WESCO has submitted its revenue requirement for the year 2000-01 in September, 2000. The Commission has for the purpose of analysing the revenue requirement has relied on audited accounts submitted by WESCO for the Financial Year 1999-00 as well as data & records presented to the Commission and has carefully considered the facts and arguments placed by the objectors during the hearing.


Quantum of Power Purchase


WESCO purchases power at different supply points from GRIDCO for supply to consumers in its area of licence. The requirement of power purchase is directly related to the quantum of energy sold to the consumers and the transmission & distribution loss occurring in the licensee’s system. While estimating energy sale for 2000-01, WESCO has analysed the pattern of consumption of various groups of consumers for the year 1998-99, 1999-00 and projected theses figures for the financial year 2000-01 in the format prescribed by OERC. According to the analysis of energy sale mix between LT, HT, EHT consumers for the FY 2000, LT consumption accounted for 43.77 % while HT & EHT consumption accounted for 23.48% and 32.75% respectively.


The Commission in its query to the licensee pointed out that there appears to be no correlation between the growth projected for the year 2000-01 and the growth achieved during the year 1999-00. This was also raised by some of the objectors who stated that by projecting a higher than expected growth rate in LT, the licensee is trying to project a higher revenue requirement in the form of higher power purchase and trying to show a lower estimate of expected revenue due to low tariff rate of this sector.


In case of domestic consumers a growth rate was 33.37% in consumption was recorded in the year 1999-00 over the previous year due to change in load factor for unmetered consumers, growth of consumers, regularisation of unauthorised consumers and increase in consumption by existing consumers. WESCO in OERC form No. T-1 has given the number of consumers, their connected load and estimated the consumption for the year 2000-01 which works out to a rise of 22.08% for the year 2001 compared to the year 1999-00.


WESCO estimates a growth of 10.06% for commercial consumers based on the trend of consumption of the first quarter of the year 2000-01.


In case of irrigation consumers WESCO is reportedly taking steps for metering of unmetered ones. They estimate that the metering of the consumers in this category will substantially raise the billing position compared to the load factor billing. Taking the growth in number of consumers and contract demand WESCO estimates a rise of 27.59% in this category as submitted to OERC in Form No. T-1.


In case of HT category of consumers the growth rate of 2.04% is estimated for the year 2000-01 based on the trend of consumption of 1st quater of the year 2000-01. Similarly, in case of EHT category of consumers WESCO presume a growth rate of 12.9% for the FY 2000-01 based on trend of consumption of the 1st quater of the FY 01. The growth consumption is partly attributable to the reduction in captive generation due to incentive tariff in force.


The Commission analysed the consumption of various groups of consumers and studied the consumption of all HT & EHT consumers. A detailed analysis of the billed units of the LT consumers particularly the domestic and commercial consumers without meters or with defective meters was also carried out. Consumers with correct meters are billed on the basis of actual meter reading whereas others with defective meters or no meters at all are billed on the basis of a load factor. The Commission has prescribed detailed formats to determine the consumption for all such consumers. After examination of the details submission and after examining the view of the objectors the Commission accepts the figure of consumption proposed by the licensee for the purpose of revenue requirement for the year 2000-01 as furnished in OERC Form No. T-1.


Estimated level of consumption at various service level of voltage are given below :-


Consumption in MU)










This is an increase of about 12.77% over the sale in FY 1999-00. This aspect was examined at the Commission’s end. A comparative picture of the consumption of the previous two years along with projection of 2000-01 as presented by the licensee in it’s filing in September-2000 is given below :-

Consumption in MU

























WESCO has given an analysis about the pattern of consumption for the consumers covered under LT category, HT category and EHT category in para 8.1 of their RST application and details in OERC Form No. T-1. WESCO have stated that the distribution system of the licensee is charaterised by high degree of non-technical distribution energy loss. Reduction in commercial losses mostly in LT would contribute either in reduction of purchase of energy or increase in the quantum of energy billed in LT segment. On that consideration they propose a higher growth rate in LT category than HT category.


Transmission & Distribution Loss


WESCO has estimated T&D loss at 38% for 2000-01. It has stated that for the year 1999-00, the estimated loss figure is 44.1%.


WESCO’s estimation of the overall loss percentage of 38% does not include the loss at EHT which is being recovered by the Transmission and Bulk Supply Licensee i.e. GRIDCO, through the Bulk Supply Tariff. In effect, therefore, the end-use consumers as per WESCO's proposal would have to bear the EHT loss passed through in the BST in addition to 38% loss proposed by WESCO.


Majority of the objectors were concerned about the reporting of very high level of loss in the transmission and distribution system of the licensee particularly after the privatisation which under SEB management used to be recorded at lower level.


The authenticity of loss level projected by the licensee has not been supported with verifiable data to ascertain correctness of the projection in the absence of metering in large number consumer premises. The Commission's suggestion to conduct a fresh pilot study to establish commercial and technical loss should have been completed. Such a study requires 100% metering for consumers connected to a selected number of distribution transformers in selected feeders with mixed load.


It was also pointed out by the objectors that three distribution utilities namely WESCO, NESCO and SOUTHCO have reported an overall distribution loss level of 38% while their direct sale to EHT consumers are different. If EHT sale is taken out from the total sale from these companies then the distribution loss as a percentage loss of HT and LT input works out to 47.72% for WESCO, 48.1% for WESCO and 41.47% for WESCO.


The objectors also pointed out that the loss is being computed taking into account even the zero loss EHT energy input into the system to show reduced level of loss. Secondly, this number is arbitrarily fixed and the data is manipulated to justify the loss figure. Therefore, the loss projection is entirely arbitrary and without any basis and hence it should not be accepted.


There were variations in the loss projection made by the objector though there were general suggestions of adopting overall loss level of 32% including 3.5% towards transmission loss. The objectors were unanimous in their opinion that this high level of T&D loss has remained uncontrolled during the past three years and should have been brought down.


The Commission is very much concerned about the reported high loss level in the system and the fact that there is no appreciable decline in the level of loss. This has a serious bearing on the revenue and finance of the licensee and hence the tariff.


The Commission, therefore, has the unenviable task of fixing a level of loss in the absence of verifiable and reliable data and apply value judgement that should be fair, reasonable, acceptable, achievable and financially sound. Any arbitrariness on the part of the Commission will either affect the financial viability of the licensee or unduly burden the consumers.


It may be relevant to note that high T&D loss is not an isolated phenomenon in Orissa. The T&D loss figures being gradually revealed in reforming states of Andhra Pradesh, Delhi, Haryana, Maharashtra and Uttar Pradesh are presently at the level of 52%, 55%, 36.6%, 32% and 36.5% respectively even before actual privatisation.


In fact it is this Commission which for the first time in India identified and quantified the crucial importance of T&D loss level and linked it to tariff fixation. T&D losses of more than 35% have never been allowed by this Commission to be passed on in tariff in spite of reporting as high as 47.31% (1997-98 audited account). On the contrary, this level of benchmark has been perceived to be unrealistic and unacceptable by the World Bank team, by GRIDCO and by the Distribution Companies. Even with the said 35% benchmark there might be substantial gap between revenue requirements of Licensees and anticipated revenue at the existing tariff rate.


The reporting of loss level and target reduction by 2004-05 as proposed by the various distribution companies are given below. This does not include losses in EHT transmission.

Distribution Loss (%)





1998-99 (as per filing)





1999-00 (as per filing)





2000-01 (Target)





2001-02 (Target)




2002-03 (Target)




2003-04 (Target)




2004-05 (Target)





The Commission directed during the course of hearing that the distribution licensees must now carry out pilot studies for determination of technical and non-technical loss in their system for a period of six months from April, 2001 to September, 2001 and submit the same to the Commission after which the Commission will take a view on loss reduction programme. The Commission intends to obtain a commitment for an accelerated T&D loss reduction programme giving year-wise targets for loss reduction till the year 2010. But this has to wait until the pilot studies are made and reasonably reliable data base is built. For the purpose of calculation of revenue requirement the Commission has decided to adopt an overall loss level of 34% including the losses in EHT transmission system which is around 3.7% for the year 2000-01. On this basis the distribution loss works out to 31.46%.


Since WESCO proposes to sale 1692.50 MU, power to be purchased by GRIDCO for supply to WESCO after adding 34% loss is determined as 2564.39 MU. WESCO’s purchase from GRIDCO should be limited to 3.7% (being the approved transmission loss in EHT) less than what is purchased by GRIDCO for supply to WESCO. For the purpose of revenue requirement, WESCO has to purchase only 2469.51 MU to meet its sale requirement of 1692.50 MU for the year 2000-01. The system loss in WESCO is 2469.51-1692.50 = 777.01 MU. This loss of 777.01 MU expressed as a percentage of input to the WESCO system is 31.46%. Therefore, the distribution loss allowed to WESCO for the purpose of revenue requirement is 31.46%. The end use consumer has to pay for 34% of T&D loss as approved by the Commission. For simplicity of presentation, we have abstracted the above calculation in Table : 4.

Table: 4

Sale projected by WESCO

1692.50 MU

Power to be purchased by GRIDCO for WESCO applying a loss level of 34%

1692.50/0.66 = 2564.39 MU

Power to be purchased by WESCO from GRIDCO less loss of 3.7% at EHT

2564.39X0.963=2469.51 MU

Energy loss in WESCO’s system

2469.51–1692.50 = 777.01 MU

Distribution loss of WESCO’s system

777.01/2469.51 = 31.46%


Cost of Power


WESCO has to purchase 2469.51 MU from GRIDCO at the rate of Rs.200/KVA/month + 101.74 paise/unit approved separately by the Commission in BST order dtd.19.01.2001 (Case No.27 of 2000). The Commission has examined the power purchase bills of WESCO for April, 1999 to March, 2000. The bill details have been supplied by WESCO in its clarification submitted to the Commission in the clarification on Retail Supply Tariff of 2000-01. The average cost per unit of power purchased from GRIDCO for the months of April, 1999 to March, 2000 is Rs.126.84 paise/unit. The rate/unit payable by WESCO would be under revised tariff 141.88 paise/unit. The cost of power @ 141.88 paise/unit for purchase of 2469.51 MU would, therefore, be Rs.350.39 crores instead of Rs.347.42 crores asked by WESCO at an average rate of 127 paise/unit. The impact of Bulk Supply Tariff was not taken into consideration while the filing for the Retail Supply Application was made by WESCO in the month of September, 2000. The DISTCOs have stated that the OERC has been disallowing power purchase expenses on the basis of consideration of distribution loss benchmark. While considering the purchase cost of power, the Commission instead of considering the energy charge and demand charge separately as a composite rate of energy charge and demand charge. Thus the proportionate maximum demand charges also get automatically disallowed. This is not in line with ground realities or technical basis for the process of distribution loss reduction. Most of the commercial loss is in LT segment where there is no maximum demand charge. As measures are taken for reduction of distribution loss, the consumers economise on energy consumption by reducing the hours of usage and very rarely the maximum demand during peak hours gets reduced. Therefore, there is no valid basis for disallowing maximum demand charges payable to bulk suppliers on account of consideration of distribution loss benchmark.


The submission made by WESCO is without any relevant basis as in case of a two part tariff the per unit average rate of a consumer is dependent on the load factor of its operation. Accordingly, the Commission decides that for the purpose of calculation of revenue requirement 141.88 paise/unit is considered for determination of revenue requirement of WESCO for the FY 2000-01.


Operating Expenses


The operating expenses for distribution and retail supply may be considered under the following heads:-

Employees Cost
Administration & General Expenses
Repair and Maintenance Expenses
Less expenses capitalized


Employees Cost


WESCO has proposed Rs.56.92 crores for the FY 2000-01 towards Employees Cost which includes a sum of Rs.5.05 crores towards contribution to PF and Pension, and Rs.1.22 crores on account of gratuity (OERC Form No. F-12). WESCO has stated that actual employees expenses of 1999-00 have been audited by independent auditors and WESCO projects an estimated increase of 9% over the actual expenditure for the year 2000-01 principally on account of higher payment of DA to employees. WESCO has also stated that due to structural changes and packages of employees since 1997-98, extrapolation of data pertaining to the previous year of 1997-98 as was done for the year 1999-00 will not hold good. As per the audited accounts submitted by WESCO for the year 1999-00, the expenses on employees includes PF and gratuity is Rs.56.45 crores. In response to the Commission’s query WESCO has submitted item wise detail of employees cost for the year 1999-00 based on audited accounts.


Employees expenses includes Basic Pay, DA, Bonus, Reimbursement of Medical Expenses, Reimbursement of House Rent Allowance, Encashment of Earned Leave, Staff welfare, Terminal Benefit (PF contribution/pension, gratuity) and other expenses.


Commission analysed the figure based on the audited accounts of the FY 1999-00 submitted by the licensee and considers appropriate to escalate 8% over the audited figures to factor in inflation but limiting the expenses to Rs.56.92 required by the licensee. Accordingly Commission accept the figure of Rs.56.92 crores towards employees cost for the year 2000-01.


Administration & General Expenses


WESCO has proposed A&G expenses for the FY 2000-01 as Rs.6.95 crores (Form F-23). These expenses include expenses on communication, professional charges, property related expenses, conveyance and travelling, training, other expenses and material related expenses. The A&G expenses are said to be based on actual expenses incurred during current year and budget estimate for ensuing year.


The Commission has examined the Licensee’s proposal on A&G Expenses. A&G expenses as per the audited accounts for 1999-00 submitted by WESCO was Rs.5.81 crores. Considering the disaggregated audited figures of 1997-98 as base and allowing 6% over it to factor in for inflation the Commission in its last tariff order of dated 31.12.99 had approved Rs.2.79 crores towards A&G expenses for 1999-00 for WESCO.


Objectors in general expressed concern about rising trend in A&G expenses and requested that this expenditure should be kept under control preferably limiting to the percentage hike of about 5%.


The Commission finds the projected A&G expenses rather excessive with reference to earlier expenditure and volume of transaction which has not increased. The projection includes lease rental of Rs.46 lakhs for the year 2000-01. There is no justification of lease rental for meters when a sum of Rs.14.08 crores is being allowed as capital expenditure under the head metering for the financial year 2000-01.


A&G expenses includes a sum of Rs.90 lakhs as expenditure related to micro-privatisation and village committee for the year 2000-01. The Commission appreciates introduction of innovative schemes particularly those which are participative consumer friendly and aims at reaching the rural consumer while safeguarding financial interest of the company. But at the same time, Commission observes that the benefit accruing on account of introducing the scheme should offset the expenditure proposed to be incurred. The tangible benefits like improvement in percentage of billing and collection, reduction in bad debt, reduction of transmission and distribution loss, etc. should have been projected along with the proposed expenditure. The licensee should have particularly brought out the additional revenue earned from the area where the micro-privatisation scheme is in operation over the corresponding figure of the previous year. Such a reporting has not been done. Before admitting an expenditure on such a new and innovative scheme, the Commission would like to be convinced of the cost-effectiveness of the scheme. Within six months from this tariff order a report must be filed proving the utility and cost-effectiveness of this venture of micro-privatisation.


The Commission considers it reasonable to allow an increase of 8% over the approved figure of 1999-00 to factor in inflation. Over and above the figure, an amount of Rs.50.00 lakhs is allowed for licence fee, and Rs.50 lakhs towards organisation development expenses for micro-privatisation. Thus total A&G expenses is approved at Rs.4.01 crores against an amount of Rs.6.95 crores proposed by licensee.


Repair and Maintenance Expenses


The R&M expenses proposed by WESCO is Rs.16.47 crores for the FY 2000-01 as against actual expenses and approved expense for 1999-00 at 15.46 and 14.43 crores respectively. The projected estimate of 16.47 crores is based on 5.4% of Gross Fixed Asset.


The Commission examined the licensee's proposal on R&M expenses and considers it reasonable to allow 5.4% of gross fixed asset as at the beginning of the year 2000-01. WESCO in their audited accounts of 1999-00 continues to show the fixed asset at Rs.267.16 crores, which is the same figure indicated in the transfer notification of 25.11.98. In the annual accounts of 1999-00, no asset addition is shown during 1999-00. Therefore, the Commission allows Rs.14.43 crores i.e. 5.4% on base of Rs.267.16 crores for the year 2000-01 and not on the projected asset base of Rs.305.00 crores.


Interest on Loan


WESCO proposed an amount of Rs.29.86 crores towards interest on loans taken from GRIDCO and from World Bank to be charged to revenue. The interest amount on the loan from GRIDCO has been calculated as per the loan agreement with GRIDCO and the interest amount on loan from World Bank has been calculated @ 13% as per the subsidiary loan and project implementation agreement with Govt. of Orissa. Regarding interest capitalised WESCO has stated that interest on loan drawn during the year 2000-01 have been capitalised.


It is seen from the Form F-12 of the filing that total amount of interest both charged to revenue and capital expenditure is of the order of Rs.33.28 crores including interest during construction of Rs.3.42 crores proposed during the year 2000-01.


An extract of loan & interest details as submitted by WESCO in OERC Form No.F-27 is given in Table : 5

Table : 5
(Rs. in crores)



Particulars of loan raised

Amt. Of drawal

Date of drawal

Interest rate (%)

Bal. of loan at the beginning of the year

Bal. of loan at the end of the year

Int. for 00-01

Penal Int. for 00-01


Creation of capital assets

Rupee loan (as per agreement with Gridco 28.10.99)










Drawn during











Drawn during









Govt. of Orissa

Creation of capital assets

World bank Loan as per the subsidiary loan & project implementation agreement 25.3.2000










Drawn during











Drawn during










Creation of capital assets




















The Commission examined the calculation and also the audited accounts of 1999-00 submitted by licensee. It is found from the audited accounts that WESCO has not added any asset during 1999-00. As on 31.3.2000 it continued to show the same fixed asset figure of Rs.267.16 crores as mentioned in Schedule-C, Part-III of Transfer Notification dtd.25.11.98.


WESCO has proposed charging of Rs.24.45 crores as interest for the FY 00-01 excluding penal interest. This amount of Rs.24.45 crores includes interest during construction of Rs.3.42 crores as given in Form No. F-2. In form No.F-2, WESCO has indicated that asset worth Rs.37.84 crores has been transferred to fixed asset during the year 1999-00. As verified from accounts of 1999-00 submitted by WESCO there has been no asset addition during the said year. Therefore, Commission considers, the entire expenditure during 1999-00 and proposed expenditure during 2000-01 to be treated as CWIP and the interest thereon for the year 2000-01 is to be treated as interest during construction. Accordingly the IDC for the year 2000-01 will be Rs.6.22 crores as against Rs.3.42 crores proposed by WESCO. Thus the amount chargeable to revenue will be Rs.24.45 crores less Rs.6.22 crores or Rs.18.23 crores excluding the penal interest of Rs.8.83 crores.


The Commission examined the issue of penal interest of Rs.8.83 crores. The licensee is bound by agreement to pay the interest in time to the lenders and penal interest if any cannot be passed on to the revenue requirement to burden the consumers. Accordingly, the sum of Rs.8.83 crores claimed by the licensee for passing to the revenue requirement is disallowed.


Thus the Commission approves a figure of Rs.18.23 crores as chargeable to revenue excluding Rs.6.22 crores due to capitalisation of interest.


While proposing an amount of Rs.7.18 crores towards interest on working capital. WESCO have stated that they have not availed any working capital loan from bankers to pay to GRIDCO the full amount of BST bill. They have estimated an amount of Rs.7.18 crores towards DPS for the year 2000-01, being 2% per month as outstanding amount of power bill.


WESCO in its clarification dtd.21.10.2000 stated that they are forced to pay DPS to GRIDCO because of serious liquidity problem faced by company. This has happened due to severe loss by company. As stated in the application licensee has approached UBI, IFC, SBI, etc. for raising working capital loan which has not been materialised so far. The only alternative available to them was to pay DPS to GRIDCO. The Commission also examined the points raised by the objector that no DPS payable to GRIDCO should be allowed to be passed on to the consumers as the Commission has provided adequate revenue for prudent operation. Additional cash by way of depreciation and return are available for the WESCO to have adequate cash flow. The Commission is of the opinion that the interest on working capital of Rs.7.18 crores requested by WESCO to pay DPS for their failure to discharge power penalty to GRIDCO cannot be treated as an expenditure properly incurred on running the business of the company.


The Commission while calculating the capital base as provided in the Sixth Scheduled of the Act, 1948 made provision towards working capital on which the licensee is entitled to get reasonable return.




WESCO has proposed depreciation of Rs.23.59 crores on an asset base of Rs.305.01 crores as on 31.3.2000. It has adopted the straight line method as prescribed by Govt. of India, Ministry of Finance, Notification No. SO-765-E dtd. Nov. 6, 1997.


The provision of depreciation was raised by many of the objectors during the course of the hearing.


One of the objectors claimed that depreciation should have been calculated on the basis of notification Ministry of Power, Govt. of India dtd. March, 1994 and not on notification dated 6.11.97 of Govt. of India. He stated that asset being second hand the rate of depreciation has to be determined by the competent Govt. in each case "having regard to the nature, age and conditions of the assets at the time acquisition". He had also made a point that in case of 30-40% of the total assets procured by OSEB depreciation upto 90% of asset value must have been recovered on which no depreciation should be charged. He also raised the issue of maintenance of fixed asset register and stated that cumulative depreciation of any asset should not exceed 90% of the original cost of asset.


One suggestion was that correct calculation of depreciation as per Govt. of India’s circular should be made after dividing the assets into blocks at the time of revision of percentage of depreciation, if it is not possible for OERC to deviate from Govt. of India norms. Depreciation already collected and balance to be collected for each block of assets should be exhibited in registers by GRIDCO and DISTCOs within a time frame to be fixed by OERC.


The Commission noted the objections filed with the Commission and raised during the course of hearing, the rejoinder submitted by the licensee, took note of the auditor's observations for the year 1999-00 and would like to state that the Govt. of India, Ministry of Power Notification No. 265-E dtd.27.3.94 shall be applicable for the purpose of calculation of depreciation of the licensee.


The provisions of CBDT notification quoted by the licensee and raised by the objectors is not applicable in this case as depreciation for companies engaged in the generation or supply of electricity, is guided by provisions of the Electricity (Supply) Act, 1948 (LIV of 1948)" and not Companies Act.


The Commission in its conceptual issues on tariff paper in Issue No. 6 has stated that "tariff will be based on depreciated book value as set out in the transfer scheme adjusted for subsequent addition and depreciation." The Commission in its previous tariff order has already accepted the transfer value of assets appearing in the Transfer Scheme notification by Govt. of Orissa for determination of the book value assets. Obviously the base line for calculation of fixed assets has been the Transfer Scheme Resolution of March, 1996 which has been sanctioned by legislation.


The Commission took note of the observation noted in the audit report for the year 1999-00 that the gross block of fixed assets and the depreciation on the same are subject to finalisation and that the Fixed Assets Register is not maintained and individual break up of fixed assets is not available.


The Commission, directs WESCO to comply with the observation raised by their statutory auditors before 30th of september, 2001 i.e. well before the filing of revenue requirement (15th December to 31st December 2001) for the year 2002-03. Once an asset register is built, recovery upto 90% of the asset value can be monitored.


According to the provisions of the Electricity (Supply) Act, 1948, depreciation for the year should be calculated on the gross fixed asset existing at the beginning of the year. Audited Accounts of WESCO for the year 1999-00 reveals that the gross fixed asset of the licensee as on 31.3.2000 is Rs.267.16 crores and nothing has been transferred to fixed assets during the year 1999-00. The Commission accordingly approves an amount of Rs.20.62 crores for depreciation for the year FY 01 as shown in Table : 6

Table : 6
Calculation of depreciation
(Rs. in crores)

Opening balance of fixed assets as on 01.4.99


Addition during 1999-00


Gross assets as on 01.4.2000


Depreciation on the asset of Rs.267.16 crores

Applying the rates applicable



Bad and Doubtful Debt


WESCO has proposed Rs.23.25 crores as Bad & Doubtful Debt during 2000-01. In the audited accounts of WESCO for 1999-00, Rs.21.08 crores has been provided for the purpose of Bad & Doubtful Debt.


WESCO has provided an age wise analysis of outstanding debits. As per the said analysis WESCO has stated that Rs.150 crores are outstanding for more than 36 months out of the total outstanding of Rs.286 crores.


In their application WESCO had provided 5% of the total billing to be kept for Bad & Doubtful Debt for an amount of Rs.21.08 crores increasing the provision from Rs.104.28 crores to Rs.125.36 crores as on 31.3.2000. For the year 2000-01 Bad & Doubtful Debt has been claimed at 4.31% of the total billing for an amount of Rs.23.25 crores. With addition of Rs.23.25 crores to the cumulative provisions as on 31.03.2001 may reach Rs.148.71 crores which is close to the figure of arrears beyond 36 months.


Many objectors have questioned the provision of such a high amount of Rs.23.25 crores towards Bad and Doubtful debt. They have urged to disallow the provision except a token amount so that the licensee is not allowed a premium on its inefficiency in collection.


The Commission examined the proposal submitted by the licensee and analysed the suggestions and objections raised by the objectors during the hearing. The Commission is also concerned at the inefficiency of the licensee in collecting the dues arrears. However looking at the reality of the situation and as approved in the last tariff order it decides to permit 2.5% of the gross sales as provision for bad debts as against 4.31% claimed by the licensee. On this basis, the Commission approves Rs.12.65 crores as Bad and Doubtful Debt allowed for recovery through tariff.


Contribution to Contingency Reserve


WESCO has proposed a statutory appropriation towards contribution to contingency reserve calculated at 0.375% on the opening gross block for the applicable year. This works out to Rs.1.14 crores and the amount requested is within the limit prescribed in the Sixth Schedule to the Act, 1948 and hence the sum of Rs.1.14 crores is accepted in full for recovery through tariff.


Carry Forward of Past Losses


WESCO has made a provision of Rs.20.34 crores being 1/3 rd of the past year’s losses to be recovered through tariff (Form No. F-12). It has stated that as per the provision of the Sixth Schedule of the Act, 1948, special appropriation can be made sufficient to cover previous losses (that is to say excess of expenditure over income) which has arisen from the business of electricity supply to the extent in any year. As per the Audited Balance sheet the losses incurred by WESCO during the year 1999-00 were Rs.58.19 crores. To avoid the sharp increase in tariff, WESCO has proposed to include an amount of Rs.20.34 crores only for recovery through tariff now and to carry forward the balance loss for recovery through future tariff. WESCO confirms that all the expenses incurred are prudent and the losses have been due to inadequate tariffs and the same need to be recovered through tariffs only.


We are unable to agree with the proposal high T&D loss. The losses of the company could have been on account of inefficiency in operation, non-observance of the parameter prescribed by the Commission, inadequate measure for reduction of cost, etc. Nowhere in the filing the licensee has brought out details justifying recovery of this loss through tariff. As such, the Commission cannot allow recovery of losses from the consumers of the licensee for the year 2000-01. Logical interpretation of appropriation provision in the Sixth Schedule leads us to believe that if there is excess of income order expenditure, a part of the excess amount can be appropriated towards past losses. In this case there is no excess over income and hence there is no scope for special appropriation.


Capital Base


Original Cost of Fixed Assets

WESCO has projected its original cost of fixed assets at Rs.350.19 crores as on 31.3.01 in Form No.F-14. Fixed asset as on 31.3.99 was Rs.267.16 crores (F-37). WESCO shows an asset addition of Rs.37.85 crores during 1999-00 and projects an addition of Rs.45.18 crores during FY 01 (F-2) bringing the total asset position to Rs.350.19 crores as on 31.3.01.

This has been examined with reference to the audited accounts for the year 99-00 submitted by WESCO. It is pointed earlier in the preceeding para that there has been no addition to the fixed asset during 99-00. Since nothing has been transferred to fixed asset during 1999-00, the position of the fixed assets remain unaltered at Rs.267.16 crores as on 31.3.2000.

Audited reports for 1999-00 does not reflect transfer of any fixed asset though it was planned to transfer Rs.37.58 crores in the year. Therefore the Commission considers that the proposition of transfer to fixed asset of Rs.45.18 crores during 2000-01 is likely to continue to remain in work in progress. Therefore, the position of fixed asset as on 31.3.2001 is treated as Rs.267.16 crores. The capital expenditure during the year 1999-00 and the expenditure proposed during 2000-01 will be treated as CWIP for treatment in capital base until audited accounts for the year 2000-01 reveals transfer to fixed asset.


Receipts against Consumers Contribution


Contribution from consumers of Rs.50.73 crores as on 31.3.2001 has been deducted by the licensee from fixed asset for calculation of capital base. This is accepted by the Commission for calculation of capital base for the year 2000-01.


Original cost of Work In Progress


For the purpose of Capital Base calculation, WESCO has projected Rs.40.39 crores towards original cost of work in progress as on 31.3.2001. The comparative position of capital expenditure during the year 99-00 and proposed during 00-01 is given in the Table : 7.

Table : 7
(Rs in crores)







Rural Electrification






System improvement & others







The expenditure of Rs.9.27 crores shown against R.E. works in the above table should not be taken into consideration in CWIP as the Commission has recommended to the Govt. to provide grant in aid/capital subsidy to the licensee the entire capital expenditure incurred during 1999-00. The Commission has also recommended that the licensee shall not claim any subsidy from State Govt. for future years. This will obviate the necessity of annual revenue subsidy payment by govt. from year to year. It was also stated that the assets created out of the grant-in-aid will not be considered for the purpose of capital base and hence will not earn any return. Any revenue loss for undertaking such un-remunerative R.E. work shall be subsidised by general pool of consumers. Same approach will also be applied for R.E. works for the year 2000-01. Accordingly, for the purpose of calculation of capital base Rs.9.27 crores and Rs.2.71 crores totaling to Rs.11.98 crores will be taken out from CWIP. CWIP as on 31.3.99 was Rs.32.29 crores. The total CWIP as on 31.3.2001 will be Rs.121.66 crores excluding Rs.11.98 crores for R.E. works. The calculation is given below.

CWIP as on 31.3.99

Rs.32.29 crores

Expenditure for 1999-00

Rs.44.51 crores

Capital expenditure 2000-01

Rs.48.09 crores

IDC for 1999-00

Rs.2.53 crores

IDC for 2000-01

Rs.6.22 crores


Rs.133.64 crores

Less R.E. works

Rs.11.98 crores


Rs.121.66 crores


Thus Rs.121.66 crores will be considered for calculation of capital base. The licensee proposes huge expenditure without corresponding load growth which will bring a burden to the consumers of the State unless there is reduction in transmission and distribution loss. The licensee is also showing an expenditure of Rs.19.96 crores on metering alone during 99-00 and 00-01. This itself should bring about perceptible improvement in reduction in commercial losses, improved billing and revenue to the licensee. It is, therefore, necessary that a higher targeted level of loss reduction should be aimed by the licensee instead of showing only 3% per annum.


Compulsory Investment under Para IV


In OERC Form No. F-33 WESCO has shown balance of contingency reserve as on 01.4.99 as Rs.0.93 crores. During the year 1999-00 WESCO shows an appropriation of Rs.1.00 crore. Thus the balance at the end of 31.3.00 is Rs.1.93 crores which should have been invested in accordance with para IV(2) of the Sixth Schedule of the Act, 1948 for inclusion in the capital base. No document regarding this investment has been produced to the Commission.


The appropriation for the year FY 2000-01 is shown as Rs.1.14 crores to be deposited before September, 2001. As such the Commission does not consider it necessary to take this Rs.1.14 crores for the purpose of capital base for FY 2000-01.


Working Capital


Average cost of stores

According to para XVII(e)(i) of the Sixth Schedule of the Act, 1948, a sum equal to of one-twelfth of the sum of book cost of stores, materials and supplies including fuel on hand at the end of each month of the year of account should be taken into account as working capital for calculating the capital base. WESCO has proposed Rs.7.54 crores on this head.

The Commission examined the proposal of WESCO. A stock of three months’ consumption of materials at any particular point of time can be considered reasonable. Accordingly the Commission approves one-forth of the total annual consumption of materials i.e. Rs.3.61 crores as reasonable for the purpose of working capital for stores to be included in the capital base.


Average Cash and Bank Balance


WESCO has proposed Rs.9.42 crores for the FY 2000-01 computed on the basis of the provisions laid down in Sixth Schedule of the Act, 1948. WESCO in form F-19 has given the provision of monthly cash balance from April, 99 to March, 2000 and projection from April, 2000 to March, 01. As stated in para XVII(1)(e)(ii) of the Sixth Schedule of the Act, 1948, an amount equal to 1/12 of the sum of cash & bank balances and call and short term deposits at the end of each month of the year of account, not exceeding the sum specified therein can be included in capital base.


The Commission feels that liquid funds are needed for the payment of Employees' Cost and Administrative & General Expenses pending collection of receivables from the consumers. The normative lead time between the supply of electricity to the consumers and collection of tariff is considered two months. Hence, the fund requirement for two months payment of Employees’ Cost and Administrative & General Expenses would be appropriate for meeting working capital requirement in the form of cash and bank balance. Calculated on the aforesaid basis, the amount works out to Rs.10.16 crores. The Commission, therefore, approves a sum of Rs.10.16 crores as cash and bank balance for meeting working capital requirements.


Accumulated Depreciation


WESCO has proposed a sum of Rs.99.55 crores towards amounts written off or set aside on account of depreciation as on 31.03.2001. The audited accounts for the year 1999-00 shows an accumulated balance of Rs.75.95 crores. A provisions of Rs.20.62 crores is considered reasonable as depreciation for the FY 2000-01 as there has been no change in the asset base. Hence the Commission approve Rs. 96.57 crores as accumulated depreciation as on 31.3.2001 for the purpose of calculation of Capital Base.


Loans and Bonds


WESCO has stated that the loans and bonds for its distribution and retail supply business as per the transfer scheme notification for the period ending 31.3.1999 amounted to Rs.145.66 crores (Form No. F-3). Loan received during 99-00 and projected to be received during 2000-01 are Rs.35.64 crores and 47.21 crores respectively. Information on receipt/repayment of loan as submitted by WESCO in OERC form No. F-3 is reproduced in table : 8.

Table : 8
(Rs. in Crores)


Opening balance as on 1.4.99

Received during 99-00

Repayment during 99-00

Balance as on 31.3.00

Expected received during 00-01

Expected repayment during 00-01

Expected balance as on 31.3.01









World Bank

























Hence for the purpose of calculation of capital base an amount of loan for Rs.228.50 crores is considered to be deducted from total asset.


Consumers’ Security Deposit


WESCO while calculating the capital base as on 31.3.2001 has not deducted a sum of Rs.55.97 crores deposited with the licensee by way of security as required under para XVII(1)(iii) Sixth Schedule to the Act, 1948. In clarification to queries by OERC, WESCO has stated that as per the provisions of Sixth Schedule to the Act, 1948, "Capital base" means the capital investment made for long term use by the licensee for the creation of long term assets as well as fund committed for long term working capital use. The spirit of the law is that the licensee is eligible to get reasonable rate of return on its long term capital investment.


The amount deposited in cash with the Licensee by the consumers as security is clearly deductible for the purpose of determination of Capital Base as per provision of para XVII(1)(iii) of the Sixth Schedule of the Act, 1948. Accordingly, an amount of Rs.55.97 crores is deducted in the computation of Capital Base.


Based on the forgoing observations, the Commission finds that Capital Base for 2000-01 for the purpose of Sixth Schedule has to be taken at Rs.-29.19 crores (vide Annex to this order) as against Rs.29.91 crores proposed by WESCO.


Reasonable Return


WESCO has claimed reasonable return at 4.64 crores by multiplying the standard rate of 15.5% to the Capital Base of Rs.29.91 crores and has claimed additional return to the extent of Rs.1.14 crores which is 0.5% on loans approved by the State Govt. Thus, WESCO has proposed an amount of Rs.5.78 crores towards reasonable return. We are unable to accept this figure as we have not approved the base figure of capital base. As the capital base of the licensee has become negative no reasonable return at standard rate is admissible. However, the licensee is entitled to get 0.5% on the loans for Rs.228.50 crores. Accordingly, reasonable return is approved for Rs.1.14 crores as indicated in Table : 9

Table : 9
(Rs. in crores)


Proposed by WESCO

Commission’s calculation

Capital base



Reasonable return



0.5% of loan outstanding as at the end of year 2000-01







Miscellaneous Receipt


In OERC Form No. F-38, the licensee has shown Rs.2.75 towards miscellaneous receipt. Break up of the details are produced below :-

(Rs. in crores)

Meter rent











On examination of the Schedule-3 of the audited accounts of the licensee for the year 99-00 it is found that the licensee has earned a revenue of Rs.2.96 crores from meter rent and others. The figure of Rs.1.95 crores projected in the table above on account of meter rent does not appear to be reasonable as the licensee proposes to add 70,000 nos. of meters during the year 2000-01. Therefore, the revenue from meter rent can be more than Rs.1.95 crores and for the purpose of calculation of miscellaneous receipt, the figure of Rs.2.96 crores is considered for the year 2000-01. Accordingly, miscellaneous receipt is considered as Rs.3.76 crores as against Rs.2.75 crores proposed by the licensee.


Revenue Requirement, Reasonable Return and Clear Profit


In the light of above decisions and calculation, the Commission approves expenditure for the purpose of revenue requirement for the year 2000-01 at Rs.477.25 crores as against Rs.511.64 crores proposed by WESCO. At para 7.24.1 above special appropriation of Rs.1.14 crores has been approved on account of contribution to contingency reserve as proposed by WESCO. Reasonable return has been approved in para (7.23.1) at Rs.1.14 crores against Rs.5.78 crores proposed by WESCO. As explained in para 7.13.1 the Commission has disallowed previous losses of Rs.20.34 crores claimed by WESCO under special appropriation. The calculation of expenditure for revenue requirement, reasonable return and clear profit as approved have been reflected in Annexe A, B & C respectively.


The total revenue requirement of WESCO including special appropriation and reasonable return has been reduced by Rs.59.38 crores from Rs.538.91 crores proposed by the Licensee, to Rs.479.53 crores.


The licensee will end up with an excess of clear profit over reasonable return by Rs.30.27 crores, if the tariff would have been in operation for a period of twelve months. As the tariff will be effective for a period of two months only during the current financial year the deficit at the assumed level of Transmission & Distribution loss will be Rs.6.68 crores which will be allowed as a pass through in the tariff for the financial year 2001-02.


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