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Commission’s Analysis and Decisions on Revised Revenue Requirement
for the year 2004-05 3.1 The Commission had approved the ARR and Tariff for the year 2004-05 in its tariff order dated November 30, 2004. The Tariff Order of the Commission contained its approvals on various issues concerning the ARR and Tariff Proposals of the Board for the year 2004-05. These approvals were based on the estimates presented by the Board for various costs to be incurred and revenues likely to be earned by the Board during the year. In the ARR for the year 2005-06, the Board has furnished revised estimates for the year 2004-05 and has also projected a revenue gap of Rs.1431 crores for the year. The Board has submitted that suitable recovery mechanism for this gap needs to be evolved. The Board has thus petitioned to the Commission to revise its ARR for the year 2004-05 as well. There are major differences in certain items of costs as well as revenue earned by the Board between the approvals granted by the Commission and the revised estimates furnished by the Board. The Commission, therefore, considers it appropriate and fair to re-look at the approvals granted by it earlier and to revise the approvals granted with reference to the revised estimates made available by the Board and taking into account the other relevant factors. The detailed discussions on various issues involved in this regard are given in the following paragraphs. A. ENERGY DEMAND (SALES), AVAILABILITY AND BALANCE 3.2 ENERGY DEMAND (SALES) FOR THE YEAR 2004-05 3.2.1 The sales projected in the ARR for the year 2004-05, sales approved by the Commission in its Tariff Order for the year 2004-05 and revised estimates furnished in the ARR for the year 2005-06 are given below in Table 3.1. Table - 3.1 Energy Sales for 2004-05 (MU)
The Board in its ARR filing for the year 2004-05 projected the aggregate sales
of 23946 MU for the year 2004-05. The projected aggregate sales within the State
were 23139 MU of which metered category amounted to 16667 MU and agricultural
pumpsets 6472 MU. The Board had then arrived at the category-wise sales by assuming
certain percentage increase over the revised estimates for the year It was observed that no uniform criterion was adopted by the Board while arriving at the percentage increases for different categories. The Commission had, therefore, considered 3 year Cumulative Annual Growth Rate (CAGR) to arrive at a realistic assessment of metered energy sales in its Tariff Order for the year 2004-05. After adding reasonable AP consumption and others, the Commission approved total sales at 23940 MU which included metered sales within state at 16920 MU, AP consumption at 6213 MU and common pool/ outside state sales at 807 MU. The Board in its ARR for the year 05-06, has given revised estimate of aggregate sales at 24561 MU which includes metered sales within state at 16774 MU, AP consumption at 6853 MU and common pool/outside state sales at 934 MU. 3.2.2 Metered Sales The Board has stated that the revised estimates for category-wise sales to metered categories for the year 2004-05 are based on 3-years CAGR for the years 2000-01 to 2003-04, except for large supply, common pool and sales to other states which are considered at 2003-04 levels. The Board has also stated that energy sales to large supply consumers are expected to be adversely affected due to the Open access and Captive generation provisions of the Electricity Act, 2003. Already 5 No. large industries (with contract demand of 161.52 MVA, annual energy consumption of 647 MU) have filed petition to the Commission for Open Access/Captive consumption. The Board has stated that it has conservatively given revised estimates for sales to large supply consumers for the year 2004-05 at the same level as for the year 2003-04 taking into consideration the above aspect of shift of existing large supply consumers from PSEB grid and also considering new consumer additions during the year. The Board in its presentation dated April 11, 2005 has given Re-revised Estimates (R.R.E.) for total metered sales within the State as 16241 MU but category wise sales have not been given. Subsequently, the Board vide fax received in the Commission on May 11, 2005 has supplied actual category-wise sales within the State totaling 16250 MU. The difference between presentation sales figures and sales as per fax is insignificant. The Commission, thus, accepts the actual metered sales within the State as per fax. The sales to common pool at 381 MU and outside state sales at 360 MU as per R.R.E. by the Board in its presentation dated April 11, 2005 are now approved by the Commission being pre-actuals. Further, the Board vide its letter No. 780 dated May 17, 2005 has submitted pre-actual sales. There is not much difference in the sales figures except in the case of outside state sales. However, the submission of pre-actual data by the Board is belated and as such, the Commission has not considered this data. The metered sales approved in the Tariff Order for the year 2004-05 and now approved by the Commission are given below in Table 3.2. Table - 3.2 Metered Sales for 2004-05 (MU)
3.2.3 Agriculture Consumption The Board in its ARR filing for the year 2004-05 projected consumption by agricultural pumpsets as 6472 MU at 1854 kwh/kw/year. This was stated to be based on sample metering study by the Board and findings of the interim report of Punjab Agricultural University (PAU) engaged by the Board for assessment of agriculture consumption. The matter regarding AP consumption was deliberated by the Commission in its Tariff Orders for the years 2002-03,2003-04 and 2004-05. Keeping in view the fact that the year 2004-05 turned out to be a year of substantial monsoon failure, the Commission in its Tariff Order for the year 2004-05 decided to fix a norm of 1700 kwh/kw/year and, thus, approved the AP consumption at the level of 6213 MU on a connected load of 3654963 KW by assuming 5% increase in connected load during 2004-05 over the actual load then intimated by the Board as 3480917 KW as on 31.3.2004. It was also observed in the Tariff Order that the actual average agriculture consumption can be settled at the end of the year and after more authentic information is available. The Board in its ARR for the year 2005-06 has stated that the revised AP consumption during 2004-05 will be 6853 MU at 1814 kwh/kw/year on the agricultural sanctioned load and factoring the consumption of temporary tubewell connections, lift irrigation tubewells, tubewells in Kandi area and PAU tubewell connections. The connected load as on 31-3-2004 has now been indicated as 3481578 KW. The Board in its ARR for the year 2005-06 and subsequently has made following submissions :- a) Agriculture consumption is estimated on the basis of actual meter readings from 14808 sample meters. In addition to this, the Board has intimated its field offices in December, 2004 to take sample readings with immediate effect from meters installed on 31,217 new pumpset connections released after July, 2003. Thus, the total sample works out to 46025 from December, 2004 which is 5.2% of the total number of pumpsets and is higher than the Commission?s directive to increase sample size to atleast 2% of the total number of pumpsets. b) The Board has initiated the process of installing meters on the LT side of all the distribution transformers supplying electricity to agriculture consumers in the State, which would ensure actual and reasonably accurate measurement of energy supplied to agriculture, instead of relying upon the sample meter readings to estimate agriculture consumption. The Board is contemplating 100% metering of distribution transformers by March, 2006. c) All 11 KV feeders in rural areas are provided with electronic meters at the sending end. The Board in its presentation on April 11, 2005 has brought out that during 2004-05, initial results of feeder wise energy accounting for April to January for 400 feeders show the per KW consumption of 2042- 2143 kwh against 1637 kwh in meters installed at consumer end. d) There has been significant shift from monoblock pumpsets to submersible pump sets over the past few years due to drop in ground water level resulting in higher electricity consumption for the same level of water output. e) During 2004-05, the Board has supplied electricity for 1907 hours to agriculture consumers upto October 31, 2004 and is likely to supply power for around 600 hours during November 2004 to March 2005. Thus, the Board would supply power to agriculture for about 2507 hours during 2004-05. f) Agriculture consumption in 2004-05 is higher than previous years, mainly due to poor monsoon, lower snow capping and lower canal irrigation resulting in higher dependence on ground water for irrigation. Subsequently, in response to deficiency letter issued by the Commission, the Board has submitted that rainfall does not effect electricity consumption by agricultural pumpsets. In the ARR, the Board has also enclosed letter dated December 6, 2004 from PAU Ludhiana in which following has been emphasized in regard to effect of rainfall on electricity consumption by agricultural pumpsets :- ? More than 2/3rd rainfall is during kharif season. Thus, affect of rainfall will be more predominant for kharif crops than rabi crops. It is well known that amount of water pumped is tremendously large for rice crop as compared to any other kharif crop. It is a common knowledge that rice growing farmers keep diesel engines as standby since electricity supply is restricted. These farmers make the best use of electricity as and when it is available. The power failures are also very large at the time of heavy rainfalls as usually storm precedes it. We theorized that changes in rainfall would affect water requirements for kharif season crops where rice is the main crop. Since, electricity supply is restricted, so these farmers (having electric motor) keep diesel engine as standby. Therefore, may be the rainfall affects diesel requirements rather than electricity requirements.? g) PAU will submit its ?Final Report? by July 31, 2005 addressing various issues pertaining to agriculture consumption. h) In response to deficiency letter, the Board has brought out that overwhelming response was received to Voluntary Disclosure Scheme (VDS) of the Board for regularization of AP load. The Board has requested to consider post VDS connected load to assess agriculture consumption for 2004-05 and 2005-06. Vide letter No. 640/ARR/DTR/216 dated April 21, 2005, the load declared under VDS has been intimated as 660 MW upto February, 2005. In view of the above submissions, the Board has prayed that till findings of PAU are available, the Commission may allow agriculture consumption as per sample meter readings. In case the Commission is not agreeable to the sample meter readings for some reasons, it should factor the impact of the depleting water table and the shift towards submersible pumpsets on the consumption allowed by the Commission for the year 2002-03. The Board is arriving at the annual consumption norm by working out monthly consumption norm from the monthly connected load and monthly consumption as per sample meter readings. The monthly consumption norm for 12 months of the year are added to get the annual consumption norm. However, the annual consumption norm as worked out by the Board does not have much relevance as the same is not used for assessing the agricultural consumption even by the Board. The agricultural consumption is estimated by the Board by multiplying monthly consumption norm by the total connected load at the end of the month. To arrive at annual consumption, the present approach of the Commission is to multiply a pre-determined norm for the year with the agriculture connected load at the end of the year (i.e. as on March 31). For the year 2004-05, even if we were to determine agriculture consumption by sample meter readings, the difference in the norm arrived at with Commission?s approach (1512 kwh/kw/year) and approach being followed by the Board (1800 kwh/kw/year) is quite substantial. The norms as worked out by the Commission from sample meter readings supplied by the Board for earlier years and the norm reported by the Board as per sample meter readings for different years are given below in Table 3.3. Table - 3.3 Agriculture Consumption norm based on Consumption
The Commission has observed that for the years 2000-01 to 2003-04 the difference in norm with the two approaches is only marginal whereas the difference is quite substantial for the year 2004-05. This is due to the fact that during the earlier years the annual increase in AP connected load was about 5-6%, whereas the total increase in connected load during 2004-05 including both VDS and normal growth is to the tune of 858 MW which represents an increase of about 24% over the connected load for the year 2003-04. Further, the increase in connected load during the earlier years was uniform from month to month whereas during 2004-05 the total increase (801 MW) is mainly in the last 4 months of the year. After considering the above, the Commission is of the view that the approach presently followed by the Commission i.e. using a pre-determined norm and multiplying it by the connected load at the end of the year, may give erroneous results in cases where the increase in AP connected load for a particular year is very high and is not uniform from month to month in the year. On the other hand, the approach followed by the Board takes care of the month to month increase in connected load. As such, the Commission considers that the approach of the Board as given above for arriving at the AP consumption/consumption norm is less prone to errors and decides to follow this approach for the year 2004-05 and also accepts the sample meter readings. While deciding to adopt this approach and accept sample metering readings, the Commission has also kept in view the following :- i) The sample size for sample meter readings has been increased by the Board to about 2% during 2004-05 and the sample size will be more than 5% during 2005-06 against Commission?s directive to increase sample size to at least 2% of the total number of pumpsts. ii) The Government in its comments on the ARR for the year 2004-05 expressed the view that the existing norm of 1650 kwh/kw/year may be continued to assess the total AP consumption for the year 2004-05. With this norm and AP load ending March 2005 as 4340 MW including 660 MW AP load declared under VDS, the AP consumption for the year 2004-05 works out to 7161 MU which is much higher than 6563 MU as per sample meter readings. Obviously, the figure of 7161 MU is unacceptable. iii) All 11 KV feeders have been provided with electronic meters and feeder wise energy accounting has been initiated by the Board. This will enable cross checking of the results of sample meters. iv) The Board has initiated the process of installing meters on LT side of all the distribution transformers by March, 2006. This will ensure accuracy of the results from sample meter readings. v) The effect of other factors such as drop in ground water level, shift from monoblock pumpsets to submersible pumpsets, failure of monsoons etc. are inherently taken care of in the sample meter readings. Sample meter data upto January, 2005 during 2004-05 was obtained from the Board and is given below in Table 3.4. Table - 3.4 AP Consumption for 2004-05 as per Sample Meters
The Board, during its presentation has submitted that actual AP load ending February, 2005 is 4268 MW and estimated AP load ending March 2005 is 4340 MW. Further, it has been submitted that AP consumption norm based on sample meter readings will be 1800 kwh/kw/year. Based on these figures, the Commission has estimated agriculture consumption for February and March 2005 which is also shown in Table 3.4. The total AP consumption as per sample meter readings is estimated to be 6563 MU during 2004-05. The Board vide letter No. 649 dated April 22, 2005 has projected the consumption norm based on sample meter readings as 1773 kwh/kw/year and total AP consumption at 6593 MU. However, these figures are also projections and the difference is insignificant. The Commission has, thus, considered the estimates given in Table 3.4 above. The Commission, thus, approves revised agriculture consumption for the
year 3.3 PSEB?S OWN GENERATION 3.3.1 Thermal Generation The station wise generation projected by the Board in the ARR for the year 2004-05, generation approved by the Commission in its Tariff Order for the year 2004-05 and revised estimates in the ARR for the year 2005-06 are given in Table 3.5 below. Table - 3.5 Thermal Generation 2004-05 (MU)
The Board, in the ARR for the year 2004-05, had projected gross thermal generation
of 13720 MU for the year 2004-05. During the course of the Tariff Order for
the year 2004-05, the Board supplied the revised anticipated thermal generation
during Auxiliary Consumption and Net Generation The Commission in its Tariff Order for the year 2004-05 had allowed auxiliary
consumption for GNDTP, GGSTP and GHTP as 9.54%, 8.33% and 8.91% respectively.
These were at the levels actually achieved during 2003-04 which were observed
to be comparable with CERC norms for auxiliary consumption. In the ARR for the
year 2005-06, the Board has given revised estimates for auxiliary consumption
which are higher than the approved levels as depicted in Table 3.5. The Commission
sees no justification for allowing increase in auxiliary consumption levels
as per revised estimates by the Board. The Commission, thus, retains the
auxiliary consumption levels as approved in the Tariff Order for the year Table - 3.6 Generation and Auxiliary Consumption for 2004-05 (MU)
Net thermal generation with approved level of auxiliary consumption is 13068
MU against 13050 MU as per R.R.E. given by the Board in its presentation dated
April 11, 2005. The difference of 18 MU has been taken care of under Energy
Balance at The Commission observes that the Board has marginally overachieved in thermal generation by 247 MU gross and 225 MU net as compared to the approval of the Commission in the Tariff Order for the year 2004-05. The Commission approves incentive for higher thermal generation and consequential less power purchase on this account. This is discussed further in para 3.9. 3.3.2 Hydel Generation The station wise generation projected by the Board in the ARR for the year 2004-05, generation approved by the Commission in the Tariff Order for the year 2004-05 and revised estimates in the ARR for the year 2005-06 are given below in Table 3.7. Table 3.7 Hydel Generation 2004-05 (MU)
(MU)
** Net of HP royalty from Shanan(53MU), HP share(free) from RSD @ 4.6% (55MU) and auxiliary consumption (8MU). *** Net of auxiliary consumption (7MU) and transformation losses (16MU). The Board in its ARR for the year 2004-05 had projected the hydel generation from its own stations for the year 2004-05 at 3879 MU gross and 3756 MU net. The availability from BBMB was projected at 4374 MU net. Considering subsequent submissions regarding very low levels in the reservoirs as on 21.9.2004 and poor inflows expected in the remaining part of the year, made by the Board during the course of Tariff Order for the year 2004-05, the Commission accepted the fresh estimates then given by the Board and approved hydel generation from own hydel stations at 3379 MU gross and 3263 MU net and the availability from BBMB was approved at 3469 MU net. The Board in its ARR for the year 2005-06 has given revised estimates for hydel generation for the year 2004-05 at 3228 MU gross and 3205 MU net from its own hydel stations. The Board in its presentation dated April 11, 2005 has given R.R.E. for hydel generation for the year 2004-05 at 3181 MU net from own hydel stations and 3669 MU as share from BBMB. The Board cannot have much control on hydel generation. The Commission, thus, accepts the latest estimate given by the Board for hydel generation at 3181 MU net from own hydel stations and 3669 MU from BBMB for the year 2004-05. 3.4 POWER PURCHASE To meet the energy demand, the Board, in its ARR for the year 2004-05 projected power purchase at 10728 MU net. The Commission in its Tariff Order for the year 2004-05 approved power purchase for the year 2004-05 at 11372 MU net. In the ARR for the year 2005-06, the Board has given revised estimates of power purchase for the year 2004-05 at 12457 MU net. The Board in its presentation dated April 11, 2005 has given R.R.E. for power purchase at 10915 MU net. These being the latest estimates, the Commission accepts the power purchase at 10915 MU net for the year 2004-05. 3.5 TRANSMISSION & DISTRIBUTION LOSSES (T&D LOSSES) In its ARR for the year 2004-05, the Board had projected T&D losses at 24% for the year 2004-05 on the assumption that AP consumption will be 6472 MU. The Commission in its Tariff Order for the year 2004-05 fixed the target for T&D losses at 23.25% for the year 2004-05 with AP consumption at 6213 MU arrived at with norm for AP consumption at 1700 kwh/kw/year. In the ARR filing for the year 2005-06, the Board has given revised estimates for T&D losses during 2004-05 as 24.50% with revised estimates of AP consumption at 6853 MU arrived at with AP consumption norm of 1814 kwh/kw/year on the connected load and factoring the consumption of temporary tubewell connections, lift irrigation tubewells, tubewells in Kandi area and PAU tubewell connections. With actual sales including AP consumption at 6563 MU as now approved and actual availability (generation +purchases) as per R.R.E. given by the Board in its presentation dated April 11, 2005, the actual T&D losses work out to 24.14%. With sales and energy availability now approved by the Commission, the T&D losses will work out to 24.19% against the target of 23.25% fixed by the Commission as shown in Table 3.8 under Energy Balance. The Commission in its Tariff Order for the year 2004-05 had deliberated the issue of T&D losses in detail before fixing T&D loss level for the year 2004-05. The Commission sees no reason for review of its decision. The Commission, therefore, retains target T&D loss level at 23.25% for the year 2004-05. The Commission decides that financial burden due to the consequential additional power purchase on this account may not be passed on to the consumers but borne by the Board. The matter is discussed further in paras 3.6 and 3.9. 3.6 ENERGY BALANCE The details of energy requirement and availability in the ARR for the year 2004-05, approved by the Commission in the Tariff Order for the year 2004-05, revised estimates in the ARR for the year 2005-06, later revised by the Board in its presentation and subsequent fax and now approved by the Commission are given in Table 3.8 below. Energy balance for working out actual T&D loss with sales and availability now approved by the Commission is also shown in column 8 of Table 3.8. Table - 3.8 Energy Balance 2004-05 (MU)
* In the ARR 05-06, PSEB has indicated T&D losses as 7667 MU but for balancing energy requirement and energy availability, the losses have been shown as 7665 MU. The total energy requirement now approved by the Commission is 30465 MU (net) whereas total energy availability now approved is 30833 MU (net). The difference of 368 MU (net) between energy requirement and energy availability is due to the under-achievement of the T&D loss target approved by the Commission as discussed in para 3.5 and depicted in columns 7&8 of Table 3.8. The higher T&D loss level than the T&D loss level approved by the Commission has, thus, resulted in increased power purchase to be extent of 368 (7279-6911) MUs net. The matter is discussed further in para 3.9. B. EXPENSES 3.7 FUEL COST In the ARR for the year 2004-05, the Board projected fuel cost of Rs.1910.83
crores for generation of 13720 MU for the year 2004-05. In its Tariff Order
for the year The fuel cost approved in the Tariff Order for the year 2004-05 is given below in Table 3.9. Table - 3.9 Approved fuel cost in the Tariff Order 2004-05
However, East Central Railway, vide its circular No. XG. 2117/48/VI (Rates)
dated 25.11.2004 has revised coal freight w.e.f. November 27, 2004. The impact
of this railway freight increase has been indicated by the Board in the ARR
for the year The station-wise gross thermal generation approved by the Commission in Tariff Order for the year 2004-05 and the gross thermal generation now approved by the Commission in para 3.3.1, is given below in Table 3.10. Table - 3.10 Gross thermal generation for 2004-05 (MU)
The fuel cost for different stations corresponding to generation now approved has been worked out based on parameters approved by the Commission in its Tariff Order for the year 2004-05 and allowing effect of railway freight increase w.e.f. November 27, 2004 and is given below in Table 3.11. Table -3.11 Fuel cost (Coal and Oil) now approved for 2004-05
The Commission accepts the revised fuel cost at Rs.2137.50 crores for now approved generation of 14303 MU. 3.8 COST OF POWER PURCHASE The Board in its ARR for the year 2004-05 projected the power purchase cost at Rs.2314.31 crores for purchase of 11198 MU (gross) for the year 2004-05. The Commission in its Tariff Order for the year 2004-05 approved the power purchase cost at Rs.2171.22 crores for power purchase of 11746 MU (gross). In the ARR for the year 2005-06, the Board has given revised estimates for power purchase cost at Rs. 2936.00 crores for purchase of 12984 MU (gross) for the year 2004-05. The Board in its presentation on April 11, 2005 has submitted R.R.E. for power purchase cost at Rs. 2302 crores for power purchase of 10915 MU (net). In reply to deficiency letter, the Board vide letter No. 452 dated 28.3.2005 has submitted that the Board has received payments amounting to Rs. 34.76 crores as prior adjustments under power purchase. The Commission accepts these submissions and net power purchase cost during 2004-05 works to Rs. 2267.24 crores. The Commission, thus, approves power purchase cost at Rs. 2267.24 crores for power purchase of 10915 MU (net) for the year 2004-05. 3.9 INCENTIVE APPROVED / EXPENSES DIS-APPROVED BY THE COMMISSION 3.9.1 Incentive approved due to higher Thermal Generation As discussed in para 3.3.1, the Commission has approved incentive for higher
thermal generation to the tune of 247 MU gross (225 MU net) and consequent less
power purchase on this account. The station wise increase in gross generation
is The increase in fuel cost for different stations corresponding to this higher generation based on parameters now approved by the Commission, works out to be Rs. 37.34 crores as given in the Table 3.12 below. Table - 3.12 Increase in Fuel Cost due to higher Thermal Generation during 2004-05
The decrease in power purchase on account of higher thermal generation is
225 MU net. The pro-rata cost of this 225 MU (net) on the basis of power purchase
cost approved under para 3.8 works out to Rs. 46.74 crores (i.e. 2267.24x225/10915).
Hence, the net saving due to higher thermal generation is Rs. 9.40 crores The Commission, thus, approves amount of Rs. 9.40 crores as incentive on account of higher thermal generation. The effect of this item is reflected at Sr. No.10 of Table 3.17. 3.9.2 Expenses disapproved due to higher T&D Losses As discussed in para 3.5, the Board has underachieved the T&D loss target approved by the Commission. There are two alternate approaches for treatment of such under-achievements by the Board. One possible approach is to assume that the power availability in the State is not to be restricted on account of such under-achievement. In such a situation, the enhanced power availability when compared with the power availability required with reference to T&D norms approved by the Commission, will need to be treated as additional sale of power to the consumers. Consequently, the disincentive for such under-achievements will need to be assessed as loss of revenue on account of sale to consumers and should accordingly be assessed at average revenue per unit. Alternatively, under-achievements of T&D loss target may be allowed to notionally restrict the availability of power. This will result in reduced requirement for purchase of power. In such a situation, it is the cost of power purchase that will get affected and the disincentive for under-achievements of T&D loss target will need to be linked to power purchase costs. The Commission has adopted the second approach for assessing disincentive for under-achievement of T&D loss targets. However, it is clarified that restriction in availability of power is only notionally and used for the purpose of calculation of amount of expenses to be disallowed to the Board for under-achievement of T&D loss targets. In reality, the power availability in the State is allowed by the Commission in full and is not restricted. Further, the Commission has decided that financial burden as measured by the consequential additional power purchase on this account may not be passed on to the consumers but borne by the Board. As discussed in para 3.6, the higher T&D loss level than the T&D loss level approved by the Commission has resulted in increased power purchase to the extent of 368 MU (net). Pro-rata cost of this 368 MU (net) power purchase on the basis of power purchase cost approved under para 3.8 works out to Rs. 76.44 crores (2267.24x368/10915). The Commission, thus, disapproves expenses of Rs. 76.44 crores on account of higher T&D losses. The effect of this item is reflected at Sr. No. 10 of Table 3.17. 3.10 EMPLOYEES COST The Board had projected the employees cost at Rs.1775.40 crores in the ARR for the year 2004-05 which was revised to Rs.1955.40 crores in its subsequent submissions dated September 15, 2004 against which the Commission had approved Rs.1274.66 crores in para 7.11 of the Tariff Order for the year 2004-05. In the ARR for the year 2005-06, the Board has revised the employees cost for the year 2004-05 to Rs.1605.40 crores net of capitalization of Rs.80 crores. The employees cost has been again revised to Rs.1560 crores as per presentation dated April 11, 2005 of the Board. In the ARRs for earlier years, the Board had promised to take a number of measures to reduce the employees cost and had requested for allowing reasonable time to reduce these costs in a phased manner. In the ARR for the year 2004-05, the Board had stated that it fully realized that the excessive manpower was not only adversely impacting the efficiency of the organization but was also imposing a huge financial burden on the Board. Now, the Board has shown its helplessness to reduce employees cost beyond cost cuttings on account of retirements. Neither the Board has been able to contain excessive employees cost nor it has initiated any measure to reduce these costs as promised earlier. In fact the employees cost is going up every year. It is worth while to mention here that even the Government of Punjab had also commented adversely on the high employees cost during the year 2002-03. It had suggested to approve employees cost at Rs.1123.83 crores against the then projections of Rs.1316.50 crores by the Board for the year 2002-03 based on norm of 3.5 employees per MU of energy sold. Applying the same norm, the employees cost for the year 2004-05 will work out to Rs.1373.37 crores against the revised employees cost of Rs.1560 crores as per presentation dated April 11, 2005 of the Board. Also the consumers in various public hearings had raised strong objections against ever increasing and exorbitant employees cost. The Board during its meeting with the Commission vide letter dated September 15, 2004 pleaded that the employees cost should not be capped at an absolute amount on a long term basis and it needs to be linked to performance parameters of productivity. The Commission felt convinced that there was some weight in these submissions and, therefore, in the Tariff Order for the year 2004-05, it directed the Board to come up with a specific proposal of productivity linked performance parameters which could be taken as basis for determining the employees cost. Pending finalization of such parameters, the Commission had decided to retain the employees cost at Rs.1274.66 crores for the year 2004-05. The Commission notes that the Board has not come forward with any specific proposal in this regard so far. However, in the ARR for the year 2005-06, the Board has given a chart depicting six parameters of increase in employee productivity from 2003-04 to 2005-06 showing an increase of 6% in consumers, 10% in sanctioned load and 11% in energy sales besides increase in energy handled, revenue from tariff and reduction in number of employees. These parameters and the improvements as projected by the Board do not fully serve the purpose of evolving principles for fixing employees cost linked to productivity since the increase / decrease in these cannot invariably be directly attributable to the efforts of the Board. In many cases these parameters may show improvement without any special efforts on the part of the Board as, for instance, in the case of increase in the revenue from sale of power resulting from enhanced tariff rates. Furthermore, judged on the basis of these very parameters, the present performance of the Board is well below the efficiency levels achieved by almost all the well performing utilities and even the national averages of all Boards/utilities. Thus, much of the improvements in these parameters which the Board may indicate will have to be first set off against the need to catch up with others. Furthermore, since these parameters may show diverse and differing trends for the same period, an index that reasonably consolidates all the trends will have to be evolved. It has also to be noted that the Tariff Order for the year 2004-05 has been challenged by the Board in the Hon?ble High Court of Punjab and Haryana wherein the decision of the Commission with respect to employees cost has been particularly questioned. The matter is pending in the Hon?ble Court. In these circumstances, it is not possible for the Commission to modify its earlier order on the employees cost for the year 2004-05. The Commission, therefore, retains the already approved amount of employees cost of Rs.1274.66 crores for the year 2004-05. 3.11 OPERATION AND MAINTENANCE EXPENSES The Board had projected operation and maintenance expenses at Rs.242.70 crores for the year 2004-05 against which the Commission had approved these expenses at Rs.197.10 crores in para 7.12 of the Tariff Order for the year 2004-05 placing reliance on the actual expenditure of Rs.195.54 crores for the year 2003-04. In the ARR for the year 2005-06, the Board claimed O&M expenses at Rs.242.70 crores. In its presentation dated April 11, 2005, the Board again revised the estimates for operation and maintenance expenses to Rs.224.00 crores. Analysis of the details of expenditure as given in the ARR reveals that the Board intended to spend higher amount on repairs and maintenance of plant and machinery, lines, cables and network. The Commission feels that the claim for higher operation and maintenance expenses is justified to ensure reliable and un-interrupted energy supply to the consumers. The Commission, therefore, approves the O&M expenses at Rs.224.00 crores claimed by the Board for the year 2004-05. 3.12 ADMINISTRATION AND GENERAL EXPENSES The Board had claimed an amount of Rs.50 crores net of capitalization of Rs.13.45 crores in the ARR for the year 2004-05. Now, in the ARR for the year 2005-06, the Board has submitted revised estimates for administration and general expenses of Rs.50 crores net of capitalization which is the same as was projected originally in the ARR for the year 2004-05.The Commission had approved Rs.43.23 crores towards administration and general expenses for the year 2004-05 as per para 7.13 of the Tariff Order for the year 2004-05. The Board has stated in the ARR that there is inflation of 7-8% per annum and its business expansion is about 5% per annum. In view of the justification given by the Board, the Commission approves administration and general expenses of Rs.47.91 crores for the year 2004-05 by allowing increase of 5% based on increase in Whole Sale Price Index - All Commodities over the actuals of Rs.45.63 crores for the year 2003-04. The Commission, therefore, approves administration and general expenses of Rs.47.91 crores for the year 2004-05. 3.13 DEPRECIATION The Board had claimed depreciation of Rs.576.12 crores in the ARR for the year 2004-05 based on the value of fixed assets of Rs.13401.46 crores as on April 1, 2004. The Commission had accordingly approved Rs.576.12 crores as depreciation charges in para 7.14 of the Tariff Order for the year 2004-05. Now, in the ARR for the year 2005-06, the Board has revised the claim for depreciation charges to Rs.591.25 crores. The revised estimates of depreciation charges now claimed are based on slightly enhanced value of gross fixed assets of Rs.13407.35 crores. From the perusal of the two ARRs for the years 2004-05 and 2005-06, it is noted that the value of transmission assets has been decreased by corresponding increase in the value of distribution assets which has higher rate of depreciation. Through this inter-change in value of assets, the claim of the Board for depreciation has increased to Rs.591.25 crores for the year 2004-05. The Commission, therefore, approves depreciation charges of Rs.591.25 crores for the year 2004-05 as claimed by the Board. 3.14 INTEREST AND FINANCE CHARGES In the ARR for the year 2004-05, the Board had projected requirement of interest
and finance charges at Rs.1010.71 crores net of capitalization of Rs. 93.62
crores against which the Commission had approved Rs.944.31 crores (gross) and
Rs.875.62 crores (net) after capitalization of Rs.68.69 crores in para 7.15
of the Tariff Order for the year 2004-05. In the ARR for the year 2005-06, the
Board has submitted revised estimates of interest and finance charges of Rs.1000.66
crores net of capitalization of Rs.93.62 crores for the year 2004-05. These
charges have been again revised to 3.14.1 Investment Plan In the revised estimates for the year 2004-05, the Board has proposed investment of Rs.1239 crores against the approved investment of Rs.1009 crores by the Commission in the Tariff Order for the year 2004-05. In the absence of the actual figures of capital expenditure incurred during the current year, the increase of Rs.230 crores in revised estimates of investment is considered not justified placing reliance on the level of actual capital expenditure in the previous years which was Rs.462.06 crores, Rs.336.20 crores and Rs.562.49 crores for the years 2001-02, 2002-03 and 2003-04 respectively. The investment proposed is, as such, quite on the higher side. The Commission, therefore, retains the already approved investment of Rs.1009 crores for the year 2004-05. 3.14.2 Working Capital The amount of working capital has now been enhanced to Rs.600 crores from Rs.250 crores as projected in the ARR for the year 2004-05 and approved by the Commission in its Tariff Order for the year 2004-05. The increase on this account is higher in comparison to the original proposal of Rs.250 crores. Working capital requirement worked out by the Commission on the basis of one month requirement is given in Table 3.13 below: Table - 3.13 Working Capital Requirement (Rs. in crores)
Accordingly, the working capital requirement for the year 2004-05 is determined at Rs.495.95 crores against Rs.600 crores claimed by the Board in the ARR for the year 2005-06. The Board has claimed Rs.33.57 crores as interest on working capital loan. The Commission, therefore, approves interest of Rs.29.51 crores on working capital requirement on proportionate basis in place of Rs.18.50 crores as already allowed in para 7.15.3 of the Tariff Order for the year 2004-05. 3.14.3 Finance Charges In the ARR for the year 2005-06, the Board has revised the amount of finance charges to Rs.20 crores which is higher in comparison to the approved amount of Rs.13.03 crores as per para 7.15.4 of the Tariff Order for the year 2004-05. The Commission had worked out the finance charges on the approved investment of Rs.1009 crores reduced by consumer contribution of Rs.140 crores assuming the consumer contribution for the year 2004-05 to remain at the same level as for the year 2003-04. The investment level remaining the same, the Commission retains the finance charges at Rs.13.03 crores as approved earlier in the Tariff Order for the year 2004-05. 3.14.4 Interest on Government Loans In the ARR for the year 2004-05, the Board had claimed interest of Rs.483.09 crores on the State Government loans of Rs.4537.53 crores. The Commission had approved an amount of Rs.480.73 crores in para 7.15.6 of the Tariff Order for the year 2004-05. Since there is neither any additional loans nor repayments of State Government loans during the year 2004-05, the Commission, therefore, allows interest of Rs.480.73 crores on State Government loans for the year 2004-05. As per decision of the Commission in para 7.15.7 of the Tariff Order for the year 2004-05, Rs.21.05 crores being balance subsidy receivable of Rs.19.31 crores and interest of Rs.1.74 crores thereon pertaining to the year 2003-04 is also to be deducted from the amount of interest on Government loans. Keeping this decision in view, the amount of interest on Government loans actually payable by the Board will get reduced to Rs.459.68 crores which will be taken into account by the Government while making adjustments against subsidy payable. 3.14.5 Subsidy from Government of Punjab The Commission has now re-determined the AP consumption at 6563 MU in para 3.2.3 supra. With this change in AP consumption, the total revenue required from agricultural pumpsets will work out to Rs.1299.27 crores. As per fax message of the Board received on May 11, 2005, the revenue realised from the farmers is Rs.393 crores. Thus, after adjustment of this amount of Rs.393 crores, the balance amount of Rs.906.27 crores represents subsidy receivable from the Government for AP sector for the year 2004-05. Besides, the subsidy of Rs.50 crores for domestic SC consumers will also be receivable from the Government. Thus, the total Government subsidy will work out to Rs.956.27 crores for the year 2004-05. The expected revenue of Rs.6931.23 crores from existing tariff as estimated in para 3.16 below is inclusive of Government subsidy receivable of Rs.956.27 crores. As such, the Government will make adjustment of balance interest of Rs.459.68 crores on Government loans as worked out in para 3.14.4 above and the amount of electricity duty due against the subsidy of Rs.956.27 crores payable by the Government to the Board. The amount of electricity duty actually payable by the Board is not available with the Commission at present. Therefore, in case the amount of interest and electricity duty taken together is less than the amount of subsidy, the balance amount of subsidy will be paid in cash by the State Government to the Board. The amount of subsidy actually payable by the government to the Board is further subject to actual consumption of energy by agricultural pumpsets for the year 2004-05 as determined by the Commission. 3.14.6 Interest on Diversion of Funds During the processing of the ARR for the year 2004-05, the Board had stated that the diversion of funds was mainly due to non-revision of tariff in earlier years as well as free AP supply. Now, during processing of the ARR for the year 2005-06 also, the Board vide its presentation of April 11, 2005 and subsequent submissions of April 22, 2005 had stated that it had inherited liabilities and losses were as a result of inadequate tariffs and lack of regulatory frame work prior to formation of the Commission. As such, it was unfair to penalize the Board for unpaid liabilities and past losses. The Board further stated that it had taken up this issue with the State Government who have taken the position to resolve it in the Financial Restructuring Plan currently under finalization. The State Government had stated earlier that to make new entities viable in post unbundled Board, it is imperative that they start with a clean Balance Sheet. The Government have stated now that the 2004-05 Tariff Order is harsh and has adversely affected the FRP proposals of the Government. However, notwithstanding this the FRP was being worked out. It also stated that the Commission might also consider revisiting the issue of disallowing interest on loans as such a practice will adversely impact the utility?s credit worthiness and cast a damper on investment in the power sector. As analysed by the Commission in its earlier Tariff Order (and not disputed by the Government of Punjab or the Board), there is a huge mismatch (amounting to more than Rs. 4000 crores) between the assets and liabilities of the Board. Alternately, the Board is carrying accumulated losses of more than Rs. 4000 crores. Either way, the Board is compelled to constantly carry a corresponding burden of unproductive debt. Going strictly by commercial principles, the cost of this debt cannot be treated as a pass through, legitimate revenue expenditure. The Government of Punjab itself had stated in its comments on the ARR for the year 2002-03 that interest costs of loans which do not result in benefits to the consumers cannot be passed on to them. There is only partial justification in the arguments that the consumers must cheerfully bear this burden which is historical and is entirely due to the reason that these losses occurred because tariffs were not raised sufficiently in the past and thus the consumers alone benefited from this cause. There are at least two other equally important reasons for these recurring losses viz. the inability of the Board to achieve reasonable levels of operating efficiencies in the past and the failure of the Government (in the period prior to the commencement of the regulatory regime) to either provide subventions to the Board to liquidate annual losses or to resolve the issue of large unpaid RE subsidies, as was stated, year after year, in the Balance Sheet of the Board. If the Commission is to go by the letter and spirit of the Electricity Act, 2003, it must decide that it is the obligation of all the three major stakeholders - the Government of Punjab, the Board and the consumers - to discharge such obligations. Even though it is a generally accepted principle of corporate business that accumulated losses have to be taken care of by the owners, the Commission feels that all the three must make broadly similar sacrifices in such situations. Furthermore, the Government of Punjab has accepted its responsibility to clean up the Balance Sheet of the Board and the State Government has been constantly assuring the Commission in this regard for the last three years but unfortunately, the required process has not been completed till date. It may be stated here that the consumers are currently being made to discharge another large obligation from which they deserve relief. In the last few years, the interest rates have fallen all around. Like all other commercial organizations, and also in response to directions of the Commission, the Board has been successfully exchanging its old debts for cheaper and easier loans as a result of which the average interest rate being paid by the Board on the institutional loans has already come down to 7.05-11.5 percent from the earlier rate of 11.5-18 percent. However, the Government of Punjab has shown no such accommodation to the Board in respect of its large portfolio of loans aggregating to Rs. 4537.53 crores. Legitimately, the consumers could expect a relief of around Rs. 100 crores on this account. In the above stated circumstances, the Commission feels that the decision to disallow interest cost of Rs. 100 crores is just, legal and fair and is in no way harsh. The Commission further feels that within the provisions of the law, the Government of Punjab cannot be directly burdened with any such charges. 3.14.7 Capitalization of Interest In para 7.15.5 of the Tariff Order for the year 2004-05, the Commission had allowed capitalization of interest charges in the ratio of net works in progress to total expenditure but excluding the interest charges on working capital. Based on this principle, the Commission had accordingly determined capitalization of interest charges at Rs.68.69 crores. Now, due to the revision in the amount of interest being allowed by the Commission, the amount of capitalization of interest will be Rs.80.21 crores for the year 2004-05. The interest and finance charges for the year 2004-05 have been revised as per Table 3.14 below: Table-3.14 Interest Charges approved for the year 2004-05 (Rs. in crores)
*
Receipt of loan Rs.869.00 crores = Approved investment of Rs.1009 crores - consumer
Thus, net interest and finance charges work out to Rs.979.75 crores for the year 2004-05. Out of this amount, Rs.100 crores is to be disallowed on account of diversion of capital fund for revenue purposes as decided by the Commission. Thus, the net interest allowed works out to Rs.879.75 crores for the year 2004-05. Therefore, the Commission approves interest and finance charges of Rs.879.75 crores net of capitalization of interest of Rs.80.21 crores for the year 2004-05. 3.15 NET FIXED ASSETS AND RETURN The Board had claimed return of Rs.212.81 crores in the ARR for the year 2004-05 against which the Commission had approved Rs.213.70 crores as return on the net fixed assets of Rs.7123.37 crores in para 7.16 of the Tariff Order for the year 2004-05. Now, in the ARR for the year 2005-06, the Board has claimed Rs.212.20 crores for the year 2004-05 towards 3% return on net fixed assets at the beginning of the year in terms of Section 59 of the Electricity (Supply) Act, 1948 read with Section 61 of the Electricity Act, 2003. As already mentioned in para 3.13 above, with the increase in depreciation charges, accumulated depreciation charges have also gone up and accordingly 3% return on net fixed assets works out to Rs.212.20 crores as given in Table 3.15 below: Table - 3.15 Reasonable Return (Rs. in crores)
In view of the above, the Commission approves Rs.212.20 crores as return on net fixed assets for the year 2004-05. C. MISCELLANEOUS REVENUE (NON TARIFF INCOME) In the ARR for the year 2004-05, the Board had projected miscellaneous revenue (non tariff income) at Rs.330 crores. In Section C of Chapter-7 of the Tariff Order for the year 2004-05, the Commission had approved non tariff income of Rs.362 crores for the year 2004-05. In the ARR for the year 2005-06, the Board has submitted the revised estimates of non tariff income of Rs.331 crores for the year 2004-05. The actuals of non tariff income for the year 2004-05 have not become available so far. In the meantime, the Commission assesses non tariff income to be Rs.331 crores as claimed by the Board. The Commission, therefore, approves Rs.331 crores as miscellaneous revenue (non tariff income) of the Board for the year 2004-05. 3.16 REVENUE FROM EXISTING TARIFF In the ARR for the year 2004-05, the Board had projected the revenue at existing tariff at Rs.7070 crores. Against these estimates, the Board vide its Fax message received in the Commission on May 11, 2005 has supplied the actuals of energy sales as well as revenue for a period of eleven months i.e., from April, 2004 to February, 2005 and assessed sales and revenue for the month of March, 2005. This information has also been made available for agricultural pumpsets but month-wise break up thereof is not available in the Fax message. Since there was change in the AP tariff from October 1, 2004, therefore, the month-wise AP consumption for 2004-05 as per sample meters upto the month of January 2005 and assumed consumption for the months of February and March 2005 already made available by the Board is being taken into account for working out AP consumption for the year 2004-05. Accordingly, of the total AP consumption of 6563 MU, the revenue for the months of April 2004 to September 2004 @ Rs.2 per kwh for consumption of 4327 MU and for the months of October 2004 to March 2005 @ Rs.1.94 per kwh for consumption of 2236 M | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||