1 Analysis of OPTCL’s ARR and Transmission tariff for FY By: World Institute of Sustainable Energy, Pune (Consumer Counsel) 4 th February, 2011

Proposal of OPTCL

3 Proposed Revenue Requirement for FY (Rs Cr) Employee Cost R&M Cost93.89 A&G Cost38.34 Interest on loan Interest on Working Capital59.08 Depreciation Return on Equity24.81 Sub-total Pass through expenses Contingency Reserve15.16 Bad & Doubtful Debt0.10 GCC Expense0.30 Total gross requirement: Rs Crore

Analysis of ARR and Transmission Tariff

5 Transmission loss

6 Employee cost incl. terminal benefits (Rs Cr.) ItemProposed for Approved for Proposed for Approved Proposed Gross amount Less capitalization Net employees cost Approved11-12 Proposed Basic pay +GP DA HRA Provision towards arrear pay Terminal benefit * Others Less capitalization Total *Including payment of differential pension and pensionary benefits

Employee cost incl. terminal benefits (contd.) Submission OPTCL has requested 241% rise in employee cost including terminal benefit in ARR of FY Basic Pay + GP: Yearly escalation of 3% shall be allowed over the Commissioned approved amount of DA: The DA proposed for (63%) seems to be on higher side and therefore may be reviewed HRA: The HRA Proposed for (20% ) may be reviewed according to Govt norms Terminal benefit: may be finalized as per independent valuation report 7

8 R&M and A&G Expenses (Rs Cr.) R&M ApprovedActual (upto Sept’10) (proposed) (proposed) Particulars Proposed FY a) O&M71.93 b) Telecom R&M13.10 c) Civil Works2.80 d) IT6.06 Total R&M (56.48% increase over approved) approved Projection approved projection % increase over approved A&G Expenses %

R&M and A&G Expenses (contd. Submission The approved and actual R&M expenses in last few years reveal that OPTCL actually incurred less than 50% expenditure on R&M (except ); therefore, consumer should not be burdened with excessive projected R&M expenses As per OPTCL Business Plan 5.5% yearly escalation in A&G expenses shall be allowed to pass through in ARR (i.e. Rs Cr against projection of Rs Cr for FY ) 9

10 O&M Expenses as per CERC O&M Expenses as per CERC Norms for FY Segregation of BaysBaysRs Lakh/ bay O&M (Rs Cr) 765 kv kv kv kv and below TOTAL O&M EXPENSES FOR BAYS Segregation of EHT linesCkt kM(Rs Lakh / Ckt km)O&M (Rs Cr) Single Circuit (Bundled conductor with four or more sub-conductors) Single Circuit (Twin & Triple Conductor) Single Circuit (Single Conductor) Double Circuit (Bundled conductor with four or more sub-conductors) Double Circuit (Twin & Triple Conductor) Double Circuit (Single Conductor) TOTAL O&M EXPENSES FOR LINES31.29 TOTAL O&M EXPENSES FOR BOTH LINES & BAYS Projected O&M: Rs Crore (Employee:952.06, R&M:93.89, A&G:38.34); whereas as per CERC Regulation it can be reduced by nearly 50%

11 Loan liability Observation: OPTCL has proposed new loans of to be availed in FY OPTCL has reported State Govt (cash loan) balance of the tune of Rs 2 Cr. And requested to allow Rs 0.26 Cr as a interest component of that in the ARR Submission New loan interest Cr shall not to be passed through in the ARR of FY Interest on State Govt. (Cash loan) should be kept in abeyance as per Govt directive

Capex Plan 12 Capex Projected: Capex plan given in ARR for (Rs Cr.) Capex Plan submitted on (Rs Cr.) O&M Telecom Information Technology TP & Con. (Excluding Deposit Works) Civil Works35.16 Total Capital Expenditure Observation: The reasons for variation in expenses under O&M and telecom reported in earlier capex plan and ARR submission need to be verified

13 Gross fixed asset and depreciation Gross fixed asset As on (actual) Addition in (Given in ARR 11-12)As on Addition in (Given in ARR 11-12) As on (Rs Cr.) Option 1: Option2: (OERC Approved in order) Particulars Depreciation Rate CERC Pre-92 Rate Gross Block ( ) (Provn.) Gross Block ( ) (Projected) Deprcn. for FY CERC Deprcn. 11- Pre-92 Land and Rights0.00% Buildings3.34%1.80% P & M(Other Civil works)3.34%1.80% Plant & Machinery5.28%3.80% Plant & Machinery (Lines, Cables etc)5.28%2.57% Vehicles9.50%12.86% Furniture, Fixture6.33%4.55% Office Equipment6.33%9.00% TOTAL (Rs Cr.)

Gross fixed asset and depreciation Submission: Consumer counsel has calculated the Gross Fixed Asset by taking reference 0f OERC actual and approved GFA as on and respectively After addition the yearly addition (09-10 & as given in ARR), the GFA arrived are lower than that claimed by OPTCL Commission may consider the GFA as determined in the previous slide 14

15 Return on equity, Reserve & others Observation: Equity claimed by OPTCL: Rs Cr – (old) (received) (expected) Submission: Commission shall not allow RoE on ol d equity and expected equity base Reasonable RoE = * 15.5% = Rs 7.45 Cr (claimed RoE - Rs Cr) Disallow the claim for further Contingency reserve Interest on working capital, bad debts and pass through expenses shall not be pass through in ARR

16 Summary of ARR ( ) ITEMSApproved for Approved for Proposed for FY Vs vs Employees Cost including Terminal Benefits % 240.5% R&M Cost % 56.48% A&G Cost % % Interest on Loan Capital % % Depreciation % % Repayment obligation Return on Equity Interest on Working Capital Sub-Total % % Special Appropriation Pass Through Expenses Contingency Reserve Bad & doubtful debt Debts GCC Expense including SLDC charges Total (Rs Cr.) % 198.3% Less Misc. Receipts Annual Revenue Requirement (Rs Cr.) % 227.2% Transmission Charges (paise/unit) % 192.2%

17 Proposed Transmission tariff Sl NoCustomerMURate (P/U)Loss (%)MU including LossAmount (Rs. Cr.) 1CESU NESCO WESCO SOUTHCO Total DISTCOs Emergency Sale Wheeling of IMFA Wheeling of NALCO Total Total Annual Revenue Requirement for FY Total Million Units proposed for Wheeling in MU22915 Less: Revenue to be earned from LTOA Customers at the existing Transmission 23.5 P/U Deficit in ARR for FY at the existing Transmission 23.5 P/U Proposed transmission tariff (P/U)68.68

18 Open access charges Long term OA charges (Rs / MW/ Day) Proposed increase of 192% Short term OA charges (Rs / MW/ Day)

Summary OPTCL has claimed a hike of 192% in transmission tariff which will increase the cost of electricity at consumer end The increase in transmission tariff is resulted due to higher claim of OPTCL in following components: Employee cost incl. terminal benefits and pension/R&M expenses/ A&G expenses/ Interest on new loan and old state govt. loans/ Gross fixed asset and depreciation/ RoE, Contingency reserve, Interest on working capital and pass through expenses Commission may consider the submission of consumer counsel and reduce the transmission tariff at reasonable level

20 Thank you