BHANDARDARA HYDRO ELECTRIC PROJECT - II

Transcription

1 BHANDARDARA HYDRO ELECTRIC PROJECT - II 1

2 Contents A1: ORDER...6 A2: OVERVIEW...7 BACKGROUND...7 TARIFF PROPOSAL IN PETITION...8 TECHNICAL VALIDATION SESSION...10 CLARIFICATIONS SOUGHT AND REPLIES...10 PUBLIC HEARINGPROCESS...11 APPOINTMENT OF TECHNICAL CONSULTANT...11 ORGANISATION OF THE DETAILED ORDER...12 A3: COMMENTS AND SUGGESTIONS RECEIVED DURING PUBLIC HEARING PROCESS AND COMMISSION RULING...13 Project Cost...13 Design Energy of the Project...14 Proposed R&M Cost...16 BHEP II as a Peaking Plant...16 Tariff...17 A4: COMMISSION S DECISION ON TARIFF AND TARIFF RELATED ISSUES...20 INTRODUCTION...20 TARIFF PRINCIPLES...20 APPROACH & METHODOLOGY...21 Capacity (in MW) of the project...21 Energy generation at different heights of Nilwande Dam...21 BASIS OF TARIFF AND ITS PERIOD...23 COMMISSION DETERMINED TARIFF RATES FOR BHEP II...25 APPLICABILITY OF THE ORDER...26 A5: APPENDIX A...27 UPSET PRICE CALCULATION FOR BHEP STAGE II...27 A6: APPENDIX B...28 PRICE SCHEDULE FOR BHEP II BID...28 A7: APPENDIX C...29 TECHNICAL VALIDATION SESSION: RECORD OF PROCEEDINGS...29 A8: APPENDIX D...33 PUBLIC HEARING PROCESS: RECORD OF PROCEEDING...33 Dodson-Lindblom Hydro Power Pvt. Ltd. (DLHPPL)...34 PRAYAS...35 Maharashtra State Electricity Distribution Company Ltd. (MSEDCL)...35 Government of Maharashtra Water Resource Department (GOMWRD)...36 A9: APPENDIX E...37 WORKING TABLE FOR POWER GENERATED AT BHEP II WITHOUT NILWANDE DAM AS PER SUBMISSION DATED 13 TH JANUARY, WORKING TABLE FOR POWER GENERATED AT BHEP II WITH NILWANDE DAM BUILT UP TO 610 / 613 M AS PER SUBMISSION DATED 13 TH JANUARY, WORKING TABLE FOR POWER GENERATED AT BHEP II WITH NILWANDE DAM BUILT UP TO 648 M AS PER SUBMISSION DATED 13 TH JANUARY, Page 2 of 45

3 A10: APPENDIX F...40 WORKING TABLE FOR POWER GENERATED AT BHEP II WITHOUT NILWANDE DAM AS PER SUBMISSION DATED 2 ND MARCH, A11: APPENDIX G - REPORT FROM COMMISSION S TECHNICAL EXPERT...42 Ref:GOMWRD letter dated 02-Mar-2006; DLH letter dated General...42 A12: APPENDIX H - SHP TARIFF AS PER ORDER ON DETERMINATION OF TARIFF FOR SHP PROJECTS WITHIN MAHARASHTRA DATED 9 TH NOVEMBER, Table of Figures Table 1.1: Proposed Tariff... 9 Page 3 of 45

4 ABBREVIATIONS BEST Brihan Mumbai Electricity Supply and Transport Undertaking BHEP II Bhandardara Hydro Electric Project II CERC - Central Electricity Regulatory Commission CFL Carbon Fluorescent Lamps CUF Capacity Utilization Factor DLHPPL- M/s Dodson Lindblom Hydro Power Private Limited DSM Demand Side Management GoM - Government of Maharashtra GOMID/ GOMWRD - Government of Maharashtra Irrigation Department / Government of Maharashtra Water Resource Department IDC Interest During Construction kwh Kilo Watt Hour MERC Maharashtra Electricity Regulatory Commission MSEB Maharashtra State Electricity Board MSEDCL - Maharashtra State Electricity Distribution Company Limited MW - Mega Watt O&M Operation & Maintenance Page 4 of 45

5 PPA Power Purchase Agreement R&M Repairs & Maintenance REL Reliance Energy Limited SHP Small Hydro Plant TPC Tata Power Company WPI Wholesale Price Index Page 5 of 45

6 A1: ORDER Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13 th floor, Cuffe Parade, Mumbai Tel. No /65/69 Fax Website: Case No. 1 of 2005 In the matter of Purchase of Power from Bhandardara Hydro Electric Project (Phase II) Dr Pramod Deo, Chairman Shri A. Velayutham, Member Shri S.B. Kulkarni, Member ORDER Dated:10 th April, 2006 The Maharashtra Electricity Regulatory Commission, in exercise of powers vested in it under Section 86 (1) (a) and (b) read with Section 62(1) of the Electricity Act 2003, and all other powers enabling it in this behalf, determines the tariff and related dispensation for the purchase of power by the Distribution Licensees in the State of Maharashtra from the BHEP II. Page 6 of 45

7 A2: OVERVIEW Background 2.1 BHEP II is a 34 MW hydropower facility built at the Randha pickup weir on the river Pravara located about 12 km downstream from Bhanardara - I hydropower facility. The tail race water of Bhandardara II is led to the river Pravara upto Ozar Weir. From Ozar weir, the water is taken for irrigation through two canals having a total capacity of 1,045 cusecs. The facility is presently operated manually and there are operators on shift at all times. The station is operated on the water released from Bhandardara I and the sluices of Bhandardara dam. 2.2 The BHEP II hydro project was commissioned in May The water releases are to be coordinated from Bhandardara I which is base load station. BHEP II is presently operating at partial load of 14 to 18 MW as the downstream canals are not capable of carrying the full discharge of 2,700 cusecs required for full capacity operation. The average generation from BHEP II over the last three years is MU. 2.3 The plant has been designed as peaking power station to operate for three hours each during the morning and evening peak taking into consideration downstream Nilwande Dam which is expected to act as balance storage between BHEP II and downstream irrigation requirements. However, the construction of Nilwande Dam has been delayed due to shortage of funds and as a result capacity of BHEP II is not being utilised fully. 2.4 Government of Maharashtra decided to offer the plant on advance lease, operate and transfer basis to a private entrepreneur for a period of 30 years. It is stated in the submission of MSEB that the amount received from the successful bidder after transfer of BHEP II will be utilized by GOMID for raising the Nilwande Dam upto RL 610m/ 613m. 2.5 Subsequently, based on two alternatives available, GOMID estimated the cost of project to be Rs 92 crores and called for offers from qualified bidders. The details are enclosed in Appendix A. The bidders were given two options for the bidding: (a) (b) An upfront payment of Rs 92 crores. Rs 60 crore upfront and additional instalments of Rs Crore during the lease period of 30 years such that the NPV of all the payments is Rs 92 crores. The Schedule is enclosed in Appendix B. 2.6 The bids were invited by GOMID in November 2003 through wide publicity in newspapers. Though six bidders had purchased the bid documents, only one bidder, M/s Dodson Lindblom Hydro Power Private Limited (DLHPPL), submitted the final bid. The bid was based on option II and the same was accepted by the Government of Maharashtra in December DLHPPL intends to sell the energy from BHEP -II to MSEB by entering into a PPA. Page 7 of 45

8 2.8 Subsequently, MSEB filed the petition for approval of generation tariff for the BHEP II Project on Tariff Proposal in Petition 2.9 MSEB in its petition has proposed tariffs for BHEP II as per the guidelines of the Central Electricity Regulatory Commission (CERC) Terms & Conditions of Tariff Regulation 2004, for 30 years BOT period and at the end of the BOT period, the absolute ownership of the project shall stand transferred to GOMID free of cost. The broad features of the proposal are as follows: (a) Project Capital cost is estimated at Rs Crore. The breakup is furnished below. (i) (ii) (iii) (iv) (v) (vi) Rs 60 Crore towards upfront payment to GOMWRD Rs 10 Crore towards Repair & Up gradation expenses as per cost estimates done by M/s DLHPPL Rs 2.0 Crore towards Engineering & Testing expenses Rs 1.0 Crore towards Sponsor Development Costs Rs 2.0 Crore towards Other Development Costs Rs 2.16 Crore towards Financing Costs (2% of loan amount) (b) (c) (d) (e) (f) In addition to the upfront payment, additional payments are required to be made to GOMID from 3 rd year until 30 th year. These annual payments are in addition to the O & M expenses and included in the computation of Annual Fixed Charges. Debt-equity ratio has been considered at 70:30. Debt is Rs Crore, to be funded by Banks/ FIs at long term interest rate of 11% for the entire debt repayment period of 12 years and Equity is Rs Crore, to be brought by the Developers in Indian Rupees. The return on equity has been considered at 14% post tax. Depreciation has been calculated based on Straight Line Method over the useful life of assets as per the CERC Tariff Regulations. The lease period of 30 years has been considered for recovery of 90% of the asset value. The petition has also included the Advance Against Depreciation. Design Energy is considered to be the quantum of energy, which could be generated, in a 90% dependable year with 95% installed capacity of the generating station. Depending on the height of Nilwande Dam, the following design energy has been proposed for various stages in the Petition: Page 8 of 45

9 (i) (ii) (iii) Before Nilwande Dam is built (present) 34.2 MU Nilwande Dam upto height of 610 m/ 613 m MU Nilwande Dam upto height of 648 m MU (g) (h) (i) (j) (k) (l) Auxiliary consumption is considered at 0.7% and transformation loss is considered at 0.5%. O&M expense has been considered to be 1.5% of capital cost starting from 2001 and with an escalation of 4% every year. As per GOMID, capital expenditure without IDC upto March 2001 is Rs Crore. Hence the O & M expenses for is Rs lakhs and the same has been 4% to arrive at the O & M expenses of Rs Lakhs in Working capital norms have been considered at 2 months of receivable, 1% of the Capital cost as spares for first year with 6% annual escalation and one month O&M expenses. The interest on working capital is considered at SBI PLR rate of 10.25%. Water Royalty charges have been considered at 5 paise per unit with an annual escalation of 5%, maintenance charge is considered as 5 paise per unit escalating by WPI, and lease rent has been considered at Rs 1000/- per MW per year escalated by WPI. All the taxes and insurance are reimbursable at actuals. The tariff as per the petition based on the above mentioned assumptions is as given in Table 1.1below: Table 1.1: Proposed Tariff Year Tariff (Rs/Unit) Year Tariff (Rs/Unit) Year Tariff (Rs/Unit) Page 9 of 45

10 Technical Validation Session 2.10 A technical validation session was held on 10 th May 2005, which was attended by (i) Deputy Secretary of GoM and representatives of GoMWRD, (ii) CE (CP) and EE (G) Maharashtra State Electricity Board, (iii) MD, VP and Directors of DLHPPL, (iv) Deputy Manager and Senior Officer of REL, (v) representatives of REDAM, (vi) Chairman of Snens Hydel Pvt. Ltd., (vii) Counsel Gaurav Joshi and Advocate (Little & Co) Alpana Dhoke, (viii) Manager of BHEP II, (ix) ED and VP of VHPL, (x) representative of BEST, (xi) representatives from TPC, (xii) representatives from CRISIL, (xiii) representatives from PRAYAS, (xiv) representatives of MACCIA and (xv) PricewaterhouseCoopers (Consultants to Commission) Several issues were deliberated in the technical validation session covering issues related to capacity utilization factors, dependable year and installed capacity proposed to be considered for tariff calculation, risks associated with the BHEP II, applicability of CERC regulation to BHEP II, water royalty charges, evacuation facilities and cost sharing of the same, capital cost of the project and methodology for tariff determination. The Record of Proceedings of the technical validation session is enclosed as Appendix C. Clarifications sought and replies 2.12 Subsequent to the technical validation session the Commission issued a letter to MSEB seeking additional information/ clarifications. Copy of the letter was marked to all the stakeholders including GOMID. GOMID responded to the queries in its letter dated May 19, In response to the technical validation session and the Commission s queries dated May 17, 2005, MSEB replied to the queries vide letter dated May 27, Further Maharashtra State Distribution Company Limited responded to certain queries made during the technical validation session vide letter dated June 13, In a communication dated July 2, 2005 GOMID intimated to the Commission that the department had incorrectly intimated to the Commission in its letter dated May 19, 2005 that BHEP II is handed over to MSEB for operation and maintenance in March GOMID s letter submitted that the project is not yet handed over to MSEB and is being operated and maintained by GOMID till date The Commission noted the correction and sought additional information and clarification from GOMID on August 2, 2005 with copies marked to Maharashtra State Electricity Distribution Company Ltd and DLHPPL. GOMID and DLHPPL responded to the queries on August 12, Page 10 of 45

11 Public Hearing Process 2.16 It was found that in the submission of GOMID that the detail information sought by the Commission regarding audited capital cost was only partially provided by GOMID. However, considering that the information on many issues were available, and to save time, the Commission decided to issue the filings for public comments. The Commission thereafter published the filings on 23 rd August, 2005 and invited comments and suggestions from all the stakeholders. The comments/ suggestions were to be submitted to the Commission by 23 rd September Thereafter Public Hearing was held on 27 th September 2005 at the World Trade Centre, Mumbai Apart from GOMID itself, written or oral submissions, or both, were made during this public process, amongst others, by representatives of Prayas, DLHPPL, VHPL, MSEB and WAT-ERE-SOURCE Technologies. Names of individuals / organizations who filed written comments/suggestions, and / or made oral submissions and others who were present at the Public Hearing are annexed in Appendix D. Appointment of Technical Consultant 2.18 On analysis of the technical details submitted by MSEB in its petition including matters like proposed additional R&M costs, energy generation at various stages of the construction of the Nilwande Dam, power output at various stages of the Nilwande dam, it was found that the subject required detailed technical study. For this purpose the Commission appointed Mr VVRK Rao, ex-cea chairman and hydro expert to carry out the technical analysis. After analysing the information already submitted to the Commission, Mr VVRK Rao, met the representatives of GOMID on January 20, 2006 at the Commission s office After the discussions the technical consultant submitted a preliminary report to the Commission on his findings and sought additional technical information from GOMID. On the technical consultant s request Commission asked for additional information to be furnished by GOMID vide letter dated 20 th January GOMID submitted the required information to the Commission on 2 nd March, The technical consultant submitted is final report on the issues related to hydrology of BHEP II for different phases of the construction of Nilwande Dam on 22 nd March, After considering all the material submissions, objections, comments and suggestions made to it, and deliberations at various stages, the Commission has determined the tariff as follows through this Order. Page 11 of 45

12 Organisation of the Detailed Order 2.23 This Detailed Order of the Commission regarding the generation tariff from the BHEP II is broadly divided into three parts The first Section of the Detailed Order consists of the Overview. It covers the background, tariff proposal in the petition, details of technical validation session and details of public hearing process for the petition on tariff determination for procurement of power from BHEP II in the State of Maharashtra The second Section of the Detailed Order lists out the various objections, comments and suggestions submitted by the Objectors in writing as well as in person during the public hearings before the Commission, and the ruling of the Commission on each of the broad issues raised during the public consultation process The third Section of the Detailed Order comprises the Commission s analysis and its approach for tariff determination. This Section examines and analyses the various issues involved in tariff determination, and Commission s reasoning for determination of the tariff rate and the structure. This section also provides for the applicability of the Order. Page 12 of 45

13 A3: COMMENTS AND SUGGESTIONS RECEIVED DURING PUBLIC HEARING PROCESS AND COMMISSION RULING 3.1 On publication of the public notice inviting comments and or objections on the issues involved, the Commission received various objections and these were also heard in person during the public hearing at Mumbai on 27 th September The objections have been broadly grouped issue-wise for the sake of convenience, and the Commission s ruling on each of these points are discussed below. Project Cost 3.2 Mr Rajadhyaksha presented the case of DLHPPL and pointed out that DLHPPL has bid an amount of Rs 60 Crore upfront and a further total of Rs crore in yearly instalments so that the NPV of all payments would be Rs 92 Crore. Further, DLI submitted that Commission had received some erroneous information from various sources and further clarified that the per MW cost of Rs 9.96 crore worked out by M/s CRISIL was not correct as they had considered an aggregate of all the payments for 30 years in absolute terms. However, if the NPV of all future payments are considered, the per MW cost stands at Rs 3.14 crore. 3.3 PRAYAS pointed out that the high capital cost of the project is also on account of Commitment charges to FIs (2% of loan), consultant & legal fees (2% of upfront payment), performance bank guarantee (3% of upfront payment). These other costs add upto 12% of upfront payment of the capital cost (Rs 60 crore). 3.4 Further, PRAYAS also proposed that mass CFL scheme is the most viable alternative as the energy benefits would be 18 times the annual cost to be paid to Bhandardara project over next 30 years. In addition, the mass CFL scheme has huge employment potential. The Commission pointed out that the peak deficit shall remain inspite of the DSM measures and additional generation would be required to meet the same. The objector agreed with Commission s contention that few stations would be required for meeting the peak demand. The Commission also enquired whether PRAYAS could provide suggestions in the matter of tariff of peaking power. In reply PRAYAS stated that for short term peaking power could be as high as Rs 5/- per unit and also pointed out that this (Bhandardara II) is a case of long-term power purchase. 3.5 Mr Mulla, a representative from Maharashtra State Electricity Distribution Company Limited (MSEDCL), expressed that that the capital cost of Rs 92 crore for the project was outcome of bidding process and therefore there is nothing to comment on the same. The Commission enquired whether the bidding was for power project or for the hydro project. Mr Mulla submitted that only the power project cost was taken in the bid. The Commission also asked whether the bidding process would absolve the company of its responsibility, more so when there was only one bidder and there was no price discovery as such. Page 13 of 45

14 3.6 Mr Kulkarni, representative for GOMID, expressed that the cost of Rs 92 crore for the project was reasonable and was outcome of a transparent competitive bidding process. The Commission observed that it seems that the objective of GOMID was to optimise their gains through the bidding process at the cost of the power utility. The Commission enquired what would happen in case the developer was not given the price comfort and thus finally the plant is not handed over to this bidder (DLHPPL). Mr Kulkarni submitted that the department would look for alternative and again go through the bid route. He also pointed out that in that case the bid value could be higher. 3.7 Further, the Commission also enquired whether it is appropriate to account for the entire expense in respect of power plant or a part of the expense should also be booked against irrigation expense. Mr Kulkarni submitted that the price of Rs 92 crore did not include any irrigation component at all. Commission s Analysis and Observations 3.8 GOMID has submitted that due competitive bidding procedure was followed for sale of the project. The Commission has observed that the selection criteria was based on the highest bid for the project based on the minimum price set by GOMID and not on competitive bidding for the end tariff. Moreover only one bidder, namely DLHPPL had finally submitted its bid. 3.9 Further, GOMID has submitted various project costs viz. the estimation for the bid price (Rs 92 Cr.), the project completion cost in 1999 (Rs Cr.), the project cost as per audited accounts of 2001 (Rs Cr.) and the audited project cost in 2005 (Rs Cr.). The final project cost of Rs Cr was submitted by GOMID on 2 nd March, The Commission observes that the audited project cost of Rs Crores as on year 2005 is significantly higher than the completed project cost of Rs Crores. The Commission has not received adequate information on the nature of additional expenses made during this period, which has added onto the capital cost. Capital cost has major impact on generation tariff. Thus in the two scenarios mentioned above the tariff determined by either methods will be significantly different from each other. Design Energy of the Project 3.11 Mr Rajadhyaksha presented the case of DLHPPL and pointed out that due to inadequacies, the plant has only generated an average of MU as against design generation of 36 MU over last six years despite availability of water. He also stated that whereas in case of Bhandardara I the availability have been 99.9% when water was available, the same figure stands at 50% in case of BHEP II. Page 14 of 45

15 Commission s Analysis and Observations 3.12 The station may generate the optimal output once the Nilwande Dam reaches a height of 613 m. Until then, the lower generating capacity of BHEP II will lead to lower Capacity Utilization Factor The design energy submitted by GOMID is also varying in their various submissions for the existing scenario The design energy associated with this project is likely to undergo significant change due to increase in the height of Nilwande Dam. As per GOMID submission the project will have three phases i.e. the pre-nilwande Dam phase and the post Nilwande dam phases when the dam height will be 613 meters and subsequently 648 meters. (a) (b) The current phase i.e. before the height of Nilwande Dam reaches 613 meters- As per the submissions of GOMID, the actual energy generation in last four years have been varying from year to year and has not been consistent. The average generation for the period between FY 02 and FY 04 has been MU (refer Appendix D). Thus, the energy generated in this phase is 33.35MU. GOMID has projected a power output of MW till the Nilwande dam reaches a height of 613 m. According to the Commission s technical consultant, in this phase, the annual energy potential in a 90% dependable year could be taken as 34.1 MU and the project would operate as run of the river project with periods of shut down dictated by the irrigation requirements. The technical consultant has also clarified that without Nilwande dam, BHEP II cannot be operated for peaking. The next phase is when Nilwande Dam s height reaches 613 m - As per GOMID the energy to be generated in this phase is MU with a power output of MW (refer Appendix E); as per BHEP II tariff petition submitted by MSEB the projected energy generation is MU and as projected by Commission s technical consultant, the projected energy generation would be 43.4 MU (refer Appendix F). The technical consultant has also clarified that this phase of development, with re-regulation pondage available at Nilwande, it would be possible to operate BHEP II for peaking. However, there is no firm schedule for the completion of Nilwande Dam up to height of 613 m within a given time frame. (c) The last phase when the height of Nilwande dam is raised till 648 meters - Similarly the energy to be generated in the third phase as projected by GOMID is with a power output between 26.4 MW to 34.5 MW (refer Appendix E), as projected in the petition submitted by MSEB the projected energy generation would be MU and as projected by Commission s technical consultant, it is MU in a 90% dependable year (refer Appendix F). At the same time the Commission has no clarity on the period by which the height of the dam would be raised till 648 meters. Page 15 of 45

16 3.15 It is observed that in case of BHEP II, the energy generation and the power output, both of the parameters are dependent on the height of the proposed Nilwande dam. The projected energy output has a significant impact on tariff determination process. Lack of clarity on the projected dates of construction of Nilwande dam makes it difficult to project the energy generation, power output and projected tariff to the desired level of accuracy. Proposed R&M Cost 3.16 Mr Rajadhyaksha presented the case of DLHPPL and pointed out that DLHPPL had retained an independent expert to make complete inspection of the plant and determined that the plant needs significant repair and refurbishment to improve availability of the plant. The estimate of repairs and refurbishment was approximately Rs 10 crore PRAYAS observed that the proposal has stated exorbitantly high R & M cost of Rs 10 crore, which amounts to 17% of Rs 60 crore (the amount to be paid upfront) Maharashtra State Electricity Distribution Company Limited (MSEDCL) submitted that Commission s decision on the additional expense of Rs 10 crore would be acceptable to the company The Commission also asked the GOMID representative to comment on the Rs 10 crore additional cost asked for by the developer. Mr Kulkarni stated that a detailed reply has already been submitted vide letter dated 12 August He clarified that at present additional expense of Rs 10 crores is not required but cannot comment on any requirement that may arise after four to five years. Mr Kulkarni also informed that at present there were no problems in running the machines at full load and it had been tested recently. DLHPPL expressed that Rs 10 crores was required to increase the availability at Bhandardara II to 99% from the existing 50% (approximately). Commission s Analysis and Observations 3.20 The Commission observes that while DLHPPL has strongly pitched for the additional expense of Rs 10 Crores, PRAYAS has argued against it. MSEDCL has remained silent on the issue. GOMID has stated that at present the expense is not required. The Commission finds merit in accepting the stand taken by GOMID and thus it is assumed that in the next four to five years the expense is not required. BHEP II as a Peaking Plant 3.21 In the technical validation session it was stated that the project has been built as a peaking station for life but at present it is being operated as a base load station PRAYAS submitted that BHEP II has not been used as a peaking plant as Nilwande dam would be completed only by The coming two years would be most crucial for MSEB particularly from peaking power point of view. Page 16 of 45

17 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 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 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 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. Tariff 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 12 th 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 11 th 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. Page 17 of 45

18 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% 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 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 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 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 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. Page 18 of 45

19 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 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 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) (b) (c) The projected power output in the current phase is MWs. The power output will change, as submitted by GOMID only with the height of Nilwande dam reaching 613 m. In the GoMID State Hydel Policy for Development of Small Hydro Power Projects through Private Sector Participation dated 15 th 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. 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. Page 19 of 45

20 A4: COMMISSION S DECISION ON TARIFF AND TARIFF RELATED ISSUES Introduction 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) (b) (c) (d) Consistency in principles and its application; Minimise regulatory uncertainty; Uniform principles for tariff setting; Transparency and compliance of regulatory procedures; Page 20 of 45

21 (e) (f) Recovery of cost of electricity in a reasonable manner; Promotion of investment in electricity industry. Approach & Methodology Capacity (in MW) of the project 4.5 As submitted by GOMID, the height of Nilwande dam plays an important role on the generating capacity of the hydro power plant. The different phases of the Nilwande dam project are as follows: (a) (b) Phase I This phase is the existing scenario i.e the dam does not exist. Phase II - In this phase the height of the dam will reach to 610m/613m. (c) Phase III - In this phase the height of the dam will be raised to 648 m/650 m. 4.6 MSEB in its petition dated March 24, 2005 (on proposal for purchase of power from BHEP II) has stated that BHEP II is a 1 x 34 MW project. Also in the same petition MSEB has stated that at present the unit will have to be operated at 14 to 18 MW generating capacity. 4.7 GOMID has submitted in its letter dated 13 th January, 2006 that at present Nilwande Dam is not constructed and with restricted discharge the power output in every month of the year would be kw. 4.8 Commission s technical consultant in his report has stated that without Nilwande dam, BHEP II cannot be operated for peaking though pondage is available at Randha weir. 4.9 GOMID has submitted that in Phase II the turbine output of BHEP II will be kw in all the months of the year. The Commission s technical consultant has stated that in this phase of development, with the re-regulation pondage available at Nilwande, it would be possible to operate BHEP II for peaking GOMID has submitted that the power output of BHEP II in phase III of the Nilwande Dam project would be varying between kw and kw in different months of the year. According to the Commission s technical consultant, the peaking capability in this phase would reduce during periods of high tail water level when the water level in Nilwande is high and the head available for power generation falls below design head. Energy generation at different heights of Nilwande Dam 4.11 The design energy at different phases is different as the increase in height of the dam will affect the storage level as well as the tail water level. Page 21 of 45

22 4.12 GOMID has submitted that in phase I the design energy would be MUs (the average of generation of past three years). In this phase the generation is the lowest. As per the analysis of the Commission s technical consultant: Quote: Without Nilwande dam, BHEP II cannot be operated for peaking though Pondage is available at Randha weir. This constraint is in on account of the fact that there is no re-regulating pondage at the irrigation weir to even out pulsating peaking releases. Further, whenever releases available for power generation are less than 34 cum, the same cannot be utilized for power generation for BHEP II since this is the lower limit of turbine operation range. Accordingly in pre Nilwande phase, BHEP II will operate as run of the river project and the generation will depend on the irrigation discharges and there would be periods of power house closure on account the reasons beyond the control of the project operator. The annual energy potential of BHEP II in a 90% dependable could be taken as 34.1 MU and the project would operate as ROR project with periods of shut down dictated by the irrigation requirements. Unquote 4.13 In phase II, the design energy proposed by GOMID is MUs as against 43.4 MUs as assessed by the Commission s technical consultant. In this phase the generation is highest. As per the analysis of the Commission s technical consultant: Quote: In this phase of development, with the re-regulation pondage available at Nilwande, it would be possible to operate BHEP II for peaking. The pre Nilwande constraint in operation of BHEP II during periods of flows lower than 34 cumec would no longer be applicable. Power generation would be possible even during the periods of release of less than 34 cumec, by utilizing the pondage available at Randha Weir. However, during the periods when no waters are to be released from Bhandardara, BHEP II would not be in a position to generate power. This situation is on account of the irrigation cycle and utilization of waters primarily for irrigation. The annual energy generation from BHEP II in post Nilwande (+613m) phase would be 43.4 MU. Peaking benefit to the extent of 34 MW would be available except during periods of no irrigation releases from Bhandaradara. Unquote 4.14 In phase III, the design energy proposed by GOMID is MUs. The report of Commission s technical consultant states the following Quote: Page 22 of 45

23 GOMWRD carried out integrated operation studies for Bhandaradara and Nilwande dams together and took into account the irrigation requirements downstream at Nilwande and Ozhar weir. These studies had considered the 90% dependable year inflows into Bhandardara reservoir as 292 MCM. The energy generation from BHEP II had been assessed taking into account the impact of higher tail water level on account of Nilwande. In these studies the power potential of BHEP II has been assessed as MU for 90% dependable year ( ). In the studies, the initial water level in Bhandardara reservoir was taken as m (42 MCM gross storage) and the final level at the end of the year was shown as 698 m (8 MCM gross storage). Thus there was an additional utilization of 34 MCM from the carry over storage. The energy assessments in the studies would need to be corrected for the additional utilization of carry over waters from previous year. The energy generation on account of this additional water is 4.52 MU (taking approx MU for 1 MCM of releases). If this correction is taken into account the 90% dependable potential for Bhandardara would be MU. DLH has assessed the potential for this phase as 34.8 MU. Correcting for the efficiency 83% to 84.6%, the power potential would work out 35.4 MU. The difference between the two energy assessments could be on account of the difference in assumptions made by DLH. The tail water level in GOMWRD studies would be appropriate as they take into account the integrated operation of the all the developments in the river basin and also consider irrigation releases at Nilwande and Ozhar. In this phase (post Nilwande +648m) of development, as per GOMWRD studies, the energy generation would be possible for 263 days i.e. 72% of the time. Unquote Basis of Tariff and its period 4.15 The extant Petition of MSEDCL for procurement of power from BHEP-II on long term basis will be governed by Regulation 24 of MERC (Terms and Conditions of Tariff Regulations) 2005 notified on 23 rd August The relevant extract of the said Regulations is as under: 24.1 Every agreement or arrangement for long-term power procurement by a Distribution Licensee from a Generating Company or Licensee or from other source of supply entered into after the date of notification of these Regulations shall come into effect only with the prior approval of the Commission: 4.16 Further, the Commission will have to not only determine Tariff in accordance with Terms and Conditions for Generation Tariff as stipulated under Part E of the Tariff Regulations but also verify its conformity with the long term procurement plan of the Utility. The long term plan of the Utility should include base load and peak load demand forecast. Page 23 of 45

24 4.17 In this context, the Commission notes that MSEDCL has neither furnished its long term power procurement plan nor provided details of peak load demand requirement for which it proposes to procure power from said project (BHEP-II) on long term basis Further, as elaborated under earlier paragraphs, the nature of project is intended to change over the period as the height of Nilawande Dam is raised upto 613M and with that design energy of the project would also undergo change. The re-regulation pondage would offer flexibility to exploit the full potential of the project upto its installed plant capacity thereby offering capacity benefit (or peaking benefit). However, until that is achieved, the project would be constrained to be operated as run of the river small capacity hydel generation project (14 MW to 18 MW) limited by water releases for irrigation cycle requirements The Commission has not received any definite time frame regarding completion of construction of Nilwande dam to the heights of 613 meters or 648 meters. The design energy of the project varies with height of the Nilwande dam. The time frame for building of the dam is uncertain and thus the design energy for future years is uncertain. Therefore, Commission is of the view that determination of tariff in accordance with the Tariff Regulations for a period of thirty years will involve significant assumptions on the parameters that are related to time frame for completion of various phases of Nilwande dam like projected energy generation and power output In view of above complexities associated with evolutionary project scheme, determination of tariff for long term (for period of say 30 years), as per MERC (terms and Conditions for Tariff) Regulations 2005, at this stage will not be appropriate. At the same time, the Commission notes that this is a unique case, where the project has been operating for past six years and has been generating energy approx 33 MU to 35 MU with capacity generation of around 14 to 18 MW, similar to any other small hydel generation project. Thus, it is certain that, until height of Nilwande dam reaches 613 M, the project can continue to generate at capacity of 14 MW to 18 MW, even though installed capacity of the project is 34 MW and energy generation shall be constrained by water releases to meet irrigation cycle requirements and cannot be regulated as per power generation requirement Recently, the Commission has issued an order on tariff for small hydro project of capacity less than 25 MW, where the Commission had taken a stand that a case-bycase evaluation of similar project can be avoided and a common tariff can be awarded. The Commission is of the opinion that the above approach can be applied to BHEP II under the following grounds: (a) The Commission cannot set tariffs to recover the cost at which asset is being sold by one owner to another. In a regulated business, the asset valuation should follow the investor expectation guided by the tariff and regulatory regime, but the tariff cannot follow the sale price to keep up the investor s expectation. Indeed, the market valuation of various companies changes everyday, but those values are not considered by the Commission in Page 24 of 45

25 determining tariffs. Moreover, in this case, only one bidder had participated in the bidding process, hence the outcome cannot be considered to have been tested for competitiveness. (b) (c) (d) Further, as submitted by GOMID, the project, at present, is indeed capable of generating less than 25 MW, though in future, it is expected to generate higher capacity with the increase of the height of the Nilwande dam and the capital expenditure for the same is to be incurred by the irrigation department. A hydropower project is a combination of civil structures such as storage reservoir where applicable, water conductor system, adequate facility for discharge of tailrace water and electro mechanical equipments. The actual installed capacity of the plant will be limited by the inadequacy of any of these components irrespective of the rated capacity of the electro mechanical equipments. It will therefore not be correct to consider only the machine rating as the installed capacity. The projected power output, provided by GOMID, in the current phase is MWs. In the GoM State Hydel Policy for Development Of Small Hydro Power Projects through Private Sector Participation the Government has stated that the policy is applicable to hydropower projects up to 25 MW installed capacity. As submitted by GOMID, the power output from the project will increase beyond 25 MW only after the height of Nilwande Dam reaches 613 meters. Also in the Order for Determination of Tariff for SHP Projects within Maharashtra dated 9 th November, 2005 of the Commission the approved tariff has been made applicable for projects upto an installed capacity of 25 MWs Considering the above the Commission finds merit in treating the project as similar to a Small Hydro Power project till the height of Nilwande dam is raised till 610/613 meters Therefore till the Nilwande dam height is raised till 610/613 meters, the Commission approves the SHP tariff (as provided in order on Determination of Tariff for SHP Projects within Maharashtra dated 9 th November, 2005) for this project from the date of approval of this order. The tariff applicable on the date of approval of this order shall be as per the first year of the SHP tariff The above Tariff shall be applicable for BHEP-II during phase-i of the project (i.e. until height of Nilwande dam reaches 610 M). Further, the developer can approach the Commission for revision of tariff once the dam height is raised till 610 m / 613m. Commission Determined Tariff Rates for BHEP II 4.25 Based on the Order on Determination of Tariff for SHP Projects within Maharashtra dated 9 th November, 2005, Commission has adopted the SHP tariffs for BHEP II. The SHP tariff as approved by the Commission in Determination of Tariff for SHP Projects within Maharashtra dated 9th November, 2005 is provided in Annexure H. Page 25 of 45