6.8

Method of determination of Power Purchase

6.8.1

The power purchase by the DISTCOs are metered at various grid sub-station's end and the DISTCOs are billed according to the meter reading at these points. Actual figures of billing raised by GRIDCO to the DISTCOs for the past 10 months of the year 2001-02 are already available. This can be prorated for a period of another two months for the financial year 2001-02. This will go a long way in determining a realistic cost of power purchase. In stead of going for any other method of energy assessment, the Commission decides to adopt the principle of actual cost of power purchase from the transmission company as the base for determination of the cost of power purchase for the year 2001-02.

6.8.2

As far as the FY 2002-03 is concerned, the Commission will go by the growth rate projected for the various classes of consumers by the DISTCOs at different voltage level viz. LT, HT & EHT and calculate the incremental power requirement over and above the FY 2001-02.

6.9

Determination of expected revenue

6.9.1

The quantum of energy to be sold will be determined after deducting the units deemed to have been lost in distribution applying the bench-mark loss level adopted by Kanungo Committee and accepted by the Commission. On the quantum of energy to be purchased by the DISTCOs the percentage of distribution loss as approved by the Commission shall be applied to determine the quantity to be sold during the financial year. From the saleable energy for the year, units estimated to be sold at EHT i.e. zero loss energy would be deducted to arrive at the quantum of energy to be sold at HT and LT combinely. The expected revenue from sale of power shall be calculated separately for EHT and combinely for HT & LT. EHT revenue shall be calculated by multiplying the EHT rate with the EHT units. The revenue from HT and LT sale shall be calculated by multiplying the average rate of HT and LT rate with the number of units to be sold combinely at HT and LT. Thereafter, revenue at EHT and from HT and LT consumption will be added to determine the total expected revenue for the year. The gap between the estimated revenue requirement and the expected revenue will represent the deficit in revenue which need to be funded through interim financing or through tariff.

6.9.2

SOUTHCO in the format T-6 of its RST application for the year 2001-02 has furnished the average rate per unit billed to various classes of consumer based on the billing of the first six months of the FY 2001-02 the extract of which is given in the table.

Table : 13
Average Revenue based on actual billing of 1st six months of 2001-02 submitted by the licensees

Table-14
Average Revenue as per the (format T-7) estimated sale to various consumers for 2001-02 submitted by the licensees

6.9.3

The average rate projected by the distribution companies in the tariff filing for the year 2001-02 and 2002-03 obviously does not present the correct picture of the per unit rate as by their own admission (Table 13) the average per unit rate is much higher compared to their estimate given in Table 14. It is appropriate to take into consideration the average rate per unit as reported by them based on their billing of the first six months of the year 2001-02 given in Table 13 rather than accept the average rate based on estimates furnished in form T-7 of this tariff filing.

6.9.4

Collection efficiency of DISTCOs

6.9.4.1

For the purpose of determination of expected revenue, the sale figure will be determined assuming an overall loss percentage for the year 2001-02 as per para 6.9.5.2.

6.9.4.2

Since the FY 2001-02 has come to an end, the Commission this year shall only determine the revenue gap, if any, for recovery during the future years. The Committee of Independent Experts had also recommended that the reality in the level of billing and collection in the present Orissa situation by the distribution companies be recognized. For this purpose, they had suggested that 78% should be accepted as the collection efficiency for the base year 2001-02 going upto 95% by the year 2005-06. The Committee had recommended that the cash gap be funded by interim financing other than debt.

6.9.4.3

The Commission considers that the level of collection of 78% is no means satisfactory as there is a huge backlog of Government dues to be received by the DISTCOs. The Commission considers that with receipt of Government dues the collection efficiency will increase to 85% for the year 2001-02. In the neighbouring states the collection efficiency of the utilities is above 95% so also is the position in Rajasthan, Andhra Pradesh and Karnataka. The Commission also recognizes that the entire amount on account of non-collection should not be treated as bad debt as this will further raise the revenue requirement. Acceptance of the entire uncollected dues of a particular year therefore cannot be written off as bad and doubtful debt and cannot be treated as a pass through for next year tariff. This will accentuate the burden on the paying consumers of the state. The distribution companies have to bolster their machinery for improving collection of revenue for which they need State Government support for law and order issue. To translate this into action, the Commission fixes a yardstick for collection efficiency 85 %for the year 2001-02 and 87.5 % for the year 2002-03.

6.9.4.4

The shortfall in revenue collection for the FY 2002-03 calculated at collection efficiency level of 87.5% works out to Rs.268.75 crore on an expected revenue of Rs.2150.04 crore (Table-16). On the other hand the receivables against energy charges from the various departments of the Government and State PSUs has piled up to more than Rs.230 crore within a period of three years of operation of the DISTCOs since 01.04.1999. The Government Departments and State PSUs should clear up the outstanding dues of DISTCOs by routing the payment through GRIDCO. This shall be adjusted against the power purchase and loan liabilities of DISTCOs due to GRIDCO which will improve the liquidity of the power sector in Orissa.

6.9.5

Summary of revenue requirement of DISTCOs for FY 2001-02 & 2002-03

6.9.5.1

For the FY 2002-03, the Commission will consider the cost of power purchase on a realistic basis as projected by the distribution companies and calculated the expected revenue to be calculated assuming a loss reduction of 5% from year to year i.e. from 42.21% in 2001-02 to 37.21% in 2002-03 though the figures will be varying across the four zones. Similarly, the level of collection efficiency should be considered at the level of 85%. All other terms and conditions with regard to the method of determination of expected revenue as explained on the para above for the year 2001-02 shall apply for year 2002-03 also.

6.9.5.2

Accordingly, a summary of purchase sale and expected revenue for the year 2001-02 & 2002-03 is approved as per the details below.

Table-15
FY 2001-02

Table-16
FY 2002-03

6.9.5.3

The Commission does not accept the figure of expected revenue calculated by the DISTCOs for the FY 2001-02 as well as for the FY 2002-03 and determines the expected revenue for various DISTCOs for the aforesaid period as indicated in Table-15 and Table-16 respectively for the FY 2001-02 and 2002-03 subject to any variation on account of change in direct sale to consumers at EHT.

6.10

Operating Expenses

6.10.1

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

6.10.2

SOUTHCO in OERC Form No.TRF-21 (2002-03 filing) has submitted various components covered under employees cost for the FY 2000-01 on the basis of audited accounts and have made projection for FY 2001-02 and 2002-03. The employees cost chargeable to revenue was Rs.46.99 Crore as per the audited account for the FY 2000-01 which has been projected to go up to Rs.50.74 Crore during FY 2001-02 and Rs.54.34 Crore for the FY 2002-03. The number of employees as on 31 March 2001 was 4288 which may be reduced further to 4081 as on 31 March 2002 and to 3954 as on 31 March 2003. In the ARR filing SOUTHCO stated that the employees cost have been estimated in the ensuing year on the basis of actual/audited expenses incurred during 2000-01 and actual/forecast during current year.

6.10.3

Commission analysed the figure based on the audited accounts submitted by the licensee and considers it appropriate allowing a rise of 3% on the basic pay per annum over the audited figure of FY 2000-01 to determine the basic pay for the year 2001-02 as well as 2002-03. Reduction in manpower has been taken care of and basic pay has been adjusted accordingly as per the average manpower for the year 2001-02 and 2002-03.

6.10.4

As regards DA, Commission is aware of the fact that the rate of DA allowed by Govt. of Orissa is 41% with effect from July, 2000. This rate is continuing now and no increase in DA rate has been announced by State Govt. The Commission in view of the above decides to consider the prevailing rate of 41% for calculation of DA for the financial year 2001-02 and 2002-03. However, any increase in rate of DA in future will be allowed to be recovered through tariff with retrospective effect.

6.10.5

All other allowances as claimed by the licensee are found reasonable and accepted. Keeping these observations in view the Commission approves Rs.48.73 Crore for the year 2001-02 and Rs.51.24 Crore for the year 2002-03 towards Employees costs the details of which indicated in the Table below.

Table : 17
Details of Employees Cost
(Rs. in Crore)

6.10.6

Thus, the Commission approves an amount of Rs.47.53 Crore for the year 2001-02 and Rs.48.53 Crore for the year 2002-03 towards employees cost.

6.11

Repair & Maintenance Expenses

6.11.1

SOUTHCO has proposed an expenditure of Rs.15.57 Crore in their RST application for the FY 2001-02 and Rs.16.82 Crore in the ARR for the FY 2002-03 towards repair and maintenance expenses.

6.11.2

As per the audited accounts of the year 2000-01 the total R&M expenses was Rs.11.60 Crore. In the last tariff order, the Commission had considered 5.4% of the Gross Fixed Assets at the beginning of the year towards expenditure on repair and maintenance.

6.11.3

The Commission examined the licensee 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. As per RST and ARR filing the gross fixed asset as on 31 March, 2001 and 2002 would be Rs.288.38 Crore and Rs.338.29 Crore respectively. 5.4% of the gross fixed asset as referred above comes to Rs.15.57 Crore for the year 2001-02 and Rs.18.17 Crore for the year 2002-03. The licensee claimed Rs.16.82 Crore for the year 2002-03. The Commission approves Rs.15.57 Crore and Rs.16.82 Crore for the year 2001-02 and 2002-03 respectively towards R&M expenses.

Table : 18
(Rs. in Crore)

6.12

Administration & General Expenses

6.12.1

SOUTHCO has proposed Rs.7.08 Crore for the year 2001-02 and Rs.7.73 Crore for the year 2002-03 towards A&G expenses in their RST and ARR applications. 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.

6.12.2

The Commission has examined the licensee's proposal on A&G Expenses. A&G expenses as per the audited accounts for 2001-02 submitted by SOUTHCO was Rs.5.02 Crore. The Commission in its last tariff order of 2000-01 approved Rs.3.02 Crore towards A&G expenses, considering 8% increase over the approved figure of 1999-00 to factor in inflation.

6.12.3

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 or about 5%.

6.12.4

The Commission finds the projected A&G expenses rather excessive with reference to earlier expenditure and volume of transaction which has not increased.

6.12.5

The Commission, therefore, considers it reasonable to allow an increase of 5% per annum over the approved figure of 2001-02 to factor in inflation and approves an amount of Rs.3.17 Crore and Rs.3.33 Crore for the year 2001-02 and 2002-03 towards A&G expenses.

Table : 19
(Rs. in Crore)

6.13

Interest on Loan

6.13.1

SOUTHCO has proposed an amount of Rs.37.16 Crore for the year 2001-02 and Rs.35.09 Crore for the year 2002-03 towards interest on loans taken from GRIDCO, World Bank and on interest on Power Bonds to be charged to revenue. The interest amount on the loan from GRIDCO has been calculated as per the loan agreement with SOUTHCO. The interest amount on loan from World Bank has calculated @ 13% per annum as per the subsidiary loan and project implementation agreement with Govt. of Orissa. Interest on Power Bonds worth Rs.130 Crore issued in favour of GRIDCO/NTPC with effect from 1 October 2000 towards power purchase liability and loan repayment liability has been calculated @12.5% per annum.

6.13.2

SOUTHCO has stated that only the interest on loan drawn during the current year for capital works has been capitalized. SOUTHCO proposes receipt of loan of Rs.20.00 Crore and Rs.35.00 Crore from World Bank during the year 2001-02 and 2002-03. The interest on this loan is proposed for capitalisation in the respective years.

6.13.3

In addition to above, SOUTHCO has proposed an amount of Rs.14.57 Crore and Rs.21.42 Crore towards interest on working capital for the year 2001-02 and 2002-03 respectively. SOUTHCO tried to justify the claim of interest on working capital with a plea that they have not been able to get any working capital loans from any financial institution/banks due to their poor financial conditions. In turn they have not been able to pay to GRIDCO the full amount of electricity bill for which they have to pay DPS @ 2% per month on the outstanding amount of power purchase bills which has been claimed as interest on working capital.

6.13.4

It is seen from the Form F-27 of the filing that Rs.14.51 Crore relates to interest on loan advanced by GRIDCO, Rs.6.39 Crore relates to interest on loan from World Bank and Rs.16.25 Crore relates to interest on Power Bond, totalling Rs.37.15 Crore which is charged to revenue for the year 2001-02. Similarly, for the year 2002-03, Rs.10.82 Crore relates to interest on loan advanced by GRIDCO, Rs.8.01 Crore relates to interest on loan from World Bank and Rs.16.25 Crore relates to interest on Power Bond, totalling Rs.35.09 Crore. Subsequently, SOUTHCO revised the interest on GRIDCO loan to Rs.11.13 Crore.

6.13.5

The Commission examined the calculation and also the audited accounts of 2000-01 submitted by licensee. After making a minor correction in the calculation of interest of World Bank loan, the same has been arrived at Rs.5.63 Crore as against Rs.6.39 Crore claimed by the licensee.

6.13.6

The Commission has advised the GOO for treatment of World Bank loan in terms of the original sanction. Thus, the World Bank loan has been treated as 30% grant and 70% loan according to which interest has been reduced from Rs.6.39 Crore claimed by the licensee to Rs.3.91 Crore for the year 2001-02. Similarly, applying correctives as mentioned above the interest burden on World Bank loan has been reduced to Rs.5.79 Crore from Rs.8.01 Crore for the year 2002-03.

6.13.7

The power bonds issued by the licensee in favour of GRIDCO has been assumed to be re-securitized at 8.5% tax free bond from 2001-02. Accordingly, the interest has been calculated @ 8.5% as against 12.5% claimed by the licensee. In this perspective, the Commission allows Rs.11.05 Crore towards interest on bonds for each year of 2001-02 and 2002-03 as against Rs.16.25 Crore proposed by the licensee.

Table : 20
(Rs. in Crore)

6.13.8

The Commission while considering the capital base as provided in the Sixth Schedule of the Act, 1948 made provision towards working capital on which the licensee is entitled to get reasonable return. Moreover, the licensee can get rebate on prompt payment from GRIDCO @ 2% per month which will reduce its power purchase liability in essence if the licensee arranges working capital from the commercial and financial institutions it can save DPS as well as earn rebate from GRIDCO which will compensate the interest on working capital and may accrue some revenue in the form of revenue. Hence, the Commission disallows the interest on working capital as claimed in the retail tariff and ARR by SOUTHCO.

6.14

Depreciation

6.14.1

SOUTHCO has proposed in their revised submission dtd. 30.3.2002 depreciation of Rs.22.33 Crore and Rs.26.23 Crore for the year 2001-02 and 2002-03 on an asset base of Rs.288.38 Crore and Rs.338.29 Crore respectively at the beginning of the year. It has adopted the straight line method as prescribed by Central Govt., Ministry of Finance, Notification No. SO-765-E dtd. Nov. 6, 1997.

6.14.2

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

6.14.3

One of the objectors claimed that depreciation should have been calculated on the basis of notification of Ministry of Power, Govt. of India of March, 1994. 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 of 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 maintaining the fixed asset register and stated that cumulative depreciation of any asset should not exceed 90% of the original cost of asset.

6.14.4

The issue of non-maintenance of asset registers has been raised by several objectors and they expressed their doubts on the accuracy of calculation of depreciation without asset registers. It has been apprehended that there has been an over recovery of depreciation beyond the 90% value of the asset from consumers as there is no proper record to verify.

6.14.5

The Commission noted the objections raised during the course of hearing, the rejoinder submitted by the licensee, took note of the auditor's observations for the year 2000-01 and would like to state that depreciation is being calculated at post-94 rate as prescribed by Govt. of India on the asset base that was revalued on 01.4.96. This substantially raised the revenue requirement of the transmission and distribution business. The Govt. of India Notification on depreciation issued in pre-1992 links the rate of depreciation to the age of the assets. The Commission in the public interest decides that the licensees will be allowed to recover 90% of the asset value within the life period of the asset as determined by Govt. of India Notification of 1992. This will avoid front loading of the tariff, but at the same time will ensure necessary cash flow for the licensee over a longer period of time. Accordingly, the Commission directs that the depreciation of the assets should be calculated at pre-92 rate and be limited to 90% of the revalued cost of the assets.

6.14.6

The Commission took note of the observation noted in the audit report for the year 2000-01 that the gross block of fixed assets and the depreciation on the same are subject to finalisation. The Commission expresses its concern over non-maintenance of proper records particularly on Fixed Assets. During the course of the hearing the Commission directed the licensee that proper records on fixed assets shall be maintained and produced to the Commission by 31 August, 2002.

6.14.7

The Commission directs Southco to comply to the observations raised by their statutory auditors before 31 of August, 2002 i.e. well before the filing of revenue requirement (15 December to 31 December, 2002) for the year 2003-04. Once an asset register is maintained, the expenditure on fixed assets and provision of depreciation can be properly ascertained.

6.14.8

According to the provisions of the Act, 1948, depreciation for the year should be calculated on the gross fixed asset existing at the beginning of the year. Audited Accounts of SOUTHCO for the year 2000-01 reveals that the gross fixed asset of the licensee as on 31.3.2001 is Rs.288.38 Crore and it has been estimated to be Rs.338.29 Crore as on 31 March, 2002.

6.14.9

As mentioned in para 6.14.5 the depreciation has been recalculated on the basis of pre-92 rates prescribed by Government of India notification on the asset base as above. The Commission approves provisionally depreciation of Rs.10.85 Crore for the year 2001-02 and Rs.12.74 Crore for the year 2002-03 as against Rs22.45 Crore and Rs.26.23 Crore proposed by the licensee.

Table : 21
Calculation of depreciation
(Rs. in Crore)

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