4.0

OBJECTIONS TO THE BULK SUPPLY TARIFF PROPOSAL BY GRIDCO

The Commission has considered all the objections raised by various objectors. Some of the objections were found to be of general nature whereas others were specific to the proposed tariff filing for the financial year 2001-02. Based on their nature and type, these objections are categorised broadly as indicated below:-

4.1

Demand estimation

4.1.1

Energy requirement

Some objectors have sought clarification as to why GRIDCO has prepared its own projection on power procurement when DISTCOs have submitted their projections on power procurement. They have pointed out that GRIDCO's projection is higher than that of the DISTCOs to the extent of 1000 MU. This additional power procurement should not be taken into account while assessing the revenue requirement. The objectors have suggested that GRIDCO's power requirement should be based on the projections submitted by DISTCOs after allowing a normative transmission loss of 3.5%. Shri Jayadev Mishra wanted to know whether GRIDCO discussed with DISTCOs the possibility of energy conservation, demand-side management and reduction of distribution losses so as to limit the demand to internal generation of the state. This would eliminate the need of costlier central sector power. Shri Padhi found GRIDCO's claim regarding average monthly consumption in the later half of the year being more than the first half and demanded substantiation by GRIDCO.

4.1.2

Simultaneous Maximum Demand, Contract Demand and Billing Demand

Some DISTCOs requested the Commission not to accept GRIDCO's proposal for changing billing demand and to direct GRIDCO to implement the system for measurement of vectorial summation. They also objected to the proposed upward revision of demand charges and requested the Commission to reduce it.

4.1.3

Levy of Overdrawal charge

With regard to overdrawal charge payable by DISTCOs, DISTCOs have suggested that GRIDCO should take consent from DISTCOs before supplying costlier NTPC power and offer an option of accepting it or effecting a power-cut. They have also requested that GRIDCO should provide supporting certificates and information justifying its claim for year-end adjustments.

4.1.4.

Transmission losses

4.1.4.1

Objectors demanded to be apprised of what has been achieved on the loss front and questioned the correctness of the figures furnished by them. A few objectors have pointed out that GRIDCO is inconsistent in its approach with regard to transmission loss. While GRIDCO claimed in its tariff filing for FY 2000-01, that it would insulate the state consumers from the inter-state sale, it now wants to burden the consumers with a loss of 114.46 MU in the EREB sale, which is unacceptable. Similarly, as against a loss of 4.1% claimed in FY 2000-01, GRIDCO reported a loss of 4.6% in this filing, though it spent a sum of Rs.1130 Crore after investment on infrastructure improvement. Objectors have requested the Commission to review the progress of all works and set targets for completion of all transmission projects. Shri Padhi suggested that GRIDCO and DISTCOs should indicate a firm loss reduction proposal for next 5 years, which should be used for tariff purposes.

4.1.4.2

Some objectors have suggested that for the year 2001-02 the transmission loss should be kept at 3.5%.

4.1.5

Power procurement : Least cost drawal

4.1.5.1

Some objectors have observed that GRIDCO was not quite transparent in projecting its power drawal from stations dedicated to the state. In some cases, the projection was lower than that already drawn by end of January 2002. Many objectors have suggested that GRIDCO has projected lower hydro availability. One objector was interested to know why GRIDCO did not provide reservoir level of Hydro Stations as on November 1, 2001 indicating the up-to-date position in its application. Another objector pointed out about the low machine availability in case of hydro stations, owing to fixation of the flat tariff for all old stations taken together. He requested the Commission to direct GRIDCO and OHPC to enter into new PPAs within a definite time frame.   

4.1.5.2

Objectors have also suggested that purchase of costlier power by the Licensee should not be permitted.

4.1.6

Power procurement costs

4.1.6.1

Many objectors have questioned the abnormal rise in the projected cost of power per unit in the tariff application for FY 2001-02 and requested the Commission to analyse the costs. For instance there have been a 47% rise in hydro power rate, 37.5% rise in Machkund rate, 66% rise in Indravati power rate, 12% increase in OPGC rate, etc. Objectors have also pointed out that Orissa had a better monsoon in 2001-02 and consequently, the cost of power ought to have been reduced. Some objectors suggested that no increase in hydro tariff should be allowed until OERC approves the new PPAs. SOUTHCO and WESCO pleaded that CERC norms for tariff fixation should be applied to dedicated stations like OPGC and TTPS as well. A number of objectors have suggested withdrawal of revaluation of fixed assets, application of pre-1992 depreciation rates and keeping in abeyance debt servicing of State government in order to avoid to adverse impact on BST.

4.1.6.2

One of the objectors also requested the Commission to allow preferential use of hydropower by SOUTHCO because of the geographical proximity of these stations.

4.2

Transmission costs

4.2.1

Employee cost, A&G, R&M expenses

4.2.1.1

WESCO and SOUTHCO consider that GRIDCO has made exaggerated estimates of dearness allowance (58% of salary as compared to 45% estimated by the DISTCOs) and terminal benefits (99% of salary as against 29% estimated by DISTCOs). Similarly, even after allowing 8% escalation in A&G expenses and adjusting for growth in assets, DISTCOs opine that GRIDCO's projections are much higher.

4.2.1.2

Another objector while giving a comparative analysis of GRIDCO's proposal vis--vis APERC's approved revenue requirement for APTRANSCO for 2001-02 observed that GRIDCO's projection exceeds that of APTRANSCO in all parameters. He wondered why GRIDCO's costs are high even though its size is smaller compared to APTRANSCO and requested the Commission to examine the costs closely.

4.2.1.3

Many objectors have contended that the ceiling limits fixed by the Commission with regard to employees' costs, A&G and R&M expenses have not been adhered to. They requested the Commission to direct GRIDCO not to exceed the norms fixed by the Commission.

4.2.1.4

A majority of the objectors preferred to allow these expenses at a normative level after adjusting for 6 to 8% escalation on previous year's expenses.

4.2.2

Depreciation, non-maintenance of asset register

4.2.2.1

A large number of objectors expressed their dissatisfaction over the fact that GRIDCO could not prepare the asset register even after passage of five and half years of reforms. They pointed out that in absence of an asset register, it is well-nigh impossible to ascertain which asset has been depreciated to what extent. A number of objectors suggested applying pre-1992 depreciation rates so as to avoid accelerated depreciation and its resultant impact on tariff.

4.2.2.2

Shri R.P. Mohapara has stated that depreciation should be calculated on the basis of the Notification of the Ministry of Power dt. March, 1994 and that the rates thereon are applicable to 'assets purchased new' i.e. brought after 01.4.94. The older assets being second hand, the rate of depreciation based on nature, age and condition of assets at the time of acquisition should be applied.

4.2.3

Interest on long term liabilities

4.2.3.1

Many objectors have pleaded with the Commission to exclude interest on zero coupon bonds, interest on Pension Fund and interest on bonds issued to power suppliers against arrears payment. As the sector could not turn around by 2002-03 as projected earlier, the Government should not charge interest on Zero Coupon Bonds. They also pointed out that as the Commission had disallowed interest on power bonds and Pension bonds in its earlier orders GRIDCO should not rake up the issue once again which has been settled earlier.

4.2.3.2

SOUTHCO and WESCO requested the Commission to direct GRIDCO to furnish interest amount included in loans from PFC and REC, as GRIDCO arranged to capitalise the current liabilities overdue on loans. Such information is important, as a component of interest charges has not been used for financing fixed assets.

4.3

Capital Base

4.3.1

Original cost of fixed assets

4.3.1.1

Majority of the objectors has demanded to keep in abeyance the effect of revaluation of assets of OHPC and GRIDCO as per Kanungo Committee Recommendation.

4.3.1.2

Shri R. P. Mohapatra contended that as per provisions of the Sixth Schedule, "the original cost of fixed assets" should be taken as the depreciated book value of the asset. This is in accordance with the definition given in paragraph XVII (6) of the Sixth Schedule and paragraphs I (b) and II of the Fourth Schedule. He submitted that the sale consideration for transferring the asset may be different but for capital base calculation, only original cost is relevant.

4.3.2

Capital expenditure

4.3.2.1

WESCO and SOUTHCO have expressed concern over addition of huge fixed asset to the tune of Rs.1138 Crore between 1997-98 and 2001-02 as projected by GRIDCO and requested the Commission to seek clarification from GRIDCO regarding prudence of such huge investments and the tangible benefits in terms of loss reduction and system reliability improvement. Others pointed out that GRIDCO had claimed a higher transmission loss despite this huge investment and the expenditure has been rendered infructuous.

4.3.2.2

Some objectors also expressed displeasure over the management of PMU projects, which have remained incomplete and argued that the interest on loan component for such delayed projects should not be considered in the revenue requirement calculation.

4.3.3

Calculation of capital base

Objectors had argued that like previous years, zero coupon bonds should be excluded from the capital base calculation.

4.3.4

Reasonable return

Some objectors had pleaded that the Commission should follow GOI notification in 1999 on reasonable return and calculate return based on vintage of the assets.

4.3.5

Miscellaneous receipts

SOUTHCO and WESCO requested GRIDCO to furnish bills for power wheeled to other states and alleged that the entire power from OPGC was being injected to MP. Such miscellaneous income should be excluded from the revenue requirement.

4.4

Transmission tariffs

4.4.1

NALCO wanted its wheeling charges to be governed by an already existing agreement between erstwhile OSEB and NALCO. It also requested that the proposed wheeling charge should not be applied to the gross volume of its export but only to the net volume of export of power (i.e. export less its drawals at various points). NALCO also sought deemed wheeling status for its drawal at NALCO Bhawan and Nalco Nagar in Bhubaneswar at lower voltage.

4.4.2

ICCL also pleaded for a special consideration and concessional rate on transmission/ wheeling charges as it purchases and supplies power to GRIDCO, which is mutually beneficial. It argued that the existing MOU did not provide for imposition of wheeling/ transmission charges on ICCL.

4.4.3

Jayshree Chemicals Limited (JCL) submitted that seven small hydroelectric projects were awarded to it through competitive bidding. GRIDCO agreed to wheel the power generated from these stations at 4% wheeling charge as per Clause 6 of the Policy Guidelines of the State Government. The State Technical Committee has communicated its acceptance to the State Government to allow 4% wheeling charges for delivering the power from Mohana to JCL factory at Ganjam. The Government of India also advised for fixing 2% of energy for wheeling charges in case of non-conventional energies. JCL requested the Commission for allowing it to pay wheeling charges limited to 4% of the cost of energy.

4.4.4

Shri Mishra observed that central sector power cost Rs. 331.73 Crore while transmission cost paid to PGCIL was 279.83 Crore. This is because of power import during off-peak hours and export during peak hours. He estimated that Rs.70 Crore a year was spent towards cost of unwanted power imported during high frequency.

4.4.5

Shri R. P. Mahapatra suggested that the proposed tariff should be recast and the proposal for lower wheeling charges for CPP should be rejected outright as it would constitute undue favour to a particular industry.

4.4.6

Aditya Aluminium argued that the proposed transmission loss level is higher than the approved level. It believes that the notified transmission loss and wheeling charges are on the higher side and are not based on actual or scientific basis. It suggested that wheeling charges could be brought down to level prior to 1 April 1997.

4.5

Legal sanctity of transmission tariff

4.5.1

ICCL pointed out that the proposed transmission tariff is unrealistic and contrary to CEA recommendations of transmission tariff not exceeding 10 paise/unit including transmission loss. It also pointed out that the CERC order dated 23rd October 2000 in a similar case between MPEB and GRIDCO also confirmed the reasonableness of CEA's recommendation. On this ground, the transmission tariff proposed by GRIDCO should be disallowed.

4.5.2

CII submitted that the matter is subjudice in the Hon'ble High Court of Orissa, the Commission might consider the application of transmission tariff after disposal of the case by the Hon'ble High Court.

4.6

Export of power

4.6.1

Shri Jayadev Mishra suggested that GRIDCO should explore the possibility of bilateral contracts with DVC and WBSEB, encouraging two main CPPs in the state to supply more power to the grid and negotiating with other states for sale of 500 MW of power from Orissa as a preparation for ABT regime.

4.6.2

Shri R. P. Mohapatra considers that the present arrangement with AP and Karnataka are not sufficient for sale of all surplus power from Orissa. He suggested that GRIDCO should explore the possibility of exporting power to Jharkhand, MPEB and DVB. He also suggested that GRDICO should take up with EREB and CEA the issue of using the 220 kV Budhipadar-Korba line for bilateral sale of GRIDCO's surplus power.

4.6.3

SOUTHCO questioned the veracity of GRIDCO's submission at para 3.5 (Vol. 1) of the BST application for FY 00-01 regarding export of power and stated that GRIDCO had a power-export agreement with APTRANSCO for 1999-2000 and 2001-02, and recently entered another agreement with KPTCL. SOUTHCO demanded that the revenue requirement for FY 00-01 should be re-determined considering income from sale of power to other states.

4.7

Other issues

4.7.1

A large number of consumers expressed utter dissatisfaction about non-submission of audited accounts GRIDCO and requested the Commission not to bank on its provisional accounts. CII remarked that GRIDCO submitted to Kanungo Committee that the audited accounts would be available by January 2002 but the target was not adhered to. Some objectors pleaded strongly that the filing of revenue requirement of GRIDCO should be rejected due to lack of audited accounts.

4.7.2

NALCO submitted that a meeting held on 25.01.91 on the settlement of pending issues between NALCO, State Government and the erstwhile OSEB decided to bring down the wheeling charges to 5% with effect from 01.01.91. NALCO wants that levy of wheeling charges for NALCO's Damanjodi consumption should be governed by this agreement. NALCO has appealed to the High Court of Orissa in this matter. NALCO pleaded that the State Government should be made a party to this objection.

4.7.3

NALCO pleaded that GRIDCO should pay the escalated power cost to NALCO based on the landed cost of coal, oil and increase in labour cost.

4.7.4

A number of objectors had criticized GRIDCO for its utter failure to take steps for improving efficiency/ service, reduction of T&D loss, reduction of legal expenses and fulfil the conditions of Licences. It had breached the condition of the Licence to carry its operation in most economical and efficient manner. Therefore, its application should be rejected. They contended that GRIDCO had not demonstrated its ability to properly manage its affairs and requested the Commission to ensure that its mismanagement should not burden the consumers.

4.7.5

Some objectors pointed out that they were facing a lot of difficulties in filing of objections, meeting expenses for travelling, boarding, etc to overcome this impasse, Commission should hold hearings at different places before passing orders on tariff applications.

4.7.6

Shri Rama Prasad Mahapatra pleaded that the proposed increase in tariff of 60% by GRIDCO is beyond the capacity of the consumers to pay and is not implementable.

4.7.7

A large number of objectors referred to the recommendations of the Kanungo Committee and pleaded that the Commission should issue a notice to the Government of Orissa for soliciting Government's decision on its recommendations. Some objectors even wanted the Commission to postpone the hearing till receipt of reply from the State Government, in this regard.

4.7.8

A number of objectors had suggested that the new tariff could only be made applicable earliest by mid-April or 1 May 2002, and the tariff could not have any retrospective effect. Therefore, the tariff should be considered for 2002-03 based on the revenue requirement filing made by GRIDCO for the said period.

4.7.9

Orissa Contractors' Association was of the view that public objection carries no importance and it is just a formality, and an attempt to hoodwink the public. If OERC sincerely desired public objection, such a short time would not have been allowed for inviting comments. This smelt ill motive behind the entire process.

4.7.10

Some objectors considered that the concept of Rating Committee, as provided in the Electricity (Supply) Act, 1948 did not find a place in the Reform Act. They reiterated that OERC should have set up such a committee to facilitate tariff fixation process.

4.7.11

One of the objectors stated that direct power procurement by GRIDCO from generators would be harmful and OERC should instead enter into agreements with the generators and fix the rate at which they would supply the energy. It also considered up-valuation of OHPC assets undesirable.

4.7.12

The Orissa Contractors' Association objected to any revision of transmission charges and expressed dissatisfaction about tariff changes in the past without corresponding benefits to the consumers. GRIDCO, as a transporter, should charge a single part tariff and the two-part tariff had been done away with since 1959.

4.7.13

Some objectors complained that the time allowed for filing objections being inadequate a meeting between the applicants and the potential objectors should have been held to clarify the views of both sides.

4.7.14

UCCI and other objectors from industries requested the Commission to consider fixing industrial tariffs for five years so as to allow industries plan its operation to face domestic and international competition.

4.8

OBJECTIONS TO THE ANNUAL REVENUE REQUIREMENT FILING BY GRIDCO FOR FY 2002-03

The Commission had considered all the objections raised by various objectors. Some of the objections were found to be of general nature whereas others were specific to the annual revenue requirement filing for the financial year 2002-03. Based on their nature and type, these objections may be categorised broadly as indicated below:-

4.8.1

Demand estimation

4.8.1.1

Energy requirement

Some objectors wondered how the energy requirement for FY 2001-02 as indicated in the tariff application is different from that shown in ARR application for FY 2002-03 and for FY 2001-02. Objectors felt that the data were unreliable and manipulative in nature.

4.8.1.2

Objectors expressed reservation about GRIDCO's forecast of 10% growth in power requirement by DISTCOs for FY 2002-03 over FY 2001-02. They felt that DISTCOs had projected higher power requirement and GRIDCO had made its own forecasts instead of using submissions made by DISTCOs. Alternative energy requirements suggested by objectors had varied widely : Shri R.C. Padhi suggested requirement of 9765 MU for FY 2002-03 while UCCI felt the assessed requirement as 11650 MU.

4.8.2

Simultaneous Maximum Demand, Contract Demand and Billing Demand

4.8.2.1

Some DISTCOs requested the Commission not to accept GRIDCO's proposal for changing billing demand and to direct GRIDCO to implement the system for measurement of vectorial summation. They had also objected to the upward revision of demand charges and requested the Commission to reduce it.

4.8.3

Transmission losses

Some DISTCOs argued that the actual transmission loss was lower than what had been claimed by GRIDCO and requested the Commission to allow a loss of 3.5%. Other objectors also suggested fixing transmission loss for FY 02-03 between 3.3% to 3.4%. Some suggested that penalty should be imposed on GRIDCO for deviation from the benchmark performance. Objectors had pointed out that non-achievement of the objectives of Reforms Programme was due to insignificant and negligible improvement in T&D loss reduction despite huge investment on system improvement.

4.8.4

Power procurement: Least cost drawal

Objectors had in general complained about GRIDCO's projection of low hydro availability coupled with higher procurement requirement. Most of them considered that power from dedicated stations of the state plus Chukha power would be sufficient to meet GRIDCO's requirement and no power would have to be drawn from CPSU.

4.8.5

Power procurement costs

Objectors had questioned the abnormal rise in the projected cost of power per unit in the tariff application and requested the Commission to analyse the costs. They had also pointed out that Orissa had a better monsoon in 2001-02 and consequently, the cost of power should slide down. Some objectors suggested that there should not be any increase in hydro tariff until and unless OERC has approved the PPAs afresh. Some DISTCOs pleaded that CERC norms for tariff fixation should be applied to dedicated stations like OPGC and TTPS as well. A number of objectors had suggested withdrawal of revaluation of fixed assets, applying pre-1992 depreciation rates and keeping in abeyance debt servicing of State government in order to reduce the BST.

4.8.6

Transmission costs

4.8.6.1

Employee cost, A&G, R&M expenses

Some DISTCOs consider that GRIDCO had made exaggerated estimates of dearness allowance (58% of salary as compared to 45% estimated by NESCO) and terminal benefits (99% of salary as against 29% estimated by NESCO). Similarly, GRIDCO's projection of A&G and R&M expenses are higher even after allowing 8% escalation in A&G expenses and adjustment against growth in assets. CII had remarked that operational and administrative costs were also increasing as each organization was trying to compete with the other for getting maximum profit with minimum efforts.

4.8.6.2

Other objectors suggested that only normative increase should be allowed in employees' cost, A&G cost and R&M charges. Some wondered why R&M expenses should take care of cyclone and flood-related damages.

4.8.7

Depreciation and absence of asset register

Objectors had pointed out absence of asset registers resulting in inaccurate calculation of the depreciation. One objector suggested that depreciation should be chargeable to assets procured prior to April, 1994. A number of objectors had suggested withdrawal of revaluation of fixed assets and for applying pre-1992 depreciation rates.

4.8.8

Interest on long-term liabilities

Some DISTCOs suggested that as against interest claim of Rs. 267.95 Crore, the reasonable interest amount would come to Rs.102.50 Crore as interest on Pension bonds and GRIDCO bonds were earlier disallowed by the Commission. They requested the Commission to direct GRIDCO to furnish interest amount included in loans from PFC and REC, as GRIDCO arranged to capitalise the current liabilities overdue in loans. Such information is important, as a component of interest charges has not been used for financing fixed assets. Other objectors have suggested that interest on non-asset creating bonds should be disallowed.

4.8.9

Capital base

4.8.9.1

Original cost of fixed assets

Some DISTCOs requested the Commission to consider the recommendations of the Kanungo Committee on withdrawal of up-valuation of fixed assets. Objectors also argued that as per GOI notification dated 30.3.92, only actual capital expenditure should form basis of tariff and not the revalued cost. Accordingly, the tariff for OHPC and OPGC should be based on actual capital costs.

4.8.10

Capital expenditure

Some DISTCOs expressed concern over huge fixed asset addition projected by GRIDCO (viz. Rs.1309 Crore between 1997-98 and 2002-03). They requested the Commission to seek explanation from GRIDCO regarding prudence of such huge investments and the tangible benefits in terms of loss reduction and system reliability improvement.

4.8.11

Calculation of capital base

Objectors have argued that like previous years, zero coupon bonds should be excluded from the capital base calculation.

4.8.12

Reasonable return

Some objectors have suggested that the licensee is entitled to reasonable return only if it performs as per OERC's accepted standards. Objectors have also requested the Commission to follow GOI notification in 1999 on reasonable return and calculate return based on vintage of the assets.

4.8.13

Miscellaneous receipts

Some DISTCOs have claimed that the entire power from OPGC was being injected to MP. They have also requested for supporting vouchers for the transmission loss suffered in wheeling power to other states.

4.8.14

Export of power

Some DISTCOs have questioned the veracity of GRIDCO's submission at para 3.5 (Vol. 1) of the BST application for FY 2000-01 regarding export of power. It is stated that GRIDCO had recently entered into an agreement with KPTCL. DISTCOs have demanded that the revenue requirement for FY 2000-01 should be re-determined considering income from sale of power to other states.

4.8.15

Alternative estimate of Revenue requirement for FY 2002-03

Objectors have submitted their own estimate of GRIDCO's revenue requirement for FY 2002-03. Most of these estimates given by them are 40 to 50% lower than the requirement submitted by GRIDCO. Major savings were shown in power purchase cost, interest on loans, depreciation, employees cost and reasonable return. The objectors did not agree on pass through of past losses as well.

4.8.16

Other issues

4.8.16.1

Power Intensive Industries and EOU have noted that due to fierce competition in the international market, many industries in Orissa are in difficulty. Exorbitantly high power tariff poses a serious threat to such industries, which would have adverse effect on sundry consumers as well. They pleaded that suitable mechanisms must be developed to keep the industry viable.

4.8.16.2

Many objectors have pointed out that Kanungo Committee has made specific suggestions to correct the process of reform and these aspects should be settled before taking up tariff revision proposals.

4.8.16.3

Objectors observed that the proposal for FY 2001-02 has no practical implications and hence both the tariff and ARR applications for FY 2002-03 should be taken up together.

4.8.16.4

CII has submitted that the Licensee is not complying with the limits fixed by the Commission with regard to T&D losses, A&G expenses, R&M expenses, employees' costs and interest charge calculation have not been complied with. CII pleaded that OERC should view non-compliance with its instructions seriously and should advise the licensee not to repeat the same in the future.

4.8.16.5

Shri R.C. Padhi submitted that the time allowed for filing objections is insufficient and requested that his submission for tariff application should be read along with this objection.

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