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Enron Mail |
A very senior attorney in Delhi (perhaps a retired Supreme Court justice?)
has advised Enron that MERC has no jurisdiction over the PPA and cannot establish regulations on things like merit order dispatch, much less set the merit order dispatch. A written legal opinion has been requested. The thought of the Linklaters attorneys (both Sandeep Katwala and Chris Walker) and tentatively Wade is that the MERC may be DPC's worst enemy if it has jurisdiction over the renegotiated PPA (which it will) and must approve it; thus, it may be better to take the offensive and challenge its jurisdiction over merit order dispatch. The strategy isn't fully formed yet, but I wonder about the wisdom of (i) taking on a regulator that could be in a position to approve a renegotiated PPA; and (ii) how a jurisdictional challenge to a regulator attempting to restructure squares with Enron's positions/reputation worldwide. I'll be discussing this with all parties when I get back to work after New Year's and will let you know as this issue progresses. Enron is as I speak seriously contemplating pulling the letters of credit. We've been told by the Chairman of MSEB that he has some money but he is not going to pay October's bill for DPC. According to him, DPC was forced on MSEB by the Gov't of Maharashtra, so we should pursue our financial and legal remedies. The Government of course will want to renegotiate in exchange for payment. Here we go. ---------------------- Forwarded by Jane Wilson/ENRON_DEVELOPMENT on 12/27/2000 07:54 PM --------------------------- Mark Schroeder@ECT 12/27/2000 04:25 PM To: Jane Wilson/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Steven J Kean/NA/Enron@Enron Subject: Re: Merit order dispatch: what is the real problem Jane - thanks, good note. mcs Steve - FYI, just an overview of issues affecting Dabhol, and payment capability. mcs Jane Wilson@ENRON_DEVELOPMENT 27/12/2000 03:52 To: Sandeep Kohli/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Mohan Gurunath/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Wade Cline/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Akshay Singh/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Sandeep Katwala/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Paul Kraske/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Sisir K Podder/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Rajesh Sivaraman/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Mark Schroeder@ECT, Ashok Mehta/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, K Seethayya/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Mukesh Tyagi/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Robert Neustaedter/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Amr Ibrahim/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Sanjay Bhatnagar/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Merit order dispatch: what is the real problem While I am in touch over the rest of the week, I remain more or less on vacation with my family. Upon return after New Year's, Akshay and I will look at the items in italics below. Of course, we cannot do analysis out of the context of the model. Perhaps if you sent Akshay and me the model that is being used to work the answers to Jim's questions (one model or two?), we can see what we're working with currently. Please note the following: 1. Merit Order Dispatch in the Next Rate Case.Attached below is what my team (Robert Neustaedter) has drafted for the rate case filing on merit order dispatch. There is a mistake on page 5 regarding the percentage TOP that needs to pass outside merit order dispatch (it's 75% rather than 78%). Further, we've asked Ramu to "Indianize" the text before we pass it back to Mr Palumvar. Merit order dispatch has not been clearly treated by the MERC (or any other Commission other than the Gujarat ERC), and this filing should serve as a foundation for this rate case (and others). 2. Merit Order Dispatch "Cap". The May 5, 2000, order treats two concepts as one: the least cost purchase policy that determines what power purchase costs are included in the rates for the rate case period is equated with merit order dispatch, which is a day-to-day operational tool that determines actual purchases. The rate case order of May 5, 2000, as written, did not "cap" the quantities. What the rate case stated (and I am not quoting) was that quantities in addition to those authorized could be dispatched so long as the average realisation exceeded the cost. I would also argue that the India obligation to serve customers provides additional grounds for further dispatch quantities. The "catch" is in two places: first, whether dispatch of DPC power meets the test (Shubh told me recently it did -- does this continue to hold true, Mohan?), and second, the recovery of the power purchase costs due to the variance (the difference between what is authorized in the order and what is actually dispatched.) 3. Recovery of Variance. According to Mr Podder, the Electricity Supply Act, 1948, does not allow a carryover of these volumes from one rate case to the next. (Typically, the variance is just included in the next rate case. This practice actually provides a utility with an opportunity to overrecover costs for a period of time, which is why the goal of a rate case is normally to understate demand. We have approached the MSEB rate case, however, with a different perspective in an attempt to get the revenues up to allow more funds for MSEB to pay its bills.) As provided in the Act, the variance must either be subsidised by the State or absorbed by the SEB. This is a major financial problem for the SEBs and should be rectified by GOI. Mr. Podder is writing down the accounting legal basis in Act, and I will forward that memo to you. 4. MSEB Representation regarding dispatch.MSEB clearly discusses its failure to dispatch more than 3044 MU with us in the rate case process. Mr. Palumvar and Mr. Bakshi state that failure to dispatch additional quantities is simply a matter of budget. The cost of 3044 MU is incuded in the rates, and the cost of additional volumes isn't. Since there is no way for MSEB to collect the cost for additional volumes other than from the State, it is logically not dispatching additional volumes. 5. MERC Jurisdiction. Thus, I have a query: let's assume that the MERC does not have jurisdiction to determine least cost purchases or merit order dispatch or to determine a blend of the two. I'm not sure how that will help MSEB to recover the full costs of its power purchases. 6. Logical Area of Focus. In my opinion, once Sandeep Katwala and team confirms our interpretation of the Act, the most beneficial course of action would be to work with the regulators/Government/anyone else to repair the cost recovery mechanism of the Act. This helps DPC, this helps MSEB and will, in the end, help the country. Might be worth considering. ---------------------- Forwarded by Jane Wilson/ENRON_DEVELOPMENT on 12/27/2000 08:23 AM --------------------------- Sandeep Kohli 12/21/2000 01:41 AM To: Mohan Gurunath/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Wade Cline/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Jane Wilson/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Re: Dabhol question Mohan, I have gone through your note, and agree with the concept. You do have to compare end-user tariff with costs till end-user, which will include T&D losses. You have assumed 30% loss figures which is assuming little or no improvement (since this is the worst case scenario) Your assumptions on Rs. devaluation are also aggressive as they need to be for a pessimistic scenario You have assumed that MSEB's average realization per unit in $ terms actually goes down due to Rs. devaluation There are some areas where Jane can shed more light: MSEB can increase its average realization, simply by limiting supply to agri. customers, and by not giving any new unmetered connections The latter is something that has been decreed by MERC (Jane please correct me if I am wrong), while the former was the most likely cause for Bhave's exit Jane - Can you (with Akshaya's help) take a crack at what the agricultural load and unmetered customers are likely to be in the years 2002 through 2004 ? Similarly, what is the likely growth in the metered cutomer categories? Also, if Dabhol were to be despatched to the load center at Mumbai (following Mohan's conclusion of 75% PLF on 2400 MW), and the plants close to Chandrapur were to despatch less, what would be the overall T&D loss picture ? The question to answer here is what portion of the 30% is theft, and what is actual T&D loss. My understanding is that betwen 16-18% is actual T&D loss due to the poor state of the network. Further, we will have to ask the question whether the actual T&D loss is more due to distribution or due to transmission. My gut feel is that it is due to distribution. The next logical question to tackle then would be what you see as the improvement in distibution between now and 2004. Jane - Can you take a crack at that ? Mohan - My gut feel is that there will not be a 75% despatch on all three blocks. I can envisage that type of despatch in Block B, but that will be the optimistic rather than the pessimistic scenario. I do not see C being used more than 6-8 hours daily, and that too only in the peak season. I had started the team working on a stack and peak and off-peak load curves. We need to do more on that. Bottom line is that we need much more detailed information on the T&D sector, on the pace of reform, and most importantly on merit order deptaching of the plants (building the stack of plants). This was Jim's concern too when we met this morning, and we will need to develop a plan to move that forward further. Regards, Sandeep. Mohan Gurunath 12/20/2000 09:35 PM To: Wade Cline/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Sandeep Kohli/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Jane Wilson/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Re: Dabhol question Attached is an analysis of Jim's question for your review/comments. Regards Mohan To: Mohan Gurunath/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Sandeep Kohli/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Jane Wilson/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Subject: Dabhol question Can you 3 Amigos look into this and come back to me with a joint response for Jim? I would like an answer by Thursday's task force call, which is at 8:00 am Houston time on Thursday. Thanks. ---------------------- Forwarded by Wade Cline/ENRON_DEVELOPMENT on 12/20/2000 04:59 PM --------------------------- James A Hughes 12/20/2000 04:00 AM To: Wade Cline/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Subject: Dabhol question Wade: I am sure you guys are getting tired of questions. However, here is one more. I was thinking about how to determine our worst case. While considering this, I came up with a question I couldn't answer: What is our breakeven power price at the overall PLF we think would be achieved if MSEB used marginal economic cost dispatch. If we determined that this price was at or above the realised tariff of MSEB, then we know ultimatley we will survive, the only question is how long it takes us to get our equity back. If it is below, then the situation may be dire indeed. Jim
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