreement on the basis of mutual acceptability and consideration with due prior approval of OERC even during the 30 years period of the agreement. 
    
    The formulation on clause 15.1 is suggested as under :- 

15.1 Term 

This agreement shall be deemed to have come into force with effect from the date of Commercial Operation of 1st unit and shall remain valid for thirty (30) years from the date of Commercial Operation of last unit : provided that with a view to safeguard public interest the terms of the agreement may be reviewed during the continuity of the agreement to arrive at mutually acceptable terms, subject to approval of OERC. Further it may be mutually extended or renewed by another agreement on such terms and for such further period of time as the parties may agree. However, the provisions of this agreement will continue to apply till this Agreement is formally renewed, revised or extended. 

Provided further that, the terms of this agreement including the Capital/Tariff structure shall not be amended or revised merely by a change of ownership of the Power Station (OHPC) or the Licensee (GRIDCO). 

12.6.4 

The Clause 12.6.4 is required to be altered as under : 

In the event that the Parties agree that a change or modification to this Agreement is required following the Tariff Review, the Parties shall execute such agreements as are reasonably necessary to effect the agreed changes or modifications to this Agreement with prior approval of OERC. 

The Condition 11 of Schedule 5 

This is required to be altered as under : 

11. Revision of Tariff 

The tariff shall be subject to revision at the time of renewal, replacement or extension of this Agreement as approved by OERC. 

17. Cost of Upper Indravati Hydro Electric Project 
    
    As per the notification of the GoI under Section 43(A) of the Electricity (Supply) Act, 1948 the approved project cost and any excess capital expenditure approved by the authority shall be deemed to be actual capital expenditure for the purpose of determination of tariff. OHPC has submitted a copy of letter NO. 13/3 Orissa/93-HTD.1/96 dtd.16.01.93 of CEA indicating that revised estimate for works, whose scope of work has not changed, need not be sanctioned by CEA. An extract of the letter is produced below “Since scope of work now contemplated is broadly same as envisaged in the scheme already cleared by CEA, clearance of revised cost estimates is not considered necessary.” Further an extract of CEA letter dated 28.1.97 regarding revised estimate of UIHEP is reproduced. “Since expenditure in excess of the sanctioned estimate has already been incurred and there is no major change in the scope as per para VI of Chairman, CEA circular dated 19.7.91 to all utilities, it would not be possible for the CEA to examine such fait accompli revised cost estimates and as such CMD, OHPC Head of the Dept. should satisfy himself about the reasonableness of the revised cost estimates. Under the above circumstances the Commission accepts project cost as approved by the Govt. of Orissa for the purpose of determination of tariff. The Commission as such approves the PPA in its present form.

CAPITAL COST OF UIHEP

* Project cost of Rs.1107.10 crores (excluding IDC) was sent to CEA for techno-economic clearance.
** Rs.1195.42 crores to be considered for determining tariff of UIHEP. 

Some of the objectors have stated that the capital cost of the power project is Rs.1195.42 crores but the capital recovery given in the calculation is Rs.1327.1 crores which includes the interest free Orissa Govt. loan (on perpetuity) of Rs.131.685 crores for the dam cost apportioned to irrigation. Inclusion of cost of irrigation in the power project cost has also the calculation of operation and maintenance and operation and embedded cost is incorrect and unfair. GRIDCO and OHPC has already given their rejoinder in this issue which is available in the preceding paragraphs of the order. The Commission is of the view that the impact of this cost apportioned to irrigation will be an unnecessary burden to the consumers of electricity for which it should not be allowed to recovered through tariff. 

18. Rate of Depreciation 
    The Commission examined the objections raised with regard to the rate of depreciation and the reply submitted by the OHPC. As explained by OHPC the rate of depreciation for hydro electric plant and machinery and concrete building is 3.4% as per the Govt. of India Notification No. SO-265(E) dated 27.3.94. OHPC has stated that for the purpose of calculation of the rate of depreciation of a power station, the rate of depreciation of all equipment to be taken along with their cost. Based on the above they have submitted depreciation calculation pertaining to UIHEP which works out to 3.6% which is accepted by the Commission. 

19. Rating of the Machine
    It was raised during the course of the hearing that the units are designed for continuous overload capacity of 10% over the nameplate rating for which they can be continuously loaded upto 165 MW. Therefore, the machines may be re-rated to 165 MW in place of 150 MW. The Commission examined the reply submitted by OHPC that the overloading of the generation is over and above the rating of the machine. For instance if the machines are rated to 165 MW then there shall be no overload margin. The manufacturers rating of 150 MW is accepted as rating of the machines leaving margin of 10% for overloading. Similarly, the Commission also accepts the argument put forth by OHPC that the net dependable capacity should not include continuous overload capacity. 

20. Charge for secondary energy
    It has been raised by some of the objectors that secondary energy is the quantity of energy generated in excess of the design energy on annual basis. Payment of secondary energy at 30% of primary energy charges/unit is high as these are zero cost energy. Therefore, there should be a limit of 5 paise/unit on the cost of secondary energy (K.P. Rao Committee recommendation of 5 paise/unit). The generator has no effort to make to produce the energy for which the pricing of secondary energy should be such that the generating company should be interested for maximisation of generation. OHPC on the other hand has stated that additional expenses like maintenance of equipments, wear and tear of machines are inevitable for generation of the secondary energy. The Commission examined this issue and in this connection the Govt. of India Notification dated 30th March, 1992 as amended on 8th June, 1998 stipulates that the rate of incentive for secondary energy shall be mutually agreed between the Board and the Generating Company. However, the maximum payment on this account in any year should not exceed 10% return on equity. This agreement has been entered on 18th August, 1998 which should have taken into consideration the Govt. of India Notification and both the parties should take note for making suitable amendment to the PPA to bring it in line with the aforesaid Govt. of India Notification. 

21. Calculation of cost/unit
    UCCI has calculated the rate/unit of Indravati power 87.06 paise considering the total project cost as Rs.828.44 crores. OHPC in its reply has stated that the IDC has been calculated as Rs.253.03 crores by the objector is based on a wrong conception as against the actual of Rs.320.00 crores. OHPC has also objected to the deduction of project cost to the extent of Rs.300.00 crores for force majeure condition. The Commission has already expressed its views on the project cost to be adopted for the purpose of determination of tariff which is different from the figure calculated by UCCI.

ORDER

1. The Commission approves the figure of project cost including IDC as clarified in para 26(xvii).

2. As explained in the aforesaid para the Commission directs that a sum of Rs.131.685 crores apportioned to irrigation is not allowed to be included in the project cost for recovery through tariff.

3. Secondary energy to be charged in accordance with the GoI notification as clarified in para 26(xx).

4. The Commission further directs alteration of Clauses 15.1, 12.6.4 and Condition 11 under Schedule 5 of the PPA as explained in para 26(xvi).

With the aforesaid observations the Commission approves the PPA. 

(S.C. MAHALIK)
CHAIRMAN

(D.K. ROY)
MEMBER

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