Before the Karnataka Electricity Regulatory Commission, Bangalore 

This the 10th Day of April, 2003 

Present 

1. Shri Philipose Matthai, Chairman
2. Shri HR Gopal, Member
3. Smt. Nalini M.K. Menon, Member 

In the matter of Approval of the Draft Power Purchase Agreement of Hydro Stations between Karnataka Power Transmission Corporation Limited & Karnataka Power Corporation Limited.

ORDER 

1. Application for approval of Draft PPA 

1.01 Sale of Energy from KPCL to KPTCL at present is governed by the Tariff fixed by the GOK vide GOs issued from time to time in respect of all the Hydel stations except Kodasalli, Gerusoppa Project and Bhadra RBC Unit-II. Details of present tariff are as under: -

Sl. No.	Generating Station	Tariff in Ps/U	GO No. & Date	Date of Effect
1.	SGS	12.60	DE 216 EEB 92/8.6.93	April 1993
2.	BHEP	12.60	DE 216 EEB 92/8.6.93	April 1993
3.	LPH	21.18	DE 216 EEB 92/8.6.93	April 1993
4.	Chakra	28.12	DE 216 EEB 92/8.6.93	April 1993
5.	NPH	35.60	DE 216 EEB 92/8.6.93	April 1993
6.	SPH	35.60	DE 216 EEB 92/8.6.93	April 1993
7.	VHEP	56.00	DE 216 EEB 92/8.6.93	April 1993
8.	Mani Dam	56.00	DE 216 EEB 92/8.6.93	April 1993
9.	GHEP	68.19	DE 216 EEB 92/8.6.93	October 1991
10.	Kadra	150.61*	DE 216 EEB 92/8.6.93	June 1997
* Provisional Staff

1.02 In respect of Kadra Project, the tariff has been fixed by GOK provisionally at 150.61 paise per unit with the condition that the final tariff shall be fixed after the commissioning of the Project. Accordingly, the tariff for the Kadra Project along with the tariffs for Kodasalli, Gerusoppa and Bhadra RBC Unit-II have to be fixed for the first time. 

1.03 KPCL had filed its petition for revision of tariff in respect of all these generating stations owned and operated by it (except for Raichur Units 5 & 6 for which PPA had been signed by KPTCL) vide its letter No. A1 Q5 D/Tariff dated 24.10.2000. KPCL further submitted to the Commission vide its letter no. A1 Q5 D/Tariff dated 6.11.2000 that the examination of tariff matter of generating stations was within the jurisdiction of the Commission in view of the deletion of sub-section (2) of Section 43A of the Electricity (Supply) Act, 1948 under Section 51 of ERC Act 1999 for the State of Karnataka vide Notification No. SO 826(E) dated 14.9.2000 issued by MOP.

1.04 However, the above proposal was objected to by KPTCL stating that KPCL cannot approach the Commission directly and the proper procedure is for KPTCL to negotiate a PPA with KPCL and approach the Commission for approval.

1.05 The Commission upheld the contention of KPTCL and ordered on 24.5.2001 as follows:- 

�gthat KPTCL shall negotiate a PPA with KPCL. KPTCL shall approach the Commission with the negotiated draft PPA within 90 days of this order, failing which KPCL is free to revive its application before the Commission for a suitable decision�h. 

However KPTCL was able to file a draft PPA in respect of existing Hydel stations only on 7.3.2002 due to various delays in negotiating the PPA with KPCL.

2. Filing of the PPA 

2.01 KPTCL, vide its letter no. KPTCL/SEE/Proj/AEEE3/2431-40/01-02 dated 07.03.2002, forwarded the draft PPA in respect of KPCL�fs existing Hydel stations viz., 

1. Sharavathy Generating station 

2. Linganamakki Dam Power House 

3. Nagjhari Power House 

4. Supa dam Power house 

5. Varahi Power House 

6. Mani Dam Power House 

7. Kadra Power House 

8. Kodasalli Power House 

9. Gerusoppa Power House 

10. Ghataprabha Power house 

11. Bhadra Power House 

2.02 Salient features of the Draft PPA are as hereunder: 

1. Draft PPA is based on Hydro norms as per two-part tariff notification of GOI dated 30.3.1992. 

2. The tariff for the project is based on the Design Energy, which means the quantum of energy, which could be generated in a 90% dependable year with 95% Availability of installed capacity of the Station. 

3. The two-part tariff shall comprise the recovery of annual capacity charges, energy charges, and royalty on water and incentive on secondary energy that means the energy generated in excess of Design Energy on annual basis in the Station. 

4. Deemed Generation is allowed on Availability of 85% and above for any Tariff period which means the difference between Tariff Design Energy and Net Metered Energy (NME). This is allowed if the NME falls short of Tariff Design Energy for reasons solely attributable to hydrology during the first seven years and due to any event or condition solely attributable to the Buyer System. 

5. The rate of return on equity shall be at 15% of equity. 

6. O&M and Insurance expenses for the first year will be equal to actual O&M cost for Financial Year 2001. O&M expenses in each subsequent tariff period after the first tariff period shall be increased by 6%. 

7. Auxiliary consumption inclusive of Transformation losses is subjected to a ceiling of 1% of energy generated. 

8. KPTCL shall provide Letter of Credit equal to two months projected payments. Letter of Credit shall be established not later than 30 days from the effective date. 

9. Royalty, if applicable, is payable at a rate of 4 paise per kWh of NME. Provided that, if the GOK revises this rate, such new rate shall be adopted for payment of royalty. 

10. The Secondary energy rate is 15 paise per kWh of NME in excess of Tariff Design Energy and the total incentives (along with Secondary Energy Charges) shall not exceed 3.28% of equity. 

3. Validation and Public Hearing 

3.01 After preliminary scrutiny of the Draft PPA, KPTCL was requested to furnish the following information, to enable the Commission to further examine the Draft PPA in detail, vide KERC letter no. S/04/1/833 dated 24.05.2002.

1. Tariff working details as the Commission needs to know what would be the financial impact due to the proposed PPA on KPTCL/KPCL. 

2. The bases on which equity, reserves, and loans are allocated to different projects. 

3. Clarification regarding the project completion cost. 

4. Basis for working out secondary energy charges. 

5. Working details for tariff Design Energy and Design Energy of each of the projects approved by CEA. 

6. Copies of Detailed project reports in respect of all the Hydro-Projects for which tariff has to be determined by the Commission for the first time and those pertaining to R & M works, covered under the Draft PPA. 

3.02 In response to Commission�fs letter dated 24.5.02, KPTCL provided reply along with details vide letter-dated 22.7.2002. 

3.03 A draft Notice was forwarded to KPTCL on 30-8-2002 with a request to arrange for publication of the Notice calling for objections from the public for the proposed PPA between KPTCL and KPCL, as required under the KER Act, in two issues of two leading English and Kannada language daily news papers. 

3.04 The above Notice was published by KPTCL in Kannada Prabha, Vijaya Karnataka, The Hindu and the Times of India on 23.09.2002 and 24.09.2002. Objection Petitions were to be filed by the Objectors within 30 days from the first publication of the Notification. However no Objections were received. 

4. Applicability of GOI Norms 

4.01 The Draft PPA is based on Hydro Norms as per the two part Notification of GOI dated 30.03.1992. This Notification was issued under the provision of the Sub-section (2) of Section 43 A of the Electricity (Supply) Act, 1948. GOI has subsequently deleted the provision of 43 A (2) in so far as the State of Karnataka is concerned w.e.f 14.9.2000 vide Notification No. S0 826 (E) issued by MOP. In the light of this, the adoption of GOI Notification dated March 1992; subsequent draft notifications of CEA or CERC order regarding norms on Tariff fixation are not applicable for the State of Karnataka. 

4.02 The above Orders/Notifications are considered as guidelines only for arriving at the operational and financial norms that could be reasonably adopted for fixation of tariff.

5. Project-wise/ Station-wise Tariff 

5.01 According to the draft PPA, the following stations have been clubbed together and tariff has been proposed by KPCL project wise:

1. Sharavathi Generating Station Valley       } Sharavathi 

2. Linganamakki Dam Power House             } Project 

1. Nagjhari Power House                                  } Kali Valley 

2. Supa Dam Power House                               } Project 

1. Varahi Underground Power House          } Varahi Valley 

2. Mani Dam Power House                              } Project 

5.02 According to the details provided by KPCL in the draft PPA and in the tariff working, all the costs and expenses have been considered project-wise in respect of the above stations. The Commission also notes that the existing tariffs were determined by the Government project wise. The Commission agrees to the proposal of KPCL to determine the tariff project-wise for the above stations. However Availability of each of the stations should be computed separately for determining Availability based incentive/ disincentive, which is discussed later in this Order. 

5.03 KPCL has proposed station wise tariff in respect of the following stations:

1. Kadra Power House 

2. Kodasalli Power House 

3. Gerusoppa Power House 

4. Ghataprabha Power House 

5. Bhadra Power House including RBC Unit-II 

5.04 The Commission notes that in the case of Bhadra Power House, RBC Unit-II was commissioned in 1998 and the other units in Bhadra station were commissioned in 1962-1964. Since the value of the Design Energy for Bhadra RBC Unit-II is indicated in the DPR of that project and the unit has been commissioned after 1.1.1997, it may not be appropriate to club the old and the new units of Bhadra Project together for the purpose of tariff. There may be some common infrastructure being shared by all the units, but the cost of completion of RBC Unit-II is available exclusively as per the information provided by KPCL. Therefore, the Commission directs that the tariff for Bhadra RBC Unit-II and for old Units of Bhadra Station shall be determined separately. The Commission agrees to the station wise tariff in respect of all the other stations listed in para 5.03 above. 

5.05 The components, which are to be considered for determination of Tariff viz., Capital Expenditure, Additional Capital Expenditure, the various Operational and Financial Norms, etc., are discussed in the following Sections. 

6. Project Cost 

6.01 Capital Expenditure 

1. KPTCL has stated as follows: 

1. The Gross Block and Net Block for all the projects are considered as per the Annual Report of KPCL ending March 31, 2001. Any additions to the project cost are proposed to be included to the Gross Block and Net Block after completion of the audit by AG auditors for the Accounting Year 2001-02. 

2. The allocation of the Equity, Reserves and loans are made to various projects, considering the Gross Block/Net Block balances held at the end of March 31, 2001. 

3. In respect of new projects i.e., Kadra, Kodasalli, Gerusoppa and Bhadra RBC Unit-II, capital cost as per actuals up to 31st March 2001 and additional capital expenditure incurred during the year 2001 -2002 have been considered in the tariff working. 

2. As per the information provided by KPCL vide letter dated 8/9 Aug 2002 the costs approved by the Planning Commission, the actual completion cost up to 31.03.02 in respect of these new projects are provided in the following table: 

Sl. No.	Name of the Project	Cost Approved by Planning Commission  (Rs. Crores)	Actual Completion Cost up to 31.03.2002 (Rs. Crores)	Excess over approved cost  (Rs. Crores)	Excess in %	Date of Commissioning
1.	Kadra	87.67	434.05	346.38	395.09	June 77 to 99
2.	Kodasalli	75.37	283.76	208.39	276.48	June 98 to 99
3.	Gerusoppa	159.43	517.53	358.10	224.61	Feb 01 May 01
4.	Bhadra RBC	6.90	18.60	11.70	169.56	March 98

3. The Commission notes that in respect of these new projects the actual expenditure has overshot the approved capital cost and in one of the projects, up to four times the original cost. 

4. In this regard, KPCL has stated that,�h initially, financing of these projects was approved by the World Bank in the years 1987-88. Since stringent terms and conditions stipulated by the World Bank could not be fulfilled due to various reasons, the World Bank withdrew the financial assistance in the year 1993. The projects were delayed due to environmental and other obstacles created by the local people. However, KPCL implemented the project after clearance from Supreme Court and other authorities. On account of the above reasons, the projects faced both cost and time over runs. However, KPCL mobilized funds through PFC for the implementation of the projects�h. 

5. It is further stated by KPCL that they have not approached the CEA for specific approval of the revised estimated capital expenditure in respect of the above projects and that the capital expenditure incurred on these projects are deemed to have been approved by the Planning Commission since the Annual Plans are approved by the Planning Commission. 

6. According to GOI Norms dated 30.3.92, the approved project cost shall be the cost, which has been specified in the techno-economic clearance of the Authority (CEA). It is further stated in the norms that the actual capital expenditure incurred on completion of the project shall be the criterion for the fixation of tariff. Where the capital expenditure exceeds the approved project cost, the excess expenditure as approved by the Authority shall be deemed to be the actual expenditure for the purpose of determining the tariff; provided that such excess expenditure is not attributable to the generating company or its supplier or contractors. 

The Commission therefore decides that in respect of Kadra, Kodasalli, Gerusoppa and Bhadra RBC-II Projects, since these projects have been commissioned after 1.1.97 and also since KPCL has not obtained specific approval of CEA for the revised project cost as on the completion date, subject to obtaining such approval, actual capital expenditures as furnished by KPCL are allowed to be considered for tariff calculation. 

6.02 Additional Capital Expenditure 

1. Additional Capital Expenditure is defined in the draft PPA as �gthe Capital expenditure incurred or proposed to be incurred by the Seller after the effective date in respect of a generating station towards approved renovation, replacement, modernization and/or updating works and any other such expenditure on new schemes to be incurred with the consent of the Buyer and KERC from time to time�h.

2. Annexe-II of the draft PPA contains statements of various schemes proposed to be taken up by KPCL for renovation, modernization and uprating of power stations in Sharavathy Valley, Kali Valley, Varahi and Bhadra projects. Budgetary estimated costs of all the schemes along with expenditure incurred up to 31.3.2001 in respect of some of the schemes have been furnished. Subsequently KPCL has furnished the Detailed Project Reports along with details of scheme costs approved by MOP and expenditure incurred up to 31.3.2002 and the progress achieved in respect of schemes, which are already taken up for implementation. The details are furnished in the following tables:

Renovation, Modernization and Up gradation of Sharavathi Valley Project 
& Linganamakki Dam Power House

Renovation, Modernization and Up gradation of Kali Project

Remarks: * APDP cell has limited the cost of the project to Rs. 484.00 lakhs

Renovation, Modernization and Up gradation of Bhadra Project

Renovation, Modernization and Up gradation of Varahi Project

3. The Commission notes that some of the schemes have still not been taken up for implementation. The Commission also notes that approval of MOP/GOI has been obtained only in respect of some of the schemes for renovation, modernization and uprating and the schemes are under various stages of implementation and some expenditure has been incurred up to 31.3.2002.

4. Considering all the above aspects, the Commission decides as follows regarding Additional Capital Expenditure:

The R&M schemes which have been approved by MOP/GOI and which are already taken up for execution are deemed to have been approved by the Commission. In case the actual completed cost of these schemes is more than the approved cost, the same shall be subject to the approval of the Commission. As to the other schemes, which have been included in the draft PPA for which no approval of MOP is obtained, separate proposals shall be sent to the Commission for approval. 

6.03 The Commission further decides that 

1. The Gross Block and Net block of each of the projects/Stations covered under this order shall be updated as on 1.4.2002. In respect of work in progress as on 31.3.2002, as and when such schemes are commissioned, the completed cost shall be considered for tariff determination from the month in which the asset is commissioned. 

2. The statement showing the allocation of debt, equity & reserves to the various projects as on 31.3.2001, which has been furnished by KPCL (Annexe-I to this Order) shall be updated as on 1.4.2002 taking into consideration the repayment of GOK loans by KPCL in accordance with GO No DE 20 PSR 2002 dated 1-4-2002 and also after considering repayment of other loans. Such a statement shall be Annexed to the PPA. 

7. Operational Norms 

7.01 Design Energy 

1. Definition and Norms 

1. This parameter is defined in the Draft PPA as follows: 

�gDesign Energy means the quantum of electrical energy which could be generated in a 90% dependable year with 95% Availability of respective installed capacity by a Generating Station and after 7 years of operation, the Design Energy shall be reviewed in consultation with the CEA�h. 

2. The above definition of Design Energy conforms to the definition in the two-part notification of GOI dated 30.3.1992. Under the explanation it is stated that if the total energy generation in the years for which hydrological data is available (say in N years) is arranged in descending order, the (N+1) x 0.9th year would represent the 90% dependable year. The 90% dependable year is a year in which the annual energy generation has the probability of being equal to or in excess of 90% of the expected period of operation of the scheme. 

3. It is further clarified in the 92 GOI Notification that the norms laid down by the Authority are the ceiling norms only and this shall not preclude the Boards & Generating Companies from agreeing to accept improved norms. 

4. The definition of Design Energy in the draft PPA also conforms to that contained in the Notification dated 26.3.2001 issued by CERC. It is further prescribed by CERC that: 

1. The Design Energy set out in the Techno-economic clearance of the Authority shall be considered for fixation of tariff 

2. In case of Multi-unit projects, the Design Energy applicable on commissioning of units shall be as set out for the respective unit in the Techno-Economic clearance of the Authority. 

3. The Authority may review the Design Energy on completion of the project to consider additional hydrological data, which would become available and latest status of completion/commissioning of upstream projects involving consumptive use of water. 

4. The Authority may also review the Design Energy subsequent to the commissioning of the project as and when any specific information about the change in consumptive use of water upstream or in run off is brought to the notice of the Authority. 

5. From the above it is clear that the Design Energy is a key parameter in determining Techno-economic viability of Hydro Electric scheme and is used in determining the fixation of tariff of Hydro Power. In the case of new projects, the quantum of Design Energy is fixed by CEA considering the inflows, which ensures returns from the project for the investor with 90% probability. There is also a provision for review of the Design Energy on completion of the project to consider:- 

1. Additional data which would have become available in the intervening period from the date of techno-economic clearance to implementation of the project and 

2. The latest status of consumptive use of water from the river upstream of project. 

6. As per the two-part tariff notification, the deemed generation benefit due to failure of hydrology is admissible to the projects up to 7 years period only after commissioning which means the hydrology risk is covered up to 7 years after the commissioning of the project. 

2. Applicability of Design Energy concept for the stations under the draft PPA 

1. The draft PPA covers the following stations & the dates of commissioning of the projects are also indicated. 

Sl. No.	Name of Stations	Year of Commissioning
1.	Bhadra Project	1962 1963 1963
2.	Sharavathi Generating Station (10 Units)	1964 1977
3.	Linganamakki Dam PH	1979 1980
4.	Nagjhari PH	1979 1984
5.	Supa Power House	1985
6.	Varahi UGPH	1989 1990
7.	Ghataprabha PH	1992
8.	Mani Dam PH	1993
9.	Kadra PH	1997 1999
10.	Bhadra RBC (6 MW)	1998
11.	Kodasalli Dam PH	1998 1999
12.	Gerusoppa PH	2001

2. It can be seen from the above that the following stations are commissioned after 1.1.97 

1. Kadra Dam PH 

2. Kodasalli Dam PH 

3. Gerusoppa PH 

4. Bhadra RBC Unit-II (6 MW) 

3. The 1992 GOI Notification for tariffs for hydro projects stipulates as follows: 

1. This notification shall be applicable for determining the tariffs for sale of electricity from such generating stations, whose financial package for investment is approved by the Authority, on or after the date of its publication in the official gazette. 

2. This Notification shall be applicable to such Hydro Power Generating Stations, which shall commence commercial operation on or after 1st of January 1997. 

4. Hence, it is clear from Para iii (b) above, that the norms as per two part tariff notification with Design Energy parameter, as a method of fixation of tariff is not applicable to the projects, which were commissioned prior to January 1997. The Design Energy as defined ensures that based on the data on water flows, the project is capable of producing the quantum of energy up to Design Energy level in 9 years out of 10 years (90% probability). The Design Energy is guaranteed for 7 years, which covers the hydrology risks by the developer. 

5. The Energy Charges per kWh are calculated by dividing the total energy charges by the Tariff Design Energy. Since Design Energy is calculated for 90% probability, the energy generation may be in excess of Design Energy in 9 out of 10 years and therefore the developer would be assured of full energy charges. In addition, for energy generated over and above the Design Energy level, the developer gets secondary energy charges also as an incentive. 

6. In respect of old projects, which were commissioned during various periods prior to 1-1-1997, the above considerations are not really relevant. In fact KPCL themselves have clearly stated vide their letter no. A1 Q5 D/Hydel dated 12.7.2002 that considering concept of Design Energy has started only in 1992 norms and hence approved Design Energy figures for the existing projects are not available. 

7. In respect of projects commissioned prior to 1.1.1997, the Commission notes that the investments in those projects were largely by Government funding. When the GOK had fixed the tariff in the year 1993 for these stations, an average of the actual generation for the previous 5 to 10 years was considered by the Government for tariff determination. (A copy of the Annexure to the letter of No. KPTCL/B-36/5705/T/3/3817-24 dt. 16.3.2001 of KPTCL is enclosed at Annexe-II). The Commission notes that the average generation that was considered for tariff determination in 1993 was higher than the Design Energy now proposed by KPCL for these old projects. 

8. The Commission is of the view that it is not appropriate to consider the Design Energy concept as a method for fixing the tariffs in respect of the old projects for the reasons discussed above. At the same time, the Commission considers it necessary to cover the hydrology risk for KPCL in respect of the old projects also. The components of the expenditure included in Capacity Charges and Energy Charges are essentially fixed in nature, since these expenses will have to be incurred every year irrespective of actual generation. Therefore, it would be more appropriate to include all the components of Primary Energy Charges in respect of these old stations under Capacity Charges itself. The Commission does not consider it necessary to provide incentive for higher generation when the hydrology risk is fully covered for these stations, for the reason that, any higher generation in one year may get offset by lower generation in some other year. 

9. However, in respect of the projects commissioned after 1.1.1997, the Commission considers it appropriate to go by the Design Energy concept in accordance with the GOI guidelines. The Commission also considers it necessary to provide incentive for generation above the Design Energy in order to provide better returns to the investors to incentivise new investments. 

3. Accordingly the Commission decides as follows: 

1. In respect of all the stations commissioned prior to 1-1-1997, the components of Primary Energy Charges as indicated in the draft PPA shall be clubbed with Capacity Charges and the PPA be modified accordingly. Such Capacity Charges has to be claimed by KPCL from KPTCL at the rate of 1/12th every month. 

2. In respect of new stations commissioned after 1-1-1997, as provided in the notification of GOI dated 30-3-1992, the Commission accepts recovery of Capacity Charges based on the Availability and recovery of Energy Charges on the basis of Design Energy as provided in the draft PPA. The Commission also approves the Design Energy figures furnished in the draft PPA for these projects as follows:

Sl. No.	Name of the Project	Design Energy in MUs
1.	Kadra	425
2.	Kodasalli	377
3.	Gerusoppa	448
4.	Bhadra RBC Unit-II	25

7.02 Availability 

1. Definition and norms 

1. This parameter is defined in the draft PPA as follows: 

2. Availability means the capability of a Generating Station to generate electrical energy on Availability of water and the annual Availability of that Generating Station shall be determined as per the following formula:- 

Availability In % = 

(U1*H1+U2*H2�c..Un*Hn) x 100
___________________________
        (U1+U2 �c..Un) x 8760 

Where U1, U2�c�c.Un is the contracted capacity of generating units in a 

Generating Station expressed in MW. 

H1, H2�c�cHn are the hours for which the respective generating units were available for operation during the tariff period. In case any generating unit is not being operated for reasons due to prudent utility practices or is under renovation, modernization or uprating, such period in hours shall be considered as being available for computation of Availability. 

3. �ePrudent Utility Practices�f is defined in the draft PPA as follows:- 

�gPrudent Utility Practices�h means the exercise of that degree of skill, diligence, foresight and operating practice generally followed by qualified prudent professionals in the power generating industry with respect to the design, engineering, construction, testing, metering, repair, operation and maintenance of electrical generating facility, procurement, storage and disposal of coal/ash and in procurement & use of spare parts. 

4. The above definition of Availability in the Draft PPA conforms to that in he two part Notification of GOI dated 30.3.1992 with the exception that - 

1. U1, U2 �c. Un is indicated as the contracted capacity of the Generating Units in the draft PPA which is the capacity net of auxiliary consumption whereas in the GOI Notification, it is indicated as the capacities of different units which means the Gross Capacity 

2. The aspect mentioned in the draft PPA viz. counting the period during which any generating unit is not being operated for reasons due to Prudent Utility Practices or is under renovation, modernization or uprating, for purposes of computing Availability, is not covered in the GOI norms dated 30.3.1992.

5. The following categories of generating stations are covered in the draft PPA. 

1. Dam Site Power Stations where the output of the generating units depends on the level of water in the reservoirs as in the case of Bhadra, Ghataprabha, Supa, Linganamakki, Mani, Kadra, Kodasalli and Gerusoppa. 

2. Generation is at constant head as in the case of Nagjhari, Sharavathi and Varahi Underground Generating Stations. 

6. Generation in Bhadra and Ghataprabha Stations is seasonal in nature and depends on the release of water for irrigation purposes. Many of the stations operate during peak load hours during the non-monsoon period.

7. Considering the above aspects, the Commission decides that Availability of a Generating Station requires to be computed on a daily basis depending upon the Declared Capacity of the station for each hour of the day with respect to the Contracted Capacity of the Station averaged over the day and then over the year to arrive at the Annual Availability.

The Daily Availability shall be computed based on the following formula: 

PercentageDaily Availability = 

U1 x H1 + U2 x H2 + �c�c�c�c�c U24 x H24 -------------------------------------------- x 100
                                                                                                        U X 24 

Where: U1, U2, U3 �c�c�c. U24 are the hourly Declared Capacities of the Station for the day commencing from 1st hour to 24th hour; 

H1, H2, �c�c. H24 are the hours commencing from 1st to 24th hour and 

U is the Contracted Capacity of the Station for the day. 

For the purpose of this formula, Declared capacity shall mean the Capacity in MW Ex-Bus of the Station declared by the Seller for each hour of the day and Contracted Capacity shall mean the capacity of the Station Ex-bus under the prevailing conditions of water levels and flows.

In respect of the stations where head available for power generation varies depending upon the level of water in the Reservoir, the Contracted Capacity used in the above formula should correspond to the head available during that period including the overload capacity if built into the design of the units. 

The Seller shall furnish to the Buyer the details of the guaranteed capacities of the generating units at various heads and overload capacities if built into the design of the units. If the generating units are operated on overload capacity either to prevent spillage of water during monsoon months or dispatched to meet peak load requirements, the Contracted Capacity shall include the overload capacity wherever applicable.

2. Availability under conditions of uprating renovation & modernization

The draft PPA provides that the periods in hours during which the units are not being operated for reasons due to prudent utility practices or is under renovation modernization or up rating shall be considered as being available for computation of Availability. Since some of the units have already served considerable number of years after commissioning, the units may require modernization and renovation. It is also essential to utilize the benefits of up rating, if such a thing is possible. Hence the Commission agrees for the above provision. However, it is essential to see that any work, which is taken up under the above category, shall be completed under a tight time schedule for reaping the intended benefits. Hence, the Commission prescribes the following procedures to be adopted. 

1. For all R&M and updating works, which are taken up and are in progress, the KPCL shall file status report and programme of completion for consideration of the Commission and suitable orders. 

2. For the other schemes yet to be taken up, KPCL shall file all information as above along with copies of estimates. 

3. The Commission on scrutiny of records and further deliberations with KPCL and KPTCL, if required, shall pass orders on the extent of optimum time required for the said works. Such period as may be approved by the Commission only shall be counted for Availability calculations. In case of time over run, due to any reasons, which is not approved by the Commission, the Seller shall bear the risk and the period shall not be counted for Availability.

3. Availability under conditions of constraints in operation for reasons due to prudent utility practices 

The draft PPA provides that the periods in hours during which the units are not being operated for reasons due to �gPrudent Utility Practices�h shall be counted for Availability. This aspect is not considered in the Norms. If, however, there is a reduction in the guaranteed output from the generating unit/units due to design limits and specifications arising out of grid conditions such as 

1. Bus voltage and frequency conditions beyond the prescribed limits 

2. Constraints in evacuation capacity, etc., 

The Commission agrees that the capacity hours thus lost under items (a) and (b) above shall be considered for computation of Availability. 

However, if the generating units are not operated for other reasons mentioned in the draft PPA under �gPrudent Utility Practices�h, such as, engineering construction, testing, metering, repair, operation and maintenance of electrical engineering facilities, procurement and use of spare parts, etc., such duration for which the Unit/Units are not operated cannot be counted for Availability. 

4. The normative Annual Availability of the projects shall be taken as 85% as per the GOI norms. The definition of Availability provided in the PPA shall be modified suitably. 

5. For the purposes of Availability based Incentive / Disincentive, Availability for individual stations shall be computed and considered. 

7.03 Auxiliary consumption

1. This parameter is defined in the draft PPA as the amount of energy consumed within the plant boundary inclusive of Transformation losses subject to a ceiling of 1 % of energy generated, during annual capacity test. 

2. According to the two part notification of GOI dated March 1992 Auxiliary consumption is 0.5% of energy generated. Norms for transformation loss is also 0.5 % of the energy generated. 

3. CERC Notification dated March 26,2001 defines Auxiliary consumption as the quantum of energy consumed by the auxiliary equipment of the project. 

4. The norms of operation for Auxiliary consumption as per the CERC Notification are as under:-

A.	Surface hydro stations with rotating exciters mounted on the generator shaft	0.2% of energy generated
B.	Surface hydro stations with static excitation equipment	0.5% of energy generated
C.	Underground hydro stations with rotating exciters mounted on the generator shaft	0.4% of energy generated
D.	Underground hydro stations with static excitation system	0.7% of energy generated

5. Transformation losses (from generation voltage to transmission voltage) is estimated as 0.5% of energy generated. 

6. The Auxiliary consumption inclusive of transformation losses subject to a ceiling of 1 % of energy generated is indicated for all the stations covered under the draft PPA.

7. In view of the above discussions, the Commission approves as follows:

1. The definition of Auxiliary Consumption shall be: �gAuxiliary consumption means the quantum of energy consumed by the auxiliary equipment of the project coming inside the plant boundary inclusive of Transformation losses from generation voltage to transmission voltage, but shall not include the consumption by the colony�h. 

2. The Aux consumption for each of the hydel projects (including the transformation losses) shall not exceed 1% of the energy generated.

8. Financial Norms 

8.01 Recoverable Capacity Charges 

The charges considered under this head in the draft PPA are (a) Interest payment on loans and (b) Depreciation. 

1. Interest On Loans (IOL) 

1. According to Annex-III of the draft PPA, a schedule of Debt as on 31.3.2001 has been indicated and loan repayment and interest over a 16 year period from 2001-02 to 2016-17 has been given for each of the projects. 

2. The Commission observes that there may be several changes in the loan repayment schedule and the interest charges over the 15 year agreement period for various reasons. One such major event has already occurred that KPCL has repaid Govt. loans to an extent of Rs.878 crores (which includes loans allocated to both hydro and thermal stations) by way of adjustment vide GO No. DE 20 PSR 2002 dated 1.4.2002. This repayment of GOK loans makes a substantial reduction in the interest liability of KPCL. With the falling interest rates, there may be need to replace the costlier institutional loans with lower interest rate loans which the KPCL will have to explore. 

3. The Commission concludes that the interest shall be limited to the actual interest for each of the projects in each year during the agreement period. Further, it is directed that Annex-III of the draft PPA shall be revised and updated as on 1.4.2002 taking into consideration repayment of loans during 2001-02 and also the repayment of Government loan vide GO dated 1-4-2002. The interest charges in Annexe-III of the draft PPA shall be considered as indicative interest charges. 

2. Depreciation: 

1. KPCL has stated in the draft PPA vide Article 4.3 (ii) that; 

�gthe Depreciation charge on Capital Expenditure and Additional Capital Expenditure shall be at the rates notified by GOI from time to time. 

Provided that if the depreciation charge is less than the repayment obligation of Loans, then advance against depreciation not exceeding the difference between the depreciation charge and the repayment obligation of loans shall be allowed in addition to the depreciation charge�h

2. It is seen from the tariff working provided by KPCL that advance depreciation has been claimed by KPCL in respect of Varahi, Kadra, kodasalli, Gerusoppa and Bhadra projects. The Commission notes that for Varahi project and Bhadra Project (other than Bhadra Right Bank Unit II), which were commissioned prior to 1.1.1997, the GOI norms dated 30.3.1992 are not applicable. In respect of the projects commissioned after 1.1.1997, the Commission agrees to the provision for advance against depreciation in accordance with GOI norms. 

3. For the reasons stated above, the Commission does not approve provision for advance against depreciation in respect of Varahi project and Bhadra project (other than Bhadra RBC Unit-II). In respect of Kadra, Kodasalli, Gerusoppa and Bhadra RBC Unit-II, the Commission approves for the provision for advance against depreciation and the same shall not exceed one-twelfth of the loan amount and limited to the actual loan liability of the year, as provided in two part notification of GOI dated 30.3.1992. 

8.02 Energy Charges 

1. According to the draft PPA, Energy Charges is the sum of Recoverable primary energy charges and Secondary energy charges. The components of primary energy charges are 1) Return on Equity, 2) O&M Expenses 3) Income Tax and 4) Interest on working capital which are discussed below: 

2. Return on Equity (ROE) 

1. The return on Equity has been provided in the draft PPA at 15 % and such return has been proposed to be computed on the Equity plus reserves allocated to the projects. As indicated in Annexe-I to this Order, the amount invested by way of equity in all the hydro projects put together is Rs.585.94 crores and reserves is shown as Rs.258.36 crores as on 31.3.2001 totalling to Rs.844.30 crores. KPCL has explained that the equity and reserves have been allocated to each of the KPCL�fs hydro stations and the extent of allocation made by KPCL is indicated below:

Project	Project Cost (Gross Block + WIP) as on 31.3.2001  (Rs. Crores)	Equity Allocated (Equity & Reserves) (Rs. Crores)	Percent of Equity to Project Cost
Sharavathi Valley Project	389.00	237.23	60.98
Kali Valley Project	447.78	260.05	58.08
Varahi Valley Project	340.06	49.15	14.45
Kadra Project	434.05	104.84	24.15
Kodasalli Project	282.25	47.89	16.97
Gerusoppa Project	475.26	105.63	22.22
Ghataprabha Project	46.68	30.41	65.14
Bhadra Project	34.36	9.10	26.48
Total	2449.44	844.30	34.46

2. The questions that arise in this matter are (a) What is the maximum equity that can be allowed in respect of each of the projects (b) Whether return is allowable on the Reserves and (c) What is the rate of return to be allowed. 

3. Regarding the allocation of Equity to the projects made by KPCL, the Commission notes that KPCL has allocated higher equity to the old projects. As could be seen from the above table, the equity allocated to Sharavathi project is 60.98% of the project cost, for Kali project it is 58.08% and in respect of Ghataprabha project it is 65.14% of project cost. Sharavathi project which was commissioned in 1964-67 has already earned substantial depreciation and all the loan repayment for the project has been completed, except in respect of renovation and modernization works which have been taken up at a later date. So is the case in respect of Kali Project, which was commissioned in 1979-84. In respect of Ghataprabha project, which was commissioned in 1992, there are no loans outstanding as per the information provided in the draft PPA. 

4. The Commission notes that according to the GOI norms, the maximum debt equity that has been allowed for funding a project is 80:20. Any higher equity in the project cost will push up the tariff for the reason that while the interest on the loan component reduces from year to year with loan repayment; the equity remains the same through out.

5. Regarding the return on Reserves, the Commission notes that according to GOI 1992 norms �gpremium raised by the Generating company while issuing share capital and investment of internal resources created out of the free reserves of an existing company, if any, for the funding of the project shall also be reckoned as paid up capital for the purpose of computing the return on equity, provided that such premium amount and internal resources are actually utilised for meeting the capital expenditure of the power generation project and forms part of the approved financial package as set-out in the techno-economic clearance accorded by the Authority (CEA)�h . KPCL has stated that the accepted definition of equity is the sum of the share capital and reserves and surplus of the company and that this amount technically belongs to the equity holders and is the actual amount deployed in the company by the shareholders and therefore the return available to the shareholders should be computed on this sum. KPTCL has agreed to provide the return on the Equity including Reserves in the draft PPA. 

6. The Commission agrees to provide the return on the Reserves, as agreed to between KPTCL and KPCL in the draft PPA. 

7. Regarding the rate of return the Commission notes that the return at 16% was fixed by the GOI in the 1992 norms in order to attract private investments, when the Bank Rate (RBI rate) was 11 % at that time and the interest rates on long term borrowing was much above 16 %. Now the bank rate has come down to less than 7 % and interest rates have steeply fallen. However, KPTCL has agreed for a return of 15 % in the draft PPA. 

8. After detailed examination of all the aspects, the Commission decides to allow in the present Order a return of 15% on Equity and Reserves in respect of each of the projects covered under this order, as agreed to between KPTCL and KPCL in the draft PPA. 

9. The Commission wishes to point out that with the falling interest rates there is need to provide ROE linked to the Bank Rate (RBI Rate). The present Bank Rate being less than 7%, the allowable ROE would be around 12%. Any higher return on equity will only result in higher power purchase cost for KPTCL, which will ultimately result in higher subsidy to be provided by the Government. Therefore, there is need for a detailed examination and study of the allowable return on equity. The Commission will request the Government to initiate a study on the allowable ROE. The Commission proposes to review the operational and financial norms after three years by which time the results of the study are expected to be available. 

3. Operation and Maintenance expenses (O&M) 

1. The operation and maintenance expenses (O&M) including insurance has been provided in the draft PPA as that equal to actual O&M for Financial year 2001 in the first tariff year and shall be increased by 6 % in each subsequent year. 

2. The O&M expenditure for the old stations has increased enormously in the last 10 years when compared to the O&M provision in the existing tariff which was approved in 1993. The details of provision of O&M expenses in the existing tariff as provided by KPCL vide letter No A! Q5 D dated 10-1-2001 and estimated expenditure for FY03 as provided in the draft PPA are given below: 

Sl. No.	Name of the Project	O&M cost provided in the existing tariff in 1993 (Rs. in Crs.)	Estimated O&M Exp in FY 03 (Rs. In Crs.)	% Increase
1.	Sharavathi	10.98	66.97	509
2.	Kali	17.42	68.84	295
3.	Varahi	9.54	29.00	203
4.	Ghataprabha	0.45	2.38	428
	Total	38.39	167.19	335

3. The Commission notes from KPCL�fs annual report for 2000-01 and from the replies provided by KPCL to the Commission that the expenses for 2000-01, which has been considered as the base level expenditure in the draft PPA includes expenses relating to previous years due to sanction of pay revision to employees during that year. Therefore, there is need to exclude such expenses relating to previous years in the base level expenditure as otherwise it will have cumulative effect on the tariff. 

4. The Commission directs KPCL that the actual expenditure for 2001-02 (excluding expenses relating to previous years, if any) shall be taken as the base level expenditure in respect of these old stations instead of the expenditure for 2000-01. Regarding annual increase in O&M expenses for these projects, the Commission approves to provide an annual increase as per the formula approved by the CERC, which is a weighted average of WPI, and CPI indices, based on the content of O&M expenditure. However, while allowing such an increase, the Commission also wishes to emphasize the need to improve the productivity of O&M expenditure so as to achieve a reduction in this expenditure in real terms. Accordingly, the inflation-adjusted figure of O&M expenditure shall be reduced by 3% each year to provide for improved productivity. This offset for higher productivity shall be reviewed after 3 years. The inflation-adjusted figure for any year will be arrived at by applying the relevant inflation factor on the allowable expenditure for the preceding year (after increased productivity offset for that year). 

5. Regarding the provision for O&M expenses in respect of such of the projects for which tariff is being determined for the first time (Kadra, Kodasalli, Gerusoppa and Bhadra Project RBC Unit-II) the O&M expenses has to be provided as per the norms. According to GOI norm dated 30-3-2002, the provision for O&M expenses is 1.5 % of the approved capital expenditure in the first full year after commissioning of the plant, and in each subsequent year it shall be revised as may be mutually agreed between the parties on the basis of weighted price index. The Commission notes that the O&M expenses proposed by KPCL in respect of new projects viz. Kadra and Kodasalli projects are exceedingly high when compared to the above norms as indicated below:

Project	Completed project cost (Rs Crores)	O&M cost provided for 2001-02 ()Rs. Crores)	Percentage of O&M cost to project cost (%)
Kadra	434.05	14.94	3.44
Kodasalli	282.25	11.95	4.23

Source: As per the details provided in tariff working by KPCL 

Note: 
(i) In respect of Bhadra project, the old and the new units have been clubbed together and O&M cost has been proposed together in the draft PPA. 
(ii) For Gerusoppa project, the O&M expenditure proposed in the draft PPA is 1.5% of the completed project cost. 

6. If project cost as approved by the CEA alone is considered in respect of all these new projects, the percentages of O&M cost provided in the draft PPA would be much higher when compared to the norms. 

7. The Commission approves that the O&M expenses in respect of the new projects viz Kadra, Kodasalli, Gerusoppa and Bhadra RBC Unit-II shall be provided at 1.5 % of the completed cost of the project in the first year after commercial operation of the plant and shall be escalated in each subsequent year as per the formula approved by the CERC which is a weighted average of WPI and CPI indices, based on the content of O&M expenditure. 

8. The Commission notes that the O&M cost allowed even as per norms for new stations would be higher since the revised completed cost is 4 to 5 times higher than the original project cost. Therefore, there is scope to reduce the O&M cost in respect of these stations also. The Commission directs that action shall be taken by KPCL to cut down O&M Expenditure. 

4. Tax On Income (TOI) 

1. The draft PPA provides for payment of all taxes on income in relation to the project. The Commission notes that the GOI 1992 norms provides for passing on the income tax on return up to 16 % on equity. 

2. The Commission agrees to the provision for payment of income tax subject to (i) the MAT/ income tax shall be payable on ROE up to 15 % since 15 % is the agreed ROE in the Draft PPA. (ii) Tax on incentive and on other income, if any, is not payable by KPTCL, (iii) The tax shall be subject to actuals and the benefit of tax holiday and/or refunds, if any, shall be passed on by KPCL to KPTCL. 

5. Interest on Working Capital (IWC) 

1. The Commission notes that the following parameters have been indicated in the draft PPA for computation of working capital: 

1. O&M expenses for one month

2. Spares at actuals

3. Receivables for 45 days 

However, the rate of interest on working capital to be considered has not been indicated in the draft PPA. 

2. The Commission approves working capital as per the norms as provided in the draft PPA and the Commission allows interest on working capital at SBI PLR plus 2 %. 

6. As indicated earlier, the Commission directs that the components of Primary Energy Charges in respect of old stations shall be included under Capacity Charges. Necessary changes in this regard shall be incorporated in the PPA. 

9. Incentive 

The draft PPA provides for secondary energy charges at 15 paise/unit of net metered energy and it is stated that the total incentives, along with secondary energy charges, shall not exceed 3.28% of equity. 

1. Incentive for old stations 

1. As already indicated earlier, when the hydrology risk is covered fully for the old projects, the Commission is of the view that there is no need to provide any incentive for higher generation since such higher generation in one year may get offset by lower generation in another year. This is also for the reason that the Design energy concept has not been agreed to by the Commission in respect of old stations as explained earlier in this Order. In view of this, the Secondary Energy Charges are not to be paid. 

2. According to the GOI notification dated 30-3-1992, for Availability of installed capacity above the normative level of 85%, the rate of incentive shall be mutually agreed upon between the Generating Company and the Board but it shall not exceed 0.7 percent return on equity for each percentage point increase in Availability. The Commission feels that similar provision should be made in the PPA in respect of old stations in order to incentivise higher Availability and such incentive should be based on Availability for each of the Stations. 

3. The determination of the tariff is on Station-wise basis as the operational and financial parameters are defined for the complete station in the GOI Notification dated 30.3.1992. It is seen from the draft PPA that individual units in Kadra, Kodasalli and Gerusoppa Stations have been commissioned at different points of time, but the basis on which tariff for such individual units are proposed to be determined is not indicated. The various parameters that go into the computation of tariff are therefore required to be determined unit-wise till completion of the project. The Commission orders that the Recoverable Capacity Charges and Energy Charges shall be calculated on pro-rata basis where the individual units have been commissioned at different points of time in respect of the above stations till the last unit of the Station was commissioned. 

4. The Commission approves to provide incentive at the rate of 0.7 % return on equity for each percentage point increase in Availability beyond 85 % in respect of each of the old stations covered under the PPA. 

2. Incentive for New Stations. 

Incentive for new Stations proposed in the draft PPA as agreed to between KPTCL and KPCL is approved by the Commission. 

10. Disincentive for lower Availability for Old and New Stations 

1. According to the draft PPA, if the Availability achieved is less than the normative Availability, the generator will be eligible for lesser capacity charges based on Capacity Charge Adjustment Factor. The Capacity Charge Adjustment Factor has been defined in the draft PPA as �gCapacity Charge Adjustment Factor means for a Tariff period, the quotient obtained by dividing Availability by 85 %. The capacity charge adjustment factor for a Tariff period shall not exceed 1.0�h. The Commission notes that the recovery of Capacity Charges has been directly linked to the Availability. 

2. In the case of old projects/Stations, since the Primary Energy Charges has been approved by the Commission for merger with the Capacity Charges, the disincentive for non-achievement of the normative Availability would be higher if Capacity Charge Adjustment Factor proposed in the draft PPA is applied. The Availability based incentive has not been proposed in the draft PPA. Since the Commission has provided Availability based incentive, the Commission considers it appropriate to provide for Disincentive also where the Availability is less than the normative level, linked to the ROE. Since all the components of Capacity Charges have been allowed to be recovered fully irrespective of the level of Availability or the actual generation, the Commission is of the opinion that the disincentive due to lower Availability of the Station below 85% could be limited to the ROE. 

The Commission decides that the disincentive for Availability below 85 % shall be at the rate of 0.7 % on equity for every reduction of 1 % in Availability below 85 % and such disincentive shall be limited to 15 % return on equity for each of the Stations. This is applicable to the old stations. 

3. In respect of new stations commissioned after 1.1.1997, the Commission approves the disincentive provision as in the Draft PPA based on Capacity Charge Adjustment Factor. 

11. Royalty for water 

Royalty is payable for each kWh of NME at the rates fixed by the Govt from time to time. 

12. Demonstration of declared capacity and penalty for mis-declaration 

It is noted that the draft PPA does not contain any clause regarding the demonstration for declared capacity and penalties for mis- declaration. Since incentives and disincentives are built on the basis of Availability of plant, specific provisions are required to be made in the draft PPA. Hence the following shall be included in the draft PPA 

�gThe generating Company may be required to demonstrate the declared capacity of its generating station as and when asked for by the Buyer. In the event of generating Company failing to demonstrate the declared capacity the capacity charges shall be reduced as a measure of penalty and the quantum of penalty for mis-declaration for any 24 hour period, shall be the charges corresponding to 2 days capacity charges�h. 

The Seller and Buyer shall evolve a procedure for testing the declared capacity. 

13. Rebate for payment through Letter of Credit 

In the draft PPA no provision has been made for rebate on payment of bills through Letter of Credit. According to the GOI norms of 1992 as well the CERC norms dated 26-3-2001, the rebate for payment through LC has been determined as 2.5 %. Since this PPA also provides for payment of bills through LC, there is no reason to deviate from the rebate provision. Accordingly, the Commission approves to provide in the draft PPA a rebate on payment of bills through LC at 2.5 % in accordance with GOI norm. 

14. Clause 6.1 ( c ) of Article 6 Billing & Payment of the Draft PPA deals with Resolution of objections in respect of estimated fixed charges and referral to KERC in case parties do not reach Agreement within Fifteen Days. 

Similarly clause 7.2 ( b ) of Article 7 Dispute Resolution deals with referral to KERC for Arbitration, any dispute between the parties which are not settled through mutual negotiations within ninety days after such dispute arises. 

The Commission notes that in the case of PPA for RTPS unit 1-7 the dispute resolution mechanism is by referral to an expert and to arbitration in accordance with the provisions of Indian Arbitration and Conciliation Act 1996. The Commission directs that similar provision may be made in the PPA of the Almatti project also. 

15. Deemed Generation 

In draft PPA under Article 1 ? Definitions, the clause Deemed generation, should be changed as per the 92 Norms, which reads as follows:- 

�gIf the station has achieved the normative Availability level in a contract year, but actual energy generation falls short of Design Energy for reasons solely attributable to hydrology, the energy charges for generation up to Design Energy shall be payable to the generating company during the first 7 years of operation. 

In case of reduced generation due to reason beyond the control of generating company and non-Availability of Board�fs Transmission Lines or on receipt of the backing down instructions from the Buyer/ Load Despatch Centre it results in spillage of water, the energy loss on account of such spillage shall be considered as deemed generation limited to the Design Energy�h. 

16. Wherever the norms are subject to actuals, for computation of tariff in respect of both operating as well as financial norms and the tariff is computed for the tariff period at the beginning of the year based on best estimates, the tariff computation shall be revised at the end of the year duly trued up and difference if any adjusted in next tariff period. 

17. Due diligence by the Buyer 

KPCL have furnished financial data such as debt, equity, reserves, depreciation, etc., in respect of all these stations covered under the PPA. Since the Accounts of KPCL has not been kept Station wise, there are many costs and expenses, which have been allocated to various projects/stations. The Commission is unable to verify the correctness of such allocations with the records made available to the Commission. The Commission directs that the Buyer shall exercise necessary scrutiny of all the data and ensure that the allocations made are reasonable. This is especially important since the present exercise will set the baseline data for tariff fixation in future. 

18. Review of operating and financial norms 

The Commission has fixed various operating and financial norms on the basis of available information. There may be a case for review of these norms after monitoring of the hydel plants for certain duration. This is also because of the fact that it is not possible to anticipate all changes that are likely to take place over a period of 15/20 years and provide them in advance in the contract. The Commission will take up review of operating and financial norms on the basis of the operating experience of the plants after the expiry of 3 years. 

19. The Commission directs KPTCL to incorporate and finalize the PPA taking into consideration operational and financial parameters as determined by the Commission in the foregoing paragraphs, the other observations/modifications/ deletions suggested by the Commission as detailed in the Annexe-III of this Order and enter into PPA with KPCL duly updating all the Annexes and submit 3 copies of the executed agreement along with all necessasry annexes as directed within 30 days from the date of this order.

20. The determination of Tariff is on Station-wise basis as the Operational and Financial parameters are defined for the complete station in the GOI Notification dated 30.3.1992. It is seen from the draft PPA that individual units in Kadra, Kodasalli and Gerusoppa have been commissioned at different points of time, but the basis on which tariff for such individual units are proposed to be determined is not indicated. The various parameters that go in to the computation of tariff are therefore required to be determined unit-wise till completion of the project. The Commission orders that the Recoverable Capacity Charges and Energy Charges shall be calculated on prorata basis where the individual units have been commissioned at different points of time in respect of the above stations till last unit of the Station is commissioned. 

21. Any other issues not specifically finalized by the Commission can be mutually discussed and agreed to between the parties. 

22. Effective Date: In respect of new stations the tariff for which is fixed for the first time, the tariffs shall come into effect from the date of commercial operation of the respective generating stations and the revised tariff in respect of other generating stations shall come into effect from the meter reading date following 30 days from the date of this Order. 

23. This Order is signed on 10th April, 2003. 

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