PUNJAB STATE ELECTRICITY REGULATORY COMMISSION

SCO 220-221 SECTOR-34-A CHANDIGARH

 

Petition No. 11 of 2003.

Date of Order: 21.06.2004

   

In the matter of:          Petition for approval of tariff for export of power to PSEB from the Demonstration Co-generation Project No.846 of M/s. Rana Sugars Ltd. at Village Butter Seviyan, Tehsil Baba Bakala, District Amritsar, Punjab to PSEB Grid Station Sathiala u/s 64 of the Electricity Act, 2003 read with Regulation 2(3) and 3(1) and (2) of the Punjab State Electricity Regulatory Commission Tariff Regulations 2002.

 

AND

 

In the matter of:          M/s. Rana Sugars Limited

 

Versus

 

PSEB and others.

 

         Present:              Shri R.S.Mann,Chairman.

                                    Shri L.S.Deol, Member.

 

For the petitioner:       Shri R.K. Millu, Vice President, Rana Sugars Ltd.

 

For the PSEB:             Shri H.C.Sood,  EIC/ Commercial,

                                    Shri B.D.Bansal, Director/ Sales.

Shri  V.K. Shanan, Dy. Director/ Sales.

 

For  PEDA & Govt.:  Shri  S.S.Sekhon, Director.

Shri M.P.Singh, General Manager/ Projects.

 

 

ORDER:

        

 

1.    This petition has been filed by M/s. Rana Sugars Limited praying for approval of tariff for sale of surplus power to the PSEB from the captive power generating system of the company in line with the previous policy and conforming to new NRSE Policy, 2001 for ‘old projects’ stipulating a tariff of Rs.3.01 per kwh for the base year 2000-01 and for 2001-02 @ Rs.3.1603 per kwh with 5% hike every year upto 2007-08 as per LOI dated May 14, 1997 and PPA dated June 6, 1999 or as specified in the NRSE Policy, 2001 as the Commission deems fit.  

 2.   It is stated in the petition that sugar factory of 2500 TCD of the petitioner was  initially commissioned in December, 1993 at Village Butter Seviyan, Tehsil Baba Bakala, District Amritsar. Later,  capacity of the factory was expanded to 5000 TCD.  The factory had its own power generating system of three STG sets of 11 MW capacity to meet its captive demand and had 4 MW surplus power for export to the Board.   Besides, the petitioner decided to set up a co-generation project for 10.2 MW capacity under the scheme of  ‘National Programme on Bagasse Based Cogeneration’ of Government of India, Ministry of Non-conventional Energy Sources circulated on October 31, 1996.  This project was one of the twelve Demonstration Cogeneration Projects set up in sugar mills in major sugar producing states of the country.  Under the scheme, the petitioner was sanctioned equity of Rs.255 lacs from the State Government based on Rs.25 lacs per MW of surplus power with reference to anticipation of 10.2 MW surplus power.   Under the scheme, the petitioner also obtained sanction of loan of Rs.1660 lacs from IREDA in ADB line of credit and also obtained first disbursement of Rs.200 lacs in May 1999.  The sanction of loan by IREDA was based on a Letter of Intent issued by the PSEB offering to purchase electricity at the rate of Rs.2.25 per unit with no restriction of time or quantum of electricity supplied for sale.  As per LOI, payment against the energy sold to the Board was to be made after signing of PPA.  It is stated by the petitioner that nomenclature of the scheme was changed by MNES vide their circular dated July 29,1998 which also contained details of financial assistance meant for Demo Projects, one of which was the petitioner’s project.  The petitioner applied for the Central Financial Assistance under this circular and obtained sanction of Government of India for the Demo project vide its letter dated September 29, 1999. The revised financial assistance included ‘promoters equity’  (Rs.711.50 lacs), ‘capital subsidy  to be provided by Government’ (Rs.430.04 lacs), ‘grant from the Ministry to the  FI’ (Rs.755.71 lacs), ‘grant from USAID’ (Rs.169.96 lacs), ‘Fresh Equity contribution by Government of Punjab’ (Rs.255 lacs)  and ‘Revised Term Loan from IREDA’ (Rs.49.29 lacs)’  totalling upto Rs.2371.50 lacs.  The project was completed and commissioned in March 2002 and was continuously running and exporting power to the Board till May 2003.  The petitioner also received payment from the Board at the interim rate of Rs.2.60 per unit pending signing of PPA.  The Board issued guidelines for purchase of electricity from cogeneration plants on October 26, 1998 adopting  MNES guidelines.  The petitioner also executed PPA with the Board on June 11, 1999 for purchase of 4 MW surplus power from 6 MW TG Set both in season and off season.  This was with reference to the then installed total capacity of 11 MW from 3 TG Sets.

 

3.   The petitioner has further stated in his petition that the Government of Punjab brought out its NRSE Policy, 2001 on July 24, 2001 detailing incentives to be allowed to NRSE Projects.  According to the petitioner, project of the petitioner is covered under ‘Old Projects’ of the NRSE Policy of Government of Punjab and is therefore entitled  to the rate of Rs.3.01 per unit with base year 2000-01 and annual escalation of  5%  upto  2004-05.  The petitioner has given arguments to support the classification of the project under ‘Old Projects’ under NRSE Policy 2001 of Government of Punjab.

 

4.   The petitioner has concluded that the cogeneration project of 10.2 MW should be treated as extension of the earlier 4 MW cogeneration project and as such should be classified as ‘Old Project’ for the purpose of granting benefit under NRSE Policy, 2001.  In support of his argument, he has stated that the project was approved by the Project Approval Board of the Government of Punjab in June 2000 and Tripartite Financial Collaboration Agreement was signed in March 2000 with PEDA on behalf of the State Government for equity participation of Rs.255 lacs and that as these developments have taken place before promulgation of the NRSE Policy, 2001, the project is logically to be treated under ‘Old Projects’ and not ‘New Projects’.

 

5.   It is further stated in the petition that the petitioner has accordingly been approaching the Board for entering into PPA for 10.2 MW cogeneration project providing for rates specified for ‘Old Projects’ and that the Board is however not willing to agree on this but insists on treating the project as New Project,  thereby reducing the rate as well as annual escalation.    The petitioner has further stated that the Board is not even honouring its PPA for 4 MW surplus power signed in June 1999 and is insisting on a fresh PPA for purchase of this power.  The Board has not even made regular payment to the petitioner for power sold from 4 MW surplus power since February 2002.   Resultantly the petitioner is suffering a great financial loss as he has invested a sum of Rs.32 crores in setting up  the project. Delay in tariff rate determination is affecting financial viability of the project.

 

6.   It is further stated in the petition that on representation made by the petitioner, PEDA has supported the petitioner’s contention regarding classification of the project under ‘Old Projects’ specified in the NRSE Policy of the Government of Punjab.  The petitioner has further stated that his representation to the Board on the matter has been ignored by the latter inspite of the fact that the Board has already offered rate of ‘Old Projects’ in some other cases namely Jalkheri Project given  on lease to a private party by the Board.  The Board has agreed  to interim rate of Rs.2.60 per unit on account of dire need of power but is insisting on approval of Commission on tariff.  The petitioner has further stated that the average market price/cost of Bagasse and other Biomass has considerably escalated.  The cost per unit has also gone up and the tariff provided in the existing PPA for 4 MW project should be applied to the new 10.2 MW cogeneration project as well.  The petitioner having no alternate remedy, has approached the Commission.  He has also referred to the directions of the State Government to the Commission under Section 39 of the E.R.C. Act 1998 to comply with the NRSE Policy, 2001.

 

7.   In view of all above, the petitioner has finally concluded that the project is covered under the scheme ‘National Programme on Biomass Based Cogeneration’ formulated by the Government of India.  The guidelines issued by  MNES were adopted by the Board and are therefore binding on it.  The term loan was sanctioned by IREDA and MNES adopted the project as Demo project and sanctioned CFA on the basis of Letter of Intent issued by the Board.  Now, when the project is completed and commissioned, it is not appropriate for the Board not to abide by the terms and conditions of  the LOI and sign  PPA accordingly. Principle of promissory estoppel prohibits the Board from going back on its assurance as the petitioner has already implemented the project successfully on the basis of  LOI of the Board.  Further, the Board has already signed PPA with the petitioner to accept  4 MW power from its earlier cogeneration plant.  Tariff fixed as per the MNES guidelines was adopted by the Board in toto for this purpose.  The petitioner has been exporting surplus power and the Board has been paying for the same on monthly basis continuously upto February 2002. The rate for the year 2001-02 as per this PPA was Rs.3.16 per unit.   The same principles for determination of rate and other terms and conditions should apply for the new cogeneration plant as well.  The Board has itself granted permission for installation of 12 MW TG Set which has since been commissioned in March 2002.  However, the case for amendment of PPA was moved by the petitioner with the Board in March 2001 which still remains to be decided.  NRSE Policy, 2001 is clear on the matter.  The petitioner fulfills requisite qualification and the State Nodal Agency namely PEDA has already recommended the petitioner’s case to the Board for treating the project under the category ‘Old Projects’ and as such there should be no doubt or reason for delay in the matter.  MNES guidelines have been issued after due deliberations, experts opinion and Technology Consultancy.  The Model PPA is circulated by MNES for successful implementation of the programme which has been adopted by the Board and as such,  it is not justifiable for the Board to go back from its commitment at this belated stage.  The Board should also honour the LOI of May 1997 and the tenure of PPA for 10 years provided therein.  The Board, when it was short of power in May/June 2002 , requested the petitioner for supply of power.  The petitioner having procured raw material at exorbitant cost has supplied the power to the Board in public interest.  However the Board is making payment only at the interim rate of Rs.2.60 per unit as the final payment is still pending signing of PPA.  The Commission has already decided similar five petitions filed by Private Power Developers for signing of  Power  Purchase Agreement with the Board.  This decision of the Commission is applicable to the petitioner as well,   as he is similarly placed.

 

8.   Notice of motion to the respondents namely the Board and PEDA was issued on August 4, 2003.  The Board filed its reply on August 27, 2003.  PEDA sent request for extension of time upto September 22, 2003 for filing reply.  The petition was taken up for hearing on August 27, 2003 and extension of time upto September 15, 2003 was allowed to PEDA.  During oral discussions, it was noted by the Commission that some material points were missing in the reply filed by the Board.  The Board’s representative agreed to file amended reply by September 15, 2003.  The petitioner was allowed to file rejoinder,  if any,  by September 22, 2003.

 

9.   The PEDA submitted its reply on September 16, 2003.  The Board also filed amended reply on September 23, 2003 and the petitioner filed rejoinder on September 30, 2003. 

 

10. The petition was taken up for hearing on September 30, 2003.  On the request of the petitioner, Secretary to Government of Punjab, Department of Science and Technology, Environment and Non-conventional Energy Sources was allowed to be impleaded as respondent in the petition.   The Board was directed to file detailed reply in respect of points raised during the hearing upto October 31, 2003.  Secretary Science and Technology was allowed to file reply by the same date.  The petitioner was directed  to file his rejoinder,  if any,  by November 14, 2003.

 

11. Shri S.S.Sekhon, Director PEDA filed reply on behalf of Secretary, Science and Technology on November 3, 2003 and the Board filed reply on November 11, 2003.  The petitioner filed rejoinder on November 17, 2003. The petition was heard on December 1, 2003 and it was noted by the Commission that reference already stood made by the Commission to the Government seeking clarification about the decision of the Government on review/recast of NRSE Policy, 2001 and the intention of the Government about the applicability of the guidelines dated February 18, 2003 for ‘future projects’ and interpretation of the term ‘future projects’.  As the response of the Government was still awaited and the same was considered necessary by the Commission before taking a decision in the petition, the petition was adjourned to January 14, 2004.  Meanwhile the petitioner was directed to file cost analysis relevant for tariff fixation as desired by the Board.

 

12. The petitioner filed cost analysis as desired by the Commission on December 12, 2003. Government sent its response on January 6, 2004 to the reference made by the Secretary, PSERC to the Chief Secretary to Govt. of Punjab dated August 26, 2003 seeking clarification of the Govt. on review/ recast of NRSE policy and intention of the Govt. about applicability of the guidelines dated February 18, 2003 for future projects and interpretation of the  term ‘future projects’.  In that response, it was stated that cut off date for extending the benefit of NRSE Policy, 2001 to the projects is fixed as November 30, 2003 and that the Commission may permit PSEB to buy power from the private developers whose petitions were filed with the Commission before this cut off date  at the rates provided under the NRSE Policy,  2001 and full cost of power so purchased may be allowed to be passed on in the ARR of the Board and  loaded to the consumers.

 

13. Arguments were heard partly on January 21, 2004 and the petitioner was directed to explain as to why ABT principle of tariff determination should not be followed in view of the implementation of the same at all India level with effect from  December 1,   2002.

 

14. The petitioner made further submissions on January 30, 2004 and February 19, 2004  regarding points raised by the Board on the cost analysis submitted by the petitioner and the applicability of ABT tariff on power purchase from NRSE projects.

 

15. The petition was heard on February 11, 2004.  The arguments put forward by the petitioner, PEDA and the Board were heard.  It was contended on behalf of the petitioner that his project of 12 MW is covered under NRSE Policy as the same was only an extension of his already existing project of 4 MW. It was further contended by the petitioner that MOU and Implementation Agreement for the project was signed well before March 2001 and as such the project was covered under ‘Old Projects’ and not ‘New Projects’ for the purpose of determination of benefit including rates for purchase of power to be applied for this project under the NRSE Policy. PEDA confirmed entering into MOU and Implementation Agreement with the petitioner prior to the issue of the revised NRSE Policy, 2001. As such, PEDA contended that the petitioner was entitled to the benefit allowable to ‘Old Projects’ under NRSE Policy, 2001.  The Board on its part contradicted the stand taken by the petitioner that the project of 12 MW was an extension of the earlier 4 MW project. According to the Board, earlier project was cogeneration project while later 12 MW project was an IPP.  It was contended on behalf of the Board that the question therefore remains restricted only to 12 MW project which is to be treated independently and not as an extension of earlier 4 MW project.  Regarding 12 MW project, the Board further stated that it is not aware either of the fact of MOU or Implementation Agreement having been entered into by the petitioner with PEDA. The Board desired copies of these documents to enable it to frame its comments thereon. The  petitioner was accordingly directed by the Commission to file copies of MOU and Implementation Agreement stated to have been entered into between PEDA and the petitioner.  Copies of the same were also to be supplied to the Board within three days.  The Board was to file its comments thereon within a week thereafter.

 

16.   The petitioner accordingly filed copies of Tripartite Collaboration Agreement dated March 28, 2000 on February 24, 2004 with advance copies to the Board. The Board also filed its submissions on March 11, 2004.

 

17.   The Board in its amended reply filed on September 23, 2003 confirmed entering into PPA with the petitioner on  June 11, 1999 for supply of 4 MW of surplus power to PSEB Grid.  The Board has, however, contended that this PPA is restricted only to supply of power from 4 MW plant  and not beyond,  as letter dated  14.5.1997 was in response to petitioner’s letter dated 3.5.1997 for sale of 4 MW of power only. The Board further stated that the approval of the Board for installation of 12 MW TG set to run in synchronism with the PSEB system contained a clear stipulation that the power from this system shall be treated as dumped power till PPA is executed as is clear from their letters dated March 5, and March 14, 2002.  According to the Board 12 MW project of the petitioner is a ‘future project’ as per reference of the Government dated February 18, 2003 and as such needs to be given rates after the review/ recast of  NRSE Policy, 2001.  It is further stated that the rate of Rs.2.60 per kwh has been allowed for purchase of power from 12 MW project only on ad hoc basis.  PSEB has been insisting that this is separate project and as such needs to be metered separately and paid according to the terms and conditions applicable to ‘future projects’. PSEB has further stated that with  enactment of Electricity Act 2003, tariff fixation is now required to be done as per the provisions of this Act.  Accordingly competition, efficiency and economy are to be promoted under section 86 (2) of the Act. Economy is therefore to be ensured in power purchase also.  Cogeneration is the costliest  power even in comparison to nuclear energy where rates allowed by the Commission are Rs.2.66 per unit for NAPP and Rs.3.45 for RAPP.  Concept of administered tariff is against concept of ‘competition, efficiency and economy’ contained in the Act and as such is not sustainable. Further,  tariff is to be determined as per the National Tariff Policy.  The Board has further emphasized that PPA signed by the Board with the party is for purchase of 4 MW power only and that any additional agreement with the party will need complete scrutiny to safeguard consumers’ interests.  The capacity addition of 12 MW is without following procedure laid down in NRSE Policy, 2001 and as such the petitioner is not entitled for benefits under this policy.  Even NRSE Policy, 2001 is being reviewed by the Government as per commitment given by the Government to the Commission and for the rates to be allowed, the petitioner shall have to wait for the orders of the Commission before entering into PPA for the additional capacity.  It is further stated that import of 4 MW of surplus power produced from 6 MW plant  of the  Sugar Mill is a by-product which is, in fact, cogeneration i.e. generation alongwith production with the same steam.  On the other hand,  for the additional plant of 12 MW, Bagasse is being arranged from other sources with commercial point of view and as such the same needs cost analysis by the Commission before execution of PPA. The Board has also stated that the petitioner has been asked by it to meter the generation from the capacity addition separately. The petitioner is however presently taking it on the same bus to claim old PPA rate.  The Board has also stated that the NRSE Policy,  after review by the Government,  can only determine the status of the project especially in view of the fact that with the applicability of ABT to interstate transfer of power, PSEB is able to get supply of power almost free of cost during high frequency hours of the day.

 

18. Finally,  it is stated that the Board has no commitment for importing any additional power beyond 4 MW.  The payments against energy supply upto February 2002 as per PPA for 4 MW has already been cleared. The supplies from additional capacity are merged with the supplies from 4 MW plant and as such, payment for supplies after February, 2002 at the rate of Rs.2.60 per unit is being made on adhoc basis subject to final adjustment.  MNES guidelines are not existing in the changed scenario and the rate and terms and conditions to be made applicable to purchase of power from NRSE Projects are subject to scrutiny by the Commission. In view of applicability of ABT and consumers interest, burden of high cost power import from IPPs needs critical cost analysis by the Commission.  The Board has no commitment to purchase high end power ignoring the interest of the consumers.  According to the Board, the petitioner has misinterpreted letter dated May 14, 1997 of the Board as LOI for future agreement and this interpretation has been denied by the Board.

 

19. The Board has accordingly prayed that as the consumer is utilizing its Bagasse being generated at its  own sugar plant against 6 MW generation,  the second 12 MW plant needs to be treated as IPP and the generation should be metered separately and rate decided by the Commission after critical cost analysis.  Further,  the proposed addition of power generation is not cogeneration as it is not linked to the process of production of sugar which is required to go hand-in-hand.  Additional generation from twelve MW  plant by the  petitioner by purchasing primary fuel from open market renders it the status of IPP under non-conventional sources of energy and critical cost analysis needs to be made before the rates of supply of power from the same are finally approved by the Commission.  To this purpose, petitioner needs to be asked to place cost analysis on record and PSEB afforded suitable opportunity to file its comments on merits in line with the  National Tariff Policy.  The developer, as such, cannot claim to be covered under NRSE Policy for his capacity addition.  Regarding the claim of the petitioner that the letter of the Board dated May 14, 1997 be treated as LOI to cover its second project by the terms and conditions of PPA dated June 11, 1999,  the petitioner may be asked to accept firm rate of power at the rate of Rs.2.25 per kwh on the total energy export to PSEB Grid.  The project should be treated as new/future project taking into consideration the view point of the State Government as conveyed vide its letter dated February 18, 2003.

 

20. PEDA vide its reply filed on September 16, 2003 has stated that it is the State Nodal Agency and is responsible for promotion and development of renewable and non-conventional energy sources.  PEDA is mainly corroborating the petitioner’s version and has confirmed setting up of cogeneration project of 10.2 MW capacity under the scheme ‘National Programme on Bagasse Based Cogeneration Programme’, contribution of equity of Rs.255 lacs from the State Government through PEDA for this project and sanction of term loan of Rs.1660 lacs from IREDA for the purpose. It has also confirmed commissioning of the project on March 1, 2002. It has also confirmed signing of PPA by the Board with the petitioner for purchase of 4 MW of surplus power from the old plant. It has specifically stated that the petitioner’s project is covered under   ‘Old Projects’ specified in NRSE Policy, 2001 as PEDA has signed Tripartite Financial Collaboration Agreement with the petitioner on March 28, 2000 and the project was also approved by the Project Approval Board of the State in its meeting held on June 28, 2000.  According to PEDA, the Board should consider signing of PPA as per tariff specified for ‘Old Projects’ category under the NRSE Policy, 2001. This is especially in view of the fact that the petitioner went ahead for setting up the project after obtaining approval of the Board for purchase of power from the cogeneration project as per their letter of May 14, 1997 on the basis of which the project was given equity / loan from the Government of India and financial institutions.  Finally, it is prayed by PEDA to approve the petition in the interest of  justice and fair play in line with Tariff Order dated April 8, 2003 of the Commission issued for similar NRSE projects.

 

21. The petitioner filed rejoinder on September 29, 2003.  The petitioner has mainly reiterated the facts and arguments as brought out by him in his original petition.  In addition the petitioner has claimed that he has made request and conveyed his intention to supply 10.2 MW of surplus power to the State Government and the Board on number of occasions and at different stages.  He has quoted number of references and documents in this connection.  Finally, he has based his arguments on the LOI dated May 14, 1997 of the Board which according to him was for composite project of 14 MW and not only for 4 MW  but also for the power generated as such from 10 MW unit.  4 MW was incidental surplus power as a result of immediate expansion of capacity of sugar mill. He has also stated that the petitioner had applied for permission in March, 2001 but the matter remained pending in seeking clarifications and finally permission was granted only in May, 2002.  The petitioner also protested about the clause treating power as dumped power and the Board finally agreed to meter the supply and pay rates to be decided by the Commission.  He has further concluded that the project cannot be treated as a new or  a future project.  He has also quoted references from the Board regarding augmentation of Grid Station to support his claim. It is also stated in the rejoinder that the inference drawn by the Board from the letter dated May 14, 1997 that maximum power to be evacuated was 4 MW, is wrong.  The petitioner has stated that it is an old project as it was appraised much before the advent of NRSE Policy,  2001 and that there is no effect on its status even if the NRSE Policy, 2001,  is reviewed.  The interim payment @ Rs.2.60 kwh is just to enable the project to survive and is hardly meeting the cost of power generation.  Petitioner’s Unit is not a future project but is an old project.  Moreover, it is a demo project to become a precedent for other sugar mills to follow. The Electricity Act, 2003 does not have retrospective operation and does not take away the existing rights of the petitioner. The tariff claim of the petitioner does not violate the provisions of the Act.  It is further stated therein that reference to the Electricity Act, 2003 is misconceived as Section 3 of the Electricity Act, 2003 has no application to fixation of tariff between the petitioner and the Board as the same is governed by the commitment made. It is further stated that the petitioner is not aware of the background of State Government decision made vide letter dated February 18, 2003 wherein certain amendments in NRSE Policy had been attempted with regard to transmission losses and the cost of grid connection in the case of  hydel projects decided by the Commission on April 8, 2003.  It is further stated that the contents of letter dated February 18, 2003 are not approved by the CMM which is the competent authority to amend NRSE Policy.

 

22. During the hearing held on September 30, 2003, the Commission raised some points and the Board filed its submissions regarding the same on November 11, 2003.  One of the points raised by the Commission was that the developer was granted permission for export of 4 MW power vide letter dated May 14, 1997 wherein it was stipulated that payment shall be made only after signing of PPA, however, the payment was actually started by the Board before signing of the PPA on June 11, 1999. The Board has responded that the first payment against the purchased power was made on July 29, 1999  i.e. much after the signing of the PPA.  The Commission further questioned that PSEB allowed firm rate of 225 paise /unit vide letter dated May 14, 1997 but delay in execution of PPA caused PSEB to purchase power at much higher rate, which was avoidable.   To this, the Board has replied that there was no deliberate delay in signing the PPA. Rather, it was because the necessary draft PPA being first of its kind, remained under consideration of the Board and it took some time to get the same analyzed  with reference to  the  PPAs. of other licensees in India.  Further, the Commission raised the point that even in March 1997 and October 1998,  variable rates existed. As such, how did  PSEB first resort to the firm rate of 225 paise/unit and  later, on its own,  shifted to variable rate.  The Board has responded  that co-generation was a new subject for the PSEB . With the passage of time, MNES guidelines in respect of such projects were considered by the  Board and it was decided to adopt variable rates.  The Commission also questioned as to how the interim payment of 260 paise/unit was started without getting the approval from the Commission and when the Board had intimated the party that the power supplied would be treated as “dumped power”. To this, the Board replied that PSEB was in need of power during paddy season and as such, it was decided by the Board to allow export of power to PSEB from the petitioner at the cost of thermal generation at Lehra  Mohabat Thermal Plant subject to final adjustment after the matter regarding tariff was decided by the Commission.

 

23. Reply to the petition was filed by the State Government on October 31, 2003 in which it was requested that petition of the petitioner may be allowed in line with order dated April 8, 2003 passed by the Commission. 

 

24. The petitioner filed counter reply to the reply filed by the State Government.  A reference was made in the reply to the letter of the Govt. dated February 18, 2003 wherein Government of Punjab had issued the amendment to its earlier directions informing that the cost of transmission lines/ works required to be laid for evacuating power to the nearest grid substation shall be borne by the petitioner / developers. It was stated by the petitioner that the contents of reference of the Government dated February 18, 2003 cannot be considered as binding on all the parties, especially with reference to bearing the cost of transmission lines and other equipment in view of the specific provision in NRSE  Policy, 2001, Appendix-II,  Physical and Financial Incentives, Para 3, in which it is provided that the total cost for this purpose is to be  borne by the Board and that the NRSE policy, 2001 has not been amended.  It is further stated in the counter reply that order of the Commission dated April 8, 2003 is as a consequence of the consent of all the petitioners in those petitions to bear the cost of transmission lines etc. themselves.  It is further stated that it was the prerogative of the parties in those petitions to forego any incentive provided in the policy and the decision cannot be made applicable to the other petitioners.  It is further stated that order dated April 8, 2003 of the Commission cannot be made applicable to this  petition as the facts of this petition are in a way different from the composite case of the petitioners  in those cases in so far as Board has already executed the transmission lines/ works as per PPA at its own cost and is importing power from this petitioner’s unit w.e.f. January 13, 2001.

 

25. The petitioner also submitted counter reply to the clarifications made by the Board on November 11, 2003 referred to in Para 20 above.  The petitioner submitted that LOI dated May 14, 1997 was on account of inbuilt system developed by the petitioner while extending its capacity from 2500 TCD  to 5000 TCD.  The petitioner further reiterated his stand as stated in the petition and the rejoinder.

 

26. The Commission has considered the facts given in the petition, replies of the respondents, the rejoinders of the petitioner and other relevant facts connected with the case.   The arguments of the parties have been fully heard.

 

27. The Commission notes that the two references issued by the State Government on October 28, 2002 and February 18, 2003 directing the Commission for compliance of NRSE Policy, 2001 of the Govt. of Punjab are in conformity with Section 39 of the ERC Act, 1998 as these have been issued in writing and they pertain to matter of policy involving public interest.  They are also in line with similar policy being followed by the Govt. of India and many other states in the country.  Accordingly, the Commission has already accepted these references of the Government as directions under Section 39 and has also followed these in other similar petitions.  Further vide letter dated January 6, 2004 the State Government has fixed the cut off date for extending the benefit of NRSE policy 2001 as November 30, 2003. Thus the scope of extension of NRSE Policy, 2001 in its present form is clearly limited to the petitions filed before the Commission upto November 30, 2003. The total generation capacity from all these projects is negligible and as such the  financial implication of extension of NRSE policy for  these projects shall not be significant.  In view of all above, the Commission decides to accept the clarification of the Government stating that  ‘future projects’  mean projects relating to petitions filed before the Commission after November 30, 2003. Accordingly the Commission considers it appropriate to go by the Government directions for the pending petitions, including the present one for all matters except the ones discussed below.

 

28. The  main question before the Commission is whether the project is covered under the NRSE Policy and if so, whether the same is to be considered as an ‘Old Project’ or as ‘New Project’.  To this effect one associated question getting linked to the question of whether the project is covered under the NRSE Policy, is whether the same is an extension of the petitioner’s earlier project of 4 MW or not.  There is clear dispute on this latter issue.  While the petitioner claims his 10.2 MW project as an extension of the earlier 4MW project, the Board has disputed the claim.   The relevance of the question is on account of the fact that earlier 4 MW project of the petitioner has already been accepted as an NRSE project by the Board and power generated from this project is being imported to the grid of the Board under the agreement signed between the petitioner and the Board and was being paid at NRSE rates.  The situation slightly changed after the commissioning of the new project as the petitioner did not meter the power inputs of the new projects separately while the Board insisted on the same and refused to make payment of the combined input from both the  projects at the old project rates.  Lately, the Board has been making payment for the combined input at an adhoc rate of Rs.2.60  per kwh subject to final adjustment after passing of orders by the Commission.

 

29. In this connection, the Commission notes  that in view of the detailed facts given in Para 2,  which are not contradicted,  and the  sanctions and financial support received  from the Central and the State Governments for the co-generation project of 10.2 MW capacity of the petitioner, there is no doubt that the  project was sanctioned under the ‘National Programme on Bagasse Based Co-generation’ scheme of the Government of India, Ministry of Non-Conventional Energy Sources (MNES) .  It is also noted that the petitioner’s statement that the nomenclature of the scheme was changed by the  MNES, was  perhaps  as a result of misconception as the  reference of the Government of India quoted by the petitioner is only a sanction  for a particular year and does not involve any change of nomenclature.  In any case, this fact is immaterial as the same does not affect the nature and purpose of the project.  This also did not affect  release of the financial support from the Government of India, Government of Punjab and other financial institutions which came later on.  The Commission also notes that the 10.2 MW project was  completed and commissioned in March, 2002.

 

30. As pointed out by the petitioner, the project is covered under the ‘National Programme on Bagasse Based Co-generation’ scheme formulated by the Government of India.  The guidelines issued by MNES were adopted by the Board. The term loan was sanctioned by IREDA and MNES adopted the project as a demo project and Central Financial Assistance was also sanctioned  and released on the basis of Letter of Intent (LOI) issued by  the Board.  In view of all the above facts, there seems to be no doubt that the project was conceived and started only on the basis of incentives provided to the projects under MNES guidelines of the Government of India.  The Punjab State Electricity Board itself has adopted the same vide their circular letter dated October 26, 1998 which clearly goes on to state, “In order to widen the scope of generation and encourage setting up of non-conventional  based power plants, matter has further been considerd and it has been decided that MNES guidelines be mainly followed for the purchase of power  from all IPPs/ Co-generation units including sugar mills who are interested to develop other non-conventional  sources of energy for production of power.” The Policy also included purchase of power  @ Rs.2.25 per kwh as the base rate for the year 1994-95 with annual escalation of 5% for the first ten years from the date of signing of PPA as per the guidelines issued by the MNES.    The Policy further goes on to state that “ rate for purchase of power from all non-conventional energy sources based power plants/ mini hydel  plants/ co-generation plants including sugar mills shall be Rs.2.73 per kwh for the year 1998-99. This rate shall be uniform throughout the day for the entire year. The Board would not be liable to pay any additional amount on any account”.  In view of above, it is clear that the Board had itself adopted the policy of making power purchases from all non-conventional energy sources based plants at the rate  worked out with reference to the rate of Rs.2.25 per Kwh as the base rate for the year 1994-95 with 5% escalation every year.

 

31. The Board has given detailed reply dated September 23, 2003 which has been dealt with in Paragraph 17, 18 & 19 above.  The Board has dealt with different issues. It has contradicted the stand of the petitioner that the ‘New project” is an extension of the earlier 4MW project and has also stated that the PPA signed with the petitioner on June 11, 1999 was only restricted to purchase of power from old 4 MW plant and not for power from the new addition.  The Commission feels that the question whether the new plant is an extension of the earlier unit or not is not as relevant as the issue of nature and purpose of the new plant and whether the same is a non conventional energy source plant or not.  Even taking the new plant as a different project and not as an extension of the earlier unit, if the same is using non conventional energy fuels, the same should be entitled to the benefits already approved by the Board through its own policy of October 26, 1998.   Having provided for purchase of power from such plants at a particular rate, the Board does not have much locus standi to discuss the optimum costs in power projects on this account.  In any case, the Board is itself a party to the formulation of the NRSE Policy and the amendments therein by the Government of Punjab.  There is, therefore, no reason for the Board to make exception for this single project.  The questions of determination of tariff by the Commission under the provisions of the new Act and ensuring competition efficiency and economy therein, as raised by the Board are equally relevant for other NRSE projects as well and these cannot be made a ground for making  exception in this individual project alone.  In any case,  this project was commissioned even before coming into force of the Electricity Act, 2003 and as such, there is no justification in applying the provisions of this Act on the project in question. The Commission  may even accept the version of the Board that earlier PPA dated June 11, 1999 was restricted to purchase of power from 4 MW plant of the petitioner only.  However, this does not justify the Board’s action in not entering into PPA with the petitioner for the new non-conventional energy source project inspite of its earlier approval of the general policy vide its letter dated October 26, 1998. The Commission  notes  that even the Board has not challenged the fact that 10.2 MW project of the petitioner is a Bagasse based project and uses non-conventional energy fuel.  In view of this, the Commission does not understand or appreciate the attitude of the Board in opposing the grant of NRSE rates for purchase of power from this project when it has itself accepted such rates for other projects in view of the directions of the Government on the matter.

 

32. If the project is an NRSE project, it should automatically be entitled to the same rates and other terms & conditions as applicable to other similarly placed NRSE projects.  In that case, the fact of incorporation of the condition to the effect of power from this plant being treated as dumped power in the Letter of the Board dated March 14, 2002, also does not have any relevance to the rates allowable for power from the project.  So is the case with the fact of adhoc payment @ Rs.2.60 per kwh for this power by the Board as an interim measure. Similarly, real cost of generation of power being incurred does not have much relevance to determine the basic question of whether the project is covered under NRSE policy or not.

 

33. The Board has contradicted the petitioner’s version that the project should be treated as an old project  under the NRSE Policy, 2001.  However, the PEDA  and the Government have strongly supported  the contention of the petitioner.   The Commission notes that under the NRSE Policy, 2001,  those projects are to be covered as old projects only if MoU / Implementation Agreement have been signed before the date of issue of the Policy i.e. before July 24, 2001.  In this case, the Commission notes that  Tripartite Financial Collaboration Agreement  has been signed on March 28, 2000.    It has been argued by the Board that MoU and Implementation Agreement  have not been signed and as such, it can not be covered under the NRSE Policy in the category of old projects.  Further, it is stated that the Tripartite Financial Collaboration Agreement signed in the case is vastly different from that of MoUs and Implementation Agreements signed for other  NRSE projects.  The Commission notes that in this case, the project has been commissioned in March 2002. The orders for the machinery were placed between December 1999 to April 2000 i.e. well before the issue of the NRSE Policy,2001.  Sanction for Central Financial Assistance was also given on September 29, 1999 i.e. well before the issue of  NRSE Policy,2001.  The Tripartite Financial Collaboration Agreement which is the main Agreement for the project indicating collaboration from the Government  has also been signed on March 28, 2000 which is again well before the issue of NRSE Policy.  Thus, on all these counts, the project clearly qualifies to be an old project under the NRSE Policy, 2001.  The point of difference in the nature of agreements being signed for this project and other NRSE projects raised by the Board is perhaps only on account of the fact that this project involved equity participation by the Government and thus required a different format of agreement.  In any case, the financial support from the Government having been received and the whole project having come up on the basis of this agreement, this fact alone cannot be used to negate the basic nature of the project .

 

34. In view of all above, the Commission has come to the conclusion that the project of the petitioner is clearly of the nature so as to justify it as an NRSE project.   Accordingly, the same is covered under NRSE Policy 2001 of the Government of Punjab.  Further, in view of the facts discussed above, the project is to be covered as an ‘old project’ and is entitled to the  rates for purchase of power accordingly.

 

35. The Govt. of Punjab had issued a policy directive to the Commission requiring the latter to implement the NRSE Policy, 2001.  In response to some queries raised by the Commission, the Govt. of Punjab through their letter dated 18-02-2003 issued certain clarifications/modifications of the NRSE Policy, 2001.  One of the changes made is as follows:-

“Since the transmission lines works required to be laid for evacuating this power to the nearest PSEB Grid Sub Station could not be included in the ARR (being capital expenditure), this cost should be borne by the Developers (except for PPAs already signed with PEDA)”

 

In some of the petitions decided separately by the Commission pertaining to the NRSE Policy, 2001, The Commission took the view that even though the Government had formulated the NRSE Policy, 2001 and had subsequently issued a directive to the Commission to implement the policy, the Commission was within its rights to test the   contents of this policy against the provisions of the Act.  However, for the sake of expediency and for the reasons recorded in the orders deciding those petitions,  and  briefly mentioned in para 27 above, the Commission decided to adopt NRSE Policy, 2001 as clarified/modified by the Govt. of  Punjab’s letter dated February 18, 2003 and Govt. of Punjab letter dated January 6, 2004.  The only change made in this policy by the Commission is with respect to transmission losses which matter is discussed in para 36 below.  As indicated above, the Govt. of Punjab has now decided that the cost of works connected with evacuation of power is to be borne by the Developers. This position has been accepted by the Commission and it has been applied accordingly to the petitions pertaining to NRSE Policy and decided earlier by this Commission.  In the present case, it is understood that the required works have already been completed by the PSEB at their own cost.  The petitioner pleaded that since as per the original NRSE Policy, 2001, such a cost was to be borne by the PSEB, the petitioner should not be burdened with these costs at this stage.  The Commission is unable to accept this plea.  The Commission has decided to accept the NRSE Policy, 2001 as clarified/modified subsequently by the Govt. of Punjab and the Commission did not choose to probe the matter deeper as per the provisions of the Electricity Act, 2003 in the interest of expediency and for other reasons.  The petitioner cannot claim it as a matter of right that each and every provision of the original NRSE Policy, 2001 should be followed by the Commission.  The interests of the consumers are of equal importance and it has to be meticulously decided as to which costs are to be allowed to be passed on to the consumers.  In the instant matter, it is the view of the Commission that this particular cost item should be borne by the Developer himself. If the expenditure has already been incurred by the PSEB on erecting the works, the Board would be fully entitled to recover the cost from the Petitioner.

 

36.       As per sub clause (v) of Government letter dated February 18, 2003, the Govt. has stipulated that the developers may be allowed to install suitable metering at their generating end to record the generation made for sale to PSEB and billing be done on the basis of readings recorded by the meter installed at the generating end and the power available for sale to PSEB to be included in the ARR, shall be units so generated and recorded less 5% for transmission losses. The Commission feels that it is not desirable for the Govt. to lay down a definite figure for transmission losses to be passed on to the consumers.  Transmission losses  which the consumers may be required to bear, should be only the actual transmission losses as determined by the Commission.  For a particular year, transmission losses may be above or below the figure of 5%. The Commission accordingly determines that the transmission losses to be allowed would be as per the actual losses for each year. The Commission feels that by this modification, the interests of the consumers will be safeguarded and none of the parties in this petition, stands to lose.  The Commission has followed the same principles for other similar petitions.

 

37.       In view of the above, it is decided that PPA in this case be approved at the rates as applicable to the old projects as per the NRSE Policy, 2001 and as per the directions of the Government dated October 28, 2002 as amended vide their reference dated February 18, 2003 except that the clause pertaining to 5% losses be amended to state that each year only assessed transmission losses be allowed to the PSEB subject to adjustment based on actuals. PEDA & PSEB may also ensure that during the total  period PPA is valid, the petitioner will produce power using only non-conventional source for which the project has been approved.  Also, in order to protect the interests of the PSEB and consumers in general, PEDA and State Govt. may take suitable steps to ensure that the petitioner continues to supply agreed quantum of power to the Board at prescribed rates during the entire period of contract under the NRSE Policy,  2001.

 

 

 

                                         Sd/-                                                                  Sd/-

                                    (L.S. DEOL)                                                    (R.S.MANN)

                                       Member.                                                      Chairman.

 

 

 

 

Place: Chandigarh

Dated:  June   21, 2004.

 

 

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