ANDHRA PRADESH ELECTRICITY REGULATORY ... - Infraline

Andhra Pradesh Electricity Regulatory Commission

ANDHRA PRADESH ELECTRICITY REGULATORY COMMISSION 11-4-660, 4th & 5th Floors, Singareni Bhavan, Red Hills, Hyderabad.

Present Sri. K. Sree Rama Murthy, Acting Chairman Sri. Surinder Pal, Member Dated 10-07-2004 R.P.No. 8 / 2004 Between The South India Sugars Mills Association

…Petitioner AND

Transmission Corporation of Andhra Pradesh

… Respondent

ORDER Andhra Pradesh Electricity Regulatory Commission (Commission) initiated suo-motu proceedings for determination of tariff applicable to non-conventional energy (NCE) projects of Andhra Pradesh to take effect from 01-04-2004 onwards. 2.

The Commission having heard the Non-Conventional Power Project Development Corporation of Andhra Pradesh Ltd (NEDCAP), Transmission Corporation of Andhra Pradesh Ltd (APTRANSCO) and developers who appeared before the Commission on 22-12-2003 and 23-12-2003 and the general public on 19-03-2004 and having considered the objections and the oral and written submissions made by the parties passed the Order dated 20-03-2004 in R.P.No.84 / 2003 in O.P.No. 1075 / 2000. In the said Order, the Commission notified the tariff and other terms and conditions for purchase of power by APTRANSCO from the following categories of non-conventional energy-based power projects:

3.

i)

Biomass-based energy and Biomass- based co-generation plants

ii)

Bagasse-based co-generation plants

iii)

Mini-hydel power projects

iv)

Wind electricity generators

v)

Industrial Waste-based energy projects

vi)

Municipal Waste-based energy projects.

While deciding the tariff and other terms and conditions in respect of different categories of NCE projects, the Commission adopted a “Cost plus” approach and allowed a fair amount of return instead of the adhoc price earlier fixed, which was uniform to all categories of NCE projects, based on the guidelines of Ministry of Non-conventional Energy Sources (MNES) issued in 1993.

While thus

rationalizing the tariffs and adopting the cost plus approach, the tariff for some categories of NCE Developers underwent a downward revision compared to the tariffs they were enjoying earlier.

4.

Aggrieved by some of the provisions of the said Order, the following developers of NCE projects filed writ petitions in the Hon’ble High Court of Andhra Pradesh:

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i)

M/s. Biomass Energy Developers Association.

ii)

M/s. Mini-Hydel Developers Association.

iii)

M/s. Sree Rayalaseema Hi-Strength Hypo Ltd [Biomass Developer].

iv)

M/s. Vensa Bio-Tek Limited.

v)

M/s. Active Power Corporation Pvt. Ltd.

vi)

M/s. South India Sugar Mills Association.

vii)

M/s. Raus Power Pvt. Ltd.

viii)

M/s. Sai Renewable Power Pvt. Ltd. The present order relates only to M/s. South India Sugar Mills Association (bagasse-based co-

generation developers), listed at serial number (vi) above. The Commission is passing separate orders on the other categories of developers such as Biomass, Mini-hydro and Waste to energy. 5.

The Hon’ble High Court, by order dated 27.4.2004 directed as under: “The Petitioner-Association is permitted to file review petition against the impugned orders dated 20-032004 before APERC as contemplated under section 94 (1) (f) of the Electricity Act, 2003 within a period of ten days from the date of issue of the order and on such filing, the respondent Regulatory Commission is directed to dispose of the same within a period of eight weeks thereafter. Till passing of such order, as per the interim orders passed by the Court on 01-04-2004 the existing tariffs shall continue in force”.

6.

Following the directions of the Hon’ble High Court, the South India Sugar Mills Association (SISMA), the association of bagasse-based co-generation power developers, filed this petition for review of the Order dated 20.3.2004 for an upward revision of the tariff. The APTRANSCO, Sri M.Venugopal Rao, Correspondent, Prajasakthi, and Peoples Monitoring Group on Electricity Regulation also filed petitions for review of the Order dated 20-03-2004 for downward revision of the tariff. Opportunity was given to opposite parties in all these petitions to file the replies. The copies of the review petition of APTRANSCO were also served on NCE developers who had earlier participated in the proceedings for determination of the tariffs, terms and conditions leading to the passing of the Order dated 20-03-2004 by the Commission. The Commission conducted a hearing on 11-06-2004 and invited PetitionerAssociation, APTRANSCO, Sri M.Venugopal Rao, Correspondent, Prajasakthi, and Peoples Monitoring Group on Electricity Regulation to present their case on the review petitions filed before the Commission. M/s NEDCAP had also been directed to present their views in the hearing as intervenor.

7.

The issues raised by the Petitioner-Association for the review of the Order dated 20-03-2004 and the decision of the Commission are as under:

8.

Capital cost: According to the Petitioner-Association, there has been a steep increase in costs, especially of steel. Further, if the developer chooses air-cooled condenser, the increase would be around Rs 0.4 Cr / MW. Hence, the Petitioner-Association, which earlier proposed project cost of Rs.3.25 Crs per MW, now claims a project cost of Rs.3.8 Crs per MW for new projects in the review petition to compensate for the increase in the prices.



APTRANSCO, responding to the above, submitted that increase in steel prices over the past few months is a cyclical phenomenon which cannot be used for benchmarking the Capital cost. It has further submitted that improved configuration of the plants gives rise to higher efficiency which pays back for itself

through the efficiency gains. The objectors, Mr.Venugopala Rao, Correspondent,

Prajashakthi, and Mr. Thimma Reddy of Peoples Monitoring Group, contended that the project cost is very high and the market trends for capital cost need to be considered.

According to them, the

developers had no basis for their claim of higher capital cost as they have not submitted any invoices, etc. nor any indication that they had adopted the competitive bidding process to justify the capital cost. While determining the Capital cost of the projects, the Commission in its Order dated 20.3.2004 at paragraph 33 discussed the views of developers, NEDCAP and APTRANSCO and held that the project cost shall be taken as Rs. 3.25 crs/MW for the bagasse-based projects. The paragraph 33 of the Commission’s Order dated 20.3.2004 reads as follows: “M/s. NEDCAP indicated a project cost of Rs. 2.5 Crs / MW initially but subsequently revised it to Rs. 3 Crs / MW, for old projects and Rs. 3.5 Crs / MW for new projects, while APTRANSCO considered a capital cost of Rs. 3 Crs / MW as reasonable for all projects. One of the Developers has quoted a figure of Rs.2.5 Crs / MW to

Rs.2.9 Crs / MW. The South Indian Sugar Mills Association Andhra

Pradesh (SISMA-AP) projected the capital cost as varying from

Rs.3.25 Crs–Rs. 3.75 Crs /

MW. All these numbers indicate that there is no convergence of views on capital cost of projects. The Commission, in order to arrive at the tariff was keen to estimate the project cost based on the details available with some reliable organizations having maximum information on each project.

M/s.

NEDCAP and APTRANSCO are the two Government organisations which have the data either from their own analysis or from Detailed Project Reports (DPRs) filed by the developers. The capital cost of each project is varying depending on its size and technology. During the hearing with the developers, SISMA-AP quoted capital cost of Rs. 3.25 Crs/MW. As this cost is also falling in the range quoted by NEDCAP, the Commission agrees to Rs. 3.25 Crs/MW as the project cost for Bagasse based Co-generation projects without distinguishing between old and new projects”. Thus the Commission adopted the benchmark capital cost after considering all the relevant factors including the submission of SISMA which proposed the capital cost of Rs.3.25 crs/MW in their letter dated 29.12.2003. It will neither be practical nor will be appropriate to determine the project cost on a case-to-case basis. The project cost of Rs 3.25 crs/MW was fixed taking into consideration the prices at the level prevalent in some of the projects already set up the details of which were available. The Commission cannot provide for continuous adjustment for the prices in steel, copper or other inputs. The Project Developers who are setting up the projects now have the advantage of improved technology and efficiency of the machines. While the Commission endeavours to promote nonconventional energy development, the same cannot be open-ended in the sense that the project cost becomes very high. In order for the Commission to direct APTRANSCO to purchase the power generated from such projects, it is necessary that the tariff is also reasonable and therefore the project



cost should be related to a benchmark capital cost. The Commission cannot allow higher capital cost because of peculiarities of a few projects.

There is an optimum level beyond which the project

developers cannot expect the Commission to allow the fixed cost. The direct impact of doing so will be unduly burdening the consumers in general to pay higher tariff for the electricity. The Commission has to strike a balance between the interest of promoting non-conventional energy and the interest of the consumers to have an economical tariff for the electricity. It was a conscious decision of the Commission to allow in its Order dated 20.3.2004, Rs. 3.25 Crs/MW as the project cost for bagasse-based cogeneration projects without distinguishing between old and new projects.

There is no case in this

petition for review of the Order dated 20-03-2004 determining the project cost at Rs. 3.25 crs/MW for bagasse-based projects. 9.

Auxiliary consumption: The petitioner has claimed Auxiliary consumption of 10% as against 9% approved by the Commission, on the plea that the power consumption in a bagasse-based boiler is higher than that of a coal-based power station. APTRANSCO while responding to the review petition submitted that the DPRs (detailed project reports) of various projects including the project reports prepared by Avant-Garde Engineers and Consultants Ltd., relied upon by SISMA, provide for auxiliary consumption below 9%. The Commission in its Order dated 20.3.2004 has stated as under in paragraph 34: “According to APTRANSCO, the DPRs indicate Auxiliary Consumption of 8% only but it has considered Auxiliary Consumption of 9% as reasonable. SISMA-AP and NEDCAP have indicated the Auxiliary Consumption at 10%. The Commission is of the view that compared to conventional power projects, the NCE projects have less auxiliary system. These projects should be operated efficiently to minimize losses and maximize production as provided in the Energy Conservation Act. Hence the Commission allows auxiliary consumption at 9% only”. The developers’ contention that the bagasse-based projects require more auxiliary consumption is not correct. These projects in fact have less auxiliary systems than the conventional projects which require more electricity in fuel preparatory systems than the bagasse-based cogeneration projects. There is no basis for the petitioner to claim that the auxiliary consumption in the case of a properly-run bagasse projects shall be higher than 9%. As detailed in the Order dated 20-032004, the projects should operate efficiently and minimize the losses. Hence the Commission holds that no case is made out by the petitioner for review of the Order dated 20.3.2004 in regard to auxiliary consumption.

10.

Fuel consumption: The Petitioner contended that fuel consumption of 1.6 kg / kWh estimated by the Commission is incorrect. According to the petitioner, the fuel consumption based on the expert committee on biomass cannot be applied to bagasse-based power plants. While accepting the station heat rate of 3700 Kcal / kWh adopted by the Commission in its Order, the Petitioner pleaded for considering the Net Calorific Value of bagasse at 1790 Kcal / kg which translates into a fuel requirement of 2.07 Kg per kWh.



APTRANSCO stated that the claim of the petitioner is not justified and the Commission has determined the specific fuel consumption level correctly and it cannot be more than 1.6 kg / kWh. The Commission in paragraph 38 of its Order dated 20-03-2004 has stated as under: “The fuel consumed in the Co-generation plant will cater to -

Production of steam to process plant.

-

Supply of power to the sugar industry (Captive consumption) during crushing season.

-

Delivery of power to APTRANSCO. The consumption of fuel intended for supply of power to APTRANSCO needs to be considered and costed. The projections by different agencies are widely varying. APTRANSCO assumed 2.08 kg / kWh, while NEDCAP assumed 2 kg / kWh. The expert committee constituted by the GoAP for Biomass Power Projects has considered allowable Station Heat Rate of 3650 Kcal / Kwh. However, there was no such committee for Bagasse based projects. Considering the similarities between both the categories, the Commission considers SHR at 3700 Kcal / Kwh for Bagasse projects as reasonable and fair. Based on this, the Commission considers 1.60 Kg / Kwh as the rated average of specific fuel consumption during crushing and non-crushing season”. The Commission’s study team, which visited projects such as M/s.Gaythri Sugars Limited and

Deccan Sugars Limited, observed that the Gross Calorific Value of bagasse was around 2300 kcal/kg, based on the information made available at the site. Even SISMA computed the bagasse price by taking Gross Calorific Value of bagasse at 2300 kcal/kg in their letter dated 29.12.2003. Further, the Specific Fuel Consumption allocated to power generation is 1.14 kg / kWh during the crushing season based on the heat balance diagram furnished by SISMA relating to the co-generation plant of M/s. Ganapathi Sugars Limited. The corresponding consumption during non-crushing season is 1.789 kg / kWh. The weighted average of this consumption levels works out to 1.42 kg / kWh, considering 130 days of crushing season and 100 days of non-crushing season. From these, it is reasonable and appropriate to determine the fuel consumption of 1.60 kg/kwh as approved by the Commission in its Order dated 20.3.2004. The Order therefore does not require any revision as claimed by the petitioner. 11.

Cost of fuel: The petitioner has submitted that the cost of the bagasse, based on equivalent heat value of ‘D’ grade coal, works out to Rs. 695 per MT while the Commission worked it out on the basis of E / F grades coal which are generally allotted for power generation. The petitioner has further submitted that most of the sugar factories are selling bagasse at their factories at prices ranging from Rs. 710 to Rs.1150 per MT. Considering the permitted usage of alternate fuel (coal) up to 25% and taking the transport costs into consideration, the petitioner stated that weighted average cost of fuel per MT would be Rs. 733 per MT and requested for consideration of the price as above. APTRANSCO stated that the specific fuel consumption of Kothagudem Thermal Station, Stage-V, is 0.7 kg / kWh with the landed cost of coal at that station being about Rs. 1250 / MT. Based



on the equivalent heat value concept, the price of bagasse would be around Rs. 550 / MT while the Commission has considered a higher price of Rs. 575 / MT. The Commission, in paragraph 36 of its Order dated 20.3.2004 has stated as under: “The power is basically generated out of the Bagasse produced by crushing of sugar cane in the manufacture of sugar. APTRANSCO has considered Bagasse price as Rs. 600 / MT for new projects and Rs. 533 / MT for existing projects (base year 2000-01) whereas NEDCAP has indicated it as Rs. 600 / MT, while developers have sought price of Bagasse as Rs. 650 / MT. The Commission recognises that the price of Bagasse is the key parameter influencing the project economics and determination of tariff. The fuel for the Co-generation plant during crushing season is virtually free. However, if Cogeneration plant does not exist the Bagasse will fetch some price. As such the issues like calorific value of Bagasse, Station Heat Rate (SHR) and its linkage to sugar cane prices need to be addressed adequately. As Co-generation is an efficient process where the cycle efficiency is high, it needs to be encouraged. In the DPRs, the Gross Calorific Value of the Bagasse is around 2270 Kcal / Kg, whereas APTRANSCO has considered the Gross Calorific Value of Bagasse as 2300 Kcal / Kg and the same is also projected by the Developers. NEDCAP during revised submissions indicated Gross Calorific Value as 2000 Kcal / Kg. The Commission considers Gross Calorific Value of 2300 Kcal / Kg as proposed by APTRANSCO reasonable for price determination of Bagasse. The Commission feels that there cannot be any relationship between price of sugar cane that is being fixed by Govt., and the price of Bagasse. One of the objectors has pointed out that Bagasse is a wasteful residue and must be available free of cost. However the Bagasse is also in demand by other industries like paper, cattle feed etc., and accordingly market forces determine the price of Bagasse. For determination of Bagasse price, Commission has adopted equivalent heat value of coal. The Commission has considered the pit head cost and calorific value of coal to arrive at the fuel price linked to heat content. The fuel price in terms of Rupee / tonne equivalent to gross calorific value of 2300 kcal / kg works out to around Rs.562 / MT. NEDCAP has also submitted that the average cost of Bagasse, based on heat equivalent of coal works out to Rs.575 / MT. The Commission therefore considers Rs.575 / MT as a reasonable and fair price for Bagasse”. From the above, it will be seen that the Commission fixed the price of fuel considering equivalent heat value of 2300 kcal/kg. As it is a co-generation project and there is accordingly no element of transportation of fuel, the pit head price of coal was adopted by the Commission. The tariff for the

co-generation projects is computed based on bagasse for operation of the plant for 130 days

during crushing season and 100 days during non-crushing season with the saved bagasse. The fact that the projects are allowed to use coal as alternate fuel up to 25% is itself a benefit given to the project developers for extending the number of days of operation of the plants. The extra cost, if any, including transportation cost involved in generation of power during the extended period cannot be allowed as this will only burden the consumers unduly especially when the full fixed costs are covered by generation at 55% PLF achievable otherwise also.


The Commission did not therefore allow

the


transportation charges for generation of electricity with coal as an alternate fuel. Accordingly, the Commission does not find any reason to review its Order dated 20.3.2004 on the costs of the fuel as requested by the petitioner. As mentioned above, while the Commission endeavours to promote nonconventional energy development the same cannot be open- ended in the sense that the project cost becomes

very high. In order for the Commission to direct APTRANSCO to purchase the power

generated from such projects, it is necessary that the tariff is also affordable. There is an optimum level beyond which the project developers cannot expect the Commission to allow higher tariff to promote non-conventional energy development as the direct impact of higher tariff will be unduly burdening the consumers in general to pay higher tariff for the electricity. 12.

O & M expenditure: The petitioner has submitted that the O & M expenditure of 3% provided by the Commission is very low and sought 5.5% of the capital cost towards O&M expenses. A statement of O & M expenditure stated to have been incurred by GMR Technologies and Industries, M/s Kakatiya Cement and Sugar Industries and M/s.Gayathri Sugar Industries has also been filed in the review proceedings. APTRANSCO referred to the guidelines of the Central Electricity Regulatory Commission (hereinafter CERC) stipulating 2.5% of capital cost towards O & M, and stated that 3% O & M provided by the Commission is adequate. In paragraph 39 of the Commission’s Order dated 20.3.2004, the Commission discussed the claims of all the stakeholders and determined the O & M expenditure as follows: “APTRANSCO has stated that the O & M expenditure of 2.5% of capital cost has been considered as per DPRs made available by some of the developers. The developers have contended that the O & M expenditure of 2.5% of capital cost assumed by APTRANSCO is too low. NEDCAP has considered 3% initially and subsequently raised it to 5% (including insurance). SISMA-AP claimed 5.5% for O & M expenditure including insurance whereas one developer (M/s.Sudalagunta Sugars) claimed 3.8% based on actual expenditure. For thermal projects, the O & M expenditure allowed as per CEA guidelines is 2.5% per annum. But Bagasse based co-generation projects are very small in capacity and are of evolving technologies. These cannot therefore be compared to bigger projects of advanced technologies. At the same time it is a fact that the O & M of the steam generator cannot be totally apportioned to power generation as part of the steam generated is utilised for the industry. The Commission considers O& M expenditure of 3% per annum (including insurance) as reasonable”. M/s. Sudalagunta Sugars subsequently pointed out that they had also claimed insurance @ 1%, in addition to the O&M expenditure of 3.8%, though shown separately. This, however, has no bearing on the final conclusion of the Commission on O&M expenditure, as the amount claimed (3.8% + 1.0%) was lower than the 5% claimed by the Petitioner-Association.



The wear and tear of some of the auxiliary systems in coal-fired thermal stations is much more intensive requiring increased maintenance, calling for higher O&M expenditure. However, considering that 2.5% of the capital cost is provided for large coal-fired power stations as per the guidelines of CERC, the Commission considers it reasonable to provide 3% of capital cost towards O&M expenditure for bagasse-based co-generation plants of smaller capacities. As the developer has not raised any new points or produced any additional information, the Commission does not find any reason to review this component for increase. 13.

Interest on term loan: The petitioner contends that swapping of loans is not possible as the existing co-generation units are committed and logged in at higher interest rates. According to the petitioner, the swapping of loans with new lenders is difficult especially when bagasse-based co-generation units are established by sugar industry which is not performing well financially. The petitioner requested for fixing up interest rate at 13% p.a instead of 10% p.a and in a subsequent communication dated 17-06-2004 requested for at least 12% for the existing projects adding that 10% is acceptable for the new projects. APTRANSCO submitted that the interest rate provided by the Commission is in line with the interest rate proposed by NEDCAP for existing and new projects in view of the interest subsidy provided by MNES. The Commission in paragraph 43 of its Order dated 20-03-2004 has stated as under: “APTRANSCO has considered the interest on term loan at 13% for the existing and 10% for the new projects, whereas NEDCAP has considered Interest on Loan as 11% for the existing projects and 10% for the new projects after interest subsidy. The developers however sought 13% on existing projects and 10% to the new projects. All the stakeholders have uniformly quoted 10% as interest rate for new projects. This must be on account of falling interest rates. But the impact of falling interest rate is not being reflected in the interest rates of old projects. Some of the Developers are reported to have swapped their loans for lesser interest rates. The Commission is of the view that this has to be followed by other developers too so that benefit of falling interest rates can be passed on to consumers. In view of the above, the Commission considers 10% rate of interest on Term Loans as reasonable for existing as well as new Projects”. From the above, it can be seen that all the stakeholders have uniformly quoted 10% as interest rates for new projects. The Commission considers that the developers of existing projects also should mitigate the cost of the project by adjusting to falling interest rates as was done by some of the developers by swapping their costly loans with cheaper ones. In a cost plus system, there is a duty on the part of the developers to mitigate and reduce the interest burden significantly. It will not be correct on the part of the developers to ignore the above, merely because the interest charges are a pass-through in the tariff. The Commission reiterates that interest at 10% is adequate and appropriate for the loans taken for the projects and the petitioner project developers have an obligation to reduce the interest burden. Therefore, the Order dated 20-03-2004 does not require any review on this component.



14.

Annual escalation: The petitioner has submitted that the developer has to meet the actual expenses and the escalations therein which will always be higher than the normative escalation. The petitioner has stated that the developers have to incur additional expenditure every year for smooth running of the plants. The Commission in its Order has provided escalation for O &M and fuel price as these two components attract increase in price and escalation for these components is allowed in conventional projects also.

Escalation of 4% is provided in line with the rate of inflation as explained in the

Commission’s Order dated 20-03-2004. In paragraph 40 of the Order dated 20-03-2004, the Commission has held as under: “The developers stated that escalation on O & M is to be considered between 4%-8%. M/s. NEDCAP indicated the escalation at 2% initially but later revised it to 5%. APTRANSCO submitted that the O & M escalation was provided at 4% based on the trend of inflation after considering the variation of Wholesale Price Index & Consumer Price Index (WPI & CPI) during the past few years. The Commission considers the escalation of 4% on O & M expenditure as provided by APTRANSCO as reasonable as it is falling in line with the rate of inflation”. The petitioner has not shown any ground as to how the above decision of the Commission is wrong and calls for a review. 15.

Depreciation: The Petitioner-Association first submitted that the depreciation should be applied on the total capital less residual value of 10% and not restricted to 70% of the capital cost during the first 10 years of operation. It has also requested the Commission to fix depreciation at 8.25% instead of 7.84% based on the repayment commitment. Subsequent to the hearing on 11-06-2004, however, the petitioner accepted in its letter dated 17-06-2004 that the depreciation allowed by the Commission “is reasonable and in line with provisions of the Electricity Act”. Hence, no review is called for.

16.

Single-part tariff: The Petitioner submitted that since co-generation plants operate for a maximum of only 250 days in a year, single-part tariff only should be applied for the bagasse-based co-generation plants, stating that APTRANSCO itself observed that two-part tariff cannot be applied to NCE projects in view of the requirement of large administrative machinery for monitoring and settlement. The Petitioner has further requested the Commission to take note of the fact that other States have considered only singlepart tariff for NCE projects. The petitioner also sought for removal of cap over threshold PLF and payments for 100% capacity factor.



APTRANSCO has responded by stating that though it originally proposed single-part tariff based on levelized tariff, it finds that the two -part tariff considered by the Commission is reasonable. At paragraph 30 of the Order dated 20-03-2004, the Commission discussed the methodology in determination tariff as under: “The key issue involved in determination of tariff in case of projects is whether to consider single part tariff or two part tariff. The Commission recognises the fact that two part tariff will be difficult to implement in view of the large number of the plants of low capacity. But at the same time, the Commission considers that beyond the threshold level of generation, the developers should get only variable cost (if any) and incentives and not the fixed charges. The Commission would also like to determine the tariff for all the projects of one category based on the year of commissioning of each project”. Most of the projects cover their fixed cost at different threshold levels and the Commission is particular in not burdening the consumers for any generation beyond threshold levels covering the fixed costs in full. At the same time, the Commission is interested in balancing the interests of the developers also by providing them incentives. Further, the Commission observes that the two-tier tariff proposed is in consonance with the tariff fixation for most of the power projects in the Country. Hence the Order dated 20-03-2004 does not require to be reviewed on this ground. 17.

Higher tariff: The Petitioner-Association sought that tariff provided to wind electricity generators should be provided to bagasse-based co-generation plants also with 5% simple escalation. It further contends that the rate allowed for bagasse-based co-generation plants is insufficient to repay the loans and earn the return. APTRANSCO has replied that the plants under wind energy and bagasse have different characteristics and hence the parameters used for tariff fixation cannot be the same. The Commission is in agreement with APTRANSCO that the two categories of generation cannot be on the same platform. This was explained in paragraph 29 of the Order dated 20.3. 2004 as under: “Some of the objectors have criticised the current practice of maintaining the same tariff for all categories of NCE sources. The Commission is also of the same view as the project cost and the fuel are different for each category and allowing the same tariff across the categories is neither appropriate nor in the interests of the consumers. The Commission has decided to fix the tariff on cost-plus approach so that each element of fixed and variable cost is properly addressed and not to follow any other adhoc basis for fixing the prices at which the different categories of NCE developers sell electricity to APTRANSCO”. Hence no grounds are shown warranting review of the Order dated

18.

Incentive:


20-03-2004.


The petitioner pleaded for adoption of a single-part tariff, and in case the

two-part tariff was

inevitable, the petitioner argued that the rate of incentive should be enhanced to 25 paise / unit as per CERC notification

dated 26-03-2004.

APTRANSCO contends that incentive needs to be provided to the generator only for additional energy supplied to APTRANSCO and not for captive consumption beyond the normative levels and the incentive should not be provided if these plants use coal. It has further submitted that the incentive should be payable on annual basis and the Commission needs to mandate these generating companies to submit their annual balance sheets and file affidavits providing the details of the coal used by them in their stations. APTRANSCO also submitted that as per the direction of this Commission, these projects have to be treated as “must run” plants. These generating stations therefore enjoy prime advantage of 100% dispatch. While contending that the rate of incentive allowed by the Commission is high, it suggested two alternate methodologies for incentive payment for consideration by the Commission, according to which, the incentive payment works out to 10 paise/ kWh.

The Commission in its Order dated 20-03-2004 at paragraph 47 has stated as under: “One of the objectors has pointed out that only incentive should be paid beyond the threshold level of PLF. The Commission has noticed that some of the Bagasse based co-generation projects are generating beyond the threshold level of 55% also. The Commission is inclined to encourage this nonconventional generation. But at the same time, the consumers should not be burdened with the same tariff beyond threshold PLF as the developers would have recovered the entire fixed cost at the threshold level of PLF itself. In order to encourage the developers and without unduly burdening the consumers, the Commission deems it fit to provide an incentive of

21.5 paise per unit as fixed by Central

Electricity Regulatory Commission (CERC) in its tariff notification dated 20th December, 2000 for conventional generation projects. This incentive will be for actual generation beyond the threshold PLF of 55% at generator terminals i.e. including captive and auxiliary consumption.” From the above, it can be seen that the incentive allowed is to encourage the developers to generate beyond threshold limits also and the rate of incentive was as per CERC’s contemporary guidelines for conventional power projects. Subsequent to the issue of the Commission’s Order, however, CERC in its notification dated 26-03-2004 revised the incentive rate to 25 paise per unit for ex-bus energy beyond the target PLF. The Commission taking note of the above allows revision of incentive from 21.5 paise per unit to 25 paise per unit for energy delivered at inter-connection point attributable to generation beyond the threshold PLF of 55% at generator terminals i.e. including captive and auxiliary consumption. This will however be effective from 01-04-2004. In view of the preceding discussion, Petitioner-Association has failed to make any case for any other review of this component. 19.

Additional incentive:



The petitioner contends that considering the fact that the bagasse-based

co-generation plants are eco-

friendly and facilitate substantial reduction in Transmission & Distribution Losses, additional incentive of 28 paise be provided based on the quantification and assessment stated to have been made by advisor of MNES. The Commission has recognised the advantages of NCE projects and provided various benefits like higher return on equity and “must-run” status. Hence the Commission does not consider that any further additional incentive is required to be paid to the bagasse-based co-generation power developers.

20.

Settlement period: The Petitioner contended that in case two-part tariff is adopted in case of bagasse-based co-generation plants having seasonal nature of operations, the threshold PLF should be calculated on annualized basis and not on settlement period (billing month) basis and APTRANSCO be directed to pay both fixed cost and variable charges till such time the aggregate units in a financial year reach the threshold PLF. APTRANSCO also proposed that incentives should be payable on annual basis. The Commission clarifies that the incentive shall be based on computation of PLF on annual basis.

21.

Year of operation: The Commission in its Order dated 20-03-2004 directed that the existing and new projects shall be entitled to a tariff with the component of fixed charge based on the year of operation and variable charge corresponding to the financial year of the operation. The Petitioner-Association submitted that the year of operation should be reckoned from the date of commercial operation date of the projects instead of treating all the projects commissioned during a financial year alike. The Commission hereby clarifies that the year of operation shall be reckoned from the date of commercial operation to arrive at the appropriate fixed charges for each year. The variable charges shall however be as indicated in the Order dated 20-03-2004 based on the corresponding financial year.

22.

The APTRANSCO has also raised a number of issues in the petition filed by it for the review of the Order dated 20-03-2004 and has claimed downward revision of tariff on various aspects. The Objectors also claimed downward revision of tariff on different aspects contending that the tariff allowed to the developers is excessive. Some of the issues raised by APTRANSCO and the two objectors have been discussed above while dealing with the issues raised by the Petitioner-Association. The Commission is passing separate orders on the issues raised by APTRANSCO and the Objectors seeking downward revision in the tariff.

23.

Conclusion: The petition filed by the Petitioner-Association for review of the Order dated 20-03-2004 does not indicate any error apparent on the face of the record or non-consideration of any relevant material or document or otherwise sufficient reason for review of the Order dated 20-03-2004 passed by the Commission. As stated earlier, the Commission in the Order dated


20-03-2004 provided for


special treatment of the NCE projects in its endevour to promote non-conventional energy development. However, such development cannot be open-ended in the sense that the tariff allowed becomes too high. In order for the Commission to direct APTRANSCO to purchase the power generated from such projects, it is necessary that the tariff is also affordable. There is an optimum level beyond which the project developers cannot expect the Commission to allow the tariff as the direct impact of higher tariff will be unduly burdening the consumers in general to pay higher tariff for the electricity. The Commission has to strike a balance between the interest of promoting non-conventional energy and the interest of the consumers to have an economical tariff for the electricity. Except for the clarifications provided above on the settlement period and the year of operation and the revision of incentive beyond threshold PLF, the Commission hereby dismisses the petition. This order is signed by Andhra Pradesh Electricity Regulatory Commission on 10th July, 2004.

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(SURINDER PAL) MEMBER

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(K. SREERAMA MURTHY) ACTING CHAIRMAN

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