CASE NO. 18 of 1998

Shri S.C. Mahalik, Chairman
Shri A. R. Mohanty, Member
Shri D. K. Roy, Member

Dates of argument : 13.10.98
Date of Order : 21.11.98

ORDER

Grid Corporation of Orissa Limited (Gridco, for short) is the holder of the "The Orissa Transmission & Bulk Supply Licence, 1997 (No.2/97)". The said Gridco has submitted an application on August 17, 1998 under the provisions of Section 26 of the Orissa Electricity Reform Act, 1995 (Reform Act, 1995) for approval of a Bulk Supply Tariff (BST) for sale of electricity to Distribution & Retail Supply Licensees in Orissa and a Transmission Tariff for use of transmission services.

2.0 Meanwhile, Gridco, the holder of the "The Orissa Distribution & Retail Supply Licence, 1997 (No.1/97)" has restructured itself by incorporating four wholly owned subsidiary companies to take over the business of distribution and retail supply in the State of Orissa while retaining the Transmission as well as Bulk Supply business. These four subsidiary distribution companies have filed applications to the Commission for grant of Distribution & Retail Supply Licences. Therefore, a Bulk Supply Tariff is needed to determine the rate at which power will be sold by the Transmission & Bulk Supply Licensee to the distribution licensees.

2.1 The proposal under sub-section (4) of Section 26 of the Reform Act, 1995 was submitted by Gridco on 17.08.98 giving details of calculation of estimated revenue requirement for 1998-99 and charges proposed to be levied to meet the same.

2.2 The proposal of Gridco was discussed in a meeting of the Commission Advisory Committee held for the purpose on 08.10.98 and the views expressed by the Members of the Committee have been taken into consideration by the Commission.

2.3 A notice was published by the Commission in several local newspapers on two consecutive days outlining the tariff proposal and calling for objections from interested persons. The objectors were required to submit their objections in quadruplicate to the Commission with the fifth copy of the said objection to be served on Gridco. The notice called on the interested parties to peruse further details of the proposal in the corporate office of the Gridco so as to enable them to submit their objections. It also stipulated that objectors, if they so wished, should indicate their desire to be heard in person. A total of four objections were received against Gridco's proposal on Bulk Supply Tariff.

2.4 After receiving the objections, the Commission published a notice informing that a hearing on the proposal of Bulk Supply Tariff would take place on 13th October'98.

2.5 The hearing was held accordingly on 13th October'98 in the office of the Commission. The Reform Act, 1995 does not require the Commission to hold public hearing on tariff application. The Commission, however, adopted the procedure of inviting objections from the interested persons and held a hearing to ascertain the views of a larger section of the public and for greater transparency.

2.6 At the outset of the hearing, learned Advocate Mr. K.N. Jena appearing on behalf of M/s. Orissa Consumers Association, Cuttack, raised certain preliminary objections and sought the Commission's orders before proceeding with the hearing. Commission heard the views of Gridco on such objections and pronounced its decision on 13.10.98 not admitting the objections to the maintainability of the application. Commission observed that detailed reasons for rejection of the objections would be incorporated in the final order on tariff.

2.7 In his preliminary objections, the learned counsel Mr. Jena mainly stated that the application filed by the licensee was fit to be rejected at the outset on the following grounds:-
(i) Provisions under section 57-A of Electricity (Supply) Act, 1948 read with the provision of Reform Act, 1995 contemplate that charges for the supply of electricity, once fixed, shall be in operation for three years. As such, revision of tariff within a year would be without authority of law.
(ii) When persons other than Gridco or private entrepreneurs had not yet been granted licence, Gridco was not entitled to ask for an unbundled tariff for bulk supply and transmission on the premature assumption that its responsibility will be confined to these two activities only. It was alleged that the application sought to defraud the consumers, as companies which had been floated were fake companies. They had no financial standing, had no paid up share capital and had no bank account and infrastructure to carry on the business of distribution and supply. Higher tariff was proposed to cover up Gridco's inefficiency, maladministration, and loss arising mainly due to extravagant expenditure.
(iii) From 01.04.97 to this date, the licensee has already revised tariff indirectly twice and hence the present application was unreasonable enough to be rejected.
(iv) Licensee had failed to comply with the conditions of licence. As such, it should not be allowed any indulgence to revise the tariff until and unless it fulfilled the conditions of licence and complied with the orders of Orissa Electricity Regulatory Commission.

2.8 The first objection refers to Section 57-A of Electricity (Supply) Act, 1948. We have considered the provisions of Section 57-A of the Act, 1948 with particular reference to sub-clause (c) and (e) of sub-section (1) of Section 57-A as quoted by Mr. Jena. We find that these provisions are applicable only to charges for electricity recommended by a Rating Committee and approved by the State Govt. and stipulate that such charges for supply of electricity shall be in operation for such period not exceeding three years as the State Govt. may specify in the order. Sub-section (7) of Section 26 of the Reform Act, 1995 annuls the constitution of a Rating Committee, making the aforesaid provisions of the Electricity (Supply) Act, 1948 inapplicable in this case. We hold that the preliminary objection by the learned counsel provided under Section 57-A of the Act, 1948 is without merit as the said provision is inapplicable in tariff proceeding under Section 26 of the Reform Act, 1995.

2.9 The second objection raised by the learned counsel relates to premature filing of bulk supply tariff when persons other than Gridco or other entrepreneurs have not been granted licence. The Commission has carefully considered this issue. The Commission observes that the mandate of the Reform Act, 1995 is to provide for avenues for participation for private sector entrepreneurs in the electricity industry. Gridco, the holder of the Distribution & Retail Supply Licence, has carved out four zones of distribution to cover the State of Orissa and has incorporated four subsidiary companies corresponding to those zones with Gridco as the holding company. Further, Gridco as the licensee for Distribution & Retail Supply has initiated action proposing divestment of the shares of these subsidiary companies to private sector. Gridco's action in this regard is consistent with the Reform Act, 1995. Further, Gridco, the holder of Transmission & Bulk Supply Licence, has applied for a bulk supply tariff to coincide with the aforesaid action related to hiving off its distribution & retail supply business to subsidiary companies. The terms of licence granted to Gridco authorises it to supply energy to other licensees for distribution by them and therefore, Gridco is entitled to file the revenue requirement and tariff charges for bulk supply of energy to distribution and retail supply licensee and also charges for transmission of electricity. In the scheme of restructuring consistent with the provisions of the Act, Gridco has planned to retain only transmission and bulk supply activities subject to approval of OERC. If subsidiary companies obtain licence for distribution and retail supply, Gridco shall be entitled to charge only bulk supply tariff and transmission charges whereas the holders of distribution and retail supply licences can charge tariff for supply in all other respect. Hence, the existing composite tariff has to be unbundled and separate tariff has to be approved by the Commission for bulk supply and for transmission. Even if Gridco did not propose to divest itself of distribution activities, there was need for unbundling tariff as a natural corollary to functional unbundling envisaged in the Reform Act. The need of fixing separate tariff is all the more necessary as separate companies have applied for distribution and retail supply licence. Therefore, it is perfectly in order for Gridco, holding the licence for Transmission & Bulk Supply, to file the revenue requirement and charges for supply of energy to distribution and retail supply licensees coming up in future.

2.10 The third objection on the ground that tariff has been revised on three occasions since 01.04.97 is not based on facts. The objection has not been amplified by the learned counsel. It is noted that there has been no tariff revision since 01.04.97 till date. The provisions of law in Section 26 of the Reform Act, 1995 make it mandatory for the licensee to file revenue requirement for the ensuing financial year. Gridco has done so and, in fact, has filed it rather late.

2.11 The fourth preliminary objection raised by the learned counsel relates to debarring the licensee from revising the tariff until and unless it fulfils the conditions of the licence and complies with the order of the Commission. The Commission observes that non-compliance or inadequate compliance of the licence conditions, if any, is a separate issue which cannot hold up scrutiny of tariff filing on which the Commission is bound by law to pass orders within ninety days. Elaborate provisions exist in the Reform Act, 1995, to deal with non-compliance or violation of licence conditions. The filing of revenue requirement is a statutory requirement of the licensee as provided in sub-section (4) of Section 26 of the Reform Act, 1995 and, therefore, this function must not be mixed up with other issues. The Commission, therefore, does not admit any of the above preliminary objections raised by the learned counsel and has to continue with tariff proceedings.

3.0 GRIDCO'S PROPOSAL

3.1 Gridco's proposal for bulk supply tariff for sale of electricity to Distribution & Retail Supply Licensees envisages a total sale of 10241.8 million units during the year 1998-99 in order to meet the demand of distribution companies. Gridco, the holder of "The Orissa Transmission & Bulk Supply Licence, 1997 (No.2/97)" proposes to purchase 10814.97 MU on the assessment of transmission loss of 5.3% on EHT system. The financial implications of the aforesaid transaction are as under:

In their proposal, Gridco have shown accumulated past losses to the end of the year 1996-97 and estimated loss of 1997-98 as Rs.543.10 crores. They have estimated their recoverable expenses as (Rs.1597.26 + Rs.543.10) Rs.2140.36 crores. At a glance, the revenue requirement for bulk supply as proposed by Gridco is indicated below :

For the purpose of determination of revenue requirement of the proposed bulk supply tariff, the accumulated loss of Rs.543.10 crores is not proposed to be recovered through the BST. Gridco proposes recovery only of Rs.1597.26 crores over a one-year period.

3.2 Bulk Supply Tariff
Gridco proposes to set the BST to recover the full-embedded cost of supply of Rs.1597.26 crores, excluding the accumulated loss of Rs.543.10 crores over a one-year period. It proposes to charge a two part BST comprising:-

(a) Demand charge
(b) Energy charge

The demand charge is proposed to be levied on the simultaneous maximum demand over a one-month period of the licensee. The maximum demand will be derived by summing the recorded demand at all the contracted points of supply for each Distribution & Retail Supply Licensees every half-hour. Demand charge will reflect the fixed costs associated with power purchase and transmission. The fixed cost of power purchase relating to capacity charge is defined in Power Purchase Agreements made by Gridco with Generating companies. Costs related to transmission system are assumed to be of fixed nature. The costs of metering, billing and providing related customer services are proposed to be included in the demand charge itself. The demand charge has been designed to recover all the cash liabilities of the revenue requirement. Such costs account for 77% of the total fixed costs (excluding accumulated loss). The demand charge calculated on the basis stated above is proposed to be levied at Rs.300/KVA/month on the simultaneous maximum demand of the licensee over a one-month period.

3.3 The energy charge as proposed by Gridco comprises the following :
(a) The residual fixed cost of generation not recovered through demand charge.
(b) The variable cost of power purchase.
(c) The transmission loss estimated at 5.3% of input energy. This is the same loss level as in 1997-98.
These costs are used to calculate the proposed energy charge of Rs.0.8166/unit on an embedded cost basis.

3.4 Gridco have proposed a fuel and power purchase price adjustment formula in terms of the provisions of Section 26(6) of Reform Act, 1995.

3.5 Gridco have also proposed a surcharge of 2% per month if cash payment is made after 30 days of the presentation of the bill by Gridco.

3.6 In a nut-shell, Gridco requests OERC to approve the following tariff and charges.
(a) The bulk supply tariff as proposed.
(b) Continuance of the existing transmission charge.
(c) Delayed payment surcharge as proposed.
(d) Fuel and power purchase price adjustment formula.

4.0 OBJECTIONS DURING HEARING

4.1 The representative of M/s. Utkal Chamber of Commerce & Industry (UCCI) highlighted the following :-
4.1.1 They raised the issue of T&D loss and observed that Gridco has no right to ask for 41% overall loss as against 35% target set by the Commission in the last tariff order. They have also pointed out that the Gridco's proposal for increase in the load factor for domestic and commercial categories would increase the actual power sale by more than 2000 million units in a year. This should reduce the loss level by 20%. Gridco should take account of this while asking for 41% system loss. They further argued that meters have not been fixed for about 85,000 consumers under Kutir Jyoti programme. If this is done, it would reduce the system loss further. The above three measures will reduce cost of procurement by about Rs. 500 crores in a year.

4.1.2 In their argument for reducing the power purchase they raised the following issues :-

a) Gridco should have optimized procurement of hydro power which was far cheaper. It is possible to purchase more hydro power than last year because of good rains in September'98.

b) The availability of comparatively cheaper power from Ib Valley and TTPS has been assumed on the lower side.

c) The EREB has no right to reduce the generation of lower cost power and increase generation of higher cost power.

d) Procurement from CPPs is lower as compared to what was assumed by OERC in 1997-98.

4.1.3 On the matter of transmission tariff and EHT loss they put forth their views as follows:

a) Transmission charges levied @ 40 paise per unit excluding transmission losses of 7.5% is very high.

b) PGCIL charges 11 paisa per unit as transmission charge.

c) Gridco itself charges only 17.5 paise per unit for both transmission charges and EHT losses for wheeling power to APSEB and to MPSEB.

d) The EHT transmission cost of Gridco on embedded cost basis comes to 19 paisa per unit.

e) Transmission losses have now been accurately evaluated at 5.3%. Thus 7.5% transmission loss is on the higher side.

f) Transmission charges should be calculated on embedded cost basis as in retail tariff.

4.1.4 In the matter of capital base and cost they argued:-

(a) Capital base of Gridco has been increased arbitrarily from Rs. 523 crores in 1997-98 to Rs. 1031 crores for 1998-99.

(b) Previous loss of Rs. 543 crores has been added to the revenue requirement of Gridco without considering the subsidy claims on Govt. amounting to Rs. 538 crores.

(c) The capital cost of assets transferred to Gridco and OHPC by the Govt. have been uplifted from 2 to 2.5 times of the book value. This has increased the revenue requirement of Gridco. Uplift of costs of depreciated equipment makes the consumers to pay depreciation continuously at a higher rate instead of zero depreciation after recovery of 90% of cost of equipment through depreciation.

4.1.5 They further pointed out that the fuel price adjustment formulae as proposed is complicated and incorporates excess power cost, other unadjusted costs etc. in it. These should not be included in the formula.

4.2.1 Mr. M.V. Rao, objector representing M/s. Ferro Alloys Corporation Ltd. (FACOR) had submitted the objections to the Commission and during the personal hearing brought to the notice that FACOR is a 100% export oriented company and is a capital-intensive company. He said that the present tariff is too high compared to those in foreign countries with whom the company has to compete. The price quoted for different countries was stated to be as follows :-

4.2.2 The next important issue pointed out by Mr. Rao was that the charge chrome plant situated in the North-Eastern distribution zone is availing NTPC power during off peak hours through the grid under supplementary agreement with Gridco. FACOR contends that Gridco has to be clearly directed in the tariff order so that Gridco and the four newly formed distribution companies would honour the above supplementary agreement for supply of NTPC power as it was approved at the instance of both the State and Central Governments for availing cheaper electricity required to compete in the international market.

4.3.1 Mr. T.C. Hota, representing M/s. Indian Charge Chrome Ltd. (ICCL), Bomikhal, Bhubaneswar in his written submission has dealt with two principal subjects. (1) Transmission tariff and (2) Emergency power for CPP. We would be dealing only with transmission tariff here as this order relates only to bulk supply and transmission tariff. Emergency power for CPP will be dealt with in the retail supply tariff order. Mr. Hota has brought to the notice of the Commission that in view of tabulation of monthwise loss shown as below in Appendix RT-4 of Gridco's proposal, estimated transmission loss in EHT line during the year 1997-98 at existing 7.5% is unreasonably high.

4.3.2 It was argued that since EHT loss figure for Gridco for the period 4/97 to 3/98 has already been indicated as 3.823%, Gridco's claim of 5.3% towards the transmission loss was neither reasonable nor correct. He further observed that Gridco in clause 17 of its application has suggested to consider the transmission loss at 5.3% as a part of the system loss of 41% on the NGP basis. He further contended that the present EHT loss being 3.386% on an average for the year 1997-98, it was not known why Gridco was trying to project a higher transmission loss of 5.3% during the next year. He suggested that the transmission loss in EHT system should not be allowed to exceed 3%.

4.3.3 The total units received in the system is 10,815 MU for the ensuing financial year. Allowing a loss of 5.3%, the total energy transmitted through the system has been estimated at 10,242 MU. The cost of transmission, distribution and cost of lost units have been calculated at Rs.431 crores and has been divided by 10,242 MU to get a cost of 42.08 paise per unit. This according to Mr. Hota includes the inflated transmission loss as well as the inflated cost of the assets of the transmission network received from the Govt. at uplifted price.

4.3.4 The present transmission charge of 40 paise per unit has been considered by both the State Govt. and the CEA as abnormally high. In this connection reference was made to the summary records of the meeting taken by the Chairman, CEA on 16th December 1997 and annexed as an Annexure XIII(1/3) to the agenda of the 261st OCC meeting of the EREB held on 24.12.97, enclosed to as Annexure-I. The item 5.7 of the above proceedings of discussion states: "After detail study CEA has fixed a wheeling charge of 10 paise per KWH which comprises transmission charge and transmission loss of around 2.5 paise per unit and 7.5 paise per unit, respectively. This should be acceptable to Gridco."

4.3.5 Mr. Hota in his written submission has observed that the present rate of 17.5 paise per unit charged by Gridco for export of power to MPEB and APSEB includes both wheeling charges and loss, whereas Gridco are claiming 40 paise per unit towards transmission and 7.5% for loss in the present tariff proposal.

4.3.6 He has also referred to a letter No.P-II-TAR-1/98/467 dated 12.01.98 from the Chairman-cum-Managing Director of Gridco indicating Government's view that the present rate of 7.5% transmission loss and 40 paise wheeling charges, which has been levied from 01.4.97, are considered high and State Government has suggested a rate of 7.5% transmission loss with 20-25 paise per unit wheeling charges to be appropriate.

4.3.7 He has also mentioned that the Maharashtra State Electricity Board in their new policy for captive power plant has specified a wheeling charge at 2% of the energy wheeled and a transmission loss of 4% on EHT line between 100-500 Kms.

4.3.8 Based on the above information, he has proposed that the transmission charges should not be more than 4% towards wheeling loss and a maximum of 10 paise per unit towards wheeling charges. An amount of 10 paise per unit for wheeling charge will be an additional contribution to the fixed costs and higher than the recommendations of the CEA as well as the wheeling charge of MSEB.

4.4 Mr. K.N. Jena, objector representing M/s. OCA put forth the following objections :

i) Gridco has not submitted audited accounts for the year 1997-98. Hence tariff revision proposal should be rejected.

ii) Loss is due to mal-administration, in-efficiency, corruption and mismanagement.

iii) Revaluation of assets has increased the revenue requirement of the licensee in terms of depreciation, interest, operation and maintenance expenses, and reasonable return.

iv) Proposed tariff revision is arbitrary and does not conform to section 26 of Reform Act, 1995.

v) Regulatory authority is not a legally and properly constituted body after coming into force of Reform Act, 1995, as such, OERC has no competence and authority to increase the tariff.

vi) When no licence has been granted by the licensing authority for transmission and distribution separately, there should not be separate bulk supply tariff and retail supply tariff. Imposition of bulk supply tariff would neither ensure any benefit to consumers nor it would be conducive to improvement of efficiency.

5.0 GRIDCO'S RESPONSE TO THE OBJECTIONS

5.1 Cost of Power
Gridco submitted their response to the objections on bulk supply tariff application. With regard to the main component of revenue requirement, namely, power purchase cost, Gridco in their response have highlighted that the rates for the variable costs of all thermal stations have been projected as those prevailing at the end 1997-98. No provision for inflation during the year 1998-99 has been made. Clearly, some increase in fuel and other operating cost is inevitable. This will be recovered through the application of fuel and power purchase price adjustment formula proposed along with the tariff application. Secondly, they have stressed that the availability of cheaper hydro power to the optimal level has been taken into the power purchase plan. Orissa Hydro Power Corporation (OHPC) contributed about 32% of the total power purchased by Gridco during 1997-98. The power purchase plan anticipates an increase of around 10% in the availability of hydro power, that is from 3214 MU in 1997-98 to 3536 MU in 1998-99. They have also indicated that there has been a shortfall of total availability of hydro power for the first five months of 1998-99 to the tune of 9.4% compared to first five months of 1997-98. Because of the lower reservoir levels compared to previous year at Balimela power house and Machhkund power house, Gridco apprehends availability from OHPC for the year to be approximately 3,075 MU. Against this, Gridco's projection for the year in the tariff application is 3536 MU. Gridco has further indicated that under the prevailing arrangement with OHPC, a fixed amount is payable to OHPC without linkage to the quantum of power supplied. Hence, the per unit cost of power payable to OHPC will go up from Rs.0.51 to Rs.0.59 per unit. Further, the shortfall will have to be met by the purchase of more expensive thermal power. The estimated incremental cost will be at least Rs.83.95 crores. The average per unit pooled cost of power purchase will, as a result, go up to at least Rs.1.257 per unit, an increase of about 6.5%.

5.2 Procurement of power from OPGC
For 1997-98, OERC had approved a purchase of 2330.78 MU. However, actual availability was only 2058 MU. This represented a shortfall of about 11.7%. The reduction in generation was due to lower availability of machines, backing down due to system constraint and backing down due to lower demand as per the instructions of EREB. For 1998-99, Gridco has projected an availability of approx. 2115 MU, which is about 2.7% higher than the actual availability last year.

5.3 Procurement of power from TTPS
OERC had approved a power purchase of 1600 MU from TTPS for the year 1997-98. Gridco's present projection for 1998-99 is approx. 1771 MU, which is about 10.5% higher than the figure approved by OERC in 1997-98. The projection is as per the generation programme provided by the power station.

5.4 Procurement of power from CPP
For 1997-98 OERC had approved a purchase of 905 MU from the Captive Power Plants. Against this, the actual availability during 1997-98 was only 695 MU. The projection for the year 1998-99 has been assumed at 700 MU which is close to the actual availability for the last year. In this connection Gridco has indicated that with the adoption of availability tariff by EREB, Gridco would be required to pay fixed cost to central generating companies whether or not it draws power from them. With the introduction of availability tariff, the fixed cost liability in respect of Central Sector Power Plants will be much higher and the variable cost will be correspondingly much lower. It will be economical for Gridco to buy energy from Captive Power Plants only when the variable cost of the Central Power Stations is higher than the cost of power to be purchased from Captive Power Plants. In this regard, Gridco has given comparative figures of variable cost of different power stations along with cost of power from CPPs which are indicated below :

5.5 Justification for BST
In reply to objection made by M/s. Orissa Consumer Association (OCA), Gridco reiterated that being a holder of "The Orissa Transmission & Bulk Supply Licence, 1997 (No. 2/97)" granted by OERC under Section 15 of Reform Act, 1995, Gridco has already implemented an internal reorganisation, separating four distribution zones from the power procurement and transmission business. The four distribution companies have filed application for grant of distribution and retail supply licences, which are pending with OERC. Accordingly, a bulk supply tariff is needed to determine the rate at which power will be sold by Gridco, the holder of Transmission & Bulk Supply Licence, to the Distribution & Retail Supply Licensees. Gridco emphasised that unbundling of tariffs and functional separation results in economic efficiency in the allocation of resources and facilitates competitive market forces. A separate BST is expected to meet these objectives. Referring to the objection of M/s. OCA, Gridco stated that even when an application for revocation is pending with the Commission, the licensee is within its right to file a tariff application.

5.6 Return on loans and debentures
Gridco has stated that the Sixth Schedule of Electricity (Supply) Act, 1948 provides for inclusion of one half percentum on the outstanding loans and debentures in calculation of the reasonable return. As outstanding loan stands at Rs.761.88 crores, this works out to Rs.3.81 crores. This amount has not been included in the calculation of reasonable return and only the standard rate allowed on the capital base has been included for recovery through the bulk supply tariff for 1998-99.

5.7 Transmission Loss
Gridco in their reply to the objection made by M/s. ICCL on 17.10.98 at page 7/29 in Issue No. 4 "Gridco is misrepresenting the transmission loss by giving misleading data. Appendix RT-4 mentions a level of 3.823% while the cost of supply is being calculated at 5.3%" have clarified that in Appendix RTCC-3 submitted in response to the queries from OERC the loss of 3.82% has been calculated on the basis of gross input. For the purpose of determination of revenue requirement, transmission loss needs to be calculated on the net input basis since only the net energy input is available in the system for sale. Secondly, RT-4 provides information on metered gross input or gross output. Gridco has further stated that there is no case for restricting the transmission loss to 3% as stated by the objector as this would be totally unreasonable and not in consonance with the existing system conditions.

6.0 COMMISSION'S ANALYSIS AND DECISION ON GRIDCO'S PROPOSAL

6.1 In order to determine the revenue requirement of the licensee on the basis of which the Bulk Supply Tariff is to be approved, the Commission has analysed the components of the licensee's costs. These are discussed below.

6.1.1 Volume of Power Purchase

(i) The Orissa Electricity Regulatory Commission in its order on tariff for the year 1997-98 had approved a net sale volume of 6091 million units corresponding to power purchase of 9371 million units on the basis of T&D loss of 35%. This purchase did not include sale of 194 million units of power for supply to the 100% export oriented units (EOU) from NTPC and 95 MU for back up supply to ICCL. Taken together, the total sale for the year 1997-98 accepted by the Commission was 6380 MU (6091+194+95) corresponding to 9815 MU of purchase.
(ii) Gridco have estimated that the energy sale during year 1998-99 will be 940 million units more than the actual sale of 5440 MU during 1997-98. This increase has been attributed to an increase of 339 MU or about 6% in demand on account of load growth over the previous year and about 601 million unit on account of expected reduction in losses. Thus Gridco's estimated sale for the year 1998-99 is projected as (5440+940) 6380 million units.
(iii) The Commission, after taking into consideration the proposed increased sale of 339 million units on account of load growth over the approved sale figure of 6091 million units for the year 1997-98, estimates the sale for the current financial year (98-99) as (6091+339) 6430 million units. This sale figure includes increase in billing on account of reduction in commercial losses. In other words, it includes the conversion of lost units to billing units due to improvement in billing and revenue collection.
(iv) Power sale by the Transmission and Bulk Supply licensee to Distribution and Retail Supply Licensee has been estimated by the Commission as 9891.39 MU based on 35% overall T&D loss.
(v) Gridco, in its tariff proposal for the year 1997-98, had estimated a purchase of 11000 million units from the various sources, but as per the actuals for the year 1997-98, the total purchase was 10357 million units. This was 643 million unit less than what was projected by Gridco. The current year's projection by Gridco is 10814 million units at a loss level of 41%. Taking into account the estimates and the actuals for the year 1997-98, the Commission considers the estimate of purchase for the current year as an over estimation. The purchase of power may, therefore, be limited to 10093.47 million units, inclusive of the power requirement of 202.08 MU for the 100% export oriented units. The quantity of power available for sale to distribution and retail supply licensees would be 9495.73 MU taking into consideration transmission loss of 4%. This is summarized as follows :-

Quantum of Power Purchase

* Note :
1. 202.08 MU of NTPC power is deducted for wheeling to EOUs.
2. 4% transmission loss will be deducted to arrive at the sale quantity to Distribution and Retail Supply Licensees.
3. Net quantity of power available for sale is 9495.73 MU.

6.1.2 Sources of Power for Gridco System
Purchase of power is the single largest component in the total expenditure budget of Gridco. For the year 1998-99, Gridco has estimated that out of total expenditure of Rs.2071 crores, about Rs.1276 crores alone will be for purchase of power. Since Gridco has no generating capacity of its own, it has to meet its entire requirement by purchase of power from various generating stations. The installed capacity of the hydro stations in the State (owned and operated by the Orissa Hydro Power Corporation) is 1272 MW including Orissa share from Machhkund power house. The installed capacity of the thermal power station at Ib owned by OPGC is 420MW. Talcher Thermal Power Station (TTPS) with installed capacity of 460MW and owned by National Thermal Power Corporation (NTPC) but is fully dedicated to meet the demand of Gridco system. Apart from these hydro and thermal stations, some small amount of power is supplied by the Captive Power Stations i.e. NALCO (Angul) and ICCL (Choudwar) to the grid system. The balance of requirement of Gridco is purchased from various Central Sector Generating Stations owned by NTPC, DVC, Chukha power station in Bhutan, and sometimes from various SEBs. The quantum of power purchased by OSEB/Gridco during the last five years is indicated below power station wise.

PURCHASE OF POWER
(Units in MU)

* Including 107 MU from Kahalgaon.

** Total number of units purchased as per annual account of 1996-97 is 9651 MU. Source wise details of Central Sector Thermal Stations is not available. Total units purchased from Central Sector Stations is 1335 MU.

Gridco purchases power from different sources with different tariff arrangements. Some generating stations are dedicated to Gridco where irrespective of the quantum drawn, the fixed charges are to be paid, such as the OHPC and Machhkund Hydro electric power stations, Talcher Thermal Power Station and IB Thermal Power Station. The Central Sector generating stations such as Chukha, Farakka, Kahalgaon and Talcher Super Thermal have a different tariff arrangement under which fixed charges are payable proportionate to energy drawn. It is, therefore, necessary that Gridco maximises its energy drawal from the dedicated power stations to reduce the average cost of power purchase. In addition to the above, Gridco draws power from Captive Power Plants such as those owned by ICCL and NALCO. The charges payable for energy drawal from such Captive Power Plants are in single part and the costs at present are generally lower than those for the Central Sector Generation. Gridco's proposal on the quantum of power to be purchased from various power stations and the quantum of purchase approved by the Commission are given in the succeeding paragraphs.

6.1.3 Quantity of Purchase from Different Power Stations of the State
In the tariff order of 1997-98, it was projected that a total of 3800 MUs will be supplied by OHPC to Gridco. In addition to this another 300 MUs of power would be available from the Orissa share of Machhkund Power Project. The power station wise analysis of various hydro power stations are given below.

I. Machhkund : This is a hydro power station in the joint sector of Andhra Pradesh and Orissa. Orissa share from this power station is around 302 MUs. The state is generally drawing share from year to year. The availability in Orissa share from the power station varied between 208 to 235 MUs during the last five years. As against 300 MU of energy projected last year the actual drawal was 296.67 MU. The Commission therefore accepts drawal of 335 MU.

II. OHPC : Drawal from different hydro stations was estimated in 1997-98 PPA as follows :-

Drawal proposed for 1998-99 by Gridco in their tariff application on 13.08.98 is as follows :-

i) Hirakud : The installed capacity of Hirakud Stage-I & II (Hirakud and Chiplima) taken together is 307.5 MW. The design availability is 120 MW i.e. 1051 MUs in a normal year with Full Reservoir Level (FRL) of 630 ft. With the addition of 7th unit the Hirakud Peak availability and secondary power generation during spilling of reservoir of this power station has gone up. The availability from the power station varied between 1008 MUs to 1236 MUs during the last five years. The minimum draw down level is 590 ft. and on 20.10.98, the reservoir level was at 628.58 ft as against 629.79 ft on 20.10.97. The PPA for 1997-98 provides a drawal of 1083.06 MU. Gridco projected a drawal of 1102 MU for 1998-99 as per OHPC's generation plan as against firm availability of 1174 MU due to hydrology constraints. This has been accepted by the Commission.

ii) Balimela : The installed capacity of this station is 360 (6X60) MW. The design availability of energy is 135 MW or 1183 MUs. The availability from the power station varied between 930 MUs to 1413 MUs during last five years except for the year 1991-92, when the availability was 1808 MUs due to an unprecedented rain in the month of November. Balimela had never reached the FRL 1516 feet except in 1991-92 when the reservoir reached the desired FRL. The reservoir level on 20.10.98 was 1464.30 ft as against 1463.20 ft on 20.10.97. PPA of 1997-98 provided a drawal of 1091.97 MU against which Gridco have drawn 891.48 MU. The projection for 98-99 is 995 MU as per OHPC generation plan and this is less than the full availability due to hydrological constraints and this has been accepted by Commission.

iii) Rengali : The installed capacity of this station is 250 (5x50) MW and the design energy availability is 86 MW or 750 MUs. The availability from the power station varied between 572 MUs to 940 MUs during the last five years due to secondary generation depending upon the monsoon rainfall. The level of reservoir was 123.35 metres on 20.10.98 as against 123.01 metres on 20.10.97. The PPA of 1997-98 provided a drawal of 730.62 MU against actual drawal of 949.33 MU. Gridco has projected 749 MU as per the generation plan of OHPC which is close to the firm availability of 750 MU. This Commission accepts drawal of 749 MU.

iv) Upper Kolab : The installed capacity of this station is 320 (4x80) MW and the design energy availability is 95 MW or 832 MUs. This is a carry over type reservoir where water can be stored for the purpose of power generation, if necessary, for subsequent year as the reservoir seldom spills during monsoon. The availability from the power station varied between 630 MUs to 842 MUs during the last five years. The draw down level of reservoir is 844 metres. The reservoir level on 20.10.98 was 850.67 metres as against 849.01 metres on 20.10.97. PPA for 1997-98 provides a drawal 795.96 MU against which the actual drawal was 454.17 MU. Gridco's drawal from April'98 to September'98 from the above Hydro stations of OHPC was 1649.82 MU as compared to 1851.89 MU drawn for the same months in 1997 which is 10.91% lower. On 20.10.98 Gridco in its reply to rejoinder to the objections has revised its drawal from OHPC to 3075.47 MU.

v) This Commission sees no justification for a reduced drawal from OHPC as the water levels in the reservoirs in different stations on 20.10.98 are comparable to the water levels as on 20.10.97. Therefore, the Commission proposes a drawal of 3536 MU from OHPC for the year 1998-99.

vi) From the above analysis, it is seen that the entire potential of the hydro stations of the State including Machhkund works out to 3871 MUs in a year as against an annual requirement of around 10093.47 MU. Therefore, the balance requirement of power is to be purchased from various other sources discussed below.

III. CPPs : Apart from the above stations the State is drawing power to the extent of an average of 40 MW from the captive power stations located in the State normally from NALCO at Angul and ICCL at Choudwar. Power purchase from the captive power stations are not firm in nature and are supplied to the system as and when available. Gridco has drawn 695.59 MU against OERC's projection of 905 MU in 1997-98. For 1998-99 Gridco's projection is 699.63 MU. This is accepted by the Commission and a drawal of 699.60 MU is approved by the Commission for 1998-99.

IV. TTPS : This power station with an installed capacity of 460 MW now owned by NTPC. The plant load factor of this power station was varying between 30 to 35% during the last decade of its operation. However during 1997-98, it has attained a plant load factor of 51.9%. The actual drawal of TTPS for 97-98 was 1810.166 MU as against Commission's approval of 1600 MU. Gridco has proposed a drawal of 1771.32 MU based on 13% auxiliary consumption which includes 1% transformer loss on generation of 2036 MU as indicated by NTPC. OERC has considered a drawal of 1791.68 allowing 12% auxiliary consumption as per PPA based on generation level of 2036 MU which has been proposed by NTPC.

V. Ib Thermal : This power station of capacity 420 (2x210) MW is owned by the State owned Orissa Power Generation Corporation. The 1st unit was commissioned in December, 1994 & the 2nd unit in July, 1996. The design availability of Ib TPS is 380.10 MW i.e. 2280 MU. Gridco's actual drawal for 1997-98 was 2058.03 MU against Commission's approval of 2330.77 MU due to frequency and voltage constraint of EREB. Gridco proposed 2115.42 MU for 1998-99 considering backing down of 4.96% PLF due to frequency constraint of EREB. Commission accepts a drawal of 2115.42 MU for 1998-99.

6.1.4 Quantity of Purchase from Central Sector Power Stations

VI. Chukha : Orissa being a constituent of Eastern Regional Electricity Board is entitled to a share of generation from NHPC at Chukha in Bhutan. The Orissa’s share of energy availability of this station in a year is 263 MUs. Being a hydro power station, the cost is relatively less. Gridco's actual drawal of power for 1997-98 was 247.10 MU against Commission's proposal of 200 MU. For 1998-99 Gridco has proposed a drawal of 220 MU which is accepted by the Commission.

VII. Kaniha : The installed capacity of this unit is 1000 (2X500) MW. The State has got a share of 26.2% in the power station which works out to 262 MW with a design energy availability of 1443 MUs. In 1997-98 Commission had proposed a drawal of 100 MU from Kaniha (firm & infirm) whereas Gridco has actually drawn 785.12 MU. For 1998-99 Gridco has proposed a drawal of 1043.86 MU. This Commission proposes a drawal of 783.65 MU as the total requirement of power purchase is reduced to 10093.47 MU from 10814.97 MU as proposed by Gridco.

VIII. Farakka : The installed capacity of the power station is 1600 MW. The State has a share of 235 MW with the design energy availability of 1269 MU. In 1997-98, Commission had proposed a drawal of 134.84 MU while Gridco had drawn 1011.39 MU. For 1998-99, Gridco has proposed 889.17 MU while the Commission proposes 494.86 MU which is double the amount already purchased during the first quarter of the year which is due to total reduced requirement.

IX. Kahalgaon : The installed capacity of this unit is 840 MW. The State has got a share of 16.07% which corresponds to 107 MW and energy availability of 687.4 MU. In 1997-98 Commission had proposed a drawal of zero units while Gridco had drawn 238.80 MU. For 1998-99, Gridco has proposed 204.57 MU while the Commission proposes 117.26 MU which is double the amount already purchased during the first quarter of the year which is due to total reduced requirement.

6.1.5 A summary of Gridco's proposal for purchase of power generating station wise and the Commission's approved quantum of purchase is given below :-

6.2 Cost of Power
I. Machhkund : Gridco has projected to draw 335 MU at the rate of 8 paise per unit which is the cheapest power available to Gridco and it is acceptable to the Commission.

II. OHPC : Gridco has proposed a fixed cost of 51.3 paise per unit for purchase of 3536 MU based on the fixed cost of Rs.181.39 crores stipulated in the PPA for 1997-98. Firstly it has been observed that no fresh PPA has been yet approved for the year 1998-99. Further, if actual sale of energy falls below 3702 MU during the year 1997-98 for reasons solely attributable to hydrology but not for reasons attributable to OHPC, the shortfall in revenue will be borne by Gridco. As per the interim PPA 1997-98, the advance against depreciation amounting to Rs.9.98 crores is to be adjusted in 5 equal instalments over a period of five years starting from the year 1998-99. Accordingly Rs.1.996 crores has been recouped under the head advance against depreciation. Further, O&M charges have been calculated at the rate of 1.5% on current capital cost and then escalated by 8% to offset inflation as per the terms of PPA. The annual fixed cost is calculated by the Commission as Rs.174.406 crores i.e. 49.32 paise per Kwh without considering a rebate of 2.5 percent for payment against LC.

III. CPP : Gridco has proposed unit cost of 77 paise per Kwh. This has been accepted by the Commission as this is based on bilateral agreement.

IV. TTPS : Gridco have considered a fixed cost of Rs.129 crores i.e. 135.1 paise per unit (considering 1771.32 MU) and variable cost of 62.3 paise per unit based on bills for March'98. But this will not hold good as auxiliary consumption is reduced from 12.25% in 1997-98 to 12.00% in 1998-99, specific oil consumption from 14 ml. per Kwh to 12 ml per Kwh and heat rate from 3500 K.cal per Kwh to 3300 K.cal per Kwh and PLF has increased from 45% to 50%. After taking all these above conditions variable charges shall be 40.53 paise per Kwh and Fuel Price Adjustment (FPA) 16.36 paise per Kwh (considering GCV of coal and oil from the bills of July'98). As such taking a drawal of 1791.68 MU and a fixed cost of Rs.129 crores, the FC per unit shall be 72.58 paise per Kwh and VC per unit 40.53 paise per Kwh and FPA 16.36 paise per Kwh + water cess of 0.07 paise per Kwh. The total rate/unit works to 129.54 paise per Kwh as calculated by the Commission without allowing a rebate of 2.5% for payment against LC.

V. Ib Thermal : Gridco proposed annual fixed cost of Rs.284.50 crores against OPGC projection of Rs.275.699 crores. The difference is due to Gridco's calculation of fixed cost of guarantee commission on full loan whereas the guarantee commission should be calculated on the basis of outstanding loan. Based on our calculation on the above basis annual fixed cost is taken as Rs.275.699 crores that is 130.33 paise per Kwh, variable charges is taken at 36.23 paise per Kwh against Gridco proposal of 36.22 paise per Kwh. The rate submitted by Gridco does not seem to include FPA (Fuel Price Adjustment) and FPA of 6.12 paise per Kwh is calculated at our end based on GCV of coal and oil from the bills of 3/98 and taking coal and oil price at 430.04 Rs/MT and 8859.89 Rs/Kc. Besides water cess of 0.13 paise per Kwh is calculated from the bills of OPGC submitted by Gridco to the Commission. The total cost per Kwh as analysed by this Commission is 172.80 paise per Kwh as against Gridco's proposal of 170.7 paise per Kwh excluding rebate of 2.5% for payment against LC payment.

VI. Chukha : Gridco's actual drawal of power for 97-98 was 247.10 MU @126.8 paise per Kwh as against Commissions proposal of 200 MU @ 76 paise per Kwh. For 98-99 Gridco have proposed a drawal of 220 MU @ 127 paise per Kwh excluding the rebate of 2.5% on payment by LC. Chukha tariff has been revised by the Government of India vide notification No.12/11/92-D (T9N)/D(H-Z) dated 26.02.97 from 50 paise to 100 paise per Kwh. Power Grid Corporation of India Limited has revised transmission charges from 21.5 paise per Kwh to 24 paise per Kwh. Transmission loss of 3 paise per Kwh is also payable. The unit cost of 127 paise per Kwh is accepted by the Commission.

VII. Kaniha : Gridco has proposed annual fixed cost of Rs. 644.52 crores as per letter dt.07.08.97 of NTPC. The proposed unit cost by Gridco for FC is 134.9 paise per Kwh and variable cost 32.8 paise per Kwh, FPA 6.1 paise per Kwh, Transmission losses 3 paise per Kwh. The cost taken by the Commission are, FC 134.90 paise per Kwh (as given by Gridco) variable cost 28.45 paise per Kwh, FPA 10.52 paise per Kwh, transmission charges 11 paise per Kwh and transmission losses 3 paise per Kwh, calculated from the bills of March, 98. Besides, water cess of 0.07 paise per Kwh is added. As such the total unit cost is 187.94 paise per Kwh is accepted by this Commission without 2.5% rebate for payment against LC.

VIII. Farakka : Gridco has proposed annual fixed cost of Rs.691.92 crores. The proposed unit cost for FC is 109.70 paise per Kwh, VC 27.42 paise per Kwh, FPA 40.4 paise per Kwh, Transmission charges 11 paise per Kwh, Transmission loss 3 paise per Kwh. Commission accepts the Annual Fixed cost of Rs.691.92 crores and fixed cost 109.72 paise per Kwh, variable cost 27.42 paise per Kwh, FPA of 40.42 paise per Kwh, transmission charge of 11 paise per Kwh, transmission loss of 3 paise per Kwh. Besides, 0.23 paise per Kwh as calculated from the bills submitted by Gridco for water cess is considered by the Commission. As such, the unit cost from the station is approved as 191.77 paise per Kwh without 2.5% rebate for payment against LC.

IX. Kahalgaon : The Annual Fixed cost proposed by Gridco is Rs. 453.96 crores. As verified from the bills of 7/98, it comes to Rs.453.933 crores. The proposed tariff for this station for FC is 137.10 paise per Kwh, VC 38.1 paise per Kwh. FPA is 23.4 paise per Kwh, transmission charge 11 paise per Kwh, transmission losses 3 paise per Kwh. Total cost per unit is 212.60 paise per Kwh. The Commission accepts the annual cost of Rs.453.933 crores as derived from the bills of 7/98, FC of 137.10 paise per Kwh (as given by Gridco) VC of 38.14 paise per Kwh, FPA of 23.36 (as calculated from the bills of 3/98), transmission charges of 11 paise per Kwh and transmission loss of 3 paise per Kwh. Besides, 0.07 paise per Kwh is considered as water cess. As such the unit cost of 212.66 paise per Kwh for this station without 2.5% rebate for payment against LC is approved by the Commission.

6.2.1 Gridco's estimated cost of power from various generating stations and the Commission's approved cost in respect of each such station have been summarised below :-

GRIDCO PROPOSAL

COMMISSION APPROVAL

7.0 Operation and Maintenance Cost
For designing Bulk Supply and Transmission Tariff, it is necessary to disaggregate the transmission and distribution costs which are at present bundled in Gridco’s accounts. Therefore only the costs associated with the transmission should be taken into account for designing Bulk Supply and Transmission Tariff. The original costs of the fixed assets of Gridco as a whole as on 31.03.98 and 31.03.99 is Rs.2161.32 crores and Rs.2586.63 crores respectively. Gridco have proposed dis-aggregation of fixed assets in a statement at (RT-6). The statement also indicates calculation of depreciation on a dis-aggregated basis. In the succeeding paragraphs costs attributable to transmission and bulk supply only has been taken into account for analysis.

7.1 Employees Cost : The expenses chargeable to Operation and Maintenance on account of the employees cost for the year 1998-99 is projected by Gridco at Rs.264.79 crores. The impact of wage revision and other benefits taken together amounts to Rs.24.12 crores. Thus employee's cost excluding the impact of revision of pay and employee benefits works out to Rs.240.67 crores. Corresponding figure for 1997-98 as approved by the Commission was Rs.214.34 crores. The Employees Cost of Gridco as per the audited accounts of 1996-97 is Rs.202.58 crores. Keeping in view arrear wage revision impact of Rs.24.12 crores a sum of Rs.264.79 crores claimed by the licensee is found reasonable. Out of the said sum of Rs.264.79 crores, Rs.57.58 crores may be allocated to Bulk Supply as against Gridco's claim of Rs.48.21 crores.

7.2 Administration & General Expenses : Gridco's proposed figure of Rs.26.3 crores is an increase of about 30% over the base figure of Rs.20.3 crores (Provisional Accounts of 97-98). This is unreasonably high. We feel it appropriate that the increase in cost is limited to rise in annual inflation rate over the base year. Accordingly a figure of Rs.21.49 crores for the year 1998-99 is approved. The share of the bulk supply and transmission business has been arrived at Rs.11.24 crores as against an amount of Rs.7.35 crores claimed by Gridco.

7.3 Maintenance Cost : This is the cost of materials/spares required for maintenance of lines and substations. Gridco have estimated its material cost at Rs.80.25 crores for 1998-99. It is assumed by the licensee that it will have to spend approximately 4% of the value of assets for maintenance of lines & substations (RTCL - 13). This is rather high. Power Grid Corporation Limited has fixed normative rate of 1.5% of the cost of transmission assets as on the date of commissioning of the system. The same rate may be adopted on the average of Gridco's transmission assets as on 31.03.98 and 31.03.99. As the average value comes to Rs. 1299.45 crores, the reasonable maintenance cost at 1.5% works out to Rs.19.49 crores. Allocation proposed for bulk supply at Rs.17.36 crores is reasonable and hence approved.

7.4 Depreciation : Gridco has proposed an amount of Rs.148.56 crores towards depreciation. This was calculated as per principles contained in Ministry of Power (Deptt. of Power) Notification No.265 (E) dt.29.03.94. Asset wise classification and depreciation applicable thereon have been given. The fixed asset details given upto 31.03.97 in tariff filing are in agreement with the audited accounts for 1996-97. For other years i.e. 97-98 & 98-99 amount of fixed assets given in RT.9 are in agreement with the figures shown in capital expenditure details (RTCL-11). The value of assets and depreciation need to be slightly modified to Rs.147.58 crores and Rs.70.08 respectively as against Rs.148.56 and Rs.70.03 shown by Gridco.

7.4.1 Objection has also been raised on the appropriateness of adopting the depreciation rates notified by Govt. of India when the assets are not new and there are a number of obsolete assets. Gridco in their clarification have stated that the depreciation has been calculated by discounting the obsolete assets and considering the remaining life of the present assets. In the absence of any evidence to the contrary, the Commission accepts Gridco's clarification on depreciation.

7.5 Interest on long term Borrowing : Gridco have earlier proposed an amount of Rs.108.95 crores towards payment of interest on long term loans. The amount was subsequently revised to Rs.100.66 crores after discussion and rectification of some discrepancies. This amount needs to be revised to Rs.100.51 crores. The amount excludes Rs.57.53 crores charged towards interest during construction. No penal interest has been assumed in interest calculation. The average interest rate works out to 13.23% which is within the limit of Commercial Bank rate. Interest on loans chargeable to bulk supply works out to Rs. 51.68 crores and is considered acceptable.

7.6 Contribution to Contingency Reserve : Gridco has provided Rs.8.1 crores towards contribution to contingency reserve under Para-IV of the Schedule-VI of Electricity (Supply) Act 1948. As per provision of Para-IV of the Schedule-VI such contingency reserve should have a minimum value of one quarter of 1% but not exceeding one half of 1% of asset value which works out to Rs.10.80 crores on an asset value of Rs.2161.33 crores. Out of this, an amount of Rs.1137.16 crores belongs to bulk supply and Rs.1024.17 belongs to Distribution and Retail Supply Licensee. The provision proposed by the licensee amounting to Rs.4.26 crores is within the minimum and maximum limit and hence considered reasonable.

7.7 Based on the above observations and in consonance with the requirement of the Sixth Schedule of the Electricity (Supply) Act,1948 and section 26 (4) of the Reform Act, 1995, total expenditure in terms of Para XVII, Clause 2(b) of the Schedule VI is arrived at Rs.1282.63 crores (vide Annex-I).

8.0 CAPITAL BASE

8.1 Original Cost of Fixed Assets : The cost of fixed assets of Rs.1957.70 crores finds its source from Govt. of Orissa transfer scheme Order No. 337 dt. 01.4.96. Information on block capital has been shown by licensee in Appendix RT-6 of tariff filing. The figure as on 31.3.97 amounting Rs.2064.99 crores is in agreement with the balance as shown in the audited balance sheet of 1996-97. Gridco have estimated capital addition of Rs.96.32 crores for the year 1997-98 and Rs.425.31 crores for the 1998-99. Accordingly, original cost of fixed assets as on 31.3.98 and 31.3.99 has been calculated as Rs.2161.32 crores and Rs.2586.63 crores respectively.

8.1.1 Some objectors have observed that Gridco have failed to evaluate the value of the distribution assets appropriately as they are on the higher side. The Commission have already accepted the value of assets on the day of transfer and do not consider it appropriate to adopt a revision whether upward or downward as discussed in the Commission's tariff concept paper.

8.1.2 So far as bulk supply is concerned, the cost of assets as on dt.31.3.97 was Rs.1076.50 crores (Gridco’s audited accounts of 1996-97). With asset addition of Rs.60.66 crores and Rs.324.66 crores for 1997-98 and 1998-99 respectively, the cost of assets as on dt.31.3.99 would be Rs.1461.82 crores. It is considered acceptable for the purpose of calculation of Capital Base .

8.2 Original Cost of Work in Progress : Original cost of work-in-progress has been taken from the project wise CAPEX statement (RT-7) submitted by M/s Gridco and is accepted. This includes a portion of interest capitalised pertaining to the period of construction. Out of Rs.399.45 crores, an amount of Rs 245.27 crores is attributable to bulk supply.

8.3 The Amount of Investment Compulsorily Made Under Para-IV: In the last tariff Order No.009 dated 12.03.97, the Commission had approved appropriation of Rs.7.5 crores towards contribution to contingency reserve. From the records it is found that no contribution has been made towards contingency reserve and no amount has been invested as prescribed under Para-IV of the Schedule - VI of the Electricity (Supply) Act, 1948. The amount proposed by Gridco towards compulsory deposit is pertaining to the financial year under consideration which is to be appropriated at the end of the year and to be invested during the next year. Hence while calculating the capital base, no compulsory investment has been taken into consideration for the year by the Commission.

8.4 Average Cost of Stores : As per Para XVII1(e)(i) of Schedule VI to Electricity (Supply) Act 1948, an amount on account of working capital equal to sum of one-twelfth of the sum of book cost of stores material and supplies including fuel on hand at the end of each month of the year of account should be included in calculating capital base. M/s Gridco have proposed Rs.136.37 crores on this account. This is almost 20 months consumption considering the material cost of Rs.75.60 crores annually. In a reply to the Commission's query, Gridco in their reply stated that increase in the ratio of stores to expenditure on R & M material is due to anticipated inflow of stock under multilateral and bilateral lines of credit. To support their statement Gridco have not come up with any concrete proposal for treatment of the excess stock. Therefore, allowing three months consumption of stores towards working capital will be reasonable. Accordingly, Rs.18.91 crores is considered reasonable towards average cost of stores instead of Rs.136.37 crores shown for the purpose of capital base calculation. Basing on the same criteria, Rs.4.34 crores is considered adequate for the bulk supply & transmission business by the Commission.

8.5 Average Cash and Bank Balance : As stated in Para XVII(1)(e)(ii) of Schedule VI of the Act, 1948 an amount equal to 1/12 of the sum of cash & bank balances and call and short term deposits at the end of each month of the year of account, not exceeding in aggregate an amount equal to one quarter of expenditure under sub paragraph 2(b) of this para excluding (Sub clauses (i), (iv), (iv-a), (iv-b), (x) is to be considered on account of working capital. Here sub-clause (i) refers to generation and purchase of energy, (iv) refers to interest on loan advanced by Board, (iv-a) refers to interest on loan borrowed from organisation or institution approved by Govt. of Orissa, (iv-b) refers to interest on debenture issued by licensee and (x) refers to depreciation.

8.5.1 Keeping in view the above provision, the fund requirement for two months payment of employees cost and administration general expenses would be appropriate for meeting working capital requirement instead of taking 1/12 of the sum of cash and bank balance at the end of each month of the year of account. Although Gridco have estimated an amount of Rs.55.88 crores in their tariff filing, the figure calculated on the aforesaid basis works out to Rs.47.71 crores. Out of this amount, Rs. 11.64 crores is allocated towards bulk supply.

8.6 Loans : Gridco has shown an amount of Rs.1262.00 crores as loan from organisation or institutions approved by state Govt. Out of the said of Rs.1262.00 crores, an amount of Rs.761.88 crores is allocated to Bulk Supply.

8.7 Bond and Debentures : In the transfer Order No. 337 dt. 01.4.96 of Govt. of Orissa, it was mentioned that Gridco would issue bonds worth of Rs. 400 crores to the State Govt. This amount has not been deducted by Gridco in calculating capital base. It was argued by Gridco that the zero coupon bonds issued by the GOO is nothing but quasi-equity. This is not acceptable because the transfer scheme specifies that half of Rs.400 crores will be converted to equity at the option of GOO on 6th, 8th & 10th year from the date of the resolution leaving the balance of Rs.200.00 crores to remain as debenture. As the option has not been exercised, it is premature to treat the amount as equity or even quasi-equity, a term which has no precise meaning and significance. The whole amount of Rs.400.00 crores is treated as loan by the Commission.

8.7.1 In view of above, Rs.400 crores is deducted for determining the capital base. In the restructuring of Gridco, the entire amount of bond seems to have been allocated as the liability of the Bulk Supply licensee since Gridco has not proposed transfer of any amount of the bonds to the newly-formed subsidiary companies dealing with distribution and retail supply.

8.7.2 Further, in the transfer order of GOO it is mentioned that partially convertible bonds amounting Rs.150 crores will be issued to Pension Trust fund for employees of Gridco transferred from OSEB. The bonds have not been issued and hence Gridco has urged that the amount of Rs.150 crores may be treated as loan borrowed from organisations or institutions approved by State Govt. It has been clarified by Gridco that Rs.120 crores has been allocated to distribution and retail supply licensee and Rs.30 crores to Bulk Supply licensee.

8.7.3 Commission proposes to deduct the said amount of Rs.30.00 crores to arrive at the capital base of the Bulk Supply licensee.

9.0 REASONABLE RETURN

9.1 Reasonable Return as defined in Para XVII(9) of Schedule VI means, in respect of any year of account, the sum of following :

1. the amount found by applying standard rate to the Capital Base.

2. the income derived from investment other than those included in capital base.

3. the amount equal to 1/2 of one percentum on any loans advanced by Board.
   (c-1) an amount equal to 1/2 of one percentum on amounts borrowed from organisations or institutions approved by State Government.
   (c-2) an amount equal to 1/2 of one percentum on the amounts realised by issue of debentures.

4. an amount equal to 1/2 of one percentum on the accumulation in Development Reserve created under para V-A of Sixth Schedule.

5. such other amount as may be allowed by Central Government.

9.2 Gridco have arrived at the figure of reasonable return only by multiplying the standard rate of 15.5% to the capital base. We find that in view of clause (c-1) above, the licensee is also entitled to get ½% on the amounts borrowed from organisation or institutions approved by the State Govt. Gridco's total loan liability from Govt. of Orissa including bond for Rs.400 crores as per transfer scheme works out to Rs.1161.88 crores. Hence, at the rate of ½% on this amount Gridco is entitled to get a return of Rs.5.81 crores under clause (c-1). No other clauses are applicable.

9.3 Hence the calculation of reasonable return works out as follows :

The detailed calculation of Capital base and reasonable return is tabulated at Annex-II of this order.

10.0 MISCELLANEOUS RECEIPT

The licensee has given (in Appendix BS-6 of tariff filing) the calculation of miscellaneous charges amounting to Rs.55 crores for 1998-99. The break up is as follows :-

10.1 The estimate of receipts in above accounts have been done on good reasoning and therefore is acceptable. But Gridco have not shown revenue to be realised from Export Oriented Units (EOUs) in respect of wheeling NTPC power through its system. This has not been shown by Gridco with the hope that there may be special rate of tariff as a result of which Gridco may have to sell NTPC power on its own account and not deal with it simply for the purpose of wheeling. Since this is an uncertain proposal, we consider it reasonable to project the revenue receipt on the basis of the present arrangement. During 1997-98, 194 MU of NTPC power had been supplied to EOUs. For the year 1998-99, at the transmission loss of 4% is assessed by the Commission in this order, the NTPC power for this supply amounts to 202.08 MU. Commission have in this order approved a rate of 35 paise per unit for transmission charges during off-peak hours. The revenue from this transmission shall amount to Rs.7 crores. Therefore, a total amount of Rs.62 crores (Rs.55+Rs.7) is reasonable estimate of miscellaneous income for the year 1998-99.

10.2 Considering the aforesaid observations, clear profit for the full year works out to Rs.57.56 crores (Annex-III).

11.0 Transmission Loss
Gridco have proposed a figure of 5.3% loss in EHV transmission which has been questioned by many objectors. Gridco in Appendix-4 of their proposal have included a statement of actual metered loss for the year 1997-98 which works out to 3.823% on gross input/gross output basis. In their further reply to the objections, Gridco have stated that adoption of loss calculated on net basis will be more appropriate since only the net energy input is available in the system for sale. They have also clarified that the figures furnished by them for input/output from Captive Power Plants were worked out using a normative loss of 7.5%. After incorporating necessary corrections, the gross input and gross output of power in Gridco's system is indicated in the table below.

11.1 The Commission have carefully considered the issue whether the loss in transmission should be calculated on the basis of gross input and output or net input and net output and have come to the conclusion that adoption of the gross method would be more appropriate. On the above basis the Commission determines the EHV loss as 4%. This loss should be chargeable for power wheeled on Gridco's transmission system.

12.0 Bulk Supply Tariff
On the basis of observations and analysis given with regard to the Gridco’s proposal and after taking into account the observations raised in course of the tariff proceeding, we have to separately determine bulk supply tariff and the transmission tariff, keeping in view, the parameters given in Section 26(2) of the Reform Act, 1995.

12.1 Gridco's rate design divides the costs associated with Bulk Supply into two cost categories - fixed and variable. Fixed costs include generation, transmission and return on investment. Variable costs include only generation costs. Gridco has proposed to collect 77% of its total fixed costs in a demand charge of Rs.300/KVA/month. The balance of its fixed costs is assigned for recovery from energy charge. Revenue recovered from wheeling and other charges is deducted from the total of variable costs and the remainder of the fixed costs to arrive at the revenue recoverable through energy charges. Gridco have stated that 77% of its total fixed cost is on account of the cash liabilities and needs to be recovered through its proposed demand charge.

12.2 While Gridco's methodology assigns a portion (23%) of fixed costs to the energy component of the tariff, the proposal does not adequately reflect the fact that a large portion of the fixed costs of generation are incurred in order to provide energy to the system. A lesser portion of those costs is associated with the provision of kilowatts of capacity and payable as a demand charge. The load factor of the Gridco system is approximately 67%. In other words, a kilowatt of generation capacity is being used to supply energy 67% of the time. This figure represents a good shorthand measure of the energy-related portion of the fixed costs of generation. In addition, Gridco's assignment of 23% of fixed transmission costs to energy charges is inappropriate. These costs clearly are not incurred on a per kilowatt-hour basis. In fact, it is appropriate that, if possible, some portion of these costs should be recovered as a fixed facilities charge per month because the costs are incurred by Gridco irrespective of the use of kilowatts or kilowatt-hours by its customers. But, in present state of data availability the purpose can be served by retaining the existing tariff design but shifting the load to some extent to variable charge.

12.3 Crediting revenue recovered through other charges to the energy portion of the tariff is appropriate because these revenues are derived from the use of the transmission system. Therefore, the revenue from this source should be credited to reduce of demand costs in the tariff design.

12.4 It may be relevant to comment on one more aspect which has a bearing on the apportionment between fixed cost and variable cost. Gridco has asked for a higher percentage as a fixed cost on a pragmatic consideration of realising upfront the fixed cost charges of the generating units. We consider it appropriate to adopt the fixed cost with reference to dedicated power stations namely Machkund, OHPC, TTPS, OPGC and Chukha and the cost of transmission as the basis for calculating the demand charge. Accordingly, around 35% of the fixed cost of generating stations and 100% of transmission cost are considered for recovering through demand charge. This has to be related to the system peak demand and accordingly the estimated fixed cost will be distributed at a fixed rate on the estimated peak demand of the user for a month.

12.5 Taking the above facts into account, the Commission is of the view that the bulk supply tariff should be designed as follows. 65% of the fixed costs and all of the variable costs of generation should be assigned to be collected in the energy charge after giving credit of the revenue recovered through other charges. The remaining 35% of fixed generation costs and all transmission costs and contingency costs including the rate of return component, should be collected in the demand charge of the Bulk Supply Tariff. Based on the above considerations, demand or fixed charges amounts to Rs.200/KVA/month and energy or variable charges amounts to 85.50 paise per Kwh and these rates are approved by the Commission for supply of power by the Transmission and Bulk Supply Licensee to the Distribution and Retail Supply Licensee.

12.6 In addition to the charges as determined above, the Transmission and Bulk Supply Licensee shall also be entitled to delayed payment surcharge at the rate of 2% (two per cent) only per month if the payment is made after thirty days of the presentation of the bill by the transmission and bulk supply licensee. The said surcharge shall be charged on the amounts remaining unpaid after the said date in proportion to the number of days of delay.

12.7 While the Commission finds it logical to allow charges under a fuel surcharge formula, we have to indicate that the formula shall be separately notified in Regulations.

13.1 Gridco have requested for continuation of the existing tariff rate of 40 paise per unit as determined by the Commission in its last tariff order. The Commission had adopted a uniform rate of 40 paise per unit in addition to the transmission loss of 7.5%.

13.2 Gridco have estimated transmission cost of 38 paise per unit on marginal cost basis. This presumes a demand growth of 298.55 MW and energy requirement growth of 654.81 MU during peak hours. The transmission system investment for the five year period beginning 1998-99 is projected at Rs.654.65 crores. Adjusting the estimate for current cost levels, the marginal cost of EHT transmission without the transmission loss works out to 42.05 paise per unit. This rate is based on peak demand.

13.3 Several objections have been filed against adopting marginal costing for determining transmission charges. The objectors were in favour of adoption of embedded cost basis as in case of bulk and retail supply tariffs. The Commission has relied on embedded cost basis in determining bulk and retail supply tariffs taking into account the present data base of the utility and the need to avoid discontinuity in trying to rationalise the basis of all three types of tariffs at this point of time. It is for the first time that there is unbundling of tariff with regard to electricity industry in Orissa and for the first time bulk supply, transmission and retail supply are being separated. At this point of time, a simple postage stamp approach based on the marginal cost of the licensee’s transmission facilities will be a simpler and more appropriate method and we find it proper not to make any significant change either in tariff design or in the rate itself of the transmission tariff. Accordingly, we determine that transmission tariff shall be 40 paise per unit. The transmission loss of 4% of the energy input shall be leviable in addition to the same rate. However, we find it desirable to allow to some extent an incentive rate design to encourage efficient use of the grid. Accordingly, we decide that while transmission tariff during peak hours will continue at 40 paise per unit, the charges for off-peak hours shall be 35 paise per unit.

13.4 The tariff for transmission of power at 132/220 KV shall be as follows :

i) Out of energy supplied to transmission and bulk supply licensee for transmission, 4% of the energy shall be deducted towards Transmission Loss and balance energy delivered at the delivery point at 132 KV/220 KV.

ii) Wheeling charges shall be 35 paise per unit during off-peak hours and 40 paise per unit during peak hours for EHT transmission.

 14.0 To conclude, we state that on careful consideration of the revenue requirement statements and proposals submitted by Gridco and after taking into account objections and suggestions in the course of the proceeding, we notify under Section 26 of the Reform Act, 1995 that bulk supply tariff and transmission tariff as at paragraph 12.5, 12.6 and 13.4 of this order to be effective from 1st December, 1998.

(S.C. MAHALIK)
CHAIRMAN

(A.R. MOHANTY)
MEMBER

(D. K. ROY)
MEMBER

Annexure - I

Annexure - II

Annexure - III