Case No. 23 of 1999

Present : Shri S.C. Mahalik, Chairman
Shri D.K. Roy, Member

O R D E R

Table of Contents

1. Introduction

2. Preliminary Objections

3. NESCO's Proposal

4. Objector's views

5. NESCO's rejoinder

6. Commission's Analysis and Orders

   1. Revenue Requirement

      1. Quantity of Power Purchase

      2. Transmission and Distribution Loss

      3. Cost of Power

      4. Other Revenue Requirements

   2. Approved Revenue Requirement, Reasonable Return & Clear Profit

   3. Approved Tariff

   4. Commission's Order

7. Annexures

   1. Annexure A

   2. Annexure B

   3. Annexure C

   4. Annexure D

North-Eastern Electricity Supply Company of Orissa Ltd., Januganj, Balasore (NESCO, for short), the holder of licence for carrying on the business of Distribution & Retail Supply of electricity in electrical circles of Balasore and Jajpur Road, submitted an application on 27.09.99 u/s 26 of the Orissa Electricity Reform Act, 1995 (Reform Act, 1995, for short) in respect of tariff for retail supply of electricity to different categories of consumers.

2.0

NESCO and its two other sister concerns, namely, WESCO and SOUTHCO, jointly filed an application for Retail Supply Tariff (RST, for short) on 30.07.99. The Commission’s staff, after preliminary scrutiny of the application, raised a number of comments/queries thereon. The Commission forwarded the comments/queries to NESCO vide letter No.2269 dt.13.08.99 and asked for additional information from NESCO in order to enable the Commission to decide whether the filing would be treated as complete for the purpose of proceeding u/s 26 of the Reform Act, 1995.

2.1

NESCO submitted a fresh application with clarifications to the comments/queries of the Commission in two volumes on 27^th September, 1999. In the light of the clarifications to the comments/queries and additional information received from it, the filing appeared to be generally in order. Accordingly the filing was treated as complete and by Order No.2 dt.04.10.99 (Vol. I), the application in question was admitted and issue of public notice inviting objections to NESCO’s application was ordered.

2.1.1

Notice was published, as approved by the Commission, in several local newspapers on two consecutive days in terms of Clause 39 r/w sub-clause (1) of Clause-126 of the Orissa Electricity Regulatory Commission (Conduct of Business) Regulations, 1996 (Regulations, 1996, for short) outlining the broad features of the Distribution & Retail Supply Licensee’s proposed tariff and the rates & charges in a Schedule appended to the notice and inviting objections from interested persons. The public notice required the interested persons to file their objections and such documents as they seek to rely upon, supported by an affidavit, in six copies and to indicate also if they would like to be heard in person by the Commission in terms of Clause 43 of the Regulations, 1996. The notice further required the interested persons to serve a copy of the reply/objection alongwith the documents relied upon on the petitioner/applicant and to file proof of such service before the Commission at the time of filing of the reply/objection in terms of Clause 44 of the Regulations, 1996.

2.1.2

The above public notice also called upon the interested persons/objectors to inspect/peruse NESCO’s application and take note thereof during office hours within 15 days of the publication of the notice. The public notice also permitted the interested persons to obtain the salient features of the application on payment of Rs.20/- towards photocopying charges from Managing Director, NESCO, Balasore and all Executive Engineers in charge of Distribution Divisions such as Balasore Electrical Division, Balasore, Central Electrical Division, Balasore, Bhadrak Electrical Division, Bhadrak, Baripada Electrical Division, Baripada, Rairangpur Electrical Division, Rairangpur, Jajpur Road Electrical Division, Jajpur Road, Keonjhar Electrical Division, Keonjhar, Anandapur Electrical Division, Anandapur. They were also permitted to obtain a full set of the application together with supporting materials on payment of Rs.100/- towards photocopying charges.

2.1.3

The last date of filing of objection complying with the terms & conditions of the public notice was initially fixed as 31.10.99. The date fixed for filing of objection was extended to 15.11.99 because of the super cyclone which hit Orissa on 29^th and 30^th October, 1999. A notice in print media such as "Samaya" (dt.05.11.99) and "New Indian Express" (dt.3.11.99) was published extending the date of filing of objection with regard to the Retail Supply Tariff (RST) applications of the Distribution and Retail Supply Licensees for the information of the general public and interested persons. The notice regarding extension of the date of filing of the objection was also displayed on the office Notice Board.

2.2

The Commission received 19 objections against NESCO’s application out of which five were rejected for non-compliance of the terms & conditions as laid down in the public notice while 14 objections were admitted according permission to the objectors for participating in the hearing. The objectors whose objections were admitted for hearing are (1) Chief Electrical Engineer, S.E. Railway, Garden Reach, Calcutta. (2) M/s Jayshree Chemicals Ltd., P.O. Jayshree, Dist., Ganjam. (3) M/s Ispat Alloys Ltd., At/P.O. Balgopalpur, Dist. Balasore. (4) M/s Emami Paper Mills, At. Balgopalpur, P.O. Rasulpur, Dist. Balasore (5) Orissa Assembly of Small & Medium Enterprises, Balasore Chapter, Balasore. (6) Shri Maheswar Bag, Ex-Minister, President, Nagarika Adhikar Surakshya Committee ‘O’ Durniti Nibarana Sangha, Balasore. (7) Shri Rajkishore Mohanty, Grahak Swarth Surakshya Parisada, Balasore. (8) President, East Coast Rice Miller’s Association, A/P.O. Charampa, Dist. Bhadrak (9) M/s FACOR, D.P. Nagar, Randia, Dist. Bhadrak. (10) Secretary, Bhadrak Bar Association, Bhadrak. (11) Shri K.N. Jena, General Secretary, Orissa Consumers’ Association, Biswanath lane, Cuttack. (12) M/s Utkal Chamber of Commerce & Industry Ltd., Barabati Stadium, Cuttack. (13) M/s Tata Iron & Steel Co. Ltd., 273, Bhoumanagar, Unit-IV, Bhubaneswar. (14) Shri R.C. Padhi, Retd. Chief Engineer, MIG A/24, Brit Colony, Nayapalli, Bhubaneswar.

2.3

After receipt of the objections and scrutiny thereof, the Commission published a notice in two Oriya dailies and one English daily on 17^th & 18^th November’99 whereunder the list of valid objections with regard to NESCO’s application and the date of hearing (03.12.99) were notified for the information of the general public.

2.3.1

In terms of Clause-45 of the Regulations, 1996, the Commission permitted the applicant to file a rejoinder to all the objections/reply filed by the objectors.

2.4

As notified, the hearing of the RST application commenced on 03.12.99. None of the parties present made any prayer to adduce oral or documentary evidence in course of the proceedings except those that were filed supported by affidavit, in response to the public notice.

2.5

Apart from the substantive objections, legal objections were raised by two objectors as preliminary objections on the maintainability of the tariff proceeding. The Commission heard the views of NESCO on such objections. It was decided with the consent of the respective objectors that they would be dealt with by the Commission in the final order.

2.5.1

The preliminary objections raised by the General Secretary, Orissa Consumer’s Association, Cuttack and President, Nagarika Adhikar Surakshya ‘O’ Durniti Nibarana Sangha, Balasore are as follows :-

2.5.1.1

The RST determined by the Commission by its Order dt.21.11.98 in Case No.19/98 which has come into force from 01.12.98 cannot be revised or amended within a period of 3 years as envisaged u/s 57-A (1)(e) of the Electricity (Supply) Act, 1948 (the Act, 1948, for short) and therefore the present application for RST is not maintainable and liable to be rejected outright.

(O.C.A.)

2.5.1.2

The RST determined by the Commission (in Case No.19/98) cannot be amended within one financial year unless warranted for adjustment of Fuel Surcharge.

(O.C.A.)

2.5.1.3

OERC has not framed any regulation by notification in official gazette for determination of tariff u/s 29 of the Electricity Regulatory Commission Act, 1998 (the Commission Act, 1998, for short) and sub-section (2) of Section 26 of the Reform Act, 1995 and as such it lacks authority and power to consider the application of the licensee, be it for determining a new tariff or revising or amending the existing one.

(O.C.A.)

2.5.1.4

OERC has not yet specified the methodology and procedure for calculating expected revenue from the charges and therefore, it cannot consider the application of the licensee which is based on imaginary, vague, and manipulated statement of facts and accounts in the absence of statutory audit reports for the years 1997-98 and 1998-99.

(O.C.A.)

2.5.1.5

Licensee has failed to comply with the conditions of the Licence to improve its efficiency, standard of service and reduce its losses and as such, it should not be allowed to make good the losses attributable to mal-administration, inefficiency, corruption, mismanagement, and unwarranted expenses by way of penalising the consumers in the form of a tariff hike.

(O.C.A.)

2.5.1.6

Since the application for RST has not been filed prior to the commencement of the FY 1999-00 and has been filed in the middle of the aforesaid FY, it cannot be entertained for setting a tariff for the balance or remaining part of the FY.

(O.C.A.)

2.5.1.7

As the OERC has not consulted Commission Advisory Committee (CAC, for short) prior to the admission of the tariff application and issue of public notice, it would not be legal and proper to proceed with the case.

(O.C.A.)

2.5.1.8

As the Commission, at present, is only a two member Commission instead of three and the member of the Commission who shall be an electrical engineer having experience of generation, transmission & distribution or supply of electricity in terms of Section- 5 (1)(a) of the Reform Act, 1995 having not been appointed as yet, the Commission now comprising of two members lacks quorum to undertake and dispose of the tariff proceeding because of the bar created u/s 9(4) of the Reform Act, 1995.

(O.C.A.)

2.5.1.9

Since the notice issued by the Commission in the daily newspapers inviting objections was in English, the same was not intelligible to the consumers. As the notice was not in Oriya language and also not intelligible, the dateline fixed for filing of objection was improper and illegal.

(Nagarika Adhikar Surakshya ‘O’ Durniti Nibarana Sangha)

2.6

The first objection raised by Shri K.N. Jena, General Secretary of the Orissa Consumers’ Association, Cuttack is that when the provisions of Sec.57-A of the Act, 1948 r/w the provisions of the Reform Act, 1995 contemplate that charges for the supply of electricity, once fixed, shall be in operation for three years, revision of tariff within one year would be without the authority of law.

2.6.1

The objection is purportedly based on Section 57-A of the Act, 1948. We have considered the provision of Section 57-A of the Act, 1948 and particularly sub-clauses (c) and (e) of sub-section (1) of Section 57-A quoted by Shri Jena. We find that these provisions are applicable to charges for electricity recommended by a Rating Committee and approved by the State Govt. and stipulate that such charges recommended by a Rating Committee for supply of electricity shall be in operation for such period not exceeding three years as the State Govt. may specify in the order. Sub-section (7) of Section 26 of the Reform Act, 1995 repeals the constitution of a Rating Committee making the provisions of the Act, 1948 quoted Shri Jena inapplicable in this case. We hold that the preliminary objection by the learned counsel citing the provisions of Section 57-A of the Act, 1948 is without merit as the said provision is inapplicable in tariff proceeding under Section 26 of the Reform Act, 1995.

2.7

With regard to the second objection that the RST determined in Commission’s Order dated 21.11.98 (in Case No.19/98) cannot be amended within one financial year unless warranted for adjustment of fuel surcharge, we would like to say that apparently there is some misunderstanding about Section 26 of the Reform Act, 1995 which is relevant to the determination of tariff by the Commission. We would like to clarify that in this section of the Reform Act, 1995, the procedure for determination of a fresh tariff or amendment of tariff is the same. There is no vacuum or even interregnum in operation of a tariff which has been defined as a schedule of standard prices or charges. This has been amply made clear in Clause 116 of Regulation, 1996. Depending on the gap between estimated revenue requirement and the aggregate revenue which a licensee is permitted to recover by the tariff in operation, the Commission may approve modification to the tariff or any part of tariff. Whether the resultant determination is called a tariff or an amendment of tariff is not of any consequence. The Commission cannot refuse to entertain an application if the Commission finds that the licensee’s filing of revenue requirement and expected revenue from charges is reasonably complete. It has to process it and take a decision within ninety days of the complete filing. Sub-sec. (6) of Section 26 of the Reform Act, 1995 lays down that except in terms of fuel surcharge formula, no tariff or part of tariff can be amended more than once in any financial year. The natural corollary is that tariff or part of any tariff can be legitimately amended once in a financial year. The current RST was set in November’98 within the financial year 1998-99. Therefore an amendment to RST during financial year 1999-00, if found justified, cannot be termed as illegal.

2.8

The third objection relates to lack of authority and power of the Commission to consider the present application of the Licensee, be it for fixing a new tariff or revising or amending an existing one on the ground that the Commission has not framed any regulation for fixation of tariff u/s 29 of the Commission Act, 1998 and under sub-sec. (2) of Sec. 26 of the Reform Act, 1995, by notification in the official gazette.

2.8.1

In fact, this objection has two parts. The first part of the objection is that OERC has not framed any regulation for determination of tariff u/s 29 of the Commission Act, 1998 and as such, it lacks authority and power to consider the application of the licensee. In view of the above objection, the point for consideration is if Sec. 29 of the Commission Act, 1998 is applicable to determination of tariff in the State of Orissa.

2.8.2

We understand that Shri K.N. Jena, General Secretary of the Orissa Consumers’ Association has, in OJC No.6999/99, challenged the procedure adopted by the State Govt. for appointment of a member of the Commission which has fallen vacant on the ground that the State Govt. has not followed procedure provided under the Commission Act, 1998 for such purpose. The aforesaid writ application is yet to be disposed of laying down the law on the issues involved.

2.8.3

Meanwhile, we are of the opinion that the Reform Act, 1995 holds good in all matters provided therein for OERC including determination of tariff by the Commission in view of the special provision relating to the Reform Act, 1995 and Haryana Electricity Reform Act, 1997 contemplated u/s 41 of the Commission Act, 1998. Sec. 41 of the Commission Act, 1998 clearly provides that the provisions of the said Act, in so far they relate to the State Commissions, shall not apply to the Commissions established under the Reform Act, 1995 or the Haryana State Electricity Reform Act, 1997.

2.8.4

The subject "electricity" is in the Concurrent List of the Constitution of India. Therefore, the State of Orissa has a right to enact law on electricity as it did in the Reform Act, 1995. The Reform Act, 1995 has been assented to by the President of India on the 3^rd January, 1996. Further, Sec.41 of the Commission Act, 1998 is in the nature of a built-in provision to safeguard the State Acts enacted earlier from the overriding effect of a Central Act enacted later than the State Acts on the same subject of "Electricity" and in the same field of establishing Electricity Regulatory Commission. To sum up, we hold that the Commission Act, 1998 in so far as it relates to State Commissions is not applicable to OERC.

2.8.5

The second part of the objection is that the OERC has not framed any Regulation by notification in the official gazette for determination of tariff under sub-section (2) of Sec.26 of the Reform Act, 1995 and therefore it has no authority or power to consider the application of the Licensee whether it is for a new tariff or revision or amendment of the existing one. Before we deal with the factual aspect of this objection, we may point out that while it is stated in the first part of the objection that tariff should be determined by OERC in accordance with the provisions of Sec. 29 of the Commission Act, 1998, it is also contended in the second part of the objection that OERC has not framed regulations for fixation of tariff u/s 26(2) of the Reform Act, 1995 and, therefore, OERC has no authority or power to consider the said application of the Licensee. It appears to us that Shri Jena is challenging the Reform Act, 1995 in so far as it relates to the OERC and at the same time he is relying on the same Reform Act, 1995 to challenge the alleged omission on the part of OERC.

2.8.6

The plea taken by Shri Jena that OERC has not framed any regulation to determine tariff u/s 26(2) of the Reform Act, 1995 has no basis in fact. Chapter-V of the Regulations, 1996 deals with regulations on tariff as envisaged in Chapter-VIII of the Reform Act, 1995. The provisions contained in Chapter-V of the Regulations, 1996 has conferred upon the Commission a measure of discretion in the matter of evolving its working procedure so long as these procedures conform to the principles of natural justice. Accordingly, we are of the opinion that there is no merit in this objection.

2.9

With regard to the fourth objection, it may be pointed out that upon filing of the application for RST by NESCO on July 30, 1999, the Commission in its letter No.2269 dt.13.08.99 pointed out certain omissions to be supplied by the applicant and raised certain queries for clarification. The applicant filed a fresh application and supplied the omissions and clarifications to the queries on 27.09.99 raised by the Commission in its letter dt.13.08.99. After scrutiny of all the filings including a large number of documentary evidence, the Commission treated the filings to be generally in order and the tariff application in question was treated as complete.

2.9.1

It may be stated here that regulatory proceeding cannot be treated at par with proceedings before common law courts. The Commission is empowered under Clause-111 (Chapter-V) of the Regulations, 1996 to lay down methodologies and procedures for calculating the expected revenue from charges and for determining the tariffs from time to time with the further enabling provisions to add, amend, alter, revise, substitute or otherwise change such methodologies and procedures at any time the Commission desires. Clause 113 of the said Regulation further provides that the Commission may issue orders from time to time giving details of the manner in which licensee’s revenue and tariff will be determined consistent with the provisions of the Act and Regulations framed for the purpose. Even, where no Regulation has been framed to deal with any matter or exercise any power under this Act, the Commission is free to deal with such matters, powers and functions in the manner it thinks fit.

2.9.2

We would also like to emphasise that in accordance with Section 10(5) of the Reform Act, 1995, this Commission, in discharge of its function, shall be entitled to and may consult to the extent it considers appropriate from time to time such persons or group of persons who may be affected or likely to be affected by the decisions of the Commission. This provision read with Sec. 26 of the Reform Act, 1995 makes it clear that the Commission has wide discretion to evolve its own methodology, procedures and mechanism, subject, however, to the fact that they are just and reasonable and to carry on its activities in cases where there is no provision in the Reform Act, 1995 or Regulations framed thereunder.

2.9.3

We have examined the objection that the filing should not have been admitted in the absence of audited accounts for 1998-99. It may be mentioned that the licensee has filed audited accounts for the year 1997-98 alongwith the application. The audited accounts for the year 1998-99 have not been filed. In the normal course, the revenue requirement for 1999-2000 alongwith request for amendment of tariff if any should have been filed in December, 1998. If the application would have been filed by the prescribed date, the licensee was in a position to file only the audited account for 1997-98. It appears that in view of the unsettling effects of transition involving formation of new distribution companies, disinvestment of government shares and issue of fresh license etc. the revenue requirements were not filed in December, 1998 which ought to have been the case. This was filed in August’99 when audited accounts for 1998-99 were not yet due .

2.10

Therefore, we are unable to agree that the tariff application of the Distribution & Retail Supply Licensee is defective, incomplete and not maintainable.

2.11

The fifth preliminary objection relates to debarring the licensee from revising the tariff until and unless it fulfilled the conditions of Distribution & Retail Supply Licence as amended from time to time and complied with the order of the Commission.

2.11.1

Non compliance or inadequate compliance of the licence conditions, if any, is a separate issue which cannot hold up the process of determination of tariff. The Commission is bound by law as in Section 26 (6) of the Reform Act, 1995 to determine the tariff within 90 days from the date the application was treated by the Commission as complete. Elaborate provisions exist in the Reform Act, 1995 to deal with non-compliance or violations of licence conditions. Filing of the revenue requirement and expected revenue from charges is a statutory duty of the licensee as provided in s/s (4) of Sec.26 of the Reform Act, 1995 and therefore this function must not be mixed up with other issues like non-compliance or inadequate compliance of the licence conditions. The Commission is, therefore, of the opinion that this objection has no merit and is accordingly overruled.

2.12

The sixth objection that the application cannot be entertained in the middle of the financial year 1999-00 has no basis in law. The Commission would have liked strict adherence to the due date of filing of the revenue requirement i.e. by 31^st December, 1998 but the Commission is persuaded to accept the delay caused due to the transitional problems. The Commission has also noted that there is no statutory time schedule for application for tariff and hence the Commission cannot refuse to consider the application if it is otherwise in order.

2.13

The seventh objection is that the Commission Advisory Committee was not consulted by the Commission before admitting the application. Sub-section (6) of Sec.26 prescribes; "If the Commission considers that the proposed tariff or amended tariff of a licensee does not satisfy any of the provisions of sub-section (5), it shall, within 90 days of the date of receipt of all information which it required, and after consultation with the Commission Advisory Committee constituted u/s 32 and the licensee, notify the licensee the proposed tariff or amended tariff." It is clear from the language employed in sub-sec. (6) that the question of consultation arises only before the Commission actually seeks to notify the licensee the proposed tariff or amended tariff. Consultation with the Commission Advisory Committee, therefore, is not a pre-requisite for admission of the licensee’s application. It may be further mentioned that the Commission had already scheduled the meeting of the CAC by the time the public hearing was taken up.

2.14

In order to dispose of the penultimate objection, we may point out that Sec.9(4) of the Reform Act, 1995 stipulates a quorum for review of any previous decision taken by the Commission. This stipulation for quorum is applicable only if there is an explicit prayer for review of any previous decision of the Commission. We have already stated earlier that the present application is not a prayer for review of the RST. It is an application u/s 26(6) of the Act. We therefore hold that there is no bar to or infirmity in the Commission proceeding to determine the RST as prayed for by the applicant.

2.15

Reference can be made to Clause 39 of the Regulations, 1996 with a view to dispose of the last objection raised by the President of Nagarika Adhikar Surakshya ‘O’ Durniti Nibarana Sangha, Balasore. It provides, inter alia, that where any petition is required to be advertised, it shall be advertised in one issue each of a daily newspaper in the English language and two daily newspapers in Oriya language having circulation in the area. Compliance to Clause 39 of the Regulations, 1996 has been indicated in para 2.1.2. It will appear from what has been stated in para 2.1.2 that the Commission having asked the Licensee to bring out the salient features of the application on two consecutive days, in one issue each of a daily newspaper in English language and two daily newspapers in Oriya language having circulation in the licensed area has, in fact, ensured a wider circulation of such notice for the purpose of consumers without committing any breach of the requirements stipulated in Clause 39 of the Regulations 1996. Clause 39 of the Regulations, 1996 does not require the Commission to resort to transliteration of the petition and/or application (as in this case) into Oriya language and to advertise the same in one issue each of a daily newspaper in English language and two daily newspapers in Oriya language. All that is necessary to be done in order to fully comply with Clause 39 is that the petition and/or application (as in this case) is to be advertised, inter alia, in one English daily and two Oriya daily newspapers having circulation in the area specified by the Commission. We are, therefore, of the opinion that not only Clause 39 has been fully complied but also the application has been put to wider circulation as indicated above.

2.16

In the light of our observations in the above paragraphs, we have to hold that there is no validity in any of the preliminary objections, most of which were due to inadequate appreciation of regulatory procedure. We, therefore, proceed to examine NESCO’s proposal and give our findings on the same.

3.0

NESCO’S PROPOSAL

3.1

NESCO has submitted calculation of its expected revenue from charges & its revenue requirement for the year 1999-00 along with a proposal for amendment of the existing tariff.

3.2

Considerations requiring amendment of the existing tariff which have been advanced by NESCO are given below :-

3.2.1

Revenue from the existing tariff is insufficient to meet the estimated cost for the financial year 1999-00 and, therefore, there is a need to increase tariff in line with the revenue requirement proposal to preserve the financial viability of NESCO.

3.2.2

Insufficient tariff increase of the previous tariff order has resulted in a higher requirement for the financial year 1999-00 and the energy consumption assumed in the retail tariff application of 1998-99 and approved by OERC was in excess of the actuals.

3.2.3

The tariff structure inherited by the company is a distorted one with an in-built high dose of subsidy to certain groups of consumers which continues inspite of the rationalisation of tariff structure by OERC and GRIDCO. A higher tariff increase in the case of subsidised categories is, therefore, required to achieve a rational tariff level.

3.2.4

Revenues must be sufficient to cover all the costs to ensure viability of NESCO and to enable it to raise funds critical for system improvement.

3.2.5

OSEB and its successor GRIDCO being state-owned undertakings had the benefit of getting subsidy from the State Govt which is not available to NESCO and hence all costs have to be recovered from the consumers.

3.3

NESCO has considered the following main inputs for the calculation of revenue requirement :-

Power Purchase Expenses
Employees Cost
Administration & General Expenses
Repair & Maintenance Expenses
Provision for bad and doubtful debts
Depreciation
Interest on loan
Interest on working capital
Statutory appropriation
Cost of stores & spares
Reasonable Return on Capital Base

3.4

NESCO estimates power purchase of 2060 million units with an average of monthly maximum demand of 360 MVA during 1999-00. Demand has been estimated on the basis of power purchase bills of April, May and June, 1999. NESCO estimates an energy sale of 1235.86 million units which is an increase of 8% over the billed units for the year 1998-99.

3.4.1

NESCO has stated that the Distribution loss as worked out from the management information system is 43% for the year 1998-99 & feels that a loss reduction of 2% to 3% in the year 1999-00 would be realistically achievable. It has targeted to reduce the energy loss to 40% during 1999-00.

3.4.2

Total expenditure including the power purchase cost for the year 1999-00 is estimated at Rs.409.62 crores which comprises Employees’ Cost, Cost of Materials, Administration & General Expenses, interest on loans borrowed from different organisations, bad debts, depreciation less capitalisation on account of interest expenses. There is a proposal for special appropriation of Rs.0.99 crores to cover contribution to contingency reserve. NESCO estimates to earn reasonable return of Rs.11.72 crores on its capital base of Rs.68.94 crores. The revenue requirement and estimated reasonable return for the financial year 1999-00 proposed by NESCO is at Table : 1.

Table : 1
Revenue requirement of NESCO for 1999-00
(Rs. in crores)

3.4.3

The financial projection made by NESCO for 1999-00 is given in Table : 2.

Table : 2
Estimated Revenue from Charges for 1999-00
(Rs.in crores)

3.4.4

NESCO has stated that the existing tariff is inadequate to meet the estimated total revenue requirement of Rs.422.33 crores for the financial year 1999-00.

3.4.5

NESCO has stated that if the shortfall in the revenue requirement is to be met, it requires revision of tariff by 46.8%. However, NESCO has proposed an average rise of 31.4%.

3.5

NESCO has stated that while a differential tariff based on cost differences for different zones would be more efficient, a sudden shift across the regions would create significant discontinuity in tariffs. NESCO has accordingly suggested a uniform tariff for all the three utilities under the management of BSES, namely, WESCO, NESCO and SOUTHCO. It has been explained that excess of revenue earned by WESCO may be transferred to SOUTHCO and NESCO. The revenue transferred from WESCO to SOUTHCO and NESCO may be treated as a special category capital or alternately OERC may consider treating the surplus transferred from WESCO as a revenue subsidy to SOUTHCO and NESCO.

3.6

The tariff proposal does not envisage any subsidy from the Govt of Orissa or any other source. It has adopted the principle of cross subsidization and a self balancing mechanism within various classes of consumers.

3.7

NESCO has stated that in case OERC or Govt. of Orissa desire to further subsidise any consumer category, the difference between the proposed revenue and the subsidised tariff should be provided to NESCO either by consequent increase in tariff for other consumers or in the form of subsidy from Govt. of Orissa secured by a monthly letter of credit or a combination of both.

3.8

In proposing the tariff, NESCO is stated to have acted on the following principles:-

Lower tariff for consumers supplied at higher voltage level
Reduction in cross subsidy
Reduction in multiple rates for consumers at same voltage level

3.9

As per the tariff proposal suggested by NESCO no consumer is to pay less than 50% of the cost of supply requiring significant increase in LT supply for domestic and irrigation a L.T. At the same time, NESCO proposes that no consumer should pay more than 150% of the cost of supply.

3.10

As a measure of incentive for HT and EHT consumers, it has been proposed that on consumption beyond the load factor of 60%, a discount of 10% may be given on the energy charge for the applicable category.

3.11

As a number of aluminum manufacturing industries plan to set up CPP, NESCO proposes that consumers with a contract load of 100 MVA and above and a guaranteed monthly load factor of 80% would qualify for a special tariff with no demand charge but a consolidated energy charge and back to back arrangement with the bulk supplier.

3.12

NESCO intends phasing out of cross subsidies while proposing amendment to this tariff.

3.13

NESCO states that the principle of marginal costing is more efficient but due to shortage of accurate data, historical cost method has been used to assign cost to revenue.

3.14

NESCO has stated that about 33% of its power purchase bill relates to fixed cost while less than 20% of its revenue have been earned from the demand charge. NESCO proposes to increase the demand charge so that a higher level of fixed cost would be recovered through the demand charge.

3.15

On the aforesaid grounds, NESCO has sought for approval of :-

1. The proposed amendment to the existing retail tariff and charges.

2. Revenue requirement for the year 1999-00.

3. The expected revenue from the charges for the year 1999-00.

4. The mechanism proposed for cash flow to NESCO and SOUTHCO from WESCO.

5. Moratorium of three years in setting captive power plants.

4.0

OBJECTIONS DURING HEARING

Fourteen objectors were admitted for personal hearing.

4.1

Chief Electrical Engineer, S.E. Railway, Calcutta

4.1.1

Shri Madhukar Mishra, Chief Electrical Engineer (Distribution) appeared on behalf of C.E.E., S.E. Railway. He stated that the proposed hikes in the Demand and Energy charges in the range of 25% to 30% for HT and EHT supply is abnormally high and may cause severe financial burden on the Railways. Hence the Demand and Energy charges may be maintained at the existing level.

4.1.2

Shri Mishra pleaded that railway’s load fluctuation is due to exogenous factors like accidents and public agitation etc. and hence the proposed penalty on overdrawal may be withdrawn. Alternatively, the prevailing facility of no penalty upto 120% of contract demand during off-peak period may be extended to peak period. He also submitted that Monthly Minimum Fixed Charge (MMFC) may be deleted. The fixed charges are already in-built in the two-part tariff for Railways and, therefore, the proposal of a MMFC may be dropped.

4.1.3

It was argued that traction tariff should have some relationship with cost of power purchased from NTPC/NHPC. NTPC sells power at Rs.1.92/Kwh whereas Railways pay Rs.3.79/Kwh to the DISTCOs. Such distortions should be rectified. Shri Mishra requested that a rebate of 2% of the total bill may be allowed to the Railways for timely payment of bills and that along the line of a penalty on low power factor, a rebate may be granted in the event of power factor over 90%.

4.1.4

Power supply interruption and unreliable supply cause lots of hardship to the Railways in the form of additional operational expenditure for train services and hence compensation should be paid to Railways in case of power supply interruptions or poor quality of power supply by the licensee.

4.1.5

It was further submitted that traction tariff should be reasonable for developmental projects and that TOD meters should be provided at the traction substations. He further pleaded that in case of defective meters, average of last three months consumption should be taken for billing.

4.2

M/s. Jayshree Chemicals Ltd., Ganjam

4.2.1

Shri B.K. Mohanty, Senior Advocate submitted the objections on behalf of M/s. Jayshree Chemicals Ltd. He argued at length that the Special Agreement proposed by NESCO to EOUs to provide tariff at a special rate is contrary to the principles laid down in Section 26(5) of the Reform Act, 1995. He explained that even though Section 26(5) of the Reform Act, 1995 states that tariff of the licensee shall not show undue preference to any consumer, it is clearly stated that tariff may be differentiated depending on consumer's load factor or total consumption or the timing of supply of power. Thus the proposed special tariff may be made applicable to all those (including the objector) who conform to the said condition of consumption.

4.2.2

Shri Mohanty submitted that the special category of bulk consumers of electricity are categorised as "Power Intensive Industries" under the regulation and not as EOUs and the special tariff should therefore be made applicable to Power Intensive Industries in general and not for EOUs alone. He further suggested that period from 1800 hours to 2200 hours may be considered as peak hours and the rest of the day as off peak hours.

4.3

M/s. Ispat Alloys Ltd., At/Po : Balgopalpur, Dist : Balasore

4.3.1

Shri S.K. Sharma, President of M/s. Ispat Alloys objected to the proposal. He stated that EOUs should not be charged any Demand Charge as there is already a clause of 40% Load Factor during Peak hours to avail the concessional rate of Energy Charges in Off-Peak hours.

4.3.2

Shri Sharma submitted that the tariff for EOUs suggested for only off-peak hours should be made available for all the 24 hours and that there should be no increase in the colony consumption tariff which should not be more than the power rate for the industry. He further argued that as there is a penalty for low power factor, there should be an incentive for maintaining better power factor than 90%.

4.3.3

Shri Sharma further submitted that the over drawal may be allowed on 24 hours basis subject to technical clearance and there should be no customer service charge.

4.3.4

Among other requests were for payment of a rebate of 20 paise/Kwh for timely payment and for special consideration of low tariff for Ferro Alloys to make it competitive in international market. It was claimed that like Andhra Pradesh and West Bengal power may be supplied at cheaper rate to Ferro Alloys industries.

4.3.5

Shri Sharma argued that just as there was no justification for industry to be burdened because of cross subsidy it should not also be burdened with higher tariff due to growing loss levels and inefficiency of the supplier.

4.4

M/s. Emami Paper Mills Ltd.

4.4.1

Shri M.B.S. Rao appearing for M/s Emami Paper Mills Ltd. stated that if the proposed hike is made effective their monthly cost of production would go up by around Rs.20 lakhs. This additional burden of Rs.2.4 crores annually will make the industry unviable thereby rendering the 1100 persons presently in employment, jobless. He explained that production cost may go up by 6% if the proposed tariff is implemented and this burden can be crippling for the paper industry which is going through a recession.

4.5

Orissa Assembly of Small & Medium Enterprises, Balasore Chapter, Balasore

4.51

Shri Devashish Mohanti, District President represented Balasore Chapter of Orissa Assembly of Small and Medium Industries. He objected to increase in tariff on grounds of poor service standards of supply and adverse impact on the viability of small and Medium Industries. He complained that no steps have been taken by NESCO to completely isolate industrial feeders from rural or urban feeders, prior information is not given about power cuts and that newly installed meters are recording high Kwh during low voltage.

4.6

Shri Maheswar Bag, President, Nagarik Adhikar Surakshya Committee, Balasore

4.6.1

Shri Ananta Kumar Das, General Secretary of Nagarik Adhikar Surakshya Committee objected on many counts. He had a litany of complaints against the licensee company which is allegedly operating only on profit motive and taking no steps either to reduce loss or improve supply service.

4.6.2

He stated that increase in tariff was necessitated due to avoidable reasons such as increase in establishment expenditure, unrealised dues, bad debts, exit of industrial consumer from grid, uneconomic purchases and inefficiency of staff. He objected to installation of high sensitive meters and claimed that since OERC notification was in English, not comprehensible to common man, the notice was illegal.

4.7

Shri Rajkishore Mohanty, Grahak Swarth Surakshya Parisad, Balasore

4.7.1

Shri Rajkishore Mohanty representing Grahak Swarth Surakshya Parisad took exception to the fact that the public notice of 6.10.99 in 'Sambad' was in 'English' and has not been understood by most consumers of Balasore. He objected to the proposed tariff which, he alleged, compared unfavourably with those in the neighboring states and was in excess of the rate of inflation of 1999.

4.7.2

He stated that the licensees and the consumers are like sellers and buyers and hence both parties should discuss and that tariff should be determined after fresh notification in local language for the understanding of all. He also stated that the proposed revision of tariff within one year of last tariff revision is arbitrary and should be rejected. He wanted the Commission to note that West Bengal purchases power from Orissa and sells it to its domestic consumers at lower rate.

4.8

President, East Coast Rice Millers’ Association

4.8.1

Shri Jatikanta Nayak, authorised representative of East Coast Rice Millers’ Association objected to repeated increases in tariff and to the fact that NESCO has given proposal to enhance tariff within a few months of taking over charge. The reason for enhancement as given by NESCO that existing tariff is insufficient to meet the estimated cost for the ensuing year is not a satisfactory reason.

4.9

M/s. FACOR, D.P. Nagar, Randia, Bhadrak

4.9.1

Shri V.S.S. Rao, General Manager represented M/s. Facor. He submitted that EOU industries should be supplied power at competitive tariff not only for off-peak hours but also for peak hours so that those industries will form as base load for the distribution companies assuring certain guaranteed revenues. He reiterated the reasons of objection given by M/s. Ispat Alloys and strongly pleaded for special consideration for international competitiveness of EOU industries whose power consumption constitutes 50% of the total cost. He claimed that other states provide cheaper power to EOUs and power intensive industries and hence this practice should be followed in Orissa.

4.10

Bhadrak Bar Association

4.10.1

Shri Nirakar Jena, Secretary of Bhadrak Bar Association stated that the reasons submitted by NESCO for tariff hike are not sufficient and hence the application of the licensee should be rejected. He submitted that the Commission's notification should be in Oriya. He objected to installation of sensitive meters by the licensee allegedly to record high Kwh.

4.11

Shri K. N. Jena, Orissa Consumers’ Association, Cuttack

4.11.1

Shri K. Acharya represented Orissa Consumers’ Association. He objected on a variety of grounds as below :-

(a) The tariff amendment application for the year 1999-00 is not maintainable.
(b) The Commission has not framed any regulation by notification in Gazette determining terms and conditions for the fixation of tariff.
(c) The DISTCOs have not completed their functioning for even a year and as such their accounts are not audited. Thus their standards of performance and financial position etc. are not known.
(d) The licensees have not improved their efficiency and standards of service and they have not made any effort to reduce T&D losses.
(e) The Commission has not consulted the CAC prior to admission of tariff application.
(f) The licensee purchases high cost power instead of cheap power.

4.11.2

In addition to aforesaid objections he complained of irregularity in billing, metering and in consumer service and suggested that loss reduction and installation of new meters etc. should form part of the licence conditions. He opined that increasing the load factor is no alternative for metering as the former encourages the consumer to increase losses by resorting to unfair means.

4.12

Utkal Chamber of Commerce & Industry (UCCI)

4.12.1

Shri M.V. Rao representing Utkal Chamber of Commerce and Industries strongly objected to tariff increase on various grounds. He submitted that retail tariff application of DISTCOs may be taken up after finalizing BST.

4.12.2

He argued that there is scope to reduce the BST and hence the retail applications of DISTCOS should be rejected and that yearly tariff revision harms industrial planning. He submitted that since the Super Cyclone devastated most part of coastal Orissa, the Commission should not change the BST and RST during 1999-00.

4.12.3

GRIDCO's sale of energy is projected less because 70% of total meters were not in working condition and because of inaccurate computation method. This is allegedly done deliberately to hide GRIDCO's inefficiency. He wanted tariff to be fixed keeping in view rates charged to industrial consumers in other states.

4.12.4

NESCO should not have applied for tariff revision without having the audited accounts of 1998-99. The MIS data supplied by the company is erroneous.

4.12.5

It is unfair that NESCO prays for not granting permission to CPPs which means the private licensees want to be monopolists.

4.12.6

NESCO should need total power drawal of only 2060 MU with a simultaneous maximum demand of 360 MVA. At the existing BST, expected revenue should be Rs.1343.29 crores as against a revenue requirement of Rs.1193.85 crores. Hence Bulk Supply Tariff should reduce rather than increase. Consequently, NESCO should reduce the tariff.

4.12.7

The overall T&D loss was approved at 35% which included 4% of EHT loss with effect from 01.04.97. By now OERC should reduce the benchmark of distribution loss from 31% to 28% for 1999-00.

4.12.8

Shri M.V. Rao objected to increased claims under employee expenses, bad debts, auditor fees etc. He suggested that depreciation, PF contribution, gratuity may be taken as proposed by NESCO. According to him the revenue requirement of NESCO works out to Rs.357.53 crores as against the proposed figure of Rs.422.32 crores. Since the total expected revenue with existing tariff may be Rs.354.62 crores, no tariff hike is necessary for NESCO.

4.12.9

The new reform regime has created five monopolies in lieu of one monopoly. Since there is no competition, the purpose of reforms to encourage competition cannot be realised.

4.12.10

Multiplicity of agencies has resulted in multiplying costs. The poor consumer only pays for it.

4.12.11

The revenue requirements of the licensees have been inflated due to the govt. increasing the book value of assets 2 to 3 times,charging higher rate of depreciation etc. The cost of electrical energy should have been one of the three lowest among the Indian states due to availability of 45% of energy from hydro.

4.12.12

The proposed increase in tariff shall enhance cross-subsidy burden for EHT consumers.

4.13

Tata Iron & Steel Company

4.13.1

Shri P.K. Das appeared on behalf of M/s. Tata Iron and Steel Company. He claimed that NESCO's application for retail tariff should be considered only after GRIDCO's BST is finalised.

4.13.2

The voltage and load factor and minimal transmission loss justify that the tariff for power intensive industry should be a little over the bulk supply tariff rate. Thus, the Commission may direct NESCO to provide special tariff to EOUs.

4.13.3

He submitted that the T&D loss should be fixed at 31.5% (28% for distribution + 3.50% transmission), the tariff rate for all EOUs should be same in Orissa, the incentive offered by all DISTCOs should be uniform for a particular category of consumer, the demand charges may be reduced to Rs.150/KVA from Rs.200/KVA and incentive tariff should continue.

4.13.4

In the present cyclonic situation, there should be no upward revision of BST and RST.

4.13.5

MMFC is proposed by NESCO in respect of consumers having contract demand of less than 100 KW/110 KVA. Therefore, the MMFC should be deleted for items 10 to 12 in LT.

4.13.6

He objected to NESCO’s request for disallowing CPPs for a period of three years which if agreed would increase monopoly and allow NESCO to cover up its inefficiency.

4.14

Shri R.C. Padhi

4.14.1

Shri R.C. Padhi reiterated objections on grounds of absence of audited accounts for 1998-99, high distribution loss, unduly high expenses on employees cost, A&G, bad debts and interest etc.

4.14.2

He urged that depreciation should be allowed only after the NESCO maintains a depreciation register and since revenue requirements are based on prudent costs, costs due to inefficiency should not form part of revenue requirement.

4.14.3

The licensee may so fix industrial tariff that CPPs may become uneconomical.

4.14.4

Shri Padhi made numerous observations, objections and suggestions as below:-

1. If a contingency fund is created with the collection through tariff, then any expenditure from this reserve should not be claimed from consumers as capital development expense.

2. Tariff fixation should have been made after a socio-economic survey on the lower income group's need for electricity and its ability to pay.

3. Reform has added to costs by unbundling institutions.

4. Kutir Jyoti consumers pay a fixed minimum price for consumption of 30 units/month. All other consumers whose consumption is equal to or below 30 units should be charged at he same rate.

5. Application of marginal costs may amount to over collection of revenue. The excess collected should be returned back in tariff to the weaker groups by subsidised tariff. Hence there is no specific advantage of marginal cost pricing.

6. Studying the voluminous reports submitted to OERC and making suggestions for change within a very limited time is difficult for a lay consumer. Instead, simpler formats may be prescribed for the licensee and more time may be given to consumer to give his comments.

7. A forum of electricity consumers may be formed and the licensee may discuss various issues with them from time to time to obtain valuable suggestions.

8. Audits done by private firms are not reliable. Audit of accounts of the licensees may, therefore, be conducted by the A.G.(Orissa).

9. The MIS data are unreliable.

10. The connected load of consumers with CL above 1.0 KW can in no case be less than 150% of the number of such consumers (P.29,30 & 31).

11. BST should be finalised by 1st December every year and RST by 1st April.

12. It is illegal on the part of NESCO not to deduct the amount of security deposit (Rs.27.70 crores) to determine the capital base.

13. The calculation of reasonable return is also not in accordance with the notification of the Govt. of India on 5th May, 1999.

14. Providing tariff incentive to EOUs as forex earner is the responsibility of the GOI and not of electricity consumers.

15. Special tariff proposed for the EOUs is substantially lower than the normal tariff for similar power intensive industries.

16. The arrangement of supply of NTPC power to EOUs may be allowed to continue. The EOUs and the GoO may take up with the GoI to reduce cost of NTPC off-peak power.

17. The special tariff for EOUs be rejected or allowed subject to confirmation of payment of subsidy by the GoO. In the case of rejection of special tariff, NESCO should allow drawal of NTPC power.

4.15

During hearing Director (Tariff), OERC sought clarification from NESCO on the following issues :-

4.15.1

The details of capital investment NESCO proposed to carry out during the year 1999-00 and the approval of competent authority to execute such capital works.

4.15.2

Charging of interest to revenue in excess of those which are capitalised during the year.

4.15.3

Method of determination of maximum demand, calculation of losses in HT and the status of HT and EHT metering.

4.15.4

The impact of hike in diesel price on the cost of CPPs running with DG sets.

4.15.5

The increase in the quantum of energy expected to be sold as a result of introducing incentive tariff.

4.15.6

Regarding signing of the special agreement between M/s. Ispat Alloys Ltd. and NESCO which is filed in OERC for favour of approval and the consequential effects of such agreement on expected revenue which is being calculated on the basis of the existing tariff i.e. of 1^st Dec., 1998.

5.0

NESCO’S REPLY TO THE OBJECTIONS

The Managing Director of NESCO replied to the various issues raised by the objectors.

5.1

In its rejoinder to the above objections NESCO stated that the proposed increase in tariff is based on a reasonably accurate estimate of the revenue requirement of 1999-00 and would be applicable only for a part of the year resulting in a huge loss for the DISTCOs. For maintaining the viability of the power sector a balance need be struck between the interest of the licensee and the interest of the consumers. The proposal of the licensee aims at that. NESCO’s application has been submitted basing on the present BST tariff and the question of the licensee resorting to high cost power does not arise.

5.2

T&D loss as reflected in the management information system of the previous financial year indicates a higher level of loss than what has been projected by GRIDCO. NESCO is carrying massive metering plan and adopting other measures for reduction of losses like installation of LT less transformers and strengthening the distribution system. The benefits of loss reduction measures now being undertaken will take time to fructify. NESCO is committed to reduce distribution losses and has targeted at 40% during 1999-00.

5.3

A large number of LT Consumers continue to pay tariffs significantly lower than their cost of supply. Elimination of cross subsidy would be essential to undertake substantial measures towards further tariff reforms where tariff could be differentiated on the basis of time of use, extent of use, and manner of use. For avoiding sharp increases in tariff, OERC recognises the gradual process of elimination of cross subsidy over a period of time. Hence cross subsidy would have to continue till such time and that licensee will not be in a position to bring down cost for HT and EHT consumers.

5.4

It is stated that the calculations made by the UCCI regarding revenue requirements of NESCO are not based on facts and, therefore, are not correct. NESCO's application has been submitted basing on the present BST tariff and the question of the licensee resorting to high cost power does not arise. Employee Cost and Administration & General Expenses have been computed based on the company's actual for the early months of the fiscal year. With regard to bad debts, it is submitted that the arrears from the State Government Departments and undertakings as on 31.03.99 have been transferred to GRIDCO and have not been transferred to NESCO's account. The remaining opening debtors as on 01.04.99 have been inherited from GRIDCO. A large chunk of arrear appears to be doubtful. It is proposed to write off such bad and doubtful debts during a period of three years. The interest component of the total expenses is estimated correctly and the provision of contingencies reserve has been made as per the Act, 1948.

5.5

With reference to objections of Small Scale Industrial consumers, NESCO in its rejoinder said that several measures were being taken to improve the supply system after taking over the charge and the benefits of the same shall be visible over a period of time. Load surveys are being made and steps have been taken to provide meters to all classes of consumers. NESCO has continued the incentive for consumption beyond 60% load factor by proposing a discount of 10% on such consumption.

5.6

NESCO in its rejoinder to the objections raised by Railways stated that it purchased power from GRIDCO who in turn purchases the same from different generators including NTPC. The selling price of power to the ultimate consumers like railway is bound to be higher than the NTPC rate due to additional cost of transmission.

5.6.1

Over drawal by a consumer places additional financial burden on the system as the incremental power purchase cost is always high. It puts additional burden on system stability and reliability and thereby affects other consumers apart from disturbing the power procurement planning. Thus the levy of over drawal charge is justified. Regarding defective meters, NESCO stated that the rules and procedure prescribed in the OERC Distribution Code, 1998 have to be implemented and those issues cannot be settled in a tariff proceeding.

5.6.2

Referring to the structure of tariff, NESCO said that consumers having more than 100 KW connected load were charged on the basis of a two-part tariff consisting of demand and energy charges. The Monthly Minimum Fixed Charge is being charged in respect of consumers having contract demand of less than 100 KW/110 KVA. NESCO further clarified that there was no such proposal for a MMFC in respect of the Railways. The retail tariff order of 1998-99 permits either a rebate for timely payment or the levy of delayed payment surcharge and not both for a particular consumer category and the same has been followed by NESCO in its tariff proposal.

5.6.3

There is no proposal to bring in changes in the existing tariff with regard to power factor penalty or introducing incentive for improved power factor.

5.6.4

The Railways avail supply at HT voltage where the interruptions are negligible. Besides the frequency and voltage of supply depends upon the system voltage and frequency and the retail licensee has no control over the same.

5.7

As regards the EOUs suggestion for not levying any demand charge, NESCO has stated that the cost structure of the DISTCO's consisted of a fixed and a variable portion. The structure of revenue of DISTCO's should also resemble their cost structure. Thus a total withdrawal of fixed charges would affect the fixed revenue stream of the DISTCOs their cost structure remaining the same.

5.7.1

The proposal to levy energy charge to EOUs is as per the agreement signed between them and NESCO which has been filed with OERC for favour of approval.

5.7.2

Regarding penalty for an inferior power factor NESCO stated that improved power factor resulted in reduction in the recorded demand of the consumer bringing in lower demand charges. However, a drop in the power factor affects the system reliability and stability and thereby affects other consumers also.

5.8

NESCO’s rejoinder covered a number of other issues. It was explained that customer service charge is levied to partially compensate the licensee towards providing services like metering, billing, complaint handling etc.

5.8.1

Tariff order of 1998-99 permits either a rebate for timely payment or a levy of delayed payment surcharge and not both for a particular consumer category. NESCO's proposal continues with this principle.

5.8.2

The monthly minimum fixed charge (MMFC) is being levied in respect of consumers having contract demand of less than 100 KW/110 KVA in line with the levy of demand and energy charges on consumer having connected load having more than 100 KW/110 KVA.

5.8.3

The procedure of allowing only 10% of the total consumption by a HT industry as housing colony consumption at a reduced tariff is a liberal concession. The proposed colony consumption tariff is still lower than the proposed tariff charges for consumption during peak hours by EOUs.

5.9

In its rejoinder NESCO also clarified its stance on Captive Power Plants. NESCO advocates that industry is inclined to set up CPPs due to the prevailing distorted tariff structure where the industrial consumer subsidises the domestic consumer. The GoO had given a boost to CPPs by permitting third party sale of power under Section 28(1) of the Indian Electricity Act, 1910. This has resulted in a reduction in consumption of Grid power by the industrial consumers and a corresponding increase in the burden of tariff on the consumers who continue under the grid. The OERC has discussed the issue of captive generation and of third party sale on various occasions. Third party sale would be allowed if the permission had been obtained from the GoO under the said section before the enactment of the Reform Act, 1995. After the enactment of the Reform Act, 1995, third party sale is not permitted. Orissa is a power surplus state and therefore does not require installation of additional capacity at this time. Obviously large power plants are economical compared to CPPs. Thus allowing CPPs would mean uneconomical allocation of scarce resources. What is therefore needed is a necessary correction in the distorted price structure which would be more difficult if further addition is made to captive capacity. If CPPs are allowed, it would mean lower generation from the large power plants which would increase the average cost of generation. The IPPs already have take-or-pay conditions in the PPAs and the introduction of availability based tariff is currently under consideration which would result in higher cost/unit.

5.10

While certain industrial consumers have the option to set up captive generators a large number of consumers do not enjoy that choice. Therefore encouragement of captive generation would adversely affect consumers like households, small industries, public lighting and public water works etc.

5.11

NESCO replied to the issues raised by Director (Tariff), OERC and submitted that the company has not charged the interest cost of the loan availed for the capital investment to revenue. The funding for these projects would be through World Bank finance to be availed through Government of Orissa. Further they submitted that only 60% of the rural electrification works would be completed during the ensuing year and interest cost on these works has been charged to revenue only to the extent of 60%.

5.12

Maximum demand of NESCO is calculated by GRIDCO on simultaneous arithmetic sum of demand recorded every half an hour.

5.13

HT feeders are supplying to HT and LT consumers and hence estimating HT loss separately is not possible.

5.14

Regarding status of HT and EHT metering, the Licensee stated that quarterly report regarding installation of meters is regularly submitted to OERC and over a period of time TOD meters will be inserted wherever necessary.

5.15

The additional quantum of sale after offering incentive tariff would be 36 MU and the incremental annual contribution to be earned by NESCO would be Rs.36.25 crores.

6.0

COMMISSION’S OBSERVATIONS

6.1

We have noted that vital issues have been raised by the objectors and the Commission had the benefit of many useful suggestions. We have given careful consideration to each one of the issues raised by the objectors and have analysed the submissions made by the Licensee in the light of these issues. However, we must note that some of the objections raised during the hearing were not relevant to the present tariff proceeding.

6.1.1

As has been observed in the Commission’s Order in Case No.19 of 1998 the issues like reform, restructuring, privatisation, revaluation of assets on transfer to GRIDCO and OHPC are not within the scope of this Commission since such issues are matters of public policy and legislation. Hence these aspects need not be dealt in this Order on tariff. Similarly recurring complaints on consumer service has to be dealt in appropriate proceedings. The Commission is monitoring the performance of the licensees as required under law. Therefore, such issues are not being dealt with by the Commission while examining the present tariff proposal.

6.1.2

We do not find it necessary to specifically comment on each one of the objections. The objections with regard to financial aspects and with regard to tariff design as well as various suggestions on these aspects shall be dealt by us in the later part of the order while dealing with the revenue requirement and determination of tariff. However, we may record out observations specifically on a few issues which do not conveniently fit into the module of either revenue requirement or tariff.

6.1.3

The licensee has suggested uniform tariff for the three utilities under the management of BSES like WESCO, NESCO and SOUTHCO. In view of substantial difference in consumer composition, distance from the generating stations, levels of efficiency and other factors, the financial viability will have to be widely different in case of these three companies. In this background, NESCO has suggested that excess revenue from WESCO may be permitted to flow to NESCO and that amount may be treated as special category capital or alternately OERC may consider treating the surplus as a revenue subsidy from WESCO to NESCO. This request by the Licensee has wider implication. The Commission carefully considered and has come to a decision that while differential tariff for different companies will be eventually inevitable, at the present stage of transition it is desirable to have uniform tariff for all the four distribution companies in Orissa. However, we are unable to accept the request of any adjustment and financial flow between different companies through innovative method such as special category capital or revenue subsidy. Each company’s finance and tariff has to be examined independently in accordance with Sixth Schedule and other provisions of the Act, 1948. The Commission does not approve of inter-linkings in financial matters between different companies. Therefore, the request of NESCO in this regard cannot be acceded to.

6.1.4

With regard to the Licensee’s request that captive generation should not be permitted for a period of three years, we have noted the rationale of the request as given in the tariff application as well as in the rejoinder. We have also noted that representatives of industry and others have vehemently opposed to the request mainly on the ground that any prohibition in setting up captive power plant will retard industrial progress and that it will result in monopolistic environment not compatible with the aims and objectives of the Reform Act, 1995. We would like to record that determination of tariff has to be in the background of existing regulatory environment and that tariff proceeding is not the appropriate occasion for taking a decision in this matter for which the views of all concerned as well as the government which has the responsibility for framing policy for the power sector have to be taken into account.

6.1.5

In course of the pleadings, consumers of different category have highlighted the impact of tariff with reference to financial viability, commercial consideration and ability to pay. While we have taken into account the overall interest of the consumers we have also given equal consideration to the financial viability of the Licensee and the necessity of the State for fostering a healthy electricity industry. Ability to pay, lack of funds or competitiveness of any particular industry either in the domestic or in international market cannot be the guiding consideration in designing tariff. The Commission does not find it desirable to move beyond the considerations incorporated in Section 26(2) and Section 26(5) of the Reform Act, 1995.

6.1.6

The Reform Act, 1995 envisages a tariff structure that would bring about efficiency and economy in the supply and consumption of electricity. The Reform Act, 1995, also aims at a tariff that would reflect cost, would be linked to efficiency and would eliminate inter-class and intra-class subsidies.

6.1.7

The Commission is also deeply aware of its role in balancing the conflicting interest of various stakeholders, bringing about efficiency and economy in the use of electricity and designing a tariff structure that should be just, fair and reasonable. The low voltage consumers expect a tariff that is affordable and the high and extra high voltage consumers are pleading for a tariff that should reduce their burden of cross-subsidy. While taking note of these factors, we have also to go by the mandate in law to allow reasonable return to the investors in the electricity industry in the State.

6.1.8

During the course of hearing, some of the objectors made a strong plea that since the super cyclone has completely destroyed the agricultural and industrial infrastructure of the State and has affected large number of consumers, there should be no increase in tariff and the proposal should be kept on hold.

6.1.9

The Commission is not only aware of but deeply sensitive to the ground conditions in the State in the aftermath of the super cyclone. Much as the Commission would have liked to do the contrary, it would not be reasonable for the Commission to deny any increase whatsoever in tariff because such denial would impinge not only on the financial viability of the Licensee but would also affect its operational efficiency.

6.1.10

We, therefore, proceed to examine the revenue requirement and expected aggregate revenue from charges of NESCO for 1999-00 and subsequently to examine the tariff proposed by NESCO to give our findings and orders thereon in accordance with the extant law.

7

REVENUE REQUIREMENT

7.1

After its formation and obtaining licence for distribution and retail supply, NESCO has submitted its revenue requirement for the year 1999-00 for which no comparative figure for the last Financial Year is available. The Commission has for the purpose of analysing the revenue requirement relied on the disaggregated audited accounts submitted by GRIDCO for the Financial Year 1997-98 and the data & records presented to the Commission by NESCO as well as the facts and arguments placed by the objectors before it.

7.2

Quantum of Power Purchase

7.2.1

The quantum of power purchase is dependent on the quantum of energy sold to the consumers and the transmission and system loss. While estimating energy sale for 1999-00, NESCO has analysed the pattern of consumption of various groups of consumers for the year 1997-98, 1998-99 and projected this figures for the financial year 1999-00 in the format prescribed by OERC. According to the analysis of energy sale mix between LT, HT, EHT consumers for the FY 1999, LT consumption accounted for 44.40% while HT & EHT consumption accounted for 24.21% and 31.37% respectively. NESCO has reported that for the purpose of estimation of sale of energy for FY 1999-00, it has evaluated the past billing information for each category, compared the consumption for the first quarter of 1999-00 over the corresponding period of the financial year 1998-99, studied the loss reduction initiatives and their impact on billing, analysed energy off-take consumers in HT & EHT category and used realistic assumptions and current economic situation.

7.2.2

The Commission analysed the consumption of various groups of consumers and studied the consumption of all HT & EHT consumers. A detailed analysis of the billed units of the LT consumers particularly the domestic and commercial consumers without meters or with defective meters was also carried out. Consumers with correct meters are billed on the basis of actual meter reading whereas others with defective meters or no meters at all are billed on the basis of a load factor. The Commission has prescribed detailed formats to determine the consumption for all such consumers. NESCO has requested the Commission to accept data on consumption of LT consumers based on the meter readings of the months of April, May & June’99 in respect of Domestic, Commercial, Irrigation, Small Industries of all consumers throughout NESCO. Treating the meter readings of April, May & June’99 as sample consumption for a period of 12 months of entire NESCO has been estimated through a computer model. While accepting, in the absence of complete data, this method of sampling for the purpose of the present application, the Commission enjoins upon NESCO that for future applications it must maintain the required information for calculation of consumption by various classes of consumers in the format prescribed by OERC.

7.2.3

For the year 1999-00, the break up of energy sale forecast by NESCO is as follows :-

7.2.4

This is an increase of about 8% over the sale in FY 1998-99. This aspect was examined at the Commission’s end. A comparative picture of the consumption of the previous two years along with projection of 1999-00 is given below :-

7.2.5

NESCO has reported that there has been increase in consumption by consumers of LT category and HT industries and decrease in consumption by heavy industries availing power at EHT during the first quarter of 1999-00 over the corresponding period of the year 1998-99. There has also been a substantial decrease in consumption by the power intensive category. Decrease in consumption in the first quarter of the year has been observed by the consumers covered under general purpose tariff and large industries at 132 KV. The Commission on examination of the above figures of NESCO approves the energy sale forecast by NESCO in para 7.2.3.

7.3

Transmission & Distribution Loss

7.3.1

NESCO has estimated T&D loss as 40% in 1999-00. It has stated that as per MIS figure for the year 1998-99, the estimated loss figure is 43%.

7.3.2

NESCO’s estimation of the overall loss percentage of 40% does not include the loss at EHT which is being recovered by the Transmission and Bulk Supply Licensee i.e. GRIDCO, through the Bulk Supply Tariff. In effect, therefore, the end-use consumers of NESCO would have to bear the EHT loss passed through in the BST in addition to 40% loss proposed by NESCO. A large majority of the objectors have questioned the high percentage of system loss proposed by NESCO and have suggested bringing it down to 28%. Most of the objectors were unanimous in their opinion that this high level of T&D loss has remained uncontrolled during the past three years and no tangible achievement has taken place in this area of loss reduction and the consumers are again being burdened with this high loss. The objectors are of the opinion that the change from OSEB to GRIDCO and subsequently to separate distribution licensees as a part of the reform process for rendering efficient and economic service to the consumers have been totally belied. Unauthorised use of electricity by dishonest persons is largely responsible for T&D loss which is proposed to be passed on to the honest consumers. Similar is the case of replacement of defective meters or installation of new meters which should have encouraged correct recording of energy consumption and consequent billing to the consumers. They have stated that during the last three financial years while there is a progressive rise in the quantum of purchase, there is no commensurate growth in sales. Increase in billed revenue is largely attributable to the higher load factor billing approved by the Commission. One of the objectors pointed out that load factor billing is misutilised by many consumers with defective meters who pay a fixed amount but consume far in excess including selling it to third parties covertly. Many objectors drew pointed attention to the mismanagement and complete negation of the Commission’s direction on loss reduction and insisted that the Commission should not allow the high percentage of system loss proposed by the Distribution Licensee. They said that under no circumstances, the percentage of T&D loss should be allowed at a level higher than 31%.

7.3.3

NESCO has claimed that recognizing the energy losses at 35% compared to actual losses of 40% to 43% is a wide departure from the Sixth Schedule to the Act, 1948. Since the present loss level has been inherited by NESCO from GRIDCO, it has requested OERC to reconsider the benchmark of 35% fixed by OERC and to fix a reasonable target of 40% for the year 1999-00.

7.3.4

In its rejoinder during hearing for Retail Supply Tariff, it has explained that it is committed to reduce distribution losses. It is stated to have already embarked on a massive metering plan the progress of which is being reported to OERC. Additionally several other projects are being undertaken to strengthen the distribution system. However, the benefit of all the above would accrue only over a period of time. For the distribution loss during the financial year 1999-00, NESCO has suggested to OERC to propose a mechanism of sharing the revenue loss between other constituents like GRIDCO and the Government of Orissa which is prescribing policy issues for the sector. The extent of loss to be shared should be in consonance with the party’s ability to bear the loss so that the consumers are insulated from a sharp increase in tariff.

7.3.5

NESCO has stated that a significant portion of electricity consumed in Orissa is not metered making it difficult to accurately establish the extent of energy loss. The most reliable data for the actual energy loss is the energy audit carried out in 1996 as a part of reform programme. In the information memorandum circulated at the time of inviting bids for privatisation, the distribution loss for 1996-97 for NESCO was shown as 40.00%. The memorandum also projected an ambitious loss reduction targets. Contrary to the expectation of the Information Memorandum the distribution loss for the year 1998-99 based on the MIS figure of GRIDCO shows a loss figure of 43% which NESCO believes is a conservative estimate.

7.3.6

NESCO has stated that based on its experience a loss reduction of 2-3% will be possible for 1999-00. Accordingly, it has targeted to reduce the loss