ANDHRA PRADESH ELECTRICITY REGULATORY COMMISSION

4th & 5th Floors, Singareni Bhavan, Red Hills, Hyderabad-500 004

 

O.P.No.19 of 2006

 

Dated: 30-12-2006

 

Present

Sri K. Swaminathan, Chairman

Sri Surinder Pal, Member

Sri R.Radha Kishen, Member

 

In the matter of consent for amendment to the

Power Purchase Agreement (PPA) between:

 

1. Transmission Corporation of Andhra Pradesh Ltd,

2. Eastern Power Distribution Company of A. P. Ltd,

3. Southern Power Distribution Company of A. P. Ltd,

4. Central Power Distribution Company of A. P. Ltd.

5. Northern Power Distribution Company of A. P. Ltd                                                                                      …           Applicants

                                                                                                                                                                                    (First party to the PPA)

 

and

 

M/s Vemagiri Power Generation Limited,                                                                                                           …       Second party to the PPA

 

1)         Sri. B.V.Raghavulu, Secretary, A.P.State Committee,

            Communist Party of India (Marxist), M.B.Bhavan,

            Hyderabad.

 

2)         People’s Monitoring Group on Electricity Regulation,

            C/o Centre for Environment Concerns, Barkatpura,

            Hyderabad.

 

3)         Sri.K.P.Rao, IDAS (Retd), A-1 Arsh Glory Apts.,

            East Marredpally, Secunderabad.

 

4)         Sri.M.Venugopala Rao, Special Correspondent,

            Prajasakti Telugu Daily, Ramanthapur,

            Hyderabad.

 

5)         Sri.A.Punna Rao, Ashoknagar,

            Vijayawada.

 

6)         Sri.K.Raghu, Adarshnagar,

            Hyderabad.                                                                                                                                                                   …       Objectors

 

            The Commission having considered the application filed by the Applicants mentioned above for grant of consent to the proposed amendments to the Power Purchase Agreement dated 31-03-1997 and Amendment Agreement dated 18-06-2003 with M/s. Vemagiri Power Generation Limited and having heard the parties concerned and members of the public and duly taking into account the material on record passed the following:

 

 
O R D E R

CHAPTER I - BACKGROUND

 

Originally, the Government of Andhra Pradesh (for short, GoAP) approved in July 1996, the offer inter-alia of M/s. Nippon Denro Ispat Limited, Mumbai, to set up a power plant of 468 MW with Naphtha as fuel at Vemagiri,.  The said company incorporated a new company by name, “M/s Ispat Power Limited,” to develop, finance, construct, complete, own and operate the project and entered into a Power Purchase Agreement (for short, ‘PPA’) with the then Andhra Pradesh State Electricity Board (for short ‘Board’) on 31-03-1997. The said company changed its name to M/s Vemagiri Power Generation Limited (for short, ‘VPGL’) with the approval of the Government. With allocation of 1.64 MCMD of Natural Gas on firm basis to it, the VPGL chose to execute the project in two stages – Stage I (370 MW) with available allocation of Natural Gas and Stage II (150 MW) after obtaining further gas allocation. Consequent to reformation and reorganization of the electricity sector, the Transmission Corporation of Andhra Pradesh Limited (for short, APTRANSCO, the Applicant No.1 herein), the successor-in-interest of the erstwhile Board, decided to amend the PPA executed on 31-03-1997 with regard to change of fuel, station heat rate, incentives, interconnection facilities, PLF, etc., in respect of the 370MW Gas based power project being implemented by M/s. VPGL and submitted the draft of amended PPA to the Commission for consent.  The Commission after conducting a public hearing, issued an Order on 12-04-2003 granting consent for such amendments with certain modifications as mentioned in the Order.   Accordingly, the Applicant No.1 herein entered into an amendment agreement with VPGL on 18-06-2003.  Similar amendment agreements to the original PPAs were also entered into with three other upcoming gas-based power projects viz., 464 MW (promoted by M/s.Gautami), 445 MW (M/s.Konaseema) and 220 MW (M/s.GVK Extension), all with the consent of the Commission.

 

2.         From the year 2003, however, as reported by APPCC (Andhra Pradesh Power Coordination Committee, an entity coordinating the actions of the all the five Applicants herein, headed presently by the CMD of Applicant No.1) / APDISCOMs (collectively the four distribution companies in the State, the Applicants No. 2 to 5 herein), Gas Authority of India Limited (for short ‘GAIL’) has not been supplying, and would also not be able to supply, the allocated quantities of Natural Gas to the existing four gas- based power projects, including VPGL, as per the Gas Supply Agreements entered into with them. In view of the same, Applicant No. 1 would be required to purchase costlier power with alternate fuel i.e. Naphtha, LSHS and the like or pay full fixed charges without drawing any energy, once these upcoming gas-based projects are commissioned as they can declare availability with costly alternate fuels like Naphtha, etc. as per the provisions of the PPAs.  The total commitment towards payment of fixed charges for the four upcoming gas- based projects, without availing energy, works out to about Rs.1020 Crores per annum. Consequently, in the year 2004, the Applicant No. 1 filed petitions before the Commission for deletion of the alternate fuel clause from the definition of ‘Fuel’ in the PPAs, including that with VPGL.

 

3.         In view of the Third Transfer Scheme notified by GoAP on 09.06.2005, the rights and obligations and agreements and contracts relating to procurement and bulk supply of electricity or trading in electricity, to which the Applicant No. 1 was originally a party were transferred to and vested in the Applicants No. 2 to 5.  As per the said Third Transfer Scheme, all the PPAs including the PPAs of the four upcoming gas- based projects are vested with APDISCOMs i.e., Applicant No. 2 to 5. In view of the same, the Applicants No. 2 to 5 were impleaded in the petitions filed by the Applicant No. 1.

 

4.         While the petitions for deletion of alternate fuel clause are pending with the Commission, owing to the concerns expressed about non-availability of natural gas for these upcoming four gas - based projects, GoAP held negotiations with the developers of four upcoming gas based power projects, including VPGL, for amendments to the PPAs to mitigate the “Fixed Cost” payment risk arising out of non-availability of Natural Gas and the developers, including VPGL, agreed to non-usage of alternate fuel till January 1, 2007.  The proposed amendments in line with the above agreement were submitted to this Commission, which issued its consent in Order dt: 14-12-2004 in O.P.No.25 of 2004.

 

5.         While the matter stood thus, VPGL submitted proposals on 02-03-2006 to GoAP for arriving at an amicable solution on the issue of deletion of alternate fuel provision from the PPA, which were referred by GoAP to a Committee constituted vide G.O.Ms.No.18, Energy (Power-I) Dept, dated 25-02-2006 for examination in depth. The Committee, on which all the Applicants herein were represented by the Chairperson of APPCC, after holding discussions with representatives of VPGL, noted that 

(i)         VPGL would be receiving fixed charges for the energy generated using Natural gas only and the risk of payment of fixed charges if gas is not available / inadequately available is mitigated for the whole PPA period.    The fixed charges payable to VPGL, if gas is not supplied is about Rs.253Crs per annum without actually availing energy, as per current PPA conditions with alternate fuel clause.

(ii)        The proposals of VPGL for deletion of usage of alternate fuel would strengthen the petitions filed by the Applicants herein before the Commission and benefit the end consumers.

(iii)       The other three upcoming projects may also come with similar proposals in which case the risk of payment of fixed charges due to fuel supply risk would be mitigated (Rs.1020 Crs per annum for all the four upcoming projects).

 

6.         Further, the Committee made some recommendations to GoAP, which are as follows:

(i)         Deletion of usage of alternate fuel provision from the definition of the ‘Fuel’ making natural gas as the only fuel for generation of electricity by VPGL.

(ii)        Supply of existing gas to existing gas-based power projects and new gas to upcoming four gas-based power projects, including VPGL, on pro-rata basis.

(iii)       To permit VPGL to sell excess capacity of 18.5MW over and above the PPA capacity (370 MW) to third parties.

(iv)       Recovery of Foreign Debt Service Charge (FDSC) shortfall in first two years (up to 31-03-2008) by extending term of the FDSC payment period.

(v)        Extension of PPA term by 8 years i.e., up to 23 years from the existing 15-year period.

(vi)       Reimbursement of full fixed monthly transportation charges during the period of non-supply /partial supply of natural gas till 31-03-2008, if GAIL does not agree to levy transportation charges proportionate to gas supplied.  GoAP to pursue with Ministry of Petroleum & Natural Gas (for short ‘MoP&NG’) on this issue.

(vii)      GoAP to take up with MoP&NG for directing ONGC and GAIL for allocating natural gas from new sources to the upcoming gas-based power projects till their firm allocations are met.

(viii)      Incorporation of suitable amendments for non-levy of Liquidated Damages (LD), Disincentives and non-operation of Default clause, due to non-availability of natural gas.

(ix)       Supply of 1.64 MCMD gas for a period of 7 days from current supplies of natural gas to enable the company to declare COD (Commercial Operation Date).

(x)        To incorporate suitable clause in the proposed amendments to make applicable the “Committed Incentive Energy” (for short, CIE) clause with effect from and including the Tariff Year in which Natural Gas is available for PLF of 85% or above.  If the company achieves actual PLF between 80% to 85%, then the incentive would be paid at the CIE rate of Rs.0.0699 per unit as per the existing PPA provisions.

(xi)       To incorporate suitable clause in the proposed amendments for recovery of additional revenue loss, if any, by way of protecting the FDSC payment and extending the PPA term, due to change in gas availability assumed by VPGL.  The clause should also reflect that in case the gas availability is more than what is assumed by VPGL then the PPA term is to be modified to pass on the benefit to APDISCOMs.

 

7.         Based on the above recommendations, the Applicants proposed amendments to the PPA entered into between them and VPGL with the latter’s concurrence and thereafter they were submitted to Government for approval. Government after detailed examination and noting that no additional financial commitment has arisen in the amendments proposed, accepted the recommendations of the Committee and conveyed approval for the amendments proposed with a request to take further necessary action.  The brief details of the amendments proposed and submitted to the Commission for consent in the petition herein are given in Annexure – I.

 

 

CHAPTER – II

OBJECTIONS / SUGGESTIONS BY GENERAL PUBLIC

 

8.         The Commission invited objections and suggestions on the proposed amendments to the PPA from the public and held public hearing. The Applicants were requested to publish a notice in prominent newspapers inviting public objections/suggestions. Accordingly, notification was published on 01.07.2006. The Commission received 6 objections. All these objections are kept in the Commission’s website www.ercap.org .

 

9.         The summary of the objection/suggestions of these six objectors is abstracted hereunder:

 

(1).       While some of the objectors have expressed the view that the financial burden on account of fixed charges liability will be reduced by the proposed amendment of deletion of alternate fuel clause, some others are of the view that the proposed amendments will increase the burden on consumers instead of reducing it.

 

(2).       The computation of the net loss of Rs.54 Crores stated as being incurred by VPGL in the process as at the end of the extended period of the agreement on NPV (net present value, at a discounting factor of 10 per cent) basis is questioned by many objectors on the following grounds: -

 

(a).       Extension of agreement by 8 years

The period of extension of agreement by 8 years is not warranted since the projected non-supply/partial supply of gas is mere 2 years.

 

(b).       O & M Expenses:

(i).        O & M charges of Rs.710 crores payable during the extended 8-year period of agreement are excessive.

 

(ii).       The useful life span of the plant should be increased by 15 to 20 years when R &M (renovation and modernization) is taken up as in the case of APGENCO (the GoAP-owned power generating company) plants.

 

(c).       Revenue from sale of surplus power

            Revenue earned by developer through the sale of surplus power was under-estimated on account of the following:

(i).        Only 15-year period is reckoned for the purpose instead of all the  23 years.

 

(ii).       The sale price of Rs.1.10 per unit adopted in the computation of revenue from the sale of surplus power is conservative.

 

(3).       The following points are also raised in connection with sale of surplus power:

(a).       The surplus capacity is not specifically mentioned in the proposed amendments leaving scope for sale of energy corresponding to a capacity in excess of 18.5 MW now declared.

 

(b).       The sale of surplus power should be  limited to only 3rd parties. Wheeling for captive use should not be allowed.

 

(4).       Other benefits allowed to Developer to compensate for loss:

(a).       The developer should not be allowed to have the benefit of waiver of liquidated damages by extending SDOC (Scheduled Date of Commissioning).

 

(b).       Committed incentive energy of 5% should be supplied from CoD and no exemption should be allowed even prior to the tariff year in which gas is available for generation of energy up to 85% PLF or above.

 

(c).       The developer should not be relieved from the liability to pay Disincentive if the PLF falls below 68.5%.

 

(5).       Other issues

(a).       Transportation charges paid if any by the developer during the period of non-supply of fuel up to 31-03-2008 should not be reimbursed.

 

(b).       If the gas prices increase, there should be a cap on the variable cost corresponding to the highest tariff for any coal-based station in the State.

 

(c).       After the loan component in the OFC (other fixed charges) is fully recovered, the benefit of reduction in fixed charges should be passed on to the consumers.

 

(d).       The clause 5.2 (e) which provides for payment of fixed charges in proportion to the availability of gas should continue to be operative beyond 31-03-2008 also.  Payment of full fixed charges upfront every month and adjustment at the end of the year is un-warranted.

 

(e)         It is the declared policy of Government of India (GoI) that the fuel risks devolve on the developer. The policy resolution of GoI dated
6-11-1995 was included in the PPAs concluded earlier, e.g., with M/s. Spectrum, M/s. GVK etc., which has not been done in the present case.

 

(f)          The benefit of re-scheduling of loans by the developer in the present low-interest scenario shall be passed on to the consumers.

 

(g).    A clear picture of gas availability is not made available to the public even now.

 

 
CHAPTER – III

RESPONSE OF APPLICANTS TO THE OBJECTIONS / SUGGESTIONS RECEIVED

 

10.       The Commission directed the Applicants to submit replies to the objections / suggestions of all the six objectors On behalf of the Applicants, the CE(IPC), APPCC, in letter dt: 14-07-2006, furnished written responses on the above objections, which can be summarized as follows:

 

(i).        With the proposed amendments, VPGL would be receiving fixed charges for the energy generated using natural gas only and that would mitigate risk of payment of fixed charges if gas is not available or is inadequately available, for whole of the PPA period.  The proposed amendments are beneficial to the end- consumers by utilizing the plant to the extent of availability of gas.

 

(ii).       VPGL has not proposed any renovation and modernization as mentioned by the objectors, but only informed that as per the manufacturer’s recommendations and O&M agreement entered into , it has to carry out major maintenance and overhaul of the plant in every 3rd year of operation, incurring expenditure.   It has not proposed any shutdown of the plant up to 31-03-2008 as mentioned by the objectors.  It has assumed partial availability of natural gas up to 31-03-2008 and generation proportionate to the gas availability.  Since no renovation and modernization has been envisaged, the question of increase in the useful life span of the project as raised by the objectors does not arise.  The plant can run beyond 23 years as suggested by the objectors, but by incurring additional expenditure for major maintenance and overhaul, every 3 years.

 

(iii).      As per the PPA provisions, the installed capacity allowed is a maximum of 370 MW and even in case the demonstrated capacity is higher than 370 MW, VPGL cannot declare availability at more than 370 MW for APDISCOMs.  Therefore, the question of purchase of power over and above 370 MW by APDISCOMs does not arise.

 

(iv).      As per the proposed amendments, VPGL is permitted to sell excess capacity over and above the installed capacity.  During the period of non-availability / partial availability of natural gas, it cannot declare even the availability equivalent to the installed capacity of 370 MW, as such, during such periods, VPGL will not have excess capacity to sell to third parties as apprehended by the objectors.

 

(v).       As per the PPA dated 18-06-2003, VPGL has to achieve SDOC of the 1st unit by 18-10-2005 and the project by 18-01-2006, respectively.  Liquidated damages are to be levied for non-achieving SDOC of the project by 18-01-2006.  However, SDOC shall be extended day for day for any delay in providing inter- connection facilities 3 months before the SDOC of the 1st unit.  VPGL in its letter dated 12-05-2005 informed that 85% of the project construction had been completed and requested to provide start-up power.  Due to non- availability of natural gas, the Applicants have not provided inter- connection facility and startup power.

 

(vi).      As VPGL has accepted for deletion of Alternate Fuel clause, in the event of non/partial availability of natural gas, it would not be in position to declare availability of up to 80% PLF and would be losing proportionate fixed charges due to non-availability of natural gas.  Levy of disincentives for not declaring required availability would be penalizing it twice for non-availability of natural gas.  For that reason, the request of VPGL for non-levy of disincentives due to non-availability of natural gas is accepted.  

 

(vii).     The request of VPGL for the full reimbursement of fixed monthly transportation charges that will be levied by GAIL during the period of non-supply / partial supply of gas was accepted by the Government and it was decided to pursue with GAIL for levy of transportation charges proportionate to gas supplied.

 

(viii).     The objectors have presumed that VPGL would be recovering the total OFC during the extended period of agreement.  This is not correct as, even with the extension of the PPA period up to 23 years, VPGL would be still losing about Rs.54 crores (NPV).

(ix).      GAIL has laid the gas pipeline for the project.  As per the Gas Supply Agreement entered into by VPGL, the gas drawal date is from July 2005. The Tariff Commission has conducted a study on the high transmission charges being collected by GAIL for the existing projects and furnished detailed report to MoP&NG for implementation of the recommendations.   The Tariff Commission concluded that GAIL is collecting high transmission charges and computed normative tariffs for the period from 2005-06 to 2009-10.  The Tariff Commission recommended that it would be appropriate to charge tariffs based on the actual quantity of gas supplied.

 

(x).       GOAP/ APTRANSCO are constantly bringing to the notice of Hon’ble Prime Minister, Hon’ble Minister for Petroleum & Natural Gas for causing instructions to ONGC and GAIL for augmenting the supply of natural gas to the existing and upcoming gas- based projects in AP, keeping in view the interest of end -consumers.

 

(xi).      The GoI resolution dated 06-11-1995 was not included in the PPAs of upcoming four gas-based projects.  However, the provisions regarding procurement of fuel in the PPAs of upcoming gas based projects are similar to those available in the PPAs with GVK and Spectrum.

 

(xii).     The project is a tariff-based project. Rescheduling of loans by VPGL has no bearing on the tariff, unlike in the case of capital cost- based projects.

 

 

 
CHAPTER IV - PUBLIC HEARING

 

11.       The Commission heard the Applicants and the Objectors who wanted to be heard in person, during the public hearing conducted in the Court Hall of the Commission on 17-07-2006 and again on 27-07-2006.  On 17.07.2006, the representative of the Applicants, Sri. Srinivas, after brief explanation of the background of the need for the proposal to amend the PPA (as outlined in para 1), made the following submissions:

 

Even though at the time of granting consent, the Commission was assured of availability of natural gas for the entire period of PPA, GAIL is unable to meet its commitment.  Therefore, VPGL will be forced to declare availability by use of costly alternative fuel for generation of electricity; even otherwise, it would be burden to the end consumers to pay fixed charges without drawal of energy due to costly fuel. As GAIL is not in a position to supply the allocated quantity of natural gas to VPGL in the near future, APTRANSCO and other Applicants herein filed petitions against 4 gas-based power projects, including VPGL, with prayer to delete the usage of alternate fuel from the definition of Fuel in the PPAs, which are pending with the Commission. In the meanwhile, GoAP negotiated with the 4 gas -based power project developers including VPGL, who accepted not to use alternate fuel till 01.01.2007.  On 02.03.2006, VPGL submitted a proposal to GoAP, - which decided to refer the same to a Committee constituted vide G.o.MS.No.18, Energy (Power-I) Dept. dated 25.02.2006 and to hold discussion with VPGL.  After detailed deliberations, the Committee noted that the proposal of VPGL for deletion of usage of alternative fuel would benefit the end consumers and recommended for supply of available gas to existing projects and new gas to upcoming projects, to permit VPGL to sell excess capacity of 18.5 MW over and above the PPA capacity (370 MW) to third parties, recovery of Foreign Debt Service Charge (FDSC) shortfall in first two years (up to 31.03.2008) by extending the term of the FDSC payment period and extension of PPA term by 8 years i.e., up to 23 years from the existing 15-year period. Based on the above recommendations, which were accepted by the GoAP, it is proposed to incorporate the proposed amendments to the PPA with VPGL and it is prayed that consent may be granted for execution of such amended agreement by the Applicants with VPGL.  It was also stated, among others things, by the said representative that the APDISCOMs have the option to buy back the project at the end of the term of PPA, in the context of O & M expenses.

 

12.       Apart from the representative of the Applicants, two Objectors made oral submissions on 17-07-2006, as follows.

 

      (i)            Sri A.Punna Rao of Vijayawada re-iterated the points mentioned in his written response and pleaded that these projects be taken over by GAIL/NTPC/APGENCO, citing the example of Dabhol Project.

 

    (ii)            Sri. K. Raghu of Hyderabad made a presentation on various issues concerning the proposed amendments, apart from the points raised in the written submissions. He specifically pointed out the impact of word “interalia” used in clause 5.2 A and requested for its deletion. He also made a strong plea to retain the alternate fuel clause on the ground that it can be made use of whenever gas prices exceed the prices of alternate fuels in the long time horizon of the life of PPA.

 

13.       During the hearing on 27-07-2006, the four other Objectors made submissions before the Commission as follows:

 

      (i)            Sri. B.V. Raghavulu, Secretary, AP State Committee CPI (M), while reiterating the written submissions made earlier which, inter-alia, state that the proposed amendments are meant to protect the interests of consumers, took objection to the violation of the GoI Resolution dated 06-11-1995 which relieves the State Electricity Boards from the fuel supply risk. Regarding the O&M expenditure, he requested the Commission to work out a feasible monitoring arrangement to ensure that this additional expenditure is reasonable. He stated that the alternate fuel clause should be deleted without any concessions to the Developer.  He also said that there is no need to extend the period of agreement and also that 3rd party sales are not necessary and gas transportation charges need not be paid when there is no gas supply.

 

    (ii)            Sri. M Thimma Reddy, Convener, Peoples Monitoring Group on Energy Regulation, objected to the very consideration of  the proposed amendments on the ground that the Developer did not comply with the earlier Order dated 14-12-2004 of this Commission.  While alleging that the amendments are aimed at mitigating the risks of developer during the period of non-availability of gas (up to 31-03-2008), he pleaded that SDOC should be postponed to the date when gas would be available to operate the plant at 85% PLF so that the consumers are totally relieved of the fixed charges. He also objected to the proposal for supply of gas to this Developer for 7 days by diverting the gas meant for the existing gas projects.  The starting point should be taken as 01-01-2007 as per order dated 14-12-2004 of the Commission and not 01-04-2006 as proposed in the amendments.  He further stated that the recommendation of the GoAP Committee and the amendments now proposed do not tally fully. The objector additionally raised the issue of availability of alternate fuels in sufficient quantities besides seeking a clarification on whether the project is designed for dual fuel usage or not.

 

   (iii)            Sri. K.P. Rao, a retired IDAS officer and former Member (E&C) of the Central Electricity Authority, while re-iterating the issues raised in his written response, made a specific observation that the Fuel Supply Agreement is totally silent on the crucial issue of supply of gas in future.  He re-iterated the point that the fuel risk has to be borne by the Developer as per the policy of GoI.  He further insisted upon a cap on variable charges.

 

  (iv)            Sri. M. Venugopala Rao, Special Correspondent of the Telugu Daily, Praja Shakti, who also contended in the written submissions made earlier that the proposed amendments are meant to protect the interests of consumers, made elaborate submissions during the hearing on various issues covered in the written response of the Applicants.  One specific point made by him is that the Developer is not entitled for compensation of O&M expenses during the period of non-supply of gas which would not be actually incurred.  He insisted that the gas transportation charges are payable only from the date of synchronization.  He did not agree with the response of the Applicants that levy of dis-incentive as well as proportionate payment of fixed charges to the extent of availability of gas would be resulting in penalizing the developer twice for the same deficiency, on the ground that the APDISCOMS have to procure power at a higher cost to the extent of shortfall on this account. He also filed further written submissions later (on 31-07-2006) contesting some of the responses given by the Applicants on the objections raised earlier in writing.  While suggesting to carefully examine the implications of extending the PPA period beyond 23 years, he pointed out that the Developer would have a surplus of Rs. 81.49 crores as at the end of the 23rd year instead of a deficit of Rs.54 crores, if the additional revenue of Rs.135.49 crores on account of sale of surplus power is taken into account, which is not shown by the Developer.   He also stated that the contention of the Applicants that they have the option of buy-out of the plant is not correct as the existing terms of PPA do not provide for the same.

 

14.       During the public hearing on 17.07.2006 and 27.07.2006, the Commission sought certain clarifications with regard to facility created for alternate fuel. It was stated by the representative of the Applicants that in view of the proposed amendments, the risk of fuel availability is now vested with VPGL and the APDISCOMs have the advantage of mitigating the risk completely.  While the APDISCOMs have got significant advantage of mitigation of risk, VPGL may get small advantage by seeking alternate use of the facilities created for alternate fuel, which are not integral to the main plant.   This advantage may come after assuming the major risk on availability of fuel.  The APDISCOMs, therefore, submit that the Commission may take a view in the matter considering the entire proposition in the proposed amendments. 

 

 

CHAPTER - V 

RESPONSES OF APPLICANTS TO OBJECTIONS RAISED IN

PUBLIC HEARING

 

15.       The Applicants submitted their responses in their letter dt: 03-08-2006 on the oral and written submissions made by objectors during the hearing on 17-07-2006 and 27-07-2006 by the objectors and clarifications sought by the Commission and also filed further replies along with an affidavit filed by the CGM (Comml & RAC) on 23-09-2006, which can be summarized as follows:

(a).       With the deletion of alternate fuel clause, the fuel supply risk is transferred to the Developer.  The proposed amendment facilitates the mitigation of risk of consumers in the beginning and allows the Developer to recover the loss later.  The earlier proposal of not using alternate fuel till 01-01-2007 is only temporary relief, whereas the present amendments will mitigate the fuel risk completely as the liability for payment is limited to the extent of availability of gas.

(b).       Any PPA provides for variable cost as pass-through.  Putting a cap on variable cost is not envisaged in any PPA.  Possible hike in gas prices and the fuel price risk applies to all fuels including coal.  However, as per the provisions of the PPA (Article 3.3) the cost of the natural gas to be paid is limited to the cost of natural gas supplied by GAIL or from alternative supplier, whichever is less.

(c).       Major part of the O&M expenses pertains to long term service agreement for repair and maintenance which contain both fixed and variable components and it is informed by Developer that the O&M organization for the project is fully in place and hence the costs remain un-changed.

(d).       The O&M cost per year during the extended period of 8 years would be the same as that incurred during the original 15-year period of the Agreement.   Even with the same level of O&M charges and 8-year extension, the Developer will incur a loss of Rs.54 crores at 23rd year on NPV basis.

(e).       Having regard to the concerns expressed by some objectors in allowing the extension of agreement period beyond 23 years, the amendment is modified by deleting the words “onwards” after April 2008 in Article 5.2 A.

(f).        Similarly the word “interalia” is also deleted in clause (C) of Article 5.2 A.

(g).       Regarding the payment of gas transportation charges in proportion to the gas supply, the GoAP has taken up the issue with the MOP&NG to ensure implementation of Tariff Commission recommendations. Further, M/s.GAIL informed that after the testing of the plant of M/s.VPGL, transport charges will not be claimed when there is no supply of gas, as in the case of M/s.GVK plant , but the Developer has to give a letter to GAIL to make payments if  MoP&NG insists on payment of these charges.

(h).       The Committee accepted the proposal of the Developer to sell surplus power in excess of 370 MW to third parties and payment of other fixed charges as the entire amendments are considered as ‘composite’ in nature.

(i).        The amendments allowing concessions are part of the amendments, which are ‘composite’ in nature.

(j).        It is true that the option to sell or to retain the plant after the expiry of the agreement period rests with the Developer as per the PPA terms.

(k).       It is not correct to say that the proposed amendments do not tally with the recommendations of the State Government Committee.

(l).        The suggestion for retention of alternative fuel clause cannot be considered as there is immediate risk of payment of full fixed charges.  Further, it is unlikely that in the future, the  price of naphtha would become less than that of natural gas.

(m).      The benefit to the Developer on account of use of the facilities erected for alternate fuel, for alternate purpose, is not significant and hence can be ignored.

(n).       Waiver of disincentive was accepted by the Committee as the availability of gas is beyond the control of the Developer.

 

 

Modifications to the proposed Amendments pursuant to objections raised in public hearings.

 

16.       In view of the concerns expressed by the objectors during the public hearings, the APDISCOMs proposed certain modifications to the proposed amendments in letter dt: 03-08-2006, which are shown with marked-up changes as accepted by VGPL in Annexure – II (A).  APDISCOMs have also filed additional amendments on           23-09-2006 which is also indicated under Annexure – II (B).

 

17.       On 06-11-2006, the CGM (Comml & RAC) on behalf of Applicant No. 4 and the other three APDISCOMs filed an affidavit stating that

(a)                By letter dated 04-10-2006, the APDISCOMs proposed additional amendments to the PPA (as indicated in Annexure – III) and requested VPGL to furnish its acceptance. 

(b)               By its letter dated 24-10-2006, VPGL responded as follows:

 

Proposed modification to Para 1 of Article 2.1:

The existing language (as per the Amendment Agreement, to the Power Purchase Agreement, dated 5th June, 2006 initialed by the Company and APDISCOMs) is totally unambiguous and warrants no further clarification.  As per the existing language, the company agrees to sell and APDISCOMs agree to buy, for the consideration of Capacity Charge, the installed Capacity of the Project. Installed Capacity is a defined term in the PPA, which, inter-alia, mentions the limit of 370 MW. No further modification to the wordings as already agreed and initialed between the parties, is necessary.

 

Proposed modifications to Para 1 and Para 3 of Article 3.2:

The modifications proposed are agreed.

 

Proposed modification to Clause 6.2 of the PPA:

                                                               i.      The Subject clause 6.2 deals with the option of APDISCOMs to buy out the project and the mechanism thereof.  This clause has remained unchanged since 31st March 1997, when the initial PPA was executed.  Further, this cannot be constructed as a consequential change related to deletion of alternate fuel clause etc.

                                                             ii.      We believe that no change to the clause is therefore required.

 

(c)                The Commission may therefore include the proposed modifications in the amendments while issuing consent to the amendments.

 

 

CHAPTER – VI

DETAILED PRESENTATION TO COMMISSION BY APPLICANTS

 

18.       In response to the request of the Commission to make a detailed presentation on proposed amendments with regard to deletion of the alternate fuel provisions in the PPA, a presentation was made by APDISCOMs on 16-11-2006.  During the presentation, the stand of APDISCOMs on the issues raised by Objectors was explained in detail, as follows:

 

(a)        In response to the loss calculation due to non/partial availability of fuel, it was explained that VPGL initially proposed 01-03-2006 as notional COD for calculating the loss.  After the negotiations, it was accepted that for this purpose, 01-04-2006 would be the notional COD.  The PPA will, however, be effective from the actual COD, declared as per the terms of PPA.

(b)        With regard to objection that recovery of fixed charges should be considered by adjusting the total capacity, including the excess capacity and revising the threshold level of PLF proportionately, it is explained that as per the PPA, liability to pay capacity charges (fixed charges) is limited to a maximum capacity of 370 MW only and that the principles of amendment to the PPA are based on “composite scheme”, which captures compensation for the estimated loss incurred due to alterations in the fuel clause till 31-03-2008, by allowing third party sales and extension in term of the PPA.  Thus any amendment needs to be viewed in line with these principles.

(c)        In response to the objection that VPGL should dispose of  its excess capacity only after achieving 100% PLF of its permitted installed capacity of 370 MW and that periodical testing of the installed capacity of the plant should be conducted to ascertain the actual excess capacity, it was submitted that VPGL shall not declare excess capacity to third party without providing an Availability Declaration up to the installed capacity to the APDISCOMs and it shall always inform capacity committed to third party out of the Excess Capacity for such Settlement Period in addition to Availability Declaration.

(d)        In response to the objection that the proposed amendment neither has a limit on sale of excess capacity nor does it place any restriction on sales only to third party and that the impact on APDISCOMs by this third party sale is not analysed, it is explained that as per the clarificatory amendment, VPGL shall be free to dispose off capacity not exceeding 18.5 MW (the “Excess Capacity” over and above the Installed Capacity) to any third party and that relevant charges as per the Commission’s Open Access Regulations would be applicable.

(e)        In response to the apprehension that due to partial availability of fuel, the PPA term has been extended till 23 years and in case 1.64 MMSCMD gas is not available fully or partly from April, 2008 onwards, the period of PPA will have to be further extended, it was submitted that upon supply of such quantity of gas for a full month, for the first time, VPGL shall not make any further claims of loss incurred whether or not there has been a shortfall in gas supply and thereafter, the fuel risk vests with VPGL.  It was further explained that in case the supply of fuel during the period between the Project COD and 31.03.2008 is higher than the projected availability of fuel, agreement is to be amended adjusting the loss by proportionately reducing the term of PPA.

(f)         In response to the apprehension that APDISCOMs will pay the same fixed charge of Re.0.699 per unit even during the extended period of PPA without any financial commitment or factoring the benefit of reduction of loan component in OFC, the response of the APDISCOMs is that amendments to the PPA are “composite” in nature and the computation of the loss to VGPL and additional revenue likely to accrue to it are based on the above tariff, which is equal to the OFC. Still the VGPL, on NPV basis incurs a loss of Rs.54 cr.

(g)        In response to the apprehension about alternate fuel supply in case of non-availability or increase in prices beyond control and minimum fuel off-take, clause 1.1.27 should be appropriately modified instead of deleting it, the response of the APDISCOMs is that during the initial discussion with VPGL, APDISCOMs proposed to use natural gas as fuel or any alternate fuel whichever costs less for generating the same power and VPGL submitted the proposal with complete deletion of alternate fuel clause for whole term of PPA in consultation with lenders of the project.  As per the past data, the cost of generation with Naphtha as a fuel is higher than that with natural gas and therefore, APDISCOMs have not considered the alternate fuel option.  It was also clarified that as against gas price of USD 4.9 / MMBTU, Naphtha prices are at USD 16.15 / MMBTU.

(h)        In response to the apprehension that FSA (Fuel Supply Agreement with GAIL)is not co-terminus with the extended term of PPA and that there is no FSA for third party sale of power for the capacity of 18.5 MW, the response of the APDISCOMs is that the responsibility for extension of FSA beyond 15th year as well as for procurement of gas for 18.5 MW is vested with VPGL and if FSA is not extended, VPGL cannot declare capacity and recover charges during the extended period.

(i)         In response to the apprehension that payment of fixed charges for deemed generation due to abnormal price of gas that may arise at any point of time remains unresolved, the response of the APDISCOMs is that price risk applied to all types of fuels, including coal.  However, GoAP has taken up the issue of a Gas Regulator for pricing of natural gas with the GoI.

(j)         In response to the apprehension that payment of transportation charges to GAIL under partial or non-availability of fuel up to 31.03.2008 is being imposed on the consumers, it is to submit GAIL has informed that once the Plant testing is completed, it will not raise invoice for transportation charges.

(k)        In response to the objection that curtailment of gas supply to the existing plants and diversion of gas to VPGL amounts to breach of understanding, it is submitted that diversion is temporary and it does not breach the understanding.  Further, only variable charges are being paid to VPGL @ Rs.0.9183 / unit.

(l)         APDISCOMs consider that disincentives due to non-availability of natural gas may not be imposed when supply of fuel is beyond the control of VPGL.  APDISCOMs delayed declaration of COD by VPGL to prevent declaration on availability with alternate fuel, thereby mitigating the deemed generation payment. 

(m)       In response to the doubt whether CIE would be treated as deemed generation or incentive would be paid only on actual drawals, the response of the APDISCOMs is that CIE will be effective from and including that tariff year when gas is available for declaring availability of 85% and till such time VPGL would be able to recover fixed cost up to 80% PLF and incentive thereafter.

(n)        As stated by VPGL due to de-rating of the machine after 15 years, it would not be in a position to generate any additional capacity beyond Installed Capacity of 370 MW, and, therefore, the revenue is considered only for 15 years.

 

19.       The CGM (Comml & RAC) of Applicant No.4 submitted an affidavit dated:01-12-2006 on behalf of all APDISCOMs providing further clarifications as required by the Commission during the presentation, which are as follows:

 

(a)                                        As to whether transportation charges are payable even when no gas is supplied by GAIL and whether the proposed arrangement mitigates the position, it was clarified that while the position does not get mitigated in the PPA,GoAP has persuaded with GoI to collect transportation charges in relation to actual supply of natural gas.  It is understood that MOP&NG recently directed GAIL to collect transportation charges on the basis of average gas supply only, against the existing fixed normative value.  This position, if implemented, mitigates the fixed payment of transportation charges and gets linked to the actual supply of gas.

(b)                                       With regard to the validity of O&M cost estimates, the effect of the ‘combined’ scheme of the proposed amendments has been
re-computed on the basis of O&M costs as per CERC (Central Electricity Regulatory Commission) norms.  Even under such a scenario, it is estimated that VGPL would incur a loss of Rs. 14 Cr, on NPV basis. 

(c)                                        With regard to provision of O&M expenses during the extended period of PPA term, specifically towards the end of PPA term, it is submitted that in case the APDISCOMs propose to buy back the project at the end of the term of PPA, APDISCOMs would like to exercise the option on a fully operational plant rather than on a plant which require immediate overhaul. Therefore, besides regular O&M costs, VPGL would need to incur costs towards periodic major overhauls to keep the plant available to APDISCOMs.  In this connection, APDISCOMs have already submitted an affidavit dated 06.11.2006 proposing certain amendment to clause 6.2 of PPA.

(d)                                       With regard to compliance with provisions of Indian Electricity Grid Code (IEGC), as the gross installed capacity of the plant is expected to be 388.5 MW (370 MW to APDISCOMs and 18.5 MW to third party), it is clarified that as per clause 5.2(g) of IEGC, any Generating Unit over 50 MW size operating at or upto 100% of its Maximum Continuous Rating (MCR) should be capable of instantaneously picking up of 5% extra load when frequency falls due to a system contingency.  However, as per clause 1.6(iii) of IEGC, gas-based Combined Cycle Power Plants are exempted from the application of this provision.  As the power plant is a gas- based Combined Cycle Power Plant, it is exempted from meeting the requirements.

(e)                                        With regard to status of sale of excess capacity after the 15th year during the extended term of PPA, it is submitted that VPGL in its letter dated 24.11.2006 has stated that combined cycle plants have a capacity degradation profile, which is much steeper than the coal fired power plants and it apprehends that with revised provisions of clause 2.1 of the PPA, it will not realize even over the 23-year period from sale of surplus capacity, the net revenue which has been projected for the 15-year period.  Thus while VPGL can sell excess capacity to third parties even after 15th year, it may not be in a position to sell excess capacity consistently over the period as has been envisaged in the computations.  However, the Commission may take a view in this regard. 

(f)                                         With regard to creation of dual fuel facility and capital cost saving due to avoidance of creation of facilities for alternate fuel firing capability, it is clarified that VPGL implemented the project with dual-fuel facilities and it is possible that it might have saved certain capital costs on non-integral components of the plant and machinery.  VPGL further states that such costs are not substantial.  The Commission may take appropriate view in this regard.  

 

 

20.       On 14.12.2006 the Chief General Manager (Comml & RAC) of Applicant No.4  filed another affidavit on behalf of the Applicants No. 2 to 5 stating that –

 

      (i)            The proposed amendments submitted to the Commission on 06.06.2006 contemplate VPGL to recover the loss in Capacity Charge up to 31.03.2008 due to non/partial availability of natural gas by way of recovery of FDSC shortfall up to 31.03.2008 by extending the term of FDSC payment period, extension of PPA term by 8 years and permission for sale of excess capacity of 18.5 MW to third parties.

    (ii)            New Clause 5.2 A of the proposed amendments enables VPGL for recovery of additional revenue loss due to non/partial supply of natural gas beyond 31.03.2008 by way of protecting the FDSC payment and extension of PPA term.

 

   (iii)            Subsequent to public hearing on 17.07.2006 and 27.07.2006, the clause 3.2 of the proposed amendment regarding the protection for shortfall in FDSC payment upto 31.03.2008 was modified as “for the period up to 31.03.2008 or till such a later date, when full availability of natural gas of 1.64 MCMD for a full month for the first time”.  This modification was accepted by VPGL and submitted to the Commission on 06.11.2006 along with other modifications.

 

  (iv)            Since FDSC protection for any additional revenue loss for the period beyond 31.03.2008 is already incorporated in the Article 3.2, the FDSC protection under New Clause 5.2 A is repetitive and hence may not be necessary.  Further the “losses” estimated by VPGL is the loss in Capacity Charges due to non/partial availability of the natural gas.  Hence the word “losses/loss” is replaced by “loss in Capacity Charges” in New Clause 5.2 A. 

 

 

21.       In view of the above APDISCOMs submitted the modified New Clause 5.2 A substituting the words “losses/loss” with the words “loss incapacity charges” and deleting the reference to clause 3.2, as indicated as a separate item under Annexure - IV, and requested the Commission to take a view in the matter and include the proposed clarification in the amendments, while issuing consent to the amendments.

 

 

CHAPTER VII – COMMISSION’S ANALYSIS

 

22.       As can be seen from the foregoing, the proposed amendments are broadly aimed at mitigating the risk of payment of fixed charges in the event of gas being not available/partially available and consequently the VPGL declaring the availability of the power plant with costly alternate fuels viz., Naphtha or Low Sulphur Heavy Stock (LSHS) and the like as per the provisions of the PPA dated 18.6.2003.  Accordingly, the amendments centre around deletion of usage of alternate fuel from the definition of ‘Fuel’ in the PPA and making natural gas as the only fuel, besides addressing other issues like recovery of revenue loss likely to be sustained by VPGL (due to shortfall in full fixed charges arising out of shortage of gas leading to lower monthly fixed charges being paid based on the availability declarations till 31.3.2008 or till such time gas is available to the extent of 1.64 MCMD for a full month for the first time beyond 31.3.2008) by way of extension of term of FDSC payment period and of the PPA (with provision for adjustment of the period / term pursuant to changes from the gas availability projections as assumed) with due regard to revenue realization from sale of 18.5 MW of excess capacity, together with the O&M and major overhaul expenses to be incurred by the Company during the extended period of the PPA.  Further, the amendments also cover issues specific to gas as the only fuel but not being available to the required extent to enable the developer to comply with its obligations under the PPA in respect of achieving SDOC with consequent levy of liquidated damages/payment of interest on the cost of interconnection facilities, application of Disincentives, certain conditions of default, providing Committed Incentive Energy (CIE), etc.   Reimbursement of monthly gas transportation charges is also an issue.

 

23.       Against this backdrop and considering the various concerns/objections and suggestions voiced by/received from the objectors and the responses thereto of the Applicants, the Commission lists out the key issues to be dealt with, as under:

(a)                                                                                                    Whether there is sufficient justification for al together deletion of alternate fuel provision;

(b)                                                                                                   Whether the loss recovery arrangements are reasonable;

(c)                                                                                                    Whether the other consequential amendments due to gas being the only fuel and gas not being available to the required extent are in order;

(d)                                                                                                   `Whether reimbursement of monthly transportation charges is acceptable.

(e)                                                                                                    Other significant issues.

 

            In addition, the Applicants have specifically left some of the issues for the Commission to take a view thereon [Paras 19 (e), (f) and 21].  All these issues are dealt with hereinbelow:

 

 

Issue (a):        Whether there is sufficient justification for deletion of the alternate fuel clause:

 

24.       It has been argued time and again that the deletion of usage of alternate fuels from the definition of ‘Fuel’ in the PPA for mitigation of risk of payment of fixed charge in a situation of gas being partially available / not available would be valid only if the alternate fuels like naphtha, LSHS and the like are available in sufficient quantities, duly covered by fuel supply agreements for the life of the projects commensurate with the capacities of the projects to facilitate availability declaration by the developers on the alternate fuels and that there should be dual-fuel capability built into the projects.  Another point of view expressed is that the issue is not that of deletion of alternate fuel but of declaration of availability on alternate fuels resulting in payment of fixed costs for deemed generation and it would make sense to retain the option of using alternate fuels when the usage of alternate fuels becomes cheaper than that of gas at any point of time during the long life-span of the PPA, as it is difficult to predict as to how the prices of natural gas would compare in the long run in market conditions with the prices of naphtha, and other fuels. Added to this is the issue on the deletion of alternate fuel provision of some capital cost saving by VGPL on non-integral components of plant and machinery relating to alternate fuel firing capability, which after stating that is not substantial, the Applicants have left the Commission to take an appropriate view in that regard [paragraph 19(f)].

 

25.       Whether alternate fuels are available in sufficient quantities to facilitate the developer to declare availability and claim for fixed charges:- On this APDISCOMS vide their affidavit dated 23.9.2006, had stated that this is not in their purview.  On this, it is, however, to be appreciated that the alternate fuels that can be used as per the PPA dated 18-06-2003 for declaring availability are not just limited to Naphtha and LSHS alone but also include “like fuels”.  Inasmuch as there is a provision to use “like fuels”, it is difficult to presume that the alternate fuels will not be available to facilitate availability declarations by the Company and consequently prefer claim for full fixed charges.   Accordingly, the objection loses its force.

 

26.       Whether the plant has dual-fuel capability to generate on alternate fuel if required: On this, Chief Engineer (IPC)/APPCC vide letter dated:03.08.2006, had stated inter-alia, that “we have to reiterate that the company has proceeded with creating and constructing the plant with flexibility to operate the plant on alternate fuel(naphtha and LSHS).  This was required under the amended PPA dt: 18.06.2003 entered with consent of Hon’ble Commission.  With the facility, the company was assured for declaring availability of 85% with alternate fuel (in the event of non-availability of gas) to claim the fixed charge tariff and committed incentive”.

 

            In view of the above clarification, the apprehension that VPGL will not be able to declare availability on alternate fuels since the project does not have dual-fuel capability stands effectively addressed.

 

27.      Whether the suggestion to retain the option of using alternate fuel whenever it becomes cheaper merits consideration:  On this, the Applicants vide their Affidavit dated 23-09-2006 have stated that, if alternate fuel clause is retained, the VGPL would be assured of declaration of availability of 85% with alternate fuels (in the event of non-availability of natural gas), resulting in the payment of fixed charges throughout the PPA term from COD.  Under the proposed amendments, however, the fuel risk is entirely with the developer.  Also, it is unlikely that future price of naphtha would be less than that of natural gas. It was also stated that to the existing IPPs (independent power producers), due to alternate fuel provision, the Applicants are paying full fixed charges even though their generation is below threshold PLF.

 

            In view of the above clarifications, while the Commission is of the view that there is sufficient justification for deletion of the alternate fuel provision, the Commission also notes that the cost of the facility for storage and handling of alternate fuel created/required to be created in terms of the amended PPA dt:18.6.2003 has already been factored in the fixed costs of the plants. Since these costs will have to be defrayed by the APDISCOMS and their consumers through the power purchase costs, it would be useful to retain it for use at the Applicants’ instance, as and when (i) the generation cost with alternate fuels becomes lower at any point of time in future, and (ii) in case of other contingencies like shortage of power.  As a corollary to this decision, the Commission is not going into the question of the capital cost saving accruing to VGPL by the deletion of the alternate fuel provision.

 

 

Issue (b):        Whether the loss recovery arrangements are reasonable:

 

28.       As can be seen from the amendments proposed, the loss recovery mechanism broadly relates to compensation for the loss likely to be sustained by the developer during the periods of non-availability / partial availability of gas by way of extension of term of FDSC payment period and extension of agreement from 15 years to 23 years with due regard to the revenue realization from sale of excess capacity of 18.5MW, operation & maintenance (O&M) and major overhaul expenses to be incurred over the extended period of the PPA.  Several issues have been raised on the calculations relating to loss recovery, which are identified and dealt with hereinbelow:

 

29.       Revenue realization from sale of excess capacity of 18.5 MW:  The principal objection on this has been that whether the VGPL is entitled at all to sell the excess capacity inasmuch as the project cost would have included the capital cost of this excess capacity also. It was also pointed out that permitting the developer to dispose of the excess capacity over and above the installed capacity would be a violation of IEG Code clause 5.2 (g), which states that “All generating units operating at / upto 100% of their MCR shall normally be capable of (and shall not in any way be prevented from) instantaneously picking up 5% extra load for at least five minutes or within technical limits prescribed by the manufacturer when frequency falls due to a system contingency”.   It was further stressed that while the amendment proposes that the sale is applicable throughout the PPA period, the revenue realization is calculated only for a period of 15 years, while working out the loss the developer needed to be compensated for and also that a conservative figure for revenue realization of Rs.1.10/unit only is adopted, thereby understating the revenue from this source.  Further, certain discrepancies were also pointed out when compared with the report of the GoAP-appointed Committee viz., (a) capacity of 18.5MW not being indicated, (b) not limiting the sale of this excess capacity only to third parties with loss to APDISCOMS of applicable (cross-subsidy) surcharge, etc.,

 

30.       On the issue of whether, the Company is entitled to sell excess capacity; the Applicants have contended that as per PPA, the installed capacity is fixed at a maximum of 370MW even in case the demonstrated capacity is higher than 370MW.  On this, it is relevant that in terms of the Commission’s Order dt:12.04.2003 in O.P.No.2 of 2003 for the grant of consent to the amendment of original PPA dated:31.03.1997 with M/s.VPGL, too, the installed capacity is limited to 370MWs only. As such there need not be any objection if the excess capacity of 18.5MW is sold by the Company, after fully meeting its commitment of 370 MW to APDISCOMS, especially when the revenue realization from that sale is accounted for towards reducing the estimated revenue loss to be sustained by the Company for which it is to be compensated by way of extension of the PPA, etc.

 

31.       On the other issue of IEG Code coming in the way of disposal of excess capacity, the Applicants in their affidavit dated 01-12-2006 have essentially stated that as per clause 1.6 (iii) of the Code, Gas-based Combined Cycle Power Plants are exempt from the applicability of clause 5.2 (g) of the Code, and the VPGL plant happens to be one such Plant. Further, though this exemption is available only till Central Electricity Regulatory Commission (CERC) reviews the situation, yet in view of the fact that CERC has not yet removed the exemption, the Commission can only be guided by the existing provisions of the Code, which place no restrictions on the disposal of the excess capacity.

 

32.       Coming to the issue of not taking into account the revenues from sale of excess capacity beyond 15 years, the Applicants in their affidavit dated 23.9.2006 have intimated the Commission that the Company