THE CENTRAL ELECTRICITY REGULATORY COMMISSION
the matter of
filed by Power Trading Corporation Ltd., for applicability of ABT to the
Pipavav Mega Power Project
the matter of
Trading Corporation of India Limited (PTC)
Electricity Board and another
Shri R.K. Madan, CMD, PTC
of hearing 06.03.2000)
the representatives of the petitioners and respondents.
is a petition seeking the confirmation of the Commission interalia on the
applicability of the Availability Based Tariff (ABT) order issued on
January 4, 2000 in petition no.2 of 1999 to the Pipavav Mega Power Project
(PMPP). The PMPP is being developed under the revised Mega Power Policy of
the Govt. of India as defined in November 1998.
The PMPP is proposed in District Amreli in the State of Gujarat.
The developer of the generation facilities is proposed to be selected
following an International Competitive Bidding route to finance, develop,
build, operate and maintain 2000 MW of net thermal capacity, based on
either imported coal or LNG. Power Trading Corporation of India Ltd. (PTC)
is stated to be mandated by the Ministry of Power, GOI to pre qualify and
select the developers of the generation facility. The items on which a bid
is to be sought are still not decided and are being developed.
The Commission was informed that the bidding methodology,
evaluation criteria and procedures have been developed with the approval
of the SIG; a high level group appointed by the Govt. of India for the
purpose. The draft Request
for Proposal (RFP) document is under finalisation.
The Commission was informed that the generator would sell the power
to PTC at the generation bus bar. PTC in turn will sell the power at the
generation busbar itself to Rajasthan and Gujarat, which have indicated a
demand for 500 MW and 1000 MW respectively. Development of the
transmission facilities for evacuating the energy to be generated in the
project are stated to be the responsibility of POWERGRID, which will
directly contract with the buyers (Rajasthan and Gujarat) for the
installation of transmission facilities. It is proposed that the buyers
will offer a guarantee to off-take energy at least equivalent to a PLF of
75% of the capacity of the generator. Failure to off-take energy in this
volume will make the buyers liable to pay the fixed charges including
those associated with fuel supply except the fuel cost.
PTC has also proposed that if the generator is unable to maintain
an availability level of 85%, the reduction in fixed capacity charge
payable by the buyers would be in the same ratio as in the ABT order. If
the generator can achieve a PLF higher than 85%, then the generator will
be eligible for an incentive which would be calculated at the same rate as
specified in the ABT order of CERC of 1 paise per kWh per 1% point of PLF above 85%.
The jurisdiction of the Commission to regulate tariffs has been
invoked under section 13 (a) of the ERC Act on the ground that PTC is a
government controlled company with generation as one of the objects of
business in its Memorandum of Association. Jurisdiction is also invoked
under section 13 (b) of the ERC Act on the grounds that a composite scheme
exists for the generation and sale of energy in more than one state.
The Commission has carefully considered the written submissions of
the petitioner, the arguments put forward by Shri Bahadur Chand who
appeared for the petitioner, and the oral submissions of Shri L.N. Nimawat,
Executive Engineer, who appeared for RSEB and Shri
P. Mehta, Commercial Officer, who appeared for GEB, the two
respondents. Though the
hearing was scheduled for admission, since certain limited questions in
the nature of confirmation by the Commission were only involved, the
matter was fully heard and disposed off.
The Commission is convinced that PTC can be classified as a company
controlled by the government. GOI has no direct equity stake in PTC.
However the fact that a significant portion of the equity of PTC is held
by companies which are wholly owned by GOI is sufficient to show that PTC
is controlled, albeit indirectly, by the GOI and hence its tariff can be
regulated by the Commission under Section 13 (a) of the ERC Act. The
Commission has not been provided with the draft agreements to be entered
into by the various parties. However,
from the written submission of the petitioner and the oral submissions of
the respondents it appears that the project has been conceived under a
composite scheme for the generation of electricity in Gujarat and its sale
to Gujarat and Rajasthan. Hence the tariff of this project will be
regulated by the Commission under the provisions of Section 13 (b) of the
ERC Act as well. Consequently the Commission is convinced that the
petition is within the jurisdiction of the Commission and that the tariff
of this project will also be regulated by the Commission.
The petitioner has sought that the tariff be covered under the
ambit of the ABT order of the Commission. The core of the ABT order lies
in the price-based incentives and disincentives for ensuring discipline in
the regional grids in the interstate transmission of energy. These
provisions are the following;
A separate fixed capacity charge payable in lump sum by each
beneficiary in proportion to the capacity allocated to that beneficiary so
as to ensure that the financial liability of over contracting capacity is
borne by the beneficiary responsible for entering into such agreements.
A separate energy charge payable per unit of energy actually drawn
by the beneficiary. and
A UI charge linked to the frequency for all
deviations from the schedule. This is payable by generators
as well as beneficiaries for deviating from the schedule. The rate
of the UI is inversely linked to the frequency prevailing at the time that
a deviation is made from the schedule.
Commission has no hesitation in confirming that if the core of the ABT
framework, described above, continues to exist for regulating the flow of
energy in regional grids at the time when the Pipavav plant commences
operation, PMPP will be required to submit to the ABT discipline as
regards declaring the availability of capacity in advance. Further, failure to keep to the schedule will invite the UI
charge as specified in the ABT, in addition to the under recovery of fixed
charge as may be decided between the parties and approved by the
Commission. The project already envisages a two-part tariff and hence to
this extent it already conforms to the requirement under the ABT that the
charge payable by the beneficiary should be unbundled into two parts:- one part relating to the payment of a capacity charge against
which the generator makes available a specified capacity for use by the
beneficiary, and a separate energy charge per unit of energy drawn.
PTC has requested the Commission to confirm that the norm of 85%
availability for the recovery of 100% of the capacity charge to the
project as prescribed for NTPC in the ABT order shall apply to PMPP. It is
important to clarify that the specification by the Commission of a figure
of target availability for recovery of capacity charge, the specification
of a schedule for recovery of capacity charge in case availability falls
below the target level and the incentive structure and numbers specified
linked to PLF in the ABT order do not relate to the core features of the
framework of the ABT. The core framework of the ABT order can be applied
to any level of target availability.
The plea of PTC to the Commission for specifying a percentage
number for the target availability is not acceptable to the Commission for
another reason as well. NTPC projects are not competitively bid. They
function under the cost plus regime.
That is why it becomes necessary to prescribe norms for cost
drivers like capacity made available and capacity utilisation. The Pipavav
project is being formulated on a completely different basis. The bidder is
to be selected on the basis of competitive bidding. Why then is there any
need to specify by the Regulator a level of installed capacity for
recovery of the fixed charge? PTC is aware that Rajasthan and Gujarat want
this project to meet a combined power demand of 1500 MW and a energy
demand equivalent to energy demand in million units of 75% Plant load
factor (Plf). It can bid out
for the supply of 1500 MW of capacity or more and weigh the pros &
cons from availability and other angles to meet the capacity and energy
demands. Why then is
there a need to specify the capacity to be installed by the successful
bidder? That is a project risk which the bidder has to assume. It is for
the bidder to estimate the capacity he would need to install for meeting a
power demand of 1500 MW along with a committed energy demand. Assuming
that all bidders face the same capital cost per MW of installed capacity,
the one who estimates the lowest capacity addition to meet the target
capacity and energy demands will be the best placed to win the bid. In
fact one of the main advantages of the bidding process is that it reveals
the view of the market on what is the best achievable availability level.
By prescribing a minimum availability target as a percentage
instead of an absolute level, PTC would be taking away one of the main
advantages of the market approach which gives the generator the option to
decide the size, overall capacity etc., since bidders will no longer
compete to decide capacity for installation to the minimum and
availability to the maximum or a combination thereof. Under competitive
bidding, maximum achievable availability will be estimated by the bidder.
On this basis the bidder will estimate the size of the generation capacity
to be installed. This estimate will in turn decide the capital cost of the
project which will determine the capacity charge to be quoted by the
bidder to meet the peak demand projected in MW and energy requirement in
MWH by the buyers. Consequently the Commission does not feel that there is
any need to prescribe a percentage availability target.
there is no need for PTC to specify an incentive for generation beyond a
certain target PLF. Instead, energy supplied beyond the agreed level of
off take assured by the buyers could be charged a separate rate which
would be bid by the bidders. In any case, PTC has stated that there will
be a differential charge for energy supplied beyond the minimum offtake
level. The extra cost and effort required, if any, to generate beyond the
level of assured off take could also be factored by bidders into the rate
for incremental energy supply. In
any case, since the tariff is the result of a competitive bid, as will be
generation above the target availability, the question of any additional
payment as incentive, is not appropriate.
Hence the Commission does not feel compelled to specify an
incentive rate for the purpose. Indeed, to do so would detract from the
advantage of the market based exercise of competitive bidding.
a more general way the Commission would like to advise PTC to approach the
Commission for approval of all the bidding parameters before it enters
into the process of competitive bidding. It would not like to be presented
with a fait accompli. PTC
must ensure that all stages of the bidding process have the prior approval
of the Commission, and that the Commission is not approached for approvals
for each stage. Under the competitive bidding route, the Commission
perceives its function of regulating tariffs to primarily be the scrutiny
and approval of the process adopted for competitive bidding, with a view
to ensure that competitive conditions do prevail. Under this route, the
actual price to be paid by buyers should be the result of market
determination and not of regulation. The task of the regulator is
primarily to ensure that the bidding documents are prepared in a manner
which minimise information asymmetries, that the process adopted is
transparent and fair, and that sufficient competitive pressure exists at
the time of bidding so as to protect the interests of the consumer.
The representative of GEB sought more time to study the impact of
the ABT on the project before filing their response. More than two months
have passed since the ABT order was issued on January 4, 2000. The
Commission considers this sufficient time for GEB to
have formulated its views on the subject. In any case since there
is no disagreement between the petitioner and the two respondents on the
prayer of the petitioner and no useful purpose will be served by delaying
disposal of this petition.
The petition is partially allowed. The Commission confirms that, if
the existing ABT frame work which requires generators to have a separate
fixed charge for capacity made available, energy charge per unit of energy
supplied and a frequency linked UI charge for variations from the
schedule, continues to be in force at the time when the project commences
commercial generation, then it will apply to PMPP also.
(b) The Commission sees no need to specify target availability as percentage of capacity since it sees no need for PTC to specify the installed capacity of the project. Instead, bidders should make available the required power to meet the demand of the buyers in MW & MWH.
The Commission also sees no need to specify an incentive rate for
generation above a target PLF, since the price at which the successful
bidder will supply energy beyond the level of off-take assured by the
buyer, will be decided through the bidding process itself as has been
mentioned by the PTC in the context of the additional cost of fuel supply
for energy generation beyond the assured level of off-take.
The Commission directs PTC to submit the detailed procedure laying
down the bidding process at different stages, RFP, tender evaluation,
etc., for prior approval of the Commission.
This may be done urgently to enable speedy implementation of this
9th March, 2000
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