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WELCOME TO APGENCO’S PRESENTATION
ON
CERC’S DISCUSSION PAPER JUNE-03
ON
TERMS & CONDITIONS OF TARIFF
(Commencing 01.04.04)
by
V.V.RAO, IDAS
DIRECTOR/ COMMERCIAL
APGENCO.
1
GENERAL
 The consumer interests are better protected if his growing
needs for power in future are well recognized right now and
simultaneously progress the new capacities at most optimal
cost. The tariff structure therefore must aim at not least cost
alone but equally important, provide timely capacity additions
too.
 The CERC tariff shall firmly enable not only retention of RoE /
Incentive by the State Gencos but also consistent capacity
additions in a planned/ phased manner.
 CERC Tariff guidelines in respect of CGS shall automatically
extend and uniformly apply to all the State Gencos also and
pertinently to all IPPs without discrimination.
 In view of several structural changes – either already in place
or in the offing – the PPAs concluded with IPPs in the preregulatory regime shall have to be revisited by the
Commissions concerned so that a level playing field with the
State & Central Generators is ensured.
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GENERAL
Contd..
All State Gencos must be allowed to operate under a
single PPA without insisting on Station-wise PPAs.
Variable Charges can be station-wise even under this
dispensation.
 Station vintage, obsolescence of technology and the
past 3-year performance shall be the main criteria for
prescribing operating parameters in respect of small
capacity generating units (say 30-110 MW).
 Non-tariff components – which are peculiar to the
State Gencos – such as unfunded liabilities on account
of Pension / PF etc. shall be entirely borne by the
respective State Govts. only.
 State Transcos shall contract the State Gencos’
capacity as well as energy in full whereby no such
occasion presents for certain (already) built-up projects
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to get deleted/ rejected at a later date.
FIXED CHARGES – RoE & Depreciation
 The existing return at 16 % on equity shall continue.
 ROCE proposed by CERC needs a still clearer definition. As we
understand, computation by liability side approach and asset side approach
is not one and the same and none of these yields 16% return in later years
of the project life at a dwindling rate.
 If ROCE method only is to be adopted, Generator must therefore be
assured of firmly getting at least an equivalent of 16% return on the equity
portion throughout the project life on year-to-year basis.
 RoE shall take into consideration the equity component of subsequent
capitalisations on account of major R & M / life extensions, if any, on par
with the original equity.
 The capitalized expenses on major R&M/ life extension shall also be eligible
for depreciation at the same rates.
 The existing rates of accelerated depreciation @7.84% for thermal and
3.4% for hydel along with the provision for advance against depreciation
may be retained.
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Fixed charges – Interest on loans
Interest on the outstanding loans shall be allowed at actuals, subject to…
•
The interest rate shall not exceed PLR plus a stipulated margin which is
uniform.
•
Generating companies to renegotiate interest rates within these limits from
time to time in case of falling interest rates.
•
In case of increase in interest rates during the course of repayment period,
no additional liability shall be reckoned, since earlier negotiated rates of
interest are normally operative for the entire term of the loan.
•
Interest will be reckoned on an year-to-year basis on outstanding loan.
•
Where a large number of projects are covered or different loans involved for
the same project, the weighted average rate of interest shall apply.
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Fixed Charges – O&M.
 Based on the current capital cost/MW, to be declared
each year by an Authority like CEA, O&M expenses shall
be allowed @ 2.5% for new thermal projects and 1.5%
for new hydel projects.
 However, for old stations, this can be the average of past
3 years as per Audited Annual Accounts. There on,
escalating once @ 10% yields base O&M and further
escalating it annually @ 6% yields normative O&M for
each year of the next tariff period.
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FIXED CHARGES – Interest on Working Capital
 The present composition of working capital elements
does not call for a change.
 Owing to the irregular and inadequate payments being
received by the State Gencos, it is imperative that the 2months receivables, as billed, shall continue to be the
most essential working capital element.
 Similarly, 1 month O&M also shall constitute the working
capital.
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FIXED CHARGES – Incentive
Contd..
 Incentive shall be availability-linked in preference to the PLF and the
target availability for reckoning incentive shall be 80% for thermal
and 85% capacity index for hydel.
 The current merit order scenario is not PLF-oriented and hence
incentive must be distanced from PLF.
 The level of thermal incentive shall be uniformly 21.5 Ps/Kwh
(subject to 50% of fixed expenses) for availability in excess of 80%
without any cap at 90%.
 Hydel incentive as per Cl. 3.8.2.6 of the CERC’s Discussion Paper
(p-46) of June-03 seems to be in order. Incentive rate may be
specified by the Commission. There shall be no disincentive if
Capacity Index falls short of the targeted 85% for reasons beyond
the control of Generator.
 Incentives shall be payable monthly based on availability/ capacity
index for the month.
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Recovery of Fixed Expenses (Thermal only)
Availability = or > 80 %
Full fixed cost, including ROE.
Availability between 80% and Progressive pro-rata reduction of fixed cost only in ROE, up
70%
to nil ROE at 70%.
Availability between 70% and Progressive proportionate reduction in other fixed expenses
50%
except depreciation/ debt repayment requirement, reaching
62.5% of other fixed expenses at 50% availability
Availability less than 50%
(i)
(ii)
Further proportionate reduction in fixed expenses
including depreciation/ debt repayment in case of
outages attributable to generating company.
If outage is for reasons of force majeure, acts of God
or reasons attributable to external factors, no reduction
shall be made in (i) above.
The above is necessary in order that the cash-starved state generating companies do not
face a more severe financial crunch in case the units remain under forced outage for
prolonged periods, particularly for reasons not attributable to them.
Even if fixed expenses are to be restricted as above, the requirements of debt servicing shall
have to be allowed as advance, and the difference between this advance and what is due
will be recovered from future revenues. Interest at rates applicable for working capital may
also be recoverable on such advances.
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Payment & Penal Interest Charges
 Track record of payments being made to State Gencos is
far from satisfactory. Unless payment covered under LC
with penal provisions for delayed payment is ordered by
the Commissions concerned, State Gencos continue to
be in dire stress at the cost of their credibility as
commercial entities.
 Irrevocable revolving LCs covering one month dues shall
therefore be opened by Transcos forthwith.
 For delayed payments, penal surcharge shall be levied
@ 2% p.m. on total outstandings from the start of the
financial year.
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Development Surcharge and other issues
 Shall be on par with thermal and hydel CGS.
 States have no less responsibility for ensuring adequate capacity
additions. Together with RoE, Development Surcharge will also
bring about necessary investments by the State Gencos for this
purpose.
 Development Surcharge shall be kept aside annually and ultimately
utilized for no purposes other than capacity addition.
 Hydel peaking power shall be accorded special tariff in addition to
normal fixed charges.
 Reactive power by condenser mode operation shall be on
chargeable basis.
 Sale of energy from the Non-conventional sources like mini-hydels
and wind projects shall be allowable at special tariff for State
Gencos on par with IPPs.
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Merit Order Dispatch
 Dispatch through Merit Order shall be on the basis of not
only the station-wise variable charges but other system
conditions also such as system stability, improvement of
voltage profiles, reduction in transmission losses,
congestion of transmission lines, avoided transmission
cost etc.
 Incentive shall not have any role in merit order dispatch for
the simple reason that the incentive cannot be PLF-linked
(connected to fuel charges) any longer but shall be
Availability-linked (connected to fixed charges).
 The existing practice of adding incentive, for merit order
purpose, at a flat rate of 21.5 Ps/Kwh to each unit of
station-wise variable charge for PLF (as long as
cumulative PLF is over and above 77% is highly
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unjustified).
Merit Order Dispatch
Contd…
 Conceding, for argument sake, that the incentive
is figuring in the merit order, the incentive that
will be payable/ actually paid alone shall reflect
even for merit order purposes and they cannot
be independent of each other.
 DI shall be such that no coal based unit is ever
required to be operated at less than 80% of its
installed capacity, subject to technical limits.
 Backing down limits for each generating unit
shall be clearly agreed upon depending on
prudent technical practice subject to a maximum
of 20% of respective installed capacity.
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STATION OPERATING PARAMETERS
Station heat rate
(Kcal/ Kwh)
Sec. fuel
cons.
(ml/Kwh)
Aux. Cons.
(%)
New 200 MW units
Negotiable,
based on design
values etc.
2.0
As per GoI norms i.e. 9% for
coal based stations without
cooling towers and 9.5% for
stations with cooling towers.
200 MW sets
already in service
for 5 years and
above
Shall be 2500
uniformly
2.0
•Subject to GoI norms as
minimum limits, stationspecific conditions shall have
to be considered for extra
provision, if required.
Less capacity sets
in service for 5
years and above
Roll on avg. of
past 3 years on
year to year basis
3.5
•Roll-on avg. of past 3-year
period on year-to-year basis.
All the above norms proposed shall be applicable only for despatchability
of 85% and above of Installed Capacity. Should the Stations run on partial
loading due to Merit Order/ Backing down, the Stations must be suitably
compensated for increase in parameters.
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STATION OPERATING PARAMETERS
Contd …
• The element of compensation for oil support during
partial load operations (or unit startups due to DI) in the
present ABT/ Merit Order regime shall be clearly defined
by the Commission in terms of X ml/Kwh (in excess of
2.0 or 3.5) for every Y% of backing down beyond the
agreed % of installed capacity for Z hours of backing
down.
• For hydel stations, which draw station supply from the
grid through GTs in the absence of generation, limit for
auxiliary consumption shall be enhanced from 1% to
1.5%.
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Coal issues
• Steep variations in price structure of coal within SCCL & MCL must
be curbed and evolve a uniform coal pricing policy. Also, pricing of
coal shall relate to million Kcal.
• Serious grade slippage is taking place by 2-3 grades between the
billed & actually tested at the station end. Consequently, Gencos are
paying heavily to the coal supplier while collecting far less through
variable charges.
• Coal suppliers shall not escape their responsibility from joint
collection/ testing of coal samples at station end also on continuous
basis. UHV vs GCV relation cannot be established otherwise.
• There by, the grading practice shall be rejected/ abolished
eventually.
• Coal suppliers only shall wash the coal and supply washed coal with
34% ash or less to the Generators.
• Present coal linkage system shall ensure distant generating stations
be linked with better quality coal mines such that quantum of coal
purchased & transported are minimised, resulting in reduced specific
coal consumption.
• A coal/ transport Regulator is highly essential to bring about such
vital changes discussed above.
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Issues specific to APGENCO
• Unfunded liabilities:
– GoAP has decided to allocate to APGENCO only (not
touching Transco & Discoms) an unfunded liability on
account of pension & provident funds of all the erstwhile
APSEB employees to an extent of Rs. 4617 Cr by way of
enhancing the value of fixed assets by 4270.90 Cr.
– The entire burden on APGENCO alone boosts its fixed cost.
– The State Regulator expects APGENCO to meet the entire
liability (repayment + interest) on year-to-year basis from
the extra depreciation owing to enhanced asset value.
– From the beginning, the understanding with the Govt. &
reforming quarters is that this liability is going to be a solid
tariff-pass through.
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Issues specific to APGENCO
• Unfunded liabilities
Contd…
– On the contrary, together with another major liability in
the shape of Vidyut bonds, the depreciation so
allowed even with RoE included is not adequate to
service these 3 liabilities on year-to-year basis.
– APGENCO pleads the interest component only of
these liabilities to be pass through in tariff, but this is
not acceptable to Regulator.
– APGENCO also pleads relegation of pension/ PF
liability to the respective entities but this also is not
acceptable to APTRANSCO.
– In view of this, APGENCO pleads for total takeover of
this unfunded liability by the Owner i.e. GoAP.
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Issues specific to APGENCO
Srisailam Left Bank Power House (SLBPH) 6*150 MW
– Under the GoAP’s Transfer Scheme dt. Jan 99, the SLBPH, the
unique under ground hydel station in AP, was inherited by
APGENCO while in construction stage since late 80s.
– APGENCO has since then progressively commissioned each of
the six 150 MW units. The station is now fully operational in
conventional mode, subject to hydrology.
– Cost of the project is tentatively Rs.3340 Cr.
– The widespread impression is that the GoAP had assumed
major liability of the project for servicing from its funds and
therefore the capital cost should be less.
– This is to clarify that, in real terms, no liability was taken over by
GoAP as such. All loans availed and interests accrued upto
31.01.99 were paid up i.e. adjusted against the subsidy payable
by GoAP to APSEB as on that date. Hence there has been no
remission of any of the loans and interests by GoAP.
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Issues specific to APGENCO
• (SLBPH) Contd…
Project objectives are:
 To tap surplus water to generate seasonal energy of 1000 to 1200
MU.
 Operating together both the Left & Right Bank PHs in conventional
mode with reduced load factor to meet higher system peak demand
(1300 MU or more of peaking energy with 1500 MW capacity for
varying in a year of normal hydrology) and
 At a later stage, to resort to pump mode operation when the water
availability gets reduced for conventional mode operation.
 Efforts are already on for enabling pump mode operation with
necessary river course correction at the best optimum cost
considerations.
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Issues specific to APGENCO
• (SLBPH)
Contd…
 At this stage, the State Regulator considered it necessary to take this
project out from the common PPA of APGENCO and ordered to earn its
revenues on the basis of a separate PPA to be entered into.
 APGENCO pleads for retention of SLBPH in common PPA only as the
financial fall out on it in case of separation is devastating.
 Or else, GoAP has to directly subsidise APGENCO on year-to-year basis to
the extent of shortfall in revenue collection at a new tariff to be agreed upon
with APTRANSCO who have already taken over a sizeable energy during
last year and this year but paid nothing so far.
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THANK YOU
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