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A Presentation on ARR & Tariff Proposal of CESU for FY 2007-08 Broad Suggestions/Objections Feburary 8, 2007

ORISSA ELECTRICITY REGULATORY COMMISSION. Together, let us light up our lives. A Presentation on ARR & Tariff Proposal of CESU for FY 2007-08 Broad Suggestions/Objections Feburary 8, 2007. Tariff Structure. CESU has proposed –

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A Presentation on ARR & Tariff Proposal of CESU for FY 2007-08 Broad Suggestions/Objections Feburary 8, 2007

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  1. ORISSA ELECTRICITY REGULATORY COMMISSION Together, let us light up our lives. A Presentation on ARR & Tariff Proposal of CESU for FY 2007-08 BroadSuggestions/Objections Feburary 8, 2007

  2. Tariff Structure • CESU has proposed – • Higher average tariff increase for subsidized categories than the average tariff increase for subsidized categories • Allow a voltage wise loss stipulation for computing revenue requirement • Allow the category wise tariff to bridge revenue gap • Allow the past losses as regulatory assets to be set off in future years through tariff along with interest to be decided by the Commission • A service may be levied on consumer for dishonoured cheques (Rs.200 for LT and Rs.1000 for HT/EHT)

  3. To give single point supply to all apartments to have better control and management Demand charge for maximum demand recorded during a month in addition to energy charge at the same rate as applicable to industries for emergency power supply to CPPs/generating stations DPS for LT consumers @1.25% per month for all categories of consumers In case increases in tariffs are not sufficient to bridge the entire revenue gap shall be bridged by reduction in BST and/or Govt. subsidy Considered actual AT&C loss in FY 2006-07 as base level for setting future loss reduction Tariff Structure…Contd..

  4. Increase in reconnection charge as under: Tariff Structure…Contd..

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

  6. 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.

  7. 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.

  8. 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.

  9. 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.

  10. 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.

  11. 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. • Employees cost – it is suggested that an increase of about 6% over last year’s provision as was being given earlier, may be allowed while fixing the employees cost for the FY 2007-08. • 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.

  12. 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.

  13. 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.

  14. 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.

  15. 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 CPP’s. • 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.

  16. 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 TSS’s 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.

  17. 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.

  18. 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.

  19. 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.

  20. 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.

  21. 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.

  22. BROAD TARIFF RELATED ISSUES

  23. 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

  24. Note: (i) CESU is required to submit the schedule of the provisional account for FY 2005-06 such as employees cost, R&M, A&G, Bad debt and other misc. expenses and revenue details, etc. which has not been submitted in their filing.

  25. Revenue Requirement of CESU .. Contd.. • The tax audit report submitted for the year ended 31st March 2006 does not contained the profit and loss and balance sheet for FY 2005-06. The same may be submitted. • CESU for the FY 2007-08 has not bifurcated the amount to be expended towards cost of power purchase and cost of transmission. 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 proposing higher amount of employee cost of Rs.168.36 crore for 2007-08 as against the approved figure of Rs.113.10 crore for FY 2006-07 needs to be explained. • The reason for proposing higher amount of R&M expenses of Rs.54.95 crore for 2007-08 as against the approved amount of Rs.41.31 crore for the FY 2006-07 needs to be explained. • Similarly, the quantum proposed for interest amounting Rs.58.01 crore for FY 2007-08 is nearly Rs.20 crore more than the approved amount of Rs.38.22 crore for FY 2006-07. This needs to be explained. • It may be justified as to why the past losses of Rs.907.90 crore proposed for the FY 2007-08 may be allowed and if so how far it is reasonable.

  26. R&M Expenses of CESU (Rs. Cr.)

  27. Provision for Bad & Doubtful Debt

  28. 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:

  29. CESU’s ARR Filing Vrs. Business Plan

  30. Finance related issues • Position of Accounts need to be explained. • 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.

  31. 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?

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

  33. Thank You

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