VIDARBHA INDUSTRIES POWER LIMITED Vs. STATE
LAWS(ET)-2015-1-5
CENTRAL ELECTRICITY REGULATORY COMMISSION
Decided on January 05,2015

Vidarbha Industries Power Limited Appellant
VERSUS
STATE Respondents

JUDGEMENT

- (1.) Introduction 1.1 M/s. Vidarbha Industries Power Limited (VIPL) submitted a Petition dated 20 February, 2014 citing Sections 14, 61 and 62 of the Electricity Act (EA), 2003, the MERC (Transmission Licence Conditions) Regulations, 2004 and MERC (Multi Year Tariff (MYT)) Regulations, 2011 for grant of Transmission Licence, approval of provisional revenue gap for FY 2012 -13 and 2013 -14 and Aggregate Revenue Requirement (ARR) for FY 2014 -15 to FY 2015 -16 in respect of its Transmission Business. VIPL's substantive prayers were as follows: 1.2 1. ...Grant the Transmission License to VIPL;
(2.) Approve the capital cost incureed in creation of transmission assets for the purpose of tariff determination. 3. Approve the Provisional Revenue Gap of VIPL -T for the period starting from FY 2012 -13 to FY 2013 -14 and, due to non -receipt of any revenue, treat the same as provisional revenue gap for the two years and allow for recovery of such provisional revenue gap for the two years and allow for recovery of such provisional revenue gap along with the ARR of 2014 -15; 4. Approved the Aggregate Revenue Requirement for the period FY 2014 -15 and FY 2015 -16 as submitted herewith; 5. Allow timely recovery of ARR from the date of commercial operation through Order for this petition/any other Order/ Transmission Order for InSTS or any other mechanism as may be deemed fit by the Hon'ble Commission;..." 1.3 A Technical Validation Session (TVS) was held on 15 April, 2014. In the absence of sufficient justification for clubbing the Application for Transmission Licence and MYT determination in the same Petition when VIPL has yet to be granted a Licence, the Commission directed VIPL to segregate the two matters. The present TVS would be conducted only with regard to grant of Transmission Licence, and VIPL would submit a revised Petition only for that purpose at this stage. 1.4 Accordingly, VIPL submitted a revised Application for grant of Transmission Licence on 25 April, 2014, with the following prayers: "...2. Grant the Transmission Licence to VIPL;
(3.) Pardon the delay in submission of the Transmission Licence application;.." 1.5 The revised Application states that: 1.5.1 VIPL, a Special Purpose Vehicle (SPV) fully owned by Reliance Power Limited, has established a 600 MW (2 x 300 MW) thermal generating station at [Maharashtra Industrial Development Corporation (MIDC)'s] Butibori Industrial Area near Nagpur. VIPL had approached M/s Reliance Infrastructure Ltd. (Rinfra)'s Distribution Business for procurement of the entire 600 MW for its Distribution Licence area in Mumbai. RInfra and VIPL had submitted a Petition in Case No. 2 of 2013 for approval of Power Purchase Agreement (PPA) between them and determination of provisional Tariff. 1.5.2 Vide Order dated 20 February, 2013, the Commission approved the PPA for procurement of 300 MW from Unit 2 and directed the parties to obtain a "No Objection" Certificate (NOC) for procurement of the remaining 300 MW from Unit 1. The Commission also directed the parties to modify the definition of 'Interconnecting Point' and 'Power Station' by incorporating its ruling in Order dated 13 November, 2007 in Case No. 34 of 2007. In that Order, the Commission had ruled that evacuation arrangement, including transmission lines for the generating project, shall form part of the Intra -State Transmission System (InSTS) network. The expenditure incurred thereon would be recovered in accordance with the principles of the Commission's Transmission Pricing Framework. 1.5.3 Subsequent to NOC from MIDC, VIPL filed a Petition for approval of PPA for the remaining 300 MW from Unit 1. Vide Order dated 19 July, 2013 in Case No. 76 of 2013, the Commission approved the PPA for the remaining 300 MW (Unit 1) and also the consolidated agreement combining the PPA of both Units. 1.5.4 In view of the Commission's directions in Case No. 2 of 2013, the transmission lines and other infrastructure forming the evacuation system are part of the InSTS system. In order to own and operate these assets, a separate Transmission Licence is sought by VIPL. 1.5.5 The State Transmission Utility (STU), i.e. the Maharashtra State Electricity Transmission Co. Ltd. (MSETCL), had given VIPL its acceptance for grid connectivity and directed it to construct an interconnecting Transmission System under its supervision. Accordingly, an interconnecting Transmission System from VIPL's Unit 1 to MSETCL's Sub Station Butibori -III (i.e. Scheme 1) and from Unit 2 to its Sub Station Butibori -I (i.e. Scheme 2) was tested and approved by the Electrical Inspector. These have been charged on 29 June, 2012 and 13 June, 2013 respectively. 1.5.6 VIPL's generation project has achieved Commercial Operation Date (CoD) -Unit 1 on 4 April, 2013, and Unit 2 on 28 March, 2014. The total estimated capital cost for the Transmission System is Rs. 28.55 crore. The proposed power evacuation arrangement for VIPL's Thermal Power Project is as follows: Table - 1: Proposed power evacuation arrangement Transmission Lines: a) 220 kV Double circuit transmission line (1.2 kms) from VIPL Power Plant switchyard outdoor gantry to MSETCL Butibori Sub Station III - (Scheme 1) b) 220 kV Double circuit transmission line (1.86 kms) from VIPL Power Plant switchyard outdoor gantry to MSETCL Butibori Sub Station I. (Around 160 m portion of each circuit is through 220 kV underground cables near MSETCL Sub Station - (Scheme 2) EHV Sub Station Bays: (i) 2 220 kV bays at 220 kV MSETCL Butibori Sub Station III under Scheme 1 (ii) 2 220 kV GIS bays at 220 kV MSETCL Butibori Sub Station I under Scheme 2 1.6 VIPL had established the interconnecting evacuation arrangement as part of its generating station assuming that the associated interconnecting transmission system would be an integral part of it and that, accordingly, the capital cost thereof would be considered along with the generating station as a whole. However, vide Order in Case No. 2 of 2013 dated 20 February, 2013, the Commission had directed VIPL to modify the definitions of Interconnecting Point and Power Station by incorporating its ruling in Order dated 13 November, 2007 in Case No. 34 of 2007. Hence VIPL has filed this Application for grant of Transmission Licence to enable it to develop, operate and maintain the transmission lines constructed as an evacuation arrangement. 1.7 After detailed survey, it has been found that at no place is the whole or any part of any cantonment, aerodrome, fortress, arsenal, dockyard or camp or any building or place in the occupation of the Government for defence purposes located within the area of transmission. Further, no streets, which are repairable by a person other than the Central Government, State Government or local authority and of railways, tramways, canals and waterways for which VIPL was to obtain authorization to undertake works, were found to be located within the area of transmission line. In case any such street is encountered, it shall obtain their authorization to undertake works. 1.8 VIPL has submitted the following documents: STU's letter dated 19 March, 2014 to VIPL for grid connectivity for Unit 1 to i. Butibori III Sub Station and Unit 2 to Butibori I (Butibori MIDC) Sub Station of MSETCL. ii. Memorandum and Articles of Association iii. Management Information (in respect of Technical, Finance, HR and IT functions). iv. Audited Balance Sheets, Profit and Loss Accounts and cash flow statements for FY 2010 -11, 2011 -12 and 2012 -13. v. An Undertaking certifying that there are no cases of conviction of the Petitioner or any of its directors or promoters by any Court of Law or other such authorities. 2. Regulatory Proceedings 2.1 The legal and Regulatory framework governing the process of grant of a Transmission Licence is as set out below. 2.2 Sections 14 and 15 of the EA, 2003 provide as follows: "Section 14. (Grant of licence): The Appropriate Commission may, on an application made to it under section 15, grant a licence to any person - (a) to transmit electricity as a transmission licensee; or (b) to distribute electricity as a distribution licensee; or (c) to undertake trading in electricity as an electricity trader, in any area as may be specified in the licence:..." Section 15. (Procedure for grant of licence): ...... (2) Any person who has made an application for grant of licence shall, within seven days after making such application, publish a notice of his application with such particulars and in such manner as may be specified and a licence shall not be granted ­ (i) until the objections, if any, received by the Appropriate Commission in response to publication of the application have been considered by it: Provided that no objection shall be so considered unless it is received before the expiration of thirty days from the date of the publication of the notice as aforesaid; (ii) until, in the case of an application for a licence for an area including the whole or any part of any cantonment, aerodrome, fortress, arsenal, dockyard or camp or of any building or place in the occupation of the Government for defence purposes, the Appropriate Commission has ascertained that there is no objection to the grant of the licence on the part of the Central Government. (3) A person intending to act as a transmission licensee shall, immediately on making the application, forward a copy of such application to the Central Transmission Utility or the State Transmission Utility, as the case may be. (4) The Central Transmission Utility or the State Transmission Utility, as the case may be, shall, within thirty days after the receipt of the copy of the application referred to in sub -section (3), send its recommendations, if any, to the Appropriate Commission: Provided that such recommendations shall not be binding on the Commission. (5) Before granting a licence under section 14, the Appropriate Commission shall - (a) publish a notice in two such daily newspapers, as that Commission may consider necessary, stating the name and address of the person to whom it proposes to issue the licence; (b) consider all suggestions or objections and the recommendations, if any, of the Central Transmission Utility or State Transmission Utility, as the case may be." 2.3 Regulation 6 of the MERC (Transmission Licence Conditions) Regulations, 2004 provides that: "6.1 An applicant shall publish a notice of his application for grant of licence in not less than two (2) daily English language newspapers and two (2) daily Marathi language newspapers in the proposed area of transmission. ...Provided that the Commission may, within a period of four (4) days from the receipt of application, require such additional particulars to be included in the notice, as it may deem appropriate having regard to the specific circumstances of the case." 2.4 VIPL had submitted the Petition for grant of Transmission Licence, approval of provisional revenue gap for FY 2012 -13 and 2013 -14 and ARR for FY 2014 -15 to 2015 -16 for its Transmission Business. Based on preliminary scrutiny, the Commission conveyed the following data gaps and sought the following information, documents and clarifications on 11 April, 2014: a. Correspondence between VIPL and MSETCL for revised grid connectivity of the generation units of VIPL with MSETCL's transmission system b. Reference letters from Superintending Engineer, PWD, Nagpur Circle c. Articles of Association d. Evidence of permission from MIDC where VIPL's transmission line crossed a MIDC road. e. Correspondence with STU confirming putting to use of its interconnecting Transmission System from Units 1 and 2 to MSETCL's Sub Stations f. Dates of synchronization, full load operation and CoD for each Unit Connection Agreement with MSETCL and confirmation of VIPL's transmission g. scheme being included in the STU five year plan. h. Clarification on certain ARR related queries mainly pertaining to CoD of generation Unit 2, deficiencies in statutory auditor's certificate, copies of loan documents, etc. i. Undertaking under Amendment to MERC (Transmission Licence Conditions) Regulations, 2006 2.5 VIPL submitted the required documents and responses on 14 April, 2014. 2.6 The TVS was held on 15 April, 2014. In the absence of justification for clubbing its Application for Transmission Licence with MYT determination in the same Petition when VIPL has yet to be granted a Licence, the Commission directed VIPL to segregate the two matters. The present TVS would be conducted only with regard to grant of Transmission Licence, and VIPL would submit a revised Petition only for that purpose at this stage. TVS would be conducted only in respect of grant of Transmission Licence. Accordingly, VIPL made a presentation elaborating the details relating to the grant of Licence . The list of persons present at the TVS is annexed at Appendix ­ 1. 2.7 VIPL submitted its revised Application for grant of Transmission Licence on 25 April, 2014, addressing the data gaps raised by the Commission as well as complying with the directions given by the Commission during the TVS on 15 April, 2014. 2.8 After verification, the Commission found the revised Application to be complete and accompanied with the requisite information, particulars and documents. Accordingly, the Commission admitted the revised Application vide letter No. MERC/Case No. 60 of 2014 /201415/0331 dated 16 May, 2014. It directed VIPL to issue a Public Notice in accordance with Section 15(2) of EA, 2003 read with Regulation 6 of the MERC (Transmission Licence Conditions) Regulations, 2004, and to submit proof of compliance along with a copy of the published Notice. VIPL was also directed to serve a copy of its Application to the Chief Engineer, STU in accordance with Section 15(3) of EA, 2003. 2.9 VIPL published a Notice of its Application in two daily English newspapers (Hindustan Times and Indian Express) and two daily Marathi newspapers (Loksatta and Saamna) on 23 May, 2014. A copy of the Application along with enclosures was made available on VIPL's website. 2.10 No objections / suggestions were received by either VIPL or the Commission in response to this Public Notice within the stipulated time. 2.11 Vide letter No. MSETCL/CO/CE/STU/R&C -007575 dated 30 June, 2014, the STU stated that a Transmission Licence may be granted to VIPL under Alternative 2 of MERC (Transmission Licence Conditions) Regulations, 2004, i.e. a line -specific Licence.Under letter dated 14 August, 2014, the Commission sought from VIPL copies of the clearances/permissions required under the EA, 2003 and any other applicable Rules and Regulations and obtained from various authorities for creating, operating and maintaining the Transmission System, as well as justification for condonation of the delay in submission of the Application. 2.12 On 18 August, 2014, VIPL submitted copies of permissions accorded for both the proposed transmission lines by the Power Telecommunication Co -ordination Committee of Bharat Sanchar Nigam Ltd. VIPL submitted that there was a delay of nearly a year in filing the Application since it was evaluating the option of transferring the transmission assets to the existing Transmission Licensee within the Group. However, this option was found after consideration to be infeasible due to time constraints, and VIPL filed the present Application thereafter. 2.13 Section 15 (2) (ii) of EA, 2003 provides that, if an Application for a Licence is received for an area including the whole or any part of any cantonment, aerodrome, fortress, arsenal, dockyard or camp or of any building or place in the occupation of the Central Government for defence purposes, no objection to the grant of the Licence on the part of the Central Government needs to be ascertained. Accordingly, vide letter No. MERC/Case No. 60 of 2014/20142015/01133 dated 12 November, 2014, the Commission invited objections, if any, from the Ministry of Defence, Ministry of Shipping and Ministry of Civil Aviation with reference to VIPL's Licence Application. No objections were received within the stipulated period of 30 days. 2.14 After evaluating the revised Application submitted by VIPL and considering the recommendations of the STU, the Commission published a Public Notice in three English newspapers (DNA, Times of India and Indian Express) and two Marathi newspapers (Lokmat and Loksatta) on 12 November, 2014 stating the details of the Transmission Licence Application as submitted by VIPL in accordance with Section 15 (5) (a) of the EA, 2003. The Notice specified that the Commission proposed to grant a Transmission Licence to VIPL under Alternative 2 of MERC (Transmission Licence Regulations), 2004. Suggestions/objections were invited by 3 December, 2014, and it was stated that the Public Hearing would be held on 9 December, 2014 at the Office of the Commission (13th Floor, Centre 1, World Trade Centre, Cuffe Parade, Mumbai 400 005). No objection / suggestion was received within the stipulated period. 2.15 In the background of VIPL's additional submissions, the Commission sought information on 14 November, 2014 pertaining to environmental clearances, Right of Way (RoW) permission, etc. for the construction of the transmission lines and approvals under Sections 68 and 164 of the EA, 2003 from the Government. VIPL submitted the following response vide letter dated 20 November, 2014: Environmental clearance for the project was submitted stating that, since the transmission route did not involve any forest land, separate forest clearance was not required. As regards RoW permission, the transmission lines are erected on land provided by MIDC which is in occupation/control of VIPL. The land possession receipt obtained from MIDC has already been submitted. No other RoW permission is required for implementation of the transmission line as it is constructed on land in possession of VIPL. The transmission line being short in length and within the MIDC area, the entire land required for its implementation was provided by MIDC and is in occupation / control of VIPL. Accordingly, clearance under Section 68 is not applicable. The authority to exercise the powers of Telegraph Authority under the Indian Telegraph Act, 1885 may be conferred upon the transmission line developer by the Government under section 164 of the EA 2003 if RoW for placing of the transmission lines is envisaged on land not in occupation / control of the developer. However, the entire land required for the transmission lines was in VIPL's possession and did not require any ROW on private / public land. 2.16 The Public Hearing was held on 9 December, 2014. The list of persons present is annexed at Appendix ­ 2. VIPL made a presentation on its Application. To a query by the Commission, VIPL clarified that it is a Company undertaking the business of generation and transmission of power. A consolidated Balance Sheet is prepared at the Company level. However, the Company also maintains separate business -wise accounts for generation and transmission to enable appropriate identification and allocation of expenses. VIPL also submitted that its geographic area of operation is presently limited only to the Butibori area. The STU representative stated that its recommendation had already been submitted to the Commission. No objections or suggestions were received during the Hearing. Accordingly, the Commission concluded the Public Hearing process. 3. Compliance Evaluation and Analysis by the Commission 3.1 The Commission verified VIPL's submissions pertaining to compliance with Schedule 1 of the Transmission Licence Regulations as below: Table - 2: Compliance evaluation Sr. Particulars Submission No. General Information ­ Name, Primary Contact details 1 Submitted Information about the applicant ­ Registered office, date of 2 Submitted incorporation etc. Enclosures ­ Incorporation documents 3 Submitted Enclosures ­ Technical Information 4 Submitted 5 Description of the actual and proposed location of the Submitted Sr. Particulars Submission No. system of electric lines 6 Detailed map of the proposed area of transmission Submitted 7 List of defence areas Submitted 8 List of street(s) which are repairable Submitted 9 Financial Information Submitted 10 Copy of receipt of processing fees Submitted 3.2 VIPL has also submitted the Undertaking envisaged in the Regulations. 3.3 The Commission has evaluated the claims of VIPL as per the provisions of EA, 2003 and Transmission Licence Regulations and has considered the STU's recommendations provided by the STU. The Commission's views on the grant of Transmission Licence to VIPL are as follows: a. The evacuation arrangement was constructed by VIPL as a part of its overall generation project. Hence, the capital expenditure for the evacuation arrangement was undertaken along with that for the generation Units. However, pursuant to the directions of the Commission vide Order dated 20 February, 2013 in Case No. 2 of 2013, VIPL was required to seek a separate Transmission Licence in accordance with Sections 14 and 15 of EA, 2003. b. There has been a delay of nearly a year in filing the Application subsequent to the above directions. VIPL has submitted that it took time to evaluate the option of transferring its transmission assets to the existing Transmission Licensee within the Group, which it found to be infeasible due to time constraints. As a result, the filing of its present Petition was delayed. Moreover, it had initially filed a Petition for the approval of the combined cost of generation and transmission lines, and had filed this separate Application pursuant to the subsequent directions of the Commission. Considering the above, the Commission condones the delay. c. Section 68(2)(b) of the EA, 2003 provides that approval of the Appropriate Government for installation of the overhead lines will not be applicable in relation to so much of an electric line as is or will be within premises in the occupation or control of the person responsible for its installation, and reads as follows: "68. (Provisions relating to Overhead lines): (1) An overhead line shall, with prior approval of the Appropriate Government, be installed or kept installed above ground in accordance with the provisions of sub -section (2). 2) The provisions contained in sub -section (1) shall not apply... (b) in relation to so much of an electric line as is or will be within premises in the occupation or control of the person responsible for its installation;..." The Commission notes VIPL's submission that, the length of the transmission line being short and within the MIDC area, the entire land required for its implementation was provided by MIDC and is in occupation / control of VIPL. d. As regards the requirement of approval under Section 164 of the EA, 2003, the relevant provision reads as follows: "164. (Exercise of powers of Telegraph Authority in certain cases): The Appropriate Government may, by order in writing, for the placing of electric lines or electrical plant for the transmission of electricity or for the purpose of telephonic or telegraphic communications necessary for the proper co -ordination of works, confer upon any public officer, licensee or any other person engaged in the business of supplying electricity under this Act, subject to such conditions and restrictions, if any, as the Appropriate Government may think fit to impose and to the provisions of the Indian Telegraph Act, 1885, any of the powers which the telegraph authority possesses under that Act with respect to the placing of telegraph lines and posts for the purposes of a telegraph established or maintained, by the Government or to be so established or maintained." The Commission notes VIPL's submission that, since the entire land required for the transmission lines is in VIPL's possession and no separate RoW on private / public land is required, invocation of s. 164 is not called for. 3.4 The Commission is of the view that VIPL satisfies the requirements for the grant of Transmission Licence under Alternative 2 of the MERC (Transmission Licence Conditions) Regulations, 2004. ;


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