6.8

Method of determination of Power Purchase

6.8.1

The power purchase by the DISTCOs are metered at various grid sub-station’s 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 combindly. The expected revenue from sale of power shall be calculated separately for EHT and combindly 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 combindly 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 depict in revenue which need to be funded through interim financing or through tariff.

6.9.2

NESCO in its clarification dated 30.03.2002 to the queries raised during the course of public hearing 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 under affidavit the extract of which is given in the table.

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

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 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 file.

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 6.11.2

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

Table-16
FY 2002-03

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-13 and Table-14 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

The operating expenses for distribution and retail supply may be considered under the following heads:-
Employees Cost Administration & General ExpensesRepair and Maintenance ExpensesLess expenses capitalized

6.10.1

NESCO in OERC Form No.TRF-21 (2002-03 filing) has submitted various components covered under employees cost for the FY 2000-01 on the basis of audited accounts and have made projection up to the FY 2002-03. The employees cost chargeable to revenue was Rs.45.48 crore as per the audited account for the FY 2000-01 which has been projected to go up to Rs.50.85 crore during FY 2001-02 and Rs.54.64 crore for the FY 2002-03. In the ARR filing NESCO stated that the employees cost have been estimated in the ensuing year on the basis of actual/audited expenses incurred during 2000-01 and actual/forecast during current year.

6.10.2

Commission analyse the figures based on the audited accounts submitted by the licensee and consider it appropriate giving 3% rise on the basic pay per annum over the audited figure of FY 2000-01 to determine the basic pay for the year 2001-02 as well as 2002-03.

6.10.3

As regards DA, the Commission is aware of the fact that the rate of DA allowed by Government of Orissa is 41% with effect from July 2000. This rate is continuing now and no increase in DA rate has been announced by State Government, although Government of India in the mean time has allowed two doses of DA over and above the prevailing rate of DA of Government of Orissa. The prevailing of DA of Government of India is 49% with effect from 01.01.2002. Commission in view of the above decides to consider the prevailing rate of 41% of calculation of DA for the financial year 2001-02 and 2002-03. However, any increase in rate of DA in future will be allowed to be recovered through tariff with retrospective effect.

6.10.4

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 below.

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

6.10.5

The Commission approves Rs.49.60 crore and Rs.51.11 crore towards employees cost to be charged to revenue for the year 2001-02 and 2002-03 respectively.

6.11

Repair & Maintenance Expenses

6.11.1

NESCO has proposed an expenditure of Rs.16.32 crore in their RST application for the FY 2001-02 and Rs.19.36 crore in the ARR for the FY 2002-03 towards repair and maintenance expenses.

6.11.2

As per the audited accounts for the year 2000-01 the total R&M expenses was Rs.13.95 crore. NESCO estimated R&M expenses for Rs.16.32 crore and Rs.19.36 crore for the years 2001-02 and 2002-03 @ 5.4% of the Gross Fixed assets at the beginning of the year.

6.11.3

The Commission examined the licensee’s proposal on R&M expenses and considers it reasonable to allow 5.4% of gross fixed asset as at the beginning of the year. As per RST and ARR filing the gross fixed asset as on 31^st March, 2001 and 2002 would be Rs.302.21 crore and Rs.363.80 crore respectively. Accordingly, the Commission approves Rs.16.32 crore and Rs.19.36 crore for the year 2001-02 and 2002-03 respectively towards R&M expenses which is 5.4% of the gross fixed asset at the beginning of the financial year.

Table : 18
(Rs. in crore)

6.12

Administration & General Expenses

6.12.1

NESCO has proposed Rs.7.19 crore and Rs.7.52 crore towards A&G expenses for the year 2001-02 and 2002-03 respectively in their RST and ARR applications. These expenses include expenses on communication, professional charges, property related expenses, conveyance and travelling, training, other expenses and material related expenses. The A&G expenses are said to be based on actual expenses incurred during current year and budget estimate for ensuing year.

6.12.2

The Commission has examined the licensee’s proposal on A&G Expenses. A&G expenses as per the audited accounts for 2000-01 submitted by NESCO was Rs.7.98 crore. The Commission in its last tariff order of 2000-01 approved Rs.5.91 crore towards A&G expenses, considering 8% increase over the approved figure of 1999-00 to compensate for inflation.

6.12.3

Objectors in general expressed concern about rising trend in A&G expenses and requested that this expenditure should be kept under control preferably limiting to the percentage hike of about 5%.

6.12.4

The Commission finds the projected A&G expenses rather excessive with reference to earlier expenditure particularly considering the volume of transactions which has not increased. The projection includes lease rental of Rs.148.50 lakhs for the year 2001-02 and 2002-03. There is no justification of lease rental for meters when meters have been taken under financial lease.

6.12.5

A&G expenses include a sum of Rs.97.75 lakhs as expenditure related to organisational development expenses. The Commission appreciates introduction of innovative schemes particularly those which are participative, consumer friendly and aims at reaching the rural consumer while safeguarding financial interest of the company. But at the same time, Commission observes that the benefit accruing on account of introducing the scheme should offset the expenditure proposed to be incurred. The tangible benefits like improvement in percentage of billing and collection, reduction in bad debt, reduction of transmission and distribution loss, etc. should have been projected along with the proposed expenditure. The licensee should have particularly brought out the additional revenue earned from the area where the micro-privatisation scheme is in operation over the corresponding figure of the previous year. Such exercise has not been carried out.

6.12.6

The Commission, therefore, considers it reasonable to allow an increase of 5% per annum over the approved figure of 2000-01 to compensate for inflation and approves an amount of Rs.6.21 crore and Rs.6.52 crore for the year 2001-02 and 2002-03 towards A&G expenses respectively.

Table : 19
(Rs. in crore)

6.13

Interest on Loan

6.13.1

NESCO has proposed an amount of Rs.41.40 crore for the year 2001-02 and Rs.45.90 crore for the year 2002-03 towards interest on loans taken from GRIDCO, World Bank and Power Bonds to be charged to revenue. The interest amount on the loan from GRIDCO has been calculated as per the loan agreement with NESCO. 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. Interest on Power Bonds worth Rs.167 crore issued in favour of GRIDCO/NTPC w.e.f 1st October 2000 towards power purchase liability and loan repayment liability has been calculated @12.5% per annum.

6.13.2

NESCO has stated that only the interest on loan drawn during the year for capital works has been capitalized. NESCO proposed an amount of Rs.31.14 crore and Rs.34.00 crore to be drawn from World Bank during the year 2001-02 and 2002-03, the interest on which would be capitalized in the respective years.

6.13.3

In addition to above, NESCO has proposed an amount of Rs.52.13 crore and Rs.25.65 crore towards interest on working capital for the year 2001-02 and 2002-03 respectively. NESCO has tried to justify the claim of interest on working capital with a plea that they have not been able to get any working capital loans from any financial institution/banks due to their poor financial conditions. In turn, they have not been able to pay to GRIDCO the full amount of electricity bill for which they have to pay DPS @ 2% per month on the outstanding amount of power purchase bills which has been claimed as interest on working