ANDHRA PRADESH ELECTRICITY REGULATORY COMMISSION 4 th & 5 th Floors, Singareni Bhavan, Red Hills, Hyderabad O.P.No.

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1 Between ANDHRA PRADESH ELECTRICITY REGULATORY COMMISSION 4 th & 5 th Floors, Singareni Bhavan, Red Hills, Hyderabad O.P.No. 17 of 2009 Dated: Present Sri A. Raghotham Rao, Chairman Sri R.Radha Kishen, Member Sri C.R.Sekhar Reddy, Member 1. Transmission Corporation of Andhra Pradesh Ltd 2. Central Power Distribution Company of A.P.Limited 3. Eastern Power Distribution Company of A.P.Limited 4. Southern Power Distribution Company of A.P.Limited 5. Northern Power Distribution Company of A.P.Limited. Petitioners And M/s. Spectrum Power Generation Ltd... Respondent This petition coming up for hearing on in the presence of Sri. P. Shiva Rao, Advocate for the petitioners and Sri.S.Ravi, Advocate for the respondent, the Commission passed the following: ORDER On petitioner No.1 filed the above mentioned petition u/s 86 of the Electricity Act, 2003 read with Regulation No. 8 & 9 of APERC Business Regulations seeking to reduce the working capital amount to the actual borrowings for the tariff year i.e., to and for previous tariff years for 208 MW gas based power project at Kakinada of respondent company. 2. Earlier, petitioner No. 1 filed similar petitions with regard to certain other subject matters in respect of respondent herein. However, the respondent challenged jurisdiction of the Commission and obtained stay of further proceedings in all those matters initiated by the Commission, vide Page 1 of 7

2 orders granted by the Hon ble High Court of Andhra Pradesh in W.P. No. 8701/2004. In view of the above, the Commission is advised to keep the present petition in abeyance till disposal of the said writ petition or till suitable clarification is obtained from the Hon ble High Court to proceed further in these matters. Subsequently, on respondent herein withdrew W.P. No / Thereafter, on notice was issued to the petitioner No.1 directing it to indicate whether it intends to prosecute the present petition. In pursuance thereof, on a common affidavit on behalf of all the petitioners was filed stating that they decided to prosecute further proceedings. 3. The averments mentioned in the petition filed by the petitioner, in brief, are as follows: i) In the ARR filed for the year , petitioner indicated the fixed charges of respondent as Rs crs, based on working capital amount claimed by respondent. ii) This petition is filed by the petitioner seeking reduction of working capital amount of respondent to actual borrowings, Rs crs for the tariff year to and for the previous tariff years. iii) GoAP has selected respondent through MOU route to establish a combined cycle gas based power station with an installed capacity of 208 MW. Petitioner entered into an Amended and Restated Power Purchase Agreement on , with capital cost of project as Rs crs. iv) The respondent achieved the combined cycle commercial operation of the project on v) As per PPA, the interest on working capital, one of the elements of fixed charge is computed in every tariff year on the working capital requirement as mentioned in detail in Article of PPA. Page 2 of 7

3 vi) Respondent borrowed total working capital amount of Rs Crs. for the period from to till date from IOB, the working capital lenders to respondent. vii) Based on the above information, the petitioner issued a notice to respondent vide Lr. No. CE/ Comll / SE-1 / BPP-1 / ADE-3 / IWC /D. No. 143/04, dt informing that the petitioner proposes to allow interest on working capital, limiting the working capital amount to the actual borrowings or as per provisions of PPA whichever is less, for the current tariff year and previous tariff years. viii) No reply is received from respondent ix) In view of the above, the prayer of the petitioner is as under: (a) To reduce the working capital amount to the actual borrowing or as per provisions of PPA whichever is less. (b) (c) (d) To allow petitioner to pay future interest on working capital (fixed charges) based on the reduced working capital amount. To allow petitioner to revise previous interest on working capital (fixed charges) from inception based on the reduced working capital. To pass interim order u/s 94 (2) of Electricity Act, 2003 directing the respondent, to claim the fixed charge based on reduced working capital amount, pending disposal of this petition. 4. On counter affidavit filed on behalf of respondent is received. The reply of respondent, in brief, is as follows; i) The PPA is duly executed agreement between the parties and the same cannot be revised on a unilateral application to this Commission by one of the parties to the PPA, i.e., the petitioner. The said PPA was executed between the parties, prior to constitution and setting up of this Commission, Page 3 of 7

4 and thus the terms agreed to between the parties and reflected in the PPA, cannot be reviewed by this Commission as prayed for by the petitioner. ii) The petitioner has not placed all the relevant provisions of PPA before the Commission. For reference of the Commission, the relevant provisions of PPA are mentioned below (a) Article 1.1 (xlliv) of PPA which define the working capital, includes four components (i) 1/12 th of O & M Expenses, (ii) Actual Cost of one year s inventory of maintenance spares at a value not exceeding 1% of Capital Cost, (iii) Fuel Cost equivalent to consumption of one half of one month s consumption of Naptha; and (iv) Twice the estimated average monthly Fixed Charges and variable charges of the bills. (b) Article (iii) of PPA, which defines one of the components of fixed tariff, i.e., interest on working capital as interest on working capital, at such rates as may be actually obtained by the company from time to time based on the working capital lenders appropriate credit rating of the company assuming that the company is in good credit standing. (c) The PPA does not envisage the payment of interest on working capital, as part of fixed cost, limiting the same to the working capital amount to the actual borrowing or as per the provisions of PPA whichever is less. The contention of petitioners therefore is not in accordance with the provisions of the PPA and is liable to be dismissed. The petitioners under the garb of the instant petition want to wriggle out of the bargain as concluded between the parties and reflected in the PPA. Such attempt by the petitioner is not permitted in law. iii) The contents of notice of the petitioner No.1 are incorrect and are denied. As the various contentions mentioned in the petition filed by the petitioner are incorrect it is requested that the petition may be dismissed with costs. Page 4 of 7

5 5. Heard the counsel for the parties concerned. The issue that arises for consideration of the Commission is whether the prayer of the petitioners as under can be acceded to: To reduce the Working Capital amount to the actual borrowing or as per the provisions of the PPA which ever is less. 6. The wording of the prayer of the petitioner has been examined. Exfacie, the petitioner is making a request which is beyond the scope of the PPA. The petitioner is within his rights if he seeks a direction for implementation of a clause of the PPA or seeks clarification as to the meaning of a particular clause, but he cannot go beyond the scope of the PPA and ask for which ever is less. The prayer has to be legally limited to seeking a direction to implement a particular clause of the PPA or to give a clarification or interpretation of a particular clause. 7. Hence, it has to be examined whether the PPA provides for limiting the working capital amount to actual borrowing instead of calculating based on the normative value. 8. The relevant clauses of PPA are as follows: ARTICLE 1.1 (xlliv): Working Capital: means the amount, in rupees, as arrived as on the Fixed Charge Computation Date, for expending on the inputs required for generation of power prior to periodic realization of revenue by sale and shall be computed by adding the following items, namely : /12 th of the Operation and Maintenance expenses as specified in Article 3.2 (a) (v) hereof. 2. Actual Cost of one year s inventory of maintenance spares at a value not exceeding 1% (one percent) of the Capital Cost (less one fifth of Page 5 of 7

6 the value of spares included in the Capital Cost procured along with the equipment for the first five years). 3. Fuel Cost equivalent to consumption of one half of one month s consumption of Naptha (supplementary fuel) only based on 68.50% PLF or actual stocks of supplementary fuel maintained whichever is less. 4. Twice the estimated average monthly Fixed Charges and Variable charges of the bills payable by the Board during the applicable Tariff year. For this purpose, the estimated monthly Fixed Charges and Variable Charges of the bill for the Initial and subsequent Tariff Years shall be arrived at based on a 68.50% PLF limited to actuals of the Previous Tariff year. For the Tariff Year prior to the Initial Tariff Year, the estimated monthly Fixed Charges and Variable Charges of the bill shall be arrived at based on a PLF of 68.50% and such Fixed Charges and Variable Charges shall be recalculated as of the Commercial Operation Date of each Generating Unit. ARTICLE 3.2.1(iii): (iii). Interest on Working Capital, at such rates as may be actually obtained by the company from time to time based on the Working Capital lenders appropriate credit rating of the company assuming that the company is in good credit standing (the rate in effect from time to time, herein after referred to as Working Capital Rate). 9. As per Article 1.1 (xlliv), the working capital has to be arrived at by adding the four items mentioned therein. There is no mention at all in this article to take into account any figures of borrowings made from banks or financial institutions towards working capital. 10. In the aforementioned clause of the PPA, there is neither a mention of borrowings from banks / financial institutions in the context of working capital Page 6 of 7

7 calculation, nor is there any provision to limit the working capital figure to any such borrowings. 11. Hence, the Commission holds that the prayer of the petitioner cannot be accepted. 12. In the result, the petition is dismissed. This order is corrected and signed on this 18 th day of June Sd/- Sd/- Sd/- (C.R.Sekhar Reddy) (R.Radha Kishen) (A.Raghotham Rao) MEMBER MEMBER CHAIRMAN The order in O.P.No.17 of 2009 was prepared and signed by the demitting Member on i.e., on his last working day. On the same day, the Chairman accepted the same and signed on Where as Member/Finance, who was at Delhi in the meeting of FOIR and returned to office on and after reading the same, he signed the order on Hence, the Secretary of the Commission is directed to put the date of the order as , on which date the last signature was subscribed. //Certified copy// Sd/- CHAIRMAN Page 7 of 7