EM - Draft MERC MYT Regulations 2024
EM - Draft MERC MYT Regulations 2024
EM - Draft MERC MYT Regulations 2024
EXPLANATORY MEMORANDUM
ON
March 2024
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 1
TABLE OF CONTENTS
INTRODUCTION .............................................................................................................................. 10
1.1 BACKGROUND & REGULATORY FRAMEWORK ................................................................................. 10
2 GENERAL PRINCIPLES & MULTI YEAR TARIFF FRAMEWORK ...................................................... 17
2.1 OBJECTIVES ............................................................................................................................. 17
2.2 PRESCRIBING NORMS VS PRESCRIBING PRINCIPLES IN THE REGULATIONS ............................................ 17
2.3 COMMENCEMENT..................................................................................................................... 19
2.4 DEFINITIONS ............................................................................................................................ 19
2.5 CONTROL PERIOD ..................................................................................................................... 21
2.6 MULTI-YEAR TARIFF FRAMEWORK ............................................................................................... 21
2.7 PETITIONS TO BE FILED IN THE CONTROL PERIOD ............................................................................. 24
2.8 NON-COMPLIANCE OF THE DIRECTIONS OF THE COMMISSION: .......................................................... 26
2.9 MULTI-YEAR TARIFF PETITION .................................................................................................... 26
2.10 SPECIFIC TRAJECTORY FOR CERTAIN VARIABLES ............................................................................... 27
2.11 CONTROLLABLE AND UNCONTROLLABLE FACTORS ........................................................................... 28
2.12 MECHANISM OF SHARING OF GAINS AND LOSSES ON ACCOUNT OF UNCONTROLLABLE AND CONTROLLABLE
FACTORS ........................................................................................................................................... 29
3 POWER PROCUREMENT ............................................................................................................ 32
3.1 POWER PROCUREMENT GUIDELINES ............................................................................................ 32
3.2 POWER PROCUREMENT PLAN ..................................................................................................... 34
3.3 ADDITIONAL POWER PROCUREMENT............................................................................................ 36
4 FINANCIAL PRINCIPLES .............................................................................................................. 37
4.1 FINANCIAL PRUDENCE ............................................................................................................... 37
4.2 CAPITAL COST AND CAPITAL STRUCTURE ....................................................................................... 38
4.3 CONSUMER CONTRIBUTION, DEPOSIT WORK, GRANT AND CAPITAL SUBSIDY....................................... 40
4.4 DEBT-EQUITY RATIO ................................................................................................................. 41
4.5 DEPRECIATION ......................................................................................................................... 43
4.6 RETURN ON EQUITY .................................................................................................................. 47
4.7 INTEREST ON LOAN ................................................................................................................... 55
4.8 INTEREST ON WORKING CAPITAL ................................................................................................. 56
4.9 INCOME TAX............................................................................................................................ 57
4.10 CONTRIBUTION TO CONTINGENCY RESERVES.................................................................................. 59
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5 NORMS AND PRINCIPLES FOR DETERMINATION OF REVENUE REQUIREMENT AND TARIFF FOR
GENERATION COMPANIES .............................................................................................................. 62
5.1 BACKGROUND.......................................................................................................................... 62
5.2 COMMON ISSUES FOR THERMAL AND HYDRO GENERATING STATIONS ................................................ 64
6 NORMS AND PRINCIPLES FOR DETERMINATION OF REVENUE REQUIREMENT AND
TRANSMISSION TARIFF ................................................................................................................... 93
6.1 OVERVIEW OF TRANSMISSION..................................................................................................... 93
6.2 APPLICABILITY.......................................................................................................................... 95
6.3 COMPONENTS OF TARIFF ........................................................................................................... 96
6.4 PETITION FOR DETERMINATION OF PROVISIONAL TARIFF .................................................................. 96
6.5 DETERMINATION OF INTRA-STATE TRANSMISSION TARIFF ................................................................ 97
6.6 CAPITAL INVESTMENT PLAN........................................................................................................ 98
6.7 OPERATIONAL NORMS ............................................................................................................... 98
6.8 OPERATION AND MAINTENANCE EXPENSES FOR TRANSMISSION ...................................................... 100
6.9 O&M EXPENSES FOR GIS BAYS ................................................................................................ 113
6.10 SEPARATE NORMS FOR O&M EXPENSES ..................................................................................... 114
6.11 DETERMINATION OF INTRA STATE TRANSMISSION TARIFF............................................................... 115
6.12 BILLING AND PAYMENT OF INSTS CHARGES ................................................................................. 116
7 DISTRIBUTION WIRES BUSINESS ............................................................................................. 118
7.1 OBJECTIVE............................................................................................................................. 118
7.2 CAPITAL INVESTMENT PLAN...................................................................................................... 118
7.3 OPERATION AND MAINTENANCE EXPENSES ................................................................................. 119
7.4 WHEELING CHARGES ............................................................................................................... 123
8 RETAIL SUPPLY OF ELECTRICITY ............................................................................................... 127
8.1 OBJECTIVES ........................................................................................................................... 127
8.2 COMPONENTS OF AGGREGATE REVENUE REQUIREMENT FOR RETAIL SUPPLY BUSINESS........................ 127
8.3 CAPITAL INVESTMENT PLAN...................................................................................................... 130
8.4 OPERATION AND MAINTENANCE EXPENSES ................................................................................. 131
8.5 RECEIPT OF CROSS SUBSIDY SURCHARGE ..................................................................................... 136
8.6 RECEIPT OF ADDITIONAL SURCHARGE ......................................................................................... 136
8.7 DISTRIBUTION LOSSES ............................................................................................................. 137
8.8 TIME OF DAY TARIFF ............................................................................................................... 138
8.9 SUPPLY MARGIN .................................................................................................................... 140
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 3
8.10 CEILING TARIFF ...................................................................................................................... 143
9 NORMS AND PRINCIPLES FOR DETERMINATION OF FEES AND CHARGES OF MSLDC .............. 150
9.2 LDC DEVELOPMENT FUND ....................................................................................................... 150
9.3 OPERATION AND MAINTENANCE EXPENSES ................................................................................. 150
9.4 PERFORMANCE LINKED INCENTIVES............................................................................................ 151
10 NORMS AND PRINCIPLES FOR DETERMINATION OF FEES AND CHARGES OF STU ................... 153
10.1 APPLICABILITY........................................................................................................................ 153
10.2 INTRODUCTION ...................................................................................................................... 153
11 NORMS AND PRINCIPLES FOR DETERMINATION OF DETERMINATION OF REVENUE
REQUIREMENT AND TARIFF FOR ENERGY STORAGE SYSTEMS (ESS) ............................................. 157
11.1 THE ELECTRICITY (AMENDMENT) RULES, 2022 ............................................................................ 157
11.2 ENERGY STORAGE OBLIGATION ................................................................................................. 157
11.3 WAIVER OF INTER STATE TRANSMISSION SYSTEM CHARGES............................................................ 158
11.4 GUIDELINES FOR PROCUREMENT AND UTILIZATION OF BATTERY ENERGY STORAGE SYSTEMS ................ 158
11.5 GUIDELINES FOR THE DEVELOPMENT OF PUMPED STORAGE PROJECTS .............................................. 158
11.6 INTRODUCTION OF HIGH PRICE DAY AHEAD MARKET .................................................................... 158
11.7 BUDGETARY SUPPORT FOR ENABLING INFRASTRUCTURE FOR PUMPED STORAGE PROJECTS ................... 159
11.8 RENEWABLE ENERGY MUST RUN RULES ..................................................................................... 159
11.9 ANCILLARY SERVICES FROM ESS UNDER CERC (ANCILLARY SERVICES) REGULATIONS, 2022.................. 159
11.10 INCLUSION OF ESS IN TECHNICAL STANDARDS FOR CONNECTIVITY TO THE GRID ................................. 160
11.11 BIDDING GUIDELINES FOR ROUND THE CLOCK (RTC) RE SUPPLY ...................................................... 160
11.12 THE ANNUAL FIXED CHARGES SHALL COMPRISE THE FOLLOWING COMPONENTS: ................................. 162
11.13 DETERMINATION OF TARIFF OF STANDALONE ESS INCLUDING: A) FOR AN BESS; B) FOR HYDRO PUMP
STORAGE SYSTEM (PSP)..................................................................................................................... 162
12 GRANT OF SUBSIDIES BY STATE GOVERNMENT ...................................................................... 172
12.1 MANNER OF GRANT OF SUBSIDY BY STATE GOVERNMENT............................................................... 172
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 4
LIST OF ABBREVIATIONS
AAD Advance against Depreciation
DE Design Energy
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DoD Depth of Discharge
EE Energy Efficiency
ESO Energy Storage Obligations
HT High Tension
LT Low Tension
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LT-DRAP Long Term Distribution Licensee Resource Adequacy Plan
OA Open Access
O&M Operation and Maintenance
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PoC Point of Connection
RA Resource Adequacy
RE Renewable Energy
REC Rural Electricity Corporation
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TPC Tata Power Company Limited
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Introduction
1.1.1 As per Section 86 (1) (a) of the Electricity Act, 2003 (“EA 2003” or “the Act”), the
State Electricity Regulatory Commissions (SERCs or Commissions) have been
assigned the function of determining the tariff for generation, supply, transmission and
wheeling of electricity, wholesale, bulk or retail, as the case may be, within the State.
1.1.2 The Electricity Act, 2003 (EA 2003), as amended from time to time, requires the
appropriate Commission to be guided by Multi-Year Tariff (MYT) principles and the
principles and methodologies specified by the Central Electricity Regulatory
Commission (CERC) for determination of the tariff applicable to Generating
Companies and Transmission Licensees, while specifying the Terms and Conditions
for determination of tariff. Section 61 of the EA 2003 stipulates:
“61. The Appropriate Commission shall, subject to the provisions of this Act, specify
the terms and conditions for the determination of tariff, and in doing so, shall be guided
by the following, namely:-
(a) The principles and methodologies specified by the Central Commission for
determination of the tariff applicable to generating companies and transmission
licensees;
(b) The generation, transmission, distribution and supply of electricity are conducted
on commercial principles;
(c) The factors which would encourage competition, efficiency, economical use of the
resources, good performance and optimum investments;
(d) Safeguarding of consumers' interest and at the same time, recovery of the cost of
electricity in a reasonable manner;
(g) That the tariff progressively reflects the cost of supply of electricity and also reduces
cross-subsidies in the manner specified by the Appropriate Commission;
(i) The National Electricity Policy and tariff policy” (emphasis added)
1.1.3 The CERC vide its notice dated 4 January, 2024 has published the draft CERC (Terms
and Conditions of Tariff) Regulations, 2024 [draft CERC MYT Regulations, 2024] for
the Tariff Period from April 1, 2024 to March 31, 2029. In accordance with Section
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61(a) of the Act, the Maharashtra Electricity Regulatory Commission (MERC or the
Commission) has taken cognizance of draft CERC (Terms and Conditions of Tariff)
Regulations, 2024 and Explanatory Memorandum published thereof while framing the
Tariff Regulations for the Control Period commencing from April 1, 2025. Also, the
Commission has continued with the approach taken while framing the Multi-Year
Tariffs, which have been in force in the State from August 2005.
1.1.4 As per Section 62 of the Act, the Commission has to determine the tariff for supply of
electricity by a Generating Company to a Distribution Licensee, transmission, wheeling
and retail sale of electricity, and may require the Licensee or Generating Company to
furnish separate details in respect of generation, transmission and distribution of tariff.
The relevant extract of Section 62 of the Act is reproduced herewith:
“62. (1) The Appropriate Commission shall determine the tariff in accordance with
provisions of this Act for –
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“5.8.5 All efforts will have to be made to improve the efficiency of operations in all the
segments of the industry. Suitable performance norms of operations together with
incentives and disincentives will need to be evolved along with appropriate
arrangement for sharing the gains of efficient operations with the consumers. This will
ensure protection of consumers’ interests on the one hand and provide motivation for
improving the efficiency of operations on the other”.
1.1.6 The Tariff Policy notified on January 28, 2016 stipulates as under:
“5.11 Tariff policy lays down the following framework for performance-based cost of
service regulation in respect of aspects common to generation, transmission as well as
distribution…
…
1) Section 61 of the Act states that the Appropriate Commission for determining the
terms and conditions for the determination of tariff shall be guided, inter-alia, by Multi-
Year Tariff (MYT) principles. The framework should feature a five-year control
period. The initial control period may, however, be of 3 year duration for transmission
and distribution if deemed necessary by the Regulatory Commission on account of data
uncertainties and other practical considerations…”
1.1.7 The Ministry of Power's (MoP) Electricity (Rights of Consumers) MOP vide MOP
Electricity (Second Amendment) Rules, 2023 dated 26 July 2023 has notified the
Framework for Financial Sustainability. The MOP Rules 2023 specifies that, the
Aggregate Technical and Commercial loss reduction trajectory should be approved by
the Commissions for tariff determination in accordance with the trajectory agreed by
the State Government and approved by the Central Government under any national
scheme or programme, or otherwise. The trajectory determined by the Commission
shall be for both collection and billing efficiency, for distribution licensee.
Further, the MOP Rules also refers to compliance of Resource Adequacy requirement
specified under MOP Electricity (Amendment) Rules 2022 and 24X7 supply mandate
while approving the cost of procurement of power by Distribution Licensee in a
transparent manner. Further, the Rules also specifies that, all the prudent costs incurred
by the distribution licensee for creating the assets for development and maintenance of
distribution system shall be passthrough as per the relevant provisions of the EA 2003
and subject to the conditions specified in the MOP Rules.
The MOP rules also specifies that, the Commission shall undertake the true up of the
expenses and specify the framework for sharing of the gains and losses within the
licensee and the consumers. Further, the Commission is required to specify the
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reasonable Return on Equity, with the assessment of overall risk and the prevalent cost
of capital.
Accordingly, the Commission has considered the provisions of the MOP Regulations
and the norms specified by the Central Commission while proposing the provisions of
the Draft MERC MYT Regulations, 2024.
1.1.8 The Commission notified the MERC (Terms and Conditions of Tariff) Regulations,
2005 on August 23, 2005 under Section 61 of the Act. Subsequently, the Commission
on February 4, 2011, notified the MERC (Multi Year Tariff) Regulations, 2011 for the
Control Period of five (5) financial years from April 1, 2011 to March 31, 2016. The
Commission notified the first amendment to the MERC (Multi Year Tariff)
Regulations, 2011 on October 21, 2011 related to deferment of the implementation of
the MYT framework on account of difficulty in giving effect to the determination of
tariff with effect from April 1, 2011.
1.1.9 The Commission notified the second amendment to the MERC (Multi Year Tariff)
Regulations, 2011 on February 17, 2014 related to operation of generating stations in
case of fuel shortages and consequential impact on demonstration of declared capacity
and backing down of generation. The Commission notified the third amendment to the
MERC (Multi Year Tariff) Regulations, 2011 on May 8, 2014 related to change in
mechanism of sharing of gains or loss on account of uncontrollable factors and approval
of Z-factor charge including ZFAC and ZOUC. On December 8, 2015, the Commission
notified the MERC (Multi Year Tariff) Regulations, 2015 [MERC MYT Regulations,
2015], which superseded the MERC (Multi Year Tariff) Regulations, 2011. The
Commission notified the first amendment to the MERC MYT Regulations, 2015 on
November 29, 2017 related to determination of normative Operation and Maintenance
expenses.
1.1.10 On August 1, 2019 the Commission notified the MERC (Multi Year Tariff)
Regulations, 2019 [MERC MYT Regulations, 2019], which superseded the MERC
(Multi Year Tariff) Regulations, 2015. The Commission notified the first amendment
to the MERC (Multi Year Tariff) Regulations, 2019 on February 10, 2023, related to
threshold limit and other conditions for intra-State Transmission Projects to be
developed through Tariff Based Competitive Bidding. The Commission notified
second amendment to the MERC (Multi Year Tariff) Regulations, 2019 on 8th June
2023, related to determination of input price of Coal and Lignite from Integrated mine,
Regulations related to Financial Principles were added and Illustration for MSLDC.
1.1.11 As the current MYT Control Period is coming to end on March 31, 2025, the MERC
has formulated the draft Maharashtra Electricity Regulatory Commission (Multi Year
Tariff) Regulations, 2024 (hereinafter referred as “draft MERC MYT Regulations,
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 13
2024) covering the Generation Business (Conventional), Transmission Business,
Distribution Wires Business, Retail Supply Business, SLDC for the next MYT Control
Period. Further, the Commission notes the development at national level that, the
Ministry of Power vide Gazette Notification dated March 9, 2021 notified Central
Transmission Utility of India Limited, as the ‘CTU’ under Division and Demerger of
CTU and PGCIL transfer Scheme 2021. Considering this development, the
Commission expects that, going forward, the State Transmission Utility (STU) in the
state would be also separated from Maharashtra State electricity Transmission
Company (MSETCL) and functions as independent planning entity as per the
provisions of the Section 39 of the Electricity Act 2003.
1.1.12 To facilitate the separation of STU from MSETCL and functions as independent
planning body, the Commission in the draft MYT Regulations, 2024 has introduced the
separate Chapter for MYT framework for Fees and Charges for State Transmission
Utility (STU) and directed the STU to file a Petition for determining STU’s Fees and
Charges for the upcoming Control Period similar to Maharashtra State Load Despatch
Centre (MSLDC). The details are discussed in the respective chapter.
1.1.13 Further, the Commission also notes that, the Forum of Regulators (FOR) constituted a
working group to study the need of Energy Storage Systems (ESS) and assessment of
value of storage in the wake of large-scale penetration of renewable, as ESS has the
potential of supporting the ramping requirement of the grid. The FOR published its
report on “Regulatory Framework for Energy Storage and Electric Vehicles” in July
2022.
1.1.14 The Working Group observed that ESS could be useful for as an Independent Energy
Storage System (IESS), ESS as a Generation asset, Distribution asset, or transmission
asset for congestion management. The report also recommends that SERCs should
provide the enabling Regulatory framework for encouraging the ESS development in
the states. Accordingly, the Commission has introduced a separate chapter for
specifying Regulatory framework for ESS including Pumped Storage Hydro Projects.
The details are discussed in the respective chapter.
1.1.15 Apart from adding the above two new sections in the MYT Regulations, the
Commission has introduced the concept of “Uniform Wheeling Charge”, “Ceiling
Tariff” and “Supply Margin” to encourage the competition in the Distribution Sector.
The details are discussed in the chapter of Distribution tariff Framework.
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1.1.16 As stated earlier, while formulating the draft MERC MYT Regulations, 2024, the
Commission has been guided by the CERC (Terms and Conditions of Tariff)
Regulations, 2019 and the draft CERC (Terms and Conditions of Tariff) Regulations,
2024. The Commission has also been guided by the National Electricity Policy, Tariff
Policy, relevant Regulations of this Commission and other SERCs, FOR
Recommendations on MYT Framework, APTEL Judgments, etc., for the formulation
of draft MERC MYT Regulations, 2024.
1.1.17 The Commission has proposed modifications to certain clauses vis-à-vis the clauses
specified in the MERC MYT Regulations, 2019 (as amended from time to time) based
on the experiences in implementation of the MYT Regulations in the previous Control
Period, and in order to simplify/clarify/amend certain provisions as considered
reasonable. The rationale for the changes proposed in the MERC MYT
Regulations have been elaborated in this Explanatory Memorandum. In cases
where no change is proposed, the same has not been explicitly mentioned.
Generally, only the clauses where any addition/modification is proposed in the
MERC MYT Regulations, 2024 have been discussed in this Explanatory
Memorandum.
1.1.18 The Commission while formulating draft MERC MYT Regulation, 2024, has
endeavoured to balance the interest of consumers, Generating Companies, ESS
Developers, Transmission Licensees, Distribution Licensees, STU and SLDC. Based
on the analysis, possible regulatory options for the next Control Period have been
discussed in subsequent Chapters.
The Explanatory Memorandum is organised in the following Chapters:
Chapter 1: Introduction
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Chapter 8: Norms and Principles for determination of Fees and Charges for the
Maharashtra State Load Despatch Centre (MSLDC).
Chapter 9: Norms and Principles for determination of Fees and Charges for the
Maharashtra State Transmission Utility (MSLDC).
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 16
2 General Principles & Multi Year Tariff Framework
2.1 Objectives
2.1.1 This Chapter of the Explanatory Memorandum elaborates the General Principles for
formulation of Regulations for approval of Aggregate Revenue Requirement (ARR)
and Tariff under a Multi-year Tariff (MYT) framework for the fifth Control Period.
(a) Provide regulatory certainty to the Utilities, investors and consumers by promoting
transparency, consistency and predictability of regulatory approach, thereby
minimizing the perception of regulatory risk;
(b) Address the risk sharing mechanism between Utilities and consumers based on
controllable and uncontrollable factors;
(c) Ensure financial viability of the sector to attract investment, ensure growth and
safeguard the interest of the consumers;
2.1.2 Long-Term Tariff principles are intended to give clarity to the Generating Companies,
Energy Storage System Developers (ESSD), Transmission Licensees, Distribution
Licensees, consumers, and the other stakeholders regarding the principles governing
the determination of revenue requirement and tariffs in the State of Maharashtra.
For the Generating Companies, ESSD and Licensees, the principles provide clarity on
the regulatory framework applicable over the long-term, and help finance growth and
operations better, and facilitate improvement in supply quality and customer service.
Secondly, the design of efficiency incentives helps promote operational efficiency.
2.2.1 There are two options to specify trajectories for performance parameters under the
Regulations, viz.:
(a) Prescribing operational and financial norms, based on the analysis of past
performance levels vis-a-vis the approved levels and benchmarking with
comparable entities across different States or within the State, as appropriate.
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(b) Prescribing principles outlining the approach to be followed while determining the
ARR.
2.2.2 Both the approaches have their merits and demerits. However, prescribing norms based
on the analysis of past performance levels vis-à-vis the approved trajectory of previous
Control Period, provides clarity about the roadmap of tariff to the Utilities as well as to
the consumers. Regulatory certainty is one of the key objectives of any MYT
framework, and hence, it is preferable to specify norms rather than principles, wherever
feasible.
2.2.3 FOR Report on “MYT framework and Distribution Margin” mentions in the context of
cost plus vis-à-vis performance-based regulations:
“6.1.1 Annual revision of performance norms and tariff might not be desirable.
During the first control period, which should not be more than three years, the
opening levels of performance parameters should be specified as close to the actual
level of performance as possible and a trajectory of improvement of norms to
desired level be provided with an incentive and disincentive mechanism to share
efficiency gains with consumers.”
2.2.4 The FOR Report recommends that the norms should be specified as close to actual level
of performance as possible. The FOR Report also underlines on specifying a trajectory
to achieve desired levels of norms, which entails fixing of performance trajectory on
normative basis rather than at actual levels for the second Control Period onwards.
2.2.5 Further, Para 5.11 (f) of the Tariff Policy, 2016, stipulates as under:
The Commission in the MERC MYT Regulations, 2019 had specified operational
norms and norms for O&M Expenses for Generation Business and Transmission
Business. The Commission in the draft MERC (MYT) Regulations, 2024 has continued
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with the similar approach while defining the operational norms and O&M Expenses for
Generation and Transmission with changes in the number of years of data considered
for analysis. The details of operational norms and norms for O&M Expenses for
Generation and Transmission are provided in the respective chapters.
2.3 Commencement
2.3.1 The Commission, in the draft MERC MYT Regulations, 2024 has specified that, these
Regulations shall be applicable for all matters covered under the Regulations for the
period with effect from April 1, 2025..
2.4 Definitions
2.4.1 The Commission, in the draft MERC MYT Regulations, 2024 has modified some
definitions from earlier MYT Regulations and also added some definitions, as under:
(1) “(14) “Battery Energy Storage Systems” or “BESS” or “Project” shall mean the
system(s)/projects utilizing methods and technologies such as electrochemical batteries
(Lead Acid, Li-ion, solid state batteries, flow batteries, etc.), providing a facility that
can store chemical energy and deliver the stored energy in the form of electricity,
including but not limited to ancillary facilities (grid support., for example). Such
systems may be co-located with RE Generating Stations or may be operated on
standalone basis”.
Rationale: The Commission has proposed to introduce Regulatory framework for ESS
which includes Battery Energy storage systems. Introduction of BESS presents a
significant opportunity to enhance grid stability, integrate renewables, and unlock
economic and environmental benefits for both utilities and consumers. Lowering
electricity bills is a direct result of improved grid stability and reduced dependence on
expensive peaking plants. This, in turn, can lead to decreased wholesale electricity
prices, ultimately benefiting consumers with lower bills. Additionally, the
implementation of BESS enhances reliability and resilience by providing backup power
during outages, ensuring uninterrupted service for consumers. Furthermore, BESS
enables a more sustainable energy mix by facilitating the integration of renewable
energy sources. This contributes to a cleaner and more environmentally friendly energy
future, aligning with the goal of achieving a sustainable and resilient energy
infrastructure.
(2) “(27) “Cycle Efficiency of Energy Storage System” means, the ratio of discharge
capacity of ESS to charge capacity of ESS in a single cycle, regardless of the self-
discharge loss of the ESS”.
Rationale: The introduction of ESS in the Regulations necessitates a clear definition
of cycle efficiency. This key metric, expressed as a percentage, plays a crucial role in
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evaluating performance and minimizing energy losses during charging and discharging
cycles, ensuring optimal BESS utilization, and maximizing benefits. So, the definition
of Cycle Efficiency of Energy Storage System is proposed to be included as above.
(3) “(34) “Depth of Discharge” A battery's depth of discharge (DoD) indicates the
percentage of the battery that has been discharged relative to the overall capacity of
the battery. Depth of Discharge is defined as the capacity that is discharged from a
fully charged battery, divided by battery nominal capacity”.
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2.5 Control Period
2.5.1 The Control Period means a multi-year period typically ranging from 3 to 5 years, fixed
by the Commission from time to time for the duration of which, the principles for
determination of Aggregate Revenue Requirement (ARR) and tariff will be specified
in the Regulations.
As stated earlier, the Act stipulates that a Multi-Year Tariff (MYT) framework has to
be specified for determination of ARR and Tariffs. The Tariff Policy has stipulated a
five-year MYT framework, after the initial Control Period.
2.5.2 MERC MYT Regulations, 2019, the Control Period was defined as five years, from
April 1, 2020 to March 31, 2025.
2.5.3 Further, the CERC notifies the Tariff Regulations for every 5-year period, i.e., 2009-
2014, 2014-2019, 2019-24. The CERC has recently notified the draft CERC Tariff
Regulations, 2024 on January 1, 2024 for the Control Period of five (5) financial years
from April 1, 2024 to March 31, 2029.
2.5.4 The Commission is of the view that, it would be appropriate to continue with the five
years Control Period Starting from April 1, 2025, which would enable the Commission
to be guided by the CERC Tariff Regulations while formulating the MYT Regulations
for the next Control Period. Further, a five-year Control Period would give clarity on
the ARR and tariff determination process for a longer tenure, thereby introducing a
corresponding amount of regulatory certainty to the process. Accordingly, it is
proposed to have a Control Period of five (5) financial years, over the period from April
1, 2025 to March 31, 2030. Accordingly, the Control Period has been defined as under
in the draft MERC MYT Regulations, 2024:
(25)“Control Period” means the period comprising five Years from April 1, 2025 to
March 31, 2030, and as may be extended by the Commission”
(a) Tariff determination for each year of the Control Period, at the beginning of the
Control Period.
(b) True-up for the first year and second year of the Control Period and provisional
true-up for the third year of the Control Period at the time of MTR.
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(c) Provision for Mid-Term Review (MTR) at the end of three years, i.e., the ARR and
tariff determined in the MYT Order for the third and fourth year of the Control
Period is subject to revision after MTR.
(d) True-up for the third and fourth year of the Control Period and provisional true-up
for the fifth year of the Control Period at the time of MYT Order for the subsequent
Control Period.
2.6.2 As stated earlier, the Commission proposes to continue with the Control Period of five
years starting from April 1, 2025 upto March 31, 2030. Further, the Commission also
proposes to continue with the provisions of the truing-up of the MYT projections with
the actual parameters subject to the provisions of the Regulations at the end of the
control period.
2.6.3 However, with regards to Mid-term Review of MYT projections and revised MYT
projections after three years of the Control Period, the Commission noted that, the
MERC (Terms and Conditions of Tariff) Regulations, 2005 notified on August 23,
2005, had provision of yearly Truing-up. Subsequently, the Commission while
notifying the MERC (Multi Year Tariff) Regulations, 2011, moved from Yearly
Truing-up to Mid-Term Review at the end of third year of the Control Period. The
Commission continued with the provision of Mid-Term Review in the third and fourth
control period. The Commission is of the view that the Generation Companies,
Licensees and Utilities in Maharashtra have gained the sufficient experience over a
period to project the Aggregate Revenue Requirement over a control period.
2.6.4 The comparative analysis of the past period data shows that, the projections approved
by the Commission at the time of MYT Orders and actual parameters of ARR are fairly
comparable. Further, the Commission also notes that, the major variation in the MYT
projections and actual data is on account of the variation in cost of fuel, power purchase,
and inter-State Transmission Charges and same is passed through under the Fuel
Adjustment Charge (FAC) component of the Z-factor Charge (ZFAC), as an
adjustment in the distribution Tariff on a monthly basis subject to post-facto approval
of the Commission.
2.6.5 The Commission also noted that CERC Tariff Regulations for last three control period
have the provision of True-up at the end of the Control Period only and the CERC is
continuing with the similar approach for the next Control Period starting from April 1,
2024.
2.6.6 In view of the above the Commission is proposing to discontinue with the provision of
Mid-Term Review from this Control Period for all Generation Companies, Licensees
and other Utilities covered under MYT Framework and move towards the Multi Year
Tariff Framework in letter and spirit.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 22
2.6.7 While proposing to discontinue with MTR provisions, the Commission notes that, the
MYT Regulations 2019, has also the provision of Z-factor Charge (ZOUC) which can
take care of the consequential impact of decisions of higher Courts or Tribunals or
Review Orders passed by the Commission on the Generating Company or Licensee to
passed through under the ‘Other Uncontrollable Cost’ component of the Z-factor
Charge (ZOUC) as an adjustment in the Tariff on a yearly basis for the Control Period.
The Commission is proposing minor changes in the ZOUC Formulation to
accommodate the variation in the Intra-State Transmission Charges during the Control
Period.
2.6.8 The Commission expects that, the Generation Companies or Licensees should exercise
the provisions of the ZOUC only for the Uncontrollable Cost’ component specified
under this Regulation.
2.6.9 Accordingly, the Commission has proposed to discontinue with the provision of Mid-
Term Review in the Fifth Control Period commencing from April 1, 2025. Tariff shall
be determined for each year of the Control Period, at the beginning of the Control Period
and True-up for the first, second, third and fourth year of the Control Period and
provisional true-up for the fifth year of the Control Period at the end of the Control
period along with MYT Order of next Control Period for Generating Companies,
Transmission Licensees, Distribution Licensees, SLDC, STU and ESS Developer.
2.6.10 Accordingly, the MYT framework for the fifth Control Period is proposed to be
modified as under:
“4.1 The Commission shall determine the Tariff and Fees and Charges for matters
covered under clauses (i), (ii), (iii), (iv), (v), (vi), (vii), and (viii) of Regulation 3.1,
under a Multi-Year Tariff framework with effect from April 1, 2025.
4.2 The Multi-Year Tariff framework shall be based on the following elements, for
computation of Aggregate Revenue Requirement and expected revenue from Tariff and
Charges for Generating Companies, Energy Storage System Developer (ESSD),
Transmission Licensees, Distribution Wires Business, Retail Supply Business, Fees and
Charges of MSLDC and STU.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 23
Provided that the Distribution Licensee shall propose the category-wise Tariffs for
each year of the Control Period including determination of ‘ceiling tariff’, if
necessary, subject to fulfilment of conditions as specified under these Regulations.
Provided further that the performance parameters whose trajectories have been
specified in these Regulations shall form the basis of projection for the Aggregate
Revenue Requirement for the entire Control Period.
(ii) Determination of the Aggregate Revenue Requirement and Tariff or Fees and
Charges for Generating Companies, ESS, Transmission Licensees, Distribution
Wires Business, Retail Supply Business, MSLDC and STU by the Commission for
each year of the Control Period, at the start of the Control Period including
determination of ‘ceiling tariff’, as may be applicable, subject to fulfilment of
conditions as specified under these Regulations:
Provided that the Commission shall also approve the sharing proportion amongst
the Transmission System Users of the MSLDC and STU Fees and Charges for the
Control Period.
(iii) Petition for True-up for the first four years of the Control Period based on audited
accounts and provisional true-up for the fifth year of the Control Period of
operational and financial performance vis-à-vis the approved forecast for the
respective years, shall be submitted by the Generating Company or ESSD, or
Licensee or MSLDC or STU
(iv) True-up for the first four years of the Control Period, provisional true-up for the
fifth year of the Control Period of operational and financial performance vis-à-vis
the approved forecast for the respective years, and categorization of variation in
performance as those caused by factors within the control of the Petitioner
(controllable factors) and by factors beyond its control (uncontrollable factors) by
the Commission.
(v) The mechanism for pass-through of approved gains or losses on account of
uncontrollable factors as specified by the Commission in these Regulations.
(vi) The mechanism for sharing of approved gains or losses arising out of controllable
factors as specified by the Commission in these Regulations.”
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 24
The timelines for filing of different Petitions during the fifth Control Period, the scope
of the Petitions, and the applicable MYT Regulations for true-up for different years,
have been proposed as under in the draft MYT Regulations, 2024 are as below.
Truing-up • Truing-up for FY 2024-25 under MERC MYT November 1, 2029 for
Petitions Regulations, 2019 Generating
Companies,
• Truing-up for FY 2025-26, FY 2026-27 FY 2027-
Transmission
28 and FY 2028-29 under MERC MYT
Licensees, SLDC,
Regulations, 2024
STU, ESS Developers
• Provisional Truing-up for FY 2029-30 under and November 30,
MERC MYT Regulations, 2024 2029 for Distribution
Licensee
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 25
2.8 Non-Compliance of the Directions of the Commission:
2.8.1 The Commission has noted that, many times, the directions passed by the Commission
in the MYT Orders, or any other Orders are not complied with by the concerned
Utilities. As per the provisions of the Electricity Act, 2003, the Electricity Regulatory
Commission is Quasi-Judicial Authority and directions of the Commission are legally
bounded on the Utilities. The adherence with the directions of the Commission by the
Utilities is necessary in the interest of Consumers and implementation of the provisions
of the Commission’s own Regulations.
2.8.2 Accordingly, to ensure the adherence and timely compliance with the directions of the
Commission by the Utilities, the Commission has introduced the provision of deducting
upto INR One Crore per default while approving the ARR of the concerned Utility. The
proposed Provision of the Regulation 5.2 is as under:
“5.2 Along with the Petition for determination of Tariff or Fees and Charges and Truing-up
under these Regulations, the Petitioner shall submit consolidated statement of the status of the
adherence of prevailing Regulations and / or the directives of the Commission in the earlier
Orders (including Tariff as well as Non-Tariff Orders) along with the justification of non-
compliance, if any.
As per the Regulation 6.3 of the MYT Regulations 2019, the Distribution Licensee has
to submit the detailed capital investment plan. As the Commission has notified the
separate Regulations as MERC (Approval of Capital Investment Schemes) Regulations,
2022 for approval of the Capital Expenditure of the Utilities. Accordingly, the
Regulation 6.3 of the draft MYT Regulations 2024 is as under:
“6.3 The capital investment plan shall show, separately, on-going projects that will
spill over into the Control Period, and new projects (along with justification) that will
commence in the Control Period but may be completed within or beyond it, for which
relevant technical and commercial details shall be provided as per the provisions of the
Maharashtra Electricity Regulatory Commission (Approval of Capital Investment
Schemes) Regulations, 2022 and amendments thereof.”
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 26
2.10 Specific trajectory for certain variables
In line with the above MOP notification, the Commission has proposed to have
trajectory for Reliability Indices, System Average Interruption Frequency Index
(SAIFI), System Average Interruption Duration Index (SAIDI) to monitor and report
the supply availability and wires availability.
As per Rule 20 of the MoP Electricity (Second Amendment) Rules, 2023, the Aggregate
Technical and Commercial (AT&C) loss reduction trajectory to be approved by the
State Commissions for tariff determination in accordance with the trajectory agreed by
the respective State Governments and approved by the Central Government under any
national scheme or programme, or otherwise:
“20. Framework for Financial Sustainability: (1) The Aggregate Technical and
Commercial loss reduction trajectory to be approved by the State Commissions for
tariff determination shall be in accordance with the trajectory agreed by the respective
State Governments and approved by the Central Government under any national
scheme or programme, or otherwise.”
The Commission has noted the provisions of the MoP Rules to specify the trajectory
for AT&C losses. The Commission in existing MYT tariff determination process is
specifying the trajectory for Distribution Loss reduction and considering the normative
distribution loss for energy balancing of the Distribution Licensees. The Commission
also monitors the actual Distribution Loss at the time of Truing-Up process and
disallowing the excess power procurement on account of additional losses over and
above normative losses.
With regards to the trajectory for AT&C losses, the Commission notes that, for Truing-
up process the Commission considers the sales and revenue on accrual basis from the
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 27
audited accounts for actual energy balance at the time of Turing-up. The collection
efficiency is also monitored separately during the Truing-Up process.
However, considering the provisions of the MoP Rules, it is proposed to specify the
Trajectory of AT&C losses for monitoring purpose for the Control Period (From FY
2025-26 to FY 2029-30). Accordingly, the Specific trajectory for certain variables is
proposed to be modified as under:
“7.1 The Commission, while approving the Multi-Year Tariff Petition, may stipulate a
trajectory for certain variables, including but not limited to transmission losses,
distribution losses, Reliability Indices, System Average Interruption Frequency Index
(SAIFI), System Average Interruption Duration Index (SAIDI) to monitor and report
the supply availability and wires availability, Aggregate Technical and Commercial
Losses (AT&C Loss), collection efficiency, and payment efficiency.”
2.11.1 While formulating the MYT framework, it is essential to clearly specify the controllable
factors and uncontrollable factors and their treatment, since the impact on the Utility
due to uncontrollable factors is generally considered as a pass-through element in
tariffs, while the impact of efficiency gain or loss on account of identified controllable
factors has to be adjusted between the Utility and the consumers in a specified manner.
2.11.2 Regulation 8 of the draft MERC MYT Regulations, 2024 specifies the various
controllable and uncontrollable factors to be considered and Regulations 9 and 10
provide the mechanism for treatment of gains or losses arising on account of such
Uncontrollable and Controllable factors, respectively.
Uncontrollable Factors
2.11.3 The Commission has proposed the indicative list of Uncontrollable factors in the Draft
MERC MYT Regulations, 2024, like MERC MYT Regulations, 2019. Further, the
Commission has added the intra State transmission charges as one of the uncontrollable
parameters considering that these charges are also not in control of Distribution
Licensees. MOP’s Electricity amendment Rules 2022, dated 29th December 2022 also
considers the intra-State Transmission losses as un-controllable, hence considered the
passthrough of the same through Fuel and Power Purchase Adjustment Surcharge
(FPPAS) mechanism. The existing Regulation is modified to include the intra-State
Transmission losses as under;
“8.1 The “uncontrollable factors” shall comprise the following factors, which were
beyond the control of, and could not be mitigated by the Petitioner, as determined by
the Commission:
(e) Variation in the cost of power purchase due to variation in the rate of power
purchase, subject to clauses in the power purchase agreement or arrangement
approved by the Commission;
Controllable Factors
2.11.4 The Commission has proposed the indicative list of Controllable factors in the Draft
MERC MYT Regulations, 2024, similar to MERC MYT Regulations, 2019 as shown
below;
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 29
variation in the price of fuel, or power purchase costs and the impact in the cost due
to such variation shall be automatically passed through in the consumer tariff, on a
monthly basis, using this formula and such monthly automatic adjustment shall be
trued up on annual basis by the Appropriate Commission:
Provided that till such a methodology and formula is specified by the Appropriate
Commission, the methodology and formula specified in the Schedule – II annexed to
these rules shall be applicable:
Provided further that the existing methodology and the formula specified by the
Appropriate Commission shall suitably be amended in accordance with these rules,
to implement the automatic pass through of fuel and power purchase adjustment
surcharge, on a monthly basis:
Provided also that in case the distribution licensee fails to compute and charge fuel
and power purchase adjustment surcharge within the time line, specified by the
Appropriate Commission, except in case of any force majeure condition, its right for
recovery of costs on account of fuel and power purchase adjustment surcharge shall
be forfeited and in such cases, the right to recovery the fuel and power purchase
adjustment surcharge determined during true-up shall also be forfeited and the true
up of fuel and power purchase adjustment surcharge by the Appropriate Commission,
for any financial Year, shall be completed by 30th June of the next financial year.”
2.12.1.2 MOP in schedule II of Electricity Amendment Rules 2022, dated 29th December
2022, has provided the Formula for Computation of Fuel and Power Purchase
Adjustment Surcharge in which it has considered the variation in Intra-State
Transmission charges as pass through. The relevant rule is as under:
“Schedule II
…
Where,
Nth month means the month in which billing of fuel and power purchase adjustment
surcharge component is done. This fuel and power purchase adjustment surcharge is
due to changes in tariff for the power supplied in (n-2)th month
A is Total units procured in (n-2)th Month (in kWh) from all Sources including Long-
term, Medium–term and Short-term Power purchases (To be taken from the bills
issued to distribution licensees)
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 30
B is bulk sale of power from all Sources in (n-2)th Month. (in kWh) = (to be taken
from provisional accounts to be issued by State Load Dispatch Centre by the 10th day
of each month).
…”
2.12.1.3 Regulation 9 of Draft MERC MYT Regulations, 2024 specifies the method for
allowing the gains or losses on account of uncontrollable factors as an adjustment in
tariff. Intra-State transmission charges are not in control of Distribution Licensee and
MOP has also considered the variation in intra-State transmission charges to be pass
through in Electricity Amendment Rules 2022, hence the Commission has considered
the intra-State Transmission charges as uncontrollable and included the same in the
“F” component of the Z-factor charges. Further, the Z factor charge is automatically
pass through as an adjustment in the Tariff on a monthly basis in line with MOP Rule,
subject to ex-post facto approval by the Commission on a quarterly basis. In case
Distribution Licensee fails to compute Z factor charge within the timelines stipulated
in the Regulations, except in case of any Force Majeure, its right for recovery of such
cost shall be forfeited and Distribution Licensee shall not be allowed to recover such
cost in the True-up proceeding also
2.12.2 Mechanism for sharing of Gains and Losses on account of Controllable Factors
2.12.2.1 Regulation 10 of the Draft MERC MYT Regulations, 2024 specifies the method of
sharing the gains and losses on account of controllable factors between the Generating
Company or Licensee and the Beneficiaries. Since the Commission has proposed
separate Chapter for Energy Storage System and STU, the appropriate changes have
been proposed in these Regulations to include applicability to Energy Storage System
and STU.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 31
3 Power Procurement
3.1.1 The Distribution (Supply) Licensee purchases power from different sources either
through long-term or medium-term Power Purchase Agreements (PPA) or through
short-term contracts. The Distribution Licensee is required to plan for its future
requirement of power in the most effective way. The MERC MYT Regulations, 2019
provides for Licensees to prepare power procurement plan for the Control Period and
submit the same for approval of the Commission. The power procurement plan shall
comprise of long-term and medium-term contracts between the Generator and the
Distribution Licensee which are proposed to continue in the next Control Period. The
Distribution Licensee is also required to submit sources from which it proposes to buy
short-term power for balance requirement. While planning for power requirement, the
Distribution Licensee are expected to consider the Merit Order Despatch (MOD)
principles of all Generating Stations, the Quantum of Renewable Purchase Obligation
(RPO) specified by the Commission under relevant Regulations, and the targets for
Energy Efficiency (EE) and Demand Side Management schemes.
3.1.2 The Distribution Licensees also consumes the considerable quantum of energy for its
own requirement such as Auxiliary consumption in the substations, transformers,
control rooms, own offices and other establishments. The Commission is of the view
that, Distribution Licensee should also consider the implementation of Energy
Efficiency Schemes under the provisions of the MERC (Demand Side Management
Implementation Framework) Regulations, 2010 as amended from time to time. The
Distribution Licensees can take efforts to reduce its self-consumption by implementing
Energy Efficiency/Conservation measures which shall include but not limited to
Distribution Transformer efficiency improvement schemes, deployment of LED bulbs
and deployment of energy efficiency fans (BLDC fans, etc.), deployment of five star
rated air conditioning units at its offices and other substations related establishments,
schemes for voltage management measures and Power Factor improvement, Energy
Efficiency monitoring and analytical hardware and software tools.
3.1.3 The Distribution Licensee shall submit the existing level of Energy Conservation
measure at the beginning of the Control Period and provide the trajectory for reduction
in its own energy consumption through proposed Energy Efficiency improvement
scheme/plan under Capital Expenditure or Opex Expenditure as part of the MYT
Petition alongwith the target of Energy Efficiency related savings, and monitoring plan
in line with principles provided the MERC (Demand Side Management Implementation
Framework) Regulations, 2010 as amended from time to time. The Distribution
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 32
Licensee shall submit its Energy Efficiency Programmes’/Scheme’s Cost Effectiveness
Assessment for the expected trajectory.
3.1.4 Based on the submissions of the Distribution Licensees the Commission may specify
the Energy Conservation Trajectory for the Control Period and monitor the actual
performance at the time of Trueing-Up. The Commission may also allow incentive to
the Distribution Licensee for achievement of Energy Efficiency Targets over and above
the approved Trajectory, subject to prudence check by the Commission.
3.1.5 Further, the Commission notes that, the Electricity (Amendment) Rules, 2022 notified
by the Ministry of Power, Government of India, specifies that the Central Government,
in consultation with Central Electricity Authority (CEA) will issue Resource Adequacy
Guidelines for assessment of resource adequacy during the generation planning stage
(one year or beyond) as well as during the operational planning stage (up to one year).
The CEA has notified the Guidelines for Resource Adequacy Planning Framework. The
Forum of Regulators (FOR) has published the Model Regulations for Resource
Adequacy Requirement in June 2023.
3.1.6 Considering the above developments, the Commission has separately published Draft
MERC (Framework for Resource Adequacy) Regulation 2024 on resource adequacy,
based on which the Distribution Licensees shall formulate the resource adequacy plan
and seek approval of the Commission. The provisions of the Draft MERC RA
Regulations, 2024 for Power Procurement Planning are summarised as below:
• Distribution Licensees shall prepare its Long-term Discom Resource Adequacy Plan
(LT-DRAP) for a 10-year horizon [Long-term Distribution Licensee Resource
Adequacy Plan (LT-DRAP)], on an annual rolling basis, to meet their own peak and
electrical energy requirement, which shall be vetted by CEA.
• The Distribution Licensees shall take inputs if required from the Long-term Discom
Resource Adequacy Plan (LT-DRAP), Planning Reserve Margin (PRM), capacity
credits, etc., while formulating their LT-DRAP and submit their plans to CEA by the
month of September for the period starting from the month of April in the subsequent
year.
• CEA shall vet the LT-DRAP along with details for meeting the RAR of national
peak for the utility may be submitted to SERC/JERC by the month of November for
the period starting from the month of April in the subsequent year for their approval.
• The Resource Adequacies studies by the Distribution Licensees would require inputs
regarding long-term demand projections, demand pattern, load growth estimates, RE
generation profile, technical specification of base load generating stations (ramp
rates, minimum technical load, heat rate, start-up cost, time, etc.), generation
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 33
capacities (existing and planned), various costs parameters (capital cost, variable
cost, O&M costs, start-up and shut-down costs, reserve offers) of the generators,
historical forced outage rates and planned maintenance rates of generation
capacities, tie line details and transmission expansion plans, RPO / HPO / Energy
Storage obligation targets, spinning reserve and planning reserve margins, etc.
3.1.7 Accordingly, the Commission has added reference of MERC RA Regulations, 2024 in
Regulation 19.1 in its draft MERC MYT Regulation 2024 as shown in below:
19.1 The Distribution Licensee shall prepare a plan for procurement of power to serve
the demand for electricity in its area of supply considering the provisions of the MERC
(Framework for Resource Adequacy) Regulations, 2024 and submit such plan to the
Commission for approval:
Provided that such power procurement plan approved under MERC (Framework for
Resource Adequacy) Regulations, 2024 for the Control Period commencing on April 1,
2025, shall be filed along with the Petition for determination of Tariff for the Control
Period from April 1, 2025 to March 31, 2030, in accordance with Part A of these
Regulations.
3.2.1 In the MERC MYT Regulations, 2019, the Control Period was of five years and it was
specified in Regulation 20 that the Distribution Licensee was required to submit the
demand-supply position on an indicative basis and power procurement plan for the five-
year period commencing from April 1, 2020, indicating the various sources of power
purchase and mix of long/medium/short term power purchase, and steps proposed to
optimise the power purchase cost over that period, along with its MYT Petition.
3.2.2 As per Section 86 (1) (a) of the EA 2003, the SERC has been assigned the function of
promoting generation of electricity from renewable sources of energy by providing
suitable measures for connectivity with the grid and sale of electricity to any person. In
order to promote generation from RE sources in the State of Maharashtra, the
Commission has notified the MERC (Terms and Conditions for Determination of
Renewable Energy Tariff) Regulations, 2019, the MERC (Renewable Purchase
Obligation, its Compliance and Implementation of Renewable Energy Certificate
Framework) Regulations, 2019, the MERC (Grid Interactive Rooftop Renewable
Energy Generating Systems) Regulations, 2019 and MERC (State Grid Code)
Regulation, 2020. Accordingly, the Commission while Considering Merit Order
Despatch Principles under State Grid Code Regulation, RPO Targets, and RA
framework has been added in Draft MERC MYT Regulation, 2024.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 34
3.2.3 As per the provisions of the Tariff Policy and the Provisions of MERC MYT
Regulations 2019, the long-term/medium-term procurement plan shall be cost effective.
The Commission is of the view that the Distribution Licensees are required to come up
with the least cost plan based on the optimization study using energy modelling tools
to optimize its future power procurement subject to the requirement of RA framework.
3.2.4 Government of Maharashtra vide GR dated May 8, 2023 has launched Mukhyamantri
Saur Krishi Vahini Yojna 2.0 scheme. Aim of this scheme is to interconnect solar PV
projects of appropriate size to source solar energy for Agriculture use. Out of the total
power consumption of Maharashtra State, 22% is consumed by the agriculture sector,
out of which 50% of the total Agriculture load is served during the daytime as per
rostering. The Government of Maharashtra provides subsidy to MSEDCL for providing
power at economical cost to AG consumers. MSEDCL further cross subsidizes AG
consumers by charging higher tariff to the Commercial & Industrial Consumers.
Solarization at the AG substation level can help in bringing down the existing average
cost of power supply for agriculture. Moreover, this will have added benefits of reliable
and better-quality power to farmers during daytime. It also allows MSEDCL, which is
an obligated entity to account its mandated solar Purchase Obligation.
3.2.5 With this context, the GoM Launched the MSKVY2.0. This Scheme focusess on
developing Distributed RE (DRE) power for the Agriculture sector. So far 550 MW of
solar generation capacity has been commissioned under MSKVY1.0. MSKVY 2.0
program envisages solarization of 30% agriculture feeders by 2026 which translates
into contracting solar power capacity of ~7000 MW by 2026. The Commission expects
the result of this scheme in this Control period. The Distribution Licensee is expected
to consider the power available under MSKVY2.0 at distribution level while planning
for its own power procurement for the Control Period.
3.2.6 MoP has notified the ‘Renewable Purchase Obligation (RPO) and Energy Storage
Obligation Trajectory till 2029- 30’ Order on 22nd July 2022 and its Corrigendum on
19th September 2022. Also, MoP has notified the ‘The Electricity (Promoting
Renewable Energy Through Green Energy Open Access) Rules, 2022’ on 06th June
2022. Accordingly, the Commission has incorporated the relevant provisions in the
amendment to the MERC (Renewable Purchase Obligation, its Compliance and
Implementation of Renewable Energy Certificate Framework) (First Amendment)
Regulations, 2023. The Distribution Licensees are expected to consider the said
amendment to RPO Regulations and plan its power procurement for the Control Period
to ensure compliance with said mandate.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 35
3.3 Additional Power Procurement
3.3.1 The Commission has retained the provisions for additional power procurement under
Regulation 21.2 which provides for various situations under which the Distribution
Licensee is allowed to enter into additional agreement or arrangement for procurement
of power. Accordingly, the Regulation 21.2 of Draft MERC MYT Regulation 2024 for
additional power procurement as shown below:
“21.2 Where there has been an unanticipated increase in the demand for electricity
or a shortfall or failure in the supply of electricity from any approved source of supply
during the Year or when the sourcing of power from existing tied-up sources becomes
costlier than other available alternative sources, the Distribution Licensee may enter
into additional agreement or arrangement for procurement of power.”
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 36
4 Financial Principles
4.1.1 The MERC MYT Regulations, 2019, specifies the framework for assessing the
Financial Prudence exercised by the Utilities, while determining the ARR and Tariff.
The Financial Prudence is to be assessed with regard to the following factors:
(a) Revenue;
4.1.2 The Commission in Draft MERC MYT Regulations 2024 is continuing with the
provisions of Financial Prudance in line with the provisions of MERC MYT
Regulations 2019. However, the Commission has proposed to introduce the provision
for determination of Tariff for the Energy Storage Systems (ESS) and Fees & Charges
for the Maharashtra State Transmission Utility (STU) in the draft MERC MYT
Regulations, 2024. Accordingly, following revision of the Regulations are proposed by
the Commission in the Draft MERC MYT Regulations, 2024:
“22.1 The Generating Company or Energy Storage System Developer or
Licensee or STU or MSLDC shall manage its finances in an optimum and
prudent manner:
(a) revenue;
(b) revenue expenditure;
4.1.3 The Regulation 23.4(c) of the MERC MYT Regulations, 2019, specifies for the
transparent method of power procurement with an objective of optimising the same in
accordance with Regulation 19 viz. Power Procurement Guidelines of the MERC MYT
Regulations, 2019. However, the Commission has separately published the MERC
(Framework for Resource Adequacy) Regulations, 2024 for Power Procurement
Planning of the Distribution Licensees in line with the Resource Adequacy guidelines
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 37
issued by the Central Electricity Authority (CEA). The Distribution Licensees are
expected to undertake power procurement planning as per the provisions of the MERC
RA Regulations, 2024. Accordingly, following revision of the Regulations are
proposed in the Draft MERC MYT Regulations, 2024 to add the reference of MERC
(RA) Regulations, 2024:
……
4.2.1. The Commission had notified the MERC (Approval of Capital Investment Schemes)
Regulations, 2022 on 12 July 2022 with an objective to lay down the framework to be
followed by all State entities for obtaining the Commission’s in-principal approval for
proposed Capital Investment as well as the approval to be granted to the final completed
cost.
4.2.2. To align the approval of the Capital Investment Schemes of the Generating Company,
ESS Developer, Transmission Licensee, Distribution Licensee, MSLDC and STU
under these MYT Regulations, the Commission has proposed to add the following
Regulation in the Draft MERC MYT Regulations, 2024:
“23.1 The Capital Investment Scheme becoming part of the Capital Investment
Plan and Opex Schemes of the Generating Company or Transmission Licensee
or Distribution Licensee or ESSD or MSLDC or STU throughout the Control
shall be in accordance with the principles set out under Regulation 3 of the
MERC (Approval of Capital Investment Schemes) Regulations, 2022, as
amended from time to time.”
4.2.3. The Commission during the process of Mid-Term Review in the fourth Control Period
have allowed the funding of the assets through Contingency Reserves Fund. Thus, in
order to bring more clarity in terms of the non-consideration of the decapitalisation of
certain assets funded through such Contingency Reserves Fund or in case the assets are
being claim through Insurance Proceeds, the Commission has proposed to add
additional clause in the Draft MERC MYT Regulations, 2024:
“23.2……
Provided further that unless shifting of an asset from one project to another is
of permanent nature, there shall be no de-capitalization of the concerned assets.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 38
(a) In case of hydro generating stations, any expenditure incurred or committed
to be incurred by a project developer for getting the project site allotted by the
State Government by following a transparent process;
(b) Proportionate cost of land of the existing project which is being used for
generating power from generating station based on renewable energy;
(c) Any consumer contribution or grant received from the Central or State
Government or any statutory body or authority for the execution of the project,
which does not carry any liability of repayment;
4.2.5. Thus, in order to provide more clarity in terms of the approval of the non-DPR schemes
in case of MSLDC, the Commission has proposed to add following provisos in the Draft
MERC MYT Regulations, 2024:
Provided further that the Commission may allow capitalisation against non-
DPR schemes for any Year in excess of 20% or such other limit as may have
been stipulated by the Commission through Order, on a request made by the
Generating Company, ESSD or Licensee or MSLDC.”
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 39
4.2.6. As discussed in the above chapter of Financial Prudence, the Commission has proposed
to introduce the provision of determination of Tariff for the Energy Storage System
Developer (ESSD) and Fees & Charges for the Maharashtra State Transmission Utility
(STU). Hence, the reference of the ESSD and STU are added in the relevant provisions
under the section of ‘Capital Cost and Capital Structure’.
4.2.7. Regulations 24, of MERC MYT Regulations, 2019 specifies the ceiling norms to initial
spares capitalised as a percentage of plant and machinery cost. Further, the ceiling
norms related to transmission system included transmission line, transmission sub-
station (brown and green field), Series compensation devices and HVDC substation,
GIS, Communication System and Static Synchronous Compensator.
4.2.8. However, the Commission in the recent year has noted an increase in the use of EHV
underground cables in InSTS systems. Further, CERC in the draft Tariff Regulations,
2024 has proposed the similar provisions for the ceiling norms for the underground
cables.
4.2.9. Accordingly, the Commission in the draft MYT Regulations 2024, proposes to extend
the ceiling norm for the transmission line to the under-ground cable as under:
“23.12 The capital cost may include initial spares capitalised as a percentage of
the Plant and Machinery cost up to the cut-off date, subject to the following ceiling
norms:
…..
(i) Transmission Line & Distribution Line including underground cable: 1.0%;
(ii) Transmission sub-Station & Distribution sub-Station (green-field): 4.0%;
------”
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 40
to bring more clarity in terms of the treatment of Capitalisation of certain assets funded
through such Contingency Reserves Fund, the Commission has proposed the addition
of following clause in the Draft MERC MYT Regulations, 2024:
“25.1 The expenses on the following categories of works carried out by the
Generating Company or Licensee or MSLDC or STU shall be treated as specified
in Regulation 25.2:
(a)Works undertaken from funds, partly or fully, provided by the users, which
are in the nature of deposit works or consumer contribution works;
(b)Capital works undertaken with grants or capital subsidy received from the
State and Central Governments;
(c)Other works undertaken with funding received without any obligation of
repayment and with no interest costs.
4.4.1 Regulation 27 of the MERC MYT Regulation, 2019 specifies the debt-equity ratio to
be considered. The capital expenditure made by Licensees and Generation Companies
shall be done at an optimum debt: equity ratio, in order to balance the need for providing
sufficient returns that can be earned by Licensees and Generation Companies and
protecting the interest of consumers. Hence it is necessary to specify the normative
Debt-Equity ratio. The existing MERC MYT Regulations, 2019 specify the normative
debt: equity ratio of 70:30. In case the actual equity employed is less than 30% of the
capital cost, then actual equity is considered for determination of tariff. In case the
actual equity employed is more than 30% of the capital cost, then the equity in excess
of 30% is considered as normative loan for determination of tariff.
4.4.2 Other SERCs have followed the same normative debt:equity ratio for tariff
determination in their respective States. In this context, Clause 5.3 (b) of Tariff Policy
stipulates:
“For financing of future capital cost of projects, a Debt: Equity ratio of 70:30
should be adopted. Promoters would be free to have higher quantum of equity
investments. The equity in excess of this norm should be treated as loans
advanced at the weighted average rate of interest and for a weighted average
tenor of the long-term debt component of the project after ascertaining the
reasonableness of the interest rates and taking into account the effect of debt
restructuring done, if any. In case of equity below the normative level, the actual
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 41
equity would be used for determination of Return on Equity in tariff
computations.”
4.4.3 In order to review the ratio of the debt: equity across the Generation, Transmission and
Distribution, the Commission has analysed the ratio of actual debt:equity ratio for the
following utilities from their books of accounts for the period of five years i.e. FY 2017-
18 to FY 2022-23 as under:
Generation
Transmission
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 42
Distribution
Based on the above trend analysis it was observed that, the average debt:equity ratio
for the Generation Business is 69:31, Transmission Business 15:85 and Distribution
Business is 61:39.
4.4.4 The CERC in its Draft CERC (Terms and Conditions of Tariff), 2024 has proposed to
continue with the debt:equity ratio of 70:30. Further, several States are also continuing
with the debt:equity ratio of 70:30, except Telangana State, where TSERC in its notified
Tariff Regulations, 2024 has specified the debt:equity ratio of 75:25 for new projects.
4.4.5 The average ratio of the debt:equity is expected to be same across the States for the
regulated entities. Thus, it is proposed to continue with the same provision of Debt -
Equity ratio of 70:30 for tariff determination of Generation Companies, ESSD,
Transmission Licensee and Distribution Licensees during the next Control Period,
which is also in line with the Draft CERC Tariff Regulations, 2024 as well as with the
MYT Regulations of most of the States.
4.5 Depreciation
4.5.1 Regulation 28 of the MERC MYT Regulations, 2019 specifies the principles for
computing depreciation. The MERC MYT Regulations, 2019 has specified the straight-
line method for determination of depreciation expenses for Generation, Transmission,
Distribution Wire and Retail Supply business, and a residual value of 10%. The
depreciation rates are in line with the depreciation rates specified by the CERC, the
weighted average rate of which works out to approximately 5.28%. The Tariff Policy
stipulates that the depreciation rates specified by the CERC should be adopted for
generation and transmission business, and may be adopted for the distribution business
also, after suitable modification to be undertaken by the Forum of Regulators.
4.5.2 The CERC in its Draft CERC (Terms and Conditions of Tariff), 2024 has proposed the
loan repayment tenure for the New Projects as 15 years considering that most of the
utilities are able to avail the long-terms loans of 15-18 years. The CERC in its draft
Regulations has proposed the loan repayment tenure as 12 years for existing projects
whereas for new projects the loan tenure is considered as 15 years. With this change
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 43
the rate of depreciation will be changed for existing projects and new projects. In case
of existing projects, the CERC have retained the Depreciation rate of 5.28% having
loan tenure of 12 years, considering that, those projects have already been capitalised.
4.5.3 In view of the above the Commission has also reviewed the tenure of long-term loans
being offered by the PFC and REC and noted that, the repayment period is in the range
of 15 to 20 years both in case of State (Except State DISCOM, upto 12 years) utilities
and Private utilities.
4.5.4 Accordingly, the Commission has proposed the Depreciation rate for the New Capital
Schemes or New Assets of the Generating Company, or Licensee or MSLDC or STU
or ESSD proposed to be capitalised after 1 April 2025, to 15 years under the straight-
line method and retain the existing depreciation rate for the existing assets of the
Generating Company or Licensee or MSLDC or Energy Storage System Developer.
Accordingly, the following clauses are proposed by the Commission for Depreciation
in the draft MERC MYT Regulations, 2024:
“27.1 The Generating Company, Licensee, Energy Storage system Developer,
MSLDC and STU shall be permitted to recover depreciation on the value of fixed
assets used in their respective businesses, computed in the following manner:
(a)The approved original cost of the fixed assets shall be the value base for
calculation of depreciation:
Provided that the depreciation shall be allowed on the entire capitalised amount
of the new assets after reducing the approved original cost of the retired or
replaced or de-capitalised assets.
(b)Depreciation for the Existing Capital Schemes or Existing Assets of the
Generating Company or Licensee or ESSD or MSLDC or STU shall be computed
annually based on the straight-line method at the rates specified in the Annexure
I to these Regulations:
Provided that the Generating Company or Licensee or Energy Storage system
Developer or MSLDC or STU shall ensure that once the individual asset is
depreciated to the extent of seventy percent, remaining depreciable value as on
31st March of the year closing after the period of twelve years from the
Commercial Operation Date or the date of assets capitalised shall be spread
over the balance Useful Life of the asset including the Extended Life, as provided
in this Regulation:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 44
(c)Depreciation for the New Capital Schemes or New Assets of the Generating
Company or Licensee or MSLDC or STU or Energy Storage system Developer
shall be computed annually based on the straight-line method at the rates
specified in the Annexure II to these Regulations:
(e)Where the Emission Control System is implemented within the original scope
of the generating station and the date of commercial operation of the generating
station or unit thereof and the date of operation of the Emission Control System
are the same, depreciation of the generating station or unit thereof including the
Emission Control System shall be computed in accordance with Clauses (a) to
(c) of this Regulation.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 45
(i)Twenty-five years, in case the generating station or unit thereof is in
operation for fifteen years or less as on the date of operation of the emission
control system; or
(ii)balance useful life of the generating station or unit thereof plus fifteen years,
in case the generating station or unit thereof is in operation for more than
fifteen years as on the date of operation of the emission control system; or
(iii)ten years or a period mutually agreed by the generating company and the
beneficiaries, whichever is higher, in case the generating station or unit thereof
has completed its useful life.
27.2 Land other than the land held under lease and the land for reservoir in case of
Hydro Generating Station or Pumped Storage Hydro Project shall not be a
depreciable asset and its cost shall be excluded from the capital cost while
computing depreciable value of the assets.
27.3 In case of existing assets, the balance depreciable value as on April 1, 2025,
shall be worked out by deducting the cumulative depreciation as admitted by the
Commission up to March 31, 2025, from the gross depreciable value of the assets:
Provided that depreciation shall be chargeable from the first year of commercial
operation.
27.4 In case of projected commercial operation of the assets for part of the year,
depreciation shall be computed based on the average of opening and closing value
of assets.
(i)Twenty-five years, in case the principal asset is in operation for fifteen years
or less as on the date of operation of the capital investment; or
(ii)balance useful life of the principal asset plus fifteen years, in case the
principal asset is in operation for more than fifteen years as on the date of
operation of the capital investment.
27.7 Depreciation shall be re-computed for assets capitalised at the time of Truing-
up at the end of the Control Period, based on documentary evidence of assets
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 46
capitalised by the Petitioner, subject to the prudence check of the Commission, such
that the depreciation is allowed proportionately from the date of capitalisation.
27.8 The Generating Company or Licensee or MSLDC or STU shall submit the
depreciation computations separately for assets added upto March 31, 2025, and
assets added on or after April 1, 2025.”
4.6.3 Clause (d) of Section 61 of the Act provides that the Commission while specifying the
terms and conditions for determination of tariff, shall be guided by the principle of
“safeguarding of consumers interest and at the same time, recovery of cost of electricity
in a reasonable manner”.
4.6.4 The Commission felt necessary to revisit the cost of equity across the Generation,
Transmission and Distribution Business based on the current market conditions. To
assess the same, the Commission has adopted the Capital Asset Pricing Model (CAPM)
method, which most widely used method to assess the Cost of Equity.
4.6.5 The Capital Asset Pricing Model (CAPM) is a model that describes the relationship
between the expected return and risk of investing in a security. It shows that the
expected return on a security is equal to the risk-free return plus a risk premium, which
is based on the beta of that security. Below is an illustration of the CAPM concept. 1
1
https://corporatefinanceinstitute.com/resources/valuation/unlevered-beta-asset-beta/
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 47
4.6.6 The formula for the Expected Return is provided as under:
β =Beta,
Rm =Market Returns
“Expected return” (Re) is a long-term assumption about how an investment will play
out over its entire life.
4.6.7 The beta (denoted as “β” in the CAPM formula) is a measure of a stock’s risk (volatility
of returns) reflected by measuring the fluctuation of its price changes relative to the
overall market. In other words, it is the stock’s sensitivity to market risk. For instance,
if a company’s beta is equal to 1.5 the security has 150% of the volatility of the market
average. However, if the beta is equal to 1, the expected return on a security is equal to
the average market return. A beta of -1 means security has a perfect negative correlation
with the market. 1
4.6.8 Unlevered beta is the beta of a company without the impact of debt. It is also known as
the volatility of returns for a company, without taking into account its financial
leverage. It compares the risk of an unlevered company to the risk of the market. It is
also commonly referred to as “asset beta” because the volatility of a company without
any leverage is the result of only its assets. The Unlevered Beta can be calculated based
on the following formula:1
β
Unlevered Beta = (Total Debt)
(1+((1−Tax Rate) x (Total )
Equity)
4.6.9 The risk-free rate (Rf) is the minimum return an investor expects for any investment, as
it is the return of a risk-free asset, typically a government bond. This rate serves as a
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 48
benchmark for assessing potential investments, grounding the return expectations in a
certain degree of reality. It is generally considered the rate of a government bond of the
country where the investment will take place.2
4.6.10 The Commission for the purpose of estimating the cost of equity has considered the
listed companies across the Generation, Transmission and Distribution, where, the 3
years Beta value were considered for the respective listed companies, Risk free return
is considered at 7.16%, which is 10 years G-Sec yield, Average Market Return (Rm) is
considered as 16.31% for 15 years BSE Power Index (2009 to 2023). Accordingly, the
Expected Return (Re) across Generation, Transmission and Distribution Sector is
estimated as under:
Beta Debt Equity
Type of Company Unlevered RoE Market
(3 (INR (INR
Service Name Beta % Cap D:E
years) Cr) Cr)
Thermal Tata Power 1.39 0.63 12.89% 1,05,382 52,923 28,787 1.84
Generation
Adani
2.47 1.27 18.81% 2,01,872 42,350 29,876 1.42
Power
Adani
1.54 0.56 12.24% 1,14,065 31,382 11,749 2.67
Transmission Transmission
4.6.11 In view of above estimates, it is evident that, at present the expected cost of equity
across the entire value chain ranges from 10.00% to 14.00%, which is significantly
lower than the Regulated RoE provided by the Commission.
4.6.12 The Commission in the MERC MYT Regulations, 2019 allowed the Base RoE at
14.00% for all Utilities except Retail Supply Business, where the Base RoE is allowed
2
https://www.financestrategists.com/wealth-management/valuation/capital-asset-pricing-model/
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 49
at 15.50%. The Commission further allowed the Additional RoE for all Utilities upto
1.50% except Retail Supply Business, where the Additional RoE is allowed at 2.00%.
4.6.13 Thus, based on the above estimates of the Cost of Equity, the Commission proposes to
revise the split between the RoE of 15.50%, where the Base RoE is proposed to be
reduced from 14.00% to 11.00% and the Performance linked RoE proposed to be
increased upto 4.50% for all Utilities, except Retail Supply Business. In case of Retail
Supply Business, the Commission has proposed to introduce the Supply Margin at 5
Paisa/ kVAh (or kWh) across all the Distribution Licensees. The detailed explanation
is provided under the Retail Supply Business Chapter.
4.6.14 The Commission has further proposed to revisit the Performance linked parameters in
case of Thermal & Hydro Generating stations. As regards Thermal generating Stations,
the Commission has proposed additional ROE of 1.25% if the generating station has
free governor mode in draft MERC MYT Tariff Regulations 2024. Further, another
performance parameter is also introduced related to availability of the generating station
during peak hours to ensure availability of power during peak hours, which is maximum
1% of RoE. Other two performance parameter of incremental Ramp-up rate and Mean
Time Between Failure (MTBF) are retained from MERC MYT Tariff Regulations 2019
with modification in % incentive of RoE. Maximum incremental Ramp-up rate
proposed in draft MERC MYT Tariff Regulations 2024 is 1.25% of RoE and Mean
Time between failure as 1% of RoE. Relevant Para of the draft MERC MYT Tariff
Regulations 2024 is as under:
“28.4 In case of a thermal generating Unit, with effect from April 1, 2025, at the time
of true-up:
(a) A Performance Linked Return on Equity of 0.25% shall be allowed for every
incremental ramp rate (ramp-up or ramp-down) of 0.25% per minute achieved over
and above the ramp rate of 1% per minute, subject to ceiling of additional rate of Return
on Equity of 1.25%, for the year in which such ramp rate is achieved:
Provided that the Performance Linked Return on Equity shall be allowed on pro-rata
basis for incremental ramp rate of more than 0.25% per minute.
Provided further that the MSLDC shall formulate the procedure for certification of
Ramp Rate of thermal plants and submit for the approval of the Commission upon
undertaking the due consultation of the stakeholders.
(b) A Performance Linked Return on Equity shall be allowed as per the following
schedule:
(i) 0.50% for Unit that achieves Mean Time Between Failure (MTBF) of at least 45
days;
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 50
(ii) 0.75% for Unit that achieves Mean Time Between Failure (MTBF) of at least 90
days;
(iii)1.00% for Unit that achieves Mean Time Between Failure (MTBF) of at least 120
days:
Provided that the Mean Time Between Failure (MTBF) shall be computed as provided
in Annexure-III to these Regulations:
(c)A Performance Linked Return on Equity shall be allowed for the thermal generating
units available during the peak hours subject to ceiling of 1.00% as per the following
schedule:
(i) If availability during peak hours >90%, then the additional Return on Equity shall
be 1.00%.
(ii) If availability during peak hours <90% but >85%, then the additional Return on
Equity shall be 0.5%%
(iii) If availability during peak hours <85% but >75%, then the additional Return on
Equity shall be 0.25%
Provided further that the equity base for the respective Unit shall be considered in
proportion to the installed capacity of the generation station, in case the tariff is
determined for the generation station as a whole.
Provided further that in case of an existing and new thermal generating unit, a
Performance Linked Return on Equity of 1.25% shall be provided if the thermal
generating station is operational under Free Governor Mode Operation (FGMO).”
4.6.15 In MERC MYT Tariff Regulation 2019, the additional rate of RoE is allowable only
for thermal Units and the Commission has considered the rate of RoE of 14% for hydro
stations. Hence, to make hydro equitable with other generation in the fifth Control
Period the Commission is proposing to introduce additional rate of RoE based on
performance. Accordingly, the Commission has decided to propose additional RoE on
three new performance linked parameters, free governor mode operation, availability
of the generating station during peak hours and Mean Time Between Failure. Additional
ROE of 1.25% if the generating station has free governor mode, Maximum additional
RoE of 2.25%, Maximum additional RoE of 1% for Mean Time Between Failure has
been considered in draft MERC MYT Tariff Regulations 2024. Relevant Para of the
draft MERC MYT Tariff Regulations 2024 is as under:
“28.5 In case of a hydro generating Unit, with effect from 1.4.2025, at the time of true-
up:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 51
(a) A Performance Linked Return on Equity shall be allowed as per the following
schedule:
(i) 0.50% for Unit that achieves Mean Time Between Failure (MTBF) of at least 45
days;
(ii) 0.75% for Unit that achieves Mean Time Between Failure (MTBF) of at least 90
days;
(iii)1.00% for Unit that achieves Mean Time Between Failure (MTBF) of at least 120
days:
Provided that the Mean Time Between Failure (MTBF) shall be computed as
provided in Annexure-III to these Regulations:
(b) A Performance Linked Return on Equity shall be allowed for the hydro generating
units available during the peak hours subject to ceiling of 2.25% as per the
following schedule:
(i) If availability during peak hours >95%, then the additional Return on Equity shall
be 2.25%.
(ii) If availability during peak hours <95% but >90%, then the additional Return on
Equity shall be 2.00%.
(iii)If availability during peak hours <90% but >85%, then the additional Return on
Equity shall be 1.50%
(iv) If availability during peak hours <85% but >75%, then the additional Return on
Equity shall be 1.00%
Provided further that the equity base for the respective Unit shall be considered in
proportion to the installed capacity of the generation station, in case the tariff is
determined for the generation station as a whole.
Provided further that in case of an existing and new hydro generating unit, a
Performance Linked Return on Equity of 1.25% shall be provided, if the hydro
generating station is operational under Free Governor Mode Operation (FGMO).”
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 52
(b)For every 0.25% over-achievement in Transmission Availability above 99.50% for
AC System and 96.50% for HVDC bi-pole links and HVDC back-to-back stations, rate
of return shall be increased by 0.75%, subject to ceiling of Performance Linked Return
on Equity of 3.75%;
Provided further that in case of an existing and new transmission system, Performance
Linked Return on Equity of 0.75% shall be provided, if the transmission system is
operational with data telemetry, communication system up to load dispatch centre or
protection system for more than 95% based on the report submitted by the MSLDC.
(a)The target Wires Availability for recovery of base rate of return on equity shall be
97.75% for all Distribution Licensees.
Provided that the System Average Interruption Duration Index (SAIDI) shall be
calculated from the automated measurement records through Smart Meters and in
accordance with the definition specified in MERC (Electricity Supply Code and
Standards of Performance for Distribution Licensees, including Power Quality)
Regulations, 2021, as amended from time to time.
28.8 In case of the Retail Supply Business, the Supply Margin upto 5.00 Paisa/kVAh
inclusive of Income Tax component shall be allowed for all the Retail Supply Licensees
for each financial year over the Control Period based on the following principles:
(a)The Supply Margin of upto 2.00 Paisa/kVAh shall be allowed at the time of true-up
based as per the following schedule:
(i)If Collection Efficiency is below 99% upto 95%, then the Performance Linked
Supply Margin 2.00 Paisa/kWh shall be reduced to 0.50 Paisa/kVAh.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 53
(ii)If Collection Efficiency is below 95%, then the Performance Linked Supply
Margin 2.00 Paisa/kWh shall be further reduced to 0.50 Paisa/kVAh.
(iii)If % of Assessed Bill is above 1.00% upto 1.50%, then the Performance
Linked Supply Margin 2.00 Paisa/kWh shall be reduced to 0.50 Paisa/kVAh.
(iv)If % of Assessed Bill is above 1.50%, then the Performance Linked Supply
Margin 2.00 Paisa/kWh shall be further reduced to 0.50 Paisa/kVAh.
28.9 The Commission may either disallow the capitalisation claimed against the
respective DPR Scheme, in part or in full, as appropriate, or allow lower Return on
Equity on such investment in the following cases:
(a)If the in-principle approval has not been obtained for the Capital Investment Scheme
in accordance with Regulation 4.3 of the MERC (Approval of Capital Investment
Schemes) Regulations, 2022; or
(b)If the Applicant is unable to establish the benefits as submitted in the Application for
in-principle approval either fully or partly; or
(c)If asset replacement has been permitted despite not meeting criteria specified in
Regulation 3.23 of MERC (Approval of Capital Investment Schemes) Regulations,
2022.”
4.6.16 The Summary of the proposed Base as well as Performance Linked RoE for the
Generation, Transmission and Distribution Wires is provided as under:
Proposed Proposed
Max RoE Performance parameters for additional
Particulars Base ROE Additional
(Proposed)% ROE
% RoE
• Incremental Ramp rate above 1%
per minute
• Mean Time (in days) between
Failure
Thermal 11.00 Upto 4.50% 15.50
• Free Governor Mode Operation
(FGMO)
• Availability during peak hours
>95%
• Mean Time (in days) Between
Failure
• Free Governor Mode Operation
Hydro 11.00 Upto 4.50% 15.50
(FGMO)
• Availability during peak hours
>95%
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 54
Proposed Proposed
Max RoE Performance parameters for additional
Particulars Base ROE Additional
(Proposed)% ROE
% RoE
• Linked with Ramp Rate of ESS. If
Hydro Ramp Rate is below 75%, ROE
(PSP) and 18.00 - 18.00+/-1% shall be reduced upto 1%.
BESS • If Ramp Rate is above 75% ROE
shall be increased upto 1%
• Over achievement in targeted
availability
Transmission 11.00 Upto 4.50% 15.50
• Data telemetry and
Communication system
Distribution • Over achievement in targeted
11.00 Upto 4.50% 15.50
(W) Wires availability
Distribution Supply Margin @5 Paisa/kVAh (or
• Introduction of supply margin
(R&S)* kWh)
• No additional ROE proposed.
SLDC 14.0 14.00 • Performance linked incentive (3%
of Net ARR )
• No additional ROE proposed.
STU 14.0 14.00 • Performance linked incentive (3%
of Net ARR )
4.6.17 It was further observed that, the Commission in its recent MTR Order in case of
Distribution Business had directed the Distribution Licensees to submit the automated
records through Smart Meters for determination of the SAIDI in lines with the
principles provided under MERC (Electricity Supply Code and Standards of
Performance for Distribution Licensees, including Power Quality) Regulations, 2021.
Accordingly, the Commission has proposed the conditions for the submission for
SAIDI details through automated records from Smart Meter for the Distribution Wires
Business to avail the Performance Linked RoE.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 55
between beneficiaries and Utilities in the ratio of 2:1, and the costs associated with such
refinancing shall be borne by the beneficiaries.
4.7.3 The Commission has noted that, in some cases the interest cost has increased as a result
of terms and conditions of refinancing. The Commission clarifies that, in case of
refinancing, the interest rate of the refinance loan shall be lower than, the actual
weighted average rate of interest of the respective entity. In addition, re-financing shall
not be subject to any adverse terms and conditions and any additional cost towards such
conditions mentioned under the refinanced loan agreement shall not be considered for
the purpose of determination of ARR. Further, the Commission continues to retain the
provision related to the refinancing of the loan should be done from banks and financial
institutions recognised by Reserve Bank of India (RBI).
4.7.4 Accordingly, the Commission proposes the following modifications under Interest on
Loan in the Draft MERC MYT Regulations, 2024:
-------
Provided further that rate of interest of the refinanced loan shall be lower than
the weighted average rate of interest of actual loan portfolio:
Provided also that the re-financing shall not be subject to any adverse terms
and conditions and additional cost and conditions of refinanced loan agreement
shall not be considered for the purpose of determination of ARR:
-------.”
4.8.2 As per the existing provisions of the MERC MYT Regulations, 2019, for computation
of working capital, the cost of coal or lignite and limestone towards the stock of 15 days
for pit-head generating stations and 30 days for the non-pit head generating stations.
The CERC in the existing as well as Draft MYT Regulations, 2024 have proposed the
cost of coal or lignite and limestone towards the stock of 10 days for pit-head generating
stations and 20 days for the non-pit head generating stations. Thus, the Commission
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 56
also proposes to consider the similar provisions in lines with the Draft CERC Tariff
Regulations, 2024.
4.8.3 The following modification under Interest on Working Capital in the Draft MERC
MYT Regulations, 2024 are proposed:
“ 31.1 Generation
(i)Cost of coal or lignite and limestone towards stock, if applicable, for ten days
for pit-head Generating Stations and twenty days for non-pit-head Generating
Stations, for generation corresponding to target availability, or the maximum
coal/lignite stock storage capacity, whichever is lower;
(ii)Cost of coal or lignite and limestone for thirty days for generation
corresponding to target availability;
(v)Maintenance spares at one per cent of the opening Gross Fixed Assets for
the Year; and
(vi)Receivables for sale of electricity equivalent to forty-five days of the sum of
annual fixed charges and energy charges approved in the Tariff Order for
ensuing year/s, computed at target availability and excluding incentive, if any:
minus
(vii)Payables for fuel (including oil and secondary fuel oil) to the extent of thirty
days of the cost of fuel computed at target availability, depending on the
modalities of payment:”
4.9.2 Regulation 34.3 of the MERC MYT Regulations, 2019 specifies the grossing-up of the
Return on Equity with the effective tax rate, whereas per Regulation 34.4 the effective
tax rate shall be considered on the basis of actual tax paid in respect of financial year in
line with the provisions of the relevant Finance Acts by the concerned Generating
Company or Licensee or MSLDC, as the case may be.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 57
4.9.3 In case of the Regulated Business the Income Tax recovery is allowed only on the
income from the Return on Equity. In case if any Utility having multiple other
businesses, pays the Corporate Tax as a result of performance of the Utility in the other
businesses, it may not be appropriate to recover the Corporate Tax from the consumers
of the Utility as an effect of the provision of effective tax rate based on the actual tax
paid by the Utility.
As discussed above the scope of Income tax liability in terms of regulated business is
limited to income on account of Return on Equity allowed to the Utility. Accordingly,
the Commission proposes the revision in the provisions of recovery of Income Tax by
grossing-up of the RoE with the rate of Minimum Alternate Tax (MAT) applicable for
the respective financial year or actual tax paid, whichever is lower.
4.9.4 Furter, in case of the Retail Supply Business, the Commission has proposed to introduce
the Supply Margin of 5 Paisa/kVAh (or kWh) across all the Distribution Licensees,
which includes the Income Tax component. Hence, no separate Income Tax recovery
shall be allowed for the Retail Supply Business during the entire Control Period.
4.9.5 Accordingly, the Commission proposes the following modifications in the provisions
of Income Tax in the Draft MERC MYT Regulations, 2024:
“33.1 The Income Tax for the Generating Company or Licensee (except
Distribution Retail Supply Business) or MSLDC or STU for the regulated
business shall be allowed on Return on Equity, including Performance Linked
Return on Equity at the rate of Minimum Alternate Tax (MAT) applicable for
the respective financial year or actual tax paid, whichever is lower, through the
Tariff charged to the Beneficiary/ies, subject to the conditions stipulated in
Regulations 33.2 to 33.5:
Provided also that the Income Tax shall be computed for the Generating
Company as a whole, and not Unit-wise/Station-wise.
33.2 The rate of Return on Equity, including the rate of Performance Linked
Return on Equity as allowed by the Commission under Regulation 28 of these
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 58
Regulations shall be grossed up with the MAT rate or actual tax paid, which
ever lower, for the previous year.
Provided that in case the Generating Company or Licensee or MSLDC or STU
for the regulated business has not paid any Income Tax for respective year, the
Tax Rate shall be considered as zero at the time of Truing-up, subject to
prudence check.
33.3 The Base Rate of Return on Equity shall be rounded off to three decimal
places and shall be computed as per the formula given below:
Where “t” is the Minimum Alternate Tax (MAT) rate or the actual tax rate
including surcharge and cess, whichever is lower.
Illustration: -
33.4 Variation between the Income Tax estimated by the Commission for future
year during MYT Order and the Income Tax approved by the Commission for
the respective Year after truing up for respective year, shall be allowed for
recovery as part of the Aggregate Revenue Requirement at the time of Truing-
up, subject to prudence check.
33.5 No separate Income Tax shall be allowed for the Distribution Retail Supply
Business as Supply Margin has been arrived after considering provision for
Income Tax.”
4.10.1 Regulation 35 of the MERC MYT Regulations, 2019 specifies the principles for
allowing Contribution to Contingency Reserves.
4.10.2 The existing provision specifies the Contribution to Contingency reserves to be allowed
in the range of 0.25% to 0.50% of the original cost of fixed assets. Considering the
range provided in the existing Regulations, some of the utilities are proposing the
Contribution to Contingency reserves as 0.50% of the original cost of the fixed assets
as part of the Tariff Petition, however, while approving the Contribution to Contingency
Reserves, the Commission has allowed 0.25% of the original fixed cost of the assets.
Thus, to provide more clarity in terms of the Contribution to Contingency reserves, the
Commission proposes to restrict the investment to 0.25% instead of providing range of
0.25% to 0.50%.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 59
4.10.3 Further, most of the Utilities have sought the clarity on the financial instruments
allowed under the Indian Trust Act, 1982. The Commission notes that, in the past due
to lack of clarity, some of the the utilities had invested in the equity linked financial
instruments, which were disallowed by the Commission with the clarification for the
investment of the Contribution to Contingency reserves in the specific Tariff Orders.
Accordingly, for the sake of clarity across all the Utilities, the Commission has
proposed to specify the types of financial instruments under which the Utilities can
invest the Contribution to Contingency Reserves.
4.10.4 The Commission during the process of Mid-Term Review have allowed the funding of
the assets through Contingency Reserves Fund. While allowing the funding of assets
through Contingency Reserves Fund, the Commission has provided clarifications for
utilisation of the Contingency Reserves Funds. The Commission proposes to provide
those clarifications in the Draft MERC MYT Regulations, 2024 as below:
“34.1 Where the Licensee has made a contribution to the Contingency Reserve,
a sum not less than 0.25 per cent of the original cost of fixed assets shall be
allowed annually towards such contribution in the calculation of Aggregate
Revenue Requirement:
Provided that where the amount of such Contingency Reserves exceeds five (5)
per cent of the original cost of fixed assets, no further contribution shall be
allowed:
Provided further that such contribution shall be invested in securities
authorised under the Indian Trusts Act, 1882 such as Treasury Bills, Sovereign
Bonds, Zero Coupon Bonds or similar kind of financial instruments, within a
period of six months of the close of the Year:
Provided also that if the Licensee does not invest the amount of contribution to
Contingency Reserves in authorised securities within a period of six months of
the close of the Year, then the contribution allowed in the calculation of
Aggregate Revenue Requirement shall be disallowed at the time of true-up:
Provided also that if the Licensee does not invest the amount of contribution to
Contingency Reserves in authorised securities for two consecutive Years, then
the contribution to Contingency Reserves shall not be allowed in the calculation
of Aggregate Revenue Requirement from the subsequent Year onwards.
34.2 The Contingency Reserve shall not be drawn upon during the term of the
Licence except to meet such charges on account of:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 60
(a)Expenses or loss of profits arising out of accidents, strikes, acts of
God included, but not limited to lightning, storm, action of the elements,
earthquakes, flood, torrential rains, drought and natural disaster or
circumstances which the management could not have prevented.
Provided that such drawal from the Contingency Reserve shall be computed
after making do adjustments for any other compensation that may have been
received by the Licensee as part of an insurance cover and Government Grant,
if any.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 61
5 Norms and Principles for determination of Revenue Requirement and Tariff for
Generation Companies
This Chapter deals with the issues related to the tariff applicable for a Generating Company
supplying power to the Distribution Licensees in the State of Maharashtra.
5.1 Background
5.1.1 Maharashtra State Power Generating Company Limited (MSPGCL), Tata Power
Company Limited - Generation Business (TPC-G) and Adani Electricity Mumbai
Limited - Generation Business (Formerly Reliance Infrastructure Ltd.- Generation
Business) are the Generating Companies in the State of Maharashtra, who own and
operate generating stations in the State and supply power to Distribution Licensees on
a long-term basis based on tariff approved by the Commission. MSPGCL also operates
various hydel generating stations, which are owned by the Water Resources Department
of Government of Maharashtra (GoM) and have been handed over to MSPGCL for
operation and maintenance, for which MSPGCL pays lease rent approved by the
Commission.
5.1.2 In the second Control Period, MSPGCL commissioned new Generating Units, viz.,
Khaparkheda Unit 5 and Bhusawal Unit 4 and 5, for which the tariff has been
determined by applicable MYT Regulations. The Vidarbha Industries Power Limited –
Generation Business (VIPL-G) had also entered into Power Purchase Agreement with
erstwhile RInfra-D and the Commission had approved the capital cost and determined
its tariff in the second Control Period.
5.1.3 During the third Control Period, MSPGCL commissioned new Generating Units, viz,
Koradi Units 8,9 &10, Chandrapur Unit 8 & 9 and Parli Unit 8.
5.1.4 During the fourth Control Period, as per the data received by MSPGCL, Koradi Unit 7
is decommissioned. There is no data given for Parli Units 3, 4 and 5 by MSPGCL, Unit
6 by TPC-G and VIPL-G’s Butibori Unit, so these Units are not considered in the
analysis. The summary of generating stations and their installed capacity is given in the
following Tables:
Installed Capacity
No of
Station / Unit Capacity of each Total Capacity
Units
Unit in MW in MW
Coal based and Gas based Thermal
Uran (Gas) 672
Unit 5,6,7,8 4 108 432
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 62
Installed Capacity
No of
Station / Unit Capacity of each Total Capacity
Units
Unit in MW in MW
WHR_AO, WHR_BO 2 120 240
Khaparkheda 1340
Unit 1,2,3,4 4 210 840
Unit 5 1 500 500
Paras 500
Unit 3 & 4 2 250 500
Bhusawal 1210
Unit 3 1 210 210
Unit 4 & 5 2 500 1000
Nashik 630
Unit 3,4,5 3 210 630
Parli 750
Unit 6,7,8 3 250 750
Koradi 2190
Unit 6 1 210 210
Unit 8,9,10 3 660 1980
Chandrapur 2920
Unit 3,4 2 210 420
Unit 5,6,7,8,9 5 500 2500
Sub-Total 10842
Hydro
Koyna 1956
Vaitarna 1 60 60
Bhira 2 40 80
Tillari 1 66 66
Others 168
Ghatghar Pump storage 2 125 250
Sub-Total 2580
Total 13422
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 63
Table 2: Generating Stations of TPC-G
Sr. No Station Name Type and Fuel Status Unit Details Capacity
Thermal - Coal/Oil Operational Unit-5 (1 x 500 MW)
1 Trombay Thermal - Gas Operational Unit-7 (1 x 180 MW) 930 MW
Thermal - Coal Operational Unit-8 (1 x 250MW)
2 Khopoli Hydro Operational 72 MW
3 Bhivpuri Hydro Operational 75 MW
4 Bhira Hydro Operational 300 MW
Total 1377 MW
Sr. No Station Name Type and Fuel Status Unit Details Capacity
5.2.1 The Regulation 39.3 of MERC MYT Regulations, 2019 provides the Generating
Company to adopt a reasonable basis for allocation of capital cost relating to common
facilities and allocation of joint and common costs across all Stages or Units. The
Commission in Case No. 221 of 2022 dated 31 March 2023 has provided the detailed
methodology for the allocation of fixed cost for TPC-G under directive section. The
Commission in this Order has specified that, integrated Utility shall maintain the
separate allocation statement for all the cost pertaining to the Regulated and Non-
Regulated businesses and further allocation of Regulated Cost to Generation,
Transmission and Distribution Businesses. Further the separate allocation of Regulated
Expenses of O&M of Head Office for Generation, Transmission and Distribution
Businesses. The components of the O&M expenses shall be allocated as per the
formulation provided by the Commission in the Order dated 31 March 2023.
5.2.2 Further, in case of multiple generation sources like Thermal Units, Hydro Units or Gas
based generation, the proportionate allocation of O&M expenses, direct expenses, other
finance charges, depreciation, interest on loan, interest on working capital, ROE and
Non-tariff Income shall be as specified by the Commission in the Order dated 31 March
2023.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 64
5.2.3 Accordingly, the Commission has included the Regulation 39.4 in the MERC MYT
Regulations, 2024 for providing the allocation methodology for computation of fixed
charges for stage or Unit belonging to integrated Utility engaged in Generation,
Transmission and Distribution of electricity as below:
“38.3----
Provided further that in case the Commission has undertaken study for allocating
common cost to unit/station of Generating Company, then such Generating Company
shall allocate the cost as per Commission’s Order in that regards.”
5.2.4 The MERC MYT Regulations, 2019 specifies the treatment for Renovation &
Modernization to be undertaken by the old Generating Stations. The Clause 11(g) of
Tariff Policy 2016 also specifies the need of Renovation and modernization of
generation plants to encouraged for higher efficiency levels even though they may have
not completed their useful life. This R&M shall not include periodic overhauls. The
Tariff Policy also proposes that, the MYT framework of SERC should specify treatment
to the capital investments for renovation and modernization and an incentive framework
to share the benefits of efficiency improvement between the utilities and the
beneficiaries with reference to revised and specific performance norms to be fixed by
the Appropriate Commission.
42.1 For undertaking Renovation and Modernisation for the purpose of extension
of life beyond the useful life of the Generating Station or a Unit thereof, the
Generating Company shall file a Petition for approval with a Detailed Project
Report giving complete scope, justification, cost-benefit analysis, estimated life
extension from a reference date, financial package, phasing of expenditure,
schedule of completion, reference price level, estimated completion cost, record
of consultation with Beneficiaries and any other relevant information.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 65
Provided that the generating company opting for Renovation and Modernization
(R&M) shall not be eligible for Special Allowance under Regulation 43 of these
Regulations;
42.3 In case of gas/ liquid fuel based open/combined cycle thermal generating
Unit, any expenditure, which has become necessary for renovation of gas
turbines/steam turbine and any expenditure necessitated due to obsolescence or
non-availability of spares for efficient operation of the stations shall be allowed:
42.4 The expenditure approved by the Commission after prudence check based
on the estimates of Renovation and Modernisation expenditure and life extension,
and after deducting the accumulated depreciation already recovered from the
original Project cost, shall form the basis for determination of Tariff.”
Special Allowance
5.2.6 The MERC MYT Regulations, 2019 doesn’t have any provision related to Special
Allowance in lieu of R&M. The Commission in Multi Year Tariff Regulations 2011
had first time introduced the Special Allowance of INR 5 Lakh/MW/year on the similar
lines as specified by the CERC Tariff regulations 2009. However, in subsequent MYT
Regulations, the provision of Special Allowance was dropped as same was not availed
by any generating company.
5.2.7 Some of Generating Companies during Stakeholder consultation for MERC CAPEX
Regulation 2022 and during the MTR processing had requested for provision of Special
Allowance as an alternative to the Renovation and Modernisation. The Commission
also notes that, MERC Capex Regulations, 2022 proposes to take up major repair or
refurbishment work under Operation & Maintenance, however the Generating
Companies are requesting that such major overhauling activities are not currently
covered under O&M provisions.
5.2.8 Considering the concerns raised by Generating Companies, the Commission has
proposed to introduce the provision of “Special Allowance” in line with the provisions
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 66
of the Draft CERC MYT Regulations, 2024. As per these provisions , the generating
company, can avail a ‘Special Allowance’, for the coal-based/ lignite-based thermal
and Hydro power plants that have completed their useful life, in lieu of Renovation and
Modernization and additional capital expenditure required for efficient operation of the
generating stations including capital expenditures arising out of a change in law, award
of arbitration, compliance of directions/ orders of any statutory authority, order/ decree
of any court of law and force majeure conditions.
5.2.9 The Commission further clarifies that no additional capitalization of any type is
admissible once this special allowance is claimed by the Generating Company. The
value of the Special Allowance is proposed to be INR 10.75 Lakh/MW per year similar
to draft CERC Tariff Regulations, 2024.
“43. Special Allowance for Coal-based/Lignite fired Thermal and Hydro Generating
Station
43.1 In the case of coal-based/lignite fired thermal, and Hydro generating stations who
have completed the useful life may opt to avail of a 'special allowance' in accordance
with the norms specified in this Regulation, as compensation for meeting the
requirement of expenses towards additional capital expenditure as per MERC
(Approval of Capital Investment Schemes) Regulations, 2022, including capital
expenditure arising out of change in law, award of arbitration or for compliance of the
directions or order of any statutory authority, or order or decree of any court of law,
and force majeure.
43.2 In case, if the generation plant opts for Special allowance, such Special Allowance
shall be included in the annual fixed cost, however, any upward revision of the capital
cost or relaxation in the applicable operational norms if any allowed by the
Commission shall not be allowed.
Provided that such option shall not be available for a generating station or unit thereof
for which Renovation and Modernization has been undertaken and the expenditure has
been admitted by the Commission before the commencement of these Regulations;
Provided further that, if the generating plant or unit opted for the Special Allowance
for the Control Period and subsequently plans for Renovation and Modernisation
during the Control Period as per the provisions of the Regulation 43 of these
Regulations, such Plant or Unit shall not be entitled for Specifical Allowance for the
remaining Control Period from the date of approval of R&M proposal of the Plant or
Unit by the Commission.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 67
43.3 The Generating Company shall submit the details of all work to be undertaken
through special allowance, with the MYT petition, for the approval of the Commission,
which shall be granted after prudence check of reasonableness of the cost estimates,
cost-benefit analysis, and such other factors as may be considered relevant by the
Commission.
Provided also that, the Generating Company opting for special allowance shall not be
allowed to capitalise the assets created through special allowance and shall not be
eligible for Depreciation, Return of Equity, Interest on Loan on such assets created
through special allowance.
43.4 In the event of a generating station availing of Special Allowance, the expenditure
incurred upon or utilized from Special Allowance shall be maintained separately by the
generating station, and details of the same shall be made available to the Commission
with the Truing-up petition.
43.5 The Special Allowance allowed under this Regulation shall be transferred to a
separate fund for utilization towards Renovation & Modernization and additional
capitalization.
Provided that unutilized fund will lapse if not utilized during the year.
43.6 provided further that no additional capitalization of any type under Capex
Regulations, 2022 is admissible once this special allowance is claimed by the
Generating Company.”
Annual Fixed Charges
5.2.10 The Regulation 41 of Draft MERC MYT Regulations, 2024 specifies the components
of Annual Fixed Charges. The Commission has added a new proviso in Regulation 41
of MERC MYT Regulations, 2024 related to treatment of Special allowance, in which
if Special Allowance in lieu of R&M, if opted then Special Allowance shall be
recovered separately and shall not be considered for the computation of working capital.
5.2.11 This proviso has been added considering that work undertaken under Special
Allowance are not part of regular O&M activities.
Accordingly, the Regulation 41 of Draft MERC MYT Regulations, 2024 is proposed
as under:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 68
The Annual Fixed Charges shall comprise the following components:
Provided that Special Allowance in lieu of R&M, if opted in accordance with the
provisions of the Regulation 43 of these regulations, shall be recovered separately and
shall not be considered for computation of working capital.
Provided further that prior period income/expenses shall be allowed by the
Commission at the time of Truing-up based on audited accounts, on a case-to-case
basis, if the income/expenses in that prior period have been allowed on actual basis,
subject to prudence check:
Provided also that all penalties and compensation payable by the Generating Company
to any party for failure to comply with any directions or for damages, as a consequence
of the orders of the Commission, Courts, etc., shall not be allowed to recover through
the Aggregate Revenue Requirement:
Provided also that the Generating Company shall maintain separate details of such
penalties and compensation paid or payable by the Generating Company, if any, and
shall submit them to the Commission along with its Petition.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 69
Norms of Operation Treatment given in tariff
Station Heat Rate (SHR) Sharing of gains and losses on account of
controllable factors
Auxiliary Consumption Sharing of gains and losses on account of
controllable factors
Secondary Fuel Oil Sharing of gains and losses on account of
Consumption (SFOC) controllable factors
Transit Loss (%) Sharing of gains and losses on account of
controllable factors
5.2.13 The Commission notes that, the draft CERC Tariff Regulations, 2024 has specified the
same norm for each performance parameter for both new as well as existing Generating
Stations, and relaxed norms have been specified for few old Generating Stations of
NTPC, Neyveli Lignite Corporation, Damodar Valley Corporation and North Eastern
Electric Power Corporation Limited (NEEPCO) based on past performance.
5.2.14 The Commission in its MERC MYT Regulations 2019 had taken similar view and
provided relaxed norms to the old Generating Stations Commissioned before August
2005. The Commission is proposing to continue with the similar approach and
considering the norms proposed by the CERC in the Draft MYT Regulations, 2024.
The Commission has also reviewed the actual operational performance data of
generating companies for the past 5 years and notes that, operational performance of
most of the plants is near to normative parameters. The Commission has analysed the
actual performance of existing generating stations for deciding the proposed norms for
next Control Period.
5.2.15 Accordingly, the Commission proposes to adopt a similar approach and the same norm
has been specified for each Performance parameter, which would be applicable to new
as well as existing Generating Stations and relaxed norms have been specified for few
Generating Stations commissioned prior to August 2005. The Commission in draft
MERC MYT Regulations, 2024, has proposed the operational norms for existing as
well as new generating stations.
5.2.16 The approach adopted for the above norms of operation in the proposed Regulations is
discussed below:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 70
5.2.18 As regards the normative availability for full recovery of fixed charges, it is proposed
to retain the normative availability for recovery of fixed costs as 85% for all the existing
and new generating stations. The relaxed norms have been specified for some of
MSPGCL’s existing Generation Stations.
5.2.19 For MSPGCL Generating Stations, where relaxed norms have been specified, the actual
performance parameters of Generating Stations for the past five years, i.e., from FY
2018-19 to FY 2022-23 has been analysed as against the normative target availability.
5.2.20 The Availability norms specified for MSPGCL’s old stations are relaxed norms and
were fixed considering the recommendation of Central Research Power Institute
(CPRI). Also, it was anticipated that the coal availability was likely to improve during
the present Control Period, due to anticipatory measures taken by MSPGCL to improve
the availability of coal. In spite of this, the actual availability is lower than relaxed
norms, maybe due to running of older plants on Technical Minimum for which
additional relaxation in operational norms are provided. Further, the Commission has
noted that for Bhusawal TPS actual availability for FY 2019-20 and FY 2020-21 is
more than 90% and for Nashik TPS the actual availability for FY 2020-21 is more than
95% and in FY 2021-22 it is around 84.44%, the Commission has observed that actual
performance has improved in past years, hence no relaxation for these stations are
proposed. Similarly, for Koradi TPS (excluding Unit No. 8, 9 and 10), the actual
availability for FY 2020-21 is 76.73%, which proves that generating station can easily
be available more than 75%. Hence, relaxed norms are retained for Chandrapur TPS
(excluding Unit No. 8 and 9) and for Koradi TPS (excluding Unit No. 8, 9 and 10)
norms are revised to 75.00%, for the next Control Period.
5.2.21 In light of the foregoing, it is proposed that target availability for full recovery of
Annual Fixed Charges for the next Control Period shall be 85% for all Thermal
Generating Stations except those covered in the following table:
Table 5: Target Availaibility for Old Generating Stations of MSPGCL
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 71
operating level of different power plants and accordingly different SHR have been fixed
for thermal and gas turbine/combined cycle power plants. The practice followed by the
CERC covers all the dimensions of a generating Unit, which may have a bearing on the
SHR. The data available in this regard suggests that the various factors affecting the
Station Heat Rate are vintage, size, past generating history, past maintenance practices,
condition of plant, etc.
5.2.23 The Commission in the MERC MYT Regulations, 2019 specified SHR for existing and
new generating stations having different Unit sizes, viz., 200/210/250 MW sets, 300
MW Sets, 500 MW sets and 600 MW and above sets, except MSPGCL’s old stations.
The Commission has specified the SHR for MSPGCL’s old stations based on the
average of the actual 5-year data and proposed measures to be taken for improvement
of performance of those generating stations.
5.2.24 The existing MERC MYT Regulations, 2019 specifies the norms for SHR for existing
Generating Station as under:
5.2.25 It is proposed to specify the normative SHR for existing Generating Stations in line
with norms stipulated in draft CERC Tariff Regulations, 2024 except for 300 MW set.
As regards the 300 MW set, there is no existing generating station, hence intermediate
norm of 2385 kcal/kWh between 200/210/250 MW set (2400 kcal/kWh) and 500 MW
(2375 kcal/kWh) has been considered. Accordingly, the SHR norms for existing
Stations except for the old Generating Stations of MSPGCL and TPC-G Unit 5 are
shown in the Table below:
500 MW
600 MW and above
200/210/250 sets (Sub-
Particulars 300 MW set sets (super-critical
MW sets critical
boilers)
boilers)
Station Heat Rate
2400 2385 2375 2230
kcal/kWh
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 72
5.2.26 In respect of 500 MW Units, where the boiler feed pumps are electrically operated, the
gross Station Heat Rate shall be 40 kcal/kWh lower than the gross Station Heat Rate
specified above. Also, it is further clarified that, for Generating Stations having
combination of 200/210/250/300 MW sets, 500 MW sets and 600 MW and above sets,
the normative gross Station Heat Rate shall be the weighted average Station Heat Rate
of the combinations.
5.2.27 Further, the Commission has analysed the past performance of the thermal generating
stations of TPC-G, AEML-G and MSPGCL in the context of SHR and it is observed
that, in case of MSPGCL’s Stations, for some years the SHR are higher while for some
years it is lower than normative SHR. Further, it is observed that the 5-year average of
actual SHR of these generating stations are almost near to the normative SHR. In case
of TPC-G Unit 8 and AEML-G (DTPS), the 5-year average of actual SHR of these
Station for FY 2018-19 to FY 2022-23 were lower than the normative SHR
Accordingly while proposing the SHR norms for the next Control Period, the
Commission is of the view that the MSPGCL should also take effort to perform better
for all the years in the next Control period. The data shows that for some of the years,
these plants have been achieving the performance better than the normative
performance and they should continue with the similar performance. Hence, the
Commission is not proposing any relaxation in the normative parameters and retaining
the same SHR norms for the next Control Period for MSPGCL’s old Stations. The
proposed norms for SHR for MSPGCL’s generating Stations are as under:
Table 6: Station Heat Rate norms for MSPGCL’s Generating Stations (kcal/kWh)
5.2.28 Also, SHR norm for TPC-G Unit 5 is also proposed to retain as 2549 kcal/kWh
considering that 5-year actual SHR is 2553 kcal/kWh, which is very close to normative
SHR. Regarding the gas stations, viz., Uran and TPC-G Unit 7, SHR norm of 2035
kcal/kWh for combined cycle operation and 2900 kcal/kg for Open cycle has been
proposed to retain for next Control Period, considering that 5-year actual SHR is very
close to normative SHR.
5.2.29 Further, for new generating stations, the MERC MYT Regulations, 2019 provides for
computation of Gross Station Heat Rate as 1.05 times of the Design Heat Rate of
Station/unit. Draft CERC Tariff Regulations, 2024 has retained the norms for
200/210/250 MW set as 1.05 times of the Design Heat Rate of Station/unit, while it has
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 73
revised the norms for 500 MW set and above to reflect the current operational
efficiencies of the stations by reducing the margin above Design Heat rate to 4.00%
from the current level of 5.00%. It is proposed to adopt the approach followed by the
CERC. Hence, Gross SHR for new generating stations shall be 1.05 times the Design
Heat rate of Station/unit for 200/210/250 MW set and 1.04 times of Design Heat rate
of Station/unit for 500 MW sets and above.
5.2.30 The Design SHR for New Generating Stations proposed in the Draft MERC Tariff
Regulations, 2024, are as under:
Pressure Rating (kg/cm2) 150 170 170 247 247 270 270
0
SHT/RHT ( C) 535/535 537/537 537/565 537/565 565/593 593/593 600/600
Electrical Turbine Turbine Turbine Turbine Turbine Turbine
Type of Boiler Feed Pump
Driven driven driven driven driven driven driven
Maximum Turbine Cycle
1955 1950 1935 1900 1850 1810 1800
Heat Rate (kcal/kWh)
Minimum Boiler
Efficiency
Sub-Bituminous Indian Coal 0.86 0.86 0.86 0.86 0.86 0.865 0.865
Bituminous Imported Coal 0.89 0.89 0.89 0.89 0.89 0.895 0.895
Maximum Design Unit
Heat Rate (kcal/kWh)
Sub-Bituminous Indian Coal 2273 2267 2250 2222 2151 2105 2081
Bituminous Imported Coal 2197 2191 2174 2135 2078 2034 2022
Auxiliary Consumption
5.2.31 The Draft MERC MYT Regulations, 2024 proposes the norm of Auxiliary
Consumption for coal based Generating Stations as under:
With Natural Draft cooling tower
Auxiliary consumption
or without cooling tower
5.2.32 For existing and new Generating Unit/Stations, it is proposed to retain the Auxiliary
Consumption norm for various technologies and Unit sizes as under:
(a) Coal-based generating stations:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 74
With Natural Draft cooling
Auxiliary consumption
tower or without cooling tower
(i) 200 MW series 8.50%
(ii) 300/330/350/500 MW & above
Steam driven boiler feed pumps 5.75%
Electrically driven boiler feed pumps 8.00%
Provided further that existing Additional Auxiliary Energy Consumption are also retained as
follows for plants with Dry Cooling Systems:
Direct cooling air cooled condensers with mechanical draft fans 1.00%
5.2.33 It is also proposed to retain the existing norms of Auxiliary Consumption for FGD for
draft MERC MYT Regulations 2024 as:
“46.14…
Provided also that for thermal Generating Stations with Flue Gas De-sulphuriser
(FGD), additional Auxiliary Energy Consumption shall be allowed as follows:
Provided also that for thermal Generating Stations with any additional equipment that
has been mandated by Statutory Authorities, additional Auxiliary Energy
Consumption shall be allowed on case-to-case basis after prudence check.”
5.2.34 Regarding the actual performance of TPC-G and AEML-G, it has been observed that
the actual Auxiliary Consumption for the Generating Units of TPC-G and AEML-G for
the last five years (i.e., FY 2018-19 to FY 2022-23) has been lower than the normative
value of Auxiliary Consumption specified by the Commission.
5.2.35 The norms for auxiliary consumption for MSPGCL’s old stations are already as per
relaxed norms. These existing norms for old stations of MSPGCL were decided
considering the recommendations of CPRI. Also, it was envisaged that the
recommendations of CPRI shall be implemented by Generating Stations for improving
the performance of old generating stations. However, the actual auxiliary consumption
is higher than relaxed norms.
5.2.36 In view of the above, the Commission intends to continue with the existing auxiliary
norms in order to encourage the efficiency measures to be taken by plants to reduce the
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 75
Auxiliary Consumption. Further, the Commission notes that, the actual variation in the
Auxiliary consumption of these plant is compensated through sharing and these plants
also receive the compensation under compensation framework for operation below 85%
as technical minimum compensation. In view of this, norms for Auxiliary consumption
for old generating stations for MSPGCL are retained as under:
Table 7: Norms for Auxiliary Consumption for Old Generating Stations of MSPGCL
5.2.38 It is proposed to retain the norm for Auxiliary Consumption for Gas Turbine /Combine
Cycle Generating Station in line with draft CERC Tariff Regulations, 2024, as under:
5.2.39 Since, no Lignite Fired Generating Station exists in the State, it is proposed to consider
the norm for Auxiliary Consumption in line with draft CERC Tariff Regulations, 2024,
as under:
“Lignite-fired thermal generating stations:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 76
energy consumption norms of coal based Generating Stations specified in Regulation
46.13:”
Emission Control System
5.2.40 It is proposed to continue with the norms of Auxiliary Consumption for Emission
Control System as specified in MERC Tariff Regulations 2019. The proposed norms of
Auxiliary Consumption for Emission Control System in Draft MERC Tariff
Regulations 2024 are as below:
Provided that where the technology is installed with “Gas to Gas” heater, AUXen
specified above shall be increased by 0.3% of gross generation.”
5.2.42 The Secondary Fuel Oil Consumption norm is proposed in accordance with the norms
specified in draft CERC Tariff Regulations, 2024 as under, with exceptions discussed
separately:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 77
(a) Coal-based generating stations: 0.50 ml/kWh
5.2.43 The Commission has analysed the performance of Generating Stations vis-a-vis
normative Secondary Fuel Oil Consumption levels during the fourth Control Period.
5.2.44 The TPC-G Unit 5 has the capability to utilise multiple fuels, whereas most of the other
generating stations in the State of Maharashtra are not designed to utilise multiple fuels.
More importantly, TPC-G Unit 5 fires liquid fuels as primary fuel also, and hence, it is
not possible to distinguish between primary fuel and secondary fuel oil consumption.
Further, TPC-G Unit 8, average Secondary Fuel Oil Consumption for the last 4 years
(FY 2018-19 to FY 2021-22) is 0.29 ml/kWh, which is substantially lower than the
Secondary Fuel Oil consumption norm of 0.50 ml/kWh specified by the Commission.
5.2.45 The average Secondary Fuel Oil Consumption of AEML-G for the last 5 years (FY
2018-19 to FY 2022-23) is 0.11 ml/kWh, which is substantially lower than the
Secondary Fuel Oil consumption norm of 0.50 ml/kWh specified by the Commission.
5.2.46 The norms for Secondary Fuel Oil Consumption (SFOC) for MSPGCL’s old stations
are relaxed norms. These existing norms for old stations of MSPGCL were fixed
considering the recommendation of CPRI. Also, it was anticipated that
recommendations of CPRI will be implemented for improving the performance of old
generating stations. The actual SFOC for the MSPGCL generating stations are higher
than relaxed norms. For the next Control Period, the Commission does not intend to
give further relaxation in SFOC norms and proposes to continue with the existing
norms.
5.2.47 In view of this, norms for Secondary Fuel oil consumption for old generating stations
for MSPGCL are as under:
Table 8: Norms for Secondary Fuel Oil Consumption for Old Generating Stations of
MSPGCL
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 78
Stations Secondary Fuel Oil
Consumption (ml/kWh)
Transit Loss
5.2.48 Transit and handling losses occur in fuel transportation, especially for coal
transportation. These losses happen mainly due to pilferage, leakage, weight reduction
due to moisture evaporation, improper stacking, etc., and the losses are higher in load
centre based generating stations as compared to that in pit head stations.
5.2.49 For transit loss norms for Generating Unit/Stations, the Draft MERC MYT Regulations,
2024 specify as under:
Provided that in case of pit head stations if coal or lignite is procured from sources
other than the pit head mines, which is transported to the Station through rail,
normative transit loss of 0.8% shall be applicable:
Provided further that the above norms shall be applicable for domestic coal and washed
coal:
Provided also that in case of imported coal, the normative transit and handling losses
shall be 0.2%:
Provided also that for procurement of coal on delivery basis, no transit and handling
loss shall be allowed.”
5.2.50 The average Transit losses of MSPGCL for the last 5 years (FY 2018-19 to FY 2022-
23) is lower than the Transit losses norm of 0.8 % specified by the Commission except
for Khaparkheda Unit 1 to 5 for which 5 years average (FY 2018-19 to FY 2022-23)
transit losses are 1.50%.
5.2.51 The Commission has proposed to retain the existing norms, which are in line with the
CERC Tariff Regulations 2019, for Transit and handling losses. It is noted that, the
CERC in its draft Tariff Regulations, 2024 has also retained the existing norms.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 79
Operation and Maintenance Expenses for Thermal Generating Stations
5.2.52 MERC MYT Regulations, 2019 specifies norms in terms of INR Lakh per MW for
generating stations/unit that achieved COD on or after August 26, 2005. However, for
other generating stations that achieved COD before August 26, 2005, principles have
been specified for determination of O&M Expenses for the Control Period based on
past approved O&M Expenses.
O&M expenses for Generating Stations/Units that achieved COD before August 26, 2005
5.2.53 The Commission in MERC MYT Regulations, 2019, has specified the principles for
the determination of O&M expenses for Generating Stations/units that achieved COD
before August 26, 2005. It is one of the objectives of the MYT framework to move
from the methodology of specifying the principle to specifying norms for performance
parameters and controllable factors. However, these Generating Stations are old
Stations and are commissioned before the Regulatory regime. Hence, it would be
difficult to specify the norms for such Stations. On the other hand, Generating Stations
or Units, which are commissioned after commencement of the Regulatory regime in the
State, have been allowed O&M expenses as per the norms specified in the Tariff
Regulations. In view of this, it is proposed to continue with the existing approach for
specifying principle for Generating Stations/units that achieved COD before August 26,
2005.
5.2.54 For determination of O&M Expenses for next Control Period, at time of MYT Order,
the average of O&M Expenses for the period from FY 2019-20 to FY 2023-24 is
required to be escalated at the respective escalation rate for FY 2022-23, FY 2023-24
and FY 2024-25, to arrive at the Operation and Maintenance expenses for the base year
ending March 31, 2025.
5.2.55 The Commission also notes that, the CERC is also providing similar treatment to the
older plants. The Draft CERC Tariff Regulations, 2024 specifies the common norm for
all the existing and new generating stations except for very old generating stations like
Tanda TPS Unit 1.
5.2.56 Accordingly, the provision of the Draft MYT Regulations 2024 for determination of
O&M expenses for Generating Stations/units that achieved COD before August 26,
2005, is as under:
“47.1 Generating Stations/Units that achieved COD before August 26, 2005
a) The Operation and Maintenance expenses for Generating Stations which achieved
COD before the date of coming into effect of the MERC (Terms and Conditions of
Tariff) Regulations, 2005, shall be computed in accordance with this Regulation.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 80
b) The Operation and Maintenance expenses excluding water charges and including
insurance shall be derived on the basis of the average of the Trued-up Operation and
Maintenance expenses after adding/deducting the share of efficiency gains/losses, for
the five Years ending March 31, 2024, excluding abnormal Operation and Maintenance
expenses, if any, subject to prudence check by the Commission:
Provided that, the impact of the wage revision if any during the Trued-up year shall be
included in the O&M expenses while determining the norms for the O&M expenses for
the future year.
Provided that the average of such Operation and Maintenance expenses shall be
considered as Operation and Maintenance expenses for the Year ended March 31,
2022, and shall be escalated at the respective escalation rate for FY 2022-23, FY 2023-
24 and FY 2024-25, to arrive at the Operation and Maintenance expenses for the base
year ending March 31, 2025:
Provided further that the escalation rate for FY 2022-23, FY 2023-24 and FY 2024-25
shall be computed by considering 50% weightage to the average yearly inflation
derived based on the monthly Wholesale Price Index of the respective past five financial
years as per the Office of Economic Advisor of Government of India and 50%
weightage to the average yearly inflation derived based on the monthly Consumer Price
Index for Industrial Workers (all-India) of the respective past five financial years as
per the Labour Bureau, Government of India:
Provided also that at the time of true-up for each Year of this Control Period, the
Operation and Maintenance expenses, excluding water charges and including
insurance, shall be derived on the basis of the Final Trued-up Operation and
Maintenance expenses after adding/deducting the sharing of efficiency gains/losses, for
the base year ending March 31, 2025, excluding abnormal expenses, if any, subject to
prudence check by the Commission, and shall be considered as the Base Year
Operation and Maintenance expenses.
c) The Operation and Maintenance expenses for each subsequent year shall be
determined by escalating these Base Year expenses of FY 2024-25 by an inflation factor
with 50% weightage to the average yearly inflation derived based on the monthly
Wholesale Price Index of the respective past five financial years as per the Office of
Economic Advisor of Government of India and 50% weightage to the average yearly
inflation derived based on the monthly Consumer Price Index for Industrial Workers
(all-India) of the past five financial years as per the Labour Bureau, Government of
India, as reduced by an efficiency factor of 1% of Average escalation factor or as may
be stipulated by the Commission from time to time, to arrive at the permissible
Operation and Maintenance expenses for each year of the Control Period:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 81
Provided that, in the Truing-up of the O&M expenses for any particular year of the
Control Period, an inflation factor with 50% weightage to the average yearly inflation
derived based on the monthly Wholesale Price Index of the respective past five financial
years (including the year of Truing-up) and 50% weightage to the average yearly
inflation derived based on the monthly Consumer Price Index for Industrial Workers
(all-India) of the respective past five financial years (including the year of Truing-up),
as reduced by an efficiency factor of 1% of derived inflation factor or as may be
stipulated by the Commission from time to time, shall be applied to arrive at the
permissible Operation and Maintenance Expenses for that year.
Provided that in the MYT Order, the Commission shall provisionally approve the Water
Charges for each year of the Control Period based on the actual Water Charges as per
latest Audited Accounts available for the Generating Company, subject to prudence
check.
f) A Generating Company may undertake Opex schemes for system automation, new
technology and IT implementation, etc., and such expenses may be allowed over and
above normative O&M Expenses, subject to prudence check by the Commission as per
the provisions of the MERC (Approval of Capital Investment Schemes) Regulations,
2022:
Provided that the Generating Company shall submit detailed justification, cost benefit
analysis, and life-cycle cost analysis of such schemes as against capex schemes, and
savings in O&M expenses, if any as per the provisions of the MERC (Approval of
Capital Investment Schemes) Regulations, 2022.
g) The Commission may consider any request for revision of the normative O&M
expenses on account of consideration of some Schemes under O&M rather than Capital
Investment on case-to-case basis, depending on the justification to be submitted by the
Applicant and the life-cycle cost analysis:
Provided that if actual O&M expenses are lower than normative O&M expenses on this
account, then no sharing of efficiency gains shall be done to that extent.
h) If the Generating Station or Unit opts for Special Allowance as per the provisions of
the Regulation 44 of these Regulations, the applicable O&M norms for such Generating
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 82
Station/Unit shall be as per the provisions of the Regulation 48.2 below of these
Regulations for the respective category and type of the Generator. “
O&M expenses for Generating Stations/Units that achieved COD on or after August 26,
2005
5.2.57 The existing Regulations allow the O&M expenses for new Generating Stations that
achieved COD after August 26, 2005 based on per MW norms. The Draft CERC Tariff
Regulations, 2024 also allows the O&M expenses for new Generating Stations on the
basis of per MW norms. Hence, existing approach of specifying per MW norms with
some modification is being retained.
“47.2…
Provided that for the Generating Stations having combination of above Sets, the
weighted average value for operation and maintenance expenses shall be allowed:
…”
(i) It may be noted that the Draft CERC Tariff Regulations, 2024 specifies per MW basis
O&M expenses norm for new coal-based generation station for four categories: (i)
200/210/250 MW sets (iii) 300/330/350 MW sets (iii) 500 MW sets and (iv) 600 MW
and above sets. The existing MERC MYT Regulations, 2019 specifies the norms for
four categories. Further, MSPGCL generating stations commissioned during present
Control Period are within the applicable categories specified in present Regulations.
The following approach has been considered for norms for new Coal based Generating
station:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 83
For computation of norms for various categories, the actual O&M expenses for existing
generating stations have been considered excluding water charges and including
insurance shall be derived on the basis of the average of the Trued-up Operation and
Maintenance expenses after adding/deducting the share of efficiency gains/losses. The
category-wise generating stations considered are as under:
a. 200/210/250 MW sets- Paras Unit 3 & 4, Parli Unit 6, 7 & 8 and TPC-G Unit 8
b. 500 MW sets - Bhusawal Unit 4 & 5, Chandrapur Unit 8&9 and Khaparkheda Unit
5
(ii) The above derived actual O&M expenses, for FY 2017-18 to FY 2021-22 have been
considered for analysis purposes. The derived actual O&M expenses norms for the
category has been computed per MW based on installed capacity. The five-year average
of derived actual O&M expenses norms on per MW basis for these categories has been
considered as norms for FY 2019-20. The O&M expenses includes the wage revision
allowed by the Commission also. Hence, there is no separate treatment to wage revision
is not required. Further, the O&M norms shall include the impact of wage revisions,
so no separate wage revisions shall be allowed in the next control period over and above
normative O&M Expenses.
(iii) The yearly inflation factor computed by considering 50% weightage to the average
yearly inflation derived based on the monthly Wholesale Price Index of the respective
past five financial years as per the Office of Economic Advisor of Government of India
and 50% weightage to the average yearly inflation derived based on the monthly
Consumer Price Index for Industrial Workers (all-India) of the respective past five
financial years as per the Labour Bureau, Government of India.
(iv) FY 2019-20 derived norms in INR Lakh/MW then further escalated by yearly CPI:
WPI: 50:50 for FY 2020-21 (3.71%) and FY 2021-22 (4.94%). In view of the impact
of the COVID-19 pandemic on actual O&M expenses, it is felt that before proceeding
further with the determination of norms; the impact needs to be nullified. Hence,
average CPI and WPI of 5year (From FY 2016-17 to FY 2020-21) with 50% weightage
inflation has been computed as 3.71%, which has been considered to escalate the
derived norms of FY 2021-22 to arrive at O&M norms for FY 2022-23, FY 2023-24
and FY 2024-25. After arriving at the O&M norms for the base year ending March 31,
2025, FY 2025-26 and onwards norms are determined considering previous year
escalation rate with efficiency factor. Where, efficiency factor is 1% of previous year
escalation rate. The following table provides the summary of escalation rate for each
year of the control period:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 84
FY FY 2025-26 FY FY FY FY
2024-25 2026-27 2027-28 2028-29 2029-30
WPI: CPI
3.71% (3.71*(1-1%=3.67%) 3.64% 3.60% 3.56% 3.53%
(50:50)
(v) As no generating Stations are available for 300/350 MW set, hence, the existing norms
of 2024-25 has been escalated by same proportion, 200/210/250 MW set norms have
been increased from FY 24 to FY 25. Base value for FY 2025 has been derived then
the base value has been escalated by escalation rates worked-out in above para (iv) for
remaining year of the next Control period.
5.2.59 The proposed norms are for new Generating Stations coming up in the next Control
Period, hence, the consideration of actual trued-up O&M expenses excluding water
chares, subject to prudence check, would reflect the reasonable cost of O&M for such
new generating Stations.
5.2.60 As discussed earlier, these proposed norms shall also be applicable to the Generating
Stations or Unit commissioned after the effectiveness of the MERC (Terms and
Conditions of Tariff) Regulations, 2005.
5.2.61 MERC in its Tariff Regulations, 2019 has specified the multiplying factor for arriving
at norms of O&M expenses for additional Units in respective Unit sizes for the Units
whose COD occurs on or after the April 1, 2019. It is proposed to retain same
multiplying factor as specified in MERC in its Tariff Regulations, 2019.
5.2.62 The proposed O&M expenses norm for New Coal based Generating Stations in the
Draft MERC MYT Regulations 2024 are shown below:
“47.2
Provided that for the Generating Stations having combination of above Sets, the
weighted average value for operation and maintenance expenses shall be allowed:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 85
Provided further that the norms shall be multiplied by the following factors for arriving
at norms of O&M expenses for additional Units in respective Unit sizes for the Units
whose COD occurs on or after 1.4.2020 in the same Station:
5.2.63 The MERC MYT Regulations, 2019 specifies the norms for new Lignite based
generation stations for fourth Control Period. However, there is no Lignite based
Generating Stations in State of Maharashtra till date. Hence, there is no actual data
available for the same. In view of the above, it is proposed to modify the existing norm
for Lignite based Generating Stations considering the proposed increase in the norms
by the CERC from Tariff Regulations, 2019 to Draft CERC Tariff Regulations, 2024.
The proportion is applied on the existing norm for FY 2024-25. Further, such norms
for FY 2025-26 have been escalated at the escalation rate of 3.71% to arrive at the O&M
expense norm for each year of the fourth Control Period.
“47.2…
b)For Lignite based Generating Stations:
FY 2025-26 21.43
FY 2026-27 22.23
FY 2027-28 23.05
FY 2028-29 23.91
FY 2029-30 24.79
The MERC MYT Regulations, 2019 specifies norms for Gas Turbine and Combined
Cycle Generating Stations for the fourth Control Period. For specifying the norms for
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 86
Gas Turbine/Combined Cycle Generating Stations and Small Gas Turbine Generating
Stations (less than 50 MW Unit size) for Fifth Control Period the Commission has
adopted the methodology similar to the methodology considered for deriving the norms
for Lignite based Generating Stations. The proposed norm for Gas Turbine/Combined
Cycle Generating Stations is shown below:
“47.2…
c)Gas Turbine/Combined Cycle Generating Stations
Computation and Payment of Capacity Charges and Energy Charges for Thermal
Generating Stations
5.2.64 The existing MERC MYT Regulations, 2019 specifies the provisions for determination
of Capacity Charge for Thermal Generating Stations. The Commission is proposing to
retain the same without any modifications.
Energy Charges
5.2.65 The existing MERC MYT Regulations, 2019 specifies the provisions for determination
of Energy Charge for Thermal Generating Stations. The Commission is proposing to
continue, with some modifications, as discussed below.
5.2.66 The Commission in MYT Tariff Regulations, 2019 has considered the “GCV as billed”
for computation of Energy Charges. The Commission in MYT Tariff Regulations, 2019
has allowed a normative GCV loss of 300 kcal/kg as the difference in “GCV as billed”
and “GCV as received”.
5.2.67 Further, the Commission has provided relaxation in GCV loss vide its Orders i.e., Case
No. 296 of 2019, Case No. 180 of 2020 (review order) and Case No. 227 of 2022. The
Commission in its Review Order in Case No. 231 of 2023 has allowed relaxation of
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 87
325 kcal/kg in loss of GCV in addition to 300 kcal/kg for FY 2023-24 and relaxation
of 275 kcal/kg FY 2024-25.
5.2.68 Further, by analysing the last five-year GCV loss data given by MSPGCL it is found
that the average of GCV loss from FY 2018-19 to FY 2023-24 (H1) is 761 kcal/kg. The
Commission also noted various communications of MSPGCL with the Secretary
(Coal), Ministry of Coal and Coal India Ltd on issues related to coal sampling like
shifting to auger machine coal sampling instead of manual sampling, non-random road
mode sampling, top layer sampling, non-random conveyor belt sampling etc.
5.2.69 In view of relaxation provided by the Commission in various review orders and efforts
demonstrated by MSPGCL for sampling methodology, the Commission in the Draft
MYT Regulations, 2024 is proposing to further relax the normative GCV loss of 300
kcal/kg to 650 Kcal/kg as the difference in “GCV as billed” and “GCV as received”.
The Commission also clarifies that the normative GCV losses shall not be allowed for
washed and imported coal.
5.2.70 The Commission in MYT Tariff Regulations, 2019 has allowed a normative GCV
stacking loss of 85 kcal/kg for pithead stations and 120 kcal/kg for non-pithead stations
as the difference in “GCV as received” and “GCV as fired”. Further, it is noted that the
CERC Regulations 2019 and Draft CERC Regulations 2024 have proposed a uniform
margin of 85 kcal/kg without differentiating between pithead and non-pithead stations.
Hence, the Commission in the Draft MYT Regulations, 2024 is proposing to align
stacking loss norms with the provisions of the Draft CERC MYT Regulations, 2024.
5.2.71 Accordingly, the proposed Regulation of Energy charge in Draft MYT Regulations,
2024 is as under:
“50…
B. Energy Charges
50.5 The Energy Charges shall cover landed cost of primary fuel and secondary fuel
oil and shall be worked out on the basis of total energy scheduled to be supplied to the
Beneficiary/ies during the calendar month on ex-power plant basis, at the Energy
Charge Rate of the month (with fuel price adjustment) as per the following formula:
Energy Charges (INR) = (Energy Charge Rate in INR/kWh) x [Scheduled Energy (ex-
bus) for the month in kWh]
Provided also that in case of supply of coal or lignite from the integrated mine(s), the
landed cost of primary fuel shall be based on the input price of coal or lignite, as the
case may be, as computed in accordance with these Regulations.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 88
50.6 Energy Charge Rate (ECR) in INR/kWh shall be computed up to three decimal
places and shall be the sum of the cost of normative quantities of primary and secondary
fuel for delivering ex-bus one kWh of electricity, and shall be computed as per the
following formula:
ECR = (INR/kWh)
[1-(AUXn + AUXen )]
LPR = Weighted average landed price of reagent for Emission Control System
(in INR/kg);
…”
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 89
Norms and Principles for Hydro Generating Stations
Components of Tariff
5.2.72 The Tariff for sale of electricity from a Hydro Generating Station shall comprise two
parts, namely, Capacity Charge and Energy Charge. The Capacity Charge and Energy
Charge shall be computed based on Annual Fixed Charges determined for Hydro
Generating Station.
5.2.73 In addition to Annual Fixed Charges to be recovered through Capacity Charge and
Energy Charge, the Lease Rent and Water Royalty shall be payable by the beneficiaries
in proportion to their respective share in the capacity of the Generating Station on
monthly basis.
5.2.74 The Commission is proposing to continue with the existing provisions for computation
of Tariff for Hydro Generating Stations in the Draft MERC MYT Regulations, 2024 as
below
5.2.76 Regulation 48 of Draft MERC MYT Regulations, 2024 for computation of Normative
Annual Plant Availability Factor (NAPAF) for Storage and Pondage type plants, are as
below:
“48.1 The following Normative Annual Plant Availability Factor (NAPAF) shall apply
to Hydel Generating Stations:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 90
Sr. Normative Annual Plant
Particulars
No. Availability Factor
Pondage type plants where plant
c) availability is significantly affected by 85%
silt
To be determined plant-wise, based
on 10-day design energy data,
d) Run-of-river type plants
moderated by past experience
where available/relevant
Auxiliary Consumption
5.2.78 The Commission notes that, the CERC in its draft Tariff Regulations 2024 has retained
the existing norms for Auxiliary consumptions for Hydro Generating Stations.
Accordingly, the Commission is also proposing to retain the provisions of the normative
Auxiliary Energy Consumption specified by the Commission in the MERC MYT
Regulations, 2019 for Hydro Generating Stations in the Draft MERC MYT
Regulations, 2024 as below:
“48.2 The following Normative Auxiliary Energy Consumption shall apply to hydro
Generating Stations:
Type of Station Installed Capacity Installed Capacity
above 200 MW up to 200 MW
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 91
Operation and Maintenance Expenses for Hydro Generating Stations
5.2.79 MERC MYT Regulations, 2019 specify the principles for computation of O&M
Expenses for existing Hydro Generating Stations/units, similar to the principles
specified for Generating stations that achieved COD before August 26, 2005. For new
Hydro Generating Stations, the O&M Expenses shall be fixed at 2% of original project
cost for first year of commercial operation.
5.2.80 It is one of the objectives of the MYT framework to move from the methodology of
specifying the principles to specifying norms for performance parameters and
controllable factors. However, Hydro Generating Stations are old Stations and are
commissioned before the Regulatory regime. Hence, it would be difficult to specify the
norms for such Stations. In view of this, it is proposed to continue with the existing
approach for specifying principle for Hydro Generating Stations. However, for new
Hydro generating Stations, the existing norm is proposed to be continued for next
Control Period.
5.2.81 For determination of O&M Expenses for next Control Period, at time of MYT Order,
the average of O&M Expenses for the period from FY 2019-20 to FY 2023-24 is
required to be escalated at the respective escalation rate for FY 2022-23, FY 2023-24
and FY 2024-25, to arrive at the Operation and Maintenance expenses for the base year
ending March 31, 2025.
5.2.82 Accordingly, the Commission proposes to retain the provisions of the MYT
Regulations 2019 without any change for determination O&M expenses for Hydro
Generating Stations/units in the Draft MERC MYT Regulations, 2024.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 92
6 Norms and principles for determination of revenue requirement and Transmission
Tariff
6.1.1 Historically, the transmission network in the State of Maharashtra has been developed
over the period by the Maharashtra State Electricity Transmission Co. Ltd (MSETCL,
which is a successor entity of erstwhile (MSEB), The Tata Power Company Ltd. –
Transmission Business (TPC-T), and Adani Electricity Mumbai Ltd. – Transmission
Business (AEML-T).
6.1.2 GOM notified MSETCL as the State Transmission Utility (STU) vide its GR No.
Reform 1004/S.No 8885/Energy-5 dated 17th February 2005 in accordance with Section
39 of the Act. Section 39(2) of the Act provides the functions of State Transmission
Utility as under:
“(2) The functions of the State Transmission Utility shall be -
(a) to undertake transmission of electricity through intra-State transmission system;
(v) Authority;
(vi) licensees;
(vii) any other person notified by the State Government in this behalf;
(c) to ensure development of an efficient, co-ordinated and economical system of
intra-State transmission lines for smooth flow of electricity from a generating
station to the load centres;
(d) to provide non-discriminatory open access to its transmission system for use by-
(i) any licensee or generating company on payment of the transmission charges;
or
(ii) any consumer as and when such open access is provided by the State
Commission under sub-section (2) of section 42, on payment of the transmission
charges and a surcharge thereon, as may be specified by the State Commission:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 93
Provided that such surcharge shall be utilised for the purpose of meeting the
requirement of current level cross-subsidy:
Provided further that such surcharge and cross subsidies shall be progressively
reduced 1[***] in the manner as may be specified by the State Commission:
Provided also that the manner of payment and utilisation of the surcharge shall be
specified by the State Commission:
Provided also that such surcharge shall not be leviable in case open access is
provided to a person who has established a captive generating plant for carrying
the electricity to the destination of his own use.”
6.1.3 MSETCL, as STU, is responsible for undertaking all activities related to transmission
planning, co-ordination and ensuring development of an efficient, co-ordinated and
economical system of intra-State transmission for smooth flow of electricity from
Generating Stations and from Inter-State resources to the load centres, within the State.
The system for conveyance of electricity by transmission lines within the area of the
State and including all transmission lines, sub-stations and associated equipment of
Transmission Licensees in the State has been defined as the Intra-State Transmission
System (InSTS). The onus of InSTS planning lies with MSETCL, as STU.
6.1.5 At present, there are nine (9) Intra-State Transmission Licensees in the State of
Maharashtra, namely:
(i) Maharashtra State Electricity Transmission Company Ltd. (MSETCL)
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 94
In the latest Mid Term Review (MTR) proceedings for the fourth MYT Control Period,
the Commission has undertaken MTR of all intra-State Transmission Licensees and
issued the Orders except for SPTCL.
6.2 Applicability
6.2.1 Regulation 74 of Draft MYT Regulations, 2024 specifies the applicability that the
Regulations contained in this Part shall apply to the determination of Tariff for access
and use of the intra-State transmission system pursuant to a Bulk Power Transmission
Agreement or other arrangement entered into with a Transmission System User, which
are not covered under Regulation dealing with adoption of tariff through Tariff Based
Competitive Bidding (TBCB) Route under Section 63 of the Act:
6.2.2 Further, the Commission vide first Amendment to the MERC MYT Regulations, 2019,
specified a threshold Limit as INR 500 Crore excluding land cost, for the development
of Intra-State Transmission System through TBCB. While specifying the threshold, the
Commission had clarified that it will review the above Threshold Limit while framing
the MYT Regulations for next Control Period based on the progress of projects
achieved under TBCB under current Control Period till FY 2024-25.
6.2.3 The Commission while proposing Threshold Limit has observed that the Standard
Bidding Guidelines and the Standard Bidding Documents do not specify any Threshold
Limit for Transmission Project to be considered under TBCB mode. The Commission
notes that, as per the STU planning, there are large number of small transmission lines
whose estimated cost would be below INR 500 Crore. Further, the Commission while
notifying the threshold limit had taken the cue from National Committee on
Transmission that the project should not be too small as it will not attract competitive
tariff.
6.2.4 Further, the Commission has specified the Threshold Limit of INR 500 Crore
considering the submission of STU to increase the Threshold Limit for safe, secure,
disciplined and economic grid operations along with flexibility to STU to take up any
project of strategic importance/faster executed through Cost Plus approach with prior
approval of the Commission.
6.2.5 The Commission also notes that, the project costs of the new projects are expected to
be increased over a period of time specifically in Mumbai Metropolitan Region (MMR)
and the Commission does not find it appropriate to specify different Threshold Limit
for MMR and rest of Maharashtra.
6.2.6 Thus, the Commission in the Draft MYT Regulation, 2024 proposes to retain the
present threshold limit to INR 500 Crore excluding land cost, to keep the competition
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 95
high among experienced licensees, and, at the same time, discourage the influx of non-
serious bidders and manage smaller qualifications.
6.3 Components of Tariff
6.3.1 Regulation 57 of MERC MYT Regulations, 2019 specifies that transmission charges
for access to and use of the intra-State transmission system shall comprise any of the
following components or combination of the following components:
(a) Transmission system access charges;
(d) Interest on working capital and deposits from Transmission System Users;
minus:
6.4.1 Regulation 58 of the MYT Regulations, 2019 contains specific provisions related to
determination of provisional tariff for the Transmission Licensee. As per existing
Regulations, new Transmission Licensee has to file a Petition for approval of
provisional tariff six months prior to anticipated COD of the transmission system.
6.4.2 For approval of provisional tariff for Transmission Licensee, the Commission in the
Draft MERC MYT Regulations, 2024, proposes to continue with the existing
provisions for the next Control Period.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 96
6.5 Determination of Intra-State Transmission Tariff
6.5.1 Regulation 64 of MYT Regulations, 2019 specifies the transmission pricing framework
applicable for the State of Maharashtra. Presently, the intra-State transmission pricing
framework in the State of Maharashtra is based on a “Postage Stamp” approach. In this
framework, the recovery of ARR of Transmission Licensees or Transmission Service
Charge (TSC) in case of competitively awarded transmission projects, as the case may
be, shall be based on a ‘pooled cost’ principle wherein the ARR/TSC of all the
Transmission Licensees will be pooled together and shared among the Transmission
System Users based on their share in the coincident peak demand and non-coincident
peak demand of the State.
6.5.2 From the experience of the past two Control Periods, the Commission views that
Postage Stamp approach is simple, easy to understand and implement, and is also a
time-tested approach, hence, it is proposed to continue with the uniform Postage Stamp
approach across the State of Maharashtra.
6.5.3 However, it is proposed to clarify the treatment in case of new Distribution Licensees
whose monthly CPD and NCPD data is not available at the time of determination of
Base TCR, as under:
“82.3.
…
Provided also that in case new Transmission Licensees are added to the intra-
State transmission network during the Control Period, then the TTSC, Base
Transmission Capacity Rights and Base Transmission Tariff as referred under
Regulations Error! Reference source not found., Error! Reference source not
found. and Error! Reference source not found. shall be re-determined for each
remaining Year of the Control Period.”
6.5.4 Further, in the past, the Commission has been determining the Intra-State Transmission
Tariff on a suo-motu basis, based on the ratio of CPD and NCPD of the Distribution
Licensees and the approved ARR of all the Transmission Licensees. In this regard, it is
proposed to direct the State Transmission Utility to file the Petition for determination
of Intra-State Transmission Tariff one month after the last date of filing of MYT/MTR
Petitions by Transmission Licensees, based on the CPD and NCPD and the ARR sought
by the Transmission Licensees in their respective Petitions, as under:
“82.5. The State Transmission Utility shall file the Petition for determination of
Intra-State Transmission Tariff for the MYT Control Period latest by November
30, 2024 on the basis of Base Transmission Capacity Rights of each TSU, and the
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 97
summation of the Aggregate Revenue Requirement projected by the Transmission
Licensees for each Year of the Control Period:
---”
6.5.5 Further as discussed in General Section, the Commission has proposed to discontinue
with the provision of Mid-Term Review in the Fifth Control Period commencing from
April 1, 2025. Accordingly, the revised provisions of the draft MYT Regulations, 2024
are as under:
“82.5.
Provided that the State Transmission Utility shall file the Petition for true-up of
share of intra-State transmission tariff for FY 2025-26 to FY 2028-29 and
provisional true-up of share of intra-State transmission tariff for FY 2029-30
latest by November 30, 2029 on the basis of the actual CPD and NCPD of
Transmission System Users in the respective years, or the quantum of Short-
term/Medium-Term Open Access applied for by the Deemed Distribution
Licensee for the available period, as applicable:”
6.6.1 Regulation 59 of the MYT Regulations, 2019 contains specific provisions related to the
capital expenditure under non-DPR scheme. Accordingly to harmonise the provisions
of MERC Draft MYT Regulations, 2024 and MERC CAPEX Regulations 2022 the
Commission has added the reference of the MERC CAPEX Regulations 2022 in the
MERC Draft MYT Regulations, 2024.
6.7 Operational norms
6.7.1 Regulation 60 of MERC MYT Regulations, 2019 specifies the Norms for operation and
incentive mechanism for the Transmission Licensee. There are two separate norms of
transmission availability, viz., norm for recovery of Annual Transmission Charges and
norm for incentive.
6.7.2 The Commission has analysed the performance of Transmission Licensees in the State
of Maharashtra for the past period. The actual transmission availability achieved for the
period from FY 2016-17 to FY 2021-22 is shown below:
Table 9 Actual Transmission System Availability for FY 2016-17 to FY 2021-22
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 98
Licensee System FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2021-22 FY 2022-23
6.7.3 From the above Table, it is observed that all Transmission Licensees have maintained
the transmission system availability more than target availability required for recovery
of Annual Transmission Charges. Also, all Transmission Licensees have availed
incentive for maintaining higher transmission system availability.
6.7.4 It is evident that the Transmission Licensees have consistently achieved Availability
levels higher than the Target Availability and have benefitted in the form of incentives
as specified in the Regulations for the over-achievement vis-a-vis the targeted
Availability.
6.7.5 Further, the Availability norm of 99% for incentive for HVAC system is already
stringent and also no incentive is applicable for transmission availability above 99.75%.
Also, these norms are in line with the norms specified by the CERC in its Tariff
Regulations.
6.7.6 In view of the above, it is proposed to continue with the existing norms for operation
and incentive mechanism for next Control Period as well. Further, it is specified in the
definition of Availability that Availability of a transmission system for any period shall
not exceed hundred per cent.
6.7.7 Further the Commission observes that the data telemetry and communication are
important components for the transmission system. Accordingly, additional RoE of
0.75% shall be provided, if the transmission system is operational with data telemetry,
communication system up to load dispatch centre or protection system for more than
95%. Thus, the Commission in Draft MYT Regulation 2024, proposes to add a new
proviso in as under:
“28.6.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 99
Provided further that in case of an existing and new transmission system,
Performance Linked Return on Equity of 0.75% shall be provided, if the
transmission system is operational with data telemetry, communication system
up to load dispatch centre or protection system for more than 95% based on the
report submitted by the MSLDC.”
6.8.2 Accordingly, in the MYT Regulations, 2019, the Commission has specified the O&M
norms for Transmission Licensees which are linked to Transmission line length (ckt-
km) and sub-station related assets (number of bays). Moreover, a separate norm for
MSETCL, AEML-T, TPC-T and JPTL and a combined norms for the new transmission
licensees, other existing transmission licensees and additional voltages for TPC-T and
AEML-T was specified by the Commission.
6.8.3 The Commission has noted that from 2019 onwards, the CERC has introduced the norm
for transformers in terms of INR Lakh per MVA by allocating the existing substation
related expenses, which was earlier accounted within the Norms for Sub-station bays.
The Commission is of the view that, the Transformer and related Switchgear are the
major components of the transmission system, and their maintenance expenses are
required to be monitored separately instead of including in the Substation Bay.
6.8.4 Accordingly, the Commission while determining the O&M Norms under the Draft
MYT Regulation, 2024, has proposed to introduce the O&M norms linked with
Transmission line length (in ckt-km), and sub-station related assets (no. of bays and the
Transformation capacity in MVA).
6.8.5 Under the Draft MYT Regulation, 2024, the Commission has also proposed to specify
separate norms for MSETCL, TPC-T, AEML-T, ATIL, JPTL, APTCL, MEGPTCL and
VIPL-T. Furthermore, for the new transmission licensees, the Commission has
specified the norms is based on norms specified for MSETCL, except for 765 kV and
400 kV which is based on norms of MEGPTCL and JPTL respectively under the Draft
MYT Regulation, 2024.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 100
Comparison of Network configuration amongst the Intra-State Transmission licensees in
Maharashtra
6.8.6 At present, the InSTS within Maharashtra comprises the transmission network of
MSETCL, TPC-T, AEML-T, ATIL, JPTL, APTCL, MEGPTCL and VIPL-T. While
the transmission licence has been issued in case of SPTCL, the transmission assets of
this Licensee are yet to achieve COD and become operational.
6.8.7 The nature of Transmission Licensees varies significantly on the technical, financial
and operational aspects. The State Transmission Utility-MSETCL, operates at voltage
level ranging from 66 kV to 400 kV/765 kV AC. The transmission network of MSETCL
also includes around 1504 ckt-km of HVDC lines from Chandrapur to Padghe.
However, TPC-T and AEML-T operate at a voltage level ranging from 66 kV to 220
kV. JPTL, ATIL, APTCL, MEGPTCL and VIPL-T own and operate limited network.
JPTL, ATIL and APTCL operate at voltage level of 400 kV. VIPL-T operates at voltage
level of 220 kV and MEGPTCL operates at voltage of 400 kV to 765 kV. Further, TPC-
T and AEML-T also has mix of overhead lines and underground cables, while all other
Licensees have overhead lines.
6.8.8 The following Table shows a comparison of the technical configuration of the
Transmission Utilities in transmission line length in ckt km and number of bays
(Average of Opening and Closing) at 400 kV equivalent for FY 2021-22 is as below:
6.8.9 In the above table, the ratios of Transmission line length to number of bays have been
derived to compare the technical configuration of the Transmission Licensees. The ratio
brings out the structural difference in network configuration and topology amongst the
Transmission Licensees in the State and shows that there exists significant difference
in the network configuration of Transmission Licensees.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 101
6.8.10 Further, the Commission has proposed to add interconnecting transformers as an
equipment connected through bays as below:
“79.1.
For the purpose of applying normative O&M expenses under these Regulations, a
‘Bay’ shall mean a set of accessories that are required to connect an electrical
equipment such as Transmission Line, Bus Section Breakers, Power Transformers,
Potential Transformer, Inter-Connecting Transformers, Capacitors and Transfer
Breaker and the feeders emanating from the bus at sub-Station of Transmission
Licensee. Further, the Bays referred to shall include only the Bays at the
Transmission substation and shall exclude any Bays of the Generating Station
switchyard whose maintenance is usually the responsibility of the Generating
Company:”
6.8.11 The Commission is of the view that it has proposed to retain the above definition in the
Draft MYT Regulation 2024. Further, a new clause for the transformation capacity is
proposed to be inserted as below:
“79.1.
…
Further, for the purpose of applying normative O&M expenses under these
Regulations, ‘Transformation Capacity’ shall be considered as the capacity of
the Inter-Connecting Transformer or the Power Transformer as the case may
be.”
6.8.12 In the past, the Commission has noted that, there are certain Bays that are unutilized,
hence are not entitled for Normative O&M Expenses. The Commission proposes to
continue with this provision in the Draft MERC MYT Regulations, 2024, as under:
“79.1.
…
Provided also that the number of Bays considered for allowing O&M expenses
shall exclude the unutilised Bays…”
6.8.13 As per the provisions of the MERC MYT Regulations, 2011, 2015 and 2019, the
Commission has approved the normative O&M expenses for intra-State Transmission
Licensees and allowed sharing of efficiency gains or losses with respect to the actual
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 102
O&M expenses. The actual and normative O&M expenses for Transmission Licensees
have been compared for FY 2020-21 and FY 2021-22 of the fourth control period as
shown in the following table:
FY 2020-21 FY 2021-22
Licensee Actual Actual
Normative Gain/(loss) Normative Gain/(loss)
(Approved) (Approved)
MSETCL 1,794.11 1,760.41 33.70 1,901.92 1,941.63 (39.71)
ATIL 12.27 11.26 1.01 12.78 12.07 0.71
MEGPTCL 107.73 99.24 8.49 111.61 104.39 7.22
VIPL-T 0.49 0.86 (0.37) 0.51 1.00 (0.49)
AEML-T 52.14 77.34 (25.20) 54.44 58.78 (4.34)
TPC-T 171.94 251.65 (79.71) 178.88 277.65 (98.77)
JPTL 4.53 4.28 0.25 4.69 4.59 0.10
APTCL 1,794.11 1,760.41 33.70 1,901.92 1,941.63 (39.71)
6.8.14 From the above table, it is observed that actual O&M expense are higher than normative
O&M expenses for AEML-T, VIPL and TPC-T for both years. Further, the
Commission notes that the increase in actual O&M expense for AEML-T is majorly
due to Non-DPR Capex items (including IDC) now re-classified as R&M Expenses.
Further, for TPC-T, the increase in actual O&M expense was majorly due to increase
in A&G expense.
6.8.15 Further, for all other Licensees, the actual O&M Expenses are significantly lower than
normative O&M Expenses for FY 2020-21 and FY 2021-22. Thus, Commission
proposes to compute the norms for the Next Control period as the net entitlement after
sharing gains/losses of O&M expenses based on the revised normative as approved by
the Commission in the MTR Orders and normalized O&M Expenses after deducting
one-time expenses as approved by the Commission in the recent MTR Orders.
Comparison of O&M expenses of the Transmission licensees in the State with CTU
(PGCIL) norms
6.8.16 The CERC Tariff Regulations, 2019 has specified the norms for O&M expenses for
Transmission Licensees handling Inter-State Transmission of power. The CERC has
specified voltage-wise norms and separate norms for transmission line (INR Lakh per
ckt-km), bays (INR Lakh per bays) and transformer (INR Lakh per MVA). Further, the
CERC in draft Tariff Regulation, 2024 has specified the O&M norm as below:
"35. Operation and Maintenance Expenses:
……..
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 103
(3) Transmission system (a) The following normative operation and
maintenance expenses shall be admissible for the transmission system:
Particulars 2024-25 2025-26 2026-27 2027-28 2028-29
O&M expenditure per MVA or per MVAr 0.229 0.242 0.257 0.272 0.288
(INR Lakh per MVA or per MVAr)
Norms for AC and HVDC lines (in INR Lakh per km)
Single Circuit (Bundled Conductor with six or 1.220 1.292 1.368 1.448 1.534
more sub-conductors)
Single Circuit (Bundled Conductor with four 1.045 1.107 1.172 1.241 1.315
sub- conductors)
Single Circuit (Twin & Triple Conductor) 0.697 0.738 0.782 0.828 0.876
Double Circuit (Bundled conductor with four 1.830 1.938 2.052 2.173 2.301
or more sub-conductors)
Double Circuit (Twin & Triple Conductor) 1.220 1.292 1.368 1.448 1.534
Multi Circuit (Bundled conductor with four or 3.212 3.401 3.601 3.814 4.038
more sub-conductors)
Multi Circuit (Twin & Triple Conductor) 2.138 2.264 2.398 2.539 2.689
HVDC Back-to-Back stations (Lakh per MW) 2.15 2.27 2.41 2.55 2.70
HVDC bipole scheme (INR Lakh/MW) 1.13 1.20 1.27 1.34 1.42
Provided that the O&M expenses for the GIS bays shall be allowed as worked
out by multiplying 0.70 of the O&M expenses of the normative O&M expenses
for bays;
…”
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 104
6.8.17 Further, the Commission notes that the CERC has specified the transmission length-
based norm on per km basis rather than on the basis of per ckt km, since it has stipulated
separate norms for single circuit line as well as double circuit lines. Moreover, the
CERC has made distinction in terms of type of conductor as well.
6.8.18 It is noted that the CERC has retained the norm for transformers in terms of INR Lakh
per MVA from FY 2024-25 onwards in the Draft Tariff Regulations 2024, by allocating
the existing substation related expenses, which was earlier accounted within the Norms
for Sub-station bays.
6.8.19 Further, the CERC norms have been specified after taking into account the O&M
expenses incurred by PGCIL. As long as similar treatment of specifying the O&M
norms based on the prudently incurred O&M expenses is followed, Transmission
Licensees will not be at any disadvantage and will be able to recover the O&M expenses
incurred by them.
6.8.20 The Commission in MERC MYT Regulations, 2019 specified norms for O&M Expense
based on the prudent actual O&M Expenses by Transmission Licensee and voltage-
wise O&M expenses per bay and per ckt-km. However, the Commission in the draft
MYT Regulations, 2024, proposes the norms for O&M Expense after considering the
sharing gains/losses based on the revised normative O&M Expenses as approved by the
Commission in the MTR Orders.
6.8.21 Further, in draft MYT Regulation, 2024, the Commission proposes to the O&M
Expenses per bay, per ckt-km and per MVA capacity similar to the CERC Draft MYT
Regulations 2024. The total allowable O&M Expenses for the transmission system is
to be computed by multiplying the number of bays, total MVA capacity and ckt. km of
line length with the applicable norms for O&M expenses on per bay, per transformation
capacity and per ckt. km basis, respectively.
6.8.23 However, considering the data availability for the fifth control period, the Commission
in the Draft MYT Regulation, 2024, has proposed a separate norm for MSETCL,
AEML-T, TPC-T, JPTL, ATIL, MEGPTCL, VIPL-T and APTCL. The Commission
has also proposed the norms for new licensees similar to MSETCL, except for 765 kV
and 400 kV level which are similar to norms of MEGPTCL and JPTL respectively.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 105
6.8.24 The CERC has introduced the Norm for transformers in terms of INR Lakh per MVA
by allocating the existing substation related expenses, which was earlier accounted
within the Norms for Sub-station bays. The relevant extract from the CERC Approach
Paper, 2019 is as under:
6.8.25 The Commission notes that, the bifurcation of norms between substation (Per MVA)
and bays (Per No. of bays) under the substation assets would allow separate recovery
for substation and bays, to avoid excess O&M recovery through bays in case where,
there is an extension of bays in the substation, without any increase in MVA capacity.
6.8.26 Thus, the Commission while determining the O&M Norms for the Fifth Control Period,
under the Draft MYT Regulation, 2024, proposes to introduce the O&M norms to be
linked with Transmission line length (in ckt-km) and sub-station related assets (no. of
bays and the Transformation capacity in MVA).
6.8.27 Further, due unavailability of actual assets allocation between the substation and bays
the Commission has proposed to allocate the O&M expense of the substation assets in
50:50 between per no. of bays and per MVA Capacity, similar to the methodology
adopted by the CERC in Draft Tariff Regulation, 2024.
6.8.28 In addition to the above, considering the network configuration across Transmission
Licensees, it is proposed to continue to derive O&M norms for the following set of
voltage classes:
1. HVDC
2. 765 kV
3. 400 kV
4. Above 66 kV but lower than 400 kV (220 kV, 132 kV, 100 kV, 110 kV)
5. 66 kV and lower
6.8.29 However, in case of TPC-T, VIPL-T and AEML-T, due to their limited voltage levels
of operation, O&M norms are being specified only for the last two voltage levels
appearing in the above list, i.e., (a) Above 66 kV but lower than 400 kV and (b) 66 kV
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 106
and lower. Similarly, in case of JPTL, APTCL and ATIL, O&M norms are being
specified only for 400 kV level. Further, in case of other new Transmission Licensees,
O&M norms are proposed for all voltage levels.
Base Expenses
6.8.30 The Commission has considered Trued up O&M Expenses of three years of third
control period i.e., FY 2017-18 to FY 2019-20 and two years of forth control period i.e.
FY 2020-21 & FY 2021-22 for deriving the norms for Fifth Control Period. The FY
2017-18 and FY 2018-19 are considered to average out the impact of COVID-19 during
FY 2020-21 and FY 2021-22.
6.8.31 Further, the Commission while determining the Norm for the Fifth Control Period has
considered the net entitlement after sharing gains/losses based on the revised normative
O&M Expenses as approved by the Commission in the MYT and MTR Orders for FY
2017-18 to FY 2021-22, keeping in view that prudent O&M Expenses should be set as
Norm to ensure efficiency and performance in transmission licensees.
Escalation Factor
6.8.32 The MERC MYT Regulations, 2019 specifies the computation of inflation factor based
on Consumer Price Index (CPI) and Wholesale Price Index (WPI), which is applicable
for computation of O&M expenses for the transmission Licensees. For the fifth Control
Period the Commission has considered data for new series starting from 2011-12 of
WPI and CPI.
6.8.33 The yearly inflation factor computed by considering 30% weightage to the average
yearly inflation derived based on the monthly Wholesale Price Index of the respective
past five financial years as per the Office of Economic Advisor of Government of India
and 70% weightage to the average yearly inflation derived based on the monthly
Consumer Price Index for Industrial Workers (all-India) of the respective past five
financial years as per the Labour Bureau, Government of India.
6.8.34 FY 2019-20 derived norms in per ckt km, per bay and per MVA is then further escalated
by yearly CPI: WPI as 70:30 for FY 2020-21 (4.24%) and FY 2021-22 (5.06%). In
view of the impact of the COVID-19 pandemic on actual O&M expenses, it is felt that
before proceeding further with the determination of norms; the impact needs to be
nullified. Hence, average CPI and WPI of 5 year (From FY 2016-17 to FY 2020-21)
with 50% weightage inflation has been computed as 4.24%, which has been considered
to escalate the derived norms of FY 2021-22 to arrive at O&M norms for FY 2022-23,
FY 2023-24 and FY 2024-25. After arriving at the O&M norms for the base year ending
March 31, 2025, FY 2025-26 and onwards norms are determined considering previous
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 107
year escalation rate with efficiency factor. Where, efficiency factor is 1% of previous
year escalation rate.
The following inflation factors has been considered for computation of norms for the
next control period:
FY FY FY FY FY FY
2024-25 2025-26 2026-27 2027-28 2028-29 2029-30
CPI: WPI
4.24% 4.20% [4.24*(1-1%) = 4.20%] 4.16% 4.12% 4.08% 4.03%
(70:30)
6.8.35 The methodology for formulation of O&M norms for MSETCL, TPC-T, AEML-T,
JPTL, ATIL, MEGPTCL, VIPL-T and APTCL is elaborated as under:
(a) The net entitlement after sharing gains/losses of O&M expenses, based on the revised
normative and normalised actual O&M Expenses as approved by the Commission in the
MYT/MTR Orders have been considered for FY 2017-18 to FY 2021-22.
(b) For normalisation of the actual O&M expenses, the Commission has factored the
following expenses heads appropriately as below:
a. For JPTL, the A&G Expenses for FY 2020-21 excludes the write off tower
expense, as it is a one time in nature.
b. For MSETCL, impact of Wage Revision payment has been considered during
normalisation.
d. For TPC-T, energy charges are not considered during normalisation of FY 2018-
19 to FY 2021-22 for computing O&M Expenses norms for a license.
For other licensees, the net entitlement is considered after sharing of gain and losses
without any normalisation.
(c) The Transmission line length, and number of bays have been considered from the true
up MYT/MTR Orders and transformation capacity is considered based on data submitted
by licensees to the Commission for respective years.
(d) The year-wise O&M expenses (from FY 2017-18 to FY 2021-22) have been allocated
amongst substation assets and transmission line length in the ratio of existing asset base.
Further, due to unavailability of assets allocation between the substation and bays under
the substation assets, the Commission has proposed to allocate the O&M expense of the
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 108
substation assets in 50:50 between bays and MVA Capacity, like the methodology
adopted by the CERC in Draft Tariff Regulation, 2024 for every transmission licensee.
(e) Further, the Commission notes that ATIL, APTCL and VIPL-T does not have
transformer asset, so the Commission has proposed to allocate the O&M expense of
substation assets to bays only.
(f) Based on the above allocation to substation, bays and transmission lines, O&M expenses
per MVA (INR Lakh/MVA), per bays (INR Lakh/bay) and per circuit-km (INR
Lakh/ckt-km) have been computed for each year by dividing the O&M expenses for
lines/bays/substation with the total line length in km/total number of bays/MVA capacity
in respective years.
(g) During the computation of the weightage for GIS bays is considered as 0.7 of AIS bays.
Further, actual O&M expenses per ckt-km, per bays and per MVA as computed above
have been further allocated voltage-wise by assigning appropriate weightage factor as
considered by the Commission while deriving the norms for the MYT Regulations 2019.
(h) The norm for the next Control Period for various voltage classes has been derived based
on average of the norm derived for FY 2017-18 to FY 2021-22 in terms of INR Lakh/ckt-
km, INR Lakh/MVA and INR Lakh/bay for each Transmission Licensee.
(i) Further, the average norm so derived has been escalated by inflation factor as discussed
above to derive applicable O&M norm for respective years of the next Control Period.
6.8.36 The Commission, in the MYT Regulation 2019, has specified O&M norms for HVDC
in case of MSETCL Chandrapur-Padghe line on pro-rata basis for transmission line
length of Rihand-Dadri HVDC line, as specified by CERC in Tariff Regulations 2019.
However, CERC in the Draft MYT Regulations has proposed a single norm for HVDC
bipole schemes in INR Lakh/MW. Accordingly, the Commission has computed the
Norms for HVDC line of MSETCL in INR Lakh, considering the capacity of the line
as 1500 MW and has proposed to retain the earlier approach of applying the CERC
norm in the Draft MYT Regulations 2024.
6.8.37 Further, it is to be noted that the Control Period of CERC is FY 2024-25 to FY 2028-
29. Thus, the Commission has proposed to extend the norm for FY 2029-30 based on
the trend for the period of FY 2025-26 to FY 2028-29. Accordingly, the O&M norms
proposed for MSETCL, TPC-T, AEML-T, JPTL, ATIL, MEGPTCL, VIPL-T and
APTCL for the next Control Period are as under:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 109
Table: O&M Norms of MSETCL, TPC-T, AEML-T, JPTL, ATIL, MEGPTCL, VIPL-
T and APTCL
MSETCL Proposed
FY 2025- FY 2026- FY 2027- FY 2029-
Voltage Level FY 2028-29
26 27 28 30
INR Lakh/ckt km
HVDC (INR Lakh) 1,800 1,905 2,010 2,130 2,253
765 kV
400 kV 0.83 0.86 0.90 0.94 0.98
Less than 400kV and
0.32 0.34 0.35 0.37 0.38
greater than 66kv
66 kV and less 0.21 0.22 0.23 0.23 0.24
INR Lakh/Bay
765 kV 85.55 89.10 92.77 96.55 100.45
400 kV 61.10 63.65 66.27 68.97 71.75
Less than 400kV and
8.86 9.23 9.61 10.00 10.40
greater than 66kv
66 kV and less 1.83 1.91 1.99 2.07 2.15
INR Lakh/MVA
765 kV 0.29 0.30 0.31 0.32 0.34
400 kV 0.21 0.22 0.23 0.24 0.25
Less than 400kV and
0.14 0.15 0.16 0.16 0.17
greater than 66kV
66 kV and less 0.14 0.15 0.16 0.16 0.17
JPTL Proposed
FY 2025- FY 2026- FY 2027-
Voltage Level FY 2028-29 FY 2029-30
26 27 28
INR Lakh/ckt km
400 kV 0.55 0.57 0.59 0.62 0.64
INR Lakh/Bay
400kV 48.44 50.46 52.53 54.67 56.88
INR Lakh/MVA
400kV 0.09 0.09 0.10 0.10 0.10
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 110
TPC-T Proposed
Voltage Level FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30
INR Lakh/ckt km
220kV 7.28 7.58 7.89 8.21 8.55
132kV 7.28 7.58 7.89 8.21 8.55
INR Lakh/Bay
above 66 kV and less
17.25 17.97 18.71 19.47 20.26
than 400 kV
66 kV and less 3.57 3.72 3.87 4.03 4.19
INR Lakh/MVA
above 66 kV and less
0.42 0.44 0.46 0.48 0.49
than 400 kV
66 kV and less 0.42 0.44 0.46 0.48 0.49
AEML-T Proposed
Voltage Level FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30
INR Lakh/ckt km
220kV 0.81 0.84 0.88 0.91 0.95
INR Lakh/Bay
220kV 26.19 27.28 28.41 29.56 30.76
33kV 5.42 5.64 5.88 6.12 6.36
INR Lakh/MVA
220kV 0.57 0.59 0.62 0.64 0.67
33kV 0.57 0.59 0.62 0.64 0.67
MEGPTCL Proposed
Voltage Level FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30
INR Lakh/ckt km
765kV 1.36 1.42 1.48 1.54 1.60
400 kV 0.97 1.01 1.05 1.10 1.14
INR Lakh/Bay
765kV 118.84 123.78 128.88 134.13 139.54
400 kV 84.89 88.42 92.06 95.81 99.67
INR Lakh/MVA
765 Kv 0.58 0.60 0.62 0.65 0.68
400kV 0.42 0.44 0.46 0.47 0.49
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 111
VIPL-T Proposed
Voltage Level FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30
INR Lakh/ckt km
220kV 3.37 3.51 3.66 3.81 3.96
INR Lakh/Bay
220kV 20.34 21.18 22.05 22.95 23.88
APTCL Proposed
FY 2025- FY 2026- FY 2028-
Voltage Level FY 2027-28 FY 2029-30
26 27 29
INR Lakh/ckt km
400 kV 0.51 0.53 0.55 0.57 0.60
INR Lakh/Bay
400 kV 167.75 174.73 181.92 189.33 196.97
6.8.38 As discussed above the O&M norms for the new transmission licensee are based on
norms specified for MSETCL, except for 765 kV lines & 400 kV lines, bays and
substation which is based on norms of MEGPTCL & JPTL respectively.
6.8.39 For the HVDC line, the Commission has proposed O&M norm for HVDC station as
proposed by the CERC in Draft Tariff Regulations, 2024 in INR Lakh/MW for HVDC
back-to-back station and HVDC bipole scheme. If any HVDC line commissions during
the fifth control period having different technology, the Commission may determine
the separate norms for such line on case-to-case basis in accordance with these
Regulations.
6.8.40 The following are the applicable norms for New Licensees for the next Control Period:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 112
Table 12: O&M Norms of new Transmission Licensees commissioned after April 1,
2025
FY FY FY FY FY
Voltage Level
2025-26 2026-27 2027-28 2028-29 2029-30
HVDC Station*
HVDC Back-to-Back stations (INR Lakh per MW) 2.15 2.27 2.41 2.55 2.70
HVDC bipole scheme (INR Lakh per MW) 1.13 1.20 1.27 1.34 1.42
INR Lakh/ckt km
765 kV 1.36 1.42 1.48 1.54 1.60
400 kV 0.55 0.57 0.59 0.62 0.64
Less than 400 kV and greater than 66 kV 0.32 0.34 0.35 0.37 0.38
66 kV and less 0.21 0.22 0.23 0.23 0.24
INR Lakh/Bay
765 kV 85.55 89.10 92.77 96.55 100.45
400 kV 48.44 50.46 52.53 54.67 56.88
Less than 400 kV and greater than 66 kV 8.86 9.23 9.61 10.00 10.40
66 kV and less 1.83 1.91 1.99 2.07 2.15
INR Lakh/MVA
765 kV
400 kV 0.29 0.30 0.31 0.32 0.34
Less than 400 kV and greater than 66 kV 0.21 0.22 0.23 0.24 0.25
66 kV and less 0.09 0.09 0.10 0.10 0.10
6.9.1 As per CEA Guidelines for Distribution Utilities for development of Distribution
Infrastructure, 2018 explains about Life Cycle Cost (LLC) Comparison between AIS
and GIS substations as under:
“3. The initial capital investment is more in GIS as compared to AIS / Hybrid but
due to less maintenance cost over the years, the overall higher initial cost can be
recovered in subsequent years through savings in maintenance cost of GIS S/S.
However, after considering the less requirement of land cost, the difference in
initial capital cost of GIS and AIS is very less now a days. Also, for evaluation of
overall substation project cost, the Life Cycle Cost (LCC)should be considered,
including primary hardware cost, maintenance cost, operation cost, outage cost
and disposal costs etc.”
6.9.2 Further, in the same guidelines, CEA has also evaluated the life cycle assessment for
GIS and AIS as below:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 113
Table 13: Typical LLC Evaluation of AIS and GIS
Air Insulated Hybrid Gas Insulated
Life Cycle Cost
Substation (AIS) Substation Substation (GIS)
6.9.3 From the above table, the Commission notes that the maintenance expenses for GIS are
50% of AIS. Further, CERC in the draft Regulations has also retained the provision of
O&M Norms for GIS as 0.7 of AIS.
Thus, the Commission in this view, has proposed to retain the provision of MYT
Regulations, 2019 in the Draft MERC MYT Regulations 2024.
6.10 Separate norms for O&M Expenses
6.10.1 The Commission during the MTR Orders noted that some the Transmission Licensees
have not been spending enough on Repairs & Maintenance, on account of various
reasons, and are diverting the funds allocated to R&M to employee expenses and A&G
expenses or vice versa as shown in the graphs below:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 114
Figure 1: % allocation of Emp, R&M and A&G in O&M across the years
6.10.2 The Commission notes that, it will be difficult to benchmark the utilisation of O&M
Expenses under each head for the transmission licensees, considering the differences
exist in O&M activities in terms of network configuration at different voltage levels.
6.10.3 Thus, the Commission is of the view that to maintain the quality of supply to consumers,
an optimum R&M expenses are essential and has hence, proposed to add the following
proviso for the Minimum contribution of R&M Expenses to 20% of total O&M
Expenditure:
“79.11. Within the O&M expenses, the expenditure on Repairs & Maintenance shall
be minimum 20% of the total O&M expenses.
Provided that, if the expenses on R&M falls below 20% of total O&M expenses
allowed under these Regulations, then such savings in R & M shall not be set off
against other heads of O&M expenses:
Provided also that this minimum limit of R&M shall not be applicable for
Transmission Licensee for the first five years after commencement of operations as a
Transmission Licensee.”
6.10.4 Further, the Commission in the Capex Regulations, 2022 has allowed capital
investment under R&M separately, which would certainly, increases the expenses
under the R&M in the next control period.
6.11.1 Regulation 2.1 (87) of MERC MYT Regulations, 2019 specifies the definition for the
Transmission System User as below:
(87)“Transmission System User” for the purpose of these Regulations means the
Distribution Licensees and long-term Open Access Users, but excludes partial Open
Access Users;
6.11.2 In view of above, POA consumers are not TSUs. However, the Commission notes that
POA consumers need to pay the transmission charges as well as they have to share TCR
to the extent of their demand. Hence, demand of partial OA consumers’ needs to be
included in the demand of Distribution Licensees as they are connected to the network
of Distribution Licensee.
6.11.3 Further, POA consumers availing STOA are liable to pay transmission charges. Thus,
if POA consumers’ demand is excluded from the demand of Distribution Licensee then
they will not contribute to Base TCR and in turn to transmission charges. Thus, the
Commission in Draft MYT Regulation 2024, proposes to modify the provisions of
MYT Regulation 2019 as under:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 115
“2.1. (100). Transmission System User” for the purpose of these Regulations means
the Distribution Licensees and long-term Open Access Users;
82.2 ……
Provided further that the Allotted Capacity for long-term Open Access Users shall be
considered in lieu of the average monthly CPD and NCPD for calculating the Base
Transmission Capacity Rights:
“83.2 ……
Provided that the Allotted Capacity for long-term Open Access Users, shall be
considered in lieu of the average monthly CPD and NCPD for calculating the Base
TCR for such Open Access Users:”
6.11.4 Also, the Commission notes that as per the prevailing transmission pricing framework
TTSC of InSTS is the result of capital investment made by all the Transmission
Licensees to meet the demand of TSUs as a pool. As per principles of pooled ARR,
such TTSC is shared by all the consumers of Maharashtra, irrespective of calculating
the benefits to the consumers of particular TSU. It means capital investment made by
MSETCL is shared by all the consumers of Maharashtra including MSEDCL, AEML-
D, TPC-D, BEST etc. The demand of POA consumers for transmission usage and units
consumed by them are catered by InSTS network.
6.11.5 Accordingly, the Commission harmonises the provisions of MERC Draft MYT
Regulations, 2024 and MERC DOA Regulations 2016 and its amendment, as under in
the proposed Draft MYT Regulation 2024:
“83.1. The long-term Transmission System Users shall share the TTSC of the intra-
State transmission system in the proportion of Base Transmission Capacity Rights
of each Transmission System User to the total Base Transmission Capacity Rights
allotted in the intra-State transmission system.
Provided that a Partial Open Access Consumer shall pay the Transmission
Charges to the Distribution Licensee instead of the Transmission Licensee for
using a transmission network which shall be passed on to the STU within the
stipulated time period as specified under Regulations 14.5 of MERC Distribution
Open Access Regulation, 2016 and its amendment thereof.”
6.12 Billing and Payment of InSTS Charges
6.12.1 As per the provision of the Maharashtra Green Hydrogen Policy, 2023, as notified by
Government of Maharashtra dated 17 October 2023, which envisaged promotion of
production of Green hydrogen from Renewable Energy Sources in the state. Further,
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 116
the policy states that the green hydrogen projects in the state shall be entitled for rebate
on InSTS charges.
6.12.2 Accordingly, the Commission in MERC Draft MYT Regulations, 2024 is proposing
the waiver in the InSTS charges for the consumers engaged in the manufacturing of
Green Hydrogen using RE Sources as under:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 117
7 Distribution Wires Business
7.1 Objective
7.1.1 The MYT Regulations, 2019 provides the principles for the determination of the
Operation & Maintenance (O&M) Expenses and determination of Wheeling Charges
& Losses.
7.1.2 This chapter will cover the new aspects proposed to be implemented under the Wires
Business of Electricity in the State of Maharashtra covering the following new
proposals:
7.2.2 The Regulation 74 of the MYT Regulations, 2019 provides the Distribution Licensee
to submit is ‘Capital Investment Plan’ as part of the MYT Petition for the entire Control
Period. The Commission in the Draft MYT Regulations, 2024 proposes to link the
MERC (Approval of Capital Investment Schemes) Regulations, 2022, as the governing
Regulations for the in-principal approval of the ‘Capital Investment Schemes’ proposed
by the Distribution Licensee as part of the ‘Capital Investment Plan’ for its Wires
Business for the entire 5th Control Period.
7.2.3 In addition, as discussed, under the General Section above, the Commission has
proposed to take-up the True-up process of the 5th Control Period at the time of the
MYT filing process for the next Control Period.
7.2.4 Accordingly, the following clauses are proposed in the Draft MYT Regulations, 2024:
“91.1 ….
Provided that all the Capital Investment Schemes forming part of the Capital
Investment Plan proposed by the Distribution Licensee for its Wires Business shall be
submitted and in-principally approved first in lines with the provisions defined under
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 118
the MERC (Approval of Capital Investment Schemes) Regulations, 2022 and its
amendments thereof.
91.4 The Commission shall consider the Capital Investment Plan along with the Multi-
Year Aggregate Revenue Requirement for the entire Control Period submitted by the
Distribution Licensee taking into consideration the prudence of the proposed
expenditure and estimated impact on Wheeling Charges.
91.5 The Distribution Licensee shall submit, along with the Petition for determination
of Wheeling Charges, details showing the progress of capital expenditure projects,
together with such other information, particulars or documents as the Commission may
require to assess such progress.”
7.3 Operation and Maintenance Expenses
7.3.2 The MERC MYT Regulations, 2011 specified the Normative O&M Expenses for
second Control Period. However, the subsequent MYT Regulations viz. 2015 & 2019
specifies the principles for allowing the O&M Expenses instead of Normative O&M
over the respective Control Period. These principles considers the average of the past
year O&M expenses, after adding/deducting the sharing of efficiency gains/losses, as
Base Year expenses, which shall be escalated by an inflation factor with 30% weightage
to the average yearly inflation derived based on the monthly WPI of the past five
financial years as per the Office of Economic Advisor of Government of India and 70%
weightage to the average yearly inflation derived based on the monthly CPI for
Industrial Workers (all-India) of the past five financial years as per the Labour Bureau,
Government of India. The inflation rate thus derived shall be reduced by an efficiency
factor of 1% or as may be stipulated by the Commission from time to time.
7.3.3 The O&M Norms specified MYT Regulations, 2011, were common across all the
Distribution Licensees derived in terms of Sales, Gross Fixed Assets & Number of
Consumers, for each Financial Year (FY) of the Control Period. O&M Expenses where
escalated by considering factor of WPI & CPI and applying it on the input parameters
viz. Employee, A&G and R&M expenses. However, this was not depicting the correct
derivation of the O&M Expenses required by the Distribution Utility. The O&M
expenses in terms of Distribution Wire Business is primarily linked to the consumers
being served, followed by the infrastructure viz. Gross Fixed Assets (GFA) being used
by the respective Distribution Licensee. Thus, linking the O&M expenses with the
consumer and GFA growth would result in derivation of the Output based norms.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 119
7.3.4 Thus, the Commission hereby proposes to provide the output-based O&M norms for
each licensee instead of common norms, considering that, every licensee have its own
GFA and consumers base, which grows based on the services provided by the Licensee
in its area of supply. Such growth in GFA and consumer base are specific for each
licensee operating in the State of Maharashtra.
7.3.5 To propose the norms, the Commission has observed the following growth in the GFA
& Consumer base for the respective licensees:
No. of Consumers
5Y
Particulars FY18 FY19 FY20 FY21 FY22
CAGR
MSEDCL 2,54,84,372 2,66,05,683 2,77,84,429 2,84,67,894 2,88,73,382 3.17%
TPC-D 7,85,227 7,00,990 7,19,998 7,29,328 7,42,098 -1.40%
AEML-D 23,86,911 24,56,084 24,70,990 24,86,761 25,06,885 1.23%
BEST 10,49,387 10,36,694 10,39,939 10,44,368 10,46,713 -0.06%
MBPPL 118.00 135.00 143.00 139.00 131.00 2.65%
GEPL 75.00 75.00 91.00 86.00 91.00 4.95%
7.3.6 To derive the norms, the Commission has considered the following steps:
Step 1:
• Approved O&M Expenses post considering the sharing of Gains/losses and impact of
wage revision from FY 2017-18 to FY 2021-22 are considered.
• Such approved O&M expenses is then allocated into Wires & Retail Supply Business
in the ratio of 65:35, where in case of Distribution Wires Business 65% of the total
O&M Expenses are allocated.
Step 2:
• The allocated O&M Expenses for the Wires Business is further allocated in the ratio of
10:90, where 10% share corresponds to consumer growth, while remaining 90% share
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 120
corresponds to GFA growth, which has significantly higher share in the overall GFA
of the Distribution Business.
• Such allocated share is further linked with the number of consumers and average GFA
approved for FY 2017-18 to FY 2021-22 and the actual norms in INR Lakh/’000
Consumers and % of GFA for (Distribution Wires Business) is derived. In case of
Deemed SEZs viz. MBPPL, GEPL & KRCIPPL, the number consumers are in the range
of hundreds, thus, the norms linked with number of consumers are derived in case of
Deemed SEZs as INR Lakh/100 Consumers.
Step 3:
• Such derived norms are then averaged, which is then further adjusted with the y-o-y
1% efficiency factor from FY 2025-26 to FY 2029-30.
7.3.7 In case of the Deemed Distribution Licensee, who are yet to get fully operationalised
in terms of their expected Demand to serve and Deemed Distribution Licensees, whose
tariff is yet to be determined by the Commission, the O&M Expenses shall be
determined on case-to-case basis at the time of MYT approval process.
7.3.8 The MYT Regulations, 2019 provides for the approval of impact of Wage Revision, if
any, at the time of true-up for any Year, based on documentary evidence and
justification to be submitted by the Petitioner. However, since, the O&M norms are
being derived after consideration of the Wage Revision impact, the Commission in the
Draft MYT Regulations, 2024 proposes that, impact of wage revision shall not be
allowed over and above the normative O&M expenses allowed by the Commission.
7.3.9 The Commission further proposes to continue with the provision of maintaining R&M
as 20% of the total approved O&M Expenses as provided in the MYT Regulations,
2019.
7.3.10 Accordingly, the Commission proposes the following O&M Norms for the Retail
Supply Business in the Draft MYT Regulations, 2024:
“92.1 The Distribution Licensees shall be permitted to recover Operation and
Maintenance expenses relating to the Distribution Wires Business as specified in the
norms below for each year of the Control Period:
Explanation: For the purpose of applying normative O&M expenses with respect to
Gross Fixed Assets (GFA) growth under these Regulation, the average GFA pertaining
to Distribution Wires Business (in INR Crore) shall be multiplied by the O&M Norms
in terms of “percentage of Average GFA”, for the respective years.
For applying normative O&M expenses with respect to Consumer’s growth, the O&M
Norms in terms of “INR Lakhs/’000 Consumers” or “INR Lakhs/’00 Consumers” (in
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 121
case of Deemed Distribution Licensees) shall be multiplied by the total Wheeling
Consumers inclusive of full Open Access Consumers, if any, of the Distribution Wires
Business.
Provided that the Partial Open Access consumers are embedded within the Wheeling
Consumers of the Distribution Wires Business, hence, no separate addition of such
Partial Open Access consumers will be allowed to avoid double accounting:
Provided further that the Distribution Licensee shall submit the details of its consumer
base having the break-up of its direct consumers, Partial Open Access consumers and
Full Open Access consumers for the respective years at the time of filing MYT Petition
for Distribution Wires Business:
MSEDCL FY 26 FY 27 FY 28 FY 29 FY 30
O&M (% of Average GFA – Wires) 8.20% 8.12% 8.03% 7.95% 7.87%
O&M (INR Lakhs/’000 Consumers) 1.60 1.58 1.57 1.55 1.53
TPC-D FY 26 FY 27 FY 28 FY 29 FY 30
O&M (% of Average GFA – Wires) 4.88% 4.83% 4.78% 4.73% 4.69%
O&M (INR Lakhs/’000 Consumers) 1.89 1.87 1.86 1.84 1.82
AEML-D FY 26 FY 27 FY 28 FY 29 FY 30
O&M (% of Average GFA – Wires) 12.02% 11.90% 11.78% 11.66% 11.55%
O&M (INR Lakhs/’000 Consumers) 3.28 3.24 3.21 3.18 3.15
BEST FY 26 FY 27 FY 28 FY 29 FY 30
O&M (% of Average GFA – Wires) 13.34% 13.20% 13.07% 12.94% 12.81%
O&M (INR Lakhs/’000 Consumers) 3.44 3.41 3.38 3.34 3.31
MBPPL FY 26 FY 27 FY 28 FY 29 FY 30
O&M (% of Average GFA – Wires) 5.84% 5.78% 5.73% 5.67% 5.61%
O&M (INR Lakhs/’00 Consumers) 22.48 22.26 22.04 21.82 21.60
GEPL FY 26 FY 27 FY 28 FY 29 FY 30
O&M (% of Average GFA – Wires) 4.68% 4.64% 4.59% 4.54% 4.50%
O&M (INR Lakhs/’00 Consumers) 14.63 14.48 14.34 14.19 14.05
KRCIPPL FY 26 FY 27 FY 28 FY 29 FY 30
O&M (% of Average GFA – Wires) 2.54% 2.52% 2.49% 2.47% 2.44%
O&M (INR Lakhs/’00 Consumers) 7.86 7.78 7.70 7.62 7.55
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 122
Provided that in case of the Distribution Licensee or the Deemed Distribution Licensee
whose tariff is yet to be determined by the Commission till coming into force of these
Regulations, the Commission may determine the O&M Norms on case-to-case basis.
92.2 The impact of wage revision shall not be allowed over and above the O&M
expenses approved by the Commission.
92.3 In case the expenditure on Repairs & Maintenance falls below 20% of total O&M
expenses allowed under these Regulations, then such savings in Repairs &
Maintenance shall not be set off against other heads of O&M expenses:
Provided that this limitation shall not be applicable for Deemed Distribution Licensees
for the first five years after commencement of operations as a Distribution Licensee.
92.4 A Distribution Licensee may undertake Opex schemes for system automation, new
technology and IT implementation, etc., and such expenses may be allowed over and
above normative O&M Expenses, subject to prudence check by the Commission:
Provided that the Distribution Licensee shall submit detailed justification, cost benefit
analysis, and life-cycle cost analysis of such schemes as against capex schemes, and
savings in O&M expenses, if any.
92.5 The Commission may consider any request for revision of the normative O&M
expenses of the Distribution Licensee on account of consideration of some Schemes
under O&M rather than Capital Investment on case-to-case basis, depending on the
justification to be submitted by the Applicant and the life-cycle cost analysis:
Provided that if actual O&M expenses are lower than normative O&M expenses on this
account, then no sharing of efficiency gains shall be done to that extent:”
7.4 Wheeling Charges
7.4.1 The Ministry of Power vide its Electricity (Second Amendment) Rules, 2024, dated 17
January 2024 has provided the formula for the determination of Wheeling Charges. The
relevant extract of the referred rules is provided as under:
“(1) Wheeling charges – Wheeling charges shall be computed as per following
formula:
𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡 𝑡𝑜𝑤𝑎𝑟𝑑𝑠 𝑤ℎ𝑒𝑒𝑙𝑖𝑛𝑔
Wheeling Charge = 𝐸𝑛𝑒𝑟𝑔𝑦 𝑊ℎ𝑒𝑒𝑙𝑒𝑑 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 123
7.4.2 The Commission in its every Tariff Order for the Distribution Wires Business has been
separately determining the Wheeling Charges for the different voltage levels since FY
2015-16 onwards. The mechanism for the determination of such Wheeling Charges is
also in lines with the formula provided under the MoP’s Rules referred above. However,
in compliance to the MoP’s rules, the Commission proposes to add New Regulation for
the determination of Wheeling Charges, for bringing in more clarity.
7.4.3 Further, the Commission had issued the “Guidelines for allocation of assets and cost at
different voltage levels of distribution” on 21 July 2022 with a following objectives:
• “To design a uniform methodology of allocation of assets and cost to Wire and
Supply Business and subsequently the network / wire costs allocated into EHT,
HT and LT voltages;
7.4.4 The Commission as part of the information query to all the Distribution Licensees
sough the details of the Voltage Assets allocation based on the set excel format.
However, no such details were provided by the Distribution Licensee neither the reason
for submission of such details was provided by any of the Distribution Licensees. Thus,
to determine the correct wheeling charges are different voltage levels, the Commission
has included the guidelines as Annexure III to the Draft MYT Regulations, 2024 and
proposed the additional proviso mandating all the Distribution Licensees to submit its
voltage wise assets allocations in accordance with the methodology provided under the
referred guidelines.
7.4.5 Accordingly, the Commission proposes the following new Regulations for the
Wheeling Charges under the Distribution Wires Business of Draft MYT Regulations,
2024:
“96.1 The Commission shall determine the Wheeling Charges for High Tension (HT) and Low
Tension (LT) voltage level for the Distribution Wires Business in terms of the following
formula:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 124
Where,
𝑊𝐴𝑅𝑅 (𝐻𝑇) = ARR of Distribution Wires Business pertaining to HT level in INR Crore.
Where,
𝑊𝐴𝑅𝑅 (𝐿𝑇) = ARR of Distribution Wires Business pertaining to LT level in INR Crore.
Provided that in case the Commission adopts the kVAh based Tariff at LT level, the Wheeling
Charges for LT Consumers shall then be determined in INR/kVAh.
96.2 The Distribution Licensee shall submit the actual allocation of its voltage wise assets in
accordance with the Commission’s notified Guidelines for allocation of assets and cost at
different voltage levels of distribution, dated 21 July 2022 (annexed as Annexure III), as part
of its Tariff Petition:
Provided that the Annual Revenue Requirement of the Distribution Wires Business pertaining
to HT and LT voltage level may be allocated by considering such actual voltage wise asset
details submitted by the Distribution Licensee.
96.3 In case more than one distribution licensees are operating within the specified geographic
area out of distribution licence area, the Commission may determine uniform wheeling charge
at different voltage level for the use of distribution wires by users/consumers of distribution
wire business within the same geographic area, as per the following formula:
Where,
WHTn = ARR of the nth Distribution Wires Business pertaining to HT level in INR Crore
Where,
WLTn = ARR of the nth Distribution Wires Business pertaining to LT level in INR Crore
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 125
EWLT−Dn = Projected Wheeling Energy pertaining to LT level of nth Distribution Wires
Business in MU or MkVAh, as the case may be.
Provided that the Commission shall stipulate the modalities for operationalisation of the
Uniform Wheeling Charge and Uniform Wheeling Loss through separate Order or Practice
Directions from time to time, as may be necessary.
96.4 The development of distribution wire network in case of more than one Distribution
Licensee catering to the same geographic area shall be guided through competitive framework,
as far as practicable and principles for development of distribution network shall be outlined
through separate Order or practice directions by the Commission from time to time.
96,5 The settlement of the Uniform Wheeling Charges on monthly basis to the extent of the
consumers wheeling energy from the wires of the other Distribution Licensee, shall be ensured
amongst the Distribution Licensees.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 126
8 Retail Supply of Electricity
8.1 Objectives
8.1.1 The MYT Regulations, 2019 provides the methodology for the determination of the
Operation & Maintenance (O&M) Expenses and determination of consumer category-
wise Retail Supply Tariff based on the Average Cost of Supply (ACoS) with gradual
reduction in Cross-Subsidy.
8.1.2 This chapter will cover the new aspects proposed to be implemented under the Retail
Supply Business of Electricity in the State of Maharashtra covering the following new
proposals:
8.2.1 Following ARR components for the Retail Supply of Electricity are provided under the
MYT Regulations, 2019:
“81.1 The Tariff for retail supply of the Distribution Licensee shall provide for the
recovery of the Aggregate Revenue Requirement of the Retail Supply Business for the
respective Years of the Control Period, as approved by the Commission and comprising
the following components:
(f) Depreciation;
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 127
(l) Return on Equity Capital;
(o) Income from Other Business, to the extent specified in these Regulations;
8.2.2 The Commission in this Draft MYT Regulations, 2024 proposes to introduce and
implement the ‘Supply Margin’. The ‘Supply Margin’ is proposed to replace the
‘Return on Equity’ of the Retail Supply Business, which is the one of the components
of the Retail Supply Business ARR.
8.2.3 The following clauses are proposed in the Draft MYT Regulations, 2024:
“99.1 The Tariff for retail supply of the Distribution Licensee shall provide for the
recovery of the Aggregate Revenue Requirement of the Retail Supply Business for the
respective Years of the Control Period, as approved by the Commission and comprising
the following components:
(f) Depreciation;
(g) Interest on Loan Capital;
minus:
Provided also that the Distribution Licensee shall maintain separate details of such
penalties and compensation paid or payable by the Licensee, if any, and shall submit
them to the Commission along with its Petition.”
8.2.4 The third proviso of Regulation 81.2 of the MYT Regulations, 2019 provides for the
determination of area-wise Tariff for Distribution Licensee based on the performance
parameters as may be stipulated by the Commission. The Commission in this draft
MYT Regulations, 2024 is proposing to move towards implementation of the Ceiling
Tariff in case of Parallel Distribution licensee operations, to introduce the retail supply
competition in letter and spirit as per the provisions of the Electricity Act, 2003.
8.2.5 The following new proviso is proposed in the Draft MYT Regulations, 2024:
“99.2 The Tariff for retail supply by the Distribution Licensee shall be determined by
the Commission on the basis of a Petition for determination of Tariff filed by the
Distribution Licensee in accordance with Part B of these Regulations:
Provided that the Aggregate Revenue Requirement of the Distribution Licensee shall
be allocated or apportioned between the Distribution Wires Business and Retail Supply
Business in accordance with the provisions of Regulation 88:
Provided further that the Tariff for retail supply may comprise any combination of
fixed/demand charges, energy charges, and any other charges, for the purpose of
recovery from the consumers, as may be stipulated by the Commission:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 129
Provided also that the Commission may determine the area-wise Tariff for Distribution
Licensee based on the performance parameters as may be stipulated by the
Commission:
Provided also that in case of a Deemed Distribution Licensee whose tariff is yet to be
determined by the Commission till the date of coming into effect of these Regulations,
the Commission may determine the ceiling Tariff for retail supply that may be charged
by such Distribution Licensee till such time as considered appropriate by the
Commission.”
8.3.1 The Commission has notified its MERC (Approval of Capital Investment Schemes)
Regulations, 2022 on 12 July 2022. This Regulation aims to lay down the framework
to be followed by all State entities for obtaining the Commission’s in-principal approval
for proposed Capital Investment as well as the approval to be granted to the final
completed cost.
8.3.2 The Regulation 83 of the MYT Regulations, 2019 provides the Distribution Licensee
to submit is ‘Capital Investment Plan’ as part of the MYT Petition for the entire Control
Period. The Commission in the Draft MYT Regulations, 2024 proposes to link the
MERC (Approval of Capital Investment Schemes) Regulations, 2022, as the governing
Regulations for the in-principal approval of the ‘Capital Investment Schemes’ proposed
by the Distribution Licensee as part of the ‘Capital Investment Plan’ for its Retail
Supply Electricity Business for the entire 5th Control Period.
8.3.3 Further, as discussed in the General Section of the Explanatory Memorandum, the
Commission has proposed to drop the MTR Process and undertake the True-up at the
end of the 5th Control Period alongwith the filing of MYT tariff Petition for 6th Control
Period.
8.3.4 Accordingly, the following clauses are proposed in the Draft MYT Regulations, 2024:
“101.1 The Distribution Licensee shall submit a detailed Capital Investment Plan,
financing plan and physical targets for each Year of the Control Period for meeting the
requirement of growth in number of consumers, reduction in distribution losses,
metering, etc., to the Commission for approval, as a part of the Multi-Year Tariff
Petition for the entire Control Period.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 130
101.2 The Capital Investment Plan shall be a least cost plan for undertaking
investments and shall cover all capital expenditure projects of a value exceeding INR
One Crore or such other amount as may be stipulated by the Commission and shall be
in such form as may be stipulated by the Commission from time to time.
Provided that all the Capital Investment Schemes forming part of the Capital
Investment Plan proposed by the Distribution Licensee for its Retail Supply Business
shall be submitted and in-principally approved first in lines with the provisions defined
under the MERC (Approval of Capital Investment Schemes) Regulations, 2022 and its
amendments thereof.
101.4 The Commission shall consider the Capital Investment Plan along with the Multi-
Year Aggregate Revenue Requirement for the entire Control Period submitted by the
Distribution Licensee taking into consideration the prudence of the proposed
expenditure and estimated impact on the Tariff for retail supply of electricity.
101.5 The Distribution Licensee shall submit, along with the Petition for determination
of the Tariff for retail supply of electricity, details showing the progress of capital
expenditure projects, together with such other information, particulars or documents
as the Commission may require in assessing such progress.
Provided that in case the Commission adopts the Ceiling Tariff in the common area of
supply, the Distribution Licensees shall still submit its ARR application for the retail
supply of electricity showing the progress of capital expenditure projects, together with
such other information, particulars or documents as the Commission may require to
assess such progress.”
8.4 Operation and Maintenance Expenses
8.4.2 The MERC MYT Regulations, 2011 specified the Normative O&M Expenses for
second Control Period. However, the subsequent MYT Regulations viz. 2015 & 2019
specifies the principles for allowing the O&M Expenses instead of Normative O&M
over the respective Control Period. These principles considers the average of the past
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 131
year O&M expenses, after adding/deducting the sharing of efficiency gains/losses, as
Base Year expenses, which shall be escalated by an inflation factor with 30% weightage
to the average yearly inflation derived based on the monthly WPI of the past five
financial years as per the Office of Economic Advisor of Government of India and 70%
weightage to the average yearly inflation derived based on the monthly CPI for
Industrial Workers (all-India) of the past five financial years as per the Labour Bureau,
Government of India. The inflation rate thus derived shall be reduced by an efficiency
factor of 1% or as may be stipulated by the Commission from time to time.
8.4.3 The O&M Norms specified MYT Regulations, 2011, were common across all the
Distribution Licensees derived in terms of Sales, Gross Fixed Assets & Number of
Consumers, for each Financial Year (FY) of the Control Period. O&M Expenses where
escalated by considering factor of WPI & CPI and applying it on the input parameters
viz. Employee, A&G and R&M expenses. However, this was not depicting the correct
derivation of the O&M Expenses required by the Distribution Utility. The O&M
expenses in terms of Distribution Retail Supply Business is primarily linked to the
consumers being served, followed by the infrastructure viz. Gross Fixed Assets (GFA)
being used by the respective Distribution Licensee. Thus, linking the O&M expenses
with the consumer and GFA growth would result in derivation of the Output based
norms.
8.4.4 In view of the above, the Commission in this Draft MERC MYT Regulations, 2024
proposes the output-based O&M norms for each licensee instead of common norms,
considering that, every licensee have its own GFA and consumers base, which grows
based on the services provided by the Distribution Licensee in its area of supply. Such
growth in GFA and consumer base are specific for each licensee operating in the State
of Maharashtra.
8.4.5 To propose the norms, the Commission has noted the growth in the GFA & Consumer
base for the respective licensees, which is provided under Para. 7.3.5 above.
8.4.6 To derive the norms, the Commission has considered the following steps:
Step 1:
• Approved O&M Expenses post considering the sharing of Gains/losses and impact of
wage revision from FY 2017-18 to FY 2021-22 are considered.
• Such approved O&M expenses is then allocated into Wires & Retail Supply Business
in the ratio of 65:35, where in case of Retail Supply Business 35% of the total O&M
Expenses are allocated.
Step 2:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 132
• The allocated O&M Expenses for the Retail Supply Business is further allocated in the
ratio of 90:10, where 90% share corresponds to consumer growth, while remaining 10%
share corresponds to GFA growth, since the major infrastructure in the Retail Supply
Business is metering and billing infrastructure, which has significantly lower share in
the overall GFA of the Distribution Business.
• Such allocated share is further linked with the number of consumers and average GFA
approved for FY 2017-18 to FY 2021-22 and the actual norms in INR Lakh/’000
Consumers and % of GFA for (Retail Supply Business) is derived. In case of Deemed
SEZs viz. MBPPL, GEPL & KRCIPPL, the number consumers are in the range of
hundreds, thus, the norms linked with number of consumers are derived in case of
Deemed SEZs as INR Lakh/100 Consumers.
Step 3:
• Such derived actual norms are then averaged, which is then further adjusted with the y-
o-y 1% efficiency factor from FY 2025-26 to FY 2029-20.
8.4.7 In case of the Deemed Distribution Licensee, who are yet to get fully operationalised
in terms of their expected Demand to serve and Deemed Distribution Licensees, whose
tariff is yet to be determined by the Commission, the O&M Expenses shall be
determined on case-to-case basis at the time of MYT approval process.
8.4.8 The MYT Regulations, 2019 provides for the approval of impact of Wage Revision, if
any, at the time of true-up for any Year, based on documentary evidence and
justification to be submitted by the Petitioner. However, since, the O&M norms are
being derived after consideration of the Wage Revision impact, the Commission in the
Draft MYT Regulations, 2024 proposes that, impact of wage revision shall not be
allowed over and above the normative O&M expenses allowed by the Commission.
8.4.9 The Commission further proposes to continue with the provision of maintaining R&M
as 20% of the total approved O&M Expenses as provided in the MYT Regulations,
2019.
8.4.10 Accordingly, the Commission proposes the following O&M Norms for the Retail
Supply Business in the Draft MYT Regulations, 2024:
“102.1 The Distribution Licensees shall be permitted to recover Operation and
Maintenance expenses relating to the Retail Supply of electricity as specified in the
norms below for each year of the Control Period:
Explanation: For the purpose of applying normative O&M expenses with respect to
Gross Fixed Assets (GFA) growth under these Regulation, the average GFA pertaining
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 133
to Retail Supply Business (in INR Crore) shall be multiplied by the O&M Norms in
terms of “percentage of Average GFA”, for the respective years.
For applying normative O&M expenses with respect to Consumer’s growth, the O&M
Norms in terms of “INR Lakhs/’000 Consumers” or “INR Lakhs/’00 Consumers” (in
case of Deemed Distribution Licensees) shall be multiplied by the total Retail Supply
Consumers, if any, of the Retail Supply Business.
Provided that the Partial Open Access consumers are embedded within the Retail
Supply Consumers of the Retail Supply Business, hence, no separate addition of such
Partial Open Access consumers will be allowed to avoid double accounting:
Provided further that the Distribution Licensee shall submit the details of its consumer
base having the break-up of its direct consumers, Partial Open Access consumers and
Full Open Access consumers for the respective years at the time of filing MYT Petition
for its Retail Supply Business.
MSEDCL FY 26 FY 27 FY 28 FY 29 FY 30
O&M (% of –verage GFA - Retail Supply) 4.41% 4.37% 4.33% 4.28% 4.24%
TPC-D FY 26 FY 27 FY 28 FY 29 FY 30
O&M (% of –verage GFA - Retail Supply) 3.98% 3.94% 3.90% 3.86% 3.82%
AEML-D FY 26 FY 27 FY 28 FY 29 FY 30
O&M (% of –verage GFA - Retail Supply) 8.49% 8.40% 8.32% 8.23% 8.15%
BEST FY 26 FY 27 FY 28 FY 29 FY 30
O&M (% of –verage GFA - Retail Supply) 7.18% 7.11% 7.04% 6.97% 6.90%
MBPPL FY 26 FY 27 FY 28 FY 29 FY 30
O&M (% of –verage GFA - Retail Supply) 10.47% 10.36% 10.26% 10.16% 10.06%
GEPL FY 26 FY 27 FY 28 FY 29 FY 30
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 134
O&M (% of –verage GFA - Retail Supply) 4.27% 4.22% 4.18% 4.14% 4.10%
KRCIPPL FY 26 FY 27 FY 28 FY 29 FY 30
O&M (% of –verage GFA - Retail Supply) 45.18% 44.72% 44.28% 43.83% 43.40%
Provided that in case of the Distribution Licensee or the Deemed Distribution Licensee
tariff is yet to be determined by the Commission till coming into force of these
Regulations, the Commission may determine the O&M Norms on case-to-case basis.
102.2 The impact of wage revision shall not be allowed over and above the O&M
expenses approved by the Commission.
102.3 In case the expenditure on Repairs & Maintenance falls below 20% of total O&M
expenses allowed under these Regulations, then such savings in Repairs &
Maintenance shall not be set off against other heads of O&M expenses:
Provided that this limitation shall not be applicable for Deemed Distribution Licensees
for the first five years after commencement of operations as a Distribution Licensee.
102.4 A Distribution Licensee may undertake Opex schemes for system automation,
new technology and IT implementation, etc., and such expenses may be allowed over
and above normative O&M Expenses, subject to prudence check by the Commission:
Provided that the Distribution Licensee shall submit detailed justification, cost benefit
analysis, and life-cycle cost analysis of such schemes as against capex schemes, and
savings in O&M expenses, if any.
102.5 The Commission may consider any request for revision of the normative O&M
expenses of the Distribution Licensee on account of consideration of some Schemes
under O&M rather than Capital Investment on case-to-case basis, depending on the
justification to be submitted by the Applicant and the life-cycle cost analysis:
Provided that if actual O&M expenses are lower than normative O&M expenses on this
account, then no sharing of efficiency gains shall be done to that extent.”
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 135
8.5 Receipt of Cross Subsidy Surcharge
8.5.1 The Commission in its Tariff Orders across all Distribution Licensees have approved
the Cross-Subsidy surcharge regularly in lines with the Tariff Policy, 2016, i.e., by
allowing category-wise Cross-subsidy Surcharge within 20% of the approved ACoS for
the respective FYs.
8.5.2 The Ministry of Power through its amendments to the Electricity Rules, 2022, dated 29
December 2022 provides the determination of surcharge by the Commission under
Section 86(1)(a) of the Electricity Act, 2003, for the consumers seeking Open Access
shall be within 20% of the ACoS.
8.5.3 Accordingly, to bring more clarity, the Commission proposes the add new proviso in
the Draft MYT Regulations, 2024:
8.6.1 The Commission in its Tariff Order across all Distribution Licensees have determined
the Additional Surcharge limited to the per unit fixed cost of the Power Purchase cost.
8.6.2 Recently, the Ministry of Power through its amendments to the Electricity Rules, 2024,
dated 10 January 2024 provides the determination of additional surcharge by the
Commission shall not be more than the per unit fixed cost of power purchase of the
distribution licensee concerned.
8.6.3 Accordingly, to bring more clarity, the Commission proposes the add new proviso in
the Draft MYT Regulations, 2024:
“108.1 The Additional Surcharge determined by the Commission as part of the MYT
Tariff Order in accordance with the Regulation 14.8 of the MERC (Distribution Open
Access) Regulations, 2016, as amended from time to time.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 136
Provided that the Additional Surcharge determined by the Commission for the
respective consumer categories shall not be more than the per unit fixed cost of power
purchase of the Distribution Licensee concerned.
Provided that the Commission may stipulate the target distribution losses in
accordance with Regulation 7 as part of the Order on the Multi-Year Tariff Petition:
Provided further that the Distribution Licensee shall submit the details of area-wise
distribution losses for the relevant years, in accordance with the formats prescribed by
the Commission:
Provided also that the area-wise distribution losses shall separately indicate the
distribution losses in each Distribution Franchisee area within its Licence area, for the
relevant years.”
8.7.2 The Ministry of Power vide its Electricity Amendments Rules, 2023, dated 26 July
2023 provides for the Aggregate Technical and Commercial (AT&C) loss reduction
trajectory to be approved by the State Commissions for tariff determination shall be in
accordance with the trajectory agreed by the respective State Governments and
approved by the Central Government under any national scheme or programme, or
otherwise.
8.7.3 In this context, the Commission presently as part of the MYT proceedings specifies
trajectory for the Distribution Loss, which is required for Power Purchase & Energy
Balance of licensee. However, the AT&C losses are linked to the Collection Efficiency.
Thus, the existing accounting in terms of Distribution Loss is on accrual basis, whereas
the receipt of the Collection Efficiency is linked to Cash Receipts.
8.7.4 Accordingly, the Commission proposes to continue with the Distribution Loss
trajectory for energy balancing and power purchase, however, to ensure that compliance
with the MoP Rules, the Commission also proposes to specify the trajectory for AT &
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 137
C loss for the MYT control period for monitoring purpose in the MYT Orders in the
fifth control period.
8.7.5 Accordingly, the Commission proposes to the add new proviso in the Draft MYT
Regulations, 2024 as below:
Provided that the Commission may stipulate the target distribution losses in
accordance with Regulation 7 as part of the Order on the Multi-Year Tariff Petition:
Provided that the Distribution Licensee shall submit the details of area-wise
distribution losses for the relevant years, in accordance with the formats prescribed by
the Commission:
Provided also that the area-wise distribution losses shall separately indicate the
distribution losses in each Distribution Franchisee area within its Licence area, for the
relevant years.
109.2 The Distribution Licensee as a part of its MYT Petition shall submit the AT&C
Loss trajectory agreed by the State Governments and approved by the Central
Government under any National Scheme or Programme, or otherwise:
Provided that the Commission may stipulate trajectory for AT&C losses in its Order on
the MYT Petition filed by Distribution Licensee.”
8.8.1 The Commission had introduced the concept of Time-of-Day Tariff for the HT
Industrial Consumers since 2000 with an intention of flattening the load curve post
observing a wide gap between maximum demand and minimum demand. Over a period
the ToD tariff was introduced at LT level for the loads upto 20 kW, with additional
charges during peak hours and rebates in tariff during off-peak hours. However, the
time slots have remained unchanged till date since the introduction of the ToD concept.
8.8.2 The Commission has received requests from Distribution Licensees for the review of
ToD Structure during the MYT Proceeding of 4th Control Period. Accordingly, the
Commission conducted the Study “to understand the changes in consumption pattern
and load curve of Distribution Licensees and design the TOD Tariff structure which
helps in optimizing power procurement expenses and also encourage demand response
schemes.”
8.8.3 The study report was published by the Commission on 1 November 2022. Further some
Distribution Licensees proposed the revised ToD structure in the recent MTR Petition
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 138
and some of the licensees proposed to submit the revised ToD structure during the MYT
proceedings of the 5th Control Period.
8.8.4 Meanwhile the MoP vide Amendment to the Electricity Rules, 2023 dated 14th June
2023 has added new Rule as 8A regarding the ToD Tariff. The relevant extract of the
Rules is provided as under:
“[(8A) Time of Day Tariff.-The Time of Day tariff for Commercial and
Industrial consumers having maximum demand more than ten Kilowatt shall be
made effective from a date not later than 1st April, 2024 and for other consumers
except agricultural consumers, the Time of Day tariff shall be made effective
not later than 1st April, 2025 and a Time of Day tariff shall be made effective
immediately after installation of smart meters, for the consumers with smart
meters:
Provided that, the Time-of-Day Tariff specified by the State Commission for
Commercial and Industrial consumers during peak period of the day shall not
be less than 1.20 times the normal tariff and for other consumers, it shall not be
less than 1.10 times the normal tariff:
Provided further that, tariff for solar hours of the day, specified by the State
Commission shall be at least twenty percent less than the normal tariff for that
category of consumers:
Provided also that the Time-of-Day Tariff shall be applicable on energy charge
component of the normal tariff:
Provided also that the duration of peak hours shall not be more than solar hours
as notified by the State Commission or State Load Despatch Centre.
Explanation: - For the purposes of this rule, the expression “solar hours”
means the duration of eight hours in a day as specified by the State
Commission.”
8.8.5 The Commission with an intention to comply with the MoP’s rules referred above and
considering the recommendations of the ToD study conducted during 2022 has
proposed to introduce the ToD Tariff as part of the Draft MERC MYT Regulations,
2024.
8.8.6 The Commission has proposed to introduce ToD Tariff at State Level instead of specific
to Distribution Licensees, since the load curve of all the four major Distribution
Licensees in the State are similar as per the ToD study conducted.
8.8.7 Further, the Commission has proposed to introduce the ToD Tariff for the seasonal
months viz. October to December, January to March and April to September and
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 139
incentivise the Tariff of the ToD consumers during the Solar Hours viz. 0900 Hrs to
1600 Hrs.
8.8.8 Such seasonal ToD tariffs are specified for Industrial & Commercial (HT & LT) and
other consumers upto 20 kW as applicable. Accordingly, the following provision is
proposed in the Draft MYT Regulations, 2024:
113.1 The Time-of-Day Tariff shall be applicable to all the Distribution Licensees
operating in the State from the date of issuance of the MYT Tariff Order for the Control
Period.
113.2 Distribution Licensee shall propose ToD tariff for its consumers with load of 10
kW and above based on following indicative time slots and tariff as percentage of
Energy Charge:
09:00 to 16:00 16:00 to 20:00 20:00 to 00:00 00:00 to 06:00 06:00 to 09:00
Hrs Hrs Hrs Hrs Hrs
Provided that Distribution Licensee may proposed seasonal ToD tariff in its Tariff
Petition:
Provided that the Commission at the time of MYT Order proceedings may extend the
applicability of the ToD Tariff to the other consumer categories after assessing the
growth in the demand.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 140
8.9.3 In this context, the significant growth in the overall GFA of the Retail Supply Business
is not expected in the ensuing years. This is relatable where the approved RoE for the
Retail Supply Business is significantly marginal in terms of Paisa/kWh which can been
seen in the figure below:
8.9.4 Thus, the Commission has proposed to revisit its existing provisions of the Retail
Supply Business RoE.
8.9.5 The approach for the Supply Margin was introduced in the State of Delhi during 2007
and was continued to be implemented upto the notification of the DERC MYT
Regulations, 2011. The additional RoE at 2.00% was provided by the DERC over and
above the RoE of the Retail Supply Business, which was termed as the Supply Margin.
However, the corresponding amount of Supply Margin was linked with the Sales of the
Distribution Licensee for each financial year. Thus, any distribution licensee intending
to get the entire approved Supply Margin shall either achieve its estimated approved
Sales or work on lowering its distribution losses. In case of the overachievement of the
Sales, the additional revenue realised by the Licensee was adjusted with the ARR, as
the Supply Margin revenue was allowed upto the ceiling limit of 2.00%. However, in
case of underperformance, the revenue loss in terms of Supply Margin shall be borne
by the Licensee itself, which acts as the loss of opportunity cost.
8.9.6 Thus, to create the competition in the Retail Supply Business in letter and spirit, in line
with the provisions of the Act and the Tariff Policy, 2016. As a first step, the
profitability of the Retail Supply Business, which is at present is the Return on Equity
upto 17.50% can be termed as the ‘Supply Margin’.
Intent
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 141
• To optimise the Power Purchase cost in the licensee area where distribution losses are
higher.
• To increase the sales either by increasing consumer base or retaining Open Access
consumer in case of adoption Ceiling Tariff.
Implementation Framework
• The Supply Margin shall be approved by the Commission at the time of MYT approval
process.
• The Supply Margin shall be uniform across all the distribution licensees.
• The average Supply Margin across the four major distribution licensees during FY
2024-25 ~3 to 3.5 Paisa/kWh (Based on the Graphical Representation above) without
grossing up with Income Tax.
• Thus, the Commission proposes the Common Supply Margin of 5.00 Paisa/kWh across
all distribution licensees. ((grossing up with MAT)
8.9.7 Accordingly, the Commission proposes the following new Regulations under Part D –
Financial Principles for the Supply Margin under the Draft MERC MYT Regulations,
2024:
“28.8 In case of the Retail Supply Business, the Supply Margin upto 5.00 Paisa/kWh
inclusive of Income Tax component shall be allowed for all the Retail Supply Licensees
for each financial year over the Control Period based on the following principles:
(a)The Supply Margin of upto 2.00 Paisa/kWh shall be allowed at the time of true-up
based as per the following schedule:
(i)If Collection Efficiency is below 99% upto 95%, then the Performance Linked
Supply Margin 2.00 Paisa/kWh shall be reduced to 0.50 Paisa/kWh.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 142
(ii)If Collection Efficiency is below 95%, then the Performance Linked Supply
Margin 2.00 Paisa/kWh shall be further reduced to 0.50 Paisa/kWh.
(iii)If % of Assessed Bill is above 1.00% upto 1.50%, then the Performance
Linked Supply Margin 2.00 Paisa/kWh shall be reduced to 0.50 Paisa/kWh.
(iv)If % of Assessed Bill is above 1.50%, then the Performance Linked Supply
Margin 2.00 Paisa/kWh shall be further reduced to 0.50 Paisa/kWh..”
8.10 Ceiling Tariff
Background
8.10.1 In the state of Maharashtra, the parallel licensee scenario is already operational in
Mumbai City with a consumer choice to changeover or switchover. However, the
Commission at present determines separate tariff for AEML-D and TPC-D for the
common area of supply of both the licensees. Therefore, to recover the charges for the
Wires Business for use of Wires by the consumer being served by the other licensee is
through change over charge /switch over charge for the consumer opting to take supply
from another licensee.
8.10.2 Section 62(1)(a) of the EA 2003 proposes the enabling provisions for determination of
the Ceiling Tariff by the Commission. However, the methodology for determination of
Ceiling Tariff has not been specified in the MERC MYT Regulations, 2019. Thus, with
prevailing parallel licensee operation in Mumbai and anticipating similar such parallel
license operation in the State post notification of the MoP’s Electricity (Amendment)
Rules, 2022, dated 8 September 2022 providing the explanation on the minimum area
of supply, to promote competition in true spirit, the Commission proposes to lay down
procedure to be adopted for Ceiling Tariff in the common area of supply of Parallel
Licensees.
Intent
8.10.3 The Commission intends to lay down procedure for the Ceiling Tariff with the
following objectives:
• Enabling the fair consumer choice for the choice of the Retail Supply Licensee.
Implementation Framework
8.10.4 The implementation of the Ceiling Tariff is proposed to be applicable in the specific
geographical area of supply, where more than one distribution licensees are operating.
This shall be initially applicable for the contestable consumers, whose Average Billing
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 143
Rates (ABR) are higher than or equal to the Average Cost of Supply (ACoS) of their
respective Retail Supply Licensees, by giving them choice to choose its Electricity
Retail Supplier.
8.10.5 The Commission has proposed to adopt the Ceiling Tariff from 1 April 2025 where
parallel licensees are operating in the common area of supply, based on the conditions
supporting the level playing field amongst the multiple licensees. The illustration of the
level playing field is shown in the figure below:
Not Amenable
Amenable
8.10.6 One of the indicators for the adoption of Ceiling Tariff is the marginal difference in the
Retail Supply Business ACoS (R-ACoS) of the licensees. Significant Gap in the R-
ACoS between the multiple licensees operating in the common area of supply, would
tend to increase Cross-subsidy burden, which would defeat the intent of the
competition. Thus, Minimal Cross-Subsidy Balancing would encourage more
competition amongst the Retail – Supply Licensees. At the same time, if such difference
in ACoS (R-ACoS) remains high after operationalisation of parallel licensees in an area
for several years, it depicts that competing licensees are not taking adequate efforts to
remain competitive and under such circumstances Ceiling Tariff can be introduced even
though there is higher difference in ACoS of parallel licensees.
8.10.7 To start with, the term ‘Ceiling Tariff’ shall be determined post ensuring the recovery
of the majority of the Annual Fixed Cost commitment in terms of Wires Cost and Fixed
Cost of the Retail Supply through Uniform Wheeling Charges and Uniform
Demand/Fixed Charges. Post experience of implementation, Demand/Fixed charges
can also be considered under ceiling tariff regime.
8.10.8 This addresses the motivation of bringing in the competition in the Retail Supply
Business, which shall be entirely based on the determination of Ceiling Energy
Charges, which shall be uniform across the consumer categories across all the
Distribution Licensee operating in the common area of supply. The thrust to the Retail
Supply competition across the Distribution Licensees shall be based on the Power
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 144
Purchase portfolio presently being maintained and the strategy to offer the most
economical Energy Charges to the respective consumer categories.
Determination of Uniform Wheeling Charges
8.10.9 At the very instant the Commission shall determine the Wheeling Charges and Losses
(HT & LT) for the respective licensees operating in the common area of supply as per
the existing MYT Process discussed in detail in the above section of Wheeling Charges
under the Chapter 7 of this Explanatory Memorandum.
8.10.10The Commission shall then further determine the Uniform Wheeling Charges for the
HT & LT Consumers by pooling the approved Wires ARR and the projected Wheeling
Sales (HT & LT level) of all the Distribution Licensees operating the common area of
supply. Such Uniform Wheeling Charges will be levied to all the consumers
irrespective contestable and non-contestable falling under the common area of supply.
8.10.11The following steps provide the overall mechanism for billing and collection of
Uniform Wheeling Charges:
(a) Pooling of Wires ARR (in INR Crore) and Sales (in MU) for the respective
Distribution Licensee operating in the common area of supply.
(b) Computing the Uniform Wheeling Charges in INR/kVAh (or kWh) at HT & LT
level.
(c) Levy of such Uniform Wheeling Charges to the respective consumers connected
at HT & LT level in the common area of supply.
(d) Monthly settlement of the Wheeling Charges amongst the Distribution Licensees
for the consumers connected on the wires of other Distribution Licensee instead
of host Distribution Licensee.
8.10.12The Commission shall determine the Demand Charges by considering the Annual Fixed
Cost of the Retail Supply Business with the Contracted Capacity (in kVA or kW) and
number of Connections for the respective financial year of the Control Period.
8.10.13It is evident that, the overall recovery of the Annual Fixed Cost across all Distribution
Licensee through Demand/Fixed Charges is below 20% of the total Annual Fixed Cost,
whereas the rest of the Annual Fixed Cost is subsumed within the Energy Charges along
with the variable charges of the power purchase of the respective Distribution Licensee.
The Commission while determining the Uniform Demand/Fixed Charges shall ensure
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 145
the gradual increase in the percentage of Annual Fixed Cost during the Control Period
to maximize the recovery of the Annual Fixed Cost through Demand/Fixed Charges
going forward.
8.10.14In case of the one more Distribution Licensee operating in a common area of supply,
the Commission shall determine the Uniform Demand/Fixed Charges, which shall be
uniform for a specific consumer category across all the Distribution Licensees.
Accordingly, the Commission has proposed the following provision for the
determination of the Demand/Fixed Charges in the Draft MERC MYT Regulations,
2024:
Provided further that the basis for the determination of consumer category wise
Demand/Fixed Charges for the respective years of the Control Period, shall be in
terms of their actual Billing Demand at HT and LT Level, change in Load Factor,
change in number of connections in case of LT level, etc.
Provided further that the Distribution Licensee shall submit the details of the
actual Billing Demand, Contracted Capacity, Load Factor and Connected number
of Consumers for the respective Consumer categories as part of the MYT Tariff
Petition.
111.2 In case more than one Distribution Licensees are operating within the same
geographic area, the Commission shall determine consumer category wise
uniform Demand / Fixed Charges for all Distribution Licensee in that area:
Provided that the determination of such Uniform Demand/Fixed Charges by the
Commission, shall be same for a specific consumer category across all the
Distribution Licensees in that area.”
Ceiling Tariff
8.10.15The Commission in exercise to the powers conferred under second proviso of the
Section 62 (1) of the Electricity Act, 2003, shall fix the maximum ceiling of tariff for
the retail sale of the electricity to promote competition in case of distribution of
electricity in the same area by two or more Distribution Licensees.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 146
8.10.16The Commission shall determine the category wise common Ceiling Tariff, as a first
step of introduction of the Ceiling Tariff Regime instead one single ceiling tariff
applicable across all the contestable consumer categories.
8.10.17Thus, to attract real competition, the licensees are required to manage their power
purchase portfolio efficiently for offering competitive Energy Charge to its contestable
consumers. The more sales more are the chances to avail full Supply Margin and
increase its profitability.
8.10.18The Commission shall also monitor the amenable conditions for introduction of the
Ceiling Tariff such as if the difference between the ACoS of the respective Distribution
Licensees operating the common area of supply is the range of zero to INR 1.00/kVAh
(or kWh). However, the Commission is also of the view that, after operationalisation
of the second distribution licensee in that area, the ‘Ceiling Tariff’ should be introduced
within specific timelines even though the proposed amenable conditions are fulfilled or
otherwise.
Accordingly the Commission proposes to introduce the Ceiling Tariff within three
years from the date of operationalisation of the second distribution licensee or if the
difference between Average Cost of Supply for Retail Supply Business of such
licensees is less than INR 0.50/kVAh (or kWh) or any other higher number, as decided
by the Commission subject to the maximum upto INR 1.00/kVAh (or kWh), whichever
is earlier:
8.10.19The Commission proposes to determine the Ceiling Tariff to recover the Retail Supply
ARR considering the revenue gap within the limit of 10%.
8.10.20In case of consumers with tariffs below ACOS, the Commission shall determine the
tariff for such consumers. To maintain the level playing field the Distribution Licensees
shall equally share the sales towards such consumers with tariff below ACOS
proportionately on monthly basis. In case such balance of sales is not maintained, the
Distribution Licensee with lower sales of such low-end consumer shall compensate the
Cross-Subsidy to the other Distribution Licensee having higher share of such
consumers.
8.10.21The Ceiling Tariff approved by the Commission shall be the benchmark rate, where the
Distribution Licensees may offer lower Ceiling Tariffs inclusive of ZFAC component
based on the power purchase portfolio to attract consumers. No prior approval from the
Commission for the new power purchase is required. Further, the Distribution
Licensees have the liberty to revise their Ceiling Tariffs on quarterly basis in order to
factor in the variation in the power purchase rate.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 147
8.10.22Since, no true-up activity will be performed for the licensees operating under the
Ceiling Tariff Regime, thus, the loss of sales and consumers are the entire risks of the
licensees.
8.10.23Accordingly, the Commission proposes to add new Regulation under the Retail Supply
of Electricity in the Draft MYT Regulations 2024:
“112.1 The Commission in exercise to the powers conferred under second proviso of
the Section 62 (1) of the Electricity Act, 2003, shall fix the maximum ceiling of tariff for
the retail sale of the electricity to promote competition in case of distribution of
electricity in the same area by two or more Distribution Licensees.
112.2 In case more than one Distribution Licensees are operating within the same
geographical area, the Commission shall determine ‘Ceiling Tariff’ in that area of
supply within three years from the date of operationalisation of the second distribution
licensee or if the difference between Average Cost of Supply for Retail Supply Business
of such licensees is less than INR 0.50/kVAh (or kWh) or any other higher number, as
decided by the Commission subject to the maximum upto INR 1.00/kVAh (or kWh),
whichever is earlier:
Provided that in case, the Commission decided not to introduce ‘Ceiling Tariff’,
reasons for the same shall be recorded in the Order.
112.3 ‘Ceiling Tariff’ shall be determined based on following methodology:
Provided that to maintain level playing field, parallel licensees in that area shall
endeavour to maintain proportion of sales of such consumer categories in its
total sales for a given month equal to proportion of total sale of such consumer
categories in total sales in that area.
Provided further that in case any Distribution Licensee not able to maintain
such proportion of sales of such consumer categories then it shall pay for
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 148
quantum of such lower proportion ‘at the rate of prevalent cross-subsidy for
such consumer category (i.e. difference of Average Billing Rate and Average
Cost of Supply of licensee with higher proportion of sale of such consumer
category)’ for such consumer category to other parallel Distribution Licensee
who has higher proportion of such sales on monthly basis.
e. Distribution Licensee may offer ‘Energy Charge’ lower than Ceiling Energy
Charge approved by the Commission:
112.4 Based on above principles, the Commission in its Tariff Order granting ‘Ceiling
Tariff’ shall laydown detailed procedure for the implementation of the ‘Ceiling
Tariff’.”
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 149
9 Norms and Principles for Determination of Fees and Charges of MSLDC
9.1.1 The Maharashtra State Load Dispatch Centre (MSLDC) is the apex body to ensure
integrated operation of the power system in the State of Maharashtra. Section 32 of the
Act confers various powers to MSLDC and functions, including the optimum
scheduling and dispatch of electricity within the State, monitoring of grid operations,
energy accounting, supervision and control over InSTS, etc.
9.1.2 Section 32 (3) of the Act stipulates that MSLDC may levy and collect such fees and
charges from the Generating Companies and Licensees engaged in intra-state
transmission of electricity as may be specified by the State Commission.
9.1.3 The Commission incorporated the relevant clauses with respect to the levy of such fees
and charges of SLDC in MERC MYT Regulations, 2019.
9.2 LDC Development Fund
9.2.1 Existing MERC MYT Regulations, 2019, specifies provisions for creating and
maintaining a separate LDC Development Fund. However, the various aspects relating
to the LDC Development Fund are missing in the existing Regulations. For Example,
Revenue streams to be considered for creation of / parking in the fund, the avenues for
utilisation of this Fund by MSLDC, separate accounting records to be maintained by
MSLDC for this Fund, treatment of ARR elements which are funded from this LDCD
Fund, treatment of the balance corpus available in the LDCD Fund after meeting the
requirements etc. Accordingly, the Commission proposes clauses with respect to the
LDC Development Fund in line with the directives given by the Commission in its
MTR Order in Case No. 171 of 2017.
9.2.2 Accordingly, the Commission in Draft MYT Regulations, 2024 has proposed the
Regulation for utilisation of LDC funds:
9.3.1 For determination of O&M Expenses for next Control Period, at time of MYT Order,
the average of O&M Expenses for the period from FY 2019-20 to FY 2023-24 is
required to be escalated at the respective escalation rate for FY 2022-23, FY 2023-24
and FY 2024-25, to arrive at the Operation and Maintenance expenses for the base year
ending March 31, 2025.
9.3.2 The MYT Regulations, 2019 provides for the approval of impact of Wage Revision, if
any, at the time of true-up for any Year, based on documentary evidence and
justification to be submitted by the Petitioner. However, the Commission in the Draft
MYT Regulation, 2024 proposes to include the impact of wage revision during any
true-up year, if any, in the O&M expenses while determining the norms for the O&M
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 150
expenses for the future year. Since, the O&M norms shall be derived after consideration
of the Wage Revision impact, the impact of wage revision shall not be allowed over
and above the normative O&M expenses allowed by the Commission.
9.3.3 The O&M expenses comprise Employee Expenses, R&M Expenses and A&G
expenses, and constitute a significant part of the Aggregate Revenue Requirement of
the MSLDC. In MTR Order 233 of 2022, MYT Order 291 of 2019 and Orders prior to
that, the Commission approved Human Resources Development (HRD) expenses under
the head of A&G expenses.
9.3.4 Human resources are the key asset in a knowledge-oriented organization like the
MSLDC. It is imperative to prioritize the capacity building of human resources to
establish MSLDC as a sustainable institution capable of navigating the ever-changing
regulatory landscape and technological advancements in the sector. Continuous training
and skill upgrading for MSLDC personnel are essential to ensure optimal performance
and efficiency in power system operation. According to the national training policy, a
minimum of 5% of employee expenses should be dedicated to HRD. Therefore, it is
crucial to allocate sufficient funds for MSLDC's HRD initiatives. Presently, HRD
expenses are categorized under Admin & General expenses. A more effective approach
would be to incorporate HRD into HR expenses, enabling better monitoring of
compliance with National Training Policy norms. The 'Capacity Building of Indian
Load Despatchers' (CABIL) report, endorsed by the Forum of Regulators in 2018,
recommends classifying HRD expenses under employee expenses rather than A&G
expenses, with a target of allocating at least 5% of total employee expenses to HRD in
alignment with the National Training Policy.
9.3.5 Accordingly, the Commission has specified the provision for determination of O&M
expenses for MSLDC in the Draft MYT Regulations 2024.
9.4 Performance Linked Incentives
9.4.1 The SLDC contributes significantly in reliable, secure, economic and sustainable
operation of the interconnected grid formed by assets owned by diverse utilities. The
evidence-based inputs from SLDC to policymakers, regulators and planners are critical
for strategic decision-making at the highest level. The success of reform initiatives in
the power sector largely depends on the efficiency of SLDC’s' internal processes. Thus,
the services of the SLDC are mostly intangible, and the economic value of the
interventions of SLDC in the system is widely shared among the stakeholders at large.
The SLDC is expected to be non-discriminatory, fair, transparent and profit-neutral
entities. To ensure the altruistic, ethical and frugal character of SLDC, it is desirable
that the performance of the SLDC be de-coupled from commercial profits of any kind.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 151
9.4.2 In view of the above, it is proposed that the performance of the SLDC could be
evaluated in four dimensions-
• Stakeholder satisfaction
• Financial prudence
• Internal processes
9.4.3 The MYT Regulation 2019 specifies the norms for the additional RoE over and above
the base RoE for Generation, Transmission and Distribution utilities. However, the
norms for the additional RoE for MSLDC were not specified in the MERC MYT
Regulations, 2019.
9.4.4 The Commission, in the MYT Order in case No. 291 of 2019 on 30 th March 2020,
directed MSLDC to approach the Commission with the proposal to fix the performance
norms or Key Performance Indicators (KPIs) based on which MSLDC will be entitled
to claim the additional RoE. Further, in its MYT Order in case No. 233 of 2022 on 31st
March 2023, the Commission had directed MSLDC to resubmit a detailed proposal
including a similar framework operational in other parts of the country, including
recommendations of the Forum of Regulators. In response to that, MSLDC, in
December 2023, submitted a list of KRAs and KPIs to claim the additional RoE.
9.4.5 Considering the recommendations of the CABIL report and the proposal of the
MSLDC, the Commission has proposed the KPIs under each category. The
Commission proposes the provision for the incentives linked with achievement of KPI
targets in line with the CERC (fees and charges for the RLDC and other related matters)
Regulations 2019. The Performance linked incentives have been proposed as 3% of
ARR for an aggregate performance level of above 90%. The incentive shall be
increased by 1% on a pro-rata basis for every 5% increase in performance level above
90% with a maximum limit of 5% of total ARR.
9.4.6 MSLDC shall submit the detailed calculations of all KPIs in MS Excel worksheet while
filing the petition for approval of the Performance Linked Incentive.
9.4.7 The proofs mentioned in the respective KPI details shall also be submitted while filing
the petition for truing-up of the Performance Linked Incentive.
9.4.8 An undertaking by the head of the MSLDC shall be submitted along with the Petition
stating that the targets claimed to be achieved and performance computed for all KPIs
have been checked and are true to the best of his/ her knowledge.
Accordingly, the Commission has proposed performance linked incentive in the Draft
MYT Regulations 2024 for MSLDC.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 152
10 Norms and Principles for Determination of Fees and Charges of STU
10.1 Applicability
10.1.1 The Regulations contained in this Part shall apply in determining the Fees and Charges
to be levied by the State Transmission Utility (STU) after April 1, 2025.
10.2 Introduction
10.2.1 At present MSLDC and STU are operated by MSETCL, the biggest transmission utility
in the state. The MSLDC even though being operated by MSETCL, the Commission is
approving separate fees and charges for MSLDC since FY 2006-07 and MSLDC is
submitting separate petition for its fees and charges since then.
10.2.2 STU is being operated by MSETCL however the functions of STU are different from
MSETCL.
10.2.3 MSETCL is transmission licensee and duties of transmission utility as per Section 40
of Electricity Act 2003 are as follows:
(b) to comply with the directions of the Regional Load Despatch Centre and the
State Load Despatch Centre as the case may be;
(c) to provide non-discriminatory open access to its transmission system for use
by-
Provided that such surcharge shall be utilised for the purpose of meeting the
requirement of current level cross-subsidy:
Provided further that such surcharge and cross subsidies shall be progressively
reduced in the manner as may be specified by the Appropriate Commission:
Provided also that the manner of payment and utilisation of the surcharge shall
be specified by the Appropriate Commission:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 153
Provided also that such surcharge shall not be leviable in case open access is
provided to a person who has established a captive generating plant for carrying
the electricity to the destination of his own use.
10.2.4 While STU has the functions that are different from a transmission licensees. The
functions of STU as per Section 39 of Electricity Act 2003 are as follows:
Provided that the State Transmission Utility shall not engage in the business of
trading in electricity:
Provided further that the State Government may transfer, and vest any property,
interest in property, rights and liabilities connected with, and personnel involved
in transmission of electricity, of such State Transmission Utility, to a company
or companies to be incorporated under the Companies Act, 1956 to function as
transmission licensee through a transfer scheme to be effected in the manner
specified under Part XIII and such company or companies shall be deemed to be
transmission licensees under this Act.
(vi) licensees;
(vii) any other person notified by the State Government in this behalf;
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 154
(d) to provide non-discriminatory open access to its transmission system for use
by-
(i) any licensee or generating company on payment of the transmission charges
; or
(ii) any consumer as and when such open access is provided by the State
Commission under sub-section (2) of section 42, on payment of the transmission
charges and a surcharge thereon, as may be specified by the State Commission:
Provided that such surcharge shall be utilised for the purpose of meeting the
requirement of current level cross-subsidy:
Provided further that such surcharge and cross subsidies shall be progressively
reduced 1[***][eliminated] in the manner as may be specified by the State
Commission:
Provided also that the manner of payment and utilisation of the surcharge shall
be specified by the State Commission:
Provided also that such surcharge shall not be leviable in case open access is
provided to a person who has established a captive generating plant for carrying
the electricity to the destination of his own use.
10.2.5 From above it is clear that functions of STU are quite different from a transmission
utility. STU has to carry out functions related to all Distribution Licensees including
deemed distribution licenses, all transmission utilities and all generating stations
including Renewable generators. While the functions of transmission utility are limited
in its area of operation.
10.2.6 At central level Power Grid Corporation India Limited (PGCIL) is Transmission Utility
for all over India, which was operating Central Transmission Utility (CTU). However,
CTU functions are separated as Central Transmission Utility India Limited (CTUIL)
from PGCIL for carrying out functions assigned to Central Transmission Utility.
10.2.7 Considering the developments at the Central Level for separation of CTU from PGCIL,
the Commission is of the view that, similar functional and administrative segregation
shall be required in the state to function STU independently to handle the upcoming
challenges like Resource Adequacy Planning, long term transmission planning
considering large scale RE capacity addition, General Network Access (GNA),
increasing private Transmission Licensees under TBCB etc. The Commission believes
that the unbiased and independent operation of STU would require financial autonomy
similar to MSLDC. The Commission is of the view that, though MSLDC is under
administrative control of MSETCL over a period it has achieved functional segregation
and financial autonomy which has paved for administrative segregation similar to CTU
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 155
in the coming days. Similarly, the STU need to be prepared for taking steps towards
financial autonomy in this Control Period. Accordingly, the Commission is proposing
the separate Chapter for STU Fees and Charges in the Draft MERC MYT Regulations,
2024.
10.2.8 The Chapter for STU Fees and Charges covers the Capex Investment Plan,
determination of Operation and Maintenance expenses and methodology for
determination of Annual Fixed Charges and recovery of STU charges from the
Transmission Users. The Draft MERC MYT Regulations, 2024 also specifies the Fees
to be charged by the STU to the transmission users and billing and payment of charges
levied by STU. The Draft Regulations also proposes the incentive to the STU based on
the Key Performance Indicators (KPI) similar to the SLDC.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 156
11 Norms and Principles for determination of determination of Revenue Requirement
and Tariff for Energy Storage Systems (ESS)
Ministry of Power, Government of India has notified the guidelines and various measures for
Development of Energy Storage Systems (ESS). Similarly, the Forum of Regulators (FOR) has
also published the Draft Report for Legal and Regulatory Framework for Development of ESS.
The provisions of these Guidelines, Notifications, Reports are as summarised below:
11.1.3 The independent energy storage system is a delicensed activity at par with a
generating company in accordance with the provisions of section 7 of the Act.
However, if an ESS owner or developer wishes to operate independently, they must
register with CEA along with their capacity and location details and meet the safety
requirements set by the CEA. Standalone ESS shall be provided connectivity under the
Electricity (Transmission) System Planning, Development, and Recovery of Inter-State
Transmission Charges) Rules, 2021.
11.2 Energy Storage Obligation
11.2.1 A long-term trajectory for Energy Storage Obligations (ESO) has also been notified by
the Ministry of Power on 22 July 2022 to ensure that sufficient storage capacity is
available with obligated entities.
11.2.2 The trajectory specifies a minimum percentage of electricity consumption within a
Distribution licensee's area that shall be procured from renewable energy through ESS.
As per the trajectory specified vide MOP dated 22 July 2022, the ESO of obligated
entities shall be gradually increased from 1% in FY 2023-24 to 4% by FY 2029-30,
with an annual increase of 0.5%.
11.2.3 The renewable energy purchased from an ESS shall also qualify for Renewable
Purchase Obligation (RPO) compliance.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 157
11.2.4 In order to align the MERC (Renewable Purchase Obligation, its Compliance and
Implementation of Renewable Energy Certificate Framework) Regulations, 2019 with
the MoP Order on ‘Renewable Purchase Obligation (RPO) and Energy Storage
Obligation Trajectory till 2029-30’ issued on 22nd July 2022 and Corrigendum issued
on 19th September 2022, the Commission has amended the MERC (RPO and REC)
Regulations on 5 August 2023.
11.3 Waiver of Inter State Transmission System Charges
11.3.1 Given the importance of facilitating RE integration in the grid and in pursuance of
National Tariff Policy 2016, waiver of transmission charges for using Inter-State
Transmission System has been provided to Energy Storage Systems, including BESS
and PSPs, vide Ministry of Power notification dated 23 November 2021, as amended
from time to time.
11.4 Guidelines for Procurement and Utilization of Battery Energy Storage Systems
11.4.1 Ministry of Power vide resolution dated 10 March 2022 has issued detailed guidelines
for procurement and utilization of BESS as part of generation, transmission, or
distribution assets, or along with ancillary services.
11.4.2 These guidelines, inter alia, provide standardization and uniformity in procurement of
BESS and a risk-sharing framework between various stakeholders, involved in the
energy storage and storage capacity procurement, thereby encouraging competition and
enhanced bankability of these Projects.
11.4.3 Based on these Guidelines, Solar Energy Corporation of India (SECI) has carried out
bidding of 500 MW/1,000 MWh BESS project which has been awarded at a cost of
INR 10.835 Lakh/MW/month.
11.5.1 Recognizing the need for expeditious and cost-effective development of Pumped
Storage Projects (PSPs) to enhance energy security of the country, Ministry of Power,
Government of India has come out with measures in the form of “Guidelines to
promote the development of Pumped Storage Projects” on 10 April 2023.
11.5.2 The guidelines would enable the development of PSP which are clean, sustainable,
mature, and domestically available, with the proactive support of State Governments.
11.6 Introduction of High Price Day Ahead Market
11.6.1 Ministry of Power vide note dated 11 October 2022 has come up with a detailed
framework for the High Price Day Ahead Market segment (HP-DAM) in the existing
Integrated DAM (I-DAM), wherein sellers with high cost of generation would be
allowed to participate. HP DAM has been launched on 9th March 2023.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 158
11.6.2 BESS have been included in the list of eligible generators that are allowed to participate
in the HP DAM segment of the Energy Exchange.
11.7 Budgetary support for enabling infrastructure for Pumped Storage Projects
11.7.1 Pumped Storage Projects are often taken up in remote areas which have infrastructure
deficits. The infrastructure created for these projects enables further development of the
area as the same is available for reuse for other purposes. Given the same, the Central
Government is providing budgetary support for construction of roads and bridges
by Hydro Power Project developers, including PSPs up to INR 1.5 crore/MW for
projects up to 200 MW and up to INR 1 crore/MW for projects above 200 MW.
11.9 Ancillary services from ESS under CERC (Ancillary Services) Regulations, 2022
11.9.1 The CERC (Ancillary Services) Regulations, 2022 were notified on 31st January 2022
to provide mechanisms for procurement, through the administered as well as market-
based mechanisms, deployment, and payment of Ancillary Services at the regional and
national level to maintain grid frequency within allowable band and for relieving
transmission congestion to support reliable and stable operation of the grid.
The Regulations provide for eligibility of ESS to provide Secondary Reserve
Ancillary Service (SRAS) and Tertiary Reserve Ancillary Service (TRAS), under
certain conditions.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 159
11.9.2 This will create an additional revenue stream for ESS service providers and will nudge
investments in the Energy Storage.
11.10 Inclusion of ESS in Technical Standards for Connectivity to the Grid
11.10.1Central Electricity Authority has notified CEA (Technical Standards for Connectivity
to the Grid) Regulations, 2007 and its latest (Amendment) Regulations, 2019 on 6 th
February 2019 which provide the requirements to be complied by ESS to get
connectivity to the Grid at voltage level 33 kV and above.
This will enable faster and smoother integration of ESS with the Grid.
11.11.1Guidelines for Tariff Based Competitive Bidding Process for Procurement of Round-
The Clock Power from Grid Connected RE Projects, complemented with Power from
many other source or storage were notified in November 2020.
11.11.2As per these Guidelines, the firm power from storage can be utilized to balance
renewable energy and provide round the clock (RTC) power to the buyers/DISCOMs,
thereby facilitating the State Load Despatch Centres (SLDCs) in ensuring grid stability
and security within their control jurisdiction.
11.11.3The procurement of RTC power will create demand for establishment of ESS in the
country and help in faster energy transition.
11.11.4The aforementioned policy measures have encouraged the planning and establishment
of ESS in the country. Maharashtra energy mix is also set to undergo a transition from
fossil fuel sources to non-fossil fuel-based sources dominated by RE in the future
keeping energy security in view. However, the incorporation of a significant amount of
variable and intermittent RE into the energy mix presents a challenge for maintaining
grid stability and uninterrupted power supply. The challenge with RE sources arises
due to their varying nature with time, climate, season or geographic location. The
variability associated with the RE sources leads to issues as grid balancing creating a
need for flexibility.
11.11.5In this context, ESS can be used for storing energy available from RE sources to be
used at other times of the day. Storage of energy will help in bringing down the
variability of generation in RE sources, improving grid stability, enabling energy/ peak
shifting, providing ancillary support services and enabling larger renewable energy
integration. Storage Systems will also benefit consumers by bringing down peak
deficits, peak tariffs, reduction of carbon emissions, deferral of transmission and
distribution capex, and energy arbitrage.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 160
11.11.6For energy transition, shifting from fossil fuel-based capacity to Renewable Energy
capacity- it is necessary that the RE becomes dispatchable, and available 24x7. This is
possible only with Energy Storage System.
11.11.7Keeping in view the various developments in Power Sector, the Commission is of the
view that, it would appropriate to provide enabling Regulatory framework for ensuring
an enabling ecosystem for ESS. Accordingly, the Commission has proposed the
following regulatory framework in draft MERC MYT Tariff Regulations 2024.
11.11.8The Proposed Regulations in the draft MERC MYT Tariff Regulations, 2024, allows
Generation Company, Transmission Licensees and Distribution Licensees to have
captive arrangement of ESS as per MERC (Approval of Capital Investment Schemes)
Regulations, 2022, under Section 62 of the Act. Further, the Commission also proposes
separate frameworks for fixation of tariff under Section 62 of the Electricity Act 2003,
for standalone ESS including: a) for a BESS; b) for Hydro Pump Storage System (PSP).
11.11.9The Commission would like to clarify that, though the Regulatory framework for
determination of Tariff for ESS is being proposed in the Draft MYT Regulations, 2024,
the Utilities take all efforts and measures to develop/procure ESS through competitive
bidding guidelines under Section 63 of the Act and approach the Commission for
adoption of Tariff for ESS discovered through the Competitive Bidding Process.
11.11.10 The Commission shall be guided by the terms and conditions contained in this Part in
determining the Tariff for ESS, in the following cases:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 161
arrangement envisages that the Tariff shall be based on the Tariff Regulations
prevailing at that time;
11.11.11 An ESSD shall file a Petition for determination of Tariff in accordance with the
provisions of Part B of draft MYT Tariff Regulations 2024.
11.11.12 The Tariff for ESS shall comprise of two parts, namely, Capacity Charge and Incentive
for Cycle Efficiency above Design Cycle Efficiency of ESS.
11.12 The Annual Fixed Charges shall comprise the following components:
b. Depreciation;
Less:
f. Non-Tariff Income:
11.13 Determination of Tariff of Standalone ESS including: a) for an BESS; b) for Hydro Pump
Storage System (PSP)
Capital Cost
11.13.1The proposed Regulations provides the principles and procedure for determination of
capital cost of the ESS. The capital cost of the ESS will form the basis for determination
of annual fixed charges. The principles for determination of capital cost of ESS are in
line with the practice being followed in determination of capital cost of a generating
station.
Additional Capital Expenditure
11.13.2The Additional Capital Expenditure for ESS in proposed Regulations will form the
basis for determination of annual fixed charges. The principles for determination of
additional capital expenditure of ESS are in line with the practice being followed in
determination of additional capital expenditure of a generating station and will be as
per MERC (Approval of Capital Investment Schemes) Regulations, 2022.
Capital Structure
11.13.3The proposed new Regulations provides for treatment of debt-equity ratio as 70:30 for
an ESS. The recommended approach for the debt-equity ratio is in line with the practice
being followed in determination of tariff of a generating station.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 162
Operating Parameters for ESS
a)For a BESS
After analysing various competitive bidding documents of SECI and NTPC, the
Commission has considered the following measurable operating performance
parameters:
a. Round-trip Efficiency of BESS shall be minimum 75% for each monthly operating
period.
Monthly Energy Discharged
Monthly Round Trip Efficiency of BESS = Monthly Energy consumed for Charging X100
Annual Availability of BESS = Mean of the system availabilities of all time blocks
during the year in which Beneficiary has scheduled power for charging/discharging
the BESS.
Actual Injection or Drawal MUi (A)
Availability in a time block = X100
Scheduled Injection or Drawal MUi (B)
Where,
i. i refers to the ith time-block (15 minutes) in the year where MUi (B)≠ 0.
b) For a PSH
a. The Monthly Cycle Efficiency of PSH shall be minimum 75% with respect to
metering point is already there in MERC MYT Tariff Regulation 2019, which is
retained in the draft MERC MYT Tariff Regulation 2024. The formula for the same
is introduced as under:
Annual Energy Generated
Monthly/Annual Cycle Efficiency of PSH = X100
Annual Energy consumed for Pumping
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 163
b. The Normative annual availability of the PSH project shall be 90% is already there
in MERC MYT Tariff Regulation 2019, which is retained in the draft MERC MYT
Tariff Regulation 2024. Planned maintenance shutdown, if any has to be informed in
1 month advance. The formula for the same is introduced as under:
PSH Annual Availability = Mean of the system availabilities of all time blocks
during the year in which Beneficiary has scheduled power
for Pumping/ Generation by PSH.
Actual Injection or Drawal MUi (A) by PSH
Availability in a time block = X100
Scheduled Injection or Drawal MUi (B) by PSH
Where,
i. i refers to the ith time-block (15 minutes) in the year where MUi (B)≠ 0.
ii. MUi(A)= Agreed Despatch Schedule between Licensee and PSH which shall
be finally sent to MSLDC for Generation/Pumping in the ith time block, in
MUs
iii. MUi(B)= Despatch Schedule provided by Distribution Licensee to PSH for
Generation/Pumping in the ith time block, in MUs.
11.13.5The recommended approach for the RoE is in line with the practice being followed in
determination of tariff of a generating station.
11.13.6 As regards Rate of Return on Equity, it has been noted that CERC in its draft MYT
Tariff Regulation 2024, has proposed Rate of Return on Equity of 17% for storage-
based hydro generating stations, including PSPs. The Commission for ensuring an
enabling ecosystem for ESS proposes the base rate of Return on Equity as 18% and
additional incentive/penalty of maximum 1% on Return on Equity has been considered
based on Ramp rate performance as under:
“For BESS…
137.7…
a. Base Return on equity shall be computed in rupee terms on the equity base
arrived under Regulation 137.4 at the rate of Eighteen Percentage (18%).
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 164
75% of rated capacity/minute subject to maximum performance linked ROE
upto 1%.
c. In case of reduction in Ramp Rate below the Average Ramp rate of 75% of rated
capacity/minute for reduction in Return on Equity of 0.2% for every 5% of
reduction in Ramp Rate subject to maximum reduction in Return of Equity upto
1%.
d. The base rate of return on equity as per Clause (a) shall be grossed up with the
For PSH…
138.7…
a. Base Return on equity shall be computed in rupee terms on the equity base
arrived under Regulation 138.4 at the rate of Eighteen Percentage (18%).
ii. In case of reduction in Ramp Rate below the Average Ramp rate of 75% of
rated capacity/minute for reduction in Return on Equity of 0.2% for every
5% of reduction in Ramp Rate subject to maximum reduction in Return of
Equity upto 1%.
b. The base rate of return on equity as per Clause (a) shall be grossed up with the
MAT rate computed in the manner specified under Regulation 33.2.”
Depreciation
11.13.7The proposed Regulations provides the framework of depreciation for ESS. The
methodology proposed is to work out the depreciation based on the practice being
followed in determination of tariff of a generating station. The depreciation is proposed
to be calculated by applying straight line method similar to that in case of a generating
station. The remaining depreciable value as on 31st March of the year closing after a
period of 15 years from the effective date of commercial operation of the station shall
be spread over the balance useful life of the assets.
11.13.8Useful life of Battery Pack has been considered as 12 Years whereas balance of
system’s useful life shall be 25 years. Useful life of PSH shall be 40 years from the date
of COD.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 165
11.13.9 The land involved in ESS is of varying nature viz. freehold, freehold with a condition
to return and leasehold. The freehold land which is required to be returned after
decommissioning of plant and leasehold land will be considered for depreciation.
Salvage value of the asset is considered as 10% as per Companies Act, 2013 with
exceptions in case of IT related software and in case of agreement, if any, with the State
Government. Depreciation rate in respect of BESS and PSH shall be arrived at annually
by applying depreciation rates or on the basis of expected useful life as specified in
Annexure I of the draft MERC MYT Tariff Regulations 2024. The relevant clause of
draft MYT Tariff Regulations 2024 is as under:
“137.6 Depreciation
a. Depreciation in respect of BESS shall be computed from the date of commercial
operation by applying Straight Line Method.
Provided that the remaining depreciable value as on 31st March of the year
closing after a period of 15 years from the effective date of commercial operation
of the station shall be spread over the balance useful life of the assets.
Provided that, Useful life of Battery Pack shall be 12 Years whereas balance of
system’s useful life shall be 25 years.
b. The value base for the purpose of depreciation shall be the capital cost of the
asset admitted by the Commission:
Provided that,
c. In case of existing assets, the balance depreciable value as on April 1, 2025, shall
be worked out by deducting the cumulative depreciation as admitted by the
Commission up to March 31, 2025, from the gross depreciable value of the assets:
d. The salvage value of an asset shall be considered as 10% of the capital cost of
the asset:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 166
ii. zero or as agreed by the BESS Developer with the State Government for
land; and
Provided also that any depreciation disallowed on account of lower
availability of the BESS or transmission system, as the case may be, shall
not be allowed to be recovered at a later stage during the useful life or the
extended life.
e. Depreciation in respect of BESS shall be arrived at annually by applying
depreciation rates or on the basis of expected useful life as specified in Annexure
II
...
138.6 Depreciation
Provided that the remaining depreciable value as on 31st March of the year
closing after a period of 15 years from the effective date of commercial
operation of the station shall be spread over the balance useful life of the assets.
Provided that, Useful life of PSH shall be 40 years from the date of COD.
b. The value base for the purpose of depreciation shall be the capital cost of the
asset admitted by the Commission:
Provided that,
d. The salvage value of an asset shall be considered as 10% of the capital cost of
the asset:
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 167
Provided that the salvage value shall be:
11.13.10 The recommended approach for the interest on working capital is in line with the
practice being followed in determination of tariff of a hydro generating station.
Operation and Maintenance expenses (O&M expenses)
11.13.11 The recommended approach for the O&M expenses for ESS is in line with the
practice being followed in determination of tariff of a hydro generating station. The
O&M expenses is proposed as 1% of the average capital expenditure up to the end
of the year for BESS and 2% of the average capital expenditure up to the end of the
year for PSH. The rate of escalation and procedure for Truing up has been considered
in line with Hydro Generating Stations. The relevant clause of draft MYT Tariff
Regulations 2024 is as under:
"137.10 O&M Expenses for BESS
Provided also that, the Normative O&M expenses shall be Trued up at the end
of the Control Period and Treatment to the variation in the normative and actual
O&M expenses shall be as per Regulation 10.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 168
a. The Normative Operation and Maintenance expenses in respect of PSH Plant
shall be allowed Two Percentage (2%) of the admitted capital expenditure
as on its date of commercial operation.
Provided that, the Operation and Maintenance expenses for each subsequent
year and in the Truing-up of the respective years of the Control Period shall
be determined in the same manner as specified in Regulation Error!
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Provided also that, the Normative O&M expenses shall be Trued up at the
end of the Control Period and Treatment to the variation in the normative
and actual O&M expenses shall be as per Regulation 10.”
Computation and Payment of Capacity Charge
11.13.12 The Commission has ensured that the ESS developer shall recover its full capacity
charges for the control period based on the schedule Availability. The Commission
has also considered the flat incentive of 20 Paisa per Unit for Cycle Efficiency above
Normative Cycle Efficiency of 75% for ESS. The relevant clause of draft MYT
Tariff Regulations 2024 is as under:
“137.11.
a. The fixed cost of BESS achieving COD after April 1, 2025 shall be computed on
annual basis, based on norms specified under these Regulations, and recovered on
monthly basis as Capacity Charge.
Where,
a) (i) refers to the ith time-block (15 minutes) in the month where MWh (i) (B)≠ 0.
…….
Incentive for Cycle Efficiency Above Normative Cycle Efficiency
a. Incentive for Cycle Efficiency above Normative Cycle Efficiency shall be payable
by every Beneficiary for the total energy scheduled to be supplied to the Beneficiary
in excess of the 75% of the energy consumed, at a flat rate equal to the 20 paise
per kWh on ex bus basis.
Provided that in case the energy generated in a month is less than the 75% of the
energy consumed for the month, then the Incentive payable by the Beneficiaries
shall be zero.
b. In case of BESS, the quantum of electricity required for charging the batteries shall
be arranged by the Beneficiary/ies duly taking into account the transmission losses
and distribution losses up to the bus bar of the BESS system, and in return,
Beneficiaries shall be entitled to energy during peak hours equivalent to 75% of
the energy utilized in charging the Batteries and the BESS shall be under obligation
to supply such quantum of electricity during peak hours:
138.11.
a. The fixed cost of PSH achieving COD after April 1, 2025, shall be computed on
annual basis, based on norms specified under these Regulations, and recovered on
monthly basis as Capacity Charge.
The Capacity Charge payable to PSH for a calendar month shall be:
Where,
f) (i) refers to the ith time-block (15 minutes) in the month where MWh (i) (B)≠ 0.
g) MWh (i)(A)= Agreed Despatch Schedule between Licensee or Beneficiary and PSH
which shall be finally sent to MSLDC for Pumping/Generating in the ith time block,
in MUs
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 170
h) MWh (i)(B)= Despatch Schedule provided by Distribution Licensee or Beneficiary
to PSH for Pumping/Generating in the ith time block, in MUs.
i) Annual Availability of PSH = Mean of the system availabilities of all time blocks
during the year in which Beneficiary has scheduled power for Pumping/Generating
the PSH.
(a) Incentive for Cycle Efficiency above Normative Cycle Efficiency shall be
payable by every Beneficiary for the total energy scheduled to be supplied to the
Beneficiary in excess of the 75% of the energy consumed, at a flat rate equal to the
20 paise per kWh on ex bus basis.
Provided that in case the energy generated in a month is less than the 75% of the
energy consumed for the month, then the Incentive payable by the Beneficiaries
shall be zero.
(b) In case of PSH Plant, the quantum of electricity required for pumping water
from down-stream reservoir to up-stream reservoir shall be arranged by the
Beneficiary/ies duly taking into account the transmission losses and distribution
losses up to the bus bar of the generating Station, and in return, Beneficiaries shall
be entitled to energy equivalent to 75% of the energy utilized in pumping the water
from the lower elevation reservoir to the higher elevation reservoir, from the
generating Station as requested by the Beneficiaries and the PSH Plant shall be
under obligation to supply such quantum of electricity.
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 171
12 Grant of Subsidies by State Government
12.1.1 The Section 65 of the Electricity Act, 2003 in India pertains to the "Duty to furnish
information, return, etc." As per Section 65, the licensees, generating companies, and
any other person connected with the business of generation, transmission, distribution,
or trading of electricity are required to provide information, returns, and statistics to the
appropriate State or Central Electricity Regulatory Commission, as needed provision
helps in maintaining transparency, monitoring the electricity sector, and making
informed regulatory decisions. The MOP recently notified Electricity (Second
Amendment) Rules, 2023, which has also included provisions pertaining to ‘Subsidy
accounting and payment’, casting certain responsibilities on the State Commission. The
FOR (2023) in its model regulations for Multi Year Distribution Tariff 2023, aligned
its subsidy clauses with MoP rules. Accordingly, the existing Subsidy Mechanism
Regulations needs to be amended to address the issue of data transparency for availing
the subsidies. Therefore, the Commission proposes the following proviso under
‘Subsidy Mechanism’ Regulations.
142.1 If the State Government requires the grant of any subsidy to any consumer or
class of consumers in the Tariff determined by the Commission, the State Government
shall pay in advance the amount to compensate the Distribution Licensee/person
affected by the grant of subsidy in the manner specified in this Regulation, with prior
intimation to the Commission.
142.2 The amount of subsidy agreed to by the State Government shall be provided in
the form of grant by the State Government.
142.3 The subsidy shall be passed on to eligible consumers through credit in their
electricity bills only in proportion to the extent to which the total requirement of the
Distribution Licensee is paid by the State Government:
Provided that in case of shortfall in actual release of subsidy, either because of errors
in estimation or for any other reason, such shortfall, shall be shown clearly in the
consumers’ bills and shall be distributed proportionately between the concerned
eligible consumers until such time as it is reduced or eliminated.
142.4 The Distribution Licensee shall clearly indicate the following details in the
consumers' bills:
b) the amount of State Government subsidy and the rate and period thereof;
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 172
c) the net amount payable.
142.5 The Distribution Licensee shall submit to the Commission on quarterly report
consisting of details w.r.t demands of subsidy raised by Distribution Licensee to the
State Government during the relevant quarter based on the accounts of the energy
consumed by the subsidised category and consumer category wise per unit subsidy
declared by the State Government, the actual payment of subsidy in accordance with
section 65 of the Act and the gap in subsidy due and paid as well as other relevant
details, as may be specified by the Commission and / or Ministry of Power vide its Rules
framed under the provisions of the Electricity Act 2003. The report on subsidy status
shall be hosted on the distribution licensee's website.”
Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024 for MYT Control Period Page 173