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Before

UTTARAKHAND ELECTRICITY REGULATORY COMMISSION

In the matter of:

Application seeking approval of UERC on the Draft Power Purchase Agreement between

Uttarakhand Power Corporation Ltd. & M/s Sravanthi Energy Pvt. Ltd.

In the matter of:

Uttarakhand Power Corporation Ltd. … Applicant

AND

In the matter of:

M/s Sravanthi Energy Pvt. Ltd. ... Respondent

CORAM

Shri Subhash Kumar Chairman

Shri C.S. Sharma Member

Shri K.P. Singh Member

Date of Hearing: July 30, 2015

Date of Order: July 30, 2015

This Order relates to the Petition filed by Uttarakhand Power Corporation Ltd. (hereinafter

referred to as “UPCL” or “Licensee”) seeking approval of the draft PPA it proposes to execute with

M/s Sravanthi Energy Pvt. Ltd. (hereinafter referred to as “M/s SEPL” or “Generator”) for purchase

of power of 208 MW capacity from generator’s 450 MW gas based power generating station.

The written submissions made by the Petitioner and the Respondent alongwith the

submissions made during the hearing and the Commission’s views & decisions on the same are

discussed in the following paragraphs.

1. Petitioner’s Submissions

1.1 UPCL had filed the Petition dated 13.07.2015 under Section 86(1)(b) of the Electricity Act,

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2003 and clauses 5.1, 5.2 & 5.4 of the license conditions of the Distribution and Retail

Supply license dated 20.06.2003 issued by the Commission seeking approval of the draft

PPA it proposes to execute with M/s Sravanthi Energy Pvt. Ltd.

1.2 UPCL submitted that it intends to execute a PPA for procurement of 208 MW power from

the 450 MW gas based power generating plant of M/s SEPL, situated at Kashipur, Distt-

Udham Singh Nagar in the State of Uttarakhand. The validity of PPA is 2 years.

1.3 UPCL had also submitted that Ministry of Power had issued a Scheme for utilization of gas

based power generation capacity both stranded and partially utilised vide its Office

Memorandum No. 4/2/2015-T.H.01 dated 27.03.2015 for partial allocation of gas with

subsidy support to these power projects.

1.4 The Petitioner further submitted that Government of Uttarakhand vide Order no. 456 (2)/

1/2015-04 (03)/160/2010 dated 28.04.2015 had directed it to purchase power from gas

based projects located at Kashipur, Distt-Udham Singh Nagar.

1.5 During the hearing, the Commission asked UPCL whether the Tariff referred to in the PPA

was to be determined under section 62 or adoption of tariff under section 63 of the

Electricity Act, 2003 is proposed. In reply, UPCL submitted that the tariff is to be

determined by the Commission under section 62 of the Act.

1.6 Further, the Commission also enquired from UPCL about the shortfall in availability of

power and also as to whether power was available at a tariff lower than the target price

referred to in the Petition for procurement of power from M/s SEPL. UPCL submitted that

power was available at tariffs lower than that proposed by M/s SEPL. UPCL also informed

that there was a shortage of power by around 300 MW. The Commission also enquired

whether any process was undertaken.

2. Respondent’s Submissions

2.1 The Respondent vide its written submissions and also during the hearing elaborated the

details of the Scheme dated 27.03.2015 issued by MoP.

2.2 M/s SEPL submitted that the tariff under the Petition submitted by UPCL should be

considered under Section 63 of the Electricity Act, 2003.

2.3 The Respondent further submitted that pursuant to the above mentioned Central Govt.

Scheme, 2015 and in accordance with GoU’s Order dated 456(2)/1/2014-04(03)/160/2010

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dated 28.04.2015, UPCL was authorized to execute the draft PPA for procuring 208 MW

power from its generating station.

2.4 The Respondent also submitted that GoU’s approval reflects and adopts the Central Govt.

Scheme, 2015 as a matter of policy involving public interest and tantamounts to “directions

in the matters of policy involving public interest” issued by the State Govt. and, in

accordance with Section 108 of Electricity Act, 2003 the Commission “shall be guided by

the same in discharging its functions”.

2.5 M/s SEPL submitted that the above mentioned Scheme of Central Govt. falls within the

parameters of Section 63 of the Act in respect of tariff at which each stranded gas based

power plant would be able to generate and sell electricity as the same is determined

through a transparent process of bidding in accordance with the guidelines issued by the

Central Govt.

3. Commission’s Views & Decisions

3.1 A PPA is a legal document incorporating operational, technical & commercial provisions to

be complied in accordance with the relevant rules & regulations. Section 86(1)(b) of the

Electricity Act, 2003 stipulates that one of the function of the Commission is to regulate

electricity purchase and procurement process of distribution licensees including the price

at which electricity shall be procured from the generating companies or licensees or from

other sources through agreements for purchase of power for distribution and supply

within the State.

3.2 Further, the Distribution and Retail Supply Licence issued by the Commission lays down

certain conditions of license, which amongst others provides the following:

“5.1 The Licensee shall be entitled to:

(a) …

(b) Purchase, import or otherwise acquire electricity from any generating company or

any other person under Power Purchase Agreements or procurement process approved

by the Commission;

…”

(Emphasis added)

3.3 Regulation 39(3) of UERC (Conduct of Business) Regulations, 2014 specifies as under:

“The distribution licensee shall apply to the Commission for approval of the draft Power

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Purchase agreement that it proposes to enter into with the supplier. The Commission may pass

orders:

(a) Approving the agreement; or

(b) Approving the agreement with modifications proposed to the terms of the agreement; or

(c) Rejecting the agreement.”

The above mentioned provisions empower the Commission to approve the PPA

proposed by the distribution licensee. However, the Commission is not bound to do so if

the provisions stipulated in PPA are not in accordance with the prevalent laws.

3.4 The Commission observed that the draft PPA submitted by UPCL does not clearly specify

the tariff at which power would be sold from the Respondent’s plant to UPCL. It provided

for both determination of tariff by this Commission in respect of power to be procured by

the licensee from M/s SEPL gas based generating and also for the tariff to be adopted

based on bidding process. Relevant extracts of the PPA are reproduced hereunder:

“2.1 UPCL shall accept and purchase 208 MW power made available to UPCL system from

Generating Company as per the rate to be determined by Hon’ble UERC.”

“2.2 UPCL shall accept and purchase 208 MW power made available to UPCL system from

Generating Company as per the rate to be determined by Hon’ble UERC/appropriate

commission.”

…..

“2.6 In case, Ms/ Sravanthi Energy Pvt. Ltd. is successful in e-bid RLNG organized by

Government of India, the Target Price mandated for the Target PLF shall be applicable to the

UPCL subject to maximum ceiling of Rs. 5.50/kWh. The PSDF support which will be

provided by GoI to UPCL shall be passed on to M/s Sravanthi Energy Pvt. Ltd. to support

the target price.”

3.5 It is apparent that the above mentioned clauses of PPA are ambiguous and also in conflict

with each other. While Clause 2.1 & 2.2 provide for determination of tariff by the

Commission, clause 2.6 stipulates tariff equivalent to the target price mandated for Target

PLF in accordance with the Scheme promulgated by GoI, subject to the ceiling of Rs.

5.50/Unit.

3.6 UPCL’s submission that the tariff is to be determined by the Commission implies that the

tariff Petition has to be filed under Section 62 of the Electricity Act, 2003. As opposed to this

submission made by the Respondent is that the target price be considered under Section 63

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of the Act since it was an outcome of the transparent bidding process as required under the

above mentioned Section of the Act. The contention of UPCL as well as the Respondent

have contradiction and does not hold any ground. For determination of Tariff under

Section 62 of the Act, the Commission has to be guided by the Tariff Regulations framed

under the Act, which are for generators selling power to UPCL for long term and not for

short term or medium term procurement of power.

3.7 The following are the objectives of the guidelines for Determination of Tariff by Bidding

Process for Procurement of Power by Distribution Licensees issued by GoI on 19.01.2005

under Section 63 of the Act:

1. Promote competitive procurement of electricity by distribution licensees;

2. Facilitate transparency and fairness in procurement processes;

3. Facilitate reduction of information asymmetries for various bidders;

4. Protect consumer interests by facilitating competitive conditions in procurement of

electricity;

5. Enhance standardization and reduce ambiguity and hence time for materialization of

projects;

6. Provide flexibility to suppliers on internal operations while ensuring certainty on

availability of power and tariffs for buyers.

Thus, the contention of the Respondent that the tariff be adopted under Section 63

of the Act cannot be sustained as no bidding in accordance with the bidding guidelines as

required under Section 63 was carried out by the distribution licensee which was also

affirmed by UPCL. What transpired was a limited reverse bidding amongst similarly

situated plants operating on gas. This by no stretch of imagination can be termed as

competitive bidding for procurement of power.

3.8 The above submissions of Petitioner & Respondent indicates vast gap between their basic

proposals for approval of the PPA to be approved by this Commission. It appears that

representatives of parties in the matter did not discuss the issues in respect of the

provisions made in the draft PPA.

3.9 PPA is an agreement to be executed between the parties following due process of drafting

with mutual consent and comprehensive understanding of the provisions by the parties

involved. The instant PPA submitted by UPCL appears to be not only ambiguous in rate of

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supply of power but also as to how this rate is to be determined.

3.10 Further, the licensee submitted that it was filing the Petition in accordance with the

direction issued by GoU and not on its own initiative. However, the letter dated 28.04.2015

issued by Secretary (Energy), GoU to MD, UPCL refers to the proposals dated 23.02.2015

and 11.04.2015 made by the licensee itself for procurement of 428 MW power from the gas

based generating stations situated at Kashipur. The licensee itself is unable to justify the

procurement proposed by it except for the reason that it is having a deficit of about 300

MW. The licensee is expected to understand its own responsibility given under the Act,

Regulations & License Conditions and it should act in accordance with the provisions of

law.

3.11 Furthermore, in Clause 3 of the policy direction dated 29.07.2015 issued by GoU under

Section 108 of the Act to this Commission, it has been mentioned that for the

implementation of the scheme, interventions of the appropriate government, financial

institutions, power developers, gas transporters and regasification terminals to make

power generation affordable from such gas based power plants. In the said policy

direction, the GoU has also directed this Commission under Section 108 of the Act for

taking appropriate action so as to facilitate generation from gas based power plants.

However, the Commission is of the view that it has been bestowed with the

responsibility of regulation of procurement of power by licensee to protect the interest of

the consumer of the State. The Commission allows short/medium term procurement of

power by the licensee provided such procurement is done through a transparent process

and is the least cost option.

The Commission observes that vide its Order dated 03.07.2015 on UPCL’s Petition

seeking approval for purchase of power from a trader on short term basis, the Commission

had approved short term procurement of RTC power of 300 MW during July, 200 MW in

August and 200 MW in September, 2015 by UPCL at a landed price of Rs. 3.37/Unit.

Further, the Commission in its ARR/Tariff Order dated 11.04.2015 has approved the rate of

short term power to be procured during FY 2015-16 as Rs. 3.88/Unit. Moreover, UPCL

during the hearing has also accepted the fact that power is also available at cheaper rates

than the indicative tariff of Rs. 4.70/Unit as proposed in the Petition. The Commission is of

the view that in the interest of public at large in the State of Uttarakhand approving instant

PPA at a rate much higher than the rates prevalent and already approved by the

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Commission cannot be considered.

The aforesaid observations are consistent with Regulation 39(2) of UERC (Conduct

of Business) Regulations, 2014 which specifies as under:

“The distribution licensee to establish to the satisfaction of the Commission that the

purchase of power by it is under a transparent power purchase procurement process and

is economical and the power is necessary to meet its service obligation.”

As already discussed above, there is no clarity between the generator and UPCL on

the tariff at which the power would be procured by UPCL. Further, the licensee during the

hearing has admitted that no bidding has been carried out by it for sourcing the power and

also that cheaper power is available in the market at present and therefore any

procurement, as proposed, would be in contravention to the regulation cited above.

3.12 Furthermore, Clause 4.(c.) of the Policy Direction dated 29.07.2015 issued by GoU states as

under:

“The net price of this incremental electricity sold by generating plants regulated by UERC and

purchased by the distribution licensee under this scheme should not exceed the target price

specified in the scheme…”

This provision talks that the net price of the incremental electricity sold by the

generating plants and purchased by the distribution licensee under the scheme would not

exceed the target price specified in the scheme. Hence, it is all the more imperative to arrive

at the net price which has not been covered in the draft PPA submitted by UPCL as has

already been dealt in the preceding Paras.

In this regard, it would also be relevant to refer to Clause 3 of the Policy direction

wherein it has been specified that the Act empowers the UERC to regulate the tariff of the

generating companies owned or controlled by the State Government and to facilitate inter-

state transmission of electricity. The Respondent’s generating plant does not fall under the

category of owned or controlled by the State Government.

Moreover, as stated in Clause 4.(b.)(i.) of the policy, the lead banker has to ensure

that all receipts of money would be utilized only for payments towards the variable cost of

generation, O&M expenses and interest payment as per the regulations, orders and/or

guidelines of UERC, it would be relevant to state that as of now, there is no regulations/

guidelines of the Commission for short/medium term procurement of power. The only

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order available on short term procurement of power is the Tariff Order for FY 2015-16,

which lays down the short term rate of Rs. 3.88 per unit.

3.13 Hence, in light of the above discussions, since no process was adopted as required under

the law, to identify this generator for procurement of power on medium term by the

distribution licensee as well as confirmation by the Petitioner, that cheaper power is

available, the Commission does not agree to approve the PPA with or without

modifications as it holds that the basic premises of the PPA, i.e. rate of purchase is not only

ambiguous basis of arriving at has not been established. The Commission decides to

dispose off the petition as dismissed.

3.14 Ordered accordingly.

(K.P. Singh) (C.S. Sharma) (Subhash Kumar) Member Member Chairman

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