6.8

Method of determination of Power Purchase

6.8.1

The power purchase by the DISTCOs are metered at various grid sub-station’s end and the DISTCOs are billed according to the meter reading at these points. Actual figures of billing raised by GRIDCO to the DISTCOs for the past 10 months of the year 2001-02 are already available. This can be prorated for a period of another two months for the financial year 2001-02. This will go a long way in determining a realistic cost of power purchase. In stead of going for any other method of energy assessment, the Commission decides to adopt the principle of actual cost of power purchase from the transmission company as the base for determination of the cost of power purchase for the year 2001-02.

6.8.2

As far as the FY 2002-03 is concerned, the Commission will go by the growth rate projected for the various classes of consumers by the DISTCOs at different voltage level viz. LT, HT & EHT and calculate the incremental power requirement over and above the FY 2001-02.

6.9

Determination of expected revenue

6.9.1

The quantum of energy to be sold will be determined after deducting the units deemed to have been lost in distribution applying the bench-mark loss level adopted by Kanungo Committee and accepted by the Commission. On the quantum of energy to be purchased by the DISTCOs the percentage of distribution loss as approved by the Commission shall be applied to determine the quantity to be sold during the financial year. From the saleable energy for the year, units estimated to be sold at EHT i.e. zero loss energy would be deducted to arrive at the quantum of energy to be sold at HT and LT combinely. The expected revenue from sale of power shall be calculated separately for EHT and combinely for HT & LT. EHT revenue shall be calculated by multiplying the EHT rate with the EHT units. The revenue from HT and LT sale shall be calculated by multiplying the average rate of HT and LT rate with the number of units to be sold combinely at HT and LT. Thereafter, revenue at EHT and from HT and LT consumption will be added to determine the total expected revenue for the year. The gap between the estimated revenue requirement and the expected revenue will represent the deficit in revenue which need to be funded through interim financing or through tariff.

6.9.2

WESCO in the format T-6 of its RST application for the year 2001-02 has furnished the average rate per unit billed to various classes of consumer based on the billing of the first six months of the FY 2001-02 the extract of which is given in the table.

Table : 13
Average Revenue based on actual billing of 1st six months of 2001-02 submitted by the licensees

Table-14
Average Revenue as per the (format T-7) estimated sale to various consumers for 2001-02 submitted by the licensees

6.9.3

The average rate projected by the distribution companies in the tariff filing for the year 2001-02 and 2002-03 obviously does not present the correct picture of the per unit rate as by their own admission (Table 13) the average per unit rate is much higher compared to their estimate given in Table 14. It is appropriate to take into consideration the average rate per unit as reported by them based on their billing of the first six months of the year 2001-02 given in Table 13 rather than accept the average rate based on estimates furnished in form T-7 of this tariff filing.

6.9.4

Collection efficiency of DISTCOs

6.9.4.1

For the purpose of determination of expected revenue, the sale figure will be determined assuming an overall loss percentage for the year 2001-02 as per para 6.9.5.2.

6.9.4.2

Since the FY 2001-02 has come to an end, the Commission this year shall only determine the revenue gap, if any, for recovery during the future years. The Committee of Independent Experts had also recommended that the reality in the level of billing and collection in the present Orissa situation by the distribution companies be recognized. For this purpose, they had suggested that 78% should be accepted as the collection efficiency for the base year 2001-02 going upto 95% by the year 2005-06. The Committee had recommended that the cash gap be funded by interim financing other than debt.

6.9.4.3

The Commission considers that the level of collection of 78% is no means satisfactory as there is a huge backlog of Government dues to be received by the DISTCOs. The Commission considers that with receipt of Government dues the collection efficiency will increase to 85% for the year 2001-02. In the neighbouring states the collection efficiency of the utilities is above 95% so also is the position in Rajasthan, Andhra Pradesh and Karnataka. The Commission also recognizes that the entire amount on account of non-collection should not be treated as bad debt as this will further raise the revenue requirement. Acceptance of the entire uncollected dues of a particular year therefore cannot be written off as bad and doubtful debt and cannot be treated as a pass through for next year tariff. This will accentuate the burden on the paying consumers of the state. The distribution companies have to bolster their machinery for improving collection of revenue for which they need State Government support for law and order issue. To translate this into action, the Commission fixes a yardstick for collection efficiency 85 %for the year 2001-02 and 87.5 % for the year 2002-03.

6.9.4.4

The shortfall in revenue collection for the FY 2002-03 calculated at collection efficiency level of 87.5% works out to Rs.268.75 crore on an expected revenue of Rs.2150.04 crore (Table-16). On the other hand the receivables against energy charges from the various departments of the Government and State PSUs has piled up to more than Rs.230 crore within a period of three years of operation of the DISTCOs since 01.04.1999. The Government Departments and State PSUs should clear up the outstanding dues of DISTCOs by routing the payment through GRIDCO. This shall be adjusted against the power purchase and loan liabilities of DISTCOs due to GRIDCO which will improve the liquidity of the power sector in Orissa.

6.9.5

Summary of revenue requirement of DISTCOs for FY 2001-02 & 2002-03

6.9.5.1

For the FY 2002-03, the Commission will consider the cost of power purchase on a realistic basis as projected by the distribution companies and calculated the expected revenue to be calculated assuming a loss reduction of 5% from year to year i.e. from 42.21% in 2001-02 to 37.21% in 2002-03 though the figures will be varying across the four zones. Similarly, the level of collection efficiency should be considered at the level of 85%. All other terms and conditions with regard to the method of determination of expected revenue as explained on the para above for the year 2001-02 shall apply for year 2002-03 also.

6.9.5.2

Accordingly, a summary of purchase sale and expected revenue for the year 2001-02 & 2002-03 is approved as per the details below.

Table-15
FY 2001-02

6.9.5.3

The Commission does not accept the figure of expected revenue calculated by the DISTCOs for the FY 2001-02 as well as for the FY 2002-03 and determines the expected revenue for various DISTCOs for the aforesaid period as indicated in Table-15 and Table-16 respectively for the FY 2001-02 and 2002-03 subject to any variation on account of change in direct sale to consumers at EHT.

6.10

Operating Expenses

6.10.1

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

6.10.1

WESCO in OERC Form No.TRF-21 (2002-03 filing) has submitted various components covered under employees cost for the FY 2000-01 on the basis of audited accounts and have made projection up to the FY 2002-03. The employees cost chargeable to revenue was Rs.55.20 crore as per the audited account for the FY 2000-01 which has been projected to go up to Rs.62.29 crore during FY 2001-02 and Rs.61.63 crore for the FY 2002-03. In the ARR filing WESCO stated that the employees cost have been estimated in the ensuing year on the basis of actual/audited expenses incurred during 2000-01 and actual/forecast during current year.

6.10.2

WESCO has revised the figure of employees cost for FY 2001-02 to Rs.55.98 crore (ARR 02-03 filing) as against the proposal of Rs.62.29 crore made at the time of RST filing of 01-02.

6.10.3

Commission analyse the figure based on the audited accounts submitted by the licensee and consider it appropriate giving 3% rise on the basic pay per annum over the audited figure of FY 2000-01 to determine the basic pay for the year 2001-02 as well as 2002-03. While determining the basic pay the reduction in number of employees reported by WESCO has been taken into consideration.

6.10.4

As regards DA, Commission is aware of the fact that the rate of DA allowed by Government of Orissa is 41% with effect from July, 2000. This rate is continuing now and no increase in DA rate has been announced by State Government. Commission in view of the above decides to consider the prevailing rate of 41% for calculation of DA for the financial year 2001-02 and 2002-03. However, any increase in rate of DA in future will be allowed to be recovered through tariff with retrospective effect.

6.10.5

All other allowances as claimed by the licensee are found reasonable and the basis adopted for arriving the figure are accepted. Keeping these observations in view the Employees costs have been recalculated as indicated in the table below :-

Table : 17
Details of Employees Cost
(Rs. in crore)

6.10.7

The Commission approves Rs.55.60 crore and Rs.56.87 crore towards employees cost to be charged to revenue for the year 2001-02 and 2002-03 respectively.

6.11

Repair and Maintenance Expenses

6.11.1

WESCO has proposed Rs of Rs.18.43 crore in their RST application for the FY 2001-02 and Rs.20.69 crore in their ARR application for the FY 2002-03 towards repair and maintenance expenses. In subsequent filing, WESCO has revised the figure of repair and maintenance expenses to Rs.13.62 crore for the financial year 2001-02.

6.11.2

As per the audited accounts of the year 2000-01 the total R&M expenses was Rs.11.15 crore and WESCO estimated for the year 2001-02 and 2002-03 @ 5.4% of the Gross Fixed assets at the beginning of the respective year.

6.11.3

The Commission examined the licensee proposal on R&M expenses and considers it reasonable to allow 5.4% of gross fixed asset as at the beginning of the year. As per RST and ARR filing the position of gross fixed asset as on 31st March, 2001 and 2002 would be Rs.346.13 crore and Rs.383.17 crore respectively. Accordingly, the Commission approves the revised proposal of the licensee i.e. Rs.13.62 crore and Rs.20.69 crore for the year 2001-02 and 2002-03 respectively towards R&M expenses which is within the limit of 5.4% of the gross fixed asset at the beginning of the financial year.

Table : 18
(Rs. in crore)

6.12

Administration & General Expenses

6.12.1

WESCO has proposed Rs.7.80 crore for the year 2001-02 and Rs.8.40 crore for the year 2002-03 towards A&G expenses in their RST and ARR applications respectively. 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 current year and budget estimate for ensuing year.

6.12.2

The Commission has examined the licensee’s proposal on A&G Expenses. As per the audited accounts, submitted by WESCO A&G expenses for the year 2000-01 was Rs.8.30 crore. The Commission in its last tariff order of 2000-01 approved Rs.4.01 crore towards A&G expenses, considering 8% increase over the approved figure of 1999-00 to factor in inflation.

6.12.3

Objectors in general expressed concern about rising trend in A&G expenses and requested that this expenditure should be kept under control preferably limiting to the percentage hike or about 5%.

6.12.4

The Commission finds the projected A&G expenses rather excessive with reference to earlier expenditure and volume of transaction which has not increased. The projection includes lease rental of Rs.0.25 and 0.26 crore for the year 2001-02 and 2002-03 respectively. There is no justification of lease rental for meters when meters have been taken under financial lease.

6.12.5

A&G expenses includes a sum of Rs.0.96 crore and Rs.1.00 crore for 2001-02 and 2002-03 respectively as expenditure related to organisational development expenses. The Commission appreciates introduction of innovative schemes particularly those which are participative, consumer friendly and aim at reaching the rural consumer while safeguarding financial interest of the company. But at the same time, Commission observes that the benefit accruing on account of introducing the scheme should offset the expenditure proposed to be incurred. The tangible benefits like improvement in percentage of billing and collection, reduction in bad debt, reduction of transmission and distribution loss, etc. should have been projected along with the proposed expenditure. The licensee should have particularly brought out the additional revenue earned from the area where the micro-privatisation scheme is in operation over the corresponding figure of the previous year. Such a reporting has not been done.

6.12.6

The Commission, therefore, considers it reasonable to allow an increase of 5% per annum over the approved figure of 2001-02 to factor in inflation and approves an amount of Rs.4.21 crore and Rs.4.42 crore for the year 2001-02 and 2002-03 respectively towards A&G expenses.

Table : 19
(Rs. in crore)

6.13

Interest on Loan

6.13.1

WESCO has proposed an amount of Rs.35.57 crore and 37.49 crore towards interest on loans taken from to be charged to revenue for the FY 2001-02 and 2002-03 respectively. As per Format F-3 of tariff guidelines the loans and bonds of WESCO constitute loans advanced by GRIDCO, IBRD and Power Bonds. Subsequently the figure for the FY 2001-02 was revised to 36.05 crore (ARR 02-03). The interest amount on GRIDCO loan has been arrived at as per the Subsidiary Loan Agreement with WESCO at an average rate of 13.87 percent. Interest on loan from World Bank has been calculated at the rate of 13% per annum as per the subsidiary loan and project implementation agreement with the State Government. Interest on power bonds worth Rs.103 crore issued in favour of GRIDCO/NTPC w.e.f. 1st October, 2000 towards power purchase liability and loan repayment liability has been calculated @ 12.5% per annum.

6.13.2

As regards capitalisation of interest, WESCO has stated only interest on loan drawn during the year for capital works has been capitalised. WESCO in Form-F-3(ARR-02-03) has anticipated loan receipt of Rs.25.09 crore and 43.00 crore during the year 2001-02 and 02-03 respectively from World Bank, the interest of which has been capitalised in respective years.

6.13.3

In addition to above WESCO has proposed (F-12 of RST 01-02 and 02-03) an amount of Rs.21.73 crore and 48.50 crore towards interest on working capital for the FY 2001-02 and 2002-03 respectively. WESCO has tried to justify the claim of interest on working capital with a plea that they have not been able to get any working capital loans from any financial institution/banks due to their poor financial conditions. In turn, they have not been able to pay to GRIDCO the full amount of electricity bill for which they have to pay DPS @ 2% per month on the outstanding amount of power purchase bills which has been claimed as interest on working capital.

6.13.4

The Commission examined the calculation of interest of the loans extended by GRIDCO and approves the amount claimed i.e. Rs.15.69 crore for the year 2001-02 and Rs.12.57 crore for the year 2002-03 respectively.
Regarding World Bank Loan the proposed interest of Rs.7.48 crore and Rs.12.07 crore to be charged to revenue for FY 2001-02 and 2002-03 is calculated on average method and corrected to Rs.6.28 crore and Rs.9.54 crore respectively.

6.13.5

The Commission has advised Government of Orissa for treatment of World Bank loan in terms of its original sanction. Accordingly funds received from World Bank has been treated as 70% loan and 30% grant. Applying the correctives as mentioned above the interest on World Bank loan chargeable to revenue is arrived at Rs.4.40 crore and Rs.6.69 crore for the year 2001-02 and 2002-03 respectively.

6.13.6

The power bonds issued by the licensees in favour of GRIDCO has been assumed to be resecuritised at 8.5% tax free bonds from 2001-02. Accordingly, interest has been calculated @ 8.5% as against 12.5% claimed by the licensee. In this perspective, the Commission allows Rs.8.76 crore towards interest on bonds for each year of 2001-02 and 2002-03 as against Rs.12.88 crore proposed by the licensee.

6.13.7

Interest on loan proposed by WESCO and approved by the Commission is given in the table below:-

Table : 20
(Rs. in crore)

6.14

Depreciation

6.14.1

WESCO has proposed depreciation of Rs.26.50 (RST filing 01-02) and Rs.29.78 crore (ARR 02-03) for the year 2001-02 and 2002-03 on an asset base of Rs.346.13 and Rs.383.17 crore respectively at the beginning of the year. Subsequently in the ARR filing 02-03, it revised the depreciation for the year 2001-02 to 26.87 crore. It has adopted the straight line method as prescribed by Central Government, Ministry of Finance, Notification No. SO-765-E dtd. Nov. 6, 1997.

6.14.2

The provision of depreciation was raised by many of the objectors during the course of the hearing.

6.14.3

One of the objectors claimed that depreciation should have been calculated on the basis of notification of Ministry of Power, Government of India of March, 1994 and not on notification dated 6.11.97 of Government of India. He stated that asset being second hand the rate of depreciation has to be determined by the competent Government in each case "having regard to the nature, age and conditions 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 maintaining the fixed asset register and stated that cumulative depreciation of any asset should not exceed 90% of the original cost of asset.

6.14.4

The Commission noted the objections raised during the course of hearing, the rejoinder submitted by the licensee, took note of the auditor's observations for the year 2000-01 and would like to state that depreciation is being calculated at post-94 rate as prescribed by Government of India on the asset base that was revalued on 014.96 which was substantially raised the revenue requirement of the transmission and distribution business. The Government of India Notification on depreciation issued in pre-1992 links the rate of depreciation to the age of the assets. The Commission in the public interest decides that the licensees will be allowed to recover 90% of the asset value within the life period of the asset as determined by Government of India Notification of 1992. This will avoid front loading of the tariff, but at the same time will ensure necessary cash flow for the licensee over a longer period of time. Accordingly, the Commission directs that the depreciation of the assets should be limited to 90% of the revalued cost of the assets after taking into consideration the amount already charged to revenue from 01.04.96 to 31.03.2001.

6.14.5

The Commission took note of the observation noted in the audit report for the year 2000-01 that the gross block of fixed assets and the depreciation on the same are subject to finalisation and that the Fixed Assets Register is not maintained and individual break up of fixed assets is not available.

6.14.6

The Commission directs WESCO to comply with the observation raised by their statutory auditors before 31st of August, 2002 i.e. well before the filing of revenue requirement (15th December to 31st December, 2002) for the year 2003-04. Once an asset register is built, the expenditure on fixed asset and provision of fixed asset and provision of depreciation can be properly monitored.

6.14.7

According to the provisions of the Act, 1948, depreciation for the year should be calculated on the gross fixed asset existing at the beginning of the year. Audited Accounts of WESCO for the year 2000-01 reveals that the gross fixed asset of the licensee as on 31.3.2001 is Rs.346.13 crore and it has been estimated that Rs.383.17 crore as on 31st March, 2002.

6.14.8

As mentioned in para 6.43.4 the depreciation has been recalculated on the basis of pre-92 rates prescribed by GoI notification on the asset base as above the Commission approves provisionally depreciation of Rs.13.06 crore for the year 2001-02 and Rs.14.48 crore for the year 2002-03.

Table : 21
Calculation of depreciation
(Rs. in crore)

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