1. Analysis of ARR & Tariff Proposal of NESCO for FY 2011-12 February 09, 2011 By World Institute of Sustainable Energy (Consumer Counsel)

2. ARR submission and Proposal of NESCO

3. ARR submission of NESCO ARR 2011-12 Projected Power purchase cost 1243.26 Employee Cost 340.49 A&G Cost 40.41 R&M Cost 76.66 Depreciation 51.16 Bad Debts 27.19 Interest & Finance charges 70.19 Reasonable return 12.23 Amortization of Regulatory Asset 21.11 Truing up of Revenue Gap for FY 2009-10 261.42 Contingency Reserve 5.32 Total ARR 2149.53 Sale of Power at existing tariff1359.38 Other Revenue24.31 Total Revenue Relisation1383.69 Revenue Gap with existing Tariff765.84 In Rs. Cr.

4. Tariff Proposal of NESCO 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. Proposed Tariff Rationalisation Measures – Computation of Over drawl penalty – Delayed payment surcharge – KVAH billing for three phase LT & HT industrial consumers – Demand charges for consumers having contract demand more than 70KVA through HT supply – Payment of demand charges for CPPs – Discontinuance of load factor incentive in Energy Charges – Fixed charges for LT industrial (S & M), specified public purpose and public water works – Tariff for Medium Industries Consumers – Monthly Minimum Fixed Charges for consumers with contract demand < 110 kVA – Security deposit for providing meter and metering installations – Demand charges and monthly minimum fixed charges – Inspection fees of lines and substations – Billing of lift irrigation points – Over Drawl Penalty for Drawl over and above OERC approved Quantum (MU) & (MVA) – Back to back DPS adjustment between GRIDCO, GOO and Licensee – Initiatives to increase collection efficiency through Jan Seva Kendra in DISCOMS – Power factor penalty – Fuel price adjustment – Rebate on prompt payment

6. Analysis of ARR by Consumer Counsel

7. Observation: 28.6% is the distribution cost of proposed ARR

8. Revenue GAP of NESCO for FY 2011-12 (in Rs Cr)

9. Annual Revenue Requirement NESCO ARR 2010-11 Approved 2011-12 Projected % Change Power purchase cost 1120.071243.2611.00 Employee Cost 147.58340.49130.72 A&G Cost 17.1140.41136.18 R&M Cost 37.2276.66105.96 Depreciation 21.4551.16138.51 Bad Debts 13.1427.19106.93 Interest & Finance charges 26.5770.19164.17 Reasonable return 10.5512.2315.92 Amortization of Regulatory Asset 021.11 Truing up of Revenue Gap for FY 2009-10 0261.42 Less Expenses Capitalized -0.56 Contingency Reserve 05.32 Total ARR 1393.132149.4454.29 Observation: -NESCO has proposed 54% hike in ARR for 2011-12

10. ARR cost component-Power Purchase Cost Issues: 1.Utilization of proposed power 2.Higher demand forecasts 3.Higher Distribution Loss 4.Lower Collection Efficiency 5.Higher AT & C Loss 6.Higher loss in LT and HT network

11. Utilization of Proposed Purchased Power Observation: - 28% power purchased is loss and actual sale is 57%

12. Demand Forecasting (In MU) Sale/ Purchase FY 2010-11FY 2011- 12 Projection in ARR % Change over 2010-11 Revised Estimates Number of Consumers Projection in ARR Revised Estimates (Based on actual data of Six months) % Change in (Rev Est. over Projection) As on 1/4/2010 As on 1/4/2011 % Change LT 14511300 -10.41 1717 32.02 69468095975238.16% HT 750546 -27.20 578 5.92 3553652.82% EHT 17951757 -2.10 1818 3.49 243129.17% Total Sale 39963603 -9.834113.1514.15 Total Purchase 55735117 -8.195686.1511.12 Observation : Utilities demand forecast is on higher side. This will result in higher power purchase cost in ARR and corresponding impact on consumers Submission: Excess power purchase cost is mainly due to excess loss at LT level. Utilities should be directed to drastically reduce the LT loss level.

13. Distribution Loss (%) Approved in ARR Approved in BP Actual AuditedPerformance 2007-08 262931.2+ 2.2 2008-09 25.5 33.6+ 8.1 2009-10 22.52333.8+ 10.8 2010-11 18.46 ? 2011-12 18.4 ? Observation: -There is huge gap in projected (26.66%) and approved (18.4%) distribution loss. -Trend of actual distribution loss is increasing. -Licensee has made provision of Rs.24.72 Cr for SI in ARR as against the approval in BP of Rs. 50.0 Cr. Submission: -Loss of revenue realization / higher energy purchase due to (9.26 %, 526.5 MU, 102.67 Cr) higher distribution loss should not be allowed to passed on to consumer.

14. Collection Efficiency (%) Approved in ARR Approved in BP Actual AuditedPerformance 2007-08 94 93.2 --0.8 2008-09 95 92.5 - 2.5 2009-10 98 90.5 - 7.5 2010-11 98 ? 2011-12 99 ? Observation: -Collection efficiency proposed is lower by 1 % than that of approved in BP. -LT collection efficiency up to Sept 09 (Actual) is 60%. Which clearly shows the reason for lower overall collection efficiency. -Further the difference between the approved and actual collection efficiency is showing increasing trend. The measures taken by the utility are not effective to that extend. Submission: -Loss of revenue realization due to 1% lesser collection efficiency (than that of approved in BP)should not be passed on to consumer -Nominal DPS to LT consumers if allowed could help to improve the collection efficiency.

15. AT & C Loss (%) Approved in ARR Approved in BP Actual AuditedPerformance 2007-08 30.433.335.9 +5.5 2008-09 29.229.2339.5 + 10.3 2009-10 24.524.5438.6 + 14.1 2010-11 20.09 ? 2011-12 19.22 ? Observation: -Licensee has proposed 29.11% AT&C loss -92% Metering covered till Sept 2010 out of which 67% meters are in working condition.. -Low Agriculture Consumption. -This implies that the reason for higher AT&C loses could be 1)Lower HT to LT ratio. 2)Poor Power factor 3)Aged transmission lines and poor jointing 4)Less energy Audits 5)Faulty meters and metering 6)Higher thefts - Three energy police stations are functioning out of proposed five.

16. Distribution Loss excluding EHT consumption FY 2009-10 Actual FY2010-11 Proposed FY 2010-11 Revised Estimates FY 2011- 12 Proposed Overall Distribution Loss 33.80%42.76%46.61%27.66% Distribution Loss Excluding EHT consumption 48.25%41.74%45.06%40.67% Distribution Loss Approved in BP 18.46%18.40% Issue: Distribution loss in HT and LT level is much higher than the overall distribution loss (taking together LT, HT and EHT consumption) and approved distribution loss in BP. Submission: Utility needs to explore various measures to reduce LT and HT distribution loss. Further, faulty metering and power theft needs to be drastically reduced with the help of dedicated flying squad and energy police stations. Such energy police stations directly controlled by senior police officer attached to energy department could improve the efficiency.

17. ARR cost component – Employee Cost Observation: The utility has proposed the Employee cost of Rs 340.49 Cr in ARR with 130.72% hike from the earlier FY 2010-11 Employee Cost per unit of Energy Purchase (Paise/Unit) % Rise in FY 11-12 over FY 08-09 FY 08-09 (App)FY 09-10 (App)FY 10-11 (App)FY 11-12 (Prop) CESU30.7932.2334.8341.3434.27 SOUTHCO47.0445.6256.5799.12110.72 NESCO21.9626.6728.8159.88172.72 WESCO19.3621.6026.7055.80188.21

18. ARR cost component – A&G Cost Observation: Utility has proposed A&G expenses of Rs. 40.41 Cr for FY 2011-12 which are 136.18% higher than that of approved expenses for FY 2010-11. Submission: Most of the A&G expenses projected by the utility are based on 7% hike from the current year in line with LTTS order. Further, utility has proposed higher expenses under the heads Insurance, legal expenses, consultancy charges, travelling expenses, Watch & ward anti theft security, miscellaneous etc. without any detailed supporting plan and breakup of cost components. These expenses shall not be allowed to pass through in the ARR. A&G Cost (Paise/Unit) % Rise in FY 11-12 over FY 08-09 FY 08-09 (App)FY 09-10 (App)FY 10-11 (App)FY 11-12 (Prop) CESU4.964.775.597.6955.04 SOUTHCO6.516.847.5813.79111.94 NESCO3.123.683.347.11128.08 WESCO3.683.553.975.9160.48

19. ARR cost component – R&M Observation: Utility has proposed Rs. 76.66 Cr as R&M expenses. These expenses were projected as 5.4% of the opening GFA. (Rs. 1419.58 Cr. at the beginning of FY-2011-12) Submission: Utilities GFA approved by commission as on 31.03.2010 were 596.73 Cr. Utility has projected the GFA as Rs. 1419.58 Cr. at the beginning of ensuring year. Which seems to be on higher side. Therefore Hon. Commission should consider the new additional GFA (during FY 10-11) over and above approved GFA of Rs. 596.73 and equivalent R&M be allowed to pass through in the ARR.

20. ARR cost component-Interest & Financial Charges Observation: Utility has proposed Rs 70.19 Cr as net interest charges in the ARR. This includes the major component of power bond – differential amount of Rs. 32.79. Submission: Rs. 32.79 Cr towards differential interest payment of power bond should not be allowed to pass through in ARR.

21. ARR cost component – Provision for Bad Debt Observation: Utility has proposed Rs 27.19 Cr as provision for Bad Debt by considering 98% collection efficiency as against 99% approved in BP. Submission: Provision of bad dept 1% (due to the 1% lower collection efficiency) should not be allowed to be passed on to consumer through ARR which accounts to Rs. 13.59 Cr.

22. ARR cost component-RoE Observation: As proposed equity capital is constant for the current and ensuring year. There is no equity capital infusion. Hence the Return on Equity should remain same as that of approved for FY 2010-11. Submission: Proposed higher RoE (Rs. 12.23 – Rs 10.55 Cr)should not be allowed to pass through in ARR

23. Per Unit Distribution Cost Per Unit Distribution Cost (Paise /Unit) % Rise in FY 10-11 over FY 09-10 % Rise in FY 11-12 over FY10-11 FY 09-10 (App)FY 10-11 (App)FY 11-12 (Prop) CESU61.9966.0783.956.5827.06 SOUTHCO80.1193.11165.6516.2377.92 NESCO53.2553.31108.740.11103.98 WESCO41.7748.9992.5917.3089.01

24. Tariff proposal – Other Issues

25. Consumer category Number of Consumers FY 10FY 11Difference % Increase in Consumers Total LT consumers694,680959,752 265,07238.16 Total HT consumers355365 102.82 Total EHT consumers2431 729.17 Grand Total695,059960,148 265,08938.14 Growth in LT consumers Observation: -About 42% of energy is proposed to be sold to LT consumers. - Year on Year growth in LT consumers is 38% -Minor change in LT tariff has considerable impact on ARR. -As the LT consumer base is increasing there is likely possibility of further reduction of collection efficiency -This will increase pressure of cross subsidy on HT and EHT consumers.

26. Consumer category Number of Consumers Position as on 01.04.2010 Position as on 01.04.2011Difference % Increase (1/4/10 to 1/4/11) Addition during FY 2011-12 % Increase (1/4/11 to 1/4/12) LT Domestic580,252718,310 1,38,05823.791,55,760 21.68 Kutir Jyoti <=30 kWh46,370168,450 1,22,080263.271,27,440 75.65 Total LT domestic626,622886,750 2,60,12841.51 1,169,95031.94 Impact of BPL consumers Observation:  The growth of BPL consumers is increasing due to GoI / GoO rural electrification schemes : growth in FY 2010-11 ( 263.27%) & anticipated in FY 2011-12 ( 75% ) as per submission in ARR.  It is predicted that the cumulative BPL consumer in Orissa will raise to 40 lakh by end of 2011-12, accordingly the BPL consumers in NESCOs area will further increase. Submission: -Benefits of lower tariff to BPL / Kutir Jyoti consumers need to be extended to the consumers having monthly consumption of 30 kWh only. -BPL / Kutir Jyoti consumers having higher consumption should be treated as general LT domestic consumers. -In view of increasing BST, BPL category consumers tariff needs to be increased suitably or equivalent upfront energy should be sought from state Govt.

27. 27 Submission of Consumer Counsel NESCO’s projection of purchase forecasts are on higher side due to higher losses at HT and LT level. Cost of power of Rs 102.76 Cr due to higher distribution loss should not be allowed to pass through in ARR. Loss of revenue realization due to 1% lesser collection efficiency should not be allowed to pass through in ARR. Nominal DPS to LT consumers if allowed could help to improve the collection efficiency. The Utility has not taken any step to reduce distribution loss in the line of recommendations of the Kanungo Committee and OERC. Utility needs to explore various measures to reduce LT and HT distribution loss. Faulty metering and power theft needs to be drastically reduced with the help of dedicated flying squad and energy police stations. Such energy police stations if directly controlled by senior police officer attached to energy department could improve the efficiency. Higher A&G expenses should not be allowed to pass through in the ARR. Higher R&M should not be allowed to pass through in the ARR. Rs. 32.79 Cr towards differential interest payment of power bond should not be allowed to pass through in ARR. Rs. 13.59 Cr higher provision for bad debt should not be allowed to pass through in the ARR.. Rs 1.68 Cr of Proposed higher RoE of Rs (Rs. 12.23 – Rs 10.55 Cr)should not be allowed to pass through in ARR Licensee should make effort to collect arrears in order to reduce deficit. ARR can be reduced by increasing collection efficiency, reducing losses and measures suggested by consumer counsel in the submission.. Hon. Commission may kindly consider all above facts and decide the retail tariff in the best interest of all category of consumers.