Before the Gujarat Electricity Regulatory Commission at Ahmedabad Petition No.256/2003 & 867/2006

BEFORE THE GUJARAT ELECTRICITY REGULATORY COMMISSION AT AHMEDABAD PETITION NO.256/2003 & 867/2006

In the matter of: Levy of Parallel Operation Charges for the Captive Power Plants running in parallel of the grid of the Gujarat Energy Transmission Corporation Limited’s and Distribution Companies.

Petitioner : Gujarat Energy Transmission Corporation Limited, Vadodara.

Co-Petitioners: 1. Madhya Gujarat Vij Company Ltd., Vadodara. 2. Dakshin Gujarat Vij Company Ltd., Surat. 3. Uttar Gujarat Vij Company Ltd., Mehsana. 4. Paschim Gujarat Vij Company Ltd., Rajkot.

V/s.

Respondents: 1. M/s.Torrent Gujarat Bio Tech, Masar. 2. M/s.Petronet LNG Ltd., Dahej. 3. M/s.GACL, Dahej Vagra. 4. M/s.GSFC, Fertilizernagar, Vadodara. 5. M/s.Gujarat Glass Pvt.Ltd., Uchhad. 6. M/s.Solaris Bio-Chemical Ltd., Karakhadi. 7. M/s.ONGC (Kawas), Hazira, Surat. 8. M/s.Videocon International Ltd., Cahvaj. 9. M/s.Nilkanth Concast Pvt.Ltd., Vadala. 10. M/s.Dipak Nitrite Ltd., Nadesari. Baroda.

Page 1 of 46 11. M/s.Alembic Chemicals, Baroda. 12. M/s.Hindalco, Dahej. 13. M/s.IPCL, Dahej-Gandhar. 14. M/s.Modern Petrofiles Ltd., Bamangam. 15. M/s.Narmada Cement Co.Ltd., Jafrabad. 16. M/s.IPCL, Jawaharnagar, Vaodadara. 17. M/s.Daman Ganga Paper Ltd., Ambethi, Vapi. 18. M/s. SAL Steel Ltd. Gandhidham, Kutch. 19. M/s.Mid India Engineer, Anjar, Kutch. 20. M/s.Reliance Industries Ltd., Motikahvadi, 21. M/s.Orient Obresive Ltd., Porbandar. 22. M/s.Nirma, Kalatalav, Bhavnagar. 23. M/s.L&T Ltd. Kovaya, Jafrabad, Amreli. 24. M/s.Arvind Mills Ltd., Naroda, Ahmedabad. 25. M/s.KRIBHCO, Hazira, Surat. 26. M/s.Reliance Industries Ltd., Hazira, Surat. 27. M/s.Swil Ltd., Jhagadia, Bharuch. 28. M/s.Gujarat Narmada Valley Fertilizer, Bharuch. 29. M/s.Saurashtra Cement Ltd., Ranavav. 30. M/s.Narmada Chematur & Petrochem., Bharuch. 31. M/s.Philps Carbon Ltd., Palej, Bharuch. 32. M/s.Arvind International, Santej, Ahmedabad. 33. M/s.Reliance Industries Ltd., Ahmedabad. 34. M/s.Shah Alloys Ltd., Santej, Kalol. 35. M/s.Essar Steel Ltd., Hazira, Surat. 36. M/s.ONGC;, Ankleshwar. 37. M/s.United Phosphorous Ltd., Jhagadia, Bharuch.

Page 2 of 46 38. M/s.J.C.T.Electronics Ltd., Kandari. 39. M/s.GEDA, Kothara, Kutch. 40. M/s.Ultratech Cement Ltd., Kovaya 41. M/s.Welspun Ltd., Varamedi 42. M/s.Electrotherm Pvt.Ltd., Bhachau. 43. M/s.Central Pulp Mill Ltd. (JK Paper Mills), 44. M/s.Gujarat Fluorochemicals Ltd., Dahej. 45. M/s.Jindal Saw Ltd., Pragpar. 46. M/s.Bhander Power Ltd., Hazira. 47. M/s.DCM Shriram Ltd., Jhagadia. 48. M/s.Gallant Metal Ltd., Samkhiyali 49. M/s.Varasana Ispat Ltd., Varasana. 50. M/s.Shaifali Rolls Ltd., Tuna. 51. M/s.Essar Oil Ltd., Vadinar. 52. M/s.Ambuja Cement, Timbdi. AND

PETITION NO.941/2008

In the matter of: Illegal collection of Parallel Operation Charges by Gujarat Energy Transmission Corporation Limited and to grant stay as per Section 94 (2) of Electricity Act, 2003. Petitioner : Consumer Education & Research Society, Ahmedabad

V/s

Respondents : 1) Gujarat Energy Transmission Corporation Ltd. 2) Paschim Gujarat Vij Company Ltd., Rajkot.

Page 3 of 46 CORAM: Dr. P.K.Mishra, Chairman Shri Pravinbhai Patel, Member (T) Dr. M.K. Iyer, Member (F)

JUDGMENT

1. The Gujarat Electricity Board (GEB) had on 08-09-2003, filed the petition No.256/2003, in the matter of levy of Parallel Operation Charges on the Captive Power Plants (CPPs) running in parallel with the GEB grid. The Commission, under its order dated 25th June, 2004 held that the petition was legally maintainable and that POC can be levied under the Central Act and the Gujarat Act. The Commission also directed the GEB to conduct studies to identify and quantify the support extended by the grid to the CPPs synchronized with it and to file findings of the study with the Commission.

2. Some of the respondents challenged the above order of the Commission through Special Leave Applications (SCAs) in the Hon’ble High Court of Gujarat. While the above SCAs were pending before the Hon’ble High Court, the Gujarat Electricity Transmission Co. (GETCO), an unbundled entity of the erstwhile GEB along with Distribution licensees, filed the petition No.867/2006, seeking determination of POC based on the study conducted by their consultant.

3. The Hon’ble High Court of Gujarat, while disposing of the above SCAs vide its order dated 21st October, 2008 quashed and set aside the order dated 25.6.2004 passed by the Commission in Petition No.256/2003 and directed the Commission to make deliberations in both the petitions, i.e. petition nos. 256/2003 and 867/2006, simultaneously and conjointly, as if, they are one petition and to afford an opportunity to the petitioners (of the SCA) to assail the legality, validity, propriety

Page 4 of 46 and justifiability including entitlement to pray for fixation and levy of such grid support charge de novo.

4. In the meanwhile, Consumer Education Research Society (CERS) on behalf of some of the CPPs, had filed petition No.941/2008 dated 4th July 2008, praying, inter-alia, for a stay on collection of parallel operation charges.

5. Since the subject matter of all these petitions is related to Parallel Operation Charge, the Commission decided to hear all of them together. Brief facts of the case are as under :

6. The Commission under its order dated 31st August, 2000 had quashed and set aside the GEB’s commercial circular No. 706 relating to collection of parallel operation charges and also disallowed the erstwhile GEB to recover the POC in suo-motu case 24 of 2000. However, it was left open for GEB to approach the Commission with necessary application under section 29 of the ERC Act 1998. The GEB then filed a petition No. 256/03 on 8th September, 2003, in matter of levy of POC on Captive Power Generation Plants (CPGPs) operating in parallel with GEB’s grid with the following prayer :

“The Hon’ble Commission may kindly approve a special levy of 50% of the Demand Charge (as specified in the tariff for HT Industrial Category form time to time on the Capacity (in terms of MVA) of the Captive Power Plant as a compensation for the network costs of GEB infrastructure in the Grid system”

7. After due process of hearing, the Commission, in its order dated 25th June 2004, ordered as under:

Page 5 of 46 “The Commission holds that this petition (256/2003) filed by the GEB is legally maintainable. The Commission further holds that POC can be levied under the Central Act and Gujarat Act.

The Commission is of the view that, the support extended by the grid, to the CPPs synchronized with it, has to be identified and quantified. GEB also has to furnish the estimate of cost being incurred by it for providing these services to the CPPs. GEB is accordingly directed to conduct the necessary study covering these aspects.

GEB is further directed to file the findings of the study with the Commission. GEB is at liberty to file a fresh petition on parallel operation charges incorporating the findings of the study.”

8. In pursuance of the above order of the Commission, GETCO and unbundled distribution companies of GEB, filed a petition no. 867/2006, praying as under:

“It is therefore respectfully prayed that this Hon’ble Commission may determine the charges of parallel operation and grid support provided by the petitioner and co- petitioners based on the installed capacity of the unit where the Captive Power Plant is installed and at a minimum of the amount equivalent to demand charges and fixed charges applicable to similarly based industrial consumers without Captive Power Plants getting supply form the distribution companies based on contracted demand and pass such further order or orders as may be considered just and proper in the circumstances of the case.”

9. Meanwhile, CERS on behalf of some of the CPPs had filed petition No. 941/2008 dated 4th July, 2008, praying the following:

“(i) To pass an interim order putting stay on collection of parallel operation charges as per section 94(2) of the Electricity Act.

Page 6 of 46 (ii) To direct the respondents not to issue notices demanding POC.

(iii) To direct respondents not to disconnect power till the matter is resolved and order is passed by the Commission.

(iv) To impose penalty of respondents no.1 and 2 as per section 142 of Electricity Act, 2003.

(v) To pay adequate costs to petition for filing this petition.”

10. The major facts mentioned in the two petitions No. 256/2003 and 867/2006 for levy of POC are as under:

The erstwhile GEB, in the petition No. 256/2003, submitted that as per Government of India and Government of Gujarat Power Policies, CPPs were set up by different industrial units to augment the power supply for their own use. They were also connected to the grid. The erstwhile GEB looking to the technicality of the grid connection in parallel as well as the services to be rendered on account of such connections decided to charge POC from the CPPs vide Notification No. 687 dated 21/12/1998. Subsequently the quantum of charges of POC was increased by issuing general Commercial Circular No. 706 dated 28.1.2007.

As the above circulars were in the form of determination of tariff, the Commission took note of it through a suo-motu petition No. 24/2000 and quashed circular No. 706 and disallowed the erstwhile GEB to collect POC.

The erstwhile GEB aggrieved by the above decision filed petition No. 256/2003 on 8.9.2003 seeking levy of POC for CPPs operating in parallel with GEB grid. The Commission after hearing the petition vide its order dated 25.6.2004 gave its verdict as under:

Page 7 of 46 “The Commission holds that this petition (256/2003) filed by the GEB is legally maintainable. The Commission further holds that POC can be levied under the central Act and the Gujarat Act.

The Commission is of the view that, the support extended by the grid, to the CPPs synchronized with it, has to be identified and quantified. GEB also has to furnish the estimate of cost being incurred by it for providing these services to the CPPs, GEB is accordingly directed to conduct the necessary study covering these aspects.

GEB is further directed to file the findings of the study with the Commission. GEB is at liberty to file a fresh petition on parallel operation charges incorporating the findings of the study”.

Again, the GETCO and the distribution companies (unbundled entities of erstwhile GEB) filed petition No. 867/2006 dated 18.1.2006 seeking levy of POC to the CPPs running in parallel to GETCO and distribution companies’ grids. They submitted the report and findings of the study carried out, as per the Commission’s earlier directives, by M/s Feedback Ventures (P) Ltd. and M/s Lahmeyer International India (P) Ltd.. The study report of the consultants lists out details of the extent of services provided by the petitioner and co-petitioners to the CPPs operating in parallel, the advantage derived by the CPP units and its impact on the petitioner and co- petitioners including the method and formula for collecting the POC. The Central Electricity Authority also submitted their views on the report of the consultants especially with reference to (a) Spinning Reserve, (b) Frequency Regulation Stability, and (c) Voltage Regulation Support to the CPPs connected in parallel to the petitioner and co-petitioners.

Page 8 of 46 11 Meanwhile, the CPPs challenged the order of the Commission in Petition No. 256/2003 vide SCA in the Hon’ble High Court of Gujarat on the issue of POC in which the Hon’ble High Court observed as under:

“In view of the discussion made and the reasons aforesaid, the present petitions are required to be partly allowed and accordingly are partly allowed. Impugned order under challenge in the present petitions is hereby quashed and set aside with a direction to the respondent GERC that it shall now make deliberations on both the petitions, i.e. one under which impugned order has been passed and the second petition which is filed by the State Transmission Utility as ordered by the GERC, simultaneously and conjointly as if they are one petition. The GERC shall afford an opportunity to the petitioners to assail the legality, validity, propriety, and justifiability including entitlement to pray for fixation and levy of such grid support charge de novo. The GERC shall do this exercise without being influenced by the earlier findings recorded by it. The GERC shall also decide the matter without being influenced by the observations made by this Court in the present judgment independently.

It is clarified and ordered that this Court, has not recorded any finding either positive or negative qua sustainability of assailed Regulation-62 of 2005 and it will be open to the petitioners to assail the vires of the said Regulation if need be. The GERC, while dealing with the case between the parties shall exclude existence of Regulation-62 treating the said Regulation as inoperative qua the present dispute to avoid prejudice and likelihood of other further legal complications. The GERC shall hear and decide the matters as expeditiously as possible.

It is hereby ordered that the petitioners shall continue to pay charges @ 7.5% that are being paid as per the Commercial Circular No. 687 dated 21st December, 1998, but such payment that may be made by the petitioners shall be treated as payment

Page 9 of 46 made without prejudice to the rights and contentions of the petitioners that they have raised before this Court.

Before parting with the order, the Court is tempted to observe that in the ultimate interest and development of the State and growing industrial zones, scope of installations of other CPPs being need of time, some mediation or conciliation proceedings, if possible, can be initiated by GERC if it thinks fit and try to resolve the issue amicably, keeping the battle of the Court under suspension, because, State Transmission Utilities and private generating activity, both need substantive development.

As the substantive petitions are partly allowed, no formal orders are required to be passed on both the Civil Applications seeking stay of the impugned order passed by the GERC. Rule is made absolute accordingly in each of the petitions. Registry is directed to keep copy of this judgment in each of the petitions.”

However, some of the CPP holders challenged the above order of the Hon’ble High Court vide Misc. Civil Application No. 2967/2008 for review of its order dated 21st October, 2008 in SCA relating to upholding levy of POC which was not prayed by the CPPs. The Hon’ble High Court subsequently vide its order dated 28th April, 2009 had directed as follows:

“When the Review Applications came up for hearing I had suggested to the parties to explore possibility to resolve the dispute. I am informed that the parties met and pursuant to such meeting a broad consensus is reached which is to the following effect.

[A] The Power utilities and the Companies having Captive Power Plant(s) to agree, by way of a without prejudice settlement for 10 years, to either of the following options:

Page 10 of 46 (a) Meters with the Three (3) minutes integration period for computing the Demand Charges and no POC would be levied on such CPP Units;

(b) Adoption of Commercial Circular No.706, with condition no.2, therein, being substituted, by the following:

Whenever the power will be sold to GUVNL the parallel operation charges to be paid shall be compensated as part of the cost of generation and rate of sale of power shall be accordingly adjusted.

[B] Meter installation or Change in the meter programming for the purpose of Meters having agreed Integration period.

After the issue of settlement order by GERC, GEB will take necessary actions for the installation of meter or modification in the program of the meter, as the case may be, for implementing the agreed integration period as suggested above. The cost of making such change for the first time viz. {i) change in setting or program of the meter or (ii) change of the meter to implement the desired integration period for computing the Demand Charges as agreed will be borne by GUVNL/GETCO.

CPP units can exercise change in the selected option mentioned above only once during the calendar year i.e. CPP unit can exercise its option from the two options mentioned above only once during the calendar year. The cost of implementation arising from the change in decision any time after exercising the first option will be borne by the CPP unit.”

12 Some of the CPPs had also approached the Hon’ble Appellate Tribunal for Electricity (APTEL) vide Appeal No. 276/2006 wherein the appellate authority vide its order dated 28th September, 2007 had opined as under:

Page 11 of 46 “The Circular No. 687 cannot be said to be hit by Section 29 of The ERC Act 1998. As stated earlier when the Circular No. 687 was issued there was no Commission in place. The subsequent Circular No. 706 was issued when the Commission was in existence. The GEB could not have any jurisdiction to alter the parallel operation charges which was in the nature of tariff and had been fixed by GEB in exercise of authority vesting in it. The Circular No. 706 altered the established tariff situation and was therefore, invalid unless approved by the Commission. There is no quarrel that the Circular was invalid and was liable to be quashed. The Circular No. 687 had imposed one such tariff and therefore had to continue in force till it was superseded by another tariff order or was specifically set aside. The Circular No. 687 is quashed, rightly or wrongly, vide the order dated 06.09.2002. The Circular 687 of 2006 was not void ab initio. Therefore, it continued to remain in force till order dated 06.09.2002.

When the Circular No. 706 is struck down, the Circular No. 687 naturally has to hold the field. The Commission itself was aware of this situation when it passed the order dated 31.08.2000. It did not strike down Circular No. 687. Nor did it approve the Circular No. 687. It suggested that approval under Section 29 could be obtained by GEB for this Circular. As stated earlier, this approval was not required to be taken as the circular was not ab initio void and continued to remain in force till it was superseded by another order or was specifically set aside. The appellant is however, satisfied with the amount recovered towards parallel operation charges up to 31.08.2000 itself. We need not consider the situation about the entitlement of the appellant after 31.08.2000. The appellant was certainly entitled to recover parallel operation charges as fixed by circular No.687 at least up to 31.08.2000. The claim for refund made by the respondent No.2 was not sustainable. The impugned order allowing refund of parallel operation charges paid during this period cannot

Page 12 of 46 therefore be sustained. Accordingly, we allow the appeal and set aside the impugned order.”

Thus the APTEL allowed the collection of POC under commercial circular no. 687 although for a limited period up to 31.8.2000.

Therefore it is abundantly clear that there is a direction by the Hon’ble High Court that the entire issue of POC for those CPPs who are connected in parallel to the grid is required to be heard afresh and appropriate decision taken by the Commission.

13. Taking into account all the above facts, the Commission vide its oral order dated 8.5.2009 directed the petitioner to submit the list of CPPs operating in parallel to the state grid to the Commission within 2 weeks, and also directed them to issue notices to all such CPPs owners informing them about the settlement proposal in the High Court order by enclosing a copy of the order and calling upon each of them to indicate within a period of eight weeks whether they wish to accept either of the proposals for the term of 10 years or not. It was further clarified that in the event any party fails to indicate whether he is willing to accept the proposal or not within eight weeks he would be deemed to have accepted the proposal and shall then have to exercise option of POC or demand charges based on meter with 3 minutes integration.

14 The Commission, vide its oral order dated 13.11.2009 gave further directions as mentioned below:

a. M/s. GACL, Ultratech Cement Ltd., Petronet LNG Ltd., M/s. Jindal Saw Ltd., M/s. Alembic Ltd., M/s. JCT Electronics Ltd., M/s. Hindalco Inds Ltd., M/s. Nilkanth Cancast Pvt. Ltd., M/s. Piramal Glass Ltd., M/s. Modern Petrofils Ltd., M/s. Welspun Gujarat Shah & Rohern Ltd., M/s. Gallant Metal Ltd., M/s. Krishak Bharati Cooperative Ltd., M/s. Essar Steel Ltd., M/s. Bhandar Power Ltd., M/s.

Page 13 of 46 Solaris Chemtech Industries Ltd., M/s. Electrotherm India Ltd., and the petitioner (GETCO) were directed to specify the option which they have adopted in the agreement within 15 days from the date of receipt of the order. b. The petitioner and respondent (ONGC) directed to clarify as to which option had been chosen by the respondent within 15 days from the date of receipt of the order. c. The Commission directed both GNFC and petitioner GETCO to sign an agreement and get it approved by this Commission. d. M/s. Reliance Industries Ltd. and GETCO were directed to file reply within 15 days from the receipt of the order, if they do not want to enter into any agreement. e. Reliance Industries Ltd., Ahmedabad, Naroda, Jamnagar, Saurashtra Cement Ltd., Arvind Mills Ltd., and Dipak Nitrate Ltd. are objecting to levy of Parallel Operation Charges. Therefore, all the above respondents were directed to file their reply/ objections within 3 weeks from the date of receipt of the order with a copy to the petitioner. If the petitioners desire to file counter rejoinder in reply, they shall file it within one week from the receipt of the objections from the respondents. f. M/s. JK Paper Mills Ltd. submitted that they desired to have Meters with 10 minutes integration period instead of 3 minutes integration and no POC should be levied on such CPP units. The respondent was directed that if it did not agree to accept 3 minutes integration period of energy meter, it shall file its objections with a copy to the petitioners within 3 weeks from the date of receipt of the order. g. M/s. Shah Alloys Ltd., SAL Steel Ltd., ONGC, DCM Shriram Consolidated Ltd., M/s. Videocon International Ltd., had objected to levy of parallel operation charges. They were directed to submit their objections within 3 weeks from the receipt of the order with a copy to the petitioners. If the petitioner desires to file any reply in rejoinder to the respondent, they shall file their reply within 10 days after receipt of copy of the objections from the said respondents.

Page 14 of 46 h. M/s. Dipak Nitrite Ltd. was directed to clarify whether it objected to the levy of parallel operation charges or desired to choose any of the options of levy of POC charges within 15 days from the date of receipt of this order. i. M/s. Ambuja Cement Ltd. does not have any captive power plant, its name as respondent to be deleted. j. GETCO was directed to delete M/s. Sterling Biotech Ltd from the list of respondents. k. M/s. Saurashtra Cement Ltd.’s agreement was not in accordance with the order of the High Court. They were directed to file reply/ objections within 15 days from the date of receipt of the order. l. M/s. Solaris Chemtech Industries Ltd. have dismantled their captive generating plant and disconnected from the grid. The petitioner GETCO was directed to make detailed submission on this issue. m. M/s. IPCL (Gandhar Complex), IPCL, Vadodara, M/s. United Phosphorous Ltd., M/s. Gujarat State Fertilizer Corpon Ltd., M/s. Jhagadia Copper (SWIL), M/s. Shaifali Rolls Ltd., M/s. Torrent Gujarat Biotech Ltd., M/s. Narma Chematur & Petrochem Ltd., M/s. Gujarat Glass Pvt.Ltd., M/s. Narmada Cement Co. Ltd., M/s. Philips Carbon Ltd., M/s. Mid India Engg., M/s. Essar Oil Ltd., M/s. Gujarat Fluro chemicals Ltd., M/s. Varsana Ispat Ltd. have not filed any agreement or objection against the notice issued by the Commission. Hence, they are governed by the deemed proviso provided by the Hon’ble High Court of Gujarat in its order dt.28.4.2009 and it is presumed that the above respondents have been governed as they have accepted the proposal and shall have to exercise option of POC or Demand charges based on meter with 3 minutes integration. Hence, both the petitioners and respondents are directed to adhere to the above provisions of the Hon’ble High Court of Gujarat and take necessary steps to implement the same.

Page 15 of 46 15 The Commission through various notices/letters had also sought detailed clarifications on the status of the compliances of the directives of the Hon’ble High Court by the CPPs.

16 The Consumer Education & Research Society (CERS) had filed Petition No. 941/2008 dated 4th July, 2008 on behalf of some of the CPPs seeking stay of collection of POC and to impose penalties on respondents no. 1 and 2 as per Sec. 142 of the Electricity Act, 2003. It was contended by CERS and co-petitioners that levy of POC was illegal as such levy of POC was earlier quashed by the Commission vide its order dated 31st August, 2000.

However, the petitioners have withdrawn petition No. 941/2008 vide their letter dated 28th October, 2010 stating that they have already signed an agreement with PGVCL for payment of POC and thus, CERS has no role to play in this matter and therefore, would be treated as withdrawn.

17 The matter was listed for hearing on 6.10.2008, 26.3.2009, 16.4.2009, 6.5.2009, 6.10.2009, 13.11.2009, 29.01.2010, 12.10.2010, and 30.10.2010. When the matter was called out on 30.10.2010, Learned Advocates Shri M.G.Ramachandran, Ms.Swapna Seshadri, and Shri Premal Joshi along with Shri S.K.Trivedi, EE, Shri J.D. Tahmne, Smt. Venu Birappa and A.Sachan were present on behalf of GETCO. Shri M.P.Trivedi was present on behalf MGVCL.S/ Shri R.P.Raval and K.S.Sindhi, were present on behalf of UGVCL. S/Shri T.D.Davda and K.M.Patel were present on behalf of DGVCL. Shri J.J.Gandhi was present on behalf of PGVCL. S/Shri B.N.Raval, CEI, and K.M.Patel, Dy.CEI were also present. Shri A.K.Yadav was present on behalf of respondent No.8. Learned Advocate Ms Gargi R.Vyas was present on behalf of respondent Nos. 10, 12, 14, 23, 27 & 29. Shri J.R.Shastri was present on bealf of respondent No.30. Learned Advocate Shri Gaurav Mathur, with Mr.Kirit Kayania and Mr.Yogesh Thaker was present on behalf respondent Nos. 18,

Page 16 of 46 22, & 34. Learned Advocates s/Shri K.Nanavati, Keyur Gandhi, Sahil Shah along with Shri S.B.Malagi, Nilay Dave, Ashok Verma, and Sanjay Agarwala were present on behalf of respondent No.35, 46 & 51. Shri P.R.Mehta was present on behalf of respondent No.41. Learned Advocate Shri R.K.Tillan with Shri M.M.Sharma was present on behalf of respondent No.43. Shri Manoj Dixit was present on behalf of respondent No.44. Learned Advocate Shri Gaurav Mathur with Mr.Kunal Bulna was present on behalf of respondent No.49. Shri K.K.Bhatia was present on behalf of respondent No.52. Nobody remained present on behalf of other respondents.

18. Learned Advocate Shri M.G.Ramachandran, on behalf of petitioner GETCO and Co- petitioners, reiterated the submissions as mentioned in para 10 to 12 above. He further argued that Parallel Operation Charges are levied for the grid support which was on the basis of Commercial Circular issued by GEB much before the Commission was in existence. The erstwhile Gujarat Electricity Board had filed Petition No. 256 of 2003 on 8.9.2003 for levy of parallel operation charges for the Captive Power Plants running in parallel of GEB Grid. The said petition was heard by the Commission and an order was passed on 25.6.2004 holding that the petition filed by the erstwhile GEB is legally maintainable. The commission further held that POC can be levied under the Central Act and the Gujarat Act. It also held that the erstwhile GEB had to identify and quantify the support provided by the Grid to CPPs and also estimate of cost being incurred by it for providing these services to CPPs. The erstwhile GEB was directed to conduct necessary study covering this aspect and filed a fresh petition on POC incorporating the finding of study. The reports of the study made by M/s Feedback Ventures (P) Ltd. and M/s Lahmeyer International India (P) Ltd. were presented to the Commission vide Petition No. 867/2006 by M/s. Gujarat Energy Transmission Corporation, Madhya Gujarat Vij Company Ltd., Dakshin Gujarat Vij Company Ltd., Uttar Gujarat Vij Company Ltd. and Paschim

Page 17 of 46 Gujarat Vij Company Ltd. (being unbundled entities of erstwhile GEB). The consultants’ reports further justified the levy of POC.

18.1 He futher submitted that the Hon’ble High Court has, in para 5, 6, & 7 of its order observed as under:

“5. The petitioners who agree to the above settlement terms may sign the settlement agreement and place the same before the GERC who will pass orders in terms of the settlement in respect of such parties while offering the same terms to all other similarly situated parties. GERC is directed to issue notice to all the CPPs informing them about the settlement proposal above referred and call upon each of them to indicate, within a period of eight weeks, if they wish to accept proposal, for the term of 10 years or not, without prejudice to rights and contentions of CPPs and power utilities. In the event any party fails to indicate whether they are willing to accept the proposal or not within 8 weeks they would have deemed to have accepted the proposal and shall then have to exercise option of POC or Demand Charges based on meter with 3 minutes integration.

6. In respect of the parties who positively do not refuse to accept the proposal (i.e. those who accept and those who do not respond within 8 weeks), GERC shall pass orders in respect of such parties also in terms of the proposal/ settlement.

7. The proceedings before the GERC shall then continue only with respect to the parties who positively refuse to accept the proposal. However, it is clarified that the parties who have settled the dispute would also be entitled to participate in the hearing before GERC. Any decision which is ultimately arrived at in the said petition No.256 of 2003 and Petition No.867 of 2006 shall not bind the CPPs and the power utilities, in so far as the same is covered by the settlement agreement, for term of the settlement, which is said to be of 10 years which will be applicable to such CPPs and Power Utilities.”

Page 18 of 46 18.2 He submitted that at present, there are 41 captive generating plants operating in parallel with the grid. According to the above order of the Hon’ble High Court, these can be categorized in the following three categories:

(i) The CPP holders who have executed agreements with the petitioner as per the directive of the Hon’ble High Court and opted for any of the alternatives as stated above. At present, 36 respondents have already executed agreements with the petitioner as per the list submitted to the Commission. Thus, the agreements executed between the parties are required to be recorded by the Commission, which needs to pass an order in terms of the settlement between the parties.

(ii) In case of the CPP holders, who have neither explicitly refused to accept the proposal within eight weeks nor objected to levy of POC, the Commission is required to pass an order, stating that they are deemed to have accepted the proposal and shall exercise option of POC or Demand charges based on meter with 3 minutes integration. According to him, there was no such case.

(iii) In respect of the CPP holders who have positively refused to accept the proposal, the Commission may pass an appropriate order after hearing the parties.

18.3 He submitted that there are only 5 objectors who have positively refused acceptance of the proposal made by the Hon’ble High Court of Gujarat which are as under:

1. M/s.Shah Alloys Ltd. (R-34) 2. M/s.SAL Steel Ltd. (R-18) 3. M/s.Varsana Ispat Ltd. (R-49) 4. M/s.Videocon International Ltd. (R-8) 5. M/s.Nirma Ltd. (R-22)

The Commission, therefore, is required to pass order accordingly.

Page 19 of 46 19. Learned Advocate Shri Gaurav Mathur, on behalf of Shah Alloys Ltd.(R-34), SAL Steel Ltd.(R-18), and Varrsana Ispat Limited (R-49), submitted as under:

19.1 Electricity Act, 2003 (the Act), has defined functions of a Transmission Licensee, which are separate from the functions of a Distribution Licensee. He highlighted the following points:

i. CPP operator may transmit electricity from its CPP to the consumption point, for which it may use the transmission lines of a Licensee. This transfer of electricity is called 'Wheeling'. CPP operators pay wheeling charges for it. This facility would be governed in the same manner as for any Generating Company.

ii. The Grid Code mainly deals with development of protection and contingency measures for generating stations, including CPPs. No charges are contemplated there.

iii. The Gujarat Electricity Regulatory Commission (Gujarat Power System Management Standards), 2005 has prescribed standards for generating stations when connected to the grid. It deals with measures for maintaining standards.

iv. Transmission Licensee is bound under the Act to maintain a Transmission System in accordance with the Act and Grid Standards. The Act does not mention any charge to be recovered in respect of it, subject to the prescribed charges for wheeling, UI charges etc.

v. A distribution licensee, in respect of a CPP, is concerned only when a CPP is also a consumer of Distribution Licensee. A Distribution Licensee is primarily governed by the Distribution Code and in so far as its network receives electricity from a CPP into its system is merely providing a route from the Generating Station CPP to the substation, which comes under Transmission and not distribution.

Page 20 of 46 vi. So, GETCO and Distribution Licensee cannot become claimants for a charge in respect of Parallel operation of a CPP with the Grid. The present Petition is therefore bad on above reasons and deserves to be dismissed.

19.2 Under the Act, the Commission has powers to determine 'Tariff' for Distribution, Transmission, and Supply of Electricity. After a combine reading of Section 62(1) with Section 62(3) and 62(6) of the Act, the tariff is fixed by the Commission taking into consideration of factors enumerated in Section 62(3). These are the considerations incurred by a distribution licenses to provide sale/supply of electricity to a consumer and also all other charges for any services which are provided. There is no provision authorizing a state Commission to determine any charge except tariff and such charges as are envisage under Sections 36, 42(2), 42(4), 45, 46 and 62 of the Act. There is no provision under the Act which envisages the determination of a charge in respect of parallel operation with the grid.

19.3 There is no doubt that a unit consuming power from the CPP running in parallel to the grid, may also draw power from the grid at any point of time, but not beyond its contract demand. Parallel operation, is a situation which gives the option to a consumer of electricity to run its unit either on captive power or on its contract demand.

19.4 The Grid Code and the Distribution Code do not envisage any charges in respect of maintenance of the grid. A transmission licenses and/or a distribution licenses are statutorily bound for the maintenance and upkeep of the grid and cannot claim that these duties are in the nature of services for which they ought to be compensated.

19.5 GERC (Terms and Conditions of Tariff) Regulation, 2005 stipulates various components of tariff as stated under Clause 14. One of the components is ‘O&M expenses’. Under the Supply Code, a consumer is required to make a non-refundable deposit with the distribution licenses in addition to charges for metering, testing, and

Page 21 of 46 laying down electricity line and apparatus. So, to recover Parallel Operation Charges by the Petitioners is nothing but a duplication of claim and amounts to profiteering without the sanction of law.

19.6 GERC (Licensee’s Power to Recover Expenditure Incurred in Providing Supply and Other Miscellaneous Charges) Regulation, 2005 provides for the payment of various charges for different activities undertaken by a distribution licensee. These include the cost incurred towards maintenance of distribution line, and the distribution licensee raises all charges in the bill for supply of electricity in addition to the price of electricity that is also recovered by it. The said regulations do not envisage any service in the name of parallel operation and consequently do not provide for any charges for the same.

19.7 The statement made by the petitioner that M/s. Feedback Ventures conducted a study of different CPPs is ex facie incorrect, since no data was actually collected at the captive power plant of the objector. The data in respect of power system analysis and transient load are based on stipulation and not on actual data.

The following would demonstrate that the study of M/s. Feedback Venture does not give reliable data:

i. It only explores the advantages to CPPs in parallel operation but does not recognize the benefits to the power system. Captive Power Plants improve the fault level of the power system and hence the stability of the network.

ii. The report does not take into consideration the disadvantages faced by a CPP when operating in parallel. It is a known fact that captive Power Plants may also trip on account of disturbances in the grid which may lead to disruption of power in the plant. It also does not recognize that on account of parallel operation,

Page 22 of 46 export of power is made to the grid for which no reimbursement is made by the distribution licensees.

iii. The observation made regarding alleged study of motor starting without grid integration is incorrect as Shah Alloys Ltd. has been never operated without connecting to grid. It is not known on what basis the said study is concluded.

iv. The statement made regarding transient load simulation of Shah Alloys Ltd. is incorrect. The grid capacity at Shah Alloys cannot support more than 27MW.

19.8 The setting up of CPP was a result of the Policy of the GoI and the GoG. The levying POC amounts to withdrawing from the original promise. Therefore, the distribution licenses and transmission licenses are barred by the principle of estoppels to recover POC.

19.9 The earlier contracts for parallel operation were with a state entity and did not provide the leeway to the Petitioners to enforce their stand before the State Authority. The said contracts are therefore the agreement with the, state. Therefore, it is not enforceable. In any case, if the Petitioners herein are seeking enforcement of contracts, the same in the nature seeking specific performance which would involve appreciation of evidence and such activity cannot be undertaken in the present proceedings.

19.10 Regarding the proposal of the learned counsel of the petitioner, as stated in para 18.2 above, he submitted that according to para 7 of the oral order dated 28.4.2009 in MCA No.2967 of 2008 passed by the Hon’ble High Court, POC is leviable @ 7.5% from the date of final order of the Commission to respondents who have positively opted for the option of Commercial Circular No.706. It is not permissible for the Commission to pass two orders in the same matter. In the final order, if the Commission decides that POC is not leviable and at present if Commission passes an

Page 23 of 46 order that POC is leviable to the respondents who have executed an agreement with the petitioner and opted for option of Commercial Circular No.706, then in such event, there are two orders of the Commission which are different and distinct from each other which is not permissible in legal proceedings.

20. Leaned Advocate Shri Gaurav Mathur, on behalf of M/s Nirma Ltd. submitted that they had sought some amendment to the agreement sent by the petitioner GETCO. They have informed GETCO that they want to opt for installation of 3 minutes integration energy meter for Parallel Operation Charges for the entire period of 10 years and in this eventuality, the respondent shall not have to pay POC based on Commercial circular No.706. This option is objected to the petitioner, stating that as per the directives /orders of Hon’ble High Court, the respondent requires to give option on an annual basis. He submitted that the order of the Hon’ble High Court gives a chance to the CPPs to change their option once every year. However, their request to go for option of installation of 3 minutes integration energy meter for the entire period of 10 years, do not violate the court’s orders.

21. Learned Advocate Shri K.S.Nanavati, on behalf of M/s.Essar Oil Ltd., Essar Steel Ltd., and Bhandar Power Ltd., submitted that they have exercised the option of acceptance of Commercial Circular No.706. However, the request made by Learned Advocate of petitioner for passing of final order in such cases, is not correct. He submitted that in case the Commission ultimately decides that POC is not leviable, it would lead to injustice to the respondent, who have executed an agreement and positively accepted an option as directed in the order of the Hon’ble High Court in MCA No. 2967 of 2008 dated 28.4.2009. The POC should be leviable only after the final order is passed by the Commission in this petition, even to the respondents who have executed agreements and positively accepted any option. He further clarified that they have executed an agreement which provides a ceiling of POC of Rs.8 lakhs per month. If the Commission decides an amount of POC which is higher than 8

Page 24 of 46 lakhs per month, the CPP holders, who have opted for acceptance of Commercial Circular No.706, should not be required to pay higher POC in such cases.

He further argued that the High Court order does not contemplate passing of order by the Commission separately with reference to the CPPs which have already signed agreements with the petitioners. The levy of POC on the basis of the agreement prior to the final order passed by the Commission is illegal. He submitted that the Commission may pass an order to the effect that the parties who have accepted positively an option should act as per the order of the Hon’ble High Court.

22. Responding to the arguments of learned Advocate Shri Gaurav Mathur, on behalf of M/s Nirma Ltd., learned Advocate Shri M.G.Ramachandran, submitted that if the respondent desires to opt for installation of energy meter of 3 minutes integration period for the entire period of 10 years, the petitioner has no objection. He further submitted that in such a case, the respondent need not pay charges as per Commercial Circular No.706 issued by the erstwhile GEB. He also submitted that the respondent has not at present executed any agreement with the petitioner viz. GETCO. Therefore, the statements of Learned Advocate Shri Gaurav Mathur and Learned Advocate Shri M.G.Ramachandran can be recorded on behalf of the respondent and petitioner respectively and the Commission may consider that M/s Nirma Ltd. has opted for option of installation of 3 minutes integration meter in this case.

22.1 In response to the arguments of Shri K.S. Nanavati, and Shri Gaurav Mathur on behalf of the objectors, Learned Advocate Shri M.G. Ramachandran stated that the interpretation of the learned Advocate is not correct and the 36 CPPs which have signed agreement with GETCO shall have to pay POC as per the agreement for 10 years. Elaborating his arguments justifying levy of POC, learned Advocate Shri

Page 25 of 46 Ramachandran provided copies of the Judgments in respect of other Regulatory Commissions as under

(i) Urla Industries Association v/s Chhatisgarh State Electricity Regulatory Commission filed before the Hon’ble Appellate Tribunal for Electricity,

(ii) Civil Appeal No.814 and 815 of 1974 UP State Electricity Board Lucknow vs. City Board, Mussorie and Ors. in which it was upheld the order of levy of POC.

The order of the Hon’ble High Court refers to agreement of the CPPs with the petitioners and levy of POC decided by the Commission wherein the levy of the POC was upheld.

22.2 Regarding the issue raised during the earlier hearings on the status of the generating plants of various Government Refineries, GIPCL, Heavy Water Plant etc., Shri M.G.Ramachandran submitted that government refinery of I.O.C.L at Vadodara is operating its captive power plant in isolation from the grid. Hence, the POC is not applicable to it. As regards the GIPCL, they are sanction holder under Section 43A of the Electricity Supply Act, 1948. Hence they are deemed licensee under the Electricity Act, 2003 and not equated with the captive power plants. Similarly the Heavy Water Power plant is also operating its captive generation plant in isolation from the grid, and as such POC is not applicable to them.

23. We have carefully considered the submissions made by the parties and observe as under:

23.1 As observed by the Commission in its order dated 25th June, 2004 in Petition No. 256/2003 which was substantially argued at the time of hearing, the Commission had clearly come to the conclusion that POC is leviable on the CPPs, but the extent of support given by the grid is required to be identified and quantified. The erstwhile

Page 26 of 46 GEB was also directed to furnish the estimate of cost being incurred by it for providing services to the CPPs. The Commission further observed that the erstwhile GEB shall be at liberty to file fresh petition on POC incorporating the findings of the study by M/s Feedback Ventures (P) Ltd. and M/s Lahmeyer International India (P) Ltd.

23.2 The study by M/s Feedback Ventures (P) Ltd. and M/s Lahmeyer International India (P) Ltd. presented by the petitioners of Petition No. 867/2006 argues that there are valid reasons for levy of POC on the CPPs. The reasons given in the report include the advantages of parallel operation to CPPs such as support for load variation, stabilization of harmonics generated by unbalanced loads, facility to switch over to the power to the grid automatically protecting the CPP generators from short circuit or fault in the system. Similarly the GEB can face interruptions due to ground fault on interconnecting lines resulting damages to thermal generating equipments or sub- stations. The highly fluctuating peaks of certain industries would demand more availability of power from the GEB which does not have any spinning reserve for such loads. The report also deals with the various technical parameters such as harmonics analysis, short circuit studies, transient load stabilization, islanded mode of operation of CPPs, unbalanced load flow with grid interconnections etc. of various CPPs working in parallel with erstwhile GEB grid and has concluded that parallel operation enhances the stability of CPP system and the parallel operation puts strain on the grid. The study also gives the commercial analysis on the amount of POC that can be levied on the CPPs, taking into account the need for creating a spinning reserve for the CPPs running in parallel to the grid. Prima-facie the report confirms that the CPPs are put to advantage on account of parallel operation and the grid to a disadvantage. 23.3 The matter was referred to the CEA by the Commission. The CEA, having gone through the report of the consultants, pointed out certain deficiencies in the report

Page 27 of 46 especially with reference to the commercial aspects relating to spinning reserve, frequency regulation stability, and voltage regulation support. But, the CEA while acknowledging the benefits to the CPPs, suggested that the amount of the POC, if any, should be only of nominal nature. The CEA further suggested that the charges for the services from the grid supplied to the load connected to the grid should be based on the nature/type of the load. Certain loads cause heavy jerks and may result in unbalance and higher harmonics in the network and there are costs associated with these on account of increased losses in the network and reduced equipment life due to higher stresses. In conclusion, it may be said that CEA also finds some elements of justification for levy of POC, if not in the form as suggested by the consultants.

23.4 It is further observed that Hon’ble Appellate Tribunal for Electricity in its order dated 28.9.2007 in Appeal No. 276/2006 had observed that setting aside of circular No. 706 would not automatically set aside the circular No. 687 in the same matter. The Hon’ble Tribunal has, however, upheld the entitlement of the petitioners to recover parallel operation charges as fixed by the Commercial Circular No. 687 at least up to 31.08.2000. The Tribunal has, therefore, not questioned the technical validity of POC.

23.5 The judgement of the Hon’ble High Court assumes great significance in this case, particularly because the Hon’ble High Court, vide order dated 28th March, 2009 in MCA No. 2967/2008 has put its seal of approval on the settlement reached between the parties and advised the CPPs to enter into agreement with the petitioners for a period of 10 years in order to enjoy the parallel operation facility. The Hon’ble High Court judgement state that the Commission decision shall not bind the CPPs which are covered by the settlement agreement with the power utilities.

“The petitioners who agree to the above settlement terms may sign the settlement agreement and place the same before the GERC who will pass orders in terms of the

Page 28 of 46 settlement in respect of such parties while offering the same terms to all other similarly situated parties. GERC is directed to issue notice to all the CPPs informing them about the settlement proposal above referred and call upon each of them to indicate, within a period of eight weeks, if they wish to accept proposal, for the term of 10 years or not, without prejudice to rights and contentions of CPPs and power utilities. In the event any party fails to indicate whether they are willing to accept the proposal or not within 8 weeks they would have deemed to have accepted the proposal and shall then have to exercise option of POC or Demand Charges based on meter with 3 minutes integration.

In respect of the parties who positively do not refuse to accept the proposal (i.e. those who accept and those who do not respond within 8 weeks), GERC shall pass orders in respect of such parties also in terms of the proposal/ settlement.

The proceedings before the GERC shall then continue only with respect to the parties who positively refuse to accept the proposal. However, it is clarified that the parties who have settled the dispute would also be entitled to participate in the hearing before GERC. Any decision which is ultimately arrived at in the said petition No.256 of 2003 and Petition No.867 of 2006 shall not bind the CPPs and the power utilities, in so far as the same is covered by the settlement agreement, for term of the settlement, which is said to be of 10 years which will be applicable to such CPPs and Power Utilities.”

23.6 From the above, the Commission is left with to decide the case on merits of levy of POC on the CPPs who do not agree to the above settlement. 23.7 `The matter regarding levy of parallel operation charge has also been dealt by Chhattisgarh State Electricity Regulatory Commission in Suo-motu Petition No. 39/2006. The Chhattisgarh Commission had appointed M/s. Electrical Research Development Association (ERDA)., Vadodara to take up study in this regard. Based

Page 29 of 46 as the report submitted by ERDA, the Chhattisgarh Commission has, in its order dated 31.12.2008, recorded the advantage and disadvantage of POC as enumerated below:

“10. ADVANTAGES AND DISADVANTAGES OF PARALLEL OPERATION:

In its report ERDA has enumerated following advantages and disadvantages to the CPP as well as utility:

10.1 Advantages to CPPs:

(1) The fluctuations in the load is absorbed by the utility grid in the parallel operation mode. This will reduce the stresses on the captive generator and equipments. The bulk consumer can operate his generating units at constant power generation mode irrespective of his load cycle.

(2) Fluctuating loads of the industries connected in parallel with the grid inject harmonics into the grid. The current harmonics absorbed by the utility grid is much more than that by CPP generator. These harmonics flowing in the grid system are harmful to the equipments and are also responsible for polluting the power quality of the system.

(3) Negative phase sequence current is generated by unbalance loads. The magnitude of negative phase sequence current is much higher at the point of common coupling than at generator output terminal. This unbalance current normally creates problem of overheating of the generators and other equipments of CPP, if not running in parallel with grid. When they are connected to the grid, the negative phase sequence current flows into the grid and reduces stress on the captive generator. (4) Captive power plants have higher fault level support when they are

Page 30 of 46 running in parallel with the grid supply. Because of the higher fault level, the voltage drop at load terminal is less when connected with the grid.

(5) On account of increase in plant load factor of captive generator, additional revenues can be generated by the CPPs by sale of surplus power to the utility.

(6) In addition to the above, CPPs enjoy the following advantages also:

(i) In case of fault in a CPP generating unit or other equipment, bulk consumers can draw the required power from the grid and can save their production loss.

(ii) The grid provides stability to the plant to start heavy loads like HT motors.

(iii) The variation in the voltage and frequency at the time of starting large motors and heavy loads, is minimized in the industry, as the grid supply acts as an infinite bus. The active and reactive power demand due to sudden and fluctuating load is not recorded in the meter.

(iv) The impact created by sudden load throw off and consequent tripping of CPP generator on over speeding is avoided with the grid taking care of the impact.

(v) The transient surges reduce the life of equipment of the CPP. In some cases, the equipment fails if transient is beyond a limit. If the system is connected to the grid, it absorbs the transient load. Hence, grid enhances the life of CPP equipments.

In short, the gains to the CPPs are quite substantial in case there is grid support.

10.2 Disadvantage of Parallel Operation to CPPs:

(1) The CPP-holder is required to pay for minimum contract demand even if connection is floating to take care of emergency.

Page 31 of 46

(2) The CPP-holder is required to install higher rating switchgear depending on grid fault level.

10.3 Advantages of Parallel Operation to Utility:

(1) The power generated by captive power plants partially bridges the gap between demand and supply because there is a gap between generation and demand in most of the States in the country.

(2) Fault level of both the grid and CPP improves due to parallel operation of captive power plant connected with the grid. However, the fault level contribution by CPP unit is much less as compared to the contribution of grid.

(3) Normally, the CPP takes power from the grid at very low load factor with respect to its contract demand, which results in high diversity. The demand charge is recovered from the consumers irrespective of diversity and also results in lower per MVA investment cost. Due to higher diversity, the utility is required to have surplus stand-by power which can be used as spinning reserve.

(4) Addition of generation capacity at centralized station may not be the most economical solution to the power sector utilities. Decentralized generation capacities of other generators like CPPs at different locations results in lesser T & D loss and is a better solution.

(5) The service lines are lightly loaded due less power flow to the CPPs. The capacity of service line is very much higher than the contract demand. Hence, it reduces the line losses to some extent.

10.4 Disadvantage of Parallel Operation to Utility:

Page 32 of 46

(1) Load fluctuations of captive consumer are passed on to the utility’s system thereby the efficiency of utility’s system may be affected, which may also impact on utility’s other consumers.

(2) In case of an ungrounded (or grounded through resistance) system supply, fault on interconnecting line (consumer’s side) results in interruption of system. For single phase to ground fault which are 80 to 85% of the short circuit fault level, the grounding of the system is achieved through the neutral or step down transformer of the utility, when the generator runs in parallel with the utility’s grid. This supply is likely to cause damage to the terminal equipments at utility’s sub-stations and line insulators, as voltage on the other two healthy phases rise beyond the limit, under such conditions.

(3) The utility has to sustain the impact of highly fluctuating peak loads like that of arc furnace, rolling mill, etc. for which it does not get any return on the capital invested to create system reserve.

(4) The variation in reactive power requirement increases the system losses and lowering of the voltage profile. Utility has to bear the cost of such effects.

(5) The lower voltage profile and fluctuations affect the service to the neighboring consumers due to deterioration in quality of supply, thus resulting in revenue loss to the utility.

(6) Non-recording of high fluctuating / sudden active and reactive demand by the meter results in financial losses.”

Page 33 of 46 23.8 Based on the above, the Chhattisgarh State Electricity Regulatory Commission has concluded that POC is leviable and also indicated the methodology of levying it. Thus, the Commission looking to the substantive study done by ERDA for Chhattisgarh State Electricity Regulatory Commission finds substance in levy of POC for CPPs working in parallel to the grid.

23.9 The views expressed by the Chhattisgarh Electricity Regulatory Commission are also confirmed by the Hon’ble Appellate Tribunal for Electricity in its order/ judgement dated 12.9.2006 in Appeal No. 99 of 2006 as under:

“11. …….. The parallel operation is definitely a service that the second respondent renders to all the CPPs like the appellant. It is the contention of the appellant that no charges could be levied or collected for the said service. As rightly pointed out by the Expert who appeared for the second Respondent, the parallel operation is a service which extend support to the system and at the same it causes voltage dip in the system, harmonics, injection, additional reactive power requirement etc. By parallel operation the CPP gains more and hence it is liable to pay the charges for the service.”

"12. The contention that no charges at all is payable for parallel operation or transmission system cannot be sustained and such a claim is contrary to factual position. There is no escape of CPP to pay charges for parallel operation by which the CPP gains while the transmission system of the second respondent CSEB is affected apart from the admitted fact the transmission grid is strengthened by the power injected by CPP……….”

“18. However, we make it clear that in the tariff petition which is pending consideration, the Commission may fix the charges for parallel operation on the basis of the data, materials and scientific inputs relating to parallel operation

Page 34 of 46 charges already placed by the parties or that may be placed by the parties before the conclusion of hearing and such exercise shall be carried out by the first respondent Regulatory Commission independently and without in any manner being influenced by this judgment."

23.10 In the present petitions also study done by Independent Consultants M/s. Feedback Ventures Ltd. and M/s. Lahmeyer International Ltd., have enumerated various benefits received by the load connected with the CPPs with grid in comparison to the consumers who are not having CPP connected with grid, are as under:

i. Because of higher short circuit capacity in the grid and large intertia of the system, load connected with the CPPs are benefited as the same is helpful in reducing the voltage dip and frequency excursion due to variations in the system parameters.

ii. The transit surge on the consumer equipment reduces when the interconnection with the grid of CPP load of consumer without such service, it may reduce the life of consumers’ equipments connected with CPP.

iii. The CPP capacity at some of the places not found in requisite capacity to meet fully instantaneous demand on short-term, and in such condition without support of the grid, the CPP plants might lead to trip. The excess drawl would be recorded if outage of the CPP is more than 15 minutes and penal charges will be imposed on the consumer’s load connected with CPP, while for short duration same is not recorded.

iv. Sometimes, spinning reserves available in the grid as supply to the consumers is restricted by the distribution licensee. Hence, surplus capacity is available in the

Page 35 of 46 system. The load connected with the CPPs with the grid to meet the instantaneous short-term demand, which is having impact for a few minutes and same is not recorded in 30 minutes integration recording energy meter.

v. The load connected with the CPPs are benefited in such a fashion that in case of failure of tripping of the CPPs such consumers withdraw more power from the grid and save the production losses which might occur in case of non-availability of supply from the CPPs.

vi. In the event of any sudden fall of the power requirement of load connected with CPP in case of failure of machinery etc., there are chances for tripping of CPP, which is avoided even though reverse flow relay installed at CPPs end for not to draw power from the grid. In such eventuality the excess generation available from CPP is injected into the grid even though there is no requirement of power. Such events save tripping of CPP and avoid further start up of the generating unit etc.

vii. The fluctuations in the load are absorbed by the grid in the parallel operation. This will reduce the stresses on the captive generator and equipments of the consumer connected with it. The bulk consumer can operate his generating units at constant power generation mode irrespective of his load cycle.

viii. Fluctuating loads of the industries connected in parallel with the grid inject harmonics into the grid. The harmonics absorbed by the grid is much more than that by CPP generator. These harmonics flowing in the grid system are harmful to the equipments and are also responsible for polluting the

Page 36 of 46 power quality of the system.

ix. Imbalance loads of the consumer generate Negative phase sequence current, which creates problem of overheating of the generators and other equipments of CPP, which is avoided by running CPP in parallel with grid.

x. Fault level of Captive power plants increase, when they are running in parallel with the grid, and same in turn helps in controlling the voltage drop at load terminal.

Similarly utility is also benefited due to parallel operation of the CPP with grid, and some of the advantages to the utility are stated below:

(1) The gap between demand and supply reduces to the extent of the CPP generation. (2) Fault level of both the grid and CPP improves due to parallel operation of captive power plant connected with the grid. However, its impact is negligible. (3) Decentralized generation capacities of other generators like CPPs at different locations result in lesser T & D loss and power requirement of the licensees.

23.11 The Hon’ble Appellate Tribunal for Electricity has, in its judgment dated 18th February, 2011 in Appeal No 120 of 2009 observed, as under : The parallel operation is a facility in the nature of a Grid support to the Captive Power Plant. The Captive Power Plant gets the following advantages owing to the parallel operation with the Grid:

Page 37 of 46 (i) The fluctuations in the load of CPP are absorbed by the utility grid in the parallel operation mode. This will reduce the stresses on the captive generator and equipments. The CPP can operate his generating units at constant power generation mode irrespective of his load cycle.

(ii) Absorption of harmonics.

(iii) Negative phase sequence current is generated by unbalance loads. The magnitude of negative phase sequence current is much higher at the point of common coupling than at generator output terminal. This unbalance current normally creates problem of overheating of the generators and other equipments of CPP, if not running in parallel with grid. When they are connected to the grid, the negative phase sequence current flows into the grid and reduces stress on the captive generator.

(iv) Captive Power Plants have higher fault level support when they are running in parallel with the grid supply. Because of the higher fault level, the voltage drop at load terminal is less when connected with the grid.

(v) The grid provides stability to the load of Captive Power Plant to start heavy loads like HT motors.

(vi) The variation in the voltage and frequency at the time of starting large motors and heavy loads, is minimized in the industry, as the grid supply acts as an infinite bus. The active and reactive power demand due to sudden and fluctuating load is not recorded in the meter.

(vii) The impact created by sudden load throw off and consequent tripping of CPP generator on over speeding is avoided with the grid taking care of the impact.

Page 38 of 46 (viii) The transient surges reduce the life of equipment of the CPP. In some cases, the equipment fails if transient is beyond a limit. If the system is connected to the grid, it absorbs the transient surges. Hence, grid enhances the life of CPP equipments.

18. In short, the gain to the Captive Power Plant is quite substantial in case there is grid support. Owing to the above said substantial gains to the Captive Power Plant by operating in parallel with the grid, the parallel operation charges are levied from the Captive Power Plant.

23.12 Based on the study report submitted by the petitioner, the judgements of Chhattisgarh Electricity Regulatory Commission and Hon’ble Appellate Tribunal as referred to above, it is clear that the load connected with CPPs of the consumers receive support from the grid in contrast to the consumers who are not connected with the grid. It is also essential to consider that the consumers who are not having their own CPPs and getting power supply from the licensee are paying the transmission charges/distribution charges which are part of the grid fully, while the consumers who are having CPPs and connected with the grid are not paying full charges for support of the grid taken by the load of consumers, even though they are getting some support from the grid.

23.13 In view of the above observations, we decide that the consumers having CPPs and connected with the grid shall have to pay POC. At present the consumers and open access users connected to the grid, consisting of interconnected transmission lines, S/S generating system, bear the transmission charges. The CPPs with connected load also enjoy the benefits of services of system operation from transmission licensees and distribution licensees. Hence, CPPs should pay POC, which would be shared by the STU and the distribution licensee concerned.

Page 39 of 46 23.14 Now we deal with the issue of applicability of parallel operation charges. The load connected with CPPs is situated in the following manner.

(1) CPPs are situated at different places and part load of the consumer is connected at the place of CPP and part load receiving power through open access from it is situated at a different place. (2) CPPs and load connected with it are situated at the same place and connected with grid. (3) CPPs and load connected with it are having reverse flow relay provided at their end and power flow is possible only from CPP to grid.

23.15 In case of the first situation, the part load which is situated at the CPP premises is only eligible for levy of parallel operation charges as they receive services form the grid as stated in earlier para No. 23.13 above. While the load which is situated at another place and getting power generated from CPP by wheeling/transmission through open access is equated with a consumer without CPP. Hence, for such quantity of power wheeled from CPP, no POC is leviable.

23.16 In case of the second situation, the load of the consumer connected with CPP at the same premises is fully receiving support from the grid as stated in para 23.13, shall have to pay POC as decided in this order.

23.17 In case of the third situation, whenever the load of the consumer connected with CPP falls instantaneously due to failure of equipment of the consumer’s machine etc. in such a situation, the excess generation of CPP will affect CPP adversely. It might lead to tripping of the CPP, and a transient effect on it. In such eventuality, the excess power of the CPP will be injected to the grid and avoid tripping and other adverse effect on the CPP. Moreover, they are benefited by way of injecting harmonics into the grid, increase in fault level etc. Hence, for the load of the

Page 40 of 46 consumer of CPP with reverse flow relay, it is desirable to apply POC as decided in this order.

23.18 Now we deal with the issue of methodology of computing parallel operation charges. As regards the rate of Parallel Operation Charges, the Commission finds that different methodologies have been suggested by the consultants, the CEA and the Chhattisgarh Electricity Regulatory Commission. The erstwhile GEB had also decided certain rates in its Commercial Circular No. 706, which were found acceptable to many CPPs, which is one of the two methods agreed between parties on the suggestion of the Hon’ble High Court. A broad consensus was reached between the parties, which has been endorsed by the Hon’ble High Court in its order dated 28.04.2009.

We feel that the charges which are to be applied to parallel operation of CPP with grid must be fair and scientific.

23.19 There are served methodologies for computing the grid support charges

a. Based on the instantaneous demand recorded in the system connected to the CPPs. b. Based on power quality parameters c. Based on the size of the largest motor connected to the CPP or size of the interconnecting transformer between the grid and the CPP. d. As a percentage of captive generating capacity as contracted demand. e. Based on operating/Spinning reserve. f. Based on minimum support availed from particular voltage level.

Page 41 of 46 23.20 It is observed that the first and second methods are technically sound but would result in special measuring instruments. In this method, the transients in the system would also be recorded which is part of the inherent system design and would be very difficult to distinguish between the transients caused by the consumers and by the system. Hence this method is not considered for the basis for the determination of POC.

23.21 The third method based on largest motor installed in the consumer premises or size of interconnecting transformer appears to be easiest to implement. However, this method would not account for all the services availed by the consumer for parallel operation and also, it would call for inspection to verify the assets in the consumer premises which may lead to dispute.

23.22 The fourth method based on certain percentage of captive generation capacity, suffers from lack of technical justification and hence not considered.

23.23 The fifth method based on operating/spinning reserve hinges on the concept of reserve requirement of the industrial consumers who run their captive units on constant power mode and captive unit does not absorbing any demand variation. Though this method captures the major issue of reliability requirement of the CPP consumers in availing POC, it does not capture other supports availed from the Grid. Further, it is observed that any drawl from the grid is duly accounted and paid for by the consumers. In the context of Gujarat State, it is found that there is a gap between demand and supply and the same will vary from time to time. The GUVNL on behalf of distribution licensees has initiated competitive bidding process for procurement of power to meet the requirement of power supply in the State. Therefore, there is no justification to grant parallel operation charges on spinning reserve basis.

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23.24 The last i.e. the sixth method based on the minimum support availed from particular voltage level appears to be more reasonable on following accounts.

a. This method takes into consideration the Base MVA support taken from the grid by a CPP as well as Base MVA support given to the grid by it. b. This method considers the advantages of parallel operation to both the captive power plant and to the utility. Thus, this method does justice, conceptually, to both the utility as well as CPP. c. This method is based on the fault level support available at point of common coupling, i.e. the point at which the CPP is connected with the grid. It is observed that most of support services (ancillary services) provided to CPP consumers, such as voltage regulation, stability, reliability and absorbing load variation/fluctuation are dependent on the firmness of the grid. The firmness of the grid is characterized by the fault level of the system. d. Due to higher fault level of the grid at the point of common coupling, the flow of pollutants like harmonics, negative phase sequence current, etc. are absorbed by the grid due to low impedance path of the grid as compared to that of CPP generator. e. As the fault level of grid is higher, it results in better voltage regulation to CPP load. f. Stability of a system is defined as P = E x V Sin _/X. The lower the X- impedance, higher will be the stability. Since grid is more stable, it provides stability to CPP.

23.25 Considering the above observations, we decide to adopt minimum support avail method for levy of parallel operation charges.

Page 43 of 46 23.26 The minimum short circuit level computed for the Gujarat system for various voltage level is provided in the report of Feedback Venture and Lahmeyar International submitted with the petition is given in table below.

Sr. No. Voltage level in KV Fault level in MVA 1 220 2134 2 132 1020 3 66 588 4 33 314 5 11 129

23.27 Considering 10% reactance in the system, the minimum support available at 220kV would be 200MVA, at 132kV it is 100MVA, at 66kV it is 60MVA, at 33kV it is 30MVA and at 11kV it is 10MVA (after rounding off).

23.28 In the base MVA support method, the Commission is of the view that the parallel operation charge has to be related to the fixed costs of the utilities. According to the tariff orders issues by the Commission for FY 2010-11 the transmission related fixed cost is Rs.1172Cr and distribution related fixed cost (upto 11kV) for all the distribution licensees is Rs.625.95Crores. The total connected load in the system is 28275.29MVA. The transmission related fixed cost as Rs/kVA of connected load works out to be Rs.34.54/kVA/month and distribution related fixed cost (upto 11kV) works out to be Rs.18.45/kVA/month. Thus, the total fixed cost of transmission and distribution systems works out to Rs. 53.09 KVA/month.

As analyzed in para 23.13 and in this para, the CPPs get support from the State transmission utility (STU) and distribution licensee as services. The Parallel Operation Charge thus received from CPP shall be shared between the transmission

Page 44 of 46 and distribution systems in proportionate of their fixed cost which is at present in the ratio of 2:1.

23.29 It is observed that parallel operation is beneficial to the CPP and at the same time, it is true that some benefit is also accrued to the grid. Considering the Pari passu it is proposed to levy 50% of the transmission and distribution related fixed costs on the CPP. Accordingly, the Commission decides that the POC should be levied at Rs. 26.50 per KVA per month for the installed capacity of the CPP.

24. Considering the above, the Commission orders as under:

(i) For the 37 CPPs which have executed agreement with the petitioners as per the directives of the High Court and selected out of the options allowed, the Commission is required to record the same and pass necessary orders in terms of the agreement between the parties. The Commission takes note of the agreement and records the same. The parties to the agreement shall follow the orders passed by the Hon’ble High Court.

(ii) As M/s Nirma Ltd. and M/s. Varasana Limited have agreed to execute agreement under the 3 minutes integration meter clause, the Commission records the same, and orders the petitioners to enter into the agreement accordingly and proceed as ordered in case of 36 CPPs in (i) above.

(iii) After hearing all the parties, and as discussed in the earlier para the Commission decides that POC is leviable for the CPPs operating in parallel with the state grid. The charge decided in this order is applicable to the respondents of the present petition, who have not executed any agreement with the petitioner as per the High Court of Gujarat order dated 28th April, 2009 in Misc. Civil Application No. 2967 of 2008. Moreover, the charges decided in this Judgement at the rate of Rs.

Page 45 of 46 26.50/KVA shall also apply to the new CPPs, operating in parallel with State transmission utilities (Transmission licensee) and/or distribution licensee network in the grid.

25. We order accordingly.

26. With this order the petitions are disposed of.

Sd/- Sd/- Sd/- [Dr. M.K.IYER] [PRAVINBHAI PATEL] [Dr. P. K. MISHRA] MEMBER (FIN) MEMBER (T) CHAIRMAN

Place: Ahmedabad Date: 01/06/2011.

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