1 A Presentation on ARR & Tariff Proposal of GRIDCO for FY Analysis/Objections/Suggestions February 7, 2008 By Dr. Shibalal Meher (Consumer Counsel) Nabakrushna Choudhury Centre for Development Studies, Bhubaneswar

2 Demand for and Sale of Power GRIDCO has filed ARR & Price application for for its bulk supply activity. GRIDCO and DISTCOs have furnished the following projections regarding demand and sale of power: OERC Approval GRIDCO projection SMD (MVA) Sale to DISTCOs Sale to CGPs10.00 Total Sale (DISTCOs + CGPs) MU

3 Distco-wise Demand for and Sale of Power Distco-wise breakup of demand for and sale of power as projected by Distcos and Gridco are furnished in the table below: SMD (MVA)Sales to DISTCOs (MU) Distcos Projection Gridco’s Projection Distcos Projection Gridco’s Projection CESU NESCO WESCO SOUTHCO All Distcos

4 Transmission Loss and Power Procurement GRIDCO projects transmission loss of 5.00% for A total energy procurement of MU for the ensuing year has been considered. Total power purchase and the costs thereof have been projected as follows: YearOERC Approval ( ) GRIDCO’s Proposal ( ) Power Purchase (MU) Power Purchase Costs (Rs. Crore)

5 Analysis of the Proposal

6 Revenue Gap of GRIDCO during (Rs in Crore) Proposal Revenue requirement including return on equity during Pass through Expenses Total Revenue Requirement Revenue receipts from sale of power to DISTCOs Misc. Receipts3.30 Total Revenue Receipts Revenue Gap906.36

7 Annual Revenue Requirement for FY (Rs Crore) OERC approval GRIDCO proposal Power procurement cost Interest Cost Other costs (Employee, A&G expenses, R&M expenses, ERLDC & NLDC charges) Return on equity Pass through of past losses Gross Revenue Requirement

8 Proposed power procurement cost during FY GeneratorsEnergy (MU) Rate (P/U)Total Cost (Rs crore) State Hydro State Thermal Total State Central Sector Total procurement

9 Tariff Proposal for Energy charge (P/U) Energy charge during Energy charge proposed for % rise over current energy charge 36.00

10 GRIDCO’s Proposal to meet TRR of Rs Crore. Hike in average energy charge from P/U to P/U

11 Deficit Reduction GRIDCO has included past losses of Rs Crore for calculation of average energy charge. This may not be considered. While calculating power procurement cost GRIDCO has considered the hike in tariff proposed by OHPC, which the Commission has not approved so far.

Difference in Power Procurement Cost between existing rate and proposed rate Energy (MU) Existing rate (P/U)Proposed rate (P/U) Differe nce in cost (Rs Cr) Rate P/U Cost (Rs Cr) Rate P/U Cost (Rs Cr) HPS BHEP RHEP UKHEP UIHEP Total

13 Deficit Reduction (Contd…) While calculating the sale of energy GRIDCO has made its own projection of demand from DISTCOs, while DISTCOs have shown different projections.

Gap in Projection of demand by DISTCOs and GRIDCO Projection submitted by DISTCOs to OERC (MU) Projection of demand from DISTCOs by GRIDCO (MU) Gap in demand submitted by DISTCOs to OERC and projected by GRIDCO (MU) CESU WESCO NESCO SOUTHCO Total

15 Deficit Reduction (Contd…) GRIDCO has predicted existing transmission loss of 5%, though the Kanungo Committee had recommended step wise reduction of transmission loss.

16 Deficit Reduction (Contd…) Reduction in fixed cost –Employee cost –A & G Cost Non allowing of Reasonable Return

17 BROAD TARIFF RELATED ISSUES RAISED BY OBJECTORS (To be addressed by GRIDCO)

18 Legal Issues The ARR application filed by GRIDCO is not tenable under law due to the following defects: –The application so filed by the GRIDCO, who is neither a licensee nor a trader and is not bonafide and tenable under law as such the same is liable to be rejected. –The ARR application filed by GRIDCO for determination of price is not tenable as the Commission has no authority under law and more particularly u/s 62 of E. Act, 03, to determine tariff on the application of a non-licensee, i.e. GRIDCO. –Functioning of GRIDCO as company is unnecessary to act as middle man between the generating licensee and distribution licensees that too in the absence of competition. –The GRIDCO account has not been audited for the financial year & Issues emerge from the objections/ suggestions submitted by the Objectors

19 Issues emerge from the objections (Contd..) –GRIDCO has filed the application to confuse the consumer public without disclosing the purpose for such filing. –Notice so published inviting objections does not confirm to the requirements. –The procedure/method adopted by the Commission should be simple and inexpensive to enable the public to participate. –The Commission may kindly examine whether GRIDCO has compiled with the directions, conditions of licensee etc. issued by the Commission.

20 SD & Energy Drawl –GRIDCO should submit the data relating to the maximum and minimum draw down levels of the hydro reservoirs from to along with the month wise generation. –It is not clear how and what distribution losses are considered by GRIDCO while projecting the power demand of the distribution companies for consumers and procurement from generating stations. –The simultaneous power demand projected by GRIDCO for FY may be accepted. But this demand is because of higher distribution loss in various DISTCOs. Issues emerge from the objections (Contd..)

21 Energy Availability and Procurement –GRIDCO has not independently assessed the availability of hydropower during but has merely accepted the data submitted by the OHPC based on design energy. –The availability of power from hydel stations should be considered on the basis of the reservoir levels of the hydel stations in the current year, generation in the first seventh months of FY08 and past trends. –For thermal stations, the PLF achieved in the first seven months and previous year should be taken into account for estimation of availability of power. –It is estimated by some objectors that the total availability of power would be MU during FY instead of MU projected by GRIDCO. Issues emerge from the objections (Contd..)

22 –Another objector has projected total availability as MU, with Hydro availability7360 MU, total state availability MU and central power availability 6100 MU. –Power availability may be considered on design energy or based on actual performance for a number of years with additional capacities built up during –The projections given by state generating stations, both OHPC and OPGC, on the generation capacities and tariffs are not matching with the projections given by GRIDCO. –Hydro availability for FY can be taken as 7360 MU due to better hydrological condition. –GRIDCO should schedule for higher energy availability from OHPC through suitable incentives in PPAs. Higher availability from central thermal stations at about 90% PLF during off peak hours be purchased to create a surplus by closure of hydro generation. Issues emerge from the objections (Contd..)

23 Transmission loss –A transmission loss of only 4% on the OPTCL transmission line should be allowed. –All the central generation is availed through central transmission system at the load center after accounting 3.62% as central transmission loss. This itself is very high subject to prudent check by GRIDCO. This central transmission loss when accounted for power drawl should reduce OPTCL transmission loss. Power Procurement cost –According to the PPA, GRIDCO can verify the data submitted by the Generators. It should confirm whether the fuel cost and the FPA have been verified in relation to at least TTPS & TSTPS. –The higher cost of power from OHPC stations is considered based on the higher ARR. The ARR of different stations would be lower than as projected. Issues emerge from the objections (Contd..)

24 –The fixed cost of OPGC was allowed in the GRIDCO ARR based on the previous year tariff of OPGC. As per practice, the fixed cost element ought to reduce in subsequent year due to repayment of principal loan, which offset any increase in O&M in each year. The fixed cost of OPGC may therefore be estimated for FY separately without considering the figure of FY , as there would be a substantial reduction of fixed cost on account of depreciation and interest on loan notwithstanding the nominal increase in O&M expenses. –GRIDCO may be directed to submit the details of the reduction in fixed costs for CGSs for the years to , which may be taken into account for fixation of tariff for FY –GRIDCO has computed the variable charges for OPGC, TTPS, TSTPS, FSPTS, KHSTPS in the absence of latest CERC approvals. However, the FPA allowed earlier is in excess of the actual and the same should be trued up. Issues emerge from the objections (Contd..)

25 –GRIDCO may be directed to furnish evidential documents for the PGCIL Transmission charges along with the corresponding CERC norms pertaining to tariff approved for the various transmission links. The incentive should be allowed to the extent of payments made. –Hon’ble Commission may strictly scrutinize the Power Cost projected by the state generating stations and allow the procurement from central power stations on merit order to meet the power requirement of the state for GRIDCO, which becomes a major part of the Bulk Supply Price. Issues emerge from the objections (Contd..)

26 Employee cost –The employee cost projected for FY is on the higher side and needs a detailed scrutiny by the Hon’ble Commission. With 6% escalation it will be Rs 2.15 crore. A & G Cost –With 5.2% escalation per year under this head as permitted by the Hon’ble Commission, the A&G cost should be Rs 1.83 crore for FY R&M Cost –No amount should be allowed under this head, as the Hon’ble Commission had not permitted any amount during last two years. Issues emerge from the objections (Contd..)

27 Interest on long-term liabilities –The interest cost may not be recovered through the Bulk Supply Price. –While carrying the truing up exercise of the interest cost of GRIDCO, the incentive received in cash or adjusted with GRIDCO dues under one time settlement scheme from to may be allowed in the best interests of passed on to the consumers of Orissa. –The interest recoverable from DISTCOs, as claimed by GRIDCO need to be considered as income in the ARR of GRIDCO. –The interest waiver amounting Rs crore is required to be considered as income in the ARR of GRIDCO. –While all the interest cost of GRIDCO on the securitised amount is pass through in the BSP, the DPS amount reveivable from DISTCOs as per the OERC order should be treated as income in the ARR of GRIDCO. –Re-phasing of the loans by GRIDCO for a longer time, the interest on the same may be allowed in the ARR of GRIDCO. Issues emerge from the objections (Contd..)

28 ERLDC/NLDC Fees –The Commission may allow the same amount of Rs 1.32 crore for Return on Equity –No amount should be allowed under this head, as the Hon’ble Commission had not permitted any return on equity as per Govt. of Orissa notification dated Pass through of Previous Loss –GRIDCO proposes to pass through of a substantial amount of past losses, which are mostly on account of its inefficient operation and are therefore not payable. –The proposal of pass through needs to be justified on consideration of prudence after going through the process of public hearing. Issues emerge from the objections (Contd..)

29 Sales Projection –Projection of energy requirement made by DISTCOs is based on the ground realities and more than that projected by GRIDCO. Misc. Receipts –GRIDCO may recover the receivables from the DISTCOs and other beneficiaries through escrow mechanism and pass on such collection to the state govt. The actual collection may be furnished by GRIDCO. –GRIDCO should indicate the action being taken to recover the arrear dues from DISTCOs. –GRIDCO may be asked to indicate the amount collected during , estimated to collect during and proposal for Non-accounting of Revenue Receipts –The earnings from trading of surplus energy needs to be considered in the ARR of GRIDCO. Issues emerge from the objections (Contd..)

30 Over drawl Charges –Only the incremental cost for additional generation may be approved for billing in case there is a over drawl by any DISTCOs over and above the quantum fixed by OERC as the entire fixed cost is taken while computation of power purchase cost of GRIDCO which is to be recovered from DISTCOs. Rebate –Approval for the rebate of 2% to NESCO for prompt payment of BST bills within three working days excluding Sunday and holidays as per Negotiable Instrument Act from the date of payment of the BST bill. BST –GRIDCO has proposed steep increase in BST, in spite of the large increase in BSP for the FY –Hon’ble Commission may reduce the Bulk Supply Price and pass on the benefit of the reforms to the consumers by reduction of RST. Issues emerge from the objections (Contd..)

31 Export of Power –Even though the OERC order dated shows that there is nil export to outside state, there was heavy export. GRIDCO may submit the actual earnings from export of power and U.I. charges separately for FY , , and April 2007 to Sept Two-Part Tariff –GRIDCO should submit a proposal for bulk supply price consisting of Demand Charges and Energy Charges. Metering –There are number of meters recording input to the system from generators including central generators and output for sale to the DISTCOs and export to other states. OERC may like to test check few of the meters by independent inspectors. Issues emerge from the objections (Contd..)

32 General –GRIDCO has not taken adequate steps for early disposal of the OPGC case in the Supreme Court. It may submit copy of the petition filed before the Supreme Court. –GRIDCO should make early clearance of feasibility reports/detailed report/power purchase agreements for the small hydro power projects. –Neither the past liabilities can be transferred to GRIDCO nor the past losses can be recovered by GRIDCO. It is only entitled to recover the cost of procurement of power and trading margin less misc. revenue on account of earnings from export and U.I. charges. –As per OERC order GRIDCO had to reach a target of generation from Renewable source for 200 MU for and 5% of total generation in GRIDCO has not spelled out whether the targets for both these years have been achieved. Issues emerge from the objections (Contd..)

33 –Any of the existing substations have reached their loading capacities and the developers are unable to plan the connectivity without a firm programme of GRIDCO for the point of interconnection. –Quite often GRIDCO is advising the consumers to install their own captive stations, even though it has surplus power situation. GRIDCO will be loosing if steps are not taken for coordinating with appropriate agency for augmentation of generation capacity. –The licensee has acted without any authority of law and in violation of the earlier orders of Commission, by manipulating the accounts, making unjust and undue again, and draining out/diverting the funds showing it has bad debts, licensee is going to burdening the consumers as such the application should be rejected. Issues emerge from the objections (Contd..)

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