Case No.24 of 1999

O R D E R

Table of Contents

1. Introduction

2. Preliminary Objections

3. WESCO's Proposal

4. Objector's views

5. WESCO'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

Western Electricity Supply Company of Orissa Ltd., (WESCO, for short) Burla, Sambalpur, the holder of licence for carrying on the business of Distribution & Retail Supply of electricity in electrical circles of Burla, Bolangir and Rourkela 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

WESCO and its two other sister concerns, namely, NESCO 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 WESCO vide letter No.2268 dt.13.08.99 and asked for additional information from WESCO 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

WESCO 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 WESCO’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 WESCO’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, WESCO, Burla and all Executive Engineers in charge of Distribution Divisions such as Sambalpur Electrical Division, Sambalpur, Bargarh Electrical Division, Bargarh, Jharsuguda Electrical Division, Jharsuguda, Deogarh Electrical Division, Deogarh, Bolangir Electrical Division, Bolangir, Titlagarh Electrical Division Titlagarh, Kalahandi West Electrical Division, Bhawanipatna, Kalahandi East Electrical Division, Bhawanipatna, Rajgangpur Electrical Division, Rajgangpur, Rourkela Electrical Division, Rourkela, Sundargarh Electrical Division, Sundargarh. 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’99. 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 17 objections against WESCO’s application out of which five were rejected for non-compliance of the terms & conditions as laid down in the public notice while 12 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) Prof. (Dr.) S. Misra & 3 others, Q-4, Civil Township, Rourkela-769004 (3) Shri J. Kumar, Jt. General Manager, Larsen & Toubro Ltd., At/P.O. Kansbahal, Dist. Sundargarh (4) M/s Indian Aluminium Company (INDAL), At/P.O. Hirakud, Dist. Sambalpur. (5) Ib Valley Metal Forming (P) Ltd., P.O. Belpahar, Dist. Jharsuguda. (6) M/s GKW Ltd., Wakefield House, Sprott Road, Ballard Estate, Mumbai-400 038 (7) M/s OCL India Ltd., At/P.O. Rajgangpur, Dist. Sundargarh. (8) Shri K.N. Jena, General Secretary, Orissa Consumers’ Association, Biswanath lane, Cuttack. (9) M/s Utkal Chamber of Commerce & Industry Ltd., Barabati Stadium, Cuttack. (10) Shri K. Acharya, President, Orissa Grahak Mohasangha, B-4, Pallaspali, Bhubaneswar. (11) Dr. S.K. Tamotia, President, Aditya Aluminium, 9^th Floor, IDCO Tower, Bhubaneswar. (12) Sri Gobardhan Pujari, General Secretary, Sundargarh District Employers’ Association, Rourkela.

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 WESCO’s application and the date of hearing (04.12.99) 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 04.12.99. 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 three objectors as preliminary objections on the maintainability of the tariff proceeding. The Commission heard the views of WESCO on such objections. The preliminary objections raised by Shri Gobardhan Pujari, General Secretary of Objector No.12 were overruled by the Commission by Order No.1 dt.4.12.99 (Vol.II). In regard to the other preliminary 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, Orissa Grahak Mohasangha, Bhubaneswar 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 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

Miscellaneous Appeal No.41 of 99 has been filed in the Hon’ble High Court of Orissa being aggrieved with the decision of the Commission in Case Nos.18/98 (BST) and 19/98 (RST) and therefore the present RST application should be rejected by the Commission as an appeal is pending against the RST determined by the Commission in its Order dt.21.11.98.

(Orissa Grahak Mohasangha)

2.5.1.10

The RST application is neither a new tariff nor an amendment to the existing tariff. It is only a revision of the existing tariff. Therefore it is not permitted under law.

(Orissa Grahak Mohasangha)

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 vaccum 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 Orissa Electricity 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 Orissa Electricity 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 WESCO on July 30, 1999, the Commission in its letter No.2268 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 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 1999-00 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 eighth 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

We now deal with the penultimate objection raised by Orissa Grahak Mohasangha. Though M.A. No.41/99 has been filed in the Hon’ble High Court of Orissa against the final order in BST (Case No.18/98) and RST (Case No.19/98), it is not the case of the objector that the orders of the Commission in those two cases have been stayed by the Hon’ble Court. As the final orders in Case No.18/98 and 19/98 have not been stayed by the Hon’ble Court, the plea of the objector that the present application for RST should be rejected out of hand because of the pendency of the M.A. bearing No.41/99 cannot be considered as a valid objection.

2.16

Regarding the last objection raised by Orissa Grahak Mohasangha, it may be mentioned that nowhere in the RST application, the applicant has sought for revision. On the other hand, the applicant has described the RST application as one for amendment of Distribution & Retail Supply Tariff u/s 26 of the Reform Act, 1995. Similarly, in para 6 at page 22 of the RST application, the licensee has prayed for amendment of the existing retail tariffs and charges as determined in Order dt.21^st November, 1998 in Case No.19/98.

2.16.1

We have extensively discussed the issue in dealing with the second objection in para 2.7 above.

2.17

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 WESCO’s proposal and give our findings on the same.

3.0

WESCO’s Proposal

3.1

The Western Electricity Supply Company of Orissa Limited (WESCO) has submitted calculation of its expected revenue from charges & 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 WESCO are given below :-

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 WESCO.

2. It is necessary to generate surplus equivalent to the losses of NESCO and SOUTHCO by maintaining a uniform tariff structure across all the regions under the management of BSES so that the existing consumers are not surprised by sudden and significant discontinuity in their tariff and a uniform tariff could provide a lower tariff increase for NESCO and SOUTHCO.

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

4. The tariff structure inherited by WESCO is a distorted one with high dose of subsidy to certain groups of consumers which continues inspite of the rationalisation of tariff structure by OERC and GRIDCO. This requires a higher tariff increase for the subsidised categories to achieve a rational tariff level.

5. Revenues must be sufficient to cover all costs in order to ensure viability of WESCO and to enable it to raise funds critical for system improvement.

6. WESCO has pointed out that OSEB and its successor GRIDCO being state owned undertaking had the benefit of getting subsidy from the State Govt which is not available to the applicant company making it necessary to recover the same from the consumers.

3.3

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

1. Power Purchase Expenses

2. Employees cost

3. Administration & General Expenses

4. Repair & Maintenance Expenses

5. Bad Debt

6. Depreciation

7. Interest on loan

8. .Interest on working capital

9. Statutory appropriation

10. Cost of stores & spares

11. Reasonable Return on Capital Base

3.4

WESCO estimates power purchase of 2454 million units with an average of monthly maximum demand 450 MVA during 1999-00. Demand has been estimated on the basis of power purchase bills of April, May & June, 1999. WESCO for the year 1999-00 estimates energy sale of 1473 million units. WESCO has stated that the Distribution loss as worked out from the management information system is 46% 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.

3.5

Total expenditure including power purchase cost for the year 1999-00 is estimated at Rs.475.85 crores which comprises employee cost, cost of materials, administrative and 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.1.00 Crores to cover contribution to contingency reserve. WESCO estimates to earn reasonable return of Rs.9.87 Crores on its capital base of Rs.56.39 crores. The revenue requirement and estimated reasonable return for the financial year 1999-200 proposed by WESCO are at Table-1

Table-1
Revenue Requirement for 1999-00

3.5.1

The financial projection made by WESCO is given at Table-2 :

3.5.2

WESCO has stated that the existing tariff is inadequate to meet the estimated total revenue requirement of Rs.486.72 crores for the financial year 1999-00.

3.5.3

WESCO has stated that if shortfall in revenue requirement is to be met, it requires revision of tariff by 16.30%. However WESCO has proposed an average rise of 32.47%.

3.6

WESCO has stated that while a differential tariff based on cost differences for different zones would be more efficient, a sudden shifting across the region would create significant discontinuity in their tariffs for which

1. WESCO suggests the principle of uniform tariff for the three zones under the management of BSES.

2. Additional revenue earned by WESCO may be transferred to NESCO and SOUTHCO through a special appropriation with permission of the OERC.

3.7

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.

3.8

WESCO 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 WESCO either by consequent increase to other consumers or in the form subsidy from Govt. of Orissa secured by a monthly letter of credit or a combination of both.

3.9

WESCO’s proposed tariff is based on the following principles :-

1. Lower tariff for consumers supplied at higher voltage level

2. Reduction in cross subsidy

3. Reduction in multiple rates for consumers at the same voltage level.

3.10

In the tariff proposed by WESCO, no consumer is to pay less than 50% of the cost of supply requiring significant increase for domestic and irrigation at LT consumers. At the same time, no consumer should pay more than 150% of the cost of supply.

3.11

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

3.12

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

3.13

WESCO intends phasing out of cross subsidies while proposing amendment to the tariff.

3.14

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

3.15

To summarise WESCO requests approval of :

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

2. Revenue requirement for 1999-00.

3.16

The expected revenue from charges for 1999-00.

3.17

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

3.18

The proposal that addition of captive generation be not permitted for a period of three years and reviewed thereafter.

4.0

OBJECTIONS

Twelve objectors were admitted for personal hearing. Important issues raised by the objectors during hearing are indicated below:

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 of Rs.250/KVA/month and Rs.3.20/KWH respectively 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, penalty may be lived for overdrawal during peak period only. He also submitted that Monthly Minimum Fixed Charge (MMFC) should be deleted as the fixed charges are already in-built in the two-part tariff for Railways.

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

Prof. (Dr.) S.K. Mishra and others, Rourkela

4.2.1

Dr. S.K. Mishra in his written objection has submitted that domestic and commercial consumers would be hard hit by frequent tariff revision and uncertain tariff hikes. He said that distribution companies have applied for retail tariff revision within one year making the intention clear that they would come up with fresh application next year and it would be an annual exercise. As such commercial/industrial organisation would find it difficult to plan their financial commitment and industrial activities.

4.2.2

The transmission and distribution loss has increased from 40% to 46% in the year 1999. Failure to decrease T&D losses defeats the purpose of reform. It was regrettable that Distribution companies are not able to meet the target set by the Commission in their order of 25.11.98.

4.2.3

Proposal for transferring revenue from WESCO to other companies contradicts the objective of independently managed private power companies as a part of reform programme.

4.2.4

WESCO’s proposal to write off 7.5% of inherited debt within three years is strongly objected. OERC should direct the DISTCO and GRIDCO for collecting the arrear outstanding dues and not to load the same on the consumers through tariff.

4.2.5

WESCO proposed to recover the outstanding pension liabilities not transferred by GRIDCO through tariff enhancement. This is strongly objected.

4.2.6

It is stated that the proportion of unmetered consumers is very high and theft of electricity in various ways is rampant. Poor maintenance of electrical equipments through contractors is one of the causes for the loss. Lastly it was observed that the T&D loss is very high compared to any standard and should be curbed.

4.3

Larsen & Toubro Ltd.,

4.3.1

Shri Jagannth Das, Advocate representing Larsen & Toubro Ltd. submitted that the proposed hikes in the Demand and Energy charges of Rs.250/KVA/month and Rs.3.20/KWH respectively for HT and EHT supply is abnormally high. The demand charge of Rs.250/KVA/Month is unjustified because WESCO does not pay more than Rs.200/KVA/Month to GRIDCO. Similarly there is no justification to enhance the energy charges to Rs.3.40/KWH when WESCO pays only Rs.85.50 paise/KWH to GRIDCO.

4.3.2

The proposed enhancement of tariff from Rs.1.62 to Rs.2.65 in case of colony consumption is not justified. Earmarking only 10% of the total consumption of HT industry for domestic use is arbitrary. Considering the climatic changes the limit of 10% should be raised to 20% or actual consumption.

4.3.3

He stated that enhancement of security deposit by WESCO by an extra amount of Rs.47 lakhs is not justified. This is due to wrong assumption of the load factor of 70%. But in reality the load factor varies from 34% to 41%. Applicant therefore submitted to the Commission for directing the licensee to refund the extra amount of Rs.47 lakhs.

4.3.4

He stated that the proposal given by WESCO for transfer of its surplus to finance the loss of NESCO and SOUTHCO is not justified. The rate proposed by CESCO for industrial consumers is much less in comparison to the proposal given by WESCO.

4.3.5

Estimated T&D loss of 46% is on higher side compared to 40% of 1996-97. He stated that there can be hardly any technical and commercial loss in the 10 km. HT line connected directly from GRIDCO sub-station at Rajgangpur to L&T.

4.3.6

He stated that WESCO is not spending substantially anything to maintain the distribution system of power supply to L&T. Therefore, L&T may be allowed to give the purchase price of power plus wheeling charges to WESCO and not more than that.

4.3.7

He also stated that the electricity consumed by the water treatment plant should not be billed at industrial rate because water pump serves only the residence of industrial colony.

4.3.8

In his opinion incentive to the consumer should be given for maintaining power factor beyond 90%. Also as a corollary to delayed payment surcharge provision of rebate for prompt payment of bills should be there.

4.4

M/s INDIAN ALUMINIUM COMPANY

4.4.1

Shri B.N. Das, Retd. Chief Engineer represented M/s Indian Aluminium Company. He stated that proposal of 26% of rise in power tariff given by WESCO is unjustified because the applicant cannot pass on the extra cost to its customers.

4.4.2

He stated that Orissa power cost should be cheaper than other states because of High Hydro Potential (about 45%) and thermal stations of states located at pit heads. Evaluation of results of reform in Orissa is a must and the cost should be compared with other states.

4.4.3

He also stated that the application made by WESCO objecting to setting up of CPPs is not relevant for tariff revision purpose. Permission for CPPs should be given on consideration of merit on each case.

4.4.4

He stated that the cost of power of WESCO should come down from Rs.317.82 to 295.34 crores. Overall distribution loss should be limited to 28% for tariff purpose.

4.4.5

He estimated Rs.420.04 crores as Revenue Requirement against Rs.486.62 crores proposed by WESCO.

4.4.6

He further stated that Bad Debts are measure of inefficiency and as such consumers should not be penalised for inefficient management of GRIDCO.

4.4.7

He submitted that EHT Tariff is much more as Licensee is loading entire cost to EHT consumers. Only cost to EHT plus reasonable return should be considered. Distribution licensee do not contribute towards Operation & Maintenance expense at EHT. Thus cost of power at EHT should not exceed 130 paise/unit.

4.4.8

He finally stated that consumers of WESCO should only pay the reasonable return of WESCO and not more than that which is proposed to be passed as loan to NESCO and other sister concern of WESCO.

4.5

M/s Ib Valley Metal Forming(P) Ltd.

4.5.1

Shri Deepak Srivastav represented Ib Valley Metal Forming (P) Ltd. He stated that regional disparity in fixation of tariff should be avoided. Already there exists differential industrial growth in different parts of the state. He stated that tariff to consumers in different zones are not cost based because of inter Distco's linkage. Issue of tariff comparisons need to be discussed elaborately.

4.5.2

He stated that tariff linkage with regard to fund flow, Policy, Costing & Revenue needs to be debated. Tariff fluctuation benefit of one zone should be passed to other zones only after debate. Basis of estimation of T&D loss as high as 40% to 46% should be explained to the consumers. Issue requires open house discussion. Cross subsidies to be eliminated. Issue of subsidy should come from state govt. to the company in terms of policy and financial resource input.

4.5.3

He stated that two major issues have to be kept in mind i.e. energy conservation and resource conservation. The power being generated and is utilised are basically from conventional sources. Issue of renewable and non-conventional energies vis-a-vis CPP appears to have been absolutely overlooked.

4.5.4

He stated that both demand charges and monthly fixed charges cannot be levied simultaneously for H.T., E.H.T. consumers.

4.5.6

One subsidiary company should not financially support another at the cost of raising tariff. There should be an opportunity for third party sale in the new regime.

4.6

M/s GKW Ltd., Mumbai

4.6.1

Shri P.R. Bapat, Corporate Adviser of GKW Ltd. M/s GKW Ltd. stated that the basic energy rate at the time of commencement of commercial production in 1992 was Rs.0.70/unit, whereas presently in September 1999 it is Rs.2.40/Kwh.

4.6.2

He submitted to the Commission to advise WESCO for giving a portion of NTPC power as is given to Ferro Alloys units in order to enable the industry to sustain in international market. Proposed increase in tariff will make the cost of high speed steel uncompetitive in international market. Proposed hike of 33 % in energy charges and 60% increase in colony consumption will put additional burden of Rs.8.00 crores per month. Objector has given a comparative chart of tariff of 28 SEBs & utilities.

4.7

M/s OCL India Ltd. Rajgangpur, Sundargarh

4.7.1

Shri Rajeswar Pandey, G.M. (Engg) represented M/s OCL India Ltd., Rajgangpur. He stated that cement industry should be treated as a special category and also tariff applicable should be separate. They propose Maximum Demand charges as Rs.1.5 lakhs per/MVA, Unit charge Rs.2 per/Kwh during peak period and Rs.0.50 per/unit higher than bulk tariff and Rs.0.2 per/unit higher than bulk tariff in off-peak period.

4.7.2

He stated that there has been negative growth of 22.4% in EHT category, because Distco's power is costly. Therefore to attract EHT consumers, the tariff should be lower than CPP generation cost. EHT consumers are to be given incentive, since the distribution loss is minimum. They suggested lower tariff of 20 paise + Bulk supply cost during off peak hour, M.D. charges of Rs.1.5 lakhs per month and over drawl penalty of Rs.1.00 lakh per MVA.

4.7.3

He stated that installation of CPPs and third party sale of power should be encouraged and Distco's proposal objecting to the above should be disallowed. He pleaded for giving incentive to HT and EHT consumer.

4.8

Shri K.N. Jena, General Secretary, Orissa Consumers Association

4.8.1

Shri K.N. Jena, General Secretary represented Orissa Consumers Association. He objected on a variety of ground as detailed below.

4.8.2

Application for amendment/revision of tariff is not permissible/tenable under the provisions of Electricity (Supply) Act, 1948.

4.8.3

Tariff should not be amended within a financial year once except for fuel surcharge adjustment.

4.8.4

Application filed by the licensee is not bonafide.

4.8.5

Terms and conditions for fixation of tariff has not been determined by Commission.

4.8.6

Commission has not yet specified the methodology and procedure for calculating the expected revenue from charges.

4.8.7

Accounts of licensee has not been audited and there is no availability of its yearly account to judge standard of performance.

4.8.8

Licensee has not improved its efficiency and standard of service.

4.8.9

Application cannot be entertained for tariff revision during 1999-00 with retrospective effect.

4.8.10

There is no correlation between purchase of power and sale of units.

4.8.11

Licensee has failed to provide the details required under Chapter-V of regulation.

4.8.12

Licensee has not taken steps for reduce transmission and distribution loss.

4.8.13

Licensee's claim of demand charge and energy charge and customer charge is excessive.

4.8.14

Commission Advisory Committee has not been consulted prior to admission of the tariff application.

4.8.15

Rural and Urban consumers are getting power for few hours and voltage is low. As such they should not be burdened.

4.8.16

Subsidies from Govt. has not been taken into consideration. Efforts to reduce cost of power of Distcos, OHPC, GRIDCO, OPGC are not transparent.

4.8.17

Meters installed by licensee have not been properly checked and tested.

4.8.18

Because of bi-monthly billing, licensee is incurring loss by paying interest to financing agencies.

4.8.19

Expenditure incurred by the licensee on power purchase is not prudently done. Instead of purchasing low cost power they are going to purchase high cost power.

4.8.20

Law does not provide for separate transmission tariff.

4.8.21

Consumers are deprived of getting rebate as bills are not submitted in time.

4.9

M/s. Utkal Chamber of Commerce

4.9.1

Shri M.V. Rao representing Utkal Chamber of Commerce strongly objected to tariff increase on various grounds. He stated that the statement made by WESCO that the last tariff is insufficient is not correct. He objected to WESCO’s application for disallowing CPP for a period of 3 years.

4.9.2

He stated that Estimation of quantum of power purchased from GRIDCO may change and may reduce if there is reduction in BST. Projection of T&D loss of 46% is on higher side. It should be at best 31%. Since lot of investment has been made the T&D loss should be at least reduced to 28%.

4.9.3

He stated that employees cost projected by WESCO is on higher side. The rise should not be more than 3% per annum. Recovery of shortfall in Pension Trust from consumers proposed by WESCO is illegal. Rise in A&G expenses should not be more than 3% per annum. He agreed for Repair & Maintenance expenses proposed by WESCO. He submitted that Bad Debt should not be more than Rs.4.81 crores.

4.9.4

He stated that there is absolutely no competition which is a mandate of reform. Low cost power is not availed in full. Rather high cost of power is procured. Power should be cheaper because of high Hydro potential (nearly 45%) & pit head thermal stations.

4.9.5

Finally he submitted that tariff should be kept unchanged for a period of 5 years and the power purchase adjustment should be allowed annually.

4.10

Orissa Grahak Mohasangha

4.10.1

Shri Kulamani Acharya represented Orissa Grahak Mohasangha. He stated that the tariff filed by WESCO should be rejected since previous tariff order of Commission I18 & 19 of 1999) is subjudice. He stated that methodology and procedure of calculating expected revenue from charges have not been prescribed by Commission. The data submitted by WESCO is inacurate since WESCO’s proposed surplus is equivalent to loss sustained by NESCO & SOUTHCO.

4.10.2

He stated that computation of T&D loss of 46% as per "Information Memorandum" is not correct. He objected to the monopoly attitude of licensee asking for withholding permission for three years to install CPP. He pleaded that Orissa consumers should not be made accountable for losses on unmetered supply.

4.10.3

He stated that computation of T&D loss of 46% as per "Information Memorandum" is not correct. He objected to the monopoly attitude of licensee asking for withholding permission for three years to install CPP. He pleaded that Orissa consumers should not be made accountable for losses on unmetered supply. He further objected to the variable tariff structure in various zones. He suggested that there should be financial investment by private entrepreneurs to develop the system and management.

4.11

Dr. S.K. Tamotia, President, Aditya Aluminium

4.11.1

Dr. S.K. Tamotia, President, Aditya Aluminium in his written objection stated the following.

4.11.2

Industries owning captive power plant should be allowed to enter into a fair and equitable power purchase agreement with GRIDCO/WESCO to utilise surplus generation & supply emergency assistance to CPP.

4.11.3

Proposal by the licensee to withhold permission for installing CPP for 3 years should not be agreed to.

4.11.4

Tariff of Aditya Aluminium is to be fixed on net drawal basis. Alternatively Energy charge for emergency assistance to CPP should be same as that of supply rate of surplus power.

4.11.5

Construction power has to be classified separately and no demand charge should be levied.

4.11.6

Tariff for all categories has to be fixed for at least a period of 5 years. Annual changes should be made in respect of variable cost only.

4.12

Sundargarh Dist. Employers Association

4.12.1

Shri Gobardhan Pujari represented Sundargarh District Employers Association. He strongly objected to tariff increase on various grounds.

4.12.2

Maintenance of accounts by the Licensee is mandatory under Companies Act., Income Tax Act and Electricity (Supply) Act. They are bound to complete the accounts within six months of the close of the year. Therefore making a submission that Audited Accounts are not available is a deliberate attempt to hide the fact.

4.12.3

Under Electricity Supply Annual Account Rule 1985 higher valuation of asset is not permissible and as such asset should be shown at historical cost and not on revalued cost.

4.12.4

Basis of allocation of expenditure on the cost of EHT, HT, LT supply has not been given. Therefore it is not possible to decide the average cost of supply in respect of different categories of consumers. Also present tariff system does not provide incentive for HT/EHT consumers. WESCO has not furnished details of Bad Debt which is written off. Further WESCO has not disclosed the steps taken to realise the debt and also not shown the particular of debts which has been considered to be bad.

4.12.5

WESCO in their calculation of revenue earned in the current year as well as in the ensuing year has not shown separately the revenue from demand charge and energy charge. He pleaded that the principle of demand charge to be applied to distribution company should be on similar line with generating companies. WESCO has not given any indication about the steps taken to optimise capacity utilisation and to reduce T&D loss.

4.12.6

Proposal given by WESCO to compensate the loss of NESCO and SOUTHCO is against the principle of natural justice. WESCO’s objection for not allowing to instal of CPP for a period of three years is unjustified. His logic for setting of CPP is that there will be real competition and the benefit will be reaped by consumers.

4.12.7

WESCO should inject some amount of equity capital in the business to minimise the interest burden. Depreciation should be calculated as per the standard accounting procedure.

4.12.8

Consumer security deposits should be deducted for calculating the Capital Base but this has not been taken into consideration by WESCO.

4.12.9

WESCO is not entitled to transfer its profit to other companies. Instead of asking for subsidy directly, WESCO has proposed rise in tariff to cover its own inefficiency.

4.12.10

WESCO is paying a sum of rupees 1.29/units to GRIDCO and is proposing the sale the same at an average price of rupees 4.30/unit to HT and EHT consumers. This is not justified. WESCO has not given any plan for cost reduction.