6.49

Working capital

6.49.1

Average cost of stores

6.49.1.1

According to para XVII(e)(I) of the Sixth Schedule to the Act, 1948, a sum equal to 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 consideration as working capital for calculating the capital base. A sum of Rs.16.29 Crore has been proposed for each of the years of the FY 2001-02 to meet the O&M stores for repair and maintenance of the system.

6.49.1.2

The Commission examined the proposal of GRIDCO. A stock of three months’ consumption of materials at any particular point of time can be considered reasonable. Accordingly, the Commission approves one-fourth of the total annual consumption of materials i.e. Rs.4.00 Crore and Rs.4.36 Crore for the years 2001-02 and 2002-03 respectively as reasonable for the purpose of working capital for stores to be included in the capital base.

6.49.2

Average Cash and Bank Balance

6.49.2.1

A sum of Rs.14.80 Crore has been proposed by GRIDCO for each of the years FY 2001-02 and 2002-03 to be treated an average cash and bank balance for the purpose of calculation of capital base. In its application, it has been stated that this estimate of cash and bank balance is based on the actual outturn for the current year computed on the basis of the provision laid down in Sixth Schedule of the Act, 1948. GRIDCO in form TRF-11 of the FY 2001-02 and 2002-03 (BST 2001-02 and ARR 2002-03) has given the provision of monthly cash balance from the month April to March of the respective financial year. GRIDCO submits that for the FY 2001-02 and 2002-03, the same average monthly balance is to be considered for inclusion in capital base.

6.49.2.2

The Commission considers it appropriate that liquid funds are needed for the payment to 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 criteria, the amount works out to Rs.15.87 Crore and Rs.16.61 Crore for the year 2001-02 and 2002-03 respectively. The Commission, therefore, approves a sum of Rs.15.87 Crore and Rs.16.61 Crore as cash and bank balance for meeting working capital requirements.

6.49.3

Loan

6.49.3.1

GRIDCO has stated that its loan liability as on 31.3.2002 and 31.03.2003 are Rs.2481.39 Crore and Rs.3203.30 Crore respectively (TRF-3 of ARR 2002-03). Subsequently, GRIDCO during public hearing submitted a revised statement indicating the loan balance as Rs.2458.99 Crore and Rs.2670.29 Crore for the FY 2001-02 and Rs.2002-03 respectively. In arriving at the balance loan figure, the loan recoverable from DISTCOs estimated at Rs.640.94 Crore and Rs.527.39 Crore for the year 2001-02 and 2002-03 respectively have been deducted from the total loan.

6.49.3.2

For the purpose of calculation of capital base GRIDCO had excluded the zero coupon bonds and loans utilized for purposes other than capital formation and arrived at a figure of Rs.1390.97 Crore and Rs.1597.38 Crore as deductible in support of which GRIDCO has given a revised calculation in form (TRF-3). GRIDCO’s justification of accepting the lower figure of loan for calculating the capital base has been given in page 21 of 24 of the main text (ARR 2002-03). GRIDCO stated that in respect of Rs.400.00 Crore of zero coupon bonds, they had already applied to the State Government for conversion of these bonds to equity with immediate effect. In anticipation of conversion to equity, the bonds for Rs.400 Crore held by State Government have not been included in the loan schedule. Commission has already dealt on Zero Coupon Bond in para 6.4.19. Further, Power Bonds of Rs.360 Crore issued in 1998-99 and Rs.108.33 Crore in FY 2000-01 have also not been considered as deductible loan as these were issued for non-asset building purpose. Over and above this, GRIDCO had excluded fifty percent of Public bonds to Rs.307.56 Crore issued in 1999-00 amounting to Rs.153.78 for servicing working capital requirements. The loan schedule for Capital Base computation also does not include the cash credit from commercial banks and other short-term borrowings meant specifically for working capital requirements.

6.49.3.3

In light of the proposal of GRIDCO, the Commission examined the loans details for the computation of Capital Base. The Commission has considered the loan amount of Rs.3097.27 Crore and Rs.3308.97 Crore for calculation of interest for the purpose of revenue requirement.

6.49.3.4

As regards zero coupon bond of Rs.400 Crore issued to Government of Orissa Commission in para 6.4.19 has stated that until any decision is taken by the Government has to be considered as a zero coupon bond carrying no interest and accordingly is deductible for the purpose of determination of capital base.

6.49.3.5

The Commission while determining the interest chargeable to revenue has taken into consideration the long term loans as well as the short term loans taken for the purpose of meeting the capital asset formation as well as working capital requirements. Accordingly the Commission directs that the entire loan on which interest has been allowed should be treated as deductible for the purpose of computation of capital base. The calculation of loan balance is given in Table : 42.

Table : 42
Loan
(Rs. in Crore)

 

2001-02

2002-03

Source

GRIDCO’s Proposal

Commission’s approval

GRIDCO’s Proposal

Commission’s approval

LIC

140.66

140.66

140.66

140.66

Central Government

11.26

11.26

0.00

0.00

State Government

168.34

168.34

158.24

158.24

World Bank

620.33

620.33

787.73

787.73

Commercial Bank-W.C. Demand Loan

2.36

2.36

0.86

0.86

Short Term Loan from Banks

0.00

35.40

0.00

40.30

Cash Credit

0.00

10.00

0.00

10.00

PFC

301.19

301.19

301.19

301.19

REC

393.96

393.96

347.04

347.04

Public Bonds

34.76

34.76

30.00

30.00

Bonds to GoO

0.00

400.00

0.00

400.00

Bonds for Pension Trust

150.00

150.00

150.00

150.00

GRIDCO Bonds

776.39

776.39

776.39

776.39

HIW Loan (ICICI Bond)

55.27

55.27

55.27

55.27

IDBI Bill Discounting

0.00

0.00

0.00

0.00

Securitisation of CPSU dues

0.00

638.28

0.00

638.28

Less loan received from DISTCOs

640.94

640.94

527.39

527.39

Total

2013.58

3097.27

2219.99

3308.57

Less power bond

468.83

0.00

468.83

0.00

Less public bond

153.78

0.00

153.78

0.00

Net GRIDCO loan

1390.97

3097.27

1597.38

3308.57

6.49.3.6

The Commission, therefore, approves the amount of Rs.3097.27 Crore and Rs.3308.57 Crore for the year 2001-02 and 2002-03 respectively to be deducted from the total assets for determination of Capital Base.

6.49.3.7

Based on the forgoing observations, the Commission finds that capital base for 2001-02 and 2002-03 for the purpose of Sixth Schedule of the Act, 1948 is found to be negative as against Rs.760.46 Crore and Rs.756.93 Crore proposed by GRIDCO. Details of calculation of capital base are given in Annex-3 & 6 of this order.

6.49.4

Reasonable Return

6.49.4.1

For the year 2001-02 and 2002-03 GRIDCO in its BST 2001-02 and ARR 2002-03 applications have submitted that the reasonable return has been computed with reference to methodology specified in para XVII (9) of Schedule Sixth of Supply Act, 1948. GRIDCO in its capital base calculation in (Form TRF-7) as stated that based on the capital base allowed by the Commission for the year 1998-99 capital addition during the year 1999-00 to 2001-02 have been separately worked out. GRIDCO proposes a reasonable return of Rs.114.49 croes for the year 2001-02 and Rs.102.21 Crore for the year 2002-03. This figure was revised to Rs.118.81 crore and Rs.118.86 crore for the year 2001-02 and 2002-03 respectively, because of change on loan balance.

6.49.4.2

Commission examined the same with reference to the relevant provisions of the Supply Act, 1948 GRIDCO has calculated the reasonable return by multiplying the standard rate of 13% (8% bank rate plus 5%) on capital base as on 31.3.99 as approved by the Commission in its tariff order dated 21.12.98 for the year 1998-99. A 16% return on additional investment after 31 March 1999 upto 31 of March 2002 has been estimated as a part of reasonable return in addition to 0.5% on the loans outstanding as on 31st Mrach 2002. The same concept has been followed in respect of the FY 2002-03 for the purpose of determination of reasonable return.

6.49.4.3

The Commission does not agree with the figure of reasonable return arrived at by GRIDCO as the capital base determined by the Commission in para 6.49.3.7 for the year 2001-02 as well as for the FY 2002-03 is found to be negative. As such, GRIDCO is not entitled to any reasonable return on capital base but is, however, entitled to a return on 0.5% on the outstanding loans as and the end of FY 2001-02 and 2002-03 in accordance with the Sixth Schedule of the Supply Act, 1948. The calculation of reasonable return of two years is given in Table : 43.

Table : 43
Reasonable Return
(Rs. in Crore)

Source

Proposed by GRIDCO

Commission’s estimate

2001-02

2002-03

2001-02

2002-03

Capital base

760.46

756.93

Negative

Negative

Reasonable return 16% on investment made after 31.3.99

68.25

67.68

0.00

0.00

13% on investment made upto 31.3.99

43.41

43.41

0.00

0.00

0.5% of loan outstanding as at the end of year 1999-00

6.95

7.77

15.49

16.54

Total

118.61

118.86

15.49

16.54

6.49.4.4

Thus, the total reasonable return approved by the Commission would be Rs.15.49 Crore and Rs.16.54 Crore for 2001-02 and 2002-03 respectively.

6.49.5

Miscellaneous Receipt

6.49.5.1

The Licensee had proposed an amount of Rs.15.48 Crore as miscellaneous receipt for the year 2001-02. The break up is in Table : 44.

Table : 44
Miscellaneous Return
GRIDCO’s proposal 2001-02

Quantity In MU

Rate Paisa/unit

Amount Rs. Crore

Wheeling to CPPs

345.00

17.5

6.04

Wheeling to other States

1500

17.50

26.25

Less: 4.6% loss on wheeling to other states (MP)

69

243.61

(16.81)

Sale to CPPs

0

0

0

Total

15.48

6.49.5.2

For the year 2001-02 the applicable transmission tariff is 31 paise/unit for wheeling of power inside the state. GRIDCO in its submission dt.31.03.2002 (Encloser 3) as estimated a wheeling of 112 MU to NALCO Damanjodi 360.46 MU to IMFA Therubali from ICCL Choudwar. Based on the transmission tariff 31 paise/unit the estimated revenue of GRIDCO on account of wheeling of these 472.46 MU works out to Rs.14.646 Crore.

6.49.5.3

GRIDCO in its submission during public hearing has clarified that the wheeling charge of 17.5 paise/unit proposed by it in the BST application is under dispute for which they have calculated it @10 paise unit in view of the order passed by CERC for which the wheeling charges are calculated @10 paise/unit pending settlement of the matter in the Supreme Court of India. Since the matter is subjudice and in view of the order of the CERC, the Commission provisionally accepts the figure of 10 paise/unit for the purpose of determination revenue requirement until a final decision is taken in the matter. Besides, GRIDCO has revised the figure of interstate wheeling to 2292 MU for the year 2001-02 for which the wheeling charges works out to Rs.22.92 Crore as against Rs.26.25 Crore calculated by GRIDCO @17.5 paise/unit on 1500 MU.

6.49.5.4

GRIDCO has deducted Rs.16.81 Crore on account of 4.6% loss in Orissa system for wheeling to other states at the highest NTPC rate of 243.61 paise/unit. The Commission would like to clarify that during 2001-02, the entire cost of power purchase has been considered for determining the total expenditure on purchase of power for the purpose of determination of revenue requirement which automatically takes care of the amount of energy purchased by GRIDCO on account of losses due to export to EREB. As such, this deduction of Rs.16.81 Crore is not necessary as GRIDCO gets paid for this cost as the entire power purchase cost has been taken into consideration. With the above observation, the miscellaneous revenue for the year 2001-02 has been recast and given in Table : 45.

Table : 45
Commission’s Approval of 2001-02

Quantity In MU

Rate Paisa/unit

Amount Rs. Crore

Wheeling to CPPs

.472.46

31

14.646

Wheeling to other States

2292

10

22.92

Less: 4.6% loss on wheeling to other states (MP)

0.00

0.00

0.00

Total

37.566

6.49.5.5

Miscellaneous receipt for the FY 2002-03 : GRIDCO in its ARR 2002-03 in para 3.4.1 has proposed miscellaneous receipt of which Rs.19.92 Crore as per the details given in Table : 46.

Table : 46
GRIDCO’s Proposal 2002-03

Quantity In MU

Rate Paise/unit

Amount Rs. Crore

Wheeling to CPPs

300

31

9.30

Wheeling to other States

1500

17.5

26.25

Less: 4.6% loss on wheeling to other states (MP)

66

236.87

-15.63

Total

19.92

6.49.5.6

As wheeling to other states is being accounted for in the cost of power purchase, the sum of Rs.15.16 Crore as shown deductible in the table above need not be deducted for calculation of miscellaneous revenue. The estimated miscellaneous receipt on the analogy of the FY 2002-03 is provisionally recalculated as under.

Table : 47
Commission’s approval 2002-03

Quantity In MU

Rate Paisa/unit

Amount Rs. Crore

Wheeling to CPPs

300

32

9.60

Wheeling to other States

1500

10

15.00

Less: 4.6% loss on wheeling to other states (MP)

0

0

0

Total

24.60

6.50

Revenue Requirement for the year 2001-02 & 2002-03

GRIDCO had estimated its revenue requirement as Rs.2309.59 crore for the FY 2001-02 and Rs.2300.08 crore for the FY 2002-03. The estimated requirement for both the years did not include the cost of power meant for export outside the State.

6.51

Corrective measures and alternative calculation of revenue requirement

6.51.1

During the tariff hearing the State Government did not appear and participate despite due services of notice. It even failed to attend the Commission Advisory Committee Meeting in this connection. The Commission has received no assistance or commitment from the State Government and has had to proceed in the absence of Government’s participation. It may be mentioned that during the Workshop on 09.01.2000, organized by the Department of Energy, Government of Orissa, the Commission made a presentation elaborating the various corrections as outlined in para 6.51.4 (A) below. In the circumstances, the Commission has been constrained to recommend several measures as listed below for approval by the Government of Orissa w.e.f. 01.04.2001 to bring down the cost of power, cost of transmission of GRIDCO and cost of distribution. In view of the urgency and importance of the measures for consumers of the State and for the electricity industry and success of the State policy of reforms, it is absolutely essential that the State Government should communicate their decision on the recommendations without delay, in order that the Commission may give effect to the alternative calculation of revenue requirement. Everyday of delay causes huge avoidable cost to the consumers and the revenue gap of the licensees will go on snowballing beyond control.

The terms and conditions for purchase of power from OHPC by GRIDCO is governed by the power purchase agreement between OHPC and GRIDCO. The interim PPA between OHPC and GRIDCO for purchase of power from OHPC old stations upto 31 March 2001 has been approved by OERC with certain observations. Both OHPC and GRIDCO have been directed to submit the PPA to OERC for approval. The new PPA in respect of these stations effective from 01.04.2001 has not yet been received till date. Based on the latest commercial practice OERC directs that parameters like O&M escalation, return on equity and depreciation in respect of these stations will be calculated in accordance with the norms given in this order. The Commission also decides to apply lower rate of depreciation (pre-92 rates) for transmission and distribution assets to bring down the cost of supply to the consumer.

Similarly the Commission would like to depart with respect to the O&M escalation, ROE and depreciation norms in respect of UIHEP to bring down the input cost of power.

6.51.2

(a) OHPC old stations

  1. O&M escalation taken as per the weighted average of growth of Wholesale Price Index and Consumer Price Index for FY 2001-02 which works out to 2.5%. The same rate has been adopted for FY 2002-03.

  2. Return on Equity is calculated @ 12% on OHPC’s own investment of Rs 22.56 crore.

  3. Depreciation has been allowed to the extent of loan repayment during the year.

(b) UIHEP

  1. O&M escalation taken as per the weighted average of growth of WPI and CPI for FY 2001-02 which works out to 2.5%. The same rate has been assumed for FY 2002-03.

  2. ROE has been calculated @12% on equity of Rs.298.70 crore.

  3. Depreciation has been allowed to the extent of loan repayment during the year

(c) GRIDCO & DISTCOs

Depreciation has been calculated at pre-92 rate for years 2001-02 and 2002-03 both in respect of transmission and distribution business.

6.51.3

The Commission is entrusted with heavy responsibility as per Section 11 of the OER Act, 1995 under the head “Functions of the Commission”. It would be appropriate to quote the relevant portion of the above section.

“11(1) Subject to the provisions of this Act, the Commission shall be responsible to discharge, amongst others, the following functions, namely-

  1. to aid and advise, in matters concerning generation, transmission, distribution and supply of electricity in the State ;

  2. to regulate the working of licensees and to promote their working in an efficient, economical and equitable manner;……….

6.51.4

(A) In view of the above provisions, the Commission would be failing in discharging its responsibilities without giving proper advice to the State Govt. for adopting the corrective steps to bring the reforms back to rails. Commission has applied the following correctives in determining the revenue requirement for FY 2001-02 and FY 2002-03:-

  1. Interest on GRIDCO bond issued by DISTCOs for the power purchase loan liabilities has been calculated @8.5% for FY 2001-02 and FY 2002-03

  2. Interest on World Bank loan has been calculated in terms of its original sanction treating 70% as loan and 30% as grant for FY 2002-03

  3. Interest on all existing bonds issued by GRIDCO have been calculated @8.5% for FY 2001-02 and FY 2002-03 assuming resecuritisation of the same.

  4. New bonds of Rs.638 crore to be issued against power purchase liabilities of CPSU’s as on 28.02.2001 have been calculated @8.5% for FY 2002-03.

  5. Impact of zero coupon bonds of Rs.400 crore issued by GRIDCO to Government of Orissa against upvaluation of assets has not been considered for FY 2001-02 and FY 2002-03.

  6. Outstanding loans from REC and PFC have been assumed for resecuritisation with a tax free rate of 8.5%.

  7. In view of swapping of Government and GRIDCO dues, interest on Government loan of Rs.168.71 crore has not been allowed as a pass through for FY 2002-03.

  8. Interest on GOO loans has not been allowed arising out of upvaluation of OHPC assets.

  9. GOO loan of Rs.576.57 crore has been treated as loan on perpetuity.

(B) The Commission therefore advises Government of Orissa under section 11(1)(a) of the OER Act, 1995 to approve the correctives w.e.f. 01.04.2001 as outlined in this para from (i) to (ix) above to bring down the cost of power for the year 2001-02 and 2002-03.

6.51.4.1

In this context the Commission deems it fit and proper to review the whole question of revaluation of the assets of the earstwhile OSEB and Government of Orissa, at the time of revesting of the same with GRIDCO and OHPC and the impact of the revaluation on the tariff to be fixed now and in future. At the time of revesting GRIDCO and OHPC were wholly owned Government companies. Section 23(4) of the OER Act, 1995 did not require any such revaluation. When the assets of the OSEB vested in the State Government, the State Government paid nothing for it and did not incur any expenses. The revaluation seems to have been purely notional, agreed to between State Government on the one hand and GRIDCO and OHPC on the other hand, the latter being Government companies at that time. Clause 2 of the statutory orders dated 01.04.1996 vesting assets with GRIDCO and OHPC runs as follows.

“In accordance with section 24 of the Act, the fair value shall be duly determined of the property or rights in the undertaking involved at the time of transfer to or involvement of any person or body other than the wholy owned Government company or companies.”

No such fresh and due determination of fair value appears ever to have been done – not even at the time of involvement of DISTCOs operating under the aegis of private investor. There may have been some reason (like credit worthiness of GRIDCO and OHPC), at the material time, for state and GRIDCO/OHPC agreeing to some notional revaluation, but the Commission does not think any such reason to be relevant for the purpose of tariff setting, involving rights of consumers and third parties or useful in the context of present realities in the industry. The Commission therefore in the public interest has attempted to nullify the effects of revaluation in the present tariff setting.

6.51.5

Based on the observations of the preceding paragraphs of this order and prudent commercial consideration relying on the existing purchase power agreements, relevant rules, orders and evidential documents placed before the Commission. The Commission determine the revenue requirement for the FY 2001-02 as well as for the year 2002-03. Accordingly the revenue requirement as estimated in two scenarios (i) with correctives (ii) without correctives for 2001-02 is given in Table : 48. Details of calculation of revenue requirement is given in Annex-1 & 2.

Table : 48
Revenue Requirement 2001-02
(Rs. in crore)

Details

2001-02
(With correctives)

2001-02
(Without correctives)

Difference in RR

Expenditure on account of power purchase

1167.82

1414.34

246.52

Transmission cost

378.19

432.95

54.76

Contribution to contingency reserve

7.31

7.31

0.00

Previous losses

108.25

108.25

0.00

Reasonable return

15.49

15.49

0.00

Total revenue requirement

1677.06

1978.34

301.28

Less miscellaneous revenue

37.57

37.57

0.00

Net revenue requirement

1639.49

1940.77

301.28

6.51.6

The revenue requirement for FY 2002-03 in both the scenarios (i) with correctives and (ii) without correctives as per our recommendation regarding cost of power and cost of transmission based on the principles enunciated in the earlier paragraphs of this order is given in Table : 49. Details of calculation of revenue requirement is given in Annex-4 & 5.

Table : 49
Revenue Requirement 2002-03
(Rs. in crore)

Details

2002-03
(With correctives)

2002-03
(Without correctives)

Difference in ARR

Expenditure on account of power purchase

1420.60

1688.34

267.74

Transmission cost

374.52

497.77

123.25

Contribution to contingency reserve

9.92

9.92

0.00

Reasonable return

16.54

16.54

0.00

Total revenue requirement

1821.58

2212.57

390.99

Less miscellaneous revenue

24.60

27.90

3.30

Net revenue requirement

1796.98

2184.67

387.69

6.51.7

In both the scenarios, the Commission has estimated the power purchase cost that includes the additional expenditure meant for purchase of power for export outside the State.

6.51.8

It is evident from the calculations of RR 2002-03 (without correctives) given in Table-49 that it will require a very stiff upward revision in Bulk Supply Tariff and Transmission tariff which will have a cascading effect on the retail tariff in respect of all consumers of the State if the correctives proposed by the Commission is not accepted by the government for immediate implementation. Incidentally, the correctives applied by the Commission are by and large in line with those of Kanungo Committee recommendation.

6.51.9

In this connection, the recommendation of the Kanungo Committee is very pertinent wherein they had advised an external financial support other than debt to the tune of Rs.3240 crore during a transition period of 4 years from 2001-02 to 2004-05 to keep the tariff structure static at the current level and proposing to raise it by about 18% in the year 2005-06. It is expected that the Government will consider the advice of the Commission in this regard and take immediate steps so as to avoid a stiff rise of tariff to all classes of consumers, particularly when State Government may not be in a position to provide/arrange financial support as contemplated in the Kanungo Committee report.

6.51.10

However, if the decision of the Government of Orissa goes contrary to the advice tendered by the Commission, the revenue requirement for the FY 2001-02 and 2002-03 as determined without applying the corrective shall be due for recovery from the consumers.

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