Case No.12 of 1999

Present : Shri S.C. Mahalik, Chairman
Shri D.K. Roy, Member

Date of Argument : 29.11.99
Date of Order : 30.12.99

IN THE MATTER OF : Revenue requirement and determination of tariff for bulk-supply and for transmission for 1999-2000.

O R D E R

Table of Contents

1. Introduction

2. Preliminary Objections

3. GRIDCO's Proposal

4. Objector's views

5. GRIDCO's rejoinder

6. Commission's Analysis and Orders

   1. Revenue Requirement

      1. Quantity of Power Purchase

      2. Cost of Power

      3. Other Revenue Requirements

   2. Approved Revenue Requirement, Reasonable Return & Clear Profit

   3. Transmission Loss

   4. Tariff Design and Bulk Supply

   5. Transmission Tariff

   6. Commission's Order

7. Annexures

   1. Annexure - I

   2. Annexure - II

   3. Annexure - III

Grid Corporation of Orissa Ltd., Janpath, Bhubaneswar (GRIDCO, for short), the holder of licence for carrying on the business of Transmission & Bulk Supply of electricity in the State of Orissa, submitted an application on 17.08.99 u/s 26 of the Orissa Electricity Reform Act, 1995 (Reform Act, 1995, for short) in respect of tariff for bulk supply of electricity to Distribution & Retail Supply Licensees in Orissa and transmission tariff for use of transmission services.

2.0

The application of GRIDCO is in two volumes (Vol.1 containing the main text & annexures and Vol. 2 containing evidential documents). The Commission’s staff, after preliminary scrutiny of the application, raised a number of comments/queries thereon. The Commission forwarded the comments/queries to GRIDCO and asked for additional information from GRIDCO in order to enable the Commission to decide whether the filing would be treated as complete for the purpose of proceeding u/s 26 of the Reform Act, 1995.

2.1

GRIDCO provided clarifications to the comments/queries in two volumes (Vol.-1 containing the main text & annexures and Vol. 2 containing evidential documents) on 6^th October, 1999. In the light of the clarifications to the comments/queries and additional information received from it, the filing appeared to be generally in order. Accordingly the filing was treated as complete and by Order No.2 dt.08.10.99, the application in question was admitted and issue of public notice inviting objections to GRIDCO’s application was ordered.

2.1.1

Notice was published, as approved by the Commission, in several local newspapers on two consecutive days in terms of Clause 39 r/w sub-clause (1) of Clause-126 of the Orissa Electricity Regulatory Commission (Conduct of Business) Regulations, 1996 (Regulations, 1996, for short) outlining the broad features of the Transmission & Bulk Supply Licensee’s proposed tariff and the rates & charges in a Schedule appended to the notice and inviting objections from interested persons. The public notice required the interested persons to file their objections and such documents as they seek to rely upon, supported by an affidavit, in six copies and to indicate also if they would like to be heard in person by the Commission in terms of Clause 43 of the Regulations, 1996. The notice further required the interested persons to serve a copy of the reply/objection along with the documents relied upon on the petitioner/applicant and to file proof of such service before the Commission at the time of filing of the reply/objection in terms of Clause 44 of the Regulations, 1996.

2.1.2

The above public notice also called upon the interested persons/objectors to inspect/peruse GRIDCO’s application and take note thereof during office hours within 15 days of the publication of the notice. The public notice also permitted the interested persons to obtain the salient features of the application on payment of Rs.20/- towards photocopying charges from Director (Comm.), GRIDCO Hqrs., Bhubaneswar and all Superintending Engineers in charge of EHT (Maint.) Circles of GRIDCO at Cuttack, Burla, Berhampur and Jajpur Road. They were also permitted to obtain a full set of the application together with supporting materials (in 4 volumes) on payment of Rs.250/- towards photocopying charges.

2.1.3

The last date of filing of objection complying with the terms & conditions of the public notice was initially fixed as 05.11.99. The date fixed for filing of objection was extended to 15.11.99 because of the super cyclone which hit Orissa on 29^th and 30^th November, 1999. A notice in print media such as "Samaya" (dtd. 05.11.99) and "New Indian Express" (dtd. 03.11.99) was published extending the date of filing of objection with regard to GRIDCO’s application as well as the Retail Supply Tariff (RST) applications of the Distribution and Retail Supply Licensees for the information of the general public and interested persons. The notice regarding extension of the date of filing of the objection was also displayed on the office Notice Board.

2.2

The Commission received 18 objections against GRIDCO’s application out of which one was rejected for non-compliance of the terms & conditions as laid down in the public notice while 17 objections were admitted according permission to the objectors for participating in the hearing. The objectors whose objections were admitted for hearing are (1) Managing Director, WESCO, At/P.O. Burla, Dist. Sambalpur. (2) Managing Director, NESCO, At/P.O. Januganj, Dist. Balasore. (3) Managing Director, SOUTHCO, At/P.O. Courtpeta, Berhampur (4) M/s Indian Aluminium Company (INDAL), At/P.O. Hirakud, Dist. Sambalpur. (5) M/s Nava Bharat Ferro Alloys Ltd., At/P.O. Khadgaprasad (Near Meramundali Rly. Station) Dist. Dhenkanal. (6) M/s Utkal Chamber of Commerce & Industry Ltd., Barabati Stadium, Cuttack. (7) Shri K.N. Jena, General Secretary, Orissa Consumers’ Association, Biswanath Lane, Cuttack. (8) Shri K. Acharya, President, Orissa Grahak Mohasangha, B-4, Pallaspali, Bhubaneswar. (9) Dr. S.K. Tamotia, President, Aditya Aluminium, 9^th Floor, IDCO Towers, Bhubaneswar. (10) Shri N. Jena, Secretary, Nayapalli Community Care Association, N-2/100 IRC Village, BBSR. (11) M/s Indian Charge Chrome Ltd. (ICCL), At. Bomikhal, P.O. Rasulgarh, Bhubaneswar. (12) M/s NALCO, P/1, Nayapalli, Bhubaneswar. (13) Shri R.C. Padhi, Retd. Chief Engineer, MIG A/24, Brit Colony, Nayapalli, Bhubaneswar (14) Managing Director, CESCO, 18, Forest Park, Bhubaneswar. (15) Shri S.K. Nanda, Convenor, Energy Panel, Confederation of Indian Industry (CII), Eastern Region, 8, Forest Park, Bhubaneswar. (16) Shri Dhaneswar Dhal, A-39, Sahidnagar, Bhubaneswar . (17) Shri R.C. Mehta, B-204, Madhukunj Enclave, Rasulgarh, Bhubaneswar.

2.3

After receipt of the objections and scrutiny thereof, the Commission published a notice in two Oriya dailies and one English daily on 17^th & 18^th November, 1999 whereunder the list of valid objections with regard to GRIDCO’s application and the date of hearing (29.11.99) were notified for the information of the general public.

2.3.1

In terms of clause-45 of the Regulations, 1996, the Commission permitted the applicant to file a rejoinder to all the objections/reply filed by the objectors.

2.4

As notified, the hearing of the BST application commenced on 29.11.99. None of the parties present made any prayer to adduce oral or documentary evidence in course of the proceedings except those that were filed supported by affidavit, in response to the public notice.

2.5

Apart from the substantive objections, the following legal objections were raised by different objectors as preliminary objections on the maintainability of the tariff proceeding. The Commission heard the views of GRIDCO on such objections. While one of the preliminary objections was disposed of by Order dtd.29.11.99, it was decided with the consent of the respective objectors that all other preliminary objections would be dealt with by the Commission in the final order.

2.5.1

The preliminary objections are as follows :-

2.5.1.1

Miscellaneous Appeal No.41 of 99 has been filed in the Hon’ble High Court of Orissa being aggrieved with the decision of the Commission in Case Nos.18/98 (BST) and 19/98 (RST) and, therefore, the present BST application should be rejected by the Commission as an appeal is pending against the BST determined by the Commission in its Order dated 21.11.98.

(Orissa Grahak Mohasangha Para-1)

2.5.1.2

The BST application is neither a new tariff nor an amendment to the existing tariff. It is only a revision of the existing tariff. Therefore it is not permitted under law.

(Orissa Grahak Mohasangha Para-1)

2.5.1.3

The BST fixed by the Commission by its Order dt.21.11.98 in Case No.18/98 which has come into force from 01.12.98 cannot be revised or amended within a period of 3 years as envisaged u/s 57-A (1)(e) of the Electricity (Supply) Act, 1948 (the Act, 1948, for short) and therefore the BST application is not maintainable and liable to be rejected outright.

(O.C.A. Para-1& 28)

2.5.1.4

The BST so fixed by the Commission (in Case No.18/98) cannot be amended within one financial year unless warranted for adjustment of Fuel Surcharge.

(O.C.A. Para-2)

2.5.1.5

OERC has not framed any regulation by notification in official gazette for fixation of tariff u/s 29 of the Electricity Regulatory Commission Act, 1998 (the Commission Act, 1998, for short) and sub-section (2) of Section 26 of the Reform Act, 1995 and as such it lacks authority and power to consider the application of the licensee, be it for fixing a new tariff or revising or amending the existing one.

(O.C.A. Para-2&4)

2.5.1.6

OERC has not yet specified the methodology and procedure for calculating expected revenue from the charges and therefore, it cannot consider the application of the licensee which is based on imaginary, vague, and manipulated statement of facts and accounts in the absence of statutory audit reports for the year 1997-98 and 1998-99.

(O.C.A. Para-5,6,&7)

2.5.1.7

Licensee has failed to comply with the conditions of the Licence to improve its efficiency, standard of service and reduce its losses and as such, it should not be allowed to make good the losses attributable to mal-administration, inefficiency, corruption, mismanagement, and unwarranted expenses by way of penalising the consumers in the form of a tariff hike.

(O.C.A. Para-8&13)

2.5.1.8

The BST application not having been filed prior to the commencement of the FY 1999-00 and the said application having been made in the middle of the aforesaid FY cannot be entertained for setting a tariff for the balance or remaining part of the FY.

(O.C.A. Para-9)

2.5.1.9

As the OERC has not consulted Commission Advisory Committee (CAC, for short) prior to the admission of the tariff application and issue of public notice, it would not be legal and proper to proceed with the case.

(O.C.A. Para-16)

2.5.1.10

As the Commission, at present, is only a two member Commission instead of three and the member of the Commission who shall be an electrical engineer having experience of generation, transmission & distribution or supply of electricity in terms of Section- 5 (1)(a) of the Reform Act, 1995 having not been appointed as yet, the Commission now comprising two members lacks quorum to undertake and dispose of the tariff proceeding because of the bar created u/s 9(4) of the Reform Act, 1995.

2.6

We now deal with the first objection raised by Orissa Grahak Mohasangha. Though M.A. No.41/99 has been filed in the Hon’ble High Court of Orissa against the final order in BST (Case No.18/98) and RST (Case No.19/98), it is not the case of the objector that the orders of the Commission in those two cases have been stayed by the Hon’ble Court. As the final orders in Case No.18/98 and 19/98 have not been stayed by the Hon’ble Court, the plea of the objector that the present application for BST should be rejected out of hand because of the pendency of the M.A. bearing No.41/99 cannot be considered as a valid objection.

2.7

Regarding the second objection raised by Orissa Grahak Mohasangha, it may be mentioned that nowhere in the BST application, the applicant has sought for revision. On the other hand, the applicant has described the BST application as one for amendment of Transmission & Bulk Supply Tariff u/s 26 of the Reform Act, 1995. Similarly, in para-B at page 5 of the BST application, it has been described as an application u/s 26 of the Reform Act, 1995 r/w Condition 21.3 of the Orissa Transmission & Bulk Supply Licence for amendment of the Transmission & Bulk Supply Tariff approved by the Commission vide its Order dtd. November 21, 1998 in Case No.18/98.

2.7.1

Apparently there is some misunderstanding about Section 26 of the Reform Act, 1995 which is relevant to the determination of tariff by the Commission. We would like to clarify that in this section of the Reform Act, 1995, the procedure for determination of a fresh tariff or amendment of tariff is the same. There is no vacuum or even interregnum in operation of a tariff which has been defined as a schedule of standard prices or charges. This has been amply made clear in Clause 116 of Regulation, 1996. Depending on the gap between estimated revenue requirement and the aggregate revenue which a licensee is permitted to recover by the tariff in operation, the Commission may approve modification to the tariff or any part of tariff. Whether the resultant determination is called a tariff or an amendment of tariff is not of any consequence. The Commission cannot refuse to entertain an application if the Commission finds that the licensee’s filing of revenue requirement and expected revenue from charges is reasonably complete. It has to process it and take a decision within ninety days of the complete filing. Sub-sec. (6) of Section 26 of the Reform Act, 1995 lays down that except in terms of fuel surcharge formula, no tariff or part of tariff can be amended more than once in any financial year. The natural corollary is that tariff or part of any tariff can be legitimately amended once in a financial year. The current BST was set in November, 1998 within the financial year 1998-99. Therefore an amendment to BST during financial year 1999-00 if found justified cannot be termed as illegal.

2.8

The third objection raised by Orissa Consumers’ Association in paras 1 & 28 of its written objection is that when the provisions of Sec.57-A of the Act, 1948 r/w the provisions of the Reform Act, 1995 contemplate that charges for the supply of electricity, once fixed, shall be in operation for three years, revision of tariff within one year would be without the authority of law.

2.8.1

The objection is purportedly based on Section 57-A of The Act, 1948. We have considered the provision of Section 57-A of the Act, 1948 and particularly sub-clauses (c) and (e) of sub-section (1) of Section 57-A quoted by Shri Jena. We find that these provisions are applicable to charges for electricity recommended by a Rating Committee and approved by the State Govt. and stipulate that such charges recommended by a Rating Committee for supply of electricity shall be in operation for such period not exceeding three years as the State Govt. may specify in the order. Sub-section (7) of Section 26 of the Reform Act, 1995 repeals the constitution of a Rating Committee making the provisions of the The Act, 1948 quoted by Shri Jena inapplicable in this case. We hold that the preliminary objection by the learned counsel citing the provisions of Section 57-A of the Act, 1948 is without merit as the said provision is inapplicable in tariff proceeding under Section 26 of the Reform Act, 1995.

2.9

The fourth objection that the BST determined in Commission’s Order dated 21.11.98 (in Case No.18/98) cannot be amended within one financial year unless warranted for adjustment of fuel surcharge is already dealt with by us in para 2.7 above.

2.10

The fifth objection of the Orissa Consumers’ Association relates to lack of authority and power of the Commission to consider the present application of the Licensee, be it for fixing a new tariff or revising or amending an existing one on the ground that the Commission has not framed any regulation for fixation of tariff u/s 29 of the Commission Act, 1998 and under sub-sec. (2) of Sec. 26 of the Reform Act, 1995, by notification in the official gazette.

2.10.1

In fact, this objection of the Orissa Consumers’ Association has two parts. The first part of the objection is that OERC has not framed any regulation for determination of tariff u/s 29 of the Commission Act, 1998 and as such, it lacks authority and power to consider the application of the licensee. In view of the above objection, the point for consideration is if Sec. 29 of the Commission Act, 1998 is applicable to determination of tariff in the State of Orissa.

2.10.2

We understand that Shri K.N. Jena, General Secretary of the Orissa Consumers’ Association has, in OJC No.6999/99, challenged the procedure adopted by the State Govt. for appointment of a member of the Commission which has fallen vacant on the ground that the State Govt. has not followed procedure provided under the Commission Act, 1998 for such purpose. The aforesaid writ application is yet to be disposed of laying down the law on the issues involved.

2.10.3

Meanwhile, we are of the opinion that the Reform Act, 1995 holds good in all matters provided therein for OERC including determination of tariff by the Commission in view of the special provision relating to the Reform Act, 1995 and Haryana Electricity Reform Act, 1997 contemplated u/s 41 of the Commission Act, 1998. Sec. 41 of the Commission Act, 1998 clearly provides that the provisions of the said Act, in so far they relate to the State Commissions, shall not apply to the Commissions established under the Reform Act, 1995 or the Haryana State Electricity Reform Act, 1997.

2.10.4

The subject "electricity" is in the Concurrent List of the Constitution of India. Therefore, the State of Orissa has a right to enact law on electricity as it did in the Reform Act, 1995. The Reform Act, 1995 has been assented to by the President of India on the 3^rd January, 1996. Further, Sec.41 of the Commission Act, 1998 is in the nature of a built-in provision to safeguard the State Acts enacted earlier from the overriding effect of a Central Act enacted later than the State Acts on the same subject of "Electricity" and in the same field of establishing Electricity Regulatory Commission. To sum up, we hold that the Commission Act, 1998 in so far as it relates to State Commissions is not applicable to OERC.

2.10.5

The second part of the objection is that the OERC has not framed any Regulation by notification in the official gazette for determination of tariff under sub-section (2) of Sec.26 of the Reform Act, 1995 and therefore it has no authority or power to consider the application of the Licensee whether it is for a new tariff or revision or amendment of the existing one. Before we deal with the factual aspect of this objection, we may point out that while Shri Jena has stated in the first part of his objection that tariff should be determined by OERC in accordance with the provisions of Sec. 29 of the Commission Act, 1998, he has also contended in the second part of his objection that OERC has not framed regulations for fixation of tariff u/s 26(2) of the Reform Act, 1995 and, therefore, OERC has no authority or power to consider the said application of the Licensee. It appears to us that Shri Jena is challenging the Reform Act, 1995 in so far as it relates to the OERC and at the same time relying on the same Reform Act, 1995 to challenge the alleged omission on the part of OERC.

2.10.6

The plea taken by Shri Jena that OERC has not framed any regulation to determine tariff u/s 26(2) of the Reform Act, 1995 has no basis in fact. Chapter-V of the Regulations, 1996 deals with regulations on tariff as envisaged in Chapter-VIII of the Reform Act, 1995. The provisions contained in Chapter-V of the Regulations, 1996 has conferred upon the Commission a measure of discretion in the matter of evolving its working procedure so long as these procedures conform to the principles of natural justice. Accordingly, we are of the opinion that there is no merit in this objection.

2.11

With regard to the sixth objection of the Orissa Consumers’ Association, it may be pointed out that upon filing of the application for BST by M/s GRIDCO on August 17, 1999, the Commission in its letter No.2364 dt.30.08.99 pointed out certain omissions to be supplied by the applicant and raised certain queries for clarification. The applicant supplied the omissions and filed clarification to the queries on its application in two volumes on 6.10.99. After scrutiny of all the filings including a large number of documentary evidence (Vol.2 of the filing dtd.17.8.99 and Vol.2 of the clarification to the queries dtd.06.10.99), the Commission treated the filings to be generally in order and the tariff application in question was treated as complete.

2.11.1

It may be stated here that regulatory proceeding cannot be treated at par with proceedings before common law Courts. The Commission is empowered under clause-111 (Chapter-V) of the Regulations, 1996 to lay down methodologies and procedures for calculating the expected revenue from charges and for determining the tariffs from time to time with the further enabling provisions to add, amend, alter, revise, substitute or otherwise change such methodologies and procedures at any time the Commission desires. Clause 113 of the said Regulation further provides that the Commission may issue orders from time to time giving details of the manner in which licensee’s revenue and tariff will be determined consistent with the provisions of the Act and Regulations framed for the purpose. Even, where no Regulation has been framed to deal with any matter or exercise any power under this Act, the Commission is free to deal with such matters, powers and functions in the manner it thinks fit.

2.11.2

We would also like to emphasise that in accordance with Section 10(5) of the Reform Act, 1995, this Commission, in discharge of its function, shall be entitled to and may consult to the extent it considers appropriate from time to time such persons or group of persons who may be affected or likely to be affected by the decisions of the Commission. This provision read with Sec. 26 of the Reform Act makes it clear that the Commission has wide discretion to evolve its own methodology, procedures and mechanism, subject, however, to the fact that they are just and reasonable and to carry on its activities in cases where there is no provision in the Reform Act, 1995 or Regulations framed thereunder.

2.11.3

We have examined the objection that the filing should not have been admitted in the absence of audited accounts for 1998-99. It may be mentioned that the licensee has filed audited accounts for the year 1997-98 along with the application. The audited accounts for the year 1998-99 have not been filed. In the normal course, the revenue requirement for 1999-00 along with request for amendment of tariff if any should have been filed in December, 1998. If the application would have been filed by the prescribed date, the licensee was in a position to file only the audited account for 1997-98. It appears that in view of the unsettling effects of transition involving formation of new distribution companies, disinvestment of government shares and issue of fresh license etc. the revenue requirements were not filed in December, 1998 which ought to have been the case. This was filed in August, 1999 when audited accounts for 1998-99 were not yet due .

2.12

Therefore, we are unable to agree with Shri Jena that the tariff application of the Transmission & Bulk Supply Licensee is defective, incomplete and not maintainable.

2.13

The seventh preliminary objection raised by the learned counsel, Shri Jena, relates to debarring the licensee from revising the tariff until and unless it fulfilled the conditions of Transmission & Bulk Supply Licence as amended from time to time and complied with the order of the Commission.

2.13.1

Non-compliance or inadequate compliance of the licence conditions, if any, is a separate issue which cannot hold up the process of determination of tariff. The Commission is bound by law as in Section 26 (6) of the Reform Act, 1995 to determine the tariff within 90 days from the date the application was treated by the Commission as complete. Elaborate provisions exist in the Reform Act, 1995 to deal with non-compliance or violations of licence conditions. Filing of the revenue requirement and expected revenue from charges is a statutory duty of the licensee as provided in s/s (4) of Sec.26 of the Reform Act, 1995 and therefore this function must not be mixed up with other issues like non-compliance or inadequate compliance of the licence conditions. The Commission is, therefore, of the opinion that this objection has no merit and is accordingly overruled.

2.14

The eighth objection raised by Shri Jena for Orissa Consumers’ Association that the application cannot be entertained in the middle of the financial year 1999-00 has no basis in law. The Commission would have liked strict adherence to the due date of filing of the revenue requirement i.e. by 31^st December, 1998 but the Commission is persuaded to accept the delay caused due to the transitional problems. The Commission has also noted that there is no statutory time schedule for application for tariff and hence the Commission cannot refuse to consider the application if it is otherwise in order.

2.15

The ninth objection raised by Shri Jena, General Secretary of the Orissa Consumers’ Association is that the Commission Advisory Committee was not consulted by the Commission before admitting the application. Sub-section (6) of Sec.26 prescribes; "If the Commission considers that the proposed tariff or amended tariff of a licensee does not satisfy any of the provisions of sub-section (5), it shall, within 90 days of the date of receipt of all information which it required, and after consultation with the Commission Advisory Committee constituted u/s 32 and the licensee, notify the licensee the proposed tariff or amended tariff." It is clear from the language employed in sub-sec. (6) that the question of consultation arises only before the Commission actually seeks to notify the licensee the proposed tariff or amended tariff. Consultation with the Commission Advisory Committee, therefore, is not a pre-requisite for admission of the licensee’s application. It may be further mentioned that the Commission had already scheduled the meeting of the CAC by the time the public hearing was taken up.

2.16

In order to dispose of the last objection, we may point out that Sec.9(4) of the Reform Act, 1995 stipulates a quorum for review of any previous decision taken by the Commission. This stipulation for quorum is applicable only if there is an explicit prayer for review of any previous decision of the Commission. We have already stated while dealing with objection No.2.5.1.2 (vide para 2.7) that the present application is not a prayer for review of the BST. It is an application u/s Section 26(6) of the Reform Act, 1995. We, therefore, hold that there is no bar to or infirmity in the Commission proceeding to determine the BST as prayed for by the applicant.

2.17

In the light of our observations in the above paragraphs, we have to hold that there is no validity in any of the preliminary objections, most of which were due to inadequate appreciation of regulatory procedure. We, therefore, proceed to examine Gridco’s proposal and give our findings on the same.

3.0

Gridco’s Proposal

3.1

GRIDCO has proposed to purchase 10229.90 MU (BS-2 revised) of power at an average unit cost of 117.59 paise from the various generating stations inside and outside the State to meet the demand of the four distribution companies during the year 1999-00. On the assumption of an estimated transmission loss of 5.3%, GRIDCO estimates to sell 9666.71 MU to the four distribution companies. The financial implication of the GRIDCO’s proposal at a glance is at Table : 1 and Table : 2.

Table : 1
Revenue Requirement for the year 1999-00 (Ref : BS 5 Revised)

Table : 2
Expected Revenue at the existing tariff for the year 1999-00
(Ref : BS 6 Revised)
(Rs. in crores)

3.1.1

In a nutshell, GRIDCO estimates that against the total revenue requirement of Rs.1680.25 crores for the year 1999-00, the expected revenue for the year 1999-00 at the current BST will be Rs.1254.89 crores.

3.2

GRIDCO has submitted that the current tariff is inadequate to meet the current cost and is not even sufficient to meet the fixed cost of generation and transmission as GRIDCO is obliged to pay these costs irrespective of the actual demand in accordance with the existing PPAs. GRIDCO has stated that its accumulated loss of Rs.900.30 crores including the loss on account of Distribution business upto 31.3.99 has completely eroded the net worth of the company. Market funding has been difficult due to erosion of its net worth. Therefore, GRIDCO has requested that it may be allowed to recover the full costs through a fresh bulk supply tariff as well as transmission tariff for which proposals have been given by it.

3.3

Bulk Supply Tariff (BST)

3.3.1

GRIDCO proposes to set the BST to recover the full-embedded cost of supply including the transmission cost over a period of 12 months. The proposed BST comprises Demand charge and Energy charge.

3.3.2

Demand charge is proposed to be levied on the simultaneous maximum demand over the billing month based on the summation of simultaneously recorded half-hourly demand at all contracted points of supply. GRIDCO proposes that this demand charge may be levied on 90% of the contract demand or the simultaneous maximum demand whichever is higher for the month with a provision of penalty at the current demand charges for any demand in excess of the contract demand.

3.3.3

GRIDCO has submitted that only 34% of its fixed cost can be met from its existing demand charge and the balance will have to be recovered through energy charge. If the existing demand charge is not enhanced, it will create a problem of under-recovery of its fixed costs. [Ref : Para 1.3.1(1) of Main Text dt. 17.8.99]

3.3.4

According to GRIDCO, if the demand charge is enhanced to Rs.348.98/KVA/month, the full cost of transmission and 35% of fixed cost of power purchase can be recovered in line with the principle in OERC order dated 21.11.98 in Case No. 18 of 1998. Energy charge is proposed at 96.49 paise/unit to cover 65% of fixed cost and the entire variable cost of generation.

3.3.5

GRIDCO has submitted that, alternatively, if the demand charge is structured to cover the full cost of transmission and the entire fixed cost of power purchase, the demand charge may have to be enhanced to Rs.566.1/KVA/month and the corresponding energy charge will be only 48.38 paise/unit. In this scenario, energy charge is proposed to cover only variable cost of generation.

3.3.6

Out of the two alternatives, GRIDCO proposes that the demand charge may be fixed at Rs.348.98/KVA/month and for the incremental maximum demand exceeding the contracted value with the distribution companies, demand charge may be levied at the current rate of demand charge. Energy charge may be levied at 96.49 paise/unit.

3.3.7

GRIDCO has claimed that the cost of power has been calculated on the least cost combination of power procurement.

3.3.8

GRIDCO has proposed that since additional expenses are to be incurred on account of DISTCOs’ drawal in excess of the energy requisitioned by them, an additional charge termed as over-drawal charge @ 16.23 paise/unit may be levied on the incremental energy drawn by DISTCOs.

3.3.9

GRIDCO has also proposed that power purchase pooled cost adjustment formula should be made applicable on account of increase in power purchase cost due to change in power purchase mix for reasons beyond the control of GRIDCO.

3.3.10

GRIDCO has proposed levying delayed payment surcharge @ 2% per month pro-rata from the 31^st day of the bill on the amount remaining unpaid excluding arrears on account of delayed payment surcharge.

3.3.11

Corresponding to the delayed payment surcharge, GRIDCO has also proposed a rebate of 2% of the amount of the monthly bill excluding arrears if payment is made within 48 hours of the presentation of the bill, 1.5% rebate if a minimum of 85% out of billed amount is paid within 48 hours and 1% rebate on the balance amount if paid in full within 15 days of the presentation of the bill.

3.4

Transmission Tariff

3.4.1

GRIDCO has estimated that the cost of transmission including the reasonable return for the year 1999-00 is Rs.506.48 crores. Charges for transmission have been calculated considering a sale of 9666.71 MU to the distribution companies and wheeling of 300 MU of power. Therefore, GRIDCO has suggested that the existing rate of 35 paise/unit during off-peak hours and 40 paise/unit in the peak hours may be raised to 50.82 paise/unit as wheeling charge for transmission of power at 220/132 KV. GRIDCO states that since its current costing system is not amenable to determination of marginal costs, the method of average costs has been used to estimate transmission tariff.

3.5

Transmission Loss

3.5.1

GRIDCO has proposed that out of energy supplied to Transmission & Bulk Supply Licensee for transmission, 5.3% of the energy may be deducted towards transmission loss and balance energy is liable to be delivered at 220/132 KV.

3.6

Impact on GRIDCO’s Finances

3.6.1

By the proposed enhancement of demand charge and energy charge, GRIDCO expects to meet its full revenue requirement and earn a reasonable return of Rs.85.86 crores on its capital base of Rs.597.76 crores over a period of 12 months.

3.6.2

If the tariff proposed by GRIDCO is made applicable from 01.12.99, GRIDCO will not be able to collect revenue at the enhanced tariff for a full year leading to a deficit of Rs.176.00 crores at the end of the current financial year. GRIDCO’s projections in this regard are in Table : 3.

Table : 3
Rs. in crores

3.7

Summary

3.7.1

To summarise, GRIDCO has requested OERC to approve the following :-

3.7.1.1

Bulk supply tariff as proposed (Paras 3.3.4 and 3.3.8)

3.7.1.2

Change of the existing fuel surcharge adjustment to power purchase pooled cost adjustment (Para 3.3.9)

3.7.1.3

Delayed payment surcharge and corresponding rebate for timely payment (Para 3.3.10 and para 3.3.11)

3.7.1.4

Transmission tariff as proposed (Para 3.4.1)

3.7.1.5

Transmission loss for wheeling of power (Para 3.5.1)

3.7.1.6

Proposed transmission and bulk supply tariff to be made applicable from December 1, 1999.

4.0

OBJECTIONS DURING HEARING

4.1

The objections of Shri N.D. Chawla, M.D., Wesco, Sambalpur are outlined in following paras :-

4.1.1

The formula proposed by GRIDCO for mid-year adjustments due to variations in fuel cost and for other reasons goes against principle of maintaining certainty in tariff during the year. He requested OERC not to permit PPPCAF as suggested by GRIDCO.

4.1.2

GRIDCO has proposed levy of overdrawal charge for demand and energy drawal beyond their requisition. The levy of overdrawal charge should not be approved because in Eastern Grid is surplus in power, and overdrawal results in better frequency. He also questioned to the concept of maximum demand as proposed by GRIDCO as changes in demand of consumers is a risk which cannot be estimated with certainty.

4.1.3

The methodology for determination of least cost power purchase adopted by GRIDCO should be clarified.

4.1.4

In Employee Costs, A&G and R&M expenses, there is wide variation between audited accounts of 1997-98, GRIDCO's estimate for 1998-99 and amount approved by OERC in its BST order for 1998-99 and the amount applied for in 1999-00. According to him amount of Rs. one crore in VRS, Rs.0.5 crore in unforeseen expenses and deferred revenue expenditure of Rs.4.7 crores and R&M expenses of Rs.48 crores, are on the high side.

4.1.5

He objected to the interest of Rs.111 crores claimed on bonds issued to generators due to inability of GRIDCO to honour its obligations towards them. Loading cost arising out of GRIDCO’s past action goes against principles of reform programme as the losses prior to March, 1999 and past losses should not be passed on to the distribution business according to the transfer scheme. He opined that if GRIDCO has any shortfall because of losses of previous years he should look towards Government for equity.

4.1.6

He objected to amount claimed for interest on working capital raised through market bonds and stated that GRIDCO could earn this through delayed payment surcharge which would be sufficient to compensate for financing its debtors FY 1999-00.

4.1.7

He requested OERC to disallow bad debts as GRIDCO has only DISTCOs as consumers. Any provision towards bad debts on account of supply to Captive Power Plants is totally against the principle of distribution licence.

4.1.8

He objected to the proposed massive capital expenditure as interest burden would have to be passed on to consumers without any apparent tangible benefit to improvement of system reliability.

4.1.9

He further objected to the proposed amount of stores and spares. In his opinion capital stores at site should be treated as capital work in progress.

4.1.10

It is unlikely that GRIDCO would receive payment within 48 hours and therefore assuming a rebate of 2% for four months is not prudent and this should be disallowed.

4.1.11

He urged not to increase BST as it is not justified. Any increase in BST would lead to steep increase in retail tariff and jeopardise privatisation.

4.2

Shri M.N. Joglekar, Managing Director represented NESCO, Balasore during the hearing. While he reiterated the same objections as raised by Mr. N.D. Chawla, M.D., Wesco, he additionally highlighted his objection to concept of power purchase adjustment formula, levy of overdrawal charge, excess provision of bad debts and employee cost, A&G expenses, R&M expenses, Stores and Spares. He claimed that the bulk supply tariff proposal was padded up with costs and hence should not be allowed by the Commission.

4.3

Shri N.C. Dash, Managing Director representing SOUTHCO, Berhampur during the hearing reiterated similar objections as the representatives of Wesco and Nesco. Further, he highlighted on objection to concept of power purchase adjustment formula, levy of overdrawal charge, excess provision of bad debts and employee cost, A&G expenses, R&M expenses, Stores and Spares. According to him the VRS scheme has been discontinued in GRIDCO and hence providing Rs. one crore is not justified. He urged that the bulk supply tariff should not be increased.

4.4

Shri B.N. Dash represented Indian Aluminium Company Ltd., Sambalpur during the hearing. He raised a number of objections.

4.4.1

The rate of transmission loss has been settled by OERC at 4% and in view of subsequent investment in EHT system, a norm of 3.5% EHT loss should be adopted by OERC for 1999-00.

4.4.2

With 9666.71 MU projection by Distribution Companies, the procurement of energy would be 10017.31 MU taking 3.5% loss. He supported GRIDCO’s proposal for levy of overdrawal penalty if the maximum demand went beyond the contract demand.

4.4.3

Shri Dash suggested power procurement from different stations as below keeping in view the need of maximising hydro generation :-

4.4.3.1

He suggested that while unit cost of power from different power stations may be taken as approved by the Commission last year for the new power station like Indravati, unit cost may be taken as proposed by GRIDCO. He proposed that the average unit cost be taken at 96.3 paise/unit with the total cost of Rs.964.70 crores.

4.4.4

He objected to GRIDCO’s proposal of 127% rise in employees cost over approved figures of 1998-99. Only 3% increase should be allowed. On A&G expenses increase of only 3% should be allowed as against 87% suggested by GRIDCO. R&M expenses proposed are 176% more over OERC approved figures of 1998-99. He argued that the same OERC norm of last year should be taken in line with PGCL i.e., 1.5% on asset value which comes to Rs.20.54 crores.

4.4.5

There is 326% rise in interest over 1998-99 approved figure which is abnormal. The abnormal increase of interest is due to conversion of arrear energy dues of GRIDCO into bonds which should not be taken into calculation of revenue requirement for purpose of tariff. The loans have been incurred in acquisition of assets for which return and dividend are payable. He suggested that the total interest component should be Rs.62.34 crores as against Rs.168.43 crores claimed by GRIDCO.

4.4.6

He found fault in charging depreciation on the revalued asset cost taken during the time of transfer of assets to the distribution companies. According to him most of the assets have been fully depreciated in view of higher depreciation rate given by Government of India. He blamed GRIDCO for not opposing uplift of the asset value at the time of transfer and consequently doing disservice to the consumer. Taking increase of assets to be Rs.69.98 crores from 1998-99 to 1999-00 and assuming 50% expenditure on EHT and 50% on sub-stations the increase in depreciation would be Rs.crores = Rs 5.59 crores. Total depreciation allowed should be Rs.75.62 crores as against claim of Rs.79.42 crores.

4.4.7

He opposed any provision for bad debts as GRIDCO was a bulk supply agency and had only four customers. He objected to quantum of reasonable return and to inclusion of rebate for prompt payment in the revenue requirement.

4.4.8

Shri Dash gave his own projection of revenue requirement as follows :-

4.4.9

Revenue Receipt as estimated by him is Rs.1284.90 crores leaving a surplus of Rs.90.85 crores with GRIDCO and hence BST should be reduced and the gains passed on to the consumers of the State. He suggested Rs.160/KVA as demand charge and 85.5 paise/unit as energy charge for BST 1999-00.

4.4.10

He supported power purchase pool cost adjustment formula instead of fuel price adjustment as GRIDCO has to purchase power from generators.

4.4.11

GRIDCO is charging Transmission Tariff of 17.5 paise for wheeling to Andhra Pradesh & Madhya Pradesh and PGCIL is charging 11 paise towards transmission charges. He argued that the transmission tariff 1999-00 should be calculated on embedded cost basis which would according to his calculation would be 28.79 paise/unit and there should be no discrimination between wheeling to consumers outside the state and within the state. During the course of hearing he suggested that GRIDCO should trade power with neighbouring states because there was surplus power in Orissa.

4.5

Shri A.K. Parida represented Nava Bharat Ferro Alloys Ltd., Dhenkanal during the hearing. He urged that BST should be first determined before revision of RST and that full potential of hydro power of OHPC and State thermal power should be utilised.

4.5.1

He objected to abnormal increase in Employment, A&G and R&M and urged that the Commission should allow only prudent increase in expenditure by observing certain norms.

4.5.2

Shri Parida urged that interest on loans which do not increase the value of assets should not be taken into consideration and that transmission losses should be reduced to 3.5% in view of large investment in EHT system. He urged that transmission charges should be calculated on embedded cost basis and that there should be reduction of BST and Transmission tariff from present level.

4.6

Shri M.V. Rao, Chairman Power Committee represented Utkal Chamber of Commerce and Industry, Cuttack during the hearing. He raised several objections.

4.6.1

At the outset he reiterated the objections of Indian Aluminium Company and said that BST should be reduced to Rs.160/KVA as demand charge and 85.5 paise/unit as energy charge. He reminded Commission to keep in mind the interest of the consumers in terms of Section 26 of the Reform Act, 1995. The demand charge of the industrial tariff has been kept unchanged for the last two years by the Commission so as to keep up the commitment to give cost based tariff to industries. The proposed increase in demand charge would lead to increase in Retail Supply Tariff which would burden the industrial consumers.

4.6.2

GRIDCO should maximise energy drawal from the dedicated power stations and the Captive Power Plants to reduce the average cost of power purchase.

4.6.3

He objected to the claim of transmission loss to be fixed at 5.3% as the Commission had settled this point in 1998-99.

4.6.4

He requested the Commission to go into details of asset formation, A&G expenses, employee cost and T&D losses. He urged lowering of industrial tariff as consumption of industrial sector is not increasing as the tariff is not conducive for setting up new industries.

4.7

Shri K.N. Jena spoke on behalf of Orissa Consumers Association, Cuttack during the hearing. He claimed that since the Licensee has not improved its efficiency by reducing losses as directed by Commission, the licence should be revoked and application rejected. He further stated that charges are arbitrary without any basis and quality of supply is very poor and there is no justification of tariff increase.

4.7.1

Meters being installed are not properly tested and checked, tampering of meters are not checked, cheaper sources of power are not utilised, consumer services have not improved and so consumers can't be burdened more. The reform process has totally failed and in the name of reform there is only tariff increase and no increase in efficiency.

4.7.2

The T&D loss of 35% fixed by Commission is higher than the all India average of 20%. The licensee has not shown any increase in efficiency and as such Commission should not allow the high T&D loss.

4.7.3

Law does not allow for fixation of tariff for Transmission separately inside the state and so the application should be rejected.

4.7.4

Energy bills are not served in time and due to this consumers are not able to get rebate.

4.8

Shri K. Acharya spoke on behalf of Orissa Grahak Mohasangha, Bhubaneswar during the hearing. The objections are highlighted as follows :-

4.8.1

The Mohasangha has no knowledge whether Commission has specified methodology and procedure for calculating the expected revenue from charges and determining the tariff. In the absence of information, it objects to any revision of tariff.

4.8.2

The Commission in its conceptual paper has stated that if the purpose of the Reform Act, 1995 and objectives of the Commission would be achieved by departure from the base line set up in the Sixth Schedule and Sec.57, 57A of the Act, 1948, the Commission has a duty to make such departures. Since there has been no noticeable development in electricity reforms, the Commission is urged not to depart from the base line.

4.8.3

The objector drew attention of the Commission to license clause 16.1 and 16.2 and discussed the power availability position of the State. Since the demand requirement is on decrease, the power drawal should be cost effective by fully exploiting Hydro capacity. The central sector power estimated at 880.32 MU should be dispensed with, so that purchase of power becomes cheaper.

4.8.4

The demand estimation is not accurate as the sale of DISTCOs has gone down. The objector believes that the actual power requirement would be much less.

4.8.5

That Commission's order 21.10.98 dealt with computation of Transmission losses and Transmission Tariff at length. As GRIDCO has metered all intake points of power flow the actual losses should be computed. The objector objects to computation loss done on net-input basis. They are unable to understand why GRIDCO has not undertaken any systematic study to find out the reasons behind the transmission loss. The objector urges the Commission to bring down transmission losses below 4% and to reject claim for increase in Transmission Tariff as well as BST.

4.8.6

Shri Acharya stated that the revenue requirement and capital base have been unreasonably inflated and that Govt. should bear the responsibility of giving subsidy to the licensee. Any further increase in tariff would retard the reform process and there was no justification in burdening consumers.

4.8.7

The objector prays to the Commission to direct the licensee to withdraw tariff application for increasing tariff at close of the millennium and to take positive steps towards more efficiency. He urged the Commission to make comparative study since 1995-96 of benchmarks and actual and then propose tariff.

4.9

In the written objections of Aditya Aluminium Project several issues were raised.

4.9.1

It has been urged that manifold increase in tariff by GRIDCO on an annual basis will demotivate industrial houses. The aluminium industry will specifically suffer which will be a national loss and that increase in tariff will defeat the Government policy of promoting growth of industry.

4.9.2

It was claimed that the proposed average increase in Transmission Tariff by about 40% was unwarranted. It was argued that transmission loss and wheeling charges have relationship with distance and voltage of transmission and that the charges should not be revised from year to year.

4.9.3

It is understood that the wheeling charge paid by GRIDCO to PGCIL is 10 paise/unit and hence wheeling charges should be fixed by GRIDCO in line with the same. It was urged that only inflation element could be taken into account for increase of charges.

4.10

Shri B.N. Dash representing Nayapalli Community Care Association, Bhubaneswar, highlighted on a number of objections in addition to reiterating objections made earlier by Indian Aluminium Company and Utkal Chamber of Commerce and Industry.

4.10.1

During the course of hearing he emphasized that the hydro generation from OHPC and Indravati should be maximised to avail of low cost power and that the cost of power should be based on cost as approved by the Commission last year. He said that incentive should be given to OHPC for generating more so that the drawal from OHPC is maximised. He also opined that the long term PPAs with the generators should be reviewed by GRIDCO and that the inefficiency of generators and the licensees should not be allowed to be passed on to the consumers.

4.11

Ms Anuradha Dutta, counsel for Indian Charge Chrome Ltd., Bomikhal, Bhubaneswar objected to transmission charges proposed by GRIDCO for the year 1999-00. During the course of hearing ICCL counsel argued that as a Captive Power Plant, ICCL injects power into the state grid by which the grid gets low cost power. Further, due to this injection of power at load center at Talcher the frequency and voltage improve. The transmission loss is also reduced due to the injection of power by ICCL which has been proved by a computer study. Therefore ICCL should be treated as a separate category of consumer which is permissible under the Act.

4.11.1

She also objected to the method of calculating transmission on embedded cost basis instead of marginal cost. ICCL objects to transmission charges being included for transmission tariff as these are recoverable under BST.

4.11.2

The counsel for ICCL reiterated objections made by others with regard to Employees’ Cost, A&G Expenses, R&M Expenses, revaluation of assets and cost of conversion of arrear to loan bonds.

4.11.3

She added that GRIDCO in its transmission tariff has not taken into account the revenue from wheeling of power to other States. In its transmission tariff design, it has not taken into consideration the wheeling charges of 2330 MU shown as wheeled to Andhra Pradesh.

4.11.4

GRIDCO had entered into agreement with APTRANSCO for supply of electricity @ 205 paise/unit (inclusive of cost of power and wheeling charges) According to her, price of 205 paise/unit is a subsidised price. It was proper that on least cost method cheapest power should be made available to consumers within state of Orissa and costlier power must be given to outside consumers. As per filing, NTPC power is 235 paise/unit + transmission charges payable to PGCIL. The said agreement is therefore detrimental to the consumers of Orissa.

4.11.5

She also argued that GRIDCO is charging 17.5 paise for wheeling of power to Andhra Pradesh and therefore it should not be different for consumers of Orissa.

4.11.6

According to Ms Dutta, the gross method of computation of loss is more appropriate and that the losses should not be more than 4%. She argued that transmission tariff has been proposed at an arbitrary rate and is much higher than the CEA approved rate of 10 paise/unit.

4.12

Shri Indrajeet Mohanty represented NALCO, Bhubaneswar during the hearing.

4.12.1

He submitted that NALCO is a party to a bilateral agreement (dtd. 01.6.94) with former OSEB and is a special category of consumer because it injects power to the State grid. GRIDCO is levying wheeling charges as per OERC Order dtd. 21.11.98 against which NALCO had objected before the Commission and has appealed to High Court. NALCO would like to be governed by MOU of 25.01.91.

4.12.2

NALCO objected to proposed loss of 5.3% and Transmission tariff of 50.82 paise/unit. It was claimed that NALCO could not be equated with other consumers as NALCO supplies 1000 MU to state grid. Shri Mohanty submitted that NALCO should be levied only 5% wheeling charges on power drawn at Damanjodi and not on entire surplus power fed to state grid. Transmission charges of 50.82 paise/unit should not be levied for power drawn at Damanjodi NALCO.

4.12.3

NALCO has represented that the energy consumption at NALCO, Bhubaneswar and its NALCO Colony should be deducted from the export of energy it makes from its CPP at Angul.

4.12.4

In terms of the agreement of 01.06.94 between NALCO, the erstwhile OSEB and Govt. of Orissa, GRIDCO was supposed to pay fuel purchase adjustment charges. However till date it has not paid anything towards FPA. NALCO was happy to note that GRIDCO has proposed to the Commission to consider the FPA for NALCO. They have requested the Commission to consider the proposal favourably.

4.12.5

The counsel submitted that as GRIDCO in its tariff application has said that it may not require that much power from NALCO it should be allowed to sell power to third parties.

4.13

Shri R.C.Padhi, Retd. Chief Engineer objected to GRIDCO’s proposal on various grounds. He claimed that the application was premature as it is not based on audited figures of 1998-99.

4.13.1

He submitted that estimated maximum demand cannot be sum of individual maximum demand. According to him transmission loss should not be more than 4% as calculated by OERC last year. If new and strengthened transmission lines do not contribute to reducing the losses then the investment is not justified and cost of same should not be considered for tariff purpose.

4.13.2

Shri Padhi aruged that GRIDCO should recalculate the hydro generation on the basis of reservoir level as on 01.11.99 as the current year is a good rainfall year. Orissa should not need costly central sector power.

4.13.3

According to him, the claim of employment cost and A&G expenses is unacceptable. Only reasonable increases based on norms should be allowed.

4.13.4

GRIDCO does not have any asset register and has no records for depreciation. Consequently depreciation could be collected more than the admissible amount.

4.13.5

No bad debt should be allowed as GRIDCO has only limited consumers.

4.13.6

The bond values are not to be added to capital base or for depreciation and interest on bonds should not be payable by consumers.

4.13.7

Return should be given only if it is reasonable. According to him, it should not be more than Rs.57.56 crores.

4.13.8

Contingency reserve is for utilising such funds in contingency and should not be included in capital base.

4.13.9

Shri Padhi supported the introduction of force majeure clause in Power Purchase Agreements and Bulk Supply Agreement.

4.13.10

It is stated that sale of power to APSEB by GRIDCO is devoid of commercial principle as GRIDCO is over using water resources at Balimela which has to be replenished through purchase of power in summer months from NTPC at higher rate.

4.13.11

The logic of not charging normal rate of transmission for sale outside the State is commercially unsound. Any sale of power from Balimela, if necessary, should be held in reserve with PGCIL or NTPC to be drawn at the request of GRIDCO in any part the year and OERC should ensure the economy of such a transaction.

4.14

Shri Subrata Das, Director Finance of CESCO presented objections on behalf of CESCO, Bhubaneswar.

4.14.1

He claimed that generation of energy at OHPC should be 3878 MU.

4.14.2

He objected to the excessive amounts claimed for Employee Cost, A&G Expenses, R&M Expenses and Interest Expenses.

4.14.3

He argued for a force majeure clause to be introduced in the Bulk Supply Agreement.

4.15

The Confederation of Indian Industry was represented by Shri S.K.Nanda, Convenor of its Energy Panel.

4.15.1

Shri Nanda referred to the conceptual issues and to provision of the Reform Act to claim that tariff should take into account power quality standards, reliability, voltage stability etc. and that it should promote economic efficiency. It is stated that the licensee has not followed efficiency guidelines of the Commission and there is need of penalty to be levied.

4.15.2

He objected to costing of assets on transfer value for tariff purpose. He referred to issue 6 of Conceptual Issues on Tariff issued by the Commission to claim that it would be worthwhile to use revalued fair price of assets to avail of short and long term loans while tariff will be based on depreciated book value as set out in transfer scheme adjusted for subsequent addition.

4.15.3

EHT Consumers are directly connected to GRIDCO’s EHT system and should be treated as bulk consumers of GRIDCO and charged at BST rather than treated as consumers of retail supply licensees.

4.15.4

GRIDCO has unduly reverted to net method though Commission had settled the method. According to him the losses should have come down as a result of fresh investment and system improvement.

4.15.5

He requested to adopt loss of 3.5% and demand requirement of 10017.31 MU and proposed a procurement plan by maximizing hydro generation and without any drawal from Central Sector.

4.15.6

He requested the Commission to analyze the base year figures of 1997-98 which is questionable. Only 3% increase should be allowed for Employees’ Cost and A&G expenses and R&M 1.5% should be allowed on average net fixed assets based on PGCIL norm.

4.15.7

Based on a revenue requirement of Rs.1187.92 crores and revenue receipt of Rs.1284.89 crores, CII has proposed that the demand charge should be Rs.160/KVA and energy charge should be 85 paise/unit and transmission tariff of 23.32 paise/unit.

4.15.8

Reduction of power loss is a function of proper management and judicious and prudent investment. He requested the Commission to examine the prudence of expenditure.

4.15.9

According to the Reform Act, 1995, the Commission can depart from Sixth Schedule if required and hence the Commission could consider the method of ‘Revenue Cap’ regulation as in U.K., so as to maintain tariff certainty over a period of time.

4.15.10

Industrial consumers bear the brunt of cross subsidy. He requested the Commission to consider paying capacity of industry as high tariff will encourage CPP growth.

4.15.11

He argued for uniform retail tariff and a differing Bulk Supply Tariff, based on the logic that uniformity should be maintained for the industrial tariff all over the state. GRIDCO would not loose in total revenue if there was a differing bulk supply for the DISTCOs and this would enable the Commission to have a uniform Retail Supply Tariff.

4.15.12

Government subsidy which is to be received by the licensee should be accounted for in tariff calculation.

4.16

Shri R.P. Mohapatra spoke on behalf of Shri Dhaneswar Dhal, A-39, Sahidnagar, Bhubaneswar during the course of hearing.

4.16.1

It was stated that tariff revision, if any, should be effective from Ist April so that hydro potential can be assessed for ensuring year from reservoir levels as on 1st November and the applications can be based on audited accounts. Both BST and RST licensee have applied for tariff simultaneously. In his opinion BST should be decided first and thereafter RST. Revised BST and RST should be applicable from 01.4.2000. Tariff revision should not be an annual affair as the cost of regulation is very high.

4.16.2

The super cyclone which hit Orissa has crippled the economy of the state and imposed financial burden. Therefore, the tariff should be revised from 01.4.2000 only.

4.16.3

Section 5(1)(a) of the Reform Act, 1995 provides that at least one of the members of Commission shall be an electrical engineer with experience of generation, transmission & distribution. As there is no third Member Commission should postpone proceedings.

4.16.4

GRIDCO is furnishing figures in millions of rupees while in all financial statements in the country figures are in lakhs. The consumers should not get a culture shock in addition to rate shock.

4.16.5

GRIDCO has furnished a loss figure of Rs.900.3 crores upto 1998-99. The loss is due to inability of GRIDCO to operate efficiently according to parameters laid down by Commission, and hence loss can't be passed on to consumers.

4.16.6

According to Shri Mohapatra, the water levels in the reservoirs of OHPC are at the maximum level, so hydro generation should be maximised and water should not be allowed to be wasted. GRIDCO is not having aggressive commercial practices as it is accepting all the inefficiencies of OHPC and trying to pass it to the consumers.

4.16.7

If the State Government does not agree to subsidize the losses, GRIDCO or DISTCOs are not bound by law to execute non-remunerative works. The notional external subsidy due should be deducted.

4.16.8

The loss percentage was rightly decided at 4% by Commission GRIDCO has invested a lot in transmission sector. It is ironical that instead of reducing transmission loss to 3% they are asking for an increase. The reasonable level of T&D loss should be 3.5%.

4.16.9

In place of average maximum demand of DISTCOs concept of simultaneous maximum demand or 90% of contract demand whichever is high may be adopted with provision for penalty on overdrawal.

4.16.10

GRIDCO may table a petition against introduction of availability based tariff. Off peak supply of NTPC power to EOU's was a concession to Ferro Alloy units. Special off peak tariff will increase average cost of power as costlier central sector power will have to be purchased.

4.16.11

On Power Procurement Cost Shri Mohapatra stated on behalf of Shri Dhal that depreciated book value of OHPC should be taken as fixed cost as on 01.4.96, rate of depreciation of Govt. of India of March, 1994 is applicable only to new assets made after 01.4.94 and that total depreciation should not exceed 90% of original purchase price and fixed charges should be paid only if utility fully utilises water in reservoir.

4.16.11.1

Secondary generation should increase after renovation but this is not reflected in the proposed PPA. GRIDCO should investigate into shortfall of generation.

4.16.11.2

The TTPS PPA has been drawn in haste and is faulty and should be reviewed and all technical parameters should be changed. Actual bills of TTPS from January - August, 1999 show that GCV of oil is between 8800-9300 K.Cal. instead of 10,000 K.Cal. which shows probable contamination of oil.

4.16.11.3

The extra consumption of Rs.1.293 crores proposed for backing down OPGC is on account of tripping of Budhipadar-Korba line and not payable by Orissa consumers. The incentive claim of Rs.12.811 crores also should not be paid.

4.16.12

The base year figure of 1997-98 itself is high and so the proposed cost in employees cost, A&G and R&M expenses is unmeasurably high. Only reasonable expenditure should be allowed.

4.16.13

GRIDCO has issued loan bonds of Rs.440 crores carrying interest of 15% in addition to outstanding loans of REC & PFC. GRIDCO has taken loans due to its inefficiency and so additional interest burden cost can't passed to consumers. GRIDCO wants conversion of zero coupon bonds to equity which mean an additional Rs.64 crores return on capital base, which should not be allowed.

4.16.14

In spite of orders of Supreme Court no action was taken against ICCL, when it defaulted payment. No bad debt should be allowed as there are limited consumers of GRIDCO.

4.16.15

Value of fixed assets at time of transfer on 01.4.96 should be on book value for tariff calculation in accordance with the Act, 1948.

4.16.16

In its calculation of gross receipts GRIDCO has assumed a rebate of 2% which shall be availed by DISTCO's every month. GRIDCO has collected only 56% of billed amount for which delayed payment surcharge is due. Therefore, no deduction should be made from gross revenue as rebate and delayed payment surcharge will balance each other.

4.16.17

Shri Mohapatra has also objected to the transmission tariff. According to him transmission cost should be calculated on embedded cost methodology rather than marginal cost.

4.17

Shri R.C.Mehta, Madhukunj Enclave, Rasulgarh, Bhubaneswar presented his objection on various counts. He pointed out the discrepancy of cost of OHPC power which has been shown at 51.75 paise/unit by OHPC while GRIDCO reflects it at 53.01 paise/unit.

4.17.1

Perusal of bills of TTPS reveals the fixed cost at Rs.11.57 crores and variable charges at 58.14 per unit. Details of actual power drawn shows that drawal has been higher than the planned procurement which would have brought down the average per unit cost.

4.17.2

As per letter No. CEA dt.7.8.96 filed with the application the rates of Farakka STPS which is applicable upto 31.3.2000 fixed charges are 71.94 paise/unit and variable cost are 32.17 paise + FPA. He wanted the Commission to scrutinise bills of Farakka & other central stations from January, 1999 to September, 1999, in order to get the point clarified.

4.17.3

Unit cost for OPGC January, 1999 to August, 1999 is calculated at 139 paise/unit against 172.90 paise projected by GRIDCO and, therefore, he requested for reconsideration.

4.17.4

The demand charges should not be increased as this would hamper industrialisation in Orissa.

4.17.5

According to him the transmission costs are disproportionate, the base of 1997-98 is questionable and should not be considered for fixing costs for 1999-00.

4.17.6

He objected to the method of calculating simultaneous maximum demand. Technically demand should be defined as vectorial summation and not arithmetic summation as the later would show much higher demand. OERC is requested to satisfy itself with the methodology.

4.17.7

He prays that it was desirable to encourage industrial growth which would create job opportunities. He pleaded for no increase in bulk supply tariff as this would increase retail supply tariff and privatisation would be blamed.

4.18

During hearing Director (Tariff), OERC sought clarification from GRIDCO on the following issues.

4.18.1

The revised generation plan of OHPC.

4.18.2

Reservoir levels of OHPC as on 01.11.98 & 01.11.99.

4.18.3

The actual energy sent out of Central Thermal Stations as shown in generation plan is much higher than what is estimated by GRIDCO and taken into consideration of its fixed cost. What are the reasons of difference.

4.18.4

Details of export of power to Andhra Pradesh.

4.18.5

Definition of contract demand in bulk supply agreement.

4.18.6

Methodology of measurement of simultaneous maximum demand and whether any metering is in position to record the coincidental peak of the DISTCO’s.

5.0

GRIDCO’S RESPONSE TO THE OBJECTIONS

5.1

Employees Costs, Administration & General Expenses and Repair & Maintenance Expenses

5.1.1

The projection for employees cost, R&M expenses, A&G expenses have been based on audited accounts of 1997-98 and in consideration of requirements for the year 1999-00. All divisional trial balances were grouped into five businesses to arrive at consolidated trial balances of five business. All Head Office entries were analysed and allocated to the five businesses.

5.1.2

Amounts projected under Voluntary Retirement Scheme for FY 2000 are estimates based on expenses incurred in previous years. GRIDCO is not in a position to extend the date of VRS due to want of fund.

5.1.3

The deferred revenue expenditure written-off for FY 2000 pertains substantially to one time expenses related to issue of bonds in FY 1998 and FY 1999 which are amortised over tenure of bonds raised to finance past losses of GRIDCO and losses of distribution companies upto March 1999.

5.1.4

Details of expenses in A&G have been provided in the application and the proposed expenditure of Rs.48 crores is a reasonable estimate.

5.2

Liabilities and Interest Cost

5.2.1

GRIDCO had not applied for appropriation of past losses in 1998-99 and hence OERC had not approved the same. According to the transfer scheme of November, 1998 made under the provision of the Reform Act, 1995 assets and liabilities to DISTCOs were transferred on 26.11.98. At that time GRIDCO has not transferred the past losses to DISTCOs and GRIDCO is entitled to recover the past losses as may be approved by the Commission through future tariff. Now, in this BST application GRIDCO has requested the Commission to pass appropriate orders stipulating procedures to be followed for recovery of the past losses.

5.2.2

GRIDCO had to convert power purchase overdue payables into bonds on account of paucity of funds largely due to unappropriated losses. The bonds carry a coupon rate lower than the delayed payment surcharge that GRIDCO would have paid to the generating company for non-payment of their dues. GRIDCO further states that by means of conversion it has managed to reduce the effective cost of servicing the central sector/IPP payables as earlier GRIDCO was incurring 24% towards delayed payment surcharge. Unless this interest (15-15.25%) on bond is allowed to GRIDCO it would default in paying the interest and principal to the bond holder in time. This, in turn, would result in regulation in power supply and consequent load shedding.

5.3

Depreciation

5.3.1

Some objectors have stated that the rate of depreciation notified by the Govt. of India is higher compared to the prescribed life of the assets. This issue has also been agitated in the CERC. GRIDCO has stated that calculation of depreciation has been made as per the norms notified by the Ministry of Power applied to various classes of assets. GRIDCO has further stated that it will be inappropriate to calculate the depreciation in proportion to the rise in gross assets as the depreciation depends on the class of assets. As regards the issue raised in the CERC the same is not yet finalised and in fact GRIDCO has also raised the issue in CERC. Till such time the rates are not reviewed by CERC, the approved rate of Govt. of India has to be followed.

5.4

Interest on Working Capital

5.4.1

GRIDCO has received payment for only 56% of the bulk supply bills from the DISTCOs. Charging of delayed payment surcharge has not been of any help as it has not resulted in any inflow of cash. Until the DISTCOs are prompt in their payments and the payments are sufficient to meet the cost of transmission business GRIDCO will be required to borrow from external sources for which interest on working capital should be considered for calculation of revenue requirement of GRIDCO. Besides, GRIDCO has not considered either the delayed payment surcharge from the DISTCOs or a substantial higher delayed payment surcharge payable to generators as it is pending reconciliation. After reconciliation delayed payment surcharge will be considered.

5.5

Provision for bad debt

5.5.1

The provision of bad debt is estimated at 1.5% of total sale of FY 1999-00 as only 56% of supply bills for the 1^st quarter has been paid by the DISTCOs. Bad debt also arises out of back up supply to CPP and is considered necessary as a measure of business prudence even though numbers of customers are few.

5.6

Capital Expenditure and Loan Addition

5.6.1

On the above issue GRIDCO has stated that capital expenditure on addition of new assets can bring in improvement in the quality of service, system stability and capacity to meet contingency. On objection that investments should reduce transmission loss GRIDCO states that this is not true in all cases – e.g. Jagasinghpur earlier supplied power at 33 KV from Cuttack grid sub-station. Jagatsinghpur is now getting power from 132/133 KV sub-station at Jagatsinghpur. This has resulted in increase of transmission loss at 132 KV and reduction of loss at 33 KV resulting in an overall reduction to the consumers. As regards to the loan addition in excess of capital expenditure GRIDCO has stated that this has become necessary due to numerous liabilities as indicated below.

5.7

Rebate

5.7.1

GRIDCO stands by proposal on rebate in application.

5.8

Appropriations to Contingency Reserve

5.8.1

GRIDCO states that this has been calculated according to provisions of Sixth Schedule of the Act, 1948. On utilisation of funds, the reserve will be treated as source of financing and assets built are liable to be included in capital base and for charging depreciation.

5.9

Power Purchase Pool Cost Adjustment Formula

5.9.1

GRIDCO has proposed a power purchase pool cost adjustment formula and not a fuel cost adjustment formula. Other bulk suppliers in the country have power generation under them and so only fuel cost variation is considered adequate. As GRIDCO has to purchase power, the difference in approved mix and actual mix is bound to occur and so provision needs to be made for variation in pool cost of power purchase. A 5% increase in cost of fuel has been assumed to reflect inflation and maintain certainty of tariff.

5.9.2

A change in the cost of generation due to capital expenditure, adjustments on account of payment relating to income tax, other taxes like water tax, land tax, fuel cost adjustment, incentive charges are the additional charges to be paid by GRIDCO to the generator as and when they are finalised. As most of these costs are finalised after the tariff has become effective, a mechanism should be developed so that the variation in cost of power purchase due to such contingencies are allowed as a pass through automatically.

5.10

Demand Charge and Overdrawal Charge

5.10.1

In the tariff application, the concept of contract demand and billing on 90% of the contract demand or actual maximum demand whichever is higher, is introduced to ensure recovery of a part of fixed charges incurred by GRIDCO. GRIDCO is of the opinion that the demand forecast given by DISTCOs is depressed. The depressed forecast will result in a pooled cost lower than the pooled cost with actual drawal and hence will result in a loss to GRIDCO. Contract demand and overdrawal charges have not been defined in the bulk supply agreement. Provision relating to tariff will be applicable according to the decision of the Commission which will be binding on all concerned parties and would become a part of the bulk supply agreement for which matters relating to tariff were not individually provided in the bulk supply agreement. Since the concept is intended to ensure a minimum fixed revenue to GRIDCO, the Commission is requested to approve the above methodology of calculation of demand charge.

5.10.2

GRIDCO’s proposal for levy of overdrawal charges is meant to dissuade the DISTCOs for maintaining a contract demand lower than the realistic demand and the same is not to be linked to the surplus situation in the Eastern Region.

5.10.3

GRIDCO has suggested that the energy requirement projected by the four DISTCOs is less than the expected requirement during 1999-00. GRIDCO estimates a higher energy requirement. During the month July-September, 1999 DISTCOs have drawn 300 MU more than the projections made by them for these months. Keeping in view the actual drawals by the DISTCOs, GRIDCO proposes an overdrawal charge on the energy drawn by DISTCO during the year.

5.11

Least Cost Power Purchase

5.11.1

In considering the least cost power purchase the element of cost is considered either fixed or variable depending upon whether the cost is fixed or variable to GRIDCO. In case of purchase of power purchase from the Central station, CPPs and Indravati Hydro Power Stations cost is proportional to the quantum of energy drawn from these sources and as such are treated as variable.

5.12

Cost of Power

5.12.1

GRIDCO stresses the need for calculation of cost on a monthly basis for purchase of power from different stations to reflect the true position which does not give a true picture if the calculation is made on an annual basis. Monthly projection of cost gives a realistic cost estimates as the same is related to generation availability and utilisation.

5.12.2

During the 1^st quarter of 1999, 429 MU had to be procured from central NTPC stations as the stations inside the State were not in a position to meet the load requirement for which the purchase of this costly power could not have been avoided.

5.12.3

The calculation of rates made by the objectors based on the last year rates approved by the OERC are not realistic and hence are not accepted.

5.12.4

Availability of power from OHPC has been confirmed as 3702 MU during 1999-00 excluding Machhkund and Upper Indravati. During the period from April, 1999 to October, 1999 a total of 2287.64 MU has been purchased from Hirakud, Balimela, Rengali and Upper Kolab of OHPC. While considering the availability of power from OHPC, the current reservoir level, unit availability of different stations and machine constraints of OHPC has been considered and based on that conclusion a total of 3726 MU in 1999-00 can be drawn from OHPC as some water has to be left for the next water year for generation of power during April-June, 2000.

5.12.5

GRIDCO and OHPC were negotiating the PPA for the year 1998-99. The draft PPA has been finalised. The PPA for the year 1999-00 will be on similar lines. GRIDCO has stated that the total fixed cost of OHPC for 1999-00 would be 196.28 crores. Based on normative energy sale of 3701.61 MU this translates into a rate of 53.03 paise/unit. GRIDCO makes a point to draw power at the rate of 53.03 paise/unit considering the entire drawal of OHPC as variable.

5.12.6

Drawal of power from CPPs is not firm in nature and there is a need for backing down of some of the station inside the State for which procurement from CPP will be restricted.

5.12.7

Regarding the issue of charging of OPGC cost to the western grid, GRIDCO stated that this would result in higher cost of power to GRIDCO due to replacement power to be availed from NTPC at NTPC rate.

5.13

Cost Data and Asset Valuation

5.13.1

The cost data published by GRIDCO is an indicative data used for estimation purposes. The value of asset is always calculated on the basis of actual expenditure incurred.

5.14

Transmission Tariff

5.14.1

GRIDCO has stated that transmission tariff is not dependent upon distance of transmission. Per unit basis of tariff fixation is more appropriate.

5.14.2

Transmission charge of PGCIL depends upon energy sent out of central station and not actual transmission. Transmission charge of PGCIL is exclusive of additional transmission loss payable by the utility. PGCIL lines operates at 400/220 KV and GRIDCO’s transmission lines operate at 220/132 KV and includes transmission loss of 220/132/66/33/11 KV transformers and hence not comparable and so tariff can’t be comparable.

5.14.3

Projections of transmission cost are based on audited figures of 1997-98 and are realistic.

5.14.4

The export of power to other states from EREB benefits GRIDCO as it reduces the cost of central sector power and also reduces transmission losses. Revenue from wheeling charges on energy transmitted to Andhra Pradesh and Madhya Pradesh should be viewed as additional revenue and should not be related to cost.

5.15

Transmission Loss

5.15.1

Loss represents the difference between energy input and energy output as metered and billed and with installation of class 0.2 accuracy meters at most of transformer points accurate measurement point is possible.

5.15.2

GRIDCO is of the opinion that gross method is inappropriate for computation of loss and it should be calculated by net method only. GRIDCO has further reiterated that the energy purchased is calculated by adding transmission loss to the projected sale.

5.16

Transfer Scheme and Valuation of Assets

5.16.1

GRIDCO has stated that the statement made by the objectors about applicability of fair pricing only when transfer scheme involves transfer of any property to any person or undertaking not fully owned by the State Government is not correct. According to them transfer scheme shall be binding on all persons including third party as provided under Section 23(4)(b) of the Reform Act, 1995. GRIDCO has further stated that the conceptual issue of electricity tariff in Orissa relates to the valuation of assets for fixation of tariff for the distribution companies and recommends use of values as set out in transfer scheme adjusted for subsequent addition in depreciation. GRIDCO requests that the value of assets as stated in the transfer scheme on the day of transfer should be considered by the Commission.

5.17

EHT Consumers to be Treated as Bulk Consumers

5.17.1

In the licence, Bulk Supply means supply of electricity to other licensees and so EHT consumers cannot be treated as bulk consumers.

5.18

Sale to Andhra Pradesh

5.18.1

GRIDCO has stated that the transaction resulting out of bi-lateral agreement are outside the purview of the tariff application for which sale of NTPC power to EOUs were excluded by the Commission in the past. Following the same procedure GRIDCO requests that the transaction relating to sale of power by GRIDCO to AP Transco be not considered while fixing the tariff. The agreement though executed for a period of 12 months from 11^th day of October, 1999 can be terminated by giving one months prior notice. There is uncertainty regarding financial out come of this agreement as it is difficult to correctly project due to many variable factors relating to operation and cost of power.

5.18.2

GRIDCO further has stated that the quantum of power purchase for this transaction will be at a marginal cost over and above the quantum of power procured from different sources as approved by OERC for sale of power to DISTCOs at least cost combination.

5.18.3

Due to uncertainty, this transaction may be kept out of the tariff calculation since this transaction will have no effect on the BST chargeable to distribution company.

5.19

Other Issues

5.19.1

Reply to issues related to distribution companies raised by the objectors is not being furnished.

5.19.2

GRIDCO has denied the allegation that no steps have been taken for reduction of losses. Besides failure of fulfilment of licence condition is unrelated to tariff application.

5.19.3

GRIDCO has denied the allegation that the present application is made by the licensee with malafide object/motive to collect the charges and tariff from the consumers with retrospective effect and to make illegal gain.

5.19.4

Audited accounts of 1997-98 given to OERC and accounts of 1998-99 are under compilation. This is no ground for disallowing the present tariff application.

5.19.5

The allegation that the application of the licensee is imaginary due to the absence of statutory audited account is without any basis and denied.

5.19.6

Appointment of the Rating Committee is not applicable under the provision of the Reform Act, 1995.

5.19.7

GRIDCO does not agree to the introduction of force majeure clause in BST.

5.19.8

Provision of the Reform Act, 1995 cannot be questioned in the proceeding.

5.19.9

Absence of Electrical Engineer Member should in no way affect the consideration of this application in view of Section 9(4) of the Reform Act, 1995.

5.19.10

The present application is not for review and/or modification of the earlier orders of the Commission and is independent of the previous order for which the quorum of the meeting of the Commission can be two.

5.19.11

GRIDCO has stated that consultation with Commission Advisory Committee prior to the admission of the tariff application has not been provided in law.

5.19.12

GRIDCO stated that the present application is for approval of the tariff to be made effective from 1^st December, 1999 and is independent of the earlier orders.

5.19.13

GRIDCO has stated that Chapter-V of OERC (Conduction of Business) Regulation, 1996 deals with the methodology and procedure in relation to tariff. The Commission has prescribed methodology and procedures from time to time in accordance with these regulations.

5.19.14

GRIDCO has stated that the application has been moved as per the provision of the statute and hence it cannot be said to be not bonafide.

5.19.15

GRIDCO has stated that bulk supply tariff is applicable to DISTCOs and the transmission tariff is application for wheeling of power by any industry having a Captive Power Plant or other institutions or persons.

5.19.16

Allegations not specifically admitted have been denied by GRIDCO.

6.0

Commission’s Analysis of GRIDCO’S PROPOSALS

GRIDCO’s proposals have been examined in depth to determine the revenue requirement for the current financial year. The Commission’s analysis and findings on the proposals are in the succeeding paragraphs :-

6.1

Quantum of Power Purchase

6.1.1

Out of GRIDCO’s estimated revenue requirement of Rs.1680.25 crores for the year 1999-00, cost of power alone accounts for Rs.1202.90 crores or 71.59% of the total requirement. It is, therefore, extremely important to ensure that power is purchased strictly following the least cost procurement policy while maintaining the system stability.

6.2

Demand Estimation and Power Procurement Proposal of GRIDCO

6.2.1

GRIDCO has stated that the distribution and retail supply licensees have submitted their anticipated energy requirement as well as the maximum demand for the year 1999-00. The demand for the Financial Year 1999-00 has been estimated based on the actual consumption of the first quarter of 1999-00 and projected for the balance period of nine months.

Table : 4
(Ref : Table 4 of Main Text dt.17.8.99)

6.2.2

The energy requirement by the distribution companies as indicated above is 9666.71 MU.

6.2.3

GRIDCO has calculated the requirement of power to be purchased from the various generating stations as 10229.90 MU at EHT and estimates to sale 9666.71 MU to the four DISTCOs. GRIDCO has stated that the projected power procurement has been calculated applying a loss percentage of 5.3% on the intended sale for the year 1999-00. Some of the objectors have stated that total power procurement should be 10017.13 assuming a transmission loss of 3.5% and sale of 9666.71 MU.

6.2.4

GRIDCO in its filing of October, 1999 (in additional form DF 15) has suggested various alternatives for determination of billing demand of the DISTCOs which have been examined by the Commission. The actual billed demand of different DISTCOs for the months of April, 1999 to August, 1999 was considered along with the projections made for the months of September, 1999 to March, 2000. The average billed demand on this basis is estimated as 1708.13 MVA. An extract of the calculation is given in Table : 5.

Table : 5
(Figures in MVA)

6.2.5

The Commission approves the combined demand figures in respect of four DISTCOs as 1708.13 MVA for the purpose of determination of expected revenue for GRIDCO.

6.3

GRIDCO’s Projection of Demand and Energy Requirement of the DISTCOs

6.3.1

GRIDCO has stated that the demand proposed by the DISTCOs is at variance with the actuals recorded for the months of July & August, 1999 and the projection of the distribution companies is substantially understated. (Ref : Table 8 of Main Text dtd. 06.10.99)

6.3.2

GRIDCO expects that the actual requirement of power will be higher than what has been projected by the distribution companies. GRIDCO has, therefore, presented an alternative scenario where the total requirement of power will be 10920.72 MU as against 10229.90 MU estimated on the basis of DISTCOs’ projection. The said alternative scenario of demand forecast for 1999-00 is based on the following parameters :-

For non-EHT : Previous year’s growth rate for area load is projected monthly using seasonality index in each distribution company

For EHT : Actual drawal by each EHT consumer for the first quarter, projected for the entire year using seasonality index and adjusted for known or foreseeable developments

(Note :- Seasonality index indicates the proportion of expected demand in a month and the average monthly demand for the year. A seasonality index of 0.95 for a month means the expected demand for the month is 95% of the avg. monthly demand for the year.)

6.3.3

GRIDCO has proposed a over-drawal charge for drawal of energy in excess of the projection made by DISTCOs utilising the alternate demand scenario.

6.4

The Commission has examined the evidential document supplied by GRIDCO to determine the energy drawal for the months of April, 1999 to August, 1999 from the meter reading statement for the aforesaid period in Table : 6 along with the projection made by the DISTCOs.

Table : 6
(Figures in MU)

6.5

DISTCOs have actually drawn 4070.45 MU from GRIDCO during a period of five months against a projection of 3968.69 MU by the DISTCOs. It is seen that there is a 2.56% rise in the actual drawal over the projected drawal of the DISTCOs during the period April, 1999 to August, 1999. Taking into consideration the higher consumption during 5 months, if the energy requirement is projected for the balance seven months, the total quantum of energy to be sold by GRIDCO to the DISTCOs during the entire twelve months period is likely to be 9769.09 MU as against 9666.71MU projected by GRIDCO.

6.6

The Commission is of the view that the transmission utility should not bear the burden of losses of the distribution utilities and the actual quantum of power purchase should bear a close relationship with the actual energy sold to the distribution companies.

6.6.1

With a probable sale volume of 9769.09 MU and applying transmission loss of 4% at EHT (a loss of 407.05 MU), the quantum of power to be purchased by GRIDCO would be 10176.13 MU. We have discussed the transmission loss and our decision on the percentage of this loss in para 6.36 of this Order.

6.7

The requirement of 10176.13 MU of energy is less by about 3.73% from the level of energy drawn by GRIDCO during the year 1998-99. It is expected that with the focussed loss reduction measures being taken by the DISTCOs like replacement of defective meters and installation of meters in unmetered premises, installation of L.T. less transformers and with pro-active management, there will be a reduction in the energy drawal by the DISTCOs. On the basis of the current year’s consumption, DISTCOs estimate consumption by EHT consumers to be lower by 900 MU compared to 1998-99. A comparative picture of the projections and actual drawal from 1997-98 onwards is given in Table : 7.

6.7.1

The Commission approves purchase of 10176.13 MU during 1999-00 by GRIDCO.

6.8

Sources of Power

6.8.1

The quantum of power purchased by OSEB/GRIDCO since 1992-93 onwards is indicated in Table : 8 generating station-wise.

Table : 8
(Units in MU)

6.8.2

Purchase of power from the various generating stations has to be worked out on the principle of economic load despatch, least cost ordering of generation, power availability from the generating stations during the past and technical constraints, if any, for drawal. For this purpose, it is necessary to analyse the source-wise availability during the current year for drawal of power upto the required level of 10176.13 MU.

6.9

Generating stations of OHPC, OPGC and Talcher Thermal Power Station of NTPC are totally dedicated for Orissa and GRIDCO has the contractual obligation for payment of the entire fixed cost in respect of these stations. GRIDCO has also the right of purchase of power from Machhkund Hydro Electric Project, a joint enterprise of Government of Orissa and Government of Andhra Pradesh at a comparatively lower rate. GRIDCO has also certain allocated percentage of share in three super thermal stations of NTPC located in the eastern region. NTPC’s three thermal generating stations i.e. Farraka (West Bengal), Kahalgaon (Bihar), Talcher Super Thermal (Orissa) have a single part tariff where the fixed cost payable is proportionate to the power drawn from these stations. Power purchased from Upper Indravati Hydro Electric Project for the year 1999-00 and from the captive power plants is charged on the basis of single part tariff. In examining the power purchase plan of GRIDCO, the Commission proposes to assign highest priority to purchase from the generating stations which are dedicated for Orissa and for which GRIDCO is obliged to pay the entire fixed cost. Only when the requirement of power exceeds the availability from these stations, power will have to be procured from other generating stations in the ascending order of their variable cost otherwise known as merit order operation.

6.10

Quantum of Power Purchase

We now proceed to analyse the availability of power generating station-wise :-

6.10.1

Machhkund : This Hydro Power Station is a joint venture of Govt. of Orissa and Govt. of Andhra Pradesh with a capacity of 114.5 MW. Orissa’s share is 30% with an energy availability of around 302 MU. GRIDCO has proposed a drawal of only 271.20 MU from this station in view of the operational constraints of its machines.

6.10.1.1

Many of the objectors have suggested a drawal 350 MU on account of higher water availability in the reservoir compared to the previous year. They have also stated that the higher generation at Machhkund will provide a greater inflow to the down stream power station at Balimela for additional generation.

6.10.1.2

The water level at Jalaput reservoir as on 01.11.99 is 2748.8 ft. as against 2725.90 ft. on 01.11.98. The water potential for this year is much better than the previous year. GRIDCO was able to draw only 245 MU during the year 1998-99. GRIDCO must take effective steps not to lose this low cost power and if on account of machine constraint it is unable to draw 350 MU, it should at least draw Orissa’s full share from this generating station i.e. 302 MU.

6.10.2

OHPC : OHPC operates the following power stations of the State :-
Hirakud
Balimela
Upper Kolab
Rengali
& Upper Indravati Hydro Electric Project

6.10.2.1

GRIDCO had initially proposed (on 17.8.99) a total drawal of 3262.96 MU from Hirakud, Balimela, Upper Kolab and Rengali power stations which has been subsequently revised in the clarification submitted to the Commission on 06.10.99. The proposed drawal, according to the revised plan submitted by GRIDCO, from the four power stations of OHPC has been shown in Table : 9.

Table : 9
(Figures in MU)

6.10.3

Hirakud : The combined installed capacity of Hirakud power system i.e. Hirakud and Chiplima taken together, is 331.50 MW with firm availability of 1174 MU. The Full Reservoir Level (FRL) is 630 ft. and the minimum drawdown level is 590 ft. Some of the objectors have proposed a drawal of 1200 MU from Hirakud. In its written submission on 02.12.99, GRIDCO has stated that 681.38 MU has been drawn from April, 1999 to October, 1999. GRIDCO has also stated that due to constraint of machine availability, its proposal to draw 1050.17 MU is realistic. As on 01.11.99, the reservoir level of Hirakud is 630.37 ft. as against 629 ft. on 01.11.98. The power availability from this power station has varied between 1008 MU to 1236 MU during the last five years. During 1998-99, 1185 MU were drawn from Hirakud. Considerable investment has been made on renovation and modernization of this power station. Capacity of unit-I and II has been raised from 37.5 MW to 49.5 MW each. GRIDCO’s projected lower availability of 1050.17 MU for 1999-00 from this power station is not considered appropriate as the water potential, as exhibited in the FRL, is adequate to generate the firm capacity. We, therefore, consider generation of 1174 MU (inclusive of auxilliary consumption), which is less than the level of generation achieved during 1998-99, as realistic.

6.10.4

Balimela : This is a 360 MW power station with availability of 135 MW or 1183 MU. Some of the objectors have proposed a drawal of 1183 MU from Balimela. In its written submission on 02.12.99, GRIDCO has stated that 529.34 MU has been drawn from April, 1999 to October, 1999. GRIDCO has also stated that due to constraint of machine availability, its proposal to draw 1032.61 MU is realistic. The power availability from this power station has varied between 930 MU to 1418 MU during last five years. During the year 1998-99, only 778.6 MU were drawn from Balimela. OHPC had projected a drawal of 983 MU in April, 1999. The actual generation from Balimela during 1998-99 was lower primarily due to very low inflow to the reservoir. The scene is different this year as the reservoir level on 01.11.99 is 1495.60 ft. compared to 1465.80 ft. last year. Full utilisation of Balimela water is essential as the energy generation is based on the water sharing between the Orissa and Andhra Pradesh. Unutilised water of Orissa, if carried forward to the next year, is a direct loss of Orissa’s resources. Therefore, GRIDCO’s projection of 1032.61 MU in October, 1999 needs an upward revision and the energy availability from Balimela is estimated by the Commission at 1183 MU for 1999-00 which is the firm energy availability of Balimela (inclusive of auxilliary consumption).

6.10.5

Rengali : The installed capacity of this power station is 250 MW (5 X 50) with a designed energy availability of 86 MW or 750 MU. Some of the objectors have proposed drawal of 886 MU from Rengali. In its written submission on 02.12.99, GRIDCO has stated that it has drawn 620.91 MU from April, 1999 to October, 1999. It has also stated that Unit-III of Rengali is out since 16.9.99 due to rotor earth fault. The power availability has generally varied between 572 MU to 988 MU during the last five years. In 1998-99, GRIDCO had drawn 889.763 MU from this station. OHPC generation plan for the year 1999-00 prepared in April, 1999 estimated availability of 850 MU from this power station. The water level as on 01.11.99 is 123.44 meter as against 123.82 meter on 01.11.98. GRIDCO has projected the availability from month to month for this power station estimating an availability of 870.29 MU a figure close to the projection made by OHPC. The figure of 870.29 MU is accepted by the Commission as energy drawal from this power station for 1999-00 equivalent to 879.08 MU at generation end inclusive of auxilliary consumption.

6.10.6

Upper Kolab : This power station located in Southern Orissa has an installed capacity of 320 (4 X 80) MW and the designed energy availability is 95 MW or 832 MU. Some of the objectors have proposed drawal of 703 MU from Upper Kolab. In its written submission on 02.12.99, GRIDCO has stated that it has drawn 456.02 MU from April, 1999 to October, 1999. This is a carry over type reservoir and unutilised water of a year can be utilised for power generation next year. The power availability during the last five years has varied between 630 MU to 842 MU. The actual drawal during 1998-99 was only 426.714 MU due to low inflow to the reservoir on account of poor rain fall in Southern Orissa. As on 01.11.99 the water reservoir level was 854.68 meters compared to 850.86 meters as on 01.11.98. Full reservoir level and the drawdown level of this reservoir are 858 meters and 844 meters respectively. There is every reason for higher generation due to better water availability this year. Generation plan of OHPC contemplates 700 MU of generation for the year 1999-00. GRIDCO has proposed drawal of 749.70 MU for the year 1999-00 which is accepted by the Commission with a generation of 757.27 MU (inclusive of auxilliary consumption).

6.10.7

GRIDCO in its filing of August, 1999 had estimated a total drawal of 3262.96 MU (Form BS-2) from Hirakud, Rengali, Balimela and Upper Kolab which has been revised in their filing of October, 1999 to 3702.77 MU (Form BS-2 revised). In its written submission of 02.12.99, GRIDCO has stated that availability during April, 1999 to March, 2000 will not be more than 3726 MU. As explained in paras above and after comparison of the water level in the reservoirs at these stations on 01.11.99, with that prevailing as on 01.11.98, Commission considers that a drawal of 3953.42 MU as more realistic for the year 1999-00.

6.10.7.1

The total availability of power and drawal from the four generating stations of OHPC approved by the Commission is in Table : 10.

Table : 10
(Figures in MU)

6.10.8

Upper Indravati : Upper Indravati Hydro Electric Project with a proposed installed capacity of 4X150 MW with a firm availability of 1942.38 MU is located in Western Orissa on river Indravati in the district of Kalahandi. The first unit of the generating station was commissioned on 17^th September, 1999 and the second unit is likely to be commissioned in December, 1999. Power generated from this generating station is evacuated through a single 315 MVA auto-transformer which is a constraint for full evacuation of power. GRIDCO has, therefore, estimated drawal of only 539.66 MU for the FY 1999-00. Most of the objectors have taken drawal of 540 MU as proposed by GRIDCO. This was examined in the Commission. With better evacuation facility, more power could be drawn from this generating station. GRIDCO should concentrate on better evacuation facilities for drawing more power from Indravati. We accept a drawal of 539.66 MU as proposed by GRIDCO due to constraints of evacuation at present.

6.10.8.1

From the above analysis of hydro generation availability, it is estimated that GRIDCO would be able to draw a total of 4795 MU of Hydro power within the State during the current year 1999-00 as detailed below :-

6.10.8.2

Since the Commission has estimated the power requirement for 1999-00 at 10176.13 MU, the balance requirement i.e. (10176.13 – 4795.0765) 5381.054 MU has to be purchased from other sources.

6.11

Dedicated Thermal Power Stations

6.11.1

Talcher Thermal Power Station (TTPS) : This 460 MW generating station located almost at the centre of the State is owned and operated by NTPC but fully dedicated for the State. In terms of the PPA entered between GRIDCO (OSEB) and NTPC the plant load factor of TTPS is to be maintained at 62.78% with an auxilliary consumption of 11.75% for 1999-00 whereas in 1998-99 it was PLF of 50% and auxilliary consumption of 12%. Since TTPS is a dedicated power station of the State, its entire fixed cost has to be paid by GRIDCO on account of contractual obligation. The variable cost/unit of this power station is 38.19 paise/unit which is much lower than the total cost/unit of the other generating stations of NTPC. During the 1997-98 and 1998-99, 1810.17 MU and 1954.784 MU respectively were drawn from this generating station. Some of the objectors have proposed drawal of 1955 MU from TTPS. GRIDCO proposes a drawal of 1910.76 MU from this generating station which is less than the power to be drawn based on the PPA for the year 1999-00 i.e. 2160.23 MU. GRIDCO had given a lower projection of drawal considering the need for backing down of excess availability from Upper Indravati and TTPS in that order. The Commission considers it imprudent to back down a strategically located and comparatively lower cost generating station like TTPS. In case of excess availability, drawal from other central sector thermal generating stations should be curtailed. Full potential of TTPS i.e. 2160.23 MU should be drawn by GRIDCO. This has the advantage of Orissa getting power at the load centre and at the geographic centre of the State. It has the consequent benefit of reduced transmission loss and better system voltage profile for the consumers of central and coastal Orissa. Thus, Commission approves a drawal of 2160.23 MU from TTPS.

6.11.2

Ib Thermal (OPGC) : Orissa Power Generation Corporation owns the thermal generating stations at Ib with an installed capacity of 420 MW. The normative availability at a plant load factor of 68.49% of Ib TPS is 380.10 MW i.e. 2280.57 MU. Some of the objectors have proposed drawal of 2309 MU from OPGC. During 1997-98 and 1998-99, 2058.03 MU and 2505.308 MU were drawn which corresponds to a PLF of 61.82% and 75.25% respectively. During 1999-00, GRIDCO proposes to draw 2382.46 MU against OPGC’s projected supply of 2500 MU. As discussed in our analysis of TTPS drawal, we don’t agree to backing down of TTPS. Further, drawal of power in excess of the normative PLF of OPGC from 2280.57 to 2382.46 as proposed by GRIDCO will entail payment of additional incentive and will require backing down of Hydro stations leading to wastage of Orissa’s natural resources and consequent rise in the cost of power. Therefore, in view of least cost combination, the Commission considers a drawal of 2280.57 MU as prudent.

6.12

Power Purchase from Central Power Stations

6.12.1

Central Generating Stations : GRIDCO has submitted that on account of existence of PPAs with NTPC for purchase of power from Farakka, Kahalgaon, Kaniha and with PGCIL for purchase of power from Chukha, GRIDCO is expected to procure a minimum quantum of power from these stations for diverse reasons such as :-

• Contractual obligation

• Inadvertent power flows

• Drawal during system exigency

• Instructions from ERLDC under the provision of Section 55 of The Act, 1948

6.12.1.1

GRIDCO has submitted that based on the past experience, around 40 MU of power per month may have to be purchased from these stations. GRIDCO expects that with load growth and planned export to other States through the new HVDC links, generation of central sector stations may still be maintained at the level of 1998-99 excluding the effect of regulation enforced by NTPC last year. This level is anticipated to be maintained in spite of new capacity addition during 1999-00. GRIDCO feels that with reduced projection by the DISTCOs and commissioning of Indravati hydro power station, the problem of excess availability over demand may force GRIDCO to back down dedicated stations like TTPS and Indravati. Many objectors have proposed that as power from State sources is sufficient, no power should be drawn from the central sector sources. GRIDCO in its rejoinder dtd.23.11.99 has stated that during months of April-June, 1999, about 429 MU had to be procured from NTPC stations, as the stations inside the State were not in a position to meet the load requirement.

6.12.1.2

Keeping in view the constraints for drawing power from Hydro sources in the months of April to June, 1999 and to maintain the contractual obligations with NTPC and the exigency of inadvertent power flow, the Commission has decided to approve the quantum of actual power drawn from central generating stations during the above months of April-June, 1999.

6.12.2

Chukha : Orissa has a share of generation from Chukha Hydro Power Station in Bhutan which is received through the Eastern Regional Electricity Grid. During the year 1997-98 and 1998-99, 247.10 MU and 236.72 MU respectively of Chukha power were drawn. GRIDCO proposes a drawal of 215.55 MU from this power station for the year 1999-00. Some of the objectors have agreed to this proposal. The cost of Chukha is variable in nature and costlier compared to Indravati and CPPs. From the power procurement plan of GRIDCO, we find that in the months April to June, 1999, about 54.02 MU has been drawn from Chukha. As the power from the dedicated stations of the State and CPPs is sufficient, we approve a drawal of 54.02 MU from Chukha Hydro station, i.e. limited to the actual drawal from April-June, 1999.

6.12.3

Talcher Super Thermal Power Station (Kaniha) : This generating station with an installed capacity 1000 MW (2 X 500) with an energy availability of 5231.86 MU at a plant load factor of 65.06% is owned and operated by the National Thermal Power Station. Orissa has a share of 26.2% in this generating station which works out to 262 MW or 1370.75 MU. During 1998-99, GRIDCO drew 680.87 MU. For the year 1999-00, GRIDCO proposes a drawal of 477.11 MU. The Commission approves a drawal of 276.12 MU.

6.12.4

Farakka Super Thermal Power Station (West Bengal) : This is another generating station owned and operated by National Thermal Power Corporation with an installed capacity of 1600 MW or 8489.13 MU at a PLF of 66%. Orissa has a share of 14.69% i.e. 235.04 MW in this generating station with an energy availability of 1247.05 MU. During 1998-99 GRIDCO had drawn 391.465 MU and the proposed drawal for the year 1999-00 is 200.62 MU. The Commission approves a drawal of 151.51 MU.

6.12.5

Kahalgaon Super Thermal Power Station (Bihar) : Installed capacity of this generating station is 840 MW or 4259.52 MU at a PLF of 64.63%. Orissa has a share of 16.07%. During 1998-99 Financial Year 265.951 MU were drawn from this station. Projection for the year 1999-00 made by GRIDCO is 13.72 MU. The Commission approves a drawal of 1.24 MU.

6.12.6

Captive Power Plants (CPPs) : The Captive Power Plants of the State supplied 1015.60 MU to GRIDCO in 1998-99. The power supply from these stations is not firm in nature and is supplied to the system as and when required. GRIDCO has stated that NALCO could not supply the required quantum of power due to non-availability of units when GRIDCO needed it. For the purpose of economic power procurement, GRIDCO proposes to draw power from the captive plants to the extent it is not available from the other stations. GRIDCO had proposed to draw 676 MU from the CPPs. Some of the objectors have agreed to the proposal of GRIDCO. According to our analysis, the cost of power of CPP is 91.81 paise/unit which is cheaper than the total cost/unit from the central stations including Chukha Hydro Electric Project. Therefore, the Commission approves a drawal of 457.36 MU from the Captive Power Plants, which is the balance of power to be purchased after full drawal from dedicated stations of State and the central generating stations as power supply from these stations is not firm in nature.

6.12.7

A summary of GRIDCO’s proposal for purchase of power generating station wise and the Commission’s approved quantum of purchase is given in Table : 11.

6.13

Cost of Power

6.13.1

GRIDCO in para 1.2.3 of its application dtd.17.8.99 has stated that the station wise procurement plan is influenced by the provisions of PPA, relevant Govt. of India Notification, water level in reservoirs, maintenance schedule of power stations, energy requirement for the month, least cost ordering of the stations during a month and instructions issued by ERLDC. On these considerations, it has drawn up a monthly power procurement schedule to estimate the total annual requirement in MU. GRIDCO has suggested that costing of power may be worked out on the monthly forecast of energy drawal rather than the aggregated annual basis.

6.13.2

The Commission has examined this suggestion of GRIDCO. It is observed that GRIDCO is dependent on purchase of power from OHPC including Upper Indravati and Machhkund, OPGC, TTPS, CPPs within the State and the central generating stations. Bound by the PPAs, GRIDCO has to pay the fixed cost in respect of all the dedicated stations within the State. Costing of power on monthly basis from the dedicated stations will not make a difference at the normative level of operation as the fixed costs have to be paid calculated on an annual basis.

6.13.3

Besides, an accurate level of monthly requirement is yet to be established through a scientific method of load forecasting. As far as the central generating stations are concerned, the cost per unit of these stations is variable in nature and the rate of this power can be correctly ascertained only after the actual level of generation is known at the end of the year. The Commission, for determination of the cost of power of central generating station, has relied on the normative parameters subject to adjustment at the end of the year. Keeping the above position in view, the Commission has calculated the cost of power based on the annual requirement of GRIDCO.

6.13.4

The cost of power in respect of generating companies and generating stations, analysed and approved by the Commission in the following paragraphs, are best estimates of the Commission based on extant rules and orders of appropriate authorities, currently valid PPAs and other relevant factors. They do not supplant the jurisdiction of other statutory authorities like Central Electricity Regulatory Commission to determine the rate of power generated by central sector generating stations, changes in statutory rates like income tax, water cess and changes in contractual provisions.

6.13.5

Machhkund : The cost of power from Machhkund is projected as 8 paise/unit as in the previous year 1998-99. This cost is accepted by the Commission for the year 1999-00.

6.13.6

OHPC (Hirakud, Rengali, Balimela and Upper Kolab) : GRIDCO has submitted a tariff calculation sheet prepared by OHPC for purchase of power from OHPC for the year 1999-00 (Additional ED-27, Annex-1). The PPA for the Financial Year 1999 and Financial Year 2000 between OHPC and GRIDCO as submitted in the tariff application has not yet been finalised. GRIDCO has further stated that the only signed PPA that exists today pertains to the Financial Year 1998. In its rejoinder dt.23.11.99, GRIDCO has filed a copy of PPA of 1998-99 which is yet to be signed between OHPC and GRIDCO and approved by the Commission. Depending on the draft PPA, GRIDCO has proposed that with a normative energy sale of 3702.77 MU and a total fixed cost of Rs.196.28 crores for 1999-00, the cost of OHPC power would be 53.03 paise/unit and this should be treated as variable charges. Some of the objectors have said that the approved cost of power from OHPC for 1998-99 should be taken as the base and prorated for increased generation. In the absence of signed PPA for the years 1998-99 and 1999-00 between OHPC and GRIDCO, the Commission has taken into consideration the figures appearing in the PPa of 1997-98 and has fixed the total annual expenditure of Rs.181.40 crores for these power stations with net saleable volume of 3702 MU. The aforesaid PPA stipulates that if the actual sale exceeds 3702 MU, there would be no payment for the quantum of energy above 3702 MU, i.e. the total annual revenue of OHPC for the four generating stations will continue to be Rs.181.40 crores with unit cost of 49 paise/unit. The bills of the different stations of OHPC from April, 1999 to August, 1999 have also been verified by the Commission where GRIDCO has been billed @ 49 paise/unit.

6.13.6.1

As per the PPA of 1997-98, if actual sale of energy falls below 3702 MU during a year for reasons not attributable to OHPC, the shortfall in revenue will be borne by GRIDCO. As indicated in the Commission’s approval of the quantum of power purchase, the anticipated drawal from these power stations may exceed 3702 MU and may go upto 3953.42 MU. Therefore, the energy drawn by GRIDCO in excess of 3702 MU will be treated as zero-cost energy which GRIDCO must draw to keep its power purchase cost as low as possible.

6.13.7

Upper Indravati Hydro Electric Project (UIHEP) : GRIDCO has submitted that the fixed charge of this power station will be 70% of the total fixed cost charged on commissioning of the first unit and 80% on commissioning of the second unit. Until commercial operation of all the four units, the tariff for this power station is proposed to be a single part tariff on the quantum of energy sent out. The PPA for purchase of power from Indravati has not yet been approved. In the absence of approved PPA, as an interim measure, the rate proposed by GRIDCO has been examined for the purpose of tariff for 1999-00. GRIDCO has stated that the cost/unit during the first unit of generation is 122 paise/unit in September & October, 1999 and 80% of 122 paise/unit for the month of November & December, 1999 and 90% of 122 paise/unit for the rest of the year 1999-00. Based on this concept, GRIDCO has proposed a unit rate of 103.68 paise/unit. Applying the same formula of 70% of 122 paise/unit during the operation of the first unit and 80% of 122 paise/unit during the operation of the units 1 & 2 and limiting the total drawal to 539.66 MU during 1999-00 as proposed by GRIDCO, the average cost/unit works out to 94.40 paise/unit, which is calculated by the Commission.

6.13.8

Talcher Thermal Power Station (TTPS) : GRIDCO has stated that the fixed cost of the station is to be revised @ Rs.1.7 lakhs/month from the beginning of the relevant Financial Year for every Rs. one crore addition on capitalisation of renovation and modernisation expenses. The fixed cost/month as per the minutes of meeting of September 24, 1996 is Rs.10.49 crores/month. As agreed between GRIDCO and TTPS, renovation and modernisation expenditure of Rs.132 crores in Phase-I and Rs.42.28 crores in Phase-II are to be incurred by the end of Financial Year 1999-00. The additional fixed charges due to renovation and modernisation @ Rs.1.7 lakhs for every Rs. One crore works out to Rs.2.96 crores. The fixed cost/month after renovation and modernisation amounts to Rs.13.45 crores with a proposed unit cost of 84.49 paise/unit.

6.13.8.1

GRIDCO has stated that the variable costs have been calculated on the basis of bill raised for the first three months of 1999-00. An inflation of 5% on the cost of coal alone has been considered over the billed figure of June, 1999 for calculation of costs from July onwards. The weighted average variable cost for 1999-00 has been worked out as 60.66 paise/unit. Fuel price adjustment has been combined in the variable cost.

6.13.8.2

Year-end adjustment has been arrived at to cover the water cess, income tax and supplementary FPA. Income tax of Rs.39.021 crores has been calculated as payable for the Financial Year 1999-00 based on the advance income tax billed to GRIDCO for the months of April and May, 1999. Water cess has been taken as Rs.64.5 lakhs based on the billing to GRIDCO for April to September, 1999. No supplementary FPA adjustment has been considered.

6.13.8.3

The Commission has examined the various cost components. As verified from the bills, a sum of Rs.11.57 crores/month is being billed by TTPS from April, 1999 to August, 1999. GRIDCO has stated that the current payment of Rs.11.57 crores/month is based on a provisional R&M expenditure till 1997-98 and does not include the R&M expenditure of the years 1998-99 and 1999-00. Para-6.1.b of the PPA dated 08.3.95 between OSEB, Govt. of Orissa and NTPC states as follows :- "For tariff purposes, the value of fixed assets will include the transfer value of Rs.356 crores and expenditure on renovation and modernisation and other capital works as and when they are incurred." Therefore, the fixed cost/month for the purpose of tariff calculation has been accepted on the basis of bills of April, 1999 to August, 1999 given by TTPS to GRIDCO.

6.13.8.4

For the purpose of calculation of variable cost of TTPS, the average cost of coal and oil for the first five months of the current Financial Year was worked out. Adopting these average figures, the total variable cost works out to 58.04 paise/unit which includes FPA. The proposed escalation of 5% on coal prices ruling in June, 1999 has not been considered.

6.13.8.5

During the months of April & May, 1999, a total of 378.23 MU were supplied by TTPS to GRIDCO. The income tax liability for these two months is Rs.6.503 crores which works out to 17.19 paise/unit. NTPC had apportioned the income tax to different generating stations based on the installed capacity in MW. NTPC in their inter office memo dated 16.6.99 addressed to the Chief Financial Manager, Eastern Region Hqrs, Patna has stated that the billing methodology for billing of the income tax to different SEBs has to be done in the ratio of energy drawal from respective power stations from April to May, 1999. NTPC has further stated in this inter office memo that the said amount should be treated as provisional and would be adjusted at the end of the Financial Year 1999-00 on the basis of final income tax paid by NTPC to the tax authority and the final energy drawal during 1999-00. A copy of NTPC’s calculation along with the auditor’s certificate is available in the filing made by GRIDCO. The Commission has considered Rs.39.02 crores as tax liability for 1999-00.

6.13.8.6

Actual water cess paid for April to September of 1998-99 was Rs.32.3 lakhs or 0.33 paise/unit. The same rate/unit has been adopted for determination of water cess for the year 1999-00 which works out to Rs.71.03 lakhs on 2160.23 MU.

6.13.8.7

On the above basis, the Commission approves the rate of 140.70 paise/unit inclusive of fixed cost, variable cost, income tax and water cess.

6.13.9

Orissa Power Generation Corporation (OPGC) : The fixed cost for the year 1999-00 as proposed by GRIDCO is Rs.276.098 crores computed on the basis of a three year block ending 1999-00. Variable cost for this power station is proposed as 36.23 paise/unit based against the same block period of three years. Assuming an inflation of 5% on coal price over the actual values of March, 1999, fuel price adjustment is estimated as 14.46 paise/unit as an year end adjustment. Based on the year-end adjustment bills for 1999, OPGC had proposed the following expenses for 1999-00 in its application dated 17.8.99.

Incentive of Rs.12.81 crores calculated on the plant availability at 80%

Income Tax of Rs.25.2 crores as the five years tax holiday has reportedly come to an end in 1998-99

Land tax and water cess are taken at Rs.1.91 crores equal to the billed amount to GRIDCO for the Financial Year 1998-99

Extra oil consumption due to backing down/tripping at Rs.1.29 crores equal to the billed figure to GRIDCO for the year 1999-00

Revised calculation of guarantee commission on opening balance of loans for the Financial Year 1999-00 has been considered

6.13.9.1

Based on the factors stated above, GRIDCO has estimated the cost of OPGC power as 183.48 paise/unit.

6.13.9.2

On a query from the Commission, GRIDCO in its revised application dated 06.10.99 has intimated that there may not be any tax liability for FY 1999-00. Consequently, the average unit cost has been revised to 172.90 paise/unit. This has been examined by the Commission. Annual fixed cost of Rs.276.10 crores and the variable cost of 36.23 paise/unit as calculated on the basis of normative generation of 2280.57 MU is accepted for the purpose of tariff calculation as this cost is in accordance with the terms of PPA. GRIDCO has submitted revised details of land, rent, L.C. charges, electricity duty, water cess and tax as asked for by the Commission. Accordingly, water cess of Rs.88.3 lakhs, land rent, L.C. charges and electricity duty of Rs.11.4 lakhs have been accepted by the Commission. Interest adjustment of Rs.41.9 lakhs and guarantee commission of Rs.69.2 lakhs have been deducted from the fixed charges. Incentive proposal has not been accepted as the plant availability is considered at the normative level. Extra oil consumption due to backing down can be arrived at only during post operation period. Therefore, the amount of Rs.1.29 crores estimated for 1999-00 has not been taken into account. For the purpose of calculation of fuel price adjustment, the GCV of coal as well as the price of coal and oil ruling in the month of March, 1999 have been considered. According to this calculation, the FPA works out to 11.04 paise/unit. The proposed escalation of coal price by 5% over values of March, 1999 has not been accepted by the Commission. Details of cost as approved by the Commission is in Table : 12. Therefore, the total cost/unit of OPGC’s Ib generating station for the year 1999-00 is accepted at 168.29 paise/unit.

6.13.10

Captive Power Plants (CPPs) : GRIDCO has submitted that the rate of 77 paise/unit for purchase of power from Nalco along with fuel price escalation was agreed between Nalco, Govt. of Orissa and OSEB on 1^st of June, 1994. GRIDCO has reported that Nalco has billed 91.81 paise/unit with effect from August 22, 1998. In support of this, GRIDCO has enclosed copies of correspondence regarding escalation on account of increase in price of coal from 01.7.94 onwards. However this issue of escalation in cost of coal was not brought to the notice of the Commission during the tariff filing of 1998-99. GRIDCO further states that unit rate of 91.81 paise charged by Nalco is likely to be changed on account of increase in the cost of coal during the year using the average coal price of Rs.490/metric ton and applying FPA formula as agreed between Nalco and OSEB. Some of the objectors have stated that the approved rate of 77 paise/unit should be taken for 1999-00 also.

6.13.10.1

It is observed from the bill copy of Nalco dated 09.6.99 that the cost of fuel escalation is billed @ 14.81 paise/unit. Since, the escalation in cost of fuel and oil is already accounted for by Nalco, the claim of GRIDCO for further revision on account of increase in the cost of fuel and oil is not acceptable. As the claim for FPA is based on an agreement between Nalco and OSEB and Govt. of Orissa, the Commission accepts the claim and approves the rate of 77 paise/unit and 14.81 paise/unit on account of fuel price adjustment for power purchased from Captive Power Plants (CPPs).

6.14

Central Power Stations

6.14.1

Chukha : GRIDCO has stated that the power purchase cost from Chukha Hydro electric station has been taken as 100 paise/unit as per Govt. of India notification of February 26, 1997. In addition, transmission charge for supply from Chukha and the transmission losses of PGCIL are payable by GRIDCO. The unit rate for transmission of Chukha power is based on the notified cost of Rs.14.74 crores/month spread over total EREB power handled by PGCIL. The unit cost of transmission including losses, as proposed, is 115.87 paise/unit. The Commission accepts the unit cost of power purchase from Chukha as 100 paise/unit. Calculating on the basis of the notified cost of Rs.14.74 crores/month and the actual energy transmitted over the months April, 1999 to August, 1999 as provided in the EREB’s global accounts, the unit cost of transmission comes to 10.73 paise/unit. PGCIL line losses have been computed from the global accounts of April to August, 1999 which comes to 2.63%. Therefore, the total unit cost as accepted by the Commission is 113.72 paise/unit.

6.15

Central Thermal Power Station

6.15.1

Under ERC Act, the tariff in respect of the Central Power Stations will be determined by the Central Electricity Regulatory Commission from 15.5.99 onwards.

6.15.2

The Ministry of Power, Govt. of India have notified the tariff in respect of the Talcher Super Thermal Power Station Kaniha (Orissa), Farakka Super Thermal Power Station (West Bengal), Kahalgaon Super Thermal Power Station (Bihar) under Section 43(A) of The Act, 1948 prior to 15.5.99. This tariff is, therefore, current and has not been replaced.

6.15.2.1

The Commission, after analysis of the various charges, has the following comments :-

6.15.3

Fixed Charge : GRIDCO has stated that the fixed charge is payable by the beneficiary each month in proportion to the energy sale from STPS at 400 KV bus bar at STPS to each beneficiary individually as per regional energy account. The Commission accepts this principle. The Commission has analysed the fixed charges keeping in view the Govt. of India notification of 09.6.99 (Ref : Evidential Document 14 and 19).

6.15.3.1

GRIDCO has calculated the fixed charge/unit in respect of central thermal stations based on its own projection of generation of these station which is much lower than the generation projection made by the NTPC stations. Calculation of fixed cost based on a lower level of generation results in a higher fixed cost/unit. The Commission examined the rejoinder of GRIDCO justifying calculation of fixed cost by projecting a lower level of generation. It is observed that the combined level of generation attained by the central thermal stations of the Eastern Region is closer to the generation plan projected by NTPC. The Commission, therefore, considers it appropriate to accept the generation plan prepared by NTPC for the purpose of estimation of fixed cost/unit rather than accept the lower level of generation projected by GRIDCO.

6.15.4

Variable Cost : The variable cost in respect of central thermal stations has been calculated by GRIDCO as per the latest Govt. of India notification.

6.15.4.1

The Commission has accepted this principle and the rates.

6.15.5

Fuel Price Adjustment : FPA has been calculated by GRIDCO on actual basis for first three months with an increase of 5% on price of coal alone for the rest of the year 1999-00.

6.15.5.1

The Commission has based the calculation on the actual average of gross calorific value (GCV) and price of coal and oil for April, 1999 to June, 1999.

6.15.6

Miscellaneous Charges (Income Tax and Water Cess) : GRIDCO has projected the year-end adjustment for water cess and income tax. Income tax has been estimated based on the advance income tax for April and May, 1999 billed to GRIDCO. Water cess has been calculated based on the billing to GRIDCO for April to September, 1998.

6.15.6.1

The Commission has considered water cess on unit rates basis on amount paid for the months from April, 1998 to September, 1998. Income tax has also been considered on unit rate basis on amount paid on advance tax for April and May, 1999.

6.15.7

Transmission Loss In Central Sector Lines: GRIDCO has said that power flow to Orissa from the central thermal stations takes place through the lines of PGCIL. Transmission losses occurring on the central lines are shared by the constituents of the region. This loss is calculated at 3% by GRIDCO and accordingly the fixed charge and variable charges are increased to account for the losses in the central transmission lines.

6.15.7.1

The Commission has accepted the principle. However, the losses as calculated works out to 2.63% based on global accounts of April, 1999 to August, 1999.

6.15.8

Transmission Charge for PGCIL Lines : Transmission charge is payable by the constituents of the regional grid for utilisation of the transmission system of POWERGRID for exchange of power from the central generating stations to the constituent utilities. This is in addition to the losses occurring in central transmission lines. The transmission charges are recovered on a monthly basis. This is leviable in proportion to the energy sold from the central sector stations including Chukha to each beneficiary. The transmission charge has been calculated in accordance with Govt. of India notification dated 04.12.98, 11.5.99 and 14.5.99.

6.15.8.1

The Commission has calculated that the transmission charge payable to PGCIL should work out to 10.73 paise/unit based on fixed charge of Rs.14.74 crores/month and actual energy transmission as reflected in global accounts from April, 1999 to August, 1999.

6.15.8.2

Station-wise cost analysis of the central thermal stations is as follows :-

6.15.9

Talcher Super Thermal Power Station (TSTPS) : According to Ministry of Power, Govt. of India Notification dated 06.5.99, tariff of 2X500 MW Talcher STPS is determined on two part basis (excluding taxes, duties, cess, levies, etc.) which are payable as under :-

Fixed charges
@ Rs.593.80 crores/year with effect from 01.7.97 to 31.10.98
@ Rs.644.99 crores/year with effect from 01.11.98 to 31.3.2002

Variable charges:
32.72 paise/unit with effect from 01.7.97 till 31.3.2000, which are further subject to changes in Fuel Price Adjustment

6.15.9.1

The break up of average unit cost inclusive of central line losses of 3% as proposed by GRIDCO are :-

6.15.9.2

The cost of power for TSTPS as furnished by GRIDCO was examined in the Commission. Based on the Govt. of India notification on tariff for such stations, the fixed cost/unit on the normative sale (ESO 5231.86 MU) is 123.28 paise/unit. According to the NTPC generation plan (submitted by GRIDCO in DF-5) 5851 MU is to be sent out from this power station for the year 1999-00. Consequently, the load factor will be higher than the normative PLF. Therefore, the fixed cost is taken at the normative PLF. Taking a central line loss of 2.63%, the unit cost of fixed charges is calculated as 126.61 paise/unit.

6.15.9.3

Since details of water cess were not submitted by GRIDCO, it has not been considered by the Commission at this stage.

6.15.9.4

The principles on which the Commission has based its calculations for the other charges have already been stated in para 6.15.4, 6.15.5 & 6.15.6.

6.15.9.5

Therefore, the break up of average unit cost inclusive of central line loss as accepted by the Commission is as follows :-

6.15.10

Farakka Super Thermal Power Station (FSTPS) : According to Ministry of Power, Govt. of India Notification dated 07.5.99, the tariff of 3X200 MW + 2X500 MW Farakka STPS is determined on two part basis (excluding taxes, duties, cess, levies, etc.) which are payable as under :-

Fixed charges
@ Rs.611.39 crores/year with effect from 01.7.96 to 31.10.98
@ Rs.668.33 crores/year with effect from 01.01.98 to 31.3.2000

Variable charges : 46.16 paise/unit with effect from 01.7.96 which are further subject to fuel price adjustment

6.15.10.1

The break up of average unit cost inclusive of central line losses of 3% as proposed by GRIDCO are :-

6.15.10.2

The cost of power for FSTPS as furnished by GRIDCO was examined in the Commission. Based on the Govt. of India letter dated 09.6.99 on tariff for such stations, the fixed cost/unit on the normative energy generation (ESO 8489.13 MU) is 78.73 paise/unit. According to the NTPC generation plan (submitted by GRIDCO in DF-5) 8929 MU is to be sent out from this power station. Consequently, the load factor will be higher than the normative PLF. Therefore, the fixed cost is taken at the normative PLF. (i.e. 8489.13 MU which is based on latest available data of Govt. of India) and on a total fixed cost of Rs.668.33 crores/year. Taking a central line loss of 2.63%, the fixed charges is calculated at 80.85 paise/unit.

6.15.10.3

The principles on which the Commission has based its calculations for the other charges have already been outlined in para 6.15.4, 6.15.5 & 6.15.6.

6.15.10.4

Therefore, the break up of average unit cost inclusive of central line loss of 2.63% as calculated by the Commission is as follows :-

6.15.11

Kahalgaon Super Thermal Power Station (KhSTPS) : According to Ministry of Power, Govt. of India a notification dated 09.12.98, the tariff of 4X200 MW Kahalgaon STPS is determined on two part basis (excluding taxes, duties, cess, levies, etc.) which are payable as under :-

Fixed charges
@ Rs.441.10 crores/year with effect from 01.8.96
@ Rs.477.88 crores/year with effect from 01.11.98 to 31.3.2000

Variable charges : 50.86 paise/unit with effect from 01.8.96 to 31.3.2000 which are further subject to fuel price adjustment as per approved formula

6.15.11.1

The break up of average unit cost inclusive of central line losses of 3% as proposed by GRIDCO is :-

6.15.11.2

The cost of power for KhSTPS as furnished by GRIDCO was examined by the Commission. Based on the Govt. of India letter dated 09.6.99, the fixed cost/unit has been calculated at 103.56 paise/unit based on the fixed charge of Rs.441.10 crores. Taking the revised cost of Rs.477.88 crores (the detail calculations have been furnished by GRIDCO) for fixed charges on ESO of 4259.52 MU and central line loss of 2.63%, the fixed cost/unit comes to 115.22 paise/unit.

6.15.11.3

The principles on which the Commission has based its calculations for the other charges have already been outlined in para 6.15.4, 6.15.5 & 6.15.6.

6.15.11.4

Therefore, the break up of average unit cost inclusive of central line loss as calculated by the Commission is as follows :-

6.15.11.5

GRIDCO’s proposed cost of power from various generating stations and the Commission’s approved cost in respect of each station is summarised in Table : 12.

Note : (Central transmission loss of 3% for central stations included)

Commission’s Approval

Note : (Central transmission loss of 2.63% for central stations included)

6.16

Rebate for Prompt Payment from the Generators

6.16.1

The PPA between the generators and GRIDCO provides for a rebate of 2.5% on the gross power bill if payment is made through Letter of Credit. 1% rebate on the billed amount is allowed when payment is made within 30 days. In case of payment beyond the due date, delayed payment surcharge @ 2% per month on the billed amount is payable by GRIDCO to the generators.

6.16.2

GRIDCO has proposed interest on working capital to meet the expenses in connection with payment of dues of the power bill to the generators. The Sixth Schedule to The Act, 1948, allows an amount of working capital on items other than the cost of generation and purchase of energy. The Commission is of the view that unless a reasonable amount of working capital is allowed to the licensee, it may be difficult on its part to meet the interest expenses on short term borrowings made to pay for the cost of power in time to avail the rebate and avoid delayed payment surcharge.

6.16.3

While the DISTCOs can access the security deposit of the consumers on which they do not pay any interest to the consumers, they do not pay any security deposit to GRIDCO for their power purchase. GRIDCO, therefore, does not have any resources to clear its dues in time if the DISTCOs do not make payment to GRIDCO in time. Considering the above, the Commission has decided that for the purpose of calculation of revenue requirement, the cost of power should be calculated at its gross value and not after excluding rebate. This will offset the shortfall on account of interest on working capital utilised to pay power dues which is not permitted under the Sixth Schedule of the Act, 1948.

6.17

Transmission Cost

6.17.1

The operating expenditure on bulk supply and transmission of energy excluding cost of power procurement has been grouped under the head Transmission Cost.

6.17.2

The anticipated expenditure projected by GRIDCO under various components of the transmission cost has been carefully examined with a view to determine the expenditure which can be considered to be prudently incurred for pass through in tariff for 1999-00. This scrutiny has become difficult mainly due to the reason that even provisional accounts of GRIDCO for the year 1998-99 have not been finalised. It has been explained to us that the accounts could not be finalised because GRIDCO was engaged in a complex exercise both in administration and accounts consequent on segregation of distribution business and transfer of the same to four distribution companies under different managements. In the absence of accounts for 1998-99, the prudence of expenditure for 1999-00 has to be examined with reference to the disaggregated audited accounts for the financial year 1997-98. We have noted that the fairness of disaggregation has been questioned by the distribution licensees. We find some force in the objection as the basis for disaggregation has not been given and the expenditure allocated to GRIDCO appears to be disproportionately high.

6.18

Employees Cost

6.18.1

GRIDCO has projected expenditure for 1999-00 under "Employees Cost" by adopting an increase at the annual rate of 5.3% on each item over the desegregated audited account for 1997-98. We however, find that the net Employees Cost projected at Rs.73.24 crores with reference to the disaggregated figure of Rs.65.69 crores for 1997-98 is unduly high.

6.18.2

Without perceptible increase in the volume of business, profit and improvement in service, there can be no justification for an expenditure of Rs.73.24 crores for 1999-00 when the Commission had approved only Rs.57.58 crores for 1998-99. We are therefore unable to approve the figure projected by GRIDCO and have to substitute the same with our own estimate. We consider as reasonable an annual increase of 3% in salaries and house rent allowance and of 6% on account of inflation on other components of staff costs.

6.18.3

After projecting expenditure on salaries and other emoluments as above, we have specifically examined two related items namely, Staff Welfare Expenses and Terminal Benefits. The licensee has claimed expenditure of Rs.16.50 crores on Staff Welfare Expenses for 1997-98. The nature of this expenditure is not clear. The amount is unreasonably high compared to the total amount of Rs.1.20 crores incurred in FY 1996-97 by the unbundled GRIDCO which is now split into five units. Out of a total amount of Rs.18.36 crores supposed to have been spent on account of staff welfare expenses during 1997-98 as much as Rs.16.50 crores has been allocated to GRIDCO whose staff strength of 6175 after divestment of its Distribution Business constitute only about 21% of the combined staff strength of GRIDCO and the DISTCOs taken together. There is no explanation as to how a sum of Rs.16.50 crores is estimated for GRIDCO alone against a total sum of Rs.1.86 crores for four distribution companies. We are unable to find any justification for such an unreasonably high claim. Applying an inflation rate of 6% annualised over the expenses of 1996-97 (Rs.1.2 crores) the total Staff Welfare Expenses for GRIDCO and the DISTCOs should be around Rs.1.43 crores. As GRIDCO accounts for nearly 21% of the total strength of the electrical utilities of the State, the staff welfare expenditure may be restricted to 21% of the aforesaid amount of Rs.1.43 crores. This comes to be approximately Rs.30 lakhs which is approved as expenditure for the purpose of calculation of clear profit. The same ratio of 21% has to be adopted for determination of expenditure towards terminal benefits.

6.18.4

In the light of above observation, the relevant figures on Employees Cost and related expenses are reflected in Table : 13.

* Staff welfare expenses dealt in the previous paragraph.

6.18.5

The total Employees Cost chargeable to revenue is Rs.57.87 crores. A comparative table showing the Employees Cost from 1997-98 onwards is given in Table : 14.

Table : 14
(Rs. in crores)

6.19

Repair & Maintenance Expenses

6.19.1

GRIDCO has proposed an expenditure of Rs.48 crores for R&M expenses. In the disaggregated audited accounts for the year 1997-98, expenditure on this head was only Rs.9.65 crores. Several objectors have questioned the steep rise in R&M expenses. GRIDCO has stated that this expenditure is necessary for taking up an aggressive programme of R&M for strengthening the network and improving quality of supply which could not be undertaken in the earlier years due to paucity of funds. Purchase orders valued at Rs.43.80 crores have already been placed under this programme and a sum of Rs.8 crores has already been spent during the first quarter of the 1999-00. Materials are expected to be received during FY 1999-00.

6.19.2

In the tariff order dated November 21, 1998, the requirement of R&M for 1998-99 was calculated assuming a normative of 1.5% of the gross fixed asset of the company, a practice followed in PGCIL who also operate a transmission system like GRIDCO. This normative percentage is being applied on the re-valued assets of GRIDCO as on 01.04.1996 with subsequent additions. Applying this percentage on the fixed asset of Rs.1322.00 crores at the beginning of the year, a sum of Rs.19.84 crores can be charged to R&M for 1999-00 against Rs.17.36 crores approved by the Commission for the year 1998-99. GRIDCO’s proposal for a stepped-up investment had not been brought to the notice of the Commission earlier. Approval for major investments under licence condition have not yet been obtained and the expenditure incurred so far has not been linked to any approval or intimation. The Commission therefore questions the prudence of expenditure of such magnitude which is likely to be a heavy burden on the consumers during the year. The Commission, therefore, directs that this expenditure has to be phased in such a manner that a rate shock is avoided. Accordingly the expenditure on R&M for the year 1999-00 should be limited to Rs.19.84 crores.

6.20

Administration & General Expenses

6.20.1

A&G expenses include expenses on property related expenses, communication expenses, professional charges, other expenses including expenses on auditing, advertisement and materials related expenses. The expenses under this head in the disaggregated audited accounts for 1997-98 has been shown as Rs.31.56 crores. Deducting a provision for bad debt amounting to Rs.11.92 crores wrongly included here, the actual A&G expenses were Rs.19.64 crores. Against this, GRIDCO has proposed Rs.22.39 crores for 1999-00.

6.20.2

As stated earlier in this order, the distribution licensees have questioned the apportionment of expenses as reflected in the disaggregated final account and have stated that a disproportionately low percentage of expenses has been allocated to the DISTCOs. The area of A&G expenses require a close scrutiny as a measure of cost reduction. For the year 1998-99 the Commission had permitted A&G expenses amounting to Rs.11.24 for transmission business even though the licensees’ claim was for a lesser amount of Rs.7.35 crores. The Commission considers that an annual increase of 6% with inflation factored into it over the approved figure of Rs.11.24 crores for 1998-99 should be adequate for GRIDCO to meet the A&G expenses for the year 1999-00. Accordingly, the Commission considers Rs.11.91 crores as appropriate A&G expenses for 1999-00 and would direct that only that much has to be taken into account for calculation of clear profit.

6.20.3

The total A&G expenses chargeable to revenue is Rs.10.88 crores which is arrived at after deducting an amount of Rs.1.03 crores as expenses capitalised.

6.21

Interest on Loan

6.21.1

In para 1.2.5.5 of its application, GRIDCO has under the head "Interest on Long Term Liabilities" proposed interest expense chargeable to revenue account at Rs.168.4 crores excluding interest during construction. The interest claimed relate to Govt. Guaranteed bonds amounting to Rs.747.5 crores and loans amounting to Rs.555.20 crores raised during the financial year 1997-98, 1998-99 and 1999-00. Due to the failure of GRIDCO to make payment to the generators for outstanding dues, bonds were issued with the guarantee of the State Government for securitising the dues of the generators. The details of these bonds are in Table : 15.

Table : 15

6.21.2

In addition to the resources mobilisation through bonds, GRIDCO has taken loans from various financial institutions apparently for undertaking construction works. Year-wise break-up of these loans is given in Table : 16.

Table : 16

6.21.3

In the year 1999-00, interest liabilities on account of aforesaid bonds amounts to Rs.111.00 crores and on loans amounts to Rs.118.20 crores. Out of the total amount of Rs.229.20 crores, a sum of Rs.60.82 crores relate to interest during construction period. A comparative picture of total amount of interest payable, interest during construction period out of the same and interest charged to revenue account is given in Table : 17.

6.21.4

It is observed that between the period 1996-97 to 1999-00, loan has increased by 297% and interest by 330%. GRIDCO has explained in the clarification given to queries on their application that its finances have been seriously strained on account of financing of its past losses and servicing the loans of distribution business upto March, 1999 as provided in the Transfer Scheme of November, 1998. It is stated that financing the past losses was a compelling necessity which was done partly by conversion of power purchase overdues into bonds. It is explained that by means of this financing, GRIDCO has reduced the effective cost of servicing of Central Sector/IPPs dues. Earlier GRIDCO was incurring a higher expenditure towards Delayed Payment Surcharge (DPS) to avoid threat of disconnection by the generators. It is stated that for the financial year 2000 GRIDCO would have paid an estimated value of Rs.59.5 crores in Delayed Payment Surcharge against Rs.46.5 crores incurred as interest on converted bonds.

6.21.5

Strong objections have been raised by various objectors with regard to the prudence of incurring such heavy loans, the high amount of interest on loans and bonds and the proposal of GRIDCO to take such interest into account for being passed on to the customers through tariff. The Distribution Companies have argued that interest on loans taken to make up accumulated past losses should not be allowed. It is argued that since accumulated losses of OSEB and GRIDCO’s distribution business upto March, 1999 were transferred to GRIDCO at the time of disinvestment of DISTCOs to allow DISTCOs to start business on a clear balance sheet, amount claimed towards interest and bonds should be disallowed so that the consumers of DISTCOs are not burdened with costs arising out of past action of GRIDCO. Consumer groups have not only raised similar objection but some have added that since bonds do not increase asset value, interest on that account should not be allowed to be passed on to the revenue requirement.

6.21.6

In the light of serious objections raised by various categories of objectors, we have carefully analysed the facts to find out whether and to what extent interest on bonds and loans can be allowed and passed through as expenditure properly incurred. We find that during the three years between 1996-97 to 1999-00, loan has increased by 297% and interest by 330% whereas the asset value has increased by only 32.8% and incremental energy handling by only 6%. This galloping rise in loan without corresponding load growth is disproportionately increasing the burden on the consumers during the year 1999-00. The increase in the loan burden vis-a-vis asset addition during the period 01.4.96 onwards is summarised in Table : 18.

6.21.7

For the purpose of convenience, we have analysed the utilization of funds raised through issue of bonds in Table : 19.

Table : 19
(Rs. in crores)

6.21.8

Interest on bonds for financing of overdue payables of generators may be examined first. It is strange that GRIDCO has not sought the approval of the Commission for securitisation of debt having financial implication of such magnitude. Various aspects of negotiation and even details of the bonds have not been given to us. It is for the first time during tariff proceeding that information has been disclosed regarding bonds and even that disclosure is confined only to the rate of interest and the duration of bonds. Out of a total of Rs.747.50 crores of bonds, Rs.440 crores is meant of securitisation of the power bills, Rs.153.75 crores has been utilised to meet the requirement of working capital and the balance Rs.153.75 crores is presumed to have been utilised for capital formation.

6.21.9

Conversion to bonds became necessary due to the inability of GRIDCO to realise its receivables from the consumers. Passing on such a burden attributable to the past action of GRIDCO which should have realised its receivables from the consumers in time will result in rate shock and will retared the reform process. The logic given by the licensee that higher financial burden has been avoided by securitisation does not appeal to us because it is not reasonable to burden the present consumers on account of the past and present inefficiency of the Licensee in realising its dues. Bonds amounting to Rs.440 crores are not meant for creation of assets or improvement of efficiency or for expenses in respect of its licensed activity for the current year. We, therefore, feel that the interest attributable to conversion of bonds against overdues of power purchase payables can not be allowed.

6.21.10

Position of loans after deducting the above is shown in Table : 20.

Table : 20
(Rs. in crores)

6.21.11

It is seen from the above that loans to the extent of Rs.81.73 crores has not resulted in capital formation. It is therefore clear that no prudence has been exercised regarding the extent of loan to be incurred. Therefore we feel that interest on excess loan of Rs.81.73 crores cannot be allowed.

6.21.12

Keeping in view the facts stated above, the interest on loan allowed to be charged to the revenue account for the year 1999-00 has been calculated as under :-

6.21.13

Further, from the analysis of the capital expenditure schedule of major investments (in Form No. DF 8), it is observed that a sum of Rs.313.68 crores has been planned for execution of various transmission projects from 01.4.97 onwards for which the licensee has not obtained necessary approval from the Commission in accordance with Condition 10.1 of Bulk Supply & Transmission Licence. Even though projected investment figures for transmission works have been taken into consideration by the Commission for the purpose of revenue requirement, it does not absolve the licensee from taking necessary approval of the Commission. Acceptance of expenditure by the Commission for the purpose of revenue requirement should not be construed as approval by the Commission for investment which is obligatory under license condition 10.1. The Commission requires a capital expenditure schedule to monitor the progress of works in order to ensure that the expenditures are properly incurred, works are executed in time without cost overruns and economy and efficiency is achieved through these investments.

6.22

Provision for Bad and Doubtful Debt

6.22.1

GRIDCO has proposed a provision of Rs.25.56 crores for bad and doubtful debts. It is stated that the provision has been proposed at 1.5% of the total sales for the FY 2000. In support of the provision it is stated that during the first quarter of FY 2000 GRIDCO has received payment for only 56% of the bulk supply bills and that GRIDCO’s debt also arises out of sale to interstate consumers and backup supply to CPPs. It is also claimed that although required to deal with very few customers, given the level of overdue, the provision is deemed necessary as a measure of business prudence. While giving clarification to the queries made by the Commission, GRIDCO has stated that a sizeable part (Rs.11.92 crores) relates to old provisions relating to ICCL and to debtors on interstate sales. GRIDCO’s claim of Rs.25.56 crores towards provision for bad and doubtful debt has been objected to by the consumer groups as well as the DISTCOs on the ground that GRIDCO has divested itself of the Distribution Business and is left only with four DISTCOs as consumers. Adequate safety exists by way of letters of credit and escrow accounts for recovery of electricity dues and, therefore, no provision be allowed towards bad debt. It has also been stated by the objectors that backup power supply to the captive power plants is the responsibility of DISTCOs and not of GRIDCO.

6.22.2

We appreciate the logic in the objections against the provision for bad and doubtful debt. In the preceding year GRIDCO had distribution responsibilities for approximately 13 lakhs consumers. In view of the large number and categories of consumers and the vast geographical area, it was not practicable to seek details of bad and doubtful debts and therefore a particular percentage namely 1.5% was adopted on total sales. Now that GRIDCO has divested itself of distribution work, there is hardly any justification in allowing bad and doubtful debts on percentage basis with very limited number of customers namely, DISTCOs and one or two Electricity Boards. It would be necessary to identify the defaulters, take appropriate action and then claim bad and doubtful debts. It is surprising that GRIDCO has not given any details or any explanation as to identify the defaulters, quantify the irrecoverable amount and justify the provision for bad and doubtful debts. We are unable to find any justification for claim of bad and doubtful debts without production of any evidence in the matter. Therefore, the Commission disallows the provision of Rs.25.56 crores proposed for bad and doubtful debts for the year 1999-2000.

6.23

Depreciation

6.23.1

GRIDCO has proposed Rs.79.42 crores towards depreciation expenses for the year 1999-00 computed on the basis of the rates notified by the Ministry of Power. It has also furnished asset wise calculation of depreciation from the FY 1997 upto the FY 2000. Some of the objectors have, however proposed that depreciation should be calculated only on the increase of assets from 1998-99 to 1999-00 assuming 50% expenditure on EHT lines and 50% on sub-stations and added to the depreciation permitted by the Commission for the year 1998-99 to arrive at the amount of depreciation to be permitted by the Commission.

6.23.2

According to the provisions of the Act, 1948, depreciation for the year should be calculated on the gross fixed assets existing at the beginning of the year. Therefore, no depreciation is permissible on the additions to assets during the year 1999-00. Disaggregated audited accounts of GRIDCO for the year 1997-98 reveals that the licensee was in possession of gross fixed assets for Rs.1117.57 crores as on 31^st March, 1998. The statutory auditors due to want of records have not approved the authenticity of this figure. It is understood from the audited statement of accounts that GRIDCO is not maintaining proper records of fixed assets and no physical verification has been carried out so far.

6.23.3

GRIDCO has clarified that assets have been classified, on the basis of Commercial, Financial & Assets Valuation Working Group report, as on 1st April, 1994 along with subsequent asset additions as per the annual accounts of FY 1995 and FY 1996. Additions for FY 1997, FY 1998 and FY 1999 have been identified on the basis of actual information received through the field accounting units. Obviously, the base line for calculation of the cost of fixed assets has been the transfer scheme resolution dated 01.4.96.

6.23.4

The Commission has accepted the audited figure as base for the purpose of calculation of gross fixed asset and depreciation as shown in Table : 22.

6.23.5

Depreciation for the year 1999-00 has been calculated on the cost of fixed assets as on 01.4.99 and the Commission approves depreciation expenses of Rs.79.42 crores for the year 1999-00. The Commission further directs GRIDCO to comply with the objections and observations raised by its statutory auditors in regard to maintenance of proper records and physical verification of assets.

6.24

Contribution to Contingency Reserves

6.24.1

GRIDCO has proposed Rs.4.96 crores towards contribution to contingency reserve under Para-IV of Sixth Schedule of The Act, 1948. As per provision of Para-IV of the Sixth Schedule, such contingency reserve amount should not be less than one quarter of 1% not exceeding half of 1% of the original cost of fixed assets. Half of the 1% of Rs.1322.1 crores works out to Rs.6.61 crores. Thus, the Commission considers the provision of Rs.4.96 crores proposed by the licensee reasonable.

6.25

Capital Base

6.25.1

Original Cost of Fixed Asset

6.25.1.1

For the purpose of calculation of original cost of fixed assets, GRIDCO has proposed a figure of Rs.1429.86 crores as on 31.3.2000.

6.25.1.2

The cost of asset as on 31.3.98 in the audited accounts of 1997-98 is Rs.1117.56 crores. With asset addition of Rs.204.50 crores and Rs.107.80 crores for the year 1998-99 and 1999-00 respectively, the cost of assets as on 31.3.2000 would be Rs.1429.86 crores. Consumers’ contribution is to be deducted from the original cost of fixed assets for the purpose of determination of capital base. A sum of Rs.6.53 crores as consumers’ contribution appearing in the disaggregated accounts for the year 1997-98 has been deducted by GRIDCO for the purpose of capital base calculation. From the application of the Licensee, it appears that there is no contribution from the consumers for the year 1998-99 and 1999-00.

6.25.1.3

The asset position including year to year addition as given by GRIDCO and reflected in Table : 23 has been accepted by the Commission.

Table : 23
(Rs. in crores)

6.26

Original cost of work-in-progress

6.26.1

The original cost of works in progress projected by GRIDCO would be Rs.448.63 crores on 31.3.2000. The figure of construction work in progress as on 31.3.98 and 31.3.99 was Rs.274.00 crores and Rs.234.51 crores respectively. Table : 24 shows the opening balance of WIP, Capital expenditure, Interest during construction, Transfer to fixed asset and closing balance of WIP.

6.26.2

The DISTCOs have questioned the justification for huge investments and capital expenditure made during the last two year and the amount proposed for the year 1999-00. These expenses have been incurred in addition to the expenditure proposed for repair and maintenance works. DISTCOs have urged that tangible benefit in terms of reduction of transmission losses and improvement in system reliability due to this massive expenditure should be brought out by GRIDCO as the financial impact in servicing the capital cost would be a burden on the consumers. Even though the funding is done through borrowings which may not affect the capital base, the cost of these borrowings has an impact on the revenue requirement and tariff.

6.26.3

GRIDCO in its rejoinder has stated that there are several benefits from capital expenditure and addition of new assets e.g. improvement in the quality of service, systems stability and capability to meet contingency. GRIDCO has further stated that reduction in transmission loss may not always be the result of such investments as has been pointed out by some of the objectors. While countering the suggestion of DISTCOs for more investment in distribution rather than in transmission, GRIDCO has stated that supply of power through 132 KV from Cuttack to Jagatsinghpur has increased the loss at 132 KV but reduced the loss at 33 KV.

6.26.4

While there is some substance in the objections in as much as high interest with no immediate benefit creates undue burden on existing consumers, as far as capital base is concerned we consider it reasonable to adopt the figure given by GRIDCO because the capital expenditure has been genuinely incurred in an effort to strengthen the transmission system.

6.27

Intangible Assets

6.27.1

GRIDCO proposes a sum of Rs.17.48 crores comprising of guarantee commission and stamp duty on bonds raised during the year to be amortized over the bond period. GRIDCO was asked to provide details in this regard. GRIDCO has clarified that they had to incur one-time expenses relating to issue of bonds during FY 1998 and FY 1999. These included guarantee commission, brokerage charges and stamp duty on bonds to be treated as deferred revenue expenses amortized over the tenure of the bonds.

6.27.2

The statement of deferred revenue expenditure as submitted by GRIDCO in form no. DF-6 was examined. The financing charges for these bonds are proposed to be amortized over the life of the bonds and considered as intangible asset for the year 1999-00. The admissibility of bonds issued for securitisation of dues of the generators has not been accepted by the Commission for passing on to consumers for the year 1999-00. In addition to securitisation of payables, GRIDCO had raised bonds to the extent of Rs.307.50 crores from the market out of which 50% is apportioned to working capital and remaining 50% to capital expenditure. Cost of bonds for working capital has also not been approved by us as pass through. Accordingly, expenses incurred for guarantee commission and stamp duty of those bonds are not being allowed for the purpose of calculation of capital base. The financing charges on these 50% of the bonds raised from market and utilised as capital expenditure are being treated as intangible asset and the amount is recalculated in Table : 25.

Table : 25
(Rs. in Crores)

6.27.3

We, therefore, approve a sum of Rs.6.08 crores as intangible asset for the year 1999-00.

6.28

Compulsory Investment under Schedule-VI

6.28.1

GRIDCO in its application has stated that the compulsory investment in accordance with the Sixth Schedule of the Act, 1948 was not invested in financial year 1998.

6.28.2

In this connection it is pertinent to mention that as per IV(2) of the Sixth Schedule of the Act, 1948, the sums appropriated to contingency reserve should be invested in securities authorised under the Indian Trust Act, 1882 (2 of 1882) and such investment should be made within a period of six months of the close of year of account in which appropriation is made. In other words, funds accumulated under the head Contingency Reserve upto FY 1998-99 should have been invested by September, 1999. The Licensee has not yet invested any amount in the scheduled securities as prescribed in the Sixth Schedule of the Act, 1948. Therefore, while calculating the capital base, the Commission cannot allow inclusion of the said amount of compulsory investment proposed by GRIDCO for purposes of calculating capital base.

6.29

Working Capital

6.29.1

Average cost of stores

6.29.1.1

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. GRIDCO has proposed Rs.28.80 crores. Strangely GRIDCO has totally ignored the basis on which calculation has to be made for eligibility for inclusion of cost of stores in the working capital. It has not given the cost of stores at the end of each month either for the current year or for the ensuing year. It has estimated the working capital requirement for stores by taking the entire stores at the end of the year excluding capital stores on site. The said stock reportedly equals to 2.88 months of R&M consumption. We are not in a position to approve either the basis of calculation or the quantum of estimated requirement of capital for cost of stores which is very much on the high side.

6.29.1.2

Capital stores at site, which are intended for capital expenditure, constitute 60% of the total value of the stores. Objections have been raised to the inclusion of capital stores in the working capital requirement. The contention of the objectors is that there are no capital stores at site and since all the materials are directly charged to works, their cost should be deleted from the requirement of working capital. The objection is quite valid and in any case GRIDCO has not given any valid basis for its proposal.

6.29.1.3

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.4.96 crores as reasonable for the purpose of working capital for stores to be included in the capital base.

6.30

Average Cash and Bank Balance

6.30.1

GRIDCO has proposed Rs.12.95 crores constituting one month’s payment of Employees Cost, A&G expenses and R&M expenses towards working capital requirement in the form of cash and bank balance. 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.

6.30.2

Keeping in view the above provision, the fund requirement for two months payment of Employees’ Cost and Administrative & General Expenses would be appropriate for meeting working capital requirement. Calculated on the aforesaid basis, the amount works out to Rs.13.16 crores. We, therefore, approve a sum of Rs.13.16 crores as cash and bank balance for meeting working capital requirements.

6.31

Loan

6.31.1

GRIDCO has stated that the loans and bonds for its transmission and bulk supply business as per the audited accounts 1997-98 were Rs.967.43 crores. During the year 1999-00, GRIDCO proposes to raise fresh loans amounting to Rs.283.00 crores. At the end of FY 1999-00, the amount of loans and bonds will reach a high of Rs.1661.77 crores.

6.31.2

GRIDCO has stated that the above amount does not include the zero coupon bonds of Rs.400 crores issued to the State Govt. GRIDCO has further stated that it has approached the Govt. of Orissa for immediate conversion of these zero coupon bonds to equity to be effective from the FY 1999-00. In its clarification dated 6.10.99, it has stated that its capital base calculation does not include bonds amounting to Rs.440 crores as securitisation of its unpaid power bills as these bonds do not represent any inflow of money nor have these been utilised for any capital expenditure. GRIDCO has further stated that 50% of the bonds of the value of Rs.307.50 crores i.e. Rs.153.75 crores raised from the market was earmarked for working capital requirement and, therefore, has not been considered in the capital base. After deducting the above two amounts i.e. Rs.440 crores and Rs.153.75 crores from a total amount of Rs.1661.77 crores, Rs.1068.02 crores remained to be considered for the purpose of capital base.

6.31.3

As discussed in para 6.21.9, an amount of Rs.81.73 crores of loan taken in excess of the capital formation during 1997-98 to 1999-00 has to be disallowed as loan not incurred prudently. The Commission, therefore, takes into consideration only an amount of Rs.986.29 crores. This is summarised in Table : 26.

Table : 26
(Rs. in crores)

6.31.4

In addition to the above, zero coupon bonds of Rs.400 crores issued to Govt. of Orissa and forming a part of the asset base of GRIDCO as per the Transfer Scheme Notification dated 01.4.96 has to be deducted. Therefore, the total amount of loans and bonds which should be deducted from the asset is the summation of Rs.986.29 crores and Rs.400 crores i.e. a total of Rs.1386.29 crores. The Commission, therefore, approves this amount of Rs.1386.29 crores to be deducted from the total asset for determination of capital base.

6.31.5

Based on the forgoing observations, the Commission finds that capital base for 1999-00 for the purpose of Sixth Schedule of the Act, 1948 has to be taken as Rs.235.27 crores (vide Annex-II to this Order) against Rs.597.76 crores proposed by GRIDCO.

6.32

Reasonable Return

6.32.1

GRIDCO has calculated the reasonable return by multiplying the standard rate of 16% to the incremental capital base of Rs.93.84 crores and the standard rate of 13% (8% bank rate plus 5%) on capital base as on 31.3.99. ½% on the amount borrowed from organisations or institutions has also been added to this amount. Thus, GRIDCO has proposed an amount of Rs.85.86 crores towards reasonable return. We are unable to accept this figure as we have not approved the base figure of capital base. Reasonable return calculated in accordance with Govt. of India, Ministry of Power notification dated 5th May, 1999 works out to Rs.37.52 crores on a capital base of Rs.235.27 crores as in Table : 27.

Table : 27
(Rs. in crores)

6.32.2

The table above indicates that investment made after 31.3.99 is NIL. Investment made upto 31.3.99, as calculated by Commission, is Rs.256.28 crores. But by the end of 31.3.2000 the same figure is reduced to RS.235.40 crores. Therefore, 13% (Bank rate 8% + 5%) has been considered on the reduced Capital Base of Rs.235.40 crores which is Rs.30.60 crores. ½% i.e. Rs.6.93 crores on the amount borrowed from organisation outstanding as on 31.3.2000 has been considered towards reasonable return. Thus, total reasonable return approved by the Commission is Rs.37.52 crores.

6.33

Miscellaneous Receipt

6.33.1

The Licensee has proposed an amount of Rs.62.76 crores as miscellaneous receipt for the year 1999-00. The break up is as follows (Ref : Table 32 of BST application FY 1999-00 dtd. 17.8.99) :-

Table : 28

6.33.2

The Commission has considered the miscellaneous receipts as proposed by GRIDCO. The figure of Rs.6.74 crores is accepted as other income and amount of Rs.40.78 crores is accepted on account of wheeling charge for power sold outside the State. The Commission in para 6.42.16 of this Order has decided on transmission tariff at 28.01 paise/unit rounded off to 28.00 paise/unit for wheeling power inside the State. Based on this, the receipts on this account comes to Rs.8.40 crores. Accordingly the total miscellaneous receipt as approved by the Commission is Rs.55.91 crores which is summarised in Table : 29.

6.33.3

The Commission has approved GRIDCO’s expenditure for the purpose of revenue requirement for the year 1999-00 as Rs.1291.36 crores as against the proposal of Rs.1618.58 crores. The Commission in para 6.24 of this Order has considered a provision of Rs.4.96 crores as reasonable for contribution to contingency reserve proposed by GRIDCO. The Commission has approved reasonable return in para 6.32.2 of this Order as Rs.37.52 crores against Rs.85.86 crores proposed by GRIDCO.

6.33.4

The expected revenue from the DISTCOs based on the rates approved by the Commission in para 6.39.3 of this Order is Rs.1247.02 crores over a 12 months period. Miscellaneous revenue from wheeling of power within and outside the State is Rs.55.91 crores over a 12 months period as indicated in para 6.33.2. Considering the aforesaid observations, clear profit for the full year works out to Rs.6.61 crores (Annex-III). The reasonable return permissible to the licensee is Rs.37.52 crores. The Licensee, therefore, will have a deficit of Rs.30.91 crores in the reasonable return.

6.34

Rebate

6.34.1

The provision of rebate for timely payment of bills proposed by GRIDCO has been examined by the Commission. GRIDCO has estimated the amount of rebate to distribution companies on bulk supply bills as Rs.33.61 crores. While calculating the revenue requirement for 1999-00, GRIDCO claims this amount of Rs.33.61 crores as an expenditure to be recovered through BST.

6.34.2

DISTCOs have objected to the concept of treating rebate to DISTCOs as an expenditure for GRIDCO.

6.34.3

Since rebate is likely to incentivise DISTCO’s to make early payment to GRIDCO, it will enable GRIDCO to earn similar rebate from the generators. There is unlikely to be any financial liability to GRIDCO. The Commission, therefore, does not consider it appropriate to treat any rebate allowed to DISTCOs as an expenditure for inclusion in revenue requirement.

6.35

Recovery of Past Losses

6.35.1

In its application of August, 1999, GRIDCO had requested OERC to permit special appropriation to cover its previous losses totalling Rs.900.30 crores. These losses are being financed by borrowings that have to be retired. GRIDCO has requested OERC to propose the mechanism to recover these past losses. As per provision of Sixth Schedule past losses can be financed by way of special appropriation in any year to the extent permitted by the Commission (formerly by the Government). It appears that the Commission need not propose any other mechanism to cover past losses when a mechanism has been specifically prescribed. We are of the opinion that only when surplus of income over expenditure is available the licensee can request and Commission may decide the extent to which surplus can be appropriated towards past losses in calculation of clear profit.

6.36

Transmission Loss

6.36.1

GRIDCO has proposed that the transmission loss may be computed by applying a loss percentage of 5.3% on net input. GRIDCO has stated that in practice, irrespective of the method of computation, whether gross or net, the actual quantum of transmission loss (in MU) is the same. In the gross method, the quantum of import to and export from GRIDCO’s system is taken into account. During the year 1997-98, there was a gross input of 14088 MU to the Orissa system and a gross out put of 13528 MU. The difference between gross input and gross out put, i.e. 559 MU, represent the loss in the transmission system. GRIDCO has furnished a statement (Table : DF-03) indicating the distribution of loss to various categories of out puts for the said year. This is reproduced in Table : 30.

Table : 30

6.36.2

GRIDCO has allocated the entire 559 MU of loss in the transmission system to NALCO, ICCL as well as to the consumers of Orissa.

6.36.3

The implication of this table is that the power flow on account of export of power to EREB causes no loss in the Orissa system. Because of this consideration, the entire 559 MU of loss is being proposed to be recovered by GRIDCO from the consumers of Orissa alone. For instance, excluding export to EREB, the net input to the system is 10329 MU. Loss of 559 MU, expressed as a percentage of net input of 10329 MU, works out to 5.4%. GRIDCO insists for acceptance of this method of loss calculation.

6.36.4

GRIDCO has stated that due to interconnection with EREB at multiple points, import and export takes place with changes in system load and matching generation. Thus, for a given quantum of sale, it is difficult to predict the quantum of export and import over a period. Since it is difficult to project the quantum of transmission loss, it is inappropriate to use the gross method in the determination of tariff.

6.36.5

GRIDCO has further stated that export to MPEB takes place due to constraint in evacuation of power in the condition of high generation at Hirakud and OPGC’s Ib thermal station. Power exported to MPEB and APTRANSCO through GRIDCO’s system is replenished from EREB at interconnection points close to the load centres thereby reducing transmission loss in GRIDCO’s system.

6.36.6

GRIDCO has stated that as per decision of EREB, charges on account of transmission of Central Sector Power over the EREB’s system have been abolished with effect from 01.4.92.

6.36.7

GRIDCO has also stated that energy generated at Balimela and transferred to AP is metered at Balimela. But the power exchange in this line is considered both as an import and export in the gross method of calculation.

6.36.8

Kolaghat-Rengali line connecting Kolaghat in West Bengal and PGCIL sub-station at Rengali is an inter-State line. The meter reading at Rengali end of this feeder records the import to GRIDCO. This import of power at Rengali is exported to PGCIL system at 400 KV. Import at Rengali is considered as import to GRIDCO and export to PGCIL as export out of GRIDCO. If this transaction is taken into account, the gross input to the system is inflated. Due to the integrated operation of the grid in the Eastern Region, power flow occurring at different points of interconnection is a normal phenomenon and the same cannot be avoided.

6.36.9

GRIDCO has stated that any incidental revenue earned due to export from EREB system to other regions over GRIDCO system has been accounted for in the GRIDCO’s application.

6.36.10

GRIDCO has further stated that on account of these external conditions, the gross input and gross output cannot be projected for the year 1999-00. Hence, GRIDCO has requested that the transmission loss computed on the net basis as 5.3% for the year 1998-99 may be adopted for the year 1999-00. GRIDCO has further clarified in response to the objection to BST application that the consumption of the grid sub-stations has been excluded from the energy sold to the DISTCOs. However, all the objectors have requested the Commission to calculate the transmission loss on the basis of gross input.

6.36.11

The Commission has analysed the various points raised by GRIDCO in its calculation of transmission loss. GRIDCO, in its application, has agreed that irrespective of the method of computation, the quantum of actual transmission loss in million units is constant in the Orissa system. Computed as the ratio of actual loss to the gross input, in 1997-98, the transmission loss was 3.967% (rounded to 4%) as the actual quantum of loss was 559 MU out of a gross input of 14088 MU to the Orissa system. GRIDCO has not proved through computer study or otherwise that no incremental loss occurs in the Orissa system on account of export to EREB. GRIDCO has stated that no transmission loss has been shown separately against EREB as the transaction with EREB arises out of and for the business of GRIDCO. The Commission does not accept GRIDCO’s assumption that there is no incremental loss in Orissa system on account of EREB flow. By adoption of transmission loss on net basis, the losses occurring due to export are passed on to the consumers of Orissa. The Commission feels that 559 MU of transmission loss can be apportioned to all the outputs from the transmission system of GRIDCO. This will ensure that the burden of transmission loss due to EREB export in Orissa system is not passed on to the consumers in Orissa alone.

6.36.12

Inter-State transaction is not within the purview of OERC. The plea that the revenue earned through wheeling charges compensates the losses in the system due to export cannot be accepted as valid as the charges are being realised for utilisation of GRIDCO’s own transmission system for export of others’ power.

6.36.13

The transmission loss in the GRIDCO system for the year 1998-99 has been calculated by the Commission. While calculating the transmission loss, three factors have been considered. (1) Import on 400 KV Kolaghat-Rengali line to GRIDCO for export to PGCIL has been excluded both from import and export. (2) The power flow on account of export of power to Andhra Pradesh in Balimela Upper Sileru tie that do not pass over the GRIDCO system has been excluded both from import and export. GRIDCO had suggested for these two changes which have been accepted by the Commission. (3) Delivery at NALCO (Damanjodi) of 51.27 MU and delivery of IMFA (Theruvalli) of 219.47 MU as per GRIDCO’s reporting have been taken into account for calculation of loss. A calculation of input and out put of GRIDCO made by the Commission on the basis of GRIDCO’s filing DF-10 is in Table : 31.

Loss = 550.28
Loss as a percentage of gross output = 550.28/13959.27 = 3.94%

6.36.14

The Commission, therefore, approves a transmission loss of 4% for the year 1999-00.

6.37

Uniform Vrs Differential Bulk Supply Tariff

6.37.1

Expenditure on purchase of power constitutes about 70% of the total expenditure of a distribution company in Orissa. But the consumption profile has a wide variation from zone to zone. Because of this variation, the expenditure on purchase of power and revenue from sale of power has also a wide variation from zone to zone. In the earlier unitary structure of distribution, the expenditure on purchase of power and revenue from sale of power were accounted for the State as a whole, concealing the zonal variations. A uniform bulk supply tariff and a uniform retail supply tariff for the entire State did not result in any anomaly because of the scope for evening out the variations between the four zones of the State.

6.37.2

Consequent upon the restructuring of the distribution business, their zonalisation and management of each zone by independent companies, the Commission has to study the impact of a uniform bulk supply tariff on the expenditure and revenue of each of the zonal companies. Our study indicates that because of the variation in consumption profile, application of a uniform bulk supply tariff along with a uniform retail supply tariff for the entire State would jeopardise the viability of some zonal companies while unduly boosting the profitability of some other companies. On the other hand, different retail tariff in the different zones would cause a sudden discontinuity with the traditional tariffs.

6.37.3

The option of different retail supply tariff in different zonal companies vis-a-vis continuing with the existing system of a uniform retail supply tariff in the entire State was discussed in the meeting of the Commission Advisory Committee on 09.12.99. The views on both the options were equally divided.

6.37.4

Though the Commission, in its consultation paper on "Conceptual Issues of Electricity Tariffs in Orissa" had envisaged the possibility of different retail supply tariff in four different zones of the State, we have after careful evaluation of the pros and cons come to the conclusion that the balance of advantage lies in retaining a uniform retail tariff for the entire State for some more time. As an inevitable corollary, we have designed our bulk supply tariff in a manner which would achieve our primary objective of retaining the traditional uniformity in retail supply tariff. It would also check unduly high profits of some companies and provide comfort to other companies which would have been disadvantaged by the application of uniform retail tariff combined with uniform bulk supply tariff. There is also a sound technical rationale behind this differential bulk supply tariff. Our study indicates that a higher consumption of electricity at EHT puts a higher demand on the system as a whole. This does not get accurately reflected in a uniform bulk supply tariff. Therefore, a zone having a skewed EHT consumption should pay a higher bulk supply tariff than other zones. The Commission has designed the bulk supply tariff for 1999-00 on the rationale stated above.

6.38

Bulk Supply Tariff Design

6.38.1

The proposal of GRIDCO for Bulk Supply Tariff comprising (i) demand charge and (ii) energy charge has been examined by the Commission. Various objections raised during the tariff proceedings held on 29.11.99 have been carefully considered by the Commission while examining GRIDCO’s proposal.

6.38.2

A calculation indicating the tariff design has been submitted by GRIDCO in its filing dated 06.10.99 (additional form DF-19). In this design, 35% of the fixed cost of Orissa Hydro Power Corporation, Talcher Thermal Power Station and Orissa Power Generation Corporation and the entire cost of transmission is proposed to be recovered by levy of a demand charge. The unrecovered amount of the fixed cost along with the entire variable cost of power purchase is proposed to be recovered from energy charge. This energy charge is to be recovered on the quantum of power sold to the Distribution Companies. The proposed recovery is to be made on an annual billing demand of 21419.30 MVA and sale of energy of 9666.72 MU. GRIDCO has proposed the rate of demand charge @ Rs.348.98 per KVA/month and energy charge @ 96.49 paise/unit.

6.38.3

GRIDCO expects that the actual sale to DISTCOs may exceed their projections and the DISTCOs may draw power in excess of what has been estimated by them. GRIDCO estimates a higher sale of 10320 MU to the DISTCOs on account of which power has to be purchased at a rate higher than the rate at which cost of power has been worked out applying the philosophy of least cost combination of power procurement. Considering the sale of additional units as well as consequential rise in demand, GRIDCO proposes that an additional energy charge for overdrawal @ 16.23 paise/unit should be realised for sale to the DISTCOs in excess of the projection made by them.

6.39

Determination of Demand and Energy Charge

6.39.1

Demand charge is levied in consonance with the philosophy of realisation of cost in proportion to the capacity requirement of the utilities. Energy charge is recovered in proportion to the actual quantum of energy consumed by the utilities.

6.39.2

Taking into account the facts presented to the Commission and the detailed analysis made in the preceding paragraphs, the Commission approves the following rates for bulk supply tariff applicable to the various distribution licensees.

Wesco
Demand charge : Rs.200/KVA/month
Energy charge : 99.20 paise/unit

Nesco, Southco & Cesco
Demand charge : Rs.200/KVA/month
Energy charge : 80.70 paise/unit

6.39.3

The Commission has approved GRIDCO’s revenue requirement for the year 1999-00 as Rs.1333.84 crores. The expected revenue from the DISTCOs based on the rates approved by the Commission is Rs.1247.02 crores over a 12 months period. Miscellaneous revenue from wheeling of power within and outside the State is Rs.55.91 crores over a 12 months period. The revenue requirement and expected revenue of GRIDCO, approved by the Commission for the FY 1999-00, are given below :-

6.39.4

In calculating the expected aggregate revenue for 1999-00, the revenue surplus of GRIDCO from export of power to APSEB has not been taken into account. The Commission, therefore, directs that the estimated revenue deficit likely to arise on the basis of the existing Bulk Supply Tariff should be met through export of power.

6.39.5

Some objectors have stated that GRIDCO has entered into agreement with APTRANSCO for supply of electricity @ Rs.2.05/unit (inclusive of wheeling charges) which is detrimental to the interests of consumers in Orissa. They have said that cheapest power should be available to consumers within Orissa and the costlier power may be sold to outside consumers. They have pointed out that GRIDCO buys NTPC power @ Rs.2.35/unit and in addition pays transmission charges to PGCIL. NTPC power, therefore, is costlier than the rate at which power is sold to APTRANSCO. They have also suggested that revenue from sale of energy to other State Electricity Boards should be taken as receipt and if this is done, the clear profit would be more than the reasonable return permitted under the Sixth Schedule to the Act, 1948.

6.39.6

GRIDCO in its rejoinder to the objectors has stated that the details of sale to the Andhra Pradesh and the financial out-come of the same is not certain for which such a sale has not been considered in computation of the BST.

6.39.7

After due consideration of the objections and GRIDCO’s rejoinder, the Commission is of the opinion that in accordance with the Commission’s approved least cost power procurement plan, the interest of consumers in Orissa is fully protected. As a further measure to protect the interest of consumers in Orissa, the Commission directs that any revenue earned on account of such inter-State transaction should be included in the annual accounts of GRIDCO. Since there would be a gap between the revenue requirement and expected revenue of GRIDCO, as approved by the Commission, it would be unlikely that the clear profit would exceed the reasonable return when revenue on account of such inter-State transactions are taken into account by GRIDCO.

6.40

Calculation of Demand Charge

6.40.1

GRIDCO in para 1.2.3 of its filing of August, 1999 has proposed to bill demand charge on the basis of simultaneous maximum demand over the billing month or 90% of the contract demand whichever was higher. GRIDCO has further stated that the simultaneous maximum demand for the consumer would be based on simultaneously recorded half-hourly demand at all contracted points of supply. In GRIDCO’s opinion, introduction of such a concept would encourage the DISTCOs to maintain system load and would ensure quicker restoration in case of any power interruption. GRIDCO has also stated that levy of this charge would ensure a minimum recovery of its fixed costs.

6.40.2

The four DISTCOs and some of the objectors have questioned GRIDCO’s concept of contract demand. The DISTCOs have objected to the concept of billing on 90% of the estimated contract demand or the actual demand whichever is higher. They have argued that levy of a demand charge based on the above concept is not necessary as there is surplus generation.

6.40.3

The Commission has analysed the views regarding contract demand billing advanced by GRIDCO and the objections raised against it. A firm advance indication of contract demand also firms up the load requirements in a predictable manner and is conducive to good system management. The Commission is of the opinion that the concept of contract demand should have been defined in the bulk supply agreement concluded between GRIDCO and DISTCOs to prevent disputes at a later date regarding billing of demand charge. The Commission directs that the term demand charge should be defined in the Bulk Supply Agreement with suitable provision for change in contract demand depending on the load requirement of the DISTCOs. The Commission is of the opinion that the contract demand within the area of a Distribution company with a widely disbursed load and frequent addition of new consumers makes it necessary that the contract demand should be so fixed that the distribution licensees are not unduly burdened with a unnecessarily high demand charge. To obviate this difficulty as well as to meet these points by GRIDCO the Commission considers it prudent to fix the levy of demand charge as per the maximum demand recorded or 80% of the contract demand whichever is higher to be applied prospectively from the date of implementation of this tariff. This 80% is considered reasonable and the same principle is being followed in respect of the consumers covered under two part tariff within the supply area of the distribution licensee.

6.40.4

The Commission had sought clarification on GRIDCO’s method of determination of simultaneous maximum demand. GRIDCO, in its clarification of October, 1999, has expressed its inability to furnish this information as the system of measurement and evaluation of co-incidental peak demand were not available prior to April, 1999. GRIDCO has clarified that simultaneous maximum demand at MVA is being determined for every half an hour from MW and MVA reading of the meter. The demand in MVA at all the contracted points of supply to the DISTCOs are summated arithmetically every half an hour. The maximum demand figure out of all such half hourly summated figures over a billing month is taken as simultaneous maximum demand. GRIDCO in its clarification dtd.02.12.99 has stated that no meter has been provided for recording simultaneous maximum demand of a sub-station or a distribution company. The method of calculation of simultaneous maximum demand was questioned during the hearing and it was suggested that demand should be defined as a vectorial summation and not as an arithmetic summation. The Commission is of the view that while the present method of measurement cannot permanently substitute the measurement of simultaneous maximum demand through appropriate metering, the present method of measurement may continue until a better and proper method of metering is put in place, which GRIDCO should do early.

6.41

Power Purchase Pooled Cost Adjustment Formula (PPPCAF)

6.41.1

GRIDCO, in its application of August, 1999, has pleaded that the Commission’s fuel surcharge adjustment formula approved in July, 1999 allows only the pass through of additional fuel-related costs which would not be sufficient to cover the increased costs arising out of the necessity of purchasing costlier power in the circumstance beyond the control of GRIDCO. It has suggested that the formula should have been designed to insulate the licensee from the risks arising out of increase in power purchase cost due to reasons beyond its control. GRIDCO, in its rejoinder to objections submitted in November, 1999, has explained that its entire requirement of power is purchased from different sources and at different rates and different terms and conditions. It has also explained that cost of power in any month varies depending on number of factors like quantum of demand, quantum of generation and the source of procurement station unlike many others with their own generation where costs could be predicted with reasonable accuracy. Since provisions for adjustment for fuel costs only are not adequate to meet the cost variations, provision may be made for adjustment for variation in pooled cost of power purchase also.

6.41.2

This proposal of GRIDCO has been objected to by the distribution companies. Some of the objectors have questioned the proposed PPPCAF on the ground that such a practice has not been adopted by any of the bulk suppliers and that the proposal, if accepted, would militate against the principle of maintaining certainty in tariff during the year. They have contended that the approved fuel surcharge adjustment formula ought to take care of any increase in the fuel price during the year. Shri R.C. Padhi, one of the objectors, however, supported the proposal for introduction of PPCA formula.

6.41.3

The Commission has examined the opposing points of view of the licensee and the objectors. The relevant provisions of the Reform Act, 1995 provides that tariff or any part of tariff may not be amended more than once in any financial year except in respect of changes expressly permitted under the terms of any fuel surcharge formula as may be prescribed by regulation.

6.41.4

Acceptance of GRIDCO’s suggestion would mean that all power purchase costs incurred, irrespective of the normative level of power purchase approved by the Commission, would be allowed for tariff without being subjected to the scrutiny of the Commission to determine the prudence of expenditure as envisaged in the Sixth Schedule to the Act, 1948. It would also mean automatic recovery by the licensee of the fuel price adjustment cost on any power purchase or the cost of purchase of a higher quantum of power ascribable to T&D loss being actually higher than allowed by the Commission. Expenses other than increases beyond a level in the cost of fuel between two reviews of the annual revenue requirement should be allowed to the licensee only after appropriate scrutiny by the Commission. Section 26(6) of the Reform Act, 1995 speaks of "fuel surcharge formula". These words can hardly be stretched to cover power purchase cost. In view of the mandatory provision of an annual review of expected aggregate revenue and consequential determination of tariff, any provision for automatic adjustment has to be limited in scope. Therefore, the Commission does not consider it proper either to revise the fuel price adjustment formula for bulk supply licensee or to introduce the Power Purchase Pooled Cost Adjustment Formula proposed by GRIDCO.

6.41.5

The Commission has also examined the proposal of GRIDCO for realisation of an additional charge @ 16.3 paise/unit for drawal of energy in excess of the projection made by the DISTCOs. GRIDCO has clarified that they would not be making any profit out of the transaction. Introduction of such a charge will discourage the DISTCOs from projecting an energy requirement lower than the realistic requirement. To substantiate this point, GRIDCO has stated that from the months of July to September, 1999, the actual drawal by the DISTCOs exceeds the projections made by them of their power requirement by more than 300 MU. On a careful consideration of GRIDCO’s proposal, the Commission has come to the conclusion that any drawal in excess of the projected requirement by DISTCOs can be paid as an year-end adjustment, if necessary, after the accounts are finalised. Accordingly, the Commission does not approve of the proposal.

6.42

Transmission Tariff

6.42.1

GRIDCO in its application has stated that the transmission cost including the reasonable return for the year 1999-00 is estimated at Rs.506.49 crores. The system is likely to handle a total of 9966.6 MU of power including 300 MU on account of wheeling within the State. On the basis of these assumptions, the transmission tariff proposed for 1999-00 on the embedded cost basis is 50.82 paise/unit. The existing transmission tariff is 35 paise/unit during off-peak hours and 40 paise/unit during peak hours.

6.42.2

GRIDCO, in response to a query of the Commission, has clarified that the calculation of transmission cost for the year 1999-00 has been worked out on the basis of embedded cost and not on marginal cost as GRIDCO’s costing system is currently not amenable to determination of tariff on marginal cost basis. Further, GRIDCO had stated that determination of marginal cost with the present system will be only an approximation and, therefore, has not been resorted to in this BST application.

6.42.3

GRIDCO, in its rejoinder to the objections raised against the BST application, has stated that the transmission tariff for wheeling of power at 132/220 KV has been approved on a per unit basis in the last two tariff orders. It has also stated that wheeling of power depends on system parameters and not upon the distance between the points of injection and delivery. GRIDCO considers charging on a per unit basis as appropriate.

6.42.4

GRIDCO has explained that PGCIL transmission charge is calculated on the energy sent out from the Central Sector stations and the actual energy transmission through PGCIL line is not considered for this purpose. Besides, PGCIL operates 400/220 KV lines with only a few sub-stations in comparison to GRIDCO where the sub-stations are more, lines are short and operating voltage varies from 132 to 400 KV due to which the two systems are not comparable. Transmission charge of 11 paise/unit being charged by PGCIL is not correct and the same varies from month to month which also does not include the losses in transmission in the Central Sector lines.

6.42.5

GRIDCO has stated that the components of transmission cost for the year 1999-00 are based on the audited figures for the year 1997-98 and not on the projections made on the basis of the Commission’s tariff order of 1998-99 nor on the audited accounts of 1998-99 which are not yet available.

6.42.6

The Commission has examined the proposal of GRIDCO and also all the objections relating to transmission tariff both filed and raised during the course of hearing. The marginal costing of transmission is essentially based on futuristic assumptions of investments related to load growth, dynamics of power flow and transmission loss and exchange rate fluctuation. Though the method of marginal costing is accepted as an efficient method of pricing for attaining economic efficiency, it is operationally difficult to adopt it at present on account of inadequate data base. The achievements of the past two financial years i.e. 1997-98 and 1998-99 have clearly shown a mis-match between the figures adopted for calculation of marginal cost and the actuals thereof. Until the data base is fully developed and the executing machinery is in place to adhere to the projections made, it may not be appropriate to decide the transmission tariff based on such methodology. Therefore, the Commission accepts the embedded method of costing for the determination of transmission tariff.

6.42.7

Some objectors have pleaded that transmission tariff should be based on the distance and voltage of transmission. The Commission is of the opinion that the flow of power in an integrated system is dependent on the system parameters. Wheeling of power at the point of injection to the point of delivery in a radial line can be dealt differently. Since wheeling in GRIDCO is normally carried out in an integrated system, the Commission considers it appropriate to follow the postage stamp method of determining transmission tariff for the purpose of wheeling of power.

6.42.8

The Commission also examined the objections about various cost components of transmission which are already dealt with in depth in the preceding paragraphs of the tariff order.