CRITICAL EXAMINATION TARIFF PROPOSAL

6.1         Regulatory Assets

The Petitioner has requested for creation of regulatory asset as mentioned earlier in the Chapter on Board�s Proposal. During the technical sessions and subsequent discussions, the Commission had asked the Petitioner to submit a time frame within which it would be able to make a turnaround. As long as the Petitioner is not able to make a turnaround, creation of regulatory assets and its subsequent recovery would further burden the consumers. Another aspect, which deserves attention while addressing the issue of creation of regulatory assets is the level of accuracy in determining the losses incurred by the Petitioner. Currently when there is no certainty about the correctness of the losses as projected by the Petitioner, a regular feedback to the Commission about the same, an action plan to reduce these losses and a diligent implementation of the same, determination of regulatory assets would be only a guesswork and an unnecessary burden on the consumers. Hence, for the time being, creation of regulatory assets is not being allowed. The Petitioner should come up with a turnaround strategy to demonstrate as to when it would be able to achieve the break-even point in its cost of operation and convince the Commission that the operations of the utility are going to be efficient and matching with the expectations of its consumers. The petitioner must stake suitable steps in this direction and only then present the details at the time of filing the tariff petition for the year 2003-04. The request for regulatory asset will be examined then, if full and detailed justification is given for each item of unrealized revenue that is proposed for inclusion in Regulatory Asset.

6.2   Demand and Load Forecast 

6.2.1    The Commission, in the last tariff order had observed that �in the absence of Board�s audited accounts and necessary data in this regard, the passing of tariff order is like shooting an arrow in the dark�. The Commission feels that a similar situation exists before the Commission in this year too.
 

6.2.2    The Petitioner has generally adopted a 5 year Compound Annual Growth Rate (CAGR), consumer category-wise, to project number of consumers, connected load and energy sales for the year 2002-03. In certain categories, where the Petitioner felt that the 5 year CAGR is not likely to be achieved, it has modified the growth rate for projecting data. Accordingly the Petitioner projects to sell 15,062 million units of electricity to different categories of consumers in the year 2002-03. 

6.3    Agricultural Load Factor 

6.3.1    The Commission had asked the Board to conduct a survey for assessing pattern of energy consumption and determination of load factor for agriculture pumps. The MPSEB, in their proposal for determination of tariff for the year 2002-2003 submitted details of energy consumption for 1275 pumps, together with additional details of 291 pumps installed in Narmada Basin, for determination of energy consumption and thereby has projected the energy requirement for the year 2002-2003 for agriculture pumps. 

6.3.2        The pattern of survey for majority of pumps is summarized below: 

The above constitutes over 90% of the total pumps covered in the sample study. 

The pattern of survey in respect of majority of 291 pumps installed in Narmada Basin, where good water potential is available through out the year is summarized below:

The determination of per hp per month consumption for the year 2002-2003 appearing at pages 235 to 250 and pages 47 to 49 of the Petition by the Board on the basis of which the determination of load factor for agriculture pumps has been done, is not the representative figure because duration of consumption is limited from 1 to 3 months only. The details furnished regarding consumption in respect of 137 pumps (metered pumps) for complete one year has also not been considered any where for determination of Tariff as mentioned over concluding pages by MPSEB. 

The consultants to the Commission studied the energy consumption for 167 pumps spread over 7 regions of MPSEB for a period of one year. Of these certain pumps were not covered by MPSEB�s study which are summarized below: 

The consumption of energy in respect of these 167 consumers under study with can be considered as representative of agriculture consumption.

The check meters are normally installed at locations of fair availability of water. The assessment of consumption for agricultural pumps on the basis of check meter reading is slightly on higher side. The consideration of LF of 11.5% for agriculture pumps for the year 2001-02 is thus fairly reasonable.

During field visits very less availability of water potential was observed particularly in Ujjain and Indore Regions. The consumption of power during 2002-2003 shall not therefore remain different to what was observed during 2001-2002. During the course of public hearings, consumers complained about shortage of power available to agricultural consumers. Taking these into consideration and availability of power projected for 2002-03, the Commission allows the agricultural consumption projected at 4772.72 million units by the Board.

6.4    Other categories of Consumers

The availability of power has been discussed at clause 4.7. Keeping in view availability of power and T&D losses, discussed at clause 4.6, the Board has 27854.46 million units available for sale, which is more than the projected sale of energy. The Commission has examined the increased availability and the sale mix projected by the Board. If the sourcing of energy is restricted to the sales projected by the Board, it would result into surrendering the allocated share of energy from Central Sector Stations. This when seen in the light of shortage of power in the State, does not appear to be justified. The Board should procure energy to the extent projected by them and undertake additional sale in the State. For the purpose of allocation of expected revenue from various categories of consumers, the Commission has proportionately increased the projected sale to subsidized categories in the LT segment.

6.5           Aggregate sale projections for 2002-03

Accordingly the projected sale to different class of consumers is summarized below:

                                                               Million units

6.6    T&D losses

6.6.1        The Board has indicated that during the year 2002-03 it would be able to reduce T&D losses by 5% from 48.77% during 2001-02. During the discussions held with the State Govt. on 12 November 2002, Chairman, MPSEB mentioned that presently the T&D losses of the Board are estimated to be 43%. Secretary, MPSEB clarified that these losses are excluding the losses in RE co-operative societies network.

6.6.2    The T&D loss computed for the year 2001-02 based on 11.5% agricultural load factor comes out to 49.35% as against 48.77% mentioned by the Board in the petition. The target for reduction of annual T&D loss by the end of March 2003 is fixed at 42%. However, for calculating Annual Revenue Requirement for 2002-03, the average T&D loss has been taken as 43.77%. The Board shall report the actual T&D losses to the Commission on monthly basis. 

6.7    Total Energy Requirement 

6.7.1    Thus on the basis of the sale to different category of Consumers and T&D losses taken at 43.77%, the total energy required by the board for 2002-03 would be:  

6.8   Sourcing of Energy Requirement 

6.8.1    Energy Generation  

6.8.1.1         Thermal

In order to improve the performance during 2002-2003 and in the following years, the Board shall be required to undertake serious efforts. It would need to take remedial actions in respect of the deficiencies noted earlier so as to cut down on the partial loading of the units and reduction in their forced outages resulting ultimately in the overall improvement of various parameters. Accordingly, it is directed that:

(i)     The Board shall adhere to the scheduled annual overhauling / maintenance programmes of the various units and ensure its implementation. Capital overhauling of the units shall also be carried out periodically in accordance with the norms stipulated by the manufacturers.

(ii)     Board shall make all efforts in taking up the refurbishment/ renovation / modernization work of the various units so as to improve upon their working life and performance.

(iii)  Board shall make adequate funds available so as to meet the regular maintenance needs of the generating units.

(iv)  In order to keep the operating parameters in check and also to take care of due and proper maintenance of various generating units and their auxiliaries, it would be prudent to impart training and refresher courses to the concerned employees from time to time on the operation and maintenance of various units.

(v)   Board shall take up the matter with the Government of India and Coal India Ltd. for supply of adequate quantity of coal to its various thermal power stations. Matters regarding quality of coal wherever it is not upto the desired value shall also be taken up with the Coal India for improvement. Entering into Fuel Supply Agreement with coal companies will be a right step in this direction.

(vi)  Further, Energy Audit of the power stations is bound to improve upon the performance parameters. Therefore, a time bound programme shall be taken up by the Board in this direction.

(vii) The Board should also evolve an appropriate incentive scheme to motivate the employees for achieving highest possible generation. Similarly punitive measures may also be envisaged in the event the actual performance is lower than the desired minimum.

(viii)  The Board is directed to file a report of action taken on the above points every six months by 30th  April and 30th October every year. 

6.8.1.2  Plant Utilisation Factor (PUF) 

The Commission has reworked the targets for achieving PUF after taking into consideration the following:

i)                    The annual maintenance programme of the units. |
ii)                   Considering partial loss of  5%, and a loss in Generation to the tune of 10% owing to forced outages of the unit.
iii)                 Considering the effect of rains and wet coal during the rainy season of four months.
iv)                 Considering the generation at a load factor of  75% of availability round the year, as indicated by MPSEB in its petition. 
v)                  Considering the age and physical condition of the old units 
vi)                 Taking into consideration that in absence of renovation and modernization work for  2x120 MW units  at Amarkantak TPS, these units cannot generate beyond the unit capacity of  90 MW each. 
vii)               That the generating  units especially the old ones do not have adequate spares  

6.8.1.3       Amarkantak Thermal Power Station

Looking into all these circumstances and limitations, Commission has fixed a generation target of 202 MUs (46.12%) for Amarkantak  power house I and  1147 MUs (54.56%)  for Amarkantak  PH- II. This makes a target of 1349 million units of generation with PUF of 53.11 % for the whole Amarkantak    complex for the year 2002-2003. 

6.8.1.4     Satpura Thermal Power Station

In addition to the scheduled overhauling of various units at STPS, Unit no. 2 (62.5 MW of power station no. 1) has been earmarked for capital overhaul during 2002-03. Considering this and looking to the circumstances and limitations explained earlier, the proposal of MPSEB for generation of 75 Million Units at a PUF   of  74.9% for Satpura complex is reasonable and is accepted. 

6.8.1.5     Sanjay Gandhi Thermal Power Station Brisinghpur

Unit no. 1 and 2 (2x120 MW) were commissioned during the year 1993-94 and are 8-9 years old. Units 3 and 4 (2x210 mw) were commissioned during 1999 and are only 2-3 years old. Taking into consideration this fact and as explained above, the projection of MPSEB for a generation of 5200 million units for the complex with a PUF of 70.70% needs upward revision. The Commission has therefore determined a generation target of 2633 million unit (PUF of 71.67%) for Phase I and a generation of 2700 MUs.(PUF of 73.4%) for Phase II with overall generation of 5333 MUs. with PUF of 72.47% for the complex as a whole for the current year of 2002-2003. 

Accordingly the aggregate thermal generation would be 14,182 million units at an overall PUF of 71.25% (M.P. Share: 13,382 million units).  Power station wise PUF proposed by the Board and now being fixed by the Commission for the year 2002-2003 is tabulated as given below:- 

6.8.1.6            Auxiliary Power Consumption

The Board has proposed an auxiliary power consumption of 10.16% for Amarkantak TPS, 9.04% for Satpura TPS and 10% for Sanjay Gandhi TPS Birsingpur, with an overall auxiliary consumption of 9.5% for total thermal owned by MPSEB. Keeping in view the past performance, the auxiliary power consumption has been determined by the Commission as below:

Taking into account an auxiliary power consumption of 9.11% (1220 MU), net thermal generation available ex- bus for use by the Board is 12,162 million units. 

6.8.1.7      Specific Oil Consumption

Board has proposed a specific oil consumption of average of 2.288 (say 2.29) ml/unit for all thermal stations combined. They have further taken @3.5 ml/unit in the cost of generation calculated, stating that the actual oil consumption was coming to the tune of 3.5 ml/unit during the past five months. It implies that MPSEB would achieve an overall specific oil consumption lower than that of 2.29 ml/unit for all stations combined during the coming dry winter season, so as to offset the higher specific oil consumed during the past five months including the rainy season.

Looking to the aforesaid circumstances, the target fixed by MPSEB as 2.29 ml/ unit is accepted. Board shall adhere to this target and do its best to achieve this.  Power station wise targets alongwith the past performance, proposed by MPSEB and as approved by the Commission is tabulated below:- 

6.8.1.8    Station Heat Rate

i.          Last year in its Tariff Order, Commission had directed the Board to take immediate action to install weightometers on all the belt conveyers feeding coal to generating units besides taking steps to improve the station Heat rate of the thermal generating stations.  In the petition submitted by the Board,  MPSEB have informed  that 4 no. of weightometers have  since been  installed at the Satpura Power Station  and they are in operation. They have  also reported  that at Birsinghpur,  2 nos. of weightometers have been  installed  and are working satisfactorily. 

ii.          As regard Amarkantak  power station, orders have been placed for installation  of weightometers which are likely to be commissioned shortly. It was further revealed during discussion with MPSEB officials that specific coal consumption is being calculated on the basis of energy generated and coal consumed. Station Heat Rate is calculated by the deviation method applying adjustment based on the amount of coal received and balance in the stock. Wherever weightometers have been installed, specific coal consumption is however being calculated by taking the weightometer readings into account.

iii.         During the discussions with the Board officials, weighted average SHR of 2923 Kcal/unit for its thermal stations for 2002-03 was proposed. The CEA prescribed norms for SHR of coal based stations is 2500 K.cal./unit. The average SHR reported by the Board in previous years is also quite high as compared to norms. As such, the deviation method adopted by the Board to work out SHR may not be appropriate. Power station wise targets of SHR determined by the Commission for the year 2002-03 are given in the following table:

iv.         The Board is directed to ensure coal consumption for each power station which is in line with the Station Heat Rate determined by the Commission as above. The Board is also directed to expedite the installation of weightometers  at Amarkantak T.P.S. 

v.         During the visit of the Commission�s consultants to Sarni TPS it was found that weightometers installed require calibration, which needs to be expedited by the Board to ensure their correct and smooth operations.

vi.            Keeping in view the above, a table giving summarized position of various parameters for plant operations is given below:

Plant Utilisation Factor (%)

Auxiliary Power Consumption (%) 

  Specific Oil Consumption (ml/KWhr)

Station Heat Rate (kCal/ kWhr)

6.8.1.9 Transit And Stacking Loss Of Coal

The Board has indicated its coal transit loss at 2.92%. It has further been mentioned that stacking and handling loss may be in the range of another 3%. Taking into account 3% of the stacked coal which may be ten days� stock at the maximum, stacking loss may actually only be around 0.08% of the total coal received.  Taking this into account, the total transit and stacking loss shall not be more than 3% of the coal received. The Board shall adhere to this.

While calculating cost of generation, Board has taken a loss of 1.34% for Amarkantak Chachai, 3.23% for SGTPS Birsinghpur and 2.15% for Satapura TPS on above account, which has been accepted   by the Commission.

6.8.2    Hydel Generation

MPSEB has projected Hydel generation as given below : 

                                                                                            Say  2488 MU.

MPSEB while fixing targets has indicated an overall hydel auxiliary consumption of 0.7% whereas the same has been taken as  0.3%  under �Summary of Operating Performance� . Further they have indicated an auxiliary consumption on actual @0.26% for the year  2001-2002 (Gross Generation  2283  MU). As the hydel generation for the year 2002-2003 has been projected as  2495 MU which is more than that of last year generation of  2283 MU, it will be in order if hydel aux. cons. @ 0.26% is considered for the current year  2002 �2003 also . Accordingly, the Commission fixes the hydel auxiliary consumption @ 0.26% for the year  2002-2003.

6.8.3    Total Generation  (Owned By The Board)

After detailed scrutiny as above with the improved operating parameters, the projected net generation on bar, available for  2002-2003, as revised is given below :-

6.8.4    Cost of Generation

6.8.4.1  Fuel Costs

i.          Based on the station Heat Rate fixed for each thermal power station, coal consumption for the year 2002-2003 has been worked out. While calculating actual coal consumption, calorific value of the coal as received has been reduced by 100 kcal/kg. to arrive at the calorific value of the coal �as fired basis� for the purpose of determination of coal consumption. Revision of rate for SECL/WCL coal w.e.f. September 2002 as informed by the Board has also been taken into account. Freight charges for transport of coal, as indicated by the Board, have also been considered. Specific Oil consumption as fixed by the commission for the year 2002-2003 has been considered for arriving at the cost of generation. 

ii.          Further fuel related cost which consists of coal handling contract charges, siding charges, payment to railway staff, expenditure on coal conveyor, crusher, locomotive and wagons, oil handling contract charge, siding charges for oil receipts, entry tax etc. as indicated by MPSEB @2.08% for Amarkantak Chachai, @2.3% for Satapura STPS Sarni and @ 3.15% for SGTPS Birsinghpur, on projected coal cost has been taken in to account, which is based on the weighted average of last two years. The Commission has allowed this percentage on the approved coal cost.

iii.         After considering as aforesaid, coal cost component for computing �cost of generation� comes out as given below: -

Total �A�� 
Fuel and Fuel related cost = Rs.813.64+35.95+24.98+195+26.39 = Rs.1096 Crore

6.8.4.2 Operating Cost

Total Fuel and related Costs (A+B)  = 1124.63 Crore

6.8.5  Power Purchases and cost thereof

i.          The Petitioner had proposed to purchase 13197.46 MUs of energy at an aggregate cost of Rs. 2556.87 crore.

ii.          As the Board�s own generating capacity including MP�s share  from Inter- State projects is not adequate to match with the demand, the additional requirement is met by purchasing power from central sector agencies.  NTPC has coal  based stations at Korba (2100 MW), Vindhyachal � I and II (2200 MW), Gas liquid fuel based  plants- Kawas  (645  MW), Gandhar  (645 MW) and NPC  has  its atomic power plant at Kakrapar (440 MW). Apart from western region, Board also has an allocation of central power for Eastern Region. Allocated share of MPSEB is given as below:  

iii.         The Board has submitted the proposal to purchase 10407.76 million units from Central Sector Stations.

iv.         The Board has further proposed to purchase 2789.698 million units from Inter-regional, bilateral and non-conventional energy sources as detailed below:

Hence the total power purchases are proposed to be 13197.46 million units.

v.                   Subsequently it was revealed to the Commission that in view of the pressing demand for the Rabi season for 2002-03, State Government has announced that arrangements shall be made for extra release of Rs. 350 crore for purchasing extra energy, over and above, what has been proposed above.

vi.                 During the discussions held, it was brought to the notice of the Board that there is a possibility of Commission projecting higher generation from Board�s own facilities or assessing T&D losses at a level lesser than that projected by them. Consequently, the availability of energy with the Board would be more than the requirement projected by the Board. The Commission had asked Board�s officials that in such a scenario whether they would be in a position to increase sale of energy or they would be curtailing their energy purchases. Considering their cost-tariff structure and sale-mix, Board�s   officials were of the view to curtail purchases.

vii.                Here issue of payment of fixed charges to suppliers� under ABT or otherwise arises. Whether payment of such fixed charges to suppliers from whom energy would not be purchased, should be allowed as part of the ARR keeping in view that the payment would be part of the contractual obligations of the Petitioner.  Or should it not be allowed given the argument that the Board should not have contracted for more energy if it felt that increasing sale was not in their favour.  

viii.              The Commission feels that either the Petitioner should be able to sell the total energy it has contracted to buy and if not then fixed charges, payable by it to the suppliers without purchasing energy, would not be allowed to form part of annual revenue requirement.

ix.                 The Commission is aware that the state is a power deficit one and there exists unmet demand. Accordingly the Commission has allowed energy purchases as projected by the Board for 2002-03 at a cost of Rs. 2545.71 crore. The sales projections of the Board have also been revised upwards to accommodate sale of additional energy so available. This issue has been further dealt with, while assessing the sale projections for 2002-03. Sources of power purchases are summarized below:

PURCHASE OF ELECTRICITY 2002-2003 (PROJECTED) MPSEB

6.8.6    Employees Cost

The Petitioner has proposed employee expenditure of Rs. 748.55 crore for the year 2002-03 as against Rs. 715.65 crore during 2001-02 (estimates). The Petitioner has submitted its number of employees as under:

The Board has further mentioned that on an average 156 employees are retiring every month. Considering this the number of employees at the end of 2002-03 comes to 60,482.

The Board has applied a growth rate of 3% for normal increments and promotions. The annual increments as reflected from the pay scales of the Board employees are in the range of 0.50%-1.50%. As regards increments on promotions, the same would be offset by decrease in number of employees. Hence an annual increment of 2% is considered to be normal.

Further the Board had estimated that 41% DA would be applicable for 9 months upto 31.12.2002 and 49% for three months from 1.1.2003. However the actual DA rates upto 31.10.2002 have been as under:

For 2 months � March - April 2002                              @38%
For 7 months � May to November 2002                       @41% 

Keeping in view the time lag taken by State Government in adopting parity with the DA rates adopted by Central Government, it appears unlikely that there would be any increase in DA rates for the rest of the year. Hence for the remaining months also DA @ 41% is considered to be reasonable. Further the Commission is of the view that increase in DA has to be linked to performance of the employees. In case the performance of the Board does not show signs of adequate improvements, increase in DA rates should not be considered. 

After making the above adjustments the employees cost of the Board comes to Rs. 732.82 crore. The Commission has allowed employee expenditure of Rs. 732.82 crore in place of Rs. 748.55 crore as claimed by the Board. This implies that the employees cost per unit sold comes down to 49 paise from 51 paise during 2001-02. This figure is reported to be significantly lower in other States of the country. Average number of employees of the Board per million units of energy sale comes to 3.86 while the all India average is reported to be 2.75 at the end of 2001-02 (source: Planning Commission Report). The Commission asked the Petitioner to provide manpower details on functional lines, which was reported to be not available readily. The Commission strongly urges the Board to critically look at the employee strength in the generation stations with a view to locating surplus manpower, which could be more gainfully put on distribution duties where shortages of staff are reportedly hindering the work of providing better quality service to the consumer.

The Commission also desires that the Board should look at employees strength in the context of load density. Over the period the load density served has gone up, particularly in the rural and small town sectors.

It will be beneficial for the Board to undertake a need analysis of the kind of services required and match it with the available manpower and undertake a re-training programme for building up the deficient skills.

6.8.7   General and Administration Charges

The Board has proposed Administration and General expenses of Rs. 72.64 crore for 2002-03 against Rs. 65.92 crore in 2001-02.  The major heads of expenditure are as given below:

The projections made by the Petitioner in most of the expenditure items have been in line with the past trend. The Commission has examined all the items of expenditure. The inflation rate has been hovering in the range of 3-4% in the last year and a half and expectations are that the inflation would remain at a low level. Rate of inflation during last 7 years is given below:

The Petitioner has proposed a sum of Rs. 1.50 crore as other professional charges�. Additionally, the Petitioner has also proposed an expenditure of Rs 1 crore as  technical fee. The Petitioner is getting technical assistance as part of the reform and restructuring of the state power sector being supported by ADB and there appears to be no scope for justifying any expenditure in this regard. The Commission is of the view that a budget of Rs. 1 crore would be appropriate for expenditure under both of these heads.

In the case of conveyance and travel, the Petitioner has projected an increase of around 20% over previous year.  Inflation rate for fuel, power, light and lubricants has been 9% during 2001-02 and 5.1% during 2002-03 (upto September 2003). Cosnidering this, an increase of 6% is felt appropriate for �conveyance and travel� for 2002-03. Hence, a sum of Rs. 6.01 crore is allowed as conveyance and travel.  

The Petitioner has shown an increase of approximately 70% for water charges over previous year. The Commission considers an increase of 10% as appropriate on account of water charges, which accordingly comes to Rs. 80 lakh.

The Petitioner has shown an expenditure of Rs. 8.72 crore on account of electricity charges for its offices. It is good to observe that the same has been retained at the previous year�s level. It would be better for the Petitioner to indicate its consumption in quantitative terms also so that its endeavour in conservation of electricity are better appreciated by other consumers in the State.

Considering the above adjustments, the Commission approves a sum of Rs. 70.02 crore as Administration and General Charges.

The Board has proposed an insurance expenditure of Rs. 518.86 lacs for 2002-03 on Board's money. The Commission directs the Board to submit details such as instances of loss of money during last 5 years, reasons, amount lost, amount claimed, amount actually required to be met from the fund created for this purpose.

The Commission has observed that amount of expenditure the Board proposes to incur on development/ purchase of Computer Software during 2002-03 for areas having impact on revenue collection and performance monitoring have not been clearly brought out in the Petition. Keeping in view the current status of computerisation in the Board and the need for introducing IT enabled systems for effective control and monitoring of its operations, the Board is directed to earmark adequate funds for investment in these areas

6.8.8    Repairs and Maintenance

6.8.8.1 Generation

The Petitioner has projected an expenditure of Rs. 182.71 crore as repairs and maintenance cost for generation plants for the year 2002-03. This is approximately 59% more than the amount of Rs. 109.30 crore incurred by the Board during 2001-02. During the discussions with the Board, it was submitted before the Commission that such hike is essential as adequate R&M works could not be taken up in the past due to paucity of funds. The Commission is conscious of the fact that proper maintenance of the generating plants would have a bearing on the targets determined for generation of electricity. The Commission approves the repairs and maintenance expenditure as proposed by the Board. 

6.8.8.2 Transmission and Distribution

The Petitioner has projected an expenditure of Rs. 159.92 crore for 2002-03. During the discussions held with the Petitioner it was submitted before the Commission that keeping in view the state of T&D network, it is essential that a substantial expenditure be incurred for its maintenance and improvement. The Commission is approving the amount as proposed because during the hearing it was brought to the notice of the Commission that the R&M of the T&D network is being neglected on account of lack of funds.

The Commission directs the petitioner to segregate the projected expenditure into two parts viz. those in the nature of routine maintenance and those in the nature of System Strengthening and Improvement and submit the details to the Commission.

The Commission is of the view that such investment should result in lesser breakdowns, speedy fault redressal and repair thus improving the quality of power supply. The Commission directs the Petitioner to submit a report on the impact of R&M works initiated on above parameters.

6.8.3   Depreciation

The Board has proposed a sum of Rs. 526.98 crore on account of depreciation for 2002-03. The calculation of depreciation as furnished by the Board is given below:

                                                                            Rs. in crore

Depreciation on assets added during 2001-02 at aggregate rate applicable in the year 2000-01, mentioned at (ii) above, has been calculated below:

Rs. in crores

Calculation for �depreciation on the assets at end of 2000-01�, mentioned as Rs. 508.37 crore at (i) above has not been given. In Form A-3.6 (CY) depreciation for the year 2001-02 has been shown as Rs. 497.65 crore.
The Commission had asked the Petitioner to furnish detailed calculation (item-wise) of depreciation and details of assets capitalized during 2001-02, which could not be furnished to the Commission. With a view to verify the correctness of depreciation amount, assets register for Bhopal RAO was inspected. It was found that assets, which should have been depreciated upto 90% by or before 2001-02, were still showing balance yet to be depreciated. In the absence of proper assets register it is difficult to believe that depreciation projected by the Petitioner is correct. The Commission asked the Petitioner to come up with a time bound action plan for proper and up-to-date maintenance of assets register. However the same has not yet been submitted to the Commission. The Commission directs that assets register be maintained properly and the same should be completed within six months of this order and a quarterly progress report be filed with the Commission. Any failure to undertake this task will invite penalty on the Petitioner Board and the Commission will expect the Board to fix responsibility on the concerned officers.

For the purpose of determining ARR for 2002-03, the Commission has adopted the value of gross block at the end of 31 March 2002 at Rs. 8512.84 crore and the average rate of 5.39% as determined by the Commission in its last tariff order. Hence the Commission approves depreciation of Rs. 458.84 crore.

6.8.4   Interest and Finance Charges

Total expenditure proposed on account of interest and finance charge is Rs. 618.48 crore (gross). This includes sum of Rs. 56.66 crore as interest payable on loans from State Government The Petitioner had mentioned in the petition that it proposes to borrow a sum of Rs. 520 crore from State Government (inclusive of loan from ADB) @ 11%. Till the first week of October 2002, the Petitioner had received sum of Rs. 131.03 crore as State Government loan (Rs. 49.03 crore @ 8.30% and Rs. 82 crore @ 11%). It is expected that pace of loan receipt from State Government would pick up in the second part of the year. Assuming that further disbursements would also be in the same proportion of interest bearing loans as in the first half of the year, the interest liability is expected to be Rs.  46.70 crore for the year 2002-03.

The Petitioner had also proposed to borrow a sum of Rs. 100.40 crore from Power Finance Corporation @ 12.5%. During the first half of the year it has borrowed around Rs. 75 crore. The effective rate of interest, considering timely meeting of its obligations, should be around 11.5% (average) for the year. Accordingly the interest liability should be around Rs. 118.74 crore.

The Petitioner has also included a sum of Rs. 14.50 crore as interest on account of delay in depositing provident fund contribution. The Commission cannot be seen to promote such practices. Any deviation from the usage of funds from stated purposes should be generally avoided and more specifically in the case of statutory obligation. The Commission cannot look lightly at such violation of statutory obligations on the part of the Petitioner and hence the same cannot be allowed to be part of the revenue requirement of the Petitioner. In future, all statutory obligations must be met on time.

The Petitioner has further included a sum of Rs. 23.55 crore as cost of raising finance and other bank charges. As the Petitioner is not approaching for negotiating any new line of borrowing during the year, there is no justification for any increase on this account. Hence expenditure on this account should be restricted to previous year�s level of Rs. 21.41 crore.

The Board has projected a sum of Rs. 85.22 crore on account of �payment of penal interest charges�. The expenditure is unwarranted and unnecessary. Such expenditure primarily accrues due to the gap between its obligations and resource mobilisation. The Board should properly plan for its obligations adopting prudent financial polices. Though the Commission is not making any deductions in this regard this year, in future such expenditure causing avoidable burden on the consumers should be discouraged. 

Adjusting the above corrections, the interest and finance charges for 2002-03 are projected to be Rs. 594.10 crore (gross). Out of this Rs. 173.07 crore would be considered as capitalised in the ratio proposed by the Petitioner. Hence, net interest and finance charges to form part of the ARR for 2002-03 would be Rs. 421.03 crore. 

The Commission has observed that the Board is having high interest bearing borrowings in its accounts. In the recent times the financial markets are witnessing drop in interest rates and the trend is likely to continue. The Board should examine the possibility of replacing its high cost borrowing with fresh borrowings at competitive rates.  The Board should also tie-up new financings with provisions for prepayment or call option in case of bonds so that the flexibility of refinancing at lower costs is not lost.

6.8.6    Provision for Bad and Doubtful Debts

            The Petitioner has claimed Rs. 74 crore on account of provision for bad and doubtful debts quoting Rule 4.2 of Annexure-V of ESAAR, 1985. It needs to be clarified here that the said Rules do not prescribe any fixed percentage to be provided for as bad and doubtful debts. Any provision for bad and doubtful debt has to give due consideration to the factors leading to receivables turning into doubtful or bad, adherence to sound commercial principles, efforts made by the utility to recover dues and steps taken to ensure reduced probability of receivables turning doubtful or bad, etc.

            The Petitioner had explained in the Petition that �in the year 2001-02, large scale drive was made against HT and LT consumers covering the dues to the tune of Rs. 45.00 crore against HT consumers by way of attachment and covering Rs. 327.00 crore under DRA, 1961. Out of this drive approximately Rs. 36.20 crore have been recovered. However, in most of the cases, either legal hurdles are coming in the way or other claimants viz. Banks, Financial Institutions, Tax Departments also coming in the way for recovery of their dues which is delaying the process�. In this context, the Petitioner has to identify the measures required to overcome such legal hurdles and then take up with the State Government for its logical conclusion. Merely citing these hurdles cannot be a ground for inclusion of a sum in the shape of provision for bad and doubtful debts to be recovered from paying consumers for non-paying consumers.  One of the major reasons for huge outstanding position of receivables of the Petitioner is non-implementation of its disconnection policy in letter and spirit. 

During the discussions held with the Petitioner, the Commission had sought details of receivables actually written off during 2001-02, which could not be submitted by the Petitioner.  The Petitioner submitted list of written offs amounting to Rs. 234.56 crore. Most of the cases were in the nature of withdrawal on account of wrong billing and demand. Receivables amounting to Rs. 10.78 crore only were written as bad debts during 2001-02.

            The Commission in its last tariff order had allowed a provision of Rs. 74 crore as part of the revenue requirement for the year 2001-02. However, in view of the forgoing, the same cannot be taken as a basis for determining the provision for the year 2002-03.  The Commission allows Rs. 10.78 crore on account of bad debts, which have been actually written off by the Petitioner. However, this shall not be seen as precedent for determination of provision for bad debts in the future.

6.8.7    Fixed Assets and Capital Work in Progress

Fixed Assets records made by the Board are not convincing. Petitioner was asked to explain procedure adopted for segregation of �assets not in use� from �assets in use�. Assets not in use are not eligible for consideration for 3% return under section 59. Petitioner was also asked to furnish list of �projects of value more than Rs. 10 lakh added to the Gross Block� with specific benefits to the consumers. The Petitioner could not submit these details. Similarly, the records for capital works in progress is not maintained properly. Hence, the Commission is adopting the value of fixed assets at the start of the year 2002-03 at Rs. 4480.55 crore (Gross block at Rs. 8512.84 crore minus accumulated depreciation of Rs. 4491.13 crore).

6.8.8    Consumers� Contribution

The Petitioner has projected a sum of Rs. 617.22 crore as Consumers� contribution. However, in Form A-3.9, the Petitioner has mentioned Consumers� Contribution as Rs. 274.82 crore. On further scrutiny it was found that the Petitioner has erroneously taken the figure as Rs. 617.22 crore. Hence the Commission accepts the Consumers� contribution as Rs. 274.82 crore.

6.8.9    Capital Base and Statutory Return thereon

The Petitioner has claimed a sum of Rs.  124.35 crore as 3% return in terms of section 59 of the Electricity (Supply) Act, 1948 on a capital base of Rs.  4145.10 crore. Keeping in view the observations of the Commission in the foregoing paragraphs on depreciation and Fixed Assets, the net fixed assets of the Petitioner at the start of the year 2002-03 is assessed at Rs. 4480.55 crore.  Accordingly, the statutory return under sections 59 is computed as under:
                                                                                                     Rs. in crores

6.9      Miscellaneous Receipts and Charges

The Petitioner had projected a sum of Rs. 322.93 crore as non-tariff income including Rs. 104 crore as delayed payment charges and Rs. 60 crore as meter rent. Since the receivable position of the Petitioner is projected to deteriorate further, the delayed payment charges should keep pace with the receivable position. Accordingly the income from late payment charges have been reworked by the Commission to Rs. 139.12 crore. As regards the meter rent, the Commission has decided to do away with the concept of levy of meter rent as a separate item from LT domestic category of consumers.

            After making the adjustments for the above, the non-tariff income is expected to be Rs. 303.88 crore.

6.10     Considering the forgoing, a summarized table of expenditure proposed and expenditure approved by the Commission for 2002-03 is given below:
(Rs.in crores)

Thus the ARR of the Board is determined to be Rs. 5543.93 crore.