5.0

SOUTHCO's RESPONSE TO THE OBJECTIONS

SOUTHCO has replied to the objections relating to the following points. SOUTHCO has reiterated the need for tariff revision and submitted that it has attempted to balance its own requirement by protecting the consumers' interests.

5.1

Legal objections

5.1.1

SOUTHCO has replied that the retail tariff application filed by it is well within the provisions of the Act and the regulatory framework of the state.

5.1.2

The Licensee has submitted annual accounts for the year 1998-99 duly audited by the statutory auditors of the Company. But as it was a government company in 1998-99, the accounts are to be audited by the C&AG of India. Report from C&AG is awaited. Pending completion of C&AG audit and adoption of 1998-99 accounts in the AGM of the Company, accounts for 1999-2000 and 2000-01 could not be audited. However, the statutory auditors have audited the accounts for the year 1999-2000 and 2000-01 for the purpose of income tax. SOUTHCO has submitted these audited accounts for FY 1999-00 and FY 00-01to the Commission.

5.2

High Transmission and Distribution Losses

SOUTHCO is committed to reduce distribution losses and has taken various steps for reduction of distribution loss. Although more consumers have been brought to billing fold, it is not possible to eliminate theft completely. The loss reduction can only be a gradual process and a high level of loss reduction cannot be achieved within a year.

5.3

Consumer Service

SOUTHCO always attempts to keep the consumers satisfied. Complaints of consumers are promptly attended to and redressed within reasonable time. With its available resources and under the prevailing conditions, SOUTHCO has been protecting consumers' interest as far as possible.

5.4

Pilot study

5.4.1

SOUTHCO has submitted to the Commission a report on pilot study on an 11 kV feeder for assessment of distribution loss. The report has many deficiencies such as partial metering, billing on defective meter basis. Steps have been taken to rectify the deficiencies by metering, regularising unauthorised consumers, dismantling long-disconnected consumers and the progress of such activities have been submitted to the Commission.

5.4.2

In the meanwhile, Commission has engaged a Study Group to conduct a study of the same feeder. The Study Group is expected to submit the study to the Commission. SOUTHCO submits that results of the study undertaken on behalf of the Commission shall be binding and applicable to SOUTHCO after due consideration.

5.5

Load Factor Billing

Bills based on load factor in case of defective meters and provisional billing in case of house lock have been issued as per the approved retail supply tariff.

5.6

Power Tariff for Salt Industry

SOUTHCO has no comments to offer on special tariff for salt industry, as the matter is not within its scope. Minimum monthly fixed charges are payable by consumers as per the prevailing approved retail tariff and there cannot be any discrimination.

5.7

Interruption, Low Voltage and Unreliable Supply

5.7.1

Interruptions in supply and low voltage problems are addressed through execution of system improvement work, particularly through PMU works. There has been considerable improvement in this respect in many areas. However, progress in PMU works has been hampered due to delay in flow of funds to the licensee.

5.8

Incentive for load factor

SOUTHCO has replied that a high load factor of a consumer helps the licensee in better utilisation of the system and hence concession has been allowed by OERC for consumption above 50% load factor. Any load factor less than 50% can in no case be considered as a high load factor and will be detrimental to the system utilisation of licensee.

5.9

Incentive for Power factor

In order to maintain a good power factor of the system, an industrial consumer should have almost unity power factor and in no case, it should go below 90%. In order to encourage the consumers, particularly the large consumers, the retail tariff order of 2001 provides for incentive to achieve unity power factor to the consumers who have power factor very close to unity, i.e. above 97%.

• SOUTHCO's retail tariff proposal does not have any scheme for providing free/ subsidised electricity to its employees.

• Rural electrification programme cannot be taken up by SOUTHCO without availing subsidy/ grant from external sources or State / Central government.

• SOUTHCO has not proposed any increase in reconnection charges in its retail tariff application for FY 2001-02.

• The tariff for construction power should be similar to the relevant category depending on the load of construction power. Construction power of demand above 100 kW would contribute to the demand recorded by SOUTHCO. Further, as large quantity of power has to be made available to the consumer on demand, it is necessary that two-part tariff may be maintained for consumers during construction power above 100 KW.

• At present, SOUTHCO does not have any consumer having CD more than 25 KVA and no change has been proposed in the existing special tariff to consumers with load of 100 MVA and above, and a guaranteed monthly load factor of 80%.

5.10

CLARIFICATION TO THE QUERIES RAISED BY DIRECTOR TARIFF DURING HEARING

• As per the Revenue Requirement Application for the year 2002-03 filed by SOUTHCO during December' 2001 power purchase was projected to be 1,584.500 MU. The power purchase requirement for 2002-03 was projected for 1,586.349 MU in the Grid Sub-stationwise projection for 5 year load and power purchase submitted to GRIDCO by SOUTHCO vide letter No.1833 dtd.15.02.2002. The load forecast as stated to have been submitted by SOUTHCO to GRIDCO as 1713.70 MU is not correct and wrongly forecast by GRIDCO in their revenue requirement application for 2002-03.

• The business plan has been formulated as a scheme to gradually achieve break-even of the company. It is an internal target of the company, the achievement of which depends on completion of system improvement works for technical loss reduction. In the business plan, system loss of 40.9% was taken on the basis of actual from April'2001 to July'2001 and a reasonable estimation of loss for balance 8 months of 2001-02. Considering the loss of 40.9% during 2001-02, 1.8% reduction of system loss has been projected for the year 2002-03 and shown as 39.1%

• But while filling the Revenue Requirement Application for 2002-03, System loss for 2001-02 was calculated considering the actual loss upto November'2001 and estimated for balance 4 months, which came to 40.57%. Considering this loss during 2001-02, 1.8% reduction of system loss has been projected for the year 2002-03 and shown as 38.7%.

• As regards the system loss of 37.91% (say 38%) shown in the Tariff Proposal for 2001-02, the estimation was made only to avoid a sharp rise in the tariff although our actual loss would have been more than 38% as per the trend at that time. It may have been more than 38% as per the trend at that time. It may be mentioned that the actual system loss as the time of filling of Tariff Application was around 41% (April'2001 to September'2001).

• As explained in the above para, although our actual system loss during the first six months of 2001-02 was around 41%, to avoid the sharp increase in the tariff we have estimated 37.91% as system loss for the yea 2001-02 in the RST proposal. But while filling the RR Application for 2002-03 considering the actual loss upto November' 2001 and estimated for balance 4 months, the loss has been estimated as 40.57%.

• The figures mentioned in clarification sheet given by OERC i.e. Rs.318.45 crore and Rs.376.25 crore as on 31.03.2002 & 31.03.2003 respectively represent the gross receivables. After deducting the provision for bad & doubtful debts, the net receivables on 31.03.2002 & 31.03.2003 is Rs.174.49 crore & Rs.215.50 crore respectively. Even with these receivables, the working capital of the company for 2001-02 as well as 2002-03 becomes negatives (-) Rs.7699.19 lakhs and (-) Rs.11143.38 lakhs respectively as seen from the OERC Form No.F-37 & F-39 of the RR Application. This has happened due to severe losses sustained by the company.

• Answering the questions of Director(Tariff) regarding receivables and bad-debts, SOUTHCO replied that, the efficiency in collection is a gradual process and SOUTHCO has been improving its collection efficiency constantly from 74% in 1998-99 to 77% in 1999-2000, 81% in 2000-01 and projected at 82% in 2001-02 and 83.6% in 2002-03. Besides, the receivables from State Government Departments/ PSUs stands at staggering Rs.39.50 crore. It is calculated that even with a collection efficiency of 90% in 2001-02 and 2002-03, SOUTHCO would not be able to pay its power purchase bills in full due to its ESCROW obligations to clear GRIDCO loan repayment as its first charge on receivables.

• Besides all our collections are presently routed through ESCROW Account, where GRIDCO has first charge on the receivables. In these circumstances, although we have tried to obtain working capital loan from different banks/financial institutions like SBI, UBI, IFC, etc., this has not yet materialised. The only alternative available is to defer power purchase liabilities and pay DPS to GRIDCO. Though the rate of DPS is more than the rate of working capital interest, we are forced to resort to default in paying to GRIDCO and pay DPS due to sever liquidity problem faced by the company. However, we have calculated DPS @12% p.a. (which is close to market rate of interest) instead of applicable rate of 24%. In the above mention circumstances, deferment of power purchase payment to GRIDCO has been resorted as an alternative to working capital loan and therefore, the consequential DPS may be treated as working capital interest.

• SOUTHCO complied with the queries relating to lease finance of meters and submitted rectified calculations as per the accounting policy.

• Miscellaneous income of Rs.5.76 crore during 1999-2000 as revealed from the Audited Accounts of 2000-2001 includes meter rent of Rs.2.41 crore only. However, there is no substantial increase in meter rent in 2001-02 and 2002-03 because of the fact that in spite of large scale metering by SOUTHCO, the number of metered consumers have marginally increased.

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