SOUTHCO - Tariff Order pronounced on 30 December 1999

	Southern Electricity Supply Company of Orissa Ltd., Courtpeta, Berhampur, (SOUTHCO, for short), the holder of Licence for carrying on the business of Distribution & Retail Supply of electricity in electrical circles of Berhampur and Jeypore, submitted an application on 27.09.99 u/s 26 of the Orissa Electricity Reform Act, 1995 (Reform Act, 1995, for short) in respect of tariff for retail supply of electricity to different categories of consumers.
2.0	SOUTHCO and its two other sister concerns, namely, WESCO and NESCO, jointly filed an application for Retail Supply Tariff (RST, for short) on 30.07.99. The Commission’s staff, after preliminary scrutiny of the application, raised a number of comments/queries thereon. The Commission forwarded the comments/queries to SOUTHCO vide letter No.2270 dt.13.08.99 and asked for additional information from SOUTHCO in order to enable the Commission to decide whether the filing would be treated as complete for the purpose of proceeding u/s 26 of the Reform Act, 1995.
2.1	SOUTHCO submitted a fresh application with clarifications to the comments/queries of the Commission in two volumes on 27^th September, 1999. In the light of the clarifications to the comments/queries and additional information received from it, the filing appeared to be generally in order. Accordingly the filing was treated as complete and by Order No.2 dt.04.10.99 (Vol.I), the application in question was admitted and issue of public notice inviting objections to SOUTHCO’s application was ordered.
2.1.1	Notice was published, as approved by the Commission, in several local newspapers on two consecutive days in terms of Clause 39 r/w sub-clause (1) of Clause-126 of the Orissa Electricity Regulatory Commission (Conduct of Business) Regulations, 1996 (Regulations, 1996, for short) outlining the broad features of the Distribution & Retail Supply Licensee’s proposed tariff and the rates & charges in a Schedule appended to the notice and inviting objections from interested persons. The public notice required the interested persons to file their objections and such documents as they seek to rely upon, supported by an affidavit, in six copies and to indicate also if they would like to be heard in person by the Commission in terms of Clause 43 of the Regulations, 1996. The notice further required the interested persons to serve a copy of the reply/objection alongwith the documents relied upon on the petitioner/applicant and to file proof of such service before the Commission at the time of filing of the reply/objection in terms of Clause 44 of the Regulations, 1996.
2.1.2	The above public notice also called upon the interested persons/objectors to inspect/peruse SOUTHCO’s application and take note thereof during office hours within 15 days of the publication of the notice. The public notice also permitted the interested persons to obtain the salient features of the application on payment of Rs.20/- towards photocopying charges from Managing Director, SOUTHCO, Berhampur and all Executive Engineers in charge of Distribution Divisions such as Berhampur, Ganjam-North, Berhampur, Bhanjanagar, Phulbani, Paralakhemundi, Boudh, Jeypore, Rayagada and Nawrangpur. They were also permitted to obtain a full set of the application together with supporting materials on payment of Rs.100/- towards photocopying charges.
2.1.3	The last date of filing of objection complying with the terms & conditions of the public notice was initially fixed as 31.10.99. The date fixed for filing of objection was extended to 15.11.99 because of the super cyclone which hit Orissa on 29^th and 30^th October’99. A notice in print media such as "Samaya" (dt.05.11.99) and "New Indian Express" (dt.3.11.99) was published extending the date of filing of objection with regard to the Retail Supply Tariff (RST) applications of the Distribution and Retail Supply Licensees for the information of the general public and interested persons. The notice regarding extension of the date of filing of the objection was also displayed on the office Notice Board.
2.2	The Commission received 15 objections against SOUTHCO’s application out of which two were rejected for non-compliance of the terms & conditions as laid down in the public notice while 13 objections were admitted according permission to the objectors for participating in the hearing. The objectors whose objections were admitted for hearing are (1) Chief Electrical Engineer, S.E. Railway, Garden Reach, Calcutta. (2) Koraput District Small Scale Industries Association, Jeypore, Dist. Koraput. (3) Jeypore Motor Garage Owner’s Association, Jeypore, Dist. Koraput. (4) A. Nageswar Rao, Asst., Secretary, Orissa Consumers’ Association, Jeypore Chapter, Jeypore, Dist. Koraput. (5) M/s Shiva Metal Industries, Konisi, Berhampur. (6) President, Ganjam District Electricity Consumers Protection Association, Hinjilikatu, Dist. Ganjam. (7) Secretary, M/s Humma & Binchanapalli Salt Production & Sale Co-operative Society Ltd., P.O. & Dist. Ganjam. (8) President, Orissa Assembly of Small & Medium Enterprises, Rayagada Chapter, C/o Hanuman Rerolling Mills (P) Ltd., Rayagada. (9) J. K. Corp Limited, At/P.O. Jaykaypur, Dist. Rayagada. (10) M/s Jayshree Chemicals Ltd., P.O. Jayshree, Dist., Ganjam. (11) M/s Utkal Chamber of Commerce & Industry Ltd., Barabati Stadium, Cuttack. (12) M/s NALCO, P/1, Nayapalli, Bhubaneswar. (13) Dr. S.K. Tamotia, President, Aditya Aluminium, 9^th Floor, IDCO Towers, Janpath, Bhubaneswar.
2.3	After receipt of the objections and scrutiny thereof, the Commission published a notice in two Oriya dailies and one English daily on 17^th & 18^th November’99 whereunder the list of valid objections with regard to SOUTHCO’s application and the date of hearing (02.12.99) were notified for the information of the general public.
2.3.1	In terms of Clause-45 of the Regulations, 1996, the Commission permitted the applicant to file a rejoinder to all the objections/reply filed by the objectors.
2.4	As notified, the hearing of the RST application commenced on 02.12.99. None of the parties present made any prayer to adduce oral or documentary evidence in course of the proceedings except those that were filed supported by affidavit, in response to the public notice.
2.5	Apart from the substantive objections, the following legal objections were raised by different objectors as preliminary objections on the maintainability of the tariff proceeding. The Commission heard the views of SOUTHCO on such objections. While one of the preliminary objections was disposed of by Order dt.02.12.99, it was decided with the consent of the respective objectors that all other preliminary objections would be dealt with by the Commission in the final order.
2.5.1	The preliminary objections raised by Koraput District Small Scale Industries Association, Jeypore, Jeypore Motor Garage Owner’s Association, Jeypore and Orissa Consumers’ Association, Jeypore Chapter, Jeypore are as follows:
2.5.1.1	The RST determined by the Commission by its Order dt.21.11.98 in Case No.19/98 which has come into force from 01.12.98 cannot be revised or amended within a period of 3 years as envisaged u/s 57-A (1)(e) of the Electricity (Supply) Act, 1948 (the Act, 1948, for short) and therefore the present application for RST is not maintainable and liable to be rejected outright.
2.5.1.2	The RST determined by the Commission (in Case No.19/98) cannot be amended within one financial year unless warranted for adjustment of Fuel Surcharge.
2.5.1.3	OERC has not framed any regulation by notification in official gazette for determination of tariff u/s 29 of the Electricity Regulatory Commission Act, 1998 (the Commission Act, 1998, for short) and sub-section (2) of Section 26 of the Reform Act, 1995 and as such it lacks authority and power to consider the application of the licensee, be it for determining a new tariff or revising or amending the existing one.
2.5.1.4	OERC has not yet specified the methodology and procedure for calculating expected revenue from the charges and therefore, it cannot consider the application of the licensee which is based on imaginary, vague, and manipulated statement of facts and accounts in the absence of statutory audit reports for the years 1997-98 and 1998-99.
2.5.1.5	Licensee has failed to comply with the conditions of the Licence to improve its efficiency, standard of service and reduce its losses and as such, it should not be allowed to make good the losses attributable to mal-administration, inefficiency, corruption, mismanagement, and unwarranted expenses by way of penalising the consumers in the form of a tariff hike.
2.5.1.6	Since the application for RST has not been filed prior to the commencement of the FY 1999-00 and has been filed in the middle of the aforesaid FY, it cannot be entertained for setting a tariff for the balance or remaining part of the FY.
2.5.1.7	As the OERC has not consulted Commission Advisory Committee (CAC, for short) prior to the admission of the tariff application and issue of public notice, it would not be legal and proper to proceed with the case.
2.5.1.8	As the Commission, at present, is only a two member Commission instead of three and the member of the Commission who shall be an electrical engineer having experience of generation, transmission & distribution or supply of electricity in terms of Section- 5 (1)(a) of the Reform Act, 1995 having not been appointed as yet, the Commission now comprising of two members lacks quorum to undertake and dispose of the tariff proceeding because of the bar created u/s 9(4) of the Reform Act, 1995.
2.6	The first objection raised by the above named objectors is that when the provisions of Sec.57-A of the Act, 1948 r/w the provisions of the Reform Act, 1995 contemplate that charges for the supply of electricity, once fixed, shall be in operation for three years, revision of tariff within one year would be without the authority of law.
2.6.1	The objection is purportedly based on Section 57-A of the Act, 1948. We have considered the provision of Section 57-A of the Act, 1948 and particularly sub-clauses (c) and (e) of sub-section (1) of Section 57-A quoted by the objectors. We find that these provisions are applicable to charges for electricity recommended by a Rating Committee and approved by the State Govt. and stipulate that such charges recommended by a Rating Committee 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 repeals the constitution of a Rating Committee making the provisions of the Act, 1948 quoted by the objectors inapplicable in this case. We hold that the preliminary objection citing the provisions of 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.
2.7	With regard to the second objection that the RST determined in Commission’s Order dated 21.11.98 (in Case No.19/98) cannot be amended within one financial year unless warranted for adjustment of fuel surcharge, we would like to say that apparently there is some misunderstanding about Section 26 of the Reform Act, 1995 which is relevant to the determination of tariff by the Commission. We would like to clarify that in this section of the Reform Act, 1995, the procedure for determination of a fresh tariff or amendment of tariff is the same. There is no vacuum or even interregnum in operation of a tariff which has been defined as a schedule of standard prices or charges. This has been amply made clear in Clause 116 of Regulation, 1996. Depending on the gap between estimated revenue requirement and the aggregate revenue which a licensee is permitted to recover by the tariff in operation, the Commission may approve modification to the tariff or any part of tariff. Whether the resultant determination is called a tariff or an amendment of tariff is not of any consequence. The Commission cannot refuse to entertain an application if the Commission finds that the licensee’s filing of revenue requirement and expected revenue from charges is reasonably complete. It has to process it and take a decision within ninety days of the complete filing. Sub-sec. (6) of Section 26 of the Reform Act, 1995 lays down that except in terms of fuel surcharge formula, no tariff or part of tariff can be amended more than once in any financial year. The natural corollary is that tariff or part of any tariff can be legitimately amended once in a financial year. The current RST was set in November’98 within the financial year 1998-99. Therefore an amendment to RST during financial year 1999-00, if found justified, cannot be termed as illegal.
2.8	The third objection relates to lack of authority and power of the Commission to consider the present application of the Licensee, be it for fixing a new tariff or revising or amending an existing one on the ground that the Commission has not framed any regulation for fixation of tariff u/s 29 of the Commission Act, 1998 and under sub-sec. (2) of Sec. 26 of the Reform Act, 1995, by notification in the official gazette.
2.8.1	In fact, this objection has two parts. The first part of the objection is that OERC has not framed any regulation for determination of tariff u/s 29 of the Commission Act, 1998 and as such, it lacks authority and power to consider the application of the licensee. In view of the above objection, the point for consideration is if Sec. 29 of the Commission Act, 1998 is applicable to determination of tariff in the State of Orissa.
2.8.2	We understand that Shri K.N. Jena, General Secretary of the Orissa Consumers’ Association has, in OJC No.6999/99, challenged the procedure adopted by the State Govt. for appointment of a member of the Commission which has fallen vacant on the ground that the State Govt. has not followed procedure provided under the Commission Act, 1998 for such purpose. The aforesaid writ application is yet to be disposed of laying down the law on the issues involved.
2.8.3	Meanwhile, we are of the opinion that the Reform Act, 1995 holds good in all matters provided therein for OERC including determination of tariff by the Commission in view of the special provision relating to the Orissa Electricity Reform Act, 1995 and Haryana Electricity Reform Act, 1997 contemplated u/s 41 of the Commission Act, 1998. Sec. 41 of the Commission Act, 1998 clearly provides that the provisions of the said Act, in so far they relate to the State Commissions, shall not apply to the Commissions established under the Orissa Electricity Reform Act, 1995 or the Haryana State Electricity Reform Act, 1997.
2.8.4	The subject "electricity" is in the Concurrent List of the Constitution of India. Therefore, the State of Orissa has a right to enact law on electricity as it did in the Reform Act, 1995. The Reform Act, 1995 has been assented to by the President of India on the 3^rd January, 1996. Further, Sec.41 of the Commission Act, 1998 is in the nature of a built-in provision to safeguard the State Acts enacted earlier from the overriding effect of a Central Act enacted later than the State Acts on the same subject of "Electricity" and in the same field of establishing Electricity Regulatory Commission. To sum up, we hold that the Commission Act, 1998 in so far as it relates to State Commissions is not applicable to OERC.
2.8.5	The second part of the objection is that the OERC has not framed any Regulation by notification in the official gazette for determination of tariff under sub-section (2) of Sec.26 of the Reform Act, 1995 and therefore it has no authority or power to consider the application of the Licensee whether it is for a new tariff or revision or amendment of the existing one. Before we deal with the factual aspect of this objection, we may point out that while it is stated in the first part of the objection that tariff should be determined by OERC in accordance with the provisions of Sec. 29 of the Commission Act, 1998, it is also contended in the second part of the objection that OERC has not framed regulations for fixation of tariff u/s 26(2) of the Reform Act, 1995 and, therefore, OERC has no authority or power to consider the said application of the Licensee. It appears to us that the above objectors have challenged the Reform Act, 1995 in so far as it relates to the OERC and at the same time they are relying on the same Reform Act, 1995 to challenge the alleged omission on the part of OERC.
2.8.6	The plea taken by the objectors that OERC has not framed any regulation to determine tariff u/s 26(2) of the Reform Act, 1995 has no basis in fact. Chapter-V of the Regulations, 1996 deals with regulations on tariff as envisaged in Chapter-VIII of the Reform Act, 1995. The provisions contained in Chapter-V of the Regulations, 1996 has conferred upon the Commission a measure of discretion in the matter of evolving its working p rocedure so long as these procedures conform to the principles of natural justice. Accordingly, we are of the opinion that there is no merit in this objection.
2.9	With regard to the fourth objection, it may be pointed out that upon filing of the application for RST by SOUTHCO on July 30, 1999, the Commission in its letter No.2270 dt.13.08.99 pointed out certain omissions to be supplied by the applicant and raised certain queries for clarification. The applicant filed a fresh application and supplied the omissions and clarifications to the queries on 27.09.99 raised by the Commission in its letter dt.13.08.99. After scrutiny of all the filings including a large number of documentary evidence, the Commission treated the filings to be generally in order and the tariff application in question was treated as complete.
2.9.1	It may be stated here that regulatory proceeding cannot be treated at par with proceedings before common law courts. The Commission is empowered under Clause-111 (Chapter-V) of the Regulations, 1996 to lay down methodologies and procedures for calculating the expected revenue from charges and for determining the tariffs from time to time with the further enabling provisions to add, amend, alter, revise, substitute or otherwise change such methodologies and procedures at any time the Commission desires. Clause 113 of the said Regulation further provides that the Commission may issue orders from time to time giving details of the manner in which licensee’s revenue and tariff will be determined consistent with the provisions of the Act and Regulations framed for the purpose. Even, where no Regulation has been framed to deal with any matter or exercise any power under this Act, the Commission is free to deal with such matters, powers and functions in the manner it thinks fit.
2.9.2	We would also like to emphasise that in accordance with Section 10(5) of the Reform Act, 1995, this Commission, in discharge of its function, shall be entitled to and may consult to the extent it considers appropriate from time to time such persons or group of persons who may be affected or likely to be affected by the decisions of the Commission. This provision read with Sec. 26 of the Reform Act makes it clear that the Commission has wide discretion to evolve its own methodology, procedures and mechanism, subject, however, to the fact that they are just and reasonable and to carry on its activities in cases where there is no provision in the Reform Act, 1995 or Regulations framed thereunder.
2.9.3	We have examined the objection that the filing should not have been admitted in the absence of audited accounts for 1998-99. It may be mentioned that the licensee has filed audited accounts for the year 1997-98 alongwith the application. The audited accounts for the year 1998-99 have not been filed. In the normal course, the revenue requirement for 1999-2000 alongwith request for amendment of tariff if any should have been filed in December, 1998. If the application would have been filed by the prescribed date, the licensee was in a position to file only the audited account for 1997-98. It appears that in view of the unsettling effects of transition involving formation of new distribution companies, disinvestment of government shares and issue of fresh license etc. the revenue requirements were not filed in December, 1998 which ought to have been the case. This was filed in August’99 when audited accounts for 1998-99 were not yet due.
2.10	Therefore, we are unable to agree that the tariff application of the Distribution & Retail Supply Licensee is defective, incomplete and not maintainable.
2.11	The fifth preliminary objection relates to debarring the licensee from revising the tariff until and unless it fulfilled the conditions of Distribution & Retail Supply Licence as amended from time to time and complied with the order of the Commission.
2.11.1	Non compliance or inadequate compliance of the licence conditions, if any, is a separate issue which cannot hold up the process of determination of tariff. The Commission is bound by law as in Section 26 (6) of the Reform Act, 1995 to determine the tariff within 90 days from the date the application was treated by the Commission as complete. Elaborate provisions exist in the Reform Act, 1995 to deal with non-compliance or violations of licence conditions. Filing of the revenue requirement and expected revenue from charges is a statutory duty of the licensee as provided in s/s (4) of Sec.26 of the Reform Act, 1995 and therefore this function must not be mixed up with other issues like non-compliance or inadequate compliance of the licence conditions. The Commission is, therefore, of the opinion that this objection has no merit and is accordingly overruled.
2.12	The sixth objection that the application cannot be entertained in the middle of the financial year 1999-00 has no basis in law. The Commission would have liked strict adherence to the due date of filing of the revenue requirement i.e. by 31^st December, 1998 but the Commission is persuaded to accept the delay caused due to the transitional problems. The Commission has also noted that there is no statutory time schedule for application for tariff and hence the Commission cannot refuse to consider the application if it is otherwise in order.
2.13	The seventh objection is that the Commission Advisory Committee was not consulted by the Commission before admitting the application. Sub-section (6) of Sec.26 prescribes; "If the Commission considers that the proposed tariff or amended tariff of a licensee does not satisfy any of the provisions of sub-section (5), it shall, within 90 days of the date of receipt of all information which it required, and after consultation with the Commission Advisory Committee constituted u/s 32 and the licensee, notify the licensee the proposed tariff or amended tariff." It is clear from the language employed in sub-sec. (6) that the question of consultation arises only before the Commission actually seeks to notify the licensee the proposed tariff or amended tariff. Consultation with the Commission Advisory Committee, therefore, is not a pre-requisite for admission of the licensee’s application. It may be further mentioned that the Commission had already scheduled the meeting of the CAC by the time the public hearing was taken up.
2.14	In order to dispose of the last objection, we may point out that Sec.9(4) of the Reform Act, 1995 stipulates a quorum for review of any previous decision taken by the Commission. This stipulation for quorum is applicable only if there is an explicit prayer for review of any previous decision of the Commission. We have already stated earlier that the present application is not a prayer for review of the RST. It is an application u/s 26(6) of the Act. We therefore hold that there is no bar to or infirmity in the Commission proceeding to determine the RST as prayed for by the applicant.
2.15	In the light of our observations in the above paragraphs, we have to hold that there is no validity in any of the preliminary objections, most of which were due to inadequate appreciation of regulatory procedure. We, therefore, proceed to examine SOUTHCO’s proposal and give our findings on the same.

3.0

SOUTHCO’S PROPOSAL

3.1

SOUTHCO has submitted calculations of its expected revenue from charges and its revenue requirement for the year 1999-2000 along with a proposal for amendment of the existing tariff.

3.2

Considerations requiring amendment of the existing tariff which have been advanced by SOUTHCO are given below :

3.2.1

Revenue from the existing tariff is insufficient to meet the estimated cost for the financial year 1999-00 and, therefore, there is a need to increase tariff in line with the revenue requirement proposal to preserve the financial viability of SOUTHCO.

3.2.2

Insufficient tariff increase of the previous tariff order has resulted in a higher requirement for the financial year 1999-00 and the energy consumption assumed in the retail tariff application of 1998-99 and approved by OERC was in excess of the actuals.

3.2.3

The tariff structure inherited by the company is a distorted one with an in-built high dose of subsidy to certain groups of consumers which continues inspite of the rationalisation of tariff structure by OERC and GRIDCO. A higher tariff increase in the case of subsidised categories is, therefore, required to achieve a rational tariff level.

3.2.4

Revenues must be sufficient to cover all the costs to ensure viability of SOUTHCO and to enable it to raise funds critical for system improvement.

3.2.5

OSEB and its successor GRIDCO being state owned undertakings had the benefit of getting subsidy from the State Govt which is not available to SOUTHCO and hence all costs have to be recovered from the consumers.

3.3

SOUTHCO has considered the following main inputs for the calculation of revenue requirement :-

Power Purchase Expenses
Employee Cost
Administration & General Expenses
Repair & Maintenance Expenses
Provision for bad and doubtful debts
Depreciation
Interest on loan
Interest on working capital
Statutory appropriation
Cost of stores & spares
Reasonable Return on Capital Base

3.3.1

SOUTHCO estimates power purchase of 1513 million units with an average of monthly maximum demand of 275 MVA during 1999-00. Demand has been estimated on the basis of power purchase bills of April, May and June, 1999. SOUTHCO estimates an energy sale of 1236 million units which is an increase of 7% over the billed units for the FY 1998-99.

3.3.2

SOUTHCO has stated that the Distribution loss as worked out from the management information system is 43% for the year 1998-99 & feels that a loss reduction of 3% in the year 1999-00 would be realistically achievable. It has targeted to reduce the energy loss to 40% during 1999-00.

3.4

Total expenditure including power purchase cost for the year 1999-00 is estimated as Rs.322.53 crores which comprises Employees’ Cost, Cost of Materials, Administration and General expenses, interest on loans borrowed from different organisations, bad debts, depreciation less capitalisation on account of interest expenses. There is a proposal for special appropriation of Rs.1.07 crores to cover contribution to contingency reserve. SOUTHCO estimates to earn a reasonable return of Rs.7.53 crores on its capital base of Rs.42.97 crores. The revenue requirement and estimated reasonable return for the financial year 1999-2000 proposed by SOUTHCO is at Table : 1.

Table : 1
Revenue requirement of SOUTHCO for 1999-00
(Rs. in crores)

Purchase of energy	195.36
Distribution and sale of energy	127.17
Special appropriation	1.07
Sub-total	323.60
Reasonable return	7.53
Total	331.13

3.4.1

The revenue projection made by SOUTHCO for 1999-00 is in Table : 2.

Table : 2
Estimated Revenue from Charges for 1999-00
(Rs.in crores)

	Revenue	Surplus/Deficit
For FY 00 based on existing tariff	231.47	(-) 99.66
For FY 00 based on proposed tariff for full year	311.83	(-) 19.30
For FY 00 based on proposed tariff for 4 months	258.25	(-) 72.88

3.4.2

SOUTHCO has stated that the existing tariff is inadequate to meet the estimated total revenue requirement of Rs.331.13 crores for the financial year 1999-00.

3.4.3

SOUTHCO has stated that if the shortfall in the revenue requirement is to be met, it requires revision of tariff by 39%. However, SOUTHCO has proposed an average rise of 34%.

3.5

SOUTHCO has stated that while a differential tariff based on cost differences for different zones would be more efficient, a sudden shift across the regions would create significant discontinuity in tariffs. SOUTHCO has accordingly suggested a uniform tariff for all the three utilities under the management of BSES, namely, WESCO, SOUTHCO and NESCO. It has been explained that excess of revenue earned by WESCO may be transferred to SOUTHCO and NESCO. The revenue transferred from WESCO to SOUTHCO and NESCO may be treated as a special category capital or alternatively OERC may consider treating the surplus transferred from WESCO as a revenue subsidy to SOUTHCO and NESCO.

3.6

The tariff proposal does not envisage any subsidy from the Govt of Orissa or any other source. It has adopted the principle of cross-subsidization and a self balancing mechanism within various classes of consumers.

3.7

SOUTHCO has stated that in case OERC or Govt. of Orissa desire to further subsidise any consumer category, the difference between the proposed revenue and the subsidised tariff should be provided to SOUTHCO either by consequent increase in tariff for other consumers or in the form of subsidy from Govt. of Orissa d by a monthly letter of credit or a combination of both.

3.8

In proposing the tariff, SOUTHCO is stated to have acted on the following principles:-

Lower tariff for consumers supplied at higher voltage level

Reduction in cross subsidy

Reduction in multiple rates for consumers at same voltage level.

3.9

As per the tariff proposal suggested by SOUTHCO no consumer is to pay less than 50% of the cost of supply requiring significant increase in domestic and irrigation at LT. At the same time, SOUTHCO proposes that no consumer should pay more than 150% of the cost of supply.

3.10

As a measure of incentive for HT and EHT consumers, it has been proposed that on consumption beyond the load factor of 60%, a discount of 10% may be given on the energy charge for the applicable category.

3.11

As a number of aluminum manufacturing industries plan to set up CPPs, SOUTHCO proposes that consumers with a contract load of 100 MVA and above and a guaranteed monthly load factor of 80% would qualify for a special tariff with no demand charge but a consolidated energy charge and back to back arrangement with the bulk supplier.

3.12

SOUTHCO intends phasing out of cross subsidies while proposing amendment to this tariff.

3.13

SOUTHCO states that the principle of marginal costing is more efficient but due to shortage of accurate data, historical cost method has been used to assign cost to revenue.

3.14

SOUTHCO has stated that about 33% of its power purchase bill relates to fixed cost while less than 20% of its revenue have been earned from the demand charge. SOUTHCO proposes to increase the demand charge so that a higher level of fixed cost would be recovered through the demand charge.

3.15

On the aforesaid grounds, SOUTHCO has sought for approval of :-

The proposed amendment to the existing retail tariff and charges.
Revenue requirement for the year 1999-00.
The expected revenue from the charges of SOUTHCO for the year 1999-00.
The mechanism proposed for cash flow to SOUTHCO and NESCO from WESCO
Moratorium of three years in setting captive power plants.

4.0	OBJECTIONS DURING HEARING Thirteen objectors were admitted for personal hearing. The main issues raised by the objectors may be outlined..
4.1	Chief Electrical Engineer, S.E. Railway, Calcutta.
4.1.1	Shri Madhukar Mishra, Chief Electrical Engineer (Distribution) appeared on behalf of Chief Electrical Engineer, South Eastern Railway. He stated that demand and energy charges proposed in the range of 25% to 30% for HT and EHT supply is abnormally high and may cause severe financial burden on the Railways. Hence the demand and energy charges may be maintained at the existing level.
4.1.2	Shri Mishra pleaded that the Railway’s load fluctuation is due to exogenous factors like accidents and public agitation etc. and hence the proposed penalty on overdrawal may be withdrawn. Alternatively, the prevailing facility of no penalty upto 120% of contract demand during off-peak period may be extended to peak period also. He also submitted that Monthly Minimum Fixed Charge (MMFC) is already in-built in the two-part tariff for Railways and, therefore, the proposal of introducing a MMFC may be dropped.
4.1.3	He argued that traction tariff should have some relationship with cost of power purchased from NTPC/NHPC. NTPC sells power at Rs.1.92/Kwh whereas Railways pay Rs.3.79/Kwh to the DISTCOs. Such distortions should be rectified. Shri Mishra requested that a rebate of 2% of the total bill may be paid to the Railways for timely payment of bills and that on the line of a penalty on low power factor, a rebate may be granted in the event of power factor over 90%.
4.1.4	Power supply interruption and unreliable supply cause lots of hardship to the Railways in the form of additional operational expenditure for train services and hence compensation should be paid to Railways in case of power supply interruptions or poor quality of power supply by the Licensee.
4.1.5	It was further submitted that traction tariff should be reasonable for developmental projects and that TOD meters should be provided at the traction substations. He further pleaded that in case of defective meters, average of last three months consumption should be taken for billing.
4.2	Koraput District Small Scale Industries Association, Jeypore, Dist : Koraput.
4.2.1	Shri B.K.Sinha, Advocate, appearing on behalf of Koraput District Small Industries Association objected to the Tariff proposal of SOUTHCO and submitted that the prevailing tariff effective from 01.12.98 should not be amended within a period of 3 years. He stated that there was no basis to charge tariff every year except fuel price adjustment.
4.2.2	Shri Sinha claimed that the Commission has not framed any regulation under section 26(2) of Reform Act'95, for determination of tariff and that the Commission has not yet specified the methodology and procedure for calculating the expected revenue from the charges. Hence, the Commission cannot proceed to consider the application of the Licensee based on imaginary, vague and manipulated statements of facts. He pointed out that the Licensee has not been engaged in business for long and hence it has no statement of Accounts of its own for even a single year. Further, the latest account for 1998-99 is not audited. It was alleged that in the circumstances, the Licensee’s financial statements and performances cannot be judged.
4.2.3	Shri Sinha argued that it is not proper for the licensee to apply for retail tariff for the year 1999-2000 at this point of time when a major part of the year has already been over.
4.2.4	He pointed out that there is no improvement either in efficiency, or in the standards of performance like reduction in losses. There has been no improvement in reducing the T&D loss even after more than 3 and half years of reforms. The bills are not correctly issued and yet consumer has to pay them under threat of disconnection. Metering and consumer complaints on meters have not been taken care of by the Licensee and large number of consumers have been supplied at poor voltage much below 200 volts. There should not be any demand charge for L.T. consumers and the Licensee should not be allowed any tariff increase before providing required level of service.
4.2.5	Without proper audited accounts, the amount of subsidies from Govt. and carry forward losses cannot be ascertained. Inefficiency of licensee in billing and collection of dues every month is necessating higher amount of working capital for which interest is being passed on to the consumer.
4.2.6	He stated that no economy is observed in power procurement.
4.2.7	He suggested that Licensee should be ordered to pay interest on security deposit. He also presented a collection of 3 cartoons to depict harassment in supply of electricity and in collection of bills.
4.3	Jeypore Motor Garage Owner's Association, Jeypore, Koraput
4.4	Orissa Consumers' Association, Jeypore Chapter, Jeypore, Koraput.
4.4.1	Shri A. Nageswar Rao represented of Jeypore Motor Garage Owner's Association, Jeypore, Koraput as well as Orissa Consumers' Association, Jeypore Chapter. His objections are almost same as those raised by Shri B. K. Sinha of Koraput District Small Scale Industries Association, Jeypore.
4.4.2	At the outset he expressed his resentment that most consumers have to run minimum 300 kms to represent their grievances. Hence, circuit benches of the Commission may be established at Sambalpur and Berhampur to facilitate poor people to present their grievances to the Commission as well as objections to tariff hike.
4.4.3	His objections are as follows :- The Commission should state the period for which the revised tariff will stay. Bad debts should not be allowed as high as demanded by the licensee. Electronic meters are running faster than normal meters. Legal expenses claimed are very high. Super-cyclone in CESCO and SOUTHCO area has rendered majority of consumers penniless and hence they cannot bear the burden of any increase in tariff. Small transformers installed on pole tops are lying without use, hence wastage of money. Licensee does not collect electricity dues from bureaucrats/officers/police stations. S.D.O. gives new connection without meters. Only 50 to 60 meters are sent where 3000 to 6000 meters are required.
4.5	Shiva Metal Industries, Konisi, Berhampur
4.5.1	Shri Gopi Krishan representing Shiva Metal Industries stated that the proposed tariff hike will increase the monthly bill of SSI and Medium industries by 50% which is not proper. The introduction of monthly minimum fixed charges has converted the tariff of Small & Medium industries from 2 part to 3 part tariff system. The meter rent @Rs.800/- every month is too high. Hence the consumer should be given an option to install his own meter.
4.5.2	He cited a typical bill of the objector (M/s. Shiva Metal Industries) for the month of Sept'99 which will increase in the proposed tariff from existing Rs.31,604/- to Rs.47,148/- current tariff. The proposed rates are excessive, arbitrary and unjustified.
4.5.3	He suggested that tariff should be uniform throughout the State and that tariff for medium industries should be same as that of Small Industries.
4.6	President, Ganjam District Electricity Consumers Protection Assocn., Hinjilikatu, Ganjam
4.6.1	Shri Umesh Chandra Sahoo represented the President, Ganjam District Electricity Consumers Protection Association. His objections are summaried below :-
4.6.2	Meter rent, especially Rs.250/- for 3-phase static meter in place of Rs.30/- for electromagnetic meter is too high. The meter rent should be such that the interest on cost of metering at RBI rate of interest applicable to Saving Bank Account should be allowed.
4.6.3	Since replacement of meter is the responsibility of SOUTHCO (when they detect a meter to be defective) Load Factor based billing should not be continued for more than one month.
4.6.4	The meter readers do not visit the consumer’s premise and submit bills on basis of house lock, defective meters, or showing some arbitrary readings causing harassment to consumers. He also complained that sufficient steps were not being taken to stop hooking and other instances of illegal consumption. He alleged of mismanagement and lack of financial prudence on the part of SOUTHCO.
4.6.5	Shri Sahoo suggested that minimum monthly fixed charge should be done away with, time-of-day tariff should be introduced and there should be uniform tariff for all categories of consumers. He suggested reintroduction of practice of using pole mounted aerial fuses to protect transformers from burning due to overload.
4.7	M/s Humma & Binchanapalli Salt Production & Sale Co-operative Society Ltd., Ganjam.
4.7.1	Shri Uma Ballabh Mohapatra, Advocate and Secretary of the Cooperative Society argued on behalf of the salt farmers. He requested the Commission to apply tariff for irrigation category to salt farmers on various grounds.
4.7.2	Salt production is purely a seasonal operation and hence should be given the status of irrigation consumers and further monthly minimum fixed charges should not be levied.
4.7.3	Steep rise in electricity will increase the price of salt which is an essential commodity. He stated that Govt. of Tamil Nadu and Gujarat are granting concessions in tariff to the society of salt workers/salt artisans and hence the Commission may grant seasonal status and concessional tariff to the member of the society. Shri Mohapatra vehemently pleaded that salt production be recategorised from Small Industry to Irrigation.
4.8	Orissa Assembly of Small and Medium Enterprises, Rayagada Chapter, C/o: Hanuman Rerolling Mills(P) Ltd., Rayagada
4.8.1	Shri Kumudan, President Orissa Assembly of Small and Medium Enterprises objected mainly on the ground that the present as well as the proposed demand charge is higher than that of neighbouring State, Andhra Pradesh.
4.8.2	The introduction of minimum fixed charge is the introduction of the earlier minimum charge in another name. The increase in fixed charge will also affect the medium industries.
4.8.3	Tariff increase in energy charges for small, medium and large industries should be allowed within a limit of 10% to 15% (as suggested by the Orissa Assembly of Small and Medium Enterprises).
4.8.4	Incentive should be given for improvement in power factor.
4.9	J.K. Corp Limited, At/Po : Jaykaypur, Rayagada
4.9.1	Shri H. Dallakutty representing J.K. Corp Limited objected to the fact that SOUTHCO has put up it's application purely on the basis of commercial loss and profit calculation based on their performance for only a few months. Assumptions for energy consumption by consumers are not correct. Tariff structure proposed by SOUTHCO is faulty and data available with SOUTHCO are still not adequate to revise tariff. There is no justifiable basis for realising higher revenue from consumers since inherited expenses from GRIDCO should not be taken as justification for tariff rise.
4.9.2	Poor performance by GRIDCO and SOUTHCO results in higher T&D loss. Shri Dallakutty referred to frequent interruptions in supply and poor quality of power.
4.9.3	Objecting to the Licensee’s proposal on permission to CPP, he stated that permission should be granted to the industries for Captive Power Plant in consideration of level of operations, efficiency of equipment and minimum loss. Accordingly to him not granting permission to new CPP is contrary to the Industrial Policy Resolution of Govt. of Orissa.
4.9.4	He further submitted that there should be reduction in O&M cost, retrenchment of surplus staff, lower provision for bad debt, lower A&G expenses and lower percentage of depreciation.
4.9.5	Large chunk of costs come from T&D loss. Money spent for meter replacement and improvement in power Distribution System should lead to reduction in T&D loss and increase in revenue SOUTHCO should comment on this and should take significant steps to plug low tension faults and also take other efficiency measures.
4.9.6	He suggested that incentive should be given for better power factor beyond 95% and that demand charges should be reduced to Rs.125/KVA and energy charge increase should be to the maximum extent of 5%. He also suggested that incentive for P.F. improvement and timely payments should be introduced to encourage these activities to the advantage of the power sector.
4.9.7	He submitted that continuous annual increases in power tariff has had a very damaging impact on financial viability of industries. The hike in tariff every year is not conducive to industrial growth. Hence tariff should be fixed for a minimum period of 5 years with Fuel Cost Adjustment formula based on variation in the price of consumables and the present proposal of SOUTHCO should be dropped.
4.10	M/s. Jayshree Chemicals Ltd., Ganjam
4.10.1	Shri B.K. Mohanty, Senior Advocate submitted the objections on behalf of M/s. Jayshree Chemicals Ltd. He argued at length that the Special Agreement proposed by NESCO to EOUs to provide tariff at a special rate is contrary to the principles laid down in Section 26(5) of the Reform Act, 1995. He explained that even though Section 26(5) of the OER Act states that tariff of the licensee shall not show undue preference to any consumer, it is clearly stated that tariff may be differentiated depending on consumer's load factor or total consumption or the timing of supply of power. He accordingly proposed that special tariff may be made applicable to all those (including the objector) who conform to the said condition of consumption.
4.10.2	Shri Mohanty submitted that the special category of bulk consumers of electricity are categorised as "Power Intensive Industries" under the regulation and not as EOUs and hence the special tariff should therefore be made applicable to Power Intensive Industries in general and not for EOUs alone. He further suggested that period from 1800 hours to 2200 hours may be considered as peak hours and the rest of the day as off peak hours.
4.11	UTKAL CHAMBER OF COMMERCE AND INDUSTRY (UCCI).
4.11.1	Shri M.V. Rao representing Utkal Chamber of Commerce and Industries strongly objected to tariff increase on various grounds. He submitted that retail tariff application of DISTCOs may be taken up after finalizing BST.
4.11.2	He argued that there is scope to reduce the BST and hence the retail applications of DISTCOS should be rejected. He said that yearly tariff revision harms industrial planning. He submitted that since the Super Cyclone devastated most part of coastal Orissa, the Commission should not change the BST and RST during 1999-00.
4.11.3	SOUTHCO's sale of energy is projected less because 70% of total meters were not in working condition and because of inaccurate computation method. This is allegedly done with the purpose to hide SOUTHCO's inefficiency. He wanted tariff to be fixed keeping in view rates charged to industrial consumers in other states.
4.11.4	SOUTHCO should not have applied for tariff revision without having the audited accounts of 1998-99. The MIS data supplied by the company is erroneous.
4.11.5	It is unfair that SOUTHCO prays for not granting permission to CPPs which means the private licensees wish to be monopolies.
4.11.6	Since SOUTHCO needs total power drawal of only 1513 MU with a simultaneous maximum demand of 275 MVA, at the existing BST, the expected revenue should be Rs.231.47 crores as against a revenue requirement of Rs.323.6 crores. Hence, Bulk Supply Tariff should be reduced rather than increased. Consequently, SOUTHCO should reduce tariff.
4.11.7	The overall T&D loss was approved at 35% which included 4% of EHT loss with effect from 01.04.97. By now OERC should reduce the benchmark of distribution loss from 31% to 28% for 1999-00.
4.11.8	Shri M.V. Rao objected to increased claims under employee expenses, bad debts, auditor fees etc. He suggested that depreciation, PF contribution, gratuity may be taken as proposed by SOUTHCO. According to him, the revenue requirement of SOUTHCO works out to Rs.292.37 crores as against the proposed figure of Rs.322.53 crores. Since the total expected revenue with existing tariff may be Rs.231.47 crores and revenue requirement has increased due to revaluation of assets and not claiming subsidy from Govt. Of Orissa, no tariff hike is necessary for SOUTHCO.
4.11.9	The new reform regime has several monopolies in place of the earlier one monopoly. Since there is no competition, the purpose of reforms to encourage competition can not be realised.
4.11.10	Multiplicity of agencies has resulted in multiplying costs. The poor consumer only pays for it.
4.11.11	The revenue requirements of the licensees have been inflated due to the govt. increasing the book value of assets 2 to 3 times, charging higher rate of depreciation etc. The cost of electrical energy should have been one of the three lowest among the Indian states due to availability of 45% of energy from hydro sources.
4.11.12	The proposed increase in tariff shall enhance cross-subsidy from EHT consumers.
4.12	M/s. NALCO, Bhubaneswar
4.12.1	Shri Indrajeet Mohanty, Advocate, submitted his arguments as suggestion to the Commission to supplement the written objections of NALCO. The process of fixation of tariff would be made more effective if OERC suggests tariff in an interim order and objectors submit their objections to it before OERC issues its final order on tariff.
4.12.2	Shri Mohanty reiterated the issues mentioned in the written objection to claim that NALCO stands on a special footing in as much as it is outside the purview of tariff to be determined under the Reform Act, 1995.
4.12.3	He submitted that Govt. of Orissa should be made a party during the process of legal examination since it is a signatory to the minutes of the meeting signed between NALCO, OSEB and GOO and that the tripartite arrangement among NALCO, GOO and SEB continues to be valid. He suggested that all petitions of NALCO against GRIDCO, SOUTHCO and CESCO should be clubbed for a common hearing based on MoM dated 25.01.91 and 01.06.94 NALCO, OSEB and GOO.
4.13	Dr. S. K. Tamotia, President, Aditya Aluminium, Bhubaneswar
4.13.1	Dr. S. K. Tamotia had prayed to rely on his written objections only. His objections have been summarised as follows :- Prayer of SOUTHCO under para 5(f) of Public Notice for keeping on hold permission to new captive power plant. should not be agreed to being contrary to the laid down policy of Govt. of Orissa (and detrimental to Aluminium Industry). Tariffs are being revised every year since 1995 which is not conducive to the industrial growth. Repeated revision of tariff in 1996, 1997 and 1998 has adversely affected the industries of all types, particularly Power Intensive Industries of Orissa. The concessions granted by Govt. of Orissa under IPR-96 have been more than negated by manifold increase in tariff. The proposed 25% hike in demand charge is very high. In fact it should be reduced by 38% i.e. to be brought down to Rs.125/KVA from the existing Rs.200/KVA The increase in energy charges could be at the most 5% i.e. equal to the increase in variable cost. The emergency assistance to Captive Co-generation Power Plants should not cost more than Rs.2.50/unit. Construction power to industry should not be treated as Large Industry with proposed two part tariff. In fact construction industry should be treated separately and no demand charges should be levied mainly because the demand is neither continuous nor stable. Only energy charge should be levied based on actual energy consumed. The tariff for Domestic and Commercial Consumer should not be hiked at the proposed 40% to 50%. A maximum of 5% in energy charges and 7% increase in minimum fixed charges based on rate of inflation during the year can only be justified. Tariff for all categories should be fixed for at least a period of 5 years and actual increase should be based on statutory charges in variable costs only.
4.14	Orissa Grahak Mahasangha, Bhubaneswar
4.14.1	Shri K. Acharya representing Orissa Grahak Mahasangha during the hearing and in his written submission subsequent to the hearing, objected to SOUTHCO’s tariff filing. He objected on a variety of grounds as below :-
4.14.2	The tariff amendment application for the year 1999-00 is not maintainable.
4.14.3	The Commission has not framed any regulation by notification in Gazette determining terms and conditions for the fixation of tariff.
4.14.4	The DISTCOs have not completed their functioning for even a year and as such their accounts are not audited. Thus their standards of performance and financial position etc. are not known.
4.14.5	The licensees have not improved their efficiency and standards of service and they have not made any effort to reduce T&D losses.
4.14.6	The Commission has not consulted the CAC prior to admission of tariff application.
4.14.7	In addition to the above objections, he complained of irregularity in billing, metering and consumer service and suggested that loss reduction and installation of new meters etc. should form part of the licence conditions. He opined that increasing the load factor is no alternative for metering as the former encourages the consumer to increase losses by resorting to unfair means.
4.15	During hearing Director (Tariff), OERC sought clarification from SOUTHCO on the following issues :-
4.15.1	The details of capital investment SOUTHCO proposed to carry out during the year 1999-00 and the approval of competent authority to execute such capital works.
4.15.2	Reason of charging total interest to revenue instead of capitalizing during the year.
4.15.3	Interest on capital works has been increased due to delay in execution although corresponding benefits due to system improvement do not accrue.
4.15.4	SOUTHCO may submit the quantum of reduction of system loss due to implementation of its metering programme during the year 1999-2000.
4.15.5	SOUTHCO may furnish the steps taken to record simultaneous maximum demand of the company.
4.15.6	SOUTHCO may submit the steps taken to measure system loss in respect of HT consumers.

5.0	SOUTHCO’S REPLY TO THE OBJECTIONS The Managing Director of SOUTHCO replied to the various issues raised by the objectors.
5.1	In its rejoinder to the above objections SOUTHCO stated that the proposed increase in tariff is based on a reasonably accurate estimate of the revenue requirement of 1999-00 and would be applicable only for a part of the year resulting in a huge loss for the DISTCOs. For maintaining the viability of the power sector a balance needs to be struck between the interest of the Licensee and the interest of the consumers. The proposal of the Licensee aims at that. SOUTHCO’s application has been submitted based on the present BST and the question of the Licensee resorting to high cost power does not arise.
5.2	T&D loss as reflected in the management information system of the previous financial year indicates a higher level of loss than what had been projected by GRIDCO earlier. SOUTHCO is carrying out a massive metering plan and adopting other measures for reduction of losses like installation of LT less transformers and strengthening the distribution system. The benefits of loss reduction measures now being undertaken will take time to fructify. SOUTHCO is committed to reduce distribution losses and has targeted at 40% during 1999-00.
5.3	A large number of LT Consumers continue to pay tariffs significantly lower than their cost of supply. Elimination of cross subsidy would be essential to undertake substantial measures towards further tariff reforms where tariff could be differentiated on the basis of time of use, extent of use, and manner of use. For avoiding sharp increases in tariff, OERC recognizes the gradual process of elimination of cross subsidy over a period of time. Hence cross subsidy would have to continue till such time and that Licensee will not be in a position to bring down tariff for HT and EHT consumers.
5.4	It is stated that the calculations made by the UCCI regarding revenue requirements of SOUTHCO are not based on facts and, therefore, are not correct. SOUTHCO's application has been submitted basing on the present BST and the question of the Licensee resorting to high cost power does not arise. Employee Cost and Administration & General Expenses have been computed based on the company's actuals for the early months of the fiscal year. With regard to bad debts, it is submitted that the arrears from the State Government Departments and undertakings as on 31.03.99 have been transferred to GRIDCO and have not been transferred to SOUTHCO's account. The remaining opening debts as on 01.04.99 have been inherited from GRIDCO. A large chunk of arrear appears to be doubtful. It is proposed to write off such bad and doubtful debts during a period of three years. The interest component of the total expenses is estimated correctly and the provision of contingencies reserve has been made as per the Act, 1948.
5.5	With reference to objections of Small Scale Industrial consumers, SOUTHCO in its rejoinder said that several measures were being taken to improve the supply system after taking over the charge and the benefits of the same shall be visible over a period of time. Load surveys are being made and steps have been taken to provide meters to all classes of consumers. SOUTHCO has continued the incentive for consumption beyond 60% load factor by proposing a discount of 10% on such consumption.
5.6	SOUTHCO in its rejoinder to the objections raised by Railways stated that it purchased power from GRIDCO who in turn purchases the same from different generators including NTPC. The selling price of power to the ultimate consumers like Railways is bound to be higher than the NTPC rate due to additional cost of transmission.
5.6.1	Over drawal by a consumer places additional financial burden on the system as the incremental power purchase cost is always high. It puts additional burden on system stability and reliability and thereby affects other consumers apart from disturbing the power procurement planning. Thus the levy of over drawal charge is justified. Regarding defective meters, SOUTHCO stated that the rules and procedure prescribed in the OERC Distribution (Conditions of Supply) Code, 1998 has to be implemented and those issues cannot be settled in a tariff proceeding.
5.6.2	Referring to the structure of tariff, SOUTHCO said that consumers having more than 100 KW connected load were charged on the basis of a two-part tariff consisting of demand and energy charges. The Monthly Minimum Fixed Charge is being charged in respect of consumers having contract demand of less than 100 KW/110 KVA. SOUTHCO further clarified that there was no such proposal for a MMFC in respect of the Railways. The retail tariff order of 1998-99 permits either a rebate for timely payment or the levy of delayed payment surcharge and not both for a particular consumer category and the same has been followed by SOUTHCO in its tariff proposal.
5.6.3	There is no proposal to bring in changes in the existing tariff with regard to power factor penalty or introducing incentive for improved power factor.
5.6.4	The Railways avail supply at HT voltage where the interruptions are negligible. Besides the frequency and voltage of supply depends upon the system voltage and frequency and the retail licensee has no control over the same.
5.7	As regards the EOUs suggestion for not levying any demand charge, SOUTHCO has stated that the cost structure of the DISTCO's consisted of a fixed and a variable portion. The structure of revenue of DISTCO's should also resemble their cost structure. Thus a total withdrawal of fixed charges would affect the fixed revenue stream of the DISTCOs, their cost structure remaining the same.
5.7.1	SOUTHCO has been in discussion with a number of agencies putting up mega manufacturing projects. It is proposed that consumers with a load of 100 MVA and above and guaranteed monthly load factor of 80% would qualify for a special tariff. The special tariff would have no explicit demand charge and would have a consolidated energy charge, with a similar back to back arrangement with the bulk supplier.
5.7.2	As regards construction power, if the requirement is more than 100 KW/110 KVA, two part tariff is applicable like other large industrial consumers and the demand charges are required to be paid.
5.7.3	Regarding penalty for an inferior power factor SOUTHCO stated that improved power factor resulted in reduction in the recorded demand of the consumer bringing in lower demand charges. However, a drop in the power factor affects the system reliability and stability and thereby affects other consumers also.
5.8	SOUTHCO’s rejoinder covered a number of other issues. It was explained that customer service charge is levied to partially compensate the licensee towards providing services like metering, billing, complaint handling etc.
5.8.1	Tariff order of 1998-99 permits either a rebate for timely payment or a levy of delayed payment surcharge and not both for a particular consumer category. SOUTHCO's proposal continues with this principle.
5.8.2	The monthly minimum fixed charge(MMFC) is being levied in respect of consumers having contract demand of less than 100 KW/110 KVA in line with the levy of demand and energy charges on consumer having connected load having more than 100 KW/110 KVA.
5.8.3	The procedure of allowing only 10% of the total consumption by a HT industry as housing colony consumption at a reduced tariff is a liberal concession. The proposed colony consumption tariff is still lower than the proposed tariff charges for consumption during peak hours by EOUs.
5.9	In its rejoinder SOUTHCO also clarified its stance on Captive Power Plants. SOUTHCO advocates that industry is inclined to set up CPPs due to the prevailing distorted tariff structure where the industrial consumer subsidises the domestic consumer. The GoO had given a boost to CPPs by permitting third party sale of power under Section 28(1) of the Indian Electricity Act, 1910. This has resulted in a reduction in consumption of Grid power by the industrial consumers and a corresponding increase in the burden of tariff on the consumers who continue under the grid. The OERC has discussed the issue of captive generation and of third party sale on various occasions. Third party sale would be allowed if the permission had been obtained from the GoO under the said section before the enactment of OER Act. After the enactment of OER Act, third party sale is not permitted. Orissa is a power surplus state and therefore does not require installation of additional capacity at this time. Obviously large power plants are economical compared to CPPs. Thus allowing CPPs would mean uneconomical allocation of scarce resources. What is therefore needed is a necessary correction in the distorted price structure which would be more difficult if further addition is made to captive capacity. If CPPs are allowed, it would mean lower generation from the large power plants which would increase the average cost of generation. The IPPs already have take-or-pay conditions in the PPAs and the introduction of availability based tariff is currently under consideration which would result in higher cost/unit.
5.10	While certain industrial consumers have the option to set up captive generators, a large number of consumers do not enjoy that choice. Therefore encouragement of captive generation would adversely affect consumers like households, small industries, public lighting and public water works etc.
5.11	Regarding the objections of some Power Intensive Industries (PII) to extend the special tariff applicable to export oriented units under NESCO to PII, SOUTHCO clarifies that the special tariff applicable to the export oriented units was as per the policy of the Govt. of India to earn foreign exchange for the country. Sec.26(5) of OER Act, 1995 recognises differentiation of consumers only on the basis of consumer’s load factor or power factor and the consumer’s total consumption of energy during any specified period of time. The Govt. of Orissa, Deptt. of Energy had requested NESCO to continue the special tariff for EOUs.
5.12	SOUTHCO submitted its written clarifications to the issues raised by Director (Tariff) OERC during hearing. The reply has been summarised in the following paras corresponding to issues raised.
5.12.1	The project wise details of capital expenditure for the year 1999-2000 amounting to Rs.40.42 crores has already been submitted to the Commission. As regards to approval of competent authority for these capital expenditure, SOUTHCO clarifies as follows : Execution of 33/11 KV Network Improvement Works (PMU), funded by IBRD/World Bank has already been approved by the Govt. of Orissa. The Project Report for system improvement amount to Rs.5.18 crores has been submitted to the Commission. The R.E./L.I. Works amount to Rs.10.49 crores have been duly approved by the Govt. of Orissa. Provision of Rs.10 crores for meter replacement, duly approved by the Board of Directors of the Company, is being reported to the Commission from time to time.
5.12.2	Interest on loan for incurring actual capital expenditure during the year has been capitalised. Interest on subsidiary loan from GRIDCO and interest on other loans (appearing as opening balance in the Transfer Scheme) have been charged to revenue. No interest on account of capital expenditure during the year has been charged to revenue.
5.12.3	SOUTHCO during 1999-2000 has completed the capital works-in-progress of the previous year. All the capital projects taken up during the current year are closely monitored so as to complete the same during this year. However, the benefit on account of such investments have been coming gradually since the major part of capital investment through PMU is yet to be executed.
5.12.4	SOUTHCO has already embarked on a massive metering plan, the report of which is being submitted to OERC. SOUTHCO has already replaced about 20,000 meters during first six months of the current year, contributing to reduction in system loss by 3% (from 46% to 43%) in the first half of 1999-2000 in comparion to corresponding period of previous year.
5.12.5	SOUTHCO is drawing energy from several grid sub-stations of GRIDCO and the company is still depending on GRIDCO’s metering system to record energy drawal and monthly maximum demand. GRIDCO is yet to introduce a single point metring system to record simultaneous maximum demand of SOUTHCO.
5.12.6	In the present distribution system, both H.T. and LT consumers are availing power supply through 33/11 KV feeders for which system loss in respect of HT consumers only cannot be measured. However, in specific cases where HT consumers can be given power supply through dedicated feeders with minimum capital investment, steps are being taken to undertake such works to measure system loss of HT consumers.

7.0

REVENUE REQUIREMENT

7.1

After its formation and obtaining licence for distribution and retail supply, SOUTHCO has submitted for the first time its revenue requirement for the year 1999-00. Since no comparative figure for the last financial year is available, the Commission has, for the purpose of analysing the revenue requirement, relied on the disaggregated audited accounts submitted by GRIDCO for 1997-98 and the data & records presented to the Commission by SOUTHCO as well as the facts and arguments placed by the objectors before it.

7.2

Quantum of Power Purchase

7.2.1

The quantum of power purchase is dependent on the quantum of energy sold to the consumers and the transmission and system loss. While estimating energy sale for 1999-00, SOUTHCO has analysed the pattern of consumption of various groups of consumers for the year 1997-98, 1998-99 and projected this figures for the financial year 1999-00 in the format prescribed by OERC. According to the analysis of energy sale mix between LT, HT, EHT consumers for the FY 99, LT consumption accounted for 64.37% while HT & EHT consumption accounted for 23.18% and 12.45% respectively. SOUTHCO has reported that for the purpose of estimation of sale of energy for FY 1999-00, it has evaluated the past billing information for each category, compared the consumption for the first quarter of 1999-00 with the corresponding period of 1998-99, studied the loss reduction initiatives and their impact on billing, analysed energy off-take of consumers in HT & EHT category and used realistic assumptions and current economic situation.

7.2.2

The Commission analysed the consumption of various groups of consumers and studied the consumption of all HT & EHT consumers. A detailed analysis of the billed units of the LT consumers particularly the domestic and commercial consumers without meters or with defective meters was also carried out. Consumers with correct meters are billed on the basis of actual meter reading whereas others with defective meters or no meters at all are billed on the basis of a load factor. The Commission has prescribed detailed formats to determine the consumption for all such consumers. SOUTHCO has requested the Commission to accept data on consumption of LT consumers based on the meter readings of the months of April, May & June’99 in respect of Domestic, Commercial, Irrigation, Small Industries of all consumers throughout SOUTHCO. Treating the meter readings of April, May & June’99 as sample, consumption for a period of 12 moths of entire SOUTHCO has been estimated through a computer model. While accepting, in the absence of complete data, this method of sampling for the purpose of the present application, the Commission enjoins upon SOUTHCO that for future applications it must maintain the required information for calculation of consumption by various classes of consumers in the format prescribed by OERC.

7.2.3

For the year 1999-00, the break up of energy sale forecast by SOUTHCO is as follows:-

Category	Consumption in MU
LT	584.37
HT	210.37
EHT	113.06
Total	907.80

7.2.4

There is an increase of about 7% over the sale in FY 1998-99. A comparative picture of the consumption of the previous two years along with projection of 1999-00 is at Table : 3.

Table : 3
(Consumption in MU)

	1997-98	1998-99	1999-00
LT	549.63	520.00	584.37
HT	262.17	208.00	210.37
EHT	113.23	120.29	113.06
TOTAL	925.03	848.29	907.80

7.2.5

SOUTHCO has reported that there has been increase in consumption by consumers of LT category and HT industries and decrease in consumption by heavy industries availing power at EHT during the first quarter of 1999-00 compared with the corresponding period of 1998-99. There has also been a substantial decrease in consumption by the consumers in the power intensive category. Decrease in consumption by the consumers covered under general purpose tariff and large industries at 132 KV during the first quarter of 1999-00 has also been observed. The Commission on examination of the above figures of SOUTHCO approves the energy sale forecast by SOUTHCO in para 7.2.3.

7.3

Transmission & Distribution Loss

7.3.1

SOUTHCO has estimated T&D loss as 40% in 1999-00. It has stated that as per MIS figure for the year 1998-99, the estimated loss figure is 43%.

7.3.2

SOUTHCO’s estimation of the overall loss percentage of 40% does not include the loss at EHT which is being recovered by the Transmission and Bulk Supply Licensee i.e. GRIDCO, through the Bulk Supply Tariff. In effect, therefore, the end-use consumers of SOUTHCO would have to bear the EHT loss passed through in the BST in addition to 40% loss proposed by SOUTHCO. A large majority of the objectors have questioned the high percentage of system loss proposed by SOUTHCO and have suggested bringing it down to 28%. Most of the objectors were unanimous in their opinion that this high level of T&D loss has remained uncontrolled during the past three years and no tangible achievement has taken place in this area of loss reduction. They said that the expectations from the change from OSEB to GRIDCO and subsequently to separate distribution licensees as a part of the reform process for rendering efficient and economic service to the consumers have totally been belied. Unauthorised use of electricity by dishonest persons is largely responsible for T&D loss which is proposed to be passed on to the honest consumers. There is hardly any progress in replacement of defective meters or installation of new meters which would have ensured correct recording of energy consumption and consequent billing to the consumers. They have stated that during the last three financial years while there is a progressive rise in the quantum of purchase, there is no commensurate growth in sales. Increase in billed revenue is largely attributable to the higher load factor billing approved by the Commission. One of the objectors pointed out that load factor billing is misutilised by many consumers with defective meters who pay a fixed amount but consume far in excess including selling it to third parties covertly. Many objectors drew pointed attention to the mismanagement and complete negation of the Commission’s direction on loss reduction and insisted that the Commission should not allow the high percentage of system loss proposed by the Distribution Licensee. They said that under no circumstances, the percentage of T&D loss should be allowed to be higher than 31%.

7.3.3

SOUTHCO has claimed that recognizing the energy losses at 35% compared to actual losses of 40% to 43% is a wide departure from the Sixth Schedule to the Act, 1948. Since the present loss level has been inherited by SOUTHCO from GRIDCO, it has requested OERC to reconsider the benchmark of 35% fixed by OERC and fix a reasonable target of 40% for the year 1999-00.

7.3.4

In its rejoinder during hearing for Retail Supply Tariff it has explained that it is committed to reduce distribution losses. It is stated to have already embarked on a massive metering plan the progress of which is being reported to OERC. Additionally, several other projects are being undertaken to strengthen the distribution system. However the benefit of all the above would accrue only over a period of time. For the distribution loss during the 1999-00, SOUTHCO has requested OERC to propose a mechanism for sharing the revenue loss between other constituents like GRIDCO and the Government of Orissa which is prescribing policy issues for the sector. The extent of loss to be shared should be inconsonance with the party’s ability to bear the loss so that the consumers are insulated from a sharp increase in tariff.

7.3.5

SOUTHCO has stated that a significant portion of electricity consumed in Orissa is not metered making it difficult to accurately establish the extent of energy loss. The most reliable data for the actual energy loss is the energy audit carried out in 1996 as a part of reform programme. In the information memorandum circulated at the time of inviting bids for privatisation, the distribution loss for 1996-97 for SOUTHCO was shown as 40.00%. The memorandum also projected an ambitious loss reduction target. Contrary to the expectation of the Information Memorandum the distribution loss for the year 1998-99 based on the MIS figure of GRIDCO shows a loss figure of 46% which SOUTHCO believes is a conservative estimate.

7.3.6

SOUTHCO has stated that based on its experience a loss reduction of 2-3% will be possible for 1999-00. Accordingly, it has targeted to reduce the loss to 40%.

7.3.7

The Commission has very carefully considered the position stated by SOUTHCO about its short period of operation in the business of distribution since 01.04.99. The Commission has taken note of the loss reduction measures proposed by SOUTHCO and would like to be apprised of the progress achieved in implementing them at the end of each quarter. The Commission has also taken note of the objections to SOUTHCO assuming a T&D loss of 40% almost three years after the Commission determined the benchmark of 35%. While SOUTHCO insists on the T&D loss of 40% in addition to the transmission loss of 4% in GRIDCO’s system, the objectors want this loss to be as low as 28%. SOUTHCO has not presented any detailed data to the Commission justifying its claim of a T&D loss as high as 40%. We must make it clear that data furnished by the Licensee to claim revision of benchmark of T & D loss is without solid basis. It has not completed a year of operation and has therefore made its analysis and projections on the basis of data handed down by GRIDCO whose accounts for 1998-99 have not been audited yet. The additional sampling of two months does not reflect a reliable picture mainly because the figures are also based on load factor billing. We also agree with the objectors that there has been no perceptible steps for checking pilferage and other illegal abstraction of energy. In the circumstances, particularly in the absence of any credible evidential data, the Commission does not find it desirable to revise its benchmark of 35% of T & D loss for tariff determination.

7.3.8

Since SOUTHCO proposes to sell 907.80 MU, power to be purchased by GRIDCO for supply to SOUTHCO, after adding 35% loss, is determined as 1396.615 MU (907.80/0.65). SOUTHCO’s purchase from GRIDCO should be limited to 4% (being the approved transmission loss in EHT) less than what is purchased by GRIDCO for supply to SOUTHCO. For the purpose of revenue requirement, SOUTHCO has to purchase only 1396.615 MU to meet its sale requirement of 907.80 MU for the year 1999-00. The system loss in SOUTHCO is 1340.75 MU – 907.80 MU = 432.95 MU. This loss of 432.95 MU expressed as a percentage of input to the SOUTHCO system is (432.95/1340.75) 32.29%. Therefore, the distribution loss allowed to SOUTHCO for the purpose of revenue requirement is 32.29%. The loss of 432.95 MU in SOUTHCO’s system expressed as a percentage of units purchased for SOUTHCO by GRIDCO is (432.95/1396.615) 31%. Thus, out of the energy purchased for SOUTHCO by GRIDCO, 4% is lost in the EHT system of GRIDCO and 31% is lost in the distribution system of SOUTHCO. The end use consumer has to pay through tariff a loss of 35% of energy purchased by GRIDCO for supply towards the T&D loss. For simplicity of presentation, we have abstracted the above calculation in Table:4.

Table: 4

Sale projected by SOUTHCO	907.80 MU
Power to be purchased by GRIDCO for SOUTHCO applying a loss level of 35%	907.80/0.65 = 1396.615 MU
Power to be purchased by SOUTHCO from GRIDCO less loss of 4% at EHT	1396.615X0.96=1340.75 MU
Energy loss in SOUTHCO’s system	1340.75–907.80 = 432.95 MU
Distribution loss of SOUTHCO’s system	432.95/1340.75 = 32.29%

7.4

Cost of Power

7.4.1

SOUTHCO has to purchase 1396.615 MU from GRIDCO at the Commission’s approved rate of Rs.200/KVA/month + 80.70 paise/unit. The Commission has examined the power purchase bills of SOUTHCO for April, 1999 to August, 1999. The bill details have been supplied by SOUTHCO in its clarification submitted to the Commission in Table-7 of the clarification on Retail Supply Tariff of 1999-00. The average cost per unit of power purchased from GRIDCO for the months of April, 1999 to October, 1999 is 126.43 paise/unit. Since there would be a decrease in the energy charge by 4.80 paise/unit according to the BST determined by the Commission now, the rate/unit payable by SOUTHCO would be 121.63 paise/unit. The cost of power @ 121.63 paise/unit for purchase of 1340.75 MU would, therefore, be Rs.163.08 crores instead of Rs.195.36 crores proposed by SOUTHCO.

7.5

Operating Expenses

The operating expenses for distribution and retail supply may be considered under the following heads:-

Employees Cost
Administration & General Expenses
Repair and Maintenance Expenses
Less expenses capitalized

7.5.1

Employees Cost

7.5.1.1

SOUTHCO has proposed Rs.40.78 crores for the FY 1999-00 towards Employees Cost. The claim is said to be based on audited accounts for 1997-98 and revised budget estimates for 1998-99. It is seen that this does not include other employee related expenses such as Rs.6.87 crores towards contribution to Provident Fund, Staff Pension and Gratuity and Rs.0.02 crores towards training which have been shown separately. Employees Cost for SOUTHCO in the disaggregated and audited accounts for the year 1997-98 was Rs.38.35 crores which included salaries, wages, allowances, benefits, staff welfare expenses and terminal benefits. SOUTHCO, in response to the Commission’s query, has submitted comparative itemwise details for the FY 1997-98 (audited accounts), estimated figure for FY 1998-99 and projected amount for FY 1999-00. The number of employees on roll as on 01.09.1999 is in Table : 5.

Table: 5

	Technical	Non-Technical	Total
Executive	195	19	214
Non-executive	3431	781	4212
Total	3626	800	4426

7.5.1.2

The Commission has examined the data furnished by the Licensee. The Commission considers it reasonable to adopt a 3% annual increase on account of normal increment in salaries & house rent allowance and a 6% annual increase in order to factor in inflation for other expenses (including dearness allowance) on base figure of FY 1997-98 as reasonable. However, in regard to staff welfare expenses the base has been taken at a reduced figure Rs.0.19 crores allocated on the basis of percentage of employees alloted to SOUTHCO from the undivided GRIDCO. Accordingly, the total estimated expenses under this head is approved at Rs.43.87 crores. The Employees Cost proposed by the Licensee and the Commission’s decision on Employees Cost are indicated in Table : 6.

Table : 6
(Rs. in crores)

Sl. No		Disaggre- gated account of 1997-98	Estt. by Licensee 1998-99	Projected by Licensee 1999-00	Approved By Commission
1	Salaries	13.35	19.81	27.57	14.16
2	Over time	0.00	0.00	0.00	0.00
3	Dearness Allowance	14.35	14.33	9.69	17.11
4	Other Allowance	0.17	0.20	0.22	0.19
5	Bonus	0.27	0.03	0.02	0.02
6	Total Emoluments (1 to 5)	28.14	34.37	37.50	31.48
Other Staff Cost
7	Reimbursement of Medical Expenses	0.44	0.40	0.44	0.49
8	Leave Travel Concession	0.01	0.06	0.07	0.06
9	Reimbursement of H.R.	2.35	2.15	2.34	2.49
10	Interim Relief of Staff	0.04	0.00	0.00	0.00
11	Encashment of earned leave	0.00	0.03	0.04	1.30
12	Honorarium	0.01	0.00	0.00	0.00
13	Payments under Workmens Compensation Act	0.06	0.05	0.06	0.06
14	Ex-gratia	0.05	0.00	0.00	0.00
15	Other Staff Cost	0.00	0.00	0.00	0.00
16	Total Other Staff Cost (7-15)	2.96	2.69	2.95	4.40
17	Staff Welfare Expenses	0.20	0.19	0.20	0.21
18	Terminal Benefits	7.05	6.45	7.02	7.78
19	Total (6+16+17+18)	38.35	43.70	47.67	43.87

7.5.2

Administration & General Expenses

7.5.2.1

SOUTHCO has proposed A & G expenses for 1999-00 as Rs.4.46 crores. These expenses include expenses on communication, travel, training and other charges. SOUTHCO has also separately proposed Rs.0.21 crores, Rs.0.09 crores and Rs.0.08 crores towards rent, rates, taxes, legal charges and audit fees, respectively. For the year 1999-00, SOUTHCO expects a significant increase in A & G expenses on account of increase in infrastructure and consumable requirement.

7.5.2.2

The Commission has examined the Licensee’s proposal on A & G Expenses. A & G Expenses as per the disaggregated accounts of GRIDCO for 1997-98 was Rs.1.79 crores excluding Bad Debt. This included Legal expenses, Rent, Rate, Taxes and Audit Fees. The Commission considers it reasonable to allow an annual increase of 6% over audited figure of 1997-98 to factor in inflation. Accordingly, A & G Expenses for 1999-00 is approved as Rs.2.01 crores as against Rs.4.84 crores proposed by SOUTHCO.

7.5.3

Repair and Maintenance Expenses

7.5.3.1

The R&M expenses proposed by SOUTHCO is Rs.12.63 crores for the FY 1999-00. This has been calculated as 5.4% of the gross fixed assets at the beginning of the year indicated in the transfer notification dtd. 25.11.98. The Commission considers the proposal reasonable and approves Rs.12.63 crores as R & M expenses for the FY 1999-00.

7.5.4

Interest on Loan

7.5.4.1

SOUTHCO has proposed an amount of Rs.18.90 crores to be charged to revenue on account of interest including a sum of Rs.1.63 crores towards interest on working capital. It is seen that interest amounting to Rs.17.27 crores is attributable to loan of Rs.133.26 crores allocated to SOUTHCO and does not relate to any fresh loan taken by SOUTHCO for major investment. Out of this interest amount of Rs.17.27 crores Rs.13.84 crores is on account of subsidiary loan from GRIDCO (based on the transfer notification dtd.25.11.98) on an outstanding loan of Rs.105.66 crores as on 01.04.99 and Rs.3.19 crores on the World Bank Loan of Rs.24.53 crores as on 01.04.99. Besides above Rs.0.24 crores interest relate to an amount of loan of Rs.3.07 has been taken for sundry capital expenditure. The Commission approves the proposed amount of Rs.17.27 crores to be treated as expenditure for the purpose of revenue requirement.

7.5.4.2

The Commission also finds the interest of Rs.1.63 crores towards working capital projected by the Licensee as reasonable and hence chargeable to revenue for the FY 1999-00. Thus the total expenses on interest chargeable to revenue is as follows :-

Interest on long-term loans	Rs.17.27 crores
Interest of working capital	Rs. 1.63 crores
	-------------------
Total	Rs.18.90 crores

7.5.5

Depreciation

7.5.5.1

SOUTHCO has proposed depreciation of Rs.18.05 crores calculated on the basis of Government of India notification. The Commission accepts the figure of Rs.18.05 crores on account of depreciation for the year 1999-00.

7.5.6

Bad and Doubtful Debt

7.5.6.1

SOUTHCO has proposed Rs.25.03 crores as Bad & Doubtful Debt during 1999-00. In the audited accounts of GRIDCO for 1997-98, SOUTHCO has been allocated Rs.1.06 crores on this account.

7.5.6.2

In order to estimate the provisioning towards bad debts SOUTHCO has categorised the debtors into two categories (a) Debtors on account of sales made during the ensuing year (b) Opening debtors for the ensuing year. For the debts created on account of sales made during the year the provisioning towards bad debts has been considered to be equal to 3% of sales for the year. In case of the opening debtors for the ensuing year, it has estimated that at least 75% of these would be bad or doubtful. This in its opinion is due to overestimation of gross receivables. In order to phase out the impact on tariffs, it has proposed to provide for accumulated debts over a period of three years.

7.5.6.3

Many objectors have questioned the provision for Rs.25.03 crores on account of Bad and Doubtful Debt. Shri A. Nageswar Rao representing Jeypore Motor Garrage Association and Orissa Consumers Association, Jeypore Chapter, Shri H. Dallakutty, J. K. Corporation Limited, Rayagada and Utkal Chamber of Commerce and Industry, Cuttack have strongly objected to provision of such high amount towards Bad and Doubtful Debt. They said that the Bad and Doubtful Debt was an indication of inefficiency of operation and infact it should decrease every year. It has also been stated that Licensee has not disclosed the list of debtors has given no basis of arriving at the conclusion on irrecoverablity of the debts and has not disclosed steps taken for realising them.

7.5.6.4

The Commission is of the view that allowing bad debt as a percentage of outstandings as on the last day of the year when the outstanding are galloping from year to year without handling more energy would be putting a premium on inefficiency in realisation of dues. The Commission endorses the view that the Licensee must improve its billing and collection efficiency so that provision for bad and doubtful debt is reduced from year to year. The Commission does not consider it appropriate to allow 1/3rd of 75% of the opening debtors for passing on to tariff. In the tariff order of 1998-99 a reasonable assumption of 15% of the differential between gross book debt as on 31.03.98 and 31.03.99 was assumed as bad and doubtful debts. In the absence of even provisional figures for FY 1998-99, it will be too much of a conjecture to arrive at a base figure for calculating provision for bad debt on lines similar to last year. Hence provision for Bad and Doubtful Debit may be made as 15% of total outstanding as on 31.03.2000 on the assumption that two months dues shall be receivable on that date. Two months of the total sale as receivables at the end of the financial year works out to 16.66% of the total sale. Applying the same level of 15% as unrealisable this works out to 16.66 X 15% = 2.499% (or 2.5%) of the gross annual sale can be assumed to be Bad and Doubtful Debts for being charging to revenue against 3% claimed by the Licensee. On this basis, the Commission approves Rs.5.99 crores as provision for bad and doubtful debt.

7.5.7

Contribution to Contingency Reserve

7.5.7.1

SOUTHCO has provided Rs.1.07 crores towards Contribution to Contingency Reserve. It is within the limit prescribed in the Sixth Schedule to the Act, 1948 and is accepted in full.

7.6

Capital Base

7.6.1

Original Cost of Fixed Assets

7.6.1.1

SOUTHCO has projected original cost of fixed assets at Rs.284.65 crores as on 31.03.2000. As the Licensee has not completed a full financial year of its operation, the only data available are - figures shown in transfer scheme and provisional figures specified by the Licensee. In the absence of audited accounts, the Commission considers it reasonable to accept the figure given by the Licensee as it appears in the transfer scheme.

7.6.1.2

Original cost of fixed assets as on 31.03.1999 and 31.03.2000 are Rs.233.82 crores and Rs.284.65 crores respectively revealing asset addition of Rs.50.83 crores during 1999-00. This includes investment of Rs.6.29 crores and interest capitalized thereon amounting to Rs.0.71 crores on account of rural electrification works.

7.6.1.3

No proposal for investment in rural electrification work has yet been approved by the Commission. Investment on rural electrification has to be planned only when subsidy is available to bridge the gap between the cost of investment and revenue recoverable. The Licensee should not take up investment on uneconomic projects which will burden the consumers. Therefore, without firm commitment of subsidy from the government and without approval of the Commission for the investment, the capital addition on account of rural electrification work cannot be allowed to be included in the capital base for earning return. The Commission has decided to retrench Rs.7.00 crores (capital expenditure of Rs.6.29 crores and interest during construction thereon of Rs.0.71 crores) from Rs.284.65 crores. Thus, fixed assets as on 31.03.2000 approved by the Commission would be Rs.277.65 crores as against Rs.328.31 crores projected by the Licensee.

7.6.2

Receipts against Consumers Contribution

7.6.2.1

The aggregated receipts against consumers contribution at Rs.46.04 crores has been rightly deducted from fixed asset while calculating capital base.

7.6.3

Original cost of Work In Progress

7.6.3.1

For the purpose of Capital Base calculation, SOUTHCO has projected Rs.20.65 crores towards original cost of work in progress. This includes a sum of Rs.4.20 crores towards rural electrification works for which no approval from the competent authority has been taken. As we are adopting cost-based tariff, it is essential to see that each and every project undertaken by the Licensee is commercially viable. So far social projects are concerned, they should be duly subsidized by the Government through budgetary support so that the cost of any uneconomic project is not borne by the consumers.

7.6.3.2

As observed earlier at para 7.6.3.1, the Commission considers it unreasonable to include rural electrification projects in the Capital Base unless these projects are proved to be commercially viable or the Govt. of Orissa supports these schemes by providing subsidies. Accordingly, a sum of Rs.4.20 crores has to be deleted from the original cost of work in progress which should now be Rs.16.45 crores.

7.6.4

Compulsory Investment under Para IV : SOUTHCO has projected Rs.1.07 crores against Compulsory Investment to form a part of the Capital Base. It has to be noted that amount of investment compulsorily made in accordance with Para IV of the Sixth Schedule to the Act, 1948, can only be included in the Capital Base. No investment has yet been made and hence the amount is not included now. This can be allowed to be included if and when evidence of investment out of appropriation towards contingency reserves is produced.

7.7

Working Capital

7.7.1

Average Cost of Stores : According to para XVII(e)(i) of the Sixth Schedule of the Act, 1948, a sum equal to one-twelfth of the sum of book cost of stores, materials and supplies including fuel on hand at the end of each month of the year of account should be taken into account as working capital for calculating the Capital Base. SOUTHCO has proposed Rs.3.16 crores towards average cost of stores in the working capital estimated on the basis of 3 months consumption of materials (R&M expenses) assuming a lead-time of 3 months for procurement of materials.

7.7.1.1

A stock of three months’ consumption of materials at any particular point of time can be considered reasonable. Accordingly the Commission approves one-forth of the total annual consumption of materials i.e. Rs.3.16 crores as reasonable for the purpose of working capital for stores to be included in the Capital Base.

7.7.2

Average Cash and Bank Balance : SOUTHCO has proposed Rs.8.73 crores constituting two month’s of Employees Cost and Administration & General Expenses towards working capital requirement in the form of cash and bank balance. As stated in para XVII(1)(e)(ii) of the Sixth Schedule of the Act, 1948, an amount equal to 1/12^th 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 the sum specified therein can be included in the Capital Base.

7.7.2.1

As cash and bank balance at the end of each month of the year of account for 1999-00 cannot be predicted now, a sum equal to two months payment of Employees cost and Administration & General Expenses is considered reasonable ceiling for cash and bank balance to be included in the Capital Base. We, therefore, approve a sum of Rs.7.49 crores as cash and bank balance for meeting working capital requirements.

7.7.3

Accumulated Depreciation : SOUTHCO has proposed a sum of Rs.67.24 crores towards amounts written off or set aside on account of depreciation as on 31.03.2000. The Commission accepts the amount of Rs.67.24 crores as a deduction for the purpose of Capital Base.

7.7.4

Loans and Bonds : SOUTHCO has stated that the loans and bonds for its distribution and retail supply business as per the transfer scheme notification for the period ending 31.3.99 amounted to Rs.130.19 crores. During the year 1999-00, SOUTHCO proposes to raise fresh loans amounting to Rs.43.11 crores. At the end of FY 1999-00, the amount of loans and bonds will reach a figure of Rs.162.00 crores taking the due repayments during the year into consideration.

7.7.4.1

As discussed in para 6.4.1.3 above, capital expenditure for the purpose of rural electrification during 1999-00 has not been considered as either authorised or prudent. The Commission, therefore, has to exclude the loan taken for rural electrification. The Commission’s revised esimate is in Table :7.

Table : 7
(Rs. in crores)

Loans and bonds	162.00
Less : fresh REC loan for the year 1999-00 including interest during construction	11.20
Balance	150.80

7.7.5

Consumers’ Security Deposit : SOUTHCO has stated that consumers’ security deposit has not been considered as a long-term source of funds. It has stated that the same has not been utilised for creation of fixed assets and the amount of consumers’ security deposit has been shown as a current liability and not as a long term liability in the provisional balance sheet given in the transfer scheme. SOUTHCO has therefore, pleaded that it would be incorrect to deduct the amount corresponding to the consumers’ security deposit in the computation of Capital Base.

7.7.5.1

The position taken by SOUTHCO is not tenable under law. Firstly, the Licensee itself has shown the amount as deductible in the calculation of Capital Base for 1998-99. Secondly, the amount deposited in cash with the Licensee by the consumers as security is clearly deductible for the purpose of determination of Capital Base as per provision of para XVII of the Sixth Schedule of the Act, 1948. Accordingly, an amount of Rs.19.74 crores appearing in the working capital schedule is deducted in the computation of Capital Base.

7.7.5.2

Based on the forgoing observations, the Commission finds that Capital Base for 1999-00 for the purpose of Sixth Schedule to the Act, 1948 has to be taken as Rs.20.92 crores (vide Annexure-B to this order) as against Rs.42.98 crores proposed by SOUTHCO.

7.7.6

Reasonable Return : SOUTHCO has calculated the reasonable return by multiplying the standard rate of 16% to the Capital Base of Rs.56.39 crores in addition to 0.5% on loans approved by the State Govt. Thus, SOUTHCO has proposed an amount of Rs.7.53 crores towards reasonable return. We are unable to accept this figure as we have not approved the base figure of Capital Base. Reasonable return calculated in accordance with Govt. of India, Ministry of Power notification dated 5th May, 1999 would be Rs.3.47 crores on a Capital Base of Rs.20.92 crores as in Table : 8.

Table : 8
(Rs. in crores)

Source	Proposed by SOUTHCO		Commissions calculation
Source	1998-99	1999-00	Commissions calculation
Capital Base	30.57	42.97	20.92
Reasonable Return 16% on investment made after 31.3.99
a) 13% on investment made upto 31.3.99			2.72
b) 0.5% of loan outstanding as at the end of year 1999-00			0.75
Total		7.53	3.47

7.7.7

Miscellaneous Receipt : The Licensee has rightly proposed an amount of Rs.0.17 crores as miscellaneous receipt from interest on investment for the year 1999-00. This figure excludes meter rent of Rs.3.51 crores for the year 1999-00.

7.7.8

Revenue Requirement, Reasonable Return and Clear Profit

7.7.8.1

In the light of above decisions and calculation, the Commission approves an expendiutre of Rs.264.52 crores for the purpose of revenue requirement for the year 1999-00 as against Rs.322.53 crores proposed by SOUTHCO i.e. a reduction of Rs.58.01 crores approved by the Commission. At para 3.4.2. above, special approprition of Rs.1.07 crores has been approved on account of contribution to contingency reserve as proposed by SOUTHCO. Reasonable return has been approved (para 7.7.6) at Rs.3.47 crores as against Rs.7.53 crores proposed by SOUTHCO. The calculation of expenditure for revenue requirement, reasonable return and clear profit have been reflected in Annexe A, B & C respectively.

7.7.8.2

Total revenue requirement of SOUTHCO including special appropriation and reasonable return has been reduced by Rs.62.07 crores from Rs.331.13 crores proposed by the Licensee to Rs.269.06 crores. Inspite of the reduced revenue requirement, there will a deficit for SOUTHCO on the basis of the existing tariff.

8.0

DETERMINATION OF TARIFF

8.1

Taking all aspects of the tariff filing made by the Licensee and the representation of the objectors, both written and oral, and after consulting the Commission Advisory Committee, the Commission has determined the tariff and charges to be realised by the Licensee. The Commission has been taking steps for rationalisation of tariff i.e. bringing about a uniform rate for all consumer categories using electricity on the same voltage of supply which is a good measure of the cost of supply. The same concept of rationalisation is being followed for determination of the tariff in this order. The Commission considers it reasonable to determine tariff and charges as in the following paragraphs.

8.2

Customer charge for consumers with connected load of 110 KVA or above

8.2.1

Customer charge is payable by a consumer for the purpose of its connection to the power system of the licensee and is independent of the level of consumption of the consumer. It is intended to cover

The cost of meter reading
Preparation of bills
Delivery of bills
Collection of revenue
Maintenance of customer accounts

8.2.2

The Commission has examined the proposal of the Licensee in regard to customer charge. The existing rate of customer charge will continue for the following categories of consumers except with regard to colony consumption for which there shall be no customer charge.

Table : 9

Category	Voltage of Supply
Public Water Works	LT
General Purpose	LT
Large Industry	LT
Bulk Supply (Domestic)	HT
Irrigation	HT
Public Institution	HT
Commercial	HT
Medium Industry	HT
General Purpose	HT
Public Water Works	HT
Large Industry	HT
Power Intensive	HT
Mini Steel Plant	HT
Railway Traction	HT
Colony Consumption	HT
General Purpose	EHT
Large Industry	EHT
Railway Traction	EHT
Heavy Industry	EHT
Power Intensive Industry	EHT
Mini Steel Plant	EHT
Emergency Supply to CPPs	EHT

8.3

Monthly minimum fixed charge for consumers with contract demand of less than 110 KVA

8.3.1

The Licensee has stated that 33% of the power purchase cost is fixed in nature whereas less than 20% of its revenue is being realised through fixed charge. The Licensee proposes to remove the anomaly by realising a higher proportion of fixed cost by increasing the monthly fixed charge.

8.3.2

The usual mode of recovery of fixed charges from the consumer by a utility is through recorded maximum demand in the meter which reflects the capacity utilisation by a consumer. At present, consumers with connected load of less than 110 KVA have been provided with simple energy meters that only records energy consumption and not the maximum demand. The Supply Regulation provides that the contract demand for a connected load below 100 KW shall be the same as the connected load. Therefore connected load forms the basis for levy of fixed charge for these classes of consumers. Application of the concept of segregation of fixed cost and variable cost is useful as the consumer should be made aware that a component of the fixed cost is being incurred for supplying power to him. The Commission, therefore, considers it appropriate to continue with the existing system of monthly minimum fixed charge in lieu of both demand charge and customer charge payable by the consumers covered under the two part tariff.

8.3.3

The monthly minimum fixed charge is thus a combination of the demand charge and customer charge payable by the consumers with contract demand of less than 110 KVA. The Commission does not agree with the proposal of the Licensee for enhancement of the monthly minimum fixed charge and decides that the existing rate of monthly minimum fixed charge should continue. Accordingly, the rates applicable to all such customers shall be as given below at Table : 10.

Table : 10

Sl.No	Category of Consumers	Monthly Minimum Fixed Charge for first KW or part(Rs.)	Monthly Fixed Charge for any additional KW or part(Rs.)
LT Category
1	Kutir Jyoti	30
2	Domestic	20	10
3	Commercial	30	20
4	Irrigation	20	10
5	Street Lighting	20	10
6	Small Industry	40	30
7	Medium Industry	80	50
8	Public Institution	80	50
9	Public Water Works <100 KW	80	50

8.4

Demand charge for consumer with contract demand of 110 KVA and above

8.4.1

The Licensee has proposed an increase in the demand charge of consumers from Rs.200/KVA/month to Rs.250/KVA/month in respect of certain categories of consumers availing power supply at LT, HT and EHT, which are listed below.

LT Category
Public Water Works
General Purpose
Large Industry

HT Category
General Purpose
Public Water Works
Large Industry
Power Intensive Industry
Mini Steel Plant
Railway Traction

EHT Category
General Purpose
Large Industry
Railway Traction
Heavy Industry
Power Intensive Industry
Mini Steel Plant

8.4.2

In this connection, the Commission also examined the prevailing demand charge for such categories of consumers elsewhere in the country. An increase of demand charge may force the large consumers to set up their own captive power plants, which is detrimental to both the interests of the Licensee as well as the small consumers. The Commission decides that the rate of demand charge for consumers with contract demand of 110 KVA and above shall be Rs.200/KVA/month.

8.4.3

The Commission further directs that the demand charge shall be payable by these consumers on the basis of actual meter reading subject to a minimum of 80% of the contract demand to ensure recovery of a part of the fixed cost of the installed capacity. Where the actual recorded maximum demand is less than 80% of the contract demand, the consumer is liable to pay at 80% of the contract demand or the actually recorded maximum demand whichever is higher. The method of billing of demand charge in case of consumers without a meter or with a defective meter shall be in accordance with the procedure prescribed in OERC (Conditions of Supply) Code, 1998.

8.4.4

Categories of consumers other than those listed in para 8.4.7.1 like domestic, irrigation, public institution, commercial and medium industry but availing power supply at HT are presently liable to pay the demand charge as indicated below :-

(Rs./KW/Rs./KVA)

Domestic	10
Irrigation	30
Public Institution	50
Commercial	50
Medium Industry	50

8.4.6

The Licensee has proposed increase of demand charge in respect of the above categories of consumers. The Commission has carefully considered the proposal of the Licensee and has decided not to raise the demand charge after considering the comparable charges in other States and internal relativity of the impact of tariff among the consumers.

8.5

Energy Charge

8.5.1

Energy charge paid by the consumer is directly proportional to the quantum of actual consumption. The Commission, in keeping with its aim of rationalisation of tariff structure by progressive introduction of a cost-based tariff, has related the energy charge at different voltage levels to reflect the cost of supply. While determining energy charge, the principle of a higher rate for supply at a low voltage and a gradually reduced rate as the voltage level goes up has been adopted. The following tariff structure has been adopted for all loads of 110 KVA and above.

Voltage of supply Demand Charge Energy Charge

LT Rs.200/- per KVA 280 paise/unit

HT Rs.200/- per KVA 270 paise/unit

EHT Rs.200/- per KVA 260 paise/unit

8.5.2

HT Supply for Domestic(Bulk) and Irrigation: With a view to avoid steep rise of tariff in respect of domestic (bulk supply) and irrigation availing power at HT, the energy charge is fixed at @ 200 paise/unit and @ 80 paise/unit respectively.

8.5.3

Industrial Colony Consumption : The Commission further directs that the units consumed for the colony shall be separately metered and the total consumption shall be deducted from the main meter reading and billed at the flat rate of 200 paise/unit. Energy consumed in colony in excess of 10% of the total consumption shall be billed at energy charges applicable to the appropriate class of industry.

8.5.4

Incentive Tariff for HT and EHT Category of Consumers

8.5.4.1

The Licensee has proposed an incentive tariff for HT and EHT consumers i.e. giving a discount of 10% for consumption beyond a load factor of 60% except for the power intensive industries which are classified as export-oriented industries.In the rationalisation of tariff structure, the Commission is entitled to differentiate the consumers on the basis of consumers’ load factor or power factor and the consumers’ total consumption of energy during any specified period. The nature and purpose of use becomes less important if a consumer is able to maintain a high load factor and helps the licensee through better utilisation of the system. Since the demand charge is same for all HT & EHT categories of consumers, a higher consumption means a higher plant utilisation and results in a reduced fixed cost/unit. The Commission is also conscious of the fact that the revenue requirement of the licensee should reasonably be met while designing a tariff structure that incentivises the consumers for a higher consumption of the Licensee’s purchased power and dissuades them from switching over to captive generation. With the above objective, the Commission decides as follows:-

8.5.4.2

HT and EHT industries who do not reduce their contract demand during the next three years will be allowed the benefit of incentive tariff in the form of relief in energy charges if the load factor in a month exceeds 50% of the contract demand.

8.5.4.3

All consumption in excess of 50% load factor shall be payable @ 180 paise/unit for consumers availing power at EHT.

8.5.4.4

All consumption in excess of 50% load factor shall be payable @ 200 paise/unit for consumers availing power factor at HT.

8.5.5

Special Tariff for Industries with Contract Demand of 100 MVA and above

8.5.5.1

The Commission also considers that industries with a load of 100 MVA and above and load factor of 80% should qualify for a special tariff. The special tariff should have no explicit demand charge and would have a consolidated energy charge with a similar back to back arrangement with the bulk supplies. This has been suggested in order to give an encouraging signal to the prospective large consumers and to ensure that such large industries do not set up captive power plants but avail power supply from the Licensee. The Commission has therefore, approved a rate of 200 paise/unit for consumption by industries with a contract demand of 100 MVA and above and maintaining a guaranteed monthly load factor of 80%. These consumers will not pay a monthly demand charge and shall pay only a consolidated energy charge. They will have to restrict their maximum demand within the contracted capacity. In case the maximum demand exceeds the contracted capacity, demand charge as applicable to the relevant consumer category will be payable only on the maximum demand in excess of the contract demand.

8.6

Tariff for consumers with connected load less than 110 KVA

8.6.1

Domestic : It is observed that 84% of the electricity consumers including Kutir Jyoti consumers (life-line rates) in Orissa belong to the domestic category. The Commission has examined the tariff for the Domestic category with particular reference to the Licensee’s proposal. In consonance with the policy to gradually decrease subsidy for all categories of consumers and yet facilitate use of electricity by small consumers, the Commission has decided to retain the slab system. The Commission has in another step to protect small consumers decided that consumption upto and including 100 units/month will be exempt from any tariff rise. Keeping this in view, energy charge for supply at 230/400 V shall be as under :-

i) Kutir Jyoti Consumers - Rs.30.00 per month.

ii) In case of other Domestic consumers, on the total monthly consumption:

First 100 Units - 120 paise / unit
Next 100 units - 190 paise / unit
Balance units of consumption - 280 paise / unit

8.6.1.1

The Commission has decided to continue the monthly minimum fixed charge at the rate of Rs.20 for the first KW of contract load or part there of. This charge will be enhanced at the rate of Rs.10 per KW per month for each additional KW or part thereof above the first KW of contract load.

8.6.1.2

In case of unmetered supply or defective meter, the energy consumption shall be assessed and billed using a load factor of 20% on the contract demand. For this purpose, the connected load of less than 0.5 KW shall be treated as 0.5 KW.

8.6.1.3

For supply at 11/33 KV the energy charge shall be payable at the rate of 200 paise/unit. The monthly demand charge for domestic consumers availing power supply at HT shall be at the rate of Rs.10 per Kw per month.

8.6.1.4

HT customers will pay a customer service charge of Rs.250 per customer per month.

8.6.1.5

The practice of prompt payment rebate of 10 paise/unit shall continue.

8.6.2

Commercial : The Commission has examined the existing tariff structure of commercial category and has decided the following :-

8.6.2.1

For the total monthly consumption :

First 100 units - 280 paise/unit
Next 200 units - 370 paise/unit
Balance units - 410 paise/unit

8.6.2.2

For supply at HT, the energy charge shall be 270 paise/unit.

8.6.2.3

In case of unmetered supply or defective meter energy consumption shall be assessed and billed using the load factor of 30% on the contract demand. For this purpose the connected load of less than 0.5 KW shall be treated as 0.5 KW. The present practice of prompt payment rebate shall continue.

8.6.2.4

Monthly minimum fixed charge of Rs.30 per month for the first KW of contract demand per month shall be payable. This charge will go up at the rate of Rs.20/- per month for each KW of contract demand or part there of over the first KW of contract load.

8.6.3

Small Industry : In this category energy charge will be 280 paise per unit in place of the existing rate of 245 paise/unit. The load factor shall continue to be calculated @ 15% on the connected load in respect of these consumers with defective meter and unmetered supplies for the purpose of assessment of consumption and billing.

8.6.4

Irrigation : Considering the wide-spread damage caused to agriculture by two cyclones in the coastal districts of Orissa, the Commission has decided to exempt Irrigation category of consumers availing power at LT from any tariff rise. Consumers in the Irrigation category availing power supply at HT will also be exempt from any increase in the present energy charge. In respect of Irrigation consumers for the months of June to October, a load factor of 8% and for the month of November to May, a load factor 15% shall be considered for assessment of consumption and billing.

8.6.5

The rate of tariff as determined above is reflected in Annex-D.

8.7

Other Charges

The Commission also authorises levy of other charges as given below :

8.7.1

Demand Charge

8.7.1.1

The monthly demand charge will be calculated on recorded/evaluated maximum demand or 80% of contract demand whichever is higher.

8.7.1.2

Penalty for overdrawal of power above the contract demand

OERC (Condition of Supply) Code, 1998 provides that consumers covered under two-part tariff shall pay a penalty in case actual maximum demand exceeds the contract demand. The Commission is of the opinion that flattening of the load curve is absolutely necessary for better utilisation of the system capacity. Consumers exceeding the contract demand outside the peak hours actually help the system by flattening of the load curve in a surplus generation situation prevailing now. The Commission, therefore, decides that there will be no penalty for overdrawal outside the peak hours upto 120% of the contract demand. This facility is now available to industries drawing power at EHT with time of day (TOD) metering. The Commission has now decided to extend this benefit to HT industries provided with TOD meters. The existing rate of penalty will continue for overdrawal during peak hours. For this purpose, ‘the peak hours’ is defined as 0700 hours to 1000 hours and 1800 hours to 2200 hours.

8.7.2

Metering on LT side of Consumers Transformer

Transformer loss computed as given below to be added to the consumption as per meter reading.

Energy loss = 730 X KVA reading of the transformer/100.

Loss in demand = 1% of the reading of the transformer (for two part tariff)

8.7.3

Incentive for timely payment : The Commission has decided to introduce incentive for prompt payment by stipulating a rebate @1% for payments made within the due date of payment indicated in the bill.

8.7.4

Delayed payment surcharge : The Commission has decided that there shall be no change in the existing practice of levying delayed payment surcharge at the rate of 2% per month which will be prorated for the period of delay counted from the due date of payment indicated on the bill in respect of the following categories of consumers :-

i) Large Industries
ii) Medium Industries
iii) Public Water Works
iv) Railway Traction
v) Street lighting
vi) Power intensive Industries
vii) Heavy Industries
viii) General Purpose Supply
ix) Public Institutions
x) Mini Steel Plants
xi) Emergency supply to CPP

8.7.5

Incentive for improvement in power factor : The Commission considers it desirable to introduce an incentive to encourage improvement in power factor.

8.7.5.1

Incentive for maintenance of high power factor shall be given as a percentage of the monthly demand charge and energy charge and shall be applicable to the categories of consumers who are liable to pay power factor penalty. The rate of this incentive will be 0.5% for every 1% rise above 90% upto and including 100% on the monthly demand charge and energy charge.

8.7.6

Power Factor Penalty : The Commission also orders for continuance of the power factor penalty as a percentage of monthly demand charges and energy charge as given below to the following categories of consumers :

i) Large Industries
ii) Public Water Works (110 KVA and above)
iii) Railway Traction
iv) Power Intensive Industries
v) Heavy Industries
vi) General Purpose Supply
vii) Public Institutions (110 KVA and above)
viii) Mini Steel Plants
ix) Emergency supply to CPP.

Rate of P.F. penalty :

i) 0.5 for every 1% fall from 90% upto and including 60% plus
ii) 1% for every 1% fall below 60% upto and including 30%plus
iii) 2% for every 1% fall below 30%.

8.7.7

Adoption of load factor for consumers with defect meter and without meter

8.7.7.1

Taking into account the metering programme and other measures for tackling commercial/non-technical loss, the Commission orders for continuance of the existing method of load factor billing subject to review from time to time. If at any time the Commission comes to the conclusion that effective loss reduction measures are not being taken up by the Licensee the Commission will have no option but to revise the load factor downwards.

8.7.7.2

The present practice of submitting information on the status of metering and on measures taken for eradication of unauthorised tapping from the distribution mains has to continue. The Licensee has to submit the information at the end of each quarter for information and review of the Commission.

8.7.8

Customer Charge : As indicated in paragraph 8.2.2 above and also Annex-D there shall be no change in customer charge except with regard to industrial colony consumption for which the customer charge is abolished.

8.7.9

Re-connection Charge : The existing rates of reconnection charge as below shall continue :-

Single Phase Domestic Consumer	Rs.30/-
Single Phase other consumer	Rs.50/-
3 Phase line	Rs.100/-
HT & EHT line	Rs.500/-

8.7.10

Rounding off a consumer’s billed amount to nearest rupee : The Commission directs for rounding off of the electricity bills to the nearest rupee and at the same time direct that the money actually collected should be receipted and accounted for.

8.7.11

Temporary connection charges : The tariff for the period of temporary connection shall be at the rate applicable to the relevant consumer category.

8.7.12

New connection charges for LT : For prospective small consumers requiring new connections upto and including 3 KW load, there will be a flat charge of Rs.500/-. The existing practice of preparation of estimate and payment of charge based on the estimated amount shall continue without any change for connections above 3 KW load.

8.7.13

Fuel Surcharge Adjustment Formula : The Commission has already prescribed a fuel surcharge adjustment formula for the distribution licensee which shall continue to be valid.

8.7.14

Meter Rent

Monthly meter rent as per the existing rate shall be charged from the consumers to whom meter has been supplied by the licensee except for the three phase static Kw meters. Rent for three phase static KW meters is fixed at Rs.100/month from the effective date of this tariff. Thus the scale of meter rent applicable to various classes of consumers is given below :-

Meter Rent in Rupees

1. Single phase electro-magnetic Kwh meter	15/-
2. Three phase electro-magnetic Kwh meter	30/-
3. Three phase electro-magnetic trivector meter	800/-
4. Trivector meter for Railway Traction	800/-
5. Single phase Static Kwh meter	35/-
6. Three Phase Static Kwh meter	100/-
7. Three phase Static Trivector meter	800/-
8. Three phase Static Bivector meter	800/-

8.8

The Commission has approved SOUTHCO’s revenue requirement for the year 1999-00 as Rs.269.06 crores. The expected revenue from charges approved by the Commission over a 12 months period is estimated as 239.48 crores. The Licensee will get Rs. 3.68 crores on account of miscellaneous receipts and meter rent over a 12 months period. The revenue requirement and expected revenue of SOUTHCO, approved by the Commission for the FY 1999-00, are given below :-

(Rs. in crores)

Total Revenue Requirement	269.06
Less Miscellaneous Revenue	3.68
Net Revenue Requirement	265.38
Expected Revenue	239.48
Deficit	25.90

9.0

In the light of our findings, the Commission Orders as follows with reference to the prayers of the applicant :

While the Commission does not approve the amendments suggested by SOUTHCO for tariffs and charges it directs that the Licensee implements the tariff and charges as determined by the Commission in this Order effective from 1^st February, 2000.
The revenue requirement for 1999-00 as projected by the Licensee does not meet with the approval of the Commission. The Licensee is directed to adopt the revenue requirement figures for 1999-2000 as calculated by the Commission.
The proposal for cash flow from WESCO to NESCO and SOUTHCO does not meet with the approval of the Commission.
The tariff proceeding is not the appropriate occasion for decision on the proposal for moratorium on addition of captive generation.

The application of M/s SOUTHCO is disposed of accordingly.

Sd	Sd
D.K.Roy Member	S.C.Mahalik Chairman

6.0	COMMISSION’S OBSERVATIONS
6.1	We have noted that vital issues have been raised by the objectors and the Commission had the benefit of many useful suggestions. We have given careful consideration to each one of the issues raised by the objectors and have analysed the submissions made by the Licensee in the light of these issues. However, we must note that some of the objections raised during the hearing were not relevant to the present tariff proceeding.
6.1.1	As has been observed in the Commission’s Order in Case No.19 of 1998 the issues like reform, restructuring, privatisation, revaluation of assets on transfer to GRIDCO and OHPC are not within the scope of this Commission since such issues are matters of public policy and legislation. Hence these aspects need not be dealt in this Order on tariff. Similarly recurring complaints on consumer service has to be dealt in appropriate proceedings. The Commission is monitoring the performance of the Licensees as required under law. Therefore, such issues are not being dealt with by the Commission while examining the present tariff proposal.
6.1.2	We do not find it necessary to specifically comment on each one of the objections. The objections with regard to financial aspects and with regard to tariff design as well as various suggestions on these aspects shall be dealt by us in the later part of the order while dealing with the revenue requirement and determination of tariff. However, we may record out observations specifically on a few issues which do not conveniently fit into the module of either revenue requirement or tariff.
6.1.3	The licensee has suggested uniform tariff for the three utilities under the management of BSES like WESCO, NESCO and SOUTHCO. In view of substantial difference in consumer composition, distance from the generating stations, levels of efficiency and other factors, the financial viability will have to be widely different in case of these three companies. In this background, SOUTHCO has suggested that excess revenue from WESCO may be permitted to flow to SOUTHCO and that amount may be treated as special category capital or alternately OERC may consider treating the surplus as a revenue subsidy from WESCO to SOUTHCO. This request by the Licensee has wider implications. The Commission, after very careful consideration of the proposal has come to a decision that while differential tariff for different companies will be eventually inevitable, at the present stage of transition it is desirable to have uniform tariff for all the four distribution companies in Orissa. However, we are unable to accept the request of any adjustment and financial flow between different companies through adoption of innovative methods such as special category capital or revenue subsidy. Each company’s finance and tariff has to be examined independently in accordance with the Sixth Schedule and other provisions of the Act, 1948. The Commission does not approve of inter-linkings in financial matters between different companies. Therefore, the request of SOUTHCO in this regard cannot be acceded to.
6.1.4	With regard to the Licensee’s request that captive generation should not be permitted for a period of three years, we have noted the rationale of the request as given in the tariff application as well as in the rejoinder. We have also noted that representatives of industry and others have vehemently opposed to the request mainly on the ground that any prohibition in setting up captive power plant will retard industrial progress and that it will result in monopolistic environment not compatible with the aims and objectives of the Reform Act, 1995. We would like to record that determination of tariff has to be in the background of existing regulatory environment and that tariff proceeding is not the appropriate occasion for taking a decision in this matter for which the views of all concerned as well as the government which has the responsibility for framing policy for the power sector have to be taken into account.
6.1.5	In course of the hearing, consumers of different categories have highlighted the impact of tariff with reference to financial viability, commercial consideration and ability to pay. While we have taken into account the overall interest of the consumers, we have also given equal consideration to the financial viability of the Licensee and the necessity of fostering a healthy electricity industry. Ability to pay, lack of funds or competitiveness of any particular industry either in the domestic or in international market cannot be the guiding consideration in designing tariff. The Commission does not find it desirable to go beyond the considerations incorporated in Section 26(2) and Section 26(5) of the Reform Act, 1995.
6.1.6	The Reform Act, 1995 envisages a tariff structure that would bring about efficiency and economy in the supply and consumption of electricity. The Reform Act, 1995, also aims at a tariff that would reflect cost, would be linked to efficiency and would eliminate inter-class and intra-class subsidies.
6.1.7	The Commission is also deeply aware of its role in balancing the conflicting interest of various stakeholders, bringing about efficiency and economy in the use of electricity and designing a tariff structure that should be just, fair and reasonable. The low voltage consumers expect a tariff that is affordable and the high and extra high voltage consumers are pleading for a tariff that should reduce their burden of cross-subsidy. While taking note of these factors, we have also to go by the mandate in law to allow reasonable return to the investors in the electricity industry in the State.
6.1.8	During the course of hearing, some of the objectors made a strong plea that since the super cyclone has completely destroyed the agricultural and industrial infrastructure of the State and has affected large a number of consumers, there should be no increase in tariff and the proposal should be kept on hold.
6.1.9	The Commission is not only aware of but is deeply sensitive to the ground conditions in the State in the aftermath of the super cyclone. Much as the Commission would have liked to do the contrary, it would not be reasonable for the Commission to deny consideration of any increase whatsoever in tariff because such denial would impinge not only on the financial viability of the Licensee but would also affect its operational efficiency.
6.1.10	We, therefore, proceed to examine the revenue requirement and expected aggregate revenue from charges of SOUTHCO for 1999-00 and subsequently to examine the tariff proposed by SOUTHCO to give our findings and orders thereon in accordance with the extant law.