Aggregate Revenue Requirement & Review of MERC Order for True up of Expenses for 05-06, 06-07, 07-08 &

08-09
Case 16 of 2008 March 2010

Contents
1. Main components of ARR 2. Review of MERC order 3. Issues yet to be resolved 4. Way ahead

Main components of Tariff

Components of Tariff: Fixed charge Variable charge Adjustment of profit / loss on account of controllable / uncontrollable factors

Break up of Annual Revenue Requirement (ARR)

Break up of Operation & Maintenance Expenses

Components of fixed charge

O & M Expenses
Repairs & Maintenance expenses Administrative and general expenses Employee expenses

Depreciation including Advance against depreciation Interest on long term loan Capital Interest on working capital Return on equity Other expenses
Income tax

Components of variable charge

Fuel cost Cost of :
Lubricants Chemicals Water charges Other fuel related expenses:
Coal / oil handling contract charges Demurrages on coal / oil wagons Siding charges Penalties for overloading Commission to agents Payments to railway staff posted at TPS Coal stock maintenance cost Other coal related cost Stock shortages on physical verification of coal / oil stock
7

Primary factors affecting ARR

Operational Parameters Station Heat Rate, Auxiliary consumption, secondary oil consumption Transit loss
Fuel Cost incurred for achieving the approved performance parameters is pass through Reason for disallowance of the fuel cost is Non-achievement of normative/ approved technical parameters
8

ADJUSTMENT OF RATE OF ENERGY CHARGE Actual fuel Expenses of Station

Actual Transit loss amount+ Normative Transit loss amount Actual secondary oil expenses+ Normative secondary oil expenses =Actual Adjusted fuel cost Actual adjusted fuel cost X approved heat rate actual heat rate

= Approved fuel cost

This cost is loaded on approved net gen.
(i.e. Gross gen approved aux. Cons.) Adjustment of REC (Rs/kWh) = {Approved fuel cost Base VC} (Gross gen appd. Aux. Cons.)
9

Fuel Adjustment Cost sample Actual calculations

Calculation of Normative Variable Cost of Generating Stations - January 2010

K'kheda
Actual Cost of Coal consumed (Rs. Lakh) Actual Cost of Oil Consumed (Rs. Lakh) Actual Transit Loss (Rs. Lakh) Actual Generation Cost (Rs lakhs) Less: Transit Loss after Adjustment Add: Normative Transit Loss (Rs.Lakhs) Less: Actual Sec Oil Cost LDO (Rs.Lakhs) Less: Actual Sec.Oil- FO (Rs.Lakhs) Less: Actual Sec.Oil- LSHS (Rs.Lakhs) Add: Normative Sec Oil Cost (Rs.Lakhs) Actual Adjusted Gen Cost (Rs.Lakhs) e f g h=e+f+g i j k l m n o=h - i + j - (k + l + m) + n

With old approved parameters

5,740 68 46 5,854 45.53 54.30 20.42 48.01 274 6,069

With newly Approved parameters

5,740 68 46 5,854 - 45.53 54.30 - 20.42 - 48.01 274 6,069
10

Fuel Adjustment Cost sample Actual calculations

Actual Gross Generation (MU) Approved Auxiliary Consumption% Net Generation at actual Aux. Cons.(MU) Net Generation at approved Aux. Cons.(MU) Actual Heat Input (Kcal) Actual Fuel Cost (Rs/MkCal) Base Variable Cost (Rs/kWh) Actual Heat Rate (kCal/kWh) Norm - Heat Rate (kCal/kWh) a b c d = a x (1-b) p q=o/p r s=p/a t 460 8.50% 417.88 421 1,289,134 471 1.7200 2,800 2,566 1.3202 460 9.17% 417.88 418 1,289,134 471 1.7200 2,800 2,612 1.3538

Normative Variable cost after u = q X t /( (1 - b) X adjustment for Heat rate & Auxiliary 10^6) Consumption Normative Fuel cost (Rs. Lakh) v = c X u X 10

5516.77

5657.09
11

FAC bill Rs. Lakh

w = c X (u - r ) X 10 (1,670.8005) (1,530.4793)

Availability for thermal stations

Availability means average of declared capacities in MW for a period expressed
as a percentage of the installed capacity minus normative auxiliary consumption in MW taking into account the availability of fuel
N

Availability = 10000 x
i=1

DCi /N IC x (100 AUXn)

where - N = number of time blocks in the given period DC = Average Declared Capacity for the ith time block in such period IC = Installed Capacity of the generating station in MW AUX = Normative Auxiliary Consumption in MW, as a percentage of gross generation 12

Availability for thermal stations

Simplified Formula for Availability

Availability = Declared ( Ex-Bus)Capacity in MW Installed (Ex-Bus) Capacity in MW

x100%

13

PLF for thermal stations

PLF means the average of Scheduled generation in MW for a period expressed as
a percentage of the installed capacity of the generating station minus normative auxiliary consumption in MW
N

PLF = 10000 x
i=1

SGi /N IC x (100 AUXn)

where - N = number of time blocks in the given period SG = Average Scheduled Generation for the ith time block in such period IC = Installed Capacity of the generating station in MW
14 AUX = Normative Auxiliary Consumption in MW, as a percentage of gross generation

PLF for thermal stations

Simplified formula for PLF

PLF = Scheduled (Ex-Bus) Generation in MW X100 % Installed (Ex-Bus) Capacity in MW

15

Availability for thermal stations

Target availability for full recovery of fixed charges shall be

80%.

If it is less, then fixed charges shall be recoverable on prorata basis.

Incentive shall be payable at a flat rate of 25.0 paise/kWh if PLF is more than 80%
16

MERC Order regarding True up

17

MERC Order regarding True up

APTELs judgement 10th April 2008 CPRI tests (20 Nov 2008 to 10 Dec 2009) CPRI recommendations Immediate, medium term, long term measures for improvement

APR order (Case 115 of 2008) 17th Aug 2009 Appeal in APTEL (appeal 191 of 2009) Order by MERC on true up dt.5th March 2010
18

Out come of MERC Order

What we got ? Fuel cost for FY 05-06, 06-07, 07-08 in full as per audited accounts Fixed cost full recovery allowed irrespective of lower PLF A&G at actuals as per audited accounts

19

Out come of MERC Order

What we got ?

Station heat rate

08-09
Approved CPRI Recommend Actual Approved

09-10
CPRI Petition Recommend FAC*

KPKD Paras Bhusawal Nasik Parli Koradi C'pur

2653.1 3309.6 2855.5 2832.7 2919.4 3043.4 2759.1

2653.1 3309.6 2855.5 2832.7 2919.4 3043.4 2759.1

2806 3255 2920 2984 3049 3189 2705

2612.2 3223.8 2784.3 2774.3 2796.1 3014.9 2664.4

2612.2 3223.8 2784.3 2774.3 2796.1 3014.9 2664.4

2862 3759 3074 3107 3205 3364 2934

2796 3842 3004 3091 3160 3355 2804

20

Out come of MERC Order Degradation factor for SHR approved by MERC
For units below 210 MW a degradation rate of 0.4 %/year For 210 MW On implementation of the immediate and medium term measures the degradation rate to 0.3%/year during the immediate and medium term implementation phases and to 0.2 %/year during the long term implementation phases. For 500 MW degradation rate for the three units during the immediate and medium term phases will be 0.34 %/year and 0.2 %/year during long term implementation phases.
21

Out come of MERC Order

What we got ?

Aux .consumption
08-09
Approved CPRI Recommend Actual Approved

09-10
CPRI Recommend Actual FAC*

KPKD Paras Bhusawal Nasik Parli Koradi C'pur

9.17% 12.18% 10.74% 9.74% 10.93% 10.74% 8.18%

9.95% 13.38% 11.00% 11.51% 11.99% 10.89% 9.16%

9.18%

9.17%

9.85% 12.95% 10.80% 11.30% 11.60% 10.80% 9.40%

9.75%

10%

12.18% 12.18% 10.47% 10.74% 9.74% 9.74% 10.93% 10.93% 10.97% 10.74% 8.04% 8.18%

14.10% 15.01% 10.99% 10.80% 10.91% 9.99% 11.71% 11.17% 12.14% 12.69% 8.52% 8.45%
22

Out come of MERC Order

What we got ?

SP. OIL CONSUMPTION

08-09
Approved CPRI Recommend Actual Approved

09-10
CPRI Petition Recommen d FAC*

KPKD Paras Bhusawal Nasik Parli Koradi C'pur

2 2 2 3 2 2.81 2

0.85 3.03 5.52 4.28 7.51 7.01 1.57

2 2 2 2 2 2 2

1.47 1.135 7.03 9.117 3.71 4.266 5.23 4.43 3.55 3.832 9.94 12.653 1.95 1.5
23

Out come of MERC Order

What we lost? Operation & maintenance Expenses
FY Esc Case Allowed Actual Allowed Gain / Factor no. 48 under under (loss) 06-07 true up true up Case Case no. Case no. no. 71 71 (0616 07-08 07)/ Case no. 115 (0708) Sharing Entitleme nt

MSPGCL MSEDCL

1 0.67 0.33 2006-07 817.58 817.58 854.45 829.87 (36.87) (24.58) (12.29) 829.87 2007-08 5.38% 861.55 861.55 967.65 900.42 (67.23) (44.82) (22.41) 922.83 2008-09 5.29% 907.89 907.89 1137.35 948.05 40.16
24

Way forward
How to achieve performance parameters now approved by MERC? How to monitor them at plant level and at HO level? What will be incentives & disincentives for achieving & non-achieving the approved parameters? What are the action plans for it? Daily Management Information System (MIS) on achievements & failures? Formation of Responsibility matrix. Daily Gain or Loss Corrective actions for the same Review of implementation of immediate measures as per CPRI
25

PERFORM OR PERISH
-Visveshwariah

26

Thank you

27

Tariff For Hydro Power Station

TARIFF

Annual Capacity Charge = Annual Fixed Charge Energy Charge

Energy Charge = Saleable Energy X Energy rate

28

Tariff for hydro station

Tariff = Annual Capacity Charges + Energy Charge 28 = Annual Fixed Charge - Energy Charge + Energy Charge = Annual Fixed Charge

29

Process of filing ARR / APR

Data Requirement for Tariff determination and ARR of Next Year

1 April
st

1 April
st

30th Sept 6 months

(Actual)

1st April

31st March

1 year
(Actual)

6 months
(Estimated)

1 year
(Projections)

Previous year

Current year

Next year

30

Process of filing ARR / APR

(Reg 8,9,10)

Technical validation Last date for submission of ARR/APR Reply to data gaps

Receipt of COMPLETE application i.e. Acceptance of ARR/APR Public notice

Petition has to be filed on affidavit

Comments from public Reply to Comments Public Hearing Issuance of order

3days

120 days 30th Nov This period is to be reduced so that tariff order shall be issued in time by MERC
1. 2. 3. 4. 5. 6. 7. 8. Prayas, Pune Thane Belapur Industries Association, Thane Mumbai Grahak Panchayat, mumbai Vidarbha Industries Association Nagpur PoonaratnamVel Induction Hardenings (VIL) Rakshpal Abrol(Bharatiya Udhami Avam Upbhokta Sangh (BUAUS) ) Dr. Barhate Sandip Ohri 31

Norms for Components of fixed charge

O & M Expenses
34.6.1

Existing generating stations

Average of the actual O&M expenses for the five (5) years ending March 31, 2004 shall be considered as O&M expenses for FY 2002 and escalated at 4 % to arrive at O&M expenses for the base year commencing April 1, 2005 & further escalated at the rate of 4 % per annum
34.6.2

New generating stations

200/210/250 MW sets : Rs. 10.82 lakh/MW 500 MW and above sets : Rs. 9.73 lakh/MW Weighted average value for stations having combination of 200/210/250 MW sets and 500 MW & above set

Return on equity: 14% (Normative) Debt : Equity Ratio = 70:30 Interest on long term loan Capital : at approved interest rate
32

Interest on Working Capital

Working capital for thermal and gas stations:
Cost fuel for 2 months corresponding to target availability. O&M expenses for 1 month Maintenance spares @ 1% of historical cost (escalated @ 6% per annum from the date of commercial operation)* Receivables towards sale of electricity (fixed cost + energy cost) for 2 months Minus payables for fuel cost for 1 month corresponding to target availability. Interest on working capital @ PLR of SBI
*as per CERC tariff regulations 33

Depreciation & Advance against depreciation

Depreciation
Straight line method 90% depreciation till end of life of asset Advance against depreciation = (actual amount payable allowable depreciation ) limited to 1/10 of Principal amount of loan allowable depreciation

34

DEPRECIATION

Repayment period of loan

Initial value of the asset

Annual premium of loan

Advance against depreciation

Annual depreciation

Residual value of asset

Life span of the asset

35

Adjustment of profit / loss on account of controllable / uncontrollable factors

(Reg.18,19) Due to Controllable factors MAHAGENCO 2/3 GAIN Due to Uncontrollable factors 0 Due to Controllable factors 2/3 LOSS Due to Uncontrollable factors 0

Consumer

1/3

1/3

36

Adjustment of profit / loss on account of controllable / uncontrollable factors

Uncontrollable factors
Force Majeure Events Changes in Law, Judicial pronouncements and orders of Central Govt., StateGovt. or Commission Economy-wide influences such as unforeseen changes in inflation rate, market interest rate, taxes and statutory levies.

37