6.8

Method of determination of Power Purchase

6.8.1

The power purchase by the DISTCOs are metered at various grid sub-stationís end and the DISTCOs are billed according to the meter reading at these points. Actual figures of billing raised by GRIDCO to the DISTCOs for the past 10 months of the year 2001-02 are already available. This can be prorated for a period of another two months for the financial year 2001-02. This will go a long way in determining a realistic cost of power purchase. In stead of going for any other method of energy assessment, the Commission decides to adopt the principle of actual cost of power purchase from the transmission company as the base for determination of the cost of power purchase for the year 2001-02.

6.8.2

As far as the FY 2002-03 is concerned, the Commission will go by the growth rate projected for the various classes of consumers by the DISTCOs at different voltage level viz. LT, HT & EHT and calculate the incremental power requirement over and above the FY 2001-02.

6.9

Determination of expected revenue

6.9.1

The quantum of energy to be sold will be determined after deducting the units deemed to have been lost in distribution applying the bench-mark loss level adopted by Kanungo Committee and accepted by the Commission. On the quantum of energy to be purchased by the DISTCOs the percentage of distribution loss as approved by the Commission shall be applied to determine the quantity to be sold during the financial year. From the saleable energy for the year, units estimated to be sold at EHT i.e. zero loss energy would be deducted to arrive at the quantum of energy to be sold at HT and LT combinely. The expected revenue from sale of power shall be calculated separately for EHT and combinely for HT & LT. EHT revenue shall be calculated by multiplying the EHT rate with the EHT units. The revenue from HT and LT sale shall be calculated by multiplying the average rate of HT and LT rate with the number of units to be sold combinely at HT and LT. Thereafter, revenue at EHT and from HT and LT consumption will be added to determine the total expected revenue for the year. The gap between the estimated revenue requirement and the expected revenue will represent the deficit in revenue which need to be funded through interim financing or through tariff.

6.9.2

SOUTHCO in the format T-6 of its RST application for the year 2001-02 has furnished the average rate per unit billed to various classes of consumer based on the billing of the first six months of the FY 2001-02 the extract of which is given in the table.

Table : 13 : 13 : 13 : 13
Average Revenue based on actual billing of 1st six months of 2001-02 submitted by the licensees

 

WESCO

NESCO

SOUTHCO

CESCO

Category of Supply

Average Revenue (Rs/Unit)

Average Revenue (Rs/Unit)

Average Revenue (Rs/Unit)

Average Revenue (Rs/Unit)

L T

2.49

2.37

2.42

2.53

HT

3.84

3.52

3.67

3.79

LT & HT Total

2.89

2.79

2.74

2.83

EHT

3.60

3.15

3.90

4.64

GRAND TOTAL

3.17

2.86

2.89

3.05

Table-14
Average Revenue as per the (format T-7) estimated sale to various consumers for 2001-02 submitted by the licensees

 

WESCO

NESCO

SOUTHCO

CESCO

Category of Supply

Average Revenue (Rs/Unit)

Average Revenue (Rs/Unit)

Average Revenue (Rs/Unit)

Average Revenue (Rs/Unit)

LT

239

221

228

251

HT

360

316

304

363

LT & HT Total

275

253

247

274

EHT

362

270

353

297

GRAND TOTAL

303

256

263

276

6.9.3

The average rate projected by the distribution companies in the tariff filing for the year 2001-02 and 2002-03 obviously does not present the correct picture of the per unit rate as by their own admission (Table 13) the average per unit rate is much higher compared to their estimate given in Table 14. It is appropriate to take into consideration the average rate per unit as reported by them based on their billing of the first six months of the year 2001-02 given in Table 13 rather than accept the average rate based on estimates furnished in form T-7 of this tariff filing.

6.9.4

Collection efficiency of DISTCOs

6.9.4.1

For the purpose of determination of expected revenue, the sale figure will be determined assuming an overall loss percentage for the year 2001-02 as per para 6.9.5.2.

6.9.4.2

Since the FY 2001-02 has come to an end, the Commission this year shall only determine the revenue gap, if any, for recovery during the future years. The Committee of Independent Experts had also recommended that the reality in the level of billing and collection in the present Orissa situation by the distribution companies be recognized. For this purpose, they had suggested that 78% should be accepted as the collection efficiency for the base year 2001-02 going upto 95% by the year 2005-06. The Committee had recommended that the cash gap be funded by interim financing other than debt.

6.9.4.3

The Commission considers that the level of collection of 78% is no means satisfactory as there is a huge backlog of Government dues to be received by the DISTCOs. The Commission considers that with receipt of Government dues the collection efficiency will increase to 85% for the year 2001-02. In the neighbouring states the collection efficiency of the utilities is above 95% so also is the position in Rajasthan, Andhra Pradesh and Karnataka. The Commission also recognizes that the entire amount on account of non-collection should not be treated as bad debt as this will further raise the revenue requirement. Acceptance of the entire uncollected dues of a particular year therefore cannot be written off as bad and doubtful debt and cannot be treated as a pass through for next year tariff. This will accentuate the burden on the paying consumers of the state. The distribution companies have to bolster their machinery for improving collection of revenue for which they need State Government support for law and order issue. To translate this into action, the Commission fixes a yardstick for collection efficiency 85 %for the year 2001-02 and 87.5 % for the year 2002-03.

6.9.4.4

The shortfall in revenue collection for the FY 2002-03 calculated at collection efficiency level of 87.5% works out to Rs.268.75 crore on an expected revenue of Rs.2150.04 crore (Table-16). On the other hand the receivables against energy charges from the various departments of the Government and State PSUs has piled up to more than Rs.230 crore within a period of three years of operation of the DISTCOs since 01.04.1999. The Government Departments and State PSUs should clear up the outstanding dues of DISTCOs by routing the payment through GRIDCO. This shall be adjusted against the power purchase and loan liabilities of DISTCOs due to GRIDCO which will improve the liquidity of the power sector in Orissa.

6.9.5

Summary of revenue requirement of DISTCOs for FY 2001-02 & 2002-03

6.9.5.1

For the FY 2002-03, the Commission will consider the cost of power purchase on a realistic basis as projected by the distribution companies and calculated the expected revenue to be calculated assuming a loss reduction of 5% from year to year i.e. from 42.21% in 2001-02 to 37.21% in 2002-03 though the figures will be varying across the four zones. Similarly, the level of collection efficiency should be considered at the level of 85%. All other terms and conditions with regard to the method of determination of expected revenue as explained on the para above for the year 2001-02 shall apply for year 2002-03 also.

6.9.5.2

Accordingly, a summary of purchase sale and expected revenue for the year 2001-02 & 2002-03 is approved as per the details below.

Table-15
FY 2001-02

PURCHASE & SALES BY DISTCOs BASED ON 10 MONTHS (ACTUAL)

 

Purchase (MU)

Loss (%)

Sale (MU)

Av. Rate Rs/kwh

Rev. (Rs. Crs.)

CESCO

4167.77

40.94%

2461.485

3.05

744.70

NESCO

2253.62

46.98%

1194.8693

2.86

341.95

WESCO

2980.64

41.08%

1756.1931

3.17

549.15

SOUTHCO

1525.07

40.89%

901.46888

2.89

260.90

TOTAL

10927.10

42.21%

6314.02

3.02

1896.70

Table-16
FY 2002-03

EXPECTED PURCHASE & SALES BY DISTCOs BASED ON 10 MONTHS ACTUAL

 

Purchase (MU)

Loss (%)

Sale (MU)

Av. Rate Rs/kwh

Rev. (Rs. Crs)

CESCO

4321.00

35.94

2768.03

3.05

841.55

NESCO

2291.20

41.98

1329.36

2.86

381.26

WESCO

3066.54

36.08

1960.13

3.17

616.66

SOUTHCO

1682.39

35.89

1078.58

2.89

310.57

TOTAL

11361.13

37.21

7136.10

3.02

2150.04

6.9.5.3

The Commission does not accept the figure of expected revenue calculated by the DISTCOs for the FY 2001-02 as well as for the FY 2002-03 and determines the expected revenue for various DISTCOs for the aforesaid period as indicated in Table-15 and Table-16 respectively for the FY 2001-02 and 2002-03 subject to any variation on account of change in direct sale to consumers at EHT.

6.10

Operating Expenses

6.10.1

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

6.10.2

CESCO in OERC Form No.TRF-21 of the 02-03 filing has submitted various components covered under employees cost for the FY 00-01 on the basis of audited accounts and have made projection up to the FY 02-03. The employees cost chargeable to revenue was Rs.89.95 crore as per the actuals (provisional) for the FY 00-01 which has been projected to go up to Rs.94.44 crore and Rs.104.07 crore during FY 01-02 and FY 02-03. Projection for FY 02-03 is based on compounded annual growth rate of 10.19% over the period FY 01-02 which is less than the combined annual enhancement in basic pay @ 3%, CESCO stated he number of personnels in CESCO is 8081.

6.10.3

CESCO has not produced its audited account for the FY 1998-99 onwards i.e. from its inception. Without audited accounts for the period under review, for the purpose of tariff fixation and calculation of annual revenue requirement, the Commission has taken the approved figures of the FY 00-01 as the base and estimated the expenditure for the FY 01-02 and 02-03.

6.10.4

The Commission had approved an amount of Rs.89.37 crore for the year 2000-01 towards employees cost. The provisional figures of 00-01 as submitted by the licensee in F-21 is of the order of Rs.89.95 crore which is close to the Commissionís approved figure towards employees cost. The Commission considers it appropriate to give 3% rise on the basic pay per annum over the provisional figure of FY 00-01 to determine the basic pay for the year 01-02 as well as 02-03.

6.10.5

As regards DA, Commission is aware of the fact that the rate of DA allowed by GOO is 41% with effect from July, 2000. This rate is continuing now and no increase in DA rate has been announced by the State Government. Commission, in view of the above, decides to consider the prevailing rate of 41% for calculation of DA for the FY 01-02 and 02-03. However, any increase in rate of DA in future will be allowed to be recovered through tariff with retrospective effect.

6.10.6

All other allowances as claimed by the licensee are found reasonable and accepted. Keeping these observations in view the Employees costs have been recalculated as indicated in the Table : 17.

Table : 17
Details of Employees Cost
(Rs. in crore)

Sl. No.

Particulars

Prop. by licensee 2001-02

Approved by Commission 2001-02

Prop. by licensee 2002-03

Approved by Commission 2002-03

1

Salaries

50.34

49.39

54.37

50.87

2

Over time

0.01

0.01

0.01

0.01

3

Dearness Allowance

18.76

20.25

20.26

20.86

 

Sub-Total

69.11

69.65

74.64

71.74

4

Other Allowance

1.54

1.10

1.25

1.10

5

Bonus

4.43

4.22

4.79

4.22

6

Total Emoluments (1 to 5)

74.70

74.96

80.68

77.05

 

Other Staff Cost

 

 

 

 

7

Reimbursement of Medical Expenses

1.55

1.47

1.67

1.47

8

Leave Travel Concession

0.33

0.31

0.35

0.31

9

Reimbursement of H.R.

7.77

7.40

8.39

7.40

10

Interim Relief of Staff

.01

0.01

0.01

0.01

11

Encashment of Earned Leave

3.92

2.90

4.32

2.99

12

Honorarium

0.00

0.00

0.00

0.00

13

Payments under Workmen Compensation Act

.06

0.06

0.06

0.06

14

Ex-gratia

0.07

0.07

0.07

0.07

15

Other Staff Cost

0.00

0.00

0.00

0.00

16

Total (Other Staff Cost) (7 to 15)

13.70

12.22

14.80

12.31

17

Staff Welfare Expenses

 

 

 

 

18

Terminal Benefits (PF)

6.04

6.09

85.93

6.27

19

Gratuity

0.00

 

 

 

 

Total (6+16+17+18)

94.44

93.27

104.07

95.63

 

Less : Employees Expenses Capitalised

0.00

0.00

0.00

0.00

 

Net Employee Cost

94.44

93.27

104.07

95.63

6.10.7

Commission approves Rs.93.27 crore and Rs.95.63 for the FY 2001-02 and 2002-03 respectively towards employees cost.

6.11

Repair & Maintenance Expenses

6.11.1

CESCO has proposed an expenditure of Rs.25.75 crore in its RST application for the FY 01-02 and Rs.30.38 crore in the ARR for the FY 02-03 towards repair and maintenance expenses.

6.11.2

As per the provisional figure for the year 00-01, the total R&M expenses was Rs.24.52 crore and CESCO estimated that the R&M expenses will go up to Rs.30.38 crore in the year 02-03 which is about 17.95% higher over the projected figure of Rs.25.75 crore for the year 01-02. CESCO attributed the increase in the expenditure to inflationary trend and damage caused due to flood.

6.11.3

The Commission examined the licenseeís proposal on R&M expenses and considers it reasonable to allow 5.4% of gross fixed assets as at the beginning of the year 00-01. As per RST and ARR filings the gross fixed asset as on 31st March, 2001 and 2002 would be Rs.433.82 crore and Rs.486.60 crore respectively. Accordingly, the Commission approves Rs.23.43 crore and Rs.26.28 crore for the year 01-02 and 02-03 respectively towards R&M expenses which is 5.4% of the gross fixed assets at the beginning of the financial year.

Table : 18
(Rs. in crore)

2000-01

2001-02

2002-03

Commissionís Approval

CESCOís Proposal

Commissionís Approval

CESCOís Proposal

Commissionís Approval

19.57

25.75

23.43

30.38

26.28

6.12

Administration & General Expenses

6.12.1

CESCO has proposed Rs.11.16 crore for the year 01-02 and Rs.12.06 crore for the year 02-03 towards A&G expenses in its RST and ARR applications respectively. These expenses include expenses on communication, professional charges, property related expenses, conveyance and travelling, training, other expenses and material related expenses. A&G expenses are said to be based on actual expenses incurred during current year and budget estimate for ensuing year.

6.12.2

CESCO in its ARR filing stated that total A&G expenses during the year 02-03 has been estimated to be Rs.12.14 crore which is 8.4% higher than the amount projected for the year 01-02. The increase of 8.4% has been considered only after taking into account the increase of normal price index due to inflation.

6.12.3

The Commission has examined the licenseeís proposal on A&G Expenses. A&G expenses as per the provisional figure for 00-01 submitted by CESCO was Rs.9.82 crore. The Commission in its last tariff order of 2000-01 approved Rs.7.78 crore towards A&G expenses, considering 8% increase over the approved figure of 1999-00 to take care of inflation.

6.12.4

Objectors in general expressed concern about rising trend in A&G expenses and requested that this expenditure should be kept under control.

6.12.5

The Commission finds the projected A&G expenses rather excessive with reference to earlier expenditure and volume of transaction which has not increased.

6.12.6

The Commission considers it reasonable to allow an increase of 5% per annum over the approved figure of 00-01 to factor in inflation and approves an amount of Rs.8.17 crore and Rs.8.58 crore for the year 01-02 and 02-03 towards A&G expenses.

Table : 19
(Rs. in crore)

2000-01

2001-02

2002-03

Commissionís Approval

CESCOís Proposal

Commissionís Approval

CESCOís Proposal

Commissionís Approval

7.78

11.16

8.17

12.06

8.58

6.13

Interest on Loan

6.13.1

CESCO has proposed an amount of Rs.70.74 crore for the year 01-02 and Rs80.29 crore for the year 02-03 towards interest on loans taken from GRIDCO and World Bank to be charged to revenue. The interest amount on the loan from GRIDCO has been calculated as per the loan agreement with CESCO. The interest amount on loan from World Bank has been calculated @ 13% per annum as per the subsidiary loan and project implementation agreement with Government of Orissa. No interest has been claimed for the deferred credit extended by GRIDCO to CESCO.

6.13.2

CESCO has stated that only the interest on loan drawn during the current year for capital works has been capitalized. CESCO proposes receipt of loan of Rs.45 crore and Rs.80 crore from World Bank during the year 01-02 and 02-03. The interest on this loan is proposed for capitalization in the respective years.

6.13.3

The Commission examined the submission of CESCO in respect of interest on loans. CESCO proposed a gross amount of interest for Rs.84.76 crore for the year 01-02 out of which Rs 14.02 crore is to be capitalised and balance Rs 70.74 crore is to be charged to revenue. Similarly, for the year 02-03 out of gross interest of Rs.91.30 crore, CESCO proposed Rs.11.01 crore of interest to be capitalised and balance of Rs.80.29 crore to be charged to revenue. The details of loans and average rate of interest as on 31.03..2002 and 31.03.2003 are given hereafter:

Table -20

Source

Balance as on 31.03.01

Balance as on 31.03.02

Balance as on 31.03.03

Average rate of Interest

GRIDCO Loan (long term)

205.63

205.63

205.63

13.84%

GRIDCO Loan (deferred credit)

178.44

171.15

162.73

Not Mentioned

IBRD

72.69

117.69

197.69

13%

6.13.4

The Commission examined the calculation given in the Format F-3 and F-27 of the tariff filing 01-02 and ARR filing 02-03. As the claim of interest in the revenue requirement is not in agreement with the interest calculated in the respective formats the Commission does not accept the same. The interest on loan given by GRIDCO has been calculated @ 13.84% i.e. as per the subsidiary loan agreement which works out to Rs.28.45 crore for 01-02 & 02-03.

6.13.5

The Commission has advised Government of Orissa for treatment of World Bank loan in terms of the original sanction. Thus, for FY 01-02 & 02-03 the World Bank loan has been treated as 30% grant and 70% loan. Interest has been calculated accordingly on 70% of the average amount of loan. Thus the interest burden on World Bank loan has been worked out to Rs.8.66 crore for the year 2001-02 and Rs.14.35 crore for 2002-03.

6.13.6

No interest on deferred credit has been allowed as it was not claimed.

6.13.7

Interest Capitalised

For the year 01-02, CESCO has deducted Rs.14.02 crore towards interest capitalised from the gross interest claim of Rs 84.76 crore to arrive at the figure of Rs.70.74 crore to be chargeable to revenue. Similarly, Rs.11.01 crore has been proposed for the year 02-03 towards interest capitalised against gross interest claim of Rs 91.30 crore. As mentioned earlier the total calculation of gross interest and interest capitalised has not been supported by evidence and as such the Commission does not agree with the figure. Going by the principles followed by CESCO only the interest on loans drawn for capital purpose for a particular year is to be capitalised. CESCO proposes to draw Rs.45 crore and Rs.80 crore from the World Bank during the year 01-02 and 02-03 on which interest would accrue to the tune of Rs.2.05 crore and Rs.3.64 crore respectively. Hence, the Commission approves Rs.2.05 crore for the year 01-02 and Rs.3.64 crore for the year 02-03 towards interest capitalised.

Table : 21
(Rs. in Crore)

Loans

2001-02

2002-03

 

CESCOís Proposal

Commissionís Approval

CESCOís Proposal

Commissionís Approval

With correctives

Without correctives

With correctives

Without correctives

Gross Interest

84.76

37.13

41.83

91.30

42.80

48.95

Less interest capitalised

14.02

2.05

2.93

11.01

3.64

5.20

Interest chargeable to revenue

70.74

35.07

37.90

80.29

39.16

43.75

6.13.8

The Commission while considering the capital base as provided in the Sixth Schedule of the Act, 1948 made provision towards working capital on which the licensee is entitled to get reasonable return. Moreover, the licensee can get rebate on prompt payment from GRIDCO @ 2% per month which will reduce its power purchase liability. The licensee should arrange working capital from the commercial and financial institutions to save DPS as well as earn rebate from GRIDCO, which will compensate the interest on working capital, and CESCO may earn some revenue. Hence, the Commission does not consider it proper to allow any interest on working capital other than the amount specified in the Schedule-VI.

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