5.0

NESCO’S REPLY TO THE OBJECTIONS

Shri S. K Anand, Executive Director of NESCO, replied to the various issues raised by the objectors.

5.1

NESCO stated that the proposed increase in tariff was based on a reasonably accurate estimate of the revenue requirement for the year 2000-01. Additionally the proposed tariff would be applicable for only a part of the year resulting in huge losses for the company. In order to ensure the viability of the power sector in the state of Orissa, it was necessary to balance the interests of the licensee and those of the consumers.

5.2

The retail tariff application of NESCO was well within the provisions of the Reform Act, 1995 and Sixth Schedule of the Act, 1948. The distribution and retail supply licence also required the licensee to submit its revenue requirement annually. NESCO has submitted the revenue requirement for 2000-01 and has requested for an adjustment in tariff to meet the revenue requirement. This is in accordance with regulatory framework prevailing in the State of Orissa.

5.3

A large number of LT consumers continued to pay tariffs much lower than their cost of supply. The process of cross-subsidisation has to be tapered off gradually due to socio-economic reasons. OERC recognises the need for cost based tariff. This process would be completed over time and cross subsidies would continue till such time.

5.4

Responding to the general objection of all objectors regarding high distribution losses, NESCO stated that it had already embarked on a massive metering plan and other projects which would strengthen the distribution system. The benefit of all these would accrue over a period of time. The targeted loss of 38% for the year 2000-01 was a stiff target and formed a reasonable basis for the tariff proposal.

5.5

Distribution loss during the last year was 43%. NESCO was taking a number of steps to reduce the system loss. Some of the measures were providing meter to new consumers, replacement of defective meters, strengthening distribution network, installation of 11 KV capacitors, commissioning of substations with small LT less transformers, strengthening vigilance activities etc.

5.6

Regarding EOUs request for creation of a sub-category of Power Intensive Industries to give benefit of competitive tariff NESCO had stated that similar proposal was placed before the Commission in its tariff application of 1999-00. But the same was not accepted by the Commission.

5.7

Replying to the objection raised by EOUs for continuation of provision of Demand Charge, NESCO stated that it was not possible to waive the same as the Bulk Supply Tariff prevailing is of two-part type. Even for those consumers having CD higher than 25 MVA the licensee is charged Demand Charges by GRIDCO.

5.8

The proposed colony consumption tariff was still lower than the proposed tariff charges for consumption by the EOUs.

5.9

Reacting to the suggestion for dispensing with the provision of DPS, NESCO clarified that the Commission might consider dispensing this provision if the same provision was dispensed with Bulk Supply dues.

5.10

Responding to the proposal made by EOUs for calculation of load factor on an annual basis, NESCO had given a negative reply. NESCO’s proposal envisaged calculation of load factor on monthly basis as the basis of billing should logically relate exactly to the billing period.

5.11

NESCO has not proposed any changes in the billing practice of charging monthly fixed charges.

5.12

Distribution Loss at 43% last year was calculated based on actual data. The reported loss of 43% was based on records and therefore the charges that the figures were manipulated stood refuted. All records of the Company might be verified to assess the actual level of loss suffered by the Company.

5.13

Computation of Employees expenses and A&G expenses was made after taking into consideration the details on expenses already incurred by NESCO. Fifth Pay Commission recommendations were already implemented before the business of transfer of distribution of electricity was made to NESCO.

5.14

The State Govt. has not paid any subsidy for supply made to Kutir Jyoti and irrigation categories so far.

5.15

Regarding revenue collection, NESCO was able to increase LT collection by about 26% during the last year over previous year. Further up to the month of November 2000 the LT collection in the current financial year had increased by about 37% over the same period in the last year.

5.16

Regarding creation of a special category of consumers NESCO clarified that there was no proposal for a special tariff separately for Power Intensive Industries. NESCO’s offer of special tariff as per clause 9.3 of Retail Supply Tariff Application was for all industrial consumers having contract demand of 25 MVA or above if they achieve load factor of 70% or above in any month. If these consumers failed to achieve the load factor of 70% in any month, they would have to pay for that month the normal retail supply tariff as applicable to the relevant consumer category.

5.17.1

Sincere efforts for improving consumer services and redressal of consumer grievances were being made through NESCO’s departmental network. Effective steps had been taken to form village committees and hold Bijuli Adalats. Constant efforts were made for improvement of the supply conditions as well as providing proper metering for the benefit and satisfaction of consumers. These are also periodically reviewed by OERC.

5.18

NESCO’s application was submitted basing on the present BST tariff and the question of resorting to high cost power did not arise.

5.19

The matter regarding improvement of supply conditions was to be considered separately from the tariff application.

5.20

Metering Project was being rigorously executed and monitored for maximization of benefit. Emphasis was being given for procurement of best quality meters.

5.21

The energy bills were being prepared and delivered as per the regulations and tariff and license conditions were not being violated.

5.22

The inadequacy of cash inflows to meet the cash outflows (expenses) had forced NESCO to delay payments to GRIDCO thereby creating liability of Delayed Payment Surcharge.

5.23

The objectors’ comments on Managing Director’s/Executive Director’s expenditure were unfortunate and not based on facts. With regard to employees expenses and A&G expenses, computation of such expenses have been made after taking into consideration the details of expenses already incurred by NESCO and expenses incurred during 1999-00. It was further clarified that A&G expenses incurred were as per actual requirement. Considering the size of turnover of the organization, the number of field offices it maintained and the no of numbers it services, the establishment and A&G expenses incurred by NESCO are quite reasonable.

5.24

The decision of removing LT lines by providing small transformer is technically sound. The company is using standard materials of good quality in the system. The work of providing LT switches for street light and common control for the same is in progress.

5.25

Different states have different tariff for different types of consumers. OERC is regulating tariff every year after elaborate scrutiny, public notice public hearing and having due regard to the actual expenditure etc.

5.26

Responding to GRIDCO’s objection NESCO has stated that the relationship between GRIDCO and NESCO is covered by Bulk Supply Agreement. Any disputes regarding payment are to be resolved as per the above agreement and the same may not be considered with this tariff application.

5.27

It is clarified that all data pertaining to accounts for the period 26.11.98 to 31.03.99 has been furnished by NESCO to GRIDCO. We would like to confirm that NESCO has also submitted to OERC the audited accounts for the year 1999-00. NESCO has already submitted data for energy requirement and load growth as requested by GRIDCO and OERC for planning purposes. This matter is to be considered separately from tariff application.

5.28

The methodology adopted by NESCO in submitting the tariff proposal is as stipulated by OERC. The figures given for debts, bad debts, interest on loan, interest on working capital are also as per requirements of OERC.

5.29

NESCO’S RESPONSE TO ISSUES RAISED BY DIRECTOR (TARIFF)

5.29.1

Distribution Loss

In earlier tariff orders OERC had defined the difference between total purchase and total sale as distribution loss. NESCO submitted that it had followed the same methodology for calculation of distribution loss in tariff application. In the list of queries of Director (Tariff) to NESCO, the distribution loss had been computed after removing the sale and purchase of EHT consumers. This method of calculation was neither correct nor was in line with the method adopted by OERC earlier.

The loss figures for the BSES companies for 1999-00 were ranging between 42-44% and the companies have targetted to bring the same to 38%. This also implied each company would achieve different rate of loss reduction with a common target. OERC might appreciate that there was no inconsistency in setting the loss target of 38% for the distribution company.

5.29.2

Pilot Study

Regarding the suggestion for pilot study to quantify T&D loss at different voltage of supply NESCO submitted that to carry out such studies necessary meters, metering units, meter boxes needed to be procured which would take at least 4 months. Besides all defective meters had to be replaced, unmetered supply to be metered, consumer data to be sanitized and unauthorised connections to be regularised prior to conducting such a study. NESCO therefore anticipated that such a study could be started some time in April 2001 and the first set of results would be available by September 2001. NESCO proposed to carry out a study in one 11KV feeder covering about 25 to 30 distribution transformers in the initial stage.

5.29.3

Special Tariff

Referring to the proposed special tariff NESCO pointed out that the total rebate on account of this tariff was Rs.17.17 crores out of which Rs 0.27 crores had been estimated towards rebate for timely payment. The balance rebate of Rs.16.90 crores represented the difference between the total revenue at proposed retail tariff and the revenue to be realised if special tariff was to be offered. NESCO’s proposed tariff for industries above 25 MVA was based on considerations of capacity, load factor and power factor. If any consumer failed to achieve in any month, the consumer should be charged at normal RST. The idea of a special tariff was to encourage the consumers to opt for grid power instead of captive power generation. Any increase in consumption by these industries would mean availability of higher crosss-subsidy to LT consumers. This justified the rebate on account of special tariff.

NESCO clarified that it did not have any special affinity towards EOUs. In fact EOUs for NESCO were like any other consumer. Considering the poor industrial base of the State of Orissa and the vast mineral resources that it was endowed with OERC in the last tariff order had formulated a special tariff for consumers having contract demand of 100 MVA with load factor 80% and above. NESCO’s proposal was along that line of thinking of OERC and had the objective of attracting new consumers with high load factor and demand.

5.29.4

Security Deposit

Following the Sixth Schedule ‘Capital Base’ meant the capital investment made for long term use by the licensee for the creation of long term assets as well as funds committed for long term working capital use. Thus licensee was eligible to get reasonable rate of return on its long term capital investment.

Going by the current practice no part of the consumer security deposit was used for long term investment. On the other hand when an agreement was terminated the consumer security deposit was refunded/adjusted against the consumer’s Energy Charges. Hence the consumer security deposit was not deducted from the asset base for calculation of capital base. NESCO further pointed out that in the transfer document also the consumer security deposit had not been shown under long term liability.

5.29.5

Penal Interest

NESCO submitted that it had not been able to make timely payment of loan installments due to poor cash inflows and the earlier deficit tariff order. The payment of penal interest was therefore not due to the inefficiency of NESCO. The licensee requested OERC to approve penal interest on loan.

5.29.6

Working Capital Interest

NESCO could not avail of working capital assistance from any financial institution due to its poor financial condition. That is why the licensee was unable to pay the power purchase bills of GRIDCO in time. The inadequacy of cash inflows to meet the cash outflows had forced NESCO to delay its payment to GRIDCO. This had resulted in accumulating arrears and delayed payment surcharge.

NESCO had applied to IFC for long term loan to meet long term working capital needs which would reduce its DPS liability. The licensee therefore requested to allow working capital interest on long term working capital borrowed.

5.29.7

DPS to GRIDCO

As pointed out above the inadequacy of cash inflows to meet the cash outflows had forced NESCO to delay its payment to GRIDCO and subsequently pay DPS. NESCO submitted that the previous tariff order was a deficit order and revenues from tariff were not adequate to meet the expenses. The licensee requested OERC to approve the DPS figures.

5.29.8

Capital Expenditure

As per the audited accounts of the Company for 1999-00 the total capital expenditure incurred by NESCO was as follows :

5.29.9

Carry Forward of Past Losses

Following the Sixth Schedule special appropriation could be made sufficient to cover previous losses. The losses incurred by NESCO during 1999-00 was of the order of Rs.74.74 crores. NESCO has proposed to include an amount of Rs.7.26 crores only for recovery through tariff in the ensuing year to avoid a sharp increase in tariff. The balance loss would be recovered through tariffs in future years. The licensee confirmed that the loss had been due to inadequate tariffs and the same needed to be recovered.

5.29.10

Valuation of Assets

NESCO’s assets had been acquired from GRIDCO as on 01.04.1999 and the value of the assets as on that date was the purchase price for the licensee. NESCO treated the assets as new even if the assets were second hand. NESCO had computed depreciation treating assets as new.

5.29.11

Metering

NESCO had installed 38935 meters and replaced 14682 defective meters during 1999-00. The company had also installed 38767 single-phase meters during the period from April to October 2000 and arrangements had been made to procure two lakh single phase meters. The Company took some time to arrange for the procurement of meters and large proportion of these meters were installed in the later part of the year. The company had already made detailed programme of procurement and installation of meters. NESCO requested for continuation of the present load factor percentage as an appropriate load factor which could provide a correct incentive for adoption of metering by consumers. The licensee might otherwise face much more resistance for meter installation in case the load factor was revised downward.