KARNATAKA ELECTRICITY REGULATORY COMMISSION
TARIFF ORDER 2016
OF
CESC
ANNUAL PERFORMANCE REVIEW FOR FY15
&
ANNUAL REVENUE REQUIREMENT FOR FY17-19
&
REVISION OF RETAIL SUPPLY
TARIFF FOR FY17
30th
March 2016
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: [email protected]
http://www.karnataka.gov.in/kerc
ii
C O N T E N T S
CHAPTER
Page No.
1.0 Chamundeshwari Electricity Supply Corporation
Ltd.,
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 FY15
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
9
3.0 Public consultation – Suggestions / Objections
and Replies
10
3.1 List of persons who filed written objections 10
4 Annual Performance Review for FY15 12
4.0 CESC’s Application for APR for FY15 12
4.1 CESC’s Submission 12
4.2 CESC’s Financial Performance as per Audited
Accounts for FY15
14
4.2.1 Sales for FY15 15
4.2.2 Distribution Losses for FY15 19
4.2.3 Power Purchase for FY15 20
4.2.4 RPO Compliance by CESC for FY15 23
4.2.5 Operation and Maintenance Expenses 25
4.2.6 Depreciation 28
4.2.7 Capital Expenditure for FY15 30
4.2.8 Prudence check of FY15 32
4.2.9 Interest and Finance Charges 36
4.2.10 Interest on Working Capital 37
4.2.11 Interest on Consumer Deposit 38
4.2.12 Other Interest and Finance Charges 39
4.2.13 Interest o belated payment of power purchase
cost
39
4.2.14 Capitalisation of Interest 39
4.2.15 Other Debits 40
4.2.16 Net Prior Period Charges 41
4.2.17 Return on Equity 41
4.2.18 Income Tax 42
4.2.19 Other Income 42
4.3 Abstract of Approved revised ARR for FY15 43
4.3.1 Gap in Revenue for FY15 44
5.0 Annual Revenue Requirement for FY17-19 –
CESC’s filing
45
iii
5.1 Annual Performance Review for FY15 & FY16 46
5.2 Annual Revenue Requirement for FY17-19 46
5.2.1 Capital Investments for FY17-19 46
5.2.2 Sales forecast for FY17-19 51
5.2.3 Distribution Losses for FY17-19 63
5.2.4 Power Purchase for FY17-19 65
5.2.5 Sources of Power 66
5.2.6 CESC’s Power Purchase Cost and Transmission
Charges
69
5.2.7 RPO Target for FY17 72
5.2.8 O & M Expenses for FY17-19 73
5.2.9 Depreciation 76
5.2.10 Interest on Capital Loan 77
5.2.11 Interest on Working Capital 80
5.2.12 Interest on Consumer Deposit 81
5.2.13 Interest and other Expenses Capitalised 82
5.2.14 Other Debits 83
5.2.15 Net Prior Period Credit / Charges 83
5.2.16 Return on Equity 73
5.2.17 Other Income 85
5.2.18 Fund towards Consumer Relations / Consumer
Education
86
5.3 Treatment of Regulatory Asset 86
5.4 Abstract of ARR for FY17-19 87
5.5 Segregation of ARR into ARR for Distribution
Business and ARR for Retail Supply Business
88
5.6 Gap in Revenue for FY17 90
5.7 Application for Additional Revenue Requirement
for FY17
91
6 Determination of Tariff for FY17 94
6.0 CESC’s Proposal and Commission’s Analysis for
FY17
94
6.1 Tariff Application 94
6.2 Statutory Provisions Guiding Determination of
Tariff
94
6.3 Consideration for Tariff Setting 95
6.4 New Tariff Proposals by CESC 96
6.5 Revenue at Existing Tariff and Deficit for FY16 99
6.6 Other Issues 131
6.6.1 Tariff for Green Power 131
6.6.2 Determination of Wheeling Charges 132
6.6.3 Wheeling within CESC area 132
6.6.4 Wheeling of Energy using Transmission Network
or network of more than one licensee
134
6.6.5 Charges for Wheeling of Energy by RE sources
(non REC route) to consumer in the State
135
6.6.6 Charges for Wheeling Energy by RE sources
wheeling energy from the State to a consumer /
others outside the State and for those opting for
renewable energy
135
iv
6.7 Other Tariff related issues 135
6.8 Cross Subsidy Levels for FY17 140
6.9 Effect of Revised Tariff 140
6.10 Summary of Tariff Order 141
6.11 Commission’s Order 142
Appendix 143
Appendix - I 183
v
LIST OF TABLES
Table
No.
Content Page
No.
4.1 Revised ARR for FY15 – CESC’s Submission 13
4.2 CESC’s Financial Performance as per Audited
Accounts for FY15
14
4.3 CESC’s Accumulated Profits / Losses 15
4.4 Approved Sales as per APR for FY15 18
4.5 Incentives for loss reduction in FY15 20
4.6 CESC’s Power Purchase for FY15 21
4.7 RPO Compliance as submitted by CESC for FY15 23
4.8 Normative O & M Expenses – CESC’s Submission 25
4.9 Approved O & M Expenses as per Tariff Order dated
12.05.2014
25
4.10 O & M Expenses of CESC as per Annual Audited
Accounts for FY15
26
4.11 Allowable O & M Expenses for FY15 28
4.12 Depreciation for FY15 – CESC’s Submission 29
4.13 Actual Capital Expenditure incurred by CESC for FY15 30
4.14 Approved Vs Actual Capital Investment 32
4.15 Gist of Prudence Check findings for FY15 33
4.16 Allowable Interest on Loans – FY15 36
4.17 Allowable Interest on Working Capital for FY15 38
4.18 Allowable Interest and Finance Charges 39
4.19 Other Debits CESC’s Submission 40
4.20 Allowable other Debits 40
4.21 Net Prior Period Charges – CESC’s Submission 41
4.22 Allowable Return on Equity 42
4.23 Approved Revised ARR for as per APR 43
5.1 Proposed ARR for FY17-19 45
5.2 Proposed Capital Investment by CESC for FY17 to
FY19
48
5.3 Category wise approved number of installations 62
5.4 Category wise approved energy sales 62
5.5 Projected Distribution Losses FY17-19 – CESC’s
Submission
63
5.6 Approved & Actual Distribution Losses – FY11 to FY16 64
5.7 Approved Distribution Losses for FY17-19 65
5.8 Consolidated requirement of electricity as filed by
ESCOMs
65
5.9 Source wise Power Purchase of ESCOMs for the
Control Period FY17 to FY19
68
5.10 Power Purchase Cost of CESC for FY17 70
5.11 Power Purchase Cost of CESC for FY18 71
5.12 Power Purchase Cost of CESC for FY19 71
5.13 O & M Expenses – CESC’s Proposal 74
vi
5.14 Computation of Inflation Index for FY17 74
5.15 Approved O & M Expenses for FY17-19 75
5.16 Depreciation – FY17-19 – CESC’s proposal 76
5.17 Approved Depreciation for FY17-19 77
5.18 Interest on Capital Loans – CESC’s Proposal 78
5.19 Approved Interest on Capital Loans for FY17-19 79
5.20 Interest on Working Capital – CESC’s Submission 80
5.21 Approved Interest on Working Capital for FY17-19 81
5.22 Interest on Consumer Security Deposits for FY17-19 –
CESC’s Proposal
81
5.23 Approved Interest on Consumer Security Deposits for
FY17-19
82
5.24 Approved Interest and Finance Charges for FY17-19 82
5.25 Status of Debt Equity Ratio for FY17-19 84
5.26 Return on Equity for FY17-19 85
5.27 Other Income – CESC’s Proposal 85
5.28 Approved Other Income for FY17-19 86
5.29 Approved ARR for FY17-19 88
5.30 Approved Segregation of ARR – FY17-19 – CESC’s
Proposal
89
5.31 Approved Segregation of ARR FY17-19 89
5.32 Approved Revised ARR for Distribution Business – FY17-
19
90
5.33 Approved ARR for Retail Supply Business FY17-19 90
5.34 Revenue Gap for FY17 91
6.1 Revenue Deficit for FY17 99
6.2 Wheeling Charges 133
vii
LIST OF ANNEXURES
SL.NO. DETAILS OF ANNEXURES Page
No.
I Total Approved Power Purchase Quantum and Cost
of all ESCOMs for FY17
210
II Approved Power Purchase quantum and cost of
CESC for FY17
216
III Proposed and approved Revenue for FY17 222
IV Electricity Tariff – 2017 223
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
BBMP Bruhut Bangalore Mahanagara Palike
BDA Bangalore Development Authority
BESCOM Bangalore Electricity Supply Company
BMP Bangalore Mahanagara Palike
BST Bulk Supply Tariff
BWSSB Bangalore Water Supply & Sewerage Board
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
GESCOM Gulbarga Electricity Supply Company
GFA Gross Fixed Assets
GoI Government Of India
GoK Government Of Karnataka
GRIDCO Grid Corporation
HESCOM Hubli Electricity Supply Company
HP Horse Power
HRIS Human Resource Information System
ICAI Institute of Chartered Accountants of India
IFC Interest and Finance Charges
IW Industrial Worker
ix
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
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
MESCOM Mangalore Electricity Supply Company
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
x
T&D Transmission & Distribution
TCs Transformer Centres
TR Transmission Rate
VVNL Visvesvaraya Vidyuth Nigama Limited
WPI Wholesale Price Index
WC Working Capital
xi
KARNATAKA ELECTRICITY REGULATORY COMMISSION,
BANGALORE - 560 001
Dated this 30th day of March, 2016
Order on CESC’s Annual Performance Review for FY15 & Annual Revenue
Requirement for FY17-19 & Revision of
Retail Supply Tariff for FY17
In the matter of:
Application of CESC in respect of the Annual Performance Review for FY15,
Annual Revenue Requirement for FY17-19 and Revision of Retail Supply Tariff
for FY17, 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 30.11.2015
& 15.12.2015, filed the following applications for consideration
and orders:
a) Review of Annual Performance for FY15 and approval of
revised ARR thereon.
b) Approval of ARR for FY17-19
xii
c) Approval for revision of Retail Supply Tariff, for the financial
year 2016-17 (FY17)
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, and other enabling Regulations, the
Commission has considered the applications and the views and
objections submitted by the consumers and other stakeholders. The
Commission’s decisions are given in this order, Chapter wise.
xiii
CHAPTER – 1
INTRODUCTION
1.0 Chamundeshwari Electricity Supply Corporation Ltd.:
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 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 registered company 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.
Further, 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
xiv
O&M Zones O&M Circles O&M Divisions
Mysore zone
Mysore Works Circle
VV Mohalla
NR Mohalla
Nanjangud
Hunsur
Mysore O&M Circle
Chamarajnagar
Kolegala
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.
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.
xv
1.1 The CESC at a glance:
The profile of the CESC is as indicated below:
1.2
Number of Consumers, Sales in MU to various
categories of consumers and details of Revenue for FY15
are as follows:
CATEGORY
CESC
No. of
Installation
Sales in
MU
Revenue in
Rs.Crs.
Domestic 2121040 937.94 391.04
Commercial 197847 354.35 287.57
Industrial 35276 883.01 568.45
Agriculture 305791 2355.47 940.02
Others 75848 709.3 442.16
Total 2735802 5240.07 2629.24
The CESC has filed its application for Annual Performance Review for FY15,
Annual Revenue Requirement (ARR) for FY17-19 and revision of Retail Supply
Tariff for FY17.
The CESC’s application, the objections / views of stakeholders thereon and the
Commission’s decisions on the Annual Performance Review for FY15, ARR for
Sl.
No. Particulars (As on 31.03.2015) Statistics
1. Area Sq. km. 27772.82
2. Districts Nos. 5
3. Taluks Nos. 29
4. Population lakhs 81.55
5. Consumers Lakhs 27.36
6. Energy Sales MU 5240.07
7. Zone Nos. 1
8. DTCs Nos. 84086
9. Assets (including current assets) Rs. in Crores 4806.40
10. HT lines Ckt. kms 42658
11. LT lines Ckt. kms 75117
12. Total employees strength:
A Sanctioned Nos. 10411
B Working Nos. 5048
13. Revenue Demand in FY15 Rs. in Crores 2629.24
14. Revenue Collection in FY15 Rs. in Crores 2483.34
xvi
FY17-19 and Revision of Retail Supply Tariff for FY17 are discussed in detail in
the subsequent Chapters of this Order.
xvii
CHAPTER – 2
SUMMARY OF FILING & TARIFF DETERMINATION PROCESS
2.0 Background for Current Filing:
The Commission in its Tariff Order dated 6th May, 2013 had approved
the ERC for FY14 to FY16 and the Retail Supply Tariff of CESC for FY14
under MYT principles for the control period of FY14 to FY16. CESC in its
present application filed on 15th December, 2015 has sought for
Annual Performance Review (APR) for FY15 based on the audited
accounts, ARR for the fourth control period i.e. FY17-19 and revision of
Retail Supply Tariff for FY17.
2.1 Preliminary Observations of the Commission
After a preliminary scrutiny of applications the Commission had
communicated its observations to CESC on 1st January, 2016 which
were mainly on the following points:
Capital Expenditure
Sales Forecast
Assessment of IP set consumption
Power Purchase
Issues pertaining to items of revenue and expenditure
Other new proposals
Compliance to Directives
The CESC has furnished its replies on 11th January, 2016. The replies
furnished by CESC are considered in the respective Chapters of this Order.
Further, the Commission also held a validation meeting to discuss the
proposals of CESC on 10th February, 2016.
xviii
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 Commission vide its letter dated 14th January, 2016 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 18/1/2016
&
19/1/2016
The Hindu
Udayavani Kannada
Kannada Prabha
The CESC’s applications on APR of FY15, ARR for FY17-19 and revision of
retail supply tariff for FY17 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
seven statements / letters of objections. CESC has furnished its replies to all
these objections. The Commission has held a Public Hearing on 27th
February, 2016 at Mysore. The details of the written / oral submissions made
by various stake holders 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 KPTCL and all
ESCOMs in the State Advisory Committee meeting held on 10th March, 2016.
During the meeting the following important issues were also discussed:
xix
Performance of KPTCL / ESCOMs during FY15
Major items of expenditure of KPTCL / ESCOMs for FY17-19
Members of the Committee have offered valuable suggestions on the
proposals. The Commission has taken note of these suggestions while
passing the order.
xx
CHAPTER – 3
PUBLIC CONSULTATION
SUGGESTIONS / OBJECTIONS & REPLIES
3.1 In pursuance of section 64 of the Electricity Act, 2003, the Commission
undertook the process of public consultation, to obtain
suggestions/views/objections from the interested stake-holders, on the
application filed by CESC, for Annual Performance Review for FY15,
approval of ERC, and ARR for FY17, FY18 and FY19 and approval of
revised retail supply tariff for FY17, under the MYT Principle. In the
written submissions as well as during the public hearing, the Stake-
holders and the public have raised several objections/ made
suggestions, on the 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
Application
No. Name & Address of Objectors
1 CB-01 Sri Yagnanarayana M.N, General Secretary, Laghu Udyog
Bharati – Karnataka, Bengaluru.
2 CB-02 Sri Chetan Jain, AM- Business Development, Indian Energy
Exchange Limited, New Delhi.
3 CA-01 Sri N. Ravidranath & others, Madhuvanahalli, Kollegala.
4 CA-02 Sri R. Ramanna, Financial Advisor & Chief Accounts Officer,
BWSSB, Bengaluru.
5 CA-03 Sri K.B. Arasappa, Hon. Gen. Secretary, KASSIA, Bengaluru.
6 CA-04 Sri Anil Savur D, Secretary, The Karnataka Planters Association,
Chikmagaluru
7 CA-05 Sri M.M. Suryanarayana, General Secretary, Akhila Bharatiya
Grahak Panchayat ( R). Mysuru.
8
CA-06
Sri K. Ravindra Prabhu, Vice President, KIADB Industrial Area
Manufactures Association, Mysuru.
9 CA-07 Sri P.B. Chengappa, Chairman, Kodagu Planters Association,
Kodagu.
10 CA-08 Sri C.A. Subbaiah, Vice President, Kodagu District Small Growers
Association, Kodagu.
11 CA-09 Sri Lokaraj, Secretary, Federation of Karnataka Chambers of
Commerce and Industry Bengaluru.
12 CA-10 Sri K. Ravindra Prabhu, Chairman, Energy Subcommittee,
Hebbal Industrial Estate Manufacturers Association, Mysuru.
13 CA-11 to
CA-35
Sri S.B. Kempegowda & others, Mandya, Maddur,
Nagamangala, Pandavapura, T. Narasipura and Mysuru.
14 AE-01 Sri P.N. Karanth, Kundapura.
15 AE-02 Sri Praveen Sood, IPS, Additional Director General of Police,
Administration, Bengaluru
xxi
3.2 List of the persons, who made oral submissions during the Public
Hearing, held on 27.02.2016.
SL.No. Names & Addresses of Objectors
1 Sri K. Ravindra Prabhu, Vice President, KIADB Industrial Area Manufacturers
Association & Hebbal Industrial Estate Manufacturers Association.
2 Sri Suresh Kumar Jain, Mysuru Industries Association
3 Sri Mallappa Gowda & Manjunath, KASSIA.
4 Sri Savitha Ranganath, The Call, Secretary General, CVO.
5 Sri Rajesh Kadi, Anti-Corruption Committee, Mysuru.
6 Sri N. Nataraj, Chamarajanagar Kissan Sangha.
7 Sri Y.M. Raju, Hassan District Kissan Sangha.
8 Sri Anil Savur, Secretary, Karnataka Planters Association.
9 Sri Mohd. Arif Khan, Advocte, BWSSB.
10 Sri Vasanth. S. Karnataka State Electrical Contractors Association.
11 Sri Anselm Nazareth, Consumer, Mysuru.
12 Sri Rajendra, Bharatiya Kissan Sangha, Chamarajanagar.
13 Sri K.V. Siddappa, Hanuru Kissan Sangha.
14 Sri Chethan Jain, IEx.
15 Sri Capt. M.A. Hussain, Mysuru.
16 Sri Biddappa M.C, Orange County.
3.3 The gist of the objections, replies by CESC and the Commission’s views
in Appendix-1 of this order.
xxii
CHAPTER – 4
ANNUAL PERFORMANCE REVIEW FOR FY15
4.0 CESC’s Application for APR for FY15:
The CESC, in its application dated 30th November, 2015, has sought for
review of its Annual Performance (APR) for FY15 and approval of a
revised ARR thereon, based on the Audited Accounts.
The Commission in its letter dated 1st January, 2016 had communicated
its preliminary observations on the application of CESC. The CESC, in its
letter dated 11th January, 2016 has furnished its replies to the
preliminary observations of the Commission.
The Commission in its Multi Year Tariff (MYT) Order dated 6th May, 2013
had approved the CESC’s Annual Revenue Requirement (ARR) for
FY14 – FY16. Further, in its Tariff Order dated 12th May, 2014, the
Commission had approved the APR for FY13 and had revised the ARR
for FY15 along with Retail Supply Tariff for FY15.
The Annual Performance Review for FY15 based on the CESC’s Audited
Accounts is discussed in this Chapter.
4.1 CESC’s Submission:
The CESC has submitted its proposals for revision of ARR for FY15 based
on the Audited Accounts as follows:
xxiii
TABLE – 4.1
Revised ARR for FY15 – CESC’s Submission Amount in Rs. Crores
Sl.
No Particulars As Filed
1 Energy @ Gen Bus in MU 6299.35
2 Energy @ Interface in MU 6084.89
3 Distribution Losses in % 13.88
Sales in MU
4 Sales to other than IP & BJ/KJ installations 2911.20
5 Sales to IP & BJ/KJ installations 2328.87
Total Sales 5240.07
Revenue in Rs Crs
6 Revenue from tariff and Misc. Charges 1671.36
7 RE Subsidy 957.87
Total Revenue 2629.23
Expenditure in Rs Crs
8 Power Purchase Cost 1894.39
9 Transmission charges of KPTCL 265.50
10 SLDC Charges 3.42
Power Purchase Cost including cost of
transmission 2163.31
11 Employee Cost 294.33
12 Repairs & Maintenance 37.56
13 Admin & General Expenses 39.55
Total O&M Expenses 371.44
14 Depreciation 46.08
Interest & Finance charges
15 Interest on Loans 78.85
16 Interest on Working capital 1.41
17 Interest on belated payment of power purchase 1.54
18 Interest on consumer deposits 37.09
19 Other Interest & Finance charges 2.44
20 Less interest & other expenses capitalised 27.71
Total Interest & Finance charges 93.62
21 Other Debits 4.94
22 Net Prior Period Debit/Credit (72.44)
23 Return on Equity 0.00
24 Tax 15.78
25 Other Income 33.77
Net ARR 2588.96
Considering a revenue of Rs.2629.23 Crores against a net ARR of
Rs.2588.96 Crores, the CESC has reported surplus in revenue of Rs.40.27
Crores for FY15.
xxiv
4.2 CESC’s Financial Performance as per Audited Accounts for FY15:
An overview of the financial performance of the CESC for FY15 as per
their Audited Accounts is given below:
TABLE – 4.2
Financial Performance of CESC for FY15
Amount in Rs. Crores
Sl.
No. Particulars FY15
Receipts
1 Revenue from Tariff and misc. charges 1671.36
2 Tariff Subsidy 957.87
Total Revenue 2629.23
Expenditure
3 Power Purchase Cost 1894.39
4 Transmission charges of KPTCL 265.50
5 SLDC Charges 3.42
Power Purchase Cost including cost of transmission 2163.31
6 O&M Expenses 371.45
7 Depreciation 46.08
Interest & Finance charges
8 Interest on Loans 55.39
9 Interest on Working capital 24.88
10 Interest on consumer deposits 37.08
11 Interest on belated payment of power purchase
cost 1.54
12 Other Interest & Finance charges 2.44
13 Less interest and other expenses capitalized 27.71
Total Interest & Finance charges 93.62
14 Other Debits 4.94
15 Net Prior Period Debit/Credit (72.44)
16 Other income 32.77
17 Income tax 15.77
Net ARR 2588.96
As per the Audited Accounts, the CESC has earned a profit of Rs.40.27
Crores for FY15. The profits / losses reported by the CESC in its audited
accounts in the previous years are as follows:
xxv
TABLE – 4.3
CESC’s Accumulated Profits / Losses
Particulars
Amount in
Rs. Crs
Accumulated losses as at the end of FY10 (285.15)
Profit earned in FY11 11.38
Loss incurred in FY12 (123.45)
Loss incurred in FY13 (269.63)
Loss incurred in FY14 (15.61)
Profits earned in FY15 40.27
Accumulated losses as at the end of FY15 (642.19)
As seen from the above table, the accumulated losses are Rs.642.19
Crores.
Commission’s analysis and decisions:
The Annual Performance Review for FY15 has been taken up duly
considering the actual expenditure as per the Audited Accounts
against the expenditure approved by the Commission in its Tariff Order
dated 12th May, 2014. 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 FY15:
a) Sales-Other than IP sets
The Commission in its Tariff order dated 12.05.2014 had approved for
FY15 total sales to various consumer categories at 5448.45 MU as
against the CESC proposal of 5596.11 MU. The Actual sales of CESC as
per the current APR filing [FORMAT D-2] is 5240.09 MU, indicating a short
xxvi
fall in sales to an extent of 208.36 MU vis-à-vis the approved sales. The
shortfall in sales is 104.21 MU in LT-categories and104.15 MU in HT-
categories.
The Commission notes that, as against approved sales of 2997.80 MUs
to categories other than BJ/KJ and IP sets, the actual sales achieved
by CESC is 2911.22 MU, resulting in shortfall of sales to these categories
by 86.58 MU. Further, the CESC has sold 2328.87 MU to BJ/KJ and IP
categories against approved sales of 2450.65 MU resulting in lower
sales to these categories by 121.78 MU.
The actual share of sales to categories other than BJ/KJ and IP sets is
55.56% as against the estimated share of 55.02% resulting in marginal
increase in share of sales to these categories, while the actual share of
sales to BJ/KJ and IP sets has taken short by the same percentage
point. The Commission notes that the major categories contributing to
the lower sales are HT Industries (134.79 MU), HT Commercial (27.23 MU)
and IP sets (121.46 MU).
b) Sales to IP sets
In its Tariff Order dated 6th May, 2013, the Commission had approved
specific consumption of IP sets at 8,195 units/installation/annum for the
entire control period of FY14 to FY16, whereas, as per the IP set
consumption reported by the CESC in its filing, the specific
consumption works out to 7,843 units /installation/annum for the FY15,
which indicates a decrease in the specific consumption of 352
units/installation/annum. The total IP set consumption reported by the
CESC for the FY15 is 2,294.33 MU as against 2,415.79 MU sales quantum
approved by the Commission. Thus, the specific consumption has
decreased by 352 units /installation/annum with the corresponding
decrease in sales by 121.46 MU when compared to those approved by
the Commission for the FY15.
xxvii
Further, the Commission had approved 3,16,336 as number of
installations likely to be serviced in the FY 15; whereas the actual
number of installations serviced as reported by the CESC is 3,00,070.
The difference in number of installations is 16,266. This indicates
decrease of around 5 per cent in number of installations serviced, as
compared to the approved number of installations by the Commission
for the FY15. Further, it is noted that the shortfall in the sales can be
attributed to lower number of installations serviced than the projected
numbers.
The Commission in its Tariff Order dated 12th May, 2014 had directed
the CESC to furnish feeder wise IP set consumption based on the
feeder energy meter data, every month to the Commission, in respect
of agricultural feeders segregated under NJY. The CESC in its tariff
application has submitted the data of IP sets from April 14, to March 15,
without indicating as to how much loss in 11 kV lines, distribution
transformers and LT system has been deducted from the gross
consumption obtained from the agricultural feeders, to arrive at the
net IP set consumption.
The Commission in its preliminary observations had directed the CESC
to justify its claims of IP consumption of 2,294.33 MU declared for the
FY15 with necessary data in support of the same and the methodology
adopted to arrive at the energy loss figures in the 11 kV System. The
CESC was also directed to explain whether the total IP set
consumption for the FY15 has been worked out by considering the
specific consumption of agricultural feeders segregated under NJY or
on the basis of readings obtained from the meters fixed to sample
DTCs feeding predominantly IP set loads, with the necessary data to
justify its claims in support of IP sales declared for the FY15.
The CESC, in its reply to the preliminary observations made by the
Commission, has stated that it has submitted the IP set details based on
the energy meters data in respect of the segregated agricultural
xxviii
feeders as desired by the Commission and the distribution system loss
figures at 15 per cent has been considered to arrive at the net IP set
consumption from April, 2014 to March 2015.
Further, the CESC during the validation meeting held on 10.02.2016 in
the Commission has also submitted the necessary data in respect of IP
set consumption for the FY15 on the basis of energy meter readings of
11 kV agricultural feeders which have been segregated under NJY.
The Commission notes that the decrease in IP set sales for the FY15 can
be attributed to the fact that the CESC has serviced less number of IP
sets than it has projected. However, it is also noted that the specific
consumption as well as the sales have significantly decreased vis-à-vis
the approved quantities by the Commission for the FY15 perhaps due
to restricted hours of power supply made to agricultural feeders which
are segregated under NJY. The Commission also notes that the CESC
has declared overall 11 kV distribution system losses at 15 per cent,
whereas, the same could have been directly calculated for each
feeder considering the 11 kV and LT sketches in respect of all the
agricultural feeders to arrive at accurate IP set consumption.
The CESC is directed to report henceforth the total IP set consumption
on the basis of data from energy meters in respect of agricultural
feeders segregated under NJY to the Commission every month
regularly duly calculating the distribution system losses in 11 KV lines,
distribution transformers and LT lines, as discussed above.
For the present, the Commission decides to accept the sales to IP sets
for the FY15 as 2,294.33 MU as submitted by the CESC.
The category wise sales approved by Commission and the actuals for
FY 15 are indicated in the table below:
TABLE – 4.4
Approved Sales as per APR for FY15
Figures in MU
Category Approved Actuals Actuals - Approved
xxix
LT-2a* 889.51 903.40 13.89
LT-2b 6.65 7.21 0.56
LT-3 249.02 245.89 -3.13
LT-4b 0.71 0.89 0.18
LT-4c 8.55 9.77 1.22
LT-5 133.93 138.74 4.81
LT-6 147.85 140.98 -6.87
LT-6 83.16 90.40 7.24
LT-7 11.92 11.59 -0.33
HT-1 392.45 413.98 21.53
HT-2a 879.06 744.27 -134.79
HT-2b 135.69 108.46 -27.23
HT-2c 7.80 36.63 28.83
HT-3a & b 40.90 50.48 9.58
HT-4 9.06 5.82 -3.24
HT-5 1.54 2.71 1.17
Sub total 2997.80 2911.22 -86.58
BJ/KJ 34.86 34.54 -0.32
IP 2415.79 2294.33 -121.46
Sub total 2450.65 2328.87 -121.78
Grand total 5448.45 5240.09 -208.36
*Including BJ/KJ installations consuming more than 18 units/month
Thus the Commission approves the energy sales for FY15 at 5240.09 MU.
4.2.2 Distribution Losses for FY15:
CESC’s Submission:
The Commission had approved distribution losses for FY15 as
shown in the table below:
Range FY15
Upper limit 15.50%
Average 15.00%
Lower Limit 14.50%
CESC has reported a loss level of 13.88% for FY15 as detailed
below:
xxx
1 Energy at Interface Points in MU 6084.89
2 Total sales in MU 5240.07
3 Distribution losses as a percentage of
input energy at IF points 13.88%
Commission’s analysis and decisions:
The distribution losses of 13.88% reported by CESC is based on the sales
of 5240.09 MU as against the energy of 6084.89 MU at interface points.
Considering the approved range of losses for FY15, CESC has achieved
distribution loss reduction of 0.62% as compared to the lower limit of
allowable losses. As per the provisions of the MYT Regulations,
incentives for loss reduction is allowed to CESC as follows:
TABLE – 4.5
Incentives for loss reduction in FY15
Particulars FY15
Actual input at IF points as per audited accounts in
MU 6084.89
Retail sales as per audited accounts in MU 5240.07
Percentage distribution losses 13.88%
Target of lower limit of distribution loss 14.50%
Reduction in loss in percentage point 0.62%
Input at target loss for actual sales in MU 6128.74
Decrease in input due to reduction in distribution
losses in MU 43.85
Average cost of power purchase @ IF points in
Rs./unit 3.43
Reduction in power purchase cost due to lower
distribution losses in Rs. Crores 15.06
Incentives allowed in APR 15 (Sharing gains with
consumers in the ratio of 50:50) in Rs.Crs. 7.53
Accordingly, the Commission decides to add an amount of Rs.7.53
Crores as incentive towards loss reduction in the revised ARR for FY15.
4.2.3 Power Purchase for FY15:
CESC’s Submission:
xxxi
1. The Commission in its Tariff order dated 12th May, 2014 had
approved source-wise quantum and cost of power purchase for
FY15. The CESC, in its application has submitted the details of actual
power purchase for FY15 for its Annual Performance Review. The
details of power purchase are detailed as under:
xxxii
TABLE – 4.6
CESC’s POWER PURCHASE FOR FY15
Particulars
Actuals for FY15 Approved for FY15
Difference of Actuals
over the Approved-for
FY15
% increase /decrease
over approved figures
Energy
in MUs
Cost in
Rs Crs.
Rate
in Rs
per
Unit
Energy
in MUs
Cost in
Rs Crs.
Rate
in Rs
per
Unit
Energy
in MUs
Cost
in Rs
Crs.
Rate
in Rs
per
Unit
Energy Cost Rate
KPCL Hydel
Stations
1808.49 105.07 0.58 1793.84 101.74 0.57 14.65 3.33 0.01 0.82 3.27 2.44
KPCL-Thermal
Stations
1627.55 627.25 3.85 1694.06 645.15 3.81 -66.51 -17.90 0.05 -3.93 -2.77 1.20
Total 3436.04 732.32 2.13 3487.9 746.89 2.14 -51.86 -14.57 -0.01 -1.49 -1.95 -0.47
CGS 1451.01 439.02 3.03 1578.31 503.76 3.19 -127.30 -64.74 -0.17 -8.07 -12.85 -5.21
Major IPPs 38.90 16.76 4.31 0.78 0.36 4.62 38.12 16.40 -0.31 4887.18 4555.56 -6.65
IPPs -Minor
(NCE
Projects)
615.03 220.92 3.59 895.83 318.51 3.56 -280.80 -97.59 0.04 -31.35 -30.64 1.03
Other States
Projects
15.86 4.74 2.99 21.7 6.91 3.18 -5.84 -2.17 -0.20 -26.91 -31.40 -6.15
Short
/Medium
term
including U I
& Sce-11
910.78 476.02 5.23 679.31 354.33 5.22 231.47 121.69 0.01 34.07 34.34 0.20
Transmission
Charges
(KPTCL &
PGCIL)
318.47 309.9 0.00 8.57 0.00 2.77
LDC Charges
(POSOO &
SLDC)
3.77 3.56 0.00 0.21 0.00 5.90
Energy
Balancing
-168.23 -53.27 3.17 -168.23 -53.27 3.17
Others
Charges
4.52 0.00 4.52 0.00
TOTAL 6299.39 2163.31 3.43 6663.83 2244.22 3.37 -364.44 -80.95 0.07 -5.47 -3.61 1.97
Commission’s analysis and decisions;
1. The actual power purchase for FY15 as filed by the CESC for
approval of Annual Performance Review is 6299.39 MU at a cost of
Rs.2163.97 Crores, as against the approved quantum of 6663.83 MU,
amounting to Rs.2244.22 Crores. Thus there is reduction in quantum
of power purchased to an extent of 364.44 MU and in cost by
Rs.80.95 Crores.
xxxiii
2. On an analysis of the source-wise approved and actual power
purchases, the following deviations in quantum of energy and its
cost of purchase are found:
i. As against the approved quantum of 6663.83 MU the actual
power purchased by the CESC is 6299.39 MU for FY15, which is
around 5.47% of the approved quantum. Such decrease during
FY14 was 3.39%. This has reflected in reduction in power
purchase.
ii. On a verification of the source-wise power purchase, it is found
that, there is lesser energy supply from KPCL thermal, CGS, NCE
and outside the State projects to an extent of 480.45 MU at a cost
of Rs.182.40 Crores. Consequently, CESC has purchased
additional power from KPCL hydel, major IPPs and Short-term
supplies, over and above the approved power purchase against
these sources, to a tune of 284.24 MU, incurring an expenditure of
Rs.141.42 Crores. However, there is an overall reduction in power
purchase to a tune of Rs.80.95 Crores. Consequent to reduced
supply of energy from KPCL thermal, CGS, NCE etc., the power
purchase cost per unit, has increased by 7 paise.
iii. All these factors including the change in the source-wise mix of
supply and reconciliation of energy and its cost among ESCOMs
have resulted in higher average power purchase cost of CESC at
Rs.3.43 per KWh as against the approved rate of Rs.3.37 per KWh
leading to an overall increase by Rs.0.07 per unit. During FY 14 the
increase in per unit cost was Rs.0.29 per unit which worked out to
9.66 %. Now, for FY15, the increase in per unit cost is 1.97 %.
iv. D1 format of CESC indicates energy balancing among other
ESCOMs to an extent of 168.23 MU amounting to Rs.53.27 Crores,
which has been reconciled with Energy Balancing Statement of
SLDC.
3. The Commission notes that, the SLDC is yet to implement the intra-
state ABT scheme. The Commission therefore directs SLDC to take
xxxiv
appropriate action immediately to expedite the implementation of
intra-state ABT and to host such details on its website.
4. The Commission in its Tariff order dated 2nd March, 2015 had
directed CESC to move the Government to effect necessary
adjustments in the tariff subsidy payable to ESCOMs and ensure
that there are no inter ESCOM payments outstanding in their
accounts. Further, CESC was also directed to reconcile the inter
ESCOM exchanges and its costs duly making necessary
adjustments to ensure proper accounting of energy and its cost.
5. CESC is directed to reconcile the inter ESCOM energy exchanges
and its costs every month and the difference amounts shall be
collected/paid out of the tariff subsidy received from the
Government of Karnataka, to ensure proper accounting of energy
and its cost.
6. The Commission reiterates that, for the prior period
receivables/payables, CESC should move the Government to
effect necessary adjustments out of the tariff subsidy, to be
received from the Government of Karnataka.
In terms of the MYT Regulations, the Commission taking note of the
above facts, decides to consider 6299.39 MU at a cost of Rs.
2163.30 Crores (as per audited Accounts), towards power purchase
for approving the Annual Performance Review of CESC for FY15.
4.2.4 Renewable Purchase Obligation (RPO) compliance by CESC for FY15:
CESC has submitted that its achievement of non-solar RPO and solar
RPO are at 11.51% and 0.23% respectively as against target of 10% and
0.25% respectively, as indicated below:
TABLE – 4.7
RPO compliance as submitted by CESC for FY15
xxxv
Company
Name
Total
Input
Energy
(MU)
Non-Solar RPO Solar RPO
Target Achieved Target Achieved
(MU) (%) (MU) (%) (MU) (%) (MU) (%)
CESC 6299.35 629.94 10 725.23 11.51 15.74 0.25 14.50 0.23
The Commission has perused the source-wise renewable energy
purchased, as submitted by CESC under D1 format of the Petition vis-à-
vis the RPO compliance data submitted by CESC in its reply to the
Commission’s preliminary observations.
The Commission has observed that, CESC has accounted 7.49 MU of
non-solar renewable energy purchased under APPC for the purpose of
non-solar RPO compliance. Since, renewable energy purchased under
APPC cannot be considered for the RPO calculation, the Commission
has not considered the same. Thus, the non-solar RE reckoned by the
Commission for non-solar RPO compliance is 717.74 MU as against
725.23 MU declared by CESC.
The Commission has approved total power purchase quantum of
6299.3MU for FY15 in its APR. Thus, CESC was required to purchase
629.93 MU of Non-solar energy to meet its RPO target. Based on the
information furnished, the Commission notes that CESC has purchased
717.74 MU of non-solar RE power for FY15 complying with the non-solar
target for FY15.
Regarding solar RPO target, it is noted that CESC has been able to
achieve solar RPO target of 0.23% as against a specified target of
0.25%, resulting in shortfall of 0.02% in meeting the solar RPO target.
Further, in replies to the observations made by the Commission in the
validation meeting, CESC has stated that the shortfall is due to
inordinate delay in commissioning of 10MW capacity M/s Sai Sudhir
Energy Pvt. Ltd. It is further, stated that if the project had been
commissioned, CESC would have been able to meet the solar RPO
from the anticipated generation of 15 MU. Further, CESC has requested
the Commission to allow them to carry forward unfulfilled FY-15 solar
xxxvi
RPO to FY16 as two solar projects of M/s Madhav Solar of 5 MW
capacity each have been commissioned during July, 2015 and in the
event of non-fulfillment of solar RPO in FY-16, it would consider
purchase of RECs to achieve the solar RPO.
The Commission notes that when the State as a whole is taken for the
purpose of assessment of achievement of solar RPO, in aggregate all
the State owned ESCOMs have achieved the total solar RPO target set
for the State. The Commission therefore decides not to recognize the
individual achievement of CESC and to treat the matter as closed.
4.2.5 Operation and Maintenance Expenses:
CESC’s Submission:
CESC has sought approval of O&M expenditure of Rs.371.44
Crores for FY15. CESC has claimed this O&M expenses as follows:
TABLE – 4.8
Normative O & M Expenses – CESC’s submission
Amount in Rs. Crores
Particulars FY15
Repairs & Maintenance 37.56
Employee Expenses 294.33
A&G expenses 39.55
O&M expenses 371.44
Commission’s analysis and decisions:
The Commission had approved O&M expenses for FY15 as detailed
below:
TABLE – 4.9
Approved O&M Expenses for FY15 Amount in Rs. Crores
Particulars FY15
No. of installations as per actuals as per Audited Accts 2888721
Weighted Inflation Index 6.89%
CGI based on 3 Year CAGR 5.54%
xxxvii
Actual O&M expenses for FY13 326.07
Approved O&M Expenses for FY15 393.51
As per the Annual Audited Accounts of the CESC for FY15, the actual
O&M expenditure is as follows:
xxxviii
TABLE – 4.10
O&M Expenses of CESC for FY15 as per actuals
Amount in Rs. Crores Repairs & Maintenance 37.56
Employee Expenses 294.33
A&G expenses 39.55
O&M expenses 371.44
The Commission in its preliminary observations made on the O & M
expenses had sought the details of the items of expenditure incurred
by the CESC during FY15 under A & G expenses. The CESC in its replies
has stated that it has incurred expenses of Rs.14.70 Crores towards
professional charges, Rs.8.52 Crores towards conveyance, travel and
vehicles expenses besides other A&G expenses. On detailed review of
the expenses, it is observed that CESC is incurring substantial expenses
on vehicle hire charges and professional charges.
Also, the R&M expenses are increasing year on year without proper
justification. One of the major items noticed under R & M is expenses
incurred on repairs of distribution transformers. The CESC needs to
institutionalize a mechanism for minimizing such expenses.
These expenses are abnormally increasing as compared to the
previous years. Since the O & M expenses are controllable expenses,
the CESC has to initiate necessary measures to ensure prudence in
incurring these expenses. The Commission is of the view that the CESC
should continue control its O & M expenses as per the approved O & M
expenses.
However, for the present, based on the provisions of the MYT
Regulations, the Commission has proceeded with determining the
normative O & M expenses.
Considering the Wholesale Price Index (WPI) 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
xxxix
Bureau, Government of India and adopting the methodology followed
by the CERC with CPI and WPI in a ratio of 80 : 20, the allowable
inflation for FY15 is computed as follows:
Year WPI CPI Composite
Series Yt/Y1=Rt Ln Rt
Year
(t-1)
Product [(t-
1)* (LnRt)]
2003 92.6 107 104.12
2004 98.72 111.1 108.624 1.04 0.04 1 0.04
2005 103.37 115.8 113.314 1.09 0.08 2 0.17
2006 109.59 122.9 120.238 1.15 0.14 3 0.43
2007 114.94 130.8 127.628 1.23 0.20 4 0.81
2008 124.92 141.7 138.344 1.33 0.28 5 1.42
2009 127.86 157.1 151.252 1.45 0.37 6 2.24
2010 140.08 175.9 168.736 1.62 0.48 7 3.38
2011 153.35 191.5 183.87 1.77 0.57 8 4.55
2012 164.93 209.3 200.426 1.92 0.65 9 5.89
2013 175.35 232.2 220.83 2.12 0.75 10 7.52
2014 182 246.9 233.92 2.25 0.81 11 8.90
A= Sum of the product column 35.36
B= 6 Times of A 212.19
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 0.0724
e=Annual Escalation Rate (%)=g*100
7.24
For the purpose of determining the normative O & M expenses for FY15,
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 audited accounts up to FY15.
c) The weighted inflation index (WII) at 7.24% as computed above.
d) Efficiency factor at 2% as considered in the earlier two control
periods.
Thus, the normative O & M expenses for FY15 will be as follows:
Particulars FY15
No. of Installations as per actuals as per Audited Accts 2735802
Weighted Inflation Index 7.24%
Consumer Growth Index (CGI) based on 3 Year CAGR 3.65%
Normative O & M expenses for FY13 excluding P&G 270.60
xl
contribution - Rs. Crs.
O&M Index= 0&M (t-1)*(1+WII+CGI-X)- Rs. Crores 318.60
The above normative O & M expenses have been computed without
considering the contribution to Pension and Gratuity Trust.
The Commission has treated certain 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 ESCOMs to meet their actual employee costs.
The CESC in its audited accounts for FY15 has indicated an amount of
Rs.48.70 Crores towards contribution to Pension and Gratuity trust.
Considering the request of the CESC to treat gratuity contribution as
uncontrollable O & M expenses, the Commission has computed the
allowable O & M expenses for FY15 as follows:
TABLE – 4.11
Allowable O & M Expenses for FY15
Amount in Rs. Crores Sl.
No. Particulars FY15
1 Normative O & M expenses 318.60
2 Additional employee cost (uncontrollable
O & M expenses)
48.70
3 Allowable O & M expenses 367.30
The Commission decides to allow an amount of Rs.367.30 Crores as
O&M expenses for FY15.
4.2.6 Depreciation:
CESC’s Submission:
CESC in its application has claimed an amount of Rs.46.08 Crores as
depreciation computed after deducting an amount of Rs.35.87 Crores
towards depreciation withdrawn on account of contributions /
subsidies as per Accounting Standards (AS) – 12.
As per the audited accounts, the asset wise depreciation is as follows:
xli
TABLE – 4.12
Depreciation for FY15 – CESC’s Submission
Amount in Rs. Crores
Particulars
Opening
Balance of
Asset as on
01.04.2014
Closing
Balance of
Asset as on
31.03.2015
Depreciation
for FY15
Buildings 52.62 58.81 1.84
Civil 1.72 1.79 0.09
Other Civil 0.69 0.72 0.02
Plant & M/c 327.77 432.87 20.64
Line, Cable Network 1244.80 1505.59 58.85
Vehicles 3.80 4.38 0.05
Furniture 3.95 3.90 0.18
Office Equipment 6.93 5.18 0.28
Total 1642.28 2013.24 81.95
Intangible assets 2.17 2.17
Net Depreciation 1644.45 2015.41 81.95
Commission’s analysis and decisions:
The depreciation is determined by the Commission in accordance
with the provisions of the KERC (Terms and Conditions for
Determination of Tariff) Regulations, 2006 as amended on 1st February,
2012. Considering the opening and closing balance of gross blocks of
fixed assets for FY15 and the depreciation as per annual accounts, the
weighted average rate of depreciation works out to 4.46%.
As per the audited accounts for FY15, an amount of Rs.35.87 Crores on
account of depreciation on assets created out of grants and
contribution on actual basis, is considered for computation of
allowable depreciation for FY15.
Based on the above, the Commission decides to allow the actual
depreciation of Rs.46.08 Crores for FY15.
xlii
4.2.7 Capital Expenditure for FY15
CESC has reported a capital expenditure of Rs.368.12 Crores against
the approved capex of Rs.455 Crores (CESC had approached the
Commission for approval of additional capex for FY15 duly furnishing
the reasons for its increased capex requirement from Rs.378 Crores and
the Commission had approved an additional capex of Rs.77 Crores for
FY15 totalling to a capex of Rs.455 Crores for FY15). The actual
expenditure incurred by CESC for different category of works is as
shown in the table below:
TABLE- 4.13
The actual capital expenditure incurred by CESC for FY15
Amount in Rs.
Crores
Sl.
No. Schemes Approved
Actual
expenditure
1 Extension & Improvement
a) HVDS+LTD Box + E&I works 70 65.95
b) NJY 125 85.77
2 R-APDRP 45 16.83
3 RGGVY(Restructured )+DDG 25 0.04
4 Replacement of failed
Transformers 50 62.57
5 Service Connections 35 31.52
6 Rural Electrification(General)
A Electrification of
Hamlets/HB/JC/KJ under RGGVY 38 79.97
B
Providing infrastructure to
Irrigation Pump sets & Energization
of IPSETS
C Kutir Jyothi(RGGVY)
7 Tribal plan
A Electrification of
HB/JC/AC(RGGVY) 3 4
B Energization of IP sets
C Kutir Jyothi (RGGVY)
8 Special Component Plan
A Electrification of
HB/JC/AC(RGGVY) 8 11
B Energization of IP sets
C Kutir Jyothi (RGGVY)
9 Tools & Plants (Other works) 4 2.23
10 Civil Engineering Works 10 8.20
xliii
Sl.
No. Schemes Approved
Actual
expenditure
11 Providing Meters to DTC, IP Set. 42 0.04
Total 455 368.12
Commission’s Analysis and decision:
From the above table it is to be noted that, in the category of RGGVY
(Restructured) +DDG works, the CESC has incurred very meager capex
of only Rs.0.04 Crores against the approved capex of Rs.25 Crores.
In case of replacement of failed Transformers, the CESC has indicated
capital expenditure of Rs.62.57 Crores, which is 25% more than the
approved capex of Rs.50 Crores. It is to be noted that, the failed
transformers should be replaced by repaired good transformers only
and it should be charged to revenue expenditure. In case, the failed
transformer is scrapped then only it can be replaced by a new
transformer which can be booked under capex. However, in the reply
to the preliminary observations, the CESC has admitted that, there is a
discrepancy in accounting system/booking of expenditure pertaining
to replacement of failed transformers. The CESC has indicated that,
1397 numbers of new transformers (100kVA, 63kVA and 25kVA) are
used for replacing failed transformers amounting to a total of Rs.13.28
Crores only. But, the amount indicated in capital expenditure for
replacement of failed transformer is at Rs.62.57 Crores. The CESC has
agreed to streamline its accounting system to reflect only the capital
expenditure actually incurred for replacement of failed transformers by
new transformers. Further, when the capex incurred for replacement of
failed transformers by new transformers, is considered as Rs.13.25
Crores only, the capital expenditure of FY15 will be Rs.318.83 Crores
instead of Rs.368.12 Crores.
The CESC had ambitiously sought additional capex approval from the
Commission for FY15 from Rs.373 Crores to Rs.455 Crores, but, it could
achieve only Rs.368.12 Crores which is very well within the original
approval of Rs.378 Crores. The CESC should have strived to complete
xliv
more number of works and achieve a higher capex nearer to the
additionally approved capex figures.
The year-wise expenditure incurred by the CESC against the approved
Capex during the last four years is shown in the following Table:
TABLE – 4.14
Approved Vs Actual capital investment
Amount in Rs.Crores
Particulars FY12 FY13 FY14 FY15
Capital Investment Proposed
& Approved
485.00 560.00 575.50 455
Capital Investment actually
incurred
183.27 195.87 321.75 318.83
Short fall 301.73 364.13 253.75 136.17
% Achievement 37.79% 34.98% 55.91% 70.07%
From the above table, it can be observed that, though the CESC has
improved its spending on capital investments over the years, it has not
achieved more than 70% of its approved capex in any year from FY12.
Considering the above points, the Commission considers the capital
expenditure incurred by the CESC at Rs.318.83 Crores subject to
prudence check of capital investment of FY15 as discussed in the
following paras.
4.2.8 Prudence check of FY15:
The prudence check of capex of CESC was taken in two parts:
a) Prudence check of execution of the capital works of FY15:
b) Prudence check of material procurement process of FY15:
a) Prudence check of execution of the capital works of FY15
The Commission had taken up prudence check of the capital
expenditure incurred by the CESC for the period FY15 by engaging the
services of M/s. Power Research Development Consultants Private
xlv
Limited, (M/s PRDC) as consultants to evaluate the capital expenditure
incurred during FY15, in respect of completed and categorized works.
The Consultant has taken a list of division wise and cost wise total
Capex works carried out, completed and categorized in the CESC
during FY-15 from KERC. It has classified the works cost wise in three
groups as per the Scope of work mentioned in bid document, namely,
works costing above 6 lakhs, works costing between Rs.6 lakh and 3
lakh and works costing between 3 lakh and 1 lakh respectively. The
works were taken up under various schemes like RAPDRP, UNIP and
Niranthara Jyothi Schemes apart from General capital works like
service connection, Extension & Improvement works, Civil engineering
works, metering, etc. A representative sample in each category was
selected covering the geographical area of the Company as per the
Scope of work and submitted the report of the prudence check.
As per the prudence check report submitted by the consultants, the
following are the salient features:
TABLE – 4.15
Gist of Prudence check findings for FY15
Particulars Numbers Amount
in Rs. Crs
Works costing Rs.6 Lakhs and above considered as
samples for validation 119 95.79
Works costing between than Rs.6 Lakhs and Rs.3
Lakhs considered as samples 50 2.53
Works costing below Rs.3 Lakhs considered as
samples 24 0.69
Works not meeting the
norms of prudence
Rs.6 Lakhs and above Nil
Rs.6 Lakhs and Rs.3 Lakhs Nil
below Rs.3 Lakhs Nil
Total works not meeting the norms of prudence as
stipulated in the guidelines issued by this
Commission
Nil
A summary of the other findings in the prudence check are given in
following Table:
Summary of Works having cost overrun
xlvi
Particulars Within 10% 10-25% Above 25%
Rs.6 Lakhs and above 04 09 07
Rs.6 Lakhs and Rs.3 Lakhs 03 01 00
below Rs.3 Lakhs 01 01 00
xlvii
Summary of Works having Time overrun
Particulars Within one
Year
Between one
and two Years above 2 Years
Rs.6 Lakhs and above 22 16 08
Rs.6 Lakhs and Rs.3 Lakhs 11 03 03
below Rs.3 Lakhs 04 02 02
The Commission has forwarded the copy of the Report on the Prudence
check to the CESC for its information.
b) Prudence check of material procurement process of FY15:
The Consultant has stated that, the CESC has considered all the
aspects related to procurement prudently and procured the materials
as per the requirement after due process of “e-tendering” dully
following the transparency act. However the Government of
Karnataka has exempted the ESCOMs from the KTPP act in respect of
purchase of materials directly from a few firms without calling for
tenders. Some materials are also purchased through rate contract
basis from firms after necessary bidding processes.
The following are the observations made by the Consultant on the
procurement of materials:
a) The CESC has considered the actual requirement of materials
based on work in progress and the annual program of works
planned.
b) The materials are procured through the process of e-tendering
duly following the regulations as per the KTPP Act and from the
firms which are exempted from KTTP.
c) There has been a downward trend in the materials stocked at
the end of the year (Closing Balance) as compared to the
beginning (Opening Balance). Only in respect of conductors,
insulators, Group Operating Switch (GOS), HG fuse and PSC
xlviii
poles there was a small percentage of increase (15 to 20%)
which may be of necessity considering the large consumer
base, huge quantity of infrastructure to be maintained and
developmental needs. Only in respect of weasel and rabbit
ACSR conductors there has been a huge pile up of stock to an
extent of 774 kms and 815 kms respectively.
d) Major materials like 250 kVA transformers, UG cables, aerial
bunched cables, RMU’s have not been procured during the
year.
e) Some of the materials like energy meters are under Rate
Contract agreement with leading and reputed Firms, these
meters are ordered by sub-division or divisional levels as and
when required.
c) Prudence check of execution of the capital works of FY13 &
FY14:
The Commission had disallowed interest and depreciation charges on
the two works pertaining to FY13& FY14, which were termed as not
meeting the norms of prudence in the Tariff Order dated: 02-03-2015.
The CESC in its reply to the preliminary observation has submitted that,
the short comings of the two works have been rectified and requested
the Commission to consider them as meeting the norms of prudence.
Based on the reply of the CESC, the Commission desired to revalidate
the two works of the CESC, by the consultant conducting prudence
check of capital works of the CESC for FY15 and submit a separate
report.
The consultant, M/s PRDC (P) Ltd. has verified the two projects and
furnished a separate report and stated that, CESC has rectified the
system of metering of DTCs and started energy audit. In view of the
rectification and utilisation of the assets for the benefit of the
xlix
Company, M/s PRDC (P) Ltd, has stated that, the projects can be
treated as meeting the norms of prudence.
Hence, the Commission, having taken note of the findings has decided
to consider the two projects as meeting norms of prudence and
discontinue the disallowance.
l
4.2.9 Interest and Finance Charges
a) Interest on loan:
CESC’s Submission:
The CESC has claimed an amount of Rs.39.19 Crores towards
interest on long term loans drawn from banks / financial
institutions during FY15.
Commission’s analysis and decisions:
The Commission has noted the status of opening and closing balances
of loans as per the audited accounts and format D9 of the filings as
shown below:
TABLE – 4.16
Allowable Interest on Loans – FY15
Amount in Rs. Crores
Particulars FY15
Opening Balance Secured Loans 394.74
Opening Balance Un-secured Loans 36.30
Total opening balance of loans 431.04
Less Short term loans/ Over draft 0.00
Less Interest accrued & dues 0.00
Total Long term secured & unsecured loans 431.04
Add new Loans 286.67
Less Repayments 46.47
Total loan at the end of the year 671.24
Average Loan 551.14
Interest on long term loans as per audited accounts for FY15 56.56
Considering the average loan of Rs.551.14 Crores and an amount of
Rs.56.56 Crores incurred towards interest on long term loans, the
weighted average of interest works out to 10.26%. The actual
weighted average rate of interest is comparable with the prevailing
rate of interest for long term loans.
li
Thus, the Commission decides to allow an amount of Rs.56.56 Crores
towards interest on long term loans for FY15.
4.2.10 Interest on Working Capital:
CESC’s Submission:
The CESC in its application has stated that it has borrowed short
term loans and overdrafts during the year to meet day to day
expenditure during FY15. The interest on these loans is
indicated at Rs.1.41 Crores. However, as per the replies to the
preliminary observations, The CESC has informed that the interest
on short term loan and overdraft for FY15 is Rs.23.71 Crores.
Commission’s analysis and decisions:
As per its audited accounts the CESC has incurred an interest of
Rs.23.71 Crores on short term borrowings and overdrafts during FY15.
The present interest rates by commercial banks and financial
institutions are charged mainly on the basis of base rate of interest
declared by RBI from time to time. Hence, the Commission would
consider base rate plus certain basis points depending upon the
tenure of the loan. Considering the base rate of interest of 9.30% with
a spread of 250 basis points and noting the downward trend in the
interest rate, the Commission decides to allow the normative interest
on short term loans of 11.75% for FY15.
As per the KERC (Terms and Conditions for Determination of Tariff)
Regulations, 2006 as amended on 1st February, 2012, the Commission
lii
has computed the allowable interest on working capital for FY15 as
follows:
liii
TABLE – 4.17
Allowable Interest on Working Capital for FY15
Amount in Rs.
Crores Particulars FY15
One-twelfth of the amount of O&M Expenses 30.61
Opening GFA 1644.73
Stores, materials and supplies 1% of Opening balance of GFA 16.45
One-sixth of the Revenue 438.21
Total Working Capital 485.26
Rate of Interest (% p.a.) 11.75%
Normative Interest on Working Capital 57.02
Actual interest on WC as per audited accounts for FY15 23.71
Allowable Interest on Working Capital 40.36
The Commission decides to allow an amount of Rs.40.36 Crores
towards interest on working capital for FY15.
4.2.11 Interest on Consumer Deposits:
CESC’s Submission:
The CESC in its application has claimed an amount of Rs.37.09
Crores towards payment of interest on security deposits for FY15.
Commission’s analysis and decisions:
The Commission notes that, the interest on consumer deposits
amounting to Rs.37.09 Crores claimed by the CESC works out to a
weighted average rate of interest of 8.91%. As per the KERC (Interest
on Security Deposit) Regulations, 2005 the interest on consumer
deposits is to be allowed as per the bank rate prevailing on the 1st of
April of the relevant year. The bank rate as on 1st April, 2013 was 9%.
The weighted average rate of interest as per actuals is within the
applicable bank rate.
Thus, the Commission decides to allow an amount of Rs.37.09 Crores
claimed towards interest on consumer deposits for FY15.
liv
4.2.12 Other Interest and Finance charges:
The CESC has claimed an amount of Rs.2.44 Crores towards other
interest and finance charges for FY15 which includes charges payable
to banks / financial institutions and guarantee commission payable to
GoK. The Commission notes that the claims are as per audited
accounts and hence decides to allow the same for FY15.
4.2.13 Interest on belated payment of power purchase cost:
The CESC in its application has claimed an amount of Rs.1.54 Crores
towards interest on belated payment of power purchase cost during
FY15. Since the Commission is allowing interest on working capital on
normative basis, the Commission decides to disallow any claims on
interest on belated payment of power purchase cost separately.
4.2.14 Capitalization of Interest:
The CESC has capitalized interest of Rs.27.71 Crores during FY15. The
same has been considered for computation of APR for FY15.
Thus the allowable interest and finance charges for FY15 are as follows:
TABLE – 4.18
Allowable Interest and Finance Charges
Amount in Rs. Crores
Sl.
No. Particulars FY15
1. Interest on Loan capital 56.56
2. Interest on working capital 40.36
3. Interest on consumer deposits 37.09
4. Other interest and finance charges 2.44
5. Capitalisation of interest (27.71)
6. Total interest and finance charges 108.74
lv
4.2.15 Other Debits:
CESC’s Submission:
CESC, in its application has claimed an amount of Rs.4.94 Crores
towards other debits as detailed below:
TABLE – 4.19
Other Debits-CESC’s Submission
Amount in Rs. Crores
Sl
No Particulars FY15
1 Small and Low value items written off 0.08
2 Losses/gains relating to Fixed assets 0.70
3 Assets decommissioning cost (0.07)
4 Bad debts written off 0.18
5 Miscellaneous losses and write offs 1.71
6 Provision for bad and doubtful debts 2.34
Total 4.94
Commission’s analysis and decisions:
The Commission notes that the claims of the CESC include an amount
of Rs.2.34 Crores towards provision for bad and doubtful debts which
are not actual expenses incurred. Considering the claims as per the
audited accounts, the allowable other debits for FY15 is as detailed
below:
TABLE – 4.20
Allowable Other Debits
Amount in Rs. Crs.
Sl
No Particulars FY15
1 Small and Low value items written off 0.08
2 Losses/gains relating to Fixed assets 0.70
3 Assets decommissioning cost (0.07)
4 Bad debts written off 0.18
5 Miscellaneous losses and write offs 1.71
Total 2.60
Thus, the Commission decides to consider an amount of Rs.2.60 Crores
as other debits for FY15.
lvi
4.2.16 Net Prior Period Charges:
CESC’s Submission:
The CESC in its application as per audited accounts has claimed a
net credit balance of Rs.72.44 Crores towards Net Prior Period
Credits as detailed below:
TABLE – 4.21
Net Prior Period Charges-CESC’s Submission
Amount in Rs. Crs.
Particulars FY15
Prior period expenses / losses 110.94
Prior period income (183.38)
Net prior period credits 72.44
Commission’s analysis and decisions:
As per the Audited Accounts for FY15, the prior period debit is Rs.110.94
Crores on account of employee costs, A&G expenses and under
provided depreciation of earlier years. Further the prior period credit
of Rs.183.38 Crores is on account of excess depreciation, finance
charges and other expenses. Hence the Commission decides to allow
net prior period credit of Rs.72.44 Crores for FY15.
4.2.17 Return on Equity:
CESC’s Submission:
CESC in its application has not claimed Return on Equity for FY15.
Commission’s analysis and decisions:
As per the KERC (Terms and Conditions for Determination of Tariff)
Regulations, 2006 as amended on 1st February, 2012, the Commission
has computed the allowable Return on Equity at 15.5% on equity plus
reserves and surplus as at the beginning of the year besides allowing
lvii
taxes as per actuals. The allowable RoE for FY15 is determined as
follows:
TABLE – 4.22
Allowable Return on Equity
Amount in Rs. Crores
Particulars FY15
Paid Up Share Capital 325.52
Share deposit 23.20
Reserves and Surplus (682.46)
Less recapitalized security deposit (23.00)
Total Equity (356.74)
Considering accumulated losses of Rs.682.46 Crores and total equity of
Rs.348.72 Crores as at the beginning of the year and recapitalization of
security deposit of Rs.23.20 Crores, CESC has negative net worth of
Rs.356.74 Crores.
Thus, the Commission decides not to allow any Return on Equity for
FY15.
4.2.18 Income tax :
As per the audited accounts, CESC has incurred an expenditure of Rs.15.78
Crores towards payment of Income Tax for FY15. The Commission decides
to allow the actual Income Tax payment of Rs.15.78 Crores for FY15
