KARNATAKA ELECTRICITY REGULATORY COMMISSION

TARIFF ORDER 2017

OF

CESC

ANNUAL PERFORMANCE REVIEW FOR FY16

&

REVISION OF ANNUAL REVENUE REQUIREMENT FOR

FY18

&

REVISION OF RETAIL SUPPLY

TARIFF FOR FY 18

11th April 2017

6th and 7th Floor, Mahalaxmi Chambers

9/2, M.G. Road, Bengaluru-560 001

Phone: 080-25320213 / 25320214

Fax : 080-25320338

Website: www.karnataka.gov.in/kerc - E-mail: kerc-ka@nic.in

http://www.karnataka.gov.in/kerc

ii

C O N T E N T S

CHAPTER

Page No.

1.0 Introduction 3

1.1 The CESC at a glance 5

1.2 Number of Consumers, Sales in MU to various

categories of consumers and details of Revenue

for FY16

5

2 Summary of Filing and Tariff Determination

Process

7

2.0 Background for current filing 7

2.1 Preliminary Observations of the Commission 7

2.2 Public Hearing Process 8

2.3 Consultation with the Advisory Committee of the

Commission

8

3.0 Public consultation – Suggestions / Objections

and Replies

9

3.1 List of persons who filed written objections 9

3.2 List of persons, who made oral submissions

during the Public Hearing held on 22.02.2017

10

3.3 The gist of the objections, replies by CESC and

the Commission’s views is appended to this

order as Appendix-1

10

4 Annual Performance Review for FY16 11

4.0 CESC’s Application for APR for FY16 11

4.1 CESC’s Submission 11

4.2 CESC’s Financial Performance as per Audited

Accounts for FY16

13

4.2.1 Sales for FY16 14

4.2.2 Distribution Losses for FY16 23

4.2.3 Power Purchase for FY16 24

4.2.4 RPO Compliance by CESC for FY16 28

4.2.5 Operation and Maintenance Expenses 30

4.2.6 Depreciation 34

4.2.7 Capital Expenditure for FY16 35

4.2.8 Interest and Finance Charges 46

4.2.9 Interest on Working Capital 47

4.2.10 Interest on Consumer Deposit 48

4.2.11 Other Interest and Finance Charges 49

4.2.12 Interest on belated payment of power purchase

cost

49

4.2.13 Capitalisation of Interest and finance charges 49

4.2.14 Other Debits 50

4.2.15 Net Prior Period Charges 50

4.2.16 Return on Equity 51

4.2.17 Income Tax 52

4.2.18 Other Income 52

4.2.19 Fund towards Consumer Relations / Consumer 53

iii

Education

4.2.20 Carrying cost on Regulatory Assets 53

4.2.21 Revenue for FY16 54

4.2.22 Revenue and Subsidy for FY16 54

4.3 Abstract of Approved ARR for FY16 54

4.3.1 Gap in Revenue for FY16 56

5.0 Revised Annual Revenue Requirement (ARR) for

FY18

57

5.1 Annual Performance Review for FY16 58

5.2 Revised Annual Revenue Requirement for FY18 58

5.2.1 Capital Investments for FY18 58

5.2.2 Sales forecast for FY18 63

5.2.3 Distribution Losses for FY18 73

5.2.4 Power Purchase for FY18 75

5.2.5 RPO Target for FY18 78

5.2.6 O & M Expenses for FY18 81

5.2.7 Depreciation 84

5.2.8 Interest on Capital Loans 86

5.2.9 Interest on Working Capital 87

5.2.10 Interest on Consumer Security Deposit 88

5.2.11 Other Interest and finance charges 89

5.2.12 Interest and other charges capitalised 90

5.2.13 Other Debits & Prior Period Charges 90

5.2.14 Return on Equity 90

5.2.15 Other Income 92

5.2.16 Fund towards Consumer Relations / Consumer

Education

92

5.2.17 Contribution towards Pension and Gratuity Trust 93

5.3 Abstract of ARR for FY18 94

5.4 Segregation of ARR into ARR for Distribution

Business and ARR for Retail Supply Business

95

5.5 Gap in Revenue for FY18 97

6 Determination of Retail supply Tariff for FY18 99

6.0 CESC’s Proposal and Commission’s Decision for

FY18

99

6.1 Tariff Application 99

6.2 Statutory Provisions Guiding Determination of

Tariff

99

6.3 Factors considered for Tariff Setting 100

6.4 New Tariff Proposals by CESC 101

6.5 Revenue at Existing Tariff and Deficit for FY18 107

6.6 Wheeling and Banking charges 136

6.6.1 Wheeling within CESC area 137

6.6.2 Wheeling of Energy using Transmission Network

or network of more than one licensee

139

6.6.3 Charges for Wheeling of Energy by RE sources

(non REC route) to consumer in the State

140

6.6.4 Charges for Wheeling Energy by RE sources

wheeling energy from the State to a consumer /

others outside the State and for those opting for

140

iv

renewable energy certificate (REC)

6.6.5 Banking charges and Additional surcharge 140

6.7 Cross Subsidy Surcharge (CSS) for FY18 140

6.8 Other issues 143

6.8.1 Tariff for Green power 143

6.9 Other Tariff related issues 143

6.10 Cross subsidy levels for FY18 146

6.11 Effect of Revised Tariff: 146

6.12 Summary of Tariff Order 147

6.13 Commission’s Order 149

Appendix 150

Appendix - I 196

v

LIST OF TABLES

Table

No.

Content Page

No.

4.1 APR for FY16 – CESC’s Submission 12

4.2 Financial Performance of CESC for FY16 13

4.3 CESC’s Accumulated Profits / Losses 14

4.4 Approved and actual Sales for FY16 15

4.5 Format for submission of details of IP Set Installations 17

4.6 Approved and actual Sales for FY16 22

4.7 Penalty for exceeding targeted loss levels in FY16 24

4.8 Source wise power purchase during FY16 25

4.9 Difference between source-wise approved and

Actual energy Purchase

26

4.10 RPO Compliance for FY16 28

4.11 Non- Solar RPO Compliance 29

4.12 Solar RPO Compliance 30

4.13 O & M Expenses –CESC’s submission 31

4.14 Approved O & M Expenses as per the Tariff Order

02.03.2015

31

4.15 Inflation to be allowed for FY16 32

4.16 Normative O&M Expenses for FY16 33

4.17 Allowable O&M Expenses for FY16 33

4.18 Depreciation for FY16 – CESC’s Submission 34

4.19 Category wise Capital Expenditure of CESC for FY16 35

4.20 Division wise summary of sample selection 39

4.21 Category wise summary of sample selection 40

4.22 Summary of prudence check results for CESC in FY16 42

4.23 Gist of prudence check findings for FY16 42

4.24 Summary of works having cost overrun 43

4.25 Summary of works having time overrun 43

4.26 Details of amounts disallowed in APR FY16 44

4.27 Allowable Interest on capital Loans – FY16 46

4.28 Allowable Interest on Working Capital for FY16 48

4.29 Allowable Interest and Finance Charges 49

4.30 Allowable other Debits 50

4.31 Status of Debt Equity Ratio for FY16 51

4.32 Allowable Return on Equity 52

4.33 Approved Revised ARR for FY16 as per APR 55

5.1 Revised ARR for FY18 – CESC’s submission 57

5.2 Capital expenditure for FY18 – CESC’s Submission 60

5.3 Additional capex sought by CESC 61

5.4 Approved & Actual capital investment 62

5.5 Computation of IP Set consumption 70

5.6 Approved sales for FY18 73

5.7 Approved and actual Distribution Losses for FY11-16 74

5.8 Approved Distribution Losses for FY18 75

vi

5.9 Power Purchase Cost as filed by CESC for FY18 75

5.10 Approved Power Purchase quantum and cost for the

State

77

5.11 Approved Power Purchase cost for CESC for FY18 78

5.12 Estimated solar RPO for FY18 79

5.13 Anticipated capacity addition from RE sources 79

5.14 Anticipated solar capacity and energy during FY17

and FY18.

80

5.15 O & M Expenses for FY18 – CESC’s submission 82

5.16 Approved O & M Expenses for FY18 as per the Tariff

Order dated 30th March, 2016

82

5.17 Approved O & M Expenses for FY18 84

5.18 Depreciation – FY18 – CESC’s submission 84

5.19 Approved Depreciation for FY18 85

5.20 Interest on Capital Loans – CESC’s submission 86

5.21 Approved Interest on Loans for FY18 87

5.22 Approved Interest on Working Capital for FY18 88

5.23 Approved Interest on Consumer Security Deposits for

FY18

89

5.24 Approved Interest and Finance Charges for FY18 90

5.25 Status of Debt Equity Ratio for FY18 91

5.26 Approved Return on Equity for FY18 92

5.27 Approved Revised ARR for FY18 95

5.28 Segregation of ARR – FY18 – CESC’s submission 96

5.29 Approved basis for Segregation of ARR – FY18 96

5.30 Approved Revised ARR for Distribution Business – FY18 97

5.31 Approved ARR for Retail Supply Business FY18 97

5.32 Revenue Gap for FY18 98

6.1 Revenue Deficit for FY18 107

6.2 Wheeling Charges 138

vii

LIST OF ANNEXURES

SL.NO. DETAILS OF ANNEXURES Page

No.

I Total Approved Power Purchase Quantum and Cost

of all ESCOMs for FY18

210

II Approved Power Purchase quantum and cost of

CESC for FY18

213

III Proposed and approved Revenue for FY18 216

IV Electricity Tariff – 2018 217

viii

ABBREVIATIONS

AAD Advance Against Depreciation

AEH All Electric Home

ABT Availability Based Tariff

A & G Administrative & General Expenses

ARR Annual Revenue Requirement

ATE Appellate Tribunal for Electricity

BST Bulk Supply Tariff

CAPEX Capital Expenditure

CCS Consumer Care Society

CERC Central Electricity Regulatory Commission

CEA Central Electricity Authority

CESC Chamundeshwari Electricity Supply Corporation

CPI Consumer Price Index

CWIP Capital Work in Progress

DA Dearness Allowance

DCB Demand Collection & Balance

DPR Detailed Project Report

EA Electricity Act

EC Energy Charges

ERC Expected Revenue From Charges

ESAAR Electricity Supply Annual Accounting Rules

ESCOMs Electricity Supply Companies

FA Financial Adviser

FKCCI Federation of Karnataka Chamber of Commerce & Industry

FR Feasibility Report

FoR Forum of Regulators

FY Financial Year

GFA Gross Fixed Assets

GoI Government Of India

GoK Government Of Karnataka

GRIDCO Grid Corporation

HP Horse Power

HRIS Human Resource Information System

ICAI Institute of Chartered Accountants of India

IFC Interest and Finance Charges

IW Industrial Worker

IP SETS Irrigation Pump Sets

KASSIA Karnataka Small Scale Industries Association

KEB Karnataka Electricity Board

KER Act Karnataka Electricity Reform Act

KERC Karnataka Electricity Regulatory Commission

KM/Km Kilometre

KPCL Karnataka Power Corporation Limited

ix

KPTCL Karnataka Power Transmission Corporation Limited

KV Kilo Volts

KVA Kilo Volt Ampere

KW Kilo Watt

KWH Kilo Watt Hour

LDC Load Despatch Centre

MAT Minimum Alternate Tax

MD Managing Director

MFA Miscellaneous First Appeal

MIS Management Information System

MoP Ministry of Power

MU Million Units

MVA Mega Volt Ampere

MW Mega Watt

MYT Multi Year Tariff

NFA Net Fixed Assets

NLC Neyveli Lignite Corporation

NCP Non Coincident Peak

NTP National Tariff Policy

O&M Operation & Maintenance

P & L Profit & Loss Account

PLR Prime Lending Rate

PPA Power Purchase Agreement

PRDC Power Research & Development Consultants

REL Reliance Energy Limited

R & M Repairs and Maintenance

ROE Return on Equity

ROR Rate of Return

ROW Right of Way

RPO Renewable Purchase Obligation

SBI State Bank of India

SCADA Supervisory Control and Data Acquisition System

SERCs State Electricity Regulatory Commissions

SLDC State Load Despatch Centre

SRLDC Southern Regional Load Dispatch Centre

STU State Transmission Utility

TAC Technical Advisory Committee

TCC Total Contracted Capacity

T&D Transmission & Distribution

TCs Transformer Centres

TR Transmission Rate

VVNL Visvesvaraya Vidyuth Nigama Limited

WPI Wholesale Price Index

WC Working Capital

x

KARNATAKA ELECTRICITY REGULATORY COMMISSION,

BENGALURU - 560 001

Dated 11th April, 2017

In the matter of:

Application of CESC in respect of the Annual Performance Review for FY16,

Revision of Annual Revenue Requirement for FY18 and Revision of Retail Supply

Tariff for FY18, under Multi Year Tariff framework.

Present: Shri M.K. Shankaralinge Gowda Chairman

Shri H.D. Arun Kumar Member

Shri D.B. Manival Raju Member

O R D E R

The Chamundeshwari Electricity Supply Corporation Ltd., (hereinafter

referred to as CESC) is a Distribution Licensee under the provisions of the

Electricity Act, 2003, and has, on 30.11.2016, filed the following

applications for consideration and orders:

a) Review of Annual Performance for the financial year 2015-16

(FY16) and approval of revised ARR thereon.

b) Approval for revision of ARR for the financial year 2017-18

(FY18).

c) Approval for revision of Retail Supply Tariff, for the financial year

2017-18 (FY18).

xi

In exercise of the powers conferred under Sections 62, 64 and other provisions

of the Electricity Act, 2003, read with KERC (Terms and Conditions for

Determination of Tariff for Distribution and Retail Sale of Electricity) Regulations

2006, as amended and other enabling Regulations, the Commission has

considered the applications and also the views and objections submitted by

the consumers and other stakeholders. The Commission’s decisions are brought

out in the subsequent Chapters of this Order.

xii

CHAPTER – 1

INTRODUCTION

1.0 Chamundeshwari Electricity Supply Corporation Limited (CESC):

The Chamundeshwari Electricity Supply Corporation Ltd., (CESC) is a

Distribution Licensee under Section 14 of the Electricity Act, 2003

(hereinafter referred to as the Act). The CESC is responsible for purchase

of power, distribution and retail supply of electricity to its consumers and

also for providing infrastructure for Open Access, Wheeling and Banking

in its area of operation which includes five Districts of the State as

indicated below:

1. Mysuru

2. Hassan

3. Mandya

4. Chamarajnagara

5. Kodagu

The CESC is a company registered under the Companies Act, 1956,

incorporated on 19th August, 2004. The CESC commenced its operations

on 1st April, 2005, with four districts in its area of operation.

Susequently, the Madikeri Division (Kodagu District) which was earlier

under the MESCOM, was transferred to the CESC with effect from 1st

April, 2006.

At present the CESC’s area of operations is structured as follows:

CESC, Mysore

HASSAN

MANDYA

KODAGU MYSORE

CH NAGAR

xiii

O&M Zones O&M Circles O&M Divisions

Mysore zone

Mysore Works Circle

VV Mohalla

NR Mohalla

Nanjangud

Hunsur

Mysore O&M Circle

Chamarajnagara

Kollegala

Madikeri

Hassan Circle

Hassan

CR patna

Arasikere

HN Pura

Mandya Circle

Mandya

Pandavapura

Nagamangala

Maddur

These O & M divisions of the CESC are further divided into sixty one O&M

sub-divisions with accounting / non-accounting sections and each O&M

sub division section offices.

The section offices are the base level offices looking into operation and

maintenance of the distribution system in order to provide reliable and

quality power supply to the CESC’s consumers.

xiv

1.1 The CESC at a glance:

The profile of the CESC is as indicated below:

*Includes Posts & Personnel on deputation to CESC

1.2 Number of Consumers, Sales in MU to various categories of

consumers and details of Revenue for FY16 are as follows:

CATEGORY

CESC

No. of

Installation

Sales in

MU

Revenue in

Rs.Crs.

Domestic 2196013 997.76 420.81

Commercial 215323 366.75 306.84

Industrial 38083 886.65 598.54

Agriculture 317955 2390.44 1051.59

Others 82665 763.63 478.45

Total 2850039 5405.23 2856.23

The CESC has filed its application for Annual Performance Review for FY16,

Revision of Annual Revenue Requirement (ARR) for FY18 and revision of

Revision of Retail Supply Tariff for FY18.

Sl.

No. Particulars (As on 30.09.2016) Figures

1. Area Sq. km. 27772.8

2

2. Districts Nos. 5

3. Taluks Nos. 29

4. Population lakhs 815536

9

5. Consumers Lakhs 29.01

6. Energy Sales MU 2958.56

7. Zone Nos. 1

8. DTCs Nos. 100063

9. Assets (including current

assets)

Rs. in Crores 2669.54

10. HT lines Ckt. kms 49289.1

4

11. LT lines Ckt. kms 80600.1

4

12. Total employees strength:

A Sanctioned Nos.* 10428

B Working Nos.* 5461

13. Revenue Demand Rs. in Crores 1644.87

14. Revenue Collection Rs. in Crores 1610.94

xv

The CESC’s application, the objections / views of stakeholders thereon and the

Commission’s decisions on the application for the Annual Performance Review for

FY16, Revision of ARR for FY18 and Revision of Retail Supply Tariff for FY18

are discussed in detail in the subsequent Chapters of this Order.

xvi

CHAPTER – 2

SUMMARY OF FILING & TARIFF DETERMINATION PROCESS

2.0 Background for Current Filing:

The Commission in its Tariff Order dated 30th March, 2016 had approved

the ARR for FY17 to FY19 and the Revised Retail Supply Tariff of CESC for

FY17 under the MYT principles for the control period of FY17 to FY19.

CESC in its present application filed on 30th November, 2016 has sought

for Annual Performance Review (APR) for FY16 based on the audited

accounts, Revision of ARR for the second year of the second year of the

fourth control period i.e. FY18 and revision of Retail Supply Tariff for FY18.

2.1 Preliminary Observations of the Commission

After a preliminary scrutiny of the application the Commission had

communicated its observations to CESC on 20th December, 2016 which

were mainly on the following points:

Capital Expenditure

Sales Forecast

Assessment of IP set consumption

Distribution Losses

Power Purchase

Issues pertaining to items of revenue and expenditure

Other new proposals

Compliance to Directives

The CESC has furnished its replies on 30th December, 2016. The Commission

had issued Rejoinders to the replies vide Commission letter dated 10th January,

2017 and the replies to the Rejoinder were received vide letter dated 16th

January, 2017. The replies furnished by CESC are considered in the respective

Chapters of this Order.

2.2 Public Hearing Process:

As per the Karnataka Electricity Regulatory Commission (Terms and

Conditions for Determination of Tariff for Distribution and Retail Sale of

Electricity) Regulations, 2006, read with the KERC Tariff Regulations, 2000,

and KERC (General and Conduct of Proceedings) Regulations, 2000, the

xvii

Commission vide its letter dated 04th January, 2017 treated the

application of CESC as petition and directed CESC to publish the

summary of ARR and Tariff proposals in the newspapers calling for

objections, if any, from interested persons.

Accordingly, CESC has published the same in the following newspapers:

Name of the News Paper Language Date of Publication

Deccan Herald English

06-1-2017 &

07-1-2017

The Hindu

Kannada Prabha Kannada

Vijayavani

The CESC’s applications on APR of FY16, Revision of ARR for FY18 and

revision of retail supply tariff for FY18 were also hosted on the web sites of

CESC and the Commission for the ready reference and information of the

general public.

In response to the application of CESC, the Commission has received thirty

statements / letters of objections. CESC has furnished its replies to all these

objections. The Commission has held a Public Hearing on 22nd February, 2017

at Mysore. The details of the written / oral submissions made by various

stakeholders and the response from CESC thereon have been discussed in

Chapter - 3 / Appendix to this Order.

2.3 Consultation with the Advisory Committee of the Commission:

The Commission has also discussed the proposals of the KPTCL and all the

ESCOMs in the State Advisory Committee meeting held on 8th March, 2017.

During the meeting the following important issues were also discussed:

Performance of KPTCL / ESCOMs during FY16

Major items of expenditure of KPTCL / ESCOMs for FY18

Members of the Committee have offered valuable suggestions on the

proposals. The Commission has taken note of these suggestions while

passing the Order.

xviii

CHAPTER – 3

PUBLIC CONSULTATION - SUGGESTIONS / OBJECTIONS &

REPLIES

3.1 AS per the provisions of the section 64 of the Electricity Act, 2003, the

Commission has undertaken the process of public consultation, to

invite and suggestions/views/objections from the interested stake-

holders and general public, on the application filed by CESC for

Annual Performance Review for FY16, Revision of Annual Revenue

Requirement for FY18 and Revision of Retail Supply Tariff for FY18. In the

written submissions filed as well as during the public hearing, the Stake-

holders and the public have raised several objections/ made

suggestions, on the CESC Tariff Application. The names of the persons

who have filed written objections and made oral submissions are given

below:

List of persons who filed written objections: -

Sl

No

Applicatio

n No. Name & Address of Objectors

1 AE-01 Sri. Prem Chand, Chief Electrical Traction Engineer,

South Western Railway.

2 AE-02 Smt. Shroti Bhatia, VP (Regulatory Affairs &

Communication), Indian Energy Exchange.

3 CA-01 Sri. K. Krishna Bhat, Koodanahally Estate, Sakaleshpur

Taluk.

4 CA-02 Sri. Ravindra B.N & Others, Kollegal taluk.

5 CA-03 Sri. K.C. Sudarshan, Madikeri, Kodagu.

6 CA-04 Sri. C.A. Subbaiah, Banangala Village, Kodagu.

7 CA-05 Laghu Udyog Bharati - Karnataka

8 CA-06 Sri. Ravindra Prabhu, Chairman, Energy Sub

Committee, HIEMA.

9 CA-07 Sri. Prem Chand, Chief Electrical Traction Engineer,

South Western Railway.

10 CA-08 Sri. Suresh Kumar Jain, Mysore Industries Association.

11 CA-09 Sri. Ravindra Prabhu, Vice President, KIAMA.

12 CA-10 Sri.B. Praveen, Hon’ble General Secretary, KASSIA.

13 CA-11 to

CA-22

Sri. A.B.Yogesh & Others Nanjanagud, Mysuru

14 CA-23 to

CA-28

Sri K.B. Utthappa & Others, Kodagu.

xix

3.2 List of the persons, who made oral submissions during the Public Hearing,

held on 22.02.2017.

SL.

No.

Names & Addresses of Objectors

1 Sri. K. Ravindra Prabhu, KIADB Manufacturers Association &

HIEMA

2 Sri. S. Sudhakar Shetty, Vice President, FKCCI

3 Sri. K.B. Lingaraju, Mysore Chamber of Commerce

4 Sri. Suresh Kumar Jain, Mysore Industries Association

5 Sri. Mallappa Gowda & Manjunath, KASSIA

6 Dr. M.R. Rangantha, Bharatiya Kissan Sangha, Mysuru

7 Sri. Jayakumar, Bharatiya Kissan Sangha, Gundlupet

8 Sri. Ningaraju, Bharatiya Kissan Sangha, Hunsur

9 Sri. G.R.Vidyaranya, Aam Admi Party, Mysuru.

10 Sri. Rajiv, Bharatiya Kissan Sangha, Kodagu

11 Sri. Chetan Jain, IEX

12 Smt. Savitha Ranganath, Voluntary Consumer Organizations

RTI Activist.

13 Sri. Nagabhushana Aradhya, Mysuru

14 Sri. Rajendra Ramapura, Bharatiya Kissan Sangha, Kollegal

15 Sri. Somashekar, Mysuru

16 Sri. Vasanth. S, Ex-Vice President & All ESCOMS Representative

& Karnataka State Licensed Electrical Contractors

Association.

17. Sri. Ravindra, BJP Ex- District President, Kodagu

18 Sri. M.A. Poonacha, Kodagu.

19 Sri. N. Kumaraswamy, Bharatiya Kissan Sangha, Nanjangud.

20 Sri. Mohammed Arief Khan For V.S ARBATTI for BWSSB

21 Sri. D. Sagayamani Raj, Division Electric Engr. South Western

Railways & Sri. D. Soundar Rajan, Dy. Chief Electrical Engineer,

South Western Railways.

3.3 The gist of the objections, replies by CESC and the Commission’s views is

appended to this order as Appendix-1.

xx

CHAPTER – 4

ANNUAL PERFORMANCE REVIEW FOR FY16

4.0 CESC’s Application for APR for FY16:

CESC has filed its application for Annual Performance Review (APR) for

FY16, revision of Annual Revenue Requirement (ARR) and revision of

retail supply tariff for FY18 on 30th November, 2016. CESC has sought the

Annual Performance Review (APR) for FY16 and approval of a revised

ARR thereon based on the Audited Accounts.

The Commission in its letter dated 20th December, 2016 had

communicated its preliminary observations on the application of CESC.

In its letter dated 30th December, 2016, CESC has furnished its replies to

the preliminary observations of the Commission. The Commission had

issued rejoinders on the replies vide letter dated 10th January, 2017 and

the replies to the rejoinders were furnished by CESC in its letter dated 16th

January, 2017.

The Commission in its Multi Year Tariff (MYT) Order dated 6th May, 2013

had approved CESC’s Annual Revenue Requirement (ARR) for FY14 –

FY16. Further, in its Tariff Order dated 2nd March, 2015, the Commission

had approved the APR for FY14 and had revised the ARR along with

Retail Supply Tariff for FY16.

During the course of Annual Performance Review (APR) for FY16, revision

of various items of revenue and expenditure with reference to the

audited accounts for FY16, are being discussed in this Chapter.

4.1 CESC’s Submission:

CESC in its application dated 30th November, 2016, has submitted its

proposals for revision of ARR for FY16 as follows:

xxi

TABLE – 4.1

ARR for FY16 – CESC’s Submission Amount in Rs. Crores

Sl.

No Particulars As Filed

1 Energy at Gen Bus in MU 6444.86

2 Energy at Interface in MU 6256.07

3 Distribution Losses in % 13.60

Sales in MU

4 Sales to other than IP & BJ/KJ 3060.25

5 Sales to BJ/KJ 38.13

6 Sales to IP & BJ/KJ 2306.85

Total Sales 5405.23

Revenue

7

Revenue from other than IP & BJ/KJ and

Misc. Charges 1814.45

8 Tariff Subsidy to BJ/KJ 23.82

9 Tariff Subsidy to IP 1017.96

Total 2856.23

Expenditure

10 Power Purchase Cost 2410.17

11 Transmission charges of KPTCL 305.42

12 SLDC Charges 2.16

Power Purchase Cost including cost of

transmission 2717.75

13 Employee Cost 327.65

14 Repairs & Maintenance 39.24

15 Admin. & General Expenses 51.58

Total O&M Expenses 418.47

16 Depreciation 117.46

Interest & Finance charges

17 Interest on Loans 83.52

18 Interest on Working capital 40.40

Interest on belated payment of PP Cost 7.05

19 Interest on consumer deposits 38.07

20 Other Interest & Finance charges 0.47

21

Less: interest & other expenses

capitalised 19.22

Total Interest & Finance charges 150.29

22 Other Debits 4.79

23 Net Prior period Debit/Credit (5.89)

24 Return on Equity 0.00

25 Provision for taxation 14.97

26

Funds towards Consumer

Relations/Consumer Education 0.00

27 Other Income 105.08

Net ARR 3312.76

xxii

Considering the revenue of Rs.2856.23 Crores against a net ARR of

Rs.3312.77 Crores, CESC has reported a gap in revenue of Rs.456.54

Crores for FY16.

4.2 CESC’s Financial Performance as per Audited Accounts for FY16:

An overview of the financial performance of CESC for FY16 as per its

Audited Accounts is given below:

TABLE – 4.2

Financial Performance of CESC for FY16

Amount in Rs. Crores

Sl.

No. Particulars FY16

Receipts

1 Revenue from Tariff and misc. charges 1814.45

2 Tariff Subsidy 1041.78

3

Income on account of Regulatory Asset/Truing

up Subsidy 464.46

Total Revenue 3320.69

Expenditure

4 Power Purchase Cost 2410.17

5 Transmission charges of KPTCL 305.42

6 SLDC Charges 2.16

Power Purchase Cost including cost of

transmission 2717.75

7 O&M Expenses 418.48

8 Depreciation 91.89

Interest & Finance charges

9 Interest on Loans 83.52

10 Interest on Working capital 40.40

11

Interest on belated payment of power

purchase 7.05

12 Interest on consumer deposits 38.08

13 Other Interest & Finance charges 0.47

14 Less; Interest and other expenses capitalized 19.22

Total Interest & Finance charges 150.30

15 Other Debits 4.79

16 Net Prior Period Debit/Credit (5.89)

17 Other income 79.52

18 Income tax 14.97

Total Expenditure 3312.77

xxiii

As per the Audited Accounts, CESC has earned a profit of Rs.7.92 Crores

for FY16. The profits / losses reported by CESC in its audited accounts in

the previous years are as follows:

TABLE – 4.3

CESC’s Accumulated Profit / Losses

Particulars Amount in

Rs. Crs

Accumulated losses as at the end of FY10 (285.15)

Profit earned in FY11 11.38

Losses incurred in FY12 (123.45)

Losses incurred in FY13 (269.63)

Losses incurred in FY14 (15.61)

Profits earned in FY15 40.27

Profits earned in FY16 7.92

Accumulated losses as at the end of FY16 (634.27)

As seen from the above table, the accumulated loss as at the end of

FY16 is Rs.634.27 Crores.

APR Exercise by the Commission:

The Commission has taken up the Annual Performance Review for FY16,

duly considering the actual revenue and expenditure as per the Audited

Accounts vis-à-vis the revenue and expenditure approved by the

Commission, in its Tariff Order dated 2nd March, 2015. The item-wise

review of expenditure and the decisions of the Commission thereon are

as discussed in the following paragraphs:

4.2.1 Sales for FY16:

a) Sales - other than IP sets:

Annual Performance Review for FY-16

xxiv

The Commission in its Tariff Order 2015 dated 02.03.2015 had approved

total sales at 5744.83 MU to various consumer categories, as against the

proposed sale of 5798.94 MU. The Actual sales of CESC is 5405.24 MU, as

per the application filed by CESC [D-2 FORMAT], indicating a short fall in

sales to an extent of 339.59 MU as compared to the approved sales. The

reduction in sales is 288.66 MU is in LT-categories and 50.93 MU in HT-

categories. The Commission notes that, as against the approved sales of

3084.08 MUs to categories other than BJ/KJ and IP sets, the actual sales

achieved by CESC is 3060.24 MU, resulting in the reduction of sales to

these categories by 23.84 MU. Further, CESC has sold 2345.00 MU to BJ/KJ

and IP category against approved sales of 2660.75 MU resulting in

decreased sales to these categories by 315.75 MU.

The category-wise sales approved by the Commission in its Tariff Order

2015 dated 02.03.2015 and the actuals for FY 16 are indicated in the

table below:

TABLE-4.4

Approved and actual Sales for FY16

Energy in MU

Category Approved by the

Commission Actuals Difference

LT-2a* 959.55 954.37 -5.18

LT-2b 7.37 7.85 0.48

LT-3 262.46 259.57 -2.89

LT-4b 1.17 1.12 -0.05

LT-4c 11.57 11.59 0.02

LT-5 137.8 136.56 -1.24

LT-6 135.53 162.96 27.43

LT-6 90.66 99.90 9.24

LT-7 13.66 12.95 -0.71

HT-1 438.07 420.40 -17.67

HT-2a 794.17 750.08 -44.09

HT-2b 127.16 107.17 -19.99

HT-2c 31.09 45.15 14.06

HT-3a & b 65.14 82.46 17.32

HT-4 7.75 5.27 -2.48

HT-5 0.92 2.84 1.92

Sub total 3084.08 3060.24 -23.84

BJ/KJ 36.28 38.13 1.85

IP 2624.47 2306.87 -317.6

xxv

Sub total 2660.75 2345.00 -315.75

Grand total 5744.83 5405.24 -339.59

*Including BJ/KJ installations consuming more than 18 units/month

The Commission notes that the major categories contributing to the

reduction in sales are HT Industries (44.09 MU), HT Commercial (19.99 MU)

and IP sets (317.60 MU). The increase in sales is mainly in respect of LT-6

water supply installations.

The CESC has attributed the above variation in sales to the following:

i. Reduction in IP set sales is due to reduction in the specific

consumption to 7384 units/year/IP-set as against the approved

figure of 8195 units/year/IP-set, consequent to segregation of Agri-

feeders under NJY scheme.

ii. Reduction in HT-2a sales is due to twelve industries consuming 180.82

MU under Open Access.

iii. Increase in sales to LT-water supply is due to servicing of 1252 new

installations.

b) Sales to IP sets

i) In its Tariff Order dated 2nd March, 2015, the Commission had approved

a specific consumption of IP-sets at 8,195 units/installation/annum for

FY16, whereas, as per the data of IP-set consumption reported by the

CESC in its Tariff filing for APR of FY16, the specific consumption works

out to 7,469 units/installation/annum, which indicates a decrease in

the specific consumption by 726 units/installation/annum. The total IP-

set consumption reported for the FY16 is 2,306.87 MU as against

2,624.47 MU sales quantum approved by the Commission. Thus, the

specific consumption has decreased by 726 units /installation/annum

with the corresponding decrease in sales by 317.6 MU when

compared to the quantity approved by the Commission for the FY16.

ii) Further, the Commission had approved 3,32,629 as the number of

installations for FY16, whereas the actual number of installations

serviced as reported by the CESC is 3,17,674. The difference in number

of installations between the approved and the actuals reported is

xxvi

14,955. This indicates a decrease of around 4.5 per cent in the number

of installations serviced, as compared to the approved number of

installations by the Commission for the FY16. Also, it is noted that the

shortfall in the sales by 317.6 MU can be attributed to less number of

installations serviced, when compared to the number of installations

projected for FY16.

iii) The Commission in its Tariff Order dated 2nd March, 2015, had

directed the CESC to furnish feeder-wise IP-set consumption based on

the 11 kV feeders’ energy meter data, every month, to the

Commission, in respect of exclusive agricultural feeders segregated

under NJY scheme considering that the energy consumed by the IP-

sets can be accurately measured at the 11 kV level at the substations

after allowing the losses prevailing in the distribution system, as per the

following format prescribed by the Commission:

TABLE-4.5

Format for submission of details of IP set Installations

Mo

nth

Na

me

of

Su

b-d

ivis

ion

No

.

Se

gre

ga

ted

Ag

ric

ultu

ral

Fe

ed

ers

in

th

e s

ub

div

isio

n

Mo

nth

ly C

on

sum

ptio

n in

MU

as

rec

ord

ed

in

all t

he

ag

ric

ultu

ral

fee

de

rs a

t

the

su

bst

atio

ns

pe

rta

inin

g

to t

he

div

isio

n

Dis

trib

utio

n lo

ss(1

1k

V lin

e,

DTC

s,&

LT

lin

e)

Plu

s sa

les

to o

the

r c

on

sum

ers

if

an

y,

in M

U (

lo

sse

s in

all t

he

ag

ric

ultu

ral fe

ed

ers

on

ly

to b

e c

on

sid

ere

d)

Ne

t c

on

sum

ptio

n d

uly

de

du

ctin

g t

he

Dis

trib

utio

n

loss

(1

1k

V &

LT)

& a

ny

oth

er

loa

ds

if a

ny

No

. o

f IP

se

ts c

on

ne

cte

d

to t

he

ag

ric

ultu

ral fe

ed

ers

in t

he

su

bd

ivis

ion

Av

era

ge

co

nsu

mp

tio

n o

f

IP /

mo

nth

(sp

ec

ific

co

ns

in u

nits

/IP

/mo

nth

)

Tota

l n

o o

f IP

se

ts in

th

e

sub

div

isio

n (

as

pe

r D

CB

)

Tota

l sa

les

of

IP s

ets

in

MU

1 2 3 4 5 6=(4-5) 7 8 9 10=8*9

April to

March

Subdivisi

on-1

Subdivisi

on-2

Subdivisi

on….

iv) Considering the fact that the ESCOMs have bifurcated the 11 KV

feeders into separate rural and agricultural feeders, the Commission

has adopted the above methodology in the Tariff Order dated 12th

May, 2014, for FY15, which shall be applicable for all the future

computations. Prior to this, in the absence of universal metering of IP-

set installations, the Commission had allowed the ESCOMs to assess

the IP-set consumption, based on the readings of the sample meters

fixed to the distribution transformer Centres (DTCs) feeding

xxvii

predominantly IP-set loads. The sample was so selected that in each

O&M section, two to three DTCs feeding predominantly IP-set loads,

were covered and in each subdivision, about ten such DTCs were

covered. As per this methodology, the overall IP-consumption for the

Company was being assessed on the basis of specific consumption

arrived at from the metered consumption data of sample meters fixed

to DTCs.

v) For instance, as per the IP-set data for FY13 submitted to the

Commission by the CESC, a total of 798 DTCs covering 7,175 IP-sets out

of the total 2,55,173 IP-sets in its jurisdiction, were considered for

assessing the total IP-set consumption for the Company. It is observed

that the sample IP-sets considered to assess the total IP-

consumption for FY13, based on the sample DTCs meter readings,

constituted only 2.8 per cent. Thus, a small number of IP-sets were

considered for arriving at the total IP consumption, as compared to a

large sample (39% in March 2016) being considered now after

segregating the feeders under NJY. Therefore, this would be a better

representation of sample in terms of metered consumption for

computing the overall IP-set consumption, as compared to the

methodology followed earlier.

vi) Accordingly, the CESC was directed to furnish 11 kV feeder-wise IP-

set consumption based on energy meters’ reading data in respect of

agriculture feeders segregated under NJY scheme, duly deducting

the distribution losses prevailing in 11 kV lines, distribution transformers

and LT system, to the Commission, every month.

vii) The CESC in its current tariff filing has submitted the data of IP-sets

computing the total IP-consumption based on the specific

consumption in respect of the exclusive agricultural feeders

segregated under NJY, for FY16. However, as observed from the

data, there was inconsistency in the number of installations as well as

the total consumption (computed on the basis of exclusive

agricultural feeders) between the data submitted to the Commission

xxviii

and the data as reported in D2 format of the Tariff application.

Further, two different figures of the IP-set consumption based on the

exclusive agricultural feeders were submitted to the Commission as

2,024.25 MU and 2,319.576 MU, whereas the consumption reported in

format D2 of Tariff filing was 2,306.87 MU, indicating a large variation in

the data submitted to the Commission.

viii) The Commission in its preliminary observations had directed the CESC

to justify the IP-set consumption of 2,306.97 MU reported in format D2

of its Tariff filing with necessary data of segregated agricultural feeders

in support of the same and also clarify the inconsistency in the

number of installations as well as consumption data of agricultural

feeders reported for FY16.

ix) The CESC, in its reply to the preliminary observations made by the

Commission, has stated that it has submitted the IP-set consumption

based on the energy meters’ data in respect of the segregated

agricultural feeders as desired by the Commission. The CESC while

submitting the IP-consumption as per the agricultural feeders’ meter

reading data has reiterated the consumption as 2,024.25 MU and

2,319.58 MU (two different figures) and the consumption of 2,306.87

MU as claimed in the format D2 of its tariff filing, for FY16. Thus, the IP-

consumption of 2,306.87 MU claimed in the Tariff filing was not

agreeing with the consumption reported on the basis of specific

consumption arrived at from agricultural feeders’ energy meter data.

x) Further, the CESC in its replies submitted to the Commission (on the

Commission’s rejoinder) vide No. CESC/GM(coml.)/F-1/2016-17/19125,

dated 18.1.2017, has revised the IP-set consumption as 2,077.97 MU

based on the specific consumption of segregated agricultural

feeders’ meter reading, for FY16. Also, it has stated that there is still a

difference between the consumption reported as per Format D-2 of its

Tariff filing and the agricultural feeders’ meter reading data furnished

to the Commission due to the following reasons:

xxix

The number of IP-set installations as at the end of March, 2016 were

3,17,674, whereas the number of IP-sets connected to the bifurcated

agricultural feeders was only 84,851.

The consumption in respect of IP-sets in the bifurcated feeders was

computed on the basis of data from agricultural feeders’ meters,

whereas in respect of non-bifurcated and rural feeders, the

consumption was arrived at on the basis of readings from the sample

meters provided to DTCs predominantly feeding to the IP loads.

The specific consumption is less in respect of certain agricultural

feeders in Hunsur division, as the areas covered by these feeders are

fed by Kaveri and kabini water canals and hence, these figures cannot

be considered for non-bifurcated feeders.

For agricultural feeders three-phase power supply is being arranged for

7 hours as per orders of GoK and in respect of rural feeders, single-

phase power supply is also arranged in addition to three-phase

supply. Thus, the consumption of IP-sets in rural and non-bifurcated

feeders is higher than those in exclusive agricultural feeders.

The consumption by unauthorized IP-sets has also contributed to the

difference in IP-set consumption.

With the above justification, the CESC has requested the Commission to

consider the sales of IP-sets as 2,306.87 MU as reported in the Format D-2 of

its Tariff Application for the APR of FY16 and not to consider the revised

consumption of 2,077.97 MU which was submitted based on the

agricultural feeders’ meter reading data.

xi) The reply submitted by the CESC for the difference in IP-set

consumption is not convincing due to the following reasons:

a. Even, when 84,851 number of IP-set installations under bifurcated

feeders, out of total 3,17,67 number of IP-sets as at the end of

March 2016, are considered, they constitute around 27%, whereas

the IP-sets connected to DTCs (to which meters are provided)

feeding predominantly IP-set loads constitutes insignificant

number of IP-sets. This means the IP-set consumption based on

specific consumption arrived at from the meter readings data of

agricultural feeder (larger sample of 27%) needs to be considered

xxx

while computing the IP-set consumption for the entire company,

instead of considering the readings from the sample meters

provided to DTCs feeding predominant IP loads, which is based on

fewer IP-sets data.

b. As regards lower consumption in Hunsur division due to availability

of canal water, the division’s average IP-consumption could be

considered for computation of subdivision-wise IP consumption if

such a subdivision is not having bifurcated feeders within the same

division.

c. Regarding the contention that the IP consumption is more in non-

bifurcated and rural feeders, compared to bifurcated feeders due

to supply of single phase power in addition to three-phase power,

it is noted that the non-bifurcated agricultural feeders are

supplied with open delta supply/restricted supply with a relay

arrangement in the feeders at the substations to trip the same if

current is drawn more than the predetermined values. This would

even out the difference in power supply position between the

bifurcated and non-bifurcated feeders and therefore, the

average values of IP-consumption would be the same in both

bifurcated and non-bifurcated feeders.

d. As regards unauthorized IP-sets, the CESC has taken them into

account, as and when they are identified in the field by

regularizing them and assigning them with the RR numbers. This

means, barring a very few installations existing in the field as

unauthorized, majority of the IP-sets are being accounted for and

hence the consumption recorded in the exclusive agricultural

feeders at the substation is inclusive of these unauthorized IP-sets

also. The specific consumption of IP-sets is arrived at on the basis

of consumption recorded in the agricultural feeders at substations,

segregated under NJY, deducting the allowable losses prevailing

in the 11kV line, distribution transformers and LT line. This means

that the consumption of unauthorized IP-sets is also reflected in

xxxi

the total consumption recorded in the feeders at the substations.

Thus, the unauthorized IP-sets existing in the field are being

accounted for and hence, the contention of the CESC that they

are contributing to the difference in consumption is not

acceptable.

xii) Therefore, as discussed above, the revised IP-consumption submitted

by the CESC as per the segregated agricultural feeders’ meter

reading data is 2,077.97 MU and there is a difference of 228.9 MU

(2,306.87 MU - 2077.97 MU =228.9 MU). In consumption as declared in

tariff filing. There is no justification for accepting this consumption

difference of 228.9 MU in consumption as declared in tariff filing.

Hence, the Commission decides to disallow the consumption of 228.9

MU from out of 2,306.87 MU claimed by the CESC in its Tariff filing.

xiii) Accordingly, the Commission decides to approve IP sets sales of

2,077.97 MU on the basis of the revised meter readings data of

segregated agricultural feeders reported for the FY16, as against

2,306.87 MU claimed by the CESC in its Tariff filing, after disallowing

sales to an extent of 228.9 MU.

In the light of the above discussion, the Commission approves total sales

of 5176.34 MU for FY16 and the category-wise sales as indicated in the

table above:

TABLE – 4.6

Approved & Actual Sales for FY16 Million Units

Category

Approved as

per Tariff

Order dated

02.03.2015

Actuals as

per APR

LT-2a* 959.55 954.37

LT-2b 7.37 7.85

LT-3 262.46 259.57

LT-4b 1.17 1.12

LT-4c 11.57 11.59

LT-5 137.8 136.56

xxxii

LT-6 135.53 162.96

LT-6 90.66 99.9

LT-7 13.66 12.95

HT-1 438.07 420.4

HT-2a 794.17 750.08

HT-2b 127.16 107.17

HT-2c 31.09 45.15

HT-3a & b 65.14 82.46

HT-4 7.75 5.27

HT-5 0.92 2.84

Sub total 3084.08 3060.24

BJ/KJ 36.28 38.13

IP 2624.47 2077.97

Sub total 2660.75 2116.10

Grand total 5744.83 5176.34 *Including BJ/KJ installations consuming more than 18 units/month

4.2.2 Distribution Losses for FY16:

CESC’s Submission:

The Commission in its Tariff Order dated 2nd March,2015 had

approved distribution losses for FY16 as shown in the table below:

Distribution Loss Range FY16

Upper limit 15.00%

Average 14.50%

Lower Limit 14.00%

CESC, in its annual accounts, has reported the distribution losses

at 13.60% for FY16.

1 Energy at Interface Points in MU 6256.07

2 Total sales in MU including wheeled

energy 5405.23

3 Distribution losses as a percentage of

input energy at IF points 13.60%

Commission’s analysis and decisions:

The distribution loss of 13.60% reported by CESC is below the targeted

losses fixed by the Commission for FY16 by 0.90% percentage points.

However, as per the revised consumption of IP sets reckoned as

xxxiii

discussed in the preceding paragraphs of this Chapter, the percentage

of distribution losses of CESC for FY16 is 17.26%.

In the above context, the Commission notes that the actual overall

distribution losses of 17.26% are far beyond the approved upper limit of

losses for FY16. Hence, penalty for exceeding the targeted loss levels

has been factored in the APR for FY16 as detailed below:

TABLE-4.7

Penalty for exceeding targeted loss levels in FY16 Amount in Rs. Crores

Particulars FY16

Actual input at IF points as per audited accounts in

MU 6256.07

Retail sales in MU 5176.34

Percentage distribution losses 17.26%

Target Upper limit of distribution loss 15.00%

Increase in loss–in percentage point 2.26

Input at target loss for actual sales in MU 6089.81

Increase in input due to increase in distribution losses

in MU 166.26

Average cost of power purchase in Rs./unit 4.217

Increase in power purchase cost due to increase in

losses in Rs. Crores 70.11

Thus, the Commission decides to levy penalty of Rs.70.11 Crores for

exceeding the targeted distribution loss levels for FY16.

4.2.3 Power Purchase for FY16

CESC Submission:

The Commission in its Tariff order dated 30th March,2016, had approved

source-wise quantum and cost of power purchase for FY16. CESC, in its

application has submitted the details of actual power purchase for FY16

for the purpose of Annual Performance Review. The details of power

purchase are as under:

xxxiv

TABLE – 4.8

Source-wise Power Purchases during FY16

* Source : D1 format

Commission’s analysis and decisions: [

1. The actual power purchase for FY16 as filed by CESC for approval of

Annual Performance Review is 6444.86 MU amounting to Rs. 2717.75

Crores, as against the approved quantum of 6984.52 MU amounting to

Rs. 2369.15 Crores. This represents reduction in quantum of power

purchase to an extent of 539.66 MU and increase in the cost by Rs.

348.57 Crores. This has been reflected in reduced sales to an extent of

568.50 MU in FY16.

Source of Generation

Actuals for FY16 Approved for FY16 Difference-between Actuals

and Approved-for FY16

% increase

(+)/decrease (-)

over an

approved figures

Energy

in MUs

Cost in

Rs Cr.

Rate in

Rs per

Unit

Energy

in MUs

Cost in

Rs Cr.

Rate in Rs

per Unit

Energy

in MUs

Cost in

Rs Cr.

Rate in

Rs per

Unit

Energy Cost

KPCL Hydel

Stations

1030.87 114.81 1.11 1829.66 91.50 0.50 -798.79 23.29 0.61 -43.66 25.45

KPCL-

Thermal

Stations

1313.99 593.48 4.52 1826.26 715.70 3.92 -512.27 -122.22 0.60 -28.05 -

17.08

CGS 1724.1 539.44 3.13 1549.83 465.73 3.01 174.27 73.71 0.12 11.24 15.83

Major IPPs 991.82 415.36 4.20 970.19 400.92 4.13 21.63 15.44 0.07 2.23 3.85

IPPs -Minor

(NCE

Projects)

469.92 167.47 3.56 627.97 235.47 3.75 -158.05 -68.00 -0.19 -25.17 -

28.88

Other

States

Projects

4.78 8.13 17.01 21.26 3.83 1.80 -16.48 4.30 15.21 -77.52 112.2

7

Short

/Medium

term

480.62 249.24 5.19 159.35 83.66 5.25 321.27 165.58 -0.06 201.61 197.9

2

U I charges 66.74 20.36 3.05

66.74 20.36

Sec-11 331.48 168.25 5.08

331.48 168.25

Transmissio

n Charges

(KPTCL &

PGCIL)

414.65

368.78

45.87

SLDC

Charges

(POSOOC&

SLDC)

2.16

3.57

-1.41

Energy

Balancing 30.54 21.21 6.94

Others

Charges 2.19

TOTAL 6444.86 2717.75 4.22 6984.52 2369.15 3.39 -539.66 348.57 0.82 -7.73 14.71

xxxv

2. Against the approved quantum of 6984.52 MU, the actual power

purchased by CESC is 6444.86 MU for FY16, which is about 7.73% less than

the approved quantum.

3. On an analysis of the source-wise approved and actual power

purchases, the following deviations in the quantum of energy and its

cost of purchase are observed:

i. There is shortfall in supply from sources of power like KPCL Hydel, KPCL

Thermal and IPP minor (RE/ NCE) as follows:

TABLE-4.9

Difference between Source-wise approved and Actual Energy Purchase

Source of Generation

Energy Difference

between actual

and approved in

MU

Cost Difference

between actual

and approved in

Rs Cr.

KPCL Hydel - 798.79* 23.29

KPCL Thermal -512.27* -122.22**

IPP Minor(RE/NCE ) -158.05* -68.00**

* (-) indicates deficit **(-) indicated excess cost

The shortfall from the conventional sources has been met from the

un-requisitioned surplus power from CGS & major IPP sources apart from

short-term power to a tune of 480.62 MU at a cost of Rs.249.24 Crores.

CESC has incurred an additional cost Rs.348.57 Crores towards overall

deficit in the availability of power, resulting in an increase in per unit cost

by 82 Paise.

ii. The change in the source-wise mix of supply, reconciliation of energy

and its cost among ESCOMs have resulted in higher average power

purchase cost of CESC at the rate of Rs.4.22 per KWh as against the

approved rate of Rs.3.39 per KWh.

4. In order to ensure proper accounting of energy and its cost, CESC is

directed to reconcile the inter-ESCOM energy exchanges and its costs

xxxvi

every month and it shall collect/pay the corresponding amounts out of

the tariff subsidy received from Government of Karnataka,

5. The Commission notes that, the SLDC has not implemented the intra-state

ABT. As per the directions issued by the Government of Karnataka vide

its letter dated 28th January, 2016, intra state ABT has to be

implemented immediately by the KPTCL and ESCOMs. The Commission

therefore directs the SLDC, KPCL and the CESC to take appropriate

action immediately to implement intra-state ABT and to host the details

thereof, on their respective websites.

6. The power purchases made by the CESC during FY16 from different

sources of generation also include the energy purchased under Section

11 of the Electricity Act, 2003, in pursuance of the Government Order

dated 16.09.2015. The Government, in the said order, had fixed a

provisional tariff of Rs.5.08 Per unit subject to determination of final tariff

by this Commission. The Commission in its order dated 18th August,2016,

has fixed the final tariff of Rs.4.79 per unit and has ordered recovery of

the difference amount (Rs.5.08- 4.79) from the generators. However,

some of the generators have filed petitions before the Hon’ble ATE.

Some of the generators have also filed review petitions before this

Commission. The Hon’ble ATE has ordered not to recover the difference

amount pending disposal of the petitions. Hence the power purchase

cost allowed in this order is subject to the decision of the Hon’ble ATE

and also this Commission.

7. On analysis of Power Purchase cost for FY16 in respect of KPCL Hydel

Stations, it is observed that the rates allowed per unit by ESCOMs, varies

among ESCOMs as given bellow:

BESCOM Rs 0.90 per unit.

MESCOM Rs 1.45 per unit.

CESC Rs 1.11 per unit.

HESCOM Rs 0.91 per unit.

GESCOM Rs 0.97 per unit.

xxxvii

CESC has allowed Rs.1.11 per unit, which indicates that while making

payment of the power purchase bills, adequate checks have not been

exercised. In FY15 the power purchased by ESCOMs from KPCL Hydel is

as under:

BESCOM Rs 0.57 per unit.

MESCOM Rs 0.56 per unit.

CESC Rs 0.58 per unit.

HESCOM Rs 0.56 per unit.

GESCOM Rs 0.59 per unit.

It is seen from the above that there is no significant variation in the rates

allowed in FY15 among the ESCOMs, as compared with the rates paid in

FY16. There should be justifiable reasons for the variations, which are not

available in the tariff applications.

In the light of this, CESC is directed to verify correctness of the payment

made by it at the rate of Rs.1.11 per unit to KPCL Hydel power. The

excess payment, if any, may be recovered from KPCL under intimation

to the Commission.

The Commission decides to approve the power purchase of 6444.86 MU

at a cost of Rs.2717.75 Crores for the purpose of Annual Performance

Review for FY16.

4.2.4 Renewable Purchase Obligation (RPO) compliance by CESC for FY16:

CESC in the petition has filed the details of RPO compliance for solar and

non-solar RPO for 2015-16 as indicated below:

TABLE-4.10

RPO Compliance for FY16

Energy Purchased-MU 6444.86

Non-Solar energy required to be procured at 10% target-

MU

644.49

Non-Solar energy actually procured excluding energy sold

under green tariff -MU

723.73

xxxviii

Non-Solar compliance as percentage of energy purchased 11.23%

Solar energy required to be procured at 0.25% target-MU 16.11

Solar energy actually procured -MU 25.22

Solar compliance as percentage of energy purchased 0.39%

For validating the RPO compliance, the Commission had directed CESC

to furnish the data as per a specified format, duly reconciling the data

with audited accounts.

CESC in their replies have furnished the following data:

TABLE-4.11

Non-solar RPO Compliance

No. Particulars Quantum

in MU

Cost-

Rs.Crores.

1 Total Power Purchase quantum

from all sources

6444.85 2717.75

2 Non–solar Renewable energy

purchased under PPA route at

Generic tariff including Non-

solar RE purchased from KPCL

457.39 158.17

3 Non –solar Short-Term purchase

from RE sources, excluding sec-

11 purchase

127.55 65.47

4 Non –solar Short-Term purchase

from RE sources under sec-11

138.63 70.36

5 Non-solar RE purchased at

APPC

0 0

6 Non-solar RE pertaining to

green energy sold to

consumers under green tariff

0 0

7 Non-solar RE purchased from

other ESCOMs

0 0

8 Non-solar RE sold to other

ESCOMs

0 0

9 Non-solar RE purchased from

any other source like banked

energy purchased at 85% of

Generic tariff

0.16* 0.06

10 Total Non-Solar RE Energy

Purchased

[No 2+ No.3+No.4+No.5

+No.7+No.9]

723.73

11 Non-Solar RE accounted for

the purpose of RPO

0

xxxix

[ No.10- No.5-No.6-No.8]

12 Non-solar RPO complied in %

[No11/No1]*100

11.23

* As per the breakup details furnished, it is 0.48 MU, which is reckoned for the Purpose of RPO.

TABLE-4.12

Solar RPO Compliance

No. Particulars Quantum

in MU

Cost- Rs.

Crs.

1 Total Power Purchase quantum from all

sources

6444.85 2717.75

2 Solar energy purchased under PPA route

at Generic tariff including solar energy

purchased from KPCL

12.65 9.31

3 Solar energy purchased under Short-

Term, excluding sec-11 purchase

0 0

4 Solar Short-Term purchase from RE under

sec-11

0 0

5 Solar energy purchased under APPC 0 0

6 Solar energy pertaining to green energy

sold to consumers under green tariff

0 0

7 Solar energy purchased from other

ESCOMs

0 0

8 Solar energy sold to other ESCOMs 0 0

9 Solar energy purchased from NTPC (or

others) as bundled power

12.56 13.51

10 Solar energy purchased from any other

source like banked energy purchased at

85% of Generic tariff

0 0

11 Total Solar Energy Purchased

[No2+No.3+No.4+No.5+No.7+No.9+No.10]

25.22 22.82

12 Solar energy accounted for the purpose

of RPO [ No.11- No.5-No.6-No.8]

0 0

13 Solar RPO complied in %

[No12/No.1]*100

0.39

The Commission has approved total input energy of 6444.86 MU for FY16

in its APR. Based on this input energy, CESC was required to purchase

644.49 MU of Non-Solar energy and 16.11 MU of solar energy to meet its

RPO targets. Considering the data submitted by CESC, the Commission

notes that CESC has achieved 11.23% of Non-Solar and 0.39% of solar

RPO targets for FY16. Thus, CESC has over-achieved its non-solar and

solar RPO targets by 1.23 percentage points and 0.14 percentage points

respectively.

xl

4.2.5 Operation and Maintenance Expenses:

CESC’s Submission:

In its application, the CESC, as per its audited accounts, has

requested to approve O&M expenses of Rs.418.47 Crores for FY16.

The break-up of O&M expenses are as follows:

TABLE – 4.13

O & M Expenses – CESC’s submission

Amount in Rs. Crores

Particulars FY16

Employee cost

327.65

Administrative & General Expenses 51.58

Repairs and Maintenance 39.24

Total O & M Expenses 418.47

Commission’s analysis and decisions:

The Commission in its Tariff Order dated 2nd March, 2015 had approved

O&M expenses for FY16 as detailed below:

TABLE – 4.14

Approved O&M Expenses as per Tariff Order dated 02.03.2015

Particulars FY16

No. of installations as per actuals as per Audited

Accts 2864790

Weighted Inflation Index 6.69%

CGI based on 3 Year CAGR 4.12%

Actual O&M expenses for FY13 - in Rs. Crs. 326.07

Total approved O&M Expenses for FY16 – in Rs. Crs. 409.15

The Commission in its preliminary observations, on the application of

CESC, had sought the details of the certain expenses booked under A &

G expenses during FY16 and noted the replies furnished.

The Commission notes that the actual O&M expenses reported by CESC

are more than the approved O&M expenses by Rs.9.32 Crores. The

Commission, in accordance with the methodology adopted while

approving the ARR for FY14-16 and subsequent APRs, proceeds with the

determination of normative O&M expenses based on the 12 Year data

of WPI and CPI besides considering 3 year compounded annual growth

rate (CAGR) of consumers. Considering the Wholesale Price Index (WPI)

xli

as per the data available from the Ministry of Commerce & Industry,

Government of India and Consumer Price Index (CPI) as per the data

available from the Labour Bureau, Government of India and adopting

the methodology followed by the CERC with CPI and WPI in a ratio of

80:20, the allowable rate of inflation for FY16 is computed as follows:

TABLE-4.15

Inflation to be allowed for FY16

Year WPI CPI

Compo

site

Series

Yt/Y

1=Rt Ln Rt

Year

(t-1)

Product

[(t-1)*

(LnRt)]

2004 98.72 111.1 108.624

2005 103.37 115.8 113.314 1.04 0.04 1 0.04

2006 109.59 122.9 120.238 1.11 0.10 2 0.20

2007 114.94 130.8 127.628 1.17 0.16 3 0.48

2008 124.92 141.7 138.344 1.27 0.24 4 0.97

2009 127.86 157.1 151.252 1.39 0.33 5 1.66

2010 140.08 175.9 168.736 1.55 0.44 6 2.64

2011 153.35 191.5 183.87 1.69 0.53 7 3.68

2012 164.93 209.3 200.426 1.85 0.61 8 4.90

2013 175.35 232.2 220.83 2.03 0.71 9 6.39

2014 182.00 246.90 233.92 2.15 0.77 10 7.67

2015 177.03 261.42 244.542 2.25 0.81 11 8.93

A= Sum of the product column 37.56

B= 6 Times of A 225.37

C= (n-1)*n*(2n-1) where n= No of years of data=12 3036.00

D=B/C 0.07

g(Exponential factor)= Exponential (D)-1 0.0771

e=Annual Escalation Rate (%)=g*100 7.71

For the purpose of determining the normative O & M expenses for FY16,

the Commission has considered the following:

a) The actual O & M expenses allowed for FY13 excluding contribution

to Pension and Gratuity Trust.

b) The three year compounded annual growth rate (CAGR) of the

number of installations considering the actual number of installations

as per the audited accounts up to FY16 at 3.92%.

c) The weighted inflation index (WII) at 7.71% as computed above.

d) Efficiency factor at 2 % as considered in the earlier two control

periods.

xlii

Thus, the normative O & M expenses for FY16 will be as follows:

TABLE – 4.16

Normative O & M Expenses for FY16

Particulars FY16

No. of Installations As per actuals as per Audited Accts 2848206

Weighted Inflation Index 7.71%

Consumer Growth Index (CGI) based on 3 Year CAGR 3.92%

Base year actual O & M expenses for FY13 excluding

P&G contribution - Rs. Crores 270.60

O&M Index= 0&M (t-1)*(1+WII+CGI-X)- Rs. Crores. 349.27

The above normative O & M expenses have been computed without

considering the contribution to Pension and Gratuity Trust for FY16.

The Commission has treated the employee costs on account of

contribution to P&G Trust as uncontrollable O&M expenses. This

component has been allowed beyond the normative O&M expenses to

enable the ESCOMs to meet their actual employee costs.

CESC, as per the audited accounts has incurred an amount of Rs.64.31

Crores towards contribution to Pension and Gratuity Trust for FY 16.

Considering the request of CESC to treat the pension and gratuity

contribution as uncontrollable O & M expenses, the Commission

computes the allowable O & M expenses for FY16 as follows:

TABLE – 4.17

Allowable O & M Expenses for FY16 Amount in Rs. Crores

Sl.

No. Particulars FY16

1 Normative O & M expenses 349.27

2 Additional employee cost (uncontrollable O & M

expenses)

64.31

Allowable O & M expenses for FY16 413.58

Thus, the Commission decides to allow an amount of Rs.413.58 Crores as

O&M expenses for FY16.

xliii

4.2.6 Depreciation:

CESC’s Submission:

CESC, in its application has claimed an amount of Rs.117.46 Crores as

gross depreciation as per the audited accounts. Further, an amount of

Rs.25.57 Crores towards the depreciation on account of assets created

out of consumers’ contributions / grants as per Accounting Standards

(AS) – 12, is considered under other income as per the Audited Accounts

for FY16. Thus the net amount of depreciation claimed by the CESC in its

tariff application is Rs. 91.89 Crores for FY16.

The asset-wise depreciation claimed by the CESC is as follows:

TABLE – 4.18

Depreciation for FY16- CESC’s Submission

Amount in Rs. Crores

Particulars

Opening Balance

of Asset as on

01.04.2015

Closing Balance

of Asset as on

31.03.2016

Depreciation

for FY16

Buildings 58.81 70.53 2.27

Civil 1.79 1.93 0.10

Other Civil 0.72 0.72 0.02

Plant & M/c 432.87 575.16 29.77

Line, Cable

Network

1505.59 1926.79 84.62

Vehicles 4.38 4.38 0.09

Furniture 3.90 4.23 0.19

Office

Equipment

5.18 9.56 0.39

Intangible

assets

2.17 2.16 0.01

Sub Total 2015.41 2595.45 117.46

Less: Depreciation on account of Assets created out

of Consumer contribution/grants

25.57

Net Depreciation 91.89

xliv

Commission’s analysis and decisions:

In accordance with the provisions of the KERC (Terms and Conditions for

Determination of Tariff for Distribution and Retail Sale of Electricity)

Regulations, 2006 and amendments thereon, the depreciation for FY16

has been determined by the Commission. Based on the opening and

closing balances of gross blocks of fixed assets for FY16 and the

depreciation as per audited accounts, the weighted average rate of

depreciation works out to 5.09%. Further, as per the Accounting

Standards (AS) – 12, an amount of Rs.25.57 Crores of depreciation on

assets created out of consumer contribution / grants has been factored

in and deducted from the gross depreciation for FY16.

Based on the above, the Commission decides to allow net depreciation

of Rs.91.89 Crores for FY16.

4.2.7 Capital Expenditure:

I. Capital Investment for FY16

CESC’s submission:

The CESC has indicated an actual capital expenditure of Rs.488.52

Crores as against the Commission approved capital expenditure of

Rs.317 Crores for FY16. The category-wise breakup of the expenditure

furnished by CESC is shown in the table below:

Table -4.19

Category wise capital expenditure of CESC for FY16

Amount in Rs. Crores

Sl.

No Schemes

FY16 As

approved

FY16

Actuals

1 Extension & improvement 80 75.76

2 NJY 50 247.53

3 HVDS 20 -

4 R-APDRP 50 21.23

5 RGGVY(Restructured)+DDG 0 0.66

6 Replacement of failed

Transformers 10 5.00

7 Service Connections 40 25.76

xlv

8 Rural Electrification(General) - -

A Electrification of Hamlets/HB/JC

under RGGVY

10 87.09 B

Providing infrastructure to

Irrigation Pump sets

&energization of IP SETS

C Kutir Jyothi(RGGVY)

9 Tribal Sub Plan - -

A Electrification of Tribal Colonies

(RGGVY) 3 2 B Energization of IP sets

C Kutir Jyothi (RGGVY)

10 Special Component Plan - -

A Electrification of

HB/JC/AC(RGGVY)

10 6 B Energization of IP sets

C Kutir Jyothi(RGGVY)

11 Tools & Plants 4 8.40

12 Civil Engineering Works 10 9.10

13

Providing Meters to DTC, BJ/KJ,

Street Light for replacement of

electromechanical meters,

providing modems to meters for

communication

30 0.00

Total 317.00 488.52

Commission’s analysis:

The Commission notes that, the overall capital expenditure of Rs.488.52

Crores incurred by CESC for FY16 has exceeded the approved capex of

Rs.317 Crores by Rs.171.52 Crores. Some of the major categories in which

CESC has exceeded the capex are as follows:

i. The CESC has exceeded the approved capex limit of Rs. 50 Crores in

“NJY program” by Rs.197.52 Crores. CESC in its replies to preliminary

observations, has stated that, due to field constraints like Right of

Way (RoW) and objections to lay the lines by the people, the project

that were taken up in previous years were delayed and the

expenditure was not booked during the previous years. During FY16

majority of NJY feeders have been completed and billed, resulting in

excess capex.

xlvi

ii. In respect of “HVDS” works, it is stated that CESC has not utilized the

approved capex of Rs.20 Crores, for the reason that, the ongoing

NJY works and providing individual transformers to Ganga Kalyana IP

Set works would render the same benefit as that of HVDS. Further,

CESC in its replies to preliminary observations has stated that, the NJY

Phase-I and Phase- II works cover a huge area in its jurisdiction in

which it has increased the number of distribution transformers and

also, it has installed individual DTCs for each of the Ganga Kalyana

works, and hence, the HVDS is not required to be implemented.

Though CESC has taken this stand, it is to be noted that the NJY

program or the individual DTC for Ganga Kalyana would not result in

the conversion of already existing lengthy LT lines emanating from

the 11 kV feeder both in rural loads as well as for IP Sets to HT lines.

Since the HVDS scheme is meant to reduce the HT/LT ratio, the

Commission directs CESC to take up a study of the existing

distribution lines and take suitable action to implement HVDS in order

to reduce the LT lines.

iii. In respect of “Rural Electrification (General)”, CESC has achieved a

capex of Rs.77.09 Crores, over and above the approved capex of

Rs.10 Crores. CESC in its replies to preliminary observations has

stated that, these works are related to social obligation and are

Government’s priority works and hence, CESC has incurred excess

capex for completion of these works.

iv. In respect of “Tools & Plants”, CESC has achieved a capex of Rs.8.4

Crores against the approved capex of Rs.4 Crores. CESC in its replies

to the preliminary observations made by the Commission has stated

that, three phase energy meter testing bench, PGRS software has

been procured during FY16. Further, it has stated that, some of the

T& P materials which were ordered in FY15 have been billed during

FY16 resulting in excess capex.

v. In respect of “Providing Meters to DTC, BJ/KJ, Street Light for

replacement of electromechanical meters, providing Modems to

xlvii

meters for communication”, CESC has incurred a very meager

/negligible capex of Rs.0.0019 Crore against the approved capex of

Rs.30 Crores. The Commission has been directing CESC to complete

DTC metering and conduct energy audit to quantify the distribution

losses and take remedial measures thereon. But, CESC has not

achieved its own set targets in the above category. CESC in its

replies to the preliminary observations made by the Commission has

stated that, there was a delay in tendering process due to delay in

finalization of the technical specifications, due to which it could not

achieve the progress in FY16.

In the light of the above discussion on excess capex and considering the

reasons furnished by CESC, the Commission decides to recognize the

capital expenditure of Rs.488.52 Crores incurred by CESC for APR of FY16,

subject to disallowance if any, as per the prudence check for FY16,

indicated in the following paras.

II. The prudence check of capital expenditure and material procurement

of CESC for FY16:

The Commission has got the Prudence check of capital expenditure for

FY16, done through third party verification of the capital works

categorized and also the material procurement of CESC during FY16.

This was taken up in two parts:

a) Prudence check of execution of the capital works of FY16:

b) Prudence check of material procurement process of FY16:

a) Prudence check of execution of the capital works of FY16:

The Commission has taken up prudence check of the capital

expenditure incurred by the CESC for the period FY16 by engaging the

services of M/s. Pricewaterhouse Coopers Private Limited, (M/s PWC) as

consultant, being the lowest bidder for the said job, through a

transparent process of e-tendering to evaluate the capital expenditure

incurred during FY16, in respect of categorized works.

xlviii

The Consultant has taken a list of division-wise and cost-wise total Capex

works carried out, categorized in the CESC during FY16. As per the scope

of work, the sampling technique of stratified random sampling for

finalizing the sample of projects as per KERC guidelines was taken up.

Total number of works of CESC in category of more than Rs.6 lakhs and

between Rs.3 lakhs to Rs.6 lakhs were much higher and exceeding the

maximum limit of sample size specified in the KERC guidelines. Therefore,

120 works and 50 works have been selected from each category of

projects more