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ARR/Tariff Proposals of APTRANSCO for FY2005-06

ARR/Tariff Proposals of APTRANSCO for FY2005-06. Objections/Suggestions by Er. K.Raghu 28.02.2005. Consideration of Issues Raised During Public Hearings. Several important issues are raised during public hearings- in addition to those raised in the original petitions

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ARR/Tariff Proposals of APTRANSCO for FY2005-06

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  1. ARR/Tariff Proposals of APTRANSCO for FY2005-06 Objections/Suggestions by Er. K.Raghu 28.02.2005

  2. Consideration of Issues Raised During Public Hearings • Several important issues are raised during public hearings- in addition to those raised in the original petitions • But most of these issues raised during public hearings are ignored by the Commission- do not find any mention in the tariff order • Only issues raised in the Original Petitions are considered • I request the Commission to consider all the issues raised during the public hearings also.

  3. This presentation consists of issues which have bearing on ARR of APTRANSCO

  4. 1.Separation of Trading From APTRANSCO

  5. Separation of Trading from Transco • Section 39 of Electricity Act,2003 provides for separation of Trading function from APTRANSCO ( from 10th June’2005) • At present APTRANSCO is in the business of Trading, because of Power Purchase Agreements it entered with various Generating Companies. • Separation of Trading meansSeparation of PPAs from APTransco • Then who should Take the responsibility of these PPAs? This will have serious repercussions on the power sector future in the state.

  6. Separation of Trading from Transco OPTION-2 Transco PPAs Tradeco OPTION-3 OPTION-1 Genco Discoms It appears that the Government has already decided to allocate PPAs to Discoms (OPTION-1)ignoring other options

  7. Separation of Trading from Transco • Difficulties/Disadvantages in allocating PPAs to Discoms: • Difficulties in Allocation: Factors affecting Allocation: • Power Requirement of Discoms: Based on Historical or Future trends • Evaluation of Generating Stations: Availability or PLFs of Generating stations • Availability of Fuel • Additional Fuel Allocations • Balance Life of Generating stations

  8. Separation of Trading from Transco • NPV or PV of Fixed Costs/Variable costs • GVK, Spectrum,MP Plants: Fixed Cost payments vary with time as they are based on capital cost recovery method. • Other Gas Projects: FC Payments are more or less uniform over project life, as it is based on unit cost of Electricity • Impact of lifting APM

  9. Separation of Trading from Transco • Imbalances: It would create imbalances among Discoms with respect to Power demand and availability. • Burden of New institutions like Balancing and Settlement Committee (BSC) • Impact of Open Access: If surcharge from OA consumer does not fully compensate for the loss of cross subsidy ( as per draft guidelines of MOP/Report of Task force on Power sector investments and Reforms), then Discoms with better consumer mix would suffer…as their present BST is kept high, taking existing favourable Consumer mix into consideration.

  10. Separation of Trading from Transco • Need For Uniform Retail Supply Tariff: • Uniform RST among discoms can not be done away with immediately • Allocation of PPAs on Permanent basis among Discoms would create problems • Against the spirit of Reforms: • Would not result in achieving Multi Buyer Model (MBM) in its true spirit • Discoms will lose focus on revenue collections-results in creation of Mini Electricity Boards

  11. Separation of Trading from Transco • Legal Complications- advantage to IPPs and other Generators if PPAs are in multiple hands In view of the above I request the Commission to re-examine the whole issue of separation of Trading function from Transco.

  12. Separation of Trading from Transco • Alternative: • Allocation of PPAs to APGENCO would be a better option as it avoids all the above disadvantages • Electricity Act,2003 does not prohibit generators from taking up Trading activity- so… not against ‘spirit’ of reforms • SLDC can remain with APTRANSCO as trading is separated from Transco. • Discoms can concentrate on Consumer service and Revenue collections • Expertise on power trading is already available with APGENCO

  13. Separation of Trading from Transco • Transition to ‘Multi Buyer Model’ would be smooth- slowly Discoms can enter into new agreements with Generators for additional power requirements • No additional expenditure- only a trading license is required • Helps in developing rational Merit Order Procedure. • Eliminates unnecessary friction between Generators and Discoms • Allows Genco to effectively utilise its resources in the ABT regime.

  14. Separation of Trading from Transco • In view of the above I request the commission to advise the Government to entrust the Trading function to APGENCO, at least on a temporary basis, by allocating all the existing PPAs. • If ‘allocation of PPAs to Discoms’ proves successful elsewhere in the country, government may consider the same after evaluating those experiences.

  15. 2. Review of Power Purchase Agreements

  16. Review of PPAs • Commission in it’s Tariff Order for 2003-04 stated that it would consider the review of the concluded PPAs after the detailed judgement of the Hon’ble High Court at Mumbai was available. • Maharashtra High court order was submitted to the Commission during 2004-05 Tariff Hearings. • Commission in its Tariff Order for 2004-05 stated that ‘At this stage, the Commission does not consider that any proceedings be initiated for the above purpose’. • However it directed APTRANSCO to renegotiate with the IPPs to reduce the cost of power purchase keeping in view the substantial reduction in interest cost and facility of swapping etc,.’

  17. Review of PPAs • Commission in its order did not explain why it had not considered Mumbai High Court’s order on review of PPAs. • The PPA review taken up by the Government has many inherent limitations as the Government is not a party to the Power Purchase Agreement • Its effectiveness depends purely on means out side legal framework. • I request the Commission to immediately take up review of all the PPAs without leaving the matter entirely to the Government or APTRANSCO.

  18. 3. Excess Payments to IPPs in Violation of PPAsi).Spectrumii).GVKiii).BSESiv).NCE projects

  19. Stop Excess Payments to IPPs- Violation of PPAs • The following are a few instances where IPPs are paid in excess of what is due to them as per the PPAs. • I request the Commission to immediately stop excess payments being made to IPPs in violation of the PPAs. • This does not amount to review of PPAs. Excess payments to SPECTRUM: Incentives: • Presently excess payments are being made to Spectrum Project (216 MW) at Kakinada towards incentives. • As per the Govt. Of India notification no. S.O. 251(E) Dt. 30/03/1992 published by MOP in Gazette of India Extrordinary under P-II sections 3- subsection (ii)…

  20. Stop Excess Payments to IPPs- Violation of PPAs • Full fixed charges shall be recoverable at generation level of 6000 hours/KW/year. For Generation above 6000 hours/kw/year, the additional incentive payable shall not exceed 0.7% of ROE, for each percentage point increase of PLF above the normative level of 6000 hours/kw/year. • The above GOI notification is included as part of the PPA and the notification is signed by both the parties.

  21. Stop Excess Payments to IPPs- Violation of PPAs • In line with the above notification an incentive clause is included in the PPA which states that ‘ the Board ( ie APTRANSCO) shall pay for the actual generation and notional generation above the threshold level of a PLF of 68.49% an incentive in the nature of increased ROE in accordance with the following formula

  22. Stop Excess Payments to IPPs- Violation of PPAs • PLF Level of Incentive PLF < 68.5% 0.4% increase in ROE for every 1% increase in PLF above 68.5% 80.5 < PLF< 85.5 0.5% increase in ROE for every 1% increase in PLF above 68.5% PLF>85.5% 0.6% increase in ROE for every 1% increase in PLF above 68.5% • It also states that the Notional generation above 85% PLF shall not be considered for the purpose of payment of incentive • Since generation above 85% will not be considered for notional generation, it would be better to restrict the purchases from IPP to 85%PLF

  23. Stop Excess Payments to IPPs- Violation of PPAs Incentive Payable at 85% PLF: =0.5% increase in ROE for every 1% increase in PLF above 68.5% (85-68.5) X 0.5/100 X ROE EQITY = Rs 117.92 Crore ( As per ARR of APTRANSCO- Page 69) ROE allowable as per PPA = 16% on Equity ROE = (16/100) X 117.92 = Rs 18.86 crores

  24. Stop Excess Payments to IPPs- Violation of PPAs Therefore Incentive Payable to Spectrum at 85% PLF = 16.5 x (0.5/100)x 18.86 crore = Rs 1.55 crore • Whereas APTRANSCO has shown incentive payable to Spectrum as Rs 9.73 crore • This is Rs 8.18 crore more ( 6.27 times) than what is required to be paid as per PPA.

  25. Stop Excess Payments to IPPs- Violation of PPAs • APTRANSCO has stated that it has calculated incentive based on the formula { Equity x (PLF-68.5)x0.005 }. • According to Transco this formula is provided in the PPA of Spectrum. • But the above formula is not provided in the PPA of SPECTRUM • APTRANSCO has assumed a formula similar to the one provided in the incentive clause in GVK PPA. • SPECTRUM PPA on incentives only states that at 85% PLF, • Level of incentive = 0.5% increase in ROE for every 1% increase in PLF above 68.5% • Where as formula assumed by the APTRANSCO takes increase of 0.5% on Equity and not ROE

  26. Stop Excess Payments to IPPs- Violation of PPAs • This has resulted in excess payment of incentive of Rs 8.18crore/Anum ( As per PPA provision it is only Rs 1.55 cr) NO SCOPE FOR ANY AMBIGUITY: In fact there is no scope for ambiguity in the application of incentive provision as ROE is clearly defined in the PPA. • Clause 2.5(e) of GOI notification dt: 30/3/92 incorporated in the PPA clearly states that ‘ Return On Equity’ shall be computed on the paid up and subscribed capital relatable to the generating unit, and shall be 16% of such capital.

  27. Stop Excess Payments to IPPs- Violation of PPAs • And thus ROE is a single unit, which is equal to 16% of paid up and subscribed capital. In the present case ROE = 16/100 X 117.92 = Rs 18.86 crores • Therefore, 0.5% increase in ROEmeans • incentive of {0.5/100 x 18.86 } • and not {0.5/100 x 117.92} • I request the Commission to restrict the payment of incentive to Spectrum project to Rs1.55 crore

  28. Stop Excess Payments to IPPs- Violation of PPAs Excess Payments to GVK Project: • Incentives: • Presently excess payments are being made to GVK Project (220 MW) at Jegurupadu towards incentives. • As per the Govt. Of India notification no. S.O. 251(E) Dt. 30/03/1992 published by MOP in Gazette of India Extrordinary under P-II sections 3- subsection (ii)

  29. Stop Excess Payments to IPPs- Violation of PPAs • Section 1.6 of above notification states that Full fixed charges shall be recoverable at generation level of 6000 hours/KW/year. For Generation above 6000 hours/kw/year, the additional incentive payable shall not exceed 0.7% of ROE, for each percentage point increase of PLF above the normative level of 6000 hours/kw/year. • The above GOI notification is included as part of the PPA and the notification is signed by both the parties.

  30. Stop Excess Payments to IPPs- Violation of PPAs • However the same is not reflected in the Incentive clause incorporated in the Clause 3.10.2 of the PPA. • Clause 3.10.2 states that The Board shall pay for actual generation and notional generation above the target level of PLF of 68.49% on incentive payment according to the following formula • Incentive payment=Equity x (PLF-68.5)x 0.00525 • In the above formula it is mistakenly stated as Equity which should have been ROE as per the GOI notification

  31. Stop Excess Payments to IPPs- Violation of PPAs Implicaiton: • As per GOI notification incentive shall not exceed 0.7%xROE = 0.7 %x16/100 x Equity = 0.00112X Equity • Whereas the incentive clause provides for incentive of 0.00525x equity, which is 4.68 times the UPPER LIMIT fixed by the GOI

  32. Stop Excess Payments to IPPs- Violation of PPAs • There is a contradiction between two provisions within the same PPA (ie. incentive clause in GOI notification and clause 3.10.2 of PPA). • APTRANSCO is paying incentives to GVK as per clause 3.10.2 which is resulting in higher payments to GVK. This is against the PPA and GOI notification • APTRANSCO has shown an amount of Rs 21.21 crore towards incentive for the year 2005-06. It should have been Rs 3.39 crores. Thus an additional amount of Rs 17.82 crore is paid to GVK every year against the PPA provisions.

  33. Stop Excess Payments to IPPs- Violation of PPAs • Since, GVK has also agreed to abide by the GOI notification, which clearly limits the incentives to 0.7% of ROE, the incentive payment to GVK shall be limited to the same • I request the Commission to restrict the payment of incentive to GVK project to Rs 3.39 crore, instead of Rs21.21 crore as shown by APTRANSCO.

  34. Stop Excess Payments to IPPs- Violation of PPAs • Excess payments towards ROE: • At present APTRANSCO is making payments to both GVK and Spectrum projects towards ROE • which is equal to 16% of Equity, paid in twelve monthly installments • Monthly installments paid to these projects is 1/12 of (16% of ROE) • This is resulting in ROE of over 17.2 % of equity per anum considering the interest benefits to the IPPs. • But section 1.5 of the GOI notification dated 30/3/1992 incorporated in the PPA and signed by Private parties clearly states that the above amount of 16% of ROE shall be for the entire year.

  35. Stop Excess Payments to IPPs- Violation of PPAs • The notification also states that, if payments are made on monthly basis, necessary adjustments shall be made on actuals at the end of the year. • It can be seen that APTRANSCO is not making any adjustments towards the end of the year, leading to excessive payments to IPPs, in violation of the PPAs. • Total Equity of GVK and Spectrum projects is = 244.8+117.92= Rs 364.72 crore • Thus additional payment made to these projects = 1.2/100 x 364.72 = Rs 4.37 crore/Anum • This is clear violation of the PPA provisions • Hence I request the Commission to direct the Transco to make necessary adjustments towards the end of the Year to adjust the excess ROE paid to these IPPs.

  36. Stop Excess Payments to IPPs- Violation of PPAs • Recover the Excess payments made to GVK and Spectrum Projects: • Huge amounts are already paid to GVK and Spectrum projects towards incentives and ROE in violation of the provisions of the PPA • Excess payments already made every year: • Towards incentive=17.82(GVK)+8.49(Spectrum)=Rs26.31 cr • Towards ROE = Rs 4.37 cr Total excess payments =Rs30.38 cr • Total amount to be recovered from these two projects • 30.38 x 8 years of operation = Rs 243.04 crore • Interest also must be recovered • Hence, I request the Commission to direct APTRANSCO to recover the amounts from GVK and Spectrum, which are paid in violation of the provisions of the Agreements

  37. Stop Excess Payments to IPPs- Violation of PPAs • COMMISSION TO IDENTIFY ALL SUCH VIOLATIONS: • The above excess payments made to the IPPs is due to violation of PPA provisions and reduction of these costs can not be treated as review of PPAs • There is every likelihood of many more such violations, whose elimination would reduce the cost on APTRANSCO and eventually on the consumer.

  38. Stop Excess Payments to IPPs- Violation of PPAs • For ex: • Failure on the part of IPPs to achieve ramp up rate of 4 MW/Minute would allow APTRANSCO to impose penalty of double the shortfall of such shortfall in energy. • As per GOI notification incorporated in the PPAs, all Components of Fixed Cost ( not just ROE ) shall be calculated on annual basis and may be recovered in monthly installments and due adjustments shall be made towards the end of the year • I request the Commission to identify all such violations immediately and reduce the payments to IPPs and pass on the benefits to the Consumers.

  39. Recovery of Excess Fixed Costs Paid to BSES before Commercial Operation Date • BSES is one of the Short Gestation Project approved by the GoAP, accordingly PPA was signed on 31.3.1997 with APTRANSCO • Amendment Agreement submitted to the Commission in December 2001 for its consent. • Construction of 220MW BSES project at Samarlakota was completed before the approval of Commission for the Amended PPA.

  40. Recovery of Excess Fixed Costs Paid to BSES before Commercial Operation Date • Since the project was ready to produce energy, commission has allowed the plant generate energy and directed APTRANSCO to purchase energy from BSES at 169 ps/unit, pending approval of Amended PPA by the Commission • The above approved tariff is substantially higher than the variable cost of energy ( About Rs 1.00) this difference between the Total cost ( 169 ps) and the variable cost ( about 69 ps) can be treated as advance amount paid towards repayment of fixed cost.

  41. Recovery of Excess Fixed Costs Paid to BSES before Commercial Operation Date • Subsequently, the commission has consented to the amended PPA of BSES project, and presently energy from this project is being purchased as per the terms of the amended PPA. • Thus the entire Fixed cost of the BSES project would be recovered from the tariff as per the terms and conditions laid down in the amended PPA from the CoD ie 24/12/2002. • This means that the fixed cost paid to this project before COD is in addition to the total fixed cost commitment of APTRANSCO to the BSES as per the PPA.

  42. Recovery of Excess Fixed Costs Paid to BSES before Commercial Operation Date • Thus this entire Fixed Cost amount paid to the BSES prior to the COD has to be recovered now, including the interest component- otherwise it amounts to excess fixed cost payments to BSES in violation of the PPA. • APTRANSCO had purchased energy from this project • from 21/02/2002 to 24.12.2002 @ 169 ps/unit. • Total quantum of energy purchased from this plant was about 650 MU.

  43. Recovery of Excess Fixed Costs Paid to BSES before Commercial Operation Date • Assuming the variable cost component to be 69ps/unit ( variable cost based on natural gas as per the supply price of GAIL has to be considered ) • fixed cost to be recovered is 100 ps/unit. • Total amount to be recovered from BSES excluding interest (650/10)x1=Rs65Cr. Interest component has to be added to this amount. • Hence, we request the Commission to recover the entire excessive amount of Rs 65 cr paid to BSES prior to the COD. • An amount of Rs 22.8 cr is shown as ‘other’ charges paid to BSES during 2003-04. This amount is not shown in ‘others’ during FY 2005 and FY 2006. • The same may please be clarified.

  44. Excess Payments to Non-conventional Energy Projects • Restrict payments to contracted capacity only: • Presently payments to NCE projects are being made based on average monthly PLFs • This is resulting in higher payments to NCE projects, because NCE projects are at times generating energy above their contracted capacities with APTRANSCO. • If NCE projects produce energy above their contracted capacities, the same shall not be allowed. • We request the commission to direct APTRANSCO to install meters capable of taking readings in 15min. block periods, and make payments to NCE projects accordingly, limiting the payments to contracted capacities. • We also request the Commission to recover the excess payments already made

  45. Excess Payments to Non-conventional Energy Projects New NCE Projects/capacities: • It is reported in the press that the Commission is directing APTRANSCO to purchase energy from new NCE projects/capacities • Already NCE projects are imposing unbearable burden on APTRANSCO and consumers of the state. • Also energy from these projects is not firm and not reliable • Section 86(e) of the Electricity Act, 2003 enjoins the commission to promote cogeneration and generation of electricity from renewable sources of energy and also specify , for purchase of electricity from such sources , a percentage of the total consumption of electricity in the area of a distribution licensee

  46. Excess Payments to Non-conventional Energy Projects • But, it can seen that the purchases from NCE projects to the total purchases by APTRANSCO in AP is higher compared to majority of the states in India and there is no need to allow new purchases from NCE projects any further. • EA, 2003 also allows third party sales and as such there is no need for APTRANSCO to buy this expensive energy • Also, there is no reason why only direct consumers of Discoms should bear the burden of these NCE projects. • No where in the EA, 2003 it is stated that only direct consumers of the utility shall bear entire burden due to NCE projects.

  47. Excess Payments to Non-conventional Energy Projects • In fact, Section 86(e) of EA,2003 enjoins upon the Commission to specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee. • Thus while specifying the ‘percentage’ of purchases from NCE projects it shall consider the total consumption in the area of a distribution licensee.

  48. Excess Payments to Non-conventional Energy Projects • This implies that the burden due to these NCE projects shall be borne by all the consumers in the area of Distribution licensee. • It means that even the Open Access consumers shall bear the additional burden due to these NCE projects. • I request the Commission to distribute the burden due to NCE projects uniformly on all the consumers including Open Access consumers.

  49. 4. Closure of Nellore Thermal Station

  50. Closure of Nellore Thermal Station(NTS) • It is learnt that APGENCO has decided to close down the NTS • The decision is irrational: • Closure is due to irrational merit order procedure which takes only the variable cost in to consideration for dispatch of energy from generating stations • NTS is located at load centre- reduces T&D losses and also improves voltages in the region. If all these factors are considered, cost of power from NTS would be lower than average RST of Discoms

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