Determination of Annual Revenue Requirement and Tariff ...

Before the 

MAHARASHTRA ELECTRICITY REGULATORY COMMISSION 

World Trade Centre, Centre No. 1, 13 th Floor, Cuffe Parade, Mumbai - 400 005 

Email: mercindia@mercindia.com 

Website: www.mercindia.com 

Case No. 30 of 2003 

IN THE MATTER OF 

Determination of Annual Revenue Requirement and Tariff applicable to various 

categories of consumers of Tata Power Company Limited for FY 2003-04 and 

FY 2004-05 

Shri P. Subrahmanyam, Chairman 

Shri Jayant Deo, Member 

Dr. Pramod Deo, Member 

O R D E R 

Date of Order: June 11, 2004 

Upon directions from the Maharashtra Electricity Regulatory Commission 

(Commission), Tata Power Company Limited (TPC) submitted a Petition for approval 

of its Annual Revenue Requirement (ARR) for FY 2003-04 in the context of the 

determination of its tariff on October 1, 2003, under affidavit. This is the first time 

that TPC has approached the Commission for approval of its tariff after the coming 

into force of the Electricity Act, 2003 (EA 2003). The Commission, in exercise of the 

power vested in it under Section 61 and 62 of the Electricity Act, 2003, Section 29 of 

the Electricity Regulatory Commissions Act, 1998 and all other power enabling it in 

this behalf, and after taking into consideration all the submissions made by TPC, all 

the objections, responses of TPC, issues raised during the Public Hearing, and all 

other relevant material, determines the Tariff for supply of electricity to various 

categories of consumers and licensees by TPC as under. 

BRIEF HISTORY: 

TPC is a Company established in 1919. On April 1, 2000, The Tata Hydro-Electric 

Power Supply Company Limited (established in 1910) and The Andhra Valley Power 

Supply Company Limited (established in 1916), were merged into TPC to form one 

MERC, Mumbai 1

Tariff Order for TPC – FY 2003-04 & FY 2004-05 

Introduction & Salient Features 


unified entity. Consequent to the merger, the licenses of the above mentioned 

Companies were also merged and TPC was granted a license by the Government of 

Maharashtra for the supply of energy to the public in its Mumbai License Area and to 

supply energy in bulk to licensees, vide Resolution No. IEA-2001/CR-10509/NRG-1, 

dated July 12, 2001. 

The Maharashtra Electricity Regulatory Commission (Commission) had issued an 

Order dated November 01, 2002 in Case No. 16 of 2002 pertaining to the application 

filed by Prayas for a review of the tariff being charged by TPC and BSES. In its 

Order, the Commission has directed TPC to submit its method for charging FCA 

along with monthly details (from August 1999) for review and to submit the Annual 

Returns for the last three financial years (1999-2000 to 2001-2002) duly certified by 

the Chief Engineer (Electrical), Government of Maharashtra under the Electricity 

(Supply) Act, 1948. TPC submitted the above mentioned documents vide their letter 

dated January 10, 2003 to the Commission. 

The Commission, through its letter dated September 8, 2003, directed TPC to submit 

its Annual Revenue Requirement and Tariff Proposal for FY 2003-04, while dealing 

with Case No. 3 of 2003. TPC submitted a "Proposal for the Approval of the Annual 

Revenue Requirement for FY 2003-04" (ARR and Tariff Petition for FY 2003-04) on 

October 1, 2003, under affidavit to the Commission. 

On receipt of the ARR and Tariff Petition for FY 2003-04, the Commission held an 

admissibility hearing in the presence of Consumer Representatives (as specified under 

Section 26 of the Electricity Regulatory Commissions Act, 1998) and BSES’ 

representatives (list of persons/officials who attended the meeting is provided in 

Appendix 1) on October 31, 2003. The initial data gaps and additional data 

requirement were highlighted and the Commission directed TPC to submit the 

additional data so that it could conduct a Technical Validation Session. TPC 

submitted the additional data on affidavit through various submissions in the month of 

November, in seven volumes. 

On receipt of substantial data from TPC, the Commission held a Technical Validation 

Session in the presence of Consumer Representatives (as specified under Section 26 

of the Electricity Regulatory Commissions Act, 1998) and BSES’ representatives (list 

of persons/officials who attended the meeting is provided in Appendix 2) on 

November 25, 2003. During the Technical Validation Session, the Commission noted 

that TPC had not submitted all the additional information as directed. Further, the 

MERC, Mumbai 2




Commission and Consumer Representatives identified several additional data gaps. 

The Commission directed TPC, vide letter No. 286 dated February 12, 2004, to 

submit balance data as identified during the admissibility hearing and additional data 

as identified during the Technical Validation Session, based on which the ARR and 

Tariff Petition for FY 2003-04 would be admitted. The Commission also directed 

TPC to submit the soft copy of all the data identified, including the Financial Model 

for FY 2003-04. During the Technical Validation session, the Commission directed 

TPC to submit its ARR and Tariff Petition for FY 2004-05 also, since FY 2003-04 

was drawing to a close, and so that the Commission could process both Petitions 

simultaneously. 

Subsequently, on December 9, 2003, TPC submitted one more volume containing 

additional data alongwith soft copies of data submitted previously. The Commission 

noted that the data submitted was incomplete and that the balance data was still 

required to be submitted by TPC. The Commission, in its letter dated December 30, 

2003, conveyed to TPC that the ARR and Tariff Petition for FY 2003-04 would be 

admitted only when all the information as sought by the Commission was submitted 

in full by TPC on affidavit. TPC submitted additional data in January 2004 on 

affidavit. 

TPC further requested, vide its letter dated January 21, 2004 to the Commission that 

they would be submitting a "Proposal for the Approval of the Annual Revenue 

Requirement for FY 2004-05" (ARR and Tariff Petition for FY 2004-05) by February 

15, 2004. The Commission considered and accepted TPC's request. The Commission, 

vide its letter to TPC dated February 12, 2004, noted that the date of admission of the 

ARR and Tariff Petition for FY 2003-04 and FY 2004-05 would be February 15, 

2004, i.e., the date on which the ARR and Tariff Petition for FY 2004-05 would be 

submitted. TPC submitted the ARR and Tariff Petition for FY 2004-05 on affidavit, 

on February 20, 2004. 

The Commission, in line with Section 64 of the EA 2003, advised TPC to publish its 

Application in prescribed abridged form and manner, to ensure public participation. In 

line with the Regulations and practice established by the Commission in previous 

tariff determination exercises for the State Utility, the Public Notice was issued in 

newspapers for inviting suggestions and objections from interested parties. The Public 

Notice was published in The Times of India, Indian Express, Mid Day, Maharashtra 

Times, Lok Satta, Gujarat Samachar, and Dainik Samna, in Mumbai. The Public 

Notice appeared in most of the newspapers on February 16, 2004 Copies of TPC's 

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Petitions and its summary were made available for inspection/purchase to members of 

the public at TPC's offices and on TPC's website (www.tatapower.com). The last date 

for filing written objections was fixed as March 5, 2004. The Public Notice specified 

that the suggestions/objections, either in English or Marathi, may be filed in the form 

of affidavits along with proof of service on TPC. It was specifically stated in the 

Public Notice that if any objector wanted to be heard in person, he should state 

accordingly in the objection, and he would be invited to attend the Public Hearing. 

TPC was given an opportunity to reply to the objector’s suggestion/objection by 

March 12, 2004. The concerned party was also allowed to submit a rejoinder to TPC 

by March 19, 2004. 

In the meantime, the Commission noted that TPC had not submitted adequate and 

complete data as directed during the Technical Validation Session and subsequent 

reminders. The Commission also noted that TPC had failed to host the various 

documents on its web-site in compliance with the directions of the Commission and 

accordingly directed TPC vide its letter no. 336 dated February 20, 2004 to give 

prominence to the Public Notice on their home page, and host the Marathi version 

and the Financial Model, including other details. The Commission takes strong 

objection to this non-compliance by TPC. The Commission also notes that right 

through the tariff process, TPC has been reluctant to part with the required data, and 

has time and again delayed submitting the data in the required format. The 

Commission would like to caution TPC against this attitude, as any data asked for by 

the Commission has to be submitted by TPC. Though TPC had not submitted the 

entire data, the Commission, to save time, went ahead with the Public Notice. The 

Commission hence, decided to consider even those suggestions/objections, which 

were received in response to the Public Notice, till the date of hearing. The 

Commission also directed TPC to continue selling documents till the date of hearing, 

and allowed TPC to submit written replies to suggestions/objections received upto 

March 15, 2004, prior to the Public Hearing, and for the rest of the 

suggestions/objections, TPC was allowed to reply at the time of the Public Hearing. 

By the above Public Notice, the Commission also admitted objections filed during the 

Public Hearing. The Public Notice also informed the consumers that the date of Public 

Hearing was March 22, 2004 at 11:00 hours in Mumbai. 

The Commission received written objections expressing concern on the Tariff 

Rationalization proposals submitted by TPC, the working of TPC and a host of other 

issues. The Commission received objections/comments from a total of 16 objectors, 

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14 on affidavit and 2 without affidavit. The Commission also received 3 rejoinders 

from objectors based on TPC's response to their original objections. Those objectors 

who filed their affidavits and also indicated that they would like to be heard in person, 

were called for the Public Hearing at Mumbai. 

The Public Hearing was conducted in Mumbai on March 22, 2004. The list of 

persons, who attended the Public Hearing, is provided in Appendix 3. 

The category-wise number of consumers/institutions who submitted their objections 

and subsequent rejoinders to TPC's ARR and Tariff Petitions for FY 2003-04 and FY 

2004-05 has been detailed in the Table below: 

Table: Summary of Objections 

Interest Group 

Objections 

Rejoinders 

Located within 

Mumbai 

Located outside 

Mumbai 

Bulk Licensee 2 1 

Consumer Association 2 

Consumer Representative 2 1 

Industry Association 5 1 

Railway 2 

Dy. Mayor, Mumbai 1 

Individuals 2 

TOTAL 14 2 3 

Based on various objections received, the Commission directed TPC to submit 

additional data identified by the Commission and additional data as agreed during the 

course of the Public Hearing. TPC submitted the data vide its letters dated 

31.03.2004, 23.04.2004 and 17.5.2004. 

The Commission has ensured that the due process, contemplated under law to ensure 

transparency and public participation has been followed at every stage meticulously 

and an adequate opportunity was given to all the persons concerned to file their say in 

the matter. Based on the Commission’s analysis, additional data was sought from TPC 

by the Commission from time to time, which was submitted by TPC. Moreover, bulk 

of the data was uploaded on TPC’s website. 

MERC, Mumbai 5




The Commission, after taking into consideration all the objections, including the 

submissions and responses of TPC, issues raised during the Public Hearing, and all 

other relevant material, has issued the Operative part of the Order on June 1, 2004. 

The Commission hereby issues the following Tariff Order. 

1. The revised electricity tariffs to be charged by the Tata Power Company Ltd. 

(TPC) to its consumers will be applicable with effect from June 1, 2004, and will 

continue to remain in force till further revision in tariffs. The Commission has 

reduced the average tariff by 9.2%, as against the tariff rationalization measures 

proposed by TPC for FY 2003-04 and FY 2004-05, which were not expected to 

result in any tariff increase. 

2. The Commission has restated the Capital Base, Reasonable Return and Clear 

Profit for the period from FY 1998-99 to FY 2003-04, to account for the 

following: 

a) Restatement of the revenue billed by TPC to M/s. BSES Ltd. (BSES), on 

account of the honourable Supreme Court’s judgment that held that the 

tariff revision undertaken by TPC in December, 1998 is invalid. 

b) Restatement of the standby charges payable by BSES for the period FY 

1998-99 to FY 2003-04, on the basis of TPC’s and BSES’ share of the 

standby charges as determined by the Commission in its separate Order 

dated 31 st May, 2004 in Case No. 7 of 2000. 

c) Restatement of the interest expenditure on account of delayed payment 

charges and interest on delayed payment over the period, since the entire 

cumulative DPC and interest payable to MSEB has been considered in FY 

2003-04. 

d) Disallowance of depreciation to the extent of Rs. 7 crore in FY 2003-04, 

on account of the Commission’s decision that the investment in its wind 

energy project should not be included in the business of TPC in its license 

area of Mumbai. 

e) The Income Tax has also been restated on account of the restatement of 

the Capital Base and Clear Profit. 

3. As a consequence of the above restatements undertaken by the Commission, the 

Clear Profit has become lower than the Reasonable Return in these years. The 

Commission has matched the Clear Profit and the Reasonable Returns in each of 

these years, by drawing upon the various reserves and appropriations available 

with TPC that have been accumulated over the years, in accordance with the 

Schedule VI of the Electricity (Supply) Act, 1948. 

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4. For FY 2003-04 and FY 2004-05, the Commission has considered a normative 

Debt: Equity ratio of 70:30 to fund TPC’s fresh capital investments, and has 

accordingly computed interest expenditure on the normative loan amount. 

5. Based on the Commission’s projections, there is a surplus between the Clear 

Profit and the Reasonable Return in FY 2004-05, which has to be adjusted by 

reducing the tariffs. This excess revenue of Rs. 300 crore has been set off by 

revising the tariffs to different categories based on the Commission’s tariff 

philosophy as detailed below. 

6. The Commission has determined the tariffs in line with the tariff philosophy 

adopted by it in the past, and the provisions of law. The tariffs have been 

determined such that no consumer category is subjected to a tariff shock. 

7. The Commission has determined the tariffs and revenue from revised tariffs as if 

the revised tariffs are applicable for the entire FY 2004-05. 

8. The Fuel Adjustment Cost (FAC) charge will be applicable on the entire sales of 

TPC without any exemption to any consumer, including other Licensees. The 

earlier method followed by TPC of FAC exemption for the first 25% of sales to 

BSES and the Bombay Electric Supply & Transport Undertaking (BEST) as well 

as for the first 100 units of consumption by residential consumers of TPC has been 

done away with. However, the Commission has ensured that there is no tariff 

shock to the consumers of TPC in this consumption slab, or to the consumers in 

this slab in the case of BSES and BEST, by setting lower tariffs. The existing 

FAC has been merged with the basic tariff since the Commission has considered 

the prevailing fuel and power purchase prices. The Commission has approved the 

following FAC formula to account for any change in the variable cost of 

generation and power purchase: 

FAC = 

C + I + B where, 

FAC = Total Fuel Cost and Power Purchase Cost Adjustment 

C = Change in cost 

I = Interest on Working Capital 

B = Adjustment Factor for over-recovery/under-recovery 

9. In view of the above, the Commission has determined the tariffs for BSES and 

BEST such that the first 25% of consumption is charged a significantly lower 

tariff as compared to the tariff applicable to the balance 75%. This will enable 

BSES and BEST to charge lower tariffs for the lifeline electricity requirements of 

domestic consumers for consumption upto100 units per month in their licence 

areas. 

MERC, Mumbai 7




10. The Commission has determined the tariffs in such a way that the Bulk Supply 

Tariffs (BST) applicable to BSES and BEST are significantly lower than the 

tariffs applicable to TPC’s retail HT and LT consumers. The Commission has 

attempted to rationalize the bulk and retail supply tariffs, so that they are in 

consonance with the principle that the BST should be lower than the retail tariffs. 

This will also facilitate healthy competition between the different Licensees on a 

more even footing. 

11. The Commission has also removed the differential between the BST applicable to 

BEST and BSES, as any such differentiation has to be based on supporting data 

on the costs incurred by TPC for supply to each of these Licensees. The 

Commission also directs TPC to levy demand charges from BSES on the basis of 

the maximum coincident demand. 

12. The Commission has removed the embedded Tax on Sale of Electricity (TOSE) of 

1 paise/kWh from the tariffs, and has excluded the revenue and expenses from 

TOSE since it is not within the Commission’s jurisdiction. 

13. The Commission has provided a discount of 2.5% in the energy charges, if the 

supply is taken at 100 kV vis-à-vis 22/33 kV supply. A discount of 5% in the 

energy charges has been provided if the supply is taken at 220 kV vis-à-vis 22/33 

kV supply, considering the lower cost of supply at higher voltages. 

14. The various HT consumer categories comprising Government Departments, 

BARC, MCGM (BMC) and Mumbai Port Trust (which was earlier grouped with 

Railways) have been merged into one consumer category, viz. “HT – Public 

Services”. 

15. The various HT consumer categories comprising Captive Power Plants, Others, 

Commercial and HT Textiles have been merged into another consumer category, 

viz. “HT-Industrial and Commercial”. 

16. The Commission has also merged the commercial and non-commercial categories 

within the LT 1 and LT 2 categories. 

17. In the residential category, the number of slabs has been reduced from five to 

three, i.e. 0 to 100 units, 101 to 300 units, and consumption above 300 units. 

18. The Commission has introduced a two-part tariff for all consumer categories, 

including the residential category and LT 1 category. It has also eliminated the 

minimum charges and merged meter rent with the fixed charges, in line with the 

tariff philosophy enunciated in its Tariff Orders in the case of MSEB. 

19. TPC is directed to install MD meters for all consumers with sanctioned load equal 

to or above 20 KW. 

20. The demand charges for most of the categories have been set at 

Rs. 340/kVA/month, in line with TPC’s proposal. The energy charges have been 

MERC, Mumbai 8




reduced correspondingly. The revenue from fixed charges as a percentage of the 

fixed costs is projected to increase from 33% to 88% on account of the increase in 

demand charges determined by the Commission. 

21. The Monthly Billing Demand for LT/ HT consumers (excluding BSES and BEST) 

will be the higher of the following: 

a) Actual Maximum Demand recorded in the month from 0600 hours to 2200 

hours; 

b) 75% of the highest billing demand/contract demand, whichever is lower, 

during the preceding eleven months; 

c) 50% of the Contract Demand. 

22. No demand charges have been specified for the drawal of energy by BSES at the 

220 kV interconnection at Borivali, as this issue is the subject matter of another 

proceeding before the Commission, and on which it will give its ruling separately. 

23. The tariff applicable for sale of electricity to MSEB has been reduced from Rs. 

2.50 per kWh to Rs. 2.30 per kWh, considering the fact that TPC sells power to 

MSEB during off-peak hours, while drawing power from MSEB during peak 

periods. For sale to MSEB during day time hours (0600 to 2200 hours), an 

additional charge of 25 paise/kWh will be levied. TPC is directed to install ToD 

meters at the interconnection points with MSEB, and to net off the energy sold 

and received on a time slot basis (night time of 2200 to 0600 hours) and the 

balance during day time, within 3 months of issue of this Order. 

24. Standby charges applicable to Captive Power Plants have been designed in line 

with the approach adopted for MSEB. The base demand charges and the energy 

charges have been kept the same as those for other HT consumers, and additional 

demand charges of Rs. 20 per kVA/month would be chargeable for the standby 

component only. 

25. The Prompt Payment Discount has been retained at the existing levels, while the 

Power Factor Penalty has been modified such that whenever the average power 

factor is less than 0.92, penal charges shall be levied at the rate of 2% (two 

percent) of the amount of the demand charges for the first 1% (one percentage 

point) fall in the power factor below 0.92, beyond which penal charges shall be 

levied at the rate of 1% (one percent) for each percentage point fall in the power 

factor below 0.91. 

26. In case TPC desires any clarification on any directive issued by the Commission, 

TPC should request such clarification within a month of the directive being 

issued, failing which it will be assumed that TPC does not require any 

clarifications, and TPC will be required to comply with the directives 

expeditiously. 

MERC, Mumbai 9




Appendix: Summary of HT and LT Tariff effective from June 1, 2004 

Sl. 

Consumer category & 

Tariffs 

Consumption Slab 

Fixed/Demand 

Charge 

(Rs/KVA/ month) 

Energy 

Charge 

(p/kWh) 

1 BEST - 22/33 kV (25% of the units) 340 

145 

BEST - 22/33 kV (balance 75% of the units) 

200 

2 BEST - 100 kV (25% of the units) 340 

141 

BEST - 100 kV (balance 75% of the units) 

195 

3 BSES - 22/33 kV (25% of the units) 340 

145 

BSES - 22/33 kV (balance 75% of the units) 

200 

4 BSES - 220 kV (25% of the units) 0 

138 

BSES - 220 kV (balance 75% of the units) 

190 

5 Standby charge at 220 kV Interconnection at 

Borivali 

Refer Note below 

6 Railways -33/22/11/6.6 kV 340 

260 

7 Railways -- 100 KV 

254 

8 HT Public (Govt. Dept., BARC, BMC, 

Bombay Port Trust) 

9 HT -- Industrial & Commercial (including 

HT Textiles) 

374 260 

374 285 

10 LT-I -- Commercial & Non-commercial Rs. 150 per month 400 

11 LT-II – Commercial & Non-commercial 374 300 

12 Residential Rs. per month 

0-100 units 25 125 

101-300 units 40 300 

> 300 units (balance units) 40 400 

13 Sale to MSEB Nil 230 

For sale during daytime (0600 to 2200 

25 

hours) – additional energy charges 

Notes: 

1. Standby Charges applicable for the 220 kV interconnection at Borivali has to be determined on the 

basis of the methodology prescribed by the Commission in its Order dated May 31, 2004, in Case 

No. 7 of 2000. 

2. Fuel Adjustment Cost (FAC) will be applicable to all consumers and licensees and will be charged 

over the above tariffs, on the basis of the FAC formula prescribed by the Commission, and 

computed on a monthly basis. 

3. Fixed charge of Rs. 100 per month will be levied on residential consumers availing 3 phase supply. 

Additional Fixed Charge of Rs. 100 per 10 kW load or part thereof above 10 kW load shall be 

payable. 

4. In case of LT-I consumers, additional Fixed Charge of Rs. 150 per 10 kW load or part thereof 

above 10 kW load shall be payable. 

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ORGANISATION OF THE DETAILED ORDER 

The Order of the Commission regarding the determination of tariff is broadly divided 

into three parts. 

The first part consists of a brief history of the tariff determination process and the 

subsequent quasi-judicial process that it underwent. It also gives the framework used 

by the Commission in evolving a tariff philosophy, Operative Order and the tariff 

schedule. It also contains the various sequence of events and notes the Commission's 

dissatisfaction with the delays in various data submissions by TPC. For the sake of 

convenience, a list of abbreviations with their expanded forms is appended at the end 

of this Part. 

The second part of the Order lists out the various objections raised by the objectors 

in writing as well as during the Public Hearing before the Commission. They have 

been broadly categorized into fifteen issues and, for the sake of convenience, the 

various issues have been classified under an index, along with page numbers, where 

the relevant objections have been dealt with. The various objections have been 

summarized, followed by the response of TPC and the findings of the Commission on 

each of the points have also been given. 

The third part of the Order comprises the Commission's analysis and its decisions on 

TPC's ARR and Tariff Petitions for FY 2003-04 and FY 2004-05. It briefly 

enumerates the tariff issues involved, examines the revenue projections of TPC, the 

various cost estimates for FY 2003-04 and FY 2004-05, and the Commission's 

reasoning for arriving at acceptable figures with reference to the figures given by 

TPC. 

Lastly, the philosophy adopted by the Commission for determination of the tariff for 

various categories has been specified, to estimate the income of TPC in FY 2004-05. 

Part three also contains the various Annexures to this Order. 

List of Abbreviations 

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A&G 

Administrative and General 

AEC 

Ahmedabad Electricity Company 

AFB 

As Fired Basis 

ARR 

Annual Revenue Requirement 

BARC 

Bhabha Atomic Research Centre 

BEST 

Brihanmumbai Electric Supply & Transport Undertaking 

BMC 

Brihanmumbai Municipal Corporation 

BSES 

BSES Limited, now known as Reliance Energy Limited 

BSSIA 

Bombay Small Scale Industries Association 

BSSSIA 

Bombay Suburban Small Scale Industries Association 

CB 

Capital Base 

CEA 

Central Electricity Authority 

CESC 

Calcutta Electricity Supply Company 

CIF 

Cost, Insurance and Freight 

Commission, MERC Maharashtra Electricity Regulatory Commission 

CP 

Clear Profit 

CPP 

Captive Power Plant 

Cr 

Crore 

CV 

Calorific Value 

CWPRI 

Central Water and Power Research Institute 

DPR 

Detailed Project Report 

DTLF 

Deferred Taxation Liability Fund 

DTPS 

Dahanu Thermal Power Station 

EA 2003 Electricity Act, 2003 

ECAM 

Electricity Contractors Association of Maharashtra 

ECCA 

Electric Contractors and Consumers Association 

ERC Act Electricity Regulatory Commissions Act, 1998 

ES Act Electricity (Supply) Act, 1948 

FAC 

Fuel Adjustment Cost 

FGD 

Flue Gas Desulphurisation 

FO 

Fuel Oil 

FY 

Financial Year 

GAD 

Gross Air Dried 

GFA 

Gross Fixed Assets 

GOM 

Government of Maharashtra 

HSD 

High Speed Diesel 

HT 

High Tension 

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I.E. Act Indian Electricity Act, 1910 

IT 

Income Tax 

Kcal 

Kilo calories 

kVA 

Kilo-Volt Ampere 

kW 

Kilo Watt 

LDC 

Load Despatch Centre, MSEB 

LNG 

Liquefied Natural Gas 

LSHS 

Low Sulphur Heavy Stock 

LSWR 

Low Sulphur Waste Residue 

LT 

Low Tension 

MCM 

Million Cubic Meters 

MD 

Maximum Demand 

MOD 

Merit Order Dispatch 

MoEF 

Ministry of Environment and Forests 

MOP 

Ministry of Power, Government of India 

MPCB 

Maharashtra Pollution Control Board 

MSEB 

Maharashtra State Electricity Board 

MT 

Metric Tonnes 

MU 

Million Units (kWh) 

MVA 

1000 kVA 

MW 

Mega Watt 

NFA 

Net Fixed Assets 

NG 

Natural Gas 

NTPC 

National Thermal Power Corporation Limited 

O&M 

Operations and Maintenance 

P&L 

Profit and Loss 

PBT 

Profit Before Tax 

PF 

Power Factor 

PGCIL 

Power Grid Corporation of India Ltd. 

PLF 

Plant Load Factor 

POA 

Principles of Agreement signed between TPC and BSES on 

January 31, 1998 

PPA 

Power Purchase Agreement 

R&A 

Reserves and Approporiations 

R&M 

Repairs and Maintenance 

R-LNG 

Regassified LNG 

ROCE 

Return on Capital Employed 

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ROE 

Return on Equity 

RR 

Reasonable Return 

Rs. 

Indian Rupees 

SEC 

Surat Electricity Company 

SKO 

Superior Kerosene Oil 

SLC 

Service Line Charges 

SO x 

Sulphur Oxides 

T&D 

Transmission and Distribution 

T&D 

Transmission and Distribution 

TDCR 

Tariff and Dividend Control Reserve 

TI 

Tata International 

TOD 

Time of Day 

TOSE 

Tax on Sale of Electricity 

TPC 

Tata Power Company Limited 

Unit 

One kWh of electricity 

US $ 

US Dollars 

VPLSM 

Vile Parle Lok Seva Mandal 

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Index 

PART II: OBJECTIONS RECEIVED, TPC’s RESPONSE AND 

THE COMMISSION’S RULING 

1 SALES .................................................................................................................. 17 

2 GENERATION AND POWER PURCHASE ........................................................... 18 

3 POWER PURCHASE AGREEMENT (PPA) ........................................................... 21 

4 TRANSMISSION AND DISTRIBUTION LOSSES................................................. 22 

5 EXPENDITURE .................................................................................................... 22 

5.1 Operating Expenses ........................................................................................ 22 

5.2 Repairs and Maintenance (R & M) Expenses.................................................... 25 

5.3 Depreciation................................................................................................... 25 

5.4 Employee Expenses........................................................................................ 26 

5.5 Administrative and General (A&G) Expenses................................................... 27 

5.6 Income Tax.................................................................................................... 27 

5.7 Foreign Exchange write-off............................................................................. 28 

6 CAPITAL EXPENDITURE.................................................................................... 30 

7 DEBT TO EQUITY RATIO.................................................................................... 39 

8 CLEAR PROFIT AND REASONABLE RETURNS ................................................ 40 

9 RESERVES AND SPECIAL APPROPRIATIONS................................................... 42 

9.1 General.......................................................................................................... 42 

9.2 Contingency Reserve...................................................................................... 42 

9.3 Debenture Redemption Reserve....................................................................... 44 

9.4 Investment Allowance Reserve and Special Appropriations Towards Project Cost 

(SATPC).................................................................................................................... 45 

9.5 Deferred Taxation Liability Fund (DTLF) ........................................................ 47 

9.6 Consumer Benefit Account (CBA)................................................................... 48 

9.7 Other Reserves ............................................................................................... 49 

10 TARIFF................................................................................................................. 51 

10.1 General.......................................................................................................... 52 

10.2 Fixed Capacity Charges .................................................................................. 56 

10.3 Stand-By Charges........................................................................................... 57 

10.4 Fuel Adjustment Charge (FAC)....................................................................... 59 

10.5 Tax on Sale of Electricity (TOSE) ................................................................... 62 

10.6 Bulk Supply Tariff to BSES ............................................................................ 63 

10.7 Railways........................................................................................................ 67 

10.8 Bulk Supply Tariff to Licensee: BEST ............................................................. 70 

10.9 Industrial........................................................................................................ 71 

10.10 Standby Offset Charges............................................................................... 73 

10.11 Fuel and Other Cost Adjustment (FOCA)..................................................... 74 

10.12 Time-of-the-Day (TOD) Tariff .................................................................... 75 

10.13 Franchisee System...................................................................................... 77 

11 NON-COMPLIANCE WITH COMMISSION’S DIRECTIVES ................................ 77 

12 ISLANDING ARRANGEMENT IN MUMBAI ....................................................... 78 

13 REBATES/INCENTIVES....................................................................................... 79 

14 DATA DISCREPANCY/ INSUFFICIENCY............................................................ 80 

15 CLAIMS BY TPC ON BSES .................................................................................. 82 

MERC, Mumbai 15



Index 

PART III: COMMISSION’S ANALYSIS AND DECISION ON 

TPC’S PETITION 

16 SALES PROJECTIONS ......................................................................................... 85 

17 TRANSMISSION AND DISTRIBUTION (T&D) LOSSES...................................... 92 

18 ENERGY INPUT REQUIREMENT........................................................................ 93 

19 EXPENDITURE PROJECTIONS ........................................................................... 93 

19.1 Impact of resolution of the dispute on share of Standby Charges........................ 94 

19.2 Disallowance of capital expenditure on wind farms........................................... 95 

19.3 Impact of the honourable Supreme Court’s ruling on the December 1998 tariff 

revision effected by TPC............................................................................................. 95 

20 VARIABLE COST OF GENERATION (FUEL COST) AND POWER PURCHASE 

COSTS.......................................................................................................................... 96 

21 FUEL ADJUSTMENT COST (FAC)..................................................................... 122 

22 OTHER HEADS OF EXPENDITURE .................................................................. 130 

22.1 Employee Expenses...................................................................................... 130 

22.2 Administration and General (A&G) Expenses ................................................ 131 

22.3 Repairs and Maintenance (R&M) Expenses.................................................... 132 

22.4 Depreciation Expenses.................................................................................. 133 

22.5 Capital Expenditure ...................................................................................... 134 

22.6 Provision for Doubtful Debts......................................................................... 142 

22.7 Interest and Finance Charges......................................................................... 143 

22.8 Foreign Exchange Write Off.......................................................................... 145 

22.9 MSEB Standby Charge ................................................................................. 146 

22.10 Income Tax.............................................................................................. 147 

22.11 Tax on Sale of Electricity (TOSE) ............................................................. 148 

23 REVENUE FROM EXISTING TARIFF................................................................ 149 

24 INCOME FROM STANDBY CHARGES.............................................................. 149 

25 NON TARIFF INCOME....................................................................................... 149 

26 RESERVES AND APPROPRIATIONS ................................................................ 150 

27 CAPITAL BASE.................................................................................................. 154 

28 REASONABLE RETURN.................................................................................... 161 

29 CLEAR PROFIT .................................................................................................. 162 

30 TRUING UP MECHANISM................................................................................. 163 

31 TARIFF PHILOSOPHY ....................................................................................... 163 

32 INCENTIVES AND DISINCENTIVES................................................................. 171 

33 REVENUE FROM REVISED TARIFFS ............................................................... 171 

APPENDIX 1………………………………………………………….…………………….173 

APPENDIX 2………………………………………………………………….…………….175 

APPENDIX 3………………………………………………………………………….…….177 

APPENDIX 4………………………………………………………………………………..180 

APPENDIX 5………………………………………………………………………………..181 

APPENDIX 6………………………………………………………………………….…….186 

APPENDIX 7…………………………………………………………………………….….187 

MERC, Mumbai 16



Objections Received & Commission’s Ruling 

PART II: OBJECTIONS RECEIVED, TPC’s RESPONSE AND THE 

COMMISSION’S RULING 

1 SALES 

1.1 Objections 

BSES Ltd. (BSES), now known as Reliance Energy Limited (REL), who is a Distribution 

Licensee in the Mumbai area, has argued that the Tata Power Company Limited (TPC) has 

underestimated sales to BSES by changing the assumptions of sales growth by BSES in its 

License area. BSES has further stated that TPC is also understating sales to Brihanmumbai 

Electric Supply & Transport Undertaking (BEST) and other industrial consumers. BSES has 

mentioned that TPC is also proposing higher sales to residential consumers, which is against 

the Commission’s earlier Order (in Case No. 14 of 2002) preventing TPC from supplying 

power to consumers with load less than 1 MVA. BSES has requested the Commission to 

reduce the sales of TPC attributable to consumers with load less than 1 MVA and also 

rework the sales to BSES and BEST. 

1.2 TPC’s Response 

TPC has justified its sales estimate to BSES on the premise that the latter has been meeting 

its demand through its own generation from DTPS to the maximum extent possible. Further, 

TPC has clarified that the PLF assumed for DTPS was based on the actual generation in FY 

2003-04. 

As regards the estimated sales growth to BEST, TPC has clarified that it has assumed a sales 

growth of 2.7% based on the CAGR of 2.7% over the past 5 years (FY1998-99 to FY 2002- 

03). 

1.3 Commission’s Ruling 

The Commission has accepted the actual sales of TPC in FY 2003-04, as the year is over. 

The Commission has projected the estimated sales of TPC in FY 2004-05 based on the past 

trends, and has not relied on the projections made by TPC for FY 2004-05. The total energy 

requirement has been estimated on the basis of the sales projected by the Commission. The 

Commission has not considered projections of any additional sales to residential consumers 

on account of new consumers, in line with the Commission’s Order (in Case No. 14 of 2002) 

restricting TPC from supplying to consumers with contract demand less than 1 MVA in 

MERC, Mumbai 17




BSES’ License area. The Commission’s detailed analysis and sales projections have been 

discussed in detail in the Section on sales projections. 

2 GENERATION AND POWER PURCHASE 


BSES and Mr. A. K. Sheth have highlighted that the Hydel generation projected by TPC has 

been projected lower at 1200 Million Units (MU) in FY 2003-04 and FY 2004-05 as 

compared to past trends, despite the region having a good monsoon. The Objectors have 

requested the Commission to ensure that TPC utilizes its hydel stations to the maximum 

capacity since the cost of generation from hydel Units is the lowest. 

BSES, in its rejoinder, has pointed out the fact that even though the hydel asset base is 

increasing over the years, there is no corresponding increase in hydel generation. 

The Electric Contractors and Consumers Association (ECCA) and the Vile Parle Lok Seva 

Mandal (VPLSM) have asked TPC to clarify as to how the generation from Hydel Plants has 

been maintained at the same level over the past years. 

ECCA, BSES, Vile Parle Lok Seva Mandal (VPLSM) and Mr. A. K. Sheth have requested 

the Commission to examine whether TPC is justified in paying a commission of 2% of the 

purchase value of coal to its Group Company for importing coal. They have added that the 

cost of Coal in TPC’s ARR and Tariff Petition for FY 2003-04 at Rs 2385/MT seems to be 

inflated, as compared to the Fuel Adjustment Charge for FY 2003-04, which has been 

reducing from Rs 1.52/kWh in April 2003 to Rs 0.96/kWh in January 2004. 

ECCA has submitted that TPC runs its thermal plants on expensive fuels like Low Sulphur 

Heavy Stock (LSHS) instead of coal. Further, Prayas, ECCA, VPLSM and Mr. U. Shah have 

pointed out that the coal usage per day for thermal plants of TPC has been consistently 

below the allowed limit, which has resulted in excess payments from consumers due to the 

use of more expensive fuel. The Objectors have requested TPC to justify the consistent use 

of expensive fuels and calculate the savings in case cheaper fuels had been used. 

On the issue of Merit Order Dispatch (MOD), Prayas has mooted the idea that the generating 

capacity and fuel costs in the entire State of Maharashtra should be optimized. In this regard, 

Prayas has suggested that a proper tariff should be specified for exchange of power between 

the Utilities, and procedures for a State-level Merit Order Despatch (MOD) should be 

established. Prayas has added that the above system would take some time to implement. For 

MERC, Mumbai 18




the present, Prayas has urged the Commission to move towards an integrated MOD of all 

generating plants serving the Mumbai area (TPC and BSES generating plants). According to 

Prayas, a long term MOD is possible through a proper power purchase arrangement between 

TPC, BSES, and the Maharashtra State Electricity Board (MSEB), and by directing the 

Utilities to integrate their operations as necessitated by the MOD. Prayas has submitted 

detailed computations to argue that there would be considerable reduction in tariff for 

Mumbai’s consumers with such an arrangement. 


TPC has clarified that the hydel generation was estimated to be lower in FY 2003-04 to meet 

the drinking water requirements at Bhira and Bhivpuri and lower than normal reservoir 

levels at 187.85 Million Cubic Meters (MCM), as against the normal levels of 300 to 400 

MCM. TPC has added that the Irrigation Department, Government of Maharashtra, had 

requested TPC not to generate electricity at Bhivpuri during the monsoon months, so that 

water could be stored and utilized during the dry season. 

TPC has justified the commission paid to Tata International (TI), stating that the commission 

is payable for a range of services provided by TI, such as: 

i) assistance in developing fuel solutions and identifying new sources of fuel oil; 

ii) assistance in tracking global prices of fuel and coal, and helping TPC in negotiations 

with Indian oil Companies; 

iii) assistance in tender evaluation and management of fuel logistics; 

TPC has added that the amount of commission paid by TPC to TI is in line with the 

facilitation charges being charged by the Public Sector oil Companies for rendering similar 

services. 

TPC has stated that it is inappropriate to compare the landed costs of coal for TPC and 

BSES, as the handling cost of coal for TPC is relatively much higher due to usage of 

multiple modes for coal transportation. TPC has suggested that the Cost, Insurance and 

Freight (CIF) cost of coal should be compared rather than the landed costs. Further, TPC has 

clarified that the reduction in FAC has been possible due to the higher level of coal being 

fired at TPC’s generating stations, subsequent to receipt of permission for the same. TPC has 

added that it has supplied all the relevant information on the cost of fuel to the Commission. 

TPC has pointed out that the actual consumption of coal has been lower than the allowed 

limit due to the following reasons: 

MERC, Mumbai 19




i) Prior to September 2001, sulphur content of the coal was of the order of 0.3% to 0.4%. 

Therefore, to contain the Sulphur Oxide (SO x ) emission level to 15MT/day, coal firing 

was restricted to levels lower than the allowed limit. 

ii) In FY 2002-03, with the usage of Indonesian Coal with 0.1% sulphur content, the gap 

between actual usage and allowed limit reduced. The balance gap in FY 2002-03 and FY 

2003-04 was mainly due to less usage of coal during the monsoon season, due to choking 

and coal slurry problems. 

iii) For FY 2004-05, the average coal consumption has been assumed at 5300 MT/day, 

because of reduction in load at night due to lower off-take from BSES. 

iv) Lastly, permissions for increased usage of coal were received in May 2001 (2940 

MT/day) and May 2003 (5800 MT/day), and it takes time to increase usage of coal to the 

permitted levels because of procurement and logistics issues. 

On the issue of MOD, TPC has clarified that, in its ARR and Tariff Petition, it has applied 

MOD for its own generating stations only and not for the combined generation of BSES and 

TPC. TPC has stated that in its computations, Prayas has not factored the minimum load 

requirements on TPC’s generating Units at Trombay, below which the Units cannot be 

operated. 

TPC has added that Unit 7 is a gas-based Unit and has to be operated as and when the gas is 

available. Further, gas being the cheapest among the fuels available, it would be consumed 

first which may necessitate backing down of other Units. As mentioned in the ARR and 

Tariff Petition, load variation is not possible on Unit 4 and hence, Unit 4 is a must run 

station to that extent. TPC has submitted that in case Unit 4 is shut down, additional power 

would have to be purchased from MSEB. TPC has added that MSEB itself suffers from 

deficit of supply in peak hours and hence will not be in a position to supply power to 

consumers of Mumbai on a long-term basis. Any such purchase from MSEB in peak hours 

would have to be done at the cost of load shedding for MSEB’s consumers. 

TPC has added that in practice, generation on Trombay Unit 5 and Unit 6 are being reduced 

to about 200 MW each on a daily basis. TPC has further added that in the past, it has 

resorted to shutdown of Unit 4 when the load requirement of Mumbai was low for a 

considerably long period. 


It should be noted that the hydel generation is limited by the availability of water and the 

release of water for irrigation purposes, as directed by the Irrigation Department, 

MERC, Mumbai 20




Government of Maharashtra. The Commission has projected generation by TPC’s hydel 

stations in FY 2004-05 based on the average generation over the past ten years. The actual 

generation in FY 2003-04 is in line with the average generation during the past ten years, 

and significantly higher than the level of 1200 MU projected by TPC. 

The Commission has analyzed the incidence of payment of commission to TPC’s Group 

Company, viz. Tata International. TPC has submitted that it has succeeded in reducing the 

payment of commission in the recent past. The Commission has projected the coal cost on 

the basis of the average cost of coal in FY 2003-04. The Commission has analysed the cost 

of coal vis-à-vis the FAC charged, and the detailed analysis of the same has been presented 

in subsequent Sections, while estimating the cost of generation. The Commission has studied 

all the submissions made by TPC with regard to the fuel consumption vis-à-vis the permitted 

levels, and has considered fuel levels and costs based on the Merit Order Despatch schedule 

projected by the Commission, to minimize the cost of generation. 

As regards Prayas’ suggestion that a State-wide Merit Order Despatch system should be 

established in the long term, and in the interim period, the generation plants in Mumbai 

should be despatched according to a common Merit Order, the Commission is of the opinion 

that though this is desirable, it is not being practised in the State as of now. However, the 

Commission is of the opinion that once the State level Availability Based Tariff mechanism 

is established, it will ensure that generation plants are despatched according to the merit 

order. For the time being, the Commission has achieved the objective of minimization of the 

generation cost by ensuring that the BSES’ Dahanu TPS is despatched fully, as its cost of 

generation is lower than that of the oil fired Units of TPC. TPC’s generation plants have 

been despatched according to the Merit Order to ensure that the cost is optimized. 

3 POWER PURCHASE AGREEMENT (PPA) 


Prayas has highlighted that there should be a Power Purchase Agreement (PPA) between 

TPC and BSES with standby support from MSEB to ensure reliability of power supply to 

Mumbai. 

BSES has contended that TPC has neither provided any legal justification nor any tenable 

reason to substantiate need for a PPA between TPC and BSES. BSES has also objected to 

TPC’s allegation of breach of obligation by BSES. 

MERC, Mumbai 21





TPC has welcomed the suggestions made by Prayas and has pointed out that it has been 

making efforts to sign a PPA between TPC and BSES with stand-by support from MSEB 

since the past six years. TPC has further clarified that currently, TPC and BSES are already 

in discussions over the PPA. 


As for the requirement of a PPA between TPC and BSES, the Commission is of the view 

that this is a bilateral Agreement between TPC and BSES, which is best left to the discretion 

of the Utilities concerned. 

4 TRANSMISSION AND DISTRIBUTION LOSSES 


Prayas has suggested that Technical Losses on the quantum of power wheeled through the 

MSEB’s network should be deducted from the power delivered to TPC rather than treating it 

as sales to TPC. 


TPC has preferred not to comment on the suggestion. 


Under the current arrangement between TPC and MSEB, the wheeling charges are 

separately computed and are not included as a part of T&D losses. The Commission will 

consider this aspect at the time of determination of wheeling charges for each Utility. 

5 EXPENDITURE 

5.1 Operating Expenses 

5.1.1 Objections 

ECCA, BSES and Mr. A. K. Sheth have pointed out that the Operating Expenses of TPC for 

FY 2004-05 have been over-estimated, as the expenditure has been projected to grow at 10% 

MERC, Mumbai 22




over FY 2003-04. According to ECCA, a growth of 5% is justifiable, given the analysis of 

trends in the past years to support the above claim. BSES has requested the Commission to 

examine the operating cost of TPC to ensure that costs are competitive and fair to its 

consumers. 

The Millowners’ Association has objected to the high expenditure on “interest on delayed 

payment” incurred by TPC, as it is normally expected to pay the bill under protest and then 

raise the issue about correctness. The Millowners’ Association has requested the 

Commission to go into the merits of TPC’s deviation of normal procedure and accordingly 

allow the expenditure. In its rejoinder, the Millowners’ Association has pointed out that TPC 

has not provided any justification for incurring interest expenditure on delayed payment. 

BSES, in its rejoinder, has submitted computations to justify its claim that TPC is 

understating its operating expenses for T&D assets and especially the distribution assets. 

BSES has further estimated that TPC could possibly be recovering approximately 75% of its 

total distribution costs incurred for supply to its direct retail consumers, from distribution 

licensees like BSES and BEST. BSES has clarified that the above estimates have been made 

on principles of cost allocation based on certain assumptions and data provided by TPC. 

Further, BSES, in its rejoinder, has also estimated that TPC could possibly be recovering 

from BSES approximately 40% of its total transmission costs not directly related to BSES. 

BSES has requested the Commission to validate the above possibility and suggest necessary 

corrective steps. 

5.1.2 TPC’s Response 

TPC has clarified that the variation in operating expenditure is primarily due to outage 

requirements during different years. TPC has added that interest on delayed payment payable 

to MSEB is on account of non-receipt of BSES’ share of standby charges. According to 

MSEB’s tariff schedule, it charges 2% as Delayed Payment Charges (DPC) on the entire bill 

amount even if a consumer does not pay part of the bill by due date. TPC has stated that it is 

awaiting the Commission’s Ruling on the Standby Charge case. 

On the issue of recovering only the generation and transmission cost from the Distribution 

Licensees, i.e BSES and BEST, and recovering distribution costs from direct consumers, 

TPC has stated that it operates as an integrated system having inter-linkages and as such it is 

not feasible and appropriate to apportion such costs to respective users. 

MERC, Mumbai 23




On the issue of understatement of the operating expenses for its T&D Assets, especially the 

distribution assets, TPC has stated that BSES’ assumptions are incorrect as BSES has 

reallocated the costs of generation and T&D based on the respective Capital Base, despite 

TPC having provided break-up of costs incurred separately for generation and T&D, and 

hence has no logical basis. TPC has added that BSES has allocated the combined cost of 

T&D into transmission and distribution based on the respective Net Fixed Assets (NFA), 

which again presents a distorted analysis as the costs do not reduce with the life of the assets 

though the NFA reduces over time. 

5.1.3 Commission’s Ruling 

The Commission has undertaken a thorough analysis of the operating expenses projected by 

TPC and has allowed only such expenditure as deemed prudent based on its analysis. As for 

the Delayed Payment Charges (DPC) and the interest on delayed payment, the Commission 

would like to bring to the notice of the stakeholders that, in this case, these amounts are on 

account of the dispute between TPC and BSES on the sharing of standby charges payable to 

MSEB by TPC. The honourable Supreme Court has also recognized that this is a dispute and 

has referred the matter back to the Commission for fresh consideration. The Supreme Court 

has also ruled that appropriate interest due to and from the respective parties has to be 

determined by the Commission. In light of this, the Commission has allowed TPC to recover 

the DPC and interest on DPC as a legitimate expense, as elaborated in the Commission’s 

Order on the standby charges dispute between TPC and BSES in Case No. 7 of 2000, issued 

on May 31, 2004. 

As regards the allocation of costs between bulk consumers and retail consumers, and further 

between BEST and BSES, the Commission recognizes that in principle, the costs should be 

allocated to the respective consumer categories based on the cost-to-serve computation. 

However, considering the unavailability of data and insufficient disclosure of segregated 

costs in this regard, the Commission is constrained to allocate the transmission and 

distribution costs to the respective consumer categories, and has hence determined tariffs on 

the basis of the average cost of supply, while taking care that the Bulk Supply Tariffs 

applicable for BEST and BSES are significantly lower than the retail tariffs applicable to 

retail consumers. The Commission directs TPC to organize and collate the required data 

and submit the same to the Commission within two months of the issue of this Order, to 

enable the Commission to allocate the costs to the various consumer categories and 

move towards cost-to-serve model. The Commission’s tariff philosophy has been discussed 

in detail in the Section on Tariff Philosophy. 

MERC, Mumbai 24




5.2 Repairs and Maintenance (R & M) Expenses 


ECCA, BSES and Mr. U. Shah have raised concerns on the high level of R&M expenses, 

and have highlighted that these expenses as a percentage of Gross Block are high and 

exhibiting an increasing trend on a year-on-year basis. 


TPC has clarified that there was a decrease in R&M expenses in FY 2002-03 due to 

deferment/reduction of planned outage time. TPC has stated that in FY 2004-05, the R&M 

expenses are expected to increase due to essential R&M work including routine outages on 

three of the Units at Trombay. 


The Commission has determined the R&M expenses at 3% of the opening GFA, based on 

normative level, in line with the Commission’s decision enunciated in the Tariff Order in 

Case No. 2 of 2003. 

5.3 Depreciation 


BSES has objected to the high rates of depreciation being charged by TPC, on its asset base. 


TPC has clarified that it has been using depreciation rates as prescribed in the Ministry of 

Power Notification of 1994. 


The average rate of depreciation has been reducing over the years, as analysed by the 

Commission while evaluating the expenditure in detail. The Commission has projected 

depreciation expenditure at the rate projected by TPC for FY 2003-04 and FY 2004-05. 

MERC, Mumbai 25




5.4 Employee Expenses 


ECCA, Prayas, BSES, VPLSM, Mr. U. Shah and Mr. A. K. Sheth have stated that the 

employee expenses of TPC for FY 2004-05 have been overestimated, as the expenditure has 

been projected to grow at a rate of 26.67% over the expenditure incurred in FY 2003-04. 

According to ECCA and BSES, a growth of 10% is justifiable. ECCA has provided analysis 

of expenditure in the past years to support their contention. Further, ECCA and BSES have 

pointed out that TPC’s employee costs are already high as compared to BSES’ employee 

expenditure even after the BSES’ pay revision and wage settlement. The objectors have 

highlighted that BSES’ average cost per employee for FY 2003-04 including terminal 

benefits, has been projected at Rs 2.7 lakh per annum (after pay revisions) while TPC’s 

average employee cost has been projected at Rs 4.5 Lakh per annum including terminal 

benefits after wage revision, thus indicating that the pay revision will add an average 

additional expenditure of Rs. 1.2 Lakh per annum per employee for TPC. 

ECCA and BSES, in reference to TPC's ARR and Tariff Petition for FY 2003-04, have 

pointed out that TPC has been providing for wage revisions and is writing back the excess 

amounts in the following year. ECCA has expressed the opinion that the provision for wage 

revision seems to be overestimated by atleast Rs. 10 Crore. 


TPC has stated that the ratio of employee cost to MU of energy input is a better measure of 

manpower efficiency as compared to cost per employee. TPC has added that this ratio is Rs 

0.14/kWh for TPC as against Rs 0.26/kWh for BSES, indicating the higher efficiency of 

TPC’s employees. TPC has further added that for FY 2004-05, employee expenses have 

been considered based on 10% increase over FY 2003-04 levels as indicated in the ARR and 

Tariff Petition after removing one time costs (provision for wage settlement). 

TPC has submitted that it is unable to understand ECCA’s concern on the provisioning for 

wage revision in one year and writing back the excess amount provided for in the next year. 


The Commission’s analysis of TPC’s employee expenses is detailed in the Section on 

expenditure projections appearing subsequently. The Commission has considered all these 

points and has determined the employee expenses after assigning the prudential limit for the 

same. The Commission would like to point out that TPC and BSES are not comparable 

MERC, Mumbai 26




Utilities, as TPC is a bulk supply licensee, with around 71% of its sales coming from sale to 

BSES and BEST, whereas BSES is a retail distribution licensee, with a substantial portion of 

its sales coming from the residential category of consumers. 

5.5 Administrative and General (A&G) Expenses 


ECCA has stated that the A&G Expenses of TPC for FY 2004-05 have been over-estimated 

as the expenditure has been projected to grow at 9.80% over FY 2003-04 levels. According 

to ECCA, a growth of 5% is justifiable, and has submitted analysis of past years trends to 

support the above claim. 

Prayas, in its rejoinder, has requested the Commission to put a ceiling on promotional 

expenditure or prevent TPC from including these expenses in the Annual Revenue 

Requirement (ARR), as these expenses are not linked to TPC’s core business. 

Prayas, in its rejoinder, has also requested the Commission to disallow all expenditures on 

consultancy assignments that are not directly linked to the working of TPC in the license 

area. 


TPC has not responded to this objection. 


The Commission’s analysis of TPC’s A&G expenses is detailed in the Section on 

expenditure projections appearing subsequently. The Commission has determined the A&G 

expenses after assessing the prudence of the same. 

5.6 Income Tax 


BSES has recalculated the Income Tax of TPC, based on TPC’s comments on BSES's ARR 

and Tariff Petition, and has stated that the Income Tax has been over estimated by Rs. 45 

Crore in FY 2003-04 and by Rs 55.9 Crore in FY 2004-05. 

MERC, Mumbai 27





TPC has pointed out that the tax computations submitted by BSES are erroneous and that the 

Financial Model furnished by them gives the detailed tax computation for FY 2003-04 and 

FY 2004-05. 

On the issue of TPC’s Income Tax being higher compared to other Utilities, TPC has stated 

that since its plants are old, it is not entitled to tax incentives. 


TPC has considered Corporate Income Tax, Deferred Tax and Dividend Tax under Provision 

for Tax. The Commission has allowed Corporate Income Tax and disallowed Dividend Tax 

and Deferred Tax for determination of ARR. TPC has estimated Corporate Income Tax as 

per the prevailing Income Tax rate (including surcharge) of 35.875%, considering License 

Area operations as a separate business. The Commission has accordingly computed the 

Income Tax for FY 2003-04 and FY 2004-05 based on the Commission's estimate of 

revenue and expenditure. The Commission has disallowed the dividend tax and deferred tax 

liability, as the consumers cannot be made to bear the burden of tax on dividends distributed 

to TPC’s shareholders, and deferred tax is a book entry that may be incurred at some point in 

the future, and is not an actual expense at this point in time. 

5.7 Foreign Exchange write-off 


Prayas and BSES have objected to the high amount of Foreign Exchange write-offs done by 

TPC. They have pointed out that Foreign Exchange write-offs have been Rs. 271 Crore in 5 

years (for past three years and for FY 2003-04 and FY 2004-05 as proposed). 

Prayas has added that the justification provided by TPC is not sufficient to ascertain the 

validity of the claims, and the amounts under “Foreign Exchange write off” seem very large 

compared to the outstanding loan and the repayment. Further, the write-offs as a percentage 

of Balance Loan ranges around 14%, 13% and 24% in FY 2000-01, FY 2001-02 and FY 

2002-03, respectively. Prayas has added that the method of computing the amount to be 

writen-off is not clear from the justification provided and even the worksheet files provided 

by TPC do not contain the formulae to establish the method of computation. 

MERC, Mumbai 28




Hence, Prayas has requested TPC to provide detailed calculations explaining the amount of 

write-offs for the past three years (FY 2000-01 to FY 2002-03) and the proposed amounts in 

the future years (FY 2003-04 and FY 2004-05). Prayas, in its rejoinder, has pointed out that 

the TPC’s response does not contain any calculations for the write-off pertaining to past 

three years (FY 2000-01 to FY 2002-03) and the proposed amounts for FY 2003-04 and FY 

2004-05. 

The Millowners’ Association has also objected to the high amount of Foreign Exchange 

write-off due to increase in the term loan liability on account of depreciation of the Indian 

Rupee against Foreign Currency. The Millowners’ Association has added that TPC is 

deviating from the Accounting Standard AS-11 of the ICAI, which provides for 

capitalization of the Foreign Exchange variation amounts. The Millowners’ Association has 

stated that TPC’s practice of charging the entire amount to the Profit and Loss Account 

adversely affects the tariff payable by its power consumers. 

The Millowners’ Association, in its rejoinder, has highlighted that no documentary evidence 

on specific approval from Government of Maharashtra (GoM) has been submitted by TPC 

for the deviation from standard accounting practice. The Millowners’ Association has further 

added that, in any case, the GoM has no authority to approve such deviation from the 

prescribed accounting practice. The Millowners’ Association has objected to TPC’s 

contention that its method of treating Foreign Exchange Write-off as revenue expenditure in 

the same year, would not amount to any change in the Gross Amount charged “over a period 

of time”. The Millowners’ Association has contended that above statement by TPC is an 

admission to the fact that the deviation from accounting standards has resulted in higher 

tariff being recovered from consumers than that allowed by the relevant Accounting 

Standard. 


TPC has clarified that the amount of Foreign Exchange write-off for a loan in any year is 

dependent on the outstanding balance of the loan in foreign currency during the year, amount 

of loan repaid and amount of liability created due to increase/decrease of liability on account 

of foreign exchange variation. Hence, when the repayments are not uniform, it is likely that 

there would be higher write-offs in some year as a percentage of the loans. TPC has added 

that the treatment of Foreign Exchange write-off has been consistent over a period of time in 

accordance with TPC’s accounting policy and is in line with treatment adopted for 

determination of Capital Base and Clear Profits under the Electricity (Supply) Act, 1948 and 

also has been accepted by Government Auditors. 

MERC, Mumbai 29




TPC has further added that under Section 211(1) of the Companies Act, it is clearly 

mentioned that provisions of sub-section 1, which in itself refers to section 211, would not 

apply to a Company engaged in the business of generation or supply of electricity. TPC has 

stated that hence, not giving the financial impact (in the notes to the accounts) due to change 

in policy does not violate section 211(3B) of the Companies Act. 

TPC has clarified that even though changes in accounting policy could result in variations in 

the amounts charged to the Profit and Loss account on a “year-on-year” basis, it would not 

result in change in the gross amount charged over a period of time. 

TPC has pointed out that the ARR and Tariff Petition has been filed with respect to the 

electricity business in its License area, whereas the P&L account referred in the objection is 

the consolidated P&L account for all businesses of TPC. 


The Commission has analyzed TPC’s approach of writing off the impact of foreign exchange 

variation, and the Commission’s detailed explanation for accepting the same has been 

discussed in a later Section, where all the expenditure projections have been deliberated 

upon. The Commission is satisfied with TPC’s explanation for treatment of variations in the 

foreign exchange, vis-à-vis the outstanding loans denominated in foreign exchange. 

However, the Commission directs TPC to account for the foreign exchange variations in 

line with Accounting Standard AS 11 for all foreign exchange loans from FY 2004-05 

onwards. 

6 CAPITAL EXPENDITURE 

6.1 General Objections 

There were several objections on the Capital Expenditure proposed by TPC, which have 

been categorized in terms of objections received on capital expenditure related to hydel 

generation, wind generation, thermal generation, transmission and distribution, and others. 

BSES, in its rejoinder, has pointed out that TPC’s responses to BSES’ objections on Capital 

Expenditure have been very general and are not backed by any technical data or cost benefit 

analysis. BSES has thus contended that it is not able to comment further in the absence of 

detailed technical data or cost-benefit analysis. BSES has requested the Commission to 

direct TPC to give detailed justification of the Capital Expenditure. 

MERC, Mumbai 30




6.1.1 Capital Expenditure on Hydel Projects 

BSES has questioned whether TPC has obtained the necessary techno-economic clearance, 

and the name of the monitoring agency, for the upgradation program for 3 x 24 MW Units at 

Khopoli, 3 x 24 MW at Bhivpuri, Khopoli Penstock and tunnel, and Dam strengthening at 

Shirawata and Walwan. BSES has added that the above Capital Expenditure should include 

cost of spares and that the Commission should not allow extra cost for spares in Hydel 

projects. Prayas and BSES have objected to the proposed investment of Rs. 18 Crore on 

Khopoli Tail race as the savings indicated by TPC do not justify the expenditure. According 

to a calculation by Prayas, the incremental cost of power works out to Rs 5.5/kWh to Rs 

8.5/kWh (depending on the Debt:Equity ratio). BSES has desired clarification on the 

estimated time frame for the benefits to accrue from the proposed expenditure on Hydel 

Generation Schemes. 

6.1.2 Capital Expenditure on Wind Projects 

ECCA, VPLSM and BSES have objected to the inclusion of the Capital Expenditure relating 

to the 17 MW Wind Power Project at Supa, in the Capital Base computations of TPC, since 

the Project is supplying power to the Maharashtra State Electricity Board (MSEB) and is not 

being used to supply power to Mumbai. 

The Millowners’ Association has highlighted that TPC’s projected plan to set up the 35 MW 

Wind Project before March 2004 appears unrealistic, as TPC has not floated any tender for 

the development of wind farm, and hence, the cost of the same should be deleted from the 

Capital Base computations. 

6.1.3 Capital Expenditure on Thermal Projects 

BSES has stated that purchase of spares for Unit 4 at Trombay should not be done before 

conversion, as ideally spares should be purchased at the time of conversion. Further, BSES 

has objected to the inclusion of large value items as spares. 

BSES has objected to the expenditure incurred for Replacement of Unit 5-Main Turbine HP 

module as defects pointed out could only be attributed to bad design by Siemens AG or nonmaintenance 

by TPC and the cost should be borne either by TPC or financed through 

alternate means. Further, BSES has desired information on whether the Unit was insured, 

and the possibility of a buy-back scheme by BHEL, and inspection reports created during 

past overhauls. BSES has requested for details of the expenditure of Rs 4 Crore already 

undertaken on the Unit. 

MERC, Mumbai 31




BSES has disputed the rationale given by TPC for expenditure on Construction of Bunds for 

Condenser Cooling discharge water for Units 5, 6 and 7 at Trombay. BSES has highlighted 

that if the Bunds are required as per existing norms of the Maharashtra Pollution Control 

Board (MPCB), then above costs would have been part of original scheme and thus no 

additional expenditure should be approved. BSES has also stated that the present system 

might not be functioning properly, thus leading to the above Capital Expenditure. BSES has 

requested the Commission to direct TPC to get the above project vetted by the Central Water 

and Power Research Institute (CWPRI). 

BSES has stated that the capital expenditure on LSHS Tank Project for Unit 4 is not 

required, as this Unit is being converted to use Coal, thus reducing the use of LSHS. 

BSES has objected to the procurement of spares for Gas Turbine Unit 7 as there is already a 

huge inventory of Rs. 20 Crore and hence, in BSES’ view, any additional purchase is not 

justified. BSES has also objected to the procurement of spares for LP blades of Unit 5 and 

Unit 6, as the examples of mishaps at Korba, Chandrapur, Ramagundam cannot justify the 

purchase of these spares. BSES has requested the Commission to analyze the detailed 

reasons for these failures before arriving at any conclusion. 

BSES has requested for information on the techno-economic benefit of converting Unit 4 to 

enable it to use Coal as fuel, and confirmation that the necessary clearances from MPCB are 

in place. 

BSES has sought clarification from TPC on the modality of loading the Capital Expenditure 

on Multi Fuel Jetty on the Licensee business. BSES has also questioned whether the 

relocation of Cooling Water Pump has the approval of the Ministry of Environment and 

Forests (MoEF) and whether TPC was utilizing old pumps or Capital Expenditure is in 

addition to existing pumps. BSES has desired information on whether the chlorine dioxide 

dosing system at Trombay is for old or new Cooling Water system. 

The Millowners’ Association has sought information on the current status of the proposed 

new schemes like Multifuel jetty at Trombay, relocation of Cooling Water Pump House, etc. 

BSES and Prayas have objected to the expenditure on spares for Spring Loaded system for 

the Coal Mills Phase II at Unit 5 Trombay and for Bhira and Bhivpuri, as this expenditure 

would have already been considered as a part of Operation and Maintenance (O&M) 

expenses. 

MERC, Mumbai 32




6.1.4 Capital Expenditure on Transmission and Distribution Projects 

ECCA, BSES and Mr. U. Shah have questioned the rationale of charging BSES with the 

capital expenditure incurred for bulk supply to other Licensees. The Objectors have given 

examples of expenditure on the South Mumbai Ring System (Rs 208 Crore), Power Supply 

to consumers (Rs 244.5 Crore), New Infrastructure for consumer growth (Rs 50 Crore), 

Replacement of Kumar Steel Cable and Modernization of Network (Rs 2.5 Crore), Network 

Development Activity (Rs 176 Crore), Raising of 110 kV Transmission lines at Wadala- 

Mankhurd and 110 kV power supply to BEST’s substation at Senapati Bapat Marg. ECCA, 

VPLSM and BSES have requested the Commission to segregate all Capital Expenditure that 

does not pertain to BSES, while fixing tariff for BSES. 

BSES has added that though TPC has projected lower sale of energy in FY 2003-04 as 

compared to sale of energy in FY 2002-03, it has proposed huge Capital Expenditure for 

strengthening its network, thus increasing the cost of energy sold without any tangible 

benefit to the consumers. BSES has urged the Commission to disallow such Capital 

Expenditure. 

BSES has sought information on the benefits accruing from the proposed 220 kV Khopoli– 

Bhivpuri (K-B) Transmission Line. BSES has suggested that techno-commercial evaluation 

needs to be done by PGCIL for this transmission line. 

BSES has objected to the expenditure on spares for the transmission network, receiving 

stations, and distribution network, as it would have been included in the original project cost. 

ECCA, BSES and Mr. U. Shah have drawn reference to TPC's stated objective in incurring 

Capital Expenditure on its Network Development Schemes, wherein TPC has envisaged 

significant growth in number of consumers in Mumbai. ECCA claims that this is contrary to 

the Commission’s Order (in Case No. 14 of 2002) restraining TPC from providing supply to 

any more consumers having contract demand below 1 MVA. ECCA has requested the 

Commission to not only disallow such Capital Expenditure, but also penalize TPC for 

violating the Commission’s order. 

BSES, in its rejoinder, has pointed out that since TPC sells almost 75% of its total sales to 

only two customers-BEST and BSES, it should be possible for TPC to segregate its 

transmission and distribution costs attributable to the licensees. 

MERC, Mumbai 33




6.1.5 Other Capital Expenditure 

Prayas has highlighted some of the investments of TPC and has argued that in case TPC is 

unable to justify the investments, the Commission should disallow the investments and 

disallow all expenses related to these capital investments. Prayas has identified certain 

capital expenditure such as Capital Expenditure towards purchase of helicopters costing Rs. 

25 Crore. Prayas has asked TPC to prove that the helicopters were used primarily for the 

operations of the regulated entity using flight logs. Prayas has stated that the Adharwadi 

Nallah Diversion Pumping Scheme at Bhira with investment of Rs. 4 Crore that would add 

power of 4.4 MU can be justified only when the cost of pumping and expected increase in 

manpower and O&M costs are specified. 

Prayas, in its rejoinder, has pointed out that TPC has not provided details of the flight logs 

that could prove that the helicopters were primarily used for the operations in the license 

area. Prayas has stated that in such a situation, it is unfair to recover the entire cost of 

helicopters from the Mumbai consumers. 

Prayas has expressed the need for a clear distinction between O&M Cost and Capital 

Expenditure, and for bringing in some standardization in various expenditure heads like 

R&M, Other Operating Expenses, Cost of Services Procured, etc. 

Prayas has suggested that some of the Capital Expenditure mentioned under “minor 

Schemes” like water coolers, fax machines, and minor testing equipment, should actually be 

a part of routine maintenance expenses, and should not form part of capital investments. 

ECCA and BSES have stated that TPC has not been charging Service Line Charges (SLC) 

from its customers to recover a part of its Capital Expenditure in extending a line to a new 

consumer. They have added that the Indian Electricity Act, 1910, has a provision to recover 

SLC, and both BEST and BSES charge SLC from consumers, and TPC’s practice is 

tantamount to poaching of customers. They have further stated that such non-recovery of 

SLC from consumers inflates the Capital base, which results in higher energy charges to 

BSES. BSES has urged the Commission to disallow such Capital Expenditure while 

computing the Capital Base. 

Prayas has urged the Commission to undertake a detailed scheme-wise scrutiny and direct 

TPC to submit Detailed Project Reports (DPR) for all capital investment projects above Rs. 

10 Crore. 

MERC, Mumbai 34





TPC has stated that capital expenditure is incurred primarily to ensure safety and security of 

its hydro plants, ensure quality and reliable power supply to consumers, upgrade technology, 

and to meet future growth in demand. 

6.2.1 Capital Expenditure on Hydel Projects 

TPC has stated that all the relevant clearances required for the various projects are in place 

and the upgradation program is being monitored in-house. TPC has clarified that spares for 

Bhira and Bhivpuri were not ordered with the main equipment and that these costs are not 

being charged twice. TPC has stated that the investment in Khopoli Tail Race is feasible, as 

it would supplement hydel generation. TPC has clarified that the scheme is aimed at utilizing 

the additional head available at the tailrace of Khopoli generating station. TPC has further 

stated that the per kWh cost indicated in the objection appears to be high and may be based 

on the cost in the initial years, though the benefits for the scheme would be available for the 

life of the generating station. TPC has added that it is not appropriate to judge the benefit on 

the basis of the cost in the initial years. TPC has further stated that the generation from this 

scheme would replace the purchases from MSEB during peak hours and thus the payback 

period of the scheme would be around 9 years (assuming Power Purchase cost from MSEB 

of Rs 3 per kWh for 7 MU). 

TPC has added that the benefit of the various schemes will accrue after the completion of the 

works, and hydel generation would be supplemented. 

6.2.2 Capital Expenditure on Wind 

TPC has clarified that costs of the wind projects have not been included in the license area 

for FY 2004-05, in line with the Commission’s Order (in Case No. 17(3), 3, 4 & 5 of 2002) 

dated November 24, 2003. 

6.2.3 Capital Expenditure on Thermal 

TPC has sought to justify the purchase of spares for Unit 4 as necessary for normal running 

of the Unit and has added that this expenditure is necessary, irrespective of conversion of the 

Unit to fire coal. TPC has clarified that the total capital budget has been spread over 3 years 

and capital expenditure of only Rs. 10 Crore has been proposed for FY 2003-04. 

MERC, Mumbai 35




TPC has clarified that the Main Turbine HP module of Unit 5 is operational since the past 20 

years with high availability and as such the replacement cannot be attributed to latent defect 

or bad design or non-maintenance by TPC. TPC has added that insurance does not cover 

wear and tear due to normal use, and that the module replacement was necessitated due to 

defects developed over many years of service. TPC has further clarified that the expenditure 

of Rs. 4 Crore is part of the cost of new module and the replacement has been completed in 

February 2004. 

TPC has clarified that all the stipulated parameters are being maintained as per MPCB 

norms. TPC has added that the requirement for construction of Bunds was necessitated due 

to MPCB’s directive to TPC in 1999 to continuously measure outlet water temperature at a 

single point and that the scheme is as per CWPRI recommendations. 

TPC has justified its proposed investment on LSHS tank on the premise that as 50% of 

Trombay generation is on Oil and Fuel, the new LSHS tank would ensure adequate storage 

to meet the plants’ oil-firing requirement. 

TPC has clarified that spares required for Gas Turbine of Unit 7 are long delivery -imported 

items and that the inventory available and the spares further procured would constitute the 

total requirement of spares for the overhaul. TPC has clarified that freestanding blades are 

susceptible to failure due to ageing and frequency variations in the system. 

On the issue of conversion of Trombay Unit 4 to enable it to fire coal, TPC has stated that 

the fuel cost can be lowered due to the conversion, and due to the proposed usage of low 

sulphur coal, Flue Gas Desulphurisation (FGD) has not been included. TPC has clarified that 

statutory approvals would be obtained in due course. 

TPC has clarified that the Multi-Fuel jetty has been excluded from the Capital Expenditure 

proposed for FY 2003-04. Regarding the relocation of cooling water pump house, TPC has 

clarified that the requirement is due to receding seashore line, which has necessitated 

procurement of new pumps and relocation of pump house for adequate supply of water all 

the year round. TPC has added that the old pumps cannot be utilized at the new location. 

TPC has justified the investment in the chlorine dioxide system at Trombay, stating that this 

is more effective in controlling bio-fouling, thereby increasing efficiency and reducing 

power consumption. 

MERC, Mumbai 36




TPC has clarified that investment in Coal Mills is due to the proposed conversion from the 

present hydraulic system to a spring loaded system that would increase the availability of the 

mill. TPC has added that this is not an expenditure on spares. 

6.2.4 Capital Expenditure in Transmission and Distribution 

TPC has clarified that it has a license to supply to all consumers in its License area, a fact 

acknowledged by the Commission in its Order in Case No. 14 of 2002 dated July 3, 2003. 

TPC has added that the Commission has temporarily restrained TPC from providing supply 

below 1000 kVA (1 MVA), till a level playing field is established. TPC has stated that 

hence, it has proposed to invest in network expansion, in anticipation of this restraint being 

lifted and meeting future growth in demand. TPC has also highlighted that BSES has been 

reducing its power off-take from TPC over the years, and hence, it is imperative to diversify 

its customer base to improve utilization of its assets. 

TPC has clarified that it is not feasible to identify separate costs for supplying to each 

consumer/Licensee, since its generation plants and transmission/distribution network operate 

as an integrated system having significant interlinkages and are run as a single system for all 

consumers and licensees in its License area. Moreover, the Capital Expenditure is for the 

benefit for all the consumers of its License area and hence is recovered on an uniform basis 

from all the consumers in the License area. TPC has added that the raising of 110 kV 

Transmission lines at Wadala-Mankhurd is required for the safety of the hutment dwellers 

that have encroached under the transmission lines. 

TPC has clarified that Khopoli-Bhivpuri Transmission Line is 60 years old and that the 

towers of the line were badly corroded, thus necessitating replacement. Further, there is no 

efficiency improvement linked to this investment, as the size of the conductor used remains 

the same. 

TPC has justified the expenditure on Capital spares for the transmission network, receiving 

stations and distribution network, on the grounds that the equipment are old and have not 

been serviced for years. 

6.2.5 Other Capital Expenditure 

TPC has justified the purchase of helicopters on the grounds that it provides easy and quick 

access to the hydel generating stations located in remote areas, and also aids in surveillance 

of the transmission lines. 

MERC, Mumbai 37




TPC has clarified that it follows a practice of continuous appraisal of the schemes 

contemplated under its capital expenditure program. Accordingly, schemes are modified in 

terms of the implementation schedule, technology to be used, etc if required. 

On the issue of distinction between O&M cost and Capital Expenditure, TPC has clarified 

that any expenditure is termed as capital expenditure if it increases the life of the asset or 

leads to efficiency improvement. TPC has added that it would be extremely difficult to 

accurately define expenditure as capital in nature or part of normal operation and 

maintenance expenditure in view of vast classification of assets. TPC has further added that, 

based on its judicious estimates, it has been classifying expenditure as capital in nature or 

part of normal operations and maintenance expenditure. 


Though TPC has stated that all the requisite clearances are in place, it has not submitted the 

copy of all the clearances to the Commission, despite repeated queries by the Commission. 

TPC has submitted the CEA Clearance for Unit 7 at Trombay and Bhira Pump Storage Unit, 

and the Ministry of Energy (Department of Power) approval for Unit 6 at Trombay. TPC is 

directed to submit the Approvals/Clearances for all the generating Stations, within one 

month of issue of this Order. 

Many objectors have objected to the capital expenditure undertaken by TPC in the past 

years, and the impact on the Capital Base and the Reasonable Return. The Commission has 

taken an in-principle decision that it will not examine the past capital expenditure upto FY 

2002-03, as the Commission had not specified any guidelines for the same, and TPC had not 

approached the Commission for approval of the same. While the Commission accepts that 

the past capital expenditure impacts the Capital Base and the Reasonable Return, the 

Commission is of the opinion that it will be unfair to TPC to reopen the past capital 

expenditure as it will amount to a retrospective assessment of the capital expenditure. 

However, the Commission has assessed the capital expenditure proposed by TPC for FY 

2003-04, though the year is over, as the Petition for FY 2003-04 is pending before the 

Commission. The overall approach has been to allow only such capital expenditure that are 

relatively small in nature, and for any large value capital expenditure, TPC has to approach 

the Commission for approval of the same, after submitting the detailed Cost Benefit 

Analysis and the Detailed Project Report, as detailed in the Section on approval of Capital 

Expenditure. 

MERC, Mumbai 38




The Commission does not see any merit in TPC’s argument that it is not possible to identify 

the expenditure against capital and O&M works, as this is a basic principle, and the Utility is 

allowed Capital Expenditure and O&M costs separately. As for the rationale that this is not 

possible on account of the high asset base of TPC, the Commission would like to inform 

TPC that MSEB, a public Utility, which has an asset base larger than that of TPC, maintains 

this classification. TPC is directed to submit the break-up of capital expenditure and 

O&M costs, to avoid overlapping and double counting of the same expenditure. 

7 DEBT TO EQUITY RATIO 


Prayas has objected to TPC’s approach of funding the capital expenditure of around Rs 400 

Crore in FY 2004-05 entirely through equity. Prayas has opined that the tariff would be 

much higher in case of 100% equity funding as compared to the tariff if the capital 

expenditure was funded through a mix of debt and equity, say in the ratio of 70:30. Prayas 

has submitted a detailed analysis as how for an investment of Rs. 100 Crore, a proper mix of 

funding would result in reduction in tariff of nearly Rs. 65 Crore over a 15 year period. 

Prayas has requested the Commission to ensure that all investments are financed with a debt 

to equity of 70:30 or even higher, as with the above normative debt to equity ratio of 70:30, 

the total Annual Revenue Requirement would reduce by Rs. 150 Crore due to lower 

requirement of reasonable return and Income tax. 

Prayas, in its rejoinder, has stated that TPC’s argument that there was no mandatory Debt to 

Equity Ratio specified under Schedule VI of the Electricity (Supply) Act, 1948, is not 

acceptable for justifying 100% equity funding of capital investments. Prayas has argued that 

every year consumers have been losing large sums due to bad leveraging by TPC. Prayas has 

requested the Commission to provide limited relief, at this stage, from the adverse impact of 

imprudent financing decisions. 


TPC has clarified that it has been financing capital expenditure by using internal accruals in 

the absence of any norms in the Schedule VI of the Electricity (Supply) Act, 1948, and that 

Debt-Equity ratio of 70:30 has generally been applied for determination of tariffs of green 

field generation projects. 

MERC, Mumbai 39





The Commission is of the view that funding of the entire capital expenditure through equity, 

when alternative cheaper source of funds is available, inflates the Capital Base and the 

Reasonable Return which is unfair to the consumers. The Commission is of the opinion that 

the normative debt:equity ratio of 70:30 should be considered for all capital investments 

from FY 2003-04 onwards. In case of past capital expenditure which has been primarily 

funded by internal accruals (equity), the Commission has not recomputed the interest 

expenditure and the Reasonable Return, as the Commission is of the opinion that this 

retrospective assessment would be unfair to TPC, in the absence of any guideline specified 

by the Commission. However, it should be noted that in accordance with the provisions in 

the prevailing Acts, TPC was required to obtain the approval of the CEA for all its capital 

investments. For all future capital investments, TPC is directed to fund the same in line 

with the normative debt:equity ratio. In case TPC fails to adhere to this guideline, then the 

Commission would determine the interest cost and the Reasonable Return on the basis of the 

normative debt:equity ratio. 

8 CLEAR PROFIT AND REASONABLE RETURNS 


Prayas has objected to the high and increasing profit and the tax on profit. Prayas has 

calculated that the return is around 55 paisa/kWh of sales over the past three years, while in 

the case of MSEB, the return is just 11 paisa/kWh of sales, and in case of NTPC, the return 

(pre-tax profit) is around 36 paisa/kWh. Prayas has added that not only is TPC getting higher 

return in the past years, but is also projecting return of 61 paisa/kWh in FY 2004-05. Prayas 

has requested the Commission to examine the need for such increase and whether it is in the 

consumer interest. 

The Millowners’ Association has objected to TPC’s very high post-tax return on capital 

employed (ROCE) of around 17%, and has requested the Commission to take a holistic view 

while fixing Reasonable Return on the Capital Base. 

In its rejoinder, the Millowners’ Association has highlighted that TPC has not responded to 

its objection on high post tax return of around 17%. The Millowners’ Association has also 

highlighted the Central Electricity Regulatory Commission (CERC) recommendation of 

post-tax return of 14% on equity. 

MERC, Mumbai 40




BSES has objected to the high Capital Base of hydel generation facilities claimed by TPC, 

and hence the Reasonable Return, on the grounds that the hydel generation facilities are very 

old. 

BSES has estimated the Clear Profit for FY 2003-04 and FY 2004-05 at Rs. 358 Crore and 

Rs. 440 Crore, respectively instead of Rs. 281 Crore and Rs. 323 Crore projected by TPC. 

This upward estimation of the Clear Profit results in surplus over Reasonable Return by Rs 

73 Crore and Rs 119 Crore and hence reduction in Bulk Supply Tariff by 7 paise/kWh and 

12 paisa/kWh for FY 2003-04 and FY 2004-05, respectively. 


On the issue of profits and income tax, TPC has clarified that it is in no position to comment 

on the figures mentioned for MSEB and NTPC and it has provided all necessary details 

about its own profit and tax calculation. TPC has added that Post tax returns allowed under 

the Electricity (Supply) Act, 1948 should be calculated after deducting statutory 

appropriations, and therefore, the percentages worked out by Prayas do not reflect the actual 

returns of TPC over the period. 

TPC has clarified that since its Hydro Stations are around 80-90 years old, it has incurred 

expenditure in replacement of equipment and in strengthening of civil structures, thus 

resulting in high Capital Base of its hydro stations. 


The Commission is of the view that comparison of the Reasonable Return on a per unit basis 

is not correct in this case, as there are a lot of variables that affect the Capital Base and 

Reasonable Return, such as consumer mix, whether the Utility is a bulk licensee or retail 

licensee, asset base, etc. The Commission has computed the Capital Base, Reasonable 

Return and Clear Profit in line with the provisions of Schedule VI of the Electricity (Supply) 

Act, 1948. Schedule VI specifies that the Reasonable Return has to be computed on the basis 

of the Capital Base, and the rate of return specified by the Ministry of Power through its 

periodic notifications. The consequent tax liability has to be computed on the same basis. 

MERC, Mumbai 41




9 RESERVES AND SPECIAL APPROPRIATIONS 

9.1 General 


Several objectors have requested the Commission not to allow depreciation on assets funded 

by Special Appropriations. Prayas, in its rejoinder, has highlighted that Schedule VI only 

mentions that depreciation should be allowed on the service line charges contributed by 

consumers and not special appropriations and other advance payments by consumers. Prayas 

has added that Schedule VI mentions that the consumer contribution towards cost of service 

lines should be deducted from the Capital Base but not from the calculations for arriving at 

the allowable depreciation. Prayas has also argued that the Commission has the authority to 

deviate from Schedule VI by giving specific reasons. 


TPC has clarified that since the depreciation is used for purposes ranging from asset 

replacement and loan repayment, hence, the suggestion of disallowing depreciation on assets 

funded by Special Appropriations, is not appropriate. TPC has stated that even as the fixed 

assets are depreciated, the original amount of Special Appropriation towards project cost 

(which is deducted from the Capital Base) remains unaffected and this leads to suppression 

of Capital Base thereby benefiting the customers. 


The Commission is of the opinion that depreciation has to be allowed on the assets created, 

irrespective of the source of the funds, viz. equity, loan, special appropriations, consumer 

contribution, etc. However, the Utility should not be entitled to Returns on capital 

investments created out of consumers’ funds, including Service Line Contribution, and 

hence these are deducted while computing the Capital Base. The Commission also accepts 

TPC’s rationale that though the fixed assets are depreciated, the original amount of Special 

Appropriations remains unaffected, which leads to lowering of the Capital Base and thereby 

the Reasonable Returns, thus benefiting the consumers. 

9.2 Contingency Reserve 


Prayas has urged the Commission to direct TPC to reduce the Contingency Reserve by about 

50% and return this amount in the form of special rebate over the next two years. Prayas has 

added that contingency reserve should not form part of the Capital Base. 

MERC, Mumbai 42




Prayas and the Millowners’ Association have submitted that the Contingency reserve should 

be reduced as the idea of Contingency Reserve was conceptualized under Schedule VI of the 

Electricity (Supply) Act, 1948, in the early years of power industry in India, as a sort of 

insurance to the Utility against the possible loss of revenue/additional costs due to 

unavoidable accidents, strikes or circumstance outside the control of management. However, 

as the Utilities have obtained substantial insurance cover, the need, the treatment and the 

quantum of such fund should be reassessed. They have added that TPC already has an 

insurance cover for assets worth nearly Rs. 5400 Crore against risks like fire, machinery 

breakdown, earthquake, floods riots, etc., in addition to the Industrial All Risks (IAR) policy, 

Motor Vehicles policy, Hull Insurance policy, aviation policy, personal accident policy, 

transit insurance policy, Fire Policy and other miscellaneous policies. 

They have stated that instead of reduction in Contingency Reserve, TPC has sought addition 

to contingency fund at the rate of 0.5% of original cost of fixed assets allowed by Schedule 

VI (minimum being 0.25%). The objectors have added that the treatment of the contingency 

reserve as per Schedule VI is unjust to consumers as Consumer Advance is added to the 

Capital Base of the Utility on which the Utility earns return. Further, Income Tax on this 

profit is a pass-through and hence is paid by consumers. Prayas has submitted a Table to 

show that interest earned on such funds is much less than the cost on account of profit and 

IT, effectively implying that consumers are required to make additional payments rather than 

earning any benefit form such advance payment. Prayas has prepared the following Table to 

arrive at net costs to consumers on amounts they have paid. 

Table: Cost of Contingency Reserve for Consumers 

(Rs. Crore) 

Sl. 

98-99 99-00 00-01 01-02 02-03 

No. 

1 Income on Contingency reserve 9 9 9 8 0 

2 Reasonable Return (RR) to TPC (say 15%) 15 18 19 20 23 

3 IT on the RR on Contingency Reserve 9 11 12 13 14 

(38%) 

4 Net Cost to consumers(on advance they 16 20 22 25 37 

have paid) 

Source: Presented by Prayas 

MERC, Mumbai 43





TPC has clarified that the appropriations are in accordance with the provisions of Schedule 

VI and as provided by the law. TPC has added that the practice is consistent with the 

approach followed by other Utilities including Ahmedabad Electricity Company (AEC), 

Surat Electricity Company (SEC), BSES, Calcutta Electricity Supply Company (CESC), etc. 

Further, the amounts vary with the size of operations of different Utilities and various other 

parameters. TPC has clarified that the treatment given to the Contingencies Reserve for 

Capital Base workings and utilization of such reserve is also as per Schedule VI of the 

Electricity (Supply) Act, 1948. TPC has added that these norms in the prescribed laws were 

designed after taking into consideration various perspectives and hence it is not appropriate 

to question the appropriateness of such provisions. 

In response to the contention that either Contingency reserve or the Insurance premium 

should be allowed, TPC has clarified that the current Contingency Reserve of Rs. 173 Crore 

(at the end of FY 2003-04) is grossly insufficient to cover the replacement value of assets 

and hence insurance cover is also required. TPC has added that the Contingency Reserve 

was created to act as a buffer to meet expenses or loss of profits arising out of accidents, 

strikes or renewal of plant or works, or compensation under any law in force. 


The total amount under Contingency Reserves as on March 1, 2003 is Rs. 154 crore. The 

Commission is of the opinion that the present circumstances, on account of the impact of 

resolution of the standby charges dispute and the impact of the recent honourable Supreme 

Court’s judgment that the tariff revision undertaken by TPC in December 1998 is invalid, 

qualify for appropriation of contingency reserves under the clause of “circumstances, which 

the management could not have prevented”, and hence the contingency reserves can be 

appropriated to meet the gap between the Clear Profit and Reasonable Return on a yearly 

basis. For FY 2003-04 and FY 2004-05, the Commission has provided for contribution to 

contingency reserve to the extent of 0.5% of the GFA. 

9.3 Debenture Redemption Reserve 


Prayas has challenged the validity of provisioning of Rs 46 Crore against the Debenture 

Redemption Reserve, when, according to the information submitted in the ARR Filing, TPC 

has no outstanding debentures. Prayas has suggested that this amount should be either 

MERC, Mumbai 44




returned to consumers or it should be used for capital expenditure. Prayas has added that the 

investments made from these funds should be deducted from the Capital Base and the Utility 

should not be allowed to charge any depreciation on these assets, as depreciation is charged 

to enable the licensee to repay the principal amount of any loan taken for creating assets. In 

this case, the licensee is not required to repay this amount (as it is paid in advance by 

consumers). 


TPC has clarified that the returns from this Reserve are not included in the revenue 

requirement and hence the request of Prayas is unwarranted. TPC has added that the 

Debenture Redemption Reserve was allowed as a special appropriation under Para XVII 

(2)(c)(vi) of Schedule VI of the Electricity (Supply)Act, 1948. TPC has further clarified that 

the opening balance of the Debenture Redemption Reserve is deducted from the Capital 

Base along with the debenture balance and the same was appropriated after permission 

granted by the Government of Maharashtra vide its letter no. ESA 1094/CR 2432/Energy 2 

dated March 22, 1995. TPC has confirmed that the above amount has been invested in 

approved securities within six months, as required. 


As there are no pending debentures for the License area, the Commission has appropriated 

this reserve to meet the gap between the Clear Profit and Reasonable Return on a yearly 

basis from FY 1998-99 to FY 2003-04, to reduce the burden on the consumers. 

9.4 Investment Allowance Reserve and Special Appropriations Towards Project Cost 

(SATPC) 


Prayas has noted that that the fundamental issue in “Investment Allowance Reserve” as well 

as “SATPC” relates to the depreciation charged on these reserves. Prayas has contested that 

since these amounts are basically consumer contributions for the new assets, hence the 

amount should be deducted from the Original Cost of Fixed assets not only for Reasonable 

Return but also while calculating depreciation. Further, total inflow into these reserves 

should be deducted before computation of the Reasonable Return and depreciation. Prayas 

has calculated that for FY 2004-05, the reduction in depreciation on this account would be 

Rs. 44 Crore. Prayas has requested the Commission to calculate depreciation only on the 

assets that are not financed through consumers’ funds. 

MERC, Mumbai 45





TPC has clarified that the creation of the Investment Allowance reserve was a requirement 

under the Income Tax Act and the Reserve is deducted from the Capital Base as per para V- 

A of Schedule VI of the Electricity (Supply) Act, 1948. TPC has added that the 

Development Reserve was replaced by the Investment Allowance Reserve in 1976 and that 

the Investment Allowance Reserve was itself discontinued in 1990 under the Income Tax 

Act. TPC has further clarified that the amount of Rs 121 Crore in the Investment Allowance 

Reserve, continues to be deducted from the Capital Base but does not have any specific 

investments against the reserve. TPC has pointed out that balance amount in the 

Development Reserve prior to 1976, is not deducted from the Capital Base and that this 

treatment has been confirmed by the Government of Maharashtra. TPC has further stated 

that the Development Reserve as mentioned in the Capital Base computations in the ARR 

for FY 2003-04 and FY 2004-05 is in fact the Investment Allowance Reserve. 

TPC has clarified that appropriations to SATPC were made after obtaining the requisite 

approvals and as provided in the Electricity (Supply) Act, 1948. Further, these 

appropriations are deducted from the Capital Base, while computing the Reasonable Returns, 

and hence the apprehensions expressed by Prayas are misplaced. TPC has added that whilst 

the related fixed assets are depreciated, the original amount of SATPC towards project cost 

is deducted from the Capital Base. Thus, even though the related assets get fully depreciated, 

Special Appropriations against it are not depreciated leading to suppression of the Capital 

Base, which benefits the consumers. TPC has further stated that Prayas’ suggestion of 

reducing assets by the amount of Special Appropriations before computing depreciation is 

against the prudent principles of accounting and also para XII of Schedule VI of the 

Electricity (Supply) Act, 1948. 

TPC has highlighted that subsequent to the Government of Maharashtra Order (vide letter 

no. LTT 1096/PRA.KRA 6794/ENERGY4 dated December 2, 1997) allowing TPC to 

appropriate the income earned on US 64 units lying in the Deferred Taxation Liability Fund 

investments towards SATPC, the same amount were charged to Clear Profits in the 

respective years. TPC has clarified that it does not earn any return on this amount as the 

cumulative liability is being deducted from the Capital Base. 


The Commission has considered the depreciation on the Investment Allowance Reserve and 

the Special Appropriations towards project cost in accordance with the provisions of 

Schedule VI of the ESA, which provides for depreciation on investment made out of both 

MERC, Mumbai 46




these reserves. Also, the Capital Base is reduced on account of these reserves, and hence the 

Reasonable Return is reduced. The Commission hence upholds TPC’s views in this regard. 

9.5 Deferred Taxation Liability Fund (DTLF) 


Prayas has challenged the need and quantum of DTLF, stating that currently DTLF stands at 

Rs 420 Crore, while the amount under dispute with the IT department is much lower, and 

TPC’s average Income Tax for the past five years has been only Rs. 210 Crore. Prayas has 

added that in the case of MSEB, the Commission has allowed any liability arising out of 

taxes as a pass through under the FOCA mechanism, and a similar approach could be 

adopted here. Prayas has concluded that unless TPC justifies the need for such substantial 

funds requirement on the basis of projected IT liability in the next 3-4 years, this fund should 

be reduced to 50% of the average Income Tax in the past five years and balance amount 

(around Rs 300 Crore) should be returned to consumers as special rebate in the next 2-3 

years. 

The Millowners’ Association has objected to the existence of DTLF as it is at variance with 

AS-22 issued by ICAI. The Millowners’ Association has requested the Commission to 

analyze whether TPC has misrepresented the true picture of working of TPC and its profits. 

In its rejoinder, the Millowners’ Association, has stated that TPC’s justification is untenable, 

as the Deferred Tax liability may or may not crystallize at all and may or may not be to the 

extent provided for by TPC. Further, TPC has been creating the Deferred Tax Liability fund 

such that Clear Profit for the year does not exceed the allowed Reasonable Return. The 

Millowners’ Association has added that Deferred Tax is merely a book entry and does not 

result in any cash outflow in that year and hence the consumer should not be made to bear 

this burden in the year in which provisioning is being done. Moreover, the Tax Liability 

could decrease in future due to TPC’s regular investments in new projects and additional 

depreciation charges. The Millowners’ Association has further added that the creation of 

Deferred Tax Liability Fund was approved by GoM only for the relevant year and cannot be 

regarded to be in force in perpetuity. The Millowners’ Association has requested the 

Commission to direct TPC to refund the excess amounts to the consumers, due to the above 

reasons. 

MERC, Mumbai 47





TPC has clarified that appropriation to DTLF is in accordance with the GOM approval dated 

February 7, 1996. TPC has added that the Accounting Standards came into effect much later 

and that TPC has consistently been provisioning for DTLF in accordance with the GoM 

approval in 1996. 

TPC has clarified that DTLF is created to even out the difference in income tax on the book 

profits and income tax profits, and that presently provisioning for deferred tax liability is a 

statutory requirement as per AS22. TPC has stated that the Company makes special 

appropriations from its profit and accordingly recovers revenues from the consumer to the 

extent of its deferred tax liability as long as its Clear Profit for the year does not exceed the 

allowed returns. TPC has added that this fund is necessary, as the Utilities are assured of 

post-tax fixed returns and it avoids any sharp tariff hikes due to drastic increase in tax 

liability. 


The Deferred Tax Liability Fund is created to even out the difference in income tax on book 

profits and tax profits. Though, deferred tax expense is a statutory requirement as per AS22, 

it is only an accounting entry. The Commission is of the view that the consumers should be 

required to pay for income tax only to the extent of actual income tax payable by TPC, and 

not on account of certain accounting entries made by TPC to provide for some expected 

liability in the future. Moreover, as long as TPC continues to make continuous investments, 

as it proposes to do, the deferred tax liability will not be payable. Hence, the Commission 

has appropriated the funds under this head, to meet the gap between the Clear Profit and 

Reasonable Return on a yearly basis from FY 1998-99 to FY 2003-04. The Commission has 

also appropriated the income net of taxes earned by TPC on the investments made out of the 

Deferred Tax Liability funds available with TPC. 

9.6 Consumer Benefit Account (CBA) 


Prayas has stated that TPC has Rs. 11 Crore in the above fund and one of the GOM’s audit 

reports has pointed out that this amount should be distributed to consumers. Prayas has urged 

the Commission to reduce the ARR to this extent and extinguish the balance in the consumer 

benefit account. 

MERC, Mumbai 48







This reserve has been created out of excess recovery in the past by TPC, when the Clear 

Profit has exceeded the Reasonable Return. Schedule VI of the ESA provides that one-third 

of such excess profit can be retained by the Utility subject to a maximum of 5% of 

Reasonable Return. Of the balance, ½ shall be appropriated to a reserve called Tariffs and 

Dividends Control Reserve (TDCR), and remaining ½ shall either be distributed in the form 

of a proportional rebate on the amounts collected from the sale of electricity and meter 

rentals or carried forward in the accounts for distribution to consumers in future. The 

Consumer Benefit Account has been created out of this last share, and is clearly intended to 

be returned to the consumers when required. Hence, the Commission has appropriated the 

funds under this head, to meet the gap between the Clear Profit and Reasonable Return on a 

yearly basis from FY 1998-99 to FY 2003-04. 

9.7 Other Reserves 


Prayas has pointed that TPC’s Balance Sheet contains very large reserves and 

appropriations. Prayas has also presented a comparison of the Reserves and Appropriations 

available with TPC with that of other Utilities, which has been presented below: 

Table: Comparison of R&A 

(Rs. Crore) 

Sl 

CESC SEC BSES TPC 

No. 

1 Total Reserves and Appropriations 67 11 542 1342 

2 Original Cost of Fixed Assets 4423 341 3027 3646 

3 Total R&A as % of Fixed Assets 2% 3% 18% 37% 

Source: presented by Prayas 

Prayas has stated that TPC’s total Reserves and Appropriations as a precentage of fixed 

assets is higher than that of other private Licensees in India. Prayas has urged the 

Commission to ensure that TPC’s Reserves and Appropriations are reasonable in terms of 

the amount and also utilization. 

MERC, Mumbai 49




Prayas has added that since these reserves are financed directly through consumer tariff over 

the years, these should be treated as advances from consumers and a fair treatment of these 

Reserves and Appropriations should be ensured by reducing the ARR by considering all 

income from these investments, and treating assets created from these reserves similar to 

consumer contributions. This will ensure that the consumer should not be burdened either 

with depreciation on these assets or with return (profit) to Utility (and the Income Tax on the 

profit) on the capital expenditure funded through Reserves and Appropriations, i.e., total 

consumer contributions to these reserves should be deducted from the Capital Base. 

Prayas has urged the Commission to return about Rs 277 Crore to the consumers, as a 

special rebate, based on the computations described in the Table below: 

Table: Disallowance/Rebates on account of Reserves and Special Appropriations 

Sr Description 

Disallowance 

No. 

Amount (Rs 

Crore) 

1 Unreasonable contingency Reserve 75.5 

2 Excess Debenture Redemption Reserve 46.0 

3 Inappropriate provisions in Sch. VI for Investment and project cost 44.0 

appropriations 

4 Excessive DTLF 100.0 

5 Balance in Consumer benefit account 11.0 

TOTAL 277.0 


TPC has stated that Tariff and Dividend Control Reserve is a Statutory Reserve created out 

of profits in excess of allowable Reasonable Return and is computed in the following 

manner: 

i) One-third amount of the excess is at the disposal of the undertaking, subject to the 

ceiling of 5% of the Reasonable Return. 

ii) One half of the remaining balance is appropriated to the Tariff and Dividend Control 

Reserve. 

iii) Other half of the remaining balance is either distributed in the form of a proportional 

rebate on the amounts collected from the sale of electricity and meter rentals or carried 

forward in the accounts of the licensee for distribution to the consumer in the future. 

MERC, Mumbai 50




iv) Tariff and Dividend Control Reserve is available at the disposal of the Licensee only to 

the extent that Clear Profit is less than the Reasonable Return in any year of account. 

v) All reserves reduce the Capital Base, thereby reducing the Reasonable Return. 

TPC has clarified that the Debt Redemption Reserve is being maintained to provide for 

redemption of World Bank and other Loans. TPC has stated that the loans were for a period 

of 10 to 15 years while the annual depreciation rate prior 1992 was 3.45% (26 years) which 

later rose to 5% and now stands at 7.84% (with effect from 1995). TPC has clarified that the 

amount by which annual repayments exceeded the depreciation was allowed as special 

appropriations for calculating the Clear Profit. TPC has submitted that the Debt Redemption 

Reserve currently stands at Rs 52 Crore and is being deducted from the Capital Base, thus 

reducing the Reasonable Return. 


TPC has accumulated certain reserves and appropriations during the course of its operations 

over the past. According to Schedule VI of the ESA, some of these reserves and 

appropriations can be used to set off the difference between Clear Profit and Reasonable 

Return, so that the impact on the consumers’ tariff is minimized. The Commission is of the 

view that the present circumstances qualify for such treatment, and has accordingly 

appropriated some of these reserves and appropriations against the gap between Clear Profit 

and Reasonable Return on a yearly basis in accordance with the provisions of Schedule VI of 

the ESA. The details of the methodology adopted by the Commission for appropriation of 

these reserves have been elaborated in the subsequent sub-sections on Capital Base and 

Clear Profit computation. The Commission has appropriated these reserves and surpluses in 

a pre-determined sequence and exhausted the reserves one by one, which has also been 

elaborated in the Sections mentioned above. It should be noted that the appropriation of 

some reserves will result in increasing the Capital Base, and consequently, the Reasonable 

Return, while the appropriation of contingency reserves will have the effect of reducing the 

Capital Base and hence the Reasonable Return. 

10 TARIFF 

There have been several objections with regard to the existing Tariff and the Tariff 

rationalization proposed by TPC, which have been discussed in this Section. 

MERC, Mumbai 51




10.1 General 


Prayas has suggested that the tariff should be based on the present fuel cost to reduce FAC 

amounts, as this would facilitate streamlining of tariff for power exchanges between 

Utilities. Prayas has supported the Commission’s efforts to initiate Intra-State ABT. Prayas 

has added that reactive power flow charges should be linked to the voltage level at the point 

of exchange, and the net exchange of power should be computed every 15 minutes. They 

have further added that the Commission should define the technical limits to be followed for 

plant dispatching. 

BSES has objected to the Fixed Charges of TPC stating that BSES has requested TPC to 

provide segregated transmission costs related to BSES, BEST and transmission and 

distribution costs to other consumers so that the burden of these costs are passed on to the 

respective entities thus avoiding cross-subsidization. BSES has added that TPC should be 

able to provide this data, as there are only two Distribution Licensees who are supplied by 

TPC. BSES has further added that TPC has tried to justify its high level of fixed costs by 

comparing the same across plants of different vintages thus presenting the whole analysis in 

a skewed manner. According to BSES, only Korba plant appears to be comparable and TPC 

has a higher fixed cost at Rs 0.49/kWh, compared to Korba’s fixed cost of Rs 0.28/kWh. 

BSES has added that transmission costs of TPC at Rs 0.29 per kWh are higher when 

compared to some SEB’s. BSES has compared the fixed cost of generation of Dahanu 

Thermal Power Station (DTPS) with that of TPC’s thermal Station, as shown in the 

following Table: 

Table: Comparison of TPC and DTPS as in FY 2002-03 

Particulars TPC DTPS 

Capacity (MW) 1330 500 

Vintage 1984-90 1996 

Units sent out (MU) 8687 3443 

Interest per kWh 0.04 0.01 

Depreciation per kWh 0.21 0.20 

O&M per kWh 0.21 0.18 

Total Fixed Cost per kWh 0.46 0.39 

Source: Presented by BSES 

MERC, Mumbai 52




BSES has requested the Commission to ensure that TPC provides the details of capital and 

operating costs for generation, transmission and distribution applicable to BSES in order to 

determine the tariff for BSES. 

In its rejoinder, BSES has stated that the variable cost of generation of DTPS is much lower 

than the variable cost of power purchase from TPC and thus TPC is not able to achieve 

higher dispatch from BSES. BSES has objected to TPC’s proposal of specifying a ceiling 

tariff for customer categories having demand more than 1000 kVA. BSES has contended 

that this proposal, if implemented, would lead to predatory pricing and trigger unfair 

competition based on price rather than service quality. BSES has requested the Commission 

to fix TPC’s tariff for 1000kVA and above, after detailed study of transmission and 

distribution costs and specify ceiling tariff only after resolving the following issues: 

i) Issue of cross-subsidy in the license area; 

ii) Level playing field between the Licensees; 

iii) BSES has access to power from alternative suppliers through complete implementation 

of open access; 

iv) Criteria for tariff fixation and conditions of license for parallel distribution is specified. 

BSES has pointed out that TPC has sought approval for tariff to be charged to retail 

consumers having maximum demand less than 1000 kVA. BSES has added that TPC has 

introduced new categories including street lighting category. BSES has drawn attention to 

the Commission’s Order dated July 3, 2003 restraining TPC from effecting retail supply of 

energy to direct consumers having maximum demand less than 1000 KVA. BSES has 

requested the Commission not to approve any tariff for such supply. 

BSES has highlighted that even though the Capital Base of TPC’s Thermal Plants is very 

low, the cost of bulk supply to BSES is very high. BSES has suggested that the Capital Base 

must be divided into that for BSES, BEST and other consumers, and that the tariff, costs and 

returns should be calculated accordingly. 

BSES has objected to the fact that the increase in tariff contemplated in the ARR Petition for 

FY 2003-04 filed by TPC only relates to increase in tariff for BSES whilst leaving the tariff 

for all other consumers unchanged. BSES has claimed that it is a calculated move to 

destabilize BSES by denying BSES a level playing field and to frustrate the objectives of 

competition enshrined under the EA 2003. 

MERC, Mumbai 53




BSES has drawn the Commission’s attention to TPC’s proposal to sell surplus generation 

capacity to Utilities/consumers outside its licensed area and has highlighted that if TPC is 

allowed to do so, it would be tantamount to amendment of TPC’s existing license terms and 

conditions. 

The Consumer Education and Research Society (CERS) has stated that there should be 

uniform tariff applicable to the consumers of the same category for the entire geographical 

area of Greater Mumbai, irrespective of the Distribution Licensee from which the electric 

supply if given. CERS has also stated that since the consumer mix for various Distribution 

Licensees in Mumbai are different, the Bulk Supply Tariffs should also be differentiated 

based on the consumer mix. VPLSM has objected to TPC charging different tariff rates for 

BEST and BSES, who consequently charge different rates to their respective domestic 

consumers. VPLSM has requested the Commission to ensure that all domestic consumers in 

Mumbai are charged the same Tariff. 

CERS has pointed out that the retail tariffs being offered by TPC are marginally higher, as 

against substantially higher, than the bulk supply tariff being charged to BSES, which in 

effect means that TPC is providing a discount to retail consumers. CERS has requested the 

Commission to disallow this unfair practice being followed by TPC. 

10.1.2 TPC's Response 

TPC has clarified that it is not feasible to estimate separate costs for supplying to each 

consumer/licensee since its generation plants and transmission/distribution network operate 

as an integrated system having significant interlinkages and are run as a single system for all 

consumers and bulk licensees in its license area. TPC has stated that it is extremely difficult 

to accurately segregate common costs such as head office and support services expenses into 

generation, transmission and distribution. 

TPC has pointed that BSES has not raised any new points by providing cost comparison 

between TPC and NTPC and all the relevant details are already provided in the ARR for FY 

2004-05. 

On the issue of TPC’s tariff for consumers having contract demand greater than 1 MVA 

should be same as that of BSES, TPC has stated that its tariff rationalisation proposal has 

been submitted to the Commission and it is the Commission’s prerogative to decide upon the 

same. 

MERC, Mumbai 54




10.1.3 Commission's Ruling 

The Commission has determined the tariffs based on the present fuel costs, and has equated 

the FAC charge to zero by merging the prevalent FAC (April 2004) into the Tariff itself. The 

Commission has also modified the FAC mechanism and the FAC Formula as detailed in a 

subsequent Section on FAC. Henceforth, TPC will charge FAC for increase in fuel costs and 

variable cost of power purchase on the basis of the revised FAC Formula, on a monthly 

basis, and report the same on a quarterly basis to the Commission. 

The Commission has already dealt with the issue of separation of the costs of transmission 

and distribution, while addressing the issue of operating costs of TPC. The Commission is of 

the view that it should be possible to provide the break-up of the generation, transmission 

and distribution costs for the licence area, as TPC is already maintaining this data for their 

business as a whole. Moreover, in a previous submission as a part of cost-of-service 

evaluation exercise to the Commission, TPC has provided data on separate asset base at 

different voltage levels for the license area of Mumbai. The Commission directs TPC to 

submit this data, suitably updated, within two months of issue of this Order. As regards 

the comparison of fixed costs of DTPS and TPC’s thermal units, the Commission is of the 

opinion that it is incorrect to compare the fixed costs per unit of generation, as the costs are 

fixed irrespective of the actual generation, and the fixed cost per unit will vary based on 

many factors, including PLF. 

The Commission agrees with BSES’ view that the ceiling tariff can be specified only after 

certain critical issues are resolved, and has hence, not specified any ceiling tariff for 

consumers in TPC’s license area. The tariffs approved for TPC, have taken into 

consideration the Commission’s earlier Order (in Case No. 14 of 2002) restraining TPC from 

supplying to retail consumers with contract demand lower than 1 MVA, and the need for 

establishing a level playing field to encourage competition. 

The Commission has projected sales to MSEB only and has not considered sale to other 

States, since the State of Maharashtra itself is suffering from power shortage. However, if 

TPC is able to sell to other States, then the revenue from such sales should be used to reduce 

tariff for other consumers, through proper treatment in the Clear Profit computations, while 

at the same time ensuring that the tariff applicable for such sale should be higher than the 

variable cost of incremental generation. 

As regards the suggestion that the tariff for consumers in the same category should be 

uniform across the city of Mumbai, irrespective of the Distribution Licensee that is 

supplying electricity, the Commission is of the opinion that the EA 2003 encourages 

MERC, Mumbai 55




competition, and it is not the intent of the EA 2003 that the retail tariffs should be same 

across a particular geographical area. Moreover, the suggestion is impractical, as each 

Distribution Licensee has a different consumer mix, network configuration and varying level 

of operating efficiency. Thus, the scope for cross-subsidy varies across the licensees. For 

instance, BEST has a high proportion of commercial consumers, while TPC has very few 

domestic consumers, and is primarily a Bulk Licensee. 

10.2 Fixed Capacity Charges 


BSES has objected to TPC’s proposal to levy Fixed Capacity Charges upto 750 MVA at the 

rate of Rs 44.40 Crore per month and for additional drawal above 750 MVA at the rate of Rs 

1000/kVA/month and termed such charges as unjust, unfair, discriminatory, arbitrary and 

bad in law. BSES has argued that capacity charge, if any, should be applied across the board 

and for all consumers at the same rate. BSES has added that TPC cannot seek to unilaterally 

effect such charges upon an individual consumer in derogation of the principles laid down 

under Section 29 (3) of the Electricity Regulatory Commissions Act, 1998 (ERC Act). BSES 

has also objected to the slab structure sought to be introduced by TPC, i.e., a higher Fixed 

Capacity Charges for drawal in excess of 3000 MU. Electrical Contractors Association of 

Maharashtra (ECAM) has also objected to the predatory pricing adopted by TPC while 

supplying to BSES. 

The Millowners’ Association has objected to TPC’s proposed increase in Maximum Demand 

Charges as it would adversely affect industrial consumers with seasonal pattern of 

consumption, who are perforce required to draw less during lean periods. 

ECAM has objected to the increase in Demand Charges by TPC, in the absence of any 

substantive justification furnished by TPC. 

BEST has objected to TPC’s proposed increase in Maximum Demand Charges from Rs 

170/KVA to Rs 340/KVA as it would increase the cost to the tune of Rs 140 Crore per 

annum, as the major burden of this increase would fall on Mumbai’s commercial and small 

industrial consumers. This would also disadvantage BEST in the event of competition 

contemplated under the Electricity Act, 2003. 

MERC, Mumbai 56





TPC has denied the allegation that its prices are predatory and has expressed its inability to 

provide any further explanation in the absence of any supporting details provided by ECAM. 

TPC has emphasized that it endeavours to provide a competitive tariff to its consumers. 

TPC has clarified that it has not proposed different tariffs based on location of consumers. 

TPC has added that its Maximum Demand (MD) charges should normally recover the total 

fixed costs and energy charges should recover the variable costs. TPC has stated that since 

TPC’s MD charges do not reflect the total fixed cost, it has proposed to increase the 

maximum demand charges and reduce the energy charges through the tariff rationalization 

proposal. TPC has clarified that this increase in MD charges is tariff neutral as increase in 

MD charges has been offset by a corresponding reduction in the energy charges. The fixed 

(demand) charges are in line with the fixed (demand) charges applicable to industrial 

consumers as determined for MSEB by the Commission. 


The Commission has attempted to ensure that the fixed charges are more or less uniform for 

all the consumers of TPC, who are charged demand charges on the basis of the Maximum 

Demand. The Commission has also ensured that the tariff applicable to BSES and BEST is 

the same, as they are both Distribution Licensees. It should be noted that the recovery of 

fixed costs through fixed charges ranges around 33%, which has been increased to around 

88% by the Commission, in order to ensure a higher level of certainty in the revenue stream. 

The Commission has endeavoured to ensure that the burden of fixed charges is not too high. 

10.3 Stand-By Charges 


Prayas has made suggestions on the Stand-By Supply arrangement between MSEB and TPC 

and requested the Commission to consider the same while deciding on the ARR and Tariff 

Petition filed by TPC. Prayas has stated that in the current arrangement, in case of tripping of 

any generating Unit of TPC or BSES, MSEB meets the Mumbai region’s demand even at the 

cost of load shedding in other parts of the State. If, for any reason, the present stand-by 

arrangement with MSEB is either discontinued or MSEB’s revenue from this mechanism is 

greatly reduced, then it must be ensured that MSEB does not meet Mumbai’s demand at the 

cost of load shedding in other parts of Maharashtra. To ensure this, Prayas has urged the 

Commission to direct MSEB and its concerned Load Despatch Centre (LDC) officer to 

MERC, Mumbai 57




prove that the MSEB supply to Mumbai was not at the cost of load shedding. This Filing 

should be done within seven days of such instance, and should include details such as 

availability of generation at that time, frequency, MSEB’s scheduled demand and supply 

under ABT and load shedding schedule in force at that time. Prayas, in its rejoinder, has 

clarified that the objection to MSEB supplying power/stand-by support even at the cost of 

load shedding was restricted to a possible situation that Mumbai Utilities are not paying the 

stand-by charges. 

According to Prayas, since the concept of “stand-by” is similar to the concept of “spinning 

reserve”, the stand-by charges should be shared between the beneficiary Utilities in the ratio 

of largest generation Unit size (as spinning reserve is expected to be equal to the largest 

generating Unit size in the system). Hence, it should be shared 2:1 between TPC and BSES, 

as the capacity of TPC’s largest unit is 500 MW, while BSES’s Units are of 250 MW. 

BEST has objected to TPC charging a part of the stand-by charges to BEST. BEST has 

argued that stand-by charges is taken to maintain stand-by supply for the benefit of the 

generator and since BEST sources 100% of its power requirement from TPC, therefore 

stand-by charges should not be charged to BEST. BEST has noted that currently it pays 

stand-by charges of 21 paise per kWh that is in-built into the Tariff. 

ECAM has requested the Commission to resolve the issue of Standby Charges in a manner 

such that it does not impose additional burden on the consumers. BSES has contended that 

the issue of “Stand-by Charges” is a subject matter of Case No. 7 of 2000 and as such has to 

be determined by the Commission. 




The Commission has issued a separate Order in Case No. 7 of 2000 on May 31, 2004, to 

resolve the dispute on sharing of standby charges payable to MSEB, between TPC and 

BSES. All the above issues have been discussed in detail in the above referred Order, and 

hence, the Commission has not made any comments at the cost of repetition on the 

resolution of the dispute in this Order. 

MERC, Mumbai 58




10.4 Fuel Adjustment Cost (FAC) 


ECCA, BSES and BEST have requested the Commission not to allow TPC to merge FAC 

into energy charges as it would be unfair (to low income Domestic consumers) to do so 

without a detailed audit of TPC’s FAC. 

BSES, in its rejoinder, has pointed out that merging part of the FAC into energy charges is 

not revenue neutral, and has estimated an adverse impact of 3.2% in the tariff to licensees. 

This adverse impact is mainly on account of proposed reduction in amount of units 

exempted from FAC. BSES has objected to the proposal to levy different FAC rates on sale 

of energy in excess of 3000 MU as discriminatory and against the principles laid down under 

Section 29(3) and 29(2)(e) of the ERC Act. 

The Millowners’ Association has stated that there is no correlation between the furnace oil 

price vis-à-vis the FAC being charged by TPC. The Millowners’ Association has added that 

the fuel costs for Mumbai have been shown to be higher when compared with TPC's other 

CPPs and IPP. Further, FAC has been charged on all units supplied by TPC, i.e., both on 

thermal and hydel generation. This has resulted in higher FAC charges for TPC’s customers 

for the period FY 1998-99 onwards. It has requested the Commission to determine the 

excess FAC collected and direct TPC to refund the excess FAC collected from FY 1998-99 

onwards. It has objected to TPC’s proposal of merging FAC charges with the energy charges 

and has suggested that TPC should determine FAC charges every month on the basis of a 

transparent formula. 

In its rejoinder, the Millowners’ Association has pointed out that lack of transparency in 

FAC charged is evident from the fact that the consumers are neither aware of the FAC 

formula nor the increase in fuel prices and variation in Calorific Value of fuel and thermal 

efficiency of plants. It has also stated that TPC has not refuted the calculations provided by 

the Millowners’ Association, highlighting the fact that Mumbai consumers subsidize the fuel 

costs of Jojobera and Belgaum plants. It has pointed out that in order to arrive at the FAC, 

TPC divides the total additional cost by the total units, excluding hydel sales, though FAC is 

recovered from the entire sale including the hydel sales, thus enabling TPC to recover more 

than the difference between actual cost of fuel and basic cost. 

ECAM, Mr. U. Shah and Mr. A. K. Sheth have pointed out merging of part of FAC with the 

energy charges will increase the basic energy cost by 34 paise/kWh and will adversely affect 

MERC, Mumbai 59




all the consumers, including consumers of BEST and BSES who are currently being spared 

from FAC charges upto 100 units per month. ECAM has requested the Commission not to 

permit the merging of part of FAC into the energy charges. ECAM has also requested the 

Commission to undertake an exhaustive study of TPC’s FAC rates as they are extremely 

high vis-à-vis those charged by BSES and other generators. ECAM has also suggested 

introduction of FAC audit with some benchmarking indices that would result in greater 

transparency and lesser discomfort to consumers. 


TPC has clarified that merging a part of FAC into energy charges has been done in a manner 

so as avoid substantial alteration of aggregate revenue realization from individual 

categories/licensees. 

TPC has clarified that the lack of correlation between the fuel prices and FAC rates is due to 

the time lag between change in fuel prices and change in FAC charges, which is based on the 

cost of fuel in stock. 

TPC has stated that its FAC formula has been approved by Government of Maharashtra 

(GOM) as well as statutory and GOM auditors. TPC has added that copies of FAC 

calculations have been submitted to the Commission, subsequent to the Commission’s Order 

in Case 16 of 2002. 

TPC has stated that FAC is calculated by dividing the difference between actual fuel cost 

and basic fuel cost (already included in the energy charges) by the total sales (that include 

contribution from hydro generation). TPC has contended that FAC is actually reduced by 

pooling thermal and hydro generation as hydro generation has zero fuel costs. 

TPC has refuted the contention that TPC’s Mumbai license area is subsidizing the fuel costs 

of Jojobera and Belgaum plants, on the basis that fuel accounts for each of the locations are 

maintained and audited separately. Also, the cost of Coal delivered at Trombay is much 

higher than that at Jojobera as Jojobera is a pit head station. Moreover, fuel mix of each 

location is different. TPC has added that the Heat Rate of Trombay is different from that of 

Jojobera and Belgaum. TPC has highlighted that objectors have wrongly assumed the same 

Heat Rate for Trombay and Jojobera and Belgaum combined. 

TPC has refuted the Millowners’ Association’s contention of artificially high fuel costs on 

the basis that the Millowners’ Association’s assumption of same generation for FY 1998-99 

MERC, Mumbai 60




and FY 1999-00 is incorrect as generation from Wadi does not seem to have been added for 

FY 1999-00. TPC has clarified that the fuel costs of Wadi are not on TPC’s account as the 

fuel is supplied by the consumers. TPC has added that upto FY 2000-01, the fuel cost of IPP 

and CPP is primarily on account of coal consumption at Wadi and whereas TPC’s fuel costs 

include a substantial portion of fuel oil costs. TPC has further clarified that the FAC 

calculations are audited every year by Statutory Auditors and GOM Auditors. 

On the issue of FAC being charged only on thermal generation, TPC has clarified that FAC 

calculations are based on sales and not on generation. TPC has clarified that the Commission 

is empowered to approve any FAC formula that it may deem fit to enable TPC to fully 

recover its fuel costs. TPC has added that merging of FAC into energy charges is merely a 

reallocation of fuel charges and would correspondingly reduce FAC. However, TPC has 

clarified that the first 100 units consumed by residential consumers of TPC would continue 

to be exempt from FAC. 

TPC has stated that its FAC charge is higher than the FAC charged by BSES, primarily 

because almost 50% of TPC’s thermal generation capacity is currently operating on fuel oil 

(relatively expensive fuel) whereas entire generation capacity of BSES is based on coal. 

TPC’s generation using fuel oil is necessitated by the stringent environmental norm based 

restrictions on coal firing as well as sulphur emissions. 

In response to the suggestion of undertaking FAC audits with some benchmarking indices, 

TPC has responded that FAC computations have been approved by GoM and is in line with 

the provisions of the Electricity (Supply) Act, 1948. Further, TPC’s FAC calculations are 

audited every year by Statutory Auditors, copies of which have already been furnished. 

On the issue of adverse impact on residential consumers with consumption less than 100 

units/month due to merging part of FAC in energy charges, TPC has stated that the rationale 

has been elaborated on page 64 of the ARR Petition for FY 2004-05. 


The Commission has verified the FAC being charged by TPC on the basis of the Filings 

made by TPC on the fuel costs and the FAC recovered over the period 1998-99 to FY 2002- 

03, details of which have been discussed in a subsequent Section on cost of generation. The 

Commission is satisfied that TPC has been recovering FAC appropriately. The Commission 

would like to inform the consumers that FAC to be recovered is computed on the basis of the 

fuel costs vis-à-vis the base fuel costs, and is charged on the total sales of the Utility. TPC 

MERC, Mumbai 61




does not recover any FAC on the hydel generation, as there are no fuel costs involved. There 

is no concept of hydel sales and thermal sales, as sales cannot be segregated in this fashion. 

The Commission has determined the tariffs based on the present fuel costs, and has equated 

the FAC charge to zero. This is in line with the approach used by the Commission in case of 

MSEB. The Commission does not see any merit in retaining the FAC charge, on the basis of 

a base fuel cost that was prescribed quite some time back (almost 6 years). The Commission 

has also modified the FAC recovery mechanism and prescribed the FAC Formula as detailed 

in a subsequent Section on FAC. Henceforth, TPC will charge FAC for increase in fuel costs 

and power purchase costs on the basis of the revised FAC Formula, on a monthly basis. The 

Commission has also ensured, while enforcing transparency, that the impact of the merger of 

FCA on the effective tariff charged to consumers is such that there is no tariff shock. 

10.5 Tax on Sale of Electricity (TOSE) 


Prayas has suggested that TOSE should not be divided into tariff and separate charge, as is 

being done now, as it would facilitate streamlining of tariff for power exchanges between 

Utilities. 

BSES and ECCA have objected to TPC's proposal to bill TOSE separately as against its 

previous practice, whereby 1 paisa/kWh was part of energy charge and the balance was 

charged as TOSE. BSES has suggested that such change should not be permitted without indepth 

verification of the revenue/cost data. 


TPC has clarified that the removal of TOSE from the energy charge will not affect the total 

revenues of TPC, as TPC’s proposal is revenue neutral. 


The Commission does not see any merit in continuing with the existing practice of charging 

TOSE of 1 paise/unit through the energy charges and charging the balance 14 paise/unit 

through a separate charge. The entire collection through TOSE has to be passed on to the 

GoM. The Commission has determined tariffs without considering TOSE as a part of the 

base tariff. TOSE billed will be fully passed on to the GoM, and will not affect the revenue 

of TPC. 

MERC, Mumbai 62




10.6 Bulk Supply Tariff to BSES 


In response to TPC’s submission in the ARR Petition that BSES operates its DTPS as a base 

load plant and uses TPC supply for meeting peak load requirements, BSES has clarified that 

the preference is due to low cost generation at Dahanu as compared with high cost of 

generation by TPC. 

In response to TPC’s statement that BSES uses 220 kV inter-connection at Borivali as 

normal point of supply without paying any MD charges which otherwise would have been 

payable at 22/33 kV, BSES has clarified that this was done as TPC did not release any 

additional points at its 22/33 kV receiving stations thus forcing BSES to draw power at 220 

kV interconnection point. BSES has added that it incurs extra cost in terms of transmission 

and transformation losses and at the same time is not entitled to rebate on energy charges 

when it draws at 220 kV instead of 22/33 kV. Additionally, BSES is charged 18% higher 

tariff for power drawn at 220 kV. 

In its rejoinder, BSES has requested the Commission to fix a lower tariff at 220 kV level, till 

TPC provides BSES with all the requested additional points of supply at 22/33 kV. 

In response to TPC’s statement that BSES pays lower capacity charges compared to its 

usage, BSES has clarified that TPC’s assertion is not tenable considering that TPC does not 

have any information on segregated cost of supply to various licensees and the fact that TPC 

charges BSES Rs 200 per kVA while BEST is charged Rs 170/kVA. 

In response to TPC’s statement that BSES is not paying MD charges based on tariff 

approved by the Government of Maharashtra (GOM) in December 1998 at the rate of Rs 

200/kVA/month, but is paying only Rs 170/kVA/month, BSES has clarified that the 

Commission in its earlier Order in Case No. 7 of 2000 dated December 7, 2001 has 

dismissed the excess charge of Rs 30/kVA/month to BSES, and also, the honourable 

Supreme Court has held that the tariff notice of December 1998 has no legal effect. 

In response to TPC’s statement that BSES is not paying minimum MD charges, BSES has 

clarified that TPC has withdrawn this condition in its revised tariff with effect from January 

1997. BSES has added that even though this charge was subsequently brought into force by 

TPC in its tariff revision of December 1998, the revised tariff has no legal validity as ruled 

by the honourable Supreme Court. In response to TPC’s claim that it is not aware of any 

MERC, Mumbai 63




withdrawal of minimum MD charges, BSES has pointed out that TPC, vide its letter dated 

August 29, 1996, had withdrawn the condition of Minimum Charges. 

In response to TPC’s statement that BSES is not paying GOM approved tariff rate of Rs. 

2.09/kWh for 220 kV supply, BSES has clarified that TPC cannot insist on specific 

performance of any portion of the Agreement while violating other aspects of the 

Agreement. BSES has added that TPC is misleading the Commission by saying that the tariff 

has been approved by the GoM. 

In response to TPC’s statements that BSES is drawing excessive reactive power at 220 kV, 

thus disturbing the voltage profile of TPC system and export of energy to TPC system, 

BSES has clarified that this issue has been dealt by BSES in its Affidavit filed with the 

Commission in Case No.3 of 2003 and BSES continues to maintain the stand in its Affidavit. 

In response to statement that BSES owes TPC Reactive Energy charges @ Rs 0.05/RkVAh 

for reactive energy consumption of 2142.49 MRkVAh for the period March 1998 to August 

2003, BSES has pointed out that the above issue is the subject matter of Case No. 3 of 2003 

and BSES continues to stand by its statements in the affidavit. 

In response to TPC’s statement that BSES is not maintaining 10% spinning reserve as 

mandated by the Expert Committee, BSES has informed that it has installed SCADA at 

DTPS, which can create spinning reserve through pre-programmed load shedding. Further, 

BSES has highlighted that the Expert Committee’s recommendations are not mandatory and 

BSES had never agreed to maintain a 10% spinning reserve. 

BSES has denied TPC's statement that BSES has been paralleling 22/33 kV systems with 

TPC in the past and that paralleling of BSES and TPC system is fraught with risks in the 

system. BSES has objected to TPC’s recovery of fixed cost by way of enhanced Demand 

charges on the premise that TPC should first accurately apportion the fixed cost to BSES and 

BEST, and then determine the demand charges for BSES. 

BSES has suggested that the revenue from sale of infirm power by TPC should be passed on 

to TPC’s consumers as any surplus generating capacity is paid for by all consumers. BSES, 

in its rejoinder, has pointed out that TPC is not recovering its fixed costs from the sale of 

infirm power and hence, not effecting any reduction in the revenue requirement to be 

recovered from its regular customers. 

BSES has highlighted that the impact of TPC’s tariff rationalization will increase the 

effective cost of power purchase by BSES from Rs 2.85/kWh to Rs 3.32/kWh and if the TPC 

MERC, Mumbai 64




proposal is accepted, then BSES would be left with no choice but to pass on the tariff 

increase to its consumers. 

BSES has further pointed out that based on TPC’s proposed tariff of Rs. 3.32/kWh to BSES 

and Rs. 3.17/kWh to BEST, it is self evident that BSES’s consumers are actually subsidizing 

the consumers in the BEST area and this cannot be justified. 

BSES has stated that TPC has been charging BSES on the basis of the arithmetic sum of 

maximum demands at each point of supply, whereas in case of BEST, the demand charge is 

levied on coincident maximum demand. BSES has termed this as discriminatory and not 

permissible under Section 29 (3) of the ERC Act. BSES has claimed a refund of Rs. 57 

Crore from TPC in lieu of excess charges recovered from January 1, 1997 on this account. 

BSES has requested the Commission to direct TPC to desist from using this differential 

method of billing Maximum Demand to BEST and BSES. BSES has added that the method 

of determining the Billing Demand is an integral part of the Tariff Schedule. 

BSES has strongly objected to TPC proposal to increase the demand and energy charges (Rs. 

583/kVA/month instead of the existing Rs. 170/kVA/month and energy charge of 

approximately Rs. 4/kWh), in case BSES sources part of its requirement from elsewhere. 

BSES has pointed out that the above proposal is not in conformance with the Electricity Act, 

2003 that has enabled Distributing Licensees to seek “Open Access” on transmission lines to 

source cheaper power from elsewhere. BSES also pointed out that TPC’s predatory pricing 

amounts to restrictive practices under the MRTP Act. BSES has argued against its liability to 

pay charges to TPC even after BSES ceases to use TPC’s infrastructure. BSES has added 

that TPC is not justified in charging a differential rate merely because BSES sources part of 

its power from elsewhere. 

CERS has contested the Bulk Supply Tariff charged by TPC to BSES, as it is higher in 

comparison to the tariff charged to MSEB and BEST. CERS has provided a comparison 

between the cost of BSES’ own generation and power purchase cost from TPC to justify its 

claim, which is given below: 

MERC, Mumbai 65




Table: Comparison of BSES’ own generation cost and cost of power purchase from 

TPC 

Financial Cost of BSES’ own Purchase Cost from 

Year generation ( Rs/kWh) TPC (Rs/kWh) 

1999-00 1.90 2.80 

2000-01 1.94 3.33 

2001-02 1.94 3.19 

2002-03 2.05 3.37 

Source: CERS’ Objection 


TPC has clarified that the revenue earned through the sale of infirm power is being passed 

on to its consumers by incorporating the corresponding revenues in the ARR to arrive at 

Clear Profits. 

TPC has objected to BSES’ assertion that the BSES’ effective cost of power purchase from 

TPC is Rs 2.85 /kWh. TPC has added that in the absence of any explanation/basis of 

calculation provided by BSES, TPC is not in a position to comment on the same. 

On the issue of enhanced demand charges, TPC has clarified that it is not feasible to estimate 

separate costs for supplying to each consumer/Licensee, as TPC’s generation plants and 

transmission/distribution network operate as an integrated system having significant 

interlinkages and are run as a single system for all consumers in its License area. Moreover, 

the Capital Expenditure is for the benefit of all the consumers in its License area and is 

hence recovered on uniform basis from all the consumers of the License area. 

TPC has clarified that BSES’s suggestion of levying demand charges on the basis of Actual 

Coincident Demand is out of context. On the issue of “Predatory Pricing”, TPC has clarified 

that the proposed charges are aimed at recovering a portion of fixed costs already invested in 

the system to ensure quality and reliable power supply to its Licensees. TPC has added that 

seeking compensation from BSES for the same, which otherwise would have led to 

unnecessary burden on the remaining consumers/Licensees, is not unjust. 

TPC has clarified that it has proposed two-part tariff at 220 kV equal to that of 22/33kV 

supply, if BSES uses 220kV interconnection for its normal requirements. TPC has clarified 

that the issue of providing additional outlets to BSES was currently before the Commission. 

MERC, Mumbai 66





The issue of payment of demand charges by BSES for drawal at the 220 kV interconnection 

at Borivali and the issue of providing additional interconnection points to BSES is a separate 

Case before the Commission, and the Commission will issue a separate Order in the matter. 

As regards maintenance of spinning reserve by BSES, the Commission is of the opinion that 

BSES’ DTPS being cheaper should be despatched fully, and TPC’s higher cost generation 

stations should provide the spinning reserve. Moreover, BSES is paying standby charges to 

TPC to compensate TPC for maintaining spinning reserve on its behalf. 

As regards the additional revenue earned by TPC through infirm sales to other States, the 

Commission has already given its ruling earlier. The Commission is of the opinion that in 

the case of infirm power sale, the fixed charge cannot be recovered from that consumer. As 

long as the revenue from such sale is used to reduce the tariff applicable to other consumers, 

there is nothing wrong in selling to other States, as long as the agreed tariff for such sales is 

higher than the variable cost of incremental generation. 

The Commission accepts that as BSES purchases a substantial portion of its power 

requirement from TPC, any revision in the tariff applicable for sale of power from TPC to 

BSES, will have to be passed on to BSES’ consumers through revision in tariff. The 

Commission also directs TPC to install coincident demand meters at all interconnection 

points between TPC and BSES, and bill BSES on the basis of the coincident demand, as 

it is billing on the basis of coincident demand in the case of BEST. The Commission sees no 

rationale for this discrimination between BSES and BEST. 

10.7 Railways 


Central Railway (CR) has stated that the unit cost of electricity supplied by TPC, as per its 

last bill of January 2004, is Rs 3.28/kWh while the unit rate proposed by TPC for FY 2004- 

05 is Rs 3.58/kWh, which is a substantial hike. 

Western Railways (WR) and CR have drawn specific attention to Section 74(b) and Section 

74(c) of the MERC (Conduct of Business) Regulations, 1999 of the Commission, on “the 

need to rationalize tariff on the basis of the actual cost of generation, transmission and 

distribution and supply” and “the unbundling of costs so as to enable rational allocation of 

cost”. WR and CR have objected to the fact that the cross-subsidy by Railway Traction is 

MERC, Mumbai 67




being increased to 1.21 in FY 2004-05 from 1.19 in FY 2003-04. WR and CR have 

requested the Commission to reduce the traction tariff in line with the cost of supply. WR 

and CR have argued that the traction tariff should be at par with tariffs for BEST or BSES 

and that they should also be extended the rebate provided to BEST and BSES by exempting 

FCA charges upto 25% of the consumption. 

WR and CR have strongly objected to the increase in MD charges applicable to Railways, 

from the existing Rs 170/kVA/month to Rs 342/kVA/month and have requested the 

Commission not to increase the Tariff and additionally, direct TPC to provide the basis of 

existing and proposed levy of demand charges. WR and CR have requested the Commission 

to direct TPC to levy demand charges based on the Simultaneous Maximum demand 

recorded in contiguous sub-stations, as Railways’ load is a moving load and registers 

demand at all sub-stations through which it passes, as opposed to a stationary load. WR and 

CR have attached a letter from Member (E&C), CEA, addressed to Chairman of all SEB’s 

and the Rajasthan Electricity Regulatory Commission’s (RERC) Tariff Order issued in 2001, 

for the Jaipur Vidyut Vitran Nigam, to substantiate their argument. WR and CR have 

requested the Commission to exempt the Railways from the payment of Security Deposit as 

Railways have never delayed or defaulted in their payments. 

WR has pointed out that unreasonably high traction tariff makes electric traction costlier 

than diesel traction and hence has adverse impact on the environment and foreign exchange 

reserves. WR has added that according to Article 287 of the Indian Constitution, tariff for 

sale of electricity to Railways shall be less by the amount of tax than the price charged to 

other consumers. Railways have added that they are the single largest consumer of electricity 

at ET/EHT voltage and pays electricity bills promptly and regularly, and, therefore, should 

be eligible for a reasonable tariff. 


TPC has stated that it is not appropriate to compare average rate for January 2004 with the 

annual average rate proposed for FY 2004-05. TPC has argued that FAC for January 2004 is 

based on actuals upto December 2003 and estimated for January 2004 while FAC for FY 

2004-05 is based on estimated fuel cost and FAC sales for FY 2004-05, and hence are not 

comparable. 

TPC has clarified that the average cost of supply indicated by the Railways as Rs 3.15/kWh 

for FY 2003-04 is incorrect as it does not include the amounts towards taxes, statutory 

appropriations and reasonable return. TPC has added that average cost of supply for FY 

MERC, Mumbai 68




2003-04 is about Rs 3.47/kWh. Hence, the calculation showing that cross-subsidy is 

increasing is not tenable. 

TPC has responded by saying that FAC recovery through tariff is based on the guidelines 

prescribed by GOM. Further, BSES and BEST cater to residential consumers and since 

Railways does not sell power to such categories, the rebate cannot be granted. 

TPC has clarified that presently it recovers a very low proportion of its fixed cost through 

MD charges and hence an increase in MD charges have been proposed, with an aim to 

increase the proportion of fixed charges recovered through MD charges. TPC has added that 

actual MD charges should be Rs 600/kVA/month. TPC has further added that even with the 

proposed rationalization, the overall tariff is still competitive. 

TPC has clarified that since the frequency of suburban/long distance trains are very high, it 

is imperative that demand charges be levied on the basis of highest MD registered at 

individual points of supply and it is not appropriate to compare with the load of other 

Railways, where frequency of trains is lower. 

TPC has added that payment of Security Deposit is part of the comprehensive tariff 

rationalization proposal and is with the Commission for approval. 

TPC has clarified that in line with the intention to reduce burden on WR and CR, TPC has 

proposed tariff rationalization with reduced rates to Railways. TPC has added that it does not 

levy any taxes and duty on Railways through the Tariff and has stated that WR has always 

earned prompt payment discount. 

On the issue of FAC exemption on 25% of sales, TPC has clarified that FAC workings are in 

accordance with the Formula approved by the Government of Maharashtra and the 

exemption to BSES and BEST has been provided on account of socio-economic 

categorization of some of their residential consumers. 

TPC has clarified that its tariff rationalization proposal has provision for payment of Security 

Deposit for Industrial, Commercial and Residential Consumers only. 


The Commission has reduced the cross-subsidy being provided by the Railways, while 

determining the tariff for Railways, in line with its philosophy of gradual reduction in cross- 

MERC, Mumbai 69




subsidy. TPC is directed to explore the possibility of metering Railways through 

coincident demand meters. 

The Commission has withdrawn the rebate in FAC for the first 25% of consumption to 

BEST and BSES, as well as the rebate in FAC for the first 100 units of consumption by 

residential consumers. Hence, there is no question of extending the rebate in FAC to 

Railways. 

10.8 Bulk Supply Tariff to Licensee: BEST 


BEST has stated that it has no generation plants of its own and sources 100% of its power 

requirement from TPC, and purchases around 3700 MU every year. BEST has added that the 

tariff for BSES and BEST has been proposed to be kept at the same levels. BEST has further 

added that TPC’s fuel cost is higher than that of BSES. BEST has further stated that its 

electricity consumers are already bearing part of the loss of its Transport Division, and 

hence, BEST’s electricity consumers are at a disadvantage because of the high fuel cost of 

TPC as well as subsidy to BEST’s Transport Division. BEST has stated that the quantum of 

expenditure required to be made by BEST are very high, and in view of the above issues, the 

Commission should treat BEST as a separate category for the purpose of tariff determination 

and not club them with TPC’s HT consumers. 

Mr. Rajesh P. Sharma, Deputy Mayor, Mumbai has objected to the Tariff Rationalization 

proposals of TPC for FY 2004-05 and has submitted that merging of part of FAC into the 

Energy Charges will lead to tariff shock for around 5 lakh consumers who consume less than 

200 units per month, and has requested the Commission to disallow the TPC proposal of 

merging part of FAC into the Energy Charge, till the Commission verifies the accuracy of 

the fuel data. He has added that the TOD Tariff will adversely impact BEST’s consumers, 

since most of the consumers are commercial and domestic consumers. He has requested the 

Commission to hold implementation of this proposal, till BEST conducts a survey of the 

consumption pattern of its consumers. He has further added that TPC has created a large 

amount of fixed assets for the Distribution Licensees. He has submitted that as Section 61 of 

the EA 2003 states that the tariff should reflect the cost of supply, TPC should apportion the 

cost attributable to supply to BEST separately and the Demand Charges should be 

determined only after arriving at the fixed cost attributable to BEST, BSES and other 

consumers separately. 

MERC, Mumbai 70





TPC has stated that its tariff to BEST is already lower than Railways, considering the bulk 

supply being taken by BEST from TPC. TPC has added that as BEST and BSES are in the 

business of distribution of electricity to their respective consumers in their license area, a 

similar tariff has been proposed for both Licensees. 


The Commission has directed BEST to submit its ARR Petition for FY 2004-05, within two 

months vide its Order dated April 7, 2004. In case, BEST revenue requirement is not met 

through the applicable tariffs, then BEST is free to submit a Tariff Proposal asking for 

revision in the tariff applicable to its consumers. 

The Commission has already given its ruling in the matter of recovery of FAC from various 

consumer categories, in earlier Sections. Additional details are given in a subsequent 

Section, where the philosophy of FAC, the mechanism of recovery of FAC, and the FAC 

Formula are discussed in detail. 

10.9 Industrial 


Bombay Small Scale Industries Association (BSSIA) and Bombay Suburban Small Scale 

Industries Association (BSSSIA) have objected to the proposed increase in minimum energy 

charges from Rs 1.3 /kWh to Rs 1.6/kWh, the reduction in slabs from 5 to 3 and the levy of 

fixed charges of Rs 20, Rs 30 and Rs 40 per month for domestic consumers, which is on the 

higher side. 

BSSIA and BSSSIA have also objected to the proposed hike in LT Single part tariff 

applicable to Industrial and Commercial Consumers on the ground that TPC has been 

exempted from paying tax on import of fuel and also since there has been an appreciation of 

the Rupee vis-à-vis the US Dollar, the cost of generation will reduce. 

BSSIA and BSSSIA have suggested that in the light of TPC’s proposed revision in tariff to 

BEST, the Commission should call for submission of the ARR Petition from BEST, thus 

enabling electricity consumers from South Mumbai to provide suggestions/objections in this 

regard. They have added that this is particularly relevant to BSSIA and BSSSIA, as many 

small scale Industries are also members of the South Mumbai Consumer Association and in 

MERC, Mumbai 71




the absence of formation of Appellate Tribunal as envisaged under the Electricity Act, 2003, 

these consumers have no recourse to higher authority (within 60 days) for redressal of 

grievances once the Commission passes the Tariff Order for TPC. BSSIA and BSSSIA have 

suggested that the Tariff Order of TPC should be kept in abeyance till the formation of the 

Appellate Tribunal. 

BSSIA and BSSSIA have objected to the splitting-up of HT-Consumers under HTP-I and 

HTP-II, as all their members would fall under HTP-II category and hence be subjected to 

higher rates. They have further stated that ToD tariff should be made applicable only after 

TPC has installed meters capable of recording the consumption between 0600 to 2200 hours, 

and between 2200 to 0600 hours. 

Mira Co-operative Industrial Estate Ltd (MCIE) has requested the Commission to desist 

from increasing the tariff, since this would have a negative impact on the competitiveness of 

the industries in Mumbai. They have also argued that any increase in tariff would force 

many industrial units to close down and this would render many workers jobless. 

The Millowners’ Association has stated that the tariff rationalization proposals have meted 

out a raw deal to the consumer without any reduction in tariff, even though there is 

substantial scope for reduction in tariff. 


TPC has clarified that the proposed increase in the energy rates is on account of merger of a 

part of FAC into the energy charge which is a mere reallocation of fuel charges, thereby 

increasing the energy charge which is more or less offset by decrease in FAC. Besides, any 

variations in fuel cost on account of factors such as Tax on import of fuel and appreciation of 

Rupee vis-à-vis the US Dollar is being passed on to the consumers by way of FOCA. TPC 

has defended the merger of FAC with energy charges as merely a reallocation of fuel 

charges which would reduce the discomfort to consumers who perceive FAC as 

disproportionately large fluctuations in tariff. TPC has clarified that introduction of TOD 

tariff would incentivize consumers for better demand side management. 

TPC has clarified that HT tariff is generally for industrial and commercial consumers having 

larger off-take of power and availing power supply at high voltage. TPC in its tariff 

rationalization has differentiated between HT consumers upto 1 MVA (HTP-II) and above 1 

MVA (HTP-I). 

MERC, Mumbai 72




TPC has clarified that the tariff rationalization proposal is not expected to substantially alter 

the aggregate revenue realization from individual categories/Licensees. TPC has added that 

the tariff rationalization proposal has been prepared in consonance with the guidelines of EA 

2003 that tariff should progressively reflect the cost of supply, encourage economical usage 

of resources by consumers, optimum investment by utility and reduce cross-subsidy. 


The Commission has directed BEST to submit its ARR Petition for FY 2004-05, within two 

months vide its Order dated April 7, 2004. In case, BEST revenue requirement is not met 

through the applicable tariffs, then BEST is free to submit a Tariff Proposal asking for 

revision in the tariff applicable to its consumers. 

The Commission’s views on tariff rationalization have been discussed in detail in a 

subsequent Section on Tariff Philosophy. 

10.10 Standby Offset Charges 

10.10.1Objections 

BSES has contended that there is no justification for BSES to pay the Standby Offset 

Charge, if BSES were to source power from other sources. BSES has said that recovery of 

any amount should be achieved from the sales to other consumers and not by levy of 

Standby Offset charge. BSES has stated that this amounts to predatory pricing by TPC to 

stifle competition which is untenable and impermissible under the Monopolies and 

Restrictive Trade Practices Act (MRTP Act) and the Electricity Act, 2003. 

ECAM has suggested that till such time the issue of Standby Charges is resolved by the 

Commission, the proposal of levying standby offset charges should either be denied or held 

in abeyance. 

10.10.2TPC’s Response 

TPC has clarified that Standby Offset Charges is a part of its comprehensive tariff 

rationalization proposal that has been submitted to the Commission for approval. TPC has 

added that the Standby Offset Charge becomes payable in the event a Distribution Licensee 

sources power from third parties and TPC is liable to pay standby charges to MSEB. TPC 

has stated that the rationale for the Standby Offset Charges have been provided in its ARR. 

MERC, Mumbai 73




10.10.3Commission’s Ruling 

The Commission is unable to understand the rationale for levying standby offset charges 

from BSES, in case BSES sources power from any other source. In such a situation, if TPC 

is of the opinion that it does not need standby to the extent of 550 MVA as BSES is no 

longer purchasing power from TPC, then it may approach the MSEB for reducing the 

standby facility to a lower level. If BSES purchases power from any other source, and still 

needs standby from TPC, then the arrangement should continue to be the same as determined 

by the Commission in its Order on the standby dispute (Case No. 7 of 2000). 

10.11 Fuel and Other Cost Adjustment (FOCA) 


ECAM has objected to the wide scope and all inclusive definition of “Q” that is defined as 

“Adjustments on account of under/over recoveries during the year relating to charges in rent, 

rates and taxes, duties, local levies”. ECAM has suggested that TPC should pass on suitable 

reduction in FOCA if the direct cost incurred by TPC on account of power purchase reduces 

due to lower purchase from MSEB as compared to the proposed quantum of 86 MU. ECAM 

has contended that this suggestion is a corollary to TPC’s proposal to recover FAC if 

purchase of power from MSEB is higher than 86 MU. 

Western Railway (WR) has raised the concern that with the introduction of FOCA, the 

average cost of traction energy could increase as the FOCA concept includes some other 

unforeseen costs. 


TPC has clarified that its ARR and Tariff Petition has been based on the principles of 

Schedule VI of the Electricity (Supply) Act, 1948 and any surplus or deficit would be dealt 

with in accordance with the provisions of the aforesaid Schedule. TPC has justified the 

introduction of FOCA as it takes care of other unforeseen costs and this principle has been 

adopted in the case of MSEB. 


The Commission has already given its ruling in the matter of recovery of FAC from various 

consumer categories, in earlier Sections. Further details are given in a subsequent Section, 

where the philosophy of FAC, the mechanism of recovery of FAC, and the FAC Formula are 

discussed in detail. 

MERC, Mumbai 74




10.12 Time-of-the-Day (TOD) Tariff 


BSES has requested the Commission not to accept TPC’s TOD proposal unless it is 

preceded by a study by BSES and BEST to know the elasticity of demand of its consumers 

so that time zones can be identified during the day for ToD implementation. BSES has also 

submitted detailed analysis to support it argument for undertaking a “detailed study” as a 

pre-requisite. Mr. Rajesh P. Sharma, Deputy Mayor, Mumbai has also argued on the same 

lines. 

BSES, in its rejoinder, has pointed out that TPC has not provided any details of the study or 

analysis for arriving at the method of charging ToD. BSES has opined that TPC’s contention 

of having framed ToD tariff after due consideration to various factors, is not tenable. 

The Millowners’ Association, while applauding the introduction of ToD tariff, has requested 

that tariff during 0600 to 2200 hours should also be reduced. BSSIA and BSSSIA have 

suggested introduction of TOD tariff only after installation of adequate meters, which can 

record TOD consumption. WR and CR has requested the Commission to modify the ToD 

tariff structure proposed by TPC, by increasing the duration of the night period, so that 

Railways can avail maximum benefit. 

BEST and ECAM have suggested that TOD may be implemented to obtain proactive benefit 

to consumers at large, however, it should be offered only optionally because industrial 

consumers/two shift/three shift consumers are very few and in a minority vis-avis other 

categories who may not benefit by TOD tariff. Moreover, all commercial activity/shopping 

activity and other such activities are not carried out during night time and hence will not be 

able to benefit from the ToD tariffs. BEST has added that residential consumers will also not 

be benefited but will be subjected to a higher tariff via BEST and BSES who will be 

adversely affected by TOD as majority of their consumers are residential and commercial. 


With reference to the suggestion that TOD Tariffs should not be implemented until BSES 

and BEST have conducted demand related studies, TPC has expressed its inability to do so 

as any change in one of the components would result in modification of other components to 

achieve the same Annual Revenue Requirement. 

MERC, Mumbai 75




TPC has clarified that TOD tariff promotes energy consumption in such a manner so as to 

utilize generation capacity in the most optimal manner. Industrial consumers could benefit 

by switching some of their operations during night hours and even hotels could benefit by 

switching their chilling loads to night hours. TPC has opined that TOD tariff would be 

beneficial to the consumers and is already adopted by various Utilities, such as MSEB, 

Gujarat Electricity Board (GEB) and also private Utilities like Ahmedabad Electricity 

Company (AEC). TPC has added that TOD tariff has been designed to be revenue neutral for 

BEST at the present level of consumption. 

On the issue of modifying the night hour duration for levy of lower off-peak tariffs, TPC has 

responded that any deviation in tariff for a particular consumer category would affect the 

rates for other consumers. 

TPC has clarified that its existing metering system at HT consumers’ premises has the 

capability to record power consumption during different time blocks during a day. 


It should be noted that BEST and BSES, the two Distribution Licensees, comprise around 

71% of TPC’s sales, and the balance sales is shared amongst HT and LT industrial 

consumers. The Commission is of the opinion that with this kind of consumer mix, the shift 

of load, if any, due to the ToD tariffs will not be significant. At the same time, there is no 

gainsaying that ToD tariff is a very useful tool to create a shift in the load to flatten the load 

curve. 

The Commission is of the view that ToD tariffs are more relevant in the case of BSES and 

BEST, and once BEST and BSES are in a position to charge ToD tariffs, at that time, the 

Commission will consider implementation of ToD tariffs for TPC’s consumers. At this point 

in time, neither BSES nor BEST are in a position to implement ToD tariffs, as there is no 

data on the category-wise hourly consumption pattern. The Commission envisages that 

BSES and BEST shall install meters capable of recording ToD data, initially for the HT 

industrial and commercial consumers, and thereafter for the LT industrial and commercial 

consumers and compile the readings from these ToD meters. 

MERC, Mumbai 76




10.13 Franchisee System 


BSES has objected to TPC’s proposal of introducing franchisee system on the grounds that 

the “Franchisee” is not defined as a consumer under the provisions of the Electricity Act, 

2003 and the Franchisee acts on behalf of the licensee. Moreover, the supply voltage to a 

consumer and the tariff applicable, etc. has to be decided on the basis of the consumer’s load 

requirement. BSES has submitted that combining customers and treating them as one entity 

under a Franchisee should not be permitted. 


TPC has responded by stating that in the matter of introduction of franchisee system, the 

relevant provisions in the Electricity Act 2003 neither specify any conditions of supply for 

franchisees, nor do they prevent a consumer from being a franchisee and hence BSES’s 

objections are unfounded. 


The Commission is of the opinion that the Franchisee system envisaged under EA 2003 does 

not construe the creation of a new consumer category, as proposed by TPC. The Franchisee 

is defined under Section 2 (27) of the EA 2003. Therefore, TPC will have to charge the same 

tariffs that are being charged by TPC for that particular category of consumers. TPC, if it so 

desires may submit a revised Proposal for introduction of the Franchisee System in line with 

the concepts envisaged under the EA 2003. 

11 NON-COMPLIANCE WITH COMMISSION’S DIRECTIVES 


Prayas has highlighted that both TPC and BSES have not taken any action on the 

Commission’s Order dated November 1, 2002, to submit their method of charging FAC 

along with monthly details for review from August 1999. Prayas has urged the Commission 

to evaluate the reasonableness of the fuel costs and FAC charged by both Utilities since the 

Commission’s Order dated November 1, 2002, and any unreasonable or inefficient expenses 

on this account should be disallowed by reduction in the approved ARR for FY 2004-05. 

BSES has stated that in its ARR Petition for FY 2003-04 and FY 2004-05, TPC has 

projected higher sales of around 20% to its existing residential consumers, while unilaterally 

MERC, Mumbai 77




reducing the amount of units required by BSES. BSES has added that TPC is clearly acting 

against the Commission’s directive restraining TPC from supplying to any new retail 

consumer having contract demand below 1000 kVA. BSES has requested the Commission to 

direct TPC not to compete with BSES on unfair basis and accordingly reduce TPC’s revenue 

attributable to consumers with load less than 1000 kVA. 


TPC has clarified that it has submitted details of the FAC calculations subsequent to the 

Commission’s Order. TPC has added that its FAC formula has been approved by 

Government of Maharashtra and is also audited by Statutory Auditors. 

TPC has clarified that the Commission has only temporarily restrained TPC from supplying 

to consumers below 1000 kVA, till a level playing field is established, but no restraint has 

been placed on network expansion and preparing for future opportunities. Thus, TPC has not 

violated the Commission’s Order. 


TPC has submitted the FAC Filings as directed by the Commission in its Order in Case No. 

16 of 2002 on FAC dated November 1, 2002. The Commission has analysed the FAC Filings 

and its findings are detailed in the Section on FAC mechanism and recovery, subsequently. 

The Commission has also not projected any additional sales to residential consumers on 

account of new consumers, in line with the Commission’s Order (in Case No. 14 of 2002) 

restricting TPC from supplying to consumers with contract demand less than 1 MVA in 

BSES’ License area. 

12 ISLANDING ARRANGEMENT IN MUMBAI 


Prayas has identified that one of the pre-requisites for the “Islanding” system to work is to 

have availability of sufficient generation within the island to separate Mumbai system from 

the Western Grid/MSEB system. Prayas has added that it is essential to continue to rely on 

TPC’s generation plants to ensure this level of reliability in Mumbai, and hence it is essential 

to have a PPA between TPC and BSES/BEST to avoid supply and commercial uncertainties. 

MERC, Mumbai 78




Prayas has requested the Commission to carefully evaluate any decision that would affect the 

present arrangements both for “Stand-By charges” and “Islanding”. 




The Commission has deliberated in detail on all these issues in its Order in Case No. 7 of 

2000, on sharing of standby charges and the dispute between TPC and BSES. The 

Commission has initiated the procedure for introduction of intra-State ABT. A Committee 

has been formed and detailed deliberations are being undertaken to specify the modalities 

involved in implementation of intra-State ABT, and to address the various related issues, 

including reliability and standby. 

13 REBATES/INCENTIVES 


The Millowners’ Association has suggested that the following incentives and disincentives 

should be introduced: 

‣ For every 1% improvement in Power Factor (PF) above 95%, an incentive at the rate of 

1% of the amount of energy bill should be given. 

‣ When the Load Factor is between 75% to 85% of the Contract Demand, a rebate of 

0.75% on Energy Charges should be given, and for Load Factor between 86% to 100% 

of Contract Demand, a rebate of 1% on energy charges for every increase of 1% in the 

load factor above 85% should be given. 

‣ Bulk discount of 1% on the energy bill per MU consumption above base level of 1 MU, 

subject to a maximum of 5%. 

‣ On the disincentive side, for the first 1% dip in PF below 90% penal charges of 2% of 

the monthly average bill, beyond which penal charges should be at the rate of 1% for 

each percentage fall in the PF below 89%. 

In its rejoinder, the Millowners’ Association, has objected to TPC’s contention that there are 

in-built incentives in the form of reduced MD charges as Power Factor improves. It has 

added that similar incentives were approved by the Commission in the case of MSEB and 

MERC, Mumbai 79




hence should also be considered for TPC. WR and CR have also demanded an incentive for 

maintaining unity power factor. 


TPC has clarified that the prevailing tariff has Maximum Demand (MD) charge on the basis 

of Rs/kVA/month and thus with the increase in Power Factor from 90% to 99%, the MD 

would reduce by approximately 10% which would result in substantial reduction in the 

monthly power supply bills. The increase in load factor also gives a benefit of lower MD 

charges /kWh. 

TPC has responded that the incentive for power factor improvement is already built into 

TPC’s tariff by way of reduction in MD charges for improved power factor.On the issue of 

Bulk Discount, TPC has stated that its Tariff proposal includes a discount of 3% on the 

Maximum Demand Charges and energy charges in respect of drawal at extra high voltage 

(100/220 kV). TPC has added that a cash discount of 1% on the basic tariff charge 

(excluding FAC, duties, taxes, etc.) is provided to the consumer. 


The Commission has introduced certain rebates/incentives and penalties in line with the 

Commission’s philosophy that has been articulated in the MSEB Tariff Order for FY 2003- 

04 in Case No. 2 of 2003. The details of incentives and penalties have been elaborated in the 

Section on Tariff Philosophy. 

14 DATA DISCREPANCY/ INSUFFICIENCY 


ECCA has stated that the information provided by TPC is inadequate to perform meaningful 

analysis. 

Prayas has analyzed the data on coal contracts for FY 2002-03 and calculated the average 

calorific value of coal as 6083 kcal/kg while the excel worksheet 

”FuelConsumptionData.xls” indicates that the average calorific value (CV) is 5125 kcal/kg. 

Prayas has requested TPC to explain this significant difference of 958 kcal/kg. 

MERC, Mumbai 80




BSES has pointed out that as per TPC’s dispatch schedule, Unit 4 is used only to meet peak 

demand whereas TPC’s ARR for FY 2004-05 shows that Unit 4 is operating at 100% PLF. 

BSES has sought TPC’s clarification on the apparent contradiction. 

ECCA and BSES have requested the Commission that TPC should not be permitted to revise 

its tariff structure, unless it provides the detailed break-up of the Capital Costs and Operating 

Expenses into Generation, Transmission and Distribution activities for each Licensee and 

other consumers. 

In its rejoinder, Prayas has requested the Commission to ensure that TPC’s submissions to 

the Government as per Schedule VI tallies with the data submitted in the ARR Petition. 


TPC has responded that it has provided separate details of its thermal and hydel generating 

stations and has also provided details of the costs of different fuels on individual thermal 

Units, and hence disagreed with ECCA’s assertion that sufficient details have not been 

provided. 

TPC has clarified that the apparent discrepancy in Calorific Value (CV) was due to 

deterioration of coal quality because of high moisture content of the order of 23-25% in the 

coal. TPC has added that though it quotes the CV of the coal received on Gross Air-Dried 

basis (GAD), the CV of the coal consumed is taken on “As Fired Basis”(AFB), and that 

AFB is always lower than GAD because of moisture content. 

TPC has stated that PLF of Unit 4 works out to 66% and there is no contradiction in TPC’s 

statements. 


The Commission has studied the various documents submitted by TPC during the course of 

the tariff process, and has attempted to reconcile the various documents to the extent 

possible, as the different sets of data have been prepared with a different objective, and do 

not have fully comparable data. The Commission directs TPC that henceforth, TPC should 

submit data that is consistent, and to minimize instances where the data submitted to the 

Commission does not tally with other submissions to the Commission or other Statutory 

Authorities. 

MERC, Mumbai 81




15 CLAIMS BY TPC ON BSES 


BSES has noted that TPC has made several claims on BSES in its Petition for FY 2003-04 

and FY 2004-05. BSES has objected to several claims and has provided point-wise 

rejoinders to each claim. The summary of the claims made by TPC on BSES and the BSES’ 

objections to the claims are summarized in this Section. 

Claim: Amount payable by BSES on account of Take or Pay Agreement based on Principles 

of Agreement (POA) signed between TPC and BSES on January 31, 1998 towards minimum 

annual guaranteed energy offtake for FY 1998-99 and FY 1999-2000. 

BSES has stated that the above claims formed a part of Case No. 7 of 2002 filed by TPC 

before the Commission, which was not admitted by the Commission vide its Order dated 

October 17, 2002, on the ground that both Parties had filed appeals, which are pending, 

before the honourable High Court against the Commission’s Order dated December 7, 2001 

in Case No. 7 of 2000. TPC went on to appeal before the honourable High Court and the 

claim was consequently dismissed by the High Court Order dated June 3, 2003. The appeal 

to the honourable Supreme Court has also been disposed of, with the issues raised being 

remanded to the Commission for disposal. 

BSES has highlighted that BSES was supposed to pay tariff for energy charges at the rate of 

Rs 1.77/kWh and the differential amount of 32 paise/kWh is liable to be paid to TPC solely 

under the agreement dated January 31, 1998. BSES has contested that TPC is trying to 

enforce its rights from the Agreement that are favorable to it while contemporaneously 

repudiating its obligation to BSES under the said Agreement. A case in point is the higher 

stand-by charge billed by TPC over and above the Rs 3.5 Crore per month specified in the 

Agreement. Based on the above grounds, BSES has argued that TPC’s claim to recover Rs. 

94 Crore on account of “Take-or-Pay” Agreement and Rs. 38 Crore on account of additional 

energy charges at 220 kV is not tenable. 

Claim: Amount payable by BSES on account of committed minimum annual guaranteed 

energy off-take from TPC for FY 2000-01, 2001-02 and 2002-03. 

BSES has stated that the above claim is without any legal foundation and/or sanctity. 

MERC, Mumbai 82




Claim: Amount payable by BSES towards Minimum Monthly Demand Charges billed (75% 

of previous 11 months MD at each point of supply) to BSES as per Clause 4.2 of the Tariff 

Schedule dated 01-12-1998 for the period December 1998 to August 2003. 

BSES has clarified that the above claim formed a part of Case No. 7 of 2000 filed by TPC 

before the Commission, which the Commission had reversed by its Order dated December 7, 

2001. TPC went on to appeal before the honourable High Court and its appeal was dismissed 

by the High Court’s Order dated June 3, 2003. Further appeal to the honourable Supreme 

Court has also been disposed of with the issues raised being referred to the Commission for 

disposal. 

BSES has clarified that the claim raised by TPC in item no. 5 and 6 arise based on the tariff 

revision notice dated September 30, 1998 issued by TPC. The tariff revision notice being 

bad in law (with effect from April 25, 1998, since Electricity Commissions Regulatory Act, 

1998 is in force and all tariff revisions are under the State Commission’s jurisdiction and not 

of any Utility), the claims raised by TPC should be rejected. 

Claim: Amount payable by BSES on account of Unilateral deduction done by BSES from 

TPC’s bill towards outstanding dues from consumers who have changed over to TPC. 

BSES has stated that the above claim formed the subject matter of Petition No. 14 of 2002 

filed before the Commission filed by BSES against TPC. The Commission disposed off the 

above claim without allowing the said claim of TPC vide its Order dated July 3, 2003 in 

reference to Case No. 14. TPC appeal before the honourable High Court was also dismissed 

as being not maintainable. TPC has now filed a writ petition challenging the Order of July 3, 

2003 but TPC has not challenged the Commission’s refusal to grant such relief to TPC. 

BSES has stated that such claim now raised by TPC in its ARR Petition is not tenable and 

hence should not be entertained by the Commission. 

Claim: Amount payable by BSES on account of Unilateral deduction done by BSES from 

TPC’s bills on Power Flow at 220kV from BSES to TPC, which is not payable by TPC as 

per POA for the period FY 1998-99 to FY 2002-03. 

Capacity charge for maintaining spinning reserve of 55 MVA on behalf of BSES @ Rs 35 

Lakh/MVA/annum for the period July 2002 to September 2003. 

BSES has responded that the above claim by TPC is a part of Petition No 3 of 2003 filed 

before the Commission by TPC and that BSES stands by its replies provided to the 

Commission dated September 22, 2003. 

MERC, Mumbai 83




15.2 TPC Response 



The Commission has issued its Final Order on Case No. 7 of 2000 on the Standby dispute 

between TPC and BSES on May 31, 2004. As the other claims and responses are part of 

other Cases pending before the Commission, the Commission has not commented on the 

same in this Order. The Commission has also issued its Order in Case No. 14 of 2002 on 

July 3, 2003, in which the Commission had directed inter-alia, that “in view of the process of 

introducing competition and choice being set in motion by this Order, it is imperative to 

restrain TPC from offering new connections to any consumer with energy requirement below 

1000 kVA (maximum demand)”. 

MERC, Mumbai 84



Commission’s Analysis & Decision 

PART III: COMMISSION’S ANALYSIS AND DECISION ON TPC’S 

PETITION 

16 SALES PROJECTIONS 

In its ARR and Tariff Petition for FY 2003-04, TPC has projected the sales in FY 2003-04, 

based on past trends. As FY 2003-04 is already over, the Commission asked TPC to submit 

data on actual category-wise sales during the year. TPC has submitted the actual sales in FY 

2003-04, which have been accepted by the Commission. 

For FY 2004-05, the Commission has projected the sales by applying the three-year 

Compounded Annual Growth Rate (CAGR) (FY 2001-02 to FY 2003-04) over the actual 

category-wise sales in FY 2003-04, except in cases where there was a substantial growth due 

to a smaller base, while TPC has used the 5-year (FY 1998-99 to FY 2002-03) CAGR. It 

should be noted that TPC’s sales mix has changed substantially in the recent past. Due to 

this, the Commission is of the opinion that the recent trends reflect the ground realities in a 

better manner, and has hence, considered the three-year CAGR as the basis for projecting the 

sales. 

It should be noted that the Commission has adopted the CAGR method to project the sales to 

different consumer categories and licensees, in view of the available data. The Commission 

is of the view that, in future, the Utilities will have to project their demand on the basis of 

more sophisticated methods of demand forecasting such as econometric modeling, which 

will ensure that the sales forecasts reflect the ground realities, notwithstanding the fact that 

any projection is forward looking and there is bound to be a difference between the actuals 

and projections. 

In the following Sections, the Commission has discussed the rationale adopted by the 

Commission for projecting the sales to each consumer category. The actual category-wise 

sales in FY 2003-04 and projected sales in FY 2004-05 have been summarised at the end of 

this Section. 

The number of consumers has been projected to remain constant at FY 2003-04 levels, since 

TPC functions primarily as a bulk supply licensee and has relatively few consumers. 

Moreover, the Commission has restricted TPC from supplying to retail consumers in BSES 

area, till a level playing field is created between the Licensees. The Billing Demand, too, has 

MERC, Mumbai 85




been projected to remain constant at FY 2003-04 levels, and has been considered at the 

average levels during FY 2003-04. 

16.1 BEST (Bulk supply) 

BEST purchases power from TPC at 22/33 kV and at 100 KV. In case of BEST, as the trend 

of category-wise sales was not available with the Commission, the Commission has 

projected the overall sales to BEST on the basis of the three-year CAGR. The Commission 

has further segregated the sales at 22/33 kV and 100 kV based on the ratio considered by 

TPC in its sales projections, in the absence of any other data submitted by TPC in this 

regard. The projected sale to BEST at 22/33 kV and 100 kV has been summarized in the 

Table below: 

Table: Projected Sales to BEST (FY 2004-05) (in MU) 

Voltage levels FY 2004-05 

ARR Petition MERC Estimate 

22/33 kV 2779 2857 

100 kV 1132 1164 

TOTAL 3911 4020 

16.2 BSES (Bulk supply) 

The Commission has projected the sales to BSES, by first projecting the sales in BSES’ 

License area, on the basis of the 5 year CAGR in sales, which has been described in detail in 

the BSES’ Tariff Order, which is being issued separately. After accounting for the 

distribution losses and generation from Dahanu Thermal Power Station (DTPS), the balance 

requirement has been considered as sale by TPC to BSES. 

BSES purchases power from TPC through seven 22/33 kV interconnection points located in 

BSES’ License area and through the 220 kV interconnection at Borivali. The Commission 

has segregated the sales at 22/33 kV and 220 kV based on the ratio considered by TPC in its 

sales projections. The projected sale to BSES at 22/33 kV and 220 kV voltage levels has 

been summarized in the Table below: 

MERC, Mumbai 86




Table: Projected Sales to BSES (FY 2004-05) 

(in MU) 



22/33 kV 2756 3067 

220 kV 300 334 

TOTAL 3056 3401 

16.3 HT Consumers 

This category has six sub-categories, viz., Government Departments, Bhaba Atomic 

Research Centre (BARC), Bombay Municipal Corporation (BMC), Captive Power Plants 

(CPPs), Others and Commercial. The Commission has analysed the past trend in sales to this 

category, which has been showing a decreasing trend from 907 MU in FY 1998-99 to 734 

MU in FY 2002-03. However, the actual sales to this category in FY 2003-04 have increased 

to 763 MU, and the Commission has assumed that the same level of sales will be achieved 

for FY 2004-05. Based on the above analysis, the Commission has projected sales of 763 

MU in FY 2004-05, which is higher than the sales of 682 MU projected by TPC in FY 2004- 

05. The break-up of the sales into the various sub-categories has not been provided by TPC 

for the past years, and therefore, the Commission has projected the sales to the various subcategories 

based on the ratio considered by TPC in its sales projections. The sales to the 

various sub-categories have been summarized in the Table below: 

Table: Projected Sales to HT Consumers (FY 2004-05) (in MU) 



HT -- Government Departments 138 154 

HT -- BARC 6 6 

HT -- BMC 50 56 

HT -- CPPs 7 8 

HT -- Others 434 485 

HT -- Commercial 47 53 

TOTAL 682 763 

16.4 HT Textiles 

The Commission has analysed the trend in sales to this category, which shows a negative 

trend as sales to this category has been reducing over the past few years. This is mainly due 

to the closure of Textile mills in Mumbai. The Commission is of the opinion that the sales to 

MERC, Mumbai 87




Textile mills will continue to reduce in FY 2004-05, and has projected sales of 312 MU in 

FY 2004-05 on the basis of the three year CAGR, which is a reducing trend, as shown in the 

Table below: 

Table: Sales to HT Textile Category 

(MU) 

Sl. Particulars FY 02 FY 03 FY 04 FY 05 

Petition Actuals Petition MERC 

1 Sales to HT 494 455 360 363 323 312 

Textile Category 

16.5 LT Single Part Tariff 

This category primarily consists of commercial and industrial consumers having Contract 

Demand less than 100 kVA, who are supplied at 440 V and consist of two sub-categories, 

viz., Commercial and Non Commercial. The actual sale to this category has shown a very 

high growth rate, due to the addition of new consumers by TPC in the recent past. However, 

the Commission has estimated that the sales to this category will grow at the rate of 10%, in 

line with TPC’s assumptions with reference to the existing consumer base. The Commission 

has not considered any additional sales due to addition of new consumers in this category 

with contract demand lower than 1 MVA, since TPC has been restrained from adding new 

consumers in this category vide the Commission Order in Case No. 14 of 2002 dated July 3, 

2003. 

In the absence of the break-up of the sales into the two sub-categories for the past years, the 

Commission has segregated the sales to the two sub-categories on the basis of the ratio 

considered by TPC in its sales projections. The projected sale to the sub-categories is 

summarized in the Table below: 

Table: Projected Sales to LT Single Part Consumers (FY 2004-05) (MU) 



LT - I Part Commercial 99 75 

LT - I Part Non Commercial 44 33 

TOTAL 143 108 

The substantial difference in the sales projections is due to the fact that the Commission has 

not considered the sales of around 44 MU (projected by TPC) on account of the increase in 

the number of consumers, due to reasons explained above. 

MERC, Mumbai 88




16.6 LT Two Part Tariff 

This category primarily comprises commercial and industrial consumers having Contract 

Demand more than 100 kVA and less than 1000 kVA and being supplied at 440 V, and has 

two sub-categories, viz., Commercial and Non Commercial. The actual sale to this category 

has shown a very high growth rate, due to the addition of new consumers by TPC in the 

recent past. However, the Commission has estimated that the sales to this category will grow 

at the rate of 10%, in line with TPC’s assumptions with reference to the existing consumer 

base. The Commission has not considered any additional sales due to addition of new 

consumers in this category with contract demand lower than 1 MVA, since TPC has been 

restrained from adding new consumers in this category vide the Commission Order in Case 

No. 14 of 2002 dated July 3, 2003. 

In the absence of data on the breakup of the sales into the various sub-categories, the 

Commission has segregated the sales to the two sub-categories on the basis of the ratio 

considered by TPC in its sales projections. The projected sale to the sub-categories is 

summarized in the Table below: 

Table: Projected Sales to LT Two Part Consumers (FY 2004-05) (in MU) 



LT II Part Commercial 118.15 116.54 

LT II Part Non Commercial 41.35 40.79 

TOTAL 159.50 157.33 

16.7 Railways 

The TPC supplies power in bulk to Railways in Mumbai for traction load, at 33/22/11/6.6 

kV and at 100 kV. The Commission has analysed the sales trend over the past years and has 

projected the sales to Railways at 780 MU in FY 2004-05 by considering the past three years 

CAGR. The Commission has segregated the sales at 33/22/11/6.6 kV and 100 kV on the 

basis of the ratio considered by TPC in its sales projections. The projected sale at 

33/22/11/6.6 kV and 100 kV to the Railways is summarized in the Table below: 

MERC, Mumbai 89




Table: Projected Sales to Railways (FY 2004-05) (in MU) 



33/22/11/6.6 kV 531 532 

100 kV 248 248 

TOTAL 779 780 

16.8 Residential 

This category consists of residential and commercial consumers, primarily located in the 

BSES License area. The actual sale to this category has shown a very high growth rate, due 

to the addition of new consumers by TPC in the recent past. However, the Commission has 

estimated that the sales to this category will grow at the rate of 10%, in line with TPC’s 

assumptions with reference to the existing consumer base. The Commission has not 

considered any additional sales due to addition of new consumers in this category with 

contract demand lower than 1 MVA, since TPC has been restrained from adding new 

consumers in this category vide the Commission Order in Case No. 14 of 2002 dated July 3, 

2003. 

The Commission has also analysed the slab-wise consumption for this category over the past 

years. The slab-wise consumption pattern has been changing over the past years, which is 

mainly due to increase in the consumers. The Commission is of the view that in such a 

situation, the most recent pattern of sales is likely to be closely reflected in the projected 

sales. The Commission has, therefore, considered the slab-wise consumption pattern for FY 

2003-04, for projecting the slab-wise consumption for FY 2004-05. The projected sale to this 

category has been summarized in the Table below. 

Table: Projected Sales to Residential Category (FY 2004-05) (in MU) 

Slab details FY 2004-05 


0-100 units 14 

101-150 units 6 

151-200 units 4 

201-350 units 8 

> 350 units (balance units) 18 

TOTAL 60 50 

MERC, Mumbai 90




The difference in the sales projections is due to the fact that the Commission has not 

considered the sales of around 8 MU (projected by TPC) on account of the increase in the 

number of consumers, due to reasons explained above. 

16.9 Sales to MSEB/other States 

The Commission has analysed the sales to MSEB and other States for the past years, based 

on data submitted by TPC. MSEB and TPC operate in an interconnected system and are 

connected at various tie points, with two-way energy flow. The energy transaction between 

MSEB and TPC during a month is settled at the end of each month, by netting the energy 

meter readings at the various interconnection points. If the net power supply in any month is 

from TPC to MSEB, then it is deemed as net power sale to MSEB and vice-versa. The 

analysis shows that power sold to MSEB has been increasing over the past years. TPC also 

sold an additional 205 MU to Madhya Pradesh State Electricity Board (MPSEB) in FY 

2003-04. The Commission has accepted TPC's sales projection of 424 MU to MSEB in FY 

2004-05, as this is in line with past trends, and based on the energy balance, which has been 

discussed in subsequent Sections. 

16.10 Total Sales 

Based on the analysis as detailed in the above Sections, the Commission has projected the 

total sales of TPC as 10015 MU in FY 2004-05. The category-wise actual sales in FY 2002- 

03, TPC’s projections as submitted in the ARR Petition, the actual sales in FY 2003-04, and 

TPC’s projections and the Commission’s projections for FY 2004-05 have been summarized 

in the following Table: 

MERC, Mumbai 91




Table: Projected Sales in FY 2004-05 

(in MU) 

Consumer Category FY 2002-03 FY 2003-04 FY 2004-05 

Actual Sales ARR 

Petition 

Actual 

Sales 

ARR 

Petition 

MERC 

Estimate 

BEST 3781 3807 3883 3911 4020 

BSES 3242 2978 3072 3056 3401 

HT Consumers 734 720 763 682 763 

HT Textiles 455 360 363 323 312 

LT 1 Part 61 90 98 143 108 

LT 2 Part 82 115 143 160 157 

Railways 736 751 757 779 780 

Residential 29 43 45 60 50 

Sales in License Area 9122 8864 9125 9115 9591 

Sales to MSEB/Other 711 494 650 424 424 

States 

Total Sales of TPC 9832 9358 9775 9539 10015 

The substantial difference in the sales projected by the Commission for FY 2004-05 vis-à-vis 

the sales projected by TPC is on account of the following reasons: 

i. The actual sales in FY 04 have been higher than that projected by TPC in its Petition, 

by 418 MU (4.5%). The higher level of sales in FY 2003-04 has been used as the base 

level for FY 2004-05 projections. 

ii. The sale to BSES is a derived number, as the difference between the total energy 

requirement and BSES’ own generation. TPC has considered a lower level of power 

purchase by BSES, though the actual power purchase has been higher than the 

projected levels in FY 2003-04. 

17 TRANSMISSION AND DISTRIBUTION (T&D) LOSSES 

In its ARR and Tariff Petition for FY 2003-04, TPC had projected a loss of 2.4%, which was 

based on past trends. As FY 2003-04 is already over, the Commission asked TPC to submit 

data on actual T&D losses. TPC has submitted the actual T&D losses in FY 2003-04, which 

have been accepted by the Commission. For FY 2004-05, TPC has projected that the T&D 

losses will remain at the same levels. 

MERC, Mumbai 92




The T&D network of TPC mainly consists of Transmission lines (EHV/HT) and a smaller 

proportion of Distribution (LT) lines. In TPC’s case, the power generating Units are located 

very close to the load centre, and the length of the transmission lines is hence quite short. 

The portion of T&D losses, which are mainly attributable to transmission losses are lower 

than that observed for other Utilities in the country, on account of these reasons. The 

Commission has analysed the data submitted by TPC in this regard, and is of the opinion that 

the projections of TPC reflect the ground realities in a better manner, and hence, accepts 

TPC's projections of 2.4% as T&D losses for FY 2004-05. 

18 ENERGY INPUT REQUIREMENT 

The total energy input requirement as proposed by TPC and as projected by the Commission 

for FY 2004-05 is as follows: 

Table: Energy Input Requirement in FY 2004-05 

(in MU) 

Consumer Category FY 2002-03 FY 2003-04 FY 2004-05 

Actual ARR 

Petition 

Actual ARR 

Petition 

MERC 

Estimate 

Sales in License Area 9122 8864 9125 9115 9591 

Sales to MSEB/Other 711 494 650 424 424 

States 

Total Sales of TPC 9832 9358 9775 9539 10015 

T&D Losses 258 248 235 235 246 

Energy Input 

Requirement 

10090 9606 10010 9774 10262 

19 EXPENDITURE PROJECTIONS 

The major head of expenditure in the case of TPC is fuel expenses for own generation, 

which accounts for around 51% of the total expenditure of TPC in FY 2004-05. As 

explained subsequently, the net power purchase by TPC from MSEB is computed on the 

basis of monthly netting of energy. The quantum of power purchase from MSEB is projected 

to be very low and accordingly, the expenditure on account of power purchase from MSEB 

is also projected to be low. The other heads of expenditure are repair and maintenance 

expenses, employee expenses, administration and general expenses, depreciation, interest, 

forex variation write-off and bad debts. The Commission has discussed the allowed 

expenditure on each of these heads and the total expenditure of TPC as approved by the 

Commission for FY 2003-04 and FY 2004-05, in the subsequent Sections. 

MERC, Mumbai 93




Several objectors have requested the Commission to examine the revenue expenditure and 

capital expenditure incurred and the revenue earned by TPC during the period FY 1999 to 

FY 2002-03, i.e., after the enactment of the ERC Act, 1998, as TPC has not filed any ARR 

and Tariff Petition during this period. However, the Commission is of the opinion that it 

would be unfair to TPC to examine and re-open the past expenditure, and determine tariffs 

accordingly. The capital expenditure would have been approved by the CEA, as per statutory 

requirements. Moreover, the capital expenditure has already been incurred and it would be 

unjust to disallow the same from the Capital Base at this stage. However, the Commission 

has assessed the prudence of the proposed capital expenditure during FY 2003-04 and FY 

2004-05. 

It should also be noted that TPC had, in fact, approached the Commission to adjudicate on 

the standby dispute in October 1999. The Commission’s decision in this matter has been 

reproduced below: 

“With reference to the above subject I am directed to inform you that the issue raised by you 

falls under Section 22(2)(n) of the E.R.C. Act for which powers are still to be vested to the 

Commission. 

In view of this you are advised to approach the State Government for settlement of dispute. 

In case your dispute is not settled and there is a need to settle through the tariff, it will be 

taken up after the MSEB’s tariff review, which is under process.” 

On account of these issues, the Commission has accepted the revenue and expenditure 

incurred/earned by TPC in past years as stated by TPC in its ARR and Petition, except for 

three specific instances, which are discussed below: 

19.1 Impact of resolution of the dispute on share of Standby Charges 

There is a long-standing dispute between TPC and BSES, regarding the sharing of the 

standby charges payable to MSEB for the standby support of 550 MVA given by MSEB to 

TPC. This dispute dates back to FY 1998-99. The Commission had issued an Order settling 

this dispute, which was subsequently held void by the honourable Supreme Court. The 

matter was, however, referred back to the Commission for fresh consideration. This was a 

separate case (Case No. 7 of 2000) before the Commission, and the Commission has issued a 

separate Order on this dispute on May 31, 2004. 

The Commission’s Order on this dispute affects the financials of both the Utilities, viz. TPC 

and BSES. Hence, the Commission is of the opinion that in this matter, restatement has to be 

done to give effect to the various parameters being affected by the Commission’s Order in 

this Case, from FY 1998-99 onwards. This has resulted in restatement of the Clear Profit of 

MERC, Mumbai 94




TPC from FY 1998-99 onwards. The impact on the Clear Profit of TPC on this account has 

been discussed in detail in a subsequent Section. 

19.2 Disallowance of capital expenditure on wind farms 

TPC has set up windmills of 17 MW in Supa in Maharashtra, which are supplying energy to 

the MSEB. TPC had also projected additional capital expenditure for setting up additional 

windmills. The Commission had earlier directed TPC to exclude the windmills from its 

operations in the License area of Mumbai, vide its Order in Case 17 (3), 3, 4 & 5 of 2002, 

dated November 24, 2003 (reference: page 83, Section 2.4.9.) The relevant paragraph has 

been reproduced below: 

“With respect to the specific request of Tata Power Company, the Commission is of the 

opinion that their wind project, should be treated as separate project and not part of the 

licensee’s business. The MSEB should allow the same options as those available to any other 

wind project developer under this Order. At the same time, Tata Power should ensure that 

any investment in wind projects should not be included as a part of Schedule VI investments 

for its licensee business.” 

Accordingly, the Commission has removed the capital expenditure on this account from the 

Capital Base, from FY 2002-03 onwards, as well as disallowed the proposed capital 

expenditure in FY 2003-04 on this account. 

19.3 Impact of the honourable Supreme Court’s ruling on the December 1998 tariff 

revision effected by TPC 

The revision in tariff undertaken by TPC through the December 1998 tariff revision vis-à-vis 

the then existing tariff had the following salient features: 

Table: Tariff revision undertaken by TPC in December 1998 

Tariff Changes n FY96 & FY98 

Demand 

Charges 

(Rs/KVA) 

FY96 

Energy 

Charges 

(p/kWh) 

Demand 

Charges 

(Rs/KVA) 

FY98 

Energy 

Charges 

(p/kWh) 

BEST 170 170 

25% of off-take 129 129 


BSES (33/22 kV supply) 170 200 



BSES (220 kV supply) 450 288 Rs. 15.125 

crore monthly 

209 

As per Principles of Agreement dt 

31.1.1998 

Rs. 3.5 crore 

per month 

MERC, Mumbai 95




However, the honourable Supreme Court has held that the tariff revision effected by TPC in 

December 1998, has no legal validity, by itself. The honourable Supreme Court, in its Order 

dated 17.10.2003, has stated that, 

“The effect of Section 29, and the Regulations framed thereunder is that it is no longer open 

to a licensee or utility to unilaterally increase the tariff. The tariff can be enhanced only 

after approval of the Commission and charging of an enhanced tariff which has not been 

approved by the Commission will amount to commission of an offence. Therefore, the notice 

to enhance the charges given by TPC, which was subsequent to the enforcement of the Act, 

can have no legal effect.” By its subsequent Order dated 09.01.2004, the honourable 

Supreme Court added the words "by itself" at the end of the last sentence quoted above. 

In the light of this judgement, TPC’s tariff revision undertaken in December 1998 has no 

legal validity, though TPC has continued to bill in accordance with the revised tariffs and 

has treated these amounts as revenue. BEST has paid in accordance with the revised tariffs 

from December 1998, while BSES has disputed the tariff revision, and has not paid the 

revised demand charges and the revised standby charges. The impact of the revision in the 

standby charges and the resolution of the dispute by the Commission, have been discussed in 

the earlier Section. 

The Commission is of the view that though the honourable Supreme Court has held that the 

tariff revision undertaken in December 1998 is invalid, the Commission cannot go back in 

time, and restate all the revenue and corresponding Clear Profit computations. As a practical 

measure, the Commission has restated the revenue considered by TPC to account for the fact 

that BSES has not paid TPC on the basis of the revised rates, though TPC has been booking 

revenue at the new rates, and has hence considered the revenue at the rates actually paid for 

by BSES, except for the standby charges, which have been decided and specified separately. 

The residential tariff that was introduced through the December 1998 tariff revision has not 

been disturbed retrospectively. The Commission has restated the Clear Profit due to the 

billing differences, which has been discussed in greater detail in a subsequent Section. 

20 VARIABLE COST OF GENERATION (FUEL COST) AND POWER 

PURCHASE COSTS 

The variable cost of generation (fuel cost) and power purchase cost comprises around 50% 

of the total estimated revenue requirement, based on past years’ data. Hence, it is important 

to ensure that power is generated and purchased strictly following the Merit Order Despatch 

philosophy while maintaining system stability. 

MERC, Mumbai 96




TPC primarily relies on its own Generating Stations for the entire requirement of power. 

TPC has a regular interchange of power with the Maharashtra State Electricity Board 

(MSEB). The Agreement for energy interchange between MSEB and TPC is such that, at the 

end of every month, the net energy flow from MSEB to TPC and vice-versa is netted of, to 

arrive at the direction of the net energy flow between the parties, and are charged 

accordingly. 

TPC’s Own Generating Stations 

The total generation capacity of TPC’s owns Generating Stations is 1,777 MW. The 

Unit/Station-wise break-up of total capacity is as follows. 

Table: Generation Capacity of TPC’s Own Generating Stations 

Unit, Station 

Capacity (MW) 

Hydel Generation Stations 

Unit 1-6, Bhira 150 

Unit 7, Bhira Pumped Storage Unit (PSU) 150 

Unit 7-11, Bhivpuri 75 

Unit 1-6, Khopoli 72 

Total Hydel 447 

Thermal Generating Stations 

Unit 4, Trombay 150 




Total Thermal 1,330 

Total TPC 1,777 

TPC, in its ARR and Tariff Petition for FY 2003-04, has estimated the total variable cost of 

generation (fuel cost) and power purchase costs for FY 2003-04 based on the actual fuel 

costs and quantum of generation for the period April 2003 to August 2003 and the estimated 

costs for the period September 2003 to March 2004. TPC has estimated the variable cost of 

generation and power purchase costs for the period September 2003 to March 2004, based 

on its estimate of despatch from the generating stations, considering the technical constraints 

MERC, Mumbai 97




of the units, outages, water levels, auxiliary consumption, heat rate, fuel availability, fuel 

consumption restriction on account of environmental norms and fuel prices. 

TPC, in its ARR and Tariff Petition for FY 2004-05, has estimated the total generation and 

power purchase costs for FY 2004-05 based on month-wise simulation of merit order 

despatch, fuel costs and the quantum of generation. 

The Commission has approved the total variable cost of generation (fuel cost) and power 

purchase costs for FY 2003-04 considering the actual variable cost of generation (fuel cost) 

and power purchase cost submitted by TPC, based on provisional submissions by TPC, as 

the performance norms achieved by TPC are within the benchmarks specified by the 

statutory Authority. 

The Commission has approved the total variable cost of generation (fuel cost) and power 

purchase costs for FY 2004-05 based on a simulation of merit order despatch, subject to heat 

rate and auxiliary consumption norms. 

20.1.1 Actual Variable Cost of Generation (Fuel Cost) and Power Purchase for FY 2003-04 

Quantum of Power from TPC’s own Stations 

TPC has generated 10,375 MU from its own Stations during FY 2003-04. The Table below 

summarises the generation from each thermal Unit/Station and hydel Station, PLF achieved 

during FY 2002-03, the gross generation and PLF projected by TPC for FY 2003-04, and 

actual gross generation and PLF achieved in FY 2003-04. 

MERC, Mumbai 98




Table: PLF and Gross Generation of Own Generating Stations 

Station FY 2002-03 (Actual) FY 2003-04 (ARR FY 2003-04 (Actual) 

Petition) 

Gross PLF Gross PLF Gross PLF 

Generation 

Generation 

Generation 

MU % MU % MU % 

Trombay 

Unit 4 899 68% 838 64% 708 54% 

Unit 5 3,813 87% 3,389 77% 3,557 81% 

Unit 6 3,223 74% 3,189 73% 3,347 76% 

Total Coal & 7,935 79% 7,416 74% 7,613 76% 

Oil Thermal 

Unit 7 1,151 73% 1,309 83% 1,426 90% 

Gas 

1,152 73% 1,309 83% 1,426 90% 

Thermal 

Hydel 

1,350 34% 1,200 31% 1,336 34% 

Stations 

Total TPC 10,437 67% 9,925 64% 10,375 67% 

As observed from the above Table, the actual generation from Unit 7 in FY 2003-04 has 

improved (in terms of PLF) as compared to the generation levels projected by TPC in its 

Petition, on account of higher availability of natural gas due to outage of RCF Thal Plant and 

ONGC LPG Plant. Actual generation from Unit 4 and Unit 5 in FY 2003-04 has been lower 

than that in FY 2002-03 on account of operation of Unit 7 at a higher PLF and consequent 

reduction in energy requirement from other units. TPC, in its Petition, has projected Hydel 

Generation of 1200 MU during FY 2003-04 and has submitted that the reduction in hydel 

generation as compared to FY 2002-03 is mainly due to reduced water level of 187.85 

Million Cubic Metres (MCM) as against the normal levels of 300 to 400 MCM. However, 

the actual hydel generation during FY 2003-04 is 1336 MU which is substantially higher 

than the hydel generation estimated by TPC, and is in line with the average hydel generation 

over the past ten years. 

Quantum of Power Purchase 

During FY 2003-04, TPC has purchased 31 MU of power from MSEB. The Commission has 

considered actual purchase from MSEB while determining the ARR for FY 2003-04. 

MERC, Mumbai 99



Table: Estimate of Power Purchases 


(MU) 

FY 2003-04 

ARR Petition 

MERC Approval 

Estimate of Power Purchase from MSEB 81.0 30.6 

20.1.2 Generation and Power Purchase Estimation for FY 2004-05 

The Commission has projected the generation and power purchase from various 

stations/sources for FY 2004-05 based on a simulation of merit order despatch in order to 

minimize the cost of generation and power purchase. 

The step-wise methodology adopted by TPC for estimating energy input and for carrying out 

the merit order dispatch simulation is as follows: 

i) Estimation of Annual and Month-wise Consumption. 

ii) Estimation of Total Energy Requirement based on Consumption and T&D Loss levels. 

iii) Energy Availability Projections that provides the maximum possible extent of generation 

from each Unit/Station considering outage schedule, fuel availability and restriction on 

fuel consumption. 

iv) Merit Order Stack Up based on the variable cost of generation or power purchase for 

each Unit/Station. 

v) Estimation of month-wise Generation and Power purchase from each Station/Source 

considering the consumption, energy availability, Merit Order Stack Up and backing 

down limit. 

vi) Estimation of Total Energy Input Projections based on monthly Generation and Power 

Purchase Schedule. 

The Commission has broadly accepted the methodology proposed by TPC for estimating the 

Generation and Power Purchase Costs which is based on the merit order despatch 

simulation. 

Merit Order Dispatch Simulation 

The Commission has carried out the merit order despatch simulation in four modules in a 

manner similar to the one done by TPC with some change in principles. The methodology 

and the principles adopted by the Commission for carrying out merit order despatch 

simulation for optimisation of total variable cost of generation and power purchase cost for 

FY 2004-05 are deliberated in this Section. The Commission has specified the operational 

MERC, Mumbai 100




and fuel parameters such as heat rate, auxiliary consumption, fuel calorific value, fuel price 

for FY 2003-04 and FY 2004-05 in the relevant Module. 

Module 1: Demand Schedule 

TPC has provided month-wise estimates of consumption for FY 2004-05. The Commission 

has derived month-wise estimates of energy requirement by allocating the annual sales 

projected for FY 2004-05 across the months considering average month-wise distribution of 

actual consumption during the past 6 years, i.e., from FY 1998-99 to FY 2003-04, and by 

adding the allowed T&D losses to the monthly projected sales. The output of this module 

provides the month-wise estimated energy requirement of the system. 

Module 2: Availability Schedule 

In this Module, the maximum possible generation from each Unit/Station during every 

month has been projected considering various factors. 

TPC’s Thermal Units 

The maximum possible generation during every month from TPC’s thermal Units has been 

estimated based on the ‘ability to generate’ factor for each Unit and after factoring the 

planned outages during the respective month. The computation of the ability to generate for 

the Unit takes into account various factors such as fuel availability and restriction on fuel 

consumption due to environmental norms. 

TPC has submitted that forced outages are not considered while estimating the availability 

figures as the instances of forced outages are very less in TPC system. TPC has provided the 

following information on availability of the Thermal Units over the past 5 years for the 

period, i.e. from FY 1999-00 to FY 2003-04: 

Table: Availability of Thermal Units over the period FY 1999-00 to FY 2003-04 (%) 

Unit, Station FY 1999-00 FY 2000-01 FY 2001-02 FY 2002-03 FY 2003-04 

Unit 4, Trombay 71.4% 72.7% 83.3% 89.8% 98.2% 

Unit 5, Trombay 87.1% 96.5% 86.8% 96.3% 93.2% 

Unit 6, Trombay 99.5% 89.9% 98.6% 90.6% 99.97% 

Unit 7A, Trombay 80.7% 69.5% 93.3% 92.3% 97.3% 

Unit 7B, Trombay 76.0% 65.1% 92.0% 86.4% 

MERC, Mumbai 101




TPC has further submitted that the present availability of gas is between 0.75 to 0.8 

MMSCMD even though the contract with GAIL is for 1.5 MMSCMD. TPC has submitted 

that the average gas supply in the first half of FY 2003-04 was 0.82 MMSCMD (equivalent 

to 575 MT/day). For FY 2004-05, TPC has considered average gas availability of 560 

MT/day on the basis of declining trends in gas availability over the period FY 1998-99 to FY 

2003-04. 

The Commission has projected the ‘ability to generate’ factor based on the planned outages, 

past availability and other factors such as partial availability of natural gas. The Commission 

has considered the planned outages for FY 2004-05 based on the details provided by TPC. 

Based on TPC's submission, the Commission has not factored in the impact of the Forced 

Outages while estimating the ‘ability to generate’ factor. 

The Unit-wise ‘ability to generate’ factor projected by TPC and as approved by the 

Commission is summarised in the following Table: 

Table: Ability to Generate of Own Thermal Generating Units for FY 2004-05 

Ability to Generate Factor 

Unit, Station ARR Petition MERC Approval 

Unit 4, Trombay 0.6616 0.9452 

Unit 5, Trombay 1.0000 1.0000 

Unit 6, Trombay 0.8904 0.8904 

Unit 7, Trombay 0.7592 0.7592 

TPC’s Hydro Stations 

TPC has estimated generation from hydel stations at 1,200 MU FY 2004-05 based on the 

present monsoon trend and other factors. TPC has pointed out that the hydel capacity is 

primarily used for meeting the peaking requirements of TPC consumers, but is constrained 

by water availability and irrigation and drinking water requirements. TPC has further 

highlighted that the water levels at the beginning of FY 2003-04 was only 187.85 MCM as 

against the normal levels of around 300 to 400 MCM. Further, the Irrigation department has 

requested TPC not to generate power at Bhivpuri during monsoon months, so that the water 

could be stored and utilized in the dry season. 

While estimating the hydel generation for FY 2004-05, the Commission has analysed past 

trends in hydel generation, water inflow and water levels. TPC has submitted the following 

information on actual hydel generation over the past 11 years: 

MERC, Mumbai 102




Table: Actual Gross hydel generation over the past 11 years 

(MU) 

Station FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 

Khopoli 215 250 211 194 164 167 256 187 220 275 224 

Bhivpuri 276 310 276 230 311 218 286 255 225 277 230 

Bhira 938 775 693 752 1,109 965 1,072 708 859 798 882 

Total 1,429 1,335 1,180 1,175 1,585 1,350 1,614 1,150 1,304 1,350 1,336 

TPC has submitted information regarding water level in the lake for the past years. The 

following Table summarises the water levels at all the lakes combined for all the 3 Hydel 

Stations over past 5 years: 

Table: Water levels at the lakes for the past 5 years 

(MCM) 

Description FY 00 FY 01 FY 02 FY 03 FY 04 

Water level at the 

437 271 236 231 188 

beginning of the financial 

year 

Water Inflow 1,250 966 1,137 1,145 1,188 

Water level at the end of 

the financial year 

271 236 231 188 196 

The Commission has analysed the actual generation over the past 11 years, and has assessed 

average generation in the short-term period of 3 years to long-term period of 11 years, which 

is given in the Table below: 

Average hydel generation 

(MU) 

Average in Minimum Maximum 

Past 3 

Years 

Past 5 

Years 

Past 7 

Years 

Past 10 

Years 

Past 11 

Years 

Hydel Generation 1,330 1,351 1,384 1,336 1,346 1,150 1,614 

The average hydel generation over past 3 years to 11 years has ranged from 1,330 MU to 

1,384 MU and the actual hydel generation during past 3 years has been around 1,330 MU 

despite water content at the beginning of the year ranging from 188 MCM to 236 MCM. The 

water content at the beginning of FY 2004-05 has marginally improved to 196 MCM from 

that at the beginning of FY 2003-04. The capital investments done by TPC in the recent past 

have resulted in additional generation, which has been taken into consideration while 

projecting the generation for FY 2004-05. 

Considering the past trends and water levels, the Commission has projected gross generation 

from hydel stations for FY 2004-05 based on the past 10 years average, at 1336 MU. 

MERC, Mumbai 103




TPC's Purchase from MSEB 

TPC has submitted that purchase from MSEB is an infirm arrangement and power is 

purchased to achieve the energy balance after scheduling generation from TPC's own 

Generating Stations since the cost of purchase from MSEB is higher than the variable cost of 

TPC’s own Generating Stations. Accordingly, the Commission has considered purchase 

from MSEB for the energy balance after scheduling TPC’s own generations. 

Module 3: Merit Order Stack – Up 

In this Module, all the Units/Stations available during the period are required to be 

prioritized in “merit order”. The merit order stack up of the Units/Stations has been done 

based on the variable cost of power generation/power purchase as the fixed costs of each 

plant (will be incurred by TPC, irrespective of the actual quantum of generation or drawal of 

power from the respective station. 

Variable cost of TPC’s Stations 

TPC has projected the variable costs of its own Units by estimating the heat rate and 

projecting fuel price for FY 2003-04 and FY 2004-05. 

The Commission has considered the variable cost of TPC stations in FY 2003-04 based on 

the actual variable cost, and projected the fuel costs for FY 2004-05 based on actual average 

fuel costs in FY 2003-04 subject to heat rate norms approved by the Commission. 

Heat Rate 

TPC has projected heat rates for the thermal Units based on the trend observed in the past 

and expected loading on each Unit. TPC has stated that any change in loading of any 

generating Unit will affect the heat rate of that particular Unit. TPC has submitted the 

following information regarding heat rate of each Unit: 

Table: Heat Rate Data 

(kcal/kWh) 

Unit, Station Design heat 

rate 

Correction 

for current 

fuel 

Present 

Operating 

heat rate @ 

2003-04 

projection 

of heat rate 

2004-05 

projection 

of heat rate 

100% PLF 

Unit 4, Trombay 2400 2400 2550 2602 2602 

Unit 5, Trombay 2370 2415* 2450 2447 2447 

Unit 6, Trombay 2286 2286* 2300 2376 2376 

Unit 7, Trombay 1948 1948 1965 2019 2019 

Note: * - Current Fuels include oil in case of Units 5 and 6, whereas design heat rate was based on coal and 

gas, respectively. 

MERC, Mumbai 104




The projected heat rate for TPC’s Unit 5 and Unit 6 is lower than the CEA prescribed heat 

rate of 2500 kcal/kWh. The heat rate of Unit 4 has deteriorated substantially with respect to 

the design heat rate. The higher heat rate of Unit 7 is attributable to continuous operation of 

Unit 7 at lower PLF attributable to lower availability of natural gas. 

The heat rate for thermal units for the past period as submitted by TPC in its Petition, are at 

variance with the fuel consumption information submitted by TPC. The Commission has 

considered the past trend of heat rate based on fuel consumption data submitted by TPC. The 

Unit-wise heat rate for the past 5 years are summarised in the following Table: 

Table: Heat Rate achieved by TPC Units over FY 1999-00 to FY 2003-04 

(kcal/kWh) 

Unit, Station FY 1999-00 FY 2000-01 FY 2001-02 FY 2002-03 FY 2003-04 

Unit 4, Trombay 2,630 2,610 2,647 2,611 2,574 

Unit 5, Trombay 2,451 2,403 2,428 2,414 2,469 

Unit 6, Trombay 2,396 2,397 2,379 2,378 2,338 

Unit 7, Trombay 2,041 2,006 2,007 2,079 1,965 

Thermal Stations 2,374 2,367 2,370 2,378 2,349 

The Commission notes that actual Heat Rate of 1,965 kcal/kWh during FY 2003-04 for Unit 

7 was attributable to operation of Unit 7 at a higher PLF of 90%, consequent to higher 

availability of natural gas due to shutdown of RCF Thal Plant and ONGC LPG Plant. 

The Commission has considered the actual heat rates submitted by TPC for its Thermal 

Units while approving the heat rate. As the average heat rate for FY 2003-04 for all thermal 

Units was less than the average heat rate projected by TPC, the Commission has considered 

the actual heat rate for FY 2003-04. 

For FY 2004-05, the Commission has approved the heat rate for all thermal Units except 

Unit 7, as lower of actual heat rate achieved in FY 2003-04 and the heat rate projected by 

TPC for FY 2004-05. For Unit 7, the Commission has approved the heat rate at the level 

projected in the Petition, considering its operation at lower PLF attributable to partial 

availability of natural gas. 

The unit-wise heat rate projected by TPC for FY 2003-04 and FY 2004-05, actual heat rate 

achieved during FY 2003-04 and the heat rate approved by the Commission for FY 2003-04 

and FY 2004-05 is summarised in the following Table: 

MERC, Mumbai 105



Table: Heat Rate for TPC Stations 


(kcal/kWh) 

FY 2003-04 FY 2004-05 

ARR Actual MERC ARR MERC 

Petition 

Approval Petition Approval 

Unit 4, Trombay 2,602 2,574 2,574 2,602 2,574 

Unit 5, Trombay 2,447 2,469 2,469 2,447 2,447 

Unit 6, Trombay 2,376 2,338 2,338 2,376 2,338 

Unit 7, Trombay 2,019 1,965 1,965 2,019 2,019 

Thermal Total 2,372 2,349 2,349 2,380 2,349 

Fuel Calorific Value and Fuel Price 

While submitting the projection for fuel costs, TPC has estimated Unit-wise consumption of 

primary fuels, viz. coal, natural gas and oil. TPC has clarified that estimated consumption of 

oil for FY 2004-05 includes primary fuels namely, LSHS procured domestically and 

imported Low Sulphur Waste Residue (LSWR). TPC has clarified that it has not estimated 

Unit-wise consumption of secondary fuel for FY 2004-05. TPC has submitted that it would 

not be possible to segregate consumption of primary fuel and secondary fuel while 

projecting fuel consumption for FY 2004-05, as Units are capable of being fired on multiple 

fuels including liquid fuel. Instead, TPC has estimated cost of secondary fuel under the head 

of “cost of minor fuel”. 

As mentioned in the earlier Section, the Commission has approved the heat rate considering 

heat rate of the past years based on unit-wise fuel consumption data for the period from FY 

1996-97 to FY 2002-03, which includes consumption and heat content of both, primary and 

secondary fuels. 

Hence, the Commission has considered the oil basket comprising LSHS, LSWR, Fuel Oil, 

HSD and Kerosene which includes both the primary as well as secondary fuels including 

minor fuels for the purpose of estimation of fuel consumption for FY 2004-05. However, for 

FY 2003-04, TPC has clarified that actual consumption of oil indicated is provisional and 

includes consumption of LSHS, LSWR and Fuel Oil. Accordingly, the Commission has 

considered the oil basket comprising LSHS, LSWR and Fuel Oil for FY 2003-04. 

The Commission has considered calorific value of fuel for FY 2003-04 based on average 

actual calorific value. The Commission has considered calorific value of fuel for FY 2004- 

05 based on TPC’s submission after considering past trend of average actual calorific value. 

Fuel-wise calorific value submitted by TPC, actual calorific value for FY 2003-04 and 

calorific value considered by the Commission for FY 2003-04 and FY 2004-05 is 

summarised in the following Table: 

MERC, Mumbai 106




Table: Calorific Value of Fuels used by TPC 

Natural 

Gas 

(kcal/kg) 

Coal 

(kcal/kg) 

Oil* 

(kcal/kg) 

Fuel Oil 

(kcal/kg) 

HSD 

(kcal/L) 

SKO 

(kcal/L) 

FY 2003-04 FY 2004-05 

ARR Actual MERC ARR MERC 

Petition 

Approval Petition Approval 

13,000 12,911 12,911 13,000 13,000 

4,700 4,699 4,699 4,750 4,750 

10,500 10,527 10,527 10,500 10,500 

Not 

indicated 

separately 

Not 

indicated 

separately 

Not 

indicated 

separately 

Consider 

ed under 

‘Oil’ 

Considered under 

‘Oil’ 

Not indicated 

separately 

8,845 8,845 Not indicated 

separately 

8,845 8,845 Not indicated 

separately 


‘Oil’ 


Oil 


Oil 

* Oil includes LSHS, LSWR and Fuel Oil for FY 2003-04. Oil includes LSHS, LSWR, Fuel Oil, HSD and 

SKO for FY 2004-05. 

TPC has submitted that it has estimated landed price of fuel based on recent developments in 

fuel prices, custom duties and other government regulations, exchange rates and freight 

rates. TPC has projected the price of natural gas considering the impact of withdrawal of 

administered price mechanism for natural gas pricing. 

TPC imports its entire coal requirement. TPC has a long term Contract for importing coal 

valid upto August 31, 2006. TPC imports its balance requirement of coal from the spot 

market. TPC has projected price of coal by projecting FOB price, freight component, local 

handling charges and taxes/duties, while price of oil has been projected considering 

international trends in oil price and discounts available to TPC from Indian Refineries. 

While projecting fuel price, the Commission has analysed the past trend in fuel price. The 

following Table summarises the trend in fuel price over the past 5 years’: 

MERC, Mumbai 107




Table: Trends in fuel price 

Fuel Unit FY 1999- 

00 

FY 2000- 

01 

FY 2001- 

02 

FY 2002- 

03 

FY 2003- 

04 

Natural Rs/MT 3,575 3,924 3,875 4,036 3,943 

Gas Rs/Mkcal 272 299 299 309 305 

Coal Rs/MT 2,653 3,185 3,046 2,431 2,260 

Rs/Mkcal 424 521 537 474 481 

Oil Rs/MT 7,885 10,500 9,478 11,405 11,499 

Rs/Mkcal 746 997 894 1079 1092 

The Commission notes that there has been a substantial variation in price of coal and oil in 

the recent past. The Commission also observes that TPC would be less affected by variation 

in coal price as part of coal is being purchased under the long term Contract. The 

Commission has approved fuel price for FY 2003-04 considering the actual fuel prices in FY 

2003-04. The fuel price for FY 2004-05 has been approved in terms of its heat content (i.e. 

in Rs/Mkcal), considering the actual average fuel price for FY 2003-04, projected fuel price 

by TPC and the calorific value considered by the Commission. Approval of price on heat 

content basis would also account for any variation in calorific value of fuel. The following 

Table summarises the fuel price projected by TPC, actual fuel price and the Commission’s 

approval of fuel price for FY 2003-04: 

Table: Fuel price for FY 2003-04 

Fuel ARR Petition Actual MERC Approval 

Rs/MT Rs/Mkcal Rs/MT Rs/Mkcal Rs/MT Rs/Mkcal 

Natural 4,100 315.4 3,943 305.4 3,943 305.4 

Gas 

Coal 2,400 510.6 2,260 481.0 2,260 481.0 

Oil* 11,422 1087.8 11,499 1092.4 11,499 1092.4 

HSD Not indicated separately 20,462 2313.4 20,462 2313.4 

Kerosene Not indicated separately 18,162 2053.4 18,162 2053.4 

* Oil includes LSHS, LSWR and Fuel Oil. 

The following Table summarises the fuel price projected by TPC and the Commission’s 

approval of fuel price for FY 2004-05. 

MERC, Mumbai 108




Table: Fuel price for FY 2004-05 

Fuel ARR Petition MERC Approval 

Rs/MT Rs/Mkcal Rs/MT Rs/Mkcal 

Natural Gas 4,600 353.8 3,970 305.4 

Coal 2,575 542.1 2,285 481.0 

Oil* 11,240 1070.5 11,240 1070.5 

* Oil includes LSHS, LSWR, Fuel Oil, HSD and SKO. 

The weighted average cost of fuel considered by the Commission for projecting the fuel cost 

of own generation is thus 722 Rs/Mkcal, as compared to the existing base rate of 325 

Rs/Mkcal. 

20.1.3 Variable Cost of Generation 

Based on the heat rate, calorific value, and fuel prices as discussed in earlier Sections, the 

Commission has projected the variable cost of generation for each Unit separately. The Unitwise 

variable cost per unit projected by TPC and as approved by the Commission for FY 

2004-05 is given in the following Table: 

Table: Variable cost per unit for TPC’s Units for FY 2004-05 

(Rs/kWh) 

Unit, Station Fuel ARR Petition 

VC per unit 

MERC Approval 

VC per unit 

Unit 4, Trombay Oil 2.79 2.76 

Unit 5, Trombay Coal 1.33 1.18 


Unit 6, Trombay Natural Gas 0.84 0.71 


Unit 7, Trombay Natural Gas 0.71 0.62 

Note: VC indicates Variable Cost 

20.1.4 Variable Cost of Purchase from MSEB 

TPC has submitted that the purchase cost of power from MSEB is based on single part tariff 

of Rs. 2.99/kWh. Additionally a FOCA charge is levied on this purchase. TPC has projected 

rate of Rs 3.09/kWh and Rs 3.11/kWh for purchase from MSEB for FY 2003-04 and FY 

2004-05 respectively. 

The Commission has considered actual variable cost inclusive of FOCA charge for purchase 

from MSEB for FY 2003-04. The Commission has considered currently applicable tariff for 

MERC, Mumbai 109




sale of power by MSEB to TPC for such purchase by TPC for FY 2004-05. The Commission 

has not considered FOCA charge under variable cost as the FOCA charge of MSEB will be 

considered alongwith other fuel price variation under FAC mechanism of TPC. 

Table: Variable Cost of purchase from MSEB 

(Rs/kWh) 

FY 2003-04 FY 2004-05 

ARR Petition MERC 

Approval 


Approval 

Variable Cost 3.09 3.02 3.11 2.99 

The merit order stack-up projected by TPC for FY 2004-05 is as follows: 

Table: Merit Order Stack as projected by TPC for FY 2004-05 

Unit, Station Fuel Projected VC Remarks 

for FY 2004-05 

(Rs/kWh) 

Hydel Stations None Nil 

Unit 4, Trombay Oil 2.79 Cannot be operated below about 150 

MW due to technical limitations 

Unit 7, Trombay Natural 

0.71 Subject to availability of natural gas 

Gas 

Unit 5, Trombay Coal 1.33 Cannot be operated below about 200 

MW because of technical constraints 

Unit 6, Trombay Oil 2.54 Cannot be operated below about 180 

MW because of technical constraints 

Unit 5, Trombay Oil 2.62 


Based on the variable costs projected, the merit order stack-up projected by the Commission 

for FY 2004-05 is as follows: 

MERC, Mumbai 110




Table: Merit Order Stack as approved by the Commission for FY 2004-05 

Unit, Station Fuel MERC Approval of VC for 

FY 2004-05 (Rs/kWh) 


Unit 7, Trombay Natural Gas 0.62 


Unit 5, Trombay Coal 1.18 





20.1.5 Module 4: Generation & Power Purchase Schedule 

From Module 1, the energy requirement of the system across various months of the year is 

available and from Module 2 the maximum possible generation from each Unit/Station is 

known. The Units/Stations have been arranged in order of priority under Module 3. 

While considering the dispatch of Units in the priority of merit order, backing down limits 

applicable for various units needs to be factored in. TPC has submitted that Unit 4, Unit 5 

and Unit 6 cannot be operated below 150 MW, 200 MW and 180 MW, respectively, due to 

technical limitations on operation. 

While dispatching the Units/Stations in the Merit Order, requirement and impact of 

operation of Unit 4 at 150 MW as a ‘must run’ unit needs to be examined. TPC has 

submitted that Unit 4 is required to meet the peak load in TPC system. TPC has further 

submitted that this Unit being 38 years old, frequent load variation on the Unit is not 

advisable due to technical limitations. 

TPC has submitted that Unit 5 needs to be backed down when the load requirement in TPC’s 

system is below 980 MW. The Commission observes that ‘Must Run’ status of Unit 4 

effectively limits utilization of the cheaper coal fired Unit 5 and relatively efficient Unit 6 

which fires oil. The additional burden arising of utilizing oil fired Unit 4 in place of the coal 

based Unit 5 is Rs 1.58/unit. The additional burden arising of utilizing Unit 4 in place of 

Unit 6 is Rs 0.14/unit. The sale of power to consumers other than that of Mumbai license 

region at Rs 2.5/unit by utilizing generation of Unit 4 would result in an additional burden of 

Rs 0.24/unit on its License Area consumers. 

For optimization of the variable cost of generation, the Commission has considered that Unit 

4 would not be operated while all other units are online and Unit 4 would be utilised only 

MERC, Mumbai 111




when either Unit 5 or Unit 6 is shutdown for a planned maintenance for a considerable 

period. The Commission directs TPC to enter into an alternative arrangement to purchase 

power during peak hours so as to ensure that load shedding is not required. It would be 

economical to buy part of quantity at higher rate rather than operating Unit 4 as a base load 

Station. 

It is also pertinent to note that the approval of Ministry of Power for installation of a second 

500 MW set Unit no. 6 at Trombay Thermal Power Station states that “The proposed unit 

has been approved in replacement of units 1 to 4 (3x62.5 MW + 1x150 MW). As soon as the 

proposed unit (6 th unit) comes into operation, the existing 3 units amounting to 187.5 MW 

capacity would be scrapped without fail. The 4 th unit of 150 MW capacity would be 

relegated to standby duty and operated to meet peaking requirements only when surplus gas 

is available for its operation.” 

The Commission also notes that any asset capable of generation should not remain unutilized 

while the State and Country is power deficit. TPC may explore the option of selling 

electricity generated using Unit 4 to MSEB and other States, in such a manner that there is 

no additional burden on consumers of the License Area. The Commission has considered 

generation from Unit 4 only for the period of maintenance shutdown of either Unit 5 or Unit 

6. The Unit-wise generation schedule and power purchase schedule has been estimated based 

on the above inputs and the principles of merit order dispatch. Following are the principles 

considered for merit order dispatch. 

i) The Commission has considered following Units/Stations as ‘must run’ Units/Stations: 

- Hydro stations, as their variable cost is zero 

- Unit 7 of Trombay Station, as non operation of this Unit would lead to wastage of 

cheaper natural gas. 

ii) The Thermal Units are necessarily required to run at least at a minimum level below 

which their operation becomes unstable and also requires costly oil support. The 

Commission has approved the minimum generation from Unit 5 at 200 MW (40% of the 

installed capacity) and from Unit 6 at 180 MW (36% of the installed capacity) based on 

TPC’s submission. The Commission has also considered the minimum generation from 

Unit 4 at 105 MW, considering backing down upto 70% of the installed capacity 

applicable for thermal Units, when either Unit 5 or Unit 6 are not available due to 

planned shutdown. 

The merit order stack after considering backing down limits for Thermal Units is 

summarised in the following Table: 

MERC, Mumbai 112




Table: Merit Order Stack considering backing down limits approved by the 

Commission for FY 2004-05 

Unit, Station Fuel MERC Approval of VC for FY 

2004-05 (Rs/kWh) 




Unit 5, Trombay (upto 200 MW) Coal 1.18 

Unit 6, Trombay (upto 180 MW) Oil 2.50 

Unit 4, Trombay (upto 105 MW) only Oil 2.76 

when either Unit 5 or Unit 6 is down 

Unit 5, Trombay (balance capacity) Coal 1.18 

Unit 6, Trombay (balance capacity) Oil 2.50 

Unit 5, Trombay (balance capacity) Oil 2.62 

Unit 4, Trombay (balance capacity) only Oil 2.76 

when either Unit 5 or Unit 6 is down 


From the total energy input required during the month, the generation from ‘must run’ 

stations and minimum generation from Unit 5, Unit 6 and Unit 4 (whenever operated) has 

been worked out and the balance requirement for each month is estimated. For this monthly 

balance requirement, the remaining capacities of the Units in order of priority as per merit 

order stack-up is allocated and the balance requirement is estimated. 

The outcome of this Module provides the month-wise total generation from TPC’s own 

Units/Stations and quantum of power purchase from MSEB. The month-wise generation 

from TPC’s own stations and quantum of power purchase from MSEB Stations as estimated 

by the Commission based on merit order simulation is enclosed at Appendix 4. 

Quantum of Generation from TPC’s Units/Stations 

Net generation from TPC’s Units/Stations is estimated by estimating gross generation and 

accounting for auxiliary consumption of the Units/Stations. 

Auxiliary Consumption of Unit 

The Commission notes that the auxiliary consumption of various Units are close to the 

industry norm. For FY 2003-04, the Commission has approved the auxiliary consumption of 

MERC, Mumbai 113




various Units/Stations based on actual auxiliary consumption in FY 2003-04, since actual 

auxiliary consumption is less than the Auxiliary Consumption projected by TPC in its 

Petition. 

For FY 2004-05, the Commission has approved the auxiliary consumption of Unit 4, Unit 5, 

Unit 6 and hydel Stations based on minimum of actual achieved in FY 2003-04 and as 

estimated by TPC for FY 2004-05. Auxiliary consumption of Unit 7 has been approved at 

the level of auxiliary consumption projected by TPC, as achievement of higher generation 

and consequent lower auxiliary consumption during FY 2003-04 was due to higher 

availability of natural gas attributable to shutdown of RCF Thal Plant and ONGC LPG Plant. 

The following Table summarises the actual auxiliary consumption for FY 2002-03, 

estimated auxiliary consumption in TPC’s Petition for FY 2003-04, actual levels achieved 

and Commission’s approval of auxiliary consumption for FY 2003-04, estimated auxiliary 

consumption in TPC’s Petition and Commission’s approval of auxiliary consumption for FY 

2004-05: 

Table: Auxiliary Consumption of TPC’s Units (%) 

Unit, Station FY 2002- 

03 

Actual 

FY 2003-04 FY 2004-05 

ARR 

Petition 

Actual MERC 

Approval 

ARR 

Petition 

Unit 4, Trombay 7.3% 7.9% 7.8% 7.8% 7.9% 7.8% 

Unit 5, Trombay 5.0% 5.3% 5.3% 5.3% 5.3% 5.3% 

Unit 6, Trombay 3.3% 3.4% 3.2% 3.2% 3.4% 3.2% 

Unit 7, Trombay 2.7% 2.8% 2.5% 2.5% 2.8% 2.8% 

Hydel Stations 0.6% 0.5% 0.6% 0.6% 0.5% 0.5% 

MERC 

Approval 

Quantum of Net Generation from TPC Units/Stations 

The Commission has approved total net generation of 9,979 MU for FY 2003-04 considering 

actual generation submitted by TPC. For FY 2004-05, the Commission has approved total 

net generation of 10,200 MU, considering month-wise generation based on merit order 

scheduling. The Table below summarises the gross generation, PLF and net generation as 

projected by TPC and as approved by the Commission for FY 2004-05. 

MERC, Mumbai 114




Table: Gross generation, PLF and net generation for FY 2004-05 

Station ARR Petition MERC Approval 

Gross 

Generation 

PLF Net 

Generation 

Gross 

Generation 

PLF Net 

Generation 

MU % MU MU % MU 

Unit 4, Trombay 869 66% 800 112 8.5% 103 

Unit 5, Trombay 3,808 87% 3,605 4,184 95.5% 3,963 

Unit 6, Trombay 3,028 69% 2,924 3,763 85.9% 3,641 

Total Thermal 7,705 76% 7,329 8,059 80% 7,707 

Unit 7, Trombay 1,197 76% 1,164 1,197 76% 1,164 

Gas Thermal 1,197 76% 1,164 1,197 76% 1,164 

Hydel Stations 1,200 31% 1,194 1,336 34% 1,329 

Total TPC 10,102 65% 9,687 10,592 68% 10,200 

As observed from the above Table, non operation of Unit 4 during the period when other 

Units/Stations are available online would result in improvement in utilization of Unit 5 and 

Unit 6. Operation of Unit 4 is limited for the period during which TPC has planned a 

maintenance shutdown of Unit 6. 

Estimate of Power Purchase 

TPC has estimated power purchase from MSEB as a balancing figure to achieve the 

projected monthly energy balance after scheduling generation from TPC’s own generating 

Units/Stations. The Commission has approved the power purchase from MSEB for FY 2003- 

04 based on actual power purchase details submitted by TPC. The Commission has 

estimated the power purchase requirement for FY 2004-05 based on the requirement to meet 

monthly energy balance for FY 2004-05. The following Table summarises TPC’s estimate 

and the Commission’s approval of power purchase for FY 2004-05. 

Table: Estimate of Power Purchases 

(MU) 

Estimate of Power 

Purchase from MSEB 

ARR 

Petition 

FY 2003-04 FY 2004-05 

MERC 

Approval 

ARR Petition 

MERC 

Approval 

81.0 30.6 86.0 61.5 

The Commission may consider permitting additional cost of purchase of power during peak 

hours for meeting energy requirement of License Area operations arising of shut down of 

Unit 4, through the FAC mechanism, based on evidence submitted by TPC to substantiate its 

MERC, Mumbai 115




claims. The Commission directs TPC to ensure that no load shedding is carried out in FY 

2004-05. 

Variable Cost of Generation (Fuel Cost) and Power Purchase Cost for FY 2004-05 

20.1.6 Variable Cost of Generation (Fuel Cost) 

TPC has estimated total variable cost of generation for FY 2004-05 (fuel cost) based on 

projected consumption of fuel in thermal Units based on the projected generation level, heat 

rate of the Units and restrictions on consumption of fuel. TPC has additionally estimated cost 

of minor fuel and fuel handling costs. 

Fuel Cost 

Regarding restrictions on fuel consumption, TPC has submitted that the Trombay Generating 

Station has been subjected to strict environmental norms and restrictions as it is located in an 

urban area. The revised ‘Consent to Operate’ granted to Trombay Generating Station by the 

Maharashtra Pollution Control Board on December 12, 2003 specifies the fuel pattern with a 

condition that fuel mix should be chosen in such a manner that SO 2 emissions do not exceed 

24 TPD, as given below: 

Table: Fuel consumption restriction on Trombay Generating Station 

Sr No. Type of Fuel Quantity 

1 Coal (with sulphur content of 0.10% to 0.15% 5,800 MT/day 

and ash content of 1% to 2%) 

2 Natural Gas 2,400 MT/day 

3 LSHS 3,300 MT/day 

TPC has proposed average utilization of 4500 MT/day and 5300 MT/day of coal during FY 

2003-04 and FY 2004-05, respectively. TPC has stated that Unit 5 needs to be backed down 

whenever load requirement is lower than 980 MW. TPC has added that Unit 7 (currently 

operating at 150 MW due to present gas availability) is a Must Run unit, so it is beneficial to 

operate Unit 7 at full load to ensure full consumption of available gas as gas is the cheapest 

fuel. Unit 4 and Unit 6 cannot be backed down below 150 MW and 180 MW, respectively, 

due to technical constraints. Therefore, whenever system load drops below 980 MW, Unit 5 

is backed down thereby restricting coal firing to the maximum permissible limits. 

Accordingly TPC has proposed average coal utilization of 5300 MT/day. 

MERC, Mumbai 116




The following Table summarises total fuel consumption and fuel cost as projected by TPC 

for FY 2003-04: 

Table: Fuel Cost projection by TPC for FY 2003-04 

Quantity Heat Content Fuel price (only for 2 nd 

half of FY 2003-04) 

Fuel cost 

’000 MT Gkcal Rs/Tonne Rs/Mkcal Rs Crore 

Natural Gas 212 2,765 4100 315 86 

Coal 1,416 6,548 2400 511 334 

Oil* 1,082 11,381 11422 1088 1,293 

Total fuel 20,694 1,713 

Note: 

i) Oil includes LSHS, LSWR and Fuel Oil. 

ii) Fuel Cost includes minor fuels and fuel handling costs. 

The following Table summarises total fuel consumption and fuel cost as approved by the 

Commission for FY 2003-04: 

Table: Fuel cost approved by the Commission for FY 2003-04 

Quantity Heat Content Fuel price Fuel cost 

’000 MT Gkcal Rs/Mkcal Rs Crore 

Natural Gas 250 3,232 305.4 99 

Coal 1,437 6,753 481.0 325 

Oil 1,068 11,239 1092.4 1,228 

HSD (kL) 51 0.4 0.1 

SKO (kL) 1,024 9 1.9 

Total fuel 21,234 1,653 

Note: Oil includes LSHS, LSWR and Fuel Oil. 

The Commission has estimated the total fuel costs for FY 2004-05 in line with the estimation 

of generation based on the merit order dispatch, estimation of fuel consumption subject to 

heat rate, and auxiliary consumption norms. 

The Commission has deliberated upon the impact of operation of Unit 4 which results in the 

backing down of Unit 5 and Unit 6 in earlier Section. For assessing the restriction on usage 

of coal for FY 2004-05 arising due to backing down of Unit 5, the Commission has analysed 

the data on actual hourly generation and load requirement submitted by TPC. For FY 2004- 

05, the Commission has simulated the merit order dispatch schedule after shutting down 

MERC, Mumbai 117




Unit 4, considering the actual hourly load requirement, hydel generation, generation from 

Must Run Unit 7 and backing down limit of Unit 5 and Unit 6. The simulation of merit order 

dispatch in the above manner has resulted in reduced backing down of Unit 5. Based on this, 

the Commission has estimated average utilization of coal at 5,425 MT/day. 

Projected generation for FY 2004-05 has been multiplied by the variable cost per unit as 

derived earlier in the Section “Merit Order Stack-up” to arrive at total fuel cost. The 

following Table summarises the estimated gross generation, variable cost and cost of 

generation as estimated by TPC and as approved by the Commission for FY 2004-05: 

Table: Unit-wise and Fuel-wise Fuel Cost for FY 2004-05 

Unit, Station Fuel ARR Petition MERC Approval 

Gener 

ation 

VC Fuel 

Cost 

Gener 

ation 

VC Fuel 

Cost 

MU Rs/kWh Rs 

Crore 

MU Rs/kWh Rs 

Crore 

Unit 4, Trombay Oil 869 2.79 242 112 2.76 31 

Unit 5, Trombay Coal 3,755 1.33 498 3,844 1.18 452 

Unit 5, Trombay Oil 53 2.62 14 340 2.62 89 

Unit 6, Trombay Natural 101 0.84 9 103 0.71 7 

Gas 

Unit 6, Trombay Oil 2,927 2.54 744 3,660 2.50 916 

Unit 7, Trombay Natural 1,197 0.71 86 1,197 0.62 74 

Gas 

Thermal total 8,902 1.79 1,592 9,256 1.70 1,570 

Hydel Stations None 1,200 0.00 0 1,336 0.00 0 

Total 10,102 1.58 1,592 10,592 1.48 1,570 

Note: Generation – Gross Generation, VC – Variable Cost 

The following Table summarises total fuel consumption and fuel cost as projected by TPC 

for FY 2004-05: 

Table: Fuel Cost projected by TPC for FY 2004-05 



Natural Gas 204 2,657 353.8 94 

Coal 1,935 9,189 542.1 498 

Oil 890 9,345 1070.5 1,000 

Total fuel cost 21,191 751.5 1,592 

Note: i) Oil includes LSHS, LSWR, Fuel Oil, HSD and SKO. 

ii) MT = Metric Tonnes 

MERC, Mumbai 118




The following Table summarises total fuel consumption and fuel cost as approved by the 

Commission for FY 2004-05: 

Table: Fuel cost approved by the Commission for FY 2004-05 



Natural Gas 204 2,657 305.4 81 

Coal 1,980 9,406 481.0 452 

Oil 922 9,679 1070.5 1,036 

Total fuel cost 21,742 722.0 1,570 

* Oil includes LSHS, LSWR, Fuel Oil, HSD and SKO. 

Cost of Minor Fuel and Fuel Handling Charges 

TPC has projected the cost of minor fuels including fuel handling charges, at Rs 30 Crore for 

FY 2003-04 and FY 2004-05 considering higher quantum of coal purchase and consequently 

higher handling charges. TPC has mentioned in the Petition that it would not be possible for 

TPC to estimate the secondary fuel consumption separately, as Units 4, 5 and 6 are capable 

of firing multiple fuels and consume liquid fuel as primary fuel. TPC has additionally 

submitted the data on actual secondary fuel consumption, cost of secondary fuel and fuel 

handling charges for FY 2003-04. 

As discussed in the earlier Section, the Commission has considered consumption, heat 

content and cost of minor fuels as part of Oil, a fuel basket comprising of LSHS, LSWR, 

Fuel Oil, HSD, Kerosene for FY 2004-05 which includes primary and secondary fuels. 

Accordingly, the Commission has not considered the cost of minor fuels separately for FY 

2003-04 and FY 2004-05. 

The Commission has approved the fuel handling costs for FY 2003-04 based on actual cost. 

The Commission has approved the fuel handling costs for FY 2004-05 based on past trend 

after adjusting for higher quantity of fuel usage. The following Table summarises the cost of 

minor fuels including fuel handling charges as projected by TPC and as approved by the 

Commission for FY 2003-04 and FY 2004-05: 

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Table: Cost of Minor Fuels and Fuel Handling Charges 

(Rs Crore) 

FY 2003-04 FY 2004-05 


Approval 

ARR 

Petition 

MERC 

Approval 

Cost of minor fuels and 30 (included in 10* 30 11* 

fuel handling charges cost of fuel) 

* Cost of minor fuel is included in cost of fuel in Commission’s approved cost 

Variable cost of Generation 

The total variable cost of generation from TPC’s Units/Stations as projected by TPC and as 

approved by the Commission is as follows: 

Table: Variable Cost of Generation Estimates (Rs. Crore) 

FY 2003-04 FY 2004-05 


Approval 


Approval 

Cost of fuel 1,713 1,653 1,592 1,570 

Cost of minor fuel 30 (included in 10* 30 11* 

and fuel handling cost of fuel) 

charges 

Total 1,713 1,663 1,622 1,581 

* Cost of minor fuel is included in cost of fuel in Commission’s approved cost 

20.1.7 Power Purchase Cost 

The Commission has approved total power purchase cost in FY 2003-04 based on actual 

power purchase cost from MSEB as submitted by TPC. The Commission has considered 

standby charges charged by MSEB separately and has not accounted for it under the power 

purchase cost. The Commission has estimated the power purchase cost for FY 2004-05, 

based on projected purchase for FY 2004-05 and tariff applicable for sale to TPC from 

MSEB. Estimated power purchase cost for FY 2004-05 excludes FOCA charged by MSEB, 

which shall be separately considered under the FAC mechanism of TPC. 

MERC, Mumbai 120




Table: Power Purchase Cost in FY 2003-04 and FY 2004-05 

(Rs. Crore) 

FY 2003-04 FY 2004-05 


Approval 


Approval 

Power Purchase Cost 25 9 27 18 

20.1.8 Total Variable Cost of Generation (Fuel Cost) and Power Purchase Expenses 

The total Variable Cost of Generation (Fuel Cost) and Power Purchase expenses for FY 

2003-04 and FY 2004-05 as projected by TPC and as approved by the Commission is 

summarised below: 

Table: Total Variable Cost of Generation (Fuel Cost) and Power Purchase Cost 

(Rs. Crore) 

FY 2003-04 FY 2004-05 

ARR 

Petition 

MERC 

Approval 

ARR 

Petition 

MERC 

Approval 

Total Generation Cost (Rs Cr) 1713 1664 1622 1581 

Generation Cost per unit (Rs/kwh)* 1.73 1.60 1.61 1.49 

Power Purchase Cost (Rs Crore) 25 9 27 18 

Total Generation and Power 1738 1673 1649 1599 

Purchase Cost (Rs Cr) 

Generation and Power Purchase 1.74 1.61 1.62 1.50 

Cost per unit (Rs/kWh)* 

Note: * - Based on gross generation 

20.2 Wheeling Charges 

TPC has submitted that TPC and MSEB operate in an interconnected system. They are 

connected at three tie points, viz., Trombay, Kalwa and Borivali. The power flow in any part 

of the network/power system is dependent upon the location of generation source, loads and 

the impedances in between. Accordingly, due to existing network configuration, a part of 

TPC’s generation at Trombay flows out (to MSEB) at the Trombay tie point and is received 

by TPC again at Kalwa and Borivali. MSEB levies wheeling charges for such wheeled 

power. Wheeling charge has the following two components: 

MERC, Mumbai 121




a. Fixed wheeling charge of Rs 8.05 Crore per annum 

b. Variable wheeling charge @2% of the energy sent out (wheeled) through the 220 kV 

tie points at Trombay. 

TPC has estimated wheeling of 24% of generation from Trombay through MSEB system for 

FY 2003-04 and FY 2004-05, based on actual wheeling of units in FY 2002-03. TPC has 

further submitted that the actual quantum of units wheeled from TPC to MSEB on EHV 

system is 1790 MU for FY 2003-04. 

The Commission has reviewed the past trend of wheeling charges and approved wheeling 

charges on the basis of actual wheeling charges for FY 2003-04. The Commission has 

approved wheeling charges for FY 2004-05 considering the wheeling of energy as a 

proportion of total generation based on actual proportion during FY 2003-04. The following 

Table summarises the units wheeled, and the wheeling charges as proposed by TPC and as 

approved by the Commission: 

Table: Wheeling Charges for FY 2003-04 and FY 2004-05 

(Rs. Crore) 

FY 2003-04 FY 2004-05 


Approval 


Approval 

Wheeling units (MU) 2,094 1,790 2,136 1,833 

Wheeling charges (Rs 

Crore) 

21 19 21 19 

21 FUEL ADJUSTMENT COST (FAC) 

Background 

TPC has been charging FAC component as a part of tariff to its consumers, to recover the 

variation in the fuel costs. The Commission has passed an Order dated November 01, 2002 

in the matter of Case No. 16 of 2002 pertaining to the Application filed by Prayas for review 

of Tariff being charged by TPC and BSES. In its Order, the Commission had observed that 

there are sufficient grounds to review the Fuel Adjustment Cost (FAC) charge, which is a 

‘pass through’ component of tariff, in a transparent manner (under Section 37 of the ERC 

Act, 1998), and which has changed substantially since the Commission came into existence. 

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Further, the Commission directed TPC to submit the method for charging FAC alongwith 

monthly details for review from August 1999 onwards. 

The TPC submitted the following documents, vide letter dated January 10, 2003 

• Annual Accounts for 3 financial years 1999-2000, 2000-01 and 2001-02; and 

• A note on the monthly computation of FAC along with details of Monthly FAC 

working from August 1999 to November 2002. 

In the meantime, TPC also filed the ARR and Tariff Petitions for FY 2003-04 and FY 2004- 

05. The Commission processed the FAC Filings and the ARR Petitions simultaneously, and 

obtained the following documents from TPC to enable validation of FAC recovered by TPC 

during the period August 1999 to March 2004: 

i) Annual Accounts for the FY 2002-03 and FY 2003-04 

ii) Details of monthly FAC workings for the period FY 1998-99 to FY 2003-04 

iii) Details of monthly fuel costs for the period FY 1998-99 to FY 2003-04 

iv) Details of monthly sales to various consumers for the period FY 1998-99 to FY 2003-04 

v) Schedule VI Statements submitted to GoM on annual basis for the period FY 1998-99 to 

FY 2002-03. 

TPC’s Submission on Fuel Adjustment Charges 

TPC in its submission has stated that “TPC is empowered to levy charges for energy in 

accordance with Section 23 of the Indian Electricity Act, 1910 and as per clause 3(c) of the 

said Section, Licensees in addition to charging basic charge could charge for energy 

supplied by such other method as may be approved by the State Government.” 

TPC has further submitted that they have obtained the GoM’s permission for levying tariff 

on the basis of basic fuel cost of Rs 325/Mkcal in line with the above clause and the Fuel 

Adjustment Charge is the difference between the total cost of fuel and basic cost of fuel @ 

Rs 325/Mkcal. 

21.1.1 Methodology Adopted by TPC for Computation of FAC 

TPC estimates the generation required during the year based on the annual sales projections. 

TPC has stated that around 12% of the total power generation is generated by hydro stations 

in a year with average monsoon, and the balance is generated by thermal stations. TPC has 

added that different fuels are used such that the fuel cost is optimized, considering the 

availability, emission norms. TPC has clarified that gas, coal and oil are fired in this order of 

preference, to optimize the fuel cost. 

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The salient features of the methodology adopted by TPC for computing FAC Charge levied 

on a monthly basis are as follows: 

• At the beginning of the Financial Year (in the month of April), FAC is computed 

based on prevailing fuel prices for the entire year 

• During the next month, i.e., in the month of May, FAC is computed for the balance 

11 months considering the actual fuel cost in the previous month 

• This iteration process is continued every month on a month to month basis 

• In case of significant fluctuations in fuel price, the FAC charge is smoothened to 

avoid tariff shock to the consumers 

• At the end of the financial year (March), TPC computes the FAC rate such that the 

total variation in fuel costs vis-à-vis the base fuel cost of 325 Rs/Mkcal is recovered 

fully through the FCA charge 

• TPC levies FAC to all regular consumers with the following exemptions 

- 25% of sales to BSES and BEST 

- Sale of first 100 units/month to residential consumers 

Validation of FAC Charged by TPC from FY 1999-2000 onwards 

The Commission has validated the FAC charged by TPC on a month-to-month basis over the 

period April 1999 to March 2004. The methodology adopted by the Commission for 

validating the FAC charged and the findings of the Commission are discussed in the 

following Sections: 

Detailed Vetting of FAC Computations: The Commission has checked in detail the 

computations adopted by TPC to determine the FAC to be charged on a monthly basis as 

well as the FAC actually charged by TPC in that month. The Commission has checked the 

following computations: 

- Month-wise cost of each fuel and total fuel costs 

- Month-wise variation in total fuel cost with respect to basic fuel cost 

- Month-wise sales attracting FAC considering the sales exempted for levy of FAC 

- Month-wise computation of FAC charge 

- Month-wise Total Recovery from FAC charges 

- Annual Total Recovery from FAC charges 

- Year-wise Over/Under Recovery from FAC 

MERC, Mumbai 124




The summary of the total amount to be recovered under FAC by TPC considering the 

variations in fuel prices, amount recovered by TPC under the head FAC and the underrecovery 

or over-recovery through FAC is given in the Table below: 

Table: Summary of Annual FAC Recoverable and Recovered 

(Rs Crore) 

FAC Recoverable FAC Recovered Under/(Over) Recovery 

Year TPC MERC TPC MERC TPC MERC 

1999-00 550 549 538 538 12 10 

2000-01 1019 1020 1016 1016 3 4 

2001-02 851 852 835 835 16 17 

2002-03 1060 1062 1076 1076 -16 -14 

2003-04 912 911 911 911 0 0 

It may be observed from the above Table that from FY 1999-00 to FY 2001-02, the actual 

amount recovered by TPC through FAC during the year is less than the amount recoverable 

through FAC based on the variations in fuel prices. However, during the year FY 2002-03, 

TPC has over-recovered revenue through FAC to the extent of around 1.3%. 

The Commission has also analysed the extent of over-recovery/under-recovery by TPC 

through FAC charges on a monthly basis over the period FY 1998-99 to FY 2003-04. The 

summary of monthly FAC amount to be recovered and the actual amount recovered and the 

under/excess recovery over the period FY 1999-00 to FY 2003-04 has been given in 

Appendix 5. 

The Commission observes that during some months of the Financial Year, the FAC 

recovered was less than the FAC recoverable and in some months, excess revenue was 

recovered through FAC charges. The Commission is of the opinion that this is primarily due 

to the fact that TPC charges monthly FAC in advance for the fuel costs expected to be 

incurred for the balance of the year on the basis of the prevailing fuel prices. 

Validation of Fuel Costs and Recovery from FAC based on Schedule VI Statements 

In addition to detailed vetting of month-wise FAC computations, the Commission has 

validated the total fuel costs incurred by TPC, Fuel Prices, and the corresponding FAC 

recovered by TPC in the following manner: 

MERC, Mumbai 125




- Sample Verification of Fuel Price with fuel tenders submitted 

- Validation of Total Fuel Costs indicated in FAC Statements with Fuel Costs indicated in 

Schedule VI Statements submitted periodically to the GoM 

- Validation of Recovery through FAC charges indicated in FAC statements with the 

revenue indicated against FAC charges in P&L Statements 

Based on the vetting of TPC’s computations and validation of Fuel Costs and Recovery from 

FAC charges as indicated in the Schedule VI statements, the Commission notes that the FAC 

recovered by TPC on an annual basis for each financial year is in order, and TPC has not 

recovered any excess revenue through FAC Charges. 

As regards operational efficiency parameters directly impacting the fuel costs and hence the 

FAC charges, such as Heat Rate and Auxiliary Consumption, the Commission has analysed 

these parameters for the period FY 1999-2000 to FY 2003-04 in detail in the previous 

Section and as discussed in the previous Section, the operational parameters of TPC Stations 

are well within the industry norms. 

FAC Formula to be applicable from FY 2004-05 

While estimating the ARR of TPC for FY 2004-05, the Commission has projected the fuel 

and power purchase expenses based on the current trends of the fuel prices and the power 

purchase rate for purchase from MSEB as specified in the Commission’s latest Tariff Order 

in Case No. 2 of 2003 for MSEB for FY 2003-04. The detailed methodology for projecting 

the fuel and power purchase expenses of TPC for FY 2004-05 has been elaborated in the 

previous Section. As the Commission has considered current fuel and power purchase prices 

while approving the ARR and tariffs, the existing FAC charge has effectively been merged 

with the basic energy charge approved by the Commission and thus, the FAC is zero, as on 

date. The Commission has also modified the methodology to be applied for charging the 

FAC, in line with the overall approach used for determining the FAC Formula for MSEB. 

However, under the EA 2003, only the variation in fuel costs and variable cost of power 

purchase, which is again linked to the fuel cost, are recoverable under the FAC mechanism. 

Hence, the Commission has restricted the coverage of the FAC Formula to recovery of 

variation in fuel costs and variable cost of power purchase. 

The variation in the fuel and power purchase costs over and above the fuel prices and power 

purchase rate considered by the Commission in this Order, subject to operational norms and 

merit order dispatch criteria, will be allowed to be recovered through the FAC mechanism. 

MERC, Mumbai 126




Before discussing the formula for levying FAC charges, the Commission would like to 

elaborate on the following key components of the FAC formula: 

Applicability of FAC Charge: 

As per the existing methodology, the FAC is applicable on sale to regular consumers with 

the following exemptions: 

- 25% of Sale to BSES and BEST 

- First 100 units/month of sale to residential consumers 

The Commission would like to clarify that the FAC charge is levied to recover/refund the 

variation in the fuel and power purchase costs being incurred by the Licensee for supplying 

power to various consumers. By exempting certain proportion of consumption for some of 

the consumers, the burden of variation in fuel costs equivalent to that proportion of 

consumption is being passed on to other consumers which is against the principles of tariff 

rationalization and reduction in the cross subsidy. Therefore, the Commission has decided 

that the FAC charge should be applicable on the entire sale of the Licensee without any 

exemption to any consumer including the Licensees, as is the practice being followed by the 

Commission in case of MSEB. 

Methodology for Estimating FAC: 

As per the existing methodology, the FAC is being computed for the entire/balance period 

during the year, and charged for the future period based on prevailing fuel charges 

As stated earlier, the existing FAC has been merged with the basic tariff as the Commission 

has considered the prevailing fuel and power purchase prices. Therefore, the FAC should be 

computed and charged on the basis of actual variation in fuel costs during the month, once 

the fuel costs are incurred and not on the estimated fuel costs for the future period. 

Approval of FAC charge: 

The TPC will be required to obtain post facto approval of the Commission on a quarterly 

basis for the FAC charged. For this purpose, TPC should submit the details of FAC incurred 

and FAC chargeable from all consumers for each month in that quarter, alongwith the 

detailed computations and the supporting documents for verification by the Commission. 

However, after the issuance of this Order, whenever the FAC charge is being levied by TPC 

for the first time on the basis of the formula and principles approved in this Order, the TPC 

would obtain the prior approval of the Commission before levying FAC charge. 

MERC, Mumbai 127




Cap on Monthly FAC Charge 

The Commission is of the opinion that in order to avoid sudden tariff shock to consumers, it 

is essential to cap the FAC chargeable to the consumer during the month. The total FAC to 

be charged to the consumers during any year should not exceed 10% of the variable 

component of tariff or increase in Consumer Price Index (CPI) in a similar period, whichever 

is lower. In case, the FAC chargeable during any month exceeds any of these limits, then the 

Licensee will carry forward the variation in costs and recover through FAC charge in the 

future period. 

Approved FAC Formula: 

The FAC formula approved by the Commission for levying FAC charges for any variation in 

fuel and variable cost of power purchase vis-à-vis the fuel and power purchase costs 

approved by the Commission in this Order is as follows: 

FAC (A) = C + I + B where, 

FAC (A) = Total Fuel Cost and Power Purchase Cost Adjustment 

C = Change in cost 

I = Interest on Working Capital 

B = Adjustment Factor for over-recovery/under-recovery 

The calculation of FAC to be charged for the month ‘j’, will be 

A j-2 = C j-2 + I j-2 + B j-2 

The subscript ‘j-2’ shows that the FAC would be applicable from the month after the month 

in which the additional costs are calculated. Thus, increase in costs in May (month j-2) 

would be calculated at the end of the month of June (month j-1) and would be included in 

the FAC applicable for the month of July (month j). 

The Change in costs ‘C’ would include change in the following expenses heads: 

C = A vc, gen + A vc, pp, where 

A vc, gen = Variable cost of own generation 

A vc, pp = Variable cost of power purchase 

MERC, Mumbai 128




The change in variable cost of own generation and variable cost of power purchase should be 

considered in FAC computations, subject to operational norms, i.e., station-wise Heat Rate 

and Auxiliary Consumption approved by the Commission, Station-wise generation including 

generation from hydel stations and adherence to Merit Order Despatch Principles in line with 

the Principles approved by the Commission in this Order. 

‘I’ is the Working Capital Interest at actuals and will be allowed only if it is actually 

incurred and is within the limits specified by the Commission. 

The Adjustment for over-recovery/under-recovery ‘B’, should be calculated as: 

B j-2 = [(A j-4 - R j-2 )], where 

A j-4 = Incremental cost in month j-4 

R j-2 = Incremental cost in month j-4 actually recovered in month j-2 

Calculation of FAC per unit 

The total FAC recoverable, as per the formula discussed above should be recovered from the 

actual sales in that period in Rs/kWh terms. If the T & D loss of TPC is higher than the T & 

D loss level approved by the Commission, then the amount of FAC corresponding to the 

excess T & D loss in units will be deducted from the total FAC recoverable. The balance 

FAC amount will be recovered from the consumers in the following manner: 

FAC kWh = (Total FAC in Rs. Crore) * 10 

Energy Sales + Excess T&D loss 

FAC kWh = FAC in Rs/kWh 

Energy Sales = Actual energy sold in MU 

Excess T & D loss = Excess T & D loss inMU 

= Energy Input – Energy Sales - (T&D app * Energy 

Input), where 

T&D app = T & D loss level approved by the Commission in the 

Tariff Order, in % 

MERC, Mumbai 129




Energy Input = Total energy input, i.e., the sum of total net energy 

generated and energy purchased 

Note: The factor of 10 appears in the formula, on account of the conversion of FAC in Rs. 

Crore to Rs. Million, to get FAC per unit (FAC kWh ) 

22 OTHER HEADS OF EXPENDITURE 

22.1 Employee Expenses 

TPC has projected employee expenses of Rs. 194.11 Cr in FY 2003-04 and Rs. 171 Cr in FY 

2004-05. The TPC has not submitted the actual expenditure in FY 2003-04 and has stated 

that actual expenditure amounts can be submitted only after the Audit and Board approval of 

the accounts. The Commission has, therefore, analyzed the expenditure projected by TPC in 

its ARR and Tariff Petition for FY 2003-04 and FY 2004-05 and projected the expenses 

based on past trends and the Commission’s assessment of the prudence of the same. 

TPC has projected employee expenses under the heads of (i) salaries and wages, (ii) staff 

welfare, and (iii) terminal benefits. The Commission has combined the first two heads 

together for the purposes of analysis, as these are inter-linked. TPC has submitted that there 

has been a wage revision in FY 2003-04 and the employee expenditure has correspondingly 

increased on this account. The employee expenses for FY 2003-04 includes a provision of 

Rs. 35.11 Cr for wage settlement, which includes the impact of wage revision due from 

January 2002 onwards, which the Commission has accepted. The Commission has calculated 

the cost per employee for the past years based on data submitted by TPC, and the 4-year 

CAGR which is equivalent to the period of one wage settlement. For FY 2003-04, the 

Commission has estimated the employee expenditure based on the expected number of 

employees and the projected per employee cost, which have been projected based on the 4- 

year CAGR. For FY 2004-05, the employee expense has been projected on the same basis 

after factoring the effect of increase in costs due to the wage revision. 

TPC had also proposed to implement Voluntary Retirement Scheme (VRS) in FY 2003-04, 

and had projected a total expense of Rs. 24 Cr (based on 200 employees opting for the VRS). 

TPC has recently submitted that the VRS scheme was not implemented in FY 2003-04 and is 

proposed to be implemented in FY 2004-05. TPC has not submitted the detailed cost benefit 

analysis for the VRS. The normal accounting practice in case of VRS is to amortize the 

expense over three years. The Commission has accordingly allowed the VRS expenditure 

and has amortized the expense over three years, starting from FY 2004-05 and will provide 

MERC, Mumbai 130




for holding cost in future years. No expense on this account has been considered in FY 2003- 

04, as the VRS scheme has not been implemented. 

The total employee expenditure allowed by the Commission in FY 2003-04 and FY 2004- 

05, and the actual employee expenditure incurred by TPC in FY 2002-03 is presented in the 

following Table: 

Table: Employee Expense from FY 2002-03 to FY 2004-05 

(Rs. Cr) 

Particulars FY 2002-03 FY 2003-04 FY 2004-05 

ARR 

Petition 

MERC 

Approval 

ARR 

Petition 

MERC 

Approval 

Salary, wages, Staff welfare 96.96 105.00 97.28 133.00 109.87 

expenses, etc. 

Terminal Benefits 27.72 30.00 28.71 38.00 28.12 

Provision for Wage 

35.11 35.11 

Settlement 

VRS Expenses 24.00 0.00 8.00 

TOTAL 124.68 194.11 161.10 171.00 145.99 

22.2 Administration and General (A&G) Expenses 

TPC has submitted data for past years and projections for FY 2003-04 and FY 2004-05 in 

various heads under "Administration and Other expenses" and "Operation and Maintenance 

expenses". The Commission has reclassified the various expense heads into "Administrative 

and General expenses", "Repairs and Maintenance expenses" and “Provision for Bad Debts” 

as per conventional accounting principles, and projected the expenses accordingly. 

Based on the classification of expenses as mentioned above, TPC has projected A&G 

expenses of Rs. 95 Cr in FY 2003-04 and Rs. 106 Cr in FY 2004-05. The Commission has 

analysed the past expenses and has projected the expenses for FY 2003-04 and FY 2004-05, 

based on various submissions and clarifications provided by TPC in this regard. The 

Commission has accepted the A&G expenses projected by TPC, except in the case of rates 

and taxes, where the Commission has projected the expenditure on the basis of the average 

expenditure over the past five years, as the Commission’s analysis shows that TPC has been 

over-provisioning for these expenses in the past and writing back certain amounts later. The 

MERC, Mumbai 131




total A&G expense allowed by the Commission for FY 2003-04 and FY 2004-05 and actual 

expenditure incurred by TPC in FY 2002-03 is presented in the following Table. 

Table: A&G Expense from FY 2002-03 to FY 2004-05 

(Rs. Cr) 


ARR MERC ARR MERC 

Petition Approval Petition Approval 

Rent, rates, Insurance etc. 4.31 4.00 4.00 5.00 4.00 

Cost of services procured 11.42 11.00 11.00 12.00 11.00 

Amount w/off Misc. exp. 9.75 10.00 9.75 11.00 9.75 

Adj. in respect of previous years 5.81 0.00 0.00 

Others (Tata brand equity fees, 28.57 24.00 24.00 26.00 25.04 

legal expenses, statutory audit, 

computer charges, etc.) 

Rental of land, buildings etc. 8.78 8.00 8.00 9.00 9.00 

Rates & Taxes (3.85) 24.00 10.06 27.00 10.06 

Insurance 14.18 14.00 14.00 16.00 14.00 

Total 78.97 95.00 80.81 106.00 82.85 

22.3 Repairs and Maintenance (R&M) Expenses 

As mentioned in the above Section, the data submitted by TPC has been rearranged under 

different heads and the Commission has analysed the past data accordingly. 

TPC has projected R&M expenses of Rs. 108.41 Cr for FY 2003-04 and Rs. 118.35 Cr for 

FY 2004-05, which is about 3% of the Gross Fixed Assets (GFA) at the beginning of the 

year. The Commission is of the opinion that R&M expense to the extent of 3% of the 

Opening GFA is permissible and necessary for a system of this size. The total R&M expense 

allowed by the Commission for FY 2003-04 and FY 2004-05 and actual expenditure 

incurred by TPC in FY 2002-03 is presented in the following Table. 

MERC, Mumbai 132




Table: R&M Expense from FY 2002-03 to FY 2004-05 

(Rs. Cr) 


Petition MERC Petition MERC 

R&M Expenses 102.41 108.41 106.86 118.35 107.77 

Restated Opening level of GFA 3510.71 3647.13 3562.13 3,770.68 3592.32 

R&M as % of Opening GFA 2.92% 2.97% 3.00% 3.00% 3.00% 

22.4 Depreciation Expenses 

TPC has projected depreciation expenses of Rs. 186 Cr for FY 2003-04 and Rs. 171 Cr for 

FY 2004-05. The average depreciation rate has been steadily declining from 6.65% in FY 

1997-98 to 5.96% in FY 2002-03. The average depreciation rate projected by TPC for FY 

2003-04 and FY 2004-05 is 5.1% of Opening GFA and 4.5% of Opening GFA, respectively. 

TPC has been providing for depreciation on straight-line basis by applying the depreciation 

rates prescribed in the notification issued by the Ministry of Power, Government of India, in 

March 1994. TPC has included depreciation related to the Wind Project in Supa in FY 2002- 

03 and FY 2003-04. Based on the Commission’s directive, the TPC has excluded the 

depreciation related to Wind Project in FY 2004-05. 

The Commission has approved the depreciation in FY 2002-03 and FY 2003-04 as projected 

by TPC, except for disallowance for depreciation on windmills. The Commission has 

analysed the capital investments proposed by TPC in FY 2003-04 and FY 2004-05, and has 

projected depreciation for FY 2004-05, on the basis of the restated Opening GFA, in line 

with the capital investments approved for FY 2003-04. The analysis of the capital 

investments has been discussed in the next Section. 

The Table below summarises the Depreciation allowed by the Commission for FY 2002-03 

to FY 2004-05. 

Table: Depreciation for FY 2002-03 to FY 2004-05 

(Rs. Cr) 


ARR 

Petition 

MERC 

Approval 

ARR 

Petition 

MERC 

Approval 

Depreciation 204.00 185.86 185.86 171.00 171.00 

Disallowed Depreciation 

relating to Wind Project 

6.75 6.75 

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22.5 Capital Expenditure 

A number of objections have been raised by respondents on the capital expenditure incurred 

in the past years, and the proposed capital expenditure by TPC. TPC has responded with 

certain additional data and clarifications. The Commission has gone through the various 

documents on the subject, and has approached the issue in the following manner. 

The Commission has taken serious note of the fact that TPC did not approach the 

Commission for prior approval of its capital expenditure, even after constitution of the 

Commission. The Commission rules that in future, any Capital Expenditure incurred by the 

Company without the Commission’s approval as per the prevalent rules and regulations, will 

not be allowed as a part of Capital Base for computation of Reasonable Return. 

Many respondents have objected to the purchase of a helicopter by the Company. However, 

the Company has defended the same on the ground that the helicopter is required to provides 

easy and quick access to the Hydel generating stations located in remote areas and also aids 

in aerial surveillance of the transmission lines. The Commission is of the opinion that prima 

facie, this investment does not make enough economic sense. However, in line with the 

Commission’s overall philosophy, the Commission has refrained from examining the past 

capital expenditure in detail. The Commission directs TPC to maintain a log of the usage of 

the helicopter and recover the usage charges based on the market rates in case of usage for 

purposes other than the licensed business of TPC in Mumbai. Such income should be treated 

as Other Income for the purpose of ARR computation. Alternatively, TPC could dispose off 

the helicopter, and hire the helicopter as and when required, as this will reduce the burden on 

consumers. 

Another issue that has been debated at length is the allocation of the network cost 

specifically developed for BEST and BSES to the respective Utility. Despite repeated 

requests, TPC has not submitted this data and has stated that the infrastructure cost incurred 

by the Company is not segregated between different end-users as its generation plants and 

transmission/distribution network operate as an integrated system having significant interlinkages 

and are run as a single system for all consumers in its license area. In the absence of 

the requisite data, the Commission has not been able to compute the respective categorywise 

cost-to-serve. However, the Commission is of the opinion that this data has to be 

maintained, as the Commission and the consumers have the right to know the cost incurred 

to supply to each category, and how these costs are being recovered. The Commission 

directs TPC to submit this data within the next two months, after the issue of this Order, as 

MERC, Mumbai 134




sufficient time has already been given to TPC. Initially, TPC may submit the allocated cost 

data for the two Licensees, viz. BSES and BEST, and later on, for other consumer 

categories. 

As discussed earlier, the Commission has not gone into the details of the past Capital 

Expenditure except for the wind mill project which was implemented in FY 2001-02. This 

has been excluded as it does not form a part of TPC business in the license area. The 

Commission presumes that TPC has obtained the approval of the CEA, which is the statutory 

technical Authority, for all its capital expenditure schemes since FY 1997-98 onwards, in 

accordance with the provisions of the prevailing Acts. The Commission directs TPC to 

submit copies of the CEA clearances for its various capital expenditure schemes over the 

period FY 1997-98 onwards, to the Commission. It should be noted that the Commission has 

not approved the past capital expenditure. The Commission is of the view that all capital 

expenditure costing more than Rs. 10 crore will require the approval of the Commission, as 

any capital expenditure increases the Capital Base and consequently the Reasonable Return, 

thus affecting the tariff to the consumers. The Commission will issue guidelines for 

submission of the requisite data to the Commission for approval of the future capital 

expenditure, through the Tariff Regulations that are being issued separately by the 

Commission. The Commission’s views in this regard, have already been discussed in an 

earlier Section. The Capital Base from FY 2001-02 onwards, has been adjusted accordingly. 

22.5.1 Proposed Capital Expenditure for FY 2003-04 

The Licensee has projected capital investment of Rs. 425.00 crore for FY 2003-04. The 

broad categories under which these capital expenditure is proposed is given in the Table 

below: 

Table: Capital Expenditure Proposed by TPC in FY 2003-04 

(Rs. Crore) 

Category 

Amount of expenditure 

Expansion 202.00 

Competitiveness/increasing efficiency and productivity 51.00 

Sustenance of production/generation 138.00 

Miscellaneous and statutory requirements 10.00 

Minor schemes 24.00 

Total 425.00 

MERC, Mumbai 135




The summary of the proposed schemes with total costs, investments incurred till March 31, 

2003, and the proposed investment for FY 2003-04 are given in the Table below: 

Table: Break-up of proposed Capital Expenditure in FY 2003-04 

(Rs. Crore) 

Description Total Cost Expenditure 

till March 31, 

2003 

Proposed 

expenditure in 

FY 2003-04 

3X24 MW units at Khopoli and 3 255.00 242.00 3.00 

X 24 MW units at Bhivpuri 

Khopoli Penstock and tunnel 170.00 78.00 48.00 

Strengthening at Shriwata and 101.00 25.00 47.00 

Walwhan Dam 

Kundli Pumping Scheme (Ph. I to 58.00 54.00 4.00 

III) 

New Infrastructure expansion for 50.00 20.00 30.00 

consumer growth 

Spares for Trombay 33.00 20.00 10.00 

Replacement of Unit # 5 main 25.00 4.00 21.00 

turbine HP model 

220 kV Khopoli-Bhipuri 19.00 2.00 6.00 

Transmission Line (replacement) 

Khopoli TailRace 18.00 0.00 3.00 

Construction Bunds for Units 5,6 15.00 0.00 2.00 

& 7 condenser cooling discharge 

water 

LSHS Tank Project 9.00 4.50 4.50 

SCADA System for Salsette Saki, 9.00 6.75 0.50 

Kolshet and Vikhroli 

Data Acquisition System for 8.00 1.00 1.50 

Bandra Kurla Complex – 

Replacement of FSSS at Unit #5 6.00 0.00 6.00 

Development of coal shed – 3.50 1.90 0.20 

Rehabilitation of Governor and 3.30 0.00 3.30 

MIV control system for 5 units at 

Bhira 

Spares for Transmission, 3.00 0.00 2.00 

MERC, Mumbai 136




Description Total Cost Expenditure 

till March 31, 

2003 

Proposed 

expenditure in 

FY 2003-04 

receiving Station, distribution 

Replacement of Kumar Steel 2.50 1.20 1.30 

Cable and modernisation of 

network 

PCs and Accessories for the 2.30 1.50 0.40 

system 

Spares for Hydro 2.00 0.00 1.00 

Tools and Instruments for system 2.00 0.00 0.50 

Other Schemes 33.23 0.00 19.96 

Wind Project 140.00 0.00 111.00 

Network Development Activity 58.00 0.00 58.00 

Procurement of essential spares 38.00 0.00 7.30 

for GT blades for Unit 7 

Spare set of free standing blades 6.50 0.00 6.50 

for LP rotor of Unit 5 and 6 

Rehabilitation of Governor and 4.95 0.00 0.45 

MIV system of 3 units at Bhira 

Upgradation of Westinghouse 3.50 0.00 3.50 

MMI at Load Despatch Centre 

Other Schemes 20.64 0.00 18.53 

Total 1099.42 461.85 420.44 

Note: FSSS – Fuel Safeguard Supervisory System 

MIV – Main Inlet Valve 

GT – Gas Turbine 

These proposed investments could be further classified as investment towards generation 

assets, transmission assets and distribution assets. There is also common expenditure, which 

will benefit all the three functions. It can be seen that around 66% of the proposed 

expenditure is towards generation activity and 21% is towards distribution activity. 

MERC, Mumbai 137




Table: Classification of proposed investments 

Uses of Funds Amount (Rs. Crore) % 

Generation 278.25 66% 

Transmission 13.35 3% 

Distribution 89.50 21% 

Others 39.33 9% 

Total 420.43 100% 

This proposed capital expenditure is very high in comparison with the actual average capital 

expenditure incurred by the Company over the past 6 years which averages around Rs. 205 

crore. 

The Commission has noted that the Company has spent more than 50% of its capital 

expenditure towards generation and a quarter on the distribution network. 

Allowable Capital Expenditure for FY 2003-04 

The Commission has analysed the details of the capital expenditure provided by the 

Company and also heard the views of different stakeholders. However, the Commission is of 

the opinion that approval of the capital expenditure cannot be given based on the information 

made available by TPC in the ARR and Tariff Petition on some of the proposed capital 

expenditure as the capital outlay is quite high on some of these schemes which will have a 

significant impact on the tariff. Also, some of the schemes do not prima facie look 

financially viable. Hence, the Commission directs TPC to submit a Detailed Project Report 

(DPR) on all these major schemes to give a clear picture about the investment requirements, 

funding mechanism, benefits derived from the investment, and cost benefit analysis. The 

Commission has listed the investments requiring submission of DPR below. 

MERC, Mumbai 138




Table: Proposed Scheme requiring DPR 

(Rs. Crore) 

Projects 

Total Cost Expenditure Proposed 

till March expenditure in 

31, 2003 FY 2003-04 

Khopoli Penstock and tunnel 170.00 78.00 48.00 

Strengthening at Shriwata and Walwhan Dam 101.00 25.00 47.00 

Khopoli TailRace 18.00 0 3.00 

Construction Bunds for Units 5,6 & 7 15.00 0 2.00 

condenser cooling discharge water 

LSHS Tank Project 9.00 4.50 4.50 

Network Development Activity 58.00 0 58.00 

Conversion of Trombay Unit 4 Boiler suitable 125.00 0 14.00 

for coal firing 

Multifuel Jetty at Trombay 180.00 0 35.00 

Relocation of cooling water pump house at 150.00 0 15.00 

Trombay - 

Total 826.00 107.50 226.50 

The Commission also directs TPC to reassess the proposed capital expenditure towards 

LSHS tank project, Conversion of Trombay Unit 4 boiler for coal firing, and the multifuel 

Jetty at Trombay due to the following reasons. 

MERC, Mumbai 139




Table: Specific Issues to be addressed in DPR 

Project 

Reasons 

LSHS Tank Project The plant has an existing tankage capacity of 45 days based on 

the LSHS consumption levels of FY 2002-03 and the proposed 

tankage is expected to enhance the storage capacity by about 6 

days. However, the reduction in the consumption of 

LSHS/LSWR due to replacement by coal has resulted in 

increase in the effective storage capacity from 38 days in FY 

2001-02 to 43 days in FY 2002-03. Also, as the increase in 

number of days is only 6 days, this investment does not seem to 

be prima facie justified. 

Conversion of Trombay TPC has stated that the coal burning in Unit 5 boiler of Trombay 

Unit 4 Boiler suitable plant is governed by SOx limits and maximum coal firing limit 

for coal firing fixed by the Maharashtra Pollution Control Board. Though this 

limit has increased over the years, the existing limit enables Unit 

5 to operate for about 310 days in a year. Under such 

circumstances, conversion of Unit 4 to use coal may not result in 

any benefit due to the prevailing SOx and coal firing limits fixed 

by the Maharashtra Pollution Control Board. 

Multi-fuel Jetty at 

TPC has proposed to construct a captive multi-fuel jetty with a 

Trombay 

total investment of Rs. 120 crore. The Company has estimated 

savings of Rs. 0.02/kWh to Rs. 0.03/kWh. However, as the 

detailed calculations have not been given, it is not clear as to 

whether this savings have been calculated based on the existing 

coal purchases or based on the enhanced coal purchases after the 

proposed conversion of Trombay Unit 4. The Company has to 

rework the economics of the proposed investment. 

TPC has also proposed a Wind Mill Project with total capital outlay of Rs. 140.00 crore with 

a planned capital expenditure of Rs. 111.00 crore for FY 2003-04, which has been 

disallowed by the Commission as it does not pertain to the license area business in Mumbai. 

Thus, the capital expenditure approved by the Commission, which has been considered for 

the purpose of determination of Capital Base is Rs. 117 crore, with a capitalisation of Rs. 30. 

crore in FY 2003-04. 

MERC, Mumbai 140




Proposed Capital Expenditure for FY 2004-05 

The following Table details the capital expenditure proposed by TPC for FY 2004-05. 

Table: Proposed Capital Expenditure in FY 2004-05 

(Rs. Crore) 

Project Details Total Cost Proposed capital 

expenditure in FY 2004-05 

Carry forward items prior FY 2003-04 114.00 114.00 

New Items for FY 2003-04 62.00 62.00 

Conversion of Trombay Unit 4 boiler suitable 125.00 70.00 

for coal firing 

Jetty at Trombay 120.00 45.00 

Network Development Activity 70.00 70.00 

Raising of 110 kV transmission lines in 5.70 2.60 

section Wadala – Mankhurd 

Transformer of 75 MVA capacity, at Dharavi 2.80 2.80 

OPGW/ADSS between Khopoli-Bhivpuri 110 2.60 2.40 

kV line 

110 kV Power supply to BEST Senapati 2.30 2.30 

Bapat Marg Substation 

Replacement of aged distribution cables 2.00 0.90 

Chlorine Dioxide Dosing system at Trombay 3.60 0.60 

Spring loaded system for coal mills Phase II at 2.20 0.50 

Unit 5, Trombay 

Installation of higher efficiency runners to set 8.00 4.80 

#1 at Bhira 

Installation of sluice gate at Ravalji tunnel 4.00 0.10 

intake (Bhira) 

Adharwadi Nallah Diversion and pumping 4.00 1.50 

Scheme at Bhira 

Diversion of Nive Nallah at Bhira 3.80 3.80 

Male Nallah Diversion scheme at Bhira 2.90 0.10 

Procurement of spares for Bhira and Bhivpuri 2.40 2.40 

Procurement of vehicles 2.80 2.80 

Construction of trainee hostel at Trombay 2.00 0.10 

MERC, Mumbai 141




Project Details Total Cost Proposed capital 

expenditure in FY 2004-05 

colony 

Other schemes 22.00 19.00 

Total 564.10 407.70 

Table: Classification of capex into Generation, Transmission, Distribution and Others 

Uses of Funds Amount (Rs. Crore) % 

Generation 128.80 56% 

Transmission 10.10 4% 

Distribution 70.90 31% 

Others 21.90 9% 

Total Uses 231.70 

It can be seen from this Table that of the incremental capital expenditure proposed in FY 

2004-05, around 56% investment is in generation assets, while around 31% of the 

investment is proposed in the distribution sector. 

Based on the above analysis, the Commission has considered the allowable capital 

expenditure for the purpose of computing the Capital Base for FY 2004-05 as Rs. 139 crore 

with a capitalization of Rs 53 crore as given below: 

Table: Allowed Capital Expenditure and capitalization for FY 2004-05 

Particulars 

Rs. crore 

Proposed Capex for the year 407.70 

Capex requiring DPR 216.00 

Allowed on carry-forward capex 75.00 

Allowed Capex for the year 117.00 

Total Allowed Capex 192.00 

Capitalisation for FY 2004-05 53.00 

CWIP 139.00 

22.6 Provision for Doubtful Debts 

TPC has projected Rs. 2.0 Cr towards Bad Debts and Provision for Doubtful Debts in FY 

2003-04 and FY 2004-05. TPC has also submitted that the Bad Debts in the past have been 

MERC, Mumbai 142




minor in nature since majority of the sales is by way of Bulk Supply to Licensees or to large 

industries. As the amount is very small, the Commission has allowed Rs. 2.00 Cr as Bad 

Debts and Provision for Doubtful Debts in FY 2003-04 and FY 2004-05. 

22.7 Interest and Finance Charges 

TPC has projected interest expenditure of Rs. 71.62 Cr in FY 2003-04 and Rs. 22.92 Cr for 

FY 2004-05. The Commission has analysed the back up data submitted by TPC against these 

expenses. The elements comprising interest and finance charges and the Commission’s 

analysis of each sub-head of interest expenditure is detailed below. 

Interest Paid on Foreign Loans and Guarantee Fees 

TPC has submitted details of the various outstanding loans, the repayment profile in the past 

years and the interest computations for the various years. The interest computations for the 

past years and for FY 2003-04 and FY 2004-05 have been checked and the Commission 

accepts TPC’s projections for FY 2003-04 and FY 2004-05. The Guarantee Fees are payable 

to the Government of India for providing guarantee on the World Bank Loans taken by TPC. 

These guarantee fees are calculated on the outstanding loan amount at rates specified in the 

individual loan agreements. The Commission has analysed the data provided by TPC in this 

regard and has allowed the Guarantee Fees projected by TPC for FY 2003-04 and FY 2004- 

05. 

Interest on MSEB Arrears and Delayed Payment Charges 

The Commission has considered the total Delayed Payment Charges (DPC) and interest on 

delayed payment due at the end of FY 2003-04, as detailed in the Commission’s Order on 

the standby dispute between TPC and BSES in Case No. 7 of 2000 issued on May 31, 2004, 

which has accordingly been accounted for while computing TPC’s Clear Profit for FY 2003- 

04. TPC has booked expenditure on these two heads in past years (from FY 2000-01 to FY 

2002-03), which have been disallowed as the Commission has considered the total 

expenditure on this account in FY 2003-04. 

Interest on Security Deposit 

The TPC has considered interest expenditure on this account as 11% on the consumer 

security deposit from retail/commercial consumers. The Commission is of the view that a 

11% interest rate on consumers’ Security Deposit is very high under the current 

circumstances, and has reduced the interest rate to 5.5%, in line with the existing interest 

rates available on long-term deposits. The Commission has projected the interest 

accordingly, for FY 2003-04 and projected the interest at the same levels for FY 2004-05. 

MERC, Mumbai 143




Loss on Exchange 

TPC has submitted that the difference in exchange rate at the end of the year and the actual 

exchange rate for repayments during the year is booked as loss on exchange. The 

Commission feels that this loss is due to accounting treatment, and the consumers should not 

be charged this expense. The Commission therefore, disallows this expense for FY 2003-04 

and FY 2004-05. 

Debenture Trustee Remuneration and Surveillance Fees 

TPC has projected certain expenditure on these heads in FY 2003-04. On being questioned 

by the Commission, TPC has clarified that there are no outstanding debentures pertaining to 

the License area. Hence, the Commission has disallowed this expense in FY 2003-04. 

Interest due to normative Debt: Equity Ratio 

TPC has proposed funding of the entire additional Capital Expenditure through internal 

accruals on the basis of past practices also in this regard. The Commission is of the view that 

it is unfair to the consumers to consider the entire funding of the capital investment through 

own funds, as the Utility will earn a return on this investment which is much higher than the 

corresponding interest expenditure in case of debt funding. During the Public Hearing also, 

many Objectors requested the Commission to consider a normative Debt: Equity ratio to 

fund the Capital Expenditure in the past years as well as FY 2003-04 and FY 2004-05. The 

Commission is of the opinion that since there was no clear cut directive to TPC to fund the 

Capital Expenditure on a normative Debt:Equity ratio, it would be unfair to TPC if the 

funding pattern is modified retrospectively on a normative basis for capital expenditure 

incurred in the past years . However, for FY 2003-04 and FY 2004-05, the Commission has 

considered a normative Debt:Equity ratio of 70:30 to fund the fresh capital investments and 

has accordingly computed interest expenditure on the normative loan amount. 

As discussed in the earlier Section on Capital Expenditure, the Commission has allowed an 

investment of Rs. 117 Cr in FY 2003-04 and Rs. 192 Cr in FY 2004-05. The Commission 

has applied a normative Debt:Equity Ratio of 70: 30 on the new investments and allowed 

interest on the normative Debt component at 10% per annum. 

The expenses as claimed from FY 2000-01, the restatement of past interest expenditure 

claimed from FY 2000-01 and the Commission’s projections of interest expenses for FY 

2003-04 and FY 2004-05 have been summarised in the Table below: 

MERC, Mumbai 144




Table: Interest and Finance Charges from FY 2000-01 to FY 2004-05 (Rs. Cr) 

Particulars 

FY FY FY FY 2003-04 FY 2004-05 

2000-01 2001-02 2002-03 

ARR 

Petition 

MERC 

Approval 

ARR 

Petition 

MERC 

Approval 

Interest Paid on Foreign Loans 38.00 46.00 25.29 18.30 18.30 11.85 11.85 

Interest on MSEB Arrears 29.00 28.00 36.00 38.00 190.19 0.00 0.00 

Interest on Security Deposit 3.00 4.00 3.00 3.50 1.75 2.59 1.75 

Loss on Exchange 1.00 2.00 11.00 (0.08) 0.00 1.59 0.00 

Debenture trustee remuneration 0.28 0.00 0.00 

Surveillance fees 0.35 0.00 0.00 

Delayed payment charges 8.00 6.00 5.00 3.39 35.20 0.00 0.00 

Guarantee Fee 15.62 13.98 10.64 7.88 7.88 6.89 6.89 

TOTAL 94.62 99.98 90.93 71.62 253.32 22.92 20.49 

Adjustment/Restatement 

Interest on MSEB Arrears (29.00) (28.00) (36.00) 

Delayed payment charges (8.00) (6.00) (5.00) 

Interest due to additional loan 

8.26 13.44 

due to normative 70:30 ratio for 

new investments, @ 10% 

Net increase/reduction in (37.00) (34.00) (41.00) 0.00 8.26 0.00 13.44 

interest cost 

22.8 Foreign Exchange Write Off 

TPC has claimed foreign exchange write-off as an expense. This expense relates to the 

foreign loans taken by TPC relating to the License Area. The outstanding balances at the end 

of each year are realigned based on the year ending exchange rate and the change in the 

outstandings due to this realignment is written off over the balance period of loan repayment. 

This is not in conformance with standard Accounting Practices, and the Auditors of TPC 

have made the following comment in the "Notes forming part of the Accounts" in the 84 th 

Annual Report for 2002-2003: 

"1. (a) (ii) (a) The net increase/decrease in the Company's liability for repayment of 

loans for suppliers credit arrangement for purchase of fixed assets, consequent upon 

realignment in rupee value in terms of foreign currency values and cost of rollover 

charges on forward contracts, has been recognized in the Profit and Loss Account over 

the period of repayment of liabilities on the basis of the realised losses or gains on 

MERC, Mumbai 145




repayment and the amount of increase/decrease remaining to be charged off on the basis 

of future repayment is shown as an asset in the Balance Sheet. 

4. (b) Accounting Standard 11 (AS-11) issued by the Institute of Chartered Accountants 

of India requires exchange differences arising on repayment/realignment of liabilities 

incurred for the purpose of acquiring fixed assets, which are carried in terms of 

historical costs, to be adjusted in the carrying amount of the respective fixed assets. 

However, in accordance with past practice and consistent with the treatment adopted for 

determination of "Capital Base" and "Clear Profit" under the Electricity (Supply) Act, 

1948, the Company had dealt with such differences in accordance with the accounting 

policy enunciated in Note 1 (a) (ii) above. The effect on profit for the year and reserves 

as at the end of the year, if exchange differences had been adjusted in the carrying 

amount of fixed assets, has not been determined." 

The Commission has studied the submissions made by TPC in this regard. The difference in 

the outstanding balance on account of foreign exchange variations is being written off over 

the balance period of the loan, instead of being added to the Fixed Assets and claiming 

depreciation. The Commission’s analysis shows that the method of write-off may have 

accelerated the recovery of these additional expenses on account of foreign exchange 

variation. 

The Commission is of the opinion that the overall recovery through this mechanism vis-à-vis 

depreciation will not vary much, and as the Commission was not inclined to restate the 

accounts on this head for the past years, the Commission has accepted this methodology, and 

has allowed foreign exchange write-off in FY 2003-04 as projected by TPC. The 

Commission has projected the same level of losses due to foreign exchange variation in FY 

2004-05 also, though TPC has projected a much higher amount. 

The Commission further directs TPC to follow Accounting Standard 11 while accounting for 

foreign exchange variations, from FY 2005-06 onwards. 

22.9 MSEB Standby Charge 

The standby charge payable by TPC to MSEB is based on the Commission’s Order for 

MSEB for FY 2003-04 in Case No. 2 of 2003, and amounts to Rs. 396 crore per year, which 

has been considered by the Commission while computing the Clear Profit. 

MERC, Mumbai 146




22.10 Income Tax 

TPC has estimated the Provision for Tax of Rs 224 Crore and Rs 244 Crore for FY 2003-04 

and FY 2004-05, respectively, on the basis of revenue estimated at existing Tariff levels. 

TPC has considered Corporate Income Tax, Deferred Tax and Dividend Tax under the 

Provision for Tax. TPC has estimated Corporate Income Tax as per the prevailing Income 

Tax rates (including surcharge) of 35.875% and provisions of the Income Tax Act, 

considering License Area operations as a separate business. 

For computing the Income Tax for the License Area, TPC has adjusted the revenues to 

account for Income which is non taxable, such as, Income from Contingency Reserves, 

Income from DTLF Reserves, Income from Tax Free UTI Bonds, etc. TPC has also adjusted 

the expenditure incurred in the License Area to account for Disallowed expenditure under IT 

computations, such as, provisions for gratuities, disallowances under Section 43 B (Foreign 

exchange write off), leave encashment, etc. TPC has further adjusted the expenses by adding 

back the Book Depreciation and subtracting the Written Down Value (WDV) Depreciation, 

which is based on the WDV rates as prescribed under the Income Tax Act, from time to 

time. 

The above restated revenues less the restated expenses gives the Profit Before Tax as 

computed under the Income Tax laws (Tax PBT). The Income Tax for the License Area has 

been computed at the prevailing Corporate Income Tax rates (including surcharge) on the 

Tax PBT as computed above. 

TPC has also estimated Deferred Tax pertaining to License Area Operations as per 

Accounting Standard AS-22, while the Dividend tax has been projected at a Dividend Tax 

rate (including surcharge) of 12.8125% considering dividend distribution of 65%. 

The Commission has allowed Corporate Income Tax and disallowed Dividend Tax and 

Deferred Tax for determination of ARR. The Commission has projected Income Tax 

applicable to Tax PBT computed for the License Area operations, and has computed the 

Income Tax for FY 2003-04 and FY 2004-05 based on the Commission's estimate of 

revenue and expenditure. The Commission has disallowed the Deferred Tax, as Deferred 

Tax does not represent actual tax outgo. The Commission has also disallowed the Dividend 

Tax as the consumers should not have to pay tax on dividends distributed to TPC’s 

shareholders. 

MERC, Mumbai 147




The total Provision for Tax estimated by TPC and Tax allowed by the Commission in FY 

2003-04 and FY 2004-05 is presented in the following Table: 

Table: Provision of Tax for FY 2003-04 and FY 2004-05 

(Rs. Cr) 

Particulars FY 2003-04 FY 2004-05 

ARR 

Petition 

MERC 

Approval 

ARR 

Petition 

MERC 

Approval* 

Income Tax 209.44 127.56 229.41 170.25 

Deferred Tax -0.38 0.00 0.00 0.00 

Dividend Tax 14.61 0.00 14.61 0.00 

Total Provision for Tax 223.67 127.56 244.02 170.25 

Note: * - at revised tariffs 

22.11 Tax on Sale of Electricity (TOSE) 

The Government of Maharashtra (GOM) has imposed a "Tax on Sale of Electricity" (TOSE) 

of Rs. 0.15/unit for all consumer categories other than Railways, Government Departments 

and BARC. Of this, 1 paisa/unit is embedded in the energy charge, while the balance 14 

paise/unit is charged separately, due to historical reasons. The total expense on this account 

in FY 2003-04 and FY 2004-05 has been projected by TPC on the basis of the sales 

projected by TPC for the respective period. The TPC has later submitted the actual sales for 

FY 2003-04, which the Commission has accepted, and has computed the TOSE accordingly. 

For FY 2004-05, the total TOSE would be payable based on the Commissions' projections of 

category-wise sales. For FY 2004-05, the Commission has neither considered revenue from 

TOSE nor the expense on this account, as this is payable directly to the GoM, and the 

Commission has no jurisdiction over the TOSE. The projections of TOSE for FY 2003-04 

and FY 2004-05 have been summarised in the Table below: 

Table: Tax on Sale of Electricity from FY 2002-04 to FY 2004-05 

(Rs. Cr) 

FY 2002-03 FY 2003-04 FY 2004-05 

ARR 

Petition 

MERC 

Approval 

ARR 

Petition 

MERC 

Approval 

Tax on Sale of 123.00 120.00 122.23 123.00 0.00* 

Electricity 

Note: * - TOSE has not been considered either in the revenue from tariffs or as an expenses, as this is required 

to be separately charged in the bills 

MERC, Mumbai 148




23 REVENUE FROM EXISTING TARIFF 

The Commission has projected the revenue that will be billed in FY 2004-05 by TPC on the 

basis of existing tariff, by multiplying the existing category-wise tariffs with the base 

figures, like the sales estimated by the Commission in MU and the billing demand in kVA. 

The revenue from existing tariffs for FY 2004-05 has been estimated by the Commission as 

Rs. 3152 crore, considering the revenue from tariffs and the wheeling charges payable by 

MSEB for the units wheeled by TPC on behalf of MSEB, and excluding revenue from 

TOSE, which has neither been accounted for in the revenue nor as an expense. 

24 INCOME FROM STANDBY CHARGES 

Income from Standby Charges 

The income from the standby charges levied on BSES by TPC in FY 2004-05 has been 

determined by the Commission on the basis of the Commission’s Order in Case No. 7 of 

2000 on sharing of standby charges between TPC and BSES, issued on May 31, 2004. The 

methodology for determining the share of standby charges has been elaborated in details in 

the Commission’s Order on the standby dispute, which has been issued separately. The 

revenue from standby charges billed to BSES has been given below: 

Table: Income from Standby Charges from FY 2003-04 to FY 2004-05 

FY 2003-04 FY 2004-05 


Petition Approval Petition Approval 

Income from Standby 198.0 83.9 198.0 90.6 

Charges billed to BSES 

(Rs. Cr) 

The standby charges payable by BSES to TPC in FY 2004-05 have been projected on the 

basis of the average share of BSES in the total payment to MSEB over the past six years, 

viz. FY 1998-99 to FY 1993-94. 

25 NON TARIFF INCOME 

The TPC has projected the Non Tariff Income based on the estimation from rental, 

investments, revenue from delayed payment charges, income on statutory investments, etc. 

The Commission has analysed the various submissions made by TPC and accepted the TPC 

projections of Non Tariff Income for FY 2003-04. For FY 2004-05, the Commission has 

MERC, Mumbai 149




maintained the levels as estimated for FY 2003-04 and feels that TPC can achieve the levels 

as stated in FY 2003-04. For FY 2004-05, the TPC has written off the income from Wind 

Power Project, which the Commission has disallowed, since this income does not relate to 

the License Area. The Commission has also accepted the income from statutory investments 

as projected by the TPC for FY 2004-05. The Non Tariff Income for FY 2002-03 and the 

Commissions projections for FY 2003-04 and FY 2004-05 have been summarised in the 

Table below: 

Table: Non Tariff Income from FY 2002-03 to FY 2004-05 

(Rs. Cr) 



Petition Estimate Petition Estimate 

Rental (land, bldg., plant & 1.68 4.67 4.67 5.00 5.00 

machinery) 

Income on services rendered 2.42 3.10 3.10 1.00 3.10 

Delayed Payment Charges 5.37 5.00 5.00 3.00 5.00 

Sale of Scrap and Stores 5.01 5.00 5.00 1.00 5.00 

Miscellaneous Revenue 11.75 5.00 5.00 0.90 5.00 

Other Interest 14.69 4.10 4.10 0.00 4.10 

Income from Statutory 

4.70 24.68 24.68 29.02 29.02 

Investments 

Total Other Income 45.62 51.55 51.55 39.92 56.22 

Note: Interest payable by BSES on past standby charges (as determined by the Commission in its Order dt. 

31.5.04) has been considered separately 

26 RESERVES AND APPROPRIATIONS 

TPC has accumulated certain reserves and appropriations during the course of its operations 

over the past. According to Schedule VI of the ESA, some of these reserves and 

appropriations can be used to set off the difference between Clear Profit and Reasonable 

Return, so that the impact on the consumers’ tariff is minimized. The Commission is of the 

view that the present circumstances qualify for such treatment, and has accordingly 

appropriated some of these reserves and appropriations against the gap between Clear Profit 

and Reasonable Return on a yearly basis in accordance with the provisions of Schedule VI of 

the ESA. The details of the methodology adopted by the Commission for appropriation of 

these reserves have been elaborated in the subsequent sub-sections on Capital Base and 

Clear Profit computation. The Commission has appropriated these reserves and surpluses in 

a pre-determined sequence and exhausted the reserves one by one, which has also been 

MERC, Mumbai 150




elaborated in the Sections mentioned above. It should be noted that the appropriation of 

some reserves will result in increasing the Capital Base, and consequently, the Reasonable 

Return, while the appropriation of contingency reserves will have the effect of reducing the 

Capital Base and hence the Reasonable Return. The principle behind creation of these 

reserves and appropriations and the Commission’s treatment of the same has been discussed 

below: 

TPC has submitted that its statutory reserves can be classified as Funded reserves (backed by 

actual investments) and Non funded reserves (accounting entries only). TPC has submitted 

that the funded reserves are (i) Contingency Reserve and (ii) Deferred taxation liability fund, 

while the remaining reserves are non funded accounting reserves. 

Contingency Reserve is created by appropriating an amount equal to 0.25% to 0.5 % of the 

Gross Fixed Assets, out of the distributable profits of the licensees business, as per 

Paragraph IV of the Sixth Schedule of the Electricity (Supply) Act, 1948. It is created with a 

view to serve as a buffer, which the Utilities could draw upon with the State Government 

approval, to meet expenses or loss of profits arising out of accidents, strikes or 

circumstances, which the management could not have prevented and also to meet expenses 

for extraordinary replacement or renewal of plant or works, or compensation under any law 

for the time being in force and for which no provision is made. 

Sums appropriated to the Contingency Reserve are required to be invested in securities 

authorized under the Indian Trust Act, 1882 (2 of 1882) within a period of six months of the 

close of the year of account. The total amount under Contingency Reserves as on March 1, 

2003 is Rs. 154 crore. The Commission is of the opinion that the present circumstances, on 

account of the impact of resolution of the standby charges dispute and the impact of the 

recent honourable Supreme Court’s judgment that the tariff revision undertaken by TPC in 

December 1998 is invalid, qualify for appropriation of contingency reserves under the clause 

of “circumstances, which the management could not have prevented”, and hence the 

contingency reserves can be appropriated to meet the gap between the Clear Profit and 

Reasonable Return on a yearly basis. Moreover, TPC also has a comprehensive insurance 

policy covering assets worth around Rs. 5300 crore, in addition to the contingency reserves. 

For FY 2003-04 and FY 2004-05, the Commission has provided for contribution to 

contingency reserve to the extent of 0.5% of the GFA. 

Special Appropriation to Project Cost was approved by the Government of Maharashtra 

(GOM) in order to meet part of the cost of specific projects in the license area. Subsequently, 

with effect from 1997, GOM vide its letter no. LTT 1096/PRA.KRA 6794/ENERGY4 dated 

MERC, Mumbai 151




December 2, 1997 allowed TPC to appropriate the income earned on units under US 64 

lying in Deferred taxation Liability Fund investments towards Special Appropriation to 

Project Cost. Accordingly, the same amounts were charged to Clear Profit in the respective 

year. TPC does not earn any return on this amount as the cumulative liability is being 

deducted from the Capital Base. The Commission is of the view that as the approval for the 

Special Appropriation has been issued by the GoM prior to the enactment of the ERC Act, 

this should not be appropriated. 

Special Appropriation to Deferred Taxation Liability Fund is as per approval given by GOM 

vide its letter dated July 28, 1988, February 22, 1994 and February 7, 1996. The GOM in its 

letter dated February 7, 1996 had granted permission for Deferred Tax Liability Fund. As 

per the permission of February 7, 1996, the quantum of fund to be created over the years 

should be at the rates of Income Tax (including surcharge if any) applicable to the Licensee 

multiplied by the difference between cumulative depreciation allowance under Income Tax 

Act 1961 and the cumulative depreciation provided in terms of the Electricity (Supply) Act, 

1948. The Deferred Tax Reserve is created to even out the difference in income tax on book 

profits and tax profits. Though, deferred tax expense is a statutory requirement as per AS22, 

it is only an accounting entry. 

The Commission is of the view that the consumers should be required to pay for income tax, 

only to the extent of actual income tax payable by TPC, and not on account of certain 

accounting entries made by TPC to provide for some expected liability in the future. 

Moreover, as long as TPC continues to make continuous investments, as it proposes to do, 

the deferred tax liability will not be payable. Hence, the Commission has appropriated the 

funds under this head, to meet the gap between the Clear Profit and Reasonable Return on a 

yearly basis from FY 1998-99 to FY 2003-04. The Commission has also appropriated the 

income net of taxes earned by TPC on the investments made out of the Deferred Tax 

Liability funds available with TPC. 

Development Reserve and Investment Allowance Reserve: Paragraph V A (1) of Schedule 

VI of the Electricity (Supply) Act, 1948 states that “there shall be a reserve called 

Development Reserve to which shall be appropriated in respect of each accounting year a 

sum equal to the amount of income tax and super tax calculated at the rates applicable 

during the assessment year for which the accounting of the licensee is the previous year, on 

the [amount of investment allowance] to which licensee is entitled for the account year 

under section 32-A of the Income Tax act,1961.” As per the Electricity (Supply) Act, 1948 

the Companies are also allowed to add an amount equal to one half of one percent on 

accumulation in the Investment Allowance Reserve in their reasonable return. 

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TPC has created assets out of this reserve during the period 1976 to 1990. Thereafter, the 

Investment Allowance Reserve was discontinued under the Income Tax (IT) Act. The same 

continues to be deducted from Capital Base. Investment Allowance Reserve replaced the 

Development Reserve in 1976, but sums prior to 1976 were carried in balance sheet as 

Development Reserve. This amount is not deducted from the Capital Base and the same 

treatment is confirmed by GOM vide its letter dated December 20, 1991. The balance of Rs 

121 crore in the Investment Allowance Reserve is being deducted from the Capital Base but 

does not have specific investments against the reserve. The Commission has not 

appropriated these two reserves to meet the gap between the Clear Profit and Reasonable 

Return in FY 2004-05. 

Tariff & Dividend Control Reserve is a statutory reserve created out of profits in excess of 

allowable Reasonable Return. If the Clear Profit of a licensee in any year of account is in 

excess of the amount of Reasonable Return, one-third of such excess, not exceeding five 

percent of the amount of Reasonable Return, is at the disposal of the undertaking. Of the 

balance of the excess, one-half is to be appropriated to the Tariffs and Dividends Control 

Reserve and the remaining half is to either be distributed in the form of a proportional rebate 

on the amounts collected from the sale of electricity and meter rentals or carried forward in 

the accounts of the licensee for distribution to the consumers in future. In the event of any 

deficit in Reasonable Return in any year, TPC can draw upon this reserve. The Commission 

has appropriated this reserve to meet the gap between the Clear Profit and Reasonable 

Return on a yearly basis from FY 1998-99 to FY 2003-04, as the Commission is of the 

opinion that this reserve has been created out of excess recovery from consumers by TPC in 

the past and should be utilized to reduce the burden on the consumers. 

Debt Redemption Reserve: TPC has been maintaining the Debt Redemption Reserve to 

provide for redemption of World Bank and other loans. The amount by which annual loan 

repayments (as reduced by amount written off in respect of increase/decrease in foreign 

liability for purchase of assets acquired with proceeds of such loans) exceeds depreciation 

was allowed as special appropriations for calculating Clear Profit. The reserve has a balance 

of Rs.52 crore. The Commission has appropriated this reserve to meet the gap between the 

Clear Profit and Reasonable Return on a yearly basis from FY 1998-99 to FY 2003-04, as it 

is of the opinion that this reserve is no longer required as in the remote chance that the 

repayment exceeds the depreciation, TPC can request for advance against depreciation. 

Debenture Redemption Reserve: The Debenture Redemption Reserve was created pursuant 

to MoF/Company Law Board guidelines, and was allowed as a special appropriation under 

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Para XVII(2)c) (vi) of Schedule VI of the Electricity (Supply) Act, 1948. Opening balance of 

Debenture Redemption Reserve was deducted from the Capital Base along with the 

debenture balance and the same was appropriated by permission of GOM vide its letter no. 

ESA 1094/CR 2432/Energy 2 dated March 22, 1995. As there are no pending debentures for 

the License area, the Commission has appropriated this reserve to meet the gap between the 

Clear Profit and Reasonable Return on a yearly basis from FY 1998-99 to FY 2003-04, to 

reduce the burden on the consumers. 

Consumer Benefit Account: This reserve has been created out of excess recovery in the past 

by TPC, when the Clear Profit has exceeded the Reasonable Return. Schedule VI of the 

ESA, provides that one-third of such excess profit can be retained by the Utility subject to a 

maximum of 5% of Reasonable Return. Of the balance, ½ shall be appropriated to a reserve 

called Tariffs and Dividends Control Reserve (TDCR), and remaining ½ shall either be 

distributed in the form of a proportional rebate on the amounts collected from the sale of 

electricity and meter rentals or carried forward in the accounts for distribution to consumers 

in future. The Consumer Benefit Account has been created out of this last share, and is 

clearly intended to be returned to the consumers when required. 

The Commission has appropriated this reserve to reduce the revenue gap and hence the tariff 

impact on the consumers. 

27 CAPITAL BASE 

The Capital Base has been computed on the basis of the data submitted by TPC in its various 

submissions to the Commission and the provisions of Schedule VI of the ESA. The 

Commission has verified the Capital Base computations submitted by TPC and has found 

them to be correct, and has hence accepted the Capital Base details submitted by TPC. 

However, the Commission has had to restate the Clear Profits in each year on account of 

changes in the revenue and expenses, and ensure that the Clear Profit matches the 

Reasonable Return in each year of operation by drawing upon the reserves available with 

TPC, in accordance with the provisions of Schedule VI of the ESA. As a consequence, the 

Capital base has also been restated and hence the Reasonable Return has also been restated, 

as the reserves under the Liability side of the Capital Base. In the following paragraphs, the 

Commission has detailed the approach and methodology adopted by the Commission to 

ensure that the Clear Profit matches the Reasonable Return in each year of operation. 

MERC, Mumbai 154




Revenue restatement 

On account of invalidity of tariff revision undertaken by TPC in December 1998 

TPC has been billing its consumers on the basis of the tariff revision undertaken in August 

1998 and applicable from December 1998 for the Distribution Licensees, viz. BEST and 

BSES. In this tariff revision, the tariffs applicable to BEST were reduced and the BEST has 

paid according to the revised tariffs. The demand charges for sale of power to BSES at 22/33 

kV were revised upwards in the tariff revision of December 1998, which was disputed by the 

BSES and BSES has continued to pay TPC on the basis of the tariffs applicable from 1996. 

However, the honourable Supreme Court has held in its judgment dated October 17, 2003, 

that the tariff revision undertaken by TPC in December 1998 is invalid, on the grounds that 

any tariff revision undertaken after the enactment of the ERC Act had to be approved by the 

appropriate Regulatory Commission. Though the TPC has been booking higher revenue 

from BSES from December 1998 in line with the tariff revision undertaken by TPC, the 

actual recovery from BSES has been lower. At the same time, BEST has paid as per the 

revised lower tariffs. 

As over five years have passed since the tariff revision which has been held to be invalid 

recently by the honourable Supreme Court, the Commission has taken a pragmatic view to 

restate the revenue billed by TPC on the basis of the demand charges applicable to BSES 

prior to the December 1998 tariff revision, from December 1998 onwards, till the end of FY 

2003-04. At the same time, the Commission is of the view that BEST and consequently, its 

consumers cannot be asked to retrospectively contribute the difference between the revised 

tariffs and the tariffs existing prior to the tariff revision in December 1998, for no fault of 

BEST and its consumers. Hence, the actual revenue billed from BEST has not been restated. 

On account of the Commission’s Ruling on Standby Charges 

TPC has been booking revenue from BSES on account of standby charges on the basis of 

equal sharing of the standby charges between TPC and BSES. However, this matter was 

disputed, and the Commission has now issued a separate Order on the same (Case No. 7 of 

2000). The Commission has restated the revenue earned by TPC on account of standby 

charges billed to TPC, to reflect the share of BSES in the standby charges payable to MSEB, 

in line with the Commission’s Order on the standby dispute between TPC and BSES. 

MERC, Mumbai 155




Restatement of Expenditure 

Depreciation Expenses 

The Commission has restated the depreciation expenditure in line with its decision to 

disallow the depreciation on investment in wind mills, as discussed in the earlier Section on 

Interest Expenditure. 

Income Tax 

The Income tax liability has been restated in line with the revised Clear Profit for the past 

years, as discussed in the earlier Section on Income Tax expenses. 

Set off of Reserves 

The net adjustment/restatement has then been computed on the basis of the restatement of 

revenues and expenses as discussed above. The net result of the restatement is that, the Clear 

Profit of TPC is lower than the Reasonable Return right from FY 1998-99 onwards to FY 

2003-04. The Commission has applied the treatment as applicable under Schedule VI of the 

ESA on a yearly basis, to ensure that TPC earns its Reasonable Return in each year of 

operations. This has been achieved by setting off the reserves against the revenue gap. The 

reserves available for setting off against the gap have already been discussed earlier. The 

reserves have been set off in the following order of priority, viz. 

i) Consumer Benefit Account 

ii) Tariff and Dividend Control Reserve 

iii) Debenture Redemption Reserve (DRR) 

iv) Income on DRR investments 

v) Debt Redemption Reserve 

vi) Deferred Tax Liability Fund 

vii) Contingency Reserve 

The Clear Profit computations for the period FY 1998-99 to FY 2003-04, as submitted by 

TPC and accepted by the Commission have been given below: 

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Table: Clear Profit Computations for the period FY 1998-99 to FY 2003-04 

(Rs. Crore) 

98-99 99-00 00-01 01-02 02-03 

FY 2003-04 

Particulars 

Petition MERC 

Income 

Sale of Electricity (incl Meter Rent & wheeling 

charges) 2101 2510 3006 3014 3389 3239 3077 

Standby Charges from BSES 81 126 193 198 198 198 198 

Non Tariff Income 47 37 60 39 46 52 52 

Total Income 2229 2673 3259 3251 3633 3489 3326 

Expenditure 

Fuel Costs 801 1132 1648 1546 1842 1713 1664 

Power purchase- variable costs 26 11 16 3 11 25 9 

MSEB Standby Charges 319 363 385 396 396 396 396 

Employee Costs 117 114 119 122 125 194 161 

R&M Expenditure 121 142 112 124 102 108 107 

Wheeling Charges 19 19 19 21 21 21 19 

Admin & Others 95 93 112 59 79 95 81 

Bad Debts 4 6 22 7 0 2 2 

Interest & Finance Charges 90 106 94 101 91 72 262 

Depreciation for the year 165 171 174 195 204 186 186 

W/off of forex variation 59 53 60 51 91 21 21 

Tax on sale of electricity 18 23 51 117 123 120 122 

Total Expenses 1832 2232 2812 2742 3084 2953 3030 

Profit Before Tax 397 441 447 509 548 535 297 

Income Tax 179 181 195 151 236 224 128 

Provision for Deferred tax 0 106 23 0 0 

Profit After Tax 219 260 252 252 289 311 169 

Statutory appropriation 34 50 26 20 47 32 31 

Contingency @.5% of Gross Block 10 16 8 9 18 19 18 

Special Appropriation 24 35 18 11 29 13 13 

Clear Profit 184 210 226 232 242 279 138 

Reasonable Return 184 210 226 232 242 285 210 

Net Gap (CP-RR) 0 0 0 0 0 -5 -73 

The restatements made by the Commission and the drawal made from the reserves by the 

Commission to match the Clear Profit to the Reasonable Return over the above period are 

shown in the Table below: 

MERC, Mumbai 157




Table: Restatement of Revenue and Expenses in Clear Profit Computations for the 

period FY 1998-99 to FY 2002-03 

(Rs. Crore) 

98-99 99-00 00-01 01-02 02-03 

03-04 

Income 

Particulars 

Petition 

MERC 

Sale of Electricity (incl Meter Rent & wheeling 

charges) -5.36 -11.67 -19.33 -19.83 -20.60 -20.60 

Standby charges (mercantile basis) -9 -34 -103 -108 -110 -114 

Total Adjustment in Income -14 -46 -122 -127 -130 -135 

Expenditure 

Interest & Finance Charges 0 0 -37 -34 -41 0 0 

Depreciation -7 0 -7 

Income Tax -2 -16 -31 -35 -27 -44 

Total Adjustment in Expenditure -2 -16 -68 -69 -75 0 -50 

Net Adjustment/Restatement -4 -29 -50 -53 -49 -84 

Restated Clear Profit 181 180 176 179 193 53 

Revised Net Gap (CP-RR) -4 -30 -54 -59 -55 -163 

Schedule VI treatment, by adjusting reserves to match CP and RR, in respective years 

Consumer Benefit Account 4 8 

Tariff & Dividend Control Reserve 0 12 

Debenture Redemption Reserve (after 

debentures have been repaid in FY99), and 

income on DRR investments 10 39 

Debt redemption reserve 15 

Deffered tax Liability Fund, from FY02 onwards, 

when extra provisioning was done 59 55 163 

Contingency Reserve - on account of 

circumstances beyond Management Control 0 0 

Total Reserves Appropriated 4 30 54 59 55 163 

Adjusted Net Gap 0 0 0 0 0 0 

MERC, Mumbai 158




The restated Capital Base and the restated Reasonable Returns for the period FY 1998-99 to 

FY 2003-04 has been given below: 

Table: Restated Capital Base and Reasonable Return for the period Fy 1998-99 to FY 

2003-04 

(Rs. Crore) 

Particulars 96-97 97-98 98-99 99-00 00-01 01-02 FY 2002-03 FY 2003-04 

Actuals Petition MERC 

Original cost of Fixed Assets 2368 2461 2622 2865 3294 3511 3647 3,771.00 3,592.08 

Less: Capital Contribution from Consumers 27 28 40 41 42 42 42 42 42 

2340 2433 2582 2824 3252 3469 3605 3729 3550 

Cost of Intangible Assets 16 16 16 16 61 61 61 61 61 

Work In Progress & Advances 232 413 430 359 132 132 185 485 272 

Contingencies Reserve Investments 69 81 93 105 119 127 136 154 154 

Stores & Tools Balances 187 193 190 213 211 198 233 233 233 

Cash & Bank Balances 45 44 33 44 39 33 30 30 30 

Total (A) 2889 3180 3343 3560 3814 4020 4250 4692 4300 

Depreciation 675 833 992 1159 1329 1520 1715 1901 1894 

Intangible Assets written off 4 4 5 6 15 25 35 45 45 

Approved Borrowings 722 508 451 405 358 313 244 211 294 

Amount of approved borrowings 0 0 0 0 583 497 375 327 409.6 

Less Net Exchange Fluctuation write-off -225 -184 -131 -116 -116 

Debentures 56 49 49 

Security Deposits from Consumers 23 23 24 27 28 30 26 26 26 

Tariffs & Dividends Control Reserve 12 12 12 12 0 0 0 12 0 

Investment Allowance Reserve 121 121 121 121 121 121 121 121 121 

Consumers' Benefit A/c (Op.Bal.) 11 11 11 8 0 0 0 11 0 

Special Appro. re: Project Cost 382 405 428 463 481 492 521 534 534 

Debt Redemption Reserve 52 52 52 52 52 37 37 52 37 

Total (B) 2058 2017 2145 2251 2384 2538 2699 2913 2951 

CAPITAL BASE (A-B) 831 1163 1198 1309 1429 1482 1551 1779 1350 

REASONABLE RETURN 

Particulars 96-97 97-98 98-99 99-00 00-01 01-02 FY 2002-03 FY 2003-04 

Actuals* Petition MERC 

a) Upto 31.3.1955 @ 7% 0 0 0 0 0 0 0 0 0 

b) From 1.4.55 to 14.10.91 @ BR + 2% 16 16 16 16 16 16 16 16 16 

c) From 14.10.91 to 13.3.99 @ BR + 5% 113 169 174 174 174 174 174 174 174 

d) Balance @ 16% 18 37 45 57 93 24 

Total 129 185 190 208 227 235 247 283 214 

Other Income 0 0 0 0 0 

On loans from approved institutions @ 0.5% 4 3 2 2 2 2 1 1 1 

On investment allowance reserve @ 0.5% 1 1 1 1 1 1 1 1 1 

Reasonable Return 132.83 188.18 192.86 210.33 229.44 237.60 248.37 284.66 216.37 

The Capital Base for FY 2004-05 as projected by TPC and recomputed by the Commission 

is given in the Table below: 

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Table: Projected Capital Base for FY 2004-05 

Particulars FY 2004-05 

Petition MERC 

Original cost of Fixed Assets 3810 3645 

Less: Capital Contribution from Consumers 42 42 

3768 3603 

Cost of Intangible Assets 61 61 

Work In Progress & Advances 760 411 

Contingencies Reserve Investments 173 173 

Stores & Tools Balances 233 233 

Cash & Bank Balances 30 30 

Total (A) 5025 4511 

Depreciation 2058 2065 

Intangible Assets written off 54 54 

Approved Borrowings 152 263 

Amount of approved borrowings 242 353 

Less Net Exchange Fluctuation write-off -90 -90 

Debentures 

Security Deposits from Consumers 24 24 

Tariffs & Dividends Control Reserve 12 0 

Investment Allowance Reserve 121 121 

Consumers' Benefit A/c (Op.Bal.) 11 0 

Special Appro. re: Project Cost 534 534 

Debt Redemption Reserve 52 37 

Total (B) 3018 3098 

CAPITAL BASE (A-B) 2007 1414 

REASONABLE RETURN 

Particulars FY 2004-05 

a) Upto 31.3.1955 @ 7% 0 0 

b) From 1.4.55 to 14.10.91 @ BR + 2% 16 16 

c) From 14.10.91 to 13.3.99 @ BR + 5% 174 174 

d) Balance @ 16% 129 35 

Total 319 225 

Other Income 0 0 

On loans from approved institutions @ 0.5% 1 1 

On investment allowance reserve @ 0.5% 1 1 

Reasonable Return 320.82 226.45 

The Capital Base projected by the Commission for FY 2003-04 and FY 2004-05 is lower 

than the Capital Base projected by TPC on account of the following reasons: 

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The Asset side (Part A above) is lower as: 

i) The Commission has considered substantially lower level of capital investments as 

compared to the levels projected by TPC, as discussed in an earlier Section 

ii) Correspondingly, the level of capital work-in-progress has also been considered lower 

than the levels projected by TPC. 

The Liabilities side (Part B above) is higher as: 

i) The Commission has considered the normative level of debt:equity as 70:30 for capital 

investments in FY 2003-04 and FY 2004-05, as compared to TPC’s assumption of 100% 

equity funding. 

28 REASONABLE RETURN 

The Reasonable Return has been computed in line with the provisions of Schedule VI of the 

ESA, and the notifications on the rate of return as specified by the Ministry of Power from 

time to time. As per the MoP notifications, all investments made after 13.3.1999 are eligible 

for a Reasonable Return of 16%. Licensees are also entitled to a 0.5% return on loans from 

approved institutions and on the investment allowance reserve. As stated earlier, on account 

of the Commission’s philosophy of reducing the reserves to match the shortfall in Clear 

Profit on a yearly basis in line with the provisions of Schedule VI of the Electricity (Supply) 

Act, 1948, the restated Capital Base is higher than the Capital Base projected by TPC, and 

TPC will consequently earn a higher Reasonable Return on the higher Capital Base. The 

restated level of Reasonable Returns for the period FY 2002-03 to FY 2004-05, has been 

given in the Table below: 

Table: Reasonable Return for the period FY 2002-03 to FY 2004-05 

(Rs. Crore) 

Particulars 

FY 2002- 

03 FY 2003-04 FY 2004-05 

Actuals* Petition MERC Petition MERC 

a) Upto 31.3.1955 @ 7% 0 0 0 0 0 

b) From 1.4.55 to 14.10.91 @ BR + 2% 16 16 16 16 16 

c) From 14.10.91 to 13.3.99 @ BR + 5% 174 174 174 174 174 

d) Balance @ 16% 57 93 24 129 35 

Total 247 283 214 319 225 

Other Income 0 0 0 0 0 

On loans from approved institutions @ 0.5% 1 1 1 1 1 

On investment allowance reserve @ 0.5% 1 1 1 1 1 

Reasonable Return 248.37 284.66 216.37 320.82 226.45 

Note: * Actuals as submitted by TPC and modified by the Commission 

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29 CLEAR PROFIT 

The Clear Profit of TPC over the period under consideration has been computed in line with 

the provisions of Schedule VI of the ESA. The Commission has accepted the Clear Profit 

computations of TPC for the past periods, upto FY 2002-03, in line with its decision not to 

open up the past computations. However, the Commission has restated the revenue and 

expenses on account of the circumstances explained earlier. The original Clear Profit 

computations as stated by TPC and accepted by the Commission, the restatement of 

revenues and expenses, and the Schedule VI treatment of the same for the period FY 1998- 

99 to FY 2004-05 has been given in the earlier Section on Capital Base computations. 

The Commission’s projection of Clear Profit for FY 2004-05 is given in the Table below: 

Table: Projected Clear Profit for FY 2004-05 

Income 

Particulars 

Petition 

FY 2004-05 

MERC (existing 

tariffs) 

(Rs. Crore) 

MERC (revised 

tariffs) 

Sale of Electricity (incl Meter Rent & 

wheeling charges) 3180 3152 2852 

Standby Charges from BSES 198 91 91 

Non Tariff Income 40 56 56 

Total Income 3418 3299 2999 

Expenditure 

Fuel Costs 1623 1581 1581 

Power purchase- variable costs 27 18 18 

MSEB Standby Charges 396 396 396 

Employee Costs 171 146 146 

R&M Expenditure 118 108 108 

Wheeling Charges 21 19 19 

Admin & Others 106 83 83 

Bad Debts 2 2 2 

Interest & Finance Charges 23 34 34 

Depreciation for the year 171 171 171 

W/off of forex variation 51 21 21 

Tax on sale of electricity 123 0 0 

Total Expenses 2832 2579 2579 

Profit Before Tax 586 720 420 

Income Tax 244 278 170 

Provision for Deferred tax 0 0 0 

MERC, Mumbai 162




FY 2004-05 

MERC (existing MERC (revised 

Particulars 

Petition tariffs) 

tariffs) 

Profit After Tax 342 442 250 

Statutory appropriation 19 18 18 

Contingency @.5% of Gross Block 19 18 18 

Special Appropriation 0 0 0 

Clear Profit 323 424 232 

Reasonable Return 321 226 226 

Net Gap (CP-RR) 2 201 9 

Thus, the revised net surplus between the Clear Profit and the Reasonable Return in FY 

2004-05 based on the Commission’s projections, has to be adjusted by reducing the tariffs. 

This excess revenue of Rs. 300 crore has been set off by revising the tariffs to different 

categories based on the Commission’s tariff philosophy as detailed below. 

30 TRUING UP MECHANISM 

TPC has requested the Commission to incorporate a Truing Up mechanism, to enable TPC to 

recover/refund the shortfall/excess amount of Clear Profit vis-à-vis the Reasonable Return 

from/to the consumers at the end of the year, based on the actual expenses and revenue 

during the year. The Commission is of the view that the Schedule VI mechanism already 

provides for truing up in the subsequent year, in case of any variations in the revenue and 

expenditure vis-à-vis the amounts considered by the Commission for FY 2004-05 in the 

Order. The Commission has undertaken truing up of the gap in previous years, as explained 

in the previous Section on Capital Base and Clear Profit computation. Hence, the 

Commission rejects the request for incorporate the truing up mechanism. 

31 TARIFF PHILOSOPHY 

In the previous Section, the Commission has elaborated the methodology adopted by the 

Commission in matching the Clear Profit and the Reasonable Return on a yearly basis, in 

accordance with the provisions of Schedule VI of the ESA. As all the expenses incurred/to 

be incurred by TPC over the period from FY 1998-99 to FY 2003-04 have already been 

considered while ensuring that the Clear Profit matches the Reasonable Return in every year 

of operation, no further revenue is required by TPC to meet its commitments, including 

payment towards standby charges, refund to BSES and payment of interest and delayed 

payment charges, as elaborated in the Commission’s Order on the standby dispute between 

TPC and BSES in Case No. 7 of 2000. It should also be noted that TPC cannot liquidate its 

MERC, Mumbai 163




reserves to levels beyond the levels considered by the Commission to meet its funding 

requirements. 

The Commission has determined the tariffs applicable to TPC’s consumers, keeping in mind 

the existing tariff structure of TPC, MSEB, BSES and BEST, and the tariffs proposed by 

TPC, with the intention of reducing the imbalances between the tariffs applicable for the 

same consumer category across Licensees in the State. TPC has submitted a supplementary 

tariff proposal, after the completion of the Public Process, wherein TPC has proposed 

differential tariffs for Franchisees, and Modifications to the tariff rationalization proposal 

submitted alongwith the Tariff Petition. The Commission is of the view that the public 

process mandated under the Act requires that the consumers be given adequate opportunity 

to submit their views on the expenses and tariffs proposed by the Utility, else it would be 

unfair to the consumers. Hence, the Commission has not taken the tariff proposal submitted 

after the completion of the public process, into consideration while determining the tariffs 

applicable to TPC’s consumers. 

The Commission has determined the tariffs and revenue from revised tariffs as if the revised 

tariffs are applicable for the entire year, in line with the philosophy adopted by the 

Commission in the case of MSEB. The entire tariff process that commenced in October 

2003, has taken around eight months, though the Commission has issued its Order within 

four months of admitting the ARR and Tariff Petition on February 15, 2004. The delay has 

been on account of the delay in submission of the Tariff Petition for FY 2004-05 by TPC, 

and the requisite data, despite several directives given by the Commission’s directions to 

TPC to submit their ARR and Tariff Petition for FY 2004-05, as early as during the 

Technical Validation session held on November 25, 2003. The process adopted by the 

Commission and the several opportunities given to TPC to submit the desired data have been 

documented in the Introduction Section. 

The existing FAC has been merged with the energy charges, on account of the adoption of 

the existing fuel costs for projection of the fuel expenses. Thus, FAC has been equated to 

zero. The earlier concept of FAC exemption for the first 25% of the sale to BSES and BEST 

as well as the first 100 units of consumption by residential consumers has been done away 

with, as this is not consistent with the concept that all consumers should pay FAC, 

irrespective of the level of consumption. However, the Commission has ensured that there is 

no tariff shock to the consumers of TPC in this consumption slab as well as the consumers in 

this slab in the case if BSES and BEST, by specifying lower tariffs for this slab. The 

Commission has verified the past computation and levy of FAC by TPC and has come to the 

conclusion that TPC has been charging FAC only to the extent of the additional costs 

MERC, Mumbai 164




incurred by TPC. The Commission has approved a Formula for recovery of FAC, as 

discussed in detail in the earlier Section on FAC Formula. The Commission would like to 

highlight that the FAC Formula has been designed such that any increase/decrease in the 

variable cost of generation and power purchase is passed through to TPC’s consumers. The 

FAC will be charged on a monthly basis. 

In the case of the residential consumption in BEST License area, the proportion of 

consumption below and upto 150 units per month (lowest specified consumption slab) is 

around 23% of the total consumption in the license area. In the case of BSES, the lowest 

consumption slab in the residential category is upto 100 units per month, and the 

consumption in this slab is around 28% of the total consumption in BSES’ area. 

In view of this, the Commission has determined the tariffs for BSES and BEST such that the 

first 25% of consumption is charged a significantly lower tariff as compared to the tariff 

applicable to the balance 75% of the consumption. This will enable BSES and BEST to 

charge lower tariffs for the lifeline electricity requirement of all domestic consumers in their 

licence area, whose consumption is below 100 units per month. Further, while rationalizing 

the tariff, it has been around that there will be no tariff shock to these consumers. The 

Commission will also be directing BSES and BEST to gather data regarding the 

consumption of consumers who consume lower than 30 units per month, who are the real 

life-line category of consumers, so that the Commission can target the real life-line 

consumers, by specifying lower tariffs. It should be noted that the tariff applicable to 

residential consumers in MSEB License area is higher than the level specified by the 

Commission for TPC’s residential consumers. 

The Commission is of the view that the costs of TPC should be unbundled to reflect the 

difference in cost of supply to bulk licensees and that to retail consumers. The unbundling of 

costs has to also enable separation of the cost of supply between BSES and BEST. The 

Commission has been unable to determine tariffs in accordance with this principle, due to 

the fact that TPC has not submitted the requisite data, despite repeated reminders by the 

Commission. TPC has been claiming that they are compiling this data and will be in a 

position to submit the requisite data within six months, from almost the beginning of the 

tariff process. The Commission directs TPC to submit the requisite data in two months time 

from the date of issue of this Order, to enable the Commission to unbundle the cost of supply 

to various consumer categories. In the meantime, the Commission has determined the tariffs 

in relation to the tariff prevailing in the city of Mumbai for various licensees, on normative 

basis of distribution costs. 

MERC, Mumbai 165




In the absence of this data, the Commission has determined the tariffs such that the Bulk 

Supply Tariffs (BST) applicable to BSES and BEST are significantly lower than the tariffs 

applicable to retail HT and LT consumers. Had separate data been available, then the 

Commission would have determined BST applicable to the licensees and retail consumers on 

the basis of the allocated costs. The difference between the average billing rate applicable to 

BSES and BEST and that applicable to other consumers, has thus been increased to around 

50 paise to 75 paise, as compared to the existing difference of around 25 paise/unit, to reflect 

the distribution costs that will have to be incurred by BEST and BSES to supply to their 

retail consumers. By this, the Commission has attempted to rationalize the bulk and retail 

supply tariffs, such that the tariffs are in consonance with the concept that the Bulk Supply 

Tariff (BST) should be lower than the retail tariffs. This will also enable healthy competition 

between the Licensees on an even footing. 

The Commission has also removed the differential between the BST applicable to BEST and 

BSES, as any such differentiation has to be based on supporting data on the costs incurred to 

supply to BSES and BEST, respectively. The Commission has eliminated this anomaly in 

the BST applicable to BEST vis-a-vis the BST applicable to BSES, by rationalizing the 

tariffs. This anomaly was one of the main reasons for the irrational tariffs The Commission 

is also unable to fathom the rationale for differentiating between BEST and BSES, in the 

method of measurement of the billing demand. TPC charges demand charges to BEST on the 

basis of maximum coincident demand during the month, while BSES is charged demand 

charges on the basis of the arithmetic addition of maximum demand recorded at all 

interconnection points between TPC and BSES. The Commission directs TPC to levy 

demand charges from BSES on the basis of the maximum coincident demand. 

In the existing tariff schedule of TPC, a part (1 paisa/kWh) of the Tax on Sale of Electricity 

(TOSE) was embedded in the energy charges applicable to the different consumer 

categories. It should be noted that Government Departments and BARC are exempted from 

the levy of TOSE. The Commission has removed the embedded TOSE of 1 paisa/kWh from 

the tariffs, and has excluded the revenue and expenses from TOSE, as it is not within the 

jurisdiction of the Commission. TPC will collect the TOSE from all consumers as applicable 

and forward it to the GoM. 

The Commission has specified a discount of 2.5% in the energy charges, if the supply is 

taken at 100 kV vis-à-vis 11/22/33 kV supply and a discount of 5% in the energy charges if 

the supply is taken at 220 kV vis-à-vis 11/22/33 kV supply, to reflect the lower cost of 

supply at higher voltages due to lower T&D losses. 

MERC, Mumbai 166




The Commission has undertaken the following rationalization of categories and slabs: 

• The various consumer categories under HT industry including Government Departments, 

BARC, BMC, Captive Power Plants, Others, Commercial and HT Textiles have been 

merged together, by specifying the same tariff for all these consumers. However, the 

average billing rate of each consumer category will vary, depending on the billing 

demand, load factor and consumption in units. 

• The Commission has merged the commercial and non-commercial categories within LT 

1 and LT 2 categories. 

• In the residential category, the number of slabs has been reduced from five to three, viz. 

0 to 100 units, 101 to 300 units, and consumption above 300 units. The Commission 

accepts that the revenue impact of this change in the slab structure cannot be assessed at 

this stage, due to the lack of data on consumption within this slab structure. However, the 

Commission does not expect any substantial change in the revenue stream on this 

account, and in any case, the truing up mechanism provided under Schedule VI will take 

care of such deviations. It should be noted that the residential tariff determined by the 

Commission applies only to the existing consumer base of TPC, as the Commission’s 

Order restraining TPC from adding new consumers in this category in Case No. 14 of 

2002 dated July 3, 2003 continues to be valid. 

The Commission has introduced two-part tariff for all consumer categories, including 

residential category and LT 1 category and has eliminated the minimum charges and meter 

rent, in line with the tariff philosophy enunciated in the Tariff Orders of the Commission in 

the case of MSEB. The fixed charges for the residential category and LT 1 category has been 

specified in terms of Rs/connection/month, as there is no reliable data available regarding the 

connected load/contract demand, while the demand charges for other consumers have been 

specified in terms of Rs/kVA/month. TPC is directed to install MD meters for all consumers 

above 20 kW sanctioned load. 

The demand charges have been kept same for all the categories at Rs 340/kVA/month, in 

line with the demand charges proposed by TPC, which is very similar to the demand charges 

applicable to HTP-I category in case of MSEB (Rs. 350/kVA/month). The Billing Demand 

definition has been retained same as that applicable in case of MSEB, i.e., 

Monthly Billing Demand will be the higher of the following: 

i. Actual Maximum Demand recorded in the month during 0600 hours to 2200 hours; 

ii. 75% of the highest billing demand/Contract Demand, whichever is lower, recorded 

during the preceding eleven months; 

iii. 50% of the Contract Demand. 

MERC, Mumbai 167




The energy charges have been reduced correspondingly such that the average billing rate to 

BSES and BEST is in line with the Commission’s philosophy of reduction in cross-subsidy. 

The sliding scale of tariff applicability has been retained, viz., the tariff applicable to a 

particular slab will be levied only on the consumption within that slab, and not on the entire 

consumption. The revenue from fixed charges as a percentage of the fixed costs is projected 

to increase from 33% to 88%, on account of the increase in demand charges determined by 

the Commission. The existing cross-subsidy and the reduction in cross-subsidy considered 

by the Commission is given in the Table below: 

Table: Ratio of Average Billing Rate to Average Cost of Supply 

Avg Cost of 

Supply 

(Rs/unit) 

Average Billing Rate (Rs./unit) 

Ratio of Average Billing Rate to 

Average Cost of Supply (%) 

Percentage point 

increase/ 

decrease in 

Tariff w.r.t Avg. 

CoS 

Consumer Category 

Existing Tariff Revised Tariff Existing Tariff Revised Tariff 

BEST 2.95 2.56 104% 90% -14% 

BSES 3.12 2.66 110% 94% -16% 

Railways 3.48 3.43 123% 121% -2% 

HT 3.64 3.85 128% 136% 7% 

LT 2 

2.84 

3.90 4.62 137% 162% 25% 

LT 1 3.84 4.00 135% 141% 6% 

Residential 2.95 2.98 104% 105% 1% 

Sale to MSEB 2.50 2.30 88% 81% -7% 

Note: Amounts for BSES exclude standby charges 

No demand charges have been specified for the drawal of energy by BSES at 220 kV 

interconnection at Borivali, as this issue is the subject matter of a separate Case pending 

before the Commission, and the Commission will give its ruling on this Case separately. The 

Commission would like to add here that the 220 kV interconnection point at Borivali was 

intended only for standby requirements, and was never intended to be used as a regular 

drawal point, under the Interconnection Agreement signed between TPC and BSES on 

January 31, 1998. BSES is expected to refrain from normal energy drawal at this 

interconnection point, till the Commission decides on this issue in the Case pending before 

it. 

The tariff applicable for sale to MSEB has been reduced from Rs. 2.50 per kWh to Rs. 2.30 

per kWh for sale during off-peak hours, to account for the fact that TPC sells power to 

MSEB only during off-peak hours, while drawing power from the MSEB during peak 

periods. For sale to MSEB during day time hours (0600 to 2200 hours), an additional charge 

of 25 paise/kWh will be levied. TPC is directed to install ToD meters at the interconnection 

points with MSEB and net off the energy sold and received on time slot basis (night time of 

MERC, Mumbai 168




2200 to 0600 hours) and the balance during day time, within 3 months of issue of this Order. 

The tariff to Railways has also been rationalized, as Railways are being supplied at 

33/22/11/6.6 kV and 100 kV. The Railways’ tariffs has been determined such that the 

average billing rate is comparable to that of BEST and BSES, and is lower than the average 

billing rate of other categories. 

TPC has proposed implementation of Time of Day (ToD) tariffs for all its consumers, 

including BEST and BSES, and except residential and LT 1 and LT 2 consumers. TPC has 

proposed two time slots, viz. Night time (from 2200 to 0600 hours) having lower tariffs, and 

day time (0600 to 2200 hours) having higher tariffs. It should be noted that BEST and BSES, 

the two Distribution Licensees, comprise around 74% of TPC’s sales, and the balance sales 

is shared amongst HT and LT industrial consumers. The Commission is of the opinion that 

with this kind of consumer mix, the shift of load, if any, due to the ToD tariffs will not be 

significant. At the same time, there is no gainsaying that ToD tariff is a very useful tool to 

create a shift in the load to flatten the load curve. 

The Commission is of the view that ToD tariffs are more relevant in the case of BSES and 

BEST, and once BEST and BSES are in a position to charge ToD tariffs, at that time, the 

Commission will consider implementation of ToD tariffs for TPC’s consumers. At this point 

in time, neither BSES nor BEST are in a position to implement ToD tariffs, as there is no 

data on the category-wise hourly consumption pattern. The Commission envisages that 

BSES and BEST shall install meters capable of recording ToD data, initially for the HT 

industrial and commercial consumers, and thereafter for the LT industrial and commercial 

consumers and compile the readings from these ToD meters. 

In the existing tariff schedule, TPC is charging demand charges from CPPs at double the 

rates applicable to other HT consumers, on the entire billing demand. Standby charges 

applicable to CPPs have been designed in line with the approach adopted for MSEB. The 

base demand charges and the energy charges have been kept same as that for other HT 

consumers, and additional demand charges Rs. 20 per kVA/month would be chargeable for 

the standby component only. However, as data on the contract demand of CPPs is not 

available, it is not possible to compute the revenue impact of this change in the tariff 

schedule. 

The revised tariff applicable for all categories of consumers from June 1, 2004 has been 

shown below. The comparison between the existing tariff and the tariff determined by the 

Commission has been presented in Appendix 6. 

MERC, Mumbai 169




Summary of HT and LT Tariff effective from June 1, 2004 

Sl. 

Consumer category & 

Tariffs 

Consumption Slab 

Fixed/Demand 

Charge 

(Rs/KVA/ month) 

Energy 

Charge 

(p/kWh) 

1 BEST - 22/33 kV (25% of the units) 340 

145 

BEST - 22/33 kV (balance 75% of the units) 

200 

2 BEST - 100 kV (25% of the units) 340 

141 

BEST - 100 kV (balance 75% of the units) 

195 

3 BSES - 22/33 kV (25% of the units) 340 

145 

BSES - 22/33 kV (balance 75% of the units) 

200 

4 BSES - 220 kV (25% of the units) 0 

138 

BSES - 220 kV (balance 75% of the units) 

190 

5 Standby charge at 220 kV Interconnection at 

Borivali 

Refer Note below 

6 Railways -33/22/11/6.6 kV 340 

260 

7 Railways -- 100 KV 

254 

8 HT Public (Govt. Dept., BARC, BMC, 

Bombay Port Trust) 

9 HT -- Industrial & Commercial (including 

HT Textiles) 

374 260 

374 285 

10 LT-I -- Commercial & Non-commercial Rs. 150 per month 400 

11 LT-II – Commercial & Non-commercial 374 300 

12 Residential Rs. per month 

0-100 units 25 125 

101-300 units 40 300 

> 300 units (balance units) 40 400 

13 Sale to MSEB Nil 230 

For sale during daytime (0600 to 2200 

25 

hours) – additional energy charges 

Notes: 

1. Standby Charges applicable for the 220 kV interconnection at Borivali has to be determined on the basis of 

the methodology prescribed by the Commission in its Order dated May 31, 2004, in Case No. 7 of 2000. 

2. Fuel Adjustment Cost (FAC) will be applicable to all consumers and licensees and will be charged over the 

above tariffs, on the basis of the FAC formula prescribed by the Commission, and computed on a monthly 

basis. 

3. Fixed charge of Rs. 100 per month will be levied on residential consumers availing 3 phase supply. 

Additional Fixed Charge of Rs. 100 per 10 kW load or part thereof above 10 kW load shall be payable. 

4. In case of LT-I consumers, additional Fixed Charge of Rs. 150 per 10 kW load or part thereof above 10 

kW load shall be payable. 

MERC, Mumbai 170




32 INCENTIVES AND DISINCENTIVES 

Incentives 

Power Factor Incentive 

The Commission would line to introduce Power Factor incentives, but has not done so in this 

Order, due to lack of data. TPC is directed to submit PF data to the Commission on a 

monthly basis. 

Prompt Payment discount 

A prompt payment rebate of 1% will be allowed on the energy bill (excluding demand 

charges, FAC and TOSE) only if the bill is paid within seven days from the date of the bill 

or within 5 days of the receipt of the bill, whichever is later. 

Disincentives 

Power factor Penalty 

Whenever the average power factor is less than 0.92, penal charges shall be levied at the rate 

of 2% (two percent) of the amount of the demand charges for the first 1% (one percentage 

point) fall in the power factor below 0.92, beyond which the penal charges shall be levied at 

the rate of 1% (one percent) for each percentage point fall in the power factor below 0.91. 

Due to lack of adequate data, the Commission is unable to assess the impact of the above 

incentives and penalties, on the revenues of TPC. 

33 REVENUE FROM REVISED TARIFFS 

In FY 2004-05, TPC will earn revenue for 2 months with existing tariff, while the revised 

tariffs will be applicable for 10 months, from June 2004. The total revenue from sale of 

electricity based on revised tariffs applicable for the entire year has been projected as Rs. 

2852 crore, excluding revenue from standby charges, to the extent of Rs. 91 crore. 

The detailed revenue calculations with the revised tariff have been given in Appendix 7. 

The Commission acknowledges the efforts taken by the Consumer Representatives, viz. (i) 

Prayas, (ii) Mumbai Grahak Panchayat, (iii) Thane Belapur Industries Association and 

(iv)Vidarbha Industries Association and the various individuals, corporates and associations 

for their valuable contribution to the tariff process. 

MERC, Mumbai 171




The Commission would also like to put on record, the efforts of its advisors, ICRA Advisory 

Services. 

This Tariff Order shall come into force with effect from June 1, 2004. 

Sd/- Sd/- Sd/- 

Jayant Deo Pramod Deo P. Subrahmanyam 

Member Member Chairman, MERC 

(A. M. Khan) 

Secretary, MERC 

MERC, Mumbai 172




APPENDIX- 1 

LIST OF PERSONS/OFFICIALS WHO ATTENDED THE TECHNICAL 

VALIDATION SESSION HELD ON 31.10. 2003 

No. Name of the persons Name of the Institution/Designation 

TPC Officials: - 

1 Shri Shailesh Rao Vice President 

2 Shri M.S. Dave 

3 Shri A. Thakur Sr. Associate (E&Y) 

4 Shri C.A. Colaco 

5 Shri P.K. Kukde 

6 Shri P.V. Joshi 

7 Shri J.R. Desai 

8 Shri R. Kanwa G.M. 

9 Shri A. Charan Vice President 

10 Shri Haroonshet Manager 

11 Shri M. Dalal Manager 

12 Shri Balram Mehta Manager 

13 Dr. Ambhir Manager 

14 Shri Y.A.P. Munif AGM 

15 Shri Vivek Kejriwal Manager 

16 Shri Mohan Gurunath V.P. (S&BD) 

17 Shri J.D. Kulkarni AGM 

18 Shri V.H. Wagle Asst. Manager 

19 Shri Navraj Singh Manager 

20 Shri R. Ujwal Jr. Manager 

21 Shri S. Khare Jr. Manager 

22 Shri B.J. Shroff 

23 Shri N.K. Gupta G.M. 

24 Shri P. Ganwir Officer 

25 Shri D.A. Sathe G.M. 

26 Shri R.S. Deshpande CLD 

27 Shri D. Raina DGM 

28 Shri A. Tapadar Manager 

MERC, Mumbai 173




No. Name of the persons Name of the Institution/Designation 

29 Shri N. Suresh AGM 

30 Shri P. Chakravartis DGM 

31 Shri S.V. Doijode Solicitor 

32 Shri P. Kabadi Solicitor 

REL Officials: - 

33 Shri Mukesh Tyagi Sr. V.P. 

34 Shri Subodh K. Shah Director 

35 Shri P.S. Pandya Sr. Consultant 

36 Shri K.H. Mankad D (F) 

37 Shri Prakash Beria G.M. 

38 Shri Kapil Sharma Dy. Manager 

Consumer Representatives: - 

39 Dr. S.L. Patil Thane Belapur Industries Association 

40 Shri Shantanu Dixit Prayas 

Consultants: - 

41 Shri Kirtan Mehta ICRA Advisory Services 

42 Shri Palaniappan M. ICRA Advisory Services 

43 Shri Suresh Gehani ICRA Advisory Services 

44 Shri Ajit Pandit ICRA Advisory Services 

Other Officials: - 

45 Shri Sanjay Jog Financial Express 

46 Ms. Archana C. The Hindu (BL) 

MERC, Mumbai 174




APPENDIX- 2 

LIST OF PERSONS/OFFICIALS WHO ATTENDED THE TECHNICAL 

VALIDATION SESSION HELD ON 25.11. 2003 

No. Name of the persons Name of the Institution / Designation 


1 Shri Suresh V.P. (E&Y) 

2 Shri M.S. Dave 

3 Shri A. Thakur Sr. Associate (E & Y) 

4 Shri A. Charan Vice President 

5 Shri A.D. Haroonshet Manager 

6 Shri M. Dalal Manager 

7 Dr. A.M.Bhole 

8 Shri Y.A.P. Munif AGM 

9 Shri Vivek Kejriwal Manager 

10 Shri Mohan Gurunath V.P. (S&BD) 

11 Shri J.D. Kulkarni AGM 

12 Shri V.H. Wagle Asst. Manager 

13 Shri Navraj Singh Manager 

14 Shri S. Khare Jr. Manager 

15 Shri B.J. Shroff 

16 Shri N.K. Gupta G.M. 

17 Shri P. Ganwir Officer 

18 Shri A. Tapadar Manager 

19 Shri S.V. Doijode Solicitor 

20 Shri P. Kabadi Solicitor 

21 Shri P.K. Kukde E.D. 

22 Shri A. Chaddha Sr. Associates (E&Y) 

23 Shri R.K. Kanga Sr. G.M. 

24 Shri B.P. Mehta Manager 

25 Shri P.V. Joshi Sr. Executive 

26 Shri C.A. Colaco 

27 Shri T.P. Mohan Addl. Manager 


MERC, Mumbai 175





28 Shri D.B. Prabhu Addl. Manager 

29 Shri S.K. Shah Director 

30 Shri Abhijit Bhatt 

31 Shri Amit Kurshetra 

32 Shri S.R. Khot Addl. Manager 

33 Shri P.S. Pandya Sr. Consultant 

34 Shri Prakash Beria G.M. 

35 Shri Kapil Sharma Dy. Manager 


36 Dr. S.L. Patil Thane Belapur Industries Association 


Consultants: - 

38 Shri Suresh Gehani ICRA 

39 Ms. Justin Bharucha JSA 

40 Ms. Nirmala Iyer JSA 

41 Shri Nair JSA 

Other Officials: - 

42 Shri Sanjay Jog Financial Express 

43 Ms. Rashmi N. VCC 

44 Shri Jaiprakash PT 

45 Shri Hanif Tofikh J.P. Morgan Stanley 

MERC, Mumbai 176




APPENDIX- 3 

LIST OF PERSONS/OFFICIALS AT THE PUBLIC HEARING HELD ON 

22.03.2004 


Objectors: - 

1 Shri Vijay Tamhane Millowners Association 

2 Shri V.B. Chopra Millowners Association 

3 Shri K.K. Bilimoria Millowners Association 

4 Shri Kaiwan Kalyaniwala Millowners Association 

5 Shri F.D. Vitre Millowners Association 

6 Shri Percy Ghandy Millowners Association 

7 Shri A.V. Raghavan Millowners Association 

8 Shri Ramji Mehrotra Central Railway 

9 Shri D. Ramaswamy Western Railway 

10 Shri K. Shiva Kumar Western Railway 

11 Shri Mahesh M. Barbhaya Bombay Suburban Small Scale Ind. 

Association (BSSSIA) 

12 Shri Uday Chitre Electrical Contractors’ Association of 

Maharahstra (ECAM) 

13 Shri Sunil Saraf Electrical Contractors’ Association of 

Maharahstra (ECAM) 

14 Shri Rakshpal Abrol Bombay Small Scale Industries Association 

(BSSIA) 


15 Shri M.D. Dalal Tata Power Company Limited 

16 Shri R. Kanga Tata Power Company Limited 

17 Shri J.D. Kulkarni Tata Power Company Limited 

18 Shri P. Murugan Tata Power Company Limited 

19 Shri V.H. Wagle Tata Power Company Limited 

20 Shri M.S. Dave Tata Power Company Limited 

21 Shri C.A. Colaco Tata Power Company Limited 

22 Shri N.B. Singh Tata Power Company Limited 

23 Shri G.J. Bhatia Tata Power Company Limited 

MERC, Mumbai 177





24 Dr. V.K. Sawant Tata Power Company Limited 

25 Shri S.R. Mehta Tata Power Company Limited 

26 Shri P.L. Ganwir Tata Power Company Limited 

27 Shri Y.P. Munif Tata Power Company Limited 

28 Dr. A.M. Bhole Tata Power Company Limited 

29 Shri T.P. Mohan Tata Power Company Limited 

30 Shri Amitabh Tapadar Tata Power Company Limited 

31 Shri Mohan Gurunath Tata Power Company Limited 

32 Shri M.S. Dave Tata Power Company Limited 

33 Shri B.J. Shroff Tata Power Company Limited 


34 Shri Mukesh Tyagi Reliance Energy Limited 

35 Shri Krishna Shenoy Reliance Energy Limited 

36 Shri Ramesh Shenoy Reliance Energy Limited 

37 Shri R.R. Mehta Reliance Energy Limited 

38 Shri Surendra Khot Reliance Energy Limited 

39 Shri Kapil Sharma Reliance Energy Limited 

40 Shri Harshvardhan Dole Reliance Energy Limited 

41 Shri Rasika Gokhale Reliance Energy Limited 

42 Shri Ramakrishanan Reliance Energy Limited 

43 Shri P.K. Beria Reliance Energy Limited 

44 Shri P.S. Pandya Reliance Energy Limited 

45 Shri K.R. Patil Reliance Energy Limited 

46 Shri Sharad Baitur Reliance Energy Limited 

47 Shri Rahul Nayar Reliance Energy Limited 


48 Shri Girish Sant Prayas 


50 Dr Ashok Pendse Mumbai Grahak Panchayat 

51 Shri S.D. Natu Mumbai Grahak Panchayat 

Consultant: - 

52 Shri Palaniappan M. ICRA, Consultant 

Others: - 

53 Shri G.M. Bhagat BEST 

MERC, Mumbai 178





54 Shri E.S. Chaudhari BEST 

55 Shri Puranik S.A. BEST 

56 Shri Shaswat S. Doctor The Manu. Electrical & Engg. Works 

57 Shri Sameer Ranade Pioneer Intermedian 

58 Shri Anup Kumar Individual 

59 Shri P.S. Dey BDMC 

60 Shri Hozafe Taufiq J.P. Morgan Stanley 

61 Shri Ketan Shah Ernst & Young 

62 Shri Shankar K. VCC 

63 Ms. Rashmi Naik VCC 

64 Shri Jaiprakash Gajbhir PTI 

65 Ms. Seema Kamdar Times of India 

MERC, Mumbai 179

Tariff Order for TPC – FY 2003-04 & FY 2004-05 Commission’s Analysis & Decision 


Appendix 4: Projections for FY 2004-05: 

(i) Generation & Generation Parameters for TPC’s Own Stations: - 

Unit/ 

Station 

Fuel Heat Rate Aux 

Cons 

kcal/ 

kWh 

Var 

Cost 

% Rs/kWh Apr May Jun- 

-04 -04 04 

Jul- 

04 

Gross Generation (MU) 

Aug Sep- Oct- 

-04 04 04 

Total Fuel 

Cost for 

FY 2004-05 

Nov Dec- Jan- Feb- Mar Rs Crore 

-04 04 05 05 -05 

Hydel 

Stations 

Unit 7, 

Trombay 

Unit 6, 

Trombay 

Unit 5, 

Trombay 

Unit 6, 

Trombay 

Unit 5, 

Trombay 

Unit 4, 

Trombay 

None NA 0.50% 0.00 116 109 106 160 144 94 81 96 96 109 118 107 0 

Natural 

Gas 

Natural 

Gas 

2,019 2.79% 0.62 108 112 108 105 0 108 112 108 112 112 101 112 74 

2,338 3.25% 0.71 0 0 0 6 97 0 0 0 0 0 0 0 7 

Coal 2,447 5.27% 1.18 316 326 316 326 326 316 326 316 326 326 295 326 452 

Oil 2,338 3.25% 2.50 360 372 360 286 275 360 372 360 315 0 228 372 916 

Oil 2,447 5.27% 2.62 44 46 22 0 46 14 32 44 0 46 16 31 89 

Oil 2,574 7.77% 2.76 0 0 0 0 0 0 0 0 0 112 0 0 31 

Total 944 965 912 883 888 893 923 924 850 704 758 949 1570 

MERC, Mumbai 180




Appendix 5: Monthly FAC Recoverable and FAC Recovered during FY 1999-00 

to FY 2003-04 

Summary of monthly FAC Recoverable and FAC Recovered during FY 1999- 

2000 

Month Total Fuel MkCal Basic FAC FAC FAC Under/(Excess) 

Cost (Rs 

Cost (Rs Recoverable Recoverable Recovered Recovery (Rs 

Crore) 

Crore) (Rs Crore) from License from Crore) 

Area (Rs License 

Crore Area (Rs 

Crore) 

Apr-99 74 1673320 54 20 19 19 0.15 

May-99 82 1599854 52 30 29 23 6.31 

Jun-99 81 1487028 48 33 32 27 4.98 

Jul-99 85 1470360 48 37 36 30 5.60 

Aug-99 89 1427830 46 42 41 39 2.35 

Sep-99 113 1630703 53 60 58 42 15.90 

Oct-99 123 1702916 55 68 66 58 8.38 

Nov-99 96 1281485 42 54 52 56 -4.05 

Dec-99 98 1283441 42 56 54 60 -5.37 

Jan-00 99 1299494 42 56 55 58 -3.45 

Feb-00 87 1201711 39 48 46 56 -9.63 

Mar-00 104 1417587 46 58 57 71 -14.20 

sub-total 1130 568 562 545 538 6.96 

Adjustment 4 4 4 4 0 3.51 

Total 1134 572 566 549 538 10.47 

(Page 1 of 5) 

MERC, Mumbai 181




Summary of monthly FAC Recoverable and FAC Recovered during FY 2000-01 


Cost (Rs 

Cost (Rs Recoverable Recoverable Recovered Recovery during 

Crore) 

Crore) (Rs Crore) from License from the month (Rs 

Area (Rs License Crore) 


Crore) 

Apr-00 135 1617991 53 83 82 69 13.02 

May-00 154 1814441 59 95 94 71 23.48 

Jun-00 152 1727399 56 96 95 90 5.42 

Jul-00 158 1647435 54 104 103 95 8.44 

Aug-00 171 1882941 61 110 109 115 -6.33 

Sep-00 156 1684282 55 102 101 99 1.79 

Oct-00 180 1839509 60 121 120 109 10.09 

Nov-00 156 1657224 54 102 101 103 -1.99 

Dec-00 120 1411030 46 74 73 82 -8.47 

Jan-01 93 1295159 42 51 50 70 -20.04 

Feb-01 77 1127241 37 41 40 56 -15.28 

Mar-01 99 1467989 48 51 51 57 -6.31 

sub-total 1652 623 1029 1020 1016 3.82 

Adjustment 0 0 0 0 0 -0.26 

Total 1651 623 1028 1020 1016 3.56 


MERC, Mumbai 182






Cost (Rs 


Crore) 




Crore) 

Apr-01 117 1667204 54 63 59 65 -5.55 

May-01 133 1698393 55 78 74 68 5.75 

Jun-01 155 1735147 56 99 94 74 20.40 

Jul-01 145 1653582 54 91 87 84 3.06 

Aug-01 177 1954977 64 113 108 93 14.42 

Sep-01 153 1833591 60 93 88 89 -0.16 

Oct-01 143 1846749 60 83 79 89 -10.10 

Nov-01 129 1813452 59 70 67 77 -10.41 

Dec-01 104 1648552 54 51 48 60 -11.24 

Jan-02 90 1314436 43 47 45 46 -1.41 

Feb-02 89 1266032 41 47 45 41 4.49 

Mar-02 116 1650337 54 62 59 51 7.84 

sub-total 1551 653 898 852 835 17.09 

Adjustment 0 0 0 0 0 0.00 

Total 1551 653 898 852 835 17.09 


MERC, Mumbai 183





Month 

Total Fuel MkCal 

Cost (Rs 

Crore) 

Basic FAC FAC FAC Under/(Excess) 





Crore) 

Rs Crore Rs Crore Rs Crore Rs Crore Rs Crore Rs Crore 

Apr-02 137 1853490 60 77 71 62 9.33 

May-02 163 2032090 66 97 90 77 13.39 

Jun-02 167 1930340 63 104 97 89 8.13 

Jul-02 165 1974651 64 101 94 111 -16.43 

Aug-02 165 1866801 61 104 97 97 -0.71 

Sep-02 169 1863936 61 109 101 91 9.86 

Oct-02 199 2112891 69 131 121 111 9.93 

Nov-02 184 1913128 62 121 113 99 13.87 

Dec-02 164 1781692 58 106 98 88 10.62 

Jan-03 98 1413727 46 52 49 86 -37.48 

Feb-03 90 1276661 41 48 45 82 -37.63 

Mar-03 146 1591599 52 94 87 84 3.04 

sub-total 1846 702 1143 1062 1076 -14.09 

Adjustment 0 0 0 0 0 0.00 

Total 1846 702 1143 1062 1076 -14.09 


MERC, Mumbai 184





Total Fuel MkCal Basic FAC FAC FAC Under/(Excess) 

Cost (Rs 


Crore) 




Crore) 

Apr-03 146 1713373 56 90 84 92 -7.85 

May-03 154 1869497 61 93 87 97 -9.93 

Jun-03 170 1853213 60 109 102 90 12.01 

Jul-03 152 1642250 53 99 92 88 3.95 

Aug-03 138 1657562 54 84 79 88 -9.42 

Sep-03 131 1714073 56 75 70 89 -18.63 

Oct-03 128 1786596 58 70 66 88 -21.90 

Nov-03 150 1932605 63 87 82 85 -3.69 

Dec-03 132 1900076 62 71 66 75 -8.53 

Jan-04 128 1781160 58 70 66 51 15.17 

Feb-04 98 1290303 42 56 52 38 14.13 

Mar-04 136 2092913 68 68 64 30 34.51 

sub-total 1664 690 973 911 911 -0.18 

Adjustment 0 0 0 0 0 0.00 

Total 1664 690 973 911 911 -0.18 


MERC, Mumbai 185



Appendix 6: Comparison of Existing & Revised Tariffs 

MERC, Mumbai 186



Appendix 7: Revenue Computations with revised tariffs 

MERC, Mumbai 187

Determination of Annual Revenue Requirement and Tariff ...

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