CESCO - Tariff Order pronounced on 30 December 1999

Case No.25 of 1999

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

Date of Argument : 30.11.1999
Date of Order : 30.12.1999

IN THE MATTER OF : Revenue requirement and determination of tariff for retail supply for CESCO.

O R D E R

Table of Contents

Introduction
Preliminary Objections
CESCO's Proposal
Objector's views
CESCO's rejoinder
Commission's Analysis and Orders
Annexures

	Central Electricity Supply Company of Orissa Ltd. (CESCO, for short) 18, Forest Park, Bhubaneswar, the holder of licence for carrying on the business of Distribution & Retail Supply of electricity in its licensed area of supply namely Electrical Circles of Bhubaneswar, Cuttack, Dhenkanal and Paradeep, submitted an application on 30.09.99 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	The application of CESCO is in two volumes (Vol.1 containing the main text & annexures and Vol. 2 containing evidential documents). The Commission’s staff, after preliminary scrutiny of the application, raised a number of comments/queries thereon. The Commission forwarded the comments/queries to CESCO and asked for additional information from CESCO 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	CESCO provided clarifications to the comments/queries in a bound volume on 5^th October, 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.06.10.99, the application in question was admitted and issue of public notice inviting objections to CESCO’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 CESCO’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 the Managing Director, CESCO, Bhubaneswar and all Executive Engineers in charge of Distribution Divisions such as Bhubaneswar City Distribution Division, Bhubaneswar, Bhubaneswar Electrical Division, Bhubaneswar, Cuttack City Distribution Division, Cuttack, Cuttack Electrical Division, Cuttack, Puri Electrical Division, Puri, Khurda Electrical Division, Khurda, Nayagarh Electrical Division, Nayagarh, Kendrapara Electrical Division No.I, Kendrapara, Kendrapara Electrical Division No.-II, Marsaghai, Jagatsinghpur Electrical Division, Jagatsinghpur, Athagarh Electrical Division, Athagarh, Salipur Electrical Division, Salipur, Talcher Electrical Division, Chainpal, Dhenkanal Electrial Division, Dhenkanal and Angul Electrical Division, Angul. 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 33 objections against CESCO’s application out of which twelve were rejected for non-compliance of the terms & conditions as laid down in the public notice while 21 objections were admitted according permission to the objectors for participating in the hearing. The objectors whose objections were admitted for hearing are (1) M/s Shakti Sugars Cane Growers Rural Development & Water Users Society, At Haripur, P.O. Korian, Dist. Dhenkanal. (2) M/s Shakti Sugars Cane Growers Rural Development & Water Users Society, At/P.O. Baramba, Dist. Cuttack. (3) M/s Nava Bharat Ferro Alloys Ltd., At/P.O. Khadgaprasad (Near Meramundali Rly. Station), Dist. Dhenkanal. (4) M/s Utkal Chamber of Commerce & Industry Ltd., Barabati Stadium, Cuttack. (5) M/s IPISTEEL Ltd., At/P.O. Buxi Bazar, Dist. Cuttack. (6) General Secretary, Orissa Young Entrepreneurs Association, Industrial Estate, Cuttack. (7) Shri P.N. Agarwal, Director, M/s Globe Aluminium Industries (P) Ltd., New Industrial Estate, Jagatpur, Dist. Cuttack. (8) M/s Shakti Rural Development & Water Users Society, 1412, Aurobindo Nagar, Madhupatana, Cuttack. (9) Shri K.N. Jena, General Secretary, Orissa Consumers’ Association, Biswanath lane, Cuttack. (10) Shri K. Acharya, President, Orissa Grahak Mohasangha, B-4, Pallaspali, Bhubaneswar. (11) Jt. Secretary, Federation of Consumer Organisation, Orissa, Plot No.39, Budha Nagar, Bhubaneswar (12) Shri Ramachandra Mohapatra, 550, Rameswarpatana, Bhubaneswar. (13) Shri N. Jena, Secretary, Nayapalli Community Care Association, N-2/100, IRC Village, BBSR. (14) Shri J. Mohapatra, M.D., M/s Ananda Industrial Gases Ltd., 239, Kharabela Nagar, Bhubaneswar (15) Dr. S.K. Tamotia, President, Aditya Aluminium, 9^th Floor, IDCO Towers, Bhubaneswar. (16) M/s Senior Consultant and Advisor Group, N-2/95, Nayapalli, Bhubaneswar. (17) M/s NALCO, P/1, Nayapalli, Bhubaneswar. (18) Shri R.C. Padhi, Retd. Chief Engineer, MIG A/24, Brit Colony, Nayapalli, Bhubaneswar. (19) Executive Officer, Bhubaneswar Municipal Corporation, Bhubaneswar. (20) Shri S.K. Nanda, Convenor, Energy Panel, Confederation of Indian Industry, Eastern Region, 8, Forest Park, Bhubaneswar. (21) Shri Dhaneswar Dhal, A-39, Sahid Nagar, 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 CESCO’s application and the date of hearing (30.11.99 and if required, on the day following) 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 30.11.99. 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, the following legal objections were raised by different objectors as preliminary objections on the maintainability of the tariff proceeding. The Commission heard the views of CESCO on such objections. While one of the preliminary objections was disposed of by Order dt.30.11.99, it was decided with the consent of the respective objectors that all other preliminary objections would be dealt with by the Commission in the final order.
2.5.1	The preliminary objections are as follows :-
2.5.1.1	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 Para-1)
2.5.1.2	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 Para-1)
2.5.1.3	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. Para-1& 28)
2.5.1.4	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. Para-2)
2.5.1.5	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. Para-2&4)
2.5.1.6	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. Para-5,6,&7)
2.5.1.7	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. Para-8&13)
2.5.1.8	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. Para-9)
2.5.1.9	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. Para-16)
2.5.1.10	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.
2.6	We now deal with the first 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.
2.7	Regarding the second 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-B at page 5 of the RST application, it has been described as an application u/s 26 of the Reform Act, 1995 r/w Condition 21.3 of the Orissa Distribution & Retail Supply Licence for amendment of the Retail Supply Tariff approved by the Commission vide its Order dtd. November 21, 1998 in Case No.19/98.
2.7.1	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 raised by Orissa Consumers’ Association in paras 1 & 28 of its written objection 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.
2.8.1	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 by 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.
2.9	The fourth 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 is already dealt with by us in para 8 above.
2.10	The fifth objection of the Orissa Consumers’ Association 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.
2.10.1	In fact, this objection of the Orissa Consumers’ Association 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.
2.10.2	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.
2.10.3	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.
2.10.4	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.
2.10.5	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 Shri Jena has stated in the first part of his objection that tariff should be determined by OERC in accordance with the provisions of Sec. 29 of the Commission Act, 1998, he has also contended in the second part of his 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 relying on the same Reform Act, 1995 to challenge the alleged omission on the part of OERC.
2.10.6	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.
2.11	With regard to the sixth objection of the Orissa Consumers’ Association, it may be pointed out that upon filing of the application for RST by CESCO on September 30, 1999, the Commission in its letter No.2532 dt.01.10.99 pointed out certain omissions to be supplied by the applicant and raised certain queries for clarification. The applicant supplied the omissions and filed clarification to the queries on 5.10.99. 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.
2.11.1	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.
2.11.2	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.
2.11.3	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.
2.12	Therefore, we are unable to agree with Shri Jena that the tariff application of the Distribution & Retail Supply Licensee is defective, incomplete and not maintainable.
2.13	The seventh preliminary objection raised by Shri Jena 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.
2.13.1	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.
2.14	The eighth objection raised by Shri Jena for Orissa Consumers’ Association 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.
2.15	The ninth objection raised by Shri Jena, General Secretary of the Orissa Consumers’ Association 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.
2.16	In order to dispose of the last 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 while dealing with second objection 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.
2.17	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 CESCO’s proposal and give our findings on the same.

3.0

CESCO’S PROPOSAL

3.1

CESCO, which was initially incorporated as a wholly-owned subsidiary company of GRIDCO, obtained licence from Orissa Electricity Regulatory Commission for distribution and retail supply of electricity in Bhubaneswar, Cuttack and Dhenkanal Electrical Circles with effect from April 1, 1999. With the sale of 51% of equity holding to a strategic investor i.e. a consortium of AES and Jyoti Structures, CESCO became a joint sector company with effect from 01.09.99. Subsequent to this restructuring and operation as a licenced utility, CESCO filed its calculation of aggregate revenue for FY 1999-00 along with a proposal for tariff to meet the shortfall between the revenue requirement and the expected revenue from charges.

3.2

CESCO estimates that it would draw around 3883 MU of power from GRIDCO with an average monthly maximum demand of 689.3 MVA. It estimates sale of 2058.67 MU, an increase of 13.13% over the billed units for the year 1998-99.

3.3

CESCO’s estimate of power purchase for the year 1999-00 is Rs.497.44 crores comprising Rs.165.44 crores on account of demand charge and Rs.332.00 crores on account of energy charge. The average cost per unit is estimated at Rs.1.28 paise/unit.

3.4

The cost of distribution and sale of energy for the year 1999-00 is estimated at Rs.196.40 crores which comprises employees cost, cost of materials, administrative and general expenses, interest on loans borrowed from organisations, bad debts and depreciation (less capitalisation on account of interest) and legal expenses. There is a proposal for special appropriation of Rs.1.32 crores to cover contribution to contingency reserve. CESCO estimates to earn a reasonable return of Rs.17.14 crores on its capital base of Rs.100.28 crores.

3.5

The revenue requirement for Financial Year 1999-00 estimated by CESCO is at Table : 1.

Table : 1
Revenue Requirement for 1999-00 (Rs. in crores)

Purchase of energy	497.44
Distribution & sale of energy	196.40
Special appropriation	1.32
Reasonable return	17.14
Total	712.30

3.6

CESCO has stated that the existing tariff and charges are inadequate to meet the estimated revenue requirement of Rs.712.30 crores for the FY 2000 and it would face a deficit of Rs.200.03 crores in the year 1999-00. It has further stated that in view of the anticipated large deficit there is an urgent need to develop a strategy to preserve the financial viability of CESCO. The revenue projection made by CESCO for 1999-00 is given in Table : 2.

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

	Revenue	Deficit
For FY 00 based on existing tariff	512.27	200.03
For FY 00 based on tariff proposed in the application for full year	637.56	74.74
For FY 00 based on tariff proposed in the Application for 4 months	554.03	158.27

3.7

CESCO has stated that the system suffers from high energy loss, inadequate customer service and inadequate overall system performance which it intends to improve through corrective measures. CESCO has further stated that the current tariff determined by the Commission is based on the application filed by GRIDCO and does not fully meet the requirements of CESCO. The energy sales mix, losses, costs and revenue requirement of CESCO are different from the erstwhile aggregated GRIDCO for which the existing tariff needs to be modified in line with CESCO’s operating environment and constraints.

3.8

Main Features of CESCO’s Proposal

3.8.1

CESCO has proposed a tariff to reduce the gap between revenue requirement and expected revenue from existing tariff and charges for the FY 1999-00. Based on the concept of rationalisation of tariff structure of the previous years, it proposes to continue with the existing tariff structure to minimise variations across separate zones for reasons of consumer acceptability. It intends to minimise increase in demand and energy charges for both EHT and HT categories of consumers while proposing enhancement of charges for LT category of consumers to reduce cross subsidisation. CESCO has further stated that it needs to raise tariff by 39.05% across all categories to reduce cross subsidisation. In its opinion, the tariff for EHT and HT consumers has already reached a level that could force these consumers to set up their own captive power plants. Therefore, tariff increase in LT category should be quite large i.e. around 61.35%.

3.8.2

Main features of tariff proposal of CESCO are as follows :-

3.8.2.1

Increase in monthly minimum fixed charges for LT category consumers

3.8.2.2

Introduction of demand charge for emergency supply to captive power plants

3.8.2.3

Increase in energy charges at least by the rate of inflation across all consumer subclasses for HT, LT, EHT categories

3.8.2.4

Increase in energy charges for irrigation to at least 50% of cost of supply

3.8.2.5

Decrease in tariff and charges for power intensive industries in EHT/HT categories. Consequently to do away with optional incentive tariff applicable to these consumers

3.8.2.6

Incentive tariff for EHT and HT consumers except for the Public Institution category. It proposes to maintain the difference between normal tariff and incentive tariff by 60 paise/unit for EHT and by 70 paise/unit for HT

3.8.2.7

In addition to above, CESCO has proposed two changes :-

Increase in reconnection charge to encourage consumers to make timely payment.

Rounding off of the billed amount to the nearest rupee to obviate practical problem of transaction.

3.9

Uncovered deficit proposed in tariff

3.9.1

CESCO has stated that the uncovered deficit from expected revenue for the FY 1999-00 at proposed tariff and charges for the full year is estimated as Rs.74.74 crores. If the proposed tariff is made applicable for part of the year i.e. from December 1, 1999, the estimated uncovered deficit will be Rs.158.27 crores (Table-2 refers). For maintaining the financial viability of the company and for rendering effective service to the consumers, CESCO proposes to defer the uncovered deficit for the year 1999-00 for the next three years i.e. till 2003, when it becomes recoverable with interest.

3.10

Institution of purchased power price adjustment clause (PPPAC)

3.10.1

CESCO has stated that its power purchase costs are directly affected by GRIDCO’s proposed bulk supply tariff as approved by OERC. Since these costs are beyond the control of CESCO, the proposal is to insulate CESCO from such risk through institution of a Purchased Power Price Adjustment Clause (PPPAC). Further, this PPPAC should be regarded as a generic term to cover all increase in power purchase cost which are beyond the control of CESCO.

3.11

Automatic pass through of change in Bulk Supply Tariff to the Consumers

3.11.1

CESCO has stated that incremental changes in BST if approved by the Commission will affect its power purchase cost. CESCO has proposed that whenever a change in any of the components of the BST like demand charge, energy charge, and fuel price adjustment rate is approved by the Commission, corresponding change in RST should automatically be made as a pass through to the consumers without the need for any further approval of the Commission.

3.12

CESCO’s Prayer

3.12.1

CESCO has made the following prayers to,

Approve the Retail Supply Tariff and Charges as proposed

Confirm revenue requirements, calculation of capital base and calculation of clear profits for the year 1999-00

Allow deferment of all uncovered deficit for FY 00 and recovery with interest after three years starting from FY 2003

Institute PPPAC to cover all changes in the cost of purchase of power

Automatic pass through of cost impact of change in Bulk Supply Tariff to the consumers

Approve the proposed tariff to be effective from December 1, 1999

4.0	Objections during hearing Twenty one objections were admitted for personal hearing. The main issues of objections are outlined below :
4.1	SAKTHI SUGARS CANE GROWERS RURAL DEVELOPMENT AND WATER USERS SOCIETY, DHENKANAL
4.2	SAKTHI RURAL DEVELOPMENT & WATER USERS SOCIETY, BARAMBA
4.3	SAKTHI SUGARS CANE GROWERS RURAL DEVELOPMENT AND WATER USERS SOCIETY, MADHUPATNA, CUTTACK
4.3.1	The three cooperative societies mentioned above were represented through Mr. Satish Kumar, Secretary, Shakti Rural Development & Water Users Society. He contended that the increase in tariff seems to have necessiated due to increase in overhead cost, transmission loss, non-recovery of energy dues, theft of electricity which are occurring due to mis management of the licensee. Poor control over unauthorised consumers and mismanagement by the licensee should not be transferred to the genuine retail consumers.
4.3.2	It was further submitted that with the proposed tariff increase from Rs.0.80 to Rs.1.80 paise/unit for Irrigation the profitability per acre will be reduced drastically and this will discourage sugar cane cultivation.
4.4	NAVA BHARAT FERRO ALLOYS LTD
4.4.1	Nava Bharat was represented through its representative Shri A.K. Parida, Liaison Officer. He submitted that uniform special tariff should be available for 24 hrs to all export oriented power intensive industries of the state.
4.4.2	With the high percentage of hydro power (more than 45 %), thermal stations of the state at pit heads and sale of more than 50% of power in HT & EHT, the tariff of Orissa should have been much less.
4.4.3	A lot of money has been invested by CESCO after reforms for system improvement while energy demand has not increased during last 3 years.
4.4.4	Consumers should not be penalised for bad debts of CESCO which is due to its own inefficiency. OERC should not allow bad debts in the revenue requirement.
4.5	THE UTKAL CHAMBER OF COMMERCE AND INDUSTRY LTD., CUTTACK.
4.5.1	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.
4.5.2	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.
4.5.3	Tariff for all categories of consumers should be related to the cost of supply so that the industrial consumers are attracted to install industry in Orissa.
4.5.4	As promised by the Commission earlier, there should have been perceptible reduction in T&D loss as the reform process has been in operation for more than three years. For the purpose of tariff, distribution loss should be considered at 28% and EHT loss as 3.5%.
4.5.5	Shri M.V. Rao objected to increased claims under employee expenses, A&G expenses, interests , bad debts, He suggested that depreciation, R&M expenses, and contribution to contingency reserves may be taken as proposed by CESCO. According to him the revenue requirement of CESCO works out to Rs.617.84 crores as against the proposed figure of Rs.712.30 crores. Since the total expected revenue with existing tariff with 28% distribution loss comes to Rs.657.53 crores, no tariff hike is necessary for CESCO.
4.6	IPISTEEL LIMITED.
4.6.1	Shri K. Panigrahi, Advocate appeared on behalf of M/s. IPI Steel Limited and raised following points against tariff filing.
4.6.2	The deficit seems to have been shown on higher side by projecting higher expenses and higher T & D loss. The system loss can be reduced in a phased manner at least by 10% during financial year 2000 which alone is sufficient to make up the entire deficit.
4.6.3	The rate for mini steel plant has been proposed to be Rs.4.03/Kwh which is equivalent to 218% of cost of supply whereas the tariff for Kutirjyoti or Domestic category has been proposed to be Rs.100/Kwh and Rs.1.62/Kwh which are equivalent to 24% and 38% of the cost of supply respectively.
4.6.4	IPISTEEL Limited is under rehabilitation programme of BIFR and as per the directive of the State Govt, the company shall be provided with power at concessional rate. BIFR Act has overriding effect on all other Acts including OER Act and any deviation from the directives of BIFR will be ultravires.
4.7	ORISSA YOUNG ENTREPRENEURS ASSOCIATION, INDUSTRIAL ESTATE, CUTTACK
4.7.1	Orissa Young Entrepreneurs Association, Industrial Estate, Cuttack was represented through its General Secretary, Shri B.N. Mishra who raised following objections:
4.7.2	The proposed rates of electricity tariff for the year 1999-2000 is excessive, arbitrary, unjustified, lacks transparency and is liable to be quashed.
4.7.3	Energy charges are increased every year without corresponding increase in performance, efficiency and economic use of resources.
4.7.4	Employees cost should not be projected more than 1% than the earlier year.
4.7.5	Interest payment against non-payment of dues should not be allowed to be shifted to consumers as it has occurred due to inefficiency and bad management.
4.7.6	Expenses claimed by the licensee need to be reviewed by the Hon'ble Commission.
4.7.7	There is no rationale for the levy of monthly minimum fixed charge and demand charges upto a contract demand of 100 KW.
4.8	GLOBE ALUMINIUM INDUSTRIES PVT. LTD.
4.8.1	Shri Pavan Kumar Agarwal, Director representing M/s. Globe Aluminum Industries(P) Ltd. submitted the following objections before the Commission against tariff application :
4.8.2	T & D loss is over-estimated.
4.8.3	Interest payment on overdue should not be allowed.
4.8.4	Expenditures projected need to be reviewed by the Hon'ble Commission.
4.9	ORISSA CONSUMERS ASSOCIATION, BHUBANESWAR
4.9.1	Shri K.N. Jena represented Orissa Consumers’ Association. He objected on a variety of grounds as below :
4.9.2	This Commission cannot proceed and has no authority and power to consider the application of the licensee either for revising or fixing or amending the tariff which is in force.
4.9.3	The Commission has not yet specified the methodology and procedure for calculating the expected revenue from the charges.
4.9.4	The licensee has not completed its functioning even for a year and therefore it has no accounts statement of its own for even one complete year. To make matters worse, the inherited account of latest complete year namely 98-99 has not been audited. The licensee be directed to produce their annual accounts and serve copies thereof to the objectors and thereafter only tariff application processed.
4.9.5	Section 57A (1)(e) of Electricity (Supply) Act, 1948 provides that "charges for supply of electricity" fixed under clause (01) shall be in operation for such period not exceeding 3 years as the state Govt. may specify in the order. Hence the application under consideration is premature.
4.10	ORISSA GRAHAK MOHASANGHA, PALASPALLI, BHUBANESWAR.
4.10.1	Shri K. Acharya represented Orissa Grahak Mohasangha, Palaspalli, Bhubaneswar. He pleaded for uniform tariff for the state as a whole. According to him consumers cannot be segregated zone wise.
4.10.2	He argued that the Orissa consumers should not be made accountable for losses on unmetered supply and defective meters and theft by non-consumers. The Electricity industry in Orissa required financial investment by private entrepreneurs to develop the system and management. Obviously the Reform did not intend to bring in private companies who would be propelled only by profit motive and go on enhancing tariff.
4.10.3	He requested the Commission that the licensee should be directed to withdraw proposal for increasing the present tariff at the close of the millennium and take tangible steps to bring in efficiency in operation.
4.11	FEDERATION OF CONSUMERS ORGANISATION
4.11.1	Shri Debabrata Jena, Advocate represented the Federation of Consumer Organisation. He stated that the Licensee has proposed revision of tariff without improving efficiency.
4.11.2	The poor state of Orissa is always affected by natural calamities and any increase of tariff will affect them as well as industrialisation in the state.
4.12	RAMA CHANDRA MOHAPATRA
4.12.1	Shri R.C. Mohapatra, Retd. Chief Engineer did not appear during the hearing. In his written submission, he stated that revised uniform tariff should be applicable to the whole of the state of Orissa.
4.12.2	He assailed the proposal for increasing minimum fixed charges. He found no justification in enhancing tariff without increasing efficiency and reducing T&D loss.
4.13	NAYAPALLI COMMUNITY CARE ASSOCIATION
4.13.1	Shri B.N. Dash represented Nayapalli Community Care Association. He stated that after reforms, a lot of investments have been made for system improvement without appreciable increase in load.
4.13.2	It is desirable to take up consideration of BST of GRIDCO before retail tariff of different companies.
4.13.3	As there is no competition. the purpose of reforms to manage electricity industry in an efficient, economic and competitive manner in the interest of consumers in particular and the state in general is defeated.
4.13.4	From the analysis it is found that there is no necessity of increase in present tariff and rather, there should be reduction in the existing tariff.
4.13.5	Interest for non payment of bills of GRIDCO is due to inefficiency and bad management of CESCO and certainly the consumers are not to be penalised for it.
4.14	ANAND INDUSTRIAL GASES LTD., BHUBANESWAR
4.14.1	Shri J.N. Mohapatra, MD, Anand Industrial Gases Ltd., Bhubaneswar stated that increase in power tariff should always be related to hike in coal prices, freight, transportation, electricity duty etc. not to absorb the transmission loss operational loss and other factors like increase in overheads.
4.14.2	He highlighted the poor quality of power and stated that the consumers have a right to expect better quality and efficiency from the licensee who has the experience and wherewithal in the field of distribution.
4.14.3	He suggested for an incentive for night shift operation of the industry to utilise the surplus available during the off-peak hours.
4.15	ADITYA ALUMINUM PROJECT, BHUBANESWAR
4.15.1	The representative of Aditya Aluminium Project, Bhubaneswar in their submission have stated that :
4.15.2	Tariff for commercial and domestic category should not be considered for revision at this stage as it is already on the higher side.
4.15.3	Tariff should be fixed for a period of at least 5 years and actual energy charges should be based on variation of consumable cost only and the rise of minimum fixed charge should be related to the inflation during the year.
4.16	THE SENIOR CONSULTANT AND ADVISOR GROUP, NAYAPALLI
4.16.1	Shri RP Mohapatra, Director of the Senior Consultant and Advisor Group, Nayapalli in his submission stated that :
4.16.2	The bill should be very much clear and informative to the consumer.
4.16.3	The proposals for dispensing with the slab system is an unfair one and hit the poor honest and disciplined consumers.
4.16.4	The system frequency is remaining high most of the time crossing the limits of �3% over the declared frequency of 50 HZ. Such situation is causing the consumers additional billing without their knowledge. This is a matter of serious concern to all consumers and the OERC need to take proper note of this.
4.16.5	Due to super cyclone the people of Orissa are suffering a lot. It should be the time to consider reduction of the tariff instead of contemplating further increase under the present circumstances.
4.16.6	It is urged not to increase the tariff at least for a period of next twelve months.
4.16.7	The expenditure for engagement of outside consultants is highly unwarranted as there is no dearth of experienced people in the state.
4.16.8	The various elements of cost was dealt at length by him. He led emphasis on proper management of stores and requested the Commission to thoroughly examine depreciation and other elements of cost.
4.17	NATIONAL ALUMINIUM COMPANY LTD.
4.17.1	National Aluminum Company Ltd. was represented through Shri Indrajit Mohanty, Sr. Advocate assisted by Shri Prahalad Gahana, Dy. General Manager, CPP, Nalco. He submitted that :
4.17.2	Energy consumption at Nalco Bhawan, Bhubaneswar and Nalco colony, Bhubaneswar be deducted from the export of energy from CPP at Angul.
4.17.3	The tariff applicable for emergency power supply to Nalco may be governed by the principle of fixing the tariff at three times the energy charges applicable to Nalco's supply to GRIDCO as per the minutes of the meeting dated 01.06.94. Penalties for low power factor over drawal on demand charges should not be imposed on Nalco as agreed between state Govt. OSEB and Nalco in minutes of meeting on 01.06.94 in view of the fact that it is of emergency nature and for a very negligible period.
4.17.4	Wheeling of power from CPP, Angul may be permitted for Nalco Bhawan and Nalco Nagar township at Bhubaneswar as agreed in the MOU dated 01.06.94 between OSEB State Govt. and Nalco.
4.17.5	Due to interconnection between GRIDCO and CPP of Nalco the reactive power exchange takes place due to system conditions which gets reflected in the maximum demand meter. CPPs should not be unnecessarily penalised through the levy of demand charge and low power factor penalty due to unwanted power flow.
4.18	R.C.PADHI, RETD. CHIEF ENGINEER, GOVT. OF ORISSA
4.18.1	Shri R.C.Padhi, Retd. Chief Engineer, Govt. of Orissa spoke for all consumers in general and the domestic consumer in particular.
4.18.2	The distribution loss must be reduced by 5% every year and a T&D loss above 25% to 28% should not be allowed by OERC for FY 00.
4.18.3	Employees cost and A & G cost should not be projected more than 3% over FY 99.
4.18.4	R&M costs should be capped at a prudent level.
4.18.5	Rs.20.382 crores has been proposed to be paid to GRIDCO for non-payment of bills which is due to inefficiency and bad management of CESCO for which a honest consumers is not responsible and should not be asked to pay for.
4.18.6	Legal expenses for Rs.4.534 Crores is very high.
4.18.7	Capital base has not been projected on audited figure for 98-99.
4.18.8	Distribution companies should be asked to conduct effective socio-economic study.
4.18.9	All the domestic consumers should be uniformly charged (including Kutirjyoti)
4.18.10	He suggested that OERC should have elaborate consultancy with consumer group before approving investment.
4.19	BHUBANESWAR MUNICIPAL CORPORATION
4.19.1	Bhubaneswar Municipal Corporation was represented through Shri K.P. Nanda, Advocate. He stressed that since the general public are using the street light, electrical energy should be provided by the GRIDCO/CESCO free of cost.
4.19.2	As per Article 285 of the Constitution of India municipal bodies do not pay any income tax on their revenue to the Govt. of India and the Municipality does not impose any tax on Govt. offices, building and holding tax. BMC does not impose holding tax or ground rent for electricity poles, substations. Reciprocal benefit should be given to BMC.
4.19.3	Meter should be there to measure units consumed for the street light and billing should not be done on the basis of assessment of consumption.
4.20.	CONFEDERATION OF INDIAN INDUSTRY
4.20.1	Confederation of Indian Industry was represented by the Convenor of CII energy panel Shri S.K. Nanda. He objected to the calculation of revenue requirement and in particular capital expenditure and revenue expenditure. He assailed the reasonableness of various items of revenue expenditure and state that it was incumbent on OERC to permit only prudently incurred capital expenditure and properly incurred revenue expenditure.
4.20.2	He claimed that the retail tariff proposal had not been prepared correctly and hence should be disallowed. He opined that EHT consumers should be treated as Bulk consumers to GRIDCO. He challenged the legality of load factor billing and questioned the wisdom of tariff rise immediately after the backbreaking supercyclone.
4.20.3	Prudence of expenditure proposed by the licensee should be examined.
4.21	DHANESWAR DHAL
4.21.1	Shri Dhaneswar Dhal representing the domestic consumer submitted that new Bulk Supply Tariff and Retail Supply Tariff should not be made effective before 1st April, 2000.
4.21.2	He argued that tariff determination should not be done in the absence of Engineering Member of the Commission and urged the Commission to restrict the calculation of revenue requirement, capital base and clear profit on the basis of prudence norm.
4.22	BISWAJIT MISHRA, DY. SECY. TO GOVT. OF ORISSA
4.22.1	Shri Biswajit Mishra, Dy. Secretary to Govt. of Orissa, Deptt. Of Energy intervened with the permission of the Commission and gave some clarifications and views.
4.22.2	According to him PMU gives all the consultancy services for distribution and upgradation schemes and hence it is not proper on the part of the CESCO to spend money on consultancy services particularly when other distribution companies have not done so.
4.22.3	So far subsidy is concerned he clarified that the Govt. has not received any such proposal so far. He was of the view that provision for bad debt should be restricted to 15% of the incremental debt during the year. He also felt that licensee should claim interest only for capital purpose and not for meeting dues of GRIDCO for which Govt. has provided comfort through securitisation.
4.23	DIRECTOR(TARIFF), OERC
4.23.1	Director(Tariff), Orissa Electricity Regulatory Commission sought certain clarifications from CESCO. These are indicated below :-
4.23.2	Loan agreement between GRIDCO and CESCO needs to be furnished.
4.23.3	CESCO may clarify it is going to invest Rs.43.81 crores out of which only 19 crores will be capitalised by way of conversion to fixed asset and if so, why should the interest component of that expenditure which is not earning any revenue or not giving any service be passed on to the consumers.
4.23.4	Assets like construction of 33/11 KV lines and substations normally take less than one year to complete. They may explain why they could not complete these works within a year.
4.23.5	CESCO may clarify whether interest on investment not earning any revenue and not giving any service, should be debited on to the revenue account to be borne by consumers through tariff.
4.23.6	CESCO has stated in their application that HT loss for the year 98-99 was 20% and it is going to be 13% for the year 1999-00. It should be clarified whether any pilot study has been carried out through installation of meters or any other basis on which this 20% loss figure has been worked out for the year 98-99.
4.23.7	The method of calculation of simultaneous maximum demand may be clarified.

5.0	CESCO’S REPLY TO THE OBJECTIONS
5.1	The managing Director, CESCO in its rejoinder to the objections submitted that the retail tariff application for 1999-00 has got three principal objectives, namely :-
5.2	To determine the Cost structures of CESCO as an unbundled utility separate from GRIDCO.
5.3	To determine the factors that would be helpful in improving the financial health of the company to benefit the shareholders, consumers and employees.
5.4	To propose a tariff for approval that would be just and reasonable but would identify the deferred revenue requirements.
5.5	He thereafter analysed the various issues which are discussed hereafter.
5.6	He stated that, Section 26(4) of the OER Act, 1995 stipulates the revenue requirement of every independent licensee for its area of licence. Therefore, the issue of uniform tariff for the state cannot be addressed by CESCO.
5.7	Replying to the high distribution loss projected by CESCO he submitted that the actual overall system loss for the financial year 98-99 is computed at 48.64% which includes billing done on minimum charge basis. Billing on minimum charge basis does not correctly reflect the actual units consumed as a fixed number of units are estimated to have been consumed per Kw of connected load. If the actual units consumed in cases of consumers where billing has been done on minimum charge basis is taken into account the computed loss percentage goes up to 52.39%. However CESCO accepts the actual loss figure for the financial year 98-99 at 48.64%. Thereafter he pointed out that the CESCO’s energy sale mix is significantly different from that of other distribution companies on account of large percentage of LT consumption in CESCO system. He informed about the various loss reduction measures taken in financial year 98-99 like regularisation through survey of consumers premises, classification of industries, installation and checking of metering, imposition of power factor penalty. He pointed out that improved system voltage performance increases energy input while higher consumption results in higher commercial loss due to a large number of defective meters. He informed that for the year 1999-00 the company would like to focus on various loss reduction measures so as to bring down the loss reduction by 6.6% for the financial year 1999-00 with promise for similar loss reduction level for the next year. The Commission’s benchmark of 35% loss reduction was not a realistic target. He requested that revenue requirement may be approved on the basis of 47% overall system loss.
5.8	The MD, CESCO clarified that the cost figure of 1999-00 is estimated on the basis of the disaggregated audited account of GRIDCO for the financial year 98-99 and the management account for CESCO for the year 98-99. He countered the objection that the next fixed asset for the financial year 98-99 is higher than that reflected in the Transfer Scheme.
5.9	On the cost of power purchase he submitted that CESCO has considered the existing bulk supply tariff for the computation of its power purchase cost with a purchase power price adjustment clause as proposed by them.
5.10	On the issue of measurement of simultaneous maximum demand he pointed out that these are based on the bills served by GRIDCO to CESCO and are to be mutually sorted out.
5.11	Regarding cost of employees he submitted that this has been estimated assuming a 5.65% compounded growth over the annual disaggregated figure for the year 97-98 which is less than the growth rate approved by the Commission in tariff order of 98-99.
5.12	On administration and general expenses he stressed that the costs are basically related to communication, travel, training and consultancy charges which can be very effectively utilised for improving the efficiency of the utility.
5.13	The A&G expenses for the year 97-98 constituted 1.2% of the total revenue requirement compared to international utilities benchmark of 3%. He highlighted the justification for proposed expenditure on consultants to improve the productivity of the organisation.
5.14	On R&M expenses he submitted that higher projection for these works is a necessity for prompt and quality service for customers and maintenance of an aged network as opposed to standard maintenance. To meet these objectives, R & M expenses are pegged at 6.4% of gross fixed asset. This figure was 6.6% for the year 97-98 as per the audited accounts. He further stressed that the R&M cost in the aftermath of cyclone cannot be reduced as a substantial part of the asset would require higher R&M cost even after a portion of the asset is totally replaced.
5.15	He explained that Rs.20.382 crores is on account of interest amount outstanding to GRIDCO in accordance with the bulk supply agreement between GRIDCO and CESCO which are to be paid in quarterly installment beginning from December 2002 at interest rate of 16% pending OERC’s approval. He denied the objections by Secretary, Nayapalli Community Care Association that interest cannot be charged because interest is not paid on the ground that accounting was on accrual basis and not on cash basis.
5.16	On the issue of depreciation he stated that the computation has been done as per the provisions of the Ministry of Power notification for the year 1999-00 applying appropriate rates for each class of assets. The computation of asset has been done basing the depreciated book value as set out in a transfer scheme adjusted for subsequent addition and depreciation.
5.17	On issue of bad debts he referred to the objection by the Sr. Consultant and Adviser group, Nayapally that the arrangement for collection of receivables for which provision has been made is not specified. Provision for bad debt has been assumed to be at 15% of the incremental debtors for the FY 1999-00.
5.18	The MD CESCO pointed out that the tariff revision is intended to reduce the gap between revenue requirement and expected revenue for the year 1999-00 through just and reasonable increase in tariff. The proposal was stated to be in line with the conceptual issues of tariff issued by the Commission. CESCO does not propose any change to the existing tariff structure to maintain continuity of consumers acceptability.
5.19	For purpose of reduction of cross subsidisation minimum increase in demand and energy for EHT and HT category is proposed while increasing the charges for LT category. CESCO further pointed out that to meet the total requirement an increase of 39.05% is necessary in tariff and charges across all categories. The existing tariff for HT and EHT consumers is encouraging them to switch over to captive generation for which tariff in LT categories is required to be enhanced. To meet the full revenue requirement from LT category, tariff increases in LT category will be very large.
5.20	The MD, CESCO pointed out that keeping with the concept of linking the demand to the fixed cost of utility and to reduce cross subsidisation increase in fixed monthly charges for LT consumers have been suggested.
5.21	CESCO is required to pay a demand charge as per bulk supply tariff for which it is considered just and reasonable to levy a demand charge from the consumers for emergency supply to CPP. CESCO further considers that cost increase on account of inflation is beyond its control for which increasing of energy charge at least by inflation rate is just and reasonable. Similarly irrigation categories must pay at least 50% of the cost of supply and tariff in respect of power intensive industries in EHT and HT category should be decreased as a tariff rise affects their competitiveness in the market place.
5.22	Computation of tariff on some facts indicated above will result in substantial increase in monthly fixed charges in LT category. To make the proposal more acceptable to the consumers it does not propose to fully recover the cost. CESCO has also pointed out that the cost of power purchase is beyond its control and CESCO must be insulated from such risk through institution of purchase power price adjustment clause.
5.23	Finally the MD stated that the existing tariff and charges for 1999-00 are inadequate to meet the estimated revenue requirement. Instead of recovery of the full revenue requirement from the proposed tariff a deferred revenue has been proposed so that this deferred revenue (Rs.158.27 crores) is proposed for recovery with interest from year 2003 over a period of three years. Unless the tariff revision is allowed it would result in negative networth and net losses which would restrict its ability to improve of condition of its assets and turn around of CESCO.

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 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 have 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 while determining 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	We have carefully considered the submission made on behalf of Bhubaneswar Municipal Corporation. But we are unable to find legal basis in the argument that the Corporation being a local authority should be exempted from paying charges for electricity consumed by it. Government offices are also obliged to pay charges for electricity that they consume for their own office and for providing service to others. There should be no confusion between taxes, duties and levies on the one hand and user charges for goods or service used. Whether electricity is used for public utility purposes or for personal consumption, someone has to pay for the charges of generation, transmission and supply of electricity. The Electricity Services Industry is entitled under law of economics as well as laws of the land to realise the charges from those who consume electricity. We find no legal mandate for exempting any user including Bhubaneswar Municipal Corporation for payment of electricity charges.
6.1.4	The suggested trade off between taxes and rents on one side and electricity charges on the other is not permissible under law.
6.1.5	Bhubaneswar Municipal Corporation has raised the issue of metering of street lights. Installing meters to measure the actual consumption has to be one of the priorities for the licensee and hence CESCO has to take steps as soon as possible with the cooperation of Bhubaneswar Municipal Corporation.
6.1.6	With regard to the request for creating a special category with concessional tariff for street lights we have to state that such an action is not in keeping with the tariff philosophy developed in pursuance of aims and objectives of Reform Act, 1995. Commission is committed to move away from categorisation on the basis of purpose of use so as to move toward voltage of supply basis. Further, we are mandated to reduce subsidies and cross-subsidies. In the facts of the case the Commission is unable to find validity in the objections raised by the counsel of Bhubaneswar Municipality.
6.1.7	With regard to the claim made on behalf of IPISTEEL Limited that as a BIFR case tariff determined in this proceeding is not applicable to it, we have to observe that this proceeding deals with CESCO’s application for determination of tariff and charges for all categories of cosumers. Any decision on tariff in individual cases is outside the purview of the present proceeding. The matter has to be taken up by M/s. IPISTEEL Limited with the licensee separately.
6.1.8	In course of the hearing, consumers of different categories 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 go beyond the principles incorporated in Section 26(2) and Section 26(5) of the Reform Act.
6.1.9	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.
6.1.10	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 shuld 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.
6.1.11	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.
6.1.12	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.
6.1.13	We, therefore, proceed to examine the revenue requirement and expected aggregate revenue from charges of CESCO for 1999-00 and subsequently to examine the tariff proposed by CESCO to give our findings and orders thereon in accordance with the extant law.

7.0	REVENUE REQUIREMENT
7.1	After its formation and obtaining licence for distribution and retail supply, CESCO has submitted for the first time its revenue requirement for the year 1999-00. Since 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 1997-98 and the data & records presented to the Commission by CESCO 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, CESCO has analysed the pattern of consumption of various groups of consumers for the year 1998-99. According to the analysis of energy sale mix between LT, HT, EHT consumers for the FY 99, LT consumption accounted for 59.14% while HT & EHT consumption accounted for 18.70% and 22.16% respectively. CESCO 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, studied the loss reduction initiatives and their impact on billing, analysed energy off-take by individual 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