REVIEW PETITION IN TARIFF ORDER FY18 KERALA STATE ELECTRICITY BOARD LIMITED

KSERC TARIFF ORDER DATED 17.04.2017 Financial Year Revenue Gap/Surplus (KSERC) Revenue Gap (KSEB) 2016-17 Rs. 400.12 Cr (Gap) Rs. 2898.59 Cr. 2017-18 Rs. 490.92 Cr (Surplus) Rs. 2223.39 Cr. Allowed only partial recovery of Revenue Gap Rs.1040.92 Cr, after adjusting the surplus Tariff revision for an additional revenue of Rs. 550 Cr Differences are in respect of purchase of power, interest and finance charges, O&M expenses etc adversely affect KSEBL finances and obligations to provide quality power

DIFFERENCES Particulars 2016-17 Rs Cr 2017-18 Cost of Generation & power purchase (fuel cost of BDPP& KDPP only) -670.55 -627.61 Interest and Finance charges -340.19 -530.98 Depreciation -60.46 O&M expenses -1384.09 -1432.57 RoE -52.49 Total ARR -2507.78 -2704.31 Less :Non Tariff income +10 Net ARR -2517.78 -2714.31 Revenue from Tariff -19.31 Revenue gap(-) /surplus(+) -2498.47

POWER PURCHASE Approval: 2016-17 - Rs.7752.76 crore Not approved any cost towards : Power purchase from sources like RGCCPP, Kayamkulam, Kasargod Solar park REC worth Rs.15 Cr purchased (FY17) Power procurement proposed through DBFOO – not fully approved Power purchase is an uncontrollable cost Hon’ble Commission may kindly true up the actual power purchase cost along with carrying cost, for 2016-17 and 2017-18 subject to prudence check

O&M and RoE O&M expenses KSEBL requests Determined as per Tariff Regulations 2014 – which are inadequate to recover genuine expenditure of KSEBL - Matter has been presented during the framing of Regulations itself KSEBL requests To Review the amounts allowed under O&M expenses and Return on equity

INTEREST & FINANCIAL CHARGES FINANCIAL YEAR KSERC APPROVAL KSEB SUBMISSION Difference 2016 -17 Rs. 1488.17 Cr Rs. 1828.46 Cr Rs. 340.19 2017 - 18 Rs. 1506.55 Cr Rs. 2037.73 Cr Rs. 530.98 Difference: interest on additional borrowings interest on PF, interest on security deposit interest on overdrafts availed - make good approved and un-bridged revenue gap

Interest on additional borrowings Assessed interest on Rs.3753 Cr only towards loans and bonds as on 31-3-2016 No interest approved for additional borrowings proposed for capital investments Reasoning that KSEBL has not filed any application for investment approval KSEBL, vide ARR & ERC petition for 2015-16, submitted details Rs 1353 crore of CI Achieved a progress of Rs.1239.44 crore (92%) Capital Investment Plan for FY 17 (Rs.1562.72 crore) submitted on 30.05.2016 Reviewed on 02.06.2016 KSEBL filed additional details directed by Hon Commission on 05.09.2016 Actual CI for 2016-17 is about Rs.1565.93 crore

Interest on additional borrowings T&D loss reduction targets fixed: 0.30% for 2016-17 and 0.25% for 2017-18 Other statutory obligations Targets can be achieved only by undertaking required capital works CI Plan FY18 GBU & DBU already submitted ; TBU being prepared and will be submitted soon Hon Commission may please approve: CI Plans, additional borrowings & interest thereon : Rs.165 Cr for FY18

Interest on overdrafts Rs.240 crore was disallowed on interest on overdrafts for the years 2016-17 and 2017-18 Stating that KSEB Ltd has not submitted sufficient details for assessing working capital Disallowed interest on overdraft, treating it as working capital This amount is not entirely for working capital requirement of current year Huge amount of overdraft is a reflection of debt financing of approved and un bridged revenue gaps of previous years. Till 2014-15 the approved unbridged revenue gap is Rs 6514.31 crores

Un-bridged approved revenue gap Year APPROVED ACTUAL DIFFERENCE ORDER DATE Up to FY11 424.11 3393.86   30.11.2012 FY10 107.90 09.05.2017 FY11 204.70 19.05.2017 FY12 1386.97 1934.13 547.16 01.06.2011 & 16.03.2017 FY13 3132.97 3999.14 866.17 28.04.2012 & 20.03.2017 FY14 460.98 1098.52 637.54 30.04.2013. FY15 479.28 1815.25 1335.97 14.08.2014. Total 6514.31 (All in Rs. Cr.) 

DEPRECIATION Approved depreciation on fixed assets as on 01.04.2014. Fixed assets added in FY15 to FY17 has not been considered Hon Commission may kindly consider the additions to fixed assets during the period while truing up

CROSS SUBSIDY SURCHARGE Determination of Cross Subsidy Surcharge deviates from the regulations and National Tariff Policy Weighted average cost of power purchase(C) adopted ISTC counted twice Separate cross subsidy surcharge is fixed for embedded open access consumers Limiting CSS to 20%

Transmission Charge counted twice “Intra State transmission charges” (Rs 905.20 Cr) included in weighted average cost of power purchase ‘C’ As well in the Wheeling Charge ‘D’ When the “Intra State transmission charges” (Rs 905.20 Cr) is excluded from the calculation of weighted average cost of power purchase, the revised weighted average cost of power purchase will be Rs 3.17 per unit This error needs to be rectified. Otherwise the transmission charges of 0.37 per unit may be deducted from the factor D .

CROSS SUBSIDY SURCHARGE (Embedded Customers) NO PROVISION under the EA, 2003 NO Provision National Tariff Policy, 2016 No Provision in Regulations NO OTHER State Commission has allowed In CSS formula, Tariff ‘T’ includes Fixed Charges APTEL ORDER 178 / 2011 / 02.12.2013 (Reliance Vs MERC) Tariff of subsidizing consumers is generally in two parts i.e. fixed charges and energy charges and therefore, the term tariff is the effective tariff for that category of consumers APTEL ORDER (181/2015/26.05.2017)

DEMAND CHARGES & CROSS-SUBSIDY demand charges are NOT SUFFICIENT to recover the fixed cost incurred to cater embedded consumers. The revenue from demand charges covers only 36.95 % The remaining fixed cost is recovered in energy charges THEREFORE the removal of demand charges in term “T” DEFEATS the principle and purpose CSS

20 % Limitation on CSS This limitation has to be applied after the Tariff is within 20% of CoS Full loss due to Open access DOES NOT GET recovered. In Kerala 55 % of total consumption is subsidized to the extent of 32%. Under recovery of CSS : Rs 1.34 per unit. Significant loss: OA in 2016-17 is 435 MU against 145 MU in 2015-16 Insufficient CSS recovery results in net loss of Rs 1.34 per unit Request : Include the demand charges also in CSS formula revise the cross subsidy surcharge Remove 20 % limitation

Additional Surcharge Embedded customers draw open access power from day-ahead market KSEBL cannot forecast this drawal and plan power purchase. Utility plan jeopardized, operational constraints, financial burden KSEBL has to always keep the capacity ready But forced to surrender Loss cannot be recovered without Asc Loss to the utility due to open access considering the cross subsidy surcharge approved by Commission and in absence of additional surcharge is Rs 2.17 per unit.

Additional Surcharge OA Regulation-41 on Asc Capacity continues to be stranded Loss Calculation within 15 days Consumer wise calculation Open Access Drawal fluctuates considerably. Computation of stranded cost very difficult on case to case basis. Not be practicable : Cost incurred for OA not consumer specific. Request : Repeal Regulation-41 and allow calculation on yearly basis.

Power Factor Incentive PF incentive DOUBLED in the Tariff order. Commission Public Notice did not propose to revise PF incentive Industrial Consumers Association demanded it KSEBL had objected proposal Commission hiked the doubled the incentive WITHOUT A SPEAKING ORDER ON KSEB OBJECTIONS This, if an error, may be corrected.

KSEBL OBJECTIONS PF level to be increased to 0.95 As per CEA (Technical Standards for Connectivity to the Grid) Regulations, 2007, Part IV, Para 2 Incentive be withdrawn The full cost of compensation has been incentivized by KSEBL Over 12 years. Now it is an over compensation Increase penalty Penalty rate is not sufficient deterrent effect (2%) Such schemes be made a part of Tariff Orders

Incentive hike – impact Category Revenue increase Present PF incentive @.5% Net Revenue increase Incentive @ 0.25% Net cash out flow Net increase @ 0.25% HT 6.99 -5.20 1.79 -2.60 2.60 4.39 EHT 3.41 -2.57 0.83 -1.29 1.29 2.12 Total 10.40 -7.77 2.62 -3.89 3.89 6.51 Shortfall in revenue is 3.89 crores for May 2017 ie; around Rs 46.65 crores annually

Net Revenue increase @ 0.25 % Net Revenue increase @ 0.5 % Incentive impact Category Revenue increase Incentive @ 0.5% Incentive @ 0.25% Cash outflow Net Revenue increase @ 0.25 % Net Revenue increase @ 0.5 % EHT General(A) -0.20 -0.02 -0.01 0.01 -0.21 -0.22 EHT General(B) 0.00 -0.12 -0.06 0.06 EHT 66 1.11 -0.62 -0.31 0.31 0.80 0.49 EHT 110 1.84 -1.29 -0.65 0.65 1.19 0.55 EHT Railway traction -0.39 -0.19 0.19 0.45 0.26 EHT 220 KV Total 3.41 -2.57 1.29 2.12 0.83

Net Revenue increase @ 0.25% Net Revenue increase @ .05% Incentive impact Category Revenue increase Incentive @ 0.5% Incentive @ 0.25% Cash Out flow Net Revenue increase @ 0.25% Net Revenue increase @ .05% HT I(a) 4.27 -2.54 -1.27 1.27 3.00 1.73 HT I(B) 0.02 -0.02 -0.01 0.01 0.00 HT II A 0.33 -0.19 -0.09 0.09 0.24 0.15 HT II B 1.35 -1.24 -0.62 0.62 0.73 0.11 HT III A HT III B HT IV 1.01 -1.18 -0.59 0.59 0.42 -0.17 HT V Total 6.99 -5.20 -2.60 2.60 4.39 1.79

Incentive Penalty Pf value Rate State Incentive Penalty Pf value Rate Manipur above 0.95 1% of Energy charges for every 0.01 increase 0.9 to 0.85 1% of Energy charges (EC) for every 0.01 decrease from 0.9 below 0.85 2% of Energy Charges for every 0.01 decrease from 0.9 Tamil Nadu No Incentive 1% of EC for every 0.01 decrease from 0.9 0.85 to 0.75 1.5% of EC for every 0.01 decrease from 0.9 Below 0.75 2% of EC for every 0.01 decrease from 0.9 Gujarat Above 0.95 Below 0.85 Orissa Above 0.97 0.5% of EC and DC for every 0.01 increase 0.92 to 0.7 0.5% of EC and DC for every 0.01 decrease from 0.9 0.7 to 0.3 1% of EC and DC for every 0.01 decrease from 0.7 Below 0.3 2% of EC and DC for every 0.01 decrease from 0.3 Karnataka (Bescom) Below 0.9 3 paise per unit consumed for every 0.01 decrease below 0.9 Sikkim 0.5% of Energy charges for every 0.01 increase Below 0.95 1% of EC for every 0.01 decrease from 0.95

Power Factor Power Factor is the ratio of actual power to total apparent power. Low power factor is caused by the Drawal of excessive reactive energy by consumers equipment . This energy is stored in the magnetic field created Reactive Power Increases losses, Reduces the capacity, thus pollutes the system

Reactive Power Control Utility cannot control reactive power due to consumer loads Consumer inductive load of is responsible for the reactive power flow. Consumers can regulate it by installing capacitors. KSEBL do not get any additional benefit due to installation of capacitors. But the effective capacity of the system increases due to the reduction in reactive energy. That is a relief of unnecessary burden.

WHY OVER COMPENSATE ? Utility need not incentive for pf ; it is squarely consumer responsibility. KSEBL was enforced to provide pf incentive for 12 years. More than the FULL EXPENSES has been paid by KSEBL The matter requires serious review Prayer: Increase minimum pf level to 0.95 Withdraw overcompensating incentives Increase penalty for non-compliance

PRAYER APPROVAL OF ARR, ERC & TO be reviewed Actual Expenses be considered in Truing up CSS be corrected Asc be allowed by removing difficulties in Regulation PF incentive be corrected.

THANK YOU