1. 1
A
Presentation
on
ARR & Tariff Proposal of
CESU for FY 2007-08
Broad Suggestions/Objections
Feburary 8, 2007
Together, let us light up our lives.
ORISSA ELECTRICITY REGULATORY COMMISSION
2. 2
TARIFF FILING BEFORE THE COMMISSION FY 2007-08
ITEMS CESU
Rev. Req. (Rs.Cr.) ( Including Reasonable Return & excluding
Previous Losses) 1123.52
Power Purchase (MU) 5233.11
Anticipated Sale (MU) 3189.70
LT 1836.70
HT 743.16
EHT 609.84
Distribution Loss (%) 39.05%
OVER ALL SYSTEM LOSS (%) 42.10%
Collection Efficiency (%) 92.00%
AT&C LOSS (%) 43.92%
Exp. Rev.at Exist. Tariff (Net) (Rs.Cr.) 909.07
(Exp. Rev+Misc.Rev.) at Exist. Tariff (Net) (Rs.Cr.) 919.94
Revenue Gap ( +/- ) (Rs. Cr. ) -203.5781
Previous Losses (Rs. Cr. ) -907.90
Revenue Gap ( +/- ) (Rs. Cr. ) including past losses at
Existing Tariff -1111.48
Exp. Rev.at prop. Tariff (Net) (Rs.Cr.) 1057.67
(Exp. Rev+Misc.Rev.) at Prop. Tariff (Net) (Rs.Cr.) 1068.54
Addl. Rev. (Rs. Cr.) with prop. Tariff 148.60
Exist.Overall Average Tariff (Net) (p/u) 285.00
Prop. Overall Average Tariff (Net) (p/u) 331.59
Overall rise (%) 16.35%
Exist.LT Average Tariff (Net) (p/u) 271.00
Prop. LT Average Tariff (Net) (p/u) 331.59
Avr.Rise in LT Tariff (%) 22.36%
Exist.HT Average Tariff (Net) (p/u) 290.90
Prop. HT Average Tariff (Net) (p/u) 321.18
Avr.Rise in HT Tariff (%) 10.41%
Exist.EHT Average Tariff (Net) (p/u) 319.43
Prop. EHT Average Tariff (Net) (p/u) 344.28
Avr.Rise in EHT Tariff (%) 7.78%
3. 3
Growth(%) in Sale(MU) as proposed by CESU
Category FY 2005-06
FY 2006-
07(A
pril-
Sept)
FY 2006-
07(Pr
op)
Growth (%)
FY 2007-
08(Pr
op)
Growth (%) Remarks(Basis)
LT 1504 781.53 1551.84 3 1836.7 18
Domestic 1038 547 1092 5 1312.02 20
Impact of electrification under RE
programme
Irrigation 32.06 12.23 21.38 -33 21.38 - Metering of Irrigation consumers
HT 508.79 320.62 641.52 26 743.16 16
Trend of FY 05-06& growth from
existing and new consumers
Large Ind. 253.32 158.95 313.91 24 389 24
Growth from existing and 13
new1MVA consumers
Power Int. - - - - - -
Addition of 1 new consumer
&enhancement of load
Mini Steel 36.32 35.42 80.048 120 90.72 13 Addition of 1 new consumer
EHT 379.28 230.9 512.99 35 609.84 19
Trend of FY 05-06& growth from
existing and new consumers
Large Ind. 156.22 103.77 261.712 68 345.08 32 Increase in contract demand
Heavy Ind. 158.19 80.02 159.359 1 161.28 1 Adddition of 2 new consumers
Power Int. 11.64 0.65 1.595 -86 1.92 20
Spl. Tar. - - - - - -
Total Sale (MU) 2392 1333 2706.34 13 3189.7 18
Power Purchase
(MU)
4184.499 - 4778.83 14.203 5233.11 9.506
Energy input has been estimated
based on the estimated
consumption of 4140 MU and
distribution loss of 31%.
Dist. Loss (%) 43 - 43 - 39 -
4. 4
Tariff Structure
• CESU has proposed –
– Higher average tariff increase for subsidized categories than
the average tariff increase for subsidized categories
– Allow a voltage wise loss stipulation for computing revenue
requirement
– Allow the category wise tariff to bridge revenue gap
– Allow the past losses as regulatory assets to be set off in
future years through tariff along with interest to be decided
by the Commission
– A service may be levied on consumer for dishonoured
cheques (Rs.200 for LT and Rs.1000 for HT/EHT)
5. 5
Tariff Structure…Contd..
– To give single point supply to all apartments to have better
control and management
– Demand charge for maximum demand recorded during a
month in addition to energy charge at the same rate as
applicable to industries for emergency power supply to
CPPs/generating stations
– DPS for LT consumers @1.25% per month for all categories
of consumers
– In case increases in tariffs are not sufficient to bridge the
entire revenue gap shall be bridged by reduction in BST
and/or Govt. subsidy
– Considered actual AT&C loss in FY 2006-07 as base level
for setting future loss reduction
6. 6
Tariff Structure…Contd..
– Increase in reconnection charge as under:
Connection Type Charges
Single Phase Domestic Consumer Rs. 250.00
Single Phase Other Consumer Rs. 500.00
3 Phase LT Consumer Rs. 2500.00
HT & EHT Consumer Rs. 5000.00
8. 8
Legal Issues
• The ARR application filed by the licensee is not tenable under
law due to the following defects:
– The licensees account has not been audited for FY 2004-05
and 2005-06.
– The licensee has filed the application to confuse the
consumer public without disclosing the purpose for such
filing.
– The interested persons are being kept in dark and not able to
file effective objection and as such the purpose of such
exercise has been frustrated and contrary to law and
principle of natural justice.
– The procedure/method so adopted by the Commission be
made simple and inexpensive.
– The licensee has failed to provide details as required under
regulations to the Commission for consideration of his
application as such the application may be rejected.
9. 9
Issues raised by Objectors
• Military Engineering Services
– There should be discriminatory Tariff between consumers of
general category and of the defence.
• Distribution Loss:
– The licensee has miserably failed to arrest high Distribution loss on
account of unauthorized use of power.
– Distribution loss should be calculated by taking ratio of units lost in
distribution system excluding EHT sale.
– Since, a large chunk of consumers are still unmetered and having
defective meters, the declared loss by the licensee is unrealistic.
• Collection Efficiency:
– The consumers are not to be burdened for in-efficiency of licensees
to collect their energy dues from consumers every year.
10. 10
Issues raised by Objectors.. Contd..
• AT&C Loss
– AT&C concept should not be implemented as it hides the
inefficiency of the Licensee.
• Power Factor Incentive/ Power Factor Penalty
– Power Factor incentive has to be calculated upto two decimal
fraction
– Power factor penalty is levied for power factor less than 90% &
power factor incentive should be given for power factors above
90% at the same rate.
– Power factor penalty for the small and medium industry consumer
may be introduced.
• Cross Subsidy
– Bench Marks for gradual reduction of cross subsidy may be fixed
from this year to achieve Zero level by 2009-10.
11. 11
Issues raised by Objectors.. Contd..
• Quality of Services:
– The industries are put to financial burden for being unable to
achieve 80% Load Factor due to the inability of the licensee to
supply proper quality power.
– Due to slow up gradation of the system and sub-station, the new
industries are finding difficult to get power connection.
– Voltage/frequency fluctuation –The accountability should be fixed
with the License in terms of financial compensation for the
fluctuation beyond standard norms.
12. 12
Issues raised by Objectors.. Contd..
• Consumer Classification
– Electricity tariff for poultry may be at par with agriculture.
• The State Government has decided to classify poultry as agriculture
– Reliance Telecom Ltd. and Reliance Infocomm Ltd. - Electricity
energy may be charged at Industrial Rates instead of General
Purpose rates to the IT & ITES Industries operating in the State
– BSNL Orissa Circle, Bhubaneswar
• BSNL may be treated as an industrial undertaking as power is
substantially utilized as motive force for Industrial purpose and without
supply of power it is not possible to run the Telecom services.
• The BSNL is coming under the purview of industry as per the verdict of
the Hon’ble Supreme Court in several cases.
• So also as per the finance Act, 2002 w.e.f. 01.4.03, the business of
providing Telecommunication Services has been declared as industrial
undertaking.
13. 13
Issues raised by Objectors.. Contd..
• Financial Issues
– In absence of the audited balance sheet and report of the auditors it
is not possible for the objector to make proper observation on
financial matters.
– Employees cost – it is suggested that an increase of about 6% over
last year’s provision as was being given earlier, may be allowed
while fixing the employees cost for the FY 2007-08.
• Interests attributable to bonds
– The interest attributed to bonds against arrear of power purchases
cost and capital value of bonds are not payable by consumers.
14. 14
Issues raised by Objectors.. Contd..
• Interests towards securitization
– The interest towards securitization as well as capital of
securitization should not be passed on to the revenue requirement
for tariff proposes.
– Infusing additional funds - The licensee may be directed to infuse
additional funds as may be required to turn around the sector.
– Regulatory assets - Any losses that the distribution licensee likes to
incur after complying with the orders of the Commission, can only
be considered for the purpose of computing the Regulatory Assets.
– Employees cost - It is suggested that an increase of about 6% over
last year’s provision may be allowed while fixing the employees
cost for the FY 2007-08.
– Past Losses - Past losses should be paid through tariff by
consumers only if these losses have been incurred due to reasons
beyond the control of licensee and in spite of licensee having
performed as per bench marks fixed by OERC.
15. 15
Issues raised by Objectors.. Contd..
• Computation of Load Factor
– Load factor or consumption ratio to be determined on the basis of
Maximum Demand recorded in the meter in accordance with
Regulation 2(y) of the OERC Distribution (Conditions of Supply)
Code, 2004.
– It will be just and proper to calculate the load factor on the basis of
Maximum Demand or 80% of the Contract Demand whichever is
higher.
– A lower load factor upto 50% may be prescribed for the period of
annual maintenance, which will be jointly decided by the licensee
and the consumer.
– The guaranteed load factor of 80% should be determined on an
annual basis.
– Load factor may be computed separately for peak and off peak
hours and the overall load factor be computed by integrating the
above data.
– The LF be calculated based on the actual period of availability of
unrestricted power supply during the month.
– The MD during the off peak hours should not be considered for
computing the LF.
16. 16
Issues raised by Objectors.. Contd..
• Tariff Issues
– The gap of electricity charges between high consumption and low
consumption should be reduced to minimum level, which will
discourage theft of energy.
• Contract Demand
– Time frame for reducing the contract demand may not be imposed.
• Provision for Rebate
– Seven clear days may be given from the receipt of the bill to get the
rebate on prompt payment.
17. 17
Issues raised by Objectors.. Contd..
• Emergency Supply to CPPs
– The proposal of demand charges for emergency drawal to CPPs should
be rejected.
– Emergency power requirement for CPP/Generating stations are very
low and for short duration only, it is not at all justified to propose
demand charges for emergency power to CPP’s.
• Rail-ways:
– Adoption of single part tariff for Railway traction.
– Proper adoption of simultaneous maximum demand for Railway traction
supply.
– Railway may be exempted from payment of Security deposit.
– Stipulation of penalty on power factor if it goes below 0.85 as against
0.90.
– Stipulation of incentive for improvement in power factor above 0.85.
18. 18
Issues raised by Objectors.. Contd..
– Grant of relief to railways for power supply interruption as well as
poor quality of supply.
– The tariff applicable to Railway Traction should reflect the cost of
supply without any cross subsidy.
– As far as supply to Railway Traction Sub-station is concerned, the
distribution companies are not entitled to any wheeling charges as
non of their own asset is involved in the supply process.
– Ignoring of maximum demand of TSS’s during feed extensions as
Railways are constrained to extend feed from adjacent TSS to the
failed TSS zone.
– The tariff clause for industrial colony consumption should be
applicable to Railway colony.
19. 19
Issues raised by Objectors.. Contd..
• General Issues
– The additional costs actual or estimated on account of the
inefficiency/inability of licensee should not be passed on to the
consumers through the tariff, either as a direct cost or a so called
Regulatory Asset.
– Any cost due to additional power purchase, beyond the allowable
distribution loss should not be included in the ARR of the licensee.
– Increase in the reconnection charge – no justification.
• The charges to the consumers should reflect the cost to the
licensee.
– DPS for LT consumers – no justification.
• A LT consumer loses the rebate of 10 p/kwh in a month.
Additional levy of DPS is thus unnecessary and un reasonable.
20. 20
Issues raised by Objectors.. Contd..
– The demand charges may be calculated prorate if the total of
period of interruption (causing loss of production due to
interruptions) and the pre-arranged shut downs availed on
intimation, or statutory power cuts, exceeds 60 hours in a moth.
– The street light burning hours should be on actual time i.e. for 10
hours a day.
– The ceiling limit of 10% of total consumption for the colony
consumption should be waived
– Electricity charges for the colony consumption should be at per with
domestic rate because the electricity used in the colony is never
used for any industrial purpose.
– Special tariff for running of FOUNDRY –A special tariff structure
@50% of the existing tariff, may be introduced for running of the
furnaces.
21. 21
Issues raised by Objectors.. Contd..
– Demand charges –
• The demand charges may be calculated on prorate basis
for the actual period of power availability.
• The demand charges may be exempted if there is power
interruption for more than 50 hours in a month.
– To have a uniform tariff for all consumers based on
commercial principle of cost plus benefit basis.
– Separate Tariff may be introduced for Specified Public
Purpose consumers under private sector especially for
Educational Institutions.
22. 22
Issues raised by Objectors.. Contd..
– Service Connection charges - It is suggested that a realistic
amount in place of Rs500/- may be fixed so that the
Licensee can procure quality materials in time.
– Uniform rate may be introduced for LT (domestic) without
any slab system.
– Tariff Revision - The proposed tariff revision is not at all
desirable as there is no improvement in services.
23. 23
Issues raised by Objectors.. Contd..
• OERC Regulations
– During the initial period of supply, which is prescribed for five years,
an Exit Clause should be provided since the consumer has right to
choose it’s supplier.
– Customer’s Security Deposit – Consumers may be permitted to
furnish bank guarantee or to open revolving letter of credit in favour
of licensee in lieu of security deposit as it becomes extremely
difficult for small and medium scale industry to invest such huge
sum for purchase of power in cash.
– Period of agreement – The validity of power agreement is presently
5 years, should be reduced to 1 year in view of the changing
market scenario and fluctuating market demands.
25. 25
The following areas have not been
adequately addressed
• D.T. wise Energy Audit & Consumer Indexing for loss reduction
• Spot Billing & Collection for improvement of Collection Efficiency
• Repair & Maintenance
• Arrear Collection & Liquidation of power purchase dues
• Man power deployment ( Both Executive & Non Executive ) for
reducing AT & C Loss
• Non Investment in system improvement for Quality Supply
26. 26
Note: (i) CESU is required to submit the schedule of the provisional account for FY
2005-06 such as employees cost, R&M, A&G, Bad debt and other misc. expenses
and revenue details, etc. which has not been submitted in their filing.
2005-06 2006-07 2007-08
A. Expenditure Provisional Approved Proposed
Cost of Power Purchase 521.99 501.56 753.57
Cost of Transmission 91.61
Employee costs NA 113.10 168.36
Repair & Maintenance NA 41.31 54.95
Administrative and General Expenses NA 13.11 16.46
Provision for Bad & Doubtful Debts NA 20.70 10.91
Other expenses 0.14
Depreciation 62.25 28.84 49.62
Interest Chargeable to Revenue including INT on SD 34.46 38.22 58.01
Carrying cost 7.04
Sub-Total 855.49 1111.88
Less: Expenses capitalised 0
Total expenses 791.09 855.49 1111.88
B. Special appropriation
Amortisation of Regulatory Asset
Past Losses 0 907.90
Contingency reserve
Total 0.00 907.90
C Return on equity 11.64 11.63
TOTAL(A+B+C) 867.13 2031.41
D. Less Miscellaneous Receipt 9.86 31.22 10.87
E. Total Revenue Requirement 781.23 835.91 2020.54
F. Expected Revenue(Full year ) 697.16 828.15 909.07
G. GAP(+/-) -84.07 -7.76 -1111.47
REVENUE REQUIREMENT OF CESU FOR 2007-08 (Rs in Crore)
27. 27
Revenue Requirement of CESU .. Contd..
• The tax audit report submitted for the year ended 31st March 2006 does not contained
the profit and loss and balance sheet for FY 2005-06. The same may be submitted.
• CESU for the FY 2007-08 has not bifurcated the amount to be expended towards cost
of power purchase and cost of transmission. The same may be submitted.
• Actual expenditure against the above heads of expenditure for first six months of FY
2006-07 has not been provided by the licensee. The same may be submitted.
• The reason for proposing higher amount of employee cost of Rs.168.36 crore for
2007-08 as against the approved figure of Rs.113.10 crore for FY 2006-07 needs to
be explained.
• The reason for proposing higher amount of R&M expenses of Rs.54.95 crore for
2007-08 as against the approved amount of Rs.41.31 crore for the FY 2006-07 needs
to be explained.
• Similarly, the quantum proposed for interest amounting Rs.58.01 crore for FY 2007-08
is nearly Rs.20 crore more than the approved amount of Rs.38.22 crore for FY 2006-
07. This needs to be explained.
• It may be justified as to why the past losses of Rs.907.90 crore proposed for the FY
2007-08 may be allowed and if so how far it is reasonable.
30. 30
Fixed Assets addition during the Financial
Years in Rs. Cr. – CESU
Approved Actual
FY 2001-02 52.78 67.25
FY 2002-03 73.47 127.01
FY 2003-04 85.36 88.42
FY 2004-05 31.92 40.80
FY 2005-06 66.28
45.51
(Provisional)
FY 2006-07
(Proposed)
39.55 36.97 (RE)
FY 2007-08
(Proposed)
95.67
31. 31
Business Plan Vrs. ARR
• A comparison of figures in Business Plan and ARR from FY
2004-05 to 2007-08 with regard to Distribution Loss,
Collection Efficiency and AT&C Loss, present two different
sets of figures with wide margins as follows:
33. 33
Finance related issues
• Position of Accounts need to be explained.
• Investment details have not been specified.
• Capital Works In Progress - capability of huge investment
proposal has not been justified.
• Action plan for settlement and collection of arrears outstanding
with the consumers have not been spelt out.
• No Action Plan for establishment of Special Police Station & Special
Court has been given.
34. 34
Issue of Regulatory Assets
• National Tariff Policy on Regulatory Assets stipulates
– Pass through of past losses or profits should be allowed to the
extent caused by uncontrollable factors.
– The facility of a regulatory asset should be done only as exception,
and subject to the following guidelines.
– should only include natural causes or force majeure conditions
– Carrying cost of Regulatory Asset should be allowed to the utilities
– Recovery of Regulatory Asset should be time-bound and within a
period not exceeding three years at the most and preferably within
control period.
– The use of the facility of Regulatory asset should not be repetitive.
• Does the claim of Licensee conform to the National Tariff Policy?
35. 35
Average Revenue Billed (P/U) Vrs
Actual as filed by CESU in ARR filings
Voltage
Category
2002-03 2003-04 2004-05
2005-06
(April’05
-
Jan.’06)-
Actual
2005-06
(April’05-
March’06)
(Actual)
2006-07
(April -
Sept'06) –
(Actual)
2007-08 (Licensee’s
Estt. at Prop. rate)
LT 253 266 271 262.7 263 261 331.59
HT 379 391 385 373.3 372 362 321.18
EHT 464 306 359 338.6 338 335 344.28
Overall 305 295 307 297.7 298 298 331.59
Note: What is the cause for reduction of HT average between (April'05-March'06) &
(April'05-Jan'06) ? Financial Impact on account of reduced unit rate at HT works out to
Rs. 0.66Cr. . This needs to be clarified by the Licensee.
36. 36
Power Purchase Cost and Revenue billed in Rs.cr
FY
2002-03
FY
2003-04
Differenc
e w.r.t
previous
FY
FY 2004-
05
Differen
ce w.r.t
previou
s FY
FY 2005-
06
Differen
ce w.r.t
previou
s FY
Cumulat
ive
Differen
ce
BST bill
(Rs cr.) 530.59 518.85 -11.74 516.42 -2.43 528.41 11.99 -2.18
EHT/HT
billing 295.46 299.22 3.76 293.74 -5.48 317.68 23.94 22.22
LT billing 371.46 392.4 20.94 397.25 4.85 395.38 -1.87 23.92
NOTE : The above table indicates that the billing in HT/EHT is higher through the years
than the rise in BST bill, but there is high Distribution loss and poor collection efficiency at
LT.
