3.0

NESCO'S PROPOSAL

3.1

NESCO has submitted calculation of its expected revenue from charges and its revenue requirement for the year 2000-01 along with application for retail supply tariff and charges for the year 2000-01.

3.2

Justification for the proposed tariff application are based on the following grounds.

3.2.1

The revenue from existing tariff is insufficient to meet the estimated costs for the ensuing year 2000-01. Consequently there is need to increase tariffs to meet the revenue requirements and restore financial viability of NESCO.

3.2.2

Although OERC has given a cumulative tariff increase of 14% in the last two RST orders, the actual average price realisation for NESCO has gone up only by 3.8% because of certain concessions given by OERC to consumers. Thus there is a disparity of 10% in the level of price sanctioned by OERC and price charged to consumers. Hence there is a request to OERC for compensating the licensee due to adverse financial impacts of earlier orders.

3.3

NESCO has considered the following main inputs for the calculation of revenue requirement and capital base.

Power Purchase Expenses
Employee Expenses
Administration & General Expenses
Repair & Maintenance Expenses
Debtors
Provision for bad debts
Depreciation
Interest on loan
Interest capitalised
Interest on working capital
Statutory appropriation
Reasonable Return on Capital Base

3.4

NESCO estimates power purchase of 2393.047 million units with an average of monthly maximum demand of 400 MVA during 2000-01. NESCO estimates an energy sale of 1483.689 million units which is an increase of 16% over the billed units for the year 1999-00.

3.4.1

NESCO has stated that the distribution loss for the year 1999-00 was 43%. However it has proposed a loss reduction of 5% during the year 2000-01 and has set the target to reduce the distribution loss to 38% for the ensuing year 2000-01. Accordingly the calculation of revenue requirement for the year is based on 38% distribution loss.

3.4.2

Total expenditure including the power purchase cost for the year 2000-01 is estimated at Rs.461.84 crores which comprises Employees' Cost, Cost of Materials, Administration & General Expenses, interest on loans borrowed from different organisations, bad debts, depreciation less capitalisation on account of interest expenses. There is a proposal for special appropriation of 8.46 crores to cover contribution to contingency reserve to the extent of Rs.1.195 crores and carry forward of previous loss to the tune of Rs.7.263 crores. NESCO estimates to earn reasonable return of Rs.7.87 crores on its capital base of Rs.44.12 crores. The revenue requirement and estimated reasonable return for the financial year 2000-01 proposed by NESCO is at Table : 1.

Table : 1
             Revenue requirement of NESCO for 2000-01                 

3.4.3

The financial projection made by NESCO for 2000-01 is given in Table : 2.

Table : 2
Estimated Revenue from charges for 2000-01

3.4.4

NESCO has stated that the existing tariff is inadequate to meet the estimated total revenue requirement of Rs.469.71 crores for the financial year 2000-01

3.4.5

NESCO has proposed an average rise of 22% in tariff.

3.4.6

NESCO has stated that tariff rise has to be quite large for meeting the revenue requirement fully. However, NESCO does not intend to seek pass through of the full cost in the year 2000-2001. It has proposed that the movement to full cost recovery will have to be phased keeping in view the commercial acceptability and implementability of the tariff increase. The estimated deficit for the FY 2000-2001 will be Rs.86.23 crores provided the proposed tariff gets effective from January, 2001. Therefore NESCO may be allowed to carry forward 90% of its past losses amounting to Rs.65.38 crores for recovery in future years’ tariffs.

3.4.7

NESCO has proposed changes in Energy Charges and monthly minimum fixed charges for various categories without changing the tariff structure.

3.4.8

Keeping in view the directions of tariff reforms NESCO has proposed a tariff based on cost at voltage of supply. For EHT/HT categories a minimum of 30 paise per unit has been suggested and for the consumers in LT category the increase varies between 80-145 paise/unit.

3.4.9

It is stated that NESCO’s proposal is in keeping with OERC’s objective to rationaise the tariff structure aimed at reduction of cross subsidy. The increase in EHT/HT categories is kept at the minimum and the cross subsidy index has gone down.

3.4.10

To avoid sharp increase in tariff for LT categories, the cross subsidy would continue to exist. In case the OERC feels that the phasing out of cross subsidy to be attempted faster, the Commission can consider availing of subsidy from Government. NESCO has formulated the tariff proposal based the following principles :

1. Lower tariff for consumers supplied at higher voltage level.

2. Reduction in cross subsidy.

3.4.11

Main features of Tariff Proposal of NESCO

• Demand Charges were proposed at Rs.200/KVA except for the following categories : Domestic, Commercial, Small Industry, Medium Industry, Irrigation, Street Lighting, Public Institution, PWW with loads less than 100KW.

• Demand Charges for Bulk Supply–Domestic and Irrigation were proposed at Rs.10/- and Rs.30/- per KVA respectively. The same was proposed at Rs. 50/- per KVA for Public Institution, Commercial and Medium Industry categories.

• Higher monthly minimum fixed charge was proposed for Medium Industry, Public Institution , PWW < 100KW, Small Industry, Domestic, Irrigation (OLIC & Pvt,) and Street Lighting.

• No change was proposed in the existing customer service charge.

• Energy Charge in EHT consumers except Emergency Supply to CPP and Colony Consumption was proposed at 290 paise/unit.

• Energy charge for all HT categories except Irrigation, Bulk Supply-Domestic and Colony Consumption was proposed at 300 paise per unit.

• Energy charge for all LT categories except Domestic, Irrigation, Commercial has been proposed at uniform 425 paise/unit.

• Energy charge for consumption less than 100 units in the Commercial category was proposed at 405 paise/unit.

• In respect of Domestic category the proposed energy charge for consumption <100 units was 220 paise/unit and for 100 to 200 units the rate proposed was 315 paise/unit and for more than 200 units the rate proposed was 405 paise/unit.

• No change has been proposed in the tariff for Kutir Jyoti consumers.

• NESCO has proposed to offer a special tariff for industrial consumers having contract demand of 25000 KVA or above subject to achieving load factor of at least 70% in the relevant month. Demand Charges as applicable would be chargeable in addition to the above tariff.

• No change is proposed in the special tariff for consumer with load of 100MVA and above and guaranteed monthly load factor of 80%.

3.4.12

NESCO’s PRAYER

NESCO has made the following prayers to the Commission :

- Approve the proposed retail tariffs and charges

- Confirm the revenue requirement

- Confirm expected revenue from proposed tariff.

- Confirm that NESCO would be permitted to carry forward the gap between expected revenue and     the revenue requirement in 2000-2001 and the unabsorbed past loss for adjustment in future years.