Experience of R & M from Regulatory Perspective Sukanta Gupta, Dy. Chief (Engineering), CERC Partha Sen, Dy, Chief (Finance), CERC 04 April 2016 Kolkata

Excerpts from CERC Tariff Regulation 2014: 15. Renovation and Modernisation: (1) The generating company or the transmission licensee, as the case may be, for meeting the expenditure on renovation and modernization (R&M) for the purpose of extension of life beyond the originally recognised useful life for the purpose of tariff of the generating station or a unit thereof or the transmission system or an element thereof, shall make an application before the Commission for approval of the proposal with a Detailed Project Report giving complete scope, justification, cost-benefit analysis, estimated life extension from a reference date, financial package, phasing of expenditure, schedule of completion, reference price level,

estimated completion cost including foreign exchange component, if any, and any other information considered to be relevant by the generating company or the transmission licensee. (2) Where the generating company or the transmission licensee, as the case may be, makes an application for approval of its proposal for renovation and modernisation, the approval shall be granted after due consideration of reasonableness of the cost estimates, financing plan, schedule of completion, interest during construction, use of efficient technology, cost-benefit analysis, and such other factors as may be considered relevant by the Commission.

(3) In case of gas/ liquid fuel based open/ combined cycle thermal generating station, any expenditure which has become necessary for renovation of gas turbines/steam turbine after 25 years of operation from its COD and an expenditure necessary due to obsolescence or non-availability of spares for efficient operation of the stations shall be allowed : Provided that any expenditure included in the R&M on consumables and cost of components and spares which is generally covered in the O&M expenses during the major overhaul of gas turbine shall be suitably deducted after due prudence from the R&M expenditure to be allowed.

(4) Any expenditure incurred or projected to be incurred and admitted by the Commission after prudence check based on the estimates of renovation and modernization expenditure and life extension, and after deducting the accumulated depreciation already recovered from the original project cost, shall form the basis for determination of tariff.

16. Special Allowance for Coal-based/Lignite fired Thermal Generating station: (1) In case of coal-based/lignite fired thermal generating station, the generating company, instead of availing R&M may opt to avail a “special allowance” in accordance with the norms specified in this regulation, as compensation for meeting the requirement of expenses including renovation and modernisation beyond the useful life of the generating station or a unit thereof, and in such an event, revision of the capital cost shall not be allowed and the applicable operational norms shall not be relaxed but the special allowance shall be included in the annual fixed cost:

Provided that such option shall not be available for a generating station or unit for which renovation and modernization has been undertaken and the expenditure has been admitted by the Commission before commencement of these regulations, or for a generating station or unit which is in a depleted condition or operating under relaxed operational and performance norms.

(2) The Special Allowance shall be @ Rs. 7 (2) The Special Allowance shall be @ Rs. 7.5 Lakh/MW/year for the year 2014-15 and thereafter escalated @ 6.35% every year during the tariff period 2014-15 to 2018-19, unit-wise from the next financial year from the respective date of the completion of useful life with reference to the date of commercial operation of the respective unit of generating station: Provided that in respect of a unit in commercial operation for more than 25 years as on 1.4.2014, this allowance shall be admissible from the year 2014-15: Provided further that the special allowance for the generating stations, which, in its discretion, has already availed of a “special allowance” in accordance

with the norms specified in clause (4) of regulations 10 of Central Electricity Regulatory Commission (Terms and Conditions of Tariff Determination) Regulations, 2009, shall be allowed Special Allowance by escalating the special allowance allowed for the year 2013-14 @ 6.35% every year during the tariff period 2014-15 to 2018-19. (3) In the event of granting special allowance by the Commission, the expenditure incurred or utilized from special allowance shall be maintained separately by the generating station and details of same shall be made available to the Commission as and when directed to furnish details of such expenditure.

Case study: KBUNL, Bihar JV between NTCP (65%) & BSEB (35%) – 110x2 MW Started in 1985-86 under BSEB, shut down in Oct. 2003 with PLF came down to 10-15% Transfer to NTPC in terms of Bihar Electricity Reforms (Transfer of MTPS) Scheme 2006 with PPA signed on 22.08.2006 While Unit –I was taken under R & M in 2010, Unit –II was refurbished and declared COD on 15.10.2010 without R & M Provisional tariff was granted for Unit-II(110 MW) with relaxed operational norms and O & M Expenses, pending determination of final tariff.

Petition for R & M was submitted with AFC for Rs Petition for R & M was submitted with AFC for Rs. 43 crore, considering gross block as on 31.03.2012 amounting to Rs. 299 crore, after reduction of grant amounting to Rs. 227 crore R&M contract for BTG for supply and execution was awarded to BHEL in April 2010 with completion time of 24 months i.e. April 2012 COD for Unit-I achieved on 01.11.2013, delay of 18.5 months Time overrun was analysed keeping in view the APTEL judgment dated 27.04.201 in Appeal No. 72 of 2010

The Commission, while safeguarding consumer interest and at the same time recovery of cost under section 61(d) of Electricity Act, 2003, took prudence check and allowed capitalization of R & M expenditure, subject to following: No IDC allowed on loan taken from NTPC since grant was not fully utilised to the tune of Rs. 43 crore and as per Board resolution the same was for meeting working capital requirement, but granted liberty to furnish details at the time of true-up exercise No initial spares capitalised as stated by petitioner No cost overrun due to time overrun Adjustment of inform power to the tune of Rs. 3.77 crore No return on grant (as special assistance under Rastriya Shram Vikas Yojona) as it did not have repayment liability Proportionate reduction of IEDC No IDC for delay of 18.5 months by BHEL. However, adjustment of LD amount and insurance proceeds

Operating parameters before and after R & M – Unit-I In 2003, at the time of take over Actual after R & M COD PLF (%) 35 80.05 Gross SHR (kcal/kWh) 4800 3087 Aux Power (%) 14 11.89 Sp. Fuel Oil (ml/kWh) 8.387 3.23 ECR (paisa/kWh) 489.34 304.64

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