5.1.2. Variable cost of NPC The NPC tariffs are determined by the Ministry of Atomic Energy, Govt. of India. For Kakrapar plant, the fixed charges and variable charges are calculated and shown separately in its bills and both are dependent on the extent of generation (this is similar to the case of NTPC plants). Thus, it is effectively a single part tariff. For Tarapur plant, there is no differentiation of fixed and variable costs, and a single rate is charged. Again, it is not possible to establish a direct correlation between changes in these costs and changes in any indices. It is proposed that the variable cost of power purchase from NPC, based on audited statements of bills, would be used in calculation of FOCA.

5.1.3. Variable Cost of DPC The variable cost of power purchase from DPC for each month is determined according to the formula prescribed in the PPA. MSEB has already furnished the PPA to the Commission. The variable cost would vary on account of the following factors:

Price of Naphtha / Gas in $/mmbtu: The price of Naphtha (and gas in case of phase - II) is a function of the prevailing oil prices in the international market. The GoI had recently directed DPC to purchase naphtha from IOC at import parity prices. Even the deregulation of oil products envisages domestic prices to be at par with international prices. Thus, variation in variable costs of naphtha / gas based generation would continue to depend on the prevailing prices.

Foreign exchange rate: For the above reason, the variable cost of power purchase from DPC, in rupees, would be determined by the prevailing Rs/$ exchange rate.

Heat rate: The Variable cost of power purchase from DPC is also based on variations in Heat Rate from hour to hour on account of two factors that are extraneous to the generator and the power purchaser, namely, the system frequency and the extent of loading of the machine. In case of CCGT operations, the heat rate is very sensitive to these two parameters. The hour to hour variations in the frequency of the system and the extent of loading of DPC machines cannot be predicted at the beginning of the year. Being connected to the western grid, the system frequency is not entirely determined by the MSEB system. Besides, there are far more fundamental reasons for MSEB to minimise variations in frequency, than the desire to minimise cost of purchase from DPC. Thus, if there is increase in DPC variable cost on account of frequency variations, it is indeed due to reasons not in control of MSEB. The extent of loading of DPC is determined by the hour to hour system demand, availability of other generators, and merit order dispatch considerations. Thus, increase in DPC variable cost on this parameter also would be due to reasons beyond MSEB's control and part of the overall cost minimisation.

A direct correlation of dollar price of naphtha and foreign exchange rate with the variable cost of power purchase is possible. However, given the hour to hour variations in the parameters affecting heat rate, a direct correlation between these factors and the variable cost of power purchase for the month, cannot be worked out. Therefore, it is proposed that the variable cost of power purchase for the month, based on audited statements of bills, would be used in calculation of FOCA.