CASE No. 79 of Petition of Tata Power Company Ltd. (Distribution) for approval of Additional Surcharge on Open Access consumers.

Transcription

1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13 th Floor, Cuffe Parade, Mumbai Tel /65/69 Fax Website: CASE No. 79 of 2017 Petition of Tata Power Company Ltd. (Distribution) for approval of Additional Surcharge on Open Access consumers Coram Shri Azeez M. Khan, Member Shri Deepak Lad, Member ORDER Date: 25 April, 2018 M/s. Tata Power Company Limited (Distribution) (TPC-D) has filed a Petition on 11 May, 2017 for approval of Additional Surcharge. The Petition cites Section 42 (4) of the Electricity Act (EA), 2003, Clause of the Tariff Policy, 2016 and Regulation 14.8 of the MERC (Distribution Open Access) Regulations ( DOA Regulations ), The prayers of TPC-D are as follows:- a) Approve an Additional Surcharge for H2 of FY as computed based on the 6 months data of FY in the Petition. b) Allow Tata Power-D to levy the approved Additional surcharge starting from 1 st April, 2017 on all the Open Access consumers. 3. The Petition states as follows: 3.1. The Commission issued the Multi Year Tariff (MYT) Order for TPC-D on 21 October, 2016 in Case No. 47 of In this Order, the Commission has approved various charges applicable to consumers of TPC-D, including charges for consumers availing power supply on Open Access (OA). However, its request for Additional Surcharge was not granted. MERC Order in Case No.79 of 2017 Page 1 of 38

2 3.2. Post the Order, OA transactions are continuing to increase and Demand of TPC-D has been consequently reduced. This has resulted in the further backing down of long term tied up capacity, making it stranded. If this continues in FY , it will increase the tariff of the remaining consumers significantly. I. Background: 3.3. In its MYT Petition in Case No. 47 of 2016, TPC-D had made submissions presenting a methodology for computing Additional Surcharge to be made applicable to consumers sourcing power on OA. However, the Commission, in its MYT Order in dated 21 October, 2016, had not determined any Additional Surcharge for OA consumers stating that it does not satisfy the criterion for establishing stranded cost: In the present case, neither of the above conditions are fulfilled, as explained below: a) The per-unit Capacity Charge of power procurement of TPC-D is not a stranded cost, as the capacity itself is not a stranded capacity. The Stand-by Charges and fixed cost of Unit 6 cannot be considered as stranded costs and recovered from OA consumers. The fact that Unit 6 generation capacity is called upon only during system emergencies at the instructions of MSLDC on account of its high generation cost cannot be a reason to consider its fixed cost as a stranded cost. The OA consumers are not responsible for the incidence of the fixed cost of Unit 6 and Stand-by Charges. b) Further, the third component of the Additional Surcharge proposed by TPC-D, i.e., Consumer Service Charge, for recovery of costs towards maintaining the metering infrastructure, Call Centre, Consumer Care Centres, O&M activities of metering, meter reading, billing, bill despatch, collection, vigilance, disconnection, etc., from the OA consumers is also not mandated under the DOA Regulations, 2016, which specifies the various charges that can be levied on OA consumers. Moreover, as explained earlier, these costs are subsumed under O&M expenses or other charges allowed to be levied on OA consumers. In view of the above, the Commission has rejected TPC-D's request for approval of Additional Surcharge to be levied on OA consumers Subsequently, the Commission, in its last MYT Order for the Maharashtra State Electricity Distribution Company Ltd. (MSEDCL) in Case No. 48 of 2016, has provided a methodology for computing Additional Surcharge and arrived at the Additional Surcharge to be made applicable to various consumer categories: For the purpose of approving power purchase for the 3rd Control Period, the Commission has adopted the MOD principle. Accordingly, the Generators would be despatched as per MOD principles subject to technical constraints. Thus, a few Generating Stations/Units would be completely despatched as per the declared availability, or partially despatched/backed down, or completely MERC Order in Case No.79 of 2017 Page 2 of 38

3 backed down (zero schedule). As per MSEDCL estimates, around 25% to 30% of the generation capacity (around 4000 to 5000 MW) is projected to be backed down, being surplus to its projected power requirement during the 3rd Control Period. This indicates that some of the Generating Stations/Units that are tied up by MSEDCL through PPAs would be backed down, resulting in stranded generation capacity to that extent. On the other hand, the Commission observes that OA consumption has increased. As per MSEDCL s submission, around 1620 MW of OA capacity is already operational in the State. While it is a matter of detailed scrutiny as to whether and to what extent OA has resulted in or would contribute to backing down of contracted generation capacity, there is no denying the fact that the Distribution Licensee s obligation to discharge the fixed cost of power purchase would remain. Under-utilisation or non-utilisation of contracted generation capacity, when declared to be available, would result in the fixed cost of such contracted generation capacity being stranded to that extent. With the increase in OA transactions, the obligation of the Distribution Licensee in terms of power purchase commitments has been and shall continue to be stranded, and there will be an unavoidable obligation and incidence to bear the fixed costs consequent to such commitments. Such fixed cost of power purchase has to be expected to be incurred with reasonable certainty, and also that such fixed cost of power purchase cannot be recovered from OA consumers through Wheeling Charges or Stand-by Charges. The Commission is of the considered view that, unless such fixed costs are recovered from OA consumers, this burden would be loaded onto other consumers remaining with the Distribution Licensee (viz. consumers who are not eligible for OA, and eligible OA Consumers not availing power through OA). The Commission believes it would be unfair and unwarranted to pass on the burden of such fixed cost recovery to other consumers through Other Charges. Thus, the Commission is of the view that, under the circumstances and in pursuance of Regulation 18.4 of the DOA Regulations, 2016, there is a case for recovery of the part of fixed cost towards the stranded capacity arising from the power purchase obligation through levy of Additional Surcharge from OA consumers In view of the above, the Commission has approved the Additional Surcharge of Rs per unit to be applicable with effect from 1 November, 2016.The Additional Surcharge determined through this Order shall be applicable until revised through further Orders. The Commission shall redetermine the Additional Surcharge for the last two years of the Control Period at the time of the MTR, based on actual data of stranded capacity, the approved fixed cost of such stranded capacity, and the OA volume over the yearly period. MERC Order in Case No.79 of 2017 Page 3 of 38

4 3.5. In view of the fact that TPC-D is actually in a similar situation of stranded generation, the same consideration of Additional Surcharge may also be made applicable to OA consumers of TPC-D TPC-D is presenting below the Additional Surcharge computation exactly on the same principles as have been approved by the Commission for MSEDCL to be made applicable to consumers who wish to avail power on OA. II. Details of the matter: 3.7. TPC-D has experienced a large number of High Tension (HT) consumers having significant demand migrating out on OA, thus making long term capacity tied up by TPC-D stranded. The month-wise loss of sale on OA for FY is presented as follows: Table 1: Movement of Open Access sales Mus Month Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Total OA Slaes Mus As seen from the above, the estimated loss of sale on OA during FY was 678 MU considering average loss of around 57 MU per month. This amount is significant as compared to the OA volume of 194 MU in FY and 544 MU approved for FY (and 367 MU approved for FY ). There is a whopping 250% increase in OA volume for TPC-D. The comparison in reduction of TPC-D demand in FY and FY is as given below: Graph 1: Demand of TPC-D for FY 16 & FY 17 MERC Order in Case No.79 of 2017 Page 4 of 38

5 As a consequence, a large quantum of load has gone from TPC-D, leading to a significant reduction in the annual sales. This is evident from the graph below, presenting month-wise peak demand of TPC-D with and without OA during FY along with the contracted capacity: Table 2: Demand and Open Access Volume for TPC-D As can be seen from the graph above, Contracted capacity of TPC-D (excluding Unit 6 of TPC (Generation) (TPC-G) and considering obligated Renewable Energy (RE) generation during peak hours) is remaining stranded since second half of FY TPC-D, at present, has tied up power through long term contract with TPC-G till 31 March, 2018 as given below: Table 3: Unit-wise capacity tied up by TPC-D MERC Order in Case No.79 of 2017 Page 5 of 38

6 Source Capacity % Share Capacity Tied Up (MW) % (MW) Unit % 244 Unit % 244 Unit % 88 Unit % 150 Hydro % 218 Total Out of the 944 MW capacity contracted, Unit 6, which is a high cost Generating Unit, is under economic shutdown (hence the net capacity available without Unit 6 is 700 MW) Further, TPC-D has long term RE contracts for meeting its Renewable Purchase Obligation (RPO) as below: Table 4: Unit-wise capacity tied up for meeting RPO by TPC-D As can be seen from the above Tables, TPC-D has tied up its long term power requirements with generation sources, as approved by the Commission, to meet the demand of the consumers in its Licence Area. Each of these long term tie ups has a significant quantum of Capacity Charges which has to be borne by TPC-D and which can be recovered from its consumers as per the approved tariffs only when the power from these Units is dispatched and consumed by the consumers. At present only 40% of such generation Capacity Charges are recovered through the Demand Charges of TPC-D consumers and the remaining is built into the Energy Charges In this scenario of shrinkage of significant quantum of actual demand due to migrations on OA, there is abnormally lower despatching of power from its Long Term (LT) sources. This has resulted in the backing down of generating sources tied up by TPC-D, i.e. consumers seeking power on OA has resulted in stranded generation assets for TPC-D. This means the available tied up generation capacity for which Capacity Charges are borne by TPC cannot be utilized because the OA MERC Order in Case No.79 of 2017 Page 6 of 38

7 consumers have stopped consuming power. Further, the Capacity Charges also cannot be recovered as per the approved tariffs from the consumers, which had been approved by the Commission in its MYT Order, since they are not consuming power any more. Consequently, the cost associated with stranded generation assets will automatically get loaded on the remaining consumers of TPC-D in the future tariff as Regulatory Assets. This will not only burden the other consumers unduly due to better prospects of the OA consumers but will also render the tariff of TPC-D uncompetitive While the eligible consumers of any Distribution Licensee are free to avail OA as per the laid down procedures, the issue of stranded generation assets created as a consequence and the cost burden on the Distribution Licensee as well as its other consumers which arises out of its obligation to supply also needs to be considered with a balanced approach in line with the provisions of the EA, 2003, DOA Regulations, 2016as well as the determination of Additional Surcharge already mandated by the Commission in the MYT Order of MSEDCL in Case No. 48 of III. Legal and Regulatory Provisions: Various regulatory provisions for addressing the issue of stranded cost of any Distribution Licensee are given as under: Section 42 (4) of the EA, 2003 states as follows: (4) Where the State Commission permits a consumer or class of consumers to receive supply of electricity from a person other than the distribution licensee of his area of supply, such consumer shall be liable to pay an additional surcharge on the charges of wheeling, as may be specified by the State Commission, to meet the fixed cost of such distribution licensee arising out of his obligation to supply Section 8.5 of Tariff Policy, 2016 states as below: The additional surcharge for obligation to supply as per section 42(4) of the Act should become applicable only if it is conclusively demonstrated that the obligation of a licensee, in terms of existing power purchase commitments, has been and continues to be stranded, or there is an unavoidable obligation and incidence to bear fixed costs consequent to such a contract. The fixed costs related to network assets would be recovered through wheeling charges Regulation 14.8 of thedoa Regulations, 2016states as below: 14.8 (a) An Open Access consumer, receiving supply of electricity from a person other than the Distribution Licensee of his area of supply, shall pay to the Distribution Licensee an additional surcharge on the charges of wheeling and cross-subsidy surcharge, to meet the fixed cost of such Distribution MERC Order in Case No.79 of 2017 Page 7 of 38

8 Licensee arising out of his obligation to supply as provided under sub-section (4) of section 42 of the Act. (b) This additional surcharge shall become applicable only when due to the Open Access being granted or having been granted, the obligation of the Distribution Licensee in terms of power purchase commitments has been and continues to be stranded or there is an unavoidable obligation and incidence to bear fixed costs consequent to such a contract. (c) The Distribution Licensee shall submit to the Commission with its Petitions under the Commission's Regulations governing Multi Year Tariff, detailed computations of the fixed cost which it is incurring towards his obligation to supply, and actual expenses incurred vis-à-vis those approved by the Commission, for the prudence check and approval of the Commission. (d) The Commission shall determine category wise Additional Surcharge to be recovered by the Distribution Licensee from Open Access consumers, based on the following principles: (i) The cost must have been incurred by the Distribution Licensee or be expected, with reasonable certainty, to be incurred on account of such consumer; and (ii) The cost has not been or cannot be recovered from the consumer, or from other consumers who have been given supply from the same assets or facilities, or from other Consumers, either through wheeling charges, standby charges or such other charges as may be approved by the Commission: Provided that such Additional Surcharge shall be applicable to all the consumers who have availed Open Access to receive supply from a source other than the Distribution Licensee to which they are connected. (e) Additional surcharge determined on per Unit basis shall be payable, on monthly basis, by the Open Access consumers based on the actual energy drawn during the month through Open Access: In its last MYT Order for MSEDCL, the Commission has provided a methodology for computing Additional Surcharge and arrived at the Additional Surcharge applicable to various consumer categories: In view of the above, the Commission has approved the Additional Surcharge of Rs per unit to be applicable with effect from 1 November, 2016.The Additional Surcharge determined through this Order shall be applicable until revised through further Orders. The Commission shall re-determine the Additional Surcharge for the last two years of the Control Period at the time of the MTR, based on actual data of stranded capacity, the approved fixed cost of such stranded capacity, and the OA volume over the yearly period. MERC Order in Case No.79 of 2017 Page 8 of 38

9 3.19. Considering this methodology and the fact that TPC-D is also in a similar stranded generation asset situation, TPC-D is presenting below the Additional Surcharge computation to be made applicable to consumers who have availed OA during FY and also those who wish to avail power on OA FY onwards. IV. Computation of Additional Surcharge for FY considering methodology of the Commission in determining Additional Surcharge for MSEDCL The methodology adopted by the Commission while approving Additional Surcharge for MSEDCL in Case No. 48 of 2016 has been followed in the present Petition. The Additional Surcharge was determined by the Commission in the following four steps: Step 1: To establish contribution of OA to backing down / stranded generation capacity Step 2: To ascertain the cost of stranded generation capacity Step 3: To segregate impact of Captive/non-Captive OA Step 4: Determination of Additional Surcharge. TPC-D has computed the Additional Surcharge based on the data for the 2 nd half (H2) of FY i.e., post the MYT Order. Further, in the computation, the data for January, 2017 is not considered as TPC-G s Unit 5 was under planned shutdown during that month. However, the data for September, 2016, which had the same Generating Units, has been considered in place of January, Step 1: To establish contribution of Open Access to Backing down / Stranded Capacity As per the methodology adopted by the Commission, it is necessary to establish the contribution of OA consumption to backing down of generating sources tied up by TPC-D. Further, the backing down is as per the philosophy governed by State Merit Order Dispatch (MOD) principles, Declared Availability of Generating Stations, and planned and forced outage of Generating Stations. Hence, to ascertain the ratio of OA consumption to the total backing down, TPC-D has analysed the same in various time slots of a day as per Time-of-Day (ToD) philosophy as well as on the basis of 15 minutes data. Further, while converting it in to MW, TPC-D has used the load factor for the respective time slot The following Table provides the percentage contribution of OA consumption vis-àvis backing down quantum across ToD slots in MUs. The corresponding MW have been derived based on the period and considering unity load factor of OA consumers and India Railways during the ToD slots. The Commission is aware that TPC-D has been supplying the power to Indian Railways under a separate arrangement for short term power purchase with tenure till 1 st August, At present, the short term sale to Railways is partially offsetting the total backing down due to OA migration. Hence, for the purpose of calculation of total effective back-down specifically due to OA MERC Order in Case No.79 of 2017 Page 9 of 38

10 migration, the energy sale to Railways has been considered as deemed back down quantum. Table 5: Ratio of Open Access volume to Backing Down volume TOD Time Slots Duration Open Access Migration (MUs) Open Access Migration (MW) Net Generation Back Down quantum due to OA + MOD (MUs) Net Generation Back Down quantum due to OA + MOD (MW) Backdown offset by ST sale to Railways (MUs) Backdown offset by ST sale to Railways (MW) Gross Back Down (OA+Railway+ MOD) (Mus) Gross Back Down (OA+Railway +MOD) (MW) Ratio = OA Migration / Gross Back down a b c d e f g=c+e h h=b/g Time Slot-A hrs. to 6.00 hrs % Time Slot-B 6.00 hrs. to 9.00 hrs % and hrs. to Time Slot-C 9.00 hrs. to hrs % Time Slot-D hrs. to hrs % Total hrs. to hrs % It is evident from the above Table that, on an average, around 67%of the backing down is on account of OA consumers across time slots of the day. In addition, TPC-D has analyzed the month-wise 15 minutes' data for H2 of FY The sample load curve for the month of February, 2017 considering the average demand and availability is as given below: Chart -1: Load Curve for February, In addition, in order to ascertain the percentage of time this surplus capacity of TPC-G is stranded, the following histogram is plotted: MERC Order in Case No.79 of 2017 Page 10 of 38

11 Chart -2: % of time Surplus Capacity Available for H2 of FY The above Chart indicates that, for around 75% of the time, available generation capacity is stranded for TPC-D, i.e., in 75% of the time slots of 24 hrs. TPC-D has surplus capacity due to movement of OA consumers. Step 2: To ascertain the Cost of Stranded Capacity: The stranded capacity cost for TPC-D has been arrived at in the following manner: Weighted Average Fixed Cost of TPC-D The total fixed cost of TPC-D has been worked out based on its share in the approved Annual Fixed Costs of Thermal Generating Stations of TPC-G (as per MYT Order in Case No. 32 of 2016). The per unit weighted average fixed cost has been worked out considering approved generation of Unit 5, 7 and Unit 8 in the MYT Order of TPC-G. The weighted average fixed cost of TPC-D comes out to be Rs.1.52/kWh as given in the Table below: Table 6: Average Fixed Cost of TPC-G MERC Order in Case No.79 of 2017 Page 11 of 38

12 Projection of Backing Down quantum In line with the methodology applied by the Commission, TPC-D has considered MOD principle for actual data of September, 2016 to March, 2017 (excluding data for January, 2017) considering the stand-alone Demand of TPC-D and fulfilment of the same taking into account Must Run and TPC-G schedule. Bilateral sales have not been considered under Must Run as the same is being procured to offset the high cost power from Unit 6. Further, the fixed cost pertaining to Unit 6 of TPC-G has also not been taken into the calculation of Additional Surcharge as the Unit was already under economic shutdown Accordingly, total back down from September, 2016 to March, 2017 (excluding the month of January, 2017) is 159MU. Table 7: Average Fixed Cost of TPC-G MUS Particulars Sep-16 Oct-16 Nov-16 Dec-16 Feb-17 Mar-17 Total Tata Power-D Requirement RE Purchase Hydro Net 4= Requirement Unit Unit Unit Available 8= 5 to Generation Surplus 9= Note: Total is excluding January 17 as Unit 5 was out due to planned outage Same trend of OA migration is expected to continue in FY also Based on the weighted average fixed cost of TPC-D at Rs per unit as computed in Table 6 above and actual back down of 159 MU for FY , the total stranded fixed cost of generation for TPC-D for 6 months of FY is estimated to be around Rs.24 crore. The computation is as given below: MERC Order in Case No.79 of 2017 Page 12 of 38

13 Table 8: Average Fixed Cost of TPC-G Step 3: Consideration of impact of Captive and non-captive OA While determining the levy of Additional Surcharge in case of MSEDCL, the Commission has excluded Captive OA consumption. The Commission relied on the fact that it can levy an Additional Surcharge only on Non-Captive OA consumption as the Captive Consumers, to the extent of self-consumption, have the right under Section 9 of EA, The provision of "permit" or "supply" by the State Commission does not arise in their case However, Additional Surcharge is applicable to all consumers who take OA irrespective of whether they are captive or non-captive consumers. The legal/ regulatory provisions in support of this submission are presented below: Section 42 (4) of EA, 2003, reads as follows: Where the State Commission permits a consumer or class of consumers to receive supply of electricity from a person other than the distribution licensee of his area of supply, such consumer shall be liable to pay an additional surcharge on the charges of wheeling, as may be specified by the State Commission, to meet the fixed cost of such distribution licensee arising out of his obligation to supply The Additional Surcharge so determined would be applicable to all the consumers availing OA irrespective of whether they are taking OA to procure power from a Group Captive source or an Independent Power Producer (IPP). This is also supported by: A) The 1 st proviso to Regulation 14.8 (d) of DOA Regulations, 2016 reads as follows: MERC Order in Case No.79 of 2017 Page 13 of 38

14 "14.8 (d) (ii) The cost has not been or cannot be recovered from the consumer, or from other consumers who have been given supply from the same assets or facilities, or from other Consumers, either through wheeling charges, standby charges or such other charges as may be approved by the Commission: Provided that such Additional Surcharge shall be applicable to all the consumers who have availed Open Access to receive supply from a source other than the Distribution Licensee to which they are connected." B) Further, the right provided by Section 9 of the EA 2003 cannot be treated as a blanket permission to avail OAfor Captive Consumption. As per the DOA Regulations, 2016, a consumer willing to avail OA has to apply to the Distribution Licensee irrespective of its status, i.e. Captive or Non-Captive. C) Further, Section 42 (4), while it specifically mentions about waiver of Cross Subsidy Surcharge (CSS) for Captive Consumption, it does not explicitly mention anything about Additional Surcharge. Hence, if there is stranded capacity created on account of such consumer going to OA, the Additional Surcharge as determined by the State Commission shall be payable by the Captive OA consumers Accordingly, the Commission may approve an Additional Surcharge of Rs per unit as worked out below: Table 9: Additional Surcharge computation MERC Order in Case No.79 of 2017 Page 14 of 38

15 Maintainability of the Petition: The Petition has been filed under the following provisions of the Commission s MYT Regulations, 2015: 102. Power to remove difficulties: If any difficulty arises in giving effect to the provisions of these Regulations, the Commission may, by general or specific order, make such provisions not inconsistent with the provisions of the Act, as may appear to be necessary for removing the difficulty. Hence this petition is maintainable before this Hon ble Commission In view of the above, the Commission may approve the Additional Surcharge for TPC-D. 4. At the hearing held on 13 July, 2017, TPC-D made a detailed presentation on the need for determination of Additional Surcharge and the computation involved in determining it. MERC Order in Case No.79 of 2017 Page 15 of 38

16 4.1. To a query of the Commission, TPC-D stated that, currently, there are 44 consumers availing short term and medium term OA, and that it is procuring short term power, but the quantum is low TPC-D stated that it generally purchases short term power for the period of shutdown of TPC-G s Thermal Generating Units, and to take advantage of the low cost power availability in the short term market by backing down of the Thermal Units TPC-D stated further that: a. The Commission, in its last MYT Order for TPC-D, had not determined any Additional Surcharge for OA consumers stating that it did not satisfy the criteria for establishing the stranded generation and cost. b. Subsequently, in the last MYT Order for MSEDCL, the Commission set out a methodology for computing the Additional Surcharge due and applicable to various consumer categories. c. Now, TPC-D is in a similar situation of stranded generation and has estimated the Additional Surcharge using the same methodology as applied to MSEDCL by the Commission, excluding Unit 6 generation and the quantum of reduction in demand due to switchover of consumers to the other Licensee. d. TPC-D has arrived at the per unit fixed cost of Rs. 1.52/kWh by considering the fixed cost of thermal generation, excluding TPC-G Unit 6 and Hydro generation. e. The right to OAfor captive consumption, provided by Section 9 of the Electricity Act, 2003, cannot be treated as a blanket permission. As per the DOA Regulations, 2016, any consumer wanting to avail OA has to apply to the Distribution Licensee irrespective of its status, i.e., Captive or Non-Captive. f. Section 42 of the EA, 2003 expressly provides for waiver of CSS for Captive Consumption, but does not explicitly mention anything about Additional Surcharge. Also, Section 42 (4) requires any person other than the Distribution Licensee to pay Additional Surcharge on the charges of wheeling to meet the fixed cost of the Licensee. Hence, Additional Surcharge is applicable to Captive OA consumers also as it has resulted in stranded capacity Thane-Belapur Industries Association (TBIA), an Authorised Consumer Representative, stated that: a. TPC-G has been backing down due to reduction in demand of not only TPC- D, but also the demand of another Mumbai Distribution Licensee, Brihanmumbai Electric Supply and Transport Undertaking (BEST). MERC Order in Case No.79 of 2017 Page 16 of 38

17 b. At the time of reduction in demand, the option of backing down of Hydro generation may also be taken into consideration, while considering the backing down capacity to determine Additional Surcharge. c. While calculating the Additional Surcharge, TPC-D has not considered the data for September, 2016 to March, 2017, excluding January, To arrive at the realistic stranded capacity, there must be a consideration of at least 12 months. d. In case of TPC-D, generation is being backed down due to partial OA consumers whereas, in case of MSEDCL, MW generation is on zero schedule. Thus, TPC-G s backed-down capacity cannot be treated as a stranded capacity for consideration of determination of Additional Surcharge. e. The Commission may implead the Maharashtra State Load Despatch Centre (MSLDC) to verify the actual system operations for the period of stranded generation. f. TBIA will file its written submission within 3 days The Commission directed TPC-D to submit the following month-wise data for FY : a. Short term power procurement of TPC-D, with details of contracts entered into (Power Exchange or under Competitive Bidding Guidelines). b. No. of OA consumers, quantum and duration of all 44 OA consumers, Captive and Non-Captive, etc. c. Power procurement details from RE and quantum of power supply through different technologies in MW and MU d. All data submitted in Petition in MS-Excel format with back-up data, if any. e. Month-wise sale of power to Indian Railways f. Unit and price at which power is sold to Railways g. Day-ahead Demand and Schedule of TPC-D to MSLDC h. Final Demand and actual Power Schedule by MSLDC with source of generation to meet its demand, and backing down of TPC-D Power Purchase Agreement (PPA) Units due to MOD (MW and MU) If there is a prima facie case for Additional Surcharge, the Commission may consider it at the time of Mid-Term Review (MTR) of TPC-D or, in the present case, shall provide an opportunity to TPC-D s OA consumers through a public process or as Parties in this Case The Commission may schedule the next hearing or a Technical Validation Session (TVS), as may be necessary, and communicate the next date accordingly. MERC Order in Case No.79 of 2017 Page 17 of 38

18 5. Vide its letter dated 22 August, 2017, TPC-D submitted its response to the points raised by the Commission as follows: a. The month-wise details of bilateral power procurement for FY b. The month-wise details of OA consumers for FY c. Details of power procurement from RE sources and quantum of power supply through different technologies in MW and MU d. The data in the Petition is submitted in the form of a CD e. Month-wise sale to Railways is submitted in the form of CD f. Power is sold to Indian Railways on short term basis at Rs.4.17/kWh g. Day-ahead Demand and schedule of TPC-D to MSLDC h. Final Demand and Actual Power Schedule by MSLDC with source of generation to meet its demand, and backing down of TPC-D PPA units due to MoD despatch (MW and MU) is submitted in the form of CD. I. Admission of the Petition, and Regulatory Process 6. The Commission admitted the Petition of TPC-D on 13 November, 2017 with the following documents: i) Main Petition dated 11 May, 2017 ii) Replies submitted vide letter dated 22 August, 2017, with relevant Annexures, to data and details sought by the Commission In accordance with Section 64 of the EA, 2003, the Commission directed TPC-D to publish its Petition in the prescribed abridged form and manner. As directed, TPC-D published a Public Notice inviting suggestions/objections on its Petition in the Financial Express and Indian Express (English), and Loksatta and Saamna (Marathi) daily newspapers on 13 November, The Public Notice also intimated the date of Public Hearing. Copies of TPC-D s Petition and documents were made available for inspection/purchase at TPC-D s offices and on its website ( The Public Notice was also uploaded on the websites of the Commission ( in downloadable format The Public Hearing was held on 14 December, 2017 at 12:00 hours at the Office of the Commission, 13 th Floor, Centre No.1, World Trade Centre, Cuffe Parade, Mumbai. The list of persons who filed written responses and/or made oral submissions at the Public Hearing is at Annexure 1. The list of those present is at the Public Hearing is at Annexure 2. II. Issue-wise summary of Suggestions/Objections received, TPC-D's response, and Commission s view MERC Order in Case No.79 of 2017 Page 18 of 38

19 7. Vide its letters dated 13 and 28 December, 2017 and 5 January, 2018, TPC-D has replied to the objections/comments received by it upto and after the date of Public Hearing. In the public interest and for completeness, the Commission has reflected all the suggestions and objections, including those received after the stipulated date Maintainability of Petition Suggestions/Objections i. Mumbai International Airport Pvt. Ltd.(MIAPL) stated that the Petition for levying Additional Surcharge is devoid of any merits, is not maintainable and as such is liable to be summarily rejected. ii. Prayas (Energy Group) ( Prayas ), an Authorised Consumer Representative, stated that TPC-D has simply filed a fresh Petition to agitate the same issue that has already been dealt with by the Commission earlier in its last MYT Order. Therefore, the Petition is not maintainable and should be dismissed. TPC-D s Response i. TPC-D has filed this Petition under Regulation 102: Power to remove difficulties of the MYT Regulations, Hence, it is maintainable. In Section III Relevant legal and regulatory Provisions, the Petition cites all legal provisions regarding Additional Surcharge. OA had significantly increased in FY as compared to FY (250% increase in OA volume), and hence it had become imperative for TPC-D to approach the Commission to seek approval for Additional Surcharge. Commission s View The Commission has entertained this Petition considering, inter alia, that TPC- D has furnished certain factual details available subsequent to its last MYT Order, and has purported to rely on the methodology followed by the Commission for determining the applicability and rate of Additional Surcharge in its subsequent MYT Order for MSEDCL. The Commission s decision on TPC-D's proposal to levy Additional Surcharge is discussed in Section III of this Order Additional Surcharge on Open Access and Change-Over Consumers Suggestions/Objections i. MIAPL stated that the imposition of Additional Surcharge on OA consumers is against the main objective of the EA, 2003, which is to promote MERC Order in Case No.79 of 2017 Page 19 of 38

20 competition, as set out in its Preamble, and is against the interest of consumers, the supply of electricity to all areas, promotion of competition and the rationalization of tariffs. ii. Bharatiya Udhami Avam Upbhokta Sangh (BUAUS) has stated that Additional Surcharge cannot be levied on consumers who have migrated from the costly tariff of a Licensee to a lower tariff from another Licensee or source. TPC-D s Response i. As regards MIAPL s objection, the applicability of Additional Surcharge is as per the provisions of law and the Regulations. The protection of the interest of consumers is paramount, and it cannot be to the benefit of certain consumers at the cost of other consumers who take power from the Distribution Licensee. TPC-D has tied up long term generation capacity considering the demand of OA consumers. When they move out on OA, the remaining consumers are burdened with the additional fixed cost, consequently increasing their tariff. Hence, it is imperative that Additional Surcharge is levied on them. ii. As regards the objection of BUAUS, TPC-D has filed the Petition for Additional Surcharge due to stranded assets resulting from power being procured on OA by consumers of TPC-D. The Additional Surcharge is not applicable to change-over consumers. Change-over consumers procure power from TPC-D at the tariff determined by the Commission and are not OA consumers for TPC-D. Commission s View The present Petition relates to TPC-D s claim for Additional Surcharge citing the applicable provisions of the EA, 2003 and related dispensations in the context of sourcing of power from other sources through OA by its consumers. The Commission notes TPC-D s own submission that such Additional Surcharge would not be applicable considering the special nature of change-over consumers in a part of the Mumbai parallel licensing area. As the Commission has clarified earlier, such Additional Surcharge would also not be applicable to Captive OA Consumers Stranded Capacity Suggestions/Objections MERC Order in Case No.79 of 2017 Page 20 of 38

21 i. Prakash Enterprises and Hindustan Petroleum Corporation Ltd. (HPCL) stated that TPC-D has proposed Additional Surcharge for its undue enrichment. The capacity tied up by TPC-D through various sources under long term contracts is 635 MW. The average demand of TPC-D in the last two years FY and FY is approx.750 MW. Therefore, the question of stranded capacity does not arise in case of TPC-D. ii. iii. iv. Bharat Petroleum Corporation Ltd. (BPCL) stated that Additional Surcharge is leviable on OA consumers based on the quantum of stranded capacity that can be conclusively proved to be stranded due to OA. The long term PPAs are executed by a Distribution Licensee based on its peak demand in a year. Therefore, even if there is no OA, the Distribution Licensee will end up backing down its generation capacity in the off-peak hours when demand is subdued. Therefore, Additional Surcharge should be applicable only in case there is stranded capacity in the peak hours. MAIPL stated that, as per the Tariff Policy, 2016, the Licensees should conclusively demonstrate that their assets are stranded because of OA consumption and there should be an unavoidable obligation and incidence to bear the fixed costs. As per Regulation 14.8 of the DOA Regulations, 2016, the Additional Surcharge will become applicable only when the obligation of the Distribution Licensee in terms of power purchase commitments has been and continues to be stranded, or there is an unavoidable obligation and incidence to bear fixed costs consequent to such commitments. There has been reverse migration of consumers due to better rates offered by the competitors of TPC-D. Clearly, the OA consumers cannot be burdened with the cost due to the stranded capacity arising out of this migration, in addition to the other costs already being borne by them. Prayas stated that mechanisms such as Additional Surcharge should be used only in circumstances where consumer migration on account of OA leads to creation of or adds to existing stranded capacity. Since none of these factors is applicable in case of TPC-D, there is no question of allowing any Additional Surcharge. The Commission may take up TPC-D s separate power procurement Cases on an urgent basis and plan the power procurement accounting for potential consumer migration such that no stranded capacity is created and there is no need for any Additional Surcharge. TPC-D has failed to demonstrate that it has stranded capacity as a result of its consumers moving to OA. TPC-D s Response i. With regard to the objections of Prakash Enterprises and HPCL, the Capacity Charges are a function of the total tied up capacity and not based on the Plant Load Factor (PLF). As long as the Generating Units are Available, TPC-D MERC Order in Case No.79 of 2017 Page 21 of 38

22 has to pay the entire fixed cost to the Generators irrespective of the actual drawal. The computation of Prakash Enterprises regarding the capacity available to TPC-D is correct. It has been assumed that only 635 MW capacity is available around the year whereas, normally, the entire capacity is available, and only when a particular Generating Unit is out would the capacity available be lower. As per Section 42 (4) of the EA, 2003, the Additional Surcharge is towards meeting the fixed cost which the Distribution Licensee pays to the tied up generating capacities. ii. iii. iv. As regards the objection of BPCL, TPC-D has computed the Additional Surcharge based on the methodology approved by the Commission in the case of MSEDCL. TPC-D s Petition considers backing down on account of OA as a percentage of the total backing down of the Generators. The backing down has been considered at various ToD and an average of the backing down of various ToD is considered. It is not correct to say that backing down of Generators only during peak should be considered as consumers generally take OA power on Round the Clock (RTC) basis and contribute to backing down in the off-peak hours as well. With reference to the objection of MIAPL, the Petition has demonstrated in detailed the stranded cost of assets due to movement of large number of consumers on OA and the consequent reduction in demand. Further, TPC-D has adopted the same methodology as approved by the Commission in the case of MSEDCL. The demand of TPC-D had increased significantly during FY to FY This additional demand was mainly met through bilateral power purchase, Unscheduled Interchange (UI) and through tie ups. However, post FY , reverse migration of HT consumers started. This has reduced the bilateral power purchase while actual long term capacity became stranded post FY when many consumers moved to OA. Presently, more than 30 consumers are on OA, with reduction of demand by 100 MW. TPC-D has computed the Additional Surcharge to be levied to OA consumers by considering only the quantum that has moved to OA. v. In order to avoid any discrimination and overall distribution of fixed cost on all consumers of TPC-D, it has been proposed to levy the Additional Surcharge to all OA consumers, including Captive OA consumers. vi. As regards the objection of Prayas, TPC-D has clearly demonstrated in how long term tied up capacity has become stranded and adopted the methodology prescribed by the Commission to arrive at the stranded capacity. A Distribution Licensee has to tie up its Long Term / Medium Term requirement not just considering its present requirement but considering the MERC Order in Case No.79 of 2017 Page 22 of 38

23 future requirement as well. Further, the OA consumers generally take power on OAfor the in short term intermittently and continue to maintain their Contract Demand with the Distribution Licensee, which is allowed under the DOA Regulations, Thus, a Distribution Licensee is obligated to consider the power requirement of OA consumers while planning its power purchase. Hence, Additional Surcharge and power requirement cannot be correlated. The power procurement plan as suggested is for a future period whereas the Additional Surcharge requirement is for the current period where TPC-D s current tied up capacity is stranded. Commission s View The Fixed Cost of Generation is not fully recovered from Demand Charges. The OA consumers opting for partial OA do not invariably reduce their Contract Demand, and pay the entire Demand Charges. The Commission s view on TPC-D's proposal to levy Additional Surcharge is discussed in Section III of this Order Backed-down energy quantum Suggestions/Objections i. BPCL has stated that the ratio of OA volume to backing down volume is 65%, and the gross backed-down quantum is 555 MU. As per data of backing down from April, 2016 to March, 2017, the total is MU, out of which TPC-D s share is MU. As recorded in the Daily Order of 13 July, 2017, power procurement by TPC-D from various sources in FY was MU. This shows that power purchase other than long term contracts was more than the gross backed-down quantum. Also, as per point no. 3 of the Daily Order dated 13 July, 2017, TPC-D has accepted that it takes advantage of the low cost power availability in the short term market by backing down of the Thermal Units. ii. HPCL stated that the statistics of backing down of TPC-G Units5,7 and 8 are not merely on the ground of OA purchase, but there are several other factors such as shutdown/ breakdown, transmission and distribution constraints, seasonal power supply demand, etc. Additional Surcharge is to be levied on OA consumers based on the quantum of the stranded capacity that can be conclusively proved to be stranded due to OA. In this regard, the long term PPAs are executed by a Distribution Licensee based on its peak demand in a year. Therefore, even if there is no OA, the Distribution Licensee will end up backing down its generation capacity in the off peak hours when demand is subdued. Therefore, Additional Surcharge should be applicable only in case there is stranded capacity in the peak hours. MERC Order in Case No.79 of 2017 Page 23 of 38

24 TPC-D s Response i. The backing down quantum provided by TPC-D is for a period of six months, which is being compared to annual data submitted by TPC-D for short term power procurement by the Objector. Hence, the comparison is not correct. TPC-D has considered the total backing down of its Generating Units. This backing down is on account of OA, MOD, short term power purchase, etc. The backing down on account of OA has been calculated as a percentage of the total backing down, as explained in Table 5 of the Petition, which comes to 67% of the total backing down. Hence, it is undisputed that there is backing down of the Generating Units tied up by TPC-D on account of consumers moving to OA. ii. The Additional Surcharge computation has been done only related to the quantum which was backed down on account of OA. All other variants do not factor in the computation of Additional Surcharge. Moreover, this procedure has already been adopted by the Commission in the MSEDCL MYT Order considering 6 months data. TPC-D has proposed adoption of the same. iii. Further, OA had significantly increased in FY as compared to FY (250% increase in OA volume). As a consequence, a large quantum of load has moved away from TPC-D, leading to a significant reduction in the annual sales. The contracted capacity of TPC-D (excluding Unit 6 and considering obligated RE generation during peak hours) has remained stranded since H2 of FY Commission s View The Commission s decision on TPC-D's proposal to levy Additional Surcharge is discussed in Section III of this Order Counting of Indian Railways in consumer base of TPC-D Suggestions/Objections i. BPCL and HPCL have stated that the data for Indian Railways is flawed as Railways is a "Deemed Distribution Licensee" as declared by the Central Electricity Regulatory Commission (CERC). Hence, there is no question of counting Railways in the consumer base of TPC-D. TPC-D s Response TPC-D has not considered Indian Railways sale in the OA quantum considered for computing the backing down percentage on account of Railways. MERC Order in Case No.79 of 2017 Page 24 of 38

25 Commission s View TPC-D s sales to Indian Railways are discussed in Section III of this Order Renewable Purchase Obligation Suggestions/Objections BPCL and HPCL stated that RE purchase shown by TPC-D is incorrect and baseless. TPC-D has the option to fulfill its RPO by other means, as held by the Appellate Tribunal for Electricity (APTEL). Consideration of such RE purchase in the calculation of stranded capacity is incorrect. TPC-D s Response i. Distribution Licensees need to purchase a certain quantum of RE based on the percentage RPO decided by the Commission. This RPO can be fulfilled either by purchasing 1) RE Power or 2) Renewal Energy Certificates (RECs). The purchase from RE is must run, and hence this quantum is deducted first while computing the quantum of stranded capacity. ii. TPC-D is applying the procedure already been adopted by the Commission in the MSEDCL MYT Order considering 6 months data. TPC-D has proposed adoption of the same for computation of Additional Surcharge. The tied up RE capacity is the part of total tied up capacity. TPC-D has considered the RE capacity neither for computing the stranded capacity nor for computing the rate of Additional Surcharge. It has only considered the fixed cost of Thermal Generating Stations for computing the rate of Additional Surcharge. Commission s View The procurement of RE and RPO compliance is as per the MERC (Renewable Purchase Obligation, its Compliance and Implementation of Renewable Energy Certificate Framework) Regulations, 2016 ( RPO Regulations ). TPC- D has not considered the impact of RE procurement for computing the stranded capacity. The Commission s decision on TPC-D's proposal to levy Additional Surcharge is discussed in Section III of this Order Captive Open Access Consumers Suggestions/Objections i. BPCL stated that Additional Surcharge, if any, should not be levied on Captive OA consumers. MERC Order in Case No.79 of 2017 Page 25 of 38

26 ii. iii. HPCL stated that the data provided by TPC-D in Annexure-1 is incorrect as it captures the data of Captive Users as well. Moreover, the real OA quantum is already met by CSS and Wheeling Charges. MIAPL also stated that, as per Section 42 (2) of the EA, 2003, Captive Generation is not to be considered for levying Additional Surcharge. Any such Surcharge will be contrary to the Regulations and laws in force and hence unsustainable in law. TPC-D s Response i. The Additional Surcharge is applicable to all consumers who opt for OA, irrespective of whether they are captive or non-captive consumers. The legal / regulatory provision is given in Section 42 (4) of the EA, This is supported by the 1 st proviso to Regulation 14.8 (d) of DOA Regulations, The right provided by Section 9 of the EA, 2003 cannot be treated as a blanket permission to avail OA from Captive Consumption. As per the DOA Regulations, 2016, a Consumer wanting to avail OA has to apply to the Distribution Licensee irrespective of its status, i.e. Captive or Non-Captive. While Section 42(4) specifically mentions waiver of CSS on Captive Consumption, it does not explicitly mention anything about Additional Surcharge. Hence, if there is stranded capacity created on account of such consumer going to OA, Additional Surcharge shall be paid by the Captive OA consumers. ii. The data submitted by TPC-D is based on actuals, and TPC-D denies HPCL s contention that false data has been submitted. The Wheeling Charges are charged for compensating the Wires Aggregate Revenue Requirement (ARR), while CSS is levied for compensating the loss of Cross Subsidy. Thus, the purpose of Additional Surcharge is distinct from CSS and Wheeling Charges and cannot be linked. Commission s View At para (B) of MSEDCL s last MYT Order in Case No. 48 of 2016, the Commission had discussed and rejected the applicability of Additional Surcharge to Captive OA Consumers in terms of the provisions of the provisions of the EA, 2003 and the DOA Regulations, which may be referred to. Accordingly, Additional Surcharge, even if approved, is not applicable Captive OA consumers. TPC-D's proposal to levy Additional Surcharge is discussed in Section III of this Order Computation of Additional Surcharge Suggestions/Objections MERC Order in Case No.79 of 2017 Page 26 of 38

27 i. BPCL has stated that, while calculating Additional Surcharge, the Demand Charges paid by consumers and revenue from sale of power by the Distribution Licensee have to be subtracted from the effective fixed cost. Further, the Additional Surcharge should be calculated based on the peak hours and applicable throughout the year. Therefore, the Additional Surcharge amount determined should be spread over the entire year, i.e hours in a year. ii. MIAPL has stated that the Additional Surcharge is to be determined on the basis of the Fixed Cost obligations which the Licensee would have actually incurred as a part of its obligation to supply. OA consumers are paying Demand Charges on their Contract Demand with TPC-D. Such Demand Charges offset the Fixed Charges payable by TPC-D for stranded capacity, if any, and should be considered while arriving at the Additional Surcharge. TPC-D s Response i. The choice of maintaining the Contract Demand with the Distribution Licensee, even though a consumer opts for OA, lies wholly with the consumer. The consumer, if it so chooses, can reduce its Contract Demand to the extent of its purchase through OA and to not pay any Demand Charges to the extent of such reduction. Hence, reduction of the Demand Charges from the Additional Surcharge is not required. ii. As regards revenue from sale of power, the backing down is on account of various reasons and sale of power is from this total backing down. Hence, just as the entire backing down is not attributed to OA, revenue from the sale of power cannot be attributed only to backing down due to OA. Such revenue as per the prevailing methodology is used to reduce the ARR of the Distribution Licensee and the benefit gets passed on the OA consumer anyway through reduced Tariff, CSS, etc. Hence, it would not be prudent to pass on the benefit of revenue earned through sale of power only to OA consumers. ii. iii. TPC-D has computed the Additional Surcharge based on the methodology approved by the Commission in its last MYT Order for MSEDCL in Case 48 of 2016, in which 6 months data has been considered for arriving at the Additional Surcharge. In its Petition, TPC-D has presented the rate of Weighted Average Fixed Cost which has been stranded. Commission s View The Commission s decision on TPC-D's proposal to levy Additional Surcharge is discussed in Section III of this Order. MERC Order in Case No.79 of 2017 Page 27 of 38

28 7.9. Scheduling and Despatch, and Merit Order Despatch Suggestions/Objections HPCL has questioned whether TPC-D is in fact following the principles envisaged under the Scheduling and Despatch Code and the MOD. TPC-D s Response TPC-D is a Distribution Licensee and a State Pool Participant. The Pool mechanism is monitored and controlled by MSLDC under the Final Balancing and Settlement Mechanism (FBSM). As per this Mechanism, the MOD is decided by MSLDC, and all Pool Participants have to follow it. Commission s View Other Issues Every Distribution Licensee and Generating Company is subject to the MOD principles and the FBSM, and it is monitored by MSLDC. The Commission s decision on TPC-D's proposal to levy Additional Surcharge is discussed in Section III of this Order. i. TBIA stated that TPC-D s PPA with TPC-G expires on 31 March, TPC-D and TPC-G are before the Commission for a new PPA with the same quantum of energy, i.e. 482 MW of thermal and 218 MW of Hydro power (i.e. a total of 700 MW) in Case No. 39 of In the present Case, TPC-D is before the Commission claiming stranded capacity. As per TPC-D s pleadings, almost 66 % of this stranded capacity is due to OA, but 33% will be stranded because of contracted generation exceeding demand. This translates to around 100 MW. If the stranded capacity claim is successful, for future years, i.e. from April, 2018 onwards, the Commission will have to consider whether to approve 700 MW or (stranded capacity) = 600 MW only. Available capacity approval and stranded capacity cannot go hand in hand. ii. TPC-D has tied up for 171 MW of Wind and 28 MW of Solar power generation. Wind is basically available in June, July, August and September. Thus it virtually completes the yearly quota. It is almost absent in January and February. As far as Solar power is concerned, from 1200 hrs. to 1600 hrs., full generation is available. Thus, for February, the RE contribution can be assumed as 28 MW between 1200 to 1600 hrs, for Solar, and nil for Wind. Page 4 of TPC-D s PowerPoint presentation dated 13 July, 2017 shows the February load graph, in which 200 MW is Hydro power. To this, TPC-D has MERC Order in Case No.79 of 2017 Page 28 of 38

29 added RE generation of roughly 150 MW. Also, it is shown as available all 24 hrs. Neither Solar nor Wind energy is available 24 hrs. as shown. As such, only 28 MW is added, and that too from 1200 to 1600 hrs only. Thus, the graph fails to prove surplus capacity. iii. Referring to the data of power purchase from October, 2016 to March, 2017, TBIA stated further that, barring power purchase from the Power Exchanges, TPC-D was surplus to the extent of 10 to 22 MU. Had TPC-D not purchased power from Indian Energy Exchange (IEX) in December, 2016 to February, 2017, it would have resulted in a shortfall of 54, 21 and 29 MU, respectively. iv. Further, the demand comparison graph shows a major drop in the months of July to December, This could be attributed to seasonal variations. This trend is observed in the case of MSEDCL also. TPC-D s Response The Distribution Licensee has to tie up its long term and medium term requirement not just considering its present requirement but its future requirements as well. This has been explained in detail in its Petition in Case No. 39 of [The Commission notes that Case No. 39 of 2017 has since been disposed of vide Order dated 27 March, 2018.] Further, the OA consumers generally take power on OA in short term intermittently and continue to maintain their entire Contract Demand with the Distribution Licensee, which is allowed under the DOA Regulations, Thus, a Distribution Licensee is obligated to consider the power requirement of OA consumers while planning for its power purchase. Hence, Additional Surcharge and power requirement cannot be correlated as suggested. TPC-D presented the graph for February based on the average of actual data. The Hydro generation is available during peak hours only, and was not 200 MW as stated by TBIA. Further, RE generation was not 150 MW as contended. TPC-D has computed the stranded capacity based on the methodology approved by the Commission in its last MYT Order for MSEDCL. Commission s View The Commission s decision on TPC-D's proposal to levy Additional Surcharge is discussed in Section III of this Order. III. Commission s Analysis and Ruling 8. The legal framework for determination of Additional Surcharge for OA transactions is set out below. MERC Order in Case No.79 of 2017 Page 29 of 38

30 8.1. Section 42 (4) of the EA, 2003 stipulates that: "(4) Where the State Commission permits a consumer or class of consumers to receive supply of electricity from a person other than the distribution licensee of his area of supply, such consumer shall be liable to pay an additional surcharge on the charges of wheeling, as may be specified by the State Commission, to meet the fixed cost of such distribution licensee arising out of his obligation to supply." 8.2. Regulation 14.8 of the DOA Regulations, 2016 specifies as follows: "14.8. Additional Surcharge a. An Open Access consumer receiving supply of electricity from a person other than the Distribution Licensee of his area of supply shall pay to the Distribution Licensee an Additional Surcharge on the charges of wheeling and Cross- Subsidy Surcharge to meet the fixed cost of such Distribution Licensee arising out of its obligation to supply, as provided in sub-section (4) of Section 42 of the Act. b. The Additional Surcharge shall become applicable only when, due to the Open Access being granted or having been granted, the obligation of the Distribution Licensee in terms of power purchase commitments has been and continues to be stranded, or there is an unavoidable obligation and incidence to bear fixed costs consequent to such commitments... c. The Commission shall determine the category-wise Additional Surcharge to be recovered by the Distribution Licensee from an Open Access consumer, based on the following principles: i. The cost must have been incurred by or be expected, with reasonable certainty, to be incurred by the Distribution Licensee on account of such Consumer; and ii. The cost has not been or cannot be recovered from such Consumer, or from other consumers who have been given supply from the same assets or facilities, through Wheeling Charges, stand-by charges or other charges approved by the Commission: Provided that such Additional Surcharge shall be applicable to all Consumers who have availed Open Access to receive supply from a source other than the Distribution Licensee to which they are connected..." 8.3. Clause of the revised Tariff Policy dated 28 January, 2016 provides that: "8.5.4 The additional surcharge for obligation to supply as per section 42(4) of the Act should become applicable only if it is conclusively demonstrated that the obligation of a licensee, in terms of existing power purchase commitments, has been and continues to be stranded, or there is an MERC Order in Case No.79 of 2017 Page 30 of 38

31 unavoidable obligation and incidence to bear fixed costs consequent to such a contract. The fixed costs related to network assets would be recovered through wheeling charges." 9. In the last MYT Order for TPC-D dated 21 October, 2016 in Case No. 47 of 2016, the Commission had rejected TPC-D s proposal for levying Additional Surcharge, as follows: Thus, for levy of Additional Surcharge, the following conditions have to be fulfilled: a) It needs to be conclusively demonstrated that the obligation of TPC-D in terms of existing power purchase commitments has been and continues to be stranded; b) The cost has not been or cannot be recovered from such consumer, or from other consumers who have been given supply from the same assets or facilities, through Wheeling Charges, Stand-by charges or other charges approved by the Commission. In the present case, neither of the above conditions are fulfilled, as explained below: a) The per-unit Capacity Charge of power procurement of TPC-D is not a stranded cost, as the capacity itself is not a stranded capacity. The Stand-by Charges and fixed cost of Unit 6 cannot be considered as stranded costs and recovered from OA consumers. The fact that Unit 6 generation capacity is called upon only during system emergencies at the instructions of MSLDC on account of its high generation cost cannot be a reason to consider its fixed cost as a stranded cost. The OA consumers are not responsible for the incidence of the fixed cost of Unit 6 and Stand-by Charges. b) Further, the third component of the Additional Surcharge proposed by TPC-D, i.e., Consumer Service Charge, for recovery of costs towards maintaining the metering infrastructure, Call Centre, Consumer Care Centres, O&M activities of metering, meter reading, billing, bill despatch, collection, vigilance, disconnection, etc., from the OA consumers is also not mandated under the DOA Regulations, 2016, which specifies the various charges that can be levied on OA consumers. Moreover, as explained earlier, these costs are subsumed under O&M expenses or other charges allowed to be levied on OA consumers. In view of the above, the Commission has rejected TPC-D's request for approval of Additional Surcharge to be levied on OA consumers. 10. Thereafter, in its MYT Order for MSEDCL dated 3 November, 2016 (Case No. 48 of 2016), the Commission approved an Additional Surcharge for MSEDCL. TPC-D has claimed that it has followed the same methodology applied by the MERC Order in Case No.79 of 2017 Page 31 of 38

32 Commission itself in MSEDCL s MYT Order, on the basis of which it can be concluded that TPC-D is entitled to levy Additional Surcharge. 11. In MSEDCL s MYT Order, before computing the Additional Surcharge, the Commission first verified MSEDCL s entitlement to Additional Surcharge. The EA, 2003, Tariff Policy, 2016 and the DOA Regulations, 2016 require that it be conclusively demonstrated that the obligation of the Distribution Licensee in terms of existing power purchase commitments has been and continues to be stranded. In the case of MSEDCL, the Commission had observed that 18 to 28% of the energy available from the contracted sources would become surplus or would require to be backed down in the 3 rd MYT Control Period, as follows: Particulars Units FY FY FY FY Energy Available MU 140, , , ,683 Energy Procured Surplus Energy / Backed Down MU 115, , ,116 MU 25,605 46,558 44, ,101 42,582 Accordingly, in MSEDCL s MYT Order, the Commission has concluded that there would be stranded generating capacity: For the purpose of approving power purchase for the 3rd Control Period, the Commission has adopted the MOD principle. Accordingly, the Generators would be despatched as per MOD principles subject to technical constraints. Thus, a few Generating Stations/Units would be completely despatched as per the declared availability, or partially despatched/backed down, or completely backed down (zero schedule). As per MSEDCL estimates, around 25% to 30% of the generation capacity (around 4000 to 5000 MW) is projected to be backed down, being surplus to its projected power requirement during the 3rd Control Period. This indicates that some of the Generating Stations/Units that are tied up by MSEDCL through PPAs would be backed down, resulting in stranded generation capacity to that extent. Thereafter, the Commission proceeded to compute the Additional Surcharge. 12. Similarly, it needs to be conclusively demonstrated that the obligation of TPC-D in terms of existing power purchase commitments has been and continues to be stranded. In the last MYT Order for TPC-D, the Commission approved procurement of power (in MUs) by TPC-D from the following sources: Power Source FY FY FY FY TPC-G MERC Order in Case No.79 of 2017 Page 32 of 38

33 Power Source FY FY FY FY Renewable Energy Bilateral Sources Total Thus, the Commission had envisaged that the generation capacity contracted by TPC-D from TPC-G would not be sufficient to meet its energy requirement during the 3rd Control Period, and that TPC-D would have to source around 22 to 29% of its energy requirement from bilateral and short-term sources. Thus, in the MYT Order, the Commission did not envisage any surplus energy or stranded generation and, hence, the determination of Additional Surcharge did not arise. 13. In the present Petition, TPC-D has claimed that, subsequent to that MYT Order dated 21 October, 2016, there has been a substantial increase in OA sales which has resulted in backing down of its contracted Generators. In the Table summarized at para above, TPC-D has claimed that 555 MU have been backed down as against a quantum of 370 MU which has migrated to OA during the same period. Accordingly, TPC-D has claimed that 67% of the backing down was on account of OA. 14. The Commission notes that, to arrive at the figure of 555 MU for backed-down energy, TPC-D has added 298 MU of short-term sales to Indian Railways to the 256 MU which was actually backed down, and has claimed this sale quantum of 298 MU to be a deemed backing down quantum. The Commission is of the view that this method of arriving at the backed-down energy quantum is incorrect. Energy sales to Indian Railways or any other party for better utilization of contracted power cannot be treated as energy which is backed down. There is no concept of deemed backing down as sought to be introduced by TPC-D. In fact, as per the DOA Regulations, Additional Surcharge becomes applicable only when the relevant cost cannot be recovered from others. In the case of sales to Indian Railways, TPC-D is able to recover the cost from Railways. Hence, the quantum of such sales cannot be added to the actual backed-down quantum for claiming and computing Additional Surcharge. 15. Thus, as against the quantum of 555 MU claimed by TPC-D, only 256 MU which has been actually backed down can be considered for further analysis. During these proceedings, the Commission sought details of the actual short-term power procured by TPC-D in FY Information of the actual source-wise power procured by TPC-D is also available in its various submissions relating to Fuel Adjustment Charge (FAC). Based on this information, the Commission has tabulated the details of backed-down energy and short-term power procurement MERC Order in Case No.79 of 2017 Page 33 of 38

34 of TPC-D for the period from September, 2016 to March, 2017 (excluding January, 2017, as proposed by TPC-D) as shown below: Time Slots Duration Sep-16 Oct-16 Nov-16 Dec-16 Feb-17 Mar-17 Total Slot-A hrs. to 6.00 hrs Slot-B 6.00 hrs. to 9.00 hrs. and hrs. to hrs Slot-C 9.00 hrs. to hrs Slot- D hrs. to hrs Total Backed-down Energy (MU) Power Purchase from Short Term Sources (incl. IEX) (MU) Unscheduled Interchange/Balancing & Settlement Mechanism (MU) Total Power sourced from Short Term Sources (MU) Total Power Purchase in the month (MU) % Power from Short Term Sources 20% 19% 19% 25% 15% 17% 19% % Backed-down energy 14% 13% 11% 11% 8% 12% 12% 16. It will be seen that, in each of these months, the quantum of energy procured from short-term sources is comfortably higher than the quantum of backeddown energy. In its responses to suggestions and objections during the public consultation process, TPC-D has stated that it has procured energy from shortterm sources for meeting variations in demand and also for optimizing power purchase costs when cheaper power was available. This implies that, whenever cheaper short-term power was available, TPC-D has backed down its contracted sources and procured such cheaper power. This is a prudent power purchase practice for any Distribution Licensee. 17. However, such backed-down contracted power on account of sourcing of cheaper power from elsewhere cannot be treated as stranded power. Similarly, power from the State Balancing & Settlement Mechanism/Unscheduled Interchange (UI) is allocated to a Distribution Licensee only in case of constraints or failure of contracted Generators or availability of power from a cheaper source as per the centralized MOD stack. Thus, the energy allocated from the Balancing & MERC Order in Case No.79 of 2017 Page 34 of 38

35 Settlement Mechanism/UI is cheaper than the contracted sources available at that point of time. Hence, the energy backed-down on account of availability of cheaper power from short-term sources cannot be treated as backed-down energy for the purpose of computing the stranded capacity. 18. TPC-D has sourced MU (19%) from short-term sources and claimed MU (12%) as backed-down energy. However, for the reasons set out above, that quantum cannot be treated as backed-down energy for the purpose of assessing stranded capacity. Thus, TPC-D has failed to demonstrate stranded capacity and, hence, no Additional Surcharge is due. 19. Moreover, in the above analysis, the Commission has considered only the period of 6 months as proposed by TPC-D, viz., September, 2016 to March, 2017, excluding January, However, such selective consideration of months in order to show stranded capacity is not tenable. The incidence of stranded capacity has to be analysed for the entire last 6-months period, irrespective of any specific events that may have occurred in any months during that period, or else the analysis will have no sanctity and a Distribution Licensee will put forward data for any 6 months that might suit its claim for Additional Surcharge. 20. Vide its recent Order dated 27 March, 2018 in Case No. 39 of 2017, the Commission has approved an extension of one year to the PPA between TPC-D and TPC-G, with a reduction in the contracted capacity. Thus, from April, 2018 onwards, the capacity contracted with TPC-G stands reduced to 672 MW. In that Order, the Commission has expressly envisaged that TPC-D shall not make any claim for levy of Additional Surcharge on OA transactions in FY as the capacity tie-up has been approved based on the demand projected by TPC-D for meeting the demand of its existing consumer base: Further, as the capacity to be tied-up by TPC-D is based on the Demand projections made by TPC-D for meeting the demand of the existing consumer base of TPC-D, there is no scope for any capacity to be stranded, and therefore, TPC-D shall not make any claim for levy of Additional Surcharge on OA transactions in FY As regards the point made during the public consultation that the revenue from Demand Charges payable to the Distribution Licensee by OA consumers should be reduced while determining the Additional Surcharge, the Commission notes that, under the DOA Regulations, 2016, OA demand is not included in the Billing Demand of the OA consumer: MERC Order in Case No.79 of 2017 Page 35 of 38

36 (6) Billing Demand, for the purpose of these regulations in respect of a Partial Open Access Consumer, will be the higher of the following: (1) Actual Maximum Demand recorded less Open Access Demand availed by Partial Open Access Consumer in the month during 0600 hours to 2200 hrs; (2) 50% of retained Contract Demand with the Licensee; As the OA consumer is not paying any Demand Charges to the Distribution Licensee towards the OA Demand, the revenue from Demand Charges payable to the Distribution Licensee by OA consumers need not be reduced while determining the Additional Surcharge. In any event, the Commission has not approved any Additional Surcharge in this Order. 22. In view of the foregoing, TPC-D s claim for levy of Additional Surcharge in the second half of FY and in FY is not tenable and is rejected. As regards FY , the Commission s recent Order in Case No. 39 of 2017, cited above, makes the position clear. The Petition of Tata Power Co. Ltd. (Distribution) in Case No.79 of 2017 stands disposed of accordingly. Sd/- (Deepak Lad) Member Sd/- (Azeez M. Khan) Member MERC Order in Case No.79 of 2017 Page 36 of 38