NESCO

5.0	NESCO’S REPLY TO CLARIFICATIONS AND QUERIES OF THE COMMISSION Shri S.K.Anand, Managing Director, NESCO 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	Validity and Frequency of Retail Tariff Application
5.1.1	Referring to the maintainability of the tariff application, NESCO was of the view that the retail tariff application was as per Section 26 of the Orissa Electricity Reform Act, 1995.
5.1.2	Audited Accounts: The accounts of the company for the year 1998-99 has been duly audited by the statutory auditor of the company. As the company was a wholly owned subsidiary of GRIDCO Ltd during 1998-99, the said accounts along with the report of the statutory auditor were sent to the Accountant General, Orissa under section 619(3) and (4) of the Companies Act 1956. After completion of the audit and reports by the C&AG of India, the accounts for the year 1998-99 will be finally adopted in the Annual General Meeting of the Company. Considering the closing balances of 1998-99, the accounts of the company for the year 1999-00 as well as 2000-01 have been prepared and duly audited by joint statutory Auditors for Income Tax purposes, the copy of which has already been submitted to the Hon’ble Commission. As soon as the C&AG audit for the year 1998-99 will be completed, the statutory auditors will sign the accounts for 1999-00 and 2000-01.
5.1.3	The proposal of Emami Paper Mills to reclassify the consumer has not been conceded by the licensee. NESCO stated that the existing classification as per Regulation 80 of the OERC was quite exhaustive and no amendments were necessary.
5.2	Cost of Employees, Material Costs, A&G Expenses
5.2.1	Reacting to the objectors’ view that there has been an abnormal increase in employees and A&G expenses, NESCO clarified that the increase in employees cost was not due to the so called multiplicity of organisations but due to normal increase. NESCO maintained that certain increases in A&G expenses were unavoidable because of creation of independent and stand alone corporate entities. The licensee clarified that these expenses for 2001-02 were as per expenses already incurred in 1999-00 and 2000-01 for which the accounts were duly audited by company auditors and submitted to the Commission.
5.2.2	The expenditure on account of employees and A&G for 2002-03 has been estimated based on the actual expenditure of 2001-02 upto August, 2001. Expenses towards contribution to PF, pension, gratuity, training and bonus etc. have been shown separately as per requirements of the OERC formats.
5.3	Interest on Power Bond The interest payable on account of power bond being normal in character, should be charged to the distribution business.
5.4	Distribution Loss
5.4.1	NESCO stated that the licensee was committed to reduce the Distribution Losses and was taking several steps through metering, system improvement, regularisation of illegal consumers and vigilance checking etc. NESCO maintained that it was not feasible to eliminate tampering and bypassing of meters in toto due to vast geographical area and large a number of consumers. It may be noted that growth of input in LT segment without matching growth in the HT/EHT segment leads to increase in overall Distribution Loss.
5.4.2	NESCO has estimated to reduce the Distribution Loss by 3% in the year 2002-03. The revenue requirement for 2002-03 has been calculated considering the system loss projection at 44%. Reacting to the objectors’ comparison of the loss percentage of NESCO with that of SOUTHCO, NESCO clarified that the LT performance in SOUTHCO has been historically good as compared to other DISTCOs. The loss percentage prevailing in NESCO is a legacy of the past and it would take a lot of time and may require changes in the socio-economic conditions to achieve the loss levels as of SOUTHCO.
5.5	Pilot Study to Asses Technical and Non-technical losses NESCO stated that the study group has completed the survey and the results of the pilot study should be binding and applicable to the licensee after due consideration of various factors like consumer mix, pattern of distribution network etc. in the study.
5.6	Concessional Tariff for Power Intensive Industries
5.6.1	Reacting to the proposal of the Ferro Chrome Plant, Jajpur Road for Concessional Tariff for Power Intensive Industry in the HT category, NESCO stated that it would not be able to supply power at the rates suggested by Ferro Chrome Plant.
5.6.2	Reacting to FACOR’s view that the special tariff offered would not be viable for them, NESCO stated that FACOR alongwith other EOUs were demanding allocation of NTPC power out of unallocated share of central stations for which GRIDCO had raised separate power bills on NESCO for the period from April, 1999 to January, 2001. The average NTPC rate charged by GRIDCO during this period was of the order of Rs.245.43 paise per unit. NESCO maintained that in comparison to the NTPC rates, the special tariff offered by the licensee was more competitive, if the consumer achieved higher load factor. NESCO clarified that it would not be able to supply power at rates suggested by FACOR.
5.7	Tariff for Colony Consumption NESCO clarified that the procedure of allowing only 10% of the total consumption at a reduced tariff was very much liberal.
5.8	Power Factor Incentive Replying to the objectors’ point on Power Factor Incentive, NESCO stated that an industrial consumer should have almost unity power factor and in no case the same should be below 90%.
5.9	Payment of DPS NESCO stated that the inadequacy in cash inflows to meet the cash requirement had forced the licensee to default in payment to GRIDCO thereby creating liability of Delayed Payment Surcharge (DPS). Reacting to the objectors’ view that the DPS should be dispensed with. The licensee stated that when it paid DPS to GRIDCO, it was entitled to recover DPS on its entire receivables through tariff.
5.10	Metering and Meter Rent NESCO stated that the metering project was being rigorously executed and monitored for maximisation of benefit. Emphasis was given for procurement of best quality meters. NESCO has not proposed any increase in existing meter rent.
5.11	Emergency Supply to the Industries Referring to emergency supply to the industries, NESCO requested the Commission to keep a provision of minimum guaranteed off-take by the consumers in the Emergency Supply category such that the licensee did not incur loss while making the power available to such consumers who would draw power only as per their requirement and as and when they want.
5.12	Poor Consumer Service and Redressal System NESCO stated that it was making sincere efforts for improving consumer services and redressal of consumer grievances through its existing departmental network and system. Effective steps have been taken to form village committees and conduct Bijli Adalats. Constant efforts were made for improvement of the supply condition as well as providing proper metering for the benefit and satisfaction of the consumers. The complaints of the consumers were being promptly attended and redressed within reasonable time period.
5.13	Power Failure NESCO stated that tripping of lines could not be totally eliminated for consumers availing power supply at 33 KV or less. Tripping of 33 KV feeders was also due to grid failure in many cases. System improvement works were being carried out in various areas of NESCO in order to provide better quality of power to the consumers.
5.14	Rural Electrification Work NESCO stated that the licensee has not programmed to make any RE work during 2001-02 or 2002-03. There was therefore no scope for deducting any such RE subsidy from the revenue expenses of either 2001-02 or 2002-03. NESCO maintained that the RE works depended on Government policy and provision of Government subsidy.
5.15	Response to issues raised by Director (Tariff), OERC
5.15.1	The load forecast for 2002-03 submitted to GRIDCO at 3065 MU has been revised hence the NESCO’s projection of the quantum of the power purchase at 2292.203 MU made in the ARR application may be treated as Power Purchase requirement of the licensee for the said year.
5.15.2	An affidavit has been filed separately for the actual sales data for the six months period ending 30.09.2001. It is further clarified that the total revenue billed for each category is the aggregate revenue which includes energy charges, fixed charges, meter rent, DPS, customer charges etc.
5.15.3	NESCO has proposed T&D loss levels of 47.41% in the RST application and 44.35% in the ARR application. These figures are different from those furnished in the business plan and submitted to the GOO wherein loss levels of 46.98% for 2001-02 and 40.77% for the 2002-03 were proposed. The loss figures mentioned in the business plan were subsequently revised and were sent to the GOO for its ready reference. The same figures were considered by the High Power Committee during its evaluations.
5.15.4	NESCO is of the considered view that the Commission should agree to the special rate tariff for the industries even though no commitment from the licensee to bear the differential financial burden is made available. This is because it involves the industrial development in the state and if these industries were to be closed down in the absence of a special rate it would have repercussions for the financial health of NESCO besides the associated problems like unemployment, social problems etc.
5.15.5	The accounts for the year 1999-00 and 2000-01 have been compiled and after receipt of the audit certificate from the Accountant General of Orissa, the same shall be audited latest by August, 2002.
5.15.6	Although the working capital is included in the capital base calculation, separate claim for interest on working capital has been made by the licensee for 2001-02 and 2002-03. Reasonable return has not been claimed as the capital base turns out to be negative in 2001-02 and 2002-03. The inadequacy of cash inflows to meet fully the cash liabilities has resulted in delay in payment to GRIDCO which has called for payment of DPS. NESCO requests the Commission to approve the same for revenue requirement. Interest on working capital of Rs.52.13 crore has been shown towards DPS on BST dues.
5.15.7	Against our billing of Rs.331.63 crore in 1999-00 and Rs.326.32 crore in 2000-01, NESCO has been able to collect the sums of Rs.245.79 crore in 1999-00 and Rs.279.82 crore in 2000-01. Therefore, the percentage of average collection to billing over the two-year period comes to 79.88%. The inadequacy of cash inflows as compared to the cash outflows has forced NESCO to delay payment to GRIDCO which has resulted in DPS.
5.15.8	NESCO prays that the lease premium as claimed may be allowed under the revenue requirement of the licensee. The licensee has included a sum of Rs.148.80 lakhs for 2001-02 and 2002-03 as lease rent under A&G expenses. The licensee has obtained meters and capacitors valued at Rs.525.93 lakhs from BSES Ltd. and BSES Infrastructure Finance company Ltd. on operating lease terms and the same has not been capitalised so far and as such does not form part of Gross Fixed Asset upto 31.03.2001. This follows from the accounting policy of the Commission which states that the values of leased assets are to be capitalised if the lease is a finance lease and is to be charged to the profit and loss account if it is an operating lease.