1 APresentationon ARR & Tariff Proposal of OHPC for FY BroadSuggestions/Objections Broad Suggestions/Objections February 7, 2007 Together, let us light up our lives. ORISSA ELECTRICITY REGULATORY COMMISSION

2 Data Sources As stated by OHPC in its ARR/ Tariff filing for FY :

3 Installed Capacity of Power Stations Sl.No. Name of the Power Station Present Installed Capacity (MW) Installed Capacity considered for (MW) 1Hirakud Balimela360 * 510 (Including Units 7 & 8) 3Rengali250 4Upper Kolab320 5Upper Indravati600 6Machhkund (Orissa Share ) 34.5 Total * NOTE: What is the expected date of commissioning of Units – 7 & 8 of Balimela HEP?

4 Design Energy Sl. No. Name of the Power Stations Design Energy (MU) Design Energy for sale (MU) 1HPS (Burla & Chiplima) BHEP RHEP UKHEP UIHEP Total Rs. in Crore OHPC has already awarded the work order to M/s SPARC, Bhubaneswar, a consultancy agency, on to carry out the job of re-assessment of design energy of its Power Stations on turn-key basis with an expected completion period of 10 months.

5 Project Cost Sl. No. Name of the Power Stations Transferred Cost as on Project Cost considered for FY Project Cost considered for FY HPS BHEP RHEP UKHEP Total (Old PS) UIHEP Total Rs. in Crore

6 Annual Fixed Charges Annual fixed charges comprises of A.Interest on Loan B.Depreciation including Advance Against Depreciation (AAD) C.Return on Equity (ROE) D.Operation & Maintenance (O&M) Expenses E.Interest on Working Capital

7 Annual Fixed Charges.. Contd.. Sl. No. Description of the LoansInterest on loan for the FY HPSBHEPRHEPUKHEPUIHEP 1Govt. 9.8% (i) (ii) (iii) (iv) (v) PFC Loan For 1 & 2, 10% For 3 & % For 7 & 8, 9.60% For Guarantee Commission Deemed 11% Total Interest with G. C Rs. in Crore A. Interest on Loan

8 Annual Fixed Charges.. Contd.. Name of the Power Stations Depreciation considered for FY Remark HPS (Burla & Chiplima) 14.50To the extent of Loan Repayment BHEP13.55To the extent of Loan Repayment on the project cost on the project cost UIHEP32.07Limited to Loan Repayment Rs. in Crore B. Depreciation including AAD Name of the Power Station RoE per annum) HPS (Burla & Chiplima) BHEP11.68 RHEP3.28 UKHEP3.82 UIHEP41.82 C. Return on Equity

9 Annual Fixed Charges.. Contd.. Rs. in Crore D. O&M Expenses Sl. No. ParticularsHPSBHEPRHEPUKHEPUIHEP 1Actual O & M Expenses for FY % Escalation for FY * 3.4% Escalation for FY ** 4.Special repair Adjustment due to transfer of some employees between RHEP & UKHEP. --(-)0.50(+)0.50- TOTAL (items 3+4+5) * Rs Crs (incl. of spl. repairs of Rs.5 Crs.) is pass through for FY ** Rs Crs taken for spl. repair of rotor pole as approved earlier and Rs.1.5 Crs taken for FY for spl. repair of starter winding of unit-4.

10 Annual Fixed Charges.. Contd.. Rs. in Crore E. Interest on Working Capital ParticularsHPSBHEPRHEPUKHEPUIHEP O & M expenses for one month Receivables for two months Maintenance spares for one year Working Capital Interest on 11% per annum

11 Annual Fixed Charges.. Contd.. Rs. in Crore F. Total Annual Fixed Charges (AFC) & ARR ParticularsHPSBHEPRHEPUKHEPUIHEP Interest on Loan Depreciation Return on Equity O & M Expenses Interest on working capital Total AFC ED on Aux. P/U Income Tax (MAT) for the previous years Total ARR Average Tariff (P/U) Machkund (P/U)18.21 (considering 50% of the design energy of 525 MU)

12 Rate of Primary & Secondary Energy As per the CERC Tariff Regulations, rate of Primary Energy for the Hydro Generating Stations shall be equal to average of the lowest variable charges of the Central Sector Thermal Power Generating Stations of the concerned Region for all the months of the previous year. In case, the primary energy charges recoverable by applying the above primary energy rate exceeds the Annual Fixed Charges of a generating station, the primary energy rate for such generating station shall be calculated by the following formula : Primary Energy Rate = Annual Fixed Charges Saleable Primary Energy

13 Rate of Primary & Secondary Energy A.Rate of Primary Energy Name of the Power StationRate of Primary Energy (Paise/KWh) HPS (Burla & Chiplima)60.15 BHEP58.39 RHEP41.60 UKHEP25.97 UIHEP67.24 B. Rate of secondary energy is same as rate of primary energy.

14 BROAD TARIFF RELATED ISSUES RAISED BY OBJECTORS ( To be addressed by OHPC )

15 Issues emerge from the objections/ suggestions submitted by the Objectors Review of Design Energy: –Progress on review of design energy of old stations of OHPC Income Tax: –The inclusion of Income Tax (MAT) paid during the period to in the tariff calculation is questioned –Income Tax is not an element of AFC. –CERC Notification provides for re-imbursement of Income Tax. Equity Component: –OHPC have considered 25% of book value of assets as equity. –Govt of Orissa have not issued any notification in this respect. –Hence, it is not acceptable to GRIDCO.

16 Issues emerge from the objections… Contd.. Return on Equity: –OHPC have claimed 14% ROE for FY –Objectors have recommended to allow 12% ROE R&M investment of Unit No.3&4 of Burla: –OHPC has capitalised Rs crores towards R, M&U of Burla Unit 3 & 4 and claimed 25% of it as equity. –OHPC may furnish year wise expenditure indicating details of sources of funds and year wise interest capitalised as IDC. Balimela Extension: –OHPC has capitalised Rs.180 crores towards commissioning of 7th & 8th Unit of BPH in March, –Details of year wise expenses and sources of funds may be furnished.

17 Issues emerge from the objections… Contd.. O & M Expenditure: –The claim of OHPC towards O & M expenditure is not in conformity with CERC norm. –Annual 4% can only be allowed over O & M expenditure permitted for to derive O & M for – Further, the Special repair of rotor poles in UIHEP and special repair of starter winding in unit-4 of UKHEP may be excluded from the purview of O & M expenses in

18 Issues emerge from the objections… Contd.. Depreciation: –In the tariff calculation OHPC have claimed advance depreciation for HPS and BPH amounting to Rs.5.04 crores and Rs.5.9 crores respectively. –CERC norm stipulates that advance against depreciation shall be permitted only if cumulative loan repayment up to a particular year exceeds the cumulative depreciation up to that year. –However, HPS as well as BPH do not satisfy the above condition. – In case of HPS the total depreciation recovered through tariff up to comes to Rs cores –where as, the total loan repayment during this period is Rs crores. –Similarly in case of BPH against recovery of Rs.60.8 Crores towards depreciation up to the loan repayment is only Rs crs. –Hence, there is no scope for allowing advance depreciation during –OHPC has to justify it’s claim towards advance depreciation.

19 Issues emerge from the objections… Contd.. Capital cost of UIHEP: –OHPC have indicated capital cost of UIHEP based on CERC guidelines dt –The said regulation come in to force with effect from which stipulates that for the existing generating stations the capital cost admitted by the Commission prior to shall form the basis for determination of tariff. –Prior to said notification cost of spares for 5 years was allowed to be included in the capital cost. –Hence further addition of 1.5% of Project Cost towards Capital Spares needs to be explained by OHPC. –Repair of rotor poles: –The actual expenditure incurred against repair of rotor poles of all the 4 units may be furnished by OHPC.

20 Issues emerge from the objections… Contd.. Individual Station wise PPAs: –Although OHPC has indicated that they have submitted all draft PPAs to GRIDCO it has not been executed so far. –Hirakud and Chiplima should be considered as separate stations –Separate PPAs be developed. –R & M of Chiplima units are long delayed. –Since OHPC is not executing any new project presently, the profit of Rs Crores as on can be invested for renovation of units and discharging existing high cost loans if any. –Since Gridco’s position as a trading organization is under litigation, the Commission may consider for OHPC to conclude PPAs with distribution companies by proposing a percentage of generation of each station to the distribution companies.

21 Issues emerge from the objections… Contd.. Interest on Loans:, –The calculations made by OHPC under “Interest on Loans” in the ARR for FY is not as per the correctives suggested by the OERC. Guarantee Commission: –The Guarantee Commission claimed by OHPC is on higher side. Misc Income: –Interest on Gridco Bonds and other Misc. receipts to be deducted from the ARR of OHPC. Project cost of UIHEP: –The steps taken during the last 4 years to determine the allowable capital cost on completion of the project is unsatisfactory. Two part Tariff: –The Commission may prescribe a two-part tariff, with capacity charges & primary energy charges for recovering the full fixed cost.

22 Issues emerge from the objections… Contd.. Sale of Power to MPSEB: OHPC should indicate expected revenue to be earned from MPSEB and claim the balance ARR from GRIDCO pertaining to HPS. (GRIDCO) Electricity Duty: Instead of including ED in tariff it should be claimed separately for payment through year-end bill.

23 SUMMARY OF THE REPLIES GIVEN BY OHPC

24 Old Power Stations of OHPC Review of Design Energy : –The job has been awarded to the consultancy agency M/s SPARC, Bhubaneswar on turn-key basis –The inception report, shall be submitted to OHPC shortly. Sale of Power to CSEB: –As per the order of Govt. of India, Ministry of Power, now the power is being supplied from to CSEB instead of MPSEB. –Since, the difference as compared to the unit rate proposed in the application is very negligible, the same has not been considered separately. Income Tax: –OHPC has no objection, if the income tax paid by OHPC is included in the ARR of GRIDCO & reimbursed to OHPC in accordance with CERC regulation.

25 Old Power Stations of.. Contd.. Electricity Duty –OHPC has no objection if the electricity duty paid to the State govt. by OHPC is included in the ARR of GRIDCO & reimbursed to OHPC as agreed in the PPA. Equity component –Since, revaluation of assets was kept in abeyance for tariff purpose, equity base of 25% has been considered in tariff on the book value of the assets. Return on Equity –As per CERC norms, 14% is being allowed to the generator across the country & also to the other generator supplying power to GRIDCO. Hence, OHPC, as a generator should also be allowed 14%.

26 Old Power Stations of.. Contd.. R, M & U investment of Unit 3 & 4 of Burla : –The audited capitalised cost of Rs Crs. has been arrived after giving credit of Rs Crs. for sale of infirm power till COD. There is no sale value of replaced assets as these are all scraps. 7th & 8th extension units of BHEP : –BHEP extension units are expected to be in operation by March’07 / April’07. The capitalized cost is based on payments made to the contractor and liabilities to accrue as on O & M Expenses –The O & M expenses is based on audited accounts of (which is more than that was claimed and allowed in the tariff of & plus 4% for &

27 Old Power Stations of.. Contd.. Depreciation : –If the advance against depreciation to the extent of loan repayment in a year shall not be passed in the tariff, it shall be very difficult for timely repayment of the loan. This needs to continue till GRIDCO liquidates the outstanding dues in full. Implementation of two-part tariff : –OHPC prefers a two-part tariff in all its Power Stations.

28 Old Power Stations of.. Contd.. Two-part tariff has not yet been implemented at the old Power Stations of OHPC. Hence, the capacity index is not being computed. Separation of Burla & Chiplima : –Chiplima Power Station utilizes the discharge water of Burla Power House. As such the operation of Chiplima Power Station is fully dependent upon the generation of Burla Power Station. Hence, separation of Burla & Chiplima Power Station is not feasible.

29 Upper Indravati H. E. Project Income Tax & Electricity Duty : –Same as indicated for old Power Stations. Repair of rotor poles –The rotor pole repair work at UIHEP is a special repair job. Considering the importance & nature of defect in the rotor pole and other relevant factors, OERC has accepted it as a deferred revenue expenditure. –The depreciation of UIHEP for the proposal of tariff has been limited to repayment of PFC Loan & hence, no amount is available with OHPC to fund such expenditure. Capital cost of UIHEP : –For tariff purpose, the capital cost considering 50% of the dam cost is taken at Rs Crs. against the capital expenditure of Rs Crs. as on and Rs Crs. as on Further, capital expenditure are being made towards rehabilitation & resettlement as & when approved by the Govt.

30 Upper Indravati H. E. Project.. Contd.. Interest on Loans –Interest on Govt. and PFC loans are to be paid by OHPC. –Interest on deemed loans relating to projects are as per the norms and allowed to all other generators which can not be denied to OHPC Guarantee Commission –The guarantee commission is as per the norm of the Govt. however, OHPC has taken up with the Govt. for payment of guarantee commission on outstanding balance of loan. Reservoir level & Availability of Power –Availability of power projected for FY is a speculation based on the reservoir level at the time of filling of application and the current inflow pattern. –This has been proposed to the extent of the design energy of all the Power Stations.

31 Upper Indravati H. E. Project.. Contd.. Availability of UIHEP : –Day ahead declared capacity depends upon the water & machines available for the power generation for the next day. –So, it may be too early to project the capacity index for the year Two part Tariff: –In two part tariff, the AFC is to be approved by the Commission. When monthly billing is made as per the formula given in the CERC notification, both Primary Energy Charges & Capacity Charges shall vary, total AFC remaining same.

32 Upper Indravati H. E. Project.. Contd.. Separate Fund –As per OERC’s order the revenue earned out of the sale of secondary energy may remain as part of normal fund of OHPC but shall be utilized to replenish the shortfall in revenue due to less generation by OHPC in years of hydrological failure. –Due to huge outstanding against GRIDCO, there is no inflow of funds on A/c of sale of secondary energy during the year Pricing of the secondary energy –The issue of pricing of the secondary energy has been discussed adequately at CERC & also at OERC during last few years. Though, there is a up-coming of two units at BHEP, design energy may not be changed as it depends upon hydrological parameters. However, this shall help to meet the peak demand.

33 Upper Indravati H. E. Project.. Contd.. Individual Station-wise PPAs : –Draft PPAs of all the old Power Stations has been sent to GRIDCO for their concurrence & signature. –The separate PPAs for Burla & Chiplima is not feasible as Chiplima Power Station utilizes the discharge water of Burla Power House. – As such the operation of Chiplima Power Station is fully dependent upon the generation of Burla Power Station. Construction of a separate channel at Chiplima may not eradicate the weeds problem –this is considered not feasible due to some Procedural & Technical prohibitions. –However, OHPC has planned to construct a bridge-cum-trashrack system at the upstream of forebay pond to arrest the weeds.

34 Upper Indravati H. E. Project.. Contd.. The construction of a bridge on Hati river at Junagada may be taken up by the State Govt. through concerned deptt. Renovation in excitation system & governing system with latest digital type of unit I & II of Rengali Power House is being made recently.

35 Upper Indravati H. E. Project.. Contd.. Misc. Income –Misc. income are small non-recurring incomes & mostly relate to the prudential cost management. –Such incomes do not find place in the CERC norms. Truing up –Only in few years OHPC has generated more than the design energy & in many years the generation is less than the design energy due to poor hydrology condition. –Only in the year the lower generation is compensated in case of UIHEP but not in other old Power Stations. General –The revalued transfer cost of the projects as on have not been considered in the tariff calculation, as per OERC’s tariff order for the previous year.

36 BROAD TARIFF RELATED ISSUES

37 BROAD TARIFF RELATED ISSUES Station- wise PPAs for old Power Stations of OHPC has not yet been executed (As per OHPC, the same is pending with pending with GRIDCO). Status of Re-assessment of Designed Energy for old Power Stations of OHPC may be indicated

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