- (1.) Background and brief history A Petition has been filed by Maharashtra Eastern Grid Power Transmission Company Limited, a Transmission Licensee, for approval of the Aggregate Revenue Requirement and determination of Multi -Year Tariff for the second Control Period from FY 2013 -14 to FY 2015 -16, under Sections 61 and 62 of the Electricity Act, 2003 and Regulation 16, 18 and Part G of the MERC (Multi -Year Tariff) Regulations, 2011 (hereinafter referred to as "MERC MYT Regulations") as amended from time to time. Maharashtra Eastern Grid Power Transmission Company Limited (hereinafter referred to as "MEGPTCL") has been granted Transmission Licence No. 1 of 2010 by the Commission vide its Order dated 21 September, 2010. The subsequent paragraphs outline details of the evolution of the Regulatory regime for transmission pricing in Maharashtra, Commission's previous Orders pertaining to MEGPTCL, the supporting Regulatory framework for MYT filing, the Regulatory process adopted and the prayers of the Petitioner in the present matter. 1.1 Incorporation of MEGPTCL and issue of Transmission Licence 1.1.1 Adani Enterprises Limited (AEL) had proposed to MSETCL to undertake development of the 765 kV transmission system as outlined in the STU's transmission network plan for 2010 -11 to 2014 -15 in JV arrangement operating on Build, Own and Operate (BOO) basis with equity participation in the proportion of 74:26 respectively. Accordingly, MSETCL Board of Directors accorded in -principle approval for formation of JV. 1.1.2 However, in view of pending approval from Government of Maharashtra (GoM) for MSETCL's participation in the JV, AEL secured 'No Objection' certificate from MSETCL vide letter dated 2 July, 2010 to proceed with development of the project, in the interest of time, with an obligation to arrange for additional 26% equity contribution by the Petitioner in case of delay or non -receipt of Government of Maharashtra (GoM) approval for 26% equity investment by MSETCL in JV. The Commission had noted the same in its Order in Case No. 118 of 2009 issued on 14 September, 2010. 1.1.3 After conducting the due Regulatory process, the Commission vide its Order dated 14 September, 2010 granted transmission Licence for a period of 25 years to MEGPTCL, for the proposed 765 kV Intra -State Transmission System as per the detailed scope in Para No. 2 of the said Order. The Transmission Licence came into effect from 21 September, 2010. 1.1.4 Subsequently, MSETCL informed AEL, with copy to the Commission vide letter No. MSETCL/CO/C&M/Contracts -V/JV/MEGPTCL/17787 dated 27 December, 2012, about its decision to not enter into a JV with AEL in MEGPTCL. However, as per the Approval of MYT Petition of MEGPTCL for FY 2013 -14 to FY 2015 -16 'No Objection' certificate, AEL proceeded with contributing full equity for MEGPTCL and accordingly, MEGPTCL became wholly owned subsidiary of AEL. 1.2 second Control Period 1.2.1 As per MERC (MYT) Regulations, 2011, MEGPTCL had filed its Petition before the Commission for approval of Multi Year Tariff Business Plan for the MYT second Control Period from FY 2013 -14 to FY 2015 -16 on 23 September, 2013. 1.2.2 The Commission, in exercise of the powers vested in it under Section 61 and Section 62 of the Electricity Act, 2003 and all other powers enabling it in this behalf, and after taking into consideration all the submissions made by MEGPTCL, issues raised during the Public Hearing, and all other relevant material, issued the Order on 15 January, 2014 in Case No. 128 of 2013 in the above matter and directed MEGPTCL to file its Petition for determination of Multi -Year Tariff within 60 days from the date of the Business Plan Order. 1.3 Relevant provisions under MERC MYT Regulations for filing of the Multi -Year Tariff Petition 1.3.1 The Commission, in exercise of the powers conferred by the EA 2003, notified the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2011, (hereinafter referred as the MERC MYT Regulations) on 4 February, 2011. These Regulations are applicable for the second Control Period starting from FY 2011 -12 to FY 2015 -16. The said Regulations were amended by Maharashtra Electricity Regulatory Commission (Multi Year Tariff) (First Amendment) Regulations, 2011 vide notification dated 21 October, 2011. 1.3.2 The Regulation 16 of the MERC MYT Regulations specifies the procedure relating to making an application for determination of Tariff by a Generating Company or a Transmission Licensee or a Distribution Licensee. Further, the Regulation 18 specifically mentions that the applicant shall provide, based on the approved Business Plan, as part of its application to the Commission, in such form as may be stipulated by the Commission from time to time, full details of its calculation of the Aggregate Revenue Requirement and expected revenue from Tariff and Charges pursuant to the terms of its Licence. Accordingly, the Petition for approval of the Aggregate Revenue Requirement and determination of Multi -Year Tariff for the second Control Period from FY 2013 -14 to FY 2015 -16 was filed by MEGPTCL in accordance with the provisions of the MERC MYT Regulations. 1.4 Admission, Public Hearing process and approval of MYT Petition 1.4.1 MEGPTCL, complying with the requirements under the MERC MYT Regulations and the directive of the Commission in the Business Plan Order dated 15 January, 2014 in Case No. 128 of 2013 to file MYT Petition within 60 days from the issue of the Business Plan Order, submitted the Petition for approval of Aggregate Revenue Requirement and determination of Multi -Year Tariff for the FY 2013 -14 to FY 2015 - 16 of the second Control Period under affidavit on 5 March, 2014. 1.4.2 Subsequently, based on the preliminary review, the Commission communicated data gaps vide email dated 11 April, 2014. MEGPTCL submitted its responses to the said data gaps on 15 April, 2014. The Technical Validation Session (TVS) was held on 15 April, 2014. The list of persons who participated in the Technical Validation Session is provided at Appendix -1. The details of the issues discussed during the TVS are elaborated in the next Section of the Order. 1.4.3 Thereafter, as directed by the Commission, discussions were held between the Petitioner and MERC officials on 15 April, 2014 and 23 April, 2014 regarding the response to the data gap set 1 submitted by the Petitioner as well as to discuss the reasons for the significant escalation in the project cost as submitted in the MYT Petition from that provisionally approved in the Business Plan Order by the Commission on 15 January, 2014. The Petitioner was directed by the Commission to submit a revised Petition incorporating the responses to the data gaps and the justification for escalation of project cost from the Business Plan approval Order during the TVS. Further data gaps were also communicated to the Petitioner on 23 April, 2014 subsequent to the discussion. Subsequently another discussion session between the Petitioner and MERC officials was organised on 29 April, 2014 regarding the observations on the response to the data gap set 1 submitted by the Petitioner and especially the reasons of cost escalation between the period from the approval of the Business Plan Order by the Commission dated 15 January, 2014 and filing of the MYT Petition by MEGPTCL. Further, on 30 April, 2014, the Commission issued the Minutes of Meeting (MoM) for the TVS dated 15 April, 2014. 1.4.4 Accordingly, the Petitioner submitted a revised Petition for the approval of its Aggregate Revenue Requirement and determination of Multi -Year Tariff for the second Control Period from FY 2013 -14 to FY 2015 -16 on 2 May, 2014 taking into account the various data gaps communicated by the Commission, the discussions between MEGPTCL, MERC officials and the responses of MEGPTCL i.e. the Petitioner thereto under affidavit with the following prayers. " Admit the present Petition. Approve Aggregate Revenue Requirement (ARR) of MEGPTCL for the second control period as submitted herewith. Approval of MYT Petition of MEGPTCL for FY 2013 -14 to FY 2015 -16 Allow timely recovery of ARR for FY 2013 -14 from the date of Commercial Operation through Order for this Petition/any other Order/Transmission Tariff Order for InSTS or any other mechanism as deemed fit by the Commission. Allow recovery of ARR with carrying cost for the corresponding period in case of any delay in recovery of transmission charges beyond the CoD of the transmission line/its network elements. Condone any inadvertent omissions/errors/shortcomings and permit MEGPTCL to add/change/modify/alter this filing and make further submissions as may be required at a future date. Allow any other relief, order or direction, which the Hon'ble Commission deems fit to be issued. Pass such further orders, as the Hon'ble Commission may deem fit and appropriate, keeping in view the facts and circumstances of the case." 1.4.5 Based on the detailed review of the revised submission by the Petitioner, the Commission had communicated additional data gaps vide email dated 8 May, 2014. MEGPTCL submitted its response against the said data gaps on 9 May, 2014. 1.4.6 Considering the submissions done by the Petitioner, the Commission admitted the Petition of MEGPTCL on 19 May, 2014. In accordance with Section 64 of the EA 2003, the Commission directed MEGPTCL to publish its Multi -Year Tariff Petition in the prescribed abridged form and manner in two daily English language and two daily Marathi language newspapers having wide circulation in the area of the transmission, to ensure adequate public participation. The Commission also directed MEGPTCL to reply expeditiously to all the suggestions and objections received from stakeholders on its Petition. MEGPTCL issued the Public Notice in newspapers inviting suggestions and objections from stakeholders on its Multi -Year Tariff Petition. The Public Notice was published in two daily English language newspapers viz. The Hitavada (Nagpur edition) and Lokmat Times (Nagpur and Aurangabad editions) and in two Marathi language newspapers viz. Punyanagari (Aurangabad edition) and The Deshonnati (Nagpur and Akola editions) on 21 May, 2014. 1.4.7 The copies of MEGPTCL's Petition and its summary were made available for inspection / purchase to members of the public at MEGPTCL's offices and on MEGPTCL's website . The copy of the Public Notice and Executive Summary of the Petition was also available on the website of the Commission in downloadable format. The Public Notice specified that the suggestions and objections, either in English or Marathi, may be filed in the form of affidavit along with the proof of service on MEGPTCL. 1.4.8 The Commission and the Petitioner did not receive any written suggestions or objections on the Petition. The Public Hearing was held on 17 June, 2014 at 11:30 Approval of MYT Petition of MEGPTCL for FY 2013 -14 to FY 2015 -16 hours at the Commission's Office. The list of persons who participated in the Public Hearing is provided in Appendix ­ 2. The details of the proceedings of the Public Hearing are elaborated in the Section 2 of the Order. 1.4.9 The Commission has ensured that the due process as contemplated under the law to ensure transparency and public participation was followed at every stage meticulously and adequate opportunity was given to all the persons concerned to file their say in the matter. 1.5 Organisation of the Order This Order is organised in the following eight Sections: Section 1 of the Order provides a summary of the Commission's previous Orders pertaining to MEGPTCL, brief outline of the Regulatory framework covering the MYT process, brief summary of the quasi -judicial Regulatory process undertaken by the Commission, and prayers of the Petitioner in the present matter. For the sake of convenience, a list of abbreviations with their expanded forms has also been included. Section 2 comprises the proceedings of the Public Hearing conducted by the Commission for the Petition. Section 3 of the Order comprises the Commission's analysis and its decision on ARR of MEGPTCL for the MYT second Control Period from FY 2013 -14 to FY 2015 -16. Section 4 of the Order discusses the methodology for recovery of Transmission Charges by MEGPTCL, during the MYT second Control Period. Section 5 of the Order summarises various directives given by the Commission in its Business Plan Order issued for MEGPTCL, its compliance and the Commission's Ruling in the matter. Section 6 of the Order indicates the applicability of this Order; and Section 7 of the Order provides the summary of the Commission's Rulings. 2 Public Hearing 2.1.1 The Public Hearing for the Multi -Year Tariff Petition of MEGPTCL was held on 17 June, 2014. 2.1.2 At the commencement of the Public Hearing, MEGPTCL made a brief presentation about its transmission system project and the progress status of the elements of the transmission system. 2.1.3 The Commission and the Petitioner have not received any suggestions/objections in relation to the Multi -Year Tariff Petition filed by MEGPTCL for the second Control Period from FY 2013 -14 to FY 2015 -16. 2.1.4 During the hearing, the Commission inquired if any members of the public/stakeholders wished to make any suggestions/comments on the MYT Petition of MEGPTCL, however, no suggestions/objections/comments were made by any members of the public/stakeholders present in the Public Hearing. 2.1.5 The list of persons who participated in the Public Hearing is provided in Appendix ­ 2. Approval of MYT Petition of MEGPTCL for FY 2013 -14 to FY 2015 -16 3 Aggregate Revenue Requirement for the MYT Second Control Period 3.1 Background 3.1.1 MEGPTCL, in its Petition, has submitted the details of its projected expenses over the MYT second Control Period from FY 2013 -14 to FY 2015 -16 under various heads, viz. O&M expenses, depreciation, interest on long term loan, interest on working capital, etc.. The Commission has discussed the approval of expenditure for each of the above items and Aggregate Revenue Requirement (ARR) of MEGPTCL for the MYT second Control Period from FY 2013 -14 to FY 2015 -16, in the following Sections. 3.2 Commissioning schedule and related details 3.2.1 The commissioning schedule of the transmission system as proposed by MEGPTCL in the Multi -Year Tariff Petition is as given below: Table 3 -1: Commissioning schedule submitted by MEGPTCL Sr. Particulars Original Business MYT No. Completion Plan Petition Petition Schedule (Case No. 128 of 2013) (as submitted Element Estimated Element Revised in the Commissioning Actual/Estimated Set Set Petition for Date Commissioning grant of Date Transmission Licence) Transmission Lines Tiroda ­ Koradi - 1 March 2012 Dec, 2013 23 February , Set -2 Set -2a III 765 kV S/C 2014 Line -1 Koradi -III ­ 2 March 2012 Dec, 2013 23 February , Set -2 Set -2a Akola -II 765 kV 2014 S/C Line -1 Akola -II ­ 3 March 2012 Dec, 2013 8 April, 2014 Set -2 Set -2b Aurangabad 765 kV S/C Line -1 Tiroda ­ Koradi - 4 August 2012 Jul, 2014 31 March, 2015 Set -3 Set -3 III 765 kV S/C Line -2 Koradi -III ­ 5 August 2012 Jul, 2014 31 March, 2015 Set -3 Set -3 Akola -II 765 kV S/C Line -2 Akola -II ­ 6 August 2012 Jul, 2014 31 March, 2015 Set -3 Set -3 Aurangabad 765 kV S/C Line -2 Akola -II ­ Akola -I 7 March 2012 Dec, 2013 23 February, 2014 Set -1 Set -1 400 kV Quad D/C Line Substations Sr. Particulars Original Business MYT No. Completion Plan Petition Petition Schedule (Case No. 128 of 2013) (as submitted Element Estimated Element Revised in the Commissioning Actual/Estimated Set Set Petition for Date Commissioning grant of Date Transmission Licence) 1 Establishment of March 2012 Dec, 2013 23 February, 2014 Set -2 Set -2a 765/400 kV switchyard - Tiroda 2 Establishment of August 2012 Jul, 2014 31 March, 2015 Set -3 Set -3 765/400 kV substations - Koradi -III 3 Establishment of March 2012 Dec, 2013 23 February, 2014 Set -2 Set -2a 765/400 kV substations - Akola -II 4 Extension of 765 August 2012 Jul, 2014 31 March, 2015 Set -3 Set -3 kV substation ­ Aurangabad 3.2.2 The Commission, vide its letter no. MERC Case No. 60/66/67/2014 No. 00265 dated 8 May, 2014, had sought the details from the State Transmission Utility (STU) regarding the current status of implementation of the transmission assets of various Transmission Licensees in Maharashtra including that of MEGPTCL and if the assets have been put to use. In response, the STU vide its letter no. MSETCL/CO/C.E. ­ STU/R&C/ -05875 dated 22 May, 2014 submitted the necessary details. On scrutiny of the details submitted by the STU, it was observed that the dates for put to use of transmission system assets of MEGPTCL corresponded with those submitted by MEGPTCL in its revised Petition. Further, the STU has also confirmed the inclusion of the same in the upcoming STU five year plan. 3.2.3 The Petitioner has submitted that as per the interim arrangement, 765 kV circuit 1 shall be connected to MSETCL's 400 kV Thaptitanda substation. Under final arrangement, the same shall be terminated at 765 kV MSETCL Aurangabad substation. The Petitioner has further submitted that it has successfully charged 765 kV S/C Akola -II ­ Aurangabad line on 8 April, 2014 at 400 kV voltage level. 3.2.4 The Petitioner has also submitted a copy of its letter to MSETCL informing successful charging of the 765 kV Akola II ­ Aurangabad Line ­ 1 (on 400 kV) up to the 400 kV MSETCL interconnection point. 3.2.5 The Commission has examined the matter and sought necessary confirmation of commissioning of the said line from the STU. The STU vide letter no. MSETCL/CO/C.E.­STU/R&C/ -05875 dated 22 May, 2014 has confirmed that the line has been put to use on 8 April, 2014. 3.2.6 Based on the material placed on record by the Petitioner and the STU letter confirming the date of commissioning, the Commission considers the commissioning of the elements for Set 1 and Set 2a on 23 February, 2014 and Set 2b as 8 April, 2014 as submitted by the Petitioner. 3.2.7 However, in case of Set 3 which includes extension of 2 bays at MSETCL's Aurangabad 765 kV substation, it is noted from the STU letter that this substation may be ready in March, 2016 and therefore, the commissioning of the corresponding bays of MEGPTCL at 765 kV Aurangabad substation may spill over beyond FY 2015 -16. However, the Commission has considered the commissioning of Set 3 including the bays for Aurangabad 765 kV substation in March, 2015 on provisional basis. Incase of spill over of commissioning of 2 bays at MSETCL's Aurangabad 765 kV substation, the Commission shall review the impact of same during the truing up exercise. 3.2.8 Accordingly, the Set -wise commissioning schedule considered by the Commission for the purpose of the MYT Order is as given below: Table 3 -2: Commissioning Schedule considered by the Commission for the MYT Order Sr. Particulars Original Business MYT Commissioning No. Completion Schedule Plan Petition Petition Schedule considered by (Case No. 128 of 2013) the (as submitted Element Estimated Element Revised Commission in the Petition Commissioning Estimated Set Set for grant of Date Commissioning transmission Date Licence) Transmission Lines Tiroda ­ Koradi - 1 March 2012 Dec, 2013 23 February, 23 February, Set -2 Set -2a III 765 KV S/C 2014 2014 Line -1 Koradi -III ­ 2 March 2012 Dec, 2013 23 February, 23 February, Set -2 Set -2a Akola -II 765 KV 2014 2014 S/C Line -1 Akola -II ­ 3 March 2012 Dec, 2013 8 April, 112014 8 April, 2014 Set -2 Set -2b Aurangabad 765 KV S/C Line -1 Tiroda ­ Koradi - 4 August 2012 Jul, 2014 31 March, 2015 31 March, 2015 Set -3 Set -3 III 765 KV S/C Line -2 Koradi -III ­ 5 August 2012 Jul, 2014 31 March, 2015 31 March, 2015 Set -3 Set -3 Akola -II 765 KV S/C Line -2 Akola -II ­ 6 August 2012 Jul, 2014 31 March, 2015 31 March, 2015 Set -3 Set -3 Aurangabad 765 KV S/C Line -2 Sr. Particulars Original Business MYT Commissioning No. Completion Schedule Plan Petition Petition Schedule considered by (Case No. 128 of 2013) the (as submitted Element Estimated Element Revised Commission in the Petition Commissioning Estimated Set Set for grant of Date Commissioning transmission Date Licence) Akola -II ­ 7 March 2012 Dec, 2013 23 February, 23 February, Set -1 Set -1 Akola -I 400 KV 2014 2014 Quad D/C Line Substations 1 Establishment of March 2012 Dec, 2013 23 February, 23 February, Set -2 Set -2a 765/400 KV 2014 2014 switchyard - Tiroda 2 Establishment of August 2012 Jul, 2014 31 March, 2015 31 March, 2015 Set -3 Set -3 765/400 KV substations - Koradi -III 3 Establishment of March 2012 Dec, 2013 23 February, 23 February, Set -2 Set -2a 765/400 KV 2014 2014 substations - Akola -II 4 Extension of 765 August 2012 Jul, 2014 31 March, 2015 31 March, 2015 Set -3 Set -3 KV substation ­ Aurangabad 3.2.9 The Petitioner has also submitted that the transmission line length has undergone variation on account of involvement of forest land, mining area, agriculturally rich areas (orange orchard, fruits and shrubs) along the original route of the transmission lines. Continuing with such route covering the locations as mentioned above would have severely hampered the progress of the project and would have resulted in substantial increase in RoW cost and increase in soft cost. To avoid such consequences and to expedite the work completion, re -routing and diversion of lines became mandatory. Owing to this, the overall transmission line length has reduced by around 104 km, however, due to the inevitable zig -zag nature of the re -routed transmission line the number of angle/tension towers which cost more as compared to suspension towers has increased substantially. The revised transmission line length is given in the following table: Table 3 -3 Variation in transmission line length as submitted by MEGPTCL Sr. Particulars Business MYT Difference No. Plan Petition Petition (Case No. 128 of 2013) Tiroda ­ Koradi -III 765 1 120 km 138.5 km 18.5 km kV S/C Line -1 Koradi -III ­ Akola -II 2 270 km 222.4 km -47.6 km 765 kV S/C Line -1 Akola -II ­ Aurangabad 3 240 km 218.87 km -21.13 km 765 kV S/C Line -1 Tiroda ­ Koradi -III 765 4 120 km 133.44 km 13.44 km kV S/C Line -2 Koradi -III ­ Akola -II 5 270 km 222.47 km -47.53 km 765 kV S/C Line -2 Akola -II ­ Aurangabad 6 240 km 218.92 km -21.08 km 765 kV S/C Line -2 Akola -II ­ Akola -I 400 7 30 km 30.65 km 0.65 km kV Quad D/C Line 8 Net Variation -104.75 km 3.2.10 The Commission has examined the submission of the Petitioner with regards to the variation in the transmission line length and accordingly considered the variations in the length of the transmission line for the purpose of approval of the MYT Petition. Pursuant to the above, the total length of the transmission line considered by the Commission for the purpose of approval of the MYT Petition is 61.30 circuit kilometres (ckt. km) for 400 kV and 1154.60 ckt. km for 765 kV transmission line. 3.2.11 The components of the ARR are approved for the Multi -Year Tariff Petition considering the commissioning schedule approved by the Commission and in line with the relevant provisions of the MERC MYT Regulations, 2011. 3.3 Methodology for computing various ARR components 3.3.1 The Petitioner has submitted that in the Commission's Order dated 15 January, 2014 in Case No. 128 of 2013 for MYT Business Plan for the Petitioner, various components of the ARR namely operation and maintenance expense, depreciation, interest on loan capital, interest on working capital, return on equity capital, etc. were determined based on the estimated period for which the assets will be operational during the 'first year of commissioning of the Set -1' and for the subsequent years, the Commission determined the ARR components based on the average of the opening and closing balance of the respective parameters. 3.3.2 The Petitioner has further submitted that such concept is appropriate in case of area specific Licensee where dates of commissioning of assets during a particular year are not available or there are large quantity of assets being capitalised on regular basis throughout the year instead of on a specific date. However, in case of MEGPTCL, Transmission Licence is project specific and as mentioned above, it does not reflect correct Tariff components since large value assets which are getting commissioned on a specific date are getting averaged out in the concept considered by the Commission in the Business Plan Order. This would result in either benefit or loss to the Petitioner as per the actual date of subsequent capitalisation of assets for Set 3. 3.3.3 The Petitioner has submitted that in its specific case, there are only four Sets for which commissioning dates are specific and known. In such a case, it would be appropriate to calculate Tariff individually from date specified for each Set without combining till the completion of financial year in which the last Set is getting commissioned. 3.4 Capital expenditure and capitalisation 3.4.1 Capital expenditure 3.4.1.1 MEGPTCL in the present Petition has estimated a project cost of Rs. 5948.58 crore, as against the in -principle approved project cost for Rs. 4721.88 crore and Rs. 5290.92 crore provisionally approved by the Commission in the Business Plan Order. The same has been summarised in the table below: Table 3 -4: Comparison of capital cost: In -principle approval, Business Plan approval and revised submission in MYT Petition (Rs. Crore) Particulars In - Business MYT principle Plan Petition Approval Preliminaries 4.00 4.00 4.00 Transmission Lines 2210.71 2212.33 2386.20 Supply Order (EPC) 1865.58 1866.89 1947.68 Original contract value 1865.58 1865.58 1865.58 Quantity variation in EPC order 0.00 1.31 -25.18 Price escalation 0.00 0.00 38.25 Foreign Exchange Rate Variation 0.00 0.00 69.03 Service Order (EPC) 345.13 345.44 433.19 Original contract value 345.13 345.13 345.13 Quantity variation in EPC order 0.00 0.31 8.01 for FY 2013 -14 to FY 2015 -16 Particulars In - Business MYT principle Plan Petition Approval Additional RoW 0.00 0.00 72.74 Price escalation 0.00 0.00 0.00 Idling charges 0.00 0.00 3.04 EAR insurance policy for the delayed period 0.00 0.00 4.27 Non -EPC cost in transmission line 0.00 0.00 5.33 Supply of additional initial spares 0.00 0.00 5.21 Supply order for additional items 0.00 0.00 0.12 Substation Works 1946.88 1963.16 2320.93 Supply Order 1693.94 1693.94 2034.01 Original contract value 0.00 1693.94 1693.94 Quantity variation/ additional items in EPC 0.00 0.00 1.75 order Additional Bays at Akola -II 0.00 0.00 6.00 Price escalation 0.00 0.00 18.82 Foreign Exchange Rate Variation 0.00 0.00 313.50 Service Order 201.94 201.94 215.15 Original contract value 201.94 201.94 201.94 Quantity variation in EPC order 0.00 0.00 0.31 Price escalation 0.00 0.00 0.17 Demurrage/Detention/Ground Rent charges 0.00 0.00 1.99 Quantity variation in civil works at Akola -II 0.00 0.00 10.74 S/s 0.00 16.28 47.77 Non -EPC cost Metering for Akola -II and Koradi -III S/s 0.00 16.28 16.28 Supply of additional initial spares 0.00 0.00 24.34 Supply orders for additional items 0.00 0.00 5.86 Service orders for additional items 0.00 0.00 1.29 Land for Substation 51.00 51.00 24.00 Revised Taxes and Duties 0.00 38.50 46.29 Overheads 317.31 363.78 357.78 Project Management Consultancy services 154.53 201.45 201.45 Other Overheads 11.93 11.47 11.47 Contingency 124.85 124.85 124.85 Pre -operative expenses 26.00 26.01 20.01 Deposit work for bays at Aurangabad 32.00 32.00 32.00 substation + civil work Financing and IDC 210.98 467.57 629.08 Impact of foreign exchange rate variations 0.00 209.57 172.30 Particulars In - Business MYT principle Plan Petition Approval Total (1 to 8) 4721.88 5290.92 5948.57 * MEGPTCL has submitted revised capital cost of commissioned sets pursuant to the statutory auditor's certificate on 9 June, 2014. 3.4.1.2 The Petitioner has submitted the revised capital cost of the project pursuant to the statutory auditor's certificate on 9 June, 2014. For Set 1 there is an overall increase on account of impact of increase in taxes and duties which is partly set off by reduction of interest and finance charges. Similarly, for Set 2a and Set 2b there is a reduction of Rs. 25 crore and Rs. 2 crore, respectively in the interest and finance charges, preliminaries, pre -operative and other expenses. Further, the Petitioner has considered additional capitalisation for the unclaimed FERV for Set 2a and Set 2b by the EPC contractor which is expected to be crystallised in FY 2014 -15. 3.4.1.3 The Petitioner has not proposed any revision in the cost attributable to Set 3 in its submission of the revised capital cost for Set 1, Set 2a and Set 2b pursuant to the certification by the statutory auditor. Table 3 -5: Revised capital cost of MEGPTCL pursuant to statutory auditor's certificate (Rs. Crore) S. Particulars Revised Estimate No. (pursuant to statutory auditor certificate) Set -1 Set -2a Set -2b 1 Preliminaries 0.02 0.45 0.00 2 Transmission Lines 79.97 690.30 437.66 Supply Order 61.70 550.88 363.02 2.1 Service Order 18.17 136.78 74.64 2.2 Non -EPC cost 0.10 2.64 0.00 2.3 Additional initial spares 0.10 2.52 0.00 2.3.1 Supply of additional items 0.00 0.12 0.00 2.3.2 3 Substation Works 10.37 1113.15 0.00 Supply Order 9.69 972.83 0.00 3.1 Service Order 0.11 109.57 0.00 3.2 Non -EPC cost 0.57 24.77 0.00 3.3 Metering for Akola -II and Koradi -III 0.09 8.43 0.00 3.3.1 S/s Additional initial spares 0.48 11.77 0.00 3.3.2 Supply of additional items 0.00 4.01 0.00 3.3.3 Service for additional items 0.00 0.56 0.00 3.3.4 3.4 Land for Substation 0.00 5.98 0.00 4 Revised Taxes and Duties 4.47 16.40 3.90 5 Overheads 3.89 80.11 21.50 Project Management Consultancy 3.83 78.71 18.89 5.1 services (Rs. Crore) S. Particulars Revised Estimate No. (pursuant to statutory auditor certificate) Set -1 Set -2a Set -2b Other Overheads 0.05 1.13 0.41 5.2 Contingency 0.00 0.00 0.00 5.3 Pre -operative expenses 0.01 0.27 2.20 5.4 6 Deposit work for bays at 0.00 0.00 0.00 Aurangabad substation + civil work 7 Financing and IDC 6.80 147.37 36.60 8 Impact of foreign exchange rate 2.66 57.71 13.78 variations 9 Total (1 to 8) 108.18 2105.49 513.44 10 Additional capitalisation proposed 0.00 46.04 4.04 for unclaimed FERV on material import for Set 2a and Set 2b 11 Total Revised Capital Cost 108.18 2151.53 517.48 proposed (9+10) 3.4.1.4 The key reasons for variations as cited by MEGPTCL in the Petition are as outlined below: Impact of FERV on material import ­ Owing to the delay in implementation due to RoW issues, delayed clearances, land availability, availability of shut downs etc. certain material and equipment were imported after the scheduled completion dates of EPC contracts which led to the impact of FERV cost on MEGPTCL. Additional RoW ­ Severe RoW cases in terms of number and nature involving long drawn litigations and resultant increase in land valuation has led to increased RoW compensation. Price Variation ­ Due to delay in implementation, prices of input raw materials like steel, aluminium, copper etc. for the substation and transmission line equipment have increased and the same have been escalated at the applicable IEEMA/CACMAI indices for the differential period between scheduled completion and actual supply completion/estimated supply completion. Additional Spares ­The 765 kV system is being implemented for the first time in Maharashtra and moreover, the system is being implemented in remote locations. Further, the system is capable to carry almost 4500 MW of power and thus the availability of the system is crucial. To maintain the high availability of the transmission system and the fact that many equipment are being imported, timely availability of spares for these equipment is critical considering the long lead time involved in their delivery. Land ­ Land for Akola -II substation was initially to be purchased and handed over by MSETCL to MEGPTCL which is now being leased out to MEGPTCL, hence, the total capital cost of land is reduced. However, the corresponding increase in the lease rental for the same is factored as additional O&M in the ARR for the Control Period. Interest During Construction ­ This has been impacted on account of delay in implementation of the project owing to delays in obtaining various statutory approvals, clearances, RoW issues, litigations etc. FERV ­ Loan component ­ The impact of FERV for the loan component has reduced in the MYT Petition from the Business Plan Petition since the exchange rate used in Business Plan Petition was Rs. 65.70/USD and that used in the present MYT Petition is Rs. 61.98/USD. However, there has been an overall FERV implication of Rs. 172.29 crore in the MYT Petition as compared to the in -principle approval. In addition, there is minor variation in the capital cost due to the other factors such as Quantity variation, EAR Insurance Policy charges, Idling Charges, Demurrage Charges, Additional Taxes and Duties, Additional Purchase Order/Service Order, Overheads etc. 3.4.1.5 Accordingly, the Petitioner has primarily attributed the increase in the capital cost to the reasons summarised above. 3.4.1.6 The Petitioner has submitted that it has segregated the entire project in different Sets (Set1, Set 2a, Set 2b and Set 3) in such a way that each Set can be put under commercial operation individually. The Petitioner has also segregated capital cost of each Set for the purpose of calculation of Tariff independently from the date of commercial operation of respective Set. The Petitioner also submitted that the audited capital cost of the elements which have been commissioned would be submitted shortly. In view of above, the Petitioner has requested to consider the submission of MYT Petition based on provisional capital cost. 3.4.1.7 The Petitioner further submitted that the Regulations 27.1 (a) and 38.4 of the MYT Regulations 2011 also provide for inclusion of projected expenditure in capital cost and approval of provisional Tariff based on anticipated date of Commercial Operation for Generating companies. 3.4.1.8 Further, the Petitioner also submitted that if Tariff determination takes place only after the commissioning of the project and subsequent to finalisation of accounts, it will lead to delay in recovery of ARR from the date of commissioning. This will result in recovery of ARR with carrying cost which will be an additional burden on the consumers on entire ARR instead of on just the differential amount between the provisional ARR and actual ARR at the time of True up. 3.4.1.9 The Petitioner has also submitted that provisional recovery of ARR based on prudently estimated capital cost would not only be in line with the provisions of the MERC MYT Regulations, 2011 and reduce carrying cost burden on consumers but also help the Petitioner to adhere to its obligations with its lenders and maintain a healthy cash flow for sustained operations. 3.4.1.10 Accordingly, the Petitioner has requested the Commission to consider estimated capital cost for the purpose of approval of the MYT Petition. The Petitioner further stated that the final completed capital cost along with audited financial statements would be submitted within short time after date of commercial operation. Commission's observation on submission of capital cost: 3.4.1.11 The Regulation 27.2 of the MERC MYT Regulations, 2011 states that the capital cost admitted by the Commission after prudence check shall form the basis for determination of Tariff and also defines that prudence check may include scrutiny of the reasonableness of the capital expenditure, financing plan, interest during construction, use of efficient technology, cost over -run and time over -run, and such other matters as may be considered appropriate by the Commission for determination of Tariff. Accordingly, the Commission has considered project cost approved in -principle as a basis for preliminary prudence check since the capital cost approved in the Business Plan Order was provisionally approved. 3.4.1.12 The Regulation 27.3 of the MERC MYT Regulations, 2011 states that the approved capital cost shall be considered for determination of Tariff and if sufficient justification is provided for any escalation in the project cost, the same may be considered by the Commission subject to the prudence check. 3.4.1.13 The Regulation 27.4 of the MERC MYT Regulations, 2011 states that the actual capital expenditure on CoD for the original scope of work based on audited accounts of the Company to original cost may be considered subject to the prudence check by the Commission. 3.4.1.14 Based on the provisions of the MERC MYT Regulations, 2011, the Commission had given a directive to the Petitioner to submit the MYT Petition along with audited statements and completed cost of the transmission project as on CoD of the project within 60 days from the date of issuance of the Business Plan Order. 3.4.1.15 The Commission noted that the Petitioner in its present submission has provided auditor's certificates dated 29 May, 2014 capturing the cost of Set 1 and Set 2a and dated 9 June, 2014 capturing the cost of Set 2b. The Set 3 is still pending completion and commissioning. Thus, the auditor certificate has been provided for part of the total project cost for the project being executed by the Petitioner. 3.4.1.16 The audited financial statements for the year on which the CoD has been achieved have also not been submitted. Therefore, the capital cost certified under the statutory auditor certificate can only be considered for approval upon verification of the same with complete audited statements for financial years upto CoD. Since the completed audited statements for the year of CoD is yet to be submitted, final approval of capital cost for the transmission project subject to prudence check shall be carried out at a later date. 3.4.1.17 The Commission has taken the submissions of MEGPTCL on record. However, the Commission is of the view that at this stage, any attempt to approve the Capital Cost by carrying out the prudence check based on limited information will not serve any purpose as the some components of cost are likely to undergo change up to COD of the Project. 3.4.1.18 The Commission in its previous Orders on approval of Capital Cost has carried out the detailed prudence check by analysing the reasons for variation in Actual Capital Cost as on COD with respect to original estimated cost. MEGPTCL in its Petition has submitted that actual cost for commissioned sets and estimated the cost for the remaining set, though the project is yet to achieve COD. Therefore, the variation in capital cost till COD of the Project will also undergo change and it will be more appropriate to analyse the reasons for variation in actual Capital Cost with respect to original estimated capital cost. 3.4.1.19 Hence, the Commission is of the view any approval of capital cost at this stage will be based on limited prudence and based on certain assumptions, which will undergo change based on actual capital cost till COD of the Project. Hence, the Commission is considering the capital cost on provisional basis in this Order for the purpose of estimating the ARR so that the Petitioner may be allowed to recover some cost on account of commissioning of 2 Sets. The Commission shall approve the capital cost of the project after carrying out the prudence check of the capital cost while determining the final Tariff in accordance with the MERC MYT Regulations, 2011 based on audited capital cost on COD. 3.4.1.20 In view of the above, the Commission has undertaken the scrutiny of the revised capital cost provided by the Petitioner and the reasons for increase stated in the Petition. Based on the scrutiny, key observations of the Commission as regards the revised capital cost submitted by MEGPTCL have been elaborated below: 1. Cost escalation under EPC Contracts (a) Impact of FERV on material import component of capital cost MEGPTCL's submission: As submitted by the Petitioner, delay in forest clearance, RoW, legal matters, line crossing clearances, non -availability of land for substation and storage related infrastructure etc., has led to delay in completion period. Consequently, the import of off -shore material for transmission line such as disc insulators, OPGW, etc. and for substations such as shunt reactors, auto transformers, insulating oil, accessories, etc., was delayed. Further, it is also submitted that there has been substantial increase in INR/USD exchange rate during the delayed period, i.e. after scheduled completion date till the actual delivery/anticipated completion. This has resulted in additional cost burden in respect of import of above mentioned materials during delayed period. Further, increase in INR/USD exchange rate has also resulted in extra burden in respect of payment of import duties. Accordingly, the EPC contractor has raised claim for the same. Further, it is submitted that as per the contract terms between MEGPTCL and its EPC contractor, 45% of invoice value is being retained by MEGPTCL in the form of retention and this retention amount could not be claimed by the contractor. Because of this, contractor had faced severe financial crunch. Consequently, the contractor was forced to prolong the payment to its overseas suppliers resulting in further loss on account of FERV. The cost implication due to impact of FERV on material import is to the tune of Rs. 382.53 crore. Commission's Observation: It is observed from the submission that one of the most important factors which has contributed to increase in the capital cost is the impact of foreign exchange rate variation on the material import. In the matter of FERV on material import, the provisions of Regulation 27 of the MERC MYT Regulations, 2011 may be referred as under: "27.1 Capital cost for a project shall include: (a) the expenditure incurred or projected to be incurred, including interest during construction and financing charges, any gain or loss on account of foreign exchange risk variation on the loan during construction up to the date of commercial operation of the project, as admitted by the Commission, after prudence check; 27.2 The capital cost admitted by the Commission after prudence check shall form the basis for determination of tariff: Provided that prudence check may include scrutiny of the reasonableness of the capital expenditure, financing plan, interest during construction, use of efficient technology, cost over -run and time over -run, and such other matters as may be considered appropriate by the Commission for determination of tariff. 27.3 The approved Capital Cost shall be considered for determination of tariff and if sufficient justification is provided for any escalation in the Project Cost, the same may be considered by the Commission subject to the prudence check: Provided that in case the actual capital cost is lower than the approved capital cost, then the actual capital cost shall be considered for determination of tariff of the Generating Company or Transmission Licensee or Distribution Licensee. 27.4 The actual capital expenditure on COD for the original scope of work based on audited accounts of the Company limited to original cost may be considered subject to the prudence check by the Commission." From the reading of these Regulations, it is clear that capital cost approval is subject to prudence check which shall include the elements as outlined in the first proviso of the Regulation 27.2 of the MERC MYT Regulations, 2011. Cost over -run and time over -run have also been identified as elements to be examined as part of the prudence check of the capital cost to be undertaken by the Commission. In the present case, the impact of FERV on material import (which is a result of the delay in implementation of the project) has led to cost over -run. Before considering the escalation in cost as a pass through in the approved capital cost, it is important to comprehend the reasons behind the stated cost escalation. Accordingly, it is important to identify the clause in the EPC contract under which such a cost is a pass through to the EPC contractor. Further, it is also to be examined if the reasons for delay are controllable or uncontrollable. In this regards, the Commission had enquired with the Petitioner regarding the provisions of the EPC contract under which the FERV on the material import is a pass through to the EPC contractor. In response to the same, the Petitioner submitted that the contract price agreed is on unit rate fixed price basis during the currency of the contract as per Clause No. 25.4 of the General Conditions of Contract for the purchase orders dated 27 September, 2010 awarded to the EPC contractor for 'transmission line package' and substation package'. An extract of the said clause for both the purchase orders is reproduced below: "25.4 The Contract Price is on a unit rate fixed price basis and shall remain firm during the currency of the Contract. The Contract Price shall be inclusive of tools and tackles, labour charges, cost of materials, loading and unloading charges and other charges, overheads, and all other costs as applicable for the execution of the Works/Facilities at Site." It was further submitted that as per Clause No. 3.0 of the purchase order for 'transmission line package', scheduled delivery/completion date was 22 March, 2012 for 765 kV Line -1 (including 400 kV Line associated with the 765 kV Transmission System) and 22 June, 2012 for 765 kV Line -2. Similarly, as per Clause No. 3.0 of the purchase order for 'substation package', scheduled delivery/completion date was 22 February, 2012. However, the Petitioner submitted that the project was delayed significantly on account of circumstances which under the contract were force majeure events and were beyond the reasonable control of both the parties i.e. EPC contractor as well as MEGPTCL. The relevant extracts of force majeure clause as specified under clause no. 51.0 of the General Conditions of Contract for 'transmission line package' and for 'substation package' are reproduced below: "51.0 FORCE MAJEURE 51.1 "Force Majeure" shall mean any event beyond the reasonable control of the Parties and which is unavoidable notwithstanding the reasonable care of the Party affected, and shall include, without limitation, the following: 51.1.1 War, hostilities, or warlike operations (whether a state of war be declared or not), invasion, act of foreign enemy and civil war. 51.1.2 Earthquake, volcanic activity, fire, flood or inundation, tidal wave, typhoon or cyclone, hurricane, storm, lightning, or nuclear or other natural disaster." Further, the Petitioner submitted that Clause no. 51.6 of General Conditions of Contract for 'transmission line package' and for 'substation package' provides for development of mutually satisfactory solution in case of force majeure events. Extracts of the said clause of the General Conditions of Contract for 'transmission line package' and for 'substation package' are reproduced below: "51.6 If the Performance of the Contract is substantially prevented, hindered or delayed for a single period of more than one hundred and twenty (120) Days or an aggregate period of more than two hundred and forty (240) Days or 50% of the Time for Completion, whichever occurs earlier, on account of one or more events of Force Majeure during the currency of the Contract, the Parties will attempt to develop a mutually satisfactory solution failing which either Party may terminate the Contract by giving a notice to the other, but without prejudice to either Party's right to terminate the Contract under GCC Sub -Clause 52.3." The Petitioner submitted that in view of the above and considering reasons of delays as force majeure events, the Petitioner discussed the issue with the EPC contractor and developed a mutually agreed solution to compensate the EPC contractor towards hardship on account of FERV for the material received or payment made beyond scheduled completion dates. The methodology agreed between the two parties has been outlined by the Petitioner in the Petition. Accordingly, based on the above, it is noted that the provision for pass through of the impact of FERV on material import beyond the scheduled completion period was not a part of the original contract executed between the Petitioner and the EPC Approval of MYT Petition of MEGPTCL for FY 2013 -14 to FY 2015 -16 contractor and has been agreed to as a mechanism to address the cost implications on the EPC contractor on account of delays in completion of the work. The cost escalation figures have been included in the original Petition submitted on 5 March, 2014 by the Petitioner citing that after completion of Set 1, Set 2a and Set
(2.) b, the cost implication on account of quantity and price variations, other claims and additional works carried out by EPC contractor have been reconciled for completed portion and the variation is factored in the capital cost. However, the EPC contracts for the transmission line and substations have been amended only on 5 May, 2014. This implication of FERV on material import would not have occurred in case the project would have been completed within the scheduled completion date as the contract was a fixed price contract and the variations on account of FERV during the currency of the contract were not a pass through and hence having no impact on the Petitioner. The reasons of delay as provided by the Petitioner includes RoW issues, delayed forest clearances, land availability for substations, availability of shut downs, etc. The Petitioner has also provided supporting correspondence in the matter which highlights the time taken to obtain clearances and the effort put in by the Petitioner to obtain the same. The Petitioner has also provided details of the litigations and related information pertaining to the RoW issues and the time taken to sort out the same. The Commission has noted that there has been substantial delay in getting the necessary forest clearances and resolution of RoW issues. As regards the process followed by the Petitioner for seeking forest clearances for the two circuits, it is observed from the material placed on record that the proposals for getting forest clearance were submitted to the office of Deputy Conservator of Forest at Gondia, Bhandara and Nagpur on 28 December, 2010, 10 January, 2011 and 24 January, 2011 respectively for circuit 1 of the transmission line. Similarly, for circuit 2 of the transmission line, the proposals were submitted on 1 January, 2011, 10 January, 2011 and 24 January, 2011 respectively at the above mentioned offices. However, the Stage -II clearance for circuit 1 was received on 30 August, 2013 and the work permits were issued by the office of Deputy Conservator of Forest at Gondia, Bhandara and Nagpur on 10 September, 2013, 26 September, 2013 and 30 September, 2013 respectively. This has resulted in delay in commissioning of the project. However, the Commission, based on the scrutiny of the Petitioner's submission, has also come across certain instances wherein it was observed that substantial time had elapsed (around 2 years) in forwarding the application of MEGPTCL by PCCF, Nagpur to Mantralaya, Mumbai for forest clearance. No correspondence from MEGPTCL was available during this period requesting the concerned offices to expedite the process of providing forest clearance. On query by the Commission, the Petitioner submitted that the officials of MEGPTCL were continuously following up with the concerned officials, however, no documentary evidence was made available by MEGPTCL in this regards. Similarly, as regards the RoW issues, from the material placed on record by the Petitioner, it is observed that there were many issues faced by Petitioner and there has been a delay in resolution of the court cases pertaining to RoW matters. As regards circuit 1 of the transmission line, the resolution of the court cases has been done for majority of the cases by October 2013 and post that the line has been commissioned in February 2014 and April 2014. As regards circuit 2, there are still many cases pending resolution with the District Magistrate (DM) in Nagpur, Bhandara, Amravati and Buldhana. The Commission for approving the capital cost on provisional basis has considered the actual FERV on material import amount of Rs. 326.81 Crore as certified by the Chartered Accountant and as submitted by the Petitioner on 1 August, 2014. The Commission shall take the final decision for allowing such cost as part of the capital cost and may approve the cost on account of FERV after carrying out the prudence check while determining the final Tariff in accordance with the MERC MYT Regulations, 2011 based on audited capital cost on COD and all submissions in this regard. Further, the Petitioner has submitted that the unclaimed FERV on material import for Set 2a and Set 2b to the extent of Rs. 50.08 crore (i.e., out of Rs. 326.81 Crore) has been deferred for claiming as additional capitalisation for FY 2014 -15. Accordingly, the Commission has considered this amount on provisional basis for Set 2. (b) Impact of additional compensation paid in RoW issues on capital cost MEGPTCL's submission: The Petitioner has submitted that 765 kV transmission system is being implemented for the first time in Maharashtra. Moreover, the RoW required for 765 kV voltage level is a span of 64 metres as compared to 52 metres required for 400/220 kV voltage level. The Petitioner has faced severe RoW issues both in terms of nature and number of cases. There were about 43 cases in Tiroda ­ Koradi section, 28 cases in Koradi - Akola and 31 cases in Akola ­ Aurangabad for circuit 1 alone. For circuit 2 the corresponding figures for cases are 26, 34 and 22 so far. The time for resolution of such cases has been huge and in some instances it has been more than 650 days (approximately 2 years). The Petitioner has also submitted that since the court verdict cannot be foreseen, work could not be commenced at a few locations on either side in order to cater to requirement of rerouting in case the court verdict goes adverse. Due to so many court cases going on in parallel, there was hardly any scope to work in many areas and the execution gangs had to sit idle. On account of the delays, in the meantime the land valuation has increased substantially from around Rs. 2.50 - 3.00 lakh/km to around Rs. 9.00 lakh/km on an average. The Petitioner has submitted that even in a place like Gujarat which is not so rich in agricultural production, the RoW is estimated at around Rs. 9.00 lakh/km. Thus, due to the delay in getting the RoW, the land valuation has increased pushing up the RoW compensation to an average of Rs. 8.7 lakh/km and a total RoW expense of Rs. 103.49 crore as against Rs. 30.75 crore estimated earlier. The Petitioner has submitted that due to the delay in obtaining RoW clearances, the land valuation has increased driving up the RoW and crop compensation prices substantially. The Commission noted that RoW issues were faced by the Petitioner which led to the delay of implementation of the project. Subsequently, the Petitioner has provided the details of the actual RoW cost paid for the Project, which is summarised as under: Sr. Set Section Actual Factors accountable for high Crop No. Incurred as on Compensation date (Rs. Crore) 400 kV D/C Akola - 1 Set -1 II - Akola -I line 1.35 * Line is passing through agricultural rich area (Gondia, Bhandara, Nagpur District), *Severe resistance faced in the route of line. * More compensation paid due to more angle tower * Major crop are Peddy, Cotton, Sugar crane, Soyabean,Wheat, Rice and vegetables 765 kV S/C Tiroda - 2 Set -2a Koradi -III line Ckt -I 14.58 * Many orange orchard in the route of the line * line is passing through agricultural rich area 765 kV S/C Koradi - (Nagpur,Akola, Amravati District) III -Akola -II line * Major crop are Cotton, Chana, Soyabean and 3 Set -2a Ckt -I 17.09 Orange *Severe resistance faced in Buldana District *Many mango trees garden in the route of line, *Line is passing through agricultural rich area ( 765 kV S/C Akola - Akola, Buldana, Jalna District) II -Aurangabad line * Major crop are Cotton, Soyabean,Chana, 4 Set -2b Ckt -I 22.11 Mango * Line is passing through agricultural rich area (Gondia, Bhandara, Nagpur District), *Severe resistance faced in the route of line. 765 kV S/C Tiroda - * More compensation paid due to more angle Koradi -III line Ckt - tower 5 Set -3 II 12.80 * Major crop are Peddy, Cotton, Sugar crane, Sr. Set Section Actual Factors accountable for high Crop No. Incurred as on Compensation date (Rs. Crore) Soyabean,Wheat, Rice and vegetables * Many orange orchard in the route of the line * line is passing through agricultural rich area 765 kV S/C Koradi - (Nagpur,Akola, Amravati District) III -Akola -II line * Major crop are Cotton, Chana, Soyabean and 6 Set -3 Ckt -II 10.58 Orange *Severe resistance faced in Buldana District *Many mango trees garden in the route of line, *Line is passing through agricultural rich area ( 765 kV S/C Akola - Akola, Buldana, Jalna District) II -Aurangabad line * Major crop are Cotton, Soyabean, 7 Set -3 Ckt -II 6.60 Chana,Mango Total 85.11 The Commission for approving the capital cost on provisional basis has considered the actual amount of Rs. 85.11 Crore paid by the Petitioner. The Commission shall take the final decision for allowing such cost as part of the capital cost and may approve the cost on account of RoW after carrying out the prudence check while determining the final Tariff in accordance with the MERC MYT Regulations, 2011 based on audited capital cost on COD and all submissions in this regard. (c) Impact of Price Variation on the capital cost MEGPTCL's submission ­ Transmission Lines - In the case of transmission lines, the project implementation has been delayed beyond the scheduled completion date of 22 March, 2012 (Line 1) and 22 June, 2012 (Line 2) as per the terms of the EPC contracts on account of the delay in forest clearances, severe RoW issues, and litigations, etc. Further, the market price of the raw materials such as steel, aluminium, copper etc. under the supply order has increased considerably during the delay period. This has impacted the items such as tower parts (including nuts and bolts), tower accessories, hardware fittings and accessories, insulators, ACSR (Aluminium Conductor Steel Reinforced) conductors, G.S. Earthwire, OPGW (Optical Ground Wire), etc. The Petitioner has further submitted that since the price variation in transmission line material is being captured by IEEMA/CACMAI indices, the impact of price variation is worked out based on the prevailing market rate of individual items and price escalation as per the applicable IEEMA/CACMAI indices only for the material supplied after scheduled completion date till actual supply completion date for completed portion or estimated supply completion date for balance material. The escalation in project cost due to variation in raw material prices/ labour /fuel cost etc. for various materials for the above mentioned items is estimated at Rs. 38.25 crore for the entire project till its completion. Substations - In the case of substations, the project implementation got delayed beyond the scheduled completion date of 22 February, 2012 as per the terms of the contract on account of delay in obtaining clearances, legal matters, non -availability of land, storage related infrastructure, etc. Further, MEGPTCL encountered stiff resistance for land acquisition for Koradi -III substation and the demand raised by villagers was untenable. Therefore, MEGPTCL approached the Government of Maharashtra to acquire the balance land for Koradi -III substation. The market price of the substation equipment under the supply order has increased considerably during the delay period due to increase in raw materials prices such as steel, aluminium, copper etc. Similarly, charges for labour wages, fuel and other consumables pertaining to service order have also gone up substantially during the period after scheduled completion date. Additionally, scarcity of skilled labour in the market along with increased demand of skilled labour has put extra pressure on the cost of manufacturing and services. This has resulted in escalation in the prices of various equipment for Koradi -III substation such as circuit breakers, isolators, instrument transformers, surge arrestors, insulators, hardware fittings, structural materials, cables, earthing materials, switchgear panels, DC systems, PLCC equipment etc. under supply order as well as their installation under service order. The Petitioner has further submitted that since the price variation in substation equipment is being captured by IEEMA indices, the impact of price variation is worked out based on the prevailing market rate of individual items and price escalation as per the applicable IEEMA indices only for the material supplied after scheduled completion date till the anticipated date of supply/installation. The escalation in project cost due to price variation for substations is Rs. 19.00 crore. Thus, the Petitioner has requested the Commission to approve the total cost escalation due to price variation to the tune of Rs. 57.25 crore. Commission's Observation ­ The Commission shall take the final decision for allowing such cost as part of the capital cost after carrying out the prudence check while determining the final Tariff in accordance with the MERC MYT Regulations, 2011 accordingly, the Commission has not considered the cost pertaining the price variation at this stage of determination of provisional tariff. (d) Impact of Quantity Variation on Capital Cost MEGPTCL's submission: Transmission Lines ­ The Petitioner has submitted that at the time of award of work to contractors, majority of towers considered were suspension towers which are light in weight with lesser number of insulators and associated hardware fittings. Also, foundation volume is less for suspension towers as compared to tension towers. After the award of work, it was observed that there was involvement of forest land, mining area, agriculturally rich areas (orange orchard, fruits and shrubs) along the original route of the transmission lines. Continuing with such route covering the locations as mentioned above would have severely hampered the progress of the project and would have resulted in substantial increase in RoW cost and increase in soft cost. To avoid such consequences and to expedite the completion of work, re -routing and diversion of lines became necessary resulting in quantity variation for various items of transmission lines. Further, the Petitioner submitted that 765 kV lines were initially required to be terminated at PGCIL substation at Aurangabad. However, as per discussion with MSETCL, the line was subsequently to be terminated at 765/400 kV MSETCL Ektuni substation which resulted in changes in quantity for various items. Thus, though there is net reduction in line length, due to inevitable zig -zag nature of line route owing to the above mentioned reasons, there is substantial increase in angle towers population and associated accessories. There is an increase of around 106 angle towers as compared to the initially envisaged quantity as against the reduction of around 144 suspension towers. Along with the increase in angle towers, there is corresponding increase in associated insulators and accessories as well. The installation and material cost for angle towers is substantially higher as compared to the suspension towers as the angle towers are substantially heavier than the suspension towers. Therefore, the Petitioner has estimated the net impact of quantity variation (both on account of reduction in line length and on account of increase in angle tower population) in transmission line to be Rs. (26.49) Crore. The Petitioner further submitted that due to substantial increase in population of the angle towers, the cost of foundation and other associated service order works have also increased substantially. Hence, the net variation in the service order cost due to this is around Rs. 7.70 Crore. Accordingly, the net impact of quantity variation (both supply and service) in transmission line is Rs. (18.79) Crore. Substations ­ The Petitioner has submitted various reasons which contributed to the escalation in capital cost due to quantity variation pertaining to substations as follows: Increase in cost due to requirement of interim arrangement of Fibre Optic Telecommunication Equipment (FOTE) necessary for amplification of the "control signal" at an intermediate location between Tiroda to Akola - II substation due to delay in development of the Koradi - III substation. Reduction in cost due to change of suppliers for certain equipment like isolator, clamps and connector which were earlier planned to be imported to onshore suppliers on account of concerns with availability schedule. Increase in cost due to requirement of separate lighting masts for 400 kV and 765 kV voltage levels as prescribed by the Chief Engineer (Electrical), PWD during 400 kV switchyard visit. Increase in cost due to shifting of the Metering CT and CVT's location at Tiroda due to change of metering arrangement which also required inclusion of some binary modules to include end fault protection at Akola -II substation. Increase in cost due to requirement of additional 400 kV Bays at Akola - II substation and extra termination towers at Aurangabad and necessary protection and communication arrangement at Akola - II substation as the line section between Akola II to Aurangabad which was originally to be charged at 765 KV is now proposed to be charged at 400 kV level as an interim arrangement by terminating at 400 kV MSETCL Thaptitanda substation. This is on account of delay in commissioning of the 765 kV MSETCL Aurangabad substation. Increase in cost due to need for additional civil work at Akola - II substation especially for the boundary wall and switchyard foundations which have varied due to change of soil properties and level difference between outside and inside land. This has been aggravated by the presence of standing water at one meter below the excavation, causing buoyancy effect. The net impact due to quantity variation in substations is estimated to be Rs. 18.80 crore. Based on the above, the net impact on capital cost due to variation in quantity in transmission lines and substations is Rs. 0.01 crore. Commission's Observation: The Commission for approving the capital cost on provisional basis has not considered the impact due to quantity variation in substations and transmission lines. The Commission shall take the final decision for allowing such cost as part of the capital cost and may approve the cost on account of variation in quantity after carrying out the prudence check while determining the final Tariff in accordance with the MERC MYT Regulations, 2011 based on audited capital cost on COD and all submissions in this regard. (e) EAR Policy, Idling Charges and Demurrage Charges - MEGPTCL's submission: EAR Policy - MEGPTCL has submitted that 400 kV D/C Akola -II to Akola -I line and 765/400 kV Akola -II substation could not be charged due to non -readiness of APTCL bays at Akola -I, MSETCL substation. Owing to the delay on account of forest clearance, legal matters, line crossing and other clearances, severe RoW issues, non -availability of land and storage related infrastructure, etc., the completion of transmission lines got delayed. This has resulted in additional cost towards extension of Erection All Risk (EAR) policy for the period from scheduled completion date of lines till its charging date and hence resulted in additional cost amounting to Rs. 4.27 crore. Idling Charges ­ MEGPTCL has submitted that farmers had raised many objections during the construction of transmission lines which forced MEGPTCL to file a number of cases under the Indian Telegraph Act, 1885 with the respective District Collector's office and the decisions for which were delayed. There were other issues also wherein one transmission line location was falling within an existing MSETCL substation for which MSETCL raised demand for compensation and it took one month to resolve the dispute. MEGPTCL has also cited incidences wherein there has been delay in availing shutdown of 132 kV Amravati -Achalpur transmission line. Initially, the permission was granted for the shutdown vide letter dated 25 March, 2012, however it was cancelled by MSETCL at the last moment and it was informed to MEGPTCL to pay additional load management charges. Subsequently the permission was granted again for shutdown on 27 May, 2012. Other similar issues were also faced by MEGPTCL which led to the idling of the gangs leading to the EPC contractor charging idling charges amounting to Rs. 3.04 crore. Demurrage Charges ­ The Petitioner has submitted that auto transformers and shunt reactors imported from a South Korea based OEM (Original Equipment Manufacturer) are covered under 'concessional basic custom duty' benefit subject to approval of 'project essentiality' by the Principal Secretary, Ministry of Power, Government of India. This approval process was delayed for about 47 days for Tiroda substation and 26 days for Akola - II substation and also, there were intermittent delays in registration of contract on account of procedural constraints of customs at the Kandla port. This resulted into incurrence of trailer detention charges to the tune of Rs. 1.99 crore. The Commission has gone through the submissions placed on record by the Petitioner and following are the observations: EAR Policy: The Commission observes that the Petitioner had extended the period of the EAR Policy to cover the period beyond the original scheduled date of completion as the project implementation has been delayed. However, the reason behind the need for increasing the period of this policy was the delay in the project implementation. The Commission for approving the capital cost on provisional basis has considered the impact of Rs. 4.27 Crore due to EAR Policy. The Commission shall take the final decision for allowing such cost as part of the capital cost and may approve the cost on account of variation in cost on account of EAR Policy after carrying out the prudence check while determining the final Tariff in accordance with the MERC MYT Regulations, 2011 based on audited capital cost on COD and all submissions in this regard. Idling Charges: The Commission observes that the incidence of idling charges on the Petitioner is mainly on account of issues faced due to utilities like MSETCL and PGCIL not granting timely shutdowns or revoking permissions after granting permissions initially. Further, the Petitioner has also submitted that the manpower gangs remained idle on many instances due to delay in implementation of the project. The Commission observes that it is the responsibility of the Petitioner to manage execution related matters and the entire financial impact of the same cannot be passed on to the consumers. The Petitioner has also appointed a PMC for managing smooth execution of the project and the cost of which is also included in the capital cost. The Commission for approving the capital cost on provisional basis has considered the impact of Rs. 3.04 Crore due to Idling charges. The Commission shall take the final decision for allowing such cost as part of the capital cost and may approve the cost on account of variation in cost on account of Idling Charges after carrying out the prudence check while determining the final Tariff in accordance with the MERC MYT Regulations, 2011 based on audited capital cost on COD and all submissions in this regard. Demurrage Charges: The Commission based on the submissions of the Petitioner observes that the incidence of demurrage charges on the Petitioner is mainly on account of issues faced in getting necessary approvals from concerned department. However, in this case also the incidence of demurrage charges is on account of delay albeit the delay is not on account of RoW or clearance related matters. Accordingly, the Commission for approving the capital cost on provisional basis has not considered the impact due to demurrage charges. The Commission shall take the final decision for allowing such cost as part of the capital cost and may approve the cost on account of variation in cost on account of demurrage charges after carrying out the prudence check while determining the final Tariff in accordance with the MERC MYT Regulations, 2011 based on audited capital cost on COD and all submissions in this regard. (f) Increase in amount of Taxes and Duties MEGPTCL's submission: MEGPTCL has submitted that as per conditions in the EPC contract, any variation in taxes and duties as applicable would be payable by MEGPTCL. At the time of award of contract, Excise Duties and Service Tax were 10.30% each including educational and higher educational cess. Pursuant to revision in Union Budget, the Excise Duties and Service Tax were revised to 12.36% each. Also, there is an additional burden of Safeguard Duties at the rate of 35% being levied by GoI vide notification dated 20 December, 2012 for imported insulators manufactured in China which was not applicable earlier. Since there was an ambiguity regarding classification in the material on which such duty was applicable, the contractor took up the matter with the concerned Authority. However, the same had to be paid along with the interest for delay in payment under protest. The claim on this account was raised by the EPC contractor subsequently in February 2014 and hence could not be included in the Business Plan. The date of import of such equipment is 20 December, 2012. The net impact due to variation in Taxes and Duties is Rs. 7.79 crore. Commission's Observation ­ The Commission has noted the submissions of the Petitioner and also noted that the variation in statutory taxes, duties and other levies are beyond the control of the Petitioner in accordance with the Regulation 12.1 (d) of the MERC MYT Regulations, 2011. The Commission for approving the capital cost on provisional basis has considered the taxes and duties of Rs. 46.29 Crore as estimated by the Petitioner in the MYT Petition. The Commission shall take the final decision for allowing such cost as part of the capital cost and may approve the cost on account of taxes and duties after carrying out the prudence check while determining the final Tariff in accordance with the MERC MYT Regulations, 2011 based on audited capital cost on COD and all submissions in this regard. 2. Impact of additional spares on the capital cost MEGPTCL's submission: The Petitioner has submitted the following justification to maintain adequate amount of initial spares in order to keep the system available at all times to restore the system under the contingency situation immediately: 765 kV system is being implemented for the first time in the State; Geographically it is situated in remote locations and is capable of carrying almost 4500 MW power from North Eastern Maharashtra to the load centres; Certain equipment such as transformers, reactors, isolators etc. are being imported and the timely availability of spares for these equipment would be critical considering the long lead time involved in their delivery. Accordingly, MEGPTCL has estimated the additional initial spares amounting to Rs. 29.56 crore. Further, MEGPTCL has submitted that the total estimated initial spares including the initial spares estimate in the EPC contract Rs. 52.02 crore and the additional spares at Rs. 29.56 crore are within the limits specified in the MERC MYT Regulations, 2011. ­ The Commission noted the submission of the Petitioner that the increase in the capital cost on account of additional spares is primarily because most of the equipment are imported and hence its delivery lead time would be higher. Further, the shipment of these spares to the destination which is in remote areas of Maharashtra might further add to the lead time. The Commission further noted the submission of the Petitioner that any delay in availability of spares might adversely affect the availability of the transmission system in case of faults. Further, this transmission system being capable of transmission of approximately 4500 MW of power, it is significant to maintain the availability at levels prescribed by various competent Authorities. The Commission noted that the MERC MYT Regulations, 2011 also stipulates the ceiling for spares of the Project. The Commission for approving the capital cost on provisional basis has considered the actual amount of Rs. 14.87 Crore paid by the Petitioner for procurement of the spares for already commissioned sets. The Commission shall take the final decision for allowing such cost as part of the capital cost and may approve the cost on account of spares after carrying out the prudence check while determining the final Tariff in accordance with the MERC MYT Regulations, 2011 based on audited capital cost on COD and all submissions in this regard.
(3.) Impact of additional supply / services on the capital cost MEGPTCL's submission: Orders for some additional works not anticipated earlier like removal of encumbrance, arrangement for supply of auxiliary power, purchase of testing & measuring equipment, energy meters etc. were required to be placed by MEGPTCL on different vendors. Further, MEGPTCL has also procured some T&P necessary for Operation & Maintenance of the lines and substations. Some of these items are also useful in the expeditious erection of 765 kV tower which otherwise would have consumed lot of time. Also, as per EPC contract, the EPC contractor had to provide interface Tariff meters including associated equipment like CT & CVT at Tiroda end only. But as per MSETCL approval letter MEGPTCL was required to provide additional meters along with associated equipment (CT & CVT) at Akola - II & Koradi - III substations. As these items were not included in initial scope of the EPC contractor, a separate order was placed on independent agency by MEGPTCL for an amount of Rs. 16.29 crore which was already included in the Petition filed for Business Plan. Further, additional orders of Rs. 7.26 crore were placed (over and above the amount shown in the Business Plan) for additional supplies/services required such as energy meters, power supply system, T&P etc. The Commission for approving the capital cost on provisional basis has considered the amount of Rs. 16.29 Crore pertaining to Metering for Akola II & Koradi III sub -stations and amount of Rs. 5.86 Crore and Rs. 1.40 Crore towards supply and service orders for additional items as submitted by the Petitioner. The Commission shall take the final decision for allowing such cost as part of the capital cost and may approve the cost on account of additional supplies/service cost of additional items after carrying out the prudence check while determining the final Tariff in accordance with the MERC MYT Regulations, 2011 based on audited capital cost on COD and all submissions in this regard.;