5.0

CESCO’S REPLY TO THE OBJECTIONS
Mr. Charles Lenzi, Managing Director, CESCO submitted a set of clarifications in response to the consumers’ objections to the retail tariff application, 2000-01.

5.1

RATIONALE FOR RETAIL TARIFF APPLICATION

5.1.1

Validity and Frequency of Retail Tariff Application

5.1.1.1

Referring to maintainability of the tariff application CESCO was of the view that the retail tariff application was as per section 26 of the OER Act, 1995.

5.1.1.2

CESCO maintained that the consumer categories as stated in regulation 80 were valid classifications.

5.1.1.3

CESCO agreed to the suggestion of a multi-year tariff provided the Commission adopted a realistic loss levels. The licensee did not agree to the contention that there was no nexus between the purchase of power and sale of units.

5.1.2

Differential Tariff
CESCO has adopted the methodology provided in law for determination of revenue requirement

5.1.3

Hearing
With regard to the proposal for a common hearing for all Distcos, CESCO maintained that the situation in all Distcos was not identical.

5.1.4

Audited Accounts
CESCO has already finalised its trial balances for the relevant period and handed the same to GRIDCO and is extending all possible support to expedite the process of finalisation of accounts.

5.2

ENERGY SALE ESTIMATION

5.2.1

Method of Demand Estimation
CESCO has described the method of demand estimation in the tariff application.

5.2.2

Sales Mix
Reacting to the objectors’ contention of a favourable sales mix CESCO maintained that the share of LT in total consumption was 69.3% in 1999-00 which came down to 68% in 2000-01.

5.2.3

Energy Purchase from GRIDCO
CESCO has submitted the demand projection for five years to the Commission and is ready to work on it further to revise the same.

5.3

ENERGY LOSSES

5.3.1

Loss Estimation
The loss was calculated as the difference between energy purchased and energy billed. The licensee has undertaken a metering plan and the World Bank has already approved the loan on the account.

5.3.2

Decrease in Loss
Reacting to the objection that the non-technical losses has not got reduced, CESCO explained that the survey study showed a reduction of non-technical loss from 11.23% at the beginning to 7% by the end of the six months period. Comparing the losses of CESCO with SOUTHCO, CESCO maintained that its proposed loss reduction was higher than what has been projected by SOUTHCO. The impact of the system improvement activities on loss reduction would be felt after the completion of the ongoing Work In Progress.

5.4

EXPENDITURE OF CESCO

5.4.1

General
CESCO maintained that the expenditure on VRS scheme, computerisation and automation, loan for metering, cyclone rehabilitation and IBRD and RE work etc would lead to loss reduction and improvement in its cash position.

5.4.2

Cyclone Expenses
Since the damaged assets on account of cyclone had no salvage value the licensee had removed Rs.29 crores from its capital base and shown this as revenue loss. Realising that the cost of damage could be much more than that of insurance premium, the licensee has taken steps to enter into insurance contract.

5.4.3

Employee Expenses and VRS
The employee expenses have gone up due to the implementation of the fifth pay Commission. Implementation of VRS should rationalise CESCO’s staff strength in future.

5.4.4

Bad Debts
CESCO has adhered to the Commission’s norm relating to bad debt.

5.4.5

Purchase of Power
CESCO purchased power from GRIDCO at a rate prescribed by the Commission. Therefore the objection relating to availability of cheap power from hydro or pithead thermal stations was not relevant to retail tariff application.

Regarding purchase of extra power when the demand increased the objectors said that the same should be charged at marginal costs. CESCO requested the Commission to take a view on the higher cost of power procurement and the mechanism on how to pass the same to the consumers.

5.4.6

Engagement of Consultants
CESCO has restricted the use of consultants and saved on consultant fees.

5.4.7

Stores
Reacting to the allegation that CESCO was incurring losses due to mis-management of stores, the licensee argued that the value of stores was projected to decrease from Rs.480.54 crores in 1999-00 to Rs.180.48 crores in 2000-01.

5.4.8

Depreciation
CESCO explained that the process of building an asset register would require considerable time and expenses.

5.4.9

Administrative and General Expenses
The A&G expenses and the related details have been furnished in the application.

5.4.10

Repair and Maintenance
R&M expenses were high due to obsolete assets and the impact of cyclone.

5.4.11

Loans & Interest
Clarifying on loans and interest CESCO said that the Bulk Supply Agreement with GRIDCO had a provision of working capital loan of Rs.174 crores which was to be repaid .The Govt. of Orissa has not provided any loan to CESCO on account of cyclone or system improvement. The loans for building assets have been availed of during the beginning of the year and hence the interest was charged for the full year.

5.4.12

Legal Expenses
Regarding the high legal expenses CESCO maintained that those largely depended on extraneous factors. With regard to the suggestion of setting up of an effective customer grievance cell to solve disputes CESCO submitted that a customer care centre had been set up in Bhubaneswar and similar centres would be opened in Cuttack and Salipur soon.

5.4.13

Previous Loss
Clarifying on previous loss CESCO said that it had not claimed any amount on account of it in its tariff application.

5.4.14

Contingency Reserve
Contingency reserve has been calculated as per the provision of the Sixth Schedule.

5.4.15

Computerisation and automation
The expenses on these heads were primarily for providing in-house and specialised training to the CESCO employees for upgradation of skills for the use of computers for data analysis and decision making.
Reacting to consumers’ demand for more of information on a number of business parameters the licensee submitted that it was not equipped to generate up-to-date information relating to those parameters immediately.

5.4.16

Security Deposit
Investment made by CESCO on account of these has been accounted as an income for the purpose of calculating income generated from existing tariff.

5.5

CAPITAL BASE

5.5.1

Capital Base
The licensee’s computation of capital base was correct in view of the fact that the same was based on the original cost of fixed assets as obtained from GRIDCO.

5.6

Reasonable Return
Reasonable return has been calculated as per the stipulations of the Sixth Schedule.

5.7

Revenue Requirement
Revenue requirement has been calculated as per the stipulations of the Commission.

5.8

TARIFF PROPOSAL

5.8.1

General
Reacting to the objectors’ suggestion to bring changes in the unbundled tariff structure consisting of demand, energy and customer charges, CESCO submitted that the existing structure clearly described the various components of cost. Referring to the consumer complaint that the bills issued were complicated and confusing CESCO maintained that it had redesigned the format of the bill as per guidelines issued by the Commission.

5.8.2

Meter Rent
Some of the consumers have stated that the meter rent charged was high and the consumers were not allowed to purchase their own meters. CESCO clarified that it allowed the domestic/commercial consumers to fix single phase meters at their own cost. The licensee had raised objection only against installation of sub-standard meters by the consumers. It had however no objection in consumers procuring meters of CESCO’s specification and installing them after being duly tested in CESCO’s laboratories. Reacting to the consumers’ proposal to withdraw meter rents, CESCO submitted that it had claimed meter rent as per the provisions of Indian Electricity Act, 1910. CESCO clarified that consumers owning meters were not charged meter rent.

5.8.3

Special Categories
The licensee had proposed a special sub-category for EOUs under the power intensive category to retain the industrial consumers under the grid and help other consumers. In the absence of a special tariff these EOUs might set up and use their own CPPs or continue to use the NTPC power.

5.8.4

DPS, Overdrawal Penalty and Power Factor Penalty
Income on account of DPS, overdrawal penalty and power factor penalty had been accounted for in the tariff proposal

5.8.5

Demand Charges
Regarding installation of demand meters CESCO submitted that these were required only in case of demand charge levied on the basis of recorded maximum demand.

5.8.6

Proposed Tariff Rates
The proposed tariff rates of CESCO were provided in Form T-8. The proposal of Astaranga Salt Production and Orissa Cooperative Coir Corporation that they should be charged for power at par with Irrigation pumping & Agriculture category was not justified as these consumers could not be classified as above.

5.8.7

Tariff for Railway Traction
The tariff for different categories of consumers did not match with the cost of supply, as pointed out by the SE Railways, due to the presence of cross-subsidy. The Railways had hinted at the simultaneous maximum demand method on the basis of which CESCO paid demand charge to GRIDCO. CESCO clarified that whereas the licensee had entered into a single agreement with GRIDCO for mutiple-points, the consumers of CESCO would have to enter into separate agreement with the licensee for each point of supply.

5.8.8

NALCO Tariff
Regarding supply of power to NALCO, CESCO maintained that it had the exclusive right of distribution and retail supply of electricity. NALCO was bound to be a retail consumer of CESCO as far as import of power was concerned. CESCO did not agree with NALCO that low power factor penalty, demand charge etc. should not be levied on the latter. CESCO submitted that it was unwilling to accept the wheeling of power from NALCO CPP, Angul for NALCO Bhawan and NALCO Nagar Township at Bhubaneswar for the simple reason that the area of operation came under the retail supply business of the licensee.

5.9

REVENUE GENERATION

5.9.1

Revenue Generation From Existing and Proposed Tariff Structure
Regarding the proposed generation of revenue under the existing tariff, CESCO maintained that it would fall short of its revenue requirement defying UCCI’s expectations of surplus in revenue collections.

5.10

OPERATIONAL ISSUES

5.10.1

State of Finance
Some of the objectors had taken exception on the statement about the possibility of CESCO being referred to BIFR. The licensee through this statement wished to sensitise the stake-holders and did not agree with the view that this was a threat or pressure tactics.

5.10.2

Metering
Reacting to the objectors’ view that CESCO was negligent on metering the licensee argued that its metering plan was aggressive and it wished to regularise illegal connections as fast as possible. The non-availability of meters had rather delayed the metering programmes of CESCO due to which the number of unmetered consumers increased in the current year.

5.10.3

Power Theft
CESCO did not agree with the objector that increase in electricity tariff might encourage consumers to steal power by various means.

5.10.4

Disconnection and Reconnection
Increase in reconnection charges had been proposed as a means of disincentive for those who were irregular in paying the energy charges or resorting to other illegal activities.

5.10.5

New Connections
Reacting to the objectors’ request for separate light and fan connection in the premises of the industrial units, CESCO maintained that two connections under different categories of consumers to the same premises are prone to misutilisation of the different tariffs for different categories of consumers.

5.10.6

Serving of Bills
Referring to consumers’ complaint that bills were not served in time, CESCO submitted that although normally the bills reached the consumers within the due date, the consumers should also themselves arrange for a copy of the bill in case the bills did not reach in time.

5.10.7

Security Deposit
Security deposit was charged as per the provision in Section 20 of the Distribution Code.

5.10.8

Consumer Benefit Proposal
The proposed expenses in respect of system improvement would result in improved voltage and reliability of the system.

5.10.9

Low Voltage/Power Failure
Reacting to the consumers’ complaint of low voltage and power failure CESCO submitted that the same was caused due to overdrawal by registered as well as illegal consumers.

5.11

MISCELLANEOUS

5.11.1

DPS Payable to GRIDCO
The licensee has not claimed any payment towards DPS payable to GRIDCO.

5.12

CESCO’S REPLY TO DIRECTOR (TARIFF)

5.12.1

Loss Estimation
CESCO recalculated LT & HT Distribution loss at 50.8% The licensee has targeted to reduce the LT/HT losses by 3.73% in 2000-01.

5.12.2

Loss Studies
The licensee would carry out the necessary loss studies as required by the Commission and would submit the same shortly.

5.12.3

A&G Expenses
While furnishing clarification to the Commission’s queries, CESCO had shown consultancy charges as part of A&G expenses.
CESCO depended on outside agencies for printing, stationery and bill generation during 1999-00 and hence the expenses were shown under different sub-heads under A&G expenses. Now that printing of bills are in-house the same is classified under the head of printing, stationery and bill generation. Therefore, other expenses shown in the A&G has gone down substantially.

5.12.4

Loss Due to Damaged Assets
In order to carry out repair and maintenance work after cyclone most of the materials were ordered by CESCO before the Commission set a limit on these expenses. Since the actual expenditure incurred under this head was much more than what was approved, the licensee humbly requested the Commission to allow these expenses by reconsidering its earlier stand.

5.12.5

Carry Forward of Past Losses
CESCO clarified that it had not claimed any amount on account of previous losses in the tariff application. The figure of Rs.13.77 crores shown against previous losses was on account of two factors (i) the amount of Rs.1.48 crores disallowed by the Commission in the last tariff order and (ii) the additional losses suffered due to calculation of CESCO’s revenue requirement on the basis of the last year BST order which was sub-judice.

5.12.6

Capital Expenditure
Since the cyclone related repair and restoration work was over during 1999-00 CESCO submitted that it could deploy its entire workforce for PMU work. The licensee therefore opined that the projected level of PMU work could be implemented during 2000-01.

5.12.7

CESCO Stores
Materials lying in stores, worth Rs.31.23 crores, have been used for the creation of fixed assets. The licensee, therefore, requested to allow the capitalisation of the identified amount from stores.

5.12.8

Employee Expenses
CESCO has claimed only 6% increase in its employee cost over the actual expenses in 1999-00. The details of employees and their pay scales were furnished for the Commission’s perusal.

5.12.9

CESCO’s Metering Efforts
CESCO has submitted the details of the metering plan. The licensee has conveyed that the current lot of meters were not sufficient to even fully replace the existing defective meters.

5.12.10

Customer Care at CESCO
CESCO has set up a Customer Care Centre at Bhubaneswar for quick and effective redressal of the consumer complaints and wished to establish similar centres in other divisions.