6.14

Depreciation

6.14.1

CESCO has proposed depreciation of Rs.31.58 Crore and Rs.34.96 Crore for the year 01-02 and 02-03 on an asset base of Rs.433.82 Crore and Rs.486.60 crore respectively at the beginning of the year. It has adopted the straight line method as prescribed by GOI, Ministry of Finance, Notification No. SO-765-E dtd. Nov. 6, 1997.

6.14.2

The provision of depreciation was raised by many of the objectors during the course of the hearing.

6.14.3

One of the objectors claimed that depreciation should have been calculated on the basis of notification of Ministry of Power, Government of India of March, 1994 and not on notification dated 6.11.97 of Government of India. He stated that asset being second hand the rate of depreciation has to be determined by the competent Government in each case "having regard to the nature, age and conditions of the assets at the time of acquisition". He had also made a point that in case of 30-40% of the total assets procured by OSEB depreciation upto 90% of asset value must have been recovered on which no depreciation should be charged. He also raised the issue of maintaining the fixed asset register and stated that cumulative depreciation of any asset should not exceed 90% of the original cost of asset.

6.14.4

The Commission noted the objections raised during the course of hearing, the rejoinder submitted by the licensee, and would like to state that depreciation is being calculated at post-94 rate as prescribed by Government of India on the asset base that was revalued on 014.96 which has substantially raised the revenue requirement of the transmission and distribution business. The pre-92 Government of India Notification on depreciation links the rate of depreciation to the age of the assets. The Commission in the public interest decides that the licensees will be allowed to recover 90% of the asset value within the life period of the asset as determined by Government of India Notification of 1992. This will avoid front loading of the tariff, but at the same time will ensure necessary cash flow for the licensee over a longer period of time. Accordingly, the Commission directs that the depreciation of the assets should be limited to 90% of the revalued cost of the assets.

6.14.5

The Commission also took note that no fixed asset register is maintained by the licensee and individual break up of fixed assets is not available. The Commission expresses its concern over non-maintenance of proper records particularly on Fixed Assets. During the course of the hearing the Commission directed the licensee that proper records on fixed assets shall be maintained and produced to the Commission by 31 August, 2002.

6.14.6

According to the provisions of the Act, 1948, depreciation for the year should be calculated on the gross fixed asset existing at the beginning of the year. As submitted in the Format-F-35 of the tariff guidelines, the gross fixed asset of the licensee as on 31.3.2001 is Rs.433.82 crore and the same has been estimated at Rs.486.60 crore as on 31st March, 2002.

6.14.7

The depreciation has been recalculated on the basis of pre-92 rates prescribed by GoI notification on the asset base as above and the Commission approves provisionally depreciation of Rs.16.12 crore and Rs.18.12 crore as against Rs.31.58 crore and Rs.34.96 crore for the year 01-02 and 02-03 respectively.

Table : 22
Calculation of Depreciation
(Rs. in crore)

Year

2001-02 (Estimate)

2002-03 (Estimate)

Opening balance

433.82

486.60

Asset addition

52.78

73.47

Closing balance

486.60

506.07

Depreciation

16.12

18.12

6.15

Bad and Doubtful Debt

6.15.1

CESCO has proposed Rs.23.67 crore as Bad & Doubtful Debts during 01-02. In ARR filing of 02-03, the same has been proposed at Rs.24.48 crore for the year 02-03.

6.15.2

CESCO has not provided an age-wise analysis of outstanding debts in F-25. In tariff filing for the year 01-02, CESCO stated that the provision for bad and doubtful debts has been pegged at Rs.23.67 crore which is 15% of the incremental debtors.

6.15.3

Many objectors have questioned the provision of such a high amount towards Bad and Doubtful debts. They have urged to disallow the provision except a token amount so that the licensee is not allowed a premium on its inefficiency in collection.

6.15.4

The Commission examined the proposal submitted by the licensee and analysed the suggestions and objections raised by the objectors during the hearing. The Commission is also concerned at the inefficiency of the licensee in collecting the arrear dues and poor compliance of data as per the tariff guidelines prescribed by the Commission. However, looking at the reality of the situation and as approved in the last tariff order the Commission decides to permit a provision of 2.5% of the gross sales towards provision for bad debts. On this basis, the Commission approves Rs.18.62 crore and Rs.21.04 crore for the year 01-02 and 02-03 respectively as Bad & Doubtful Debts allowed for recovery through tariff.

6.16

Other Expenses

Under this head, CESCO proposed an amount of Rs.97.66 crore and Rs.140.40 crore for the year 01-02 and 02-03 to be recovered through tariff towards surcharge on over due payables. CESCO has not given any justification in support of the expenditure to form a part of the revenue requirements. Moreover the licensee has not compiled and audited its account for the year 1998-99, 1999-00 and 2000-01 without which the amount of surcharge as well as the expenditure beyond the control of the licensee cannot be established. Hence the Commission disallows claim towards surcharge on over due payables for both the years.

6.17

Previous Loss

CESCO has proposed Rs.298.98 crore and Rs.560.59 crore of previous losses to form a part of the revenue requirement under Special Appropriation for the year 01-02 and 02-03 respectively. As mentioned in foregoing para, without audited accounts the losses as claimed by the licensee cannot be authenticated. Moreover, Commission may consider only those losses which occur due to the reasons beyond the control of the licensee to be passed on to consumers through tariff. Any loss due to inefficiency of the licensee and beyond the normative level of expenditure cannot be allowed by the Commission under Special Appropriation. Hence, the Commission disallows previous losses under Special Appropriation.

6.18

Contribution to Contingency Reserve

CESCO has not proposed anything towards contribution to contingency reserve under Special Appropriation for the year 01-02 and 02-03.

6.19

Other Special Appropriation permitted by OERC

CESCO proposed Rs.51.04 crore in both the years to be allowed under special appropriation as per the OERC Retail Tariff Order dtd.19.01.2001 (Para 7.2.6). The Commission took note of the claim and is of the view that the claim will be considered only when the audited accounts are available and the profit/loss of the licensee has been authenticated by the competent authority.

6.20

Capital Base

6.20.1

Original Cost of Fixed Assets

6.20.1.1

CESCO has projected its original cost of fixed assets at Rs.486.60 crore as on 31.03.2002 and Rs.560.07 crore as on 31.03.2003 as depicted in Form No.F-14. Fixed assets as on 31.3.2001 was Rs.433.73 crore (F-37). CESCO shows an asset addition of Rs.52.87 crore during 01-02 and Rs.73.47 crore during the year 02-03.

6.20.1.2

This has been examined with reference to the information submitted in Formats F-2, F-35 and F-37 of the Tariff Guidelines submitted by the licensee.

6.20.1.3

The Commission accepts Rs.486.60 crore and Rs.560.07 crore as original cost of the fixed asset as on 31st March 2002 and 31st March 2003 respectively for the purpose of calculation of capital base.

6.21

Receipts Against Consumers’ Contribution

Contribution from consumers of Rs.81.13 crore as on 31.3.2002 and Rs.101.33 crore as on 31.03.2003 has been deducted by the licensee from fixed asset for calculation of capital base. Information submitted in Format F-37 of the tariff filing shows a balance of Rs.74.81 crore under consumer contribution as on 31.03.2001. Comparing the figure of consumer contribution for the year 01-02 and 02-03 with that of FY 00-01, the Commission considers it reasonable to accept the figure of Rs.81.13 crore and Rs.101.33 crore for the respective years to be deductible from the asset base for the purpose of calculation of capital base.

6.22

Original Cost of Work-in-Progress

6.22.1

CESCO has projected Rs.134.86 crore and Rs.110.89 crore towards original cost of work-in-progress for the year 01-02 and 02-03 respectively which form a part of asset base.

6.22.2

CESCO has not submitted its audited accounts from 1998-99 to 2000-01 which are overdue. In absence of audited base figures the amount of work-in-progress cannot be properly assessed. Moreover information submitted by CESCO in Format F-2 and F-37 are insufficient to calculate the capital work-in-progress. The Commission accepts provisionally the figures of capital work-in-progress as proposed by licensee for the year 01-02 and 02-03 and directs CESCO to develop strong management information system for data collection and comply with the information required by the Commission as per the tariff guidelines and revenue requirement without which the Commission will not take into consideration the capital base in progress in subsequent tariff calculation.

6.23

Investment under Para IV

6.23.1

CESCO has proposed balance of contingency reserve of Rs.1.22 crore and Rs.1.40 crore to form a part of asset base for the year 01-02 and 02-03 whereas no information on balance on contingency reserve has been produced in the prescribed format F-33. As per the provisions of the Sixth Schedule, the licensee is eligible to get return only on such amount which has been invested in the prescribed securities within specified period under the head compulsory investment of contingency reserve. No document regarding this investment has been produced to the Commission.

6.23.2

As such, the Commission does not consider it prudent to take the amounts of Rs.1.22 crore and Rs.1.40 crore for the purpose of calculation of capital base of the respective years.

6.24

Working Capital

6.24.1

Average Cost of Stores

6.24.1.1

According to para XVII(e)(i) of the Sixth Schedule of the Supply 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.70.25 crore for the year 01-02 and Rs.99.51 crore for the year 02-03 in their retail tariff filing 01-02 and ARR 02-03 respectively.

6.24.1.2

The Commission examined the proposal of CESCO and does not accept the amount as proposed. 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.5.86 crore for the year 01-02 and Rs.6.57 crore for the year 02-03 as reasonable for the purpose of working capital for stores to be included in the capital base.

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