Section 5. Adherence of the proposed formula with the Principles
This section discusses the adherence of the formula with the Principles adopted in section 3. The various factors contributing to changes in costs, the rationale for their being "beyond control" and "non-predictable", and their linkage with publicly available indices, are discussed.

5.1 Variable Cost of power purchase The sources of power purchase for MSEB at present are NTPC, NPC, DPC, TEC, other states and ad-hoc purchases from captive/co-generation/wind power. .

5.1.1. Variable cost of NTPC The tariffs of NTPC are under the regulatory regime of the CERC. At present, NTPC power is priced on a "pooled cost" principle. The effective variable cost paid by MSEB is determined in the following manner:

• The base variable cost of each plant is determined based on the last notification for the plant. These notifications have already been submitted to the Commission.
• Fuel Price Adjustment (FPA) for each plant is calculated as per the formula permitted by CERC. The formula for each plant is a function of actual coal / gas cost, actual calorific value of coal / gas, actual oil cost and actual calorific value of oil.
• Monthly Operating Pattern Adjustment (MOPA): In addition to the FPA, in case of gas based plants, the variable costs vary on account of mode of operation (i.e. open cycle or combined cycle) during the month.
• The sum of the above three factors for each plant gives the variable cost of power purchase from that plant. The extent of power purchased by MSEB from each plant is arrived at by calculating the actual generation from that plant during the month, and allocating a part of it to MSEB, based on MSEB's share in the plant.
• Thus, the average of variable costs of the individual plants, weighted by MSEB's calculated power purchase from each plant, is the effective variable cost of NTPC power to MSEB.

The above factors are not in control of MSEB and are not predictable. It is not possible to establish a direct correlation between changes in any indices (coal price, gas price, etc.) and variable cost of power purchase from NTPC. This is because variation in variable cost of power purchase is also dependent on the variations in calorific value of coal/oil/gas, and variations in the actual generation from each plant, neither of which can be reflected in any publicly available index. It is proposed that the variable cost of power purchase from NTPC, based on audited statements of the bills, would be used in calculation of FOCA.