MADHYA PRADESH ELECTRICITY REGULATORY COMMISSION

ORDER ON

DETERMINATION OF WHEELING CHARGES AND CROSS SUBSIDY SURCHARGE

(SMP 101/10)

MARCH, 2011

A1. 1.1.

LEGISLATIVE PROVISIONS Section 42(2) of the Electricity Act, 2003 provides; The State Commission shall introduce open access in such phases and subject to such conditions, .and in determining the charges for wheeling, : Provided that such open access shall be allowed on payment of a surcharge in addition to the charges for wheeling as may be determined by the State Commission:.

1.2.

The Commission vide clause 8.15 of the MPERC (Terms and conditions for determination of tariff for supply and wheeling of electricity and methods and principles for fixation of charges) Regulations, 2009 notified on 22.01.2010 has specified the items of expenditure of distribution licensee, which are attributable to wheeling activity and those attributable to retail supply activity. Further, the Commission has also specified in clause 8.11 that the wheeling charges for each Licensee shall be determined separately. The Commission vide MPERC (Terms and conditions on intra-state open access) Regulations, 2004 allows all consumers with a power requirement of more than 1 MW to source their power from a supplier other than the distribution licensee, through open access. Such open access, however, can only be allowed to user on payment of wheeling charges. The para 2 of clause 8.5.1 of Tariff Policy provides A consumer who is permitted open access will have to make payment to the generator, the transmission licensee whose transmission systems are used, distribution utility for the wheeling charges and in addition, the cross subsidy surcharge. The computation of cross subsidy surcharge, therefore, needs to be done in a manner that while it compensates the distribution licensee, it does not constrain introduction of competition through open access. DETERMINATION OF WHEELING COST All three Distribution Licensees have filed Wheeling and Retail Supply ARR for FY 201011separately. For the purpose of this Order, therefore, the Commission allocates the fixed costs of distribution (i.e. other than power purchase) in the following manner : Wheeling activity shall include: (a) (b) (c) O&M expenses Depreciation Interest on project loans
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1.3.

1.4.

A2. 1.5.

1.6.

(d)

Interest on working capital loans on normative working capital for wheeling activity Return on Equity Other miscellaneous expenses Less : Other Income as attributed to wheeling activity

(e) (f) (g)

Retail sale activity shall include : (a) Interest on working capital loans on normative working capital for retail sale activity Interest on Consumer Security Deposits Bad and Doubtful debts Less : Other Income as attributed to retail supply activity

(b) (c) (d) 1.7.

On the basis of above, the approved ARR for FY 2010-11 for wheeling and retail supply activity for the Discoms is segregated as under:

Table 1: Allowed ARR for FY 2010-11 segregated among wheeling and retail sale activities (Rs. in Crs.) Particular East West Central State (A) Power Purchase including 2211.51 3354.12 2698.2 8263.83 Transmission charges Wheeling activity: O&M cost 566.61 525.77 518.29 1610.67 Depreciation 52.5 54.98 53.95 161.43 Interest on Project Loans 40.93 19.72 53.9 114.56 Return on Equity 92.83 92.01 94.15 279.00 Interest on Working Capital 0 0 0 0 wheeling MPERC Fees 0.53 0.68 0.6 1.81 (B) Sub-Total Wheeling ARR for FY 753.4 693.16 720.89 2167.47 2010-11 as approved Retail Sale activity Bad Debts Interest on CSD Other Income Retail (C) Sub-Total Retail ARR for FY 2010-11 as approved Total ARR for FY 2010-11 (A+B+C)

0 45.45 -80 -34.55 2930.360

0 22.02 -100 -77.98 3969.300

0 16.54 -80 -63.46 3355.630

0 84.01 -260 -175.99 10255.31

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Segregation of costs among voltage levels 1.8. The costs of distribution identified as attributable to wheeling activity must further be distributed among the two voltage levels of distribution i.e. 33KV and below 33KV. Though the EHT consumers (i.e. at voltages above 33 KV) are consumers of the distribution companies, they are not connected to the distribution system. Some costs are associated with EHT consumers (mainly costs associated with metering, billing and collection). However, the Commission, at this juncture, is not inclined to get into those details, primarily on account of data unavailability. The Distribution Licensees in MP presently do not maintain account of their costs on a voltage-wise basis. Similar is the case with other Govt. owned distribution companies in most States in India.

1.9.

1.10. The present accounting practices of MP Discoms do not permit the segregation of GFA among the voltage levels directly. The Commission, therefore, considers appropriate to adopt the approach to use the transformation capacity in MVA at interfaces of 33/11KV and 11/0.4 KV. 1.11. The data used for this exercise for the value of the asset base is given below: Table 2: Identification of Asset Value Voltage level of Lines Cumulative length of lines (ckt-kms) 33KV (on rail pole) 38532 Below 33 KV (a) 11 KV(on rail pole) (b) LT ( on PCC pole) (c ) Sub-Total Total 190649 343567 5.36 2.65 10218.79 9104.53 19323.32 22737.26 Per unit cost Total Cost of (Lakh Rs./ckt-km) lines (Rs. Crs.) 8.86 3413.94

Transformer Voltage Cumulative capacity (MVA) level 33/11KV Transformer 15549 11/0.4KV Transformer Total 17789

Per unit cost (Lakh Rs./MVA) 17.00 2.00 per 100 KVA

Total Cost (Rs. Crs.) 2643.33 3557.80 6201.13

1.12. For the purpose of above, the data for length of lines and transformation capacity is as supplied by the Licensees as part of their filings for FY 10-11.
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1.13. In order to identify the asset values at different voltage levels, it is necessary to assign the interface transformers to either voltage levels. For this exercise, the Commission considers it appropriate to include the distribution transformers (11/0.4KV) to be part of the 11 KV network, while the power transformers of 33/11KV to be part of the 33 KV network. Based on this, the asset values in Rs. Crore at different voltage levels works out to: Table 3: Identification of value of network at each voltage level

Voltage level 33KV Below 33 KV Total

Cost of Lines (Rs. Crs.) 3413.94 19323.32 22737.26

Cost of Transformation (Rs. Crs.) 2643.33 3557.80 6201.13

Total Cost (Rs. Crs.) 6057.27 22881.12 28938.39

1.14. The expenses of wheeling activity, identified as incurred for the above different voltage levels of distribution, shall now be worked out using the asset value ratios as obtained from above. This shall be as follows: Table 4: Identification of network expenses (wheeling cost) at different voltage level)

Voltage level

Assets value (Rs.Crs.) 6057.27 22881.12 28938.39

Assets value ratio

Total wheeling cost (Rs Crs.)*

Wheeling Cost ( Rs Crs.)

33KV Below 33 KV

20.93% 79.07% 100.00% 2167.47

453.69 1713.78 2167.47

* As shown in (B) of Table 1

Sharing of Wheeling costs 1.15. As the uniform tariff is being determined throughout the State, the wheeling charges are also determined uniformly for the time being. 1.16. The cost of wheeling identified as above for the above voltage levels is again required to be allocated on the users at the same voltage levels. It is necessary to do so since the 33KV network is used by the consumers at 33KV and below 33 KV, while the below 33KV network is used by the consumers of 11KV and LT.

1.17. This allocation of wheeling cost at different voltage level should be done based on the usage of the network at different voltage level by consumers. The Commission has chosen to adopt Units Sold at different voltage levels as the measure of network usage to allocate the costs as detailed below: Table 5: Allocation of wheeling cost over distribution system users Particulars A B C D E Wheeling Cost at 33 KV- Rs Crore Sales at 33 KV( MU) Total Sales (MU) {excluding sales at 132 KV} Proportion of 33 KV sales to total sales Cost allocation Wheeling cost of 33 KV allocated to 33 KV users only (A*D) 453.69 4205.86 21664.09 0.19 86.20

1.18. The wheeling cost allocated to 33 KV thus works out to Rs. 86.20 Crore. Based on this allocation and considering the consumption at 33 KV, the wheeling charges in Rs. / unit are determined as below : Table 6: Wheeling Charges Voltage EHT 33KV Wheeling Cost allocated (Rs. Crore) 86.20 Sales (MU) 4205.86 Wheeling charges (in Rs./unit) 0.20

Applicability of wheeling charges under different scenarios 1.19. This section elaborates various scenarios of location of open access generators and their consumers and the consequent applicability of transmission and wheeling charges. The scenarios and the applicability of charges shall be as below: (a) Scenario 1: Generator is connected to Transmission network (EHT voltages), while the consumer is connected to the distribution network at 33KV of Distribution Licensee: The scenario shall attract both transmission and wheeling charges since power required by the open access consumer will flow downstream from the transmission network through distribution network up to the consumers connection. Scenario 2: Generator is connected to distribution network at 33KV of Distribution Licensee, while the consumer is connected to the transmission network (132KV or above): In this scenario, the consumers requirement will be met by power flow over transmission network alone. The power generated by the open access generator will be locally consumed within
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(b)

the Discom and will not flow upstream to the open access consumer. Hence, such transactions shall attract only the transmission charges. (c) Scenario 3: Both Generator and consumer are connected to the transmission network (132KV or above): Only transmission charges shall apply, since there is no usage of distribution network. Scenario 4: Both generator and consumer are connected to the distribution system of any of the Distribution Licensee at 33 KV: The power generated by the open access generator will be consumed within the Discoms under the conditions of uniform retail tariff throughout the M.P. and hence it will contribute to meeting the demand of the open access consumer. Therefore, there is no additional usage of transmission network in this transaction. Hence, such transactions shall attract only the wheeling charges.

(d)

1.20. In the interest of avoiding pan-caking and encouraging open access, the Commission has determined the above applicability of charges. The formulations above also conform to the principle that power flows on the network by displacement method. A2. 2.1. DETERMINATTION OF CROSS-SUBSIDY SURCHARGE The Tariff Policy prescribes the following formulae for determination of cross- subsidy surcharge for various categories of consumers. 8.5 Cross-subsidy surcharge and additional surcharge for open access Surcharge formula : S = T [C(1+L/100) + D] Where S is the surcharge T is the Tariff payable by the relevant category of consumers; C is the Weighted average cost of power purchase of top 5% at the margin excluding liquid fuel based generation and renewable power. D is the Wheeling charge L is the system Losses for the applicable voltage level, expressed as a percentage 8.5.5 Wheeling charges should be determined on the basis of same principles as laid down for intra-state transmission charges and in addition would include average loss compensation of the relevant voltage level.
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2.2.

The first step in the determination of cross-subsidy surcharge is to work out the cost of marginal power purchase of top 5% power. As per the data of Tariff Order of FY 201011, this works out as below : Table 7: Cost of marginal power purchase of top 5% power Total Energy required (MU) in FY 2010-11 = 37457 MU Stations Units (MU) 200 231 159 452 831 1873 Cost (Ps./unit) 740.35 727.49 382.45 315.46 302.30 Total cost 5% (Rs. In margin Crs.) power 148.07 1873 168.05 60.81 142.59 251.21 770.73

Kawas Gandhar Kahalgaon STPS-II DVC Omkareshwar Total

2.3.

Therefore, the weighted average cost of power purchase of top 5% at the margin shall be worked out to Rs. 770.73 Crore/1873MU = Rs. 4.11 per unit.
The Commission has determined the wheeling charges at different voltage levels of distribution separately. The Tariff Policy also specifies that the Loss level (term L) should be worked out for each voltage level separately. For this purpose, the loss levels at each voltage level are assumed as below because of non-availability of required reliable data by the Distribution Licensees: Table 8: Voltage-wise loss levels Voltage Level EHT (transmission system) including External losses 4.09% 33KV (only 33KV system) Overall Loss level (L) 5.83% 6% 33.67%

2.4.

2.5.

The cost of transmission shall be uniformly spread over all consumers at every voltage level, as the transmission network is utilized by all consumers. Therefore, similar to wheeling costs, the approved transmission charges for FY 2010-11 is 47 Paise/unit. Finally, the last term in the Tariff Policy formula T Average Tariff for each category is obtained from the revenue model of FY 2010-11 Tariff Order. As per tariff order for FY 2010-11, the consumers having contract demand of 1MW or more shall be provided connections at 33 KV or above. Also, as per MPERC (Open Access) Regulations, 2005, the consumers with contract demand of 1 MW or above shall be allowed open access w.e.f. 1st October, 2007.
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2.6. 2.7.

2.8.

In accordance with the above, the total cost for various categories of HT consumers having contract demand of 1MW or above at 132KV/33 KV under various scenario are worked out as detailed in Annexure I. The Cross-subsidy surcharge shall be worked out as the difference of Average Tariff and the total cost for the particular category at particular voltage. For example, for Railway Traction at 132 KV the average tariff for FY 2010-11 as per tariff order works out to Rs. 5.29 per unit and total cost works out to Rs. 4.83 per unit. Therefore, Cross-subsidy surcharge shall be Rs. 5.29 Rs. 4.83 = Rs. 0.46 per unit. The category wise average tariff for FY10-11as per tariff order for FY 2010-11 is enclosed herewith as Annexure-II. However, in cases where cross-subsidy surcharge, based on above methodology, works out as negative, the same shall be zero.

A3. 3.1

APPLICABILITY OF THE ORDER The order will be applicable with effect from the date of issue of order to all open access consumers connected at 33 KV and above having contract demand of 1MW and above. This order shall continue to be in force unless amended or modified by an order of the Commission. Ordered accordingly. Sd/(C.S.Sharma) Member (Eco.) Place: Bhopal Date: 3rd March,2011 Sd/(K.K.Garg) Member (Engg.) Sd/(Rakesh Sahni) Chairman

ANNEXURE I (Rs. per unit) S. No. Scenario Cost of Power at 5% Margin 1 2 3 4 4.11 4.11 4.11 4.11 Cost of Power grossed up for distribution losses (6%) 4.37 0 0 4.37 Cost of Power grossed up for transmission losses (5.83%) 4.64 4.36 4.36 4.37 Transmission Wheeling charges charges Total Cost [C(1+L/100)+D]

i. ii. iii. iv.

0.47 0.47 0.47 0

0.20 0 0 0.20

5.31 4.83 4.83 4.57 ANNEXURE II (Rs. per unit)

S. No. i. ii. iii. iv. v. vi. vii. viii. ix.

Category of HT/EHT consumers HV-1 : Railway Traction HV-2 : Coal Mines HV-3.1 : Industrial HV-3.2 : Non-Industrial HV-4 : Seasonal HV-5.1 : Irrigation HV-5.2 : Public Water Works HV-6 :Bulk Residential Users HV-7 : Bulk Supply to Exemptees

Average Tariff T* 5.29 5.46 5.11 5.30 6.00 4.02 4.19 4.23 3.73

*as per retail supply tariff order for FY 2010-11

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