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17 August 2001 K Balarama Reddi & Usha Ramachandra

TARIFF SETTING UNDER INDEPENDENT REGULATION. Rs. GMP for PGCIL. 17 August 2001 K Balarama Reddi & Usha Ramachandra. TARIFFS IN ELECTRICITY. Tariffs for: Generated power (from each generating company) Transmission Tariffs

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17 August 2001 K Balarama Reddi & Usha Ramachandra

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  1. TARIFF SETTING UNDER INDEPENDENT REGULATION Rs. GMP for PGCIL 17 August 2001 K Balarama Reddi & Usha Ramachandra

  2. TARIFFS IN ELECTRICITY • Tariffs for: • Generated power (from each generating company) • Transmission Tariffs • Bulk Supply Tariffs (Pooled power & transmission charges) • Retail Supply Tariffs (for end consumers)

  3. TARIFFS BEFORE INDEPENDENT REGULATION State Electricity Boards: Bundled tariff for generation, transmission & distribution according to: Section 59 & Section 63 of ES Act (1948)

  4. TARIFFS BEFORE INDEPENDENT REGULATION Cont…d • Distribution Licensees: • Section 57, 57A & Sixth Schedule of ES Act 1948 • The provision under Sixth Schedule (ES Act) reads: • ………The licensee shall so adjust the charges that his clear profit in any year shall not as for as possible, exceed the amount of reasonable return. • Sixth Schedule clearly defines - • Capital base • Reasonable return on capital base • Clear profit

  5. TARIFFS BEFORE INDEPENDENT REGULATION Cont…d Generating Companies: K.P. Rao Committee CEA Amendments of 1992 for IPPs & the PPAs consequently drawn up

  6. CENTRAL ELECTRICITY REGULATORY COMMISSION Tariffs for: Generation tariff for centrally-owned generating companies Generation tariff for Companies supplying power to more than one state Transmission tariff for interstate transmission of power

  7. STATE ELECTRICITY REGULATORY COMMISSIONS • Regulation of: • Purchase of power • Transmission tariffs within the state • Retail distribution tariffs within the state Generation Tariffs for State Gencos with State Govt. New PPAs to the cleared by the SERCs

  8. PRINCIPLES OF TARIFF SETTING The Commission shall be guided by the following: • The principles and their application in Section 46, 57 & 57A of Electricity (Supply) Act and the Sixth Schedule • The tariff progressively reflects the cost of supply • The factors that would encourage efficiency, economical use of the resources • The tariff shall not show undue preference to any consumer, but may differentiate according to various factors • Where the commission departs from the laid down principles, the reasons shall be provided in writing

  9. GENERATION TARIFFS • Single part tariff • Two part tariff - K P Rao • Availability Based Tariff (ABT) • Capacity charge • Energy Charge • Unscheduled Interchanges

  10. ABT: Salient Features • Capacity charge will be related to availability of the generating station. • Incentive payment will be made when the actual generation is more than the normative generation corresponding to the target availability • Energy charges shall be worked out on the basis of p/kwh rate on ex-bus energy sheduled to be sent out from the generating station as per the following formula • As a disincentive the fixed charges and ROE will get reduced proportionately if the availability is less than availability factor fixed. • Charges for unscheduled interchanges as stated.

  11. Availability Factor (cont..d)

  12. ABT & Unscheduled Interchange

  13. Merits of ABT • facilitates grid discipline • facilitates trading in capacity and energy • facilitates merit order despatch

  14. PGCIL Availability • Are incentives based on availability relevant for transmission systems? • Target availability for recovery of full fixed charges - 95% or 98%.

  15. Reactive Energy Charge Reactive Energy supplied by generators at the cost of real power could be charged to the SEBs as a separate charge - CERC Consultation Paper on Bulk Tariffs, Sept. 1999

  16. Transmission Tariff • The transmission tariff is based on investment costs (fixed costs) covering: • Interest on debt • Depreciation • Operation & Maintenance costs • Return on equity • Interest on working capital • Taxes, if any

  17. What is Wheeling? Wheeling in its broadest sense, is the delivery of electric power from one party to another, utilising the transmission facilities of the third party. Transmission access and wheeling is a complex arena encompassing physics, economics and regulation.

  18. Transmission Rates Paise/kwh: A flat rate per kWh generally measured at the point(s) of delivery. This category includes rates stated in paise per Kwh. Paise/kW: A flat rate based on either contract or billing demand. Billing demand is generally defined as the highest 30 or 60 minute integrated demand measured during the billing month. In some instances a demand ratchet is employed. Demand & Energy: A two-part rate including flat rate per kWh delivered plus a demand charge expressed in kW based on metered demand. Mileage Component Rates: A rate wherein the charge is based in part upon distance, generally stated in Rs. Per circuit mile. Billing demand is generally calculated as the highest 30 or 60 minute integrated demand during the billing month.

  19. Bulk Supply Tariffs • The bulk supply tariff contains two components: • i) The cost of purchase of power • ii) Transmission costs

  20. RETAIL SUPPLY TARIFFS APPLICATION & ORDER A Typical Tariff Application comprises: 1. Demand Forecasts 2.Determination of Capital Base 3.Details of Expenditure 4. Revenue Requirement 5.Tariff Setting (average cost of supply per kwh & tariff structure) 6.Efficiency Improvements

  21. Retail Supply Tariff Calculation Calculation of Revenue Requirements: Req.Rev = Expenses + (Return on Capital Base) Tariff Structure to meet Revenue Requirements

  22. Revenue Requirements • Revenue Requirements • Sum of: • Rate of return on fixed assets • Expenses • Less: • Miscellaneous revenue and sales to other states • Subsidy from State Government

  23. Tariff Determination - Existing • Existing Tariff Structure • Correlation of Demand and Energy Costs to Fixed and Variable Costs • Monthly minimum charges • Fuel cost adjustment • Existing customer charges etc. • Meter maintenance • Meter reading, billing and serving of bills • Collection of revenue • Maintenance of Customer Accounts • Meter rents • Power factor charges • Delayed payment charges

  24. Tariff Determination - Proposed ISSUES • Rationalization of existing tariff structure • Tariffs to different categories of consumers - an attempt to move towards cost of services • Social aspects including tariff to Agricultural Sector • Fuel cost adjustment • Electricity duty and taxes

  25. EFFICIENCY IMPROVEMENTS • Status of Metering • Billing and revenue realisation • DSM, If any • Repair and Maintenance costs • Transformer repairs etc. • Material Management - Inventory Control • T&D Losses reduction programme • Technical • Non technical (Commercial)

  26. Revenue Gap The gap between the revenue requirement and revenue from current tariffs. (Rs. Crores) Revenue requirement Revenue from current tariff ------------- THE GAP

  27. The gap has to be met by: Tariff Increases Efficiency Gains (T & D loss & exp.) Revenue Gap Subsidies

  28. Re-evaluation of revenue gap • Likely revenue from additional sales. • Subsidy from State Government. • Additional resources through tariff • increase. The issue is whether tariff can be increased to meet the entire revenue gap? If not what is to be done?

  29. SERC ORDERS • Orissa ERC, 1997, 1998, 1999 & 2000 • Maharashtra ERC May 2000 • Andhra Pradesh ERC May 2000, 2001 • Uttar Pradesh ERC July 2000 • Gujarat ERC October 2000 • Haryana ERC, December 2000 • Karnataka ERC, December 2000 • Since then Rajasthan, Delhi

  30. Orissa Case 1. Orissa Tariff Order for 1997-98 (Gridco) 2. Orissa Tariff Order for 1998-99 (Gridco separate for transmission & distribution) 3. Orissa Tariff Order for 1999-2000 Gridco & four Distribution Companies 4. 2000-01 Tariff Orders

  31. OERC: Power Purchase & Cost

  32. OERC: Category wise Sales: 1998-99

  33. OERC: Benchmarks

  34. Power Sector Restructuring - 1999 Orissa distribution was divided into four joint venture companies: WESCO SOUTHCO NESCO CESCO * WESCO, SOUTHCO & NESCO filed joint application for RST revision on 30-07-99 BSES AES

  35. Retail Tariff for WESCO Tariff Order 30-12-1999 Retail Supply Tariff (RST) filed: 30-07-1999 Further information sought by OERC: 13-08-1999 Fresh application with all details filed: 27-09-1999 Objections received 17 Objections Heard 12 Enquiry: Dec. 1999 Tariff Order: 30-12-1999 OERC could pronounce tariff orders of 5 companies within the mandatory 3 months.

  36. Differential Bulk Tariff 1999-2000 WESCO: Demand Charge: Rs.200/KVA/month Energy Charge: 99.20 paise/kwh SOUTHCO, CESCO, NESCO: Demand Charge: Rs.200/KVA/month Energy Charge: 80.70 paise/kwh

  37. Tariff Reforms in Orissa Pre-reformPost-reform 07.9.93 28.58% 21.5.96 17% (GoO) 16.7.94 15.73% 01.4.97 10.33% 05.01.95 17.47% 01.12.98 9.3% 01.2.2000 4 - 5%

  38. T & D losses Compare the Three Tariff Revisions: 1. 1997-98: Gridco’s losses of 42% to be reduced to 35% 2. 1998-99: Gridco claimed that actual losses were 46% and has been reduced to 41%. OERC rules that 35% is a benchmark & incentive of 1% increase in return for every 1% decrease in T & D losses below 35%. 3. 1999-00: WESCO’s losses are really 46%, only 3% decrease is possible in the coming year but agreed for 40% decrease for distribution and 4% for transmission.

  39. ISSUES AT STAKE • Desired level of T&D loss reduction has not been achieved • Sale projections fell much below the level of expectation • Asset revaluation soared the revenue requirement of GRIDCO • Handling of accumulated losses of approx. Rs.900 Crores for the period 01.4.96 to 31.3.99 • Who should share the burden? • Consumers/Licensee/Government?

  40. Summary of Expenses Approved by the MERC for 2000-01 Figures in Rs.Crores) MSEB MERC Remarks Proposal Approval Generation of Power 3,540 3,387 Based on the Commission’s targets for Generation. Purchase of Power 3,798 3,542 Based on the Commission’s approval of power purchase. Repairs & Maintenance 675 675 Employees Costs 1,519 1,419 Additional expenses arising out of implementation of 5th Pay Commission may be recovered through efficiency improvement. Admn & Gen. Expenses 151 151 Depreciation 1,294 1,293 Token deduction of Rs.1 Crore for non- submission of information to the Commission to ascertain the prudency of the capital investment during last five years. Contd.

  41. Contd. MSEB MERC Remarks Proposal Approval Interest Charges 1,239 1,127 Interest on investment in DPC has been disallowed. Also token reduction of Rs.1 crore for non-submission of information to allow the Commission to ascertain the predency of the capital expenditure investment. Token reduction for working capital on account of poor receivables management. Provision for doubtful debts 200 200 Other debts 317 277 Cost of recovery from agricultural consumers has been disallowed. Total Expenses allowed 12,733 12,071 Note: All expenses have been shown net of capitalisation

  42. Summary of Revenue Statement for Year 2000-01 Existing Tariff with Description MSEB MERC MSEB Forecast Proposal & Forecast & Forecast Approval 10,703 Revenue from Sale of power 12,721 11,215 84 Miscellaneous Revenue 84 91 350 Other Income 350 454 Additional Revenue from T&D loss reduction 600 11,137 Total (Revenue) (Rs. Crores) 13,155 12,360 12,733 Total Expenses 12,733 12,071 -1,596 Surplus 422 289 2.60 Average Realisation (Rs./Unit) 3.08 2.85 2.98 Average Cost of Supply (Rs./Unit) 2.98 2.79

  43. Tariff Hike Description MSEB MERC (Proposal) (Approval) Tariff increase in Rs. Crores 2,018 691 Tariff Hike in % 18.9 6.5

  44. A P Transco: Cost of Service 2000 Current realisation is: Domestic - 168 p/kwh Agriculture - 18 p/kwh

  45. APTRANSCO: Revenue Required

  46. A P Transco: Filing of Proposed Tariff 2000 • Suggested that the Revenue Gap would be bridged by creating a regulatory asset • This year’s proposal - tariff increase is nominal, govt subsidy at the same level as last year has been envisaged & “revenue gap” of Rs.1450 crs to be bridged through efficiency improvements & internal resources

  47. Features of KERC Tariff Order: 2000 • KPTCL should report to the Commission by March 31st confirming that all unauthorised IP sets have been disconnected. • KPTCL should submit an Action Plan to KERC on how to reduce T & D losses by at least 2% in 2001-02 • ERC was approved on the basis of a reduction of 5.5% in commercial losses in 2000-01 & a further 5% in 2001-02

  48. Features of KERC Tariff Order: 2000 (Con..t) • Penalty of Rs.5 crs for not providing requested information on purchased power • Merit Order Purchase plan to be prepared & approved by KERC 15 days before the start of the month • All works more than Rs. 1 lakh to be allotted through a bidding process and NO price preference at all.

  49. Features of KERC Tariff Order: 2000 (Con..t) • Socio-economic profile of Bhagya jyothi/ KJ consumers to assess ability to pay • Should implement metering of the streetlight installations in one year • Dues from PSUs & Govt. local bodies to be added to the amount of subsidy due from Govt. • Toll free phone numbers to register complaints • Rs. 35 crs disallowed on account of free electricity, bonus & DA overestimated • Benchmarking of system parameters

  50. Features of KERC Tariff Order: 2000 (Con..t) • Profile of agricultural consumers and charge equivalent to ave. cost of power purchased charged to those who • Those who have more than one IP set • Income tax payer • Owner of a tractor • Owner of four wheeled vehicle • Telephone connection including mobile set

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