Petition No. 9 of 2006
Date of order:31.7.07
| In the matter of: | Petition for approval of Power Sale Agreement dated 23.03.2006, signed between PSEB and Power Trading Corporation India Ltd, New Delhi (PTC) for purchase of power from Bhilangana Hydro Electric Project and determination of tariff and related matters. |
| In the matter of: | M/S Nector Lifesciences Limited, District Mohali. |
| Punjab State Electricity Board, The Mall Patiala. | |
| Present: | Shri Jai Singh Gill,Chairman |
| Smt. Baljit Bains, Member | |
| Shri Satpal Singh Pall, Member | |
| For the Petitioner: | Shri Sunder Lal Shri Pankaj Gupta, Advocate |
| For the Board: | Shri R.P.Bector, Director |
1.1 The Punjab State Electricity Board (PSEB), filed this petition on May 2, 2006 before the Punjab State Electricity Regulatory Commission (Commission) seeking approval, of Power Sale Agreement (PSA) dated March 23, 2006 signed between PSEB and PTC India Limited, New Delhi (PTC), a company licensed to undertake interstate trade in electricity and incorporated under the Companies Act, 1956, with its registered office at 2nd Floor, NBCC Tower, 15, Bhikaji Cama Place, New Delhi – 110066. The PSA is for the supply of power from the 22.5 MW Bhilangana Hydro Electric Project (Project) being developed by M/s. Swasti Power Engineering Ltd. (Developer) in District Tehri Garhwal, Uttaranchal (now Uttarakhand).
1.2The Commission has noted that the Project in respect of which the PSA has been signed between PSEB and PTC is a run of the river project and will be a “must run” station with energy output corresponding to water flow in the river. Further, in terms of the Power Purchase Agreement (PPA) signed between PTC and the Developer, dated August 24, 2005, the latter has to supply 18% of the net wheeled energy (power output less wheeling charges adjusted in kind) from the Project to the State Transmission Utility in Uttarakhand as free power to the Government of Uttarakhand from the 16th tariff year up to the end of term of PSA in the 35th Year.
1.3The Commission has undertaken examination and the approval of the PSA filed by the Petitioner in accordance with and in exercise of powers vested in it under Section 86(1)(b) of the Electricity Act 03 (EA 03) which requires the State Commission to regulate electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State.
2.1 The EA 03 enjoins that a State Commission shall, in discharge of its functions, be guided by the National Electricity Policy (NEP), National Electricity Plan and Tariff Policy published under section 3. The Tariff Policy specifies that all future requirement of power is to be procured competitively by distribution licensees. The Commission has thus considered it necessary to examine whether the power procurement by PSEB as per this PSA is in accordance with the requirements of the Tariff Policy. The Commission’s attention has been drawn to the clarification sought by the CERC from the Ministry of Power (MoP) on the applicability of competitive procurement of power by distribution licensees as provided for by the Tariff Policy. MoP has clarified that generation projects which satisfy any of the following conditions would be deemed to be within the provisions of the Tariff Policy:
2.2 The Commission notes that Andhra Bank (A Govt. of India Undertaking and the lead banker for this project) has intimated that the proposal for funding this project was taken up by the consortium of banks on 1.2.2005. The Developer executed loan documents with the consortium (consisting of Andhra Bank, State Bank of Hyderabad, Indian Bank and Allahabad Bank) for meeting its term loan requirements on October 19, 2005. A copy of the extract of the Term Loan Consortium Agreement has been submitted by the Petitioner and subsequently confirmed by the Andhra Bank.
2.3 The Commission also observes that the final PSA between PTC and PSEB for sale of power from this project has been filed before the Commission by September 30, 2006. The said PSA is accompanied by a copy of the PPA signed between PTC and the Developer. The Commission accordingly holds that taking into account the clarifications issued by MoP, the PSA signed between PTC and PSEB for sale of power from this Project is clearly covered under exception (ii) above and in accordance with the Tariff Policy. It may also be noted that the word ‘utility’ used in the above mentioned condition has to be interpreted to include an entity such as PTC which in turn sells the power to a distribution licensee.
3.1 The salient features of the PSA submitted for the Commission’s approval are as under:-
3.2 The petition filed by PSEB for approval of the PSA between PSEB and PTC for purchase of power from the Project was taken on record on May 2, 2006. The petitioner was heard on 9th & 24th May, 2006. A public notice inviting comments/objections was issued on 16th and 17th May, 2006 and public hearing on the petition was held on May 24, 2006. No comments/objections were received.
3.3 The approach followed by the Commission in examining the PSA included an examination of the key issues set out below:
3.4 Need for Power
3.4.1 The Commission has in this regard taken note of Petition no.9 of 2005 filed by PSEB, for approval to initiate the bidding process for procuring 1000 MW of power on a long term basis, which the Commission has granted in its order dated April 10, 2006. As per the submissions made by PSEB in the said petition, the gross availability of power during FY 2011-12 is expected to be 8641 MW against the peak demand projections of 11000 MW as per 17th Electric Power Survey, thereby projecting power deficit to the tune of 2359 MW.
3.4.2 As per the data furnished by PSEB in the Annual Revenue Requirement for 2007-08, the sale of power within Punjab has increased at a Compound Annual Growth Rate (CAGR) of 8.9% between FY 2004-05 to FY 2006-07 (revised estimates), despite the restrictive conditions imposed on consumption. The actual demand for power, thus, is much more than the present sale of power. PSEB data also indicates a growing energy deficit both during normal as well as peak supply hours. The peak deficit was 6.7% in 2002-03 but rose to 26.9% in 2006-07. Similarly, overall energy deficit which stood at 5.9% in 2002-03 went up to 9.8% in 2006-07.
3.4.3 PSEB’s own generation has remained static at 3276 MW since FY 2000-01. The power available to the State from BBMB was 1315 MW in FY 2000-01 and increased marginally to 1327 MW in FY 2004-05 which has now declined to 1258 MW. The absence of capacity addition by PSEB in the past few years and the reduction in power availability from BBMB implies that PSEB has been significantly dependent on the power allocated from the central sector. PSEB’s allocation of power from the central generating stations has increased marginally from 1127 MW in FY 2000-01 to 1610 MW in FY 2006-07. Given the requirement of power within the state, the capacity available to PSEB including the share from central generating stations has not been sufficient to meet the demand for power within the state and the Board has increasingly relied on traded power. With little capacity addition envisaged in the state sector in the near future, PSEB will need to source power from projects in the pipeline.
3.4.4 In this scenario, it would not be unreasonable to assume that the shortage of power would have to be met to a significant extent by traded power. In the last few years, during periods of high demand, the rates of traded power have gone very high which is an indicator of increasing shortages as a result of economic development and growing population. Thus, with the increasing shortage of power in the foreseeable future, the prices of traded power will also increase impacting on the power purchase cost of PSEB as well. Moreover, delays in the execution of power projects and sub-optimal generation from existing plants may further increase the projected deficit of power. On the other hand the Commission notes that the NEP mandates the States to ensure that the demand for power is fully met by 2012 with no energy and peak shortages and availability of adequate reserves. Moreover, anticipated demand needs to take in to account higher economic growth rate projections so that lack of electricity does not constrain growth. In light of the above, the Commission is satisfied with PSEB’s need to procure power from this project.
3.5 Scope of Approval
3.5.1 In this petition, PSEB has requested the Commission to approve the PSA signed between PSEB and PTC. As mentioned earlier in this Order, the Commission has undertaken the examination and approval of the PSA under Section 86(1) (b) of the EA 03. This section empowers the Commission to regulate the electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State.
3.5.2 In light of the above provision of the EA 03, the Commission is not required to approve the entire PSA but only limit its approval to aspects of the purchase and procurement process including reasonability of price and the conditions on which electricity is being procured by PSEB from PTC.
3.6 Cost of Power Purchase
3.6.1 In accordance with the Punjab State Electricity Regulatory Commission (Conduct of Business) Regulations, 2005, the Commission has to ensure that power purchase by PSEB is undertaken in an economical manner. The Punjab State Electricity Regulatory Commission (Conduct of Business) Regulations, 2005 state as under:
Clause 46 (1): In accordance with the provisions of the Act and the Licence conditions, every Distribution Licensee shall purchase and procure electricity required for the Licensed Business of the Distribution Licensee in an economical and efficient manner and under a transparent power purchase and procurement process and generally based on the principles of purchase of electricity at the least cost.
46(4a): The Distribution Licensee shall satisfy the Commission as to the need for additional power procurement on a long term basis.
46(6a): The Distribution Licensee shall satisfy the Commission that the electricity procured under long term power purchase otherwise than through a competitive bidding process or any short term power purchase is economical in the prevalent circumstances and that the Distribution Licensee has made prudent and best efforts to minimise the cost of purchase.
3.6.2 The Commission has noted that the PSA specifies that the Applicable Tariff shall be limited to Rs. 2.45/kWh from Tariff Year 1 to Tariff year 10 in all circumstances except for change in applicable rates of income tax or change in availability of income tax holiday. Thereafter the Applicable Tariff shall be capped on a levelised basis for all the thirty five years to Rs. 2.25/kWh subject to change, if any, in the income tax provisions as mentioned above. The trading margin to be charged by PTC is as under:
| Tariff Years 1-12 | - Rs.0.05 /kWh |
| Tariff Years 13-35 | - Rs.0.10 /kWh |
3.6.3 While examining the Merit Order Schedule of PSEB, the Commission has compared the cost of landed power from all sources from which the Board is currently purchasing power or proposes to do so in the future and has compared the same with the cost of landed power from this project. While doing so reasonable escalation factors have been taken into consideration. The Commission is of the view that it may not be possible to project the merit order schedule, for an inordinately long time frame, owing to the uncertainties involved in the sector as well as in the functioning of the plants. Accordingly, analysis of the Merit Order over a period of 20 years only has been attempted and is available at Annexure-A which reveals that the cost of power from this project falls well within the present as well as future merit order stack of power to be procured by PSEB from different sources. The Commission thus observes that the cost of power to be procured by PSEB from this project is quite competitive and reasonable.
3.6.4 A perusal of the relevant clauses of the PSA including its Annexures and their harmonious interpretation indicates that the petition for regulatory approval of tariff for sale of electricity to be generated by the project is to be filed before the “Appropriate Commission”. Clause 3.1 (ii) of the PSA provides that the Appropriate Commission shall have approved the tariff for sale and purchase of electricity pursuant to the PSA. Clause 4.1 of the PSA which lists PTC’s obligations under the PSA states in sub clause (v) that the PTC undertakes “to make available to the Purchaser all technical, financial and commercial data and information necessary for filing of tariff petition before the Appropriate Commission, as requested by the Purchaser and further to assist the Purchaser in obtaining the approval of tariff from the Appropriate Commission”. Further, Clause 4.2 of the PSA which lists PSEB’s obligations under the PSA states in sub clause (ii) that PSEB undertakes “to file the petition for approval of tariff before the Appropriate Commission so as to obtain the tariff order”.
3.6.5 The Commission notes that Annexure A of the PSA between the PTC & PSEB and Schedule E of the PPA between PTC and the Developer contains a negotiated Pre-Decided Tariff as under:
| Tariff Years | 1-10 | 11-15 | 16-20 | 21-25 | 26-30 | 31-35 | ||||||
| TPD (Rs./kWh) (Tariff Pre-Decided) | 2.45 | 1.21 | 1.54 | 1.69 | 2.04 | 2.42 |
Further, Schedule E of the PPA which is Annexure C of the PSA, under clause 1.7 clearly states that, “The tariffs and the adjustment mechanism set out in this schedule E, shall be subject to the approval of the Appropriate Commission”.
It has already been observed that this petition is to be examined as per Section 86 of the EA 03. In the light of this observation, there is no scope for this Commission to determine tariff for sale of power by the developer to PTC. However, the PSA and its enclosures read holistically, leave no doubt that the tariff payable to the Developer by PTC has to be approved by the “Appropriate Commission”. Further in the eventuality of tariff being determined by the Appropriate Commission, the tariff so determined shall be applicable in place of Tariff Pre Decided, subject to the capped tariff mentioned above.
3.6.6 The Commission notes that there is no separate tariff for secondary energy and that all power produced will be sold at tariff pre-determined or applicable tariff worked out in accordance with provisions of the PPA detailed in para 3.10 of this order. The Commission further observes that the rate of secondary energy in the PSA has not been worked out in accordance with the CERC (Terms & Conditions of Tariff) Regulations 2004. In this petition, however, the Commission is not fixing the tariff but only approving the purchase rate of energy. Accordingly, the secondary energy rate provided in the PSA does not push the cost of energy purchased beyond tariff pre-determined which is being approved by the Commission in this petition.
3.7Trading Margin
3.7.1 Besides the landed cost of power for PSEB in the PSA, the Commission has also examined the trading margin proposed to be charged by PTC. The Commission observes that Clause 10.1 of the PSA states that the trading margins shall be in compliance with any norms applicable to transactions of the nature and duration as captured in this PSA, as may be laid down by the CERC from time to time. The Commission agrees with this stipulation and observes that the sale of electricity by PTC from this Project, located in Uttarakhand to PSEB is “inter state trading of electricity”. As per Section 79 (1)(j) of the EA 03,CERC shall fix the trading margin for interstate trading of electricity if considered necessary. In the light of the above, the applicable trading margin shall be as fixed by CERC from time to time. In the eventuality of CERC not fixing the trading margin for any particular period, it shall be such margin last fixed by CERC.
3.8 Dispute Resolution Mechanism
3.8.1 As per the PSA, all disputes or differences between the parties arising out of or in connection with the PSA shall be first settled through mutual negotiation. If that is not possible, the same shall be referred for arbitration to an expert agreed upon by both the parties. In case, the parties involved do not submit the dispute to an expert for resolution, such dispute would be submitted for arbitration in accordance with the Indian Arbitration and Conciliation Act 1996.
3.8.2 Section 86(1)(f) of EA 03 empowers the Commission to adjudicate upon disputes between licensees, and generating companies and to refer any dispute for arbitration. Further, Section 158 of EA 03 states as under:
Where any matter is, by or under this Act, directed to be determined by arbitration, the matter shall, unless it is otherwise expressly provided in the licence of a licensee, be determined by such person or persons as the Appropriate Commission may nominate in that behalf on the application of either party; but in all other respects the arbitration shall be subject to the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996).
Evidently, clause 14.3 of the PSA is not in consonance with statutory provisions and would require to be suitably amended by the petitioner bringing it in line with the provisions of EA 03.
3.9 Consequences of Default and Termination
The Commission has examined the consequences of default and termination as well as the compensation to be paid by PTC to PSEB in case of a PTC event of default or vice versa. The Commission observes that Clause 15.6.1 of the PPA specifically mentions that in case of “Developer Event of Default”, the Developer shall not sell power to any third party till termination payment has been made. The Commission is of the view that the Petitioner needs to incorporate a similar clause in the PSA, whereby PTC will also not sell power to any third party till termination payment has been made by PTC to PSEB subsequent to a “PTC Event of Default”.
3.10 Hydrological Risk
3.10.1 The Commission notes that PSEB has submitted a copy of the Final Appraisal Report of the project by IIT, Roorkee which indicates that the Detailed Project Report (DPR) of Bhilangana Hydro Electric Project prepared by Dr. Hutarew and Partners (India) Pvt. Ltd. for Swasti Power Engineering Limited in March 2003 was reviewed by the Institute’s Alternate Hydro Energy Centre (AHEC) in April – October, 2003. Besides project designs, both civil and electrical, the project hydrology and power potential study were also reviewed and revised by AHEC based on observed discharges for 17 years (1978 – 1994) of the Bhilangana (river) at its confluence with the Bhagirathi. The power potential study data in tabulated form for these 17 years has also been annexed by AHEC with their report along with calculations to determine the 90% dependable year. The AHEC has after arranging the annual energy data for 17 years in descending order, concluded that the year 1980 occurring at Sr.No.16 in the descending order is the 90% dependable year (with 101.673 MUs as the Annual Energy) and the design energy for Tariff calculations worked out accordingly as per CERC norms. In view of the above recommendations of AHEC, the Assumed Energy adopted as 102 MUs in the PSA is fair and appropriate.
3.10.2 In the PPA signed between PTC and the Developer, the hydrology risk has been taken up by the Developer for the first ten years. At the end of Tariff Year 10, Tariff Year 20 and Tariff Year 30, the tariff shall be reset based on actual hydrology in the previous ten years to arrive at the tariff which will be the basis on which monthly tariff payments will be effected.
3.10.3 The mechanism for adjustment of tariff has been given in Clause 2.4 of Schedule E of the PPA. This Clause specifies the following mechanism for adjustment of tariff on the basis of the actual hydrology:
| Tariff Year | Lower Adjustment Band (MUs) | Upper Adjustment Band (MUs) | ||
|---|---|---|---|---|
| 1-15 | 85-97 | 107-119 | ||
| 16-35 | 70-80 | 88-98 |
3.10.4 Further, Clause 2.5 of Schedule E of the PPA specifies the manner for computation of Applicable Tariff in such case as follows:
For Tariff Years 11 to Tariff Year 15
AT (11-15) = TPD (11-15) X AE (1-10) / AAE (1-10)
For Tariff Years 16 to Tariff Year 20
AT (16-20) = TPD (16-20) X AE (16-35) / [AAE (1-10) X (1- FE/100)]
For Tariff Years 21 to Tariff Year 30
AT (21-30) = TPD (21-30) X AE (16-35) / {{[AAE (11-15) X 0.82] + [AAE (16-20)]}/2}
For Tariff Years 31 to Tariff Year 35
AT (31-35) = TPD (31-35) X AE (16-35) / AAE (21-30)
Where
AT is the Applicable Tariff for the Tariff Years indicated in brackets (in Rs./kWh)
TPD is the Tariff Pre-Decided for the Tariff Years indicated in brackets (in Rs./kWh)
AE is the Assumed Energy for the Tariff Years indicated in brackets (in MUs)
AAE is the Annual Available Energy for the Tariff Years indicated in brackets (in MUs)
FE is the Free Energy in percentage
3.10.5 The Commission observes that existing CERC tariff principles provide that the hydrology risk is to be borne by the purchaser. In the PSA under consideration, the hydrology risk is being borne by the Developer for the first 10 years. Beyond this period, tariff is subject to adjustments if hydrology varies on either side beyond certain fixed values. However, even in the event of water flows reducing substantially, upwardly revised tariff will not exceed Rs.2.25 per unit which is the capped tariff for this project worked out on a levelized basis for all 35 years of the project. The Commission further observes that Clause 1.4 of Schedule E of the PPA specifies that there shall be no adjustment of tariff on a retrospective basis. On the basis of the above findings, the Commission is of the view that this risk sharing arrangement in the PSA does not jeopardize the interests of the purchaser.
3.11 Other Clauses
3.11.1 The Commission observes that tariff rebate payment, tariff surcharge payment and tariff adjustment payment is to be made as provided in the Schedule-G to the PPA which is Schedule-C to the PSA. Further the computation for the same is to be included in each monthly bill submitted to the Purchaser as provided in para 10.2.2 of the PSA. The Commission is of the view that a suitable provision is required to be made in the PSA such that PSEB’s liability is limited only where such tariff surcharge is leviable exclusively due to action or delay on the part of PSEB. However where the responsibility for such surcharge is attributable to PTC, in that case the liability/penalty will not be passed on to PSEB.
4.1 The Commission is enjoined to balance the interests of all stake holders including the licensee and the consumers. It is, therefore, necessary to ensure that power is purchased by PSEB in an economical manner.
4.2 The above discussion brings out that there is clearly a requirement for purchase of additional power and that such requirement is likely to continue for almost the entire term of the PSA. An analysis of the Merit Order in which PSEB currently purchases power and is likely to do so for the next 20 years or so also indicates that the price at which power is proposed to be purchased from PTC is fair and reasonable.
4.3 The Commission notes that Schedule E of the PPA document which is Annexure C of the PSA clearly states that, “The tariffs and the adjustment mechanism set out in this schedule E, shall be subject to the approval of the Appropriate Commission”. The Commission further holds that, as and when tariff is determined by the Appropriate Commission, such tariff or capped tariff discussed supra whichever is lower, shall be applicable.
4.4 Accordingly in exercise of the powers vested in the Commission under the EA 03 and subject to the Petitioner complying with the directions of the Commission given in this order, the Commission hereby grants approval to the electricity purchase and procurement process of PSEB including the capped tariff at which the electricity shall be procured through this PSA between PSEB and PTC for supply of power from the 22.5 MW Bhilangana Hydro Electric Project in District Tehri Garhwal, Uttarakhand. The Commission reiterates that, any changes if required to be made at a later stage in respect of the approvals granted by the Commission in this Order, shall be subject to the prior approval of the Commission.
| Sd/- | Sd/- | Sd/- |
| (Satpal Singh Pall) | (Baljit Bains) | (Jai Singh Gill) |
| Member | Member | Chairman |