1 A Presentation on ARR & Tariff Proposal of OPTCL for FY Analysis/Objections/Suggestions February 6, 2008 By Dr. Shibalal Meher (Consumer Counsel) Nabakrushna Choudhury Centre for Development Studies, Bhubaneswar

2 Transmission Assets of OPTCL Voltage Level (KV) Length of Line in Ckt-Km No. of Bays Total

3 Sources of Revenue for Sl.No.Customer MU proposed to be Handled ( ) Rate (P/U) Energy Handled before Transmission Loss (MU) Amount Rs. Crore 1.CESU NESCO WESCO SOUTHCO Total DISTCO Emergency sale to CPP Wheeling of ICCL power Wheeling of NALCO power Total

4 Revenue Requirement (Rs crore) Item OPTCL’s Proposal including SLDC function OPTCL’s Proposal excluding SLDC function Employee Cost A&G Cost Repair & Maintenance Cost Depreciation Advance against Depreciation65.13 Interest on loan amount Interest on Working Capital13.53 Reasonable Return8.4 a) Sub-Total b) Pass Through Expenses c) Additional Expenses (Contingency Reserve + GCC Expense) d) Total ARR (a + b + c) e) Less Misc. Receipts1.00 f) Rebate 2% ARR g) Net Transmission Cost (ARR)

5 ItemTariff Proposal for OPTCL including SLDC Tariff Proposal for OPTCL excluding SLDC Total Net ARR to be raised through Tariff (Rs. Crore) Expected Revenue at existing Transmission Tariff i.e. 22 P/U (Rs Cr.) Excess or Deficit in ARR (Rs Crore) Tariff Options : Option 1 : Monthly Fixed Transmission Cost for Recovery (Rs Crore) Option 2 : Total Energy for Transmission (MU)19222 Proposed Transmission Tariff (P/U) Excess or Deficit in ARR & Tariff Design

6 Analysis of the Proposal

7 Revenue Gap of OPTCL during (Rs in Crore) Including SLDCExcluding SLDC Total Revenue Requirement during Revenue from Long-term open access customer during Misc. Receipts1.00 Total Revenue Receipts during Revenue Gap during Pass through Expenses Total Revenue Gap

8 OPTCL’s Proposal (excluding SLDC) to recover Annual Fixed Cost including past losses Through recovery on monthly Rs Crore per month P/U from

9 Deficit Reduction Non transfer of past losses (Rs Crore) Reduction in fixed cost –Employee cost –R & M Cost Non allowing of reasonable return.

10 Deficit Reduction (Contd…) Reducing the interest on loan. –Justification of huge loan for new projects? –Delay in completion of ongoing projects added to interest. Cost-benefit analysis of delaying a project? Advance against Depreciation –Whether it satisfies the CERC norm? Is cumulative loan repayment > cumulative depreciation?

11 Deficit Reduction (Contd…) Reduction in Transmission loss –Kanungo Committee had recommended a step wise reduction of transmission loss to brought down a level at per with that of Power Grid.

12 Fixed Cost of OPTCL (Rs in Crore) (Approved) (Proposed) % Change Employee R & M A & G Interest on loan Depreciation Adv. Against Depreciation Return on Equity Pass through Addl.exp Total

13 BROAD TARIFF RELATED ISSUES RAISED BY OBJECTORS (To be addressed by OPTCL)

14 Functioning of OPTCL –The separation of OPTCL from GRIDCO is only cosmetic and the Hon’ble Commission may direct that OPTCL function as an independent Engineering Organisation with full fledged independent Board of Directors. –OPTCL has to produce all relevant documents since till regarding how much funds are allowed by the Hon’ble Commission in operation and maintenance head and how much they have spent during that period. –The sub-stations and lines of OPTCL are not properly maintained by OPTCL due to want of skilled manpower. OPTCL should therefore appoint skilled labourers in the sub-station maintenance work. Issues emerge from the objections/ suggestions submitted by the Objectors

15 –OPTCL should produce before the Commission what action it has taken to meet the line and sub-station connectivity of electricity supply to all through RGGBY and BJY load. –The provision for revenue requirement of Rs 250 crores for line and sub-station are not clear. Those line will commission during should be mentioned with specific date. Cost of Fixed Assets –The Original cost of Fixed Assets shall only be the book value and the tariff is not to be considered on the basis of the up rated value. Issues emerge from the objections (Contd..)

16 Employee Cost –According to some objectors the employee cost of OPTCL may be allowed at Rs crore subject to the computation of terminal benefit provision. Repair and Maintenance Expenses –Most of the R&M expenditure envisaged in the ARR of OPTCL are either the capital expenditure as it increased the life as well as capacity of the asset or the non R&M expenditure like security personnel charges, etc., which should not be treated as R&M. –The equipments including power transformer, circuit breakers CTs, PT/CVTs, new relays, energy meters, etc. cannot be treated as spare parts under R&M which is allowed as per the CERC norms. The capital expenditure on new and original equipments is to be capitalized and the interest & depreciation charges shall only be allowed in the ARR. Issues emerge from the objections (Contd..)

17 –As per the ATE direction, the R&M expenditure with 6% hikes over and above Rs crore in each year since is only Rs crore. A&G Expenses –A&G expenses should be fixed on a normative basis as per clause 5(E) of the OERC Regulation, –It is submitted that Rs crore may be allowed to OPTCL towards A&G expenses for FY Issues emerge from the objections (Contd..)

18 Supervision charges –There is no justification to claim supervision charges for bay extension, lines, switching 16%, being constructed by EHT consumers on behalf of OPTCL. The Commission may reduce the ARR of OPTCL to the extent of the full or part value of supervision charge in accordance with the provisions relating to misc. revenue under the Electricity Act, Issues emerge from the objections (Contd..)

19 Provision for bad debt –Since all the DISTCOs are paying the transmission charges in full, the provision for bad debt is unfounded and should not be allowed in the ARR of OPTCL. Interest Cost and Financial charges –The interest amount would be reduced to Rs crore as against the claim of Rs crore. –The Hon’ble Commission should not allow the actual capital cost and interest during construction of delayed works. Depreciation –Hon’ble Commission vide order dated vide clause 6.22 has adopted the principle to allow the depreciation at pre 92 rate, i.e. 3.13% on gross fixed assets. Based on that principle the depreciation may be considered as Rs crore. Issues emerge from the objections (Contd..)

20 Advance against Depreciation –Hon’ble ATE has directed to exclude the advance against depreciation in the OPTCL ARR Hence, this may be excluded in computation of the OPTCL ARR for FY Contingency Reserve –OPTCL may be allowed Rs 5 crore towards contingency reserve for instead of Rs crore proposed by OPTCL. Reasonable Return –OPTCL may not be allowed reasonable return on the similar lines as the Hon’ble Commission has decided ARR and tariff order for OPTCL in previous years. Issues emerge from the objections (Contd..)

21 Interest on Working Capital –The loan base taken for computation of interest on loan includes the loan availed by GRIDCO and subsequently transferred to OPTCL towards working capital. As the loan is yet to be divided into capital expenditure loan and working capital loan, no interest on loan be allowed to OPTCL. Pass through of past losses –The claim made by OPTCL towards past losses has no merit as the same items are already dealt in the ARR and Hon’ble Commission accordingly allowed the related expenses in the ARR of OPTCL. Issues emerge from the objections (Contd..)

22 Transmission Tariff –The Hon’ble Commission may determine the transmission tariff for the FY , based on the approved parameters for the FY –OPTCL has proposed increase in transmission tariff without any improvement in the quality of transmission and reduction in the transmission loss. –One of the objectors (IMFA) submitted that there is no actual transmission of electricity from the point of injection at Choudwar to the point of delivery at Therubali. Since power is being transmitted through the method of displacement there is no such transmission loss, the objector deserves special treatment and is not liable to pay any transmission charges and if at all liable, is to pay the same as applicable to the inter-state sale of power. Issues emerge from the objections (Contd..)

23 Income from Inter-state wheeling –The Hon’ble ATE had directed the Commission to consider Rs crore towards the income from wheeling for FY The same figure may be considered while computing the wheeling income of OPTCL. Energy Handling & System Availability during –NESCO, WESCO and SOUTHCO have estimated the availability of energy at MU from different sources as against MU estimated by OPTCL. Supply of Electricity –OPTCL may give an undertaking through an affidavit that they will supply quality energy with proper voltage to all consumers of the state. Issues emerge from the objections (Contd..)

24 Transmission Loss –The transmission loss for FY would be less than 4% and may not be considered for more than 4%. –The transmission loss of 5% against the earlier target of 3.70% is unacceptable. The quantum of power transmitted remains more or less the same as that in the year Hence, under no circumstances the transmission loss be allowed as 4.5% for the year –The transmission loss should not be allowed at 5%, which would remain between 3.28% and 4%. Issues emerge from the objections (Contd..)

25 –Hon’ble Commission in its tariff orders dated has dealt the various cost proposed by OPTCL and allowed transmission cost of Rs crore against the proposal of Rs crore. Therefore, transmission cost proposed by OPTCL for FY may be scrutinized critically. –One objector requested the Hon’ble Commission not to allow transmission loss for more than 3% at least from this year onwards Issues emerge from the objections (Contd..)

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