Analysis of ARR & Tariff Proposal of

WESCO for FY 2011-12

February 07, 2011

World Institute of Sustainable Energy (Consumer Counsel)

ARR submission and Proposal of WESCO

ARR submission of WESCO

ARR 2011-12 ProjectedPower purchase cost 1414.86Employee Cost 362.7A&G Cost 38.4R&M Cost 50.21Depreciation 33.27Bad Debts 47.16Interest & Finance charges 62.34Reasonable return 7.78Amortization of Regulatory Asset 48.67Truing up of Revenue Gap ( FY 2010-11) 182.05Contingency Reserve 3.49Total ARR 2250.93Sale of Power at existing tariff 1557.93Other non tariff Revenue 20.58

Total Revenue Relisation 1557.93

Revenue Gap with existing Tariff 672.42

In Rs. Cr.

Prayer of WESCO

The licensee requests the Hon’ble Commission to accept the proposal of ARR and bridge the revenue gap through combination of

– grant/subsidy from the state govt., – reduction in BST and/or – increase in RST in appropriate manner.

Proposed Tariff Rationalisation Measures

1. Provision of 120% of CD for industry should be withdrawn 2. Delayed payment surcharge3. KVAH billing for three phase LT & HT industrial consumers4. Demand charges for consumers having contract demand

more than 70KVA through HT supply5. Payment of demand charges for CPPs6. Discontinuance of load factor incentive in Energy Charges7. Fixed charges for LT industrial (S & M), specified public

purpose and public water works8. Tariff for Medium Industries Consumers9. Monthly Minimum Fixed Charges for consumers with

contract demand < 110 kVA10. Security deposit for providing meter and metering

installations11. Demand charges and monthly minimum fixed charges12. Inspection fees of lines and substations 13. Billing of lift irrigation points

Analysis of ARR by Consumer

Counsel

Revenue GAP of WESCO for FY 2011-12 (in Rs Cr)

Annual Revenue Requirement WESCO ( Cr)ARR 2010-11

Approved2011-12

Projected% Change

Power purchase cost 1359.18 1414.86 4.10

Employee Cost 166.73 362.7 117.54

A&G Cost 24.79 38.4 54.90

R&M Cost 34.77 50.21 44.41

Depreciation 19.72 33.27 68.71

Bad Debts 20.85 47.16 126.19

Interest & Finance charges 33.77 62.34 84.60

Reasonable return 7.78 7.78 0.00

Amortization of Regulatory Asset 0 48.67  

Truing up of Revenue Gap for FY 2010-11 0 182.05  Less Expenses Capitalized -2.52    

Contingency Reserve 0 3.49  

Total ARR 1665.07 2250.93 35.19

Observation: WESCO has proposed 35.19% hike in ARR for 2011-12

Computation of ACS of WESCO

Particulars Unit Licensee projection for FY 2011-12

Energy Purchase MU 6500.00

Distribution loss % 31.30

Collection Efficiency % 98

Salable unit MU 4466.18

Average cost of supply

Paisa / kWh

499.39 (at BSP 194 P/U)

* As per data submitted by the licesee in the ARR

Submission on Cost Components of ARR

Power Purchase Cost

Analysis Important Factors:

1.Utilization of proposed power

2.Demand forecasts

3.Distribution Loss

4.Collection Efficiency

5.AT & C Loss

Utilization of Purchased Power (FY 11-12)

Observation:HT & EHT sale contribution is 43%Distribution loss ( 31%) is more than total LT sale (26%)

Demand Forecasting

Sale/ Purchase FY 2010-11 (MU) FY 2011-12 Projection in

ARR(MU)

Projected in ARR

Revised Estimates ( actual data of Six months)

% Change (over

Projected)

LT 1584 1333 -15.85 1697HT 1563 1400 -10.43 1350EHT 1504 1383 -8.05 1419

Total Sale 4651 4116 -11.50 4466

Total Purchase 6500 6244 -3.94 6500

Observation: Utilities demand forecast need to be checked . During FY 2011-12 , total 11.53 lakh LT consumers are suppose to be added , still the reported total sale / purchase of power is nearly same. Incorrect estimation of energy will affect the drawl schedule of licensee as well as force GRIDCO for purchase costly power. ( projected dis loss , FY 2010-11 : 34.08% , 11-12 : 31.30

Distribution Loss (%)

Approved in ARR

Approved in BP

Actual Audited / projected

Performance Below BP

2007-08 25 25 36.1 (11.1)2008-09 25 25 33.6 ( 8.6 )2009-10 22.5 22.5 33.8 ( 11.3)2010-11 19.93 19.83 34.08 (p) ?

2011-12 19.7 31.29 (p) ?

Observation: •There is huge gap in projected (31.29%) and approved (19.7%) distribution loss. •Further, trend of actual distribution loss is increasing. •Licensee has made provision of Rs .10.40 Cr for SI in ARR as against the approval in BP of Rs. 12.50 Cr.

Submission:•Loss of revenue realization / higher energy purchase due to (11.59%, 753.35 MU, 163.95 Cr) higher distribution loss should not be allowed to passed on to consumer.

Collection Efficiency (%)

Approved in ARR

Approved in BP

Actual Audited / proposed

Performance

2007-08 96 96 92.9 --3.1

2008-09 96.6 96.6 93.9 - 2.7

2009-10 98 98 96 - 2

2010-11 98 98 ?

2011-12 99 98 ?

Observation: •Collection efficiency proposed is lower by 1 % than that of approved in BP. •Gap between the approved and actual collection efficiency is widening . Utility need to take effective steps to further improve the collection efficiency.

Submission:•Loss of revenue realization due to 1% lesser collection efficiency (than that of approved in BP)should not be passed on to consumer.

AT & C Loss (%)

Approved in ARR

Approved in BP

Actual Audited / proposed

Performance

2007-0828 28 40.7 +12.7

2008-0927.5 27.55 37.6 + 10.1

2009-1024 24.05 36.4 + 12.4

2010-1129.27 21.53

?

2011-1220.5

32.60 ?

Observations: •Licensee has proposed 32.60% AT&C Loss.•96% Metering covered till Sept 2009. •Low Agriculture Consumption.

Possible reason for high AT &C Loss may be examined

1)Lower HT to LT ratio.2)Poor Power factor3)Aged transmission lines and poor jointing 4)Less energy Audits 5)Faulty meters and metering6)Higher thefts

One energy police stations is functioning out of proposed Nine. ( 3.81 cr prop in ARR)

Distribution Loss excluding EHT consumptionFY 2009-10 Actual

FY2010-11 Proposed

FY 2010-11 Revised Estimates

FY 2011-12 Proposed

Overall Distribution Loss

35.09% 28.45% 34.08% 31.29%Distribution Loss Excluding EHT consumption 46.90% 37.01% 43.78% 40.03%Distribution Loss Approved in BP 22.5% 19.83% 19.7%LT Distribution Loss Approved in ARR

29.4%

Observation: Distribution loss in HT and LT level is much higher than the overall distribution loss (taking together LT, HT and EHT consumption) and approved distribution loss in BP.

Submission: Utility needs to explore various measures to reduce LT and HT distribution loss. Further, faulty metering and power theft needs to be drastically reduced with the help of dedicated flying squad and energy police stations. Such energy police stations directly controlled by senior police officer attached to energy department could improve the efficiency.

ARR cost component – Employee Cost

Observation:The utility has proposed the Employee cost of Rs 362.7 Cr in ARR with 117.54% hike from the earlier FY 2010-11

Employee Cost per unit of Energy Purchase (Paise/Unit) % Rise in

FY 11-12 over FY 08-09FY 08-09 (App) FY 09-10 (App) FY 10-11 (App) FY 11-12 (Prop)

CESU 30.79 32.23 34.83 41.34 34.27

SOUTHCO 47.04 45.62 56.57 99.12 110.72

NESCO 21.96 26.67 28.81 59.88 172.72

WESCO 19.36 21.60 26.70 55.80 188.21

ARR cost component – A&G Cost

Observation:• Utility has proposed A&G expenses of Rs. 38.4 Cr for FY 2011-12 which are

54.9% higher than that of approved expenses for FY 2010-11.

Submission:The Commission has approved A&G expenses of Rs 24.79 Cr in ARR for FY

2010-11 . As per the LTTS order since it is a controllable cost , 7% escalation may be allowed on the approved value of 2010-11 . In case of additional A&G cost claimed towards 9 energy police stations may be allowed

A&G Cost (Paise/Unit)% Rise in

FY 11-12 over FY 08-09FY 08-09 (App)FY 09-10 (App) FY 10-11 (App) FY 11-12 (Prop)

CESU 4.96 4.77 5.59 7.69 55.04SOUTHCO 6.51 6.84 7.58 13.79 111.94NESCO 3.12 3.68 3.34 7.11 128.08WESCO 3.68 3.55 3.97 5.91 60.48

ARR cost component – R&M

Observation:Utility has proposed Rs. 50.21 Cr as R&M expenses. These expenses were projected as 5.4% of the opening GFA of Rs. 929.77 Cr. at the beginning of FY-2011-12

Submission: Utilities GFA approved by commission as on

31.03.2010 were 551.36 Cr. Utility has projected the GFA as Rs. 929.77 Cr. at the beginning of ensuring year. Which seems to be on higher side. Therefore Hon. Commission should scrutinize the new additional GFA (during Fy 10-11) and equivalent R&M be allowed to pass through in the ARR.

Truing up for 2010-11

Observation : Licensee has projected the uncovered revenue gap of (- 37.36

Cr) as on FY 2009-10 based on audited accounts with licensee Further based on the actual data of first half of the current year

& estimate of second half (FY 10-11), the licensee has arrived at an uncovered gap of (- 182.05 Cr) for FY 10-11 & same is claimed & requested for truing up in the ARR of FY 2011-12

Submission Hon Commission has carried out the updated truing up exercise

(provisional) up to FY 2008-09 in the ARR of FY 2010-11 based on the audited accounts of WESCO and the performance standard outline in the Business Plan. At the end of FY 2008-09 the licensee has surplus gap 587.15 Cr.

Amount claim for truing up may not allowed to be pass through in the ARR before final truing up.

ARR cost component – Provision for Bad Debt

Observation: Utility has proposed Rs 47.16 Cr as provision for Bad Debt by considering 98% collection efficiency as against 99% approved in BP.

Submission:Provision of bad dept 1% (due to the 1% lower collection efficiency) should not be allowed to be passed on to consumer through ARR which accounts to Rs. 23.58 Cr.

ARR cost component-RoE

Observation: As proposed equity capital is constant for the current and ensuring year. There is no equity capital infusion. Hence the Return on Equity should remain same as that of approved for FY 2010-11.

Submission: Proposed RoE (Rs. 7.78 Cr) may be allowed to pass through in

the ARR.

Per Unit Distribution Cost

Per Unit Distribution Cost (Paise /Unit)% Rise in

FY 10-11 over FY 09-10

% Rise in FY 11-12 over

FY10-11FY 09-10 (App) FY 10-11 (App) FY 11-12 (Prop)

CESU 61.99 66.07 83.95 6.58 27.06

SOUTHCO 80.11 93.11 165.65 16.23 77.92

NESCO 53.25 53.31 108.74 0.11 103.98

WESCO 41.77 48.99 92.59 17.30 89.01

Tariff proposal – Other Issues

Consumer category

Number of Consumers Position on (01.04.2010 )

Position as on

01.04.2011

Addition in FY

2010-11

% Increase (1/4/10 to

1/4/11)

Proposed Addition during FY 2011-12

% Increase

LT Domestic

496936 507112 10176 2.05 361630 71%

Kutir Jyoti <=30 kWh

9492 114298 104806 1104.15 791676 692%

Total LT domestic

506428 621410 114982 22.70 1153306 185.60

Impact of BPL consumers

Observation: The growth of BPL consumers is increasing due to GoI / GoO rural electrification schemes : growth in FY 2010-11 ( 1104%) & anticipated in FY 2011-12 ( 692% ) as per submission in ARR. It is predicted that the cumulative BPL consumer in Orissa will raise to 40 lakh by end of 2011-12 , accordingly the BPL consumers in WESCOS area will further increase . Submission:In above situation , it will be difficult to maintain the EHT , HT & LT tariff so as to keep the cross subsidy within (+ / - ) 20% of average cost of supply. . The OERC may recommend GoO to give upfront subsidy to DISCOM to cater the BPL consumer in the state.

Submission of Consumer CounselSubmission • The Hon Commission may consider to create new LT

category and impose higher tariff for applicability of Electricity used for the purpose of advertisements, hoardings and other noticeable consumption such as external flood light, displays, neon signs at departmental stores, malls, multiplexes, theatres, clubs, hotels and other such entertainment/leisure establishment

Benefits.• Improve the cash flow of DISCOM to some extent • Help to adopt Energy conservation measures, the

electricity otherwise wasted in unproductive purposes• May opt for roof top SPV installation Example • LT VIII category in MH , Fixed charge Rs 400 / month ,

Energy charge : Rs 16 /kWh

Submission of Consumer Counsel• Energy demand projected by WESCO need to assessed once again based on projected

growth of LT consumer

• Loss of revenue realization due to 1% lesser collection efficiency should not be allowed to pass through in ARR. Nominal DPS to LT consumers if allowed could help to improve the collection efficiency.

• The Utility has not taken any step to reduce distribution loss in the line of recommendations of the Kanungo Committee and OERC.. Utility needs to explore various measures to reduce LT and HT distribution loss. Faulty metering and power theft needs to be drastically reduced with the help of dedicated flying squad and energy police stations. Such energy police stations if directly controlled by senior police officer attached to energy department could improve the efficiency.

• Higher A&G expenses should not be allowed to pass through in the ARR.

• Higher R&M should not be allowed to pass through in the ARR.

• Rs. 23.58 Cr higher provision for bad debt should not be allowed to pass through in the ARR..

• Licensee should make effort to collect arrears in order to reduce deficit.

• ARR can be reduced by increasing collection efficiency, reducing losses and measures suggested by consumer counsel in the submission..

• Hon. Commission may kindly consider all above facts and decide the retail tariff in the best interest of all category of consumers.