5.0

CESCO’S REPLY TO THE OBJECTORS

Shri Suresh Chandra Mohapatra, Chief Executive Officer, CESCO submitted a set of clarification in response to the consumer’s objections to the Retail Tariff application, 2001-02 and Revenue Requirement application, 2002-03.

5.1

RATIONALE FOR RETAIL TARIFF APPLICATION

5.1.1

Validity and Frequency of Retail Tariff Application

5.1.1.1

Referring to the maintainability of the tariff application, CESCO was of the view that the retail tariff application was as per Section 26 of the Orissa Electricity Reform 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 agrees in principle to the suggestion made by some of the objectors that the tariff should be fixed for five years and in such a case the price adjustment clause should be used effectively and the Commission adopts a realistic loss level to recoup the entire cost.

5.1.1.4

CESCO does not agree with the view of the objectors that there is no nexus between the purchase of power and sale of units.

5.1.2

CESCO has adopted the methodology provided in law for determination of revenue requirement and its tariff proposal.

5.1.3

CESCO stated that GRIDCO has finalised and provided the accounts of CESCO for FY 1998-99, which were to be approved and authenticated by the Board of Directors of CESCO. The licensee has gone ahead with preparation and finalisation of trial balances for the year 1999-00 for which internal audit is completed.The accounts may be finalised shortly.

5.1.4

CESCO maintained that proper books of accounts were being maintained in CESCO as per law and action is being taken for preparation of an asset register.

5.2

ENERGY SALE ESTIMATION

5.2.1

Demand Estimation:

5.2.1.1

Replying to the objectors, CESCO stated that the number of irrigation consumers during 1999-00 was 11,921 and not 60,558 as pointed out by the objectors. Contract demand of LI points have been reduced according to the connected load of the points.

5.2.1.2

Replying to the objectors query on revenue requirement, 2002-03 whether the increase in consumers by 2% projected were new consumers or regularisation of existing unauthorised consumers, CESCO stated that they were both new consumers as well as regularised consumers.

5.2.2

Sales Mix:

Reacting to the objectors’ view that more than 50% of energy is sold to HT and EHT in the CESCO system, the licensee stated that the total energy sold to LT was 63% of the total energy received during FY 01.

5.3

ENERGY LOSSES

5.3.1

CESCO stated that its projected loss was the difference between projected purchase and projected sales of energy. Referring to the objectors’ contention that World Bank had projected losses at lower level, CESCO reiterated that the appraisal report of the World Bank was made in early 1996 when information availability was limited. CESCO admitted that the actual reduction in T&D losses has been slower than projected due to practical difficulties. Stagnation in industrial demand on account of recession had an effect of increasing the overall loss level. The licensee agrees with the objectors’ contention that an accurately working, properly sealed and un-bypassed meters can provide the correct energy consumption and also help in measuring the loss level. CESCO has therefore undertaken a metering plan with the help of World Bank loan.

Justifying the high T&D loss projected by CESCO, the licensee stated that the loss level upto FY-02 did not decrease due to non-improvement in metering of LT consumption on account of funds’ constraints, closure of loss reduction schemes and devastation of lines and substations due to super-cyclone and flood.

5.4

CESCO stated that a number of steps have been taken for reduction of expenditure by abolishing the revenue improvement cadre, restriction in vehicle, telephone, consultancy, travel allowance and other miscellaneous expenses.

5.4.1

CESCO stated that employee expenses have gone up significantly in the recent past primarily due to the implementation of the fifth pay commission. The licensee finds 5% growth in employee expenses as reasonable.

CESCO has taken only impact of annual increment and normal DA increment while calculating the employees’ cost for 2002-03.

5.4.2

Bad Debts:

CESCO stated that the Commission’s norm of 15% on Incremental Receivables has been adhered to for computation of bad debts.

CESCO maintained that the provision @ 15% on incremental debtors for bad and doubtful debts should not be considered to be in the higher side for the calculation of revenue requirement for 2002-03.

5.4.3

Power purchase was done from GRIDCO at rates prescribed by the Commission. The objectors’ view regarding availability of power from hydro or pit-head thermal stations are not relevant. The licensee has furnished the method of estimation of power procurement cost in the tariff application.

Reacting to the objectors’ suggestion to arrive at the power procurement during 2002-03 basing on Commission’s earlier approval, CESCO objected on the ground that losses did not reduce as desired due to the aforesaid reasons.

5.4.4

The licensee submitted that use of consultants have been made very judiciously.

5.4.5

The licensee has calculated depreciation as per the rate notified by the Ministry of Power from time to time. These rates are not sufficiently high enough to depreciate the revalued assets beyond 90% in this span of five years beginning 01.04.1996.

5.4.6

The details of the A&G expenses have been furnished in details in the tariff application.

The projected expenses on A&G for 2002-03 are reasonable and based on normal anticipatory inflationary growth.

5.4.7

Repair and Maintenance:

The expenses under R&M are purely for the purpose of repairs carried on the licensee’s fixed assets in order to add revenue-earning life to the asset. CESCO has inherited ageing and aged assets from GRIDCO, which would require substantial R&M.

CESCO objected to the objectors’ suggestion to allow R&M expenditure @ 2.5% of gross fixed assets, on the ground that the rate of 2.5% might be applicable for the assets on ideal condition but not to the assets which CESCO has inherited from GRIDCO. Moreover the R&M expenses have gone up on account of replacement and frequent repair of old lines and substations, rampant theft of conductors and frequent burning of transformers.

5.4.8

The enhancement in the interest component is due to rescheduling of GRIDCO’s loan and additional World Bank loan.

5.4.9

CESCO stated that the legal expenses of the company was largely depending on factors beyond its control.

5.4.10

CESCO clarified that Security Deposit was charged to customers as per Regulation 20 of the Distribution Code.

5.4.11

CESCO maintained that its computation of the Capital Base was correct. The assets of erstwhile OSEB were transferred to GRIDCO through Government Notification and this value was “the original cost of fixed assets for GRIDCO and subsequently transferred to CESCO”.

5.4.12

Reasonable return has been calculated as per the stipulations of the Sixth Schedule of Supply Act,1948.

5.5

Tariff Proposal

5.5.1

General

Reacting to the objectors’ request to waive demand charges for consumers with contract demand upto 100 KVA, CESCO submitted that demand charge referred to a charge on the consumer for maintaining electrical system to reserve power for the consumer. Besides unbundling of tariff bifurcated different components of cost namely, demand charge, energy charge and customer charge in a transparent manner. The licensee is also paying a two-part tariff to GRIDCO for purchase of energy. Clarifying the objectors contention that the bills issued were complicated and confusing, CESCO stated that it has redesigned the format of the bill as per the guidelines issued by OERC.

5.5.2

Metering and Meter Rent

5.5.2.1

Clarifying on the issue of meter and meter rent, CESCO stated that the licensee allowed the domestic/commercial consumers to fix single phase meters at their own cost. The three-phase meters were being changed to sophisticated electronic meters in a phased manner. The licensee has raised objection only against installation of sub-standard meters by the consumers. CESCO had no objection if consumers procured meters of correct specification and installed the same after getting it tested in CESCO laboratories. Further, CESCO clarified that consumers owning the meters were not being charged with meter rent.

5.5.2.2

CESCO stated that it has made a programme to complete metering of all consumers by 2003. CESCO intimated that steps are being taken to procure 4,20,000 single phase meters from China through World Bank Loan. Vigorous steps shall be taken for replacement of defective meters with TP boxes. Steps are also being taken for installation of meters in all 11 KV feeders.

5.5.3

CESCO reacted favourably to the objectors idea of reduction in BST which can control the retail tariff rates. CESCO requested the Commission that any future change in BST needs to be factored into the revenue requirement of the retail licensee.

5.6

Tariff for NALCO and MCL

5.6.1

Nalco Tariff

CESCO has an exclusive license to distribute electricity within its area of operation, which includes the NALCO captive power plant at Angul. CESCO therefore is entitled to raise the monthly bills towards import of power by NALCO for its captive power plant. Irrespective of the export of power from NALCO to GRIDCO, the former is bound to be a retail consumer of CESCO as far as import of power is concerned. CESCO disagrees with the objector that low power factor penalty, demand charge etc. should not be levied on the consumer. Further, CESCO stated that wheeling of power from NALCO CPP at Angul for NALCO Bhawan and NALCO Nagar Township at Bhubaneswar was not acceptable to the licensee.

5.6.2

CESCO clarified that the bill for energy charges of MCL were being prepared as per the tariff rule approved by the Commission.

5.7

REVENUE GENERATION

5.7.1

Revenue Generation from Existing and Proposed Tariff Structure

CESCO requested the Commission to accept the revenue generation projection by the use of the tariff model provided in OERC format T-7 & T-8 instead of using an average figure.

5.8

OPERATIONAL ISSUES

5.8.1

Power Theft

CESCO informed the objectors that it was taking all possible steps to reduce theft of energy by the consumers and unauthorised users. The drive against power theft could further be strengthened if timely assistance was received from the local police and district administration. Vigorous steps for detection of unauthorised abstraction of electricity and pilferage of power, regularisation of hooking consumers and bringing them to billing fold are being enforced with the help of large number of checking squads. Heavy penalty is being imposed on unscrupulous consumers to create consciousness in the minds of the consumers against pilferage of electricity. Village committee have been formed for stoppage of unauthorised use of electricity.

5.8.2

CESCO stated that disconnection of consumers was carried out as per the provisions of the Electricity Act, 1910 and Distribution Code of the OERC. Increase in reconnection charges has been proposed as a means of discouraging the consumers who are irregular in paying the energy charges or are resorting to other illegal activities.

5.8.3

Reacting to the objectors’ view that the bills were not served in time, CESCO submitted that although normally the bills did not reach the consumers well within the due date, the consumers should also arrange for a copy of the bill from the Engineer following the relevant provisions of the Distribution Code. The licensee agreed with the view of the objector that a monthly billing system was better for the commercial functions. However, the licensee is not yet geared up to meet the workload involved in a system of monthly billing. Reacting to the objectors’ suggestion for formation of Bidyut Upavokta Sangha for helping CESCO and consumers for better service, CESCO stated that a large number of village committees have been formed and similar committees shall be formed in all villages. Consumer cards shall be introduced to be kept with the consumers for according of meter reading with dates and initials of the meter readers. Steps are also being taken to introduce identity cards for the CESCO staff.

5.8.4

CESCO has taken prompt steps for redressal of consumers’ grievances in its head office and field offices. Complaints are being heard everyday in the head office by CEO and two SEs and every Saturday the field offices by SE and JE. Wide publicity through media and web-site are being given inviting grievances of the consumers for settlement.

5.8.5

Replying to the consumers’ complaint that there was unscheduled power cut in CESCO area, CESCO stated that there was no unscheduled power cut except during the load restriction imposed by GRIDCO due to system disturbances. Sometimes planned shutdowns are taken by the field engineers for maintenance purposes with prior intimation to the consumers through mike announcement and publication in local news papers.

5.8.6

CESCO stated that investments in system improvement taken up by the Company would result in improved voltage and reliability of the system and should be beneficial for the consumers.

5.8.7

CESCO clarified that low voltage and power failure was due to over drawal by registered as well as illegal consumers. The licensee therefore requested the consumers to declare their correct load and help in preventing illegal abstraction of energy.

5.8.8

CESCO is already in the process of conducting a pilot study to ascertain the loss levels. The feeders and substations have been metered and metering of the individual consumers is nearing completion.

5.8.9

CESCO stated that the PMU projects were financed by the World Bank. The PMU works were delayed due to suspension of the loan from July, 2001 to February, 2002 by the World Bank.

5.8.10

CESCO has no scheme at present on hand relating to rural electrification excepting those under Prime Ministers Gramina Yojana.

5.8.11

Accumulated arrears of the Depts. of the Government of Orissa:.:.

The Chief Executive Officer, CESCO stated before the Commission that a sum of about Rs.150 crore has accumulated as arrear dues payable by the various Departments of the State Government to CESCO for which the company faces a serious problem of liquidity. In fact most of the time officers of CESCO are pursuing in the Secretariat with the field units of the various Government Departments for collection of Government dues which is not becoming fruitful.

5.8.12

The Chief Executive Officer stated that there are certain vital installations where interruption of power supply would affect a large number of citizens or when it becomes a question of life and death of patients in medical colleges and hospitals the issue of disconnection of power supply becomes a difficult choice or it will lead to public outcry and create difficulties for everybody. Even disconnection of power supply to some offices linked to law and order authorities is becoming difficult as the licensee may not get their cooperation at all.

5.8.13

The Government should consider ploughing back the electricity duty payable by the consumers to be adjusted against current dues which can to some extent mitigate the financial problem of the utility. In addition to this all Departments of Government consuming electricity must make adequate provisions in the budget to cover the electricity charges and make regular payments without which the utilities cannot function satisfactorily.

5.9

CESCO’S REPLY TO DIRECTOR (TARIFF)

1. The T&D loss projected both in annual revenue requirement and business plan are same i.e. 43% for the FY 02-03.The same is projected at 44% in the tariff application and 45% in the Business Plan for the FY 01-02. The difference in loss levels projected was because the Business Plan was submitted later than the tariff application and the former took into account the practical aspects and the latest data available.

2. Due to similar reasons as cited above, there was differences in the loss levels projected in the RST application of 01-02 and ARR application of 02-03.

3. The accounts for the year 1998-99 of CESCO have been finalised by GRIDCO (as per stipulations in the transfer scheme notifications). The same has been submitted for authentication by CESCO’s Board of Directors before submission to the statutory auditors for their audit. However, the CESCO Board of Director are yet to authenticate the accounts of 1998-99. A meeting of the Board of Director has been convened on 02.04.2002 for the purpose. Once the accounts are approved, the closing balance of the same account would be incorporated as opening balance for the FY 1999-00. After the accounts of 1999-00 are adopted by the share holders in the annual general meeting, the opening balance for the year 2000-01 can be obtained and the accounts for 2001-02 can be finalised.

4. CESCO has relied upon the provisional un-audited and projected accounts for the FY 01 while arriving at the loss figures for FY 01-02 and 02-03.

5. Though CESCO has not proposed any amount in the contingency reserve, it has made adequate measures to meet the expenditures from internal sources as specified in para 5 of the Sixth Schedule.

6. As per the accounts finalised by GRIDCO, the gross receivables as on 31.03.1999 was Rs.400.57 crore which is continuing from the erstwhile OSEB period containing very old outstanding dues. CESCO is trying to improve the collection efficiency by taking various measures so that the level of gross receivables would decrease. Accordingly, CESCO has projected the overall collection efficiency for FY 02 and 03 at 75% and 78% in its business plan submitted to the Commission. In fact due to the above reasons CESCO is unable to pay the BST bill of GRIDCO in full for which DPS is levied by GRIDCO. CESCO is therefore required to pay the DPS and request the Commission to allow the same in its tariff approval.

7. The average rate as indicated in Format T-6 has been calculated as per the MIS reports received from various divisions. However in the format T-7, the average rate was taken as per the plan projection. Hence the difference in average rates.

8. Since there is a gap in the revenue requirement and expected revenue for FY 02-03, CESCO may submit application to the Commission for the revision of tariff to bridge the gap. This follows from Section 26 of the OER Act 1995 which entitles the licensee to file tariff revision application in the event of the existing tariff not being able to generate revenue to cover the revenue requirement once in every financial year.

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