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A Presentation on ARR & Tariff Proposal of WESCO for FY 2007-08 Broad Suggestions/Objections PowerPoint PPT Presentation


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ORISSA ELECTRICITY REGULATORY COMMISSION. Together, let us light up our lives. A Presentation on ARR & Tariff Proposal of WESCO for FY 2007-08 Broad Suggestions/Objections Feburary 13, 2007.

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A Presentation on ARR & Tariff Proposal of WESCO for FY 2007-08 Broad Suggestions/Objections

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A presentation on arr tariff proposal of wesco for fy 2007 08 broad suggestions objections

ORISSA ELECTRICITY REGULATORY COMMISSION

Together, let us light up our lives.

A

Presentation

on

ARR & Tariff Proposal of

WESCO for FY 2007-08

BroadSuggestions/Objections

Feburary 13, 2007


A presentation on arr tariff proposal of wesco for fy 2007 08 broad suggestions objections

NOTE: WESCO has not proposed any change in RST but to bridge the Revenue Gap through increase in tariff, reduction in BST, Govt. subsidy etc.


Data sources

Data Sources

  • As stated by WESCO :

    • 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


Tariff structure

Tariff Structure

  • WESCO 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 @ 120% of demand charges to be made applicable on MD recorded along with applicable energy charges for CPPs


Tariff structure contd

Tariff Structure .. Contd..

  • The minimum demand charges concept i.e. 80 % of CD should not be made applicable to CPPs

  • 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 @ 2% for payment of BST bills within three working days from the date of presentation of bill.

  • Approved the annual revenue requirement for FY 07-08 including amortisation of regulatory assets and tring of uncovered gap for FY 06-07.

  • Bridge the Revenue Gap through combination of increase in Retail Supply Tariff, Reduction in Bulk supply Tariff, Government Subsidy etc.


A presentation on arr tariff proposal of wesco for fy 2007 08 broad suggestions objections

BROAD TARIFF RELATED ISSUES RAISED BY OBJECTORS ( To be addressed by the Licensees )


Legal issues

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.


Issues raised by objectors

Issues raised by Objectors

  • 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.


Issues raised by objectors contd

Issues raised by Objectors.. Contd..

  • AT&C Loss

    • AT&C 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.


Issues raised by objectors contd1

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.


Issues raised by objectors contd2

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 Hon’ble 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.


Issues raised by objectors contd3

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.

    • WESCO even could not infuse working capital fund either from their own resources or from their Banker as a result of which WESCO is funded through GRIDCO dues bearing interest/DPS @24% per annum. Such higher cost is being borne by the consumer ultimately.

  • 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.


Issues raised by objectors contd4

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 year’s 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.


Issues raised by objectors contd5

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.

    • Any consumer availing LF incentive is higher remunerative in the interest of financial viability of WESCO and should not be penalized for over drawl.


Issues raised by objectors contd6

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.

  • 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 CPP’s.


Issues raised by objectors contd7

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.

    • A penalty up to a limit of 20% in excess use of the electricity than the contract demand during peak hours may be introduced.

    • 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.


Issues raised by objectors contd8

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 @50% of the existing tariff, may be introduced for running of the furnaces.


Issues raised by objectors contd9

Issues raised by Objectors.. Contd..

  • Revision of ARR/Reduction of Tariff – The tariff revision application indicates that the petitioner had made a cash profit of about Rs.43.533 crores during the year 2006-07 in spite of having heavy TD losses, high financial losses and DPS. The petitioner ought to have come up with the proposal for reduction in tariff.

  • 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.


Issues raised by objectors contd10

Issues raised by Objectors.. Contd..

  • The maximum hydel power is produced in WESCO.

    • Hence the consumer of WESCO may be given benefit of the same by a lower tariff.

  • Separate Tariff may be introduced for Specified Public Purpose consumers under private sector especially for Educational Institutions.

  • 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.


Issues raised by objectors contd11

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 it’s supplier.

    • Customer’s 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.


A presentation on arr tariff proposal of wesco for fy 2007 08 broad suggestions objections

BROAD TARIFF RELATED ISSUES


The following areas have not been adequately addressed

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


A presentation on arr tariff proposal of wesco for fy 2007 08 broad suggestions objections

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.109.44 crore proposed for FY 2007-08 as against the approved amount of Rs.80.16 crore for FY 2006-07 and Rs.77.79 crore appeared in the tax audit report needs to be justified.

  • The proposed rise in A&G expenses for an amount of Rs 23.77 crore for FY 2007-08 as against the approved amount of Rs 15.78 crore for FY 2006-07 and Rs. 17.42 crore for the FY 2005-06 based on Tax Audit reports needs to be explained.

  • Similarly, the quantum proposed for interest amounting Rs.60.04 crore for FY 2007-08 is nearly Rs.29 crore more than the approved amount of Rs.31.43 crore for FY 2006-07 and nearly Rs. 36 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.


A presentation on arr tariff proposal of wesco for fy 2007 08 broad suggestions objections

R&M Expenses (Rs. Cr.)

  • Note:

  • (i) Cause of declining expenditure in R&M ??

    • (ii) Non utilisation of the approved amount towards R&M is affecting Quality of Supply & increasing interruption.


A presentation on arr tariff proposal of wesco for fy 2007 08 broad suggestions objections

Note: Why the Gap Between the approved and actual figures of various heads of expenditures have not been adjusted in the Revenue Requirement filing ?


Provision for bad doubtful debt in rs cr

Provision for Bad & Doubtful Debt in Rs. Cr.


Miscellaneous income smd

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.


Business plan vrs arr

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 AT&C Loss, present two different sets of figures with wide margins as follows :


Wesco arr filing vrs business plan

WESCO ARR FILING VRS BUSINESS PLAN


Finance related issues

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.


Issue of regulatory assets

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.


Average revenue billed p u vrs actual as filed by wesco in arr filings

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


A presentation on arr tariff proposal of wesco for fy 2007 08 broad suggestions objections

Thank You


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