Appeal No. 72 of 2010. Case: Maharashtra State Power Generation Co. Ltd., A company incorporated under the Companies Act, 1956 Vs Maharashtra Electricity Regulatory Commission, a Commission constituted under the provisions of Electricity (Supply) Act, 1998 and Ors.. APTEL (Appellate Tribunal for Electricity)
| Case Number | Appeal No. 72 of 2010 |
| Counsel | For Appellant: Deepa Chavan, Kiran Gandhi and Taruna A. Prasad, Advs. and For Respondents: Buddy A. Ranganadhan, Adv. |
| Judges | M. Karpaga Vinayagam, J. (Chairperson) and Rakesh Nath, Member (T) |
| Issue | Electricity (Supply) Act, 1948 - Section 61; Central Commissions Tariff Regulations, 2009 - Regulations 13.2 and 32.3; Tariff Regulations, 2005 - Regulation 30.1 |
| Judgement Date | April 27, 2011 |
| Court | APTEL (Appellate Tribunal for Electricity) |
Judgment:
Rakesh Nath, Member (T)
1. This Appeal has been filed by Maharashtra State Power Generation Company Limited challenging the Tariff order dated 21.10.2009 passed by Maharashtra Electricity Regulatory Commission (State Commission) for Unit No. 6 at Parli Thermal Power Station for part of FY 2007-08, FY 2008-09 and FY 2009-10. The State Commission is Respondent No. 1. Respondent Nos. 2 to 11 are the Consumers/ Consumer representatives who appeared at the public hearings of the tariff proceedings. The Respondent No. 12 is the distribution company.
2. The brief facts of the case are as under:
2.1. On 13.10.1997 the erstwhile Maharashtra State Electricity Board, the predecessor of the Appellant, approved the proposal for development of the 250 MW Parli Extension Project (Unit No. 6). The Central Electricity Authority also accorded the techno economic clearance to the project, required under the Electricity (Supply) Act, 1948, on 9.7.1999.
2.2. Subsequently, on 14.1.2004, the Project implementation commenced with placement of order for main plant equipment on M/s. Bharat Heavy Electricals Ltd. (BHEL). On 8.7.2004, an agreement was entered into between predecessor of the Appellant, the Electricity Board and BHEL for design, engineering, manufacture, supply and commissioning of various equipments. The Agreements provided for commissioning of the project in 32 months from the date of Letter of Acceptance.
2.3. In June, 2005 the Appellant's Company was formed as a result of re-organisation of the erstwhile Electricity Board. In August 2005, the Tariff Regulations of the State Commission came into force.
2.4. On 1.11.2007 the Parli Unit No. 6 was commissioned after a delay of about 14 months with respect to the contractual data of commissioning agreed with BHEL. According to the Appellant, the delay was caused due to technical inadequacy and breaches on the part of BHEL, the principal supplier of the main plant.
2.5. Subsequently, the Appellant filed a petition before the State Commission for determination of tariff for Unit-6 at Parli.
2.6. On 21.10.2009, the Respondent No. 1/State Commission passed the impugned order disapproving a part of Capital cost mainly on account of delay in commissioning of the project. Aggrieved by the said order dated 21.10.2009, the Appellant has filed this Appeal.
3. The Appellant has raised the following issues in the Appeal:
(i) Reason for delay in commissioning of the Parli Unit No. 6 and consequential disallowance of the capital cost;
(ii) Disallowance of actual capital cost incurred;
iii) Disapproval of Advance Against Depreciation (AAD);
iv) Deferment of Additional Capitalization;
v) Disallowance of Return on Equity on investments;
vi) Non-consideration of carrying cost.
4. On the above issues the Appellant has submitted as under:
4.1. The State Commission has considered the delay in commissioning of the Parli Unit No. 6 and attributing the entire delay to the Appellant, has wrongly rejected the claims of the Appellant for capital cost on the ground of delay. This is not justified as the materials placed before the State Commission established that M/s. BHEL alone was responsible for the time over-run. The effect of the impugned order is to penalize the Appellant for no fault of its own. The State Commission in its analysis and findings has not ruled any delay on account of actions or inactions on the part of or attributable to the Appellant.
4.2. The State Commission has erred in disallowing capital cost on account of overheads, initial spares and Interest During Construction (IDC) and disallowance of interest on loan due to pro-rata reduction in debt component. The State Commission ought to have approved the capital cost based on the audited accounts, subject to prudence check. Against the claim of Rs. 1249.92 crores, the Respondent1/State Commission allowed only a sum of Rs. 1100.67 crores. The overheads have not been approved as per the audited accounts. Delay by M/s. BHEL led to an increase in the overheads in the project unit. Similarly, reduction in Interest During Construction (IDC) is also not justified and is contrary to the Regulations. Further the State Commission considered a normative pattern of draw down of loans and upfront infusion of equity to work out the normative IDC as against adopting IDC according to the audited accounts, subject to prudence check. The Tariff Regulations do not stipulate pattern of drawdown of loans during the implementation of the Project. The State Commission has also restricted the cost of spares at 2.5% of original capital cost according to the Regulation 30.1 of the 2005 Regulations. These Regulations were not available at the time of placement of order. CEA in its Techno-Economic Concurrence had considered spares cost at 3%. The lower capital cost approved by the State Commission due to above reasons, has also resulted in difference of Rs. 222.35 crores between actual loan and the approved loan amount.
4.3. The State Commission has disapproved Advance Against Depreciation for Parli Unit No. 6 contrary to the Regulation 32.3 which allows the Advance Against Depreciation (AAD) to a generating station in case the actual amount of loan repayment exceeded the amount of depreciation during the financial year. The State Commission has wrongly denied the AAD on the ground that depreciation for the Appellant's company as a whole was less than the actual loan repayment of the company. This approach is contrary to the Tariff Regulations.
4.4. The Appellant had provided details to the State Commission in its petition regarding additional capitalization which was not allowed contrary to the Regulation 13.2 on the ground that adequate details had not been furnished. The State Commission ought to have asked the Appellant for any additional information required for determining additional capitalization instead of deferring the same to final truing up.
4.5. The State Commission has disallowed capital cost to the tune of Rs. 81.29 crores on account of cost of common facilities whereas the development of these facilities were critical for operation of Parli Unit No. 6. It is consequential that these facilities will also be used by Unit No. 7 which was under construction at the time of determination of tariff for unit No. 6. The benefits of such common facilities would eventually reduce the cost of Unit No. 7, the benefit of which will be passed on to the consumers. The disallowance of the capital cost of these common facilities will result in servicing of such loans from internal accruals leading to financial impact due to increase in Working Capital loans. The Appellant will also be unjustifiably denied eligible return on equity.
4.6. The Appellant has been charging provisional tariff approved by the State Commission in the APR order for 2007-08 which was lower than the approved tariff. The State Commission has not permitted the carrying costs on such deferred true up amount, which is wrong.
5. Mr. Buddy A. Ranganadhan, learned Counsel for the State Commission has argued strenuously defending the findings of the State Commission on the above issues. He contended that the cost overrun of the project due to delay in execution can not be passed on to the consumers. He further submitted that BHEL is an agent of the Appellant who has to shoulder the responsibility of any act or omission of its agent and only the capital cost which has been prudently incurred by the Appellant can be approved by the State Commission.
5.1. On the other issues Shri Buddy A. Ranganadhan relied on the Regulations and findings of the State Commission in the impugned order.
6. On the basis of the rival contentions of the parties, we frame the following questions for consideration:
i) Was the State Commission correct in attributing the entire delay in commissioning of the Parli Unit No. 6 and disallowing the entire time overrun related cost to the Appellant without considering the delays and shortcomings on the part of the main supplier, M/s. BHEL?
ii) Was the State Commission right in rejecting part of capital cost due to overheads, IDC, cost of initial spares and interest on loan?
iii) Has the State Commission erred in considering Advance Against Depreciation company-wise instead of station-wise?
iv) Was the State Commission correct in deferring the Additional Capitalistion on the ground of inadequate data?
v) Was the State Commission right in disallowing the part of cost of common facilities of Parli Unit No. 6 and Unit No. 7?
vi) Should the State Commission have allowed carrying cost on the differential of provisional tariff allowed for the FY 2007-08 and the final tariff?
7. The first issue is regarding cost overrun due to delay in commissioning...
To continue reading
Request your trial