7.0

REVENUE REQUIREMENT

7.1

CESCO submitted its revenue requirement for the year 2000-01 in September, 2000. The Commission has relied on the data & information presented by CESCO as well as the facts and arguments put forth by the objectors before it for analyzing the revenue requirement.

7.2

Quantum of Power Purchase

7.2.1

CESCO purchases power at different supply points from GRIDCO for supply to consumers in its area of operation. The requirement of power purchase is directly related to the quantum of energy sold to the consumers and the transmission & distribution loss occurring in the licensee’s system. While estimating energy sale for 2000-01, CESCO has analysed the pattern of consumption of various groups of consumers for the year 1998-99, 1999-00 and projected these figures for the financial year 2000-01 in the format prescribed by OERC. According to the analysis of energy sale mix between LT, HT & EHT consumers for the FY 2000, LT consumption accounted for 66.92% while HT & EHT accounted for 16.98% and 16.10% respectively.
The Commission in its query to the licensee pointed out that there appeared to be no correlation between the growth projected for the year 2000-01 and that achieved during the year 1999-00. This point was also raised by some of the objectors who stated that by projecting a higher than expected growth rate in LT, the licensee was trying to project a higher revenue requirement in the form of higher power purchase and show a lower estimate of expected revenue due to low tariff rate of this segment.
In case of LT category CESCO projected consumption basing on the actual consumption from April 00-July 00 and prorating the same for eight months. Further additional billings on account of the cyclone affected consumers after restoration of power, the addition of new consumers and the loss reduction activities were incorporated in the estimation.
In case of domestic consumers, growth of 18.53% in consumption was recorded in the year 1999-00 over the previous year. CESCO in OERC form No. T-1 has furnished information relating to the number of consumers and their connected load and subsequently estimated the consumption for the year 2000-01 which worked out to a rise of 13.27% for the year 2000-01 compared to the year 1999-00.

It estimated a growth of 11.20% for commercial consumers.

In case of irrigation consumers CESCO estimated a rise of 17.32% taking the growth in number of consumers and contract demand as submitted to OERC in Form No. T-1.
In case of HT category of consumers the growth rate of 7.0% was estimated for the year 2000-01 based on the trend of consumption from April 00-July 00 and prorating the same for eight months. Besides additional billed units gained due to commercial loss reduction activities were also incorporated.
In respect of EHT category of consumers, CESCO presumed a growth rate of 15.33% for the FY 2000-01 based on the actual consumption from April to August 2000 and considering intimation for change in contract demand or energy off-take by the consumers.

7.2.2

The Commission analysed the consumption of various groups of consumers and studied the consumption pattern of all HT & EHT consumers. A detailed analysis of the billed units of the LT consumers particularly of 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 load factor. In he light of persistent public compliant regarding wrong billing, non-installation of meters and poor commercial practices the Commission doubts the accuracy of consumption figures projected by CESCO. However these figures are accepted for the purpose of revenue requirement for the year 2000-01 as furnished in OERC Form No.T-1.

7.2.3

Estimated level of consumption at various voltage level are given in Table-3 for 2000-01.

Table - 3

7.2.4

This shows an increase of about 13.52 % over the sale in FY 1999-00 and the same was examined at the Commission’s end. A comparative picture of the consumption of the previous two years along with projection for 2000-01 as presented by the licensee in its filing in September, 2000 is given in Table-4.

Table - 4
Consumption in MU

CESCO has provided an analysis of the pattern of consumption of the consumers covered under LT, HT & EHT categories in para 2.3 of its RST application and details in OERC Form No. T-1. The actual growth in consumption during 1999-00 is obviously stunted due to ravages caused by super-cyclone.

7.3

Transmission & Distribution Loss

7.3.1

CESCO has estimated T&D loss at 42.66% for 2000-01. It has stated that for the year 1999-00 the estimated loss figure was 45.68%.

7.3.2

CESCO’s estimation of the overall loss percentage at 42.66% 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 as per CESCO’s proposal would have to bear the EHT loss passed through in the BST in addition to 42.66% loss proposed by CESCO.

Majority of the objectors were concerned about the reporting of very high level of loss in the transmission and distribution system of the licensee particularly after the privatisation which under SEB management used to be recorded at lower level.

The authenticity of loss level projected by the licensee has not been supported with verifiable data to ascertain the correctness of the projection in the absence of metering in large number of consumer premises. The pilot study to establish the loss level conducted in 1998 can not be treated as authentic today. The Commission’s suggestion to conduct a fresh pilot study in order to establish commercial and technical loss levels should have been completed. Such a study requires 100% metering for consumers connected to a selected number of distribution transformers in selected feeders with mixed load.

If EHT sale is taken out from the total sale, then the distribution loss as a percentage of HT and LT input works out to 47.07% for CESCO.

The objectors also pointed out that the loss was being computed taking into account the zero loss EHT energy input into the system to arrive at a smaller figure. Secondly, this figure was arbitrarily fixed and the system data were manipulated to justify the same. Therefore, the loss projection was entirely arbitrary and without any basis and hence should not be accepted.

There were variations in the loss projections made by the objectors though there was general suggestion to adopt overall loss level at 32% including 3.5% towards transmission loss. The objectors were of unanimous view that this high level of T&D loss had remained uncontrolled during the past three years and should have been brought down.

7.3.3

The Commission is very much concerned about the reported high loss level in the system and the fact that there is no appreciable decline in the level of loss. This has a serious bearing on the revenue and finance of the licensee and hence the tariff.

The Commission, therefore, has the unenviable task of fixing a level of loss in the absence of verifiable and reliable data and apply value judgement that should be fair, reasonable, acceptable, achievable and financially sound. Any arbitrariness on the part of the Commission will either affect the financial viability of the licensee or unduly burden the consumers.

It may be relevant to note that Orissa is not the only state having high T&D loss. The T&D loss figures unveiled in some states like Andhra Pradesh, Delhi, Haryana, Maharashtra and Uttar Pradesh were at the levels of 52%, 55%, 36.6%, 32% and 36.5% respectively in the immediate post-reform regime.

In fact it is this Commission which for the first time in India identified and quantified the crucial importance of T&D loss level and linked it to tariff fixation. T&D losses of more than 35% have never been allowed by this Commission to be passed on in tariff in spite of the reported losses at level as high as 47.31% (1997-98 audited account). On the contrary, the level of benchmark adopted by OERC has been perceived to be unrealistic and unacceptable by the World Bank team, GRIDCO and the Distribution Companies. Even with the above benchmark there will be substantial gap between revenue requirements of licensees and anticipated revenue at the existing tariff rate.

The loss levels reported by the various distribution companies are given in Table-5. This does not include losses in EHT transmission.

Table : 5
Distribution Loss (%)

The Commission directed during the course of hearing that the distribution licensees must now carry out pilot studies for determination of technical and non-technical loss in their system for a period of six months from April, 2001 to September, 2001 and submit the same to the Commission after which the Commission will take a view on loss reduction programme. The Commission intends to obtain a commitment for an accelerated T&D loss reduction programme giving year-wise targets for loss reduction till the year 2010. But this has to wait until the pilot studies are made and reasonably reliable data base is built. For the purpose of calculation of revenue requirement the Commission has decided to adopt an overall loss level of 34% including the losses in EHT transmission system which is around 3.7% for the year 2000-01. On this basis the distribution loss works out to 31.46%.

7.3.4

CESCO proposes to sale 2259.32 MU during 2000-01. GRIDCO’s power purchase on account of supply to CESCO would be 3423.21 MU based on the prescribed 34% of T&D loss. CESCO’s purchase from GRIDCO would be limited to 3.7% (being the approved transmission loss in EHT) less than what is purchased by GRIDCO for supply to CESCO. For the purpose of revenue requirement and sale to its consumers, CESCO has to purchase only 3296.55 MU during 2000-01. The system loss in CESCO works out to 3296.55-2259.32 = 1037.23 MU. This loss expressed as a percentage of input to the CESCO system is 31.46% and the same is allowed for the purpose of revenue requirement of CESCO. The end use consumer has to pay for 34% of T&D loss as approved by the Commission. The above calculation is presented in Table-6.

Table: 6

7.4

Cost of Power

7.4.1

CESCO has to purchase 3296.55 MU from GRIDCO at the rate of Rs.200/KVA/month + 99 paise/unit approved separately by the Commission in BST Order dated 19.01.2001(Case No.27/2000). The Commission has examined the power purchase bills of CESCO for April, 1999 to March, 2000. The bill details have been supplied by CESCO in Evidential Document Vol-III of Retail Supply Tariff of 2000-01. The average cost per unit of power purchased from GRIDCO for the months of April, 1999 to March, 2000 is 126.37 paise/unit. The rate/unit payable by CESCO under revised Bulk Supply tariff would be 138.24 paise/unit. The cost of power @ 138.24 paise/unit for purchase of 3296.55 MU would, therefore, be Rs.455.73 crores instead of Rs.527.98 crores asked by CESCO at an average rate of 134 paise/unit.

7.4.2

Institution of Purchase Power Price Adjustment Clause (PPPAC). Since the revised bulk supply tariff rate to be effective from 01.02.2001 has been considered for determination of cost of power for CESCO the Commission does not consider it necessary to institute Purchase Power Price Adjustment Clause (PPPAC) as requested by the licensee.

7.5

Operating Expenses

7.5.1

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

7.6

Employees Cost

7.6.1

Employees cost involves cost of manpower in service as well terminal benefits to be payable to retiring persons including pension.

7.6.2

CESCO has proposed Rs.99.98 crores for the FY 2000-01 towards Employees. This is far in excess of Rs.82.75 crores claimed and allowed for 99-00. This cost includes a sum of Rs.0.35 crores towards contribution to PF and Pension. CESCO has stated that increase in employees cost projected for the FY 2000-01 is 5.95% (Para 4.2 of RTA) above the provisional expenses for the FY 1999-00 (OERC Form No. F-21). CESCO projects an estimated increase of 3% towards annual increment. CESCO has also stated that the %age growth used for projecting the Employee Costs is based on the growth arising purely because of the inflation rate and also because of the rise in salary as a result of annual increments. We find that for 99-00, the licensee has ignored the limit of Rs.82.75 crores put by Commission which it itself had projected. Based on excess expenditure of 99-00 the licensee has projected Rs.99.98 crores for 2000-01 which obviously is excessive and unjustified.

7.6.3

Since the audited actuals for the year 1999-00 are not available the Commission considers it appropriate to take the approved figures of the Commission for the year 1999-00 as base and allow 8% increase to factor in increment and inflation. Accordingly, Rs.89.37 crores is considered appropriate for the purpose of employees expenses instead of 99.98 crores as proposed by the licensee.

7.7

Administration & General Expenses

7.7.1

CESCO has proposed A&G expenses for the FY 2000-01 as Rs.19.17 crores (Form F-23) in their original application and changed it to 18.75 crores in subsequent submission (sequel to clarification to queries). 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 1999-00 and budget estimate for the year 2000-01.

7.7.2

The Commission has examined the Licensee’s proposal on A&G Expenses. A&G expenses as per the information supplied by CESCO in OERC Form No.F-23 for 1999-00 was Rs.9.44 crores. The Commission in its last tariff order of 1999-00 approved Rs.6.28 crores towards A&G expenses, considering the disaggregated audited figures of 1997-98 as base and allowing 6% over it to factor in for inflation.

7.7.3

Objectors in general questioned the prudence of A&G expenses being incurred by CESCO and wanted it to be cut down severely and expressed concern about rising trend in A&G expenses. They requested that this expenditure should be kept under control preferably limiting to the percentage hike of about 6%.

7.7.4

While examining the details of A&G expenses it is revealed that CESCO has proposed a sum of Rs.7 crores towards consulting charges. Similarly, substantial provisions have been made towards printing and stationary, bill generation and hiring of vehicles. In the clarification to consumers queries, CESCO submitted that the use of consultants have been made very judiciously by CESCO. Even in case of preparation of asset register the licensee has decided to undertake the activity on its own, thereby saving on the consultant’s fees. CESCO is planning to spend Rs.2.5 crores towards outside management technical support. Similarly, they also require Tariff Filing support from outside agencies for which the outlay of Rs.50 lakhs has been earmarked. They have reported to have spent Rs.30 lakhs for tariff filing of FY 2000, the amount they intend to pass on in tariff in the year 2000-01. It is strange that CESCO spent Rs.50.00 lakhs towards tariff filing when the entire guideline for tariff filing was circulated by OERC. In spite of that the filing of CESCO had to change number of times to meet the Commission’s filing requirement. Thus expenditure on this account is excessive and unjustified.

7.7.5

So far hiring charges of vehicle is concerned, CESCO explained that they have deployed vehicles for collection activities which improves their revenue position. It is stated that CESCO had been saddled with massive corruption from earlier period. It has taken a drive to weed out corruption and streamline the same for which they have made a provision of Rs.75 lakhs under consultant’s charges.

7.7.6

During course of the hearing many objectors were of the opinion that the justifications given by the licensee towards increase in A&G expenses are not reasonable and cannot be considered prudent enough to be passed on to consumers. Harsh observations were given on huge expenses on consultants and outside management support. The licensee should have taken note of the Commission’s observations in the last tariff order that the licensee should enhance the expertise of the employees and upgrade their level of skill instead of engaging consultants with excessive fees to burden the consumers.

7.7.7

The Commission observes that the licensee should observe due diligence in spending money towards A&G expenses. The Commission considers it reasonable to allow an annual increase of 8% over the approved figure of 1999-00 to factor in inflation excluding licence fees. Over and above the figure, an amount of Rs.0.50 crores is allowed for licence fees and Rs.0.50 crores is allowed towards expenses to be incurred for billing and collection improvement. Thus total A&G expenses are approved at Rs.7.78 crores as against amount of Rs.18.75 crores proposed by licensee.

7.8

Repair and Maintenance Expenses

7.8.1

The R&M expenses proposed by CESCO is Rs.19.88 crores for the FY 2000-01. This estimate is stated to be based on 5.4% of Gross Fixed Asset at the beginning of the year. The licensee had been allowed an amount of Rs.19.05 crores in tariff order 1999-00 towards Repair and Maintenance Expenses.

7.8.2

While answering the query raised by the Commission regarding application of lower provision for repair and maintenance for new assets replaced due to super cyclone, CESCO clarified that they have inherited ageing and aged assets from GRIDCO which would require substantial R&M. The cyclone too has caused the R&M expenses to go up considerably. The expenses shown under R&M by the licensee are purely for the purpose of repair carried on the licensees fixed asset in order to add revenue earning live to the asset. In fact the actual R&M expenditure is much more than what has been claimed.

7.8.3

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 2000-01. Fixed asset position as at the beginning of the year has undergone a change due to replacement of asset on account of super cyclone and hence the Commission recalculates the same and arrives a figure of Rs.362.49 crores (Table-13) as on 31st March, 2000. Accordingly, taking 5.4% of the gross fixed asset as at the beginning of the year, the R&M expenses for the FY 2000-01 is approved at Rs.19.57 crores.

7.9

Interest on Loan

7.9.1

CESCO proposed an interest amount of Rs.20.95 crores to be charged to revenue. CESCO stated in their application that the interest burden charged to revenue has decreased in view of the repayments proposed to be made on the Gridco Loan in the ensuing Year FY-01 (Para 4.7.1 of the RST). Interest on various loans availed from various lending agencies as reported by CESCO is given in Table-9. The table also include Commission’s approved figure for the year FY-00 taken from the tariff order for CESCO dt.30.12.99.

Table : 9
( Rs in Crores)

The interest to be paid for the VRS loan has not been considered for the purpose of the calculation of the Revenue Requirement of the licensee for the FY 01. The benefits accruing to the licensee from the exercise of the VRS should be sufficient to service the debt being proposed to be availed for the VRS.

7.9.3

Out of Rs.20.95 crores to be passed on to Revenue, Rs.19.15 crores is payable to GRIDCO covered under subsidiary loans agreement and Rs.1.80 crores towards working capital loans. Interest on other loans like IBRD (PMU), IBRD (Metering). IBRD (Cyclone) etc. have been capitalised as shown in Table-10. No penal interest has been included in the revenue requirement.

7.9.4

The Commission accepts Rs.20.95 crores to be included in the Revenue Requirement for the year 2000-01 towards interest expenses.

7.9.5

INTEREST TO BE CAPITALISED
CESCO proposed an amount of Rs.15.01 crores as interest during construction to be capitalised for the year 2000-01 as in Table : 27 of their application of Sept., 2000. The correct total is Rs.14.95 crores. The loans from various sources as approved by the Commission for FY 99-00, actual expenditure in 99-00 and proposal for the 2000-01 are given in Table-10.

Table : 10
(Rs. in Crores)

7.9.6

For the year 2000-01 as indicated in table above there is an estimated receipt of Rs.40.12 crores against PMU works. The Commission does not find much justification in the licensee’s projection of Rs.40.12 crores when its actual performance of pervious year is at the level of Rs.11.13 crores only. The Commission limits the expenditure to the extent of Rs.11.13 crores against PMU and accordingly loan and the interest liabilities are adjusted. Similarly, loan for restoration of cyclone damage has been restricted to Commission’s approval of Rs.51.35 crores due to which the interest during construction gets reduced from Rs.14.95 crores to Rs.12.43 crores as given in the Table-11.

Table : 11

7.9.7

Hence Commission approves Rs.12.43 crores to be capitalised for the year 2000-01.

7.10

Depreciation

7.10.1

CESCO has proposed depreciation of Rs.26.87 crores on an asset base of Rs.368.23 crores as on 31.3.2000 in their submission dtd.02.11.2000. This figure has undergone change during the filing and clarifications. CESCO has adopted for calculating depreciation the straight-line method as per the rates notified by Ministry of Power, Govt. of India from time to time.

7.10.2

The provision of depreciation was raised by many of the objectors during the course of the hearing as already reported elsewhere in this order. Shri R.P. Mohapatra, Retd. Member, OSEB had stated that depreciation should be calculated on the basis of notification Ministry of Power, Govt. of India dtd. March, 1994. He also stated that asset being second hand the rate of depreciation has to be determined by the competent Govt. in each case “having regard to the nature, age and condition of the assets at the time 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 maintenance of fixed asset register and submitted that depreciation on any asset should not exceed 90% of the original cost of asset.
Shri B.N. Das had given some general and strategic suggestion on behalf of UCCI for tariff fixation. His suggestion is that correct calculation of depreciation as per Govt. of India’s circular should be made after dividing the assets into blocks at the time of revision of percentage of depreciation, if it is not possible for OERC to deviate from Govt. of India norms. Depreciation already collected and balance to be collected for each block of assets should be exhibited in registers by GRIDCO and DISTCOs within a time frame to be fixed by OERC.

7.10.3

The Commission has asked for Fixed Assets Registers and has called for reports on physical verification of Fixed Assets. Without Fixed Assets Registers and physical verification report, depreciation cannot be calculated correctly. Beside statutory accounting requirements, it is to be seen that the consumers are charged for the assets which are used and useful to them.

7.10.4

In reply CESCO mentioned that building up an Asset Register in a massive exercise as no records were maintained by its predecessor (GRIDCO). However, the licensee has decided to deploy a dedicated team of experienced professionals from among its own resources for building Asset Register.

7.10.5

While calculating depreciation, CESCO has withdrawn assets value of Rs.29 crores damaged due to super cyclone. The Commission in its Order dtd.19.04.2000 estimated the value of the damaged assets as Rs.34.74 crores which has been withdrawn from the gross fixed assets to find out the balance as on 31.03.2000 for the purpose of depreciation calculation. The balance of gross fixed assets is recalculated to Rs.362.49 crores as on 31.03.2000 the details of which has been indicated in Table-13.
The detail calculation of depreciation is given in Table-12

Table : 12
Calculation of Depreciation

The Commission accordingly, approves an amount of Rs.26.42 crores for depreciation for the FY 2000-01.

7.11

Bad and Doubtful Debt

7.11.1

CESCO in OERC Form No. F-17 has stated that the provision for Bad & Doubtful Debt for the year 1999-00 and 2000-01 would be Rs.23.63 crores and Rs.22.98 crores, respectively.

7.11.2

Clarifying to the consumers queries raised against the tariff filing, CESCO stated that the provision for bad and doubtful debt has been calculated as per the norms fixed by the Commission i.e.15% on a receivable base of two months of revenue. CESCO also stated that it would improve its collection efficiency over earlier years. CESCO mentioned in their clarification that the bad debt of the licensee would be much more than the amount claimed.

7.11.3

Many of the objectors have questioned the provision of Rs.22.98 crores as bad debt which is prima facie excessive.

7.11.4

The Commission examined the proposal submitted by the licensee and analysed the suggestions and objections raised by the objectors during the hearing. It is constrained to note the inefficiency of the licensee in sending correct and adequate bills and in realisation of its dues. But the Commission is looking at the reality of the situation and as approved in the last tariff order considers 2.5% of the gross sales to be assumed as bad debt for being charged to revenue. On this basis, the Commission approves Rs.15.59 crores as Bad & Doubtful Debt allowed for recovery through tariff.

7.12

Loss due to damaged assets
CESCO proposes Rs.21.66 crores to be recovered from the consumers through tariff towards cost of assets damaged due to super cyclone. CESCO has written off Rs.29 crores for loss due to cyclone out of which it intends to pass on Rs.21.66 crores to consumer this year and balance of Rs.7.34 crores in the next year.

7.12.1

The Commission has carefully examined the facts. It is viewed that the earlier order of the Commission vide No.OERC/Engg/76/99/649 dt.19.04.2000 in regards to “restoration of damage due to super cyclone, should be strictly adhered to. The Commission had also approved that the total expenditure required for restoration of system damaged by super-cyclone be divided into two parts - Capital and Revenue Expenditure. The licensee shall spend Rs.51.35 crores towards replacement of old damaged assets and shall be capitalised to form a part of the asset base. At the same time cost of the damaged assets worth Rs.34.74 crores shall be taken out from the asset base to ensure that consumers are not charged for the assets which are “not in use or useful”. In other words, consumers have to pay for the additional burden of assets for Rs.16.61 crores (i.e. Rs.51.35 - Rs.34.74 crores) due to super-cyclone.

7.12.2

Cost of damaged asset is not an item of expenditure as prescribed in the Sixth Schedule to the Electricity Supply Act, 1948. Abnormal financial loss occurred other than the provisions of the Electricity Supply Act cannot be passed on to tariff, but can be adjusted against annual profit and loss accounts of the company. Annual financial loss, if any, after adjustment is carried forward and appropriated against the profit in the year when clear profit is excess of Reasonable Return. Hence the Commission disapproves the claim and does not allow to pass on Rs.21.66 crores to consumers.

7.13

Contribution to Contingency Reserve

7.13.1

CESCO has not proposed anything on special appropriation towards contribution to contingency reserve as required under Para-IV of Sixth Schedule to the Act, 1948.

7.14

Carry Forward of Past Losses
Under Special Appropriation, CESCO proposes Rs.13.77 crores towards previous losses to be passed on to tariff. CESCO in their clarification dated 12.12.2000 stated that it has not claimed any amount on account of previous losses in its tariff application. The figure of Rs.13.77 crores shown against previous losses shown in forms F-12 and F-13 of the main application, volume II, is in fact the amount of Rs.1.48 crores disallowed by the Commission in the last tariff order and the differential bulk supply tariff which has not been effective and is sub-judice.

7.14.1

The Commission has gone through the details and is of the opinion that the licensee has not adhered to the norms and performance benchmark fixed by the Commission in the last tariff orders. Further, audited accounts of the licensee for the year 1998-99 and 1999-00 have not been submitted for assessment of actual loss. Hence loss incurred by the licensee cannot be allowed to be passed on to consumers in this tariff.

7.14.2

However, the Commission recognises that any loss incurred by the licensee within the performance benchmark and expenditure limit fixed by the Commission, after verification of prudence and reasonableness, can be considered as carry forward for adjustment in future tariff.

7.15

Other Special Appropriation as approved by the State Govt.

7.15.1

CESCO proposes Rs.1.41 crores as other special appropriation to be passed on to tariff in the FY 2000-01. On examination it is revealed that the licensee has claimed 0.5% of the loan balance as on 31st March, 2001 complying to the provisions of the Sixth Schedule to the Act, 1948. As per the provisions of the Sixth Schedule, 0.5% is of the loan is taken as part of the reasonable return and being considered separately while calculating reasonable return.

7.16

Capital Base

7.16.1

Original Cost of Fixed Assets
CESCO had projected its original cost of fixed assets at Rs.475.71 crores in their Tariff Application of 04.10.2000 which has been subsequently changed to Rs.446.71 crores (sequel to the clarification to queries to RTA). CESCO, in their clarification, stated that they have computed the amount of assets as per the Commission’s guidelines and reduce the gross block of asset by Rs.29 crores in the current year (FY 99-00) based on the depreciated value of assets as that is to be written off from the assets and charged to the profit and loss accounts (OERC Form F-35).

7.16.2

This has been examined with reference to information submitted by CESCO and Commission’s Order served vide letter No. OERC-Engg-76/99/649 dtd.19.4.2000. The Commission in its aforesaid letter has decided that Rs.34.74 crores worth of asset value have to be written off as “assets damaged in the super-cyclone”. The Commission after due examination had permitted a capital expenditure of Rs.51.35 crores as capital expenditure for works damaged due to cyclone. CESCO has projected in their filing a sum of Rs.70.78 crores against investment in cyclone damaged works.

7.16.3

While clarifying the Commission’s queries raised during the public hearing CESCO clarified that the licensee was under considerable pressure to immediately restore power supply to all areas that were left in the dark in the wake of the cyclone. The initial reports on the damages caused by the cyclone put the losses at Rs.129 crores. The Commission went on to approve a figure which is around 50% of the actual costs. Most of the materials were ordered before the Hon’ble Commission had passed its directive on the limit of these expenses. Hence, the actual expenditure incurred in this process was far more than the limit sanctioned by the Commission. Also, the licensee had already incurred these expenses by the time the Commission gave its directive. Hence, the licensee humbly requests the Commission to allow these expenses based on the actual figures and kindly re-consider the limit of Rs.51.35 crores allowed by the Commission. The licensee humbly prays that the Commission allow the licensee the actual costs incurred.

7.16.4

The Commission during the hearing rejected the application of the licensee towards excess investment in respect of cyclone damage over and above the limit fixed by the Commission in its order dtd.19.4.2000. Moreover the licensee has not informed/filed any application for approval of excess investment as referred above with the Commission. Thus the Commission is of the opinion that the gross fixed assets and capital work in progress are to be calculated as per the Commission’s order dtd.19.4.2000. Accordingly Rs.34.74 crores of asset value has been withdrawn from the asset base of 31.3.2000 and capital investment towards restoration of cyclone damage has been limited to Rs.51.35 crores instead of Rs.70.78 crores.

7.16.5

As stated in para 7.22.2 capital investment and under PMU has been limited to Rs.11.13 crores funded by World Bank. This will limit gross value of network asset at Rs.318.88 crores as against Rs.365.24 crores claimed by the licensee. The detail calculation of gross fixed asset as proposed by licensee and approved by the Commission is given in Table-13.

Table : 13
CESCO’s proposal on gross fixed asset

Commission’s approval on gross fixed asset

Accordingly, original cost of fixed assets on 31.3.2000 and 31.3.2001 as Rs.362.49 crores and Rs.390.95 crores respectively are considered reasonable by the Commission.

7.17

Receipts against Consumers Contribution

7.17.1

Capital contribution from consumers of Rs.74.81 crores as on 31.3.2001 has been deducted by the licensee from fixed asset for calculation of capital base. This is accepted by the Commission for calculation of capital base for the year 2000-01.

7.18

Original cost of Work In Progress

7.18.1

For the purpose of Capital Base calculation, CESCO has projected Rs.99.57 crores towards original cost of work in progress as on 31.3.2001. The comparative position of capital expenditure during the year 1999-00 and proposed during 2000-01 is given in the Table-14.

7.18.2

The expenditure of Rs.9.42 (6.41 + 3.01) crores shown against R.E. works in the above table should not be taken into consideration in CWIP as the Commission has recommended the Govt. to provide grant in aid/capital subsidy to the licensee the entire capital expenditure incurred during 1999-00. The Commission has also recommended that the licensee shall not claim any subsidy from State Govt. for future years. This will obviate the necessity from the annual revenue subsidy payment by govt. from year to year. It was also stated that the assets created out of the grant-in-aid will not be considered for the purpose of capital base and hence not earned any return. Any revenue loss for undertaking such un-remunerative R.E. work shall be subsidised by general pool of consumers. Same approach will also be applied for R.E. works for the year 2000-01. Accordingly, for the purpose of calculation of capital base Rs.6.41 crores and Rs.3.01 crores totaling to Rs.9.42 crores will be taken out from CWIP. CWIP as on 31.3.99 was Rs.20.75 crores. The total CWIP as on 31.3.2001 will be Rs.52.72 crores excluding Rs.9.42 crores for R.E. works. The calculation is in Table-15.

Table : 15

7.18.3

This figure of Rs.52.72 crores will be considered for calculation of capital base. The licensee proposes huge expenditure without corresponding load growth which will bring a burden to the consumers of the State unless there is reduction in transmission and distribution loss. The licensee is also showing an expenditure of Rs.19.96 crores on metering alone during 1999-00 and 2000-01. This itself should bring about perceptible improvement in reduction in commercial losses, improved billing and revenue to the licensee. It is, therefore, necessary that a higher targeted level of loss reduction should be aimed by the licensee.

7.19

Compulsory Investment under Para IV

7.19.1

In OERC Form No. F-33 CESCO has shown balance of contingency reserve as on 01.4.01 as Rs.1.32 crores whereas in the revised capital base (Form F-14) filed with the Commission CESCO has proposed Rs.1.18 crores towards investment compulsory made under para IV of Sixth Schedule to the Act, 1948. But no documentary evidence has been produced to the Commission towards compulsory investment. As such the Commission does not consider it necessary to take this Rs.1.18 crores for the purpose of capital base for FY 2000-01.

7.20

Working Capital

7.20.1

Average cost of stores

7.20.1.1

According to para XVII(e)(i) of the Sixth Schedule of the Act, 1948, a sum equal to of 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.29.95 crores on this head.

7.20.1.2

The Commission examined the proposal of CESCO. 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.4.89 crores as reasonable for the purpose of working capital for stores to be included in the capital base.

7.20.2

Average Cash and Bank Balance

7.20.2.1

CESCO has proposed Rs.23.96 crores for the FY 2000-01 computed on the basis of the provisions laid down in Sixth Schedule of the Act, 1948. CESCO in form F-19 has given the provision of monthly cash balance from April, 99 to March, 2000 and projection from April, 2000 to March, 01. As stated in para XVII(1)(e)(ii) of the Sixth Schedule of the Act, 1948, an amount equal to 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 can be included in capital base.

7.20.2.2

The Commission feels that liquid funds are needed for the payment of Employees' Cost and Administrative & General Expenses pending collection of receivables from the consumers. The normative lead time between the supply of electricity to the consumers and collection of tariff is considered two months. Hence, the fund requirement for two months payment of Employees’ Cost and Administrative & General Expenses would be appropriate for meeting working capital requirement in the form of cash and bank balance. Calculated on the aforesaid basis, the amount works out to Rs.16.19 crores. The Commission, therefore, approves a sum of Rs.16.19 crores as cash and bank balance for meeting working capital requirements.

7.21

Accumulated Depreciation

7.21.1

CESCO had proposed a sum of Rs.104.87 crores towards amounts written off or set aside on account of depreciation in their original application and revised the amount to Rs.102.60 crores in the sequel to clarification to queries on 02.11.2000. The amount is reduced due to withdrawal of assets damaged on account of super-cyclone. The Commission accepts the amount as proposed by CESCO with a minor variation and approves Rs.102.15 crores towards accumulated depreciation to be deducted for the purpose of calculation of capital base.

7.22

Loans and Bonds

7.22.1

CESCO has deducted Rs.282.01 crores towards loans and bonds in computation of capital base. CESCO has stated that the loans and bonds for its distribution and retail supply business as per the transfer scheme notification for the period ending 31.3.99 amounted to Rs.216.57 crores (Form No. F-3). Loan received during 1999-00 and the projection to be received during 2000-01 are Rs.158.52 crores and Rs.188.42 crores respectively. Information on receipt/repayment of loan as submitted by CESCO in OERC form No. F-3 is reproduced in Table-16.

Table : 16
(Rs. in Crores)

7.22.2

The Commission examined the loans and bonds statement as submitted in Forms F-3 and and F-27. As stated in para 7.9.6 IBRD loan for system improvement has been limited to Rs.11.13 crores based on last year’s performance. Similarly, loans proposed for restoration of cyclone damage has been limited to Rs.51.35 crores. Regarding working capital loan of Rs.174 crores CESCO clarified that according to bulk supply agreement with GRIDCO this amount shall be repaid in twelve equal quarterly instalment with interest at such rates as is approved and allowed by the Commission. The licensee has not claimed any interest in the current application. Hence this loan should not be considered for the purpose of calculation of capital base. The licensee also has not claimed the interest of VRS loan in the revenue requirement for the year 2000-01.

7.22.3

As the interest on working capital loan of Rs.174 crores and VRS loan of Rs.50 crores has not been included in the revenue requirement and these loans are not utilised for the purpose of creation of capital assets, the Commission does not find it prudent and reasonable to include in the loans and bonds to be deducted for the purpose of calculation of capital base. The loans and bonds to be deducted from the capital base is approved for Rs.236.27 crores as detailed in Table-17.

Table : 17
Loans approved by the Commission
(Rs. in crores)

7.23

Consumers’ Security Deposit

7.23.1

CESCO while calculating the capital base as on 31.3.2001 has deducted a sum of Rs.28.83 crores deposited with the licensee by way of security as required under para XVII(1)(iii) Sixth Schedule to the Act, 1948. The amount is accepted as deduction for calculation of capital base.

7.23.2

Based on the forgoing observations, the Commission finds that Capital Base for 2000-01 for the purpose of Sixth Schedule has to be taken at Rs.22.70 crores (vide Annex to this order) as against Rs.113.53 crores proposed by CESCO.

7.24

Reasonable Return

7.24.1

CESCO has calculated the reasonable return by multiplying the standard rate of 16% to the Capital Base of Rs.113.53 crores to the tune of Rs.18.17 crores. We are unable to accept this figure as we have not approved the base figure of capital base. As the capital base of the licensee has changed to Rs.22.70 crores reasonable return by applying standard rate of 13% is calculated at Rs.2.95 crores. In addition to above 0.5% on the approved loans of Rs.236.17 crores amounting Rs.1.18 crores is approved as per the provisions of the Act, 1948. The calculation of reasonable return is given in Table-18.

Table : 18
(Rs. in crores)

7.25

Miscellaneous Receipt
The licensee has proposed an amount of Rs.18.89 crores receivable towards miscellaneous receipt for the year 2000-01. This amount is considered reasonable and accepted.

7.26

Revenue Requirement, Reasonable Return and Clear Profit

7.26.1

In the light of above decisions and calculation, the Commission approves expenditure for the purpose of revenue requirement for the year 2000-01 at Rs.635.42 crores as against Rs.759.47 crores proposed by CESCO. Commission has disallowed previous losses of Rs.13.77 crores and other special appropriation of Rs.1.41 crores claimed by CESCO under special appropriation. Reasonable return has been approved in para 7.24.1 at Rs.4.13 crores against Rs.18.17 crores proposed by CESCO. The calculation of expenditure for revenue requirement, reasonable return and clear profit as approved have been reflected in Annexe A, B & C respectively.

7.26.2

The total revenue requirement of CESCO including special appropriation and reasonable return has been reduced by Rs.153.27 crores from Rs.792.82 crores proposed by the Licensee, to Rs.639.55 crores.

7.26.3

The licensee will end up with an excess of clear profit over reasonable return by Rs.2.92 crores, if the tariff would have been in operation for a period of twelve months. As the tariff will be effective for a period of two months only during the current financial year, the deficit at the assumed level of Transmission and Distribution loss will be Rs.51.04 crores which will be allowed as a pass through in the tariff for the FY 2001-02.