WELCOME TO APGENCO

1

• WELCOME TO APGENCOS PRESENTATION
• ON
• CERCS DISCUSSION PAPER JUNE-03
• ON
• TERMS CONDITIONS OF TARIFF
• (Commencing 01.04.04)
• by
• V.V.RAO, IDAS
• DIRECTOR/ COMMERCIAL
• APGENCO.

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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 pre-regulatory 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 to get deleted/ rejected at a
  later date.

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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 RM/ life
  extension shall also be eligible for depreciation
  at the same rates.
• The existing rates of accelerated depreciation
  _at_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 OM.

• Based on the current capital cost/MW, to be
  declared each year by an Authority like CEA, OM
  expenses shall be allowed _at_ 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 _at_ 10 yields
  base OM and further escalating it annually _at_ 6
  yields normative OM 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 2-months receivables, as
  billed, shall continue to be the most essential
  working capital element.
• Similarly, 1 month OM 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 CERCs
  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 gt 80 Full fixed cost, including ROE.
Availability between 80 and 70 Progressive pro-rata reduction of fixed cost only in ROE, up to nil ROE at 70.
Availability between 70 and 50 Progressive proportionate reduction in other fixed expenses except depreciation/ debt repayment requirement, reaching 62.5 of other fixed expenses at 50 availability
Availability less than 50 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. 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. 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 _at_ 2 p.m. on total outstandings from the
  start of the financial year.

11
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 unjustified).

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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, station-specific 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. 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. 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. 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) 6150 MW
• Under the GoAPs 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