1 A Presentation on ARR & Tariff Proposal of NESCO for FY Analysis/Objections/Suggestions By Dr. Shibalal Meher (Consumer Counsel) Nabakrushna Choudhury Centre for Development Studies, Bhubaneswar A Presentation on ARR & Tariff Proposal of NESCO for FY Analysis/Objections/Suggestions February 4, 2008 By Dr. Shibalal Meher (Consumer Counsel) Nabakrushna Choudhury Centre for Development Studies, Bhubaneswar

2 TARIFF FILING BY LICENSEE BEFORE THE COMMISSION (FY ) ITEMSNESCO Rev. Req. (Rs.Cr.) ( Including Reasonable Return) Power Purchase (MU) Anticipated Sale (MU) LT HT EHT Distribution Loss (%)27.59 Collection Efficiency (%)95.0 AT&C LOSS (%)31.21 Exp. Rev.at Exist. Tariff (Net) (Rs.Cr.) (Exp. Rev+Misc.Rev.) at Exist. Tariff (Net) (Rs.Cr.) Revenue Surplus (Rs. Cr. )31.19 Previous Losses (Rs. Cr. ) Revenue Gap (Rs. Cr. ) including past losses at Existing Tariff Exist.Overall Average Tariff (Net) (p/u) 281 Exist.LT Average Tariff (Net) (p/u) 217 Exist.HT Average Tariff (Net) (p/u) 335 Exist.EHT Average Tariff (Net) (p/u) 300

3 Annual Revenue Requirement (Rs Crore) Purchase of Energy Employee Cost R&M Expenses32.70 A&G Expenses27.25 Interest & financial charges60.61 Bad Debt46.21 Depreciation21.73 Reasonable return10.55 Other expenses2.27 Total Annual Revenue Requirement897.59

4 Tariff Proposal The licensee requests the Hon’ble Commission to accept the proposal of ARR and bridge the revenue gap through combination of grant/subsidy from the state govt., reduction in BST and/or increase in RST in appropriate manner.

5 Tariff Rationalisation Measures Surcharge on delayed payment KVAK billing for LT industrial consumers Raising of service connection charges Raising of reconnection charges Rebate on prompt payment

6 ANALYSIS OF PROPOSAL BY CONSUMER COUNSEL

7 Revenue Gap of NESCO during (Rs in Crore) Revenue Requirement including reasonable return during Revenue from Tariff & Others during Revenue Surplus during Past Losses Total Revenue Gap171.01

8 Deficit Reduction Non transfer of past losses (Rs Crore) Reduction in distribution loss Increase in collection efficiency Non transfer of past differential interests on NTPC Bond

9 Deficit Reduction (Contd…) Non allowing of reasonable return (Rs Crore) Reduction of bad & doubtful debts (Rs 46.21Crore) Collection of outstanding arrears

10 Sale of Power and Distribution Loss of NESCO (In MU) % Change % Change LT HT EHT Total sale Total Purchase Distribution loss % Loss

Distribution Loss of NESCO from FY to FY Distribution loss including sale at EHT (%) Distribution loss excluding sale at EHT (%) Distribution loss as per business plan (%) (Estimated) (Projected)

12 Distribution Loss of NESCO from FY to FY Distribution loss (%) Business PlanActual/ Estimated (estimated) (projected)27.59

13 Collection Efficiency (%) YearApprovedActual/Estimated

14 AT & C Loss (%) YearApprovedActual/Estimated

15 Distribution Cost of NESCO (Rs in Crore) Estimated % Change ApprovedEstimated% Change Employee Cost (67.67) R & M Cost (33.85) A & G Cost (112.39) Distributi on Cost (65.58)

(Estimated) (Projected) Employee Cost 2641 R & M Cost0810 A & G Cost0408 Distribution Cost 3859 Distribution Cost per Unit Sale of Energy by NESCO During & (Paise/Unit)

17 Interest and Financial Charges (Rs Crore) Difference Interest on loan/bond (32.80 as differential interest on power bond) Interest on security deposit Total

18 BROAD TARIFF RELATED ISSUES RAISED BY OBJECTORS (To be addressed by NESCO)

19 Legal The ARR application filed by the licensee is not tenable under law due to the following defects: –The licensee has not produced the audited accounts for FY and FY –The licensee has filed the application to confuse the consumers without disclosing the purpose of such filing. –The interested persons are being kept in dark and not able to file effective objection and as such the purpose of such exercise has been frustrated and contrary to law and principle of natural justice. –The procedure/method so adopted by the Commission be simple and inexpensive. –The licensee has failed to provide details as required under regulations to the Commission for consideration of his application as such the application may be rejected. Issues emerge from the objections/ suggestions submitted by the Objectors

20 Distribution Loss –The licensee has failed to arrest the high distribution loss on account of unauthorized use of power. –The distribution losses should be calculated by excluding EHT sale to consumers. –The declared loss by the licensee is unrealistic as a large chunk of consumers are still unmetered and having defective meters. –It is a common practice of the licensee to raise bogus bills at the year-end to show lower distribution loss. Collection Efficiency –Licensee should exhibit the collection separately for current and arrears. Issues emerge from the objections (Contd..)

21 Pass through of Past Losses –The truing up should not be allowed for inability to meet the distribution loss and collection efficiency targets. –Amortization of regulatory assets may be disallowed since it is a reflection of inefficient management of the licensee. Arrear Collection –There is huge amount of outstanding arrears, but the licensee has not disconnected the electric lines of the defaulters due to the willful negligence. –Adjustment of dues of the Govt. Depts. & Govt. Undertakings against the Power Bonds are not permissible as it is not the responsibility of the GRIDCO to address the liability towards the arrear dues. Issues emerge from the objections (Contd..)

22 Provision of Bad and Doubtful Debt –Truing up for bad & doubtful debts should be made to take into account only such dues which are not collectable and have been written off from the books of licensee, based on audited accounts. Power Factor Incentive/ Power Factor Penalty –Increase of the normal power factor to 0.95 will result in heavy additional investment by the consumers and is uncalled for. –The practice of permitting computation of power factor incentive above 90% should continue. Issues emerge from the objections (Contd..)

23 Issues emerge from the objections (Contd..) Cross Subsidy –The Hon’ble Commission may reduce the cross subsidy from year to year between the subsidized and subsidizing categories. Quality of Services –The supply of electricity is most irregular, and the low voltage of electricity, poor maintenance of electric line, undeclared power cuts, and frequent tripping of electricity have become the order of the day. It is moral as well as legal obligation of the licensee to maintain the feeders properly to improve the quality of power supply.

24 Consumer Classification –Lowering of load factor for plastic industries and similar continuous process industries from 50% to 35% to be eligible for discounted tariff. Financial Issues –In the absence of unaudited balance sheet and report of the auditors it is not possible for the objectors to make proper observation on financial matters. Interest towards Securitisation –The interest charges towards securitization as well as capital of securitisation should not be passed on to the revenue requirement for tariff purposes. Issues emerge from the objections (Contd..)

25 Computation of Load Factor –A lower load factor up to 50% may be prescribed for the period of annual maintenance, which will be jointly decided by the licensee and the consumers. –The guaranteed load factor of 80% should be determined on an annual basis. –If the load factor is maintained at a level of more than 30%, the licensee may be directed to allow the concession. Issues emerge from the objections (Contd..)

26 Tariff Issues –For determination of average cost of supply, the bulk supply price should be considered on the basis of average cost of power procurement from different sources plus a trading margin as determined by the CERC. –The Orders of the Hon’ble Commission determining the incentive tariff for HT & EHT consumers has resulted in increase the Cross Subsidy, which is contrary to the principle annunciated in the OERC (Terms & Conditions of Determination of Tariff) Regulations, 2004 and the National Tariff Policy. –For the purpose of incentive calculation, the demands recorded in hours other than off peak hours shall be the basis for calculation of incentive. Issues emerge from the objections (Contd..)

27 –The Hon’ble Commission may revert to the system of two-part tariff while approving the Bulk Supply purchase by different Distribution Licensees. –The Licensee should submit to the Bulk Supplier the monthly demand and energy requirement. Penalty should be imposed for over drawl. The minimum demand charges should be based on 80% projected demand by the Licensee in a particular month. –Every interruption should be considered as an interruption for a period of 30 minutes and all such periods be deleted from the total hours in a month. Issues emerge from the objections (Contd..)

28 –The demand charges may be calculated prorata if the total of such periods (causing loss of production due to interruptions) and pre-arranged shut downs availed on intimation, or statutory power cuts, exceeds 60 hours in a month. –There is no justification of increase in the connection and reconnection charges. –Additional levy by way of DPS is unnecessary and unreasonable. The present practice of DPS and rebate should be continued. –To impose Demand Charges on the CPPs/ Generating Stations for emergency drawl without any back up data leads to unknown increase in SD. Issues emerge from the objections (Contd..)

29 –There is no justification to accept the prayers of the licensee regarding demand for consumers having CD more than 70 KVA through HT supply, fixed charges for LT Industrial and Public Water works, increase in connection charges, tariff for medium industry, MMFC for consumers with CD less than 110 KVA, KVAH billing for LT industrial consumers. –In case the meter rent is withdrawn on the ground that no sales tax is applicable to the consumer, if there is no change in ownership, the licensee will have no obligation to replace the meter in time which leads to incorrect readings of the energy consumption by the use of old meters. –The Licensee is still continuing realizing meter rent even after the recovery of the cost of meter. The Licensee be directed to return such excess cost realization. Issues emerge from the objections (Contd..)

30 Demand Charges –Increase in demand charges for industries are very much burdensome to consumers without increasing the reliability or quality of supply in any manner. –It would be prudent to encourage medium industries to graduate to large industries by retaining the present demand charges. Railways –Hon’ble Commission may consider suitable reduction in the proposed demand and energy charges for railway traction. –Penalty provision on account of over drawl may be withdrawn in case of railway traction. Issues emerge from the objections (Contd..)

31 –Hon’ble Commission may allow to take power supply for traction sub-station directly from GRIDCO through OPTCL as per the tariff applicable to DISTCOs. –Single part tariff for railway traction may be considered. –Proposal to record simultaneous maximum demand for railway traction supply may be considered. –Railway may be exempted from payment of security deposit. –Stipulation of power factor in case if it goes below 0.85 as against existing –Restoration of incentive for improvement in power factor above –Grant of relief to railways for power supply interruption as well as poor quality of supply. Issues emerge from the objections (Contd..)

32 General Issues –The licensee is required to notify the consumers 24 hours before the scheduled power cut by print, electronic media and public address system. –It is requested to operate Camp Courts at Balasore at least 6 times in a year to lessen the burden of the consumers. –It is neither possible nor desirable that the consumers be made to finance the licensee to meet its obligations. The Hon’ble Commission may direct the licensee to infuse additional funds as may be required to turn around the sector. Issues emerge from the objections (Contd..)

33 –There is ample scope for the licensee to earn substantial miscellaneous revenue through advertisements and communication, which will go a long way in reducing the burden on the consumers. –The Hon’ble Commission may reject the prayer of the Applicant to allow higher ARR or increase in the RST for the year On the other hand, reduce the RST based on the lower distribution loss. Issues emerge from the objections (Contd..)

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