5.0

CESCO’S REPLY TO THE OBJECTIONS

5.1

The managing Director, CESCO in its rejoinder to the objections submitted that the retail tariff application for 1999-00 has got three principal objectives, namely :-

5.2

To determine the Cost structures of CESCO as an unbundled utility separate from GRIDCO.

5.3

To determine the factors that would be helpful in improving the financial health of the company to benefit the shareholders, consumers and employees.

5.4

To propose a tariff for approval that would be just and reasonable but would identify the deferred revenue requirements.

5.5

He thereafter analysed the various issues which are discussed hereafter.

5.6

He stated that, Section 26(4) of the OER Act, 1995 stipulates the revenue requirement of every independent licensee for its area of licence. Therefore, the issue of uniform tariff for the state cannot be addressed by CESCO.

5.7

Replying to the high distribution loss projected by CESCO he submitted that the actual overall system loss for the financial year 98-99 is computed at 48.64% which includes billing done on minimum charge basis. Billing on minimum charge basis does not correctly reflect the actual units consumed as a fixed number of units are estimated to have been consumed per Kw of connected load. If the actual units consumed in cases of consumers where billing has been done on minimum charge basis is taken into account the computed loss percentage goes up to 52.39%. However CESCO accepts the actual loss figure for the financial year 98-99 at 48.64%. Thereafter he pointed out that the CESCO’s energy sale mix is significantly different from that of other distribution companies on account of large percentage of LT consumption in CESCO system. He informed about the various loss reduction measures taken in financial year 98-99 like regularisation through survey of consumers premises, classification of industries, installation and checking of metering, imposition of power factor penalty. He pointed out that improved system voltage performance increases energy input while higher consumption results in higher commercial loss due to a large number of defective meters. He informed that for the year 1999-00 the company would like to focus on various loss reduction measures so as to bring down the loss reduction by 6.6% for the financial year 1999-00 with promise for similar loss reduction level for the next year. The Commission’s benchmark of 35% loss reduction was not a realistic target. He requested that revenue requirement may be approved on the basis of 47% overall system loss.

5.8

The MD, CESCO clarified that the cost figure of 1999-00 is estimated on the basis of the disaggregated audited account of GRIDCO for the financial year 98-99 and the management account for CESCO for the year 98-99. He countered the objection that the next fixed asset for the financial year 98-99 is higher than that reflected in the Transfer Scheme.

5.9

On the cost of power purchase he submitted that CESCO has considered the existing bulk supply tariff for the computation of its power purchase cost with a purchase power price adjustment clause as proposed by them.

5.10

On the issue of measurement of simultaneous maximum demand he pointed out that these are based on the bills served by GRIDCO to CESCO and are to be mutually sorted out.

5.11

Regarding cost of employees he submitted that this has been estimated assuming a 5.65% compounded growth over the annual disaggregated figure for the year 97-98 which is less than the growth rate approved by the Commission in tariff order of 98-99.

5.12

On administration and general expenses he stressed that the costs are basically related to communication, travel, training and consultancy charges which can be very effectively utilised for improving the efficiency of the utility.

5.13

The A&G expenses for the year 97-98 constituted 1.2% of the total revenue requirement compared to international utilities benchmark of 3%. He highlighted the justification for proposed expenditure on consultants to improve the productivity of the organisation.

5.14

On R&M expenses he submitted that higher projection for these works is a necessity for prompt and quality service for customers and maintenance of an aged network as opposed to standard maintenance. To meet these objectives, R & M expenses are pegged at 6.4% of gross fixed asset. This figure was 6.6% for the year 97-98 as per the audited accounts. He further stressed that the R&M cost in the aftermath of cyclone cannot be reduced as a substantial part of the asset would require higher R&M cost even after a portion of the asset is totally replaced.

5.15

He explained that Rs.20.382 crores is on account of interest amount outstanding to GRIDCO in accordance with the bulk supply agreement between GRIDCO and CESCO which are to be paid in quarterly installment beginning from December 2002 at interest rate of 16% pending OERC’s approval. He denied the objections by Secretary, Nayapalli Community Care Association that interest cannot be charged because interest is not paid on the ground that accounting was on accrual basis and not on cash basis.

5.16

On the issue of depreciation he stated that the computation has been done as per the provisions of the Ministry of Power notification for the year 1999-00 applying appropriate rates for each class of assets. The computation of asset has been done basing the depreciated book value as set out in a transfer scheme adjusted for subsequent addition and depreciation.

5.17

On issue of bad debts he referred to the objection by the Sr. Consultant and Adviser group, Nayapally that the arrangement for collection of receivables for which provision has been made is not specified. Provision for bad debt has been assumed to be at 15% of the incremental debtors for the FY 1999-00.

5.18

The MD CESCO pointed out that the tariff revision is intended to reduce the gap between revenue requirement and expected revenue for the year 1999-00 through just and reasonable increase in tariff. The proposal was stated to be in line with the conceptual issues of tariff issued by the Commission. CESCO does not propose any change to the existing tariff structure to maintain continuity of consumers acceptability.

5.19

For purpose of reduction of cross subsidisation minimum increase in demand and energy for EHT and HT category is proposed while increasing the charges for LT category. CESCO further pointed out that to meet the total requirement an increase of 39.05% is necessary in tariff and charges across all categories. The existing tariff for HT and EHT consumers is encouraging them to switch over to captive generation for which tariff in LT categories is required to be enhanced. To meet the full revenue requirement from LT category, tariff increases in LT category will be very large.

5.20

The MD, CESCO pointed out that keeping with the concept of linking the demand to the fixed cost of utility and to reduce cross subsidisation increase in fixed monthly charges for LT consumers have been suggested.

5.21

CESCO is required to pay a demand charge as per bulk supply tariff for which it is considered just and reasonable to levy a demand charge from the consumers for emergency supply to CPP. CESCO further considers that cost increase on account of inflation is beyond its control for which increasing of energy charge at least by inflation rate is just and reasonable. Similarly irrigation categories must pay at least 50% of the cost of supply and tariff in respect of power intensive industries in EHT and HT category should be decreased as a tariff rise affects their competitiveness in the market place.

5.22

Computation of tariff on some facts indicated above will result in substantial increase in monthly fixed charges in LT category. To make the proposal more acceptable to the consumers it does not propose to fully recover the cost. CESCO has also pointed out that the cost of power purchase is beyond its control and CESCO must be insulated from such risk through institution of purchase power price adjustment clause.

5.23

Finally the MD stated that the existing tariff and charges for 1999-00 are inadequate to meet the estimated revenue requirement. Instead of recovery of the full revenue requirement from the proposed tariff a deferred revenue has been proposed so that this deferred revenue (Rs.158.27 crores) is proposed for recovery with interest from year 2003 over a period of three years. Unless the tariff revision is allowed it would result in negative networth and net losses which would restrict its ability to improve of condition of its assets and turn around of CESCO.

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 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 have 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 while determining 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

We have carefully considered the submission made on behalf of Bhubaneswar Municipal Corporation. But we are unable to find legal basis in the argument that the Corporation being a local authority should be exempted from paying charges for electricity consumed by it. Government offices are also obliged to pay charges for electricity that they consume for their own office and for providing service to others. There should be no confusion between taxes, duties and levies on the one hand and user charges for goods or service used. Whether electricity is used for public utility purposes or for personal consumption, someone has to pay for the charges of generation, transmission and supply of electricity. The Electricity Services Industry is entitled under law of economics as well as laws of the land to realise the charges from those who consume electricity. We find no legal mandate for exempting any user including Bhubaneswar Municipal Corporation for payment of electricity charges.

6.1.4

The suggested trade off between taxes and rents on one side and electricity charges on the other is not permissible under law.

6.1.5

Bhubaneswar Municipal Corporation has raised the issue of metering of street lights. Installing meters to measure the actual consumption has to be one of the priorities for the licensee and hence CESCO has to take steps as soon as possible with the cooperation of Bhubaneswar Municipal Corporation.

6.1.6

With regard to the request for creating a special category with concessional tariff for street lights we have to state that such an action is not in keeping with the tariff philosophy developed in pursuance of aims and objectives of Reform Act, 1995. Commission is committed to move away from categorisation on the basis of purpose of use so as to move toward voltage of supply basis. Further, we are mandated to reduce subsidies and cross-subsidies. In the facts of the case the Commission is unable to find validity in the objections raised by the counsel of Bhubaneswar Municipality.

6.1.7

With regard to the claim made on behalf of IPISTEEL Limited that as a BIFR case tariff determined in this proceeding is not applicable to it, we have to observe that this proceeding deals with CESCO’s application for determination of tariff and charges for all categories of cosumers. Any decision on tariff in individual cases is outside the purview of the present proceeding. The matter has to be taken up by M/s. IPISTEEL Limited with the licensee separately.

6.1.8

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 the State for 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 principles incorporated in Section 26(2) and Section 26(5) of the Reform Act.

6.1.9

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.

6.1.10

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 shuld 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.

6.1.11

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 number of consumers, there should be no increase in tariff and the proposal should be kept on hold.

6.1.12

The Commission is not only aware of but 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 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.

6.1.13

We, therefore, proceed to examine the revenue requirement and expected aggregate revenue from charges of CESCO for 1999-00 and subsequently to examine the tariff proposed by CESCO to give our findings and orders thereon in accordance with the extant law.

7.0

REVENUE REQUIREMENT

7.1

After its formation and obtaining licence for distribution and retail supply, CESCO 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 the 1997-98 and the data & records presented to the Commission by CESCO 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, CESCO has analysed the pattern of consumption of various groups of consumers for the year 1998-99. According to the analysis of energy sale mix between LT, HT, EHT consumers for the FY 99, LT consumption accounted for 59.14% while HT & EHT consumption accounted for 18.70% and 22.16% respectively. CESCO 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, studied the loss reduction initiatives and their impact on billing, analysed energy off-take by individual 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 which CESCO has not been able to supply in full. CESCO has requested the Commission to accept data on consumption of LT consumers based on the meter readings of a single division, namely Bhubaneswar Electrical Division, which has an urban and rural mix, to represent the general distribution of consumers throughout CESCO. Treating the meter reading of the Bhubaneswar Electrical Division as a sample, consumption of other divisions of CESCO has been estimated through a computer model. While accepting, in the absence of a proper data base, this method of sampling for the purpose of the present application, the Commission enjoins upon CESCO 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 CESCO is as follows :-

7.2.4

This is an increase of about 13.13% over the sale in FY 99. The Commission accepts the figure of 2058.67 MU as the estimated sale for the year 1999-00.

7.3

Transmission & Distribution Loss

7.3.1

CESCO has estimated T&D loss as 47% in 1999-00 in support of which they have given a computation in Table : 3.

Table : 3

7.3.2

CESCO’s estimation of the overall loss percentage 47% 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 CESCO would have to bear the EHT loss passed through in the BST in addition to 47% loss proposed by CESCO. A large majority of the objectors have questioned the high percentage of system loss proposed by CESCO 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 28%.

7.3.3

CESCO, in para 1.3.4 of its application for retail supply tariff, has explained that after studying the reasons for inadequate loss reduction so far achieved in FY 1999-00, it has formulated a comprehensive action plan which includes implementation of improved commercial procedures, implementation of new revenue billing system and improvement in metering through meter and relay testing department to prevent meter tampering. It has also proposed to form loss control squads, internal vigilance teams and monitor the loss reduction target at divisional level under the direct supervision of CESCO’s Managing Director. It has also proposed to install 60,000 meters in the FY 1999-00. It also proposes to install LT-less transformers for improvement of distribution infrastructure. CESCO has stated that at the end of March 1999-00, the overall system loss would have to reach a level of 43.70% which would reflect a level of loss reduction by nearly 6.6% overall for the FY 1999-00. It intends to achieve similar loss reduction level in FY 2000 and 2001 and to achieve dramatic reduction of overall system loss in next two years which it describes as the most aggressive loss reduction programme in the world. It has tried to explain that when State Electricity Boards in India were reporting loss levels below 30%, GRIDCO’s reported loss of 46.4% for the year 1995-96 may have been alarming. CESCO, therefore, feels that the Commission’s benchmark of 35% overall loss level reflects the urgency of the loss reduction initiative required but is not a realistic target for CESCO. CESCO has requested that its revenue requirement be approved on the basis of average system loss of 47%.

7.3.4

The Commission has very carefully considered the position stated by CESCO about its very short period of operation in the business of distribution since 01.4.99 and the dislocation on account of recent cyclone when priority was given to restoration of power supply than to implementing the loss reduction measures. The Commission has taken note of the loss reduction measures proposed by CESCO 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 CESCO assuming a T&D loss of 47% almost 3 years after the Commission determined the benchmark of 35%. While CESCO insists on the T&D loss of 47% in addition to the transmission loss of 4% in GRIDCO’s system, the objectors want this loss to be as low as 28%. CESCO has not presented any detailed data to the Commission justifying its claim of a T&D loss as high as 47%. 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 therefore has 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. We also agree with the objectors that no perceptible steps have been taken 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.

7.3.5

Since CESCO proposes to sell 2058.67 MU, power to be purchased by GRIDCO for supply to CESCO, after adding 35% loss, is determined as 3167.18 MU (2058.67/0.65) CESCO’s purchase from GRIDCO should be limited to 4% less (being the approved transmission loss in EHT) than what is purchased by GRIDCO for supply to CESCO. For the purpose of revenue requirement, CESCO has to purchase only 3040.49 MU to meet its sale requirement of 2058.67 MU for the year 1999-00. The system loss in CESCO is 3040.49 MU – 2058.67 MU = 981.82 MU. This loss of 981.82 MU expressed as a percentage of input to the CESCO system is (981.82/3040.49) 32.29%. Therefore, the distribution loss allowed to CESCO for the purpose of revenue requirement is 32.29%. The loss of 981.82 MU in CESCO’s system expressed as a percentage of units purchased for CESCO by GRIDCO is (981.82/3167.18) 31%. Thus, out of the energy purchased for CESCO by GRIDCO, 4% is lost in the EHT system of GRIDCO and 31% is lost in the Distribution system of CESCO. The the end use consumer has to pay through tariff a loss of 35% of energy purchased by GRIDCO for supply. For simplicity of presentation, we have abstracted the above calculation in Table : 4.

Table: 4

7.4

Cost of Power

7.4.1

CESCO has to purchase 3040.49 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 CESCO for December, 1998 to July, 1999. The bill details have been supplied by CESCO in its clarification submitted to the Commission in Table-7 of the clarification on Retail Supply Tariff of 1999-00. The average cost of a unit of power purchased from GRIDCO for the months of April, 1999 to August, 1999 is 124.61 paise/unit. Since there would be a reduction in the energy charge by 4.80 paise/unit according to the BST determined by the Commission now, the rate/unit payable by CESCO would be 119.81 paise/unit. The cost of power @ 119.81 paise/unit for purchase of 3040.49 MU would, therefore, be Rs.364.29 crores instead of Rs.497.44 crores proposed by CESCO.

7.5

Operating Expenses

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

Employees Cost
Administration & General Expenses
Material Expenses
Less expenses capitalised

7.5.1

Employees Cost

7.5.1.1

CESCO has proposed Rs.82.75 crores for the FY 1999-00 towards Employees Cost. The compounded annual rate of Employees Cost over FY 1998-99 has been proposed @ 5.65%. Employees Cost for CESCO in the disaggregated and audited accounts for the year 1997-98 was Rs.74.10 crores. CESCO, in response to the Commission’s query, has submitted the details regarding Employees Cost in Table-18 of clarification on the Retail Tariff application. The table gives a comparative picture of item-wise expenses relating to employees for the FY 1997-98 (audited account) and estimated by CESCO for the FY 1998-99 and FY 1999-00. The number of employees on roll as on 01.9.99 is in Table : 5.

Table : 5

7.5.1.2

The data furnished by the Licensee has been examined by the Commission. The Commission considers a 3% annual increase on account of normal increment in salaries and a 6% annual increase for other expenses including dearness allowance on account of inflation as reasonable. Therefore the total estimated expenses under this head is approved at Rs.82.75 crores.

7.5.2

Administration & General Expenses

7.5.2.1

CESCO has proposed A&G expenses for 1999-00 as Rs.12.30 crores. These expenses include expenses on communication, travel, training and consultancy charges the latter alone accounting for Rs.6.00 crores. CESCO has proposed to engage consultants to enhance the expertise of the employees and upgrade their level of skill. An expenditure of Rs.6.00 crores on consulting charges has been proposed for 1999-00 against an actual expenditure Rs.0.21 crores for the year 1997-98.

7.5.2.2

Many of the objectors have questioned the expenditure on engagement of consultants. The licensee has submitted a break-up of A&G Expenses for the years 1997-98 (audited accounts), 1998-99 and 1999-00. The Commission considers it reasonable to allow an annual increase of 6% over audited figure of 1997-98 to factor in inflation. Accordingly, the expenses on A&G is approved at Rs.6.28 crores for the year 1999-00. The Licensee must limit A&G expenses including the expenses on consultants to this approved figure.

7.5.3

Repair and Maintenance Expenses

7.5.3.1

The R&M expenses as proposed by CESCO is Rs.23.92 crores for the FY 1999-00. R&M expenses for CESCO in the disaggregated and audited accounts of 1997-98 was Rs.21.86 crores. In the disaggregated accounts of 1997-98, the gross fixed asset of CESCO was Rs.330.67 crores. R&M expenditure incurred for that year was 6.6% of the gross fixed assets. CESCO has proposed an expenditure Rs.23.92 crores for the year 1999-00 which is 6.4% of gross fixed asset in financial year 1999-00.

7.5.3.2

Table No. 10 of Retail Tariff filing 1999-00/Clarification submitted by CESCO was examined to study the R&M expenses of CESCO for the previous years. The Commission had approved 5.4% of the gross fixed asset as expenses towards R&M cost in 1998-99. Applying 5.4% to the gross fixed assets of CESCO at the beginning of the year 1999-00, R&M expenses is approved at 5.4% X Rs.352.76 crores = Rs.19.05 crores. This expenditure should be utilized for upgradation and maintenance of assets for better quality of power supply to the consumers.

7.5.4

Expenses Capitalised

7.5.4.1

This is the portion of Employees Cost, Administration & General Expenses, Repair & Maintenance Expenses allocated to capital. CESCO has proposed an amount of Rs.4.53 crores to be deducted from revenue requirement for operation and maintenance expenses. This figure is considered reasonable by the Commission.

7.6

Interest

7.6.1

CESCO has proposed an amount of Rs.35.82 crores to be charged to revenue on account of interest after deducting Rs.7.34 crores towards interest capitalised. In other words, total interest payable on loans proposed by CESCO is Rs.43.16 crores. Out of this, Rs.22.78 crores is on bonds and long term loans and Rs.20.38 crores relates to amount payable to GRIDCO in accordance with the Bulk Supply Agreement between GRIDCO and CESCO. The latter has two elements. One part is the amount outstanding for the period from 1st April, 1999 to 31st August, 1999 when CESCO was a 100% subsidiary of GRIDCO. As a result of divestment of 51% of the share of CESCO, this amount was agreed to be repaid to GRIDCO in 12 quarterly instalments beginning December 2002. Pending determination of the interest rate by OERC. CESCO has proposed to pay interest at the rate of 16%. The second part is on account of accommodation of power purchase liabilities and also loans towards working capital till December, 2002 subject to be maximum of Rs.174 crores.

7.6.2

CESCO has also made provision of Rs.22.78 crores towards interest on loan of Rs.43.80 crores proposed to be borrowed during FY 2000 from two financial institutions for investment in rural electrification and in system improvement works.

7.6.3

CESCO has not sent to OERC any investment proposal necessitating the above loans for approval. Moreover, 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 of Orissa and without approval of the Commission for the investment, interest of Rs.0.99 crores on the REC loan cannot be allowed.

7.6.4

The financial prudence of bilateral arrangement between GRIDCO and CESCO with regard to amount payable by CESCO to GRIDCO has not been established. No proposal for approval has also been filed before the Commission. We are unable to accept CESCO's proposal for claim of interest arising from loan arrangements made with GRIDCO as a part of taking over the business of distribution. We find it necessary to estimate only the requirement of working capital request and allow interest on it. Working capital required would be the difference between amount payable to GRIDCO and receivable from the consumers. Accordingly, interest calculated at 16% on the working capital (difference between two months receivable of Rs.85.42 crores and two months' payable of Rs.60.99 crores) would be Rs.3.91 crores.

7.7

Depreciation

7.7.1

CESCO has proposed depreciation of Rs.25.18 crores calculated on the basis of Ministry of Power notification. The Commission accepts the figure of Rs.25.18 crores on account of depreciation for the year 1999-00.

7.8

Bad and Doubtful Debt

7.8.1

CESCO has proposed Rs.20.88 crores as Bad & Doubtful Debt during 1999-00. In the audited and diaggregated accounts of GRIDCO for 1997-98, CESCO was allocated Rs.16.41 crores on this account.

7.8.2

Many objectors have questioned the provision for Rs.20.88 crores on account of Bad and Doubtful Debt. Community Care Association, Nayapalli, Bhubaneswar, one of the objectors, has pointed out that the provision allowed by OERC for FY 1998-99 for GRIDCO as a whole was Rs.24.15 crores and therefore it should not be more than 40% of this amount i.e. Rs.9 crores for CESCO. Similar comments were made by Utkal Chamber of Commerce and Industry. They said that the Bad and Doubtful Debt is a measure of the efficiency of operation and it should decrease every year.

7.8.3

The Commission is of the view that allowing bad debt as a percentage of outstanding when the outstanding are galloping from year to year without more energy being handled in the system would be putting a premium on inefficiency in realization 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.

7.8.4

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 conjecture to arrive at a base figure for calculating provision for bad debt on lines as similar to last year. Hence provision may be made at 15% of total outstanding as on 31.03.2000 after 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% of the gross sale figure. Therefore, for the year 1999-00, 2.5% of the annual sale figure is assumed to be bad and doubtful debt and approved for charging to revenue. This works out to a figure of Rs.12.81 crores and is approved for the purpose of revenue requirement.

7.9

Contribution to Contingency Reserve

7.9.1

CESCO has provided Rs.1.32 crores towards contribution to contingency reserve. It is within the limit fixed in the Sixth Schedule of the Electricity (Supply) Act, 1948 and is accepted in full by the Commission.

7.10

Capital Base

7.10.1

Original Cost of Fixed Assets

7.10.2

CESCO has projected its original cost of fixed assets at Rs.372.60 crores as on 31.03.2000. As the licensee has not completed a full financial year of its operation, the only data available are those shown in transfer scheme and provisional figures stated by the Licensee. In the absence of audited accounts, the Commission considers it reasonable to accept the provisional figure given by the Licensee which is less than the amount in the Transfer Scheme.

7.10.3

Accordingly, original cost of fixed assets on 31.03.99 and 31.03.00 as Rs.352.76 crores and Rs.372.60 crores respectively are considered reasonable by the Commission.

7.11

Receipts against Consumers Contribution

7.11.1

The aggregated receipts against Consumers Contribution is projected at Rs.71.25 crores as on 31.03.2000 and accepted for the purpose of calculation of Capital Base.

7.12

Original cost of Work in Progress

7.12.1

For the purpose of capital base calculation, CESCO has projected Rs.70.83 crores towards original cost of works in progress. This includes a sum of Rs.14.90 crores for rural electrification works for which no approval from the Commission has been taken. Since determination of tariff is based upon expenditure properly incurred, it is essential to see that projects undertaken by the Licensee are commercially viable. Uneconomic projects undertaken to fulfil social obligations may have to be subsidized by the Govt. through budgetary support so that the cost of such uneconomic projects are not borne by the consumers.

7.12.2

Keeping this in view, the Commission does not consider it reasonable to include rural electrification projects in the capital base unless these projects are proved to be economically viable or the Govt. of Orissa supports these schemes by providing subsidies.

7.12.3

Accordingly Rs.15.89 crores (Rs.14.90 + IDC of Rs.0.99 crores) has been disallowed and balance of Rs.54.94 has been considered for the purpose of calculating Capital Base.

7.13

Compulsory Investment under Para IV

7.13.1

CESCO has projected Rs.2.56 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(2) of the Sixth Schedule of 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.

7.14

Working Capital

7.14.1

Average Cost of Stores

7.14.1.1

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. CESCO has proposed Rs.50.95 crores towards average cost of stores in the working capital.

7.14.1.2

CESCO in its application has stated that 66.2% of the stores is capital stores primarily consisting of transformers. Rewinding of transformer is the major R&M cost and cost of rewinding of the transformer is 55% of the cost of the transformer. CESCO has also stated that the frequency of failure of the transformer is once in two year and nine months. Some of the objectors have pointed out that the management of stores is a very very key area for bringing in economy in operation. CESCO had an opening gross store of Rs.32.89 crores, obsolete stores of Rs.7.03 crores and a net of Rs.25.86 crores as on 01.4.99. CESCO’s proposal regarding average cost of stores at Rs.50.95 crores for the FY 2000 is nearly double of the net stores as on 01.4.99. This increase is principally on account of repaired transformers with a life span of around less than two years and nine months. The cost benefit analysis of repairing a transformer vis-a-vis the procurement of a new transformer with a life span of 25 years is necessary to be carried out by CESCO. This analysis should be submitted to the Commission within a period of two months from the date of this order.

7.14.1.3

CESCO has not been able to supply the monthly stock position of stores for determination of 12 months’ average cost of stores. The Commission is, therefore, unable to accept the proposed figure of Rs.50.95 crores as the average value of stores for the year 1999-00.

7.14.1.4

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.4.76 crores as reasonable for the purpose of working capital for stores to be included in the capital base.

7.15

Average Cash and Bank Balance

7.15.1

CESCO has proposed Rs.15.86 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, the working capital in form of cash and bank balance can be to the extent of 1/12 of the sum of cash & bank balances and call and short term deposits at the end of each month of the year of account, not exceeding the sum specified therein.

7.15.2

Keeping in view the above provision, the fund requirement for two months payment of Employees’ Cost and Administration & General Expenses would be appropriate for meeting working capital requirement. Calculated on the aforesaid basis, the amount would be Rs.14.84 crores. The Commission, therefore, approves a sum of Rs.14.84 crores as cash and bank balance for meeting working capital requirements.

7.16

Accumulated Depreciation

7.16.1

CESCO has proposed a sum of Rs.94.09 crores towards amounts written off or set aside on account of depreciation as on 31.03.2000. The Commission accepts the amount of Rs.94.09 crores as a deduction for the purpose of Capital Base.

7.17

Loans and Bonds

7.17.1

CESCO has stated that the total amount of loans and bonds for its distribution and retail supply business in the audited accounts of 1997-98 was Rs.166.10 crores. During the year 1999-00, CESCO proposes to raise fresh loans amounting to Rs.43.81 crores. At the end of FY 1999-00, the amount of loans and bonds will reach a figure of Rs.219.72 crores.

7.17.2

As discussed in para 7.6 an amount of Rs.14.90 crores of loan for the purpose of rural electrification during 1999-00 has not been included for the purpose of interest calculation. The Commission has, therefore, taken into consideration an amount of Rs.204.82 crores as the loan amount for the purpose of calculation of capital base. This is summarised in Table : 6.

Table : 6
(Rs. in crores)

7.18

Consumers’ Security Deposit

7.18.1

CESCO has estimated Rs.27.45 Crores towards the amount deposited in cash with the Licensee by the consumers by way of security deposit. The amount is accepted as a deduction for calculating Capital Base.

7.18.2

Based on the forgoing observations, the Commission has accepted Rs.45.91 crores (vide Annex to this order) against Rs.100.23 crores proposed by CESCO.

7.19

Reasonable Return

7.19.1

CESCO has calculated the reasonable return by multiplying the standard rate of 16% to the capital base of Rs.100.28 crores in addition to 0.5% on loans approved by the State Govt. Thus, CESCO has proposed an amount of Rs.17.14 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.7.46 crores on a capital base of Rs.49.51 crores as in Table : 7.

Table : 7
(Rs. in crores)

7.20

Miscellaneous Receipt

7.20.1

The licensee has proposed an amount of Rs.16.37 crores as miscellaneous receipt for the year 1999-00. This figure excludes meter rent of Rs.3.66 crores for the year 1999-00.

7.20.2

The Commission has considered the miscellaneous receipts and meter rent as proposed by CESCO amounting Rs.20.03 crores and found acceptable.

7.21

Revenue Requirement, Reasonable Return and Clear Profit

7.21.1

In the light of above decisions and calculation, the Commission approves an expenditure of Rs.525.17 crores for the purpose of revenue requirement for the year 1999-00 as against Rs.693.84 crores proposed by CESCO i.e. a reduction of Rs.168.67 crores approved by the Commission. At para 7.12 above, special appropriation of Rs.1.32 crores has been approved on account of contribution to contingency reserve as proposed by CESCO. Reasonable return has been approved (para 7.19) at Rs.7.46 crores as against Rs.17.14 crores proposed by CESCO. The calculation of expenditure for revenue requirement, reasonable return and clear profit have been reflected in Annex-A, B & C respectively.

7.21.2

The total revenue requirement of CESCO including special appropriation and reasonable return has been reduced by Rs.178.35 crores from Rs.712.30 crores proposed by the Licensee to Rs.533.95 crores. In spite of the reduced revenue requirement, there will a deficit for CESCO on the basis of the existing tariff.

8.0

TARIFF APPROVED BY THE COMMISSION

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. Tariffs and the method of charging for various categories of consumers are given in the succeeding paragraphs. 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.

8.1.1

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

1. The cost of meter reading

2. Preparation of bills

3. Delivery of bills

4. Collection of revenue

5. 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 : 8

8.3

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

8.3.1

CESCO has stated that the payment of demand charge @ Rs.200/KVA on the maximum demand payable to GRIDCO for the power purchased is fixed in nature. The present method of recovery of the fixed costs is not adequate to meet the fixed monthly expenses payable by CESCO. The continued short fall between the expected revenue from fixed charges and the fixed cost being recovered from the consumers makes it necessary to revise the existing fixed charges. CESCO has also stated that it is recovering the proposed fixed charges from its HT and EHT consumers and is not recovering the same from its LT consumers. CESCO has submitted a calculation suggesting that there should be an increase of more than 300% across all LT consumer categories. For this it has suggested to increase the fixed monthly charges for LT consumers which will be helpful in reducing cross subsidisation.

8.3.2

The proposal of CESCO has been examined by the Commission. 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 not been provided with meters to record their monthly maximum demand. It is, therefore, difficult to determine the demand charge on the basis of meter reading of such consumers. But 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 at Table : 9.

Table : 9

8.4

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

8.4.1

The Licensee has already clarified that the fixed cost is being recovered from the HT and EHT categories. The Commission has examined the existing rate of demand charge for consumers with contract demand of 110 KVA and above and decides that the existing rate of Rs.200/KVA/month will continue.

8.4.2

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.

8.4.3

Categories of consumers 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 :-

8.4.4

The Licensee has proposed increase of demand charge in respect of Domestic consumers from Rs.10/Kw to Rs.40/Kw and in respect of irrigation consumers from Rs.30/ KW to Rs.40/unit. The licensee has not proposed any change in respect of public institution, commercial and medium industry category of consumers. The Commission has carefully considered the proposal of the Licensee with reference to the comparable charges in other States and internal relativity of the impact of tariff among the consumers and has decided not to raise the demand charge for domestic and irrigation category of 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 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.

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

With regard to industrial colony consumption 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/Kwh. Energy consumed in an industrial 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 stated that it recognises the Commission’s desire to extend incentive for consumers maintaining load factor above 60%. Since the present proposal is to increase the normal tariff for EHT and HT consumers a difference between the existing tariff and incentive tariff of 60 paise/unit For HT and 70 paise/Kwh for EHT may be maintained.

8.5.4.2

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.

8.5.4.3

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:-

(i) 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.

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

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

8.5.6

Decrease in tariff and charges for power intensive industries in EHT/HT category

8.5.6.1

The licensee has suggested a reduction in tariff to make it attractive for the power intensive industries. The suggested objective is to dissuade them from captive power generation and utilisation of licensee’s power, but at the same time CESCO proposes removal of the incentive tariff applicable to this category. CESCO has submitted that the cost of power is a major input for the power intensive industries unlike other industries for which this reduction of tariff should not be applicable for all categories.

8.5.6.2

The Commission is in favour of incentive tariff for all consumers with load factor above 50% as detailed in para 8.5.4 and does not approve of CESCO’s proposal to provide for incentive only to power intensive industries.

8.5.7

Demand charge and Energy Charge for emergency supply to Captive Power Plants

8.5.7.1

The Commission examined the proposal of CESCO for levy of a demand charge for emergency supply to CPP. As against this we have also noted the objection raised by DGM, CPP, Nalco about the interconnection between GRIDCO and NALCO’s CPP and registering of maximum demand due to reactive power flow without any actual drawal of energy. Considering the fact that emergency supply to CPP is only occasional in nature, the Commission does not approve of a demand charge for emergency supply to captive power plants as suggested by CESCO. The Commission has decided that the existing energy charge at the rate of 350 paise/Kwh shall continue.

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 Rs. 280 paise per KWH in place of the existing rate of 245 paise/KWH. 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 the recent 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. The consumers in irrigation category availing power supply at HT will also be exempted from any increase in 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

Uncovered deficit with proposed tariff and deferment of uncovered deficit

8.7.1

CESCO has submitted that the new tariff if made applicable from 1^st of December, 1999 would result in a revenue deficit which will severely restrict its ability to make necessary investment to improve the run down condition of assets. CESCO has proposed that the uncovered deficit for the FY 1999-00 may be allowed to be recovered during the next three years starting from FY 2003 when it should become recoverable with interest.

8.7.2

The Commission has examined the suggestion and has come to the conclusion that the future financial performance of the Licensee depends on several factors including its ability to reduce T&D losses quickly and external factors like the cost of power while varies from year to year. Therefore the Commission does not consider it appropriate to give any direction at this stage about the method and manner of recovery of uncovered deficit, if any, which can only be assessed at the end of the financial year.

8.8

Other Charges

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

8.8.1

Demand Charge

8.8.1.1

The monthly demand charge in case of consumers covered under two part tariff will be calculated on recorded/evaluated maximum demand or 80% of contract demand whichever is higher.

8.8.1.2

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.

8.8.2

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)

8.8.3

Incentive for timely payment : The Commission has decided that as a measure of incentive for prompt payment there will be a rebate @1% for payments made within the due date of payment indicated on the bill. This incentive will be applicable to the categories of consumers who are liable to pay Delayed Payment Surcharge.

8.8.4

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

8.8.5

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

8.8.5.1

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

8.8.6

Power Factor Penalty : The Commission also orders for continuance of a 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 Power Factor 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%.

8.8.7

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

8.8.7.1

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 been taken up by the Licensee the Commission will have no option but to revise the load factor downwards.

8.8.7.2

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.

8.8.8

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 charge is abolished.

8.8.9

Re-connection Charge : CESCO has proposed a two fold rise in reconnection charges for consumers subjected to disconnection. The Commission however decides to continue with the existing rates of reconnection charge as given below:-

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

8.8.10

Rounding off a consumer billed amount to nearest rupee : The Commission examined the proposal submitted by the licensee for rounding off of the electricity bills for the purpose of convenience in cash transaction. The Commission approves the system of rounding off of the bill to the nearest rupee and at the same time direct that the money actually collected should be receipted and accounted for.

8.8.11

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

8.8.12

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.

8.8.13

The Commission has already approved a fuel surcharge formula for the distribution licensee.

8.8.14

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 :-

8.8.15

Institution of purchased power price adjustment clause : The Commission examined the suggestion of CESCO for levy of purchased power price adjustment clause. The Commission is of the view that it would result in allowing licensee a tariff without scrutiny of the Commission to examine the prudence of expenditure as envisaged in Sixth Schedule to the Electricity Supply Act, 1948.

8.8.16

Automatic pass through of change in Bulk Supply Tariff to consumers : The Licensee has suggested that the incremental changes in Bulk Supply Tariff whenever approved by the Commission may be allowed to be recovered automatically from the consumers. The Commission is of the view it would virtually result in allowing tariff without scrutiny of the Commission to determine the prudence of increase in expenditure as envisaged in the Sixth Schedule to the Electricity (Supply) Act, 1948. Since Reform Act, 1995 provides for an annual review of the licensees expected revenue from charges and its revenue requirement for the ensuing year, adjustment of revenue and expenditure is possible from year to year. Since BST can be revised under this provision, the licensee has ample opportunity of reflecting any cost variations in its annual submissions to the Commission. The Commission therefore does not approve of the proposal of the Licensee for an automatic pass through of charges in the BST to consumers. It may be noted that the BST approved by the Commission to be effective from 1^st of February 2000 is actually reduced from the existing level by 4.80 paise/unit with no change in the demand charge which will substantially reduce the cost of supply to the Licensee.

8.9

The Commission has approved CESCO’s revenue requirement for the year 1999-00 as Rs.533.95 crores. The expected revenue from charges approved by the Commission over a 12 months period is estimated as Rs.512.84 crores. The Licensee will get Rs.20.03 crores on account of miscellaneous receipts and meter rent over a 12 months period. The revenue requirement and expected revenue of CESCO, approved by the Commission for the FY 1999-00, are given below :-

(Rs. in crores)

9.0

In the light of above findings, the Commission orders as follows with reference to the prayers of the applicant :-

While the Commission does not approve the Retail Supply Tariff and Charges as proposed by CESCO, 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 calculation of revenue requirements Capital Base and Clear Profit for 1999-00 as projected by the Licensee does not meet with the approval of the Commission. The Licensee is directed to adopt the figures for 1999-00 as calculated by the Commission.

Decision regarding uncovered deficit for 1999-00 and its recovery shall be dealt as special appropriation under Sixth Schedule as and when it is brought up in Tariff Proceeding for subsequent year or years.

While not approving the proposal for Power Purchase Pooled Cost Adjustment as requested by CESCO, it is ordered the Fuel Surcharge Adjustment Formula as prescribed in Regulation shall continue to be operative.

It is not permissible to allow any automatic pass through of cost except what is permitted under Fuel Surcharge Adjustment Formula.

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