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Case Number

Appeal No. 191 of 2010

Attorney(S)

Mr. M.G Ramachandran, Mr. Anand K. Ganesan Ms. Swapna Seshdari, ;
Mr. Nikhil Nayyar & Mr. Swapnil Verma for R-1,

Judges

Rakesh Nath, Technical Member
P.S Datta, Judicial Member

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Smart Summary

Summary of Tribunal Opinion — Appeal No. 191 of 2010 (Ratnagiri Gas and Power Pvt. Ltd.)

Factual and Procedural Background

In 1993 Dabhol Power Co. Ltd. and the Enron Group entered into a power purchase agreement with the Maharashtra State Electricity Board for a gas-based generating station at Ratnagiri. Block-I was set up in 1999, but Dabhol/Enron encountered financial difficulties and the project closed in May 2001; its assets were placed under the control of a Receiver. Ratnagiri Gas and Power Private Limited (the appellant) was incorporated in July 2005, and in October 2005 it took over the Ratnagiri Project assets and related LNG terminal infrastructure. Block-II was declared commercial on 1 September 2007 and Block-III on 21 November 2007; from January 2008 the gas turbines experienced failures and forced outages, and Block-I was declared commercial after repair in May 2009.

The Central Electricity Regulatory Commission (Central Commission / respondent no.1) determined the tariff for the project for 2007-08 and 2008-09 by an order dated 4 June 2009; that order was challenged by the appellant in Appeal No. 130 of 2009 before this Tribunal (the Tribunal issued a partly favourable decision on 25 March 2011). The appellant filed Petition No. 283 of 2009 before the Central Commission on 12 November 2009 seeking tariff approval for the period 2009-10 to 2031-32; the Central Commission decided that petition by order dated 18 August 2010. The appellant challenged the 18 August 2010 order before this Tribunal in Appeal No. 191 of 2010.

Legal Issues Presented

Whether the Central Commission was correct in disallowing servicing of the capital cost of the LNG terminal in view of the revival scheme and financial package approved by the Government of India.
Whether the Central Commission was correct in not allowing tariff fixation for the entire life of the project (2009-10 to 2031-32) as sought by the appellant, including via levelised tariff calculations in deviation from the 2009 Regulations.
Whether the Central Commission erred in rejecting the appellant's claim for treating interim capacity charges (Rs. 420 crores from 2007-08 and 2008-09) as a regulatory asset per the agreed financial restructuring.
Whether the Central Commission should have considered naphtha stock for interest on working capital and fixed a separate station heat rate for naphtha as an alternative fuel.

Arguments of the Parties

Appellant's Arguments

The servicing of the loan/capital cost of the LNG terminal should be allowed even though the terminal had not been commissioned, because servicing was mandatory under the revival scheme and the financial package approved by the Government of India; denial would impact appellant's cash flow.
The tariff should be fixed for the entire useful life of the project (up to 31.3.2032) on a levelised basis; if servicing of the LNG terminal were allowed, the levelised tariff over the useful life would be lower than the levelised tariff computed under the Tariff Regulations, 2009.
Interim capacity charges (Rs. 420 crores for 2007-08 and 2008-09) should be treated as a regulatory asset under the financial restructuring package and the agreement with respondent no.2 (Maharashtra State Electricity Distribution Company Ltd.).
The Central Commission erred in not considering naphtha stock for calculation of interest on working capital and in refusing to fix a separate station heat rate for naphtha; the appellant had incurred costs in maintaining 15 days of naphtha stock.

The opinion does not provide a detailed account of specific counter-arguments by the Central Commission or respondent no.2 beyond the Commission's findings reproduced in this judgment.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
This Tribunal's Judgment dated 25 March, 2011 in Appeal No. 130 of 2009	- Reproduced findings on servicing of LNG terminal (capital cost not admissible if terminal not commissioned). - Principle that the Commission determines tariff according to its Regulations and cannot mechanically accept stakeholder agreements. - Discussion on levelised tariff and Regulation 38 (2009 Regulations) conditions for deviation. - Findings on fuel operation (plant operating only on LNG) affecting allowance for naphtha-related costs and heat rate.	The Tribunal applied these findings to Appeal No. 191 of 2010, reproducing the relevant extracts and using them to decide each issue against the appellant and to confirm the Central Commission's order dated 18.8.2010.

Court's Reasoning and Analysis

The Tribunal examined the appellant's contentions in light of the Central Commission's Regulations and its own earlier Judgment in Appeal No. 130 of 2009 (25 March 2011). Its analysis proceeded issue by issue as follows:

Servicing of LNG terminal: The Tribunal reproduced its earlier finding that the LNG terminal had not been commissioned and that, under Regulation 17 of the 2004 Regulations (subject to prudence check), actual expenditure on completion forms the basis for final tariff. Because the LNG terminal was not in use, admitting and servicing its capital cost through electricity tariff would impose an undue burden on consumers. Accordingly, the contention was rejected.
Tariff for entire life of project: The Tribunal noted that the Central Commission must determine tariff in accordance with its Regulations (here the 2004/2009 Regulations) and cannot mechanically accept tariffs agreed between project stakeholders. Regulation 38 of the 2009 Regulations permits tariff determination in deviation only if the levelised tariff over the useful life based on deviated norms does not exceed the levelised tariff under the Regulations; the appellant had not demonstrated that condition. The appellant's argument that allowing LNG terminal servicing would satisfy Regulation 38 was untenable because servicing was not permitted prior to commissioning. Therefore, the Commission's decision to determine tariff for the five-year regulatory period (1.4.2009 to 31.3.2014) per the 2009 Regulations was upheld.
Regulatory asset (interim capacity charge): The Tribunal relied on its earlier reasoning that the Commission could not accept stakeholder agreements to create regulatory assets where the Regulations provided otherwise; accordingly, the appellant's claim to have interim capacity charges treated as a regulatory asset was rejected.
Naphtha stock, working capital interest and heat rate: The Tribunal considered the appellant's affidavit and submissions regarding use of liquid fuels and contingency arrangements for LNG supply. The Central Commission had allowed fuel cost for one month on the assumption of operation only on LNG; given the finding that the plant was to operate on LNG, the Commission's refusal to allow separate heat rate for naphtha and to include naphtha stock in working capital calculations was found to be reasonable and without infirmity.

Holding and Implications

DISMISSED.

The Tribunal dismissed Appeal No. 191 of 2010 and confirmed the Central Commission's order dated 18 August 2010. Each of the appellant's principal contentions was decided against it: servicing of the LNG terminal capital cost was not allowed prior to commissioning; tariff for the entire life of the project was not fixed because the appellant did not meet the condition in Regulation 38 (2009 Regulations); the claim to create a regulatory asset for interim capacity charges was rejected; and naphtha-related working capital and heat-rate claims were not admitted given the Commission's finding on LNG-based operation.

The direct effect is to uphold the Central Commission's tariff determination for the regulatory period 1.4.2009–31.3.2014 and to leave the appellant without the contested allowances. The opinion does not discuss broader legal implications beyond these outcomes. No order as to costs was made.

Pronounced in open court on 27 May 2011. (Justice P.S. Datta) (Rakesh Nath) — Judicial Member / Technical Member

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Ratnagiri Gas And Power Private Ltd. v. Central Electricity Regulatory Commission

HONBLE MR. RAKESH NATH, TECHNICAL MEMBER This appeal has been filed by Ratnagiri Gas and Power Private Limited, a generating company, against Page 1 of 17 Appeal No. 191 of 2010 the order of the Central Electricity Regulatory Commission (Central Commission) dated 18.8.2010 determining the generation tariff of the appellant for the period from 1.4. 2009 to 31.3.2014.

2. The Central Commission is the respondent no. 1. Maharashtra State Electricity Distribution Company Ltd., Distribution licensee in the State of Maharashtra and a major beneficiary of the appellants power station, is the respondent no. 2.

3. The brief facts of the case are as under: 3.1. In the year, 1993, the Dabhol Power Co. Ltd. and Enron Group entered into a power purchase agreement with the Maharashtra State Electricity Board for the establishment and sale of power from the gas based generating station at Ratnagiri, Maharashtra. Page 2 of 17 Appeal No. 191 of 2010 3.2. In the year 1999 Block-I of the Project was set up. However, Dabhol and Enron Group ran into financial and other difficulties and they could not continue to operate the Project. Dabhol Power Co. Ltd. and Maharashtra State Electricity Board went into litigation. Subsequently, in May 2001, the Ratnagiri Project was closed down and its assets were placed under the control of a Receiver appointed by the High Court of Bombay. 3.3. Following the efforts of the Government of India and the Govt. of Maharashtra for reviving the Dabhol Power Project the appellants company was incorporated in July 2005 and in October 2005 all the assets of the Ratnagiri Power Project as well as the integrated LNG Terminal and associated infrastructure facilities were taken over by the appellant. Page 3 of 17 Appeal No. 191 of 2010 3.4. On 1st September, 2007, Block II was declared commercial after revival. Subsequently, on 21.11.2007, Block-III was declared commercial. From January 2008 onwards the gas turbines of Block-II and Block-III experienced failures resulting in forced outages of the generating units. In May 2009, Block-I was declared under commercial operation after repair. 3.5. The Central Commission determined tariff of the Ratnagiri Power Project for the period 2007-08 and 2008-09 by its order dated 4th June 2009. This order was challenged by the appellant in appeal no. 130 of 2009. On 25th March, 2011 this Tribunal allowed the appeal partly and disallowing some of the issues raised by the appellant. 3.6. On 12th November 2009 the appellant filed Petition no. 283 of 2009 before the Central Page 4 of 17 Appeal No. 191 of 2010 Commission for approval of tariff for the period 2009-10 to 2031-32. The Central Commission by its order dated 18.8.2010 decided the petition. Aggrieved by this order dated 18.8.2010 of the Central Commission, the appellant has filed this appeal.

4. The appellant has raised the following issues in the appeal:

i) Servicing of cost of LNG Terminal: The Central Commission has not allowed servicing of cost of LNG terminal as the same has not been commissioned. According to the appellant, servicing of loan on LNG terminal is mandatory as per the scheme for revival and the financial package approved by the Government of India. This will have an impact on the cash flow of the appellant. Page 5 of 17 Appeal No. 191 of 2010 ii) Determination of the Tariff for the entire life time of the Project upto 2031-32: The Central Commission has rejected the appellants claim for fixing of tariff for the period 2009-2010 to 2031-32 on the basis that the appellant had not demonstrated that the levelised tariff over the useful life of the project on the basis of norms in deviation does not exceed levelised tariff calculated on the basis of norms specified in the Tariff Regulations, 2009. In case the Central Commission had allowed the servicing of capital cost of LNG Terminal, the levelised tariff for the period 2009-10 to 2031-32 would have worked out to be less than the levelised tariff calculated in terms of Tariff Regulations, 2009. Page 6 of 17 Appeal No. 191 of 2010 iii) The Central Commission has not allowed interim capacity charge of Rs. 420 crores out of tariff periods 2007-08 and 2008-09 to be treated as regulatory asset as proposed under financial restructuring package and agreed to by the purchaser of power, respondent no. 2 herein. iv) Consideration of Naphtha Stock for interest on Working capital and station heat rate on Naphtha: The Central Commission has wrongly rejected fixation of separate station heat rate for Naphtha and failed to consider the cost incurred by the appellant on maintaining 15 days cost for Naphtha for determining the interest on working capital. Page 7 of 17 Appeal No. 191 of 2010

5. On the basis of the contentions of the parties, we would frame the following questions for consideration:

i) Was the State Commission correct in disallowing servicing of the capital cost of LNG terminal in view of the peculiar circumstances of the case? ii) Whether the State Commission was correct in not allowing the tariff for the entire life time of the project as submitted by the appellant? iii) Has the Central Commission erred in rejecting the claim of the appellant for servicing of the regulatory asset as per the agreement reached between the appellant and respondent no.2? Page 8 of 17 Appeal No. 191 of 2010 iv) Whether the Central Commission should have considered the cost of maintenance of liquid fuel in determining the working capital requirements and also determined the heat rate on Naptha as an alternative fuel? The above issues have been dealt with in this Tribunals Judgment dated 25th March, 2011 in appeal No. 130 of 2009. In light of the findings in Tribunals Judgment dated 25th March, 2011, we will give answers to the questions framed above:

6. The first issue is regarding servicing of cost of LNG Terminal. The very same issue has been dealt with in Tribunals order dated 25th March, 2011, the relevant extracts of the Judgment are reproduced as under: 15.3. We have noticed that the Appellant in its petition before the Central Commission had claimed Page 9 of 17 Appeal No. 191 of 2010 the apportioned cost of LNG terminal on Block II & III as 1415.51 crores in the total cost of 7121.97 crores. According to Regulation 17 of 2004 Regulations of the Central Commission, subject to prudence check by the Commission, the actual expenditure incurred on completion of the project shall form the basis for determination of final tariff. The LNG terminal has not been commissioned so far. Therefore, its capital cost can not be admitted and serviced through the electricity tariff. If its cost is serviced through electricity tariff it would result in undue burden on the consumer for a facility which has so far not been put to use. Thus, there is no merit in this contention urged by the Appellant. Therefore, this issue is decided against the Appellant. Accordingly, we reject the contention of the appellant in regard to the servicing of cost of LNG terminal. Page 10 of 17 Appeal No. 191 of 2010

7. The second issue is regarding determination of the Tariff for the entire life time of the Project. Similar issue was raised in appeal no. 191 of 2010 challenging the order of the Central Commission for not allowing the tariff which was agreed between the appellant and respondent no.2, the major beneficiary of the project. The relevant extracts of the Judgment are as under: 17.4. We find that the Central Commission has determined the tariff as per the 2004 Regulations, rightly so, as the Central Commission can only determine the tariff as per its Regulations and not in any other way. The Central Commission is not expected to mechanically accept the tariff as per the agreements or understanding reached between the Project stakeholders. There is also no provision of Regulatory Assets in the Regulations. Thus, we find that there is no substance in the ground urged by the Appellant. Accordingly, we decide this issue against the Appellant. Page 11 of 17 Appeal No. 191 of 2010

8. In the petition before the State Commission, the appellant claimed the annual fixed charges for the period from 1.4.2009 to 31.3.2032 (i.e. upto the useful life of the generating station) based on levelized calculations after considering a discount factor of 10.19%. Regulation 2 of the 2009 regulations provides that the regulations specified by the Commission shall be in force for a period of 5 years from 1.4.2009. The annual fixed charges claimed by the petitioner for a period upto 31.3.2032 are in deviation of the norms specified in the 2009 Regulations. Regulation 38 of the 2009 Regulations provides for determination of generation tariff in deviation of the norms specified in the 2009 Regulations subject to the condition that the levelized tariff over the useful life of the project on the basis of norms in deviation does not exceed the levelized tariff calculated on the basis of norms Page 12 of 17 Appeal No. 191 of 2010 specified in these regulations. The petitioner, in its petition, has not demonstrated the existence of the above condition warranting the consideration of levelized tariff over the useful life of the generating station by the Commission. Hence, the tariff for the generating station is determined for a period of five years from 1.4.2009 to 31.3.2014, based on the norms specified by the Commission in the 2009 regulations. The appellant has contended that if the cost of LNG terminal is allowed then the condition under Regulation 38 would be met. When the servicing of the LNG terminal before its commissioning has not been disallowed then this argument will not hold good.

9. We do not find any infirmity in the order of the State Commission and accordingly confirm the same. Page 13 of 17 Appeal No. 191 of 2010

10. The third issue is regarding the creation of regulatory asset. This issue has also been dealt with in the Judgment of this Tribunal in appeal no. 191 of 2010. The relevant extracts of the Judgment (paragraph 17.4) has already been reproduced above in paragraph-7. Accordingly, this issue is decided against the appellant.

11. The fourth issue is regarding consideration of Naphtha stock for interest on working capital and station heat rate on Naphtha. This issue has been decided in this Tribunals Judgment dated 25th March, 2011 in Appeal No. 130 of 2009. The relevant extracts of the Judgment are as under: 16.3. We have examined the affidavit of the Appellant dated 14.1.2009 submitted before the Central Commission. The relevant extracts from para 12(iii) & 12(v)(d) is reproduced below: Page 14 of 17 Appeal No. 191 of 2010 iii) Though RGPPL started first of the power blocks using Liquid fuels (Naphtha and HSD), these were never envisaged for commercial operation due to prohibitive cost, reduced hot gas path component life and higher Heat Rate etc. In order to partially tide over the crises, GOI/EGoM decided a contingency arrangement by advancing construction of Dahej-Dabhol pipeline of GAIL and supply of R-LNG from Petronet LNG Limited, Dahej. The arrangement is for 1.5 MMTPA LNG upto September 2009. The quantity is sufficient for about two power blocks of RGPPL.

v).. (d) Gas/LNG prices are market driven and even if the domestic gas serves as the fuel for the power block, LNG terminal is expected to make financial contribution to the revenue stream thereby justifying the cost incurred in the long run. It is also submitted that as domestic gas has been Page 15 of 17 Appeal No. 191 of 2010 allocated for the power project, use of LNG facility is being planned to be utilized for LNG tolling. 16.4. The Central Commission has allowed fuel cost for one month taking into account operation of the plant only on LNG. Therefore, we do not find any infirmity in the finding of the Central Commission in this regard. 16.5. Learned counsel had also raised a related issue that the Central Commission had not considered heat rate of 2000 Kcal/kWh for generation of a Naphtha. In view of the above findings about operation of the power station only on LNG, this issue does not survive.

12. In view of above, this issue is also decided against the appellant. Page 16 of 17 Appeal No. 191 of 2010

13. In the above facts and circumstances of the case, we do not find any substance in the appeal and the same is dismissed. No order as to cost.

14. Pronounced in the open court on this 27th day of May, 2011. (Justice P.S. Datta) ( Rakesh Nath) Judicial Member Technical Member REPORTABLE / NON-REPORTABLE Page 17 of 17

Ratnagiri Gas And Power Private Ltd. v. Central Electricity Regulatory Commission

Summary of Tribunal Opinion — Appeal No. 191 of 2010 (Ratnagiri Gas and Power Pvt. Ltd.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Ratnagiri Gas And Power Private Ltd. v. Central Electricity Regulatory Commission

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