Average Cash and Bank Balance


CESCO has proposed Rs.21.52 crore and Rs.23.48 crore for the FY 01-02 and 02-03 respectively computed on the basis of the provisions laid down in Sixth Schedule of the Supply Act, 1948. No information about cash and balance has been submitted by CESCO in the prescribed format F-19 of the Tariff Guidelines. As stated in para XVII(1)(e)(ii) of the Sixth Schedule of the Supply 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 receivable 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.16.91 crore for the year 01-02 and Rs.17.37 crore for the year 02-03. The Commission, therefore, approves a sum of Rs.16.91 crore for the year 01-02 and Rs.17.17 crore for the year 02-03 towards cash and bank balance for meeting working capital requirements.


Accumulated Depreciation

CESCO has proposed a sum of Rs.152.42 crore and Rs.187.38 crore towards amounts written off or set aside on account of depreciation as on 31.3.2002 and 31.3.2003 respectively. The information submitted in the format F-37 shows an accumulated balance of Rs.120.84 crore. The licensee has calculated depreciation as per the rate prescribed in the latest GOI notification and claimed depreciation for the year 01-02 for Rs.31.58 crore and Rs.34.96 crore for the year 02-03. The Commission, as mentioned in para 6.4.4 has calculated depreciation at pre-92 rates for the year 01-02 and 02-03 and accepted a figure of Rs.16.12 crore and Rs.18.12 crore for the respective years. Accordingly accumulated depreciation as on 31 March 2002 would be Rs.136.96 crore (Rs.120.84+Rs.16.12 crore) and Rs.155.08 crore (Rs.136.96+Rs.18.12) as on 31 March 2003. Hence, the Commission approves Rs.136.96 crore and Rs.155.08 crore as accumulated depreciation as on 31.3.2002 and 31.3.2003 for the purpose of calculation of Capital Base.


Loans and Bonds


CESCO has proposed Rs.407.47 crore and Rs.354.04 crore as loan and bonds to be deducted from the asset base in order to arrive at the capital base for the year 01-02 and 02-03 respectively. The information submitted in F-3 does not tally with the figure proposed in the capital base. While examining the loan position of CESCO as produced in the prescribed format F-3, it is found that the total loan and bond constitute Rs.205.63 crore of loan advanced by GRIDCO, Rs.117.69 crore of loans given by World Bank and Rs.171.15 crore of deferred credit extended by GRIDCO as on 31 March, 2002. Similarly, as on 31 March, 2003 the balance of loan advanced by GRIDCO would be Rs.205.63 crore, World Bank Loan Rs.197.69 crore and deferred credit of Rs.162.73 crore. Information on receipt/repayment of loan as submitted by CESCO in OERC form No.F-3 is reproduced in Table : 23.

Table : 23
(Rs. in Crore)


Opening balance as on 1.4.01

Received during 01-02

Repayment during 01-02

Balance as on 31.3.02

Expected received during 02-03

Expected repayment during 02-03

Expected balance as on 31.3.03

GRIDCO (Long-term loan)








World Bank
















GRIDCO Deferred credit (short term)

















Deferred credit extended by GRIDCO to CESCO to the extent of Rs.171.15 crore as on 31 March, 2002 and Rs.162.73 crore as on 31 March, 2003 does not carry any interest. As it is of short-term nature and no interest has been allowed in the revenue requirement, it does not constitute a part of the loans and bonds to be deducted from the asset base for the purpose of calculation of capital base. The Commission, therefore, takes into account only the long term loans taken by CESCO for the purpose of asset creation. Thus, the Commission approves an amount of Rs.323.32 crore and Rs.403.32 crore of loans and bonds to be deducted for the year 01-02 and 02-03 respectively from the asset base for the purpose of calculation of capital base.


Consumers’ Security Deposit


CESCO while calculating the capital base as on 31.3.2002 and as on 31.03.2003 has deducted security deposits for Rs.30.40 crore and Rs.40.44 crore made by the consumers lying with the licensee as on respective dates. In the absence of audited accounts of previous years, the Commission provisionally accepts Rs.30.40 crore and Rs.40.44 crore as consumers’ security deposit for the purpose of calculation of capital base.


Based on the forgoing observations, the Commission finds that Capital Base for 01-02 and 02-03 would be Rs.68.41 crore and Rs.(-) 5.29 crore respectively as against Rs.(-)0.14 crore and Rs.112.16 crore proposed by CESCO.


Reasonable Return

Applying provisions of Schedule VI to the Electricity (Supply) Act,1948 the reasonable return on the capital base for FY 2000-02 would be Rs.10.51crore .As capital base for year 2002-03 has become negative, the licensee is not eligible for any return .. Only .5% on the loan outstanding as on 31st March, 2003 has been taken as reasonable return for 2002-03 amounting Rs.2.02 crore. Hence Commission approves a figure of Rs.10.51 crore and Rs.2.02 crore towards reasonable return for the year 01-02 and 02-03 respectively.


Miscellaneous Receipt

CESCO has proposed Rs.20.30 cr. and 23.86 cr. to be received for the year 01-02 and 02-03, respectively towards Miscellaneous Receipt. The Commission accepts the amount as proposed provisionally.


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 years 2001-02 and 2002-03 at Rs.764.49 crore and Rs.765.32 crore as against Rs 887.83 crore nd Rs.1007.73 crore respectively proposed by CESCO. Commission has disallowed previous losses of Rs.298.98 crore and Rs.560.59 crore claimed for the 2001-02 and 2002-03 respectively under special appropriation by the licensee. Similarly, Special appropriation to the extent of Rs.51.04 crore claimed as per OERC Order dated 19.01.2001 has been disallowed . Reasonable return has been approved Rs.10.51 crore and Rs.2.02 crore for the year 2001-02 and 2002-03 respectively. In other words total revenue requirement of CESCO including return is approved at Rs.775 crore for the year 2001-02 and Rs.767.34 crore for the year 2002-03 after applying correctives assumed by the Commission. If the correctives do not materialise the revenue requirement with return for the year 2001-02 and 2002-03 will rise to Rs.777.83 crore and Rs.918.85 crore respectively. The calculation of expenditure for revenue requirement, reasonable return and clear profit as approved have been reflected in Annex-A, B& C respectively.




In addition to the above, the Commission would like to address the various issues raised during the course of public hearing on other commercial matters which are given hereafter.


Commission does 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 in the later part of the order while dealing with the revenue requirement and determining tariff. However, we may record our observations specifically on a few issues which do not conveniently fit into the module of either revenue requirement or tariff.


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.


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. At the cost of repetition we would like to state some of the observations of the Commission in the previous tariff orders.


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


Tariff Hike


It was discernible from the filings before OERC that the currently proposed tariff would have to be much higher as compared to those of the immediate previous years even after pruning all expenditure items by the Commission on the same lines as in the past. Many objectors had alleged that there should be no revision in tariff since licensees have not achieved desired improvements and had not been able to reduce the T&D loss substantially. We ourselves have been very much concerned with the performance of the licensees and have been suo motu monitoring in various ways.


Another recurring objection against tariff increase has been the constraint of affordability. The domestic consumers have urged to leave them out of tariff increase because they cannot afford and they cannot pass on the burden which the commercial and industrial consumers can do. On the other hand, commercial and industrial consumers have pleaded that their products cannot be competitive and therefore their tariff should be reduced rather than increased. Every category has pleaded that tariff, if increased, should be for other categories. We cannot fully ignore the affordability factor because safeguarding interest of consumers is one of the main parameters in tariff fixation. But affordability cannot be the prime consideration. Sec. 11(1)(e) of Reform Act mandates that the supply and distribution industry cannot be maintained unless the charges for the electricity supplied are reasonably levied and collected. Licensees of electricity supply and distribution cannot be expected to forego their legitimate dues and charge low rate to any category of consumers or to make industrial consumers competitive in national and international market.


It is the duty of the Commission to scrutinize the claims of licensee with a fine tooth-comb and allow only useful assets for capital base and only properly/prudently incurred expenditure for revenue requirement. But after we do so, Revenue requirement finally determined has to be allowed to be raised through tariff. This is the position in Law and has to be appreciated by the consumers of all categories. Keeping the above objective in view, the Commission has gone ahead in deciding the various parameters regarding determination of revenue requirement and tariff of the licensee in an endeavour to strike a balance between the interests of end consumers on one hand and financially viability of licensee on the other.


The Commission’s analysis of CESCO’s proposal and its finding as to reasonableness of various items and determination of the extent to which the expenses projected shall be considered to be “properly incurred” in the context of the Sixth Schedule as well as other parameters stipulated in Section 26 of the Reform Act, 1995 need to be given at length.


Wheeling charges


It was opined by some objectors that law does not provide for fixation of tariff for transmission or wheeling charges separately.


It may be noted that the provision under section 26(7) of OER Act authorises the Commission to ensure that the licensees comply with the provisions of their licensees regarding their charges for the sale of electricity, both wholesale and retail, and for the connection to and use of their assets or system in accordance with the provisions of this Act.


Thus, the provision of transmission or wheeling charges are built under the scope of tariff setting.


The issue of fixation of wheeling charges for utilisation of the distribution system by small generators namely mini/ micro/ small hydro generators and non-conventional sources of generation has been examined by the Commission. In this connection, the Commission would like to clarify that a policy paper prepared by GoO was sent to the Commission for its views which has been duly scrutinised and forwarded to the Government for issue of appropriate policy guideline in this matter.


Load factor billing

As opined by some of the objectors, it is true that it is the statutory obligation on the part of the licensee to replace meters. Load factor billing has been prescribed for a limited period the meter remains defective/or the consumer goes without meter to serve as a disincentive for the consumer and help adoption of metering by consumers. Hence, the Commission directs that the load factor billing should continue as per the existing tariff.


Incentive for maintaining high power factor


For the first time, the Commission in its tariff order dt.30.12.99 introduced an incentive to encourage improvement in power factor above 90%. Subsequently, the limit was raised to 97% in the RST order dt.19.01.2001. CESCO estimates that the rebate alone on this account to HT/EHT consumers will be of the order of Rs.3.29 crore during the FY 2001-02.


Some objector opined that for the health of electrical machinery it is risky to maintain power factor between 97% and unity power factor lagging because there is every chance of high voltage when suddenly some load gets off from the circuit.


It should be kept in view that the industries for better protection of their installation should follow prudent operational practice installing protective devices, so as to isolate the equipment during abnormal transient condition arising out of sudden load throw off or tripping of meter or feeders.


Further, as indicated below the KVA demand of the industry decreases as the PF improves, there by benefiting the consumer on account of higher demand charge.



Excess KVA
















Similar provision of power factor incentive/rebate have been recommended by other State Regulatory Commissions such as Gujurat Electricity Regulatory Commission, U.P. Electricity Regulatory Commission, Maharashtra Electricity Regulatory Commission where incentive is allowed for maintaining PF above 95%. Hence, the Commission does not consider it necessary to make change in the existing provision with regard to power factor incentive.


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