(Order Passed on 30th November, 2002) 

SHRI P.K. MEHROTRA
CHAIRMAN 

SHRI SYED IQBAL HUSAIN
MEMBER (P) 

Petition No. 264/2002

IN THE MATTER OF 

Determination of Board�s HT & LT Tariff application for various categories
of consumers for the year 2002-03

Madhya Pradesh State Electricity Board,       -   Petitioner/Applicant             Shakti Bhawan, Vidyut Nagar, Jabalpur  

PETITION UNDER CLAUSE-62 OF THE M.P. ELECTRICITY   
REGULATORY COMMISSION (CONDUCT OF BUSINESS)  
REGULATIONS, 1999 � FOR DETERMINATION OF TARIFF:

On behalf on MPSEB           :     Shri D. Roybardhan (Retd. E.D. 
                                            of MPSEB) OIC of the Case Assisted by 
                                            Shri Bodh Kumar, Addl. S.E.,
                                            MPSEB and other team of Officers.

The list of objectors from HT/LT category consumers is separately annexed at Ann. I

 Chapter 1

  INTRODUCTION

  1.1   This order relates to the application filed by Madhya Pradesh State Electricity Board (hereinafter referred to as MPSEB or the Board), for determination of Annual Revenue Requirement (ARR) and fixation of Tariff for the financial year 2002-03.  The petitioner, MPSEB, has filed the petition in terms of Regulation 62 of M.P. Electricity Regulatory Commission (Conduct of Business) Regulations, 1999 read with Sections 9 and 26 of Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000 (Sudhar Adhiniyam, 2000 in short) in respect of its revenue requirement and determination of HT and LT Tariff applicable for different categories of consumers for the Financial Year 2002-03.  The relevant Regulation 62 referred to above requires that such proposals should be submitted to the Commission at least 3 months before the date from which tariff is proposed to be enforced.  As the petitioner has delayed the petition, the benefit of revised tariff shall be available to MPSEB for only a part of the Financial Year 2002-03. 

1.2   In its Order dated 26th September, 2001, the Commission directed (in clause 2.7 of the Order) that MPSEB should file its Annual Revenue Requirement for the succeeding financial year before October 31,2001 and the proposal for fixation of tariff upto 30th November, 2001.  The petitioner, MPSEB, has however, filed the combined petition for ARR and tariff proposal after a significant delay.  It is directed that MPSEB must ensure rigid observance of time schedule for Financial Year 2003-04 and subsequent years. 

Procedural History 

1.3   The Petitioner had brought an application before the Commission on 20th May, 2002 and after initial scrutiny of the Application in the Commission�s office a technical session for validation of data was arranged on 9th and 10th August, 2002.  During this validation session the team of the following officers from MPSEB led by Shri D. Roybardhan, OSD (Tariff) was present:

        i)       Shri D.S. Goindi, Chief Engineer (Comm.)
   ii)       Shri R.P. Arora, Chief Engineer (O&M)
   iii)      Shri R.K. Saxena, Additional Chief Engineer (Generation)
  iv)       Shri Chetan Jaiswal, Joint Director (Accounts)
  v)        Shri Bodh Kumar, Addl. SE and some other officers

  1.4   On behalf of the Madhya Pradesh Electricity Regulatory Commission the officers mentioned below supported the Commission alongwith the Consultants, namely M/s Power Finance Corporation Ltd.

          i)                  Shri H.D. Motiramani, Director (Engg.)
ii)                  Shri D.K. Dewan, Joint Director
iii)                 Shri S.K. Khiani, Dy. Director (Generation)
iv)                 Shri D.K. Vyas, Dy. Director (T&D)
v)                  Shri Ashok Sharma, Dy. Secretary
vi)                  Shri L.P. Sharma, Legal Assistant.

           1.5   During the technical session it was discovered that there were serious deficiencies in the data provided with the petition and therefore, the petitioner was directed to report on 26th August, 2002 with corrected and complete information.  The petitioner however failed to appear on the appointed date and requested for extension of time, which was allowed for one week.  However, after one week, the MPSEB once again requested for extension of time and eventually submitted the updated information only on 23rd September 2002.  After due scrutiny the Commission accepted the Petition on 25th September 2002, and ordered it to be registered as Petition No. 264 of 2002 (264/2002).  

1.6   During the technical session and also during subsequent meetings, the petitioner was asked by the Commission to submit actual data for the year 2001-02, but there was persistent request for more time by the officers of the Board. 

1.7   It is regretted that till date some items of the information required by the Commission have not been made available and the Commission is left with no option but to make assumptions and surmises.  The Commission is disappointed at the approach adopted by the Petitioner towards the requirement of furnishing full and complete information for processing the tariff request. 

1.8   In the first Tariff Order passed on 26th September 2001, the Commission had directed that:

i)                    The Board shall ensure full compliance with the regulatory and procedural requirements of the Commission while submitting its petition/proposal for determination of tariff in future. 

ii)                   The Board shall supply information in the formats prescribed by the Commission in the following manner:-

a. Information in forms prescribed in Part I of the Appendix (�A� Series Forms) shall be filed annually on or before 31st October of each year, irrespective of whether or not tariff determination is sought for.

b.      Information in forms prescribed in Part II of the Appendix (�T� Series Forms) shall be filed alongwith the proposal for tariff determination on or before 30th November each year.

1.9   An important development that has taken place in the management of Madhya Pradesh State Electricity Board must be mentioned here.  The State Government (Energy Department) issued an Order (vide No.5555/RS/4//13/2001 dated 1st July, 2002) stating that for the purpose of reorganization of M.P. State Electricity Board, five companies named below have been incorporated as wholly owned Government of Madhya Pradesh Undertakings and as Limited Companies under the Companies Act, 1956: a) Madhya Pradesh Power Generation Company Ltd., (b) Madhya Pradesh Power Transmission Company Ltd. (c) Madhya Pradesh Madhya Kshetra Vidyut Vitran Company Ltd. (d) Madhya Pradesh Poorv Kshetra Vidyut Vitran Company Ltd. and (e) Madhya Pradesh Paschim Kshetra Vidyut Vitran Company Ltd.  The Power Generation Company and Transmission Company were incorporated in November 2001 while the Distribution Companies were incorporated in May 2002.  The Order further provides that the five companies will be acting as the Agents of the MPSEB and business will be conducted in the name of MPSEB only and consumer bills shall continue to be raised in the name of MPSEB.  These companies have an Operation & Management agreement with the MPSEB, which is effective from July 1, 2002 subject to the five companies obtaining the certificate of commencement of business.  

1.10          An application was moved before the Madhya Pradesh Electricity Regulatory Commission on 28th June, 2002 by Madhya Pradesh State Electricity Board seeking the approval and consent of the M.P. Electricity Regulatory Commission under Section 21(2) of Madhya Pradesh Vidyut Sudhar Ahiniyam, 2000 for implementation of the Operation & Management Agreement proposed between MPSEB and the Transmission and the Distribution Companies set-up by the State Government.  It may be mentioned here that the Madhya Kshetra Vidyut Vitran Company is to take over the distribution and retail supply activities in the Commissionaires of Bhopal, Hoshangabad, Gwalior and Chambal; the Poorva Kshetra Vidyut Vitran Company is to take over the distribution and retail supply activities in the Commissionaires of Jabalpur, Rewa and Sagar; and the Paschim Kshetra Vidyut Vitran Company is to take over the distribution and retail supply activities of Commissionaires of Indore and Ujjain.  While dealing with the application of Madhya Pradesh State Electricity Board filed on 28th June, 2002, the Madhya Pradesh Electricity Regulatory Commission passed an Order on 16th July, 2002, in which it has been held that the Operation and Management Arrangements shall be only an internal arrangement between the Madhya Pradesh State Electricity Board and the Companies concerned and the same will not, in any manner, affect rights of any third party or the consumers.  The Commission further directed that a valid licence is a requirement under section 14 of Vidyut Sudhar Adhiniyam, 2000 and it provides for certain duties and obligations to be fulfilled by the Companies for entering into the business.  The Commission held that the Transmission and Distribution Companies should make applications for grant of licence as per procedure prescribed within 2 months of the date of the Order (16th July, 2002) and that the State Government should finalise the rules and transfer scheme as per provision of Section 23 of Vidyut Sudhar Adhiniyam 2000 within the next 6 months of the Order (16th July, 2002).  The Distribution Companies and the Transmission Company have sought extension of time for moving an application for obtaining the requisite licence and have been permitted time till 30th November, 2002.  

1.11          The Chief Minister�s Conference held in March, 2001 had noted that large amount of dues owed by the SEBs to the Central Public Sector Undertakings (CPSUs) was a major impediment to reforms and resolved to constitute an Expert Group to recommend a one time settlement of outstanding dues and recommend a programme for medium term restructuring and reform of the SEBs.  The Group was constituted under the Chairmanship of Shri M.S. Ahluwalia, Member, Planning Commission.  Whether SEBs should remain liable or should the dues be paid by the State Governments was the major concern for the consideration of the Expert Group.  The Expert Group�s report states that if SEBs are viewed as purely commercial enterprises, then they should be held responsible for settling their dues.  However, the Group also noted that �if this approach is followed, the SEBs would have to meet the rescheduled debt service obligation in future, in addition to meeting their liabilities.  The reality is that they will find the task of meeting current obligations very formidable, and it is, therefore, difficult to believe that they will be able to cover past dues also, unless power tariffs in future are not only raised to economic levels as required to ensure viability (after taking account of normative improvements in efficiency which they are expected to achieve) but also consciously set even higher than these levels to provide a margin for repayment.  The Group noted that regulatory authorities were unlikely to agree to build in a cushion in future tariffs to allow for payment of past dues.� 

In view of these considerations, the Group felt that it was appropriate for the State Governments to take on the liability of the SEBs and to discharge it in future from general revenues.  The State Government (Energy Deptt.) vide their letter dated 25.11.2002 has confirmed that, they have in principle agreed to implement Montek Singh Ahluwalia Committee�s recommendations for settlement of outstanding dues of CPSUs.  Tripartite agreement for NTPC has already been signed.  For dues pertaining to other CPSUs, the approval of Government has been sought and is being processed.  

1.12          Advantages to SEBs  

The above recommendation would help the SEBs to clean their balance sheets and place them in a position where they can concentrate on solving the current deficit problem, which itself is formidable. 

1.13          Since passing of the first Tariff Order in September 02, the State Government and MPSEB have entered into an Agreement with the Asian Development Bank for bringing about restructuring and reforms in the working of MPSEB.  There was no intimation to the MPERC either from the State Government or the MPSEB about the conditions and the terms included in the Agreement.   It is necessary that the MPSEB makes available the details of the Agreement entered into with the Asian Development Bank and the obligations and conditions which have been imposed on the Board in lieu of the acceptance of the loan.  In their petition MPSEB have stated in paragraph 2.1.5 �Incidentally, the MPSEB has proceeded towards restructuring and reform activities under the guidance and expertise of Asian Development Bank (ADB).  Success of reform programme depends on the restructuring of electricity sector and the development and implementation on sound commercial principles.  The elements of reform and restructuring of the electricity sector include:-

�        unbundling of generation, transmission and distribution

�       formation of separate independent distribution companies (DISCOMS) of manageable size

�        the introduction of private investment to this sector�

1.14          In the petition, the MPSEB has mentioned regarding their loan repayment liability towards ADB loan, but have not informed the Commission regarding the terms and conditionalities imposed by the ADB.  The Commission expects the Board and the Government to provide the details of these negotiations with the ADB to the Commission. 

1.15          In their petition, the MPSEB has stressed the need for timely revision of tariff and has bemoaned the delays in doing so in the past. It has cited the fact that before the setting up of the Regulatory Commission, the Board could get a revision in Tariff only at average intervals of 2� years, i.e. in July, 1996, in March, 1999 and in October, 2001. The Vidyut Sudhar Adhiniyam has given the opportunity to the petitioner Board to request for Tariff Revision once a year.  We are now in the third quarter of the Financial Year 2002-03 and by this time the MPSEB should have got ready with their proposal for 2003-04. If the Board fails in its obligations to submit the petition in time, then it has to bear the consequences for the same. The delayed action by the MPSEB will no doubt have an adverse impact on their financial health. 

1.16          The Commission published the gist of the Tariff Proposals received from the Petitioner Board in the leading newspapers of Madhya Pradesh inviting objections/suggestions/comments of the interested persons and the State Government.  The public notices were published in the following newspapers:

1.17          The Commission held public hearings and meetings with the objectors on the petition filed by MPSEB at the following places:- 

1.18          Before the commencement of public hearings, a meeting of the State Advisory Committee of the Electricity Regulatory Commission, constituted under Section 33 of Vidyut Sudhar Adhiniyam, was convened.  This meeting was held at Bhopal on 24th October, 2002.  

1.19          After the first Tariff Order was passed on 26.09.2001, the first Chairman of the Electricity Regulatory Commission, Justice (Retd.) Shacheendra Dwivedi has superannuated on 24th January, 2002.  His successor was appointed vide M.P. Government Order dated 11.03.2002 and he joined on 14th March, 2002.  Member, Shri Rabindra Tripathy also superannuated on 20th September, 2002 and since then the Commission is working with only two Members (including the Chairman). 

In the subsequent chapters, the performance review of MPSEB during the preceding few years and the action taken by the Board on the directives given by the Commission in the first tariff order have been discussed in detail alongwith an analysis of the proposals made by the petitioner and the objections and comments received during the public hearing meetings.