Background
The Electricity Act, 2003 (EA 2003) requires that while specifying the Terms and Conditions for determination of tariff the State Electricity Regulatory Commissions should be guided by Multi-Year Tariff (MYT) principles. Subsequent to the notification of the present MERC Tariff Regulations, 2005 certain developments have taken place, viz., CERC Tariff Regulations for the Control Period from April 1, 2009 to March 31, 2014 have been notified, and the National Electricity Policy and the Tariff Policy have been notified by the Ministry of Power, Government of India, which provide the guidelines for determination of the Revenue Requirement and tariff. The MERC also desired to incorporate the learnings of the first Control Period in the revised MYT Regulations. Hence, MERC decided to formulate the MERC MYT Regulations.

Salient Features
The MYT Regulations are Performance Based Regulations, with due reward being given to operational efficiency, and replace the present method of annual tariff determination with a multi-year tariff framework, wherein the tariffs will be allowed to change only due to change in the values of selected parameters in a pre-determined manner. One of the major problems faced by the Utility Companies, is the lack of long-term planning discipline. The MYT Regulations require the submission of a 5-year Business Plan, which will inter-alia require the Utilities to project the demand-supply scenario, the power procurement plan, and capital investments required to achieve the desired operational efficiency and meet load growth requirements over the 5-year period, rather than operating with a short-term outlook. The next Control Period of five years will commence on April 1, 2011 and continue upto March 31, 2016.
Unless the distribution licensees enter into long-term or medium-term contracts at optimum rates for the required quantum of power, there will always be a trade-off between shedding load or procuring costly power to mitigate the load shedding, which will result in higher tariffs. The objective of having a long-term plan is to ensure that load shedding is avoided to the extent practicable, and the distribution licensees ensure that adequate capacity is contracted under long-term/medium-term/short-term contracts as appropriate at optimum prices, to ensure that the consumers are supplied electricity on 24 x 7 basis, and the tariffs are also reasonable. The Investment Plan shall be a least cost plan for undertaking investments for strengthening and augmentation of the operations of the Utility, as applicable for Generation Companies, Transmission Licensees, and Distribution Licensees.
Under the MYT framework, the controllable factors and uncontrollable factors and their treatment has been stipulated. The impact of uncontrollable factors are a pass-through element in tariffs, while the impact – gain or loss – on account of controllable factors, has to be shared between the Utility and the consumers in a specified manner.
The MYT framework is based on the following elements, for calculation of Aggregate Revenue Requirement (ARR):
(i) Submission of a detailed Business Plan;
(ii) Submission of the forecast of ARR and expected revenue from existing tariffs and charges, based on the approved Business Plan, along with indexed parameters for each year of the Control Period;
(iii) The trajectory for specific variables shall be stipulated by the Commission, where the performance of the Applicant is sought to be improved through incentives and disincentives;
(iv) Mid-term review of performance vis-à-vis the approved forecast and categorization of performance variations as controllable factors and uncontrollable factors, shall be undertaken by MERC;
(v) The mechanism for pass-through of approved gains or losses on account of uncontrollable factors as specified by MERC;
(vi) The mechanism for sharing of approved gains or losses arising out of controllable factors as specified by the Commission.
(vii) Tariff will be determined for the entire Control Period at the beginning of the Control Period.
(viii) The gain or loss to the Generating Company/Licensee on account of uncontrollable factors shall be passed through as an adjustment in the tariff of the Generating Company/Licensee on a half yearly basis through the ‘Z’ factor.

The MYT Regulations have also addressed the operational norms and financial principles for the Generation, Transmission, Wires and Supply Business, including the method of giving returns (Return on Equity vs. Return on Capital Employed), separation of accounts of Wires and Supply Business, to facilitate Open Access and increase the level of competition, which in turn, will result in improved quality of supply and reduction in tariffs, as well as the distribution loss reduction trajectory, power procurement guidelines, etc.
Benefits to Consumers & Utility Companies
The MYT framework is designed to:
 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.
 Address the risk sharing mechanism between Utilities and consumers based on controllable and uncontrollable factors.
 Ensure financial viability of the sector to attract investment, ensure growth and safeguard the interest of the consumers.
 Review operational norms for Generation, Transmission, Distribution and Supply businesses, based on recent developments and actual performance in the first Control Period.
 Promote operational efficiency.
 Reduce tariffs in the long-term.

The copy of the detailed Approach Paper and the draft MERC (MYT) Regulations, 2010, have been uploaded on the Commission’s website, viz., www.mercindia.org.in, for public comments. Interested stakeholders may submit their comments and suggestions in writing to MERC, within

Mahagenco is the largest amongst state utilities in the country with an installed capacity of 6800 Mw thermal, 2469 Mw hydro and 852 Mw gas power. Thermal generation contributes around 68 per cent of the total generation of Mahagenco. About 13 per cent is contributed by very old units and 50 per cent is from units between 20 to 25 years old.

Very old units

Out of these 34 units, 10 units with capacities below 210 Mw are between 33 years to 42 years-old. These units are facing more forced outages and are difficult to maintain and operate under the norms given by the MERC and commercially incurring heavy financial losses. Hence, Mahagenco has recently decided to close down these units (Total installed capacity 570 Mw) and replacements units are proposed in place of these old units. These replacement units will be commissioned during 2013-14 – Koradi-1 to 4, Bhusawal 1, Parli 1&2 – all of these will be replaced with 660 Mw.

Paras & Nasik 1&2 are also being proposed for replacement.

 Other Old units:

Out of the remaining 24 units, 14 are more than 25 years-old and require major renovation and modernization (R&M) as their boiler components, equipments, breakers and cables have exhausted their life and have not been replaced earlier because of inadequate provision of funds.

Mahagenco has decided to take up a major R&M programme for the following units in phase I in the 11th plan period. Koradi unit no 6- 210 Mw will be replaced with World Bank funding while Nasik unit 3- 210 Mw will be replaced with the help of KFW, both to be completed by end 2013.  Similarly, the following units are also proposed for major R&M in phase II with the help of the World Bank in the 12th plan.

1) Bhusawal unit 2  – 210 MW with World Bank funding

2) Parli unit 3  -  210 MW with World Bank funding

3) Chandrapur unit 1&2  -  210 MW each with World Bank funding

Forced outages on account of boiler tube leakages (BTL) are a major concern for Mahagenco. This is because of the high erosion rate of boiler tubes as ash percentage in coal is relatively very high i.e., 40 per cent. To tackle this problem a committee was formed with a member from BHEL to suggest suitable preventive and remedial action. The committee recommended that boiler components such as economizer, LTHS, super heaters and reheater coils need more frequent replacement.

Mahagenco is implementing a five-year rolling plan to replace these boiler components in a phase-wise manner during annual overhaul of the units. This has helped reduce the boiler tube leakages to below three per cent.  Efforts are being done to reduce this to 1% within the next three years. Recently MahaGenco has encountered BTL soon after overhauling of units due to defective welding of factory welded joints. The matter has been taken up with BHEL. 

Environment issues: Ash emission

Presently the environmental norms have become more stringent. As most of the Mahagenco units are old, their ESP are designed for higher SPM. To meet the present SPM norms of 150mg/Nm3 Mahagenco has taken various steps such as replacing microprocessor based controls, retrofitting of ESP internals of ESP fields and maintenance of ESP fields during overhauls and plans to replace the ESP during major R&M of the units to comply with  new environment norms in 11th and 12th plan.

MahaGenco has also experimented with ESP fitted with bag filters for its Koradi units-5 and 6, but the experience is not encouraging.

Recently Mahagenco has taken up the installation of AFGC system for reducing emission to below 150 mg/nm3 at the following plants.

ESP’s of new units are designed with 70 mg/Nm3 Paras (2 X 250 Mw) and Parli (2 X 250 Mw), Khaperkheda (1 X 500 Mw) and all future projects.

Mahagenco has also decided to put dry fly ash evacuation systems for its new plants i.e., Khaperkheda, Paras and Parli, along with Geho pump for evacuating ash in dense phase. Mahagenco has also been making efforts to maximize fly ash utilization. Present fly ash utilization is around 50 per cent and increased from 2006-07.

Besides short term, long term agreements on BOT basis with cement manufacturers to install dry ash evacuation system and to lift the ash through silos for their use are under finalisation.

Quality of coal

MahaGenco’s coal requirement for its thermal plants is 40 mmtpa. Major coal companies supplying coal to Mahagenco under fuel supply agreements are listed below (with the percentage shares):

Western Coalfields – 61 per cent

Mahanadi Coalfields – 16 per cent

South east coalfields – 16 per cent

Singareni Coal Companies – 6 per cent

Generally E&F grade coal is received by Mahagenco Power Stations and there is a demand/supply gap due to inadequate production of coal. To bridge the gap Mahagenco has to import coal.

For 2010-11 Mahagenco is procuring about 3.35 mmt of coal to bridge the gap as per the directives of ministry of power.

The production from cost-plus mines (Bhatadi, Junad, etc) has started.

This import coal is used in the plant by blending it with indigenous coal so that the average quality shall improve along with loadability of the units.

Mahagenco receives coal with about 40 per cent ash which causes heavy erosion resulting in frequent boiler tube leakages. To overcome this problem Mahagenco has decided to maximize use of washed coal and accordingly placed orders for washed coal of about 10 mmtpa from WCL area, 2 mmtpa from SECL, 3 mmtpa from MCL in order to reduce the ash.  

Mahagenco also faces unloading problems of wagons because of receipt of heavy lumps and shales along with coal when crushers at loading end are under maintenance.

Constraints during the rainy season

Wet coal

Mahagenco receives about 60 per cent coal from WCL. This coal contains excessive mud and gets sticky during the monsoons. Such wet and sticky coal decreases the unloading rate due to choking of various coal chutes in the unloading stream. The issue of wet and sticky coal has been taken up with WCL from time to time. However, WCL has expressed its inability to avoid the supply of wet and sticky coal during the rainy season.

Plant design

Most of the existing CHPs are of old design based on the then coal GCV and have small-sized coal chutes and larger number of transfer points with Y chutes, thereby increasing the potential at various points until the wet coal reaches the coal mill. Considering the above aspect, the CHP at Khaperkheda thermal plant was designed later with minimum transfer points and Y chutes with adequate overload capacity and redundancy in the system.  Coal Handling Plants of Units 6 and 7 of Parli, units 3 and 4 of Paras have single unloading streams and as such without any redundancy and gets stuck-up if any problem occurs in the existing stream.

Problems at the loading end

At most of the sidings loading in rakes is done by pay loaders and therefore mud getting loaded along with coal at the bottom cannot be prevented. On many occasions crushers at the loading end are under maintenance and in such cases the coal company crushes the coal with dozers which generates a lot of fine dust particles, aggravating the choking problems in the plant. These matters are being taken up regularly with coal companies but very little improvement is seen.

Efforts to find solutions

Despite all the above problems Mahagenco is taking all possible measures to improve unloading. To clear the choke-up in the system, additional manpower is deployed at transfer points, chutes and crusher house round the clock. Manual unloading is also carried out by deploying extra manpower and machines like pay loaders. Moreover 48 engineers from MahaGenco are now deputed at various loading points/sidings for monitoring the coal quality before and during loading. We hope all these steps will lead to improvement in the quality of coal loaded on the rakes and the speed of unloading.

Business Standard

The cabinet note to this effect has been circulated by the ministry of heavy industries.  The new levy will translate to a five per cent basic duty on the total value of the equipment, plus 10 per cent of this basic duty as countervailing duty (CVD) and four per cent of the CVD amount as a special additional duty.

The IPPs which include Reliance Power,  Tata Power, Mumbai, Essar Power  and Adani Power  have written to the government against the duty, arguing that it will increase project costs for power generation companies that are working on financial closure based on less expensive Chinese equipment. The private producers have warned the government that the higher import duty will increase project costs, consequently increasing power tariffs for consumers and derailing the government’s plans to increase India’s power generating capacity.

The move to impose a 14 per cent import duty has been prompted by the government’s intention to offer price competitiveness to Indian equipment manufacturers such as BHEL, Larsen & Toubro Limited and various new JVs formed by Indian companies with foregin equipment suppliers.  

According to planning commission, Chinese power equipment suppliers have won orders for 36,800 Mw worth of power equipment over the past two years.  This is equivalent to more than half the capacity that India is expected to install by 2012.  Reliance  Power has placed two orders with a combined generating capacity of 9,260 MW with Chinese suppliers.  Major Chinese suppliers to the Indian power sector include Dongfang Electric Corporation Limited  and Shanghai Electric Group Company Limited. 

From 2007 through 2012, India’s total investment in creating new generating capacity will be US $140 billion, according to planning commission estimates. In the following five years (2012-17), India’s domestic capability to manufacture power generating equipment will reach 43,000 Mw, rising from 10,000 Mw at present, but far short of the targeted 100,000 Mw  by 2017.

Indian power equipment manufacturers have formed several joint ventures to augment capacity. Reliance Infrastructure is the only company to join forces with the Shanghai Electric Corporation. Industry analysts said that the Indian government’s restrictions on the import of telecom equipment from China because of security concerns discouraged Chinese companies from collaboratingr with Indian partners in the power sector. Visa restrictions on Chinese workers and technocrats in India was also a hindrance.

Commenting on equipment supplies from China, R.S. Sharma, the chairman and managing director of NTPC Limited  said: “As far as NTPC is concerned, we have our own technical specifications that are very high. We have got guarantee parameters. So if any bidder meets our requirements, and they fulfill those guarantees and can supply at quite low prices, then why should NTPC have a concern? We always welcome competition, and we are quite okay with that.”

According to a member of the planning commission, equipment imports from China helped bridge the gap in demand and supply from domestic manufacturers, but created a situation in which foreign manufacturers gained an advantage over Indian companies. The import duty aims to create a level playing field. Also, continued dependence on imported equipment will prevent development of local component and spare-parts vendors, which will be detrimental to national interest.

“The inventory is rising mainly due to shortage of railway wagons,” Bhattacharyya added. On an average Coal India needs around 210 wagons per day but the firm was getting only 170 wagons per day.

In the last fiscal, the 100 per cent government-owned firm produced 431.5 million tonnes of coal meeting the requirement of use industries like power. The Centre is diluting its 10 per cent stake in the upcoming IPO, which is expected to raise Rs 12,000-15,000 crore.

To meet the rising coal requirement of power major NTPC, Coal India said it will soon come out with a tender to import the raw material for the power PSU.

“We will float the tender in next few months to import six million tonnes of coal for NTPC,” Bhattacharyya added. The country’s overall coal output during 2009-10 stood at about 532 million tonnes while consumption was over 600 million tonnes.

What is the rationale behind introducing the Renewable Energy Certificates?

Under the Prime Minister’s mission on climate change, out of the country’s total electricity consumption, 15 per cent should come from renewable sources by 2020 and to achieve this goal the Central Electricity Regulatory Commission (CERC) along with the Forum of Regulators created the renewable purchase obligation (RPO) under which each distribution utility will have to source at least five per cent of its total power purchase in 2010, increasing by one per cent every year till 2020.

While some states are blessed with renewable energy resources, others are not, and among those who are blessed with renewable energy sources, very few have taken proactive steps to achieve their renewable potential.

Those distribution utility which don’t have adequate power purchase agreements from renewable sources to meet their RPO requirements can buy RECs and it will considered deemed fulfilment of RP obligations.

How will the REC market function and by when will the trading start?

As in the case of share markets, there are designated depositories in the case of RECs too. The National Load Dispatch Centre (NLDC) will work as depository of the RECs and they can be traded through the two power exchanges IEX and PXIL which are currently operating. We are trying to launch the trading of RECs by the end of September.

The industry fears that in the absence of any punitive mechanisms or non- mandatory nature of the RPO, there will be very few takers for the RECs?

That’s why we have suggested to the government that it should include the tariff policy for non-solar sources of renewable energy in the National Mission on Climate Change as it did in the case of solar power. Let me also add that all the state level regulators have agreed to RPOs at the Forum of Regulators. They have to now frame the respective state- wise rules.

But state distribution utilities are complaining that those who hold RECs will indulge in profiteering and it will lead to an increase in tariffs for the common consumers?

To prevent profiteering, we have fixed the minimum and maximum price at which RECs can be traded and the market can discover the price in that band. Also, we are not allowing the traders to participate in REC trade. And these restrictions will be in place at least till the REC markets in country become broad based and develop sufficient depth.

Even if it is made mandatory to meet RP obligations through RECs, very few state distribution utilities have sufficient cash to buy them?

In that case, the designated state government agency can buy them. For example for Maharashtra, the Maharashtra Energy Development Agency (MEDA) will buy RECs on behalf of the Mahadiscom and Mahadiscom can claim the funds spent by state’s designated agency through its annual revenue requirement (ARR) and pay it back to MEDA.

In the case of solar, the industry has expressed apprehensions, especially about projects which are not covered by the national solar mission and are subject to state regulatory mechanism as there is wide variance between tariffs set by different state electricity regulators.

If someone is not happy with the tariff determined by the SERCs then that generator should challenged it before Appellate Tribunal for Electricity (ATE).

Do you see in the near future energy from renewable sources achieving grid parity?

The power from wind sector has already achieved that status. One can easily compare the cost of wind power with power from gas-based stations. In the Indian context, it is also achievable in the case of solar. The price for setting up a solar power station is already coming down significantly and the cost of fuel in the case of thermal power is also increasing.

How will National Fund for Development of Clean Energy be utilised?

It is completely the government’s prerogative but I believe that a part of it will be used for subsidising solar projects which will come post 2013, as the facility of bundling of solar power with unallocated capacity of NTPC is till only 2013.