CASE No. 135 of Coram. Shri Anand B. Kulkarni, Chairperson Shri Mukesh Khullar, Member. INOX Air Products Pvt. Ltd.

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1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai Tel /65/69 Fax Website: CASE No. 135 of 2018 In the matter of Petition of INOX Air Products Pvt. Ltd. seeking clarification regarding the applicability of Power Factor Incentive to the Open Access Power Consumption of HT Consumers. Coram Shri Anand B. Kulkarni, Chairperson Shri Mukesh Khullar, Member INOX Air Products Pvt. Ltd...Petitioner Vs Maharashtra State Electricity Distribution Co. Ltd... Respondent Appearance: For the Petitioner For the Respondent : Ms. Dipali Sheth (Adv.) : Shri. Ashish Singh (Adv.) ORDER Dated: 23 July, 2018 INOX Air Products Private Limited (IAPPL) 7th Floor, Ceejay House, Dr. Annie Besant Road, Worli, Mumbai has filed a Petition on 26 April, 2018, citing Section 86 (1) (k) of the Electricity Act, 2003 read with Regulation 37 of the (Distribution Open Access) Regulations, 2016 (DOA Regulations, 2016) seeking clarification regarding the applicability of Power Factor Incentive (PFI) to the Open Access power consumption of HT Consumers. 2. IAPPL s prayers are as follows: a) To clarify whether the calculation done by MSEDCL for the eligibility of PFI is in accordance with MYT Orders and DOA Regulations; MERC Order in Case No. 135 of 2018 Page 1 of 16

2 b) To clarify whether the Petitioner is entitled to the PFI excluding taxes and duties on its open access consumption; c) Direct MSEDCL to make such payments towards the retrospective PFI applicable for the months of December 2015 till date; d) Pass such further order(s) as the Hon ble Commission may deem just in the facts of the present case. 3. The Petitioner states as follows: 3.1 IAPPL is a consumer of MSEDCL with Contract Demand of 7650 kva and also availing power under Open Access from JSW Energy Private Limited (JSW Energy) from December 2015 to January 2017 and from Sai Wardha Power Generation Limited (SWPGL) since February Pursuant to the Multi Year Tariff (MYT) Order dated 26 June, 2015 in Case No. 121 of 2014, MSEDCL released its Commercial Circular No. 243 dated 3 July, 2015 in which it has provided that the tariff rates are applicable for a period from 1 June, 2015 till further notification. The said Order also provided for PFI on the monthly bill, including Energy Charges, Reliability Charges (if any), FAC, and Fixed/Demand Charges but excluding Taxes and Duties. The relevant paragraph of the MYT Order dated 26 June, 2015 in Case No. 121 of 2014 reproduced as below: Power Factor Incentive (Applicable for HT-I, HT II, HT-IV, HT-V, HT-VI, HT IX, HT X, HT XI categories as well as LT II (B), LT II (C), LT III, LT V (B), LT X (B) and LT X (C) categories.) Whenever the average Power Factor is more than 0.95, an incentive shall be given at the rate of the following percentages of the amount of the monthly bill, including Energy Charges, Reliability Charges (if any), FAC, and Fixed/Demand Charges but excluding Taxes and Duties. Sl. No Range of Power Factor Power Factor Level to % to % to % to % to % to % Incentive MERC Order in Case No. 135 of 2018 Page 2 of 16

3 Note: PF is to be measured/computed up to 3 decimals, after universal rounding off. 3.3 The Commission in its MYT Order dated 3 November, 2016 in Case No. 48 of 2016 for MSEDCL, the Commission held as follows: Power Factor Incentive Applicable for HT-I: Industry, HT II - Commercial, HT-III: Railways, Metro & Monorail, HT-IV: PWW, HT-V: Agriculture, HT-VI: Group Housing Society, HT VIII - Temporary Supply, HT IX: Public Service, LT II: Non- Residential/Commercial [LT II (B), LT II (C)], LT III: Public Water Works, LT V (A) (ii): Industry Powerlooms (above 20 kw), LT V (B) (ii): Industry General (above 20 kw), LT X : Public Services [LT X (A) (ii), LT X (A) (iii), LT X (B) (ii)and LT X (B) (iii) categories. Whenever the average Power Factor is more than 0.95, an incentive shall be given at the rate of the following percentages of the amount of the monthly bill excluding Taxes and Duties. Sl. No Range of Power Factor Power Factor Level to % to % to % to % to % to % Incentive Note: PF is to be measured/ computed up to 3 decimals, after universal rounding off. 3.4 The applicable tariff rates according to the present MYT Order dated 3 November, 2016 in Case No. 48 of 2016 extends for a period from 1 November, 2016 up to financial year until further notification. 3.5 MSEDCL has been providing PFI for the electricity consumption from MSEDCL by IAPPL for its said Unit. However, PFI on Open Access Consumption billing, including Cross Subsidy Surcharge, Additional Surcharge, and Transmission Charges etc. has not been provided by MSEDCL from December 2015 till date. MERC Order in Case No. 135 of 2018 Page 3 of 16

4 3.6 During that period, IAPPL was consuming power from JSW Energy by Open Access. Bills for a period from December 2015 to March 2018 along with excel sheet on calculation of PFI as per the relevant MYT Orders and DOA Regulations, 2016 vis-àvis actual PFI given by MSEDCL shows that IAPPL has not been granted with the PFI as per the MYT Orders and DOA Regulations in respect of its Open Access consumption. 3.7 Subsequent to the MYT Order dated 3 November, 2016 in Case No. 48 of 2016, MSEDCL released its Commercial Circular No. 275 dated 18 November, 2016 which provided that the tariff rates will be applicable for a period from 1 November, 2016 to 31 March, 2017 as well as the revised Commercial Circular No. 284 dated 11 April, 2017 which provided an extension for the applicability of the tariff rates from 1 April, 2017 to 31 March, From the above, it is clear that IAPPL is eligible for the PFI in accordance with the relevant tariff rates as mentioned in the MYT Order dated 26 June, 2015 in Case No. 121 of 2014 and the MYT Order, dated 3 November, 2016 in Case No. 48 of 2016, excluding the taxes and duties. However, PFI has not been given on power sourced under Open Access from JSW Energy for the period from December 2015 to January 2017 and for consumption from SWPL from February 2017 and on the Open Access charges (transmission charges, Cross Subsidy Surcharges) to IAPPL by MSEDCL. 3.9 The Commission vide Order dated 28 November, 2017 in Case No. 110 of 2017 directed Tata Power Company Limited (Distribution Business) (TPC-D) to provide the PFI to Mumbai International Airport Private Limited (MIAL) and other similar consumers on the charges it levies on the power sourced by them through Open Access. The relevant paragraph of the Order dated 28 November, 2017 is reproduced as below: 8) Power Factor Incentive / Penalty has been provided in the electricity tariffs of TPC-D and other Distribution Licensees since long to encourage consumers to improve their Power Factor by providing shunt compensation and bring it as close as possible to unity so that system losses are reduced. Lower Power Factor causes higher system losses and consequent loss to the Distribution Licensee.. 12)With reference to Regulation 21 of the DOA Regulations, 2016, TPC-D has raised the issue of levying a Reactive Energy Charge on Open Access consumer. As present, in the MYT Orders in respect of TPC-D and other Distribution Licensees, the Commission has not determined any Reactive Energy Charge. In its forthcoming Mid-Term Review Petition, TPC-D is at liberty to propose such determination. MERC Order in Case No. 135 of 2018 Page 4 of 16

5 13. In view of the foregoing, the Commission directs TPC-D to provide Power Factor Incentive (or levy Power Factor Penalty, as the case may be,) to MIAL and other similarly placed consumers on the charges it levies on the power sourced by them through Open Access. For past periods, these may be adjusted in the ensuing bills of MIAL and other such Open Access consumers, along with applicable interest. Hence from the above Order dated 28 November, 2017 it is clear that PFI is applicable to the Open Access consumers of HT category IAPPL vide its letter dated 10 April, 2018 sent to MSEDCL and by giving the reference of the Order dated 28 November, 2017 in the letter apprised MSEDCL that IAPPL is also entitled for PFI, excluding the taxes and duties, for its Open Access consumption as the provision in the MYT Order dated 3 November, 2016 in Case No. 48 of 2016 for MSEDCL is identical to the MYT Order dated 21 October, 2016 in Case No. 47 of 2016 for TPC-D and further requested MSEDCL to pay IAPPL PFI for the period from December 2015 to March 2018 and in future, with respect to IAPPL s Open Access consumption within seven (7) days of the receipt of the letter Thereafter, vide its letter dated 21 April, 2018, MSEDCL replied to IAPPL s letter dated 10 April, 2018 stating that the refund of PFI for power sourced through Open Access is only to the consumers of TPC-D and not to the consumers of MSEDCL and in view thereof rejected the claim of PFI sought by IAPPL PFI provision in the above-mentioned MYT Order dated 3 November, 2016 in Case No. 48 of 2016 for MSEDCL is identical to the MYT Order dated 21 October, 2016 in Case No. 47 of 2016 for TPC-D The entire purpose of the PFI is to encourage consumers to improve their power factor and maintain it at a high level in order to reduce losses. If PFI is not given, this purpose would be lost and there will be no incentive to the consumer to maintain a high-power factor. 4. In its submission dated 13June, 2018, MSEDCL stated that: 4.1 MSEDCL has raised following issues for the consideration of the Commission: (i) Tata Powers Case (Case No. 110/2017) is completely different from that of MSEDCL. (ii) Whether the APTEL s Judgment dated 14 November, 2013 in Appeal No. 231 of 2012 is applicable to the facts of the present case? (iii)whether the Commission s Order dated 3 January, 2013 in Case No. 8 of 2012, Case No. 18 of 2012, Case No. 20 of 2012 and Case No. 33 of 2012 is binding Order? MERC Order in Case No. 135 of 2018 Page 5 of 16

6 (iv) Can there be any retrospective effect of PFI as per the Order dated 28 November, 2017 in Case No. 110/2017? (v) Whether the DOA Regulations, 2016 or the previous DOA Regulations, of year 2005 or 2014 envisages Power factor Incentive/Penalty on Open Access Consumers (Regulation 16) of the connection agreement? (vi) What is the real intent and purpose of Regulation 21 Reactive Energy Charges under DOA Regulations, 2016? (vii) When a separate charge Reactive Energy Charges is envisaged under the DOA Regulations, 2016 then why not fix the charge? (viii) Can a consumer who opts for Open Access still be considered as a consumer to the extent of Open Access? (ix) Can a partial Open Access consumer seek the same benefits under the retail tariff Order which is available to a normal consumer when such partial Open Access consumer is governed by a different Regulatory regime i.e. DOA Regulations, 2016? (x) Maintaining the power factor is a mandatory obligation cast upon a consumer. Consumer maintains the same out of operation of law. Moreover such consumers install equipment s before being Open Access consumers and subsequently shift to Open Access. Hence PFI cannot be made applicable to Open Access consumption more so when DOA Regulations, 2016 provides a different charge/penalty altogether. 4.2 TPC-D s Case (Case No. 110/2017) is completely different from MSEDCL: (a) The Order dated 28 November, 2017 in Case No. 110 of 2017 in the matter of Mumbai International Airport Private Limited Versus Tata Power Company Limited was passed in the specific facts and circumstances of that particular case and cannot be treated as a Judgment in realm rather it a judgment in personam. (b) The records of Case No. 110 of 2017 clearly reveals that TPC-D was charging/providing Power Factor Incentive/Penalty on the Regulatory Asset Charges (RAC) since July, 2013 to April, 2017 (c) MSEDCL has neither provided any Power Factor Incentive to Open Access consumers nor has MSEDCL levied any penalty on Open Access consumption. Hence Case No. 110 of 2017 cannot be applied to MSEDCL. 4.3 Whether the APTEL s Judgment dated 14 November, 2013 in Appeal No. 231 of 2012 is applicable to the facts of the present Case? (a) The APTEL Judgment dated 14 November, 2013 cannot be made applicable to the present Case as the said Judgment was passed in the specific facts and circumstances of that Case before the APTEL and after analyzing various provisions of the Haryana Electricity Regulatory Commission s Regulations. The MERC Order in Case No. 135 of 2018 Page 6 of 16

7 major differences were: (i) Existing metering was not adequate to record voltage during 15 minute time slot. (ii) There was no recording of the corresponding energy drawal during the period when the frequency at the metering point is below 97% or above 103%. (iii) In the absence of active corresponding figures of the active energy and the reactive energy available from the meter, it is not possible to draw proportion of the two figures which are for different time durations. (iv) That apart, the Active Energy recorded for the entire month cannot be compared with the Reactive Energy recorded for the specific time duration corresponding to the specific variation in voltage at the metering point. (v) The Respondent, Distribution Licensee in Haryana till date has been recovering penalty on the low Power Factor and penalty for exceeding Contract Demand on the sale of power including Cross Subsidy Surcharge form embedded Open Access consumers. The Licensee cannot probate and approbate at the same time. Therefore, the State Commission now cannot permit the Licensee, the Respondent to use different yardstick to the consumers while giving rebate and recovering MDI penalty, when both are to be charged on sale of power. Therefore, this treatment is contrary. (vi) Hence it can be seen from the above that the facts and circumstances leading to passing of the above Judgments were completely different. In the present case, all the metering arrangements are in place and hence the Reactive Energy Charges can be determined and levied without any hurdles. Moreover, there is no case of probating and approbating at the same time by MSEDCL as MSEDCL has followed a consistent stand of not charging any Power Factor penalty on Open Access consumption. Moreover the observation of the APTEL at Para (II) of the operative part is based on the specific facts of the Case and is not a Judgment in realm. 4.4 Whether the Commission s Order dated 3 January, 2013 passed in Case No. 8 of 2012, Case No. 18 of 2012, Case No. 20 of 2012 and Case No. 33 of 2012 is a binding Order? The Commission had clarified vide Order dated 3 January, 2013 in the most unequivocal terms that Power Factor Incentive is only applicable to consumers of MSEDCL on the energy supplied by MSEDCL and nothing beyond that. The relevant Paragraph of the said Order is reproduced as below: The Commission is of the view of that levy of penalty or provide incentives for various parameters as specified by the Commission in Tariff Schedule of the Tariff Order of MSEDCL from time to time (e.g., Power Factor incentive, Power Factor Penalty, Prompt Payment MERC Order in Case No. 135 of 2018 Page 7 of 16

8 discount, etc.) shall be charged on the net energy supplied by MSEDCL to the open access consumer and captive user after adjusting the banked energy and actual generation during the month. 4.5 Can there be any retrospective effect of Power Factor Incentive as per the Order dated 28 November, 2017 in Case No. 110/2017? It has acted in complete compliance of the Order dated 3 January, 2013 in Case No. 8 of 2012, Case No. 18 of 2012, Case No. 20 of 2012 and Case No. 33 of 2012 by the Commission. Any new dispensation if allowed by the Commission can only be prospective as the earlier dispensation was governed by a Regulatory Order which was followed by MSEDCL. Hence without admitting that Power Factor Incentive is applicable to Open Access, even if the same is made applicable, then the same has to be prospective and not retrospective. 4.6 Whether DOA Regulation, 2016 or the previous DOA Regulation of 2005 or 2014 envisages Power Factor Incentive/Penalty on Open Access Consumers in view of the Regulation 16 of DOA Regulations, 2016 in respect of the connection agreement? The reliance placed by IAPPL on Regulation 16 of DOA Regulation, 2016 is completely incorrect as the same is a part of the model/sample Connection Agreement and not a Regulation under the DOAR, Moreover the model/sample Connection Agreement only governs the Generating Station/Licensee and not a consumer. 4.7 What is the real intent and purpose of Regulation 21 of the DOA Regulations, 2016 which provides for Reactive Energy Charges? On one hand there is no specific provision to make the PFI applicable to Open Access on the other hand there is separate head created under the DOA Regulation, 2016 as Reactive Energy Charges which is applicable to Open Access consumers. Hence when the DOA Regulations, 2016 specifically provides for such charges then the same has to be specifically fixed by the Commission. This issue has also been acknowledged by the Commission in its order dated 28 November, 2017in Case No. 110 of 2017.The relevant paragraph is reproduced as below: With reference to Regulation 21 of the DOA Regulations, 2016, TPC-D has raised the issue of levying a Reactive Energy Charge on Open Access consumers. As present, in the MYT Orders in respect of TPC-D and other Distribution Licensees, the Commission has not determined any Reactive Energy Charge. In its forthcoming Mid-Term Review Petition, TPC-D is at liberty to propose such determination. MERC Order in Case No. 135 of 2018 Page 8 of 16

9 4.8 When a separate charge Reactive Energy Charges is envisaged under the DOA Regulations, 2016, then why not fix the charge? Any charge which is not determined in accordance with the applicable principles and without a detailed study on the implication of such charge would certainly have a negative impact on MSEDCL. Hence, the nuances of PF and Reactive Energy although may seem to be similar but both of them are completely different as the charges terms applicable in money terms may be completely different. In such a case allowing PF to be applicable to Open Access consumers without studying the impact of the same would certainly cause a negative impact on MSEDCL and would in a way offset other charges payable by the Open Access consumer. 4.9 Can a consumer, who opts for Open Access still be considered as a consumer of the Distribution Licensee to the extent of Open Access? Once a consumer surrenders its load with MSEDCL to the tune of Open Access then he can no longer be treated as a consumer of MSEDCL to the tune of Open Access availed by it Can a partial Open Access consumer seek the same benefits under the retail Tariff Order which are available to a normal consumer when such partial Open Access consumer is governed by a different Regulatory regime i.e. DOA Regulations, 2016? A partial Open Access consumer cannot be equated to a retail consumer. While a retail consumer tariff is fixed through a Tariff Order, a partial Open Access consumer s tariff is only fixed to the tune as to what he is liable to pay under the Electricity Act, 2003 and the DOA Regulations, 2016 as various charges on account of availing Open Access. Hence all these separate charges payable by an Open Access consumer is framed by a Regulatory process after analyzing all aspects. However at present what is contended to be done is that the PF which is fixed for retail consumers shall be passed to Open Access consumers without determining the impact of the same. This cannot be done without initiating a Regulatory process Maintaining the Power Factor is a mandatory obligation cast upon a consumer. The consumer maintains the same out of operation of law. Moreover such consumers install equipment before being Open Access consumers and subsequently shift to Open Access. Hence PFI cannot be made applicable to Open Access consumption more so when DOA Regulations, 2016 provides a different charge/penalty altogether. a. The whole argument made by IAPPL of incurring high cost in installing equipment for maintaining high Power Factor is completely incorrect. It is to be noted that all these consumers have become Open Access consumers later in time and they all were normal retail consumers of MSEDCL in the beginning. Hence whatever equipment they have installed, are under the MERC Order in Case No. 135 of 2018 Page 9 of 16

10 mandate of law at the relevant point in time, when they were not Open Access consumers. b. In case the Open Access consumer does not maintain the high Power Factor then he would be liable to the Reactive Energy Penalty as will be determined by the Commission. Hence the Open Access consumer will be liable to any penalty as envisaged under law. c. Maintaining of high Power Factor also helps the Open Access consumer in appropriating the maximum Open Access quantum wheeled. Hence arguments on the issue of high Power Factor leading to benefit to Grid and leading to low losses to MSEDCL is completely baseless and is rather opportunistic. 5. At the hearing held on 16 June, 2018, IAPPL and MSEDCL reiterated their submissions. 6. In its Rejoinder submission dated 22 June, 2018, IAPPL stated that: 6.1 The Contentions of MSEDCL in its reply are baseless and irrelevant. In the matter in Case No. 110 of 2017, Petitioner had sought clarification regarding the applicability of the PFI on monthly electricity bill for Open Access consumption. Therefore the present Case is similar to the Case No. 110 of 2017 as the Petitioner is seeking clarification regarding the applicability of the PFI in respect of Open Access power consumption of the HT consumers and hence, the contentions of MSEDCL are wrong. 6.2 The Order dated 28 November, 2017 cannot be treated as a Judgment in personam as the Commission has directed the TPC-D to provide PFI on Open Access consumption of not only MIAL but also to the other similarly placed consumers. 6.3 The Order in Case No. 110 of 2017 also provided that the adjustment for the past period, may be made in the ensuing bills of MIAL and other such Open Access consumers, along with applicable interest. 6.4 From the Order in Case No. 110 of 2017 it is crystal clear that PFI is applicable to all the Open Access consumers 6.5 The APTEL in its Order dated 14 November, 2013 has made an observation that the very purpose to provide higher PFI is to encourage the consumer to maintain high power factor and to minimize the system losses. The relevant extract of the APTEL Judgment is as below: The very purpose to provide higher power factor rebate is to encourage the consumer to maintain high power factor and to minimize the system losses. Any loss before the meter installed at consumer s premises is on account of the distribution licensee. In order to reduce these losses, the State Commission has MERC Order in Case No. 135 of 2018 Page 10 of 16

11 incentivized high power factor based on pure technical and engineering principle. It has nothing to do with the source of power. Accordingly, power factor rebate is payable to the consumers who also avails Open Access. 6.6 The Petitioner is entitled to the PFI which is to be provided by MSEDCL for the period from December, 2015 in respect of the Open Access consumption. 6.7 The PFI is applicable on Open Access charges such as CSS, Transmission charges, and Wheeling charges. The question raised by MSEDCL whether it can be given retrospective effect is misleading. 6.8 The contention of MSEDCL with respect to Regulations 16 of the DOA Regulations, 2016 regarding the Connection Agreement is irrelevant. 6.9 The levy and fixation of Reactive Energy charge is irrelevant for present Petition. If MSEDCL is desirous of seeking fixation of such Reactive Charge, it has all liberty to approach the Commission by separate Petition Petitioner has always been availing partial Open Access. It has maintained Contract Demand with MSEDCL. Therefore, contentions of MSEDCL in this regard are incorrect MSEDCL has miserably failed in trying to create distinction between levy of charges on retail consumers and partial Open Access consumers MSEDCL on one hand states that it is not levying Reactive Energy Penalty and on the other hand states that if Power Factor is not maintained, the consumer is liable for Reactive Energy Penalty. Being Respondent in this Petition, MSEDCL cannot seek prayers for such determination Commission s Analysis and Ruling: 7. IAPPL has filed this Petition seeking clarification as to whether it is entitled to PFI excluding taxes and duties on its Open Access consumption. IAPPL is a consumer of MSEDCL and also has been availing power under Open Access from JSW from December 2015 to January 2017 and from SWPGL since February MSEDCL has been providing PFI to IAPPL for the electricity consumption from MSEDCL. However, MSEDCL has not provided PFI on Open Access Consumption from December 2015 onwards. 8. MSEDCL has opposed for the PFI on Open Access consumption and contented that: MERC Order in Case No. 135 of 2018 Page 11 of 16

12 (a) The Order dated 28 November, 2017 in Case No. 110 of 2017 (in the matter of Mumbai International Airport Private Limited Versus Tata Power Company Limited)was passed in the specific facts and circumstances of that Case and cannot be treated as a Judgment in realm rather it a Judgment in personam. (b) MSEDCL has neither provided any Power Factor Incentive to Open Access consumers nor has MSEDCL levied any penalty on Open Access consumption therefore Case No. 110 of 2017 cannot be applied to MSEDCL. (c) The APTEL Judgment dated 14 November, 2013 cannot be made applicable to the present Case as the said Judgment was passed in the specific facts and circumstances of the Case before the APTEL and after analyzing various provisions of the Haryana Electricity Regulatory Commission s Regulations. (d) Any charge which is not determined in accordance with the applicable principles and without a detailed study on the implication of such charge would certainly have a negative impact on MSEDCL. Hence, the nuances of PF and Reactive Energy although may seem to be similar but both of them are completely different as the charges applicable in money terms may be completely different. In such a case allowing PF to be applicable to Open Access consumers without studying the impact of the same would certainly cause a negative impact on MSEDCL and would in a way offset the other charges payable by the Open Access consumers. (e) Once a consumer surrenders its load with MSEDCL to the tune of Open Access then it can no longer be treated as a consumer of MSEDCL to the tune of Open Access availed by it. 9. The Commission notes the submission of MSEDCL that it has followed a consistent approach of not levying any Power Factor Penalty on Open Access consumption. The Commission also notes the submission of MSEDCL that the Commission in its Order dated 3 January, 2013 in Case No. 8, 18, 20 and Case No. 33 of 2012 has viewed that levy of penalty or provide incentives for various parameters as specified by the Commission in Tariff Schedule of the Tariff Order of MSEDCL from time to time (e.g., Power Factor incentive, Power Factor Penalty, Prompt Payment discount, etc.) shall be charged on the net energy supplied by MSEDCL to the Open Access consumer and captive user after adjusting the banked energy and actual generation during the month. 10. The Commission has dealt with the issue of Power Factor in Case No. 110 of 2017 as under: MERC Order in Case No. 135 of 2018 Page 12 of 16

13 8 Power Factor Incentive / Penalty has been provided in the electricity tariffs of TPC-D and other Distribution Licensees since long to encourage consumers to improve their Power Factor by providing shunt compensation and bring it as close as possible to unity so that system losses are reduced. Lower Power Factor causes higher system losses and consequent loss to the Distribution Licensee. 9.Although Open Access consumers source part or all of their power requirement from sources other than their Distribution Licensees, they use the distribution system of the Licensees for wheeling of this power and, hence, also contribute to system losses (unless they are independently connected to a Generator and physically isolated from the rest of the Licensee s network). If they have no incentive to maintain a high Power Factor, the onus on the Distribution Licensees to take corrective measures to compensate for the variation in Power Factor of such consumers will be correspondingly greater. Moreover, Power Factor improvement can best be achieved if such measures are implemented at the consumer level. On this principle, the Power Factor Incentive / Penalty provided in the MYT Order for consumers sourcing power from TPC-D is equally applicable to the Open Access power sourced by such consumer, who also contribute by way of Wheeling / Transmission Charges and Losses, CSS, and Additional Surcharge, if any. 10.This is also consistent with the Judgment dated in Appeal No. 231 of 2012 in which APTEL held as follows: 56. Summary of the findings:- II. The very purpose to provide higher power factor rebate is to encourage the consumer to maintain high power factor and to minimize the system losses. Any loss before the meter installed at consumer s premises is on account of the distribution licensee. In order to reduce these losses, the State Commission has incentivized high power factor based on pure technical and engineering principle. It has nothing to do with the source of power. Accordingly, power factor rebate is payable to the consumer who also avails open access. III. As per clause 2(19) of the Supply Code, the surcharge referred to in Regulation 3 is the Cross Subsidy Surcharge payable by Open Access consumer is a part of SoP charges and, therefore, the incentive on power factor would also be applicable on this amount. The Respondent till date has been recovering penalty on the low power factor and penalty for exceeding contract demand on the sale of power including Cross Subsidy Surcharge from embedded open access consumers. The licensee cannot probate and approbate at the same time. Therefore, the State Commission now cannot permit the utility, the Respondent to use different yardstick to the consumer while giving rebate and recovering MDI penalty, when both are to be MERC Order in Case No. 135 of 2018 Page 13 of 16

14 charged on sale of power. Therefore, this treatment is contrary to the commercial principles. 11.The list of charges specified in Regulation 14 of the DOA Regulations, 2016 has been cited by TPC-D. However, that is not an exhaustive list of the charges leviable while billing Open Access consumers, as will be seen from Regulation 14.1(v) (quoted earlier in this Order). 12.With reference to Regulation 21 of the DOA Regulations, 2016, TPC-D has raised the issue of levying a Reactive Energy Charge on Open Access consumers. As present, in the MYT Orders in respect of TPC-D and other Distribution Licensees, the Commission has not determined any Reactive Energy Charge. In its forthcoming Mid-Term Review Petition, TPC-D is at liberty to propose such determination. 13.In view of the foregoing, the Commission directs TPC-D to provide Power Factor Incentive (or levy Power Factor Penalty, as the case may be,) to MIAL and other similarly placed consumers on the charges it levies on the power sourced by them through Open Access. For past periods, these may be adjusted in the ensuing bills of MIAL and other such Open Access consumers, along with applicable interest. 11. The Commission notes that the contentions raised by the MSEDCLhave some merit as the cases cited by Petitioner, the Order of Commission in Case No. 110 of 2017 and APTEL Judgment in Appeal No. 231 of 2012 are on different footing. In both these cases, Distribution Licensees were either extending PFI to the Open Access consumers or were charging Penalty for low Power Factor. In the instant case, MSEDCL has not been extending any such incentive to the Open Access consumers using its distribution network nor levying any Penalty. It is true that Power Factor Incentive should be extended purely on engineering principles and should not be differentiated on source of supply of power. However, the issue of Power Factor Incentive to Open Access consumers in the Case No.110 of 2017 and APTEL Judgment cannot be directly applied to this Case as MSEDCL has neither provided any Power Factor Incentive to Open Access consumers nor levied any penalty on Open Access consumption in accordance with its earlier Order dated 3 January, 2013 in Case No. 8, 18, 20 and Case No. 33 of Admittedly, the equipment installed by Petitioner is on account of statutory mandate as well as a continuation of past practice when it was a full consumer of MSEDCL. Therefore, the Commission is inclined to accept the submission of MSEDCL in this regard that the two cases referred by Petitioner are not applicable to MSEDCL. 12. In view of the foregoing, the Commission clarifies that even if the Power Factor Incentive (or levy Power Factor Penalty, as the case may be) is applicable on the MERC Order in Case No. 135 of 2018 Page 14 of 16

15 power sourced through Open Access in view of the APTEL Judgment only on engineering principles, it cannot be granted to the Petitioner and that too with retrospective effect for the reasons cited in above paragraph No. 11. Further, the impact of providing such Incentives/ Penalties has not been considered in the MYT Order of MSEDCL and hence there is no ground for Petitioner to seek Power Factor Incentive in isolation of other provisions relating to reactive energy charges and other associated measures which have not yet been determined by the Commission. Therefore the Commission is not inclined to accept the prayers of the Petitioner for Power Factor Incentives without simultaneously making the petitioner accountable for the incidences of low power factor including the correction of lead part of power factor whenever required. 13. On the issue of applicability of Reactive Energy Charges to Open Access consumers, the Commission notes that Regulation 16.4 of State Grid Code Regulations, 2006 provides the necessity of Reactive Power compensation as below: 16.4 Reactive Power Compensation Reactive Power compensation and/or other facilities shall be provided by Users, as far as possible, in the low voltage systems close to the load points thereby avoiding the need for exchange of Reactive Power to/from the InSTS and to maintain the InSTS voltage within the specified range Line Reactors may be provided to control temporary over voltage within the limits as set out in connection agreements The additional reactive compensation to be provided by the User shall be indicated by State Transmission Utility in the Connection Agreement for implementation Users shall endeavour to minimize the Reactive Power drawal at an interchange point when the voltage at that point is below 95% of rated voltage, and shall not inject Reactive Power when the voltage is above 105% of rated voltage. Inter connecting Transformer taps at the respective drawal points may be changed to control the Reactive Power interchange as per a User s request to the State Load Despatch Centre, but only at reasonable intervals Regulation 21 of DOA regulations, 2016 provides the applicability of Reactive Energy charges as below: 21. Reactive Energy Charges 21.1The methodology for payment for the reactive energy charges by an Open Access Consumer, Generating Station or Licensee with load of 5 MW or more shall be in accordance with the State Grid Code and the Regulations of the Commission governing Multi-Year Tariff or relevant orders of the Commission. MERC Order in Case No. 135 of 2018 Page 15 of 16

16 21.2The reactive energy charges in respect of Open Access Consumers with load less than 5 MW shall be calculated on Power Factor basis as may be specified in relevant orders of the Commission. 21.3The reactive energy charges in respect of Renewable Energy Generating Stations shall be in accordance with the charges approved by the Commission in its relevant Tariff Orders. 15. On the issue of rationalization of Power Factor Incentives, the Commission in its Order dated 3 November, 2016 in Case No. 48 of 2016 has held as below: 7.23Rationalisation of Power Factor Incentive Directive The Commission directs MSEDCL to study selected cases of PF (lead/lag) incentive/penalty along with their voltage profiles, and explore the possibility of implementing kvah metering for selected categories. MSEDCL should submit its study report along with case scenarios with its next Petition for Tariff determination. MSEDCL s Response The matter is under consideration and appropriate compliance is being submitted separately. Commission s Ruling As detailed in Chapter 8 of this Order, the Commission has kept the existing incentive/penalties structure unchanged. However, MSEDCL should submit its report with the MTR Petition. 16. It is pertinent to note that the Distribution Licensees have filed their Petitions for Mid Term Review of MYT for the third control period from to The Commission notes that, MSEDCL has proposed the kvah based billing for all HT consumers instead of Power Factor Incentive/ Penalty. Introduction of kvah billing will automatically ensure the commercial settlement for the Power Factor improvement to unity and thereof the reactive power compensation. The Commission may take a call on the issue of kvah billing during the Mid Term Review of MYT of MSEDCL. The Petition of INOX Air Products Pvt. Ltd. in Case No. 135 of 2018 stands disposed of accordingly. Sd/- (Mukesh Khullar) Member Sd/- (Anand B. Kulkarni) Chairperson MERC Order in Case No. 135 of 2018 Page 16 of 16