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ORISSA ELECTRICITY REGULATORY COMMISSION
Together, let us light up our lives.
A Presentation on ARR Tariff Proposal of
SOUTHCO for FY 2007-08 Broad Suggestions/Objecti
ons Feburary 9, 2007
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Data Sources

• As stated by SOUTHCO
• The Accounts up to September 2005 have been
  audited as per Companies Act
• The accounts up to March 2006 have been audited
  as per Income Tax Rules
• It has relied upon the audited accounts upto
  September 2005 as per Companies Act and accounts
  upto March 2006 as per Tax Audit for preparation
  of ARR

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Tariff Structure

• SOUTHCO has proposed
• No change in tariff structure
• No special tariff should be allowed to the
  industries having own CPPs
• Demand charge of Rs 200/- per KVA to be
  applicable for consumers having contract demand
  70 KVA and above under HT Industrial (M) and GP
  category
• The provisions of tariff applicable to large
  industries should be made applicable to above
  consumers.
• Fixed charges for LT Industrial(S), LT
  Industrial(M) PWW to be levied on KVA in place
  of KW.
• Demand charges _at_ 120 of demand charges to be
  made applicable on MD recorded along with
  applicable energy charges for CPPs

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Tariff Structure .. Contd..

• The minimum demand charges concept i.e. 80 of
  CD should not be made applicable to CPPs
• Service connection charges for single phase
  Domestic / GP consumers upto 3 KW load to be
  revised from Rs 500/- to Rs. 1000/-.
• The rate of labour component to be taken by the
  consumers equivalent to Rs. 400/-where single
  phase consumers come forward and provide service
  connection materials.
• Monthly minimum fixed charges for consumers with
  contact demand lt 100 KVA should be levied on CD
  or MD whichever higher

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Tariff Structure .. Contd..

• Tariff for medium industries (LT) may be
  considered at par with GP (LT)category.
• The over drawl energy should be considered in
  cumulative basis for all DISTCOs together instead
  of considering DISTCO wise over drawl till to
  Intra-State ABT is implemented.
• Rebate _at_ 2 for payment of BST bills within three
  working days from the date of presentation of
  bill.
• Delayed Payment Surcharge to be levied to LT
  industrial (Small) supply category.
• Bridge the Revenue Gap through combination of
  increase in Retail Supply Tariff, Reduction in
  Bulk supply Tariff, Government Subsidy etc.

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Reconnection Charges
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BROAD TARIFF RELATED ISSUES RAISED BY OBJECTORS (
To be addressed by the Licensees )
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Legal Issues

• The ARR application filed by the licensee is not
  tenable under law due to the following defects
• The licensees account has not been audited for FY
  2004-05 and 2005-06.
• The licensee has filed the application to confuse
  the consumer public without disclosing the
  purpose for such filing.
• The interested persons are being kept in dark and
  not able to file effective objection and as such
  the purpose of such exercise has been frustrated
  and contrary to law and principle of natural
  justice.
• The procedure/method so adopted by the Commission
  be made simple and inexpensive.
• The licensee has failed to provide details as
  required under regulations to the Commission for
  consideration of his application as such the
  application may be rejected.

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Issues raised by Objectors

• Military Engineering Services
• There should be discriminatory Tariff between
  consumers of general category and of the defence.
• Distribution Loss
• The licensee has miserably failed to arrest high
  Distribution loss on account of unauthorized use
  of power.
• Distribution loss should be calculated by taking
  ratio of units lost in distribution system
  excluding EHT sale.
• Since, a large chunk of consumers are still
  unmetered and having defective meters, the
  declared loss by the licensee is unrealistic.
• Collection Efficiency
• The consumers are not to be burdened for
  in-efficiency of licensees to collect their
  energy dues from consumers every year.

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Issues raised by Objectors.. Contd..

• ATC Loss
• ATC concept should not be implemented as it
  hides the inefficiency of the Licensee.
• Power Factor Incentive/ Power Factor Penalty
• Power Factor incentive has to be calculated upto
  two decimal fraction
• Power factor penalty is levied for power factor
  less than 90 power factor incentive should be
  given for power factors above 90 at the same
  rate.
• Power factor penalty for the small and medium
  industry consumer may be introduced.
• Cross Subsidy
• Bench Marks for gradual reduction of cross
  subsidy may be fixed from this year to achieve
  Zero level by 2009-10.

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Issues raised by Objectors.. Contd..

• Quality of Services
• The industries are put to financial burden for
  being unable to achieve 80 Load Factor due to
  the inability of the licensee to supply proper
  quality power.
• Due to slow up gradation of the system and
  sub-station, the new industries are finding
  difficult to get power connection.
• Voltage/frequency fluctuation The accountability
  should be fixed with the License in terms of
  financial compensation for the fluctuation beyond
  standard norms.

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Issues raised by Objectors.. Contd..

• Consumer Classification
• Electricity tariff for poultry may be at par with
  agriculture.
• The State Government has decided to classify
  poultry as agriculture
• Reliance Telecom Ltd. and Reliance Infocomm Ltd.
  - Electricity energy may be charged at
  Industrial Rates instead of General Purpose
  rates to the IT ITES Industries operating in
  the State
• BSNL Orissa Circle, Bhubaneswar
• BSNL may be treated as an industrial undertaking
  as power is substantially utilized as motive
  force for Industrial purpose and without supply
  of power it is not possible to run the Telecom
  services.
• The BSNL is coming under the purview of industry
  as per the verdict of the Honble Supreme Court
  in several cases.
• So also as per the finance Act, 2002 w.e.f.
  01.4.03, the business of providing
  Telecommunication Services has been declared as
  industrial undertaking.

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Issues raised by Objectors.. Contd..

• Financial Issues
• In absence of the audited balance sheet and
  report of the auditors it is not possible for the
  objector to make proper observation on financial
  matters.
• Interests attributable to bonds
• The interest attributed to bonds against arrear
  of power purchases cost and capital value of
  bonds are not payable by consumers.

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Issues raised by Objectors.. Contd..

• Interests towards securitization
• The interest towards securitization as well as
  capital of securitization should not be passed on
  to the revenue requirement for tariff proposes.
• Infusing additional funds - The licensee may be
  directed to infuse additional funds as may be
  required to turn around the sector.
• Regulatory assets - Any losses that the
  distribution licensee likes to incur after
  complying with the orders of the Commission, can
  only be considered for the purpose of computing
  the Regulatory Assets.
• Employees cost - It is suggested that an increase
  of about 6 over last years provision may be
  allowed while fixing the employees cost for the
  FY 2007-08.
• Past Losses - Past losses should be paid through
  tariff by consumers only if these losses have
  been incurred due to reasons beyond the control
  of licensee and in spite of licensee having
  performed as per bench marks fixed by OERC.

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Issues raised by Objectors.. Contd..

• Computation of Load Factor
• Load factor or consumption ratio to be determined
  on the basis of Maximum Demand recorded in the
  meter in accordance with Regulation 2(y) of the
  OERC Distribution (Conditions of Supply) Code,
  2004.
• It will be just and proper to calculate the load
  factor on the basis of Maximum Demand or 80 of
  the Contract Demand whichever is higher.
• A lower load factor upto 50 may be prescribed
  for the period of annual maintenance, which will
  be jointly decided by the licensee and the
  consumer.
• The guaranteed load factor of 80 should be
  determined on an annual basis.
• Load factor may be computed separately for peak
  and off peak hours and the overall load factor be
  computed by integrating the above data.
• The LF be calculated based on the actual period
  of availability of unrestricted power supply
  during the month.
• The MD during the off peak hours should not be
  considered for computing the LF.

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Issues raised by Objectors.. Contd..

• Tariff Issues
• The gap of electricity charges between high
  consumption and low consumption should be reduced
  to minimum level, which will discourage theft of
  energy.
• Contract Demand
• Time frame for reducing the contract demand may
  not be imposed.
• Provision for Rebate
• Seven clear days may be given from the receipt of
  the bill to get the rebate on prompt payment.

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Issues raised by Objectors.. Contd..

• Emergency Supply to CPPs
• The proposal of demand charges for emergency
  drawal to CPPs should be rejected.
• Emergency power requirement for CPP/Generating
  stations are very low and for short duration
  only, it is not at all justified to propose
  demand charges for emergency power to CPPs.
• Rail-ways
• Adoption of single part tariff for Railway
  traction.
• Proper adoption of simultaneous maximum demand
  for Railway traction supply.
• Railway may be exempted from payment of Security
  deposit.
• Stipulation of penalty on power factor if it goes
  below 0.85 as against 0.90.
• Stipulation of incentive for improvement in power
  factor above 0.85.

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Issues raised by Objectors.. Contd..

• Grant of relief to railways for power supply
  interruption as well as poor quality of supply.
• The tariff applicable to Railway Traction should
  reflect the cost of supply without any cross
  subsidy.
• As far as supply to Railway Traction Sub-station
  is concerned, the distribution companies are not
  entitled to any wheeling charges as non of their
  own asset is involved in the supply process.
• Ignoring of maximum demand of TSSs during feed
  extensions as Railways are constrained to extend
  feed from adjacent TSS to the failed TSS zone.
• The tariff clause for industrial colony
  consumption should be applicable to Railway
  colony.

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Issues raised by Objectors.. Contd..

• General Issues
• The additional costs actual or estimated on
  account of the inefficiency/inability of licensee
  should not be passed on to the consumers through
  the tariff, either as a direct cost or a so
  called Regulatory Asset.
• Any cost due to additional power purchase, beyond
  the allowable distribution loss should not be
  included in the ARR of the licensee.
• Increase in the reconnection charge no
  justification.
• The charges to the consumers should reflect the
  cost to the licensee.
• DPS for LT consumers no justification.
• A LT consumer loses the rebate of 10 p/kwh in a
  month. Additional levy of DPS is thus unnecessary
  and un reasonable.

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Issues raised by Objectors.. Contd..

• The demand charges may be calculated prorate if
  the total of period of interruption (causing loss
  of production due to interruptions) and the
  pre-arranged shut downs availed on intimation, or
  statutory power cuts, exceeds 60 hours in a moth.
• The street light burning hours should be on
  actual time i.e. for 10 hours a day.
• The ceiling limit of 10 of total consumption for
  the colony consumption should be waived
• Electricity charges for the colony consumption
  should be at per with domestic rate because the
  electricity used in the colony is never used for
  any industrial purpose.
• Special tariff for running of FOUNDRY A special
  tariff structure _at_50 of the existing tariff, may
  be introduced for running of the furnaces.

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Issues raised by Objectors.. Contd..

• Demand charges
• The demand charges may be calculated on prorate
  basis for the actual period of power
  availability.
• The demand charges may be exempted if there is
  power interruption for more than 50 hours in a
  month.
• To have a uniform tariff for all consumers based
  on commercial principle of cost plus benefit
  basis.
• Separate Tariff may be introduced for Specified
  Public Purpose consumers under private sector
  especially for Educational Institutions.

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Issues raised by Objectors.. Contd..

• Service Connection charges - It is suggested that
  a realistic amount in place of Rs500/- may be
  fixed so that the Licensee can procure quality
  materials in time.
• Uniform rate may be introduced for LT (domestic)
  without any slab system.
• Tariff Revision - The proposed tariff revision is
  not at all desirable as there is no improvement
  in services.

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Issues raised by Objectors.. Contd..

• OERC Regulations
• During the initial period of supply, which is
  prescribed for five years, an Exit Clause should
  be provided since the consumer has right to
  choose its supplier.
• Customers Security Deposit Consumers may be
  permitted to furnish bank guarantee or to open
  revolving letter of credit in favour of licensee
  in lieu of security deposit as it becomes
  extremely difficult for small and medium scale
  industry to invest such huge sum for purchase of
  power in cash.
• Period of agreement The validity of power
  agreement is presently 5 years, should be reduced
  to 1 year in view of the changing market scenario
  and fluctuating market demands.

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BROAD TARIFF RELATED ISSUES
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The following areas have not been adequately
addressed

• D.T. wise Energy Audit Consumer Indexing for
  loss reduction
• Spot Billing Collection for improvement of
  Collection Efficiency
• Repair Maintenance
• Arrear Collection Liquidation of power purchase
  dues
• Man power deployment ( Both Executive Non
  Executive ) for reducing AT C Loss
• Non Investment in system improvement for Quality
  Supply

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Revenue Requirement for 2007-08 ..Contd..

• Bifurcation of the amount towards cost of power
  purchase and cost of transmission for FY 2007-08
  has not been furnished. The same may be
  submitted.
• Actual expenditure against the above heads of
  expenditure for first six months of FY 2006-07
  has not been provided by the licensee. The same
  may be submitted.
• The reason for making higher provision in
  employee cost of Rs.98.23 crore proposed for FY
  2007-08 as against the approved amount of
  Rs.68.18 crore for FY 2006-07 and Rs.61.22 crore
  appeared in the tax audit report needs to be
  justified.
• The proposed rise in AG expenses for an amount
  of Rs 20.72 crore for FY 2007-08 as against the
  approved amount of Rs 10.88 crore for FY 2006-07
  and Rs. 13.62 crore for the FY 2005-06 based on
  Tax Audit reports needs to be explained.
• Similarly, the quantum proposed for interest
  amounting Rs.46.73 crore for FY 2007-08 is nearly
  Rs.20 crore more than the approved amount of
  Rs.26.77 crore for FY 2006-07 and nearly Rs. 25
  crore more than the tax audited figure for the FY
  2005-06. This needs to be explained.
• It may be justified as to why the amortization of
  regulatory asset and truing up of revenue gap
  for the FY 2006-07 be allowed and if so how far
  it is reasonable.

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RM Expenses of SOUTHCO (Rs. Cr.)
Note (i) Cause of declining expenditure in RM
?? (ii) Non utilisation of the approved amount
towards RM is affecting Quality of Supply
increasing interruption.
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Note Why the Gap Between the approved and actual
figures of various heads of expenditures have not
been adjusted in the Revenue Requirement filing ?
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Provision for Bad Doubtful Debt
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Miscellaneous Income SMD

• Miscellaneous Income
• At the time of determination of RST for 2006-07
  for the purpose of computation of misc. income
  the latest available audited data for FY 2003-04
  was taken into consideration. Now, that audited
  accounts for FY 2004-05 and accounts upto March
  2006 as per tax audit are available and even
  after deduction of DPS from the misc. income for
  FY 2004-05 as per audited account is much higher
  than what has been approved for 2006-07.
• Determination of Simultaneous Maximum Demand
  (SMD)
• Whether increase/decrease in energy consumption
  has got direct link with SMD.
• Comments on the above subjects are invited for
  determination of tariff.

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Business Plan Vrs. ARR

• A comparison of figures in Business Plan and ARR
  from FY 2004-05 to 2007-08 with regard to
  Distribution Loss, Collection Efficiency and ATC
  Loss, present two different sets of figures with
  wide margins as follows

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SOUTHCO ARR FILING VRS BUSINESS PLAN
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Finance related issues

• Investment details have not been specified.
• Capital Works In Progress - capability of huge
  investment proposal has not been justified.
• Action plan for settlement and collection of
  arrears outstanding with the consumers have not
  been spelt out.
• No Action Plan for establishment of Special
  Police Station Special Court has been given

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Issue of Regulatory Assets

• National Tariff Policy on Regulatory Assets
  stipulates
• Pass through of past losses or profits should be
  allowed to the extent caused by uncontrollable
  factors.
• The facility of a regulatory asset should be done
  only as exception, and subject to the following
  guidelines.
• should only include natural causes or force
  majeure conditions
• Carrying cost of Regulatory Asset should be
  allowed to the utilities
• Recovery of Regulatory Asset should be time-bound
  and within a period not exceeding three years at
  the most and preferably within control period.
• The use of the facility of Regulatory asset
  should not be repetitive.
• Does the claim of Licensee conform to the
  National Tariff Policy?
• Whether the past losses be treated as regulatory
  asset and allowed in tariff along with carrying
  charges?
• Whether the interest cost an account of the
  regulatory asset should be allowed to be
  recovered as a pass through

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Average Revenue Billed (P/U) Vrs Actual as filed
by SOUTHCO in ARR filings
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Thank You